<PAGE>
 
                                                                     Exhibit 4.6
                                                
               CONSOLIDATED AMENDED AND RESTATED PROMISSORY NOTE


$80,073,117                                                         May 28, 1996


     This Consolidated Amended and Restated Promissory Note (this "Note") is
made and delivered as of May 28, 1996, to Security Capital Atlantic
Incorporated, a Maryland corporation ("Lender"), by Atlantic Homestead Village
Incorporated, a Maryland corporation ("Borrower"), under the following
circumstances:


                                    RECITALS

     A.  Prior to the date hereof, Lender agreed to make a loan (the "Corporate
Loan") to Borrower, to fund, among other matters, acquisition and construction
costs and expenses incurred by Borrower in connection with acquiring and
developing various real properties as Homestead Village projects. In connection
therewith Borrower delivered to Lender that certain promissory note (the "Prior
Corporate Note") dated January 24, 1996, in the original principal amount of
$62,031,430, and various deeds to secure debt, deeds of trust and mortgages (the
"Prior Corporate Security Documents"), to secure payment of the Prior Corporate
Note and the Prior Partnership Note (as defined below). (The Prior Corporate
Note, the Prior Corporate Security Documents and all other instruments delivered
by Borrower in connection therewith to secure the Prior Corporate Note and the
Prior Partnership Note are herein called the "Prior Corporate Loan Documents".)

     B.  Prior to the date hereof, Lender agreed to make a loan (the
"Partnership Loan") to Atlantic Homestead Village Limited Partnership (the
"Partnership"), to fund, among other matters, acquisition and construction costs
and expenses incurred by the Partnership in connection with acquiring and
developing various real properties as Homestead Village projects. In connection
therewith the Partnership delivered to Lender that certain promissory note (the
"Prior Partnership Note") dated January 24, 1996, in the original principal
amount of $19,213,476, and various deeds to secure debt, deeds of trust and
mortgages (the "Prior Partnership Security Documents"), to secure payment of the
Prior Corporate Note and the Prior Partnership Note. (The Prior Partnership
Note, the Prior Partnership Security Documents and all other instruments
delivered by the Partnership in connection therewith to secure the Prior
Partnership Note and the Prior Corporate Note are herein called the "Prior
Partnership Loan Documents"; the Prior Corporate Loan Documents and Prior
Partnership Loan Documents are collectively referred to herein as the "Prior
Loan Documents"; the Corporate Loan and the Partnership Loan are herein
collectively called the "Loans".)

     C.  Borrower, the Partnership and Lender desire to continue the funding
provided for under the Prior Loan Documents, to provide funds to Borrower and
the Partnership for the costs

<PAGE>
 
incurred in connection with the acquisition and development of Homestead Village
projects. In furtherance of the foregoing, Borrower, the Partnership and Lender
have agreed that (i) the maximum amount of the Corporate Loan shall be
$90,765,665 (the "Maximum Corporate Loan Amount"); (ii) Borrower's repayment
obligation for funds advanced in respect of the Corporate Loan shall be adjusted
by a discount factor of .882196112 (the "Discount Factor"), thus providing for
the maximum face amount of this Note of $80,073,117 (i.e., the Maximum Corporate
Loan Amount as adjusted by the Discount Factor); (iii) the maximum amount of the
Partnership Loan shall be $20,353,019 (the "Maximum Partnership Loan Amount");
(ii) the Partnership's repayment obligation for funds advanced in respect of the
Partnership Loan, as evidenced by that certain Amended and Restated Promissory
Note, of even date herewith (the "Partnership Note"), shall be adjusted by the
Discount Factor, thus providing for the maximum face amount of the Partnership
Note of $17,955,354 (i.e., the Maximum Partnership Loan Amount as adjusted by
the Discount Factor); and (iv) in connection therewith, the Prior Loan Documents
shall be amended and restated in conformity with the foregoing and as otherwise
agreed by the parties. In connection with such amendment and restatement of the
Prior Loan Documents, prior to the execution and delivery of this Note to
Lender, Borrower executed and delivered to Lender that certain promissory note
in the amount of $18,041,687 (the "Additional Corporate Note"). This Note only
renews and consolidates the outstanding principal balance plus the amounts not
yet disbursed under (a) the Additional Corporate Note; and (b) the Prior
Corporate Note. Florida documentary stamp and intangible tax on the Prior
Corporate Note is affixed to the instrument recorded in ORB 8027, Page 484,
Hillsborough County Public Records, the instrument recorded in ORB 24449, Page
598, Broward County Public Records, and the instrument recorded in ORB 17194
Page 179, Dade County Public Records. Any Florida documentary stamp and
intangible tax due on account of the Additional Corporate Note is affixed to the
Amended and Restated Mortgages dated this date, from Borrower to Lender, being
recorded in the Public Records of Hillsborough County, Broward County and Dade
County.

     D.  The Partnership Note and this Note and the amended and restated Prior
Loan Documents being executed and delivered contemporaneously herewith, and any
and all other agreements or instruments now or hereafter executed by Borrower,
the Partnership or any other person or entity to evidence the Loans, or any
portion thereof, or in connection with, or as security for the payment or
performance of, this Note or the Partnership Note and/or any other note(s)
delivered from time to time to Lender to evidence the Loans or any portion
thereof, are, together with such notes, herein collectively referred to as the
"Loan Documents".

     NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender agree to consolidate, amend and restate the
Additional Corporate Note and the Prior Corporate Note as follows:
 

                                       2
<PAGE>
 
     1.  Promise to Pay.

     On or before October 31, 2006 (the "Due Date"), the undersigned Borrower,
hereby promises to pay to the order of Lender in lawful money of the United
States of America, the lesser of (A) EIGHTY MILLION SEVENTY THREE THOUSAND ONE
HUNDRED SEVENTEEN DOLLARS ($80,073,117) and (B) the aggregate unpaid principal
amount of all advances made by Lender to Borrower in respect of the Corporate
Loan, multiplied by the Discount Factor (the amount so determined being herein
called the "Adjusted Principal Amount"), together with interest on the Adjusted
Principal Amount at a rate equal to 9.0% per annum (the "Interest Rate").
Interest shall be calculated on the basis of a 360-day year and shall be
computed on the actual number of days elapsed.

