<PAGE>

                                                                   EXHIBIT 10.23

                         AMENDED AND RESTATED AGREEMENT
                             OF LIMITED PARTNERSHIP

                                       OF

                          UNITED DOMINION REALTY, L.P.

                         DATED AS OF FEBRUARY 23, 2004

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                PAGE
<S>                                                                                                             <C>
ARTICLE I             DEFINED TERMS..........................................................................      2
         1.01     Defined Terms..............................................................................      2
ARTICLE II            PARTNERSHIP CONTINUATION AND IDENTIFICATION............................................      8
         2.01     Defined Terms..............................................................................      8
         2.02     Name, Office and Registered Agent..........................................................      8
         2.03     Partners...................................................................................      9
         2.04     Term and Dissolution.......................................................................      9
         2.05     Filing of Certificate and Perfection of Limited Partnership................................     10
         2.06     Certificates Describing Partnership Units..................................................     10
ARTICLE III           BUSINESS OF THE PARTNERSHIP............................................................     10
         3.01     Business of the Partnership................................................................     10
ARTICLE IV            CAPITAL CONTRIBUTIONS AND ACCOUNTS.....................................................     11
         4.01     Capital Contributions......................................................................     11
         4.02     Additional Capital Contributions and Issuances of Additional Partnership Interests.........     11
         4.03     Loans to the Partnership...................................................................     12
         4.04     Capital Accounts...........................................................................     12
         4.05     Percentage Interests.......................................................................     13
         4.06     No Interest on Contributions...............................................................     13
         4.07     Return of Capital Contributions............................................................     13
         4.08     No Third Party Beneficiary.................................................................     13
ARTICLE V             PROFITS AND LOSSES: DISTRIBUTIONS......................................................     14
         5.01     Allocation of Profit and Loss..............................................................     14
         5.02     Distribution of Cash.......................................................................     16
         5.03     REIT Distribution Requirements.............................................................     18
         5.04     No Right to Distributions in Kind..........................................................     18
         5.05     Limitations on Return of Capital Contributions.............................................     18
         5.06     Distributions Upon Liquidation.............................................................     18
         5.07     Substantial Economic Effect................................................................     19
ARTICLE VI            RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER..................................     19
</TABLE>

                                      -i-

<PAGE>

                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                                                PAGE
<S>                                                                                                             <C>
         6.01     Management of the Partnership..............................................................     19
         6.02     Delegation of Authority....................................................................     22
         6.03     Indemnification and Exculpation of Indemnitees.............................................     22
         6.04     Liability of the General Partner...........................................................     23
         6.05     Partnership Expenses.......................................................................     24
         6.06     Outside Activities.........................................................................     24
         6.07     Employment or Retention of Affiliates......................................................     24
         6.08     Title to Partnership Assets................................................................     25
ARTICLE VII           CHANGES IN GENERAL PARTNER AND THE COMPANY.............................................     25
         7.01     Transfer of a General Partner's Partnership Interest; Transactions Involving the Company...     25
         7.02     Admission of a Substitute or Additional General Partner....................................     27
         7.03     Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner................     27
         7.04     Removal of a General Partner...............................................................     28
ARTICLE VIII          RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS.........................................     29
         8.01     Management of the Partnership..............................................................     29
         8.02     Power of Attorney..........................................................................     29
         8.03     Limitation on Liability of Limited Partners................................................     29
         8.04     Ownership by Limited Partner of Corporate General Partner or Affiliate.....................     29
         8.05     Redemption Right...........................................................................     30
         8.06     NYSE Listing and Securities Act Registration of REIT Shares................................     34
ARTICLE IX            TRANSFERS OF LIMITED PARTNERSHIP INTERESTS.............................................     34
         9.01     Purchase for Investment....................................................................     34
         9.02     Restrictions on Transfer of Limited Partnership Interests..................................     34
         9.03     Admission of Substitute Limited Partner....................................................     36
         9.04     Rights of Assignees of Partnership Interests...............................................     37
         9.05     Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner..............     37
         9.06     Joint Ownership of Interests...............................................................     37
ARTICLE X             BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS.............................................     38
</TABLE>

                                      -ii-

<PAGE>

                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                                                PAGE
<S>                                                                                                             <C>
        10.01     Books and Records..........................................................................     38
        10.02     Custody of Partnership Funds; Bank Accounts................................................     38
        10.03     Fiscal and Taxable Year....................................................................     38
        10.04     Annual Tax Information and Report..........................................................     38
        10.05     Tax Matters Partner; Tax Elections; Special Basis Adjustments..............................     39
        10.06     Reports to Limited Partners................................................................     39
        10.07     Offset.....................................................................................     40
ARTICLE XI            AMENDMENT OF AGREEMENT; MERGER; NOTICE.................................................     40
        11.01     Amendment of Agreement; Merger.............................................................     40
        11.02     Notice to Limited Partners.................................................................     40
        11.03     Class A Voting Rights......................................................................     40
ARTICLE XII           GENERAL PROVISIONS.....................................................................     41
        12.01     Notices....................................................................................     41
        12.02     Survival of Rights.........................................................................     41
        12.03     Additional Documents.......................................................................     41
        12.04     Severability...............................................................................     42
        12.05     Entire Agreement...........................................................................     42
        12.06     Additional Agreements......................................................................     42
        12.07     Rules of Construction......................................................................     42
        12.08     Headings...................................................................................     42
        12.09     Counterparts...............................................................................     42
        12.10     Governing Law..............................................................................     42
</TABLE>

Exhibits

Exhibit A  List of Partners
Exhibit B  Notice of Exercise of Redemption Right
Exhibit C  Partnership Unit Designation of the Class I Out-Performance
           Partnership Shares
Exhibit D  Partnership Unit Designation of the Class II Out-Performance
           Partnership Shares

                                     -iii-

<PAGE>

             AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                          UNITED DOMINION REALTY, L.P.

                         DATED AS OF FEBRUARY 23, 2004

                                    RECITALS

         United Dominion Realty, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the State of Delaware by a Certificate of
Limited Partnership filed with the Secretary of State of the State of Delaware
on February 19, 2004 and is the successor-in-interest to United Dominion Realty
Trust, L.P., a limited partnership formed under the laws of Virginia, which
commenced operations on November 4, 1995. This Amended and Restated Agreement of
Limited Partnership is adopted this 23d day of February, 2004 pursuant to the
provisions of Section 17-211(g) of the Act (as defined below).

                                   AGREEMENT

         NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

                                       1

<PAGE>

                                   ARTICLE I

                                 DEFINED TERMS

         1.01     DEFINED TERMS.

         The following defined terms used in this Agreement shall have the
meanings specified below:

         "ACT" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time.

         "ADDITIONAL FUNDS" is defined in Section 4.03.

         "ADDITIONAL LIMITED PARTNER" means a Person admitted to this
Partnership as a Limited Partner pursuant to Section 4.02.

         "AFFILIATE" means, (i) any Person that, directly or indirectly,
controls or is controlled by or is under common control with such Person, (ii)
any other Person that owns, beneficially, directly or indirectly, 10% or more of
the outstanding capital stock, shares or equity interests of such Person, or
(iii) any officer, director, employee, partner or trustee of such Person or any
Person controlling, controlled by or under common control with such Person
(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such Person). For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities or partnership interests or otherwise.

         "AGREED VALUE" means the fair market value of a Partner's non-cash
Capital Contribution as of the date of contribution as agreed to by the such
Partner and the General Partner. The name and address of each Partner, number of
Partnership Units issued to such Partner, and the Agreed Value of such Partner's
non-cash Capital Contributions as of the date of contribution thereof is set
forth on Exhibit A as amended from time to time.

         "AGREEMENT" means this Amended and Restated Agreement of Limited
Partnership, as amended from time to time.

         "AVAILABLE CASH" means, for any period, the excess, if any, of (i) the
cash receipts of the Partnership (other than from the sale, exchange or other
disposition of the assets of the Partnership), including amounts withdrawn from
reserves, over (ii) the disbursements of cash by the Partnership (other than
distributions to Partners and amounts paid with the receipts from the sale,
exchange or other disposition of the assets of the Partnership), including
amounts deposited in reserves. Available Cash for any period shall be determined
by the General Partner in its reasonable discretion.

         "CAPITAL ACCOUNT" is defined in Section 4.04.

                                       2

<PAGE>

         "CAPITAL CONTRIBUTION" means the total amount of capital contributed to
the Partnership by each Partner. Any reference to the Capital Contribution of a
Partner shall include the Capital Contribution made by a predecessor holder of
the Partnership Interest of such Partner. The paid-in Capital Contribution shall
mean the cash amount or the Agreed Value of other assets actually contributed by
each Partner to the capital of the Partnership.

         "CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
Value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Redemption.

         "CERTIFICATE" means any instrument or document that is required under
the laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-or-attorney granted
to the General Partner in Section 8.02) and filed for recording in the
appropriate public offices within the State of Delaware or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the State of Delaware or such other
jurisdiction.

         "CHARTER" means the Articles of Incorporation of the Company, as
amended from time to time.

         "CLASS A PARTNER" means a Limited Partner who holds Class A Partnership
Units.

         "CLASS A PARTNERSHIP UNITS" means Partnership Interests having the
rights and preferences of a Class A Partnership Unit as set forth in this
Agreement.

         "CLASS A SPECIFIED REDEMPTION DATE" means the date that Class A
Partnership Units are required to be redeemed or acquired pursuant to Section
8.05(d).

         "CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.

         "COMMISSION" means the Securities and Exchange Commission.

         "COMPANY" means United Dominion Realty Trust, Inc., a Maryland
corporation.

         "CONTRIBUTION AGREEMENTS" means collectively that certain Contribution
Agreement dated as of May 2, 2003 between the General Partner, the Partnership,
Mesa Verde Villas II, L.P. and M.V. JV, LLC and that certain Contribution
Agreement dated as of May 2, 2003 between the General Partner, the Partnership
and Windjammer Apartments, L.P.

         "CONVERSION FACTOR" means 1.0, as adjusted pursuant to Section 8.05(f).

         "CROSS OVER DATE" means the date on which a Class A Partner would have
received distributions with respect to the Class A Partnership Units held by
such Class A Partner equal to or greater than the Threshold Amount for a period
of four consecutive calendar quarters,

                                       3

<PAGE>

assuming such Class A Partner had received distributions based on the Dividend
Equivalent instead of distributions on the Class A Partnership Units pursuant to
this Agreement.

         "DIVIDEND EQUIVALENT" as to any Partner means the amount of
distributions such Partner would have received for the quarter (or other
distribution period) from REIT Shares if such Partner owned the number of REIT
Shares equal to the product to such Partner's Partnership Units and the
Conversion Factor for the Partnership Record Date pertaining to such quarter (or
other distribution period).

         "EVENT OF BANKRUPTCY" as to any Person means the filing of a petition
for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.

         "FAMILY MEMBER" means, as to a Person that is an individual, such
Person's spouse, ancestors, descendants (whether by blood or by adoption),
brothers, sisters and inter vivos or testamentary trusts of which only such
Person and his spouse, ancestors, descendants (whether by blood or by adoption),
brothers and sisters are beneficiaries.

         "GENERAL PARTNER" means the Company and any Person who becomes a
substitute or additional General Partner as provided herein, and any of their
successors as General Partner. At any time at which the Partnership has two or
more General Partners, all such General Partners shall designate one of such
General Partners as managing General Partner and may from time to time designate
a successor managing General Partner and, unless the context otherwise requires,
references to the General Partner shall mean the General Partner at the time so
designated as managing General Partner.

         "GENERAL PARTNERSHIP INTEREST" means a Partnership Interest held by the
General Partner that is a general partnership interest.

         "INDEMNITEE" means (i) any Person made a party to a proceeding by
reason of such Person's status as the General Partner or a director, officer or
employee of the Partnership or the General Partner, and (ii) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time, in its sole and absolute discretion,

         "LIMITED PARTNER" means any Person named as a Limited Partner on
Exhibit A attached hereto, and any Person who becomes a Substitute or Additional
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.

                                       4

<PAGE>

         "LIMITED PARTNERSHIP INTEREST" means the ownership interest of a
Limited Partner in the Partnership at any particular time, including the right
of such Limited Partner to any and all benefits to which such Limited Partner
may be entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.

         "LOSS" is defined in Section 5.01(f).

         "MINIMUM LIMITED PARTNERSHIP INTEREST" means the lesser of (i) 1% or
(ii) if the total Capital Contributions to the Partnership exceeds $50 million,
1% divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
shall not be less than 0.2% at any time.

         "NOTICE OF REDEMPTION" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit B hereto.

         "NYSE" means the New York Stock Exchange and includes any other
national securities exchange on which the REIT Shares are listed at the
determination date.

         "OFFER" is deemed in Section 7.01(c).

         "ORIGINAL LIMITED PARTNER" means UDRT of North Carolina, LLC., a North
Carolina limited liability company.

         "OUTSIDE PARTNER" means any Partner other than a UDR Partner.

         "PARTNER" means any General Partner or Limited Partner.

         "PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).

         "PARTNERSHIP INTEREST" means an ownership interest in the Partnership
held by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.

         "PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the
amount of Partnership Minimum Gain is determined by first computing, for each
Partnership nonrecourse liability, any gain the Partnership would realize if it
disposed of the property subject to that liability for no consideration other
than full satisfaction of the liability, and then aggregating the separately
computed gains. A Partner's share of Partnership Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(g)(l).

         "PARTNERSHIP RECORD DATE" means the record date established by the
General Partner for the distribution of cash pursuant to Section 5.02, which
record date shall be the same as the

                                       5

<PAGE>

record date established by the General Partner for a distribution to the holders
of the REIT Shares.

         "PARTNERSHIP UNIT" means a fractional, undivided share of the
Partnership Interests of all Partners issued hereunder. The allocation of
Partnership Units among the Partners shall be as set forth on Exhibit A, as may
be amended from time to time.

         "PERCENTAGE INTEREST" means at any time the percentage ownership
interest in the Partnership of each Partner, as determined by dividing the
Partnership Units owned by such Partner by the total number of Partnership Units
outstanding at such time. The Percentage Interest of each Partner shall be as
set forth on Exhibit A, as may be amended from time to time.

         "PERCENTAGE INTEREST ADJUSTMENT DATE" means the effective date of an
adjustment of the Partners' Percentage Interests pursuant to Section 4.05.

         "PERSON" means any individual, partnership, corporation, joint venture,
trust or other entity.

         "PREFERRED RETURN" means, as to each Class A Partner, a cumulative
annual, non-compounded return on each Class A Partnership Unit equal to eight
percent (8%) based upon a value of $16.61 per Class A Partnership Unit.

         "PROFIT" is defined in Section 5.01(f).

         "PROPERTY" means any apartment property or other investment in which
the Partnership holds an ownership interest.

         "REDEEMING PARTNER" is deemed in Section 8.05(a).

         "REDEMPTION RIGHT" is defined in Section 8.05(a).

         "REGULATIONS" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.

         "REIT" means a real estate investment trust under Sections 856 through
860 of the Code.

         "REIT EXPENSES" means (i) costs and expenses relating to the continuity
of existence of the Company and its Subsidiaries (all such entities shall, for
purposes of this section, be included within the definition of Company),
including, without limitation, taxes, fees and assessments associated therewith
and any costs, expenses or fees payable to any director, officer or employee of
the Company (including, without limitation, any costs of indemnification), (ii)
costs and expenses relating to any offer or registration of REIT Shares or other
securities by the Company and all statements, reports, fees and expenses
incidental thereto, including, without limitation, underwriting discounts and
selling commissions applicable to any such offer of securities and any costs and
expenses associated with any claims made by any holders of such securities or
any underwriters or placement agents thereof, (iii) costs and expenses incurred
in connection with the

                                       6

<PAGE>

repurchase of any securities by the Company, (iv) costs and expenses associated
with the preparation and filing of any periodic or other reports and
communications by the Company under federal, state or local laws or regulations,
including filings with the Commission, (v) costs and expenses associated with
compliance by the Company with laws, rules and regulations promulgated by any
regulatory body, including the Commission and any securities exchange, (vi)
costs and expenses associated with any 401(k) plan, incentive plan, bonus plan
or other plan providing for compensation for the employees of the Company, (vii)
costs and expenses incurred by the Company relating to any issuance or
redemption of Partnership Interests, and (viii) all other operating or
administrative costs incurred by the Company in connection with the ordinary
course of the Company's or the Partnership's business (including the business of
any Subsidiary thereof).

         "REIT SHARE" means a share of common stock of the Company, $1 par value
per share, or a share of the common stock of any Successor Entity.

