FIFTH AMENDED AND RESTATED CREDIT AGREEMENT

                                      AMONG

                               PARAGON GROUP L.P.
                         A DELAWARE LIMITED PARTNERSHIP,
                                   AS BORROWER


               WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED,
                           NATIONSBANK OF TEXAS, N.A.,
                    THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
                   TOGETHER WITH THOSE BANKS BECOMING PARTIES
                        HERETO PURSUANT TO SECTION 11.13,
                                   AS LENDERS


                                       AND


               WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED,
                              AS AGENT FOR LENDERS


                            DATED AS OF JULY 27,1996



<PAGE>



                                TABLE OF CONTENTS


                                                                            Page
                                    ARTICLE 1
                                   DEFINITIONS
Section  1.1      Certain Defined Terms........................................1
Section  1.2      Computation of Time Periods.................................24
Section  1.3      Terms.......................................................24
                                    ARTICLE 2
                                      LOANS
Section  2.1      Loan Advances and Repayment.................................24
Section  2.3      Lenders' Accounting.........................................27
Section  2.4      Interest on the Loans.......................................28
Section  2.5      Fees........................................................33
Section  2.6      Payments....................................................34
Section  2.7      Increased Capital...........................................35
Section  2.8      Notice of Increased Costs...................................35
                                    ARTICLE 3
                            BORROWING BASE PROPERTIES
Section  3.1      Acceptance of Borrowing Base Properties.....................35
Section  3.2      Release of Borrowing Base Properties........................37
Section  3.3      Borrowing Base Determinations...............................38
Section  3.4      Covenants Relating to Borrowing Base Properties.............40
Section  3.5      Grant of Security Interest..................................41
                                    ARTICLE 4
                               CONDITIONS TO LOANS
Section  4.1      Conditions to Initial Loans.................................42
Section  4.2      Conditions Precedent to Subsequent Loans....................46
                                    ARTICLE 5
                         REPRESENTATIONS AND WARRANTIES
Section  5.1      Representations and Warranties as to Borrower...............48
Section  5.2      Representations and Warranties as to the REIT...............53
Section  5.3      Representations and Warranties as to Paragon GP Holdings....56
Section  5.4      Representations and Warranties as to Paragon LP Holdings....59
                                    ARTICLE 6
                               REPORTING COVENANTS
Section  6.1      Financial Statements and Other Financial and Operating
                           Information........................................62
Section  6.2      Environmental Notices.......................................67
                                    ARTICLE 7
                              AFFIRMATIVE COVENANTS
Section  7.1      Borrower's Affirmative Covenants............................68
Section  7.2      With respect to the REIT....................................70
Section  7.3      With respect to Paragon GP Holdings.........................72


                                        i

<PAGE>



Section  7.4      With respect to Paragon LP Holdings.........................74
                                    ARTICLE 8
                               NEGATIVE COVENANTS
Section  8.1      With respect to Borrower....................................76
Section  8.2      With respect to the REIT....................................79
Section  8.3      With respect to Paragon GP Holdings.........................80
Section  8.4      With respect to Paragon LP Holdings.........................81
                                    ARTICLE 9
                               FINANCIAL COVENANTS
                                   ARTICLE 10
                     EVENTS OF DEFAULT; RIGHTS AND REMEDIES
Section  10.1     Events of Default...........................................83
Section  10.2     Rights and Remedies.........................................87
                                   ARTICLE 11
                                AGENCY PROVISIONS
Section  11.1     Appointment.................................................89
Section  11.2     Nature of Duties............................................89
Section  11.3     Loan Disbursements..........................................90
Section  11.4     Distribution and Apportionment of Payments..................91
Section  11.5     Rights, Exculpation, Etc....................................92
Section  11.6     Reliance....................................................93
Section  11.7     Indemnification.............................................93
Section  11.8     Agent and Lenders Individually..............................93
Section  11.9     Successor Agent; Resignation of Agent, Removal of Agent. ...93
Section  11.10    Consent and Approvals.......................................94
Section  11.11    Agency Provisions Relating to Collateral....................97
Section  11.12    Lender Actions Against Collateral...........................99
Section  11.13    Assignments and Participations..............................99
Section  11.14    Ratable Sharing............................................102
Section  11.15    Delivery of Documents......................................102
Section  11.16    Notice of Events of Default................................103
                                   ARTICLE 12
                                  MISCELLANEOUS
Section  12.1     Expenses...................................................103
Section  12.2     Indemnity..................................................104
Section  12.3     Change in Accounting Principles............................104
Section  12.4     Setoff.....................................................105
Section  12.5     Amendments and Waivers.....................................105
Section  12.6     Independence of Covenants..................................106
Section  12.7     Notices and Delivery.......................................107
Section  12.8     Survival of Warranties, Indemnities and Agreements.........107
Section  12.9     Failure or Indulgence Not Waiver; Remedies Cumulative......107
Section  12.10    Marshalling; Recourse to Security; Payments Set Aside......107
Section  12.11    Severability...............................................108
Section  12.12    Headings...................................................108

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Section  12.13    Governing Law..............................................108
Section  12.14    LIMITATION OF LIABILITY....................................109
Section  12.15    Successors and Assigns.....................................109
Section  12.16    Consent to Jurisdiction and Service of Process; Waiver of Jury
                           Trial.............................................109
Section  12.17    Counterparts; Effectiveness; Inconsistencies...............110
Section  12.18    Performance of Obligations.................................111
Section  12.19    Construction...............................................111
Section  12.20    Entire Agreement...........................................111
Section  12.21    Confidentiality............................................111
Section  12.22    Estoppel Certificates......................................111
Section  12.23    Limitation of Liability....................................112



                                       iii

<PAGE>



                              LIST OF DEFINED TERMS


                                                                        Page No.

$..............................................................................8
Accommodation Obligation.......................................................1
Accountants....................................................................2
Affiliate......................................................................2
Agent    ......................................................................2
Agreement......................................................................1
Appraisal......................................................................2
Appraised Value................................................................2
Assignment and Assumption......................................................2
Assignment of Leases and Rents.................................................3
Base Rate......................................................................3
Base Rate Loan.................................................................3
Benefit Plan...................................................................3
Borrower ......................................................................3
Borrower's Affidavit...........................................................3
Borrower's Share...............................................................3
Borrowing......................................................................3
Borrowing Base.................................................................3
Borrowing Base Certificate.....................................................3
Borrowing Base Development Properties..........................................4
Borrowing Base Properties......................................................4
Borrowing Base Stabilized Properties...........................................4
Borrowing Base Stabilized Property Statements.................................63
Breakeven......................................................................4
Business Day...................................................................4
Capital Expenditures................................................Addendum - 1
Capital Lease..................................................................5
Cash Equivalents...............................................................5
Closing Checklist..............................................................5
Closing Date...................................................................5
Co-Agent ......................................................................5
Collateral.....................................................................6
Commission.....................................................................6
Commitment.....................................................................6
Completion Cost................................................................6
Compliance Certificate.........................................................6
Confidential Information.......................................................6
Construction Budget............................................................6
Construction Contracts.........................................................6
Construction Project..........................................................41


                                       iv

<PAGE>



Construction Schedule..........................................................6
Contaminant....................................................................7
Contractual Obligation,........................................................7
Conversion Date................................................................7
Conversion Date Certificate....................................................7
Convertible Securities.........................................................7
Court Order....................................................................7
Debt Service........................................................Addendum - 1
Default Interest...............................................................7
Defaulting Lender..............................................................8
Development Loan Fee..........................................................33
Development Plans..............................................................8
Development Property...........................................................8
Development Property Status Report.............................................8
DOL      ......................................................................8
Dollars  ......................................................................8
EBITDA   ...........................................................Addendum - 1
Eligible Maximum Loan Amount...................................................8
Environmental Laws.............................................................8
Environmental Lien.............................................................8
ERISA    ......................................................................9
ERISA Affiliate................................................................9
Event of Default...............................................................9
Facility ......................................................................9
FDIC     ......................................................................9
Federal Funds Rate.............................................................9
Federal Reserve Board.........................................................10
Financial Statements..........................................................63
FIRREA   .....................................................................10
Fiscal Quarter................................................................10
Fiscal Year...................................................................10
Fixed Charges.................................................................10
Funding Date..................................................................10
Funding Lender................................................................90
Funds From Operations...............................................Addendum - 1
Funds Transfer Agreement......................................................10
GAAP     .....................................................................10
General Partner...............................................................10
Governmental Authority........................................................10
Gross Asset Value...................................................Addendum - 1
Improvements..................................................................10
Indebtedness.......................... .......................................11
Indemnified Matters..........................................................104
Indemnitees..................................................................104
Independent Inspecting Architect..............................................11


                                        v

<PAGE>



Interest Expense....................................................Addendum - 2
Interest Period...............................................................11
Interim Period................................................................12
Internal Revenue Code.........................................................12
Investment....................................................................12
Investment Affiliate..........................................................12
Investment Mortgage...........................................................12
IRS      .....................................................................12
Land     .....................................................................12
Lease-Up Projections..........................................................12
Lender   .....................................................................12
Lender Taxes..................................................................30
Liabilities and Costs.........................................................13
LIBOR    .....................................................................13
LIBOR Loan....................................................................13
LIBOR Office..................................................................13
LIBOR Reserve Percentage......................................................13
Lien     .....................................................................14
Loan     .....................................................................14
Loan Availability.............................................................14
Loan Availability Certificate.................................................14
Loan Documents................................................................14
Loan Note.....................................................................14
Major Agreement...............................................................14
Management Company............................................................15
March 31, 1996 Financials.....................................................49
Material Adverse Effect.......................................................15
Maturity Date.................................................................15
Maximum Loan Amount...........................................................15
Maximum Rate.................................................................108
Mortgage .....................................................................15
Mortgage Document.............................................................15
Multiemployer Plan............................................................16
Net Income....................................................................16
Net Operating Income..........................................................16
Non Pro Rata Loan.............................................................16
Non-Funding Lender............................................................90
Nonrecourse Indebtedness......................................................16
Notice of Borrowing...........................................................16
Obligations...................................................................16
Officer's Certificate.........................................................17
operatives...................................................................112
Other Indebtedness............................................................17
Owner's Policy................................................................35
Paragon GP Holdings...........................................................17


                                       vi

<PAGE>



Paragon GP Holdings Affidavit.................................................17
Paragon LP Holdings...........................................................17
Paragon LP Holdings Affidavit.................................................17
Partnerships..................................................................17
PBGC     .....................................................................17
Permanent Loan Estimate.......................................................17
Permit   .....................................................................18
Permitted Investment..........................................................18
Permitted Lien................................................................18
Person   .....................................................................19
Plan     .....................................................................19
Pro Rata Share................................................................20
Proceedings...................................................................20
Project Budget................................................................20
Property .....................................................................20
Property Release..............................................................38
Protective Advance............................................................20
Regulation G..................................................................20
Regulation T..................................................................20
Regulation U..................................................................21
Regulation X..................................................................21
REIT     .....................................................................21
REIT Affidavit................................................................21
Release  .....................................................................21
Remedial Action...............................................................21
Reportable Event..............................................................21
Requirements of Law...........................................................21
Requisite Lenders.............................................................21
Restatement Date..............................................................22
Securities....................................................................22
Securities Act................................................................22
Securities Exchange Act.......................................................22
Senior Loans..................................................................91
Short Term Income.............................................................22
Solvent  .....................................................................22
Stabilized Property/Development Property Borrowing Base Ratio.................22
Subsidiary....................................................................22
substantial employer..........................................................23
Supermajority Lenders.........................................................22
Taxes    .....................................................................23
Termination Event.............................................................23
to the best of a Person's knowledge...........................................24
Total Liabilities...................................................Addendum - 2
Uniform Commercial Code.......................................................23
Units    .....................................................................23


                                       vii

<PAGE>



Unmatured Event of Default....................................................23
Unused Amount.................................................................33
Unused Facility Fee...........................................................33
Wells Fargo....................................................................1
WFB      .....................................................................24
Work in Process.....................................................Addendum - 2
work-out ....................................................................104


                                      viii

<PAGE>



                                FIFTH AMENDED AND
                            RESTATED CREDIT AGREEMENT

         This  Fifth  Amended  and  Restated   Credit   Agreement  (as  amended,
supplemented  or modified from time to time, the  "Agreement")  dated as of July
27,  1996,  is  made  by and  among  PARAGON  GROUP  L.P.,  a  Delaware  limited
partnership  ("Borrower"),  the Lenders, as hereinafter defined, and WELLS FARGO
REALTY ADVISORS FUNDING,  INCORPORATED,  a Colorado corporation ("Wells Fargo"),
as Agent,  and supersedes and takes the place of the Fourth Amended and Restated
Credit  Agreement,  dated as of February  29,  1996,  made by and among the same
parties.


                                    ARTICLE 1
                                   DEFINITIONS

         Section 1.1 Certain  Defined Terms.  The following terms shall have the
following meanings in this Agreement (such meanings to be applicable,  except to
the extent otherwise indicated in a definition of a particular term, both to the
singular and the plural forms of the terms defined):

     "Accommodation  Obligation" as applied to any Person, means any contractual
     obligation,  contingent  or  otherwise,  of that Person in respect of which
     that person is liable for any Indebtedness or other obligation or liability
     of another Person,  including,  without limitation,  any such Indebtedness,
     obligation  or  liability  directly  or  indirectly  guaranteed,   endorsed
     (otherwise  than for  collection  or  deposit  in the  ordinary  course  of
     business),  co-made or discounted or sold with recourse by that Person,  or
     in respect of which that Person is otherwise directly or indirectly liable,
     including,   except  as  provided  below,   the  recourse  and  nonrecourse
     obligations of partnerships in which that Person has an ownership interest,
     Contractual  Obligations  (contingent  or  otherwise)  arising  through any
     agreement to purchase,  repurchase or otherwise acquire such  Indebtedness,
     obligation or liability or any security  therefor,  or to provide funds for
     the payment or discharge  thereof (whether in the form of loans,  advances,
     stock  purchases,  capital  contributions  or  otherwise),  or to  maintain
     solvency,  assets, a level of income, or other financial  condition,  or to
     make payment  other than for value  received.  With respect to  nonrecourse
     obligations of partnerships in which a Person has an ownership interest, if
     the financial  results of a partnership  in which a Person has an ownership
     interest are not consolidated under GAAP with the financial results of that
     Person on the consolidated  financial  statements of that Person, then only
     an amount equal to the product of (a) the  nonrecourse  obligations of such
     partnership,  and (b) that Person's  ownership interest in such partnership
     expressed  as a  percentage  of  one,  shall  constitute  an  Accommodation
     Obligation  of that Person.  With respect to recourse  obligations  of such
     partnerships,  100%  of such  obligations  shall  constitute  Accommodation
     Obligations of a Person that has an ownership interest in such partnership.


                                        1

<PAGE>



          "Accountants" means Ernst & Young Kenneth Leventhal Real Estate Group,
     or any other firm of  certified  public  accountants  of national  standing
     selected by Borrower and reasonably acceptable to Agent.

          "Affiliate" as applied to any Person,  means any other Person directly
     or indirectly  controlling,  controlled  by, or under common  control with,
     that Person.  For purposes of this  definition,  "control"  (including with
     correlative meanings,  the terms "controlling,"  "controlled by" and "under
     common control with"), as applied to any Person,  means (a) the possession,
     directly or indirectly,  of the power to vote 25% or more of the Securities
     having  voting  power for the  election of  directors  of such  Person,  or
     otherwise to direct or cause the direction of the  management  and policies
     of that Person,  whether  through the ownership of voting  Securities or by
     contract or otherwise; (b) the ownership of a general partnership interest;
     (c) a  limited  partnership  interest  representing  25%  or  more  of  the
     outstanding partnership interests of a Person.

          "Agent"  means  Wells  Fargo in its  capacity as Agent for the Lenders
     under this  Agreement,  and shall  include any  successor to Wells Fargo in
     such  capacity  appointed  pursuant  hereto and shall be deemed to refer to
     Wells Fargo in its  individual  capacity  as a Lender  where the context so
     requires.

          "Agreement"  means this Credit  Agreement as amended,  supplemented or
     modified from time to time.

          "Appraisal" means a written  appraisal  prepared (a) by an independent
     MAI appraiser  acceptable to Agent in its reasonable  business  discretion;
     (b)  in   accordance   with   Agent's   customary   independent   appraisal
     requirements;   and  (c)  in  compliance  with  all  applicable  regulatory
     requirements, including FIRREA.

          "Appraised  Value"  means  (a) as to  any  Borrowing  Base  Stabilized
     Property  or Land,  as the case may be,  the "as is"  market  value of such
     Borrowing  Base  Stabilized  Property  or  Land,  as the  case  may be,  as
     reflected in the most recent  Appraisal of such Borrowing  Base  Stabilized
     Property or Land, as the case may be, as the same may have been adjusted by
     Agent based upon its internal review of such Appraisal,  which review shall
     be  conducted  prior to  acceptance  of such  Appraisal by Agent and in any
     event within 21 days after receipt by Agent of such  Appraisal;  and (b) as
     to any Borrowing  Base  Development  Property,  the "as though  stabilized"
     market value of such Borrowing Base Development  Property,  as reflected in
     the most recent Appraisal of such Borrowing Base Development  Property,  as
     the same may be adjusted by Agent  based upon its  internal  review of such
     Appraisal,  which  review shall be conducted  prior to  acceptance  of such
     Appraisal by Agent and in any event  within 21 days after  receipt by Agent
     of such Appraisal.

          "Assignment and Assumption"  means an Assignment and Assumption in the
     form of Exhibit A hereto (with blanks appropriately filled in) delivered to
     Agent

                                        2

<PAGE>



     in  connection  with each  assignment  of a  Lender's  interest  under this
     Agreement pursuant to Section 11.13.

          "Assignment  of Leases and Rents"  means an  Assignment  of Leases and
     Rents, in form acceptable to Agent, delivered to Agent in connection with a
     Borrowing Base Property and securing the Obligations.

          "Base  Rate"  means,  on any day,  the higher of (a) the Prime Rate in
     effect on such day,  and (b) the Federal  Funds Rate in effect on such day,
     plus 1/2% per annum.

         "Base Rate Loan" means a Loan bearing interest at the Base Rate.

          "Benefit Plan" means any employee  pension  benefit plan as defined in
     Section 3(2) of ERISA (other than a Multiemployer Plan) in respect of which
     a Person or an ERISA Affiliate is, or within the immediately preceding five
     years was, an "employer" as defined in Section 3(5) of ERISA.

         "Borrower" means Paragon Group L.P., a Delaware limited partnership.

          "Borrower's  Affidavit" means an affidavit  subscribed and sworn to by
     an authorized  representative  of the General Partner of Borrower as to the
     matters set forth therein.  Such  representative  need not be an officer of
     the General Partner.

          "Borrower's  Equity  Investment"  means, with respect to any Borrowing
     Base Development Property, the total project costs to be funded by Borrower
     prior to any Loan  relating  to such  Property.  Such  funded  costs  shall
     aggregate not less than the greater of (a) the  difference  between (1) the
     sum of (A) the total original Project Budget for such Property and (B) 100%
     of any  increases  in the  amount  of the  total  Project  Budget  for such
     Property after the initial Loan relating to the Property is disbursed,  and
     (2) the Maximum  Loan Amount and (b) 30% of the amount  described in (a)(1)
     of this definition.

          "Borrower's  Share" means  Borrower's  share of the  liabilities of an
     Investment  Affiliate  based upon Borrower's  percentage  ownership of such
     Investment Affiliate.

         "Borrowing" means a borrowing under the Facility.

          "Borrowing  Base" means the sum from time to time of (a) the Borrowing
     Base Values of the Borrowing Base Stabilized  Properties and (b) the lesser
     of (1)  $50,000,000  or (2) the  Borrowing  Base  Values of the  Properties
     accepted by Agent as  Borrowing  Base  Development  Properties  pursuant to
     Section 3.1 on or before September 30, 1996.

         "Borrowing Base Certificate" means a report in the form of Exhibit B.

                                        3

<PAGE>



          "Borrowing Base Development Properties" means the apartment Properties
     which are under  development  and listed on Schedule 2, as such  Schedule 2
     may be amended  from time to time to reflect the  addition  and deletion of
     apartment Properties under development pursuant to Article 3 hereof.

          "Borrowing  Base  Properties"  means the  Borrowing  Base  Development
     Properties and the Borrowing Base Stabilized Properties.

          "Borrowing Base Property  Statements" has the meaning ascribed to such
     term in Section 6.1(a).

          "Borrowing Base Stabilized  Properties" means the apartment Properties
     listed on Schedule 1, as such  Schedule 1 may be amended  form time to time
     to reflect the addition and  deletion of apartment  Properties  pursuant to
     Article 3 hereof.

          "Borrowing Base Value" means,  (a) as to any Borrowing Base Stabilized
     Property at any time, the lower of:

          (1)  70% of the  Appraised  Value of such  Borrowing  Base  Stabilized
               Property; and

          (2)  the Permanent  Loan Estimate of such  Borrowing  Base  Stabilized
               Property; and

          (b) as to any Borrowing  Base  Development  Property at any time,  its
     Eligible Maximum Loan Amount.

          "Breakeven"  means,  with respect to any  Borrowing  Base  Development
     Property, as calculated from time to time, when such Property generates Net
     Operating Income (on an annualized  basis) equal to or greater than the sum
     of all payments of interest that would be required to annually  service the
     accrued  interest  only on a loan  in the  Maximum  Loan  Amount  for  such
     Property with an interest rate equal to the sum of three month LIBOR on the
     date Breakeven is calculated plus 3.00%.

          "Business  Day" means (a) with  respect to any  Borrowing,  payment or
     rate  determination  for a LIBOR  Loan,  a day,  other than a  Saturday  or
     Sunday, on which Agent is open for business in Dallas and San Francisco, on
     which  Co-Agent  is open for  business  in Dallas and on which  dealings in
     Dollars  are  carried on in the London  interbank  market;  and (b) for all
     other purposes,  any day excluding Saturday,  Sunday and any day which is a
     legal holiday under the laws of the States of California  and Texas or is a
     day on which  banking  institutions  located  in  California  and Texas are
     required or authorized by law or other governmental action to close.



                                        4

<PAGE>



          "Capital  Expenditures"  has the  meaning  ascribed  to  such  term in
     Addendum I to this Agreement.

          "Capital  Lease"  as  applied  to any  Person,  means any lease of any
     Property  (whether  real,  personal  or mixed) by that  Person,  as lessee,
     which,  in conformity with GAAP, is or should be accounted for as a capital
     lease on the balance sheet of that Person.

          "Cash  Equivalents"  means (a) marketable direct obligations issued or
     unconditionally  guaranteed by the United States Government or issued by an
     agency  thereof  and  backed  by the full  faith and  credit of the  United
     States, in each case maturing within one year after the date of acquisition
     thereof;  (b)  marketable  direct  obligations  issued  by any state of the
     United States of America or any political  subdivision of any such state or
     any public instrumentality thereof,  maturing within 90 days after the date
     of acquisition  thereof and, at the time of acquisition,  having one of the
     two  highest  ratings   obtainable  from  any  two  of  Standard  &  Poor's
     Corporation,  Moody's Investors  Services,  Inc., Duff and Phelps, or Fitch
     Investors (or, if at any time no two of the foregoing  shall be rating such
     obligations,  then from such other  nationally  recognized  rating services
     acceptable to Agent) and not listed for possible down-grade in Credit Watch
     published by Standard & Poor's  Corporation;  (c) commercial  paper,  other
     than commercial paper issued by Borrower or any of its Affiliates, maturing
     no more than 90 days after the date of creation thereof and, at the time of
     acquisition,  having a rating of at least A-1 or P-1 from either Standard &
     Poor's Corporation or Moody's Investor's Service,  Inc. (or, if at any time
     neither Standard & Poor's Corporation nor Moody's Investor's Service,  Inc.
     shall be rating such  obligations,  then the highest rating from such other
     nationally  recognized  rating  services  acceptable  to  Agent);  and  (d)
     domestic and Eurodollar certificates of deposit, time deposits and bankers'
     acceptances  which  mature  within 90 days  after  the date of  acquisition
     thereof; and (e) overnight  securities  repurchase  agreements,  or reverse
     repurchase  agreements  secured by any of the foregoing types of Securities
     or debt  instruments  issued,  in each  case,  by (1) any  commercial  bank
     organized  under  the laws of the  United  States of  America  or any state
     thereof or the District of Columbia or Canada having  combined  capital and
     surplus of not less than $250,000,000 or (2) any Lender.

          "Closing  Checklist"  means the Closing  Checklist  attached hereto as
     Exhibit C, as the same may be amended by the parties.

          "Closing Date" means the date upon which the initial  public  offering
     of the REIT  Securities  was  closed and  funded,  such date being July 27,
     1994.

          "Co-Agent"  means  NationsBank  of  Texas,  N.A.  in its  capacity  as
     co-Agent for the Lenders under this Agreement, and shall be deemed to refer
     to NationsBank of Texas, N.A. in its individual  capacity as a Lender where
     the context so requires.



                                        5

<PAGE>



          "Collateral" means all Property and interests in Property now owned or
     hereafter  acquired by  Borrower  or the REIT,  in or upon which a security
     interest,  pledge,  Lien or  Mortgage  is granted or of which a  collateral
     assignment is made under this  Agreement,  the Mortgage  Documents,  or any
     other Loan Documents.

     "Commission" means the Securities and Exchange Commission.

          "Commitment" means, with respect to any Lender, such Lender's Pro Rata
     Share of the Facility,  which amount shall not exceed the principal  amount
     set out under such Lender's name under the heading "Loan Commitment" on the
     counterpart  signature  pages attached to this Agreement or as set forth on
     an Agreement and Assumption  executed by such Lender, as assignee,  as such
     amount may be adjusted pursuant to the terms of this Agreement.

          "Completion Cost"means, with respect to any Borrowing Base Development
     Property,  the remaining cost of completing the  Improvements and achieving
     Breakeven,  as determined  monthly by Agent, in its sole  discretion,  with
     consideration  given to  reports  prepared  by the  Independent  Inspecting
     Architect.

          "Compliance  Certificate" means a certificate in the form of Exhibit D
     hereto  delivered  to Agent by  Borrower  pursuant  to  Section  6.1(d) and
     covering Borrower's  compliance with the covenants contained in Articles 6,
     7, 8 and 9 of this Agreement.

          "Confidential Information" means all nonpublic information obtained by
     Agent or any Lender.

          "Construction  Budget" means, with respect to any Development Property
     that is not a  Borrowing  Base  Development  Property,  the  budget for the
     construction and development of such Property.

          "Construction  Contracts"  means,  with respect to any Borrowing  Base
     Development  Property,  any  and all  material  contracts  and  agreements,
     written or oral between the Borrower and any original contractor, including
     the  architect  for such  Property,  between any of the  foregoing  and any
     subcontractor  and  between  any of the  foregoing  and  any  other  Person
     relating in any way to the construction of the Improvements that are a part
     of such Property  including the  performance  of labor or the furnishing of
     standards or specially fabricated materials.

          "Construction  Project"  has the  meaning  ascribed  to  such  term in
     Section 3.4(d).

          "Construction  Schedule"  means,  with respect to any  Borrowing  Base
     Development  Property,  the  schedule  established  for  completion  of the
     various stages of development of the Property.


                                        6

<PAGE>



          "Contaminant"  means  any  pollutant  (as that term is  defined  in 42
     U.S.C.  9601(33) or toxic  pollutant  (as that term is defined in 33 U.S.C.
     1362(13)),  hazardous  substance  (as that  term is  defined  in 42  U.S.C.
     9601(14)),  hazardous  chemical  (as that term is defined by 29 CFR Section
     1910.1200(c)), toxic substance, hazardous waste (as that term is defined in
     42  U.S.C.  6903(5)),   radioactive  material,   special  waste,  petroleum
     (including  crude  oil  or  any  petroleum-derived   substance,  waste,  or
     breakdown or decomposition  product thereof, or any constituent of any such
     substance or waste, including, but no limited to polychlorinated  biphenyls
     and asbestos).

          "Contractual   Obligation,"  as  applied  to  any  Person,  means  any
     provision  of any  Securities  issued  by  that  Person  or any  indenture,
     mortgage,  deed  of  trust,  lease,  contract,  undertaking,   document  or
     instrument  to which  that  Person  is a party or by which it or any of its
     Properties  is bound,  or to which it or any of its  Properties  is subject
     (including,  without  limitation,  any restrictive  covenant affecting such
     Person or any of its Properties).

          "Conversion Date means, as to any Borrowing Base Development Property,
     the earlier of (a) the date that is 30 months after construction commences;
     or (b) the date on which Borrower delivers a Conversion Date Certificate to
     Agent pursuant to Section 6.1(y). Each Borrowing Base Development  Property
     that achieves (1) 90% occupancy for the average of three consecutive months
     and (2) 90% for each of three  consecutive  months of appraised  stabilized
     gross revenue (on an annualized  basis) prior to the  Conversion  Date, may
     become  a  Borrowing  Base  Stabilized  Property  on or  subsequent  to the
     Conversion Date upon written notice from Borrower to Agent.

     "Conversion Date Certificate" means a report in the form of Exhibit I.

          "Convertible  Securities"  means evidences of indebtedness,  shares of
     stock,  limited  or  general  partnership   interests  or  other  ownership
     interests,  warrants,  options,  or other  rights or  securities  which are
     convertible into or exchangeable for, with or without payment of additional
     consideration,  Units  of the  Borrower,  either  immediately  or upon  the
     arrival of a specified date or the happening of a specified event.

          "Court Order" means any judgment,  writ,  injunction,  decree, rule or
     regulation  of  any  court  or  Governmental   Authority  binding  upon  or
     applicable to the Person in question.

          "Debt Service" has the meaning  ascribed to such term in Addendum I to
     this Agreement.

     "Default Interest" has the meaning ascribed to such term in Section 2.4(d).


                                        7

<PAGE>



          "Defaulting  Lender"  means  any  Lender  that  fails to  perform  its
     obligations  under this  Agreement  within the time  period  specified  for
     performance of such  obligations,  upon written notice of such failure from
     Agent of such  failure;  provided,  however,  that any Lender that fails to
     fund its Pro Rata Share of any Borrowing by 10:00 A.M.  California  Time on
     the Funding Date for such Borrowing,  shall, without written notice of such
     failure  from Agent,  be deemed to be a Defaulting  Lender;  and any Lender
     that fails to perform  its  obligations  under this  Agreement  (if no time
     period is specified for the performance of such obligation),  which failure
     continues for a period of two Business Days after written notice from Agent
     of such failure to such Lender.

          "Development   Plans"  means,  with  respect  to  any  Borrowing  Base
     Development Property, the material plans, specifications, shop drawings and
     other technical  descriptions prepared for construction of the Improvements
     on the Property.

          "Development  Property" means an income  producing real estate project
     for which both of the following statements are true: (a) at least 30 months
     has not passed since  construction  was commenced and (b) (1) 90% occupancy
     for the average of three consecutive months and (2) 90% of stabilized gross
     revenues (on an annualized basis) for each of three consecutive  months has
     not been achieved.

          "Development  Property  Status  Report"  means,  with  respect  to any
     Borrowing  Base  Development  Property,  the report  delivered to Lender by
     Borrower pursuant to Section 6.1(x) of this Agreement.

          "DOL" means the United  States  Department  of Labor and any successor
     department of agency.

          "Dollars"  and "$" each mean the lawful money of the United  States of
     America.

          "EBITDA"  has the meaning  ascribed to such term in Addendum I to this
     Agreement.

          "Eligible  Maximum Loan Amount"  means,  with respect to any Borrowing
     Base Development Property, an amount equal to (a) zero if Borrower's Equity
     Investment has not been fully funded;  and otherwise,  (b) the Maximum Loan
     Amount.

          "Environmental   Laws"  means  all  environment,   health  and  safety
     Requirements of Law.

          "Environmental  Lien"  means  a Lien  in  favor  of  any  Governmental
     Authority for (a) any liability under Environmental Laws or regulations, or


                                        8

<PAGE>



          (b) damages  arising  from,  or costs  incurred  by such  Governmental
     Authority in response to, a Release or threatened  Release of a Contaminant
     into the environment.

          "ERISA" means the Employee  Retirement Income Security Act of 1974, as
     amended from time to time, and any successor statute.

          "ERISA Affiliate" means any (a) corporation  which is, becomes,  or is
     deemed to be a member of the same controlled group of corporations  (within
     the meaning of Section  414(b) of the Internal  Revenue  Code) as a Person;
     (b) partnership,  trade or business (whether or not incorporated) which is,
     becomes,  or is deemed to be under  common  control  (within the meaning of
     Section  414(c) of the Internal  Revenue Code) with a Person;  (c) a Person
     which is,  becomes,  or is  deemed  to be a member of the same  "affiliated
     service group" (as defined in Section 414(m) of the Internal  Revenue Code)
     as a Person;  or (d) any other  organization  or  arrangement  described in
     Section 414(o) of the Internal Revenue Code which is, becomes, or is deemed
     to be  required  to be  aggregated  pursuant to  regulations  issued  under
     Section  414(o) of the  Internal  Revenue  Code with a Person  pursuant  to
     Section 414(o) of the Internal Revenue Code.

          "Event of Default" means any of the  occurrences  set forth in Article
     10 after the expiration of any applicable grace period  expressly  provided
     therein.

          "Expended  Project  Costs" means,  with respect to any Borrowing  Base
     Development Property,  all sums expended to date for the development of the
     Property, consistent with the Project Budget for such Property.

          "Facility" means the loan facility of up to $150,000,000.00  described
     in Section 2.1(a), which shall consist of (a) $85,000,000.00 of Commitments
     from Lenders on the Restatement Date and (b)  $65,000,000.00  of additional
     Commitments,   provided  that  (1)  Borrower   requests   such   additional
     Commitments,  which  requests  shall  be in  increments  of not  less  than
     $15,000,000.00,  and (2) Agent receives additional Commitments from Lenders
     equal to at least the sum of all such requested additional Commitments, not
     to exceed $65,000,000.00.

          "FDIC"  means  the  Federal  Deposit  Insurance   Corporation  or  any
     successor thereof.

          "Federal  Funds Rate" means,  for any period,  a fluctuating  interest
     rate per  annum  equal for each day  during  such  period  to the  weighted
     average of the rates on overnight  Federal Funds  transactions with members
     of the  Federal  Reserve  System  arranged  by Federal  Funds  brokers,  as
     published for such day (or, if such day is not a Business Day, for the next
     preceding  Business  Day) by the Federal  Reserve Bank of New York,  or, if
     such rate is not so  published  for any day which is a  Business  Day,  the
     average of the  quotations  for such day on such  transactions  received by
     Agent from three Federal Funds brokers of recognized  standing  selected by
     Agent.

                                        9

<PAGE>



          "Federal  Reserve  Board"  means the Board of Governors of the Federal
     Reserve System or any governmental authority succeeding to its functions.

          "Financial  Statements"  has the  meaning  ascribed  to  such  term in
     Section 6.1(b).

          "FIRREA"  means  the  Financial  Institutions  Recovery,   Reform  and
     Enforcement Act of 1989, as amended from time to time.

         "Fiscal Quarter" means a fiscal quarter of a Fiscal Year.

          "Fiscal Year" means the fiscal year of Borrower  which shall be the 12
     month period ending on the last day of December in each calendar year.

         "Fixed Charges" means the sum of Debt Service and Capital Expenditures.

          "Funding Date" means,  with respect to any Loan made after the Closing
     Date, the date of the funding of such Loan.

          "Funds  From  Operations"  has the  meaning  ascribed  to such term in
     Addendum I to this Agreement.

          "Funds Transfer  Agreement" means the Agent's funds transfer agreement
     in the form of Exhibit E hereto.

          "GAAP" means generally accepted accounting principles set forth in the
     opinions  and  pronouncements  of  the  Accounting  Principles  Board,  the
     American  Institute  of Certified  Public  Accountants,  and the  Financial
     Accounting  Standards  Board,  or in such  other  statements  by such other
     entity as may be in general use by  significant  segments of the accounting
     profession,  which are  applicable to the  circumstances  as of the date of
     determination.

         "General Partner" means Paragon GP Holdings.

          "Governmental Authority" means any nation or government,  any federal,
     state,  local,  municipal  or other  political  subdivision  thereof or any
     entity  exercising   executive,   legislative,   judicial,   regulatory  or
     administrative functions of or pertaining to government.

          "Gross Asset Value" has the meaning  ascribed to such term in Addendum
     I to this Agreement.

          "Improvements"  means the  improvements  described in the  Development
     Plans for any Borrowing Base Development Property.



                                               10

<PAGE>



          "Indebtedness"  as applied to any Person  (and  without  duplication),
     means, in accordance with GAAP, (a) all indebtedness,  obligations or other
     liabilities  of such  Person  for  borrowed  money;  (b) all  indebtedness,
     obligations or other  liabilities of such Person evidenced by Securities or
     other similar  instruments;  (c) all  reimbursement  obligations  and other
     liabilities  of such Person  with  respect to letters of credit or banker's
     acceptances  issued for such Person's account;  (d) all obligations of such
     Person to pay the deferred purchase price of Property or services;  (e) all
     obligations  in  respect  of  Capital  Leases  of  such  Person,   (f)  all
     Accommodation Obligations of such Person; (g) all indebtedness, obligations
     or other  liabilities  of such  Person or others  secured  by a Lien on any
     asset of such  Person,  whether or not such  indebtedness,  obligations  or
     liabilities  are assumed by, or are a personal  liability  of, such Person,
     all as of such time; (h) all indebtedness, obligations or other liabilities
     (other  than  interest  expense  liability)  in  respect of  interest  rate
     contracts  and  foreign  currency  exchange   agreements;   and  (i)  ERISA
     obligations  currently  due and  payable.  Indebtedness  shall not  include
     operating  leases,  and any liability  specifically  offset by cash or Cash
     Equivalents held for the sole purpose of liquidating such liability.

          "Independent   Inspecting   Architect"  means,  with  respect  to  any
     Borrowing Base  Development  Property,  the Person selected and retained by
     Agent,  at Borrower's  expense,  to review  construction of and inspect the
     Improvements on behalf of the Lenders.

          "Interest Expense" has the meaning ascribed to such term in Addendum I
     to this Agreement.

          "Interest  Period" means,  relative to any LIBOR Loans comprising part
     of the same Borrowing,  the period beginning on (and including) the date on
     which such LIBOR Loans are made as, or converted  into,  LIBOR  Loans,  and
     shall end on (but exclude) the day which  numerically  corresponds  to such
     date one,  two,  three or six months  thereafter  (or, if such month has no
     numerically  corresponding day, on the last Business Day of such month), in
     either  case as Borrower  may select in its  relevant  Notice of  Borrowing
     pursuant to Section 2.1(b); provided, however, that:

          (a)  if such Interest Period would otherwise end on a day which is not
               a  Business  Day,  such  Interest  Period  shall  end on the next
               following  Business Day (unless such next following  Business Day
               is the first Business Day of a calendar month, in which case such
               Interest Period shall end on the Business Day next preceding such
               numerically corresponding day);

          (b)  no Interest Period may end later than the Termination Date; and



                                               11

<PAGE>



          (c) pursuant to Section  11.10(d),  any  Interest  Period of 12 months
     shall require the consent of all Lenders.

          "Interim  Period" means the period  commencing on March 31, 1996,  and
     ending on the Closing Date.

          "Internal  Revenue  Code" means the Internal  Revenue Code of 1986, as
     amended from time to time, and any successor statute.

          "Investment"  means,  as  applied  to any  Person,  (a) any  direct or
     indirect purchase or other acquisition by that Person of Securities,  or of
     a beneficial interest in Securities of any other Person, and (b) any direct
     or indirect loan, advance (other than deposits with financial  institutions
     available for withdrawal on demand, prepaid expenses, advances to employees
     and similar  items made or incurred in the ordinary  course of business and
     extensions  of  credit in the  ordinary  course of  business),  or  capital
     contribution  by such  Person  to any other  Person  which is not a current
     asset or did not arise from a sale of goods or  services  to that Person in
     the ordinary  course of  business.  The amount of any  Investment  shall be
     determined in conformity with GAAP.

          "Investment  Affiliate"  means  any  Person in which  Borrower  has an
     ownership interest, whose financial results are not consolidated under GAAP
     with the  financial  results  of  Borrower  on the  consolidated  financial
     statements of the Borrower.

          "Investment  Mortgage" means any mortgage directly or indirectly owned
     by Borrower which secures Indebtedness  including  certificates of interest
     in real estate mortgage investment conduits.

          "IRS" means the Internal Revenue Service and any Person  succeeding to
     the functions thereof.

          "Land" means  unimproved real estate  purchased or to be purchased and
     owned  in  fee by  Borrower  for  the  purpose  of  future  development  of
     improvements.

          "Lease-Up  Projections"  means,  with  respect to any  Borrowing  Base
     Development  Property,  the  projections  prepared by Borrower  for leasing
     absorption,  tenant occupancy,  projected rental rates, construction period
     discounts and any other rental concessions.

          "Lender  Taxes"  has the  meaning  ascribed  to such  term in  Section
     2.4(g)(2)(A).

          "Lender"  means  Wells  Fargo  or any  other  bank,  finance  company,
     insurance  or other  financial  institution  which is or becomes a party to
     this Agreement by


                                               12

<PAGE>



          execution of a counterpart  signature page hereto or an Assignment and
          Assumption,  as assignee. At all times that there are no Lenders other
          than Wells Fargo, the terms "Lender" and "Lenders" mean Wells Fargo in
          its individual capacity. With respect to matters requiring the consent
          or approval of  Requisite  Lenders,  or all  Lenders,  any  Defaulting
          Lender will be  disregarded  and  excluded,  and, for voting  purposes
          only,  "all  Lenders"  shall be deemed to mean "all Lenders other than
          Defaulting Lenders."

               "Liabilities and Costs" means all claims, judgments, liabilities,
          obligations,   responsibilities,   losses,   damages  (including  lost
          profits),   punitive  or  treble  damages,  costs,  disbursements  and
          expenses  (including,   without  limitation,   reasonable  attorneys',
          experts'  and  consultants'  fees,  and  costs  of  investigation  and
          feasibility  studies),  fines,  penalties and monetary sanctions,  and
          interest,   direct  or  indirect,   known  or  unknown,   absolute  or
          contingent, past, present or future.

               "LIBOR" means, relative to any Interest Period for any LIBOR Loan
          included in any  Borrowing,  the rate of interest  determined by Agent
          (whose  determination shall be conclusive absent manifest error, which
          shall not include any lower determination by any other banks) equal to
          the rates (rounded upwards,  if necessary,  to the nearest 1/16 of 1%)
          per annum  reported by WFB at which  Dollar  deposits  in  immediately
          available  funds are offered by WFB to leading banks in the Eurodollar
          interbank  market at or about 10:00 A.M. London time two Business Days
          prior to the  beginning  of such  Interest  Period for delivery on the
          first day of such Interest Period for a period  approximately equal to
          such Interest Period and in an amount equal or comparable to the LIBOR
          Loan to which such Interest Period relates.

               "LIBOR Loan" means a Loan bearing  interest,  at all times during
          the  Interest  Period  applicable  to such  Loan,  at a fixed  rate of
          interest determined by reference to LIBOR.

               "LIBOR Office" means,  relative to any Lender, the office of such
          Lender designated as such on the counterpart signature pages hereto or
          such  other  office  of a Lender  as  designated  from time to time by
          notice  from such  Lender to Agent,  whether or not outside the United
          States,  which  shall be making  or  maintaining  LIBOR  Loans of such
          Lender.

               "LIBOR Reserve Percentage" means, relative to any Interest Period
          for LIBOR Loans made by any Lender, the reserve percentage  (expressed
          as a  decimal)  equal to the  actual  aggregate  reserve  requirements
          (including  all basic,  emergency,  supplemental,  marginal  and other
          reserves  and taking into  account any  transactional  adjustments  or
          other scheduled  changes in reserve  requirements)  applicable to such
          Lender  specified  under  regulations  issued from time to time by the
          Federal  Reserve Board and then  applicable  to assets or  liabilities
          consisting of and including  "Eurocurrency  Liabilities"  as currently
          defined in Regulation D of the Federal Reserve Board.


                                               13

<PAGE>



               "Lien" means any mortgage, deed of trust, pledge,  hypothecation,
          assignment,   deposit  arrangement,   security  interest,  encumbrance
          (including,  but not  limited  to,  easements,  rights-of-way,  zoning
          restrictions  and the like),  lien  (statutory or other),  preference,
          priority or other security  agreement or  preferential  arrangement of
          any kind or  nature  whatsoever,  including  without  limitation,  any
          conditional sale or other title retention agreement, the interest of a
          lessor under a Capital Lease, any financing lease having substantially
          the same economic  effect as any of the  foregoing,  and the filing of
          any financing  statement (other than a financing  statement filed by a
          "true" lessor pursuant to 9-408 of the Uniform Commercial Code) naming
          the owner of the asset to which such Lien relates as debtor, under the
          Uniform Commercial Code or other comparable law of any jurisdiction.

         "Loan" means a loan made pursuant to the Facility.

         "Loan Account" has the meaning ascribed to such term in Section 2.3.

               "Loan Availability" means, as calculated monthly, an amount equal
          to (a) the  Borrowing  Base  less  (b)  the  sum of (1) the  aggregate
          outstanding  principal  balance  under  the  Loan  Notes  and  (2) the
          aggregate  Completion Costs relating to the Borrowing Base Development
          Properties.

         "Loan Availability Certificate"means a report in the form of Exhibit K.

         "Loan Availability Deficiency" has the meaning ascribed to such term in
          Section 2.1(a)(2).

               "Loan  Documents" means this Agreement,  the Mortgage  Documents,
          and all other  agreements,  instruments  and documents  (together with
          amendments and supplements  thereto and  replacements  thereof) now or
          hereafter  executed by the Borrower,  or any other Person which either
          (a)  evidence,  guaranty  or secure  the  Obligations;  or (b)  relate
          directly or indirectly to this Agreement.

               "Loan Note" means a promissory note evidencing  Loans executed by
          Borrower in favor of Lenders, substantially in the form of Exhibit F.

               "Major Agreement" means, at any time, any (a) material operating,
          cross-easement,   restrictions   or   similar   agreement   (excluding
          Construction   Contracts,   residential  leases,   service  contracts,
          maintenance  agreements,  agreements with vendors  providing goods and
          services to a Borrowing  Base Property and other  similar  agreements)
          encumbering   or   affecting   a   Borrowing   Base   Property;    (b)
          management/leasing  agreements or leasing agreements with respect to a
          Borrowing Base Property;  and (c) nonresidential  leases which grant a
          possessory  interest  in, or the right to use, any part of a Borrowing
          Base Property.



                                               14

<PAGE>



               "Management Company" means Paragon Residential Services,  Inc., a
          Delaware corporation, and the subsidiary of the Borrower through which
          the Borrower will conduct its development,  management, leasing, asset
          management, and other property services businesses.

               "March 31, 1996 Financials" has the meaning ascribed to such term
          in Section 5.1(g).

