<PAGE>

                                                                    EXHIBIT 10.5
 
                              THIRD AMENDMENT TO

                           FIRST AMENDED AND RESTATED

                      AGREEMENT OF LIMITED PARTNERSHIP OF

                             ESSEX PORTFOLIO, L.P.

                         Dated as of November 24, 1998

     This Third Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portolio, L.P., as amended (the "Partnership Agreement"),
dated as of the date shown above (the "Amendment"), is executed by Essex
Property Trust, Inc. a Maryland Corporation (the "Company"), as the General
Partner and on behalf of the existing Limited Partners of Essex Portfolio, L.P.
(the "Partnership") and Belcrest Realty Corporation, a Delaware corporation
("Belcrest") and Belair Real Estate Corporation, a Delaware corporation
("Belair," and together with Belcrest, the "Contributors").

                                    RECITALS

     WHEREAS, the Partnership was formed pursuant to the Partnership Agreement,
which has been amended and restated as of September 30, 1997;

     WHEREAS, on the date hereof, Contributors have made a Capital Contribution
of an aggregate of $25,000,000.00, in cash, to the Partnership in exchange for
which Contributors are entitled to receive an aggregate of 500,000 9 1/8%
Series C Cumulative Redeemable Preferred Units (the "Series C Preferred Units")
of limited partnership interests in the Partnership with rights, preferences,
exchange and other rights, voting powers and restrictions, limitations as to
distributions, qualifications and terms and conditions as set forth herein;

     WHEREAS, pursuant to the authority granted to the General Partner under the
Partnership Agreement, the General Partner desires to amend the Partnership
Agreement to reflect (i) the issuance of the Series C Preferred Units, (ii) the
admission of the Contributors as Additional Limited Partners and holders of a
certain number of Series C Preferred Units and (iii) certain other matters
described herein;

     WHEREAS, Contributors desire to become a party to the Partnership Agreement
as Limited Partners and to be bound by all terms, conditions and other
provisions of this Amendment and the Partnership Agreement.

     NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement as
follows:

                                       1
<PAGE>
 
  1.      Definitions.  Capitalized terms used herein, unless otherwise defined
          -----------                                                          
herein, shall have the same meanings as set forth in the Partnership Agreement.

  2.      Admission of Contributors.  Contributors are hereby admitted as
          -------------------------                                      
Additional Limited Partners in accordance with Section 4.6 of the Partnership
Agreement holding such number of Series C Preferred Units as is set forth on
Exhibit A, as amended.  Contributors each hereby agree to become a party to the
Partnership Agreement as a Limited Partner and to be bound by all the terms,
conditions and other provisions of the Partnership Agreement, as amended by this
Amendment.  Pursuant to Section 4.6(b) of the Partnership Agreement, the General
Partner hereby consents to the admission of each Contributor as an Additional
Limited Partner of the Partnership.  The admission of Contributors shall become
effective as of the date of this Amendment, which shall also be the date on
which the name of each Contributor is recorded on the books and records of the
Partnership.

  3.      Percentage Interest.  Section 1.1 of the Partnership Agreement is
          -------------------                                              
hereby amended to delete the definition of "Percentage Interest" in its entirety
and the following definition of "Percentage Interest" is hereby substituted in
its place:

          "Percentage Interest" shall mean, with respect to any Partner other
     than holders of Series B Preferred Units or Series C Preferred Units, the
     undivided percentage ownership interest of such Partner in the Partnership,
     as determined by dividing the number of Partnership Units owned by such
     Partner by the total number of Partnership Units then outstanding
     (excluding the Series A Preferred Interest, the Series B Preferred
     Interest, the Series B Partnership Units, Series C Preferred Interest and
     Series C Preferred Units).

  4.      Restatement of Exhibit A and Exhibit M.  Exhibit A to the Partnership
          --------------------------------------                               
Agreement is amended and restated by replacing such Exhibit A with Exhibit A
attached to this Amendment.  Exhibit M to the Partnership Agreement is amended
and restated by replacing such Exhibit M with Exhibit M attached to this
Amendment.

  5.      Preferred Interest.  Section 1.1 of the Partnership Agreement is
          ------------------                                              
hereby amended to include the following definition of "Series C Preferred
Interest" after the definition of "Series B Preferred Interest" and before the
definition of "Series A Preferred Stock."

          "Series C Preferred Interest" shall mean the interest in the
     Partnership received by the General Partner in connection with the issuance
     of shares of Series C Preferred Stock, as and when issued, which Series C
     Preferred Interest includes and shall include the right to receive
     preferential distributions and certain other rights as set forth in this
     Agreement.

  6.      Series C Preferred Stock.  Section 1.1 of the Partnership Agreement is
          ------------------------                                              
hereby amended to include the following definitions of "Series C Preferred
Stock" and "Series C Preferred Units" which are hereby inserted after the
definition of "Series B Preferred Units" and before the definition of "Stock
Incentive Plans":

          "Series C Preferred Stock" shall mean the preferred stock of the
     General Partner described in Article FIRST of the Articles Supplementary
     reclassifying 

                                       2
<PAGE>
 
     500,000 shares of Common Stock as 500,000 shares of 9 1/8% Series C
     Cumulative Redeemable Preferred Stock to be filed with the Department on or
     about November 24, 1998.

          "Series C Preferred Units" shall mean the 9 1/8% Series C Cumulative
     Redeemable Preferred Units of limited partnership interests in the
     Partnership with rights, preferences, exchange and other rights, voting
     powers and restrictions, limitations as to distributions, qualifications
     and terms and conditions as set forth in Exhibit O hereto.

  7.      Distributions.  Section 6.2(a) of the Partnership Agreement is hereby
          -------------                                                        
deleted in its entirety, and the following is hereby substituted in the place
thereof:

          "(a)  Distributions shall be made in accordance with the following
     order of priority:

               (i)  First, on a pro rata basis, (based upon the same ratio that
                                --------                                       
     accrued distributions per share of Series A Preferred Stock, Series B
     Preferred Stock, Series C Preferred Stock and per unit of Series B
     Preferred Units and Series C Preferred Units (which shall not include any
     accumulation in respect of unpaid distributions for prior distribution
     periods if such stock or units do not have cumulative distribution rights)
     bear to each other) (x) to the General Partner, on account of the Series A
     Preferred Interest, Series B Preferred Interest and Series C Preferred
     Interest until the total amount of distributions made pursuant to this
     Section 6.2(a)(i)(x) equals the total amount of accrued but unpaid
     dividends (if any) payable with respect to the Series A Preferred Stock,
     the Series B Preferred Stock and the Series C Preferred Stock as of the
     date of such distribution; (y) to the Limited Partners holding Series B
     Preferred Units, on account of the Series B Preferred Units until the total
     amount of distributions made pursuant to this Section 6.2(a)(i)(y) equals
     the total amount of accrued but unpaid dividends (if any) payable with
     respect to the Series B Preferred Units, in accordance with Exhibit N of
     the Partnership Agreement, as of the date of such distribution; and (z) to
     the Limited Partners holding Series C Preferred Units, on account of the
     Series C Preferred Units until the total amount of distributions made
     pursuant to this Section 6.2(a)(i)(z) equals the total amount of accrued
     but unpaid dividends (if any) payable with respect to the Series C
     Preferred Units, in accordance with Exhibit O of the Partnership Agreement,
     as of the date of such distribution.

