June 16, 1998


Homestead Village Incorporated
Robert Aldworth
Senior Vice President and Chief Financial Officer
2100 RiverEdge Parkway
Atlanta, Georgia  30328

Dear Mr. Aldworth:

         This will confirm our  understanding  whereby  Security  Capital  Group
Incorporated  ("Subscriber")  will  agree to  subscribe  for up to $200  million
principal amount of Homestead  Village  Incorporated  ("Homestead")  convertible
subordinated debentures ("Subordinated Debentures"),  convertible into shares of
Homestead  Common  Stock,  $.01  par  value  per  share  (the  "Shares").   This
Subscription  Agreement is entered into in connection  with  Homestead  entering
into a Credit Agreement dated June 15, 1998 ("Credit Agreement"), for up to $200
million with certain banks  ("Banks") and Commerzbank AG, acting through its New
York Branch as agent for the Banks (the "Agent").


         1.  Documents.  Subscriber has received and read (i) the Homestead Form
10-K for 1997,  (ii) the  Homestead  Form 10-Q for the  quarter  ended March 31,
1998,  (iii) the  Homestead  Proxy  Statement  for the 1998  Annual  Meeting  of
Shareholders,  (iv) this  Subscription  Agreement,  (v) the Form of Subordinated
Debenture  attached  hereto as Exhibit A, (vi) the Credit  Agreement,  and (vii)
Homestead's   Articles  of   Incorporation,   as  amended   (the   "Articles  of
Incorporation"),  and By-laws,  as amended (the "By-laws").  The Form 10-K, Form
10-Q,  Proxy  Statement,  Form  of  Subordinated  Debenture,  this  Subscription
Agreement, Credit Agreement and the Articles of Incorporation and the By-laws of
Homestead are referred to collectively herein as the "Documents."

         2.  Subscription.  On the  terms set forth  herein,  Subscriber  hereby
subscribes for up to $200 million principal amount (the  "Subscription  Amount")
of Subordinated Debentures substantially in the form attached as Exhibit A, at a
price of $1,000 per $1,000  principal  amount of Subordinated  Debentures at the
time the subscription is called in whole or in part ("Subscription  Price"). The
parties  acknowledge and agree that the Subscription  Amount will be used first,
to repay  Homestead's  obligations under the Credit Agreement and second, to the
extent  necessary,  to fund  projects  under  development  which  are  Mortgaged
Properties (as defined in the Credit  Agreement).  Subscriber hereby agrees that
this subscription is and shall be irrevocable and shall survive and shall not be
affected by the subsequent  dissolution,  bankruptcy or insolvency of Homestead,
or any defenses,  counterclaims or setoffs which Subscriber may at any time have
against  Homestead,  but that the  obligations  hereunder  will terminate if (a)
Homestead or the Agent does not call the  subscription or any part of it for any
reason by June 30, 1999 or (b) 14 days after the Credit Agreement is terminated.
Subscriber  acknowledges that Homestead is not obligated to call all or any part
of the Subscription  Amount.  In addition,  Subscriber's  obligation to fund the
Subscription  Amount will be reduced or terminated  to the extent  Homestead (i)
issues equity securities, including Shares, to any third party (or to Subscriber
pursuant to a separate offering) before June 30, 1999, as provided in Section 9,
and (ii) uses the proceeds thereof to pay down its obligations  under the Credit
Agreement by the amount of net proceeds  received by Homestead  from the sale of
equity  securities  and  any  remaining  net  proceeds  to fund  projects  under
development which are Mortgaged Properties (as defined in the Credit Agreement).
Subscriber acknowledges and agrees that any issuance of convertible subordinated
debentures in a private offering managed by Merrill Lynch, the proceeds of which
will be used to purchase convertible mortgages of Homestead, shall not reduce or
terminate Subscriber's subscription obligation hereunder. As of the date of this
Subscription  Agreement,  Subscriber  has no  knowledge of any claims or offsets
against Homestead.

