Exhibit 10.2

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                               CMBS LOAN AGREEMENT



                              FOR A CREDIT FACILITY

                         IN AN AMOUNT UP TO $300,000,000



                            Dated as of June 30, 1998

                                  CAPITAL TRUST

                                   as Borrower


                                       and


                   MORGAN STANLEY & CO. INTERNATIONAL LIMITED

                                    as Lender










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<PAGE>





                                TABLE OF CONTENTS

Recitals     ..................................................................4

Section 1.   Definitions and Accounting Matters................................4

       1.01  Certain Defined Terms.............................................4
       1.02  Accounting Terms and Determinations..............................17

Section 2    Loans, Note and Prepayments......................................18

       2.01  Loans............................................................18
       2.02  Notes............................................................18
       2.03  Procedures for Borrowing.........................................18
       2.04  Mandatory Prepayments or Pledge..................................23

Section 3    Payments; Computations; Etc......................................24

       3.01  Repayment of Loans; Interest.....................................24
       3.02  Payments.........................................................25
       3.03  Computations.....................................................25
       3.04  U.S. Taxes.......................................................25
       3.05  Booking of Loans.................................................26
       3.06  Lender's Funding of Eurodollar Rate Loans........................26
       3.07  Breakage Costs...................................................27
       3.08  Compensation for Increased Costs.................................27
       3.09  Limitation on Types of Loans; Illegality.........................28

Section 4    Collateral Security..............................................28

       4.01  Collateral; Security Interest....................................28
       4.02  Further Documentation............................................29
       4.03  Changes in Locations, Name, etc..................................30
       4.04  Lender's Appointment as Attorney-in-Fact.........................30
       4.05  Performance by Lender of Borrower's Obligations..................31
       4.06  Proceeds.........................................................31
       4.07  Remedies.........................................................32
       4.08  Limitation on Duties Regarding Preservation of Collateral........33
       4.09  Powers Coupled with an Interest..................................33
       4.10  Release of Security Interest.....................................33
       4.11  Release of Collateral............................................33
       4.12  Substitution of Eligible Collateral..............................33

Section 5    Conditions Precedent.............................................34

       5.01  Initial Loan.....................................................34
       5.02  Initial and Subsequent Loans.....................................34
       5.03  Additional Requirements..........................................36

Section 6    Representations and Warranties...................................37

       6.01  Existence........................................................37


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<PAGE>

       6.02  Action...........................................................37
       6.03  Financial Condition..............................................37
       6.04  Litigation.......................................................38
       6.05  No Breach........................................................38
       6.06  Approvals........................................................38
       6.07  Margin Regulations...............................................38
       6.08  Taxes............................................................38
       6.09  Investment Company Act...........................................39
       6.10  Collateral; Collateral Security..................................39
       6.11  Chief Executive Office...........................................39
       6.12  Location of Books and Records....................................39
       6.13  True and Complete Disclosure.....................................39
       6.14  Tangible Net Worth...............................................40
       6.15  ERISA............................................................40

Section 7    Covenants of the Borrower........................................40

       7.01  Financial Statements, Reports, etc...............................40
       7.02  Litigation.......................................................41
       7.03  Existence, etc...................................................41
       7.04  Prohibition of Fundamental Changes...............................41
       7.05  Borrowing Base Deficiency........................................42
       7.06  Notices..........................................................42
       7.07  Reports..........................................................43
       7.08  Transactions with Affiliates.....................................43
       7.09  Foreclosure or Other Remediation by Borrower.....................43
       7.10  Limitation on Liens..............................................43
       7.11  Limitation on Distributions......................................43
       7.12  Maintenance of Tangible Net Worth................................43
       7.13  Maintenance of Ratio of Earnings Before Interest.................43
       7.14  Maintenance of Ratio of Total Indebtedness to Tangible Net Worth.44
       7.15  Servicer; Servicing Tape.........................................44
       7.16  Remittance of Prepayments........................................44

Section 8    Events of Default................................................44

Section 9    Remedies Upon Default............................................46

Section 10   No Duty of Lender................................................46

Section 11   Miscellaneous....................................................47

      11.01  Waiver...........................................................47
      11.02  Notices..........................................................47
      11.03  Indemnification and Expenses.....................................47
      11.04  Amendments.......................................................48
      11.05  Successors and Assigns...........................................48
      11.06  Survival.........................................................48
      11.07  Captions.........................................................48
      11.08  Counterparts.....................................................48


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<PAGE>


      11.09  Loan Agreement Constitutes Security Agreement; Governing Law.....48
      11.10  SUBMISSION TO JURISDICTION; WAIVERS..............................49
      11.11  WAIVER OF JURY TRIAL.............................................49
      11.12  Acknowledgments..................................................49
      11.13  Hypothecation or Pledge of Loans.................................49
      11.14  Servicing........................................................50
      11.15  Periodic Due Diligence Review....................................51
      11.16  Intent...........................................................51
      11.17  Change of Borrower's State of Formation..........................51
      11.18  Trustee Exculpation..............................................52

SCHEDULES
---------

SCHEDULE 1    Filing Jurisdictions and Offices
SCHEDULE 2    Approved Appraisers
SCHEDULE 3    Approved Engineers
SCHEDULE 4    Approved Environmental Consultants

EXHIBITS

EXHIBIT A     Form of Promissory Note
EXHIBIT B     Form of Custodial Agreement
EXHIBIT C     Form of Opinion of Counsel to Borrower
EXHIBIT D     Form of Request for Borrowing
EXHIBIT E     Form of Lender's Release Letter
EXHIBIT F     Form of Bailee Agreement


                                      iii
<PAGE>



                               CMBS LOAN AGREEMENT

                  CMBS  LOAN  AGREEMENT,  dated  as of June  30,  1998,  between
CAPITAL TRUST, a California  business trust  ("Borrower"),  and MORGAN STANLEY &
CO. INTERNATIONAL LIMITED ("Lender").

                                    RECITALS

                  Borrower  has  requested  that  Lender  from time to time make
revolving  credit  loans to it to  finance  certain  commercial  mortgage-backed
securities owned by Borrower, and Lender is prepared to make such loans upon the
terms and  conditions  hereof.  In addition,  Borrower has requested that Morgan
Stanley Mortgage  Capital Inc.  ("MSMC") from time to time make revolving credit
loans to it to finance certain Mortgage Loans, Mezzanine Loans, Equity Interests
and other approved collateral owned by Borrower and MSMC has agreed to make such
loans  pursuant  to the terms and  conditions  of the Master  Loan and  Security
Agreement dated as of June 8, 1998 (the "Conduit Loan Agreement").

                  Lender and Borrower further understand that Borrower may enter
into loan  facilities  with other  parties  on a secured  and  unsecured  basis,
including,  without  limitation,  loans  secured  by  collateral  similar to the
Collateral hereunder.

                  Accordingly, the parties hereto agree as follows:

                  Section 1. Definitions and Accounting Matters

                  1.01 "Certain  Defined Terms".  As used herein,  the following
terms shall have the following  meanings (all terms defined in this Section 1.01
or in other provisions of this Loan Agreement in the singular will have the same
meanings when used in the plural and vice versa):

                  "Advance Rate" means, for any item of Eligible Collateral, the
ratio, expressed as a percentage,  set forth opposite the collateral type in the
chart  provided in the  definition  of  Eurodollar  Rate Spread or as  otherwise
defined or limited herein.

                  "Affiliate" shall mean (i) with respect to Lender,  any entity
which  controls,  is controlled by, or is under common control with Lender,  and
(ii) with respect to Borrower, any affiliate of Borrower as such term is defined
in the Bankruptcy Code.

                  "Appraisal"  means an appraisal of any Property  prepared by a
licensed appraiser listed on Schedule 3 attached hereto, as such schedule may be
amended  from time to time by Borrower or Lender upon  approval by Lender in its
reasonable discretion,  in accordance with the Uniform Standards of Professional
Appraisal  Practice  of  the  Appraisal  Foundation,   in  compliance  with  the
requirements  of Title 11 of the  Financial  Institution  Reform,  Recovery  and
Enforcement Act and utilizing  customary  valuation  methods such as the income,
sales/market  or  cost  approaches,  as any  of  the  same  may  be  updated  by
recertification from time to time by the appraiser performing such Appraisal.

                  "Asset-Specific  Loan  Balance"  means a  portion  of the Loan
allocable  to each  item of the  Eligible  Collateral.  Such  portion  initially
consists of the sum of all advances of the Loan made on account of such Eligible
Collateral, without subtracting from such advances the


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<PAGE>


Drawdown Fee, Lender's Transaction Costs and other advance costs and fees to the
extent borrowed.  Wherever this Loan Agreement states that principal payments on
account  of  the  Loan  are  to  be  allocated  or  applied  to or  against  the
Asset-Specific  Loan  Balance of a specific  item of  Eligible  Collateral,  the
Asset-Specific  Loan Balance of such item of Eligible Collateral shall be deemed
reduced accordingly by the amount of the principal payments so applied.

                  "Asset Value" shall mean, as of any date in respect of an item
of  Eligible  Collateral,  the price at which  such  Eligible  Collateral  could
readily be sold as determined in the sole good faith of Lender,  which price may
be determined to be zero.  Lender's  determination of Asset Value,  which may be
made at any time and from time to time,  shall be  conclusive  upon the parties.
Whenever an Asset Value  determination  is required  under this Loan  Agreement,
Borrower shall cooperate with Lender in its  determination of the Asset Value of
each item of Eligible Collateral (including,  without limitation,  providing all
information and documentation in the possession of Borrower  regarding such item
of Eligible  Collateral  or otherwise  required by Lender in its sole good faith
business discretion).

                  "Bailee"  shall mean  Battle  Fowler  LLP or such other  third
party as Lender may approve.

                  "Bailee  Agreement"  shall  mean the  Bailee  Agreement  among
Borrower, Lender and Bailee in the form of Exhibit F hereto.

                  "Bailee's Trust Receipt and Certification"  shall mean a Trust
Receipt  and  Certification  in the form  annexed  to the  Bailee  Agreement  as
Attachment 2.

                  "Bankruptcy Code" shall mean the United States Bankruptcy Code
of 1978, as amended from time to time.

                  "Base Rate" means,  as  determined by Lender on a daily basis,
the higher of (a) the rate per annum  established  by The Chase  Manhattan  Bank
from  time to time as its  "Prime"  Rate or  "reference"  rate  (which  Borrower
acknowledges  is not  necessarily  such  bank's  lowest  rate) and (b)  one-half
percentage  point  (0.5%) (50 basis  points)  over the Federal  funds  rate,  as
determined by Lender in its sole discretion.

                  "Borrower"  shall have the  meaning  provided  in the  heading
hereof.

                  "Borrowing Base" shall mean the aggregate  Collateral Value of
all  Eligible  Collateral  pledged  to  secure  the  amounts  from  time to time
outstanding under this Loan Agreement.

                  "Borrowing Base Deficiency" shall have the meaning provided in
Section 2.04 hereof.

                  "Business Day" shall mean any day other than (i) a Saturday or
Sunday or (ii) a day on which the New York Stock  Exchange,  the Federal Reserve
Bank of New York or  Custodian  is  authorized  or obligated by law or executive
order to be closed.

                  "Capital Lease  Obligations"  shall mean, for any Person,  all
obligations  of such  Person to pay rent or other  amounts  under a lease of (or
other  agreement  conveying  the  right  to use)  Property  to the  extent  such
obligations are required to be classified and accounted for as a


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capital lease on a balance sheet of such Person under GAAP, and, for purposes of
this Loan  Agreement,  the amount of such  obligations  shall be the capitalized
amount thereof, determined in accordance with GAAP.

                  "CMBS"  shall mean,  in the  singular or plural as the context
requires,  securities  backed by mortgages  and other liens on  commercial  real
estate and related  collateral or by securities,  interests or other obligations
backed by such mortgages.

                  "Code"  shall  mean the  Internal  Revenue  Code of  1986,  as
amended from time to time.

                  "Collateral"  shall  have  the  meaning  provided  in  Section
4.01(b) hereof.

                  "Collateral  Assignment" shall mean all documents  pursuant to
which  Borrower  shall have  collaterally  assigned all of its right,  title and
interest in, to and under an item of Collateral to secure a Loan made hereunder.

                  "Collateral   Documents"   shall  mean  with  respect  to  any
Collateral Loan, Equity Interest,  or Other Approved  Collateral,  the documents
comprising the Collateral File for such item of Collateral.

                  "Collateral  File" shall mean, as to each item of  Collateral,
those  documents  set forth in a schedule to be delivered by Lender to Custodian
and which are  delivered  to the  Custodian  pursuant  to the terms of this Loan
Agreement  or  the  Custodial  Agreement  including,   without  limitation,  all
documents  required  by Lender to grant and  perfect a first  priority  security
interest in such item of Collateral.

                  "Collateral  Loan" shall mean, as applicable,  a Mortgage Loan
or a Mezzanine Loan.

                  "Collateral   Obligor"   shall  mean  any  obligor  under  any
Collateral  Loan,  any  issuer of any  security  comprising  any  portion of the
Collateral and any entity in which an Equity  Interest  comprises any portion of
the Collateral.

                  "Collateral  Report"  shall mean the  collateral  schedule and
exception report prepared by Custodian pursuant to the Custodial Agreement.

                  "Collateral Schedule" shall mean a list of Eligible Collateral
to  be  pledged  pursuant  to  this  Loan  Agreement,  attached  to a  Custodial
Identification   Certificate   setting  forth,  as  to  each  item  of  Eligible
Collateral,  the applicable  information  for such  Collateral Type specified on
Annex 1 to the Custodial Agreement.

                  "Collateral   Type"   shall  mean  CMBS  and  Other   Approved
Collateral.

                  "Collateral  Value"  shall mean,  with respect to each item of
Eligible Collateral,  the Asset Value of such Eligible Collateral  multiplied by
the  applicable  Advance Rate set forth in the  definition of  "Eurodollar  Rate
Spread" set forth herein or as otherwise  defined or limited  herein;  provided,
that, the Collateral  Value shall be deemed to be zero or such greater amount as
determined  by Lender in  respect  of each item of  Eligible  Collateral  (1) in
respect  of  which  there is a  breach  of a  representation  or  warranty  by a
Collateral Obligor, (2) in respect of which there


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<PAGE>


is a delinquency in the payment of principal and/or interest which continues for
a period in excess of 30 days  (such  period to  include  any  applicable  grace
periods)  unless  otherwise  approved by Lender,  or (3) which has been released
from the possession of Custodian under the Custodial Agreement to Borrower for a
period in excess of 14 days.

                  "Collection   Account"   shall  mean  one  or  more   accounts
established by the Servicer  subject to a security  interest in favor of Lender,
into which all Collections shall be deposited by the Servicer.

                  "Collections"  shall mean,  collectively,  all collections and
proceeds on or in respect of the Collateral,  excluding  collections required to
be paid to the Servicer or a borrower on the Collateral.

                  "Conduit Loan" shall mean a Mortgage Loan,  secured by a first
mortgage on a real  property,  that in  Lender's  determination,  satisfies  the
following  criteria:  (i) principal balance not exceeding  $40,000,000.00;  (ii)
interest  at a fixed rate with  prepayment  protection  satisfactory  to Lender;
(iii)  single-asset,   bankruptcy  remote  property  owner  complying  with  all
nationally   recognized   statistical  rating  agency   requirements;   (iv)  no
subordinate  financing  and mortgage and  organizational  documents  prohibiting
subordinate   financing  or  unsecured   financing  not  otherwise   subject  to
intercreditor  agreements  satisfactory  to rating  agencies;  (v) debt  service
coverage ratio (as determined by Lender in its sole discretion) of not less than
1.25:1 or such higher debt service  coverage  ratio as may be required by rating
agencies;  (vi) not having any  characteristics  that would impair the rating of
any securities  issued pursuant to a securitization  that included a substantial
component of mortgages  similar to such mortgage;  and (vii) in full  compliance
with such other "conduit"  underwriting  and structuring  requirements as Lender
shall establish from time to time.

                  "control"  shall mean  possession  of the power,  directly  or
indirectly,  to (a) vote more than fifty percent (50%) of the voting  securities
having ordinary power for the election of directors of an entity,  or (b) direct
or cause the direction of the management and policies of such entity, whether by
contract or otherwise.

                  "Custodial  Agreement"  shall  mean the  Custodial  Agreement,
dated as of the date hereof, among Borrower, Custodian and Lender, substantially
in the form of Exhibit B hereto,  as the same shall be modified and supplemented
and in effect from time to time.

                  "Custodial   Identification   Certificate"   shall   mean  the
certificate  executed  by  Borrower  in  connection  with the pledge of Eligible
Collateral to Lender in the form of Annex 3 to the Custodial Agreement.

                  "Custodian"  shall mean  LaSalle  National  Bank as  custodian
under  the  Custodial  Agreement,  and  its  successors  and  permitted  assigns
thereunder.

                  "Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.

                  "Diligence  Materials"  means the  Preliminary  Due  Diligence
Package together with the materials  requested in the Supplemental Due Diligence
List.

                  "Direct  Mortgage" means a recorded  mortgage or deed of trust
in favor of


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<PAGE>


Lender on real property.

                  "Dollars" and "$" shall mean lawful money of the United States
of America.

                  "Drawdown  Fee" shall mean,  for each Loan with respect to any
particular item of Eligible Collateral,  an amount equal to the product of 0.25%
and the principal amount of such Loan; provided,  however, that (a) the Drawdown
Fee  shall be equal to zero to the  extent  that  such  Loan is to be made  with
respect to a Conduit Loan as  Collateral  and (b) with respect to any other such
item of  Eligible  Collateral,  borrowings  which are  repaid  and  subsequently
reborrowed will not be charged a subsequent Drawdown Fee.

                  "Due Diligence Review" shall mean the performance by Lender of
any or all of the reviews  permitted  under Section 11.15 hereof with respect to
any or all of the Collateral, as desired by Lender from time to time.

                  "Effective Date" shall mean the date upon which the conditions
precedent set forth in Section 5.01 shall have been satisfied.

                  "Eligible  Collateral"  shall  mean  CMBS and  Other  Approved
Collateral as to which the representations and warranties in Section 6.10 hereof
are correct.

                  "Equity   Interest"  shall  mean  any  interest  in  a  Person
constituting a share of stock or a partnership  or membership  interest or other
right or interest in a Person not characterized as indebtedness under GAAP.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.

                  "ERISA  Affiliate"  shall  mean  any  corporation  or trade or
business that is a member of any group of organizations (i) described in Section
414(b) or (c) of the Code of which  Borrower  is a member  and (ii)  solely  for
purposes of potential  liability  under Section  302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created  under  Section  302(f) of ERISA and
Section  412(n) of the Code,  described in Section  414(m) or (o) of the Code of
which Borrower is a member.

                  "Eurocurrency Reserve Requirements" shall mean, for any day as
applied to a Loan, the aggregate  (without  duplication) of the rates (expressed
as a decimal fraction) of reserve  requirements in effect on such day (including
without  limitation basic,  supplemental,  marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve System or other
Governmental  Authority having jurisdiction with respect thereto),  dealing with
reserve requirements  prescribed for eurocurrency funding (currently referred to
as  "Eurocurrency  Liabilities"  in Regulation D of such Board)  maintained by a
member bank of such Governmental Authority.

                  "Eurodollar  Base  Rate"  shall  mean,  with  respect  to  any
Eurodollar  Contract  Period,  the rate per annum equal to the rate appearing at
page 3750 of the Telerate  Screen as 30, 60 or 90 day LIBOR on such date, and if
such rate shall not be so quoted,  the rate per annum at which Lender is offered
Dollar  deposits  at or about 10:00  A.M.,  New York City time,  on such date by
prime banks in the interbank  eurodollar market where the eurodollar and foreign
currency  exchange  operations in respect of its Loans are then being  conducted
for delivery on


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<PAGE>


such day for a period of 30, 60 or 90 days and in an  amount  comparable  to the
amount of the Loans to be outstanding on such day.

