Document:

PROMISSORY NOTE

U.S. $32,000,000.00                                      As of December 20, 2000

     FOR VALUE  RECEIVED,  SILVER MESA AT PALOMINO PARK LLC, a Colorado  limited
liability company,  having an address at 1600 Wynkoop Street, Suite 202, Denver,
Colorado  80202  ("Maker"),  hereby  promises  to pay to the  order  of  KEYBANK
NATIONAL  ASSOCIATION,  a  national  banking  association  ("Payee"),  having an
address at Mailstop  CO-02-WT-0401,  1675 Broadway,  Suite 400, Denver, Colorado
80202 the principal sum of Thirty-Two  Million  Dollars  ($32,000,000.00)  or so
much thereof as may be advanced  from time to time,  and interest  from the date
hereof on the  balance of  principal  from time to time  outstanding,  in United
States currency, at the rates and at the times hereinafter described.

     This Note is issued by Maker  pursuant to that  certain  Loan  Agreement of
even date herewith (the "Loan Agreement")  entered into between Payee and Maker.
This Note evidences the Loan (as defined in the Loan Agreement). Payment of this
Note is  governed  by the Loan  Agreement,  the terms of which are  incorporated
herein by express reference as if fully set forth herein. Capitalized terms used
and not otherwise  defined  herein shall have the meanings  given to them in the
Loan Agreement.

     1.  INTEREST.  The principal  amount hereof  outstanding  from time to time
shall bear interest until paid in full at the Applicable Rate.

     2. REQUIRED  PRINCIPAL  PAYMENTS.  Maker shall make, on or before the dates
hereinafter set forth, the required  principal  payments  hereinafter set forth;
provided, however, that any prepayment of principal made pursuant to Section 4.4
of the Loan Agreement,  including the payment of any Release  Consideration upon
the  release  of a  Condominium  Unit  pursuant  to the  provisions  of the Loan
Agreement  shall be credited  against the next due and owing  principal  payment
described below.

                Date                  Principal Payment
                ----                  -----------------
         December 1, 2001         $ 8,000,000.00
         June 1, 2002             an additional $8,000,000
         June 1, 2003             an additional $7,600,000

     3. MATURITY DATE.  The  indebtedness  evidenced  hereby shall mature on the
Maturity Date. On the Maturity Date, the entire  outstanding  principal  balance
hereof,  together with accrued and unpaid  interest and all other sums evidenced
by this Note, shall, if not sooner paid, become due and payable.

<PAGE>

     4. GENERAL PROVISIONS.

          (a) Regardless of whether an Adjusted LIBOR Rate would  otherwise then
     be in effect,  in the event (i) the  principal  balance  hereof is not paid
     when due whether by  acceleration  or upon the  Maturity  Date;  or (ii) an
     Event of Default  exists,  then the  principal  balance  hereof  shall bear
     interest from and after the Default Rate. In addition,  for any installment
     of  principal  and/or  interest  (exclusive  of the  payment  due  upon the
     Maturity  Date)  which  is not  paid  within  five (5) days of the due date
     thereof a late charge equal to the greater of (a) ten percent  (10%) of the
     amount of such  installment;  or (b) Twenty-Five  Dollars ($25.00) shall be
     due and  payable  to the  holder  of this Note on demand to cover the extra
     expense involved in handling delinquent payments.

          (b) Maker  agrees  that the  obligation  evidenced  by this Note is an
     exempt  transaction under the  Truth-in-Lending  Act, 15 U.S.C.ss.1601,  et
     seq.

          (c) If any provision or provisions, or if any portion of any provision
     or  provisions,  in this Note is found by a court of law to be in violation
     of  any  applicable  local,  state  or  federal  ordinance,  statute,  law,
     administrative or judicial  decision,  or public policy,  and if such court
     should  declare such  portion,  provision or  provisions of this Note to be
     illegal,  invalid,  unlawful,  void or unenforceable as written, then it is
     the intent of all parties hereto that such portion, provision or provisions
     shall be given  force to the fullest  possible  extent that they are legal,
     valid and  enforceable,  that the remainder of this Note shall be construed
     as if such  illegal,  invalid,  unlawful,  void or  unenforceable  portion,
     provision or provisions  were not contained  therein,  and that the rights,
     obligations  and  interest of Maker and the holder or holders  hereof under
     the  remainder  of this Note shall  continue in full force and effect.  All
     agreements  herein are expressly limited so that in no contingency or event
     whatsoever,  whether  by  reason of  advancement  of the  proceeds  hereof,
     acceleration  of  maturity  of the  unpaid  principal  balance  hereof,  or
     otherwise, shall the amount paid or agreed to be paid to the holders hereof
     for the use, forbearance or detention of the money to be advanced hereunder
     exceed the highest lawful rate permissible under applicable usury laws. If,
     from any circumstances whatsoever, the fulfillment of any provision hereof,
     at the time  performance  of such  provision  shall be due,  shall  involve
     transcending  the  limit of  validity  prescribed  by law  which a court of
     competent  jurisdiction may deem applicable  hereto,  then, ipso facto, the
     obligation  to be fulfilled  shall be reduced to the limit of such validity
     and if from any  circumstance  the  holder  hereof  shall  ever  receive as
     interest an amount which would exceed the highest lawful rate,  such amount
     which would be excessive  interest shall be applied to the reduction of the
     unpaid principal balance due hereunder and not to the payment of interest.

