Exhibit 10.6

 

 

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SENIOR MEZZANINE LOAN AGREEMENT

 

 

 

BY

 

 

 

AND BETWEEN

 

 

 

SW 131 ST. ROSE MEZZANINE BORROWER LLC
(“Borrower”)

 

 

 

AND

 

 

 

BEHRINGER HARVARD ST. ROSE REIT, LLC
(“Lender”)

 

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1.

RECITALS

2

2.

DEFINITIONS

2

3.

THE LOAN; DISBURSEMENT OF LOAN

9

 

 

 

 

(a)

Loan

9

 

(b)

Loan Disbursements

9

 

 

 

 

4.

INTEREST PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY;
REPAYMENT

9

 

 

 

 

(a)

Interest

9

 

(b)

No Usury

10

 

(c)

Loan Commitment Fee

11

 

(d)

Prepayment

11

 

(e)

Maturity Date

11

 

 

 

 

5.

SECURITY FOR LOAN; GUARANTY

11

 

 

 

 

(a)

Security Instrument

11

 

(b)

Other Loan Documents

11

 

(c)

Guaranty

11

 

 

 

 

6.

CONDITIONS PRECEDENT TO CLOSING OF THE LOAN

11

 

 

 

 

(a)

Loan Documents

11

 

(b)

Third Party Agreements

12

 

(c)

Certification

12

 

(d)

Financial Statements

12

 

(e)

Insurance Policies

12

 

(f)

Contracts

13

 

(g)

Title Insurance Policy

13

 

(h)

ALTA Survey

13

 

(i)

Flood Plain Certification

13

 

(j)

Appraisal

13

 

(k)

Environmental Report

13

 

(l)

Certification of Organizational Documents

13

 

(m)

Legal Opinion

13

 

(n)

UCC Searches

14

 

(o)

Utilities

14

 

(p)

Environmental Disclosure

14

 

(q)

No Default

14

 

 

 

 

7.

TITLE INSURANCE

14

 

 

 

8.

INSURANCE

14

 

 

 

 

(a)

Insurance Requirements

14

 

(b)

Initial Policies; Renewals

16

 

(c)

Notices

16

 

(d)

Notice of Casualty

16

 

(e)

Settlement of Claim

16

 

 

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(f)

Application of Insurance Proceeds

17

 

 

 

 

9.

EMINENT DOMAIN

17

 

 

 

 

(a)

Notice of Condemnation

17

 

(b)

Settlement of Claim

18

 

(c)

Application of Condemnation Awards

18

 

(d)

Continuing Obligation to Repair

18

 

(e)

Lender Not Required to Act

18

 

 

 

 

10.

RIGHTS OF ACCESS AND INSPECTION

18

11.

EXPENSES

19

12.

FINANCIAL REPORTS, PROPERTY REPORTS AND ANNUAL BUDGET

19

13.

GENERAL COVENANTS OF BORROWER

21

 

 

 

 

(a)

Commencement and Completion of Project

21

 

(b)

Lender Approval

21

 

(c)

Operation and Maintenance of Project

22

 

(d)

Restricted Sale and Encumbrance of Project and of Borrower Interests; Other
Indebtedness

23

 

(e)

General Indemnity

24

 

(f)

Leases

25

 

(g)

Notices

26

 

(h)

Development

26

 

(i)

Management

26

 

(j)

Senior Loan

26

 

(k)

Principal Place of Business; Choice of Law

27

 

(l)

Compliance with Governmental Prohibitions

27

 

 

 

 

14.

FURTHER ASSURANCES

28

15.

APPRAISALS

28

16.

GENERAL REPRESENTATIONS AND WARRANTIES OF BORROWER

28

 

 

 

 

(a)

Organization; Corporate Powers; Authorization of Borrowing

28

 

(b)

Title to Property; Matters Affecting Property

29

 

(c)

Financial Statements

31

 

(d)

Budget Projections

31

 

(e)

Intentionally Deleted

32

 

(f)

No Loan Broker

32

 

(g)

No Default

32

 

(h)

Solvency

32

 

(i)

Violations of Governmental Prohibitions

32

 

 

 

 

17.

EVENT OF DEFAULT

33

 

 

 

 

(a)

Non-Payment

33

 

(b)

Insurance

33

 

(c)

Special Purpose Entity Covenants

33

 

(d)

Borrower

33

 

(e)

Guaranty

33

 

(f)

Construction

33

 

 

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(g)

Fraud or Material Misrepresentation

33

 

(h)

Sale, Encumbrance or Other Indebtedness

34

 

(i)

Reports and Documents

34

 

(j)

Other Breaches under this Agreement.

34

 

(k)

Other Breaches Under Other Loan Documents

34

 

(l)

Senior Loan Documents

34

 

(m)

Judgments

34

 

(n)

Bankruptcy Proceedings

35

 

 

 

 

18.

REMEDIES

35

 

 

 

 

(a)

Actions upon Event of Default

35

 

(b)

Lender’s Right to Perform

36

 

(c)

Appointment of Lender as Attorney-in-Fact

36

 

(d)

Cross-Default to Note, Security Instrument, and Other Loan Documents

36

 

(e)

Recourse Limitations

37

 

 

 

 

19.

ADDITIONAL ADVANCES

37

 

 

 

 

(a)

Disbursement of Additional Advances

37

 

(b)

Conditions Precedent to Additional Advance.

38

 

 

 

 

20.

TRANSFER OF LOAN; LOAN SERVICER

39

 

 

 

 

(a)

Lender’s Right to Transfer

39

 

(b)

Loan Servicer

39

 

(c)

Dissemination of Information

39

 

 

 

 

21.

LENDER’S EXPENSES; RIGHTS OF LENDER

39

22.

MISCELLANEOUS

40

 

 

 

 

(a)

Notices

40

 

(b)

Waivers

41

 

(c)

Lender Not Partner of Borrower; Borrower in Control

41

 

(d)

No Third Party

42

 

(e)

Time of Essence; Context

42

 

(f)

Successors and Assigns

42

 

(g)

Governing Jurisdiction

42

 

(h)

SUBMISSION TO JURISDICTION; SERVICE OF PROCESS

42

 

(i)

WAIVER WITH RESPECT TO DAMAGES

43

 

(j)

Entire Agreement

44

 

(k)

Headings

44

 

(l)

Severability

44

 

(m)

Counterparts

44

 

(n)

WAIVER OF JURY TRIAL

44

 

(o)

Sole and Absolute Discretion

44

 

(p)

Straight Debt Harbor

45

 

(q)

Assignment

45

 

(r)

Retainage of Subcontractors

45

 

 

 

 

23.

SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER

45

 

 

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24.

JUNIOR MEZZANINE LOAN

48

25.

SUBDIVISION AND RELEASE

50

 

 

iv

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SENIOR MEZZANINE LOAN AGREEMENT

 

This SENIOR MEZZANINE LOAN AGREEMENT (this “Agreement”) is made and entered into
as of December 31, 2008, by and between SW 131 ST. ROSE MEZZANINE BORROWER LLC,
a Delaware limited liability company, whose address is 2001 Bryan Street,
Suite 3250, Dallas, Texas 75201 (“Borrower”), and BEHRINGER HARVARD ST. ROSE
REIT, LLC, a Delaware limited liability company, whose address is 15601 Dallas
Parkway, Suite 600, Addison, Texas, 75001 (“Lender”).

R E C I T A L S:

 

This Agreement is made with reference to the following facts:

 

A.            Borrower is directly or indirectly the legal and beneficial owner
of one-hundred percent (100%) of the Equity Interests in SW 132 ST. ROSE SENIOR
BORROWER LLC, a Delaware limited liability company (“Mortgagor”).

 

B.            Mortgagor is the owner of that certain land located in Henderson,
Clark County, Nevada, and more particularly described on Exhibit A attached
hereto, together with appurtenances (the “Land”).  The Land is comprised of a
portion that is zoned RH-36 (High Density Residential), which is generally the
western 18.151 acres of the Land (the “Residential Tract”) and a portion that is
zoned CC-PUD (Community Commercial with Planned Unit Development Overlay), which
is generally the eastern 6.271 acres of the Land (the “Commercial Tract”). 
Mortgagor will construct on the Residential Tract a 430-unit apartment complex
(the “Project”).

 

C.            Contemporaneously herewith, Mortgagor will enter into a
Construction Loan Agreement with Bank of America, N.A. and the lenders who from
time to time agree to fund parts of such loan (“Senior Lender”), providing a
loan in the amount of Thirty Eight Million Six Hundred Thousand and No/Dollars
($38,600,000) (the “Senior Loan”), secured by a deed of trust, of even date
herewith (together with any and all extensions, renewals, substitutions,
replacements, amendments, modifications and/or restatements thereof) in favor of
Senior Lender encumbering the Land and the Project.

 

D.            Contemporaneously with entering into the Senior Loan, SW 122 St.
Rose Senior Borrower LLC, a Delaware limited liability company (“Commercial
Tract Borrower”), will enter into a Term Loan Agreement with Bank of America,
N.A., as lender for its sole account (“Commercial Tract Lender”), providing a
loan in the amount of Two Million Nine Hundred Fifty Thousand and No/Dollars
($2,950,000) (the “Commercial Tract Loan”), secured by a deed of trust, of even
date herewith (together with any and all extensions, renewals, substitutions,
replacements, amendments, modifications and/or restatements thereof) in favor of
Commercial Tract Lender encumbering the Land and the Project.

 

 

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E.             Borrower has requested that Lender, as lender, make one or more
loans to Borrower in the aggregate amount of Twenty One Million Forty Three
Thousand One Hundred Ninety Seven and No/Dollars ($21,043,197) (the “Maximum
Aggregate Advance Amount”), one of such loans (the “Loan”) will be made pursuant
to this Agreement, which Loan is to be advanced as hereinafter provided and is
to be evidenced by the Note.  $14,185,154 of the Loan will be advanced under
this Agreement at the execution of this Agreement (the “Initial Advance”),
subject to the terms and provisions of this Agreement, and $1,000 of the Maximum
Aggregate Advance Amount will be advanced under the Junior Mezzanine Loan
Agreement (defined below), subject to the terms and provisions of the Junior
Mezzanine Loan Agreement.  The Note is to be secured by the Senior Subordinate
Deed of Trust, Assignment of Rents and Leases, Security Agreement, Fixture
Filing and Financing Statement (the “Security Instrument”) and other collateral
as specified in Section 5 below.

 

F.             Mortgagor is currently pursuing a subdivision of the Land and
intends to convey to Commercial Tract Borrower the Commercial Tract.  When
Commercial Tract Borrower acquires title to the Commercial Tract (the “Transfer
Date”), the lien of the Security Instrument will be partially released as to the
Commercial Tract.

 

G.            The proceeds of the Loan are to be used by Borrower to, among
other things, pay the costs and expenses, if any, referred to in
Section 3(b) below.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
agreements hereinafter contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

 

1.             RECITALS.  The recitals set forth above are true and correct and
are incorporated herein by reference.

 

2.             DEFINITIONS.  The following terms, when used in this Agreement
(including when used in the above recitals), shall have the following meanings:

 

(a)           “Accounting Records”:  shall mean such records used to prepare
financial statements including but not limited to:  (i) supporting documentation
for cash disbursements (including check copies and invoices); (ii) supporting
documentation for cash receipts (including deposit slips); (iii) contracts;
(iv) check registers; (v) monthly bank account reconciliations; (vi) general
ledger; (vii) job cost detail of construction in progress in the same form as
provided to Senior Lender; (viii) detail of draw requests on the Senior Loan;
(ix) Senior Lender’s monthly loan statement; and (x) such other documentation in
the possession of Borrower or its Affiliates or which Borrower will use all
commercially reasonable efforts to acquire, as Lender shall reasonably require
for the preparation of financial statements for the Project, Mortgagor or
Borrower.

 

 

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(b)           “ADA” shall mean Americans with Disabilities Act of 1990, Pub. L.
No. 89-670, 104 Stat. 327 (1990), as amended, and all regulations promulgated
pursuant thereto.

 

(c)           “Additional Advance”: shall have the meaning given in Section 19
hereof.

 

(d)           “Affiliate”:  of any specified person or entity shall mean any
other person or entity, directly or indirectly, controlling or controlled by or
under direct or indirect common control with such specified person or entity. 
For purposes of this definition, “control” shall mean the ability, whether by
the ownership of shares or other equity interests, by contract or otherwise, to
elect a majority of the directors of a corporation, to make management decisions
on behalf of, or independently to select the managing partner of, a partnership,
or otherwise to have the power independently to remove and then select a
majority of those individuals exercising managerial authority over an entity. 
Control of an entity shall be conclusively presumed in the case of the ownership
of more than 50% of the equity interests in the entity.

 

(e)           “Annual Budget”:  shall mean, for any period, the budget submitted
to Lender and in effect for such period as provided in Section 12 hereof.

 

(f)            “Approved Change Orders”:  shall mean any change orders to the
Plans requested by the Borrower and approved by the Lender as outlined in
Section 13(b) hereof.

 

(g)           “Available Assets”:  shall have the meaning given in the Guaranty.

 

(h)           “Bankruptcy Proceedings”:  shall have the meaning given in
Section 17(n).

 

(i)            “Borrower”:  means the entity identified as “Borrower” in the
first paragraph of this Agreement, together with its successors and assigns.

 

(j)            “Business Day”:  shall mean all days other than Saturday, Sunday
or any other day on which national banks doing business in Dallas, Texas are not
open for business.

 

(k)           “Code”:  the Internal Revenue Code of 1986, as amended from time
to time, or the corresponding provisions of any successor federal income tax
law.  Any reference to a particular provision of the Code shall include any
amendment of such provision or the corresponding provision of any successor
federal income tax law.

 

(l)            “Collateral”:  shall have the meaning given in the Security
Instrument.

 

 

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(m)          “Commercial Deed of Trust”:  shall mean that certain deed of trust
made by the Mortgagor for the benefit of the Commercial Tract Lender, which
prior to the Transfer Date, will encumber both the Residential Tract and the
Commercial Tract, and after the Transfer Date will encumber only the Commercial
Tract.

 

(n)           “Commercial Tract”:  shall have the meaning given in the Recitals
of this Agreement.

 

(o)           “Commercial Tract Borrower”:  shall have the meaning given in the
Recitals of this Agreement.

 

(p)           “Commercial Tract Lender”:  shall have the meaning given in the
Recitals of this Agreement.

 

(q)           “Commercial Tract Loan”:  shall have the meaning given in the
Recitals of this Agreement.

 

(r)            “Completion”:  shall have the meaning given in the Guaranty.

 

(s)           “Construction Budget”:  shall mean the construction budget
attached hereto as Exhibit D.

 

(t)            “Default Interest Rate”:  shall have the meaning given in the
Note.

 

(u)           “Draw Request”:  shall mean a request for additional advances on
the Loan and/or under the Junior Mezzanine Loan Agreement submitted by Borrower
in the form attached hereto as Exhibit E.

 

(v)           “Encumbrance”:  shall mean any pledge, encumbrance, hypothecation
or other grant of security interest, whether direct or indirect, voluntary or
involuntary or by operation of law, and whether or not consented to by Lender,
of or in (i) all or any portion of, or interest in, the Project (other than any
encumbrance by the Senior Loan Documents and the Permitted Exceptions), or
(ii) any Equity Interests in Mortgagor,  or (iii) any part of the Principal’s
Equity Interests in Borrower.

 

(w)          “Environmental Indemnity”:  shall mean the Mezzanine Environmental
Indemnity Agreement of even date herewith, executed by Borrower and containing
representations, warranties, covenants and indemnities in favor of Lender with
respect to Hazardous Materials.

 

(x)            “Equity Interests”:  means, with respect to any Person, shares of
capital stock, partnership interests, membership interests in a limited
liability company, beneficial interests in a trust or other equity ownership
interests in such Person, and any warrants, options or other rights entitling
the holder thereof to purchase or acquire from such Person any such equity
interest issued by such Person.

 

 

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(y)           “Estimated Collateral Value Statement”:  shall have the meaning
given in the Guaranty.

 

(z)            “Estimated Value” means the estimated value of the property
encumbered by the Security Instrument, as such value may be determined from time
to time by Lender, less the amount, if any, of all other debt secured by such
property that is senior to both the Loan and the loan under the Junior Mezzanine
Loan Agreement.

 

(aa)         “Event of Default”:  shall have the meaning given in Section 17
hereof.

 

(bb)         “Final Map”:  shall have the meaning given in Section 25 hereof.

 

(cc)         “General Contractor”:  means TCR Nevada Construction Limited
Partnership, a Texas limited partnership.

 

(dd)         “Governmental Authority”: shall mean any federal, state, county,
municipal, parish, provincial, tribal or other government, or any department,
commission, board, court, agency (including, without limitation, the U. S.
Environmental Protection Agency), whether of the United States of America or any
other country, or any instrumentality of any of them, or any other political
subdivision thereof (a) in which any portion of the Land is located, (b) in
which any of Mortgagor, Borrower, Guarantor or Lender is located or conducts
business, or (c) exercising jurisdiction over Mortgagor, Borrower, Guarantor or
Lender, or any of the Land, and any entity exercising legislative, judicial,
regulatory, or administrative functions of, or pertaining to, government
including, without limitation, any arbitration panel, any court or any
commission.

 

(ee)         “Governmental Requirements”:  shall mean all laws, ordinances,
rules, regulations, orders and directives of any Governmental Authority
applicable to any of Mortgagor, Borrower, Guarantor, Lender or any of the Land,
including, without limitation, all applicable licenses, building codes,
restrictive covenants, zoning and subdivision ordinances, flood disaster, health
and environmental laws and regulations, and the ADA.

 

(ff)           “Guarantor”:  shall mean CFP Residential, L.P., Kenneth J.
Valach, J. Ronald Terwilliger, and Bruce Hart.

 

(gg)         “Guaranty”:  means that certain Mezzanine Guaranty, of even date
herewith, executed by the Guarantors, jointly and severally, in favor of Lender.

 

(hh)         “Hazardous Materials”:  shall have the meaning given in the
Environmental Indemnity.

 

(ii)           “Indebtedness”:  shall mean the principal of, interest on, and
any other amounts due at any time under, this Agreement, the Note, the Security

 

 

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Instrument or any other Loan Document, including prepayment premiums, late
charges, default interest, and advances to protect the security of the
Collateral.

 

(jj)           “Initial Advance”:  shall have the meaning given in the Recitals
of this Agreement.

 

(kk)         “Inspecting Architects/Engineers”:  shall mean architects and/or
engineers selected by Borrower and reasonably acceptable to Lender.

 

(ll)           “Junior Mezzanine Advance Amount” means the principal amount
outstanding under the Junior Mezzanine Loan Agreement.

 

(mm)       “Junior Mezzanine Loan Agreement” means that certain Junior Mezzanine
Loan Agreement between Borrower and Lender dated of even date herewith.

 

(nn)         “Land”:  shall have the meaning given in the Recitals of this
Agreement; provided, however, that from and after the Transfer Date, the Land
shall be deemed to be comprised solely of the Residential Tract.

 

(oo)         “Leases”:  shall mean all present and future leases, subleases,
licenses, concessions or other possessory interests now or hereafter in force,
whether oral or written, covering or affecting the Project, or any portion of
the Project, and all modifications, extensions or renewals.

 

(pp)         “Lender”:  means the entity identified as “Lender” in the first
paragraph of this Agreement and its successors and assigns.

 

(qq)         “Loan”:  shall have the meaning given in the Recitals of this
Agreement.

 

(rr)           “Loan Documents”:  shall mean the Note, this Loan Agreement, the
Security Instrument, the Guaranty, the Environmental Indemnity, and all other
documents executed by Borrower or Guarantors to evidence, secure or set out the
terms of the Loan, each as the same may hereafter be amended, modified and
restated from time to time.

 

(ss)         “Loan Commitment Fee”:  means $631,296, which fee is payable as of
the date of this Agreement.

 

(tt)           “Management Agreement”: shall mean the Management Agreement, to
be entered into between Mortgagor and Manager, upon the approval of Lender,
pursuant to which Manager will agree to manage the operations of the Project, as
the same may be amended from time to time, or any other management agreement
approved by Lender pursuant to Section 13(i) .

 

(uu)         “Manager”:  shall mean a property management company approved by
Lender pursuant to Section 13(i) hereof.

 

 

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(vv)         “Maturity Date” shall have the meaning given in the Note.

 

(ww)       “Maximum Aggregate Advance Amount” shall have the meaning given in
the Recitals of this Agreement.

 

(xx)          “Mortgagor”:  shall have the meaning given in the Recitals of this
Agreement.

 

(yy)         “Note”:  shall mean that certain Senior Mezzanine Promissory Note,
dated of even date herewith, in the Maximum Aggregate Advance Amount, made
payable by Borrower to the order of Lender, evidencing all amounts outstanding
under the Loan from time to time, as the same may be amended from time to time.

 

(zz)          “Permits”:  shall mean all licenses, permits, approvals,
franchises, privileges, immunities, grants, ordinances, classifications,
certificates and registrations which are necessary for Mortgagor to develop,
construct and operate the Project.

 

(aaa)       “Permitted Exceptions”:  shall mean (1) the title exceptions
included in the Policy required to be delivered to Lender pursuant to
Section 7(a) hereof, as the same may be endorsed from time to time with the
consent of the Lender, (2) liens and security interests securing the Loan, the
Senior Loan and, prior to the Transfer Date, the Commercial Tract Loan,
(3) liens for taxes, assessments or other governmental charges or levies that
are not then due or that are being contested in good faith and in accordance
with applicable statutory procedures, (4) mechanic’s liens against the Project
which are bonded off, released of record or otherwise remedied to Lender’s
reasonable satisfaction within 30 days of the date of creation, (5) Leases
entered into on terms allowed by this Agreement and (6) other matters approved
in writing by Lender, which includes any liens and security interests granted in
connection with the Junior Mezzanine Loan Agreement or the loan thereunder.

 

(bbb)      “Person”:  shall mean any individual, corporation, partnership,
limited liability company, joint venture, estate, trust, or unincorporated
association, any other entity, any federal, state, county or municipal
government or any bureau, department or agency thereof and any fiduciary acting
in such capacity on behalf of the foregoing.

 

(ccc)       “Plans”:  shall mean the plans and specifications identified in
Exhibit C hereto.

 

(ddd)      “Policy”: shall have the meaning given in Section 7(a) hereof.

 

(eee)       “Principal”:  shall mean SW 130 St. Rose Limited Partnership, a
Delaware limited partnership, the sole member of Borrower and the holder of all
Equity Interests in Borrower, and any person or entity who becomes

 

 

7

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the owner of any Equity Interest in Borrower after the date of this Agreement
and is identified as such in an amendment or supplement to this Agreement.

 

(fff)         “Project”:  shall have the meaning given in the Recitals of this
Agreement.  The Project includes the Residential Tract.

 

(ggg)      “REA”:  shall have the meaning given in Section 25 hereof.

 

(hhh)      “Residential Tract”:  shall have the meaning given in the Recitals of
this Agreement.

 

(iii)          “Sale”:  shall mean any sale, assignment, transfer, conveyance or
other disposition, whether voluntary or involuntary, and whether or not
consented to by Lender of (i) all or any portion of, or interest in, the Land or
the Project (other than the conveyance of the Commercial Tract to the Commercial
Tract Borrower), (ii) all or any portion of the Equity Interests in Mortgagor,
or (iii) all or any portion of the Principal’s Equity Interests in Borrower.

 

(jjj)          “Security Instrument”:  shall have the meaning given in the
Recitals to this Agreement.

 

(kkk)       “Senior Deed of Trust”:  shall mean that certain deed of trust
securing the Senior Loan.

 

(lll)          “Senior Indemnity”: shall mean the Environmental Indemnity
Agreement between Mortgagor, Senior Lender and the other parties thereto.

 

(mmm)    “Senior Loan”: shall have the meaning given in the Recitals of this
Agreement.

 

(nnn)      “Senior Loan Agreement”:  shall mean the Construction Loan Agreement
between Senior Lender and Mortgagor evidencing the Senior Loan.

 

(ooo)      “Senior Loan Documents”:  shall mean the Senior Note, the Senior Deed
of Trust, the Senior Loan Agreement, the Senior Indemnity Agreement, any
guaranty provided by the guarantors to the Senior Loan, financing statements
filed in connection with the Senior Loan, and all other documents executed by
Mortgagor or Guarantor in favor of Senior Lender to evidence or secure the
Senior Loan or reasonably related to the Senior Loan, including, but not limited
to, budgets and draw requests, as each may be amended, modified or restated with
the consent of Senior Lender.

 

(ppp)      “Senior Mezzanine Advance Amount” means the principal amount
outstanding on the Loan.

 

 

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(qqq)      “Senior Note”:  shall mean the promissory notes evidencing the Senior
Loan and all schedules, riders, allonges and addenda, as such promissory notes
may be amended from time to time with the consent of Senior Lender.

 

(rrr)         “Title Insurer”:  shall mean Chicago Title Insurance Company.

 

(sss)       “Third Party Agreement”:  shall mean any agreement other than Leases
and the Permitted Exceptions that will be binding on the Project, Mortgagor or
Borrower after the closing of the Loan.

 

(ttt)         “Transfer Date”:  shall have the meaning given in the Recitals of
this Agreement.

 

3.             THE LOAN; DISBURSEMENT OF LOAN.

 

(a)           Loans.  On the basis of the covenants, agreements and
representations of Borrower contained herein and comparable provisions of the
Junior Mezzanine Loan Agreement and subject to the terms and conditions
hereinafter set forth and comparable provisions of the Junior Mezzanine Loan
Agreement, Lender shall lend to Borrower the Maximum Aggregate Advance Amount,
the proceeds of which are to be disbursed by Lender in accordance with the
provisions of Section 3(b) hereof and comparable provisions of the Junior
Mezzanine Loan Agreement.

 

(b)           Loan Disbursements.  At the execution of this Agreement, Lender
has advanced the Initial Advance to the Borrower.  All Additional Advances
against the Loan will be disbursed in accordance with Section 19 hereof.  Upon
submission by Borrower of a Draw Request, Lender shall (subject to satisfaction
of the terms and conditions of Section 19) advance to Borrower hereunder against
the Loan the amount requested by Borrower less the portion thereof
simultaneously advanced pursuant to the Junior Mezzanine Loan Agreement.  In no
event shall the aggregate principal amount outstanding hereunder exceed the
Maximum Aggregate Advance Amount less the Junior Mezzanine Advance Amount as it
stands at such time.

 

4.             INTEREST PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT;
MATURITY; REPAYMENT.

 

(a)           Interest.  Interest on the principal balance of the Loan shall
accrue and shall be payable in the amounts and at the times set forth in the
Note.  Borrower agrees to pay, on the Maturity Date, the unpaid principal
balance of the Loan, together with all accrued but unpaid interest thereon.

 

(b)           No Usury.  The provisions of this Agreement, the Note, the
Security Instrument and of all other agreements between Borrower and Lender,
whether now existing or hereafter arising and whether written or oral,

 

 

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including, but not limited to, the Loan Documents, are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason of demand or
acceleration of the maturity of this Note or otherwise, shall the amount
contracted for, charged, taken, reserved, paid, or agreed to be paid to Lender
for the use, forbearance, retention or detention of the money loaned under the
Note and related indebtedness exceed the maximum amount permissible under
applicable law.  If, from any circumstance whatsoever, performance or
fulfillment of any provision hereof or of any agreement between Borrower and
Lender shall, at the time performance or fulfillment of such provision shall be
due, exceed the limit for interest prescribed by law or otherwise transcend the
limit of validity prescribed by applicable law, then ipso facto the obligation
to be performed or fulfilled shall be reduced to such limit; and if, from any
circumstance whatsoever, Lender shall ever receive anything of value deemed
interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive interest shall be applied to the reduction of the
principal balance owing under the Note in the inverse order of its maturity
(whether or not then due) or at the option of Lender be paid over to Borrower,
and not to the payment of interest.  All interest (including any amounts or
payments judicially or otherwise under the law deemed to be interest) contracted
for, charged, taken, reserved, paid or agreed to be paid to Lender shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the Note, including any extensions or renewals
thereof, until payment in full of the Indebtedness so that the interest on the
Loan for such full period will not exceed at any time the maximum amount
permitted by applicable law.  To the extent that Lender is relying on
Chapter 303, as amended, of the Texas Finance Code to determine the maximum
amount of interest permitted by applicable law on the principal of the Loan,
Lender will utilize the weekly rate ceiling from time to time in effect as
provided in such Chapter 303, as amended.  To the extent United States federal
law permits a greater amount of interest on the Loan than is permitted under
Texas law, Lender will rely on United States federal law instead of such
Chapter 303, as amended, for the purpose of determining the maximum amount
permitted by applicable law.  Additionally, to the extent permitted by
applicable law now or hereafter in effect, Lender may, at its option and from
time to time, implement any other method of computing the maximum lawful rate
under such Chapter 303, as amended, or under other applicable law by giving
notice, if required, to Borrower as provided by applicable law now or hereafter
in effect.  This Section 4(b) will control all agreements between Borrower and
Lender.

 

(c)           Loan Commitment Fee.  Concurrently with the closing of the Loan,
and as a condition precedent thereto, Lender shall receive the Loan Commitment
Fee.  The Loan Commitment Fee shall be deemed to have been earned in full by
Lender, and is non-refundable, upon the disbursement of the Initial Advance.

 

 

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(d)           Prepayment.  All amounts due and owing under the Note from time to
time may only be prepaid in accordance with the terms of the Note except at any
time after 150 days after Completion.

 

(e)           Maturity Date.

 

(i)            The outstanding principal balance of the Note and all accrued and
unpaid interest thereon shall become due and payable on the Maturity Date unless
the same is otherwise accelerated in accordance with the provisions hereof or
the other Loan Documents.

 

(ii)           Subject to the provisions of Section 13(d) hereof, in the event
that the Senior Note is paid in full at any time prior to the Maturity Date of
the Loan, the Indebtedness shall then be immediately due and payable regardless
of the then stated Maturity Date of the Loan.

 

5.             SECURITY FOR LOAN; GUARANTY.

 

(a)           Security Instrument.  The Loan shall be secured by, among other
things, the Security Instrument.

 

(b)           Other Loan Documents.  The Loan shall be further secured and
supported by the Environmental Indemnity and the other Loan Documents.

 

(c)           Guaranty.  As additional security for the Loan, the Guarantors
shall execute and deliver to Lender the Guaranty.

 

6.             CONDITIONS PRECEDENT TO CLOSING OF THE LOAN.  Prior to the
funding of the Loan (unless otherwise provided), all of the following conditions
shall have been satisfied, and/or Borrower, Guarantor or Mortgagor, as
applicable, shall have furnished to Lender the following, all in form and
substance satisfactory to Lender in its sole and absolute discretion:

 

(a)           Loan Documents.  Borrower, Guarantor and Mortgagor, as applicable,
shall have provided to Lender duly executed and, where appropriate, notarized
originals of the Loan Documents, each satisfactory to Lender in its sole and
absolute discretion, including the following:

 

(i)            this Agreement;

 

(ii)           the Note;

 

(iii)          the Security Instrument, in recordable form in the State of
Nevada;

 

(iv)          the Guaranty;

 

(v)           the Environmental Indemnity;

 

 

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(vi)          Certification of Organizational Documents; and

 

(vii)         such other agreements by Borrower as may be required by other
provisions of this Agreement.

 

(b)           Third Party Agreements.

 

(i)            Copies.  Borrower shall have provided to Lender executed copies,
certified by Borrower as being true, correct and complete, of the Senior Loan
Documents and the other Third Party Agreements then in effect, if any.

 

(ii)           Intercreditor and Subordination Agreement.  Senior Lender shall
have provided to Lender an executed copy of that certain Intercreditor and
Subordination Agreement by and between Senior Lender and Lender dated of even
date herewith.

 

(c)           Certification.  Borrower shall have provided to Lender a
certification by Borrower as of the date of this Agreement (which is the date
that the commitment of Lender to make the Loan to Borrower becomes binding on
Lender) of the Construction Budget and the reasonably estimated costs of the
improvements that would be capitalized by Mortgagor as real property for federal
income tax purposes consistent with past practices of the affiliates of
Mortgagor.

 

(d)           Financial Statements.  Borrower shall have provided to Lender with
(i) respect to Borrower, Mortgagor, and the Project, financial statements and
other financial information (including but not limited to the items listed on
Exhibit J after Completion of the Project and to the extent not already provided
pursuant to Section 12 hereof), certified by Borrower and Mortgagor as being
true, correct and complete in all material respects, and in the form and
containing the detail and supporting information as required by Lender for the
underwriting for the Loan, and (ii) with respect to all Guarantors, the
Estimated Collateral Value Statement, dated as of June 30, 2008.

 

(e)           Insurance Policies.  Borrower shall have provided to Lender the
original insurance policies, certified copies thereof or certificates thereof,
together with evidence of premium payments, for the insurance as more fully
provided in Section 8 hereof, which should include Hazard and Public Liability
and Worker’s Compensation Insurance.

 

(f)            Contracts.  Borrower shall have provided or will provide to
Lender copies of any contracts regarding the Project entered into by Mortgagor
with any contractors or engineers and, if requested by Lender, copies of
contracts, if any, with any subcontractors for the construction or installation
of the improvements made or to be made in connection with the Project.

 

 

12

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(g)           Title Insurance Policy.  Lender shall have received, reviewed and
approved Mortgagee’s Policy of Title Insurance described in Section 7 hereof.

 

(h)           ALTA Survey.  Lender shall have received a current ALTA survey of
the Land (the “Survey”) completed in accordance with Senior Lender’s
requirements, satisfactory to Lender and to the Title Insurer and certified to
Senior Lender, Lender (and its successors and assigns) and the Title Insurer.

 

(i)            Flood Plain Certification.  To the extent not provided on the
Survey, Lender shall have received evidence that the Land is not located within
any flood plain or, if the Land is located within a flood plain, Borrower has
obtained and is maintaining in full force and effect a policy or policies of
flood insurance pursuant to Section 8 hereof.  Any such certifications shall
also be certified to Lender and its successors and assigns.

 

(j)            Appraisal.  Lender shall have received an appraisal of the
Project prepared by a licensed appraiser acceptable to Lender, in form and
substance required by Senior Lender, but also addressed to Lender and its
successors and assigns, in an amount equal to or greater than $80,900,000.

 

(k)           Environmental Report.  Lender shall have received an environmental
report covering the Land, prepared by a professional acceptable to Lender, in
form and substance as required by Senior Lender, and also certified to Lender
and its successors and assigns.

