<PAGE>




                                 PROMISSORY NOTE



$25,000,000                                            May 3, 1999
------------------------------------------------------------------


1 . On or before the Stated  Maturity Date (as hereinafter  defined),  HOMESTEAD
VILLAGE INCORPORATED  ("Homestead"),  for value received, promises to pay to the
order of SECURITY CAPITAL GROUP  INCORPORATED (the "Security  Capital"),  at its
office in Santa Fe, New Mexico,  or at such other  location as Security  Capital
may  direct,  the lesser of TWENTY FIVE  MILLION  DOLLARS  ($25,000,000)  or the
aggregate  unpaid  principal  amount of all advances made by Security Capital to
Homestead  under this Note.  Homestead  also  promises  to pay  interest  on the
principal  amount  outstanding  hereunder  from time to time at a rate per annum
equal to the Applicable Interest Rate (as hereinafter defined). Accrued interest
shall be paid  monthly  in  arrears  on the last  Business  Day (as  hereinafter
defined) of each calendar month this Note is outstanding at the same location as
designated for principal payments, provided that all accrued and unpaid interest
shall be paid on the Stated Maturity Date. Notwithstanding the foregoing, during
any period in which a Default (as  hereinafter  defined) shall have occurred and
be continuing,  Homestead  promises to pay to Security Capital from time to time
on demand  interest on any amount  payable by Homestead  hereunder at a rate per
annum equal to 15%. All interest shall be computed for the actual number of days
elapsed on the basis of a year  consisting  of 360 days.  Homestead  may request
Security  Capital to make advances  from time to time under this Note,  provided
that (i) such  advances  shall be in an integral  multiple of  $1,000,000,  (ii)
Homestead  shall  have  given  notice of such  request  to  Security  Capital in
accordance  with Section 9 hereof no later than 10:30 a.m. (Santa Fe time) three
days prior to such requested advance, (iii) such advances shall be used only for
a Permitted  Purpose (as hereinafter  defined) and (iv) together with the notice
for request of an advance,  Homestead  shall  provide  Security  Capital  with a
certificate  in form  satisfactory  to  Security  Capital  which is signed by an
Authorized  Officer  (as  hereinafter  defined)  of  Homestead,   describes  the
Permitted  Purpose for which such advance  shall be used and includes such other
information  as  Security  Capital  may  request,   in  its  sole  and  absolute
discretion.  Homestead  shall have the right to prepay this Note,  together with
all accrued interest to the date of any such prepayments,  in full or in part at
any time,  provided that (i) if any such  prepayments are in part, they shall be
in an integral multiple of $1,000,000 and (ii) Homestead shall have given notice
of such  prepayment to Security  Capital in accordance  with Section 9 hereof no
later than 10:30 a.m. (Santa Fe time) on the date of such  prepayment.  Security
Capital  shall  maintain  records  of the date and amount of each  advance  made
hereunder,  each repayment  thereof,  and of accrued interest thereon,  and such
records shall be conclusive for the purposes hereof absent manifest error.


<PAGE>

2.       When used herein the following terms shall have the following meanings:

                  "Applicable Interest Rate" shall mean (i) the rate of interest
         (rounded, if necessary,  to the next higher 1/16 of 1%) of the rate per
         annum at which  Dollar  deposits  in  immediately  available  funds are
         offered  from time to time by the  Lending  Office of Wells Fargo Bank,
         National   Association,   in  the  London  interbank   market,  in  the
         approximate  amount of $25,000,000 and having a maturity  approximately
         equal to one month plus (ii) 3.25%.

                  "Authorized  Officer"  shall  mean any of the  President,  the
         Chief  Executive  Officer,   the  Chief  Financial  Officer,  any  Vice
         President, the Treasurer and the Secretary.

                  "Business  Day" shall mean any day on which  commercial  banks
are open for business in New York City.

                  "Bridge Facility" shall mean the Credit Agreement, dated as of
         June 15, 1998, among Homestead, Commerzbank AG, Los Angeles Branch, and
         certain other lending institutions.

                  "Change in Control"  shall mean the  occurrence  of any of the
         events described in Section 5.3(i) of the Working Capital Facilities or
         Sections 8.2 and 9.9 of the Bridge Facility.

                  "Credit  Facilities"  shall  mean,  collectively,  the Working
Capital Facilities and the Bridge Facility.

                  "Default" is defined in Section 7 hereof.

                  "Investor Agreement" shall mean the Investor Agreement,  dated
         as of October 17, 1996,  between  Homestead  and Security  Capital,  as
         amended from time to time.

