<PAGE>   1
                                                                   EXHIBIT 10.42




                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                           TERRACE GARDENS - PGP, L.P.
<PAGE>   2
                                TABLE OF CONTENTS

                                                                            PAGE

ARTICLE 1
DEFINED TERMS..............................................................    1

ARTICLE 2
ORGANIZATIONAL MATTERS.....................................................    9

      SECTION 2.1 ORGANIZATION.............................................    9
      SECTION 2.2 NAME.....................................................    9
      SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE............    9
      SECTION 2.4 POWER OF ATTORNEY........................................    9
      SECTION 2.5 TERM.....................................................   10

ARTICLE 3
PURPOSE....................................................................   10

      SECTION 3.1 PURPOSE AND BUSINESS.....................................   10
      SECTION 3.2 POWERS...................................................   11

ARTICLE 4
CAPITAL....................................................................   11

      SECTION 4.1 CAPITAL OF THE PARTNERS..................................   11
      SECTION 4.2 ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS............   12
      SECTION 4.3 PREEMPTIVE RIGHTS........................................   12
      SECTION 4.4 GENERAL PARTNER LOANS....................................   12

ARTICLE 5
DISTRIBUTIONS..............................................................   12

      SECTION 5.1 AMOUNT AND PRIORITY OF QUARTERLY DISTRIBUTIONS...........   12
      SECTION 5.2 FIRST DISTRIBUTION.......................................   13
      SECTION 5.3 AMOUNTS WITHHELD.........................................   13
      SECTION 5.4 DISTRIBUTIONS UPON LIQUIDATION...........................   13

ARTICLE 6
ALLOCATIONS................................................................   14

      SECTION 6.1 ALLOCATIONS OF NET INCOME AND NET LOSS...................   14
      SECTION 6.2 OTHER ALLOCATIONS........................................   15
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ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS......................................   15

      SECTION 7.1 MANAGEMENT...............................................   15
      SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP.......................   18
      SECTION 7.3 NO PROPERTY TRANSFER PERIOD..............................   18
      SECTION 7.4 NO PAY DOWN PERIOD.......................................   19
      SECTION 7.5 NO DISSOLUTION ACTION....................................   19
      SECTION 7.6 NO TAX TERMINATION OR DISSOLUTION........................   19
      SECTION 7.7 MANAGEMENT FEE AND REIMBURSEMENT OF THE GENERAL PARTNER..   19
      SECTION 7.8 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER................   20
      SECTION 7.9 CONTRACTS WITH AFFILIATES................................   20
      SECTION 7.10 INDEMNIFICATION.........................................   20
      SECTION 7.11 LIABILITY OF THE GENERAL PARTNER........................   22
      SECTION 7.12 OTHER MATTERS CONCERNING THE GENERAL PARTNER............   23
      SECTION 7.13 TITLE TO PARTNERSHIP ASSETS.............................   23
      SECTION 7.14 RELIANCE BY THIRD PARTIES...............................   23

ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................................   24

      SECTION 8.1 LIMITATION OF LIABILITY..................................   24
      SECTION 8.2 MANAGEMENT OF BUSINESS...................................   24
      SECTION 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS...................   24
      SECTION 8.4 RETURN OF CAPITAL........................................   25
      SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP...   25
      SECTION 8.6 NO REDEMPTION RIGHT......................................   26

ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS.....................................   26

      SECTION 9.1 RECORDS AND ACCOUNTING...................................   26
      SECTION 9.2 FISCAL YEAR..............................................   26
      SECTION 9.3 REPORTS..................................................   26

ARTICLE 10
TAX MATTERS................................................................   27

      SECTION 10.1 PREPARATION OF TAX RETURNS..............................   27
      SECTION 10.2 TAX ELECTIONS...........................................   27
      SECTION 10.3 TAX MATTERS PARTNER.....................................   27
      SECTION 10.4 ORGANIZATIONAL EXPENSES.................................   28
      SECTION 10.5 WITHHOLDING.............................................   28


                                     - ii -
<PAGE>   4
ARTICLE 11
TRANSFERS AND WITHDRAWALS..................................................   29

      SECTION 11.1 TRANSFER................................................   29
      SECTION 11.2 TRANSFER OF THE GENERAL PARTNER'S PARTNER INTEREST AND
                   LIMITED PARTNER INTEREST................................   29
      SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER....................   30
      SECTION 11.4 SUBSTITUTED LIMITED PARTNERS............................   31
      SECTION 11.5 ASSIGNEES...............................................   31
      SECTION 11.6 GENERAL PROVISIONS......................................   31
      SECTION 11.7 NO EXCHANGE.............................................   32

ARTICLE 12
ADMISSION OF PARTNERS......................................................   32

      SECTION 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER..................   32
      SECTION 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS................   33
      SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED
                   PARTNERSHIP.............................................   33

ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION...................................   33

      SECTION 13.1 DISSOLUTION.............................................   33
      SECTION 13.2 WINDING UP..............................................   34
      SECTION 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS......   35
      SECTION 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION..................   36
      SECTION 13.5 RIGHTS OF LIMITED PARTNERS..............................   36
      SECTION 13.6 NOTICE OF DISSOLUTION...................................   36
      SECTION 13.7 TERMINATION OF PARTNERSHIP AND CANCELLATION OF
                   CERTIFICATE OF LIMITED PARTNERSHIP......................   36
      SECTION 13.8 REASONABLE TIME FOR WINDING-UP..........................   36
      SECTION 13.9 WAIVER OF PARTITION.....................................   36

ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS...............................   37

      SECTION 14.1 AMENDMENTS..............................................   37
      SECTION 14.2 MEETINGS OF THE PARTNERS................................   38


                                     - iii -
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ARTICLE 15
GENERAL PROVISIONS.........................................................   39

      SECTION 15.1 ADDRESSES AND NOTICES...................................   39
      SECTION 15.2 TITLES AND CAPTIONS.....................................   39
      SECTION 15.3 PRONOUNS AND PLURALS....................................   39
      SECTION 15.4 FURTHER ACTION..........................................   39
      SECTION 15.5 BINDING EFFECT..........................................   39
      SECTION 15.6 CREDITORS...............................................   39
      SECTION 15.7 WAIVER..................................................   39
      SECTION 15.8 COUNTERPARTS............................................   40
      SECTION 15.9 APPLICABLE LAW..........................................   40
      SECTION 15.10       INVALIDITY OF PROVISIONS.........................   41
      SECTION 15.11       ENTIRE AGREEMENT.................................   41
      SECTION 15.12       NO RIGHTS AS SHAREHOLDERS........................   41


EXHIBIT A  PARTNERS CAPITAL AND PARTNERSHIP INTERESTS
EXHIBIT B  CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C  SPECIAL ALLOCATION RULES
EXHIBIT D  VALUE OF EXISTING PROPERTY
EXHIBIT E  TRANSACTION DOCUMENTS


                                     - iv -
<PAGE>   6
                        AGREEMENT OF LIMITED PARTNERSHIP
                                       OF
                           TERRACE GARDENS - PGP, L.P.


      THIS AGREEMENT OF LIMITED PARTNERSHIP OF TERRACE GARDENS - PGP, L.P. (this
"Agreement"), dated June 12, 1997 (the "Effective Date"), is entered into by and
among PGP Terrace Gardens Holdings Inc., a Delaware corporation, as the general
partner (the "General Partner"), and the Persons (as defined below) whose names
are set forth on Exhibit A as attached hereto (as it may be amended from time to
time), collectively as the limited partners (the "Limited Partners").

      WHEREAS, the Limited Partners formed that certain general partnership
known as Terrace Gardens Apartments, a California general partnership (the
"California General Partnership"), pursuant to that certain General Partnership
Agreement of Terrace Gardens Apartments dated November 1, 1983, as amended (the
"Prior Agreement");

      WHEREAS, the General Partner was admitted to the California General
Partnership as a general partner through an amendment to the Prior Agreement;

      WHEREAS, the General Partner and the Limited Partners have entered into an
Agreement and Plan of Conversion of even date herewith whereby the California
General Partnership is being converted (the "Conversion") to a Delaware Limited
Partnership (the "Partnership");

      WHEREAS, as a part of the Conversion, the General Partner and the Limited
Partners desire to amend and restate the Prior Agreement under the laws of the
State of Delaware; and

      WHEREAS, upon admission to the California General Partnership, the General
Partner made certain capital contributions;

      NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto amend and restate the Partnership Agreement,
and do hereby agree as follows:

                                    ARTICLE 1

                                  DEFINED TERMS

      The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.

      "Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.

      "Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 4.2 hereof and who is shown as such on the
books and records of the Partnership.

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


                                        1
<PAGE>   7
      "Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership taxable year.

      "Adjusted Property" means any property, the Carrying Value of which has
been adjusted pursuant to Exhibit B hereof. The parties hereto agree that as a
result of the admission of the General Partner just prior to Conversion, the
Carrying Value of the Existing Property shall have been adjusted in accordance
with Exhibit B hereof, and as of the Effective Date, the Existing Property is
included in the definition of Adjusted Property.

      "Affiliate" means, with respect to any Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with such Person;
(ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person; (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests; or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above.

      "Agreed Value" means (i) in the case of the Existing Property, the Net
Value; (ii) in the case of any other property and as of the time of its
contribution to the Partnership, the 704(c) Value of such property, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed; and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.

      "Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.

      "Assignee" means a Person to whom one or more Partnership Units have been
transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner, and who has the rights set forth in Section 11.5.

      "Available Cash" means, with respect to any period for which such
calculation is being made, Partnership gross revenues less (i) operation and
maintenance expenses (including, but not limited to, reserves for property taxes
and insurance), (ii) debt service on Partnership debt, and (iii) management fees
and expenses.

      "Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.

      "Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Los Angeles, California are authorized or required by
law to close.

      "California General Partnership" means Terrace Gardens Apartments, a
California general partnership.


                                        2
<PAGE>   8
      "Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B hereof.

      "Capital " means, with respect to the Limited Partners, the Agreed Value
of the Existing Property, with respect to the General Partner, the cash
contributed to the Partnership, and with respect to Additional Limited Partners,
the cash, cash equivalents or the Agreed Value of property which such Partner
contributes or is deemed to contribute to the Partnership, pursuant to Section
4.1 hereof.

      "Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property, reduced (but not below
zero) by all Depreciation with respect to such Property charged to the Partners'
Capital Accounts following the date hereof with respect to such Property; and
(ii) with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Exhibit B hereof, and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.

      "Certificate" means a Certificate of Limited Partnership relating to the
Partnership to be filed with the execution and delivery hereof, or as soon
thereafter as is practicable in the office of the Delaware Secretary of State,
as amended from time to time in accordance with the terms hereof and the Act.

      "Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provisions of future law.

      "Consent" means the consent or approval of a proposed action by a Partner
given in accordance with Section 14.2 hereof.

      "Contributed Property" means each property or other asset, in such form as
may be permitted by the Act (but excluding cash), contributed or deemed
contributed to the Partnership (including deemed contributions to the
Partnership as a result of the termination thereof pursuant to Section 708 of
the Code and the regulations thereunder to the extent the property was
Contributed Property prior to the Section 708 termination). Once the Carrying
Value of Contributed Party is adjusted pursuant to Exhibit B hereof, such
property shall no longer constitute Contributed Property for purposes of Exhibit
B hereof, but shall be deemed an Adjusted Property for such purposes.

      "Conversion" means the process of converting the California General
Partnership to the Partnership pursuant to Section 17-217 of the Act and Article
9 of the California Uniform Partnership Act of 1994 (being Section 16901 et seq.
of the California Corporations Code).

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


                                        3
<PAGE>   9
      "Effective Date" means the effective date set forth in the Certificate of
Conversion filed with the Delaware Secretary of State.

      "Excess Distributions" means distributions to a Limited Partner for all
periods in excess of allocations of Net Income to the Limited Partner for all
periods pursuant to Section 6.1A(3).

      "Excess Transfer" means the sale or transfer or conversion of at least
eighty percent (80%), in the aggregate, of the Partnership Units received by the
Original Limited Partners and/or their respective successors and assigns in
transactions not constituting transfers permitted under this Agreement. For
purposes of the foregoing, a pledge, encumbrance or hypothecation of a
Partnership Unit or an interest therein shall not constitute a sale, transfer or
conversion.

