Document:

Exhibit 10.5

 

SENIOR MEZZANINE PROMISSORY NOTE

 

	
  $21,043,197

  	
   

  	
  December 31,
  2008

  

 

SW 131 ST. ROSE MEZZANINE BORROWER LLC, a Delaware
limited liability company (“Borrower”), FOR
VALUE RECEIVED, promises to pay to the order of BEHRINGER HARVARD ST. ROSE REIT,
LLC, a Delaware limited liability company or its assigns (“Lender”),
at such place as Lender may from time to time designate in writing, the
principal sum of Twenty One Million Forty Three Thousand One Hundred Ninety
Seven and No/100 Dollars ($21,043,197) or so much thereof as may from time to
time have been advanced to Borrower under this Note, with Interest (as defined
below) on the outstanding principal amount at the rates set forth herein.  In no event shall the principal amount
outstanding hereunder at any time exceed, when combined with the principal
amount outstanding at any time under the Junior Mezzanine Promissory Note,
dated December 31, 2008, from Borrower to Lender (the “Junior Mezzanine Note”), exceed in the aggregate Twenty One
Million Forty Three Thousand One Hundred Ninety Seven and No/100 Dollars
($21,043,197).  Also, in no event shall
the accrued and unpaid interest under this Note, when combined with the accrued
and unpaid interest owing under the Junior Mezzanine Note, exceed the amount of
interest that would be due (taking into account payments of interest made prior
to the time in question) if interest had accrued at the rate applicable from
time to time under this Note and the Junior Mezzanine Note on a principal
balance equal to the aggregate principal outstanding from time to time under
this Note and the Junior Mezzanine Note.

 

DEFINITIONS

 

For the purpose of this Note capitalized terms not
defined below will be as defined in the Loan Agreement:

 

“Completion”
shall mean the time when the Project is deemed substantially complete, which
will occur upon the issuance of the final certificate of occupancy, the receipt of
evidence reasonably satisfactory to Lender that no building has been
constructed over any easements or setback areas and no other improvements
prohibited by the terms of the easements or setbacks have been constructed
within such easements or setbacks, as applicable, the issuance of a certificate of substantial completion from the
Mortgagor’s architect, receipt of a contractor’s release and the receipt of
lien waivers or similar evidence of payment from the general contractor and all
major subcontractor (i.e. subcontractors whose contract amount exceeds
$100,000) to Lender’s reasonable satisfaction; provided, however, that if
Sender Lender shall deem the Project substantially complete, then Lender shall
deem the Project substantially complete.

 

“Default
Interest” shall mean any interest accruing at the Default Interest
Rate and payable pursuant to the terms hereof or of the other Loan Documents.

 

“Default
Interest Rate” shall mean a rate of interest per annum equal to the
lesser of either (a) fifteen percent (15%) per annum or (b) the
maximum rate of interest which may be collected from Borrower under applicable
law.

 

“Interest”
shall mean any interest accruing at the Interest Rate or the Default Interest
Rate, as applicable, and payable pursuant to the terms hereof or of the other
Loan Documents.

 

 

“Interest
Rate” shall mean a rate of interest per annum equal to thirteen percent
(13%) per annum or, if less, the maximum rate of interest which may be
collected from Borrower under applicable law.

 

“Late Charge”
shall mean the lesser of (a) five percent (5%) of any unpaid amount, or (b) the
maximum late charge permitted to be charged under applicable law.

 

“Loan Agreement”
shall mean that certain Senior Mezzanine Loan Agreement, between Lender and
Borrower, dated of even date herewith, corresponding to this Note, as the same
may hereafter be amended, modified and restated from time to time.

 

“Maturity
Date” shall mean December 31, 2013.

 

“Net Cash
Flow” shall mean the amount by which (i) gross income of
the Project (which shall include, without limitation, all income received by
Mortgagor from and in connection with any leasing activity) exceeds (ii) operating
expenses (which shall mean the actual cash operating expenses of the Project
incurred during the period in question and which are consistent with generally
accepted operating practices for similar properties plus any payments of
interest and/or principal pursuant to the Senior Loan and the Junior Mezzanine
Note) excluding Interest paid or payable under this Note to the extent included
in operating expenses.

 

“Payment Date”
shall mean the first day of each calendar month, commencing on February 1,
2009, and the Maturity Date (or, if any such date is not a Business Day, then
the first Business Day immediately before such date).

 

SECTION 1 - STATED MATURITY; INTEREST AND
PRINCIPAL PAYMENTS.

 

1.1           Payment of Interest.  Interest shall accrue on this Note
at the Interest Rate or, during any time at which an Event of Default is
continuing, at the Default Interest Rate. 
Commencing on the first Payment Date, and continuing monthly on
the same date of each calendar month thereafter up to and until the Maturity
Date, an installment of accrued and unpaid Interest shall be due and payable to
Lender to the extent required by the following:

 

(a)                                  Borrower shall be required to pay
Interest-only, to the extent proceeds are budgeted therefor in the Construction
Budget (the amount so budgeted being stipulated to be $6,413,523 and being
herein called the “Interest Reserve”); and

 

(b)                                 After the Interest Reserve has been
exhausted, Borrower shall be required to pay Interest-only in an amount equal
to the then available Net Cash Flow, or the total of all accrued Interest that
then remains unpaid, if less, and the excess of such installment of Interest
over the amount of the available Net Cash Flow (if any) so deferred shall
accrue as set forth herein.