               (ii) Next, to the Partners, pro rata in accordance with the
                                           --------                       
     Partners' then Percentage Interests.

          Neither the Partnership nor the Limited Partners shall have any
     obligation to see that any funds distributed to the General Partner
     pursuant to subparagraph (a)(i) of this Section 6.2 are in turn used by the
     General Partner to pay dividends on the Series A Preferred Stock, the
     Series B Preferred Stock or the Series C Preferred Stock (or any other
     Preferred Stock) or that funds distributed to the General Partner 

                                       3
<PAGE>
 
     pursuant to subparagraph (a)(ii) of this Section 6.2 are in turn used by
     the General Partner to pay dividends on the Common Stock or for any other
     purpose."

  8.      Distributions in Kind.  Section 8.5 of the Partnership Agreement is
          ---------------------                                              
hereby amended by adding the following sentence to the end of such section:

          "Notwithstanding the foregoing, the Liquidating Trustee shall not
     distribute to the holders of Series B Partnership Units, Series C
     Partnership Units, Series A Preferred Interest, Series B Preferred Interest
     and Series C Preferred Interest Partnership assets other than cash."

  9.      Exhibit E.  Exhibit E to the Partnership Agreement is hereby deleted
          ---------   ---------                                               
in its entirety, and the attached Exhibit E is hereby inserted in the place
                                  ---------                                
thereof.

  10.     Exhibit N.  Exhibit N is hereby amended by (i) deleting the word
          ---------                                                       
"Stock" in the ninth (9th) line of Section 2G(i) thereof and inserting the word
"Units" in lieu thereof; and (ii) inserting the following sentence at the end of
said Section 2G(i):

          "The Series B Preferred Units will become exchangeable at any time in
          whole or in part at the option of the holders of the Series B
          Preferred Units if, at any time (i) the Partnership takes the position
          that the assets and income of the Partnership are such as would not
          permit the Partnership to satisfy the income and assets tests of
          Section 856 of the Code if the Partnership were a real estate
          investment trust within the meaning of the Code; or (ii) any holder of
          the Series B Preferred Units shall deliver to the Partnership and the
          Company an opinion of independent counsel reasonably acceptable to the
          Company to the effect that the assets and income of the Partnership
          are such as would not permit the Partnership to satisfy the income and
          assets tests of Section 856 of the Code if the Partnership were a real
          estate investment trust within the meaning of the Code."

  11.     Exhibit O.  The Partnership Agreement is hereby amended by adding a
          ---------                                                          
new exhibit, Exhibit O, a copy of which is attached hereto.  Exhibit O is hereby
             ---------                                                          
inserted into the Partnership Agreement following Exhibit N.
                                                  --------- 

  12.     Continuing Effect of Partnership Agreement.  Except as modified
          ------------------------------------------                     
herein, the Partnership Agreement is hereby ratified and confirmed in its
entirety and shall remain and continue in full force and effect, provided,
however, that to the extent there shall be a conflict between the provisions of
the Partnership Agreement and this Amendment the provisions in this Amendment
will prevail.  All references in any document to the Partnership Agreement shall
mean the Partnership Agreement, as amended hereby.

  13.     Counterparts.  This Agreement may be executed in any number of
          ------------                                                  
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same agreement.  Facsimile signatures shall be
deemed effective execution of this Agreement and may be relied upon as such by
the other party.  In the event facsimile signatures are delivered, originals of
such signatures shall be delivered to the other party within three (3) business
days after execution.

                                       4
<PAGE>
 
     IN WITNESS WHEREOF, the General Partner and the Contributor have executed
this Amendment as of the date indicated above.

                              GENERAL PARTNER
                              ESSEX PROPERTY TRUST, INC.,
                              a Maryland corporation as General Partner of Essex
                              Portfolio, L.P. and on behalf of the existing
                              Limited Partners

                              By:
                                  ------------------------------------------
                              Name:  Keith R. Guericke
                              Title: Chief Executive Officer & President

                              CONTRIBUTOR:

                              BELCREST REALTY CORPORATION,
                              a Delaware corporation

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

                                       5
<PAGE>
 
                              BELAIR REAL ESTATE CORPORATION
                              a Delaware Corporation

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

                                       6
<PAGE>
 
                                   EXHIBIT A
                               PARTNERSHIP UNITS
                           (As of November 24, 1998)

                               PARTNERSHIP UNITS
                               -----------------

<TABLE>
<CAPTION>
General Partner:                                   Units    
-----------------------------                    ---------- 
<S>                                              <C>        
Essex Property Trust, Inc.                        16,615,924 
</TABLE>

Limited Partners:
---------------- 

<TABLE>                                                  
<S>                                        <C>           

1.         Essex Portfolio Management Company         15,941     

2.         Essex Property Corporation                  9,909     

3.         GMMS Partners                              43,414     

4.         M & M Projects, Inc.                      128,138     

5.         SummerHill Homes                          163,447     

6.         Paula Amanda                                1,785     

7.         Robert and Margaret Arnold                  2,242     

8.         Randall I. Barkan                           2,564     

9.         David Bernstein Revocable Trust             5,771     

10.        John D. and Robbin Eudy                     7,457     

11.        Kenneth and Angeliki Frangadakis            2,675     

12.        George and Katherine Frangadakis,           4,697     
           Trustees                                              
           Frangadakis Family Revocable Trust                    

13.        Kenneth and Angeliki Frangadakis,          24,334     
           Trustees                                              
           Frangadakis Family Revocable Trust                    

14.        Harvey Friedman                             4,042     

15.        Harvey and Margaret Green                  16,735     

16.        Keith R. and Thelma Guericke               48,116     
<PAGE>
 
17.        George P. Katsoulis                         5,000     

18.        Gerald E. and Annette Kelly                 5,643     

19.        Nancy Kukkola                              11,637     

20.        George M. Marcus                        1,136,227     

21.        Meistrich Family Trust UTA 12/6/90          4,042     

22.        Charles E. Martin                           1,785     

23.        William A. and Sherrie Millichap           73,099     

24.        J. Peter and Cherie Otten                   9,447     

25.        Milton Pagonis                             10,267     

26.        Gary Pagonis Family Trust                  10,267     

27.        G. Michael Roark                           54,740     

28.        Michael and Ann Schall                     26,388     

29.        J. Lawrence Schnadig                        1,729     

30.        J.A. Shafran                                2,889     

31.        Swanson Survivors Trust                     7,687     

32.        Marcus & Millichap                          2,564     

33.        The Way 1994 Living Trust Dtd.              2,226     
           11/2/94                                               

34.        Gay A. Yamagiwa                            10,720     

35.        Craig K. Zimmerman                         15,849     
              
               
                        7.875% SERIES B PREFERRED UNITS
                        -------------------------------

Limited Partner:
----------------

Belair Real Estate Corporation                     1,600,000

                                      2 
<PAGE>
 
                        9 1/8% SERIES C PREFERRED UNITS
                        -------------------------------

Limited Partner:
----------------

Belcrest Realty Corporation                          420,000
 
Belair Real Estate Corporation                        80,000

                                                    ________

      TOTAL PARTNERSHIP UNITS:                     2,100,000
</TABLE>

                                       3
<PAGE>
 
                                   EXHIBIT M
                             ADDRESSES OF PARTNERS

                            PARTNERSHIP UNIT HOLDERS
                            ------------------------

Essex Portfolio Management Company          Essex Property Corporation
777 California Avenue                       777 California Avenue
Palo Alto, CA  94304                        Palo Alto, CA  94304
                                         