      "Exchange Rights Agreement" means that certain Exchange Rights Agreement,
dated as of June 12, 1997, by and among PGP, the Partnership and all of the
Limited Partners.

      "Existing Property" means each property or other asset, in such form as
may be permitted by the Act (but excluding cash) held by the Partnership on the
date hereof.

      "General Partner Interest" means a Partnership Interest held by the
General Partner, in its capacity as general partner.

      "IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.

      "Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership which is a Partner, the dissolution and commencement of
winding up the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner; (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors; (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above; (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties; (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof; (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment; or (h) an appointment referred to in clause (g) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.

      "Indemnification Agreement" means that certain indemnification agreement,
dated June 12, 1997, by and among PGP, the Delaware Limited Partnership, Morning
View Terrace - PGP, L.P., and Pacific Inland Communities, LLC.


                                        4
<PAGE>   10
      "Indemnitee" means any Person made a party to a proceeding or against whom
a claim is made by reason of (i) his status as the General Partner, or as a
director, officer, employee, partner, agent, representative or Affiliate of the
General Partner, or (ii) his or its liabilities pursuant to a loan guarantee or
otherwise for or as a result of any indebtedness or obligation of the
Partnership or any Subsidiary of the Partnership (including, without limitation,
the Tax Exempt Debt prior to and subsequent to any refunding thereof and any
indebtedness or obligation which the Partnership or any Subsidiary of the
Partnership has assumed or taken assets subject to). Notwithstanding the
foregoing, no Original Limited Partner shall be treated as an Indemnitee in
connection with the Tax Exempt Debt (as it may be refunded from time to time) or
in respect of the Indemnification Agreement.

      "Limited Partner" means any Person named as a Limited Partner in Exhibit A
attached hereto, as such Exhibit may be amended from time to time, or any
Substituted Limited Partner or Additional Limited Partner, in such Person's
capacity as a Limited Partner of the Partnership.

      "Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled, as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.

      "Liquidating Event" has the meaning set forth in Section 13.1.

      "Liquidator" has the meaning set forth in Section 13.2.

      "Master Reimbursement Agreement" means the Master Reimbursement Agreement,
dated as of December 1, 1996 and amended and restated as of June 1, 1997, by and
among the Federal National Mortgage Association, Pacific Inland Communities,
LLC, Morning View Terrace - PGP, L.P. and the Partnership.

      "Negative Capital Account Balance" means, as to any Original Limited
Partner, the aggregate negative capital account balance of such partner in the
Partnership immediately prior to the date of admission of the General Partner
(the "Admission Date") as a general partner of the Partnership (as reflected on
the books of the Partnership at that time, and without taking into account any
revaluation of property of the Partnership which may occur as a result of, or as
required by, Regulations Section 1.704- 1(b)(2)(iv)(f)), and with respect to any
Original Limited Partner which is itself a partnership on the Effective Date,
the aggregate negative capital account balances of all the partners of such
Original Limited Partner immediately prior to the Admission Date (as reflected
on the books of the Partnership at that time, and without taking into account
any revaluation of property of the Partnership which may occur as a result of,
or as required by, applicable Regulations (including, without limitation,
Regulations Section 1.704-1(b)(2)(iv)(f)); provided, however, that the Negative
Capital Account Balance in each case shall be deemed to be reduced by the amount
(determined at the time of reference) of the Original Limited Partner's share of
Non-Recourse Liabilities of the Partnership.

      "Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit "B".


                                        5
<PAGE>   11
      "Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit "B".

      "Net Value" is equal to $1,752,607.

      "No Exchange Period" means a period expiring two (2) years after the date
of the Exchange Rights Agreement.

      "Nonrecourse Built-in-Gain" means, with respect to any Existing Property
or Adjusted Property that is subject to a mortgage or negative pledge securing a
Nonrecourse Liability, the amount of any taxable gain that would be allocated to
the Partners pursuant to Section 2.B of Exhibit C if such properties were
disposed of in a taxable transaction in full satisfaction of such liabilities
and for no other consideration.

      "Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).

      "Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).

      "Original Limited Partner" means each person listed on Exhibit A as
attached hereto at the time of initial execution of this Agreement (excluding
the General Partner) without regard to any subsequent changes to such Exhibit,
and with regard to any such persons which are themselves partnerships, the
partners of such partnerships if and when the Partnership Units held by such
partnerships hereunder are distributed by such partnerships to such partners.

      "Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.

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

      "Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).

      "Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership taxable year shall be
determined in accordance with the rules of Regulations Section 1.704-2(i)(2).

      "Partnership" means the limited partnership formed under the Act by
conversion of the California General Partnership, and pursuant to the Prior
Agreement, as amended and restated, pursuant to this Agreement and any successor
thereto.

      "Partnership Interest" means an ownership interest in the Partnership by
either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
held by a Limited Partner may be expressed as a number of Partnership Units.


                                        6
<PAGE>   12
      "Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in a Partnership Minimum Gain, for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).

      "Partnership Record Date" means the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 5.1 hereof,
which record date shall be no later than ten (10) days prior to any date of
distribution.

      "Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Limited Partners issued pursuant to Sections 4.1 and 4.2. The
number of Partnership Units outstanding and the Percentage Interest in the
Partnership represented by such Partnership Units are set forth in Exhibit A
attached hereto, as such Exhibit may be amended from time to time. The ownership
of Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities. If the
General Partner elects to evidence the Partnership Units with a certificate,
such certificate may be imprinted with a legend setting forth such restrictions
placed on the units as specified in this Agreement and the Exchange Rights
Agreement and such restrictions will be binding upon all holders of the
certificate along with the terms and conditions set forth in this Agreement and
the Exchange Rights Agreement.

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

      "Percentage Interest" means, as to a Limited Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Limited Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit A may be amended from
time to time.

      "Person" means an individual or a corporation, partnership, trust, limited
liability company, unincorporated organization, association or other entity.

      "PGP" means Pacific Gulf Properties Inc., a Maryland corporation and an
Affiliate of the General Partner.

      "Project" means the Terrace Gardens Apartments located in the City of
Escondido, County of San Diego, California, including all real and personal
property, now or hereafter existing, necessary or desirable for the proper
ownership, management and operation of the apartment complex.

      "Property" means Existing Property, Contributed Property and Adjusted
Property.

      "Recapture Income" means any gain recognized by the Partnership upon the
disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.

      "Regulations" means the Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).

      "REIT" means a real estate investment trust under Section 856 of the Code.

      "REIT Share" shall mean a share of common stock of PGP, par value $.01 per
share.


                                        7
<PAGE>   13
      "Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property, or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.

      "Restructuring Agreement" means that certain Restructuring Agreement,
dated as of May 23, 1997, by and among PGP, the General Partner, the California
General Partnership and all of the Limited Partners.

      "704(c) Value" of any Existing Property means the value of such property
as set forth in Exhibit D, or if no value is set forth in Exhibit D, the fair
market value of such property or other consideration at the time of
contribution, as determined by the General Partner using such reasonable method
of valuation as it may adopt. The 704(c) Value of any property deemed
contributed by the Partnership to a new partnership for federal income tax
purposes upon termination of the Partnership thereof pursuant to Section 708 of
the Code shall not change by virtue of such termination. Subject to Exhibit B
hereof, the General Partner shall, in its sole and absolute discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate of the
704(c) Values in a single or integrated transaction among the separate
properties on a basis proportional to their respective fair market values.

      "Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities; or (ii) the outstanding equity interests, is owned,
directly or indirectly, by such Person.

      "Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4.

      "Tax Exempt Debt" means the existing tax exempt financing encumbering the
Property, namely the outstanding principal balance of the City of Escondido,
California, Variable Rate Demand Multifamily Housing Revenue Bonds, Series 1985A
(Terrace Gardens Project), and any successor or refunding debt with respect
thereto.

      "Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.

      "Unrealized Gain" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (i) the fair market
value of such property (as determined under Exhibit B hereof) as of such date;
over (ii) the Carrying Value of such property (prior to any adjustment to be
made pursuant to Exhibit B hereof) as of such date.

      "Value" means, with respect to a REIT Share, the average of the daily
market price on the New York Stock Exchange for the ten (10) consecutive trading
days immediately preceding the Effective Date. The market price for each such
trading day shall be the closing price on such day, or if no such sale takes
place on such day, the average of the closing bid and asked prices on such day.


                                        8
<PAGE>   14
                                    ARTICLE 2

                             ORGANIZATIONAL MATTERS

      Section 2.1       Organization

      The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. The Partners hereby amend and restate the Prior Agreement in its
entirety as of the date hereof. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.

      Section 2.2       Name

      The name of the Partnership shall be Terrace Gardens - PGP, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purpose of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.

      Section 2.3       Registered Office and Agent; Principal Office

      The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware, 19805. The principal office of the
Partnership shall be c/o PGP Terrace Gardens Holdings Inc., 363 San Miguel
Drive, Suite 100, Newport Beach, California, 92660-7805, or such other place as
the General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.

      Section 2.4       Power of Attorney

      A. Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:

            (1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices:(a) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate and all
amendments or restatement thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a partnership in
which the Limited Partners have limited liability) in the State of Delaware and
in all other jurisdictions in which the Partnership may or plans to conduct
business or own property; (b) all instruments that the General Partner deems
appropriate or necessary to reflect any amendment, change, modification or
restatement of this Agreement in accordance with its terms; (c) all conveyances
and other instruments or documents that the General Partner or the Liquidator
deems appropriate or necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including, without
limitation, a certificate of cancellation; (d) all instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant to, or
other events described in, Article 11, 12 or 13 hereof or the Capital of any
Partner; (e) all certificates, documents and


                                        9
<PAGE>   15
other instruments relating to the determination of the rights, preferences and
privileges of a Partnership Interest; and (f) any and all financing statements,
continuation statements and other documents necessary or desirable to create,
perfect, continue or validate the security interest granted by a Limited Partner
pursuant to Section 10.5 of this Agreement or to exercise or enforce the
Partnership's rights with respect to such security interest; and

            (2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner or any
Liquidator, to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by the Partners
hereunder or is consistent with the terms of this Agreement or appropriate or
necessary, in the sole discretion of the General Partner or any Liquidator, to
effectuate the terms or intent of this Agreement.

      Nothing contained herein shall be construed as authorizing the General
Partner or any Liquidator to amend this Agreement except in accordance with
Article 14 hereof or as may be otherwise expressly provided for in this
Agreement.

      B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's Assignee's Partnership
Units and shall extend to such Limited Partner's or Assignee's heirs,
successors, assigns and personal representatives. Each such Limited Partner or
Assignee hereby agrees to be bound by any representation made by the General
Partner or any Liquidator, acting in good faith pursuant to such power of
attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney in accordance with the provisions of this Agreement. Each Limited
Partner or Assignee shall execute and deliver to the General Partner or the
Liquidator, within fifteen (15) days after receipt of the General Partner's or
Liquidator's request therefor, such further designation, powers of attorney and
other instruments as the General Partner or the Liquidator, as the case may be,
deems necessary to effectuate this Agreement and the purposes of the
Partnership.

      Section 2.5       Term

      The term of the Partnership commenced on November 1, 1983 and shall
continue until December 31, 2095, unless, the Partnership is dissolved sooner
pursuant to the provisions of Article 13 or as otherwise provided by law.

                                    ARTICLE 3

                                     PURPOSE

      Section 3.1       Purpose and Business

      The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act with regard to the Project only;
provided, however, that such business shall be limited to and conducted in such
a manner as to permit PGP at all times to be classified as a REIT, unless PGP
ceases to qualify as a REIT for reasons other than the conduct of the business
of the Partnership; (ii) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing or to own


                                       10
<PAGE>   16
interests in any entity engaged in any of the foregoing; and (iii) to do
anything necessary or incidental to the foregoing. In connection with the
foregoing, and without limiting PGP's right, in its sole discretion, to cease
qualifying as a REIT, the Partners acknowledge PGP's current status as a REIT
inures to the benefit of all of the Partners and not solely to PGP and the
General Partner.

