EX-10.3 FORM OF LIMITED PARTNERSHIP AGREEMENT






EXHIBIT 10.3




LIMITED PARTNERSHIP AGREEMENT




OF




NORTHSTAR REAL ESTATE INCOME TRUST OPERATING PARTNERSHIP LP




A DELAWARE LIMITED PARTNERSHIP




                    , 2009




 









 





TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	AGREEMENT	 	 	1	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 1	 	DEFINED TERMS	 	 	1	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 2	 	PARTNERSHIP FORMATION AND IDENTIFICATION	 	 	12	 
	 	 	2.1	 	Formation
	 	 	12	 
	 	 	2.2	 	Name, Office and Registered Agent
	 	 	12	 
	 	 	2.3	 	Term and Dissolution
	 	 	12	 
	 	 	2.4	 	Filing of Certificate and Perfection of Limited Partnership
	 	 	13	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 3	 	BUSINESS OF THE PARTNERSHIP	 	 	13	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 4	 	CAPITAL CONTRIBUTIONS AND ACCOUNTS	 	 	13	 
	 	 	4.1	 	Capital Contributions
	 	 	13	 
	 	 	4.2	 	Additional Capital Contributions and Issuances of Additional Partnership Units
	 	 	13	 
	 	 	4.3	 	Additional Funding
	 	 	15	 
	 	 	4.4	 	LTIP Units
	 	 	15	 
	 	 	4.5	 	Conversion of LTIP Units
	 	 	17	 
	 	 	4.6	 	Capital Accounts
	 	 	19	 
	 	 	4.7	 	No Interest on Contributions
	 	 	20	 
	 	 	4.8	 	Return of Capital Contributions
	 	 	20	 
	 	 	4.9	 	No Third Party Beneficiary
	 	 	20	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 5	 	PROFITS AND LOSSES; DISTRIBUTIONS	 	 	20	 
	 	 	5.1	 	Allocation of Profit and Loss
	 	 	20	 
	 	 	5.2	 	Distribution of Cash
	 	 	23	 
	 	 	5.3	 	REIT Distribution Requirements
	 	 	24	 
	 	 	5.4	 	No Right to Distributions in Kind
	 	 	25	 
	 	 	5.5	 	Limitations on Return of Capital Contributions
	 	 	25	 
	 	 	5.6	 	Distributions Upon Liquidation
	 	 	25	 
	 	 	5.7	 	Substantial Economic Effect
	 	 	25	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 6	 	RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER	 	 	25	 
	 	 	6.1	 	Management of the Partnership
	 	 	25	 
	 	 	6.2	 	Delegation of Authority
	 	 	27	 
	 	 	6.3	 	Indemnification and Exculpation of Indemnitees
	 	 	28	 
	 	 	6.4	 	Liability of the General Partner
	 	 	39	 
	 	 	6.5	 	Reimbursement of General Partner
	 	 	30	 
	 	 	6.6	 	Outside Activities
	 	 	30	 
	 	 	6.7	 	Employment or Retention of Affiliates
	 	 	30	 
	 	 	6.8	 	General Partner Participation
	 	 	31	 
	 	 	6.9	 	Title to Partnership Assets
	 	 	31	 
	 	 	6.10	 	No Duplication of Fees or Expenses
	 	 	31	 






 









 






	 	 	 	 	 	 	 	 	 
	ARTICLE 7	 	CHANGES IN GENERAL PARTNER	 	 	31	 
	 	 	7.1	 	Transfer of the General Partner’s Partnership Units
	 	 	31	 
	 	 	7.2	 	Admission of a Substitute or Additional General Partner
	 	 	32	 
	 	 	7.3	 	Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner
	 	 	32	 
	 	 	7.4	 	Removal of a General Partner
	 	 	33	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 8	 	RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS	 	 	34	 
	 	 	8.1	 	Management of the Partnership
	 	 	34	 
	 	 	8.2	 	Power of Attorney
	 	 	34	 
	 	 	8.3	 	Limitation on Liability of Limited Partners
	 	 	34	 
	 	 	8.4	 	Ownership by Limited Partner of Corporate General Partner or Affiliate
	 	 	34	 
	 	 	8.5	 	Limited Partner Right of Redemption
	 	 	34	 
	 	 	8.6	 	Redemption of Special Limited Partnership Units
	 	 	36	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 9	 	TRANSFERS OF LIMITED PARTNERSHIP UNITS	 	 	37	 
	 	 	9.1	 	Purchase for Investment
	 	 	37	 
	 	 	9.2	 	Restrictions on Transfer of Limited Partnership Units
	 	 	37	 
	 	 	9.3	 	Admission of Substitute Limited Partner
	 	 	39	 
	 	 	9.4	 	Rights of Assignees of Partnership Units
	 	 	40	 
	 	 	9.5	 	Effect of Bankruptcy, Death, Incomptence or Termination of a Limited Partner
	 	 	40	 
	 	 	9.6	 	Joint Ownership of Units
	 	 	40	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 10	 	BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS	 	 	40	 
	 	 	10.1	 	Books and Records
	 	 	40	 
	 	 	10.2	 	Custody of Partnership Funds; Bank Accounts
	 	 	41	 
	 	 	10.3	 	Fiscal and Taxable Year
	 	 	41	 
	 	 	10.4	 	Annual Tax Information and Report
	 	 	41	 
	 	 	10.5	 	Tax Matters Partner; Tax Elections; Special Basis Adjustments
	 	 	41	 
	 	 	10.6	 	Reports to Limited Partners
	 	 	42	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 11	 	AMENDMENT OF AGREEMENT	 	 	42	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE 12	 	GENERAL PROVISIONS	 	 	43	 
	 	 	12.1	 	Notices
	 	 	43	 
	 	 	12.2	 	Survival of Rights
	 	 	43	 
	 	 	12.3	 	Additional Documents
	 	 	43	 
	 	 	12.4	 	Severability
	 	 	43	 
	 	 	12.5	 	Entire Agreement
	 	 	43	 
	 	 	12.6	 	Pronouns and Plurals
	 	 	44	 
	 	 	12.7	 	Headings
	 	 	44	 
	 	 	12.8	 	Counterparts
	 	 	44	 
	 	 	12.9	 	Governing Law
	 	 	44	 






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	EXHIBIT A	 	CONTRIBUTIONS & INTEREST	 	 	A-1	 
	 	 	 	 	 
	 	 	 	 
	EXHIBIT B	 	NOTICE OF EXERCISE OF REDEMPTION RIGHT	 	 	B-1	 
	 	 	 	 	 
	 	 	 	 
	EXHIBIT C	 	NOTICE OF ELECTION BY PARTNER TO CONVERT LTIP UNITS INTO LIMITED PARTNERSHIP UNITS	 	 	C-1	 
	 	 	 	 	 
	 	 	 	 
	EXHIBIT D	 	NOTICE OF ELECTION BY PARTNERSHIP TO FORCE CONVERSION OF LTIP UNITS INTO LIMITED PARTNERSHIP UNITS	 	 	D-1	 







iii











 





LIMITED PARTNERSHIP AGREEMENT




OF




NORTHSTAR REAL ESTATE INCOME TRUST OPERATING PARTNERSHIP LP




     This Limited Partnership Agreement is entered into this ______ day of ___, 2009, between
NorthStar Real Estate Income Trust Inc., a Maryland corporation (the “General Partner”),
and the Limited Partners set forth on Exhibit A attached hereto. Capitalized terms used
herein but not otherwise defined shall have the meanings given them in Article 1.



AGREEMENT




     WHEREAS, the General Partner intends to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, as amended;



     WHEREAS, NorthStar Real Estate Income Trust Operating Partnership, LP (the
“Partnership”), was formed on February 6, 2009 as a limited partnership under the laws of
the State of Delaware, pursuant to a Certificate of Limited Partnership filed with the Office of
the Secretary of State of the State of Delaware on February 6, 2009;



     WHEREAS, the General Partner desires to conduct its current and future business through the
Partnership; and



     WHEREAS, the parties hereto wish to establish herein their respective rights and obligations
in connection with all of the foregoing and certain other matters.



     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:



AGREEMENT




ARTICLE 1

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” has the meaning provided in Section 4.3 hereof.



     “Adjusted Capital Account” means the Capital Account maintained for each Partner as of
the end of each Partnership Year (i) increased by any amounts which such Partner is obligated to
restore pursuant to any provision of this Agreement or is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and
(ii) decreased by the items described in Regulations Sections 1.704-l(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) and 1.704-l(b)(2)(ii) (d)(6). The foregoing definition of Adjusted Capital
Account is intended to comply with the provisions of Regulations Section 1.704-l(b)(2)(ii)(d) and
shall be interpreted consistently therewith.



 









 





     “Adjusted Capital Account Deficit” means, with respect to any Partner, the deficit
balance, if any, in such Partner’s Adjusted Capital Account as of the end of the relevant
Partnership Year.



     “Adjusted Property” means any property the Carrying Value of which has been adjusted
pursuant to the definition of Carrying Value.



     “Adjustment Event” has the meaning provided in Section 4.4(b) hereof.



     “Administrative Expenses” means (i) all administrative and operating costs and
expenses incurred by the Partnership, (ii) those administrative costs and expenses of the General
Partner, including any salaries or other payments to directors, officers or employees of the
General Partner, and any accounting and legal expenses of the General Partner, which expenses, the
Partners have agreed, are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, REIT Expenses; provided, however, that
Administrative Expenses shall not include any administrative costs and expenses incurred by the
General Partner that are attributable to Properties or partnership interests in a Subsidiary
Partnership that are owned by the General Partner directly.



     “Advisor” or “Advisors” means the Person or Persons, if any, appointed,
employed or contracted with by the General Partner and responsible for directing or performing the
day-to-day business affairs of the General Partner, including any Person to whom such Advisor
subcontracts substantially all of such functions.



     “Advisory Agreement” means the agreement between the General Partner, the Advisor and
the other parties named therein pursuant to which the Advisor will direct or perform the day-to-day
business affairs of the General Partner.



     “Affiliate” or “Affiliated” means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by, or under common control with such other Person;
(ii) any Person directly or indirectly owning, controlling, or holding with the power to vote 10.0%
or more of the outstanding voting securities of such other Person; (iii) any legal entity for which
such Person acts as an executive officer, director, trustee, or general partner; (iv) any Person
10.0% or more of whose outstanding voting securities are directly or indirectly owned, controlled,
or held, with power to vote, by such other Person; and (v) any executive officer, director,
trustee, or general partner of such other Person.



     “Aggregate Share Ownership Limit” has the meaning provided in the Articles of
Incorporation.



     “Agreed Value” means (i) in the case of any Contributed Property, the fair market
value of such property as of the time of its contribution to the Partnership, reduced by any
liabilities either assumed by the Partnership upon such contribution or to which such property is
subject when contributed; and (ii) in the case of any property distributed to a Partner by the
Partnership, the Partnership’s Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon such distribution or
to which such property is subject at the time of distribution as determined under Section 752 of
the Code and the Regulations thereunder.



     “Agreement” means this Limited Partnership Agreement, as amended, modified
supplemented or restated from time to time, as the context requires.



     “Articles of Incorporation” means the Articles of Incorporation of the General
Partner, as amended or restated from time to time, filed with the Maryland State Department of
Assessments and Taxation.



2









 





     “Capital Account” has the meaning provided in Section 4.6 hereof.



     “Capital Account Limitation” has the meaning provided in Section 4.5(b) hereof.



     “Capital Contribution” means, with respect to any Partner, any cash, cash equivalents
or the Agreed Value of Contributed Property which such Partner contributes or is deemed to
contribute to the Partnership pursuant to Section 4.1 or 4.2 hereof. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a predecessor holder of
the Partnership Unit of such Partner.



     “Carrying Value” means, with respect to any asset, the asset’s adjusted basis for
federal income tax purposes, except as follows:



     (i) The initial Carrying Value of any asset contributed to the Partnership shall be the gross
fair market value of such asset, as agreed by the Contributing Partner and the General Partner.



     (ii) The Carrying Values of all Partnership assets shall be adjusted to equal their respective
gross fair market values, as determined by the General Partner using such reasonable method of
valuation as it may adopt immediately prior to the following events:



          (a) the acquisition of an additional interest in the Partnership by any new or existing
Partner in exchange for more than a de minimis Capital Contribution or the provision of services to
or for the benefit of the Partnership, if the General Partner reasonably determines that such
adjustment is necessary or appropriate to reflect the relative economic interests of the Partners
in the Partnership;




          (b) the distribution by the Partnership to a Partner of more than a de minimis amount of
property as consideration for an interest in the Partnership, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;




          (c) the liquidation of the Partnership within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g); and




          (d) at
such other times as the General Partner shall reasonably deem necessary or advisable if
permitted by, or required to comply with, Regulations Sections 1.704-1(b) and 1.704-2.