                  "Eurodollar Contract Period" means, with respect to each Loan,
an interest  rate  contract  period of (i) such period as shall be determined by
Borrower from time to time on the second Business Day prior to the expiration of
each  Eurodollar  Contract  Period,  which  Eurodollar  Contract Period shall be
thirty (30) days, sixty (60) days or ninety (90) days, or (ii) if Borrower shall
make no  determination  under clause (i) of this  definition,  thirty (30) days;
provided,   that:  (a)  Eurodollar  quotations  for  the  period  requested  are
reasonably  available  to Lender in the  Eurodollar  market for such  Eurodollar
Contract  Period;  (b) in no event shall a  Eurodollar  Contract  Period  extend
beyond the  Termination  Date; (c) the initial  Eurodollar  Contract Period with
respect to each  Asset-Specific  Loan  Balance  shall  commence  on the  related
Funding Date and each  succeeding  Eurodollar  Contract Period shall commence on
the day on which the  immediately  preceding  Eurodollar  Contract  Period shall
expire, and (d) if a Eurodollar  Contract Period would otherwise  terminate on a
day that is not a Business Day, such Eurodollar  Contract Period shall terminate
on (1) if the next  succeeding  Business  Day occurs  during  the same  calendar
month, the next succeeding  Business Day and (2) if the next succeeding Business
Day occurs during the following calendar month, the next preceding Business Day.

                  "Eurodollar  Rate" shall mean, with respect to each day a Loan
is outstanding,  a rate per annum determined by Lender in its sole discretion in
accordance with the following formula (rounded upwards to the nearest 1/100th of
one percent),  which rate as  determined  by Lender shall be  conclusive  absent
manifest error by Lender:

                              Eurodollar Base Rate
--------------------------------------------------------------------------------
                         1.00 minus Eurocurrency Reserve
                                  Requirements


                                       9
<PAGE>




                  "Eurodollar  Rate  Spread"  means as to each  Advance Rate the
applicable Eurodollar Rate Spread set forth below opposite such Advance Rate for
the applicable  Collateral  type, or such other Eurodollar Rate Spread as may be
mutually agreed to by Borrower and Lender:
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------
       Collateral Type                  Advance Rate    Eurodollar Rate Spread (expressed as
                                                         percentage points per annum and as basis
                                                                  points)
-------------------------------------------------------------------------------------------------
<S>                                           <C>                   <C>             <C> 
Conduit Loan                                  90%                   0.75%           75bp
                                              95%                   1.00%           100bp
-------------------------------------------------------------------------------------------------
Non-Conduit Mortgage Loans
   First Mortgage (75% LTV maximum)           90%                   1.45%           145bp
   First Mortgage (75% LTV maximum)           95%                   1.65%           165bp
-------------------------------------------------------------------------------------------------
     Subordinate Mortgage Loans, Mezzanine    65%                   1.75%           175bp
     Loans, CMBS and Equity Interests*        75%                   1.85%           185bp
                                              80%                   2.20%           220bp
-------------------------------------------------------------------------------------------------
</TABLE>

*    Solely  for  illustrative  purposes,  Borrower  and  Lender  agree that the
     following example of a transaction  illustrates their intent:  with respect
     to an item of Collateral  for which the appraised  value of the  underlying
     real property is $100,000,000,  on which Mortgage Loans and Mezzanine Loans
     have  been  made  in the  aggregate  amount  of  $85,000,000,  with  Lender
     advancing  hereunder  95%  of  a  75%  LTV  ($71,250,000),  plus  80%  of a
     subordinate  Mortgage  Loan or Mezzanine  Loan (80% of  $10,000,000  equals
     $8,000,000),  the  aggregate  loans from  Lender to  Borrower  would  equal
     $79,250,000,  resulting  in  a  93.2%  underlying  loan-to-loan  value.  In
     addition,  Lender  will  finance  loans  originated  by  Borrower  with  an
     aggregate  underlying LTV up to 95% and above 95% on a case-by-case  basis.
     The  Eurodollar  Rate Spread may exceed the levels set forth above on loans
     with underlying LTVs in excess of 90%.

                  "Eurodollar Substitute Rate" means a rate of interest equal to
(a) the Base Rate minus (b) Two and eighty-five  hundredths  percent (2.85%) per
annum (285 basis points).

                  "Event of Default" shall have the meaning  provided in Section
8 hereof.

                  "Federal  Funds Rate" shall mean,  for any day,  the  weighted
average of the rates on overnight federal funds transactions with members of the
Federal  Reserve System  arranged by federal funds brokers,  as published on the
next  succeeding  Business Day by the Federal  Reserve Bank of New York,  or, if
such rate is not so published  for any day which is a Business  Day, the average
of the quotations for the day of such transactions received by Lender from three
federal funds brokers of recognized standing selected by Lender.

                  "Funding Costs" shall mean, collectively,  the actual costs to
Lender of breaking a Eurodollar contract (or costs that would have been incurred
if Lender had entered  into and broken a  Eurodollar  contract  for a Eurodollar
Contract  Period  as  requested  by  Borrower)  prior to the  expiration  of the
Eurodollar  Contract  Period  applicable  thereto  in  connection  with  (a) any
prepayment  (whether  voluntary  or  involuntary)  of all or any  portion  of an
Asset-Specific Loan Balance or other principal  repayments required or permitted
under  the  Security  Documents,  that  is made at any  time  other  than at the
expiration  of the related  Eurodollar  Contract  Period,  (b) any  voluntary or
involuntary acceleration of the Termination Date, such that the Termination Date
occurs on any date that is not the expiration  date of the  Eurodollar  Contract
Period with respect to any Asset-Specific Loan Balance, and (c) any other set of
circumstances not attributable solely


                                       10
<PAGE>


to Lender's acts. Subject to the foregoing,  Funding Costs shall not include any
diminution  in yield  suffered by Lender upon  re-lending  or  re-investing  the
principal of the Loan after any prepayment of the Loan.

                  "Funding  Date"  shall  mean  the date on which a Loan is made
hereunder.

                  "GAAP" shall mean  generally  accepted  accounting  principles
consistently applied as in effect from time to time in the United States.

                  "Governmental  Authority" shall mean any nation or government,
any  state  or  other  political  subdivision  thereof,  any  entity  exercising
executive,  legislative,  judicial, regulatory or administrative functions of or
pertaining to government and any court or arbitrator  having  jurisdiction  over
any obligor on any underlying loan, Borrower,  any of its Subsidiaries or any of
its properties.

                  "Guarantee"  shall mean, as to any Person,  any  obligation of
such Person directly or indirectly  guaranteeing  any  Indebtedness of any other
Person or in any manner  providing  for the payment of any  Indebtedness  of any
other Person or otherwise  protecting  the holder of such  Indebtedness  against
loss (whether by virtue of partnership arrangements,  by agreement to keep-well,
to  purchase  assets,  goods,  securities  or  services,  or to  take-or-pay  or
otherwise);   provided  that  the  term   "Guarantee"   shall  not  include  (i)
endorsements  for collection or deposit in the ordinary  course of business,  or
(ii)  obligations to make servicing  advances for delinquent taxes and insurance
or other obligations in respect of a Mortgaged Property,  to the extent required
by Lender.  The  amount of any  Guarantee  of a Person  shall be deemed to be an
amount equal to the stated or determinable  amount of the primary  obligation in
respect of which such Guarantee is made or, if not stated or  determinable,  the
maximum  reasonably  anticipated  liability in respect  thereof as determined by
such Person in good faith. The terms  "Guarantee" and "Guaranteed" used as verbs
shall have correlative meanings.

                  "Indebtedness"  shall mean,  for any Person:  (a)  obligations
created,  issued or incurred by such Person for borrowed money (whether by loan,
the  issuance  and sale of debt  securities  or the sale of  Property to another
Person subject to an  understanding  or agreement,  contingent or otherwise,  to
repurchase  such Property from such Person);  (b)  obligations of such Person to
pay the deferred  purchase or acquisition  price of Property or services,  other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses  incurred,  in the  ordinary  course of  business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective  services are rendered;  (c)  Indebtedness of others
secured by a Lien on the Property of such Person,  whether or not the respective
Indebtedness  so  secured  has been  assumed  by such  Person;  (d)  obligations
(contingent  or  otherwise)  of such  Person in  respect of letters of credit or
similar instruments issued or accepted by banks and other financial institutions
for account of such Person;  (e) Capital Lease  Obligations of such Person;  (f)
obligations of such Person under repurchase agreements or like arrangements; (g)
Indebtedness  of others  Guaranteed by such Person;  (h) all obligations of such
Person  incurred in connection  with the acquisition or carrying of fixed assets
by such  Person;  and (i)  Indebtedness  of general  partnerships  of which such
Person is a general partner.

                  "Interest Rate Protection  Agreement" shall mean, with respect
to any or all of the Mortgage  Loans and Mezzanine  Loans,  any short sale of US
Treasury  Securities,  or futures  contract,  or mortgage related  security,  or
Eurodollar futures contract, or options related contract,

                                       11
<PAGE>


or interest rate swap, cap or collar agreement or similar arrangements providing
for protection against fluctuations in interest rates or the exchange of nominal
interest obligations, either generally or under specific contingencies,  entered
into by any  obligor  on any  underlying  loan or  Borrower  (specifically  with
respect to such items of Collateral) and acceptable to Lender.

                  "Lender"  shall  have  the  meaning  provided  in the  heading
hereto.

                  "Lien"  shall  mean  any  mortgage,   lien,  pledge,   charge,
encumbrance, security interest or adverse claim.

                  "Loan" and "Loans" shall have the meanings provided in Section
2.01(a) hereof.

                  "Loan Agreement"  shall mean this CMBS Loan Agreement,  as the
same may be amended, supplemented or otherwise modified from time to time.

                  "Loan   Documents"   shall  mean,   collectively,   this  Loan
Agreement,  the Supplemental  Terms and Conditions (Rule 15a-6 Annex),  the Note
and the Custodial Agreement.

                  "LTV" shall mean,  as to any  Eligible  Collateral,  the ratio
that (x) the aggregate  outstanding  principal  balances of all loans (including
Loans hereunder) and preferred  equity interests  secured in whole or in part by
real property or direct or indirect  beneficial  interests  therein  relating to
such  Eligible  Collateral  bears to (y) the value,  determined  by an Appraisal
reasonably  acceptable  to  Lender,  of the  real  property  (together  with all
applicable   appurtenant   interests  and  subject  to  all  applicable   liens,
encumbrances and tenancies),  or direct or indirect  beneficial  interests which
form the basis of such Eligible Collateral.

                  "Material Adverse Effect" shall mean a material adverse effect
on (a) the Property, business,  operations,  financial condition or prospects of
Borrower  taken  as a  whole,  (b)  the  ability  of  Borrower  to  perform  its
obligations  under  any of the Loan  Documents  to which it is a party,  (c) the
validity  or  enforceability  of any of the Loan  Documents,  (d) the rights and
remedies of Lender under any of the Loan  Documents,  (e) the timely  payment of
the principal of or interest on the Loans or other amounts payable in connection
therewith or (f) the aggregate value of the Collateral.

                  "Maximum  Advance Rate" shall mean, as to any item of Eligible
Collateral,  the  maximum  Advance  Rate that shall be  determined  by Lender in
Lender's  sole and  absolute  discretion;  provided,  that,  with respect to the
specific  categories  of Eligible  Collateral  referred to in the  definition of
Eurodollar Rate Spread, the Maximum Advance Rate shall not exceed the respective
Advance Rates set forth in such definition.

                  "Maximum  Credit" shall mean Two Hundred Fifty Million Dollars
($250,000,000.00);  provided,  however,  that if no  Default or Event of Default
shall have  occurred  and shall be  continuing,  Borrower  shall be  entitled to
increase   the   Maximum   Credit   up  to   Three   Hundred   Million   Dollars
($300,000,000.00)  at any time prior to the Termination Date upon the payment by
Borrower  to  Lender  of an  amount  equal to (i) the  amount  of the  requested
increase in the Maximum Credit then in effect multiplied by (ii) 30 basis points
(0.30%) multiplied by (iii) the number of days remaining to, and including,  the
Termination  Date  divided  by (iv) the  number  of days from and after the date
hereof to, and including,  the  Termination  Date (the "Maximum  Credit Increase
Fee"). The Maximum Credit under this Loan Agreement shall be

                                       12
<PAGE>


reduced by an amount equal to the amount from time to time outstanding under the
Conduit  Loan  Agreement  such  that in no  event  shall  the  aggregate  amount
outstanding  under this Loan  Agreement  and the Conduit Loan  Agreement  exceed
$250,000,000  (or,  in the  event  the  Maximum  Credit  has been  increased  to
$300,000,000 pursuant to the terms hereof, $300,000,000).

                  "Mezzanine  Loan"  shall  mean a loan  secured  by a pledge of
Equity Interests in one or more entities  holding direct or indirect  beneficial
interests  in an  entity  owning  (or  having  a  ground  lease  interest  in) a
commercial or multi-family residential property, preferred equity interests or a
second mortgage.

                  "Monthly Statement" shall mean, for each calendar month during
which this Loan  Agreement  shall be in  effect,  Borrower's  reconciliation  in
arrears of beginning  balances,  interest,  principal,  paid-to-date  and ending
balances  for each  asset  constituting  the  Collateral,  together  with (a) an
Officer's Certificate with respect to all Collateral pledged to Lender as at the
end of such month,  (b) a written report of any  developments or events that are
reasonably likely to have a Material Adverse Effect, (c) a written report of any
and  all  written  modifications  to  any  documents  underlying  any  items  of
Collateral and (d) such other internally  prepared reports as mutually agreed by
Borrower  and Lender which  reconciliation,  Officer's  Certificate  and reports
shall be  delivered  to Lender for each  calendar  month during the term of this
Loan  Agreement  within ten (10) days  following  the end of each such  calendar
month.

                  "Mortgage"  shall  mean the  mortgage,  deed of trust or other
instrument  securing a Mortgage  Note,  which creates a valid lien on the fee or
leasehold  interest  in  real  property  securing  the  Mortgage  Note  and  the
assignment of rents and leases related thereto.

                  "Mortgage Loan" shall mean a mortgage loan (including, without
limitation,  a Conduit  Loan) which  Custodian  has been  instructed to hold for
Lender  pursuant to the Custodial  Agreement,  and which Mortgage Loan includes,
without  limitation,  (i) the  indebtedness  evidenced  by a  Mortgage  Note and
secured by a related Mortgage and (ii) all right, title and interest of Borrower
in and to the Mortgaged Property covered by such Mortgage.

                  "Mortgage  Note" shall mean the original  executed  promissory
note or other  evidence of the  indebtedness  of a mortgagor  with  respect to a
Mortgage Loan.

                  "Mortgaged  Property" shall mean the real property  (including
all improvements,  buildings, fixtures, building equipment and personal property
thereon and all additions,  alterations and  replacements  made at any time with
respect to the foregoing)  and all other  Collateral  securing  repayment of the
debt evidenced by a Mortgage Note.

                  "MS & Co." shall mean  Morgan  Stanley & Co.  Incorporated,  a
registered broker-dealer.

                  "MS  Indebtedness"  shall mean all  Indebtedness  from time to
time owed by Borrower to Lender or any  Affiliate of Lender  including,  without
limitation,  under this Loan  Agreement,  the  Conduit  Loan  Agreement,  or any
repurchase or other  agreement  between Lender,  or an Affiliate of Lender,  and
Borrower.

                  "Multiemployer  Plan" shall mean a multiemployer  plan defined
as such in

                                       13
<PAGE>


Section  3(37) of ERISA to which  contributions  have been or are required to be
made by  Borrower  or any ERISA  Affiliate  and that is  covered  by Title IV of
ERISA.

                  "'Non-Table' Funded Eligible  Collateral" shall mean the items
of Eligible Collateral as described in Section 2.03(e) of this Loan Agreement.

                  "Note" shall mean the promissory  note provided for by Section
2.02(a) hereof for Loans and any promissory  note delivered in  substitution  or
exchange  therefor,  in each  case  as the  same  shall  be  modified,  amended,
supplemented or extended and in effect from time to time.

                  "Officer's  Certificate"  shall  mean  the  certificate  of  a
Responsible Officer as set forth in Section 5.02(b) hereof.

                  "Other Approved  Collateral" shall mean such other Property of
Borrower as Lender shall accept as Collateral for the Loans.

                  "Payment  Date" shall  mean,  with  respect to each Loan,  the
first Business Day of each calendar month following the related Funding Date.

                  "PBGC" shall mean the Pension Benefit Guaranty  Corporation or
any entity succeeding to any or all of its functions under ERISA.

                  "Person"  shall  mean any  individual,  corporation,  company,
voluntary association,  partnership,  joint venture,  limited liability company,
trust, unincorporated association or government (or any agency,  instrumentality
or political subdivision thereof).

                  "Plan"   shall  mean  an   employee   benefit  or  other  plan
established  or  maintained  by  Borrower  or any  ERISA  Affiliate  during  the
five-year period ended immediately  before the date of this Loan Agreement or to
which Borrower or any ERISA Affiliate makes, is obligated to make or has, within
the five-year  period before the date of this Loan  Agreement,  been required to
make contributions and that is covered Title IV of ERISA or Section 302 of ERISA
or Section 412 of the Code, other than a Multiemployer Plan.

                  "Post-Default Rate" shall mean, in respect of any principal of
any Loan or any other  amount under this Loan  Agreement,  the Note or any other
Loan Document that is not paid when due to Lender  (whether at stated  maturity,
by acceleration,  by optional or mandatory prepayment or otherwise),  a rate per
annum during the period from and  including  the due date to but  excluding  the
date on which  such  amount is paid in full  equal to 4% per annum plus the Base
Rate.

                  "Preliminary Due Diligence  Package" means with respect to any
proposed  Collateral,  the following due diligence  information relating to such
proposed  Collateral to be provided by Borrower to Lender  pursuant to this Loan
Agreement:

                  (i)      a   summary   memorandum   outlining   the   proposed
                           transaction, including potential transaction benefits
                           and all material underwriting risks, all Underwriting
                           Issues and all other  characteristics of the proposed
                           transaction  that a  prudent  lender  would  consider
                           material;

                  (ii)     current rent roll, if applicable;


                                       14
<PAGE>



                  (iii)    cash flow pro-forma, plus historical information,  if
                           available;

                  (iv)     description of the property (real  property,  pledged
                           loan or other Collateral);

                  (v)      indicative debt service coverage ratios;

                  (vi)     indicative loan-to-value ratio;

                  (vii)    Borrower's or any affiliate's  relationship  with its
                           potential underlying borrower or any affiliate;

                  (viii)   if   applicable,   Phase   I   environmental   report
                           (including asbestos and lead paint report);

                  (ix)     if applicable, engineering and structural reports;

                  (x)      third  party  reports,  to the extent  available  and
                           applicable, including:

                           (a)     current Appraisal;

                           (b)     Phase  II or  other  follow-up  environmental
                                   report if recommended in Phase I;

                           (c)     seismic reports; and

                           (d)     operations and maintenance  plan with respect
                                   to asbestos containing materials;

                  (xi)     analyses  and  reports  with  respect  to such  other
                           matters  concerning  the  Collateral as Lender may in
                           its sole discretion require;

                  (xii)    documents  comprising  such  Collateral,  or  current
                           drafts  thereof,   including,   without   limitation,
                           underlying debt and security  documents,  guaranties,
                           underlying   borrower's   organizational   documents,
                           warrant  agreements,  and loan and collateral  pledge
                           agreements, as applicable; and

                  (xiii)   a list that specifically and expressly identifies any
                           Collateral  Documents that relate to such  Collateral
                           but are not in Borrower's possession.

                  "Property"  shall mean any right or interest in or to property
of any kind whatsoever,  whether real, personal or mixed and whether tangible or
intangible.

                  "Regulations T, U and X" shall mean  Regulations T, U and X of
the Board of Governors of the Federal Reserve System (or any successor),  as the
same may be modified and supplemented and in effect from time to time.

                  "Responsible  Officer" shall mean, as to any Person, the chief
executive  officer,  any vice chairman and the chief  financial  officer of such
Person or, for the purpose of executing

                                       15
<PAGE>

certificates, the vice president and counsel responsible therefor.

                  "Secured  Obligations"  shall  have the  meaning  provided  in
Section 4.01(a) hereof.

                  "Security Documents" means this Loan Agreement,  the Note, and
all other agreements, instruments, certificates and documents delivered by or on
behalf  of  Borrower  to  evidence  or  secure  the  Loan(s)  or   otherwise  in
satisfaction of the requirements of this Loan Agreement,  or the other documents
listed above as same may be amended or modified from time to time.

                  "Servicer" shall have the meaning provided in Section 11.14(c)
hereof.

                  "Servicing  Agreement"  shall  have the  meaning  provided  in
Section 11.14(c) hereof.

                  "Servicing Records" shall have the meaning provided in Section
11.14(b) hereof.

                  "Subsidiary"  shall  mean,  with  respect to any  Person,  any
corporation,  partnership  or other  entity of which at least a majority  of the
securities or other  ownership  interests  having by the terms thereof  ordinary
voting  power to elect a majority  of the board of  directors  or other  persons
performing  similar functions of such  corporation,  partnership or other entity
(irrespective  of  whether  or not at the time  securities  or  other  ownership
interests  of any other  class or classes of such  corporation,  partnership  or
other entity shall have or might have voting power by reason of the happening of
any  contingency)  is at the time directly or indirectly  owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.

