LOAN AGREEMENT


                           Dated as of March 11, 1998


                                     Between


                                FAC MORTGAGE LLC,
                                   as Borrower


                                       AND


                        NOMURA ASSET CAPITAL CORPORATION,
                                    as Lender


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<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

                                                                                                               Page
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<S>                                                                                                              <C>
I.       DEFINITIONS; PRINCIPLES OF CONSTRUCTION..................................................................1
         1.1      Specific Definitions............................................................................1
         1.2      Index of Other Definitions......................................................................9
         1.3      Principles of Construction.....................................................................10

II.      GENERAL.................................................................................................10
         2.1      The Loan.......................................................................................10
         2.2      Interest; Monthly Payments.....................................................................11
                  2.2.1        Generally.........................................................................11
                  2.2.2        Accrued Interest..................................................................11
                  2.2.3        Property Cash Flow Allocation.....................................................11
                  2.2.4        Default Rate......................................................................12
         2.3      Loan Repayment and Defeasance..................................................................12
                  2.3.1        Repayment.........................................................................12
                  2.3.2        Mandatory Prepayments.............................................................12
                  2.3.3        Voluntary Defeasance of the Note..................................................13
         2.4      Release of Property............................................................................15
                  2.4.1        Release on Defeasance.............................................................15
                  2.4.3        Release on Payment in Full........................................................16
         2.4.4    Substitution of Properties.....................................................................16
         2.5      Payments and Computations......................................................................18
                  2.5.1        Making of Payments................................................................18
                  2.5.2        Computations......................................................................18
                  2.5.3        Late Payment Charge...............................................................18
         2.6      Structuring Fee................................................................................18
         2.7      Special Prepayment Compensation................................................................18

III.     CASH MANAGEMENT; ESCROWS AND RESERVES...................................................................19
         3.1      Cash Management Arrangements...................................................................19
         3.2      Required Repairs; Required Repair Funds........................................................19
                  3.2.1        Required Repairs: Deposits........................................................19
                  3.2.2        Release of Required Repair Funds..................................................20
         3.3      Tax and Insurance Escrow Fund..................................................................20
         3.4      Capital Reserve Fund...........................................................................21
                  3.4.1        Capital Reserve Fund..............................................................21
                  3.4.2        Payment of Capital Expenses.......................................................21
         3.5      Rollover Reserve Fund..........................................................................21
                  3.5.1        Rollover Reserve Fund.............................................................21
                  3.5.2        Payment of Leasing Expenses.......................................................22
         3.6      Payment of Approved Operating Expenses.........................................................22
         3.7      Security Deposits..............................................................................23
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                                        i
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<S>                                                                                                              <C>
         3.8      Grant of Security Interest; Application of Funds...............................................23

IV.      REPRESENTATIONS AND WARRANTIES..........................................................................24
         4.1      Borrower Representations.......................................................................24
                  4.1.1        Organization; Special Purpose.....................................................24
                  4.1.2        Proceedings; Enforceability.......................................................24
                  4.1.3        No Conflicts......................................................................24
                  4.1.4        Litigation........................................................................24
                  4.1.5        Agreements........................................................................25
                  4.1.6        Title.............................................................................25
                  4.1.7        Survey............................................................................25
                  4.1.8        No Bankruptcy Filing..............................................................25
                  4.1.9        Full and Accurate Disclosure......................................................25
                  4.1.10       No Plan Assets....................................................................25
                  4.1.11       Compliance........................................................................25
                  4.1.12       Contracts.........................................................................26
                  4.1.13       Financial Information.............................................................26
                  4.1.14       Condemnation......................................................................26
                  4.1.15       Federal Reserve Regulations.......................................................26
                  4.1.16       Utilities and Public Access.......................................................26
                  4.1.17       Not a Foreign Person..............................................................27
                  4.1.18       Separate Lots.....................................................................27
                  4.1.19       Assessments.......................................................................27
                  4.1.20       Enforceability....................................................................27
                  4.1.21       Insurance.........................................................................27
                  4.1.22       Use of Property; Licenses.........................................................27
                  4.1.23       Flood Zone........................................................................27
                  4.1.24       Physical Condition................................................................27
                  4.1.25       Encroachments.....................................................................27
                  4.1.26       Leases............................................................................28
                  4.1.27       Filing and Recording Taxes........................................................28
                  4.1.28       Investment Company Act............................................................28
                  4.1.29       Fraudulent Transfer...............................................................28
                  4.1.30       Ownership of Borrower.............................................................29
                  4.1.31       Management Agreement..............................................................29
                  4.1.32  Hazardous Substances...................................................................29
                  4.1.33 Ground Lease............................................................................30
                  4.1.34 Out-Parcels.............................................................................30
         4.2      Survival of Representations....................................................................30

V.       AFFIRMATIVE COVENANTS...................................................................................30
         5.1      Existence......................................................................................30
         5.2      Taxes and Other Charges........................................................................30
         5.3      Repairs; Maintenance and Compliance............................................................31
         5.4      Litigation.....................................................................................31
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                                       ii
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<S>                                                                                                              <C>
         5.5      Performance of Other Agreements................................................................31
         5.6      Notice of Default..............................................................................31
         5.7      Cooperate in Legal Proceedings.................................................................31
         5.8      Further Assurances.............................................................................31
         5.9      Financial Reporting............................................................................32
                  5.9.1        Bookkeeping.......................................................................32
                  5.9.2        Annual Reports....................................................................32
                  5.9.3        Monthly Reports...................................................................32
                  5.9.4        Other Reports.....................................................................33
                  5.9.5        Annual Budget.....................................................................33
                  5.9.6        Breach............................................................................33
         5.10     Environmental Matters..........................................................................33
                  5.10.1       Hazardous Substances..............................................................33
         5.10.2   Environmental Monitoring.......................................................................34
         5.11     Title to the Properties........................................................................35
         5.12     Estoppel Statement.............................................................................35
         5.13     Principal Place of Business....................................................................35
         5.14     Property Management............................................................................35
                  5.14.1       Management Agreement..............................................................35
                  5.14.2       Termination of Manager............................................................35
         5.15     Special Purpose Bankruptcy Remote Entity.......................................................35
         5.16     Assumptions in Non-Consolidation Opinion.......................................................37
         5.17     Expenses.......................................................................................37
         5.18     Indemnity......................................................................................38

VI.      NEGATIVE COVENANTS .....................................................................................39
         6.1      Management Agreement...........................................................................39
         6.2      Liens..........................................................................................39
         6.3      Dissolution....................................................................................39
         6.4      Change In Business.............................................................................39
         6.5      Debt Cancellation..............................................................................39
         6.6      Assets.........................................................................................39
         6.7      Transfers......................................................................................40
         6.8      Debt...........................................................................................40
         6.9      Assignment of Rights...........................................................................40
         6.10     Operation of the Properties....................................................................40

VII.     INSURANCE; CASUALTY; AND CONDEMNATION...................................................................40
         7.1      Insurance......................................................................................40
                  7.1.1        Coverage..........................................................................40
                  7.1.2        Policies..........................................................................42
         7.2      Casualty.......................................................................................42
                  7.2.1        Notice; Restoration...............................................................43
                  7.2.2        Settlement of Proceeds............................................................43
         7.3      Condemnation.  ................................................................................43
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                                       iii
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<S>                                                                                                              <C>
                  7.3.1        Notice; Restoration...............................................................43
                  7.3.2        Collection of Award...............................................................43
         7.4      Application of Proceeds or Award...............................................................44
                  7.4.1        Application to Restoration........................................................44
                  7.4.2        Application to Debt...............................................................44
                  7.4.3        Procedure for Application to Restoration..........................................45

VIII.    DEFAULTS................................................................................................45
         8.1      Events of Default..............................................................................45
         8.2      Remedies.......................................................................................47
                  8.2.1        Acceleration......................................................................47
                  8.2.2        Remedies Cumulative...............................................................47
                  8.2.3        Severance.........................................................................48
                  8.2.4        Delay.............................................................................48

IX.      SPECIAL PROVISIONS......................................................................................48
         9.1      Sale of Note and Securitization................................................................48
                  9.1.1        Cooperation.......................................................................48
                  9.1.2        Use of Information................................................................49
                  9.1.3        Borrower Obligations Regarding Disclosure Documents...............................50
                  9.1.4        Borrower Indemnity Regarding Filings..............................................51
                  9.1.5        Indemnification Procedure.........................................................51
                  9.1.6        Contribution......................................................................51
                  9.1.7        Rating Surveillance...............................................................52

X.       MISCELLANEOUS...........................................................................................52
         10.1     Exculpation....................................................................................52
         10.2     Notices........................................................................................53
         10.3     Brokers and Financial Advisors.................................................................54
         10.4     Retention of Servicer..........................................................................54
         10.5     Survival.......................................................................................54
         10.6     Lender's Discretion............................................................................54
         10.7     Governing Law..................................................................................55
         10.8     Modification, Waiver in Writing................................................................56
         10.9     Delay Not a Waiver.............................................................................56
         10.10    Trial by Jury..................................................................................56
         10.11    Headings.......................................................................................56
         10.12    Severability...................................................................................56
         10.13    Preferences....................................................................................57
         10.14    Waiver of Notice...............................................................................57
         10.15    Remedies of Borrower...........................................................................57
         10.16    Prior Agreements...............................................................................57
         10.17    Offsets, Counterclaims and Defenses............................................................57
         10.18    Publicity......................................................................................58
         10.19    No Usury.......................................................................................58
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                                       iv
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<TABLE>
<S>                                                                                                              <C>
         10.20    Conflict; Construction of Documents............................................................58
         10.21    No Third Party Beneficiaries...................................................................58
         10.22    Cross Default; Cross Collateralization.........................................................58

SCHEDULES

Schedule 1 - List of Properties 
Schedule 2 - Matters Regarding Representations
Schedule 3 - Rent Rolls 
Schedule 4 - Required Repairs 
Schedule 5 - Existing Anchor Leases 
Schedule 6 - Eligible Out-Parcels 
Schedule 7 - Form of Rent Roll
</TABLE>


                                       v

<PAGE>


                                 LOAN AGREEMENT


     LOAN  AGREEMENT  dated as of March 11,  1998  between FAC  MORTGAGE  LLC, a
Delaware limited liability  company (together with its permitted  successors and
assigns,   "Borrower"),   and  NOMURA  ASSET  CAPITAL  CORPORATION,  a  Delaware
corporation (together with its successors and assigns, "Lender").

I.   DEFINITIONS; PRINCIPLES OF CONSTRUCTION

     I.1 Specific  Definitions.  The following terms have the meanings set forth
below:

     "Affiliate":  as  to  any  Person,  any  other  Person  that,  directly  or
indirectly,  is in Control of, is Controlled by or is under common  Control with
such Person.

     "Allocated Loan Amount":  With respect to each Property,  as of any date of
determination,  the product of (i) the then unpaid Principal  multiplied by (ii)
an amount, expressed as a percentage, computed by dividing (A) the Net Operating
Income  attributable  to  such  Property,   by  (B)  the  Net  Operating  Income
attributable to the Properties.

     "Anchor Leases":  the leases listed on Schedule 5 hereto and any comparable
major  leases  of  space in  Properties  that the  Lender  hereafter  reasonably
determines to be anchor leases.

     "Approved  Capital  Expenses":  Capital Expenses incurred by Borrower which
(i) are included in the approved  Capital  Budget for the Current  Month or (ii)
have been reasonably approved by Lender.

     "Approved  Leasing  Expenses":  expenses  incurred  in  leasing  space at a
Property  pursuant to Leases entered into in accordance with the Loan Documents,
including  brokerage  commissions,  tenant  improvements  and other  inducements
(including  cash and landlord  work),  which  expenses (i) are (A)  specifically
approved by Lender in connection  with  approving the  applicable  Lease,  which
approvals  shall not be  unreasonably  withheld or delayed,  (B) incurred in the
ordinary  course of business and on market terms and  conditions  in  connection
with Leases which do not require Lender's approval under the Loan Documents,  or
(C)  otherwise  approved by Lender,  which  approval  shall not be  unreasonably
withheld or delayed,  and (ii) are substantiated by executed Lease documents and
brokerage agreements.

     "Approved  Operating  Expenses":  Operating  Expenses  incurred by Borrower
which (i) are included in the approved  Operating  Budget for the Current Month,
(ii) are for electric,  gas,  oil,  water,  sewer or other utility  service to a
Property or (iii) have been approved by Lender.


<PAGE>

     "Business  Day": any day other than a Saturday,  Sunday or any other day on
which national banks in New York are not open for business.

     "Capital   Expenses":   expenses  that  are  required   under  GAAP  to  be
capitalized.

     "Code":  the  Internal  Revenue  Code of 1986,  as amended,  any  successor
statutes thereto,  and applicable U.S. Department of Treasury regulations issued
pursuant thereto in temporary or final form.

     "Control":  with respect to any Person,  either (i)  ownership  directly or
through other  entities of more than 50% of all  beneficial  equity  interest in
such Person,  or (ii) the  possession,  directly or indirectly,  of the power to
direct or cause the  direction  of the  management  and policies of such Person,
through the ownership of voting securities, by contract or otherwise.

     "Current Month": as of any date of determination, the then current calendar
month.

     "Debt": the unpaid Principal,  all interest accrued and unpaid thereon, the
Yield  Maintenance  Premium  and all other  sums due to Lender in respect of the
Loan, or under any Loan Document.

     "Debt Service": with respect to any particular period,  scheduled Principal
and interest payments under the Note in such period.

     "Debt Service  Coverage  Ratio":  as of any date,  the ratio of (i) the Net
Operating Income for the 12-month period ending with the most recently completed
calendar month to (ii) the Debt Service (exclusive of any payments due under the
Defeased Note, if any) with respect to such period.

     "Default":  the occurrence of any event under any Loan Document which, with
the giving of notice or passage of time, or both, would be an Event of Default.

     "Default  Rate":  a rate per annum  equal to the lesser of (i) the  maximum
rate  permitted by  applicable  law, or (ii) 5% above the  Interest  Rate or the
Revised Interest Rate, as applicable, compounded monthly.

     "Defeasance  Deposit":  an  amount  equal  to the  sum  of  (i)  an  amount
sufficient to purchase U.S.  Obligations  which provide  payments that will meet
the Scheduled Defeasance Payments, (ii) any costs and expenses incurred or to be
incurred  in the  purchase  of such U.S.  Obligations  and  (iii)  any  revenue,
documentary  stamp  or  intangible  taxes  or any  other  tax or  charge  due in
connection  with the transfer of the Note, the creation of the Defeased Note and
the  Undefeased  Note,  if  applicable,  any  transfer of the  Defeased  Note or
otherwise required to accomplish the agreements of Sections 2.3 and 2.4.



                                       2
<PAGE>

     "Deposit Bank": a bank or other  depository  selected by Lender in its sole
discretion,  which  holds  and  disburses  Funds  and  other  deposits  required
hereunder.

     "Eligible  Account":  (i) an  account  maintained  with a federal  or state
chartered  depository  institution or trust company whose (x) commercial  paper,
short-term debt obligations or other short-term  deposits are rated at least A-1
by the applicable Rating Agencies if the deposits in such account are to be held
in such account for 30 days or less or (y) long-term  unsecured debt obligations
are rated at least AA- by the applicable Rating Agencies if the deposits in such
account  are to be  held in such  account  for  more  than  30  days;  or (ii) a
segregated  trust account  maintained with the trust  department of a federal or
state chartered depository  institution or trust company acting in its fiduciary
capacity which institution or trust company is subject to regulations  regarding
fiduciary funds on deposit  substantially  similar to 12 C.F.R. ss. 9.10(b);  or
(iii) an account  otherwise  acceptable to the applicable  Rating  Agencies,  as
confirmed in writing that such account would not, in and of itself,  result in a
downgrade,  qualification  or withdrawal of the then current ratings assigned to
any Security.

     "Eligible  Out-Parcels":  the unimproved separate out-parcels that are part
of the Properties, which are listed on Schedule 6 hereto.

     "Fiscal Year":  each twelve month period commencing on January 1 and ending
on December 31 during each year of the Term.

     "GAAP":  generally accepted  accounting  principles in the United States of
America as of the date of the applicable financial report.

     "Governmental Authority": any court, board, agency,  commission,  office or
authority of any nature  whatsoever for any governmental  unit (federal,  state,
county, district, municipal, city or otherwise) now or hereafter in existence.

     "Ground  Lease":  the  Consolidated,  Amended and Restated Lease  Agreement
dated as of December 1, 1996 between The Boaz Downtown Development Authority and
the Borrower's predecessor in interest, covering the Leased Property, as amended
by that certain  First  Amendment to  Consolidated,  Amended and Restated  Lease
Agreement  dated as of January  28,  1998,  as it may  further be  modified  and
amended from time to time in accordance herewith.

     "Independent Director": an individual reasonably satisfactory to Lender who
shall not have been at the time of such individual's  appointment as a director,
and may not  have  been at any  time  during  the  preceding  five  years  (i) a
shareholder  of,  or  an  officer  or  employee  of,  Borrower  or  any  of  its
shareholders,  subsidiaries  or Affiliates,  (ii) a customer of, or supplier to,
Borrower or any of its shareholders,  subsidiaries or Affiliates, (iii) a Person
Controlling any such shareholder,  supplier or customer, or (iv) a member of the
immediate  family  of any  such  shareholder,  officer,  employee,  supplier  or
customer or of any other director of the Managing Member.



                                       3
<PAGE>

     "Interest  Period":  the period from the date hereof  through the first day
thereafter that is the tenth day of a calendar month, and each period thereafter
from the eleventh day of a calendar month through the tenth day of the following
calendar month;  except that the Interest  Period,  if any, that would otherwise
commence before and end after the Maturity Date shall end on the Maturity Date.

     "Interest Rate": a rate of interest equal to 9.10% per annum.

     "Leased Property": the Property located in Boaz, Alabama.

     "Legal   Requirements":   statutes,   laws,  rules,  orders,   regulations,
ordinances,  judgments,  decrees and  injunctions  of  Governmental  Authorities
affecting all or part of each Property or the construction,  use,  alteration or
operation  thereof,  whether  now or  hereafter  enacted  and in  force  (unless
"grandfathered"),  and all permits,  licenses and authorizations and regulations
relating thereto, and all covenants,  agreements,  restrictions and encumbrances
contained in any instrument,  either of record or known to Borrower, at any time
in force  affecting  all or part of each  Property,  including  any that may (i)
require  repairs,  modifications  or  alterations  in or to all or  part of each
Property, or (ii) in any way limit the use and enjoyment thereof.

     "Lien":  any  mortgage,   deed  of  trust,  lien,  pledge,   hypothecation,
assignment,  security interest or any other encumbrance,  charge or transfer of,
on or  affecting  all or part of each  Property or any interest  therein,  or in
Borrower, including any conditional sale or other title retention agreement, any
financing  lease having  substantially  the same  economic  effect as any of the
foregoing, the filing of any financing statement, and mechanic's,  materialmen's
and other similar liens and encumbrances.

     "Loan  Documents":  this Agreement and all other documents,  agreements and
instruments  evidencing,  securing or delivered to Lender in connection with the
Loan, including the following, each of which is dated as of the date hereof: (i)
Note  made by  Borrower  to  Lender  in the  principal  amount  of the Loan (the
"Note"),  (ii)  each  Mortgage,  Assignment  of Leases  and  Rents and  Security
Agreement  made by  Borrower  in favor  of  Lender  or Deed of Trust or  similar
instrument  (collectively the "Mortgages"),  which covers the Properties,  (iii)
each  Assignment of Leases and Rents from Borrower to Lender  (collectively  the
"Assignments  of Leases"),  and (iv) each Assignment of Agreements from Borrower
to  Lender  (collectively  the  "Assignments  of  Agreements"),  as  each of the
foregoing  may be (and each of the  foregoing  defined terms shall refer to such
documents as they may be) amended, restated, replaced, supplemented or otherwise
modified from time to time.

     "Major  Leases":  each of the  Leases  at the  Properties  to which  (i) VF
Factory Outlet, Inc. and (ii) Carolina Pottery is a party. 

     "Major  Lease  Rollover  Date":  the  expiration  date of each of the Major
Leases, or 


                                       4
<PAGE>

such earlier date on which any of the Major Leases may terminate.

     "Management  Agreement":  the  management  agreement  dated the date hereof
between  Borrower  and  Manager,  pursuant  to which  Manager is to manage  each
Property.

     "Management   Fee":  the  fee  payable  to  Manager  under  the  Management
Agreement.

     "Manager": FAC Properties, L.P., a Delaware limited partnership.

     "Managing Member": FAC Mortgage Formation, Inc., a Delaware corporation.

     "Maturity  Date":  the date on which the final  payment of principal of the
Note (or the Defeased  Note, if  applicable)  becomes due and payable as therein
provided,  whether at the Stated Maturity Date, by declaration of  acceleration,
or otherwise.

     "NACC": Nomura Asset Capital Corporation, a Delaware corporation.

     "Net Operating  Income":  for any period,  all Operating Income during such
period minus all Operating  Expenses during such period;  determined by audit or
in accordance with other agreed-upon  procedures determined by Lender;  provided
that, in  determining  Net Operating  Income,  (i) Operating  Expenses  shall be
adjusted to reflect (A) a normalized  allowance for Lease rollovers based on the
rent roll for each Property and then current market conditions,  including costs
for downtime,  tenant  improvements and leasing  commissions,  (B) a reserve for
capital  expenditures  equal to at least $0.15 per square foot of rentable space
per annum,  exclusive of square footage attributable to Anchor Leases, and (C) a
vacancy  allowance  at the market  vacancy rate (but not less than 5%) if actual
vacancy  is less than such  market  rate (or less than 5%),  and (ii)  Operating
Income shall be adjusted (A) to exclude Rents from  temporary or  month-to-month
tenants  or  tenants  operating  under  bankruptcy  protection,  (B) to mark any
above-market  Leases to market Rent, (C) to include the annualized base rent for
executed  leases  with  tenants in  occupancy  which are open for  business  and
actually  paying  rent for at least  three  months,  and (D) to reflect any Rent
adjustments or cancellation  options in any Leases;  and provided further,  that
Net  Operating  Income  shall not include  payments to be received in respect of
U.S. Obligations  purchased in connection with a Defeasance.  All adjustments to
determine Net Operating Income shall be made in a consistent  manner  throughout
the Term and shall be subject to Lender's approval, in its reasonable discretion
after due diligence.

     "Officers'  Certificate":  a  certificate  delivered  to Lender by Borrower
which is signed by a senior executive officer of the Managing Member.

     "Operating  Expenses":  for any period, all expenditures by or on behalf of
Borrower as and to the extent  required to be expensed or allowed to be expensed
and in fact  expensed  under GAAP  during  such  period in  connection  with the
ownership, operation, maintenance, repair or leasing of each Property, including
(i)  Management  Fees (or if  self-


                                       5
<PAGE>

managed,  the actual cost of managing the Property);  Insurance  Premiums;  bank
charges;  expenses  for  accounting,   advertising,   marketing,   architectural
services,  utilities,  extermination,  cleaning,  trash removal, window washing,
landscaping and security;  and reasonable and necessary legal expenses  incurred
in connection with the operation of each Property;  (ii) Taxes and Other Charges
(excluding  fines,  penalties,  interest  or Taxes or Other  Charges  payable by
reason  of  Borrower's  failure  to  pay an  imposition  timely);  (iii)  wages,
benefits,  payroll  taxes,  uniforms,  insurance  costs  and all  other  related
expenses  for  employees  of Borrower or its  Affiliates  engaged in the repair,
operation or maintenance of each Property; and (iv) the cost of routine interior
and exterior maintenance, repairs and minor alterations; provided that Operating
Expenses will not include Debt Service, Capital Expenses, non-cash items such as
depreciation and  amortization or any  extraordinary  one-time  expenditures not
considered operating expenses under GAAP.