                  "Letter  Agreement"  shall  mean the Letter  Agreement,  dated
         April 22,  1999,  among  Homestead,  Commerzbank  AG, New York  Branch,
         Commerzbank  AG,  Los  Angeles  Branch,   Wells  Fargo  Bank,  National
         Association, Chase Bank of Texas, N.A. and BankBoston N.A.

                  "Liabilities"  shall mean all  obligations of Homestead  under
         this Note and all other  obligations of Homestead to Security  Capital,
         howsoever  created,  arising or evidenced,  whether direct or indirect,
         absolute or  contingent,  or now or  hereafter  existing,  or due or to
         become due.

                  "Permitted  Purpose"  shall mean  payment of (i)  construction
         costs of properties  under  development,  (ii)  maintenance  and repair
         costs of properties,  (iii) salaries and other employment  costs,  (iv)
         severance expenses, and (v) other working capital and general corporate
         expenses specifically approved by Security Capital.


<PAGE>

                  "Representative" is defined in Section 5 hereof.

                  "Rights  Offering"  shall mean one or more issuances of common
         stock of Homestead in  accordance  with the terms of paragraph 3 of the
         Letter Agreement.

                  "Senior  Indebtedness"  means at any time,  collectively,  all
         obligations howsoever created, arising or evidenced,  whether direct or
         indirect,  absolute or contingent, now or hereafter existing, or due or
         to become due of Homestead under the Credit  Facilities and any and all
         renewals or extensions and  refinancings  thereof  (including,  without
         limitation,  any interest  accruing  subsequent to the  commencement of
         bankruptcy,   insolvency  or  similar   proceedings   with  respect  to
         Homestead).

                  "Stated  Maturity Date" shall mean the earlier to occur of (i)
         October  31,  1999  or  such  later  date  to  which  repayment  of the
         outstanding  principal  amount and other amounts owing under the Bridge
         Facility is extended,  (ii) the  consummation of a Change in Control or
         (iii) the  consummation of a Rights Offering in the aggregate amount of
         $200,000,000 or more.

                  "Working  Capital   Facilities"  shall  mean  (i)  the  Credit
         Agreement,  dated as of May 6, 1997, among  Homestead,  Commerzbank AG,
         Los Angeles Branch,  Commerzbank AG, New York Branch, and certain other
         lending  institutions and (ii) the Credit Agreement,  dated as of April
         24,  1998,  among  Homestead,   Commerzbank  AG,  Los  Angeles  Branch,
         Commerzbank   AG,  New  York   Branch,   and  certain   other   lending
         institutions.

                  Unless otherwise  defined herein,  all capitalized  terms used
herein shall have the meanings assigned to such terms in the Credit Facilities.

3. All obligations of Homestead, and all rights, powers and remedies of Security
Capital,  expressed  herein shall be in addition to, and not in  limitation  of,
those provided by law or in any written agreement or instrument (other than this
Note)  relating  to any of the  Liabilities.  In  addition  to all other  rights
possessed by it, Security  Capital may, but shall not be obligated to, from time
to time,  whether  before or after Default,  at its sole  discretion and without
notice to  Homestead,  extend or renew for one or more  periods  (whether or not
longer than the original  period) this Note or any  obligation  of any nature of
any obligor with respect to this Note,  and grant any releases,  compromises  or
indulgences  with respect to this Note or any extension or renewal thereof or to
any obligor hereunder or thereunder.

4. On the date hereof,  Homestead shall pay Security  Capital an arrangement fee
of $31,944.

5. So long as any amount remains  outstanding under this Note,  Homestead shall,
unless  Security  Capital  otherwise  consents in writing,  (i) allow any person
identified by Security  Capital to Homestead in writing (the  "Representative"),
access to Homestead's books and records,  (ii) allow the Representative to be on
the premises  occupied by Homestead during normal business hours,  (iii) provide
the Representative  with adequate and reasonable working space and conditions in
order to perform work, and (iv) consult with the Representative on any financial
or business  decisions  being made or considered in connection with the business
of Homestead.

6.  Homestead  shall use the  proceeds of any advance  made by Security  Capital
under this Note only for a Permitted Purpose.

