**Exhibit3.54**

AMENDED AND RESTATED

LIMITED PARTNERSHIP AGREEMENT

OF

KIMBALL HILL HOMES HOUSTON, L.P.

Kimball Hill Homes Houston Operations, L.L.C. (“KHH Houston Operations”),a Texas limited liability company, as general partner, and Kimball Hill HomesHouston Investments, L.L.C. (“KHH Houston Investments”), an Illinois limitedliability company, as limited partner, entered into the certain LimitedPartnership Agreement effective May 31, 2002, which thereafter was amended bythe certain First Amendment dated as of July 15, 2002, the certain SecondAmendment dated as of March 17, 2003, the certain Third Amendment dated as ofJanuary 27, 2004, the certain Fourth Amendment dated as of May 20, 2004, andthe certain Fifth Amendment dated as of December 13, 2005.

KHH Houston Operations and KHH Houston Investments wish to amend andrestate the Limited Partnership Agreement of Kimball Hill Homes Houston, L.P.in order to set forth all provisions relating to the Partnership in onedocument.  Accordingly, KHH Houston Operations(herein along with all subsequently admitted general partners which areadmitted in accordance with the terms and conditions of this Agreement and allsuccessors and assigns are called the “General Partner” and the “GeneralPartners”) and KHH Houston Investments (herein along with all subsequentlyadmitted limited partners which are admitted in accordance with the terms andconditions of this Agreement and all successors and assigns are called the “LimitedPartner” and the “Limited Partners”), (hereinafter the General Partner and theLimited Partners are collectively called the “Partners”) enter into thisAmended and Restated Limited Partnership Agreement as of June 30, 2006.

ARTICLE I

FORMATION

1.1           The parties have formeda limited partnership (the “Partnership”) under and pursuant to the TexasRevised Limited Partnership Act (the “TRLPA”).

1.2           The parties have executed and filed with theSecretary of State of the State of Texas a Certificate of LimitedPartnership.  The General Partner ishereby authorized and empowered by the Limited Partners to prepare, execute,file and publish any amended or modified Certificates of Limited Partnershipand to take any and all other actions, including without limitation preparing,executing, filing and publishing any other documents, certificates andregistrations, as may be necessary or desirable for the Partnership to engagein business in the State of Texas and any other state where the Partnership mayengage in business.  Each Limited Partnerspecifically designates and appoints the General Partner, for and on itsbehalf, as its attorney for the exclusive purpose of signing and attesting toany and all such documents, certificates and registrations.

----

1.3           The purposes of thePartnership shall be:

A.           To engage inthe business of buying and selling real estate, designing and developingsubdivisions and communities, and constructing, marketing and sellingsingle-family homes, townhomes, condominiums and other residential structures;

B.             To engage inany lawful business or activity for which limited partnerships may be formedunder the TRLPA as may be determined from time to time by the General Partner,in its sole discretion; it being provided however, that nothing in this ArticleI is to be construed as authorizing the Partnership to transact any business inany state, or to engage in any activity in any state which cannot lawfully beengaged in by a limited partnership formed, organized and/or registered as thePartnership may be from time to time in such state; and

C.             To engage insuch other activities as may be necessary, advisable, or convenient to thepromotion or conduct of the business of the Partnership, as may be determinedby the General Partner, in its sole discretion.

ARTICLE II

NAME AND PLACE OF BUSINESS

2.1           The name of thePartnership is KIMBALL HILL HOMESHOUSTON, L.P.  The business of thePartnership shall be conducted under such name and under such variations ofthis name as may be necessary to comply with the law of any state where thePartnership may do business or make investments, including any designationsnecessary to comply with any registration requirements for limited liabilitypartnerships (the “Partnership Name”).

The General Partner shall promptly execute and duly file with theproper offices in each state in which the Partnership may conduct business oneor more certificates as required by the Fictitious Name or Assumed Name Act orsimilar statute in effect as to each such state in which such business is soconducted.

The Partnership may conduct business under the Partnership Name or anyother name which has been properly registered in the state in which thePartnership is conducting business, including assumed names and any requiredspecial limited liability partnership designations.

2.2           The principal place ofbusiness of the Partnership is located at 8584 Katy Freeway, Suite 200,Houston, Texas 77024, which shall be the principal office in the United Statesas defined in the TRLPA.  The registeredagent of the Partnership is CT Corporation System and the registered office ofthe Partnership shall be located at 350 North St. Paul Street, Dallas, Texas75201.  The General Partner from time totime may change the principal office, the registered agent and the registeredoffice of the Partnership and may establish and designate any additional placesof business and registered offices as may be desired by the General Partner oras may be required by the laws of any state in which the Partnership mayconduct its business by complying with the provisions of the TRLPA and allother applicable laws.