     "Operating Income":  for any period, all regular on-going revenues actually
received by Borrower  from the  operation of each  Property  during such period,
including  (i) Rents  (including  base  rents,  percentage  rents,  common  area
maintenance  charges and property  tax,  insurance and utility  recoveries  from
tenants),  (ii) all other amounts  received  which in  accordance  with GAAP are
required to be or are included in  Borrower's  annual  financial  statements  as
operating income of each Property and (iii) proceeds from business  interruption
insurance and rental loss insurance;  provided,  that Operating  Income will not
include (1) income from non-recurring income sources, (2) advance Rents or other
payments,  (3)  deposits  or escrows,  (4) any income  otherwise  includable  in
Operating  Income but paid to a Person  other than  Borrower,  (5)  proceeds  of
Casualty insurance or Condemnation  Awards or (6) income from a sale,  financing
or other capital transaction.

     "Optional Prepayment Date": March 11, 2013.

     "Other Charges": all ground rents,  maintenance charges,  impositions other
than Taxes, and any other charges,  including vault charges and license fees for
the use of vaults,  chutes and similar areas  adjoining  each  Property,  now or
hereafter  levied or  assessed  or imposed  against  each  Property  or any part
thereof.

     "Payment Date": the 11th day of each calendar month or, if in any month the
11th day is not a Business  Day,  then the Payment  Date for such month shall be
the first Business Day thereafter.

     "Permitted Encumbrances":  (a) the Liens created by the Loan Documents, (b)
all Liens and other matters disclosed in the Title Insurance Policy,  (c) Liens,
if any, for Taxes or Other Charges not yet payable or  delinquent,  and (d) such
other title and survey exceptions as Lender approves in writing in Lender's sole
discretion.

     "Permitted  Investments":  any of a list of  low-risk,  liquid,  short term
investment  alternatives  designated  from  time to time by  Lender  in its sole
discretion (which may be based,  among other things, on standards applied by the
Rating Agencies).

                                       6
<PAGE>

     "Permitted   Transfers":   (i)  a  Lease  (or  an   amendment,   extension,
modification,  waiver or renewal  thereof)  entered into in accordance  with the
Loan  Documents,  (ii) a Special  Transfer,  (iii) a  Transfer  of a  membership
interest in Borrower by a member  other than the  Managing  Member,  a direct or
indirect  interest in a member of Borrower  or stock in the  Managing  Member if
either (A) such Transfer  would not cause the  transferee to acquire  Control of
Borrower or the Managing  Member or to increase its direct or indirect  interest
in Borrower or its stock in the  Managing  Member to an amount  which  equals or
exceeds 49%, or (B) Borrower  shall have  delivered  (or caused to be delivered)
(1) to Lender,  written  confirmation  from the applicable  Rating Agencies that
such Transfer will not cause a  qualification,  withdrawal or downgrading of the
ratings in effect  immediately  prior to such Transfer for the  Securities  then
outstanding and (2) to Lender and the applicable Rating Agencies,  a substantive
non-consolidation  opinion  with  respect  to  Borrower  in form  and  substance
satisfactory   to  Lender   and  the   applicable   Rating   Agencies   or  (iv)
notwithstanding  anything to the contrary  contained  in clause  (iii) above,  a
transfer of stock in FAC Realty Trust,  Inc. to (x) Prometheus  Southeast Retail
LLC, an Affiliate of Lazard Freres Real Estate  Investors,  LLC ("Lazard"),  (y)
Lazard or (z) any other Affiliate of Lazard.

     "Person":  any  individual,  corporation,  partnership,  limited  liability
company, joint venture, estate, trust, unincorporated association,  any federal,
state,  county or  municipal  government  or any  bureau,  department  or agency
thereof  and any  fiduciary  acting  in such  capacity  on  behalf of any of the
foregoing.

     "Pooling and Servicing  Agreement":  the Servicing  Agreement  entered into
with the Servicer in connection with any Securitization.

     "Properties":  collectively,  the parcels of real property and improvements
thereon owned by Borrower  (and shall also mean  Borrower's  leasehold  interest
therein in the case of the Leased  Property)  and  encumbered  by the  Mortgages
(including any Substitute Property), together with all rights pertaining to each
such property and improvements,  as more particularly  described in the Granting
Clauses of the Mortgages and referred to therein as the "Mortgaged Property".  A
List of the Properties (other than the Substitute Property(ies)) is set forth in
Schedule 1.

     "Rating  Agency":  each of Standard & Poor's  Ratings  Group, a division of
McGraw-Hill,  Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating
Co.  and  Fitch  Investors  Service,  Inc.  or any  other  nationally-recognized
statistical rating agency which has been approved by Lender.

     "Related Person":  with respect to any specified  Person,  any other Person
that is an  Affiliate  of the  specified  Person or any  limited  partner of the
specified Person (if such Person is a limited partnership) or any shareholder of
the specified Person (if such Person is a corporation).

     "Release":  any  satisfaction,  release,  assignment  instrument,  deed  of
reconveyance


                                       7
<PAGE>

or similar  instrument or instruments,  each in recordable form and otherwise in
form reasonably  satisfactory  to Borrower,  but without any  representation  or
warranty of Lender  necessary to release any Property (or portion  thereof) from
the Lien of all applicable Loan Documents

     "Release  Amount":  (i) for each of the  Special  Release  Properties,  the
product of the Allocated  Loan Amount for such Property and one hundred  fifteen
percent (115%), (ii) for the Property located in Smithfield, North Carolina, the
product of the  Allocated  Loan  Amount for such  Property  and one thirty  five
percent (135%), (iii) for each other Property, the product of the Allocated Loan
Amount for such  Property and one hundred  twenty-five  percent  (125%) and (iv)
notwithstanding  the foregoing,  with respect to any mandatory  prepayment  made
pursuant  to  Section  2.3.2,  the  Allocated  Loan  Amount  for the  applicable
Property.

     "Release  Date":  the  earlier of (i) three years after the date hereof and
(b) two years from the "start-up day" (within the meaning of Section  860G(a)(9)
of the Code) of the REMIC Trust.

     "REMIC": a "real estate mortgage  investment conduit" within the meaning of
Section 860D of the Code.

     "REMIC Trust": a REMIC that holds the Note.

     "Revised Interest Rate": the per annum rate of interest that is the greater
of (i) the  Interest  Rate plus 5% and (ii) the  Treasury  Rate on the  Optional
Prepayment Date plus 6.85%.

     "Servicer":  the  entity  appointed  by Lender to  service  the Loan or its
successor in interest, or if any successor servicer is appointed pursuant to the
Pooling and Servicing Agreement, such successor servicer.

     "Special Release Properties":  the Properties located in (i) Nebraska City,
Nebraska, (ii) Lebanon,  Missouri,  (iii) Graceville,  Florida, (iv) Story City,
Iowa and (v) Sulphur Springs, Texas.

     "Special  Transfer":  the  sale  or  transfer  of the  Properties  after  a
Securitization  by the original  Borrower and the  assumption  in writing by the
purchaser  of all of the  obligations  of  Borrower  under  the Loan  Documents;
provided  Lender shall have  received  evidence in writing  from the  applicable
Rating  Agencies to the effect that such a sale or transfer and assumption  will
not result in a  qualification,  withdrawal  or  downgrading  of the  ratings in
effect immediately prior to such sale for the Securities then outstanding.

     "State": any state in which a Property is located.

     "Stated Maturity Date": March 11, 2028.



                                       8
<PAGE>

     "Taxes":  all real estate and personal property taxes,  assessments,  water
rates or sewer rents, now or hereafter levied or assessed or imposed against all
or part of each Property.

     "Term":  the  entire  term of  this  Agreement,  which  shall  expire  upon
repayment in full of the Debt and full  performance of each and every obligation
to be performed by Borrower pursuant to the Loan Documents.

     "Title  Insurance  Policy":  a mortgagee  title insurance  policy,  in form
acceptable to Lender, issued with respect to each Property and insuring the lien
of each Mortgage.

     "Transfer": any sale, conveyance, transfer, Lease (including any amendment,
extension,  modification,  waiver or  renewal  thereof),  assignment,  mortgage,
pledge,  grant  of a  security  interest  or  hypothecation,  whether  by law or
otherwise,  of or in (i) all or part of any  Property  (including  any  legal or
beneficial  direct or indirect  interest  therein),  (ii) any direct or indirect
interest in Borrower, or (iii) any stock in the Managing Member.

     "Treasury   Rate":  as  of  the  Optional   Prepayment   Date,  the  linear
interpolation  of the bond  equivalent  yields as  reported  in Federal  Reserve
Statistical  Release  H.15-Selected  Interest  Rates  under  the  heading  "U.S.
Government Securities/Treasury Constant Maturities" for the week ending prior to
the Optional  Prepayment Date of U.S. Treasury constant maturities with maturity
dates (one longer and one shorter) most nearly  approximating the remaining term
of the Note as of the Optional Prepayment Date.

     "UCC": the Uniform Commercial Code as in effect in the applicable State.

     "U.S. Obligation":  direct non-callable obligations of the United States of
America.

     "Yield Maintenance  Premium":  the amount (if any) which, when added to the
unpaid  Principal or the principal  amount of the Defeased  Note, as applicable,
will be sufficient to purchase U.S. Obligations providing the required Scheduled
Defeasance Payments.

     I.2 Index of Other  Definitions.  The  following  terms are  defined in the
sections or Loan Documents indicated below:

     "Accrued Interest" - 2.2.2
     "Annual Budget" - 5.9.5
     "Award" - 7.3.2
     "Capital Budget" - 5.9.5
     "Capital Reserve Fund" - 3.4.1
     "Casualty" - 7.2.1
     "Casualty/Condemnation Prepayment" - 2.3.2
     "Clearing Accounts" - 3.1
     "Clearing Banks" - 3.1

                                       9
<PAGE>

     "Condemnation" - 7.3.1 
     "Defeasance" - 2.3.3
     "Defeasance Date" - 2.3.3 
     "Defeased Note" - 2.3.3
     "Disclosure Document" - 9.1.2
     "Environmental Laws" - 4.1.32
     "Equipment" - Mortgage 
     "Event of Default" - 8.1
     "Exchange Act" - 9.1.2
     "Funds" - 3.8
     "Hazardous Substances" - 4.1.32
     "Improvements" - Mortgage 
     "Insurance Premiums" - 7.1.2
     "Insured Casualty" - 7.2.2
     "Leases" - Mortgage 
     "Lender's Consultant" - 5.10.1
     "Liabilities" - 9.1.3 
     "Licenses" - 4.1.22
     "Loan" - 2.1
     "Lockbox Event" - 3.1
     "Lockbox Termination" - 3.1
     "Monthly Debt Service Payment Amount"- 2.2.1
     "Nomura" - 9.1.2
     "Nomura Group" - 9.1.2
     "Operating Budget" - 5.9.5
     "Policies" - 7.1.2
     "Premium" - 2.1 
     "Principal" - 2.1
     "Proceeds" - 7.2.2
     "Provided Information" - 9.1
     "Registration Statement" - 9.1.3
     "Remedial Work" - 5.10.2
     "Rents" - Mortgage
     "Required Records" - 5.9.6
     "Required Repair Fund" - 3.2.1
     "Required Repairs" - 3.2.1
     "Restoration" - 7.4.1
     "Rollover Reserve Fund" - 3.5.1
     "Scheduled Defeasance Payments" - 2.3.3
     "Securities" - 9.1
     "Securities Act" - 9.1.2
     "Securitization" - 9.1
     "Security Agreement" - 2.3.3
     "Special Purpose Bankruptcy Remote Entity" - 5.15
     "Subaccounts" - 3.1

                                       10
<PAGE>

     "Substitute Property" - 2.4.4
     "Successor Borrower" - 2.3.3
     "Tax and Insurance Escrow Fund" - 3.3
     "Undefeased Note" - 2.3.3
     "Underwriter Group" - 9.1.2

     I.3  Principles  of  Construction.  Unless  otherwise  specified,  (i)  all
references to sections and schedules  are to those in this  Agreement,  (ii) the
words  "hereof,"  "herein" and  "hereunder" and words of similar import refer to
this  Agreement  as a  whole  and not to any  particular  provision,  (iii)  all
definitions are equally applicable to the singular and plural forms of the terms
defined, (iv) the word "including" means "including but not limited to," and (v)
accounting  terms  not  specifically   defined  herein  shall  be  construed  in
accordance with GAAP.

II.  GENERAL

     II.1 The Loan. Lender is making a loan (the "Loan") to Borrower on the date
hereof,  in  the  aggregate  original  principal  amount  (the  "Principal")  of
$67,174,650,  which shall mature on the Stated Maturity Date. To induce Borrower
to agree to the Interest  Rate,  Lender is paying to Borrower on the date hereof
an interest rate buy-up  premium (the  "Premium")  in the amount of  $7,825,351.
Borrower  acknowledges  receipt  of the Loan and the  Premium  in the  aggregate
amount of $75,000,000,  the proceeds of which are being and shall be used solely
to (i) repay and discharge any existing loans relating to the  Properties,  (ii)
fund the Tax and Insurance  Escrow Fund and the Required  Repair Fund, and (iii)
pay approved costs and expenses  incurred in connection with the Loan. No amount
repaid in respect of the Loan may be reborrowed.

     II.2 Interest; Monthly Payments.

     II.2.1  Generally.  (a) From  the  date  hereof  to but not  including  the
Optional Prepayment Date, Borrower shall pay interest on the unpaid Principal at
the Interest Rate. From and after the Optional  Prepayment Date, interest on the
unpaid  Principal  shall accrue at the Revised  Interest  Rate and be payable as
provided in Sections 2.2.2 and 2.2.3(b).

     (b) On  April  11,  1998 and  each  Payment  Date  thereafter  through  and
including the Maturity Date, the Principal and interest  thereon at the Interest
Rate shall be payable in equal monthly installments of $545,342.88 (the "Monthly
Debt  Service  Payment  Amount");  which  is based  on the  Interest  Rate and a
360-month  amortization schedule. The Monthly Debt Service Payment Amount due on
any Payment Date shall first be applied to the payment of interest  accrued from
the 11th day of the month preceding the Payment Date through the 10th day of the
month in which the Payment  Date occurs,  notwithstanding  that the Payment Date
may not have been the 11th day of such month  because the 11th day of such month
is not a Business Day. The remainder of such Monthly Debt Service Payment Amount
shall be applied to the reduction of the unpaid Principal.



                                       11
<PAGE>

     II.2.2 Accrued Interest.  From and after the Optional  Prepayment Date, all
interest  accruing in respect of the unpaid  Principal in excess of the Interest
Rate ("Accrued  Interest") shall, to the extent not paid, be deferred,  be added
to the Debt each month and, to the extent  permitted by applicable  law,  accrue
interest at the Revised Interest Rate,  compounded monthly. All Accrued Interest
shall be due and payable on the Maturity Date.

     II.2.3 Property Cash Flow Allocation.  (a) Commencing on April 11, 1998 and
continuing  on each Payment Date  thereafter  through and including the Optional
Prepayment Date, except during the continuance of an Event of Default, any Rents
received by Borrower  (and,  after a Lockbox  Event,  Rents  deposited  into the
Deposit  Account)  during the  immediately  preceding  Interest  Period shall be
applied  as follows  in the  following  order of  priority:  (i) First,  to make
required  payments to the Tax and Insurance Escrow Fund; (ii) Second,  to Lender
to pay the Monthly Debt Service Payment Amount (plus, if applicable, interest at
the Default Rate); (iii) Third, to make required payments to the Capital Reserve
Fund; (iv) Fourth,  to make required  payments to the Rollover Reserve Fund; (v)
Fifth,  after a Lockbox Event (unless and until a Lockbox  Termination  occurs),
payments for Approved Operating Expenses; and (vi) Lastly,  payments to Borrower
of any excess amounts.

     (b) Commencing on the first Payment Date after the Optional Prepayment Date
and  continuing on each Payment Date  thereafter  until the entire Debt has been
paid in full,  except during the  continuance of an Event of Default,  any Rents
deposited into the Deposit  Account (or otherwise  received by Borrower)  during
the immediately  preceding Interest Period shall be applied by Lender as follows
in the following order of priority:  (i) First, to make required payments to the
Tax and Insurance  Escrow Fund;  (ii) Second,  to Lender to pay the Monthly Debt
Service  Payment  Amount (plus,  if  applicable,  interest at the Default Rate);
(iii) Third, to make required payments to the Capital Reserve Fund; (iv) Fourth,
to make required payments to the Rollover Reserve Fund; (v) Fifth,  payments for
Approved Operating Expenses; (vi) Sixth, payments to Lender to prepay the unpaid
Principal  until paid in full;  (vii) Seventh,  payments to Lender to be applied
against  Accrued  Interest  and interest  accrued  thereon;  and (viii)  Lastly,
payments to Borrower of any excess amounts.

     (c) The  failure of  Borrower to make all of the  payments  required  under
clauses (i) through (v) of Section  2.2.3(a) or (b) in full on each Payment Date
shall  constitute  a Default  under  this  Agreement.  However,  the  failure of
Borrower to prepay any unpaid  Principal  or to pay any Accrued  Interest  under
clause  (vi) or (vii) of  Section  2.2.3(b)  on a  Payment  Date as a result  of
insufficient  Rents for such payment shall not  constitute a Default  hereunder.
All Accrued Interest shall nonetheless be due and payable on the Maturity Date.

     (d) During the continuance of an Event of Default,  Lender may, in its sole
discretion,  permit the  application of Rents in the order of priority set forth
in Section  2.2.3(b) or any other  order,  and to any portion or portions of the
Debt, as Lender shall determine.

     II.2.4 Default Rate.  After the occurrence and during the continuance of an
Event of Default, the entire unpaid Principal shall bear interest at the Default
Rate,  and  shall be  


                                       12
<PAGE>

payable upon demand from time to time,  to the extent  permitted  by  applicable
law.  Payment or  acceptance  of interest at the Default Rate is not a permitted
alternative  to timely  payment and shall not constitute a waiver of any Default
or Event of Default or an amendment to this Agreement or any other Loan Document
and shall not otherwise prejudice or limit any rights or remedies of Lender.

     II.3 Loan Repayment and Defeasance.

     II.3.1 Repayment.  Borrower shall repay any unpaid Principal in full on the
Maturity  Date,  together with interest  thereon to (but  excluding) the date of
repayment.  Other than as set forth in Sections 2.3.2 and 2.3.3 below,  Borrower
shall have no right to prepay all or any  portion  of the  Principal  before the
third Payment Date immediately  preceding the Optional Prepayment Date. From and
after the third Payment Date immediately preceding the Optional Prepayment Date,
the Principal may be prepaid in whole or in part without penalty or premium.

     II.3.2 Mandatory Prepayments.  The Loan is subject to mandatory prepayment,
without  premium  or  penalty,  in certain  instances  of  Insured  Casualty  or
Condemnation (each a "Casualty/Condemnation  Prepayment"),  in the manner and to
the extent set forth in Section  7.4.2.  Each  Casualty/Condemnation  Prepayment
shall be made on a Payment  Date and include all accrued and unpaid  interest on
the Principal  prepaid up to but not including such Payment Date or, if not paid
on a Payment  Date,  include  interest  that would have accrued on the Principal
prepaid to but not including the next Payment Date.

     II.3.3  Voluntary  Defeasance  of the Note.  (a)  Subject  to the terms and
conditions  set forth in this  Section  2.3.3,  Borrower  may defease all or any
portion of the Principal (hereinafter,  a "Defeasance");  provided, that no such
Defeasance  may occur prior to the Release  Date or from and after the  Optional
Prepayment  Date.  Each  Defeasance  shall  be  subject,  in each  case,  to the
satisfaction of the following conditions precedent:

          (i)  Borrower  shall  provide  not less than 30 days  prior  notice to
     Lender  specifying  a  Payment  Date (the  "Defeasance  Date") on which the
     Defeasance  is to occur.  Such notice shall  indicate  the  Principal to be
     defeased.

          (ii) Borrower shall pay to Lender (A) all accrued and unpaid  interest
     on the unpaid  Principal to but not including the Defeasance  Date, (B) all
     other sums, not including  scheduled interest or Principal  payments,  then
     due under the Loan Documents,  (C) the required Defeasance Deposit for such
     Defeasance, and (D) all reasonable costs and expenses of Lender incurred in
     the Defeasance,  including any costs and expenses associated with a release
     of Lien as  provided  in Section  2.4 and  reasonable  attorney's  fees and
     expenses.  If for any reason  the  Defeasance  Date is not a Payment  Date,
     Borrower shall also pay interest that would have accrued on the Note to but
     not including the next Payment Date.

          (iii) No Event of Default shall exist.



                                       13
<PAGE>

          (iv) If only a portion of the unpaid  Principal  is the subject of the
     Defeasance,  Borrower shall execute and deliver all necessary  documents to
     amend and restate  the Note and issue two  substitute  notes:  one having a
     principal  balance equal to the defeased  portion of the original Note (the
     "Defeased  Note") and the other  having a  principal  balance  equal to the
     undefeased  portion of the original  Note (the  "Undefeased  Note") and the
     original  Note  shall  be  returned  to  Borrower.  The  Defeased  Note and
     Undefeased Note shall have terms identical to the terms of the Note, except
     for the principal  balance,  the Monthly Debt Service Payment Amount (which
     amount  will be  prorated  with the  relative  principal  amounts)  and the
     collateral referred to in such notes. A Defeased Note cannot be the subject
     of any further Defeasance.

          (v) Borrower shall execute and deliver a security  agreement,  in form
     and substance satisfactory to Lender, creating a first priority lien on the
     Defeasance Deposit and the U.S.  Obligations  purchased with the Defeasance
     Deposit in accordance with this Section 2.3.3 (the "Security Agreement").

          (vi) Borrower  shall deliver (A) an opinion of counsel for Borrower in
     form  satisfactory  to Lender in its sole discretion  stating,  among other
     things, that (1) Lender has a perfected first priority security interest in
     the Defeasance Deposit and the U.S.  Obligations  delivered by Borrower and
     (2) such U.S.  Obligations  have been validly  assigned to the REMIC Trust,
     (B) if required by the  applicable  Rating  Agencies,  a  non-consolidation
     opinion  with  respect  to the  Successor  Borrower  in form and  substance
     satisfactory to Lender and the applicable Rating Agencies, (C) an Officer's
     Certificate  certifying  that the  requirements  set forth in this  Section
     2.3.3(a)  have  been  satisfied,  (D) a  certificate  from  an  independent
     certified  public  accountant  certifying  that  the  amounts  of the  U.S.
     Obligations comply with all of the requirements of this Agreement,  and (E)
     such other certificates,  documents or instruments as Lender may reasonably
     request.  

          (vii) Lender  shall  receive  evidence in writing from the  applicable
     Rating  Agencies  to the effect that such  Defeasance  will not result in a
     qualification,   withdrawal  or   downgrading  of  the  ratings  in  effect
     immediately prior to such Defeasance for the Securities then outstanding.

     (b) In connection with each Defeasance,  Borrower hereby appoints Lender as
its agent and  attorney-in-fact  for the purpose of using the Defeasance Deposit
to purchase U.S. Obligations (which purchases,  if made by Lender, shall be made
by Lender on an arms-length basis at then prevailing market rates) which provide
payments on or prior to, but as close as  possible  to, all  successive  Payment
Dates after the  Defeasance  Date through and including the Optional  Prepayment
Date,  for the entire unpaid  Principal in the case of a Defeasance,  or for the
principal  amount of the Defeased  Note, in the case of a Defeasance  for only a
portion of the unpaid Principal (including, on the Optional Prepayment Date, the
unpaid  Principal of either the Note or the Defeased Note), and in amounts equal
to the scheduled payments due on such dates under the Note or the Defeased Note,
as applicable (the "Scheduled Defeasance Payments").  Borrower,  pursuant to the
Security Agreement or other appropriate  document,  shall irrevocably  authorize
and direct that the payments received from the U.S. Obligations be made directly
to 


                                       14
<PAGE>

Lender and applied to satisfy the  obligations of Borrower under the Note or the
Defeased Note, as applicable. Any portion of the Defeasance Deposit in excess of
the amount necessary to purchase the U.S.  Obligations  required by this Section
2.3.3(b) and satisfy Borrower's  obligations under Section 2.3 shall be remitted
to Borrower.  Any amounts received in respect of the U.S.  Obligations in excess
of the amounts  necessary to make monthly payments pursuant to Section 2.2 shall
be retained by Lender until payment in full of the Debt, at which time, the same
shall  be  remitted  to  Borrower.  Semi-annual  payments  in  respect  of  U.S.
Obligations shall be applied to payments under the Note or the Defeased Note, as
applicable, as the same become due thereunder.