     (iii) The Carrying Value of a Partnership asset distributed in kind shall be the gross fair
market value of such asset on the date of distribution, as agreed by the distributee and the
General Partner.



     (iv) The Carrying Values of Partnership assets shall be adjusted to reflect any adjustments
to the adjusted basis of such assets pursuant to Code Section 734(b) or 743(b), but only to the
extent that such adjustments are taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Carrying Values shall not be
adjusted pursuant to this clause (iv) to the extent that the General Partner reasonably determines
that an adjustment pursuant to clause (ii) above is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this clause (iv).



     (v) If the Carrying Values of a Partnership asset has been determined or adjusted pursuant to
clause (i), (ii), or (iv) above, such Carrying Values shall therafter be adjusted by Depreciation.



3









 





     “Cash Amount” means an amount of cash per Partnership Unit equal to the lesser of (i)
the Value of the REIT Shares Amount on the date of receipt by the General Partner of a Notice of
Redemption or (ii) the applicable Redemption Price determined by the General Partner.



     “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-of-attorney granted to the General Partner in Section 8.2 hereof) 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.



     “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 U.S. Securities and Exchange Commission.



     “Common Share Ownership Limit” has the meaning provided in the Articles of
Incorporation.



     “Constituent Person” has the meaning provided in Section 4.5 hereof.



     “Contributed Property” means each property or other asset contributed to the
Partnership, in such form as may be permitted by the Act, but excluding cash contributed or deemed
contributed to the Partnership. Once the Carrying Value of a Contributed Property is adjusted
pursuant to the definition of Carrying Value, such property shall no longer constitute a
Contributed Property and shall be deemed an Adjusted Property.



     “Conversion Date” has the meaning provided in Section 4.5(c) hereof.



     “Conversion Factor” means 1.0, provided that in the event that the General Partner (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) subdivides its outstanding REIT
Shares, or (iii) 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 and, provided further, that in the event that an
entity other than an Affiliate of the General Partner shall become General Partner pursuant to any
merger, consolidation or combination of the General Partner with or into another entity (the
“Successor Entity”), the Conversion Factor shall be adjusted by multiplying the Conversion
Factor by the number of shares of the Successor Entity into which one REIT Share is converted
pursuant to such merger, consolidation or combination, determined as of the date of such merger,
consolidation or combination. Any adjustment to the Conversion Factor shall become effective
immediately after the effective date of such event retroactive to the record date, if any, for such
event; provided, however, that if the General Partner receives a Notice of Redemption after the
record date, but prior to the effective date of such dividend, distribution, subdivision or
combination, the Conversion Factor shall be determined as if the General Partner had received the
Notice of Redemption immediately prior to the record date for such dividend, distribution,
subdivision or combination.



4









 





     “Conversion Notice” means the Notice of Election by Partner to Convert LTIP Units Into
Limited Partnership Units substantially in the form attached as Exhibit C hereto.



     “Conversion Right” has the meaning provided in Section 4.5(a) hereof.



     “Depreciation” means, for each fiscal year, an amount equal to the federal income tax
depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for
such year, except that if the Carrying Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such year bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax depreciation,
amortization, or other cost recovery deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Carrying Value using any reasonable method selected by
the General Partner.



     “Director” means a member of the board of directors of the General Partner.



     “Economic Capital Account Balance” has the meaning provided in Section 5.1(e) hereof.



     “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 its 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 its 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.



     “Excepted Holder Limit” has the meaning provided in the Articles of Incorporation.



     “Forced Conversion” has the meaning provided in Section 4.5(d) hereof.



     “Forced Conversion Notice” means the Notice of Election by Partnership to Force
Conversion of LTIP Units Into Limited Partnership Units substantially in the form attached as
Exhibit D hereto.



     “General Partner” means NorthStar Real Estate Income Trust, Inc., a Maryland
corporation, and any Person who becomes a substitute or additional General Partner as provided
herein, and any of their successors as General Partner.



     “General Partner Loan” has the meaning provided in Section 5.2(c) hereof.



     “General Partnership Units” means a Partnership Unit 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 its status
as the General Partner or a director, officer or employee of the General Partner or the
Partnership, and (ii) such



5









 




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.


     “Independent Directors” means a Director who is not on the date of determination, and
within the last two years from the date of determination has not been, directly or indirectly
associated with the Sponsor of the General Partner or the Advisor by virtue of (i) ownership of an
interest in the Sponsor, the Advisor or any of their Affiliates, other than the General Partner
(with the exception of a de minimis ownership interest of less than two percent), (ii) employment
by the Sponsor, the Advisor or any of their Affiliates, (iii) service as an officer or director of
the Sponsor, the Advisor or any of their Affiliates, other than as a Director, (iv) performance of
services, other than as a Director, for the General Partner, (v) service as a director or trustee
of more than three real estate investment trusts organized by the Sponsor or advised by the Advisor
or (vi) maintenance of a material business or professional relationship with the Sponsor, the
Advisor or any of their Affiliates. A business or professional relationship is considered
“material” if the aggregate gross revenue derived by the Director from the Sponsor, the Advisor and
their Affiliates (excluding fees for serving as an independent director of the General Partner or
other real estate investment trust or real estate program organized or advised or managed by the
Sponsor or its Affiliates) exceeds five percent of either the Director’s annual gross revenue
during either of the last two years or the Director’s net worth on a fair market value basis. An
indirect association with the Sponsor or the Advisor shall include circumstances in which a
Director’s spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law or
brother- or sister-in-law is or has been associated with the Sponsor, the Advisor, any of their
Affiliates or the General Partner.


     “Investments” means all investments by the Partnership in Properties, Loans and all
other investments (other than short-term investments acquired for purposes of cash management) in
which the Partnership may acquire an interest, either directly or indirectly, including through
ownership interests in a Joint Venture, pursuant to the Articles of Incorporation, the bylaws of
the General Partner or the investment objectives and policies adopted by the board of directors of
the General Partner.


     “Joint Venture” means any joint venture or general partnership arrangement in which
the Partnership is a co-venturer or general partner which are established to acquire one or more
Investments.


     “Junior Share” means a share of capital stock of the General Partner now or hereafter
authorized or reclassified that has dividend rights, or rights upon liquidation, winding up and
dissolution, that are inferior or junior to the REIT Shares.


     “Limited Partner” means any Person named as a Limited Partner on Exhibit A
attached hereto, as such exhibit may be amended and restated from time to time, and any Person who
becomes a Substitute Limited Partner, in such Person’s capacity as a Limited Partner in the
Partnership.

     “Limited Partnership Unit” means the ownership interest of a Limited Partner
(other than the Special 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.

     “Listing” means the listing of the REIT Shares on a national securities exchange or the receipt by holders of the REIT
Shares of securities that are listed on a national securities exchange in exchange for REIT Shares.
Upon such Listing, the shares shall be deemed “Listed.”

     “Loans” means mortgage loans and other types of debt financing investments made by the
Partnership, either directly or indirectly, including through ownership interests in a Joint
Venture, including, without limitation, mezzanine loans, B-notes, bridge loans, convertible debt,
wraparound mortgage loans, construction mortgage loans, loans on leasehold interests, and
participations in such loans.


6








 




     “LTIP Unit” means a Limited Partnership Unit which is designated as an LTIP Unit and
which has the rights, preferences and other privileges designated in Section 4.4 hereof and
elsewhere in this Agreement in respect of holders of LTIP Units. The allocation of LTIP Units among
the Partners shall be set forth on Exhibit A, as may be amended from time to time.


     “LTIP Holder” means a Partner that holds LTIP Units.


     “New Securities” means (i) any rights, options, warrants, or convertible or
exchangeable securities having the right to subscribe for or purchase REIT Shares or Preferred
Shares, excluding Preferred Shares and Junior Shares or (ii) any debt issued by the General Partner
that provides any of the rights described in (i).


     “Nonrecourse Liability” has the meaning provided in Regulations Section 1.704-2(b)(3).


     “Notice of Redemption” means the Notice of Exercise of Redemption Right substantially
in the form attached as Exhibit B hereto.


     “Offering” means the offer and sale of REIT Shares to the public pursuant to a
registration statement filed under the Securities Act of 1933, as amended, and declared effective
by the Commission.


     “Partner” means any General Partner or Limited Partner.


     “Partner Nonrecourse Debt” has the meaning provided in Regulations Section
1.704-2(b)(4).


     “Partner Nonrecourse Debt Minimum Gain” means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner
Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations
Section 1.704-2(i)(3).


     “Partner Nonrecourse Deductions” has the meaning provided in Regulations Sections
1.704-2(i)(1) and 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a
Partner Nonrecourse Debt for a Partnership Year shall be determined in accordance with Regulations
Sections 1.704-2(i)(2).


     “Partnership” means NorthStar Real Estate Income Trust Operating Partnership LP, a
Delaware limited partnership.


     “Partnership Loan” has the meaning provided in Section 5.2(c) hereof.


     “Partnership Minimum Gain” has the meaning provided in Regulations Sections
1.704-2(b)(2) and 1.704-2(d), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in Partnership Minimum Gain, for a Partnership Year shall be determined in
accordance with the rules of Regulations Section 1.704-2(d).


     “Partnership Record Date” means the record date established by the General Partner for
the distribution of cash pursuant to Section 5.2 hereof, which record date generally shall be the
same as the record date established by the General Partner for a distribution to its stockholders
of some or all of its portion of the distribution.


7








 





     “Partnership Unit” 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 Unit 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 Unit Economic Balance” has the meaning provided in Section 5.1(e) hereof.



     “Partnership Year” means the fiscal year of the Partnership, which shall be the
calendar year.



     “Percentage Interest” means the percentage determined by dividing the number of
Partnership Units of a Partner (other than Special Limited Partnership Units and Preferred Units)
by the sum of the Partnership Units of all Partners (other than the Special Limited Partnership
Units and Preferred Units).



     “Person” means any individual, partnership, limited liability company, corporation,
joint venture, trust or other entity.



     “Preferred Shares” means a share of capital stock of the General Partner now or
hereafter authorized or reclassified that has dividend rights, or rights upon liquidation, winding
up and dissolution, that are superior or prior to REIT Shares.



     “Profit” and “Loss” means, for each Partnership Year, an amount equal to the
Partnership’s taxable income or loss for such Partnership Year, determined in accordance with Code
Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:



          (i) Any income of the Partnership that is exempt from federal income tax and not otherwise
taken into account in computing Profit and Loss pursuant to this definition of Profit and Loss
shall be added to such taxable income or loss;




          (ii) Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as
Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i)
and not otherwise taken into account in computing Profit or Loss pursuant to this definition of
“Profit” and “Loss” shall be subtracted from such taxable income or loss;




          (iii) In the event the Carrying Value of any Partnership asset is adjusted pursuant to
subparagraphs (ii) or (iii) of the definition of Carrying Value, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of such asset for purposes of
computing Profit and Loss;




          (iv) Gain or loss resulting from any disposition of Partnership Property with respect to which
gain or loss is recognized for federal income tax purposes shall be computed by reference to the
Carrying Value of the property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Carrying Value;




          (v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into
account in computing such taxable income or loss, there shall be taken into account Depreciation
for such Partnership Year or other period;




          (vi) To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant
to Code Section 734(b) or Section 743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv) to be taken into account in determining Capital Accounts as a result of a
distribution other than



8









 






in liquidation of a Partner’s interest in the Partnership, the amount of such adjustment shall be
treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken
into account for purposes of computing Profit or Loss; and




          (vii) Notwithstanding any other provision of this definition of “Profit” and “Loss”, any items
that are specially allocated pursuant to Section 5.1(c) or 5.1(d) hereof shall not be taken into
account in computing Profits or Losses.



The amounts of the items of Partnership income, gain, loss, or deduction available to be specially
allocated pursuant to Sections 5.1(c) and 5.1(d) hereof shall be determined by applying rules
analogous to those set forth in subparagraphs (i) through (vi) above.




     “Property” means any real property or properties transferred or conveyed to the
Partnership, either directly or indirectly, including through ownership interests in a Joint
Venture.



     “Qualifying Party” means (a) a Person who is admitted to the Partnership pursuant to
Section 4.2 or Section 4.4 and who is shown as such on the books and records of the Partnership,
(b) a transferee in a permitted Transfer or (c) a Substitute Limited Partner succeeding to all or
part of the Limited Partnership Unit of a Person that meets one of the foregoing criteria in (a) or
(b).