     2.  Payments.

     Accrued interest on the unpaid Adjusted Principal Amount shall be payable
in arrears every six months beginning with the date that is six months after the
date of this Note, in an amount equal to all of the interest accrued during the
immediately preceding six month period. Borrower shall make a payment of the
total Adjusted Principal Amount of advances then outstanding, together with
accrued and unpaid interest to such date, on the Due Date. Borrower shall have
no obligation to pay the Adjusted Principal Amount, or any portion thereof,
until the Due Date or such earlier date upon which the loan is accelerated.
Borrower shall make each payment hereunder not later than 11:00 a.m. (Mountain
Standard Time) on the day when due in U.S. dollars at Lender's office at 7777
Market Center Avenue, El Paso, Texas 79912. Each payment shall first be applied
to late charges, costs of collection or enforcement and other similar amounts
due, if any, under this Note, then to interest due and payable hereunder and the
remainder to the Adjusted Principal Amount due and payable hereunder. The
aggregate unpaid Adjusted Principal Amount shown on the records of Lender shall
be rebuttable presumptive evidence of the Adjusted Principal Amount owing and
unpaid on this Note.

     3.  Conversion.  Subject to the terms of this Note, the holder of this Note
shall have the right, beginning on any Business Day (as defined below) on or
after March 31, 1997, (the "Exercisability Date") and on or prior to the date on
which this Note is fully paid, to convert to shares of Common Stock all or any
portion of the principal amount outstanding on this Note, on the basis of one
fully paid, registered and nonassessable share of Common Stock for each $11.50
aggregate Adjusted Principal Amount outstanding on this Note. The number of
shares of Common Stock into which this Note may be converted, as adjusted
pursuant hereto, is referred to herein as the "Exercise Rate". For purposes of
this Note, certain capitalized terms used below are defined in Section 4 of this
Note.

          (a) The conversion rights under this Section 3 of this Note may be
     exercised from time to time on and after the Exercisability Date and on or
     prior to the Due Date by surrendering this Note at the principal office of
     Borrower with the form of conversion

                                       3
<PAGE>
 
     election set forth as Exhibit A hereto (the "Conversion Exercise") duly
     completed and signed by the holder of this Note.

          (b) Except as otherwise provided in Section 3(h)(vi) no payment shall
     be made on Common Stock issuable upon conversion of this Note on account of
     any dividend or distribution declared on Borrower's Common Stock to holders
     of such Common Stock of record as of a date prior to the Exercise Date.

          (c) The "Exercise Date" shall be the date when all of the items
     referred to in subsection (a) of this Section 3 are received by Borrower at
     or prior to 2:00 p.m., New York, New York time, on a Business Day and the
     conversion of this Note will be effective as of such Exercise Date. If any
     items referred to in subsection (a) are received after 2:00 p.m., New York,
     New York time, on a Business Day, the conversion of this Note will be
     effective on the next succeeding Business Day. Notwithstanding the
     foregoing, in the case of a conversion of this Note on the Expiration Date,
     if all of the items referred to in the preceding subsection are received by
     Borrower at or prior to 5:00 p.m. New York, New York time, on such
     Expiration Date, the conversion of this Note will be effective on the
     Expiration Date.

          (d) Upon the conversion of this Note in accordance with the terms
     hereof Borrower shall issue and cause to be delivered with all reasonable
     dispatch to or upon the written order of the holder of this Note, a
     certificate or certificates for the number of full shares of Common Stock
     issuable upon the conversion of this Note, in fully registered form,
     registered in such name or names as may be directed by such holder pursuant
     to the Conversion Exercise, together with cash as provided in Section 3(i)
     hereof and shall deliver to holder a duly executed replacement note
     representing the aggregate principal amount of this Note outstanding less
     any amount previously converted (in each case, without the adjustment
     provided for in Section 1 of this Note), but otherwise in the same form as
     this Note; provided, however, that if any consolidation, merger or lease or
     sale of assets is proposed to be effected by Borrower as described in
     Section 3(h)(x) hereof, or a tender offer or an exchange offer for shares
     of Common Stock of Borrower shall be made, upon such surrender of this Note
     as aforesaid, Borrower shall, as soon as possible, but in any event not
     later than two Business Days thereafter, issue and cause to be delivered
     the full number of shares of Common Stock issuable upon the conversion of
     this Note in the manner described in this sentence together with cash as
     provided in Section 3(i) hereof. Such certificate or certificates shall be
     deemed to have been issued and any person so designated to be named therein
     shall be deemed to have become a holder of record or such shares of Common
     Stock as of the date of the surrender of this Note. No fractional shares
     shall be issued upon conversion of this Note in accordance with Section
     3(i) hereof.

          (e) Borrower will pay all documentary stamp taxes attributable to the
     initial issuance of this Note and the issuance of shares of Common Stock
     upon conversion of

                                       4
<PAGE>
 
     this Note; provided, however, that Borrower shall not be required to pay
     any tax or taxes which may be payable in respect of any transfer involved
     in the issuance of this Note or any certificates for shares of Common Stock
     in a name other than that of the registered holder of this Note surrendered
     upon the exercise hereof, and Borrower shall not be required to issue or
     deliver such Note unless or until the person or persons requesting the
     issuance thereof shall have paid to Borrower the amount of such tax or
     shall have established to the satisfaction of Borrower that such tax has
     been paid.