 

On the Maturity Date, all accrued but unpaid Interest, shall be due and
payable in full.  It is the intent of
Borrower and Lender that this Note shall be treated as a security that
satisfies the requirements (the “Straight Debt Safe Harbor”)
of Section 856(m)(1)(A) and Section 856(m)(2) of the
Internal Revenue Code of 1986, as amended (the “Code”).  Accordingly, notwithstanding any indication
herein to the contrary, (i) Borrower and Lender

 

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agree that the terms of this Note shall be interpreted
in such a manner that the Note satisfies the Straight Debt Safe Harbor and (ii) the
terms of this Note shall be applied such that the Note has a constant effective
yield to maturity, as determined under Section 1272 of the Code, at a
fixed rate over the entire term of the Note equal to the Interest Rate (or, during any time at which an Event of Default is
continuing, at the Default Interest Rate); provided, however, that such
construction shall not alter the dates of the principal or Interest payments,
or the amounts of principal or Interest payments required to be paid hereunder.

 

1.2           Payments of Principal. 
On the Maturity Date, the unpaid principal balance, together with all
accrued but unpaid Interest, shall be due and payable in full.

 

1.3           Payment
on Stated Maturity Date.  Any
remaining unpaid Indebtedness shall be due and payable in full at the Maturity
Date.

 

1.4           Computation
of Interest.  Subject to the
provisions of Section 1.8, Interest under this Note shall be paid as set
forth herein and shall be calculated based on actual days elapsed and a three
hundred sixty (360) day year.  Subject to
the provisions of Section 1.8, Interest that becomes due under this Note
and remains unpaid shall be compounded monthly and shall itself bear Interest
(without becoming part of the principal balance of this Note) at the Interest
Rate such that the Note has a constant effective yield to maturity at the
Interest Rate as described in Section 1.1. hereof (or, during any time at
which an Event of Default is continuing, at the Default Interest Rate).

 

1.5           Method
of Payment.  Each payment due
hereunder shall not be deemed received by Lender until received on a Business
Day (as hereafter defined) in Federal funds in lawful money of the United
States of America immediately available to Lender prior to 2:00 p.m. local
time at the place then designated by Lender. 
Any payment received on a Business Day after the time established by the
preceding sentence, shall be deemed to have been received on the immediately
following Business Day for purposes of determining interest accruals and Late
Charges.

 

1.6           Application
of Payments.  Payments under this
Note shall be applied first to the payment of Late Charges and Default Interest
and other costs and charges due in connection with this Note, as Lender
determines in its sole discretion, then to the payment of accrued but unpaid
Interest, and then to reduction of the outstanding principal balance.  No principal amount repaid may be
reborrowed.  All amounts due under this
Note shall be payable without setoff, counterclaim or any other deduction
whatsoever.

 

1.7           Prepayment.  No prepayment of this Note shall
be permitted without Lender’s approval in writing, in Lender’s sole discretion,
except as expressly provided in Section 4(d) of the Loan
Agreement.

 

1.8           No Usury.  The provisions of this Note and of all other
agreements between Borrower and Lender, whether now existing or hereafter
arising and whether written or oral, including, but not limited to, the Loan
Documents, are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of demand or acceleration of the maturity of this
Note or otherwise, shall the amount contracted for, charged, taken, reserved,
paid, or agreed 

 

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to be paid to Lender for
the use, forbearance, retention or detention of the money loaned under this
Note and related indebtedness exceed the maximum amount permissible under
applicable law.  If, from any
circumstance whatsoever, performance or fulfillment of any provision hereof or
of any agreement between Borrower and Lender shall, at the time performance or
fulfillment of such provision shall be due, exceed the limit for interest
prescribed by law or otherwise transcend the limit of validity prescribed by
applicable law, then ipso facto the obligation to be performed or fulfilled
shall be reduced to such limit; and if, from any circumstance whatsoever,
Lender shall ever receive anything of value deemed interest by applicable law
in excess of the maximum lawful amount, an amount equal to any excessive
interest shall be applied to the reduction of the principal balance owing under
this Note in the inverse order of its maturity (whether or not then due) or at
the option of Lender be paid over to Borrower, and not to the payment of
interest.  All Interest (including any
amounts or payments judicially or otherwise under the law deemed to be
interest) contracted for, charged, taken, reserved, paid or agreed to be paid
to Lender shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the Note, including
any extensions or renewals thereof, until payment in full of the Indebtedness
so that the Interest thereof for such full period will not exceed at any time
the maximum amount permitted by applicable law. 
To the extent that Lender is relying on Chapter 303, as amended, of
the Texas Finance Code to determine the maximum amount of interest permitted by
applicable law on the principal of the Loan, Lender will utilize the weekly
rate ceiling from time to time in effect as provided in such Chapter 303,
as amended.  To the extent United States
federal law permits a greater amount of interest than is permitted under Texas
law, Lender will rely on United States federal law instead of such
Chapter 303, as amended, for the purpose of determining the maximum amount
permitted by applicable law. 
Additionally, to the extent permitted by applicable law now or hereafter
in effect, Lender may, at its option and from time to time, implement any other
method of computing the maximum lawful rate under such Chapter 303, as
amended, or under other applicable law by giving notice, if required, to
Borrower as provided by applicable law now or hereafter in effect.  This Section 1.8 will control all
agreements between Borrower and Lender.