         3. Repayment of Subordinated  Debentures.  Homestead shall have 90 days
after the date of the initial  issuance of  Subordinated  Debentures  under this
Agreement to complete an equity offering to repay Subordinated Debentures issued
to Subscriber.  If at the end of such 90 day period  Homestead has not completed
an equity  offering,  then the  Subordinated  Debentures  shall,  subject to the
following sentence, automatically be converted into Shares at a conversion price
equal to the lower of the Fair Market Value of the Shares when the  Subscription
Agreement is executed by Homestead or the Fair Market Value of the Shares on the
90th day after issuance of the Subordinated Debentures. The Shares issuable upon
conversion  of  the  Subordinated  Debentures  shall  be  registered  under  the
Securities Act of 1933, as amended (the "Securities  Act"). If Homestead becomes
in default  under the Credit  Agreement  after the issuance of the  Subordinated
Debentures  and  before  the  90th day  after  issuance,  then the  Subordinated
Debentures  shall become  non-convertible  and interest  shall accrue at 15% per
annum.

         For purposes hereof, "Fair Market Value" shall be:

                  (a) If the Shares are listed on a national securities exchange
         or reported on the NASDAQ  National  Market  System,  the average daily
         per-Share  closing  sales  price  during  the  20  trading-day   period
         immediately prior to any determination date.

                  (b) If the Shares are not listed or reported but published bid
         and asked prices are  available  with  respect to the Shares,  the mean
         between the average  per-Share  closing bid and asked prices during the
         20 trading day period immediately prior to any determination date.

         4.       Purchase of Non-Convertible Subordinated Debt.

                  (a) If Homestead is in default under the Credit Agreement when
         it or the Agent calls for payment of any of the Subscription Amount due
         under  this   Subscription   Agreement,   Subscriber   shall   purchase
         non-convertible  subordinated  debt of Homestead in satisfaction of its
         funding   obligations   under  this   Subscription   Agreement,   which
         non-convertible  subordinated  debt  shall  have the same  terms as the
         Subordinated  Debentures except they shall bear interest at the rate of
         15% per annum and shall not be convertible into Shares.

                  (b) If the Agent calls for payment of any of the  Subscription
         Amount due under the  Subscription  Agreement  within eight days of the
         termination  of  the  Credit   Agreement,   Subscriber  shall  purchase
         non-convertible  subordinated  debt of Homestead in satisfaction of its
         funding   obligations   under  this   Subscription   Agreement,   which
         non-convertible  subordinated  debt  shall  have the same  terms as the
         Subordinated  Debentures  except  such debt shall bear  interest at the
         rate of 15% per annum and shall not be convertible into Shares.  Within
         5 days of issuing such non-convertible subordinated debt, Homestead may
         at  its  option  exchange  Subordinated   Debentures  (which  shall  be
         convertible  at a  price  which  is  20%  less  than  the  Subordinated
         Debentures)  for the  entire  principal  amount of the  non-convertible
         subordinated debt issued to Subscriber.

         5.       Payment of Subscription Amount; Pledge of Subscription.

                  (a)  Subscriber  agrees  to pay up to  the  full  Subscription
         Amount in the manner and on the dates set forth below:

                           (i)  On  the  date  (the  "Initial   Funding   Date")
                  specified  by  Homestead or the Agent upon not less than seven
                  days' prior written notice to Subscriber (the "Initial Funding
                  Notice"),   Subscriber  shall  pay  the  amount  specified  by
                  Homestead  or the  Agent,  as the case may be, in the  Initial
                  Funding  Notice,  for the account of  Homestead,  as indicated
                  below.  Payment shall be made by wire transfer of  immediately
                  available  funds to the collateral  account  maintained by the
                  Agent  specified by Homestead  and the Agent (the  "Collateral
                  Account")  under  the  terms  of the  Security  Agreement  (as
                  defined in the Credit Agreement).

                           (ii) On any subsequent date (any such date as well as
                  the  Initial  Funding  Date  being  referred  to as a "Funding
                  Date")  specified by Homestead or the Agent upon not less than
                  seven days' prior  written  notice (any such notice as well as
                  the Initial  Funding  Notice  being  referred to as a "Funding
                  Notice")  to  Subscriber,   Subscriber  shall  pay  an  amount
                  specified  by  Homestead  or the Agent,  as the case may be (a
                  "Subsequent  Installment")  (up to a maximum of $200  million,
                  less any amounts  previously  funded by Subscriber  under this
                  Subscription  Agreement),  by  wire  transfer  of  immediately
                  available funds to the Collateral Account.

                           (iii) Upon  payment  by  Subscriber  pursuant  to any
                  Funding Notice, Homestead shall issue that principal amount of
                  Subordinated Debentures so purchased.