     “Recapture Income” means any gain recognized by the Partnership (computed without
regard to any adjustment required by Section 743 of the Code) upon the disposition of any property
or asset of the Partnership, which gain is characterized as ordinary income because it represents
the recapture of deductions previously taken with respect to such property or asset.



     “Redemption Price” means the Value of the REIT Shares Amount on the date of receipt by
the General Partner of a Notice of Redemption multiplied by any discount determined by the General
Partner, including but not limited to, any discount based upon the combined number of years that
the applicable Partner has held the Partnership Units offered for redemption.



     “Redemption Right” has the meaning provided in Section 8.5(a) hereof.



     “Regulations” means the Federal income tax regulations promulgated 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 formation and continuity
of existence and operation of the General Partner and any Subsidiaries thereof (which Subsidiaries
shall, for purposes hereof, be included within the definition of General Partner), including taxes,
fees and assessments associated therewith, any and all costs, expenses or fees payable to any
director, officer, or employee of the General Partner, (ii) costs and expenses relating to any
public offering and registration of securities by the General Partner and all statements, reports,
fees and expenses incidental thereto, including, without limitation, underwriting discounts and
selling commissions applicable to any such offering 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 associated with any repurchase of any securities by the
General Partner, (iv) costs and expenses associated with the preparation and filing of any periodic
or other reports and communications by the General Partner under



9









 







federal, state or local laws or regulations, including filings with the Commission, (v) costs
and expenses associated with compliance by the General Partner 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 General Partner, (vii) costs and expenses
incurred by the General Partner relating to any issuing or redemption of Partnership Units, and
(viii) all other operating or administrative costs of the General Partner incurred in the ordinary
course of its business on behalf of or in connection with the Partnership.



     “REIT Share” means a common share of beneficial ownership in the General Partner (or
successor entity, as the case may be).



     “REIT Shares Amount” means a number of REIT Shares equal to the product of the number
of Partnership Units offered for exchange by a Tendering Party, multiplied by the Conversion Factor
as adjusted to and including the Specified Redemption Date; provided that in the event the General
Partner 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 holder of REIT Shares entitled to rights.



     “Related Party” means, with respect to any Person, any other Person whose ownership of
shares of the General Partner’s capital stock would be attributed to the first such Person under
Code Section 544 (as modified by Code Section 856(h)(1)(B)).



     “Restriction Notice” has the meaning provided in Section 8.5(c)(vi) hereof.



     “Sale” means (i) any transaction or series of transactions whereby: (A) the
Partnership directly or indirectly (except as described in other subsections of this definition)
sells, grants, transfers, conveys, or relinquishes its ownership of any Investment or portion
thereof, including the transfer of any Property that is the subject of a ground lease, including
any event with respect to any Investment that gives rise to a significant amount of insurance
proceeds or condemnation awards, and including the issuance by one of the General Partner’s
subsidiaries of any asset-backed securities or collateralized debt obligations as part of a
securitization transaction; (B) the Partnership directly or indirectly (except as described in
other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its
ownership of all or substantially all of the interest of the Partnership in any Joint Venture in
which it is a partner; or (C) any Joint Venture in which the Partnership is a co-venturer or
partner, sells, grants, transfers, conveys, or relinquishes its ownership of any Investment or
portion thereof, including any event with respect to any Investment that gives rise to insurance
claims or condemnation awards, and including the issuance by such Joint Venture or one of its
subsidiaries of any asset-backed securities or collateralized debt obligations as part of a
securitization transaction.



     “Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.



     “Service” means the U.S. Internal Revenue Service.



     “Special Limited Partner” means the holder of Special Limited Partnership Units.



10









 





     “Special Limited Partnership Unit” means Partnership Units designated as Special
Partnership Units issued pursuant to Section 4.2(c) with the rights and obligations provided under
this Agreement.



     “Specified Redemption Date” means the first business day of the month that is at least
sixty (60) business days after the receipt by the General Partner of a Notice of Redemption.



     “Sponsor” means any Person which (a) is directly or indirectly instrumental in
organizing, wholly or in part, the General Partner, (b) will control, manage or participate in the
management of the General Partner, and any Affiliate of any such Person, (c) takes the initiative,
directly or indirectly, in founding or organizing the General Partner, either alone or in
conjunction with one or more other Persons, (d) receives a material participation in the General
Partner in connection with the founding or organizing of the business of the General Partner, in
consideration of services or property, or both services and property, (e) has a substantial number
of relationships and contacts with the General Partner, (f) possesses significant rights to control
Properties, (g) receives fees for providing services to the General Partner which are paid on a
basis that is not customary in the industry or (h) provides goods or services to the General
Partner on a basis which was not negotiated at arm’s-length with the General Partner. “Sponsor”
does not include any Person whose only relationship with the General Partner is that of an
independent property manager and whose only compensation is as such, or wholly independent third
parties such as attorney, accountants and underwriters whose only compensation is for professional
services.



     “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 or (ii) the outstanding
equity interests is owned, directly or indirectly, by such Person.



     “Subsidiary Partnership” means any partnership of which the partnership interests
therein are owned by the General Partner or a direct or indirect subsidiary of the General Partner.



     “Substitute Limited Partner” means any Person admitted to the Partnership as a Limited
Partner pursuant to Section 9.3 hereof.



     “Tax Matters Partner” has the meaning provided in Section 10.5(a) hereof.



     “Tendered Units” has the meaning provided in Section 8.5(a) hereof.



     “Tendering Party” has the meaning provided in Section 8.5(a) hereof.



     “Termination Event” means the termination or nonrenewal of the Advisory Agreement (i)
in connection with a merger, sale of assets or transaction involving the General Partner pursuant
to which a majority of the Directors then in office are replaced or removed, (ii) by the Advisor
for “good reason” (as defined in the Advisory Agreement) or (iii) by the General Partner other than
for “cause” (as defined in the Advisory Agreement).



     “Transaction” has the meaning provided in Section 4.5(g) hereof.



     “Transfer” has the meaning provided in Section 9.2(a) hereof.



     “Unvested LTIP Units” has the meaning provided in Section 4.4(d) hereof.



     “Value” means the fair market value per share of REIT Shares which will equal (i) if
REIT Shares are Listed, the average closing price per share for the previous thirty (30) business
days, (ii) if REIT Shares are not Listed, the most recent offering price per share or share
equivalent of REIT Shares,



11









 







until December 31st of the year following the year in which the most recently
completed offering of REIT Shares has expired and (iii) thereafter, such price per REIT Share as
the management of the General Partner determines in good faith.



     “Vested LTIP Units” has the meaning provided in Section 4.4(d) hereof.



     “Vesting Agreement” means each or any, as the context implies, Long Term Incentive
Plan (LTIP) Vesting Agreement entered into by a LTIP Holder upon acceptance of an award of LTIP
Units.



ARTICLE 2

PARTNERSHIP FORMATION AND IDENTIFICATION




     2.1 Formation.



     The Partnership was formed as a limited partnership pursuant to the Act, and all other
pertinent laws of the State of Delaware, for the purposes and upon the terms and conditions set
forth in this Agreement.



     2.2 Name, Office and Registered Agent.



     The name of the Partnership is NorthStar Real Estate Income Operating Partnership LP. The
specified office and place of business of the Partnership shall be 399 Park Avenue, 18th
Floor, New York, New York 10022. 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 Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. 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.



     2.3 Term and Dissolution.



          (a) The term of the Partnership shall continue in full force and effect until dissolved 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, removal or withdrawal of a General Partner unless the business of the Partnership is
continued pursuant to Section 7.3(b) hereof; 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 ninety (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 an
installment obligation 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 such
note or notes are paid in full); or



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



12









 





          (b) Upon dissolution of the Partnership (unless the business of the Partnership is continued
pursuant to Section 7.3(b) hereof), the General Partner (or its trustee, receiver, successor or
legal representative) shall amend or cancel any Certificate(s) and liquidate the Partnership’s
assets and apply and distribute the proceeds thereof in accordance with Section 5.6 hereof.
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.




     2.4 Filing of Certificate and Perfection of Limited Partnership.



     The General Partner shall execute, acknowledge, record and file at the expense of the
Partnership, any and all amendments to the Certificate(s) 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.



ARTICLE 3

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 General Partner at all times to qualify as a REIT, unless the General Partner otherwise
ceases to qualify as a REIT, and in a manner such that the General Partner will not be subject to
any taxes under Section 857 or 4981 of the Code, (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 General Partner’s right in
its sole and absolute discretion to qualify or cease qualifying as a REIT, the Partners acknowledge
that the General Partner intends to qualify as a REIT for federal income tax purposes and that such
qualification and the avoidance of income and excise taxes on the General Partner inures to the
benefit of all the Partners and not solely to the General Partner. Notwithstanding the foregoing,
the Limited Partners agree that the General Partner may terminate its status as a REIT under the
Code at any time to the full extent permitted under the Articles of Incorporation. The General
Partner on behalf of the Partnership shall also be empowered 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” that is taxable as a corporation under Section 7704 of the Code.



ARTICLE 4

CAPITAL CONTRIBUTIONS AND ACCOUNTS




     4.1 Capital Contributions.



     The General Partner and the initial Limited Partners have made capital contributions to the
Partnership in exchange for the Partnership Units set forth opposite their names on Exhibit
A, as such Exhibit may be amended from time to time.



     4.2 Additional Capital Contributions and Issuances of Additional Partnership Units.



     Except as provided in this Section 4.2 or in Section 4.3 or applicable law, the Partners shall
have no right or obligation to make any additional Capital Contributions or loans to the
Partnership.



13









 





          (a) The General Partner is hereby authorized to cause the Partnership to issue additional
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 Partner. Any additional Partnership Units 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, 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 Units; (ii) the right of each such class or series of
Partnership Units to share in Partnership distributions; and (iii) the rights of each such class or
series of Partnership Units 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 General Partner and the Partnership. In
the event that the Partnership issues additional Partnership Units pursuant to this Section 4.2(a),
the General Partner shall make such revisions to this Agreement as it deems necessary to reflect
the issuance of such additional Partnership Units.




          (b) No additional Partnership Units shall be issued to the General Partner unless (i) the
additional Percentage Units are issued to all Partners in proportion to their respective Percentage
Interests with respect to the class of Partnership Units so issued; (ii) (a) the additional
Partnership Units are (x) Partnership Units so issued, issued in connection with an issuance of
REIT Shares, or (y) Partnership Units issued in connection with an issuance of Preferred Shares,
New Securities or other interests in the General Partner (other than REIT Shares), which Preferred
Shares, New Securities or other interests have designations, preferences and other rights, terms
and provisions that are substantially the same as the designations, preferences and other rights,
terms and provisions of the additional Partnership Units issued to the General Partner, and (b) the
General Partner contributes to the Partnership the cash proceeds or other consideration received in
connection with the issuance of such REIT Shares, Preferred Shares, New Securities or other
interests in the General Partner, or (iii) the Additional Partnership Units are issued upon the
conversion, redemption or exchange of debt, Partnership Units or other securities issued by the
Partnership.




          (c) The General Partner shall not issue any additional REIT Shares, Preferred Shares, Junior
Shares or New Securities unless the General Partner contributes the cash proceeds or other
consideration received from the issuance of such additional REIT Shares, Preferred shares, Junior
Shares or New Securities, as the case may be, and from the exercise of the rights contained in any
such additional New Securities, to the Partnership in exchange for (x) in the case of an issuance
of REIT Shares, Partnership Units, or (y) in the case of an issuance of Preferred Shares, Junior
Shares or New Securities, Partnership Units with designations, preferences and other rights, terms
and provisions that are substantially the same as the designations, preferences and other rights,
terms and provisions of such Preferred Shares, Junior Shares or New Securities; provided, however,
that notwithstanding the foregoing, the General Partner may issue REIT Shares, Preferred Shares,
Junior Shares or New Securities (a) pursuant to Section 8.5(b) hereof, (b) pursuant to a dividend
or distribution (including any stock split) of REIT Shares, Preferred Shares, Junior Shares, or New
Securities to all of the holders of REIT Shares, Preferred Shares, Junior Shares or New Securities,
as the case may be, (c) upon a conversion, redemption or exchange of Preferred Shares, (d) upon a
conversion of Junior Shares into REIT Shares, (e) upon a conversion, redemption, exchange or
exercise of New Securities, or (f) in connection with an acquisition of a property or other asset
to be owned, directly or indirectly, by the General Partner if the General Partner determines that
such acquisition is in the best interest of the Partnership. In the event of any issuance of
additional REIT Shares, Preferred Shares, Junior Shares, or New Securities by the General



14









 






Partner, and the contribution to the Partnership, by the General Partner, of the cash proceeds
or other consideration received from such issuance, the Partnership shall pay the General Partner’s
expenses associated with such issuance, including any underwriting discounts or commissions.