 

SECTION 2 - DEFAULT; REMEDIES

 

2.1           Acceleration.  Lender may, by notice to Borrower at any time
during the existence of an Event of Default, declare immediately due and
payable the entire principal amount outstanding hereunder together with all
Interest and other charges due hereunder including, without limitation, all
Late Charges and Default Interest.

 

2.2           Default Interest Rate; Late
Charges.

 

(a)           After
an Event of Default, the Default Interest Rate shall apply, in place of the
Interest Rate, to all amounts outstanding under the Loan.  Such Default Interest shall be compounded on
the monthly anniversary of such Event of Default until paid in full.

 

(b)           If
any monthly installment of Interest due hereunder is not received by Lender on
or before the tenth (10th) day after such installment becomes due,
Borrower shall pay to Lender, immediately and without demand by Lender, the
Late Charge on such outstanding monthly installment.  Borrower acknowledges that its failure to
make timely payments will cause Lender to incur additional expenses in
servicing and processing the Loan, and that it is extremely 

 

4

 

difficult
and impractical to determine those additional expenses.  Borrower agrees that any such Late Charges
payable pursuant to this Section 2.2(b) represent a fair and
reasonable estimate, taking into account all circumstances existing on the date
hereof, of the additional expenses Lender will incur by reason of such late
payment.  Any such Late Charge is payable
in addition to, and not in lieu of, any Interest payable at the Default Rate
pursuant to Section 2.2(a).

 

2.3           Remedies.  The remedies of Lender as provided herein, or
in the Loan Documents, or at law or in equity shall be cumulative and
concurrent, and may be pursued singularly, successively, or together at the
sole discretion of Lender, and may be exercised as often as occasion therefor
shall occur.  The failure at any time to
exercise any right or remedy shall not constitute a waiver of the right to
exercise the right or remedy at any other time.

 

SECTION 3 - SECURITY

 

Borrower’s obligations under this Note are secured
by, among other instruments, the Security Instrument and other Loan
Documents.  The covenants of the Security
Instrument and the Loan Agreement, to the extent to be performed by Borrower,
are incorporated by reference into this Note.

 

SECTION 4 - WAIVER

 

Presentment for payment, demand, notice of dishonor,
protest, and notice of protest and stay of execution are hereby waived by
Borrower.  No extension or indulgence or
release of collateral granted from time to time shall be construed as a
novation of this Note or as a reinstatement of the indebtedness evidenced
hereby or as a waiver of the rights of Lender herein.

 

SECTION 5 - EXCULPATION

 

5.1           Lender
Exculpation.  Notwithstanding
anything to the contrary contained in this Note, no present or future
shareholder, director, officer, member or partner of Lender or of any entity
which is now or hereafter a shareholder, director, officer, member or partner
of Lender (or of any entity which is now or hereafter a shareholder, director,
officer, member or partner of a shareholder, director, officer, member or
partner of Lender) shall have any personal liability, directly or indirectly,
under or in connection with this Note or any agreement made or entered into
under or in connection with the provisions of this Note, or any amendment or amendments
to any of the foregoing made at any time or times, heretofore or hereafter, and
Borrower hereby forever and irrevocably waives and releases any and all such
personal liability.  In addition, neither
Lender nor any successor or assign of Lender shall have at any time or times
hereafter any personal liability, directly or indirectly, under or in
connection with any agreement, lease, instrument, encumbrance, claim or right
affecting or relating to the Project or to which the Project is now or hereafter
subject.  The limitation of liability
provided in this paragraph is in addition to, and not in limitation of, any
limitation on liability applicable to Lender provided by law or by any other
contract, agreement or instrument.

 

5.2           Borrower
Exculpation.  Borrower’s liability in
connection with this Note and the other Loan Documents (including Borrower’s
liability for all amounts due hereunder or thereunder) is collectible only from
the collateral against which a security interest is created by the Security Instrument.  In no case will any person who holds a direct
or indirect ownership 

 

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interest
in Borrower, or any officer, director, manager, trustee, employee, agent or
affiliate of Borrower or any such direct or indirect owner, have any
responsibility for Borrower’s obligations in connection with this Note and the
other Loan Documents (including Borrower’s liability for any amounts due
hereunder or thereunder); provided, however, that nothing in this Section 5.2
limits the liability of any person under a guaranty or other agreement executed
by such person.

 

SECTION 6 - GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; SEVERABILITY

 

6.1           Governing
Law.  This Note shall be governed by,
and construed in accordance with, the substantive law of the State of Texas
without regard to the application of choice of law principles.