                           (iv) Homestead  shall not make more than two requests
                  for funding under this Subscription Agreement.

                  (b)  Subscriber  agrees and  acknowledges  that  Homestead may
         directly  or  indirectly   borrow  against  unfunded  portions  of  the
         Subscription Amount under the Credit Agreement,  which borrowings under
         the  Credit  Agreement  may be repaid  by  calling  such  subscription.
         Subscriber  agrees  and  acknowledges  that such  borrowings  under the
         Credit Agreement will constitute  binding  commitments of Homestead and
         that Homestead may pledge its rights under this Subscription Agreement,
         including  without  limitation,  the payment  obligations of Subscriber
         hereunder  as  security  for  any  such  borrowings  under  the  Credit
         Agreement; Subscriber further agrees that, if so notified or instructed
         by  Homestead  or the  Agent,  it will make  payments  directly  to the
         Collateral  Account.  Subscriber agrees, upon the reasonable request of
         Homestead,  to execute and deliver  such further  instruments  or do or
         cause to be done such  further  acts as may be  necessary to be done to
         effectuate and confirm the pledge of this  subscription as security for
         any such borrowing under the Credit Agreement.

                  (c) A default  ("Default")  shall occur  hereunder if, for any
         reason, Subscriber fails to pay the full amount due on any Funding Date
         and such failure shall  continue  unremedied for a period of 5 business
         days immediately  following written notice of such failure.  Subscriber
         agrees that if a Default occurs  hereunder,  Homestead or the Agent, as
         the case may be, may  exercise  any remedy  available at law or equity,
         provided  that  Homestead's  damages for a Default  shall be limited to
         receiving the full amount due on such Funding Date plus interest at the
         rate equal to the default rate in the Credit Agreement from the Funding
         Date. In no event shall Homestead be entitled to consequential  damages
         for any Default.

         6.  Representations  and  Warranties of Subscriber.  Subscriber  hereby
represents and warrants as follows:

                  (a) Homestead shall rely upon the representations, warranties,
         and agreements of Subscriber  contained in this Subscription  Agreement
         in determining the applicability of certain laws and regulations to the
         transactions  contemplated hereby and accordingly such  representations
         and warranties shall survive the closing hereunder.

                  (b)  Subscriber  acknowledges  that no Federal or state agency
         has passed  upon the  Subordinated  Debentures  or made any  finding or
         determination as to the fairness of this  investment,  the terms of the
         offer and the sale of the  Subordinated  Debentures or Shares  issuable
         upon conversion of the  Subordinated  Debentures or the adequacy of the
         disclosure made in the Documents.

                  (c)  Subscriber  must bear the economic risk of its investment
         in the Subordinated Debentures for an indefinite period of time because
         (1) the  Subordinated  Debentures  have not been  registered  under the
         Securities Act and,  therefore,  cannot be sold or  transferred  unless
         either they are subsequently  registered under the Securities Act or an
         exemption from such registration is available; and (2) the Subordinated
         Debentures  cannot be sold or  transferred  unless they are  registered
         under  applicable  state  securities  laws or an  exemption  from  such
         registration is available.

                  (d) The Subordinated  Debentures for which  Subscriber  hereby
         subscribes  are being  acquired for its own  account,  and not with any
         view  toward the resale or  distribution  thereof,  or with any present
         intention  of  selling  or   distributing   any  of  the   Subordinated
         Debentures,   but  subject  nevertheless  to  the  disposition  of  the
         Subordinated Debentures being at all times within Subscriber's control,
         subject to the instruments constituting and governing such Subordinated
         Debentures.

                  (e)  Subscriber has such knowledge and experience in financial
         and business  matters that it is capable of  evaluating  the merits and
         risks of an investment in the Subordinated Debentures.

                  (f)  Subscriber  has carefully  reviewed the Documents and any
         other written materials delivered to Subscriber by Homestead,  has been
         furnished  with  all  materials  that  it  considers   relevant  to  an
         investment  in  the   Subordinated   Debentures  and  has  had  a  full
         opportunity  to ask questions of and receive  answers from Homestead or
         any  person or persons  acting on behalf of  Homestead  concerning  the
         terms and conditions of an investment in the  Subordinated  Debentures.
         No statement or printed material which is contrary to the Documents has
         been made or given by or on behalf of Homestead.