 

(l)            Certification of Organizational Documents.  Lender shall have
received a written certification attaching the required documents with respect
to both Mortgagor and Borrower, confirming (i) that true, complete and correct
copies of the organizational documents have been attached to the certification,
(ii) that no modifications of such documents exist which have not been provided
to Lender, and (iii) that the provisions of Section 23 hereof have been
incorporated into the organizational documents.

 

(m)          Legal Opinion.  Lender shall have received a written legal opinion
or legal opinions from Borrower’s counsel (which counsel must be acceptable to
Lender) in form acceptable to Lender and its counsel, opining as to such matters
as Lender may reasonably require, including an opinion regarding:  (1) due
organization and valid existence, (2) authority, (3) enforceability of the Loan
Documents, and (4) no usury.

 

(n)           UCC Searches.  Lender shall have received full Uniform Commercial
Code searches, performed by a search company and in jurisdictions satisfactory
to Lender, with respect to Borrower and the Mortgagor disclosing no matters
objectionable to Lender.

 

 

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(o)                                 Utilities.  Lender shall have received
evidence that all sewer, water, electrical, telephone and any other utility
services necessary to obtain a certificate of occupancy for the Project are
available at the Land in adequate supply for the use and operation of the Land
and each provider of utility services has a binding obligation to deliver the
necessary services to the completed residences.  This evidence may include
letters from the applicable utility providers.

 

(p)                                 Environmental Disclosure.  In accordance
with all applicable laws, Borrower shall provide a true, correct and complete
copy of any disclosure document or other instrument required by any such law
relating to environmental matters.

 

(q)                                 No Default.  The representations and
warranties of Borrower contained in this Agreement shall be true, correct and
complete in all material respects, except the representations in
Section 16(c) which need be accurate only as of the effective date of such
financial statements, and no Event of Default, as defined below, or circumstance
or event which upon the lapse of time, the giving of notice or both, could
become an Event of Default shall have occurred.

 

Lender acknowledges, by its execution of this Agreement, that all conditions
listed in this Section 6 have been satisfied to Lender’s satisfaction or waived
by Lender, both as to the Initial Advance under the Loan and any Additional
Advance to be made in the future.

 

7.                                      TITLE INSURANCE.  Concurrently with the
closing of the Loan, Borrower shall deliver or cause to be delivered to Lender,
a Mortgagee’s Policy of Title Insurance (“Policy”) naming Mortgagor as fee
simple owner of the Land issued by the Title Insurer, meeting the following
requirements: (i) with coverage amount not less than the Loan Amount; (ii) dated
as of a date not earlier than the date of Closing; and (iii) the legal
description insured under such policy shall include any easements benefiting the
Land.

 

8.                                      INSURANCE.

 

(a)                                  Insurance Requirements.  Borrower shall
obtain and keep in full force and effect builder’s risk insurance (the
“Builder’s Risk Insurance Policy”) coverage or permanent Commercial Property
Causes of Loss — Special Form insurance coverage as appropriate, reasonably
satisfactory to Lender, on the Project.  All insurance policies shall be issued
by carriers with a Best’s Insurance Reports policy holder’s rating of A- or
better, and a financial size category of Class IX or larger.  The policies shall
provide for the following, and any other coverage that Lender may from time to
time deem reasonably necessary.

 

(i)                                     Lender’s contact information in its
capacity as mortgagee and/or additional insured, as appropriate:

 

 

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Behringer Harvard St. Rose REIT, LLC and its affiliates, successors and/or
assigns

15601 Dallas Parkway, Ste. 600

Addison, Texas 75001

Attn:                    Risk Management

 

(ii)           Commercial Property Causes of Loss — Special Form and/or Builders
Risk in the amount of 100% of the replacement cost of all structures and
personal property located or to be located on the Project. Coverage shall
include ordinance and law, increased cost of construction, and demolition costs.
If the policy is written on a CO-INSURANCE basis, the policy MUST contain an
AGREED AMOUNT ENDORSEMENT as evidence that the coverage is in an amount
sufficient to insure the full amount of the mortgage indebtedness. Unless
inconsistent with the requirements of the Senior Lender or the Commercial Tract
Lender, “Behringer Harvard St. Rose REIT, LLC and its affiliates, successors
and/or assigns” is to be named as the “Mortgagee” and “Loss Payee” (without
contribution).

 

(iii)          Commercial General Liability coverage in a minimum amount of not
less than $1,000,000.00 per occurrence and $2,000,000.00 in the aggregate,
together with excess liability coverage in a minimum amount of not less than
$15,000,000.00.  “Behringer Harvard St. Rose REIT, LLC and its affiliates,
successors and/or assigns” is to be named as “Additional Insured”.  Please note
this coverage must be separately issued and provided for both (i) Mortgagor,
(ii) Borrower, and (iii) Mortgagor’s general contractor.

 

(iv)          Rent Loss or business interruption coverage in a minimum amount of
not less that the appraised rentals for a minimum of twelve (12) months.

 

(v)           Flood hazard coverage in at least the minimum amount available, if
the Project is located in a special flood hazard area (“Flood Hazard Area”) as
designated by the Federal Emergency Management Agency on its Flood Hazard
Boundary Map and Flood Insurance Rate Maps, and the Department of Housing and
Urban Development, Federal Insurance Administration, Special Flood Hazard Area
Maps.  Unless inconsistent with the requirements of the Senior Lender or the
Commercial Tract Lender, “Behringer Harvard St. Rose REIT, LLC and its
affiliates, successors and/or assigns” is to be named as the “Mortgagee” and
“Loss Payee” (without contribution).

 

 

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(vi)          Earthquake coverage in the amounts/deductibles and in the form and
substance reasonably satisfactory to the Lender in the event the Project is
located in an area with a high degree of seismic activity.

 

(vii)         Workers Compensation insurance as required by law.

 

(viii)        Such other types and amounts of insurance with respect to the
premises and the operation thereof which are commonly maintained in the case of
the other property and buildings similar to the Project in nature, use,
location, height, and type of construction, as may from time to time be
reasonably required by Lender in its capacity as mortgage.

 

(ix)           Each policy shall provide that it may not be canceled, reduced or
terminated without at least thirty (30) days prior written notice to the Lender.

 

(x)            Proof of insurance required under (ii), (iv), (v), (vi) shall be
evidenced on Accord Form 28 Evidence of Commercial Property Insurance.  Proof of
insurance required under (iii) and (vii) shall be evidenced on Accord Form 25
Certificate of Liability Insurance.

 

(xi)           The evidence of insurance must identify the Borrower as an
Insured/Additional Insured.

 

(xii)          The Project location must be referenced on the evidence of
insurance.

 

(b)           Initial Policies; Renewals.  The initial policies shall be prepaid
and delivered to the Lender prior to closing, and all renewal policies shall be
provided to Lender as evidence of such insurance.  Certificates as referenced in
Section 8(a)(x) may be substituted for actual policies.

 

(c)           Notices.  Borrower shall cause a copy of the certificate(s) to be
sent to Jill Buffington via — e-mail jbuffington@bhfunds.com or facsimile (214)
655-1610 [Phone: (469) 341-2420], with the original being mailed to the Lender
as shown above in Section 8(a)(i).

 

(d)           Notice of Casualty.  Borrower shall give to Lender immediate
notice of any material loss occurring on or with respect to the Project.

 

(e)           Settlement of Claim.  In case of loss covered by any of such
policies, Lender is authorized to adjust, collect and compromise, in its
discretion, all claims thereunder if an Event of Default has occurred and is
continuing at the time, subject to the rights of the Senior Lender and, prior to
the Transfer Date, the Commercial Tract Lender.  In the event of any adjustment,
collection and compromise by Lender, Borrower covenants to sign upon demand, or
Lender may sign or endorse on Borrower’s behalf,

 

 

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all necessary proofs of loss, receipts, releases and other papers required by
the insurance companies to be signed by Borrower.  Borrower hereby irrevocably
appoints Lender as its attorney-in-fact for the purposes set forth in the
preceding sentence, subject to the rights of the Senior Lender and, prior to the
Transfer Date, the Commercial Tract Lender.  Subject to the rights of the Senior
Lender and, prior to the Transfer Date, the Commercial Tract Lender, Lender may
deduct from such insurance proceeds any reasonable expenses incurred by Lender
in the collection and settlement thereof, including attorneys’ and adjustors’
fees and charges.  Nothing contained in this Agreement shall create any
responsibility or obligation of the Lender to collect any amounts owing on any
insurance policy, to rebuild or replace the damaged or destroyed portions of the
Project or to perform any other related act.  The Lender shall not, by the fact
of approving, disapproving, accepting, preventing, obtaining or failing to
obtain any insurance, incur any liability for or with respect to the amount of
insurance carried, the form or legal sufficiency of insurance contracts,
solvency of insurance companies, or payment or defense of lawsuits, and Borrower
hereby expressly assumes full responsibility therefor and all liability, if any,
with respect thereto.

 

(f)                                    Application of Insurance Proceeds.  Any
insurance proceeds received by Mortgagor or Borrower under any of such casualty
policies shall, subject to the rights of the Senior Lender and, prior to the
Transfer Date, the Commercial Tract Lender, be applied, at the option of the
Lender, toward pre-payment or reimbursement of the Loan and any other amounts
evidenced or secured by the Loan Documents, or to the rebuilding or repairing of
the Project so damaged or destroyed, as the Lender in its sole and unreviewable
discretion may elect; provided, however, that Lender will allow insurance
proceeds to be used for restoration of the Project if (i) the conditions for
Borrower’s use of insurance contained in the Senior Loan Documents are satisfied
(substituting Lender for Senior Lender thereunder in making related decisions)
or (ii) so directed by the Senior Lender or, prior to the Transfer Date, the
Commercial Tract Lender.  Lender’s election to apply such insurance proceeds to
the Loan and other amounts evidenced or secured by the Loan Documents shall not
relieve Borrower of the duty to rebuild or repair.

 

9.                                      EMINENT DOMAIN.

 

(a)                                  Notice of Condemnation.  Borrower shall
give to Lender immediate notice of any taking by condemnation of any portion of
the Project or the institution of any proceedings the effect of which is to
achieve a taking of any portion of the Project by condemnation.

 

(b)                                 Settlement of Claim.  In case the Project,
or any part or interest in any thereof, is taken by condemnation, then subject
to the rights of the Senior Lender or, prior to the Transfer Date, the
Commercial Tract Lender, the

 

 

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Lender is hereby empowered to collect and receive all compensation and awards of
any kind whatsoever (referred to collectively herein as “Condemnation Awards”)
which may be paid for any property taken or for damages to any property not
taken (all of which Borrower hereby assigns to the Lender, subject to the rights
of the Senior Lender and, prior to the Transfer Date, the Commercial Tract
Lender in the same).  Borrower covenants to sign upon demand, or Lender may sign
or endorse on Borrower’s behalf, all necessary proofs of loss, receipts,
releases and other papers required by the condemning authority to be signed by
Borrower for such purpose.  Borrower hereby irrevocably appoints Lender as its
attorney-in-fact for the purposes set forth in this Section 9.  Lender may
deduct from any Condemnation Awards, any expenses reasonably incurred by Lender
in the collection and settlement thereof, including reasonable attorneys’ and
adjusters’ fees and charges.

 

(c)                                  Application of Condemnation Awards.  All
Condemnation Awards so received shall, subject to the rights of the Senior
Lender or, prior to the Transfer Date, the Commercial Tract Lender, be forthwith
applied by the Lender, as it may elect in its sole and unreviewable discretion,
to the payment or reimbursement of the Loan or the other amounts evidenced or
secured by the Loan Documents, or to the repair and restoration of any property
not so taken or damaged; provided, however, that Lender will allow Condemnation
Awards to be used for restoration of the Project if (i) the conditions for
Borrower’s use of Condemnation Awards contained in the Senior Loan Documents are
satisfied (substituting Lender for Senior Lender thereunder in making related
decisions) or (ii) so directed by the Senior Lender or, prior to the Transfer
Date, the Commercial Tract Lender.

 

(d)                                 Continuing Obligation to Repair.  No
election made by the Lender under this Section 9 shall relieve Borrower of the
duty to repair and restore.

 

(e)                                  Lender Not Required to Act.  Nothing
contained in this Agreement shall create a responsibility or obligation of
Lender to collect any amounts owing on account of any such condemnation or
proceedings relating to the Project, to rebuild or replace any damaged or
destroyed property or to perform any other related act.

 

10.                               RIGHTS OF ACCESS AND INSPECTION.  Borrower
shall cause Mortgagor to permit agents, representatives and employees of Lender
to inspect the Land and the installation of the Project or any part thereof
during reasonable business hours upon reasonable advance notice.  Without
limiting the foregoing, Lender shall also be permitted access to the Project in
order to examine, copy and audit Mortgagor’s books and records (including as
part of any audit performed pursuant to Section 12(f) hereof) and any plans,
drawings, contracts, books or records relating to the Project.  Borrower shall,
to the extent within its control, cause any contractors or subcontractors to
cooperate with Lender or its agents in connection with any inspection.  Lender
is under no duty to visit or observe the Project or to examine any books or

 

 

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records.  Any site visit, observation or examination by Lender shall be solely
for the purpose of protecting Lender’s security and preserving Lender’s rights
under the Loan Documents.  Neither Borrower, Mortgagor nor any other party is
entitled to rely on any site visit, observation or testing by Lender or its
agents or representatives.  Lender owes no duty of care to protect Borrower,
Mortgagor or any other party against, or to inform Borrower or any other party
of, any adverse condition affecting the Project, including any defects in the
design or construction of any improvements on the Land or the presence of any
Hazardous Materials on the Land.  So long as no Event of Default has occurred
and is continuing, Lender shall give Borrower and Mortgagor reasonable prior
notice of its intent to enter the Project.

 

11.                               EXPENSES.  Borrower shall pay, as and when
due, all reasonable costs and expenses incurred in the procuring and making of
the Loan by Lender, including without limitation, to the extent reasonable,
Title Insurer’s fees and premiums, charges for examination of title to the Land,
expenses of surveys, transfer taxes and recording expenses, appraisal and
appraisal review fees, fees of an inspector and fees and expenses of any
attorneys, accountants, engineers, architects, surveyors, contractors,
inspectors or other consultants, professionals or independent contractors
employed, retained or utilized by Lender in connection with the Loan.  Borrower
shall cause Mortgagor to pay when due any and all insurance premiums, taxes,
assessments, water, sewer and other utility charges, impact fees, liens and
encumbrances on the Project and any other amounts payable for the cost of
improvements to the Land, provided that Borrower and/or Mortgagor may in good
faith contest any such liens, claims or amounts so long as it provides, for any
filed lien, a bond in accordance with statutory requirements or other security
reasonably satisfactory to Lender.  Borrower shall pay upon demand or reimburse
Lender for any and all reasonable fees, costs and expenses incurred by Lender in
collecting the Indebtedness after an Event of Default including reasonable
attorneys’ fees.  All such amounts shall be paid to Lender or at Lender’s
direction to such other person to whom payments are due or Lender may, at its
option, pay such amounts and all sums paid shall be deemed a portion of the
Indebtedness and shall bear interest at the Default Interest Rate.

 

12.                               FINANCIAL REPORTS, PROPERTY REPORTS AND ANNUAL
BUDGET.  The parent company of Lender is a real estate fund that issues
securities, maintains U.S. GAAP audited financial statements and/or is publicly
registered with the United States Securities and Exchange Commission (“SEC”). 
As a result, such parent company is subject to GAAP financial statement
requirements and other reporting requirements. These requirements include but
are not limited to quarterly and annual financial reporting (including for
public companies on Form 10-Q and Form 10-K and reporting under Rule 3-14 of
Regulation S-X, which requires the filing of pro forma financial statements of
acquired properties).  In addition, certain accounting requirements may dictate
that Lender report Borrower, Mortgagor and/or the Project as a subsidiary of
Lender.  Therefore, Borrower agrees to provide Lender with all information that
Borrower or its Affiliates have in their possession and Borrower will use all
commercially reasonable efforts to obtain such information not in its possession
as Lender reasonably requires in order to prepare, audit and/or review financial
statements of the Project, Mortgagor and Borrower for the applicable reporting
periods.

 

(a)           Borrower agrees that all accounting for the Project will be
conducted by Borrower and/or the Mortgagor and also by Lender.  Borrower agrees
to provide Lender with copies of all Accounting Records (other than leases,

 

 

19

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which Borrower and/or the Mortgagor may make available at the Project rather
than copying) on a monthly basis in order to enable Lender to prepare and
maintain financial statements on Borrower, Mortgagor and/or the Project in
accordance with accounting principles generally accepted in the United States of
America.

 

(b)           Borrower agrees to provide Accounting Records by the 10th of the
month for the preceding month.

 

(c)           Borrower agrees to allow Lender and Lender’s external independent
accountants access to original Accounting Records if needed in the process of
their quarterly reviews and various audit processes.

 

(d)           Borrower agrees to cooperate with any inquiries or interviews by
Lender or its external independent accountants as may be necessary in relation
to Lender’s or its Affiliates’ compliance with the Sarbanes-Oxley Act of 2002.

 

(e)           In addition, Borrower shall furnish to Lender:

 

(i)            within 30 days after the end of each fiscal year of Mortgagor,
and at any other time upon Lender’s request, a statement that identifies all
owners of any interest in Mortgagor and the interest held by each, if Mortgagor
is a corporation, all officers and directors of Mortgagor, and if Mortgagor is a
limited liability company, all members and managers (whether members or not);

 

(ii)           within 10 days after the end of each month, a monthly property
management report for the Project, showing the number of inquiries made and
rental applications received from tenants or prospective tenants, deposits
received from tenants and any other information reasonably requested by Lender;

 

(iii)          within 10 days following the end of each month, a monthly
statement of income and expense for the Project; and

 

(iv)          beginning sixty (60) days prior to the first occupancy of the
Project and for each succeeding calendar year, not later than ninety (90) days
prior to the commencement of such calendar year, an annual budget which sets
forth, in sufficient detail, Borrower’s projection of gross receipts and
expenses for such period (the “Annual Budget”).  Each Annual Budget shall be for
a calendar year except that the Annual Budgets for the year of first occupancy
of the Project shall only cover the remainder of the then-current year.

 

(f)            If Borrower fails to provide in a timely manner the Accounting
Records, statements, schedules and reports required by this Section 12, Lender
shall have the right to have Mortgagor’s and Borrower’s books and records

 

 

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audited or to perform any other procedure reasonably requested by Lender, at
Borrower’s expense, by independent certified public accountants selected by
Lender in order to obtain such statements, schedules and reports, and all
related costs and expenses of Lender shall become immediately due and payable
and shall become an additional part of the Indebtedness as provided in
Section 21.

 

(g)           If Lender acquires the Project through foreclosure, Borrower shall
deliver, or cause to be delivered, to Lender upon written demand all books and
records relating to the Project or its operation. Otherwise, during the term of
the Loan, to the extent that copies of such books and records have not been
provided pursuant to the provisions of this Section 12 set forth above, Borrower
will provide Lender with all cost records necessary for Lender to perform its
accounting procedures including, but not limited to, balance sheets, income
statements, trial balance activity reports, general ledger detail reports, cash
receipts journal, check register or cash disbursements journal and copies of
checks and vendor invoices for all invoices paid.   Borrower agrees to make
available to Lender for examination and copying any other books and records upon
Lender’s written demand.

 

(h)           Borrower authorizes Lender to obtain one (1) credit report per
calendar year; provided, however, that Lender may obtain a credit report on
Borrower, Mortgagor and Guarantors at any time, even if a credit report has been
obtained in the same calendar year, if an Event of Default has occurred.

 

13.                               GENERAL COVENANTS OF BORROWER.  Until the full
and final payment of the Loan, unless Lender waives compliance in writing,
Borrower hereby covenants and agrees as follows:

 

(a)           Commencement and Completion of Project.  Borrower shall or shall
cause Mortgagor to prosecute the construction and installation with diligence so
that the construction and Completion of the Project (other than payment of
claims that are being contested in accordance with the Loan Documents) shall
have occurred by the completion deadline set forth in the Senior Loan Documents.

 

(b)           Lender Approval.  No changes to the Construction Budget or the
completion date required by the Senior Loan Documents shall be permitted without
Lender’s written consent, with the exception of (i) completion date extensions
due to force majeure and (ii) reallocation of amounts among the line items of
the Construction Budget; provided that Borrower shall provide Lender with notice
of any changes in connection with (i) and (ii) above or any change orders
modifying the Plans as provided below.  Lender shall have the right to approve
all contractors (except General Contractor) and all construction contracts
between

 

 

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Mortgagor and such contractors, with the exception of construction contracts
that do not exceed $100,000.00.  No changes to the Plans shall be permitted
without Lender’s written consent, with the exception of (i) changes required by
governmental authorities or Senior Lender and (ii) other changes that,
individually, do not increase or decrease Project costs by more than $100,000
and, in the aggregate, do not increase or decrease Project costs by more than
$300,000.  Lender shall have ten (10) business days to provide any approval
required under this Section 13(b) but if Lender does not provide written notice
that it does not approve within the ten (10) business days, then the action
shall be deemed approved.

 

(c)           Operation and Maintenance of Project.  In addition to the terms,
conditions and provisions set forth in the other Loan Documents:

 

(i)            Payment of Lawful Claims.  Borrower shall pay or discharge all
lawful claims, including taxes, assessments and governmental charges or levies
imposed upon Borrower or its income or profits or upon any property belonging to
Borrower prior to the date upon which penalties attach thereto; provided that
Borrower may in good faith contest any such taxes, assessments, charges or
levies so long as it provides, for any filed lien, a bond in accordance with
statutory requirements or other security reasonably satisfactory to Lender. 
Without limiting the generality of the foregoing, Borrower shall, or shall cause
Mortgagor to, pay (a) all taxes and recording expenses, including stamp taxes,
if any, relating to all documents and instruments securing the Loan, (b) the
fees and commissions (if any) lawfully due to brokers engaged by Borrower or its
Affiliates in connection with this transaction (and Borrower shall hold Lender
harmless from all such claims, whether or not lawfully due), and (c) the fees
and expenses of Lender’s counsel relating to Lender’s consultation with such
counsel in connection with the negotiation, documentation and closing of the
Loan and any subsequent modifications of the Loan.

 

(ii)           No Amendments.  Borrower shall not, nor shall it permit Mortgagor
to, without Lender’s prior written consent, enter into any amendments or
modifications of (a) if Borrower or Mortgagor is a corporation, Borrower’s and
Mortgagor’s by-laws and articles of incorporation, (b) if Borrower or Mortgagor
is a limited liability company, such entity’s operating agreement or articles of
organization, (c) if Borrower or Mortgagor is a limited partnership, such
entity’s partnership agreement or partnership certificate, (d) the construction
contract between Mortgagor and General Contractor except for change orders
(i) implementing changes required by governmental authorities or Senior Lender
and (ii) other changes that, individually, do not increase or decrease Project
costs by more than $100,000 and, in the aggregate, do not

 

 

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increase or decrease Project costs by more than $300,000, (e) the Management
Agreement, or (f) the Senior Loan Documents.

 

(iii)          Maintenance and Repair of Project.  After completion of the
Project, Borrower shall cause Mortgagor to (a) maintain the Project, including
the parking and landscaping portions thereof, in good condition and repair,
(b) promptly make all necessary structural and non-structural repairs to the
Project, (c) not demolish, alter, remove or add to any improvements on the Land,
excepting (i) the repair and restoration of improvements following damage
thereto as required by this Agreement, and (ii) as otherwise required by any
applicable law, rule or regulations, and (d) not erect any new buildings,
structures or building additions on the Land, without the prior written consent
of Lender.  Borrower shall pay when due all claims for labor performed and
materials furnished therefor in connection with any improvements or construction
activities on the Land; provided that Borrower may in good faith contest any
liens, claims or amounts so long as it provides, for any filed lien, a bond in
accordance with statutory requirements or other security reasonably satisfactory
to Lender.

 

(d)           Restricted Sale and Encumbrance of Project and of Borrower
Interests; Other Indebtedness.  Borrower shall not engage in any Sale or
Encumbrance without the prior written consent of Lender (which may be withheld
by Lender in Lender’s sole and absolute discretion).  Borrower will not issue
any additional Equity Interests in Borrower, except to Lender or Lender’s
designee.  In addition, Borrower shall not permit Mortgagor to issue any
additional Equity Interests in Mortgagor.  In addition, Borrower shall not, nor
shall it permit Mortgagor to, incur any indebtedness, whether secured or
unsecured, other than (i) the Senior Loan and this Loan, (ii) obligations under
interest rate hedging arrangements related to the Senior Loan and (iii) trade
and operational indebtedness incurred in the ordinary course of business
(including construction and operation of the Project) or for its administrative
functions.  Notwithstanding the foregoing, Lender’s consent shall not be
required for:

 

(i)            the grant of a leasehold interest in an individual dwelling unit
for a term of two years or less not containing an option to purchase and
otherwise in compliance with Section 13(f) hereof;

 

(ii)           a Sale of obsolete, worn out or damaged property or fixtures that
is contemporaneously replaced by items of equal or better function and quality,
which are free of liens, encumbrances and security interests other than
Permitted Exceptions, those created by the Loan Documents, the Senior Loan
Documents or the Commercial Deed of Trust or those otherwise consented to by
Lender;

 

 

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(iii)          a Sale that results from theft, condemnation or other involuntary
conversion;

 

(iv)          the Sale (including through consumption) of personal property in
the ordinary course of business that is contemporaneously replaced by items of
equal or better function and quality;

 

(v)           the grant of an easement if, before the grant, Lender determines
(which determination must be made reasonably) that the easement will not
materially affect the operation or value of the Project and Borrower pays to
Lender, upon demand, all reasonable costs and expenses incurred by Lender in
connection with reviewing Borrower’s request (it being understood that Lender
has approved the REA);

 

(vi)          the creation of (1) a lien for taxes, assessments or other
governmental charges or levies that are not then due or that are being contested
in good faith and in accordance with applicable statutory procedures or (2) a
mechanic’s lien against the Project which is bonded off, released of record or
otherwise remedied to Lender’s reasonable satisfaction within 30 days of the
date of creation; and

 

(vii)         transfer of the Commercial Tract to the Commercial Tract Borrower
on or after the Transfer Date.

 

Nothing in this Section 13(d) prohibits Mortgagor from providing the Commercial
Deed of Trust.

 

(e)           General Indemnity.  Borrower shall, at Borrower’s expense,
protect, defend, indemnify, save and hold Lender and each of its members and its
respective members, stockholders, directors, officers, employees and agents
(collectively the “Indemnified Parties”) harmless against any and all claims,
demands, losses, expenses (including court costs and reasonable attorney’s fees
and expenses), damages and causes of action (whether legal or equitable in
nature) asserted by any person or entity arising out of, caused by or relating
to the Project and the Lender’s exercise of its rights under the Loan Documents
upon an Event of Default, except to the extent the same arises out of, is caused
by or results from the gross negligence or willful misconduct of an Indemnified
Party.  Borrower shall pay to Lender upon demand all claims, judgments, damages,
losses and expenses (including court costs and reasonable attorneys’ fees and
expenses) incurred by Lender as a result of any legal or other action arising
out of the aforesaid matters.  Borrower acknowledges that the Indemnified
Parties may defend any matter covered by the above indemnification by counsel of
the relevant Indemnified Party’s choice, and the costs of such defense
(including reasonable attorney’s fees) are part of

 

 

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the costs covered by the indemnity.  The foregoing indemnification shall survive
repayment of the Loan.

 

(f)            Leases.

 

(i)            Residential Lease Requirements.  Mortgagor shall have the right,
and Borrower may permit Mortgagor to, enter into residential Leases without
Lender’s prior written consent, so long as all Leases for residential dwelling
units (A) are on forms approved by Lender, (B) shall not include options to
purchase, and (C) shall be for initial terms of at least six months and not more
than two years (with the exception of Leases for up to 3% of the units in the
Project, which may have terms of less than six months).

 

(ii)           Commercial Lease Requirements.  Mortgagor shall not, nor shall
Borrower permit Mortgagor to, enter into any non-residential Leases without
Lender’s prior written consent in each instance.  Mortgagor shall not, nor shall
Borrower permit Mortgagor to, modify the terms of, or extend or terminate, any
Lease for non-residential use (including any Lease in existence on the date of
this Agreement) without the prior written consent of Lender.  Borrower shall,
without request by Lender, deliver a copy of each executed non-residential Lease
to Lender promptly after such Lease is signed.

 

(iii)          Advance Rent.  Mortgagor shall not, nor shall Borrower permit
Mortgagor to, receive or accept rent under any Lease (whether residential or
non-residential) for more than two months in advance.

 

(iv)          Performance of Obligations.  Borrower shall cause Mortgagor to
pay, perform and discharge, as and when payment, performance and discharge are
due, all obligations of Mortgagor as landlord under all Leases.

 

(v)           Security Interest.  Except for the assignment to Lender or Senior
Lender or, prior to the Transfer Date, the Commercial Tract Lender, Borrower
shall not permit Mortgagor to further assign, pledge, transfer or otherwise
encumber the Leases or the rents under the Leases.

 

(vi)          Defense; Pursuit of Remedies.  Borrower shall or shall cause
Mortgagor to, at its sole cost and expense, appear in and defend any action or
proceeding arising from or connected with any of the Leases or any obligation or
liability of Mortgagor as landlord thereunder.  Borrower shall, or shall cause
Mortgagor to, use commercially reasonable efforts to pursue all remedies,
including

 

 

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claims for damages available at law or in equity, against any tenant under a
Lease who defaults in the performance of its obligations under the Lease.

 

(g)           Notices.  Borrower shall promptly notify Lender in writing of any
litigation affecting (a) Borrower, Mortgagor and any general partner, managing
member or controlling shareholder of Borrower or Mortgagor (excluding a general
partner, managing member or controlling shareholder which is a natural person or
trust), or (b) the Project, to the extent the same may result in a material
adverse change in (i) the financial condition of any of the foregoing parties,
(ii) Borrower’s ability to timely perform any of its obligations under any of
the Loan Documents or Mortgagor’s ability to timely perform any of its
obligations under any of the Senior Loan Documents or (iii) the physical
condition or operation of the Project.

 

(h)           Development.  If after the date of this Agreement, Borrower or
Mortgagor intends to engage a developer of the Project, Lender shall have the
right to approve such new developer and the written development agreement for
the Project.

 

(i)            Management.  The Project shall be managed at all times by Manager
(or another professional residential rental property manager satisfactory to
Lender under a contract approved by Lender).  At the time such property
management agreement is executed, at the request of Lender, Mortgagor and the
Manager shall enter into a Subordination of Management Agreement in the form
attached as Exhibit K or another form reasonably acceptable to Lender.  Lender
hereby accepts the Manager as the initial property manager.  If Borrower or
Mortgagor intends to change the management of the Project, Lender shall have the
right to approve such new property manager and the written contract for the
management of the Project and require that Mortgagor and such new property
manager enter into a Subordination of Management Agreement on the form attached
as Exhibit K or on another form reasonably acceptable to Lender.

 

(j)            Senior Loan.  Borrower shall, or shall cause Mortgagor to, fully
and timely pay all amounts owing under the Senior Loan Documents and timely and
fully perform all of Mortgagor’s covenants and agreements contained therein. 
Borrower shall provide Lender with copies of all notices (except routine notices
which would not include any notice related to any failure to comply with any
terms of the Senior Loan Documents or regarding any event of default under the
Senior Loan Documents) given or received by Mortgagor under or pursuant to the
Senior Loan Documents, promptly upon delivery or receipt as the case may be. 
Without limiting the Lender’s right to declare an Event of Default on account of
a failure to comply with the terms and provisions of the Senior Loan Documents,
if Borrower or Mortgagor fail to so pay or perform such obligations, and if such
failure either (i) becomes an Event of Default hereunder or (ii) prior

 

 

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to becoming an Event of Default continues for twenty (20) days after Lender
gives written notice to Borrower to cure, the Lender may pay or perform the same
pursuant to Section 18(b) hereof.  Notwithstanding the foregoing, (i) Lender
shall have no obligation whatsoever to pay any of the amounts evidenced or
secured by, or to perform any of the covenants or obligations imposed by, any
Senior Loan Documents, and (ii) any such payment by Lender shall not cure
Mortgagor’s default hereunder or under the Senior Loan Documents but shall only
protect Lender’s interest in the Project.  Borrower shall not, nor shall it
permit Mortgagor to, amend or modify any of the Senior Loan Documents without
the prior written consent of Lender.

 

(k)           Principal Place of Business; Choice of Law.  Borrower shall not
change its principal place of business or, if Borrower has more than one place
of business, its chief executive office, from its address set forth in the first
paragraph of this Agreement.  In addition, Borrower shall not make an election
under the Uniform Commercial Code to treat, as the governing law for perfection
of uncertificated securities, the law of any jurisdiction other than the
jurisdiction of its formation.  Lender agrees not to unreasonably withhold its
consent to any change in Borrower’s principal place of business or the governing
law with respect to uncertificated securities so long as (1) Borrower and any
other party reasonably requested by Lender executes all documents and
instruments reasonably deemed necessary by Lender to perfect the security
interests granted pursuant to the Loan Documents, (2) Borrower pays all of the
Lender’s reasonable costs and expenses of perfecting such security interests and
(3) if requested by Lender, Borrower delivers to Lender an opinion from counsel
reasonably satisfactory to Lender opining as to the continued perfection of such
security interest.

 

(l)            Compliance with Governmental Prohibitions.  No portion of the
Loan proceeds will be used, disbursed or distributed by Borrower for any
purpose, or to any person, in violation of any Law (as defined in Section 16
(i)) including, without limitation, any of the Terrorism Laws (as defined in
Section 16 (i)).  Borrower shall provide Lender with immediate written notice
(a) of any failure of any of the representations and warranties set forth in
Section 16(i) of this Agreement to be true, correct and complete in all material
respects at any time, or (b) if Borrower obtains knowledge that Borrower or any
holder at any time of any direct or indirect equitable, legal or beneficial
interest in Borrower (other than Lender or an affiliate or designee of Lender)
is the subject of any of the Terrorism Laws.  Borrower shall immediately and
diligently take, or cause to be immediately and diligently taken, all necessary
action to comply with all Terrorism Laws and to cause the representations and
warranties set forth in Section 16(i) to be true, correct and complete in all
material respects.

 

 

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14.                               FURTHER ASSURANCES.  Borrower shall, from time
to time, upon Lender’s request, at Borrower’s sole cost and expense, execute,
deliver, record and furnish such documents and do such other acts as Lender may
reasonably deem necessary or desirable to (i) perfect and maintain valid liens
upon the security contemplated by the Loan Documents, (ii) correct any errors of
a typographical or other manifest nature which may be contained in any of the
Loan Documents, (iii) evidence Borrower’s compliance with the Loan Documents,
and (iv) consummate fully and carry out the intent of the transactions
contemplated under this Agreement or the Loan Documents.