          (f) Borrower will at all times reserve and keep available, free from
     preemptive rights, out of the aggregate of its authorized but unissued
     shares of Common Stock, for the purpose of enabling it to satisfy any
     obligation to issue shares of Common Stock upon conversion of this Note,
     the maximum number of shares of Common Stock which may then be deliverable
     upon the conversion of this Note. Borrower or the transfer agent for the
     Common Stock (the "Transfer Agent") and every subsequent transfer agent for
     any shares of Borrower's capital stock issuable upon the exercise of any of
     the conversion rights aforesaid will be irrevocably authorized and directed
     at all times to reserve such number of authorized shares as shall be
     required for such purpose. Before taking any action which would cause an
     adjustment pursuant to this Section 3 to reduce the Exercise Price below
     the then par value (if any) of the shares issuable upon conversion of this
     Note, Borrower will take any corporate action which may, in the opinion of
     its counsel (which may be counsel employed by Borrower), be necessary in
     order that Borrower may validly and legally issue fully paid and
     nonassessable shares of Common Stock at the Exercise Price as so adjusted.

          (g) At any such time as Common Stock is listed or quoted on any
     national securities exchange or inter-dealer quotation system, Borrower
     will, at its expense, obtain promptly and maintain the approval for listing
     or quotation on each such exchange or inter-dealer quotation system, upon
     official notice of issuance after notice of conversion of this Note, the
     shares of Common Stock issuable hereunder and maintain the listing or
     quotation of such shares after their issuance; and Borrower will also, upon
     official notice of issuance after notice of conversion of this Note, list
     or quote on such national securities exchange, will register under the
     Securities Exchange Act of 1934, as amended, and will maintain such listing
     or quotation of, any Other Securities (as defined below) that at any time
     are issuable upon conversion of this Note, if and at the time that any
     securities of the same class shall be listed or quoted on such national
     securities exchange or inter-dealer quotation system by Borrower.

          (h) The Exercise Rate is subject to adjustment from time to time upon
     the occurrence of the events enumerated in this Section 3(h). For purposes
     of this Section 3(h), "Common Stock" means the Common Stock and any other
     stock of Borrower, however designated, issuable upon conversion of this
     Note.

                                       5
<PAGE>
 
          (i) Adjustment for Change in Capital Stock.  If Borrower:
          
               a.  pays a dividend or makes a distribution on its Common
          Stock in shares of its Common Stock;
          
               b.  subdivides its outstanding shares of Common Stock into a
          greater number of shares;
          
               c.  combines its outstanding shares of Common Stock into a
          smaller number of shares;
          
               d.  makes a distribution on its Common Stock in shares of
          its capital stock other than Common Stock; or
          
               e.  issues by reclassification of its Common Stock any
          shares of its capital stock,

     then the Exercise Rate in effect immediately prior to such action shall be
     proportionately adjusted so that the holder of this Note may receive the
     aggregate number and kind of shares of capital stock of Borrower which such
     holder would have owned immediately following such action if this Note had
     been exercised immediately prior to such action or immediately prior to the
     record date applicable thereto, if any.
     
          The adjustment shall become effective immediately after the record
     date in the case of a dividend or distribution and immediately after the
     effective date in the case of a subdivision, combination or
     reclassification.
     
          If, after an adjustment, a holder of this Note, upon conversion, may
     receive shares of two or more classes of capital stock of Borrower, the
     Exercise Rate of each class of capital stock shall thereafter be subject to
     adjustment on terms comparable to those applicable to Common Stock in this
     Section 3(h).
     
          Such adjustment shall be made successively whenever any event listed
     above shall occur.

               (ii) Adjustment for Rights Issue or Sale of Common Stock Below
     Current Market Value. If Borrower (i) distributes any rights, warrants or
     options to all holders of its Common Stock entitling them to subscribe for
     or purchase shares of Common Stock at a price per share less than 94% (100%
     if a stand-by underwriter is used and charges Borrower a commission) of the
     Current Market Value at the Time of Determination (each as defined in
     Section 4) or (ii) sells any Common Stock or any securities convertible
     into or exchangeable or exercisable

                                       6
<PAGE>
 
     for the Common Stock (other than pursuant to (1) the exercise of this Note
     (or any other note issued by Borrower pursuant to or in connection with
     that certain Merger and Distribution Agreement dated of even date herewith
     among Lender Security Capital Pacific Trust ("PTR"), Security Capital Group
     Incorporated ("SCG") and Homestead Village Properties Incorporated
     ("Homestead") or (2) upon exercise of outstanding warrants to acquire
     shares of Common Stock, which warrants were issued pursuant to a Warrant
     Agreement executed in connection with that certain Warrant Purchase
     Agreement of even date herewith among Lender, PTR, SCG and Homestead or (3)
     any security convertible into, or exchangeable or exercisable for, the
     Common Stock as to which the issuance thereof has previously been the
     subject of any required adjustment (whether or not actually made) pursuant
     to this Section 3(h)) at a price per share less than the Current Market
     Value, the Exercise Rate shall be adjusted in accordance with the formula:
     
          E ' = E  x        (O + N)
                      ---------------
                      (O + (N x P/M))
     where:
     
     E ' = the adjusted Exercise Rate;
     
     E   = the current Exercise Rate;
     
     O   = the number of shares of Common Stock outstanding on the record date
           for the distribution to which this subsection (ii) is being applied
           or on the date of sale of Common Stock at a price per share less than
           the Current Market Value to which this subsection (ii) applies, as
           the case may be;

     N  =  the number of additional shares of Common Stock issuable upon
           exercise of all rights, warrants and options so distributed or the
           number of shares of Common Stock so sold or the maximum stated number
           of shares of Common Stock issuable upon the conversion, exchange or
           exercise of any such convertible, exchangeable or exercisable
           securities, as the case may be;
     
     P  =  the offering price per share of the additional shares of Common Stock
           upon the exercise of any such rights, options or warrants so
           distributed or pursuant to any such convertible, exchangeable or
           exercisable securities so sold or the sale price of the shares so
           sold, as the case may be; and

     M  =  the Current Market Value as of the Time of Determination or at the
           time of sale, as the case may be.