               "Material  Adverse  Effect"  means,  with respect to a Person,  a
          material  adverse effect upon the condition  (financial or otherwise),
          operations,  performance or properties of such Person. The phrase "has
          a  Material  Adverse  Effect" or "will  result in a  Material  Adverse
          Effect" or words substantially similar thereto shall, in all cases, be
          intended to mean "has or will or could  reasonably be  anticipated  to
          result in a Material  Adverse Effect," and the phrase "has no (or does
          not have a) Material Adverse Effect" or "will not result in a Material
          Adverse Effect," or words substantially similar thereto, shall, in all
          cases,  be  intended  to mean  "does  not or  will  not or  could  not
          reasonably be anticipated to result in a Material Adverse Effect."

               "Maturity Date" means July 27, 1998,  unless the Maturity Date is
          extended  pursuant to Section 2.1(d),  in which case the Maturity Date
          shall be the date to which this Agreement is so extended.

               "Maximum Loan Amount"  means,  with respect to any Borrowing Base
          Development Property, an amount equal to the least of:

                  (a)      65% of the Appraised Value;

                  (b)      70% of the total amount of the Project Budget; or

                  (c)      the Permanent Loan Estimate;

          on the date such Property is accepted as a Borrowing Base  Development
          Property pursuant to Section 3.1.

               "Mortgage Document" means any Mortgage,  Assignment of Leases and
          Rents,  indemnity  agreement,  security  agreement  or other  document
          executed by Borrower,  evidencing or creating  Agent's Liens against a
          Borrowing  Base Property as security for the  Obligations,  as each of
          the  foregoing may be amended,  supplemented  or modified from time to
          time.

               "Mortgage" means the fee or leasehold mortgage,  deed of trust or
          trust deed  relating to a Borrowing  Base  Property  and  securing the
          Obligations.



                                               15

<PAGE>



               "Multiemployer  Plan" means an employee  benefit  plan defined in
          Section  4001(a)(3)  of ERISA  which  is, or  within  the  immediately
          preceding  six  years  was,  contributed  to by a  Person  or an ERISA
          Affiliate.

               "Net Income" means, for any period, the net earnings (or loss) of
          the Borrower,  the REIT, and their respective  Subsidiaries  after (a)
          Taxes and (b)  adjustment for net earnings (or loss)  attributable  to
          minority interests in Subsidiaries,  for such period on a consolidated
          basis, calculated in conformity with GAAP.

               "Net Operating  Income"  means,  with respect to a Borrowing Base
          Property,  the net operating  income of such  Borrowing  Base Property
          determined in accordance with sound accounting principles consistently
          applied.  For purposes of determining Net Operating Income, (a) income
          shall  not  include  security  or other  deposits,  late  fees,  lease
          termination  or other similar  charges,  delinquent  rent  recoveries,
          unless  previously  reflected  in  reserves,  or any other  items of a
          non-recurring  nature,  except that, Net Operating  Income may include
          collected  lease  termination  charges  (amortized  monthly  over  the
          remaining term of the lease) and delinquent rent recoveries so long as
          (1) any such charge or recovery does not relate to a date earlier than
          12 months  prior to the end of the  period  for  which  Net  Operating
          Income is  determined,  and (2) no such recovery shall be made for any
          month during or after which the space to which such charge or recovery
          relates  has been  released  to another  Person and such person has an
          obligation  to pay rent  for such  month(s);  and (b)  expenses  shall
          include reasonable  allocations or adjustments for taxes and insurance
          and  maintenance  and repairs made in the ordinary  course,  which are
          acceptable  to  Agent,  and  (c)  reasonable  adjustments,  which  are
          acceptable to Agent,  shall be made for any casualty at such Borrowing
          Base Property that is not fully covered by insurance, the condemnation
          of any part of such Borrowing  Base  Property,  and loss of tenants by
          reason of any such casualty or condemnation.

               "Net Worth" has the  meaning  ascribed to such term in Addendum I
          to this Agreement.

               "Non Pro Rata Loan" means a Loan with respect to which fewer than
          all Lenders have funded their respective Pro Rata Shares of such Loan.

               "Nonrecourse  Indebtedness"  means  Indebtedness  with respect to
          which recourse for payment is limited to specific Property  encumbered
          by a Lien securing such Indebtedness.

               "Notice of Borrowing" means a notice substantially in the form of
          Exhibit G.

               "Obligations"  means,  from  time to time,  all  Indebtedness  of
          Borrower  owing to  Agent,  any  Lender,  or any  Person  entitled  to
          indemnification  pursuant to Section 12.2, or any of their  respective
          successors, transferees or assigns, of every

                                           16

<PAGE>



          type and description,  whether or not evidenced by any note,  guaranty
          or  other  instrument,  arising  under  or  in  connection  with  this
          Agreement or any other Loan  Document,  whether or not for the payment
          of money,  whether  direct or indirect  (including  those  acquired by
          assignment),  absolute  or  contingent,  due  or to  become  due,  now
          existing  or  hereafter  arising,  and  however  acquired.   The  term
          includes,  without  limitation,  all Liabilities and Costs,  interest,
          charges,  expenses, fees, reasonable attorneys' fees and disbursements
          and any other sum now or hereinafter  chargeable to Borrower under, or
          in connection with, this Agreement or any other Loan Document.

               "Officer's Certificate" means a certificate signed by a specified
          representative,  officer or general partner of a Person  certifying as
          to the matters set forth therein.

         "Other Indebtedness" means all Indebtedness other than the Obligations.

               "Paragon GP Holdings"  means Paragon  Group GP Holdings,  Inc., a
          Delaware  corporation,  wholly  owned by the  REIT,  the sole  general
          partner of the Borrower, and which holds approximately 1% of the Units
          of the Borrower.

               "Paragon GP Holdings  Affidavit"  means the affidavit  subscribed
          and sworn to by an authorized representative of Paragon GP Holdings as
          to the matters set forth therein.

               "Paragon LP Holdings"  means Paragon  Group LP Holdings,  Inc., a
          Delaware  corporation and wholly owned  subsidiary of the REIT,  which
          holds approximately 72.9% of the Units of the Borrower.

               "Paragon LP Holdings  Affidavit"  means the affidavit  subscribed
          and sworn to by an authorized representative of Paragon LP Holdings as
          to the matters set forth therein.

               "Partnerships"  means  partnerships or joint ventures  engaged in
          real  estate   development,   ownership,   management   or  investment
          subpartnerships.

               "PBGC"  means the Pension  Benefit  Guaranty  Corporation  or any
          Person succeeding to the functions thereof.

               "Permanent  Loan  Estimate"  means,  (a) as to any Borrowing Base
          Stabilized  Property,  an  amount  equal  to 80% of the Net  Operating
          Income  of  such  Property  for  the   annualized   six  month  period
          immediately  preceding  the  date  of  determination,  divided  by the
          constant annual percentage which would be applicable to a loan payable
          in equal  annual  payments of  principal  and  interest  over 25 years
          bearing  interest at a fixed rate equal to the greater of (1) 2.25% in
          excess  of the  yield on the date  such  Permanent  Loan  Estimate  is
          calculated for seven year United States

                                       17

<PAGE>



          Treasury  Notes,  and  (2)  8.00%;  and (b) as to any  Borrowing  Base
          Development  Property,  an  amount  equal to 80% of the Net  Operating
          Income of the Property,  calculated using the first year of stabilized
          Net  Operating  Income as projected in the  Appraisal of such Property
          (or as otherwise determined by the Supermajority Lenders),  divided by
          the constant  annual  percentage  which would be  applicable to a loan
          payable in equal  annual  payments of principal  and interest  over 25
          years at a fixed rate  equal to the  greater of (1) 2.25% in excess of
          the yield on the date such  Permanent  Loan Estimate is calculated for
          seven year  United  States  Treasury  Notes,  and (2) 8.00%.  Upon the
          earlier of (A) 24 months after  construction  commences at a Borrowing
          Base  Development  Property  or (B)  the  Borrowing  Base  Development
          Property  attains a 50% level of  occupancy,  if the  Property has not
          achieved 90% of the stabilized gross revenues (before application of a
          vacancy  factor)  projected  for  the  first  year  in  the  Appraisal
          (calculated  on an  annualized  basis  adjusted  for a  50%  level  of
          occupancy and excluding any construction period discounts disclosed in
          the  Lease-Up  Projections),   then  the  projected  stabilized  gross
          revenues  (before  application of a vacancy  factor) used to calculate
          the  Permanent  Loan  Estimate  for the  Property  shall  be  adjusted
          downward,  by an amount determined by Agent;  provided,  however, that
          the Maximum Loan Amount shall not be increased by  application of this
          provision.

               "Permit"  means any  permit,  approval,  authorization,  license,
          variance or permission required from a Governmental Authority under an
          applicable Requirement of Law.

               "Permitted Delays" shall mean strikes,  lockouts,  labor trouble,
          failure of power, riots,  insurrection,  war, acts of God, restrictive
          laws or regulations that did not exist when construction commenced, or
          other events  beyond the control of Borrower  which  delay,  hinder or
          prevent construction of the Improvements.  Any extension of time for a
          Permitted Delay shall be conditioned upon Borrower  delivering written
          notice of the Permitted  Delay to Agent within fifteen (15) days after
          the event  causing  the  Permitted  Delay,  and the period of time for
          completion of  construction of the  Improvements  shall be extended by
          the period of time  equivalent  to the delay  caused by the  Permitted
          Delay.

               "Permitted   Investment"   means   each  of   Land,   Securities,
          Partnerships  and  Investment  Mortgages,  to the extent  permitted in
          paragraph 7 of Addendum-I of this Agreement.

         "Permitted Lien" means:

          (a)  a Lien (other than Environmental Liens and any Lien imposed under
               ERISA) for  taxes,  assessments  or  charges of any  Governmental
               Authority or a claim which either is (1) not yet due or (b) being
               contested  in good  faith  by  appropriate  proceedings  and with
               respect to which adequate reserves are being maintained in


                                       18

<PAGE>



         accordance with GAAP or other appropriate  provisions approved by Agent
         have been taken.

          (b)  a Lien (other than any Lien imposed  under  ERISA)  incurred or a
               deposit  made in the  ordinary  course  of  business  (including,
               without limitation, any surety bond or appeal bond) in connection
               with  workers'  compensation,  unemployment  insurance  and other
               types of social security  benefits,  or to secure the performance
               of tenders, bids, leases, contracts (other than for the repayment
               of  Indebtedness),   statutory   obligations  and  other  similar
               obligations,  or arising as a result of progress  payments  under
               government contracts;

          (c)  an easement (including, without limitation, a reciprocal easement
               agreement  or  a  utility  agreement),   right-of-way,  covenant,
               consent,   reservation,    operating   agreement,   encroachment,
               variation or other restriction, charge or encumbrance (whether or
               not recorded) affecting the use of real property,  which does not
               materially  and  adversely  affect the value of such  Property or
               impair the use thereof;

          (d)  any law, ordinance,  Lien, easement,  right-of-way,  restriction,
               exemption, reservation,  condition, limitation, covenant, adverse
               right or interest  described as an exception on Schedule B of any
               title  insurance  policy  which is  delivered  to and accepted by
               Agent in satisfaction of Section 4.1(e)(1)(E); and

          (e)  a Lien  imposed by law,  such as a carriers',  warehousemen's  or
               mechanics'  lien or other  similar  Lien  arising in the ordinary
               course of business, which secures payment of obligations not more
               than 30 days past due, or which is being  contested in good faith
               by appropriate  proceedings,  diligently  pursued,  and for which
               adequate  reserves shall have been established in accordance with
               GAAP.

               "Person" means any natural person, employee, corporation, limited
          partnership,   general  partnership,   joint  stock  company,  limited
          liability company, joint venture,  association,  company, trust, bank,
          trust company, land trust, business trust,  Governmental Authority, or
          other organization, whether or not a legal entity.

               "Plan" means an employee  benefit plan defined in Section 3(3) of
          ERISA (other than a  Multiemployer  Plan) in respect of which Borrower
          or an ERISA Affiliate,  as applicable,  is an "employer" as defined in
          Section 3(5) of ERISA.



                                       19

<PAGE>



               "Post-Foreclosure  Plan" has the meaning ascribed to such term in
          Section 11.11(e).

               "Prime   Rate"  means  the  base  rate  of  interest   per  annum
          established  from  time to time by WFB,  and  designated  as its prime
          rate.

               "Pro Rata Share"  means,  with respect to any Lender,  a fraction
          (expressed  as a  percentage),  the  numerator  of which  shall be the
          amount of such Lender's  Commitment and the denominator of which shall
          be  the  aggregate  amount  of all of  the  Lenders'  Commitments,  as
          adjusted from time to time in accordance  with the  provisions of this
          Agreement.

               "Proceedings"  means,   collectively,   all  actions,  suits  and
          proceedings  before, and investigations  commenced or threatened by or
          before, any court or Governmental Authority with respect to a Person.

               "Project  Budget"  means,  with  respect  to any  Borrowing  Base
          Development  Property,  the budget for the development of the Property
          approved by the Requisite Lenders which shall include a project budget
          overview,  a detailed  AIA  package,  and a breakout of any  retainage
          required by  applicable  law or contract and be  substantially  in the
          form of Exhibit J to this Agreement, as amended from time to time.

               "Property"  means  any  real  or  personal  property,   building,
          facility,  structure,  equipment  or unit,  or other  asset  owned and
          operated by Borrower.

               "Property  Release"  has the  meaning  ascribed  to such  term in
          Section 3.2.

               "Protective  Advance"  means all sums  expended as  determined by
          Agent to be necessary  or  appropriate  to: (a) protect the  priority,
          validity and  enforceability  of the Liens on, and security  interests
          in, any Collateral and the instruments evidencing the Obligations;  or
          (b) (1)  prevent  the value of any  Collateral  from being  materially
          diminished  (assuming the lack of such a payment  within the necessary
          time frame could  potentially cause such Collateral to lose value), or
          (2)  protect  any of the  Collateral  from being  materially  damaged,
          impaired,  mismanaged or taken,  including,  without  limitation,  any
          amounts expended in accordance with Section 12.1.

               "Regulation G" means Regulation G of the Federal Reserve Board as
          in effect from time to time.

               "Regulation T" means Regulation T of the Federal Reserve Board as
          in effect from time to time.



                                       20

<PAGE>



               "Regulation U" means Regulation U of the Federal Reserve Board as
          in effect from time to time.

               "Regulation X" means Regulation X of the Federal Reserve Board as
          in effect from time to time.

               "REIT" means Paragon Group, Inc., a Maryland corporation.

               "REIT Affidavit" means an affidavit subscribed and sworn to by an
          authorized  representative  of the REIT as to the  matters  set  forth
          therein.

               "Release" means the release, spill, emission,  leaking,  pumping,
          injection,  deposit,  disposal,  discharge,   dispersal,  leaching  or
          migration into the indoor or outdoor environment or into or out of any
          real Property,  including the movement of  Contaminants  through or in
          the air, soil, surface water, groundwater or real Property.

               "Remedial   Action"  means  any  action  required  by  applicable
          Environmental Laws to (a) clean up, remove,  treat or in any other way
          address Contaminants in the indoor or outdoor environment; (b) prevent
          the Release,  threat of Release,  or minimize  the further  Release of
          Contaminants  so  they do not  migrate  or  endanger  or  threaten  to
          endanger   public   health  or   welfare  or  the  indoor  or  outdoor
          environment;  or (c) perform  pre-remedial  studies and investigations
          and post-remedial monitoring and care.

               "Reportable  Event" means any of the events  described in Section
          4043(b)  of ERISA,  other  than an event  for which the 30 day  notice
          requirement is waived by regulations.

               "Requirements  of Law" means,  as to any Person,  the charter and
          by-laws,  partnership  agreements or other organizational or governing
          documents of such Person, and any law, rule or regulation,  Permit, or
          determination   of  an  arbitrator,   court,  or  other   Governmental
          Authority,  in each case  applicable to or binding upon such Person or
          any of its  Property or to which such Person or any of its Property is
          subject,   including  without  limitation,  the  Securities  Act,  the
          Securities  Exchange  Act,  Regulations  G, T, U and X, FIRREA and any
          certification of occupancy, zoning ordinance, building,  environmental
          or land use  requirement  or Permit or  occupational  safety or health
          law, rule or regulation.

               "Requisite Lenders" means,  collectively,  Lenders whose Pro Rata
          Shares, in the aggregate, are at least sixty-six and two-third percent
          (66 2/3%); provided,  that in determining such percentage at any given
          time, all then existing  Defaulting  Lenders will be  disregarded  and
          excluded and the Pro Rata Shares of Lenders shall be redetermined, for
          voting  purposes  only,  to  exclude  the  Pro  Rata  Shares  of  such
          Defaulting Lenders.



                                               21

<PAGE>



         "Restatement Date" means the date of this Agreement.

               "Securities" means any stock, shares,  voting trust certificates,
          bonds, debentures,  notes or other evidences of Indebtedness,  secured
          or unsecured,  convertible,  subordinated or otherwise,  or in general
          any instruments commonly known as "securities," or any certificates of
          interest,   shares,   or   participations   in  temporary  or  interim
          certificates  for the  purchase  or  acquisition  of,  or any right to
          subscribe to, purchase or acquire any of the foregoing,  but shall not
          include any evidence of the Obligations.

               "Securities  Act" means the Securities Act of 1933, as amended to
          the date  hereof and from time to time  hereafter,  and any  successor
          statute.

               "Securities  Exchange Act" means the  Securities  Exchange Act of
          1934,  as amended to the date hereof and from time to time  hereafter,
          and any successor statute.

        "Senior Loans" has the meaning ascribed to such term in Section 11.4(b).

               "Short Term Income"  means income  received by Borrower from Cash
          Equivalents.

               "Solvent" means as to any Person,  at the time of  determination,
          that such  Person (a) owns  property  the value of which (both at fair
          valuation  and at present  fair  saleable  value) is greater  than the
          amount  required to pay all of such  Person's  liabilities  (including
          contingent liabilities and debts); (b) is able to pay all of its debts
          as such debts mature;  and (c) has capital  sufficient to carry on its
          business and  transactions  and all business and transactions in which
          it is about to engage.

               "Stabilized  Property/Development  Property Borrowing Base Ratio"
          means  the ratio of the  amount of the  Borrowing  Base  derived  from
          Borrowing  Base  Stabilized  Properties to the amount of the Borrowing
          Base derived from Borrowing Base Development Properties.

               "Subsidiary"  of a  Person  means  any  corporation,  partnership
          (limited or general), trust or other entity of which a majority of the
          stock (or equivalent ownership or controlling  interest) having voting
          power to elect a majority of the board of directors (if a corporation)
          or to select the trustee or equivalent controlling interest, shall, at
          the time such reference becomes  operative,  be directly or indirectly
          owned  or  controlled  by such  Person  or one or  more  of the  other
          subsidiaries  of such  Person or any  combination  thereof,  and whose
          financial  statements are prepared on a  consolidated  basis with such
          Person.

               "Supermajority  Lenders" means,  collectively,  Lenders whose Pro
          Rata Shares,  in the  aggregate,  are at least ninety percent (90%) of
          the existing


                                               22

<PAGE>



          Commitments,   which  total   $85,000,000  on  the  Restatement  Date;
          provided,  that, in determining such percentage at any given time, all
          then existing  Defaulting Lenders will be disregarded and excluded and
          the Pro Rata Share of each  Lender  will be  redetermined,  for voting
          purposes  only,  to  exclude  the Pro Rata  Shares  of the  Defaulting
          Lenders.

               "Taxes" means all federal,  state,  local and foreign  income and
          gross receipts taxes.

               "Termination Date" means the earlier to occur of (a) the Maturity
          Date; and (b) the date on which the Loans are accelerated  pursuant to
          Section 10.2(a).

               "Termination  Event"  means  (a) any  Reportable  Event;  (b) the
          withdrawal  of a Person,  or an ERISA  Affiliate  from a Benefit  Plan
          during a plan year in which it was a "substantial employer" as defined
          in Section 4001(a)(2) of ERISA; (c) the occurrence of an obligation of
          a Person or an ERISA Affiliate  arising under Section 4041 of ERISA to
          provide  affected  parties  with a  written  notice  of an  intent  to
          terminate  a  Benefit  Plan in a  distress  termination  described  in
          Section  4041(c)  of  ERISA;  (d)  the  institution  by  the  PBGC  of
          proceedings to terminate any Benefit Plan under Section 4042 of ERISA;
          (e) any event or condition  which  constitutes  grounds  under Section
          4042 of ERISA for the appointment of a trustee to administer a Benefit
          Plan; (f) the partial or complete  withdrawal of a Person or any ERISA
          Affiliate  from a  Multiemployer  Plan;  or  (g)  the  adoption  of an
          amendment  by any  Person  or any ERISA  Affiliate  to  terminate  any
          Benefit Plan.

               "Total  Liabilities"  has the  meaning  ascribed  to such term in
          Addendum I to this Agreement.

               "Uniform Commercial Code" means the Uniform Commercial Code as in
          effect on the date hereof in the State of Texas; provided; that, if by
          reason of mandatory provisions of law, the perfection or the effect of
          perfection  or   non-perfection   of  any  security  interest  in  any
          Collateral or the  availability of any remedy hereunder is governed by
          the Uniform  Commercial  Code as in effect on or after the date hereof
          in any other jurisdiction, "Uniform Commercial Code" means the Uniform
          Commercial Code as in effect in such other  jurisdiction  for purposes
          of the provisions  hereof  relating to such  perfection,  or effect of
          perfection or non-perfection, or availability of such remedy.

         "Units" means units of partnership interest in the Borrower.

               "Unmatured  Event of  Default"  means an  event  which,  with the
          giving of notice or the lapse of time,  or both,  would  constitute an
          Event of Default.

        "Unused Amount" has the meaning ascribed to such term in Section 2.5(a).




                                               23

<PAGE>



               "Unused  Facility  Fee" has the meaning  ascribed to such term in
          Section 2.5(a).

         "WFB" means Wells Fargo Bank, N.A.

               "Work  in  Process"  has the  meaning  ascribed  to such  term in
          Addendum I to this Agreement.

                    Section 1.2 Computation of Time Periods.  In this Agreement,
               in the  computation of periods of time from a specified date to a
               later  specified date, the word "from" means "from and including"
               and the  words  "to" and  "until"  each  mean "to and  including"
               (except with respect to the  calculation  of Interest,  where the
               word "to" shall not mean  "including").  Periods of days referred
               to in this  Agreement  shall be counted in  calendar  days unless
               Business Days are expressly prescribed.

         Section 1.3       Terms.

               (a)  Any accounting  terms used in this  Agreement  which are not
                    specifically  defined  shall have the  meanings  customarily
                    given them in accordance with GAAP, provided that references
                    to the financial  results of the "Borrower on a consolidated
                    basis"   shall  be   deemed   to  mean,   unless   otherwise
                    specifically  indicated,  the consolidated financial results
                    of the REIT, Paragon GP Holdings,  Paragon LP Holdings,  the
                    Borrower, and the Management Company.

               (b)  Any time the phrase "to the best of a Person's knowledge" or
                    a phrase  similar  thereto is used  herein,  it means to the
                    actual  knowledge  of  the  executive  officers  or  general
                    partners of that  Person,  after  reasonable  inquiry of any
                    Agents,  employees or contractors of that Person,  who could
                    reasonably be  anticipated to have knowledge with respect to
                    the subject  matter or  circumstances  in question and to be
                    able to review any  documents  or  instruments  which  could
                    reasonably  be  anticipated  to be  relevant  to the subject
                    matter or circumstances in question.

               (c)  In each case  where the  consent or  approval  of any of the
                    Agent, all Lenders or the Requisite Lenders is required,  or
                    their non-obligatory  action is requested by Borrower,  such
                    consent,  approval  or  action  shall  be in  the  sole  and
                    absolute  discretion  of  Agent  and,  as  applicable,  each
                    Lender, unless otherwise specifically indicated.


                                    ARTICLE 2
                                      LOANS

         Section 2.1       Loan Advances and Repayment.

                  (a)      Loan Availability.

          (1) Subject to the terms and conditions  set forth in this  Agreement,
          Lenders agree to make Loans to Borrower from time to time during the


                                       24

<PAGE>



          period from the Closing Date to the Business  Day next  preceding  the
          Termination  Date, in an aggregate  amount which shall not exceed Loan
          Availability.  All Loans under this Agreement shall be made by Lenders
          simultaneously  and  proportionately  to  their  respective  Pro  Rata
          Shares,  it being  understood  that no Lender shall be responsible for
          any failure by any other  Lender to perform its  obligation  to make a
          Loan  hereunder  and that the  Commitment  of any Lender  shall not be
          increased  or decreased as a result of the failure by any other Lender
          to perform its obligation to make a Loan.

                           (2)  Loans may be  voluntarily  prepaid  pursuant  to
         Section 2.6(a) and,  subject to the provisions of this  Agreement,  any
         amounts so prepaid may be reborrowed,  up to the amount available under
         Section 2.1(a)(1) at the time of such Borrowing, until the Business Day
         next preceding the Termination Date. The principal balance of the Loans
         shall be payable in full on the Termination Date. If during the term of
         this Agreement the aggregate outstanding principal balance of the Loans
         ever exceeds Loan Availability (a "Loan Availability Deficiency"), then
         Borrower  shall have 30 days after the  earlier of (A) demand by Agent;
         and (B) the date Borrower knew or with reasonable diligence should have
         known of such  deficiency;  to submit a plan to either  (i)  reduce the
         aggregate  outstanding principal balance of the Loans to an amount that
         is less than,  or equal to, Loan  Availability;  or (ii)  increase Loan
         Availability  by  mortgaging  additional  Properties  approved  by  the
         Requisite  Lenders  pursuant  to  Section  3.1  so as to  increase  the
         Borrowing  Base.  Borrower  shall  then  have  an  additional  60  days
         following expiration of such 30-day period in which to correct the Loan
         Availability Deficiency,  failing which, an Event of Default shall have
         occurred  without  further notice or action on the part of Agent or the
         Lenders. The existence of a Loan Availability Deficiency constitutes an
         Unmatured Event of Default.  Accordingly,  no Loans shall be made under
         this Agreement while a Loan Availability Deficiency exists.

               (b)  Notice of  Borrowing.  Whenever  Borrower  desires to borrow
          under this  Section  2.1, but in no event more than three times during
          any one calendar  month or more than 36 times in the aggregate  during
          any Fiscal Year, Borrower shall give Agent, at Wells Fargo Real Estate
          Group  Disbursement  Center,  2120  East Park  Place,  Suite  100,  El
          Segundo,  California  90245,  with a copy to:  Wells Fargo Real Estate
          Group,  Inc.,  12377 Merit  Drive,  Suite 300,  Dallas,  Texas  75251,
          Attention:  Account  Officer,  or such other  addresses as Agent shall
          designate,  an original or facsimile Notice of Borrowing no later than
          10:00 A.M.  (California time), not fewer than three nor more than five
          Business  Days prior to the proposed  Funding Date of each Loan.  Each
          Notice of Borrowing shall specify (1) the proposed Funding Date (which
          shall be a Business Day) for the Loan;  (2) the amount of the proposed
          Loan; provided, that, the aggregate amount of such proposed Loan shall
          equal $1,000,000 or integral  multiples of $100,000 in excess thereof;
          (3)  whether the Loan will be a Base Rate Loan or a LIBOR Loan and, if
          a LIBOR Loan,  the Interest  Period;  (4) to which account of Borrower
          the funds are to be directed;  and (5) that the use of the proceeds of
          such Loan will be consistent  with Section  7.1(h) of this  Agreement.
          Any Notice of  Borrowing  pursuant  to this  Section  2.1(b)  shall be
          irrevocable. Each such Notice of Borrowing shall be accompanied by all
          reports or  documents  required to be  delivered  by Borrower to Agent
          under this Agreement.


                                       25

<PAGE>



          Borrower  may elect (A) to convert  Base Rate  Loans,  or any  portion
          thereof, into a LIBOR Loan; (B) to convert LIBOR Loans, or any portion
          thereof,  into a Base Rate Loan; or (C) to continue any LIBOR Loan, or
          any portion  thereof,  for an additional  Interest  Period,  provided,
          however,  that the aggregate amount of the LIBOR Loans being converted
          shall, in the aggregate,  equal $1,000,000, or an integral multiple of
          $100,000 in excess  thereof.  The applicable  Interest  Period for the
          continuation  of any LIBOR Loan shall commence on the day on which the
          next preceding  Interest Period  expires.  Each such election shall be
          made by giving Agent written notice thereof by 10:00 A.M.  (California
          time) on the date of a  conversion  to a Base Rate  Loan,  or by 10:00
          A.M.  (California  time),  not  fewer  than  three  nor more than five
          Business Days prior to the date of a conversion to or  continuation of
          a LIBOR Loan,  specifying,  in each case (i) whether a  conversion  or
          continuation  is to  occur;  (ii)  the  amount  of the  conversion  or
          continuation;  (iii) the Interest  Period  therefor,  in the case of a
          conversion to or  continuation  of a LIBOR Loan;  and (iv) the date of
          the conversion or  continuation  (which date shall be a Business Day).
          Agent shall  notify each Lender of each such Notice of  Borrowing  and
          its  contents  within  one (1)  Business  Day  after  Agent's  receipt
          thereof. Notwithstanding anything to the contrary contained herein and
          subject  to the  Default  Interest  provisions  contained  in  Section
          2.4(d),  if an Event of  Default  occurs and as a result  thereof  the
          Commitments are terminated,  all LIBOR Loans will convert to Base Rate
          Loans upon the expiration of the applicable  Interest Periods therefor
          or the date all Loans become due,  whichever  occurs first.  Except as
          provided  above,  the  conversion  of a LIBOR Loan to a Base Rate Loan
          shall  occur  only on the last  Business  Day of the  Interest  Period
          relating to such LIBOR Loan.

               (c) Making of Loans.  Subject to Section  11.3,  Agent shall make
          the proceeds of Loans available to Borrower in El Segundo,  California
          on such Funding Date and shall  disburse  such funds in Dollars and in
          immediately  available  funds not later  than 12:00  P.M.,  California
          Time,  to  Borrower's  commercial  demand  account,   which  shall  be
          specified in the Notice of Borrowing.

               (d) Terms;  Principal  Payment.  The  outstanding  balance of the
          Loans  shall be payable  in full on the  Termination  Date;  provided,
          however,  that  Borrower  shall have the right to extend the  Maturity
          Date for one one year period, provided:

                         (1) (A)  Borrower  gives  Agent  notice  of  Borrower's
                    election to extend the Maturity Date (which  election may be
                    made only for one extension period at a time) not later than
                    90 days prior to the then effective Maturity Date; and

                         (B) prior to the commencement of such extension period,
                    Agent  receives  current  Appraisals  with  respect  to each
                    Borrowing Base Property other than Borrowing Base Properties
                    for which Agent has  received  an  Appraisal  within  twelve
                    months of the then effective Maturity Date; and

          (2) each of the following  conditions is satisfied when such extension
          period commences:

                    (A)  Borrower  has paid to Agent an  extension  fee (for the
               benefit of all Lenders) equal to .25% of the Facility;



                                       26

<PAGE>



                         (B) no  Unmatured  Event of Default or Event of Default
                    has occurred and is continuing;

                         (C) the aggregate principal  outstanding balance of the
                    Loans does not exceed Loan Availability;

                         (D) the ratio of Total Liabilities to Gross Asset Value
                    is no greater than .525:1;

                         (E) the ratio of EBITDA to Interest  Expense is no less
                    than 2.25:1;

                         (F) the  ratio of EBITDA  to Fixed  Charges  is no less
                    than 2:1; and

                         (G)  distributions on account of Units shall constitute
                    no more than 95% of Funds from Operations.


               Each of the performance  measures described at (D) thru (G) above
          shall be calculated from the Borrower's  Financial  Statements for the
          Fiscal Quarter ending March 31, 1998.

               Section 2.2 Authorization to Obtain Loans. Borrower shall provide
          Agent with documentation satisfactory to Agent indicating the names of
          those  representatives  of its General  Partner that are authorized by
          its General Partner to sign Borrowing Base Certificates and Notices of
          Borrowing.  Agent  and  Lenders  shall  be  entitled  to  rely on such
          documentation  until  notified in writing by Borrower of any change(s)
          of the  persons so  authorized.  Agent shall be entitled to act on the
          instructions  of  anyone  identifying  himself  as one of the  Persons
          authorized to request  Loans,  and Borrower  shall be bound thereby in
          the  same  manner  as if such  Person  were  actually  so  authorized.
          Borrower  agrees  to  indemnify,  defend  and hold  Agent  and  Lender
          harmless from and against any and all  Liabilities and Costs which may
          arise or be created by the acceptance of Notices of Borrowing,  unless
          caused by the gross negligence of the Person to be indemnified.

               Section 2.3  Lenders'  Accounting.  Agent  shall  maintain a loan
          account  for  the  Borrower  and  each  Lender  on  its  books  ("Loan
          Account").  The Loan Account maintained for each Lender shall disclose
          (a) such  Lender's  name,  address and  Commitment,  and the principal
          amounts of any Loans owing to such  Lender from time to time,  and (b)
          all  other  appropriate   debits  and  credits  as  provided  in  this
          Agreement,   including,   without   limitation,   fees   incurred  and
          disbursements made by Agent on behalf of such Lender. The Loan Account
          maintained for the Borrower  shall  disclose (1) the principal  amount
          owing on any Loans;  (2) all other  appropriate  debits and credits as
          provided  in  this  Agreement,   including,  without  limitation,  all
          interest,    fees   (including    reasonable   attorneys'   fees   and
          disbursements),  expenses, charges and other Obligations;  and (3) all
          payments  of  Obligations  made  by  Borrower  or for  Borrower's  own
          account.  All entries in a Loan  Account  shall be made in  accordance
          with Agent's customary  accounting practices as in effect from time to
          time. From time to time as is customary with Agent's  practice,  or as
          may be  reasonably  requested  by Borrower  or any Lender,  Agent will
          render a statement of a Loan Account to Borrower,  or such Lender,  as
          the case may be. Upon reasonable request, Agent also shall furnish (i)
          to Borrower a copy of the Loan Account of each Lender; and (ii) to any
          Lender a copy of the Loan Account for

                                       27

<PAGE>



               Borrower.  Each Loan Account for Borrower  shall be deemed final,
          binding and conclusive upon Borrower in all respects as to all matters
          reflected therein (absent manifest error), unless Borrower delivers to
          Agent written notice of any objections  which Borrower may have to any
          such  statement,  within  30 days  after the date  such  statement  is
          rendered,  or within ten days after  discovery by Borrower of an error
          with respect to which  Borrower  had no knowledge  and which could not
          have been  determined  after  reasonable  inquiry  during  said 30 day
          period. In that event, only those items expressly  objected to in such
          notice shall be deemed to be disputed by  Borrower.  In the event that
          any such objection  cannot be settled by Agent and Borrower  within 30
          Business Days after Agent receives notice thereof from Borrower, Agent
          shall  notify  all  Lenders  of such  objection.  Notwithstanding  the
          foregoing,  Agent's entries in the Loan Account  evidencing  Loans and
          other financial  accommodations made from time to time shall be final,
          binding and conclusive upon Borrower (absent manifest error) as to the
          existence and amount of the Obligations recorded in its Loan Account.

         Section 2.4       Interest on the Loans.

          (a)  Base Rate Loans.  Subject to Section 2.4(d),  all Base Rate Loans
               shall bear interest on the unpaid  principal  amount thereof from
               the date made until paid in full at a fluctuating  rate per annum
               equal to the Base Rate.

          (b)  LIBOR  Loans.  Subject to Sections  2.4(d) and 2.4(i),  all LIBOR
               Loans shall bear interest on the unpaid  principal amount thereof
               during the Interest Period applicable thereto as set forth below:

                    (1)  If the ratio of Total  Liabilities to Gross Asset Value
                         is less than or equal to 0.55:1, then,  irrespective of
                         the ratio of EBITDA to Fixed Charges, the interest rate
                         for LIBOR Loans shall be LIBOR plus 2.00%;

                    (2)  If the ratio of Total  Liabilities to Gross Asset Value
                         is greater than 0.55:1 and the ratio of EBITDA to Fixed
                         Charges is equal to or greater  than  1.85:1,  then the
                         interest  rate for  LIBOR  Loans  shall  be LIBOR  plus
                         2.125%; and

                    (3)  If the ratio of Total  Liabilities to Gross Asset Value
                         is greater than 0.55:1 and the ratio of EBITDA to Fixed
                         Charges is less than 1.85:1, then the interest rate for
                         LIBOR Loans shall be LIBOR plus 2.25%.
<TABLE>
<CAPTION>
<S>                                                                             <C>      <C>

         Total Liabilities/
         Gross Asset Value                   EBITDA/Fixed Charges               Pricing

         Less than or equal    .55:1              --                            LIBOR + 2.00%
         Greater than or equal .55:1         Greater than or equal   1.85:1     LIBOR + 2.125%
         Greater than          .55:1         Less than               1.85:1     LIBOR + 2.25%

</TABLE>
                                       28

<PAGE>



               Total  Liabilities,  Gross Asset Value,  EBITDA and Fixed Charges
          shall be  calculated  using  information  included  in the most recent
          Financial  Statements  delivered  to Agent  by  Borrower  pursuant  to
          Sections  6.1(b)  and  6.1(c),  if  such  Financial   Statements  were
          delivered to Agent more than five Business Days prior to the date such
          determination  is made;  otherwise,  information  from  the  Financial
          Statements  for the Fiscal  Quarter  immediately  preceding the Fiscal
          Quarter covered by the most recently  delivered  Financial  Statements
          may be used by Agent to make such calculations.

               Upon  receipt of a Notice of  Borrowing  requesting  LIBOR Loans,
          Agent shall determine LIBOR applicable to the Interest Period for such
          LIBOR  Loans,  and shall give notice  thereof to Borrower and Lenders;
          provided,  however,  that failure to give such notice shall not affect
          the  validity  of  such  rate.   Subject  to  Section   2.4(i),   each
          determination  by Agent of LIBOR shall be conclusive  and binding upon
          the parties hereto in the absence of demonstrable  error.  LIBOR Loans
          shall be in tranches of  $1,000,000  or $100,000  increments in excess
          thereof.  No more than six LIBOR Loan tranches shall be outstanding at
          any one time.

               (c)  Interest  Payments.  Subject  to  Section  2.4(d),  interest
          accrued on all Loans  shall be payable by  Borrower  in arrears on the
          first Business Day of the first  calendar month  following the Closing
          Date,  and the first  Business Day of each  succeeding  calendar month
          thereafter, and on the Termination Date.

               (d)  Default  Interest.  Notwithstanding  the  rates of  interest
          specified  in  Sections  2.4(a)  and  2.4(b)  and  the  payment  dates
          specified in Section 2.4(c), effective immediately upon the occurrence
          and during the  continuance  of any Event of  Default,  the  principal
          balances of all Loans then outstanding and, to the extent permitted by
          applicable  law, any interest  payments on the Loans not paid when due
          shall  bear  interest  payable  upon  demand at a rate which is 4% per
          annum in excess of the rate of interest  otherwise  payable under this
          Agreement. All other amounts due Agent or Lenders (whether directly or
          for  reimbursement)  under  this  Agreement  or any of the other  Loan
          Documents, if not paid when due, or if no time period is expressed, if
          not paid within 15 days after  demand,  shall bear  interest  from and
          after demand at the rate set forth in this Section 2.4(d).

               (e) Late Fee.  Borrower  acknowledges  that late payment to Agent
          will cause Lenders to incur costs not  contemplated by this Agreement.
          Such costs  include,  without  limitation,  processing  and accounting
          charges.  Therefore,  if Borrower  fails timely to pay any sum due and
          payable  hereunder  through the Termination Date, unless waived by the
          Agent or the Requisite Lenders pursuant to Section 11.10(a)(9), a late
          charge of $.04 for each dollar of any principal  payment,  interest or
          other  charge  due and  which is not paid  within 10 days  after  such
          payment is due, shall be paid by Borrower (for the benefit of Lenders)
          for the purpose of  defraying  the expense  incident to handling  such
          delinquent  payment.  Borrower  and Agent  agree that this late charge
          represents  a  reasonable  sum  considering  all of the  circumstances
          existing  on the date  hereof  and  represents  a fair and  reasonable
          estimate  of the  costs  that  Lenders  will  incur by  reason of late
          payment. Borrower and Agent further agree that proof of actual damages
          would be costly and inconvenient.  Acceptance of any late charge shall
          not  constitute  a waiver of the default  with  respect to the overdue
          installment,  and shall not prevent Agent from  exercising  any of the
          other rights


                                       29

<PAGE>



               available  hereunder or under any other Loan Document.  Such late
          charge  shall be paid  without  prejudice  to any other  rights of the
          Lenders.

               (f) Computation of Interest and Limitation on Rate.  Interest and
          fees  shall be  computed  on the  basis of the  actual  number of days
          elapsed in the period during which  interest or fees accrue and a year
          of 360 days. In computing interest on any Loan, the date of the making
          of the  Loan  shall  be  included  and the  date of  payment  shall be
          excluded;  provided, however, that if a Loan is repaid on the same day
          on which it is made,  one day's  interest  shall be paid on that Loan.
          Notwithstanding  subsections  (a),  (b),  (d),  (e),  and  (i) of this
          Section  2.4,  interest  in  respect  of any Loan shall not exceed the
          maximum rate permitted by applicable law.

               (g)  Changes;  Legal  Restrictions.  In the event  that after the
          Closing  Date (1) the  adoption  of or any change in any law,  treaty,
          rule,   regulation,   guideline  or   determination   of  a  court  or
          Governmental  Authority,  or  any  change  in  the  interpretation  or
          application  thereof  by a court  or  Governmental  Authority;  or (2)
          compliance  by Agent or any Lender with any request or directive  made
          or issued after the Closing  Date  (whether or not having the force of
          law and  whether  or not the  failure  to  comply  therewith  would be
          unlawful)  from any central  bank or other  Governmental  Authority or
          quasi-governmental authority:

                    (A) subjects  Agent or any Lender to any tax,  duty or other
               charge of any kind with respect to the Facility,  this  Agreement
               or any of the other Loan Documents,  including the Mortgages,  or
               the Loans or changes  the basis of  taxation of payments to Agent
               or such Lender of principal,  fees,  interest or any other amount
               payable hereunder,  except for net income, gross receipts,  gross
               profits,   franchise  or  other  similar  taxes  imposed  by  any
               jurisdiction  and not specifically  based upon loan  transactions
               (all such  non-excepted  taxes,  duties and other  charges  being
               hereinafter referred to as "Lender Taxes");

                    (B)   imposes,   modifies  or  holds   applicable,   in  the
               determination  of  Agent  or any  Lender,  any  reserve,  special
               deposit,  compulsory loan, FDIC insurance,  capital allocation or
               similar  requirement against assets held by, or deposits or other
               liabilities  in or for the account  of,  advances or loans by, or
               other credit  extended by, or any other  acquisition of funds by,
               Agent or any Lender or any  applicable  lending office (except to
               the extent that the reserve and FDIC insurance  requirements  are
               reflected in the "Base Rate" or separately  dealt with in Section
               2.4(i)); or

                    (C)  imposes  on Agent or any  Lender  any  other  condition
               materially more burdensome in nature,  extent or consequence than
               those in existence as of the Closing Date;

               and the result of any of the foregoing is to materially  increase
               the cost to Agent or any Lender of making, renewing,  maintaining
               or participating in the Loans or to reduce any amount  receivable
               thereunder;  then, in any such case,  Borrower shall promptly pay
               to Agent or the affected  Lenders,  as  applicable,  upon demand,
               such  amount  or  amounts  (based  upon a  reasonable  allocation
               thereof by Agent or such  Lenders to the  financing  transactions
               contemplated by this Agreement and affected


                                       30

<PAGE>



               by this Section 2.4(g) as may be necessary to compensate Agent or
               such Lenders for any such  additional  material  cost incurred or
               reduced amounts received); provided, however, that if the payment
               of  such   compensation  may  not  be  legally  made  whether  by
               modification of the applicable  interest rate or otherwise,  then
               Lenders shall have no further obligation to make Loans that cause
               Agent  or any  Lender  to  incur  such  increased  cost,  and all
               affected  Loans shall  become due and payable by Borrower 90 days
               after  Borrower's  receipt of written  notice thereof from Agent.
               Agent or such Lender shall deliver to Borrower and in the case of
               a delivery by Lender,  such Lender shall also deliver to Agent, a
               written  statement of the claimed  additional  costs  incurred or
               reduced  amounts  received  and  the  basis  therefor  as soon as
               reasonably   practicable  after  such  Lender  obtains  knowledge
               thereof. If Agent or any Lender subsequently  recovers any amount
               of Lender  Taxes  previously  paid by  Borrower  pursuant to this
               Section  2.4(g),  whether  before  or after  termination  of this
               Agreement,  then, upon receipt of good funds with respect to such
               recovery,  Agent  or such  Lender  will  refund  such  amount  to
               Borrower  if no Event of Default or monetary  Unmatured  Event of
               Default  then  exists  or,  if an Event of  Default  or  monetary
               Unmatured  Event of Default  then  exists,  such  amount  will be
               credited to the Obligations in the manner  determined by Agent or
               such Lender.

          (h)  Certain Provisions Regarding LIBOR Loans.

                           (1)  LIBOR  Loans  Unlawful.   If  any  Lender  shall
         determine (which  determination  shall, upon notice thereof to Borrower
         and Agent,  be conclusive  and binding on the parties  hereto) that the
         introduction of or any change in, or in the  interpretation of, any law
         makes it unlawful, or any central bank or other Governmental  Authority
         asserts  that it is  unlawful,  for such Lender to make or maintain any
         Loan as a LIBOR Loan,  (A) the  obligations  of such Lenders to make or
         maintain  any  Loans  as LIBOR  Loans  shall,  upon the  determination,
         forthwith  be  suspended  until such Lender shall notify Agent that the
         circumstances  causing  such  suspension  no longer  exist;  and (B) if
         required by such law or assertion, the LIBOR Loans of such Lender shall
         convert automatically into Base Rate Loans.

                           (2)  Deposits   Unavailable.   If  Agent  shall  have
         determined  in  good  faith  that  adequate  means  do  not  exist  for
         ascertaining  the interest  rate  applicable  hereunder to LIBOR Loans,
         then,  upon  notice  from Agent to  Borrower,  the  obligations  of all
         Lenders to make or maintain  Loans as LIBOR Loans  shall  forthwith  be
         suspended  until Agent shall  notify  Borrower  that the  circumstances
         causing such  suspension no longer  exist.  Agent will give such notice
         when it determines,  in good faith,  that such  circumstances no longer
         exist;  provided,  however,  that Agent shall not have any liability to
         any Person with respect to any delay in giving such notice.