GMMS Partners                               M & M Projects, Inc.
777 California Avenue                       777 California Avenue
Palo Alto, CA  94304                        Palo Alto, CA  94304
                                         
SummerHill Homes                            Paula Amanda
777 California Avenue                       1001 Bridgeway #460
Palo Alto, CA  94304                        Sausalito, CA  94965
                                         
Robert and Margaret Arnold                  Randall I. Barkan
460 Marlowe                                 777 California Avenue
Palo Alto, CA  94301                        Palo Alto, CA  94304
                                         
Belair Capital Fund LLC                     David Bernstein, Trustee
c/o Eaton Vance Management                  David Bernstein Revocable Trust
24 Federal Street                           8773 Midnight Pass Road #406
Boston, Massachusetts  02110                Sarasota, FL  34242
Attention: Mr. Alan Dynner                  
Fax: 617-338-8054                           
                                         
Kenneth and Angeliki Frangadakis            John D. and Robbin Eudy
10383 Torre Avenue                          777 California Avenue
Cupertino, CA  95014                        Palo Alto, CA  94304
                                         
Kenneth and Angeliki Frangadakis,           George and Katherine Frangadakis,
   Trustees                                    Trustees
Frangadakis Family Revocable Trust          Frangadakis Family Revocable Trust
10383 Torre Avenue                          7408 Fallenleaf Lane
Cupertino, CA  95014                        Cupertino, CA  95014

Keith R. and Thelma Guericke                Harvey Friedman
14341 Lutheria Way                          720 Rochedale Way
Saratoga, CA  95070                         Los Angeles, CA 90049

Gerald E. and Annette Kelly                 Harvey and Margaret Green
1517 Kalmia Street                          12243 Huston Street
San Mateo, CA  94402                        N. Hollywood, CA  91607

                                       4
<PAGE>
 
Charles E. Martin                           George P. Katsoulis
1001 Bridgeway #134                         3300 Webster Street #612
Sausalito, CA  94965                        Oakland, CA  94609

J. Peter and Cherie Otten                   Nancy Kukkola
250 El Bonito Way                           123 Greenmeadow Way
Millbrae, CA  94030                         Palo Alto, CA  94306

Gary and Elisa Pagonis, Trustees            George M. Marcus
Gary Pagonis Family Trust                   777 California Avenue
10383 Torre Avenue, Suite 1                 Palo Alto, CA  94304
Cupertino, CA  95014                        

Michael and Ann Schall                      Herbert Meistrich
1544 Sioux Court                            1320 W. Muirlands Drive
Fremont, CA  94539                          La Jolla, CA 92037

William A. and Sherrie Millichap            G. Michael Roark
2626 Hanover                                P.O. Box 2767
Palo Alto, CA  94304                        Sausalito, CA  94966

Milton Pagonis                              Roger and Anita Swanson, Trustees
10383 Torre Avenue, Suite 1                 Swanson Survivors Trust
Cupertino, CA  95014                        889 Norfolk Pine Avenue
                                            Sunnyvale, CA  94087

J.A. Shafran                                J. Lawrence Schnadig
30360 Morning View Drive                    833 MOraga Drive #6
Malibu, CA 90265                            Los Angeles, CA  90049

Linwood C. Thompson                         J.A. Shafran
Marcus & Millichap                          30360 Morning View Drive
8750 W. Bryn Mawr #750                      Malibu, CA 90265
Chicago, IL  60631                          

Gay A. Yamagiwa                             Stephen and Patricia Way, Trustees
341 Seville                                 The Way 1994 Living Trust Dtd.
San Mateo, CA  94402                           11/2/94
                                            338 Georgetown Avenue
                                            San Mateo, CA  94402

                                       5
<PAGE>
 
Belcrest Realty Corporation                 Craig K. Zimmerman
c/o Eaton Vance Management                  409 Georgetown Avenue
24 Federal Street                           San Mateo, CA  94402
Boston, MA 02110                            
Attn:  Mr. Alan Dynner

Belair Real Estate Corporation
c/o Eaton Vance Management
24 Federal Street
Boston, MA 02110
Attn:  Mr. Alan Dynner

                                       6
<PAGE>
 
                                   EXHIBIT E
                                  ALLOCATIONS

     1.  Allocation of Net Income and Net Loss.
         ------------------------------------- 

          (a) Net Income.  Except as otherwise provided herein, Net Income for
              ----------                                                      
any fiscal year or other applicable period shall be allocated in the following
order and priority:

               (1) First, to the Partners, until the cumulative Net Income
allocated pursuant to this subparagraph (a)(1) for the current and all prior
periods equals the cumulative Net Loss allocated pursuant to subparagraph (b)(2)
hereof for all prior periods, among the Partners in the reverse order that such
Net Loss was allocated to the Partners pursuant to subparagraph (b)(2) hereof
(and, in the event of a shift of a Partner's interest in the Partnership, to the
Partners in a manner that most equitably reflects the successors in interest to
the Partners).

               (2) Thereafter, the balance of the Net Income, if any, shall be
allocated to the Partners in accordance with their respective Percentage
Interests.

          (b) Net Loss.  Except as otherwise provided herein, Net Loss of the
              --------                                                       
Partnership for each fiscal year or other applicable period shall be allocated
as follows:

               (1) To the Partners in accordance with their respective
Percentage Interests.

               (2) Notwithstanding subparagraph (b)(1) hereof, to the extent any
Net Loss allocated to a Partner under subparagraph (b)(1) hereof or this
subparagraph (b)(2) would cause such Partner (hereinafter, a "Restricted
Partner") to have an Adjusted Capital Account Deficit as of the end of the
fiscal year to which such Net Loss relates, such Net Loss shall not be allocated
to such Restricted Partner and instead shall be allocated to the other
Partner(s) (hereinafter, the "Permitted Partners") pro rata in accordance with
their relative Percentage Interests.

          (c) Notwithstanding Sections 1(a) and (b) above, on any date on which
any Series A Preferred Stock, any Series B Preferred Stock, any Series C
Preferred Stock or any Series B Preferred Unit or any Series C Preferred Unit
(or other Preferred Stock or other preferred units) is outstanding, Net Income
and Net Loss shall be allocated as follows:

               (1) Net Income for any fiscal year or other applicable period
shall be allocated in the following order and priority:

                       (i) First, to the Partners, until the cumulative Net
Income allocated pursuant to this subparagraph (c)(1)(i) for the current and all
prior periods equals the cumulative Net Loss allocated pursuant to subparagraphs
(c)(2)(iii) and (iv) 

                                       1
<PAGE>
 
hereof for all prior periods, among the Partners in the reverse order that such
Net Loss was allocated (and, in the event of a shift of a Partner's interest in
the Partnership, to the Partners in a manner that most equitably reflects the
successors in interest to such Partners);

                       (ii) Second, to the General Partner, until the cumulative
Net Income allocated pursuant to this subparagraph (c)(1)(ii) for the current
and all prior periods equals the cumulative Net Loss allocated pursuant to
subparagraph (c)(2)(ii) hereof for all prior periods;

                       (iii) Third, on a pari passu basis, to (A) the General
                                         ---- -----
Partner until the cumulative amount of Net Income allocated pursuant to this
subparagraph (c)(1)(iii) equals the total amount of dividends paid on the Series
A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
(and other Preferred Stock) as of or prior to the date of such allocation plus
the total amount of accrued but unpaid dividends on the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock (and other
Preferred Stock) as of such date; (B) to the holders of Series B Preferred Units
until the cumulative amount of Net Income allocated pursuant to this
subparagraph (c)(i)(iii) equals the total amount of Priority Return paid on the
Series B Preferred Units as of or prior to the date of such allocation plus the
total amount of accrued but unpaid Priority Return on the Series B Preferred
Units; and (C) to the holders of Series C Preferred Units until the cumulative
amount of Net Income allocated pursuant to this subparagraph (c)(i)(iii) equals
the total amount of Priority Return paid on the Series C Preferred Units as of
or prior to the date of such allocation plus the total amount of accrued but
unpaid Priority Return on the Series C Preferred Units;

                       (iv) Thereafter, the balance of the Net Income, if any,
shall be allocated to the Partners in accordance with their respective
Percentage Interests.