 

6.2           SUBMISSION TO
JURISDICTION/SERVICE OF PROCESS. 
BORROWER HEREBY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE
STATE COURTS OF THE STATE OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS FOR THE
PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON
THIS NOTE, THE SUBJECT MATTER HEREOF, OR THE LOAN. BORROWER TO THE EXTENT
PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT,
BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER
PROCEEDING BROUGHT IN THE ABOVE-NAMED COURTS ANY CLAIM THAT IT IS NOT SUBJECT
PERSONALLY TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER OR THAT THIS 
NOTE, THE SUBJECT MATTER HEREOF, OR THE OTHER LOAN (AS APPLICABLE) MAY NOT
BE ENFORCED IN OR BY SUCH COURT AND (B) HEREBY WAIVES THE RIGHT TO REMOVE
ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY LENDER IN THE ABOVE NAMED
COURTS.  BORROWER HEREBY CONSENTS TO
SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO
IT PURSUANT TO SECTION 7 HEREOF, BUT SERVICE SO MADE WILL BE EFFECTIVE
ONLY ON DELIVERY AT SUCH ADDRESS. 
BORROWER AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO
SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF LENDER.  FINAL JUDGMENT AGAINST BORROWER IN ANY SUCH ACTION,
SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A
CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF
THE AMOUNT OF INDEBTEDNESS OR LIABILITY OF BORROWER THEREIN DESCRIBED, OR (Y) IN
ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER
JURISDICTION.  THE LENDER MAY AT ITS
OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS, AGAINST BORROWER OR
ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF 

 

6

 

ANY COUNTRY OR PLACE WHERE THE SUBMITTING PARTY OR SUCH
ASSETS MAY BE FOUND.

 

6.3           WAIVER
WITH RESPECT TO DAMAGES.  BORROWER
ACKNOWLEDGES THAT LENDER DOES NOT HAVE ANY FIDUCIARY RELATIONSHIP WITH, OR
FIDUCIARY DUTY TO, BORROWER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR
ANY OTHER LOAN DOCUMENT AND THE RELATIONSHIP BETWEEN LENDER AND BORROWER IN
CONNECTION HEREWITH AND THEREWITH IS SOLELY THAT OF DEBTOR AND CREDITOR.  TO THE EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER SHALL NOT ASSERT, AND BORROWER HEREBY WAIVES, ANY CLAIMS AGAINST
LENDER, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION
WITH, OR AS A RESULT OF, THIS NOTE, ANY OTHER LOAN DOCUMENT, ANY AGREEMENT OR
INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.

 

6.4           WAIVER
OF JURY TRIAL.  BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT BORROWER MAY HAVE
TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS
NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER STATEMENTS OR ACTIONS OF
THE LENDER IN CONNECTION WITH THIS NOTE OR ANY OF THE OTHER LOAN
DOCUMENTS.  BORROWER ACKNOWLEDGES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE LENDER TO DISBURSE THE MONEY
EVIDENCED BY THIS NOTE AND TO ENTER INTO THE OTHER LOAN DOCUMENTS.

 

6.5           Severability.
 If any provision of this Note is held to
be invalid or unenforceable by a court of competent jurisdiction, the other
provisions of this Note shall remain in full force and effect.

 

SECTION 7 - NOTICES

 

7.1           Notices.  All notices, demands and other communications
(“Notice”) under or concerning this Note
shall be in writing.  Each Notice shall
be addressed to the intended recipient at its address set forth in the Loan
Agreement.  Each Notice shall be deemed
given on the earliest to occur of (1) the date when the Notice is received
by the addressee; (2) the first (1st) Business Day after the Notice is
delivered to a recognized overnight courier service, with arrangements made for
payment of charges, for next Business Day delivery; or (3) the third
Business Day after the Notice is deposited in the United States mail with
postage prepaid, certified mail, return receipt requested.

 

7.2           Any
party to this Agreement may change the address to which Notices intended for it
are to be directed by means of Notice given to the other party in accordance
with this Section 7.  Each party
agrees that it will not refuse or reject delivery of any Notice given in
accordance with this Section 7, that it will acknowledge, in writing, the
receipt of any Notice upon request by the other party and that any Notice
rejected or refused by it shall be deemed for 

 

7

 

purposes
of this Section 7 to have been received by the rejecting party on the date
so refused or rejected, as conclusively established by the records of the U.S.
Postal Service or the courier service. Any Notice under any other Loan Document
which does not specify how Notices are to be given shall be given in accordance
with this Section 7.

 

SECTION 8 - MISCELLANEOUS

 

8.1           Costs.  If, and as often as, this Note is referred to
an attorney for the collection of any sum payable hereunder, or to defend or
enforce any of Lender’s rights hereunder, or to commence an action,
cross-claim, third-party claim or counterclaim by Lender against Borrower
relating to this Note, Borrower agrees to pay to Lender all costs reasonably
incurred in connection therewith, including reasonable attorney’s fees
(including such fees incurred in appellate, bankruptcy or insolvency
proceedings), with or without the institution of any action or proceeding.

 

8.2           Modification.  Neither this Note nor any of the terms hereof
may be terminated, amended, supplemented, waived or modified orally, but only
by an instrument in writing executed by the party against which enforcement of
the termination, amendment, supplement, waiver or modification is sought.