     (c) If requested by Borrower in connection  with any Defeasance  under this
Section  2.3.3,  NACC shall  establish  or  designate  a  successor  entity (the
"Successor  Borrower") and Borrower  shall transfer and assign all  obligations,
rights and duties under and to the Note or the  Defeased  Note,  as  applicable,
together with the pledged U.S.  Obligations,  to such  Successor  Borrower.  The
obligation  of NACC to  establish  or  designate a Successor  Borrower  shall be
retained by NACC  notwithstanding  the sale or transfer of this Agreement unless
such  obligation  is  specifically  assumed by the  transferee.  Such  Successor
Borrower  shall assume the  obligations  under the Note or the Defeased Note, as
applicable,  and the Security  Agreement,  and Borrower shall be relieved of its
obligations thereunder. Borrower shall pay $1,000 to any such Successor Borrower
as  consideration  for assuming the  obligations  under the Note or the Defeased
Note, as applicable,  and the Security  Agreement.  Notwithstanding  anything in
this Agreement to the contrary,  no other assumption fee shall be payable upon a
transfer of the Note or the Defeased Note in accordance with this Section 2.3.3,
but  Borrower  shall pay all costs and  expenses  incurred by Lender,  including
Lender's  reasonable  attorneys'  fees  and  expenses,  incurred  in  connection
therewith.

     II.4  Release of  Property.  Except as set forth in this  Section  2.4,  no
repayment,  prepayment  or  defeasance  of all or any  portion of the Note shall
cause,  give rise to a right to require,  or otherwise result in, the release of
the Lien of a Mortgage on any Property.

     II.4.1 Release on  Defeasance.  If Borrower has elected to defease the Note
in its entirety, and the requirements of Section 2.3.3 have been satisfied,  the
Properties  shall be  released  from the  Liens of the  Mortgages,  and the U.S.
Obligations  pledged pursuant to the Security Agreement shall be the sole source
of collateral securing the Debt. In connection with such release, Borrower shall
submit to Lender,  not less than 20 days prior to the Defeasance Date, a form of
release  for  execution  by  Lender  appropriate  in the  applicable  State  and
satisfactory  to Lender  in its sole  discretion,  and all  other  documentation
Lender  reasonably  requires  to be  delivered  by  Borrower,  together  with an
Officer's  Certificate  certifying that such  documentation (i) is in compliance
with all Legal  Requirements,  and (ii) will effect such  release in  accordance
with the terms of this Agreement.

     II.4.2 Release of Individual Properties.  Borrower on one or more occasions
may  obtain  (i) the  release  of an  individual  Property  from the Lien of the
Mortgage thereon (and related Loan Documents) and (ii) the release of Borrower's
obligations  under the Loan Documents with respect to such Property  (other than
those expressly stated to survive),  upon


                                       15
<PAGE>

satisfaction of each of the following conditions:

     (a) Either,  (i) in connection  with a Defeasance of the Note under Section
2.3.3, (x) the principal  balance of the Defeased Note shall equal or exceed the
Release  Amount  and (y) the  requirements  of  Section  2.3.3  shall  have been
satisfied or (ii) in connection with a substitution of Properties  under Section
2.4.4, (x) the Debt Service Coverage Ratio and the Net Operating Income (for the
immediately   preceding  12-month  period)  for  the  Substitute   Property(ies)
replacing the individual Property(ies) to be released shall equal or exceed 115%
of the Debt Service Coverage Ratio and Net Operating Income (for the immediately
preceding  12-month  period)  of such  individual  Property(ies)  as of the date
hereof and as of the date  immediately  preceding the  substitution  and (y) the
requirements  of Section 2.4.4 shall have been  satisfied.  For purposes of this
Section  2.4.2(a),  the  determination of the Debt Service Coverage Ratio for an
individual   Property  shall  be  calculated  on  the  basis  of  the  Principal
attributable  thereto,  prorated in the same  proportion that its Allocated Loan
Amount bears to the aggregate original principal balance of the Loan.

     (b) Borrower  shall submit to Lender,  not less than twenty (20) days prior
to the date of such release,  a release of Lien (and related Loan Documents) for
such  Property  (for  execution  by  Lender)  in  a  form   appropriate  in  the
jurisdiction in which such Property is located and satisfactory to Lender in its
reasonable  discretion,  and  all  other  documentation  Lender  requires  to be
delivered  by  Borrower  in  connection  with  such  release,  together  with an
Officer's  Certificate  certifying that such  documentation (i) is in compliance
with all Legal  Requirements,  (ii) will effect such release in accordance  with
the terms of this  Agreement,  and (iii) will not impair or otherwise  adversely
affect the Liens,  security  interests and other rights of Lender under the Loan
Documents  not being  released (or as to the parties to the Loan  Documents  and
Properties subject to the Loan Documents not being released).

     (c) With  respect to any release of an  individual  Property,  after giving
effect  to  such  release,  the  Debt  Service  Coverage  Ratio  for  all of the
Properties then remaining subject to the Liens of the Mortgage shall be equal to
the greater of (i) the Debt Service  Coverage  Ratio on the date hereof and (ii)
the Debt Service Coverage Ratio on the date of the release of such Property.

     (d) Upon the release of an  individual  Property,  any  amounts  previously
deposited by Borrower into any Fund with respect to such released Property shall
be returned to Borrower.

     II.4.3 Release on Payment in Full.  Lender shall,  upon the written request
and at the expense of Borrower,  upon payment in full of the Debt in  accordance
herewith, release the Liens of the Mortgages if not theretofore released.

     II.4.4 Substitution of Properties.  (a) Subject to the terms and conditions
set forth in Section 2.4.2 and this Section 2.4.4, Borrower may obtain a release
of Lender's  Lien  against one or more  individual  Properties  by  substituting
therefor  other  property(ies)  (a  "Substitute  Property"),  provided that such
substitution  of Properties  shall not be allowed more


                                       16
<PAGE>

than once per year during the Term. Any such substitution  shall be subject,  in
each case, to the satisfaction of the following conditions precedent:

          (i) Lender shall have received any due diligence materials  reasonably
     requested by Lender with respect to the  Substitute  Property(ies)  and the
     same are satisfactory to Lender in all respects.

          (ii) The Substitute  Property(ies)  are  satisfactory to Lender in all
     respects  in  Lender's  sole  discretion   (after  Lender's  due  diligence
     investigation).

          (iii)  After  giving  effect to the  substitution,  the  overall  Debt
     Service  Coverage  Ratio  for the Loan is not less  than the  overall  Debt
     Service  Coverage  Ratio for the Loan as of the date  hereof  and as of the
     date immediately preceding the substitution.

          (iv)  Lender  shall  have  received   evidence  in  writing  from  the
     applicable  Rating Agencies to the effect that such  substitution  will not
     result in a  qualification,  withdrawal  or  downgrading  of the ratings in
     effect  immediately prior to such substitution for the Securities issued in
     connection with the Securitization which are then outstanding.

          (v) If required by the applicable Rating Agencies, Borrower shall also
     deliver or cause to be delivered a  non-consolidation  opinion with respect
     to the  Borrower  in form and  substance  satisfactory  to  Lender  and the
     applicable Rating Agencies.

          (vi) No Event of Default shall exist.

          (vii) Lender shall have  received  from  Borrower  fully  executed and
     acknowledged  counterparts  of Mortgages,  the Assignment of Leases and the
     Assignments of Agreements relating to each of the Substitute Properties and
     evidence that  counterparts  of the Mortgages and Assignment of Leases have
     been  delivered  to the title  company  for  recording,  in the  reasonable
     judgment of Lender,  so as to effectively  create upon such recording valid
     and  enforceable  Liens upon such Substitute  Properties,  of the requisite
     priority,  in favor of Lender (or such other  trustee as may be required or
     desired under local law),  subject only to the Permitted  Encumbrances  and
     such other Liens as are permitted pursuant to the Loan Documents.

          (viii)  Lender shall have  received  with  respect to each  Substitute
     Property (A) a Title  Insurance  Policy and  evidence  that all premiums in
     respect of such Title Insurance  Policy has been paid, (B) an "ALTA Survey"
     satisfactory  to  Lender,  (C)  valid  certificates  of  insurance  for the
     policies of insurance required hereunder and evidence of the payment of all
     premiums  payable for the existing  policy period which period shall not be
     less than one month in  advance,  (D) an  environmental  report  reasonably
     satisfactory  to Lender  indicating  that there are no hazardous  materials
     present at the Substitute Property and no environmental condition affecting
     the Substitute  Property requiring  remediation,  (E) an engineering report


                                       17
<PAGE>

     reasonably satisfactory to Lender, (F) an appraisal reasonably satisfactory
     to Lender, and (G) one of the following,  in form and substance  reasonably
     satisfactory to Lender:  (i) letters or other evidence from the appropriate
     municipal  authorities (or other Persons) concerning  applicable zoning and
     building laws, (ii) an ALTA 3.1 zoning endorsement for the applicable Title
     Insurance Policy, or (iii) a zoning opinion letter.

          (ix) Borrower shall deliver an opinion of counsel for Borrower in form
     and substance  satisfactory  to Lender and the applicable  Rating  Agencies
     stating,  among other things,  that the  substitution  does not violate the
     rules applicable to a REMIC.

          (x) Borrower shall deliver an Officer's  Certificate  certifying  that
     the  requirements  set forth in this Section  2.4.4 and Section  2.4.2 have
     been satisfied.

          (xi)  Borrower  shall  deliver such other  certificates,  documents or
     instruments as Lender may reasonably request.

          (xii) Borrower  shall pay all reasonable  costs and expenses of Lender
     incurred in connection with the substitution.

     (b)  Notwithstanding  anything to the  contrary  contained  in this Section
2.4.4, upon the substantial completion of the proposed expansion of the Property
located  in  Smithfield,  North  Carolina,  subject to the  satisfaction  of the
conditions  contained  above,  Borrower  may obtain a release of  Lender's  Lien
against any two of the Special Release  Properties,  and the completed expansion
of the  Property  located  in  Smithfield,  North  Carolina  shall be deemed the
Substitute  Property for such released  Property(ies) for all purposes contained
herein.

     II.5 Payments and Computations.

     II.5.1 Making of Payments.  Each payment by Borrower hereunder or under the
Note  shall  be made in  funds  settled  through  the New  York  Clearing  House
Interbank  Payments  System or other funds  immediately  available  to Lender by
11:00 a.m.,  New York City time,  on the date such  payment is due, to Lender by
deposit to such account as Lender may  designate by written  notice to Borrower.
Whenever any payment  hereunder or under the Note shall be stated to be due on a
day that is not a Business Day, such payment shall be made on the first Business
Day thereafter.

     II.5.2 Computations.  Interest payable hereunder or under the Note shall be
computed on the basis of the actual number of days elapsed and a 360-day year.

     II.5.3 Late Payment  Charge.  If any  Principal,  interest or other sum due
under any Loan  Document is not paid by Borrower on the date on which it is due,
Borrower  shall pay to Lender upon demand an amount equal to the lesser of 5% of
such unpaid sum or the maximum amount  permitted by applicable  law, in order to
defray the expense incurred by Lender in handling and processing such delinquent
payment  and to  compensate  Lender  for the loss of the use of such  delinquent
payment. Such amount shall be secured by the Loan Documents.

                                       18
<PAGE>

     II.6  Structuring  Fee. On the date hereof,  Borrower shall pay to Lender a
structuring fee of $187,500.

     II.7 Special Prepayment Compensation. If the Loan is prepaid in whole or in
part prior to the Optional Prepayment Date in circumstances  where,  pursuant to
the applicable  provisions of the Loan Documents (such as, for example,  Section
7.4.2 in certain events), no Yield Maintenance  Premium is due (i.e.,  without a
Defeasance  pursuant to Section 2.3.3),  then Borrower shall nevertheless pay to
Lender (in addition to the prepaid Principal and accrued interest),  as a refund
of the unearned portion of the Premium,  an amount (a "Premium Refund") equal to
the Relevant Percentage of (i) the Hypothetical  Principal minus (ii) the unpaid
Principal  (before  accounting  for  such  prepayment).   For  purposes  of  the
foregoing, (x) the "Relevant Percentage" shall mean the percentage of the unpaid
Principal that is being so prepaid,  and (y) the "Hypothetical  Principal" shall
mean the principal  balance of the Loan that would be outstanding on the date of
such prepayment  immediately prior to such prepayment (after taking into account
the amount and timing of all  payments  actually  made by Borrower on account of
the Loan prior to such date,  including any partial prepayments of Principal and
Premium  Refunds  actually made by Borrower  prior to such date) if the original
Principal had been $75,000,000 (rather than $67,174,650),  the Interest Rate had
been 7.73% (rather than 9.10%),  the constant monthly payment due and payable on
each Payment Date was an amount that would fully amortize the Loan over 338 such
monthly  payments  (rather  than  360),  and all  other  terms of the Loan  were
otherwise the same as set forth in the Loan Documents.

III.     CASH MANAGEMENT; ESCROWS AND RESERVES

     III.1 Cash Management Arrangements. All Rents shall be transmitted directly
by tenants of each Property into one or more accounts (the "Clearing  Accounts")
maintained  by  Borrower  but  controlled  by Lender at one or more local  banks
selected by Borrower (the "Clearing  Banks").  All Rents received by Borrower or
Manager shall be deposited  into a Clearing  Account within two Business Days of
receipt.  Funds  deposited  into  the  Clearing  Accounts  shall be swept by the
Clearing Banks on a daily basis into Borrower's  operating account at a Clearing
Bank,  unless a Lockbox  Event  shall have  occurred;  in which  event,  until a
Lockbox Termination,  such funds shall be swept by the Clearing Banks on a daily
basis into an account  at the  Deposit  Bank  controlled  by Lender (a  "Deposit
Account")  and applied and  disbursed in  accordance  with this  Agreement  and,
pending  such  application  and  disbursement,  will be  invested  in  Permitted
Investments  selected by Borrower,  with any earnings  thereon  accruing for the
benefit of Borrower.  Within 15 days after Lender's request  following a Lockbox
Event,  Borrower shall enter into one or more deposit account  agreements  among
Borrower,  Lender and the Deposit Bank, in Lender's then current form, providing
for the receipt and  disbursement  of Rents by the  Deposit  Bank in  accordance
herewith.  The Deposit Account and all subaccounts thereof shall at all times be
Eligible  Accounts (such  subaccounts,  and any other accounts or subaccounts at
the Deposit  Bank,  other than the Deposit  Account,  are  referred to herein as
"Subaccounts").  A "Lockbox  Event" shall mean (i) either (A) the  occurrence of
the Optional  Prepayment  Date or (B) the  occurrence  of either (x) an Event of
Default,  or (y) the


                                       19
<PAGE>

failure of the Properties to maintain a Debt Service  Coverage Ratio of at least
1.15,  which shall be measured  quarterly,  and (ii) the giving by Lender to the
Clearing Banks of notice of such occurrence.  "Lockbox  Termination"  shall mean
the giving by Lender to the Clearing Banks of notice that such sweeping of funds
into the Deposit  Account may cease,  which notice Lender shall only be required
to give if (1) the Optional  Prepayment Date shall not yet have occurred and (2)
for one year after a Lockbox Event of the type described in the foregoing clause
(x), no Event of Default shall occur and, as of the end of such one-year period,
the Debt Service Coverage Ratio is at least equal to 1.15.

     III.2 Required Repairs; Required Repair Funds.

     III.2.1  Required  Repairs:  Deposits.  Borrower shall perform and complete
each  item  of the  repairs  at the  Properties  described  on  Schedule  4 (the
"Required  Repairs")  on or  before  the  deadline  for such  item set  forth on
Schedule 4. On the date hereof,  Borrower  shall  deposit with Lender the amount
set forth on Schedule 4 (the "Required Repair Fund").

     III.2.2 Release of Required Repair Funds. Lender shall disburse amounts out
of the  Required  Repair Fund to Borrower  within 30 days after the  delivery by
Borrower to Lender of a request  therefor,  accompanied by the following  items,
provided  that on the date such  request is  received  by Lender and on the date
such payment is to be made, no Default or Event of Default  shall exist:  (i) an
Officer's  Certificate  (A)  certifying  that all  Required  Repairs  have  been
completed in a good and workmanlike  manner,  (B)  identifying  each Person that
supplied  materials or labor in  connection  with the  Required  Repairs and (C)
stating  that  each such  Person  has been or,  upon  receipt  of the  requested
disbursement,  will be paid in full,  (ii) with respect to any Required  Repair,
the cost of which equals or exceeds $10,000,  copies of appropriate Lien waivers
or other evidence of payment satisfactory to Lender, (iii) at Lender's option, a
title search for the  applicable  Property  indicating  that it is free from all
Liens not previously  approved by Lender, and (iv) such other evidence as Lender
shall reasonably  request that the Required  Repairs at the applicable  Property
have been completed and paid for.

     III.3 Tax and Insurance  Escrow Fund.  Borrower shall pay to Lender on each
Payment Date (i) one-twelfth of the Taxes that Lender  estimates will be payable
during the next 12 months in order to accumulate with Lender sufficient funds to
pay all such Taxes at least 30 days  prior to their  respective  due dates,  and
(ii) one-twelfth of the Insurance Premiums that Lender estimates will be payable
for the renewal of the  coverage  afforded by the Policies  upon the  expiration
thereof in order to  accumulate  with  Lender  sufficient  funds to pay all such
Insurance Premiums at least 30 days prior to the expiration of the Policies (the
amounts  paid  under the  foregoing  clauses  (i) and (ii),  less  disbursements
thereof  pursuant  hereto,  being called the "Tax and Insurance  Escrow  Fund").
Lender  will apply the Tax and  Insurance  Escrow  Fund to payments of Taxes and
Insurance  Premiums required to be made by Borrower pursuant to Sections 5.2 and
7.1, or to promptly  reimburse  Borrower for such amounts upon  presentation  of
evidence  of  payment  and  an  Officer's  Certificate  in  form  and  substance
satisfactory to Lender;  subject,  however, to Borrower's right to contest Taxes
in  accordance  with  Section 5.2 In making any payment  relating to the Tax and
Insurance  Escrow Fund,  Lender may do so  according  to any


                                       20
<PAGE>

bill,  statement or estimate  procured from the appropriate  public office (with
respect to Taxes) or  insurer or agent  (with  respect to  Insurance  Premiums),
without  inquiry into the  accuracy of such bill,  statement or estimate or into
the  validity of any tax,  assessment,  sale,  forfeiture,  tax lien or title or
claim thereof.  Lender will use all reasonable  efforts to make payments on time
and before a penally attaches, if adequate funds then exist. Lender will pay any
penalties assessed if, due to its negligence,  it fails to make payments on time
if adequate funds then exist. If the amount of the Tax and Insurance Escrow Fund
shall  exceed  the  amounts  next  coming due for Taxes and  Insurance  Premiums
pursuant to Sections 5.2 and 7.1, Lender shall return any excess to Borrower. If
at any time Lender  determines that the Tax and Insurance  Escrow Fund is not or
will not be sufficient  to pay the Taxes or Insurance  Premiums next coming due,
Lender  shall  notify  Borrower of such  determination  (which  notice  shall be
accompanied with reasonable  documentation  supporting such  determination)  and
Borrower shall increase its monthly payments to Lender by the amount that Lender
estimates  is  sufficient  to make up the  deficiency  at least 30 days prior to
delinquency of the Taxes and/or expiration of the Policies, as the case may be.

     III.4 Capital Reserve Fund.

     III.4.1 Capital Reserve Fund.  Borrower shall pay to Lender on each Payment
Date (in  addition to other  payments  required  hereunder)  an amount  equal to
one-twelfth of the product obtained by multiplying $0.15 by the aggregate number
of  rentable  square  feet  of  space  in  the  Property  (such  payments,  less
disbursements thereof pursuant hereto, being called the "Capital Reserve Fund").
If the amount of the  Capital  Reserve  Fund shall  exceed the  amounts  due for
Approved  Capital  Expenses  pursuant to the terms hereof,  Lender shall, in its
discretion,  return any excess to Borrower  or, if future  Capital  Reserve Fund
payments are then required, credit such excess against such future payments.

     III.4.2 Payment of Capital Expenses.  From time to time (but not more often
than once per month),  Lender shall disburse  funds held in the Capital  Reserve
Fund to  Borrower,  within 15 days after the delivery by Borrower to Lender of a
request  therefor,  in  increments  of at least $1,000  provided (i) no Event of
Default shall have occurred and be continuing;  (ii) such  disbursement is for a
Capital Expense  (provided that during the continuance of a Lockbox Event,  such
disbursement shall only be for an Approved Capital Expense); (iii) Lender shall,
within such 15 day  period,  have (if it desires)  verified  (by an  inspection,
which during the continuance of an Event of Default or a Lockbox Event, shall be
conducted at Borrower's  expense)  performance of the work  associated with such
Capital Expense or Approved  Capital  Expense,  as the case may be; and (iv) the
request  for  disbursement  is  accompanied  by  (A)  an  Officer's  Certificate
certifying (v) the amount of funds to be disbursed,  (w) that such funds will be
used to pay Capital Expenses or Approved Capital  Expenses,  as the case may be,
and a description  thereof,  (x) that all outstanding trade payables (other than
those to be paid from the requested disbursement or those otherwise permitted to
be outstanding  under Section 6.8) have been paid in full, (y) that the same has
not been the  subject  of a  previous  disbursement,  and (z) that all  previous
disbursements  have been used to pay the previously  identified Capital Expenses
or Approved Capital  Expenses,  as the case may be, and (B) reasonably  detailed
documentation as to the amount, necessity and purpose therefor.



                                       21
<PAGE>

     III.5 Rollover Reserve Fund.

     III.5.1 Rollover Reserve Fund. Borrower shall pay to Lender on each Payment
Date until the Major Lease  Rollover  Date,  the sum of $35,000 (in  addition to
other payments required  hereunder) (such payments,  less disbursements  thereof
pursuant  hereto,  being called the "Rollover  Reserve Fund").  Without limiting
Lender's rights hereunder,  if any sums in the Rollover Reserve Fund are applied
to payment of Approved Leasing  Expenses,  Borrower shall make deposits into the
Rollover  Reserve  Fund on each  Payment  Date in an  amount  from  time to time
determined by Lender to be the minimum monthly amount  necessary to be deposited
such that,  after  taking into account all  payments  from the Rollover  Reserve
Fund,  the amount on deposit in the  Rollover  Reserve  Fund on the Major  Lease
Rollover  Date shall be not less than  $2,000,000.  Borrower  shall also deposit
into the Rollover Reserve Fund all payments  received from tenants in connection
with the early  termination or cancellation  of any of the Major Leases.  Lender
will apply such payments to payment of Approved Leasing Expenses pursuant to the
terms  hereof.  If the amount of the  Rollover  Reserve  Fund  shall  exceed the
amounts due for Approved Leasing Expenses  pursuant to the terms hereof,  Lender
shall  return any excess to Borrower.  If Lender  determines  in its  reasonable
judgment that the amount of the Rollover  Reserve Fund will be  insufficient  to
pay the amounts due or to become due for Approved Leasing  Expenses,  Lender may
adjust the monthly  amounts  required to be deposited into the Rollover  Reserve
Fund  upon  30  days'  notice  to  Borrower.  Alternatively,  Lender  may in its
discretion  determine  that the amount of the Rollover  Reserve Fund will exceed
the amounts due or to become due for Approved  Leasing  Expenses,  in which case
Lender may reduce the monthly  amounts to be deposited  therein.  In determining
whether  (i) to reduce the monthly  amounts to be  deposited  into the  Rollover
Reserve  Fund or (ii) to return any excess to  Borrower,  Lender shall take into
account any extensions of the originally scheduled expiration dates of the Major
Leases.  For any Major Lease which is extended  beyond the Major Lease  Rollover
Date applicable  thereto,  Lender will either return to Borrower that portion of
the  Rollover  Reserve  Fund  corresponding  to such  Major  Lease or reduce the
monthly  amount  required to be deposited  into the Rollover  Reserve Fund which
corresponds to such Major Lease.