                           (3)  Funding  Losses.  In the event any Lender  shall
         incur any loss or expense  (including  any loss or expense  incurred by
         reason of the  liquidation or  reemployment  of deposits or other funds
         acquired by such Lender to make or maintain  any portion of any Loan as
         a LIBOR Loan) as a result of:

                    (A) any continuance,  conversion, repayment or prepayment of
               the principal amount of any LIBOR Loans for any reason whatsoever
               on


                                       31

<PAGE>



                    a date other  than the  scheduled  last day of the  Interest
                    Period applicable thereto; or

                                    (B) any Loans not being made as LIBOR  Loans
                  in accordance  with the Notices of Borrowing  therefor,  other
                  than as a result of such Lender's  breach of its obligation to
                  fund such Loans in accordance with the terms hereof;

               then,  upon the written  notice of such Lender to Borrower with a
          copy to Agent,  Borrower shall  reimburse such Lender for such loss or
          expense.  Such written  notice  (which shall include  calculations  in
          reasonable  detail) shall,  in the absence of  demonstrable  error, be
          conclusive and binding on the parties hereto.

               (i)  Additional  Interest on LIBOR Loans.  Borrower  shall pay to
          each  Lender,  so long  as and to the  extent  such  Lender  shall  be
          required  under  regulations  of the Board of Governors of the Federal
          Reserve  System to maintain  reserves with respect to  liabilities  or
          assets consisting of or including Eurocurrency Liabilities (as defined
          in the  definition  of LIBOR  Reserve  Percentage)  and such  Lender's
          performance  under this Agreement  shall have given rise to additional
          reserve  requirements for such Lender thereunder,  additional interest
          on the unpaid principal amount of each Loan  constituting a LIBOR Loan
          of such Lender made to Borrower, from the date of such Loan until such
          principal  amount is paid in full, at an interest rate per annum equal
          at all times to the remainder  obtained by  subtracting  (1) LIBOR for
          the  applicable  Interest  Period  for  such  Loan,  from (2) the rate
          obtained by dividing  LIBOR by a percentage  equal to 100%,  minus the
          LIBOR  Reserve  Percentage  as in effect from time to time during such
          Interest Period,  payable on each date on which interest is payable on
          such LIBOR Loan. Such Lender shall,  as soon as  practicable,  but not
          later than the last day of the  applicable  Interest  Period,  provide
          notice to Agent and Borrower of any such additional  interest  arising
          in  connection  with such  LIBOR  Loan and the  certification  of such
          Lender  that the  additional  amount  is due and  that the  additional
          reserve requirement is applicable to such LIBOR Loans. Such additional
          interest  shall  be  payable  directly  to such  Lender  on the  dates
          specified  for  payment  of  interest  for such  LIBOR Loan in Section
          2.4(c).

               (j) Withholding Tax Exemption.  At least five Business Days prior
          to the first day on which  interest or fees are payable  hereunder for
          the account of any Lender,  each Lender that is not incorporated under
          the laws of the United States of America,  or a state thereof,  agrees
          that it will deliver to Agent and Borrower two duly  completed  copies
          of United  States  Internal  Revenue  Service  Form 1001 or Form 4224,
          certifying  in either  case that such  Lender is  entitled  to receive
          payments under this Agreement  without deduction or withholding of any
          United States  federal  income taxes.  Each Lender which so delivers a
          Form 1001 or Form 4224  further  undertakes  to  deliver  to Agent and
          Borrower  two  additional  copies  of such  form  (or  any  applicable
          successor  form)  on  or  before  the  date  that  such  form  expires
          (currently,  three  successive  calendar  years  for Form 1001 and one
          calendar  year  for Form  4224)  or  becomes  obsolete  or  after  the
          occurrence of any event requiring a change in the most recent forms so
          delivered by it, and such amendments thereto or extensions or renewals
          thereof as may be reasonably  requested by Agent or Borrower,  in each
          case certifying that such Lender is entitled to receive payments under
          this Agreement  without  deduction or withholding of any United States
          federal income taxes, unless an event (including, without


                                       32

<PAGE>



          limitation,  any change in treaty,  law or  regulation)  has  occurred
          prior to the  date on  which  any such  delivery  would  otherwise  be
          required  which  renders  all such forms  inapplicable  or which would
          prevent such Lender from duly  completing and delivering any such form
          with  respect  to it and  such  Lender  advises  Agent  that it is not
          capable of receiving  payments without any deduction or withholding of
          United States  federal  income taxes.  If any Lender not  incorporated
          under the laws of the  United  States of  America  or a state  thereof
          cannot  deliver  such  form,  then  Borrower  may  withhold  from such
          payments such amounts as are required by the Internal Revenue Code.

         Section 2.5       Fees.

               (a) Unused  Facility Fee. Until the  Obligations are paid in full
          and  this  Agreement  is  terminated  or,  if  sooner,  the  date  the
          Commitments terminate, Borrower shall pay to Agent, for the account of
          each Lender, an "Unused Facility Fee",  accruing at the rate set forth
          below from and after the  Closing  Date,  upon the amount  during each
          calendar  quarter  of (1) the  average  daily  aggregate  Commitments,
          regardless of Loan  Availability  at such time,  minus (2) the average
          daily aggregate  principal  balance of all Loans then outstanding (the
          "Unused  Amount").  The Unused  Facility  Fee will be  calculated  and
          accrue using the rates opposite the applicable Unused Amount set forth
          below:

                           For any quarter  commencing  no fewer than six months
         after the Closing  Date,  (i) .125% on a per annum basis of the average
         daily Unused Amount during the applicable quarter,  provided, that, the
         average daily funded  amount of the Facility  during such quarter is at
         least 50% of the  Facility;  and (ii) .25% on a per annum  basis of the
         average  daily Unused  Amount if the average daily funded amount of the
         Facility during such quarter is less than 50% of the Facility.  Subject
         to Section 11.4(b),  each Lender shall be entitled to receive a portion
         of such  Unused  Facility  Fee equal to the  applicable  rate set forth
         above applied to the amount during each calendar  quarter of the excess
         of such  Lender's  Commitment  over such Lender's Pro Rata Share of the
         average  daily  amount of all Loans then  outstanding.  All such Unused
         Facility  Fees payable  under this  Section  2.5(a) shall be payable in
         arrears on the first  Business Day in each calendar  quarter  beginning
         with the first calendar quarter after the Closing Date.

          (b) Agency  Fees.  Borrower  shall pay Agent such fees as are provided
     for in the separate fee agreement  between  Borrower and Agent,  dated July
     27, 1996, as amended, supplemented or modified from time to time.

          (c)  Upfront  Fee.  Borrower  shall  pay to  Agent an  upfront  fee of
     $340,000, of which $170,000 shall be due and payable contemporaneously with
     the execution of this  Agreement  and $170,000  shall be due and payable on
     July 27, 1997. Subject to Section 11.4(b), each Lender shall be entitled to
     receive its pro rata share of each payment of the upfront fee.

          (d)  Development  Loan  Fees.  With  respect  to each  Borrowing  Base
     Development Property,  Borrower shall pay to Agent a "Development Loan Fee"
     equal to .25% of


                                       33

<PAGE>



          the Maximum Loan Amount for the Property on the date such  Property is
          accepted as a Borrowing Base Property.

          (e) Payment of Fees.  The fees  described  in Section  2.1(d) and this
          Section 2.5  represent  compensation  for services  rendered and to be
          rendered separate and apart from the lending of money or the provision
          of credit and do not constitute compensation for the use, detention or
          forbearance  of money,  and the obligation of Borrower to pay the fees
          described  herein  shall be in  addition  to,  and not in lieu of, the
          obligation  of  Borrower  to pay  interest,  other  fees and  expenses
          otherwise described in this Agreement.  All fees shall be payable when
          due  in  California  in  immediately  available  funds  and  shall  be
          non-refundable  when  paid.  If  Borrower  fails  to pay  any  fees or
          expenses specified or referred to in this Agreement that become due to
          Agent or Lenders, including,  without limitation, those referred to in
          this Section 2.5, in Section 12.1, or otherwise  under this  Agreement
          or any separate fee agreement between Borrower and Agent or any Lender
          relating to this  Agreement,  the amount due shall bear interest until
          paid at the Base Rate and,  after ten days,  at the rate  specified in
          Section  2.4(d)  (but not to exceed  the  maximum  rate  permitted  by
          applicable law), and shall constitute part of the Obligations, secured
          by all of the Collateral. All fees described in this Section 2.5 which
          are  expressed as a per annum charge shall be  calculated on the basis
          of the actual number of days elapsed in a 360 day year.

         Section 2.6       Payments.

               (a)  Voluntary  Prepayments.  Borrower  may,  upon not fewer than
          three Business Days prior written notice, at any time and from time to
          time,  prepay any Loans in whole or in part.  Any notice of prepayment
          given to Agent under this  Section  2.6(a)  shall  specify the date of
          prepayment and the aggregate principal amount of the prepayment.

               (b)  Facility  Reductions.  Borrower  may,  by not fewer than two
          Business Days prior notice to Agent,  permanently reduce the amount of
          the  Facility,  and by a percentage  corresponding  to the  percentage
          reduction  of the  Facility,  each  Commitment.  In no event shall the
          Facility or the Commitment be reduced below the outstanding  amount of
          the Loans, after giving effect to any voluntary prepayments.

               (c)  Manner  and Time of  Payment.  All  payments  of  principal,
          interest and fees  hereunder  payable to Agent or the Lenders shall be
          made without  condition or reservation of right and free of set-off or
          counterclaim,  in Dollars and by wire  transfer  (pursuant  to Agent's
          written wire transfer  instructions)  of immediately  available funds,
          delivered to Agent not later than 11:00 A.M.  (California time) on the
          date due; and funds  received by Agent after that time shall be deemed
          to have been paid on the next succeeding Business Day.

               (d)  Payments on  Non-Business  Days.  Whenever any payment to be
          made by Borrower hereunder shall be stated to be due on a day which is
          not a  Business  Day,  payments  shall be made on the next  succeeding
          Business  Day and such  extension  of time  shall be  included  in the
          computation (1) of the payment of interest  hereunder,  and (2) of any
          of the fees specified in Section 2.5, as the case may be.


                                       34

<PAGE>



          Section 2.7 Increased  Capital.  If either (a) the  introduction of or
     any change in or in the  interpretation  of any law or  regulation;  or (b)
     compliance  by Agent or any Lender with any  guideline  or request from any
     central  bank or other  Governmental  Authority  (whether or not having the
     force of law and  whether or not the failure to comply  therewith  would be
     unlawful) made or issued after the Closing Date affects or would affect the
     amount of capital  required or expected to be  maintained  by Agent or such
     Lender or any corporation  controlling  Agent or such Lender,  and Agent or
     such Lender  determines  that the amount of such capital is increased by or
     based upon the existence of Agent's obligations  hereunder or such Lender's
     Commitment,  then,  upon  demand by Agent or such  Lender;  Borrower  shall
     immediately pay to Agent or such Lender,  from time to time as specified by
     Agent or such Lender,  additional amounts sufficient to compensate Agent or
     such  Lender in light of such  circumstances,  to the extent  that Agent or
     such Lender  determines  such  increase in capital to be  allocable  to the
     existence of Agent's obligations  hereunder or such Lender's Commitment.  A
     certificate  as to such  amounts  submitted  to  Borrower  by Agent or such
     Lender shall, in the absence of  indisputable  and  demonstrable  error, be
     conclusive and binding for all purposes.

          Section 2.8 Notice of Increased  Costs.  Each Lender  agrees that,  as
     promptly as reasonably practicable after it becomes aware of the occurrence
     of an event or the  existence  of a  condition  which  would cause it to be
     affected by any of the events or conditions  described in Sections  2.4(g),
     2.4(h), 2.4(i) or 2.7, it will notify Borrower,  and provide a copy of such
     notice to Agent, of such event and the possible effects thereof,  provided;
     that the failure to provide such notice shall not affect the Lender's right
     to reimbursement as provided for herein.


                                    ARTICLE 3
                            BORROWING BASE PROPERTIES

          Section 3.1  Acceptance of Borrowing Base  Properties.  (a) Subject to
     compliance with the terms and conditions of Section 4.1, Agent has accepted
     the Properties listed on Schedule 1 as Borrowing Base Stabilized Properties
     and the  Properties  listed on  Schedule 2 as  Borrowing  Base  Development
     Properties.  Hereafter,  if Borrower desires that Lenders accept a Property
     as a Borrowing Base Property, Borrower shall so notify Agent in writing and
     Agent shall deliver a copy of such notice to each Lender.  No Property will
     be  evaluated  by Lenders as a potential  Borrowing  Base  Property  unless
     Borrower  delivers to Agent the following in form and substance  acceptable
     to Agent:

                  (1)     With respect to each proposed Borrowing Base Property:

                         (A) A copy of the most  recent ALTA  Owner's  Policy of
                    Title  Insurance (or  equivalent)  ("Owner's  Policy") and a
                    commitment  (not more than 90 days old) to issue an American
                    Land Title Association  extended coverage Lender's policy of
                    title insurance (or  equivalent)  covering such Property and
                    disclosing the identity of the fee titleholder  thereto, and
                    all matters of record;



                                       35

<PAGE>



                         (B)  Copies of all  documents  of record  reflected  in
                    Schedule  B of the  Owner's  Policy  and a copy of the  most
                    recent real estate tax bill and notice of assessment;

                         (C) A current  or  currently  certified  survey of such
                    Property  certified by a surveyor licensed in the applicable
                    jurisdiction  to have been prepared in  accordance  with the
                    then effective  Minimum  Standard  Detail  Requirements  for
                    ALTA/ACSM Land Title Surveys (or equivalent);

                         (D)  A  "Phase  I"  environmental  assessment  of  such
                    Property not more than 12 months old;

                         (E) A  certificate  from a licensed  engineer  or other
                    professional satisfactory to Agent that such Property is not
                    located in a Special  Flood Hazard  Area,  as defined by the
                    Federal Insurance Administration; and

                         (F) Such other  documents with respect to such Property
                    as Agent shall reasonably require.

                    (2) With respect to each proposed  Borrowing Base Stabilized
                    Property:

                    (A) An  operating  statement  for such  Property  audited or
               certified  by a  representative  of  Borrower  as being  true and
               correct in all material  respects and prepared in accordance with
               sound  accounting  principles  for the previous two Fiscal Years,
               provided,  that, with respect to any period such Property was not
               owned by Borrower,  such information shall only be required to be
               delivered to the extent reasonably available to Borrower and such
               certification may be based upon the best of Borrower's knowledge;

                    (B) An engineering report for such Property not more than 12
               months old;

                    (C) Copies of (i) the form or forms of tenant leases used at
               such  Property,  and (ii) all  Major  Agreements  affecting  such
               Property; and

                    (D) A current  rent roll for such  Property,  certified by a
               representative  of  Borrower  as being  true and  correct  in all
               material  respects  and  a  three-year  operating  and  occupancy
               history  of such  Property  in form  satisfactory  to Agent,  and
               certified by a representative of Borrower to be true and correct,
               provided,  that, with respect to any period such Property was not
               owned by Borrower,  such information shall only be required to be
               delivered to the extent reasonably available to Borrower and such
               certification may be based upon the best of Borrower's knowledge;

                    (3)  With  respect  to  each  Borrowing   Base   Development
                    Property:

                    (A)  the Lease-Up Projections;

                    (B)  the Construction Contracts;


                                       36

<PAGE>



                    (C)  the Construction Schedule;

                    (D)  the Project Budget;

                    (E)  Pro forma income and expense  projections for the first
                         12 months of stabilized occupancy;

                    (F)  Area, market and comparable property information;

                    (G)  the Development Plans;

                    (H)  background information about the architect; and

                    (I)  background  and  financial  information  on the general
                         contractor.

               (b) If, after receipt and review of the  foregoing  documents and
          information,  Agent is prepared  to proceed  with  acceptance  of such
          Property as a Borrowing Base Property,  Agent will so notify  Borrower
          and each  Lender  within 5 Business  Days after  receipt of all of the
          information provided above, and Agent will obtain an Appraisal of such
          Property in order to determine  the  Appraised  Value  thereof.  After
          obtaining  such  Appraisal,  Agent will promptly  submit the foregoing
          documents and information,  including the Appraisal, and the Appraised
          Value to the Lenders, for approval by (1) the Supermajority Lenders if
          such Property,  upon acceptance,  would be a Borrowing Base Stabilized
          Property and (2) all Lenders if such Property, upon acceptance,  would
          be a Borrowing  Base  Development  Property,  within 15 Business  Days
          thereafter.  Such Property shall become a Borrowing Base Property upon
          approval of the Supermajority  Lenders or all Lenders, as the case may
          be, and upon  execution  and  delivery to Agent of the  documents  and
          items described in Section 4.1(a) and 4.1(e),  and such other items or
          documents as may be  appropriate  under the  circumstances,  including
          updates  of  the   documents   described  in  Sections   3.1(a)(1)(D),
          3.1(a)(2)(A),  3.1(a)(2)(D), 3.1(a)(2)(B) (if then more than 12 months
          old),  and  3.1(a)(2)(C),   and  satisfaction  of  all  other  closing
          requirements imposed by Agent.

               (c) No more  than  $50,000,000  of the  Borrowing  Base  shall be
          provided by the Borrowing  Base  Development  Properties.  The minimum
          Stabilized Property/Development Property Borrowing Base Ratio shall be
          as set forth below:

                  Subsequent to December 31, 1996:           0.70:1.0
                  Subsequent to March 31, 1997:               1.0:1.0
                  Subsequent to June 30, 1997:               1.25:1.0

          No  Development  Properties  will  be  accepted  as  Collateral  after
          September  30,  1996,  unless all  Lenders  otherwise  consent,  which
          consent shall be in their sole and absolute discretion.

          Section 3.2 Release of Borrowing Base  Properties.  Upon repayment and
          satisfaction  in full of all  Obligations  and the  termination of all
          Commitments  and this  Agreement,  Agent  will  release  the  Mortgage
          Documents with respect to each of the Borrowing Base Properties.

                                       37

<PAGE>



          From time to time  Borrower  may  request,  upon not less than 30 days
          prior  written  notice,  that a  Borrowing  Base  Property  or portion
          thereof be released from the Liens  created by the Mortgage  Documents
          applicable  thereto,  which release (the "Property  Release") shall be
          delivered by Agent if all of the following conditions are satisfied as
          of the date of such Property Release:

          (a)  no  Unmatured  Event of Default or Event of Default has  occurred
               and is then  continuing or will occur after giving effect to such
               Property Release;

          (b) the Termination Date has not occurred;

          (c)  Borrower   shall  have   delivered  to  Agent  a  Borrowing  Base
          Certificate  reflecting the Borrowing Base after giving effect to such
          Property Release;

          (d) Agent shall have determined that the outstanding principal balance
          of the Loans will not exceed the Borrowing Base after giving effect to
          such  Property  Release  and  any  prepayment  to be made  and/or  the
          acceptance  of any  Property  pursuant  to Section  3.1 which is to be
          given  concurrently  with  such  Property  Release  as  additional  or
          replacement Borrowing Base Property;

          (e) unless the Supermajority  Lenders otherwise consent (which consent
          shall not be  withheld  unreasonably),  there  will be at least  three
          remaining  Borrowing Base Stabilized  Properties  which contribute not
          less than $8,000,000 in value to the Borrowing Base; and

          (f) the average year of  completion of the  remaining  Borrowing  Base
          Properties shall not be prior to 1985 unless the Supermajority Lenders
          otherwise consent (which consent shall not be withheld unreasonably).

          If both (1) after giving effect to such Property  Release the ratio of
          the aggregate  Borrowing Base Value of the Borrowing Base  Development
          Properties to the aggregate Borrowing Base Value of the Borrowing Base
          Stabilized Properties exceeds 1.00:1.00, and (2) Agent determines,  in
          its sole and absolute  discretion,  that a material adverse change has
          occurred in the status of any  Borrowing  Base  Development  Property,
          then Agent may require that (A) such Property be reappraised,  (B) the
          Maximum Loan Amount for such Property be recalculated based on the new
          Appraised  Value,  and (C) if the Maximum  Loan Amount has  decreased,
          that  the  Borrowing  Base  be  recalculated.  If  such  recalculation
          discloses that a Loan Availability  Deficiency  exists,  then Borrower
          shall  have 30 days  from  the  date on which  the  Borrowing  Base is
          recalculated, to reduce the outstanding aggregate principal balance of
          the Loans to an amount equal to or less than the Loan Availability.

         Section 3.3       Borrowing Base Determinations.

                    (a)  Appraisals.  The  Appraised  Value of a Borrowing  Base
               Property or Properties  shall be determined or  redetermined,  as
               applicable, under each of the following circumstances:

                    (1) Upon  initial  acceptance  of a Property  as a Borrowing
               Base  Property  the Agent  will  determine  the  Appraised  Value
               thereof;


                                       38

<PAGE>



               (2) The Appraised Value of all Borrowing Base  Properties  (based
          upon preparation of current  Appraisals) will be redetermined when and
          if required under Section 2.1(d)(1)(B);

               (3)  From  time  to  time  a  Borrowing   Base  Property  may  be
          reappraised,  at Borrower's request,  upon notice by Borrower to Agent
          to reappraise a Borrowing  Base  Property,  in which event Agent shall
          cause an Appraisal thereof to be made; and

               (4) At any time and from time to time upon  five  Business  Days'
          prior  written  notice  to  Borrower,  Agent  may  (and  shall  at the
          direction of Requisite  Lenders)  redetermine the Appraised Value of a
          Borrowing Base Property in any of the following circumstances:

                                    (A) if a material adverse change occurs with
                  respect  to a  Borrowing  Base  Property,  including,  without
                  limitation,  a  material  deterioration  in the Net  Operating
                  Income of such Borrowing  Base  Property,  a major casualty at
                  such  Borrowing  Base  Property  that is not fully  covered by
                  insurance,  or a  material  condemnation  of any  part of such
                  Borrowing  Base  Property  or a material  change in the market
                  conditions affecting such Borrowing Base Property; or

                                    (B) if  necessary  in order to  comply  with
                  Requirements of Law applicable to any Lender.

               (b)  Borrowing  Base  Adjustments.  The  Borrowing  Base  will be
          adjusted  downward as of the end of a Fiscal  Quarter if (1) there has
          been any  reduction in the  Borrowing  Base Value of a Borrowing  Base
          Property   during   such   Fiscal   Quarter  or  (2)  the   Stabilized
          Property/Development  Property  Borrowing  Base  Ratio  is  below  the
          minimum ratio set forth in Section  3.1(c).  In the event there is any
          increase in the Borrowing  Base Value of any  Borrowing  Base Property
          during a Fiscal  Quarter for any reason other than the  occurrence  of
          the Conversion  Date, then such increase shall become  effective as of
          the first Business Day of the next succeeding Fiscal Quarter, provided
          that prior to such date (A) either (i) the Requisite  Lenders  approve
          the  increase,  if such  increase  is the result of an increase in the
          Appraised  Value  of such  Borrowing  Base  Property,  or (ii) if such
          increase is the result of an increase in the  Permanent  Loan Estimate
          for such Borrowing Base Property,  Borrower  delivers a Borrowing Base
          Certificate to Agent  pursuant to Section  6.1(e) which  substantiates
          such increase,  and (B) Borrower delivers to Agent an endorsement,  if
          available,  to Agent's title  insurance  policy  increasing the amount
          thereof as related to such  Borrowing  Base  Property to not less than
          one hundred  percent  (100%) of the adjusted  Borrowing Base Value for
          such Borrowing Base Property.  An increase in the Borrowing Base Value
          of a Borrowing  Base Property that results from the  occurrence of the
          Conversion Date shall become  effective on the Conversion Date. If, by
          the Conversion  Date, a Borrowing Base  Development  Property does not
          achieve 90% of the stabilized gross revenues (on an annualized  basis)
          projected  for the  first  year in the  Appraisal  for  each of  three
          consecutive months, then the Property shall be


                                       39

<PAGE>



               removed  from  the   Borrowing   Base  unless  such  Property  is
          reappraised and the Supermajority Lenders consent to the conversion of
          such Property into a Borrowing Base Stabilized Property, in which case
          the  Maximum  Loan  Amount for such  Property  shall be reduced to the
          lower  of (A) 50% of its  Appraised  Value or (B) its  Permanent  Loan
          Estimate, both calculated based on the new Appraisal.

         Section 3.4       Covenants Relating to Borrowing Base Properties.

               (a) Insurance,  Casualty.  Borrower shall maintain or cause to be
          maintained  insurance  covering each  Borrowing  Base Property in such
          amounts and covering such risks as are set forth in the Mortgages.

               (b) Major Agreements.  Unless otherwise  consented to by Agent in
          writing (which consent will not be unreasonably  withheld),  all Major
          Agreements  covering any portion of a Borrowing Base Property  entered
          into after the date of this Agreement  shall (1) be with third parties
          under market terms,  (2) contain the provisions  regarding  insurance,
          waiver of claims,  damage  and  destruction,  condemnation,  notice to
          mortgagee and  subordination  and attornment and other matters in form
          approved by Agent, and (3) not include  self-help  remedies or provide
          for  Agent's  or any  subsequent  mortgagee's  non-disturbance  of any
          tenant's  occupancy  unless the tenant and Agent have each  executed a
          non-disturbance   agreement  in  form   satisfactory  to  Agent.   Any
          termination (other than by reason of material default) or modification
          of any Major  Agreement  which does not comply  with the  requirements
          described  in the  preceding  sentence  will  be  subject  to  Agent's
          approval.  Copies of all Major  Agreements  to be  executed  which are
          inconsistent  with the  matters  addressed  in clauses (1) through (3)
          above  shall be  furnished  to Agent for  approval  no fewer  than ten
          Business Days before the proposed  execution thereof by Borrower.  Any
          Major Agreement that has provisions which are inconsistent with clause
          (1) above must be approved by the Agent and Requisite  Lenders.  Agent
          and each of the Lenders will use reasonable  efforts to respond within
          a reasonable time (but no more than ten Business Days) to a request by
          Borrower  for  approval  of a  Major  Agreement  that  has  provisions
          inconsistent  with clause (1) above and Agent will use its  reasonable
          efforts  to  respond  within a  reasonable  time (but no more than ten
          Business  Days) to a  request  by  Borrower  for  approval  of a Major
          Agreement  that has provisions  inconsistent  with clauses (2) and (3)
          above.  The  failure by either the Agent or the  Requisite  Lenders to
          respond  within  said  ten-day  period  shall be deemed to be  Agent's
          consent and/or the Requisite Lenders' consent,  as the case may be, to
          such modified provision.

               (c) Management  Agreements.  Borrower shall not amend,  modify in
          any material  manner,  or terminate its management  agreement with the
          Management  Company with respect to any Borrowing  Base  Property,  if
          such  proposed  amendment  or  modification   limits  or  extinguishes
          Borrower's  absolute  right  to  terminate  the  management  agreement
          without penalty upon 30 days notice,  or might have a Material Adverse
          Effect upon Borrower or its ability to perform its  obligations  under
          the  Loan  Documents.  Borrower  shall  not  enter  into a  management
          agreement with a manager other than the Management  Company subsequent
          to the  Closing  Date with  respect to any  Borrowing  Base  Property,
          without the prior written consent of Requisite  Lenders (which consent
          shall not be unreasonably withheld).



                                       40

<PAGE>



               (d) Major  Construction.  If  Borrower  intends  to engage in any
          construction,  remodeling or  demolition  project or series of related
          projects,  with respect to a Borrowing Base Stabilized Property (each,
          a "Construction Project"),  other than in accordance with the casualty
          and  condemnation  provisions  specified  in the Loan  Documents,  the
          aggregate cost of which will exceed 20% of the "as is" market value of
          such  Borrowing  Base  Property,  then Borrower shall first notify and
          obtain  approval,  which approval shall not be unreasonably  withheld,
          from Requisite Lenders, of such Construction Project.

               Section  3.5 Grant of  Security  Interest.  As  security  for the
          payment of all Loans now or  hereafter  made by  Lenders  to  Borrower
          hereunder,  and as security for the payment or other  satisfaction  of
          all  other  Obligations,  Borrower  hereby  grants  to Agent  (for the
          benefit of all  Lenders) a security  interest in and to the  following
          property of  Borrower,  whether now owned or  existing,  or  hereafter
          acquired or coming into existence, wherever now or hereafter located:

               (a)  All  Accounts  (as  such  term  is  defined  in the  Uniform
          Commercial Code) solely relating to any Borrowing Base Property;

               (b) All  Equipment  (as  such  term  is  defined  in the  Uniform
          Commercial  Code) solely  relating to or used in  connection  with any
          Borrowing Base Property;

               (c) All  Inventory  (as  such  term  is  defined  in the  Uniform
          Commercial  Code) solely  relating to or used in  connection  with any
          Borrowing Base Property;

               (d) All  General  Intangibles  (as such  term is  defined  in the
          Uniform Commercial Code) solely relating to or used in connection with
          any Borrowing Base Property, except that General Intangibles shall not
          include the name  "Paragon"  and all  derivatives,  trademarks,  trade
          names, service marks and logos associated with such name;

               (e) All plant  fixtures,  trade fixtures,  business  fixtures and
          other  fixtures,  wherever  located,  relating to or solely used by or
          used in connection with any Borrowing Base Property; and all additions
          and accessions thereto and replacements therefor;

               (f) All  Documents  (as defined in the Uniform  Commercial  Code)
          solely relating to any Borrowing Base Property;

               (g)  All  instruments,  chattel  paper,  letters  of  credit  and
          certificated and uncertificated  securities (as such terms are defined
          in the Uniform  Commercial Code) solely relating to any Borrowing Base
          Property;

               (h) All books,  records,  ledger  cards,  files,  correspondence,
          computer programs,  tapes, disks and related data processing  software
          that at any time evidence or contain  information  solely  relating to
          any of the Property  described in subsections (a) through (g) above or
          are  otherwise  necessary  or  helpful  in the  collection  thereof or
          realization thereon; and

               (i) Proceeds of any of the property  described in subsections (a)
          through (h) above.


                                       41

<PAGE>




                                    ARTICLE 4
                               CONDITIONS TO LOANS

               Section  4.1  Conditions  to Initial  Loans.  The  obligation  of
          Lenders to make the initial Loans shall be subject to  satisfaction of
          each  of  the  following   conditions   precedent  on  or  before  the
          Restatement Date:

               (a) Borrower Loan Documents.  Borrower shall have executed and/or
          delivered  to  Agent  each of the  following,  in form  and  substance
          acceptable to Agent:

          (1)      this Agreement;

          (2)      the Loan Notes;

          (3)      the Borrower's Affidavit;

          (4)      a signature authorization form;

          (5)      opinions of counsel for Borrower satisfactory to Agent;

          (6)      Agent's form of Funds Transfer Agreement; and

          (7)      any other documents and information as Agent may reasonably
                   require.

               (b) REIT Documents. The REIT shall have executed and/or delivered
          to Agent each of the  following,  in form and substance  acceptable to
          Agent:

          (1)      the REIT Affidavit;

          (2)      opinions of counsel for the REIT satisfactory to Agent; and

          (3)      any other documents and information as Agent may reasonably
                   require.

               (c) Paragon GP Holdings Documents. Paragon GP Holdings shall have
          executed and/or delivered each of the following, in form and substance
          acceptable to Agent:

          (1)      the Paragon GP Holdings Affidavit;

          (2)      opinions of counsel for Paragon GP Holdings satisfactory to
                   Agent; and


                                       42

<PAGE>



          (3)  any other  documents  and  information  as Agent  may  reasonably
               require.

               (d) Paragon LP Holdings Documents. Paragon LP Holdings shall have
          executed and/or delivered each of the following, in form and substance
          acceptable to Agent:

          (1)      the Paragon LP Holdings Affidavit;

          (2)      opinions of counsel for Paragon LP Holdings satisfactory to
                   Agent; and

          (3)      any other documents and information as Agent may
                   reasonably require.

               (e) Borrowing Base Property Documents.  Agent shall have received
          the following documents in form and substance acceptable to Agent:

          (1)      with respect to each Borrowing Base Property:

                    (A)  a Mortgage;

                    (B)  an Assignment of Leases and Rents;

                    (C)  Uniform Commercial Code Financing Statements;

                    (D)  an Appraisal;

                    (E)  an American Land Title  Association  extended  coverage
                         Lender's  policy of title  insurance or a commitment to
                         issue such policy (or equivalent), from a title company
                         acceptable to Agent in the amount of the Borrowing Base
                         Value of such  Borrowing  Base  Property,  insuring the
                         Mortgage  against  such  Borrowing  Base  Property as a
                         first mortgage  subject only to Permitted  Liens,  with
                         all endorsements specified by Agent;

                    (F)  a "Phase I"  environmental  assessment not more than 12
                         months old;

                    (G)  evidence  satisfactory to Agent that the Borrowing Base
                         Property is not located within the 100 year flood plain
                         or identified as a special flood hazard area as defined
                         by the Federal Insurance Administration;

                    (H)  a survey in the form described in Section 3.1(a)(1)(C),
                         certified to Agent;


                                       43

<PAGE>



                    (I)  such  opinions  of  local  counsel  pertaining  to such
                         Borrowing Base Property as Agent shall require;

                    (J)  upon request by Agent,  an ad valorem  delinquency  tax
                         service contract acceptable to Agent;

                    (K)  a copy  of the  form  of  tenant  lease  to be  used in
                         connection with the Leases;

                    (L)  letters from local Governmental  Authorities evidencing
                         compliance with applicable zoning,  land use, and other
                         laws;

                    (M)  the  policies of  insurance  required  by the  Mortgage
                         Documents; and

                    (N)  such other  documents  with  respect to such  Borrowing
                         Base Property as Agent shall reasonably require.

          (2)  With respect to each Borrowing Base Stabilized Property:

                    (A)  a certified rent roll;

                    (B)  an operating budget for the current Fiscal Year;

                    (C)  upon  request  by Agent,  a  schedule  of all  personal
                         property,  including intangible personal property owned
                         by   Borrower,   and  used  in   connection   with  the
                         maintenance   or  operation  of  such   Borrowing  Base
                         Property; and

                    (D)  an  engineering  report for the Borrowing Base Property
                         not more than 12 months old;

          (3)  With respect to each Borrowing Base Development Property:

                    (A) evidence  satisfactory to Agent that Borrower has funded
               project  costs  reflected on the Project  Budget of not less than
               the  difference  between  the  aggregate  Project  Budget and the
               Maximum Loan Amount; and

                    (B)  a third party analysis of the Development Plans.

          (f)  Corporate and  Partnership  Documents.  Agent shall have received
               the following corporate and partnership documents,  together with
               all amendments and modifications thereto:

                    (1)  with   respect  to  Borrower:   a  certified   copy  of
                         Borrower's limited partnership  agreement,  a certified
                         copy of Borrower's Certificate of Limited


                                       44

<PAGE>



          Partnership;  and good  standing  certificates  for Borrower  from the
          State of Delaware and each state where it is qualified to do business;

                    (2) with respect to the REIT: certified copies of the REIT's
                    articles or certificate of  incorporation  and by-laws;  and
                    good  standing  certificates  from the State of Maryland and
                    each state where it is qualified to do business;.

                    (3) with respect to Paragon GP Holdings: certified copies of
                    Paragon   GP   Holdings'    articles   or   certificate   of
                    incorporation  and by-laws;  and good standing  certificates
                    from  the  State of  Delaware  and  each  state  where it is
                    qualified to do business; and

                    (4) with respect to Paragon LP Holdings: certified copies of
                    Paragon   LP   Holdings'    articles   or   certificate   of
                    incorporation  and by-laws;  and good standing  certificates
                    from  the  State of  Delaware  and  each  state  where it is
                    qualified to do business.

               (g) Borrowing Base Certificate.  Borrower shall have delivered to
          Agent  a  Borrowing  Base  Certificate   evidencing   sufficient  Loan
          Availability to support the Loans being requested.

               (h) Notice of Borrowing and Disbursement Authorization.  Borrower
          shall have delivered to Agent a Notice of Borrowing in compliance with
          Section 2.1(b).

               (i)  Performance.  Borrower,  the REIT,  Paragon GP Holdings  and
          Paragon LP Holdings shall have performed in all material  respects all
          agreements and covenants  required by Agent to be performed by them as
          a condition to funding the Loans.

               (j) Solvency. Each of the Borrower, the REIT, Paragon GP Holdings
          and Paragon LP Holdings shall be Solvent.

               (k) Material Adverse Changes.  No change,  as determined by Agent
          shall have occurred  during the Interim  Period,  which (1) has had or
          may have a Material  Adverse Effect on the Borrower,  the REIT, or any
          Borrowing Base Property,  and (2) will materially and adversely affect
          the  ability  of  Borrower  or any  other  party  to  any of the  Loan
          Documents to perform its obligations thereunder.

               (l) Litigation Proceedings.  There shall not have been instituted
          or threatened,  during the Interim Period, any litigation in any court
          or proceeding  before any Governmental  Authority (1) which has had or
          may have a Material  Adverse Effect on the Borrower,  the REIT, or any
          Borrowing Base Property,  and (2) will materially and adversely affect
          the  ability  of  Borrower  or any  other  party  to  any of the  Loan
          Documents  to  perform  its  obligations  thereunder,   as  reasonably
          determined by Agent.



                                       45

<PAGE>



               (m) Perfection of Liens.  All Mortgages and Financing  Statements
          shall have been recorded or filed, as applicable, and Agent shall have
          a valid, perfected first priority lien on each Borrowing Base Property
          and any other Collateral.

               (n) Indefeasible  Title.  Borrower shall have good,  indefeasible
          and merchantable title to the Collateral,  free and clear of all Liens
          other than Permitted Liens.

               (o) No Event of Default;  Satisfaction of Financial Covenants. On
          the Closing Date and after giving effect to the initial  disbursements
          of the Loans,  no Event of Default or Unmatured Event of Default shall
          exist and all of the  covenants  contained  in  Articles 6, 7, 8 and 9
          shall be satisfied.

               (p) No Material Non-Ordinary Transaction. Borrower shall not have
          entered into any material  commitment or material  transaction  during
          the Interim  Period which is not in the ordinary  course of Borrower's
          business, other than the sale of Paragon Group Property Services, Inc.
          stock to Insignia Commercial Group, Inc. and related transactions.

               (q)  Consents and  Approvals.  All  material  licenses,  permits,
          consents, regulatory approvals and corporate action necessary to enter
          into the financing  transactions  contemplated by this Agreement shall
          have been  obtained by  Borrower,  the REIT,  Paragon GP Holdings  and
          Paragon LP Holdings.

               (r) Due Diligence.  Agent shall have completed such due diligence
          investigations   as  Agent  deems  necessary,   and  such  review  and
          investigations shall provide Agent with results and information which,
          in Agent's  determination,  are  satisfactory  to permit Agent and the
          Lenders to enter into this Agreement and fund the Loans.

               (s)  Representations  and  Warranties.  All  representations  and
          warranties  contained in this  Agreement and the other Loan  Documents
          shall be true and correct in all material respects.

               (t) Fees.  Agent  shall  have  received  all fees  then due,  and
          Borrower  shall have  performed  all of its other  Obligations  as set
          forth in the Loan Documents to make payments to Agent on or before the
          Closing Date and all expenses of Agent  incurred prior to such Closing
          Date  (including  without  limitation  all  reasonable  attorneys' and
          appraisers' fees), shall have been paid by Borrower.

          Section 4.2 Conditions  Precedent to Subsequent  Loans. The obligation
          of each Lender to make any Loan  requested  to be made by it after the
          Restatement  Date is  subject  to  Agent's  receipt  of the  following
          documents:

                    (a)  with  respect  to each  Borrowing  Base  Property,  the
                    documents  described  in Section  4.1(e),  to the extent not
                    previously delivered to Agent prior to the Funding Date;

                    (b) an original and duly executed Notice of Borrowing;


                                       46



<PAGE>



                    (c) no later  than the date of  delivery  of the  Notice  of
                    Borrowing,  a current  Borrowing Base Certificate and if any
                    Loans  have  been made  previously  during  the  month  such
                    Borrowing Base Certificate is delivered, then a current Loan
                    Availability Certificate, as well; and

                    (d) a Compliance Certificate confirming:

                    (1) All of the representations  and warranties  contained in
                    this Agreement and in any other Loan Documents shall be true
                    and correct in all material respects,  as though made on and
                    as of such Funding Date;

                    (2) No Event of Default or Unmatured  Event of Default shall
               have  occurred and be  continuing or would result from the making
               of the  requested  Loan  and all of the  covenants  contained  in
               Articles 6, 7, 8 and 9 shall be satisfied; and

                    (3) No  event  has  occurred  that has had or may have (i) a
               Material  Adverse  Effect  on  the  Borrower,  the  REIT,  or any
               Borrowing Base Property,  and (ii) will  materially and adversely
               affect the  ability of  Borrower or any other party to any of the
               Loan Documents to perform its obligations thereunder.

                    (4)  With  respect  to  each  Borrowing   Base   Development
               Property, all of the covenants contained in the Mortgage relating
               to such  Property  have  been  satisfied  and  Agent  shall  have
               received (A) an  endorsement  (if permitted or required by virtue
               of the form  thereof) to the loan title  policy  relating to such
               Property  increasing  the coverage  thereof to the full amount of
               the  sum  advanced  and   notwithstanding   section  (e)  of  the
               definition of Permitted Lien, reflecting no changes in the status
               of title or the title  insurance  since the previous Loan related
               to such Property,  or, if such endorsement cannot be obtained, an
               abstractor's  certificate or other evidence satisfactory to Agent
               from the title  company  reflecting  that there have been no such
               changes  in the  status  of title  or the  title  insurance,  (B)
               certification  from  the  architect  and,  if Agent  elects,  the
               Independent  Supervising  Architect  that, in their opinion,  the
               construction of the Improvements  theretofore  performed has been
               in substantial  accordance  with the Development  Plans,  (C) the
               survey called for in Section 3.1(a)(1)(c)  hereinabove and as may
               be required by the title company to issue the endorsement, (D) at
               the request of Agent,  lien  waivers or releases  (in  recordable
               form)  from  all   contractors,   subcontractors,   laborers  and
               materialmen  employed or furnishing  materials in connection with
               the  construction  of  the  Improvements,   and  (E)  such  other
               certifications  or evidence of cost and  completion  as Agent may
               request.

          Each  submission  by Borrower to Agent of a Notice of  Borrowing  with
          respect to a Loan and the  acceptance  by Borrower of the  proceeds of
          each such Loan made hereunder shall  constitute a  representation  and
          warranty by  Borrower as of the Funding  Date in respect of such Loans
          that all the  conditions  contained  in this  Section  4.2  have  been
          satisfied.



                                       47

<PAGE>



                                    ARTICLE 5
                         REPRESENTATIONS AND WARRANTIES

          Section 5.1 Representations and Warranties as to Borrower. In order to
          induce  Lenders  to make the Loans,  Borrower  hereby  represents  and
          warrants to Lenders as follows:

               (a) Organization;  Partnership Powers.  Borrower (1) is a limited
          partnership  duly  organized,  validly  existing and in good  standing
          under  the  laws of the  jurisdiction  of its  formation;  (2) is duly
          qualified to do business as a foreign limited  partnership and in good
          standing  under  the  laws of each  jurisdiction  in  which it owns or
          leases real property,  or in which the nature of its business requires
          it to be so qualified, except for those jurisdictions where failure to
          so quality and be in good standing  would not have a Material  Adverse
          Effect on Borrower;  and (3) has all requisite  partnership  power and
          authority  to own,  operate and encumber its assets and to conduct its
          business as  presently  conducted  and as proposed to be  conducted in
          connection   with,  and  following  the  consummation  of,  the  Loans
          contemplated by the Loan Documents.

               (b) Authority.  Borrower has the requisite  partnership power and
          authority to execute,  deliver and perform each of the Loan  Documents
          to  which  it is or will  be a  party.  The  execution,  delivery  and
          performance   thereof,   and  the  consummation  of  the  transactions
          contemplated  thereby,  have been duly approved by the General Partner
          of Borrower, and no other partnership proceedings or authorizations on
          the part of Borrower or its general or limited  partners are necessary
          to consummate such  transactions.  Each of the Loan Documents to which
          Borrower is a party has been duly  executed and  delivered by Borrower
          and constitutes its legal, valid and binding  obligation,  enforceable
          against  it in  accordance  with its  terms,  subject  to  bankruptcy,
          insolvency and other laws affecting creditors' rights generally.

               (c) Ownership of Borrower.  Except as set forth or referred to in
          the limited partnership agreement of Borrower, no partnership interest
          (or any Securities,  instruments, warrants, option or purchase rights,
          conversion or exchange  rights,  calls,  commitments  or claims of any
          character  convertible into or exercisable for partnership  interests)
          of  Borrower is subject to issuance  under any  Security,  instrument,
          warrant,  option or purchase  rights,  conversion or exchange  rights,
          call,  commitment or claim of any right,  title or interest therein or
          thereto. All of the partnership interests in Borrower have been issued
          in compliance with all applicable Requirements of Law.

               (d) No  Conflict.  The  execution,  delivery and  performance  by
          Borrower of the Loan Documents to which it is or will be a party,  and
          each of the transactions contemplated thereby, do not and will not (1)
          conflict with or violate Borrower's limited  partnership  agreement or
          Certificate  of  Limited   Partnership,   or  any  other  organization
          documents,  as the case may be;  or (2)  conflict  with,  result  in a
          breach of, or constitute  (with or without  notice or lapse of time or
          both) a default under, any Requirement of Law, Contractual  Obligation
          or Court Order that is binding upon Borrower,  or require  termination
          of any  Contractual  Obligation,  the  consequences of which conflict,
          breach, default or termination would have a Material Adverse Effect on
          Borrower or the REIT,  or otherwise  result in or require the creation
          or imposition of any Lien (other than Permitted Liens) whatsoever upon
          any of the assets of Borrower that are subject to Agent's Liens.


                                       48

<PAGE>



               (e)  Consents  and  Authorizations.  Borrower  has  obtained  all
          consents  and  authorizations  required  pursuant  to its  Contractual
          Obligations  with any other  Person,  the  failure  of which to obtain
          would have a Material  Adverse  Effect on  Borrower  or the REIT,  and
          shall have obtained all consents and  authorizations  of, and effected
          all notices to and filings with, any Governmental Authority, as may be
          necessary to allow Borrower to lawfully  execute,  deliver and perform
          its obligations under the Loan Documents to which Borrower is a party.

               (f)   Governmental   Regulation.   Borrower  is  not  subject  to
          regulation  under the Public Utility  Holding Company Act of 1935, the
          Federal Power Act, the Interstate Commerce Act, the Investment Company
          Act of 1940 or any other federal or state statute or regulation,  such
          that its ability to incur  indebtedness is limited,  or its ability to
          consummate  the  transactions  contemplated  by the Loan  Documents is
          materially impaired.

               (g) Prior  Financials.  The financial  statements dated March 31,
          1996 for the  Borrower  (the  "March 31, 1996  Financials"),  which it
          delivered  to  Agent  prior  to the  date  hereof,  were  prepared  in
          accordance  with GAAP and fairly present the assets,  liabilities  and
          financial condition of the Borrower,  on a consolidated basis, at such
          date  and the  results  of its  operations  and its  cash  flow,  on a
          consolidated basis, for the period then ended.