2

----

2.3           The name and address ofthe General Partner of the Partnership are set forth in the attached Exhibit A,which is incorporated by this reference herein. There are no other general partners of the Partnership and no otherperson or entity has any right to take part in the active management of thebusiness affairs of the Partnership, except as otherwise provided in thisAgreement.

2.4           The name and address ofthe Limited Partner of the Partnership are set forth in the attached Exhibit A,which is incorporated by this reference herein. There are no other limited partners of the Partnership.

ARTICLE III

PARTNERSHIP TERM

3.1           The Partnership shallcommence as of the date of the filing of the Certificate and the Partnershipshall continue in existence until it is terminated, liquidated, or dissolved inaccordance with this Agreement or by operation of law.

ARTICLE IV

PARTNER INTERESTS

4.1           The General Partnershall own and hold one percent (1%) of the entire interest in and to thePartnership.

4.2           The Limited Partnershall own and hold ninety-nine percent (99%) of the entire interest in and tothe Partnership.

ARTICLE V

CAPITAL CONTRIBUTIONS

5.1           The General Partner hascontributed the sum of $99,000.00 to the capital of the Partnership.

5.2           The Limited Partner hascontributed the sum of $1,000.00 to the capital of the Partnership.

5.3           Contributions to thecapital of the Partnership will not bear or accrue interest in favor of thecontributing Partner.

5.4           The Limited Partnershall not be required to make any additional capital contributions.

3

----

ARTICLE VI

ALLOCATION OF NET PROFITS AND NET LOSSES

AND DISTRIBUTION OF NET PROFITS

6.1           The General Partnershall allocate net profits and net losses annually. Interest shall not be paidto Partners on contributions of capital to the Partnership.  The amount of net profits and net losses ofthe Partnership to be allocated to and charged against each Partner for eachtaxable year of the Partnership shall be determined by the percentage suchPartner owns in the Partnership.

6.2           The terms, “net profits”and “net losses” shall mean income or gain of any kind actually received ordeemed to be received by the Partnership less deductions (exclusive of non-cashdeductions, including but not limited to depreciation), expenditures, orcharges actually incurred or deemed to be incurred by the Partnership,including reserves and allocations for reserves, all as determined by theGeneral Partner in its sole discretion.

6.3           Cash, when available, may be distributed bythe General Partner to all partners in the same ratio as profits and losses areshared.  Cash distributions from thePartnership may be made by the General Partner to all Partners without regardto the profits or losses of the Partnership from operations; provided, that nocash distributions shall be made which will impair the ability of thePartnership to pay its just debts as they mature.  The General Partner shall determine, in itssole discretion, when, if ever, cash distributions shall be made to thePartners pursuant to the provisions and the tenor of this Agreement.  There shall be no obligation to return to theGeneral Partner or the Limited Partner, or to any one of them, any part of theircapital contributed to the Partnership, for so long as the Partnershipcontinues in existence.  No General orLimited Partner shall be entitled to any priority or preference over any otherpartner as to cash distributions.

ARTICLE VII

PARTNERSHIP PROPERTYAND FISCAL MATTERS

7.1           All real and personalproperty shall be owned by the Partnership. A Partner shall have no interest in specific property of thePartnership.  Each Partner herebyexpressly waives the right to require partition of any Partnership property orany part thereof.

7.2           The Partnership’s books and records and allrequired income tax returns shall be kept or made on the calendar year basis.The General Partner shall determine whether the cash or accrual method ofaccounting is to be used in keeping the Partnership records.

7.3           The General Partnershall keep and make available to all Partners, upon reasonable notice, duringnormal business hours, just and true books of account and all other Partnershiprecords.  The General Partner shallfurnish all Partners with a year ending balance sheet for the Partnership andsuch information as is reasonably necessary for them to complete their federaland state income tax forms, including statements of the net distributableincome or loss to each partner from the operation of the Partnership. All ofthe above duties and services shall be deemed an expense of the Partnership.

4

----

7.4           The General Partnershall receive all monies of the Partnership and shall deposit them in one ormore Partnership accounts at a bank or other financial institution of theGeneral Partner’s choosing.  Allexpenditures for Partnership business shall be made by checks drawn againstthese Partnership accounts.