     III.5.2 Payment of Leasing  Expenses.  From time to time (but not more than
once per month) Lender shall disburse funds held in the Rollover Reserve Fund to
Borrower,  within 10 days after the  delivery by Borrower to Lender of a request
therefor,  in increments  of at least  $1,000,  provided (i) no Event of Default
shall have occurred and be continuing; (ii) such disbursement is for an Approved
Leasing  Expense;  (iii)  Lender  shall  have (if it  desires)  verified  (by an
inspection conducted at Borrower's expense) performance of any construction work
associated  with  such  Approved  Leasing  Expense;  and  (iv) the  request  for
disbursement is accompanied by (A) an Officer's  Certificate  certifying (v) the
amount of funds to be  disbursed,  (w) that such  funds will be used only to pay
(or reimburse Borrower for) Approved Leasing Expenses and a description thereof,
(x) that all  outstanding  trade payables  (other than those to be paid from the
requested  disbursement  or those  otherwise  permitted to be outstanding  under
Section 6.8) have been paid in full,  (y) that the same has not been the subject
of a previous  disbursement,  and (z) that all previous  disbursements have been
used only to pay (or reimburse Borrower for) the previously  identified Approved
Leasing Expenses, and (B) reasonably detailed supporting documentation as to the
amount, necessity and purpose therefor.



                                       22
<PAGE>

     III.5.3  Release of Rollover  Reserve  Fund.  Lender shall return any funds
held in the  Rollover  Reserve  Fund to Borrower if (i) FAC Realty  Trust,  Inc.
receives a credit  rating by one of the Rating  Agencies of "BBB-" or better and
(ii) Lender receives a guaranty of payment,  in form and substance  satisfactory
to Lender, from FAC Properties, L.P. guaranteeing the payment and performance of
Borrower's obligations under Section 3.5.1 hereof.

     III.6 Payment of Approved Operating  Expenses.  From time to time after the
occurrence of a Lockbox Event and prior to a Lockbox  Termination  (but not more
than once per month) Lender shall disburse  funds held in the Operating  Expense
Subaccount to Borrower, provided (i) no Event of Default shall have occurred and
be continuing;  (ii) such disbursement is for an Approved Operating Expense; and
(iii) such disbursement is requested by Borrower in writing,  accompanied by (A)
an Officer's Certificate certifying (v) the amount of funds to be disbursed, (w)
that  such  funds  will  be  used  to  pay  Approved  Operating  Expenses  and a
description  thereof,  (x) that all outstanding trade payables (other than those
to be paid from the requested  disbursement or those  otherwise  permitted to be
outstanding under Section 6.8) have been paid in full, (y) that the same has not
been  the  subject  of a  previous  disbursement,  and  (z)  that  all  previous
disbursements  have  been or will  be  used  to pay  the  previously  identified
Approved Operating Expenses, and (B) reasonably detailed documentation as to the
amount, necessity and purpose therefor. Subject to satisfaction of the preceding
conditions,  if Lender receives from Borrower a valid request for a disbursement
for payment of Approved  Operating  Expenses for the then Current Month at least
five  Business Days prior to the Payment Date  occurring in such Current  Month,
then the  disbursement in respect of such Approved  Operating  Expenses shall be
made to Borrower on such Payment Date. If Borrower shall fail to validly request
a disbursement for payment of Approved  Operating  Expenses for the then Current
Month at least five  Business  Days prior to the  Payment  Date in such  Current
Month,  then Lender shall retain in the Operating  Expense  Subaccount an amount
equal to the  anticipated  Operating  Expenses for the then Current Month as set
forth in the approved Operating Budget for such month, and Lender shall, subject
to satisfaction of the preceding conditions,  disburse the same to Borrower five
Business  Days after Lender  receives a valid request  therefor.  Upon a Lockbox
Termination,  Lender  shall  return  to  Borrower  any  funds  held by it in the
Operating Expense Subaccount.

     III.7  Security  Deposits.  Security  deposits  under  Leases  shall not be
commingled with any other funds of Borrower, and, if cash, shall be deposited by
Borrower at a bank reasonably  satisfactory to Lender. After the occurrence of a
Lockbox Event, and prior to a Lockbox Termination, Borrower shall, upon Lender's
request, if permitted by applicable Legal Requirements,  turn over to Lender the
security deposits (and any interest theretofore earned thereon) under Leases, to
be  held  by  Lender  subject  to the  terms  of  the  Leases.  Upon  a  Lockbox
Termination, Lender shall return to Borrower such security deposits.

     Any letter of credit or other instrument that Borrower  receives in lieu of
a cash security  deposit shall (i) be maintained in full force and effect in the
full amount unless replaced by a cash deposit as hereinabove described,  (ii) if
the letter of credit exceeds  $150,000,  be issued by an institution  reasonably
satisfactory to Lender,  (iii) if permitted  pursuant to any Legal 


                                       23
<PAGE>

Requirements and if the letter of credit exceeds $150,000,  name Lender as payee
or mortgagee  thereunder (or at Lender's option,  be fully assignable to Lender)
and (iv) in all respects,  comply with any  applicable  Legal  Requirements  and
otherwise be reasonably  satisfactory to Lender.  Borrower shall,  upon request,
provide  Lender with evidence  reasonably  satisfactory  to Lender of Borrower's
compliance with the foregoing.

     III.8 Grant of Security  Interest;  Application  of Funds.  As security for
payment  of the  Debt  and the  performance  by  Borrower  of all  other  terms,
conditions and  provisions of the Loan  Documents,  Borrower  hereby pledges and
assigns to Lender,  and grants to Lender a security  interest in, all Borrower's
right,  title and  interest  in and to the  Required  Repair  Fund,  the Tax and
Insurance  Escrow Fund, the Capital  Reserve Fund and the Rollover  Reserve Fund
(collectively,  the "Funds").  Borrower shall not,  without  obtaining the prior
written consent of Lender, further pledge, assign or grant any security interest
in any  Fund,  or  permit  any Lien to  attach  thereto,  or any levy to be made
thereon,  or any UCC-l Financing  Statements,  except those naming Lender as the
secured party, to be filed with respect thereto.  This Agreement is, among other
things,  intended by the parties to be a security  agreement for purposes of the
UCC.  Upon the  occurrence  and during the  continuance  of an Event of Default,
Lender may apply any sums in any Fund to the  payment of the Debt  and/or to the
payment of  Required  Repairs,  Taxes,  Insurance  Premiums,  Capital  Expenses,
Approved Leasing Expenses and/or  Operating  Expenses,  in any order in its sole
discretion.  No Fund shall  constitute a trust fund and may be  commingled  with
other  monies  held by  Lender.  Sums in each Fund  shall be held by Lender in a
Subaccount and invested in Permitted Investments.  Earnings or interest, if any,
on each Fund shall  become part of such Fund and shall be  disbursed as provided
herein for such Fund.  Lender shall not be liable for any loss  sustained on the
investment  of any  funds  constituting  any Fund,  except  for  Lender's  gross
negligence or wilful  misconduct.  Amounts  disbursed to Borrower under Sections
3.2 through 3.7 shall be used by Borrower  solely to pay the  expenses for which
such disbursement is requested.

IV.  REPRESENTATIONS AND WARRANTIES

     IV.1 Borrower  Representations.  Borrower represents and warrants as of the
date hereof  that,  except to the extent (if any)  disclosed  on Schedule 2 with
reference to a specific subsection of this Section 4.1:

     IV.1.1 Organization;  Special Purpose. Borrower has been duly organized and
is validly  existing and in good standing,  with requisite  power and authority,
and all rights, licenses, permits and authorizations, governmental or otherwise,
necessary to own its  properties and to transact the business in which it is now
engaged.  Borrower is duly  qualified to do business and is in good  standing in
each jurisdiction where it is required to be so qualified in connection with its
properties,  business and operations.  Borrower is a Special Purpose  Bankruptcy
Remote Entity,  and the sole business of Borrower is the  ownership,  management
and operation of the Properties.

     IV.1.2 Proceedings; Enforceability. Borrower has taken all necessary action
to


                                       24
<PAGE>

authorize the execution,  delivery and  performance of the Loan  Documents.  The
Loan  Documents have been duly executed and delivered by Borrower and constitute
legal, valid and binding obligations of Borrower enforceable against Borrower in
accordance  with  their  respective  terms,  subject to  applicable  bankruptcy,
insolvency and similar laws affecting rights of creditors generally, and general
principles of equity.

     IV.1.3 No Conflicts.  The execution,  delivery and  performance of the Loan
Documents by Borrower will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, or result in the creation
or imposition of any Lien (other than pursuant to the Loan  Documents)  upon any
of the  property  of  Borrower  pursuant  to the  terms  of,  any  agreement  or
instrument  to which  Borrower  is a party or by which its  property is subject,
nor, to  Borrower's  knowledge,  will such action result in any violation of the
provisions of any statute or any order,  rule or regulation of any  Governmental
Authority having jurisdiction over Borrower or any of its properties. Borrower's
rights  under the Licenses and the  Management  Agreement  will not be adversely
affected  by the  execution  and  delivery  of the  Loan  Documents,  Borrower's
performance  thereunder  or the  recordation  of  the  Mortgages.  Any  consent,
approval,  authorization,  order,  registration or  qualification of or with any
Governmental  Authority required for the execution,  delivery and performance by
any Borrower of the Loan  Documents  has been  obtained and is in full force and
effect.

     IV.1.4 Litigation.  There are no actions, suits or proceedings at law or in
equity by or before any  Governmental  Authority  now pending or, to  Borrower's
knowledge,  threatened against or affecting Borrower or any Property,  which, if
determined  against Borrower or any such Property,  might  materially  adversely
affect the  condition  (financial  or  otherwise) or business of Borrower or the
condition or ownership of such Property.

     IV.1.5 Agreements. To Borrower's knowledge,  Borrower is not a party to any
agreement or instrument  or subject to any  restriction  which might  materially
adversely affect Borrower or any Property,  or Borrower's business,  properties,
operations  or  condition,  financial or  otherwise.  To  Borrower's  knowledge,
Borrower  is not  in  default  in  any  material  respect  in  the  performance,
observance or  fulfillment  of any of the  obligations,  covenants or conditions
contained in any Permitted  Encumbrance or any other  agreement or instrument to
which it is a party or by which it or any Property is bound.

     IV.1.6 Title.  Borrower has good and indefeasible  title in fee to the real
property  comprising part of each Property and good and valid leasehold interest
in the Leased  Property,  and good title to the  balance of each such  Property,
free and clear of all Liens except the Permitted  Encumbrances.  The  Mortgages,
when  properly  recorded  in the  appropriate  records,  together  with  any UCC
financing statements required to be filed in connection  therewith,  will create
(i) a valid,  perfected  first  priority  lien on each  such  Property  and (ii)
perfected security interests in and to, and perfected collateral assignments of,
all  personalty  included  in  the  Property  (including  the  Leases),  all  in
accordance  with the terms thereof,  in each case subject only to any applicable
Permitted Encumbrances.  To Borrower's knowledge,  the Permitted Encumbrances do
not materially adversely affect the value or use of any Property,  or Borrower's
ability to repay the 


                                       25
<PAGE>

Loan. There are no claims for payment for work, labor or materials affecting any
Property which are or may become a Lien prior to, or of equal priority with, the
Liens created by the Loan Documents.

     IV.1.7  Survey.  To  Borrower's  knowledge,  the survey  for each  Property
delivered to Lender does not fail to reflect any matter  which could  materially
adversely affect such Property or the title thereto.

     IV.1.8 No  Bankruptcy  Filing.  Borrower  is not  contemplating  either the
filing of a petition by it under any state or federal  bankruptcy  or insolvency
law or the  liquidation of all or a major portion of its property,  and Borrower
has no knowledge  of any Person  contemplating  the filing of any such  petition
against it. 

     IV.1.9 Full and Accurate Disclosure.  No statement of fact made by Borrower
in any Loan Documents  contains any untrue statement of a material fact or omits
to state any material fact necessary to make  statements  contained  therein not
misleading.  There is no material fact presently  known to Borrower that has not
been  disclosed  to Lender which  materially  adversely  affects,  or, as far as
Borrower can foresee,  might materially  adversely  affect,  any Property or the
business, operations or condition (financial or otherwise) of Borrower.

     IV.1.10 No Plan  Assets.  Borrower is not an  "employee  benefit  plan," as
defined in Section 3(3) of ERISA,  subject to Title I of ERISA,  and none of the
assets of Borrower  constitutes or will constitute  "plan assets" of one or more
such plans within the meaning of 29 C.F.R. Section 2510.3-101.

     IV.1.11  Compliance.  Borrower and each Property and the use thereof comply
in all material respects with all applicable Legal  Requirements.  To Borrower's
knowledge,  Borrower  is  not in  default  or  violation  of  any  order,  writ,
injunction,  decree or demand of any  Governmental  Authority,  the violation of
which might materially  adversely affect the condition  (financial or otherwise)
or business of Borrower. To Borrower's  knowledge,  there has not been and shall
never be committed by Borrower any act or omission  affording  any  Governmental
Authority the right of forfeiture as against any Property or any part thereof or
any  monies  paid in  performance  of  Borrower's  obligations  under  any  Loan
Document.

     IV.1.12  Contracts.  There are no service,  maintenance or repair contracts
affecting  any Property that are not  terminable  on one month's  notice or less
without cause and without penalty or premium. All service, maintenance or repair
contracts  affecting  each Property have been entered into at arms-length in the
ordinary  course of  Borrower's  business and provide for the payment of fees in
amounts and upon terms comparable to existing market rates.

     IV.1.13 Financial Information. All financial data, including the statements
of cash flow and income  and  operating  expense,  that have been  delivered  to
Lender in respect of the  Properties  (i) are true,  complete and correct in all
material  respects,  (ii)  accurately  represent the financial  condition of the
Properties as of the date of such reports,  and (iii) to the extent  prepared by
an  independent   certified  public  accounting  firm,  have  been  prepared  in

                                       26
<PAGE>

accordance with GAAP consistently applied throughout the periods covered, except
as disclosed therein.  Borrower has no contingent  liabilities,  liabilities for
delinquent  taxes,  unusual  forward or long-term  commitments  or unrealized or
anticipated  losses from any unfavorable  commitments that are known to Borrower
and reasonably likely to have a materially adverse effect on any Property or the
operation  thereof,  except  as  referred  to or  reflected  in  such  financial
statements.  Since  the date of such  financial  statements,  there  has been no
materially adverse change in the financial condition,  operations or business of
Borrower from that set forth in said financial statements.

     IV.1.14  Condemnation.   No  Condemnation  or  other  proceeding  has  been
commenced or, to Borrower's  knowledge,  is contemplated  with respect to all or
part of any Property or for the relocation of roadways  providing  access to any
Property.

     IV.1.15  Federal Reserve  Regulations.  No part of the proceeds of the Loan
will be used for the purpose of  purchasing  or  acquiring  any  "margin  stock"
within the  meaning of  Regulation  U of the Board of  Governors  of the Federal
Reserve  System or for any other  purpose that would be  inconsistent  with such
Regulation U or for any purpose  prohibited  by Legal  Requirements  or any Loan
Document.

     IV.1.16 Utilities and Public Access. To Borrower's knowledge, each Property
has  rights of access to  public  ways and is served by water,  sewer,  sanitary
sewer and storm drain  facilities  adequate to service it for its intended uses.
To Borrower's  knowledge,  all public  utilities  necessary or convenient to the
full use and enjoyment of each  Property are located in the public  right-of-way
abutting such Property, and all such utilities are connected so as to serve such
Property without passing over other property. To Borrower's knowledge, all roads
necessary  for the use of  each  Property  for its  current  purpose  have  been
completed  and  dedicated  to  public  use  and  accepted  by  all  Governmental
Authorities.

     IV.1.17 Not a Foreign Person. Borrower is not a "foreign person" within the
meaning ofss. 1445(f)(3) of the Code.

     IV.1.18  Separate Lots. Each parcel  comprising each Property is a separate
tax lot and is not a  portion  of any  other  tax lot that is not a part of such
Property.

     IV.1.19  Assessments.  There are no  pending or  proposed  special or other
assessments for public improvements or otherwise affecting any Property,  or any
contemplated  improvements  to any  Property  that may result in such special or
other assessments.

     IV.1.20 Enforceability. The Loan Documents are not subject to, and Borrower
has not asserted,  any right of rescission,  claims of set-off,  counterclaim or
defense,  including the defense of usury. No exercise of any of the terms of the
Loan  Documents,  or  any  right  thereunder,  will  render  any  Loan  Document
unenforceable.

     IV.1.21  Insurance.  Borrower  has  obtained  and has  delivered  to Lender

                                       27
<PAGE>

insurance  policies  reflecting  the  insurance  coverages,  amounts  and  other
requirements set forth in this Agreement.

     IV.1.22 Use of Property;  Licenses.  Each Property is used exclusively as a
shopping center, other than the Property located in Cary, North Carolina,  which
has an  appurtenant  office use,  and other  appurtenant  and related  uses.  To
Borrower's  knowledge,  all  certifications,  permits,  licenses and  approvals,
including  certificates  of completion and occupancy  permits and any applicable
liquor  licenses  required for the legal use,  occupancy  and  operation of each
Property  (collectively,  the  "Licenses"),  have been  obtained and are in full
force and effect.  The use being made of each Property is in conformity with the
certificate of occupancy issued for such Property.

     IV.1.23 Flood Zone. None of the  Improvements on any Property is located in
an area as  identified  by the Federal  Emergency  Management  Agency as an area
having special flood hazards.

     IV.1.24  Physical  Condition.  To  Borrower's  knowledge,   each  Property,
including  all  Improvements,   parking  facilities,   systems,   Equipment  and
landscaping,  are in good condition,  order and repair in all material respects;
there exists no structural or other material  defect or damages to any Property,
whether latent or otherwise. Borrower has not received notice from any insurance
company or bonding  company of any defect or inadequacy in any Property,  or any
part  thereof,  which  would  adversely  affect  its  insurability  or cause the
imposition of  extraordinary  premiums or charges  thereon or any termination of
any policy of insurance or bond.

     IV.1.25  Encroachments.  To Borrower's  knowledge,  all of the improvements
included in determining  the appraised  value of each Property lie wholly within
the  boundaries  and  building  restriction  lines  of  such  Property,  and  no
improvement  on an  adjoining  property  encroaches  upon any  Property,  and no
easement  or other  encumbrance  upon any  Property  encroaches  upon any of the
Improvements,  so as to  materially  affect  the value or  marketability  of any
Property, except those insured against by a Title Insurance Policy.

     IV.1.26  Leases.  Attached  hereto as  Schedule  3 is a true,  correct  and
complete  rent roll for each  Property  (the "Rent  Roll"),  which  includes all
Leases  affecting  each  Property.  Except as set forth in  Schedule 3: (i) each
Lease is in full  force and  effect;  (ii) the  tenants  under the  Leases  have
accepted  possession of and are in occupancy of all of their respective  demised
premises,  have  commenced  the  payment  of rent  under such  Leases,  and,  to
Borrower's knowledge,  there are no material offsets,  claims or defenses to the
enforcement thereof;  (iii) all rents due and payable under the Leases have been
paid and no portion  thereof  has been paid for any period  more than 30 days in
advance;  (iv) the rent payable under each Lease is the amount of fixed rent set
forth in the Rent Roll, and, to Borrower's knowledge, there is no claim or basis
for a claim by the  tenant  thereunder  for an  adjustment  to the rent;  (v) no
tenant has made any claim  against the landlord  under the Leases which  remains
outstanding,  and to Borrower's knowledge, (a) there are no defaults on the part
of the landlord under any Lease,  and (b) no event has occurred which,  with the
giving of notice or passage of time, or both,  would 


                                       28
<PAGE>

constitute  such a default;  (vi) to Borrower's  knowledge,  there is no present
material default by the tenant under any Lease; and (vii) Borrower does not hold
any security  deposits under the Leases.  None of the Leases contains any option
to  purchase  or right of first  refusal to  purchase  the  Property or any part
thereof.  Neither the Leases nor the Rents have been assigned or pledged  except
to Lender,  and no other Person has any interest  therein  except the tenants or
subtenants thereunder.

     IV.1.27  Filing and  Recording  Taxes.  All  transfer  taxes,  deed stamps,
intangible taxes or other amounts in the nature of transfer taxes required to be
paid by any Person under  applicable  Legal  Requirements in connection with the
transfer of the  Properties to Borrower have been paid.  All mortgage,  mortgage
recording,  stamp,  intangible or other similar taxes required to be paid by any
Person under  applicable  Legal  Requirements  in connection with the execution,
delivery, recordation, filing, registration, perfection or enforcement of any of
the Loan Documents have been paid.

     IV.1.28 Investment Company Act. Borrower is not (i) an "investment company"
or a company "controlled" by an "investment  company," within the meaning of the
Investment  Company  Act of 1940,  as  amended;  (ii) a "holding  company"  or a
"subsidiary  company"  of a  "holding  company"  or an  "affiliate"  of either a
"holding  company" or a  "subsidiary  company"  within the meaning of the Public
Utility Holding  Company Act of 1935, as amended;  or (iii) subject to any other
federal or state law or  regulation  which  purports to restrict or regulate its
ability to borrow money.

     IV.1.29 Fraudulent Transfer.  Borrower has not entered into the Loan or any
Loan Document with the actual intent to hinder,  delay, or defraud any creditor,
and  Borrower  has  received  reasonably  equivalent  value in exchange  for its
obligations  under  the  Loan  Documents.  Giving  effect  to  the  transactions
contemplated by the Loan Documents, the fair saleable value of Borrower's assets
exceeds and will,  immediately  following the execution and delivery of the Loan
Documents,   exceed  Borrower's  total  liabilities,   including   subordinated,
unliquidated,  disputed or contingent  liabilities.  The fair saleable  value of
Borrower's assets is and will,  immediately following the execution and delivery
of  the  Loan  Documents,  be  greater  than  Borrower's  probable  liabilities,
including the maximum amount of its contingent  liabilities or its debts as such
debts become  absolute and matured.  Borrower's  assets do not and,  immediately
following the execution and delivery of the Loan Documents will not,  constitute
unreasonably small capital to carry out its business as conducted or as proposed
to be conducted. Borrower does not intend to, and does not believe that it will,
incur  debts  and  liabilities   (including  contingent  liabilities  and  other
commitments)  beyond its ability to pay such debts as they mature  (taking  into
account the timing and amounts to be payable on or in respect of  obligations of
Borrower).

     IV.1.30 Ownership of Borrower.  The sole managing member of Borrower is the
Managing  Member.  FAC Realty Trust,  Inc. is the owner of all of the issued and
outstanding capital stock of the Managing Member, all of which capital stock has
been validly issued and fully paid and is  nonassessable.  The only other member
of Borrower is FAC 


                                       29
<PAGE>

Properties,  L.P. The stock of the Managing Member and the membership  interests
in Borrower are owned free and clear of all Liens, warrants,  options and rights
to purchase. Borrower has no obligation to any Person to purchase, repurchase or
issue any ownership interest in it.

     IV.1.31 Management Agreement. The Management Agreement is in full force and
effect.  There is no default,  breach or violation existing  thereunder,  and no
event has occurred (other than payments due but not yet  delinquent)  that, with
the  passage  of time or the  giving of  notice,  or both,  would  constitute  a
default, breach or violation thereunder, by either party thereto.