                                       7
<PAGE>
 
          The adjustment shall be made successively whenever any such rights,
     warrants or options are issued and shall become effective immediately after
     the record date for the determination of stockholders entitled to receive
     the rights, warrants or options. If at the end of the period during which
     such rights, warrants or options are exercisable, not all rights, warrants
     or options shall have been exercised, the Exercise Rate shall be
     immediately readjusted to what it would have been if "N" in the above
     formula had been the number of shares actually issued.

          No adjustment shall be made under this subsection (ii) if the
     application of the formula stated above in this subsection (ii) would
     result in a value of E ' that is lower than the value of E.

          (iii)  Adjustment for Other Distributions. If Borrower distributes to
     all holders of its Common Stock any of its assets or debt securities or any
     rights, warrants or options to purchase any of its debt securities or
     assets, the Exercise Rate shall be adjusted in accordance with the formula:

            E ' = E  x  M
                       ---
                        M-F
     where:
 
     E '    =  the adjusted Exercise Rate;
 
     E      =  the current Exercise Rate;
 
     M      =  the Current Market Value; and

     F      =  the fair market value (on the record date for the distribution to
               which this subsection (iii) applies) of the assets, securities,
               rights, warrants or options to be distributed in respect of each
               share of Common Stock in the distribution to which this
               subsection (iii) is being applied (including, in the case of cash
               dividends or other cash distributions giving rise to an
               adjustment, all such cash distributed concurrently).

          The adjustment shall be made successively whenever any such
     distribution is made and shall become effective immediately after the
     record date for the determination of stockholders entitled to receive the
     distribution. If at the end of the period during which such rights,
     warrants or options are exercisable, not all rights, warrants or options
     shall have been exercised, the Exercise Rate shall be immediately
     readjusted to what it would have been if such rights, warrants or options
     which are not exercised had not been issued.

                                       8
<PAGE>
 
          This subsection (iii) does not apply to cash dividends or cash
     distributions paid out of consolidated retained earnings as shown on the
     books of Borrower prepared in accordance with generally accepted accounting
     principles other than any Extraordinary Cash Dividend (as defined below).
     An "Extraordinary Cash Dividend" shall be that portion, if any, of the
     aggregate amount of all cash dividends paid in any fiscal year which
     exceeds the sum of (A) Borrower cumulative undistributed earnings on the
     date of this Agreement, plus (B) the cumulative amount of earnings, as
     determined by the Board of Directors, after such date, minus (C) the
     cumulative amount of dividends accrued or paid in respect of the Common
     Stock. In all cases, Borrower shall give the holder of this Note advance
     notice of a record date for any dividend payment on the Common Stock which
     notice is delivered on a date at least as early as the date of notice to
     the holders of Common Stock.

          (iv) Consideration Received. For purposes of any computation
     respecting consideration received pursuant to subsection (ii) of Section
     3(h), the following shall apply:

               a.  in the case of the issuance of shares of Common Stock
          for cash, the consideration shall be the amount of such cash,
          provided that in no case shall any deduction be made for any
          commissions, discounts or other expenses incurred by Borrower for
          any underwriting of the issue or otherwise in connection
          therewith;
          
               b.  in the case of the issuance of shares of Common Stock
          for a consideration in whole or in part other than cash, the
          consideration other than cash shall be deemed to be the fair
          market value thereof as determined in good faith by the Board of
          Directors (irrespective of the accounting treatment thereof),
          whose determination shall be conclusive, and described in a Board
          resolution which shall be filed with the records of Borrower; and
          
               c.  in the case of the issuance of securities convertible
          into or exchangeable for shares, the aggregate consideration
          received therefor shall be deemed to be the consideration
          received by Borrower for the issuance of such securities plus the
          additional minimum consideration, if any, to be received by
          Borrower upon the conversion or exchange thereof (the
          consideration in each case to be determined in the same manner as
          provided in clauses (1) and (2) of this subsection).
          
          (v) When De Minimis Adjustment May Be Deferred. No adjustment in the
     Exercise Rate need be made unless the adjustment would require an increase
     or decrease of at least 1% in the Exercise Rate. Any adjustments that

                                       9
<PAGE>
 
     are not made shall be carried forward and taken into account in any
     subsequent adjustment. All calculations under this Section 3(h) shall be
     made to the nearest 1/100th of a share.

          (vi) When No Adjustment Required. No adjustment need be made for a
     transaction referred to in subsections (i), (ii) or (iii) of this Section
     3(h) if the holder of this Note is offered the opportunity to participate
     in the transaction on a basis and with notice that the Board of Directors
     determines to be fair and appropriate in light of the basis and notice on
     which holders of Common Stock participate in the transaction. To the extent
     this Note becomes convertible into cash, no adjustment need be made
     thereafter as to the cash. Interest will not accrue on the cash.

          (vii)  Notice of Adjustment. Whenever the Exercise Rate is adjusted,
     Borrower shall provide the notices required by Section 3(j) hereof.

          (viii)  Voluntary Adjustment. Borrower from time to time may, as the
     Board of Directors deems appropriate, increase the Exercise Rate by any
     amount for any period of time if the period is at least 20 days and if the
     increase is irrevocable during the period. Whenever the Exercise Rate is
     increased, Borrower shall mail to the holder of this Note a notice of the
     increase. Borrower shall mail the notice at least 15 days before the date
     the increased Exercise Rate takes effect. The notice shall state the
     increased Exercise Rate and the period it will be in effect. An increase of
     the Exercise Rate pursuant to this Section 3(h)(viii), other than an
     increase which Borrower has irrevocably committed will be in effect for so
     long as this Note is outstanding, does not change or adjust the Exercise
     Rate otherwise in effect for purposes of subsections (i), (ii) or (iii) of
     this Section 3(h).