ARTICLE VIII

MANAGEMENT OF THE PARTNERSHIP

8.1           The GeneralPartner shall have sole authority to manage the business and affairs of thePartnership, which authority shall be delegated as provided in thisAgreement.  Subject to the limitations inthis Agreement, the General Partner shall have the authority to take any actionit deems to be necessary or appropriate in connection with the business andaffairs of the Partnership, including without limitation the power andauthority to:

A.           Acquire, own,hold, dispose, convey, exchange, lease, convert, grant an option, assign,improve, build, manage, operate, and control real or personal property uponsuch terms and conditions as the General Partner may, from time to time,determine in its sole discretion;

B.             Finance thePartnership’s activities by borrowing money on behalf of the Partnership fromany person, firm or entity for any Partnership purpose on such terms andconditions as the General Partner deems appropriate, and to obligate thePartnership to repay the borrowed money, and to pledge, mortgage, encumber,hypothecate and grant security interests in Partnership properties to secureits payment;

C.             Carry, at theexpense of the Partnership, insurance of the kinds and in the amounts that theGeneral Partner deems advisable or make other arrangements for payment oflosses or liabilities to protect the Partnership or the Partners, agents, andemployees of the Partnership, or persons serving at the request of thePartnership as representatives of another enterprise;

D.            Employ orcontract with any individual, attorney, investment adviser, accountant, broker,tax specialist, manager, salesman, or any other agent, and pay reasonablecompensation for all services performed by any of them as a Partnershipexpense;

E.              Employ anyindividual or entity on behalf of the Partnership and at the Partnership’sexpense to help or assist the General Partner in performing its duties;

F.              Employ anyindividual or entity on behalf of the Partnership and at the Partnership’sexpense in connection with the performance of the business of the Partnership;

5

----

G.             Delegate all orany of its duties hereunder and contract with any person or entity that theGeneral Partner, in its sole discretion, deems necessary or desirable for thetransaction of the business of the Partnership;

H.            Compromise,participate in mediation, submit to arbitration, release with or withoutconsideration, extend time for payment, or otherwise adjust any claims in favorof or against the Partnership;

I.                 Commence ordefend any litigation with respect to the Partnership or any Partnershipproperty, at the expense of the Partnership;

J.                Pay orreimburse any and all actual fees, costs and expenses incurred in theformation, organization and operation of the Partnership;

K.            Abandon anyPartnership asset that the General Partner deems advisable;

L.              Do all acts,take part in any proceedings, and exercise all rights and privileges as couldan absolute owner of Partnership property; and

M.         Take any andall other action which is permitted under the TRLPA or which is customary orreasonably related to the operation, management or conducting of the businessor affairs of the Partnership, subject to the limitations expressly stated inthis Agreement.  The enumeration ofpowers in this Agreement shall not limit the general or implied powers of theGeneral Partner or any additional powers provided by law.

N.            Take any andall action required to guarantee the indebtedness of Kimball Hill, Inc. and/orits subsidiaries.

8.2           The General Partner herebyestablishes a committee (the “Management Committee”) and delegates to theManagement Committee the General Partner’s full power and authority torepresent the Partnership, to act in the name of the Partnership and to managethe business of the Partnership, including without limitation the powers andauthorities set forth in Section 8.1 of this Agreement.  Further, the General Partner herebyauthorizes the Management Committee to delegate its powers and authorities tothe officers or other managers of the Partnership.  In addition, the officers of the Partnershipdescribed in Section 8.5 shall have the powers and authorities set forththerein.  The officers of the Partnershipshall conduct the business operations and activities of the Partnership in amanner consistent with the policies adopted from time to time by the Management Committee.

8.3**          **The Management Committee shall consist ofthree persons (“Management Committee Members”), who shall be appointed fromtime to time by the General Partner. Each Management Committee Member shall hold office until his successorshall have been appointed by the General Partner.  Management Committee Members need not beresidents of Texas.  Any vacancyoccurring in the Management Committee shall be filled by the General Partner.

6

----

8.4           The Management Committee shall meetat such times and places as a majority of the Management Committee Members maydesignate from time to time.  Notice ofany meeting shall be given at least five days previous thereto by writtennotice mailed or telefaxed to each Management Committee Member at his businessaddress, unless the giving of such notice is waived by such ManagementCommittee Member.  The attendance of aManagement Committee Member at any meeting shall constitute a waiver of noticeof such meeting.  Neither the business tobe transacted at, nor the purpose of, any meeting of the Management Committeeneed be specified in the notice or waiver of notice of such meeting.

8.5**          **A majorityof the Management Committee shall constitute a quorum for transaction ofbusiness at any meeting of the Management Committee.  The act of the majority of the ManagementCommittee Members present at a meeting at which a quorum is present shall bethe act of the Management Committee.  Anyaction which may be taken at a meeting of the Management Committee may be takenwithout a meeting if a written consent, setting forth the action so taken,shall be signed by all the Management Committee Members.  Any written consent signed by all theManagement Committee Members shall have the same effect as a unanimous vote,and may be stated as such in any document reflecting action taken by theManagement Committee.