          (d) This Note and all  provisions  hereof  shall be binding upon Maker
     and all persons  claiming  under or through  Maker,  and shall inure to the
     benefit of Payee, together with its successors and assigns,  including each
     owner and holder from time to time of this Note.

          (e) Time is of the essence as to all dates set forth herein.

<PAGE>

          (f)  Maker  agrees  that  its  liability  shall  not be in any  manner
     affected  by  any  indulgence,  extension  of  time,  renewal,  waiver,  or
     modification  granted or consented to by Payee;  and Maker  consents to any
     indulgences and all extensions of time, renewals, waivers, or modifications
     that  may be  granted  by  Payee  with  respect  to the  payment  or  other
     provisions of this Note,  and to any  substitution,  exchange or release of
     the  collateral,  or any part thereof,  with or without  substitution,  and
     agrees to the addition or release of any makers, endorsers,  guarantors, or
     sureties,  all whether primarily or secondarily  liable,  without notice to
     Maker and without affecting its liability hereunder.

          (g) Maker hereby waives and renounces for itself,  its  successors and
     assigns,  all rights to the benefits of any statute of limitations  and any
     moratorium,  reinstatement,   marshalling,  forbearance,  valuation,  stay,
     extension,  redemption,  appraisement,  or exemption and homestead laws now
     provided,  or which may  hereafter be  provided,  by the laws of the United
     States and of any state thereof  against the  enforcement and collection of
     the obligations evidenced by this Note.

          (h) If this Note is placed in the hands of attorneys for collection or
     is collected  through any legal  proceedings,  Maker promises and agrees to
     pay, in addition to the principal,  interest and other sums due and payable
     hereon,  all costs of  collecting  or  attempting  to  collect  this  Note,
     including all reasonable attorneys' fees and disbursements.

          (i) All parties  now or  hereafter  liable with  respect to this Note,
     whether Maker, principal,  surety, guarantor,  endorsee or otherwise hereby
     severally waive  presentment for payment,  demand,  notice of nonpayment or
     dishonor,  protest  and notice of  protest.  No failure to  accelerate  the
     indebtedness  evidenced  hereby,  acceptance  of  a  past  due  installment
     following the expiration of any cure period provided by this Note, any Loan
     Document or applicable law, or indulgences  granted from time to time shall
     be construed  (i) as a novation of this Note or as a  reinstatement  of the
     indebtedness  evidenced hereby or as a waiver of such right of acceleration
     or of the right of Payee  thereafter to insist upon strict  compliance with
     the terms of this Note,  or (ii) to prevent  the  exercise of such right of
     acceleration  or any other right  granted  hereunder  or by the laws of the
     State.  Maker hereby expressly waives the benefit of any statute or rule of
     law or equity now provided, or which may hereafter be provided, which would
     produce a result contrary to or in conflict with the foregoing.

          (j) THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH,
     THE LAWS OF THE STATE OF  COLORADO  AND ANY  APPLICABLE  LAWS OF THE UNITED
     STATES OF AMERICA.

     Maker has delivered this Note as of the day and year first set forth above.

        MAKER:

        SILVER MESA AT PALOMINO PARK LLC, a Colorado limited liability company

        By:      Wellsford Park Highlands Corp., a Colorado
                 corporation, its Manager

                 By:  /s/ David M. Strong
                    --------------------------------------------------
                 Its:  Vice President
                 Print Name:  David M. Strong

<PAGE>GUARANTY

                            Project Commonly Known as
                         "Silver Mesa at Palomino Park"

     THIS  GUARANTY  ("Guaranty")  made as of December  20,  2000,  by WELLSFORD
CAPITAL, a Maryland real estate investment trust  ("Guarantor"),  to and for the
benefit of KEYBANK NATIONAL  ASSOCIATION,  a national banking  association,  its
successors and assigns ("Lender").