      Section 3.2       Powers

      The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership; provided, however, that the
Partnership shall not take, or refrain from taking, any action which, in the
judgment of the General Partner, in its sole and absolute discretion, (i) could
adversely affect the ability of PGP to continue to qualify as a REIT; (ii) could
subject PGP to any additional taxes under Section 857 or Section 4981 of the
Code; or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over PGP, the General Partner or its securities,
unless such action (or inaction) shall have been specifically consented to by
the General Partner in writing.

                                    ARTICLE 4

                                     CAPITAL

      Section 4.1       Capital of the Partners

      A. The General Partner has made, and will make, in a timely manner, a cash
contribution equal to the Transaction Expenses and Deferred Maintenance, as both
terms are defined in the Restructuring Agreement. By execution and delivery of
this Agreement, the Partners hereby acknowledge and agree that the aggregate
Capital of the Limited Partners equals the Net Value. The Capital of the Limited
Partners is allocated initially among each of the Limited Partners as set forth
in Exhibit A. The Limited Partners shall own Partnership Units in the amounts
set forth for such Limited Partner in Exhibit A. The number of Partnership Units
received by each Limited Partner was calculated by dividing the respective
Partner's Capital by the Value of a REIT Share. The Limited Partners shall have
a Percentage Interest in the Partnership as set forth in Exhibit A, which
Percentage Interest was determined by dividing the respective Limited Partner's
Partnership Units by the aggregate number of Partnership Units issued to all
Limited Partners. The Percentage Interests shall be adjusted from time to time
by the General Partner to the extent determined by the General Partner to be
necessary to reflect accurately redemptions, additional capital, the issuance of
additional Partnership Units (pursuant to any merger or otherwise), or similar
events having an effect on any Limited Partner's Percentage Interest. Except as
provided in Sections 10.5, and 13.3, the Partners shall have no obligation
whatsoever to make any additional capital contributions or loans, or advances of
any kind to the Partnership, or to in any way finance the operation of the
Partnership or any of the debt or obligations of the Partnership.

      B. Except as provided in Section 13.3 of this Agreement and as otherwise
expressly provided herein, the Capital of each Partner will be returned to that
Partner only in the manner and to the extent provided in Article 5 and Article
13 hereof, and no Partner may withdraw from the Partnership or otherwise have
any right to demand or receive the return of its Capital in the Partnership,
except as specifically provided herein. Under circumstances requiring a return
of any Capital, no Partner shall have the right to receive property other than
cash, except as specifically provided herein. No Partner shall be entitled to
interest on any Capital or Capital Account. The General Partner shall not be
liable for the return of any portion of the Capital of any Limited Partner, and
the return of such Capital shall remain solely from Partnership assets.


                                       11
<PAGE>   17
      C. No Limited Partner shall have any further personal liability to
contribute money to, or in respect of, the liabilities or the obligations of the
Partnership, nor shall any Limited Partner be personally liable for any
obligations of the Partnership, except as otherwise provided in this Agreement
or in the Act. No Limited Partner shall be required to make any contributions to
the capital of the Partnership other than as expressly provided in this
Agreement.

      Section 4.2       Issuances of Additional Partnership Interests

      Upon the consent of a majority in interest of the Limited Partners, the
General Partner is hereby authorized to cause the Partnership from time to time
to issue to the Partners (including the General Partner) or other Persons
additional Partnership Units or other Partnership Interests in one or more
classes, or one or more series of any of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including, rights, powers and duties senior to the Limited
Partners (including the Original Limited Partners), except that, notwithstanding
the foregoing, none of such additional Partnership Units or Partnership
Interests shall carry or give to their holders rights to receive distributions
(as to amount, timing, and priority) senior to the rights of the Original
Limited Partners as set forth in this Agreement.

      Section 4.3       Preemptive Rights

      No Person shall have any preemptive, preferential or other similar right
with respect to (i) additional capital contributions or loans to the
Partnership; or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.

      Section 4.4       General Partner Loans

      The General Partner and its Affiliates shall have the right, but not the
obligation, to make loans and advances to the Partnership, and shall be treated
as a third party lender to the Partnership (with all attendant rights,
privileges, and remedies) to the extent that it does so. Loans and advances, if
any, funded by the General Partner or its Affiliates shall be on commercially
competitive terms, comparable to similar loans and advances made by unrelated
third party institutional lenders; and, if institutional lenders would not
regularly make such loans or advances, then terms for a comparable loan or
advance described by any unrelated third party loan broker upon request by the
General Partner shall be conclusively presumed to be commercially competitive
and comparable to similar loans and advances made by unrelated third parties for
purposes of this Agreement.

                                    ARTICLE 5

                                  DISTRIBUTIONS

      Section 5.1       Amount and Priority of Quarterly Distributions

      Except as provided in Sections 5.2 and 5.4 hereof, the General Partner
shall cause to be distributed within 60 days of the end of each calendar
quarter, beginning with the calendar quarter ending March 31, 1998, an amount
equal to 100% of Available Cash generated by the Partnership during such
calendar quarter to those Partners who are Partners on the Partnership Record
Date for such calendar quarter, as follows:

      A.    First, to the Limited Partners who are Partners on the Partnership
            Record Date, an amount (the "Quarterly Distribution Amount") equal
            to the lesser of (i) 100% of such Available Cash, or (ii) an amount
            determined by multiplying the total number of Partnership Units held
            by such Limited Partners by the amount of the dividend per share


                                       12
<PAGE>   18
            paid to common stock shareholders of PGP with respect to such
            calendar quarter. As among such Limited Partners, the Quarterly
            Distribution Amount shall be distributed pro rata in accordance with
            their respective Partnership Interests; and

      B.    The balance to the General Partner.

      Section 5.2       First Distribution

      The General Partner shall cause to be distributed not later than February
28, 1998 an amount equal to 100% of Available Cash generated by the Partnership
from and including the Effective Date to and including December 31, 1997, to
those Partners who are Partners on the Partnership Record Date for the calendar
quarter ending December 31, 1997, as follows:

      A.    First, to the Limited Partners who are Partners on the Partnership
            Record Date, an amount (the "First Distribution Amount") equal to
            the lesser of (i) 100% of such Available Cash, or (ii) an amount
            which is the sum of the following: (A) an amount determined by
            multiplying the number of total Partnership Units held by such
            Limited Partners by the amount of the dividend per share paid to
            common stock shareholders of PGP with respect to the calendar
            quarter ended September 30, 1997 and multiplying that product by a
            fraction (x) the numerator of which is the number of days from and
            including the Effective Date to and including September 30, 1997,
            and (y) the denominator of which is 92, and (B) an amount determined
            by multiplying the total number of Partnership Units held by such
            Limited Partners by the amount of the dividend per share paid to
            common stock shareholders of PGP with respect to the calendar
            quarter ended December 31, 1997. As among such Limited Partners, the
            First Distribution Amount shall be distributed pro rata in
            accordance with their respective Partnership Interests; and

      B.    The balance to the General Partner.

      Section 5.3       Amounts Withheld

      All amounts withheld pursuant to the Code or any provisions of any state
or local tax law and Section 10.5 hereof with respect to any allocation, payment
or distribution to the Partners or Assignees shall be treated as amounts
distributed to the Partners or Assignees pursuant to Sections 5.1 or 5.2 for all
purposes under this Agreement.

      Section 5.4       Distributions Upon Liquidation

            Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.


                                       13
<PAGE>   19
                                   ARTICLE 6

                                  ALLOCATIONS

      Section 6.1       Allocations of Net Income and Net Loss

      For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.

      A.    Net Loss for a particular period shall be allocated as follows:

            (1) First, to the General and Limited Partners in proportion to and
      to the extent of their positive Capital Account balances, if any.

            (2) Second, to the Limited Partners in proportion to and to the
      extent of their respective Negative Capital Account Balances, until the
      amount allocated under this Section 6.1A(2) for the current fiscal year
      and all prior fiscal years equals the Negative Capital Account Balances of
      all Limited Partners.

            (3) Third, to the Limited Partners, in proportion to and to the
      extent of, their respective aggregate Excess Distributions, until the
      amount allocated under this Section 6.1A(3) for the current fiscal year
      and all prior fiscal years equals the Excess Distributions of all Limited
      Partners.

            (4) Fourth, to the Limited Partners, in proportion to their
      respective Percentage Interests until the amount allocated under this
      Section 6.1(A)(4) for the current fiscal year and all prior fiscal years
      equals the principal paid on the Tax Exempt Debt of the Partnership for
      all periods up to an amount equal to $600,000.

            (5) Fifth, to the General Partner.

      B.    Net Income for a particular period shall be allocated as follows:

            (1) First, to the Partners that have previously been allocated Net
      Loss pursuant to Section 6.1A in amounts and among such Partners in the
      reverse order (and in the corresponding amounts) of all Net Loss
      previously allocated to them until the amount of Net Income allocated
      pursuant to this Section 6.1B(1) equals the aggregate amount of all Net
      Loss theretofore allocated pursuant to Section 6.1A.

            (2) Second, if applicable, to the Limited Partners in proportion to
      their respective Partnership Interests until the aggregate Net Income
      allocated pursuant to this Section 6.1B(2) for the current taxable period
      and all previous taxable periods equals the aggregate amount of Available
      Cash distributed to the Limited Partners pursuant to Section 5.1A and 5.2.

            (3) Third, to the General Partner.


                                       14
<PAGE>   20
      Section 6.2       Other Allocations

      A. For purposes of Regulations Section 1.752-3(a), the Partners agree that
Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the
amount of Partnership Minimum Gain; and (ii) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Limited Partners in accordance with
their respective Percentage Interests.

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

      C. Notwithstanding the provisions of Sections 6.1A and 6.1B, to the extent
that the Partnership is treated for income tax purposes as having sold all or a
portion of the Existing Property in connection with the Conversion, any gain
recognized as a result of such sale shall be allocated to the Partners to whom
the consideration deemed to have been received by the Partnership in respect of
such sale, and by reason of the receipt of which the gain is recognized, is
deemed distributed (in proportion to their respective Partnership Interests
immediately prior to such distribution).

                                   ARTICLE 7

                     MANAGEMENT AND OPERATIONS OF BUSINESS

      Section 7.1       Management

      A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner shall have full power and authority to do
all things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation (but in all cases subject to the terms of this Agreement):

            (1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, money to be used to pay off a portion of
the existing debt encumbering the Partnership's assets) and making prepayments
on loans and borrowing money to permit the Partnership to make distributions to
its Partners in such amounts as will permit PGP (so long as PGP qualifies as a
REIT) to avoid the payment of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of the Code) and to make
distributions to its shareholders in amounts sufficient to permit PGP to
maintain REIT status), the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidence of indebtedness
(including the securing of the same by deed, mortgage, deed of trust or other
lien or encumbrance on the Partnership's assets) and the incurring of any
obligations it deems necessary for the conduct of the activities of the
Partnership;

            (2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having jurisdiction
over the business or assets of the Partnership;


                                       15
<PAGE>   21
            (3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership (including the
exercise or grant of any conversion, option, privilege, or subscription right or
other right available in connection with any assets at any time held by the
Partnership) or the merger or other combination of the Partnership with or into
another entity;

            (4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of this
Agreement and on any terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the General Partner, the
Partnership or any of the Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the Subsidiaries of the
Partnership and/or the General Partner) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in which it has an equity
investment, and the making of capital contributions to its Subsidiaries, the
holding of any real, personal and mixed property of the Partnership in the name
of the Partnership or in the name of a nominee or trustee and the creation, by
grant or otherwise, of easements or servitudes;

            (5) the management, operation, leasing, collection of rents,
marketing, landscaping, repair, alteration, renovation, rehabilitation,
demolition or improvement of the Property or any other assets owned by the
Partnership or any Subsidiary of the Partnership and the performance of any and
all other acts necessary or appropriate to the operation of the Property or
other assets including, without limitation, applications for rezoning or
objections to rezoning of the Property or other assets;