8.6**          **Theofficers of the Partnership shall be a chairman and chief executive officer,one or more vice chairmen, a president, one or more vice-presidents, a chieffinancial officer, a treasurer, a secretary, one or more assistant treasurersand assistant secretaries, and such other officers as may be elected orappointed from time to time by the Management Committee.  Any two or more offices may be held by thesame person.  Each officer shall holdoffice until his successor shall have been duly elected or until his death oruntil he shall resign or shall have been removed by the ManagementCommittee.  Election of an officer shallnot of itself create contract rights. Each officer shall have the power and authority, in his sole discretion,to delegate any and all of his duties and responsibilities as an officer of thePartnership.

(a)           Chairman andChief Executive Officer.  Subject tothe direction and control of the Management Committee, the chairman and chiefexecutive officer shall be the chief executive officer of the Partnership andshall have the following general duties and responsibilities:  be in charge of the business of thePartnership: see that the resolutions and directions of the ManagementCommittee are carried into effect except in those instances in which thatresponsibility is specifically assigned to some other person by the ManagementCommittee; and, in general, discharge all duties incident to the office ofchairman and such other duties as may be prescribed by the Management Committeefrom time to time.  The chairman shallpreside at all meetings of the Management Committee.  Except in those instances in which theauthority to execute is expressly delegated to another officer or agent of thePartnership or a different mode of execution is expressly prescribed by theManagement Committee, the chairman may execute for the Partnership anycontracts, deeds, mortgages, bonds, or other instruments which the ManagementCommittee has authorized to be executed.

(b)           Vice Chairmen.  The vice chairman (or vice chairmen) shallassist the chairman in the discharge of his duties as the chairman may directand shall perform such other duties as from time to time may be assigned to himby the chairman or by the Management Committee. Except 

7

----

in those instances in which the authority to execute is expresslydelegated to another officer or agent of the Partnership or a different mode ofexecution is expressly prescribed by the Management Committee, each vicechairman may execute for the Partnership any contracts, deeds, mortgages, bondsor other instruments which the Management Committee has authorized to beexecuted.

(c)           President.  The president shall assist the chairman inthe discharge of the chairman’s duties as the chairman may direct and shallperform such other duties as from time to time may be assigned to him by thechairman or by the Management Committee. In the absence of the chairman or in the event of his inability orrefusal to act, the president shall perform the duties of the chairman, andwhen so acting, shall have all the powers of the chairman.  Except in those instances in which theauthority to execute is expressly delegated to another officer or agent of thePartnership or a different mode of execution is expressly prescribed by theManagement Committee, the president may execute for the Partnership anycontracts, deeds, mortgages, bonds or other instruments which the ManagementCommittee has authorized to be executed.

(d)           Vice Presidents.  Each of the vice-presidents shall assist thepresident in the discharge of the president’s duties as the president maydirect and shall perform such other duties as from time to time may be assignedto him by the chairman, the president or the Management Committee.  In the absence of the president or in theevent of his inability or refusal to act, the vice-presidents in the order ofseniority of tenure as vice-president shall perform the duties of thepresident, and when so acting, shall have all the powers of the president.  Except in those instances in which theauthority to execute is expressly delegated to another officer or agent of thePartnership or a different mode of execution is expressly prescribed by theManagement Committee, each of the vice-presidents may execute for thePartnership any contracts, deeds, mortgages, bonds or other instruments whichthe Management Committee has authorized to be executed.

(e)           Chief FinancialOfficer.  The chief financial officershall be the principal financial and accounting officer of thePartnership.  He shall have charge of andbe responsible for the maintenance of adequate books of account for thePartnership, have charge and custody of all funds and securities of thePartnership and be responsible for the receipt and disbursement thereof, andperform all the duties incident to the office of chief financial officer andsuch other duties as from time to time may be assigned to him by the chairmanor the Management Committee.

(f)            Treasurer.  The treasurer shall be responsible for the Partnership’scash management systems and procedures and the Partnership’s banking andfinance relationships with lenders and investors, and shall perform all theduties incident to the office of treasurer and such other duties as from timeto time may be assigned to him by the chairman or the Management Committee.

(g)           Secretary.  The secretary shall record the minutes ofManagement Committee meetings or actions taken by unanimous consent of theManagement Committee, be custodian of the Partnership’s records, sign with thechairman or the president or a vice-president or any other officer authorizedby the Management Committee any contracts, deeds, mortgages, bonds or otherinstruments which the Management Committee has authorized to be executed,except when 

8

----

a different mode of execution is expressly prescribed by the ManagementCommittee, and perform all duties incident to the office of secretary and suchother duties as from time to time may be assigned to him by the chairman, thepresident or the Management Committee.