                                 R E C I T A L S
                                 ---------------

          A. On or about the date  hereof,  SILVER MESA AT PALOMINO  PARK LLC, a
     Colorado  limited  liability  company  ("Borrower") and Lender entered into
     that certain Loan  Agreement  ("Loan  Agreement")  whereby Lender agreed to
     make a secured  loan (the  "Loan")  available  to  Borrower  in the maximum
     aggregate  amount  at  any  time  outstanding  not  to  exceed  the  sum of
     Thirty-Two Million Dollars ($32,000,000.00), to refinance the conversion to
     condominium  ownership of that certain parcel of real property  situated in
     Douglas  County,  Colorado (the "Land),  upon which has been  constructed a
     residential  townhouse project  consisting of two hundred  sixty-four (264)
     residential  units  located in fifty-four  (54)  two-story  buildings  with
     attached  garages and surface  parking for six hundred  seventy-nine  (679)
     cars and an amenity  package which  includes a clubhouse,  pool and laundry
     facilities commonly known as Silver Mesa at Palomino Park. All improvements
     now located at or hereinafter  constructed  on the Land,  together with the
     Land, are hereinafter referred to as the "Project".  Capitalized terms used
     and not otherwise  defined  herein shall have the meanings given to them in
     the Loan Agreement.

          B. In connection with the Loan,  Borrower has executed and delivered a
     promissory  note (the  "Note") in favor of Lender of even date  herewith in
     the amount of the Loan,  payment of which is secured by (i) a Mortgage made
     by  Borrower  in favor of Lender  on the  Project  and (ii) the other  Loan
     Documents.

          C.  Guarantor  will derive  material  financial  benefit from the Loan
     evidenced  and  secured  by the  Note,  the  Mortgage  and the  other  Loan
     Documents.

          D. Lender has relied on the statements and agreements contained herein
     in agreeing to make the Loan.  The  execution and delivery of this Guaranty
     by Guarantor is a condition precedent to the making of the Loan by Lender.

                                   AGREEMENTS
                                   ----------

          NOW,  THEREFORE,   intending  to  be  legally  bound,   Guarantor,  in
     consideration  of the matters  described in the foregoing  Recitals,  which
     Recitals are incorporated herein and made a part hereof, and for other good
     and  valuable  consideration  the  receipt  and  sufficiency  of which  are
     acknowledged, hereby covenants and agrees for the benefit of Lender and its
     respective successors, indorsees, transferees,  participants and assigns as
     follows:

<PAGE>

     1.  Guarantor  absolutely,   unconditionally  and  irrevocably  guarantees,
subject to the limitations on liability set forth in Section 20 hereof:

          (a) the full and prompt  payment of the  principal  of and interest on
     the Note when  due,  whether  at  stated  maturity,  upon  acceleration  or
     otherwise, and at all times thereafter,  and the full and prompt payment of
     all sums which may now be or may  hereafter  become due and owing under the
     Note, the Loan Agreement and the other Loan Documents;

          (b)  the  full  and  prompt  payment  of  any  Enforcement  Costs  (as
     hereinafter defined in Section 7 hereof); and

          (c) the full and prompt  payment  of all  operating  expense  deficits
     incurred in connection  with the operation,  repair and  maintenance of the
     Project and the marketing and sale of Condominium Units within the Project.

     All amounts due, debts,  liabilities and payment  obligations  described in
subsection (a) of this Section 1 shall be hereinafter  collectively  referred to
as the "Indebtedness."

     2.  In  the  event  of any  default  by  Borrower  in  the  payment  of the
Indebtedness,  after the  expiration  of any  applicable  cure or grace  period,
Guarantor  agrees,  on demand by  Lender or the  holder of the Note,  to pay the
Indebtedness  regardless  of any  defense,  right of  set-off  or  claims  which
Borrower or Guarantor may have against Lender or the holder of the Note.

     All of the remedies set forth herein and/or provided for in any of the Loan
Documents  or at law or equity  shall be equally  available  to Lender,  and the
choice by Lender of one such  alternative  over another  shall not be subject to
question or  challenge  by  Guarantor  or any other  person,  nor shall any such
choice be asserted as a defense,  setoff,  or failure to mitigate damages in any
action,  proceeding,  or counteraction by Lender to recover or seeking any other
remedy  under  this  Guaranty,  nor  shall  such  choice  preclude  Lender  from
subsequently electing to exercise a different remedy. The parties have agreed to
the alternative remedies provided herein in part because they recognize that the
choice of remedies in the event of a default  hereunder will  necessarily be and
should properly be a matter of good faith business  judgment,  which the passage
of time and events may or may not prove to have been the best choice to maximize
recovery by Lender at the lowest cost to Borrower  and/or  Guarantor.  It is the
intention  of the  parties  that  such  good  faith  choice  by  Lender be given
conclusive effect regardless of such subsequent developments.