         "REIT SHARES AMOUNT" shall mean a whole number of REIT Shares equal to
the product of the number of Partnership Units offered for redemption by a
Redeeming Partner, multiplied by the Conversion Factor as adjusted to and
including the Specified Redemption Date plus cash in lieu of any fractional REIT
Shares based on the Value of a REIT Share as of the date of receipt by the
General Partner of a Notice of Redemption; provided that in the event the
Company issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the stockholders to subscribe
for or purchase REIT Shares, or any other securities or property (collectively,
the "rights"), and the rights have not expired at the Specified Redemption Date,
then the REIT Shares Amount shall also include the rights issuable to a holder
of the REIT Shares Amount of REIT Shares on the record date fixed for purposes
of determining the holders of REIT Shares entitled to rights.

         "SECURITIES ACT" means the Securities Act of 1933, as amended.

         "SERVICE" means the Internal Revenue Service.

         "SPECIFIED REDEMPTION DATE" means (i) with respect to Partnership Units
to be redeemed for a Cash Amount, the first Business Day of the month that is at
least 20 business days after the receipt by the General Partner of the Notice of
Redemption, as the same may be extended pursuant to Section 8.05(d) and (ii)
with respect to Partnership Units to be redeemed for a REIT Shares Amount, the
fifth Business Day following the date of the General Partner's notice of its
election to purchase such Partnership Units pursuant to Section 8.05(b).

         "SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting equity
securities (including general partners' interests) or (ii) the outstanding
equity interests is owned, directly or indirectly, by such Person.

         "SUBSTITUTE LIMITED PARTNER" means any Person admitted to the
Partnership as a Limited Partner pursuant to Section 9.03.

         "THRESHOLD AMOUNT" means a fixed distribution of $1.3288 per annum.

         "TRANSACTION" is defined in Section 7.01(c).

                                       7

<PAGE>

         "TRANSFER" is defined in Section 9.02(a).

         "UDR PARTNER" means the Company and any Partner that is an Affiliate of
the Company.

         "VALUE" means, with respect to any security, the average of the daily
market price of such security for the twenty (20) consecutive trading days
immediately preceding the date of such valuation. The market price for each such
trading day shall be: (i) if such security is listed or admitted to trading on
any securities exchange or The Nasdaq National Market, the closing price,
regular way, on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day, (ii) if such security is not
listed or admitted to trading on any securities exchange or The Nasdaq National
Market, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a recognized quotation source designated by the Company, or (iii) if
such security is not listed or admitted to trading on any securities exchange or
The Nasdaq National Market and no such last reported sale price or closing bid
and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a recognized quotation source
designated by the General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than twenty (20) days prior to the date in
question) for which prices have been so reported; provided, that if there are no
bid and asked prices reported during the twenty (20) days prior to the date in
question, the value of such security shall be determined by the General Partner
acting in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate. In the event that any
security includes any additional rights the value of which is not included
within such price, then the value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate, and
included in determining the "Value" of such security.

                                   ARTICLE II

                  PARTNERSHIP CONTINUATION AND IDENTIFICATION

         2.01     DEFINED TERMS. The Partners hereby agree to continue the
Partnership pursuant to the Act and upon the terms and conditions set forth in
this Agreement.

         2.02     NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership
shall be United Dominion Realty, L.P. The specified office and place of business
of the Partnership shall be 400 East Cary Street, Richmond, Virginia 23219. The
General Partner may at any time change the location of such office, provided the
General Partner gives notice to the Partners of any such change. The name and
address of the Partnership's registered agent is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The sole
duty of the registered agent as such is to forward to the Partnership any notice
that is served on it as registered agent.

                                       8

<PAGE>

         2.03     PARTNERS.

                  (a)      The General Partner of the Partnership is the
Company. Its principal place of business shall be the same as that of the
Partnership.

                  (b)      The Limited Partners shall be those Persons
identified as Limited Partners on Exhibit A hereto, as amended from time to
time.

         2.04     TERM AND DISSOLUTION.

                  (a)      The term of the Partnership shall continue in full
force and effect until the Partnership is dissolved as provided by law or upon
the first to occur of any of the following events:

                           (i)      The occurrence of an Event of Bankruptcy as
                  to a General Partner or the dissolution, death or withdrawal
                  of a General Partner unless the Partnership is continued
                  pursuant to Section 2.04(c); provided, that if a General
                  Partner is on the date of such occurrence a partnership, the
                  dissolution of such General Partner as a result of the
                  dissolution, death, withdrawal, removal or Event of Bankruptcy
                  of a partner in such partnership shall not be an event of
                  dissolution of the Partnership if the business of such General
                  Partner is continued by the remaining partner or partners,
                  either alone or with additional partners, and such General
                  Partner and such partners comply with any other applicable
                  requirements of this Agreement;

                           (ii)     The passage of 90 days after the sale or
                  other disposition of all or substantially all of the assets of
                  the Partnership (provided that if the Partnership receives one
                  or more obligations as consideration for such sale or other
                  disposition, the Partnership shall continue, unless sooner
                  dissolved under the provisions of this Agreement, until such
                  time as all of such obligations are paid or satisfied in
                  full);

                          (iii)     The redemption of all Limited Partnership
                  Interests (other than any of such interests held by the
                  Company or any Subsidiary thereof); or

                           (iv)     The election by the General Partner that the
                  Partnership should be dissolved.

                  (b)      Upon dissolution of the Partnership (unless the
Partnership is continued pursuant to Section 2.04(c)) the General Partner (or
its trustee, receiver, successor or legal representative) shall amend or cancel
the Certificate and liquidate the Partnership's assets and apply and distribute
the proceeds thereof in accordance with Section 5.06. Notwithstanding the
foregoing, the liquidating General Partner may either (i) defer liquidation of,
or withhold from distribution for a reasonable time, any assets of the
Partnership (including those necessary to satisfy the Partnership's debts and
obligations), or (ii) distribute the assets to the Partners in kind.

                  (c)      Notwithstanding Section 2.04(a)(i), upon the
occurrence of an Event of Bankruptcy as to a General Partner or the dissolution,
death or withdrawal of a General Partner,

                                       9

<PAGE>

the Limited Partners, within 90 days after such occurrence, may elect to
continue the Partnership for the balance of the term specified in Section
2.04(a) by selecting, subject to Section 7.02 and any other provisions of this
Agreement, a substitute General Partner by consent of a majority in interest of
the Limited Partners. If the Limited Partners elect to continue the Partnership
and admit a substitute General Partner, the relationship with the Partners and
of any Person who has acquired an interest of a Partner in the Partnership shall
be governed by this Agreement.

         2.05     FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP.
The General Partner shall execute, acknowledge, record and file at the expense
of the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.

         2.06     CERTIFICATES DESCRIBING PARTNERSHIP UNITS. At the request of a
Limited Partner, the General Partner, at its option, may issue a certificate
summarizing the terms of such Limited Partner's interest in the Partnership,
including the number of Partnership Units owned and the Percentage Interest
represented by such Partnership Units as of the date of such certificate. Any
such certificate (i) shall be in form and substance as approved by the General
Partner, (ii) shall not be negotiable and (iii) shall bear the following legend:

         This certificate is not negotiable. The Partnership Units represented
by this certificate are governed by and transferable only in accordance with the
provisions of the Agreement of Limited Partnership of United Dominion Realty,
L.P., as amended from time to time.

                                  ARTICLE III

                          BUSINESS OF THE PARTNERSHIP

         3.01     BUSINESS OF THE PARTNERSHIP. The purpose and nature of the
business to be conducted by the Partnership is (i) to conduct any business that
may be lawfully conducted by a limited partnership organized pursuant to the
Act, provided, however, that such business shall be limited to and conducted in
such a manner as to permit the Company at all times to qualify as a REIT, unless
the Company otherwise ceases to qualify as a REIT, (ii) to enter into any
partnership, joint venture or other similar arrangement to engage in any of the
foregoing or the ownership of interests in any entity engaged in any of the
foregoing and (iii) to do anything necessary or incidental to the foregoing. In
connection with the foregoing, and without limiting the Company's right in its
sole and absolute discretion to cease qualifying as a REIT, the Partners
acknowledge that the Company's current status as a REIT and the avoidance of
income and excise taxes on the Company inures to the benefit of all the Partners
and not solely to the Company. Notwithstanding the foregoing, the Limited
Partners acknowledge that the Company may terminate its status as a REIT under
the Code at any time to the full extent permitted by the Charter. Subject to
Article XI hereof, the General Partner shall also be empowered (but shall not be
required) to do any and all acts and things necessary or prudent to ensure that
the Partnership will not be classified as a "publicly traded partnership" for
purposes of Section 7704 of the Code.

                                       10

<PAGE>

                                   ARTICLE IV

                       CAPITAL CONTRIBUTIONS AND ACCOUNTS

         4.01     CAPITAL CONTRIBUTIONS. The General Partner and the Limited
Partners have contributed to the capital of the Partnership cash or property in
an amount or having an Agreed Value set forth opposite their names on Exhibit A,
as amended from time to time.

         4.02     ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
PARTNERSHIP INTERESTS. Except as provided in this Section 4.02 or in Section
4.03, the Partners shall have no right or obligation to make any additional
Capital Contributions or loans to the Partnership. The Partners, with the
consent of the General Partner, which consent may be withheld in its sole and
absolute discretion, may contribute additional capital to the Partnership, from
time to time, and receive additional Partnership Interests in respect thereof,
in the manner contemplated in this Section 4.02.

                  (a)      Issuances of Additional Partnership Interests. The
General Partner is hereby authorized to cause the Partnership to issue such
additional Partnership Interests in the form of Partnership Units for any
Partnership purpose at any time or from time to time, to the Partners (including
the General Partner) or to other Persons for such consideration and on such
terms and conditions as shall be established by the General Partner in its sole
and absolute discretion, all without the approval of any Limited Partners, which
terms and conditions shall be set forth in an amendment (including an additional
exhibit) to this Agreement. Any additional Partnership Interests issued thereby
may be issued in one or more classes, or one or more series of any of such
classes, with such designations, preferences and relative, participating,
optional or other special rights, powers and duties, including rights, powers
and duties senior to Limited Partnership Interests, all as shall be determined
by the General Partner in its sole and absolute discretion and without the
approval of any Limited Partner, subject to Delaware law, including, without
limitation, (i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership Interests; (ii)
the right of each such class or series of Partnership Interests to share in
Partnership distributions; and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, so long as the General Partner concludes in good faith that such issuance
is in the best interests of the Company and the Partnership. Upon each issuance
of Partnership Units hereunder, the General Partner shall amend Exhibit A
attached hereto to reflect such issuance.

                  (b)      Certain Deemed Contributions of Proceeds of Issuance
of Company Securities. If (i) the Company issues securities and contributes some
or all the proceeds raised in connection with such issuance to the Partnership
and (ii) the proceeds actually received and contributed by the Company to the
Partnership are less than the Partnership's share (as determined by the General
Partner, in its sole and absolute discretion) of the gross proceeds of such
issuance as a result of any underwriter's discount or other expenses paid or
incurred in connection with such issuance, then the Company shall be deemed to
have made Capital Contributions to the Partnership in the aggregate amount of
the Partnership's share of the gross proceeds of such issuance that are
contributed to the Partnership and the Partnership shall be

                                       11

<PAGE>

deemed simultaneously to have paid such offering expenses in connection with the
issuance of additional Partnership Units to the Company for such Capital
Contributions pursuant to Section 4.02(a). In any case in which the Company
contributes less than all of the proceeds of such issuance to the Partnership,
it shall be deemed to have contributed the gross proceeds of issuance of the
number of units of the issued security (or the number of dollars of principal in
the case of debt securities) equal to the quotient of the division of the amount
of proceeds contributed by the net proceeds per unit (or per dollar), and the
Partnership shall be deemed to have paid offering expenses equal to the product
of such number of units (or dollars) times the per unit (or per dollar) offering
expenses.

                  (c)      Minimum Limited Partnership Interest. In the event
that either a redemption pursuant to Section 8.05 or additional Capital
Contributions by the General Partner and the Original Limited Partner would
result in the Limited Partners (other than the Original Limited Partner), in the
aggregate, owning less than the Minimum Limited Partnership Interest, the
General Partner and the Limited Partners (other than the Original Limited
Partner) shall form another partnership and contribute sufficient Limited
Partnership Interests together with such other Limited Partners so that the
Limited Partners (other than the Original Limited Partner), in the aggregate,
own at least the Minimum Limited Partnership Interest.

         4.03     LOANS TO THE PARTNERSHIP. If the General Partner determines
that it is in the best interests of the Company and the Partnership to provide
for additional Partnership funds ("Additional Funds") for any Partnership
purpose, the General Partner may (i) cause the Partnership to obtain such funds
from outside borrowings or (ii) elect to have the Company or a Subsidiary or
Subsidiaries of the Company loan such Additional Funds to the Partnership. The
loans to the Partnership shall be in exchange for such consideration and on such
terms and conditions as shall be established by the General Partner in its sole
and absolute discretion, all without the approval of any Limited Partners.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue debt securities for less than fair market value,
so long as the General Partner concludes in good faith that such issuance is in
the best interests of the Company and the Partnership.

         4.04     CAPITAL ACCOUNTS. A separate capital account (a "Capital
Account") shall be established and maintained for each Partner in accordance
with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a de
minimis Capital Contribution, (ii) the Partnership distributes to a Partner more
than a de minimis amount of Partnership property as consideration for a
Partnership Interest, or (iii) the Partnership is liquidated within the meaning
of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue
the property of the Partnership to its fair market value (as determined by the
General Partner, in its sole and absolute discretion, and taking into account
Section 7701(g) of the Code) in accordance with Regulations Section
1.704-1(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners
pursuant to Section 5.01 if there were a taxable disposition of such property
for its fair market value (as determined

                                       12

<PAGE>

by the General Partner, in its sole and absolute discretion, and taking into
account Section 7701 (g) of the Code) on the date of the revaluation.

         4.05     PERCENTAGE INTERESTS. If the number of outstanding Partnership
Units increases or decreases during a taxable year, each Partner's Percentage
Interest shall be adjusted by the General Partner effective as of the effective
date of each such increase or decrease to a percentage equal to the number of
Partnership Units held by such Partner divided by the aggregate number of
Partnership Units outstanding after giving effect to such increase or decrease.
If the Partners' Percentage Interests are adjusted pursuant to this Section
4.05, the Profits and Losses for the taxable year in which the adjustment occurs
shall be allocated between the several parts of the year (a) beginning on the
first day of the year and ending on the next following Percentage Interest
Adjustment Date, (b) beginning on the day following a Percentage Interest
Adjustment Date and ending on the next following Percentage Interest Adjustment
Date, and/or (c) beginning on the first day following the last Percentage
Interest Adjustment Date occurring during the year and ending on the last day of
the year, as may be appropriate, either (i) as if the taxable year had ended on
the last day of each part or (ii) based on the number of days in each part. The
General Partner, in its sole and absolute discretion, shall determine which
method shall be used to allocate Profits and Losses for the taxable year in
which the adjustment occurs. The allocation among the Partners of Profits and
Losses allocated to any part of the year shall be based on the Percentage
Interests determined as of the first day of such part.

         4.06     NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
interest on its Capital Contribution.

         4.07     RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled
to withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.

         4.08     NO THIRD PARTY BENEFICIARY. No creditor or other third party
having dealings with the Partnership shall have the right to enforce the right
or obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners herein
set forth to make Capital Contributions or loans to the Partnership shall be
deemed an asset of the Partnership for any purpose by any creditor or other
third party; nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.

                                       13

<PAGE>

                                   ARTICLE V

                        PROFITS AND LOSSES: DISTRIBUTIONS

         5.01     ALLOCATION OF PROFIT AND LOSS.

                  (a)      General.

                           (i)      Profit of the Partnership for each fiscal
                  year of the Partnership shall be allocated in the following
                  order of priority:

                                    (A)      First, to the Partners in
                           proportion to and up to the amount of cash
                           distributed to each such Partner pursuant to Section
                           5.02 for the fiscal year; and

                                    (B)      Thereafter, to the Partners in
                           accordance with their respective Percentage
                           Interests.

                           (ii)     Loss of the Partnership for each fiscal year
                  of the Partnership shall be allocated to the Partners in
                  accordance with their respective Percentage Interests.

                           (iii)    Depreciation and amortization expenses of
                  the Partnership shall be allocated among the Partners in
                  accordance with their respective Percentage Interests.