               (h) Financial Statements;  Projections and Forecasts. Each of the
          Financial  Statements  to be delivered  to Agent  pursuant to Sections
          6.1(a) and 6.1(b) (1) has been, or will be, as applicable, prepared in
          accordance  with the books and records of  Borrower on a  consolidated
          basis;  and (2) either fairly  presents,  or will fairly  present,  as
          applicable,  the  financial  condition  of Borrower on a  consolidated
          basis,  at the dates thereof (and,  if  applicable,  subject to normal
          year-end  adjustments)  and the  results  of its  operations  and cash
          flows, on a consolidated basis, for the period then ended.

               (i)  No Material Adverse Change; Litigation and Other Events.

                           (1)   There   is   no   action,   suit,   proceeding,
         governmental  investigation  or  arbitration,  at law or in equity,  or
         before  or by any  Governmental  Authority  pending  or, to the best of
         Borrower's  knowledge,  threatened  against Borrower,  the REIT, or any
         Borrowing  Base Property,  which (A) will result in a Material  Adverse
         Effect on Borrower,  the REIT, or any Borrowing Base Property,  and (B)
         will  materially  and  adversely  affect the ability of Borrower or any
         other party to any of the Loan  Documents  to perform  its  obligations
         thereunder; and

                           (2)   Borrower  is  not  (A)  in   violation  of  any
         applicable law, which violation has had or may have a Material  Adverse
         Effect on Borrower,  the REIT, or any Borrowing Base Property and which
         will  materially  and  adversely  affect the ability of Borrower or any
         other party to any of the Loan  Documents  to perform  its  obligations
         thereunder; or (B) subject to, or in default with respect to, any Court
         Order,  which Court Order or a default thereunder has had or may have a
         Material  Adverse  Effect on Borrower,  the REIT, or any Borrowing Base
         Property and which will materially and adversely  affect the ability of
         Borrower or any other party to any


                                       49

<PAGE>



         of the Loan Documents to perform its obligations thereunder.  There are
         no  material   Proceedings  pending  or,  to  the  best  of  Borrower's
         knowledge, threatened against Borrower, the REIT, or any Borrowing Base
         Property,  which if adversely  decided,  would have a Material  Adverse
         Effect on Borrower,  the REIT, or any Borrowing  Base  Property,  which
         will  materially  and  adversely  affect the ability of Borrower or any
         other party to any of the Loan  Documents  to perform  its  obligations
         thereunder; and

                           (3) Since  March 31,  1996 to the best of  Borrower's
         knowledge,  no event has occurred  which has had or may have a Material
         Adverse  Effect on Borrower,  the REIT, or any Borrowing Base Property,
         and no material adverse change has occurred in Borrower's or the REIT's
         ability to perform  its  Obligations  under the Loan  Documents  or the
         transactions contemplated thereby.

               (j) Payment of Taxes.  All tax returns and reports to be filed by
          Borrower will be timely filed,  and all taxes,  assessments,  fees and
          other governmental charges shown on such returns will be paid prior to
          delinquency  and the  assessment of any penalties or interest,  except
          such taxes, if any, as are reserved against,  in accordance with GAAP,
          such  taxes  as are  being  contested  in good  faith  by  appropriate
          proceedings  or such taxes,  the failure to make payment of which when
          due and payable will not have, in the  aggregate,  a Material  Adverse
          Effect on  Borrower  or the REIT.  Borrower  has no  knowledge  of any
          proposed tax  assessment  against  Borrower  that will have a Material
          Adverse  Effect on Borrower or the REIT,  which is not being  actively
          contested in good faith by Borrower.

               (k)  Material  Adverse  Agreements.   No  Contractual  Obligation
          contained in  Borrower's  limited  partnership  agreement,  or similar
          governing  documents has had or may have a Material  Adverse Effect on
          Borrower or the REIT.

               (l)  Performance.  Borrower is not in default in the performance,
          observance  or  fulfillment  of any of the  obligations,  covenants or
          conditions  contained  in  any of its  Contractual  Obligations  which
          default may have or has had a Material  Adverse  Effect on Borrower on
          the REIT or the  Borrower,  and no condition  exists  which,  with the
          giving  of notice or the  lapse of time,  would  constitute  a default
          under any of its Contractual  Obligations and have a Material  Adverse
          Effect on Borrower or the REIT.

               (m) Federal Reserve  Regulations.  No part of the proceeds of the
          Loans  hereunder  will  be used  to  purchase  or  carry  any  "margin
          security" as defined in Regulation G or for the purpose of reducing or
          retiring any indebtedness which was originally incurred to purchase or
          carry any margin  security or for any other  purpose which might cause
          this  transaction  to be a  "purchase  credit"  within the  meaning of
          Regulation  G.  Borrower is not engaged  primarily  in the business of
          extending credit for the purpose of purchasing or carrying any "margin
          stock",  as defined in  Regulation  U. No part of the  proceeds of the
          Loans  hereunder will be used for any purpose that violates,  or which
          is  inconsistent  with,  the  provisions  of Regulation X or any other
          regulation of the Federal Reserve Board.



                                       50

<PAGE>



               (n) Disclosure.  The  representations  and warranties of Borrower
          contained  in the  Loan  Documents  and  all  certificates,  financial
          statements  and  other  documents  delivered  to Agent  in  connection
          therewith,  do not contain any untrue  statement of a material fact or
          omit  to  state a  material  fact  required  to  make  the  statements
          contained herein or therein, in light of the circumstances under which
          they  were  made,  not  misleading.  Borrower  has  not  intentionally
          withheld any material  fact from Agent in regard to any matter  raised
          in the Loan Documents.  Notwithstanding the foregoing, with respect to
          projections of Borrower's future performance such  representations and
          warranties are made in good faith and Borrower's best judgment.

               (o)  Requirements  of Law.  Borrower  is in  compliance  with all
          Requirements of Law (including  without  limitation the Securities Act
          and  the  Securities  Exchange  Act,  and  the  applicable  rules  and
          regulations  thereunder,  state  securities  law and "Blue  Sky" laws)
          applicable to it and its respective  businesses,  in each case,  where
          the  failure  to so comply  would have a  Material  Adverse  Effect on
          Borrower.

               (p) Patents, Trademarks, Permits, Etc. Borrower owns, is licensed
          or  otherwise  has the lawful  right to use,  or have all  permits and
          other  governmental  approvals,   patents,  trademarks,  trade  names,
          copyrights,  technology,  know-how and processes  used in or necessary
          for the conduct of  Borrower's  business as currently  conducted,  the
          absence of which would have a Material Adverse Effect upon Borrower or
          the REIT.  The use of such permits and other  governmental  approvals,
          patents, trademarks, trade names, copyrights, technology, know-how and
          processes by Borrower does not infringe on the rights of any Person in
          any way that has given or may give rise to any  liability  on the part
          of Borrower which could have a Material  Adverse Effect on Borrower or
          the REIT.

               (q)  Environmental  Matters.  Except  as set  forth  on  Schedule
          5.1(q),  to the best of Borrower's  knowledge,  (1) the  operations of
          Borrower   comply  in  all  material   respects  with  all  applicable
          Environmental  Laws;  (2)  none  of  Borrower's  present  Property  or
          operations are subject to any Remedial Action or other Liabilities and
          Costs arising from the Release or threatened  Release of a Contaminant
          into the  environment in violation of any  Environmental  Laws,  which
          Remedial  Action or other  Liabilities and Costs could have a Material
          Adverse Effect on Borrower or the REIT; (3) Borrower has not filed any
          notice under  applicable  Environmental  Laws reporting a Release of a
          Contaminant  into the  environment  in violation of any  Environmental
          Laws, except as the same may have been heretofore remedied;  (4) there
          is not now on or in any Property of Borrower  (except in compliance in
          all material respects with all applicable Environmental Laws): (A) any
          underground storage tanks; (B) any  asbestos-containing  material;  or
          (C) any polychlorinated  biphenyls used in hydraulic oils,  electrical
          transformers or other equipment owned or operated by Borrower; and (5)
          Borrower has not received any notice or claim to the effect that it is
          or  may be  liable  to any  Person  as a  result  of  the  Release  or
          threatened  Release  of a  Contaminant  into  the  environment,  which
          Release could have a Material Adverse Effect on Borrower or the REIT.

               (r) ERISA.  Neither Borrower nor any ERISA Affiliate  thereof has
          in the past five  years  maintained  or  contributed  to or  currently
          maintains or contributes to any Benefit Plan,  other than the Internal
          Revenue  Code  ss.  401(k)  plan  maintained  by  Paragon  Residential
          Services,  Inc.,  a Delaware  corporation,  and to be continued by the
          Borrower (the "401(k) Plan"). No


                                       51

<PAGE>



          Investment  Affiliate  has or is likely to incur  any  liability  with
          respect to any  Benefit  Plan  maintained  or  contributed  to by such
          Investment  Affiliate  or its ERISA  Affiliates,  which  would  have a
          Material  Adverse Effect on Borrower.  Neither  Borrower nor any ERISA
          Affiliate thereof has in the past five years maintained or contributed
          to or currently  maintains  or  contributes  to, any employee  welfare
          benefit  plan  within  the  meaning  of  Section  3(1) of ERISA  which
          provides  benefits  to  retirees.   Neither  Borrower  nor  any  ERISA
          Affiliate  thereof is now  contributing nor has it ever contributed to
          or  been  obligated  to  contribute  to  any  Multiemployer  Plan,  no
          employees  or former  employees  of Borrower  nor any ERISA  Affiliate
          thereof  have been  covered  by any  Multiemployer  Plan in respect of
          their employment by Borrower or any such ERISA Affiliate, and no ERISA
          Affiliate  of Borrower or  Investment  Affiliate  has, or is likely to
          incur, any withdrawal liability with respect to any Multiemployer Plan
          which would have a Material Adverse Effect on Borrower or the REIT.

               (s) Solvency. Borrower is and will be Solvent after giving effect
          to the  disbursements  of the Loans and the payment and accrual of all
          fees  directly  or  indirectly  then  payable  under  any of the  Loan
          Documents.

               (t)  Title  to  Assets;  No  Liens.  To the  best  of  Borrower's
          knowledge,  Borrower has good,  indefeasible and merchantable title to
          the  Collateral  owned  by  it,  including  without  limitation,  each
          Borrowing Base  Property,  and all of the Collateral is free and clear
          of Liens, except Permitted Liens.

               (u) Use of Proceeds. Borrower's uses of the proceeds of the Loans
          are, and will continue to be, legal and proper uses (and to the extent
          necessary,  duly  authorized by Borrower's  General  Partner) and such
          uses are consistent with all Requirements of Law and Section 7.1(h).

               (v) Operating  Agreements;  Management  Agreements;  Leases. With
          respect to each  Borrowing  Base  Property,  Agent has received  true,
          complete  and  correct  copies of each  Major  Agreement.  Each  Major
          Agreement is in full force and effect and has not been and will not be
          modified or terminated (except for modifications which comply with the
          requirements  of  clauses  (1)  through  (3)  of  Section  3.3(a)  and
          terminations  by reason of a material  default by another Person other
          than  Borrower),  and no  default  or event of  default  (or  event or
          occurrence which, with the passage of time or the giving of notice, or
          both,  will  constitute a default or event of default)  exists or will
          exist under such Major  Agreement as a result of the  consummation  of
          the  transactions  contemplated  by  the  Loan  Documents.  Agent  has
          received the form Lease used for each  Borrowing  Base  Property,  and
          such  Leases,  taken as a whole,  do not and will not vary  materially
          from the requirements of Sections 3.4(b)(1) through 3.4(b)(3).  Except
          as reflected on the most current rent rolls delivered to Agent, all of
          the  Leases  are in full  force and  effect and no default or event of
          default (or event or occurrence which upon with the passage of time or
          the giving of notice,  or both,  will constitute a default or event of
          default)  exists  or  will  exist   thereunder  as  a  result  of  the
          consummation of the  transactions  contemplated by the Loan Documents.
          Except  as set  forth on  Schedule  5.2(v)-2,  there  are no  material
          Contractual Obligations (other than Construction Contracts relating to
          Borrowing Base  Development  Properties)  relating to the maintenance,
          occupancy,  use or operation of any of the Borrowing  Base  Properties
          which are not terminable by Borrower or a mortgagee-in-possession upon
          30 days or fewer days notice.


                                       52

<PAGE>



          Section 5.2 Representations and Warranties as to the REIT. In order to
          induce  Lenders  to make the Loans,  the REIT  hereby  represents  and
          warrants to Lenders as follows:

               (a) Organization; Corporate Powers. The REIT (1) is a corporation
          duly organized,  validly  existing and in good standing under the laws
          of the  jurisdiction  of its  formation;  (2) is duly  qualified to do
          business as a foreign  corporation and in good standing under the laws
          of each  jurisdiction in which it owns or leases real property,  or in
          which  the  nature of its  business  requires  it to be so  qualified,
          except for those  jurisdictions  where failure to so qualify and be in
          good standing will not have a Material  Adverse  Effect on the REIT or
          the Borrower;  and (3) has all requisite corporate power and authority
          to own, operate and encumber its assets and to conduct its business as
          presently  conducted  and as proposed to be  conducted  in  connection
          with, and following the consummation of the transactions  contemplated
          by the Loan Documents.

               (b)  Authority.  The REIT has the requisite  corporate  power and
          authority to execute,  deliver and perform each of the Loan  Documents
          to  which  it is or will  be a  party.  The  execution,  delivery  and
          performance   thereof,   and  the  consummation  of  the  transactions
          contemplated  thereby,  have  been  duly  approved  by  the  board  of
          directors of the REIT, and no other corporate  proceedings on the part
          of the REIT are necessary to consummate such transactions. Each of the
          Loan Documents to which the REIT is a party has been duly executed and
          delivered  by the REIT and  constitutes  its legal,  valid and binding
          obligation,  enforceable  against  it in  accordance  with its  terms,
          subject to bankruptcy,  insolvency and other laws affecting creditors'
          rights generally.

               (c) No Conflict.  The execution,  delivery and performance by the
          REIT of the  Loan  Documents  to which  it is  party,  and each of the
          transactions  contemplated  thereby,  do not and will not (1) conflict
          with or violate its Articles or Certificate of Incorporation, by-laws,
          or other  organizational  documents,  as the case may be; (2) conflict
          with,  result in a breach of or constitute  (with or without notice or
          lapse  of time or  both)  a  default  under  any  Requirement  of Law,
          Contractual  Obligation  or Court Order that is binding upon the REIT,
          or require termination of any Contractual Obligation, the consequences
          of  which  conflict,  breach,  default  or  termination  would  have a
          Material  Adverse  Effect  on the REIT or the  Borrower,  result in or
          require the creation or imposition of any Lien  whatsoever upon any of
          the assets of the REIT  (other  than  Liens in favor of Agent  arising
          pursuant to the Loan Documents or Permitted Liens); or (3) require any
          approval of the stockholders of the REIT.

               (d)  Consents  and  Authorizations.  The  REIT has  obtained  all
          consents  and  authorizations  required  pursuant  to its  Contractual
          Obligations  with any other  Person,  the  failure  of which to obtain
          would have a Material Adverse Effect on the REIT or the Borrower,  and
          shall have obtained all consents and  authorizations  of, and effected
          all notices to and filings with, any Governmental Authority, as may be
          necessary to allow the REIT to lawfully  execute,  deliver and perform
          its Obligations under the Loan Documents to which the REIT is a party.

               (e)  Governmental   Regulation.   The  REIT  is  not  subject  to
          regulation  under the Public Utility  Holding Company Act of 1935, the
          Federal Power Act, the Interstate Commerce Act, the Investment Company
          Act of 1940 or any other federal or state  statute or regulation  such
          that its


                                       53

<PAGE>



          ability to incur indebtedness is limited, or its ability to consummate
          the  transactions  contemplated  by the Loan  Documents is  materially
          impaired.

               (f)  Capitalization.  All of the outstanding capital stock of the
               REIT  has  been  issued  in   compliance   with  all   applicable
               Requirements of Law.

               (g) No Material Adverse Change; Litigation and Other Events.

               (1)  There  is  no   action,   suit,   proceeding,   governmental
          investigation or arbitration, at law or in equity, or before or by any
          Governmental  Authority  pending,  or to best of the REIT's knowledge,
          threatened against the REIT or the Borrower,  which will (A) result in
          a  Material  Adverse  Effect  on  the  REIT  or the  Borrower;  or (B)
          materially  and adversely  affect the ability of the REIT or any other
          party  to  any  of the  Loan  Documents  to  perform  its  obligations
          thereunder;

               (2) The REIT is not (A) in violation of any applicable law, which
          violation has had or may have a Material Adverse Effect on the REIT or
          the  Borrower,  or (B)  subject to or in default  with  respect to any
          Court Order which Court Order or a Default  thereunder  has had or may
          have a Material Adverse Effect on the REIT or the Borrower.  There are
          no  material  Proceedings  pending  or,  to the  best  of  the  REIT's
          knowledge,  threatened  against the REIT or the  Borrower,  which,  if
          adversely decided, would have a Material Adverse Effect on the REIT or
          the Borrower; and

               (3) Since March 31, 1996, to the best of the REIT's knowledge, no
          event has occurred which has had or may have a Material Adverse Effect
          on the  REIT or the  Borrower,  and no  material  adverse  change  has
          occurred  in the  REIT's or the  Borrower's  ability  to  perform  its
          obligations under the Loan Documents or the transactions  contemplated
          thereby.

               (h) Payment of Taxes.  All tax returns and reports to be filed by
          the REIT have been timely filed, and all taxes, assessments,  fees and
          other governmental charges shown on such returns will be paid prior to
          delinquency  and the  assessment of any penalties or interest,  except
          such taxes, if any, as are reserved against,  in accordance with GAAP,
          such  taxes  as are  being  contested  in good  faith  by  appropriate
          proceedings  or such taxes,  the failure to make payment of which when
          due and payable will not have, in the  aggregate,  a Material  Adverse
          Effect on the REIT or the  Borrower.  The REIT has no knowledge of any
          proposed  tax  assessment  against the REIT that would have a Material
          Adverse  Effect  on the  REIT  or the  Borrower,  which  is not  being
          actively contested in good faith by the REIT.

               (i)  Material  Adverse  Agreements.   No  Contractual  Obligation
          contained  in  the  REIT's  charter,  by-laws,  or  similar  governing
          documents has had or may have a Material Adverse Effect on the REIT or
          the Borrower.


                                       54

<PAGE>



               (j)  Performance.  The REIT is not in default in the performance,
          observance  or  fulfillment  of any of the  obligations,  covenants or
          conditions  contained  in  any of its  Contractual  Obligations  which
          default may have or has had a Material  Adverse  Effect on the REIT or
          the Borrower, and no condition exists which, with the giving of notice
          or the lapse of time,  would  constitute  a  default  under any of its
          Contractual Obligations and have a Material Adverse Effect on the REIT
          or the Borrower.

               (k) Securities Activities. The REIT is not engaged principally in
          the  business of  extending  credit for the purpose of  purchasing  or
          carrying any "margin stock", as defined in Regulation U.

               (l) Disclosure.  The  representations  and warranties of the REIT
          contained  in the  Loan  Documents,  and all  certificates,  financial
          statements  and  other  documents  delivered  to Agent  in  connection
          therewith,  do not contain any untrue  statement of a material fact or
          omit to  state  a  material  fact  necessary  in  order  to  make  the
          statements  contained herein or therein, in light of the circumstances
          under  which  they  were  made,  not  misleading.  The  REIT  has  not
          intentionally  withheld any material  fact from Agent in regard to any
          matter raised in the Loan  Documents.  Notwithstanding  the foregoing,
          with respect to  projections  of the REIT's  future  performance  such
          representations  and  warranties are made in good faith and the REIT's
          best judgment.

               (m)  Requirements  of Law.  The  REIT is in  compliance  with all
          Requirements of Law (including  without  limitation the Securities Act
          and  the  Securities  Exchange  Act,  and  the  applicable  rules  and
          regulations  thereunder,  state  securities  law and "Blue  Sky" laws)
          applicable to it and its respective  businesses,  in each case,  where
          the failure to so comply would have a Material  Adverse  Effect on the
          REIT or the Borrower.  The REIT has made all filings with and obtained
          all consents of the  Commission  required under the Securities Act and
          the Securities Exchange Act in connection with the execution, delivery
          and  performance  by the REIT of the Loan  Documents  to which it is a
          party.

               (n) ERISA.  Neither the REIT nor any ERISA Affiliate  thereof has
          in the past five  years  maintained  or  contributed  to or  currently
          maintains or  contributes  to any Benefit Plan,  other than the 401(k)
          Plan.  Neither the REIT nor any ERISA Affiliate thereof has during the
          past five years  maintained or contributed to, or currently  maintains
          or  contributes  to, any  employee  welfare  benefit  plan  within the
          meaning of Section 3(1) of ERISA which provides  benefits to retirees.
          Neither the REIT nor any ERISA Affiliate  thereof is now  contributing
          nor has it ever  contributed to or been obligated to contribute to any
          Multiemployer  Plan, no employees or former  employees of the REIT, or
          any ERISA  Affiliate  thereof have been  covered by any  Multiemployer
          Plan in  respect  of their  employment  by the REIT or any such  ERISA
          Affiliation  and no ERISA  Affiliate  of the REIT has, or is likely to
          incur, any withdrawal liability with respect to any Multiemployer Plan
          which  would  have  a  Material  Adverse  Effect  on the  REIT  or the
          Borrower.

               (o)  Solvency.  The REIT is and  will be  Solvent,  after  giving
          effect to the  disbursement  of the Loans and the  payment of all fees
          directly or indirectly payable under any of the Loan Documents.



                                       55

<PAGE>



               (p) Status as a REIT.  The REIT (1) will make an  election on its
          1994  tax  return  to be taxed as a real  estate  investment  trust as
          defined in Section 856 of the Internal  Revenue Code (or any successor
          provision  thereto);  (2) will not  revoke its  election  to be a real
          estate  investment  trust;  (3) has  not  engaged  in any  "prohibited
          transactions"  as defined in Section  856(b)(6)(iii)  of the  Internal
          revenue Code (or any  successor  provision  thereto);  and (4) for its
          current "tax year" (as defined in the Internal  Revenue  Code) is, and
          for all prior tax years subsequent to its election to be a real estate
          investment  trust has been,  entitled  to a dividends  paid  deduction
          which meets the  requirements  of Section 857 of the Internal  Revenue
          Code.

               (q)  Ownership.  The sole  assets  of the REIT are (1) all of the
          Securities  of Paragon GP Holdings,  and (2) all of the  Securities of
          Paragon LP Holdings.

               (r)  NYSE  Listing.  The  common  stock  of the  REIT is and will
          continue  to be listed for  trading  and traded on either the New York
          Stock Exchange, the American Stock Exchange, or NASDAQ.

          Section 5.3  Representations and Warranties as to Paragon GP Holdings.
          In order to induce  Lenders  to make the Loans,  Paragon  GP  Holdings
          hereby represents and warrants to Lenders as follows:

               (a) Organization;  Corporate Powers. Paragon GP Holdings (1) is a
          corporation  duly  organized,  validly  existing and in good  standing
          under the laws of the State of Delaware;  (2) is duly  qualified to do
          business as a foreign  corporation and in good standing under the laws
          of each jurisdiction in which it owns or leases Property,  or in which
          the nature of its business requires it to be so qualified,  except for
          those  jurisdictions  where  failure  to so  qualify  and  be in  good
          standing  will not have a Material  Adverse  Effect on Borrower or the
          REIT; and (3) has all requisite  corporate power and authority to own,
          operate  and  encumber  its  assets  and to conduct  its  business  as
          presently  conducted  and as proposed to be  conducted  in  connection
          with, and following the consummation of, the transactions contemplated
          by the Loan Documents.

               (b)  Authority.  Paragon GP Holdings has the requisite  corporate
          power and  authority to execute,  deliver and perform each of the Loan
          Documents to which it is or will be a party.  The execution,  delivery
          and performance  thereof,  and the  consummation  of the  transactions
          contemplated  thereby,  have  been  duly  approved  by  the  board  of
          directors of Paragon GP Holdings,  and no other corporate  proceedings
          on the part of Paragon GP Holdings are  necessary to  consummate  such
          transactions.  Each of the Loan Documents to which Paragon GP Holdings
          is a party has been duly executed and delivered by Paragon GP Holdings
          and constitutes its legal, valid and binding  obligation,  enforceable
          against  it in  accordance  with its  terms,  subject  to  bankruptcy,
          insolvency and other laws affecting creditors' rights generally.

               (c) No  Conflict.  The  execution,  delivery and  performance  by
          Paragon GP Holdings of the Loan  Documents  to which it is party,  and
          each of the transactions contemplated thereby, do not and will not (1)
          conflict with or violate its Articles or Certificate of Incorporation,
          by-laws, or any other  organizational  documents,  as the case may be;
          (2)  conflict  with,  result  in a breach  of or  constitute  (with or
          without notice or lapse of time or both) a default under any


                                       56

<PAGE>



          Requirement  of Law,  Contractual  Obligation  or Court  Order that is
          binding  upon  Paragon  GP  Holdings,  or require  termination  of any
          Contractual  Obligation,  the consequences of which conflict,  breach,
          default  or  termination  would  have a  Material  Adverse  Effect  on
          Borrower or the REIT,  result in or require the creation or imposition
          of any Lien  whatsoever  upon any of the assets of Paragon GP Holdings
          (other  than  Liens in favor of  Agent  arising  pursuant  to the Loan
          Documents  or  Permitted  Liens);  or (3) require any  approval of the
          stockholders of Paragon GP Holdings.

               (d) Consents and Authorizations. Paragon GP Holdings has obtained
          all consents and  authorizations  required pursuant to its Contractual
          Obligations  with any other  Person,  the  failure  of which to obtain
          would have a Material  Adverse  Effect on  Borrower  or the REIT,  and
          shall have obtained all consents and  authorizations  of, and effected
          all notices to and filings with, any Governmental Authority, as may be
          necessary to allow  Paragon GP Holdings to lawfully  execute,  deliver
          and perform its obligations  under the Loan Documents to which Paragon
          GP Holdings is a party.

               (e) Governmental  Regulation.  Paragon GP Holdings is not subject
          to regulation  under the Public Utility  Holding  Company Act of 1935,
          the Federal Power Act, the  Interstate  Commerce  Act, the  Investment
          Company  Act  of  1940  or any  other  federal  or  state  statute  or
          regulation such that its ability to incur indebtedness is limited,  or
          its ability to consummate the  transactions  contemplated  by the Loan
          Documents is materially impaired.

               (f)  Capitalization.  All of the  outstanding  capital  stock  of
          Paragon GP Holdings has been issued in compliance  with all applicable
          Requirements of Law.

               (g) No Material Adverse Change; Litigation and Other Events.

               (1)  There  is  no   action,   suit,   proceeding,   governmental
          investigation or arbitration, at law or in equity, or before or by any
          Governmental  Authority  pending,  or to best of Paragon GP  Holdings'
          knowledge,  threatened  against  Paragon GP  Holdings,  which will (A)
          result in a  Material  Adverse  Effect on either the  Borrower  or the
          REIT; or (B) materially and adversely affect the ability of Paragon GP
          Holdings,  or any other party to any of the Loan  Documents to perform
          its obligations thereunder;

               (2) Paragon GP Holdings is not (A) in violation of any applicable
          law, which violation has had or may have a Material  Adverse Effect on
          either the Borrower or the REIT;  or (B) subject to or in default with
          respect to any Court Order  which Court Order or a Default  thereunder
          has had or may have a Material  Adverse  Effect on the Borrower or the
          REIT.  There are no  material  Proceedings  pending or, to the best of
          Paragon GP  Holdings'  knowledge,  threatened  against  the Paragon GP
          Holdings,  which, if adversely decided,  would have a Material Adverse
          Effect on the Borrower or the REIT; and

               (3) Since  March 31,  1996,  to the best of Paragon GP  Holding's
          knowledge,  no event has occurred which has had or may have a Material
          Adverse

                                       57

<PAGE>



         Effect on the Borrower or the REIT, and no material  adverse change has
         occurred  in the  Borrower's  or the  REIT's  ability  to  perform  its
         obligations  under the Loan Documents or the transactions  contemplated
         thereby.

               (h) Payment of Taxes.  All tax returns and reports to be filed by
          Paragon  GP  Holdings   have  been  timely   filed,   and  all  taxes,
          assessments, fees and other governmental charges shown on such returns
          will be paid prior to delinquency  and the assessment of any penalties
          or interest,  except such taxes, if any, as are reserved  against,  in
          accordance  with GAAP, such taxes as are being contested in good faith
          by appropriate  proceedings or such taxes, the failure to make payment
          of which  when due and  payable  will not have,  in the  aggregate,  a
          Material  Adverse Effect on Borrower or the REIT.  Paragon GP Holdings
          has no knowledge of any proposed  tax  assessment  against  Paragon GP
          Holdings that would have a Material  Adverse Effect on Borrower or the
          REIT,  which is not being actively  contested in good faith by Paragon
          GP Holdings.

               (i)  Material  Adverse  Agreements.   No  Contractual  Obligation
          contained  in  Paragon  GP  Holdings'  charter,  by-laws,  or  similar
          governing  documents has had or may have a Material  Adverse Effect on
          Borrower or the REIT.

               (j)  Performance.  Paragon GP  Holdings  is not in default in the
          performance,  observance  or  fulfillment  of any of the  obligations,
          covenants or conditions contained in any of its Contractual Obligation
          which may have or has had a Material Adverse Effect on the Borrower or
          the REIT, and no condition exists which,  with the giving of notice or
          the  lapse  of time,  would  constitute  a  default  under  any of its
          Contractual Obligations and have a Material Adverse Effect on Borrower
          or the REIT.

               (k)  Securities  Activities.  Paragon GP  Holdings is not engaged
          principally  in the  business of  extending  credit for the purpose of
          purchasing or carrying any "margin stock", as defined in Regulation U.

               (l) Disclosure.  The representations and warranties of Paragon GP
          Holdings  contained  in the  Loan  Documents,  and  all  certificates,
          financial  statements  and  other  documents  delivered  to  Agent  in
          connection  therewith,  do  not  contain  any  untrue  statement  of a
          material fact or omit to state a material  fact  necessary in order to
          make the  statements  contained  herein  or  therein,  in light of the
          circumstances  under which they were made, not misleading.  Paragon GP
          Holdings has not  intentionally  withheld any material fact from Agent
          in regard to any matter raised in the Loan Documents.  Notwithstanding
          the  foregoing,  with respect to  projections  of Paragon GP Holdings'
          future  performance  such  representations  and warranties are made in
          good faith and Paragon GP Holdings' best judgment.

               (m)  Requirements  of Law.  Paragon GP Holdings is in  compliance
          with  all  Requirements  of  Law  (including  without  limitation  the
          Securities  Act and the  Securities  Exchange Act, and the  applicable
          rules and regulations thereunder,  state securities law and "Blue Sky"
          laws)  applicable to it and its respective  businesses,  in each case,
          where the failure to so comply would have a Material Adverse Effect on
          Borrower or the REIT.  Paragon GP Holdings  has made all filings  with
          and  obtained  all  consents  of the  Commission  required  under  the
          Securities Act and the Securities


                                       58

<PAGE>



          Exchange  Act  in  connection   with  the   execution,   delivery  and
          performance  by Paragon GP Holdings of the Loan  Documents to which it
          is a party.

                    (n)  ERISA.  Neither  Paragon  GP  Holdings  nor  any  ERISA
               Affiliate  thereof  has in the  past  five  years  maintained  or
               contributed  to or  currently  maintains  or  contributes  to any
               Benefit  Plan,  other than the 401(k)  Plan.  Neither  Paragon GP
               Holdings nor any ERISA Affiliate thereof has during the past five
               years  maintained or  contributed  to, or currently  maintains or
               contributes  to, any  employee  welfare  benefit  plan within the
               meaning of  Section  3(1) of ERISA  which  provides  benefits  to
               retirees.  Neither  Paragon GP Holdings  nor any ERISA  Affiliate
               thereof is now  contributing  nor has it ever  contributed  to or
               been  obligated  to  contribute  to any  Multiemployer  Plan,  no
               employees  or former  employees  of Paragon GP  Holdings,  or any
               ERISA  Affiliate  thereof have been covered by any  Multiemployer
               Plan in respect of their employment by Paragon GP Holdings or any
               such  ERISA  Affiliation  and no ERISA  Affiliate  of  Paragon GP
               Holdings  has, or is likely to incur,  any  withdrawal  liability
               with  respect  to  any  Multiemployer  Plan  which  would  have a
               Material Adverse Effect on Borrower or the REIT.

                    (o)  Solvency.  Paragon GP  Holdings is and will be Solvent,
               after  giving  effect  to the  disbursement  of the Loans and the
               payment of all fees directly or  indirectly  payable under any of
               the Loan Documents.

                    (p)  Ownership.  The sole  material  assets  of  Paragon  GP
               Holdings  are  (1)  Units  of  Borrower,  and  (2) a one  percent
               partnership interest in certain Subsidiaries of the Borrower. The
               current list of such interests is reflected on Schedule 5.3(p).

          Section 5.4  Representations and Warranties as to Paragon LP Holdings.
          In order to induce  Lenders  to make the Loans,  Paragon  LP  Holdings
          hereby represents and warrants to Lenders as follows:

               (a) Organization;  Corporate Powers. Paragon LP Holdings (1) is a
          corporation  duly  organized,  validly  existing and in good  standing
          under the laws of the State of Delaware;  (2) is duly  qualified to do
          business as a foreign  corporation and in good standing under the laws
          of each  jurisdiction in which it owns or leases real property,  or in
          which  the  nature of its  business  requires  it to be so  qualified,
          except for those  jurisdictions  where failure to so qualify and be in
          good  standing will not have a Material  Adverse  Effect on Paragon GP
          Holdings;  and (3) has all requisite  corporate power and authority to
          own,  operate and  encumber  its assets and to conduct its business as
          presently  conducted  and as proposed to be  conducted  in  connection
          with, and following the consummation of, the transactions contemplated
          by the Loan Documents.

               (b)  Authority.  Paragon LP Holdings has the requisite  corporate
          power and  authority to execute,  deliver and perform each of the Loan
          Documents to which it is or will be a party.  The execution,  delivery
          and performance  thereof,  and the  consummation  of the  transactions
          contemplated  thereby,  have  been  duly  approved  by  the  board  of
          directors of Paragon LP Holdings,  and no other corporate  proceedings
          on the part of Paragon LP Holdings are  necessary to  consummate  such
          transactions.  Each of the Loan Documents to which Paragon LP Holdings
          is a party has been duly executed and delivered by Paragon LP Holdings
          and constitutes its legal, valid and binding


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<PAGE>



          obligation,  enforceable  against  it in  accordance  with its  terms,
          subject to bankruptcy,  insolvency and other laws affecting creditors'
          rights generally.

               (c) No  Conflict.  The  execution,  delivery and  performance  by
          Paragon LP Holdings of the Loan  Documents  to which it is party,  and
          each of the transactions contemplated thereby, do not and will not (1)
          conflict with or violate its Articles or Certificate of Incorporation,
          by-laws, or any other  organizational  documents,  as the case may be;
          (2)  conflict  with,  result  in a breach  of or  constitute  (with or
          without  notice  or  lapse  of  time  or  both) a  default  under  any
          Requirement  of Law,  Contractual  Obligation  or Court  Order that is
          binding  upon  Paragon  LP  Holdings,  or require  termination  of any
          Contractual  Obligation,  the consequences of which conflict,  breach,
          default  or  termination  would  have a  Material  Adverse  Effect  on
          Borrower or the REIT,  result in or require the creation or imposition
          of any Lien  whatsoever  upon any of the assets of Paragon LP Holdings
          (other  than  Liens in favor of  Agent  arising  pursuant  to the Loan
          Documents  or  Permitted  Liens);  or (3) require any  approval of the
          stockholders of Paragon LP Holdings.

               (d) Consents and Authorizations. Paragon LP Holdings has obtained
          all consents and  authorizations  required pursuant to its Contractual
          Obligations  with any other  Person,  the  failure  of which to obtain
          would have a Material  Adverse  Effect on  Borrower  or the REIT,  and
          shall have obtained all consents and  authorizations  of, and effected
          all notices to and filings with, any Governmental Authority, as may be
          necessary to allow  Paragon LP Holdings to lawfully  execute,  deliver
          and perform its Obligations  under the Loan Documents to which Paragon
          LP Holdings is a party.

               (e) Governmental  Regulation.  Paragon LP Holdings is not subject
          to regulation  under the Public Utility  Holding  Company Act of 1935,
          the Federal Power Act, the  Interstate  Commerce  Act, the  Investment
          Company  Act  of  1940  or any  other  federal  or  state  statute  or
          regulation such that its ability to incur indebtedness is limited,  or
          its ability to consummate the  transactions  contemplated  by the Loan
          Documents is materially impaired.

               (f)  Capitalization.  All of the  outstanding  capital  stock  of
          Paragon LP Holdings has been issued in compliance  with all applicable
          Requirements of Law.

               (g) No Material Adverse Change; Litigation and Other Events.

               (1)  There  is  no   action,   suit,   proceeding,   governmental
          investigation or arbitration, at law or in equity, or before or by any
          Governmental  Authority  pending,  or to best of Paragon LP  Holdings'
          knowledge,  threatened  against  Borrower or the REIT,  which will (A)
          result in a Material  Adverse  Effect on Borrower or the REIT;  or (B)
          materially  and adversely  affect the ability of Borrower or the REIT,
          or any  other  party  to any of the  Loan  Documents  to  perform  its
          obligations thereunder;

               (2) Paragon LP Holdings is not (A) in violation of any applicable
          law, which violation has had or may have a Material  Adverse Effect on
          Borrower or the REIT;  or (B) subject to or in default with respect to
          any Court Order which Court


                                       60

<PAGE>



         Order or a Default  thereunder  has had or may have a Material  Adverse
         Effect on  Borrower  or the REIT.  There  are no  material  Proceedings
         pending or, to the best of Paragon LP Holdings'  knowledge,  threatened
         against Borrower or the REIT, which, if adversely decided, would have a
         Material Adverse Effect on Borrower or the REIT; and

                           (3) Since March 31,  1996,  to the best of Paragon LP
         Holdings' knowledge,  no event has occurred which has had or may have a
         Material  Adverse  Effect  on  Borrower  or the REIT,  and no  material
         adverse  change has occurred in the Borrower's or the REIT's ability to
         perform its  obligations  under the Loan Documents or the  transactions
         contemplated thereby.

               (h) Payment of Taxes.  All tax returns and reports to be filed by
          Paragon  LP  Holdings   have  been  timely   filed,   and  all  taxes,
          assessments, fees and other governmental charges shown on such returns
          will be paid prior to  delinquency  and the assessment of penalties or
          interest,  except such  taxes,  if any, as are  reserved  against,  in
          accordance  with GAAP, such taxes as are being contested in good faith
          by appropriate  proceedings or such taxes, the failure to make payment
          of which  when due and  payable  will not have,  in the  aggregate,  a
          Material  Adverse Effect on Borrower or the REIT.  Paragon LP Holdings
          has no knowledge of any proposed  tax  assessment  against  Paragon LP
          Holdings that would have a Material  Adverse Effect on Borrower or the
          REIT,  which is not being actively  contested in good faith by Paragon
          LP Holdings.

               (i)  Material  Adverse  Agreements.   No  Contractual  Obligation
          contained  in  Paragon  LP  Holdings'  charter,  by-laws,  or  similar
          governing  documents has had or may have a Material  Adverse Effect on
          Borrower or the REIT.

               (j)  Performance.  Paragon LP  Holdings  is not in default in the
          performance,  observance  or  fulfillment  of any of the  obligations,
          covenants  or   conditions   contained  in  any  of  its   Contractual
          Obligations  which  default  may  have or has had a  Material  Adverse
          Effect on the  Borrower or the REIT,  and no condition  exists  which,
          with the  giving of notice or the lapse of time,  would  constitute  a
          default under any of its  Contractual  Obligations and have a Material
          Adverse Effect on Borrower or the REIT.

               (k)  Securities  Activities.  Paragon LP  Holdings is not engaged
          principally  in the  business of  extending  credit for the purpose of
          purchasing or carrying any "margin stock", as defined in Regulation U.

               (l) Disclosure.  The representations and warranties of Paragon LP
          Holdings  contained  in the  Loan  Documents,  and  all  certificates,
          financial  statements  and  other  documents  delivered  to  Agent  in
          connection  therewith,  do  not  contain  any  untrue  statement  of a
          material fact or omit to state a material  fact  necessary in order to
          make the  statements  contained  herein  or  therein,  in light of the
          circumstances  under which they were made, not misleading.  Paragon LP
          Holdings has not  intentionally  withheld any material fact from Agent
          in regard to any matter raised in the Loan Documents.  Notwithstanding
          the foregoing, with respect to projections of Paragon LP Holdings'



                                       61

<PAGE>



          future  performance  such  representations  and warranties are made in
          good faith and Paragon LP Holdings' best judgment.

               (m)  Requirements  of Law.  Paragon LP Holdings is in  compliance
          with  all  Requirements  of  Law  (including  without  limitation  the
          Securities  Act and the  Securities  Exchange Act, and the  applicable
          rules and regulations thereunder,  state securities law and "Blue Sky"
          laws)  applicable to it and its respective  businesses,  in each case,
          where the failure to so comply would have a Material Adverse Effect on
          Borrower or the REIT.  Paragon LP Holdings  has made all filings  with
          and  obtained  all  consents  of the  Commission  required  under  the
          Securities Act and the Securities  Exchange Act in connection with the
          execution, delivery and performance by Paragon LP Holdings of the Loan
          Documents to which it is a party.

               (n) ERISA.  Neither  Paragon LP Holdings nor any ERISA  Affiliate
          thereof has in the past five years  maintained  or  contributed  to or
          currently maintains or contributes to any Benefit Plan, other than the
          401(k)  Plan.  Neither  Paragon LP  Holdings  nor any ERISA  Affiliate
          thereof has during the past five years  maintained or contributed  to,
          or currently maintains or contributes to, any employee welfare benefit
          plan  within  the  meaning  of Section  3(1) of ERISA  which  provides
          benefits  to  retirees.  Neither  Paragon  LP  Holdings  nor any ERISA
          Affiliate  thereof is now  contributing nor has it ever contributed to
          or  been  obligated  to  contribute  to  any  Multiemployer  Plan,  no
          employees or former  employees  of Paragon LP  Holdings,  or any ERISA
          Affiliate  thereof  have been  covered  by any  Multiemployer  Plan in
          respect of their  employment  by Paragon LP Holdings or any such ERISA
          Affiliation  and no ERISA  Affiliate of Paragon LP Holdings has, or is
          likely  to  incur,  any  withdrawal  liability  with  respect  to  any
          Multiemployer  Plan  which  would have a  Material  Adverse  Effect on
          Borrower or the REIT.

               (o) Solvency.  Paragon LP Holdings is and will be Solvent,  after
          giving effect to the  disbursement of the Loans and the payment of all
          fees directly or indirectly payable under any of the Loan Documents.

               (p) Ownership.  The sole asset of Paragon LP Holdings is Units of
          Borrower.

                                    ARTICLE 6
                               REPORTING COVENANTS

               Borrower  covenants and agree that, on and after the date hereof,
          until payment in full of all of the Obligations, the expiration of the
          Commitments and termination of this Agreement:

               Section  6.1  Financial   Statements  and  Other   Financial  and
          Operating  Information.   Borrower  shall  maintain  or  cause  to  be
          maintained a system of  accounting  established  and  administered  in
          accordance  with sound  business  practices to permit  preparation  of
          quarterly and annual financial statements in conformity with GAAP on a
          consolidated  basis for the Borrower,  the REIT,  Paragon GP Holdings,
          Paragon LP Holdings, and their respective Subsidiaries. Borrower shall
          deliver or cause to be delivered to Agent:



                                       62

<PAGE>



               (a) Quarterly  Borrowing Base Stabilized  Property Statements and
          Operating Results. As soon as practicable,  and in any event within 45
          days  after  the  end of  each  Fiscal  Quarter  hereafter,  operating
          statements,  and rent  roll  summaries  (each in the form  customarily
          generated  by Borrower or the  managing  Agent of the  Borrowing  Base
          Stabilized  Properties) for each Borrowing Base  Stabilized  Property,
          dated as of the last day of such Fiscal Quarter (the  "Borrowing  Base
          Stabilized Property  Statements"),  in form and substance satisfactory
          to  Agent,  and  certified  by an  authorized  representative  of  the
          Borrower's General Partner.

               (b) Quarterly Financial Statements.  As soon as practicable,  and
          in any event  within 45 days  after  the end of each  Fiscal  Quarter,
          (except the last Fiscal  Quarter of a Fiscal Year, or as is consistent
          with  the  reporting  requirements  of  the  Commission)  consolidated
          balance  sheets,  and  statements  of  income  and  retained  earnings
          ("Financial Statements") for the Borrower, in the form provided to the
          Commission  on the  REIT's  Form 10Q and  certified  by an  authorized
          officer of the Borrower's General Partner.

               (c) Annual Financial Statements.  Within 120 days after the close
          of each Fiscal Year, annual Financial Statements of the Borrower, on a
          consolidated  basis (in the form  provided  to the  Commission  on the
          REIT's Form 10K), audited and certified without  qualifications by the
          Accountants,  or if qualified,  in scope and substance satisfactory to
          Requisite Lenders,  and accompanied by a statement that, in the course
          of its audit (conducted in accordance with generally accepted auditing
          standards),  the  Accountants  obtained no knowledge  that an Event of
          Default or Unmatured Event of Default had occurred. It is contemplated
          that  the  Form  10K  filed  with  the   Commission   will  contain  a
          consolidated balance sheet, statement of operations, statement of cash
          flows and  footnotes  thereto for the Borrower,  the REIT,  Paragon GP
          Holdings,  Paragon LP Holdings,  and the  Management  Company.  To the
          extent  details or  supporting  information  which Agent  desires with
          respect to any of Borrower, the REIT, Paragon GP Holdings,  Paragon LP
          Holdings,  and the Management  Company are not contained in the REIT's
          Form 10K, Borrower shall provide Agent with such details or supporting
          information  as Agent  requests  which  are  reasonably  available  to
          Borrower.

               (d) General Partner's Certificate of Borrower.  (1) Together with
          each  delivery of any Borrowing  Base Property  Statement or Financial
          Statement  pursuant to Sections 6.1(b) and 6.1(c), a General Partner's
          Certificate stating that the representative of the General Partner who
          is the  signatory  thereto,  (i) is authorized to execute such General
          Partner's  Certificate;   (ii)  has  reviewed,  or  caused  under  his
          supervision to be reviewed,  the terms of this Agreement and the other
          principal Loan  Documents;  (iii) has made, or caused to be made under
          his supervision, a review in reasonable detail of the transactions and
          condition  of  Borrower  and the REIT  during  the  accounting  period
          covered  by  such  Borrowing  Base  Property  Statement  or  Financial
          Statement, and that such review has not disclosed the existence during
          or at the end of such accounting  period, and that the signer does not
          have  knowledge  of the  existence  as of  the  date  of  the  General
          Partner's Certificate,  of any condition or event which constitutes an
          Event of Default or an  Unmatured  Event of  Default,  or if, any such
          condition or event existed or exists, specifying the nature and period
          of  existence  thereof and what action has been taken,  is being taken
          and is proposed to be taken with  respect  thereto;  and (2)  together
          with  each  delivery   pursuant  to  Sections  6.1(b)  and  6.1(c),  a
          Compliance  Certificate  demonstrating  in  reasonable  detail  (which
          detail shall include actual


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<PAGE>



          calculations)  compliance  during  and at the end of  such  accounting
          periods with the financial covenants contained in Article 9.

