**Exhibit 10.9**

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**INTERCREDITOR AND SUBORDINATION AGREEMENT**

 

 

by and between

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**BANK OF AMERICA, N.A.**,a national banking association,in its capacity as Administrative Agent on behalf of the Senior ConstructionLendersand for its own benefit, as Land Loan Lender

 

 

and

 

 

**BEHRINGER HARVARD ST. ROSE REIT, LLC**,a Delaware limited liability company as Subordinate Lender

 

 

Dated as of December 31, 2008

 

 

Project: Alexan St. Rose Apartments, Henderson, Clark County, Nevada

 

 

 

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**INTERCREDITOR ANDSUBORDINATION AGREEMENT**

 

This **INTERCREDITOR AND SUBORDINATION AGREEMENT** (this “**Agreement**”) dated as of December 31, 2008, by andbetween **BEHRINGER HARVARD ST. ROSE REIT, LLC**, aDelaware limited liability company (“**Subordinate Lender**”)and **BANK OF AMERICA, N.A.**, a nationalbanking association, as Administrative Agent for itself, and the other SeniorConstruction Lenders now or hereafter made a party to the Senior ConstructionLoan Agreement described and defined below (in such capacity, together with anysuccessor Administrative Agent appointed pursuant to such Senior ConstructionLoan Agreement, the “**Administrative Agent**”),and as Land Loan Lender and a Senior Construction Lender (as such terms aredefined below), whose address for the purposes of notice is 700 Louisiana, 5thFloor, P.O. Box 2518, Houston, TX 77252-2518 Attention:  Real Estate Loan Administration; andacknowledged and consented to by SW 132 St. Rose Senior Borrower LLC, aDelaware limited liability company (“**Borrower**”), andSW 131 St. Rose Mezzanine Borrower LLC, a Delaware limited liability company (“**Mezzanine Borrower**”).

 

**R**ECITALS:

 

A.                                   Pursuantto the terms, provisions and conditions set forth in that certain ConstructionLoan Agreement, dated of even date herewith (“**SeniorConstruction Loan Agreement**”), by and between Borrower,Administrative Agent and the lenders now or hereafter made a party thereto(such lenders are sometimes referred to herein, collectively, as the “**Senior Construction Lenders**”), Senior Construction Lendershave made or are about to make a loan to Borrower in the original principalamount of $38,600,000.00 (the “**Senior Construction Loan**”),for the purpose of financing, in part, construction of the Improvements (asdefined in the Senior Construction Loan Agreement) on approximately 18.151acres (such 18.151 acres more or less is referred to herein as the “**Multi-Family Tract**”) of the 24.423 acre parcel of realproperty described on Exhibit A attached hereto (the “**Site Parcel**”);

 

B.                                     TheSenior Construction Loan is evidenced, in part, by one or more Deed of TrustNotes issued by Borrower in accordance with the Senior Construction LoanAgreement (such notes, together with any additional notes in substitution andreplacement thereof, issued by Borrower in accordance with the Senior ConstructionLoan Agreement, as amended, modified, replaced, restated, extended or renewedfrom time to time, are referred to herein, collectively, as the “**Senior Construction Loan Note**”);

 

C.                                     Borrower’sAffiliate, SW 122 St. Rose Senior Borrower LLC, a Delaware limited liabilitycompany (“**Land Loan Borrower**”) also intends toobtain a $2,950,000 land loan (the “**Senior Land Loan**”)from Bank of America, N.A., as a lender for its sole account (in such capacity,“**Land Loan Lender**”), for the purpose offinancing all of the Site Parcel except the Multi-Family Tract (such portion ofthe Site Parcel is referred to herein as the “**CommercialTract**”);

 

D.                                    TheSenior Land Loan is evidenced, in part, by (i) a Deed of Trust Note issuedby Land Loan Borrower to the order of Land Loan Lender in the amount of$2,950,000 (such note, together with any note issued in substitution andreplacement thereof by Land Loan Borrower, as amended, modified, replaced,restated, extended or renewed from time to time, are referred to 

 

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herein, collectively, asthe “**Senior Land Loan Note**”); and (ii) acertain Term Loan Agreement of even date with the Senior Land Loan Note betweenLand Loan Lender and Land Loan Borrower (as amended, supplemented, modified,restated, renewed or extended from time to time, the “**Senior LandLoan Agreement**”);

 

E.                                      TheSenior Construction Loan Note and the Senior Land Loan Note and the totalindebtedness evidenced thereby are guaranteed by J. Ronald Terwilliger, CFPResidential, L.P., Bruce Hart, and Kenneth J. Valach (collectively, the “**Guarantors**”), pursuant to one or more Limited RecourseGuaranty Agreements dated of even date herewith, executed by Guarantors to andfor the benefit of Administrative Agent, for itself and on behalf of the SeniorConstruction Lenders, and to Land Loan Lender, respectively (collectively, the “**Senior Guaranties**”);

 

F.                                      Borrowerand Guarantors also executed and delivered to Administrative Agent, for itselfand on behalf of the Senior Construction Lenders, and to Land Loan Lender,respectively, Environmental Indemnity Agreements, each dated of even dateherewith (together, the “**Senior EnvironmentalIndemnity**”);

 

G.                                     Pursuantto the terms, provisions and conditions set forth in that certain SeniorMezzanine Loan Agreement, dated of even date herewith, between MezzanineBorrower and Subordinate Lender (the “**Senior Mezzanine LoanAgreement**”), and that certain Junior Mezzanine Loan Agreement, datedof even date herewith, between Mezzanine Borrower and Subordinate Lender (the “**Junior Mezzanine Loan Agreement**”; the Senior Mezzanine LoanAgreement and the Junior Mezzanine Loan Agreement are sometimes referred toherein, together, as the “**Mezzanine Loan Agreement**”),Subordinate Lender made one or more loans to Mezzanine Borrower in theaggregate principal amount of $21,043,197.00 (collectively, the “**Mezzanine Loan**”), which Mezzanine Loan is evidenced by thatcertain Senior Mezzanine Promissory Note and Junior Mezzanine Promissory Note,each dated of even date with the Mezzanine Loan Agreement (collectively, the “**Mezzanine Note**”), made by Mezzanine Borrower in favor ofSubordinate Lender in the amount of the Mezzanine Loan;

 

H.                                    TheCommercial Tract and Multi-Family Tract are not currently separate, legal lotsand, in order to properly convey fee title of the Commercial Tract to Land LoanBorrower and to separate the legal entitlements that currently inure to theentirety of the Site Parcel, Borrower must complete a legal subdivision of theSite Parcel;

 

I.                                         LandLoan Borrower has prepared and submitted to the appropriate governmentalauthorities a proposed subdivision map, which map will, upon approval by allapplicable governmental authorities and recordation of the same, establish theMulti-Family Tract and Commercial Tract as separate, legal lots;

 

J.                                        Becausethe final subdivision of the Site Parcel has not yet been completed asdescribed in Section 1.2 of the Senior Construction Loan Agreement, on thedate hereof, Borrower will execute and deliver the following documents:  (i) to Administrative Agent, that certainDeed of Trust, Assignment of Rents and Leases, Security Agreement, FixtureFiling and Financing Statement dated of even date herewith, executed byBorrower for the benefit of Administrative Agent, on behalf of the SeniorConstruction Lenders, encumbering the entirety of the Site Parcel, which shallbe recorded as a first priority lien and security interest in the Official 

 

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Records of Clark County,Nevada (as amended, supplemented, modified, restated, renewed or extended fromtime to time, collectively, the “**Senior Construction LoanDeed of Trust**”); (ii) to Land Loan Lender, that certain Deed ofTrust, Assignment of Rents and Leases, Security Agreement, Fixture Filing andFinancing Statement dated of even date herewith, executed by Borrower for thebenefit of Commercial Tract Lender, encumbering the entirety of the SiteParcel, which shall be recorded as a second priority lien and security interestin the Official Records of Clark County, Nevada (the “**Senior LandLoan Deed of Trust**”) (the Senior Construction Loan Deed of Trust andthe Senior Land Loan Deed of Trust are sometimes referred to herein as the “**Senior Deed of Trust**”); and (iii) to SubordinateLender, those certain Deeds of Trust, Assignment of Rents, Security Agreementand Fixture Filing, dated as of even date herewith, executed by Borrower forthe benefit of Subordinate Lender, encumbering the entirety of the Site Parcel,which shall be recorded as third and fourth priority liens and securityinterests, respectively, in the Official Records of Clark County, Nevada(collectively, the “**Mezzanine Deed of Trust**”);

 

K.                                    Uponcompletion of the final subdivision of the Site Parcel as described in Section 1.2of the Senior Construction Loan Agreement, (i) Borrower will convey theCommercial Tract to Land Loan Borrower, subject to the lien of the Senior LandLoan Deed of Trust, (ii) Land Loan Borrower will assume and perform theobligations of Borrower under the Senior Land Loan Deed of Trust (whereuponBorrower will be released from all obligations and liabilities of, under or inrespect of the Senior Land Loan or the loan documents executed in connectionwith the Senior Land Loan), (iii) Administrative Agent will execute apartial release as to the Senior Construction Loan Deed of Trust to release theCommercial Tract from the lien thereof, (iv) Land Loan Lender will executea partial release as to the Senior Land Loan Deed of Trust to release theMulti-Family Tract from the lien thereof, and (v) Subordinate Lender willexecute a partial release as to each Mezzanine Deed of Trust to release theCommercial Tract from the lien thereof.

 

L.                                      TheSenior Construction Loan Documents contain restrictions on Borrower’s abilityto incur additional indebtedness.  SeniorConstruction Lenders are unwilling to make the Senior Construction Loan andLand Loan Lender is unwilling to make the Senior Land Loan, unless SubordinateLender agrees, subject to the provisions of this Agreement, to subordinate andmake inferior:  (i) the right,title, security interest, lien and interest created by the Mezzanine LoanDocuments to the right, title, security interest, lien and interest of theSenior Deed of Trust and the other Senior Construction Loan Documents andSenior Land Loan Documents; and (ii) Subordinate Lender’s rights toreceive any payments under or on account of the Mezzanine Loan Obligations toSenior Construction Lender’s and Land Loan Lender’s rights to receive paymentsunder or on account of the Senior Construction Loan Obligations and Senior LandLoan Obligations, respectively.

 

**NOWTHEREFORE**, for and in consideration of the mutualcovenants hereinafter set forth and other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, Administrative Agent,for itself and on behalf of the Senior Construction Lenders, Land Loan Lender,and Subordinate Lender hereby agree as follows:

 

1.                                       **Recitals Incorporated**.  The recitals set forth hereinabove areincorporated herein by reference to the same extent and with the same force andeffect as if fully set forth herein 

 

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below, provided, however,that such recitals shall not be deemed to modify the express provisionshereinafter set forth.

 

2.                                       **Definitions**.  The following terms shall have the meaningsindicated below:

 

“Affiliate”means, as to any particular Person, any Person directly or indirectly, throughone or more intermediaries, controlling, Controlled by or under common Controlwith the Person or Persons in question.

 

“Agreement”means this Agreement, as the same may be amended, modified and in effect fromtime to time, pursuant to the terms hereof.

 

“Award”is defined in Section 16.

 

“BankruptcyCode” means the Bankruptcy Code of the United States of America, as thesame may be amended or modified from time to time.

 

“BankruptcyEvent” means (a) any insolvency or bankruptcy case or proceeding, orany receivership, liquidation, reorganization or other similar case orproceeding in connection therewith, relative to Borrower, Mezzanine Borrower ortheir partners or members, or (b) any liquidation, dissolution or otherwinding up of Borrower, Mezzanine Borrower or their partners or members,whether voluntary or involuntary and whether or not involving insolvency orbankruptcy, or (c) any assignment for the benefit of creditors or anyother marshalling of assets or liabilities of Borrower, Mezzanine Borrower ortheir partners or members.

 

“BorrowerAffiliate” means Borrower, Mezzanine Borrower, and Guarantors and any oftheir constituent partners, members or shareholders, however remote, ofBorrower, Mezzanine Borrower or any Guarantor, as applicable.