     IV.1.32  Hazardous  Substances.  To the best of  Borrower's  knowledge  and
except as disclosed to Lender in reports furnished to Lender, (i) no Property is
in violation of any Legal  Requirement  pertaining  to or imposing  liability or
standards  of conduct  concerning  environmental  regulation,  contamination  or
clean-up,  including the Comprehensive Environmental Response,  Compensation and
Liability  Act,  the Resource  Conservation  and  Recovery  Act,  the  Emergency
Planning and  Community  Right-to-Know  Act of 1986,  the  Hazardous  Substances
Transportation Act, the Solid Waste Disposal Act, the Clean Water Act, the Clean
Air Act,  the Toxic  Substance  Control Act,  the Safe  Drinking  Water Act, the
Occupational  Safety and Health  Act,  any state  super-lien  and  environmental
clean-up  statutes  and all  amendments  to and  regulations  in  respect of the
foregoing laws (collectively, "Environmental Laws"); (ii) no Property is subject
to any private or  governmental  Lien or judicial  or  administrative  notice or
action  or  inquiry,  investigation  or  claim  relating  to  hazardous,  toxic,
dangerous and/or regulated substances,  wastes,  materials,  raw materials which
include hazardous constituents,  pollutants or contaminants, including asbestos,
asbestos containing materials, petroleum, tremolite, anthlophylite,  actinolite,
polychlorinated  biphenyls  and any  other  substances  or  materials  which are
included  under or regulated by  Environmental  Laws or which are  considered by
scientific opinion to be otherwise dangerous in terms of the health,  safety and
welfare of humans  (collectively,  "Hazardous  Substances");  (iii) no Hazardous
Substances  are  or  have  been   (including  the  period  prior  to  Borrower's
acquisition  of a  Property),  discharged,  generated,  treated,  disposed of or
stored on,  incorporated  in, or removed or transported  from any Property other
than in compliance with all Environmental Laws; (iv) no Hazardous Substances are
present  in, on or under any nearby  real  property  which  could  migrate to or
otherwise affect any Property; and (v) no underground storage tanks exist on any
Property.

     IV.1.33 Ground Lease.  The Ground Lease is in full force and effect and has
not been modified or amended.  There are no defaults  under the Ground Lease and
no event has occurred,  which with the passage of time, the giving of notice, or
both, would  constitute a default under the Ground Lease. All rents,  additional
rents and other sums due and  payable  under the Ground  Lease have been paid in
full. Neither Borrower nor the landlord under the Ground Lease has commenced any
action or given or received any notice for the purpose of terminating the Ground
Lease.

     IV.1.34  Out-Parcels.  None of the Eligible Out-Parcels (which has not been
released pursuant to Section 6.7) generates any revenue or income.

                                       30
<PAGE>

     IV.2 Survival of Representations. All of the representations and warranties
in Section 4.1 and elsewhere in the Loan Documents (i) shall survive for so long
as any portion of the Debt  remains  owing to Lender and (ii) shall be deemed to
have been relied upon by Lender notwithstanding any investigation  heretofore or
hereafter made by Lender or on its behalf.

V.   AFFIRMATIVE COVENANTS

     Until the earlier to occur of the end of the Term or the  Defeasance of the
entire unpaid Principal, Borrower hereby covenants and agrees with Lender that:

     V.1  Existence.  Borrower  shall  (i) do or  cause  to be done  all  things
necessary  to preserve,  renew and keep in full force and effect its  existence,
rights,  and  franchises,  (ii)  continue  to engage in the  business  presently
conducted by it, (iii) obtain and maintain all Licenses,  and (iv) qualify to do
business and remain in good  standing  under the laws of each  jurisdiction,  in
each  case  as  and to the  extent  required  for  the  ownership,  maintenance,
management and operation of each Property.

     V.2 Taxes and Other Charges. Borrower shall pay all Taxes and Other Charges
as the same become due and payable,  and deliver to Lender  receipts for payment
or other evidence  satisfactory  to Lender that the Taxes and Other Charges have
been so paid no later than 15 days before they would be  delinquent  if not paid
(provided,  however, that Borrower need not furnish such receipts for payment of
Taxes paid by Lender  pursuant to Section  3.3).  Borrower  shall not suffer and
shall  promptly  cause to be paid and  discharged any Lien against any Property,
and shall promptly pay for all utility services provided to any Property.  After
prior notice to Lender, Borrower, at its own expense, may contest by appropriate
legal  proceeding,  promptly  initiated and conducted in good faith and with due
diligence,  the amount or validity or application of any Taxes or Other Charges,
provided  that (i) no Default  or Event of  Default  has  occurred  and  remains
uncured, (ii) such proceeding shall suspend the collection of the Taxes or Other
Charges,  (iii) such  proceeding  shall be  permitted  under and be conducted in
accordance  with the  provisions of any other  instrument  to which  Borrower is
subject  and  shall not  constitute  a  default  thereunder,  (iv) no part of or
interest  in  such  Property  will  be  in  danger  of  being  sold,  forfeited,
terminated, canceled or lost, (v) Borrower shall have furnished such security as
may be required in the proceeding,  or as may be reasonably requested by Lender,
to insure  the  payment of any such Taxes or Other  Charges,  together  with all
interest and  penalties  thereon,  and (vi) Borrower  shall  promptly upon final
determination  thereof pay the amount of such Taxes or Other  Charges,  together
with all  costs,  interest  and  penalties.  Lender  may pay over any such  cash
deposit or part thereof held by Lender to the claimant  entitled  thereto at any
time when,  in the  judgment  of Lender,  the  entitlement  of such  claimant is
established.

     V.3 Repairs; Maintenance and Compliance. Borrower shall cause each Property
to be maintained in good condition and repair and shall not remove,  demolish or
materially alter the Improvements or Equipment (except for normal replacement of
the Equipment) without the prior written consent of Lender;  provided,  however,
that  Lender's 


                                       31
<PAGE>

consent shall not be unreasonably  withheld if in Lender's  reasonable  judgment
any such  alteration  (or  erection  of new  buildings,  structures  or building
additions)  will not  materially  interfere with the operation of the applicable
Property or diminish the overall value thereof.  Borrower shall promptly  comply
with  all  Legal  Requirements  and  cure  properly  any  violation  of a  Legal
Requirement  within 30 days after Borrower  receives  notice of such  violation.
Borrower shall promptly repair, replace or rebuild any part of any Property that
becomes  damaged,  worn  or  dilapidated  and  shall  complete  and  pay for any
Improvements at any time in the process of construction or repair.

     V.4 Litigation.  Borrower shall give prompt written notice to Lender of any
litigation or governmental  proceedings  pending or threatened  against Borrower
which might  materially  adversely  affect  Borrower's  condition  (financial or
otherwise) or business or any Property.

     V.5  Performance  of Other  Agreements.  Borrower shall observe and perform
each and every term to be observed or  performed  by it pursuant to the terms of
any agreement or recorded instrument affecting or pertaining to each Property.

     V.6  Notice  of  Default.  Borrower  shall  promptly  advise  Lender of any
material adverse change in Borrower's condition,  financial or otherwise,  or of
the  occurrence  of any  Default  or Event of  Default  of  which  Borrower  has
knowledge.

     V.7 Cooperate in Legal  Proceedings.  Borrower shall  cooperate  fully with
Lender with respect to, and permit Lender, at its option, to participate in, any
proceedings  before any  Governmental  Authority which may in any way affect the
rights of Lender under any Loan Document.

     V.8  Further  Assurances.  Borrower  shall,  at  Borrower's  sole  cost and
expense,  (i) furnish to Lender all instruments,  documents,  boundary  surveys,
"as-built" surveys,  certificates,  plans and specifications,  appraisals, title
and other insurance reports and agreements, reasonably requested by Lender; (ii)
execute  and  deliver  to  Lender  such  documents,  instruments,  certificates,
assignments and other  writings,  and do such other acts necessary or desirable,
to evidence,  preserve  and/or  protect the  collateral  at any time securing or
intended to secure the Debt, as Lender may reasonably require;  and (iii) do and
execute  all and such  further  lawful  and  reasonable  acts,  conveyances  and
assurances  for the better and more  effective  carrying  out of the intents and
purposes of the Loan Documents,  as Lender shall reasonably require from time to
time.

     V.9 Financial Reporting.

     V.9.1  Bookkeeping.  Borrower  shall  keep  on  a  Fiscal  Year  basis,  in
accordance with GAAP, proper and accurate books, records and accounts reflecting
all of the financial affairs of Borrower and all items of income and expense and
any services, equipment or furnishings provided in connection with the operation
of each  Property,  whether such income or expense is 


                                       32
<PAGE>

realized by Borrower or by any other Person, except lessees under Leases who are
not Affiliates of Borrower. Lender shall have the right from time to time during
normal business hours upon reasonable notice to examine such books,  records and
accounts at the office of Borrower or other Person maintaining them, and to make
such  copies or  extracts  thereof  as Lender  shall  desire.  After an Event of
Default,  Borrower shall pay any costs incurred by Lender to examine  Borrower's
accounting  records, as Lender shall determine to be necessary or appropriate in
the protection of Lender's interest.

     V.9.2 Annual Reports. Borrower shall furnish to Lender annually, (i) within
45 days after each Fiscal Year, unaudited financial statements of Borrower,  and
(ii) within 90 days after each Fiscal Year, a complete copy of Borrower's annual
financial  statements  audited by a  nationally  recognized  accounting  firm or
another independent certified public accountant reasonably acceptable to Lender,
in accordance with GAAP, and containing  balance sheets and statements of profit
and loss for Borrower and the  Properties  in such detail as Lender may request.
Each such  statement (x) shall set forth the financial  condition and the income
and expenses for the Properties  for the  immediately  preceding  calendar year,
including   statements  of  annual  Net  Operating  Income,  and  (y)  shall  be
accompanied  by an  Officer's  Certificate  certifying  (1) that such  statement
presents fairly the financial  condition of the Properties and has been prepared
in  accordance  with GAAP and (2)  whether  there  exists a Default  or Event of
Default,  and if so, the nature  thereof,  the period of time it has existed and
the action then being taken to remedy it. 

     V.9.3  Monthly  Reports.  Borrower  shall  furnish to Lender within 20 days
after the end of each calendar  month the  following  items,  accompanied  by an
Officer's  Certificate  certifying that such items are true, correct,  accurate,
and  complete  and fairly  present the  financial  condition  and results of the
operations of Borrower and the  Properties  in accordance  with GAAP (subject to
normal  year-end  adjustments)  as  applicable:  (i)  monthly  and  year-to-date
operating  statements,   noting  Net  Operating  Income  and  other  information
necessary and sufficient under GAAP to fairly  represent the financial  position
and results of operation of the Properties  during such calendar  month,  all in
form satisfactory to Lender;  (ii) a balance sheet for each such month;  (iii) a
comparison  of the  budgeted  income  and  expenses  and the  actual  income and
expenses for each month and  year-to-date  for the  Properties,  together with a
detailed explanation of any variances of 10% or more between budgeted and actual
amounts for such period and year-to-date; (iv) a statement of the actual Capital
Expenses  made by Borrower  during each  calendar  quarter as of the last day of
such  calendar  quarter;  (v) a calculation  reflecting  the annual Debt Service
Coverage Ratio as of the last day of such calendar month;  (vi) a statement that
Borrower has not incurred any  indebtedness  other than  indebtedness  permitted
hereunder;  and (vii) occupancy  rates,  rent rolls  (substantially  in the form
attached hereto as Schedule 7) and a delinquency report for the Property.

     V.9.4 Other Reports.  Borrower shall furnish to Lender, within ten Business
Days after  request,  such  further  detailed  information  with  respect to the
operation of any of the Properties and the financial  affairs of Borrower as may
be reasonably requested by Lender or any applicable Rating Agency.

                                       33
<PAGE>

     V.9.5  Annual  Budget.  Borrower  shall  prepare and submit (or shall cause
Manager  to prepare  and  submit)  to Lender  (i) prior to the  occurrence  of a
Lockbox Event, by December 31 of each year during the Term, a proposed pro forma
budget for the Property for the  succeeding  Fiscal Year (the "Annual  Budget"),
and, promptly after preparation thereof, any revisions to such Annual Budget and
(ii) within 30 days after the  occurrence of a Lockbox  Event and  thereafter by
November 30 of each year during the Term (until a Lockbox  Termination  occurs),
for approval by Lender,  which  approval shall not be  unreasonably  withheld or
delayed,  the Annual  Budget,  and,  promptly  after  preparation  thereof,  any
revisions to such Annual Budget.  Lender's  failure to approve or disapprove any
Annual Budget (where Lender's approval thereof is required) within 30 days after
Lender's  receipt  thereof  shall be  deemed  to  constitute  Lender's  approval
thereof. The Annual Budget shall consist of (i) an operating expense budget (the
"Operating  Budget") showing,  on a month-by-month  basis, in reasonable detail,
each line item of the  Borrower's  anticipated  Operating  Income and  Operating
Expenses (on a cash and accrual basis), including amounts required to establish,
maintain  and/or  increase  reserves,  and (ii) a Capital  Expense  budget  (the
"Capital Budget") showing, on a month-by-month basis, in reasonable detail, each
line item of anticipated  Capital  Expenses.  The approved Annual Budget for the
period  commencing  on the date hereof and ending on December  31, 1998 has been
submitted to and approved by Lender.

     V.9.6 Breach.  If, prior to a Securitization,  Borrower fails to provide to
Lender or its designee any of the financial statements, certificates, reports or
information (the "Required Records") required by this Section 5.9 within 30 days
after the date upon which such  Required  Record is due,  Borrower  shall pay to
Lender, at Lender's option and in its sole discretion, an amount equal to $5,000
for each  Required  Record  that is not  delivered;  provided  Lender  has given
Borrower at least 15 days prior notice of such failure.

     V.10 Environmental Matters.

     V.10.1 Hazardous  Substances.  So long as Borrower owns or is in possession
of the  Properties,  Borrower (i) shall keep the Properties  free from Hazardous
Substances  and in  compliance in all material  respects with all  Environmental
Laws,  (ii) shall promptly notify Lender if Borrower shall become aware that (A)
any  Hazardous  Substance  is on or near any  Property,  (B) any  Property is in
direct or indirect  violation of any Environmental  Laws or (C) any condition on
or near any  Property  shall pose a threat to the  health,  safety or welfare of
humans, (iii) shall remove such Hazardous Substances and/or cure such violations
and/or remove such threats,  as  applicable,  as required by law (or as shall be
required by Lender in the case of removal  which is not  required by law, but in
response to the  opinion of a licensed  hydrogeologist,  licensed  environmental
engineer   or  other   qualified   consultant   engaged  by  Lender   ("Lender's
Consultant")), promptly after Borrower becomes aware of same, at Borrower's sole
expense and (iv) shall comply with all of the  recommendations  contained in the
environmental  report  delivered to Lender in connection with the origination of
the Loan.  Nothing herein shall prevent  Borrower from  recovering such expenses
from any other party that may be liable for such removal or cure.



                                       34
<PAGE>

     V.10.2 Environmental Monitoring.  Borrower shall give prompt written notice
to Lender of (i) any  proceeding  or inquiry  by any party  with  respect to the
presence of any Hazardous Substance on, under, from or about any Property,  (ii)
all  claims  made or  threatened  by any third  party  against  Borrower  or any
Property relating to any loss or injury resulting from any Hazardous  Substance,
and (iii)  Borrower's  discovery  of any  occurrence  or  condition  on any real
property  adjoining  or in the  vicinity of any  Property  that could cause such
Property  to be  subject  to  any  investigation  or  cleanup  pursuant  to  any
Environmental Law. Borrower shall permit Lender to join and participate in, as a
party if it so elects,  any legal  proceedings or actions initiated with respect
to the Property in connection with any Environmental Law or Hazardous Substance,
and Borrower shall pay all reasonable attorneys' fees and disbursements incurred
by Lender in  connection  therewith.  Upon an Event of  Default or if Lender has
reason to  suspect  the  presence  of  Hazardous  Substances  on, in or near any
Property,  upon Lender's request,  Borrower shall provide an inspection or audit
of any Property prepared by a licensed  hydrogeologist,  licensed  environmental
engineer  or  qualified   environmental   consulting  firm  approved  by  Lender
indicating  the presence or absence of Hazardous  Substances on, in or near such
Property.  The cost and  expense  of such audit or  inspection  shall be paid by
Borrower  not more  frequently  than once every five  calendar  years  after the
occurrence  of a  Securitization,  unless  Lender,  in its good faith  judgment,
determines that reasonable  cause exists for the performance of an environmental
inspection or audit of such Property,  in which case such  inspections or audits
shall be at  Borrower's  sole  expense.  If  Borrower  fails to provide any such
inspection  or audit within 45 days after such  request,  Lender may order same,
and Borrower hereby grants to Lender and its employees and agents access to each
Property and a license to undertake such  inspection or audit.  The cost of such
inspection or audit may be added to the Debt and shall bear interest  thereafter
at the Default Rate until paid.  If any  environmental  site  assessment  report
prepared  in  connection  with  such  inspection  or  audit  recommends  that an
operations  and  maintenance  plan be implemented  for any Hazardous  Substance,
Borrower  shall cause such  operations and  maintenance  plan to be prepared and
implemented  at its  expense  upon  request  of  Lender.  In the event  that any
investigation,  site monitoring,  containment,  cleanup, removal, restoration or
other work of any kind is reasonably  necessary or desirable under an applicable
Environmental Law ("Remedial  Work"),  Borrower shall commence all such Remedial
Work within 30 days after written demand by Lender for  performance  thereof (or
such  shorter  period  of  time  as  may  be  required  under  applicable  law).
Thereafter,  Borrower shall diligently prosecute to completion all such Remedial
Work. All Remedial Work shall be performed by contractors approved in advance by
Lender,  and under the supervision of a consulting  engineer approved by Lender.
All costs of such  Remedial Work shall be paid by Borrower,  including  Lender's
reasonable  attorneys'  fees and  disbursements  incurred in connection with the
monitoring or review of such Remedial Work.  Borrower will not install or permit
to be installed on any Property any underground storage tank.

     V.11 Title to the Properties. Borrower will warrant and defend the title to
each  Property,  and the validity  and  priority of the Liens of the  Mortgages,
subject only to Permitted Encumbrances, against the claims of all Persons.

     V.12 Estoppel  Statement.  After request by Lender,  Borrower  shall within
fifteen days furnish Lender with a statement,  duly  acknowledged and certified,
setting forth (i) the unpaid  Principal,  (ii) the Interest Rate, (iii) the date
installments  of interest  and/or  Principal 


                                       35
<PAGE>

were last paid, (iv) any offsets or defenses to the payment of the Debt, and (v)
that the Loan Documents are valid,  legal and binding  obligations  and have not
been modified or if modified,  giving  particulars of such  modification.  After
request by Lender (but no more frequently than once in any year), Borrower shall
furnish  to  Lender  (x)  within  ten  days,  a  certificate   reaffirming   all
representations and warranties of Borrower set forth in the Loan Documents as of
the date  requested  by Lender  or, to the  extent  of any  changes  to any such
representations and warranties, so stating such changes, and (y) within 30 days,
tenant  estoppel  certificates  from each  tenant at each  Property  in form and
substance reasonably satisfactory to Lender.

     V.13 Principal  Place of Business.  Borrower shall not change its principal
place of business without first giving Lender 30 days' prior notice.

     V.14 Property Management.

     V.14.1 Management Agreement.  Subject to Section 5.14.2, Borrower shall (i)
cause each Property to be operated  pursuant to the Management  Agreement;  (ii)
promptly  perform and observe all of the covenants  required to be performed and
observed by it under the  Management  Agreement  and do all things  necessary to
preserve and to keep unimpaired its material rights  thereunder;  (iii) promptly
notify  Lender of any  default  under the  Management  Agreement  of which it is
aware;  (iv)  promptly  deliver  to Lender a copy of each  financial  statement,
business plan, capital  expenditure plan, and property  improvement plan and any
other  notice,  report and estimate  received by Borrower  under the  Management
Agreement; and (v) promptly enforce the performance and observance of all of the
covenants  required to be performed and observed by Manager under the Management
Agreement. 

     V.14.2 Termination of Manager.  If an Event of Default shall be continuing,
Borrower shall, at the request of Lender, terminate the Management Agreement and
replace  the  Manager  (or  insert  a  manager,   if  the  Properties  are  then
self-managed)  with a  manager  approved  by  Lender  on  terms  and  conditions
satisfactory to Lender.

     V.15 Special Purpose  Bankruptcy Remote Entity.  Borrower shall continue to
be a Special Purpose  Bankruptcy  Remote Entity. A "Special  Purpose  Bankruptcy
Remote Entity" means a  corporation,  limited  partnership or limited  liability
company which at all times since its formation and at all times  thereafter  (i)
was and is organized  solely for the purpose of (A) owning the Properties or (B)
acting as a general partner of the limited  partnership that owns the Properties
or member of the limited  liability  company that owns the Properties,  (ii) has
not engaged and will not engage in any business  unrelated to (A) the  ownership
of the Properties, (B) acting as general partner of the limited partnership that
owns the Properties or (C) acting as a member of the limited  liability  company
that owns the Properties, as applicable, (iii) has not had and will not have any
assets other than those related to the  Properties or its  partnership or member
interest in the limited  partnership or limited  liability company that owns the
Properties, as applicable, (iv) has not engaged, sought or consented to and will
not engage in,  seek or consent to any  dissolution,  winding  up,  liquidation,
consolidation,  merger,  asset  sale,  transfer  of  partnership  or  membership
interests  (if such entity is a general  partner in a limited  partnership  or a
member in a limited liability company),  or amendment of its limited partnership
agreement, 


                                       36
<PAGE>

articles of incorporation, articles of organization, certificate of formation or
operating   agreement  (as  applicable),   (v)  if  such  entity  is  a  limited
partnership,  has, as its only  general  partners,  Special  Purpose  Bankruptcy
Remote Entities that are corporations, (vi) if such entity is a corporation, has
at least one  Independent  Director,  and has not caused or allowed and will not
cause  or allow  the  board  of  directors  of such  entity  to take any  action
requiring the unanimous  affirmative vote of 100% of the members of its board of
directors unless an Independent  Director shall have  participated in such vote,
(vii) if such  entity is a limited  liability  company,  has at least one member
that is a Special  Purpose  Bankruptcy  Remote Entity that is a corporation  and
such  corporation  is the  managing  member of such limited  liability  company,
(viii)  if  such  entity  is  a  limited  liability  company,  has  articles  of
organization,  a  certificate  of formation  and/or an operating  agreement,  as
applicable, providing that (A) such entity may dissolve only upon the bankruptcy
of the managing member, (B) the vote of a majority-in-interest  of the remaining
members is sufficient to continue the life of the limited  liability  company in
the event of such  bankruptcy  of the  managing  member and (C) if the vote of a
majority-in-interest  of the  remaining  members  to  continue  the  life of the
limited liability company following the bankruptcy of the managing member is not
obtained,  the limited  liability company may not liquidate any Property without
the  consent  of the  applicable  Rating  Agencies  for as long  as the  Loan is
outstanding,  (ix)  without  the  unanimous  consent  of all  of  its  partners,
directors  or  members,  as  applicable,  shall  not (A)  file a  bankruptcy  or
insolvency petition or otherwise institute  insolvency  proceedings with respect
to itself or to any other  entity in which it has a direct or indirect  legal or
beneficial ownership interest, (B) dissolve, liquidate,  consolidate,  merge, or
sell all or substantially all of its assets or the assets of any other entity in
which it has a direct or indirect legal or beneficial  ownership  interest,  (C)
engage in any other business activity,  or amend its  organizational  documents,
(x) is and will remain  solvent and is  maintaining  and will maintain  adequate
capital for the normal obligations  reasonably  foreseeable in a business of its
size and character and in light of its contemplated  business  operations,  (xi)
has not failed and will not fail to correct any known misunderstanding regarding
the separate identity of such entity, (xii) has maintained and will maintain its
accounts, books and records separate from any other Person and will file its own
tax  returns,  (xiii) has  maintained  and will  maintain  its  books,  records,
resolutions  and  agreements as official  records,  (xiv) will not commingle its
funds or assets with those of any other Person, (xv) will hold its assets in its
own name, (xvi) will conduct its business in its name,  (xvii) will maintain its
financial  statements,  accounting  records and other entity documents  separate
from any other  Person,  (xviii)  will pay its own  liabilities,  including  the
salaries  of its own  employees,  out of its own funds and  assets,  (xix)  will
observe all partnership,  corporate or limited liability company formalities, as
applicable,  (xx) has maintained and will maintain an arm's-length  relationship
with  its  Affiliates,  (xxi)  has no  indebtedness  other  than  the  Loan  and
liabilities  in the ordinary  course of business  relating to the  ownership and
operation of the Properties;  (xxii) has not and will not assume or guarantee or
become  obligated  for the debts of any other  Person or hold out its  credit as
being  available to satisfy the  obligations  of any other Person except for the
Loan and the liabilities  permitted pursuant to this Agreement,  (xxiii) has not
and will not acquire  obligations  or  securities  of its  partners,  members or
shareholders,  (xxiv) has allocated and will allocate  fairly and reasonably any
overhead for shared  office  space and uses  separate  stationery,  invoices and
checks,  (xxv) except in  connection  with the Loan has not pledged and will not
pledge its assets for the  benefit of any other  Person,  (xxvi) has held itself
out and  identified  itself and will hold  itself out and  identify  itself as a
separate and distinct entity under its own name and 


                                       37
<PAGE>

not as a division or part of any other Person,  (xxvii) has  maintained and will
maintain  its assets in such a manner that it will not be costly or difficult to
segregate,  ascertain or identify its individual  assets from those of any other
Person,  (xxviii) has not made and will not make loans to any Person, (xxix) has
not identified and will not identify its partners,  members or shareholders,  or
any Affiliate of any of them, as a division or part of it, (xxx) has not entered
into or been a  party  to,  and  will  not  enter  into  or be a party  to,  any
transaction with its partners, members, shareholders or Affiliates except in the
ordinary  course of its business and on terms which are  intrinsically  fair and
are no less favorable to it than would be obtained in a comparable  arm's-length
transaction with an unrelated third party, (xxxi) has no obligation to indemnify
its partners, officers, directors or members, as the case may be, or has such an
obligation  that is fully  subordinated  to the Debt and will not  constitute  a
claim against it in the event that cash flow in excess of the amount required to
pay the Debt is insufficient to pay such obligation,  and (xxxii) if such entity
is a  corporation,  it is required to consider the interests of its creditors in
connection with all corporate actions.