(h)           AssistantTreasurers.  The assistant treasurersshall perform such duties as shall be assigned to them by the chief financialofficer, the treasurer, the chairman, the president or the ManagementCommittee.

(i)            AssistantSecretaries.  The assistantsecretaries shall perform such duties as shall be assigned to them by thesecretary, the chairman, the president or the Management Committee.

8.7**          **TheManagement Committee may authorize any officer, manager or employee of thePartnership to enter into any contract, including without limitation contractsto borrow money, and to execute and deliver any instrument, including withoutlimitation promissory notes and other evidences of indebtedness, in the name ofand on behalf of the Partnership, and such authority may be general or confinedto specific instances.

ARTICLE IX

GENERALRESPONSIBILITIES

9.1           A Partner may lendmoney to and otherwise transact business with the Partnership and has the samerights and obligations relating to those matters as a person who is not aPartner, except as otherwise provided by this Agreement and any applicable law.

9.2           As long as thePartnership is in existence, and except as otherwise provided in this Agreementor with the prior written consent of all Partners, no Partner shall:

A.           Do any act inviolation of this Agreement;

B.             Do any act withthe intention of harming the business of the Partnership; or

C.             Do any act thatwould make it impossible or unnecessarily difficult to carry on the intended orordinary business of the Partnership.

9.3           The General Partner,the Management Committee and the officers of the Partnership shall exerciseordinary business judgment in managing the affairs of the Partnership. Always,unless actual fraud shall be involved, the General Partner shall not be liableor obligated to the Limited Partner and the Management Committee and theofficers of the Partnership shall not be liable or obligated to the Partnersfor any mistake of fact or judgment made in operating the business of thePartnership which results in any loss to the Partnership or its Partners.  Neither the General Partner nor theManagement Committee nor the officers of the Partnership in any way guaranteesthe return of the Limited Partner’s capital or a profit from the operation ofthe Partnership or shall be responsible to any Partner because of a loss ofinvestment or a loss from operations, unless it shall have been occasioned byactual fraud.

9

----

9.4           The General Partnershall be entitled to reimbursement for any expenses it advances for Partnershipbusiness.

9.5           Any action required orpermitted to be taken at a meeting of the Partners may be taken without ameeting if a written consent setting forth the action to be taken is signed byall Partners entitled to vote.  This consentshall have the same force as a unanimous vote of the Partners.  The original signed consents shall be placedin the Partnership minute book and kept with the Partnership records.

9.6           General Partners.

A.           The GeneralPartner ceases to be a General Partner, and is deemed to have withdrawn fromthe Partnership, on the occurrence of any of the following events (“Event ofWithdrawal”) relating to the General Partner occurring subsequent to the dateof this Agreement:

1.               The General Partner’s giving sixty (60) dayswritten notice of withdrawal to all other Partners;

2.               The General Partner’s assignment of allrights as a General Partner;

3.               Removal of the General Partner as provided inthis Agreement;

4.               The General Partner’s making a generalassignment for the benefit of creditors;

5.               The General Partner’s filing of a voluntarybankruptcy petition;

6.               The General Partner’s becoming the subject ofan order for relief or being declared insolvent in any federal or statebankruptcy or insolvency proceeding;

7.               The General Partner’s filing of a petition oranswer seeking a reorganization, arrangement, composition, readjustment,liquidation, dissolution, or similar relief under any law;

8.               The General Partner’s seeking, consenting to,or acquiescing in the appointment of a trustee, receiver, or liquidator of allor any substantial part of its assets;

9.               Expiration of one hundred twenty (120) daysafter the commencement of a proceeding against the General Partner seekingreorganization, arrangement, composition, readjustment, liquidation,dissolution, or similar relief under any law if the proceeding has not beenpreviously dismissed;

10

----

10.         Expiration of ninety (90) days after the date of theappointment, without the General Partner’s consent or acquiescence, of atrustee, receiver, or liquidator of all or any substantial part of itsproperties if the appointment has not previously been vacated or stayed; and

11.         Conviction or plea of *nolocontendere* or its equivalent on any felony or any crime related tothe Partnership.

B.             The GeneralPartner shall notify the other Partners within thirty (30) days after theoccurrence of an event of withdrawal involving the passage of a period of timespecified in Section 9.7(A).

C.             Regardless ofthe provisions in Section 9.7(A), the General Partner may, at its option,continue to be a General Partner if all Partners consent in writing.