 

“BusinessDay” means any day other than Saturday, Sunday or a day that is a legalholiday under the laws of the State of Texas or the State of Nevada or on whichbanking institutions in the State of Texas or the State of Nevada are requiredby law or other governmental action to close.

 

“Buy-SellRights” means any option of Subordinate Lender pursuant to the PartnershipAgreement to acquire any beneficial ownership interests of the InvestmentPartnership.

 

“CommercialTract” is defined in the Recitals to this Agreement.

 

“Control”means the ownership, directly or indirectly, in the aggregate of more thanfifty percent (50%) of the beneficial ownership interests of an entity and thepossession, directly or indirectly, of the power to direct or cause thedirection of the management or policies of an entity, whether through theability to exercise voting power, by contract or otherwise.  “**Controlled by**,”“**controlling**” and “**under commoncontrol with**” shall have the respective correlative meaning thereto.

 

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“Default”means a “Default” as such term is defined in the Senior Loan Agreement.

 

“DefaultNotice” is defined in Section 8(a).

 

“EnforcementAction” means any (i) judicial or non-judicial foreclosure proceeding,the exercise of any power of sale, the taking of a deed or assignment in lieuof foreclosure, the obtaining of a receiver or the taking of any otherenforcement action against the Property or Borrower, including, withoutlimitation, the taking of possession or control of the Property, (ii) accelerationof, or demand or action taken in order to collect, all or any indebtednesssecured by the Property (other than giving of notices of default and statementsof overdue amounts) or (iii) exercise of any right or remedy available toAdministrative Agent, on behalf of the Senior Construction Lenders, under theSenior Construction Loan Documents, at law, in equity or otherwise with respectto Borrower and/or the Property; or (iv) prior to the Transfer Date, theexercise of any right or remedy available to Land Loan Lender under the SeniorLand Loan Documents, at law, in equity or otherwise with respect to Borrowerand/or the Property.

 

“Guarantors”is defined in the Recitals to this Agreement.

 

“Improvements”is defined in the Senior Construction Loan Agreement.

 

“InterestReserve” is defined in the Mezzanine Loan Agreement.

 

“InvestmentPartnership” means SW 130 St. Rose Limited Partnership.

 

“Land LoanBorrower” and “Land Loan Lender” each is defined in the Recitals tothis Agreement.

 

“MezzanineDeed of Trust” is defined in the Recitals to this Agreement.

 

“MezzanineLoan” or “Mezzanine Loan Obligations” means all indebtedness,obligations and liabilities of Mezzanine Borrower under the Mezzanine LoanDocuments, including all principal, interest (including interest accruingsubsequent to, and interest that would have accrued but for, the filing of anypetition under any bankruptcy, insolvency or similar law or the commencement ofany Proceeding), default interest, late charges, prepayment fees, expenses,fees, reimbursements, indemnities and other amounts payable thereunder, in eachcase whether now or hereafter arising, direct or indirect, primary orsecondary, joint, several or joint and several, liquidated or unliquidated,final or contingent and whether incurred as a maker, endorser, guarantor orotherwise.

 

“MezzanineLoan Agreement” is defined in the Recitals to this Agreement.

 

“MezzanineLoan Documents” means the Mezzanine Note, the Mezzanine Loan Agreement, theMezzanine Deed of Trust and the other documents listed on Exhibit Bhereto, as any of the foregoing may be modified, amended, extended,supplemented, 

 

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restated or replaced from time to time, subject to the limitations andagreements contained in this Agreement.

 

“MezzanineNote” is defined in the Recitals to this Agreement

 

“Multi-FamilyTract” is defined in the Recitals to this Agreement.

 

“PartnershipAgreement” means the Limited Partnership Agreement of the InvestmentPartnership dated on or about the date hereof between Behringer Harvard St. RoseREIT, LLC, as the sole limited partner, and SW 129 St. Rose LimitedPartnership, as the sole general partner.

 

“Person”means any person, individual, sole proprietorship, partnership, joint venture,corporation, limited liability company, unincorporated organization,association, institution, entity, party, including any government and anypolitical subdivision, agency, or instrumentality thereof.

 

“Proceeding”means (a) any voluntary or involuntary case, action or proceeding beforeany court or other governmental authority relating to bankruptcy,reorganization, insolvency, liquidation, receivership, dissolution, winding-upor relief of debtors, or (b) any general assignment for the benefit ofcreditors, composition, marshaling of assets for creditors, or other, similararrangement in respect of its creditors generally or any substantial portion ofits creditors; undertaken under U.S. Federal, state or foreign law, includingthe Bankruptcy Code.

 

“Property”means, collectively, the real property and all other property (whether real,personal or otherwise) encumbered by the Senior Deed of Trust from time totime; provided, however, that from and after the Transfer Datethe term “**Property**” shall not include theCommercial Tract.

 

“PropertyManager” means Riverstone Residential Group, LLC, the initial propertymanager for the Property or any successor thereto as property manager of theProperty, each as approved by Administrative Agent, on behalf of the SeniorConstruction Lenders.

 

“ProtectiveAdvances” means any and all sums advanced or expended by Senior Lender orby Subordinate Lender (whether deemed optional or obligatory advances, orotherwise) which Senior Lender or Subordinate Lender, as the case may be, deemsnecessary or appropriate (a) to complete construction of the Improvements,including any hard costs or soft costs incurred in connection therewith, withsuch changes to the plans and specifications therefor as may be necessary ordesirable in the discretion of Administrative Agent to complete suchImprovements as expeditiously as possible on such terms and with such labor andmaterials as may be available at any given time, (b) to pay and dischargeany liens against the Property, (c) to market the Property or any portionthereof for sale or to pursue and obtain any development rights or approvalsrequired to make the same marketable for multi-family and commercial usesincluding, the issuance or execution of standby letters of credit or developer’sagreements pertaining to the Property or surrounding properties, (d) torepair, maintain or otherwise protect the 

 

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Property and the Improvements thereon or to prevent waste ordestruction or to defend Borrower’s title or the lien priority of Senior Lender,(e) to pay taxes, assessments or insurance premiums in respect of theProperty or any improvements thereon or to otherwise protect the securityinterests of Senior Lender in the Property, the Improvements and any otherSenior Loan Senior Loan Collateral, or (f) in connection with theprotection or exercise by Senior Lender or Subordinate Lender of its or theirrights or remedies under the Senior Construction Loan Documents, Senior LandLoan Documents or the Mezzanine Loan Documents, as the case may be.

 

“Purchase”is defined in Section 8.

 

“PurchaseClosing Date” is defined in Section 8.

 

“QualifiedManager” shall mean a property manager of the Property which (i) is areputable management company having at least five (5) years’ experience inthe management of commercial properties with similar uses as the Property andin the jurisdiction in which the Property is located, (ii) has, for atleast five (5) years prior to its engagement as property manager, managedat least (5) properties of the same property type as the Property, (iii) atthe time of its engagement as property manager has at least 5,000 units undermanagement, and (iv) is not the subject of a bankruptcy or similarinsolvency proceeding.  Notwithstandingthe foregoing, the initial Person identified herein as the Property Manager ishereby approved as a Qualified Manager.

 

“RequiredLenders” is defined in the Senior Construction Loan Agreement.

 

“SeniorConstruction Loan,” “Senior Construction Loan Agreement,” and “SeniorConstruction Loan Deed of Trust,” each is defined in the Recitals to thisAgreement.

 

“SeniorConstruction Loan Documents” means the Senior Construction Loan Agreement,the Senior Construction Loan Deed of Trust, the Senior Guaranties and theSenior Environmental Indemnity executed in connection with the SeniorConstruction Loan, and any security agreement, pledge agreement, UCC financingstatements, any interest rate swap, collar or other interest rate protectionagreement that Borrower may now or hereafter enter into with AdministrativeAgent, on behalf of the Senior Construction Lenders, pertaining to the SeniorConstruction Loan, and any other document listed on Exhibit C attachedhereto, as any of the foregoing may be modified, amended, extended,supplemented, restated or replaced from time to time, subject to thelimitations and agreements contained in this Agreement.

 

“SeniorConstruction Loan Lenders” and “Senior Construction Loan Note” eachis defined in the Recitals to this Agreement.

 

“SeniorDeed of Trust” is defined in the Recitals to this Agreement.

 

“SeniorEnvironmental Indemnity” is defined in the Recitals to this Agreement.

 

“SeniorGuaranties” is defined in the Recitals to this Agreement.

 

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“SeniorLand Loan,” “Senior Land Loan Agreement,” “Senior Land Loan Deedof Trust,” and “Senior Land Loan Note,” each is defined in theRecitals to this Agreement.

 

“SeniorLand Loan Documents” means the Senior Land Loan Agreement, the Senior LandLoan Deed of Trust, the Senior Guaranties and the Senior EnvironmentalIndemnity executed in connection with the Senior Land Loan, and any securityagreement, pledge agreement, UCC financing statements, any interest rate swap,collar or other interest rate protection agreement that Borrower may now orhereafter enter into with Land Loan Lender, pertaining to the Senior Land Loan,as any of the foregoing may be modified, amended, extended, supplemented,restated or replaced from time to time.

 

“SeniorLender” means Administrative Agent, on behalf of the Senior ConstructionLoan Lenders, Senior Construction Loan Lenders, and Land Loan Lender; provided,however, that after the Transfer Date the term “Senior Lender” shallmean and refer only to Administrative Agent, on behalf of the Senior ConstructionLoan Lenders, and Senior Construction Loan Lenders.

 

“SeniorLoan” means, together, the Senior Construction Loan and the Senior LandLoan; provided, however, that after the Transfer Date, “**Senior Loan**” shall mean and refer only to the Senior ConstructionLoan.

 

“SeniorLoan Collateral” means, collectively, the Property, any improvementsthereon and any and all other property (whether real, personal or otherwise)and interests in property which now constitutes or hereafter will constitutecollateral or other security for payment of the Senior Loan pursuant to theSenior Loan Documents.

 

“SeniorLoan Documents” means the Senior Construction Loan Documents and the SeniorLand Loan Documents; provided, however, that after the TransferDate, “**Senior Loan Documents**” shall mean andrefer only to the Senior Construction Loan Documents.

 

“SeniorLoan Obligations” means all present and future indebtedness, obligationsand liabilities of Borrower under the Senior Loan Documents, including (a) allprincipal (including principal which is borrowed, repaid and reborrowed),interest (including interest accruing subsequent to, and interest that wouldhave accrued but for, the filing of any petition under any bankruptcy,insolvency or similar law or the commencement of any Proceeding), defaultinterest, late charges, prepayment fees, expenses, fees, reimbursementobligations relating to the issuance or execution by Senior Lender of standbyletters of credit or developer’s agreements pertaining to the Property orsurrounding properties, other reimbursements, interest rate swaps, collars orother interest rate protection agreements that Borrower may enter into withSenior Lender pertaining to the Senior Loan, indemnities and other amountspayable thereunder, in each case whether now or hereafter arising, direct orindirect, primary or secondary, joint, several or joint and several, liquidatedor unliquidated, final or contingent, and whether incurred as maker, endorseror otherwise; (b) all indebtedness arising from all present and futureoptional or obligatory advances (including advances to cover overdrafts thatpertain to the Property) under the Senior Note or any other Senior LoanDocument, (c) all amounts due 

 

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and owing to Swap Bank (as defined in the Senior Construction LoanAgreement) in respect of any Swap Transactions (as defined in the SeniorConstruction Loan Deed of Trust), (c) any and all amendments,modifications, extensions, renewals, refinancing or refundings of any of suchindebtedness, obligations or liabilities, and (d) any and all sumsadvanced or expended by Senior Lender (whether deemed optional or obligatoryadvances, or otherwise) which Senior Lender deems necessary or appropriate (1) tomarket the Property or any portion thereof for sale, (2) to repair,maintain or otherwise protect the Property and any improvements thereon or toprevent waste or destruction or to pay or prevent liens or to defend Borrower’stitle or Senior Lender’s lien priority, (3) to pay taxes, assessments orinsurance premiums in respect of the Property or any improvements thereon or tootherwise protect Senior Lender’s security interest in the Property, any suchimprovements and any other Senior Loan Collateral, or (4) in connectionwith Senior Lender’s protection or exercise of its rights or remedies under theSenior Loan Documents.  To the extent anypayment on any of the Senior Loan Obligations, whether by or on behalf ofBorrower, as proceeds of security or enforcement of any right of setoff orotherwise, is recovered by or required to be paid over to Borrower or areceiver, trustee in bankruptcy, liquidating trustee, agent or other Person ina Proceeding, such Senior Loan Obligation or any part thereof originallyintended to be satisfied by such payment shall be deemed to be reinstated andoutstanding as if such payment had not occurred.  All outstanding Senior Loan Obligations shallbe and remain Senior Loan Obligations for all purposes of this Agreement,regardless of whether they are allowed, not allowed or subordinated in anyProceeding.