               (2) Net Loss of the Partnership for each fiscal year or other
applicable period shall be allocated as follows:

                       (i) First, to the Partners in accordance with their
respective Percentage Interests until the Capital Account balances of the
Limited Partners (not including the holders of the Series B Preferred Units and
the Series C Preferred Units) are reduced to zero (for purpose of this
calculation, such Partners' share of Partnership Minimum Gain shall be added
back to their Capital Accounts);

                       (ii) Second, on a pari passu basis, to (A) the General
                                         ---- ----- 
Partner until its Capital Account balance has been reduced to zero (for purpose
of this calculation, such Partner's share of Partnership Minimum Gain shall be
added back to its Capital Account); (B) to the holders of Series B Preferred
Units until their Capital Account balances have been reduced to zero (for
purpose of this calculation, such Partners' share of Partnership Minimum Gain
shall be added back to their Capital Accounts); and (C) to the holders of Series
C Preferred Units until their Capital Account Balances have been reduced to zero
(for purposes of this calculation, such Partners' share of Partnership Minimum
Gain shall be added back to their Capital Accounts);

                                       2
<PAGE>
 
                       (iii)  Thereafter, to the Partners in accordance with
their then Percentage Interests;

                       (iv) Notwithstanding subparagraph (c)(2)(iii) hereof, to
the extent any Net Loss allocated to a Partner under subparagraph (c)(2) would
cause such Partner (hereinafter, a "Restricted Partner") to have an Adjusted
Capital Account Deficit as of the end of the fiscal year to which such Net Loss
relates, such Net Loss shall not be allocated to such Restricted Partner and
instead shall be allocated to the other Partner(s) (hereinafter, the "Permitted
Partners") pro rata in accordance with their relative Percentage Interests.

          (d) Book-Up and Capital Account Adjustments.  On any day on which
              ---------------------------------------                      
Series A Preferred Stock (or other Preferred Stock) is redeemed or converted
into Common Stock, the Partnership shall adjust the Gross Asset Values of all
Partnership assets to equal their respective gross fair market values and shall
allocate the amount of such adjustment as Net Income or Net Loss pursuant to
Section 1(c) hereof, provided, however, that if no Series A Preferred Stock (or
other Preferred Stock) is outstanding after such redemption or conversion, such
Net Income or Net Loss shall be allocated in such a manner that after such
allocation the Capital Accounts of the Partners are in proportion to their
Percentage Interests.

          (e) Adjustment of Percentage Interests Upon Conversion of Convertible
              -----------------------------------------------------------------
Preferred Stock to Common Stock.  Upon the conversion of any Series A Preferred
-------------------------------                                                
Stock to Common Stock of the General Partner , the Percentage Interests of the
Partners shall be adjusted in accordance with the provisions of Article 4 of the
Partnership Agreement as if, on the date of such conversion, the General Partner
had made an additional Capital Contribution to the Partnership in an amount
equal to the number of shares of Common Stock issued as a result of such
conversion multiplied by the fair market value of such shares on the date of
conversion, and provided that in calculating such adjustments, the General
Partner shall be deemed not to have incurred any expenses in connection with
raising the funds used to make such additional Capital Contribution.

     2.  Special Allocations.
         ------------------- 

     Notwithstanding any provisions of paragraph 1 of this Exhibit E, the
following special allocations shall be made in the following order:

          (a) Minimum Gain Chargeback (Nonrecourse Liabilities).  If there is a
              -------------------------------------------------                
net decrease in Partnership Minimum Gain for any Partnership fiscal year (except
as a result of conversion or refinancing of Partnership indebtedness, certain
capital contributions or revaluation of the Partnership property as further
outlined in Regulation Sections 1.704-2(d)(4), (f)(2) or (f)(3)), each Partner
shall be specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to that Partner's share
of the net decrease in Partnership Minimum Gain.  The items to be so allocated
shall be determined in accordance with Regulation Section 1.704-2(f).  This
paragraph (a) is intended to comply with the minimum gain chargeback requirement
in said section of the Regulations and shall be interpreted consistently

                                       3
<PAGE>
 
therewith.  Allocations pursuant to this paragraph (a) shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant hereto.

          (b) Minimum Gain Attributable to Partner Nonrecourse Debt.  If there
              -----------------------------------------------------           
is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt
during any fiscal year (other than due to the conversion, refinancing or other
change in the debt instrument causing it to become partially or wholly
nonrecourse, certain capital contributions, or certain revaluations of
Partnership property as further outlined in Regulation Section 1.704-2(i)(4)),
each Partner shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to that
Partner's share of the net decrease in the Minimum Gain Attributable to Partner
Nonrecourse Debt.  The items to be so allocated shall be determined in
accordance with Regulation Section 1.704-2(i)(4) and (j)(2).  This paragraph (b)
is intended to comply with the minimum gain chargeback requirement with respect
to Partner Nonrecourse Debt contained in said section of the Regulations and
shall be interpreted consistently therewith.  Allocations pursuant to this
paragraph (b) shall be made in proportion to the respective amounts required to
be allocated to each Partner pursuant hereto.

          (c) Qualified Income Offset.  In the event a Limited Partner
              -----------------------                                 
unexpectedly receives any adjustments, allocations or distributions described in
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such Limited
Partner has an Adjusted Capital Account Deficit, items of Partnership income and
gain shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate the Adjusted Capital Account Deficit as quickly as
possible.  This paragraph (c) is intended to constitute a "qualified income
offset" under Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
                                                   -                          
consistently therewith.

          (d) Nonrecourse Deductions.  Nonrecourse Deductions for any fiscal
              ----------------------                                        
year or other applicable period shall be allocated to the Partners in accordance
with their respective Percentage Interests.

          (e) Partner Nonrecourse Deductions.  Partner Nonrecourse Deductions
              ------------------------------                                 
for any fiscal year or other applicable period shall be specially allocated to
the Partner that bears the economic risk of loss for the debt (i.e., the Partner
Nonrecourse Debt) in respect of which such Partner Nonrecourse Deductions are
attributable (as determined under Regulation Section 1.704-2(b)(4) and (i)(1)).