<PAGE>

     3. Guarantor does hereby (a) waive notice of acceptance of this Guaranty by
Lender and any and all  notices  and demands of every kind which may be required
to be given by any statute,  rule or law;  (b) agree to refrain from  asserting,
until after  repayment  in full of the Loan,  any  defense,  right of set-off or
other claim which  Guarantor may have against  Borrower;  (c) waive any defense,
right of set-off or other claim which  Guarantor  or Borrower  may have  against
Lender,  or the holder of the Note;  (d) waive any and all rights  Guarantor may
have under any anti-deficiency  statute or other similar protections;  (e) waive
presentment for payment,  demand for payment,  notice of nonpayment or dishonor,
protest  and  notice  of  protest,  diligence  in  collection  and  any  and all
formalities  which otherwise might be legally  required to charge Guarantor with
liability;  and (f) waive any failure by Lender to inform Guarantor of any facts
Lender may now or hereafter know about Borrower,  the Project,  the Loan, or the
transactions  contemplated by the Loan Agreement, it being understood and agreed
that Lender has no duty so to inform and that Guarantor is fully responsible for
being and  remaining  informed by Borrower of all  circumstances  bearing on the
risk of  nonperformance  of  Borrower's  obligations.  Credit  may be granted or
continued  from  time  to  time by  Lender  to  Borrower  without  notice  to or
authorization from Guarantor,  regardless of the financial or other condition of
Borrower  at the time of any such grant or  continuation.  Lender  shall have no
obligation to disclose or discuss with Guarantor its assessment of the financial
condition of Borrower.  Guarantor  acknowledges that no  representations  of any
kind  whatsoever  have been made by Lender to induce  Guarantor  to deliver this
Guaranty.  No  modification  or waiver of any of the provisions of this Guaranty
shall be binding  upon Lender  except as  expressly  set forth in a writing duly
signed and delivered by Lender.

     4. Guarantor  further agrees that Guarantor's  liability as guarantor shall
not be impaired or affected by any renewals or extensions which may be made from
time to time,  with or without the knowledge or consent of Guarantor of the time
for payment of interest or  principal  under the Note or by any  forbearance  or
delay in  collecting  interest or principal  under the Note, or by any waiver by
Lender under the Loan  Agreement,  Mortgage or any other Loan  Documents,  or by
Lender's  failure  or  election  not to pursue  any other  remedies  it may have
against  Borrower or Guarantor,  or by any change or  modification  in the Note,
Loan  Agreement,  Mortgage or any other Loan  Document,  or by the acceptance by
Lender  of any  additional  security  or any  increase,  substitution  or change
therein,  or by the release by Lender of any security or any withdrawal  thereof
or decrease therein,  or by the application of payments received from any source
to the payment of any obligation other than the Indebtedness  even though Lender
might  lawfully  have  elected to apply such  payments to any part or all of the
Indebtedness,  it being the intent hereof that Guarantor shall remain liable for
the payment of the  Indebtedness  (subject  to the  limitations  on  Guarantor's
liability set forth in Section 20 below),  until the  Indebtedness has been paid
in full,  notwithstanding  any act or thing which might  otherwise  operate as a
legal or equitable  discharge of a surety.  Guarantor  further  understands  and
agrees that Lender may at any time enter into  agreements with Borrower to amend
and modify the Note, Loan Agreement,  Mortgage or other Loan Documents,  and may
waive or release  any  provision  or  provisions  of the Note,  Loan  Agreement,
Mortgage and other Loan  Documents or any thereof,  and, with  reference to such
instruments,  may make and enter into any such agreement or agreements as Lender
and Borrower may deem proper and desirable,  without in any manner  impairing or
affecting  this  Guaranty or any of Lender's  rights  hereunder  or  Guarantor's
obligations hereunder.