            (6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner considers useful or
necessary to the conduct of the Partnership's operations or the implementation
of the General Partner's powers under this Agreement, including, without
limitation, the execution and delivery of leases on behalf of or in the name of
the Partnership, contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the Partnership's assets;

            (7) the opening and closing of bank accounts, the investment of
Partnership funds in securities, certificates of deposit and other instruments,
and the distribution of Partnership cash or other Partnership assets in
accordance with this Agreement;

            (8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;

            (9) the collection and receipt of revenues and income of the
Partnership;

            (10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership (including, without
limitation, employees having titles such as "president," "vice president,"
"secretary" and "treasurer" of the Partnership), and agents, outside attorneys,
accountants, consultants and contractors of the Partnership, and the
determination of their compensation and other terms of employment or hiring
(whether or not any of the foregoing are also employed by, consultants to,
independent contractors for, or otherwise do business with the General Partner
or its Affiliates in related or unrelated matters);

            (11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate (whether or
not such is done as part of a group, combined or other policy or policies under
which the Partnership and the General Partner (or its Affiliates) are also
insured, so long as the General Partner fairly allocates the expense thereof
among the covered parties);


                                       16
<PAGE>   22
            (12) the formation of, or acquisition of an interest in, and the
contribution of some or all of property (or any part thereof or interest
therein) to, any further limited or general partnerships, joint ventures or
other relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity investment from time
to time);

            (13) the control of any and all matters affecting the rights and
obligations of the Partnership, including the settlement, compromise, submission
to arbitration or any other form of dispute resolution, or abandonment of, any
claim, cause of action, liability, debt or damages, due or owing to or from the
Partnership, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitration or other forms of dispute resolution,
and the representation of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of dispute resolution,
the incurring of legal expense, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law and consistent with
the terms of this Agreement, including in each and all of the foregoing
instances any such matter or thing in which the General Partner or its
Affiliates have a direct interest;

            (14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any other
Person (including without limitation, the contribution or loan of funds by the
Partnership to such Persons);

            (15) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as the
General Partner may adopt;

            (16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of any
right, including the right to vote, appurtenant to any asset or investment held
by the Partnership;

            (17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any Subsidiary
of the Partnership or any other Person in which the Partnership has a direct or
indirect interest, or jointly with any such Subsidiary or other Person;

            (18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the Partnership
does not have an interest pursuant to contractual or other arrangements with
such Person;

            (19) the making, execution and delivery of any and all deeds,
leases, notes, mortgages, deeds of trust, security agreements, conveyances,
contracts, guarantees, warranties, indemnities, waivers, releases or legal
instruments or agreements in writing necessary or appropriate, in the judgment
of the General Partner, for the accomplishment of any of the powers of the
General Partner enumerated in this Agreement; and

            (20) the issuance of additional Partnership Units or Partnership
Interests, as appropriate, in connection with capital contributions by
Additional Limited Partners and additional capital contributions by Partners
pursuant to Article 4 hereof.

      B. Except as otherwise expressly provided in this Agreement, each of the
Limited Partners agrees that the General Partner is authorized to execute,
deliver and perform the above-mentioned agreements and transactions on behalf of
the Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation, to the fullest extent permitted under the Act or other
applicable law, rule or regulation. The


                                       17
<PAGE>   23
execution, delivery or performance by the General Partner or the Partnership of
any agreement authorized or permitted under this Agreement shall not constitute
a breach by the General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under this Agreement or
of any duty stated or implied by law or equity.

      C. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.

      D. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken by it. The General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner taken
pursuant to its authority under this Agreement and in accordance with the terms
hereof.

      E. The General Partner, on behalf of the Partnership, may hire, employ or
otherwise contract with any Affiliate of the General Partner to manage the
Property, and the Limited Partners do hereby waive any conflict which may exist
because of the Affiliate relationship.

      F. Without any further act, approval or vote of the Partners and
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation, the Partnership and Partners on behalf of the
Partnership, hereby authorize, approve and ratify the Partnership's, and the
General Partner's on behalf of the Partnership, execution, delivery and
performance of the Transaction Documents described in Exhibit E attached hereto
and all other documents deemed necessary or required by the General Partner. The
General Partner is hereby authorized to enter into the Transaction Documents on
behalf of the Partnership, but such authorization shall not be deemed a
restriction on the power of the General Partner to enter into other agreements
on behalf of the Partnership.

      Section 7.2       Certificate of Limited Partnership

      The General Partner shall file the Certificate with the Secretary of State
of Delaware as required by the Act. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or documents as may be
reasonable and necessary or appropriate for the continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability) in the State of Delaware and any other state,
or the District of Columbia, in which the Partnership may elect to do business
or own property. To the extent that such action is determined by the General
Partner to be reasonable and necessary or appropriate, the General Partner shall
file amendments to and restatements of the Certificate and do all of the things
to maintain the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) under the laws of the State of
Delaware and each other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. Subject to the terms of
Section 8.5.A(4) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any amendment
thereto to any Limited Partner.

      Section 7.3       No Property Transfer Period. The General Partner
covenants and agrees not to cause the Partnership to sell, transfer or otherwise
dispose of any of the Existing Property which is real property, or any interest
therein, directly or indirectly, whether as a result of a Terminating Capital
Transaction or otherwise (collectively referred to as a "Property Transfer"),
nor distribute to the Original Limited Partners or their successors and assigns
any property if such distribution would trigger tax liability under Section 737
of the Code, for a period of five (5) years after the Effective Date, in either


                                       18
<PAGE>   24
case unless and until either (i) during said five-year period there has been an
Excess Transfer, or (ii) the Property Transfer occurs in a manner which, upon
such transfer, is fully tax free to, and as such does not produce any income
taxation upon, the Original Limited Partners or their successors and assigns.

      Section 7.4 No Pay Down Period. During a period of five (5) years after
the Effective Date, the General Partner shall not cause the Partnership to pay
down any of the Tax Exempt Debt (other than as required by the debt instrument
or any other agreement ancillary thereof) nor take any other action which would
result in a reduction of the allocation of debt to the Original Limited Partners
or their successors or assigns for purposes of computing such parties' basis for
income tax purposes, unless either (i) simultaneously with such pay down the
Partnership refinances the full amount paid down with other debt, and such
refinanced debt shall not result in a reduction of the allocation of debt to the
Original Limited Partners or their successors or assigns for purposes of
computing such parties' basis for income tax purposes, or (ii) during said
five-year period there has been an Excess Transfer.

      Section 7.5 No Dissolution Action. Without limiting the provisions of
Section 7.4, for the five-year period immediately following the Effective Date,
the General Partner will not cause the Partnership to take any action which
results in dissolution of the Partnership.

      Section 7.6 No Tax Termination or Dissolution. The General Partner hereby
covenants and agrees that for the five-year period immediately following the
Effective Date, the General Partner will not make a disposition of its general
partner interest in the Partnership (i) which would cause a termination of the
Partnership pursuant to Section 708(b)(1)(B) of the Code when the fair market
value of the property deemed contributed to the successor partnership as a
result of such termination is less than the liabilities to which such property
is then subject, or (ii) which in the opinion of legal counsel for the
Partnership or the General Partner would result in the Partnership being treated
as an association taxable as a corporation.

      Section 7.7 Management Fee and Reimbursement of the General Partner

      A. The General Partner and/or its Affiliates shall have the right, but not
the obligation, in the sole discretion of the General Partner, to perform all or
any of the property management services on account of the property owned or
managed by the Partnership. If the General Partner elects to so perform, or to
have an Affiliate so perform, the property management services, then the General
Partner or its Affiliate shall be reimbursed expenses and otherwise compensated
therefor by the Partnership in amounts determined by the General Partner, in its
good faith discretion, to be comparable to amounts which would be charged by
reputable unrelated third party property management companies which have
substantial experience in performing property management services for properties
of the type owned or managed by the Partnership for institutional owners with
portfolios under management which are substantially similar in size, nature, and
condition of property owned or managed by the Partnership. It is agreed that a
management fee of four percent (4%) of gross income may be charged by the
General Partner or its Affiliates for property management services as
contemplated hereunder, and such shall be deemed conclusively to satisfy the
foregoing requirements. The reimbursements and fees payable to the General
Partner or its Affiliates shall be paid no less frequently than monthly. Except
as provided in this Section 7.7A and elsewhere in this Agreement (including the
provisions of Articles 5 and 6 regarding distributions, payments, and
allocations to which it may be entitled), the General Partner shall not be
compensated for its services as general partner of the Partnership.

      B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as it may determine in its sole and absolute discretion, for all
expenses that it incurs relating to the ownership and operation of, or for the
benefit of, the Existing Property, the Partnership or any of its assets. The
General Partner shall also be reimbursed for all expenses it incurs relating to
(i) the ownership and operation of the Existing Property and other assets or
properties owned by the Partnership, (ii) the reorganization or


                                       19
<PAGE>   25
restructuring thereof, and (iii) the management of Partnership Units. Any
reimbursement in this paragraph (B) shall be in addition to any reimbursement
made as a result of indemnification pursuant to Section 7.10 hereof.

      Section 7.8       Outside Activities of the General Partner

      The General Partner and its Affiliates shall be permitted to purchase,
own, operate, manage and otherwise deal with and profit from any property, real,
personal or mixed, not owned by the Partnership for their own account and
benefit, whether or not competitive with the business and affairs of the
Partnership, and neither the Partnership, any Limited Partner, or any other
Person shall have any right, claim, interest or cause of action therein or as a
result thereof. Without limiting the generality of the above, nothing in this
Agreement shall obligate the General Partner or its Affiliates to first offer
the Partnership an opportunity to invest in any investment which has been
offered to or found by the General Partner or its Affiliates, whether or not
such investment is of a nature that may be invested in by the Partnership or
would compete directly or indirectly with the business of the Partnership. The
Limited Partners hereby acknowledge that the PGP and its Affiliates currently
own a variety of real estate investments and may in the future acquire
additional real estate investments that may be competitive with the business of
the Partnership.

      Section 7.9       Contracts with Affiliates

      A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.

      B. The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole and
absolute discretion, believes are advisable.

      C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are determined by the General Partner in
good faith to be fair and reasonable.

      D. The General Partner, in its sole and absolute discretion and without
the approval of the Limited Partners, may propose and adopt, on behalf of the
Partnership, employee benefit plans, stock option plans, and similar plans
funded by the Partnership for the benefit of employees of the Partnership,
Subsidiaries of the Partnership or any Affiliate of any of them in respect of
services performed, directly or indirectly, for the benefit of the Partnership
or any Subsidiaries of the Partnership.

      E. Any or all of the foregoing may be jointly established with the General
Partner or its Affiliates, provided that in such case the allocation of expense
shall be shared among the parties on whose behalf such plans exist as determined
by the General Partner in good faith to be fair and reasonable.

      Section 7.10      Indemnification

      A. To the fullest extent permitted by Delaware law, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
attorneys' fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings,


                                       20
<PAGE>   26
civil, criminal, administrative or investigative, that relate to the operations
of the Partnership or the General Partner in its capacity as general partner of
the Partnership as set forth in this Agreement, in which such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, whether or
not suit or other legal proceedings are commenced, unless it is established by a
court of competent jurisdiction and all appeals relating thereto have been fully
completed or the applicable appeal periods have expired that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceedings and either was committed in intentional bad faith or was the result
of active and deliberate dishonesty; (ii) the Indemnitee actually received an
improper and unpermitted personal benefit in money, property or services; or
(iii) in the case of any criminal proceeding, the Indemnitee knew, or was
reckless in not knowing, that the act or omission was unlawful. Without
limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee pursuant to a loan guaranty, recourse obligation, general partner
liability, or otherwise for any indebtedness of the Partnership (including
without limitation the Tax Exempt Debt and guarantee of PGP in favor of Fannie
Mae in its capacity as credit-enhancer for the Tax Exempt Debt) or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
subject to), and the General Partner is hereby authorized and empowered, on
behalf of the Partnership, to enter into one or more indemnity agreements
consistent with the provisions of this Section 7.10 in favor of any Indemnitee
having or potentially having liability for any such indebtedness. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
as set forth in this Section 7.10A. The termination of any proceeding by
conviction of an Indemnitee, or an entry of an order of probation against an
Indemnitee prior to judgment, in each case after all appeals relating thereto
have been fully completed or the applicable appeal periods have expired, creates
a rebuttable presumption that such Indemnitee acted in a manner contrary to that
specified in this Section 7.10A with respect to the subject matter of such
proceeding. Any indemnification pursuant to this Section 7.10 shall be made only
out of the assets of the Partnership (including those assets required to be
contributed by the Limited Partners to restore deficits in their respective
Capital Accounts in accordance with the terms hereof), and, except as otherwise
may be required herein, neither the General Partner nor any Limited Partner
shall have any obligation to contribute to the capital of the Partnership, or
otherwise provide funds, to enable the Partnership to fund its obligations under
this Section 7.10.