          (f) Curative Allocations.  It is the intent of the Partnership that,
              --------------------                                            
to the extent possible, the Capital Account balances of the Partners be in
proportion to the Partners' Percentage Interests.  Thus, items of "book" income,
gain, loss, and deduction shall be allocated among the Partners so that, to the
extent possible, the resulting Partners' Capital Account balances bear this
relationship.   This subparagraph (f) is intended to minimize to the extent
possible and to the extent necessary any economic distortions which may result
from application of the Regulatory Allocations and shall be interpreted in a
manner consistent therewith.  For purposes hereof, "Regulatory Allocations"
shall mean the 

                                       4
<PAGE>
 
allocations provided under paragraph 1(b)(2) and this paragraph 2 (save
subparagraphs (d) and (f) hereof).

     3.  Tax Allocations.
         --------------- 

          (a) Generally.  Subject to paragraphs (b) and (c) hereof, items of
              ---------                                                     
income, gain, loss, deduction and credit to be allocated for income tax purposes
(collectively, "Tax Items") shall be allocated among the Partners on the same
basis as their respective book items.

          (b) Sections 1245/1250 Recapture.  If any portion of gain from the
              ----------------------------                                  
sale of property is treated as gain which is ordinary income by virtue of the
application of Code Section 1245 or 1250 ("Affected Gain"), then (A) such
Affected Gain shall be allocated among the Partners in the same proportion that
the depreciation and amortization deductions giving rise to the Affected Gain
were allocated and (B) other Tax Items of gain of the same character that would
have been recognized, but for the application of Code Sections 1245 and/or 1250,
shall be allocated away from those Partners who are allocated Affected Gain
pursuant to Clause (A) so that, to the extent possible, the other Partners are
allocated the same amount, and type, of capital gain that would have been
allocated to them had Code Sections 1245 and/or 1250 not applied; provided,
however, that the net amount of Tax Items allocated to each Partner shall be the
same as if this paragraph 3(a) did not exist.  For purposes hereof, in order to
determine the proportionate allocations of depreciation and amortization
deductions for each fiscal year or other applicable period, such deductions
shall be deemed allocated on the same basis as Net Income and Net Loss for such
respective period.

          (c) Allocations Respecting Section 704(c) and Revaluations.  If any
              ------------------------------------------------------         
Partnership property is subject to Code Section 704(c) or is reflected in the
Capital Accounts of the Partners and on the books of the Partnership at a book
value that differs from the adjusted tax basis of such property, then the tax
items with respect to such property shall, in accordance with the requirements
of Regulations Section 1.704-1(b)(4)(i), be shared among the Partners in a
manner that takes account of the variation between the adjusted tax basis of the
applicable property and its book value in the same manner as variations between
the adjusted tax basis and fair market value of property contributed to the
Partnership are taken into account in determining the Partners' share of tax
items under Code Section 704(c).  The General Partner is authorized to choose
any reasonable method permitted by the Regulations pursuant to Code Section
704(c), including the "remedial allocation" method, the "curative allocation"
method and the traditional method; provided that the General Partner agrees to
use reasonable efforts to minimize the amount of taxable income in excess of
book income allocated to the holders of the Series B Preferred Units and the
Series C Preferred Units.


          (d) Code Section 752 Specification.  Pursuant to Regulations Section
              ------------------------------                                  
1.752-3, the Partners' interest in Partnership profits for purposes of
determining the Partners' shares of excess nonrecourse liabilities shall be
their Percentage Interests.

                                       5
<PAGE>
 
                                   EXHIBIT O

    DESCRIPTION OF PREFERENCES, OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
              LIMITATIONS AS TO DISTRIBUTIONS, QUALIFICATIONS AND
                      TERMS AND CONDITIONS OF REDEMPTION
                                    OF THE
                           SERIES C PREFERRED UNITS

1.  Definitions.

          In addition to those terms defined in the Agreement, the following
definitions shall be for all purposes, unless otherwise clearly indicated to the
contrary, applied to the terms used in the Agreement and this Exhibit O:

          "Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York, New
York are not required to be open.

          "Distribution Payment Date" shall have the meaning set forth in
Section 2(c) hereof.

          "Parity Units" means (i) the Series A Preferred Interest, (ii) the
Series B Preferred Interest, (iii) the Series C Preferred Interest, and (iv) any
class or series of Partnership Interests of the Partnership now or hereafter
authorized, issued or outstanding expressly designated by the Partnership to
rank on a parity with Series C Preferred Units with respect to distributions or
rights upon voluntary or involuntary liquidation, winding-up or dissolution of
the Partnership, or both, as the context may require.

          "Priority Return" means, an amount equal to 91/8% per annum,
determined on the basis of a 360 day year of twelve 30 day months (or actual
days for any month which is shorter than a full monthly period), cumulative to
the extent not distributed for any given distribution period pursuant to Section
6.2(a) of the Partnership Agreement, of the stated value of $50 per Series C
Preferred Unit, commencing on the date of issuance of the Series C Preferred
Units.

          "Series C Preferred Stock" means the 91/8% Series C Cumulative
Redeemable Preferred Stock (liquidation preference $50.00 per share), $.0001 par
value, issued by the General Partner.

          "Series C Preferred Unit" means a Partnership Unit issued by the
Partnership to certain Persons.  The Series C Partnership Units shall constitute
a series of Partnership Units.  The Series C Preferred Units shall have the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms and conditions of
redemption as are set forth in this Exhibit O.

          "set apart for payment" shall mean placing such funds in a separate
account or delivering such funds to a disbursing, paying or other similar agent.


                                       1
<PAGE>
 
2.  Terms of Series C Preferred Units.
    
    A.  Number.  The number of authorized Series C Preferred Units shall be 
        ------
500,000. 

    B. Ranking. The Series C Preferred Units will, with respect to distributions
       -------
and rights upon voluntary or involuntary liquidation, winding-up or dissolution
of the Partnership, rank senior to all classes or series of Partnership
Interests (as defined in the Partnership Agreement) of the Partnership now or
hereafter authorized, issued or outstanding, other than (i) the Series A
Preferred Interest, the Series B Preferred Interest and the Series C Preferred
Interest, with which it shall rank on a parity, and (ii) any class or series of
Partnership Interests or Partnership Units expressly designated as ranking on a
parity with or senior to the Series A Preferred Units, Series B Preferred Units
and Series C Preferred Units as to distributions and rights upon voluntary or
involuntary liquidation, winding-up or dissolution of the Partnership.

    C.  Distributions.
        -------------  
        (i)   Subject to the rights of the holders of the Parity Units as to the
payments of distributions, holders of Series C Preferred Units will be entitled
to receive, when, as and if declared by the Partnership, acting through the
Company as the sole general partner of the Partnership, cumulative preferential
cash distributions at the rate per annum of 9 1/8% of the original Capital
Contribution per Series C Preferred Unit. Distributions shall be cumulative,
shall accrue from the original date of issuance (the "Issue Date") and shall be
payable (A) quarterly in arrears (such quarterly periods, for purposes of
payment and accrual shall be the quarterly periods ending on the dates specified
in this sentence and not calendar quarters), on the 15th day of February, May,
August and November of each year and (B) in the event of (i) an exchange of
Series C Preferred Units into shares of Series C Preferred Stock, or (ii) upon a
redemption of Series C Preferred Units, on the exchange date or redemption date
(each a "Distribution Payment Date"), commencing on February 15, 1999. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed on the basis of the actual number of days
elapsed in such a 30-day month. If any date on which distributions are to be
made on the Series C Preferred Units is not a Business Day, then payment of the
distribution to be made on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
Distributions on the Series C Preferred Units will be made to the holders of
record of the Series C Preferred Units on the relevant record dates, which,
unless otherwise provided by the Company with respect to any distribution, will
be 15 Business Days prior to the relevant Distribution Payment Date.