               (e) Borrowing Base Certificates.  As soon as practicable,  and in
          any event  within 15 days after the end of each  Fiscal  Quarter  (and
          more often if required by Section 4.2(c) or so requested by Agent),  a
          Borrowing Base Certificate,  certified as being true and correct by an
          authorized  representative  of the  General  Partner of the  Borrower;
          provided  that,  unless an Event of Default has  occurred  and is then
          continuing,  Agent shall not request that a Borrowing Base Certificate
          be  furnished  more often than monthly and with each  Borrowing.  Each
          Borrowing Base Certificate shall set forth Borrowing Base calculations
          since the date of the last prior Borrowing Base Certificate, and shall
          reflect any material  adverse  changes in the Net Operating  Income or
          other condition of a Borrowing Base Property of which such officer has
          knowledge and which is not reflected in the most recent Borrowing Base
          Property Statement.

               (f)  Loan  Availability  Certificates.  Not  later  than the last
          Business Day of each calendar month, a Loan Availability  Certificate,
          certified as being true and correct by an authorized representative of
          the General Partner of the Borrower.

               (g) Budgets for Borrowing Base Properties. Not later than 15 days
          prior to the beginning of each Fiscal Year,  annual operating  budgets
          for each  Borrowing Base  Stabilized  Property and each Borrowing Base
          Development  Property for which the final certificate of occupancy has
          been issued for the immediately  following Fiscal Year, prepared on an
          annual  basis,   together  with  all  supporting   details  reasonably
          requested by Agent,  and reported by an authorized  representative  of
          the General  Partner of the  Borrower as being based upon  information
          available  at the time and on the  Borrower's  reasonable  good  faith
          estimates, upon information and assumptions at the time.

               (h)  Knowledge  of  Event  of  Default.  Promptly  upon  Borrower
          obtaining knowledge (1) of any condition or event which constitutes an
          Event of Default or Unmatured Event of Default, or becoming aware that
          any Lender has given  notice or taken any other action with respect to
          a claimed Event of Default or Unmatured Event of Default or (2) of any
          condition  or event which has a Material  Adverse  Effect on Borrower,
          the  REIT,  or  any  Borrowing  Base  Property,  a  General  Partner's
          Certificate  specifying the nature and period of existence of any such
          condition or event,  or specifying the notice given or action taken by
          such Lender and the nature of such claimed Event of Default, Unmatured
          Event of Default,  event or  condition,  and what action  Borrower has
          taken, is taking and proposes to take with respect thereto.

               (i) Litigation, Arbitration or Government Investigation. Promptly
          upon Borrower obtaining knowledge of (1) the institution of, or threat
          of, any material action, suit, proceeding,  governmental investigation
          or  arbitration  against  or  affecting,  Borrower,  the REIT,  or any
          Borrowing Base Property,  as the case may be, or any of their Property
          not previously  disclosed in writing to Agent pursuant to this Section
          6.1(i), including any eminent domain or other condemnation proceedings
          affecting any Borrowing Base Property, or (2) any material development
          in  any  action,  suit,  proceeding,   governmental  investigation  or
          arbitration  already  disclosed,  which,  had or may  have a  Material
          Adverse Effect on Borrower, the REIT, or any Borrowing Base Property,


                                       64

<PAGE>



          a  notice  thereof  to  Agent  and such  other  information  as may be
          reasonably  available to Borrower to enable  Agent,  Lenders and their
          counsel to evaluate such matters.

               (j) ERISA  Termination  Event.  As soon as  possible,  and in any
          event  within  30  days  after  Borrower  or the  REIT,  or any  ERISA
          Affiliate  of  either  of them  knows  or has  reason  to know  that a
          Termination  Event has occurred,  a written statement of an authorized
          financial  officer of the General  Partner of the Borrower  describing
          such  Termination  Event and the action,  if any, which Borrower,  the
          REIT, or any ERISA  Affiliate of either of them, has taken,  is taking
          or proposes to take, with respect thereto, and, when known, any action
          taken or  threatened  by the IRS,  the DOL or the  PBGC  with  respect
          thereto.

               (k) Prohibited ERISA Transaction. As soon as possible, and in any
          event within 30 days, after Borrower, the REIT, or any ERISA Affiliate
          of either  of them,  knows or has  reason  to know  that a  prohibited
          transaction  (defined in Section 406 of ERISA and Section  4975 of the
          Internal  Revenue  Code)  has  occurred,  a  statement  of  the  chief
          executive   officer  or  chief  financial   officer  of  the  Borrower
          describing such transaction.

               (l) Benefit Plan Annual Report.  Within ten days after the filing
          thereof  with the DOL,  the IRS or the  PGBC,  copies  of each  annual
          report,  including  Schedule  B  thereto,  filed  with  respect to any
          Benefit Plan of Borrower,  the REIT, or any ERISA  Affiliate of either
          of them.

               (m) Benefit Plan Funding Waiver Request. Within 30 days after the
          filing  thereof  with the IRS, a copy of each funding  waiver  request
          filed with respect to any Benefit  Plan of  Borrower,  the REIT or any
          ERISA Affiliate of either of them and all  communications  received by
          Borrower,  the REIT,  or any ERISA  Affiliate of either of them,  with
          respect to such request.

               (n)  Establishment  of Benefit Plan and Increase in Contributions
          to the Benefit  Plan.  Not fewer than ten days prior to the  effective
          date thereof, a notice to Agent of the establishment of a Benefit Plan
          by  Borrower,  the  REIT,  or any ERISA  Affiliate  of either of them.
          Within 30 days  after the  first to occur of (1) an  amendment  of any
          existing Benefit Plan of Borrower, the REIT, or any ERISA Affiliate of
          either of them, which will result in an increase in the benefits under
          such Benefit Plan;  (2) a notification  of any such increase;  (3) the
          establishment  of any new Benefit Plan by Borrower,  the REIT,  or any
          ERISA  Affiliate  of  either  of  them;  or (4)  the  commencement  of
          contributions to any Benefit Plan to which Borrower,  the REIT, or any
          ERISA Affiliate of either of them was not previously  contributing;  a
          copy of said amendment, notification or Benefit Plan.

               (o) Special Reporting With Respect to ESOPs. As soon as possible,
          and in any event within 30 days,  after Borrower,  the REIT, or either
          ERISA  Affiliate  of any of  them,  knows or has  reason  to know of a
          termination or partial  termination  of any employee  stock  ownership
          plan,  or of any  transaction  or  circumstance  which  would cause an
          employee stock ownership plan to cease to be a tax-qualified  employee
          stock  ownership plan within the meaning of Section  4975(e)(7) of the
          Internal Revenue Code.



                                       65

<PAGE>



               (p) Qualification of ERISA Plan.  Promptly upon, and in any event
          within 30 days  after,  receipt by  Borrower,  the REIT,  or any ERISA
          Affiliate of either of them, of an  unfavorable  determination  letter
          from the IRS  regarding  the  qualification  of a Plan  under  Section
          402(a) of the  Internal  Revenue  Code,  a copy of said  determination
          letter, if such disqualification  would have a Material Adverse Effect
          on Borrower or the REIT.

               (q) Multiemployer Plan Withdrawal  Liability.  Promptly upon, and
          in any event within 30 days after  receipt by Borrower,  the REIT,  or
          any  ERISA   Affiliate  of  either  of  them,   of  a  notice  from  a
          Multiemployer Plan regarding the imposition of withdrawal liability, a
          copy of said notice.

               (r) Failure to Make Section 412 Payment.  Promptly  upon,  and in
          any  event  within 30 days  after,  Borrower,  the REIT,  or any ERISA
          Affiliate  of either  of them,  fails to make a  required  installment
          under  subsection  (m) of Section 412 of the Internal  Revenue Code or
          any other payment  required under Section 412 of the Internal  Revenue
          Code on or before  the due date for such  installment  or  payment,  a
          notification  of such failure,  if such failure could result in either
          the  imposition  of a Lien under  Section 412 of the Internal  Revenue
          Code or otherwise have, or could  reasonably by anticipated to have, a
          Material Adverse Effect on Borrower or the REIT.

               (s)  Failure  of the REIT to Qualify  as Real  Estate  Investment
          Trust.  Promptly after Borrower first has actual  knowledge of (1) the
          REIT failing to qualify as a real estate  investment trust, as defined
          in  Section  856  of the  Internal  Revenue  Code  (or  any  successor
          provision thereof); (2) any act by the REIT causing its election to be
          taxed as a real estate investment trust to be terminated;  (3) any act
          causing  the  REIT to be  subject  to the  taxes  imposed  by  Section
          857(b)(6) of the Internal  Revenue  Code (or any  successor  provision
          thereto);  or (4) the REIT failing to be entitled to a dividends  paid
          deduction which meets the  requirements of Section 857 of the Internal
          Revenue Code; a notice of any such occurrence or circumstance.

               (t) Revocation of the REIT Status.  At least 30 days prior to the
          taking of any act by the REIT to revoke its  election to be taxed as a
          real estate investment trust, a notice of such intended action.

               (u)  Other   Information.   Such  other   information,   reports,
          contracts,  schedules, lists, documents, agreements and instruments in
          the possession of the Borrower with respect to (1) the Collateral;  or
          (2)  Borrower's  or  the  REIT's  business,  condition  (financial  or
          otherwise), operations, performance, properties or prospects, as Agent
          may,  from  time  to  time,  reasonably  request,  including,  without
          limitation,   any  annual   information  with  respect  to  cash  flow
          projections,   budgets,   operating   statements   (current  year  and
          immediately  preceding year),  rent rolls,  lease expiration  reports,
          note  payable  summaries,   bullet  note  summaries,   equity  funding
          requirements,   contingent   liability   summaries,   line  of  credit
          summaries,  line of  credit  collateral  summaries,  wrap note or note
          receivable  summaries,  schedules  of  outstanding  letters of credit,
          summaries of cash and Cash Equivalents,  projections of management and
          leasing fees, and overhead budgets. Upon the occurrence and during the
          continuance of an Unmatured  Event of Default or Event of Default,  if
          Borrower  fails to  provide  Agent  with any  such  other  information
          reasonably  requested from Borrower  within the time periods  provided
          for herein, or if no time periods are provided for, within


                                       66

<PAGE>



          five Business Days after Agent requests such information, and provided
          that Agent gives Borrower  reasonable  prior notice and an opportunity
          to participate,  Borrower hereby  authorizes Agent to communicate with
          the  Accountants  and authorizes the  Accountants to disclose to Agent
          any and all financial  statements  and other  information of any kind,
          including copies of any management letter or the substance of any oral
          information,  that  the  Accountants  may  have  with  respect  to the
          Collateral or Borrower's, the REIT's, Paragon GP Holdings', Paragon LP
          Holdings',   or  the  Management  Company's  condition  (financial  or
          otherwise),   operations,   properties,   performance  and  prospects.
          Concurrently  therewith,  Agent  will  notify  Borrower  of  any  such
          communication.  At Agent's  request,  Borrower  shall deliver a letter
          addressed  to  the  Accountants  instructing  them  to  disclose  such
          information in compliance with this Section 6.1(u).

               (v) Press  Releases;  SEC Filings and Financial  Statements.  The
          REIT and  Borrower  shall  deliver to Agent,  all reports and notices,
          proxy statements,  registration statements and prospectuses within ten
          days after such materials are filed with the Commission. All materials
          sent or made  available  generally  by the REIT to the  holders of its
          publicly-held Securities, the Borrower to the holders of its Units, or
          to a  trustee  under  any  indenture  or filed  with  the  Commission,
          including  all  periodic   reports  required  to  be  filed  with  the
          Commission,  shall be  delivered  to Agent within 10 days of when they
          become available.

               (w)  Management  Reports.  Upon  request of Agent,  copies of any
          management reports prepared by the Accountants.

               (x) Development  Property  Status  Reports.  With respect to each
          Borrowing Base Development Property, Borrower shall deliver to Agent a
          Development Property Status Report, as soon as practicable, and in any
          event  within  15 days  after  the end of each  calendar  month.  Each
          Development  Property  Status Report shall include an updated  Project
          Budget,  AIA Form No. , set forth the  status of  construction  of the
          Improvements,   current   information   about  occupancy  and  leasing
          activities,  and disclose any material deviations from the Development
          Plans,  the  Construction  Schedule,  the  terms  of the  Construction
          Contracts, and the Project Budget.

               (y) Conversion Date Certificates.  With respect to each Borrowing
          Base  Development   Property,   Borrower  shall  deliver  to  Agent  a
          Conversion Date Certificate when the Property has achieved 90% average
          occupancy  and  90%  of  appraised  stabilized  gross  revenue  (on an
          annualized basis) for each of three consecutive months.

          Section 6.2  Environmental  Notices.  Borrower shall notify Agent,  in
          writing,  as soon as  practicable,  and in any event  within  ten days
          after  Borrower  learns of any: (a) with respect to any Borrowing Base
          Property,  (1) written  notice or claim to the effect that Borrower is
          or  may be  liable  to any  Person  as a  result  of  the  Release  or
          threatened  Release  of any  Contaminant  into  the  environment;  (2)
          written  notice  that  Borrower  is  subject to  investigation  by any
          Governmental  Authority  evaluating  whether  any  Remedial  Action is
          needed  to  respond  to  the  Release  or  threatened  Release  of any
          Contaminant  into  the  environment;  (3)  written  notice  that  such
          Borrowing  Base Property is subject to an  Environmental  Lien; or (4)
          written  notice of  violation  to Borrower or awareness of a condition
          which  might  reasonably  result  in a  notice  of  violation  of  any
          Environmental  Laws by Borrower,  which would have a Material  Adverse
          Effect on Borrower or the REIT; and


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<PAGE>



               (b)  (1)  commencement  or  written  threat  of any  judicial  or
          administrative  proceeding  alleging a violation of any  Environmental
          Laws which will be subject  to  disclosure  in the REIT's  Form 10Q or
          Form 10K;  (2) written  notice from a  Governmental  Authority  of any
          changes to any existing  Environmental  Laws that will have a Material
          Adverse  Effect on the  operations  of  Borrower;  or (3) any proposed
          action by Borrower  that, to the best of Borrower's  knowledge,  could
          subject Borrower to  environmental,  health or safety  Liabilities and
          Costs that could have a Material  Adverse  Effect on  Borrower  or the
          REIT.


                                    ARTICLE 7
                              AFFIRMATIVE COVENANTS

          On and  after the date  hereof,  until  payment  in full of all of the
          Obligations, the expiration of the Commitments and termination of this
          Agreement:

          Section 7.1 Borrower's Affirmative  Covenants.  Borrower covenants and
          agrees that:

               (a) Existence. Borrower shall at all times maintain its existence
          as a limited partnership.

               (b)  Qualification   Name.  Borrower  shall  qualify  and  remain
          qualified to do business in each  jurisdiction  in which the nature of
          its  business  requires  it  to  be  so  qualified  except  for  those
          jurisdictions  where  failure to so  qualify  will not have a Material
          Adverse  Effect on Borrower.  Except as set forth on Schedule  7.1(b),
          Borrower will transact  business solely in its own name or the name of
          its Subsidiaries.

               (c) Compliance with Laws, Etc. Borrower shall (1) comply with all
          Requirements of Law, and all restrictive  covenants in its Contractual
          Obligations   affecting  its   Properties,   performance,   prospects,
          obligations,  assets or  operations,  and (2) obtain,  as needed,  all
          Permits  necessary  for  its  operations  and  maintain  such  in good
          standing,  except in each of the foregoing  cases where the failure to
          do will not have a Material Adverse Effect on Borrower.

               (d)  Payment  of Taxes  and  Claims.  Borrower  shall pay (1) all
          taxes,  assessments and other governmental  charges imposed upon it or
          on  any  of its  Properties  or  assets  or in  respect  of any of its
          business,  income or Property  before any penalty or interest  accrues
          thereon,  the  failure  to make  payment of which will have a Material
          Adverse  Effect on Borrower,  and (2) all claims  (including,  without
          limitation,  claims for labor,  services,  materials and supplies) for
          sums, material in the aggregate to Borrower, as the case may be, which
          have become due and payable and which by law have or may become a Lien
          other than a judgment Lien upon any of Borrower's Properties, prior to
          the time when any  penalty  or fine  shall be  incurred  with  respect
          thereto;  provided,  however,  that no such  taxes,  assessments,  and
          governmental  charges referred to in clause 1 above or claims referred
          to in clause 2 above  need to be paid if same are being  contested  in
          good  faith  by  appropriate   proceedings   promptly  instituted  and
          diligently  conducted,  and if adequate  reserves  shall have been set
          aside  therefor  in  accordance  with  GAAP.  Borrower  also shall pay
          promptly all taxes,


                                       68

<PAGE>



          assessments and other  governmental  charges for which the Lenders are
          or become  liable,  including,  without  limitation,  documentary  and
          intangibles  taxes levied by any Governmental  Authority in connection
          with the Loans, and shall provide Agent with a receipt of payment from
          the appropriate Governmental Authority prior to the date on which such
          tax, assessment or charge will become past due.

               (e)  Inspection  of  Property;  Books  and  Records;  Discussion.
          Borrower shall permit any authorized  representative(s)  designated by
          Agent upon reasonable  notice to Borrower (1) to visit and inspect any
          of its Properties  (provided  that Borrower shall not reimburse  Agent
          for expenses  incurred in connection with  inspecting  Properties that
          are not, or  proposed  as  Borrowing  Base  Properties),  and (2) with
          respect  to  Borrowing  Base  Properties,  to  inspect  financial  and
          accounting  records and leases,  and to make copies and take  extracts
          therefrom, all at such times during normal business hours and as often
          as Agent may reasonably  request.  In connection  therewith,  Borrower
          shall  pay all  expenses  of the  types  described  in  Section  12.1.
          Borrower will keep proper books of record and account in which entries
          in conformity with GAAP, as modified and as otherwise required by this
          Agreement and  applicable  Requirements  of Law,  shall be made of all
          dealings and transactions in relation to its businesses and activities
          and as otherwise required under Section 6.1.

               (f)  Maintenance of Licenses,  Permits,  Etc.  Borrower shall (1)
          maintain in full force and effect all licenses, permits,  governmental
          approvals,  franchises,  patents, trademarks, trade names, copyrights,
          authorizations  or other  rights  necessary  for the  operation of its
          business,  except where the failure to maintain  any of the  foregoing
          would not have a Material  Adverse  Effect on Borrower,  and (2) shall
          notify  Agent in writing,  promptly  after  learning  thereof,  of the
          suspension,  cancellation,  revocation or discontinuance of and of any
          pending  or  threatened  action or  proceedings  seeking  to  suspend,
          cancel, revoke or discontinue any material licenses,  permit,  patent,
          trademark,  trade name, copyright,  governmental  approval,  franchise
          authorization or right.

               (g) Conduct of Business.  Except for  Permitted  Investments  and
          Investments in cash and Cash  Equivalents,  Borrower shall engage only
          in  the  business  of  developing,   owning,  operating  and  managing
          apartment, retail and commercial properties,  asset management and any
          business activities incidental thereto.

               (h) Use of Proceeds. Borrower shall use the proceeds of the Loans
          only  for  predevelopment  costs,  development  costs,   acquisitions,
          capital expenditures,  working capital, equity Investments,  repayment
          of Indebtedness or scheduled amortization payments thereon.

               (i) Project Budget Revisions.  Borrower shall obtain the approval
          of Agent of any  increase in any line item in the  Project  Budget (1)
          that  involves more than the greater of (A) $50,000 or (B) 10% of such
          line item, or (2) which increase,  when added to all increases in line
          items in the Project Budget shall cause the aggregate  increase in the
          Project Budget to exceed  $250,000.  Borrower shall not (i) reallocate
          any part of any interest  reserve or operating  deficit that is a line
          item in the  Project  Budget;  or (ii)  increase  any fees  payable to
          Borrower or an Affiliate of Borrower.

               (j) Borrowing Base Development Properties.



                                       69

<PAGE>



          The  construction of the  Improvements  will be prosecuted by Borrower
          with  diligence and  continuity to completion and will be completed by
          Borrower in a good and  workmanlike  manner in substantial  accordance
          with the Development Plans and the other provisions of this Agreement,
          on or  before  the  completion  date  disclosed  in  the  Construction
          Schedule  (subject  to  Permitted  Delays) and free and clear from all
          liens, or claims for liens,  other than Permitted Liens. No changes of
          a  material  nature  will be made to the  Development  Plans by, or be
          permitted  to be made to them by Borrower  without  the prior  written
          approval  therefor of all requisite  Governmental  Authorities,  prior
          compliance with all requisite Requirements of Law and prior acceptance
          (if the Agent so elects)  by the Agent and in  instances  where  Agent
          does  accept any changes to the  Development  Plans,  such  acceptance
          shall be deemed to be strictly limited to an acknowledgment of Agent's
          consent to the Improvements being constructed in accordance  therewith
          and  shall  not,  in  any  way,  be  deemed  to  imply  any  warranty,
          representation   or  approval  by  Agent  or  the  Lenders  that  such
          Improvements,  if so  constructed,  will be structurally  sound,  will
          comply with all  Requirements  of Law, will be fit for any  particular
          purpose or will have a market value of any  particular  magnitude.  At
          all times during  construction of the Improvements,  Borrower will (1)
          permit  Agent,  the  Independent   Supervising   Architect  and  their
          representatives,  to enter upon the Land and into the Improvements, to
          inspect the same and all materials to be used in the  construction  of
          the  Improvements  and to examine the  Development  Plans,  (2) comply
          strictly with any and all  Requirements of Law required to be complied
          with  incidental to such  construction,  (3) deliver to Agent,  or its
          representatives,   immediately   upon  demand,   counterparts   and/or
          conditional assignments of any and all Construction  Contracts,  bills
          of sale, statements,  conveyances, receipted vouchers or agreements of
          any nature  under which  Borrower  claims  title to any  materials  or
          supplies used or to be used in the  construction of the  Improvements,
          (4) either  cause each  Construction  Contract  to contain a provision
          specifically  subordinating any lien right against such Borrowing Base
          Development  Property to the liens and security  interests  created by
          the Loan Documents or cause the other party thereto to execute any and
          all  instruments,  acceptable  in form  and  substance  to  Agent,  to
          accomplish  the same,  (5) if  requested  by Agent,  furnish to Agent,
          immediately  after the  pouring  of each  concrete  slab,  street  and
          curbstone  within the Land,  the  completion  of each  foundation of a
          structure  forming part of the  Improvements and the completion of the
          Improvements,  a survey certified to by a licensed engineer acceptable
          to Agent showing all of same and that the location thereof is entirely
          within  the  property  lines of the Land and does not  encroach  upon,
          breach or violate any building line, easement or similar  restriction,
          (6) obtain and  maintain,  in full force and  effect,  an owner's  and
          contractor's   liability   insurance  policy  or  policies  (including
          worker's  compensation  insurance)  and a hazard  insurance  policy or
          policies in  builder's  all risk form with loss  payable  endorsements
          acceptable to Agent  insuring the  Improvements  and all materials and
          supplies  purchased  with  advances  hereunder  against  all risks and
          losses,  all such  insurance  policies to be issued by  companies,  in
          amounts and on terms  approved by Agent,  (7) if Agent shall  request,
          furnish  Agent with a current list of material  original  contractors,
          subcontractors, materialmen, vendors, artisans and laborers performing
          work  on  the  Improvements  and  (8)  upon  demand  of  Agent  or the
          Independent  Supervising  Architect,  correct any structural defect in
          the Improvements or any material  departure from the Development Plans
          not accepted by Agent, it being understood and agreed that the advance
          of any loan proceeds shall not constitute a waiver of Agent's right to
          require  compliance  with this Section 7.1(j) with respect to any such
          defects or departures.

         Section 7.2       With respect to the REIT.


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<PAGE>



                    (a)  Corporate  Existence.  The  REIT  shall  at  all  times
               maintain its corporate existence.

                    (b)  Qualification,  Name. The REIT shall qualify and remain
               qualified to do business in each jurisdiction in which the nature
               of its business  requires it to be so qualified  except for those
               jurisdictions  where  failure  to so  qualify  will  not  have  a
               Material  Adverse  Effect  on the REIT.  The REIT  will  transact
               business solely in its own name.

                    (c) Securities Law Compliance.  The REIT shall comply in all
               material   respects  with  all  rules  and   regulations  of  the
               Commission  and  file  all  reports  required  by the  Commission
               relating to the REIT's publicly-held Securities.

                    (d) Continued Status as a REIT; Prohibited Transactions. The
               REIT  shall  (1) make an  election  on its 1994 tax  return to be
               taxed as, and shall  thereafter,  continue  to be, a real  estate
               investment  trust  as  defined  in  Section  856 of the  Internal
               Revenue Code (or any successor provision thereof), (2) not revoke
               its election to be a real estate investment trust, (3) not engage
               in  any   "prohibited   transactions"   as   defined  in  Section
               856(b)(6)(iii)  of the Internal  Revenue  Code (or any  successor
               provision thereto), and (4) continue to be entitled to a dividend
               paid  deduction  meeting the  requirements  of Section 857 of the
               Internal Revenue Code.

                    (e) NYSE Listed Company.  The common stock of the REIT shall
               at all times be listed for  trading and be traded on the New York
               Stock Exchange, the American Stock Exchange, or NASDAQ.

                    (f)  Compliance  with Laws,  Etc.  The REIT shall (1) comply
               with  all  Requirements  of Law,  and all  restrictive  covenants
               affecting  the  REIT  and (2)  obtain,  as  needed,  all  Permits
               necessary for its  operations and maintain such in good standing,
               except in each of the foregoing  cases where the failure to do so
               will not have a Material Adverse Effect on the REIT.

                    (g) Payment of Taxes and Claims.  The REIT shall pay (1) all
               taxes, assessments and other governmental charges imposed upon it
               or on any of its assets or in  respect  of any of its  businesses
               or, income before any penalty or interest  accrues  thereon,  the
               failure to make  payment  of which  will have a Material  Adverse
               Effect  on the  REIT,  and (2)  all  claims  (including,  without
               limitation,  claims for labor, services,  materials and supplies)
               for sums,  material in the aggregate to the REIT, as the case may
               be,  which have  become due and  payable and which by law have or
               may become a Lien,  other than a judgment  Lien,  upon any of the
               REIT's  assets,  prior to the time when any penalty or fine shall
               be incurred with respect thereto; provided, however, that no such
               taxes,  assessments,  and  governmental  charges  referred  to in
               clause 1 above or claims  referred  to in clause 2 above  need be
               paid if same are being  contested  in good  faith by  appropriate
               proceedings  promptly instituted and diligently  conducted and if
               adequate   reserves   shall  have  been  set  aside  therefor  in
               accordance with GAAP.

                    (h) Conduct of Business.  The REIT's sole  business  purpose
               shall be to own 100% of each of Paragon GP  Holdings  and Paragon
               LP Holdings. The REIT shall use all net proceeds it receives from
               the sale of its  Securities  solely  to  purchase  Securities  of
               Paragon GP


                                       71

<PAGE>



          Holdings and Paragon LP Holdings and shall  consummate  such purchases
          within five  Business  Days of the date on which it receives  such net
          proceeds.

                    (i)  Subordination.  The REIT  subordinates  all present and
               future Indebtedness owing by Borrower to the REIT (other than the
               reimbursement and  indemnification  obligations owing by Borrower
               to the REIT identified on Schedule  7.2(i)) to the Obligations at
               any time owing by Borrower to the Agent and the Lenders under the
               Loan  Documents.  The  REIT  agrees  to make no  claim  for  such
               Indebtedness  until all  Obligations  of Borrower have been fully
               discharged. The REIT further agrees not to assign all or any part
               of such  Indebtedness  unless Agent is given prior written notice
               and such  assignment  is  expressly  made subject to the terms of
               this Section  7.2(i).  If Agent so requests,  (i) all instruments
               evidencing such Indebtedness shall be duly endorsed and delivered
               to Agent, (ii) all security for such  Indebtedness  shall be duly
               assigned and delivered to Agent, (iii) such Indebtedness shall be
               enforced, collected and held by the REIT as trustee for Agent and
               the  Lenders  and shall be paid over to Agent on  account  of the
               Obligations,  and (iv) the REIT  shall  execute,  file and record
               such  documents  and  instruments  and take such other  action as
               Agent deems  necessary or  appropriate  to perfect,  preserve and
               enforce  the  Agent's  and   Lenders'   rights  in  and  to  such
               Indebtedness and any security therefor. If the REIT fails to take
               any such action, within ten days after written notice from Agent,
               then  Agent,  as   attorney-in-fact   for  the  REIT,  is  hereby
               authorized to do so in the name of the REIT. The foregoing  power
               of attorney is coupled with an interest and cannot be revoked.

                    (j)  Bankruptcy  of  Borrower.  In any  bankruptcy  or other
               proceeding  in which the filing of claims is required by law, the
               REIT  shall  file all  claims  which  the  REIT may have  against
               Borrower relating to any Indebtedness of Borrower to the REIT and
               shall assign to Agent all rights of the REIT  thereunder.  If the
               REIT does not file any such claim,  within ten days after written
               notice from Agent, then Agent, as attorney-in-fact  for the REIT,
               is  hereby  authorized  to do so in the name of the  REIT or,  in
               Agent's discretion, to assign the claim to a nominee and to cause
               a proof of claim to be filed in the name of Agent's nominee.  The
               foregoing  power of  attorney  is coupled  with an  interest  and
               cannot be revoked.  Agent or its nominee shall have the right, in
               its reasonable discretion,  to accept or reject any plan proposed
               in such  proceeding  and to take any other  action  which a party
               filing a claim is entitled  to do. In all such cases,  whether in
               administration,  bankruptcy or  otherwise,  the Person or Persons
               authorized  to pay  such  claim  shall  pay to Agent  the  amount
               payable on such claim and, to the full extent  necessary for that
               purpose,  the REIT  hereby  assigns  to Agent  all of the  REIT's
               rights to any such payments or distributions;  provided, however,
               the REIT's obligations hereunder shall not be satisfied except to
               the extent that Agent receives cash by reason of any such payment
               or distribution. The rights of Agent shall continue, with respect
               to any amount at any time paid by  Borrower  on account of any of
               the  Obligations  which  Agent  or any of the  Lenders  shall  be
               required to restore or return upon the bankruptcy,  insolvency or
               reorganization  of  Borrower  or for any  other  reasons,  all as
               though such amount had not been paid. Section 7.3 With respect to
               Paragon GP Holdings.

                    (a) Corporate  Existence.  Paragon GP Holdings  shall at all
               times maintain its corporate existence.



                                       72

<PAGE>



               (b)  Qualification,  Name.  Paragon GP Holdings shall qualify and
          remain  qualified  to do  business in each  jurisdiction  in which the
          nature of its business requires it to be so qualified except for those
          jurisdictions  where  failure to so  qualify  will not have a Material
          Adverse  Effect on the Borrower or the REIT.  Paragon GP Holdings will
          transact business solely in its own name.

               (c)  Compliance  with Laws,  Etc.  Paragon GP Holdings  shall (1)
          comply with all  Requirements  of Law, and all  restrictive  covenants
          affecting Paragon GP Holdings,  and (2) obtain, as needed, all Permits
          necessary  for its  operations  and  maintain  such in good  standing,
          except in each of the foregoing  cases where the failure to do so will
          not have a Material Adverse Effect on the Borrower or the REIT.

               (d)  Payment of Taxes and Claims.  Paragon GP Holdings  shall pay
          (1) all taxes, assessments and other governmental charges imposed upon
          it or on any of its assets or in respect of any of its  businesses or,
          income before any penalty or interest accrues thereon,  the failure to
          make  payment  of which  will have a  Material  Adverse  Effect on the
          Borrower  or  the  REIT,  and  (2)  all  claims  (including,   without
          limitation,  claims for labor,  services,  materials and supplies) for
          sums,  material in the  aggregate to Paragon GP Holdings,  as the case
          may be, which have become due and payable and which by law have or may
          become a Lien,  other  than a  judgment  Lien,  upon any of Paragon GP
          Holdings' assets,  prior to the time when any penalty or fine shall be
          incurred with respect thereto; provided,  however, that no such taxes,
          assessments, and governmental charges referred to in clause 1 above or
          claims  referred  to in clause 2 above  need be paid if same are being
          contested in good faith by appropriate proceedings promptly instituted
          and diligently  conducted and if adequate reserves shall have been set
          aside therefor in accordance with GAAP.

               (e) Material Contracts.  Paragon GP Holdings shall perform all of
          its  obligations  under any  leases or  agreements,  except  where the
          failure to perform such  obligations  will not have a Material Adverse
          Effect on the Borrower or the REIT.

               (f)  Conduct of  Business.  Paragon GP  Holdings'  sole  business
          purposes  shall be to own Units of the  Borrower,  to  function as the
          General  Partner of  Borrower,  and to own a one  percent  partnership
          interest in certain Subsidiaries of the Borrower.  Paragon GP Holdings
          shall use all net proceeds it receives from the sale of its Securities
          solely  to  purchase  either  Units  of the  Borrower  or one  percent
          partnership   interests  in  certain  partnerships  that  will  become
          Subsidiaries of Borrower and shall  consummate  such purchases  within
          five Business Days of the date it receives such net proceeds.

               (g) Subordination.  Paragon GP Holdings  subordinates all present
          and future  Indebtedness  owing by  Borrower  to  Paragon GP  Holdings
          (other than  reimbursement  and  indemnification  obligations owing by
          Borrower to Paragon GP Holdings) to the  Obligations at any time owing
          by  Borrower to the Agent and the  Lenders  under the Loan  Documents.
          Paragon  GP  Holdings  agrees to make no claim  for such  Indebtedness
          until all Obligations of Borrower have been fully discharged.  Paragon
          GP  Holdings  further  agrees  not to  assign  all or any part of such
          Indebtedness  unless  Agent is given  prior  written  notice  and such
          assignment  is  expressly  made  subject to the terms of this  Section
          7.3(g). If Agent so requests, (i) all instruments evidencing such

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          Indebtedness  shall be duly endorsed and delivered to Agent,  (ii) all
          security for such Indebtedness shall be duly assigned and delivered to
          Agent, (iii) such Indebtedness  shall be enforced,  collected and held
          by Paragon GP  Holdings as trustee for Agent and the Lenders and shall
          be paid over to Agent on account of the Obligations,  and (iv) Paragon
          GP  Holdings  shall  execute,  file  and  record  such  documents  and
          instruments  and take such other  action as Agent deems  necessary  or
          appropriate to perfect,  preserve and enforce the Agent's and Lenders'
          rights  in and to such  Indebtedness  and any  security  therefor.  If
          Paragon  GP  Holdings  fails to take any such  action  within ten days
          after written notice from Agent, then Agent, as  attorney-in-fact  for
          Paragon  GP  Holdings,  is hereby  authorized  to do so in the name of
          Paragon GP Holdings.  The foregoing  power of attorney is coupled with
          an interest and cannot be revoked.

               (h) Bankruptcy of Borrower. In any bankruptcy or other proceeding
          in which the filing of claims is required by law,  Paragon GP Holdings
          shall  file all claims  which  Paragon GP  Holdings  may have  against
          Borrower  relating  to any  Indebtedness  of  Borrower  to  Paragon GP
          Holdings  and shall  assign to Agent all rights of Paragon GP Holdings
          thereunder. If Paragon GP Holdings does not file any such claim within
          ten  days  after   written   notice   from  Agent,   then  Agent,   as
          attorney-in-fact  for Paragon GP Holdings,  is hereby authorized to do
          so in the name of Paragon GP Holdings  or, in Agent's  discretion,  to
          assign  the  claim  to a  nominee  and to cause a proof of claim to be
          filed in the name of Agent's nominee.  The foregoing power of attorney
          is  coupled  with an  interest  and  cannot be  revoked.  Agent or its
          nominee shall have the right, in its reasonable discretion,  to accept
          or reject any plan proposed in such  proceeding  and to take any other
          action  which a party  filing a claim is  entitled  to do. In all such
          cases, whether in administration,  bankruptcy or otherwise, the Person
          or Persons  authorized to pay such claim shall pay to Agent the amount
          payable on such  claim  and,  to the full  extent  necessary  for that
          purpose, Paragon GP Holdings hereby assigns to Agent all of Paragon GP
          Holdings'  rights to any such  payments  or  distributions;  provided,
          however,  Paragon  GP  Holdings'  obligations  hereunder  shall not be
          satisfied  except to the extent that Agent  receives cash by reason of
          any such payment or distribution.  The rights of Agent shall continue,
          with  respect to any amount at any time paid by Borrower on account of
          any of the  Obligations  which  Agent or any of the  Lenders  shall be
          required  to  restore or return  upon the  bankruptcy,  insolvency  or
          reorganization  of  Borrower or for any other  reasons,  all as though
          such amount had not been paid.

         Section 7.4 With respect to Paragon LP Holdings.

               (a) Corporate  Existence.  Paragon LP Holdings shall at all times
          maintain its corporate existence.

               (b)  Qualification,  Name.  Paragon LP Holdings shall qualify and
          remain  qualified  to do  business in each  jurisdiction  in which the
          nature of its business requires it to be so qualified except for those
          jurisdictions  where  failure to so  qualify  will not have a Material
          Adverse  Effect on the Borrower or the REIT.  Paragon LP Holdings will
          transact business solely in its own name.

               (c)  Compliance  with Laws,  Etc.  Paragon LP Holdings  shall (1)
          comply with all  Requirements  of Law, and all  restrictive  covenants
          affecting Paragon LP Holdings, and


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          (2) obtain,  as needed,  all Permits  necessary for its operations and
          maintain such in good standing,  except in each of the foregoing cases
          where the failure to do so will not have a Material  Adverse Effect on
          the Borrower or the REIT.

               (d)  Payment of Taxes and Claims.  Paragon LP Holdings  shall pay
          (1) all taxes, assessments and other governmental charges imposed upon
          it or on any of its assets or in respect of any of its  businesses or,
          income before any penalty or interest accrues thereon,  the failure to
          make  payment  of which  will have a  Material  Adverse  Effect on the
          Borrower  or  the  REIT;  and  (2)  all  claims  (including,   without
          limitation,  claims for labor,  services,  materials and supplies) for
          sums,  material in the  aggregate to Paragon LP Holdings,  as the case
          may be, which have become due and payable and which by law have or may
          become a Lien,  other  than a  judgment  Lien,  upon any of Paragon LP
          Holdings' assets,  prior to the time when any penalty or fine shall be
          incurred with respect thereto; provided,  however, that no such taxes,
          assessments, and governmental charges referred to in clause 1 above or
          claims  referred  to in clause 2 above  need be paid if same are being
          contested in good faith by appropriate proceedings promptly instituted
          and diligently  conducted and if adequate reserves shall have been set
          aside therefor in accordance with GAAP.

               (e) Material Contracts.  Paragon LP Holdings shall perform all of
          its  obligations  under any  leases or  agreements,  except  where the
          failure to perform such  obligations  will not have a Material Adverse
          Effect on the Borrower or the REIT.

               (f)  Conduct of  Business.  Paragon LP  Holdings'  sole  business
          purpose  shall be to own Units of the  Borrower  and to  function as a
          limited partner of the Borrower. Paragon LP Holdings shall use all net
          proceeds  it  receives  from  the  sale of its  Securities  solely  to
          purchase  Units of the Borrower and shall  consummate  such  purchases
          within five Business Days of the date it receives such net proceeds.

               (g) Subordination.  Paragon LP Holdings  subordinates all present
          and future  Indebtedness  owing by  Borrower  to  Paragon LP  Holdings
          (other than  reimbursement  and  indemnification  obligations owing by
          Borrower to Paragon LP Holdings) to the  Obligations at any time owing
          by  Borrower to the Agent and the  Lenders  under the Loan  Documents.
          Paragon  LP  Holdings  agrees to make no claim  for such  Indebtedness
          until all Obligations of Borrower have been fully discharged.  Paragon
          LP  Holdings  further  agrees  not to  assign  all or any part of such
          Indebtedness  unless  Agent is given  prior  written  notice  and such
          assignment  is  expressly  made  subject to the terms of this  Section
          7.4(g).  If Agent so requests,  (i) all  instruments  evidencing  such
          Indebtedness  shall be duly endorsed and delivered to Agent,  (ii) all
          security for such Indebtedness shall be duly assigned and delivered to
          Agent, (iii) such Indebtedness  shall be enforced,  collected and held
          by Paragon LP  Holdings as trustee for Agent and the Lenders and shall
          be paid over to Agent on account of the Obligations,  and (iv) Paragon
          LP  Holdings  shall  execute,  file  and  record  such  documents  and
          instruments  and take such other  action as Agent deems  necessary  or
          appropriate to perfect,  preserve and enforce the Agent's and Lenders'
          rights  in and to such  Indebtedness  and any  security  therefor.  If
          Paragon LP  Holdings  fails to take any such  action,  within ten days
          after written notice from Agent, then Agent, as  attorney-in-fact  for
          Paragon  LP  Holdings,  is hereby  authorized  to do so in the name of
          Paragon LP Holdings.  The foregoing  power of attorney is coupled with
          an interest and cannot be revoked.


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<PAGE>



               (h) Bankruptcy of Borrower. In any bankruptcy or other proceeding
          in which the filing of claims is required by law,  Paragon LP Holdings
          shall  file all claims  which  Paragon LP  Holdings  may have  against
          Borrower  relating  to any  indebtedness  of  Borrower  to  Paragon LP
          Holdings  and shall  assign to Agent all rights of Paragon LP Holdings
          thereunder. If Paragon LP Holdings does not file any such claim within
          ten  days  after   written   notice   from  Agent,   then  Agent,   as
          attorney-in-fact  for Paragon LP Holdings,  is hereby authorized to do
          so in the name of Paragon LP Holdings  or, in Agent's  discretion,  to
          assign  the  claim  to a  nominee  and to cause a proof of claim to be
          filed in the name of Agent's nominee.  The foregoing power of attorney
          is  coupled  with an  interest  and  cannot be  revoked.  Agent or its
          nominee shall have the right, in its reasonable discretion,  to accept
          or reject any plan proposed in such  proceeding  and to take any other
          action  which a party  filing a claim is  entitled  to do. In all such
          cases, whether in administration,  bankruptcy or otherwise, the Person
          or Persons  authorized to pay such claim shall pay to Agent the amount
          payable on such  claim  and,  to the full  extent  necessary  for that
          purpose, Paragon LP Holdings hereby assigns to Agent all of Paragon LP
          Holdings'  rights to any such  payments  or  distributions;  provided,
          however,  Paragon  LP  Holdings'  obligations  hereunder  shall not be
          satisfied  except to the extent that Agent  receives cash by reason of
          any such payment or distribution.  The rights of Agent shall continue,
          with  respect to any amount at any time paid by Borrower on account of
          any of the  Obligations  which  Agent or any of the  Lenders  shall be
          required  to  restore or return  upon the  bankruptcy,  insolvency  or
          reorganization  of  Borrower or for any other  reasons,  all as though
          such amount had not been paid.


                                    ARTICLE 8
                               NEGATIVE COVENANTS

          Borrower  covenants  and agrees  that,  on and after the date  hereof,
          until payment in full of all of the Obligations, the expiration of the
          Commitments and termination of this Agreement:

         Section 8.1       With respect to Borrower:

                    (a) Indebtedness.  Borrower shall not directly or indirectly
               create,  incur,  assume or otherwise become or remain directly or
               indirectly  liable with  respect to any  Indebtedness,  if, after
               giving  effect  thereto,  there  would be a breach  of any of the
               financial covenants contained in Article 9.

                    (b) Liens. Borrower shall not directly or indirectly create,
               incur, assume or permit to exist any Lien on, or with respect to,
               any Property subject to Agent's Liens, except:

                           (1)      Permitted Liens; and

                           (2) Liens arising  under  Section  302(f) of ERISA or
         Section  412(n) of the  Internal  Revenue  Code  where  the  delinquent
         contribution  which gave rise to the Lien is paid within 30 days of its
         original due date.



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          Additionally,  Borrower  shall not encumber real Property owned solely
          by Borrower  with Liens that will secure more than one  non-prepayable
          Indebtedness  if, after  giving  effect to such Liens,  the  aggregate
          number of real  Properties so encumbered  exceeds 75% of the aggregate
          number of all real Properties owned solely by Borrower.

               (c)  Investments.  Borrower shall not directly or indirectly make
          or own any Investment except:

               (1) Investments in cash and Cash Equivalents; and

               (2) Permitted Investments described in paragraph 7 of Addendum- I
               to this Agreement.

               (d) Restrictions on Fundamental Changes.

               (1) Borrower shall not enter into any merger or  consolidation in
               which Borrower is not the surviving entity or liquidate,  wind-up
               or dissolve (or suffer any liquidation or dissolution).

               (2) Borrower shall remain a limited  partnership  with Paragon GP
               Holdings as its sole general partner.

               (3) Borrower shall not change its Fiscal Year.

               (4) Except for Permitted  Investments,  Borrower shall not engage
               in any  line  of  business  other  than  development,  ownership,
               operation  and  management of  apartment,  retail and  commercial
               properties,  asset management and business activities  incidental
               thereto.

               (e) ERISA.  Borrower  shall  not,  and shall not permit any ERISA
          Affiliates  to, do any of the following to the extent that such act or
          failure  to act  would  result in the  aggregate,  after  taking  into
          account any other such acts or failure to act,  in a Material  Adverse
          Effect on Borrower or the REIT:

                           (1) Engage, or knowingly permit an ERISA Affiliate to
         engage, in any prohibited  transaction  described in Section 406 of the
         ERISA or Section 4975 of the Internal  Revenue Code which is not exempt
         under  Section 407 or 408 of ERISA or Section  4975(d) of the  Internal
         Revenue Code for which a class  exemption is not available or a private
         exemption has not been previously obtained from the DOL;

          (2) Permit to exist any accumulated  funding deficiency (as defined in
          Section 302 of ERISA and Section 412 of the  Internal  Revenue  Code),
          whether or not waived;


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<PAGE>



               (3)  Fail,  or permit an ERISA  Affiliate  to fail to pay  timely
          required  contributions or annual installments due with respect to any
          waived funding  deficiency to any Plan if such failure could result in
          the imposition of a Lien or otherwise  have a Material  Adverse Effect
          on Borrower or the REIT;

               (4)  Terminate,  or permit an ERISA  Affiliate to terminate,  any
          Benefit  Plan which would result in any  liability  of  Borrower,  the
          REIT, or an ERISA Affiliate under Title IV of ERISA; or

               (5) Fail,  or  permit  any ERISA  Affiliate  to fail,  to pay any
          required  installment under Section (m) of Section 412 of the Internal
          Revenue Code or any other  payment  required  under Section 412 of the
          Internal  Revenue Code on or before the due date for such  installment
          or other payment,  if such failure could result in the imposition of a
          Lien or otherwise  have a Material  Adverse  Effect on Borrower or the
          REIT.