      B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding.

      C. The indemnification provided by this Section 7.10 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity unless otherwise provided in a written agreement pursuant to which
such Indemnitee is indemnified.

      D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.

      E. For purposes of this Section 7.10, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.10; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries


                                       21
<PAGE>   27
of the plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Partnership.

      F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement, except to the extent the Partners are required to restore negative
balances in their Capital Account; provided, however, that nothing in this
Section 7.10(F) shall restrict or otherwise limit personal liability arising by
application of the Indemnification Agreement.

      G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.10 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.

      H. The provisions of this Section 7.10 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.10 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this Section 7.10, as in effect immediately
prior to such amendment, modification, or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.

      Section 7.11      Liability of the General Partner

      A. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner and its officers and directors shall not be liable for
monetary damages to the Partnership, any Partners or any Assignees for losses
sustained or liabilities incurred as a result of errors in judgment or any act
or omission if the General Partner acted in good faith.

      B. The Limited Partners expressly acknowledge that the General Partner is
acting on behalf of the Partnership and the shareholders of the General Partner
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (except as otherwise provided herein)
in deciding whether to cause the Partnership to take (or decline to take) any
actions, and that the General Partner shall not be liable for monetary damages
for losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
has acted in good faith.

      C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents. The General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.

      D. Any amendment, modification or repeal of this Section 7.11 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's and its officers' and directors' liability
to the Partnership and the Limited Partners under this Section 7.11 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.


                                       22
<PAGE>   28
      Section 7.12      Other Matters Concerning the General Partner

      A. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.

      B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.

      C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.

      D. Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of PGP to continue to qualify as a
REIT; or (ii) to avoid PGP incurring any taxes under Section 857 or Section 4981
of the Code, is expressly authorized under this Agreement and is deemed approved
by all of the Limited Partners.

      Section 7.13      Title to Partnership Assets

      Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is being held in
the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.

      Section 7.14      Reliance by Third Parties

      Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be


                                       23
<PAGE>   29
available against such Person to contest, engage or disaffirm any action of the
General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (i) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect; (ii) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership; and (iii) such certificate, document or instrument
was duly executed and delivered in accordance with the terms and provisions of
this Agreement and is binding upon the Partnership.

                                   ARTICLE 8

                  RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

      Section 8.1       Limitation of Liability

      The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 10.5 hereof, or under
the Act.

      Section 8.2       Management of Business

      No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, employee, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such)
shall take part in the operation, management or control (within the meaning of
the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.

      Section 8.3       Outside Activities of Limited Partners

      Subject to the terms and provisions hereof, it is agreed that any Partner
(General and/or Limited) and any Affiliate of any Partner (including any
officer, director, employee, agent, or representative of any Partner) shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partners shall have any rights, claims, or interests by virtue of this Agreement
or any relationships, duties or obligations hereunder (including, but not
limited to, any fiduciary or similar duties created by this Agreement, under the
Act, or otherwise existing at law or in equity) in any business ventures or
investments of any General Partner or Limited Partner, or any Affiliate of any
of the foregoing. None of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the Partnership relationship
established hereby in any business ventures of any other Person, and such Person
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person could be taken by such
Person.


                                       24
<PAGE>   30
      It is further agreed that none of the Partners, General or Limited, or any
of their Affiliates, have any duty, obligation, or liability to present to the
Partnership any business or investment opportunity which may arise in the course
of activity for or on behalf of the Partnership, or otherwise, for investment by
the Partnership or any of the Partners (even if within the line and scope of the
business and affairs of the Partnership), and instead any Partner, General or
Limited, and any Affiliate may pursue such opportunity for such Partner's or
Affiliate's own benefit and account, without any participation, right, or claim
therein by the Partnership or any other Partner, and without notification or
disclosure to the Partnership or any other Partner.

      Section 8.4       Return of Capital

      No Limited Partner shall be entitled to the withdrawal or return of its
Capital, except to the extent of distributions made pursuant to this Agreement
or upon termination of the Partnership as provided herein. Except to the extent
provided by Exhibit C hereof or as otherwise expressly provided in this
Agreement, no Limited Partner or Assignee shall have priority over any other
Limited Partner or Assignee, either as to the return of Capital or as to
profits, losses or distributions.

      Section 8.5       Rights of Limited Partners Relating to the Partnership

      A. In addition to the other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.B hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):

            (1) to obtain a copy of the most recent annual and quarterly balance
sheet, income statement, and related financial statements prepared by the
Partnership;

            (2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;

            (3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;

            (4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all amendments thereto
have been executed; and

            (5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services contributed by
each Partner and which each Partner has agreed to contribute in the future, and
the date on which each became a Partner to the extent the foregoing is
materially different from information contained in financial statements or other
reports provided to Limited Partners.

      The request by a Limited Partner of quarterly and annual balance sheets
and income statements regularly prepared by the Partnership in order to verify
the correctness of distributions of cash, if any, to the Limited Partner in
accordance with the terms and provisions of this Agreement shall be considered a
purpose reasonably related to the Limited Partner's interest as a limited
partner in the Partnership.

      B. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, desirable or necessary any information that: (i) the General


                                       25
<PAGE>   31
Partner reasonably believes to be in the nature of trade secrets or other
information, the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business; or (ii) the Partnership is required by law or by agreement with
an unaffiliated third party to keep confidential.

      If the General Partner desires to disclose any information of the type
described in the preceding paragraphs (i) or (ii) to a Limited Partner, the
General Partner may require, as a condition to such disclosure, that the Limited
Partner agree in writing that such information will be held in strictest
confidence and no distribution of such information will be made.

      Section 8.6       No Redemption Right

      No Limited Partner (other than the General Partner) shall have the right
to require the Partnership to redeem all or a portion of the Partnership Units
held by such Limited Partner.

                                   ARTICLE 9

                    BOOKS, RECORDS, ACCOUNTING AND REPORTS

      Section 9.1       Records and Accounting

      The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books and records deemed by the General Partner to be appropriate
with respect to the Partnership's business, including without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to Sections 8.5A
and 9.3 hereof. Any records maintained by or on behalf of the Partnership in the
regular course of its business may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, micrographics or any other information
storage device, provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles,
or such other basis as the General Partner determines to be necessary or
appropriate.

      Section 9.2       Fiscal Year

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

      Section 9.3       Reports

      A. The Partnership shall mail to each Limited Partner no later than ninety
(90) days after the close of each Partnership Year an annual report containing
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
for such Partnership year, presented in accordance with generally accepted
accounting principles, such statements to be audited by a nationally recognized
firm of independent public accountants selected by the General Partner in its
discretion (such selection may include any such accountants who also perform
accounting or auditing work for the General Partner and its Affiliates).

The Partnership shall mail to each Limited Partner no later than ninety (90)
days after the close of each calendar quarter (except the last calendar quarter
of each year), a report containing unaudited financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, and such other information as may
be required by applicable law or regulation, or as the General Partner
determines to be appropriate. All accounting and other


                                       26
<PAGE>   32
professional fees associated with the preparation, compilation, review, audit,
and any other matters relating to the Partnership's records, financial
statements and reports, tax returns, and any other Partnership items described
in the preceding paragraphs shall be at the expense of the Partnership, not the
General Partner.

                                  ARTICLE 10

                                  TAX MATTERS

      Section 10.1      Preparation of Tax Returns

      The General Partner shall arrange for the preparation and timely filing of
all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by the Limited
Partners for federal and state income tax reporting purposes.

      Section 10.2      Tax Elections

      Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code; provided, however, that if requested by a transferee of a
Partnership Interest, the General Partner shall file an election on behalf of
the Partnership pursuant to Section 754 of the Code to adjust the basis of the
Partnership property in the case of a transfer of a Partnership Interest made in
accordance with the provisions of this Agreement. The General Partner shall have
the right to seek to revoke any tax election it makes (including, without
limitation, the election under Section 754 of the Code) upon the General
Partner's determination, in its sole and absolute discretion, that such
revocation is in the best interest of the Partners.

      Section 10.3      Tax Matters Partner

      A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number and
profit interest of each of the Limited Partners and the Assignees to the extent
the General Partner has such information.

      B. The tax matters partner is authorized, but not required

            (1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership items
required to be taken into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"), and in the settlement
agreement the tax matters partner may expressly state that such agreement shall
bind all Partners, except that such settlement agreement shall not bind any
Partner (i) who (within the time period prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a settlement agreement on
behalf of such Partner; or (ii) who is a "notice partner" (as defined in Section
6231(a)(8) of the Code) or a member of a "notice group" ( as defined in Section
6223(b)(2) of the Code);

            (2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax matters
partner, to seek judicial review of such final adjustment, including the filing


                                       27
<PAGE>   33
of a petition for readjustment with the Tax Court or the District Court of the
United States for the district in which the Partnership's principal place of
business is located;

            (3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;

            (4) to file a request for an administrative adjustment with the IRS
and, if any part of such request is not allowed by the IRS, to file an
appropriate pleading (petition or complaint) for judicial review with respect to
such request;

            (5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be taken account
of by a Partner for tax purposes, or an item affected by such item; and

            (6) to take any other action of behalf of the Partners or the
Partnership in connection with any tax audit or judicial review proceeding to
the extent permitted by applicable law or regulations.

            The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.10 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.

      C. The tax matters partner shall receive no special compensation for its
services as such. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees
and expenses) shall be borne or reimbursed by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder, including
an accounting firm which also renders services to the General Partner and its
Affiliates.

      Section 10.4      Organizational Expenses

      The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.

      Section 10.5      Withholding

      Each Limited Partner hereby authorizes the Partnership to withhold from,
or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code and any
provision of state or local income tax law. Any amount paid on behalf of or with
respect to a Limited Partner shall constitute a loan by the Partnership to such
Limited Partner, which loan shall be repaid by such Limited Partner within
fifteen (15) days after notice from the General Partner that such payment must
be made unless (i) the Partnership withholds such payment from a distribution
which would otherwise be made to the Limited Partner; or (ii) the General
Partner determines, in its sole and absolute discretion, that such payment may
be satisfied out of the available funds of the Partnership which would, but for
such payment, be distributed to the Limited Partner. Any amounts withheld
pursuant to the foregoing clauses (i) or (ii) shall be treated as having been
distributed to such Limited Partner. Each Limited Partner hereby unconditionally
and irrevocably grants to the Partnership a security interest in such Limited
Partner's Partnership Interest to secure such Limited


                                       28
<PAGE>   34
Partner's obligation to pay to the Partnership any amounts required to be paid
pursuant to this Section 10.5. In the event that a Limited Partner fails to pay
any amounts owed to the Partnership pursuant to this Section 10.5 when due, the
General Partner may, in its sole and absolute discretion, elect to make the
payment to the Partnership on behalf of such defaulting Limited Partner, and
shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner. Without limitation, in such event the General
Partner shall have the right to receive distributions that would otherwise be
distributable to such defaulting Limited Partner until such time as such loan,
together with all interest thereon, has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
distributed to the defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan. Any
amounts payable by a Limited Partner hereunder shall bear interest at the lesser
of (A) the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
plus four (4) percentage points, or (B) the maximum lawful rate of interest on
such obligation, such interest to accrue from the date such amount is due (i.e.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall at its own expense take such actions as the Partnership or the
General Partner shall request in order to perfect or enforce the security
interest created hereunder.