<PAGE>

     5. This is an absolute,  present and continuing guaranty of payment and not
of  collection.  Guarantor  agrees that this  Guaranty may be enforced by Lender
without  the  necessity  at any time of  resorting  to or  exhausting  any other
security or  collateral  given in  connection  herewith  or with the Note,  Loan
Agreement,  Mortgage or any of the other Loan Documents  through  foreclosure or
sale  proceedings,  as the case may be,  under the  Mortgage  or  otherwise,  or
resorting to any other  guaranties,  and  Guarantor  hereby  waives any right to
require Lender to join Borrower in any action  brought  hereunder or to commence
any action  against or obtain any  judgment  against  Borrower  or to pursue any
other remedy or enforce any other right.  Guarantor  further agrees that nothing
contained herein or otherwise shall prevent Lender from pursuing concurrently or
successively all rights and remedies  available to it at law and/or in equity or
under the Note,  Loan Agreement,  Mortgage or any other Loan Documents,  and the
exercise of any of its rights or the completion of any of its remedies shall not
constitute  a  discharge  of  Guarantor's  obligations  hereunder,  it being the
purpose and intent of Guarantor  that the  obligations  of  Guarantor  hereunder
shall be absolute, independent and unconditional under any and all circumstances
whatsoever.  None of Guarantor's  obligations  under this Guaranty or any remedy
for the enforcement thereof shall be impaired,  modified, changed or released in
any  manner  whatsoever  by any  impairment,  modification,  change,  release or
limitation of the liability of Borrower under the Note, Loan Agreement, Mortgage
or other Loan  Documents or by reason of the bankruptcy of Borrower or by reason
of any creditor or bankruptcy proceeding instituted by or against Borrower. This
Guaranty  shall  continue to be effective or be reinstated  (as the case may be,
and as it continues or is reinstated,  shall be subject to the  limitations  set
forth in Section 20 below) if at any time  payment of all or any part of any sum
payable  pursuant  to the Note,  Loan  Agreement,  Mortgage  or any  other  Loan
Document is rescinded  or  otherwise  required to be returned by Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of Borrower,
or upon or as a result of the appointment of a receiver,  intervenor,  custodian
or conservator of or trustee or similar officer for, Borrower or any substantial
part of its property, or otherwise, all as though such payment to Lender had not
been made, regardless of whether Lender contested the order requiring the return
of such  payment.  In the  event of the  foreclosure  of the  Mortgage  and of a
deficiency,  Guarantor hereby promises and agrees forthwith to pay the amount of
such  deficiency  notwithstanding  the fact  that  recovery  of said  deficiency
against Borrower would not be allowed by applicable law; however,  the foregoing
shall not be deemed to require that Lender institute foreclosure  proceedings or
otherwise  resort to or exhaust any other  collateral  or  security  prior to or
concurrently with enforcing this Guaranty.

     6. In the event  Lender or any holder of the Note shall  assign the Note to
any Lender or other  entity to secure a loan from such Lender or other entity to
Lender or such  holder for an amount  not in excess of the amount  which will be
due, from time to time, from Borrower to Lender under the Note with interest not
in excess of the rate of interest  which is payable by Borrower to Lender  under
the Note,  Guarantor  will  accord full  recognition  thereto and agree that all
rights and  remedies of Lender or such  holder  hereunder  shall be  enforceable
against  Guarantor by such Lender or other entity with the same force and effect
and to the same extent as would have been  enforceable  by Lender or such holder
but for such assignment.

     7. If:  (a) this  Guaranty  is  placed  in the  hands  of an  attorney  for
collection  or is  collected  through any legal  proceeding;  (b) an attorney is
retained to represent Lender in any bankruptcy, reorganization, receivership, or
other proceedings  affecting  creditors' rights and involving a claim under this
Guaranty;  (c) an attorney is retained to provide representation with respect to
this  Guaranty;  or (d) an  attorney  is  retained  to  represent  Lender in any
proceedings  whatsoever in connection  with this Guaranty and Lender prevails in
any such  proceedings,  then  Guarantor  shall pay to  Lender  upon  demand  all
attorney's  fees,  costs and expenses  incurred in connection  therewith (all of
which are referred to herein as "Enforcement  Costs"),  in addition to all other
amounts  due  hereunder,  regardless  of  whether  all  or  a  portion  of  such
Enforcement  Costs are incurred in a single  proceeding  brought to enforce this
Guaranty as well as the other Loan Documents.

<PAGE>

     8. The  parties  hereto  intend and  believe  that each  provision  in this
Guaranty comports with all applicable local, state and federal laws and judicial
decisions.  However,  if any provision or  provisions,  or if any portion of any
provision or  provisions,  in this  Guaranty is found by a court of law to be in
violation of any applicable local,  state or federal  ordinance,  statute,  law,
administrative or judicial decision,  or public policy, and if such court should
declare such  portion,  provision or  provisions of this Guaranty to be illegal,
invalid,  unlawful,  void or unenforceable as written,  then it is the intent of
all parties  hereto that such portion,  provision or  provisions  shall be given
force to the fullest possible extent that they are legal, valid and enforceable,
that the  remainder of this  Guaranty  shall be  construed  as if such  illegal,
invalid,  unlawful, void or unenforceable portion,  provision or provisions were
not contained therein,  and that the rights,  obligations and interest of Lender
or the holder of the Note under the remainder of this Guaranty shall continue in
full force and effect.

