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                          SHELBOURNE PROPERTIES I, L.P.

                       PARTNERSHIP UNIT DESIGNATION OF THE
                            CLASS B PARTNERSHIP UNITS

                            CLASS B PARTNERSHIP UNITS


         Shelbourne Properties I, L.P., a Delaware limited partnership (the
"Partnership"), hereby certifies as follows:

         FIRST: Under a power contained in Section 4.2 of the Agreement of
Limited Partnership of the Partnership, dated as of April 16, 2001 (as amended
from time to time, the "Partnership Agreement"), Shelbourne Properties I GP,
LLC, a Delaware limited liability company (the "General Partner"), as the
general partner of the Partnership, by a resolution of the Board of Directors of
the General Partner, dated August 19, 2002, classified and designated 100 units
as Class B Partnership Units, with the following voting powers, restrictions,
limitations as to distributions, qualifications, terms and other rights. This
Partnership Unit Designation shall be attached, made an exhibit to, and made a
part of, the Partnership Agreement and shall be deemed for all purposes an
amendment of the Partnership Agreement.

         Section 1. Number and Units of Designation. A class of Partnership
Units shall be designated as Class B Partnership Units (the "Class B Units"),
and 100 shall be the total number of Partnership Units constituting such class.
The Class B Units shall be limited partnership interests in the Partnership.

         Section 2. Definitions. For purposes of the Class B Units, terms
defined in the Partnership Agreement and not otherwise defined herein shall have
the respective meanings ascribed to such terms in the Partnership Agreement and
the following terms shall have the meanings indicated:

         "Base Amount" shall mean $59.00.

         "Class B Hurdle" shall mean, as of the Starting Date or any date
thereafter, the product of (a) the sum of the Base Amount plus the Class B
Hurdle Return, times (b) the number of Common Shares then outstanding.

         "Class B Hurdle Rate" shall mean (a) for the period commencing on the
Starting Date and ending February 19, 2004, an annual rate of 6%, compounded
quarterly, and (b) for each six-month period thereafter, commencing February 20,
2004, the sum of the annual rate in effect immediately prior to the commencement
of such period plus 0.5%, up to a maximum annual rate of 8%.

         "Class B Hurdle Return" shall mean, as of any date, the product of (a)
the Base Amount, and (b) the Class B Hurdle Rate, computed on the basis of a
365-day year.

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         "Class B Units" shall have the meaning set forth in Section 1 hereof.

         "Common Shares" shall mean the common shares, par value $.01 per share
(or any equivalent thereof), of Parent.

         "Distribution Nonpayment Event" shall mean each failure, if any, by
Parent to distribute to the holders of Common Shares, (a) excess proceeds, if
any, from any refinancing after the Plan of Liquidation is approved, by the
earlier of 30 days following the end of the fiscal quarter in which such
refinancing occurs and 90 days following the date of such refinancing, and (b)
net proceeds, if any, from any property sale after the Plan of Liquidation is
approved, by the earlier of 30 days following the end of the fiscal quarter in
which such sale occurs and 90 days following the date of such sale. In no event
shall a Distribution Nonpayment Event include the failure to distribute 100% of
the excess proceeds, or net proceeds, as the case may be, if subsequent to the
distribution of such excess or net proceeds, it is determined that the amount of
excess or net proceeds distributed did not constitute all of the excess or net
proceeds and, promptly following such determination, the remaining portion of
the excess or net proceeds is distributed by Parent.

         "Distribution Payment Date" shall mean each date on which Parent or the
Liquidating Trust, as applicable, makes any distributions in each year,
commencing with the first such date occurring after the Class B Hurdle has been
achieved.

         "General Partner" shall have the meaning set forth in the First
paragraph of this Partnership Unit Designation.

         "Holder" shall have the meaning set forth in Section 7 hereof.

         "Liquidating Trust" shall mean the trust to which any remaining assets
of Parent are transferred upon Parent's liquidation and dissolution.

         "Net Proceeds" shall mean the sum of (a) the cash and other proceeds
generated from operating the assets and properties of Parent and its
subsidiaries, plus (b) the aggregate fair value of all consideration received
from the disposal of the assets and properties of Parent and its subsidiaries
less the sum of all direct costs incurred in connection with such disposal.

         "Parent" shall mean Shelbourne Properties I, Inc.

         "Partnership Agreement" shall have the meaning set forth in the First
paragraph of this Partnership Unit Designation.