 

“SeniorNote” is defined in the Recitals to this Agreement.

 

“SpecialModification Terms” means any amendment or modification of the Senior LoanDocuments entered into after the date of this Agreement with respect to thefollowing:  (a) increase theprincipal amount secured by the Senior Deed of Trust (other than increases inrespect of Protective Advances), (b) increase the interest rate (otherthan an increase to a default rate and imposition of late charges), (c) amendor modify the provisions limiting transfers of interests in Borrower or theProperty, (d) shorten the maturity date (except that the foregoing shallnot be deemed to restrict or prohibit Senior Lender from accelerating the maturityof the Senior Loan or Senior Loan Obligations during the existence of aDefault), or (e) amend the default section under the Senior Loan Documentsin a manner that shortens grace or cure periods or adds any provisions tocross-default or cross-collateralize the Senior Loan with any otherindebtedness.

 

“SubordinateLender’s Outside Date” means a date first occurring after the issuance of aDefault Notice that is the date Subordinate Lender’s cure period applicable tosuch Default Notice, as more particularly set forth in Section 8(b) below,expires unless Subordinate Lender has elected in writing to purchase the SeniorLoan pursuant to Section 8(c) below, in which event, “**Subordinate Lender’s Outside Date**” shall be the PurchaseClosing Date.

 

“Transfer Date”has the meaning assigned to such term in the Senior Construction LoanAgreement.

 

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3.                                       **Approval of Loans and LoanDocuments**.

 

(a)                                  Subordinate Lender hereby acknowledgesthat (i) it has received and reviewed and, subject to the terms andconditions of this Agreement, hereby consents to and approves of the making ofthe Senior Loan and, subject to the terms and provisions of this Agreement, allof the terms and provisions of the Senior Loan Documents, (ii) theexecution, delivery and performance of the Senior Loan Documents will notconstitute a default or an event which, with the giving of notice or the lapseof time, or both, would constitute a default under the Mezzanine LoanDocuments, (iii) Senior Lender is under no obligation or duty to, nor hasSenior Lender represented that Senior Lender will, see to the application ofthe proceeds of the Senior Loan by Borrower or any other Person to whom SeniorLender disburses such proceeds, and (iv) any application or use of theproceeds of the Senior Loan for purposes other than those provided in theSenior Loan Documents shall not affect, impair or defeat the terms andprovisions of this Agreement or the Senior Loan Documents.  The foregoing consent and acknowledgement bySubordinate Lender is not intended and shall not be construed to (i) imposeany duty or obligation on Subordinate Lender with respect to Senior Lender orwith respect to the Senior Loan Documents other than as expressly set forth inthis Agreement (and no such duty or obligation shall be implied), or (ii) amendor modify the respective obligations of the parties to the Mezzanine LoanDocuments other than as expressly set forth herein.

 

(b)                                 Senior Lender hereby acknowledges that (i) ithereby consents to and approves of the making of the Mezzanine Loan and,subject to the terms and provisions of this Agreement, the terms of the MezzanineLoan Documents, (ii) the execution and delivery of the Mezzanine LoanDocuments will not constitute a default or an event which, with the giving ofnotice or the lapse of time, or both, would constitute a default under theSenior Loan Documents, (iii) Subordinate Lender is under no obligation orduty to, nor has Subordinate Lender represented that it will, see to theapplication of the proceeds of the Mezzanine Loan by Mezzanine Borrower or anyother Person to whom Subordinate Lender disburses such proceeds and (iv) anyapplication or use of the proceeds of the Mezzanine Loan for purposes otherthan those provided in the Mezzanine Loan Documents shall not affect, impair ordefeat the terms and provisions of this Agreement or the Mezzanine Loan Documents.  The foregoing consent and acknowledgement bySenior Lender is not intended and shall not be construed to (i) impose anyduty or obligation on Senior Lender with respect to Subordinate Lender or withrespect to the Mezzanine Loan Documents other than as expressly set forth inthis Agreement (and no such duty or obligation shall be implied), or (ii) amendor modify the respective obligations of the parties to the Senior LoanDocuments other than as expressly set forth herein.

 

4.                                       **Representations, Warrantiesand Covenants**.

 

(a)                                  Subordinate Lender hereby represents,warrants and covenants as follows:

 

(i)                                     Exhibit B attached hereto and made apart hereof is a true, correct and complete listing of all of the MezzanineLoan Documents.  To Subordinate Lender’s knowledge,there currently exists no default or event which, with the 

 

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giving of notice or the lapse of time, or both, would constitute adefault under any of the Mezzanine Loan Documents.

 

(ii)                                  Subordinate Lender is the legal andbeneficial owner of the entire Mezzanine Loan free and clear of any lien,security interest, option or other charge or encumbrance.

 

(iii)                               There are no conditions precedent to the effectivenessof this Agreement that have not been satisfied or waived.

 

(b)                                 Administrative Agent, for and on behalfof the Senior Construction Loan Lenders and Land Loan Lender each herebyseverally represents, warrants and covenants as follows:

 

(i)                                     Exhibit C attached hereto and made apart hereof is a true, correct and complete listing of the Senior ConstructionLoan Documents and Senior Land Loan Documents, respectively, as of the datehereof.  To Administrative Agent’sknowledge, there currently exists no default or event which, with the giving ofnotice or the lapse of time, or both, would constitute a default under any ofthe Senior Construction Loan Documents. To Land Loan Lender’s knowledge, there currently exists no default orevent which, with the giving of notice or the lapse of time, or both, wouldconstitute a default under any of the Senior Land Loan Documents.

 

(ii)                                  There are no conditions precedent to theeffectiveness of this Agreement that have not been satisfied or waived.

 

5.                                       **Subordination**. Subject to the terms of this Agreement, Subordinate Lender, for itselfand its successors and assigns (including, without limitation, all subsequentholders of the Mezzanine Note and the Mezzanine Deed of Trust) does herebysubordinate (a) the Mezzanine Deed of Trust and the other Mezzanine LoanDocuments, (b) except as set forth in Section 6 below, payment of allof the Mezzanine Loan Obligations, and (c) all of its right, title,security interest, lien, and interest in and to the Property, any improvementsthereon and any other Senior Loan Collateral and all sales proceeds, otherproceeds, rents, issues, and profits therefrom, to (i) the Senior Deed ofTrust and all other Senior Loan Documents, (ii) payment of all of theSenior Loan Obligations, (iii) all of the right, title, security interest,lien and interest held by Senior Lender and the successors and assigns ofSenior Lender (including, without limitation, all subsequent holders of theSenior Note and the Senior Deed of Trust), in and to the Property, anyimprovements thereon and any other Senior Loan Collateral and all salesproceeds, proceeds from insurance or condemnation, other proceeds, rents,issues, and profits therefrom, under and pursuant to (1) the Senior Note, (2) theSenior Deed of Trust, and (3) all other Senior Loan Documents, and any andall extensions, renewals, modifications, and replacements thereof, subject to Section 9hereof.  From and after the date hereof,all of the documents, indebtedness, right, title, security interest, lien, andinterest described in clauses (a), (b) and (c) hereinabove shallbe subject and subordinate to all of the documents, indebtedness, right, title,security interest, lien, and interest described in clauses (i), (ii) and(iii) hereinabove.

 

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6.                                       **Restrictions RegardingPayments**.  Subordinate Lender, for itself and itssuccessors and assigns (including, without limitation, all subsequent holdersof the Mezzanine Note and the Mezzanine Deed of Trust) does hereby agree that,notwithstanding anything provided in the Mezzanine Loan Documents to thecontrary, so long as the Senior Loan Obligations remain outstanding, unlessAdministrative Agent, on behalf of the Senior Construction Loan Lenders, andprior to the Transfer Date, Land Loan Lender, shall consent in writing:

 

(a)                                  **Payments**. Except as provided in paragraph (b) below, Subordinate Lender shallnot accept or receive payments (including, without limitation, whether in cashor other property and whether received directly, indirectly or by set off, counterclaimor otherwise) from Borrower, Guarantors and/or from the Property prior to thedate that all obligations of Borrower to Administrative Agent and Senior Lenderunder the Senior Loan Documents are paid. If a Proceeding shall have occurred or a Default shall have occurred andbe continuing, Administrative Agent and Senior Lender shall be entitled toreceive payment and performance in full of all amounts due or to become due toAdministrative Agent and Senior Lender before Subordinate Lender is entitled toreceive any payment on account of the Mezzanine Loan Obligations.  All payments or distributions upon or withrespect to the Mezzanine Loan Obligations which are received by SubordinateLender contrary to the provisions of this Agreement shall be received and heldin trust by the Subordinate Lender for the benefit of Senior Lender and shallbe paid over to Administrative Agent, for the benefit of Senior Lender, in thesame form as so received (with any necessary endorsement) to be applied (in thecase of cash) to, or held as collateral (in the case of non cash property orsecurities) for, the payment or performance of the Senior Loan Obligations inaccordance with the terms of the Senior Loan Documents.  Nothing contained herein shall prohibit the SubordinateLender from making Protective Advances (and adding the amount thereof to theprincipal balance of the Mezzanine Loan Obligations) notwithstanding theexistence of a Default under the Senior Loan Obligations at such time.  Notwithstanding anything to the contrarycontained herein, Subordinate Lender shall not be permitted to accept anyprepayment of the Mezzanine Loan without the prior written consent of theRequired Lenders at any time that any of the Senior Loan Obligations remainoutstanding and unpaid.

 

(b)                                 **Permitted Payments**. Notwithstanding the foregoing or any provision of this Agreement to thecontrary, provided that no Default shall then exist under the Senior LoanDocuments and no Proceeding is pending, Subordinate Lender may accept (i) commitmentfees and scheduled payments of interest (calculated at the non-default rate) asand when the same is due and payable from the Interest Reserve in accordancewith the terms and conditions of the Mezzanine Loan Documents or from Net CashFlow (as such term is defined in the Mezzanine Note), and (ii) otheramounts payable to Subordinate Lender on any settlement statement evidencingthe initial advance of Mezzanine Loan to Mezzanine Borrower, and SubordinateLender shall have no obligation to pay over to Senior Lender any such amountspaid to Subordinate Lender in accordance with the terms of this paragraph.

 

(c)                                  **Payments Held in Trust forSenior Lender**.  In the event that any payment is made toSubordinate Lender which is not permitted under this Agreement, 

 

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such payments shall be held by Subordinate Lender in trust for thebenefit of Senior Lender and shall be paid forthwith over and delivered toSenior Lender for application to the payment of all of the Senior LoanObligations remaining unpaid.

