Exhibit 10.16


    Authorization
      ID AAA4442

    Investment
      ID M-0005935

    


    


    PROMISSORY
      NOTE

    


    $22,800,000.00                                                       Austin,
      Texas

                        Dated:
      June 30,
      2006

     

    FOR
      VALUE
      RECEIVED, ESCARPMENT VILLAGE, L.P., a Texas limited partnership (“Borrower”)
      having
      its principal place of business at c/o Stratus Properties Inc., 98 San Jacinto
      Blvd., Suite 220, Austin, Texas 78701, promises to pay to TEACHERS INSURANCE
      AND
      ANNUITY ASSOCIATION OF AMERICA (“Lender”),
      a New
      York corporation, or order, at Lender’s offices at 730 Third Avenue, New York,
      New York 10017 or at such other place as Lender designates in writing, the
      principal sum of TWENTY-TWO MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS
      ($22,800,000.00) (the principal sum or so much of the principal sum as may
      be
      advanced and outstanding from time to time, the “Principal”),
      in
      lawful money of the United States of America, with interest on the Principal
      from the date of this Promissory Note (this “Note”)
      through and including July 1, 2016 (the “Maturity
      Date”)
      at the
      fixed rate of Five and 55/100 percent (5.55%) per annum (the “Fixed
      Interest Rate”),
      but
      in no event will the interest payable exceed the maximum amount allowed by
      Law.

     

    This
      Note
      is secured by, among other things, the Deed of Trust, Assignment of Leases
      and
      Rents and Security Agreement, (the “Deed
      of Trust”)
      dated
      the date of this Note made by Borrower for the benefit of Lender as security
      for
      the Loan. All capitalized terms not expressly defined in this Note will have
      the
      definitions set forth in the Deed of Trust.

     

    Section
      1.  Payments
      of Principal and Fixed Interest.

     

    (a)  Borrower
      will make monthly installment payments (“Debt
      Service Payments”)
      as
      follows:

     

    (i)  On
      July
      1, 2006 a payment of accrued interest on the Principal at the Fixed Interest
      Rate; and

     

    (ii)  On
      August
      1, 2006 and on the first day of each succeeding calendar month through and
      including July 1, 2016, payments in the amount of One Hundred Thirty Thousand
      One Hundred Seventy Two and 80/100 Dollars ($130,172.80) each, which will be
      applied first to accrued interest on the Principal at the Fixed Interest Rate
      and then to the Principal.

     

    (b)  On
      the
      Maturity Date, Borrower will pay the Principal in full together with accrued
      interest at the Fixed Interest Rate and all other amounts due under the Loan
      Documents.

     

    Section
      2.  Prepayment
      Provisions.

     

    (a)  The
      following definitions apply:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Discount
      Rate”
means
      the yield on an on-the-run U.S. Treasury issue selected by Lender, as published
      in Bloomberg, two weeks prior to prepayment, having a maturity date
      corresponding (or most closely corresponding, if not identical) to the Maturity
      Date, and, if applicable, a coupon rate corresponding (or most closely
      corresponding, if not identical) to the Fixed Interest Rate.

     

    “Default
      Discount Rate”
means
      the Discount Rate less 300 basis points.

     

    “Discounted
      Value”
means
      the Discounted Value of a Note Payment based on the following
      formula:

     

    

      
        	
                     
                        
                  NP       

                                     
                  (1 + R/12)n 

                 

              	
                =

                 

              	
                Discounted
                  Value

                 

              
	
                NP

                 

              	
                =

                 

              	
                Amount
                  of Note Payment

                 

              
	
                R

                 

              	
                =

                 

              	
                Discount
                  Rate or Default Discount Rate as the case may be.

                 

              
	
                n

              	
                =

                 

              	
                The
                  number of months between the date of prepayment and the scheduled
                  date of
                  the Note Payment being discounted rounded to the nearest
                  integer.

              


      

    

     

    “Note
      Payments”
means
      (i) the scheduled Debt Service Payments for the period from the date of
      prepayment through the Maturity Date and (ii) the scheduled repayment of
      Principal, if any, on the Maturity Date.

     

    “Prepayment
      Date Principal”
means
      the Principal on the date of prepayment.

     

    (b)  This
      Note
      may not be prepaid in full or in part before July 1, 2009. Commencing on July
      1,
      2009, provided there is no Event of Default, Borrower may prepay this Note
      in
      full, but not in part, upon 60 days prior notice to Lender and upon payment
      in
      full of the Debt which will include a payment (the “Prepayment
      Premium”)
      equal
      to the greater of (i) an amount equal to the product of one percent (1%) times
      the Prepayment Date Principal and (ii) the amount by which the sum of the
      Discounted Values of the Note Payments, derived by using the Discount Rate
      plus
      fifty (50) basis points, exceeds the Prepayment Date Principal. In order to
      calculate (ii) in the foregoing, each remaining Note Payment will be discounted
      and the resulting Discounted Values will be added together. Provided there
      is no
      Event of Default, this Note may be prepaid in full without payment of the
      Prepayment Premium during the last 90 days of the Term. This Note may not be
      prepaid without simultaneous prepayment in full of any other notes secured
      by
      the Loan Documents.