                  "Supplemental  Due Diligence List" means,  with respect to any
proposed  Collateral,   information  or  deliveries   concerning  such  proposed
Collateral,  such items that Lender shall request in addition to the Preliminary
Due  Diligence  Package  including,   without  limitation,   a  credit  approval
memorandum representing the final terms of the underlying  transaction,  a final
LTV ratio  computation and a final debt service  coverage ratio  computation for
such proposed Collateral.

                  "'Table Funded' Eligible  Collateral"  shall mean the items of
Eligible Collateral as described in Section 2.03(e) of this Loan Agreement.

                  "Tangible Net Worth" shall mean, as of a particular date,

                  (a) all  amounts  which would be  included  under  capital (it
being agreed that any convertible trust preferred securities will be included as
capital) on a balance  sheet of Borrower at such date,  determined in accordance
with GAAP, less

                  (b)  (i)amounts  owing to Borrower  from  Affiliates  and (ii)
intangible assets.

                  "Termination  Date"  shall  mean  December  31,  1999  or such
earlier date on which this Loan Agreement shall terminate in accordance with the
provisions hereof or by operation of law.

                                       16
<PAGE>


                  "Title Insurance  Policy" shall mean, with respect to any real
property  underlying a Collateral Loan, a mortgagee's  title insurance policy or
policies  issued to Lender and Lender's  successors and assigns (or,  subject to
the prior  written  approval  of Lender,  an  endorsement  to  Borrower's  title
insurance policy insuring the collateral  assignment to Lender of the applicable
mortgage)  by one or more title  companies  reasonably  satisfactory  to Lender,
which policy or policies shall be in form and substance reasonably acceptable to
Lender,  with such  endorsements  as Lender shall  reasonably  require and, with
respect to any Collateral Loan, a mortgagee's title insurance policy or policies
issued to Lender and  Lender's  successors  and/or  assigns by one or more title
companies reasonably satisfactory to Lender reflecting Lender's interest in such
Collateral Loan.

                  "Total Indebtedness" shall mean, for any period, the aggregate
Indebtedness  of Borrower  during such period less the amount of any nonspecific
balance sheet reserves maintained in accordance with GAAP.

                  "Transaction  Costs" shall mean, with respect to any Loan, all
actual  out-of-pocket  reasonable  costs and expenses paid or incurred by Lender
and payable by Borrower  relating  to the making of such Loan  (including  legal
fees and other fees described in Section 11.03 hereof). Lender shall endeavor to
limit the  Transaction  Costs  associated  with such Loan (excluding the initial
Loan) to $5,000,  but the foregoing shall not limit Borrower's  obligations with
respect to Transaction  Costs or constitute a "cap" on Transaction Costs for any
Loan.  Transaction Costs shall not include costs incurred by Lender for overhead
and general administrative expenses.

                  "Trust Receipt" shall mean the receipt  delivered by Custodian
pursuant to the provisions of Section 4 of the Custodial Agreement acknowledging
receipt of a Collateral  File in connection with a Loan hereunder in the form of
Annex 2 to the Custodial Agreement.

                  "Underwriting  Issues" means with respect to any Collateral as
to which Borrower  intends to request a Loan, all  information  that has come to
Borrower's  attention,  based on the  making  of  reasonable  inquiries  and the
exercise of reasonable care and diligence under the  circumstances,  which would
be  considered a  materially  "negative"  factor  (either  separately  or in the
aggregate with other information), or a material defect in loan documentation or
closing deliveries (such as any absence of any material Collateral Document(s)),
to a  reasonable  institutional  lender in  determining  whether to originate or
acquire the Collateral in question.

                  "Uniform  Commercial  Code" shall mean the Uniform  Commercial
Code as in effect on the date hereof in the State of New York;  provided that if
by reason of  mandatory  provisions  of law,  the  perfection  or the  effect of
perfection  or  non-perfection  of the security  interest in any  Collateral  is
governed by the Uniform  Commercial  Code as in effect in a  jurisdiction  other
than New York,  "Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in such other  jurisdiction  for purposes of the provisions  hereof
relating to such perfection or effect of perfection or non-perfection.

                   1.02  Accounting  and  Terms  and  Determinations.  Except as
otherwise  expressly  provided herein, all accounting terms used herein shall be
interpreted,  and all financial  statements and  certificates  and reports as to
financial  matters  required  to be  delivered  to  Lender  hereunder  shall  be
prepared, in accordance with GAAP.


                                       17
<PAGE>


                  Section 2. Loans, Note and Prepayments

                  2.01. Loans

                  (a) Lender agrees to consider,  as provided herein,  from time
to time  Borrower's  requests that Lender make,  on the terms and  conditions of
this Loan Agreement, loans (each, individually, a "Loan" and, collectively,  the
"Loans") to Borrower in Dollars,  from and including  the Effective  Date to and
including the Termination Date, in an aggregate principal amount at any one time
outstanding up to but not exceeding the Maximum Credit as in effect from time to
time.  Nothing in this Loan  Agreement  shall be  interpreted as a commitment by
Lender to make any Loans,  but rather  sets forth the  procedures  to be used in
connection with periodic  requests for Loans and the conditions to the making of
any Loans.  Borrower hereby  acknowledges  that Lender is under no obligation to
agree to make, or to make, any Loan pursuant to this Loan Agreement.

                  (b)  Subject  to  the  terms  and   conditions  of  this  Loan
Agreement,   during  such  period  Borrower  may  borrow,  prepay  and  reborrow
hereunder.

                  2.02. Notes

                  (a) The Loans made by Lender  shall be  evidenced  by a single
promissory note of Borrower substantially in the form of Exhibit A hereto, dated
the date  hereof,  payable to Lender in the  principal  amount of Three  Hundred
Million  Dollars  ($300,000,000.00),  as  otherwise  duly  completed;  provided,
however, that until such time as Borrower has satisfied all conditions precedent
to  the  increase  of  the  Maximum  Credit  amount  from   $250,000,000.00   to
$300,000,000.00,  Borrower shall not be permitted to borrow amounts in excess of
$250,000,000.00.  Lender  shall have the right to have its Note  subdivided,  by
exchange for  promissory  notes of lesser  denominations  or otherwise and shall
have the right to sell participating interests in such Note; provided,  however,
that Lender must retain (i) in excess of fifty percent (50%) ownership  interest
in the Note and (ii) control over all decisions with respect to loan pricing and
the exercise of remedies with respect to each item of Collateral;  and provided,
further,  however,  that Lender may subject up to one hundred  percent (100%) of
the Loans made hereunder to a repurchase agreement.

                  (b) The date,  amount and  interest  rate of each Loan made by
Lender to Borrower,  and each payment made on account of the principal  thereof,
shall be recorded by Lender on its books and, prior to any transfer of the Note,
endorsed  by Lender on the  schedule  attached  to the Note or any  continuation
thereof;  provided  that the failure of Lender to make any such  recordation  or
endorsement  shall not affect the obligations of Borrower to make a payment when
due of any amount owing hereunder or under the Note in respect of the Loans.

                  2.03. Procedures for Borrowing

                  (a) Preliminary Approval of Proposed Collateral.

                  (i)  Borrower  may,  from  time to time,  submit  to  Lender a
Preliminary  Due Diligence  Package for Lender's review and approval in order to
request a borrowing  hereunder  with  respect to any  proposed  Collateral  that
Borrower  proposes to pledge to Lender and to be included in the Borrowing  Base
in connection with such borrowing.


                                       18
<PAGE>


                  (ii) Upon  Lender's  receipt  of a  complete  Preliminary  Due
Diligence  Package,  Lender within two (2) Business Days shall have the right to
request,  in  Lender's  sole  and  absolute  discretion,   additional  diligence
materials  and  deliveries  that  Lender  shall  specify on a  Supplemental  Due
Diligence  List.  Upon  Lender's  receipt of all of the  Diligence  Materials or
Lender's waiver thereof, Lender, within five (5) Business Days, shall either (i)
notify  Borrower of the Maximum Advance Rate (which may be less than the Advance
Rate set forth in the definition of Eurodollar  Rate Spread) and the Asset Value
for the  proposed  Collateral  or (ii)  deny,  in  Lender's  sole  and  absolute
discretion,  Borrower's  request for an advance.  Lender's failure to respond to
Borrower  within  five (5)  Business  Days  following  receipt of all  Diligence
Materials or Lender's  written  waiver thereof shall be deemed to be a denial of
Borrower's  request  for an  advance,  unless  Lender and  Borrower  have agreed
otherwise in writing.  Nothing in this Section  2.03(a)(ii) or elsewhere in this
Loan Agreement  shall, or be deemed to, prohibit Lender from  determining in its
sole  discretion  the  adequacy,  correctness  and  appropriateness  of, or from
disapproving,  any and all financial and other  underwriting data required to be
supplied by Borrower under this Loan Agreement.

                  (b) Final  Approval  of  Proposed  Collateral.  Upon  Lender's
notification to Borrower of the Maximum Advance Rate and the Asset Value for any
proposed  Collateral,  Borrower shall, if Borrower desires to obtain one or more
advances secured by such proposed  Collateral,  satisfy the conditions set forth
below (in addition to  satisfying  the  conditions  precedent to obtaining  each
advance,  as set  forth in  Section  5 of this  Loan  Agreement)  as  conditions
precedent to Lender's approval of such proposed Collateral as Collateral, all in
a manner, and pursuant to documentation,  satisfactory in all respects to Lender
and its counsel:

                       (i) Environmental and Engineering. If applicable,  Lender
shall have received an Environmental  Report and an Engineering  Report, each in
form and  substance  satisfactory  to Lender,  by an Engineer and  Environmental
Consultant  listed on Schedules 3 and 4 attached hereto,  respectively,  as each
such  schedule  may be  amended  from time to time by  Lender in its  reasonable
discretion.

                       (ii) Appraisal. If applicable, Lender shall have received
an Appraisal.

                       (iii) Insurance. With respect to proposed Collateral that
is real property,  Lender shall have received  certificates or other evidence of
insurance  demonstrating  insurance coverage in respect of such real property of
types,  in amounts,  with insurers and  otherwise in compliance  with the terms,
provisions and conditions set forth in the Collateral  Documents or the Security
Documents.  Such  certificates  or other evidence shall  indicate  Borrower,  as
lender,  will be named as an  additional  insured as its interest may appear and
shall contain a loss payee endorsement in favor of such additional  insured with
respect to the property  policies required to be maintained under the Collateral
Documents.

                       (iv) Survey. With respect to a Mortgage Loan, a Mezzanine
Loan or an  Equity  Interest,  to the  extent  obtained  by  Borrower  from  the
Collateral  Obligor with respect to any item of Collateral at the origination of
the underlying loan or equity  interest,  as the case may be, relating  thereto,
Lender  shall have  received  with respect to proposed  Collateral  that is real
property,  a current  Survey of such real  property  in a form  satisfactory  to
Lender.

                       (v) Lien Search Reports. Lender or Lender's counsel shall
have


                                       19
<PAGE>


received,  as reasonably  requested by Lender,  satisfactory reports of UCC, tax
lien,  judgment  and  litigation  searches  and title  reports and  updates,  as
applicable,  conducted  by search firms and/or  title  companies  acceptable  to
Lender with  respect to the  Collateral,  Borrower  and the  related  underlying
obligor,  such searches to be conducted in each location Lender shall reasonably
designate.

                       (vi)  Title  Insurance  Policy.  (A)  With  respect  to a
Mortgage  Loan,  Borrower  shall have  delivered to Lender (1) an  unconditional
commitment  to issue title  insurance  policies in favor of Lender and  Lender's
successors  and/or assigns with respect to Lender's interest in the related real
property  with an amount of  insurance  that shall be not less than the  related
Asset-Specific  Loan Balance (taking into account the proposed  advance) or such
other  amount  as  Lender  shall  require  in  its  sole  discretion  or  (2) an
endorsement  or  confirmatory  letter  from the  existing  title  company to the
existing  Title  Insurance  Policy in favor of Lender  and  Lender's  successors
and/or assigns that amends the existing title  insurance  policy by stating that
the amount of the  insurance  is no less than the  related  Asset-Specific  Loan
Balance (taking into account the proposed advance) or such other amount of title
coverage as Lender shall require in its sole discretion.

         (B) With respect to a Mezzanine  Loan or an Equity  Interest,  Borrower
shall have delivered to Lender such evidence as Lender,  in its sole discretion,
shall  require of the  ownership of the real  property  underlying  such item of
Collateral  including,  without  limitation,  a copy of a title insurance policy
dated a date, and by a title insurer,  in each case  acceptable to Lender in its
sole discretion,  showing that title is vested in the related Collateral Obligor
or in an entity in whom such Collateral Obligor holds a beneficial interest.

                       (vii)  Security  Documents.  Borrower shall have executed
and delivered to Lender,  in form and substance  satisfactory  to Lender and its
counsel,  all security  documents  perfecting  Lender's security interest in the
proposed  Collateral  (and in any Interest Rate  Protection  Agreements  held by
Borrower  with  respect  thereto)  which shall be subject to no Liens  except as
expressly permitted by Lender. Each of the security documents shall contain such
representations and warranties concerning the proposed Collateral and such other
terms as shall be reasonably satisfactory to Lender.

                       (viii)  Opinions of Counsel.  Lender shall have  received
from counsel to Borrower  its legal  opinion as to  enforceability  of this Loan
Agreement and all documents executed and delivered  hereunder in connection with
such  Loan,  (at  Lender's  option)  an opinion  from  local  counsel  where the
applicable property is located and an opinion to Borrower and its successors and
assigns  from  counsel  to  the  underlying   obligor  on  the  underlying  loan
transaction, as applicable, as to enforceability of the loan documents governing
such  transaction  and such other  matters as Lender shall  require  (including,
without limitation,  opinions as to due formation,  authority, choice of law and
perfection of security  interests).  Such legal  opinions  shall be addressed to
Lender and its  successors and assigns,  dated the related  Funding Date, and in
form and substance reasonably satisfactory to Lender.

                       (ix)  Additional  Real  Estate  Matters.  To  the  extent
obtained  by  Borrower  from  the  Collateral  Obligor  relating  to any item of
Collateral at the origination of the underlying loan or equity interest relating
thereto,  Borrower shall have delivered to Lender such other real estate related
certificates and documentation as may have been requested by Lender, such as (i)
certificates  of  occupancy  and  letters  certifying  that the  property  is in
compliance with


                                       20
<PAGE>


all applicable  zoning laws, each issued by appropriate  Governmental  Authority
and (ii) abstracts of all Leases in effect at the real property relating to such
Collateral.

                       (x) Other  Documents.  Lender  shall have  received  such
other  documents as Lender or its counsel  shall request with respect to each or
any item of Collateral.

                  (c)  Collateral  Approval  or  Disapproval.   Within  two  (2)
Business Days following the date upon which Borrower has tendered performance of
the conditions  enumerated in Sections  2.03(b)(i) through (x), or has delivered
such items or documents fully  executed,  if applicable,  in final form,  Lender
shall either (i) if the  Collateral  Documents or the  Security  Documents  with
respect to the proposed  Collateral are not reasonably  satisfactory in form and
substance to Lender,  notify  Borrower that Lender has not approved the proposed
Collateral  as  Collateral  or (ii) notify  Borrower  and Bailee that Lender has
approved the proposed  Collateral as Collateral  and such notice shall  identify
the  documents to be delivered to  Custodian in  connection  with such  proposed
Collateral  pursuant to  Sections  2.03 and 5 of this Loan  Agreement  and shall
identify the party whom Lender shall  designate  to record  and/or file,  as the
case may be, any  security  documents  necessary  to perfect  Lender's  security
interest in the Eligible  Collateral.  The terms of delivery  and filing  and/or
recordation  of  such  security  documents  shall  be set  forth  in a  separate
agreement  between  Lender  and its  designee.  Lender's  failure  to respond to
Borrower  within  two (2)  Business  Days  shall be  deemed  to be a  denial  of
Borrower's  request that Lender approve the proposed  Collateral,  unless Lender
and Borrower have agreed otherwise in writing.

                  (d)  Procedure   for   Borrowing   with  Respect  to  Eligible
Collateral.  Once Lender has approved the Collateral in accordance  with Section
2.03(c) above, Borrower may request a Loan hereunder, on any Business Day during
the  period  from  and  including  the  Effective  Date  to  and  including  the
Termination  Date,  by  delivering  to  Lender,  with a copy  to  Custodian,  an
irrevocable written request for borrowing,  substantially in the form of Exhibit
D attached hereto, which request must be received by Lender prior to 11:00 a.m.,
New York City time,  one (l) Business Day prior to the  requested  Funding Date.
Such request for borrowing shall (1) attach a schedule  identifying the Eligible
Collateral that Borrower  proposes to pledge to Lender and to be included in the
Borrowing  Base in  connection  with such  borrowing,  (2) specify the requested
Funding Date,  and (3) attach an Officer's  Certificate  signed by a Responsible
Officer of Borrower as required  by Section  5.02(b)  hereof.  Contemporaneously
with the delivery of the request for borrowing, Borrower shall deliver to Lender
with a copy to Custodian, a Custodial Identification  Certificate along with the
accompanying   Collateral   Schedule  with  respect  to  all  proposed  Eligible
Collateral to be pledged to Lender on the applicable Funding Date.

                  (e) Delivery of Collateral Files and Security Documents.

                           "Non-Table Funded" Eligible Collateral:

                  1) By no later  than 1:00 p.m.,  New York City  time,  one (1)
Business Day prior to any Funding  Date,  the  Borrower  and/or the Bailee shall
deliver to the Custodian as to any Eligible  Collateral on a case-by-case basis,
(i) original  counterparts of all Collateral Documents comprising the Collateral
File, (ii) the security documents  described in Section  2.03(b)(vii) above, and
(iii)  to the  extent  applicable,  any  other  documents,  reports  or  updated
information  as Lender  shall  request  pursuant to Section  2.03(b)(i)-(x)  and
Section 5.03(b) not heretofore finally


                                       21
<PAGE>

approved by Lender.

                       "Table Funded" Eligible Collateral:

                  1) By no later  than 1:00  p.m.,  New York City  time,  on the
     Funding  Date,  the  Borrower  shall  cause the  Bailee to  deliver  to the
     Custodian  by  facsimile  (i) as to each item of Eligible  Collateral,  the
     note,  if  applicable,  evidencing  the  making of a loan  secured  by such
     Eligible  Collateral,  a fully executed Bailee Agreement and Bailee's Trust
     Receipt and Certification  issued by the Bailee thereunder,  (ii) as to all
     other  categories  of Eligible  Collateral  on a  case-by-case  basis,  the
     delivery of all fully executed documents and instruments required by Lender
     to comprise the Collateral  File and (iii) evidence  satisfactory to Lender
     that all documents necessary to perfect Borrower's interest in the Eligible
     Collateral  have  been  delivered  to a  party  acceptable  to  Lender  for
     recordation and filing.

                  2) By no later  than 1:00  p.m.,  New York City  time,  on the
     third  Business Day following  the  applicable  Funding Date,  the Borrower
     shall cause the Bailee to deliver to the Custodian the Collateral File.

                  (f) No later  than  1:00  p.m.,  New York City  time,  on each
Funding  Date,   Borrower  shall  provide   Custodian  with  a  final  Custodial
Identification  Certificate and related Collateral  Schedule with respect to the
Eligible Collateral to be pledged to the Lender on such Funding Date, indicating
any changes, if any, from the Custodial  Identification  Certificate and related
Collateral  Schedule  heretofore  delivered to Lender and Custodian  pursuant to
Section 2.03(d) above.

                  (g) If  Borrower  shall  deliver  a  request  for a  borrowing
pursuant to Section  2.03(d)  hereof and all  conditions  precedent set forth in
Sections 2.03(a), 2.03(b), 2.03(c), 5.01 and 5.02 have been met, and provided no
Default or Event of Default shall have occurred and be continuing,  Lender shall
make a Loan  to  Borrower  on the  requested  Funding  Date,  in the  amount  so
requested and approved by Lender.