 

7.                                       **Enforcement of MezzanineLoan Documents**.  So long as any of the Senior Loan Obligationsremains outstanding, Subordinate Lender agrees as follows:

 

(a)                                  Subordinate Lender shall not assert,foreclose, enforce, realize upon or bring a legal action with respect to theMezzanine Loan Obligations, or any part thereof, the Mezzanine Deed of Trust,any of the other Mezzanine Loan Documents; provided, however,that (i) upon the occurrence of any default under the Mezzanine LoanDocuments and so long as no Default exists under the Senior Loan Documents,Subordinate Lender may seek collection from or otherwise pursue Guarantorsunder the guaranty of the Mezzanine Loan described in Exhibit B attachedhereto; and/or (ii) Subordinate Lender may seek collection from orotherwise pursue Guarantors under the applicable provisions of the PartnershipAgreement and the joinder page thereto. Subordinate Lender shall, prior to commencing any action to enforce anyrights against the Guarantors, give Administrative Agent written notice of thedefault which would permit Subordinate Lender to commence such enforcementaction, and Subordinate Lender shall promptly provide Administrative Agent withcopies of any and all material notices, pleadings, agreements, motions andbriefs served upon, delivered to or with any party to any such enforcementaction and otherwise keep Administrative Agent reasonably apprised as to thestatus of any enforcement action.

 

(b)                                 In addition, the Mezzanine Deed of Trustshall, by its terms, be deemed to have been released and discharged andSubordinate Lender shall have no further rights, claims or interests in theProperty or any other property, rights or interests encumbered by the MezzanineDeed of Trust and Subordinate Lender shall, if requested by AdministrativeAgent or any title company, immediately deliver to Administrative Agent awritten release or reconveyance of lien confirming the release and terminationof the Mezzanine Deed of Trust upon the occurrence of any one or more of thefollowing events (each, a “**Termination Event**”):

 

(i)                                     the occurrence or commencement of anyProceeding with respect to Borrower, Mezzanine Borrower or the InvestmentPartnership, or any other owner of any interest, direct or indirect inBorrower, Mezzanine Borrower or the Investment Partnership;

 

(ii)                                  the conveyance of the Property toAdministrative Agent, any Senior Lender, or their designees in connection witha deed in lieu of foreclosure transaction; or

 

(iii)                               a Default resulting from a Monetary Default which isnot cured by Subordinate Lender within the cure period specified in Section 10of this Agreement and following which the Senior Loan Obligations areaccelerated pursuant to the Senior Loan Documents.

 

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To induce Administrative Agent and Senior Lender toconsent to the Mezzanine Deed of Trust, Subordinate Lender hereby covenants andagrees that until the Senior Loan Obligations have been paid in full and allpreconditions to the release and discharge of the Senior Deed of Trust havebeen satisfied (i) the Mezzanine Deed of Trust shall not be amended,modified or supplemented without the prior written consent of the RequiredLenders, (ii) the Senior Deed of Trust shall govern and control over anycontrary provision of the Mezzanine Deed of Trust with respect to casualty andcondemnation and the distribution of insurance proceeds and condemnationawards, and (iii) Subordinate Lender hereby appoints Administrative Agentas its attorney-in-fact, coupled with an interest, to execute, deliver andrecord such releases and discharges as may be necessary to fully release theMezzanine Deed of Trust from the Property and all other property, rights andinterests encumbered by the Mezzanine Deed of Trust, which such power may beexercised only after a Termination Event.

 

(c)                                  Administrative Agent, on behalf of theSenior Construction Lenders, hereby consents to Subordinate Lender’s right,pursuant to the Mezzanine Loan Documents, under certain circumstances, to causethe termination of the Property Manager. If both Subordinate Lender and Administrative Agent shall have suchrights at any time, and Administrative Agent shall fail to exercise such rightson behalf of the Senior Construction Lenders, Subordinate Lender may exercisesuch rights, provided such exercise may be superseded by any subsequentexercise of such rights by Administrative Agent pursuant to the Senior LoanDocuments.  Upon the occurrence of anyevent which would entitle Subordinate Lender to cause the termination of theProperty Manager pursuant to the Mezzanine Loan Documents, Subordinate Lendershall have the right to select, or cause the selection, of a replacementproperty manager (including any asset manager) or leasing agent for theProperty, which replacement manager, asset manager and/or leasing agent shall (i) bea Qualified Manager and (ii) be subject to the reasonable approval ofAdministrative Agent (or the Required Lenders if the consent of the RequiredLenders is necessary).  Notwithstandinganything in this Section to the contrary, if a Default under the SeniorLoan then exists or any other event shall have occurred pursuant to whichAdministrative Agent, on behalf of the Senior Construction Lenders, has theright to select any replacement manager, asset manager and/or leasing agentpursuant to the Senior Loan Documents, Administrative Agent shall have the soleright to select any replacement manager, asset manager and/or leasing agent,whether or not a new manager or leasing agent was retained by SubordinateLender.

 

8.                                       **Default under Senior LoanDocuments**.

 

(a)                                  **Default Notice**. Prior to commencing any Enforcement Action under the Senior LoanDocuments, Senior Lender shall provide Subordinate Lender with a copy of anywritten notice (the “**Default Notice**”)sent by Senior Lender to Borrower regarding the occurrence of a Default.

 

(b)                                 **Subordinate Lender’s CureRight**.  Subordinate Lender shall have the right, butnot the obligation, to cure any Default under any of the Senior Loan Documentswithin the later of the (i) the expiration of Borrower’s cure period underthe Senior Loan 

 

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Documents with respect to such Default or (ii) five (5) BusinessDays after the giving of the Default Notice if such cure can be accomplished bythe payment of a liquidated sum of money (herein, a “**MonetaryDefault**”).  In addition, ifthe Default Notice relates to a Default other than a Monetary Default (herein,a “**Non-Monetary Default**”), SubordinateLender shall have the right, but not the obligation to cure such Non-MonetaryDefault providedthat if such Non Monetary Default is susceptibleof cure but cannot reasonably be cured within thirty (30) days and if curativeaction was promptly commenced and is being continuously and diligently pursuedby Subordinate Lender, Subordinate Lender shall be given an additional periodof time as is reasonably necessary for Subordinate Lender in the exercise ofdue diligence to cure such Non-Monetary Default for so long as (i) SubordinateLender makes or causes to be made timely payment of Borrower’s regularlyscheduled monthly principal and/or interest and/or other payments under theSenior Loan Documents and any other amounts due under the Senior LoanDocuments, (ii) such additional period of time does not exceed thirty (30)days, unless such Non-Monetary Default is of a nature that it cannot be curedwithin such thirty (30) days, in which case, Subordinate Lender shall have suchadditional time as is reasonably necessary to cure such Non-Monetary Defaultnot to exceed one hundred twenty (120) days from the Default Notice so long asSubordinate Lender is diligently pursuing same, (iii) such Non-MonetaryDefault is not caused by a Proceeding, and (iv) during such cure period,there is (1) no material impairment to the value, use or operation of theProperty, and (2) no violations of any applicable law, regulation orordinance having jurisdiction over the Property.  Subordinate Lender acknowledges and agreesthat Senior Lender’s failure to provide Subordinate Lender with a copy of anyDefault Notice delivered to Borrower shall not defeat or impair thesubordination and other agreements herein made, nor shall it defeat, impair orprevent Senior Lender from exercising any of its rights or remedies as a resultof such Default in whole or in part subject to Subordinate Lender’s right tocure upon Senior Lender’s delivery to Subordinate Lender of the applicableDefault Notice.  The foregoing cureperiods shall automatically terminate upon the occurrence of a Proceeding.  During any cure period granted herein toSubordinate Lender, Senior Lender shall be entitled to begin exercising anyrights and remedies it has under the Senior Loan Documents and under applicablelaw as a result of such Default, and such Default shall not be cured unless anduntil the particular Default under the Senior Loan Documents has been remediedand Senior Lender has been fully reimbursed for all costs and expenses incurredby Senior Lender in so exercising its rights (including attorneys’ fees andcosts and foreclosure costs).

 

(c)                                  **Subordinate Lender’s Rightto Purchase Senior Loan**.  Upon deliveryof a copy of the Default Notice to Subordinate Lender, Subordinate Lender shallhave the right, but not the obligation, to purchase the Senior Loan at par fora purchase price equal to the sum of (i) all amounts, if any, due andpayable to Swap Bank in connection with the termination of any SwapTransactions and the early termination and acceleration of all SwapTransactions executed by Borrower, (ii) the outstanding principal balanceof the Senior Loan, together with all accrued interest and other amounts duethereon (including, without limitation, any late charges, default interest,breakage fees, exit fees, advances and post petition interest), and (iii) anyProtective Advances made by Administrative Agent, on behalf of Senior Lender,and any interest charged by Senior Lender on any advances for monthly paymentsof principal and/or interest on the Senior Loan 

 

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Obligations and/or on any Protective Advances), including all costs andexpenses (including legal fees and expenses) actually incurred byAdministrative Agent and Senior Lender in enforcing the terms of the SeniorLoan Documents (the “**Loan Purchase Price**”).  If Subordinate Lender elects in writing topurchase the Senior Loan (the “**Purchase**”), thePurchase shall close (“**Purchase Closing Date**”)on a date selected by Subordinate Lender that is no later than (30) days afterthe delivery of a copy of the Default Notice to Subordinate Lender.  Concurrently with payment to Senior Lender ofthe Loan Purchase Price, Senior Lender shall deliver or cause to be deliveredto Subordinate Lender all Senior Loan Documents held by or on behalf of SeniorLender and will execute in favor of Subordinate Lender or its designeeassignment documentation, in form and substance reasonably acceptable toSubordinate Lender, Administrative Agent and the Required Lenders, at the solecost and expense of Subordinate Lender, to assign the Senior Loan and therights of Senior Lender under the Senior Loan Documents (without recourse,representations or warranties, except for representations as to the outstandingbalance of the Senior Loan and as to Senior Lender’s not having assigned orencumbered its rights in the Senior Loan). Upon consummation of the Purchase, Subordinate Lender shall besubrogated to the rights of Senior Lender under the Senior Loan Documents.

 

(d)                                 **Failure to Elect toPurchase Senior Loan**.  If Subordinate Lender has theright to purchase the Senior Loan under Section 8(c), and the SubordinateLender does not elect to purchase the Senior Loan and close the Purchase by thePurchase Closing Date, then Senior Lender thereafter shall have the right toamend, modify, restructure or extend the Senior Deed of Trust or any otherSenior Loan Documents (including without limitation any and all SpecialModification Terms) without notice to or the consent of SubordinateLender.  In such event, the MezzanineLoan, the Mezzanine Deed of Trust and the other Mezzanine Loan Documents andall indebtedness, obligations, liens and security interests evidenced orsecured thereby or from time to time outstanding thereunder shall continue tobe junior, subject, and subordinate in all respects to the Senior Loan, theSenior Deed of Trust and the Senior Loan Documents, as so amended, modified,extended, or restructured (including without limitation any and all SpecialModification Terms).  Third partiesincluding title insurance companies insuring the priority of the Senior Deed ofTrust are hereby authorized to rely on this provision as to the priority of theSenior Loan Documents, as so amended, modified, extended or restructured,without any requirement to confirm such senior position from SubordinateLender.

 

(e)                                  **No Sale to BorrowerAffiliate**.  Senior Lender covenants not to sell any ofthe Senior Loan Obligations to Borrower or any Borrower Affiliate without theprior written consent of Subordinate Lender. Subordinate Lender covenants not to sell any of the Mezzanine LoanObligations to Borrower or any Borrower Affiliate without the prior writtenconsent of Administrative Agent and the Required Lenders.

 

9.                                       **Changes in Special ModificationTerms**.  Except as otherwise provided in Section 8(d),Senior Lender shall not modify any of the Special Modification Terms in theSenior Loan Documents without the prior written approval of SubordinateLender.  In addition and notwithstanding theforegoing provisions of this Section 9, any amounts funded by Senior 

 

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Lender under the SeniorLoan Documents as a result of (A) the making of any Protective Advances bySenior Lender, or (B) interest accruals (including default interest andlate charges), shall not be deemed to contravene this Section 9.  Administrative Agent shall deliver toSubordinate Lender copies of any and all modifications, amendments, extensions,consolidations, spreaders, restatements, alterations, changes or revisions toany one or more of the Senior Loan Documents (including, without limitation,any side letters, waivers or consents entered into, executed or delivered byAdministrative Agent, on behalf of Senior Lender) within a reasonable timeafter any of such applicable instruments have been executed by AdministrativeAgent.