     

    (c)  After
      an
      Acceleration or upon any other prepayment not permitted by the Loan Documents,
      any tender of payment of the amount necessary to satisfy the Debt accelerated,
      any judgment of foreclosure, any statement of amount due at the time of
      foreclosure (including foreclosure by power of sale) and any tender of payment
      made during any redemption period after foreclosure, will include a payment
      (the
“Evasion
      Premium”)
      equal
      to the greater of (i) an amount equal to the product of one percent (1%) plus
      300 basis points times the Prepayment 

     

    
      
        
        

      

      
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    Date
      Principal, and (ii) the amount by which the sum of the Discounted Values of
      the
      Note Payments, derived by using the Default Discount Rate, exceeds the
      Prepayment Date Principal. In order to calculate (ii) in the foregoing, each
      remaining Note Payment will be discounted and the resulting Discounted Values
      will be added together.

     

    (d)  Borrower
      acknowledges that:

     

    (i)  a
      prepayment will cause damage to Lender;

     

    (ii)  the
      Evasion Premium is intended to compensate Lender for the loss of its investment
      and the expense incurred and time and effort associated with making the Loan,
      which will not be fully repaid if the Loan is prepaid;

     

    (iii)  it
      will
      be extremely difficult and impractical to ascertain the extent of Lender’s
      damages caused by a prepayment after an Event of Default or any other prepayment
      not permitted by the Loan Documents;

     

    (iv)  the
      Evasion Premium represents Lender and Borrower’s reasonable estimate of Lender’s
      damages for the prepayment and is not a penalty; and

     

    (v)  amounts
      payable pursuant to this section will not be interest, but will be a charge
      for
      prepayment permitted by Chapter 306, Section 306.005 of the Texas Finance Code,
      as amended.

     

    Section
      3.  Events
      of Default:

     

    (a)  It
      is an
“Event
      of Default”
under
      this Note:

     

    (i)  if
      Borrower fails to pay any amount due, as and when required, under this Note
      or
      any other Loan Document and the failure continues for a period of 5 days;
      or

     

    (ii)  if
      an
      Event of Default occurs under any other Loan Document.

     

    (b)  If
      an
      Event of Default, Lender may declare all or any portion of the Debt immediately
      due and payable (“Acceleration”)
      and
      exercise any of the other Remedies.

     

    Section
      4.  Default
      Rate.
      After
      the occurrence of and during the continuation of an Event of Default, Interest
      on the Principal will accrue at the Default Interest Rate from the date an
      Event
      of Default occurs.

     

    Section
      5.  Late
      Charges.

     

    (a)  If
      Borrower fails to pay any Debt Service Payment when due and the failure
      continues for a period of 10 days or more or fails to pay any amount (other
      than
      the balloon installment due at maturity) within ten (10) days of when due under
      the Loan Documents on the Maturity Date, Borrower agrees to pay to Lender an
      amount (a “Late
      Charge”)
      equal
      to five cents ($.05) for each one dollar ($1.00) of the delinquent
      payment.

     

    
      
        
        

      

      
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    (b)  Borrower
      acknowledges that:

     

    (i)  a
      delinquent payment will cause damage to Lender;

     

    (ii)  the
      Late
      Charge is intended to compensate Lender for loss of use of the delinquent
      payment and the expense incurred and time and effort associated with recovering
      the delinquent payment;

     

    (iii)  it
      will
      be extremely difficult and impractical to ascertain the extent of Lender’s
      damages caused by the delinquency;

     

    (iv)  the
      Late
      Charge represents Lender and Borrower’s reasonable estimate of Lender’s damages
      from the delinquency and is not a penalty; and 

     

    (v)
      such
      amount will not be interest but shall be a delinquency charge permitted by
      Chapter 306, Section 306.006 of the Texas Finance Code, as amended.

     

    Section
      6.  Limitation
      of Liability.
      This
      Note is subject to the limitations on liability set forth in the Article of
      the
      Deed of Trust entitled “Limitation
      of Liability”.

     

    Section
      7.  WAIVERS.
      IN
      ADDITION TO THE WAIVERS SET FORTH IN THE ARTICLE OF THE DEED OF TRUST ENTITLED
      “WAIVERS”,
      BORROWER WAIVES PRESENTMENT FOR PAYMENT, DEMAND, DISHONOR, NOTICE OF INTENTION
      TO ACCELERATE, NOTICE OF ACCELERATION, AND, EXCEPT AS EXPRESSLY SET FORTH IN
      THE
      LOAN DOCUMENTS, NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY
      PROTEST, LACK OF DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT
      OF
      THE LOAN DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES AND GUARANTORS OF
      THE
      OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND
      MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT TO THE OBLIGATIONS AND TO
      THE
      RELEASE OF ANY SECURITY FOR THIS NOTE AND AGREE THAT ADDITIONAL MAKERS MAY
      BECOME PARTIES TO THIS NOTE AND ADDITIONAL INDORSERS, GUARANTORS OR SURETIES
      MAY
      BE ADDED WITHOUT NOTICE AND WITHOUT AFFECTING THE LIABILITY OF THE ORIGINAL
      MAKER OR ANY ORIGINAL INDORSER, SURETY OR GUARANTOR.