                  (b)      Minimum Gain Chargeback. Notwithstanding any
provision to the contrary, (i) any expense of the Partnership that is a
"nonrecourse deduction" within the meaning of Regulations Section 1.704-2(b)(1)
shall be allocated in accordance with the Partners' respective Percentage
Interests, (ii) any expense of the Partnership that is a "partner nonrecourse
deduction" within the meaning of Regulations Section 1.704-2(i)(2) shall be
allocated in accordance with Regulations Section 1.704-2(i)(1), (iii) if there
is a net decrease in Partnership Minimum Gain within the meaning of Regulations
Section 1.704-2(f)(1) for any Partnership taxable year, items of gain and income
shall be allocated among the Partners in accordance with Regulations Section
1.704-2(f) and the ordering rules contained in Regulations Section 1.7042(j),
and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership
taxable year, items of gain and income shall be allocated among the Partners in
accordance with Regulations Section 1.7042(i)(4) and the ordering rules
contained in Regulations Section 1.704-2(j). A Partner's "interest in
partnership profits" for purposes of determining its share of the nonrecourse
liabilities of the Partnership within the meaning of Regulations Section
1.752-3(a)(3) shall be such Partner's Percentage Interest.

                  (c)      Qualified Income Offset. If a Limited Partner
receives in any taxable year an adjustment, allocation, or distribution
described in subparagraphs (4), (5), or (6) of Regulations Section
1.704-1(b)(2)(ii)(d) that causes or increases a negative balance in such
Partner's Capital Account that exceeds the sum of such Partner's shares of
Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as
determined in accordance with

                                       14

<PAGE>

Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated
specially for such taxable year (and, if necessary, later taxable years) items
of income and gain in an amount and manner sufficient to eliminate such negative
Capital Account balance as quickly as possible as provided in Regulations
Section 1.704-1 (b)(2)(ii)(d). After the occurrence of an allocation of income
or gain to a Limited Partner in accordance with this Section 5.01(c), to the
extent permitted by Regulations Section 1.704-l(b) and Section 5.01(d), items of
expense or loss shall be allocated to such Partner in an amount necessary to
offset the income or gain previously allocated to such Partner under this
Section 5.01(c).

                  (d)      Capital Account Deficits. Loss shall not be allocated
to a Limited Partner to the extent that such allocation would cause a deficit in
such Partner's Capital Account (after reduction to reflect the items described
in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum
of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse
Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated to
the General Partner. After the occurrence of an allocation of Loss to the
General Partner in accordance with this Section 5.01(d), to the extent permitted
by Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in
an amount necessary to offset the Loss previously allocated to such Partner
under this Section 5.01(d).

                  (e)      Allocations Between Transferor and Transferee. If a
Partner transfers any part or all of its Partnership Interest, the distributive
shares of the various items of Profit and Loss allocable among the Partners
during such fiscal year of the Partnership shall be allocated between the
transferor and the transferee Partner either (i) as if the Partnership's fiscal
year had ended on the date of the transfer, or (ii) based on the number of days
of such fiscal year that each was a Partner without regard to the results of
Partnership activities in the respective portions of such fiscal year in which
the transferor and the transferee were Partners. The General Partner, in its
sole and absolute discretion, shall determine which method shall be used to
allocate the distributive shares of the various items of Profit and Loss between
the transferor and the transferee Partner.

                  (f)      Definition of Profit and Loss. "Profit" and "Loss"
and any items of income, gain, expense, or loss referred to in this Agreement
shall be determined in accordance with federal income tax accounting principles,
as modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and
Loss shall not include items of income, gain and expense that are specially
allocated pursuant to Section 5.01(a)(iii), 5.01(b), 5.01(c), or 5.01(d). All
allocations of income, Profit, gain, Loss, and expense (and all items contained
therein) for federal income tax purposes shall be identical to all allocations
of such items set forth in this Section 5.01, except as otherwise required by
Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). The General
Partner shall have the authority to elect the method to be used by the
Partnership for allocating items of income, gain, and expense as required by
Section 704(c) of the Code (including a method that may result in a Partner
receiving a disproportionately larger share of the Partnership's tax
depreciation deductions) and such election shall be binding on all Partners.

                                       15

<PAGE>

         5.02     DISTRIBUTION OF CASH.

                  (a)      Except as provided in Section 5.06, the General
Partner shall be required to make distributions of Available Cash pursuant to
Sections 5.02(a)(i), 5.02(a)(ii), 5.02(a)(iii) and 5.02(a)(iv) on a quarterly
(or, at the election of the General Partner, more frequent) basis to the
Partners who are Partners on the Partnership Record Date with respect to such
quarter (or other distribution period). The amount and frequency of the
distributions of Available Cash pursuant to Section 5.02(a)(v) shall be
determined by the General Partner in its sole discretion. Available Cash shall
be distributed to the Partners in the following order of priority:

                           (i)      First, to the Class A Partners until the
                  Cross Over Date, in an amount sufficient to provide each Class
                  A Partner its Preferred Return from the date of the first
                  issuance of Class A Partnership Units through the date of the
                  distribution less any prior distributions to the Class A
                  Partners pursuant to this Section 5.01(a)(i); provided that if
                  the Partnership does not have sufficient funds to distribute
                  to provide each Class A Partner with its Preferred Return,
                  distributions pursuant to this Section 5.02(a)(i) shall be
                  made pro rata to the Class A Partners in accordance with the
                  amount otherwise due to each Class A Partner under this
                  Section 5.02(a)(i);

                           (ii)     Second, to the Outside Partners (which shall
                  exclude the Class A Partners prior to the Cross Over Date, but
                  shall include the Class A Partners, other than Class A
                  Partners that are also UDR Partners, on and after the Cross
                  Over Date) in proportion to their respective Percentage
                  Interests on the Partnership Record Date, until each Outside
                  Partner has received an amount equal to its Dividend
                  Equivalent for such quarter (or other distribution period);

                           (iii)    Third, to the UDR Partners, other than,
                  prior to the Cross Over Date, UDR Partners who are also Class
                  A Partners, in proportion to their respective Percentage
                  Interests on the Partnership Record Date, until each UDR
                  Partner has received an amount equal to the excess, if any, of
                  (A) the amount that such UDR Partner would have received
                  pursuant to Sections 5.02(a)(iv) and 5.02(a)(v) in the absence
                  of Section 5.02(a)(ii) and this Section 5.02(a)(iii) from
                  November 4, 1995 to the end of the period to which the
                  distribution relates (assuming that distributions under
                  Section 5.02(a)(v), like the distributions under Sections
                  5.02(a)(i) through 5.02(a)(iv), were required to be made on a
                  quarterly or more frequent basis), over (B) the sum of all
                  prior distributions to such UDR Partner pursuant to this
                  Section 5.02(a)(iii), Section 5.02(a)(iv) and Section
                  5.02(a)(v);

                           (iv)     Fourth, to the Partners (which shall exclude
                  the Class A Partners prior to the Cross Over Date, but shall
                  include the Class A Partners on and after the Cross Over Date)
                  in accordance with their respective Percentage Interests on
                  the Partnership Record Date, until each such Outside Partner
                  has received an amount equal to the excess, if any, of (A) the
                  amount equal to its Dividend Equivalent from November 4, 1995
                  to the end of the period to which the

                                       16

<PAGE>

                  distribution relates, over (B) the sum of all prior
                  distributions to such Outside Partner pursuant to Section
                  5.02(a)(ii) and this Section 5.02(a)(iv); and

                           (v)      Thereafter, to the Partners (which shall
                  exclude the Class A Partners prior to the Cross Over Date, but
                  shall include the Class A Partners on and after the Cross Over
                  Date) in accordance with their respective Percentage Interests
                  on the Partnership Record Date.

         The amount and frequency of distributions of any cash other than
Available Cash shall be determined by the General Partner in its sole discretion
and, if distributed, such cash shall be distributed to the Partners in
accordance with this Section 5.02(a). If a new or existing Partner acquires an
additional Partnership Interest in exchange for a Capital Contribution on any
date other than a Partnership Record Date, the cash distribution attributable to
such additional Partnership Interest for the Partnership Record Date following
the issuance of such additional Partnership Interest shall be reduced in the
proportion that the number of days that such additional Partnership Interest is
held by such Partner bears to the number of days between such Partnership Record
Date and the immediately preceding Partnership Record Date.

                  (b)      Notwithstanding any other provision of this
Agreement, the General Partner is authorized to take any action that it
determines to be necessary or appropriate to cause the Partnership to comply
with any withholding requirements established under the Code or any other
federal, state or local law including, without limitation, pursuant to Sections
1441, 1442, 1445, and 1446 of the Code. If the Partnership is required to
withhold and pay over to any taxing authority any amount resulting from the
allocation or distribution of income to a Partner or its assignee (including by
reason of Section 1446 of the Code) and if the amount to be distributed to the
Partner (the "Distributable Amount") equals or exceeds the amount required to be
withheld by the Partnership (the "Withheld Amount"), the Withheld Amount shall
be treated as a distribution of cash to such Partner. If, however, the
Distributable Amount is less than the Withheld Amount, no amount shall be
distributed to the Partner, the Distributable Amount shall be treated as a
distribution of cash to such Partner, and the excess of the Withheld Amount over
the Distributable Amount shall be treated as a loan (a "Partnership Loan") from
the Partnership to the Partner on the day the Partnership pays over such excess
to a taxing authority. A Partnership Loan may be repaid, at the election of the
General Partner in its sole and absolute discretion, either (i) through
withholding by the Partnership with respect to subsequent distributions to the
applicable Partner or assignee, or (ii) at any time more than twelve (12) months
after a Partnership Loan arises, by cancellation of Partnership Units with a
value equal to the unpaid balance of the Partnership Loan (including accrued
interest). Any amounts treated as a Partnership Loan pursuant to this Section
5.02(b) shall bear interest at the lesser of (i) the base rate on corporate
loans at large United States money center commercial banks, as published from
time to time in The Wall Street Journal (or an equivalent successor
publication), or (ii) the maximum lawful rate of interest on such obligation,
such interest to accrue from the date the Partnership is deemed to extend the
loan until such loan is repaid in full.

                  (c)      In no event may a Partner receive a distribution of
cash with respect to a Partnership Unit if such Partner is entitled to receive a
cash dividend as the holder of record of a REIT Share for which all or part of
such Partnership Unit has been or will be exchanged.

                                       17

<PAGE>

         5.03     REIT DISTRIBUTION REQUIREMENTS. Notwithstanding anything to
the contrary in this Agreement, the General Partner, if it is not able to borrow
money from the Partnership, may cause the Partnership to distribute amounts
sufficient to enable the Company to pay stockholder dividends that will allow
the Company to (i) meet its distribution requirement for qualification as a REIT
as set forth in Section 857(a)(1) of the Code and (ii) avoid any federal income
or excise tax liability imposed by the Code.

         5.04     NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be
entitled to demand property other than cash in connection with any distributions
by the Partnership.

         5.05     LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS.
Notwithstanding any of the provisions of this Article V, no Partner shall have
the right to receive and the General Partner shall not have the right to make, a
distribution that includes a return of all or part of a Partner's Capital
Contributions, unless after giving effect to the return of a Capital
Contribution, the sum of all Partnership liabilities, other than the liabilities
to a Partner for the return of his Capital Contribution, does not exceed the
fair market value of the Partnership's assets.

         5.06     DISTRIBUTIONS UPON LIQUIDATION.

                  (a)      Upon liquidation of the Partnership, after payment
of, or adequate provision for, debts and obligations of the Partnership,
including any Partner loans, any remaining assets of the Partnership shall be
distributed to all Partners with positive Capital Accounts in accordance with
their respective positive Capital Account balances. For purposes of the
preceding sentence, the Capital Account of each Partner shall be determined
after all adjustments made in accordance with Sections 5.01 and 5.02 resulting
from Partnership operations and from all sales and dispositions of all or any
part of the Partnership's assets. Any distributions pursuant to this Section
5.06 shall be made by the end of the Partnership's taxable year in which the
liquidation occurs (or, if later, within 90 days after the date of the
liquidation). To the extent deemed advisable by the General Partner, appropriate
arrangements (including the use of a liquidating trust) may be made to assure
that adequate funds are available to pay any contingent debts or obligations.

                  (b)      If the General Partner has a negative balance in its
Capital Account following a liquidation of the Partnership, as determined after
taking into account all Capital Account adjustments in accordance with Sections
5.01 and 5.02 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.06(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).

         5.07     SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners
that the allocations of Profit and Loss under the Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to nonrecourse
debt) within the meaning of Section 704(b) of the Code as interpreted by the

                                       18

<PAGE>

Regulations promulgated pursuant thereto. Article V and other relevant
provisions of this Agreement shall be interpreted in a manner consistent with
such intent.

                                   ARTICLE VI

             RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER

         6.01     MANAGEMENT OF THE PARTNERSHIP.

                  (a)      Except as otherwise expressly provided in this
Agreement, the General Partner shall have full, complete and exclusive
discretion to manage and control the business of the Partnership for the
purposes herein stated, and shall make all decisions affecting the business and
assets of the Partnership. Subject to the restrictions specifically contained in
this Agreement, the powers of the General Partner shall include, without
limitation, the authority to take the following actions on behalf of the
Partnership:

                           (i)      to acquire, purchase, own, operate, lease
                  and dispose of any real property and any other property or
                  assets, including, without limitation, equity interests in
                  other REITs, mortgage loans and participations therein, that
                  the General Partner determines are necessary or appropriate or
                  in the best interests of the business of the Company and the
                  Partnership;

                           (ii)     to construct buildings and make' other
                  improvements on the properties owned or leased by the
                  Partnership;

                           (iii)    to authorize, issue, sell, redeem or
                  otherwise purchase any Partnership Interests or any securities
                  (including secured and unsecured debt obligations of the
                  Partnership, debt obligations of the Partnership convertible
                  into any class or series of Partnership Interests, or options,
                  rights, warrants or appreciation rights relating to any
                  Partnership Interests) of the Partnership;

                           (iv)     to borrow or lend money for the Partnership,
                  issue or receive evidences of indebtedness in connection
                  therewith, refinance, increase the amount of, modify, amend or
                  change the terms of, or extend the time for the payment of,
                  any such indebtedness, and secure such indebtedness by
                  mortgage, deed of trust, pledge or other lien on the
                  Partnership's assets;

                           (v)      to guarantee or become a comaker of
                  indebtedness of the Company or any Subsidiary thereof,
                  refinance, increase the amount of, modify, amend or change the
                  terms of, or extend the time for the payment of, any such
                  guarantee or indebtedness, and secure such guarantee or
                  indebtedness by mortgage, deed of trust, pledge or other lien
                  on the Partnership's assets;

                           (vi)     to use assets of the Partnership (including,
                  without limitation, cash on hand) for any purpose consistent
                  with this Agreement, including, without limitation, payment,
                  either directly or by reimbursement, of all operating costs
                  and general administrative expenses of the Company, the
                  Partnership, or any

                                       19

<PAGE>

                  Subsidiary of either to third parties or to the Company as set
                  forth in this Agreement;

                           (vii)    to lease all or any portion of any of the
                  Partnership's assets, whether or not the terms of such leases
                  extend beyond the termination date of the Partnership and
                  whether or not any portion of the Partnership's assets so
                  leased are to be occupied by the lessee, or, in turn,
                  subleased in whole or in part to others, for such
                  consideration and on such terms as the General Partner may
                  determine;

                           (viii)   to prosecute, defend, arbitrate, or
                  compromise any and all claims or liabilities in favor of or
                  against the Partnership, on such terms and in such manner as
                  the General Partner may reasonably determine, and similarly to
                  prosecute, settle or defend litigation with respect to the
                  Partners, the Partnership, or the Partnership's assets;
                  provided, however, that the General Partner may not, without
                  the consent of the Limited Partners (other than the Original
                  Limited Partner) holding more than 50% of the Percentage
                  Interests of the Limited Partners (other than the Original
                  Limited Partner), confess a judgment against the Partnership;

                           (ix)     to file applications, communicate, and
                  otherwise deal with any and all governmental agencies having
                  jurisdiction over, or in any way affecting, the Partnership's
                  assets or any other aspect of the Partnership business;

                           (x)      to make or revoke any election permitted or
                  required of the Partnership by any taxing authority;

                           (xi)     to maintain such insurance coverage for
                  public liability, fire and casualty, and any and all other
                  insurance for the protection of the Partnership, for the
                  conservation of Partnership assets, or for any other purpose
                  convenient or beneficial to the Partnership, in such amounts
                  and such types, as it shall determine from time to time;

                           (xii)    to determine whether or not to apply any
                  insurance proceeds for any property to the restoration of such
                  property or to distribute the same;

                           (xiii)   to establish one or more divisions of the
                  Partnership, to hire and dismiss employees of the Partnership
                  or any division of the Partnership, and to engage legal
                  counsel, accountants, consultants, real estate brokers, and
                  other professionals, as the General Partner may deem necessary
                  or appropriate in connection with the Partnership business, on
                  such terms (including provisions for compensation and
                  eligibility to participate in employee benefit plans, stock
                  option plans and similar plans funded by the Partnership) as
                  the General Partner may deem reasonable and proper;

                           (xiv)    to retain other services of any kind or
                  nature in connection with the Partnership business, and to pay
                  therefor such remuneration as the General Partner may deem
                  reasonable and proper;

                                       20

<PAGE>

                           (xv)     to negotiate and conclude agreements on
                  behalf of the Partnership with respect to any of the rights,
                  powers and authority conferred upon the General Partner;

                           (xvi)    to maintain accurate accounting records and
                  to file promptly all federal, state and local income tax
                  returns on behalf of the Partnership;

                           (xvii)   to distribute Partnership cash or other
                  Partnership assets in accordance with this Agreement;

                           (xviii)  to form or acquire an interest in, and
                  contribute property to, any further limited or general
                  partnerships, joint ventures or other relationships that it
                  deems desirable (including, without limitation, the
                  acquisition of interests in, and the contributions of property
                  to, its Subsidiaries and any other Person in which it has an
                  equity interest from time to time);

                           (xix)    to establish Partnership reserves for
                  working capital, capital expenditures, contingent liabilities,
                  or any other valid Partnership purpose;

                           (xx)     subject to Article XI, to merge, consolidate
                  or combine the Partnership with or into another Person;

                           (xxi)    subject to Article XI, to do any and all
                  acts and things necessary or prudent to ensure that the
                  Partnership will not be classified as a "publicly traded
                  partnership" for purposes of Section 7704 of the Code; and

                           (xxii)   to take such other action, execute,
                  acknowledge, swear to or deliver such other documents and
                  instruments, and perform any and all other acts that the
                  General Partner deems necessary or appropriate for the
                  formation, continuation and conduct of the business and
                  affairs of the Partnership (including, without limitation, all
                  actions consistent with allowing the General Partner at all
                  times to qualify as a REIT unless the General Partner
                  voluntarily terminates its REIT status) and to possess and
                  enjoy all of the rights and powers of a general partner as
                  provided by the Act.