                                  ARTICLE 11

                           TRANSFERS AND WITHDRAWALS

      Section 11.1      Transfer

      A. The term "transfer" when used in this Article 11 with respect to a
Partnership Unit shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise. The term "transfer" when used in this
Article 11 does not include any acquisition of Partnership Interests by the
General Partner from any Limited Partner of any Partnership Units, nor does it
include any grant of a security interest or any related action involving levy,
execution, or the like contemplated under Section 10.5 of this Agreement.

      B. No Partnership Interest shall be transferred, in whole or in part
(including any interest therein), except in accordance with the terms and
conditions set forth in this Article 11. Any transfer or purported transfer of a
Partnership Interest not made in accordance with this Article 11 shall be null
and void ab initio, and the Partnership shall have no duty or obligation to
recognize the transferee as a partner or holder of any interest whatsoever in
the Partnership, and the transferee shall have no rights, interests or claims in
or against the Partnership or any Partner.

      Section 11.2      Transfer of the General Partner's Partner Interest and
                        Limited Partner Interest

      Subject to the provisions of Section 7.5 and 7.6, the General Partner may
transfer any of its General Partner Interest or withdraw as General Partner, or
transfer any of its Limited Partner Interest, without consent or approval from
any Limited Partners. Such transfer includes transfer PGP or to an entity which
is wholly-owned by PGP and is a Qualified REIT Subsidiary under Section 856(i)
of the Code.


                                       29
<PAGE>   35
      Section 11.3      Limited Partners' Rights to Transfer

      A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, and 11.4,
a Limited Partner (other than the General Partner) may transfer, with or without
the consent of the General Partner, all or any portion of its Partnership
Interest, or any of such Limited Partner's economic rights as a Limited Partner.
In addition, those Original Limited Partners which are themselves partnerships
shall have the right to transfer, assign, and convey their Partnership Units to
their constituent partners, provided that such constituent partners shall first
have executed and delivered a written agreement to be bound by the terms,
provisions, and conditions of the Exchange Rights Agreement and the
Restructuring Agreement, and that at the time of such transfer, assignment, and
conveyance to such constituent partners, the representations and warranties made
by such constituent partners in any subscription or other documents are true and
correct in all material respects.

      B. If a Limited Partner is subject to Incapacity, the partners, executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all of the rights of a Limited Partner, but
not more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.

      C. The General Partner may prohibit any transfer by a Limited Partner or
its Partnership Units if, in the opinion of legal counsel to the Partnership or
the General Partner, such transfer would require filing of a registration
statement under the Securities Act of 1933 or would otherwise violate any
federal or state securities laws or regulations applicable to the Partnership or
the Partnership Units.

      D. No transfer by a Limited Partner of its Partnership Units may be made
to any Person if:(i) in the opinion of legal counsel for the Partnership or the
General Partner, it would result in the Partnership being treated as an
association taxable as a corporation; (ii) such transfer is effectuated through
an "established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code; (iii) such
transfer would cause the Partnership to become, with respect to any employee
benefit plan subject to Title I of ERISA, a "party-in-interest" (as defined in
Section 3(14) of ERISA) or a "disqualified person" (as defined in Section
4975(c) of the Code); (iv) such transfer would, in the opinion of legal counsel
for the Partnership or the General Partner, cause any portion of the assets of
the Partnership to constitute assets of any employee benefit plan pursuant to
Department of Labor Regulations Section 2510.2-101; (v) such transfer would
subject the Partnership to be regulated under the Investment Company Act of
1940, the Investment Advisors Act of 1940 or the Employee Retirement Income
Security Act of 1974, each as amended; or (vi) in the opinion of legal counsel
for the Partnership or the General Partner, it would adversely affect the
ability of PGP to continue to qualify as a REIT or subject PGP to any additional
taxes under Section 857 or Section 4981 of the Code.

      E. No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan,
immediately prior to such transfer, constitutes a Nonrecourse Liability, without
the consent of the General Partner, in its sole and absolute discretion;
provided that as a condition to such consent the lender will be required to
enter into an arrangement with the Partnership or the General Partner to
exchange or redeem at a price agreeable to the lender, the General Partner, and
the transferring Partner (each in their respective discretion) any Partnership
Units in which a security interest is held immediately prior to the time at
which such lender would be deemed to be a partner in the Partnership for
purposes of allocating liabilities to such lender under Section 752 of the Code.


                                       30
<PAGE>   36
      Section 11.4      Substituted Limited Partners

      A. No Limited Partner shall have the right to substitute a transferee as a
Limited Partner in his place. The General Partner shall, however, have the right
to consent to the admission of a transferee of the interest of a Limited Partner
pursuant to this Section 11.4 as a Substituted Limited Partner, which consent
may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner. Notwithstanding
the foregoing, in the event of transfers of Partnership Units by Original
Limited Partners in accordance with the second sentence of Section 11.3A, the
transferees shall be admitted as Substituted Limited Partners, and the General
Partner hereby consents to such.

      B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.

      C. Upon admission of a Substituted Limited Partner, the General Partner
shall amend Exhibit A to reflect the name, address, number of Partnership Units,
and Percentage Interest of such Substituted Limited Partner.

      Section 11.5      Assignees

      If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee of a Substituted Limited
Partner, as described in Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive distributions from the
Partnership and the share of Net Income, Net Losses, Recapture Income, and any
other items, gain, loss deduction and credit of the Partnership attributable to
the Partnership Units assigned to such transferee, but shall not be deemed to be
a holder of Partnership Units for any other purpose under this Agreement, and
shall not be entitled to vote such Partnership Units for any other purpose under
this Agreement, and shall not be entitled to vote such Partnership Units in any
matter presented to the Limited Partners for a vote (such Partnership Units
being deemed to have been voted on such matters in the same proportion as all
other Partnership Units held by Limited Partners are voted). In the event any
such transferee desires to make a further assignment of any such Partnership
Units, such transferee shall be subject to all of the provisions of this Article
11 to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of Partnership Units.

      Section 11.6      General Provisions

      A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all such Limited Partner's Partnership Units
in accordance with this Article 11 or pursuant to any agreement consented to by
the Partnership pursuant to which the Limited Partner's interests in the
Partnership are conveyed and the Limited Partner's withdrawal is provided for.

      B. Any Limited Partner who shall transfer all of its Partnership Units in
a transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such Partnership Units as
Substitute Limited Partners. Similarly, any Limited Partner who shall transfer
all of its Partnership Units pursuant to any agreement of the type referred to
in the preceding paragraph shall cease to be a Limited Partner.

      C. Transfers pursuant to this Article 11 may only be made on the first day
of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.


                                       31
<PAGE>   37
      D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 on any day other than the first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items attributable to such interest for such Partnership Year shall be divided
and allocated between the transferor Partner and the transferee Partner by
taking into account their varying interests during the Partnership Year in
accordance with Section 706(d) of the Code, using the interim closing of the
books method. Solely for purposes of making such allocations, each of such items
for the calendar month in which the transfer or assignment occurs shall be
allocated to the transferee Partner, and none of such items for the calendar
month in which a redemption occurs shall be allocated to a redeeming Partner.
All distributions of Available Cash attributable to such Partnership Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment, or redemption shall be made to the transferor Partner, all
distributions of Available Cash thereafter attributable to such Partnership Unit
shall be made to the transferee Partner.

      Section 11.7      No Exchange

      Notwithstanding anything in this Section 11 to the contrary, each of the
Limited Partners hereby agrees that, except as set forth below, from the date
hereof until two (2) years following the Effective Date (the "No Exchange
Period"), without the prior written consent of the General Partner (which may be
granted or withheld in its sole and absolute discretion), it shall be prohibited
from transferring any Partnership Units; provided, however, that where a Limited
Partner is a natural person and such Limited Partner dies (or, in the case of
Partnership Units owned as community property by the Limited Partner and its
spouse, then where either the Limited Partner or its spouse dies) prior to the
expiration of the No Exchange Period, the No Exchange Period shall, as to such
Limited Partner only, expire on the later of (i) one (1) year from the Effective
Date or (ii) the death of such Limited Partner (or such Limited Partner's
spouse, as the case may be); provided, further, however, that the foregoing
shall not apply to the Stewart Family Trust as an owner of Partnership Units in
its capacity as an Original Limited Partner, but shall apply to the Stewart
Family Trust as an owner of Partnership Units, if any, in its capacity as a
partner (or former partner) of any Limited Partner.

      Notwithstanding anything in this Section 11.7 to the contrary, each of the
Limited Partners hereby agree that, without the prior written consent of the
General Partner (which may be granted in its sole and absolute discretion), each
Limited Partner shall be prohibited from transferring any Partnership Units
following the occurrence of a Liquidating Event.

                                  ARTICLE 12

                             ADMISSION OF PARTNERS

      Section 12.1      Admission of Successor General Partner

      A successor to all of the General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as successor General Partner shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. The admission of any such transferee shall not cause a dissolution of
the Partnership and such transferee shall carry on the business of the
Partnership in accordance with the forms and provisions of this Agreement. In
each case, the admission shall be subject to the successor General Partner
executing and delivering to the Partnership an acceptance of all of the terms
and conditions of this Agreement and such other documents or instruments as may
be required to effect the admission. In the case of such admission on any day
other than the first day of a Partnership Year, all items attributable to the
General Partner Interest for such Partnership Year shall be allocated between
the transferring General Partner and such successor as provided in Section
11.6.D hereof.


                                       32
<PAGE>   38
      Section 12.2      Admission of Additional Limited Partners

      A. Except as otherwise provided elsewhere in this Agreement, after the
admission to the Partnership of the initial Limited Partners on the date hereof,
a Person who makes a capital contribution to the Partnership in accordance with
this Agreement shall be admitted to the Partnership as an Additional Limited
Partner only upon furnishing to the General Partner (i) evidence of acceptance
in form satisfactory to the General Partner of all of the terms and conditions
of this Agreement, including, without limitation, the power of attorney granted
in Section 2.4 hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.

      B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.

      C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Partnership Year, then Net Income, Net Losses,
each item thereof and all other items allocable among Partners and Assignees for
such Partnership Year shall be allocated among such Additional Limited Partner
and all other Partners and Assignees by taking into account their varying
interests during the Partnership Year in accordance with Section 706(d) of the
Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among all
of the Partners and Assignees, including such Additional Limited Partner. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
assignees, other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all of the Partners and Assignees,
including such Additional Limited Partner.

      Section 12.3      Amendment of Agreement and Certificate of Limited
                        Partnership

      For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment to this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to Section 2.4
hereof.

                                  ARTICLE 13

                   DISSOLUTION, LIQUIDATION AND TERMINATION

      Section 13.1      Dissolution

      The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs be wound up, only upon the first to occur of any of the following
("Liquidating Events"):

      A.    the expiration of its term as provided in Section 2.5 hereof;


                                       33
<PAGE>   39
      B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of voluntary bankruptcy), unless within ninety (90) days
after such event of withdrawal a majority in interest in capital and profits of
the remaining Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of withdrawal, of a
successor General Partner;

      C. on or before December 31, 2095, an election to dissolve the Partnership
made by the General Partner, in its sole and absolute discretion;

      D. entry of a decree of judicial dissolution of the Partnership pursuant
to the provisions of the Act;

      E. the sale of all or substantially all of the assets and properties of
the Partnership; or

      So long as Fannie Mae (as defined in the Master Reimbursement Agreement)
continues to provide a Facility (as defined in the Master Reimbursement
Agreement), no dissolution shall occur under paragraph (C) above or as a result
of the filing by the General Partner of a voluntary petition in bankruptcy
without the consent of Fannie Mae.

      Section 13.2      Winding Up

      A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partners (the General
Partner or such other Person being referred to herein as the "Liquidator"),
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities and
property and the Partnership property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
(which may, to the extent determined by the General Partner, include shares of
common stock in the General Partner) shall be applied and distributed in the
following order:

            (1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners (whether by payment or the
reasonable provision for payment thereof);

            (2) Second, to the satisfaction of all of the Partnership's debts
and liabilities to the General Partner (whether by payment or the reasonable
provision for payment thereof);

            (3) Third, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners (whether by payment or the reasonable
provision for payment thereof); and

            (4) The balance, if any, to the General Partner and Limited Partners
in accordance with their positive Capital Account balances, after giving effect
to all contributions, distributions, and allocations for all periods.