 

15.                               APPRAISALS.  Lender has the right to obtain a
new appraisal or update an existing appraisal of the Project at any time while
the Loan or any portion thereof remains outstanding (a) when, in Lender’s
reasonable judgment, such an appraisal is warranted as a result of Lender’s
internal evaluation of the Loan, and/or (b) to comply with statutes, rules,
regulations or directives of governmental agencies having jurisdiction over
Lender.  Borrower shall pay, upon demand, all reasonable appraisers’ fees and
related expenses incurred by Lender from time to time in obtaining such
appraisal reports; provided, however, that Borrower shall not be required to pay
for a re-appraisal more than once every three years unless an Event of Default
has occurred and is continuing.

 

16.                               GENERAL REPRESENTATIONS AND WARRANTIES OF
BORROWER.  Borrower represents and warrants to Lender, which representations and
warranties shall survive the termination of this Agreement, the repayment of the
Loan, any investigations, inspections or inquiries made by Lender or any of
Lender’s representatives, and any disbursements made by Lender hereunder, as
follows:

 

(a)                                  Organization; Corporate Powers;
Authorization of Borrowing.

 

(i)                                     Organization.  Borrower’s ownership
structure set forth on Exhibit F attached hereto is a true and correct depiction
of the Equity Interests in Borrower and Mortgagor, and each entity set forth on
Exhibit F is duly organized and is validly existing and in good standing under
the laws of the state of its organization, and Mortgagor is qualified to do
business in the jurisdiction where the Land is located.

 

(ii)                                  Power and Authority.  Borrower has the
full limited liability company power and authority to execute the Loan Documents
and to undertake and consummate the transactions contemplated hereby and
thereby, and to pay, perform and observe the conditions, covenants, agreements
and obligations herein and therein contained; and the Loan Documents have been
duly and validly executed by Borrower and constitute the legal, valid and
binding obligations of Borrower and are enforceable against Borrower in
accordance with their respective terms, except as such enforcement may be
qualified or limited by bankruptcy, insolvency or other similar laws affecting
creditors’ rights generally and general principles of equity.

 

 

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(iii)                               Not a Foreign Person.  Neither Borrower, nor
any entity that is a holder of an Equity Interest in Borrower, is organized
under the laws of any jurisdiction other than the United States or one of the
states thereof.

 

(iv)                              No Defaults Under Existing Agreements.  The
consummation of the transactions contemplated hereby and the performance by
Borrower of its obligations under the Loan Documents will not result in any
breach of, or constitute a default under, the Senior Loan Documents, any other
material Third Party Agreements or any mortgage, deed of trust, bank loan or
security agreement, or other material instrument to which Borrower or Mortgagor
are a party or by which the Land or Borrower or Mortgagor are bound.

 

(v)                                 True and Correct Copies of Documents.  All
due diligence documents required to be delivered by Borrower to Lender hereunder
(including those due diligence documents referred to in Section 6 hereof) are
true, correct and complete copies thereof and the same have not been amended or
modified except as expressly disclosed therein.

 

(vi)                              Outstanding Debt to Lender.  During the term
of the Loan, Borrower will not borrow funds from Lender or an Affiliate of
Lender other than the Loan and the loan made pursuant to the Junior Mezzanine
Loan Agreement and as contemplated by the partnership agreement of Principal.

 

(b)                                 Title to Property; Matters Affecting
Property.

 

(i)                                     Title to Property.  Mortgagor has good
and marketable fee simple title to the Land, subject only to the Senior Loan
Documents, the Loan Documents and the Permitted Exceptions, and good, marketable
and freely alienable title to all personal property located on the Land, subject
only to the Senior Loan Documents, the Loan Documents and the Permitted
Exceptions; Borrower will cause Mortgagor to protect or cause to be protected
the title to the Project, and Borrower will forever warrant and defend the same
against any other claims of any persons or parties whomsoever, subject to the
Senior Loan Documents, the Loan Documents and the Permitted Exceptions.

 

(ii)                                  Mortgagor’s Equity Interests.  Borrower
owns and will own one hundred percent (100%) of the Equity Interests in
Mortgagor, and Borrower has not transferred, conveyed, pledged or encumbered
(and will not transfer, convey, pledge or encumber) such interests except to
Lender.

 

 

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(iii)                               No Actions.  There are no actions, suits or
proceedings at law or in equity (including condemnation or eminent domain
proceedings) currently pending, or to the knowledge of Borrower threatened,
against Mortgagor, Borrower, or the Project or, to the knowledge of Borrower,
involving the validity or enforceability of the Senior Loan Documents or the
Loan Documents or the priority of the liens granted thereunder, by or before any
governmental authority having or exercising jurisdiction over the Project. 
Borrower will promptly notify Lender of any such future actions, suits or
proceedings.  Except as provided in Exhibit G, to Borrower’s knowledge, neither
Borrower, nor Mortgagor, nor the Project is in default with respect to, or in
violation of, any order, writ, injunction, decree or demand of any court or any
governmental authority having or exercising jurisdiction over the Project.

 

(iv)                              No Contracts Giving Rise to Liens.  Neither
Borrower, nor Mortgagor, has made any contract or arrangement of any kind, that
does or could give rise to a lien on the Project, except for (i) the Senior Loan
Documents, the Loan Documents and the Permitted Exceptions and (ii) contracts
related to design and construction of the Project which have been provided to
Lender.  Borrower has not made any contract or arrangement of any kind that does
or could give rise to a lien or encumbrance on any of the Equity Interests in
Mortgagor.

 

(v)                                 No Construction.  Prior to the disbursement
of the Loan and the recordation of the Security Instrument, no construction
whatsoever has been performed on the Land by Borrower or its Affiliates.

 

(vi)                              Compliance with Property Agreements.  Except
as provided in Exhibit H, the Project when constructed will in all respects
conform to and comply with all covenants, conditions, restrictions,
reservations, regulatory agreements, conditional or special use permits and
zoning ordinances affecting the Project whether or not recorded against the
Project.

 

(vii)                           Leases.  Except as provided in Exhibit I, there
are no Leases of the Land in effect as of the closing of the Loan.

 

(viii)                        Tax Treatment.  Borrower and Mortgagor are (and at
all times during the term of the Loan will be) disregarded as entities separate
from Principal within the meaning of Treasury Regulation §301.7701-3(b)(i)(2). 
Borrower and Mortgagor have not elected (and at all times during the term of the
Loan will not elect) to be classified as an association taxable as a corporation
within the meaning of Treasury Regulation §301.7701-3(c).

 

 

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(ix)                                Permits.  All Permits required for the
operation and construction of the Project are in effect or Borrower expects them
to be available as required for construction of the Project in accordance with
the schedule required by the Senior Loan Documents.  Once issued, all such
Permits will remain in effect and the Project and its contemplated use and
operation will comply therewith.  All discretionary approvals for the
construction of the Project in accordance with the Plans have been obtained or
will be obtained prior to commencement of construction of the Project.

 

(x)                                   Hazardous Substances.  So long as
Mortgagor owns the Project, Borrower shall cause Mortgagor to (a) keep the
Project free from Hazardous Substances, except those in de minimis amounts
ancillary to the Project activities that are used in compliance with all
environmental laws, (b) promptly notify Lender if Borrower or Mortgagor becomes
aware that any Hazardous Substance is on or near the Land or the Project in
violation of any environmental laws or if the Project otherwise is in violation
of any environmental laws, and (c) remove such Hazardous Substances
contamination that violates any environmental laws and/or cure such violations
as required by law.

 

(c)                                  Financial Statements.  The financial
statements heretofore delivered to Lender by Borrower, Mortgagor and Principal
are true and correct in all material respects, have been prepared in accordance
with sound accounting practices, and fairly present the financial
condition(s) of the person(s) referred to therein as of the date(s) indicated;
no materially adverse change has occurred in the financial
condition(s) reflected in such financial statements since the date(s) shown
thereon and no additional borrowings or liabilities have been made or incurred
by such person(s) since the date(s) thereof other than the borrowing
contemplated hereby, the Senior Loan, or other borrowings disclosed in writing
to and approved by Lender.  The Estimated Collateral Value Statement, dated as
of June 30, 2008, for each Guarantor accurately lists the Available Assets of
the Guarantor (as defined in the Guaranty) as of such date and the value of such
Available Assets calculated on the basis provided in the notes thereto.

 

(d)                                 Budget Projections.  Borrower’s and/or
Mortgagor’s budget projections indicate that monthly income from Project
operations will be sufficient to pay the combined monthly accrual of interest on
the Senior Loan and the Loan by the Maturity Date and the projections are
reasonable in Borrower’s opinion and have been prepared in a manner consistent
with the past practices of affiliates of Borrower.

 

(e)                                  Intentionally Deleted.

 

 

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(f)                                    No Loan Broker.  Borrower has not dealt
with any person, firm or corporation who is or may be entitled to any finder’s
fee, brokerage commission, loan commission or other sum in connection with the
execution of this Agreement or the making of the Loan by Lender to Borrower. 
Borrower does hereby indemnify and agree to defend and hold Lender harmless from
and against any and all loss, liability or expense, including court costs and
reasonable attorneys’ fees and expenses, which Lender may suffer or sustain
should such warranty or representation prove inaccurate in whole or in part.

 

(g)                                 No Default.  There are no defaults under any
of the Senior Loan Documents or the Loan Documents on the part of Borrower,
Mortgagor or, to the knowledge of Borrower, the other parties signatory thereto,
and no event has occurred and is continuing which, with the giving of notice or
the passage of time, or both, would constitute a default under any thereof.

 

(h)                                 Solvency.  As of the date hereof, Borrower
and Mortgagor are each solvent and able to pay their debts as the same shall
become due and payable.

 

(i)                                     Violations of Governmental
Prohibitions.  Neither the making of the Loan, nor the receipt of Loan proceeds
by Borrower, violates any federal, state, county, municipal and other
governmental and quasi-governmental statutes, laws, rules, orders, regulations,
ordinances, judgments or decrees (collectively, “Law”) applicable to Borrower,
including, without limitation, any of the Terrorism Laws.  Neither the making of
the Loan, nor the receipt of Loan proceeds by Borrower or Mortgagor, violates
any of the Terrorism Laws applicable thereto.  To Borrower’s best knowledge, no
holder of any direct or indirect equitable, legal or beneficial interest in
Borrower or Principal (other than Lender or an affiliate or designee of Lender)
is the subject of any of the Terrorism Laws.  No portion of the Loan proceeds
will be used, disbursed or distributed by Borrower for any purpose, or to any
person, directly or indirectly, in violation of any Law including, without
limitation, any of the Terrorism Laws.  “Terrorism Laws” means Executive Order
13224 issued by the President of the United States of America, the Terrorism
Sanctions Regulations (Title 31 Part 595 of the U.S. Code of Federal
Regulations), the Terrorism List Governments Sanctions Regulations (Title 31
Part 596 of the U.S. Code of Federal Regulations), and the Foreign Terrorist
Organizations Sanctions Regulations (Title 31 Part 597 of the U.S. Code of
Federal Regulations), and all other present and future federal, state and local
laws, ordinances, regulations, policies and any other requirements of any
governmental agency (including, without limitation, the United States Department
of the Treasury Office of Foreign Assets Control) addressing, relating to, or
attempting to eliminate, terrorist acts and acts of war, each as hereafter
supplemented, amended or modified from time to time, and the present

 

 

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and future rules, regulations and guidance documents promulgated under any of
the foregoing.

 

17.                               EVENT OF DEFAULT.  Borrower shall be in
default under this Agreement upon the occurrence of any of the following events
(hereinafter referred to as an “Event of Default”):

 

(a)                                  Non-Payment.  The failure of Borrower to
pay when due any amount required by the Note, this Agreement or any other Loan
Documents which continues, in the case of monthly interest payments required
under the Note, for twenty (20) days or, in the case of other sums payable under
the Note, this Agreement or the Loan Documents, for 10 days following written
demand for payment on Borrower by Lender.

 

(b)                                 Insurance.  The failure of Borrower to keep
in force any insurance policy required hereunder or to deliver evidence of its
renewal to Lender and the continuation of such failure for 10 days following
written demand on Borrower by Lender.

 

(c)                                  Special Purpose Entity Covenants.  The
failure of Borrower to comply with the provisions of Section 23.

 

(d)                                 Borrower.  The liquidation, dissolution or
termination of Borrower.

 

(e)                                  Guaranty.  The Guaranty for any reason
shall cease to be in full force and effect, or be declared null and void or
unenforceable in whole or in part; or the validity or enforceability of the
Guaranty shall be challenged or denied by any Guarantor.  Notwithstanding the
foregoing, a challenge or denial of the validity or enforceability of the
Guaranty will not be considered an Event of Default if, excluding the Available
Assets of the challenging guarantor, the collective aggregate value of the
Available Assets of the Guarantor (defined collectively in the Guaranty) does
not fall below $80,000,000.00.

 

(f)                                    Construction.  The cessation of the
construction of any or all of the Project after work thereon has commenced for a
period of more than 30 consecutive days without the written consent of Lender,
except for any cessation due to events of force majeure as expressly permitted
by the documents evidencing or securing the Senior Loan, except as otherwise
provided in Section 13(b) of the Loan Agreement.

 

(g)                                 Fraud or Material Misrepresentation  Fraud
or material misrepresentation by Borrower, Mortgagor or any of their partners,
officers, directors or managers, or by any Guarantor in connection with (i) the
application for or creation of the Indebtedness, (ii) any financial statement,
rent roll, or other report or information provided to Lender during the term of
the Indebtedness, or (iii) any request for Lender’s consent to any proposed
action.

 

 

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(h)                                 Sale, Encumbrance or Other Indebtedness. 
The taking of any action by Borrower, Mortgagor, or any other person contrary to
the provisions of Section 13(d) of this Agreement.

 

(i)                                     Reports and Documents.  The failure of
Borrower to deliver any notice, report, assignment, certificate, instrument or
other document which Borrower is required to deliver to Lender under any of the
Loan Documents within the twenty (20) days following written demand by Lender
therefor.

 

(j)                                     Other Breaches under this Agreement. The
failure by Borrower to perform any of its obligations under this Agreement, as
and when required, except as specifically set forth otherwise herein, which
continues for a period of 30 days after notice of such failure by Lender to
Borrower, if such failure is not reasonably susceptible of cure within such 30
day period, and if Borrower promptly commences such cure within such 30 day
period and diligently prosecutes the same to completion, then the cure period
shall be extended for such period of time as may be reasonably necessary to
effect a cure but in no event shall such period exceed 90 days.

 

(k)                                  Other Breaches Under Other Loan Documents. 
The failure of Borrower or any Guarantor, indemnitor or obligor to perform and
observe any covenant, obligation, agreement or undertaking under any Loan
Document other than this Agreement following such notice and/or grace period, if
any, as may be provided therein for curing such failure.

 

(l)                                     Senior Loan Documents.  The failure of
Borrower or Mortgagor or any Guarantor to perform and observe any covenant,
obligation, agreement or undertaking under any Senior Loan Documents following
any notice or cure period, if any, as may be provided therein for curing such
failure.

 

(m)                               Judgments.

 

(i)                                     An order, judgment or decree shall be
entered by any court of competent jurisdiction appointing a custodian, receiver,
trustee, or liquidator of Borrower or of all or any substantial part of any of
Borrower’s assets; or

 

(ii)                                  The failure of Borrower to pay any money
judgment against it at least twenty (20) days prior to the date on which the
assets of the Borrower may be sold to satisfy such judgment; or

 

(iii)                               The failure to have discharged within a
period of twenty (20) days after the commencement thereof any attachment,
sequestration, or similar proceedings against any of the assets of Borrower.

 

(n)                                 Bankruptcy Proceedings.

 

 

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(i)                                     If Borrower or Mortgagor shall become
insolvent, make a transfer in fraud of, or a general assignment for the benefit
of, creditors, or admit in writing its inability, generally to pay its debts as
they become due; or

 

(ii)                                  If Borrower or Mortgagor shall have a
receiver, custodian, liquidator or trustee appointed for all or substantially
all of its assets or for the Project in any proceeding brought by Borrower,
Mortgagor or the Project, or any such receiver or trustee is appointed in any
proceeding brought against Borrower, Mortgagor or the Project and such
appointment is not promptly contested and is not dismissed or discharged within
ninety (90) days after such appointment; or

 

(iii)                               If Borrower or Mortgagor shall file a
petition under Title 11 of the United States Code as amended or under any
similar Federal or state law or statute; or

 

(iv)                              If Borrower or Mortgagor shall have a petition
filed against it commencing an involuntary case under any present or future
Federal or state bankruptcy or similar law and such petition is not dismissed or
discharged within ninety (90) days after the filing thereof; or

 

(v)                                 If Borrower or Mortgagor shall request any
composition, rearrangement, liquidation, extension, reorganization or other
relief as a debtor under any present or future Federal or state bankruptcy or
similar law now or hereafter existing.

 

The proceedings or events set forth in paragraph (n) are collectively referred
to as “Bankruptcy Proceedings”.

 

18.                               REMEDIES.

 

(a)                                  Actions upon Event of Default.  Upon the
occurrence and during the continuance of an Event of Default beyond any
applicable grace and cure period, Lender may, in addition to any other rights or
remedies available to it pursuant to this Agreement and the other Loan Documents
or at law or in equity, take such action, without notice or demand, that Lender
deems advisable to protect and enforce its rights against the Collateral or the
Project, including, without limitation, at its option and without prior notice
or demand, declare the unpaid principal balance of the Note and all accrued but
unpaid interest thereon, as well as all other sums owing under the Loan
Documents, immediately due and payable. Lender may make any advances on the Loan
after the happening of any one or more of said Events of Default without thereby
waiving the right to demand payment in

 

 

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full of the Note and such other amounts and without liability to make any other
or further advances.

 

(b)                                 Lender’s Right to Perform.  If Borrower
fails to perform any covenant or obligation contained herein or in the other
Loan Documents and such failure continues for a period of 30 days after written
notice of such failure by Lender to Borrower, or if such failure is not
reasonably susceptible of cure within such 30 day period and if Borrower
promptly commences such cure within such 30 day period and diligently prosecutes
the same to completion, then the cure period shall be extended for such period
of time as may be reasonably necessary to effect a cure but in no event shall
such period exceed 90 days, without in any way limiting Lender’s right to
exercise any of its rights, powers or remedies as provided hereunder, or under
any of the other Loan Documents, Lender may, but shall have no obligation to,
perform, or cause performance of, such covenant or obligation, and all costs,
expenses, liabilities, penalties and fines of Lender reasonably incurred or paid
in connection therewith shall be payable by Borrower to Lender upon demand and
if not paid shall be added to the Indebtedness (and to the extent permitted
under applicable laws, secured by the Security Instrument and other Loan
Documents) and shall bear interest from the date expended at the Default
Interest Rate.  Notwithstanding the foregoing, Lender shall have no obligation
to send notice to Borrower of any such failure.

 

(c)                                  Appointment of Lender as Attorney-in-Fact. 
Borrower hereby irrevocably, unconditionally and presently constitutes Lender as
Borrower’s attorney-in-fact, with full power of substitution, to be exercised by
Lender only upon the occurrence and during the continuation of an Event of
Default, to exercise its rights under the Security Instrument (in its own name
or the name of a designee) for purposes of preserving and protecting the Project
or the Collateral and, as Lender in its sole discretion deems necessary or
proper, to execute, acknowledge (when appropriate) and deliver all instruments
and documents in the name of Borrower which may be necessary or desirable in
order to do any and every act which Borrower might do on its own behalf in the
performance of its obligations hereunder.  This power of attorney is a power
coupled with an interest and is irrevocable.

 

(d)                                 Cross-Default to Note, Security Instrument
and Other Loan Documents.  At the option of Lender, any Event of Default by
Borrower under this Agreement shall constitute a default under the Note, the
Security Instrument or any of the other Loan Documents to the same extent as
though the Note had by its own terms become due and payable at maturity and
payment thereof had been refused, and in such event Lender may, without
liability to Borrower, assert and exercise any and all rights and remedies
provided for herein or in the Note, the Security Instrument or any of the other
Loan Documents or otherwise as may be provided by law. 

 

 

36

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Such rights and remedies may be asserted concurrently or successively from time
to time (either before or after commencement of foreclosure proceedings or
before or after the exercise of any other remedy of Lender) until the Note,
including interest thereon, and all of the Indebtedness of Borrower to Lender
under this Agreement and the other Loan Documents, have been paid in full.

 

(e)                                  Recourse Limitations.  Borrower’s liability
in connection with this Agreement, the Note and the other Loan Documents
(including Borrower’s liability for all amounts due hereunder or thereunder) is
collectible only from the Project and other property encumbered by the Security
Instrument.  In no case will any person who holds a direct or indirect ownership
interest in Borrower, or any officer, director, manager, trustee, employee,
agent or affiliate of Borrower or any such direct or indirect owner, have any
responsibility for Borrower’s obligations in connection with this Agreement, the
Note and the other Loan Documents (including Borrower’s liability for any
amounts due hereunder or thereunder); provided, however, that nothing in this
Section 18(e) limits the liability of any person under a guaranty or other
agreement executed by such person.

 

19.                               ADDITIONAL ADVANCES

 

(a)                                  Disbursement of Additional Advances.   
Borrower may submit a Draw Request in the form attached as Exhibit E from time
to time, but no more frequently than monthly (or twice monthly for the following
subcontractors: framing, drywall, retaining walls, electrical, trim, carpentry,
HVAC, floor coverings, concrete, final-clean and plumbing), for the payment of
the cost of labor, materials, and services supplied for the construction of the
Project and other costs incurred in connection with the Project, all to the
extent contemplated in the Construction Budget (“Additional Advance”).  Lender
may require, at Borrower’s expense, an inspection of, and favorable report upon,
the Project, as built at the time of the Draw Request, by the Inspecting
Architects/Engineers prior to making any Additional Advance.  Each Draw Request
shall be submitted by Borrower to Lender not less than ten (10) Business Days
prior to the date upon which the Additional Advance requested is desired by
Borrower.  Upon satisfaction of all conditions precedent to Lender’s obligation
to make Additional Advances hereunder, and provided that the Additional Advance,
when aggregated with the Junior Mezzanine Advance Amount, does not exceed the
Maximum Aggregate Advance Amount and is consistent with the Construction Budget,
Lender shall fund to Borrower the requested Additional Advance (less the portion
of the amount in the related Draw Request that is simultaneously funded under
the Junior Mezzanine Loan Agreement), on the later of (i) the date such advance
is requested in the Draw Request, and (ii)  five (5) Business Days after

 

 

37

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receipt of a complete Draw Request, together with the required accompanying
materials, reasonably satisfactory to Lender.

 

(b)                                 Conditions Precedent to Additional Advance.

 

(i)                                     There shall exist no Event of Default;

 

(ii)                                  The Senior Loan is in full force and
effect;

 

(iii)                               There exists no default by Mortgagor under
the Senior Loan;

 

(iv)                              The representations and warranties made in
this Agreement shall be true and correct in all material respects on and as of
the date of each Additional Advance, with the same effect as if made on such
date, other than (i) those which by their specific terms relate only to the
Closing Date or another specified date, and (ii) those which relate to
Section 6(d) and Section 16(c) hereof which need be true and correct only as of
the effective date of this Agreement;

 

(v)                                 Borrower shall have provided to Lender
(a) the form lease for residential units within the Project (it being agreed
that Borrower has already provided such form to Lender) and (b) copies of any
non-residential Leases affecting the Project;

 

(vi)                              Borrower shall have provided to Lender copies
of all available Plans prepared by any engineers or architects in connection
with the Project;

 

(vii)                           Lender shall have received copies of any
inspection reports prepared by the Inspecting Architects/Engineers with respect
to the specific Additional Advance and/or by any Governmental Authority having
jurisdiction over the Project and Lender shall have received inspection reports,
in form and substance reasonably acceptable to Lender, from the Inspecting
Architect/Engineers at not less than thirty (30)-day intervals (and Lender shall
request such reports from the Inspecting Architect/Engineers);

 

(viii)                        Borrower shall procure and deliver to Lender, if
required by Lender, evidence reasonably satisfactory to Lender that the amount
theretofore invested by Mortgagor in the Project, together with the funds
remaining to be advanced to Borrower by Lender under the terms of this Agreement
and the Junior Mezzanine Loan Agreement and to Mortgagor by Senior Lender under
the Senior Loan, or sums which Borrower agrees to make available, are adequate
to meet all costs incurred and to be incurred in connection with the
construction of the Project;

 

 

38

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(ix)                                Borrower shall procure and deliver to
Lender, if required by Lender, evidence reasonably satisfactory to Lender
supporting the amounts requested by Borrower, including, without limitation,
statements, invoices and bills evidencing the requested amounts; and

 

(x)                                   Borrower shall procure and deliver to
Lender a lien waiver and/or subordination agreement from each contractor or
subcontractor who has performed work valued at or in excess of $150,000 at or
upon the Land, or who has supplied material, supplies or equipment for the
construction of the Project and who is intended to have been paid by the
proceeds of the Additional Advance current through the last payment to such
contractor or subcontractor.

 

20.                               TRANSFER OF LOAN; LOAN SERVICER.

 

(a)                                  Lender’s Right to Transfer  Borrower hereby
acknowledges that Lender shall have the right to transfer, assign or sell the
Loan Documents, or grant participation interests in all or any portion of the
Loan, in such manner and to such entities as Lender in its sole and absolute
discretion shall select.

 

(b)                                 Loan Servicer.  At the option of Lender, the
Loan may be serviced by a servicer selected by Lender and Lender may delegate
all or any portion of its responsibilities under this Agreement and the other
Loan Documents to such servicer pursuant to a servicing agreement between Lender
and such servicer.  A sale may result in a change of the Loan servicer.  There
also may be one or more changes of Loan servicer unrelated to a sale of the
Note.  If there is a change of Loan servicer, Borrower will be given notice of
the change.

 

(c)                                  Dissemination of Information.  Lender may
forward to each purchaser, transferee, assignee, or servicer of, and each
participant or investor in, the Loan (collectively, the “Investor”), any
governmental regulators or others as may be required by securities law, all
documents and information which Lender now has or may hereafter acquire relating
to the Indebtedness and to Borrower, Mortgagor and Principal, except as limited
by the Principal’s partnership agreement, including financial statements,
whether furnished by Borrower or otherwise, as Lender determines necessary or
desirable.  Borrower irrevocably waives any and all rights it may have under
applicable Laws to prohibit such disclosure.

 

21.                               LENDER’S EXPENSES; RIGHTS OF LENDER.  Borrower
shall promptly pay to Lender, upon demand, with interest thereon from the date
of demand at the Default Interest Rate, reasonable attorneys’ fees and all other
reasonable costs and expenses paid or incurred by Lender in enforcing or
exercising its rights or remedies created by, connected with or

 

 

39

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provided for in this Agreement or any of the other Loan Documents following an
Event of Default, and payment thereof shall be secured by the Security
Instrument.

 

22.                               MISCELLANEOUS.

 

(a)                                  Notices. All notices, demands and other
communications (“Notice”) under or concerning this Agreement shall be in
writing.  Each Notice shall be addressed to the intended recipient at its
address set forth below, and a Notice shall be deemed given on the earliest to
occur of (1) the date when the Notice is received by the addressee; (2) the
first Business Day after the Notice is delivered to a recognized overnight
courier service, with arrangements made for payment of charges for next Business
Day delivery; or (3) the third Business Day after the Notice is deposited in the
United States mail with postage prepaid, certified mail, return receipt
requested.

 

If to
Lender:                                                                              
Behringer Harvard St. Rose REIT, LLC

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention:  Chief Legal Officer

Facsimile:  (214) 655-1610

 

with copy
to:                                                                         
Behringer Harvard St. Rose REIT, LLC

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention:  Mark Alfieri

Facsimile:  (214) 655-1610

 

with copy
to:                                                                         
Wick Phillips, LLP

2100 Ross Avenue, Suite 950

Dallas, Texas  75201

Attention:  Walt Miller

Facsimile:  (214) 692-6255

 

If to
Borrower:                                                                   SW
131 St. Rose Mezzanine Borrower LLC

2001 Bryan Street, Suite 3250

Dallas, Texas 75201

Attention: Timothy J. Hogan

Facsimile: (214) 922-8553

 

with a copy to:                                                                
SW 131 St. Rose Mezzanine Borrower LLC

7373 N. Scottsdale Road, Suite C-228

Scottsdale, Arizona  85253

Attention: Bruce Hart

Facsimile:  (480) 596-8848

 

 

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with copy
to:                                                                         
Jones Day

325 John H. McConnell Blvd., Suite 600

Columbus, Ohio 43216

Attention:  Michael K. Ording

Facsimile: (614) 461-4198

 

Any party to this Agreement may change the address to which notices intended for
it are to be directed by means of notice given to the other party in accordance
with this Section 22(a).  Each party agrees that it will not refuse or reject
delivery of any notice given in accordance with this Section 22(a), that it will
acknowledge, in writing, the receipt of any notice upon request by the other
party and that any notice rejected or refused by it shall be deemed for purposes
of this Section 22(a) to have been received by the rejecting party on the date
so refused or rejected, as conclusively established by the records of the U.S.
Postal Service or the courier service. Any notice under the Note and any other
Loan Document which does not specify how notices are to be given shall be given
in accordance with this Section 22(a).

 

(b)                                 Waivers.  No delay or omission in exercising
any right or power arising from any default shall be construed as a waiver of
such default or as an acquiescence therein, nor shall any single or partial
exercise thereof preclude any further exercise thereof or the exercise of any
other right or power arising from any default.  No waiver of any breach of any
of the covenants or conditions of this Agreement shall be construed to be a
waiver of or acquiescence in or consent to any previous or subsequent breach of
the same or of any other condition or covenant.

 

(c)                                  Lender Not Partner of Borrower; Borrower in
Control.  Neither the execution nor the performance of any of the Loan Documents
by Lender, nor the exercise by the Lender of any of its rights, privileges or
remedies conferred under the Loan Documents or under applicable law, shall be
deemed to render the Lender a partner or a joint venturer with Borrower, any
guarantor of the Loan or any other person, or to render Borrower an agent of
Lender for any purposes.  Nothing contained herein shall characterize or be
deemed to characterize, or be used as a basis for characterizing, Lender as a
“mortgagee-in-possession”.  Lender and Borrower agree that Mortgagor remains in
control of the Project, and that it determines the business plan for the Project
and employment, management, leasing and operating directions and decisions for
the Project.  All of Lender’s rights, and actions taken by Lender as provided or
permitted, in or under this Agreement or the other Loan Documents are for and in
its capacity as a secured lender attempting to protect the collateral security
for the Loan and to collect the Indebtedness and any other amounts owing or
outstanding under the Note or the Loan Documents.

 

 

41

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d)                                     No Third Party.  This Agreement is made
for the sole benefit of Borrower and Lender and Lender’s successors and assigns,
and no other person or persons shall have any rights or remedies under or by
reason of this Agreement or any right to the exercise of any right or power
hereunder or arising from any default, nor shall Lender owe any duty whatsoever
to any claimant for labor performed or materials furnished in connection with
the construction of the improvements to apply any undisbursed portion of the
Loan to the payment of any such claims.

 

(e)                                  Time of Essence; Context.  Time is hereby
declared to be of the essence of this Agreement and of every part hereof.  When
the context and construction so require, all words used in the singular herein
shall be deemed to have been used in the plural and the masculine shall include
the feminine and the neuter and vice versa.

 

(f)                                    Successors and Assigns.  This Agreement
shall bind, and the rights granted by this Agreement shall inure to, the
respective successors and assigns of Lender and Borrower.  However, a Sale or
Encumbrance prohibited by Section 13(d) shall be an Event of Default.

 

(g)                                 Governing Jurisdiction.  This Agreement and
all of the other Loan Documents (except as otherwise expressly provided therein
with respect to the enforcement of specific remedies) shall be governed by and
construed in accordance with the substantive law of the State of Texas without
regard to the application of choice of law principles.

 

(h)                                 SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS.  BORROWER AND LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE STATE COURTS OF THE STATE OF TEXAS SITTING IN DALLAS COUNTY,
TEXAS, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF
OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER LOAN DOCUMENT
AND THE SUBJECT MATTER THEREOF, OR THE LOAN.  EACH OF BORROWER AND LENDER TO THE
EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT,
BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER
PROCEEDING BROUGHT IN THE ABOVE-NAMED COURTS ANY CLAIM THAT IT IS NOT SUBJECT
PERSONALLY TO THE JURISDICTION OF SUCH COURTS, THAT ITS PROPERTY IS EXEMPT OR
IMMUNE FROM ATTACHMENT OR EXECUTION BY ANY SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER OR THAT THIS  AGREEMENT, THE SUBJECT MATTER
HEREOF, THE OTHER LOAN DOCUMENTS, THE SUBJECT

 

 

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MATTER THEREOF, OR THE LOAN (AS APPLICABLE) MAY NOT BE ENFORCED IN OR BY SUCH
COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING
INSTITUTED IN STATE COURT TO FEDERAL COURT, OR TO REMAND AN ACTION INSTITUTED IN
FEDERAL COURT TO STATE COURT AND (C) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY
SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT
COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT
MATTER.  BORROWER AND LENDER EACH HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL
AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT TO
SECTION 22(a) HEREOF, BUT ANY SUCH SERVICE WILL BE EFFECTIVE ONLY WHEN RECEIVED
AT SUCH ADDRESS.  BORROWER AND LENDER EACH AGREES THAT ITS SUBMISSION TO
JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS
BENEFIT OF THE OTHER PARTY.  FINAL JUDGMENT AGAINST A PARTY IN ANY SUCH ACTION,
SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR
TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF
INDEBTEDNESS OR LIABILITY OF THE PARTY THEREIN DESCRIBED, OR (Y) IN ANY OTHER
MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION.