          (ix) Notice of Certain Transactions.  If:
               ------------------------------      

               a.  Borrower takes any action that would require an adjustment in
          the Exercise Rate pursuant to subsections (i), (ii) or (iii) of this
          Section 3(h) and if Borrower does not arrange for the holder of this
          Note to participate pursuant to Section 3(h)(vi); or

               b.  there is a liquidation or dissolution of Borrower,

     Borrower shall mail to the holder of this Note a notice stating the
     proposed record date for a dividend or distribution or the proposed
     effective date of a subdivision, combination, reclassification,
     consolidation, merger, transfer, lease, liquidation or dissolution.
     Borrower shall mail the notice at least 15 days before such date.

                                      10
<PAGE>
 
          Failure to mail the notice or any defect in it shall not affect the
          validity of the transaction.

               (x)  Reorganization of Borrower. If Borrower consolidates or
          merges with or into, or transfers or leases all or substantially all
          its assets to, any Person, upon consummation of such transaction this
          Note shall automatically become exercisable for the kind and amount of
          securities, cash or other assets which the holder of this Note would
          have owned immediately after the consolidation, merger, transfer or
          lease if the holder had exercised this Note immediately before the
          effective date of the transaction. Concurrently with the consummation
          of such transaction, the corporation formed by or surviving any such
          consolidation or merger if other than Borrower, or the Person to which
          such sale or conveyance shall have been made (any such Person, the
          "Successor Guarantor"), shall enter into a supplemental Note so
          providing and further providing for adjustments which shall be as
          nearly equivalent as may be practical to the adjustments provided for
          in this Section 3(h). The Successor Guarantor shall mail to the holder
          of this Note a notice describing the supplemental Note. If the issuer
          of securities deliverable upon conversion of this Note under the
          supplemental Note is an Affiliate of the formed, surviving, transferee
          or lessee corporation, that issuer shall join in the supplemental
          Note. If this subsection (x) applies, subsections (i), (ii) or (iii)
          of this Section 3(h) do not apply.

               (xi)  Borrower Determination Final. Any determination that
          Borrower or the Board of Directors must make pursuant to subsection
          (i), (ii), (iii), (iv) or (vii) of this Section 3(h) is conclusive.

               (xii)  When Issuance or Payment May Be Deferred. In any case in
          which this Section 3(h) shall require that an adjustment in the
          Exercise Rate be made effective as of a record date for a specified
          event, Borrower may elect to defer until the occurrence of such event
          (i) issuing to the holder of this Note exercised after such record
          date the shares of Common Stock and other capital stock of Borrower,
          if any, issuable upon such conversion over and above the shares of
          Common Stock and other capital stock of Borrower, if any, issuable
          upon such conversion on the basis of the Exercise Rate and (ii) paying
          to such holder any amount in cash in lieu of a fractional share
          pursuant to Section 3(i) hereof; provided, however, that Borrower
          shall deliver to such holder a due bill or other appropriate
          instrument evidencing such holder's right to receive such additional
          shares of Common Stock, other capital stock and cash upon the
          occurrence of the event requiring such adjustment.

               (xiii)  Adjustments to Par Value. Borrower shall from time to
          time make such adjustments to the par value of the Common Stock as may
          be necessary so

                                      11
<PAGE>
 
          that at all times, upon conversion of this Note, the shares of Common
          Stock will be fully paid and nonassessable.

               (xiv)  Priority of Adjustments. If this Section 3(h) requires
          adjustments to the Exercise Rate under more than one of subsections
          (i), (ii) or (iii), and the record dates for the distributions giving
          rise to such adjustments shall occur on the same date, then such
          adjustments shall be made by applying, first, the provisions of
          subsection (i), second, the provisions of subsection (iii) and, third,
          the provisions of subsection (ii).

               (xv)  Multiple Adjustments. After an adjustment to the Exercise
          Rate under this Section 3(h), any subsequent event requiring an
          adjustment under this Section 3(h) shall cause an adjustment to the
          Exercise Rate as so adjusted.

          (i)  Fractional Interests; Accrued Interest. Borrower shall not be
     required to issue fractional shares on the conversion of this Note. If any
     fraction of a share would, except for the provisions of this Section 3(i),
     be issuable on the conversion of this Note, Borrower shall pay to the
     holder an amount in cash equal to the product of (i) such fraction of a
     share and (ii) the Current Market Value of a share of Common Stock as of
     the date of conversion of this Note. Upon any conversion of all or any
     portion of the Adjusted Principal Amount in accordance with the terms
     hereof, Borrower shall pay to the holder in cash all accrued but unpaid
     interest to the effective date of conversion with respect to the portion of
     the Adjusted Principal Amount of this Note being converted.

          (j)  Notices to Holder. Upon any adjustment of the Exercise Rate
     pursuant to Section 3(h) hereof, Borrower shall promptly thereafter (i)
     cause to be prepared a certificate of a firm of independent public
     accountants of recognized standing selected by Borrower (who may be the
     regular auditors of Borrower) setting forth the Exercise Rate after such
     adjustment and setting forth in reasonable detail the method of calculation
     and the facts upon which such calculations are based and setting forth the
     number of shares (or portion thereof) issuable after such adjustment in the
     Exercise Rate, upon conversion of this Note, which certificate shall be
     conclusive evidence of the correctness of the matters set forth therein,
     and (ii) cause to be given to the holder of this Note at such holder's
     address appearing on the Note register written notice of such adjustments
     by first-class mail, postage prepaid. Where appropriate, such notice may be
     given in advance and included as a part of the notice required to be mailed
     under the other provisions of this Section 3(j).