                  (g) Subscriber is an accredited investor by virtue of the fact
         that it is a  corporation  not  formed  for  the  specific  purpose  of
         acquiring the Subordinated  Debentures,  with total assets in excess of
         $5,000,000.

                  (h)  Subscriber  is  a  corporation  duly  organized,  validly
         existing and in good standing  under the laws of Maryland;  (i) has all
         requisite power and authority to invest in the Subordinated  Debentures
         as  provided  herein;  (ii)  such  investment  will not  result  in any
         violation  of or  conflict  with any term of the  charter or by-laws of
         Subscriber or any other organizational  document or instrument by which
         it is bound  or any law or  regulation  applicable  to it;  (iii)  such
         investment has been duly  authorized by all necessary  action on behalf
         of  Subscriber;  and (iv)  this  Subscription  Agreement  has been duly
         executed and delivered on behalf of Subscriber and constitutes a legal,
         valid and binding  agreement of Subscriber and is  enforceable  against
         Subscriber in accordance with its terms.

         7.  Representations,  Warranties and Covenants of Homestead.  Homestead
hereby represents, warrants and covenants as follows:

                  (a) (i) It is duly  organized,  validly  existing  and in good
         standing  under  the  laws of the  State of  Maryland;  (ii) it has all
         requisite power and authority to sell the  Subordinated  Debentures and
         the Shares issuable upon conversion of the  Subordinated  Debentures as
         provided herein; (iii) such sale will not result in any violation of or
         conflict with any term of its Articles of  Incorporation  or By-Laws or
         any other organizational document or instrument by which it is bound or
         any law or  regulation  applicable  to it; (iv) such sale has been duly
         authorized  by all  necessary  action on its  behalf  (subject  to such
         stockholder  approval  of their  issuance as may be required by the New
         York Stock Exchange); and (v) this Subscription Agreement has been duly
         executed and delivered on its behalf and constitutes  its legal,  valid
         and binding agreement.

                  (b)  All  written   information   which  it  has  provided  to
         Subscriber  concerning  itself,  including  all  information  contained
         herein and in the  Documents,  is correct and  complete in all material
         respects  as of the  date of  this  Subscription  Agreement  and may be
         relied  upon,  and if  there  should  be any  material  change  in such
         information  prior  to  this  subscription  being  accepted,   it  will
         immediately provide Subscriber with notice of such change.

                  (c) It will call the  subscription (i) first, to repay amounts
         outstanding  under the Credit Agreement and will borrow funds under the
         Credit  Agreement  using  this  subscription  as  collateral  only when
         required in connection with its normal  business  operations and for no
         other  purpose,  and (ii) second,  and only after all amounts under the
         Credit Agreement have been repaid,  to fund projects under  development
         which are Mortgaged Properties (as defined in the Credit Agreement).

                  (d) All Subordinated  Debentures issued pursuant hereto,  when
         paid for as contemplated hereby, shall be valid and binding obligations
         of Homestead  enforceable in accordance  with their terms except as (i)
         the enforceability thereof may be limited by bankruptcy,  insolvency or
         similar laws affecting  creditors'  rights generally and (ii) rights of
         acceleration and the availability of equitable  remedies may be limited
         by equitable principles of general applicability.

                  (e) All Shares  issued  upon  conversion  of the  Subordinated
         Debentures  shall  be duly  authorized,  validly  issued,  fully  paid,
         nonassessable  and free of  preemptive  rights  or any  other  claim of
         Homestead  or any  third  party  except  as may have  been  created  by
         Subscriber.

                  (f) It will use the proceeds of any equity offering  completed
         while the Subscription  Agreement is in effect to repay its obligations
         under the Credit Agreement.

                  (g) It will redeem any Subordinated Debentures solely from the
         proceeds of an equity offering.

                  (h) It will  promptly  deliver  to  Subscriber  copies  of all
         filings  made by it under  the  Securities  Exchange  Act of  1934,  as
         amended  (the"Exchange  Act"),  and the  Securities  Act  prior  to the
         expiration of this Subscription Agreement.

                  (i) It will use its best  efforts to register the Shares under
         the  Securities  Act  prior  to  the   Subordinated   Debentures  being
         converted.