     V.16 Assumptions in  Non-Consolidation  Opinion.  Borrower and the Managing
Member  shall  conduct  their  business  so  that  the  assumptions  made  as to
themselves in that certain substantive non-consolidation opinion letter dated as
of the date hereof, delivered by Borrower's counsel in connection with the Loan,
shall be true and correct in all respects.

     V.17 Expenses.  Borrower shall reimburse  Lender upon receipt of notice for
all reasonable  costs and expenses  (including  reasonable  attorneys'  fees and
disbursements)  incurred  by  Lender  in  connection  with (i) the  preparation,
negotiation,  execution and delivery of the Loan Documents and the  consummation
of the  transactions  contemplated  thereby and all the costs of furnishing  all
opinions  by  counsel  for  Borrower;   (ii)  Borrower's  and  Lender's  ongoing
performance under and compliance with the Loan Documents,  including  confirming
compliance with environmental and insurance requirements; (iii) the negotiation,
preparation, execution, delivery and administration of any consents, amendments,
waivers  or other  modifications  of or under  any Loan  Document  and any other
documents or matters requested by Lender;  (iv) filing and recording of any Loan
Documents;  (v) title  insurance,  surveys,  inspections  and  appraisals;  (vi)
enforcing  or  preserving  any rights,  in response to third party claims or the
prosecuting  or defending of any action or  proceeding or other  litigation,  in
each  case  against,  under  or  affecting  Borrower,  the Loan  Documents,  the
Properties,  or any other security  given for the Loan; and (vii)  enforcing any
obligations  of or  collecting  any  payments due from  Borrower  under any Loan
Document or with respect to the Properties or in connection with any refinancing
or restructuring of the Loan in the nature of a "work-out", or any insolvency or
bankruptcy  proceedings.  Any  costs  and  expenses  due and  payable  to Lender
hereunder  which are not paid by  Borrower  within ten days after  demand may be
paid from any amounts in the Deposit  Account,  with notice thereof to Borrower.
The  obligations  and  liabilities  of Borrower  under this  Section  5.17 shall
survive  the Term and the  exercise  by Lender of any of its rights or  remedies
under  the Loan  Documents,  including  the  acquisition  of the  Properties  by
foreclosure or a conveyance in lieu of foreclosure.

     V.18 Indemnity.  Borrower shall indemnify and hold harmless Lender from and
against any and all other liabilities,  obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including the


                                       38
<PAGE>

reasonable fees and  disbursements  of counsel for Lender in connection with any
investigative,  administrative or judicial  proceeding  commenced or threatened,
whether or not Lender shall be designated a party thereto),  that may be imposed
on,  incurred by, or asserted  against Lender  (collectively,  the  "Indemnified
Liabilities")  in any manner,  relating to or arising out of or by reason of the
Loan,  including:  (i) any breach by Borrower of its  obligations  under, or any
material misrepresentation by Borrower contained in, any Loan Document; (ii) the
use or intended use of the proceeds of the Loan; (iii) any information  provided
by or on behalf of  Borrower,  or  contained  in any  documentation  approved by
Borrower;  (iv)  ownership  of the  Mortgages,  the  Properties  or any interest
therein,  or  receipt  of any  Rents;  (v) any  accident,  injury to or death of
persons or loss of or damage to property  occurring in, on or about the Property
or on the adjoining  sidewalks,  curbs,  adjacent  property or adjacent  parking
areas,  streets or ways;  (vi) any use,  nonuse or condition in, on or about any
Property or on adjoining sidewalks, curbs, adjacent property or adjacent parking
areas,  streets  or ways;  (vii)  performance  of any labor or  services  or the
furnishing of any materials or other property in respect of any Property; (viii)
the presence, disposal, escape, seepage, leakage, spillage, discharge, emission,
release,  or threatened release of any Hazardous Substance on, from or affecting
any Property;  (ix) any personal injury  (including  wrongful death) or property
damage (real or personal) arising out of or related to such Hazardous Substance;
(x) any lawsuit brought or threatened,  settlement  reached, or government order
relating to such Hazardous  Substance;  (xi) any violation of the  Environmental
Laws,  which is based upon or in any way  related to such  Hazardous  Substance,
including,  without  limitation,  the costs and expenses of any  Remedial  Work,
attorney and consultant  fees and  disbursements,  investigation  and laboratory
fees, court costs, and litigation expenses; (xii) any failure of any Property to
comply  with any Legal  Requirement;  (xiii)  any claim by  brokers,  finders or
similar  persons  claiming to be entitled to a commission in connection with any
Lease or other transaction  involving any Property or any part thereof under any
Legal Requirement, or any liability asserted against Lender with respect thereto
(unless such broker,  finder or similar person was engaged by Lender pursuant to
its rights under the Loan Documents);  and (xiv) the claims of any lessee of any
portion  of any  Property  or any person  acting  through or under any lessee or
otherwise  arising under or as a consequence  of any Lease;  provided,  however,
that Borrower  shall not have any  obligation to Lender  hereunder to the extent
that such Indemnified Liabilities arise from the gross negligence, illegal acts,
fraud or willful  misconduct of Lender.  To the extent that the  undertaking  to
indemnify  and  hold  harmless  set  forth  in  the  preceding  sentence  may be
unenforceable  because it  violates  any law or public  policy,  Borrower  shall
contribute  the maximum  portion that it is  permitted to pay and satisfy  under
applicable law to the payment and  satisfaction of all  Indemnified  Liabilities
incurred by Lender.  Any amounts  payable to Lender by reason of the application
of this  paragraph  shall  become  immediately  due and  payable  and shall bear
interest at the Default Rate from the date loss or damage is sustained by Lender
until paid. The  obligations and liabilities of Borrower under this Section 5.18
shall  survive  the Term and the  exercise  by  Lender  of any of its  rights or
remedies under the Loan  Documents,  including the acquisition of the Properties
by foreclosure or a conveyance in lieu of foreclosure.

VI.  NEGATIVE COVENANTS

     Until the earlier to occur of the end of the Term or the  Defeasance of the
entire unpaid Principal,  Borrower covenants and agrees with Lender that it will
not, directly or


                                       39
<PAGE>

indirectly:

     VI.1 Management  Agreement.  Without Lender's prior consent: (i) surrender,
terminate or cancel the Management Agreement or otherwise replace the Manager or
enter into any other management  agreement  (except pursuant to Section 5.14.2);
(ii) suffer or permit the ownership,  management or control of the Manager to be
transferred  to a Person other than an  Affiliate  of Borrower;  (iii) reduce or
consent to the reduction of the term of the Management Agreement;  (iv) increase
or consent to the  increase  of the amount of any charges  under the  Management
Agreement;  or (v) otherwise modify, change,  supplement,  alter or amend in any
material respect,  or waive or release any of its rights and remedies under, the
Management Agreement; or (vi) suffer or permit the occurrence and continuance of
a default beyond any applicable  cure period under the Management  Agreement (or
any  successor  management  agreement)  if such  default  permits the Manager to
terminate the Management Agreement (or such successor management agreement);

     VI.2 Liens. Without Lender's prior consent,  create,  incur, assume, permit
or suffer to exist any mechanic's, materialmen's or other Lien on any portion of
any  Property or legal or  beneficial  ownership  interest in  Borrower,  except
Permitted Encumbrances,  unless such Lien is bonded or discharged within 30 days
after Borrower first receives notice of such Lien;

     VI.3 Dissolution. Dissolve, terminate, liquidate, merge with or consolidate
into another Person;

     VI.4 Change In  Business.  Enter into any line of  business  other than the
ownership and operation of the  Properties,  or make any material  change in the
scope or nature of its business objectives, purposes or operations, or undertake
or participate in activities other than the continuance of its present business;

     VI.5 Debt Cancellation. Cancel or otherwise forgive or release any claim or
debt owed to Borrower by any Person,  except for adequate  consideration  and in
the ordinary course of Borrower's business in its reasonable judgment;

     VI.6 Assets. Purchase or own any property other than the Properties;

     VI.7 Transfers. Make, suffer or permit the occurrence of any Transfer other
than a Permitted Transfer.  Notwithstanding  the foregoing,  Borrower shall have
the right, from time to time, to convey,  free and clear of the Lien of the Loan
Documents,  without  payment of a Release  Amount,  one or more of the  Eligible
Out-Parcels,  in a bona-fide,  arms-length sale or ground lease of such Eligible
Out-Parcel(s)  to a purchaser that is not a Related Person of Borrower (a "Third
Party Sale"), and the Lender shall execute, acknowledge and deliver a Release of
any such Eligible Out-Parcel being so sold and conveyed within ten Business Days
after receipt of Borrower's written request for such Release;  provided (i) such
request shall refer to this Section,  identify such Eligible  Out-Parcel  and be
accompanied  by a  counterpart  of such  Release  in form for  execution  by the
Lender,  (ii) no Default shall have occurred and be 


                                       40
<PAGE>

continuing as of the date of such request and Borrower  shall have  delivered to
the Lender an Officer's  Certificate  confirming  such fact and certifying  that
such sale qualifies as a Third-Party  Sale, (iii) no Default shall have occurred
and be  continuing  as of the date of such  Release,  and (iv) Lender shall have
received such assurance as it shall  reasonably  require that the portion of the
Property not being  conveyed will not be adversely  affected by such  conveyance
(including,  without limitation,  assurance that such Property will constitute a
separate legal parcel and tax lot, in compliance with all zoning and other legal
requirements,  with  undiminished  legal access to public roads, and will not be
affected by any Liens that are not Permitted Encumbrances).

     VI.8 Debt. Create, incur or assume any indebtedness other than the Debt and
unsecured  trade debt  incurred in the ordinary  course of business and not past
due;

     VI.9  Assignment of Rights.  Without  Lender's  prior  consent,  attempt to
assign Borrower's rights or interest under any Loan Document in contravention of
any Loan Document; or

     VI.10  Operation  of the  Properties.  Cease to operate the  Properties  as
shopping  centers,  or in the  case  of the  Property  located  in  Cary,  North
Carolina,  a shopping  center with  appurtenant  office use, or  terminate  such
business  for  any  reason  whatsoever,   (other  than  temporary  cessation  in
connection with renovations to any Property),  unless any such Property has been
released or substituted hereunder.

VII. INSURANCE; CASUALTY; AND CONDEMNATION

     VII.1 Insurance.

     VII.1.1  Coverage.  Borrower,  at its sole cost,  for the mutual benefit of
Borrower and Lender,  shall obtain and  maintain  during the Term the  following
policies of insurance with respect to each Property:

          (a) Property  insurance  insuring  against loss or damage by standard,
     "all-risk" perils, which shall (i) be in an amount equal to the greatest of
     (A) the then full replacement  cost of such Property without  deduction for
     physical  depreciation,  (B) the Allocated  Loan Amount for the  applicable
     Property, and (C) such amount as is necessary so that the insurer would not
     deem Borrower a co-insurer  under such policies,  (ii) have  deductibles no
     greater than $25,000 per occurrence,  (iii) be paid annually in advance and
     (iv)  contain  a   "Replacement   Cost   Endorsement"   with  a  waiver  of
     depreciation.

          (b) Flood  insurance if any part of the Property is located in an area
     identified  by the Federal  Emergency  Management  Agency as an area having
     special flood hazards and in which flood  insurance has been made available
     under the National Flood Insurance Program,  in an amount at least equal to
     the full replacement  cost of the applicable  Property or the maximum limit
     of coverage  available  with  respect to the Property  under such  program,
     whichever is less.



                                       41
<PAGE>

          (c) Commercial  general public  liability  insurance,  including broad
     form property damage,  blanket contractual and personal injuries (including
     death  resulting  therefrom)  coverages and  containing  minimum limits per
     occurrence  of  $1,000,000  and  $2,000,000 in the aggregate for any policy
     year;  together with at least $10,000,000  excess and/or umbrella liability
     insurance  for any and all claims,  including all legal  liability  imposed
     upon  Borrower  and  all  court  costs  and  attorneys'  fees  incurred  in
     connection with the ownership, operation and maintenance of each Property.

          (d) Rental loss and/or  business  interruption  insurance in an amount
     equal to the estimated Rents for the next succeeding  12-month period.  The
     amount of such  insurance  shall be increased  from time to time during the
     Term as and when the estimated or actual Rents increase.

          (e)  Insurance  against  loss or damage from (i) leakage of  sprinkler
     systems and (ii) explosion of steam boilers,  air  conditioning  equipment,
     high pressure piping, machinery and equipment,  pressure vessels or similar
     apparatus now or hereafter  installed in any of the  Improvements  (without
     exclusion for  explosions),  in an amount at least equal to $2,000,000  for
     each Property.

          (f) Worker's  compensation  insurance with respect to any employees of
     Borrower, as required by any Legal Requirement.

          (g) During any period of repair or restoration,  builder's  "all-risk"
     insurance in an amount equal to not less than the full  insurable  value of
     the Improvements on the applicable Property,  against such risks (including
     fire and  extended  coverage  and  collapse of the  Improvements  to agreed
     limits) as Lender may request, in form and substance acceptable to Lender.

          (h)  Coverage  to  compensate  for  the  cost  of  demolition  and the
     increased cost of construction in an amount satisfactory to Lender.

          (i) Such other insurance (including earthquake insurance and hurricane
     insurance)  as may from time to time be  reasonably  required  by Lender in
     order to protect its interests against other insurable hazards which at the
     time are commonly  insured  against and generally  available in the case of
     premises similarly  situated,  due regard being given to the height and the
     type of structures and its location, construction, use and occupancy.

     VII.1.2  Policies.  All policies of  insurance  (the  "Policies")  required
pursuant to Section  7.1.1 shall (i) be issued by  companies  approved by Lender
and  licensed to do  business  in the  applicable  State,  with a claims  paying
ability rating of "AA" or better by Standard & Poor's  Ratings Group;  (ii) name
Lender and its  successors  and/or  assigns as their  interest may appear as the
mortgagee (in the case of property  insurance) or an additional  insured (in the
case of liability insurance);  (iii) contain (in the case of property insurance)
a   Non-Contributory   Standard  Lender  Clause  and  a  Lender's  Loss  Payable
Endorsement,  or their  equivalents,  naming 


                                       42
<PAGE>

Lender as the person to which all payments made by such insurance  company shall
be paid; (iv) contain a waiver of subrogation  against  Lender;  (v) be assigned
and  duplicate   originals  thereof  delivered  to  Lender;  (vi)  contain  such
provisions  as Lender  deems  reasonably  necessary  or desirable to protect its
interest, including endorsements providing that neither Borrower, Lender nor any
other party  shall be a  co-insurer  under the  Policies  and that Lender  shall
receive at least 30 days' prior written notice of any modification, reduction or
cancellation  of any of the  Policies;  and  (vii) be  satisfactory  in form and
substance to Lender and approved by Lender as to amounts,  form,  risk coverage,
deductibles,  loss payees and insureds. Borrower shall pay the premiums for such
Policies  (the  "Insurance  Premiums")  as the same  become due and  payable and
furnish to Lender evidence of the renewal of each of the Policies  together with
(unless such  Insurance  Premiums  have been paid by Lender  pursuant to Section
3.3)  receipts for or other  evidence of the payment of the  Insurance  Premiums
reasonably  satisfactory  to Lender.  If Borrower does not furnish such evidence
and receipts at least 30 days prior to the  expiration  of any expiring  Policy,
then Lender,  after 10 days notice to Borrower,  may, but shall not be obligated
to, procure such insurance and pay the Insurance Premiums therefor, and Borrower
agrees to reimburse Lender for the cost of such Insurance  Premiums  promptly on
demand.  Borrower shall deliver to Lender a certified copy of each Policy within
30 days  after its  effective  date.  Within 30 days  after  request  by Lender,
Borrower  shall  obtain  such  increases  in the  amounts of  coverage  required
hereunder as may be reasonably  requested by Lender,  taking into  consideration
changes in the value of money over time,  changes in liability laws,  changes in
prudent customs and practices,  and the like. The insurance  required  hereunder
may, at the option of  Borrower,  be  effected  by blanket or umbrella  policies
issued to Borrower and its  affiliates  covering the  Properties  and properties
owned by such affiliates,  provided that the policies  otherwise comply with the
provisions  hereof and  specifically  allocate to each  Property  the  coverages
required hereby,  without  possibility of reduction or coinsurance by reason of,
or damage to,  another  premises named  therein,  and if the insurance  required
hereunder shall be effected by any such blanket or umbrella  policies,  Borrower
shall furnish to Lender certified copies or duplicate originals of such policies
in place of the originals, with schedules thereto attached showing the amount of
insurance  afforded  by  such  policies  applicable  to  each  Property,  and in
addition,  within  thirty (30) days after the filing  thereof with any insurance
ratemaking body, copies of the schedule of all improvements affected by any such
blanket or umbrella policy of insurance.

     VII.2 Casualty.

     VII.2.1 Notice;  Restoration.  If any Property is damaged or destroyed,  in
whole or in part, by fire or other casualty (a "Casualty"),  Borrower shall give
prompt notice thereof to Lender; provided, however, that no such notice shall be
required  where the loss or damage is  $50,000  or less and no Event of  Default
shall have occurred and be  continuing.  Following the occurrence of a Casualty,
Borrower, regardless of whether insurance proceeds are available, shall promptly
proceed to  restore,  repair,  replace  or  rebuild  the  affected  Property  in
accordance  with  Legal  Requirements  to be of at  least  equal  value  and  of
substantially the same character as prior to such damage or destruction.

     VII.2.2  Settlement of Proceeds.  In the event of a Casualty covered by any

                                       43
<PAGE>

of the Policies (an "Insured  Casualty") where the loss does not exceed $50,000,
Borrower may settle and adjust any claim without the consent of Lender; provided
such adjustment is carried out in a competent and timely manner; and Borrower is
hereby  authorized  to collect  and  receipt  for the  insurance  proceeds  (the
"Proceeds").  In the  event of an  Insured  Casualty  where  the loss  equals or
exceeds  $50,000,  Lender and  Borrower  shall  jointly,  so long as no Event of
Default exists, settle and adjust any claim and agree with the insurer(s) on the
amount to be paid on the loss,  and the Proceeds shall be due and payable solely
to  Lender  and  held by  Lender  in the  Casualty/Condemnation  Subaccount  and
disbursed  in  accordance  herewith.  The  expenses  incurred  by  Lender in the
adjustment  and  collection  of the  Proceeds  shall become part of the Debt and
shall be reimbursed by Borrower to Lender upon demand.

     VII.3 Condemnation.

     VII.3.1 Notice; Restoration.  Borrower shall promptly give Lender notice of
the actual or threatened  commencement  of any  condemnation  or eminent  domain
proceeding affecting any Property (a "Condemnation") and shall deliver to Lender
copies of any and all  papers  served  in  connection  with  such  Condemnation.
Following the occurrence of a Condemnation,  Borrower,  regardless of whether an
Award is  available,  shall  promptly  proceed to  restore,  repair,  replace or
rebuild the  affected  Property in  accordance  with Legal  Requirements  to the
extent  practicable to be of at least equal value and of substantially  the same
character as prior to such Condemnation.

     VII.3.2  Collection of Award.  Lender may  participate in any  Condemnation
proceeding  to collect,  receive and retain any award or payment in respect of a
Condemnation (an "Award") and to make any compromise or settlement in connection
with such  Condemnation  and  Borrower  will  deliver to Lender all  instruments
requested  by  Lender  to  permit  such   participation.   Notwithstanding   any
Condemnation  (or any  transfer  made in  lieu of or in  anticipation  of such a
Condemnation),  Borrower  shall  continue to pay the Debt at the time and in the
manner  provided  for in the Loan  Documents,  and the Debt shall not be reduced
unless and until any Award  shall have been  actually  received  and  applied by
Lender to expenses of collecting the Award and to discharge of the Debt.  Lender
shall  not be  limited  to the  interest  paid on the  Award  by the  condemning
authority but shall be entitled to receive out of the Award interest at the rate
or rates  provided  in the  Note.  If the  affected  Property  is sold,  through
foreclosure or otherwise,  prior to the receipt by Lender of such Award,  Lender
shall have the right,  whether or not a deficiency judgment on the Note shall be
recoverable or shall have been sought,  recovered or denied, to receive all or a
portion of the Award sufficient to pay the Debt.  Borrower shall cause any Award
that is payable to Borrower to be paid  directly  to Lender.  Lender  shall hold
such Award in the  Casualty/Condemnation  Subaccount  and disburse such Award in
accordance with the terms hereof.

     VII.4 Application of Proceeds or Award.

     VII.4.1 Application to Restoration.  In the event of an Insured Casualty or
Condemnation  where (i) the loss is in an aggregate amount less than the greater
of  $500,000  or 


                                       44
<PAGE>

25% of the fair market value of the affected  Property as reasonably  determined
by Lender,  (ii) in the  reasonable  judgment  of Lender,  the  Property  can be
restored  within  six  months,  and prior to the  Stated  Maturity  Date and the
expiration of the business  interruption  insurance with respect thereto,  to an
economic  unit not less  valuable and not less useful than the same was prior to
the Insured Casualty or Condemnation, and after such restoration will adequately
secure the  outstanding  balance of the Allocated Loan Amount for such Property,
and  (iii) no  Default  or Event of  Default  shall  have  occurred  and be then
continuing,  then  the  Proceeds  or the  Award,  as  the  case  may  be  (after
reimbursement of any expenses incurred by Lender), shall be applied to reimburse
Borrower  for the cost of  restoring,  repairing,  replacing or  rebuilding  the
affected Property (the "Restoration"),  in the manner set forth herein. Borrower
shall commence and  diligently  prosecute  such  Restoration;  provided that (i)
Borrower  shall pay (and if  required by Lender,  Borrower  shall  deposit  with
Lender in advance) all costs of such  Restoration in excess of the net amount of
the Proceeds or the Award made available  pursuant to the terms hereof; and (ii)
Lender shall have received evidence  reasonably  satisfactory to it that, during
the period of the  Restoration,  the Rents will be at least  equal to the sum of
the Operating Expenses and Debt Service, as reasonably determined by Lender.