 

8.3           Successors.  As used herein, the terms “Borrower” and “Lender”
shall be deemed to include their respective successors and assigns whether by
voluntary action of the parties or by operation of law.  All of the rights, privileges and obligations
hereof shall inure to the benefit of and bind such successors and assigns.

 

8.4           Loan
Agreement.  To the extent not
expressly stated otherwise herein, all of the terms and conditions of the Loan
Agreement shall survive the execution of this Note and shall remain in full
force and effect; provided, however, to the extent of any irreconcilable
conflict between the terms and conditions of the Loan Agreement and this Note,
the terms and provisions of this Note shall govern and control.

 

8.5           No
Waiver.  No failure or delay by
Lender in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  Without limiting the foregoing, no
disbursement by Lender after a default by Borrower hereunder shall constitute a
waiver of any of the Lender’s remedies established or referred to hereunder or
shall obligate Lender to make any further disbursement.  No waiver, consent or approval of any kind by
Lender shall be effective unless (and it shall be effective only to the extent)
expressly set out in a writing signed and delivered by Lender.  No notice to or demand on Borrower in any
case shall entitle Borrower to any other notice or demand in similar or other
circumstances, nor shall such notice or demand constitute a waiver of the
rights of Lender to any other or further actions.  In its sole discretion, Lender may, at any
time and from time to time, waive any one or more of the requirements contained
herein, but such waiver in any instance or under any particular circumstances
shall not be considered a waiver of such requirement or requirements in any
other instance or under any other circumstance.

 

8

 

8.6           Sole
and Absolute Discretion.  Any option,
consent, approval, discretion or similar right of Lender set forth in this Note
may be exercised by Lender in its sole and absolute discretion, unless the
provisions of this Note or another Loan Document specifically require another
standard.

 

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

 

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

 

	
   

  	
   

  	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  SW
  131 ST. ROSE MEZZANINE BORROWER LLC,

  
	
   

  	
   

  	
   

  	
  a
  Delaware limited liability company

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  SW
  130 St. Rose Limited Partnership, a Delaware

  
	
   

  	
   

  	
   

  	
   

  	
  limited
  partnership, its sole member

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  SW
  129 St. Rose Limited Partnership, a

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Delaware
  limited partnership, its general

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  SW
  104 Development GP LLC, a

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Delaware
  limited liability company, its

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  general
  partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/
  Timothy J. Hogan

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Timothy
  J. Hogan, Vice President

  

 

 

JUNIOR MEZZANINE PROMISSORY NOTE

 

	
  $21,043,197

  	
   

  	
  December 31,
  2008

  

 

SW 131 ST. ROSE MEZZANINE BORROWER LLC, a Delaware
limited liability company (“Borrower”), FOR
VALUE RECEIVED, promises to pay to the order of BEHRINGER HARVARD ST. ROSE
REIT, LLC, a Delaware limited liability company or its assigns (“Lender”), at such place as Lender may from time to time
designate in writing, the principal sum of Twenty One Million Forty Three
Thousand One Hundred Ninety Seven and No/100 Dollars ($21,043,197) or so much thereof
as may from time to time have been advanced to Borrower under this Note, with
Interest (as defined below) on the outstanding principal amount at the rates
set forth herein.  In no event shall the
principal amount outstanding hereunder at any time, when combined with the
principal amount outstanding at any time under the Senior Mezzanine Promissory
Note, dated December 31, 2008, from Borrower to Lender (the “Senior Mezzanine Note”), exceed in the aggregate Twenty One
Million Forty Three Thousand One Hundred Ninety Seven and No/100 Dollars
($21,043,197).  Also, in no event shall
the accrued and unpaid interest under this Note, when combined with the accrued
and unpaid interest owing under the Senior Mezzanine Note, exceed the amount of
interest that would be due (taking into account payments of interest made prior
to the time in question) if interest had accrued at the rate applicable from
time to time under this Note and the Senior Mezzanine Note on a principal
balance equal to the aggregate principal outstanding from time to time under
this Note and the Senior Mezzanine Note.

 

DEFINITIONS

 

For the purpose of this Note capitalized terms not
defined below will be as defined in the Loan Agreement:

 

“Completion”
shall mean the time when the Project is deemed substantially complete, which
will occur upon the issuance of the final certificate of occupancy, the receipt of
evidence reasonably satisfactory to Lender that no building has been
constructed over any easements or setback areas and no other improvements
prohibited by the terms of the easements or setbacks have been constructed
within such easements or setbacks, as applicable, the issuance of a certificate of substantial completion from the
Mortgagor’s architect, receipt of a contractor’s release and the receipt of
lien waivers or similar evidence of payment from the general contractor and all
major subcontractor (i.e. subcontractors whose contract amount exceeds
$100,000) to Lender’s reasonable satisfaction; provided, however, that if
Sender Lender shall deem the Project substantially complete, then Lender shall
deem the Project substantially complete.

 

“Default
Interest” shall mean any interest accruing at the Default Interest
Rate and payable pursuant to the terms hereof or of the other Loan Documents.