               (f) Environmental Liabilities.  Borrower shall not become subject
          to any  Liabilities and Costs which Agent  reasonably  deems to have a
          Material  Adverse Effect on any Borrowing Base Property arising out of
          or related to (1) the Release or threatened Release of any Contaminant
          into the environment,  or any Remedial Action in response thereto;  or
          (2) any violation of any Environmental Laws; provided,  however,  that
          this covenant shall not be violated so long as (A) Borrower shall have
          notified  Agent  of  the  assertion  of  such  liability  or  required
          expenditures  within ten days after  receiving  written notice of such
          assertion;  (B) Borrower  shall have  continued to furnish  Agent with
          such  information  concerning  such  asserted  liability  or  required
          expenditure as Agent shall have reasonably requested,  or is otherwise
          provided  herein;  and  (C)  Borrower  shall  be  diligently  pursuing
          indemnification,   contribution  or  other   reimbursement   for  such
          liability  or  required  expenditures  from any  Person  which  has an
          obligation to provide indemnification or may otherwise be obligated to
          reimburse Borrower for such liability or required expenditures.

               (g) Amendment of Constituent Documents.  Borrower shall not amend
          its  limited   partnership   agreement,   or  certificate  of  limited
          partnership,  if such  amendment  will have a Material  Adverse Effect
          upon Borrower,  or upon Borrower's  ability to perform its Obligations
          under the Loan Documents.

               (h)  Margin  Regulations.  No  portion  of  the  proceeds  of any
          Borrowings shall be used in any manner which might cause the extension
          of credit or the application of such proceeds to violate Regulation G,
          Regulation U or  Regulation X or any other  regulation  of the Federal
          Reserve  Board  or to  violate  the  Securities  Exchange  Act  or the
          Securities  Act,  in each  case as in  effect  on the date or dates of
          Borrowings and such use of proceeds.

               (i)  Management  of Borrower.  During the  original  term of this
          Agreement,  as well as the  extension  period  provided for in Section
          2.1(d) of this Agreement, William R. Cooper shall remain active in the
          executive and  operational  management  of Borrower and the REIT.  If,
          however,  William  Cooper is not so active  in the  management  of the
          Borrower or the REIT during the initial term of this Agreement,  or if
          exercised, during the extension period provided for in Section



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<PAGE>



          2.1(d),  then, either (1) no fewer than any two of Brian Lavin,  James
          T.  Cobb,  Lewis A.  Levey,  and Robert H. Gidel must be active in the
          management of Borrower and the REIT or serve on the board of directors
          of the REIT, or (2) within 180 days thereof, the Borrower and the REIT
          shall propose and appoint a management  replacement for Mr. Cooper who
          is acceptable to Agent and Requisite Lenders.

         Section 8.2       With respect to the REIT:

                  (a)      Restriction on Fundamental Changes.

          (1) The REIT shall not enter into any merger or consolidation in which
          the REIT is not the surviving entity or liquidate, wind-up or dissolve
          (or suffer any liquidation or dissolution).

          (2) The REIT shall not change its legal structure or Fiscal Year.

          (3) The REIT  shall not  engage  in any line of  business  other  than
          owning 100% of each of Paragon GP Holdings and Paragon LP Holdings.

          (4) The REIT shall not have an  Investment  in any  Person  other than
          Paragon GP Holdings and Paragon LP Holdings and its Investment in each
          of Paragon GP Holdings and Paragon LP Holdings shall be limited solely
          to the  Securities  of each of  Paragon  GP  Holdings  and  Paragon LP
          Holdings.

                  (b) ERISA.  The REIT shall not, and shall not permit any ERISA
Affiliates to, do any of the following to the extent that such act or failure to
act would result in the aggregate, after taking into account any other such acts
or failure to act, in a Material Adverse Effect on the Borrower or the REIT;

                    (1)  engage,  or  knowingly  permit  an ERISA  Affiliate  to
               engage, in any prohibited transaction described in Section 406 of
               ERISA or Section 4975 of the  Internal  Revenue Code which is not
               exempt  under  Section 407 or 408 of ERISA or Section  4975(d) of
               the  Internal  Revenue  Code for which a class  exemption  is not
               available or a private exemption has not been previously obtained
               from the DOL;

                    (2) Permit to exist any accumulated  funding  deficiency (as
               defined in Section 302 of ERISA and  Section 412 of the  internal
               Revenue Code), whether or not waived;

                    (3)  Fail,  or  permit an ERISA  Affiliate  to fail,  to pay
               timely required  contributions  or annual  installments  due with
               respect  to any  waived  funding  deficiency  to any Plan if such
               failure  could  result in the  imposition  of a Lien or otherwise
               have a Material Adverse Effect on the Borrower or the REIT;



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<PAGE>



                           (4)  Terminate,  or  permit  an  ERISA  Affiliate  to
         terminate,  any Benefit Plan which would result in any liability of the
         REIT or an ERISA Affiliate under Title IV of ERISA; or

                           (5) Fail,  or permit any ERISA  Affiliate to fail, to
         pay any required  installment  under  section (m) of Section 412 of the
         Internal  Revenue Code or any other payment  required under Section 412
         of the  Internal  Revenue  Code on or  before  the due  date  for  such
         installment  or other  payment,  if such  failure  could  result in the
         imposition of a Lien or otherwise have a Material Adverse Effect on the
         Borrower or the REIT.

               (c) Amendment of Charter or By-Laws. The REIT shall not amend its
          charter  documents or by-laws,  if such amendment will have a Material
          Adverse  Effect upon the Borrower or the REIT or the REIT's ability to
          perform its obligations under the Loan Documents.

               (d) Disposal of Ownership  Interests.  The REIT will not directly
          or indirectly  convey,  sell,  transfer,  assign,  pledge or otherwise
          encumber or dispose of any of its 100%  ownership  interest in each of
          Paragon GP Holdings and Paragon LP Holdings.

         Section 8.3 With respect to Paragon GP Holdings:

          (a) Restriction on Fundamental Changes.

          (1)  Paragon  GP   Holdings   shall  not  enter  into  any  merger  or
          consolidation  in which the REIT or the Borrower is not the  surviving
          entity or liquidate, wind-up or dissolve (or suffer any liquidation or
          dissolution).

          (2) Paragon GP Holdings shall not change its legal structure or Fiscal
          Year.

          (3)  Paragon  GP  Holdings  shall not  engage in any line of  business
          inconsistent with Section 7.3(f).

          (4) Paragon GP  Holdings  shall not have an  Investment  in any Person
          other than the  Borrower  and  Subsidiaries  of Borrower  and any such
          Investment  shall be limited  solely to an equity  interest of no more
          than 1%.

          (b) ERISA.  Paragon GP  Holdings  shall not,  and shall not permit any
          ERISA  Affiliates  to, do any of the following to the extent that such
          act or failure to act would result in the aggregate, after taking into
          account any other such acts or failure to act,  in a Material  Adverse
          Effect on the Borrower or the REIT;

                           (1) engage, or knowingly permit an ERISA Affiliate to
         engage, in any prohibited transaction described in Section 406 of ERISA
         or Section 4975 of the Internal  Revenue Code which is not exempt under
         Section 407 or 408 of ERISA


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<PAGE>



         or  Section  4975(d)  of the  Internal  Revenue  Code for which a class
         exemption  is  not  available  or a  private  exemption  has  not  been
         previously obtained from the DOL;

          (2) Permit to exist any accumulated  funding deficiency (as defined in
          Section 302 of ERISA and Section 412 of the  Internal  Revenue  Code),
          whether or not waived;

          (3) Fail, or permit an ERISA Affiliate to fail, to pay timely required
          contributions  or annual  installments  due with respect to any waived
          funding  deficiency  to any Plan if such  failure  could result in the
          imposition of a Lien or otherwise  have a Material  Adverse  Effect on
          the Borrower or the REIT;

          (4) Terminate, or permit an ERISA Affiliate to terminate,  any Benefit
          Plan  which  would  result  in any  liability  of the REIT or an ERISA
          Affiliate under Title IV of ERISA; or

          (5) Fail,  or permit any ERISA  Affiliate to fail, to pay any required
          installment  under section (m) of Section 412 of the Internal  Revenue
          Code or any other payment  required  under Section 412 of the Internal
          Revenue Code on or before the due date for such  installment  or other
          payment,  if such failure could result in the  imposition of a Lien or
          otherwise have a Material Adverse Effect on the Borrower or the REIT.

          (c)  Amendment  of Charter or By-Laws.  Paragon GP Holdings  shall not
          amend its charter documents or by-laws,  if such amendment will have a
          Material  Adverse  Effect upon the  Borrower or the REIT or Paragon GP
          Holdings' ability to perform its obligations under the Loan Documents.

          (d)  Disposal  of Units.  Paragon GP  Holdings  shall not  directly or
          indirectly  convey,  sell,  transfer,   assign,  pledge  or  otherwise
          encumber or dispose of any Units of the Borrower,  except that Paragon
          GP Holdings may sell,  transfer or dispose of Units in connection with
          any cancellation or repurchase of REIT Securities by the REIT.

         Section 8.4 With respect to Paragon LP Holdings:

                  (a)      Restriction on Fundamental Changes.

          (1)  Paragon  LP   Holdings   shall  not  enter  into  any  merger  or
          consolidation  in which the REIT or the Borrower is not the  surviving
          entity or liquidate, wind-up or dissolve (or suffer any liquidation or
          dissolution).

          (2) Paragon LP Holdings shall not change its legal structure or Fiscal
          Year.


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<PAGE>



          (3) Paragon LP Holdings shall not engage in any line of business other
          than owning Units in the Borrower.

          (4) Paragon LP  Holdings  shall not have an  Investment  in any Person
          other than the Borrower and such Investment shall be limited solely to
          Units.

          (b) ERISA.  Paragon LP  Holdings  shall not,  and shall not permit any
          ERISA  Affiliates  to, do any of the following to the extent that such
          act or failure to act would result in the aggregate, after taking into
          account any other such acts or failure to act,  in a Material  Adverse
          Effect on the Borrower or the REIT;

               (1) engage,  or knowingly permit an ERISA Affiliate to engage, in
          any  prohibited  transaction  described  in  Section  406 of  ERISA or
          Section  4975 of the  Internal  Revenue Code which is not exempt under
          Section 407 or 408 of ERISA or Section 4975(d) of the Internal Revenue
          Code  for  which a  class  exemption  is not  available  or a  private
          exemption has not been previously obtained from the DOL;

               (2)  Permit  to exist  any  accumulated  funding  deficiency  (as
          defined  in  Section  302 of ERISA  and  Section  412 of the  Internal
          Revenue Code), whether or not waived;

               (3) Fail,  or permit an ERISA  Affiliate  to fail,  to pay timely
          required  contributions or annual installments due with respect to any
          waived funding  deficiency to any Plan if such failure could result in
          the imposition of a Lien or otherwise  have a Material  Adverse Effect
          on the Borrower or the REIT;

               (4)  Terminate,  or permit an ERISA  Affiliate to terminate,  any
          Benefit  Plan which would  result in any  liability  of the REIT or an
          ERISA Affiliate under Title IV of ERISA; or

               (5) Fail,  or  permit  any ERISA  Affiliate  to fail,  to pay any
          required  installment under section (m) of Section 412 of the Internal
          Revenue Code or any other  payment  required  under Section 412 of the
          Internal  Revenue Code on or before the due date for such  installment
          or other payment,  if such failure could result in the imposition of a
          Lien or otherwise  have a Material  Adverse  Effect on the Borrower or
          the REIT.

          (c)  Amendment  of Charter or By-Laws.  Paragon LP Holdings  shall not
          amend its charter documents or by-laws,  if such amendment will have a
          Material  Adverse  Effect upon the  Borrower or the REIT or Paragon LP
          Holdings' ability to perform its obligations under the Loan Documents.

          (d)  Disposal  of Units.  Paragon LP  Holdings  shall not  directly or
          indirectly  convey,  sell,  transfer,   assign,  pledge  or  otherwise
          encumber or dispose of any Units of the Borrower,


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<PAGE>



          except that Paragon LP Holdings may sell, transfer or dispose of Units
          in connection  with any  cancellation or repurchase of REIT Securities
          by the REIT.


                                    ARTICLE 9
                               FINANCIAL COVENANTS

          Borrower  covenants  and agrees to honor the  financial  covenants set
          forth in Addendum I to this  Agreement  (as amended  from time to time
          with the consent of Borrower and all Lenders) on and after Restatement
          Date until payment in full of all the  Obligations,  the expiration of
          all Commitments and the termination of this Agreement.


                                   ARTICLE 10
                     EVENTS OF DEFAULT; RIGHTS AND REMEDIES

          Section10.1 Events of Default. Each of the following occurrences shall
          constitute an Event of Default under this Agreement:

                    (a) Failure to Make Payments When Due.  Borrower  shall fail
               to pay (1) any amount due on the Termination  Date under the Loan
               Documents;  (2) any  principal  when due; (3) any interest on any
               Loan within 15 days after the same becomes due; or (4) any fee or
               other  amount  payable  under any Loan  Documents  within 15 days
               after written notice from Agent that the same has become due.

                    (b) Breach of Financial  Covenants.  Borrower  shall fail to
               satisfy any  financial  covenant  set forth in Addendum I to this
               Agreement and such failure  shall  continue for 60 days after the
               earlier of the date of (1) Agent's receipt of notice thereof from
               Borrower, and (2) notice thereof from Agent to Borrower.

                    (c) Other Defaults. Borrower, the REIT, Paragon GP Holdings,
               or Paragon LP Holdings  shall fail duly and punctually to perform
               or observe  any  agreement,  covenant  or  obligation  binding on
               Borrower,  the REIT, Paragon GP Holdings,  or Paragon LP Holdings
               under this  Agreement  or under any of the other  Loan  Documents
               (other than as described in Sections 10.1(a), 10.1(b), 10.1(c) or
               10.1(e)),   and  with   respect  to   agreements,   covenants  or
               obligations for which no time period for performance is otherwise
               provided, such failure shall continue for 15 days after Borrower,
               the REIT,  Paragon GP Holdings,  or Paragon LP Holdings,  knew of
               such  failure  (or such  lesser  period of time as is mandated by
               applicable  Requirements  of  Law);  provided,  however,  if such
               failure is not capable of cure within such 15 day period, then if
               Borrower  promptly  undertakes  action to cure such  failure  and
               thereafter  diligently  prosecutes such cure to completion within
               45 days after Borrower, the REIT, Paragon GP Holdings, or Paragon
               LP Holdings knew of such failure,  then Borrower  shall not be in
               default hereunder.

                    (d) Breach of Representation or Warranty. Any representation
               or warranty made or deemed made by Borrower, the REIT, Paragon GP
               Holdings, or Paragon LP Holdings to


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          Agent or any Lender herein or in any of the other Loan  Documents,  or
          in any  statement,  certificate  or financial  statements  at any time
          given by  Borrower  pursuant  to any of the Loan  Documents,  shall be
          false  or  misleading  in  any  material  respect  on  the  date  such
          representation or warranty was made.

               (e) Default as to Other Indebtedness.  Borrower or the REIT shall
          have (A) defaulted  under any Other  Indebtedness of such party (other
          than Nonrecourse  Indebtedness)  and as a result thereof the holder(s)
          of  such  Other   Indebtedness   shall  have  accelerated  such  Other
          Indebtedness,  if the  aggregate  amount  of  such  accelerated  Other
          Indebtedness (other than Nonrecourse Indebtedness),  together with the
          aggregate  amount of any Other  Indebtedness  (other than  Nonrecourse
          Indebtedness) of such party which has theretofore been accelerated, is
          $5,000,000 or more; or (B) defaulted under Nonrecourse Indebtedness of
          such  party and as a result  thereof  the  holder or  holders  of such
          Nonrecourse  Indebtedness  shall  have  accelerated  such  Nonrecourse
          Indebtedness,  if the aggregate amount of such accelerated Nonrecourse
          Indebtedness,  together with the aggregate  amount of any  Nonrecourse
          Indebtedness of such party which has been theretofore accelerated,  is
          $25,000,000.00 or more.

                  (f)      Involuntary Bankruptcy; Appointment of Receiver, etc.

                           (1) An  involuntary  case shall be commenced  against
         Borrower, the REIT, Paragon GP Holdings, or Paragon LP Holdings and the
         petition shall not be dismissed  within 60 days after  commencement  of
         the case, or a court having  jurisdiction shall enter a decree or order
         for relief in respect of the Borrower,  the REIT,  Paragon GP Holdings,
         or  Paragon LP  Holdings  as the case may be, in an  involuntary  case,
         under any applicable bankruptcy, insolvency or other similar law now or
         hereafter in effect; or any other similar relief shall be granted under
         any applicable federal, state or foreign law, or

                           (2) A decree or order of a court having  jurisdiction
         shall  be  entered  for  the  appointment  of a  receiver,  liquidator,
         sequestrator, trustee, custodian or other officer having similar powers
         over Borrower,  the REIT, Paragon GP Holdings,  or Paragon LP Holdings,
         or over all or a substantial part of the Property of the Borrower,  the
         REIT,  Paragon  GP  Holdings,  or Paragon  LP  Holdings,  or an interim
         receiver,  trustee  or  other  custodian  shall  be  appointed  for the
         Borrower,  the REIT, Paragon GP Holdings, or Paragon LP Holdings, or of
         all or a substantial  part of the Property of the  Borrower,  the REIT,
         Paragon  GP  Holdings,   or  Paragon  LP  Holdings,  or  a  warrant  of
         attachment,  execution or similar process against any substantial  part
         of the Property of the  Borrower,  the REIT,  Paragon GP  Holdings,  or
         Paragon LP  Holdings,  shall be issued and any such event  shall not be
         stayed,  vacated,  dismissed,  bonded or  discharged  within 60 days of
         entry, appointment or issuance.

               (g) Voluntary Bankruptcy;  Appointment of Receiver,  Etc. (1) The
          Borrower, the REIT, Paragon GP Holdings, or Paragon LP Holdings, shall
          have an order for relief  entered  with  respect  to it or  commence a
          voluntary  case under any applicable  bankruptcy,  insolvency or other
          similar law now or hereafter in effect,  or shall consent to the entry
          of an order for relief in an involuntary case, or to the conversion of
          an involuntary  case to a voluntary case, under any such law, or shall
          consent to the  appointment  of or taking of possession by a receiver,
          trustee  or  other  custodian  for  all or a  substantial  part of its
          Property; (2) the Borrower, the REIT, Paragon GP



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          Holdings,  or Paragon LP Holdings,  shall make any  assignment for the
          benefit of creditors  or shall be unable or fail,  or admit in writing
          its inability,  to pay its debts as such debts become due; or, (3) the
          General  Partner  of  Borrower,  or the  board  of  directors  (or any
          committee thereof) of any of the REIT, Paragon GP Holdings, or Paragon
          LP Holdings,  adopts any resolution or otherwise authorizes any action
          to approve any of the foregoing.

               (h) Judgments and Attachments. (1) Any money judgment (other than
          a money  judgment  covered by  insurance,  but only if the insurer has
          admitted  liability  with  respect  to such money  judgment),  writ or
          warrant of  attachment,  or similar  process  involving in any case an
          amount in excess of  $1,000,000.00  shall be entered or filed  against
          the Borrower,  the REIT, Paragon GP Holdings,  or Paragon LP Holdings,
          or their respective assets and shall remain  undischarged,  unvacated,
          unbonded or unstayed  for a period of 30 days;  or (2) any judgment or
          order of any court or administrative  agency awarding material damages
          shall be entered against the Borrower,  the REIT, Paragon GP Holdings,
          or Paragon LP  Holdings,  in any action  under the Federal  securities
          laws  seeking  rescission  of the  purchase or sale of, or for damages
          arising from the purchase or sale of, any Securities, such judgment or
          order  shall have  become  final  after  exhaustion  of all  available
          appellate  remedies  and,  in Agent's  judgment,  the  payment of such
          judgment or order will have a Material  Adverse Effect on the Borrower
          or the REIT, as the case may be.

               (i) Dissolution.  Any order,  judgment or decree shall be entered
          against  the  Borrower,  the REIT,  Paragon GP  Holdings or Paragon LP
          Holdings,  decreeing its involuntary  dissolution or split up and such
          order shall remain undischarged and unstayed for a period in excess of
          30 days; or the Borrower,  the REIT, Paragon GP Holdings or Paragon LP
          Holdings shall otherwise dissolve or cease to exist.

               (j) Loan Documents; Failure of Security or Subordination.  Except
          as  provided  in  Section  3.2,  if for any  reason  (1) any  material
          provision  of a Loan  Document  shall  cease to be in full  force  and
          effect,  or any Lien intended to be created by any Loan Document shall
          cease  to be or is not  valid or  perfected;  (2) any Lien in favor of
          Agent  contemplated  by this Agreement or any Loan Document  shall, at
          any time, be  invalidated  or otherwise  cease to be in full force and
          effect;  or (3) any such Lien or any Obligation  shall be subordinated
          or shall not have the priority  contemplated  by this Agreement or the
          Loan  Documents for any reason;  and such failure  shall  continue for
          more than 15 days  after  Agent  provides  written  notice  thereof to
          Borrower.

               (k) ERISA Liabilities. Any Termination Event occurs which will or
          is  reasonably  likely  to  subject  Borrower,  the REIT,  Paragon  GP
          Holdings,  or Paragon LP  Holdings,  or any ERISA  Affiliate of any of
          them, to a liability  which Agent  reasonably  determines  will have a
          Material  Adverse  Effect  on  Borrower  or the  REIT,  or  any  ERISA
          Affiliate of any of them, the plan  administrator  of any Benefit Plan
          applies for approval under Section 412(d) of the Internal Revenue Code
          for a waiver of the minimum funding standards of Section 412(a) of the
          Internal  Revenue  Code  and  Agent  reasonably  determines  that  the
          business  hardship upon which the Section 412(d) waiver was based will
          or could reasonably be anticipated to subject  Borrower,  the REIT, or
          any  ERISA  Affiliate  of any of  them,  to a  liability  which  Agent
          determines  will have a Material  Adverse  Effect on  Borrower  or the
          REIT.




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               (l) Solvency. Borrower, the REIT, Paragon GP Holdings, or Paragon
          LP Holdings shall cease to be Solvent.

               (m) Management. William R. Cooper shall cease to be active in the
          executive and operational  management of Borrower and the REIT for any
          reason  whatsoever  during the initial term of this Agreement,  and if
          exercised, during the extension period provided for in Section 2.1(d),
          and either (1)  Borrower  and the REIT fail to propose  and  appoint a
          management  replacement  for Mr. Cooper who is acceptable to Agent and
          Requisite   Lenders   within  180  days  of  his  death,   incapacity,
          resignation or termination,  or (2) at least two of Brian Lavin, James
          T. Cobb, Lewis A. Levey and Robert H. Gidel,  fail to remain active in
          the management, or serve on the Board of Directors of the REIT.

               (n) Loss of Public  Services.  The curtailment in availability to
          any  Borrowing  Base  Property of utilities  or other public  services
          necessary  for the  full  occupancy  and use of  such  Borrowing  Base
          Property, or the prohibition,  enjoining or interruption of Borrower's
          right to  occupy,  use or lease such  Borrowing  Base  Property  for a
          continuous period of more than 30 days.

               (o) Unauthorized  Dispositions.  The sale, conveyance,  transfer,
          assignment, mortgage, hypothecation, encumbrance (other than Permitted
          Liens) or pledge,  whether  voluntary,  involuntary or by operation of
          law (herein collectively called  "Disposition"),  of (1) any Borrowing
          Base  Property or any interest  therein,  (2) ownership of the general
          partnership interest in Borrower, or (3) the ownership of any stock in
          the  general  partner  of  Borrower,  as the case may be  (unless  the
          corporation  is a corporation  required to file reports under Sections
          13 or 15(d) of the Securities Exchange Act of 1934), without the prior
          written  consent of Agent.  It is expressly  agreed that in connection
          with determining whether to grant or withhold such consent,  Agent may
          (but is not  obligated  to),  among other  things,  (A)  consider  the
          creditworthiness  of the party to whom such  Disposition  will be made
          and  its  management  ability  with  respect  to such  Borrowing  Base
          Property, (B) consider whether or not the security for the payment and
          performance  of the  Obligations,  or Agent's  ability to enforce  its
          rights,  remedies and recourses with respect to such security, will be
          impaired in any way by the proposed  Disposition,  (C)  require,  as a
          condition  to  granting  such  consent,  an  increase  in the  rate of
          interest payable under the Loan Notes or any other change in the terms
          and provisions of the Loan Notes,  or any of the other Loan Documents,
          (D)  require  that  Agent be  reimbursed  for all costs  and  expenses
          incurred by Agent in investigating the creditworthiness and management
          ability  of the  party to whom  such  Disposition  will be made and in
          determining  whether Agent's security will be impaired by the proposed
          Disposition,  (E) require  the  payment to Agent of a transfer  fee to
          cover the cost of  documenting  the  Disposition  in its records,  (F)
          require the payment of its  reasonable  attorneys'  fees in connection
          with  Disposition,  (G) require the express  assumption of the payment
          and  performance  of  the  Obligations  by  the  party  to  whom  such
          Disposition  will be made (with or without  release of  Borrower  from
          liability  for  such  Obligations),   (H)  require  the  execution  of
          assumption agreements,  modification agreements, supplemental security
          documents,   financing   statements   and  such  other   documents  or
          instruments as Agent shall  reasonably  require,  satisfactory in form
          and  substance  to Agent,  (I)  require  endorsements  (to the  extent
          available  under  applicable  law)  to any  existing  mortgagee  title
          insurance  policies  insuring  Agent's  liens and  security  interests
          covering such  Borrowing  Base  Property,  and (J) require  additional
          security for the payment and performance of the Obligations; or



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               (p) Lien  Priority.  Any Mortgage shall at any time cease to be a
          valid first lien upon a Borrowing Base Property for any reason.

               (q)   Unauthorized   Distributions.   For  any  Fiscal   Quarter,
          distributions  by Borrower on account of Units  exceeds the sum of (1)
          the  product of (A) the  aggregate  amount of any  dividends  declared
          during  such  Fiscal  Quarter  and (B) the  sum of (i) the  number  of
          outstanding  shares of common stock of the REIT and (ii) the number of
          Units owned by Persons  other than  Paragon GP Holdings and Paragon LP
          Holdings  and (2) the  aggregate  amount of expenses  allocable to and
          payable by each of Paragon GP  Holdings,  Paragon LP Holdings  and the
          REIT  during such  Fiscal  Quarter,  as  substantiated  in  supporting
          documentation provided to Agent.

          An Event of Default shall be deemed "continuing" until cured or waived
          in writing in accordance with Section 12.5.

         Section10.2       Rights and Remedies.

                  (a)      Acceleration and Other Remedies.

                    (1) Upon the occurrence of any Event of Default described in
               the  foregoing  Sections  10.1(f) or 10.1(g)  with respect to the
               Borrower,  or the REIT, the Commitments  shall  automatically and
               immediately  terminate and the unpaid principal amount of and any
               and all accrued interest on the Loans shall automatically  become
               immediately  due  and  payable,   together  with  all  additional
               interest  from  time  to  time  accrued   thereon,   and  without
               presentment,  demand or protest or other requirements of any kind
               (including   without   limitation   valuation  and  appraisement,
               diligence, presentment, notice of intent to demand or accelerate,
               or notice of  acceleration),  all of which are  hereby  expressly
               waived by Borrower,  and the  obligations  of Lenders to make any
               Loans hereunder shall thereupon terminate.

                    (2) Upon the  occurrence  and during the  continuance of any
               other Event of Default, Agent shall, at the request, or may, with
               the consent, of Requisite Lenders, by written notice to Borrower,
               (A) declare that the Commitments  are  terminated,  whereupon the
               Commitments  and the  obligation  of  Lenders  to make  any  Loan
               hereunder  shall  immediately  terminate,  and/or (B) declare the
               unpaid  principal  amount of and any and all  accrued  and unpaid
               interest on the Loans,  and all of the other  Obligations  to be,
               and the same shall thereupon be, immediately due and payable with
               all additional  interest from time to time accrued  thereon,  and
               without presentment,  demand, or protest or other requirements of
               any   kind   (including   without   limitation,   valuation   and
               appraisement,  diligence, presentment, notice of intent to demand
               or  accelerate,  or  notice  of  acceleration),  all of which are
               hereby expressly waived by Borrower.

                    (3) After acceleration, upon the request of, or if consented
               to by,  the  Requisite  Lenders,  Agent  shall  foreclose  on the
               Collateral.




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                    (4)  Notwithstanding  Section  10.2(a)(2)  above, if 90 days
               after the date of the written  notice  delivered  by Agent to all
               Lenders of the  occurrence  of an Event of Default  under Section
               10.1(a), fewer than the Requisite Lenders have requested, or have
               been  deemed  to  have  consented  to,  (A)  termination  of  the
               Commitments,  as  provided in Section  10.2(a)(2)(A),  and/or (B)
               acceleration of the Loans and all other Obligations,  as provided
               in Section  10.2(a)(2)(B),  and/or (C) any other course of action
               recommended by Agent,  then,  provided that such Event of Default
               is  continuing  and Lenders  whose Pro Rata Shares  represent  at
               least fifty-one percent (51%) of the aggregate Commitments,  have
               requested,  or have been deemed to have consented to, termination
               of the Commitment,  as provided in Section 10.2(a)(2)(A),  and/or
               acceleration of the Loans and all other Obligations,  as provided
               in  Section  10.2(a)(2)(B),  and/or  any  other  course of action
               recommended  by Agent,  as the case may be, Agent shall take such
               action, as shall have been requested or consented to.

                    (5)  Notwithstanding  Section  10.2(a)(3)  above, if 90 days
               after the acceleration of the Loans and all other Obligations, as
               provided in Section  10.2(a)(2)(B) or Section  10.2(a)(4),  fewer
               than the  Requisite  Lenders  but  Lenders  whose Pro Rata Shares
               represent  at least  fifty-one  percent  (51%)  of the  aggregate
               Commitments,   have  requested,  or  have  been  deemed  to  have
               consented to, the foreclosure of the  Collateral,  as provided in
               Section 10.2(a)(3), then Agent shall foreclose on the Collateral.

               (b) Access to  Information.  If an Event of Default  then exists,
          Agent shall have, in addition to and not by way of a limitation of any
          other rights and remedies  contained in this Agreement or in the other
          Loan Documents,  the right within 48 hours after notice to Borrower to
          obtain  access  to  Borrower's  data  processing  equipment,  computer
          hardware and software  relating to the Borrowing  Base  Properties and
          the other Collateral,  and its accounting  information relating to the
          Borrowing Base Properties and the other Collateral,  and to use all of
          the  foregoing  and the  information  contained  therein in any manner
          Agent  deems  appropriate  which is  related  to the  preservation  or
          disposition of the Borrowing Base Properties and the other  Collateral
          or to the collection of the  Obligations.  Borrower hereby  authorizes
          any  accountant  or management  Agent  employed by Borrower to deliver
          such items and information to Agent.  Notwithstanding  anything to the
          contrary  contained in the Loan Documents,  upon the occurrence of and
          during the continuance of an Event of Default, Agent shall be entitled
          to request and receive,  by or through  Borrower or appropriate  legal
          process,  any and all information  concerning the Borrower,  the REIT,
          Paragon GP Holdings,  Paragon LP Holdings,  the Management Company, or
          any  Property  of  any of  them,  which  is  reasonably  available  or
          obtainable.

               (c) Use of  Intangibles.  To the extent  Borrower  has the power,
          without  violating  the  terms  of any  agreement  existing  as of the
          Closing  Date,  to grant  such a  license,  Agent  (on  behalf  of all
          Lenders) is hereby  granted a license or other  right to use,  without
          charge,  Borrower's copyrights,  rights of use of any name (other than
          the name  "Paragon,"  derivatives  thereof and any  trademarks,  trade
          names,  service  marks or logos,  associated  with the name  Paragon),
          trade secrets, trade names, tradestyles, trademarks, service marks and
          advertising  matter,  or  any  property  of a  similar  nature,  as it
          pertains  to the  Collateral,  advertising  for sale and  selling  any
          Collateral.




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               (d) IWaiver of Demand. Demand, presentment, protest and notice of
          nonpayment  are hereby  waived by Borrower and the REIT.  Borrower and
          the REIT also waive,  to the extent  permitted  by law, the benefit of
          all valuation, appraisal and exemption laws.

               (e) Waivers,  Amendments  and  Remedies.  No delay or omission of
          Agent or Lenders to exercise any right under any Loan  Document  shall
          impair  such  right or be  construed  to be a waiver  of any  Event of
          Default or an acquiescence therein, and any single or partial exercise
          of any such right shall not preclude other or further exercise thereof
          or the exercise of any other right, and no waiver,  amendment or other
          variation of the terms, conditions or provisions of the Loan Documents
          whatsoever  shall be valid  unless in a writing  signed by Agent after
          obtaining  written approval thereof or the signature  thereon of those
          Lenders required to approve such waiver, amendment or other variation,
          and then only to the extent  specifically  set forth in such  writing.
          All remedies  contained in the Loan Documents or by law afforded shall
          be cumulative and available to Agent and Lenders until the Obligations
          have been paid in full, the Commitments have expired or terminated and
          this Agreement has been terminated.


                                   ARTICLE 11
                                AGENCY PROVISIONS

         Section11.1       Appointment.

               (a) Each Lender hereby (i) designates and appoints Wells Fargo as
          Agent of such Lender under this Agreement and the Loan Documents, (ii)
          authorizes  and directs Agent to enter into the Loan  Documents  other
          than this Agreement for the benefit of Lenders,  and (iii) each Lender
          hereby  authorizes  Agent to take such action on its behalf  under the
          provisions of this  Agreement  and the Loan  Documents and to exercise
          such  powers as are set forth  herein or therein,  together  with such
          other  powers as are  reasonably  incidental  thereto,  subject to the
          limitations referred to in Sections 11.10(a),  11.10(b),  11.10(c) and
          12.5.  Agent  agrees to act as Agent for the  Lenders  on the  express
          conditions contained in this Article 11.

               (b) The  provisions of this Article 11 are solely for the benefit
          of Agent and Lenders,  and Borrower  shall not have any rights to rely
          on or enforce any of the  provisions  hereof  (other than as expressly
          set forth in  Sections  11.3,  11.9,  or  11.13).  In  performing  its
          functions and duties under this  Agreement,  Agent shall act solely as
          Agent of  Lenders  and does not assume and shall not be deemed to have
          assumed any obligation  toward,  or  relationship  of agency or trusts
          with or for, Borrower or any other Person.

          Section11.2  Nature of  Duties.  Agent  shall  not have any  duties or
          responsibilities except those expressly set forth in this Agreement or
          in the Loan Documents.  The duties of Agent shall be administrative in
          nature,  consistent  with its  obligations  hereunder.  Subject to the
          provisions of Sections 11.5 and 11.7, Agent shall administer the Loans
          in the same manner as it  administers  its own loans.  Agent shall not
          have by  reason  of  this  Agreement  or its  designation  as  Agent a
          fiduciary  relationship  in  respect  of  any  Lender.  Promptly  upon
          execution by Borrower, Agent shall deliver to each Lender an original,
          executed Loan Note in the original principal amount of such Lender's



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          Commitment payable to the order of such Lender. All original, executed
          Loan  Documents  other than the Loan Notes shall be retained by Agent.
          Agent will  deliver,  however,  to each  Lender a true,  complete  and
          correct copy of each Loan  Document  listed on the Closing  Checklist.
          Nothing in this Agreement or any of the Loan  Documents,  expressed or
          implied,  is intended or shall be  construed  to impose upon Agent any
          obligation in respect of this  Agreement or any of the Loan  Documents
          except as expressly set forth herein or therein.  Agent shall not have
          by reason of this Agreement a fiduciary  relationship with any Lender.
          Each  Lender  shall  make  its own  independent  investigation  of the
          financial condition and affairs of the Borrower,  the REIT, Paragon GP
          Holdings,  Paragon LP Holdings  and each  Borrowing  Base  Property in
          connection  with the making and the continuance of the Loans hereunder
          and  shall  make  its own  appraisal  of the  creditworthiness  of the
          Borrower, and, except as specifically provided herein, Agent shall not
          have any duty or  responsibility,  either initially or on a continuing
          basis, to provide any Lender with any credit or other information with
          respect thereto, whether coming into its possession before the Closing
          Date or at any time or times thereafter.

         Section11.3       Loan Disbursements.

               (a) Not later than the next Business Day  following  receipt of a
          Notice of  Borrowing,  Agent shall send a copy thereof by facsimile to
          each  other  Lender  and shall  otherwise  notify  each  Lender of the
          proposed  Borrowing  and the  Funding  Date.  Each  Lender  shall make
          available to Agent the amount of such  Lender's Pro Rata Share of such
          Borrowing  in  immediately  available  funds not  later  than the time
          designated in Section  11.3(b).  Unless Agent shall have been notified
          by any  Lender  prior  to such  time for  funding  in  respect  of any
          Borrowing  that such Lender does not intend to make available to Agent
          such Lender's Pro Rata Share of such Borrowing,  Agent may assume that
          such Lender has made such amount  available  to Agent.  If a Lender (a
          "Non-Funding  Lender") does not make  available to Agent such Lender's
          Pro  Rata  Share of such  Borrowing,  any  other  Lender  (a  "Funding
          Lender") in its sole  discretion  may, but shall not be obligated  to,
          fund to  Borrower,  all or any part of such  Non-Funding  Lender's Pro
          Rata Share of such  Borrowing.  Such  Non-Funding  Lender shall pay to
          such  Funding  Lender on demand the  amount so funded by such  Funding
          Lender,  together with interest  thereon at the Federal Funds Rate. If
          such Non-Funding  Lender pays such Funding Lender the amount so funded
          by such Funding Lender,  then such amount shall constitute all or part
          of such  Non-Funding  Lender's Pro Rata Share of such  Borrowing.  If,
          however,  the  amount  so funded  by such  Funding  Lender is not made
          available  to such  Funding  Lender by the  Non-Funding  Lender,  then
          Borrower  agrees to repay such Funding  Lender such  amount,  together
          with interest thereon at the Base Rate for each day from the date such
          amount is made  available  to  Borrower  until the date such amount is
          repaid to such Funding  Lender.  If both such  Non-Funding  Lender and
          Borrower shall have paid and repaid, respectively,  such corresponding
          amount,  such  Funding  Lender shall  promptly  return to Borrower the
          refunded amount in same day funds,  together with the interest thereon
          that  Borrower  paid to such Funding  Lender.  Nothing in this Section
          11.3(a)  shall  alter the  respective  rights and  obligations  of the
          parties  hereunder in respect of a Defaulting Lender or a Non-Pro Rata
          Loan.

               (b)  Requests  by Agent for  funding  by Lenders of Loans will be
          made by  telecopy.  Each  Lender  shall  make the  amount  of its Loan
          available to Agent in Dollars and in immediately  available  funds, to
          such  bank  and  account,  in El  Segundo,  California  as  Agent  may
          designate, not


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          later than 10:00 A.M.  California time, on the Funding Date designated
          in the Notice of Borrowing  with respect to such Loan, but in no event
          earlier than two (2) Business Days following  Lender's  receipt of the
          applicable Notice of Borrowing.

               (c)  Nothing in Section  11.3(a)  shall be deemed to relieve  any
          Lender of its obligation hereunder to make its Pro Rata Share of Loans
          on any  Funding  Date,  nor shall any  Lender be  responsible  for the
          failure of any other Lender to perform its obligation to make any Loan
          hereunder,  and the Commitment of any Lender shall not be increased or
          decreased  as a result of the  failure by any other  Lender to perform
          its obligation to make a Loan.

         Section11.4       Distribution and Apportionment of Payments.

               (a) Subject to Section  11.4(b),  payments  actually  received by
          Agent for the account of Lenders shall be paid to them promptly  after
          receipt  thereof by Agent,  but in any event within one Business  Day.
          Agent shall pay to such Lenders interest thereon, at the lesser of (1)
          the Federal Funds Rate and (2) the rate of interest applicable to such
          Loans,  from the Business Day following receipt of such funds by Agent
          until  such  funds  are paid in  immediately  available  funds to such
          Lenders.  Subject to Section  11.4(b),  all payments of principal  and
          interest in respect of  outstanding  Loans,  all  payments of the fees
          described in this Agreement,  and all payments in respect of any other
          Obligations  shall be allocated  among such of Lenders as are entitled
          thereto,  in  proportion  to  their  respective  Pro  Rata  Shares  or
          otherwise as provided herein. Agent shall promptly distribute,  but in
          any event within one Business  Day, to each Lender by wire transfer as
          set forth on the appropriate  counterpart signature page hereof, or on
          the Assignment and Assumption,  or as a Lender may request in writing,
          such funds as it may be entitled to receive.  Agent shall not be bound
          to inquire into or determine  the  validity,  scope or priority of any
          interest or entitlement of any Lender and may suspend all payments and
          seek appropriate relief (including,  without limitation,  instructions
          from Requisite Lenders or all Lenders, as applicable,  or an action in
          the nature of interpleader) in the event of any doubt or dispute as to
          any apportionment or distribution  contemplated  hereby.  The order of
          priority  herein  is set forth  solely to  determine  the  rights  and
          priorities  of Lenders as  amongst  themselves  and may at any time or
          from time to time be changed by Lenders as they may elect,  in writing
          in accordance  with Section 12.5,  without  necessity of notice to, or
          consent of or approval by, Borrower or any other Person.  All payments
          or other sums received by Agent for the account of Lenders (including,
          without limitation,  principal and interest payments,  the proceeds of
          any and all insurance  maintained with respect to any collateral,  and
          all proceeds from the condemnation of any Collateral) shall be held by
          Agent,  solely for the  benefit of Lenders,  consistent  with the Loan
          Documents, and shall not constitute assets of Agent.

               (b) Notwithstanding  any provision hereof to the contrary,  until
          such time as a  Defaulting  Lender has funded its Pro Rata Share which
          was previously a Non Pro Rata Loan, or all other Lenders have received
          payment in full (whether by repayment or  prepayment) of the principal
          and  interest  due in respect  of such Non Pro Rata  Loan,  all of the
          Obligations  owing  to  such  Defaulting  Lender  hereunder  shall  be
          subordinated  in  right  of  payment,  as  provided  in the  following
          sentence, to the prior payment in full of all principal,  interest and
          fees in  respect  of all Non Pro Rata  Loans in which  the  Defaulting
          Lender has not funded its Pro Rata Share (such principal, interest and
          fees  being  referred  to as  "Senior  Loans").  All  amounts  paid by
          Borrower and otherwise due to be



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          applied to the Obligations  owing to the Defaulting Lender pursuant to
          the terms hereof shall be distributed by Agent to the other Lenders in
          accordance  with their  respective Pro Rata Shares  (recalculated  for
          purposes hereof to exclude the Defaulting Lender's Commitment),  until
          all Senior Loans have been paid in full.  This provision  governs only
          the relationship  among Agent, each Defaulting  Lender,  and the other
          Lenders.  Nothing  herein  shall limit the  obligation  of Borrower to
          repay all Loans in accordance  with the terms of this  Agreement.  The
          provisions  of this  Section  11.4(b)  shall  apply  and be  effective
          regardless  of  whether  an  Event  of  Default  occurs  and  is  then
          continuing,  and  notwithstanding  (1)  any  other  provision  of this
          Agreement to the contrary;  (2) any  instruction of Borrower as to its
          desired  application  of  payments;  or (3)  the  suspension  of  such
          Defaulting  Lender's right to vote on matters which are subject to the
          consent or approval of  Requisite  Lenders or all  Lenders.  No Unused
          Facility  Fee or any other fee shall accrue in favor of, or be payable
          to, such Defaulting  Lender from the date of any failure to fund Loans
          or reimburse  Agent for any  Liabilities  and Costs as herein provided
          until such failure has been cured,  and Agent shall be entitled to (A)
          collect  interest from such Defaulting  Lender for the period from the
          date on which the  payment was due until the date on which the payment
          is made at the Federal Funds Rate for each day during such period; (B)
          withhold or setoff,  and apply to the payment of the defaulted  amount
          and any related  interest,  any amounts to be paid to such  Defaulting
          Lender under this  Agreement;  and (C) bring an action or suit against
          such Defaulting Lender in a court of competent jurisdiction to recover
          the  defaulted  amount and any  related  interest.  In  addition,  the
          Defaulting  Lender shall indemnify,  defend and hold Agent and each of
          the other Lenders  harmless  from and against any and all  Liabilities
          and  Costs,  plus  interest  thereon,  at a rate which is 4% per annum
          above the Base Rate, which they may sustain or incur by reason or as a
          direct  consequence of the Defaulting  Lender's  failure or refusal to
          abide by its obligations under this Agreement.

          Section11.5 Rights, Exculpation,  Etc. None of Agent, any Affiliate of
          Agent, nor any of their  respective  officers,  directors,  employees,
          Agents,  attorneys or  consultants,  shall be liable to any Lender for
          any action taken or omitted by them hereunder or under any of the Loan
          Documents,  or in connection herewith or therewith,  except that Agent
          shall be liable for its gross negligence or willful  misconduct (which
          shall   include   fraud  and  bad   faith)  in  the   performance   or
          nonperformance of its express obligations hereunder. In the absence of
          gross negligence or willful  misconduct (which shall include fraud and
          bad  faith),  Agent  shall  not be  liable  for any  apportionment  or
          distribution  of payments made by it in good faith pursuant to Section
          11.4, and if any such  apportionment  or  distribution is subsequently
          determined to have been made in error, the sole recourse of any Person
          to whom  payment was due,  but not made,  shall be to recover from the
          recipients  of such  payments  any  payment in excess of the amount to
          which they are  determined to have been  entitled.  Agent shall not be
          responsible   to   any   Lender   for   any   recitals,    statements,
          representations   or   warranties   herein   or  for  the   execution,
          effectiveness,  genuineness, validity, enforceability,  collectability
          or sufficiency of this Agreement, any of the Mortgage Documents or any
          of the other Loan Documents,  or any of the transactions  contemplated
          hereby and thereby; or for the financial condition of the Borrower, or
          the REIT, or any of their respective Subsidiaries or Affiliates. Agent
          shall  not be  required  to make any  inquiry  concerning  either  the
          performance  or  observance  of  any  of  the  terms,   provisions  or
          conditions  of this  Agreement  or any of the  Loan  Documents  or the
          financial  condition  of the  Borrower  or the  REIT,  or any of their
          Subsidiaries or Affiliates,  or the existence or possible existence of
          any Unmatured Event of Default or Event of Default.



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               Section11.6 Reliance.  Agent and each Lender shall be entitled to
          rely upon any written  notices,  statements,  certificates,  orders or
          other documents, telecopies or any telephone message believed by it in
          good faith to be genuine and correct and to have been signed,  sent or
          made by the proper Person,  and with respect to all matters pertaining
          to this  Agreement or any of the other Loan  Documents  and its duties
          hereunder  or  thereunder,  upon  advice of legal  counsel  (including
          counsel  for  Borrower),  independent  public  accountants  and  other
          experts selected by it.