                                       22
<PAGE>


                  (h) Subject to the  delivery  by  Custodian  to  Borrower  and
Lender  of a  Trust  Receipt  with  a  Collateral  Schedule  in  respect  to all
Collateral  pledged to Lender on such Funding Date by no later then 3:00 p.m. on
such date,  and  subject  further to the  provisions  of Section 5 hereof,  such
borrowing  will then be made available to Borrower by Lender  transferring,  via
wire transfer, to the following account of Borrower: Bank of New York, 530 Fifth
Avenue,  New York, New York,  Account No. 630-0439428 for the benefit of Capital
Trust, ABA# 021-000018,  Attn:  Tarryn Kone ((212)  852-4219),  in the aggregate
amount of such borrowing in funds immediately available to Borrower.

                  (i) From  time to time,  the  Borrower  shall  forward  to the
Custodian  additional original documents or additional  documents evidencing any
(i) assumption,  modification,  consolidation or extension of a Collateral Loan,
or (iii) any  amendment  to the  operative  documents  with respect to an Equity
Interest,  in each case approved by the Lender in  accordance  with the terms of
this Loan Agreement and upon receipt of any such other documents,  the Custodian
shall hold such other documents as the Lender shall request from time to time.

                  (j) With respect to any documents which have been delivered or
are  being  delivered  to  recording  offices  for  recording  and have not been
returned to the Borrower in time to permit their delivery  hereunder at the time
required, in lieu of delivering such original documents,  Borrower shall deliver
to Lender a true copy thereof with an Officer's Certificate certifying that such
copy is a true,  correct  and  complete  copy of the  original,  which  has been
transmitted for recordation.  The Borrower shall deliver such original documents
to the Custodian promptly when they are received.

                  2.04. Mandatory Prepayments or Pledge

                  (a) Lender may determine and  re-determine  the Borrowing Base
on any Business Day and on as many Business Days as it may elect. If at any time
(i) the aggregate  outstanding  principal  amount of Loans exceeds the Borrowing
Base (a  "Borrowing  Base  Deficiency"),  as  determined  by  Lender in its sole
discretion and notified to Borrower on any Business Day, Borrower shall no later
than one Business Day after receipt of such notice,  or (ii) Borrower shall have
received a prepayment of the principal of any loan or preferred  equity interest
comprising  a portion of the  Collateral  (including,  without  limitation,  the
payment of casualty or condemnation  proceeds),  Borrower shall,  not later than
one (1) Business Day after receipt of such  prepayment,  either prepay the Loans
in part or in whole or pledge  additional  Collateral (which Collateral shall be
in all respects  acceptable to Lender) to Lender,  such that after giving effect
to such prepayment or pledge the aggregate  outstanding  principal amount of the
Loans does not exceed the Borrowing  Base as  re-determined  by Lender after the
addition of  Collateral.  So long as no Default or Event of Default has occurred
and is then  continuing,  all partial  repayments  shall be applied  against the
Asset-Specific Loan Balance relating to the Loan being repaid.

                  (b) If at any time under any  Collateral  Document  evidencing
Eligible  Collateral  (x) there is an Event of Default,  or event with which the
giving of notice or lapse of time or both would  become an Event of Default,  or
(y)  any  representation  or  warranty  made  by or on  behalf  of the  relevant
Collateral  Obligor  becomes false or misleading in any material  respect or (z)
the  relevant  Collateral  Obligor  fails to  perform or  observe  any  material
covenant or other  obligation,  Lender may, in its sole  discretion  and without
regard to any determination of


                                       23
<PAGE>


the Asset Value of such Eligible Collateral,  notify Borrower of such occurrence
and may require that the  Asset-Specific  Loan  Balance  related to the relevant
Eligible  Collateral  be  prepaid  in whole or in part in the  determination  of
Lender.  Not later than one (1)  Business  Day after the receipt of such notice,
Borrower shall prepay the  Asset-Specific  Loan Balance related to such Eligible
Collateral.  Lender may, in its sole discretion,  determine and re-determine the
amount to be prepaid  irrespective of whether or not either (i) any statement of
fact  contained  in any  Officer's  Certificate  delivered  pursuant  to Section
5.02(b) or (ii) any  representation  of Borrower  set forth in Section  6.13 was
true to Borrower's actual knowledge.

                  Section 3. Payments; Computations; Etc

                  3.01. Repayment of Loans; Interest

                  (a)  Borrower   hereby  promises  to  repay  in  full  on  the
Termination Date the aggregate outstanding principal amount of the Loans.

                  (b) Borrower  hereby promises to pay to Lender interest on the
unpaid  principal amount of each Loan for the period from and including the date
of such Loan to but  excluding  the date such Loan  shall be paid in full,  at a
rate per annum equal to the Eurodollar Rate plus the applicable  Eurodollar Rate
Spread.  Notwithstanding  the  foregoing,  Borrower  hereby  promises  to pay to
Lender,  to the extent  permitted by applicable law,  interest at the applicable
Post-Default  Rate on any principal of any Loan and on any other amount  payable
by Borrower  hereunder or under the Note that shall not be paid in full when due
(whether at stated  maturity,  by  acceleration  or by mandatory  prepayment  or
otherwise)  for the  period  from  and  including  the due date  thereof  to but
excluding the date the same is paid in full.  Payment and acceptance of interest
pursuant to this  subsection  shall not  constitute  a waiver of any Default and
shall not  otherwise  limit or prejudice  any right of Lender  hereunder.  In no
event  shall  Lender be  entitled  to receive  any  proceeds  received  from any
Collateral  Obligor in connection with the refinancing and/or final distribution
to Lender with respect to any Eligible Collateral to the extent same exceeds the
sums provided to be paid to Lender under Section 7.l6 of this Loan Agreement.

                  (c) Accrued  interest on each Loan shall be payable monthly in
arrears  on the first  Business  Day of each month and for the last month of the
Loan  Agreement  on  the  first  Business  Day of  such  last  month  and on the
Termination  Date,  except that interest payable at the Post-Default  Rate shall
accrue daily and shall be payable upon such accrual.

                  (d) The Loans may be  prepaid  in whole or in part at any time
upon two (2) Business Days prior written notice, without any penalty or premium;
provided,  however,  that any such prepayment  shall be accompanied by an amount
representing  accrued  interest on the  principal  amount being  prepaid and all
other amounts then due under the Loan Documents (including,  without limitation,
all  amounts  due under  Section 3  hereof).  Each  partial  prepayment  that is
voluntary (as opposed to mandatory under the terms of this Loan Agreement) shall
be in an amount of not less than One Hundred  Thousand  Dollars  ($100,000).  So
long as no Default or Event of Default has occurred and is then continuing, each
voluntary  prepayment shall be applied to reduce any Asset-Specific Loan Balance
as designated by Borrower to Lender in writing.

                  (e) With  respect to any item of  Collateral,  Borrower  shall
repay to Lender


                                       24
<PAGE>


an amount equal to the amount of casualty or  condemnation  proceeds paid to, or
for the benefit of,  Borrower or any underlying  obligor in respect of such item
of Collateral to the extent that Borrower is not required  under the  underlying
loan documents with Borrower's  obligor to reserve,  escrow,  readvance or apply
such proceeds for the benefit of such obligor or the  underlying  real property.
So long as no Default or Event of Default has occurred  and is then  continuing,
such amounts paid to Lender shall be applied in reduction of the  Asset-Specific
Loan Balance relating to such item of Collateral.

                  3.02. Payments

                  (a)  Except  to the  extent  otherwise  provided  herein,  all
payments of principal,  interest and other amounts to be made by Borrower  under
this  Loan  Agreement  and the Note  shall be made in  Dollars,  in  immediately
available funds,  without  deduction,  set-off or counterclaim,  to Lender at an
account in the United  States,  to be  notified  by MS & Co. on behalf of Lender
from time to time in writing,  not later than 1:00 p.m.,  New York City time, on
the date on which such  payment  shall  become due (and each such  payment  made
after  such time on such due date  shall be deemed to have been made on the next
succeeding  Business  Day).  Borrower  acknowledges  that  it has no  rights  of
withdrawal from the foregoing account.  Lender shall endeavor to send Borrower a
detailed  bill on the date which is two (2)  Business  Days prior to the date on
which payment is due; provided,  however, that the failure of Lender to send, or
of Borrower to receive,  such bill shall in no way affect Borrower's  obligation
to pay amounts due under this Loan Agreement.

                  (b) Except to the extent otherwise  expressly provided herein,
if the due date of any  payment  under  this Loan  Agreement  or the Note  would
otherwise  fall on a day that is not a Business Day, such date shall be extended
to the next  succeeding  Business  Day,  and  interest  shall be payable for any
principal so extended for the period of such extension.

                  3.03 Computations.  Interest on the Loans shall be computed on
the basis of a 360-day year for the actual days elapsed (including the first day
but excluding the last day)  occurring in the period for which  payable.  Lender
shall  determine  any rate of  interest  payable  on Loans  hereunder,  and such
determination shall be conclusive and binding, absent manifest error.

                  3.04. U.S. Taxes

                  (a) Borrower agrees to pay to Lender such  additional  amounts
as are  necessary  in order  that the net  payment  of any  amount due to Lender
hereunder  after  deduction  for or  withholding  in respect of any U.S. Tax (as
defined below) imposed with respect to such payment (or in lieu thereof, payment
of such U.S. Tax by Lender),  will not be less than the amount  stated herein to
be then due and payable;  provided  that the  foregoing  obligation  to pay such
additional amounts shall not apply:

                  (i) to any  payment to Lender  hereunder  unless (A) Lender is
entitled  to  submit a Form  1001  (relating  to Lender  and  entitling  it to a
complete  exemption  from  withholding  on all  interest  to be  received  by it
hereunder in respect of the Loans) or Form 4224  (relating to all interest to be
received  by Lender  hereunder  in respect of the  Loans),  or (B) prior to such
payment  Lender shall have  furnished to Borrower a Form W-8 (or  substitute) or
otherwise established an exemption from U.S. withholding tax, or


                                       25
<PAGE>


                  (ii) to any U.S.  Tax imposed  solely by reason of the failure
by Lender to comply with applicable certification, information, documentation or
other reporting requirements concerning the nationality,  residence, identity or
connections  with the United  States of America of Lender if such  compliance is
required  by  statute  or  regulation  of the  United  States  of  America  as a
precondition to relief or exemption from such U.S. Tax.

For the  purposes  of this  Section  3.03,  (x) "Form 1001" shall mean Form 1001
(Ownership,  Exemption,  or Reduced Rate  Certificate)  of the Department of the
Treasury of the United  States of America,  (y) "Form 4224" shall mean Form 4224
(Exemption  from  Withholding  of Tax on Income  Effectively  Connected with the
Conduct of a Trade or Business in the United  States) of the  Department  of the
Treasury  of the United  States of America  (or in  relation to either such Form
such  successor  and  related  form as may from time to time be  adopted  by the
relevant taxing  authorities of the United States of America to document a claim
to which such Form  relates),  and (z) "U.S.  Taxes"  shall mean any  present or
future tax,  assessment  or other  charge or levy imposed by or on behalf of the
United  States of America,  any  political  subdivision  of the United States of
America or any taxing authority thereof or therein.

                  (b) Within 30 days after paying any such amount to Lender, and
within  30  days  after  it is  required  by  law to  remit  such  deduction  or
withholding to any relevant taxing or other authority, Borrower shall deliver to
Lender evidence satisfactory to Lender of such deduction, withholding or payment
(as the case may be).

                  (c) Lender shall not assign or sell participation interests in
the Loans made or to be made  hereunder  subject  to Section  2.02 and unless it
shall have given prior  notice to Borrower  and unless a condition  specified in
Section 3.04 (a) (i) or (ii) shall not apply.

                  3.05 Booking of Loans Without limitation of Lender's rights to
sell,  assign  or  transfer  a  Loan  or any  interest  therein,  including  any
participation  interest  therein,  at any time and from time to time, Lender may
make,  carry or  transfer  such Loan at,  to, or for the  account  of any of its
branch offices or the office of an Affiliate of Lender; provided,  however, that
the  representation  in Section 3.04(c) shall remain true throughout the term of
such Loan.

                  3.06  Lender's  Funding of  Eurodollar  Rate  Loans.  Borrower
hereby  expressly  acknowledges  and agrees  that  Lender may fund a Loan in any
manner it sees fit,  including  (i) through the actual  purchase of a Eurodollar
deposit  bearing  interest at the rate  obtained  pursuant to the  definition of
Eurodollar  Rate in an  amount  equal to the  principal  amount of such Loan and
having a maturity  comparable  to the relevant  interest  period or (ii) through
Lender's  entering  into or purchase of  repurchase  agreements,  interest  rate
agreements,  swap  agreements  or other  arrangements  in such amounts as Lender
shall determine (and which amounts may or may not, in Lender's sole  discretion,
be "match funded" to such Loan).  Calculation  of all amounts  payable to Lender
under this  Section 3.06 and under  Section 3.07 shall be made as though  Lender
had  actually  funded such Loan  through the  purchase of a  Eurodollar  deposit
bearing  interest at the rate obtained  pursuant to the definition of Eurodollar
Rate in an  amount  equal  to the  amount  of such  Loan and  having a  maturity
comparable  to the  relevant  interest  period and through the  transfer of such
Eurodollar  deposit from an off-shore  office of Lender to a domestic  office of
Lender in the United States of America; provided,  however, that Lender may fund
such  Loan in any  manner  it sees fit and the  foregoing  assumptions  shall be
utilized  only for purposes of  calculating  amounts  payable under this Section
3.06 and under Section 3.07, if any.


                                       26
<PAGE>


                  3.07.  Funding Costs.  (a) Borrower shall  compensate  Lender,
upon  written  request by Lender  (which  request  shall set forth the basis for
requesting such amounts), for all Funding Costs.

                  (b) Lender shall deliver to Borrower a statement setting forth
the amount and basis of  determination of any Funding Cost, it being agreed that
such statement and the method of calculation  shall be conclusive and binding on
Borrower,  absent manifest error.  In addition,  in the event Borrower  provides
Lender not less than five (5) Business Days prior  written  notice of a proposed
voluntary prepayment  hereunder,  Lender shall deliver to Borrower a non-binding
good faith  estimate of the  applicable  components  and amount of Funding Costs
which  would be  incurred  by  Borrower  if  Borrower  were to make a  voluntary
prepayment hereunder;  provided,  however, that Borrower shall remain liable for
all Funding  Costs shown on the statement  referred to in the first  sentence of
this subsection (b), notwithstanding such good faith estimate.

                  (c) In  lieu of  prepaying  the  Loan  when  and as  otherwise
required or permitted by this Loan  Agreement,  Borrower may on any Business Day
(a "Deposit  Funding Date")  instead  deposit with Lender an amount equal to the
applicable  prepayment,  to be held by Lender (the  "Prepayment  Deposit") until
such date as application of the Prepayment  Deposit on account of the Loan would
not cause Lender to suffer Funding Costs (the "Deposit  Application  Date"). Any
Prepayment Deposit held by Lender shall: (a) constitute  additional security for
the Loan,  for which the parties shall enter into such security  documents  (and
account establishment and administration documents) as Lender shall require; (b)
be held by Lender in an interest-bearing  account selected and controlled solely
by Lender, interest on which shall be added to principal and applied in the same
manner as principal;  (c) at Lender's  option,  be  accompanied by a payment (as
estimated by Lender) equal to the  difference  between the interest to be earned
on the Prepayment  Deposit and the interest that will accrue on a portion of the
Loan equal to the Prepayment  Deposit during the period from the Deposit Funding
Date to the  Deposit  Application  Date;  (d) with  respect  to the  Collateral,
entitle  Borrower  to the same  rights  and  benefits  (including  the  right to
releases,  if any) that would have been  available  to Borrower if Borrower  had
prepaid the Loan (and designated  Asset-Specific  Loan  Balance(s)) by an amount
equal to the  Prepayment  Deposit;  and (e) be  applied  on  account of the Loan
(principal and interest) on the Deposit Application Date.

                  3.08.  Compensation  for Increased  Costs.  If Lender shall in
good faith determine that any change in any law,  treaty or  governmental  rule,
regulation or order,  or in the  interpretation,  administration  or application
thereof,  or  any  determination  of  a  court  or  governmental  authority,  or
compliance  with any  guideline,  request  or  directive  issued  or made by any
central bank or other governmental or  quasi-governmental  authority (whether or
not having the force of law):

                           (a) imposes, modifies or holds applicable any reserve
                  (including any marginal, emergency,  supplemental,  special or
                  other  reserve),   special  deposit,   compulsory  loan,  FDIC
                  insurance or similar  requirement  against  assets held by, or
                  deposits  or other  liabilities  in or for the  account of, or
                  advances  or loans by,  or other  credit  extended  by, or any
                  other acquisition of funds by, any office of Lender; or

                           (b)  imposes  any  other  condition  on or  affecting
                  Lender  or  its   obligations   hereunder  or  the   interbank
                  Eurodollar market;


                                       27
<PAGE>


and the  result of any of the  foregoing  is to  increase  the cost to Lender of
agreeing to make,  making or  maintaining  the Loan  hereunder  or to reduce any
amount received or receivable by Lender with respect thereto;  then, in any such
case,  Borrower shall promptly (but in any event no later than five (5) Business
Days  following any notice from Lender of the same) pay to Lender,  upon receipt
of the statement  referred to in the next sentence,  such  additional  amount or
amounts as may be necessary to compensate  Lender for any such increased cost or
reduction in amounts received or receivable  hereunder.  Lender shall deliver to
Borrower a written  statement,  setting forth in reasonable detail the basis for
calculating the additional amounts owed to Lender under this Section 3.08, which
statement  shall be  conclusive  and  binding  upon all  parties  hereto  absent
manifest error.

                  3.09.  Limitation  on Types  of  Loans;  Illegality.  Anything
herein to the contrary notwithstanding, if:

                  (a)   Lender   determines,   which   determination   shall  be
conclusive, that quotations of interest rates for the relevant deposits referred
to in the  definition of  "Eurodollar  Base Rate" in Section 1.01 hereof are not
being  provided  in the  relevant  amounts or for the  relevant  maturities  for
purposes of determining rates of interest for Loans as provided herein; or

                  (b)   Lender   determines,   which   determination   shall  be
conclusive,  that the relevant rate of interest referred to in the definition of
"Eurodollar  Base Rate" in Section  1.01 hereof upon the basis of which the rate
of interest for Loans is to be  determined  is not likely  adequate to cover the
cost to Lender of making or maintaining Loans; or

                  (c)   Lender   determines,   which   determination   shall  be
conclusive, that it is or will be unlawful for Lender to honor its obligation to
make or  maintain  Loans  hereunder  using a  Eurodollar  Rate  as a  result  of
compliance  by Lender in good faith  with any law,  treaty,  governmental  rule,
regulation,  guideline  or order  (or  would  conflict  with  any  such  treaty,
governmental  rule,  regulation,  guideline or order not having the force of law
even though the failure to comply therewith would not be unlawful);

                  then Lender shall give Borrower  prompt notice thereof and, so
long as such condition remains in effect, Lender shall be under no obligation to
make additional  Loans, and Borrower shall,  either prepay all such Loans as may
be  outstanding  or pay  interest on such Loans at a rate per annum equal to the
Eurodollar Substitute Rate.

                  Section 4. Collateral Security

                  4.01. Collateral; Security Interest

                  (a)  Borrower  hereby  assigns,  pledges and grants a security
interest in all of its right, title and interest in, to and under the Collateral
described  in  Section  4.01(b)  below to  Lender  to secure  the  repayment  of
principal  of and  interest on all Loans and all other  amounts  owing to Lender
hereunder,  under the Note,  under the other Loan  Documents  and any and all MS
Indebtedness  from  time  to  time  outstanding   (collectively,   the  "Secured
Obligations").  Borrower  agrees to mark its  computer  records to evidence  the
interests granted to Lender hereunder.

                  (b) All of  Borrower's  right,  title and  interest in, to and
under each of the following items of property pledged by Borrower to Lender from
time to time and whether now


                                       28
<PAGE>


owned or hereafter  acquired,  now  existing or  hereafter  created and wherever
located,  is  hereinafter  individually  and  collectively  referred  to as  the
"Collateral":

                           (i) all CMBS and Other Approved Collateral;

                           (ii)  all  Collateral  Documents,  including  without
         limitation all securities,  promissory notes, any collateral pledged or
         otherwise  relating  to  such  Collateral,   all   representations  and
         warranties  made to, or for the benefit of,  Borrower by any Collateral
         Obligor,  all Servicing  Records (as defined in Section 11.14(b) below)
         and  servicing   agreements,   together  with  all  files,   documents,
         instruments,   surveys,   certificates,   correspondence,   appraisals,
         computer programs, computer storage media, accounting records and other
         books and records relating thereto, in each case subject to prior liens
         and encumbrances permitted by Lender;

                           (iii)  all  guaranties   and  insurance   (issued  by
         governmental  agencies or otherwise)  and any insurance  certificate or
         other document  evidencing such guaranties or insurance relating to any
         Collateral and all claims and payments thereunder;

                           (iv)  all  other  insurance  policies  and  insurance
         proceeds relating to any Collateral or the related Property;

                           (v) all Interest Rate Protection Agreements;

                           (vi) the Collection  Account and all monies from time
         to time on deposit in the Collection Account;

                           (vii)  all  "general  intangibles",   "accounts"  and
         "chattel  paper" as defined in the Uniform  Commercial Code relating to
         or constituting any and all of the foregoing; and

                           (viii)  any  and  all  replacements,   substitutions,
         distributions   on,  or  proceeds   (including,   without   limitation,
         condemnation  proceeds)  of, any and all of the  foregoing set forth in
         items (i) through (vii) of this Section  4.01(b),  whether now owned or
         hereafter  acquired,  now  existing or  hereafter  created and wherever
         located.