 

“Default
Interest Rate” shall mean a rate of interest per annum equal to the
lesser of either (a) fifteen percent (15%) per annum or (b) the
maximum rate of interest which may be collected from Borrower under applicable
law.

 

“Interest”
shall mean any interest accruing at the Interest Rate or the Default Interest
Rate, as applicable, and payable pursuant to the terms hereof or of the other
Loan Documents.

 

 

“Interest
Rate” shall mean a rate of interest per annum equal to thirteen
percent (13%) per annum or, if less, the maximum rate of interest which may be
collected from Borrower under applicable law.

 

“Late Charge”
shall mean the lesser of (a) five percent (5%) of any unpaid amount, or (b) the
maximum late charge permitted to be charged under applicable law.

 

“Loan Agreement”
shall mean that certain Junior Mezzanine Loan Agreement, between Lender and
Borrower, dated of even date herewith, corresponding to this Note, as the same
may hereafter be amended, modified and restated from time to time.

 

“Maturity
Date” shall mean December 31, 2013.

 

“Net Cash
Flow” shall mean the amount by which (i) gross income of
the Project (which shall include, without limitation, all income received by
Mortgagor from and in connection with any leasing activity) exceeds (ii) operating
expenses (which shall mean the actual cash operating expenses of the Project
incurred during the period in question and which are consistent with generally
accepted operating practices for similar properties plus any payments of
interest and/or principal pursuant to the Senior Loan and the Senior Mezzanine
Note) excluding Interest paid or payable under this Note to the extent included
in operating expenses.

 

“Payment Date”
shall mean the first day of each calendar month, commencing on February 1,
2009, and the Maturity Date (or, if any such date is not a Business Day, then
the first Business Day immediately before such date).

 

SECTION 1 - STATED MATURITY; INTEREST AND
PRINCIPAL PAYMENTS.

 

1.1           Payment of Interest.  Interest shall accrue on this Note
at the Interest Rate or, during any time at which an Event of Default is
continuing, at the Default Interest Rate. 
Commencing on the first Payment Date, and continuing monthly on
the same date of each calendar month thereafter up to and until the Maturity
Date, an installment of accrued and unpaid Interest shall be due and payable to
Lender to the extent required by the following:

 

(a)                                  Borrower shall be required to pay
Interest-only, to the extent proceeds are budgeted therefor in the Construction
Budget (the amount so budgeted being stipulated to be $6,413,523 and being
herein called the “Interest Reserve”); and

 

(b)                                 After the Interest Reserve has been
exhausted, Borrower shall be required to pay Interest-only in an amount equal
to the then available Net Cash Flow, or the total of all accrued Interest that
then remains unpaid, if less, and the excess of such installment of Interest
over the amount of the available Net Cash Flow (if any) so deferred shall
accrue as set forth herein.

 

On the Maturity Date, all accrued but unpaid Interest, shall be due and
payable in full.  It is the intent of
Borrower and Lender that this Note shall be treated as a security that
satisfies the requirements (the “Straight Debt Safe Harbor”)
of Section 856(m)(1)(A) and Section 856(m)(2) of the
Internal Revenue Code of 1986, as amended (the “Code”).  Accordingly, notwithstanding any indication
herein to the contrary, (i) Borrower and Lender 

 

2

 

agree
that the terms of this Note shall be interpreted in such a manner that the Note
satisfies the Straight Debt Safe Harbor and (ii) the terms of this Note
shall be applied such that the Note has a constant effective yield to maturity,
as determined under Section 1272 of the Code, at a fixed rate over the
entire term of the Note equal to the Interest Rate (or, during any time at which an Event of Default is continuing, at the
Default Interest Rate); provided, however, that such construction shall
not alter the dates of the principal or Interest payments, or the amounts of
principal or Interest payments required to be paid hereunder.

 

1.2           Payments of Principal. 
On the Maturity Date, the unpaid principal balance, together with all
accrued but unpaid Interest, shall be due and payable in full.

 

1.3           Payment
on Stated Maturity Date.  Any
remaining unpaid Indebtedness shall be due and payable in full at the Maturity
Date.

 

1.4           Computation
of Interest.  Subject to the
provisions of Section 1.8, Interest under this Note shall be paid as set
forth herein and shall be calculated based on actual days elapsed and a three
hundred sixty (360) day year.  Subject to
the provisions of Section 1.8, Interest that becomes due under this Note
and remains unpaid shall be compounded monthly and shall itself bear Interest
(without becoming part of the principal balance of this Note) at the Interest
Rate such that the Note has a constant effective yield to maturity at the
Interest Rate as described in Section 1.1. hereof (or, during any time at
which an Event of Default is continuing, at the Default Interest Rate).

 

1.5           Method
of Payment.  Each payment due
hereunder shall not be deemed received by Lender until received on a Business
Day (as hereafter defined) in Federal funds in lawful money of the United
States of America immediately available to Lender prior to 2:00 p.m. local
time at the place then designated by Lender. 
Any payment received on a Business Day after the time established by the
preceding sentence, shall be deemed to have been received on the immediately
following Business Day for purposes of determining interest accruals and Late
Charges.