 

(i)                                     WAIVER WITH RESPECT TO DAMAGES. 
BORROWER ACKNOWLEDGES THAT LENDER DOES NOT HAVE ANY FIDUCIARY OR OTHER SPECIAL
RELATIONSHIP WITH, OR FIDUCIARY OR SPECIAL DUTY TO, BORROWER ARISING OUT OF OR
IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, AND THE
RELATIONSHIP BETWEEN LENDER AND BORROWER, IN CONNECTION HEREWITH AND THEREWITH,
IS SOLELY THAT OF DEBTOR AND CREDITOR.  TO THE EXTENT PERMITTED BY APPLICABLE
LAW, BORROWER SHALL NOT ASSERT, AND BORROWER HEREBY WAIVES, ANY CLAIMS AGAINST
LENDER, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN
CONNECTION WITH, OR AS A RESULT OF, THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, ANY
AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

 

 

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(j)                                     Entire Agreement.  This Agreement and
all of the other Loan Documents constitute the entire understanding between the
parties hereto with respect to the subject matter hereof, superseding all prior
written or oral understandings, and may not be modified, amended or terminated
except by a written agreement signed by each of the parties hereto or thereto
that is to be bound by the modification, amendment or termination. 
Notwithstanding the foregoing, the provisions of this Agreement are not intended
to supersede the provisions of the Security Instrument but shall be construed as
supplemental thereto.  Borrower and Lender each hereby acknowledges that this
Agreement and the other Loan Documents accurately reflect the agreements and
understandings of the parties hereto with respect to the subject matter hereof
and hereby waives any claims against the other which it may now have or may
hereafter acquire to the effect that the actual agreements and understandings of
the parties hereto with respect to the subject matter hereof may not be
accurately set forth in this Agreement or such other Loan Documents.

 

(k)                                  Headings.  The various headings of this
Agreement are included for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.

 

(l)                                     Severability.  Each provision of this
Agreement shall be interpreted so as to be effective and valid under applicable
law, but if any such provision shall in any respect be ineffective or invalid
under such law, such ineffectiveness or invalidity shall not affect the
remainder of such provision or the remaining provisions of this Agreement.

 

(m)                               Counterparts.  This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute but one and the same document.

 

(n)                                 WAIVER OF JURY TRIAL.  BORROWER AND LENDER
EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION
WITH THIS LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER
STATEMENTS OR ACTIONS OF THE LENDER OR BORROWER RELATED THERETO.  BORROWER AND
LENDER EACH ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE OTHER
TO ENTER INTO THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT, AND THAT THIS WAIVER
SHALL BE EFFECTIVE AS TO EACH OF THE OTHER LOAN DOCUMENTS AS IF FULLY
INCORPORATED THEREIN.

 

(o)                                 Sole and Absolute Discretion.  Any option,
consent, approval, or discretion or similar right of Lender set forth in this
Agreement or any of

 

 

44

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the other Loan Documents may be exercised by Lender in its sole, absolute and
unreviewable discretion, unless the provisions of this Agreement or the other
Loan Documents specifically requires a different standard.

 

(p)                                 Straight Debt Harbor.  It is the intent of
Borrower and Lender that the Loan shall be treated as a security that satisfies
the requirements of Section 856(m)(1)(A) and Section 856(m)(2) of the Code (the
“Straight Debt Safe Harbor”).  Accordingly, notwithstanding any indication
herein to the contrary, the parties hereto agree that the terms of the Loan
shall be interpreted in such a manner that the Loan satisfies the Straight Debt
Safe Harbor for so long as it is owned by Lender; and the terms of the Note
shall be applied such that the Note has a constant effective yield to maturity,
as determined under Section 1372 of the Code, at a fixed rate over the entire
term of the Note equal to the Interest Rate (as defined in the Note) (or, during
any time at which an Event of Default is continuing, at the Default Interest
Rate); provided, however, that such contraction shall not alter the dates of the
principal or interest payments (described in Section 1.1 of the Note) or the
amounts of the principal or interest payments required to be paid on an interest
payment date (described in Section 1.1. of the Note) prior to the Maturity Date
or earlier prepayment date.

 

(q)                                 Assignment.  Lender may, without the consent
of any other party, assign its rights and obligations under this Agreement and
the Loan Documents to any Affiliate of Lender.

 

(r)                                    Retainage of Subcontractors.  Lender
understands and agrees that no retainage will be withheld for general conditions
or the following subcontractor trades: floor and roof trusses, cabinets and
countertops, appliances, lumber, drywall, concrete and reinforcing materials,
cultured stone and CMU materials, interior trim, electric light fixtures,
windows, doors and millwork, HVAC components, metals, floor coverings, surveying
and stocking, materials testing and utilities.  Borrower understands and agrees
that ten (10%) retainage will be withheld for all other subcontractors provided
that at such time as the Project is at least fifty percent (50%) completed (as
confirmed by the Senior Lender’s construction consultant, if any), retainage may
be reduced to five percent (5%) for such other subcontractors.

 

23.          SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. 
Borrower shall do all things necessary to preserve the existence of Borrower and
Mortgagor as a separate Special Purpose Bankruptcy Remote Entity unless Lender
otherwise consents, in its sole discretion, in writing.  Borrower covenants and
agrees that with respect to Borrower and Mortgagor, until payment in full of the
Indebtedness, it will not do, or permit Mortgagor to do, directly or indirectly,
any of the following unless Lender consents thereto, in its

 

 

45

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sole discretion, in writing.  A “Special Purpose Bankruptcy Remote Entity” means
a corporation, limited partnership or limited liability company which shall not:

 

(a)                                  engage in any business or activity other
than the ownership, construction, operation and maintenance, in each case
directly or indirectly, of the Land and the Project (in case of Mortgagor) or
the Equity Interests in Mortgagor (in case of Borrower) and activities
incidental thereto;

 

(b)                                 acquire or own any material assets other
than (i) the Equity Interests, (ii) the Land or the Project, and (iii) such
incidental personal property as may be necessary for the operation of the
Project or as may arise out of the other activities of Borrower or Mortgagor;

 

(c)                                  merge into or consolidate with any person,
or dissolve, terminate or liquidate, or transfer or otherwise dispose of all or
substantially all of its assets or change its legal structure;

 

(d)                                 fail to preserve its existence as a person
duly organized, validly existing and in good standing (if applicable) under the
laws of the jurisdiction of its organization or formation, or amend, modify, or
terminate the provisions of its organizational documents if such amendment,
modification, or termination would adversely affect the ability of such Person
to perform its obligations hereunder or under the other Loan Documents or would
affect any other clause of this Section 23;

 

(e)                                  own any subsidiary (except, in the case of
Borrower, the Mortgagor) or make any investment in any person (except, in the
case of Borrower, the Mortgagor);

 

(f)                                    commingle its assets with the assets of
any of its general partners, members, shareholders, Affiliates, principals or of
any other Person in such a manner that it will be costly or difficult to
segregate, ascertain or identify its individual assets from those of any general
partner, member, shareholder, principal or Affiliate of Borrower or Mortgagor or
any other Person;

 

(g)                                 incur any debt, secured or unsecured, direct
or contingent (including guaranteeing any obligation), other than (i) the Senior
Loan, the Loan and the loan made pursuant to the Junior Mezzanine Loan
Agreement, (ii) obligations under interest rate hedging arrangements related to
the Senior Loan and (iii) trade and operational indebtedness incurred in the
ordinary course of business (including construction and operation of the
Project) or for its administrative functions;

 

(h)                                 fail to maintain its records, books of
account and bank accounts separate and apart from those of its general partners,
members, shareholders, principals and Affiliates and any other Person;

 

 

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(i)                                     enter into any contract or agreement
with any general partner, member, shareholder, principal or Affiliate of
Borrower or Mortgagor except upon terms and conditions that are intrinsically
fair and substantially similar to those that would be available on an
arms-length basis with third parties other than any general partner, member,
shareholder, principal or Affiliate of Borrower or Mortgagor;

 

(j)                                     seek the dissolution or winding up of
Borrower or Mortgagor;

 

(k)                                  maintain its assets in such a manner that
it will be costly or difficult to segregate, ascertain or identify its
individual assets from those of any general partner, member, shareholder,
principal or Affiliate of Borrower or Mortgagor or any other Person.

 

(l)                                     hold itself out to be responsible for
the debts of another person, except through endorsement of negotiable
instruments in the ordinary course of collection;

 

(m)                               make any loans or advances to any third party,
including any general partner, member, shareholder, principal or Affiliate of
Borrower or Mortgagor (except, in the case of Borrower, to the Mortgagor);

 

(n)                                 fail to file its own tax returns, if any, as
may be required under applicable law, to the extent that Borrower or Mortgagor
is (i) not part of a consolidated group filing a consolidated return or returns
or (ii) not treated as a “disregarded entity” for tax purposes not required to
file tax returns under applicable law; or

 

(o)                                 fail either to hold itself out to the public
as a legal person separate and distinct from any other person or to conduct its
business solely in its own name if the result is (i) to mislead others as to the
identity of the person with which such other party is transacting business; or
(ii) to suggest that it is responsible for the debts of any third party
(including any general partner, principal or Affiliate of Borrower or
Mortgagor), provided, however, Mortgagor and Borrower may hold itself out as
doing business under the “Trammel Crow Residential” or “Alexan Communities”
names.

 

In addition to the foregoing, Borrower shall have at least one independent
manager who is provided by a nationally recognized company that provides
professional independent directors and who shall not be at the time of initial
appointment, and may not have been during the preceding five years (i) a
stockholder, director, officer, employee, partner, member, attorney or counsel
of Mortgagor or an Affiliate of Mortgagor or Borrower, (ii) a customer, supplier
(other than a supplier of registered agent or registered office service) or
other Person who derives any of its purchases or revenues from its activities
with Mortgagor or Borrower, (iii) a Person or other entity controlling or under
common control with any such stockholder, director, officer employee, partner,
customer, supplier (other than a supplier of registered agent or registered
office service) or other Person or (iv) a member of the immediate family of any
such

 

 

47

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stockholder, director, officer, employee, partner, customer, supplier or other
Person (the “Independent Director”).  At any time while the Loan is outstanding,
the consent of the Independent Director should be required to: (i) file, consent
to the filing of, or join in any filing of, a bankruptcy or insolvency petition;
(ii) dissolve, liquidate, merge or consolidate; (iii) engage in any business or
activity other than the ownership, construction, operation and maintenance,
directly or indirectly, of the Project; and (iv) amend the articles of
organization, limited liability agreement or partnership agreement.

 

24.          JUNIOR MEZZANINE LOAN.

 

(a)                                  Borrower and Lender are entering into the
Junior Mezzanine Loan Agreement contemporaneously with this Agreement.  Under
this Agreement and the Junior Mezzanine Loan Agreement, Lender may advance to
Borrower an aggregate maximum principal amount up to, but not in excess of, the
Maximum Aggregate Advance Amount.  The Borrower and Lender agree that, at any
given time, any principal amounts advanced to Borrower by Lender under this
Agreement and the Junior Mezzanine Loan Agreement shall be allocated as follows:

 

(i)                                     At all times while principal amounts are
outstanding and/or additional principal amounts may be advanced under this
Agreement or the Junior Mezzanine Loan Agreement, an aggregate principal amount
of at least $2,000 shall be advanced to Borrower by Lender under this Agreement
and the Junior Mezzanine Loan Agreement, taken together, and the principal
amount outstanding under this Agreement shall be at least $1,000 and the
principal amount outstanding under the Junior Mezzanine Loan Agreement shall be
at least $1,000;

 

(ii)                                  If an aggregate principal amount of more
than $2,000 has been advanced to Borrower by Lender under this Agreement and the
Junior Mezzanine Loan Agreement, Lender may decide whether additional amounts
requested by Borrower pursuant to a Draw Request are funded pursuant to this
Agreement or pursuant to the Junior Mezzanine Loan Agreement, or in part
pursuant to this Agreement and in part pursuant to the Junior Mezzanine Loan
Agreement, and if in parts pursuant to both this Agreement and the Junior
Mezzanine Loan Agreement, the respective parts funding pursuant to each, so long
as the aggregate amount advanced to Borrower pursuant to this Agreement and the
Junior Mezzanine Loan Agreement in all cases equals the amount requested by
Borrower in the Draw Request.

 

(b)                                 Borrower acknowledges that Lender has
advised it that Lender desires that at no time will the Senior Mezzanine Advance
Amount exceed the Estimated Value.  Accordingly, Borrower agrees that if at any
time the Senior Mezzanine Advance Amount is more than the Estimated Value,

 

 

48

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Lender shall, subject to Section 24(a)(i), be deemed to have advanced principal
under the Junior Mezzanine Loan Agreement in an amount equal to the amount by
which the Senior Mezzanine Advance Amount exceeds the Estimated Value and to
have used such advance to repay the portion of the Loan then outstanding so as
to reduce the Senior Mezzanine Advance Amount to the Estimated Value. 
Conversely, Borrower agrees that if at any time the Senior Mezzanine Advance
Amount is less than the Estimated Value, Lender shall, subject to
Section 24(a)(i), be deemed to have advanced principal against the Loan in an
amount equal to the lesser of (i) the Junior Mezzanine Advance Amount minus
$1,000 and (ii) the amount by which the Estimated Value exceeds the Senior
Mezzanine Advance Amount, and in such event Lender shall be deemed to have used
the amount so advanced to repay a portion of the loan outstanding under the
Junior Mezzanine Loan Agreement.  An advance pursuant to this Section 24(b) will
not reduce the amount Borrower is entitled to draw under this Agreement and the
Junior Mezzanine Loan Agreement, it being the intent of Lender and Borrower that
Borrower will be entitled to obtain advances up to the Maximum Aggregate Advance
Amount.  An advance and contemporaneous repayment made, or deemed to be made,
pursuant to this Section 24(b) will not be considered an advance in excess of
the Maximum Aggregate Advance Amount for purposes of this Agreement.

 

(c)                                  Borrower acknowledges that Lender has
advised it that Lender desires that at no time will the Senior Mezzanine Advance
Amount and the accrued and unpaid interest on the Loan, taken together, exceed
the Estimated Value.  Therefore, to the extent that, after any adjustments
pursuant to Section 24(b), the Senior Mezzanine Advance Amount and the accrued
and unpaid interest on the Loan, taken together, exceed the Estimated Value,
then such accrued and unpaid interest will be deemed to be payable under the
loan pursuant to the Junior Mezzanine Loan Agreement rather than payable under
the Loan to the extent necessary to prevent the Senior Mezzanine Advance Amount
and the accrued and unpaid interest on the Loan, taken together, from exceeding
the Estimated Value.  Any such interest deemed to be payable under the loan
pursuant to the Junior Mezzanine Loan Agreement pursuant to this
Section 24(c) shall automatically to revert to being payable under the Loan to
the extent possible without causing the Senior Mezzanine Advance Amount and the
accrued and unpaid interest on the Loan, taken together, from exceeding the
Estimated Value.  In no event shall the accrued and unpaid interest under the
Loan, when combined with the accrued and unpaid interest owing under the loan
pursuant to the Junior Mezzanine Loan Agreement, exceed the amount of interest
that would be owing (taking into account payments of interest made prior to the
time in question) if interest had accrued at the rate applicable under the Note
and the note issued pursuant to the Junior Mezzanine Loan Agreement on a
principal balance equal to the Senior Mezzanine Advance Amount plus the Junior
Mezzanine Advance Amount.

 

 

49

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(d)                                 Lender shall endeavor to give Borrower
written notice of any advance, repayment or adjustment pursuant to this
Section 24 simultaneously with such action, and Lender shall, upon request by
Borrower, give Borrower written notice of the amount outstanding under the Loan
and the loan under the Junior Mezzanine Loan Agreement.

 

25.          SUBDIVISION AND RELEASE.

 

(a)                                  On or before June 30, 2009, Borrower will
have caused the Mortgagor to have (i) obtained all final, non-appealable
approvals of all applicable Governmental Authorities necessary to cause the Land
to be lawfully subdivided into separate and conforming legal lots comprised of
the Commercial Tract and the Residential Tract, substantially as reflected on
the proposed subdivision map (a copy of which is attached as Exhibit A-1 to the
Senior Loan Agreement); (ii) recorded (or cause to have been recorded) within
the applicable real property records of Clark County, Nevada the final
subdivision map as so approved by all applicable Governmental Authorities (the
“Final Map”); and (iii) caused the Title Insurer to have issued an endorsement
to the title insurance insuring that, after giving effect to the recordation of
the Final Map, the Residential Tract constitutes a separate, legal lot pursuant
to applicable laws.  If any Governmental Authority conditions approval of the
proposed subdivision map on revisions thereto, Lender shall be deemed to have
consented to such revisions if and to the extent the Senior Lender consents to
such revisions in accordance with the Senior Loan Documents.

 

(b)                                 Lender shall execute and deliver (or shall
direct the trustee under the Security Instrument to execute and deliver) a
partial release or reconveyance of the lien of the Security Instrument with
respect to the Commercial Tract, subject to and conditioned upon the
satisfaction of each of the following conditions precedent:

 

(i)                                     The Final Map shall have been recorded
in the applicable real property records of Clark County, Nevada;

 

(ii)                                  The Title Insurer shall have issued an
endorsement to the title insurance insuring that the Residential Tract
constitutes a separate legal lot in accordance with the requirements of
applicable law;

 

(iii)                               Borrower or Mortgagor shall have prepared
and delivered to Lender, a reciprocal easement agreement (and any documents
referenced therein or executed therewith), in such form as is approved by the
Senior Lender in accordance with the Senior Loan Documents, duly executed by
Mortgagor and Commercial Tract Borrower, encumbering the entirety of the Land
and establishing non-exclusive, perpetual and reciprocal easements for ingress,

 

 

50

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egress, access and public utilities over and across the Land (the “REA”); and

 

(iv)                              Borrower shall have reimbursed Lender for its
out-of-pocket expenses incurred in connection with such partial release.

 

(c)                                  Lender agrees to execute and deliver a
subordination of lien, in form and substance reasonably acceptable to Borrower
and the Senior Lender, subordinating the liens and security interests of the
Security Instrument to the REA.

 

[Signatures Follow on Next Page]

 

 

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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the day and year first above written.

 

BORROWER:

 

SW 131 ST. ROSE MEZZANINE BORROWER LLC,

a Delaware limited liability company

 

By:

SW 130 St. Rose Limited Partnership,

 

a Delaware limited partnership,

 

its sole member

 

 

 

By:

SW 129 St. Rose Limited Partnership,

 

 

a Delaware limited partnership,

 

 

its general partner

 

 

 

 

 

By:

SW 104 Development GP LLC,

 

 

 

a Delaware limited liability company,

 

 

 

its general partner

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Timothy J. Hogan

 

 

 

 

 

Timothy J. Hogan, Vice President

 

 

 

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LENDER:

 

BEHRINGER HARVARD ST. ROSE REIT, LLC,

a Delaware limited liability company

 

By:

Behringer Harvard St. Rose Venture, LLC,

 

a Delaware limited liability company,

 

its manager

 

 

 

By:

Behringer Harvard St. Rose, LLC,

 

 

a Delaware limited liability company,

 

 

its manager

 

 

 

 

 

By:

/s/ Gerald J. Reihsen, III

 

 

 

 

Gerald J. Reihsen, III

 

 

 

Executive Vice President-Corporate

 

 

 

Development & Legal and Secretary

 

 

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EXHIBIT A

 

DESCRIPTION OF THE LAND

 

All that land situated in the County of Clark, State of Nevada, more
particularly described as follows:

 

PARCEL 1:

 

The North Half (N ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter
(SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range
61 East, M.D.B.&M., Clark County, Nevada.

 

PARCEL 2:

 

The South Half (S ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter
(SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range
61 East, M.D.B.&M.

 

EXCEPTING THEREFROM that portion lying within St. Rose Parkway.

 

PARCEL 3:

 

That portion of the Northwest Quarter (NW ¼) of Section 35, Township 22 South,
Range 61 East, M.D.M., City of Henderson, Clark County, Nevada, more
particularly described as follows:

 

The South Half (S ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter
(SW ¼) of the Northwest Quarter (NW ¼) of said Section 35.

 

TOGETHER WITH:

 

Those portions of the North Half (N ½) of the South Half (S ½) of the Southwest
Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35 lying
Northwesterly of the Northwesterly right of way of St. Rose Parkway.

 

PARCEL 4:

 

Being a portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the
Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township
22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

 

TOGETHER WITH that portion of the North Half (N ½) of the Northeast Quarter (NE
¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼), also
together with that portion of the North Half (N ½) of the Northwest Quarter (NW
¼) of said Section 35, lying Northwesterly of St. Rose Parkway, further
described as follows:

 

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BEGINNING at the Southeast (SE) corner of the Northwest Quarter (NW ¼) of the
Northwest Quarter (NW ¼) of said Section 35, said corner being marked by an
aluminum cap marked “PLS 5269, 1994, NW 1/16”;

Thence South 41°41’09” East, 174.75 feet to the Northwesterly line of St. Rose
Parkway as granted in Book 250 as Document No. 202951, Official Records, Clark
County, Nevada;

Thence along said Northwesterly line, South 46°18’51” West, 297.97 feet to a
point of intersection of said Northwesterly line with the South line of the
North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼)
of the Northwest Quarter (NW ¼) of said Section 35;

Thence along the lines of said North Half (N ½) the following Three (3) courses:

1)              North 89°22’43” West, 553.55 feet;

2)              North 00°33’34” West, 330.00 feet;

3)              South 89°22’04” East, 663.09 feet to the POINT OF BEGINNING;

 

EXCEPTING THEREFROM:

 

A portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the
Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35,
described as follows:

 

BEGINNING at the Southwest (SW) corner of the South Half (S ½) of the Southeast
Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼)
of said Section 35;

Thence North 00°33’55” West, 330.09 feet to the Northwest (NW) corner of the
South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼)
of the Northwest Quarter (NW ¼) of said Section 35; Thence South 89°21’56” East,
663.21 feet to the Northeast Corner of the South Half (S1/2) of the Southeast
Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼)
of said Section 35; Thence South 00°32’39” East, 330.06 feet to the Southeast
(SE) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the
Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35;
Thence North 41°41’09” West, 316.13 feet; Thence South 48°18’51” West, 153.68
feet to the beginning of a 500 foot radius curve, concave Northwesterly; Thence
along said curve to the right, 369.29 feet through a central angle of 42°19’05”
to the POINT OF BEGINNING.

(Deed Reference 20070720 / 2463 and 2464)

 

SURVEYOR’S PERIMETER LEGAL DESCRIPTION:

 

THE FOLLOWING IS A METES AND BOUNDS LEGAL DESCRIPTION OF PARCELS 1, 2, 3 AND 4
COMBINED PREPARED BY THE CERTIFYING SURVEYOR.

 

THAT PORTION OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 35, TOWNSHIP 22 SOUTH,
RANGE 61 EAST, M.D.M., CITY OF HENDERSON, CLARK COUNTY, NEVADA, DESCRIBED AS
FOLLOWS:

 

BEGINNING AT THE SOUTHEAST CORNER OF THE NORTHWEST QUARTER (NW 1/4) OF THE
NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 35; THENCE SOUTH 41°41’09” EAST, A
DISTANCE OF 174.75 FEET TO THE NORTHWESTERLY RIGHT-OF-WAY LINE OF ST. ROSE
PARKWAY (300.00 FEET WIDE);   THENCE SOUTH 48°18’51”

 

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WEST ALONG SAID RIGHT-OF-WAY LINE, A DISTANCE OF 1,278.38 FEET TO THE SOUTH LINE
OF THE NORTH HALF (N 1/2) OF THE SOUTHWEST QUARTER (SW 1/4) OF THE SOUTHWEST
QUARTER (SW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 35; THENCE
DEPARTING SAID RIGHT-OF-WAY LINE, NORTH 89°24’01” WEST ALONG SAID SOUTH LINE, A
DISTANCE OF 477.63 FEET TO THE WEST LINE OF SAID SECTION 35;   THENCE DEPARTING
SAID SOUTH LINE, NORTH 00°34’46” WEST ALONG SAID WEST LINE, A DISTANCE OF 990.37
FEET TO THE SOUTH LINE OF THE NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST
QUARTER (NW 1/4) OF SAID SECTION 35;   THENCE DEPARTING SAID WEST LINE, SOUTH
89°22’04” EAST ALONG SAID SOUTH LINE, A DISTANCE OF 663.09 FEET TO THE SOUTHEAST
CORNER OF THE SOUTHWEST QUARTER (SW 1/4) OF SAID NORTHWEST QUARTER (NW 1/4) OF
THE NORTHWEST QUARTER (NW 1/4) OF SECTION 35, SAME BEING THE BEGINNING OF A
CURVE, CONCAVE NORTHWESTERLY, HAVING A RADIUS OF 500.00 FEET;   THENCE DEPARTING
SAID SOUTH LINE, NORTHEASTERLY 369.29 FEET ALONG SAID CURVE, THROUGH A CENTRAL
ANGLE OF 42°19’05”;   THENCE NORTH 48°18’51” EAST, A DISTANCE OF 153.68 FEET;
THENCE SOUTH 41°41’09” EAST, A DISTANCE OF 316.13 FEET TO THE SOUTHEAST CORNER
OF THE NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID
SECTION 35, SAME BEING THE POINT OF BEGINNING.

 

Prepared by:

Michael A. Lathan, PLS No. 14414

DRC Surveying Nevada, Inc.

9330 West Martin Avenue

Las Vegas, Nevada  89148

 

--------------------------------------------------------------------------------

 

EXHIBIT B

 

[INTENTIONALLY OMITTED]

 

--------------------------------------------------------------------------------

 

EXHIBIT C

 

PLANS

 

[ATTACHED]

 

--------------------------------------------------------------------------------

 

EXHIBIT D

 

CONSTRUCTION BUDGET

 

LINE ITEMS

 

Total Costs

 

 

 

 

 

LAND COSTS

 

 

 

LAND

 

14,200,000.00

 

TOTAL LAND COSTS

 

14,200,000.00

 

 

 

 

 

HARD COSTS

 

 

 

Construction Hard Costs

 

34,235,846.00

 

Hard Costs Contingency

 

1,431,465.00

 

TOTAL HARD COSTS

 

35,667,311.00

 

 

 

 

 

SOFT COSTS

 

 

 

Taxes

 

220,000.00

 

Legal

 

375,000.00

 

Closing Costs

 

100,000.00

 

Municipal Fees

 

4,150,000.00

 

Architect

 

700,000.00

 

Engineering & Surveying

 

200,000.00

 

Preleasing

 

175,000.00

 

Marketing

 

465,000.00

 

Mezzanine Loan Fee

 

631,296.00

 

Non-Accrual Mezzanine Interest

 

6,413,523.00

 

Financing Costs

 

1,501,870.00

 

Deferred Developer Offsite Overhead

 

3,613,196.00

 

Interest Reserve

 

1,181,558.00

 

Operating Deficit

 

275,237.00

 

Soft Cost Contingency

 

275,000.00

 

TOTAL SOFT COSTS

 

20,276,680.00

 

TOTAL BUDGET

 

70,143,991.00

 

 

 

 

 

SOURCE

 

 

 

Mezzanine Debt

 

21,043,197.00

 

Equity Partner

 

5,172,333.00

 

TCR Cash-including Pre Development Costs

 

1,715,265.00

 

Deferred Equity-Offsite Overhead

 

3,613,196.00

 

TOTAL SOURCES

 

31,543,991.00

 

LOAN PROCEEDS

 

38,600,000.00

 

 

--------------------------------------------------------------------------------

 

EXHIBIT E

 

DRAW REQUEST

 

[BORROWER’S LETTERHEAD]

 

DRAW REQUEST NO.                          

 

TO:  BEHRINGER HARVARD ST. ROSE REIT, LLC (“Lender”)

 

LOAN NO.

 

DATE

 

PROJECT

ALEXAN ST. ROSE

LOCATION

HENDERSON, NEVADA

BORROWER

SW 131 ST. ROSE MEZZANINE BORROWER LLC

 

 

 

 

FOR
PERIOD
ENDING

 

 

In accordance with the Senior Mezzanine Loan Agreement in the amount of up to
$21,043,197 dated December     , 2008 between Borrower and Lender, Borrower
requests that $                     be advanced from Loan proceeds.  The
proceeds should be credited to the account of
                                        , Account No.                     , at
                                        .

 

1.

ORIGINAL CONTRACT SUM

 

$

 

 

 

 

 

 

 

2.

TOTAL CHANGE ORDERS

 

$

 

 

 

 

 

 

 

3.

CONTRACT SUM TO DATE (Line 1 + 2)

 

$

 

 

 

 

 

 

 

4.

TOTAL COMPLETED & STORED TO DATE

 

$

 

 

 

 

 

 

 

5.

SOFT COSTS

 

$

 

 

 

 

 

 

 

6.

RETAINAGE:

 

 

 

 

 

 

 

 

 

a.

 

% of Completed Work

 

$

 

 

 

 

 

 

 

 

 

 

b.

 

% of Stored Material

 

$

 

 

 

 

 

 

 

 

 

 

 

Total Retainage

 

$

 

 

 

 

 

 

 

7.

TOTAL EARNED LESS RETAINAGE

 

$

 

 

 

(Line 4 less Line 6 Total)

 

 

 

 

 

 

 

 

8.

LESS PREVIOUS PAYMENTS

 

$

 

 

 

 

 

 

 

9.

CURRENT PAYMENT DUE

 

$

 

 

 

 

 

 

 

10.

BALANCE TO FINISH, PLUS RETAINAGE

 

$

 

 

 

(Line 3 less Line 7)

 

 

 

 

 

--------------------------------------------------------------------------------

 

The undersigned Borrower represents that, to the best of Borrower’s knowledge,
information, and belief, the Work covered by this application has been completed
substantially in accordance with the above-referenced Contract, that all amounts
have been paid by Borrower for Work for which previous payments were received
from Owner, and that the current payment requested herein represents a just
estimate of reimbursement to Borrower.  Borrower further represents that:
(i) there are no known mechanic’s liens or materialmen’s liens outstanding at
the date of this application (other than items being contested in accordance
with the Loan Documents); (ii) all due and payable bills with respect to the
Work have been paid to date  (other than items being contested in accordance
with the Loan Documents) or are included in the amount requested in this
application; (iii) except for such bills not paid but so included, there is no
known basis for the filing of any mechanic’s liens or materialmen’s liens on the
Work or the Project (other than items being contested in accordance with the
Loan Documents); and (iv) effective waivers and releases of liens have been
obtained from all subcontractors through the immediately preceding advance of
Loan proceeds (other than items being contested in accordance with the Loan
Documents).

 

This Draw Request is executed                     , 200    .

 

BORROWER:

 

SW 131 ST. ROSE MEZZANINE BORROWER LLC,

a Delaware limited liability company

 

By:

SW 130 St. Rose Limited Partnership,

 

 

 

a Delaware limited partnership,

 

 

 

its sole member

 

 

 

 

 

 

 

By:

SW 129 St. Rose Limited Partnership,

 

 

 

 

a Delaware limited partnership,

 

 

 

 

its general partner

 

 

 

 

 

 

 

 

 

By:

SW 104 Development GP LLC,

 

 

 

 

 

a Delaware limited liability company,

 

 

 

 

 

its general partner

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

Name:

 

 

 

 

 

 

Title:

 

 

 

 

--------------------------------------------------------------------------------

 

NOTES:

 

Each Draw Request shall include invoices, receipts and/or copies of checks
evidencing the Cost of Work performed during the preceding month and
unconditional lien releases for all prior payments, from General Contractor and
all Subcontractors.  Raw materials or work-in-process at a manufacturer’s plant
location are not eligible for payment.  For materials not yet incorporated in
the Work, the following shall be provided by Borrower as a condition to payment:

 

1.                                       Items shall be listed separately on the
Draw Request;

 

2.                                       An appropriate transfer of title shall
be executed;

 

3.                                       The methods used to store off-Site
items shall be described;

 

4.                                       Items in storage shall be identified as
property of Borrower or Mortgagor, and a description of the identification
methods used shall be submitted for approval by Lender;

 

5.                                       A written inventory of items and method
used to verify such inventory, including Borrower’s certification that all
quantities have been received in good condition, shall be submitted for approval
by Lender; and

 

6.                                       Proof of insurance in Borrower’s name
shall be secured.

 

Lender shall have the right to verify storage by a physical inspection prior to
invoice approval and at any time thereafter.  Such payment shall not relieve
Borrower of the responsibility for protecting, safeguarding, and proper
installation of the materials.

 

--------------------------------------------------------------------------------

 

EXHIBIT F

 

OWNERSHIP CHART

 

[ATTACHED]

 

--------------------------------------------------------------------------------

 

EXHIBIT G

 

PENDING ACTIONS AT LAW

 

None.

 

--------------------------------------------------------------------------------

 

EXHIBIT H

 

VIOLATIONS OF PROPERTY AGREEMENTS

 

None.

 

--------------------------------------------------------------------------------

 

EXHIBIT I

 

LEASES

 

None.

 

--------------------------------------------------------------------------------

 

EXHIBIT J

 

FINANCIAL INFORMATION

 

Borrower must provide the following items, as applicable, to Lender, in addition
to any other items requested by Lender prior to Closing or during the term of
this Agreement:

 

a)              Detailed accrued expense listing for each quarter ended during
the current calendar year and for the prior full fiscal year

b)             Detailed straight line rent schedule for each quarter ended
during the current calendar year and for the prior full fiscal year

c)              Details/abstracts of all permits and licenses for tenants (i.e.
satellite dishes on roof)

d)             Detailed listing of all tenants with termination options

e)              Listing of all service contracts and equipment leases, including
contracts for elevator, landscaping, electricity, cleaning, HVAC service,
security, pest control, disposal, parking lot maintenance, insurance, etc.

f)                Access to service contracts

g)             Detail of the cash receipts and disbursements journal, downloaded
to Excel if possible for the prior full fiscal year and the year to date period
of the current year

h)             Detailed general ledger of revenues and expenses for each quarter
during the current calendar year and the prior full fiscal year

i)                 Detailed income statements by month for the current year and
for the prior full fiscal year

j)                 Copies of property tax invoices for the current year and the
previous full fiscal year

k)              Operating expense reconciliations by tenant for the current year
to date period and the previous full fiscal year

l)                 Rent roll – current year and prior year end

m)           Lease abstracts, including amendments, exhibits and side letters
for each tenant

n)             Management/leasing agreement, current year and prior year end

o)             Check registers for the period from the current year to date
period being reviewed through the date of the accountants/auditors field work

p)             Access to vendor accounts payable files

q)             Leases in effect during the prior full fiscal year and during the
current year being reviewed

 

--------------------------------------------------------------------------------

 

EXHIBIT K

 

FORM OF SUBORDINATION OF MANAGEMENT AGREEMENT

 

[ATTACHED]

 

--------------------------------------------------------------------------------

 

 

 

 

--------------------------------------------------------------------------------

 

JUNIOR MEZZANINE LOAN AGREEMENT

 

 

 

BY

 

 

 

AND BETWEEN

 

 

 

SW 131 ST. ROSE MEZZANINE BORROWER LLC
(“Borrower”)

 

 

 

AND

 

 

 

BEHRINGER HARVARD ST. ROSE REIT, LLC
(“Lender”)

 

--------------------------------------------------------------------------------

 

 

 

 

 

--------------------------------------------------------------------------------

 

1.