                  (c) Pursuant to the Custodial Agreement,  Custodian shall hold
the Collateral  Documents as exclusive  bailee and agent for Lender  pursuant to
terms of the Custodial Agreement and shall deliver to Lender Trust Receipts each
to the effect that it has reviewed such  Collateral  Documents in the manner and
to  the  extent  required  by  the  Custodial   Agreement  and  identifying  any
deficiencies in such Collateral Documents as so reviewed.

                  4.02. Further Assurances

                  (a)  Borrower  shall  undertake,  with respect to each item of
Collateral  pledged hereunder as security for a Loan, any and all actions deemed
necessary  by Lender for the  granting  by  Borrower  to Lender of a valid first
priority security  interest in such Collateral.  Without limiting the generality
of the  foregoing,  Borrower  shall take such steps as are for the  granting and
perfection  of a first  priority  security  interest in  Securities  and related
Collateral.

                  (b) At any  time  and from  time to  time,  upon  the  written
request of Lender,


                                       29
<PAGE>


and at the sole expense of Borrower, Borrower will promptly and duly execute and
deliver,  or will  promptly  cause to be executed  and  delivered,  such further
instruments  and documents and take such further action as Lender may reasonably
request for the purpose of obtaining  or  preserving  the full  benefits of this
Loan Agreement and of the rights and powers herein granted,  including,  without
limitation,  the filing of any financing or  continuation  statements  under the
Uniform  Commercial Code in effect in any jurisdiction with respect to the Liens
created  hereby.  Borrower  also  hereby  authorizes  Lender  to file  any  such
financing or  continuation  statement  without the  signature of Borrower to the
extent permitted by applicable law. A carbon, photographic or other reproduction
of this Loan Agreement  shall be sufficient as a financing  statement for filing
in any jurisdiction.

                   4.03 Changes in Locations,  Name, etc. Borrower shall not (i)
change the location of its chief executive  office/chief  place of business from
that  specified  in  Section  6 hereof or (ii)  change  its  name,  identity  or
corporate  structure  (or the  equivalent)  or  change  the  location  where  it
maintains its records with respect to the Collateral  unless it shall have given
Lender  at least ten (10) days  prior  written  notice  thereof  and shall  have
delivered  to Lender  all  Uniform  Commercial  Code  financing  statements  and
amendments  thereto as Lender shall request and taken all other  actions  deemed
necessary by Lender to continue its perfected  status in the Collateral with the
same or better priority.

                  4.04. Lender's Appointment as Attorney-in-Fact

                  (a)  Borrower  hereby  irrevocably  constitutes  and  appoints
Lender and any officer or agent thereof, with full power of substitution, as its
true and lawful  attorney-in-fact  with full irrevocable  power and authority in
the place and stead of Borrower  and in the name of Borrower or in its own name,
from time to time in Lender's  discretion,  for the purpose of carrying  out the
terms of this Loan  Agreement,  to take any and all  appropriate  action  and to
execute  any and  all  documents  and  instruments  which  may be  necessary  or
desirable  to  accomplish  the  purposes of this Loan  Agreement,  and,  without
limiting the generality of the foregoing, Borrower hereby gives Lender the power
and  right,  on behalf of  Borrower,  without  assent  by,  but with  notice to,
Borrower,  if an Event of Default shall have occurred and be  continuing,  to do
the following:

                           (i) in the  name  of  Borrower  or its own  name,  or
         otherwise,  to take  possession  of and endorse and collect any checks,
         drafts,  notes,  acceptances  or other  instruments  for the payment of
         moneys due under any  mortgage  insurance  or with respect to any other
         Collateral  and to file  any  claim  or to take  any  other  action  or
         proceeding  in  any  court  of  law  or  equity  or  otherwise   deemed
         appropriate  by Lender for the purpose of  collecting  any and all such
         moneys due under any such  mortgage  insurance  or with  respect to any
         other Collateral whenever payable;

                           (ii) to pay or  discharge  taxes and Liens  levied or
         placed on or threatened against the Collateral; and

                           (iii) (A) to direct any party  liable for any payment
         under any  Collateral  to make  payment of any and all moneys due or to
         become due thereunder directly to Lender or as Lender shall direct; (B)
         to ask or demand for, collect,  receive payment of and receipt for, any
         and all  moneys,  claims and other  amounts due or to become due at any
         time in respect of or arising  out of any  Collateral;  (C) to sign and


                                       30
<PAGE>



         endorse any  invoices,  assignments,  verifications,  notices and other
         documents in connection with any of the Collateral; (D) to commence and
         prosecute any suits,  actions or proceedings at law or in equity in any
         court of competent  jurisdiction  to collect the Collateral or any part
         thereof and to enforce  any other  right in respect of any  Collateral;
         (E) to defend any suit,  action or proceeding  brought against Borrower
         with respect to any Collateral; (F) to settle, compromise or adjust any
         suit,  action or  proceeding  described  in clause  (E) above  and,  in
         connection therewith, to give such discharges or releases as Lender may
         deem appropriate; and (G) generally, to sell, transfer, pledge and make
         any  agreement  with  respect  to or  otherwise  deal  with  any of the
         Collateral  as fully and  completely as though Lender were the absolute
         owner  thereof  for all  purposes,  and to do, at  Lender's  option and
         Borrower's  expense,  at any time,  and from time to time, all acts and
         things which Lender deems reasonably necessary to protect,  preserve or
         realize upon the  Collateral  and Lender's  Liens thereon and to effect
         the  intent of this Loan  Agreement,  all as fully and  effectively  as
         Borrower might do.

Borrower  hereby  ratifies all that said attorneys shall lawfully do or cause to
be done by virtue  hereof.  This power of  attorney is a power  coupled  with an
interest  and shall be  irrevocable  until the  repayment in full of all Secured
Obligations hereunder.

                  (b) Borrower also authorizes Lender, at any time and from time
to time, to execute,  in  connection  with any sale provided for in Section 4.07
hereof,  any  endorsements,  assignments  or other  instruments of conveyance or
transfer with respect to the Collateral.

                  (c) The  powers  conferred  on Lender  are  solely to  protect
Lender's  interests in the  Collateral and shall not impose any duty upon Lender
to exercise any such powers.  Lender shall be accountable  only for amounts that
it actually  receives as a result of the  exercise of such  powers,  and neither
Lender nor any of its officers,  directors, or employees shall be responsible to
Borrower  for any act or  failure  to act  hereunder,  except  for its own gross
negligence or willful misconduct.

                  4.05.  Performance  by Lender of  Borrower's  Obligations.  If
Borrower fails to perform or comply with any of its agreements  contained in the
Loan  Documents  and Lender may itself  perform or comply,  or  otherwise  cause
performance or compliance,  with such agreement, the expenses of Lender incurred
in  connection  with such  performance  or  compliance,  together  with interest
thereon at a rate per annum equal to the Post-Default  Rate, shall be payable by
Borrower to Lender on demand and shall constitute Secured Obligations.

                  4.06.  Proceeds.  If an Event of  Default  shall  occur and be
continuing,  (a) all proceeds of Collateral  received by Borrower  consisting of
cash,  checks and other  near-cash  items shall be held by Borrower in trust for
Lender,  segregated from other funds of Borrower,  and, within two Business Days
of  receipt  by  Borrower,  shall be turned  over to  Lender  in the exact  form
received by Borrower (duly endorsed by Borrower to Lender, if required, in order
to be  negotiated  by  Lender),  and (b) any and all such  proceeds  received by
Lender  (whether  from  Borrower or  otherwise)  may, in the sole  discretion of
Lender, be held by Lender as collateral security for, and/or then or at any time
thereafter may be applied by Lender against,  the Secured  Obligations  (whether
matured or  unmatured),  such  application  to be in such order as Lender  shall
elect.  Any balance of such  proceeds  remaining  after the Secured  Obligations
shall have been paid in full and this Loan Agreement  shall have been terminated
shall be paid over to Borrower  or to  whomsoever  may be  lawfully  entitled to
receive the same. For purposes hereof, proceeds


                                       31
<PAGE>


shall include,  but not be limited to, all principal and interest payments,  all
prepayments and payoffs,  insurance claims,  condemnation awards, sale proceeds,
real estate owned rents and any other income and all other amounts received with
respect to the Collateral.

                  4.07.  Remedies.  If an Event of  Default  shall  occur and be
continuing,  Lender may  exercise,  in addition to all other rights and remedies
granted to it in this Loan  Agreement  and in any other  instrument or agreement
securing,  evidencing  or relating to the  Secured  Obligations,  all rights and
remedies of a secured party under the Uniform  Commercial Code. Without limiting
the generality of the  foregoing,  Lender without demand of performance or other
demand,  presentment,  protest,  advertisement or notice of any kind (except any
notice  required  by law  referred  to below) to or upon  Borrower  or any other
Person (each and all of which demands,  presentments,  protests,  advertisements
and notices are hereby waived),  may in such  circumstances  forthwith  collect,
receive,  appropriate  and realize  upon the  Collateral,  or any part  thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing),  in one or more parcels or as an entirety at public
or private sale or sales, at any exchange, broker's board or office of Lender or
elsewhere  upon such terms and  conditions as it may deem  advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk.  Lender shall have the right upon any such public
sale or sales,  and, to the extent  permitted by law, upon any such private sale
or sales,  to purchase the whole or any part of the Collateral so sold,  free of
any right or equity of redemption  in Borrower,  which right or equity is hereby
waived or released.  Borrower further agrees, at Lender's  request,  to assemble
the  Collateral  and make it  available  to Lender at places  which Lender shall
reasonably  select,  whether at Borrower's  premises or elsewhere.  Lender shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale,  after deducting all reasonable costs and expenses of every
kind incurred  therein or incidental  to the care or  safekeeping  of any of the
Collateral  or in any way  relating  to the  Collateral  or the rights of Lender
hereunder,   including  without  limitation   reasonable   attorneys'  fees  and
disbursements, to the payment in whole or in part of the Secured Obligations, in
such order as Lender may elect,  and only after such  application  and after the
payment by Lender of any other amount  required or permitted by any provision of
law, including without limitation Section  9-504(1)(c) of the Uniform Commercial
Code,  need Lender account for the surplus,  if any, to Borrower.  To the extent
permitted by applicable law, Borrower waives all claims,  damages and demands it
may acquire  against  Lender arising out of the exercise by Lender of any of its
rights hereunder,  other than those claims, damages and demands arising from the
gross  negligence or willful  misconduct of Lender.  If any notice of a proposed
sale or other  disposition  of Collateral  shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such sale
or other  disposition.  Borrower  shall remain liable for any  deficiency  (plus
accrued interest thereon as contemplated  pursuant to Section 3.01(b) hereof) if
the proceeds of any sale or other  disposition of the  Collateral  (net of costs
incurred in connection with such sale or other  disposition) are insufficient to
pay the Secured  Obligations  and the fees and  disbursements  of any  attorneys
employed by Lender to collect such deficiency.


                                       32
<PAGE>

                  4.08.   Limitation  on  Duties   Regarding   Preservation   of
Collateral.  Lender's duty with respect to the custody, safekeeping and physical
preservation  of the  Collateral in its  possession,  under Section 9-207 of the
Uniform  Commercial  Code or  otherwise,  shall  be to deal  with it in the same
manner as Lender deals with similar property for its own account. Neither Lender
nor any of its directors,  officers or employees  shall be liable for failure to
demand,  collect or realize  upon all or any part of the  Collateral  or for any
delay in doing so or shall be under any obligation to sell or otherwise  dispose
of any Collateral upon the request of Borrower or otherwise.

                  4.09. Powers Coupled with an Interest.  All authorizations and
agencies  herein  contained with respect to the Collateral are  irrevocable  and
powers coupled with an interest.

                  4.10. Release of Security  Interest.  Upon termination of this
Loan  Agreement  and the Conduit Loan  Agreement  and repayment to Lender of all
Secured  Obligations  and the  performance  of all  obligations  under  the Loan
Documents  and under the  Conduit  Loan  Agreement,  Lender  shall  release  its
security interest in any remaining Collateral.

                  4.11. Release of Collateral. Provided that no Default or Event
of Default shall exist (other than one that (a) relates solely to the Collateral
to be released and (b) will be cured  simultaneously with such release) and that
Borrower shall have paid all sums then due under the Loan relating thereto, upon
(i) Borrower's payment in full of the  Asset-Specific  Loan Balance with respect
to a portion of the Collateral  and (ii) receipt by Lender of a written  request
from  Borrower  for the  release  of such  Collateral,  Lender  shall as soon as
practicable  release (and Lender shall  reasonably  cooperate  with  Borrower to
facilitate  reasonable escrow arrangements to facilitate a simultaneous  release
of) the related  Collateral  Documents and the related  Collateral and any liens
related  thereto to Borrower or, to the extent  necessary to  facilitate  future
savings of mortgage tax in states that impose mortgage taxes,  assign such liens
as Borrower shall request;  provided, that any such assignments shall be without
recourse,  representation  or warranty  of any kind  except  that  Lender  shall
represent and warrant that such Collateral has not been  previously  assigned by
Lender.  Lender shall with reasonable  promptness,  after a written request from
Borrower,  execute any  document or  instrument  necessary  to  effectuate  such
release or assignment.

                  4.12.  Substitution of Eligible Collateral.  From time to time
until the Custodian is otherwise  notified by the Lender,  which notice shall be
given by the Lender only during the  existence of an Event of Default,  and with
the prior written consent of the Lender,  the Borrower may substitute for one or
more items of Eligible  Collateral  constituting the Collateral with one or more
substitute items of Eligible Collateral having aggregate  Collateral Value equal
to or greater than the Collateral Value of the Collateral being substituted for,
or obtain the release of one or more items of Collateral constituting Collateral
hereunder:  provided that, after giving effect to such  substitution or release,
the Secured  Obligations then  outstanding  shall not exceed the Borrowing Base,
which  determination  shall be made solely by the Lender. In connection with any
such requested  substitution or release, the Borrower will provide notice to the
Custodian and the Lender no later than 3:00 p.m. New York City time, on the date
of such request,  specifying  the items of Collateral to be  substituted  for or
released  and the items of  substitute  Collateral  to be pledged  hereunder  in
substitution  thereof,  if any,  and shall  deliver with such notice a Custodial
Identification  Certificate  and a revised  Collateral  Schedule  indicating any
substitute Collateral.


                                       33
<PAGE>


                  Section 5. Conditions Precedent

                  5.01.  Initial  Loan.  The  obligation  of  Lender to make its
initial Loan hereunder is subject to the  satisfaction,  immediately prior to or
concurrently  with the  making of such Loan,  of the  condition  precedent  that
Lender shall have received all of the  following  items and  documents,  each of
which shall be satisfactory to Lender and its counsel in form and substance:

                  (a) Loan Documents.

                  (i) This Loan Agreement, duly completed and executed;

                  (ii) The Note,  duly  completed and executed,  together with a
fee in the amount of $750,000.00;

                  (iii) The Custodial Agreement,  duly executed and delivered by
Borrower and Custodian. In addition, Borrower shall have taken such other action
as Lender  shall have  requested  in order to  perfect  the  security  interests
created pursuant to the Loan Agreement;

                  (b)  Organizational  Documents.  Certified copies of the trust
agreement (or equivalent  documents) of Borrower and of all requisite  authority
for Borrower with respect to the execution, delivery and performance of the Loan
Documents and each other  document to be delivered by Borrower from time to time
in connection  herewith (and Lender may  conclusively  rely on such  certificate
until it receives notice in writing from Borrower to the contrary);

                  (c) Legal  Opinion.  A legal  opinion of counsel to  Borrower,
substantially in the form attached hereto as Exhibit C;

                  (d)  Trust  Receipt  and  Collateral  Schedule  and  Exception
Report.  A Trust Receipt,  substantially in the form of Annex 2 of the Custodial
Agreement,  dated the Effective  Date, from  Custodian,  duly completed,  with a
Collateral Schedule and Exception Report attached thereto;

                  (e) Servicing Agreement(s). Any Servicing Agreement, certified
as a true,  correct and complete  copy of the  original,  with the letter of the
applicable  Servicer (i) consenting to  termination of such Servicing  Agreement
upon the  occurrence of an Event of Default and (ii) agreeing to hold all moneys
received  in  respect  of each item of  Collateral  for the  benefit  of Lender,
attached; and

                  (f) The  Supplemental  Terms and Conditions (Rule 15a-6 Annex)
duly executed by Borrower.

                  (g) Other  Documents.  Such  other  documents  as  Lender  may
reasonably request.

                  5.02. Initial and Subsequent Loans. The making of each Loan to
Borrower  (including  the initial  Loan) on any  Business  Day is subject to the
delivery of all Collateral Documents pertaining to the Eligible Collateral to be
pledged  for  such  Loan,  together  with all  documents  set  forth in  Section
2.03(b)(i)-(x)   and  the  satisfaction  of  the  following  further  conditions
precedent,  both  immediately  prior to the  making of such Loan and also  after
giving effect thereto and to the intended use thereof:


                                       34
<PAGE>


                  (a) no Event of Default or Default  shall have occurred and be
continuing  on such date either  before or after giving  effect to the making of
the advance;

                  (b) Lender  shall have  received  from  Borrower  and Borrower
shall have  received  from each  Collateral  Obligor  such  representations  and
warranties as Lender  shall,  in its sole  discretion,  deem  satisfactory.  The
representations  and  warranties  made by  Borrower  in  Section 6  hereof,  and
elsewhere in each of the Loan Documents, shall be true and complete on and as of
the date of the making of such Loan in all material respects (in the case of the
representations  and warranties in Section 6.10, solely with respect to Eligible
Collateral  included in the Borrowing Base) with the same force and effect as if
made on and as of such date  (or,  if any such  representation  or  warranty  is
expressly  stated to have been made as of a specific  date,  as of such specific
date).  Lender  shall  have  received  an  officer's  certificate  signed  by  a
Responsible  Officer of Borrower  certifying as to the truth and accuracy of the
above,  which certificate shall also include a representation  that (i) Borrower
is in  compliance  with  all  governmental  licenses  and  authorizations,  (ii)
Borrower  is  qualified  to do  business,  validly  existing  and, to the extent
determinable,  in good standing, in all required jurisdictions,  (iii) the facts
set forth in the Diligence  Materials  related to the  Collateral  for such Loan
are, to the best knowledge of Borrower after diligent inquiry,  true and correct
(or shall fully  explain all adverse  changes  from the  information  previously
supplied to  Lender),  (iv) there has been no change in the  organizational  and
authority  documents provided to Lender pursuant to Section 5.01(b) hereof since
the date of the most recent  certification  thereof to Lender, and (v) there has
been no Material  Adverse  Effect since the date of the last advance to Borrower
hereunder.