          In the event:

               (i)  Borrower shall authorize the issuance to all holders of
          shares of Common Stock of rights, options or warrants to subscribe for
          or purchase shares of Common Stock or of any other subscription rights
          or warrants (other than

                                      12
<PAGE>
 
          rights, options or warrants issued to all holders of its Common Stock
          entitling them to subscribe for or purchase shares of Common Stock at
          a price per share not less than 94% (100% if a stand-by underwriter is
          used and charges Borrower commission) of the Current Market Value); or

               (ii)  Borrower shall authorize the distribution to all holders of
          shares of Common Stock of evidences of its indebtedness or assets
          (other than cash dividends or cash distributions payable out of
          consolidated earnings or earned surplus or dividends payable in shares
          of Common Stock or distributions referred to in subsection (i) of
          Section 3(h) hereof); or

               (iii)  of any consolidation or merger to which Borrower is a
          party or of the conveyance or transfer of the properties and assets of
          Borrower substantially as an entirety, or of any reclassification or
          change of Common Stock issuable upon conversion of this Note (other
          than a change in par value, or from par value to no par value, or from
          no par value to par value, or as a result of a subdivision or
          combination), or a tender offer or exchange offer for shares of Common
          Stock; or

               (iv)  of the voluntary or involuntary dissolution, liquidation or
          winding up of Borrower; or

               (v)  Borrower proposes to take any action (other than actions of
          the character described in Section 3(h)(i) which would require an
          adjustment of the Exercise Rate pursuant to Section 3(h);

     then Borrower shall cause to be given to the registered holder of this Note
     at its address appearing on the Note register, at least 20 days (or 15 days
     in any case specified in clauses (i) or (ii) above) prior to the applicable
     record date hereinafter specified, or promptly in the case of events for
     which there is no record date, by first-class mail, postage prepaid, a
     written notice stating (i) the date as of which the holders of record of
     shares of Common Stock to be entitled to receive any such rights, options,
     warrants or distribution are to be determined, or (ii) the initial
     expiration date set forth in any tender offer or exchange offer for shares
     of Common Stock, or (iii) the date on which any such reclassification,
     consolidation, merger, conveyance, transfer, dissolution, liquidation or
     winding up is expected to become effective or consummated, and the date as
     of which it is expected that holders of record of shares of Common Stock
     shall be entitled to exchange such shares for securities or other property,
     if any, deliverable upon such reclassification, consolidation, merger,
     conveyance, transfer, dissolution, liquidation or winding up. The failure
     to give the notice required by this Section 3(j) or any defect therein
     shall not affect the legality or validity of any distribution, right,
     option, warrant, reclassification, consolidation, merger, conveyance,
     transfer, dissolution, liquidation or winding up, or the vote upon any
     action.

                                      13
<PAGE>
 
          Nothing contained in this Note shall be construed as conferring upon
     the holder hereof the right to vote or to consent or to receive notice as
     shareholders in respect of the meetings of shareholders or the election of
     directors of Borrower or any other matter, or any rights whatsoever as
     shareholders of Borrower.

     4.   Definitions. For purposes of Section 3 of this Note, the following
terms shall have the meanings indicated:

          "Affiliate" means, with respect to another Person, any Person directly
     or indirectly controlling or controlled by or under direct or indirect
     common control with such other Person. For the purposes of this definition,
     "control" (including, with correlative meanings, the terms "controlled by"
     and "under common control with"), when used with respect to any Person,
     means the power to direct the management and policies of such Person,
     directly or indirectly, whether through the ownership of voting securities,
     by contract or otherwise.

          "Board of Directors" means the Board of Directors of Borrower.

          "Business Day" shall mean any day other than a Saturday or a Sunday or
     a day on which commercial banking institutions in The City of New York are
     authorized by law to be closed.

          "Current Market Value" per share of Common Stock or of any other
     security at any date shall be the average of the daily market price, for
     the twenty (20) consecutive trading days immediately preceding the day of
     such determination. The market price for each such trading day shall be:
     (i) the last reported sales price, regular way on such day, or, if no sale
     takes place on such day, the average of the reported closing bid and asked
     prices on such day, regular way, in either case as reported on the New York
     Stock Exchange ("NYSE") or, (ii) if such security is not listed or admitted
     for trading on the NYSE, on the principal national securities exchange on
     which such security is listed or admitted for trading or, (iii) if not
     listed or admitted for trading on any national securities exchange, on the
     National Market System of the National Association of Securities Dealers,
     Inc. Automated Quotations System ("NASDAQ") or, (iv) if such security is
     not quoted on such National Market System, the average of the closing bid
     and asked prices on such day in the over-the-counter market as reported by
     NASDAQ or, (v) if bid and asked prices for such security on such day shall
     not have been reported through NASDAQ, the average of the bid and asked
     prices on such day as furnished by any NYSE member firm regularly making a
     market in such security selected for such purpose by the Chairman of the
     Board or the Board of Directors or, (vi) if such bid and asked prices are
     not so furnished, then the fair market value of the security as established
     by the Board of Directors acting in their good faith reasonable judgment.

                                      14
<PAGE>
 
          "Other Securities" means any stock (other than Common Stock) and other
     securities of Borrower or any other Person (corporate or otherwise) which
     the holder of this Note at any time shall be entitled to receive, or shall
     have received, upon the conversion of this Note, in lieu of or in addition
     to Common Stock, or which at any time shall be issuable or shall have been
     issued in exchange for or in replacement of Common Stock or Other
     Securities pursuant to Section 3(h) hereof or otherwise.

          "Person" means any individual, corporation, partnership, joint
     venture, trust, estate, unincorporated organization or government or any
     agency or political subdivision thereof.

          "Time of Determination" means the time and date of the earlier of (i)
     the determination of stockholders entitled to receive rights, warrants, or
     options or a distribution, in each case, to which Sections 3(h)(ii) or
     (iii) apply and (ii) the time ("Ex-Dividend Time") immediately prior to the
     commencement of "ex-dividend" trading for such rights, warrants or
     distribution on such national or regional exchange or market on which the
     Common Stock is then listed or quoted.