RECITALS

2

2.

DEFINITIONS

2

3.

THE LOAN; DISBURSEMENT OF LOAN

9

 

 

 

 

 

(a)

Loan

9

 

(b)

Loan Disbursements

9

 

 

 

 

4.

INTEREST PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY;
REPAYMENT

9

 

 

 

 

 

(a)

Interest

9

 

(b)

No Usury

10

 

(c)

Intentionally Deleted

11

 

(d)

Prepayment

11

 

(e)

Maturity Date

11

 

 

 

 

5.

SECURITY FOR LOAN; GUARANTY

11

 

 

 

 

 

(a)

Security Instrument

11

 

(b)

Other Loan Documents

11

 

(c)

Guaranty

11

 

 

 

 

6.

CONDITIONS PRECEDENT TO CLOSING OF THE LOAN

11

 

 

 

 

 

(a)

Loan Documents

11

 

(b)

Third Party Agreements

12

 

(c)

Certification

12

 

(d)

Financial Statements

12

 

(e)

Insurance Policies

12

 

(f)

Contracts

13

 

(g)

Title Insurance Policy

13

 

(h)

ALTA Survey

13

 

(i)

Flood Plain Certification

13

 

(j)

Appraisal

13

 

(k)

Environmental Report

13

 

(l)

Certification of Organizational Documents

13

 

(m)

Legal Opinion

13

 

(n)

UCC Searches

14

 

(o)

Utilities

14

 

(p)

Environmental Disclosure

14

 

(q)

No Default

14

 

 

 

 

7.

TITLE INSURANCE

14

8.

INSURANCE

14

 

 

 

 

 

(a)

Insurance Requirements

14

 

(b)

Initial Policies; Renewals

16

 

(c)

Notices

16

 

(d)

Notice of Casualty

16

 

(e)

Settlement of Claim

16

 

 

i

--------------------------------------------------------------------------------

 

 

(f)

Application of Insurance Proceeds

17

 

 

 

 

9.

EMINENT DOMAIN

17

 

 

 

 

 

(a)

Notice of Condemnation

17

 

(b)

Settlement of Claim

18

 

(c)

Application of Condemnation Awards

18

 

(d)

Continuing Obligation to Repair

18

 

(e)

Lender Not Required to Act

18

 

 

 

 

10.

RIGHTS OF ACCESS AND INSPECTION

18

11.

EXPENSES

19

12.

FINANCIAL REPORTS, PROPERTY REPORTS AND ANNUAL BUDGET

19

13.

GENERAL COVENANTS OF BORROWER

21

 

 

 

 

 

(a)

Commencement and Completion of Project

21

 

(b)

Lender Approval

21

 

(c)

Operation and Maintenance of Project

22

 

(d)

Restricted Sale and Encumbrance of Project and of Borrower Interests; Other
Indebtedness

23

 

(e)

General Indemnity

24

 

(f)

Leases

25

 

(g)

Notices

26

 

(h)

Development

26

 

(i)

Management

26

 

(j)

Senior Loan

26

 

(k)

Principal Place of Business; Choice of Law

27

 

(l)

Compliance with Governmental Prohibitions

27

 

 

 

 

14.

FURTHER ASSURANCES

28

15.

APPRAISALS

28

16.

GENERAL REPRESENTATIONS AND WARRANTIES OF BORROWER

28

 

 

 

 

 

(a)

Organization; Corporate Powers; Authorization of Borrowing

28

 

(b)

Title to Property; Matters Affecting Property

29

 

(c)

Financial Statements

31

 

(d)

Budget Projections

31

 

(e)

Intentionally Deleted

32

 

(f)

No Loan Broker

32

 

(g)

No Default

32

 

(h)

Solvency

32

 

(i)

Violations of Governmental Prohibitions

32

 

 

 

 

17.

EVENT OF DEFAULT

33

 

 

 

 

 

(a)

Non-Payment

33

 

(b)

Insurance

33

 

(c)

Special Purpose Entity Covenants

33

 

(d)

Borrower

33

 

(e)

Guaranty

33

 

(f)

Construction

33

 

 

ii

--------------------------------------------------------------------------------

 

 

(g)

Fraud or Material Misrepresentation

33

 

(h)

Sale, Encumbrance or Other Indebtedness

34

 

(i)

Reports and Documents

34

 

(j)

Other Breaches under this Agreement.

34

 

(k)

Other Breaches Under Other Loan Documents

34

 

(l)

Senior Loan Documents

34

 

(m)

Judgments

34

 

(n)

Bankruptcy Proceedings

35

 

 

 

 

18.

REMEDIES

35

 

 

 

 

 

(a)

Actions upon Event of Default

35

 

(b)

Lender’s Right to Perform

36

 

(c)

Appointment of Lender as Attorney-in-Fact

36

 

(d)

Cross-Default to Note, Security Instrument, and Other Loan Documents

36

 

(e)

Recourse Limitations

37

 

 

 

 

19.

ADDITIONAL ADVANCES

37

 

 

 

 

 

(a)

Disbursement of Additional Advances

37

 

(b)

Conditions Precedent to Additional Advance.

38

 

 

 

 

20.

TRANSFER OF LOAN; LOAN SERVICER

39

 

 

 

 

 

(a)

Lender’s Right to Transfer

39

 

(b)

Loan Servicer

39

 

(c)

Dissemination of Information

39

 

 

 

 

21.

LENDER’S EXPENSES; RIGHTS OF LENDER

39

22.

MISCELLANEOUS

40

 

 

 

 

 

(a)

Notices

40

 

(b)

Waivers

41

 

(c)

Lender Not Partner of Borrower; Borrower in Control

41

 

(d)

No Third Party

42

 

(e)

Time of Essence; Context

42

 

(f)

Successors and Assigns

42

 

(g)

Governing Jurisdiction

42

 

(h)

SUBMISSION TO JURISDICTION; SERVICE OF PROCESS

42

 

(i)

WAIVER WITH RESPECT TO DAMAGES

43

 

(j)

Entire Agreement

44

 

(k)

Headings

44

 

(l)

Severability

44

 

(m)

Counterparts

44

 

(n)

WAIVER OF JURY TRIAL

44

 

(o)

Sole and Absolute Discretion

44

 

(p)

Straight Debt Harbor

45

 

(q)

Assignment

45

 

(r)

Retainage of Subcontractors

45

 

 

 

 

23.

SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER

45

 

 

iii

--------------------------------------------------------------------------------

 

24.

SENIOR MEZZANINE LOAN

48

25.

SUBDIVISION AND RELEASE

49

 

 

iv

--------------------------------------------------------------------------------

 

 

JUNIOR MEZZANINE LOAN AGREEMENT

 

This JUNIOR MEZZANINE LOAN AGREEMENT (this “Agreement”) is made and entered into
as of December 31, 2008, by and between SW 131 ST. ROSE MEZZANINE BORROWER LLC,
a Delaware limited liability company, whose address is 2001 Bryan Street,
Suite 3250, Dallas, Texas 75201 (“Borrower”), and BEHRINGER HARVARD ST. ROSE
REIT, LLC, a Delaware limited liability company, whose address is 15601 Dallas
Parkway, Suite 600, Addison, Texas, 75001 (“Lender”).

R E C I T A L S:

 

This Agreement is made with reference to the following facts:

 

A.         Borrower is directly or indirectly the legal and beneficial owner of
one-hundred percent (100%) of the Equity Interests in SW 132 ST. ROSE SENIOR
BORROWER LLC, a Delaware limited liability company (“Mortgagor”).

 

B.            Mortgagor is the owner of that certain land located in Henderson,
Clark County, Nevada, and more particularly described on Exhibit A attached
hereto, together with appurtenances (the “Land”). The Land is comprised of a
portion that is zoned RH-36 (High Density Residential), which is generally the
western 18.151 acres of the Land (the “Residential Tract”) and a portion that is
zoned CC-PUD (Community Commercial with Planned Unit Development Overlay), which
is generally the eastern 6.271 acres of the Land (the “Commercial Tract”).
Mortgagor will construct on the Residential Tract a 430-unit apartment complex
(the “Project”).

 

C.            Contemporaneously herewith, Mortgagor will enter into a
Construction Loan Agreement with Bank of America, N.A. and the lenders who from
time to time agree to fund parts of such loan (“Senior Lender”), providing a
loan in the amount of Thirty Eight Million Six Hundred Thousand and No/Dollars
($38,600,000) (the “Senior Loan”), secured by a deed of trust, of even date
herewith (together with any and all extensions, renewals, substitutions,
replacements, amendments, modifications and/or restatements thereof) in favor of
Senior Lender encumbering the Land and the Project.

 

D.            Contemporaneously with entering into the Senior Loan, SW 122 St.
Rose Senior Borrower LLC, a Delaware limited liability company (“Commercial
Tract Borrower”), will enter into a Term Loan Agreement with Bank of America,
N.A., as lender for its sole account (“Commercial Tract Lender”), providing a
loan in the amount of Two Million Nine Hundred Fifty Thousand and No/Dollars
($2,950,000) (the “Commercial Tract Loan”), secured by a deed of trust, of even
date herewith (together with any and all extensions, renewals, substitutions,
replacements, amendments, modifications and/or restatements thereof) in favor of
Commercial Tract Lender encumbering the Land and the Project.

 

 

1

--------------------------------------------------------------------------------

 

E.             Borrower has requested that Lender, as lender, make one or more
loans to Borrower in the aggregate amount of Twenty One Million Forty Three
Thousand One Hundred Ninety Seven and No/Dollars ($21,043,197) (the “Maximum
Aggregate Advance Amount”), one of such loans (the “Loan”) will be made pursuant
to this Agreement, which Loan is to be advanced as hereinafter provided and is
to be evidenced by the Note. $14,185,154 of the Maximum Aggregate Advance Amount
will be advanced under the Senior Mezzanine Loan Agreement, subject to the terms
and provisions of the Senior Mezzanine Loan Agreement, and $1,000 of the Loan
will be advanced under this Agreement at the execution of this Agreement (the
“Initial Advance”), subject to the terms and provisions of this Agreement. The
Note is to be secured by the Junior Subordinate Deed of Trust, Assignment of
Rents and Leases, Security Agreement, Fixture Filing and Financing Statement
(the “Security Instrument”) and other collateral as specified in Section 5
below.

 

F.             Mortgagor is currently pursuing a subdivision of the Land and
intends to convey to Commercial Tract Borrower the Commercial Tract. When
Commercial Tract Borrower acquires title to the Commercial Tract (the “Transfer
Date”), the lien of the Security Instrument will be partially released as to the
Commercial Tract.

 

G.            The proceeds of the Loan are to be used by Borrower to, among
other things, pay the costs and expenses, if any, referred to in
Section 3(b) below.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
agreements hereinafter contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

1.             RECITALS. The recitals set forth above are true and correct and
are incorporated herein by reference.

 

2.             DEFINITIONS. The following terms, when used in this Agreement
(including when used in the above recitals), shall have the following meanings:

 

(a)                                  “Accounting Records”: shall mean such
records used to prepare financial statements including but not limited to:
(i) supporting documentation for cash disbursements (including check copies and
invoices); (ii) supporting documentation for cash receipts (including deposit
slips); (iii) contracts; (iv) check registers; (v) monthly bank account
reconciliations; (vi) general ledger; (vii) job cost detail of construction in
progress in the same form as provided to Senior Lender; (viii) detail of draw
requests on the Senior Loan; (ix) Senior Lender’s monthly loan statement; and
(x) such other documentation in the possession of Borrower or its Affiliates or
which Borrower will use all commercially reasonable efforts to acquire, as
Lender shall reasonably require for the preparation of financial statements for
the Project, Mortgagor or Borrower.

 

 

2

--------------------------------------------------------------------------------

 

(b)                                 “ADA” shall mean Americans with Disabilities
Act of 1990, Pub. L. No. 89-670, 104 Stat. 327 (1990), as amended, and all
regulations promulgated pursuant thereto.

 

(c)                                  “Additional Advance”: shall have the
meaning given in Section 19 hereof.

 

(d)                                 “Affiliate”: of any specified person or
entity shall mean any other person or entity, directly or indirectly,
controlling or controlled by or under direct or indirect common control with
such specified person or entity. For purposes of this definition, “control”
shall mean the ability, whether by the ownership of shares or other equity
interests, by contract or otherwise, to elect a majority of the directors of a
corporation, to make management decisions on behalf of, or independently to
select the managing partner of, a partnership, or otherwise to have the power
independently to remove and then select a majority of those individuals
exercising managerial authority over an entity. Control of an entity shall be
conclusively presumed in the case of the ownership of more than 50% of the
equity interests in the entity.

 

(e)                                  “Annual Budget”: shall mean, for any
period, the budget submitted to Lender and in effect for such period as provided
in Section 12 hereof.

 

(f)                                    “Approved Change Orders”: shall mean any
change orders to the Plans requested by the Borrower and approved by the Lender
as outlined in Section 13(b) hereof.

 

(g)                                 “Available Assets”: shall have the meaning
given in the Guaranty.

 

(h)                                 “Bankruptcy Proceedings”: shall have the
meaning given in Section 17(n).

 

(i)                                     “Borrower”: means the entity identified
as “Borrower” in the first paragraph of this Agreement, together with its
successors and assigns.

 

(j)                                     “Business Day”: shall mean all days
other than Saturday, Sunday or any other day on which national banks doing
business in Dallas, Texas are not open for business.

 

(k)                                  “Code”: the Internal Revenue Code of 1986,
as amended from time to time, or the corresponding provisions of any successor
federal income tax law. Any reference to a particular provision of the Code
shall include any amendment of such provision or the corresponding provision of
any successor federal income tax law.

 

(l)                                     “Collateral”: shall have the meaning
given in the Security Instrument.

 

 

3

--------------------------------------------------------------------------------

 

(m)                               “Commercial Deed of Trust”: shall mean that
certain deed of trust made by the Mortgagor for the benefit of the Commercial
Tract Lender, which prior to the Transfer Date, will encumber both the
Residential Tract and the Commercial Tract, and after the Transfer Date will
encumber only the Commercial Tract.

 

(n)                                 “Commercial Tract”: shall have the meaning
given in the Recitals of this Agreement.

 

(o)                                 “Commercial Tract Borrower”: shall have the
meaning given in the Recitals of this Agreement.

 

(p)                                 “Commercial Tract Lender”: shall have the
meaning given in the Recitals of this Agreement.

 

(q)                                 “Commercial Tract Loan”: shall have the
meaning given in the Recitals of this Agreement.

 

(r)                                    “Completion”: shall have the meaning
given in the Guaranty.

 

(s)                                  “Construction Budget”: shall mean the
construction budget attached hereto as Exhibit D.

 

(t)                                    “Default Interest Rate”: shall have the
meaning given in the Note.

 

(u)                                 “Draw Request”: shall mean a request for
additional advances on the Loan and/or under the Senior Mezzanine Loan Agreement
submitted by Borrower in the form attached hereto as Exhibit E.

 

(v)                                 “Encumbrance”: shall mean any pledge,
encumbrance, hypothecation or other grant of security interest, whether direct
or indirect, voluntary or involuntary or by operation of law, and whether or not
consented to by Lender, of or in (i) all or any portion of, or interest in, the
Project (other than any encumbrance by the Senior Loan Documents and the
Permitted Exceptions), or (ii) any Equity Interests in Mortgagor, or (iii) any
part of the Principal’s Equity Interests in Borrower.

 

(w)                               “Environmental Indemnity”: shall mean the
Mezzanine Environmental Indemnity Agreement of even date herewith, executed by
Borrower and containing representations, warranties, covenants and indemnities
in favor of Lender with respect to Hazardous Materials.

 

(x)                                   “Equity Interests”: means, with respect to
any Person, shares of capital stock, partnership interests, membership interests
in a limited liability company, beneficial interests in a trust or other equity
ownership interests in such Person, and any warrants, options or other rights
entitling the holder thereof to purchase or acquire from such Person any such
equity interest issued by such Person.

 

 

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(y)                                 “Estimated Collateral Value Statement”:
shall have the meaning given in the Guaranty.

 

(z)                                   “Estimated Value” means the estimated
value of the property encumbered by the Security Instrument, as such value may
be determined from time to time by Lender, less the amount, if any, of all other
debt secured by such property that is senior to both the Loan and the loan under
the Senior Mezzanine Loan Agreement.

 

(aa)                            “Event of Default”: shall have the meaning given
in Section 17 hereof.

 

(bb)                          “Final Map”: shall have the meaning given in
Section 25 hereof.

 

(cc)                            “General Contractor”: means TCR Nevada
Construction Limited Partnership, a Texas limited partnership.

 

(dd)                          “Governmental Authority”: shall mean any federal,
state, county, municipal, parish, provincial, tribal or other government, or any
department, commission, board, court, agency (including, without limitation, the
U. S. Environmental Protection Agency), whether of the United States of America
or any other country, or any instrumentality of any of them, or any other
political subdivision thereof (a) in which any portion of the Land is located,
(b) in which any of Mortgagor, Borrower, Guarantor or Lender is located or
conducts business, or (c) exercising jurisdiction over Mortgagor, Borrower,
Guarantor or Lender, or any of the Land, and any entity exercising legislative,
judicial, regulatory, or administrative functions of, or pertaining to,
government including, without limitation, any arbitration panel, any court or
any commission.

 

(ee)                            “Governmental Requirements”: shall mean all
laws, ordinances, rules, regulations, orders and directives of any Governmental
Authority applicable to any of Mortgagor, Borrower, Guarantor, Lender or any of
the Land, including, without limitation, all applicable licenses, building
codes, restrictive covenants, zoning and subdivision ordinances, flood disaster,
health and environmental laws and regulations, and the ADA.

 

(ff)                                “Guarantor”: shall mean CFP Residential,
L.P., Kenneth J. Valach, J. Ronald Terwilliger, and Bruce Hart.

 

(gg)                          “Guaranty”: means that certain Mezzanine Guaranty,
of even date herewith, executed by the Guarantors, jointly and severally, in
favor of Lender.

 

(hh)                          “Hazardous Materials”: shall have the meaning
given in the Environmental Indemnity.

 

(ii)                                  “Indebtedness”: shall mean the principal
of, interest on, and any other amounts due at any time under, this Agreement,
the Note, the Security

 

 

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Instrument or any other Loan Document, including prepayment premiums, late
charges, default interest, and advances to protect the security of the
Collateral.

 

(jj)                                  “Initial Advance”: shall have the meaning
given in the Recitals of this Agreement.

 

(kk)                            “Inspecting Architects/Engineers”: shall mean
architects and/or engineers selected by Borrower and reasonably acceptable to
Lender.

 

(ll)                                  “Junior Mezzanine Advance Amount” means
the principal amount outstanding under the Loan.

 

(mm)                      “Land”: shall have the meaning given in the Recitals
of this Agreement; provided, however, that from and after the Transfer Date, the
Land shall be deemed to be comprised solely of the Residential Tract.

 

(nn)                          “Leases”: shall mean all present and future
leases, subleases, licenses, concessions or other possessory interests now or
hereafter in force, whether oral or written, covering or affecting the Project,
or any portion of the Project, and all modifications, extensions or renewals.

 

(oo)                          “Lender”: means the entity identified as “Lender”
in the first paragraph of this Agreement and its successors and assigns.

 

(pp)                          “Loan”: shall have the meaning given in the
Recitals of this Agreement.

 

(qq)                          “Loan Documents”: shall mean the Note, this Loan
Agreement, the Security Instrument, the Guaranty, the Environmental Indemnity,
and all other documents executed by Borrower or Guarantors to evidence, secure
or set out the terms of the Loan, each as the same may hereafter be amended,
modified and restated from time to time.

 

(rr)                                “Management Agreement”: shall mean the
Management Agreement, to be entered into between Mortgagor and Manager, upon the
approval of Lender, pursuant to which Manager will agree to manage the
operations of the Project, as the same may be amended from time to time, or any
other management agreement approved by Lender pursuant to Section 13(i) .

 

(ss)                            “Manager”: shall mean a property management
company approved by Lender pursuant to Section 13(i) hereof.

 

(tt)                                “Maturity Date” shall have the meaning given
in the Note.

 

(uu)                          “Maximum Aggregate Advance Amount” shall have the
meaning given in the Recitals of this Agreement.

 

 

6

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(vv)                          “Mortgagor”: shall have the meaning given in the
Recitals of this Agreement.

 

(ww)                      “Note”: shall mean that certain Junior Mezzanine
Promissory Note, dated of even date herewith, in the Maximum Aggregate Advance
Amount, made payable by Borrower to the order of Lender, evidencing all amounts
outstanding under the Loan from time to time, as the same may be amended from
time to time.

 

(xx)                              “Permits”: shall mean all licenses, permits,
approvals, franchises, privileges, immunities, grants, ordinances,
classifications, certificates and registrations which are necessary for
Mortgagor to develop, construct and operate the Project.

 

(yy)                          “Permitted Exceptions”: shall mean (1) the title
exceptions included in the Policy required to be delivered to Lender pursuant to
Section 7(a) hereof, as the same may be endorsed from time to time with the
consent of the Lender, (2) liens and security interests securing the Loan, the
Senior Loan and, prior to the Transfer Date, the Commercial Tract Loan,
(3) liens for taxes, assessments or other governmental charges or levies that
are not then due or that are being contested in good faith and in accordance
with applicable statutory procedures, (4) mechanic’s liens against the Project
which are bonded off, released of record or otherwise remedied to Lender’s
reasonable satisfaction within 30 days of the date of creation, (5) Leases
entered into on terms allowed by this Agreement and (6) other matters approved
in writing by Lender, which includes any liens and security interests granted in
connection with the Senior Mezzanine Loan Agreement or the loan thereunder.

 

(zz)                              “Person”: shall mean any individual,
corporation, partnership, limited liability company, joint venture, estate,
trust, or unincorporated association, any other entity, any federal, state,
county or municipal government or any bureau, department or agency thereof and
any fiduciary acting in such capacity on behalf of the foregoing.

 

(aaa)                      “Plans”: shall mean the plans and specifications
identified in Exhibit C hereto.

 

(bbb)                   “Policy”: shall have the meaning given in
Section 7(a) hereof.

 

(ccc)                      “Principal”: shall mean SW 130 St. Rose Limited
Partnership, a Delaware limited partnership, the sole member of Borrower and the
holder of all Equity Interests in Borrower, and any person or entity who becomes
the owner of any Equity Interest in Borrower after the date of this Agreement
and is identified as such in an amendment or supplement to this Agreement.

 

 

7

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(ddd)                   “Project”: shall have the meaning given in the Recitals
of this Agreement. The Project includes the Residential Tract.

 

(eee)                      “REA”: shall have the meaning given in Section 25
hereof.

 

(fff)                            “Residential Tract”: shall have the meaning
given in the Recitals of this Agreement.

 

(ggg)                   “Sale”: shall mean any sale, assignment, transfer,
conveyance or other disposition, whether voluntary or involuntary, and whether
or not consented to by Lender of (i) all or any portion of, or interest in, the
Land or the Project (other than the conveyance of the Commercial Tract to the
Commercial Tract Borrower), (ii) all or any portion of the Equity Interests in
Mortgagor, or (iii) all or any portion of the Principal’s Equity Interests in
Borrower.

 

(hhh)                   “Security Instrument”: shall have the meaning given in
the Recitals to this Agreement.

 

(iii)                               “Senior Deed of Trust”: shall mean that
certain deed of trust securing the Senior Loan.

 

(jjj)                               “Senior Indemnity”: shall mean the
Environmental Indemnity Agreement between Mortgagor, Senior Lender and the other
parties thereto.

 

(kkk)                      “Senior Loan”: shall have the meaning given in the
Recitals of this Agreement.

 

(lll)                               “Senior Loan Agreement”: shall mean the
Construction Loan Agreement between Senior Lender and Mortgagor evidencing the
Senior Loan.

 

(mmm)             “Senior Loan Documents”: shall mean the Senior Note, the
Senior Deed of Trust, the Senior Loan Agreement, the Senior Indemnity Agreement,
any guaranty provided by the guarantors to the Senior Loan, financing statements
filed in connection with the Senior Loan, and all other documents executed by
Mortgagor or Guarantor in favor of Senior Lender to evidence or secure the
Senior Loan or reasonably related to the Senior Loan, including, but not limited
to, budgets and draw requests, as each may be amended, modified or restated with
the consent of Senior Lender.

 

(nnn)                   “Senior Mezzanine Advance Amount” means the principal
amount outstanding on the Senior Mezzanine Loan Agreement.

 

(ooo)                   “Senior Mezzanine Loan Agreement” means that certain
Senior Mezzanine Loan Agreement between Borrower and Lender dated of even date
herewith.

 

 

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(ppp)                   “Senior Note”: shall mean the promissory notes
evidencing the Senior Loan and all schedules, riders, allonges and addenda, as
such promissory notes may be amended from time to time with the consent of
Senior Lender.

 

(qqq)                   “Title Insurer”: shall mean Chicago Title Insurance
Company.

 

(rrr)                            “Third Party Agreement”: shall mean any
agreement other than Leases and the Permitted Exceptions that will be binding on
the Project, Mortgagor or Borrower after the closing of the Loan.

 

(sss)                      “Transfer Date”: shall have the meaning given in the
Recitals of this Agreement.

 

3.             THE LOAN; DISBURSEMENT OF LOAN.

 

(a)                                  Loans. On the basis of the covenants,
agreements and representations of Borrower contained herein and comparable
provisions of the Senior Mezzanine Loan Agreement and subject to the terms and
conditions hereinafter set forth and comparable provisions of the Senior
Mezzanine Loan Agreement, Lender shall lend to Borrower the Maximum Aggregate
Advance Amount, the proceeds of which are to be disbursed by Lender in
accordance with the provisions of Section 3(b) hereof and comparable provisions
of the Senior Mezzanine Loan Agreement.

 

(b)                                 Loan Disbursements. At the execution of this
Agreement, Lender has advanced the Initial Advance to the Borrower. All
Additional Advances against the Loan will be disbursed in accordance with
Section 19 hereof. Upon submission by Borrower of a Draw Request, Lender shall
(subject to satisfaction of the terms and conditions of Section 19) advance to
Borrower hereunder against the Loan the amount requested by Borrower less the
portion thereof, if any, simultaneously advanced pursuant to the Senior
Mezzanine Loan Agreement. In no event shall the aggregate principal amount
outstanding hereunder exceed the Maximum Aggregate Advance Amount less the
Senior Mezzanine Advance Amount as it stands at such time.

 

4.             INTEREST PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT;
MATURITY; REPAYMENT.

 

(a)                                  Interest. Interest on the principal balance
of the Loan shall accrue and shall be payable in the amounts and at the times
set forth in the Note. Borrower agrees to pay, on the Maturity Date, the unpaid
principal balance of the Loan, together with all accrued but unpaid interest
thereon.

 

(b)                                 No Usury. The provisions of this Agreement,
the Note, the Security Instrument and of all other agreements between Borrower
and Lender, whether now existing or hereafter arising and whether written or
oral,

 

 

9

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including, but not limited to, the Loan Documents, are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason of demand or
acceleration of the maturity of this Note or otherwise, shall the amount
contracted for, charged, taken, reserved, paid, or agreed to be paid to Lender
for the use, forbearance, retention or detention of the money loaned under the
Note and related indebtedness exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, performance or fulfillment
of any provision hereof or of any agreement between Borrower and Lender shall,
at the time performance or fulfillment of such provision shall be due, exceed
the limit for interest prescribed by law or otherwise transcend the limit of
validity prescribed by applicable law, then ipso facto the obligation to be
performed or fulfilled shall be reduced to such limit; and if, from any
circumstance whatsoever, Lender shall ever receive anything of value deemed
interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive interest shall be applied to the reduction of the
principal balance owing under the Note in the inverse order of its maturity
(whether or not then due) or at the option of Lender be paid over to Borrower,
and not to the payment of interest. All interest (including any amounts or
payments judicially or otherwise under the law deemed to be interest) contracted
for, charged, taken, reserved, paid or agreed to be paid to Lender shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the Note, including any extensions or renewals
thereof, until payment in full of the Indebtedness so that the interest on the
Loan for such full period will not exceed at any time the maximum amount
permitted by applicable law. To the extent that Lender is relying on
Chapter 303, as amended, of the Texas Finance Code to determine the maximum
amount of interest permitted by applicable law on the principal of the Loan,
Lender will utilize the weekly rate ceiling from time to time in effect as
provided in such Chapter 303, as amended. To the extent United States federal
law permits a greater amount of interest on the Loan than is permitted under
Texas law, Lender will rely on United States federal law instead of such
Chapter 303, as amended, for the purpose of determining the maximum amount
permitted by applicable law. Additionally, to the extent permitted by applicable
law now or hereafter in effect, Lender may, at its option and from time to time,
implement any other method of computing the maximum lawful rate under such
Chapter 303, as amended, or under other applicable law by giving notice, if
required, to Borrower as provided by applicable law now or hereafter in effect.
This Section 4(b) will control all agreements between Borrower and Lender.

 

(c)                                  Intentionally Deleted.

 

(d)                                 Prepayment. All amounts due and owing under
the Note from time to time may only be prepaid in accordance with the terms of
the Note except at any time after 150 days after Completion.

 

 

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(e)                                  Maturity Date.

 

(i)                                     The outstanding principal balance of the
Note and all accrued and unpaid interest thereon shall become due and payable on
the Maturity Date unless the same is otherwise accelerated in accordance with
the provisions hereof or the other Loan Documents.

 

(ii)                                  Subject to the provisions of
Section 13(d) hereof, in the event that the Senior Note is paid in full at any
time prior to the Maturity Date of the Loan, the Indebtedness shall then be
immediately due and payable regardless of the then stated Maturity Date of the
Loan.

 

5.             SECURITY FOR LOAN; GUARANTY.

 

(a)                                  Security Instrument. The Loan shall be
secured by, among other things, the Security Instrument.

 

(b)                                 Other Loan Documents. The Loan shall be
further secured and supported by the Environmental Indemnity and the other Loan
Documents.

 

(c)                                  Guaranty. As additional security for the
Loan, the Guarantors shall execute and deliver to Lender the Guaranty.

 

6.             CONDITIONS PRECEDENT TO CLOSING OF THE LOAN. Prior to the funding
of the Loan (unless otherwise provided), all of the following conditions shall
have been satisfied, and/or Borrower, Guarantor or Mortgagor, as applicable,
shall have furnished to Lender the following, all in form and substance
satisfactory to Lender in its sole and absolute discretion:

 

(a)                                  Loan Documents. Borrower, Guarantor and
Mortgagor, as applicable, shall have provided to Lender duly executed and, where
appropriate, notarized originals of the Loan Documents, each satisfactory to
Lender in its sole and absolute discretion, including the following:

 

(i)                                     this Agreement;

 

(ii)                                  the Note;

 

(iii)                               the Security Instrument, in recordable form
in the State of Nevada;

 

(iv)                              the Guaranty;

 

(v)                                 the Environmental Indemnity;

 

(vi)                              Certification of Organizational Documents; and

 

 

11

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(vii)                           such other agreements by Borrower as may be
required by other provisions of this Agreement.

 

(b)                                 Third Party Agreements.

 

(i)                                     Copies. Borrower shall have provided to
Lender executed copies, certified by Borrower as being true, correct and
complete, of the Senior Loan Documents and the other Third Party Agreements then
in effect, if any.

 

(ii)                                  Intercreditor and Subordination Agreement.
Senior Lender shall have provided to Lender an executed copy of that certain
Intercreditor and Subordination Agreement by and between Senior Lender and
Lender dated of even date herewith.

 

(c)                                  Certification. Borrower shall have provided
to Lender a certification by Borrower as of the date of this Agreement (which is
the date that the commitment of Lender to make the Loan to Borrower becomes
binding on Lender) of the Construction Budget and the reasonably estimated costs
of the improvements that would be capitalized by Mortgagor as real property for
federal income tax purposes consistent with past practices of the affiliates of
Mortgagor.

 

(d)                                 Financial Statements. Borrower shall have
provided to Lender with (i) respect to Borrower, Mortgagor, and the Project,
financial statements and other financial information (including but not limited
to the items listed on Exhibit J after Completion of the Project and to the
extent not already provided pursuant to Section 12 hereof), certified by
Borrower and Mortgagor as being true, correct and complete in all material
respects, and in the form and containing the detail and supporting information
as required by Lender for the underwriting for the Loan, and (ii) with respect
to all Guarantors, the Estimated Collateral Value Statement, dated as of
June 30, 2008.

 

(e)                                  Insurance Policies. Borrower shall have
provided to Lender the original insurance policies, certified copies thereof or
certificates thereof, together with evidence of premium payments, for the
insurance as more fully provided in Section 8 hereof, which should include
Hazard and Public Liability and Worker’s Compensation Insurance.

 

(f)                                    Contracts. Borrower shall have provided
or will provide to Lender copies of any contracts regarding the Project entered
into by Mortgagor with any contractors or engineers and, if requested by Lender,
copies of contracts, if any, with any subcontractors for the construction or
installation of the improvements made or to be made in connection with the
Project.

 

 

12

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(g)                                 Title Insurance Policy. Lender shall have
received, reviewed and approved Mortgagee’s Policy of Title Insurance described
in Section 7 hereof.

 

(h)                                 ALTA Survey. Lender shall have received a
current ALTA survey of the Land (the “Survey”) completed in accordance with
Senior Lender’s requirements, satisfactory to Lender and to the Title Insurer
and certified to Senior Lender, Lender (and its successors and assigns) and the
Title Insurer.

 

(i)                                     Flood Plain Certification. To the extent
not provided on the Survey, Lender shall have received evidence that the Land is
not located within any flood plain or, if the Land is located within a flood
plain, Borrower has obtained and is maintaining in full force and effect a
policy or policies of flood insurance pursuant to Section 8 hereof. Any such
certifications shall also be certified to Lender and its successors and assigns.

 

(j)                                     Appraisal. Lender shall have received an
appraisal of the Project prepared by a licensed appraiser acceptable to Lender,
in form and substance required by Senior Lender, but also addressed to Lender
and its successors and assigns, in an amount equal to or greater than
$80,900,000.

 

(k)                                  Environmental Report. Lender shall have
received an environmental report covering the Land, prepared by a professional
acceptable to Lender, in form and substance as required by Senior Lender, and
also certified to Lender and its successors and assigns.

 

(l)                                     Certification of Organizational
Documents. Lender shall have received a written certification attaching the
required documents with respect to both Mortgagor and Borrower, confirming
(i) that true, complete and correct copies of the organizational documents have
been attached to the certification, (ii) that no modifications of such documents
exist which have not been provided to Lender, and (iii) that the provisions of
Section 23 hereof have been incorporated into the organizational documents.