9.8           The General Partner maybe removed by the affirmative vote of the Limited Partner. The written noticeof the General Partner’s removal shall be served upon it by certifiedmail.  Said notice shall set forth theday on which said removal is to be effective, which date shall not be less thanthirty (30) days after service of said notice on the General Partner.  Upon the removal of the General Partner, theLimited Partner shall elect a new General Partner.  The removal of the General Partner shallcause its interest to be converted to a Limited Partnership interest subject tothe provisions of this Agreement.

9.9           The Limited Partnershall not have the obligation or the right to participate in the control of thePartnership business.  The LimitedPartner shall not do any act, deed, or thing that will cause it to beclassified as a general partner of the Partnership.  However, a Limited Partner may:

A.           Consult with oradvise a General Partner on any matter, including the business of thePartnership;

B.             Call, request,attend, or participate in a meeting of the Partners;

C.             Wind up thePartnership as provided by this Agreement or by law;

D.            Take any actionrequired or permitted by law to bring or pursue a derivative action on behalfof the Partnership;

E.              Propose,approve, or disapprove, by vote or otherwise, the following types ofPartnership decisions:

1.               The dissolution and winding up of thePartnership;

2.               The sale, exchange, lease, assignment orother transfer of all or substantially all of the assets of the Partnership;

3.               A change in the nature of the business of thePartnership;

11

----

4.               The admission, removal, or retention of theGeneral Partner or a Limited Partner;

5.               An amendment to this Agreement or theCertificate of Limited Partnership;

6.               Indemnification of the General Partner; and

7.               Exercising a right or power granted orpermitted to limited partners by law.

ARTICLE X

LIABILITIES AND INDEMNIFICATION

10.1         The General Partnershall be liable for the debts and obligations of the Partnership.  The Limited Partner shall not be liable forthe debts and obligations of the Partnership or for any Partnership liabilitiesor losses beyond the amount of its capital contributions required under ArticleV of this Agreement.

10.2         The Partnership shallindemnify any person who was or is a party or is threatened to be made a partyto any threatened, pending or completed action, suit or proceeding, whethercivil, criminal, administrative or investigative (other than an action by or inthe right of the Partnership) by reason of the fact that he is or was aPartner, Management Committee Member, officer, employee or agent of thePartnership (collectively, an “Action”), against expenses (including attorneys’fees), judgments, fines and amounts paid in settlement actually and reasonablyincurred by him in connection with such Action if he acted in good faith and ina manner he reasonably believed to be in or not opposed to the best interestsof the Partnership, and, with respect to any criminal action or proceeding, hadno reasonable cause to believe his conduct was unlawful.  The termination of any Action by judgment orsettlement, conviction or upon a plea of nolo contendere or its equivalentshall not, of itself, create a presumption that the person did not act in goodfaith and in a manner which he reasonably believed to be in or not opposed tothe best interests of the Partnership, and with respect to any criminal actionor proceeding, had reasonable cause to believe that his conduct was unlawful.

10.3         Any indemnificationunder Section 10.2 shall be limited bythe provisions of the TRLPA and shall be made by the Partnership only asauthorized in the specific case upon a determination that indemnification ofthe Partner, Management Committee Member, officer, employee or agent is properin the circumstances because he has met the applicable standard of conduct setforth therein.  Such determination shallbe made (a) by the Management Committee by a majority vote of a quorumconsisting of Management Committee Members who are not parties to such Action,or (b) if directed by the Management Committee, by independent legal counsel ina written opinion.  Notwithstanding theforegoing, to the extent that a Partner, Management Committee Member, officer,employee or agent of the Partnership has been successful on the merits orotherwise in defense of any Action, or in defense of any claim, issue or mattertherein, he shall 

12

----

be indemnified against expenses (including attorneys’ fees) actuallyand reasonably incurred by him in connection therewith.

10.4         Expenses (includingattorneys’ fees) actually and reasonably incurred by a Partner, ManagementCommittee Member, officer, employee or agent of the Partnership in connectionwith the defense or disposition of any Action may be paid from time to time bythe Partnership in advance of the final disposition thereof upon receipt of (a)an affidavit by such person of his good faith belief that he has met thestandard of conduct necessary for indemnification under Section 10.2, and (b)an undertaking by such person to repay to the Partnership the amounts so paidif it is ultimately determined that he is not entitled to indemnification asauthorized in Section 10.2, which undertaking may be accepted by thePartnership without reference to the financial ability of such person to makerepayment.