         "Partnership Common Units" shall mean the "OP Units" as defined in the
Partnership Agreement.

         "Partnership Unit Designation" shall mean this Partnership Unit
Designation, as the same may be amended or modified from time to time with the
consent of the Holder of the Class B Units.

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         "Plan of Liquidation" shall mean the Plan of Liquidation provided for
in a certain Settlement Agreement and Mutual Release, dated as of July 1, 2002,
between HX Investors, LP, the Parent and certain other parties, as amended.

         "Starting Date" shall mean August 20, 2002.

         Section 3. Distributions.

                 (a) No distributions shall be made on the Class B Units if the
Plan of Liquidation is not adopted.

                 (b) Subject to the other provisions of this Section 3, the
Holder of Class B Units shall be entitled to receive, on each Distribution
Payment Date, cash distributions in an amount equal to 15% of the excess (if
any) of (1) the Net Proceeds over (2) the Class B Hurdle. The Holder of Class B
Units shall not be entitled to any distributions from the Partnership on account
of the Class B Units other than as set forth in this Section 3(b).

                 (c) If Parent shall suffer a Distribution Nonpayment Event
that has not been approved by the holders of a majority of the outstanding
Common Shares other than Common Shares held by the Holder and its affiliates,
and that occurred while the Holder's nominees to Parent's board of directors (or
persons approved of or nominated by such nominees) comprised a majority thereof,
and such Distribution Nonpayment Event shall continue then no further
distributions shall be made on the Class B Units from and after the occurrence
of such Distribution Nonpayment Event. Any distributions that would have been
made on the Class B Units but for the immediately preceding sentence shall
instead be made to the holders of the Partnership Common Units.

         Section 4. No Conversion Rights. The Holder of Class B Units shall not
have the right to convert any portion of such units into Partnership Common
Units, Common Shares or any other securities.

         Section 5. No Redemption Right. The Class B Units shall not be
redeemable either at the election of the Holder or the Partnership.

         Section 6. Voting. Except as otherwise set forth herein or in the
Partnership Agreement, the Class B Units shall not have any relative,
participating, optional or other special voting rights and powers, and the
consent of the Holder shall not be required for the taking of any partnership
action. Notwithstanding anything to the contrary contained in the Partnership
Agreement, this Partnership Unit Designation shall not be amended without the
consent of the Holder of Class B Units at the time outstanding.

         Section 7. Holder. The General Partner may deem and treat the record
holder (the "Holder") of the Class B Units as the true and lawful owner thereof
for all purposes, and the General Partner shall not be affected by any notice to
the contrary.


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         Section 8. Notices and Reporting.

                 (a) The Partnership shall deliver to the Holder of the Class B
Units all reports and statements required to be delivered under Section 9.3 of
the Partnership Agreement.

                 (b) The Partnership shall promptly give notice to the Holder
of the Class B Units of the occurrence of any Distribution Nonpayment Event.

         Section 9. REIT Qualification. No provision in this Partnership Units
Designation shall be construed or interpreted in a manner that would adversely
affect the qualification of Parent as a real estate investment trust within the
meaning of section 856(a) of the Code.

         SECOND: This Partnership Unit Designation has been approved by the
General Partner, both in its individual capacity and in its capacity as General
Partner of the Partnership.

         THIRD: The undersigned acknowledges that this Partnership Unit
Designation to be the corporate act of the General Partner, as general partner
of the Partnership and in its individual capacity and, as to all matters or
facts required to be verified under oath, the undersigned acknowledges that to
the best of his or her knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury. Each of Parent and the General Partner, in its
individual capacity, is executing and delivering this Partnership Unit
Designation to confirm each of its covenants and other obligations hereunder and
its agreement to be personally bound hereby.

         IN WITNESS WHEREOF, each of Parent and the General Partner has executed
this Partnership Unit Designation in its individual capacity and the General
Partner has executed this Partnership Unit Designation in its capacity as the
sole General Partner of the Partnership on this 19th day of August, 2002.

                                             SHELBOURNE PROPERTIES I GP, LLC,
                                             INDIVIDUALLY AND AS GENERAL PARTNER


                                             By     /s/ Michael L. Ashner
                                                --------------------------------
                                                    Michael L. Ashner
                                                    Manager


                                             SHELBOURNE PROPERTIES I, INC.,
                                             INDIVIDUALLY


                                             By     /s/ Michael L. Ashner
                                                --------------------------------
                                                    Michael L. Ashner
                                                    Chief Executive Officer