     5.   Call Option.

     Except as expressly set forth in this Section 5, Borrower is prohibited
from making any voluntary prepayment of this Note and shall not have any right
to cause the holder to convert any portion of the Adjusted Principal Amount
outstanding from time to time. From and after the fifth anniversary of the date
of this Note and on or prior to the Due Date, Borrower shall have the right (the
"Call Option") to repay the Adjusted Principal Amount then outstanding, in whole
but not in part, without premium or penalty (other than the imposition, if
applicable, of the Default Rate or "late charge" as provided herein). Borrower
may exercise the Call Option by giving the holder of this Note at any time upon
ninety (90) days' prior written notice of Borrower's intention to exercise the
Call Option, which notice shall state the date on which the Call Option is to be
consummated, the then current Adjusted Principal Amount and all accrued interest
and unpaid interest thereon, together with any other sums evidenced by this
Note, to be paid on such date. Upon the receipt of any such notice, the holder
shall have the right at any time prior to the date proposed for such repurchase
to convert any or all of the Adjusted Principal Amount of this Note in
accordance with the provisions of Section 3.

     6.   Default.

     In the event that any one or more of the following events occur, this Note
shall become immediately due and payable at the option of Lender:

          (a)  Borrower or the Partnership, as applicable, shall fail to pay
     when due any sums required to be paid under this Note or any other Loan
     Documents, and such failure is not cured within 10 days after receipt of
     written notice from Lender.

                                      15
<PAGE>
 
          (b)  To the extent any such failure, breach or inaccuracy has a
     Material Adverse Effect (as hereinafter defined), the failure by Borrower
     or the Partnership to perform or observe, as and when required, any
     covenant, agreement, obligation or condition required to be performed or
     observed under this Note or any other Loan Documents, or the existence of
     any breach or inaccuracy in any of the representations, covenants or
     warranties set forth in the Loan Documents, provided, however, that (i) no
     default shall exist hereunder on account of a breach of any representation,
     covenant or warranty set forth in the Loan Documents (other than this Note)
     until either Borrower or Partnership, as applicable, shall have failed to
     cure such breach within any applicable notice and cure period therein
     provided; and (ii) no default shall exist hereunder on account of a breach
     of any representation, covenant or warranty set forth herein unless and
     until Lender shall provide written notice of such breach to Borrower, and
     Borrower shall fail to cure the same within 30 days after receipt of such
     notice, provided if such breach is of such a nature that it cannot be cured
     within such 30 day period, it shall not constitute a default hereunder so
     long as Borrower commences its cure of such breach within such 30 day
     period and thereafter diligently and continuously proceeds with the curing
     of same within a reasonable period of time not to exceed 180 days.
     "Material Adverse Effect" means any material and adverse effect on the
     business, operations, properties, assets, condition (financial or other),
     results of operations or prospects of Borrower and its affiliates,
     subsidiaries and any parent entity, taken as a whole.

     7.   Default Rate; Late Charge.

     Upon the maturity of any portion of this Note, whether by acceleration or
otherwise, Borrower further promises to pay interest at the rate per annum equal
to the sum of 2.0%, plus the Interest Rate, on the then outstanding past-due
amount of principal, until such amount is paid in full. In addition, a late
charge of four percent (4%) of the amount of any installment or the amount due
on the Due Date which is not paid when due shall be due and payable to the
holder of this Note to cover the extra expense involved in handling delinquent
payments. Said "late charge" shall be due and payable upon demand of the Lender.

     8.   Security; Governing Law.

          (a)  This Note evidences indebtedness incurred for the purpose of
     financing the acquisition and development of real property, and payment of
     this Note is secured by the Loan Documents. It is agreed that, at the
     election of the holder hereof, the principal sum remaining unpaid hereon,
     together with accrued interest thereon, shall become at once due and
     payable at the place of payment aforesaid in the event that a default has
     occurred under any of the Loan Documents.

          (b)  This Note shall be governed by, and construed in accordance with,
     the laws of the State of New Mexico, United States.

                                      16
<PAGE>
 
     9.   Controlling General Provisions.

     The provisions in this Section 9 shall govern and control over any
irreconcilably inconsistent provision, the Loan Documents or any other
instrument contemplated hereunder or thereunder. In no event shall the aggregate
of all interest paid or payable by Borrower to Lender ever exceed the maximum
rate of interest which may lawfully be charged to (or payable by) Borrower under
applicable law on the Adjusted Principal Amount of this Note from time to time
remaining unpaid. In this connection, it is expressly stipulated and agreed that
it is the intent of Lender and Borrower in the execution and delivery of this
Note to contract in strict compliance with any applicable usury laws. In
furtherance of the foregoing, none of the terms of the Loan Documents or any
such other instruments contemplated hereunder or thereunder shall ever be
construed to create a contract to charge or pay for interest in excess of the
maximum interest rate permitted to be contracted for, charged to, or payable by
Borrower under applicable law. Borrower and any guarantors, endorsers or other
parties now or hereafter becoming liable for payment of this Note shall never be
liable for interest in excess of the maximum interest that may be lawfully
charged under applicable law, and the provisions of this Section 9 shall govern
over all other provisions of the Loan Documents, and any other instruments
evidencing or securing the Loan, should such provisions be in apparent conflict
herewith.