        (ii)  No distributions on the Series C Preferred Units shall be declared
or paid or set apart for payment by the Partnership at such time as the terms
and provisions of any agreement of the Partnership, including any agreement
relating to its indebtedness, prohibits such declaration, payment or 

                                       2
<PAGE>
 
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, of
if such declaration, payment or setting apart for payment shall be restricted or
prohibited by law.

         (iii)  Notwithstanding the foregoing, distributions on the Series C
Preferred Units will accrue whether or not the terms and provisions set forth in
Section 2.C.(ii) hereof at any time prohibit the current payment of
distributions, whether or not the Corporation has earnings, whether or not there
are funds legally available for the payment of such distributions and whether or
not such distributions are authorized. Accrued but unpaid distributions on the
Series C Preferred Units will accumulate as of the Distribution Payment Date on
which they first become payable. Accumulated and unpaid distributions will not
bear interest.

         (iv)   So long as any Series C Preferred Unit is outstanding, no
distribution of cash or other property shall be authorized, declared, paid or
set apart for payment on or with respect to any class or series of Partnership
Interests ranking junior to the Series C Preferred Units as provided in this
Section 2 (such Partnership Interests, collectively, "Junior Units"), nor shall
any cash or other property be set aside for or applied to the purchase,
redemption or other acquisition for consideration of any Series C Preferred
Units, any Parity Units with respect to distributions or any Junior Units,
unless, in each case, all distributions accumulated on all Series C Preferred
Units and all classes and series of outstanding Parity Units as to payment of
distributions have been paid in full. The foregoing sentence will not prohibit
(i) distributions payable solely in Junior Units, (ii) the conversion of Junior
Units or Parity Units into common stock or preferred stock of the Company in
accordance with the exchange rights of such Junior Units or Parity Units, or
(iii) the redemption, purchase or other acquisition of Junior Units made for
purposes of and in compliance with requirements of an employee incentive or
benefit plan of the Corporation or any subsidiary of the Partnership or the
Corporation.

         (v)    So long as distributions have not been paid in full (or a sum 
sufficient for such full payment is not so set apart) upon the Series C
Preferred Units, all distributions authorized and declared on the Series C
Preferred Units and all classes or series of outstanding Parity Units with
respect to distributions shall be authorized and declared so that the amount of
distributions authorized and declared per share of Series C Preferred Units and
such other classes or series of Parity Units shall in all cases bear to each
other the same ratio that accrued distributions per share on the Series C
Preferred Units and such other classes or series of Parity Units (which shall
not include any accumulation in respect of unpaid distributions for prior
distribution periods if such class or series of Parity Units do not have
cumulative distribution rights) bear to each other.

         (vi)   Holders of Series C Preferred Units shall not be entitled to any
distributions, whether payable in cash, other property or otherwise, in
excess of the full cumulative distributions described herein.

     D.  Allocation of Net Income.
         ------------------------ 
        
        With respect to the Series C Preferred Units, the net income of the
Partnership will be allocated as provided in Exhibit E to the Partnership
Agreement.

                                       3
<PAGE>
 
     E.  Liquidation.
         ----------- 

         Subject to the rights of holders of any series of Parity Units with
respect to rights upon any voluntary or involuntary liquidation dissolution or
winding-up of the Partnership, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Partnership, the holders of the Series C
Preferred Units will be entitled to receive out of the assets of the Partnership
legally available for distribution or the proceeds thereof, after payment or
provision for debts and other liabilities of the Partnership, an amount equal to
their respective Capital Account balances.  Written notice of any such voluntary
or involuntary liquidation, dissolution or winding-up of the Partnership,
stating the payment date or dates when, and the place or places where, the
amounts distributable in such circumstances shall be payable, shall be given by
(i) fax and (ii) by first class mail, postage pre-paid, not less than 30 and not
more than 60 days prior to the payment date stated therein, to each record
holder of the Series C Preferred Units at the respective addresses of such
holders as the same shall appear on the transfer records of the Partnership.
The consolidation or merger of the Partnership with or into any corporation,
trust or other entity (or of any corporation, trust or other entity with or into
the Partnership) shall not be deemed to constitute a liquidation, dissolution,
winding-up or termination of the Partnership.

     F.  Optional Redemption.
         ------------------- 
         (i)   The Series C Preferred Units may not be redeemed prior to
November 24, 2003. On or after such date, subject to the terms and conditions of
any Parity Preferred Stock or any Parity Units, the Partnership shall have the
right to redeem the Series C Preferred Units, in whole or in part, from time to
time, upon not less than 30 nor more than 60 days' notice, at a redemption
price, payable in cash, equal to the Capital Account balance of such holders of
Series C Preferred Units (the "Redemption Price"); provided; however that such
redemption shall not be permitted if such Redemption Price shall be less than
the original Capital Contribution of such Partner and the cumulative Priority
Return to the redemption date to the extent not previously distributed.

         (ii)  Except in connection with a liquidation, dissolution,
winding-up or termination of the Partnership as described under "Liquidation"
above, the Redemption Price of the Series C Preferred Units (other than the
portion thereof consisting of accumulated but unpaid distributions) will be
payable solely out of the sale proceeds of capital stock of the Company, which
will be contributed by the Company to the Partnership as an additional capital
contribution, or out of the sale proceeds of limited partner interests of the
Partnership and from no other source. Unless previously redeemed, the Series C
Preferred Units will be redeemed for cash upon termination of the Partnership.
Unless sooner dissolved, the Partnership will terminate on December 31, 2054.
The Series C Preferred Units will not be subject to any sinking fund.

        (iii)  If the Partnership gives a notice of redemption in respect
of Series C Preferred Units (which notice will be irrevocable) then, by 12:00
noon, New York City time, on the redemption date, the Partnership will deposit
irrevocably in trust for the benefit of the Series C Preferred Units being
redeemed funds sufficient to pay the applicable Redemption Price and will give
irrevocable instructions and authority to pay such Redemption Price to the
holders of the Series C Preferred Units. On and after the date of redemption,
distributions will cease to accumulate on the Series C Preferred Units or
portions thereof called for redemption, unless the 

                                       4
<PAGE>
 
Partnership defaults in the payment thereof. If any date fixed for redemption of
Series C Preferred Units is not a Business Day, then payment of the Redemption
Price payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date fixed for redemption. If
payment of the Redemption Price in respect of the Series C Preferred Units is
improperly withheld or refused and not paid by the Partnership, distributions on
such Series C Preferred Units will continue to accumulate from the original
redemption date to the date of payment, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating the
applicable Redemption Price. If fewer than all the Series C Preferred Units are
to be redeemed, the Series C Preferred Units to be redeemed shall be selected
pro rata (as nearly as practicable without creating fractional units).

        (iv)   The Partnership may not redeem fewer than all the outstanding
Series C Preferred Units unless all accumulated and unpaid distributions have
been paid on all Series C Preferred Units for all quarterly distribution periods
terminating on or prior to the date of redemption.