                  (b)      Except as otherwise provided herein, to the extent
the duties of the General Partner require expenditures of funds to be paid to
third parties, the General Partner shall not have any obligations hereunder
except to the extent that Partnership funds are reasonably available to it for
the performance of such duties, and nothing herein contained shall be deemed to
authorize or require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any individual
liability or obligation on behalf of the Partnership.

         6.02     DELEGATION OF AUTHORITY. The General Partner may delegate any
or all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.

                                       21

<PAGE>

         6.03     INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.

                  (a)      The Partnership shall indemnify an Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including reasonable legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership as set forth in this Agreement
in which any Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, unless it is established that: (i) the act or omission of
the Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be
made only out of the assets of the Partnership.

                  (b)      The Partnership may reimburse an Indemnitee for
reasonable expenses incurred by an Indemnitee who is a party to a proceeding in
advance of the final disposition of the proceeding upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership as authorized in this Section 6.03 has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount if it
shall ultimately be determined that the standard of conduct has not been met.

                  (c)      The indemnification provided by this Section 6.03
shall be in addition to any other rights to which an Indemnitee or any other
Person may be entitled under any agreement, pursuant to any vote of the
Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity.

                  (d)      The Partnership may purchase and maintain insurance,
on behalf of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.

                  (e)      For purposes of this Section 6.03, the Partnership
shall be deemed to have requested an Indemnitee to serve as fiduciary of an
employee benefit plan whenever the performance by it of its duties to the
Partnership also imposes duties on, or otherwise involves services by, it to the
plan or participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.03; and actions
taken or omitted by an Indemnitee with respect to an employee benefit plan in
the performance of its duties for a purpose

                                       22

<PAGE>

reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Partnership.

                  (f)      In no event may an Indemnitee subject the Limited
Partners to personal liability by reason of the indemnification provisions set
forth in this Agreement.

                  (g)      An Indemnitee shall not be denied indemnification in
whole or in part under this Section 6.03 because the Indemnitee had an interest
in the transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.

                  (h)      The provisions of this Section 6.03 are for the
benefit of the Indemnitees, their heirs, successors, assigns and administrators
and shall not be deemed to create any rights for the benefit of any other
Persons.

         6.04     LIABILITY OF THE GENERAL PARTNER.

                  (a)      Notwithstanding anything to the contrary set forth in
this Agreement, the General Partner shall not be liable for monetary damages to
the Partnership or any Partners for losses sustained or liabilities incurred as
a result of errors in judgment or of any act or omission if the General Partner
acted in good faith. The General Partner shall not be in breach of any duty that
the General Partner may owe to the Limited Partners or the Partnership or any
other Persons under this Agreement or of any duty stated or implied by law or
equity provided the General Partner, acting in good faith, abides by the terms
of this Agreement.

                  (b)      The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership, the Company and the
Company's stockholders collectively, that the General Partner is under no
obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to Limited Partners or the
tax consequences of some, but not all, of the Limited Partners) in deciding
whether to cause the Partnership to take (or decline to take) any actions. In
any case in which the General Partner determines in good faith that the
interests of the Limited Partners and the General Partner's stockholders may
conflict, the Limited Partners further acknowledge and agree that the General
Partner shall be deemed to have discharged its fiduciary duties to the Limited
Partners by discharging such duties to the General Partner's stockholders. The
General Partner shall not be liable for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with any such decisions, provided that the General Partner has acted in good
faith.

                  (c)      Subject to its obligations and duties as General
Partner set forth in Section 6.01, the General Partner may exercise any of the
powers granted to it under this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.

                  (d)      Notwithstanding any other provisions of this
Agreement or the Act, any action of the General Partner on behalf of the
Partnership or any decision of the General Partner to refrain from acting on
behalf of the Partnership, undertaken in the good faith belief that such

                                       23

<PAGE>

action or omission is necessary or advisable in order (i) to protect the ability
of the Company to continue to qualify as a REIT or (ii) to prevent the Company
from incurring any taxes under Section 857, Section 4981, or any other provision
of the Code, is expressly authorized under this Agreement and is deemed approved
by all of the Limited Partners.

                  (e)      Any amendment, modification or repeal of this Section
6.04 or any provision hereof shall be prospective only and shall not in any way
affect the limitations on the General Partner's liability to the Partnership and
the Limited Partners under this Section 6.04 as in effect immediately prior to
such amendment, modification or repeal with respect to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when claims relating to such matters may arise or be asserted.

         6.05     PARTNERSHIP EXPENSES. In addition to the expenses that are
directly attributable to the Partnership, the Partnership shall pay the REIT
Expenses that are allocable to the Partnership. The General Partner, in its sole
and absolute discretion, shall determine what portion of the REIT Expenses are
allocable to the Partnership. If any REIT Expenses determined by the General
Partner to be allocable to the Partnership are paid by the General Partner, the
General Partner shall be reimbursed by the Partnership therefor.

         6.06     OUTSIDE ACTIVITIES. The Partners and any officer, director,
employee, agent, trustee, Affiliate, Subsidiary, or shareholder of any Partner
shall be entitled to and may have business interests and engage in business
activities in addition to those relating to the Partnership, including business
interests and activities substantially similar or identical to those of the
Partnership. Neither the Partnership nor any of the Partners nor any other
Person shall have any rights by virtue of this Agreement or the partnership
relationship established hereby in any such business ventures, interests or
activities, and the Partners shall have no obligation pursuant to this Agreement
to offer any interest in any such business ventures, interests and activities to
the Partnership or any Partner, even if such opportunity is of a character
which, if presented to the Partnership or any Partner, could be taken by such
Person.

         6.07     EMPLOYMENT OR RETENTION OF AFFILIATES.

                  (a)      Any Affiliate of the General Partner may be employed
or retained by the Partnership and may otherwise deal with the Partnership
(whether as a buyer, lessor, lessee, manager, furnisher of goods or services,
broker, agent, lender or otherwise) and may receive from the Partnership any
compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.

                  (b)      The Partnership may lend or contribute to its
Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.

                  (C)      The Partnership may transfer assets to joint
ventures, other partnerships, corporations or other business entities in which
it is or thereby becomes a participant upon such

                                       24

<PAGE>

terms and subject to such conditions as the General Partner deems are consistent
with this Agreement and applicable law.

         6.08     TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.

                                  ARTICLE VII

                   CHANGES IN GENERAL PARTNER AND THE COMPANY

         7.01     TRANSFER OF A GENERAL PARTNER'S PARTNERSHIP INTEREST;
TRANSACTIONS INVOLVING THE COMPANY.

                  (a)      Except as provided in Section 7.01(c), 7.01(d) or
7.03(a), a General Partner shall not transfer all or any portion of its General
Partnership Interest or withdraw as General Partner.

                  (b)      Except as provided in Section 7.01(c) or 7.01(d), the
General Partner (or all General Partners if at any time there are two or more
General Partners) and the Original Limited Partner will at all times own in the
aggregate at least a 1% Percentage Interest.

                  (c)      Except as otherwise provided in Section 7.01(d), the
Company shall not merge, consolidate or otherwise combine with or into another
Person or sell all or substantially all of its assets (other than in connection
with a change in the Company's state of incorporation or organizational form) (a
"Transaction"), unless one of the following conditions is met:

                           (i)      the consent of Limited Partners (other than
                  the Company or any Subsidiary of the Company) holding more
                  than 50% of the Percentage Interests of the Limited Partners
                  (other than those held by the Company or any Subsidiary of the
                  Company) is obtained;

                           (ii)     the Transaction also includes a merger,
                  consolidation or combination of the Partnership or sale of
                  substantially all of the assets of the Partnership or other
                  transaction as a result of which all Limited Partners (other
                  than the Company or any Subsidiary) will receive for each
                  Partnership Unit an amount of cash, securities, or other
                  property (or a partnership interest or other security readily
                  convertible into such cash, securities, or other property) no
                  less than the product of the Conversion Factor and the
                  greatest amount of cash, securities or other property
                  (expressed as an amount per REIT Share) paid in the
                  Transaction in consideration for REIT Shares, provided that
                  if, in connection with the Transaction, a purchase, tender or
                  exchange offer ("Offer") shall have been made to and accepted
                  by the holders of more than 50 percent of the outstanding REIT
                  Shares, all Limited Partners (other than the Company or any
                  Subsidiary) will receive no less than the amount of cash and
                  the fair market value of securities

                                       25

<PAGE>

                  or other consideration that they would have received had they
                  (A) exercised their Redemption Right and (B) sold, tendered or
                  exchanged pursuant to the Offer the REIT Shares received upon
                  exercise of the Redemption Right immediately prior to the
                  expiration of the Offer;

                           (iii)    the Company is the surviving entity in the
                  Transaction and either (A) the holders of REIT Shares do not
                  receive cash, securities, or other property in the Transaction
                  or (B) all Limited Partners (other than the Company or any
                  Subsidiary) receive an amount of cash, securities, or other
                  property (expressed as an amount per Partnership Unit) that is
                  no less than the product of the Conversion Factor and the
                  greatest amount of cash, securities, or other property
                  (expressed as an amount per REIT Share) received in the
                  Transaction by any holder of REIT Shares; or

                           (iv)     the Company merges, consolidates, or
                  combines with or into another entity and, immediately after
                  such merger, (A) substantially all of the assets of the
                  surviving entity, other than Partnership Units and the
                  ownership interests in any wholly-owned Subsidiaries held by
                  the Company, are contributed to the Partnership as a Capital
                  Contribution in exchange for Partnership units with a fair
                  market value equal to the value of the assets so contributed
                  as determined pursuant to Section 704(b) of the Code, (B) any
                  successor or surviving corporation expressly agrees to assume
                  all obligations of the Company hereunder, and (C) the
                  Conversion Factor is adjusted appropriately to reflect the
                  ratio at which REIT Shares are converted into shares of the
                  surviving entity.

The General Partner shall give the Limited Partners notice of any Transaction at
least 20 business days prior to the effective date of such Transaction,
provided, however, that the General Partner need not give any such notice prior
to the date on which the holders of REIT Shares are first notified of such
Transaction by the Company.

                  (d)      Notwithstanding Sections 7.01(a), 7.01(b) and
7.01(c),

                           (i)      a General Partner may transfer all or any
                  portion of its General Partnership Interest to (A) a
                  wholly-owned Subsidiary of such General Partner or (B) the
                  owner of all of the ownership interests of such General
                  Partner, and following a transfer of all of its General
                  Partnership Interest, may withdraw as General Partner; and

                           (ii)     the Company may engage in a Transaction not
                  required by law or by the rules of any national securities
                  exchange on which the REIT Shares are listed to be submitted
                  to the vote of the holders of the REIT Shares and the General
                  Partner shall not be required to give notice to the Limited
                  Partners of any such Transaction as provided by Section
                  7.01(c).

         7.02     ADMISSION OF A SUBSTITUTE OR ADDITIONAL GENERAL PARTNER. A
Person shall be admitted as a substitute or additional General Partner of the
Partnership only if the following terms and conditions are satisfied:

                                       26

<PAGE>

                  (a)      the Person to be admitted as a substitute or
additional General Partner shall have accepted and agreed to be bound by all the
terms and provisions of this Agreement by executing a counterpart thereof and
such other documents or instruments as may be required or appropriate in order
to effect the admission of such Person as a General Partner, and a certificate
evidencing the admission of such Person as a General Partner shall have been
filed for recordation and all other actions required by Section 2.05 in
connection with such admission shall have been performed;

                  (b)      if the Person to be admitted as a substitute or
additional General Partner is a corporation or a partnership it shall have
provided the Partnership with evidence satisfactory to counsel for the
Partnership of such Person's authority to become a General Partner and to be
bound by the terms and provisions of this Agreement; and

                  (c)      counsel for the Partnership shall have rendered an
opinion (relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.

         7.03     EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A
GENERAL PARTNER.

                  (a)      Upon the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to or removal of a partner in such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof. The merger of the
General Partner with or into any entity that is admitted as a substitute or
successor General Partner pursuant to Section 7.02 hereof shall not be deemed to
be the withdrawal, dissolution or removal of the General Partner.

                  (b)      Following the occurrence of an Event of Bankruptcy as
to a General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to or removal of a partner in such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Limited Partners, within 90 days after such occurrence, may elect
to continue the business of the Partnership for the balance of the term
specified in Section 2.04 hereof by selecting, subject to Section 7.02 hereof
and any other provisions of this Agreement, a substitute General Partner by
consent of the Limited Partners holding more than 50% of the Percentage
Interests of the Limited Partners. If the Limited Partners elect to continue the
business of the Partnership and

                                       27

<PAGE>

admit a substitute General Partner, the relationship with the Partners and of
any Person who has acquired an interest of a Partner in the Partnership shall be
governed by this Agreement.

         7.04     REMOVAL OF A GENERAL PARTNER.

                  (a)      Upon the occurrence of an Event of Bankruptcy as to,
or the dissolution of, a General Partner, such General Partner shall be deemed
to be removed automatically; provided, however, that if a General Partner is on
the date of such occurrence a partnership, the withdrawal, death, dissolution,
Event of Bankruptcy as to or removal of a partner in such partnership shall be
deemed not to be a dissolution of the General Partner if the business of such
General Partner is continued by the remaining partner or partners. The Limited
Partners may not remove the General Partner, with or without cause.

                  (b)      If a General Partner has been removed pursuant to
this Section 7.04 and the Partnership is continued pursuant to Section 7.03
hereof, such General Partner shall promptly transfer and assign its General
Partnership Interest in the Partnership (i) to the substitute General Partner
approved by the Limited Partners in accordance with Section 7.03(b) hereof and
otherwise admitted to the Partnership in accordance with Section 7.02 hereof. At
the time of assignment, the removed General Partner shall be entitled to receive
from the substitute General Partner the fair market value of the General
Partnership Interest of such removed General Partner as reduced by any damages
caused to the Partnership by such General Partner. Such fair market value shall
be determined by an appraiser mutually agreed upon by the General Partner and a
majority in interest of the Limited Partners within 10 days following the
removal of the General Partner. In the event that the parties are unable to
agree upon an appraiser, the General Partner and a majority in interest of the
Limited Partners each shall select an appraiser, each of which appraisers shall
complete an appraisal of the fair market value of the General Partner's General
Partnership Interest within 30 days of the General Partner's removal, and the
fair market value of the General Partner's General Partnership Interest shall be
the average of the two appraisals; provided, however, that if the higher
appraisal exceeds the lower appraisal by more than 20% of the amount of the
lower appraisal, the two appraisers, no later than 40 days after the removal of
the General Partner, shall select a third appraiser who shall complete an
appraisal of the fair market value of the General Partner's General Partnership
Interest no later than 60 days after the removal of the General Partner. In such
case, the fair market value of the General Partner's General Partnership
Interest shall be the average of the two appraisals closest in value.