               Specifically and without limiting the generality of the foregoing
     paragraph, it is expressly agreed that:

               (a)  In the event of the payment of the principal of the Adjusted
          Principal Amount of this Note, prior to the due date for payment
          thereof, resulting from acceleration of maturity of this Note, if the
          aggregate amounts of interest accruing hereunder prior to such payment
          plus the amount of any interest accruing after such maturity up to the
          date of payment and plus any other amounts paid or accrued in
          connection with the Loan Documents, including, if applicable, all or
          any portion of the value of any Common Stock issued to Lender under
          Section 3 of this Note, which by law are deemed interest under such
          Loan Documents and which aggregate amounts paid or accrued (if
          calculated in accordance with the provisions of this Note other than
          pursuant to this Section 9) would exceed the maximum lawful rate of
          interest which could be charged on the principal balance of this Note
          from the date hereof to the date of final payment thereof, then in
          such event the amount of such excess shall be credited, as of the date
          paid, toward the payment of principal of this Note so as to reduce the
          amount of the final payments of Adjusted Principal Amount due on this
          Note;

               (b)  If under any circumstances the aggregate amounts paid under
          the Loan Documents prior to and incident to the final payment hereof,
          including, without limitation, if applicable, all or any portion of
          the value of any Common Stock issued to Lender under Section 3 of this
          Note, include amounts which by

                                      17
<PAGE>
 
          applicable law are deemed interest and which would exceed the maximum
          amount of interest which could lawfully have been charged or collected
          on this Note, Borrower stipulates that such payment and collection
          will have been and will be deemed to have been the result of a
          mathematical error on the part of both Borrower and Lender, and Lender
          shall promptly refund the amount of such excess (to the extent only of
          the excess of such payments above the maximum amount which could
          lawfully have been collected and retained) upon the discovery of such
          error by the party receiving such payment or notice thereof from the
          party making such payment; and

               (c)  All calculations as to the rate of interest contracted for,
          charged or received under this Note or the other Loan Document which
          are made for the purposes of determining whether such rate exceeds the
          maximum rate of interest which may lawfully be charged shall be made,
          to the extent permitted by applicable usury laws, if any, by
          amortizing, prorating, allocating and spreading, in equal parts,
          during the period of the full stated term of the Loan evidenced
          hereby, all interest any time contracted for, charged or received from
          Borrower or otherwise by Lender in connection with such indebtedness.

     Notwithstanding anything contained in this Note or the other Loan Documents
to the contrary, interest under this Note shall never exceed the lesser of (1)
the highest non-usurious rate allowed by applicable law or (2) seventeen percent
(17%) per annum on a compounded basis.

     10.  Invalidity.

     The parties hereto intend and believe that each provision of this Note
comports with all applicable laws and judicial decisions. However, if any
provision or provisions, or if any portion of any provision or provision, in
this Note is found by a court of law to be in violation of any applicable
ordinance, statute, law, administrative or judicial decision, or public policy,
and if such court should declare such portion, provision or provisions of this
Note to be illegal, invalid, void or unenforceable as written, then it is the
intent of all parties hereto (i) that such portion, provision or provisions
shall be given force to the fullest possible extent that they are legal, valid
and enforceable, (ii) that the remainder of this Note shall be construed as if
such illegal, invalid, void or unenforceable portion, provision or provisions
were not contained therein, and (iii) that the rights, obligations and interest
of Borrower and the holder hereof under the remainder of this Note shall
continue in full force and effect.

     11.  Waiver; Expenses.

          (a)  Borrower hereby waives presentment, demand for payment, notice of
     dishonor and all other notices or demands in connection with the delivery,
     acceptance, performance, default or enforcement of this Note and hereby
     consents to and extensions

                                      18
<PAGE>
 
     of time, renewals, waivers or modifications that may be granted or
     consented to by the holder of this Note in respect of the time of payment
     or any other provision of this Note. Borrower hereby waives and renounces
     for itself, its successors and assigns, all rights to the benefits of any
     statute of limitations and any moratorium, reinstatement, marshalling,
     forbearance, valuation, stay, extension, redemption, appraisement, or
     exemption now provided, or which may hereafter be provided, by the
     Constitution and laws of the United States and of any state thereof, both
     as to itself and in and to all of its property, real and personal against
     the enforcement and collection of the obligations evidenced by this Note.

          (b)  In the event that the holder hereof shall institute any action
     for the enforcement of the collection of this Note, there shall be
     immediately due from Borrower in addition to the unpaid interest and
     principal, all costs and expenses of such action, including but not limited
     to attorneys' fees and expenses.

     12.  Miscellaneous.

          (a)  This Note and all provision hereof shall be binding upon Borrower
     and its successors and assigns and shall inure to the benefit of Lender,
     together with its successors and assigns, including each owner and holder
     from time to time of this Note.

          (b)  Time is of the essence as to all dates set forth herein subject
     to any applicable grace or cure period expressly provided herein or the in
     the Loan Documents; provided, however, that unless otherwise stated,
     whenever any payment to be made under this Note shall be stated to be due
     on a day other than a business day, such payment may be made on the
     immediately preceding business day. For purposes of this Note, a business
     day shall be any day that is not a Saturday, Sunday or national bank
     holiday.

          (c)  All notices, demands or requests relating to any matters set
     forth herein shall be in writing and delivered as set forth, and shall be
     effective in the time set forth, in the Funding Agreement.

          (d)  Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
     THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
     ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS
     HEREIN PROVIDED FOR.

                                      19
<PAGE>
 
     IN WITNESS WHEREOF, Borrower has executed this Note as of the date set
forth above.



                              ATLANTIC HOMESTEAD VILLAGE INCORPORATED


                              By:/s/ David C. Dressler, Jr.
                                 --------------------------
                              Name: David C. Dressler, Jr.
                              Title: Managing Director
                              Address: 125 Lincoln Avenue
                                       Santa Fe, New Mexico 87501

                                      20
<PAGE>
 
                                                                       EXHIBIT A

                            Form of Exercise Notice

                   (To Be Executed Upon Conversion of Note)


     The undersigned hereby irrevocably elects to convert the entire outstanding
principal amount of the Note (currently $__________) into __________ shares of
Common Stock in accordance with the terms thereof.  The undersigned requests
that a certificate for such shares be registered in the name of
________________, whose address is _____________________ and that such shares be
delivered to ________________________ whose address is __________________.



Date:
     ----------


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


                                      21