 

(m)                               Legal Opinion. Lender shall have received a
written legal opinion or legal opinions from Borrower’s counsel (which counsel
must be acceptable to Lender) in form acceptable to Lender and its counsel,
opining as to such matters as Lender may reasonably require, including an
opinion regarding: (1) due organization and valid existence, (2) authority,
(3) enforceability of the Loan Documents, and (4) no usury.

 

(n)                                 UCC Searches. Lender shall have received
full Uniform Commercial Code searches, performed by a search company and in
jurisdictions satisfactory to Lender, with respect to Borrower and the Mortgagor
disclosing no matters objectionable to Lender.

 

 

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(o)                                 Utilities. Lender shall have received
evidence that all sewer, water, electrical, telephone and any other utility
services necessary to obtain a certificate of occupancy for the Project are
available at the Land in adequate supply for the use and operation of the Land
and each provider of utility services has a binding obligation to deliver the
necessary services to the completed residences. This evidence may include
letters from the applicable utility providers.

 

(p)                                 Environmental Disclosure. In accordance with
all applicable laws, Borrower shall provide a true, correct and complete copy of
any disclosure document or other instrument required by any such law relating to
environmental matters.

 

(q)                                 No Default. The representations and
warranties of Borrower contained in this Agreement shall be true, correct and
complete in all material respects, except the representations in
Section 16(c) which need be accurate only as of the effective date of such
financial statements, and no Event of Default, as defined below, or circumstance
or event which upon the lapse of time, the giving of notice or both, could
become an Event of Default shall have occurred.

 

Lender acknowledges, by its execution of this Agreement, that all conditions
listed in this Section 6 have been satisfied to Lender’s satisfaction or waived
by Lender, both as to the Initial Advance under the Loan and any Additional
Advance to be made in the future.

 

7.             TITLE INSURANCE. Concurrently with the closing of the Loan,
Borrower shall deliver or cause to be delivered to Lender, a Mortgagee’s Policy
of Title Insurance (“Policy”) naming Mortgagor as fee simple owner of the Land
issued by the Title Insurer, meeting the following requirements: (i) with
coverage amount not less than the Loan Amount; (ii) dated as of a date not
earlier than the date of Closing; and (iii) the legal description insured under
such policy shall include any easements benefiting the Land.

 

8.             INSURANCE.

 

(a)                                  Insurance Requirements.  Borrower shall
obtain and keep in full force and effect builder’s risk insurance (the
“Builder’s Risk Insurance Policy”) coverage or permanent Commercial Property
Causes of Loss — Special Form insurance coverage as appropriate, reasonably
satisfactory to Lender, on the Project. All insurance policies shall be issued
by carriers with a Best’s Insurance Reports policy holder’s rating of A- or
better, and a financial size category of Class IX or larger. The policies shall
provide for the following, and any other coverage that Lender may from time to
time deem reasonably necessary.

 

(i)                                     Lender’s contact information in its
capacity as mortgagee and/or additional insured, as appropriate:

 

 

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Behringer Harvard St. Rose REIT, LLC and its affiliates, successors and/or
assigns

15601 Dallas Parkway, Ste. 600

Addison, Texas 75001

Attn:       Risk Management

 

(ii)                                  Commercial Property Causes of Loss —
Special Form and/or Builders Risk in the amount of 100% of the replacement cost
of all structures and personal property located or to be located on the Project.
Coverage shall include ordinance and law, increased cost of construction, and
demolition costs. If the policy is written on a CO-INSURANCE basis, the policy
MUST contain an AGREED AMOUNT ENDORSEMENT as evidence that the coverage is in an
amount sufficient to insure the full amount of the mortgage indebtedness. Unless
inconsistent with the requirements of the Senior Lender or the Commercial Tract
Lender, “Behringer Harvard St. Rose REIT, LLC and its affiliates, successors
and/or assigns” is to be named as the “Mortgagee” and “Loss Payee” (without
contribution).

 

(iii)                               Commercial General Liability coverage in a
minimum amount of not less than $1,000,000.00 per occurrence and $2,000,000.00
in the aggregate, together with excess liability coverage in a minimum amount of
not less than $15,000,000.00. “Behringer Harvard St. Rose REIT, LLC and its
affiliates, successors and/or assigns” is to be named as “Additional Insured”.
Please note this coverage must be separately issued and provided for both
(i) Mortgagor, (ii) Borrower, and (iii) Mortgagor’s general contractor.

 

(iv)                              Rent Loss or business interruption coverage in
a minimum amount of not less that the appraised rentals for a minimum of twelve
(12) months.

 

(v)                                 Flood hazard coverage in at least the
minimum amount available, if the Project is located in a special flood hazard
area (“Flood Hazard Area”) as designated by the Federal Emergency Management
Agency on its Flood Hazard Boundary Map and Flood Insurance Rate Maps, and the
Department of Housing and Urban Development, Federal Insurance Administration,
Special Flood Hazard Area Maps. Unless inconsistent with the requirements of the
Senior Lender or the Commercial Tract Lender, “Behringer Harvard St. Rose REIT,
LLC and its affiliates, successors and/or assigns” is to be named as the
“Mortgagee” and “Loss Payee” (without contribution).

 

 

15

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(vi)                              Earthquake coverage in the amounts/deductibles
and in the form and substance reasonably satisfactory to the Lender in the event
the Project is located in an area with a high degree of seismic activity.

 

(vii)                           Workers Compensation insurance as required by
law.

 

(viii)                        Such other types and amounts of insurance with
respect to the premises and the operation thereof which are commonly maintained
in the case of the other property and buildings similar to the Project in
nature, use, location, height, and type of construction, as may from time to
time be reasonably required by Lender in its capacity as mortgage.

 

(ix)                                Each policy shall provide that it may not be
canceled, reduced or terminated without at least thirty (30) days prior written
notice to the Lender.

 

(x)                                   Proof of insurance required under (ii),
(iv), (v), (vi) shall be evidenced on Accord Form 28 Evidence of Commercial
Property Insurance.  Proof of insurance required under (iii) and (vii) shall be
evidenced on Accord Form 25 Certificate of Liability Insurance.

 

(xi)                                The evidence of insurance must identify the
Borrower as an Insured/Additional Insured.

 

(xii)                             The Project location must be referenced on the
evidence of insurance.

 

(b)                                 Initial Policies; Renewals.  The initial
policies shall be prepaid and delivered to the Lender prior to closing, and all
renewal policies shall be provided to Lender as evidence of such insurance. 
Certificates as referenced in Section 8(a)(x) may be substituted for actual
policies.

 

(c)                                  Notices.  Borrower shall cause a copy of
the certificate(s) to be sent to Jill Buffington via — e-mail
jbuffington@bhfunds.com or facsimile (214) 655-1610 [Phone: (469) 341-2420],
with the original being mailed to the Lender as shown above in Section 8(a)(i).

 

(d)                                 Notice of Casualty.  Borrower shall give to
Lender immediate notice of any material loss occurring on or with respect to the
Project.

 

(e)                                  Settlement of Claim.  In case of loss
covered by any of such policies, Lender is authorized to adjust, collect and
compromise, in its discretion, all claims thereunder if an Event of Default has
occurred and is continuing at the time, subject to the rights of the Senior
Lender, prior to the Transfer Date, the Commercial Tract Lender, and the rights
of the lender under the Senior Mezzanine Loan Agreement.  In the event of any
adjustment, collection and compromise by Lender, Borrower covenants to sign upon

 

16

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demand, or Lender may sign or endorse on Borrower’s behalf, all necessary proofs
of loss, receipts, releases and other papers required by the insurance companies
to be signed by Borrower.  Borrower hereby irrevocably appoints Lender as its
attorney-in-fact for the purposes set forth in the preceding sentence, subject
to the rights of the Senior Lender, prior to the Transfer Date, the Commercial
Tract Lender, and the rights of the lender under the Senior Mezzanine Loan
Agreement.  Subject to the rights of the Senior Lender, prior to the Transfer
Date, the Commercial Tract Lender, and the rights of the lender under the Senior
Mezzanine Loan Agreement, Lender may deduct from such insurance proceeds any
reasonable expenses incurred by Lender in the collection and settlement thereof,
including attorneys’ and adjustors’ fees and charges.  Nothing contained in this
Agreement shall create any responsibility or obligation of the Lender to collect
any amounts owing on any insurance policy, to rebuild or replace the damaged or
destroyed portions of the Project or to perform any other related act.  The
Lender shall not, by the fact of approving, disapproving, accepting, preventing,
obtaining or failing to obtain any insurance, incur any liability for or with
respect to the amount of insurance carried, the form or legal sufficiency of
insurance contracts, solvency of insurance companies, or payment or defense of
lawsuits, and Borrower hereby expressly assumes full responsibility therefor and
all liability, if any, with respect thereto.

 

(f)                                    Application of Insurance Proceeds.  Any
insurance proceeds received by Mortgagor or Borrower under any of such casualty
policies shall, subject to the rights of the Senior Lender, prior to the
Transfer Date, the Commercial Tract Lender, and the rights of the lender under
the Senior Mezzanine Loan Agreement, be applied, at the option of the Lender,
toward pre-payment or reimbursement of the Loan and any other amounts evidenced
or secured by the Loan Documents, or to the rebuilding or repairing of the
Project so damaged or destroyed, as the Lender in its sole and unreviewable
discretion may elect; provided, however, that Lender will allow insurance
proceeds to be used for restoration of the Project if (i) the conditions for
Borrower’s use of insurance contained in the Senior Loan Documents are satisfied
(substituting Lender for Senior Lender thereunder in making related decisions)
or (ii) so directed by the Senior Lender, the lender under the Senior Mezzanine
Loan Agreement or, prior to the Transfer Date, the Commercial Tract Lender. 
Lender’s election to apply such insurance proceeds to the Loan and other amounts
evidenced or secured by the Loan Documents shall not relieve Borrower of the
duty to rebuild or repair.

 

9.             EMINENT DOMAIN.

 

(a)                                  Notice of Condemnation.  Borrower shall
give to Lender immediate notice of any taking by condemnation of any portion of
the Project or the

 

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institution of any proceedings the effect of which is to achieve a taking of any
portion of the Project by condemnation.

 

(b)                                 Settlement of Claim.  In case the Project,
or any part or interest in any thereof, is taken by condemnation, then subject
to the rights of the Senior Lender, the lender under the Senior Mezzanine Loan
Agreement or, prior to the Transfer Date, the Commercial Tract Lender, the
Lender is hereby empowered to collect and receive all compensation and awards of
any kind whatsoever (referred to collectively herein as “Condemnation Awards”)
which may be paid for any property taken or for damages to any property not
taken (all of which Borrower hereby assigns to the Lender, subject to the rights
of the Senior Lender, the lender under the Senior Mezzanine Loan Agreement and,
prior to the Transfer Date, the Commercial Tract Lender in the same).  Borrower
covenants to sign upon demand, or Lender may sign or endorse on Borrower’s
behalf, all necessary proofs of loss, receipts, releases and other papers
required by the condemning authority to be signed by Borrower for such purpose. 
Borrower hereby irrevocably appoints Lender as its attorney-in-fact for the
purposes set forth in this Section 9.  Lender may deduct from any Condemnation
Awards, any expenses reasonably incurred by Lender in the collection and
settlement thereof, including reasonable attorneys’ and adjusters’ fees and
charges.

 

(c)                                  Application of Condemnation Awards.  All
Condemnation Awards so received shall, subject to the rights of the Senior
Lender the lender under the Senior Mezzanine Loan Agreement or, prior to the
Transfer Date, the Commercial Tract Lender, be forthwith applied by the Lender,
as it may elect in its sole and unreviewable discretion, to the payment or
reimbursement of the Loan or the other amounts evidenced or secured by the Loan
Documents, or to the repair and restoration of any property not so taken or
damaged; provided, however, that Lender will allow Condemnation Awards to be
used for restoration of the Project if (i) the conditions for Borrower’s use of
Condemnation Awards contained in the Senior Loan Documents are satisfied
(substituting Lender for Senior Lender thereunder in making related decisions)
or (ii) so directed by the Senior Lender the lender under the Senior Mezzanine
Loan Agreement or, prior to the Transfer Date, the Commercial Tract Lender.

 

(d)                                 Continuing Obligation to Repair.  No
election made by the Lender under this Section 9 shall relieve Borrower of the
duty to repair and restore.

 

(e)                                  Lender Not Required to Act.  Nothing
contained in this Agreement shall create a responsibility or obligation of
Lender to collect any amounts owing on account of any such condemnation or
proceedings relating to the Project, to rebuild or replace any damaged or
destroyed property or to perform any other related act.

 

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10.          RIGHTS OF ACCESS AND INSPECTION.  Borrower shall cause Mortgagor to
permit agents, representatives and employees of Lender to inspect the Land and
the installation of the Project or any part thereof during reasonable business
hours upon reasonable advance notice.  Without limiting the foregoing, Lender
shall also be permitted access to the Project in order to examine, copy and
audit Mortgagor’s books and records (including as part of any audit performed
pursuant to Section 12(f) hereof) and any plans, drawings, contracts, books or
records relating to the Project.  Borrower shall, to the extent within its
control, cause any contractors or subcontractors to cooperate with Lender or its
agents in connection with any inspection.  Lender is under no duty to visit or
observe the Project or to examine any books or records.  Any site visit,
observation or examination by Lender shall be solely for the purpose of
protecting Lender’s security and preserving Lender’s rights under the Loan
Documents.  Neither Borrower, Mortgagor nor any other party is entitled to rely
on any site visit, observation or testing by Lender or its agents or
representatives.  Lender owes no duty of care to protect Borrower, Mortgagor or
any other party against, or to inform Borrower or any other party of, any
adverse condition affecting the Project, including any defects in the design or
construction of any improvements on the Land or the presence of any Hazardous
Materials on the Land.  So long as no Event of Default has occurred and is
continuing, Lender shall give Borrower and Mortgagor reasonable prior notice of
its intent to enter the Project.

 

11.          EXPENSES.  Borrower shall pay, as and when due, all reasonable
costs and expenses incurred in the procuring and making of the Loan by Lender,
including without limitation, to the extent reasonable, Title Insurer’s fees and
premiums, charges for examination of title to the Land, expenses of surveys,
transfer taxes and recording expenses, appraisal and appraisal review fees, fees
of an inspector and fees and expenses of any attorneys, accountants, engineers,
architects, surveyors, contractors, inspectors or other consultants,
professionals or independent contractors employed, retained or utilized by
Lender in connection with the Loan.  Borrower shall cause Mortgagor to pay when
due any and all insurance premiums, taxes, assessments, water, sewer and other
utility charges, impact fees, liens and encumbrances on the Project and any
other amounts payable for the cost of improvements to the Land, provided that
Borrower and/or Mortgagor may in good faith contest any such liens, claims or
amounts so long as it provides, for any filed lien, a bond in accordance with
statutory requirements or other security reasonably satisfactory to Lender. 
Borrower shall pay upon demand or reimburse Lender for any and all reasonable
fees, costs and expenses incurred by Lender in collecting the Indebtedness after
an Event of Default including reasonable attorneys’ fees.  All such amounts
shall be paid to Lender or at Lender’s direction to such other person to whom
payments are due or Lender may, at its option, pay such amounts and all sums
paid shall be deemed a portion of the Indebtedness and shall bear interest at
the Default Interest Rate.

 

12.          FINANCIAL REPORTS, PROPERTY REPORTS AND ANNUAL BUDGET.  The parent
company of Lender is a real estate fund that issues securities, maintains U.S.
GAAP audited financial statements and/or is publicly registered with the United
States Securities and Exchange Commission (“SEC”).  As a result, such parent
company is subject to GAAP financial statement requirements and other reporting
requirements. These requirements include but are not limited to quarterly and
annual financial reporting (including for public companies on Form 10-Q and
Form 10-K and reporting under Rule 3-14 of Regulation S-X, which requires the
filing of pro forma financial statements of acquired properties).  In addition,
certain accounting requirements may dictate that Lender report Borrower,
Mortgagor and/or the

 

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Project as a subsidiary of Lender.  Therefore, Borrower agrees to provide Lender
with all information that Borrower or its Affiliates have in their possession
and Borrower will use all commercially reasonable efforts to obtain such
information not in its possession as Lender reasonably requires in order to
prepare, audit and/or review financial statements of the Project, Mortgagor and
Borrower for the applicable reporting periods.

 

(a)                                  Borrower agrees that all accounting for the
Project will be conducted by Borrower and/or the Mortgagor and also by Lender. 
Borrower agrees to provide Lender with copies of all Accounting Records (other
than leases, which Borrower and/or the Mortgagor may make available at the
Project rather than copying) on a monthly basis in order to enable Lender to
prepare and maintain financial statements on Borrower, Mortgagor and/or the
Project in accordance with accounting principles generally accepted in the
United States of America.

 

(b)                                 Borrower agrees to provide Accounting
Records by the 10th of the month for the preceding month.

 

(c)                                  Borrower agrees to allow Lender and
Lender’s external independent accountants access to original Accounting Records
if needed in the process of their quarterly reviews and various audit processes.

 

(d)                                 Borrower agrees to cooperate with any
inquiries or interviews by Lender or its external independent accountants as may
be necessary in relation to Lender’s or its Affiliates’ compliance with the
Sarbanes-Oxley Act of 2002.

 

(e)                                  In addition, Borrower shall furnish to
Lender:

 

(i)                                     within 30 days after the end of each
fiscal year of Mortgagor, and at any other time upon Lender’s request, a
statement that identifies all owners of any interest in Mortgagor and the
interest held by each, if Mortgagor is a corporation, all officers and directors
of Mortgagor, and if Mortgagor is a limited liability company, all members and
managers (whether members or not);

 

(ii)                                  within 10 days after the end of each
month, a monthly property management report for the Project, showing the number
of inquiries made and rental applications received from tenants or prospective
tenants, deposits received from tenants and any other information reasonably
requested by Lender;

 

(iii)                               within 10 days following the end of each
month, a monthly statement of income and expense for the Project; and

 

(iv)                              beginning sixty (60) days prior to the first
occupancy of the Project and for each succeeding calendar year, not later than
ninety (90) days prior to the commencement of such calendar year, an annual

 

20

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budget which sets forth, in sufficient detail, Borrower’s projection of gross
receipts and expenses for such period (the “Annual Budget”).  Each Annual Budget
shall be for a calendar year except that the Annual Budgets for the year of
first occupancy of the Project shall only cover the remainder of the
then-current year.

 

(f)                                    If Borrower fails to provide in a timely
manner the Accounting Records, statements, schedules and reports required by
this Section 12, Lender shall have the right to have Mortgagor’s and Borrower’s
books and records audited or to perform any other procedure reasonably requested
by Lender, at Borrower’s expense, by independent certified public accountants
selected by Lender in order to obtain such statements, schedules and reports,
and all related costs and expenses of Lender shall become immediately due and
payable and shall become an additional part of the Indebtedness as provided in
Section 21.

 

(g)                                 If Lender acquires the Project through
foreclosure, Borrower shall deliver, or cause to be delivered, to Lender upon
written demand all books and records relating to the Project or its operation.
Otherwise, during the term of the Loan, to the extent that copies of such books
and records have not been provided pursuant to the provisions of this Section 12
set forth above, Borrower will provide Lender with all cost records necessary
for Lender to perform its accounting procedures including, but not limited to,
balance sheets, income statements, trial balance activity reports, general
ledger detail reports, cash receipts journal, check register or cash
disbursements journal and copies of checks and vendor invoices for all invoices
paid.   Borrower agrees to make available to Lender for examination and copying
any other books and records upon Lender’s written demand.

 

(h)                                 Borrower authorizes Lender to obtain one
(1) credit report per calendar year; provided, however, that Lender may obtain a
credit report on Borrower, Mortgagor and Guarantors at any time, even if a
credit report has been obtained in the same calendar year, if an Event of
Default has occurred.

 

13.          GENERAL COVENANTS OF BORROWER.  Until the full and final payment of
the Loan, unless Lender waives compliance in writing, Borrower hereby covenants
and agrees as follows:

 

(a)                                  Commencement and Completion of Project. 
Borrower shall or shall cause Mortgagor to prosecute the construction and
installation with diligence so that the construction and Completion of the
Project (other than payment of claims that are being contested in accordance
with the Loan Documents) shall have occurred by the completion deadline set
forth in the Senior Loan Documents.

 

21

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(b)                                 Lender Approval.  No changes to the
Construction Budget or the completion date required by the Senior Loan Documents
shall be permitted without Lender’s written consent, with the exception of
(i) completion date extensions due to force majeure and (ii) reallocation of
amounts among the line items of the Construction Budget; provided that Borrower
shall provide Lender with notice of any changes in connection with (i) and
(ii) above or any change orders modifying the Plans as provided below.  Lender
shall have the right to approve all contractors (except General Contractor) and
all construction contracts between Mortgagor and such contractors, with the
exception of construction contracts that do not exceed $100,000.00.  No changes
to the Plans shall be permitted without Lender’s written consent, with the
exception of (i) changes required by governmental authorities or Senior Lender
and (ii) other changes that, individually, do not increase or decrease Project
costs by more than $100,000 and, in the aggregate, do not increase or decrease
Project costs by more than $300,000.  Lender shall have ten (10) business days
to provide any approval required under this Section 13(b) but if Lender does not
provide written notice that it does not approve within the ten (10) business
days, then the action shall be deemed approved.

 

(c)                                  Operation and Maintenance of Project.  In
addition to the terms, conditions and provisions set forth in the other Loan
Documents:

 

(i)                                     Payment of Lawful Claims.  Borrower
shall pay or discharge all lawful claims, including taxes, assessments and
governmental charges or levies imposed upon Borrower or its income or profits or
upon any property belonging to Borrower prior to the date upon which penalties
attach thereto; provided that Borrower may in good faith contest any such taxes,
assessments, charges or levies so long as it provides, for any filed lien, a
bond in accordance with statutory requirements or other security reasonably
satisfactory to Lender.  Without limiting the generality of the foregoing,
Borrower shall, or shall cause Mortgagor to, pay (a) all taxes and recording
expenses, including stamp taxes, if any, relating to all documents and
instruments securing the Loan, (b) the fees and commissions (if any) lawfully
due to brokers engaged by Borrower or its Affiliates in connection with this
transaction (and Borrower shall hold Lender harmless from all such claims,
whether or not lawfully due), and (c) the fees and expenses of Lender’s counsel
relating to Lender’s consultation with such counsel in connection with the
negotiation, documentation and closing of the Loan and any subsequent
modifications of the Loan.

 

(ii)                                  No Amendments.  Borrower shall not, nor
shall it permit Mortgagor to, without Lender’s prior written consent, enter into
any amendments or modifications of (a) if Borrower or Mortgagor is a
corporation, Borrower’s and Mortgagor’s by-laws and articles

 

22

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of incorporation, (b) if Borrower or Mortgagor is a limited liability company,
such entity’s operating agreement or articles of organization, (c) if Borrower
or Mortgagor is a limited partnership, such entity’s partnership agreement or
partnership certificate, (d) the construction contract between Mortgagor and
General Contractor except for change orders (i) implementing changes required by
governmental authorities or Senior Lender and (ii) other changes that,
individually, do not increase or decrease Project costs by more than $100,000
and, in the aggregate, do not increase or decrease Project costs by more than
$300,000, (e) the Management Agreement, or (f) the Senior Loan Documents.

 

(iii)                               Maintenance and Repair of Project.  After
completion of the Project, Borrower shall cause Mortgagor to (a) maintain the
Project, including the parking and landscaping portions thereof, in good
condition and repair, (b) promptly make all necessary structural and
non-structural repairs to the Project, (c) not demolish, alter, remove or add to
any improvements on the Land, excepting (i) the repair and restoration of
improvements following damage thereto as required by this Agreement, and (ii) as
otherwise required by any applicable law, rule or regulations, and (d) not erect
any new buildings, structures or building additions on the Land, without the
prior written consent of Lender.  Borrower shall pay when due all claims for
labor performed and materials furnished therefor in connection with any
improvements or construction activities on the Land; provided that Borrower may
in good faith contest any liens, claims or amounts so long as it provides, for
any filed lien, a bond in accordance with statutory requirements or other
security reasonably satisfactory to Lender.

 

(d)                                 Restricted Sale and Encumbrance of Project
and of Borrower Interests; Other Indebtedness.  Borrower shall not engage in any
Sale or Encumbrance without the prior written consent of Lender (which may be
withheld by Lender in Lender’s sole and absolute discretion).  Borrower will not
issue any additional Equity Interests in Borrower, except to Lender or Lender’s
designee.  In addition, Borrower shall not permit Mortgagor to issue any
additional Equity Interests in Mortgagor.  In addition, Borrower shall not, nor
shall it permit Mortgagor to, incur any indebtedness, whether secured or
unsecured, other than (i) the Senior Loan and this Loan, (ii) obligations under
interest rate hedging arrangements related to the Senior Loan and (iii) trade
and operational indebtedness incurred in the ordinary course of business
(including construction and operation of the Project) or for its administrative
functions.  Notwithstanding the foregoing, Lender’s consent shall not be
required for:

 

23

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(i)                                     the grant of a leasehold interest in an
individual dwelling unit for a term of two years or less not containing an
option to purchase and otherwise in compliance with Section 13(f) hereof;

 

(ii)                                  a Sale of obsolete, worn out or damaged
property or fixtures that is contemporaneously replaced by items of equal or
better function and quality, which are free of liens, encumbrances and security
interests other than Permitted Exceptions, those created by the Loan Documents,
the Senior Loan Documents or the Commercial Deed of Trust or those otherwise
consented to by Lender;

 

(iii)                               a Sale that results from theft, condemnation
or other involuntary conversion;

 

(iv)                              the Sale (including through consumption) of
personal property in the ordinary course of business that is contemporaneously
replaced by items of equal or better function and quality;

 

(v)                                 the grant of an easement if, before the
grant, Lender determines (which determination must be made reasonably) that the
easement will not materially affect the operation or value of the Project and
Borrower pays to Lender, upon demand, all reasonable costs and expenses incurred
by Lender in connection with reviewing Borrower’s request (it being understood
that Lender has approved the REA);

 

(vi)                              the creation of (1) a lien for taxes,
assessments or other governmental charges or levies that are not then due or
that are being contested in good faith and in accordance with applicable
statutory procedures or (2) a mechanic’s lien against the Project which is
bonded off, released of record or otherwise remedied to Lender’s reasonable
satisfaction within 30 days of the date of creation; and

 

(vii)                           transfer of the Commercial Tract to the
Commercial Tract Borrower on or after the Transfer Date.

 

Nothing in this Section 13(d) prohibits Mortgagor from providing the Commercial
Deed of Trust.

 

(e)                                  General Indemnity.  Borrower shall, at
Borrower’s expense, protect, defend, indemnify, save and hold Lender and each of
its members and its respective members, stockholders, directors, officers,
employees and agents (collectively the “Indemnified Parties”) harmless against
any and all claims, demands, losses, expenses (including court costs and
reasonable attorney’s fees and expenses), damages and causes of action (whether
legal or equitable in nature) asserted by any person or entity arising out of,
caused by or relating to the Project and the Lender’s

 

24

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exercise of its rights under the Loan Documents upon an Event of Default, except
to the extent the same arises out of, is caused by or results from the gross
negligence or willful misconduct of an Indemnified Party.  Borrower shall pay to
Lender upon demand all claims, judgments, damages, losses and expenses
(including court costs and reasonable attorneys’ fees and expenses) incurred by
Lender as a result of any legal or other action arising out of the aforesaid
matters.  Borrower acknowledges that the Indemnified Parties may defend any
matter covered by the above indemnification by counsel of the relevant
Indemnified Party’s choice, and the costs of such defense (including reasonable
attorney’s fees) are part of the costs covered by the indemnity.  The foregoing
indemnification shall survive repayment of the Loan.

 

(f)                                    Leases.

 

(i)                                     Residential Lease Requirements. 
Mortgagor shall have the right, and Borrower may permit Mortgagor to, enter into
residential Leases without Lender’s prior written consent, so long as all Leases
for residential dwelling units (A) are on forms approved by Lender, (B) shall
not include options to purchase, and (C) shall be for initial terms of at least
six months and not more than two years (with the exception of Leases for up to
3% of the units in the Project, which may have terms of less than six months).

 

(ii)                                  Commercial Lease Requirements.  Mortgagor
shall not, nor shall Borrower permit Mortgagor to, enter into any
non-residential Leases without Lender’s prior written consent in each instance. 
Mortgagor shall not, nor shall Borrower permit Mortgagor to, modify the terms
of, or extend or terminate, any Lease for non-residential use (including any
Lease in existence on the date of this Agreement) without the prior written
consent of Lender.  Borrower shall, without request by Lender, deliver a copy of
each executed non-residential Lease to Lender promptly after such Lease is
signed.

 

(iii)                               Advance Rent.  Mortgagor shall not, nor
shall Borrower permit Mortgagor to, receive or accept rent under any Lease
(whether residential or non-residential) for more than two months in advance.

 

(iv)                              Performance of Obligations.  Borrower shall
cause Mortgagor to pay, perform and discharge, as and when payment, performance
and discharge are due, all obligations of Mortgagor as landlord under all
Leases.

 

(v)                                 Security Interest.  Except for the
assignment to Lender the lender under the Senior Mezzanine Loan Agreement,
Senior Lender or,

 

25

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prior to the Transfer Date, the Commercial Tract Lender, Borrower shall not
permit Mortgagor to further assign, pledge, transfer or otherwise encumber the
Leases or the rents under the Leases.

 

(vi)                              Defense; Pursuit of Remedies.  Borrower shall
or shall cause Mortgagor to, at its sole cost and expense, appear in and defend
any action or proceeding arising from or connected with any of the Leases or any
obligation or liability of Mortgagor as landlord thereunder.  Borrower shall, or
shall cause Mortgagor to, use commercially reasonable efforts to pursue all
remedies, including claims for damages available at law or in equity, against
any tenant under a Lease who defaults in the performance of its obligations
under the Lease.

 

(g)                                 Notices.  Borrower shall promptly notify
Lender in writing of any litigation affecting (a) Borrower, Mortgagor and any
general partner, managing member or controlling shareholder of Borrower or
Mortgagor (excluding a general partner, managing member or controlling
shareholder which is a natural person or trust), or (b) the Project, to the
extent the same may result in a material adverse change in (i) the financial
condition of any of the foregoing parties, (ii) Borrower’s ability to timely
perform any of its obligations under any of the Loan Documents or Mortgagor’s
ability to timely perform any of its obligations under any of the Senior Loan
Documents or (iii) the physical condition or operation of the Project.

 

(h)                                 Development.  If after the date of this
Agreement, Borrower or Mortgagor intends to engage a developer of the Project,
Lender shall have the right to approve such new developer and the written
development agreement for the Project.

 

(i)                                     Management.  The Project shall be
managed at all times by Manager (or another professional residential rental
property manager satisfactory to Lender under a contract approved by Lender). 
At the time such property management agreement is executed, at the request of
Lender, Mortgagor and the Manager shall enter into a Subordination of Management
Agreement in the form attached as Exhibit K or another form reasonably
acceptable to Lender.  Lender hereby accepts the Manager as the initial property
manager.  If Borrower or Mortgagor intends to change the management of the
Project, Lender shall have the right to approve such new property manager and
the written contract for the management of the Project and require that
Mortgagor and such new property manager enter into a Subordination of Management
Agreement on the form attached as Exhibit K or on another form reasonably
acceptable to Lender.

 

(j)                                     Senior Loan.  Borrower shall, or shall
cause Mortgagor to, fully and timely pay all amounts owing under the Senior Loan
Documents and timely and fully perform all of Mortgagor’s covenants and
agreements

 

26

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contained therein.  Borrower shall provide Lender with copies of all notices
(except routine notices which would not include any notice related to any
failure to comply with any terms of the Senior Loan Documents or regarding any
event of default under the Senior Loan Documents) given or received by Mortgagor
under or pursuant to the Senior Loan Documents, promptly upon delivery or
receipt as the case may be.  Without limiting the Lender’s right to declare an
Event of Default on account of a failure to comply with the terms and provisions
of the Senior Loan Documents, if Borrower or Mortgagor fail to so pay or perform
such obligations, and if such failure either (i) becomes an Event of Default
hereunder or (ii) prior to becoming an Event of Default continues for twenty
(20) days after Lender gives written notice to Borrower to cure, the Lender may
pay or perform the same pursuant to Section 18(b) hereof.  Notwithstanding the
foregoing, (i) Lender shall have no obligation whatsoever to pay any of the
amounts evidenced or secured by, or to perform any of the covenants or
obligations imposed by, any Senior Loan Documents, and (ii) any such payment by
Lender shall not cure Mortgagor’s default hereunder or under the Senior Loan
Documents but shall only protect Lender’s interest in the Project.  Borrower
shall not, nor shall it permit Mortgagor to, amend or modify any of the Senior
Loan Documents without the prior written consent of Lender.

 

(k)                                  Principal Place of Business; Choice of
Law.  Borrower shall not change its principal place of business or, if Borrower
has more than one place of business, its chief executive office, from its
address set forth in the first paragraph of this Agreement.  In addition,
Borrower shall not make an election under the Uniform Commercial Code to treat,
as the governing law for perfection of uncertificated securities, the law of any
jurisdiction other than the jurisdiction of its formation.  Lender agrees not to
unreasonably withhold its consent to any change in Borrower’s principal place of
business or the governing law with respect to uncertificated securities so long
as (1) Borrower and any other party reasonably requested by Lender executes all
documents and instruments reasonably deemed necessary by Lender to perfect the
security interests granted pursuant to the Loan Documents, (2) Borrower pays all
of the Lender’s reasonable costs and expenses of perfecting such security
interests and (3) if requested by Lender, Borrower delivers to Lender an opinion
from counsel reasonably satisfactory to Lender opining as to the continued
perfection of such security interest.

 

(l)                                     Compliance with Governmental
Prohibitions.  No portion of the Loan proceeds will be used, disbursed or
distributed by Borrower for any purpose, or to any person, in violation of any
Law (as defined in Section 16 (i)) including, without limitation, any of the
Terrorism Laws (as defined in Section 16 (i)).  Borrower shall provide Lender
with immediate written notice (a) of any failure of any of the representations
and warranties set forth in Section 16(i) of this Agreement to be true, correct

 

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and complete in all material respects at any time, or (b) if Borrower obtains
knowledge that Borrower or any holder at any time of any direct or indirect
equitable, legal or beneficial interest in Borrower (other than Lender or an
affiliate or designee of Lender) is the subject of any of the Terrorism Laws. 
Borrower shall immediately and diligently take, or cause to be immediately and
diligently taken, all necessary action to comply with all Terrorism Laws and to
cause the representations and warranties set forth in Section 16(i) to be true,
correct and complete in all material respects.