10.5         If both thePartnership and any person to be indemnified are parties to an Action, legalcounsel representing the Partnership therein may, at the request of suchperson, also represent such person (unless such dual representation wouldinvolve such legal counsel in a conflict of interest in violation of applicablelaw or principles of professional ethics), and the Partnership shall pay allfees and expenses of such legal counsel incurred during the period of dualrepresentation other than those, if any, that would not have been incurred iflegal counsel were representing only the Partnership.  Any allocation of fees and expenses betweenthe Partnership and such person made by legal counsel shall be final andbinding upon the Partnership and such person.

10.6         The indemnificationand advancement of expenses provided in this Article X shall not be deemedexclusive of any other rights to which a Partner, Management Committee Member,officer, employee or agent of the Partnership may be entitled under anycontract, agreement or otherwise, both as to action in his official capacityand as to action in another capacity while holding such position or office, andshall continue as to a person who has ceased to be a Partner, ManagementCommittee Member, officer, employee or agent and shall inure to the benefit ofthe heirs, executors and administrators of such person.

10.7         The Partnership shallhave power to purchase and maintain insurance on behalf of any person who is orwas a Partner, Management Committee Member, officer, employee or agent of thePartnership, or is or was serving at the request of the Partnership as adirector, officer, employee or agent of another corporation, partnership, jointventure, trust or other enterprise against any liability asserted against himand incurred by him in any such capacity, or arising out of his status as such,whether or not the Partnership would have the power to indemnify him againstsuch liability under the provisions of this Article X.

ARTICLE XI

TRANSFER OF PARTNERSHIP INTEREST

11.1         The Limited Partner shallnot sell, assign, transfer, encumber, or otherwise dispose of any interest in thePartnership without the written consent of the General Partner.

13

----

11.2         The Limited Partner maynot withdraw from the Partnership prior to the dissolution and winding up ofthe Partnership.

ARTICLE XII

DISSOLUTION AND WINDING-UP OF PARTNERSHIP

12.1         The Partnership shall bedissolved upon the first of any of the following events to occur:

A.           Theresignation, withdrawal or removal of the General Partner or the legaltermination of the General Partner; the assignment for the benefit ofcreditors, bankruptcy, or legal incapacity of the General Partner; or thevoluntary institution or filing of any proceeding or petition in bankruptcy bythe General Partner; provided, however, that the business of the Partnershipmay be continued pursuant to Section 12.2;

B.             The expirationof the term of the Partnership;

C.             The sale,transfer, or other disposition of all of the assets of the Partnership; or

D.            Any other eventwhich must, by law, cause a dissolution of a limited partnership.

12.2         Promptly after theoccurrence of any of the events set forth in Section 12.1, the General Partneror its trustee, receiver, or successor (hereinafter called the “Liquidator”)(or if there is not a General Partner, a person designated by the LimitedPartner shall:

A.           Cause thecancellation of the Certificate of Limited Partnership;

B.             Take fullaccount of the Partnership’s assets and liabilities;

C.             Cause theassets to be liquidated as promptly as is consistent with obtaining the fairvalue thereof; and

D.            Apply anddistribute the proceeds therefrom, to the extent sufficient to pay thePartnership’s obligations with respect thereto, in the following order:

1.               First, to the payment anddischarge of all of the Partnership’s debts and liabilities to persons orentities other than Partners and the expenses of liquidation;

2.               Second, to the payment anddischarge of any loans and advances made by former Partners who withdrew orwere removed prior to the occurrence of the event specified in Section 12.1 ofthis Agreement;

3.               Third, to the payment anddischarge of any loans and advances made by Partners to the Partnership;

14

----

4.               Fourth, to the payment ofthe Partners’ income accounts (exclusive of any income attributable to the saleof the Property), in the following order: (a) to the Limited Partner pursuant to Section 6.1(A); and (b) to thePartners pursuant to Section 6.1(B).

5.               Fifth, to the payment of thecapital accounts of the Partners, in the following order:  (a) to the Limited Partner to the extent ofthe balances in its capital account; and (b) the balance, if any, to be dividedamongst the Partners based upon each Partner’s proportionate share of interestin the Partnership.

12.3         Notwithstanding theprovisions of Section 12.2, if, on winding-up of the Partnership, theLiquidator shall determine that an immediate sale of part or all of thePartnership’s assets would cause undue loss to the Partners, the Liquidatormay, in order to avoid such losses, either:

A.           Defer theliquidation of, and withhold from distribution for a reasonable time, any assetsof the Partnership except those necessary to satisfy debts and liabilities ofthe Partnership (other than those to Partners); or

B.             Distribute tothe Partners, in lieu of cash, as tenants in common and in accordance with theprovisions, undivided interests in any Partnership assets, and liquidate onlysuch assets as are necessary in order to pay the debts and liabilities of thePartnership (other than those to Partners).