          (d) The General Partner issued Special Limited Partnership Units to an Affiliate of the
Advisor in exchange for the cash contribution reflected on Exhibit A hereto and for
services performed or to be performed for the Partnership and its Subsidiaries, and admitted such
Person as the Special Limited Partner. The Special Limited Partner shall be entitled to certain
distributions as provided in Section 5.2 and certain preferential allocations of items of income
and gain under Section 5.1. The Special Limited Partnership Units will be subject to the transfer
restrictions set forth in Article 9 and will be subject to redemption pursuant to Section 8.6.




     4.3 Additional Funding.



     If the General Partner determines that it is in the best interests of 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 General Partner or any of its Affiliates provide such Additional Funds to
the Partnership through loans or otherwise, provided, however, that the Partnership may not borrow
money from its Affiliates, unless a majority of the Directors of the General Partner (including a
majority of Independent Directors) not otherwise interested in such transaction approve the
transaction as being fair, competitive, and commercially reasonable and no less favorable to the
Partnership than loans between unaffiliated parties under the same circumstances.



     4.4 LTIP Units.



          (a) The General Partner may from time to time issue LTIP Units to Persons who provide services
to the Partnership, for such consideration as the General Partner may determine to be appropriate,
and admit such Persons as Limited Partners. Subject to the following provisions of this Section
and the special provisions of Sections 4.5, 5.1(e), and 8.6, LTIP Units shall be treated as Limited
Partnership Units, with all of the rights, privileges and obligations attendant thereto. For
purposes of computing the Partners’ Percentage Interests, LTIP Units shall be treated as Limited
Partnership Units.




          (b) The Partnership shall maintain at all times a one-to-one correspondence between LTIP Units
and Limited Partnership Units for conversion, distribution and other purposes, including without
limitation complying with the following procedures: If an Adjustment Event (as defined below)
occurs, then the General Partner shall make a corresponding adjustment to the LTIP Units to
maintain a one-for-one conversion and economic equivalence ratio between Limited Partnership Units
and LTIP Units. The following shall be “Adjustment Events:” (A) the Partnership makes a
distribution on all outstanding Limited Partnership Units, (B) the Partnership subdivides the
outstanding Limited Partnership Units into a greater number of interests or combines the
outstanding Limited Partnership Units into a smaller number of interests, or (C) the Partnership
issues any Limited Partnership Units or General Partnership Units in exchange for its outstanding
Limited Partnership Units by way or reclassification or recapitalization of its Limited Partnership
Units. If more than one Adjustment Event occurs, the adjustment to the LTIP Units need by made
only once using a single formula that takes into account each and every Adjustment Event as if all
Adjustment Events occurred simultaneously. For the avoidance of doubt, the following shall not be
Adjustment Events: (x) the issuance of Limited Partnership Units or General Partnership Units in a
financing, reorganization, acquisition or other similar business transaction, (y) the issuance of
Limited Partnership Units or General Partnership Units to any employee benefit or compensation plan
or



15









 




distribution reinvestment plan, or (z) the issuance of any Limited Partnership Units or
General Partnership Units to the General Partner in respect of a capital contribution to the
Partnership of proceeds from the sale of securities by the General Partner. If the Partnership
takes an action affecting the Limited Partnership Units other than actions specifically described
above as Adjustment Events and in the opinion of the General Partner such action would require an
adjustment to the LTIP Units to maintain the one-to-one correspondence described above, the General
Partner shall have the right to make such adjustment to the LTIP Units, to the extent permitted by
law, in such manner and at such time as the General Partner, in its sole discretion, may determine
to be appropriate under the circumstances. If an adjustment is made to the LTIP Units as herein
provided the Partnership shall promptly file in the books and records of the Partnership an
officer’s certificate setting forth such adjustment and a brief statement of the facts requiring
such adjustment, which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after filing of such certificate, the Partnership shall
mail a notice to each LTIP Holder setting forth the adjustment to its LTIP Units and the effective
date of such adjustment.


          (c) The LTIP Units shall rank pari passu with the Limited Partnership Units as to the payment
of regular and special periodic or other distributions and distributions of assets upon
liquidation, dissolution or winding up. As to the payment of distributions and as to distribution
of assets upon liquidation, dissolution or winding up, any class or series of Partnership Units
which by its terms specifies that it shall rank junior to, on parity with, or senior to the Limited
Partnership Units shall also rank junior to, or pari passu with, or senior to, as the case may be,
the LTIP Units.



          (d) LTIP Units shall be subject to the following special provisions:



               (i) LTIP Units may, in the sole discretion of the General Partner, be issued subject to
vesting, forfeiture and additional restrictions on transfer pursuant to the terms of a Vesting
Agreement. The terms of any Vesting Agreement may be modified by the General Partner from time to
time in its sole discretion, subject to any restrictions on amendment imposed by the relevant
Vesting Agreement, if applicable. LTIP Units that have vested under the terms of a Vesting
Agreement are referred to as “Vested LTIP Units;” all other LTIP Units shall be treated as
“Unvested LTIP Units.” Subject to the terms of any Vesting Agreement, a LTIP Holder shall be
entitled to Transfer its LTIP Units to the same extent, and subject to the same restrictions as
holders of Limited Partnership Units are entitled to Transfer their Limited Partnership Units
pursuant to Article 9.


               (ii) Unless otherwise specified in the Vesting Agreement, upon the occurrence of any event
specified in a Vesting Agreement as resulting in either the right of the Partnership or the General
Partner to repurchase LTIP Units at a specified purchase price or some other forfeiture of any LTIP
Units, then if the Partnership or the General Partner exercises such right to repurchase or
forfeiture in accordance with the applicable Vesting Agreement, then the relevant LTIP Units shall
immediately, and without further action, be treated as cancelled and no longer outstanding for any
purpose. Unless otherwise specified in the Vesting Agreement, no consideration or other payment
shall be due with respect to any LTIP Units that have been forfeited, other than any distributions
declared with respect to a Partnership Record Date prior to the effective date of the forfeiture.
In connection with any repurchase or forfeiture of LTIP Units, the balance of the portion of the
Capital Account of the holder that is attributable to all of its LTIP Units shall be reduced by the
amount, if any, by which it exceeds the target balance contemplated by Section 5.1(e), calculated
with respect to the holder’s remaining LTIP Units, if any.


               (iii) LTIP Units shall generally be treated as Limited Partnership Units for purposes of
Article 5, but shall also be entitled to certain special allocations of gain under Section 5.1(e).


16








 





               (iv) The Redemption Right provided to Limited Partners under Section 8.5 shall not apply with
respect to LTIP Units unless and until they are converted to Limited Partnership Units as provided
in Section 4.5.



               (v) Any certificate evidencing an LTIP Unit shall bear an appropriate legend indicating that
additional terms, conditions and restrictions on Transfer, including without limitation any Vesting
Agreement, apply to the LTIP Unit.



               (vi) Vested LTIP Units are eligible to be converted into Limited Partnership Units under
Section 4.5.



     4.5 Conversion of LTIP Units.



          (a) An LTIP Holder shall have the right (the “Conversion Right”), at its option, at
any time to convert all or a portion of its Vested LTIP Units into Limited Partnership Units;
provided, however, that an LTIP Holder may not exercise the Conversion Right for fewer than one
thousand (1,000) Vested LTIP Units or, if such LTIP Holder holds fewer than one thousand (1,000)
Vested LTIP Units, all of the LTIP Holder’s Vested LTIP Units. LTIP Holders shall not have the
right to convert Unvested LTIP Units into Limited Partnership Units until they become Vested LTIP
Units; provided, however, that when a LTIP Holder is notified of the expected occurrence of an
event that will cause its Unvested LTIP Units to become Vested LTIP Units, such Person may give the
Partnership a Conversion Notice conditioned upon and effective as of the time of vesting, and such
Conversion Notice, unless subsequently revoked by the LTIP Holder, shall be accepted by the
Partnership subject to such condition. The General Partner shall have the right at any time to
cause a conversion of Vested LTIP Units into Limited Partnership Units. In all cases, the
conversion of any LTIP Units into Limited Partnership Units shall be subject to the conditions and
procedures set forth in this Section 4.5.




          (b) A holder of Vested LTIP Units may convert such interests into an equal number of fully
paid and non-assessable Limited Partnership Units, giving effect to all adjustments (if any) made
pursuant to Section 4.4(b). Notwithstanding the foregoing, in no event may a holder of Vested LTIP
Units convert an amount of Vested LTIP Units that exceeds (x) the Economic Capital Account Balance
of such holder, to the extent attributable to its ownership of LTIP Units, divided by (y) the
Limited Partnership Unit Economic Balance, in each case as determined as of the effective date of
conversion (the “Capital Account Limitation”).




          (c) In order to exercise its Conversion Right, a LTIP Holder shall deliver a notice (a
“Conversion Notice”) to the Partnership (with a copy to the General Partner) not less than
10 nor more than 60 days prior to a date (the “Conversion Date”) specified in such
Conversion Notice; provided, however, that if the General Partner has not given to the LTIP Holders
notice of a proposed or upcoming Transaction (as defined below) at least thirty (30) days prior to
the effective date of such Transaction, then the LTIP Holders shall have the right to deliver a
Conversion Notice until the earlier of (x) the tenth (10th) day after such notice from
the General Partner of a Transaction or (y) the third business day immediately preceding the
effective date of such Transaction. A Conversion Notice shall be provided in the manner provided
in Section 12.1. Each LTIP Holder covenants and agrees with the Partnership that all Vested LTIP
Units to be converted pursuant to this Section 4.5 shall be free and clear of all liens.
Notwithstanding anything herein to the contrary, a LTIP Holder may deliver a Redemption Notice
pursuant to Section 8.5 relating to those Limited Partnership Units that will be issued to such
holder upon conversion of such LTIP Units into Limited Partnership Units in advance of the
Conversion Date; provided, however, that the redemption of such Limited Partnership Units by the
Partnership shall in no event take place until after the Conversion Date. For clarity, it is noted
that the objective of this paragraph is to put an LTIP Holder in a position where, if he or she so
wishes, the Limited Partnership Units into which its Vested LTIP Units will be




17









 







converted can be redeemed by the Partnership simultaneously with such conversion, with the
further consequence that, if the General Partner elects to assume the Partnership’s redemption
obligation with respect to such Limited Partnership Units under Section 8.5 by delivering to such
holder REIT Shares rather than cash, then such holder can have REIT Shares issued to it
simultaneously with the conversion of its Vested LTIP Units into Limited Partnership Units. The
General Partner shall cooperate with an LTIP Holder to coordinate the timing of the different
events described in the foregoing sentence.




          (d) The Partnership, at any time at the election of the General Partner, may cause any number
of Vested LTIP Units held by an LTIP Holder to be converted (a “Forced Conversion”) into an
equal number of Limited Partnership Units, giving effect to all adjustments (if any) made pursuant
to Section 4.4(b); provided, that the Partnership may not cause a Forced Conversion of any LTIP
Units that would not at the time be eligible for conversion at the option of such LTIP Holder
pursuant to paragraph (b) above. In order to exercise its right of Forced Conversion, the
Partnership shall deliver a notice (a “Forced Conversion Notice”) to the applicable holder
not less than 10 nor more than 60 days prior to the Conversion Date specified in such Forced
Conversion Notice. A Forced Conversion Notice shall be provided in the manner provided in Section
12.1.




          (e) A conversion of Vested LTIP Units for which a holder has given a Conversion Notice or the
Partnership has given a Forced Conversion Notice shall occur automatically after the close of
business on the applicable Conversion Date without any action on the part of such LTIP Holder, as
of which time such LTIP Holder shall be credited on the books and records of the Partnership with
the issuance as of the opening of business on the next day of an equal number of Limited
Partnership Units issuable upon such conversion. After the conversion of LTIP Units as aforesaid,
the Partnership shall deliver to such LTIP Holder, upon its written request, a certificate of the
General Partner certifying its Limited Partnership Units and remaining LTIP Units, if any,
immediately after such conversion.




          (f) For purposes of making future allocations under Section 5.1(e) and applying the Capital
Account Limitation, the portion of the Economic Capital Account balance of the applicable holder
that is treated as attributable to its LTIP Units shall be reduced, as of the date of conversion,
by the product of the number of LTIP Units converted and the Limited Partnership Unit Economic
Balance.