 

14.          FURTHER ASSURANCES.  Borrower shall, from time to time, upon
Lender’s request, at Borrower’s sole cost and expense, execute, deliver, record
and furnish such documents and do such other acts as Lender may reasonably deem
necessary or desirable to (i) perfect and maintain valid liens upon the security
contemplated by the Loan Documents, (ii) correct any errors of a typographical
or other manifest nature which may be contained in any of the Loan Documents,
(iii) evidence Borrower’s compliance with the Loan Documents, and
(iv) consummate fully and carry out the intent of the transactions contemplated
under this Agreement or the Loan Documents.

 

15.          APPRAISALS.  Lender has the right to obtain a new appraisal or
update an existing appraisal of the Project at any time while the Loan or any
portion thereof remains outstanding (a) when, in Lender’s reasonable judgment,
such an appraisal is warranted as a result of Lender’s internal evaluation of
the Loan, and/or (b) to comply with statutes, rules, regulations or directives
of governmental agencies having jurisdiction over Lender.  Borrower shall pay,
upon demand, all reasonable appraisers’ fees and related expenses incurred by
Lender from time to time in obtaining such appraisal reports; provided, however,
that Borrower shall not be required to pay for a re-appraisal more than once
every three years unless an Event of Default has occurred and is continuing.

 

16.          GENERAL REPRESENTATIONS AND WARRANTIES OF BORROWER.  Borrower
represents and warrants to Lender, which representations and warranties shall
survive the termination of this Agreement, the repayment of the Loan, any
investigations, inspections or inquiries made by Lender or any of Lender’s
representatives, and any disbursements made by Lender hereunder, as follows:

 

(a)                                  Organization; Corporate Powers;
Authorization of Borrowing.

 

(i)                                     Organization.  Borrower’s ownership
structure set forth on Exhibit F attached hereto is a true and correct depiction
of the Equity Interests in Borrower and Mortgagor, and each entity set forth on
Exhibit F is duly organized and is validly existing and in good standing under
the laws of the state of its organization, and Mortgagor is qualified to do
business in the jurisdiction where the Land is located.

 

(ii)                                  Power and Authority.  Borrower has the
full limited liability company power and authority to execute the Loan Documents
and

 

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to undertake and consummate the transactions contemplated hereby and thereby,
and to pay, perform and observe the conditions, covenants, agreements and
obligations herein and therein contained; and the Loan Documents have been duly
and validly executed by Borrower and constitute the legal, valid and binding
obligations of Borrower and are enforceable against Borrower in accordance with
their respective terms, except as such enforcement may be qualified or limited
by bankruptcy, insolvency or other similar laws affecting creditors’ rights
generally and general principles of equity.

 

(iii)                               Not a Foreign Person.  Neither Borrower, nor
any entity that is a holder of an Equity Interest in Borrower, is organized
under the laws of any jurisdiction other than the United States or one of the
states thereof.

 

(iv)                              No Defaults Under Existing Agreements.  The
consummation of the transactions contemplated hereby and the performance by
Borrower of its obligations under the Loan Documents will not result in any
breach of, or constitute a default under, the Senior Loan Documents, any other
material Third Party Agreements or any mortgage, deed of trust, bank loan or
security agreement, or other material instrument to which Borrower or Mortgagor
are a party or by which the Land or Borrower or Mortgagor are bound.

 

(v)                                 True and Correct Copies of Documents.  All
due diligence documents required to be delivered by Borrower to Lender hereunder
(including those due diligence documents referred to in Section 6 hereof) are
true, correct and complete copies thereof and the same have not been amended or
modified except as expressly disclosed therein.

 

(vi)                              Outstanding Debt to Lender.  During the term
of the Loan, Borrower will not borrow funds from Lender or an Affiliate of
Lender other than the Loan and the loan made pursuant to the Senior Mezzanine
Loan Agreement and as contemplated by the partnership agreement of Principal.

 

(b)                                 Title to Property; Matters Affecting
Property.

 

(i)                                     Title to Property.  Mortgagor has good
and marketable fee simple title to the Land, subject only to the Senior Loan
Documents, the Loan Documents and the Permitted Exceptions, and good, marketable
and freely alienable title to all personal property located on the Land, subject
only to the Senior Loan Documents, the Loan Documents and the Permitted
Exceptions; Borrower will cause Mortgagor to protect or cause to be protected
the title to the

 

29

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Project, and Borrower will forever warrant and defend the same against any other
claims of any persons or parties whomsoever, subject to the Senior Loan
Documents, the Loan Documents and the Permitted Exceptions.

 

(ii)                                  Mortgagor’s Equity Interests.  Borrower
owns and will own one hundred percent (100%) of the Equity Interests in
Mortgagor, and Borrower has not transferred, conveyed, pledged or encumbered
(and will not transfer, convey, pledge or encumber) such interests except to
Lender.

 

(iii)                               No Actions.  There are no actions, suits or
proceedings at law or in equity (including condemnation or eminent domain
proceedings) currently pending, or to the knowledge of Borrower threatened,
against Mortgagor, Borrower, or the Project or, to the knowledge of Borrower,
involving the validity or enforceability of the Senior Loan Documents or the
Loan Documents or the priority of the liens granted thereunder, by or before any
governmental authority having or exercising jurisdiction over the Project. 
Borrower will promptly notify Lender of any such future actions, suits or
proceedings.  Except as provided in Exhibit G, to Borrower’s knowledge, neither
Borrower, nor Mortgagor, nor the Project is in default with respect to, or in
violation of, any order, writ, injunction, decree or demand of any court or any
governmental authority having or exercising jurisdiction over the Project.

 

(iv)                              No Contracts Giving Rise to Liens.  Neither
Borrower, nor Mortgagor, has made any contract or arrangement of any kind, that
does or could give rise to a lien on the Project, except for (i) the Senior Loan
Documents, the Loan Documents and the Permitted Exceptions and (ii) contracts
related to design and construction of the Project which have been provided to
Lender.  Borrower has not made any contract or arrangement of any kind that does
or could give rise to a lien or encumbrance on any of the Equity Interests in
Mortgagor.

 

(v)                                 No Construction.  Prior to the disbursement
of the Loan and the recordation of the Security Instrument, no construction
whatsoever has been performed on the Land by Borrower or its Affiliates.

 

(vi)                              Compliance with Property Agreements.  Except
as provided in Exhibit H, the Project when constructed will in all respects
conform to and comply with all covenants, conditions, restrictions,
reservations, regulatory agreements, conditional or special use permits and
zoning ordinances affecting the Project whether or not recorded against the
Project.

 

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(vii)                           Leases.  Except as provided in Exhibit I, there
are no Leases of the Land in effect as of the closing of the Loan.

 

(viii)                        Tax Treatment.  Borrower and Mortgagor are (and at
all times during the term of the Loan will be) disregarded as entities separate
from Principal within the meaning of Treasury Regulation §301.7701-3(b)(i)(2). 
Borrower and Mortgagor have not elected (and at all times during the term of the
Loan will not elect) to be classified as an association taxable as a corporation
within the meaning of Treasury Regulation §301.7701-3(c).

 

(ix)                                Permits.  All Permits required for the
operation and construction of the Project are in effect or Borrower expects them
to be available as required for construction of the Project in accordance with
the schedule required by the Senior Loan Documents.  Once issued, all such
Permits will remain in effect and the Project and its contemplated use and
operation will comply therewith.  All discretionary approvals for the
construction of the Project in accordance with the Plans have been obtained or
will be obtained prior to commencement of construction of the Project.

 

(x)                                   Hazardous Substances.  So long as
Mortgagor owns the Project, Borrower shall cause Mortgagor to (a) keep the
Project free from Hazardous Substances, except those in de minimis amounts
ancillary to the Project activities that are used in compliance with all
environmental laws, (b) promptly notify Lender if Borrower or Mortgagor becomes
aware that any Hazardous Substance is on or near the Land or the Project in
violation of any environmental laws or if the Project otherwise is in violation
of any environmental laws, and (c) remove such Hazardous Substances
contamination that violates any environmental laws and/or cure such violations
as required by law.

 

(c)                                  Financial Statements.  The financial
statements heretofore delivered to Lender by Borrower, Mortgagor and Principal
are true and correct in all material respects, have been prepared in accordance
with sound accounting practices, and fairly present the financial
condition(s) of the person(s) referred to therein as of the date(s) indicated;
no materially adverse change has occurred in the financial
condition(s) reflected in such financial statements since the date(s) shown
thereon and no additional borrowings or liabilities have been made or incurred
by such person(s) since the date(s) thereof other than the borrowing
contemplated hereby, the Senior Loan, or other borrowings disclosed in writing
to and approved by Lender.  The Estimated Collateral Value Statement, dated as
of June 30, 2008, for each Guarantor accurately lists the Available Assets of
the Guarantor (as defined in the Guaranty) as of such date and the value of

 

31

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such Available Assets calculated on the basis provided in the notes thereto.

 

(d)                                 Budget Projections.  Borrower’s and/or
Mortgagor’s budget projections indicate that monthly income from Project
operations will be sufficient to pay the combined monthly accrual of interest on
the Senior Loan and the Loan by the Maturity Date and the projections are
reasonable in Borrower’s opinion and have been prepared in a manner consistent
with the past practices of affiliates of Borrower.

 

(e)                                  Intentionally Deleted.

 

(f)                                    No Loan Broker.  Borrower has not dealt
with any person, firm or corporation who is or may be entitled to any finder’s
fee, brokerage commission, loan commission or other sum in connection with the
execution of this Agreement or the making of the Loan by Lender to Borrower. 
Borrower does hereby indemnify and agree to defend and hold Lender harmless from
and against any and all loss, liability or expense, including court costs and
reasonable attorneys’ fees and expenses, which Lender may suffer or sustain
should such warranty or representation prove inaccurate in whole or in part.

 

(g)                                 No Default.  There are no defaults under any
of the Senior Loan Documents or the Loan Documents on the part of Borrower,
Mortgagor or, to the knowledge of Borrower, the other parties signatory thereto,
and no event has occurred and is continuing which, with the giving of notice or
the passage of time, or both, would constitute a default under any thereof.

 

(h)                                 Solvency.  As of the date hereof, Borrower
and Mortgagor are each solvent and able to pay their debts as the same shall
become due and payable.

 

(i)                                     Violations of Governmental
Prohibitions.  Neither the making of the Loan, nor the receipt of Loan proceeds
by Borrower, violates any federal, state, county, municipal and other
governmental and quasi-governmental statutes, laws, rules, orders, regulations,
ordinances, judgments or decrees (collectively, “Law”) applicable to Borrower,
including, without limitation, any of the Terrorism Laws.  Neither the making of
the Loan, nor the receipt of Loan proceeds by Borrower or Mortgagor, violates
any of the Terrorism Laws applicable thereto.  To Borrower’s best knowledge, no
holder of any direct or indirect equitable, legal or beneficial interest in
Borrower or Principal (other than Lender or an affiliate or designee of Lender)
is the subject of any of the Terrorism Laws.  No portion of the Loan proceeds
will be used, disbursed or distributed by Borrower for any purpose, or to any
person, directly or indirectly, in violation of any Law including, without
limitation, any of the Terrorism Laws.  “Terrorism Laws” means Executive Order
13224 issued by the President of the

 

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United States of America, the Terrorism Sanctions Regulations (Title 31 Part 595
of the U.S. Code of Federal Regulations), the Terrorism List Governments
Sanctions Regulations (Title 31 Part 596 of the U.S. Code of Federal
Regulations), and the Foreign Terrorist Organizations Sanctions Regulations
(Title 31 Part 597 of the U.S. Code of Federal Regulations), and all other
present and future federal, state and local laws, ordinances, regulations,
policies and any other requirements of any governmental agency (including,
without limitation, the United States Department of the Treasury Office of
Foreign Assets Control) addressing, relating to, or attempting to eliminate,
terrorist acts and acts of war, each as hereafter supplemented, amended or
modified from time to time, and the present and future rules, regulations and
guidance documents promulgated under any of the foregoing.

 

17.          EVENT OF DEFAULT.  Borrower shall be in default under this
Agreement upon the occurrence of any of the following events (hereinafter
referred to as an “Event of Default”):

 

(a)                                  Non-Payment.  The failure of Borrower to
pay when due any amount required by the Note, this Agreement or any other Loan
Documents which continues, in the case of monthly interest payments required
under the Note, for twenty (20) days or, in the case of other sums payable under
the Note, this Agreement or the Loan Documents, for 10 days following written
demand for payment on Borrower by Lender.

 

(b)                                 Insurance.  The failure of Borrower to keep
in force any insurance policy required hereunder or to deliver evidence of its
renewal to Lender and the continuation of such failure for 10 days following
written demand on Borrower by Lender.

 

(c)                                  Special Purpose Entity Covenants.  The
failure of Borrower to comply with the provisions of Section 23.

 

(d)                                 Borrower.  The liquidation, dissolution or
termination of Borrower.

 

(e)                                  Guaranty.  The Guaranty for any reason
shall cease to be in full force and effect, or be declared null and void or
unenforceable in whole or in part; or the validity or enforceability of the
Guaranty shall be challenged or denied by any Guarantor.  Notwithstanding the
foregoing, a challenge or denial of the validity or enforceability of the
Guaranty will not be considered an Event of Default if, excluding the Available
Assets of the challenging guarantor, the collective aggregate value of the
Available Assets of the Guarantor (defined collectively in the Guaranty) does
not fall below $80,000,000.00.

 

(f)                                    Construction.  The cessation of the
construction of any or all of the Project after work thereon has commenced for a
period of more than 30

 

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consecutive days without the written consent of Lender, except for any cessation
due to events of force majeure as expressly permitted by the documents
evidencing or securing the Senior Loan, except as otherwise provided in
Section 13(b) of the Loan Agreement.

 

(g)                                 Fraud or Material Misrepresentation  Fraud
or material misrepresentation by Borrower, Mortgagor or any of their partners,
officers, directors or managers, or by any Guarantor in connection with (i) the
application for or creation of the Indebtedness, (ii) any financial statement,
rent roll, or other report or information provided to Lender during the term of
the Indebtedness, or (iii) any request for Lender’s consent to any proposed
action.

 

(h)                                 Sale, Encumbrance or Other Indebtedness. 
The taking of any action by Borrower, Mortgagor, or any other person contrary to
the provisions of Section 13(d) of this Agreement.

 

(i)                                     Reports and Documents.  The failure of
Borrower to deliver any notice, report, assignment, certificate, instrument or
other document which Borrower is required to deliver to Lender under any of the
Loan Documents within the twenty (20) days following written demand by Lender
therefor.

 

(j)                                     Other Breaches under this Agreement. The
failure by Borrower to perform any of its obligations under this Agreement, as
and when required, except as specifically set forth otherwise herein, which
continues for a period of 30 days after notice of such failure by Lender to
Borrower, if such failure is not reasonably susceptible of cure within such 30
day period, and if Borrower promptly commences such cure within such 30 day
period and diligently prosecutes the same to completion, then the cure period
shall be extended for such period of time as may be reasonably necessary to
effect a cure but in no event shall such period exceed 90 days.

 

(k)                                  Other Breaches Under Other Loan Documents. 
The failure of Borrower or any Guarantor, indemnitor or obligor to perform and
observe any covenant, obligation, agreement or undertaking under any Loan
Document other than this Agreement following such notice and/or grace period, if
any, as may be provided therein for curing such failure.

 

(l)                                     Senior Loan Documents.  The failure of
Borrower or Mortgagor or any Guarantor to perform and observe any covenant,
obligation, agreement or undertaking under any Senior Loan Documents following
any notice or cure period, if any, as may be provided therein for curing such
failure.

 

(m)                               Judgments.

 

(i)                                     An order, judgment or decree shall be
entered by any court of competent jurisdiction appointing a custodian, receiver,
trustee, or

 

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liquidator of Borrower or of all or any substantial part of any of Borrower’s
assets; or

 

(ii)                                  The failure of Borrower to pay any money
judgment against it at least twenty (20) days prior to the date on which the
assets of the Borrower may be sold to satisfy such judgment; or

 

(iii)                               The failure to have discharged within a
period of twenty (20) days after the commencement thereof any attachment,
sequestration, or similar proceedings against any of the assets of Borrower.

 

(n)                                 Bankruptcy Proceedings.

 

(i)                                     If Borrower or Mortgagor shall become
insolvent, make a transfer in fraud of, or a general assignment for the benefit
of, creditors, or admit in writing its inability, generally to pay its debts as
they become due; or

 

(ii)                                  If Borrower or Mortgagor shall have a
receiver, custodian, liquidator or trustee appointed for all or substantially
all of its assets or for the Project in any proceeding brought by Borrower,
Mortgagor or the Project, or any such receiver or trustee is appointed in any
proceeding brought against Borrower, Mortgagor or the Project and such
appointment is not promptly contested and is not dismissed or discharged within
ninety (90) days after such appointment; or

 

(iii)                               If Borrower or Mortgagor shall file a
petition under Title 11 of the United States Code as amended or under any
similar Federal or state law or statute; or

 

(iv)                              If Borrower or Mortgagor shall have a petition
filed against it commencing an involuntary case under any present or future
Federal or state bankruptcy or similar law and such petition is not dismissed or
discharged within ninety (90) days after the filing thereof; or

 

(v)                                 If Borrower or Mortgagor shall request any
composition, rearrangement, liquidation, extension, reorganization or other
relief as a debtor under any present or future Federal or state bankruptcy or
similar law now or hereafter existing.

 

The proceedings or events set forth in paragraph (n) are collectively referred
to as “Bankruptcy Proceedings”.

 

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18.          REMEDIES.

 

(a)                                  Actions upon Event of Default.  Upon the
occurrence and during the continuance of an Event of Default beyond any
applicable grace and cure period, Lender may, in addition to any other rights or
remedies available to it pursuant to this Agreement and the other Loan Documents
or at law or in equity, take such action, without notice or demand, that Lender
deems advisable to protect and enforce its rights against the Collateral or the
Project, including, without limitation, at its option and without prior notice
or demand, declare the unpaid principal balance of the Note and all accrued but
unpaid interest thereon, as well as all other sums owing under the Loan
Documents, immediately due and payable. Lender may make any advances on the Loan
after the happening of any one or more of said Events of Default without thereby
waiving the right to demand payment in full of the Note and such other amounts
and without liability to make any other or further advances.

 

(b)                                 Lender’s Right to Perform.  If Borrower
fails to perform any covenant or obligation contained herein or in the other
Loan Documents and such failure continues for a period of 30 days after written
notice of such failure by Lender to Borrower, or if such failure is not
reasonably susceptible of cure within such 30 day period and if Borrower
promptly commences such cure within such 30 day period and diligently prosecutes
the same to completion, then the cure period shall be extended for such period
of time as may be reasonably necessary to effect a cure but in no event shall
such period exceed 90 days, without in any way limiting Lender’s right to
exercise any of its rights, powers or remedies as provided hereunder, or under
any of the other Loan Documents, Lender may, but shall have no obligation to,
perform, or cause performance of, such covenant or obligation, and all costs,
expenses, liabilities, penalties and fines of Lender reasonably incurred or paid
in connection therewith shall be payable by Borrower to Lender upon demand and
if not paid shall be added to the Indebtedness (and to the extent permitted
under applicable laws, secured by the Security Instrument and other Loan
Documents) and shall bear interest from the date expended at the Default
Interest Rate.  Notwithstanding the foregoing, Lender shall have no obligation
to send notice to Borrower of any such failure.

 

(c)                                  Appointment of Lender as Attorney-in-Fact. 
Borrower hereby irrevocably, unconditionally and presently constitutes Lender as
Borrower’s attorney-in-fact, with full power of substitution, to be exercised by
Lender only upon the occurrence and during the continuation of an Event of
Default, to exercise its rights under the Security Instrument (in its own name
or the name of a designee) for purposes of preserving and protecting the Project
or the Collateral and, as Lender in its sole discretion deems necessary or
proper, to execute, acknowledge (when appropriate) and deliver all instruments
and documents in the name of Borrower which

 

36

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may be necessary or desirable in order to do any and every act which Borrower
might do on its own behalf in the performance of its obligations hereunder. 
This power of attorney is a power coupled with an interest and is irrevocable.

 

(d)                                 Cross-Default to Note, Security Instrument
and Other Loan Documents.  At the option of Lender, any Event of Default by
Borrower under this Agreement shall constitute a default under the Note, the
Security Instrument or any of the other Loan Documents to the same extent as
though the Note had by its own terms become due and payable at maturity and
payment thereof had been refused, and in such event Lender may, without
liability to Borrower, assert and exercise any and all rights and remedies
provided for herein or in the Note, the Security Instrument or any of the other
Loan Documents or otherwise as may be provided by law.  Such rights and remedies
may be asserted concurrently or successively from time to time (either before or
after commencement of foreclosure proceedings or before or after the exercise of
any other remedy of Lender) until the Note, including interest thereon, and all
of the Indebtedness of Borrower to Lender under this Agreement and the other
Loan Documents, have been paid in full.

 

(e)                                  Recourse Limitations.  Borrower’s liability
in connection with this Agreement, the Note and the other Loan Documents
(including Borrower’s liability for all amounts due hereunder or thereunder) is
collectible only from the Project and other property encumbered by the Security
Instrument.  In no case will any person who holds a direct or indirect ownership
interest in Borrower, or any officer, director, manager, trustee, employee,
agent or affiliate of Borrower or any such direct or indirect owner, have any
responsibility for Borrower’s obligations in connection with this Agreement, the
Note and the other Loan Documents (including Borrower’s liability for any
amounts due hereunder or thereunder); provided, however, that nothing in this
Section 18(e) limits the liability of any person under a guaranty or other
agreement executed by such person.

 

19.          ADDITIONAL ADVANCES

 

(a)                                  Disbursement of Additional Advances.   
Borrower may submit a Draw Request in the form attached as Exhibit E from time
to time, but no more frequently than monthly (or twice monthly for the following
subcontractors: framing, drywall, retaining walls, electrical, trim, carpentry,
HVAC, floor coverings, concrete, final-clean and plumbing), for the payment of
the cost of labor, materials, and services supplied for the construction of the
Project and other costs incurred in connection with the Project, all to the
extent contemplated in the Construction Budget (“Additional Advance”).  Lender
may require, at Borrower’s expense, an inspection of, and favorable report upon,
the Project, as built at the time of

 

37

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the Draw Request, by the Inspecting Architects/Engineers prior to making any
Additional Advance.  Each Draw Request shall be submitted by Borrower to Lender
not less than ten (10) Business Days prior to the date upon which the Additional
Advance requested is desired by Borrower.  Upon satisfaction of all conditions
precedent to Lender’s obligation to make Additional Advances hereunder, and
provided that the Additional Advance, when aggregated with the Senior Mezzanine
Advance Amount, does not exceed the Maximum Aggregate Advance Amount and is
consistent with the Construction Budget, Lender shall fund to Borrower the
requested Additional Advance (less the portion of the amount in the related Draw
Request that is simultaneously funded under the Senior Mezzanine Loan
Agreement), on the later of (i) the date such advance is requested in the Draw
Request, and (ii)  five (5) Business Days after receipt of a complete Draw
Request, together with the required accompanying materials, reasonably
satisfactory to Lender.

 

(b)                                 Conditions Precedent to Additional Advance.

 

(i)                                     There shall exist no Event of Default;

 

(ii)                                  The Senior Loan is in full force and
effect;

 

(iii)                               There exists no default by Mortgagor under
the Senior Loan;

 

(iv)                              The representations and warranties made in
this Agreement shall be true and correct in all material respects on and as of
the date of each Additional Advance, with the same effect as if made on such
date, other than (i) those which by their specific terms relate only to the
Closing Date or another specified date, and (ii) those which relate to
Section 6(d) and Section 16(c) hereof which need be true and correct only as of
the effective date of this Agreement;

 

(v)                                 Borrower shall have provided to Lender
(a) the form lease for residential units within the Project (it being agreed
that Borrower has already provided such form to Lender) and (b) copies of any
non-residential Leases affecting the Project;

 

(vi)                              Borrower shall have provided to Lender copies
of all available Plans prepared by any engineers or architects in connection
with the Project;

 

(vii)                           Lender shall have received copies of any
inspection reports prepared by the Inspecting Architects/Engineers with respect
to the specific Additional Advance and/or by any Governmental Authority having
jurisdiction over the Project and Lender shall have received inspection reports,
in form and substance reasonably acceptable to Lender, from the Inspecting
Architect/Engineers at

 

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not less than thirty (30)-day intervals (and Lender shall request such reports
from the Inspecting Architect/Engineers);

 

(viii)                        Borrower shall procure and deliver to Lender, if
required by Lender, evidence reasonably satisfactory to Lender that the amount
theretofore invested by Mortgagor in the Project, together with the funds
remaining to be advanced to Borrower by Lender under the terms of this Agreement
and the Senior Mezzanine Loan Agreement and to Mortgagor by Senior Lender under
the Senior Loan, or sums which Borrower agrees to make available, are adequate
to meet all costs incurred and to be incurred in connection with the
construction of the Project;

 

(ix)                                Borrower shall procure and deliver to
Lender, if required by Lender, evidence reasonably satisfactory to Lender
supporting the amounts requested by Borrower, including, without limitation,
statements, invoices and bills evidencing the requested amounts; and

 

(x)                                   Borrower shall procure and deliver to
Lender a lien waiver and/or subordination agreement from each contractor or
subcontractor who has performed work valued at or in excess of $150,000 at or
upon the Land, or who has supplied material, supplies or equipment for the
construction of the Project and who is intended to have been paid by the
proceeds of the Additional Advance current through the last payment to such
contractor or subcontractor.

 

20.          TRANSFER OF LOAN; LOAN SERVICER.

 

(a)                                  Lender’s Right to Transfer  Borrower hereby
acknowledges that Lender shall have the right to transfer, assign or sell the
Loan Documents, or grant participation interests in all or any portion of the
Loan, in such manner and to such entities as Lender in its sole and absolute
discretion shall select.

 

(b)                                 Loan Servicer.  At the option of Lender, the
Loan may be serviced by a servicer selected by Lender and Lender may delegate
all or any portion of its responsibilities under this Agreement and the other
Loan Documents to such servicer pursuant to a servicing agreement between Lender
and such servicer.  A sale may result in a change of the Loan servicer.  There
also may be one or more changes of Loan servicer unrelated to a sale of the
Note.  If there is a change of Loan servicer, Borrower will be given notice of
the change.

 

(c)                                  Dissemination of Information.  Lender may
forward to each purchaser, transferee, assignee, or servicer of, and each
participant or investor in, the Loan (collectively, the “Investor”), any
governmental regulators or others

 

39

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as may be required by securities law, all documents and information which Lender
now has or may hereafter acquire relating to the Indebtedness and to Borrower,
Mortgagor and Principal, except as limited by the Principal’s partnership
agreement, including financial statements, whether furnished by Borrower or
otherwise, as Lender determines necessary or desirable.  Borrower irrevocably
waives any and all rights it may have under applicable Laws to prohibit such
disclosure.

 

21.          LENDER’S EXPENSES; RIGHTS OF LENDER.  Borrower shall promptly pay
to Lender, upon demand, with interest thereon from the date of demand at the
Default Interest Rate, reasonable attorneys’ fees and all other reasonable costs
and expenses paid or incurred by Lender in enforcing or exercising its rights or
remedies created by, connected with or provided for in this Agreement or any of
the other Loan Documents following an Event of Default, and payment thereof
shall be secured by the Security Instrument.

 

22.          MISCELLANEOUS.

 

(a)                                  Notices. All notices, demands and other
communications (“Notice”) under or concerning this Agreement shall be in
writing.  Each Notice shall be addressed to the intended recipient at its
address set forth below, and a Notice shall be deemed given on the earliest to
occur of (1) the date when the Notice is received by the addressee; (2) the
first Business Day after the Notice is delivered to a recognized overnight
courier service, with arrangements made for payment of charges for next Business
Day delivery; or (3) the third Business Day after the Notice is deposited in the
United States mail with postage prepaid, certified mail, return receipt
requested.

 

If to
Lender:                                                                              
Behringer Harvard St. Rose REIT, LLC
15601 Dallas Parkway, Suite 600
Addison, Texas  75001
Attention:  Chief Legal Officer
Facsimile:  (214) 655-1610

 

with copy
to:                                                                         
Behringer Harvard St. Rose REIT, LLC
15601 Dallas Parkway, Suite 600
Addison, Texas  75001
Attention:  Mark Alfieri
Facsimile:  (214) 655-1610

 

with copy
to:                                                                         
Wick Phillips, LLP
2100 Ross Avenue, Suite 950
Dallas, Texas  75201
Attention:  Walt Miller
Facsimile:  (214) 692-6255

 

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If to
Borrower:                                                                   SW
131 St. Rose Mezzanine Borrower LLC
2001 Bryan Street, Suite 3250
Dallas, Texas 75201
Attention: Timothy J. Hogan
Facsimile: (214) 922-8553

 

with a copy to:                                                                
SW 131 St. Rose Mezzanine Borrower LLC
7373 N. Scottsdale Road, Suite C-228
Scottsdale, Arizona  85253
Attention: Bruce Hart
Facsimile:  (480) 596-8848

 

with copy
to:                                                                         
Jones Day
325 John H. McConnell Blvd., Suite 600
Columbus, Ohio 43216
Attention:  Michael K. Ording
Facsimile: (614) 461-4198

 

Any party to this Agreement may change the address to which notices intended for
it are to be directed by means of notice given to the other party in accordance
with this Section 22(a).  Each party agrees that it will not refuse or reject
delivery of any notice given in accordance with this Section 22(a), that it will
acknowledge, in writing, the receipt of any notice upon request by the other
party and that any notice rejected or refused by it shall be deemed for purposes
of this Section 22(a) to have been received by the rejecting party on the date
so refused or rejected, as conclusively established by the records of the U.S.
Postal Service or the courier service. Any notice under the Note and any other
Loan Document which does not specify how notices are to be given shall be given
in accordance with this Section 22(a).

 

(b)                                 Waivers.  No delay or omission in exercising
any right or power arising from any default shall be construed as a waiver of
such default or as an acquiescence therein, nor shall any single or partial
exercise thereof preclude any further exercise thereof or the exercise of any
other right or power arising from any default.  No waiver of any breach of any
of the covenants or conditions of this Agreement shall be construed to be a
waiver of or acquiescence in or consent to any previous or subsequent breach of
the same or of any other condition or covenant.

 

(c)                                  Lender Not Partner of Borrower; Borrower in
Control.  Neither the execution nor the performance of any of the Loan Documents
by Lender, nor the exercise by the Lender of any of its rights, privileges or
remedies conferred under the Loan Documents or under applicable law, shall be
deemed to render the Lender a partner or a joint venturer with Borrower, any
guarantor of the Loan or any other person, or to render Borrower an agent of
Lender for any purposes.  Nothing contained herein shall

 

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                                                characterize or be deemed to
characterize, or be used as a basis for characterizing, Lender as a
“mortgagee-in-possession”.  Lender and Borrower agree that Mortgagor remains in
control of the Project, and that it determines the business plan for the Project
and employment, management, leasing and operating directions and decisions for
the Project.  All of Lender’s rights, and actions taken by Lender as provided or
permitted, in or under this Agreement or the other Loan Documents are for and in
its capacity as a secured lender attempting to protect the collateral security
for the Loan and to collect the Indebtedness and any other amounts owing or
outstanding under the Note or the Loan Documents.

 

(d)                                 No Third Party.  This Agreement is made for
the sole benefit of Borrower and Lender and Lender’s successors and assigns, and
no other person or persons shall have any rights or remedies under or by reason
of this Agreement or any right to the exercise of any right or power hereunder
or arising from any default, nor shall Lender owe any duty whatsoever to any
claimant for labor performed or materials furnished in connection with the
construction of the improvements to apply any undisbursed portion of the Loan to
the payment of any such claims.

 

(e)                                  Time of Essence; Context.  Time is hereby
declared to be of the essence of this Agreement and of every part hereof.  When
the context and construction so require, all words used in the singular herein
shall be deemed to have been used in the plural and the masculine shall include
the feminine and the neuter and vice versa.

 

(f)                                    Successors and Assigns.  This Agreement
shall bind, and the rights granted by this Agreement shall inure to, the
respective successors and assigns of Lender and Borrower.  However, a Sale or
Encumbrance prohibited by Section 13(d) shall be an Event of Default.

 

(g)                                 Governing Jurisdiction.  This Agreement and
all of the other Loan Documents (except as otherwise expressly provided therein
with respect to the enforcement of specific remedies) shall be governed by and
construed in accordance with the substantive law of the State of Texas without
regard to the application of choice of law principles.

 

(h)                                 SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS.  BORROWER AND LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE STATE COURTS OF THE STATE OF TEXAS SITTING IN DALLAS COUNTY,
TEXAS, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF
OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER LOAN DOCUMENT
AND THE SUBJECT MATTER THEREOF, OR THE LOAN.  EACH OF BORROWER AND LENDER TO THE

 

 

42

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                                                EXTENT PERMITTED BY APPLICABLE
LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE,
OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN THE
ABOVE-NAMED COURTS ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE
JURISDICTION OF SUCH COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM
ATTACHMENT OR EXECUTION BY ANY SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING
IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER OR THAT THIS  AGREEMENT, THE SUBJECT MATTER HEREOF, THE
OTHER LOAN DOCUMENTS, THE SUBJECT MATTER THEREOF, OR THE LOAN (AS APPLICABLE)
MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE
ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED IN STATE COURT TO FEDERAL COURT,
OR TO REMAND AN ACTION INSTITUTED IN FEDERAL COURT TO STATE COURT AND (C) HEREBY
WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR
COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM
THE SAME SUBJECT MATTER.  BORROWER AND LENDER EACH HEREBY CONSENTS TO SERVICE OF
PROCESS BY MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT
TO SECTION 22(a) HEREOF, BUT ANY SUCH SERVICE WILL BE EFFECTIVE ONLY WHEN
RECEIVED AT SUCH ADDRESS.  BORROWER AND LENDER EACH AGREES THAT ITS SUBMISSION
TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE
EXPRESS BENEFIT OF THE OTHER PARTY.  FINAL JUDGMENT AGAINST A PARTY IN ANY SUCH
ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR
TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF
INDEBTEDNESS OR LIABILITY OF THE PARTY THEREIN DESCRIBED, OR (Y) IN ANY OTHER
MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION.