ARTICLE XIII

MISCELLANEOUS

13.1         This Agreement shall notbe amended or modified except in a written instrument executed by the GeneralPartner and the Limited Partner.

13.2         Except as may beotherwise specifically provided in this Agreement, all notices required orpermitted in this Agreement shall be in writing and shall be effective three(3) calendar days after deposit in the United States mail, postage prepaid,registered or certified mail, return receipt requested, properly addressed tothe intended recipient at the address shown in the Partnership records.  Notice given in any other manner shall beeffective only if and when received by the addressee.  A Partner may change its address by givingnotice to the General Partner as provided in this paragraph.

13.3         This Agreement shall beconstrued in accordance with the laws of the State of Texas.

13.4         The Partners shallexecute any other instruments that are or may become necessary, appropriate, orconvenient to carry out the business of the Partnership.  A Partner may execute any instrument relatedto the Partnership by means of a power of attorney if an original executed copyof the power of attorney is provided to the General Partner to be kept with thePartnership records.

15

----

13.5         Any headings used in thisAgreement are used for convenience and shall not be considered in construingthe terms of this Agreement.

13.6         This Agreement shall bebinding upon and inure to the benefit of the parties who execute this Agreementand their respective heirs, executors, administrators, legal representatives,successors, and assigns except as otherwise provided in this Agreement. Thedeath, disability, or other change in circumstances relating to a Partner shallnot affect the rights and obligations of the Partner or the Partner’s legalrepresentative or successor.

13.7         This Agreement containsthe entire agreement between the Partners and supersedes any priorunderstandings or written or oral agreements between the parties relating tothe subject matter of this Agreement, except as may be otherwise provided inthis Agreement. The Partners acknowledge that they are entering into thisAgreement after having conducted an independent investigation of thePartnership and the Partnership business and that they are not relying upon anyrepresentation by any Partner or the Partnership.

13.8         If any of the provisionsin this Agreement is held to be invalid, illegal, or unenforceable in anyrespect for any reason, such invalidity, illegality, or unenforceability shallnot affect any other provision and this Agreement shall be construed as if theinvalid, illegal, or unenforceable provision had not been included in theAgreement.

13.9         If there is any action,suit, arbitration, or other proceeding between Partners relating to thePartnership, or between the Partnership and one or more Partners relating tothe Partnership business, the prevailing party shall be entitled to recoverreasonable attorneys’ fees in addition to any other relief ordered.

13.10       This Partnership Agreementmay be executed in any number of counterparts and each counterpart shall bedeemed to be an original for all purposes.

13.11       Wherever the contextrequires, all words in this Agreement in the male gender shall be deemed toinclude the female or neuter gender, all singular words shall include theplural, and all plural words shall include the singular.

16

----

IN WITNESS WHEREOF, the parties have entered into this Amended andRestated Partnership Agreement as of June 30, 2006.
|   | GENERAL PARTNER:                                                                        |
|--------|-----------------------------------------------------------------------------------------|
|   |                                                                                    |
|   | KIMBALL HILL HOMES HOUSTON OPERATIONS,   L.L.C., a Texas limited liability company      |
|   |                                                                                    |
|   |                                                                                    |
|   | By:                                                                                     | /s/     David K. Hill |   |
|   |                                                                                    | David K. Hill, its Manager |
|   |                                                                                    |
|   |                                                                                    |
|   | LIMITED PARTNER:                                                                        |
|   |                                                                                    |
|   | KIMBALL HILL HOMES HOUSTON INVESTMENTS,   L.L.C., an Illinois limited liability company |
|   |                                                                                    |
|   |                                                                                    |
|   | By:                                                                                     | /s/     David K. Hill |   |
|   |                                                                                    | David K. Hill, its Manager |

 

17

----

EXHIBIT A
| GENERAL PARTNER                                 |                       |
|-------------------------------------------------|----------------------------|
|                                            |                       |
| Name                                            | Address                    |
|                                            |                       |
| Kimball Hill  Homes Houston Operations, L.L.C.  | 8584 Katy Freeway          |
|                                            | Suite 200                  |
|                                            | Houston, TX  77024         |
|                                            |                       |
|                                            |                       |
| LIMITED PARTNER                                 |                       |
|                                            |                       |
| Name                                            | Address                    |
|                                            |                       |
| Kimball Hill  Homes Houston Investments, L.L.C. | 5999 New Wilke Road        |
|                                            | Suite 504                  |
|                                            | Rolling Meadows,  IL 60008 |

 

18

----