         (v)   Notice of redemption will be (i) faxed, and (ii) mailed by the
Partnership, postage prepaid, not less than 30 nor more than 60 days prior to
the redemption date, addressed to the respective holders of record of the Series
C Preferred Units to be redeemed at their respective addresses as they appear on
the transfer records of the Partnership. No failure to give or defect in such
notice shall affect the validity of the proceedings for the redemption of any
Series C Preferred Units except as to the holders to whom notice was defective
or not given. Each notice shall state: (i) the redemption date, (ii) the
Redemption Price, (iii) the number of Series C Preferred Units to be redeemed;
(iv) the place or places where the Series C Preferred Units are to be
surrendered for payment of the Redemption Price; (v) that distributions on the
Series C Preferred Units to be redeemed will cease to accumulate on such
redemption date and (vi) that payment of the Redemption Price will be made upon
presentation and surrender of such Series C Preferred Units. If fewer than all
of the Series C Preferred Units held by any holder are to be redeemed, the
notice mailed to such holder shall also specify then number of Series C
Preferred Units to be redeemed from such holder.

     G.  Exchange Rights.
         --------------- 
         (i)    Unless called for redemption as described above under
"Optional Redemption," Series C Preferred Units will be exchangeable in whole or
in part at anytime on or after the tenth anniversary of the Issue Date, at the
option of the holders thereof, for authorized but previously unissued shares of
the Company's Series C Preferred Stock at an exchange price of $50.00 per share
of Series C Preferred Stock (equivalent to an exchange rate of one share of
Series C Preferred Stock for each Series C Preferred Unit), subject to
adjustment as described below (the "Exchange Price"), provided that the Series C
Preferred Units will become immediately exchangeable at any time in whole or in
part at the option of the holders for Series C Preferred Units (y) if at any
time full distributions shall not have made on any outstanding Series C
Preferred Units with respect to any six (6) prior quarterly distribution
periods, whether or not consecutive, such that distributions for such six (6)
distribution periods have not been fully 

                                       5
<PAGE>
 
paid and are outstanding in whole or in part at the same time or (z) upon
receipt by holders of Series C Preferred Units of (A) notice from the General
Partner that the General Partner or a subsidiary of the General Partner has
taken the position that the Partnership is, or upon the occurrence of a defined
event in the immediate future will be a "publicly traded partnership" (a "PTP")
within the meaning of Section 7704 of the Internal Revenue Code of 1986, as
amended, and (B) an opinion rendered by independent counsel to the General
Partner familiar with such matter (or, in the event of a conflict, other
reputable independent counsel designated by such General Partner counsel),
addressed to a holder or holders of Series C Preferred Units, that the
Partnership is, or likely is, or upon the occurrence of a defined event in the
immediate future will be or likely will be, a PTP. Series C Preferred Units may
be exchanged for Series C Preferred Stock in whole or in part at the option of
any holder prior to the tenth anniversary of the Issue Date and after the third
anniversary thereof if such holder delivers to the Partnership and the Company
either (i) a private letter ruling addressed to a holder of Series C Preferred
Units or (ii) an opinion of independent counsel reasonably acceptable to the
Company based on the enactment of temporary or final Treasury Regulations or the
publication of a Revenue Ruling, in either case to the effect that an exchange
of the Series C Preferred Units at such earlier time would not cause the Series
C Preferred Units to be considered "stock and securities" within the meaning of
section 351(e) of the Code for purposes of determining whether the holder of
such Series C Preferred Units is an "investment company" under section 721(b) of
the Code if an exchange is permitted at such earlier date. The Series C
Preferred Units will become exchangeable in whole or in part at the option of
the holders of the Series C Preferred Units if (i) the Partnership is advised by
independent counsel that, based on the assets and income of the Partnership for
a taxable year after 1998, the Partnership would not satisfy the income and
assets tests of Section 856 of the Code for such taxable year if the Partnership
were a real estate investment trust within the meaning of the Code; or (ii) any
holder of the Series C Preferred Units shall deliver to the Partnership and the
Company an opinion of independent counsel reasonably acceptable to the Company
to the effect that, based on the assets and income of the Partnership for a
taxable year after 1998, the Partnership would not satisfy the income and assets
tests of Section 856 of the Code for such taxable year if the Partnership were a
real estate investment trust within the meaning of the Code and that such
failure would create a meaningful risk that a holder of the Series C Preferred
Units would fail to maintain its qualification as a real estate investment
trust.

         (ii)   Notwithstanding anything to the contrary set forth in
2.G.(i), if an Exchange Notice (as defined herein) has been delivered to the
General Partner, then the General Partner may, at its option, elect to redeem or
cause the Partnership to redeem all or a portion of the outstanding Series C
Preferred Units for cash in an amount equal to the original Capital Contribution
per Series C Preferred Unit and all accrued and unpaid distributions thereon to
the date of redemption. The General Partner may exercise its option to redeem
the Series C Preferred Units for cash pursuant to this 2.G.(ii) by giving each
holder of record of Series C Preferred Units notice of its election to redeem
for cash, within fifteen (15) Business Days after receipt of the Exchange
Notice, by (i) fax, and (ii) registered mail, postage paid, at the address of
each holder as it may appear on the records of the Partnership stating (i) the
redemption date, which shall be no later than sixty (60) days following the
receipt of the Exchange Notice, (ii) the Redemption Price, (iii) the place or
places where the Series C Preferred Units are to be surrendered for payment of
the Redemption Price, (iv) that distributions on the Series C Preferred 

                                       6
<PAGE>
 
Units will cease to accrue on such redemption date; (v) that payment of the
Redemption Price will be made upon presentation and surrender of the Series C
Preferred Units and (vi) the aggregate number of Series C Preferred Units to be
redeemed, and if fewer than all of the outstanding Series C Preferred Units are
to be redeemed, the number of Series C Preferred Units to be redeemed held by
such holder, which number shall equal such holder's prorata share (based on the
percentage of the aggregate number of outstanding Series C Preferred Units the
total number of Series C Preferred Units held by such holder represents) of the
aggregate number of Series C Preferred Units being redeemed. The redemption of
Series C Preferred Units described in this Section 2.G.(iii) shall be subject to
the provisions of Section 2.F.(ii) and (iii); provided, however, that the term
"Redemption Price" in such Sections shall be read to mean the original Capital
Contribution per Series C Preferred Unit being redeemed plus all accrued and
unpaid distributions to the redemption date.

          (iii)  In the event an exchange of all or a portion of the Series C
Preferred Units pursuant to Section 2.G.(i) would violate the Ownership Limit of
the General Partner set forth in Article EIGHTH of the Charter, the General
Partner will give written notice thereof to each holder of record of Series C
Preferred Units exercising such exchange right, within fifteen (15) Business
Days following receipt of the Exchange Notice, by (i) fax, and (ii) mail,
postage prepaid, at the address of each such holder set forth in the records of
the Partnership. In such event, each holder of Series C Preferred Units
exercising its exchange right, shall be entitled to exchange a number of Series
C Preferred Units which would comply with the Ownership Limit of the General
Partner set forth in Article EIGHTH of the Charter and any Series C Preferred
Units not so exchanged (the "Excess Units") shall be redeemed by the Partnership
for cash in an amount equal to the original Capital Contribution per Excess
Unit, plus any accrued and unpaid distributions thereon to the date of
redemption. The written notice of the General Partner shall state (i) the number
of Excess Units held by such holder, (ii) the Redemption Price of the Excess
Units, (iii) the date on which such Excess Units shall be redeemed, which date
shall be no later than ninety (90) days following the receipt of the Exchange
Notice, except as provided below, (iv) the place or places where such Excess
Units are to be surrendered for payment of the Redemption Price, (iv) that
distributions on the Excess Units will cease to accrue on such redemption date,
and (v) that payment of the Redemption Price will be made upon presentation and
surrender of such Excess Units. The redemption of Series C Preferred Units
described in this Section 2.G.(iii) shall be subject to the provisions of
Section 2.F.(ii) and (iii); provided, however, that the term "Redemption Price"
in such Sections shall be read to mean the original Capital Contribution per
Series C Preferred Unit being redeemed plus all accrued and unpaid distributions
to the redemption date. The Partnership may at its option delay the payment of
cash to effect redemption of Series C Preferred Units pursuant to this Section
2.G.(iii) for up to two hundred seventy (270) days following the end of the 90
day period set forth in clause (iii) above of this Section 2.G.(iii), provided
that during such two hundred seventy (270) day period, the Corporation shall
pay, in addition to the Redemption Price of the Excess Units and any accrued and
unpaid distribution with respect to the Excess Units, to the holder of such
Excess Units an amount equal to 1 1/4% per annum of the original Capital
Contribution per such Excess Unit from the end of such 90 day period through the
date of redemption.