 

10.                                 **Senior Lender’s Freedom ofAction**.  Subordinate Lender agrees that Senior Lendermay at any time and from time to time, without notice to or the consent ofSubordinate Lender, and without affecting the subordination and otheragreements herein made by Subordinate Lender, do any one or more of thefollowing in Senior Lender’s sole and absolute discretion (subject, however,to the restriction on Special Modification Terms set forth herein):

 

(a)                                  Extend, renew, modify, amend, increase,diminish or waive any of the terms of any of the Senior Loan Documents,including, without limitation, payment provisions under any of the Senior LoanDocuments and provisions relating to the Property or grant any other indulgenceto Borrower or any other Person in respect of any or all of the Senior LoanObligations or any other matter;

 

(b)                                 Make such Protective Advances as SeniorLender may deem appropriate (it being understood that Senior Lender has not inany way committed to make any such Protective Advances);

 

(c)                                  At any time after Subordinate Lender’sOutside Date, add or substitute, or take any action or omit to take any actionwhich results in the release of any endorser, guarantor or any collateral orsecurity;

 

(d)                                 Apply any sums received from Borrower,any guarantor, endorser, or cosigner, or from the disposition of any SeniorLoan Collateral or security, to any indebtedness whatsoever owing from suchPerson or secured by such Senior Loan Collateral or security, in such mannerand order as Senior Lender determines in its sole discretion, and regardless ofwhether such indebtedness is part of the Senior Loan Obligations, is secured,or is due and payable;

 

(e)                                  Make loans or advances to Borrowersecured in whole or in part by the Senior Loan Collateral or refrain frommaking any such loans or advances;

 

(f)                                    Accept partial payments of, compromise orsettle, refuse to enforce, or release all or any parties to, any or all of theSenior Loan Obligations;

 

(g)                                 Settle, release (with or without receiptof consideration therefor, and whether by operation of law or otherwise),compound, compromise, collect or liquidate any of the Senior Loan Obligationsin any manner permitted by applicable law; provided, however,Senior Lender shall not release any of the Senior Loan Collateral or anyguarantor of the Senior Loan Obligations prior to Subordinate Lender’s OutsideDate; and

 

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(h)                                 Accept, release (with or without receiptof consideration), waive, surrender, enforce, exchange, modify, impair orextend the time for the performance, discharge or payment of, any and allproperty of any kind securing any or all of the Senior Loan Obligations or anyguaranty of any or all of the Senior Loan Obligations, or on which SeniorLender at any time may have a lien, or refuse to enforce its rights or make anycompromise or settlement or agreement therefor in respect of any or all of suchproperty; Senior Lender is not under and shall not hereafter be under anyobligation to marshal any assets in favor of Subordinate Lender, or against orin payment of any or all of the Senior Loan Obligations, and may proceedagainst any of the Senior Loan Collateral in such order and manner as itelects; provided, however, Senior Lender shall not release any ofthe Senior Loan Collateral or any guarantor of the Senior Loan Obligationsprior to Subordinate Lender’s Outside Date.

 

All such actions, rights and matters set forth in (a) through(h) above shall be senior in all respects to the Mezzanine LoanObligations and the Mezzanine Loan Documents which shall automatically besubordinate to such actions, rights and matters set forth in (a) through (h) above.  Third parties including title insurancecompanies insuring the priority of the Senior Loan Documents are herebyauthorized to rely upon this provision as to the priority of such matterswithout requirement to confirm such senior position from Subordinate Lender.

 

11.                                 **Buy-Sell Rights**. Notwithstanding any provision of this Agreement to the contrary,Subordinate Lender shall have the right, without the consent of Senior Lenderin each instance, to exercise the Buy-Sell Rights after the Completion Date (asdefined in the Senior Loan Documents).

 

12.                                 **No Transfer of MezzanineLoan; Refinancing**.  Subordinate Lender agrees thatit shall not sell, assign, pledge, encumber or otherwise transfer any portionof its interest in the Mezzanine Loan Documents without the prior writtenconsent of the Required Lenders, which consent shall be given or withheld inthe good faith business judgment of Required Lenders; provided, thatSubordinate Lender shall have the right to transfer its interest in theMezzanine Loan (or any part thereof or interest therein) to an Affiliate uponfifteen (15) days’ prior written notice to Administrative Agent anddelivery to Administrative Agent by such affiliate of an assumption agreementwhereby it assumes all of Subordinate Lender’s obligations hereunder.  Any such transferee must assume in writingthe obligations of Subordinate Lender hereunder and agree to be bound by theterms and provisions of this Agreement. Such transferee shall also reaffirm, in writing, in all materialrespects each of the representations and warranties contained herein for thebenefit of Administrative Agent and Senior Lender.  Subordinate Lender shall provideAdministrative Agent, for the benefit of and distribution to Senior Lender,such financial and other information on the proposed assignee as AdministrativeAgent or Senior Lender reasonably requests. In addition, so long as any of the Senior Loan Obligations remainsoutstanding, any refinance of the Mezzanine Loan Obligations shall be subjectto the prior written approval of the Required Lenders as to the terms thereofand the refinance lender, which approval may be granted or withheld by RequiredLenders in their sole discretion.

 

13.                                 **Modification of MezzanineLoan Documents**.  Subordinate Lender shall have the right, withoutthe consent of Senior Lender in each instance, to enter into any amendment,deferral, extension, modification, increase, renewal, replacement,consolidation, supplement or 

 

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waiver (collectively, a “**Mezzanine Loan Modification**”) of the Mezzanine Loan or theMezzanine Loan Documents; provided that no such Mezzanine LoanModification shall (a) increase the interest rate or principal amount ofthe Mezzanine Loan; (b) increase in any other material respect anymonetary obligations of Mezzanine Borrower under the Mezzanine Loan Documents; (c) shortenthe scheduled maturity date of the Mezzanine Loan; (d) cross default theMezzanine Loan with any other indebtedness; or (e) amend the paymentprovisions of the Mezzanine Note (or the definition of “Net Cash Flow” in theMezzanine Note) or otherwise modify the amount or timing of the payments on theMezzanine Note.  Notwithstanding theforegoing provisions, any amounts funded by the Subordinate Lender under theMezzanine Loan Documents as a result of (i) the making of any ProtectiveAdvances or other advances by the Subordinate Lender, or (ii) interestaccruals or accretions and any compounding thereof (including defaultinterest), shall not be deemed to contravene this Section 13.  Subordinate Lender shall deliver toAdministrative Agent, for distribution to Senior Lender, copies of any and allmodifications, amendments, extensions, consolidations, spreaders, restatements,alterations, changes or revisions to any one or more of the Mezzanine LoanDocuments (including, without limitation, any side letters, waivers or consentsentered into, executed or delivered by Subordinate Lender) within a reasonabletime after any of such applicable instruments have been executed by SubordinateLender.

 

14.                                 **Dealings with Borrower**.

 

(a)                                  In making disbursements under any of theSenior Loan Documents, Senior Lender has no duty to, nor has Senior Lenderrepresented that it will, see to the application of any proceeds by the Personor Persons to whom Senior Lender disburses such proceeds.  Any application or use of such proceeds forpurposes other than those provided for in the Senior Loan Documents does notand shall not defeat the subordination herein made, in whole or in part.

 

(b)                                 In making disbursements under any of theSenior Loan Documents, Senior Lender may waive any and all conditions to adisbursement contained in the Senior Loan Documents.  No such waiver shall defeat the subordinationherein made, in whole or in part.

 

(c)                                  The rights granted to Senior Lenderhereunder are solely for its protection and nothing herein contained shallimpose on Senior Lender any duties with respect to Borrower.

 

15.                                 **Assignment of the SeniorLoan Obligations**.  Senior Lender may assign or transfer any orall of the Senior Loan Obligations and/or any interest therein or herein,subject to this Agreement, and, notwithstanding any such assignment or transferor any subsequent assignment or transfer thereof, such Senior Loan Obligationsshall be and remain senior to the Mezzanine Loan Obligations, and the MezzanineLoan Obligations shall be and remain subject and subordinate to the Senior LoanObligations for the purposes of this Agreement, and every immediate andsuccessive assignee or transferee of any of the Senior Loan Obligations or ofany interest therein or herein shall, to the extent of the interest of suchassignee or transferee in the Senior Loan Obligations, be entitled to thebenefits of this Agreement and subject to the burdens of this Agreement to thesame extent as if such assignee or transferee were Senior Lender;

 

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provided,however, that, unless Senior Lender shall otherwise consent in writing,Senior Lender shall have an unimpaired right, prior and superior to that of anysuch assignee or transferee, to enforce this Agreement, as to those portions ofthe Senior Loan Obligations which Senior Lender has not assigned ortransferred.

 

16.           **Casualty**.  In the event of a casualty to theImprovements or a condemnation or taking under a power of eminent domain of allor any portion of the Property, Senior Lender shall have a first and priorinterest in and to any payments, awards, proceeds, distributions, orconsideration arising from any such event (the “**Award**”).  However, if the amount of the Award is inexcess of all amounts owed to Administrative Agent and Senior Lender under theSenior Loan Documents, then upon payment in full of the Senior LoanObligations, such excess Award shall be paid to or at the direction ofSubordinate Lender, unless other Persons have claims to such awards orproceeds, in which case Administrative Agent shall only be required to providenotice to Subordinate Lender of such excess Award and of any such claimsthereto.  In the event of any competingclaims for any such excess Award other than claims by Borrower, AdministrativeAgent shall continue to hold such excess Award until Administrative Agentreceives an agreement signed by all Persons making a claim to the excess Awardor a final order of a court of competent jurisdiction directing AdministrativeAgent as to how and to which Persons, the excess Award is to bedistributed.  Alternatively,Administrative Agent may tender such excess Award to the registry of any stateor federal court sitting in Dallas, Texas, pending resolution of all competingclaims thereto, whereupon Administrative Agent shall have no furtherobligations with respect to such excess Award. If Administrative Agent shall release any Award or portion thereof toBorrower pursuant to the Senior Loan Documents in order to repair and restorethe Property in accordance with the terms and provisions of the Senior LoanDocuments, such Award or portion thereof made available to Borrower for therepair or restoration of the Property shall not be subject to attachment bySubordinate Lender

 

17.           **Bankruptcy**.

 

(a)           Uponany distribution of the assets or properties of Borrower or upon anydissolution, winding up, liquidation, bankruptcy or reorganization involvingBorrower (whether in bankruptcy, insolvency or receivership proceedings or anyother Proceeding, or upon an assignment for the benefit of creditors orotherwise):

 

(i)            SeniorLender shall first be entitled to receive payment in full of the principal ofand interest on the Senior Loan Obligations and all fees and any other payments(including post-petition interest and all costs and expenses) due pursuant tothe terms of the Senior Loan Documents, before Subordinate Lender is entitledto receive any payment on account of the Mezzanine Loan Obligations; and

 

(ii)           anypayment or distribution of the assets or properties of Borrower of any kind orcharacter, whether in cash, property, or securities, to which SubordinateLender would be entitled except for the provisions of this Agreement, shall bepaid by the debtor in possession, liquidating trustee or agent or other personmaking such payment or distribution directly to Senior Lender; and

 

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(iii)          in the event that, notwithstanding theforegoing, any payment or distribution of the assets or properties of Borrowerof any kind or character, whether in cash, property, or securities, shall bereceived by Subordinate Lender on account of principal, interest, fees, orother amounts on or with respect to the Mezzanine Loan Obligations before allof the Senior Loan Obligations are paid in full, such payments or distributionshall be received and held in trust for and shall be paid over to Senior Lenderforthwith, for application to the payment of the Senior Loan Obligations untilall such Senior Loan Obligations shall have been paid in full in accordancewith the terms of the Senior Loan Documents.