     VII.4.2  Application  to Debt.  Except as  provided in Section  7.4.1,  the
Proceeds and any Award may, at the option of Lender in its sole  discretion,  be
applied to the payment of the Debt (and at Borrower's  option,  shall be applied
towards the Release Amount for the applicable  Property) or applied to reimburse
Borrower  for the cost of any  Restoration,  in the  manner set forth in Section
7.4.3.  Any such application to the Debt shall be in an amount up to the Release
Amount for the affected Property together with an additional amount equal to the
Yield Maintenance Premium, if any, that would be required under Section 2.3.3 if
a Defeasance Deposit were to be made by Borrower with respect to a Defeased Note
in the amount of the Proceeds or Award applied to the Debt.  Notwithstanding the
foregoing,  if the Proceeds or the Award are not in excess of the Release Amount
for the affected Property, then such application of the Proceeds or the Award to
the Debt shall be subject to Section  2.7,  but shall  otherwise  be without any
prepayment  consideration,  unless  an  Event of  Default  has  occurred  and is
continuing at the time the Proceeds are received  from the insurance  company or
the Award is  received  from the  condemning  authority,  as the case may be, in
which event  Borrower  shall be required to pay to Lender the Yield  Maintenance
Premium applicable  thereto.  After any such application to the Debt, the unpaid
Principal shall be reamortized over the remaining term thereof and the Allocated
Loan  Amount  for the  affected  Property  shall  be  reduced  by the  Principal
reduction resulting from such application.

     VII.4.3  Procedure for Application to Restoration.  If Borrower is entitled
to  reimbursement  out of the Proceeds or an Award held by Lender,  or if Lender
determines to make Proceeds or an Award available to Borrower,  such Proceeds or
Award  shall be  disbursed  from  time to time  from  the  Casualty/Condemnation
Subaccount upon Lender being  furnished with (i) evidence  satisfactory to it of
the estimated cost of completion of the Restoration,  (ii) funds or, at Lender's
option,  assurances  satisfactory  to  Lender  that such  funds  are  available,
sufficient  in  addition  to the  Proceeds  or Award to  complete  the  proposed
Restoration, (iii) such architect's certificates,  waivers of lien, contractor's
sworn statements, title insurance endorsements,  bonds, plats of survey and such
other  evidences  of cost,  payment  and  performance 


                                       45
<PAGE>

as  Lender  may  reasonably  require  and  approve,   and  (iv)  all  plans  and
specifications  for  such  Restoration,  such  plans  and  specifications  to be
approved by Lender prior to  commencement  of any work,  such approval not to be
unreasonably  withheld or delayed. No payment made prior to the final completion
of the Restoration shall exceed 90% of the value of the work performed from time
to time;  funds other than the  Proceeds or Award  shall be  disbursed  prior to
disbursement  of such  Proceeds  or Award;  and at all  times,  the  undisbursed
balance of such  Proceeds or Award  remaining  in the hands of Lender,  together
with  funds  deposited  for  that  purpose  or  irrevocably   committed  to  the
satisfaction of Lender by or on behalf of Borrower for that purpose, shall be at
least  sufficient  in the  reasonable  judgment of Lender to pay for the cost of
completion of the  Restoration,  free and clear of all Liens or claims for Lien.
Any surplus  that remains out of the  Proceeds  held by Lender after  payment of
such costs of  Restoration  shall be paid to Borrower.  Any surplus that remains
out of the Award  received by Lender after payment of such costs of  Restoration
shall, in the sole and absolute  discretion of Lender, be retained by Lender and
applied to payment of the Debt or returned to Borrower.

VIII. DEFAULTS

     VIII.1 Events of Default.  Each of the following events shall constitute an
"Event of Default":

          (a) any portion of the Debt is not paid when due;

          (b) Borrower shall fail to pay when due any deposit into any Fund;

          (c) any of the Taxes or Other  Charges  are not paid when due  (unless
     sufficient funds are in the Taxes component of the Tax and Insurance Escrow
     Fund on the applicable date),  subject to Borrower's right to contest Taxes
     in accordance with Section 5.2; 

          (d) the  Policies  are not kept in full force and  effect,  or are not
     delivered to Lender upon request;

          (e) a Transfer other than a Permitted Transfer occurs;

          (f) any  representation  or  warranty  made by  Borrower  in any  Loan
     Document  or in any  report,  certificate,  financial  statement  or  other
     instrument,  agreement or document furnished by Borrower in connection with
     any Loan Document,  shall be false or misleading in any material respect as
     of the date the representation or warranty was made;

          (g) Borrower shall make an assignment for the benefit of creditors, or
     shall generally not be paying its debts as they become due;

          (h) a receiver, liquidator or trustee shall be appointed for Borrower;
     or Borrower shall be  adjudicated a bankrupt or insolvent;  or any petition
     for  bankruptcy,   reorganization   or  arrangement   pursuant  to  federal
     bankruptcy  law, or any similar  federal


                                       46
<PAGE>

     or state law, shall be filed by or against,  consented to, or acquiesced in
     by,  Borrower;  or any  proceeding  for the  dissolution  or liquidation of
     Borrower  shall be  instituted;  provided,  however,  if such  appointment,
     adjudication,  petition or proceeding was  involuntary and not consented to
     by Borrower,  only upon the same not being discharged,  stayed or dismissed
     within 90 days;

          (i) Borrower breaches any negative covenant  contained in Section 6 or
     any covenant contained in Section 5.15;

          (j) Borrower  shall be in default under any other mortgage or security
     agreement  covering  any part of any  Property  whether it be  superior  or
     junior  in Lien to the  Mortgage  encumbering  such  Property,  beyond  any
     applicable notice and grace period contained therein;

          (k)  except  as  permitted   hereunder,   the  actual  or   threatened
     alteration,  improvement,  demolition or removal of any of the Improvements
     without the prior consent of Lender;

          (l) an Event of  Default as  defined  or  described  in any other Loan
     Document  occurs;  or any other event shall occur or condition shall exist,
     if the  effect of such event or  condition  is to  accelerate  or to permit
     Lender to accelerate the maturity of any portion of the Debt;

          (m) Borrower shall be in default under any term, covenant or provision
     set forth herein of in any other Loan Document which specifically  contains
     a notice  requirement  or grace  period and such  notice has been given and
     such grace period has expired;

          (n)   any   of  the   assumptions   contained   in   any   substantive
     non-consolidation  opinion,  delivered to Lender by  Borrower's  counsel in
     connection with the Loan or otherwise hereunder,  were not true and correct
     as of the date of such opinion or thereafter became untrue or incorrect;

          (o)  Borrower  shall fail to pay when due (and  beyond any  applicable
     grace period) any rent,  additional  rent or other charge payable under the
     Ground Lease; or Borrower shall default in the observance or performance of
     any other term,  covenant or condition of the Ground Lease and such default
     is not  cured  prior  to the  expiration  of any  applicable  grace  period
     provided  therein;  or any event  shall  occur that would  cause the Ground
     Lease to terminate  without notice or action by the landlord  thereunder or
     would  entitle  such  landlord to  terminate  the Ground Lease and the term
     thereof by giving notice to Borrower;  or the leasehold  estate  created by
     the  Ground  Lease  shall  be  surrendered  or the  Ground  Lease  shall be
     terminated or cancelled for any reason or under any circumstance whatsoever
     (other than as provided in Sections  3.8 and 3.9 of the Ground  Lease);  or
     any term of the Ground  Lease  shall be modified  or  supplemented  without
     Lender's  consent;  or Borrower shall fail or neglect to pursue  diligently
     all actions 


                                       47
<PAGE>

     necessary to exercise any renewal rights pursuant to the Ground Lease; or

          (p) Borrower  shall  continue to be in Default  under any of the other
     terms, covenants or conditions of this Agreement or any other Loan Document
     not  specified  in  subsections  (a) through (o) above,  for ten days after
     notice to Borrower  from  Lender,  in the case of any Default  which can be
     cured by the  payment of a sum of money,  or for 30 days after  notice from
     Lender in the case of any other Default;  provided,  however,  that if such
     non-monetary  Default is susceptible of cure but cannot reasonably be cured
     within such 30-day  period,  and Borrower shall have commenced to cure such
     Default   within  such  30-day  period  and   thereafter   diligently   and
     expeditiously  proceeds  to cure the  same,  such  30-day  period  shall be
     extended for an additional  period of time as is  reasonably  necessary for
     Borrower  in the  exercise  of due  diligence  to cure such  Default,  such
     additional period not to exceed 90 days.

     VIII.2 Remedies.

     VIII.2.1  Acceleration.  Upon the  occurrence of an Event of Default (other
than an Event of Default  described in paragraph  (g) or (h) of Section 8.1) and
at any time thereafter, in addition to any other rights or remedies available to
it pursuant to the Loan  Documents or at law or in equity,  Lender may take such
action,  without  notice or demand,  that Lender deems  advisable to protect and
enforce its rights  against  Borrower  and in and to the  Properties,  including
declaring  the Debt to be  immediately  due and  payable;  and upon any Event of
Default  described  in  paragraph  (g) or (h) of  Section  8.1,  the Debt  shall
immediately and automatically become due and payable,  without notice or demand,
and  Borrower  hereby  expressly  waives  any such  notice or  demand,  anything
contained in any Loan Document to the contrary notwithstanding.

     VIII.2.2 Remedies  Cumulative.  Upon the occurrence of an Event of Default,
all or any one or more of the  rights,  powers,  privileges  and other  remedies
available to Lender  against  Borrower  under the Loan Documents or at law or in
equity may be exercised by Lender at any time and from time to time,  whether or
not all or any of the Debt shall be declared due and payable, and whether or not
Lender shall have commenced any  foreclosure  proceeding or other action for the
enforcement of its rights and remedies under any of the Loan Documents. Any such
actions taken by Lender shall be cumulative  and  concurrent  and may be pursued
independently,  singly, successively, together or otherwise, at such time and in
such order as Lender may determine in its sole discretion, to the fullest extent
permitted by law, without impairing or otherwise  affecting the other rights and
remedies of Lender  permitted by law,  equity or contract or as set forth in the
Loan  Documents.  Without  limiting the  generality of the  foregoing,  Borrower
agrees that if an Event of Default is continuing, (i) to the extent permitted by
applicable  law,  Lender is not  subject  to any "one  action" or  "election  of
remedies"  law or  rule,  and (ii) all  liens  and  other  rights,  remedies  or
privileges provided to Lender shall remain in full force and effect until Lender
has exhausted all of its remedies against the Properties, each Mortgage has been
foreclosed,  each  Property  has been sold  and/or  otherwise  realized  upon in
satisfaction  of the  Debt or the Debt has  been  paid in  full.  To the  extent
permitted by applicable  law,  nothing  contained in any Loan Document  shall be
construed as  requiring  Lender to resort to


                                       48
<PAGE>

any  portion  of any  Property  for  the  satisfaction  of any  of the  Debt  in
preference or priority to any other  portion,  and Lender may seek  satisfaction
out of each such Property or any part thereof, in its absolute discretion.

     VIII.2.3 Severance.  Lender shall have the right from time to time to sever
the Note and the other Loan Documents into one or more separate notes, mortgages
and other security  documents in such denominations as Lender shall determine in
its sole  discretion  for purposes of  evidencing  and  enforcing its rights and
remedies.  Borrower  shall  execute  and  deliver  to Lender  from time to time,
promptly  after the  request of Lender,  a  severance  agreement  and such other
documents as Lender shall request in order to effect the severance  described in
the preceding  sentence,  all in form and substance  reasonably  satisfactory to
Lender.  Borrower hereby absolutely and irrevocably  appoints Lender as its true
and lawful attorney, coupled with an interest, in its name and stead to make and
execute all documents necessary or desirable to effect such severance,  Borrower
ratifying all that such attorney shall do by virtue thereof.

     VIII.2.4 Delay. No delay or omission to exercise any remedy, right or power
accruing upon an Event of Default  shall impair any such remedy,  right or power
or be construed as a waiver thereof,  but any such remedy, right or power may be
exercised from time to time and as often as may be deemed expedient. A waiver of
one  Default or Event of Default  shall not be  construed  to be a waiver of any
subsequent  Default or Event of Default or to impair any remedy,  right or power
consequent thereon.

IX.  SPECIAL PROVISIONS

     IX.1 Sale of Note and Securitization.

     IX.1.1 Cooperation. At Lender's request (to the extent not already required
to be provided by Borrower under this Agreement),  Borrower shall use reasonable
efforts to satisfy the market standards to which Lender  customarily  adheres or
which may be reasonably required in the marketplace or by the Rating Agencies in
connection  with the  sale of the Note or  participation  therein  or the  first
successful    securitization    (such   sale    and/or    securitization,    the
"Securitization")  of rated single or multi-class  securities (the "Securities")
secured by or  evidencing  ownership  interests  in the Note and the  Mortgages.
Without limiting the generality of the foregoing, Borrower shall:

     (a) (i) provide such  financial and other  information  with respect to the
Properties,  Borrower  and  its  Affiliates,  Manager  and  any  tenants  of the
Properties,  (ii) provide  business plans and budgets relating to the Properties
and (iii)  perform or permit or cause to be  performed  or  permitted  such site
inspection, appraisals, market studies, environmental reviews and reports (Phase
I's and,  if  appropriate,  Phase  II's),  engineering  reports  and  other  due
diligence  investigations of the Properties,  as may be reasonably  requested by
Lender  or the  Rating  Agencies  or as  may  be  necessary  or  appropriate  in
connection  with the  Securitization  (the items provided to Lender  pursuant to
this  paragraph  (a) being  called the  "Provided  Information"),  together,  if
customary,  with  appropriate  verification  of and/or  consents to the Provided

                                       49
<PAGE>

Information  through  letters of auditors or opinions of counsel of  independent
attorneys acceptable to Lender and the Rating Agencies;

     (b)  at  Borrower's  expense,  cause  counsel  to  render  opinions  as  to
non-consolidation,  fraudulent  conveyance,  true sale and true contribution and
any other opinion customary in  securitization  transactions with respect to the
Properties,  Borrower and its  Affiliates,  which counsel and opinions  shall be
reasonably satisfactory to Lender and the Rating Agencies;

     (c) make such  representations and warranties as of the closing date of the
Securitization  with respect to the Properties,  Borrower and the Loan Documents
as  are  customarily  provided  in  securitization  transactions  and  as may be
reasonably  requested by Lender or the Rating  Agencies and consistent  with the
facts covered by such  representations  and warranties as they exist on the date
thereof,   including  the  representations  and  warranties  made  in  the  Loan
Documents;

     (d) provide current  certificates of good standing and  qualification  with
respect to Borrower from appropriate Governmental Authorities; and

     (e)  execute  such   amendments  to  the  Loan   Documents  and  Borrower's
organizational  documents,  enter into a lock-box  or similar  arrangement  with
respect  to the  Rents and  establish  and fund such  reserve  funds  (including
reserve  funds for  deferred  maintenance  and capital  improvements)  as may be
requested  by  Lender  or  the  Rating  Agencies  or  otherwise  to  effect  the
Securitization,  provided that nothing  contained in this  subsection  (e) shall
result in a material economic change in the transaction.

All reasonable  third party costs and expenses  incurred by Lender in connection
with  Borrower's  complying  with  requests made under this Section 9.1 shall be
paid by Borrower up to a maximum amount equal to .10% of the original Principal,
which Borrower shall deposit with Lender on the date hereof.

     IX.1.2  Use  of  Information.  Borrower  understands  that  certain  of the
Provided  Information  and the  Required  Records may be included in  disclosure
documents in  connection  with the  Securitization,  including a  prospectus  or
private  placement  memorandum  (each, a "Disclosure  Document") and may also be
included in filings with the Securities and Exchange  Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities and
Exchange  Act of 1934,  as amended  (the  "Exchange  Act"),  or provided or made
available to investors or prospective  investors in the  Securities,  the Rating
Agencies,  and service providers  relating to the  Securitization.  In the event
that the Disclosure  Document is required to be revised prior to the sale of all
Securities,  Borrower  shall  cooperate  with  Lender in updating  the  Provided
Information  or Required  Records  for  inclusion  or summary in the  Disclosure
Document by providing  all current  information  pertaining  to Borrower and the
Properties  necessary to keep the Disclosure  Document  accurate and complete in
all material respects with respect to such matters.



                                       50
<PAGE>

     IX.1.3 Borrower Obligations Regarding Disclosure  Documents.  In connection
with a preliminary and a final private  placement or prospectus,  as applicable,
Borrower agrees:

     (a) if  requested  by  Lender,  to certify in  writing  that  Borrower  has
carefully  examined  those  portions  of  such  memorandum  or  prospectus,   as
applicable,  pertaining  to  Borrower,  the  Property  and the  Loan,  including
applicable   portions  of  the  sections  entitled   "Special   Considerations",
"Description of the Mortgages", "Description of the Mortgage Loans and Mortgaged
Properties",  "The  Manager",  "The  Borrower" and "Certain Legal Aspects of the
Mortgage Loan", and such sections (and any other sections  reasonably  requested
and  pertaining  to  Borrower,  the  Properties  or the Loan) do not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
in order to make the statements  made, in the light of the  circumstances  under
which they were made, not misleading;

     (b)  to  indemnify   Lender  and  the   Affiliates  of  Nomura   Securities
International,  Inc.  ("Nomura"),  that have  filed the  registration  statement
relating  to the  Securitization  (the  "Registration  Statement"),  each of its
directors,  each of its officers who have signed the Registration  Statement and
each person or entity who  controls  Nomura  within the meaning of Section 15 of
the  Securities  Act or  Section  30 of the  Exchange  Act of 1933,  as  amended
(collectively,  the "Nomura Group"),  and Nomura, each of its directors and each
person who controls  Nomura,  within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act (collectively,  the "Underwriter  Group")
for any losses,  claims,  damages or liabilities  (the  "Liabilities")  to which
Lender,  the Nomura Group or the Underwriter Group may become subject insofar as
the  Liabilities  arise out of or are based  upon any  untrue  statement  of any
material  fact  contained in the  applicable  portions of such  sections of such
memorandum,  prospectus or Registration  Statement  applicable to Borrower,  the
Properties  or the Loan, or arise out of or are based upon the omission to state
therein a material fact required to be stated in the applicable portions of such
sections or necessary in order to make the statements in the applicable portions
of such  sections or in light of the  circumstances  under which they were made,
not  misleading;  and 

     (c) to  reimburse  Lender  and  Nomura  for any  legal  or  other  expenses
reasonably  incurred by Lender and Nomura in connection  with  investigating  or
defending the Liabilities.

Borrower's  Liability  under clause (a) or (b) above shall be limited  solely to
Liabilities  arising out of or based upon any such untrue  statement or omission
made therein in reliance upon and in conformity  with  information  furnished to
Lender by or on behalf of Borrower in connection  with the  preparation of those
portions of the Disclosure  Document  pertaining to Borrower,  the Properties or
the Loan or in connection with the underwriting of the debt, including financial
statements of Borrower,  operating  statements,  rent rolls,  environmental site
assessment   reports  and  property   condition  reports  with  respect  to  the
Properties.  The foregoing  indemnity will be in addition to any liability which
Borrower may otherwise have.

                                       51
<PAGE>

     IX.1.4 Borrower  Indemnity  Regarding  Filings.  In connection with filings
under the Exchange  Act,  Borrower  agrees to (i) indemnify  Lender,  the Nomura
Group and the Underwriter Group for any Liabilities to which Lender,  the Nomura
Group or the  Underwriter  Group may become subject  insofar as the  Liabilities
arise out of or are based upon the omission or alleged  omission to state in the
Provided  Information or Required  Records a material fact required to be stated
in the Provided  Information or Required Records in order to make the statements
in the Provided  Information or Required Records,  in light of the circumstances
under which they were made not misleading  and (ii)  reimburse  Lender or Nomura
for any legal or other  expenses  reasonably  incurred  by Lender  and Nomura in
connection with defending or investigating the Liabilities.

     IX.1.5 Indemnification Procedure.  Promptly after receipt by an indemnified
party under Section 9.1.3 or 9.1.4 of notice of the  commencement  of any action
for which a claim  for  indemnification  is to be made  against  Borrower,  such
indemnified party shall notify Borrower in writing of such commencement, but the
omission to so notify the Borrower will not relieve  Borrower from any liability
that it may have to any indemnified  party  hereunder  except to the extent that
failure to notify causes prejudice to Borrower.  In the event that any action is
brought  against  any  indemnified  party,  and  it  notifies  Borrower  of  the
commencement  thereof,  Borrower  will  be  entitled,  jointly  with  any  other
indemnifying  party, to participate therein and, to the extent that it (or they)
may elect by written notice  delivered to the  indemnified  party promptly after
receiving the aforesaid  notice of  commencement,  to assume the defense thereof
with counsel  satisfactory to such indemnified party. After notice from Borrower
to such  indemnified  party  under this  Section  9.1.5,  Borrower  shall not be
responsible  for any  legal  or other  expenses  subsequently  incurred  by such
indemnified  party in connection  with the defense thereof other than reasonable
costs of investigation;  provided, however, if the defendants in any such action
include both Borrower and an indemnified  party, and any indemnified party shall
have  reasonably  concluded  that there are any legal  defenses  available to it
and/or other indemnified  parties that are different from or additional to those
available  to Borrower,  then the  indemnified  party or parties  shall have the
right to select separate  counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Borrower shall not be liable for the expenses of more than one separate
counsel unless there are legal defenses  available to it that are different from
or additional to those available to another indemnified party.

     IX.1.6   Contribution.   In  order  to  provide  for  just  and   equitable
contribution in circumstances in which the indemnity  agreement  provided for in
Section  9.1.3  or  9.1.4  is for  any  reason  held to be  unenforceable  by an
indemnified  party in respect of any Liabilities (or action in respect  thereof)
referred to therein which would otherwise be  indemnifiable  under Section 9.1.3
or 9.1.4,  Borrower  shall  contribute  to the  amount  paid or  payable  by the
indemnified  party  as a  result  of such  Liabilities  (or  action  in  respect
thereof);   provided,   however,   that   no   Person   guilty   of   fraudulent
misrepresentation  (within the meaning of Section 11(f) of the  Securities  Act)
shall be entitled to contribution  from any Person not guilty of such fraudulent
misrepresentation.  In  determining  the  amount  of  contribution  to which the
respective parties are entitled, the following factors shall be considered:  (i)
the Nomura Group's and Borrower's  relative  knowledge and access to information
concerning  the matter with  respect to which the claim was  asserted;  (ii) the
opportunity  to correct and prevent any  statement  or  omission;  and (iii) any
other  equitable 


                                       52
<PAGE>

considerations  appropriate  in the  circumstances.  Lender and Borrower  hereby
agree  that it may not be  equitable  if the  amount of such  contribution  were
determined by pro rata or per capita allocation.

     IX.1.7  Rating  Surveillance.  Lender  will  retain the Rating  Agencies to
provide rating surveillance  services on Securities.  The pro rata share of such
rating  surveillance  will  be at  the  expense  of  Borrower,  subject  to  the
limitation on Borrower's costs contained in the last paragraph of Section 9.1.1.