 

(i)                                     WAIVER WITH RESPECT TO DAMAGES. 
BORROWER ACKNOWLEDGES THAT LENDER DOES NOT HAVE ANY FIDUCIARY OR OTHER SPECIAL
RELATIONSHIP WITH, OR FIDUCIARY OR SPECIAL DUTY TO, BORROWER ARISING OUT OF OR
IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, AND THE
RELATIONSHIP BETWEEN LENDER AND BORROWER, IN CONNECTION HEREWITH AND THEREWITH,
IS SOLELY THAT OF DEBTOR AND CREDITOR.  TO

 

43

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                                                THE EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER SHALL NOT ASSERT, AND BORROWER HEREBY WAIVES, ANY
CLAIMS AGAINST LENDER, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES)
ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT, ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

(j)                                     Entire Agreement.  This Agreement and
all of the other Loan Documents constitute the entire understanding between the
parties hereto with respect to the subject matter hereof, superseding all prior
written or oral understandings, and may not be modified, amended or terminated
except by a written agreement signed by each of the parties hereto or thereto
that is to be bound by the modification, amendment or termination. 
Notwithstanding the foregoing, the provisions of this Agreement are not intended
to supersede the provisions of the Security Instrument but shall be construed as
supplemental thereto.  Borrower and Lender each hereby acknowledges that this
Agreement and the other Loan Documents accurately reflect the agreements and
understandings of the parties hereto with respect to the subject matter hereof
and hereby waives any claims against the other which it may now have or may
hereafter acquire to the effect that the actual agreements and understandings of
the parties hereto with respect to the subject matter hereof may not be
accurately set forth in this Agreement or such other Loan Documents.

 

(k)                                  Headings.  The various headings of this
Agreement are included for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.

 

(l)                                     Severability.  Each provision of this
Agreement shall be interpreted so as to be effective and valid under applicable
law, but if any such provision shall in any respect be ineffective or invalid
under such law, such ineffectiveness or invalidity shall not affect the
remainder of such provision or the remaining provisions of this Agreement.

 

(m)                               Counterparts.  This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute but one and the same document.

 

(n)                                 WAIVER OF JURY TRIAL.  BORROWER AND LENDER
EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION
WITH THIS LOAN AGREEMENT OR ANY OF THE OTHER LOAN

 

 

44

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                                                DOCUMENTS, OR ANY OTHER
STATEMENTS OR ACTIONS OF THE LENDER OR BORROWER RELATED THERETO.  BORROWER AND
LENDER EACH ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE OTHER
TO ENTER INTO THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT, AND THAT THIS WAIVER
SHALL BE EFFECTIVE AS TO EACH OF THE OTHER LOAN DOCUMENTS AS IF FULLY
INCORPORATED THEREIN.

 

(o)                                 Sole and Absolute Discretion.  Any option,
consent, approval, or discretion or similar right of Lender set forth in this
Agreement or any of the other Loan Documents may be exercised by Lender in its
sole, absolute and unreviewable discretion, unless the provisions of this
Agreement or the other Loan Documents specifically requires a different
standard.

 

(p)                                 Straight Debt Harbor.  It is the intent of
Borrower and Lender that the Loan shall be treated as a security that satisfies
the requirements of Section 856(m)(1)(A) and Section 856(m)(2) of the Code (the
“Straight Debt Safe Harbor”).  Accordingly, notwithstanding any indication
herein to the contrary, the parties hereto agree that the terms of the Loan
shall be interpreted in such a manner that the Loan satisfies the Straight Debt
Safe Harbor for so long as it is owned by Lender; and the terms of the Note
shall be applied such that the Note has a constant effective yield to maturity,
as determined under Section 1372 of the Code, at a fixed rate over the entire
term of the Note equal to the Interest Rate (as defined in the Note) (or, during
any time at which an Event of Default is continuing, at the Default Interest
Rate); provided, however, that such contraction shall not alter the dates of the
principal or interest payments (described in Section 1.1 of the Note) or the
amounts of the principal or interest payments required to be paid on an interest
payment date (described in Section 1.1. of the Note) prior to the Maturity Date
or earlier prepayment date.

 

(q)                                 Assignment.  Lender may, without the consent
of any other party, assign its rights and obligations under this Agreement and
the Loan Documents to any Affiliate of Lender.

 

(r)                                    Retainage of Subcontractors.  Lender
understands and agrees that no retainage will be withheld for general conditions
or the following subcontractor trades: floor and roof trusses, cabinets and
countertops, appliances, lumber, drywall, concrete and reinforcing materials,
cultured stone and CMU materials, interior trim, electric light fixtures,
windows, doors and millwork, HVAC components, metals, floor coverings, surveying
and stocking, materials testing and utilities.  Borrower understands and agrees
that ten (10%) retainage will be withheld for all other subcontractors provided
that at such time as the Project is at least

 

 

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                                                fifty percent (50%) completed
(as confirmed by the Senior Lender’s construction consultant, if any), retainage
may be reduced to five percent (5%) for such other subcontractors.

 

23.          SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. 
Borrower shall do all things necessary to preserve the existence of Borrower and
Mortgagor as a separate Special Purpose Bankruptcy Remote Entity unless Lender
otherwise consents, in its sole discretion, in writing.  Borrower covenants and
agrees that with respect to Borrower and Mortgagor, until payment in full of the
Indebtedness, it will not do, or permit Mortgagor to do, directly or indirectly,
any of the following unless Lender consents thereto, in its sole discretion, in
writing.  A “Special Purpose Bankruptcy Remote Entity” means a corporation,
limited partnership or limited liability company which shall not:

 

(a)                                  engage in any business or activity other
than the ownership, construction, operation and maintenance, in each case
directly or indirectly, of the Land and the Project (in case of Mortgagor) or
the Equity Interests in Mortgagor (in case of Borrower) and activities
incidental thereto;

 

(b)                                 acquire or own any material assets other
than (i) the Equity Interests, (ii) the Land or the Project, and (iii) such
incidental personal property as may be necessary for the operation of the
Project or as may arise out of the other activities of Borrower or Mortgagor;

 

(c)                                  merge into or consolidate with any person,
or dissolve, terminate or liquidate, or transfer or otherwise dispose of all or
substantially all of its assets or change its legal structure;

 

(d)                                 fail to preserve its existence as a person
duly organized, validly existing and in good standing (if applicable) under the
laws of the jurisdiction of its organization or formation, or amend, modify, or
terminate the provisions of its organizational documents if such amendment,
modification, or termination would adversely affect the ability of such Person
to perform its obligations hereunder or under the other Loan Documents or would
affect any other clause of this Section 23;

 

(e)                                  own any subsidiary (except, in the case of
Borrower, the Mortgagor) or make any investment in any person (except, in the
case of Borrower, the Mortgagor);

 

(f)                                    commingle its assets with the assets of
any of its general partners, members, shareholders, Affiliates, principals or of
any other Person in such a manner that it will be costly or difficult to
segregate, ascertain or identify its individual assets from those of any general
partner, member, shareholder, principal or Affiliate of Borrower or Mortgagor or
any other Person;

 

(g)                                 incur any debt, secured or unsecured, direct
or contingent (including guaranteeing any obligation), other than (i) the Senior
Loan, the Loan and

 

 

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                                                the loan made pursuant to the
Senior Mezzanine Loan Agreement, (ii) obligations under interest rate hedging
arrangements related to the Senior Loan and (iii) trade and operational
indebtedness incurred in the ordinary course of business (including construction
and operation of the Project) or for its administrative functions;

 

(h)                                 fail to maintain its records, books of
account and bank accounts separate and apart from those of its general partners,
members, shareholders, principals and Affiliates and any other Person;

 

(i)                                     enter into any contract or agreement
with any general partner, member, shareholder, principal or Affiliate of
Borrower or Mortgagor except upon terms and conditions that are intrinsically
fair and substantially similar to those that would be available on an
arms-length basis with third parties other than any general partner, member,
shareholder, principal or Affiliate of Borrower or Mortgagor;

 

(j)                                     seek the dissolution or winding up of
Borrower or Mortgagor;

 

(k)                                  maintain its assets in such a manner that
it will be costly or difficult to segregate, ascertain or identify its
individual assets from those of any general partner, member, shareholder,
principal or Affiliate of Borrower or Mortgagor or any other Person.

 

(l)                                     hold itself out to be responsible for
the debts of another person, except through endorsement of negotiable
instruments in the ordinary course of collection;

 

(m)                               make any loans or advances to any third party,
including any general partner, member, shareholder, principal or Affiliate of
Borrower or Mortgagor (except, in the case of Borrower, to the Mortgagor);

 

(n)                                 fail to file its own tax returns, if any, as
may be required under applicable law, to the extent that Borrower or Mortgagor
is (i) not part of a consolidated group filing a consolidated return or returns
or (ii) not treated as a “disregarded entity” for tax purposes not required to
file tax returns under applicable law; or

 

(o)                                 fail either to hold itself out to the public
as a legal person separate and distinct from any other person or to conduct its
business solely in its own name if the result is (i) to mislead others as to the
identity of the person with which such other party is transacting business; or
(ii) to suggest that it is responsible for the debts of any third party
(including any general partner, principal or Affiliate of Borrower or
Mortgagor), provided, however, Mortgagor and Borrower may hold itself out as
doing business under the “Trammel Crow Residential” or “Alexan Communities”
names.

 

 

47

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In addition to the foregoing, Borrower shall have at least one independent
manager who is provided by a nationally recognized company that provides
professional independent directors and who shall not be at the time of initial
appointment, and may not have been during the preceding five years (i) a
stockholder, director, officer, employee, partner, member, attorney or counsel
of Mortgagor or an Affiliate of Mortgagor or Borrower, (ii) a customer, supplier
(other than a supplier of registered agent or registered office service) or
other Person who derives any of its purchases or revenues from its activities
with Mortgagor or Borrower, (iii) a Person or other entity controlling or under
common control with any such stockholder, director, officer employee, partner,
customer, supplier (other than a supplier of registered agent or registered
office service) or other Person or (iv) a member of the immediate family of any
such stockholder, director, officer, employee, partner, customer, supplier or
other Person (the “Independent Director”).  At any time while the Loan is
outstanding, the consent of the Independent Director should be required to:
(i) file, consent to the filing of, or join in any filing of, a bankruptcy or
insolvency petition; (ii) dissolve, liquidate, merge or consolidate;
(iii) engage in any business or activity other than the ownership, construction,
operation and maintenance, directly or indirectly, of the Project; and
(iv) amend the articles of organization, limited liability agreement or
partnership agreement.

 

24.          SENIOR MEZZANINE LOAN.

 

(a)                                  Borrower and Lender are entering into the
Senior Mezzanine Loan Agreement contemporaneously with this Agreement.  Under
this Agreement and the Senior Mezzanine Loan Agreement, Lender may advance to
Borrower an aggregate maximum principal amount up to, but not in excess of, the
Maximum Aggregate Advance Amount.  The Borrower and Lender agree that, at any
given time, any principal amounts advanced to Borrower by Lender under this
Agreement and the Senior Mezzanine Loan Agreement shall be allocated as follows:

 

(i)                                     At all times while principal amounts are
outstanding and/or additional principal amounts may be advanced under this
Agreement or the Senior Mezzanine Loan Agreement, an aggregate principal amount
of at least $2,000 shall be advanced to Borrower by Lender under this Agreement
and the Senior Mezzanine Loan Agreement, taken together, and the principal
amount outstanding under this Agreement shall be at least $1,000 and the
principal amount outstanding under the Senior Mezzanine Loan Agreement shall be
at least $1,000;

 

(ii)                                  If an aggregate principal amount of more
than $2,000 has been advanced to Borrower by Lender under this Agreement and the
Senior Mezzanine Loan Agreement, Lender may decide whether additional amounts
requested by Borrower pursuant to a Draw Request are funded pursuant to this
Agreement or pursuant to the Senior Mezzanine Loan Agreement, or in part
pursuant to this Agreement and in part pursuant to the Senior Mezzanine Loan
Agreement, and if in parts pursuant to both this Agreement and the

 

 

48

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                                                Senior Mezzanine Loan Agreement,
the respective parts funding pursuant to each, so long as the aggregate amount
advanced to Borrower pursuant to this Agreement and the Senior Mezzanine Loan
Agreement in all cases equals the amount requested by Borrower in the Draw
Request.

 

(b)                                 Borrower acknowledges that Lender has
advised it that Lender desires that at no time will the Senior Mezzanine Advance
Amount exceed the Estimated Value.  Accordingly, Borrower agrees that if at any
time the Senior Mezzanine Advance Amount is more than the Estimated Value,
Lender shall, subject to Section 24(a)(i), be deemed to have advanced principal
under this Agreement in an amount equal to the amount by which the Senior
Mezzanine Advance Amount exceeds the Estimated Value and to have used such
advance to repay the portion of the loan under the Senior Mezzanine Loan
Agreement then outstanding so as to reduce the Senior Mezzanine Advance Amount
to the Estimated Value.  Conversely, Borrower agrees that if at any time the
Senior Mezzanine Advance Amount is less than the Estimated Value, Lender shall,
subject to Section 24(a)(i), be deemed to have advanced principal against the
loan made under the Senior Mezzanine Loan Agreement in an amount equal to the
lesser of (i) the Junior Mezzanine Advance Amount minus $1,000 and (ii) the
amount by which the Estimated Value exceeds the Senior Mezzanine Advance Amount,
and in such event Lender shall be deemed to have used the amount so advanced to
repay a portion of the Loan.  An advance pursuant to this Section 24(b) will not
reduce the amount Borrower is entitled to draw under this Agreement and the
Senior Mezzanine Loan Agreement, it being the intent of Lender and Borrower that
Borrower will be entitled to obtain advances up to the Maximum Aggregate Advance
Amount.  An advance and contemporaneous repayment made, or deemed to be made,
pursuant to this Section 24(b) will not be considered an advance in excess of
the Maximum Aggregate Advance Amount for purposes of this Agreement.

 

(c)                                  Borrower acknowledges that Lender has
advised it that Lender desires that at no time will the Senior Mezzanine Advance
Amount and the accrued and unpaid interest on the loan pursuant to the Senior
Mezzanine Loan Agreement, taken together, exceed the Estimated Value. 
Therefore, to the extent that, after any adjustments pursuant to Section 24(b),
the Senior Mezzanine Advance Amount and the accrued and unpaid interest on the
loan pursuant to the Senior Mezzanine Loan Agreement, taken together, exceed the
Estimated Value, then such accrued and unpaid interest will be deemed to be
payable under the Loan rather than payable under the loan pursuant to the Senior
Mezzanine Loan Agreement to the extent necessary to prevent the Senior Mezzanine
Advance Amount and the accrued and unpaid interest on the loan pursuant to the
Senior Mezzanine Loan Agreement, taken together, from exceeding the Estimated
Value.  Any such interest deemed to be payable under the Loan pursuant to this
Section 

 

 

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                                                24(c) shall automatically to
revert to being payable under the loan pursuant to the Senior Mezzanine Loan
Agreement to the extent possible without causing the Senior Mezzanine Advance
Amount and the accrued and unpaid interest on the loan pursuant to the Senior
Mezzanine Loan Agreement, taken together, from exceeding the Estimated Value. 
In no event shall the accrued and unpaid interest under the Loan, when combined
with the accrued and unpaid interest owing under the loan pursuant to the Senior
Mezzanine Loan Agreement, exceed the amount of interest that would be owing
(taking into account payments of interest made prior to the time in question) if
interest had accrued at the rate applicable under the Note and the note issued
pursuant to the Senior Mezzanine Loan Agreement on a principal balance equal to
the Junior Mezzanine Advance Amount plus the Senior Mezzanine Advance Amount.

 

(d)                                 Lender shall endeavor to give Borrower
written notice of any advance, repayment or adjustment pursuant to this
Section 24 simultaneously with such action, and Lender shall, upon request by
Borrower, give Borrower written notice of the amount outstanding under the Loan
and the loan under the Senior Mezzanine Loan Agreement.

 

25.          SUBDIVISION AND RELEASE.

 

(a)                                  On or before June 30, 2009, Borrower will
have caused the Mortgagor to have (i) obtained all final, non-appealable
approvals of all applicable Governmental Authorities necessary to cause the Land
to be lawfully subdivided into separate and conforming legal lots comprised of
the Commercial Tract and the Residential Tract, substantially as reflected on
the proposed subdivision map (a copy of which is attached as Exhibit A-1 to the
Senior Loan Agreement); (ii) recorded (or cause to have been recorded) within
the applicable real property records of Clark County, Nevada the final
subdivision map as so approved by all applicable Governmental Authorities (the
“Final Map”); and (iii) caused the Title Insurer to have issued an endorsement
to the title insurance insuring that, after giving effect to the recordation of
the Final Map, the Residential Tract constitutes a separate, legal lot pursuant
to applicable laws.  If any Governmental Authority conditions approval of the
proposed subdivision map on revisions thereto, Lender shall be deemed to have
consented to such revisions if and to the extent the Senior Lender consents to
such revisions in accordance with the Senior Loan Documents.

 

(b)                                 Lender shall execute and deliver (or shall
direct the trustee under the Security Instrument to execute and deliver) a
partial release or reconveyance of the lien of the Security Instrument with
respect to the Commercial Tract, subject to and conditioned upon the
satisfaction of each of the following conditions precedent:

 

 

50

--------------------------------------------------------------------------------

 

(i)                                     The Final Map shall have been recorded
in the applicable real property records of Clark County, Nevada;

 

(ii)                                  The Title Insurer shall have issued an
endorsement to the title insurance insuring that the Residential Tract
constitutes a separate legal lot in accordance with the requirements of
applicable law;

 

(iii)                               Borrower or Mortgagor shall have prepared
and delivered to Lender, a reciprocal easement agreement (and any documents
referenced therein or executed therewith), in such form as is approved by the
Senior Lender in accordance with the Senior Loan Documents, duly executed by
Mortgagor and Commercial Tract Borrower, encumbering the entirety of the Land
and establishing non-exclusive, perpetual and reciprocal easements for ingress,
egress, access and public utilities over and across the Land (the “REA”); and

 

(iv)                              Borrower shall have reimbursed Lender for its
out-of-pocket expenses incurred in connection with such partial release.

 

(c)                                  Lender agrees to execute and deliver a
subordination of lien, in form and substance reasonably acceptable to Borrower
and the Senior Lender, subordinating the liens and security interests of the
Security Instrument to the REA.

 

[Signatures Follow on Next Page]

 

51

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the day and year first above written.

 

BORROWER:

 

SW 131 ST. ROSE MEZZANINE BORROWER LLC,

a Delaware limited liability company

 

By:

SW 130 St. Rose Limited Partnership,

 

a Delaware limited partnership,

 

its sole member

 

 

By:

SW 129 St. Rose Limited Partnership,

 

 

a Delaware limited partnership,

 

 

its general partner

 

 

 

 

 

 

By:

SW 104 Development GP LLC,

 

 

 

a Delaware limited liability company,

 

 

 

its general partner

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Timothy J. Hogan

 

 

 

 

Timothy J. Hogan, Vice President

 

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

LENDER:

 

BEHRINGER HARVARD ST. ROSE REIT, LLC,

a Delaware limited liability company

 

By:

Behringer Harvard St. Rose Venture, LLC,

 

a Delaware limited liability company,

 

its manager

 

 

By:

Behringer Harvard St. Rose, LLC,

 

 

a Delaware limited liability company,

 

 

its manager

 

 

 

By:

/s/ Gerald J. Reihsen, III

 

 

 

Gerald J. Reihsen, III

 

 

 

Executive Vice President-Corporate

 

 

 

Development & Legal and Secretary

 

 

--------------------------------------------------------------------------------

EXHIBIT A

 

DESCRIPTION OF THE LAND

 

All that land situated in the County of Clark, State of Nevada, more
particularly described as follows:

 

PARCEL 1:

 

The North Half (N ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter
(SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range
61 East, M.D.B.&M., Clark County, Nevada.

 

PARCEL 2:

 

The South Half (S ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter
(SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range
61 East, M.D.B.&M.

 

EXCEPTING THEREFROM that portion lying within St. Rose Parkway.

 

PARCEL 3:

 

That portion of the Northwest Quarter (NW ¼) of Section 35, Township 22 South,
Range 61 East, M.D.M., City of Henderson, Clark County, Nevada, more
particularly described as follows:

 

The South Half (S ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter
(SW ¼) of the Northwest Quarter (NW ¼) of said Section 35.

 

TOGETHER WITH:

 

Those portions of the North Half (N ½) of the South Half (S ½) of the Southwest
Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35 lying
Northwesterly of the Northwesterly right of way of St. Rose Parkway.

 

PARCEL 4:

 

Being a portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the
Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township
22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

 

TOGETHER WITH that portion of the North Half (N ½) of the Northeast Quarter (NE
¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼), also
together with that portion of the North Half (N ½) of the Northwest Quarter (NW
¼) of said Section 35, lying Northwesterly of St. Rose Parkway, further
described as follows:

--------------------------------------------------------------------------------

BEGINNING at the Southeast (SE) corner of the Northwest Quarter (NW ¼) of the
Northwest Quarter (NW ¼) of said Section 35, said corner being marked by an
aluminum cap marked “PLS 5269, 1994, NW 1/16”;

Thence South 41°41’09” East, 174.75 feet to the Northwesterly line of St. Rose
Parkway as granted in Book 250 as Document No. 202951, Official Records, Clark
County, Nevada;

Thence along said Northwesterly line, South 46°18’51” West, 297.97 feet to a
point of intersection of said Northwesterly line with the South line of the
North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼)
of the Northwest Quarter (NW ¼) of said Section 35;

Thence along the lines of said North Half (N ½) the following Three (3) courses:

1)              North 89°22’43” West, 553.55 feet;

2)              North 00°33’34” West, 330.00 feet;

3)              South 89°22’04” East, 663.09 feet to the POINT OF BEGINNING;

 

EXCEPTING THEREFROM:

 

A portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the
Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35,
described as follows:

 

BEGINNING at the Southwest (SW) corner of the South Half (S ½) of the Southeast
Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼)
of said Section 35;

Thence North 00°33’55” West, 330.09 feet to the Northwest (NW) corner of the
South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼)
of the Northwest Quarter (NW ¼) of said Section 35; Thence South 89°21’56” East,
663.21 feet to the Northeast Corner of the South Half (S1/2) of the Southeast
Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼)
of said Section 35; Thence South 00°32’39” East, 330.06 feet to the Southeast
(SE) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the
Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35;
Thence North 41°41’09” West, 316.13 feet; Thence South 48°18’51” West, 153.68
feet to the beginning of a 500 foot radius curve, concave Northwesterly; Thence
along said curve to the right, 369.29 feet through a central angle of 42°19’05”
to the POINT OF BEGINNING.

(Deed Reference 20070720 / 2463 and 2464)

 

SURVEYOR’S PERIMETER LEGAL DESCRIPTION:

 

THE FOLLOWING IS A METES AND BOUNDS LEGAL DESCRIPTION OF PARCELS 1, 2, 3 AND 4
COMBINED PREPARED BY THE CERTIFYING SURVEYOR.

 

THAT PORTION OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 35, TOWNSHIP 22 SOUTH,
RANGE 61 EAST, M.D.M., CITY OF HENDERSON, CLARK COUNTY, NEVADA, DESCRIBED AS
FOLLOWS:

 

BEGINNING AT THE SOUTHEAST CORNER OF THE NORTHWEST QUARTER (NW 1/4) OF THE
NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 35; THENCE SOUTH 41°41’09” EAST, A
DISTANCE OF 174.75 FEET TO THE NORTHWESTERLY RIGHT-OF-WAY LINE OF ST. ROSE
PARKWAY (300.00 FEET WIDE);   THENCE SOUTH 48°18’51”

--------------------------------------------------------------------------------

WEST ALONG SAID RIGHT-OF-WAY LINE, A DISTANCE OF 1,278.38 FEET TO THE SOUTH LINE
OF THE NORTH HALF (N 1/2) OF THE SOUTHWEST QUARTER (SW 1/4) OF THE SOUTHWEST
QUARTER (SW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 35; THENCE
DEPARTING SAID RIGHT-OF-WAY LINE, NORTH 89°24’01” WEST ALONG SAID SOUTH LINE, A
DISTANCE OF 477.63 FEET TO THE WEST LINE OF SAID SECTION 35;   THENCE DEPARTING
SAID SOUTH LINE, NORTH 00°34’46” WEST ALONG SAID WEST LINE, A DISTANCE OF 990.37
FEET TO THE SOUTH LINE OF THE NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST
QUARTER (NW 1/4) OF SAID SECTION 35;   THENCE DEPARTING SAID WEST LINE, SOUTH
89°22’04” EAST ALONG SAID SOUTH LINE, A DISTANCE OF 663.09 FEET TO THE SOUTHEAST
CORNER OF THE SOUTHWEST QUARTER (SW 1/4) OF SAID NORTHWEST QUARTER (NW 1/4) OF
THE NORTHWEST QUARTER (NW 1/4) OF SECTION 35, SAME BEING THE BEGINNING OF A
CURVE, CONCAVE NORTHWESTERLY, HAVING A RADIUS OF 500.00 FEET;   THENCE DEPARTING
SAID SOUTH LINE, NORTHEASTERLY 369.29 FEET ALONG SAID CURVE, THROUGH A CENTRAL
ANGLE OF 42°19’05”;   THENCE NORTH 48°18’51” EAST, A DISTANCE OF 153.68 FEET;
THENCE SOUTH 41°41’09” EAST, A DISTANCE OF 316.13 FEET TO THE SOUTHEAST CORNER
OF THE NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID
SECTION 35, SAME BEING THE POINT OF BEGINNING.

 

Prepared by:

Michael A. Lathan, PLS No. 14414

DRC Surveying Nevada, Inc.

9330 West Martin Avenue

Las Vegas, Nevada  89148

 

--------------------------------------------------------------------------------

EXHIBIT B

 

[INTENTIONALLY OMITTED]

--------------------------------------------------------------------------------

EXHIBIT C

 

PLANS

 

[ATTACHED]

--------------------------------------------------------------------------------

EXHIBIT D

 

CONSTRUCTION BUDGET

 

LINE ITEMS

Total Costs

 

 

LAND COSTS

 

LAND

14,200,000.00

TOTAL LAND COSTS

14,200,000.00

 

 

HARD COSTS

 

Construction Hard Costs

34,235,846.00

Hard Costs Contingency

1,431,465.00

TOTAL HARD COSTS

35,667,311.00

 

 

SOFT COSTS

 

Taxes

220,000.00

Legal

375,000.00

Closing Costs

100,000.00

Municipal Fees

4,150,000.00

Architect

700,000.00

Engineering & Surveying

200,000.00

Preleasing

175,000.00

Marketing

465,000.00

Mezzanine Loan Fee

631,296.00

Non-Accrual Mezzanine Interest

6,413,523.00

Financing Costs

1,501,870.00

Deferred Developer Offsite Overhead

3,613,196.00

Interest Reserve

1,181,558.00

Operating Deficit

275,237.00

Soft Cost Contingency

275,000.00

TOTAL SOFT COSTS

20,276,680.00

TOTAL BUDGET

70,143,991.00

 

 

SOURCE

 

Mezzanine Debt

21,043,197.00

Equity Partner

5,172,333.00

TCR Cash-including Pre Development Costs

1,715,265.00

Deferred Equity-Offsite Overhead

3,613,196.00

TOTAL SOURCES

31,543,991.00

LOAN PROCEEDS

38,600,000.00

 

--------------------------------------------------------------------------------

 

EXHIBIT E

 

DRAW REQUEST

 

[BORROWER’S LETTERHEAD]

 

DRAW REQUEST NO.                          

 

TO:  BEHRINGER HARVARD ST. ROSE REIT, LLC (“Lender”)

 

LOAN NO.

 

DATE

 

PROJECT

ALEXAN ST. ROSE

LOCATION

HENDERSON, NEVADA

BORROWER

SW 131 ST. ROSE MEZZANINE BORROWER LLC

 

 

 

 

FOR
PERIOD
ENDING

 

 

In accordance with the Junior Mezzanine Loan Agreement in the amount of up to
$21,043,197 dated December     , 2008 between Borrower and Lender, Borrower
requests that $                     be advanced from Loan proceeds.  The
proceeds should be credited to the account of
                                        , Account No.                     , at
                                        .

 

1.

ORIGINAL CONTRACT SUM

 

$

 

 

 

 

 

 

 

2.

TOTAL CHANGE ORDERS

 

$

 

 

 

 

 

 

 

3.

CONTRACT SUM TO DATE (Line 1 + 2)

 

$

 

 

 

 

 

 

 

4.

TOTAL COMPLETED & STORED TO DATE

 

$

 

 

 

 

 

 

 

5.

SOFT COSTS

 

$

 

 

 

 

 

 

 

6.

RETAINAGE:

 

 

 

 

 

 

 

 

 

a.

 

% of Completed Work

 

$

 

 

 

 

 

 

 

 

 

 

b.

 

% of Stored Material

 

$

 

 

 

 

 

 

 

 

 

 

 

Total Retainage

 

$

 

 

 

 

 

 

 

7.

TOTAL EARNED LESS RETAINAGE

 

$

 

 

 

(Line 4 less Line 6 Total)

 

 

 

 

 

 

 

 

8.

LESS PREVIOUS PAYMENTS

 

$

 

 

 

 

 

 

 

9.

CURRENT PAYMENT DUE

 

$

 

 

 

 

 

 

 

10.

BALANCE TO FINISH, PLUS RETAINAGE

 

$

 

 

 

(Line 3 less Line 7)

 

 

 

 

 

--------------------------------------------------------------------------------

 

The undersigned Borrower represents that, to the best of Borrower’s knowledge,
information, and belief, the Work covered by this application has been completed
substantially in accordance with the above-referenced Contract, that all amounts
have been paid by Borrower for Work for which previous payments were received
from Owner, and that the current payment requested herein represents a just
estimate of reimbursement to Borrower.  Borrower further represents that:
(i) there are no known mechanic’s liens or materialmen’s liens outstanding at
the date of this application (other than items being contested in accordance
with the Loan Documents); (ii) all due and payable bills with respect to the
Work have been paid to date  (other than items being contested in accordance
with the Loan Documents) or are included in the amount requested in this
application; (iii) except for such bills not paid but so included, there is no
known basis for the filing of any mechanic’s liens or materialmen’s liens on the
Work or the Project (other than items being contested in accordance with the
Loan Documents); and (iv) effective waivers and releases of liens have been
obtained from all subcontractors through the immediately preceding advance of
Loan proceeds (other than items being contested in accordance with the Loan
Documents).

 

This Draw Request is executed                     , 200    .

 

BORROWER:

 

SW 131 ST. ROSE MEZZANINE BORROWER LLC,

a Delaware limited liability company

 

By:

SW 130 St. Rose Limited Partnership,

 

 

 

a Delaware limited partnership,

 

 

 

its sole member

 

 

 

 

 

 

 

By:

SW 129 St. Rose Limited Partnership,

 

 

 

 

a Delaware limited partnership,

 

 

 

 

its general partner

 

 

 

 

 

 

 

 

 

By:

SW 104 Development GP LLC,

 

 

 

 

 

a Delaware limited liability company,

 

 

 

 

 

its general partner

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

Name:

 

 

 

 

 

 

Title:

 

 

 

 

--------------------------------------------------------------------------------

 

NOTES:

 

Each Draw Request shall include invoices, receipts and/or copies of checks
evidencing the Cost of Work performed during the preceding month and
unconditional lien releases for all prior payments, from General Contractor and
all Subcontractors. Raw materials or work-in-process at a manufacturer’s plant
location are not eligible for payment.  For materials not yet incorporated in
the Work, the following shall be provided by Borrower as a condition to payment:

 

1.                                       Items shall be listed separately on the
Draw Request;

 

2.                                       An appropriate transfer of title shall
be executed;

 

3.                                       The methods used to store off-Site
items shall be described;

 

4.                                       Items in storage shall be identified as
property of Borrower or Mortgagor, and a description of the identification
methods used shall be submitted for approval by Lender;

 

5.                                       A written inventory of items and method
used to verify such inventory, including Borrower’s certification that all
quantities have been received in good condition, shall be submitted for approval
by Lender; and

 

6.                                       Proof of insurance in Borrower’s name
shall be secured.

 

Lender shall have the right to verify storage by a physical inspection prior to
invoice approval and at any time thereafter.  Such payment shall not relieve
Borrower of the responsibility for protecting, safeguarding, and proper
installation of the materials.

 

--------------------------------------------------------------------------------

 

EXHIBIT F

 

OWNERSHIP CHART

 

[ATTACHED]

 

--------------------------------------------------------------------------------

 

EXHIBIT G

 

PENDING ACTIONS AT LAW

 

None.

 

--------------------------------------------------------------------------------

 

EXHIBIT H

 

VIOLATIONS OF PROPERTY AGREEMENTS

 

None.

 

--------------------------------------------------------------------------------

 

EXHIBIT I

 

LEASES

 

None.

 

--------------------------------------------------------------------------------

 

EXHIBIT J

 

FINANCIAL INFORMATION

 

Borrower must provide the following items, as applicable, to Lender, in addition
to any other items requested by Lender prior to Closing or during the term of
this Agreement:

 

a)              Detailed accrued expense listing for each quarter ended during
the current calendar year and for the prior full fiscal year

b)             Detailed straight line rent schedule for each quarter ended
during the current calendar year and for the prior full fiscal year

c)              Details/abstracts of all permits and licenses for tenants (i.e.
satellite dishes on roof)

d)             Detailed listing of all tenants with termination options

e)              Listing of all service contracts and equipment leases, including
contracts for elevator, landscaping, electricity, cleaning, HVAC service,
security, pest control, disposal, parking lot maintenance, insurance, etc.

f)                Access to service contracts

g)             Detail of the cash receipts and disbursements journal, downloaded
to Excel if possible for the prior full fiscal year and the year to date period
of the current year

h)             Detailed general ledger of revenues and expenses for each quarter
during the current calendar year and the prior full fiscal year

i)                 Detailed income statements by month for the current year and
for the prior full fiscal year

j)                 Copies of property tax invoices for the current year and the
previous full fiscal year

k)              Operating expense reconciliations by tenant for the current year
to date period and the previous full fiscal year

l)                 Rent roll – current year and prior year end

m)           Lease abstracts, including amendments, exhibits and side letters
for each tenant

n)             Management/leasing agreement, current year and prior year end

o)             Check registers for the period from the current year to date
period being reviewed through the date of the accountants/auditors field work

p)             Access to vendor accounts payable files

q)             Leases in effect during the prior full fiscal year and during the
current year being reviewed

 

--------------------------------------------------------------------------------

 

EXHIBIT K

 

FORM OF SUBORDINATION OF MANAGEMENT AGREEMENT

 

[ATTACHED]

 

--------------------------------------------------------------------------------