 

(b)           Toeffectuate the foregoing, Subordinate Lender does hereby irrevocably assign toSenior Lender all of Subordinate Lender’s rights as a secured or unsecuredcreditor in any Proceeding and authorizes Senior Lender to take, or refrainfrom taking, any action to assert, enforce, modify, waive, release or extendSubordinate Lender’s lien and/or claim in such Proceeding, including but notlimited to (i) filing a proof of claim arising out of the Mezzanine LoanObligations, (ii) voting or refraining from voting claims arising from theMezzanine Loan Obligations, either in Administrative Agent’s name, on behalf ofSenior Lender, or in the name of Administrative Agent as attorney-in-fact ofSubordinate Lender including without limitation, the right to vote to accept orreject a plan, or to make any election under Section 1111(b) of theBankruptcy Code, and no other parties other than Administrative Agent shallhave the right to exercise such voting rights, (iii) accepting orrejecting any payment or distribution made with respect to any claim arisingfrom the Mezzanine Loan Obligations and applying such payment and distributionto payment of Senior Lender’s claim until the Senior Loan Obligations are paidand satisfied in full in accordance with their terms, and (iv) taking anyand all actions and executing any and all instruments necessary to effectuatethe foregoing and, among other things, to establish Senior Lender’s entitlementto assert Subordinate Lender’s claim in such Proceeding.  Notwithstanding the foregoing provisions,with respect to any plan of reorganization proposed in a Proceeding in respectof which creditors are voting, Administrative Agent may vote on behalf ofSubordinate Lender only if the proposed plan would result in Senior Lenderbeing “**impaired**” (as such term is defined inthe Bankruptcy Code).

 

(c)           SubordinateLender agrees that Administrative Agent and Senior Lender owe no fiduciary dutyto Subordinate Lender in connection with the administration of the Senior LoanObligations and the Senior Loan Documents and Subordinate Lender agrees not toassert any such claim.  AdministrativeAgent, on behalf of Senior Lender, agrees that Subordinate Lender owes nofiduciary duty to Administrative Agent and Senior Lender in connection with theadministration of the Mezzanine Loan and the Mezzanine Loan Documents and eachof Administrative Agent and Senior Lender agree not to assert any such claim.

 

(d)           Nopayment or distribution to Administrative Agent or Senior Lender pursuant tothe provisions of this Agreement and no Protective Advance by SubordinateLender shall entitle Subordinate Lender to exercise any right of subrogation inrespect thereof prior to the payment in full of the Senior Loan Obligations,and Subordinate Lender agrees that, except with respect to the enforcement ofits remedies under the

 

21

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Mezzanine Loan Documents permitted hereunder, prior to the satisfactionof all Senior Loan Obligations, Subordinate Lender shall not acquire, bysubrogation or otherwise, any lien, security interest, estate, right or otherinterest in any portion of the Property or any other collateral now securingthe Senior Loan Obligations or the proceeds therefrom, including withoutlimitation, any lien, security interest, estate, right or other interest in anyportion of the Property that is or may be prior to, or of equal priority to,any of the Senior Loan Documents or the liens, rights, estates and interests createdthereby.

 

(e)           Theprovisions of this Agreement shall be applicable both before and after thecommencement, whether voluntary or involuntary, of any Proceeding involvingBorrower, Mezzanine Borrower or Investment Partnership.  For as long as the Senior Loan Obligationsshall remain outstanding, Subordinate Lender shall not, and shall not solicitany person or entity to, and shall not direct or cause any Borrower Affiliateto:  (i) commence any Proceeding; (ii) instituteproceedings to have any Borrower Affiliate adjudicated a bankrupt or insolvent;(iii) consent to, or acquiesce in, the institution of bankruptcy orinsolvency proceedings against any Borrower Affiliate; (iv) file apetition or consent to the filing of a petition seeking reorganization, arrangement,adjustment, winding up, dissolution, composition, liquidation or other reliefby or on behalf of any Borrower Affiliate; (v) seek or consent to theappointment of a receiver, liquidator, assignee, trustee, sequestrator,custodian or any similar official for any Borrower Affiliate, the Property (orany portion thereof) or any other collateral securing the Senior LoanObligations (or any portion thereof); (vi) make an assignment for thebenefit of any creditor of any Borrower Affiliate; (vii) seek toconsolidate the Property or any other assets of any Borrower Affiliate with theassets of any other Borrower Affiliate in any Proceeding; or (viii) takeany action in furtherance of any of the foregoing.

 

18.           **AdditionalWaivers and Agreements**.

 

(a)           SubordinateLender waives the right to require Senior Lender to proceed against Borrower orany other Person liable on any Senior Loan Obligation, to proceed against orexhaust any security held from Borrower or other Person, or to pursue any otherremedy in Senior Lender’s power whatsoever, and Subordinate Lender waives theright to have the property of Borrower first applied to the discharge of anySenior Loan Obligation.  Subject to theterms of this Agreement, Senior Lender may, at its election, exercise any rightor remedy Senior Lender may have against Borrower or any security held bySenior Lender, including, without limitation, the right to foreclose upon anysuch security by one or more judicial or nonjudicial sales, whether or notevery aspect of any such sale is commercially reasonable, without affecting orimpairing in any way the obligations of Subordinate Lender hereunder, except tothe extent the Senior Loan Obligations have been paid, and Subordinate Lenderwaives any defense arising out of the absence, impairment or loss of any rightof reimbursement, contribution or subrogation or any other right or remedyagainst Borrower or any such security, whether resulting from such election bySenior Lender or otherwise except to the extent expressly set forth in thisAgreement.

 

(b)           SubordinateLender assumes all responsibility for keeping itself informed as to thecondition (financial or otherwise), business, assets and operations ofBorrower,

 

22

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the condition of any Senior Loan Collateral and all other circumstancesthat might in any way affect Subordinate Lender’s risk under this Agreement(including, without limitation, the risk of nonpayment of the Senior LoanObligations), and Senior Lender shall have no duty or obligation whatsoever toobtain or disclose to Subordinate Lender any information or documents relativeto such condition, business, assets, or operations of Borrower or such risk,whether acquired by Senior Lender in the course of its relationship withBorrower or otherwise.

 

(c)           SubordinateLender acknowledges that Senior Lender has made no warranties orrepresentations to it with respect to the due execution, legality, validity,completeness or enforceability of the Senior Loan Documents or thecollectability of the Senior Loan Obligations evidenced thereby.

 

(d)           Ifany of the Senior Loan Obligations or any lien securing same, should beinvalidated, avoided or set aside, the subordination provided for hereinnevertheless shall continue in full force and effect and, as between SeniorLender and Subordinate Lender, shall be and be deemed to remain in full forceand effect.

 

(e)           Solong as Subordinate Lender receives a Default Notice as provided in thisAgreement and fails to cure the applicable Default within the time periodprovide in Section 8(b) above, Subordinate Lender expressly waivesthe right to receive any additional notice from Senior Lender of any judicialor nonjudicial foreclosure or sale of any real property or interest thereinsubject to the Senior Deed of Trust or other instruments, and SubordinateLender’s failure to receive any such additional notice shall not impair oraffect Subordinate Lender’s obligations to Senior Lender or the enforceabilityof this Agreement or any lien or any liens created hereby, granted to orotherwise held by Senior Lender.

 

(f)            SubordinateLender hereby expressly, unconditionally and irrevocably waives all rights (i) underSections 361 through 365, 502(e) and 509 of the Bankruptcy Code (orany similar sections hereafter in effect under any other Federal or state lawsor legal or equitable principles relating to bankruptcy, insolvency,reorganizations, liquidations or otherwise for the relief of debtors orprotection of creditors), and (ii) to seek or obtain conversion to adifferent type of proceeding or to seek or obtain dismissal of a proceeding, ineach case in relation to a bankruptcy, reorganization, insolvency or otherproceeding under similar laws with respect to Borrower.  Without limiting the generality of theforegoing, Subordinate Lender hereby expressly, unconditionally and irrevocablywaives (A) the right to seek to provide credit (secured or otherwise) toBorrower in any way under Section 364 of the Bankruptcy Code unless thesame is subordinated in right and time of payment in all aspects to the SeniorLoan Obligations in a manner acceptable to Senior Lender in its sole andabsolute discretion; (B) the right to take a position inconsistent with orcontrary to that of Senior Lender (including a position by Senior Lender totake no action) if Borrower seeks to use, sell or lease Senior Loan Collateral(or the proceeds or products thereof) under Section 363 of the BankruptcyCode; (C) the right to receive any Senior Loan Collateral security (includingany “**super priority**” or equal or “**priming**” or replacement lien) for any Mezzanine LoanObligation unless Senior Lender has received a senior position acceptable toSenior Lender in its

 

23

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sole and absolute discretion to secure all Senior Loan Obligations (inthe same Senior Loan Collateral to the extent Senior Loan Collateral isinvolved); and (D) the right to seek adequate protection in respect ofSenior Loan Collateral (or the proceeds or products thereof) under Section 363or 361 of the Bankruptcy Code.

 

(g)           Notwithstandinganything contained in the Mezzanine Loan Documents to the contrary, SubordinateLender shall not have any approval rights with respect to the Senior LoanObligations relating to the construction of the Improvements on the Property,revisions to the plans and specifications for the Improvements, changes in theconstruction budget, change orders, amendments to construction contracts andsubcontracts and approval of completion of the Improvements and revisions tothe construction schedule, disbursement conditions and completion date if suchitems have been approved by Administrative Agent or the Required Lenders;provided, however, the foregoing shall not affect any covenants or provisionsof the Mezzanine Loan Documents relating to same as between Mezzanine Borrowerand Subordinate Lender.

 

(h)           SubordinateLender agrees that it shall not prohibit Borrower from performing any act thatBorrower is permitted to perform under the Senior Loan Documents, subject toany restrictions contained in this Agreement.

 

(i)            ThisAgreement shall bind all successors and permitted assigns of SubordinateLender, Administrative Agent and Senior Lender and shall inure to the benefitof all successors and permitted assigns of Administrative Agent, Senior Lenderand Subordinate Lender.  The rights ofAdministrative Agent and Senior Lender hereunder may be exercised only byAdministrative Agent and any successor to Administrative Agent appointedpursuant to the Senior Construction Loan Agreement, on behalf of Senior Lender;provided, however, that Subordinate Lender shall have no obligation to dealwith or accept performance from any party other than Administrative Agentunless and until Subordinate Lender receives notice of the resignation orreplacement of the Administrative Agent named herein.  Administrative Agent may, but shall not berequired to, at any time request instructions from the Required Lenders withrespect to any actions or approvals which, by the terms of this Agreement or ofany of the Senior Construction Loan Documents, Administrative Agent ispermitted or required to take or to grant without instructions from theRequired Lenders, and if such instructions are requested, Administrative Agentshall be absolutely entitled to refrain from taking any action or to withholdany approval and shall not be under any liability whatsoever for refrainingfrom taking any action or withholding any approval under this Agreement untilit shall have received such instructions from the Required Lenders.

 

(j)            Nothingprovided herein is intended to create a joint venture, partnership, tenancy incommon or joint tenancy relationship between or among any of the partieshereto.

 

(k)           Nothingherein contained shall operate to release (i) Borrower from its obligationto keep and perform all of the terms, conditions, obligations, covenants andagreements contained in the Senior Loan Documents, or any liability of Borrowerunder the Senior Loan Documents, or (ii) Mezzanine Borrower from itsobligation to keep and

 

24

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perform all of the terms, conditions, obligations, covenants andagreements contained in the Mezzanine Loan Documents or any liability ofMezzanine Borrower under the Mezzanine Loan Documents.  This Agreement is a continuing agreement andshall remain in full force and effect until the earliest of (i) payment infull of the Senior Loan Obligations, or (ii) transfer of the Property byforeclosure of the Senior Deed of Trust or the exercise of the power of salecontained therein or by deed in lieu of foreclosure; provided, however, thatany rights or remedies of either party hereto arising out of any breach of anyprovision hereof occurring prior to such date of termination shall survive suchtermination.

 

(l)            Inthe event that any provision of this Agreement or the application hereof to anyparty hereto shall, to any extent, be invalid or unenforceable under anyapplicable statute, regulation, or rule of law, then such provision shallbe deemed inoperative to the extent that it may conflict therewith and shall bedeemed modified to conform to such statute, regulation or rule of law, andthe remainder of this Agreement and the application of any such invalid orunenforceable provisions to parties, jurisdictions or circumstances other thanto whom or to which it is held invalid or unenforceable, shall not be affectedthereby nor shall same affect the validity or enforceability of any otherprovision of this Agreement.