            The General Partner shall not receive any additional compensation
for any services performed pursuant to this Article 13.

      B. Notwithstanding any provision herein to the contrary, if the Project is
sold, all Partnership Units held by the Limited Partners (other than PGP or any
Affiliate) shall be mandatorily converted to REIT Shares and shall be
automatically deemed tendered for acquisition by PGP pursuant to Section 4 of
the Exchange Rights Agreement (regardless of whether the Limited Partner was a
signatory to the


                                       34
<PAGE>   40
Exchange Rights Agreement); provided, however, that the foregoing provision
shall not apply in the event the Property is sold for less than its Carrying
Value or is otherwise sold for a loss for either book or tax purposes.

      C. Notwithstanding the provisions of Section 13.2.A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.

      D. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:

            (1) distributed to one or more trust(s) established for the benefit
of the creditors and the General Partner and Limited Partners for the purposes
of liquidating Partnership assets, collecting amounts owed to the Partnership,
and paying any contingent, conditional or unmatured liabilities or obligations
of the Partnership or the General Partner arising out of or in connection with
the Partnership. The assets of any such trust(s) shall be distributed to the
creditors and General Partner and Limited Partners from time to time, in the
reasonable direction of the Liquidator, in the same manner and proportions as
the amount distributed to such trust(s) by the Partnership would otherwise have
been distributed to the creditors and General Partner and Limited Partners
pursuant to this Agreement; and

            (2) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership, provided that
such withheld or escrowed amounts shall be distributed to the creditors and
General Partner and Limited Partners in the manner and order of priority set
forth in Section 13.2.A as soon as practicable.

      Section 13.3      Compliance with Timing Requirements of Regulations

      In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2)
(provided, however, in no event shall the Partnership be liquidated prior to the
date which would be the Settlement Date within the meaning of the Exchange
Rights Agreement for Partners who tender an Exchange Notice (within the meaning
of the Exchange Rights Agreement) on or before the fifth (5th) day after the
date of receipt of the notice of liquidation by the Partnership). If any Partner
has a deficit balance in his Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall make a
contribution to the capital of the Partnership equal to such deficit, and such
deficit shall be considered a debt owed to the Partnership. The Partners intend
that the deficit restoration contributions be used to repay obligations of the
Partnership, including, without limitation, the Tax Exempt Debt and obligations
under the Indemnification Agreement.


                                       35
<PAGE>   41
      Section 13.4      Deemed Distribution and Recontribution

      Notwithstanding any other provision of this Article 13, in the event the
Partnership is considered "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.

      Section 13.5      Rights of Limited Partners

      Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its capital
contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its capital contributions, distributions, or allocations.

      Section 13.6      Notice of Dissolution

      In the event a Liquidating Event occurs or an event occurs that would, but
for the provisions of an election or objection by one or more Partners pursuant
to Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.

      Section 13.7      Termination of Partnership and Cancellation of
                        Certificate of Limited Partnership

      Upon the completion of the liquidation of the Partnership's assets, as
provided in Section 13.2 hereof, a certificate of cancellation shall be filed,
the Partnership shall be terminated, a certificate of cancellation shall be
filed, and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware shall be canceled
and such other actions as may be necessary to terminate the Partnership shall be
taken.

      Section 13.8      Reasonable Time for Winding-Up

      A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.

      Section 13.9      Waiver of Partition

      Each Partner hereby waives any right to partition of the Partnership
property.


                                       36
<PAGE>   42
                                  ARTICLE 14

                 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS

      Section 14.1      Amendments

      A. Amendments to this Agreement may be proposed by the General Partner or
by any Limited Partners (other than the General Partner) holding twenty-five
percent (25%) or more of the Partnership Interests. Following such proposal, the
General Partner shall submit any proposed amendment to the Limited Partners. The
General Partner shall seek the written vote of the Partners on the proposed
amendment or shall call a meeting to vote thereon and to transact any other
business that it may deem appropriate. For purposes of obtaining a written vote,
the General Partner may require a response within a reasonable specified time,
but not less than fifteen (15) days, and failure to respond in such time period
shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as provided in Section
13.1C, 14.1B, 14.1C, or 14.1D, a proposed amendment shall be adopted and be
effective as an amendment hereto if it is approved by the General Partner and it
receives the Consent of Partners holding a majority of the Percentage Interests
of all Partners; provided, however, that, except as otherwise provided in
Section 4.2 hereof, any amendment which materially and adversely alters the
right of a Limited Partner (including an Original Limited Partner) to receive
distributions of Available Cash or allocations of Net Income, Net Loss or any
other items in the amounts, in the priorities or at the times described in this
Agreement shall require the consent of such Limited Partner (including Original
Limited Partner) in order to become effective.

      B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent or approval of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:

            (1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;

            (2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;

            (3) to set forth the designations, rights, powers, duties, and
preferences of other holders of any additional Partnership Interests issued
pursuant to Section 4.2, or otherwise pursuant to the terms of this Agreement;

            (4) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions of this Agreement, or make any
other changes with respect to matters arising under this Agreement that will not
be inconsistent with law or with the provisions of this Agreement;

            (5) to satisfy any requirements, conditions, or guidelines,
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law; and

            (6) to satisfy any requirements, conditions, or guidelines,
contained in any order, directive, opinion, ruling or regulation of a federal
court or agency or contained in federal or state law necessary to maintain the
REIT status of PGP.


                                       37
<PAGE>   43
      The General Partner shall provide notice to the Limited Partners when any
action under this Section 14.1.B is taken.

      C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement shall
not be amended without Consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the Partnership into
a General Partner Interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner to receive distributions pursuant to Article 5 or Article 13, or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.2
and Section 14.1.B(3) hereof; (iv) cause the termination of the Partnership
prior to the time set forth in Sections 2.5 or 13.1; or (v) amend this Section
14.1.C.

      D. Notwithstanding Section 14.1.A and 14.1.B hereof, the General Partner
shall not amend Sections 7.5, 7.6, 14.1A, 14.1C or 14.2 without Consent of
Limited Partners holding a majority of the Percentage Interests of the Limited
Partners, excluding Limited Partner Interests held by the General Partner; and,
to the extent that any such amendment would affect the amount, priority, or
timing of distributions to any of the Original Limited Partners or their
successors and assigns under this Agreement, the General Partner shall not amend
Sections 7.5, 7.6, 14.1A, 14.1C, or 14.2 without Consent of Original Limited
Partners holding a majority of the percentage interest of the Original Limited
Partners (in each case including their successors and assigns).

      Section 14.2      Meetings of the Partners

      A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by
Limited Partners (other than the General Partner) holding twenty-five percent
(25%) or more of the Partnership Interests. The request shall state the nature
of the business to be transacted. Notice of any such meeting shall be given to
all Partners not less than seven (7) days nor more than thirty (30) days prior
to the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote or consent of the Partners is permitted or required
under this Agreement, such vote or consent may be given at a meeting of the
Partners or may be given in accordance with the procedures prescribed in
Sections 14.1A or 14.2B hereof. Except as otherwise expressly provided in this
Agreement, the Consent of holders of a majority of the Percentage Interests held
by Limited Partners (including Limited Partnership Interests held by the General
Partner) shall control.

      B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by majority of the Percentage Interests of the Limited
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Limited Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.

      C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date hereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.


                                       38
<PAGE>   44
      D. Each meeting of the Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate. Without limitation, meetings of Partners may be conducted in the
same manner as meetings of the shareholders of the General Partner and may be
held at the same time, and as part of, meetings of the shareholders of the
General Partner.

                                  ARTICLE 15

                              GENERAL PROVISIONS

      Section 15.1      Addresses and Notices

      Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit A or such other address of which
the Partner shall notify the General Partner in writing.

      Section 15.2      Titles and Captions

      All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.

      Section 15.3      Pronouns and Plurals

      Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.

      Section 15.4      Further Action

      The parties shall execute and deliver all documents, provide all
information and take or refrain form taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.

      Section 15.5      Binding Effect

      This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

      Section 15.6      Creditors

      Other than as expressly set forth herein with respect to the Indemnities,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.

      Section 15.7      Waiver

      No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any covenant, duty, agreement or condition.


                                       39
<PAGE>   45
      Section 15.8      Counterparts

      This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.

      Section 15.9      Applicable Law

      This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.


                 [Remainder of page intentionally left blank]


                                       40
<PAGE>   46
      Section 15.10     Invalidity of Provisions

      If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of other
remaining provisions contained herein shall not be affected thereby.

      Section 15.11     Entire Agreement

      This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes the Prior
Agreement and any other prior written or oral understandings or agreements among
them with respect thereto.

      Section 15.12     No Rights as Shareholders

      Nothing contained in this Agreement shall be construed as conferring upon
the holders of the Partnership Units any rights whatsoever as shareholders of
PGP or the General Partner, including, without limitation, any right to receive
dividends or other distributions made to shareholders of PGP or the General
Partner or to vote or to consent or to receive notice as shareholders in respect
of any meeting of shareholders for the election of directors of PGP or the
General Partner or any other matter.


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Limited Partnership as of the day first above written.

                                       GENERAL PARTNER:

                                       PGP Terrace Gardens Holdings Inc.,
                                       a Delaware corporation


                                       By: __________________________
                                       Title: _______________________

LIMITED PARTNERS:

The Short Family Trust

By: _______________________________
      Donald R. Short, Trustee

By: ________________________________
      Marilyn M. Short, Trustee


_________________________________
Bruce H. White

_________________________________
Betty C. White

  [Signatures for the Agreement of Limited Partnership continued on page 42]


                                       41
<PAGE>   47
  [Signatures for the Agreement of Limited Partnership continued on page 41]


225 Units Limited,
a California limited partnership



__________________________________
Donald R. Short
General Partner


The Stewart Family Trust


__________________________________
Richard Stewart, Trustee



__________________________________
Mattie Stewart, Trustee


                                       42
<PAGE>   48
                                    EXHIBIT A


                        Partners Capital and Partnership Interests


<TABLE>
<CAPTION>
Name and Address           Cash               Agreed Value of          Total          Partnership        Percentage
  of Partner            Contribution             Capital            Contribution         Units            Interest
  ----------            ------------             -------            ------------         -----            --------
<S>                     <C>                   <C>                   <C>               <C>                <C>
General Partner

PGP Terrace Gardens
Holdings Inc.           $  800,000*                N/A               $  800,000*            N/A                N/A
                        ----------                                   ----------

     Totals             $  800,000*                                  $  800,000*
                        ==========                                   ==========

Limited Partners

Short Family Trust          N/A              $  581,798              $  581,798          27,672           33.196139%

Stewart Family Trust        N/A              $  739,425              $  739,425          35,169           42.190000%

Bruce H. and
  Betty C. White            N/A              $  295,162              $  295,162          14,038           16.841290%

225 Units Limited           N/A              $  136,222              $  136,222           6,479            7.772571%
                                             ----------              ----------      ----------          ----------

     Totals                                  $1,752,607              $1,752,607          83,358           100.00000%
                                             ==========              ==========      ==========          ==========
</TABLE>

* These figures are only an estimate of the total Transaction Expenses and
Deferred Maintenance paid by, or on behalf of, the General Partner. These
figures will be adjusted as the actual amounts of Transaction Expenses and
Deferred Maintenance expended as of the date of the Closing are verified.
<PAGE>   49
                                   EXHIBIT B

                          Capital Account Maintenance



1.    Capital Accounts of the Partners

      A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all capital
contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement; and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.B of
the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement; and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1.A of the Agreement and Exhibit C hereof.