          (g) If the Partnership or the General Partner shall be a party to any transaction (including
without limitation a merger, consolidation, interest exchange, self tender offer for all or
substantially all Limited Partnership Units or other business combination or reorganization, or
sale of all or substantially all of the Partnership’s assets, but excluding any transaction which
constitutes an Adjustment Event), in each case as a result of which Limited Partnership Units shall
be exchanged for or converted into the right, or the holders such interests shall otherwise be
entitled, to receive cash, securities or other property or any combination thereof (each of the
foregoing being referred to herein as a “Transaction”), then the General Partner shall,
immediately prior to the Transaction, exercise its right to cause a Forced Conversion with respect
to the LTIP Units then eligible for conversion, taking into account any allocations that occur in
connection with the Transaction or that would occur in connection with the Transaction if the
assets of the Partnership were sold at the Transaction price or, if applicable, at a value
determined by the General Partner in good faith using the value attributed to the Partnership Units
in the context of the Transaction (in which case the Conversion Date shall be the effective date of
the Transaction).




          In anticipation of such Forced Conversion and the consummation of the Transaction, the
Partnership shall use commercially reasonable efforts to cause each LTIP Holder to be afforded the
right to receive in connection with such Transaction in consideration for the Limited Partnership
Units into which its LTIP Units will be converted into the same kind and amount of cash,
securities, and other property (or any combination thereof) receivable upon the consummation of
such transaction by a holder of the same number of Limited Partnership Units, assuming such holder
of Limited Partnership Units is not a Person




18









 







with which the Partnership consolidated or into with the Partnership merged or which merged into
the Partnership or to which such sale or transfer was made, as the case may be (a “Constituent
Person”), or an affiliate of a Constituent Person. In the event that holders of Limited
Partnership Units have the opportunity to elect the form or type of consideration to be received
upon consummation of the Transaction, prior to such Transaction the General Partner shall give
prompt written notice to each LTIP Holder of such election and shall use commercially reasonable
efforts to afford such holders the right to elect, by written notice to the General Partner, the
form or type of consideration to be received upon conversion of the LTIP Units held by such holder
into Limited Partnership Units in connection with such Transaction. If an LTIP Holder fails to make
such an election, such LTIP Holder (and any of its transferees) shall receive upon conversion of
the LTIP Units held by it (or by any of its transferees) the same kind and amount of consideration
that a holder of Limited Partnership Units would receive if such holder of Limited Partnership
Units failed to make such an election.




          Subject to the rights of the Partnership and the General Partner under any Vesting Agreement,
the Partnership shall use commercially reasonable efforts to cause the terms of the Transaction to
be consistent with the provisions of this Section 4.5 and to enter into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of any LTIP Holders whose LTIP
Units will not be converted into Limited Partnership Units in connection with the Transaction that
will (i) contain provisions enabling the LTIP Holders with outstanding LTIP Units after such
Transaction to convert their LTIP Units into securities as comparable as reasonably possible under
the circumstances to Limited Partnership Units and (ii) preserve as far as reasonably possible
under the circumstances the distribution, special allocation, conversion, and other rights set
forth in the Agreement for the benefit of LTIP Holders.




     4.6 Capital Accounts.



          (a) The Partnership shall maintain for each Partner a separate Capital Account in accordance
with the rules of Regulations Section 1.704-l(b)(2)(iv). Each Partner’s Capital Account shall be
increased by (i) the amount of such Partner’s Capital Contributions and (ii) Profit allocated to
such Partner and all items of Partnership income and gain allocated to such Partner pursuant to
Sections 5.1(c), 5.1(d) and 5.1(e) and decreased by (x) the amount of cash or Agreed Value of all
actual and deemed distributions of cash or property made to such Partner pursuant to this Agreement
and (y) Loss allocated to such Partner and all items of Partnership deduction and loss allocated to
such Partner pursuant to Section 5.1(c).




          (b) Generally, a transferee of a Partnership Unit shall succeed to a pro rata portion of the
Capital Account of the transferor.




          (c) The provisions of the Agreement relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-l(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the General Partner shall determine that it
is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the General Partner,
or the Limited Partners) are computed in order to comply with such Regulations, the General Partner
may make such modification, provided that it is not likely to have a material effect on the
amounts distributable to any Person upon the dissolution of the Partnership. The General Partner
also shall (i) make any adjustments that are necessary or appropriate to maintain equality between
the Capital Accounts of the Partners and the amount of Partnership capital reflected on the
Partnership’s balance sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(g) and (ii) make appropriate modifications in the event that unanticipated events
might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b) or 1.704-2.




19









 








     4.7 No Interest on Contributions.



     No Partner shall be entitled to interest on its Capital Contribution.



     4.8 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.



     4.9 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.



ARTICLE 5

PROFITS AND LOSSES; DISTRIBUTIONS




     5.1 Allocation of Profit and Loss.



          (a) Profit. (b) After giving effect to the special allocations in Sections 5.1(c) and
5.1(d), Profit of the Partnership for each Partnership Year or other applicable period of the
Partnership shall be allocated to the Partners in the following order and priority:




               (i) Profit shall be allocated to the General Partner until the cumulative Profit allocated to
the General Partner pursuant to this Section 5.1(a)(i) equals the cumulative Loss allocated to the
General Partner pursuant to Section 5.1(b)(ii).



               (ii) Profit shall be allocated to the Partners (other than the Special Limited Partner) in
accordance with their Percentage Interests.



20









 





          (b) Loss. After giving effect to the special allocations in Sections 5.1(c) and
5.1(d), Loss of the Partnership for each Partnership Year or other applicable period of the
Partnership shall be allocated to the Partners in the following order and priority:




               (i) Loss shall be allocated to the Partners (other than the Special Limited Partner) in
accordance with their Percentage Interests, provided that Loss shall not be allocated to a Partner
pursuant to this Section 5.1(b)(i) to the extent that such allocation would cause or increase an
Adjusted Capital Account Deficit at the end of any fiscal year.



               (ii) Loss shall be allocated to the General Partner.



          (c) Special Allocations. The following regulatory allocations shall be made in the
following order and priority:




               (i) Minimum Gain Chargeback. Notwithstanding the provisions of Section 5.1 of the
Agreement, if there is a net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Partner’s share of the net decrease in
Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant
to the previous sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Section 1.704-2(f)(6). This Section 5.1(c)(i) is intended to comply
with the minimum gain chargeback requirements in Regulations Section 1.704-2(f).



               (ii) Partner Minimum Gain Chargeback. Notwithstanding any other provision of Section
5.1 of this Agreement, if there is a net decrease in Partner Minimum Gain attributable to a Partner
Nonrecourse Debt during any Partnership Year, each Partner who has a share of the Partner Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such Partner’s share of the net
decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(5). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations
Section 1.704-2(i)(4). This Section 5.1(c)(ii) is intended to comply with the minimum gain
chargeback requirement in such Section of the Regulations and shall be interpreted consistently
therewith.



               (iii) Qualified Income Offset. In the event any Partner unexpectedly receives any
adjustments, allocations or distributions described in Regulations Sections
1.704-l(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5), or 1.704-l(b)(2)(ii)(d)(6), such Partner has an
Adjusted Capital Account Deficit, items of Partnership income and gain (consisting of a pro rata
portion of each item of Partnership income, including gross income and gain for the Partnership
Year) shall be specially allocated to such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Regulations, its Adjusted Capital Account Deficit created by such
adjustments, allocations or distributions as quickly as possible. This Section 5.1(c)(iii) is
intended to constitute a “qualified income offset” under Regulations Section 1.704-l(b)(2)(ii)(d)
and shall be interpreted consistently therewith.



               (iv) No Excess Deficit. To the extent that any Partner has or would have, as a result
of an allocation of Net Loss (or item thereof), an Adjusted Capital Account Deficit, such amount of
Net Loss (or item thereof) shall be allocated to the other Partners in accordance with Section
5.1(b), but in a manner which will not produce an Adjusted Capital Account Deficit as to such
Partners. To the extent



21









 







such allocation would result in all Partners having Adjusted Capital Account Deficits, such
Net Loss (or item thereof) shall be allocated to the General Partner.



               (v) Nonrecourse Deductions. Nonrecourse Deductions for any Partnership Year shall be
allocated to the Partners (other than the Special Limited Partner) in accordance with their
respective Percentage Interests. If the General Partner determines in its good faith discretion
that the Partnership’s Nonrecourse Deductions must be allocated in a different ratio to satisfy the
safe harbor requirements of the Regulations promulgated under Section 704(b) of the Code, the
General Partner is authorized, upon notice to the Limited Partners, to revise the prescribed ratio
for such Partnership Year to the numerically closest ratio which would satisfy such requirements.



               (vi) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for any
Partnership Year shall be specially allocated to the Partner who bears the economic risk of loss
with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Regulations Sections 1.704-2(b)(4) and 1.704-2(i).



               (vii) Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required,
pursuant to Regulations Section 1.704-l(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item
of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases
such basis), and such item of gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to
such section of the Regulations.



          (d) Priority Allocations to the Special Limited Partner. Notwithstanding the
provisions of Sections 5.1(a) and 5.1(b) above, the Special Limited Partner shall be allocated on a
priority basis Profit (or items thereof), including, without limitation, items of gain from a Sale
(including but not limited to net capital gain realized in connection with the adjustment to the
Carrying Value of Partnership assets under Section 704(b) of the Code) on a cumulative basis
pursuant to this Section 5.1(d) in an amount equal to the amount of distributions made (or in
connection with a Sale or winding up or liquidation of the Partnership, to be made) to such
Partner.




          (e) Special Allocations Regarding LTIP Units. Subject to the terms of any Partnership
Units ranking senior to the LTIP Units with respect to return of capital or any preferential or
priority return, any Liquidating Capital Gains shall first be allocated to the LTIP Holders until
the Economic Capital Account Balances of such holders, to the extent attributable to their
ownership of LTIP Units, are equal to (i) the Partnership Unit Economic Balance, multiplied by (ii)
the number of LTIP Units; provided that no such Liquidating Capital Gains will be allocated with
respect to any particular LTIP Unit unless and to the extent that the Partnership Unit Economic
Balance exceeds the Partnership Unit Economic Balance in existence at the time such LTIP Unit was
issued. For this purpose, “Liquidating Capital Gains” means net capital gains realized in
connection with the actual or hypothetical sale of all or substantially all of the assets of the
Partnership, including but not limited to net capital gain realized in connection with an
adjustment to the Carrying Value of the Partnership assets under Section 704(b) of the Code. The
“Economic Capital Account Balances” of the LTIP Holders will be equal to their Capital Account
balances, plus the amount of their shares of any Partner Nonrecourse Debt Minimum Gain or
Partnership Minimum Gain, in either case to the extent attributable to their ownership of LTIP
Units. Similarly, the “Partnership Unit Economic Balance” shall mean (i) the Capital Account
Balance of the General Partner, plus the amount of the General Partner’s share of any Partner
Nonrecourse Debt Minimum Gain or Partnership Minimum Gain, in either case to the extent
attributable to the General Partner’s ownership of Partnership Units and computed on a hypothetical
basis after taking into account all allocations through the date on which any allocation is made
under this Section 5.1(e),




22









 







divided by (ii) the number of General Partner’s Partnership Units. Any such allocations shall
be made among the LTIP Holders in proportion to the amounts required to be allocated to each under
this Section 5.1(e). The parties agree that the intent of this Section 5.1(e) is to make the
Capital Account balance associated with each LTIP Unit to be economically equivalent to the Capital
Account balance associated with the Partnership Units (on a per-Unit basis), but only if and to the
extent the Capital Account balance associated with the General Partner’s Partnership Units has
increased on a per-Unit basis since the issuance of the relevant LTIP Unit.




          (f) Recapture Income. Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall, to the extent possible after taking into
account other required allocations of gain pursuant to Section 5.1(c), be characterized as
Recapture Income in the same proportions and to the same extent as such Partners have been
allocated any deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.




          (g) Allocations Between Transferor and Transferee. If a Partner transfers any part or
all of its Partnership Unit or if Percentage Interests vary during a Partnership Year, the General
Partner, in its sole and absolute discretion, shall determine which
method authorized under the Code
and the Regulations shall be used to allocate the distributive shares of the various items of
Profit and Loss between the transferor and the transferee Partner.




          (h) Allocations for Tax Purposes. All allocations for federal income tax purposes
shall be consistent with all allocations in this Section 5.1, 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 tax depreciation deductions,
and such election shall be binding on all Partners.




          (i) Revisions to Allocations to Reflect Issuance of Additional Partnership Units. In
the event that the Partnership issues additional Partnership Units to the General Partner or any
Additional Limited Partner pursuant to Article 4 hereof, the General Partner shall make such
revisions to this Article 5 as it deems necessary to reflect the terms of the issuance of such
additional Partnership Units, including making preferential allocations to classes of Partnership
Units that are entitled thereto. Such revisions shall not require the consent or approval of any
other Partner.