     

    Section
      8.  Commercial
      Loan.
      The
      Loan is made for the purpose of carrying on a business or commercial activity
      or
      acquiring real or personal property as an investment or carrying on an
      investment activity and not for personal, family or household
      purposes.

     

    Section
      9.  Usury
      Limitations.
      All
      agreements between Borrower and Lender, whether now existing or hereafter
      arising and whether written or oral, are hereby limited so that in no
      contingency, whether by reason of acceleration of the maturity hereof or
      otherwise, will the interest contracted for, charged or received by Lender
      exceed the maximum amount permissible under applicable law. If, from any
      circumstance whatsoever, interest would otherwise be payable to Lender in excess
      of the maximum lawful amount, the interest payable to Lender will be reduced
      to
      the maximum amount permitted under applicable law; and if from any 

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    circumstance
      the Lender will ever receive anything of value deemed interest by applicable
      law
      in excess of the maximum lawful amount, an amount equal to any excessive
      interest will be applied to the reduction of the principal hereof and not to
      the
      payment of interest, or if such excessive interest exceeds the unpaid balance
      of
      principal hereof such excess will be refunded to the undersigned. All interest
      paid or agreed to be paid to Lender will, to the extent permitted by applicable
      law, be amortized, prorated, allocated, and spread throughout the full period
      until payment in full of the principal (including the period of any renewal
      or
      extension hereof) so that the interest hereon for such full period will not
      exceed the maximum amount permitted by applicable law. This paragraph will
      control all agreements between Borrower and Lender.

     

    Section
      10.  Applicable
      Law.
      This
      Note is governed by and will be construed in accordance with the Laws of the
      State in which the Property is located, without regard to conflict of law
      provisions.

     

    Section
      11.  Time
      of the Essence.
      Time is
      of the essence with respect to the payment and performance of the
      Obligations.

     

    Section
      12.  Cross-Default.
      A
      default under any other note now or hereafter secured by the Loan Documents
      or
      under any loan document related to such other note constitutes a default under
      this Note and under the other Loan Documents. When the default under the other
      note constitutes an Event of Default under that note or the related loan
      document, an Event of Default also will exist under this Note and the other
      Loan
      Documents.

     

    Section
      13.  Construction.
      Unless
      expressly provided otherwise in this Note, this Note will be construed in
      accordance with the Exhibit attached to the Deed of Trust entitled “Rules
      of Construction”.

     

    Section
      14.  Deed
      of Trust Provisions Incorporated.
      To the
      extent not otherwise set forth in this Note, the provisions of the Articles
      of
      the Deed of Trust entitled “Expenses
      and Duty to Defend”,
      “Waivers”,
      “Notices”,
      and
“Miscellaneous”
are
      applicable to this Note and deemed incorporated by reference as if set forth
      at
      length in this Note.

     

    Section
      15.  Joint
      and Several Liability; Successors and Assigns.
      If
      Maker consists of more than one entity, the obligations and liabilities of
      each
      such entity will be joint and several. This Note binds Borrower and successors,
      assigns, heirs, administrators, executors, agents and representatives and inures
      to the benefit of Lender and its successors, assigns, heirs, administrators,
      executors, agents and representatives.

     

    Section
      16.  Absolute
      Obligation.
      Except
      for the Section of this Note entitled “Limitation
      of Liability”,
      no
      reference in this Note to the other Loan Documents and no other provision of
      this Note or of the other Loan Documents will impair or alter the obligation
      of
      Borrower, which is absolute and unconditional, to pay the Principal, interest
      at
      the Fixed Interest Rate and any other amounts due and payable under this Note,
      as and when required.

     

    Section
      17.  Additional
      Provisions Pertaining to State Laws.

     


    
      
         

      

      
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    IN
      WITNESS WHEREOF, Borrower has executed and delivered this Note as of the date
      first set forth above.

     

    ESCARPMENT
      VILLAGE, L.P., a Texas limited partnership

    


    By: Escarpment
      Village Management, L.L.C., a Texas

    limited
      liability company, General Partner

    


    By: Circle
      C
      Land, L.P., a Texas limited partnership,

    Manager

    


    By: Circle
      C
      GP, L.L.C., a Delaware limited 

    liability
      company, its general partner

    


    By: Stratus
      Properties Inc., a Delaware

    corporation,
      its Manager

    


    


    By:
      /s/ John E. Baker   

    John
      E.
      Baker

    Senior
      Vice President

    


    
      
        
        

      

      
        -6-