               Section11.7  Indemnification.  To the  extent  that  Agent is not
          reimbursed and indemnified by Borrower, Lenders will reimburse, within
          ten Business  Days after notice from Agent,  and  indemnify and defend
          Agent for and against any and all  Liabilities  and Costs which may be
          imposed on, incurred by, or asserted  against,  it in any way relating
          to or arising out of this Agreement,  the Mortgage Documents or any of
          the other Loan  Documents  or any action  taken or omitted by Agent or
          under this Agreement,  the Mortgage Documents or any of the other Loan
          Documents,  in proportion to each Lender's Pro Rata Share.  No Lender,
          however, shall be liable for any portion of such Liabilities and Costs
          resulting from Agent's gross negligence or willful  misconduct  (which
          shall include fraud and bad faith).  The  obligations of Lenders under
          this Section 11.7 shall survive the payment in full of all obligations
          and the termination of this Agreement. In the event that after payment
          and  distribution  of any  amount by Agent to  Lenders,  any Lender or
          third  party,  including  Borrower,  any  creditor of  Borrower,  or a
          trustee in  bankruptcy,  recovers  from Agent any amount found to have
          been wrongfully  paid to Agent or disbursed by Agent to Lenders,  then
          Lenders,  in  proportion  to  their  respective  Pro Rata  Shares,  or
          otherwise as may have been  distributed  to Lenders,  shall  reimburse
          Agent for all such amounts. Notwithstanding the foregoing, Agent shall
          not be obligated to advance  Liabilities and Costs and may require the
          deposit  by  each  Lender  of its  Pro  Rata  Share  of  any  material
          Liabilities and Costs anticipated by Agent before they are incurred or
          made payable.

               Section11.8 Agent and Lenders  Individually.  With respect to its
          Pro Rata Share of the Commitments  hereunder and the Loans made by it,
          Agent shall have and may exercise the same rights and powers hereunder
          and is subject to the same  obligations and liabilities as, and to the
          extent set forth herein for, any other  Lender.  The terms  "Lenders,"
          "Requisite Lenders,"  "Supermajority Lenders" or any similar terms may
          include  Agent in its  individual  capacity  as a Lender or one of the
          Requisite Lenders or one of the Supermajority Lenders, but neither the
          term "Requisite  Lenders" nor the term  "Supermajority  Lenders" shall
          include Agent solely in its capacity as Agent and need not necessarily
          include  Agent in its capacity as a Lender.  Each Lender and the Agent
          and their  respective  Affiliates may accept deposits from, lend money
          to,  and  generally  engage  in any  kind of  banking,  trust or other
          business with Borrower or any of its Subsidiaries or Affiliates.

          Section11.9 Successor Agent; Resignation of Agent, Removal of Agent.

               (a) Agent may resign from the performance of all of its functions
          and duties  hereunder at any time by giving at least 30 Business  Days
          prior   written   notice  to  Lenders   and   Borrower.   Agent  shall
          automatically  cease to be Agent  hereunder  in the event the  Federal
          Deposit  Insurance  Corporation  or any other  Governmental  Authority
          shall assume control of Agent. For good cause,  Requisite  Lenders may
          remove  Agent at any time by giving at least 30  Business  Days  prior
          written  notice  to  Agent,  Borrower  and  all  other  Lenders.  Such
          resignation or removal shall



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          take effect upon the  acceptance by a successor  Agent of  appointment
          pursuant to clauses (b) and (c) below or as otherwise  provided below.
          Concurrently with the effectiveness of such appointment,  (1) Borrower
          shall pay to the  retiring  or removed  Agent any  accrued  and unpaid
          Agency Fee, or (2) Agent shall refund to Borrower  any prepaid  agency
          fee; in each case prorated to the effective date of the appointment of
          a successor Agent.

               (b) Upon any such notice of  resignation  by or removal of Agent,
          Requisite  Lenders shall appoint a successor Agent with the consent of
          Borrower and with the consent of the proposed  successor Agent,  which
          shall not be  unreasonably  withheld or delayed.  Any successor  Agent
          must be a bank (1) the  senior  debt  obligations  of  which  (or such
          Bank's parent's  unsecured senior debt obligations) are rated not less
          than Baa-2 by Moody's Investors Services,  Inc. or a comparable rating
          by a rating agency acceptable to Requisite Lenders;  and (2) which has
          total assets in excess of $10,000,000,000.  Such successor Agent shall
          separately confirm in writing with Borrower the fee to be paid to such
          successor Agent.

               (c) If a successor Agent shall not have been so appointed  within
          said 30 Business Day period,  the retiring or removed Agent,  with the
          consent  of  Borrower  (which  may  not be  unreasonably  withheld  or
          delayed),  shall  then  appoint a  successor  Agent who shall meet the
          requirements  described in subsection (b) above and who shall serve as
          Agent until such time, if any, as Requisite Lenders,  with the consent
          of Borrower, appoint a successor Agent as provided above.

         Section11.10      Consent and Approvals.

          (a) Each of the  following  shall  require the  approval or consent of
          Requisite Lenders:

                    (1) Approval of an increase in the  Borrowing  Base Value of
                    any  Borrowing  Base Property if such increase is the result
                    of an increase in the Appraised Value of such Borrowing Base
                    Property (Section 3.3(b));

                    (2) Approval of a Construction Project on any Borrowing Base
                    Property (Section 3.4(d));

                    (3)  Approval of changes in  management  of the Borrower and
                    the REIT pursuant to Section 8.1(i);

                    (4) Except as  otherwise  provided  in Section  10.2(a)(4)),
                    acceleration   following   an  Event  of  Default   (Section
                    10.2(a));

                    (5) Except as  otherwise  provided  in  Section  10.2(a)(5),
                    approval of the  exercise of rights and  remedies  under the
                    Loan  Documents  following  an  Event  of  Default  (Section
                    10.2(a));

                    (6) Removal of Agent and appointment of a successor to Agent
                    (Section 11.9);



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                    (7)  Approval  of  certain   Protective   Advances  (Section
                    11.11(a));

                    (8)  Except  as  otherwise  provided  in  Section  11.11(e),
                    approval  of a  Post-Foreclosure  Plan and  related  matters
                    (Section 11.11(e));

                    (9)  Except as  referred  to in Section  11.10(b),  11.10(c)
                    below,   approval   of  any   amendment,   modification   or
                    termination  of this  Agreement  or waiver of any  provision
                    herein;

                    (10)  Approval of any Major  Agreement  that has  provisions
                    which are inconsistent with Section 3.4(b)(1); and

                    (11) Any material  amendment to a Project Budget;  provided,
                    however,  that Agent may consent without the approval of the
                    Requisite  Lenders to changes in the  Development  Plans and
                    increases in or  reallocations  of actual or projected costs
                    of the Improvements so long as such changes or increases (A)
                    do not  involve a cost of more than the  greater  of $75,000
                    for any line item in the Project  Budget or 15% of such line
                    item or (B) do not  involve  an  aggregate  increase  in the
                    Project Budget of more than $400,000.

               (b) Each of the  following  shall require the approval or consent
          of  Supermajority  Lenders:  (1) acceptance of each new Borrowing Base
          Stabilized   Property  (Section  3.1);  and(2)  the  conversion  of  a
          Borrowing Base  Development  Property that does not achieve 90% of the
          stabilized  gross revenues (on an annualized  basis) projected for the
          first year in the Appraisal for each of three months by the Conversion
          Date to a  Borrowing  Base  Stabilized  Property  pursuant to (Section
          3.3(b));  and (3) release of any Borrowing  base Property if (a) there
          will be only three or fewer Borrowing Base Stabilized Properties which
          contribute  less than $8,000,000 in value to the Borrowing Base or (b)
          the  average  year  of  completion  of the  remaining  Borrowing  Base
          Properties is prior to 1985; and (4) the  encumbrance of more than 75%
          of    Borrower's    wholly   owned   assets   on   a    non-repayable,
          cross-collateralized basis.

               (c)  Each   amendment,   modification   or  waiver   specifically
               enumerated  in Section  12.5  shall  require  the  consent of all
               Lenders.

               (d) Any Interest Period of 12 months shall require the consent of
               all Lenders.

               (e) In addition to the required consents or approvals referred to
          in  Sections  11.10(a)  and (b) above,  Agent may at any time  request
          instructions  from  Requisite  Lenders  with respect to any actions or
          approvals  which, by the terms of this Agreement or of any of the Loan
          Documents,  Agent is permitted or required to take or to grant without
          instructions  from any Lenders,  and if such instructions are promptly
          requested,  Agent shall be absolutely  entitled to refrain from taking
          any  action or to  withhold  any  approval  and shall not be under any
          liability  whatsoever  to any Person for  refraining  from  taking any
          action or  withholding  any approval  under any of the Loan  Documents
          until it shall have received such instructions from Requisite Lenders.
          Without  limiting  the  foregoing,  no Lender  shall have any right of
          action whatsoever against Agent as a result of Agent



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          acting or refraining  from acting under this  Agreement,  the Mortgage
          Documents or any of the other Loan  Documents in  accordance  with the
          instructions  of  Requisite  Lenders  or,  where  applicable,   either
          Supermajority Lenders or all Lenders. Agent shall promptly notify each
          Lender at any time that the Requisite Lenders have instructed Agent to
          act or refrain from acting pursuant hereto.

               (f) Each  Lender  agrees  that any  action  taken by Agent at the
          direction or with the consent of (1) either the  Requisite  Lenders or
          Supermajority  Lenders  in  accordance  with  the  provisions  of this
          Agreement or any Loan  Document,  or (2) Lenders whose Pro Rata Shares
          represent at least  fifty-one (51%) of the aggregate  Commitments,  in
          accordance with Sections 10.2(a)(4), 10.2(a)(5), and 11.11(e), and the
          exercise by Agent at the request or with the consent of (A) either the
          Requisite  Lenders  or  Supermajority  Lenders of the powers set forth
          herein or therein,  or (B) Lenders whose Pro Rata Shares  represent at
          least fifty-one (51%) of the aggregate Commitments, in accordance with
          Sections 10.2(a)(4),  10.2(a)(5), and 11.11(e), and together with such
          other powers as are reasonably incidental thereto, shall be authorized
          by and  binding  upon all  Lenders,  except for  actions  specifically
          requiring the approval of all Lenders.  All communications  from Agent
          to Lenders requesting  Lenders'  determination,  consent,  approval or
          disapproval (i) shall be given in the form of a written notice to each
          Lender;  (ii) shall be  accompanied  by a description of the matter or
          thing as to which such determination, approval, consent or disapproval
          is  requested,  or shall advise each Lender where such matter or thing
          may be inspected,  or shall otherwise  describe the matter or issue to
          be resolved;  (iii) shall include, if reasonably requested by a Lender
          and to the extent not  previously  provided  to such  Lender,  written
          materials and a summary of all oral  information  provided to Agent by
          Borrower  in respect of the matter or issue to be  resolved;  and (iv)
          shall include Agent's recommended course of action or determination in
          respect  thereof.  Each Lender shall reply promptly,  but in any event
          within 15 Business Days (the "Lender Reply  Period").  Unless a Lender
          shall   give   written   notice  to  Agent  that  it  objects  to  the
          recommendation  or  determination  of Agent  (together  with a written
          explanation  of the reasons behind such  objection)  within the Lender
          Reply  Period,  such  Lender  shall be deemed to have  approved  of or
          consented to such  recommendation  or  determination.  With respect to
          decisions  requiring the approval of Requisite Lenders,  Supermajority
          Lenders,  all Lenders,  or Lenders whose Pro Rata Shares  represent at
          least  fifty  one  percent  (51%)  of the  aggregate  Commitments,  as
          provided in Sections 10.2(a)(4), 10.2(a)(5), and 11.11(e), Agent shall
          submit its  recommendation or determination for approval of or consent
          to such  recommendation  or  determination  to all  Lenders,  and upon
          receiving the required  approval or consent shall follow the course of
          action or determination  recommended to Lenders by Agent or such other
          course of  action  recommended  by  Requisite  Lenders,  Supermajority
          Lenders,  all Lenders,  or Lenders whose Pro Rata Shares  represent at
          least  fifty-one  percent  (51%)  of  the  aggregate  Commitments,  as
          provided in Sections 10.2(a)(4),  10.2(a)(5),  and 11.11(e),  and each
          nonresponding  Lender  shall be  deemed  to have  concurred  with such
          recommended course of action.

          (g) Acceptance of each new Borrowing Base  Development  Property shall
          require the consent of all Lenders.



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         Section11.11      Agency Provisions Relating to Collateral.

               (a) Agent is hereby  authorized,  without  the  necessity  of any
          notice to or further  consent  from any  Lender,  prior to an Event of
          Default,  to take any action with  respect to any  Collateral  or Loan
          Document  which may be  necessary  to perfect and  maintain  perfected
          Liens upon the  Collateral  granted  pursuant  to the Loan  Documents.
          Agent may make, and shall be reimbursed by Lenders (in accordance with
          their Pro Rata Shares) to the extent not  reimbursed  by Borrower for,
          Protective  Advance(s)  during any one  calendar  year with respect to
          each Borrowing Base Property up to the sum of (1) amounts  expended to
          pay real estate taxes,  assessments and governmental charges or levies
          imposed upon such Borrowing Base Property; (2) amounts expended to pay
          insurance premiums for policies of insurance related to such Borrowing
          Base  Property;  and  (3) One  Hundred  Thousand  Dollars  ($100,000).
          Protective  Advances  during any calendar  year (A) for any  Borrowing
          Base  Property  in  excess  of said sum or (B)  that  will  cause  the
          aggregate  Protective  Advances for all Borrowing  Base  Properties to
          exceed Five Hundred  Thousand  Dollars  ($500,000),  shall require the
          consent of Requisite Lenders. In addition,  Agent is hereby authorized
          on behalf of all  Lenders,  without the  necessity of any notice to or
          further  consent from any Lender,  to waive the imposition of the late
          fees  provided  for in  Section  2.4(e) up to a maximum  of four times
          during the term of this Agreement.

               (b) Lenders hereby irrevocably authorize Agent, at its option and
          in its  discretion,  to release  any Lien  granted to or held by Agent
          upon  any  Collateral  (1) upon  termination  of the  Commitments  and
          repayment and satisfaction of all Obligations, and termination of this
          Agreement,  or (2) constituting  property being released in compliance
          with  Section  3.2,  or (3) if  approved,  authorized  or  ratified in
          writing by Agent at the  direction  of all Lenders.  Without  limiting
          Agent's authority to act without any specific or further authorization
          or consent, upon request by Agent at any time, Requisite Lenders shall
          confirm in writing Agent's authority to release the Mortgage Documents
          with respect to any Borrowing  Base Property  pursuant to Section 3.2.
          Agent shall not be required  to execute any  document to evidence  the
          release  of the Liens  granted  to Agent for the  benefit  of  Lenders
          herein or pursuant hereto upon any Collateral if, in Agent's  opinion,
          such document would expose Agent to liability or create any obligation
          or entail any consequence other than the release of such Liens without
          recourse  or  warranty,  and  such  release  shall  not in any  manner
          discharge,  affect or impair  the  Obligations  or any Liens  upon any
          property which shall continue to constitute part of the Collateral.

               (c) Except as  provided  in this  Agreement,  Agent shall have no
          obligation  whatsoever  to any Lender or to any other Person to assure
          that the  Collateral  exists or is owned by  Borrower or is cared for,
          protected or insured or has been  encumbered or that the Liens granted
          to Agent  herein or in any of the other  Loan  Documents  or  pursuant
          hereto or thereto  have been  properly  or  sufficiently  or  lawfully
          created,  perfected,  protected  or  enforced  or are  entitled to any
          particular priority.

               (d)  If  Agent  (1)   employs   counsel   for   advice  or  other
          representation  (whether  or not any suit has been or shall be  filed)
          with respect to any Collateral or any part thereof, or any of the Loan
          Documents,  or the attempt to enforce any security interest or Lien on
          any of the  Collateral,  or (2) commences any proceeding or in any way
          seeks to enforce its rights or remedies under the



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          Loan  Documents  against  any Person  other  than any of the  Lenders,
          irrespective  of whether as a result thereof Agent shall acquire title
          to any  Collateral,  either  through  foreclosure,  deed  in  lieu  of
          foreclosure or otherwise,  each Lender, upon demand therefor from time
          to time,  shall  contribute its share (based on its Pro Rata Share) of
          the  reasonable  costs  and/or  expenses  of any such  advice or other
          representation, enforcement or acquisition, including, but not limited
          to, fees of receivers or trustees, court costs, title company charges,
          filing and recording fees,  appraisers'  fees and fees and expenses of
          attorneys to the extent not otherwise  reimbursed by Borrower.  In the
          event of any  litigation  between Agent and any Lender  arising out of
          this Agreement,  the non-prevailing party in such litigation shall pay
          the counsel fees and expenses of the prevailing party(ies) incurred in
          such litigation. Any loss of principal and interest resulting from any
          Event of Default shall be shared by Lenders in  accordance  with their
          respective  Pro Rata Shares.  If Agent  determines  it is necessary to
          engage  counsel for Lenders from and after the  occurrence of an Event
          of Default, said counsel shall be selected by Agent and written notice
          of such selection,  together with a copy of such counsel's  engagement
          letter and fee  estimate,  shall be  delivered  to Lenders;  provided,
          however,  that such  engagement  of counsel for Lenders by Agent shall
          not preclude any Lender from obtaining its own counsel.

               (e) If all or any portion of the  Collateral is acquired by Agent
          as the  result  of a  foreclosure  or  the  acceptance  of a  deed  or
          assignment in lieu of  foreclosure,  or is retained in satisfaction of
          all or any  part of  Borrower's  obligations,  the  title  to any such
          Collateral, or any portion thereof, shall be held in the name of Agent
          or a nominee or Subsidiary of Agent, as Agent, for the ratable benefit
          of all Lenders. Agent shall prepare a recommended course of action for
          such Collateral (the "Post-Foreclosure  Plan"), which shall be subject
          to the approval of the Requisite Lenders.  If Requisite Lenders do not
          approve such  Post-Foreclosure  Plan, any Lender shall be permitted to
          submit an alternative  Post-Foreclosure Plan to Agent, and Agent shall
          submit  any and all  such  additional  Post-Foreclosure  Plans  to the
          Lenders for  evaluation  and the  approval of Requisite  Lenders.  Any
          Post-Foreclosure  Plan that has been submitted to all Lenders and that
          fewer than the  Requisite  Lenders but  Lenders  whose Pro Rata Shares
          represent  fifty-one  percent  (51%)  of  the  aggregate   Commitments
          approve,  or are deemed to have approved,  shall be binding on all the
          Lenders if the Requisite Lenders do not approve,  or are not deemed to
          have  approved,  a  PostForeclosure  Plan  within 90 days after  Agent
          submits  its first  Post-Foreclosure  Plan to all of the  Lenders.  In
          accordance  with  the  approved  Post-Foreclosure  Plan,  Agent  shall
          manage, operate, repair, administer,  complete,  construct, restore or
          otherwise deal with the Collateral acquired,  and shall administer all
          transactions   relating  thereto,   including,   without   limitation,
          employing  a  management  Agent,   leasing  Agent  and  other  Agents,
          contractors  and  employees,  including  Agents  of the  sale  of such
          Collateral,  and the  collecting  of rents  and  other  sums from such
          Collateral and paying the expenses of such  Collateral.  Actions taken
          by Agent with respect to the Collateral, which are not provided for in
          the approved  Post-Foreclosure  Plan or reasonably incidental thereto,
          shall require the consent of Requisite Lenders by way of supplement to
          such  Post-Foreclosure  Plan.  Upon demand therefor from time to time,
          each Lender will contribute its share (based on its Pro Rata Share) of
          all  reasonable  costs and expenses  incurred by Agent pursuant to the
          approved  Post-Foreclosure  Plan in connection with the  construction,
          operation,   management,   maintenance,   leasing  and  sale  of  such
          Collateral. In addition, Agent shall render or cause to be rendered by
          the managing  Agent,  to each of the Lenders,  monthly,  an income and
          expense  statement for such Collateral,  and each of the Lenders shall
          promptly contribute its Pro Rata Share of any operating loss



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          for such Collateral, and such other expenses and operating reserves as
          Agent shall deem  reasonably  necessary  pursuant to and in accordance
          with the approved  Post-Foreclosure  Plan.  To the extent there is net
          operating income from such Collateral, Agent shall, in accordance with
          the approved Post-Foreclosure Plan, determine the amount and timing of
          distributions  to  Lenders.  All such  distributions  shall be made to
          Lenders in accordance with their  respective Pro Rata Shares.  Lenders
          acknowledge  that if title to any  Collateral  is obtained by Agent or
          its  nominee,  such  Collateral  will  not  be  held  as  a  permanent
          investment but will be liquidated as soon as practicable.  Agent shall
          undertake to sell such  Collateral,  at such price and upon such terms
          and conditions as the Requisite Lenders  reasonably shall determine to
          be most  advantageous.  Any purchase  money  mortgage or deed of trust
          taken  in  connection  with  the  disposition  of such  Collateral  in
          accordance with the immediately  preceding  sentence shall name Agent,
          as Agent for Lenders,  as the beneficiary or mortgagee.  In such case,
          Agent and Lenders  shall enter into an agreement  with respect to such
          purchase  money  mortgage  or deed of trust  defining  the  rights  of
          Lenders  in the same Pro Rata  Shares  as  provided  hereunder,  which
          agreement shall be in all material respects similar to this Article 11
          insofar as the same is appropriate or applicable.

               Section  11.12 Lender  Actions  Against  Collateral.  Each Lender
          agrees that it will not take any action,  nor institute any actions or
          proceedings,  against  Borrower  or the  REIT  under  any of the  Loan
          Documents  with respect to exercising  claims against or rights in any
          Collateral without the consent of Requisite Lenders.

               Section  11.13 Assignments and Participations.

               (a) After first  obtaining  the  approval of Agent and  Borrower,
          which  approvals will not be  unreasonably  withheld,  each Lender may
          assign  to one or  more  banks  or  financial  institutions,  all or a
          portion of its rights and obligations under this Agreement (including,
          without  limitation,  all or a portion of its Commitment and the Loans
          owing to it) and the other Loan Documents; provided, however, that (1)
          each  such  assignment  shall  be of a  constant,  and not a  varying,
          percentage of the assigning Lender's rights and obligations under this
          Agreement and the other Loan Documents and the assignment  shall cover
          the same percentage of such Lender's  Commitment and Loans; (2) unless
          Agent and Borrower  otherwise  consent,  the  aggregate  amount of the
          Commitment of the  assigning  Lender being  assigned  pursuant to each
          such  assignment  (determined  as of the  date of the  Assignment  and
          Assumption with respect to such assignment)  shall in no event be less
          than $10,000,000 and shall be an integral multiple of $1,000,000;  (3)
          after giving effect to such  assignment,  the aggregate  amount of the
          Commitment, if any, retained by the assigning Lender shall in no event
          be less than $10,000,000.00; (4) at all times prior to its resignation
          or replacement,  as Agent,  Wells Fargo's Commitment shall be equal to
          or exceed the Commitment of each other Lender; (5) the parties of each
          such assignment  shall execute and deliver to Agent,  for its approval
          and  acceptance,  an Assignment  and  Assumption;  and (6) Agent shall
          receive  from  the  assignor  a  processing  fee  of  $3,000.  Without
          restricting the right of Borrower or Agent to reasonably object to any
          bank or financial institution becoming an assignee of an interest of a
          Lender hereunder, each proposed assignee must be an existing Lender or
          a bank or  financial  institution  which (A) has (or, in the case of a
          bank which is a  subsidiary,  such bank's  parent has) a rating of its
          senior debt  obligations  of not less than Baa-2 by Moody's  Investors
          Services, Inc. or a comparable rating by a rating agency acceptable to
          Agent, and (B) has total assets in excess of



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          $10,000,000,000.  Each of Agent and Borrower shall give written notice
          to the  assigning  Lender if it  objects  to the  proposed  assignment
          (together  with a  written  explanation  of the  reasons  behind  such
          objection) within ten Business Days following receipt of the assigning
          Lender's written request for approval of the proposed assignment. Upon
          such  execution,  delivery,  approval  and  acceptance,  and  upon the
          effective date specified in the applicable  Assignment and Assumption,
          (i) the assignee thereunder shall be a party hereto and, to the extent
          that  rights  and  obligations  hereunder  have  been  assigned  to it
          pursuant  to such  Assignment  and  Assumption,  have the  rights  and
          obligations  of a  Lender  hereunder,  and  (ii)  the  Lender-assignor
          thereunder shall, to the extent that rights and obligations  hereunder
          have been assigned by it pursuant to such  Assignment and  Assumption,
          relinquish its rights and be released from its obligations  under this
          Agreement.

               (b) By executing and delivering an Assignment and Assumption, the
          Lender-assignor  thereunder and the assignee thereunder confirm to and
          agree with each other and the other  parties  hereto as  follows:  (1)
          other  than  as  provided  in such  Assignment  and  Assumption,  such
          assigning  Lender makes no  representation  or warranty and assumes no
          responsibility   with  respect  to  any   statements,   warranties  or
          representations  made in or in connection  with this  Agreement or any
          other  Loan   Document,   or  the   execution,   legality,   validity,
          enforceability, genuineness, sufficiency or value of this Agreement or
          any other Loan Document, or any other instrument or document furnished
          pursuant hereto;  (2) such assigning Lender makes no representation or
          warranty and assumes no  responsibility  with respect to the financial
          condition of Borrower or the REIT, or the performance or observance by
          Borrower or the REIT,  Paragon GP Holdings or Paragon LP Holdings,  of
          any of their  respective  obligations  under any Loan  Document or any
          other  instrument  or document  furnished  pursuant  hereto;  (3) such
          assignee  confirms  that it has  received  a copy  of this  Agreement,
          together  with  copies  of the  financial  statements  referred  to in
          Article  5 or  delivered  pursuant  to  Article  6 to the date of such
          assignment  and such  other Loan  Documents  and other  documents  and
          information  as it has  deemed  appropriate  to make  its  own  credit
          analysis and decision to enter into such  Assignment  and  Assumption;
          (4) such assignee will, independently and without reliance upon Agent,
          such assigning  Lender or any other Lender and based on such documents
          and information as it shall deem appropriate at the time, make its own
          credit  decisions in taking or not taking action under this Agreement;
          (5) such assignee appoints and authorizes Agent to take such action as
          Agent on its behalf,  and to exercise such powers under this Agreement
          and the other Loan  Documents  as are  delegated to Agent by the terms
          hereof  and  thereof,  together  with such  powers  as are  reasonably
          incidental thereto;  and (6) such assignee agrees that it will perform
          all of the  obligations  which  by the  terms  of this  Agreement  are
          required to be  performed by it as a Lender in  accordance  with their
          terms.

               (c)  Agent  shall  maintain  at its  address  referred  to on the
          counterpart  signature  pages hereof,  a copy of each  Assignment  and
          Assumption  delivered  to and  accepted by it, and shall record in the
          Loan Account the names and addresses of each Lender and the Commitment
          of, and principal  amount of the Loans owing to, each Lender from time
          to time. Borrower,  Agent and Lenders may treat each Person whose name
          is recorded in the Loan Account as a Lender hereunder for all purposes
          of this Agreement.

               (d) Upon its receipt of an Assignment and Assumption  executed by
          an assigning  Lender and an assignee,  Agent shall, if such Assignment
          and Assumption has been properly


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          completed  and is in  substantially  the form of Exhibit A, (1) accept
          such Assignment and Assumption;  (2) record the information  contained
          therein in the Loan  Account;  and (3) give prompt  notice  thereof to
          Borrower. Upon request,  Borrower will execute and deliver to Agent an
          appropriate  replacement  Loan Note or replacement Loan Notes in favor
          of each  assignee  (and  assignor,  if such  assignor  is  retaining a
          portion of its Commitment and Loans)  reflecting  such assignee's (and
          assignor's)  Pro Rata  Share(s) of the  Facility.  Upon  execution and
          delivery of such replacement Loan Notes the original Loan Note or Loan
          Notes  evidencing all or a portion of the  Commitments and Loans being
          assigned shall be canceled and returned to Borrower.

               (e) Each Lender may sell  participations  to one or more banks or
          other entities in or to all or a portion of its rights and obligations
          under this Agreement (including,  without limitation, all or a portion
          of its  Commitment  and the  Loans  owing  to it) and the  other  Loan
          Documents; provided, however, that (1) such Lender's obligations under
          this  Agreement  (including,  without  limitation,  its  Commitment to
          Borrower   hereunder)  and  the  other  Loan  Documents  shall  remain
          unchanged;  (2) such Lender shall  remain  solely  responsible  to the
          other parties  hereto for the  performance  of such  obligations;  (3)
          Borrower,  Agent and the other Lenders  shall  continue to deal solely
          and directly with such Lender in connection  with such Lender's rights
          and  obligations  under this  Agreement and with regard to any and all
          payments  to be made under this  Agreement;  and (4) the holder of any
          such  participation  shall not be entitled to voting  rights under any
          participation  agreement  except for voting rights with respect to (A)
          increases in the Facility; (B) extensions of the Maturity Date, except
          as provided in Section  2.1(d);  (C)  decreases in the interest  rates
          described  in  this   Agreement;   and  (D)  the  release  of  all  or
          substantially all of the Collateral, except as specifically authorized
          in Sections 3.2 and 11.11. No participant shall be entitled to vote on
          any  matter   until  the  Lender  with  which  such   participant   is
          participating   in  the   Facility   and  the  Loans   confirms   such
          participant's status as a participant hereunder.

               (f) Borrower will use reasonable  efforts to cooperate with Agent
          and Lenders in connection  with the assignment of interests under this
          Agreement or the sale of participations herein.

               (g) Borrower  agrees that any Lender may  disseminate to any such
          potential  purchaser,  assignee  or  participant  provided  that  such
          prospective  purchaser,  assignee,  or participant  first agrees to be
          bound by Section  12.21,  all  documents  and  information  (including
          without  limitation all financial  information) which have been or are
          hereafter  provided  to or known to Lender  with  respect  to: (1) any
          Borrowing Base Property and its operation;  (2) any party connected to
          the  Facility  (including  without  limitation,  the  Borrower and the
          REIT);  and/or (3) any lending  relationship  other than the  Facility
          which any Lender may have with any party connected with the Facility.

               (h) Anything in this  Agreement to the contrary  notwithstanding,
          and without  the need to comply  with any of the formal or  procedural
          requirements of this Agreement,  including  Section 11.13,  any Lender
          may at any time and from time to time  pledge  and  assign  all or any
          portion  of its  rights  under all or any of the Loan  Documents  to a
          Federal Reserve Bank. No such pledge or assignment  shall release such
          Lender from its obligations  under the Loan  Documents.  To facilitate
          any such  pledge or  assignment  Agent  shall,  at the request of such
          Lender, enter into a letter



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          agreement with the Federal Reserve Bank  substantially  in the form of
          the  exhibit to  Appendix C to the  Federal  Reserve  Bank of New York
          Operating Circular No. 12.

               (i) Anything in this  Agreement to the contrary  notwithstanding,
          any Lender may assign all or any portion of its rights and obligations
          under this  Agreement or the other Loan  Documents  to another  branch
          bank or Affiliate of such Lender without first  obtaining the approval
          of  Agent  and  Borrower;  provided  that  (1) at  the  time  of  such
          assignment  such Lender is not a  Defaulting  Lender;  (2) such Lender
          gives Agent and Borrower at least 15 days prior written  notice of any
          such assignment;  (3) the parties to each such assignment  execute and
          deliver to Agent an Assignment and Assumption;  and (4) Agent receives
          from assignor a processing fee of $3,000.

               (j) No  Lender  shall be  permitted  to assign or sell all or any
          portion of its  rights and  obligations  under this  Agreement  or the
          other Loan Documents to Borrower or any Affiliate of Borrower.

               Section11.14 Ratable Sharing.  Subject to Sections 11.3 and 11.4,
          Lenders  agree among  themselves  that (a) with respect to all amounts
          received  by  them  which  are   applicable  to  the  payment  of  the
          Obligations, equitable adjustment will be made so that, in effect, all
          such  amounts will be shared  among them  ratably in  accordance  with
          their Pro Rata Shares,  whether received by voluntary payment,  by the
          exercise of a right of set-off or banker's  lien, by  counterclaim  or
          cross action,  or by the  enforcement of any or all of the Obligations
          or the  Loan  Documents;  and (b) if any of them  shall  by  voluntary
          payment  or by the  exercise  of any right of  counterclaim,  set-off,
          banker's  lien or  otherwise,  receive  payment of a proportion of the
          aggregate  amount of the Obligations  held by it which is greater than
          its Pro Rata Share of the payments on account of the Obligations,  the
          Lender receiving such excess payment shall purchase,  without recourse
          or warranty,  an undivided interest and participation  (which it shall
          be  deemed  to have  done  simultaneously  upon  the  receipt  of such
          payment)  in such  Obligations  owed to the other  Lenders so that all
          such  recoveries  with  respect to such  Obligations  shall be applied
          ratably in accordance  with their Pro Rata Shares;  provided,  that if
          all or part of such excess payment  received by the purchasing  Lender
          is thereafter  recovered from it, those  purchases  shall be rescinded
          and the purchase prices paid for such participations shall be returned
          to that Lender to the extent  necessary  to adjust for such  recovery,
          but without  interest  except to the extent the  purchasing  Lender is
          required to pay interest in connection  with such  recovery.  Borrower
          agrees that any Lender so  purchasing  a  participation  from  another
          Lender  pursuant to this  Section  11.14 may,  to the  fullest  extent
          permitted by law,  exercise  all of its rights of payment  (including,
          subject to Section  12.4,  the right of set-off)  with respect to such
          participation,  as fully as if such Lender were the direct creditor of
          Borrower in the amount of such participation. No Lender shall exercise
          any set-off,  banker's lien, or other similar right, in respect of any
          Obligations without the prior written approval of Agent.

               Section11.15  Delivery  of  Documents.  Agent  shall  as  soon as
          reasonably  practicable  distribute  to  each  Lender  at its  primary
          address  set  forth  on the  appropriate  counterpart  signature  page
          hereof,  or at such other  address as a Lender may request in writing,
          copies of all documents that Agent receives from Borrower  pursuant to
          Sections  6.1 and 12.7,  all  documents  that Agent  receives or sends
          pursuant to Article 2 (other than a Loan  Account for  Borrower or any
          other  Lender),  and all  documents,  including  notices,  that  Agent
          receives from Borrower requesting any amendment,



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          modification or waiver of a provision of this Agreement.  In addition,
          within 15 Business  Days after  receipt of a request in writing from a
          Lender for written  information  or documents  provided or prepared by
          Borrower or for a statement  of the Loan  Account  pursuant to Section
          2.3, Agent shall deliver such written information or documents to such
          requesting Lender if Agent has possession of such written  information
          or documents in its capacity as Agent or as a Lender.

               Section11.16  Notice  of Events of  Default.  Agent  shall not be
          deemed to have  knowledge or notice of the occurrence of any Unmatured
          Event of  Default  or Event  of  Default  (other  than  nonpayment  of
          principal  of or  interest  on the Loans)  unless  Agent has  received
          notice  in  writing  from a  Lender  or  Borrower  referring  to  this
          Agreement  or any  other  Loan  Documents,  describing  such  event or
          condition  and  expressly  stating  that such notice is a notice of an
          Unmatured  Event of Default or Event of Default.  Should Agent receive
          such  notice of the  occurrence  of an  Unmatured  Event of Default or
          Event of Default,  or should Agent send Borrower a notice of Unmatured
          Event of Default or Event of Default,  Agent shall promptly  deliver a
          copy of the notice thereof to each Lender.


                                   ARTICLE 12
                                  MISCELLANEOUS

         Section 12.1      Expenses.

               (a) Generally.  Borrower  agrees upon demand to pay, or reimburse
          Agent for, all of Agent's external audit, legal, appraisal,  valuation
          and investigation expenses, and for all other reasonable out-of-pocket
          costs  and  expenses  of every  type and  nature  (including,  without
          limitation, the reasonable fees, expenses and disbursements of Agent's
          outside  counsel,  auditors,   accountants,   appraisers,   investment
          bankers,  printers,  insurance and environmental  advisers,  and other
          consultants  and Agents  incurred by Agent at any time (whether  prior
          to, on or after the date of this Agreement) in connection with (1) its
          own audit and  investigation  of Borrower and the Borrowing  Base; (2)
          the   negotiation,   preparation   and  execution  of  this  Agreement
          (including,   without   limitation,   the  satisfaction  or  attempted
          satisfaction  of any of the  conditions  set forth in Article  4), the
          Mortgage  Documents and the other Loan Documents and the making of the
          Loans;  (3) the review and, if  applicable,  acceptance  of additional
          Borrowing Base  Properties,  including  appraisal fees, title charges,
          recording  fees and reasonable  attorneys'  fees and costs incurred in
          connection  therewith;  (4) the creation,  perfection or protection of
          Agent's Liens on the Collateral  (including,  without limitation,  any
          reasonable  fees and  expenses  for  title  and lien  searches,  local
          counsel in various jurisdictions, filing and recording fees and taxes,
          duplication  costs and corporate search fees); (5)  administration  of
          this  Agreement,   the  other  Loan  Documents,   the  Loans  and  the
          Collateral, including, without limitation, consultation with attorneys
          in  connection  therewith  and  obtaining  periodic  Appraisals of the
          Borrowing  Base  Properties;  and (6) the  protection,  collection  or
          enforcement of any of the Obligations or the Collateral.

               (b) After an Event of Default. Borrower further agrees to pay, or
          reimburse Agent and Lenders,  for all reasonable  out-of-pocket  costs
          and expenses,  including,  without limitation,  reasonable  attorneys'
          fees and disbursements incurred by Agent or Lenders after the



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          occurrence of an Event of Default (1) in enforcing  any  Obligation or
          in foreclosing  against the  Collateral or  evaluating,  exercising or
          enforcing any other right or remedy  available by reason of such Event
          of Default; (2) in connection with any refinancing or restructuring of
          the credit arrangements provided under this Agreement in the nature of
          a "work-out" or in any  insolvency or  bankruptcy  proceeding;  (3) in
          commencing,  defending or intervening in any litigation or in filing a
          petition,  complaint,  answer,  motion or other pleadings in any legal
          proceeding  relating to Borrower,  the REIT,  Paragon GP Holdings,  or
          Paragon LP Holdings, and related to or arising out of the transactions
          contemplated hereby; (4) in taking any other action in or with respect
          to any suit or proceeding (whether in bankruptcy or otherwise); (5) in
          protecting,   preserving,   collecting,   leasing,   selling,   taking
          possession and/or liquidating any of the Collateral; or (6) attempting
          to enforce or enforcing any Lien in any of the Collateral or any other
          rights under the Mortgage Documents.

          Section 12.2 Indemnity.  Borrower  further agrees to defend,  protect,
          indemnify and hold harmless Agent, each of the Lenders,  each of their
          respective  Affiliates  and  participants,  and each of the respective
          officers,  directors,  employees,  Agents,  attorneys and  consultants
          (including,  without limitation, those retained in connection with the
          satisfaction  or attempted  satisfaction  of any of the conditions set
          forth  in  Article  4) of each  of the  foregoing  (collectively,  the
          "Indemnitees")  from and  against any and all  Liabilities  and Costs,
          imposed on, incurred by, or asserted against such Indemnitees (whether
          based on any  federal  or state laws or other  statutory  regulations,
          including,  without  limitation,  securities and  commercial  laws and
          regulations, under common law or at equitable cause, or on contract or
          otherwise, including any Liabilities and Costs under federal, state or
          local  Environmental  Laws,  or arising  as a result of a  "prohibited
          transaction" under ERISA) to the extent arising from, or in connection
          with the past, present or future operations of the Borrower, the REIT,
          or their respective  predecessors in interest, or the past, present or
          future  environmental  condition of any Borrowing Base  Property,  the
          presence  of  asbestos-containing  materials  at  any  Borrowing  Base
          Property, the presence of Contaminants in groundwater at any Borrowing
          Base Property, or the Release or threatened Release of any Contaminant
          into the environment from any Borrowing Base Property),  in any manner
          relating to or arising out of this Agreement,  the Mortgage  Documents
          or the other Loan Documents,  or any act, event or transaction related
          or attendant thereto, the making of and participation in the Loans and
          the  management  of the  Loans,  or the  use  or  intended  use of the
          proceeds  of the  Loans  (collectively,  the  "Indemnified  Matters");
          provided,  however,  that  Borrower  shall have no  obligation  to any
          Indemnitee  hereunder  with  respect  to (1)  matters  for which  such
          Indemnitee has been compensated pursuant to, or for which an exemption
          is provided in,  Sections  2.4(g),  and 2.7 or any other  provision of
          this  Agreement;  and (2)  Indemnified  Matters caused by or resulting
          from the willful misconduct, (which shall include fraud and bad faith)
          or gross negligence,  of that Indemnitee,  as determined by a court of
          competent  jurisdiction.   To  the  extent  that  the  undertaking  to
          indemnify,  pay and hold harmless set forth in the preceding  sentence
          may be  unenforceable  because  it is  violative  of any law or public
          policy,  Borrower  shall  contribute  the maximum  portion which it is
          permitted to pay and satisfy under  applicable law, to the payment and
          satisfaction of all Indemnified Matters incurred by the Indemnitees.

          Section  12.3 Change in  Accounting  Principles.  Except as  otherwise
          provided  herein,  if any changes in accounting  principles from those
          used  in the  preparation  of the  most  recent  financial  statements
          delivered  to Agent  pursuant  to the  terms  hereof  are  hereinafter
          required or


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          permitted by the rules,  regulations,  pronouncements  and opinions of
          the Financial  Accounting Standards Board or the American Institute of
          Certified Public  Accountants (or successors  thereto or agencies with
          similar functions) and are adopted by the Borrower,  the REIT, Paragon
          GP Holdings,  Paragon LP Holdings, or the Management Company, with the
          agreement of its  independent  certified  public  accountants and such
          changes  result in a change in the method of calculation of any of the
          financial  covenants,  standards  or terms found  herein,  the parties
          hereto  agree  to enter  into  negotiations  in  order  to amend  such
          provisions so as to equitably  reflect such changes,  with the desired
          result that the criteria for  evaluating  the  financial  condition of
          Borrower  shall be the same after such  changes as if such changes had
          not been made;  provided,  however,  that no change in GAAP that would
          affect the method of  calculation  of any of the financial  covenants,
          standards  or terms shall be given effect in such  calculations  until
          such provisions are amended, in a manner satisfactory to Agent and all
          Lenders, to so reflect such change in accounting principles.

          Section 12.4 Setoff. In addition to any Liens granted to Agent and any
          rights now or hereafter  granted under  applicable law, and not by way
          of limitation  of any such Liens or rights,  upon the  occurrence  and
          during the continuance of any Event of Default, Agent and each Lender,
          upon approval of Agent,  is hereby  authorized by Borrower at any time
          or from  time to time,  without  notice to  Borrower,  or to any other
          Person (any such notice  being  hereby  expressly  waived) to set off,
          appropriate,  and  apply any and all  deposits  (general  or  special,
          including,  but not limited to, Indebtedness evidenced by certificates
          of deposit,  whether  matured or  unmatured  but not  including  trust
          accounts)  and any  other  Indebtedness  at any time  held or owing by
          Agent or such  Lender to or for the credit or the  account of Borrower
          against,  and on account of, the  Obligations  of Borrower to Agent or
          such Lender, including but not limited to, all Loans and all claims of
          any  nature  or  description  arising  out of or  connected  with this
          Agreement or any of the other Loan Documents,  irrespective of whether
          or not (1) Agent or such Lender shall have made any demand  hereunder,
          or (2) Agent shall have  declared the principal of and interest on the
          Loans  and  other  amounts  due  hereunder  to be due and  payable  as
          permitted by Article 11 and although said Obligations and liabilities,
          or any of them,  may be contingent  or unmatured.  Agent shall provide
          written  notice to  Borrower of the  exercise of any right  granted in
          this  Section  12.4  within  three  Business  Days after such right is
          exercised.

          Section 12.5  Amendments and Waivers.  No amendment or modification of
          any provision of this Agreement shall be effective without the written
          agreement  of  Requisite  Lenders  (after  notice to all  Lenders) and
          Borrower  (except  for  amendments  to  Section  11.4(a)  which do not
          require  the consent of  Borrower).  No  termination  or waiver of any
          provision of this Agreement (including, without limitation, any waiver
          of an Event of Default which does not specifically require the consent
          of all Lenders),  or consent to any  departure by Borrower  therefrom,
          shall in any event be  effective  without the written  concurrence  of
          Requisite  Lenders  (after  notice to all  Lenders),  which  Requisite
          Lenders  shall  have the  right to grant  or  withhold  at their  sole
          discretion.  Notwithstanding  the  foregoing,  (a) any provision  that
          requires  consent or  approval  of the  Supermajority  Lenders or that
          provides for funding or  distributions  based on Pro Rata Shares shall
          not be amended,  modified,  or waived without the written agreement of
          the Supermajority Lenders such that (1) the consent or approval of the
          Supermajority  Lenders  is  no  longer  required  or  (2)  funding  or
          distributions  are based on anything  other than Pro Rata Shares,  (b)
          the written consent of the Supermajority  Lenders shall be required to
          amend, modify or waive any provision of Article 11, if such amendment,
          modification



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          or waiver would have a Material Adverse Effect on any Lender,  and (c)
          the following  amendments,  modifications or waivers shall require the
          consent of all Lenders:

          (1) Increasing the Commitments or a Lender's Commitments;

          (2)  Changing  the  principal  amount or final  maturity of the Loans,
          except as provided in Section 2.1(d);

          (3)  Reducing,  modifying  or amending the  interest  rate  provisions
          applicable to the Loans;

          (4)  Reducing  the rates on which  fees  payable  pursuant  hereto are
          determined;

          (5)  Forgiving  or delaying  any amount  payable or  receivable  under
          Article 2 (other than late fees);

          (6) Changing the  definition  of "Requisite  Lenders,"  "Supermajority
          Lenders,"  "Loan  Availability,"  "Maximum  Loan  Amount,"  "Pro  Rata
          Shares" or "Borrowing Base Value;"

          (7)  Changing  any  provision  contained  in Section  3.1(b),  Section
          11.10(d), this Section 12.5 or Addendum I to this Agreement;

          (8) Releasing any obligor under any Loan Document, unless such release
          is otherwise required or permitted by the terms of this Agreement; and

          (9)  Consent  to  assignment  by  Borrower  of all of its  duties  and
          Obligations under the Loan Documents.

          Without  limitation  of the  foregoing,  no  amendment,  modification,
          termination  or waiver of any  provision  of  Article  11 or any other
          provision  referring to Agent shall be  effective  without the written
          concurrence of Agent. Any waiver or consent shall be effective only in
          the specific  instance  and for the specific  purpose for which it was
          given.  No notice to or demand on Borrower  in any case shall  entitle
          Borrower  to any other  further  notice or demand in  similar or other
          circumstances.  Any amendment,  modification,  termination,  waiver or
          consent effected in accordance with this Section 12.5 shall be binding
          on each  assignee,  transferee or recipient of Agent's or any Lender's
          Commitment under this Agreement or the Loans at the time outstanding.