X.   MISCELLANEOUS

     X.1  Exculpation.  Subject to the  qualifications  below,  Lender shall not
enforce  the  liability  and  obligation  of Borrower to perform and observe the
obligations  contained  in the Loan  Documents  against  Borrower  or any of its
officers, directors,  employees,  partners, members or shareholders ("Borrower's
Constituents"),  by any action or proceeding  wherein a money  judgment shall be
sought,  except  that  Lender  may bring a  foreclosure  action,  an action  for
specific  performance  or any other  appropriate  action or proceeding to enable
Lender  to  enforce  and  realize  upon its  security  interests  under the Loan
Documents,  or in the Properties,  the Rents or any other collateral given by or
on behalf  of  Borrower  to Lender  pursuant  to the Loan  Documents;  provided,
however,  that,  except as  specifically  provided  in this  Section  10.1,  any
judgment in any such action or proceeding shall be enforceable  against Borrower
only to the extent of Borrower's interest in the Properties, in the Rents and in
any other  collateral  given by or on behalf of Borrower  to Lender,  and Lender
agrees that it shall not sue for, seek or demand any deficiency judgment against
(i) Borrower, (ii) the property of any of Borrower's Constituents,  or (iii) the
property of any of the  officers,  directors,  employees,  partners,  members or
shareholders of any of Borrower's Constituents, in any such action or proceeding
under or by  reason of or under or in  connection  with any Loan  Document.  The
provisions of this section shall not, however, (i) constitute a waiver,  release
or impairment of any obligation evidenced or secured by any Loan Document;  (ii)
impair the right of Lender to name  Borrower as a party  defendant in any action
or suit for foreclosure and sale under the Mortgages;  (iii) affect the validity
or enforceability of any guaranty made in connection with the Loan or any of the
rights and  remedies  of Lender  thereunder;  (iv) impair the right of Lender to
obtain  the  appointment  of a  receiver;  (v)  impair  the  enforcement  of the
Assignment  of Leases as against  Borrower's  interest in the  Properties or the
Rents;  (vi)  constitute  a  prohibition  against  Lender to commence  any other
appropriate  action or  proceeding  in order for  Lender  to fully  realize  the
security  granted by the  Mortgages  or to  exercise  its  remedies  against the
Properties;  or (vii)  constitute a waiver of the right of Lender to enforce the
liability and  obligation of Borrower,  by money  judgment or otherwise,  to the
extent of any loss, damage, cost, expense,  liability, claim or other obligation
incurred by Lender  (including  attorneys' fees and costs  reasonably  incurred)
arising out of or in connection with the following:

          (a)  fraud  or  intentional   misrepresentation  by  Borrower  or  any
     guarantor in connection with the Loan;

          (b) the willful misconduct of Borrower;



                                       53
<PAGE>

          (c)  the  breach  of  any   representation,   warranty,   covenant  or
     indemnification  in any  Loan  Document  concerning  Environmental  Laws or
     Hazardous  Substances,  including  Sections  4.1.32 and 5.10,  and  clauses
     (viii) through (xi) of Section 5.18;

          (d) the removal or disposal  of any portion of any  Property  after an
     Event of Default,  which removal or disposal is  prohibited  under the Loan
     Documents;

          (e) the misappropriation or conversion by Borrower of (x) any Proceeds
     paid  by  reason  of any  Insured  Casualty,  (y)  any  Award  received  in
     connection with a Condemnation,  or (z) any Rents during the continuance of
     an Event of Default, which are not deposited into the Deposit Account;

          (f)  failure to pay charges for labor or  materials  or other  charges
     that can create  Liens on any portion of any  Property  unless such charges
     are the subject of a bona fide dispute in which  Borrower is contesting the
     amount or validity thereof;

          (g) any security deposits collected with respect to any Property which
     are not  delivered  to  Lender  upon a  foreclosure  of or  action  in lieu
     thereof,  except to the extent any such  security  deposits were applied in
     accordance  with the terms and conditions of any of the Leases prior to the
     occurrence  of the Event of Default that gave rise to such  foreclosure  or
     action in lieu thereof;

          (h) Borrower's  indemnifications of Lender set forth in Sections 9.1.3
     and 9.1.4; and

          (i)  Borrower's  indemnification  of Lender set forth in Section 24 of
     each of the Mortgages.

     provided,  however, that notwithstanding anything to the contrary contained
in this clause  (vii),  Lender  agrees that it shall not sue for, seek or demand
any judgment against (i) the property of any of Borrower's Constituents, or (ii)
the property of any of the officers, directors,  employees, partners, members or
shareholders of any of Borrower's Constituents, in any such action or proceeding
under or by reason of or under or in connection with any Loan Document.

Notwithstanding  anything to the  contrary in this  Agreement or any of the Loan
Documents,  Lender shall not be deemed to have waived any right which Lender may
have under Section 506(a),  506(b),  1111(b) or any other provisions of the U.S.
Bankruptcy  Code to file a claim for the full  amount of the Debt or to  require
that all collateral  shall continue to secure all of the Debt in accordance with
the Loan Documents.

     X.2 Notices.  All notices,  consents,  approvals  and requests  required or
permitted hereunder or under any other Loan Document (a "notice") shall be given
in writing and shall be effective for all purposes if hand delivered or sent (i)
by certified or registered United 


                                       54
<PAGE>

States mail, postage prepaid, or (ii) by (A) expedited prepaid delivery service,
either  commercial  or United  States  Postal  Service,  with proof of attempted
delivery,  and (B)  telecopier  (with  answer  back  acknowledged),  in any case
addressed  as  follows  (or to such  other  address  or Person as a party  shall
designate from time to time by notice to the other party): If to Lender:  Nomura
Asset Capital Corporation, Two World Financial Center, Building B, New York, New
York 10281, Attention:  Sheryl McAfee, Telecopier (212) 667-1206, with copies to
: Nomura Asset Capital Corporation,  Two World Financial Center, Building B, New
York, New York 10281, Attention: Barry Funt, Telecopier (212) 667-1567 and Kaye,
Scholer,  Fierman,  Hays & Handler,  LLP,  425 Park Avenue,  New York,  New York
10022, Attention:  Stephen Gliatta,  Telecopier: (212) 836-7156; if to Borrower:
c/o FAC Realty Trust,  Inc., 11000 Regency Parkway,  Cary, North Carolina 27511,
Attention:  President,  Telecopier  (919)  462-8799,  with copies to: FAC Realty
Trust, Inc.,11000 Regency Parkway, Cary, North Carolina 27511, Attention:  Chief
Financial  Officer and another copy sent to  Attention:  General  Counsel at the
same address,  Telecopier  (703)  506-9137,  and with a copy to: Mayer,  Brown &
Platt, 2000 Pennsylvania Avenue, N.W., Washington,  D.C. 20006, Attention: Keith
J. Willner,  Telecopier:  (202) 861-0473.  A notice shall be deemed to have been
given:  in the case of hand  delivery,  at the time of delivery;  in the case of
registered or certified mail, when delivered or the first attempted  delivery on
a Business Day; or in the case of expedited prepaid delivery and telecopy,  upon
the first  attempted  delivery  (but not in the case of  telecopy) on a Business
Day.

     X.3 Brokers and Financial Advisors.  Borrower hereby represents that it has
dealt with no  financial  advisors,  brokers,  underwriters,  placement  agents,
agents or finders in connection with the Loan.  Borrower and Lender hereby agree
to indemnify  and hold the other  harmless  from and against any and all claims,
liabilities,  costs and  expenses of any kind in any way  relating to or arising
from a claim by any Person that such Person acted on behalf of the  indemnifying
party in connection with the transactions contemplated herein. The provisions of
this Section 10.3 shall survive the expiration and termination of this Agreement
and the repayment of the Debt.

     X.4 Retention of Servicer. Lender reserves the right to retain the Servicer
to act as its agent hereunder with such powers as are specifically  delegated to
the Servicer by Lender,  whether  pursuant to the terms of this  Agreement,  the
Pooling and Servicing  Agreement,  the Deposit  Account  Agreement or otherwise,
together with such other powers as are reasonably  incidental thereto.  Borrower
shall pay any reasonable  fees and expenses of the Servicer in connection with a
Defeasance,  release of the Property,  assumption or modification of the Loan or
enforcement of the Loan Documents.

     X.5 Survival. This Agreement and all covenants, agreements, representations
and warranties  made herein and in the  certificates  delivered  pursuant hereto
shall survive the making by Lender of the Loan and the execution and delivery to
Lender of the Note,  and shall  continue in full force and effect so long as all
or any of the Debt is unpaid.  All  Borrower's  covenants and agreements in this
Agreement  shall inure to the benefit of the respective  legal  representatives,
successors and assigns of Lender.



                                       55
<PAGE>

     X.6 Lender's  Discretion.  Whenever pursuant to this Agreement or any other
Loan Document,  Lender exercises any right given to it to approve or disapprove,
or any  arrangement  or term is to be  satisfactory  to Lender,  the decision of
Lender to approve or disapprove or to decide whether  arrangements  or terms are
satisfactory  or not  satisfactory  shall  (except as is otherwise  specifically
herein  provided)  be in the sole  discretion  of Lender  and shall be final and
conclusive.

     X.7 Governing  Law. (a) THIS  AGREEMENT WAS  NEGOTIATED IN THE STATE OF NEW
YORK,  AND MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK, AND
THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE
OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE
PARTIES AND TO THE UNDERLYING  TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS,
INCLUDING MATTERS OF CONSTRUCTION,  VALIDITY AND PERFORMANCE, THIS AGREEMENT AND
THE  OBLIGATIONS  ARISING  HEREUNDER  SHALL BE  GOVERNED  BY, AND  CONSTRUED  IN
ACCORDANCE  WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND  PERFORMED  IN SUCH STATE AND ANY  APPLICABLE  LAW OF THE  UNITED  STATES OF
AMERICA,  EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION,  PERFECTION,
AND  ENFORCEMENT OF THE LIENS CREATED  PURSUANT TO THE LOAN  DOCUMENTS  SHALL BE
GOVERNED  BY AND  CONSTRUED  ACCORDING  TO THE LAW OF THE  STATE  IN  WHICH  THE
APPLICABLE  PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT
PERMITTED  BY THE LAW OF SUCH  STATE,  THE LAW OF THE  STATE OF NEW  YORK  SHALL
GOVERN THE VALIDITY AND THE  ENFORCEABILITY  OF ALL LOAN DOCUMENTS AND THE DEBT.
TO THE FULLEST EXTENT  PERMITTED BY LAW,  BORROWER  HEREBY  UNCONDITIONALLY  AND
IRREVOCABLY  WAIVES ANY CLAIM TO ASSERT  THAT THE LAW OF ANY OTHER  JURISDICTION
GOVERNS THIS  AGREEMENT AND THE NOTE,  AND THIS  AGREEMENT AND THE NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK
PURSUANT TO ss. 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

     (b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING
OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE
COURT IN NEW YORK,  NEW YORK,  PURSUANT  TO ss.  5-1402 OF THE NEW YORK  GENERAL
OBLIGATIONS LAW, AND BORROWER WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER
HEREBY  IRREVOCABLY  SUBMITS TO THE  JURISDICTION OF ANY SUCH COURT IN ANY SUIT,
ACTION OR PROCEEDING.  BORROWER DOES HEREBY DESIGNATE AND APPOINT MAYER, BROWN &
PLATT,  AT 1675  BROADWAY,  NEW YORK,  NEW YORK,  ATTENTION:  REAL ESTATE GROUP,
MANAGING  PARTNER,  AS ITS  AUTHORIZED  AGENT TO ACCEPT AND  ACKNOWLEDGE  ON ITS
BEHALF  SERVICE  OF ANY AND ALL  PROCESS  WHICH MAY BE SERVED IN ANY SUCH  SUIT,
ACTION OR  PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK,  NEW 


                                       56
<PAGE>

YORK,  AND AGREES THAT  SERVICE OF PROCESS  UPON SAID AGENT AT SAID  ADDRESS AND
WRITTEN  NOTICE OF SAID  SERVICE OF BORROWER  MAILED OR DELIVERED TO BORROWER IN
THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON  BORROWER,  IN ANY SUCH SUIT,  ACTION OR PROCEEDING IN THE STATE OF
NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS
OF ITS AUTHORIZED  AGENT  HEREUNDER,  (II) MAY AT ANY TIME AND FROM TIME TO TIME
DESIGNATE A  SUBSTITUTE  AUTHORIZED  AGENT WITH AN OFFICE IN NEW YORK,  NEW YORK
(WHICH OFFICE SHALL BE  DESIGNATED  AS THE ADDRESS FOR SERVICE OF PROCESS),  AND
(III) SHALL PROMPTLY  DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES
TO HAVE AN  OFFICE  IN NEW  YORK,  NEW YORK OR IS  DISSOLVED  WITHOUT  LEAVING A
SUCCESSOR.

     X.8 Modification, Waiver in Writing. No modification, amendment, extension,
discharge,  termination  or waiver of any provision of this  Agreement or of any
other Loan Document,  nor consent to any departure by Borrower therefrom,  shall
in any event be  effective  unless the same shall be in a writing  signed by the
party against whom enforcement is sought,  and then such waiver or consent shall
be effective  only in the  specific  instance,  and for the  purpose,  for which
given.  Except as otherwise expressly provided herein, no notice to or demand on
Borrower  shall entitle  Borrower to any other or future notice or demand in the
same, similar or other circumstances.

     X.9 Delay Not a Waiver.  Neither  any  failure nor any delay on the part of
Lender in insisting upon strict performance of any term, condition,  covenant or
agreement,  or exercising any right,  power, remedy or privilege  hereunder,  or
under any other Loan Document,  shall operate as or constitute a waiver thereof,
nor  shall a single or  partial  exercise  thereof  preclude  any  other  future
exercise,  or the exercise of any other right,  power,  remedy or privilege.  In
particular,  and not by way of  limitation,  by accepting  payment after the due
date of any amount payable under any Loan  Document,  Lender shall not be deemed
to have waived any right either to require  prompt payment when due of all other
amounts  due under the Loan  Documents,  or to declare a Default  for failure to
effect prompt payment of any such other amount.

     X.10 Trial by Jury.  BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY,  AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT  THAT ANY SUCH RIGHT SHALL NOW OR  HEREAFTER  EXIST WITH REGARD TO
THE LOAN  DOCUMENTS,  OR ANY  CLAIM,  COUNTERCLAIM  OR OTHER  ACTION  ARISING IN
CONNECTION  THEREWITH.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY
AND  VOLUNTARILY  BY BORROWER,  AND IS INTENDED TO ENCOMPASS  INDIVIDUALLY  EACH
INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE
ACCRUE.  LENDER IS HEREBY  AUTHORIZED  TO FILE A COPY OF THIS  PARAGRAPH  IN ANY
PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.



                                       57
<PAGE>

     X.11 Headings. The Section headings and Table of Contents in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.

     X.12  Severability.  Wherever  possible,  each  provision of this Agreement
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under  applicable law, such provision shall be ineffective to the extent
of such  prohibition or invalidity,  without  invalidating the remainder of such
provision or the remaining provisions of this Agreement.

     X.13  Preferences.  Lender shall have the continuing and exclusive right to
apply or reverse and reapply any and all  payments by Borrower to any portion of
the Debt. To the extent  Borrower makes a payment to Lender,  or Lender receives
proceeds of any collateral,  which is in whole or part subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee,  receiver  or any other  party  under any  bankruptcy  law,  state or
federal law, common law or equitable cause,  then, to the extent of such payment
or  proceeds  received  are  required  to be repaid by Lender,  the Debt or part
thereof intended to be satisfied shall be revived and continue in full force and
effect, as if such payment or proceeds had not been received by Lender.

     X.14 Waiver of Notice. Borrower shall not be entitled to any notices of any
nature  whatsoever  from Lender  except  with  respect to matters for which this
Agreement or any other Loan Document specifically and expressly provides for the
giving of notice by Lender to Borrower  and except  with  respect to matters for
which Borrower is not, pursuant to applicable Legal  Requirements,  permitted to
waive the  giving  of  notice.  Except as  prohibited  by law,  Borrower  hereby
expressly waives the right to receive any notice from Lender with respect to any
matter for which no Loan Document  specifically  and expressly  provides for the
giving of notice by Lender to Borrower.

     X.15  Remedies of Borrower.  In the event that a claim or  adjudication  is
made that Lender or its agent,  including  Servicer,  has acted  unreasonably or
unreasonably delayed acting in any case where by law or under any Loan Document,
Lender or such agent, as the case may be, has an obligation to act reasonably or
promptly,  Borrower  agrees  that  neither  Lender  nor  its  agents,  including
Servicer,  shall be liable for any monetary damages,  and Borrower's sole remedy
shall  be to  commence  an  action  seeking  injunctive  relief  or  declaratory
judgment.  Any  action or  proceeding  to  determine  whether  Lender  has acted
reasonably shall be determined by an action seeking declaratory judgment.

     X.16 Prior Agreements.  This Agreement and the other Loan Documents contain
the  entire  agreement  of the  parties  hereto  and  thereto  in respect of the
transactions  contemplated hereby and thereby, and all prior agreements among or
between such parties,  whether oral or written,  are  superseded by the terms of
this Agreement and the other Loan Documents.

                                       58
<PAGE>

     X.17 Offsets,  Counterclaims and Defenses. Borrower hereby waives the right
to assert a counterclaim, other than a compulsory counterclaim, in any action or
proceeding brought against it by Lender or its agents,  including Servicer.  Any
assignee of Lender's  interest in and to the Loan Documents  shall take the same
free and clear of all offsets,  counterclaims  or defenses that are unrelated to
the Loan  Documents  which  Borrower may otherwise  have against any assignor of
such documents,  and no such unrelated offset,  counterclaim or defense shall be
interposed  or asserted by Borrower in any action or  proceeding  brought by any
such assignee upon such documents, and any such right to interpose or assert any
such unrelated offset,  counterclaim or defense in any such action or proceeding
is hereby expressly waived by Borrower.

     X.18 Publicity. All news releases,  publicity or advertising by Borrower or
its  Affiliates  through any media intended to reach the general  public,  which
refers to the Loan Documents,  the Loan, Lender, Nomura, the Loan purchaser, the
Servicer  or the  trustee  in a  Securitization,  shall be  subject to the prior
written approval of Lender.

     X.19 No Usury.  Borrower  and  Lender  intend  at all times to comply  with
applicable state law or applicable United States federal law (to the extent that
it permits Lender to contract for,  charge,  take,  reserve or receive a greater
amount of  interest  than under  state law) and that this  Section  10.19  shall
control  every other  agreement in the Loan  Documents.  If the  applicable  law
(state or federal) is ever  judicially  interpreted so as to render usurious any
amount called for under the Note or any other Loan Document,  or contracted for,
charged,  taken,  reserved or received  with respect to the Debt, or if Lender's
exercise of the option to accelerate  the maturity of the Loan of any prepayment
by  Borrower  results in  Borrower  having  paid any  interest in excess of that
permitted by applicable  law, then it is Borrower's and Lender's  express intent
that all  excess  amounts  theretofore  collected  by Lender  shall be  credited
against  the unpaid  Principal  and all other Debt (or,  if the Debt has been or
would thereby be paid in full, refunded to Borrower),  and the provisions of the
Loan  Documents  immediately  be  deemed  reformed  and the  amounts  thereafter
collectible  thereunder  reduced,  without the necessity of the execution of any
new document,  so as to comply with the applicable  law, but so as to permit the
recovery of the fullest amount otherwise called for thereunder. All sums paid or
agreed to be paid to Lender for the use,  forbearance  or  detention of the Loan
shall,  to the extent  permitted  by  applicable  law, be  amortized,  prorated,
allocated,  and spread throughout the full stated term of the Loan until payment
in full so that the rate or amount of  interest  on account of the Debt does not
exceed the maximum lawful rate from time to time in effect and applicable to the
Debt for so loan as the Debt is  outstanding.  Notwithstanding  anything  to the
contrary  contained in any Loan  Document,  it is not the intention of Lender to
accelerate the maturity of any interest that has not accrued at the time of such
acceleration or to collect unearned interest at the time of such acceleration.

     X.20  Conflict;  Construction  of  Documents.  In the event of any conflict
between the  provisions of this  Agreement and any of the other Loan  Documents,
the provisions of this Agreement shall control.  The parties hereto  acknowledge
that they were  represented by counsel in connection  with the  negotiation  and
drafting of the Loan Documents and that the Loan Documents  shall not be subject
to the  principle of  construing  their  meaning  against the party that


                                       59
<PAGE>

drafted them.

     X.21 No Third Party  Beneficiaries.  The Loan  Documents are solely for the
benefit of Lender and the  Borrower and nothing  contained in any Loan  Document
shall be deemed to confer upon anyone other than the Lender and the Borrower any
right to insist upon or to enforce the  performance  or observance of any of the
obligations contained therein.

     X.22 Cross Default;  Cross  Collateralization.  Borrower  acknowledges that
Lender  has made the  Loan to  Borrower  upon  the  security  of its  collective
interest in the  Properties and in reliance upon the aggregate of the Properties
taken together being of greater value as collateral security than the sum of the
Properties taken separately.  Borrower agrees that the Mortgages are and will be
cross-collateralized and cross-defaulted with each other so that (i) an Event of
Default  under any of the Mortgages  shall  constitute an Event of Default under
each of the other  Mortgages  which  secure  the Note;  (ii) an Event of Default
under the Note or this Agreement shall constitute an Event of Default under each
Mortgage; and (iii) each Mortgage shall constitute security for the Note as if a
single  blanket  lien were placed on all of the  Properties  as security for the
Note.


                                       60
<PAGE>


     IN WITNESS  WHEREOF,  the parties hereto have caused this Loan Agreement to
be duly executed under seal by their duly authorized representatives,  all as of
the day and year first above written.

                             FAC MORTGAGE LLC, a Delaware limited liability
                             company     (SEAL)

                             By:      FAC Mortgage Formation, Inc., a Delaware 
                                      corporation, its managing member

                                      By:      _________________________
                                               Name: Linda M. Swearingen
                                               Title: Vice President

ATTEST:

By:      ______________________
         Name: William L. Welch, III
         Title: Assistant Secretary

         [CORPORATE SEAL]



                             NOMURA ASSET CAPITAL CORPORATION

                             By:_______________________________________
                                   Name:
                                   Title:

ATTEST:

By:      ______________________
         Name:
         Title:_________ Secretary

         [CORPORATE SEAL]



                                       61
<PAGE>

                                   SCHEDULE 1

                               List of Properties

Owned Properties

1.   Branson,  MO - Factory  Shoppes  at  Branson  Meadows,  4562  Gretna  Road,
     Branson, MO 65616

2.   Georgetown,  KY-  Factory  Stores of  America,  401  Outlet  Center  Drive,
     Georgetown, KY 40324

3.   Graceville, FL - Factory Stores of America, 950 Prim Avenue, Graceville, FL
     32440

4.   Lebanon, MO - Factory Stores of America, 2020 Industrial Drive, Lebanon, MO
     65536

5.   Cary, NC - McGreggor Village Shopping Center, 107 Edinburgh South, Cary, NC
     27511

6.   Nebraska  City,  NE - Factory  Stores of America,  101 Nebraska  State Hwy,
     Nebraska City, NE 68410

7.   Raleigh,  NC - North Ridge Shopping  Center,  6196 Falls of the Neuse Road,
     Raleigh, NC 27609

8.   Smithfield,  NC - Factory Stores of America,  1025  Industrial  Park Drive,
     Smithfield, NC 27577

9.   Story City, IA - Factory Stores of America, 324 Factory Outlet Drive, Story
     City, IA 50248

10.  Sulphur Springs,  TX - Factory Stores of America,  614 Radio Road,  Sulphur
     Springs, TX 75482

Ground Leased Property

11.  Boaz, AL - Factory Stores of America, 200 Lackey Street, Boaz, AL 35957

                                      1-1

<PAGE>




                                   SCHEDULE 2

                        Matters Regarding Representations





                                       2-1

<PAGE>




                                   SCHEDULE 3

                                   Rent Rolls

                                 (See Attached)




                                       3-1

<PAGE>




                                   SCHEDULE 4

                                Required Repairs

                                 (See Attached)




                                       4-1

<PAGE>




                                   SCHEDULE 5

                                  Anchor Leases

                                 (See Attached)



                                       5-1
<PAGE>




                                   SCHEDULE 6

                              Eligible Out-Parcels

                                 (See Attached)



                                       6-1

<PAGE>



                                   SCHEDULE 7

                                Form of Rent Roll

                                 (See Attached)




                                       7-1