                  (c) the aggregate  outstanding  principal  amount of the Loans
shall not exceed the Borrowing Base;

                  (d)  subject  to  Lender's  right to  perform  one or more Due
Diligence Reviews pursuant to Section 11.15 hereof,  Lender shall have completed
its due diligence review of the Collateral Documents for each item of Collateral
and such other documents, records, agreements, instruments, mortgaged properties
or  information  relating  to such  item of  Collateral  as  Lender  in its sole
discretion deems  appropriate to review and such review shall be satisfactory to
Lender in its sole discretion;

                  (e) Lender shall have received from Custodian a Trust Receipt,
together with a Collateral  Schedule and Exception  Report with  Exceptions  (as
defined in the  Custodial  Agreement)  as are  acceptable  to Lender in its sole
discretion,  in respect of the Eligible  Collateral  to be pledged  hereunder on
such Business Day;

                  (f)  Lender  shall  have  received  from  Borrower  a Lender's
Release Letter substantially in the form of Exhibit E hereto (or such other form
acceptable  to Lender)  covering each item of Collateral to be pledged to Lender
to the extent such Collateral is subject to a lender's lien;

                  (g)  none of the  following  shall  have  occurred  and/or  be
continuing:

                           (i) an event or events shall have occurred  resulting
                  in the  effective  absence of a "repo  market"  or  comparable
                  "lending  market" for financing  debt  obligations  secured by
                  mortgage  loans or securities  for a period of (or  reasonably
                  expected  to be) at least 30  consecutive  days or an event or
                  events


                                       35
<PAGE>


                  shall  have  occurred  resulting  in Lender  not being able to
                  finance  any Loans  through  the  "repo  market"  or  "lending
                  market" with traditional  counterparties  at rates which would
                  have been reasonable  prior to the occurrence of such event or
                  events;

                           (ii) an event or events shall have occurred resulting
                  in  the  effective  absence  of  a  "securities   market"  for
                  securities  backed  by  mortgage  loans  for a  period  of (or
                  reasonably  expected to be) at least 30 consecutive days or an
                  event or events  shall have  occurred  resulting in Lender not
                  being  able to sell  securities  backed by  mortgage  loans at
                  prices which would have been reasonable prior to such event or
                  events; or

                           (iii)  there shall have  occurred a material  adverse
                  change in the financial  condition of Lender which effects (or
                  can reasonably be expected to effect) materially and adversely
                  the ability of Lender to fund its obligations  under this Loan
                  Agreement;

                  (h)  Drawdown  Fee.  Borrower  shall have paid Lender from the
proceeds of the advance to be made in connection  with such Loan, a Drawdown Fee
calculated on the amount of such Loan then being disbursed.

                  (i)  Transaction  Costs.  Borrower shall have paid Lender from
the  proceeds  of the  advance  to be made in  connection  with such  Loan,  all
Transaction Costs for which bills have been submitted;  provided,  however, that
nothing  herein  shall be  deemed  to  waive  Borrower's  obligation  to pay all
Transaction  Costs whether  billed before or after the making of a Loan pursuant
to which such Transaction Costs were incurred.

                  (j) Other  Documents.  Lender shall have  received  such other
documents,  and Borrower  shall have taken such other action in order to perfect
the security  interests created  hereunder,  as Lender or its counsel shall deem
necessary.

                  Each  request for a  borrowing  by  Borrower  hereunder  shall
constitute a certification by Borrower that all the conditions set forth in this
Section 5 have been  satisfied  (both as of the date of such notice,  request or
confirmation and as of the date of such borrowing).

                  5.03. Additional Requirements

                  (a)  Borrower  and  Lender   recognize   and  agree  that  the
categories of Collateral set forth in the Recital  paragraph  hereof and defined
herein as  categories of assets which may be submitted by Borrower to Lender for
review by Lender as Eligible Collateral hereunder are general in nature and that
the full scope of such Collateral categories may be unknown.  Consequently,  the
appropriate  requirements  are not  fully  known  for (i)  the  documents  to be
provided by Borrower for  underwriting  and due  diligence  review by Lender and
(ii)  submittals  by Borrower  in order to create and  perfect a first  priority
security interest in the Collateral.  Therefore, Borrower and Lender agree that,
as a further condition  precedent to funding a Loan in respect of any Collateral
hereunder, Borrower shall have delivered to Lender all information and documents
determined  by Lender in good  faith to be  required  for its  underwriting  and
examination  of such  Collateral  and for the granting and perfection of a first
priority security interest therein.


                                       36
<PAGE>


                  (b) Without  limiting the generality of the foregoing  Section
5.03(a),  Borrower  shall  execute and deliver all  documents  necessary for the
granting of a first priority security  interest in any Collateral  determined by
Lender to be Eligible Collateral hereunder, including without limitation (i) all
instruments  evidencing  indebtedness payable to Borrower or pledged to Borrower
as security for a loan, (ii) all  instruments  granting or perfecting a security
interest  for the benefit of  Borrower or pledged to Borrower as security  for a
loan (including, without limitation,  collateral assignments,  pledge agreements
and UCC financing  statements),  (iii) all instruments evidencing an interest in
an entity  pledged  to  Borrower  as  security  for a loan  (including,  without
limitation,  partnership  interests,  shares of corporate  stock,  participation
interests,  and other  beneficial  interests of any kind),  (iv) all instruments
guaranteeing  the  repayment of  indebtedness  owed to  Borrower,  or pledged to
Borrower for the  repayment of a Loan and (v) all  agreements  among  holders of
debt or  equity  interests  providing  for a  priority  among  such  parties  of
interests in related assets forming the basis of an item of Collateral.

                  Section 6. Representations and Warranties

                  Borrower represents and warrants to Lender that throughout the
term of this Loan Agreement:

                  6.01.  Existence.  Borrower  (a)  is  a  business  trust  duly
organized  and  validly  existing  under  the  laws of the  jurisdiction  of its
organization,  (b) has all requisite power,  and has all governmental  licenses,
authorizations,  consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted,  except where the lack
of such licenses, authorizations, consents and approvals would not be reasonably
likely to have a Material Adverse Effect on its Property,  business or financial
condition or prospects;  and (c) is qualified to do business,  validly  existing
and is, to the extent determinable, in good standing, in all other jurisdictions
in which the nature of the  business  conducted  by it makes such  qualification
necessary,  except where failure so to qualify  would not be  reasonably  likely
(either  individually or in the aggregate) to have a Material  Adverse Effect on
its Property, business or financial condition or prospects.

                  6.02. Action.  Borrower has all necessary power, authority and
legal right to execute,  deliver and perform its  obligations  under each of the
Loan Documents;  the execution,  delivery and performance by Borrower of each of
the Loan  Documents  have been duly  authorized by all  necessary  action on its
part; and each Loan Document has been duly and validly executed and delivered by
Borrower and  constitutes  a legal,  valid and binding  obligation  of Borrower,
enforceable against Borrower in accordance with its terms.

                  6.03. Financial Condition. Borrower agrees to promptly deliver
to Lender all publicly filed financial  information  when and to the extent that
the same is made  available  to the  general  public.  Borrower  has  heretofore
furnished  to  Lender  a copy  of (a) its  consolidated  balance  sheet  and the
consolidated balance sheets of its consolidated Subsidiaries for the fiscal year
of Borrower ended December 31, 1997 and the related  consolidated  statements of
income and retained earnings and of cash flows for Borrower and its consolidated
Subsidiaries  for such fiscal year,  setting  forth in each case in  comparative
form the figures for the previous year, (b) its  consolidated  balance sheet and
the consolidated balance sheets of its consolidated Subsidiaries for such fiscal
year and the related consolidated statements of income and retained earnings and
of cash flows for Borrower  and its  consolidated  Subsidiaries  for such fiscal
year,  setting  forth  in each  case in  comparative  form the  figures  for the
previous year, with the opinion thereon of


                                       37
<PAGE>


Ernst & Young and Coopers & Lybrand and (c) its  consolidated  balance sheet and
the  consolidated  balance  sheets  of its  consolidated  Subsidiaries  for  the
quarterly  fiscal  period  of  Borrower  ended  March 31,  1998 and the  related
consolidated  statements  of income and  retained  earning and of cash flows for
Borrower and its  consolidated  Subsidiaries  for such quarterly fiscal periods,
setting  forth in each case in  comparative  form the figures  for the  previous
year. All such financial statements are complete and correct and fairly present,
in all material respects,  the consolidated  financial condition of Borrower and
its  Subsidiaries  and the  consolidated  results of their operations as at such
dates and for such fiscal  periods,  all in  accordance  with GAAP  applied on a
consistent  basis.  Since March 31,  1998,  there has been no  material  adverse
change in the  consolidated  business,  operations  or  financial  condition  of
Borrower and its consolidated  Subsidiaries taken as a whole from that set forth
in said financial statements.

                  6.04. Litigation.  There are no actions, suits,  arbitrations,
investigations  or  proceedings  pending  or,  to the  best  of  its  knowledge,
threatened  against  Borrower or any of its Subsidiaries or affecting any of the
Property  of any of them  before  any  Governmental  Authority  (i) as to  which
individually or in the aggregate there is a reasonable  likelihood of an adverse
decision  which could be reasonably  likely to have a Material  Adverse  Effect,
(ii) which questions the validity or enforceability of any of the Loan Documents
or any  action  to be taken in  connection  with the  transactions  contemplated
hereby or (iii)  makes a claim or claims in an  aggregate  amount  greater  than
$1,000,000.00.

                  6.05. No Breach. Neither (a) the execution and delivery of the
Loan Documents nor (b) the consummation of the transactions therein contemplated
in compliance with the terms and provisions thereof will conflict with or result
in a breach of the trust  agreement of Borrower,  or any applicable law, rule or
regulation,  or any  order,  writ,  injunction  or  decree  of any  Governmental
Authority,  or any Servicing Agreement or other material agreement or instrument
to which Borrower or any of its  Subsidiaries is a party or by which any of them
or any of  their  Property  is  bound or to  which  any of them is  subject,  or
constitute a default under any such  material  agreement or instrument or result
in the creation or imposition of any Lien (except for the Liens created pursuant
to this Loan Agreement) upon any Property of Borrower or any of its Subsidiaries
pursuant to the terms of any such agreement or instrument.

                  6.06. Approvals. No authorizations,  approvals or consents of,
and  no  filings  or  registrations  with,  any  Governmental  Authority  or any
securities exchange are necessary for the execution,  delivery or performance by
Borrower of the Loan Documents or for the legality,  validity or  enforceability
thereof,  except for  filings  and  recordings  in respect of the Liens  created
pursuant to this Loan Agreement.

                  6.07.  Margin  Regulations.  Neither  the  making  of any Loan
hereunder,  nor the use of the proceeds thereof, will violate or be inconsistent
with any provisions of Regulation T, U or X.

                  6.08.  Taxes.  Borrower  and its  Subsidiaries  have filed all
Federal  income tax returns and all other material tax returns that are required
to be filed by them and have paid all  taxes due  pursuant  to such  returns  or
pursuant to any assessment received by any of them, except for any such taxes as
are being  appropriately  contested  in good  faith by  appropriate  proceedings
diligently  conducted  and with  respect to which  adequate  reserves  have been
provided.  The  charges,  accruals and reserves on the books of Borrower and its
Subsidiaries  in respect of taxes and other  governmental  charges  are,  in the
opinion of Borrower, adequate.


                                       38
<PAGE>


                  6.09.  Investment Company Act. Neither Borrower nor any of its
Subsidiaries  is  an  "investment  company",  or a  company  "controlled"  by an
"investment  company" within the meaning of the Investment  Company Act of 1940,
as amended.

                  6.10. Collateral; Collateral Security

                  (a) Borrower has not assigned,  pledged, or otherwise conveyed
or encumbered any Collateral to any other Person,  and immediately  prior to the
pledge of such  Collateral  to Lender,  unless  otherwise  approved by Lender in
writing,  Borrower  was the  sole  owner  of such  Collateral  and had  good and
marketable  title thereto,  free and clear of all Liens, in each case except for
Liens to be released  simultaneously  with the Liens  granted in favor of Lender
hereunder.  No Collateral  pledged to Lender  hereunder was acquired by Borrower
from an Affiliate of Borrower unless otherwise approved by Lender in writing.

                  (b) The  provisions  of this Loan  Agreement  are effective to
create in favor of Lender a valid  security  interest  in all  right,  title and
interest of Borrower in, to and under the Collateral.

                  (c) As to all other  Collateral,  upon receipt by Custodian of
all documents set forth in Lender's notice to Borrower and Custodian pursuant to
Section  2.03(b)(x)  hereof,  Lender shall have a fully perfected first priority
security interest therein and in Borrower's interest in the related Property.

                  (d) Upon (i) the delivery to Lender or its designee of CMBS or
other items of Collateral  constituting  securities  (as defined in Article 8 of
the Uniform Commercial Code) in accordance with Section 5.02 hereof and (ii) the
filing of financing  statements on Form UCC-1 naming  Lender as "Secured  Party"
and Borrower as "Debtor",  and describing the Collateral,  in the  jurisdictions
and  recording  offices for which  security  interests  may be  perfected in the
Collateral by the filing of UCC  financing  statements,  the security  interests
granted  hereunder in the  Collateral  will  constitute  fully  perfected  first
priority  security  interests  under the Uniform  Commercial  Code in all right,
title and interest of Borrower in, to and under such  Collateral,  and,  without
limiting the foregoing,  Lender will have a "securities entitlement" (as defined
in Article 8 of the Uniform Commercial Code) in the Collateral referenced in the
foregoing clause (i).

                  6.11.  Chief  Executive  Office.  Borrower's  chief  executive
office on the  Effective  Date is located at 605 Third Avenue,  26th Floor,  New
York, New York 10016.

                  6.12.  Location  of Books  and  Records.  The  location  where
Borrower  keeps its books and records,  including all computer tapes and records
relating to the Collateral is its chief executive office.

                  6.13. True and Complete Disclosure. The information,  reports,
financial  statements,  exhibits  and  schedules  furnished  in writing by or on
behalf of Borrower to Lender in connection with the negotiation,  preparation or
delivery of this Loan Agreement and the other Loan Documents or included  herein
or therein or delivered  pursuant hereto or thereto,  when taken as a whole, (x)
do not  contain  any untrue  statement  of  material  fact and (y)  contain  all
statements of material fact necessary to make the statements  herein or therein,
in light of the  circumstances  under  which they were made,  true.  All written
information  furnished  after the date  hereof by or on  behalf of  Borrower  to
Lender in connection with this Loan Agreement and


                                       39
<PAGE>


the other Loan Documents and the transactions  contemplated  hereby and thereby,
will be true,  complete and accurate in every material respect,  or (in the case
of  projections)  based on  reasonable  estimates,  on the date as of which such
information  is  stated  or  certified.  There is no fact  known  to the  actual
knowledge of a Responsible  Officer of Borrower,  after due inquiry,  that could
reasonably  be  expected  to have a Material  Adverse  Effect  that has not been
disclosed  herein,  in  the  other  Loan  Documents  or in a  report,  financial
statement,  exhibit,  schedule,  disclosure letter or other writing furnished to
Lender  for use in  connection  with the  transactions  contemplated  hereby  or
thereby.

                  6.14.  Tangible Net Worth. On the Effective Date, the Tangible
Net Worth is not less than the sum of (i) $100,000,000 plus (ii) an amount equal
to 75% of the  aggregate of positive  changes in Borrower's  book equity,  since
March 31, 1998 (without deduction for quarterly losses).

                  6.15.  ERISA.  Each Plan to which Borrower or its Subsidiaries
make direct  contributions,  and, to the knowledge of Borrower,  each other Plan
and each Multiemployer Plan, is in compliance in all material respects with, and
has  been  administered  in  all  material  respects  in  compliance  with,  the
applicable  provisions of ERISA, the Code and any other Federal or State law. No
event or condition has occurred and is continuing as to which  Borrower would be
under an obligation to furnish a report to Lender under Section  7.01(d)  hereof
assuming a request therefor has been made by Lender.

                  Section 7.  Covenants  of  Borrower.  Borrower  covenants  and
agrees with Lender that, so long as any Loan is outstanding and until payment in
full of all Secured Obligations:

                  7.01. Financial  Statements,  Reports, etc. Borrower agrees to
promptly deliver to Lender all publicly filed financial  information when and to
the extent same is available to the general  public.  In addition to such public
financial  information,  Borrower  shall also  provide the  following  financial
information:

                  (a) the Monthly Statement;

                  (b)  within  forty-five  (45) days  following  the end of each
quarter,  a status  report with  respect to such  quarter  which  describes  the
cumulative sources and uses of the funds for the immediately  preceding calendar
quarter on each asset pledged under this Loan Agreement and a detailed report in
a form reasonably satisfactory to Lender;

                  (c)  within  forty-five  (45) days  following  the end of each
quarter,  a  certificate  from a  Responsible  Officer of  Borrower  in form and
substance  reasonably  satisfactory  to Lender  that  there has been no Event of
Default and no Material Adverse Effect;

                  (d) within fifteen (15) Business Days after Lender's  request,
such further information with respect to the operation of any real property, the
Collateral,  the  financial  affairs of Borrower and any Plan and  Multiemployer
Plan as may be requested by Lender,  including all business plans prepared by or
for Borrower; provided, however, that with respect to information not previously
known to, or in the possession of, Borrower relating to any Multiemployer  Plan,
Borrower  shall only be required to provide such  information as may be obtained
through good faith efforts;


                                       40
<PAGE>


                  (e) upon  Lender's  request,  a copy of any financial or other
report  Borrower  shall receive from any  underlying  obligor with respect to an
item of Collateral  within fifteen (15) days after  Borrower's  receipt thereof;
and

                  (f) such other reports as Lender shall reasonably require.

                  7.02.  Litigation.  Borrower will  promptly,  and in any event
within 10 days after service of process on any of the following,  give to Lender
notice  of  all   litigation,   actions  suits,   arbitrations,   investigations
(including,  without  limitation,  any of the  foregoing  which are  pending  or
threatened) or other legal or arbitrable  proceedings  affecting Borrower or any
of its  Subsidiaries  or affecting any of the Property of any of them before any
Governmental  Authority  that  (i)  questions  or  challenges  the  validity  or
enforceability  of any of the  Loan  Documents  or any  action  to be  taken  in
connection  with the  transactions  contemplated  hereby,  (ii) makes a claim or
claims in an  aggregate  amount  greater  than  $1,000,000.00,  or (iii)  which,
individually or in the aggregate,  if adversely  determined  could reasonably be
likely to have a Material Adverse Effect.

                  7.03. Existence, etc. Borrower will:ence, etc.

                  (a) preserve and maintain its legal  existence  and all of its
material rights,  privileges,  licenses and franchises (provided that nothing in
this Section  7.03(a) shall prohibit any transaction  expressly  permitted under
Section 7.04 hereof);

                  (b)  comply  with the  requirements  of all  applicable  laws,
rules,  regulations and orders of Governmental  Authorities (including,  without
limitation,  all environmental laws) if failure to comply with such requirements
would be reasonably  likely (either  individually or in the aggregate) to have a
Material  Adverse Effect on its Property,  business or financial  condition,  or
prospects;

                  (c) keep  adequate  records  and  books of  account,  in which
complete entries will be made in accordance with GAAP consistently applied;

                  (d) not move  its  chief  executive  office  from the  address
referred to in Section 6.11 unless it shall have provided  Lender 10 days' prior
written notice of such change;

                  (e) pay and discharge all taxes,  assessments and governmental
charges  or levies  imposed  on it or on its  income or profits or on any of its
Property prior to the date on which  penalties  attach  thereto,  except for any
such tax, assessment,  charge or levy the payment of which is being contested in
good faith and by proper  proceedings  and against which  adequate  reserves are
being maintained; and

                  (f) permit  representatives of Lender,  during normal business
hours, to examine, copy and make extracts from its books and records, to inspect
any of its  Properties,  and to  discuss  its  business  and  affairs  with  its
officers, all to the extent reasonably requested by Lender.

                  7.04.  Borrower shall not enter into any transaction of merger
or consolidation or amalgamation,  or liquidate,  wind up or dissolve itself (or
suffer any liquidation,  winding up or dissolution) or sell all or substantially
all of  its  assets;  provided,  that  Borrower  may  enter  into  a  merger  or
consolidation if (a) the surviving or resulting


                                       41
<PAGE>


entity shall be a corporation  or  partnership  organized  under the laws of the
United States or any state thereof;  (b) such entity shall  expressly  assume by
written agreement, in form and substance satisfactory to Lender in Lender's sole
discretion,  the performance of all of Borrower's  duties and obligations  under
this Loan Agreement,  the Note and the Loan Documents; and (c) such entity shall
be at least as  creditworthy  as Borrower,  as  determined by Lender in Lender's
sole and  absolute  discretion;  and,  provided,  further,  that if after giving
effect thereto, no Default would exist hereunder. Notwithstanding the foregoing,
Borrower shall not enter into or be subject to any transaction, and no direct or
indirect  change in the ownership  structure of Borrower shall occur (whether or
not within  Borrower's  control),  if as a result  thereof:  (a) any of Craig M.
Hatkoff,  John R. Klopp and Samuel  Zell would no longer  retain his  respective
present or comparable or more senior  offices (Vice Chairman and Chairman of the
Executive Committee;  Chief Executive Officer and Vice Chairman; and Chairman of
the Board,  respectively) and directorships,  or (b) in Lender's judgment,  such
individuals would no longer  collectively retain effective control of Borrower's
business and operations.

                  7.05. Borrowing Base Deficienty. If at any time there exists a
Borrowing Base  Deficiency,  Borrower shall cure same in accordance with Section
2.04 hereof.