     5.2 Distribution of Cash.



          (a) The Partnership shall distribute cash on a quarterly (or, at the election of the General
Partner, more frequent) basis, in an amount determined by the General Partner in its sole and
absolute discretion, to the Partners who are Partners on the Partnership Record Date with respect
to such quarter (or other distribution period) in accordance with Section 5.2(b).




          (b) Except for distributions pursuant to Section 5.6 of this Agreement in connection with the
dissolution and liquidation of the Partnership and subject to the provisions of Section 5.2(c),
5.2(d), 5.3 and 5.5 of this Agreement, distributions shall be made (i) first, 100% to the Partners
(other than Special Limited Partner) in accordance with their respective Percentage Interests on
the Partnership Record Date until the Limited Partners (other than the Special Limited Partner)
have received cumulative distributions under this Section 5.2(b) equal to the aggregate Capital
Contributions made by the Limited Partners (other than the Special Limited Partner) to the
Partnership plus a cumulative, noncompounded pre-tax rate of return
thereon of 8% per annum,
determined by taking into account the dates on which all such Capital Contributions and
distributions were made and (ii) second, (A) 85% to the Partners (other than the Special




23









 







Limited Partner), in accordance with their respective Percentage Interests on the Partnership
Record Date and (B) 15% to the Special Limited Partner.




          (c) 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. To the extent that the Partnership is required to withhold and pay over to any taxing
authority any amount resulting from the allocation or distribution of income to any Partner or
assignee (including by reason of Section 1446 of the Code), either (i) if the actual amount to be
distributed to the Partner equals or exceeds the amount required to be withheld by the Partnership,
the amount withheld shall be treated as a distribution of cash in the amount of such withholding to
such Partner, or (ii) if the actual amount to be distributed to the Partner is less than the amount
required to be withheld by the Partnership, the actual amount shall be treated as a distribution of
cash in the amount of such withholding and the additional amount required to be withheld shall be
treated as a loan (a “Partnership Loan”) from the Partnership to the Partner on the day the
Partnership pays over such amount to a taxing authority. A Partnership Loan shall be repaid through
withholding by the Partnership with respect to subsequent distributions to the applicable Partner
or assignee. In the event that a Limited Partner (a “Defaulting Limited Partner”) fails to
pay any amount owed to the Partnership with respect to the Partnership Loan within fifteen (15)
days after demand for payment thereof is made by the Partnership on the Limited Partner, the
General Partner, in its sole and absolute discretion, may elect to make the payment to the
Partnership on behalf of such Defaulting Limited Partner. In such event, on the date of payment,
the General Partner shall be deemed to have extended a loan (a “General Partner Loan”) to
the Defaulting Limited Partner in the amount of the payment made by the General Partner and shall
succeed to all rights and remedies of the Partnership against the Defaulting Limited Partner as to
that amount. Without limitation, the General Partner shall have the right to receive any
distributions that otherwise would be made by the Partnership to the Defaulting Limited Partner
until such time as the General Partner Loan has been paid in full, and any such distributions so
received by the General Partner shall be treated as having been received by the Defaulting Limited
Partner and immediately paid to the General Partner.




     Any amounts treated as a Partnership Loan or a General Partner Loan pursuant to this Section
5.2(c) 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
(ii) the maximum lawful rate of interest on such obligation, such interest to accrue from the date
the Partnership or the General Partner, as applicable, is deemed to extend the loan until such loan
is repaid in full.



          (d) In the event that the Partnership issues additional Partnership Units to the General
Partner or any Additional Limited Partner pursuant to Article 4 hereof, the General Partner shall
make such revisions to this Article 5 as it deems necessary to reflect the issuance of such
additional Partnership Units.




     5.3 REIT Distribution Requirements.



     The General Partner shall use its commercially reasonable efforts to cause the Partnership to
distribute amounts sufficient to enable the General Partner to make stockholder distributions that
will allow the General Partner to (i) meet its distribution requirement for qualification as a REIT
as set forth in Section 857 of the Code and (ii) avoid any federal income or excise tax liability
imposed by the Code.



24









 





     5.4 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.



     5.5 Limitations on Return of Capital Contributions.



     Notwithstanding any of the provisions of this Article 5, 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 its Capital Contribution, does not exceed the fair
market value of the Partnership’s assets.



     5.6 Distributions Upon Liquidation.



     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 in accordance with their Capital Accounts. 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.



     5.7 Substantial Economic Effect.



     It is the intent of the Partners that the allocations of Profit and Loss under this 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 Regulations promulgated pursuant thereto. Article
5 and other relevant provisions of this Agreement shall be interpreted in a manner consistent with
such intent.



ARTICLE 6

RIGHTS, OBLIGATIONS AND

POWERS OF THE GENERAL PARTNER




     6.1 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 Investments that the General
Partner determines are necessary or appropriate or in the best interests of the business of the
Partnership;



               (ii) to authorize, issue, sell, redeem or otherwise purchase any Partnership Units 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 Units, or options, rights,
warrants or appreciation rights relating to any Partnership Units) of the Partnership;



25









 





               (iii) 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;



               (iv) to pay, either directly or by reimbursement, for all operating costs and general
administrative expenses of the Partnership to third parties or to the General Partner or its
Affiliates as set forth in this Agreement;



               (v) to guarantee or become a co-maker of indebtedness of the General Partner 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 General
Partner, the Partnership or any Subsidiary of either, to third parties or to the General Partner 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;



               (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 retain legal counsel, accountants,
consultants, real estate brokers, and such other persons, as the General Partner may deem necessary
or



26









 







appropriate in connection with the Partnership business and to pay therefor such remuneration
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;



               (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) to merge, consolidate or combine the Partnership with or into another Person;



               (xxi) 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” that is taxable as a corporation under
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.




     6.2 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.



27









 





     6.3 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. Any indemnification pursuant to this Section 6.3 shall be made
only out of the assets of the Partnership.




          (b) The Partnership shall 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 6.3 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 6.3 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 6.3, 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 6.3; and actions taken or omitted by the Indemnitee with respect to an employee
benefit plan in the performance of its duties for a purpose 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
6.3 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 6.3 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.




28









 








          (i) Notwithstanding the foregoing, the Partnership may not indemnify or hold harmless an
Indemnitee for any liability or loss unless all of the following conditions are met: (i) the
Indemnitee has determined, in good faith, that the course of conduct that caused the loss or
liability was in the best interests of the Partnership; (ii) the Indemnitee was acting on behalf of
or performing services for the Partnership; (iii) the liability or loss was not the result of (A)
negligence or misconduct, in the case that the Indemnitee is a director of the General Partner
(other than an Independent Director), the Advisor or an Affiliate of the Advisor or (B) gross
negligence or willful misconduct, in the case that the Indemnitee is an Independent Director; and
(iv) the indemnification or agreement to hold harmless is recoverable only out of net assets of the
Partnership. In addition, the Partnership shall not provide indemnification for any loss, liability
or expense arising from or out of an alleged violation of federal or state securities laws by such
party unless one or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged material securities law violations as to
the Indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the Indemnitee; or (iii) a court of competent jurisdiction approves a
settlement of the claims against the Indemnitee and finds that indemnification of the settlement
and the related costs should be made, and the court considering the request for indemnification has
been advised of the position of the Commission and of the published position of any state
securities regulatory authority in which securities of the General Partner or the Partnership were
offered or sold as to indemnification for violations of securities laws.




     6.4 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, itself and its 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 the event of a conflict between the interests of its stockholders on one hand and
the Limited Partners on the other, the General Partner shall endeavor in good faith to resolve the
conflict in a manner not adverse to either its stockholders or the Limited Partners; provided,
however, that for so long as the General Partner directly owns a controlling interest in the
Partnership, any such conflict that the General Partner, in its sole and absolute discretion,
determines cannot be resolved in a manner not adverse to either its stockholders or the Limited
Partner shall be resolved in favor of the 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 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 6.1 hereof,
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




29









 







behalf of the Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General Partner to continue to
qualify as a REIT or (ii) to prevent the General Partner 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 6.4 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 6.4 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.




     6.5 Reimbursement of General Partner.



          (a) Except as provided in this Section 6.5 and elsewhere in this Agreement (including the
provisions of Articles 5 and 6 regarding distributions, payments, and allocations to which it may
be entitled), the General Partner shall not be compensated for its services as general partner of
the Partnership.




          (b) The General Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all Administrative Expenses
incurred by the General Partner. Reimbursement of Administrative Expenses shall be treated as an
expense of the Partnership and not as allocations of Partnership income or gain.




     6.6 Outside Activities.



     Subject to Section 6.8 hereof, the Articles of Incorporation and any agreements entered into
by the General Partner or its Affiliates with the Partnership or a Subsidiary, any officer,
director, employee, agent, trustee, Affiliate or stockholder of the General Partner, the General
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. None of the Partnership, Limited
Partners or 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
General Partner 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 Limited Partner, even if
such opportunity is of a character which, if presented to the Partnership or any Limited Partner,
could be taken by such Person.



     6.7 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.




30









 








          (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 terms and subject
to such conditions as the General Partner deems are consistent with this Agreement, applicable law
and the REIT status of the General Partner.




          (d) Except as expressly permitted by this Agreement, neither the General Partner nor any of
its Affiliates shall sell, transfer or convey any Property to, or purchase any Property from, the
Partnership, directly or indirectly, except pursuant to transactions that are, in the General
Partner’s sole discretion, on terms that are fair and reasonable to the Partnership.




     6.8 General Partner Participation.



          The General Partner agrees that all business activities of the General Partner, including
activities pertaining to the acquisition, development or ownership of any Investment shall be
conducted through the Partnership, a Subsidiary, a Subsidiary Partnership or a taxable REIT
subsidiary (within the meaning of Section 856(1) of the Code); provided, however, that the General
Partner is allowed to hold cash and liquid investments to fund its expenses, including redemptions
of shares of common stock of the General Partner.




     6.9 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. The General Partner hereby declares and warrants that
any Partnership assets for which legal title is held in the name of the General Partner or any
nominee or Affiliate of the General Partner shall be held by the General Partner for the use and
benefit of the Partnership in accordance with the provisions of this Agreement; provided, however,
that the General Partner shall use its best efforts to cause beneficial and record title to such
assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets
shall be recorded as the Property of the Partnership in its books and records, irrespective of the
name in which legal title to such Partnership assets is held.



     6.10 No Duplication of Fees or Expenses.



     The Partnership may not incur or be responsible for any fee or expense (in connection with the
Offering or otherwise) that would be duplicative of fees and expenses paid by the General Partner.



ARTICLE 7

CHANGES IN GENERAL PARTNER




     7.1 Transfer of the General Partner’s Partnership Units.



          (a) The General Partner shall not transfer all or any portion of its General Partnership Units
or withdraw as General Partner except as provided in, or in connection with a transaction
contemplated by, Section 7.1(c).




          (b) Except as otherwise provided in Section 6.4(b) or Section 7.1(c) hereof, the General
Partner shall not engage in any merger, consolidation or other combination with or into another
Person or the sale of all or substantially all of its assets (other than in connection with a
change in the General




31









 







Partner’s state of incorporation or organizational form), in each case which results in a
change of control of the General Partner (a “Transaction”), unless the consent of Limited
Partners holding more than 50% of the Percentage Interests of the Limited Partners is obtained.




          (c) Notwithstanding Section 7.1(a) or (b),




               (i) a General Partner may transfer all or any portion of its General Partnership Units 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
Units, may withdraw as General Partner; and



               (ii) the General Partner may engage in a transaction not required by law or by the rules of
any national securities exchange on which the General Partner’s shares are listed to be submitted
to the vote of the holders of the General Partner’s shares.



     7.2 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:



          (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 2.4 hereof 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 as may be necessary) that (x) the admission of the Person to be admitted as a
substitute or additional General Partner is in conformity with the Act and (y) 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 tax
purposes, or (ii) the loss of any Limited Partner’s limited liability.




     7.3 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 7.4(a) hereof) or the death, 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 7.3(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 7.2 hereof shall not be deemed to be the withdrawal,
dissolution or removal of the General Partner.




32









 








          (b) Following the occurrence of an Event of Bankruptcy as to a General Partner (and its
removal pursuant to Section 7.4(a) hereof) or the death, 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 of, 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 ninety (90) days after such occurrence, may elect to continue the business of the
Partnership for the balance of the term specified in Section 2.4 hereof by selecting, subject to
Section 7.2 hereof 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 business of 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.