                  (c)      The General Partnership Interest of a removed General
Partner, during the time after default until transfer under Section 7.04(b),
shall be converted to that of a special Limited Partner, providing, however,
such removed General Partner shall not have any rights to participate in the
management and affairs of the Partnership, and shall not be entitled to any
portion of the income, expenses, Profit, gain or Loss, distributions or
allocations, as the case may be, payable or allocable to the Limited Partners as
such. Instead, such removed General Partner shall receive and be entitled to
retain only distributions or allocations of such items which it would have been
entitled to receive in its capacity as General Partner, until the transfer is
effective pursuant to Section 7.04(b).

                                       28

<PAGE>

                  (d)      All Partners shall have given and hereby do give such
consents, shall take such actions and shall execute such documents as shall be
legally necessary and sufficient to effect all the foregoing provisions of this
Section 7.04.

                                  ARTICLE VIII

                 RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS

         8.01     MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.

         8.02     POWER OF ATTORNEY. Each Limited Partner hereby irrevocably
appoints the General Partner its true and lawful attorney-in-fact, who may act
for each Limited Partner and in its name, place and stead, and for its use and
benefit, to sign, acknowledge, swear to, deliver, file and record, at the
appropriate public offices, any and all documents, certificates, and instruments
as may be deemed necessary or desirable by the General Partner to carry out
fully the provisions of this Agreement and the Act in accordance with their
terms, which power of attorney is coupled with an interest and shall survive the
death, dissolution or legal incapacity of the Limited Partner, or the transfer
by the Limited Partner of any part or all of its Partnership Interest.

         8.03     LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited
Partner shall be liable for any debts, liabilities, contracts or obligations of
the Partnership. A Limited Partner shall be liable to the Partnership only to
make payments of its Capital Contribution, if any, as and when due hereunder.
After its Capital Contribution is fully paid, no Limited Partner shall, except
as otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
Notwithstanding the foregoing provisions of this Section 8.03, a Class A Partner
shall be liable to the Partnership or to its lenders to the extent set forth in
any guarantee of Partnership debt or in any agreement to contribute capital to
the Partnership in connection with any Partnership debt, in each case only to
the extent so agreed by such Class A Partner in such guarantee or contribution
agreement.

         8.04     OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR
AFFILIATE. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.

         8.05     REDEMPTION RIGHT.

                  (a)      Subject to Sections 8.05(b), 8.05(c), 8.05(d),
8.05(e) and 8.05(i) and the provisions of any agreement between the Partnership
and any Limited Partner with respect to Partnership Units held by such Limited
Partners, such Limited Partner, other than the Original

                                       29

<PAGE>

Limited Partner, shall have the right (the "Redemption Right") to require the
Partnership to redeem on a Specified Redemption Date, or on the Class A
Specified Redemption Date with respect to a Class A Partner, all or a portion of
the Partnership Units held by such Limited Partner at a redemption price equal
to and in the form of the Cash Amount to be paid by the Partnership, provided,
that such Partnership Units shall have been outstanding for at least one year.
The Redemption Right shall be exercised pursuant to a Notice of Redemption
delivered to the Partnership (with a copy to the General Partner) by the Limited
Partner who is exercising the Redemption Right (the "Redeeming Partner");
provided, however, that the Partnership shall not be obligated to satisfy such
Redemption Right if the General Partner elects to purchase the Partnership Units
subject to the Notice of Redemption pursuant to Section 8.05(b); and provided,
further, that no Limited Partner may deliver more than two Notices of Redemption
during each calendar year, provided that each Class A Partner may deliver a
Notice of Redemption more frequently provided it is limited to one Notice of
Redemption per calendar quarter. A Limited Partner may not exercise the
Redemption Right for less than 1,000 Partnership Units or, if such Limited
Partner holds less than 1,000 Partnership Units, all of the Partnership Units
held by such Partner. Except as otherwise provided in Section 8.05(h), the
Redeeming Partner shall have no right, with respect to any Partnership Units so
redeemed, to receive any distribution paid with respect to Partnership Units if
the record date for such distribution is on or after the Specified Redemption
Date or the Class A Specified Redemption Date, as applicable.

                  (b)      Notwithstanding the provisions of Section 8.05(a), a
Limited Partner that exercises the Redemption Right shall be deemed to have
offered to sell the Partnership Units described in the Notice of Redemption to
the General Partner, and the General Partner may, in its sole and absolute
discretion but subject to the last sentence of this subsection (b), elect to
purchase directly and acquire such Partnership Units by paying to the Redeeming
Partner either the Cash Amount or the REIT Shares Amount, as elected by the
General Partner (in its sole and absolute discretion), on the Specified
Redemption Date or on the Class A Specified Redemption Date with respect to a
Class A Partner, whereupon the General Partner shall acquire the Partnership
Units offered for redemption by the Redeeming Partner and shall be treated for
all purposes of this Agreement as the owner of such Partnership Units. If the
General Partner shall elect to exercise its right to purchase Partnership Units
under this Section 8.05(b) with respect to a Notice of Redemption, it shall so
notify the Redeeming Partner within five (three for any Class A Partner)
Business Days after the receipt by the General Partner of such Notice of
Redemption. Such notice shall indicate whether the General Partner will pay the
Cash Amount or the REIT Shares Amount. Unless the General Partner (in its sole
and absolute discretion) shall exercise its right to purchase Partnership Units
from the Redeeming Partner pursuant to this Section 8.05(b), the General Partner
shall not have any obligation to the Redeeming Partner or the Partnership with
respect to the Redeeming Partner's exercise of the Redemption Right. In the
event the General Partner shall exercise its right to purchase Partnership Units
with respect to the exercise of a Redemption Right in the manner described in
the first sentence of this Section 8.05(b), the Partnership shall have no
obligation to pay any amount to the Redeeming Partner with respect to such
Redeeming Partner's exercise of such Redemption Right, and each of the Redeeming
Partner, the Partnership, and the General Partner shall treat the transaction
between the General Partner and the Redeeming Partner for federal income tax
purposes as a sale of the Redeeming Partner's Partnership Units to the General
Partner. Each Redeeming Partner agrees to execute such documents as the
Partnership may reasonably require in connection with the issuance of REIT
Shares upon exercise of the Redemption Right. If Section 5.05 hereof shall

                                       30

<PAGE>

prevent the Partnership from satisfying, in whole or in part, any exercise of
the Redemption Right by a Redeeming Partner, then the Company (whether or not it
is then the General Partner) shall be deemed to have elected pursuant to this
Section 8.05(b) to purchase, and hereby agrees to purchase, directly from such
Redeeming Partner, such number of Partnership Units as the Partnership is unable
to redeem due to the operation of Section 5.05.

                  (c)      Notwithstanding the provisions of Section 8.05(a) and
8.05(b), a Limited Partner shall not be entitled to exercise the Redemption
Right if the delivery of REIT Shares to such Partner on the Specified Redemption
Date by the Company pursuant to Section 8.05(b) (regardless of whether or not
the Company would in fact exercise its rights under Section 8.05(b)) would (i)
result in REIT Shares being owned by fewer than 100 persons (determined without
reference to any rules of attribution), (ii) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, (iii) cause the
Company to own, directly or constructively, 10% or more of the ownership
interests in a tenant of the Company's, the Partnership's or a Subsidiary's real
property, within the meaning of Section 856(d)(2)(B) of the Code, (iv) in the
good faith opinion of the Board of Directors of the Company, otherwise
disqualify the Company as a REIT, or (v) in the opinion of counsel for the
Company, constitute or result in a violation of Section 5 of the Securities Act,
or cause the acquisition of REIT Shares by such Partner to be "integrated" with
any other distribution of REIT Shares for purposes of complying with the
registration provisions of the Securities Act. The Company, in its sole and
absolute discretion, may waive the restriction on redemption set forth in this
Section 8.05(c); provided, however, that in the event such restriction is
waived, the Redeeming Partner shall be paid the Cash Amount. Notwithstanding the
foregoing, each Class A Partner shall be entitled to exercise its Redemption
Right with respect to the Class A Partnership Units regardless of whether the
issuance of REIT Shares to such Class A Partner would violate the restrictions
set forth above, provided that the Class A Partner shall receive the Cash Amount
in connection with such redemption.

                  (d)      Any Cash Amount to be paid by the Partnership to a
Redeeming Partner pursuant to Section 8.05(a), and any Cash Amount or REIT
Shares Amount to be paid by the General Partner to a Redeeming Partner pursuant
to Section 8.05(b), shall be paid within 20 Business Days, or with respect to a
Redeeming Partner who is a Class A Partner, five Business Days, after the
initial date of receipt by the General Partner of the Notice of Redemption
relating to the Partnership Units to be redeemed; provided, however, that such
20 Business Day period, but not the five Business Day period, may be extended
for up to an additional 180-day period to the extent required for the Company to
issue and sell securities the proceeds of which will be contributed to the
Partnership to provide cash for payment of the Cash Amount. Notwithstanding the
foregoing, the General Partner agrees to use its best efforts to cause the
closing of the acquisition of redeemed Partnership Units hereunder to occur as
quickly as reasonably possible.

                  (e)      Notwithstanding any other provision of this
Agreement, the General Partner may place appropriate restrictions on the ability
of the Limited Partners to exercise their Redemption Rights as and if deemed
necessary to ensure that the Partnership does not constitute a "publicly traded
partnership" under Section 7704 of the Code. If and when the General Partner
determines that imposing such restrictions is necessary, the General Partner
shall give prompt written notice thereof to each of the Limited Partners, which
notice shall be accompanied by a

                                       31

<PAGE>

copy of an opinion of counsel to the Partnership which states that, in the
opinion of such counsel, such restrictions are necessary in order to avoid the
Partnership being treated as a "publicly traded partnership" under Section 7704
of the Code.

                  (f)      The Conversion Factor shall be adjusted from time to
time as follows:

                           (i)      In the event that the Company (A) declares
                  or pays a dividend on its outstanding REIT Shares in REIT
                  Shares or makes a distribution to all holders of its
                  outstanding REIT Shares in REIT Shares, (B) subdivides its
                  outstanding REIT Shares, or (C) combines its outstanding REIT
                  Shares into a smaller number of REIT Shares, the Conversion
                  Factor shall be adjusted by multiplying the Conversion Factor
                  by a fraction, the numerator of which shall be the number of
                  REIT Shares issued and outstanding on the record date for such
                  dividend, distribution, subdivision or combination (assuming
                  for such purposes that such dividend, distribution,
                  subdivision or combination has occurred as of such time), and
                  the denominator of which shall be the actual number of REIT
                  Shares (determined without the above assumption) issued and
                  outstanding on such date.

                           (ii)     In the event that the Company declares or
                  pays a dividend or other distribution on its outstanding REIT
                  Shares (other than (a) ordinary cash dividends or (b)
                  dividends payable in REIT Shares that give rise to an
                  adjustment in the Conversion Factor under subsection (i)
                  hereof) and the Value of the REIT Shares on the 20th trading
                  day following the record date ("Record Date") for such
                  dividend or distribution (the "Post-Distribution Value") is
                  less than the Value of the REIT Shares on the Business Day
                  immediately preceding such Record Date (the "Pre-Distribution
                  Value"), then the Conversion Factor in effect after the Record
                  Date shall be adjusted by multiplying the Conversion Factor in
                  effect prior to the Record Date by a fraction, the numerator
                  of which is the Pre-Distribution Value and the denominator of
                  which is the Post-Distribution Value, provided. however, that
                  no adjustment shall be made if (a) with respect to any cash
                  dividend or distribution with respect to REIT shares, the
                  Partnership distributes with respect to each Partnership Unit
                  an amount equal to the amount of such dividend or distribution
                  multiplied by the Conversion Factor or (b) with respect to any
                  dividend or distribution of securities or property other than
                  cash, the Partnership distributes with respect to each
                  Partnership Unit an amount of securities or other property
                  equal to the amount distributed with respect to each REIT
                  share multiplied by the Conversion Ratio or a partnership
                  interest or other security readily convertible into such
                  securities or other property.

                          (iii)     Any adjustment to the Conversion Factor
                  shall become effective immediately after the effective date of
                  any of the events described in subsections (i) and (ii),
                  retroactive to the record date, if any, for such event,
                  provided, however, that if the Partnership receives Notice of
                  Redemption after the record date, but prior to the payment
                  date or effective date, of any dividend, distribution,
                  subdivision or combination referred to in subsection (i) or
                  (ii), the Conversion Factor shall be determined as if the
                  Company had received the Notice of

                                       32

<PAGE>

                  Exchange immediately prior to the record date for such
                  dividend, distribution, subdivision or combination.

                           (iv)     If the rights (the "Stockholder Rights")
                  governed by the Rights Agreement, dated as of January 27, 1998
                  (the "Rights Agreement"), by and between the General Partner
                  and ChaseMellon Shareholder Services L.L.C., are issued and
                  exercised, the Conversion Factor shall be equitably adjusted
                  to take into account the resulting dilution in the REIT
                  Shares, provided, however, that the Conversion Factor shall
                  not be adjusted with respect to any Partnership Units held by
                  any person to which the provisions of Section 7(e) of the
                  Rights Agreement apply or would apply if such person were a
                  holder of Stockholder Rights.

                  (g)      If a Class A Partner exercises its Redemption Right
with respect to Class A Partnership Units and the Partnership elects to pay the
Cash Amount with respect to such redemption and does not pay such amount to such
Class A Partner by the Class A Specified Redemption Date then on such date the
Partnership shall issue such Class A Partner a promissory note (the "Class A
Note"). The Class A Note shall be payable within 30 calendar days and will bear
interest at a rate per annum equal to LIBOR plus 90 basis points. Payment of the
Class A Note shall be guaranteed by the General Partner. For purposes of this
Section 8.05(g), "LIBOR" means the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any
successor page) as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the date the
Class A Note is issued for a term of 30 days. If for any reason such rate is not
available, the term "LIBOR" shall mean the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on the Reuters Screen LIBOR
Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the date the
Class A Note is issued for a term of 30 days; provided, however, if more than
one rate is specified on the Reuters Screen LIBOR Page, the applicable rate
shall be the arithmetic mean of all such rates.

                  (h)      Notwithstanding anything set forth in this Agreement
to the contrary, if a Class A Partner delivers a Notice of Redemption, a
Partnership Record Date subsequently occurs with respect to a distribution to
the Class A Partners pursuant to Section 5.02 and such distribution is not
distributed prior to the Class A Specified Redemption Date, then the Class A
Partner whose Class A Partnership Units are redeemed on such date shall be
entitled to receive the distribution pursuant to Section 5.02(a) with respect to
such Class A Partnership Units notwithstanding such redemption unless such Class
A Partnership Units are redeemed for REIT Stock and such Class A Specified
Redemption Date occurs on or before the record date for the payment of a
dividend on such REIT Stock that is payable in respect of the same period as
such distribution on the Class A Partnership Units so redeemed, in which event
the distribution made to such Class A Partner pursuant to Section 5.02(a) shall
be reduced by the amount of such dividend on the REIT Stock.

                  (i)      American Apartment Communities Operating Partnership,
L.P., AAC Management LLC, Schnitzer Investment Corp. and American Apartment
Communities III, L.P. (collectively, the "AAC Limited Partners"), the General
Partner and the Partnership agree that, notwithstanding the proviso in the first
sentence of Section 8.05(a), (i) the AAC Limited Partners

                                       33

<PAGE>

shall be entitled to exercise their Redemption Rights as provided in Section
5(c)(ii) and (iii) of the Partnership Interest Purchase and Exchange Agreement,
dated as of September 10, 1998, among the AAC Limited Partners, the Partnership
and the General Partner, among others, and (ii) the Redemption Rights of the AAC
Limited Partners shall be modified as set forth in Section 3.1(b) of the
Investment Agreement, dated as of September 10, 1998, among the General Partner,
the Partnership and the AAC Limited Partners, among others.

         8.06     NYSE LISTING AND SECURITIES ACT REGISTRATION OF REIT SHARES.
In the event that the General Partner elects to acquire a Redeeming Partner's
Partnership Units by paying to such Partner the REIT Shares Amount, the REIT
Shares issued to the Redeeming Partner if and to the extent provided in such
Redeeming Partner's Registration Rights Agreement shall be (a) registered under
the Securities Act and/or entitled to rights to Securities Act registration and
(b) listed on the NYSE.

                                   ARTICLE IX

                   TRANSFERS OF LIMITED PARTNERSHIP INTERESTS

         9.01     PURCHASE FOR INVESTMENT.

                  (a)      Each Limited Partner hereby represents and warrants
to the General Partner and to the Partnership that the acquisition of his
Partnership Interest is made as a principal for his account for investment
purposes only and not with a view to the resale or distribution of such
Partnership Interest.

                  (b)      Each Limited Partner agrees that he will not sell,
assign or otherwise transfer his Partnership Interest or any fraction thereof,
whether voluntarily or by operation of law or at judicial sale or otherwise, to
any Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.