      B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal tax purposes determined in accordance
with Section 703(a) of the Code (for this purpose all items of income, gain,
loss or deduction required to be stated separately pursuant to Section 703(a)(1)
of the Code shall be included in taxable income or loss), with the following
adjustments:

            (1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of the
Code which may be made by the Partnership, provided that the amounts of any
adjustments to the adjusted bases of the assets of the Partnership made pursuant
to Section 734 of the Code as a result of the distribution of property by the
Partnership to a Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital Accounts) shall be reflected
in the Capital Accounts of the Partners in the manner and subject to the
limitations prescribed in Regulations Section 1.704-1(b)(2)(iv)(m)(4).

            (2) The computation of all items of income, gain, and deduction
shall be made without regard to the fact that items described in Sections
705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes.

            (3) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of such
property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.


                                       B-1
<PAGE>   50
            (4) In lieu of depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year.

            (5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any such adjustment shall
be taken into account as gain or loss from the disposition of such asset.

            (6) Any items specifically allocated under Section 1 of Exhibit C
hereof shall not be taken into account.

      C. Generally, a transferee (including an Assignee) of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor. If
the transfer causes a termination of the Partnership under Section 708(b)(1)(B)
of the Code, the capital accounts of the Partners in the successor Partnership
shall be maintained in accordance with the principles of this Exhibit B.

      D.    (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D.(2), the Carrying Value of
all Partnership assets shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Partnership property, as
of the times of the adjustments provided in Section 1.D.(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property and allocated pursuant to Section 6.1 of the Agreement.

            (2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis capital contribution; (b) immediately prior to the distribution by the
Partnership to a Partner of more than a de minimis amount of property as
consideration for an interest in the Partnership; and (c) immediately prior to
the liquidation of the Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided, however, that adjustments pursuant to clauses
(a) and (b) above shall be made only if the General Partner determines that such
adjustments are necessary or appropriate to reflect economic interests of the
Partners in the Partnership.

            (3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the time any such asset is
distributed.

            (4) In determining Unrealized Gain or Unrealized Loss for purposes
of this Exhibit B, the aggregate cash amount and fair market value of all
Partnership assets (including cash or cash equivalents) shall be determined by
the General Partner using such reasonable method of valuation as it may adopt,
or in the case of a liquidating distribution pursuant to Article 13 of the
Agreement, shall be determined and allocated by the Liquidator using such
reasonable methods of valuation as it may adopt. The General Partner, or the
Liquidator, as the case may be, shall allocate such aggregate value among the
assets of the Partnership (in such manner as it determines in its sole and
absolute discretion to arrive at a fair market value for individual properties).


                                       B-2
<PAGE>   51
      E. The provisions of this Agreement (including this Exhibit B and other
Exhibits to this Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify (i) the manner in
which the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed; or (ii) the manner in
which items are allocated among the Partners for federal income tax purposes in
order to comply with such Regulations or to comply with Section 704(c) of the
Code, the General Partner may make such modification without regard to Article
14 of the Agreement, provided that it is not likely to have a material effect on
the amounts distributable to any Person pursuant to Article 13 of the Agreement
upon the dissolution of the Partnership. The General Partner also shall (i)
where appropriate, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),
make any adjustments that are necessary or appropriate to maintain equality
between Capital Accounts of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for book purposes; and
(ii) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b). In addition, the General Partner may adopt and employ such methods
and procedures for (i) the maintenance of book and tax capital accounts; (ii)
the determination and allocation of adjustments under Sections 704(c), 734 and
743 of the Code; (iii) the determination of Net Income, Net Loss, taxable loss
and items thereof under this Agreement and pursuant to the Code; (iv)
conventions for the determination of cost recovery, depreciation and
amortization deductions, as it determines in its sole discretion are necessary
or appropriate to execute the provisions of this Agreement, to comply with
federal and state tax laws, and are in the best interest of the Partners.

      2.    No Interest

            No interest shall be paid by the Partnership on capital
contributions or on balances in Partners' Capital Accounts.

      3.    No Withdrawal

            No Partner shall be entitled to withdraw any part of his capital
contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.


                                     B-3
<PAGE>   52
                                   Exhibit C

                           Special Allocation Rules


1.    Special Allocation Rules

      Notwithstanding any other provision of the Agreement or this Exhibit C,
the following special allocations shall be made in the following order:

      A. Minimum Gain Chargeback. Notwithstanding the provisions of Section 6.1
of the Agreement or any other provisions of this Exhibit C, if there is a net
decrease in Partnership Minimum Gain during any Partnership taxable year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.A, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of Partner Minimum Gain during such Partnership taxable year.

      B. Partner Minimum Gain Chargeback. Notwithstanding any other provision of
Section 6.1 of this Agreement or any other provisions of this Exhibit C (except
Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership taxable year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.702-2(i)(5), shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). This Section 1.B is intended to comply
with the minimum gain chargeback requirement in such Section of the Regulations
and shall be interpreted consistently therewith. Solely for purposes of this
Section 1.B, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement or this
Exhibit with respect to such Partnership taxable year, other than allocations
pursuant to Section 1.A hereof.

      C. Qualified Income Offset. In the event any Partner unexpectedly receives
any adjustments, allocations or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6),
and after giving effect to the allocations required under Sections 1.A and 1.B
hereof such Partner has an Adjusted Capital Account Deficit, items of
Partnership income and gain (consisting of a pro rata portion of each item of
Partnership income, including gross income and gain for the Partnership taxable
year) shall be specifically allocated to such Partner in an amount and manner
sufficient to eliminate, to the


                                     C-1
<PAGE>   53
extent required by the Regulations, its Adjusted Capital Account Deficit created
by such adjustments, allocations or distributions as quickly as possible.

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

      E. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for
any Partnership taxable year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).

      F. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.

      G. Curative Allocations. The allocations set forth in Section 1.A through
1.F of this Exhibit C (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations under Section 704(b) of the Code. The
Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is hereby authorized to divide other allocations of income, gain,
deduction and loss among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions will
be divided among the Partners. In general, the Partners anticipate that this
will be accomplished by specially allocating other items of income, gain, loss
and deduction among the Partners so that the net amount of the Regulatory
Allocations and such special allocations to each person is zero. However, the
General Partner will have discretion to accomplish this result in any reasonable
manner; provided, however, that no allocation pursuant to this Section 1.G shall
cause the Partnership to fail to comply with the requirements of Regulations
Sections 1.7041(b)(2)(ii)(d), -2(e) or -2(i).

2.    Allocations for Tax Purposes

      A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this Exhibit C.

      B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:


                                     C-2
<PAGE>   54
            (1)   (a)   In the case of a Contributed Property, such items
                        attributable thereto shall be allocated among the
                        Partners, consistent with the principles of Section
                        704(c) of the Code and the Regulations thereunder, to
                        take into account the variation between the 704(c) Value
                        of such property and its adjusted basis at the time of
                        contribution; and

                  (b)   any item of Residual Gain or Residual Loss attributable
                        to a Contributed Property shall be allocated among the
                        Partners in the same manner as its correlative item of
                        "book" gain or loss is allocated pursuant to Section 6.1
                        of the Agreement and Section 1 of this Exhibit C.

            (2)   (a)   In the case of an Adjusted Property, such items shall

                        (1) first, be allocated among the Partners in a manner
                        consistent with the principals of Section 704(c) of the
                        Code and the Regulations thereunder to take into account
                        the Unrealized Gain or Unrealized Loss attributable to
                        such property and the allocations thereof pursuant to
                        Exhibit B; and

                        (2) second, in the event such property was originally a
                        Contributed Property, be allocated among the Partners in
                        a manner consistent with Section 2.B(1) of this Exhibit
                        C; and

                  (b)   any item of Residual Gain or Residual Loss attributable
                        to an Adjusted Property shall be allocated among the
                        Partners in the same manner its correlative item of
                        "book" gain or loss is allocated pursuant to Section 6.1
                        of the Agreement and Section 1 of this Exhibit C.

            (3)   all other items of income, gain, loss and deduction shall be
                  allocated among the Partners in the same manner as their
                  correlative item of "book" gain or loss is allocated pursuant
                  to Section 6.1 of the Agreement and Section 1 of this Exhibit
                  C.

      C. To the extent that the Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit the Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall have the authority to elect the method
to be used by the Partnership and such election shall be binding on all
Partners.

3.    No Withdrawal

      No Partner shall be entitled to withdraw any part of his capital
contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.


                                       C-3
<PAGE>   55
                                   Exhibit D

                          Value of Existing Property


<TABLE>
<CAPTION>
Property                704(c) Value      Agreed Value
--------                ------------      ------------
<S>                     <C>               <C>
Terrace Gardens
  Apartments            $ 10,000,000      $  1,752,607
</TABLE>
<PAGE>   56
                                   Exhibit E

                             Transaction Documents

      The "Transaction Documents" consist of the "Partnership Transaction
Documents" and the "Partnership Bond Documents", which terms are defined as
follows:

                       PARTNERSHIP TRANSACTION DOCUMENTS

      The "Partnership Transaction Documents" consist of the following documents
each dated June 1, 1997 (unless otherwise indicated):

      1. Master Reimbursement Agreement dated December 1, 1996, as amended and
restated as of June 1, 1997, executed by the Partnership, the Federal National
Mortgage Association (herein, "Fannie Mae"), Morning View Terrace - PGP, L.P.,
and Pacific Inland Communities, LLC;

      2. First Amendment to Cash Management, Security, Pledge and Assignment
Agreement executed by the Partnership, Morning View Terrace - PGP, L.P., Pacific
Inland Communities, LLC, Fannie Mae and Bankers Mutual (herein, the "Lender") in
its capacity as custodian for Fannie Mae;

      3. Blocked Account Agreement executed by Partnership, Fannie Mae, Lender
and Bank of America, National Trust & Savings Association;

      4. Estoppel Certificate dated June 12, 1997 executed by the Partnership;

      5. Multifamily Note in the original principal amount of Eight Million One
Hundred Thousand Dollars ($8,100,000) executed by the Partnership in favor of
the Lender (the "Note");

      6. Multifamily Deed of Trust, Assignment of Rents and Security Agreement
(with Fixture Filing), executed by the Partnership to First American Title
Company, as trustee, for the benefit of the Lender (collectively, the "Lender
Deed of Trust"), granting a security interest in the Project as more
specifically described in the Lender Deed of Trust;

      7. Multifamily Deed of Trust, Assignment of Rents and Security Agreement
(with Fixture Filing), executed by the Partnership to First American Title
Company, as trustee, for the benefit of Fannie Mae (collectively, the "Fannie
Mae Deed of Trust"), granting a security interest in the Project, as more
specifically described in the Fannie Mae Deed of Trust;

      8. California Financing Statement, Form UCC-1, executed by Partnership as
debtor and Lender as secured party and naming Fannie Mae as assignee of secured
party;

      9. California Financing Statement, Form UCC-1, executed by Partnership as
debtor and Fannie Mae as secured party;

      10. Property Management Agreement, dated June 12, 1997, by and between the
Partnership and PGP;
<PAGE>   57
      11. Assignment of Management Agreement executed by Partnership and Fannie
Mae, and consented to by PGP as agent, with respect to the Project;

      12. Exchange Rights Agreement, dated June 12, 1997, by and among PGP, the
Partnership and the Original Limited Partners; and

      13. Replacement Reserve and Security Agreement relating to the Project
executed by Partnership and Lender.


                          PARTNERSHIP BOND DOCUMENTS

      The "Partnership Bond Documents" consist of the following documents, each
dated June 1, 1997 (unless otherwise indicated):

      1. Financing Agreement, relating to the Project, executed by the
Partnership, the City of Escondido (herein, the "Issuer"), the Lender, and First
Trust of California, National Association (herein, the "Bond Trustee");

      2. Amended and Restated Regulatory Agreement and Declaration of
Restrictive Covenants executed by the Partnership, the Bond Trustee and the
Issuer with respect to the Project;

      3. Remarketing Agreement executed by the Issuer, the Partnership and the
Newman and Associates, Inc. (the "Remarketing Agent");

      4. Agreement Regarding Redemption, Defeasance and Payment of Prior Bonds
executed by the Bond Trustee, the Issuer, the Partnership and Glendale Federal
Savings and Loan Association; and

      5. Bond Purchase Agreement executed by the Issuer, the Partnership and the
Remarketing Agent relating to the purchase of the Bonds.