 

1.6           Application
of Payments.  Payments under this
Note shall be applied first to the payment of Late Charges and Default Interest
and other costs and charges due in connection with this Note, as Lender
determines in its sole discretion, then to the payment of accrued but unpaid
Interest, and then to reduction of the outstanding principal balance.  No principal amount repaid may be
reborrowed.  All amounts due under this
Note shall be payable without setoff, counterclaim or any other deduction
whatsoever.

 

1.7           Prepayment.  No prepayment of this Note shall
be permitted without Lender’s approval in writing, in Lender’s sole discretion,
except as expressly provided in Section 4(d) of the Loan
Agreement.

 

1.8           No Usury.  The provisions of this Note and of all other
agreements between Borrower and Lender, whether now existing or hereafter
arising and whether written or oral, including, but not limited to, the Loan
Documents, are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of demand or acceleration of the maturity of this
Note or otherwise, shall the amount contracted for, charged, taken, reserved,
paid, or agreed 

 

3

 

to be paid to Lender for
the use, forbearance, retention or detention of the money loaned under this
Note and related indebtedness exceed the maximum amount permissible under
applicable law.  If, from any circumstance
whatsoever, performance or fulfillment of any provision hereof or of any
agreement between Borrower and Lender shall, at the time performance or
fulfillment of such provision shall be due, exceed the limit for interest
prescribed by law or otherwise transcend the limit of validity prescribed by
applicable law, then ipso facto the obligation to be performed or fulfilled
shall be reduced to such limit; and if, from any circumstance whatsoever,
Lender shall ever receive anything of value deemed interest by applicable law
in excess of the maximum lawful amount, an amount equal to any excessive
interest shall be applied to the reduction of the principal balance owing under
this Note in the inverse order of its maturity (whether or not then due) or at
the option of Lender be paid over to Borrower, and not to the payment of
interest.  All Interest (including any
amounts or payments judicially or otherwise under the law deemed to be
interest) contracted for, charged, taken, reserved, paid or agreed to be paid
to Lender shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the Note, including
any extensions or renewals thereof, until payment in full of the Indebtedness
so that the Interest thereof for such full period will not exceed at any time
the maximum amount permitted by applicable law. 
To the extent that Lender is relying on Chapter 303, as amended, of
the Texas Finance Code to determine the maximum amount of interest permitted by
applicable law on the principal of the Loan, Lender will utilize the weekly
rate ceiling from time to time in effect as provided in such Chapter 303,
as amended.  To the extent United States
federal law permits a greater amount of interest than is permitted under Texas
law, Lender will rely on United States federal law instead of such
Chapter 303, as amended, for the purpose of determining the maximum amount
permitted by applicable law. 
Additionally, to the extent permitted by applicable law now or hereafter
in effect, Lender may, at its option and from time to time, implement any other
method of computing the maximum lawful rate under such Chapter 303, as
amended, or under other applicable law by giving notice, if required, to
Borrower as provided by applicable law now or hereafter in effect.  This Section 1.8 will control all
agreements between Borrower and Lender.

 

SECTION 2 - DEFAULT; REMEDIES

 

2.1           Acceleration.  Lender may, by notice to Borrower at any time
during the existence of an Event of Default, declare immediately due and
payable the entire principal amount outstanding hereunder together with all
Interest and other charges due hereunder including, without limitation, all
Late Charges and Default Interest.

 

2.2           Default Interest Rate; Late
Charges.

 

(a)           After
an Event of Default, the Default Interest Rate shall apply, in place of the
Interest Rate, to all amounts outstanding under the Loan.  Such Default Interest shall be compounded on
the monthly anniversary of such Event of Default until paid in full.

 

(b)           If
any monthly installment of Interest due hereunder is not received by Lender on
or before the tenth (10th) day after such installment becomes due,
Borrower shall pay to Lender, immediately and without demand by Lender, the
Late Charge on such outstanding monthly installment.  Borrower acknowledges that its failure to
make timely payments will cause Lender to incur additional expenses in
servicing and processing the Loan, and that it is extremely 

 

4

 

difficult
and impractical to determine those additional expenses.  Borrower agrees that any such Late Charges
payable pursuant to this Section 2.2(b) represents a fair and
reasonable estimate, taking into account all circumstances existing on the date
hereof, of the additional expenses Lender will incur by reason of such late
payment.  Any such Late Charge is payable
in addition to, and not in lieu of, any Interest payable at the Default Rate
pursuant to Section 2.2(a).

 

2.3           Remedies.  The remedies of Lender as provided herein, or
in the Loan Documents, or at law or in equity shall be cumulative and
concurrent, and may be pursued singularly, successively, or together at the
sole discretion of Lender, and may be exercised as often as occasion therefor
shall occur.  The failure at any time to
exercise any right or remedy shall not constitute a waiver of the right to
exercise the right or remedy at any other time.

 

SECTION 3 - SECURITY

 

Borrower’s obligations under this Note are secured
by, among other instruments, the Security Instrument and other Loan
Documents.  The covenants of the Security
Instrument and the Loan Agreement, to the extent to be performed by Borrower,
are incorporated by reference into this Note.