     9. TO THE GREATEST EXTENT PERMITTED BY LAW, GUARANTOR HEREBY WAIVES ANY AND
ALL RIGHTS TO REQUIRE MARSHALING OF ASSETS BY LENDER.  WITH RESPECT TO ANY SUIT,
ACTION OR PROCEEDINGS  RELATING TO THIS GUARANTY (EACH, A "PROCEEDING"),  LENDER
AND GUARANTOR  IRREVOCABLY (A) SUBMIT TO THE  NON-EXCLUSIVE  JURISDICTION OF THE
STATE  AND  FEDERAL  COURTS  HAVING  JURISDICTION  IN THE CITY OF AND  COUNTY OF
DENVER,  OR THE  COUNTY OF  DOUGLAS,  AND STATE OF  COLORADO,  AND (B) WAIVE ANY
OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY PROCEEDING
BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT ANY PROCEEDING HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM AND FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO
SUCH  PROCEEDING,  THAT SUCH COURT DOES NOT HAVE  JURISDICTION  OVER SUCH PARTY.
NOTHING IN THIS GUARANTY SHALL PRECLUDE LENDER FROM BRINGING A PROCEEDING IN ANY
OTHER  JURISDICTION  NOR WILL THE  BRINGING OF A  PROCEEDING  IN ANY ONE OR MORE
JURISDICTIONS  PRECLUDE THE BRINGING OF A PROCEEDING IN ANY OTHER  JURISDICTION.
LENDER AND GUARANTOR  FURTHER AGREE AND CONSENT THAT, IN ADDITION TO ANY METHODS
OF SERVICE OF PROCESS  PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS
IN ANY  PROCEEDING  IN ANY COLORADO  STATE OR UNITED STATES COURT SITTING IN THE
CITY AND COUNTY OF DENVER OR COUNTY OF DOUGLAS AND MAY BE MADE BY  CERTIFIED  OR
REGISTERED MAIL, RETURN RECEIPT  REQUESTED,  DIRECTED TO THE APPLICABLE PARTY AT
THE ADDRESS INDICATED BELOW, AND SERVICE SO MADE SHALL BE COMPLETE UPON RECEIPT;
EXCEPT  THAT IF SUCH PARTY SHALL  REFUSE TO ACCEPT  DELIVERY,  SERVICE  SHALL BE
DEEMED  COMPLETE  FIVE (5) DAYS  AFTER  THE SAME  SHALL  HAVE  BEEN SO MAILED OR
PRESENTED FOR DELIVERY.

<PAGE>

     10. Any indebtedness of Borrower to Guarantor now or hereafter  existing is
hereby  subordinated to the payment of the Indebtedness.  Guarantor agrees that,
until the entire  Indebtedness  has been paid in full,  Guarantor will not seek,
accept,  or retain for its own account,  any payment from Borrower on account of
such   subordinated   debt.  Any  payments  to  Guarantor  on  account  of  such
subordinated  debt shall be  collected  and  received by  Guarantor in trust for
Lender and shall be paid over to Lender on account of the  Indebtedness  without
impairing or releasing the obligations of Guarantor hereunder.

     11. Any  amounts  received by Lender from any source on account of the Loan
may be  utilized  by Lender for the  payment of the  Indebtedness  and any other
obligations  of Borrower to Lender in such order as Lender may from time to time
elect. Additionally, if the indebtedness guaranteed hereby is less than the full
indebtedness  evidenced  by the Note,  all  rents,  proceeds  and  avails of the
Project,  including  proceeds of  realization of Lender's  collateral,  shall be
deemed applied on the  indebtedness of Borrower to Lender that is not guaranteed
by Guarantor until such unguaranteed indebtedness of Borrower to Lender has been
fully repaid before being applied upon the indebtedness guaranteed by Guarantor.

     12. GUARANTOR AND LENDER (BY ITS ACCEPTANCE  HEREOF) HEREBY WAIVE ANY RIGHT
TO A TRIAL BY JURY IN ANY  ACTION OR  PROCEEDING  TO ENFORCE OR DEFEND ANY RIGHT
UNDER THIS  GUARANTY OR ANY OTHER LOAN  DOCUMENT OR RELATING  THERETO OR ARISING
FROM THE LENDING  RELATIONSHIP  WHICH IS THE SUBJECT OF THIS  GUARANTY AND AGREE
THAT ANY SUCH ACTION OR PROCEEDING  SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY.