         9.02     RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.

                  (a)      Except as otherwise provided in this Article IX, no
Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise
transfer his Limited Partnership Interest, in whole or in part, whether
voluntarily or by operation of law or at judicial sale or otherwise
(collectively, a "Transfer") without the written consent of the General Partner,
which consent may be withheld in the sole and absolute discretion of the General
Partner. The General Partner may require, as a condition of any Transfer, that
the transferor assume all costs incurred by the Partnership in connection
therewith.

                  (b)      No Limited Partner may effect a Transfer of its
Limited Partnership Interest, in whole or in part, if, in the opinion of legal
counsel for the Partnership, such proposed Transfer would require the
registration of the Limited Partnership Interest under the Securities Act or
would otherwise violate any applicable federal or state securities or blue sky
law (including investment suitability standards).

                                       34
<PAGE>

                  (c)      No Transfer by a Limited Partner of its Partnership
Units, in whole or in part, may be made to any Person if (i) in the opinion of
counsel for the Partnership, the Transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of counsel for the Partnership, the Transfer would adversely affect the
ability of the Company to continue to qualify as a REIT or subject the Company
to any additional taxes under Section 857 or Section 4981 of the Code, or (iii)
such Transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code,

                  (d)      No transfer of any Partnership Units may be made to a
lender to the Partnership or any Person who is related (within the meaning of
Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a nonrecourse liability (within the meaning of Regulations Section
1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion, provided that as a condition to
such consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Cash Amount
any Partnership Units in which a security interest is held simultaneously with
the time at which such lender would be deemed to be a partner in the Partnership
for purposes of allocating liabilities to such lender under Section 752 of the
Code.

                  (e)      Section 9.02(a) shall not apply to any Transfer by a
Limited Partner pursuant to the exercise of its Redemption Right under Section
8.05 hereof.

                  (f)      Notwithstanding Section 9.02(a), a Class A Partner
may transfer the Class A Partnership Units held by such Class A Partner to (i)
any Person who, directly or indirectly, owned an equity interest in such Class A
Partner immediately prior to such transfer, (ii) any Family Member of such Class
A Partner, (iii) any trust of which a Person described in clause (i) of this
Section 9.02(f) or a Family Member of such Person or such Class A Partner and/or
a bona fide tax-exempt charitable organization are the sole beneficiaries and
(iv) any bona fide tax-exempt charitable organization in connection with a bona
fide gift or donation. Further, notwithstanding Section 9.02(a), a Class A
Partner may pledge the Class A Partnership Units held by such Class A Partner
(i) as set forth in Section 7.04 of the respective Contribution Agreements and
(ii) to a lending institution to secure a bona fide loan or extension of credit
made by such lending institution to such Class A Partner and, upon such lending
institution exercising its remedy, if any, to foreclose and take possession of
such Class A Partnership Units and taking possession of such Class A Partnership
Units with respect to a default under such loan or extension of credit and
compliance by such lending institution with the provisions of Section 9.03(a),
the General Partner will consent to the admission of such lending institution to
the Partnership as a Substitute Limited Partner notwithstanding the provisions
of Section 9.03(a)(vii); provided that notwithstanding the foregoing the General
Partner may withhold such consent if the General Partner in its sole discretion
determines that there is a reasonable business purpose for the Partnership not
to admit such lending institution as a Substitute Limited Partner.

                  (g)      Notwithstanding anything set forth in this Agreement
to the contrary, no transfer of a Class A Partnership Unit is permitted without
the consent of the General Partner, which consent may be given or withheld in
its sole and absolute discretion, if such transfer

                                       35

<PAGE>

would result in more than eighty (80) "partners" of the Partnership holding all
outstanding Class A Partnership Units for purposes of Section II.A of Internal
Revenue Service Notice 88-75, 1988-2 C.B. 386.

                  (h)      Any Transfer in contravention of any of the
provisions of this Article IX shall be void and ineffectual and shall not be
binding upon, or recognized by, the Partnership.

         9.03     ADMISSION OF SUBSTITUTE LIMITED PARTNER.

                  (a)      Subject to the other provisions of this Article IX,
an assignee of the Limited Partnership Interest of a Limited Partner (which
shall be understood to include any purchaser, transferee, donee, or other
recipient of any disposition of such Limited Partnership Interest) shall be
deemed admitted as a Limited Partner of the Partnership only upon the
satisfactory completion of the following:

                           (i)      The assignee shall have accepted and agreed
to be bound by the terms and provisions of this Agreement by executing a
counterpart or an amendment thereof, including a revised Exhibit A, and such
other documents or instruments as the General Partner may require in order to
effect the admission of such Person as a Limited Partner.

                           (ii)     To the extent required, an amended
Certificate evidencing the admission of such Person as a Limited Partner shall
have been signed, acknowledged and filed for record in accordance with the Act.

                           (iii)    The assignee shall have delivered a letter
containing the representation set forth in Section 9.01(a) and the agreement set
forth in Section 9.01(b).

                           (iv)     If the assignee is a corporation,
partnership or trust, the assignee shall have provided the General Partner with
evidence satisfactory to counsel for the Partnership of the assignee's authority
to become a Limited Partner under the terms and provisions of this Agreement.

                           (v)      The assignee shall have executed a power of
attorney containing the terms and provisions set forth in Section 8.02.

                           (vi)     The assignee shall have paid all reasonable
legal fees of the Partnership and the General Partner and filing and publication
costs in connection with its substitution as a Limited Partner.

                           (vii)    The assignee has obtained the prior written
consent of the General Partner to its admission as a Substitute Limited Partner,
which consent may be given or denied in the exercise of the General Partner's
sole and absolute discretion.

                  (b)      For the purpose of allocating Profits and Losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and

                                       36

<PAGE>

appearing in the records of the Partnership as, a Partner upon the filing of the
Certificate described in Section 9.03(a)(ii) or, if no such filing is required,
the later of the date specified in the transfer documents or the date on which
the General Partner has received all necessary instruments of transfer and
substitution.

                  (c)      The General Partner shall cooperate with the Person
seeking to become a Substitute Limited Partner by preparing the documentation
required by this Section and making all official filings and publications. The
Partnership shall take all such action as promptly as practicable after the
satisfaction of the conditions in this Article IX to the admission of such
Person as a Limited Partner of the Partnership.

         9.04     RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.

                  (a)      Subject to the provisions of Sections 9.01 and 9.02,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of its Partnership Interest until the Partnership has received notice thereof.

                  (b)      Any Person who is the assignee of all or any portion
of a Limited Partner's Limited Partnership Interest, but does not become a
Substitute Limited Partner and desires to make a further assignment of such
Limited Partnership Interest, shall be subject to all the provisions of this
Article IX to the same extent and in the same manner as any Limited Partner
desiring to make an assignment of its Limited Partnership Interest.

                  (c)      The General Partner shall have the right, in its sole
and absolute discretion, to redeem the Limited Partnership Interest assigned by
any Limited Partner (an "Assigning Limited Partner") to any person who does not,
within 20 business days following the date of such assignment, become a
Substitute Limited Partner (an "Assignee"). In such case, the Assigning Limited
Partner and the Assignee shall be deemed to have tendered irrevocably to the
General Partner a Notice of Redemption with respect to all of the Limited
Partnership Interest assigned.

         9.05     EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A
LIMITED PARTNER. The occurrence of an Event of Bankruptcy as to a Limited
Partner, the death of a Limited Partner or a final adjudication that a Limited
Partner is incompetent (which term shall include, but not be limited to,
insanity) shall not cause the termination or dissolution of the Partnership, and
the business of the Partnership shall continue if an order for relief in a
bankruptcy proceeding is entered against a Limited Partner, the trustee or
receiver of his estate or, if he dies, his executor, administrator or trustee,
or, if he is finally adjudicated incompetent, his committee, guardian or
conservator, shall have the rights of such Limited Partner for the purpose of
settling or managing his estate property and such power as the bankrupt,
deceased or incompetent Limited Partner possessed to assign all or any part of
his Partnership Interest and to join with the assignee in satisfying conditions
precedent to the admission of the assignee as a Substitute Limited Partner.

         9.06     JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be
acquired by two individuals as joint tenants with right of survivorship,
provided that such individuals either are

                                       37

<PAGE>

married or are related and share the same home as tenants in common. The written
consent or vote of both owners of any such jointly held Partnership Interest
shall be required to constitute the action of the owners of such Partnership
Interest; provided, however, that the written consent of only one joint owner
will be required if the Partnership has been provided with evidence satisfactory
to the counsel for the Partnership that the actions of a single joint owner can
bind both owners under the applicable laws of the state of residence of such
joint owners. Upon the death of one owner of a Partnership Interest held in a
joint tenancy with a right of survivorship, the Partnership Interest shall
become owned solely by the survivor as a Limited Partner and not as an assignee.
The Partnership need not recognize the death of one of the owners of a
jointly-held Partnership Interest until it shall have received notice of such
death. Upon notice to the General Partner from either owner, the General Partner
shall cause the Partnership Interest to be divided into two equal Partnership
Interests, which shall thereafter be owned separately by each of the former
owners.

                                   ARTICLE X

                   BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS

         10.01    BOOKS AND RECORDS. At all times during the continuance of the
Partnership, the General Partner shall keep or cause to be kept at the
Partnership's specified office true and complete books of account in accordance
with generally accepted accounting principles, including: (a) a current list of
the full name and last known business address of each Partner, (b) a copy of the
Certificate of Limited Partnership and all certificates of amendment thereto,
(c) copies of the Partnership's federal, state and local income tax returns and
reports, (d) copies of the Agreement and any financial statements of the
Partnership for the three most recent years and (e) all documents and
information required under the Act. Any Partner or its duly authorized
representative, upon paying the costs of collection, duplication and mailing,
shall be entitled to inspect or copy such records during ordinary business
hours.

         10.02    CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.

                  (a)      All funds of the Partnership not otherwise invested
shall be deposited in one or more accounts maintained in such banking or
brokerage institutions as the General Partner shall determine, and withdrawals
shall be made only on such signature or signatures as the General Partner may,
from time to time, determine.

                  (b)      All deposits and other funds not needed in the
operation of the business of the Partnership may be invested by the General
Partner in investment grade instruments (or investment companies whose portfolio
consists primarily thereof), government obligations, certificates of deposit,
bankers' acceptances and municipal notes and bonds. The funds of the Partnership
shall not be commingled with the funds of any other Person except for such
commingling as may necessarily result from an investment in those investment
companies permitted by this Section 10.02(b).

         10.03    FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
Partnership shall be the calendar year.

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<PAGE>

         10.04    ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the
end of each fiscal year of the Partnership, the General Partner shall furnish to
each person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.

         10.05    TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.

                  (a)      The General Partner shall be the Tax Matters Partner
of the Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to take
all actions authorized and required, respectively, by the Code for the Tax
Matters Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.

                  (b)      All elections required or permitted to be made by the
Partnership under the Code or any applicable state or local tax law shall be
made by the General Partner in its sole and absolute discretion.

                  (c)      In the event of a transfer of all or any part of the
Partnership Interest of any Partner, the Partnership, at the option of the
General Partner, may elect pursuant to Section 754 of the Code to adjust the
basis of the Properties. Notwithstanding anything contained in Article V of this
Agreement, any adjustments made pursuant to Section 754 shall affect only the
successor in interest to the transferring Partner and in no event shall be taken
into account in establishing, maintaining or computing Capital Accounts for the
other Partners for any purpose under this Agreement. Each Partner will furnish
the Partnership with all information necessary to give effect to such election.

         10.06    REPORTS TO LIMITED PARTNERS.

                  (a)      As soon as practicable after the close of each fiscal
quarter (other than the last quarter of the fiscal year), the General Partner
shall cause to be mailed to each Limited Partner a quarterly report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
quarter, presented in accordance with generally accepted accounting principles.
As soon as practicable after the close of each fiscal year, the General Partner
shall cause to be mailed to each Limited Partner an annual report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
year, presented in accordance with generally accepted accounting principles. The
annual financial statements shall be audited by accountants selected by the
General Partner.

                                       39

<PAGE>

                  (b)      Any Partner shall further have the right to a private
audit of the books and records of the Partnership, provided such audit is made
for Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.

                                   ARTICLE XI

                     AMENDMENT OF AGREEMENT; MERGER; NOTICE

         11.01    AMENDMENT OF AGREEMENT; MERGER. The General Partner's consent
shall be required for any amendment to the Agreement or any merger,
consolidation or combination of the Partnership. The General Partner, without
the consent of the Limited Partners, may amend this Agreement in any respect or
cause the Partnership to merge, consolidate or combine with or into any other
partnership, limited partnership, limited liability company or corporation as
contemplated in Section 7.01(c) or (d) hereof; provided, however, that the
following amendments and any other such merger, consolidation or combination of
the Partnership (a "Merger") shall require the consent of Limited Partners
(other than the Company or any Subsidiary of the Company) holding more than 50%
of the Percentage Interests of the Limited Partners (other than the Company or
any Subsidiary of the Company):

                  (a)      any amendment affecting the operation of the
Conversion Factor or the Redemption Right (except as provided in Sections
7.01(c) or 8.05(e)) in a manner adverse to the Limited Partners;

                  (b)      any amendment that would adversely affect the rights
of the Limited Partners to receive the distributions payable to them hereunder,
other than with respect to the issuance of additional Partnership Units pursuant
to Section 4.02;

                  (c)      any amendment that would alter the Partnership's
allocations of Profit and Loss to the Limited Partners, other than with respect
to the issuance of additional Partnership Units pursuant to Section 4.02; or

                  (d)      any amendment to this Article XI.

         The consent of each Limited Partner shall be required for any amendment
that would impose on the Limited Partners any obligation to make additional
Capital Contributions to the Partnership.

         11.02    NOTICE TO LIMITED PARTNERS. The General Partner shall notify
the Limited Partners of the substance of any amendment or Merger requiring the
consent of the Limited Partners pursuant to Section 11.01 at least 20 business
days prior to the effective date of such amendment or Merger.

         11.03    CLASS A VOTING RIGHTS.

                  (a)      So long as any Class A Partnership Units remain
outstanding, neither the General Partner nor the Partnership shall, without the
affirmative vote of the Class A Partners holding at least a majority of the
Class A Partnership Units then outstanding increase the authorized or issued
amount of Class A Partnership Units or reclassify any Partnership Interest

                                       40

<PAGE>

into Class A Partnership Units or create, authorize or issue any obligations or
security convertible into or evidencing the right to purchase any Class A
Partnership Units. Further, subject to the Partnership's rights set forth in
Section 7.03(g) of the respective Contribution Agreements during the Tax
Protection Period (as defined in such Contribution Agreements), the consent of
the Class A Partners holding at least a majority of the Class A Partnership
Units then outstanding will be required to approve any merger, acquisition or
other fundamental transaction involving the Partnership, unless (i) the holders
of such Class A Partnership Units will not recognize a taxable gain in the
transaction and the tax protections set forth in Section 7.03 of each of the
Contribution Agreements are preserved following such merger, acquisition or
other fundamental transaction, (ii) the Class A Partners are offered a portion
of the consideration offered to the holders of Limited Partnership Interests
which is in proportion to the Value of their respective Partnership Interests,
(iii) the value, as determined in good faith by the General Partner, of the
liquidation, redemption rights and preferences of the Class A Limited Partners
set forth in this Agreement, either in respect of the Partnership or another
limited partnership, limited liability company or other "pass-through" entity
for federal income tax purposes which succeeds to the interests of or is the
survivor of a transaction with the Partnership, are preserved in connection with
such merger, acquisition or other fundamental transaction and (iv) the Class A
Limited Partners' fixed or guaranteed entitlements or preferences as to
dividends or distributions as set forth herein are preserved and the other
relative rights, preferences and privileges of the Class A Partnership Units are
maintained.

                  (b)      So long as any Class A Partnership Units remain
outstanding, no amendment or modification to this Agreement that adversely
affects the relative rights, preferences or privileges of the Class A
Partnership Units shall be effective without the prior written approval of Class
A Partners holding at least a majority of the Class A Partnership Units then
outstanding.

                                  ARTICLE XII

                               GENERAL PROVISIONS

         12.01    NOTICES. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.

         12.02    SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.

         12.03    ADDITIONAL DOCUMENTS. Each Partner agrees to perform all
further acts and execute, swear to, acknowledge and deliver all further
documents which may be reasonable, necessary, appropriate or desirable to carry
out the provisions of this Agreement or the Act.

                                       41

<PAGE>

         12.04    SEVERABILITY. If any provision of this Agreement shall be
declared illegal, invalid, or unenforceable in any jurisdiction, then such
provision shall be deemed to be severable from this Agreement (to the extent
permitted by law) and in any event such illegality, invalidity or
unenforceability shall not affect the remainder hereof.

         12.05    ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.