          (iv)   Any exchange shall be exercised pursuant to a notice of
exchange (the "Exchange Notice") delivered to the General Partner by the holder
who is exercising such

                                       7
<PAGE>
 
exchange right, by (i) fax, and (ii) by mail, postage prepaid. The exchange of
Series C Preferred Units, or a specified portion thereof, may be effected after
the fifteenth (15th) Business Day following receipt by the General Partner of
the Exchange Notice by delivering certificates, if any, representing such Series
C Preferred Units to be exchanged together with written notice of exchange and a
proper assignment of such Series C Preferred Units to the office of the Company
maintained for such purpose. Currently, such office is Essex Property Trust,
Inc., 925 E. Meadow Drive, Palo Alto, California 94303.

         (v)    Each exchange will be deemed to have been effected immediately
prior to the close of business on the date on which such Series C Preferred
Units to be exchanged (together with all required documentation) shall have been
surrendered and notice shall have been received by the Company as aforesaid and
the exchange shall be at the Exchange Price in effect at such time and on such
date. The right to exchange Series C Preferred Units called for redemption will
terminate upon receipt by the holder of such Series C Preferred Units of a
notice of redemption from the Partnership that pertains to such Series C
Preferred Units.

         (vi)    In the event of an exchange of Series C Preferred Units into
shares of Series C Preferred Stock, an amount equal to the accrued and unpaid
distributions to the date of exchange on any Series C Preferred Units tendered
for exchange shall accrue on the shares of the Series C Preferred Stock into
which such Series C Preferred Units are exchanged and the Series C Preferred
Units so exchanged shall no longer be outstanding.

         (vii)   Fractional shares of Series C Preferred Stock are not to be
issued upon exchange but, in lieu thereof, the Company will pay a cash
adjustment based upon the fair market value of the Series C Preferred Stock on
the day prior to the exchange date as determined in good faith by the Board of
Directors of the Company.

     H.   Exchange Price Adjustments.
          -------------------------- 

          (i)    The Exchange Price is subject to adjustment upon certain
events, including (i) subdivisions, combinations and reclassification of the
Series C Preferred Stock, and (ii) distributions to all holders of Series C
Preferred Stock of evidences of indebtedness of the Company or assets (including
securities, but excluding dividends and distributions paid in cash out of equity
applicable to the Series C Preferred Stock). In addition to the foregoing
adjustments, the Company will be permitted to make such reduction in the
Exchange Price as it considers to be advisable in order that any event treated
for Federal income tax purposes as a dividend of stock or stock rights will not
be taxable to the holders of the Common Stock.

          (ii)   In case the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, statutory share
exchange, tender offer for all or substantially all of the Company's capital
stock or sale of all or substantially all of the Company's assets), in each case
as a result of which the Series C Preferred Stock will be converted into the
right to receive shares of capital stock, other securities or other property
(including cash or any combination thereof), each Series C Preferred Unit, will
thereafter be exchangeable into the kind and amount of shares of capital stock
and other securities and property receivable (including cash or any combination
thereof) upon the consummation of such transaction by a holder of that number of
shares of Series C Preferred Stock or fraction thereof into which one Series C

                                       8
<PAGE>
 
Preferred Unit was exchangeable immediately prior to such transaction. The
Company may not become a party to any such transaction unless the terms thereof
are consistent with the foregoing.

         (iii)  No adjustment of the Exchange Price is required to be made in
any case until cumulative adjustments amount to 1% or more of the Exchange
Price. Any adjustments not so required to be made will be carried forward and
taken into subsequent adjustments.

     I.   Voting Rights.
          --------------

          (i)    Holders of the Series C Preferred Units will not have any
voting rights or rights to consent to any matters, except as set forth below.

          (ii)   So long as any Series C Preferred Units remains outstanding,
the Partnership shall not, without the affirmative vote of the holders of at
least two-thirds (2/3) of the Series C Preferred Units outstanding at the time
(i) authorize or create, or increase the authorized or issued amount of, any
class or series of Partnership Interests ranking prior to the Series C Preferred
Units with respect to payment of distributions or rights upon liquidation,
dissolution or winding-up or reclassify any Partnership Interests of the
Partnership into any such Partnership Interest, or create, authorize or issue
any obligations or security convertible into or evidencing the right to purchase
any such Partnership Interest, (ii) amend, alter or repeal the provisions of the
Partnership Agreement, whether by merger, consolidation or otherwise, that would
materially and adversely affect the powers, special rights, preferences,
privileges or voting power of the Series C Preferred Units or the holders
thereof; provided that any increase in the amount of Partnership Interests or
the creation or issuance of any other class or series of Partnership Interests
ranking junior to or on a parity with the Series C Preferred Units with respect
to payment of distributions and the distribution of assets upon liquidation,
dissolution or winding-up shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers, or (iii) consolidate,
amalgamate, merge into or with, or convey, transfer or lease its assets
substantially as an entirety to, any corporation or other entity, unless (a) the
Partnership is the surviving entity and the Series C Preferred Units remain
outstanding with the terms thereof unchanged, (b) the resulting, surviving or
transferee entity is a partnership, limited liability company or other pass-
through entity organized under the laws of any state and substitutes the Series
C Preferred Units for other interests in such entity having substantially the
same terms and rights as the Series C Preferred Units, including with respect to
distributions, voting rights and rights upon liquidation, dissolution or 
winding-up, or (c) such merger, consolidation, amalgamation or asset transfer
does not adversely affect the powers, special rights, preferences and privileges
of the holders of the Series C Preferred Units in any material respect. However,
the Partnership may create additional classes and series of Parity Units and
Junior Units, increase the authorized number of Parity Units and Junior Units
and issue additional classes and series of Parity Units and Junior Units without
the consent of any holders of Series C Preferred Units.

     J.   Restrictions on Ownership and Transfer.
          -------------------------------------- 

          Each holder of the Series C Preferred Units shall be permitted to
transfer its units if such transfer is in accordance with the provisions and
restrictions on Transfers of Limited Partnership Interests set forth in Sections
9.2 and 9.3(b) of the Partnership Agreement; provided, however, that upon any
Transfer by a holder of Series C Preferred Units to any Controlled Entity,

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<PAGE>
 
such transferee shall, subject to compliance with Section 9.3 and clauses (A),
(B) and (D) of Section 9.2 of the Partnership Agreement, be admitted as a
Substituted Limited Partner.

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