     13. Any  notice,  demand,  request or other  communication  which any party
hereto may be required or may desire to give  hereunder  shall be in writing and
shall  be  deemed  to have  been  properly  given  (a) if hand  delivered,  when
delivered;  (b) if mailed by United  States  Certified  Mail  (postage  prepaid,
return  receipt  requested),  three  Business Days after mailing (c) if sent for
next business day delivery by FedEx or other reliable overnight courier service,
on the next  Business Day after  delivered to such courier  service or (d) if by
telecopier on the day of transmission so long as copy is sent on the same day by
overnight courier as set forth below:

Guarantor:                       Wellsford Capital
                                 535 Madison Avenue, 26th Floor
                                 New York, New York  10022
                                 Telephone         (212) 838-3400
                                 Facsimile         (212) 421-7244

with respect to notices of default only:
                                 Robinson Silverman Pearce Aronsohn & Berman LLP
                                 1290 Avenue of the Americas
                                 New York, New York  10104
                                 Attn: Edward J. Cooke, III
                                 Telephone:  (212) 541-2000
                                 Facsimile:  (212)

<PAGE>

Lender:                          KeyBank National Association
                                 Mailstop CO-02-WT-0401
                                 1675 Broadway, Suite 400
                                 Denver, Colorado   80202
                                 Attention:        Senior Vice President
                                               Commercial Real Estate Department
                                 Telephone:        720-904-4000
                                 Facsimile:        720-904-4420

With a copy to:                  KeyBank National Association
                                 Mailstop CO-02-WT-0401
                                 1675 Broadway, Suite 400
                                 Denver, Colorado   80202
                                 Attention:        Vice President CRE Services
                                 Telephone:        720-904-4000
                                 Facsimile:        720-904-4420

or at such  other  address  as the  party  to be  served  with  notice  may have
furnished in writing to the party seeking or desiring to serve notice as a place
for the service of notice.

     14.  In order to  induce  Lender  to make the  Loan,  Guarantor  makes  the
following  representations  and  warranties to Lender set forth in this Section.
Guarantor  acknowledges  that but for the  truth  and  accuracy  of the  matters
covered by the following  representations and warranties,  Lender would not have
agreed to make the Loan.

          (a) Guarantor is duly formed,  validly existing,  and in good standing
     in its state of  organization  and has  qualified  to do business and is in
     good  standing in any state in which it is  necessary in the conduct of its
     business.

          (b)  Guarantor  maintains  an office at the address set forth for such
     party in Section 13.

          (c) Any and all  consolidated  balance sheets and other financial data
     with respect to Guarantor  which have heretofore been given to Lender by or
     on  behalf  of  Guarantor  fairly  and  accurately  present  the  financial
     condition of Guarantor as of the respective dates thereof.

          (d) The  execution,  delivery,  and  performance  by Guarantor of this
     Guaranty  does not and will not  contravene  or conflict with (i) any Laws,
     order, rule,  regulation,  writ,  injunction or decree now in effect of any
     Government Authority, or court having jurisdiction over Guarantor, (ii) any
     contractual  restriction  binding on or affecting  Guarantor or Guarantor's
     property  or assets  which may  adversely  affect  Guarantor's  ability  to
     fulfill its obligations under this Guaranty, (iii) the instruments creating
     any trust holding  title to any assets  included in  Guarantor's  financial
     statements, or (iv) the organizational or other documents of Guarantor.

<PAGE>

          (e) This Guaranty  creates legal,  valid,  and binding  obligations of
     Guarantor enforceable in accordance with its terms.

          (f) Except as  disclosed  in  writing  to Lender,  there is no action,
     proceeding,  or  investigation  pending or, to the  knowledge of Guarantor,
     threatened or affecting  Guarantor,  which may adversely affect Guarantor's
     ability to  fulfill  his  obligations  under  this  Guaranty.  There are no
     judgments or orders for the payment of money rendered against Guarantor for
     an amount in excess of $100,000 which have been  undischarged  for a period
     of ten (10) or more  consecutive  days and the  enforcement of which is not
     stayed  by reason of a pending  appeal or  otherwise.  Guarantor  is not in
     default under any agreements which may adversely affect Guarantor's ability
     to fulfill its obligations under this Guaranty.

          (g) Guarantor  hereby  covenants that at all times while this Guaranty
     is in force and effect, as of the end of each calendar quarter, Guarantor's
     and  its  subsidiaries'   consolidated  liquid  assets,  as  determined  in
     accordance with generally acceptable  accounting  principles,  shall not be
     less than Five Million Dollars ($5,000,000.00).

          (h) Guarantor  hereby  covenants that at all times while this Guaranty
     is in force and effect, as of the end of each calendar quarter, Guarantor's
     and its subsidiaries'  consolidated  tangible net worth (i.e.,  Guarantor's
     and its  subsidiaries'  consolidated  total  assets,  excluding  intangible
     assets, such as good will, trademarks, patents, copyrights,  organizational
     expenses and similar intangible  assets,  less all liabilities of Guarantor
     and its subsidiaries,  including  subordinated  debt) shall equal or exceed
     Fifty Million Dollars ($50,000,000.00).

          (i) All statements set forth in the Recitals are true and correct.