         12.06    ADDITIONAL AGREEMENTS. The Parties agree that (a) the Class A\
Partnership Units will be evidenced by certificates in accordance with Section
2.06 and (b) the Class A Partnership Units will be subject to the provisions set
forth in Article VII of the Contribution Agreements.

         12.07    RULES OF CONSTRUCTION. When the context in which words are
used in the Agreement indicates that such is the intent, words in the singular
number shall include the plural and the masculine gender shall include the
neuter or female gender as the context may require. Unless the context otherwise
indicates, references to particular Articles and Sections are references to
Articles and Sections of this Agreement.

         12.08    HEADINGS. The Article headings or sections in this Agreement
are for convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.

         12.09    COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.

         12.10    GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.

                                       42

<PAGE>

         IN WITNESS WHEREOF, the General Partner has hereunder affixed its
signature to this Amended and Restated Agreement of Limited Partnership, as of
the 23d day of February, 2004 to witness and evidence its adoption pursuant to
the provisions of Section 17-211(g) of the Act.

                                         GENERAL PARTNER:

                                         UNITED DOMINION REALTY TRUST, INC.

                                         By: /s/ Scott A. Shanaberger
                                             -----------------------------------
                                             Scott A. Shanaberger
                                             Senior Vice President

                                       43

<PAGE>

                                                                       EXHIBIT A

                                LIST OF PARTNERS

                                      A-1

<PAGE>

                                                                       EXHIBIT B

                     NOTICE OF EXERCISE OF REDEMPTION RIGHT

         In accordance with Section 8.05 of the Amended and Restated Agreement
of Limited Partnership (the "Agreement") of United Dominion Realty, L.P., the
undersigned hereby irrevocably (i) presents for redemption _____________
Partnership Units in United Dominion Realty, L.P. in accordance with the terms
of the Agreement and the Redemption Right referred to in Section 8.05 thereof,
(ii) surrenders such Partnership Units and all right, title and interest
therein, and (iii) directs that the Cash Amount or REIT Shares Amount (as
defined in the Agreement) as determined by the General Partner deliverable upon
exercise of the Redemption Right be delivered to the address specified below,
and if REIT Shares (as defined in the Agreement) are to be delivered, such REIT
Shares be registered or placed in the name(s) and at the address(es) specified
below.

Dated: _________________, ____

Name of Limited Partner:

                                                ______________________________
                                               (Signature of Limited Partner)

                                                ______________________________
                                               (Mailing Address)

                                                ______________________________
                                               (City) (State) (Zip Code)

                                                Signature Guaranteed by:

                                                ______________________________

If REIT Shares are to be issued, issue to:

Please insert social security or identifying number:

                                      B-1

<PAGE>

                                                                       EXHIBIT C

                          PARTNERSHIP UNIT DESIGNATION

                                     OF THE

                   CLASS I OUT-PERFORMANCE PARTNERSHIP SHARES

                         OF UNITED DOMINION REALTY, L.P.

         1.       NUMBER OF UNITS AND DESIGNATION.

         A class of Partnership Units is hereby designated as "Class I
Out-Performance Partnership Shares," and the number of Partnership Units
initially constituting such class shall be one million two hundred and seventy
thousand (1,270,000).

         2.       DEFINITIONS.

         For purposes of this Partnership Unit Designation, the following terms
shall have the meanings indicated in this Section 2. Capitalized terms used and
not otherwise defined herein shall have the meanings assigned thereto in the
Agreement.

         "Change of Control" shall mean the occurrence of any of the following
events:

         (i)      an acquisition of any voting securities of the Company (the
"Voting Securities") by any "person" (as the term "person" is used for purposes
of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) immediately after which such person has
"beneficial ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) ("Beneficial Ownership") of 30% or more of the combined voting
power of the Company's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities that are
acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute an acquisition that would cause a Change in Control. "Non-Control
Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a
trust forming a part thereof) maintained by (1) the Company or (2) any
corporation, partnership or other person of which a majority of its voting power
or its equity securities or equity interest is owned directly or indirectly by
the Company or in which the Company serves as a general partner or manager (a
"Subsidiary"), (B) the Company or any Subsidiary, or (C) any person in
connection with a Non-Control Transaction (as hereinafter defined);

         (ii)     the individuals who constitute the Board of Directors of the
Company as of May 9, 2001 (the "Incumbent Board") cease for any reason to
constitute at least two-thirds (2/3) of the members of the Board of Directors of
the Company; provided, however, that if the election, or nomination for election
by the Company's stockholders, of any new director was approved by a vote of at
least two-thirds (2/3) of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board; provided, further, that no
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "election contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) (an "Election Contest") or other actual or threatened solicitation
of proxies or

                                      C-1

<PAGE>

consents by or on behalf of a person other than the Board of Directors of the
Company (a "Proxy Contest") including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or

         (iii)    approval by stockholders of the Company of: (A) a merger,
consolidation, share exchange or reorganization involving the Company, unless
(1) the stockholders of the Company immediately before such merger,
consolidation, share exchange or reorganization, own, directly or indirectly
immediately following such merger, consolidation, share exchange or
reorganization, at least 60% of the combined voting power of the outstanding
voting securities of the corporation that is the successor in such merger,
consolidation, share exchange or reorganization (the "Surviving Company") in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation, share exchange or reorganization,
(2) the individuals who were members of the Incumbent Board immediately prior to
the execution of the agreement providing for such merger, consolidation, share
exchange or reorganization constitute at least two-thirds (2/3) of the members
of the board of directors of the Surviving Company, and (3) no persons (other
than the Company or any Subsidiary of the Company, any employee benefit plan (or
any trust forming a part thereof) maintained by the Company, the Surviving
Company or any Subsidiary of the Company, or any person who, immediately prior
to such merger, consolidation, share exchange or reorganization had Beneficial
Ownership of 30% or more of the then outstanding Voting Securities has
Beneficial Ownership of 30% or more of the combined voting power of the
Surviving Company's then outstanding voting securities (a transaction described
in clauses (1) through (3) is referred to herein as a "Non-Control
Transaction"); (B) a complete liquidation or dissolution of the Company; or (C)
an agreement for the sale or other disposition of all or substantially all of
the assets of the Company to any person (other than a transfer to a Subsidiary
of the Company).

         Notwithstanding the foregoing, a Change of Control shall not be deemed
to occur solely because any person (a "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company that, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by such Subject Person, provided that if a
Change of Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, such Subject Person becomes the Beneficial
Owner of any additional Voting Securities that increases the percentage of the
then outstanding Voting Securities Beneficially Owned by such Subject Person,
then a Change of Control shall occur.

         "Class I Out-Performance Partnership Share" shall mean a Partnership
Unit with the designations, preferences and relative, participating, optional or
other special rights, powers and duties as are set forth in this Exhibit C.

         "Class I Out-Performance Valuation Date" shall mean the earlier to
occur of (i) June 1, 2003, or (ii) the date on which a Change of Control occurs.

         "Conversion Factor" shall mean the quotient obtained by dividing (i)
the quotient obtained by dividing (x) the product of (A) 4% of the Excess Return
multiplied by (B) the UDR Market Capitalization, by (y) the Value of a REIT
Share on the Class I Out-Performance

                                      C-2

<PAGE>


Valuation Date by (ii) the number of Class I Out-Performance Partnership Shares
outstanding at the Class I Out-Performance Valuation Date; provided, however,
that the amount determined pursuant to clause (x) shall not exceed an amount
equal to 2% of the UDR Market Capitalization. The Conversion Factor shall be
adjusted pursuant to Section 8.05(f) of the Agreement.

         "Determination Date" shall mean (i) when used with respect to any
dividend or other distribution, the date fixed for the determination of the
holders of the securities entitled to receive such dividend or distribution, or,
if a dividend or distribution is paid or made without fixing such a date, the
date of such dividend or distribution, and (ii) when used with respect to any
split, subdivision, reverse stock split, combination or reclassification of
securities, the date upon which such split, subdivision, reverse stock split,
combination or reclassification becomes effective.

         "Excess Return" shall mean the amount, if any, by which the UDR Total
Return over the Measurement Period exceeds the greater of (i) the Industry Total
Return or (ii) the Minimum Return.

         "Ex-Date" shall mean (i) when used with respect to any dividend or
distribution, the first date on which the securities on which the dividend or
distribution is payable trade regular way on the relevant exchange or in the
relevant market without the right to receive such dividend or distribution, and
(ii) when used with respect to any split, subdivision, reverse stock split,
combination or reclassification of securities, the first date on which the
securities trade regular way on such exchange or in such market to reflect such
split, subdivision, reverse stock split, combination or reclassification
becoming effective.

         "Extraordinary Distribution" shall mean the distribution by the
Company, by dividend or otherwise, to all holders of its REIT Shares of
evidences of its indebtedness or assets (including securities) other than cash.

         "Family Controlled Entity" means, as to any holder of Class I
Out-Performance Shares, (a) any corporation more than 50% of the outstanding
voting stock of which is owned by such holder and such holder's Family Members,
(b) any trust, whether or not revocable, of which such holder and such holder's
Family Members are the sole beneficiaries, (c) any partnership of which such
holder and such holder's Family Members hold partnership interests representing
at least 25% of such partnership's capital and profits and (d) any limited
liability company of which such holder is the manager and in which such holder
and such holder's Family Members hold membership interests representing at least
25% of such limited liability company's capital and profits.

         "Industry Peer Group Index" shall mean the Morgan Stanley REIT Index.

         "Industry Total Return" shall mean the Total Return of the securities
included in the Industry Peer Group Index for the Measurement Period, with such
average determined in a manner consistent with the manner in which such index is
calculated; provided, however, that if such Industry Total Return would be less
than zero without giving effect to the reinvestment of dividends, then the
"Industry Total Return" shall be equal to zero.

         "Initial Holder" shall mean UDR Out-Performance I, LLC, a Virginia
limited liability company.

                                      C-3

<PAGE>

         "Measurement Period" shall mean the period from and including February
1, 2001 to but excluding the Class I Out-Performance Valuation Date.

         "Minimum Return" shall mean 30% (compounded annually) for the
Measurement Period or, if the Class I Out-Performance Valuation Date is not June
1, 2003, 12% (compounded annually) per annum from February 1,2001.

         "Morgan Stanley REIT Index" shall mean the Morgan Stanley REIT Index
quoted on the American Stock Exchange under the symbol "RMS".

         "Partnership" shall mean United Dominion Realty, L.P., a Delaware
limited partnership.

         "Total Return" shall mean, for any security or index and for any
period, the cumulative total return for such security or index over such period,
as measured by (i) the sum of (A) the cumulative amount of dividends paid in
respect of such security or index for such period (assuming that all dividends
other than Extraordinary Distributions are reinvested in such security or index
as of the payment date for such dividend based on the security price on the
dividend payment date), and (B) an amount equal to (1) the security price or
index value at the end of such period, minus (2) the security price or index
value at the beginning of such period, divided by (ii) the security price or
index value at the beginning of such period; provided, however, that if the
foregoing calculation results in a negative number, the "Total Return" shall be
equal to zero.

         "UDR Market Capitalization" shall mean the average number of shares
outstanding over the Measurement Period (including, for this purpose, REIT
Shares and Partnership Units, but not including outstanding options, convertible
securities or Class I Out-Performance Partnership Shares) multiplied by the
daily closing price of the REIT Shares.

         "UDR Total Return" shall mean the Total Return of the REIT Shares for
the Measurement Period.

         3.       FORFEITURE.

         If, on the Class I Out-Performance Valuation Date, there is no Excess
Return, then, from and after such date, each Class I Out-Performance Partnership
Share shall, without any action on the part of the Partnership, the Company or
the holder thereof, be automatically forfeited and be no longer outstanding.

         4.       DISTRIBUTIONS.

         On and after the Class I Out-Performance Valuation Date, the holders of
Class I Out-Performance Partnership Shares not forfeited under Section 3 shall
be entitled to receive distributions at the same time and in the same amount
that would be received on the number of Partnership Units held by Outside
Partners (assuming such Partnership Units were originally issued on the Class I
Out-Performance Valuation Date) that is obtained by multiplying the number of
Class I Out-Performance Partnership Shares by the Conversion Factor.

                                      C-4

<PAGE>

         5.       ALLOCATIONS.

                  (a)      From and after the Class I Out-Performance Valuation
Date, Profits and Losses shall be allocated to each of the holders of Class I
Out-Performance Partnership Shares not forfeited under Section 3 at the same
time and in the same amount that would be allocated on the number of Partnership
Units held by Outside Partners (assuming such Partnership Units were originally
issued on the Class I Out-Performance Valuation Date) that is obtained by
multiplying the number of Class I Out-Performance Partnership Shares by the
Conversion Factor.

                  (b)      In the event that the Partnership disposes of all or
substantially all of its assets in a transaction that will lead to a liquidation
of the Partnership pursuant to Article II of the Agreement, then,
notwithstanding Section 5.06 of the Agreement, each holder of Class I
Out-Performance Partnership Shares not forfeited under Section 3 shall be
specifically allocated items of Partnership income and gain in an amount
sufficient to cause the Capital Account of such holder to be equal to that of an
Outside Partner that holds Partnership Units equal to the number of Class I
Out-Performance Partnership Shares held by such holder multiplied by the
Conversion Factor.

         6.       EXCHANGE.

         If the Class I Out-Performance Partnership Shares have not been
forfeited under Section 3 and the Class I Out-Performance Partnership Shares
have been transferred by the Initial Holder in accordance with Section 8, the
transferee and subsequent transferees of the Class I Out-Performance Partnership
Shares may exchange from time to time some or all of the Class I Out-Performance
Partnership Shares for a number of Partnership Units equal to the Class I
Out-Performance Partnership Shares multiplied by the Conversion Factor.

         7.       REDEMPTION UPON CHANGE OF CONTROL.

         Upon the occurrence of a Change of Control, and subject to the
applicable requirements of Federal securities laws and any securities exchange
or quotation system rules or regulations, each holder of Class I Out-Performance
Partnership Shares shall have the redemption rights of Limited Partners set
forth in Section 8.05 of the Agreement with respect to a number of Partnership
Units equal to the number of Class I Out-Performance Partnership Shares
multiplied by the Conversion Factor and the 40-month transfer limitation period
applicable to the Class I Out-Performance Partnership Shares shall be deemed to
have passed.

         8.       RESTRICTIONS ON OWNERSHIP AND TRANSFER.

         The restrictions on Transfer set forth in Article IX of the Agreement
shall not apply to Transfers of Class I Out-Performance Partnership Shares.
Prior to the Class I Out-Performance Valuation Date, the Class I Out-Performance
Partnership Shares shall be owned and held solely by the Initial Holder. On or
after the later of the Class I Out-Performance Valuation Date and the forty (40)
month period from the date the Class I Out-Performance Partnership Shares are
issued the Class I Out-Performance Partnership Shares may be Transferred (i) by
the Initial Holder to (a) any Person who is a member (a "Member") of the Initial
Holder immediately prior to such transfer, (b) a Family Member of a Member, (c)
a Family Controlled Entity of a Member, (d) any Person with respect to whom the
Member constitutes a Family Controlled Entity, (e) upon the death of a Member,
by will or by the laws of descent and distribution to any Family Member or
Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of
a such Person, (b) a Family Controlled Entity of such Person, (c) any other
Person with respect to whom such Person constitutes a Family Controlled Entity,
(e)

                                       C-5

<PAGE>

upon the death of such Person, by will or by the laws of descent and
distribution to any Family Member or Family Controlled Entity; provided,
however, that, until May 31, 2004, the Class I Out-Performance Partnership
Shares may not be Transferred by the Initial Holder without the approval of the
managers of the Initial Holder.

         9.       ADJUSTMENTS.

                  (a)      In the event of any Extraordinary Distribution
occurring on or after February 1, 2001, for purposes of determining the Value of
a REIT Share or the UDR Total Return, each price of a REIT Share determined as
of a date on or after the Ex-Date for such Extraordinary Distribution shall be
adjusted by multiplying such price by a fraction (i) the numerator of which
shall be the price of a REIT Share on the date immediately prior to such
Ex-Date, and (ii) the denominator of which shall be (A) the price of a REIT
Share on the date immediately prior to such Ex-Date, minus (B) the fair market
value on the date fixed for such determination of the portion of the evidences
of indebtedness or assets so distributed applicable to one REIT Share (as
determined by the Company, whose determination shall be conclusive); provided
further, that such amount shall be so adjusted for each such Extraordinary
Distribution occurring on or after February 1, 2001.