         8. Other Issuances of Equity  Securities.  Except as otherwise provided
in Section 2, Subscribers'  obligations to make fundings under this Subscription
Agreement  shall be reduced by an amount  equal to the net  amount  received  by
Homestead  from  any  equity  financing  from  Subscriber  or any  third  party,
including, but not limited to, any rights offering, underwritten public offering
or private placement of equity securities,  including Shares, made prior to June
30, 1999, to the extent that such net amounts are applied to reduce  Homestead's
obligations under the Credit Agreement and any remaining net amounts are used to
fund projects under  development  which are Mortgaged  Properties (as defined in
the Credit Agreement).

         9. Other  Equity  Offerings.  Nothing  contained  in this  Subscription
Agreement shall prohibit  Homestead from  conducting any other equity  offering,
including a rights offering to all holders of Shares,  in which  Subscriber will
have an option to participate on a pro rata basis  consistent  with its existing
shareholder's agreement.

         10. Reimbursement  Amount. In consideration of Subscriber entering into
this Subscription Agreement and agreeing to provide funding hereunder, Homestead
shall pay  Subscriber  a  reimbursement  amount of 30 basis  points on the total
Subscription  Amount  and shall  pay all  reasonable  legal  and other  expenses
incurred by Subscriber in connection  with the  preparation  and  performance of
this Subscription Agreement. The reimbursement amount shall be for reimbursement
of  Subscriber's  costs in  arranging  back-up  financing  for its  subscription
obligation.  The reimbursement  amount shall be paid in three equal installments
beginning on the date of Homestead's  execution of this  Subscription  Agreement
and 30 days and 60 days thereafter.

         11. Comfort  Letter.  Upon execution and delivery of this  Subscription
Agreement by Subscriber  and  acceptance by Homestead,  the Comfort Letter dated
April 24, 1998,  from  Subscriber to Commerzbank AG shall terminate and be of no
further force and effect.

         12.  Governing Law. This  Subscription  Agreement shall be construed in
accordance with and governed by the internal laws of the State of Maryland.

         13.  Entire  Agreement;   Amendments.   This   Subscription   Agreement
constitutes the entire agreement  between the parties hereto with respect to the
subject  matter hereof and may be amended only in a writing which is executed by
Subscriber  and  Homestead,  and agreed to in writing by all Banks to which this
Subscription Agreement will be pledged.

         14.  Severability.   Insofar  as  possible,   each  provision  of  this
Subscription  Agreement  shall be  interpreted  so as to  render  it  valid  and
enforceable  under  applicable  law and  severable  from the  remainder  of this
Subscription  Agreement.  A  finding  that  any such  provision  is  invalid  or
unenforceable   in  any   jurisdiction   shall  not  affect  the   validity   or
enforceability  of any other provision or the validity or enforceability of such
provision under the laws of any other jurisdiction.

         15.  Execution in  Counterparts.  This  Subscription  Agreement  may be
executed  in any  number of  counterparts,  each of which when so  executed  and
delivered shall be deemed an original. It shall not be necessary in making proof
of this  Subscription  Agreement  to  produce  or  account  for  more  than  one
counterpart.

         16.  Headings.  The  headings in this  Subscription  Agreement  are for
convenience  of  reference  only and shall not be deemed to alter or affect  the
meaning or interpretation of any provision hereof.

         17.  Interpretation.  Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the singular
and the plural, and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter.

         18. Further  Assurances.  Subscriber,  by executing  this  Subscription
Agreement,  agrees  that it will take such  actions  and  execute  such  further
documents  as  Homestead  may  reasonably  request from time to time in order to
carry out the purposes of this Subscription Agreement.


<PAGE>



         The  foregoing  Subscription  Agreement  is made as of the date  stated
below by Subscriber.

                  Dated:  June ___, 1998

                                      SECURITY CAPITAL GROUP INCORPORATED

                                      By:      ______________________________
                                      Name:    ______________________________
                                      Title:   ______________________________
                                      125 Lincoln Avenue
                                      Santa Fe, New Mexico  87501

         Homestead   hereby   accepts  the   subscription   set  forth  in  this
Subscription Agreement.

                  Dated:  June ____, 1998

                                      HOMESTEAD VILLAGE
                                        INCORPORATED

                                      By:      ______________________________
                                      Name:    Robert C. Aldworth
                                      Title:   Senior Vice President and
                                               Chief Financial Officer