 

(m)          Timeis of the essence of this Agreement.

 

(n)           Eachof Administrative Agent and Senior Lender and Subordinate Lender aresophisticated lenders and/or investors in real estate and their respectivedecision to enter into the Senior Loan Obligations and the Mezzanine LoanObligations, respectively, is based upon their own independent expertevaluation of the terms, covenants, conditions and provisions of, respectively,the Senior Loan Documents and the Mezzanine Loan Documents and such othermatters, materials and market conditions and criteria which each ofAdministrative Agent, Senior Lender, and Subordinate Lender deem relevant.  Each of Administrative Agent and SubordinateLender has not relied in entering into this Agreement, and respectively, theSenior Loan Obligations, the Senior Loan Documents, the Mezzanine Loan or theMezzanine Loan Documents, upon any oral or written information, representation,warranty or covenant from the other, or any of the other’s representatives,employees, Affiliates or agents other than the representations and warrantiesof the other contained herein.  Each ofAdministrative Agent and Subordinate Lender further acknowledges that noemployee, agent or representative of the other has been authorized to make, andthat each of Administrative Agent and Subordinate Lender have not relied upon,any statements, representations, warranties or covenants other than thosespecifically contained in this Agreement. Without limiting the foregoing, each of Administrative Agent andSubordinate Lender acknowledges that the other has made no representations orwarranties as to the Senior Loan Obligations or the Mezzanine Loan or theProperty (including, without limitation, the cash flow of the Property, thevalue, marketability, condition or future performance thereof, the existence,status, adequacy or sufficiency of the leases, the tenancies or occupancies ofthe Property, or the sufficiency of the cash flow of the Property, to pay allamounts which may become due from time to time pursuant to the Senior LoanDocuments or the Mezzanine Loan Documents).

 

25

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19.                                 **Continuing Benefits**.  No right of Senior Lender or any present orfuture holder of the Senior Loan Obligations to enforce the subordination asprovided herein shall at any time in any way be prejudiced or impaired by anyact or failure to act on the part of Borrower or any other party, whetherborrower, guarantor or otherwise, or by any noncompliance by Borrower or anyborrower, guarantor or otherwise with the terms of the Senior Note or any otherof the Senior Loan Documents regardless of any knowledge thereof which suchholder may have or be otherwise charged with.

 

20.                                 **No Waiver; Modification**.  Except as otherwise expressly provided inthis Agreement, neither this Agreement nor the transactions herein contemplatedshall operate to waive the enforcement after the date hereof of any due onsale, due on encumbrance or accelerating transfer provision contained in theSenior Loan Documents or the Mezzanine Loan Documents.  No delay on the part of Senior Lender or SubordinateLender in the exercise of any right or remedy shall operate as a waiverthereof, and no single or partial exercise by Senior Lender or SubordinateLender of any right or remedy shall preclude other or further exercise thereofor the exercise of any right or remedy; nor shall any modification or waiver ofany of the provisions of this Agreement be binding upon Senior Lender orSubordinate Lender except as expressly set forth in a writing duly signed anddelivered by or on behalf of Senior Lender or Subordinate Lender.  This Agreement may be executed in any numberof counterparts.

 

21.                                 **Reinstatement of Agreement**.  The provisions of this Agreement shallcontinue to be effective or be reinstated, as the case may be, if at any timeany payment of any of the Senior Loan Obligations or the Mezzanine LoanObligations is invalidated, declared to be fraudulent or preferential, setaside, rescinded or must otherwise be returned by Senior Lender or SubordinateLender, as the case may be, under any bankruptcy law, state or federal law,common law or equitable cause, all as though such payment had not been made.

 

22.                                 **Borrower’s Waiver**.  Each of Borrower and Mezzanine Borrowerhereby waives (a) notice of acceptance of this Agreement by Senior Lenderand Subordinate Lender, (b) notice of the existence or creation ornonpayment of all or any of the Senior Loan Obligations and the Mezzanine LoanObligations, and (c) all diligence in the collection or protection of orrealization upon the Senior Loan Obligations or the collateral therefor or theMezzanine Loan Obligations.

 

23.                                 **Book Entry**.  Subordinate Lender will make appropriateentries in the books and records of Subordinate Lender to indicate that theMezzanine Loan Obligations are subject to the Senior Loan Obligations.

 

24.                                 **Notices**.  Any notice which a party is required or maydesire to give the other shall be in writing and may be sent by facsimile,personal delivery or by mail (either (i) by United States registered orcertified mail, return receipt requested, postage prepaid, or (ii) byFederal Express or similar generally recognized overnight carrier regularlyproviding proof of delivery), addressed as follows (subject to the right of aparty to designate a different address for itself by notice similarly given atleast fifteen (15) days in advance):

 

26

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| If to Subordinate Lender:              |   | Behringer Harvard St. Rose REIT, LLC  15601 Dallas Parkway, Suite 600  Dallas, TX 75001  Attention: Chief Legal Officer  Telecopy: (214) 655-1610                           |
|----------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                   |   |                                                                                                                                                                             |
| With a copy to:                        |   | Behringer Harvard St. Rose REIT, LLC  15601 Dallas Parkway, Suite 600  Dallas, TX 75001  Attention: Mark Alfieri  Telecopy: (214) 655-1610                                  |
|                                   |   |                                                                                                                                                                             |
| With a copy to:                        |   | Wick Phillips, LLP  2100 Ross Avenue, Suite 950  Dallas, TX 75201  Attention: Walter D. Miller  Telecopy: (214) 692-6255                                                    |
|                                   |   |                                                                                                                                                                             |
| If to Senior Lender:                   |   | Bank of America, N.A.  TX4-213-05-06  700 Louisiana, 5th Floor  P.O. Box 2518  Houston, TX 77252-2518  Attention: Real Estate Loan Administration  Telecopy: (713) 247-6124 |
|                                   |   |                                                                                                                                                                             |
| With a copy to:                        |   | Greenberg Traurig, LLP  2200 Ross Avenue, Suite 5200  Dallas, TX 75201  Attention: Tina M. Ross  Telecopy: (972) 665-3601                                                   |
|                                   |   |                                                                                                                                                                             |
| If to Borrower or  Mezzanine Borrower: |   | 2001 Bryan Street, Suite 3250  Dallas, Texas 75201  Attention: Tim Hogan  Facsimile: (214) 922-8553                                                                         |
|                                   |   |                                                                                                                                                                             |
| With a copy to:                        |   | Jones Day  325 John H. McConnell Blvd.  Suite 600  Columbus, Ohio 43215-2673  Attention: Michael Ording  Telecopy: (614) 461-4198                                           |

 

25.                                 **Priority**.  The priorities herein specified areapplicable irrespective of the time of creation of Senior Lender Obligations orthe Subordinate Lender Obligations.

 

27

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26.                                 **Further Assurances**.  So long as the Senior Loan Obligations andthe Mezzanine Loan Obligations remain outstanding, either party shall execute,acknowledge, and deliver upon the demand of the other party, at any time ortimes, any and all further documents or instruments in recordable form for thepurpose of further confirming the subordination and the agreements herein setforth.

 

27.                                 **Estoppel Certificate**.  Each of Senior Lender and Subordinate Lenderhereby agrees that within ten (10) days after written demand of the otherparty, it shall execute, acknowledge and deliver a certification setting forththe total amount of indebtedness owed to it under the Senior Loan Documents orthe Mezzanine Loan Documents, as the case may be, and such other certificationsas may be reasonably requested by the other party.  Notwithstanding the foregoing, neither SeniorLender or Subordinate Lender shall be obligated to give such certification morefrequently than once every other calendar month.

 

28.                                 **Governing Law**.  This Agreement shall be governed by the lawsof the State of Texas (without reference to its conflict of laws principles).

 

29.                                 **Forum**.  Senior Lender and Subordinate Lender eachhereby irrevocably submits generally and unconditionally to any state orfederal court sitting in Dallas County, Texas, over any suit, action orproceeding arising out of or relating to this Agreement or the Senior Loan orthe Mezzanine Loan.  Senior Lender andSubordinate Lender each hereby irrevocably waives, to the fullest extentpermitted by law, any objection that it may now or hereafter have to the layingof venue in any such court and any claim that any such court is an inconvenientforum.

 

30.                                 **Waiver of Jury Trial**.  SENIOR LENDER AND SUBORDINATE LENDER WAIVETRIAL BY JURY IN RESPECT OF ANY CLAIM, COUNTERCLAIM, ACTION OR CAUSE OF ACTIONRELATING TO OR ARISING OUT OF THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY SENIOR LENDERAND SUBORDINATE LENDER AND SENIOR LENDER AND SUBORDINATE LENDER HEREBYREPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANYPERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFYOR NULLIFY ITS EFFECT.  THIS PROVISION ISA MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.  SENIOR LENDER AND SUBORDINATE LENDER ARE EACHHEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 30 IN ANY PROCEEDING ASCONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  SENIOR LENDER AND SUBORDINATE LENDER EACHFURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OFTHIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSELSELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSSTHIS WAIVER WITH COUNSEL.

 

*[REMAINDER OF THIS PAGE INTENTIONALLY LEFTBLANK]*

 

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**IN WITNESSWHEREOF**, the undersigned have executed this Agreementas of the day and year first above written.

** **
| ** ** | **SUBORDINATE LENDER:**                                                         |
|------------|---------------------------------------------------------------------------------|
| ** ** | ** **                                                                      |
| ** ** | **BEHRINGER HARVARD ST. ROSE REIT, LLC**,  a Delaware limited liability company |
| ** ** | ** **                                                                      |
|       | By:                                                                             | Behringer Harvard St. Rose Venture, LLC,  a Delaware limited liability company, its manager |
|       |                                                                            |   |
|       |                                                                            | By: | Behringer Harvard St Rose, LLC,  a Delaware limited liability company, its manager |
|       |                                                                            |   |   |
|       |                                                                            |   |   |
|       |                                                                            | ** ** | By: | /s/ Gerald J. Reihsen, III |
|       |                                                                            | ** ** |   | Gerald J. Reihsen, III  Executive Vice President-Corporate  Development & Legal and Secretary |

 

Signature Page

 

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| ** ** | **SENIOR LENDER:**                                                                                                                                                                             |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                     |
| ** ** | **BANK OF AMERICA, N.A.**, a national banking  association, in its capacity as Administrative Agent on behalf of the Senior  Construction Lenders and for its own benefit, as Land Loan Lender |
| ** ** | ** **                                                                                                                                                                                     |
| ** ** | ** **                                                                                                                                                                                     |
| ** ** | By:                                                                                                                                                                                            | **/**s**/**Johanna  Christiansen |
| ** ** |                                                                                                                                                                                           | Name: | Johanna Christiansen |
| ** ** |                                                                                                                                                                                           | Title: | Senior Vice President |

 

Signature Page

 

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**ACKNOWLEDGMENT ANDCONSENT**

 

Theundersigned hereby executes and delivers this Acknowledgment and Consent to andregarding the terms, conditions and covenants set forth in the Intercreditorand Subordination Agreement attached hereto (the “**IntercreditorAgreement**”).  The undersignedstates that it has received a copy of the foregoing Intercreditor Agreement andagrees that it will recognize all rights granted therein to the respectivelenders that are party thereto, and that it will not undertake any act orperform any obligation which is not in accordance with the provisions of theIntercreditor Agreement.

 

Theundersigned further acknowledges and agrees that it is not an intendedbeneficiary under the Intercreditor Agreement.