7. All  Senior  Indebtedness,  including  all  interest  and fees and any  other
payments  due or to  become  due  pursuant  to  the  terms  of  the  instruments
evidencing such Senior Indebtedness, shall be paid in full before any payment is
made on account of the  principal,  interest,  fees or other  amounts on or with
respect to any of the Liabilities;  provided,  however,  that Homestead may make
payments of principal  and/or  interest to Security  Capital with respect to the
Liabilities so long as no Event of Default (as defined in the Credit Facilities)
has  occurred  and is  continuing.  Upon any  distribution  of the assets or the
properties  of Homestead or upon any  dissolution,  winding up,  liquidation  or
reorganization  involving  Homestead  (whether  in  bankruptcy,   insolvency  or
receivership  proceedings  or upon an assignment for the benefit of creditors or
otherwise),  the holders of the Senior  Indebtedness  shall first be entitled to
receive  payment  in  full  of the  principal  of  and  interest  on the  Senior
Indebtedness  and all fees and any  other  payments  (including  all  costs  and
expenses) due pursuant to the terms of the  instruments  evidencing  such Senior
Indebtedness  before  Security  Capital is  entitled  to receive  any payment on
account of any of the Liabilities.
<PAGE>

2. If (a) Homestead shall fail to pay, when due, any amount payable with respect
to any of the Liabilities or to perform any other obligation to Security Capital
(including,  without limitation, under the Investor Agreement), or (b) Homestead
shall  default  in the  payment  when due of any debt or other  amount  owing by
Homestead  under the Credit  Facilities  and such default  continues  beyond the
applicable grace period, or (c) any event shall occur in relation to any debt or
other  amount  owing by  Homestead  to  Security  Capital  or under  the  Credit
Facilities  which  entitles  the  obligee in  relation to such debt or amount to
cause such debt or amount to become due prior to its stated  maturity or payment
date, and such event shall continue beyond the applicable grace period, any such
event (a)-(c) shall constitute a Default (a "Default") hereunder.  Upon Default,
subject  to  Section 7  hereof,  (1) this  Note and all  other  Liabilities  may
(notwithstanding any provisions thereof),  at the option of Security Capital and
without  demand or notice of any kind, be declared,  and  thereupon  immediately
shall  become,  due and  payable,  (2)  Security  Capital may from time to time,
without demand or notice of any kind,  appropriate  and apply toward the payment
of such of the  Liabilities,  and in such  order  of  application,  as  Security
Capital may from time to time elect,  any and all deposits,  credits or money of
or in the name of  Homestead  then or  thereafter  with  Security  Capital,  (3)
Homestead agrees to pay all expenses,  including reasonable  attorneys' fees and
legal  expenses,  incurred by Security  Capital in endeavoring to collect any of
the  Liabilities,  and (4) Security  Capital may exercise  from time to time any
rights and  remedies  available  to it under the Uniform  Commercial  Code as in
effect in the applicable  state or otherwise  available to it.  Homestead hereby
expressly waives presentment,  demand,  notice of dishonor,  protest and, to the
fullest  extent  permitted  by  applicable  law,  any  and  all  other  notices,
advertisements,  hearings or process of law in  connection  with the exercise by
Security Capital of any of its rights and remedies upon Default. No delay on the
part of Security  Capital in exercise of any right or remedy shall  operate as a
waiver  thereof,  and no single or partial  exercise by Security  Capital of any
right or remedy shall preclude other or further exercise thereof or the exercise
of any other right or remedy.


7. All notices  delivered by Homestead to Security Capital hereunder shall be in
writing  and  shall  be  sent to  Security  Capital  by  courier  and  facsimile
transmission at the following address:

                  Security Capital Group Incorporated
                  7777 Market Center
                  El Paso, Texas 79912-8112
                  Attention: Roger Allen
                  Fax: (915) 877-6306

8. This loan shall be governed by and construed in  accordance  with the laws of
the State of New York.  If this Note is not dated when  executed  by  Homestead,
Security Capital is hereby authorized, without notice to Homestead, to date this
Note as of the date when the loan evidenced hereby is made.  Wherever  possible,
each  provision  of this  Note  shall be  interpreted  in such  manner  as to be
effective  and valid under  applicable  law,  but if any  provision of this Note
shall be  prohibited  by or invalid  under  such law,  such  provision  shall be
ineffective  to  the  extent  of  such   prohibition   or  invalidity,   without
invalidating the remainder of such provision of the remaining provisions of this
Note.

9. Homestead  hereby expressly waives any right to a trial by jury in any action
or  proceeding  to enforce or defend any rights (i) under this Note or under any
amendment,  instrument,  document  or  agreement  delivered  or which may in the
future be  delivered  in  connection  herewith or (ii)  arising from any banking
relationship  existing in  connection  with this Note,  and agrees that any such
action or proceeding shall be tried before a court and not before a jury.



                                                  HOMESTEAD VILLAGE INCORPORATED


                                                   By:
                                                   Name:
                                                   Title:


Address:          2100 River Edge Parkway, 9th Floor
                  Atlanta, Georgia 30328