               Section 12.6 Independence of Covenants.  All covenants  hereunder
          shall be given  independent  effect so that if a particular  action or
          condition is not permitted by any of such covenants,  the fact that it
          would be  permitted by an  exception  to, or be  otherwise  within the
          limitations of, another  covenant shall not avoid the occurrence of an
          Event of Default or Unmatured Event of Default if such action is taken
          or  condition  exists,  and if a  particular  action or  condition  is
          expressly  permitted under any covenant,  unless expressly  limited to
          such covenant, the fact that it



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          would  not be  permitted  under  the  general  provisions  of  another
          covenant shall not  constitute an Event of Default or Unmatured  Event
          of Default if such action is taken or condition exists.

              Section 12.7 Notices and Delivery.  Unless otherwise  specifically
          provided herein,  any consent,  notice or other  communication  herein
          required or  permitted  to be given  shall be in  writing,  and may be
          personally  served,  telecopied  or sent by courier  service or United
          States mail,  and shall be deemed to have been given when delivered in
          person or by courier  service,  upon  receipt of a  telecopy,  or four
          Business Days after deposit in the United States mail  (registered  or
          certified,  with postage prepaid and properly  addressed).  Notices to
          Agent  pursuant to Article 2 shall not be effective  until received by
          Agent.  For the purposes  hereof,  the addresses of the parties hereto
          (until  notice of a change  thereof is  delivered  as provided in this
          Section  12.7  shall be as set forth  below each  party's  name on the
          counter  signature  pages hereof,  or, as to each party, at such other
          address as may be designated by such party in a written  notice to all
          of  the  other  parties.  All  deliveries  to be  made  to  Agent  for
          distribution  to the Lenders  shall be made to Agent at the  addresses
          specified  for notice on the  counter  signature  pages  hereto and in
          addition, a sufficient number of copies of each such delivery shall be
          delivered  to  Agent  for  delivery  to  each  Lender  at the  address
          specified for deliveries on the counter  signature page hereto or such
          other address as may be designated by Agent in a written notice.

               Section 12.8 Survival of Warranties,  Indemnities and Agreements.
          All agreements,  representations,  warranties and Indemnities  made or
          given  herein  shall  survive  the  execution  and  delivery  of  this
          Agreement and the other Loan Documents and the making and repayment of
          the Loans hereunder,  and such Indemnities  shall survive  termination
          hereof.

              Section 12.9   Failure  or   Indulgence   Not   Waiver;   Remedies
          Cumulative.  No failure or delay on the part of Agent or any Lender in
          the exercise of any power,  right or  privilege  under any of the Loan
          Documents shall impair such power,  right or privilege or be construed
          to be a waiver of any Event of Default or  Unmatured  Event of Default
          or acquiescence  therein,  nor shall any single or partial exercise of
          any such power,  right or privilege  preclude further exercise thereof
          or of any other  right,  power or  privilege.  All rights and remedies
          existing under the Loan Documents are cumulative to, and not exclusive
          of, any rights or remedies otherwise available.

               Section  12.10  Marshalling;  Recourse to Security;  Payments Set
          Aside.  Neither any Lender nor Agent shall be under any  obligation to
          marshall any assets in favor of Borrower or any other party or against
          or in payment of any or all of the  Obligations.  Recourse to security
          shall not be required at any time. To the extent that Borrower makes a
          payment or payments to Agent or the  Lenders,  or Agent or the Lenders
          enforce their Liens, or exercise their rights of setoff,  and any such
          payment,  or the proceeds of such  enforcement or setoff,  or any part
          thereof,  are subsequently  invalidated,  declared to be fraudulent or
          preferential,  set aside  and/or  required  to be repaid to a trustee,
          receiver or any other party under any bankruptcy law, state or federal
          law,  common  law or  equitable  cause,  then  to the  extent  of such
          recovery,  the  Obligation or part thereof  originally  intended to be
          satisfied,  and all Liens,  rights  and  remedies  therefor,  shall be
          revived and  continued in full force and effect as if such payment had
          not been made or such enforcement or setoff had not occurred.



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          Section 12.11  Severability.  If any provision in or obligation  under
          this Agreement or the other Loan Documents  shall be invalid,  illegal
          or  unenforceable  in any  jurisdiction,  the  validity,  legality and
          enforceability of the remaining provisions or obligations,  or of such
          provision or  obligation in any other  jurisdiction,  shall not in any
          way be affected or impaired thereby;  provided,  however,  that if the
          rates of  interest  or any  other  amount  payable  hereunder,  or the
          collectability thereof, are declared to be or become invalid,  illegal
          or  unenforceable,  Lenders'  obligations  to make Loans  shall not be
          enforceable.

          Section  12.12  Headings.  Section  headings  in  this  Agreement  are
          included  herein  for  convenience  of  reference  only and  shall not
          constitute a part of this  Agreement for any other purpose or be given
          any substantive effect.

          Section 12.13  Governing Law. THIS AGREEMENT HAS BEEN EXECUTED  UNDER,
          AND SHALL BE CONSTRUED  AND ENFORCED IN ACCORDANCE  WITH,  THE LAWS OF
          THE STATE OF TEXAS  FROM TIME TO TIME IN EFFECT  EXCEPT TO THE  EXTENT
          PREEMPTED BY UNITED STATES  FEDERAL LAW. This  Agreement and the other
          Loan  Documents are intended to be performed in accordance  with,  and
          only to the extent permitted by, all applicable Legal Requirements. It
          is  expressly  stipulated  and agreed to be the intent of Borrower and
          Lenders at all times to comply with the applicable Texas law governing
          the maximum rate or amount of interest  payable on the Obligations (or
          applicable  United  States  federal  law to the extent that it permits
          Lender to contract  for,  charge,  take,  reserve or receive a greater
          amount of interest  than under Texas law).  If the  applicable  law is
          ever judicially interpreted so as to render usurious any amount called
          for  under the Loan  Documents  or  contracted  for,  charged,  taken,
          reserved  or  received  with  respect  to the  Obligations,  or if the
          acceleration  of the maturity of the  Obligations or if any prepayment
          by Borrower  results in Borrower having paid any interest in excess of
          that  permitted by applicable  law, then it is Borrower's and Lenders'
          express intent that all excess amounts  theretofore paid to Lenders be
          credited  on the  principal  balance of the  Obligations  (or,  if the
          Obligations  have been or would  thereby be paid in full,  refunded to
          Borrower),  and the  provisions of the Loan  Documents  immediately be
          deemed  reformed  and the amounts  thereafter  collectible  thereunder
          reduced,  without the necessity of the execution of any new documents,
          so as to comply  with the  applicable  law,  but so as to  permit  the
          recovery of the fullest  amount  otherwise  called for  hereunder  and
          thereunder. All sums paid or agreed to be paid to Lenders for the use,
          forbearance  or  detention  of the  Obligations  shall,  to the extent
          permitted by  applicable  law, be amortized,  prorated,  allocated and
          spread  throughout the full term of such Obligations  until payment in
          full so that  the  rate or  amount  of  interest  on  account  of such
          Obligations  does not  exceed the usury  ceiling  from time to time in
          effect  and  applicable  to  the   Obligations  for  so  long  as  the
          Obligations are outstanding. To the extent that Lenders are relying on
          Article 5069-1.04,  as amended, of the Revised Civil Statutes of Texas
          to  determine  the  maximum  rate  ("Maximum  Rate")  payable  on  the
          Obligations,  Lender will utilize the indicated  (weekly) rate ceiling
          from  time to time in  effect  as  provided  in  Article  5069.04,  as
          amended.  To the extent United States  federal law permits  Lenders to
          contract for, charge or receive a greater amount of interest,  Lenders
          will  rely on  United  States  federal  law  instead  of such  Article
          5069-1.04,  as  amended,  for the purpose of  determining  the Maximum
          Rate.  Additionally,  to the extent permitted by applicable law now in
          effect,  Lenders may, at their option and from time to time, implement
          any other  method of  computing  the Maximum  Rate under such  Article
          5069-1.04, as amended, or under other applicable law by giving notice,
          if

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          required,  to Borrower as provided by applicable  law now or hereafter
          in effect.  In no event shall the provisions of Article 5069,  chapter
          15 of the Revised  Civil  Statutes of Texas (which  regulates  certain
          revolving credit loan accounts and revolving  triparty accounts) apply
          to the Loans.  Notwithstanding  anything to the contrary  contained in
          this  Agreement  or in any  of the  other  Loan  Documents,  it is not
          Lenders' intention to accelerate the maturity of any interest that has
          not accrued at the time of such  acceleration  or to collect  unearned
          interest at the time of such acceleration.

          Section  12.14  LIMITATION OF  LIABILITY.  TO THE EXTENT  PERMITTED BY
          APPLICABLE LAW, NO CLAIM MAY BE MADE BY BORROWER, THE REIT, PARAGON GP
          HOLDINGS,  OR PARAGON LP HOLDINGS,  ANY Lender,  OR ANY OTHER  PERSON,
          AGAINST Agent OR ANY Lender, OR THE AFFILIATES,  DIRECTORS,  OFFICERS,
          EMPLOYEES,  ATTORNEYS  OR  AGENTS  OF ANY OF  THEM,  FOR ANY  SPECIAL,
          INDIRECT,  CONSEQUENTIAL  OR PUNITIVE  DAMAGES IN RESPECT OF ANY CLAIM
          FOR BREACH OF CONTRACT  OR ANY OTHER  THEORY OF  LIABILITY  OTHER THAN
          GROSS  NEGLIGENCE OR WILLFUL  MISCONDUCT  ARISING OUT OF OR RELATED TO
          THE TRANSACTIONS  CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION
          OR EVENT OCCURRING IN CONNECTION  THEREWITH;  AND BORROWER,  THE REIT,
          PARAGON GP  HOLDINGS,  PARAGON LP  HOLDINGS,  AND EACH  Lender  HEREBY
          WAIVE,  RELEASE  AND  AGREE  NOT TO SUE  UPON ANY  CLAIM  FOR ANY SUCH
          DAMAGES,  WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED
          TO EXIST IN ITS FAVOR;  PROVIDED,  THAT IF A Lender  REFUSES TO FUND A
          LOAN AND A COURT OF COMPETENT JURISDICTION FINDS THAT SUCH REFUSAL WAS
          WITHOUT JUSTIFICATION AND IN BAD FAITH, SUCH Lender SHALL BE LIABLE TO
          BORROWER FOR BORROWER'S  REASONABLE AND FORESEEABLE  DAMAGES RESULTING
          FROM SUCH REFUSAL TO FUND.

          Section 12.15  Successors  and Assigns.  This  Agreement and the other
          Loan  Documents  shall be binding  upon the  parties  hereto and their
          respective  successors  and  assigns and shall inure to the benefit of
          the parties hereto and the  successors and permitted  assigns of Agent
          and Lenders. The terms and provisions of this Agreement shall inure to
          the  benefit  of any  assignee  or  transferee  of the  Loans  and the
          Commitments of Lenders under this Agreement,  and in the event of such
          transfer or  assignment,  the rights and privileges  herein  conferred
          upon Agent and Lenders shall automatically  extend to and be vested in
          such  transferee or assignee,  all subject to the terms and conditions
          hereof.  Borrower's  rights or any  interest  therein  hereunder,  and
          Borrower's  duties and  Obligations  hereunder,  shall not be assigned
          without the consent of all Lenders.

          Section 12.16 Consent to Jurisdiction  and Service of Process;  Waiver
          of Jury Trial. EXCEPT WITH RESPECT TO FORECLOSURE  PROCEEDINGS AGAINST
          ANY  COLLATERAL  WHICH BY  REQUIREMENT  OF LAW MUST BE  BROUGHT IN THE
          JURISDICTION   WHERE  SUCH   COLLATERAL   IS  LOCATED,   ALL  JUDICIAL
          PROCEEDINGS  BROUGHT AGAINST BORROWER,  THE REIT, PARAGON GP HOLDINGS,
          AND PARAGON LP HOLDINGS,  WITH RESPECT TO THIS  AGREEMENT OR ANY OTHER
          LOAN  DOCUMENT MAY BE AND ALL JUDICIAL  PROCEEDINGS  BROUGHT BY ANY OF
          BORROWER,  THE REIT,  PARAGON GP HOLDINGS AND PARAGON LP HOLDINGS WITH
          RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE



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          BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION HAVING
          SITUS  WITHIN THE  BOUNDARIES  OF THE  FEDERAL  COURT  DISTRICT OF THE
          NORTHERN  DISTRICT OF TEXAS,  AND BY  EXECUTION  AND  DELIVERY OF THIS
          AGREEMENT, EACH OF BORROWER, THE REIT, PARAGON GP HOLDINGS AND PARAGON
          LP HOLDINGS ACCEPTS, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
          GENERALLY  AND  UNCONDITIONALLY,  THE  JURISDICTION  OF THE  AFORESAID
          COURTS,  AND  IRREVOCABLY  AGREES  TO BE BOUND BY ANY  FINAL  JUDGMENT
          RENDERED  THEREBY FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS AVAILABLE.
          EACH OF  BORROWER,  THE REIT,  PARAGON  GP  HOLDINGS  AND  PARAGON  LP
          HOLDINGS  HEREBY  DESIGNATES  AND  APPOINTS  STUTZMAN  &  BROMBERG,  A
          PROFESSIONAL  CORPORATION,  TO RECEIVE  ON ITS  BEHALF  SERVICE OF ALL
          PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,  SUCH SERVICE BEING
          HEREBY ACKNOWLEDGED BY SUCH PERSON TO BE EFFECTIVE AND BINDING SERVICE
          IN EVERY  RESPECT.  SUCH  APPOINTMENT  SHALL BE  REVOCABLE  ONLY  WITH
          Agent'S PRIOR WRITTEN APPROVAL. EACH OF BORROWER, THE REIT, PARAGON GP
          HOLDINGS,  AND PARAGON LP HOLDINGS IRREVOCABLY CONSENTS TO THE SERVICE
          OF PROCESS OF ANY OF THE  AFOREMENTIONED  COURTS IN ANY SUCH ACTION OR
          PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
          MAIL, POSTAGE PREPAID,  TO ITS NOTICE ADDRESS SPECIFIED ON THE COUNTER
          SIGNATURE  PAGES  HEREOF,  SUCH SERVICE TO BECOME  EFFECTIVE  TEN DAYS
          AFTER SUCH MAILING.  TO THE EXTENT PERMITTED BY LAW, EACH OF BORROWER,
          THE REIT,  PARAGON GP  HOLDINGS,  PARAGON LP  HOLDINGS,  AGENT AND THE
          LENDERS  IRREVOCABLY  WAIVES  (A)  TRIAL  BY  JURY  IN ANY  ACTION  OR
          PROCEEDING  WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT;
          AND (B) ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF
          THE LAYING OF VENUE OR BASED ON THE  GROUNDS OF FORUM NON  CONVENIENS)
          WHICH IT MAY NOW OR HEREAFTER  HAVE TO THE BRINGING OF ANY SUCH ACTION
          OR  PROCEEDING  WITH  RESPECT  TO THIS  AGREEMENT  OR ANY  OTHER  LOAN
          DOCUMENT IN ANY  JURISDICTION  SET FORTH ABOVE.  NOTHING  HEREIN SHALL
          AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
          OR SHALL  LIMIT THE RIGHT OF Agent OR ANY Lender TO BRING  PROCEEDINGS
          AGAINST ANY OF THE BORROWER, THE REIT, PARAGON GP HOLDINGS AND PARAGON
          LP HOLDINGS IN THE COURTS OF ANY OTHER JURISDICTION.

          Section  12.17  Counterparts;  Effectiveness;   Inconsistencies.  This
          Agreement and any amendments,  waivers, consents or supplements may be
          executed in counterpart,  each of which when so executed and delivered
          shall be deemed an original,  but all such counterparts together shall
          constitute  but one and the  same  instrument.  This  Agreement  shall
          become effective when Borrower, the REIT, Paragon GP Holdings, Paragon
          LP  Holdings,  the initial  Lenders and Agent have duly  executed  and
          delivered  counterpart execution pages of this Agreement to each other
          (delivery by Borrower,  the REIT, Paragon GP Holdings,  and Paragon LP
          Holdings, to Lenders and by any Lender to Borrower,  the REIT, Paragon
          GP  Holdings,  and Paragon LP  Holdings,  and any other  Lender  being
          deemed to have been made by delivery  to Agent).  This  Agreement  and
          each of the other  Loan  Documents  shall be  construed  to the extent
          reasonable to be consistent one with the other, but to the



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          extent that the terms and  conditions  of this  Agreement are actually
          and directly  inconsistent  with the terms and conditions of any other
          Loan Document, this Agreement shall govern.

          Section  12.18  Performance  of  Obligations.   Upon  and  during  the
          continuance  of an Event of Default,  Borrower  agrees that Agent may,
          but shall not have  obligation to, make any payment or perform any act
          required of  Borrower or the REIT under any Loan  Document or take any
          other  action  which  Agent  in  its  discretion  deems  necessary  or
          desirable to protect or preserve  the  Collateral  including,  without
          limitation,  any action to (1) pay or discharge taxes, Liens, security
          interests  or other  encumbrances  levied or  placed on or  threatened
          against  any  Collateral;  and (2)  effect  any  repairs or obtain any
          insurance called for by the terms of any of the Loan Documents, and to
          pay all or any part of the premiums therefor and the costs thereof.

          Section 12.19  Construction.  The parties  acknowledge that each party
          and its counsel have  reviewed and had an  opportunity  to revise this
          Agreement and that the normal rule of  construction to the effect that
          any  ambiguities  are to be resolved  against the drafting party shall
          not be  employed  in  the  interpretation  of  this  Agreement  or any
          amendments or exhibits hereto.

          Section 12.20 Entire  Agreement.  This Agreement,  taken together with
          all of the  other  Loan  Documents  and  all  certificates  and  other
          documents  delivered  by  Borrower  to  Agent,   embodies  the  entire
          agreement of the parties and supersedes all prior agreements,  written
          and oral, relating to the subject matter hereof.

          Section 12.21  Confidentiality.  Confidential  Information obtained by
          Agent or Lenders  pursuant to this Agreement or in connection with the
          Facility  shall not be  disseminated  by Agent or any Lender and shall
          not be disclosed to third parties other than (a) to regulators, taxing
          authorities and other governmental  agencies having  jurisdiction over
          Agent or any Lender;  (b) in response to  Requirements  of Law; (c) to
          their  respective  auditors and legal counsel;  (d) in connection with
          regulatory,   administrative  and  judicial   proceedings,   including
          enforcement proceedings relating to the Loan Documents; and (e) to any
          prospective  assignee of or participant  in a Lender's  interest under
          the  Agreement  or  any  prospective  purchaser  of  the  assets  or a
          controlling  interest in any Lender;  provided  that such  prospective
          assignee,  participant  or  purchaser  first agrees to be bound by the
          provisions of this Section 12.21.

          Section 12.22 Estoppel  Certificates.  If required by the underwriters
          in connection with a public offering of securities of the REIT,  Agent
          shall  provide an estoppel  certificate  certifying,  as of such date,
          that (a) to Agent's actual  knowledge no Unmatured Event of Default or
          Event of Default  then exists (if such is the case,  or if such is not
          the  case,  specifying  any  Unmatured  Event of  Default  or Event of
          Default) and (b) the aggregate  outstanding  amount of the Loans. Such
          certification  shall not (1)  prevent  Agent or any Lender  from later
          making  assertions or taking actions which are inconsistent  with such
          certification,  if new facts or circumstances  thereafter become known
          to Agent or any Lender  which  would have a bearing  thereon and which
          were not known and could not  reasonably  have been  known at the time
          such  estoppel  certificate  was  delivered,  and (2) shall not expose
          Agent  or  any  Lender  to  any   liability  or  damages   (direct  or
          consequential) for or by reason of any Person's reliance thereon.




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          Section  12.23  Limitation  of  Liability.  (a)  None  of  Paragon  GP
          Holdings,  Paragon LP Holdings,  the REIT nor any  officer,  employee,
          servant, controlling person, executive,  director, Agent or authorized
          representative  of such Person  (herein  referred to as  "operatives")
          shall be liable  personally for the Obligations.  The sole recourse of
          the Lenders and the Agent for satisfaction of the Obligations shall be
          to the Borrower as an entity and the Borrower's assets, and not to any
          assets of any of Paragon GP Holdings, Paragon LP Holdings, the REIT or
          their  respective  operatives.  In the event  that an Event of Default
          occurs in connection with the Obligations,  no action shall be brought
          against any of Paragon GP Holdings,  Paragon LP Holdings, the REIT, or
          their respective operatives.  In the event of foreclosure or any other
          sale or  disposition  of  Property,  no  judgment  for any  deficiency
          relating to the Obligations  shall be obtainable by the Lenders or the
          Agent  against any of Paragon GP Holdings,  Paragon LP  Holdings,  the
          REIT, or their respective operatives.

               (b)  Notwithstanding  anything in Section  12.23(a)  above to the
          contrary, (1) nothing herein shall limit or otherwise prejudice in any
          way the right of the Agent or any Lender to proceed  against  Borrower
          with respect to the enforcement of any Obligations or the liability of
          Borrower  for such  Obligations,  (2)  nothing  herein  shall limit or
          otherwise prejudice in any way the right of the Agent or any Lender to
          proceed  against each of Paragon GP Holdings,  Paragon LP Holdings and
          the REIT with respect to  enforcement of its agreements to be bound by
          certain  provisions  of this  Agreement as expressly set forth in such
          Person's  counterpart  signature  page hereto or its liability for any
          violation of such  provisions,  and (3) such  limitations of liability
          shall not apply to  operatives  if and to the extent that such Persons
          commit fraud or willful misrepresentation.

         This Section 12.23 shall be deemed incorporated in each Loan Document.


                                       112

<PAGE>



                           COUNTERPART EXECUTION PAGE


     By  execution of this  Counterpart  Execution  Page to that  certain  Fifth
     Amended and Restated  Credit  Agreement  dated as of July 27, 1996,  by and
     among Paragon Group L.P. as Borrower,  Wells Fargo Realty Advisors Funding,
     Incorporated,  as Agent for  certain  Lenders,  and the Lenders (as defined
     therein) (the "Agreement"),  the undersigned  acknowledges that it is bound
     by the terms and conditions of the Agreement.  The undersigned acknowledges
     that this  Counterpart  Execution Page shall become a part of the Agreement
     and may be attached  thereto.  The  undersigned  further  acknowledges  its
     receipt of a copy of the Agreement.

                           "BORROWER"
                            PARAGON GROUP L.P., a Delaware limited partnership

                            BY:      Paragon Group GP Holdings, Inc., a Delaware
                                     corporation, its General Partner


                            By:      ______________________________________
                                     Lynn T. Caldwell, Senior Vice President

                                     ADDRESS FOR NOTICE:
                                     7557 Rambler Road, Suite 1200
                                     Dallas, Texas  75231-4167
                                     Attention: Lynn T. Caldwell
                                     Telephone: (214) 891-2000
                                     Facsimile: (214) 891-2019

                                     WITH A COPY TO:
                                     Stutzman & Bromberg, P.C.
                                     2323 Bryan Street, Suite 2200
                                     Dallas, Texas  75201-2689
                                     Attention: Carl C. Christoff
                                     Telephone: (214) 969-4900
                                     Facsimile: (214) 969-4999




                                       113

<PAGE>



                           COUNTERPART EXECUTION PAGE


     By  execution of this  Counterpart  Execution  Page to that  certain  Fifth
     Amended and Restated  Credit  Agreement  dated as of July 27, 1996,  by and
     among Paragon Group L.P. as Borrower,  Wells Fargo Realty Advisors Funding,
     Incorporated,  as Agent for  certain  Lenders,  and the Lenders (as defined
     therein) (the "Agreement"),  the undersigned  acknowledges that it is bound
     by the terms and conditions of the Agreement.  The undersigned acknowledges
     that this  Counterpart  Execution Page shall become a part of the Agreement
     and may be attached  thereto.  The  undersigned  further  acknowledges  its
     receipt of a copy of the Agreement.

                                  "LENDER"

COMMITMENT $45,000,000.00         WELLS FARGO REALTY ADVISORS
                                  FUNDING, INCORPORATED, a Colorado
                                  corporation

                              By: Wells Fargo Real Estate Group,
                                  a California corporation, its agent

                              By: ______________________________
                                  J. Kent  Howard
                                  Vice President

                              By: ______________________________
                                  Joyce L. Demyan
                                  Assistant Secretary

                                  ADDRESS FOR NOTICE:
                              c/o Wells Fargo Real Estate Group Disbursement
                                  Center
                                  2120 East Park Place, Suite 100
                                  El Segundo, CA  90245
                                  Attention: Manager, AU #5847, Loan #5914.ZMD
                                  Telephone: (310) 615-0200
                                  Facsimile: (310) 615-1014

                                  WITH A COPY TO:
                                  Wells Fargo Real Estate Group, Inc.
                                  12377 Merit Drive, Suite 300
                                  Dallas, TX  75251
                                  Attention: Account Officer
                                  Telephone: (214) 661-8980
                                  Facsimile (214) 386-4723



                                       114

<PAGE>



                           COUNTERPART EXECUTION PAGE


     By  execution of this  Counterpart  Execution  Page to that  certain  Fifth
     Amended and Restated  Credit  Agreement  dated as of July 27, 1996,  by and
     among Paragon Group L.P. as Borrower,  Wells Fargo Realty Advisors Funding,
     Incorporated,  as Agent for  certain  Lenders,  and the Lenders (as defined
     therein) (the "Agreement"),  the undersigned  acknowledges that it is bound
     by the terms and conditions of the Agreement.  The undersigned acknowledges
     that this  Counterpart  Execution Page shall become a part of the Agreement
     and may be attached  thereto.  The  undersigned  further  acknowledges  its
     receipt of a copy of the Agreement.

                                    "LENDER"

COMMITMENT: $30,000,000.00           NATIONSBANK OF TEXAS, N.A.,
                                     a national banking association


                                     By:________________________
                                     Name:______________________
                                     Title:_____________________

                                     ADDRESS FOR NOTICE:
                                     NationsBank of Texas, N.A.
                                     901 Main Street, 51st Floor
                                     Dallas, Texas 75202
                                     Attention:  John Lamb
                                     Telephone: (214) 508-1521
                                     Facsimile: (214) 508-1571

                                     WITH A COPY TO:
                                     NationsBank of Texas, N.A.
                                     901 Main Street, 51st Floor
                                     Dallas, Texas 75202
                                     Attention: Loan Administration
                                     Telephone:        (214) 508-1569
                                     Facsimile:        (214) 508-1571




                                       115

<PAGE>



                           COUNTERPART EXECUTION PAGE


     By  execution of this  Counterpart  Execution  Page to that  certain  Fifth
     Amended and Restated  Credit  Agreement  dated as of July 27, 1996,  by and
     among Paragon Group L.P. as Borrower,  Wells Fargo Realty Advisors Funding,
     Incorporated,  as Agent for  certain  Lenders,  and the Lenders (as defined
     therein) (the "Agreement"),  the undersigned  acknowledges that it is bound
     by the terms and conditions of the Agreement.  The undersigned acknowledges
     that this  Counterpart  Execution Page shall become a part of the Agreement
     and may be attached  thereto.  The  undersigned  further  acknowledges  its
     receipt of a copy of the Agreement.

                                    "LENDER"

COMMITMENT: $10,000,000.00           THE BOATMEN'S NATIONAL BANK OF ST.LOUIS,
                                     a national banking association


                                     By:________________________
                                     Name:______________________
                                     Title:_____________________

                                     ADDRESS FOR NOTICE:
                                     7800 Forsyth Blvd., Suite 450
                                     Clayton, Missouri  63105
                                     Attention: Laura D. Kenny
                                     Telephone: (314) 466-0558
                                     Facsimile: (314) 466-0585




                                       116

<PAGE>



                           COUNTERPART EXECUTION PAGE


         By execution of this  Counterpart  Execution Page to that certain Fifth
Amended and Restated  Credit  Agreement  dated as of July 27, 1996, by and among
Paragon  Group  L.P.  as  Borrower,   Wells  Fargo  Realty   Advisors   Funding,
Incorporated, as Agent for certain Lenders, and the Lenders (as defined therein)
(the  "Agreement"),  the undersigned  acknowledges that it is bound by the terms
and  conditions  of  the  Agreement.  The  undersigned  acknowledges  that  this
Counterpart  Execution  Page  shall  become a part of the  Agreement  and may be
attached thereto.  The undersigned further acknowledges its receipt of a copy of
the Agreement.

                              "AGENT"

                               WELLS FARGO REALTY ADVISORS FUNDING,
                               INCORPORATED, a Colorado corporation

                          By:  Wells Fargo Real Estate Group,
                               a California corporation, its agent


                          By:  _______________
                                  J. Kent Howard
                                  Vice President


                          By:   ___________________
                                 Joyce L. Demyan
                                 Assistant Secretary

                         ADDRESS FOR NOTICE:
                         c/o Wells Fargo Real Estate Group Disbursement Center
                         2120 East Park Place, Suite 100
                         El Segundo, CA  90245
                         Attention: Manager, AU #5847, Loan #5914.ZMD
                         Telephone: (310) 615-0200
                         Facsimile: (310) 615-1014

                         WITH A COPY TO:
                         Wells Fargo Real Estate Group, Inc.
                         12377 Merit Drive, Suite 300
                         Dallas, TX  75251
                         Attention: Account Officer
                         Telephone: (214) 661-8980
                         Facsimile (214) 386-4723



                                       117

<PAGE>


                         LIBOR OFFICE:
                         c/o Wells Fargo Real Estate Group Disbursement Center
                         2120 East Park Place, Suite 100
                         El Segundo, CA  90245
                         Attention: Manager, AU No. 5847, Loan No. 5914.ZMD
                         Telephone: (310) 615-0200
                         Facsimile: (310) 615-1014



                                       118

<PAGE>



                           COUNTERPART EXECUTION PAGE


     By  execution of this  Counterpart  Execution  Page to that  certain  Fifth
     Amended and Restated  Credit  Agreement  dated as of July 27, 1996,  by and
     among Paragon Group L.P. as Borrower,  Wells Fargo Realty Advisors Funding,
     Incorporated,  as Agent for  certain  Lenders,  and the Lenders (as defined
     therein) (the "Agreement"),  the undersigned  acknowledges that it is bound
     by the terms and conditions of Sections 4.1(b),  4.1(f)(2),  5.2, 7.2, 8.2,
     12.14 and 12.16 of the Agreement.  The undersigned  acknowledges  that this
     Counterpart  Execution Page shall become a part of the Agreement and may be
     attached  thereto.  The undersigned  further  acknowledges its receipt of a
     copy of the Agreement.

                                    "REIT"

                                     PARAGON GROUP, INC., a Maryland corporation


                                     By:_______________________________________
                                        Lynn T. Caldwell, Senior Vice President


                                        ADDRESS FOR NOTICE:
                                        7557 Rambler Road, Suite 1200
                                        Dallas, Texas  75231-4167
                                        Attention: Lynn T. Caldwell
                                        Telephone: (214) 891-2000
                                        Facsimile: (214) 891-2019

                                        WITH A COPY TO:
                                        Stutzman & Bromberg, P.C.
                                        2323 Bryan Street, Suite 2200
                                        Dallas, Texas  75201-2689
                                        Attention: Carl C. Christoff
                                        Telephone: (214) 969-4900
                                        Facsimile: (214) 969-4999




                                       119

<PAGE>



                           COUNTERPART EXECUTION PAGE


     By  execution of this  Counterpart  Execution  Page to that  certain  Fifth
     Amended and Restated  Credit  Agreement  dated as of July 27, 1996,  by and
     among Paragon Group L.P. as Borrower,  Wells Fargo Realty Advisors Funding,
     Incorporated,  as Agent for  certain  Lenders,  and the Lenders (as defined
     therein) (the "Agreement"),  the undersigned  acknowledges that it is bound
     by the terms and conditions of Sections 4.1(c),  4.1(f)(3),  5.3, 7.3, 8.3,
     12.14, and 12.16 of the Agreement.  The undersigned  acknowledges that this
     Counterpart  Execution Page shall become a part of the Agreement and may be
     attached  thereto.  The undersigned  further  acknowledges its receipt of a
     copy of the Agreement.

                                   "PARAGON GP HOLDINGS"

                                    PARAGON GROUP GP HOLDINGS, INC., a Delaware
                                    corporation


                                    By:
                                    Lynn T. Caldwell, Senior Vice President


                                    ADDRESS FOR NOTICE:
                                    7557 Rambler Road, Suite 1200
                                    Dallas, Texas  75231-4167
                                    Attention:  Lynn T. Caldwell
                                    Telephone: (214) 891-2000
                                    Facsimile: (214) 891-2019

                                    WITH A COPY TO:
                                    Stutzman & Bromberg, P.C.
                                    2323 Bryan Street, Suite 2200
                                    Dallas, Texas  75201-2689
                                    Attention: Carl C. Christoff
                                    Telephone: (214) 969-4900
                                    Facsimile: (214) 969-4999



                                       120

<PAGE>



                           COUNTERPART EXECUTION PAGE


     By  execution of this  Counterpart  Execution  Page to that  certain  Fifth
     Amended and Restated  Credit  Agreement  dated as of July 27, 1996,  by and
     among Paragon Group L.P. as Borrower,  Wells Fargo Realty Advisors Funding,
     Incorporated,  as Agent for  certain  Lenders,  and the Lenders (as defined
     therein) (the "Agreement"),  the undersigned  acknowledges that it is bound
     by the terms and conditions of Sections 4.1(d),  4.1(f)(4),  5.4, 7.4, 8.4,
     12.14, and 12.16 of the Agreement.  The undersigned  acknowledges that this
     Counterpart  Execution Page shall become a part of the Agreement and may be
     attached  thereto.  The undersigned  further  acknowledges its receipt of a
     copy of the Agreement.

                                  "PARAGON LP HOLDINGS"

                                   PARAGON GROUP LP HOLDINGS, INC., a Delaware
                                   corporation


                                   By:______________________________________
                                      Lynn T. Caldwell, Senior Vice President


                                      ADDRESS FOR NOTICE:
                                      7557 Rambler Road, Suite 1200
                                      Dallas, Texas  75231-4167
                                      Attention:  Lynn T. Caldwell
                                      Telephone: (214) 891-2000
                                      Facsimile: (214) 891-2019

                                      WITH A COPY TO:
                                      Stutzman & Bromberg, P.C.
                                      2323 Bryan Street, Suite 2200
                                      Dallas, Texas  75201-2689
                                      Attention: Carl C. Christoff
                                      Telephone: (214) 969-4900
                                      Facsimile: (214) 969-4999



                                       121

<PAGE>



                         ADDENDA, EXHIBITS AND SCHEDULES

Addenda:

Addendum I        -        Borrower's Financial Covenants

Exhibits:

A        -        Form of Assignment and Assumption
B        -        Form of Borrowing Base Certificate
C        -        Closing Checklist
D        -        Form of Compliance Certificate
E        -        Funds Transfer Agreement
F        -        Form of Loan Note
G        -        Form of Notice of Borrowing
H        -        Form of Notice of Borrowing Worksheet
I        -        Form of Conversion Date Certificate
J        -        Form of Project Budget
K        -        Form of Loan Availability Certificate

Schedules:

1        -        List of Borrowing Base Stabilized Properties
2        -        List of Borrowing Base Development Properties
5.1(q)   -        Borrower Environmental Matters
5.1(v)   -        Contractual Obligations Not Terminable in 30 Days
5.3(p)   -        Partner Interests of Paragon GP Holdings in Subsidiaries of
                  the Borrower
7.1(b)   -        Business Names Used by Borrower
7.2(i)   -        Reimbursement and Indemnification Obligations of the Borrower
                  to the REIT
7.3(g)   -        Reimbursement and Indemnification Obligations of the Borrower
                  to Paragon
                  GP Holdings
7.4(g)   -        Reimbursement and Indemnification Obligations of the Borrower
                  to Paragon LP Holdings





                                       122

<PAGE>



                                   ADDENDUM I

                         Borrower's Financial Covenants

         1.       Defined Terms.

               (a) "Capital  Expenditures"  means, on an annualized  basis, with
          respect  to  residential  apartment  properties  for  which  the final
          certificate  of occupancy has been issued,  Two Hundred  ($200.00) per
          dwelling  unit  and with  respect  to  office  properties  and  retail
          properties,  ($1.00) per square foot.  With  respect to the  financial
          covenants contained herein (1) Capital Expenditures shall be pro rated
          on a quarterly  basis and (2)  Capital  Expenditures  with  respect to
          Investment  Affiliates  will be  adjusted  to reflect  the  Borrower's
          ownership in such Investment Affiliates.

               (b) "Debt  Service"  means for any period,  Interest  Expense for
          such period plus scheduled  principal  amortization for such period on
          all Indebtedness of the Borrower on a consolidated basis.

               (c) "EBITDA" means, for any period (1) the sum of the amounts for
          such  period  of (i) Net  Income  of  Borrower,  the  REIT  and  their
          respective  Subsidiaries  for such  period  (excluding  equity  in net
          earnings or net loss of Investment Affiliates),  (ii) depreciation and
          amortization   expense  and  other  non-cash  items  deducted  on  the
          Financial Statements in determining such Net Income for Borrower,  the
          REIT and their respective Subsidiaries for such period, (iii) interest
          expense of Borrower, the REIT and their respective  Subsidiaries,  for
          such period as reflected in such Person's financial  statements,  (iv)
          Taxes of Borrower, the REIT and their respective Subsidiaries for such
          period, and (v) cash dividends and distributions  actually received by
          Borrower from Investment Affiliates, minus (2) the extraordinary gains
          (and plus the  extraordinary  losses) of Borrower,  the REIT and their
          respective  Subsidiaries  resulting  from asset sales,  write-ups,  or
          forgiveness of Indebtedness, determined in each case on a consolidated
          basis in accordance with GAAP.

               (d) "Funds From Operations" means, for any period, Borrower's Net
          Income (or loss) for such period  calculated on a GAAP basis excluding
          gains (or losses) from debt restructuring and sales of property,  plus
          (i) real estate  depreciation and  amortization,  (ii) adjustments for
          Investment  Affiliates,  and (iii)  adjustments for  extraordinary  or
          unusual items,  along with  significant  non-recurring  items incurred
          outside of the fundamental operations of the Borrower and as reflected
          in Borrower's Form 10Q or 10K, as the case may be, filed with the SEC.

               (e) "Gross  Asset Value"  means the sum of (1)  annualized  prior
          Fiscal  Quarter   EBITDA   (excluding  (i)  dividends  and  any  other
          distributions from Investment Affiliates,  (ii) EBITDA attributable to
          properties  not owned by Borrower for the entire prior Fiscal  Quarter
          and (iii) any EBITDA  from  Development  Properties  valued as Work In
          Process)  capitalized  at  9.25%,  plus  (2) the  price  paid  for any
          operating  properties  acquired during the prior Fiscal Quarter,  plus
          (3) cash and Cash Equivalents  (excluding tenant  deposits),  plus (4)
          100% of Work In  Process  , plus  (5)  Borrower's  pro  rata  share of
          annualized  prior Fiscal  Quarter Net Operating  Income for Investment
          Affiliate  operating  properties  (excluding  EBITDA  attributable  to
          operating properties

                                  Addendum - 1

<PAGE>



          not owned by such  Investment  Affiliates  for the entire prior Fiscal
          Quarter)  capitalized at 9.25% for multifamily  properties and 10% for
          office and/or  industrial  properties,  plus (6)  Borrower's  pro rata
          share  of  the  price  paid  for  operating   properties  acquired  by
          Investment  Affiliates  during  the  prior  Fiscal  Quarter,  plus (7)
          Borrower's  pro rata share of Work In Process  relating to  properties
          owned by Investment Affiliates.

               (f) "Interest  Expense" means, for any period,  all paid, accrued
          or  capitalized  interest  (but  excluding  (1)  capitalized  interest
          covered by an  interest  reserve  established  under a loan  facility,
          including  the  Facility,   (2)  interest   attributable   to  capital
          expenditures  of Borrower for  accounting  purposes and not  resulting
          from  actual  borrowings,  and (3) any  non-cash  deferred  loan  cost
          amortization  resulting from interest rate buy down expenses  incurred
          prior to the  Restatement  Date,  loan fees,  loan closing costs,  and
          other debt issuance  costs  included in Borrower's  reported  interest
          expense  pursuant to GAAP on a consolidated  basis).  Interest Expense
          also shall include  Borrower's  Share  (disregarding  the contribution
          obligations of co-owners or partners) of accrued,  paid or capitalized
          interest  (except as excluded  under  clauses (1), (2), and (3) above)
          with respect to any Accommodation Obligation.

               (g) "Net Worth" means,  at any time, (1) the sum of (A) the total
          shareholders'  equity of the REIT; (B) the value of all Units owned by
          Persons  other than Paragon GP Holdings  and Paragon LP Holdings;  and
          (C) depreciation and amortization of the REIT, the Borrower, and their
          respective  Subsidiaries after June 30, 1994; minus (2) the sum of (A)
          all intangible  assets of the REIT;  and (B) any intangible  assets of
          Borrower relating to minority  interests in Borrower,  determined on a
          consolidated basis in accordance with GAAP.

               (g)  "Total  Liabilities"  means all GAAP  liabilities,  plus (1)
          Indebtedness  and  Accommodation  Obligations of Borrower that are not
          GAAP liabilities;  (2) 100% of the recourse liabilities of Borrower as
          a general  partner of any partnership  that are not GAAP  liabilities;
          and (3) Borrower's pro rata share of  non-recourse  debt of Investment
          Affiliates that are not GAAP liabilities. Total Liabilities,  however,
          shall exclude up to $15,000,000  (in  aggregate) of accounts  payable,
          accrued liabilities and tenant security deposits.

               (h) "Work in Process" means the aggregate  Expended Project Costs
          as  reviewed  and  approved by Agent (as of the  certification  date),
          including the cost of Land for Borrowing Base  Development  Properties
          and the pro rata  share of  Expended  Project  Costs  for  Development
          Properties other than Borrowing Base Development Properties.

          2. Minimum Net Worth.  Borrower shall maintain a Net Worth of not less
          than 90% of the Net  Worth of the REIT as of March 31,  1996.  The Net
          Worth of the REIT as of March 31, 1996, was $173,445,000.00.

          3.  Total  Liabilities  to  Gross  Asset  Value  Ratio.  The  ratio of
          Borrower's  Total  Liabilities  to Gross  Asset Value shall not exceed
          0.575:1.

          4. EBITDA to Interest  Expense Ratio.  The ratio of EBITDA to Interest
          Expense shall not be less than 2.00:1.



                                  Addendum - 2

<PAGE>



          5. EBITDA to Fixed  Charges  Ratio.  The ratio of EBITDA to the sum of
          Fixed Charges shall not be less than 1.75:1.

          6. Distributions.  Distributions by Borrower on account of Units shall
          not exceed (a) 130% of Funds From  Operations  for the Fiscal  Quarter
          ending June 30, 1996; (b) 115% of Funds From Operations for the Fiscal
          Quarter ending  September 30, 1996; (c) 110% of Funds From  Operations
          for the Fiscal  Quarters ending December 31, 1996, and March 31, 1997;
          and (d) 105% of Funds From  Operations  for the Fiscal  Quarter ending
          June 30, 1997.  Except as otherwise  provided above,  distributions by
          Borrower  on  account  of Units  shall not  exceed  95% of Funds  From
          Operations for any Fiscal Quarter.  If a monetary Event of Default has
          occurred and is continuing, then such distributions in any Fiscal Year
          shall not exceed the minimum  amount of taxable  income that  Borrower
          must  distribute  in  order  to  remain  qualified  as a  real  estate
          investment  trust,  as defined in Section 856 of the Internal  Revenue
          Code, or any successor provision. Borrower's Funds From Operations for
          the Fiscal  Quarter  immediately  preceding the date on which any such
          distribution is made shall be used to determine Borrower's  compliance
          with the distribution limitations set forth in this provision.

          7.  Permitted  Investments.  Borrower's  primary  business will be the
          development,  ownership, operation and management of apartment, retail
          and commercial  properties,  asset management and business  activities
          and investments incidental thereto; provided, however, unimproved land
          holdings,  stock  holdings  (excluding  short term equity  investments
          maintained for cash management purposes),  investments in partnerships
          and joint  ventures which are  Investment  Affiliates,  and Investment
          Mortgages  shall not exceed the following  percentages  of Gross Asset
          Value.

                                                             Maximum Percentage
                   Permitted Investment                     of Gross Asset Value
          Land:                                                           2.5%
          Securities of Persons other than the REIT,                        5%
          Paragon GP Holdings, Paragon LP Holdings,
          and the Management Company:
          Partnerships and joint ventures which are                      22.5%
          Investment Affiliates of either Borrower or the REIT:
          Investment Mortgages:                                             5%

     The value of Permitted  Investments  other than investments in partnerships
     and joint ventures  shall be calculated in conformity  with GAAP. The value
     of  Permitted  Investments  in  partnerships  and joint  ventures  shall be
     calculated in conformity  with the  calculation  of Gross Asset Value.  The
     aggregate  Permitted  Investments of Borrower shall not exceed 25% of Gross
     Asset Value.



                                  Addendum - 3

<PAGE>



     Additionally,   the  aggregate  amount  of  the  Construction  Budgets  for
     Development  Properties in which  Borrower  either has a direct or indirect
     ownership  interest shall not exceed (a)  $100,000,000  from July 27, 1996,
     through  December 31, 1996; (b) $80,000,000  from January 1, 1997,  through
     June 30, 1997; and (c) $60,000,000 thereafter. If a Development Property is
     owned by an  Investment  Affiliate  of  Borrower,  then the  product of (1)
     Borrower's  ownership  interest in such  Investment  Affiliate  and (2) the
     amount of the  Construction  Budget for the  Development  Property shall be
     used in calculating such Investment limitation.

     8.  Calculation.  Each of the foregoing  ratios and financial  requirements
     shall be calculated as of the last day of each Fiscal  Quarter and shall be
     satisfied at all times.




                                  Addendum - 4

<PAGE>


                                    EXHIBIT C


                                CLOSING CHECKLIST

1.       Fifth Amended and Restated Credit Agreement

2.       Loan Notes

         (a)      Wells Fargo Realty Advisors Funding, Incorporated

                  (i)      $5,600,000 Loan Note
                  (ii)     $5,145,000 Loan Note
                  (iii)    $34,255,000 Loan Note

         (b)      NationsBank of Texas, N.A.

                  (i)      $3,733,333 Loan Note
                  (ii)     $3,430,000 Loan Note
                  (iii)    $22,836,667 Loan Note

         (c)      The Boatmen's National Bank of St. Louis

                  (i)      $1,244,447 Loan Note
                  (ii)     $1,143,333 Loan Note
                  (iii)    $7,612,220 Loan Note

3.       Borrower's Affidavit

4        REIT Affidavit

5.       Paragon GP Holdings Affidavit

6.       Paragon LP Holdings Affidavit

7.       Borrower's Counsel Legal Opinion

8.       Compliance Certificate



                                       C-1