     7.4 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 or
dissolution of, 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 7.4 and the Partnership is
continued pursuant to Section 7.3 hereof, such General Partner shall promptly transfer and assign
its General Partnership Units in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners in accordance with Section 7.3(b) hereof and otherwise
be admitted to the Partnership in accordance with Section 7.2 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 Units 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 ten (10) days following the removal of the General Partner. In the
event that the parties are unable to agree upon an appraiser, the removed General Partner and a
majority in interest of the Limited Partners each shall select an appraiser. Each such appraiser
shall complete an appraisal of the fair market value of the removed General Partner’s General
Partnership Units within thirty (30) days of the General Partner’s removal, and the fair market
value of the removed General Partner’s General Partnership Unit 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 forty (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 removed General Partner’s General Partnership Units no
later than sixty (60) days after the removal of the General Partner. In such case, the fair market
value of the removed General Partner’s General Partnership Units shall be the average of the two
appraisals closest in value.




          (c) The General Partnership Units of a removed General Partner, during the time after default
until transfer under Section 7.4(b), shall be converted to that of a Limited Partner; provided,
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, expense,
profit, gain or loss allocations or cash distributions allocable or payable, as the case may be, to
the Limited Partners. Instead, such removed General Partner shall receive and be entitled only to
retain distributions or allocations of such items that it would have been entitled to receive in
its capacity as General Partner, until the transfer is effective pursuant to Section 7.4(b).




33









 








          (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, desirable and sufficient to effect
all the foregoing provisions of this Section.




ARTICLE 8

RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS




     8.1 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.



     8.2 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 or 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 Units.



     8.3 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.



     8.4 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 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.



     8.5 Limited Partner Right of Redemption.



          (a) Subject to Sections 8.5(b), 8.5(c), 8.5(d), 8.5(e) and 8.5(f) and the provisions of any
agreements between the Partnership and one or more Limited Partners with respect to the Limited
Partnership Units held by them, a Qualifying Party, but no other Limited Partner or Assignee,
shall, after holding their Limited Partnership Units for at least one year, have the right (subject
to the terms and conditions set forth herein) to require the Partnership to redeem (a
“Redemption”) all or a portion of such Limited Partnership Units (the “Tendered
Units”) held by such Limited Partner (a “Redemption Right”) in exchange for REIT
Shares issuable on, or the Cash Amount payable on, or a combination thereof having an equivalent
value to the REIT Shares issuable on, or the Cash Amount payable on, the Specified Redemption




34









 







Date, as determined by the General Partner in its sole discretion. Any 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 exercising the Redemption Right (the “Tendering
Party”). No Limited Partner may deliver more than two Notices of Redemption during each
calendar year. A Limited Partner may not exercise the Redemption Right for less than 1,000 Limited
Partnership Units or, if such Limited Partner holds less than 1,000 Limited Partnership Units, all
of the Limited Partnership Units held by such Partner. The Tendering Party shall have no right,
with respect to any Limited Partnership Units so redeemed, to receive any distribution paid with
respect to Limited Partnership Units if the record date for such distribution is on or after the
Specified Redemption Date.




          (b) If the General Partner elects to redeem Tendered Units for REIT Shares rather than cash,
then the Partnership shall direct the General Partner to issue and deliver such REIT Shares to the
Tendering Party pursuant to the terms set forth in this Section 8.5(b), in which case, (i) the
General Partner, acting as a distinct legal entity, shall assume directly the obligation with
respect thereto and shall satisfy the Tendering Party’s exercise of its Redemption Right, and (ii)
such transaction shall be treated, for federal income tax purposes, as a transfer by the Tendering
Party of such Tendered Units to the General Partner in exchange for REIT Shares. The percentage of
the Tendered Units tendered for Redemption by the Tendering Party for which the General Partner
elects to issue REIT Shares (rather than cash) is referred to as the “Applicable Percentage.” In
making such election to acquire Tendered Units, the Partnership shall act in a fair, equitable and
reasonable manner that neither prefers one group or class of Limited Partners over another nor
discriminates against a group or class of Limited Partners. If the Partnership elects to redeem any
number of Tendered Units for REIT Shares, rather than cash, on the Specified Redemption Date, the
Tendering Party shall sell such number of the Tendered Units to the General Partner in exchange for
a number of REIT Shares equal to the product of the REIT Shares Amount and the Applicable
Percentage. The product of the Applicable Percentage and the REIT Shares Amount, if applicable,
shall be delivered by the General Partner as duly authorized, validly issued, fully paid and
accessible REIT Shares free of any pledge, lien, encumbrance or restriction, other than the
Aggregate Share Ownership Limit and other restrictions provided in the Article of Incorporation,
the bylaws of the General Partner, the Securities Act and relevant state securities or “blue sky”
laws. Notwithstanding the provisions of Section 8.5(a) and this Section 8.5(b), the Tendering
Parties shall have no rights under this Agreement that would otherwise be prohibited under the
Articles of Incorporation.




          (c) In connection with an exercise of Redemption Rights pursuant to this Section 8.5, the
Tendering Party shall submit the following to the General Partner, in addition to the Notice of
Redemption:




               (i) A written affidavit, dated the same date as the Notice of Redemption, (a) disclosing the
actual and constructive ownership, as determined for purposes of Code Sections 856(a)(6) and
856(h), of REIT Shares by (i) such Tendering Party and (ii) any Related Party and (b) representing
that, after giving effect to the Redemption, neither the Tendering Party nor any Related Party will
own REIT Shares in excess of the Aggregate Share Ownership Limit (or, if applicable the Excepted
Holder Limit);



               (ii) A written representation that neither the Tendering Party nor any Related Party has any
intention to acquire any additional REIT Shares prior to the closing of the Redemption on the
Specified Redemption Date;



               (iii) An undertaking to certify, at and as a condition to the closing of the Redemption on the
Specified Redemption Date, that either (a) the actual and constructive ownership of REIT Shares by
the Tendering Party and any Related Party remain unchanged from that disclosed in the affidavit
required by Section 8.5(c)(1) or (b) after giving effect to the Redemption, neither the Tendering
Party nor



35









 







any Related Party shall own REIT Shares in violation of the Aggregate Share Ownership Limit
(or, if applicable, the Excepted Holder Limit); and



               (iv) Any other documents as the General Partner may reasonably require in connection with the
issuance of REIT Shares upon the exercise of the Redemption Right.



               (v) Any Cash Amount to be paid to a Tendering Party pursuant to this Section 8.5 shall be paid
on the Specified Redemption Date; provided, however, that the General Partner may elect to cause
the Specified Redemption Date to be delayed for up to an additional 180 days to the extent required
for the General Partner to cause additional REIT Shares to be issued to provide financing to be
used to make such 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 Tendered Units hereunder
to occur as quickly as reasonably possible.



               (vi) Notwithstanding any other provision of this Agreement, the General Partner shall place
appropriate restrictions on the ability of the Limited Partners to exercise their Redemption Rights
to prevent, among other things, (a) any person from owning shares in excess of the Common Share
Ownership Limit, the Aggregate Share Ownership Limit and the Excepted Holder Limit, (b) the General
Partner’s common stock from being owned by less than 100 persons, (c) the General Partner from
being “closely held” within the meaning of section 856(h) of the Code, and (d) 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 (a “Restriction Notice”) to each of the
Limited Partners holding Partnership Units, which notice shall be accompanied by a copy of an
opinion of counsel to the Partnership which states that, in the opinion of such counsel,
restrictions are necessary in order to avoid having the Partnership be treated as a “publicly
traded partnership” under section 7704 of the Code.



               (vii) A redemption fee may be charged in connection with an exercise of Redemption Rights
pursuant to this Section 8.5.



     8.6 Redemption of Special Limited Partnership Units.



     Upon the earliest to occur of (a) the termination or nonrenewal of the Advisory Agreement for
“cause” (as defined in the Advisory Agreement), (b) a Termination Event, or (c) the Listing, the
Special Limited Partnership Units will be redeemed.



          (a) If the Advisory Agreement is terminated or not renewed by the General Partner for “cause”
(as defined in the Advisory Agreement), all of the Special Limited Partnership Units shall be
redeemed by the Partnership for $1 within thirty (30) days after the termination or nonrenewal of
the Advisory Agreement.




          (b) Upon the occurrence of a Termination Event or the Listing, the Special Limited Partnership
Units shall be redeemed for an aggregate amount equal to the amount that would have been
distributed to the Special Limited Partner under Section 5.2(b) if all assets of the Partnership
had been sold for their fair market value and all liabilities of the Partnership had been satisfied
in full according to their terms. Such redemption shall occur no later than thirty (30) days after
the date of a Termination Event and no later than 240 days after the Listing. In determining the
fair market value of the assets of the Partnership, (i) in connection with a Termination Event, the
General Partner shall obtain an appraisal of the assets of the Partnership (excluding any assets
which may be readily marked to market) and (ii) in connection with the Listing, the General Partner
shall make such determination (a) taking into account, in the event of a Listing on a national
securities exchange only, the market value of the General Partner’s




36









 











listed shares based upon the average closing price, or average of bid and asked prices, as the
case may be, during a period of thirty (30) days during which such shares are traded beginning one
hundred and twenty (120) days after the Listing or (b) taking into account the value of the General
Partner’s shares based upon the initial public offering price in the event of an underwritten
public offering. Payment to the Special Limited Partner upon a Termination Event or a Listing shall
be paid, at the Special Limited Partner’s discretion, in the form of (a) shares of the General
Partner’s common stock or (b) a promissory note bearing interest at a rate deemed fair and
reasonable by a majority of the Independent Directors. In the event the Advisor elects to receive
shares of the General Partner’s common stock and the General Partner’s shares are not listed on a
national securities exchange, at the option of the Advisor, the Advisor and the General Partner
shall enter into an agreement whereby the General Partner shall register such shares of common
stock with the Commission. However, any payments under a promissory note may not be made in
connection with a Termination Event until either (a) the closing of asset sales that result in
aggregate, cumulative distributions to the Partners (other than the Special Limited Partner) of the
Partnership from operating income, sales proceeds and other sources in an amount equal to their
Capital Contributions to the Partnership plus an 8% cumulative non-compounded annual pre-tax return
thereon, or (b) a Listing (each a “Subsequent Liquidity Event.”). In addition, the principal amount
of the promissory note issued in connection with a Termination Event will be subject to reduction
as of the date of the Subsequent Liquidity Event by an amount that will ensure that, in connection
with the Subsequent Liquidity Event, the Special Limited Partner does not receive in excess of 15%
of the distributions that are made or are deemed to be made by the Partnership after the Partners
(other than the Special Limited Partner) have received or are deemed to have received aggregate,
cumulative distributions equal to their Capital Contributions to the
Partnership plus an 8%
cumulative non-compounded annual pre-tax return thereon.








ARTICLE 9

TRANSFERS OF LIMITED PARTNERSHIP UNITS




     9.1 Purchase for Investment.



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




          (b) Each Limited Partner agrees that he will not sell, assign or otherwise transfer its
Partnership Units 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 9.1(a) above and similarly agree not to sell, assign or
transfer such Partnership Units or fraction thereof to any Person who does not similarly represent,
warrant and agree.




     9.2 Restrictions on Transfer of Limited Partnership Units.



          (a) Subject to the provisions of 9.2(b) and (c), no Limited Partner may offer, sell, assign,
hypothecate, pledge or otherwise transfer all or any portion of its Limited Partnership Units, or
any of such Limited Partner’s economic rights as a Limited Partner, whether voluntarily or by
operation of law or at judicial sale or otherwise (collectively, a “Transfer”) without the
consent of the General Partner, which consent may be granted or withheld in its sole and absolute
discretion. Any such purported transfer undertaken without such consent shall be considered to be
null and void ab initio and shall not be given effect. The General Partner may require, as a
condition of any Transfer to which it consents, that the transferor assume all costs incurred by
the Partnership in connection therewith.




37









 








          (b) No Limited Partner may withdraw from the Partnership other than as a result of a permitted
transfer (i.e., a Transfer consented to as contemplated by clause (a) above or clause (c) below or
a Transfer pursuant to Section 9.5 below) of all of its Partnership Units pursuant to this Article
9 or pursuant to a redemption of all of its Partnership Units pursuant to Section 8.5 or pursuant
to the redemption of the Limited Partner’s Special Partnership Units pursuant to Section 8.6. Upon
the permitted transfer or redemption of all of a Limited Partner’s Partnership Units, such Limited
Partner shall cease to be a Limited Partner.