                  7.06. Notices. Borrower shall give notice to Lender:

                  (a)  promptly  upon  receipt  of  notice or  knowledge  of the
occurrence of any Default or Event of Default;

                  (b)  with  respect  to  any   Collateral   pledged  to  Lender
hereunder,  immediately  upon  receipt  of any  principal  payment  (in  full or
partial) or payment in respect of an Equity Interest;

                  (c)  with  respect  to  any   Collateral   pledged  to  Lender
hereunder,  immediately  upon receipt of notice or knowledge that the underlying
Property  has been  damaged  by  waste,  fire,  earthquake  or  earth  movement,
windstorm,  flood,  tornado or other  casualty,  or  otherwise  damaged so as to
affect adversely the Asset Value of such pledged Collateral;

                  (d)  promptly  upon  receipt of notice or knowledge of (i) any
default  related to any Collateral  unless  otherwise  specifically  approved by
Lender in writing,  (ii) any Lien or  security  interest  (other  than  security
interests  created hereby or by the other Loan  Documents) on, or claim asserted
against,  any of the Collateral,  (iii) any event or change in circumstances has
or could  reasonably  be  expected to have an adverse  affect on the  Collateral
Value of the Collateral for a Loan or (iv) any event or change in  circumstances
which could reasonably be expected to have a Material Adverse Effect;

                  (e) with respect to any item of  Collateral  pledged to Lender
hereunder,   promptly  upon  entering  into  a  modification  of  any  documents
pertaining to such item of Collateral which would have a material adverse effect
on such item of Collateral; and

                  (f)  with  respect  to  any   Collateral   pledged  to  Lender
hereunder,  immediately  upon the  acquisition  or  receipt by  Borrower  or any
Affiliate of Borrower of any interest of any kind in respect of such  Collateral
which  interest  has not been  pledged to Lender as  Collateral  under this Loan
Agreement.


                                       42
<PAGE>


                  Each notice pursuant to this Section shall be accompanied by a
statement of a  Responsible  Officer of Borrower  setting  forth  details of the
occurrence  referred to therein and stating  what action  Borrower  has taken or
proposes to take with respect thereto.

                  7.07. Reports.  Borrower shall provide Lender with a quarterly
report,  which report shall include,  among other items, a summary of Borrower's
delinquency  and loss  experience  with  respect to any  Collateral  serviced by
Borrower,  any  Servicer  or any  designee of either,  plus any such  additional
reports as Lender may  reasonably  request  with  respect to  Borrower's  or any
Servicer's servicing portfolio or pending originations of Collateral.

                  7.08. Transactions with Affiliates.  Borrower will not, except
as  approved  by Lender in  writing,  enter into any  transaction  in any manner
relating to any item of Collateral  hereunder,  including without limitation any
purchase,  sale,  lease or exchange of property or the rendering of any service,
with any Affiliate; provided, however, that Lender may consider for approval any
such transaction which is (a) otherwise permitted under this Loan Agreement, (b)
in the ordinary  course of Borrower's  business and (c) upon fair and reasonable
terms no less  favorable to Borrower than it would obtain in a comparable  arm's
length  transaction  with a Person which is not an Affiliate,  or make a payment
under such transactions that is not otherwise  permitted by this Section 7.08 to
any Affiliate.  In no event shall Borrower pledge to Lender  hereunder any items
of Collateral acquired by Borrower from an Affiliate of Borrower.

                  7.09.  Foreclosure or Other Remediation by Borrower.  Borrower
may  propose,  and Lender  will  consider  but shall be under no  obligation  to
approve,  strategies for the foreclosure or other  realization upon the security
for underlying loans held by Borrower relating to items of Collateral hereunder.

                  7.10. Limitation on Liens. Borrower will defend the Collateral
against,  and will take such other action as is  necessary to remove,  any Lien,
security  interest  or claim on or to the  Collateral,  other than the  security
interests  created,  or  otherwise  specifically  permitted in writing by Lender
under this Loan  Agreement,  and  Borrower  will  defend  the  right,  title and
interest  of  Lender's  in and to any of the  Collateral  against the claims and
demands of all  persons  whomsoever.  Borrower  may  request  from time to time,
subject  to  Lender's   approval  in  Lender's  sole   determination,   to  sell
participation  interests in its  interests in items of  Collateral,  the sale of
which participation  interests shall be arm's length transactions and subject to
such terms and conditions as Lender in its sole discretion shall require.

                  7.11.  Limitation on  Distributions.  After the occurrence and
during the  continuation  of any Event of Default,  Borrower  shall not make any
payment on account  of, or set apart  assets  for, a sinking or other  analogous
fund for the purchase, redemption,  defeasance,  retirement or other acquisition
of any equity or  partnership  interest of  Borrower,  whether now or  hereafter
outstanding,  or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of Borrower.

                   7.12.  Maintenance of Tangible Net Worth.  Borrower shall not
permit  Tangible  Net  Worth  at  any  time  to be  less  than  the  sum  of (i)
$100,000,000  plus  (ii) an amount  equal to 75% of the  aggregate  of  positive
changes in Borrower's book equity since March 31, 1998.

                  7.13. Maintenance of Ratio of Earnings Before Interest, Taxes,
Depreciation


                                       43
<PAGE>


and Amortization to Interest and Preferred Dividends.  Borrower shall not permit
the ratio of (a) earnings before interest,  taxes, depreciation and amortization
to  (b)  the  sum  of  (i)  interest   expense  and  (ii)  preferred   dividends
(specifically  excluding any convertible  trust preferred  dividends) to be less
than 1.20:1.

                  7.14.  Maintenance of Ratio of Total  Indebtedness to Tangible
Net Worth. Borrower shall not permit the ratio of Total Indebtedness to Tangible
Net Worth at any time to be greater than 5:1.  Lender may  consider  waiving the
foregoing  requirement  under  certain  circumstances  if requested by Borrower;
however, Lender shall be under no obligation to do so.

                  7.15.  Servicer;  Servicing  Tape.  Borrower  shall provide to
Lender  on the  fifth  Business  Day of each  month  a  computer  readable  file
containing  servicing  information,  including  without  limitation those fields
specified  by  Lender  from  time to time,  on a  loan-by-loan  basis and in the
aggregate,  with  respect  to the  Mortgage  Loans,  Mezzanine  Loans and Equity
Interests  serviced  hereunder by Borrower or any Servicer.  Borrower  shall not
cause any  Collateral  to be  serviced  by any  servicer  other  than a servicer
expressly approved in writing by Lender.

                  7.16.  Remittance of Prepayments.  Borrower shall remit,  with
sufficient detail to enable Lender to appropriately identify the Loan, or Loans,
to which any amount  remitted  applies,  to Lender on each Thursday (or the next
Business Day if such Thursday is not a Business  Day) all principal  prepayments
that  Borrower has received  during the previous  week in an amount equal to the
sum of the  Asset-Specific  Loan  Balances  being  prepaid,  together  with  all
interest due thereon  through the date of such  remittance,  any and all charges
due with  respect to such Loans and any and all costs and  expenses  incurred by
Lender (as  provided in this Loan  Agreement)  in  connection  with such Loan or
Loans and the prepayment thereof.

                  Section 8. Events of  Default.  Each of the  following  events
shall constitute an event of default (an "Event of Default") hereunder:

                  (a) Borrower  shall default in the payment of any principal of
or interest on any Loan when due (whether at stated maturity,  upon acceleration
or at mandatory or optional prepayment); or

                  (b) Borrower  shall default in the payment of any principal of
or interest on any MS Indebtedness  when due (whether at stated  maturity,  upon
acceleration or at mandatory or optional prepayment); or

                  (c) Borrower  shall default in the payment of any other amount
payable by it hereunder or under any other Loan Document after  notification  by
Lender of such default,  and such default shall have  continued  unremedied  for
seven (7) Business Days; or

                  (d) any  representation,  warranty  or  certification  made or
deemed made herein, or in any other Loan Document by Borrower or any certificate
furnished to Lender pursuant to the provisions  hereof or thereof shall prove to
have been false or  misleading  in any  material  respect as of the time made or
furnished (other than the  representations and warranties set forth in Section 6
hereof  which  shall be  considered  solely for the  purpose of Section  2.04(b)
hereof;  unless Borrower shall have made any such representations and warranties
with knowledge that they were materially  false or misleading at the time made);
or


                                       44
<PAGE>


                  (e)  Borrower  shall fail to comply with the  requirements  of
Section  7.03(a),  Section 7.04,  Section  7.05,  Section 7.06, or Sections 7.08
through  7.16  hereof;  or  Borrower  shall  otherwise  fail to comply  with the
requirements  of Section 7.03 hereof and such default shall continue  unremedied
for a period of ten (10)  Business  Days;  or Borrower  shall fail to observe or
perform any other covenant or agreement  contained in this Loan Agreement or any
other Loan  Document  and such  failure to  observe  or perform  shall  continue
unremedied for a period of ten (10) Business Days; or

                  (f) a final  judgment or judgments for the payment of money in
excess of  $5,000,000.00  in the aggregate shall be rendered against Borrower or
any of its Subsidiaries by one or more courts, administrative tribunals or other
bodies having  jurisdiction and the same shall not be satisfied,  discharged (or
provision  shall  not be  made  for  such  discharge)  or  bonded,  or a stay of
execution thereof shall not be procured, within sixty (60) days from the date of
entry thereof, and Borrower or any such Subsidiary shall not, within said period
of sixty (60) days,  or such longer  period  during which  execution of the same
shall  have been  stayed or bonded,  appeal  therefrom  and cause the  execution
thereof to be stayed during such appeal; or

                  (g) Borrower  shall admit in writing its  inability to pay its
debts as such debts become due; or

                  (h) Borrower or any of its Subsidiaries shall (i) apply for or
consent to the  appointment  of, or the  taking of  possession  by, a  receiver,
custodian,  trustee, examiner or liquidator or the like of itself or of all or a
substantial part of its property, (ii) make a general assignment for the benefit
of its creditors,  (iii)  commence a voluntary  case under the Bankruptcy  Code,
(iv) file a petition  seeking to take  advantage  of any other law  relating  to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or readjustment of debts, (v) fail to controvert in a
timely and  appropriate  manner,  or acquiesce in writing to, any petition filed
against it in an  involuntary  case under the  Bankruptcy  Code or (vi) take any
corporate or other action for the purpose of effecting any of the foregoing; or

                  (i) a  proceeding  or case  shall be  commenced,  without  the
application or consent of Borrower or any of its  Subsidiaries,  in any court of
competent   jurisdiction,   seeking   (i)   its   reorganization,   liquidation,
dissolution,  arrangement or winding-up,  or the  composition or readjustment of
its debts,  (ii) the appointment of, or the taking of possession by, a receiver,
custodian,  trustee,  examiner,  liquidator  or the like of Borrower or any such
Subsidiary or of all or any substantial  part of its property,  or (iii) similar
relief in respect of Borrower or any such  Subsidiary  under any law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up,  or composition or adjustment of debts,  and such proceeding or case
shall  continue  undismissed,  or an  order,  judgment  or decree  approving  or
ordering  any of the  foregoing  shall be entered and  continue  unstayed and in
effect,  for a period of sixty (60) or more days; or an order for relief against
Borrower or any such  Subsidiary  shall be entered in an involuntary  case under
the Bankruptcy Code; or

                  (j) the  Custodial  Agreement or any Loan  Document  shall for
whatever  reason be terminated  or cease to be in full force and effect,  or the
enforceability thereof shall be contested by Borrower; or

                  (k) Borrower shall grant, or suffer to exist,  any Lien on any
Collateral  except  the Liens  contemplated  hereby;  or the Liens  contemplated
hereby shall cease to be first


                                       45
<PAGE>


priority  perfected Liens on the Collateral in favor of Lender or shall be Liens
in favor of any Person other than Lender; or

                  (l)  Borrower  or any of  Borrower's  Affiliates  shall  be in
default under any note, indenture,  loan agreement,  guaranty, swap agreement or
any other  contract to which it is a party (other than MS  Indebtedness),  which
default (i)  involves the failure to pay a matured  obligation,  or (ii) permits
the  acceleration  of the  maturity  of  obligations  by any  other  party to or
beneficiary of such note, indenture, loan agreement, guaranty, swap agreement or
other  contract,  in any such case in which the  amount  of such  obligation  or
obligations, in the aggregate, exceed $10,000,000.00; or

                  (m) any materially  adverse change in the Property,  business,
financial  condition or prospects of Borrower or any of its  Subsidiaries  shall
occur, in each case as determined by Lender in its sole discretion, or any other
condition shall exist which, in Lender's sole discretion, constitutes a material
impairment  of  Borrower's  ability to perform its  obligations  under this Loan
Agreement, the Note or any other Loan Document.

                  Section 9. Remedies Upon Default

                  (a) Upon the occurrence of one or more Events of Default other
than those referred to in Section 8(g) or (h),  Lender may  immediately  declare
the  principal  amount  of the  Loans  then  outstanding  under  the  Note to be
immediately  due and payable,  together  with all interest  thereon and fees and
expenses accruing under this Loan Agreement.  Upon the occurrence of an Event of
Default referred to in Sections 8(g) or (h), such amounts shall  immediately and
automatically  become due and payable  without any further action by any Person.
Upon  such  declaration  or  such  automatic  acceleration,   the  balance  then
outstanding  on the Note  shall  become  immediately  due and  payable,  without
presentment,  demand, protest or other formalities of any kind, all of which are
hereby expressly waived by Borrower.

                  (b) Upon the  occurrence  of one or more  Events  of  Default,
Lender  shall  have the right to obtain  physical  possession  of the  Servicing
Records  and all other  files of Borrower  relating  to the  Collateral  and all
documents relating to the Collateral which are then or may thereafter come in to
the  possession  of Borrower or any third party acting for Borrower and Borrower
shall deliver to Lender such  assignments as Lender shall request.  Lender shall
be entitled to specific  performance of all agreements of Borrower  contained in
this Loan Agreement.

                  (c)  Upon the  occurrence  of an  Event  of  Default,  without
limiting any other rights or remedies of Lender,  Lender shall have the right to
set off and apply any and all  deposits  (general  or  special,  time or demand,
provisional  or final) at any time held by or for  account of Lender or Lender's
Affiliates to any  indebtedness at any time owing to Lender to the credit or for
the account of Borrower  against any and all of the  Indebtedness  of  Borrower,
irrespective  of  whether  Lender  shall  have made any  demand  under this Loan
Agreement,  the Note, any other Security Document or any other document executed
in connection with any other MS Indebtedness.

                  Section 10. No Duty of Lender.  The powers conferred on Lender
hereunder are solely to protect  Lender's  interests in the Collateral and shall
not  impose  any duty  upon it to  exercise  any such  powers.  Lender  shall be
accountable only for amounts that it actually receives


                                       46
<PAGE>


as a result  of the  exercise  of such  powers,  and  neither  it nor any of its
officers,  directors,  employees or agents shall be  responsible to Borrower for
any  act or  failure  to act  hereunder,  except  for  its or  their  own  gross
negligence or willful misconduct.

                  Section 11. Miscellaneous

                  11.01.  Waiver.  No failure on the part of Lender to  exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege  under any Loan Document  shall operate as a waiver  thereof,
nor shall any single or partial exercise of any right,  power or privilege under
any Loan Document preclude any other or further exercise thereof or the exercise
of any other  right,  power or  privilege.  The  remedies  provided  herein  are
cumulative and not exclusive of any remedies provided by law.

                  11.02.  Notices.  Except as otherwise  expressly  permitted by
this Loan Agreement, all notices, requests and other communications provided for
herein and under the  Custodial  Agreement  (including  without  limitation  any
modifications  of, or waivers,  requests or consents under, this Loan Agreement)
shall be given or made in  writing  (including  without  limitation  by telex or
telecopy)  delivered  to the  intended  recipient  at the  "Address for Notices"
specified below its name on the signature pages hereof or thereof; or, as to any
party,  at such other  address as shall be designated by such party in a written
notice to each other party.  Except as otherwise provided in this Loan Agreement
and except for notices given under  Section 2 (which shall be effective  only on
receipt),  all such communications  shall be deemed to have been duly given when
transmitted  by telex or telecopy or  personally  delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid.

                  11.03. Indemnification and Expenses

                  (a) Borrower agrees to hold Lender harmless from and indemnify
Lender against all liabilities,  losses, damages,  judgments, costs and expenses
of any kind which may be imposed  on,  incurred by or  asserted  against  Lender
(collectively,  the "Costs")  relating to or arising out of this Loan Agreement,
the Note,  any other Loan  Document or any  transaction  contemplated  hereby or
thereby,  or any  amendment,  supplement  or  modification  of, or any waiver or
consent under or in respect of, this Loan  Agreement,  the Note,  any other Loan
Document or any transaction  contemplated hereby or thereby, that, in each case,
results  from  anything  other  than  Lender's   gross   negligence  or  willful
misconduct. Without limiting the generality of the foregoing, Borrower agrees to
hold Lender harmless from and indemnify  Lender against all Costs relating to or
arising out of any violation or alleged violation of any environmental law, rule
or regulation or any consumer  credit laws,  including  without  limitation  the
Truth in Lending Act and/or the Real Estate Settlement  Procedures Act, that, in
each case, results from anything other than Lender's gross negligence or willful
misconduct.  In any suit,  proceeding or action  brought by Lender in connection
with any Collateral for any sum owing  thereunder,  or to enforce any provisions
of any  Collateral  Documents,  Borrower  will save,  indemnify  and hold Lender
harmless from and against all expense,  loss or damage suffered by reason of any
defense, set-off, counterclaim,  recoupment or reduction or liability whatsoever
of the account debtor or obligor thereunder, arising out of a breach by Borrower
of any obligation thereunder or arising out of any other agreement, indebtedness
or liability at any time owing to or in favor of such account  debtor or obligor
or its successors from Borrower. Borrower also agrees to reimburse Lender as and
when billed by Lender for all Lender's reasonable costs and expenses incurred in
connection with the enforcement or the preservation of Lender's rights


                                       47
<PAGE>


under this Loan Agreement,  the Note, any other Loan Document or any transaction
contemplated hereby or thereby, including without limitation the reasonable fees
and   disbursements  of  its  counsel.   Borrower  hereby   acknowledges   that,
notwithstanding  the fact  that  the  Note is  secured  by the  Collateral,  the
obligation of Borrower under the Note is a recourse obligation of Borrower.

                  (b) Borrower agrees to pay as and when billed by Lender all of
the reasonable out-of-pocket costs and expenses incurred by Lender in connection
with  the  development,   preparation  and  execution  of,  and  any  amendment,
supplement or  modification  to, this Loan  Agreement,  the Note, any other Loan
Document or any other  documents  prepared in connection  herewith or therewith.
Borrower  agrees to pay as and when  billed by Lender  all of the  out-of-pocket
costs  and  expenses   incurred  in  connection   with  the   consummation   and
administration  of the transactions  contemplated  hereby and thereby  including
without  limitation (i) all the reasonable fees,  disbursements  and expenses of
counsel to Lender and (ii) all the due diligence, inspection, testing and review
costs and expenses incurred by Lender with respect to Collateral under this Loan
Agreement,  including,  but not limited to, those costs and expenses incurred by
Lender pursuant to Sections 11.03(a), 11.14 and 11.15 hereof.

                  11.04 Amendments.  Except as otherwise  expressly  provided in
this Loan  Agreement,  any  provision of this Loan  Agreement may be modified or
supplemented  only by an instrument in writing signed by Borrower and Lender and
any provision of this Loan Agreement may be waived by Lender.

                  11.05.  Successors and Assigns.  This Loan Agreement  shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

                  11.06.  Survival.  The  obligations of Borrower under Sections
3.03  and  11.03  hereof  shall  survive  the  repayment  of the  Loans  and the
termination  of this  Loan  Agreement.  In  addition,  each  representation  and
warranty  made or  deemed  to be made by a request  for a  borrowing,  herein or
pursuant  hereto shall survive the making of such  representation  and warranty,
and Lender shall not be deemed to have waived, by reason of making any Loan, any
Default that may arise because any such  representation  or warranty  shall have
proved  to be false or  misleading,  notwithstanding  that  Lender  may have had
notice or knowledge or reason to believe  that such  representation  or warranty
was false or misleading at the time such Loan was made.

                  11.07.  Captions.  The  table of  contents  and  captions  and
section  headings  appearing  herein  are  included  solely for  convenience  of
reference and are not intended to affect the  interpretation of any provision of
this Loan Agreement.