     All of the foregoing  representations and warranties shall be deemed remade
on the date of the  first  disbursement  of Loan  proceeds,  on the date of each
advance of Loan  proceeds,  and upon any  extension of the Loan  pursuant to the
Loan  Agreement.  Guarantor  hereby agrees to indemnify and hold Lender free and
harmless  from and against  all loss,  cost,  liability,  damage,  and  expense,
including  attorney's fees and costs,  which Lender may sustain by reason of the
inaccuracy or breach of any of the foregoing  representations  and warranties as
of the  date  the  foregoing  representations  and  warranties  are made and are
remade.

     15.  Guarantor  shall deliver or cause to be delivered to Lender all of the
Guarantor  financial  statements to be delivered in accordance with the terms of
the Loan Agreement.

     16.  This  Guaranty  shall be binding  upon the  successors  and assigns of
Guarantor  and  shall  not be  discharged  in whole  or in part by the  death of
Guarantor.

<PAGE>

     17. THIS  GUARANTY,  THE NOTE,  AND ALL OTHER  INSTRUMENTS  EVIDENCING  AND
SECURING THE LOAN SECURED HEREBY WERE  NEGOTIATED IN THE STATE OF COLORADO,  AND
DELIVERED BY GUARANTOR OR BORROWER, AS APPLICABLE, AND ACCEPTED BY LENDER IN THE
STATE OF COLORADO,  WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP
TO THE PARTIES AND THE UNDERLYING TRANSACTIONS EMBODIED HEREBY. IN ALL RESPECTS,
INCLUDING,  WITHOUT LIMITATION,  MATTERS OF CONSTRUCTION OF THE IMPROVEMENTS AND
PERFORMANCE  OF  THIS  GUARANTY  AND THE  OBLIGATIONS  ARISING  HEREUNDER,  THIS
GUARANTY  SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH,  THE INTERNAL
LAWS OF THE STATE OF COLORADO  APPLICABLE TO CONTRACTS  MADE AND TO BE PERFORMED
IN SUCH STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

     18. Lender shall be entitled to honor any request for Loan proceeds made by
Borrower and shall have no obligation to see to the proper  disposition  of such
advances.  Guarantor agrees that his obligations hereunder shall not be released
or  affected  by reason of any  improper  disposition  by  Borrower of such Loan
proceeds.

     19. This  Guaranty  may be executed  in any number of  counterparts  and by
different  parties  hereto  in  separate  counterparts,  each of  which  when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same instrument.

     20. Notwithstanding anything to the contrary contained herein,  Guarantor's
guarantee  hereunder of the repayment of all amounts due under the Note shall be
limited to Seven Million Dollars ($7,000,000.00) (the "Guaranteed Amount"). Upon
repayment  of the  Loan in the  principal  amount  of  Sixteen  Million  Dollars
($16,000,000.00),  the  Guaranteed  Amount  shall be  reduced  to Three  Million
Dollars  ($3,000,000.00).  Further,  upon repayment of the Loan in the principal
amount of Twenty-Four  Million Dollars  ($24,000,000.00),  the Guaranteed Amount
shall be reduced to One Million Dollars  ($1,000,000.00).  Except as so limited,
Guarantor's  obligations hereunder shall not be limited or reduced, or be deemed
to have been limited or reduced, in any way.

     21. This Guaranty and all understandings and arrangements  relating to this
signing of the  Agreement  have been  executed or entered  into by an officer of
Wellsford  Capital in his/her capacity as an officer of Wellsford  Capital which
has  been  formed  as  a  Maryland  real  estate   investment   trust,  and  not
individually,  and neither the trustees,  officers or  shareholders of Wellsford
Capital shall be bound or have any personal  liability  hereunder or thereunder.
All persons  dealing with  Wellsford  Capital shall look solely to the assets of
Wellsford Capital for satisfaction of any liability of Wellsford Capital in this
transaction and will not seek recourse or commence any action against any of the
trustees, officers or shareholders of Wellsford Capital or any of their personal
assets  for  the  performance  or  payment  of  any  obligations   hereunder  or
thereunder.

<PAGE>

     IN WITNESS  WHEREOF,  Guarantor has delivered this Guaranty in the State of
Colorado as of the date first written above.

           "GUARANTOR":

           WELLSFORD CAPITAL, a Maryland real estate
           investment trust

           By: /s/ David M. Strong
              -----------------------------------------------------------
           Its: Vice President
           Print Name: David M. Strong

STATE OF COLORADO                   )
                                                     )  ss.
CITY AND COUNTY OF DENVER  )

     The  foregoing  instrument  was  acknowledged  before  me this  19th day of
December,  2000,  by David  Strong as Vice  President of  WELLSFORD  CAPITAL,  a
Maryland real estate investment trust.

         Witness my hand and official seal.

         My commission expires: 10-04-03

                         /s/ Cathy Gardell
                         -----------------
                         Notary Public

<PAGE>

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