          (c) Notwithstanding Section 9.2(a) and subject to Sections 9.2(d), (e) and (f) below, a
Limited Partner may Transfer, without the consent of the General Partner, all or a portion of its
Partnership Units to (i) a parent or parent’s spouse, natural or adopted descendant or descendants,
spouse of such descendant, or brother or sister, or a trust created by such Limited Partner for the
benefit of such Limited Partner and/or any such person(s), of which trust such Limited Partner or
any such person(s) is a trustee, (ii) a corporation controlled by a Person or Persons named in (i)
above, or (iii) if the Limited Partner is an entity, its beneficial owners.




          (d) No Limited Partner may effect a Transfer of its Limited Partnership Units, 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 Units under the Securities Act or would otherwise
violate any applicable federal or state securities or blue sky law (including investment
suitability standards).




          (e) No Transfer by a Limited Partner of its PartnershipUnits, in whole or in part, may be made
to any Person if (i) in the opinion of the General Partner based on the advice of legal counsel for
the Partnership, if appropriate, 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 the General Partner based on the advice of
legal counsel for the Partnership, if appropriate, it would adversely affect the ability of the
General Partner to continue to qualify as a REIT or subject the General Partner to any additional
taxes under Section 857 or Section 4981 of the Code, (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, (iv) such Transfer would cause the General Partner
to own 10% or more of the ownership interests of any tenant of a Property held by the partnership
within the meaning of Section 856(d)(2)(B) of the Code, or (v) such Transfer would result in the
General Partner being “closely held” within the meaning of Section 856(h) of the Code.




          (f) No transfer by a Limited Partner 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, 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 any Partnership Units in which a security
interest is held for cash in an amount equal to such Partner’s Capital Account allocable (in the
reasonable determination of the General Partner) to such exchanged or redeemed Partnership Units,
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.




          (g) Any Transfer in contravention of any of the provisions of this Article 9 shall be void and
ineffectual and shall not be binding upon, or recognized by, the Partnership.




38









 








          (h) Prior to the consummation of any Transfer under this Article 9, the transferor and/or the
transferee shall deliver to the General Partner such opinions, certificates and other documents as
the General Partner shall request in connection with such Transfer.




     9.3 Admission of Substitute Limited Partner.



          (a) Subject to the other provisions of this Article 9, an assignee of the Limited Partnership
Units of a Limited Partner (which shall be understood to include any purchaser, transferee, donee,
or other recipient of any disposition of such Limited Partnership Units) shall be deemed admitted
as a Limited Partner of the Partnership only with the consent of the General Partner and 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 9.1(a) hereof and the agreement set forth in Section 9.1(b) hereof.



               (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 8.2 hereof.



               (vi) The assignee shall have paid all legal fees and other expenses 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 appearing in the
records of the Partnership as, a Partner upon the filing of the Certificate described in Section
9.3(a)(ii) hereof 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 9 to the admission of such Person as a Limited
Partner of the Partnership.




39









 








     9.4 Rights of Assignees of Partnership Units.



          (a) Subject to the provisions of Sections 9.1 and 9.2 hereof, 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 Units 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 Units, but does not become a Substitute Limited Partner and desires to make a further
assignment of such Limited Partnership Units shall be subject to all the provisions of this Article
9 to the same extent and in the same manner as any Limited Partner desiring to make an assignment
of its Limited Partnership Units.




     9.5 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 ofits Partnership Units and to join with the
assignee in satisfying conditions precedent to the admission of the assignee as a Substitute
Limited Partner.



     9.6 Joint Ownership of Units.



     A Partnership Unit may be acquired by two individuals as joint tenants with right of
survivorship, provided that such individuals either are 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 Unit shall be required to constitute the action of the owners of such Partnership Unit;
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 Unit held in a joint
tenancy with a right of survivorship, the Partnership Unitshall 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 Unit 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 Unit to be divided into two equal Partnership Units, which shall thereafter be owned
separately by each of the former owners.



ARTICLE 10

BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS




     10.1 Books and Records.



     At all times during the continuance of the Partnership, the Partners 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



40









 







amendment thereto, (c) copies of the Partnership’s federal, state and local income tax returns
and reports, (d) copies of this Agreement and amendments thereto 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.



     10.2 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 10.2(b).




     10.3 Fiscal and Taxable Year.



     The fiscal and taxable year of the Partnership shall be the calendar year.



     10.4 Annual Tax Information and Report.



     Within seventy-five (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.



     10.5 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.




41









 








          (c) In the event of a transfer of all or any part of the Partnership Units 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 Partnership’s assets. Each Partner will furnish the Partnership with all
information necessary to give effect to such election.




          (d) By executing this Agreement, each Partner authorizes and directs the Partnership to elect
to have the “Safe Harbor” described in the proposed Revenue Procedure set forth in Internal revenue
Service Notice 2005-43 (the “Notice”) apply to any interest in the Partnership transferred
to a service provider by the Partnership on or after the effective date of such Revenue Procedure
in connection with services provided to the Partnership. For purposes of making such Safe harbor
election, the General Partner is hereby designated as the “partner who has responsibility for
federal income tax reporting” by the Partnership and, accordingly, execution of such Safe Harbor
election by the General Partner constitutes execution of a “Safe Harbor Election” in accordance
with Section 3.03(1) of the Notice. The partnership and each Partner hereby agrees to comply with
all requirements of the Safe Harbor described in the Notice, including the requirement that each
Partner shall prepare and file all U.S. federal income tax returns reporting the income tax effects
of each Safe Harbor Partnership Unit issued by the Partnership in a manner consistent with the
requirements of the Notice. A Partner’s obligations to comply with the requirements of this
Section 10.5(d) shall survive such Partner’s ceasing to be a Partner of the Partnership and/or the
termination, dissolution, liquidation and winding up of the Partnership, and, for purposes of this
Section 10.5(d), the Partnership shall be treated as continuing in existence. Each partner
authorizes the General Partner to amend this Section 10.5(d) to the extent necessary to achieve
substantially the same tax treatment with respect to any interest in the Partnership transferred to
a service provider by the Partnership in connection with services provided to the Partnership as
set forth in Section 4 of the Notice (e.g., to reflect changes from the rules set forth in the
Notice in subsequent Internal Revenue Service guidance); provided that such amendment is not
materially adverse to such Partner (as compared with the after-tax consequences that would result
if the provisions of the Notice applied to all interests in the Partnership transferred to a
service provider by the Partnership in connection with services provided to the Partnership). Each
Limited Partner further agrees to execute any forms or documents reasonably necessary to effectuate
any of the foregoing provisions of this Section 10.5(d).




     10.6 Reports to Limited Partners.



          (a) 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 General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, 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.




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




ARTICLE 11

AMENDMENT OF AGREEMENT




     The General Partner’s consent shall be required for any amendment to this Agreement. The
General Partner, without the consent of the Limited Partners, may amend this Agreement in any
respect; provided, however, that the following amendments shall require the consent of Limited
Partners holding more than 50% of the Percentage Interests of the Limited Partners:



42









 





     (a) any amendment affecting the operation of the redemption right or conversion right set
forth in Section 8.5 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 4.2 hereof;



     (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 4.2 hereof; or



     (d) any amendment that would impose on the Limited Partners any obligation to make additional
Capital Contributions to the Partnership.



ARTICLE 12

GENERAL PROVISIONS




     12.1 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.



     12.2 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.



     12.3 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.



     12.4 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.



     12.5 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.



43









 





     12.6 Pronouns and Plurals.



     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.



     12.7 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.



     12.8 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.



     12.9 Governing Law.



     This Agreement shall be governed by and construed in accordance with the laws of the State of
Delaware; provided, however, that any cause of action for violation of federal or state securities
laws shall not be governed by this Section 12.9.



[Remainder of Page Intentionally Left Blank]





44












 





     IN WITNESS WHEREOF, the parties hereto have hereunder affixed their signatures to this
Agreement of Limited Partnership Agreement, all as of the            day of                     , 2009.



	 	 	 	 	 
	 	GENERAL PARTNER:



NorthStar Real Estate Income Property Trust, Inc.

 	 
	 	By:  	
 	 
	 	 	David T. Hamamoto, Chief Executive Officer 	 
	 	 	 	 
	 
	 	LIMITED PARTNER:



NS Real Estate Income Trust Advisor, LLC

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	

SPECIAL LIMITED PARTNER



NorthStar OP Holdings, LLC

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



 









 






	 	 	 	 	 



EXHIBIT A

CONTRIBUTIONS & INTEREST




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	Special	 	 	 	 	 	 	Special	 
	 	 	 	 	Cash	 	 	Partnership	 	 	Partnership	 	 	Percentage	 	 	Percentage	 
	Partner	 	Address	 	Contribution	 	 	Units	 	 	Units	 	 	Interest	 	 	Interests	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	GENERAL PARTNER:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	NorthStar Real Estate Income Trust, Inc.
	 	399 Park Avenue, 18th Floor New York, New York 10022	 	$	200,004.48	 	 	 	20,000	 	 	 	—	 	 	 	100	%	 	 	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ORIGINAL LIMITED PARTNERS:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	NS Real Estate Income Trust Advisor, LLC
	 	399 Park Avenue, 18th Floor New York, New York 10022	 	$	1,000	 	 	 	100	 	 	 	—	 	 	 	100	%	 	 	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	NorthStar OP Holdings, LLC
(Special Limited Partner)
	 	399 Park Avenue, 18th Floor New York, New York 10022	 	$	1,000	 	 	 	—	 	 	 	100	 	 	 	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	Totals
	 	 	 	$	202,000	 	 	 	20,100	 	 	 	100	 	 	 	100	%	 	 	100	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






A-1









 






EXHIBIT B

NOTICE OF EXERCISE OF REDEMPTION RIGHT




     In accordance with Section 8.5 of the Limited Partnership Agreement (the “Agreement”) of
NorthStar Real Estate Income Trust Operating Partnership, LP, the undersigned hereby irrevocably
(i) presents for redemption                      Limited Partnership Units in NorthStar Real Estate
Income Trust Operating Partnership, LP in accordance with the terms of the Agreement and the
Redemption Right referred to in Section 8.5 thereof, (ii) surrenders such Limited 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:	 	 
	 
	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Social Security or Tax I.D. Number:	 	 	 	 
	 

	 	 	 

	 	 






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EXHIBIT C

NOTICE OF ELECTION BY PARTNER TO CONVERT LTIP UNITS INTO LIMITED

PARTNERSHIP UNITS




     The undersigned LTIP Holder hereby irrevocably (i) elects to convert the number of LTIP Units
in NorthStar Real Estate Income Trust Operating Partnership, LP (the “Partnership”) set
forth below into Limited Partnership Units in accordance with the terms of the Agreement of Limited
Partnership of the Partnership, as amended; and (ii) directs that any cash in lieu of Limited
Partnership Units that may be deliverable upon such conversion be delivered to the address
specified below.



     The undersigned hereby represents, warrants, and certifies that the undersigned (a) has title
to such LTIP Units, free and clear of the rights or interests of any other person or entity other
than the Partnership; (b) has the full right, power, and authority to cause the conversion of such
LTIP Units as provided herein; and (c) has obtained the consent or approval of all persons or
entities, if any, having the right to consent or approve such conversion.



	 	 	 
	 
	 	 
	Name of Holder:
	 	 
	 
	 	 
	 

(Please Print: Exact Name as Registered with Partnership)

	 	 
	 
	 	 
	Number of LTIP Units to be Converted:
	 	 
	 
	 	 
	 


	 	 
	 
	 	 
	Date of this Notice:
	 	 
	 
	 	 
	 


	 	 
	 
	 	 
	 

(Signature of Holder: Sign Exact Name as Registered with Partnership)

	 	 
	 
	 	 
	 

(Street Address)

	 	 
	 
	 	 
	 

               
(City)                            
(State)                             
(Zip Code)

	 	 
	 
	 	 
	Signature Guaranteed by:
	 	 
	 
	 	 
	 


	 	 






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EXHIBIT D

NOTICE OF ELECTION BY PARTNERSHIP TO FORCE CONVERSION OF LTIP UNITS INTO
 LIMITED PARTNERSHIP UNITS



NorthStar Real Estate Income Trust Operating Partnership, LP (the “Partnership”)
hereby irrevocably elects to cause the number of LTIP Units held by the LTIP Holder set forth
below to be converted into Limited Partnership Units in accordance with the terms of the Agreement
of Limited Partnership of the Partnership, as amended.




	 	 	 
	Name of Holder:
	 	 
	 
	 	 
	 

(Please Print: Exact Name as Registered with Partnership)

	 	 
	 
	 	 
	Number of LTIP Units to be Converted:
	 	 
	 
	 	 
	 


	 	 
	 
	 	 
	Date of this Notice:
	 	 
	 
	 	 
	 
	 	 
	 


	 	 







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