                  11.08.  Counterparts.  This Loan  Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same  instrument,  and any of the  parties  hereto  may  execute  this  Loan
Agreement by signing any such counterpart.

                  11.09.   Loan  Agreement   Constitutes   Security   Agreement;
Governing  Law.  This Loan  Agreement  shall be governed by New York law without
reference to choice of law doctrine,  and shall constitute a security  agreement
within the meaning of the Uniform Commercial Code.


                                       48
<PAGE>

                  11.10.  SUBMISSION TO JURISDICTION;  WAIVERS.  BORROWER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:

                  (A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING  RELATING  TO THIS  LOAN  AGREEMENT,  THE  NOTE  AND THE  OTHER  LOAN
DOCUMENTS,  OR FOR  RECOGNITION  AND  ENFORCEMENT  OF ANY  JUDGMENT  IN  RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK,  THE FEDERAL  COURTS OF THE UNITED  STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

                  (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER  HAVE TO THE VENUE OF ANY SUCH ACTION OR  PROCEEDING IN ANY
SUCH COURT OR THAT SUCH  ACTION OR  PROCEEDING  WAS  BROUGHT IN AN  INCONVENIENT
COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

                  (C) AGREES  THAT  SERVICE  OF  PROCESS  IN ANY SUCH  ACTION OR
PROCEEDING  MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY  SUBSTANTIALLY  SIMILAR  FORM OF  MAIL),  POSTAGE  PREPAID,  TO ITS
ADDRESS SET FORTH UNDER ITS  SIGNATURE  BELOW OR AT SUCH OTHER  ADDRESS OF WHICH
LENDER SHALL HAVE BEEN NOTIFIED; AND

                  (D)  AGREES  THAT  NOTHING  HEREIN  SHALL  AFFECT THE RIGHT TO
EFFECT  SERVICE OF PROCESS IN ANY OTHER  MANNER  PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

                  11.11.  WAIVER OF JURY  TRIAL.  EACH OF  BORROWER  AND  LENDER
HEREBY  IRREVOCABLY  WAIVES,  TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY  LEGAL  PROCEEDING  ARISING  OUT OF OR
RELATING TO THIS LOAN  AGREEMENT,  ANY OTHER LOAN  DOCUMENT OR THE  TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

                  11.12. Acknowledgments. Borrower hereby acknowledges that:

                  (a)  it has  been  advised  by  counsel  in  the  negotiation,
execution  and  delivery  of this Loan  Agreement,  the Note and the other  Loan
Documents;

                  (b) Lender has no fiduciary  relationship to Borrower, and the
relationship  between Borrower and Lender is solely that of debtor and creditor;
and

                  (c) no joint venture exists between Lender and Borrower.

                  11.13.  Hypothecation  or Pledge of Loans.  Lender  shall have
free and  unrestricted  use of all Collateral and nothing in this Loan Agreement
shall  preclude  Lender  from  engaging  in  repurchase  transactions  with  the
Collateral or otherwise pledging, repledging,


                                       49
<PAGE>


transferring,  hypothecating,  or rehypothecating  the Collateral or pledging or
otherwise  transferring  its rights to payment  hereunder in respect of any Loan
made hereunder;  provided, that no action by Lender referred to in this sentence
shall  confer on any Person  other than  Lender any right  against  Borrower  to
require any prepayment under Section 2.04 hereof or any right to enforce against
Borrower any other provision of this Loan Agreement, but may grant to any Person
the right to require Lender to enforce any such provisions. Nothing contained in
this Loan Agreement shall obligate Lender to segregate any Collateral  delivered
to Lender by Borrower.

                  11.14. Servicing.

                  (a) Borrower  covenants to maintain or cause the  servicing of
the Collateral to be maintained with respect to each type of Collateral  pledged
to Lender hereunder in conformity with accepted and prudent servicing  practices
in the industry for such same type of Collateral  and in a manner at least equal
in  quality  to the  servicing  Borrower  provides  for  assets  similar to such
Collateral  which  it  owns.  In  the  event  that  the  preceding  language  is
interpreted as constituting one or more servicing contracts, each such servicing
contract  shall  terminate  automatically  upon the  earliest of (i) an Event of
Default,  (ii) the date on which all the Secured  Obligations  have been paid in
full or (iii) the transfer of servicing  approved by Borrower and Lender,  which
Lender's consent shall not be unreasonably withheld. Midland Loan Services, L.P.
shall be the initial servicer.

                  (b) If the Collateral,  or any portion thereof, is serviced by
Borrower,  (i)  Borrower  agrees that Lender is the  collateral  assignee of all
servicing  records,   including  but  not  limited  to  any  and  all  servicing
agreements,  files,  documents,  records,  data bases, computer tapes, copies of
computer tapes, proof of insurance  coverage,  insurance  policies,  appraisals,
other closing  documentation,  payment  history  records,  and any other records
relating to or  evidencing  the  servicing of such  Collateral  (the  "Servicing
Records"),  and (ii) Borrower grants Lender a security interest in all servicing
fees and rights relating to such Collateral and all Servicing  Records to secure
the  obligation of Borrower or its designee to service in  conformity  with this
Section and any other  obligation of Borrower to Lender.  Borrower  covenants to
safeguard such  Servicing  Records and to deliver them promptly to Lender or its
designee (including Custodian) at Lender's request.

                  (c) If the Collateral,  or any portion thereof, is serviced by
a third party servicer (such third party servicer, the "Servicer"), Borrower (i)
shall  provide a copy of the  servicing  agreement to Lender,  which shall be in
form and substance  acceptable to Lender (the "Servicing  Agreement");  and (ii)
hereby  irrevocably  assigns to Lender and Lender's  successors  and assigns all
right,  title,  interest of Borrower in, to and under,  and the benefits of, any
Servicing  Agreement  with  respect to such  Collateral.  Any  successor  to the
Servicer  shall be  approved  in  writing  by Lender  prior to such  successor's
assumption of servicing obligations with respect to such Collateral.

                  (d) Borrower  shall  provide to Lender a letter from  Borrower
(if Borrower is the Servicer) or the Servicer, as the case may be, to the effect
that upon the  occurrence  of an Event of  Default,  Lender  may  terminate  any
Servicing  Agreement  and  transfer  servicing  to its  designee,  at no cost or
expense to  Lender,  it being  agreed  that  Borrower  will pay any and all fees
required to terminate the Servicing  Agreement and to effectuate the transfer of
servicing to the designee of Lender.


                                       50
<PAGE>


                  (e) After the Funding Date, until the pledge of any Collateral
is relinquished by Custodian, Borrower will have no right to modify or alter the
terms of any of the documents  pertaining to such  Collateral  and Borrower will
have no obligation  or right to repossess  such  Collateral or substitute  other
Collateral,  except as provided in the Custodial Agreement;  provided,  however,
that so long as no Default or Event of Default has occurred  and is  continuing,
Borrower may enter into such  modifications of the terms of such documents as do
not, as to any individual item of Collateral,  (i) result in a negative monetary
effect or (ii) constitute a material adverse effect.

                  (f) In the event  Borrower or its  Affiliate is servicing  any
Collateral,   Borrower  shall  permit  Lender  to  inspect   Borrower's  or  its
Affiliate's  servicing  facilities,  as the  case  may be,  for the  purpose  of
satisfying  Lender that Borrower or its  Affiliate,  as the case may be, has the
ability to service such Collateral as provided in this Loan Agreement.

                  (g)  Borrower  shall  cause the  Servicer to provide a copy of
each  report  and  notice  sent to  Borrower  to be sent to Lender  concurrently
therewith.

                  11.15.  Periodic Due Diligence Review.  Borrower  acknowledges
that  Lender has the right to perform  continuing  due  diligence  reviews  with
respect  to the  Collateral,  for  purposes  of  verifying  compliance  with the
representations,  warranties and specifications  made hereunder,  or determining
and   re-determining  the  Borrowing  Base  under  Section  2.04(a)  hereof,  or
otherwise,  and Borrower agrees that Lender, at its option, has the right at any
time to conduct a partial or complete due diligence  review on any or all of the
Collateral  securing  the Loans,  including,  without  limitation,  ordering new
credit  reports  and  Appraisals  on the  applicable  Collateral  and  otherwise
regenerating  the information used to originate such Eligible  Collateral.  Upon
reasonable  (but no less than one (1)  Business  Day) prior  notice to Borrower,
Lender  or its  authorized  representatives  will  be  permitted  during  normal
business  hours to  examine,  inspect,  and make  copies  and  extracts  of, the
Collateral Files and any and all documents, records, agreements,  instruments or
information  relating to such  Collateral in the possession or under the control
of Borrower  and/or  Custodian.  Borrower also shall make  available to Lender a
knowledgeable  financial  or  accounting  officer for the  purpose of  answering
questions respecting the Collateral Files and the Collateral. Borrower agrees to
cooperate  with Lender and any third party  underwriter  designated by Lender in
connection  with such  underwriting,  including,  but not limited to,  providing
Lender and any third party  underwriter  with  access to any and all  documents,
records,  agreements,  instruments or information relating to such Collateral in
the possession, or under the control, of Borrower.  Borrower further agrees that
Borrower shall reimburse Lender for any and all out-of-pocket costs and expenses
incurred  by Lender in  connection  with  Lender's  activities  pursuant to this
Section 11.15.

                  11.16.  Intent.  The  parties  recognize  that  each Loan is a
"securities  contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended.

                  11.17.  Change of Borrower's  State of Formation.  If Borrower
shall change the State under whose laws Borrower  shall be  organized,  Borrower
shall  promptly  provide  Lender  with a copy of its new  Declaration  of Trust,
Articles of  Incorporation  or similar  document,  certified by the Secretary of
State or other  appropriate  official of Borrower's  new State of formation,  if
applicable,  together  with such  opinions of counsel  regarding  such change as
Lender, in its sole discretion, shall require.


                                       51
<PAGE>


                  11.18. Trustee Exculpation.  The parties agree that except for
fraudulent acts, willful  misrepresentation  or gross negligence,  no trustee of
Borrower shall have personal liability hereunder to Lender and any obligation of
Borrower  hereunder  to Lender  shall be  satisfied  solely  from the  assets of
Borrower.

                  [SIGNATURE PAGE FOLLOWS]




                                      512
<PAGE>


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



                            BORROWER

                            CAPITAL TRUST

                            By:/s/  Edward Shugrue
                               -----------------------------------------------
                            Name:   Edward Shugrue
                            Title:  Chief Financial Officer

                            Address for Notices:

                            605 Third Avenue, 26th Floor
                            New York, New York  10016
                            Attention: Edward L. Shugrue, III
                                       Peter S. Ginsberg, Esq.
                                       John Felleter
                            Telecopier No.: (212) 655-0044
                            Telephone No:     (212) 655-0225

                            With a copy to:
                            Battle Fowler LLP
                            75 East 55th Street
                            New York, New York 10022
                            Attention: John A. Cahill, Esq.
                            Telecopier No.: (212) 856-7801
                            Telephone No.:    (212) 856-6930


                            LENDER

                            MORGAN STANLEY & CO. INTERNATIONAL 
                            LIMITED

                            By:/s/ Thomas Wipf
                               -------------------------------------------------
                            Name:  Thomas Wipf
                            Title: Principal

                            Address for Notices:

                            1585 Broadway
                            New York, New York  10036
                            Attention: Mr. Andy Neuberger, Whole Loan Operations
                            Mortgage-Backed Securities Department,
                            Fixed-Income Division
                            Telecopier No.: 212-761-0570
                            Telephone No.:  212-761-2384

                            With a copy to:
                            Rogers & Wells LLP


                                       53

<PAGE>



                            200 Park Avenue
                            New York, New York 10166-0153
                            Attention: Frederick B. Utley, III, Esq.
                            Telecopier No.: (212) 878-8375
                            Telephone No.: (212) 878-8356




                                       54

<PAGE>




                                   SCHEDULE 1

                        FILING JURISDICTIONS AND OFFICES
                     [TO BE PROVIDED BY COUNSEL TO BORROWER]





                                     S-1-55
<PAGE>



                                   SCHEDULE 2

                               APPROVED APPRAISERS




1.       KTR Appraisal Services

2.       Cushman & Wakefield, Inc.

3.       Landauer Real Estate Counselors

4.       CB Commercial

5.       The Weitzman Group

6.       Greenwich Group

7.       Arthur Anderson

8.       Joseph Blake




                                     S-2-56
<PAGE>


                                   SCHEDULE 3

                               APPROVED ENGINEERS

1.        EMG

2.        KTR Realty Services

3.        Merritt & Harris, Inc.

4.        C.A. Rich, Inc.

5.        IVI

6.        Dames & Moore

7.        Law

8.        Echland

9.        EM&CA

10.       Acqua    Terra

11.       ATC (BCM Engineers)

12.       Horn Chandler & Thomas




                                     S-3-57
<PAGE>




                                   SCHEDULE 4

                       APPROVED ENVIRONMENTAL CONSULTANTS

1.        Acqua Terra

2.        Law Environmental

3.        KTR Realty Services

4.        EMG

5.        Clayton

6.        Dames & Moore

7.        Brown & Root

8.        C.A. Rich, Inc.

9.        Echland

10.       EM&CA

11.       ATC (BCM Engineers)

12.       Front Royal






                                     S-4-58
<PAGE>



                                                                       EXHIBIT A

                            [FORM OF PROMISSORY NOTE]
$ 300,000,000.00                                                   June 30, 1998
                                                              New York, New York

                  FOR VALUE RECEIVED, CAPITAL TRUST, a California business trust
(the  "Borrower"),  hereby  promises to pay to the order of MORGAN STANLEY & CO.
INTERNATIONAL LIMITED (the "Lender"),  at the principal office of Lender's agent
at 1585  Broadway,  New York,  New York,  10036,  in lawful  money of the United
States,  and in immediately  available funds, the principal sum of THREE HUNDRED
MILLION  DOLLARS  ($300,000,000.00)  (or such  lesser  amount as shall equal the
aggregate  unpaid principal amount of the Loans made by Lender to Borrower under
the Loan Agreement),  on the dates and in the principal  amounts provided in the
Loan Agreement,  and to pay interest on the unpaid principal amount of each such
Loan, at such office,  in like money and funds, for the period commencing on the
date of such Loan until such Loan shall be paid in full,  at the rates per annum
and on the dates provided in the Loan Agreement.

                  The date, amount and interest rate of each Loan made by Lender
to Borrower, and each payment made on account of the principal thereof, shall be
recorded  by  Lender on its  books  and,  prior to any  transfer  of this  Note,
endorsed by Lender on the schedule attached hereto or any continuation  thereof;
provided, that the failure of Lender to make any such recordation or endorsement
shall not affect the  obligations  of Borrower to make a payment when due of any
amount owing under the Loan  Agreement or hereunder in respect of the Loans made
by Lender.

                  This Note is the Note  referred to in the CMBS Loan  Agreement
dated as of June 30, 1998 (as amended, supplemented or otherwise modified and in
effect from time to time, the "Loan Agreement") between Borrower and Lender, and
evidences  Loans  made by  Lender  thereunder.  Reference  is  also  made to the
Promissory Note dated June 8, 1998 (the " MSMC Note") made by Borrower to Morgan
Stanley Mortgage Capital Inc. ("MSMC") evidencing loans made under a Master Loan
and Security  Agreement dated as of June 8, 1998. The indebtedness  evidenced by
the  MSMC  Note  and  indebtedness   evidenced  by  this  Note  may  not  exceed
$300,000,000 in the aggregate.  Terms used but not defined in this Note have the
respective meanings assigned to them in the Loan Agreement.

                  Borrower  agrees to pay all Lender's  costs of collection  and
enforcement  (including reasonable attorneys' fees and disbursements of Lender's
counsel) in respect of this Note when incurred,  including,  without limitation,
reasonable attorneys' fees through appellate proceedings.

                  Notwithstanding the pledge of the Collateral,  Borrower hereby
acknowledges,  admits and agrees that Borrower's obligations under this Note are
recourse  obligations of Borrower to which  Borrower  pledges its full faith and
credit.

                  Borrower, and any endorsers or guarantors hereof, (a)
severally waive diligence, presentment, protest and demand and also notice of
protest, demand, dishonor and nonpayment of this Note, (b) expressly agree that
this Note, or any payment hereunder, may be extended from time to time, and
consent to the acceptance of further Collateral, the release of any Collateral
for this Note, the release of any party primarily or secondarily liable hereon,
and (c) expressly agree that it will not be necessary for Lender, in order to
enforce payment of this Note, to first institute 


                                      A-1
<PAGE>


or exhaust  Lender's  remedies against Borrower or any other party liable hereon
or against any Collateral for this Note. No extension of time for the payment of
this Note,  or any  installment  hereof,  made by  agreement  by Lender with any
person now or  hereafter  liable for the payment of this Note,  shall affect the
liability  under this Note of Borrower,  even if Borrower is not a party to such
agreement;  provided,  however,  that Lender and Borrower,  by written agreement
between them, may affect the liability of Borrower.

                  Any reference  herein to Lender shall be deemed to include and
apply to every  subsequent  holder of this Note.  Reference  is made to the Loan
Agreement  for  provisions   concerning  optional  and  mandatory   prepayments,
Collateral, acceleration and other material terms affecting this Note.

                  This Note shall be governed by and construed under the laws of
the State of New York (without  reference to choice of law doctrine)  whose laws
Borrower expressly elects to apply to this Note. Borrower agrees that any action
or proceeding brought to enforce or arising out of this Note may be commenced in
the  Supreme  Court of the State of New York,  Borough of  Manhattan,  or in the
District Court of the United States for the Southern District of New York.

                                            CAPITAL TRUST
                                                 a California business trust


                                            By:
                                               --------------------------------
                                            Name: Edward L. Shugrue, III
                                            Title: Chief Financial Officer


                                      A-2

<PAGE>


                                SCHEDULE OF LOANS

                  This Note evidences Loans made under the within-described Loan
Agreement  to  Borrower,  on the dates,  in the  principal  amounts  and bearing
interest  at the  rates  set  forth  below,  and  subject  to the  payments  and
prepayments of principal set forth below.

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

Date Made    Principal      Interest  Amount Paid or  Unpaid Principal  Notation
            Amount of Loan    Rate       Prepaid          Amount        Made by
--------------------------------------------------------------------------------

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

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

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                                      A-3
<PAGE>


                                                                       EXHIBIT B
                          [FORM OF CUSTODIAL AGREEMENT]
                         [STORED AS A SEPARATE DOCUMENT]











                                      B-1
<PAGE>




                                                                       EXHIBIT C

                    [FORM OF OPINION OF COUNSEL OF BORROWER]
















                                      C-1
<PAGE>


                                                                       EXHIBIT D

                         [FORM OF REQUEST FOR BORROWING]

                  CMBS Loan Agreement,  dated as of June __, 1998 (the "Loan and
Security  Agreement"),  by  and  between  Borrower  and  Morgan  Stanley  &  Co.
International Limited (the "Lender"),

Lender:                          Morgan Stanley & Co. International Limited

Borrower:                        [NAME OF BORROWER]

Requested Fund Date:
                                 ----------------------------

Transmission Date:
                                 ----------------------------

Transmission time:
                                 ----------------------------

[Type of Funding:
(Wet or Dry)
                                 ----------------------------

[Type of Loan requested:
Committed or Uncommitted
                                 ----------------------------

Number of Mortgage
Loans to be Pledged:
                                 ----------------------------

Unpaid Principal Balance

                                 $---------------------------
Requested Wire Amount:  

                                 $---------------------------
Wire Instructions:





Requested by:

[NAME OF BORROWER]



By:
   ----------------------
   Name:
   Title:


                                      D-1
<PAGE>




                                                                       EXHIBIT E

                        [FORM OF LENDER'S RELEASE LETTER]

                                     (Date)

Morgan Stanley & Co. International Limited
1585 Broadway
New York, New York 10036
Attention: 
          ---------------
Facsimile:
          ---------------

         Re:  Certain Collateral Identified on Schedule A hereto and owned by 
[BORROWER]

                  The undersigned hereby releases all right,  interest,  lien or
claim of any kind with  respect  to the  Collateral  described  in the  attached
Schedule  A, such  release to be  effective  automatically  without  any further
action by any party upon  payment in one or more  installments,  in  immediately
available finds of $ , in accordance with the following wire instructions:

 ................................................................................

 ................................................................................

 ......................

                                                     Very truly yours,

                                                     [LENDER]


                                                     By:
                                                        ------------------------
                                                     Name:
                                                     Title:


                                     E-1-1

<PAGE>



                                                                       EXHIBIT F

                           [FORM OF BAILEE AGREEMENT]











                                     F-1-1