                  (b)      In the event that, on or after February 1, 2001, the
Company (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) splits or subdivides its outstanding REIT Shares, (iii)
effects a reverse stock split or otherwise combines its outstanding REIT Shares
into a smaller number of REIT Shares, or (iv) otherwise reclassifies its
outstanding REIT Shares, then, for purposes of determining the Value of a REIT
Share or the UDR Total Return, each price of a REIT Share determined as of a
date on or after the Ex-Date for such transaction shall be adjusted by
multiplying such price by a fraction (x) the numerator of which shall be the
number of REIT Shares issued and outstanding on the Determination Date for such
dividend, distribution, split, subdivision, reverse stock split, combination or
reclassification (assuming for such purposes that such dividend, distribution,
split, subdivision, reverse split or combination has occurred as of such time)
and (y) the denominator of which shall be the actual number of REIT Shares
(determined without the above assumption) issued and outstanding on the
Determination Date for such dividend, distribution, split, subdivision, reverse
stock split. combination or reclassification.

                  (c)      The Company shall have authority to appropriately
adjust the UDR Market Capitalization, the UDR Total Return or the Value of a
REIT Share if any other transaction or circumstance occurs or arises that
without such adjustment would have an inequitable result.

                                      C-6

<PAGE>

         10.      GENERAL.

         The ownership of Class I Out-Performance Partnership Shares may (but
need not, in the sole and absolute discretion of the Company) be evidenced by
one or more certificates. The Company shall amend Exhibit A to the Agreement
from time to time to the extent necessary to reflect accurately the issuance of,
and subsequent conversion, redemption, or any other event having an effect on
the ownership of Class I Out-Performance Partnership Shares.

                                      C-7

<PAGE>

                                                                       EXHIBIT D

                          PARTNERSHIP UNIT DESIGNATION

                                     OF THE

                   CLASS II OUT-PERFORMANCE PARTNERSHIP SHARES

                         OF UNITED DOMINION REALTY, L.P.

         1.       NUMBER OF UNITS AND DESIGNATION.

         A class of Partnership Units is hereby designated as "Class II
Out-Performance Partnership Shares," and the number of Partnership Units
initially constituting such class shall be one million (1,000,000).

         2.       DEFINITIONS.

         For purposes of this Partnership Unit Designation, the following terms
shall have the meanings indicated in this Section 2. Capitalized terms used and
not otherwise defined herein shall have the meanings assigned thereto in the
Agreement.

         "Change of Control" shall mean the occurrence of any of the following
events:

         (i)      an acquisition of any voting securities of the Company (the
"Voting Securities") by any "person" (as the term "person" is used for purposes
of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) immediately after which such person has
"beneficial ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) ("Beneficial Ownership") of 30% or more of the combined voting
power of the Company's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities that are
acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute an acquisition that would cause a Change in Control. "Non-Control
Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a
trust forming a part thereof) maintained by (1) the Company or (2) any
corporation, partnership or other person of which a majority of its voting power
or its equity securities or equity interest is owned directly or indirectly by
the Company or in which the Company serves as a general partner or manager (a
"Subsidiary"), (B) the Company or any Subsidiary, or (C) any person in
connection with a Non-Control Transaction (as hereinafter defined);

         (ii)     the individuals who constitute the Board of Directors of the
Company as of May 6, 2003 (the "Incumbent Board") cease for any reason to
constitute at least two-thirds (2/3) of the members of the Board of Directors of
the Company; provided, however, that if the election, or nomination for election
by the Company's stockholders, of any new director was approved by a vote of at
least two-thirds (2/3) of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board; provided, further, that no
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "election contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) (an "Election Contest") or other actual or threatened solicitation
of proxies or

                                       1

<PAGE>

consents by or on behalf of a person other than the Board of Directors of the
Company (a "Proxy Contest") including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or

         (iii)    approval by stockholders of the Company of: (A) a merger,
consolidation, share exchange or reorganization involving the Company, unless
(1) the stockholders of the Company immediately before such merger,
consolidation, share exchange or reorganization, own, directly or indirectly
immediately following such merger, consolidation, share exchange or
reorganization, at least 60% of the combined voting power of the outstanding
voting securities of the corporation that is the successor in such merger,
consolidation, share exchange or reorganization (the "Surviving Company") in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation, share exchange or reorganization,
(2) the individuals who were members of the Incumbent Board immediately prior to
the execution of the agreement providing for such merger, consolidation, share
exchange or reorganization constitute at least two-thirds (2/3) of the members
of the board of directors of the Surviving Company, and (3) no persons (other
than the Company or any Subsidiary of the Company, any employee benefit plan (or
any trust forming a part thereof) maintained by the Company, the Surviving
Company or any Subsidiary of the Company, or any person who, immediately prior
to such merger, consolidation, share exchange or reorganization had Beneficial
Ownership of 30% or more of the then outstanding Voting Securities has
Beneficial Ownership of 30% or more of the combined voting power of the
Surviving Company's then outstanding voting securities (a transaction described
in clauses (1) through (3) is referred to herein as a "Non-Control
Transaction"); (B) a complete liquidation or dissolution of the Company; or (C)
an agreement for the sale or other disposition of all or substantially all of
the assets of the Company to any person (other than a transfer to a Subsidiary
of the Company).

         Notwithstanding the foregoing, a Change of Control shall not be deemed
to occur solely because any person (a "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company that, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by such Subject Person, provided that if a
Change of Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, such Subject Person becomes the Beneficial
Owner of any additional Voting Securities that increases the percentage of the
then outstanding Voting Securities Beneficially Owned by such Subject Person,
then a Change of Control shall occur.

         "Class II Out-Performance Partnership Share" shall mean a Partnership
Unit with the designations, preferences and relative, participating, optional or
other special rights, powers and duties as are set forth in this Exhibit D.

         "Class II Out-Performance Valuation Date" shall mean the earlier to
occur of (i) May 31, 2005, or (ii) the date on which a Change of Control occurs.

         "Conversion Factor" shall mean the quotient obtained by (a) multiplying
5% of the Excess Return by the Company's Market Capitalization and (b) dividing
the number obtained in clause (b) by the market value of one REIT Share on the
Class II Out-Performance Valuation

                                       2
<PAGE>

Date, as the weighted average price per day of common stock for the 20 trading
days immediately preceding the Class II Out-Performance Valuation Date

         "Determination Date" shall mean (i) when used with respect to any
dividend or other distribution, the date fixed for the determination of the
holders of the securities entitled to receive such dividend or distribution, or,
if a dividend or distribution is paid or made without fixing such a date, the
date of such dividend or distribution, and (ii) when used with respect to any
split, subdivision, reverse stock split, combination or reclassification of
securities, the date upon which such split, subdivision, reverse stock split,
combination or reclassification becomes effective.

         "Excess Return" shall mean the amount, if any, by which the cumulative
Total Return of REIT Shares over the Measurement Period exceeds the greater of
the cumulative Total Return of the Morgan Stanley REIT Index, which is the peer
group index, or the Minimum Return.

         "Ex-Date" shall mean (i) when used with respect to any dividend or
distribution, the first date on which the securities on which the dividend or
distribution is payable trade regular way on the relevant exchange or in the
relevant market without the right to receive such dividend or distribution, and
(ii) when used with respect to any split, subdivision, reverse stock split,
combination or reclassification of securities, the first date on which the
securities trade regular way on such exchange or in such market to reflect such
split, subdivision, reverse stock split, combination or reclassification
becoming effective.

         "Extraordinary Distribution" shall mean the distribution by the
Company, by dividend or otherwise, to all holders of its REIT Shares of
evidences of its indebtedness or assets (including securities) other than cash.

         "Family Controlled Entity" means, as to any holder of Class II
Out-Performance Shares, (a) any corporation more than 50% of the outstanding
voting stock of which is owned by such holder and such holder's Family Members,
(b) any trust, whether or not revocable, of which such holder and such holder's
Family Members are the sole beneficiaries, (c) any partnership of which such
holder and such holder's Family Members hold partnership interests representing
at least 25% of such partnership's capital and profits and (d) any limited
liability company of which such holder is the manager and in which such holder
and such holder's Family Members hold membership interests representing at least
25% of such limited liability company's capital and profits.

         "Industry Peer Group Index" shall mean the Morgan Stanley REIT Index.

         "Industry Total Return" shall mean the Total Return of the securities
included in the Industry Peer Group Index for the Measurement Period, with such
average determined in a manner consistent with the manner in which such index is
calculated; provided, however, that if such Industry Total Return would be less
than zero without giving effect to the reinvestment of dividends, then the
"Industry Total Return" shall be equal to zero.

         "Initial Holder" shall mean UDR Out-Performance II, LLC, a Maryland
limited liability company.

                                       3

<PAGE>

         "Measurement Period" shall mean the 24 month period beginning June 1,
2003 to but excluding the Class II Out-Performance Valuation Date.

         "Minimum Return" shall mean a 22% Total Return (compounded annually) or
11% annualized as of the Class II Out-Performance Valuation Date or, if the
Class II Out-Performance Valuation Date is not May 31, 2005, 11% (compounded
annually) per annum from June 1, 2003.

         "Morgan Stanley REIT Index" shall mean the Morgan Stanley REIT Index
quoted on the American Stock Exchange under the symbol "RMS".

         "Partnership" shall mean United Dominion Realty, L.P., a Delaware
limited partnership.

         "Total Return" shall mean, for any security or index and for any
period, the cumulative total return for such security or index over such period,
as measured by the sum of (a) the cumulative amount of dividends paid in respect
of such security or index for such period (assuming that all cash dividends are
reinvested in such security as of the payment date for such dividend based on
the security price on the dividend payment date), and (b) an amount equal to (x)
the security price or index value at the end of such period, minus (y) the
security price or index value at the beginning of the measurement period.

         "UDR Market Capitalization" shall mean the average number of REIT
Shares outstanding over the Measurement Period (including, for this purpose,
REIT Shares, Partnership Units, outstanding options and convertible securities,
but not including Class II Out-Performance Partnership Shares) multiplied by the
daily closing price of the REIT Shares.

         "UDR Total Return" shall mean the Total Return of the REIT Shares for
the Measurement Period.

         3.       FORFEITURE.

         If, on the Class II Out-Performance Valuation Date, there is no Excess
Return, then, from and after such date, each Class II Out-Performance
Partnership Share shall, without any action on the part of the Partnership, the
Company or the holder thereof, be automatically forfeited and be no longer
outstanding.

         4.       DISTRIBUTIONS.

         Subject to Section 5.06 of the Agreement, on and after the Class II
Out-Performance Valuation Date, the holders of Class II Out-Performance
Partnership Shares not forfeited under Section 3 shall be entitled to receive
distributions at the same time and in the same amount that would be received on
the number of Partnership Units held by Outside Partners (assuming such
Partnership Units were originally issued on the Class II Out-Performance
Valuation Date) that is obtained by multiplying the number of Class II
Out-Performance Partnership Shares by the Conversion Factor.

                                       4

<PAGE>

         5.       ALLOCATIONS.

                  (a)      From and after the Class II Out-Performance Valuation
Date, Profits and Losses shall be allocated to each of the holders of Class II
Out-Performance Partnership Shares not forfeited under Section 3 at the same
time and in the same amount that would be allocated on the number of Partnership
Units held by Outside Partners (assuming such Partnership Units were originally
issued on the Class II Out-Performance Valuation Date) that is obtained by
multiplying the number of Class II Out-Performance Partnership Shares by the
Conversion Factor.

                  (b)      In the event that the Partnership disposes of all or
substantially all of its assets in a transaction that will lead to a liquidation
of the Partnership pursuant to Article II of the Agreement, then,
notwithstanding Section 5.06 of the Agreement, each holder of Class II
Out-Performance Partnership Shares not forfeited under Section 3 shall be, to
the extent possible, specially allocated items of Partnership income and gain in
an amount sufficient to cause the Capital Account of such holder to be equal to
that of an Outside Partner that holds Partnership Units equal to the number of
Class II Out-Performance Partnership Shares held by such holder multiplied by
the Conversion Factor. Amounts allocated pursuant to this Section 5(b) and/or
Section 5(b) of Exhibit C to the Agreement shall be excluded from "Profits" and
"Losses" otherwise determined under the Agreement.

         6.       EXCHANGE.

         If the Class II Out-Performance Partnership Shares have not been
forfeited under Section 3 and the Class II Out-Performance Partnership Shares
have been transferred by the Initial Holder in accordance with Section 8, the
transferee and subsequent transferees of the Class II Out-Performance
Partnership Shares may exchange from time to time some or all of the Class II
Out-Performance Partnership Shares for a number of Partnership Units equal to
the Class II Out-Performance Partnership Shares multiplied by the Conversion
Factor.

         7.       REDEMPTION UPON CHANGE OF CONTROL.

         Upon the occurrence of a Change of Control, and subject to the
applicable requirements of Federal securities laws and any securities exchange
or quotation system rules or regulations, each holder of Class II
Out-Performance Partnership Shares shall have the redemption rights of Limited
Partners set forth in Section 8.05 of the Agreement with respect to a number of
Partnership Units equal to the number of Class II Out-Performance Partnership
Shares multiplied by the Conversion Factor and the 40-month transfer limitation
period applicable to the Class II Out-Performance Partnership Shares shall be
deemed to have passed.

         8.       RESTRICTIONS ON OWNERSHIP AND TRANSFER.

         The restrictions on Transfer set forth in Article IX of the Agreement
shall not apply to Transfers of Class II Out-Performance Partnership Shares.
Prior to the Class II Out-Performance Valuation Date, the Class II
Out-Performance Partnership Shares shall be owned and held solely by the Initial
Holder. On or after the later of the Class II Out-Performance Valuation Date and
the twenty four (24) month period from the date the Class II Out-Performance
Partnership Shares are issued the Class II Out-Performance Partnership Shares
may be Transferred (i) by the Initial

                                       5

<PAGE>

Holder to (a) any Person who is a member (a "Member") of the Initial Holder
immediately prior to such transfer, (b) a Family Member of a Member, (c) a
Family Controlled Entity of a Member, (d) any Person with respect to whom the
Member constitutes a Family Controlled Entity, (e) upon the death of a Member,
by will or by the laws of descent and distribution to any Family Member or
Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of
a such Person, (b) a Family Controlled Entity of such Person, (c) any other
Person with respect to whom such Person constitutes a Family Controlled Entity,
(d) upon the death of such Person, by will or by the laws of descent and
distribution to any Family Member or Family Controlled Entity; provided,
however, that, until May 31, 2005, the Class II Out-Performance Partnership
Shares may not be Transferred by the Initial Holder without the approval of the
managers of the Initial Holder.

         9.       ADJUSTMENTS.

                  (a)      In the event of any Extraordinary Distribution
occurring on or after May 6, 2003, for purposes of determining the Value of a
REIT Share or the UDR Total Return, each price of a REIT Share determined as of
a date on or after the Ex-Date for such Extraordinary Distribution shall be
adjusted by multiplying such price by a fraction (i) the numerator of which
shall be the price of a REIT Share on the date immediately prior to such
Ex-Date, and (ii) the denominator of which shall be (A) the price of a REIT
Share on the date immediately prior to such Ex-Date, minus (B) the fair market
value on the date fixed for such determination of the portion of the evidences
of indebtedness or assets so distributed applicable to one REIT Share (as
determined by the Company, whose determination shall be conclusive); provided
further, that such amount shall be so adjusted for each such Extraordinary
Distribution occurring on or after May 6, 2003.

                  (b)      In the event that, on or after May 6, 2003, the
Company (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) splits or subdivides its outstanding REIT Shares, (iii)
effects a reverse stock split or otherwise combines its outstanding REIT Shares
into a smaller number of REIT Shares, or (iv) otherwise reclassifies its
outstanding REIT Shares, then, for purposes of determining the Value of a REIT
Share or the UDR Total Return, each price of a REIT Share determined as of a
date on or after the Ex-Date for such transaction shall be adjusted by
multiplying such price by a fraction (x) the numerator of which shall be the
number of REIT Shares issued and outstanding on the Determination Date for such
dividend, distribution, split, subdivision, reverse stock split, combination or
reclassification (assuming for such purposes that such dividend, distribution,
split, subdivision, reverse split or combination has occurred as of such time)
and (y) the denominator of which shall be the actual number of REIT Shares
(determined without the above assumption) issued and outstanding on the
Determination Date for such dividend, distribution, split, subdivision, reverse
stock split. combination or reclassification.

                  (c)      The Company shall have authority to appropriately
adjust the UDR Market Capitalization, the UDR Total Return or the Value of a
REIT Share if any other transaction or circumstance occurs or arises that
without such adjustment would have an inequitable result.

                                       6

<PAGE>

         10.      GENERAL.

         The ownership of Class II Out-Performance Partnership Shares may (but
need not, in the sole and absolute discretion of the Company) be evidenced by
one or more certificates. The Company shall amend Exhibit A to the Agreement
from time to time to the extent necessary to reflect accurately the issuance of,
and subsequent conversion, redemption, or any other event having an effect on
the ownership of Class II Out-Performance Partnership Shares.

                                        7