 

**EXECUTED**as of December 31, 2008.

 
| ** ** | **BORROWER:**                                                                   |
|------------|---------------------------------------------------------------------------------|
| ** ** | ** **                                                                      |
| ** ** | **SW 132 ST. ROSE SENIOR BORROWER, LLC**, a  Delaware limited liability company |
| ** ** | ** **                                                                      | ** ** |
|       | By:                                                                             | SW 131 St. Rose Mezzanine Borrower, LLC, a Delaware limited liability  company, its sole member |
|       |                                                                            |   |   |
|       |                                                                            | By: | SW 130 St. Rose Limited Partnership, a Delaware limited partnership,  its sole member |
|       |                                                                            |   |   |   |
|       |                                                                            |   | By: | SW 129 St. Rose Limited Partnership, a Delaware limited partnership,  its general partner |
|       |                                                                            |   |   |   |
|       |                                                                            |   |   | By: | SW 104 Development GP LLC, a Delaware limited liability company, its  general partner |
|       |                                                                            |   |   |   |   |
|       |                                                                            |   |   |   |   |
|       |                                                                            |   |   |   | By: | /s/ Timothy J. Hogan |
|       |                                                                            |   |   |   |   | Name: | Timothy J. Hogan |
|       |                                                                            |   |   |   |   | Title: | Vice President |

 

Acknowledgement and Consent

 

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| ** ** | **MEZZANINE BORROWER:**                                                                             |
|------------|-----------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                          |
| ** ** | **SW 131 ST. ROSE MEZZANINE BORROWER, LLC**, a  Delaware limited liability company, its sole member |
| ** ** | ** **                                                                                          | ** ** |
|       | By:                                                                                                 | SW 130 St. Rose Limited Partnership, a Delaware limited partnership,  its sole member |
|       |                                                                                                |   |
|       |                                                                                                | By: | SW 129 St. Rose Limited Partnership, a Delaware limited partnership,  its general partner |
|       |                                                                                                |   |   |
|       |                                                                                                |   | By: | SW 104 Development GP LLC, a Delaware limited liability company, its  general partner |
|       |                                                                                                |   |   |   |
|       |                                                                                                |   |   |   |
|       |                                                                                                |   |   | By: | /s/ Timothy J. Hogan |
|       |                                                                                                |   |   |   | Name: | Timothy J. Hogan |
|       |                                                                                                |   |   |   | Title: | Vice President |

 

Acknowledgement and Consent

 

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**EXHIBIT A**

** **

**PROPERTY DESCRIPTION**

 

**PARCEL I:**

 

THE NORTH HALF (N 1⁄2) OF THE NORTHWEST QUARTER (NW 1⁄4) OF THE SOUTHWESTQUARTER (SW 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF SECTION 35, TOWNSHIP 22SOUTH, RANGE 61 EAST, M.D.B.&M., CLARK COUNTY, NEVADA.

 

**PARCEL II**:

 

THE SOUTH HALF (S 1⁄2) OF THE NORTHEAST QUARTER (NE 1⁄4) OF THE SOUTHWESTQUARTER (SW 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF SECTION 35, TOWNSHIP 22SOUTH, RANGE 61 EAST, M.D.B.&M.

 

EXCEPTING THEREFROM THAT PORTION LYING WITHIN ST. ROSE PARKWAY.

 

**PARCEL III**:

 

THAT PORTION OF THE NORTHWEST QUARTER (NW 1⁄4) OF SECTION 35,TOWNSHIP 22 SOUTH, RANGE 61 EAST, M.D.M., CITY OF HENDERSON, CLARK COUNTY,NEVADA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

 

THE SOUTH HALF (S 1⁄2) OF THE NORTHWEST QUARTER (NW 1⁄4) OF THE SOUTHWESTQUARTER (SW 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF SAID SECTION 35.

 

TOGETHER WITH:

 

THOSE PORTIONS OF THE NORTH HALF (N 1⁄2) OF THE SOUTH HALF (S 1⁄2) OF THESOUTHWEST QUARTER (SW 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF SAID SECTION 35LYING NORTHWESTERLY OF THE NORTHWESTERLY RIGHT-OF-WAY OF ST. ROSE PARKWAY.

 

**PARCEL IV**:

 

BEING A PORTION OF THE SOUTH HALF (S 1⁄2) OF THE SOUTHEAST QUARTER (SE 1⁄4)OF THE NORTHWEST QUARTER (NW 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF SECTION 35,TOWNSHIP 22 SOUTH, RANGE 61 EAST, M.D.B & M., CLARK COUNTY, NEVADA.

 

TOGETHER WITH THAT PORTION OF THE NORTH HALF (N 1⁄2) OF THE NORTHEASTQUARTER (NE 1⁄4) OF THE SOUTHWEST QUARTER (SW 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4),ALSO TOGETHER WITH THAT PORTION OF THE NORTH HALF (N 1⁄2) OF THE NORTHWESTQUARTER (NW 1⁄4) OF SAID SECTION 35, LYING NORTHWESTERLY OF ST. ROSEPARKWAY, FURTHER DESCRIBED AS FOLLOWS:

 

A-1

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BEGINNING AT THE SOUTHEAST CORNER OF THE NORTHWEST QUARTER (NW 1⁄4) OFTHE NORTHWEST QUARTER (NW 1⁄4) OF SAID SECTION 35, SAID CORNER BEING MARKEDBY AN ALUMINUM CAP MARKED “PLS 5269, 1994, NW 1/16”;

 

THENCE SOUTH 41°41’09” EAST, 174.75 FEET TO THE NORTHWESTERLY LINE OFST. ROSE PARKWAY AS GRANTED IN BOOK 250 AS DOCUMENT NO. 202981, OFFICIALRECORDS OF CLARK COUNTY, NEVADA;

 

THENCE ALONG SAID NORTHWESTERLY LINE, SOUTH 46°18’51” WEST, 297.97 FEETTO A POINT OF INTERSECTION OF SAID NORTHWESTERLY LINE WITH THE SOUTH LINE OFTHE NORTH HALF (N 1⁄2) OF THE NORTHEAST QUARTER (NE 1⁄4) OF THE SOUTHWEST QUARTER(SW 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF SAID SECTION 35;

 

THENCE ALONG THE LINES OF SAID NORTH HALF (N 1⁄2) THE FOLLOWING THREE (3) COURSES:

 

1.                                       NORTH 89°22’43”WEST, 553.55 FEET;

2.                                       NORTH 00°33’34”WEST, 330.00 FEET;

3.                                       SOUTH 89°22’04”EAST, 663.09 FEET TO THE POINT OF BEGINNING.

 

EXCEPTING THEREFROM:

 

A PORTION OF THE SOUTH HALF (S 1⁄2) OF THE SOUTHEAST QUARTER (SE 1⁄4) OFTHE NORTHWEST QUARTER (NW 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF SAID SECTION 35,DESCRIBED AS FOLLOWS:

 

BEGINNING AT THE SOUTHWEST CORNER OF THE SOUTH HALF (S 1⁄2) OF THESOUTHEAST QUARTER (SE 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF THE NORTHWESTQUARTER (NW 1⁄4) OF SAID SECTION 35; THENCE NORTH 00 33’55” WEST, 330.09FEET TO THE NORTHWEST CORNER OF THE SOUTH HALF (S 1⁄2) OF THE SOUTHEAST QUARTER(SE 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF SAID SECTION35; THENCE SOUTH 89°21’56” EAST, 663.21 FEET TO THE NORTHEAST CORNER OF THESOUTH HALF (S 1⁄2) OF THE SOUTHEAST QUARTER (SE 1⁄4) OF THE NORTHWEST QUARTER (NW1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF SAID SECTION 35; THENCE SOUTH 00°32’39”EAST, 330.06 FEET TO THE SOUTHEAST CORNER OF THE SOUTH HALF (S 1⁄2) OF THESOUTHEAST QUARTER (SE 1⁄4) OF THE NORTHWEST QUARTER (NW 1⁄4) OF THE NORTHWESTQUARTER (NW 1⁄4) OF SAID SECTION 35; THENCE NORTH 41°41’09” WEST, 316.13FEET; THENCE SOUTH 48°18’51” WEST, 153.68 FEET TO THE BEGINNING OF A 500 FOOTRADIUS CURVE, CONCAVE NORTHWESTERLY; THENCE ALONG SAID CURVE TO THE RIGHT,369.29 FEET THROUGH A CENTRAL ANGLE OF 42°19’05” TO THE POINT OF BEGINNING.

 

A-2

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**EXHIBIT B**

 

**DESCRIPTION OFMEZZANINE LOAN DOCUMENTS**

 

1.                                       SeniorMezzanine Loan Agreement and Junior Mezzanine Loan Agreement, each dated December 31,2008 (the “**Effective Date**”), betweenSubordinate Lender and Mezzanine Borrower, relating to the Mezzanine Loan.

 

2.                                       SeniorMezzanine Promissory Note and Junior Mezzanine Promissory Note, each dated asof the Effective Date in the aggregate principal amount of the Mezzanine Loan,executed by Mezzanine Borrower payable to the order of Subordinate Lender.

 

3.                                       SeniorMezzanine Deed of Trust, Assignment of Rents, Security Agreement, FixtureFiling and Financing Statement and Junior Mezzanine Deed of Trust, Assignmentof Rents, Security Agreement, Fixture Filing and Financing Statement, eachdated as of the Effective Date and executed by Borrower in favor of the Trusteenamed therein for the benefit of Subordinate Lender.

 

4.                                       MezzanineGuaranty, dated as of the Effective Date and executed by Guarantors in favor ofSubordinate Lender.

 

5.                                       MezzanineEnvironmental Indemnity Agreement, dated as of the Effective Date and executedby Mezzanine Borrower in favor of Subordinate Lender.

 

B-1

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**EXHIBIT C**

 

**DESCRIPTION OFSENIOR LOAN DOCUMENTS**

 

Senior Construction Loan Documents.

 

1.                                       ConstructionLoan Agreement dated as of the Effective Date between Administrative Agent,Senior Construction Lenders and Borrower.

 

2.                                       Oneor more Deed of Trust Notes issued by Borrower to and for the benefit of theSenior Construction Lenders, in the aggregate principal amount of the SeniorConstruction Loan.

 

3.                                       Deedof Trust, Assignment of Rents and Leases, Security Agreement, FinancingStatement and Fixture Filing dated as of the Effective Date, executed byBorrower in favor of the Trustee named therein to Administrative Agent, for thebenefit of Senior Construction Lenders.

 

4.                                       LimitedRecourse Guaranty Agreements, each dated as of the Effective Date, executed byGuarantors to and for the benefit of Administrative Agent, on behalf of theSenior Construction Lenders.

 

5.                                       EnvironmentalIndemnity Agreement dated as of the Effective Date, executed by Borrower andGuarantor to and for the benefit of Administrative Agent, on behalf of theSenior Construction Lenders.

 

6.                                       Noticeof Final Agreement dated as of the Effective Date, executed by Borrower andGuarantors in favor of Administrative Agent, on behalf of the SeniorConstruction Lenders.

 

7.                                       UCC-1Financing Statements covering Borrower in favor of Administrative Agent, onbehalf of the Senior Construction Lenders.

 

8.                                       AnyMaster Agreement now or hereafter executed by Borrower and Swap Bank and anyand all amendments thereto and Swap Transactions executed thereunder.

 

Senior Land Loan Documents.

 

1.                                       TermLoan Agreement dated as of the Effective Date between Land Loan Lender and LandLoan Borrower.

 

2.                                       Deedof Trust Note issued by Land Loan Borrower to and for the benefit of Land LoanLender, in the aggregate principal amount of the Land Loan.

 

3.                                       Deedof Trust, Assignment of Rents and Leases, Security Agreement, FinancingStatement and Fixture Filing dated as of the Effective Date, executed byBorrower in favor of the Trustee named therein for the benefit of Land LoanLender.

 

C-1

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4.                                       LimitedRecourse Guaranty Agreements, each dated as of the Effective Date, executed byGuarantors to and for the benefit of Land Loan Lender.

 

5.                                       EnvironmentalIndemnity Agreement dated as of the Effective Date, executed by Land LoanBorrower and Guarantor to and for the benefit of Land Loan Lender.

 

6.                                       Noticeof Final Agreement dated as of the Effective Date, executed by Land Borrowerand Guarantors and Land Loan Lender.

 

7.                                       UCC-1Financing Statements covering Land Loan Borrower in favor of Land Loan Lender.

 

C-2

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