 

SECTION 4 - WAIVER

 

Presentment for payment, demand, notice of dishonor,
protest, and notice of protest and stay of execution are hereby waived by
Borrower.  No extension or indulgence or
release of collateral granted from time to time shall be construed as a
novation of this Note or as a reinstatement of the indebtedness evidenced
hereby or as a waiver of the rights of Lender herein.

 

SECTION 5 - EXCULPATION

 

5.1           Lender
Exculpation.  Notwithstanding
anything to the contrary contained in this Note, no present or future
shareholder, director, officer, member or partner of Lender or of any entity
which is now or hereafter a shareholder, director, officer, member or partner
of Lender (or of any entity which is now or hereafter a shareholder, director,
officer, member or partner of a shareholder, director, officer, member or
partner of Lender) shall have any personal liability, directly or indirectly,
under or in connection with this Note or any agreement made or entered into
under or in connection with the provisions of this Note, or any amendment or
amendments to any of the foregoing made at any time or times, heretofore or
hereafter, and Borrower hereby forever and irrevocably waives and releases any
and all such personal liability.  In
addition, neither Lender nor any successor or assign of Lender shall have at
any time or times hereafter any personal liability, directly or indirectly,
under or in connection with any agreement, lease, instrument, encumbrance,
claim or right affecting or relating to the Project or to which the Project is
now or hereafter subject.  The limitation
of liability provided in this paragraph is in addition to, and not in
limitation of, any limitation on liability applicable to Lender provided by law
or by any other contract, agreement or instrument.

 

5.2           Borrower
Exculpation.  Borrower’s liability in
connection with this Note and the other Loan Documents (including Borrower’s
liability for all amounts due hereunder or thereunder) is collectible only from
the collateral against which a security interest is created by the Security
Instrument.  In no case will any person
who holds a direct or indirect ownership 

 

5

 

interest
in Borrower, or any officer, director, manager, trustee, employee, agent or
affiliate of Borrower or any such direct or indirect owner, have any
responsibility for Borrower’s obligations in connection with this Note and the
other Loan Documents (including Borrower’s liability for any amounts due
hereunder or thereunder); provided, however, that nothing in this Section 5.2
limits the liability of any person under a guaranty or other agreement executed
by such person.

 

SECTION 6 - GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; SEVERABILITY

 

6.1           Governing
Law.  This Note shall be governed by,
and construed in accordance with, the substantive law of the State of Texas
without regard to the application of choice of law principles.

 

6.2           SUBMISSION TO
JURISDICTION/SERVICE OF PROCESS. 
BORROWER HEREBY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE
STATE COURTS OF THE STATE OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS FOR THE
PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON
THIS NOTE, THE SUBJECT MATTER HEREOF, OR THE LOAN. BORROWER TO THE EXTENT
PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT,
BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER
PROCEEDING BROUGHT IN THE ABOVE-NAMED COURTS ANY CLAIM THAT IT IS NOT SUBJECT
PERSONALLY TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING
IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER OR THAT THIS 
NOTE, THE SUBJECT MATTER HEREOF, OR THE OTHER LOAN (AS APPLICABLE) MAY NOT
BE ENFORCED IN OR BY SUCH COURT AND (B) HEREBY WAIVES THE RIGHT TO REMOVE
ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY LENDER IN THE ABOVE NAMED
COURTS.  BORROWER HEREBY CONSENTS TO
SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO
IT PURSUANT TO SECTION 7 HEREOF, BUT SERVICE SO MADE WILL BE EFFECTIVE
ONLY ON DELIVERY AT SUCH ADDRESS. 
BORROWER AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO
SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF LENDER.  FINAL JUDGMENT AGAINST BORROWER IN ANY SUCH
ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY
OTHER JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A
CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF
THE AMOUNT OF INDEBTEDNESS OR LIABILITY OF BORROWER THEREIN DESCRIBED, OR (Y) IN
ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER
JURISDICTION.  THE LENDER MAY AT ITS
OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS, AGAINST BORROWER OR
ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF

 

6

 

ANY COUNTRY OR PLACE WHERE THE SUBMITTING PARTY OR SUCH
ASSETS MAY BE FOUND.

 

6.3           WAIVER
WITH RESPECT TO DAMAGES.  BORROWER
ACKNOWLEDGES THAT LENDER DOES NOT HAVE ANY FIDUCIARY RELATIONSHIP WITH, OR
FIDUCIARY DUTY TO, BORROWER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR
ANY OTHER LOAN DOCUMENT AND THE RELATIONSHIP BETWEEN LENDER AND BORROWER IN
CONNECTION HEREWITH AND THEREWITH IS SOLELY THAT OF DEBTOR AND CREDITOR.  TO THE EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER SHALL NOT ASSERT, AND BORROWER HEREBY WAIVES, ANY CLAIMS AGAINST
LENDER, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN
CONNECTION WITH, OR AS A RESULT OF, THIS NOTE, ANY OTHER LOAN DOCUMENT, ANY
AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

 

6.4           WAIVER
OF JURY TRIAL.  BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT BORROWER MAY HAVE
TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS
NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER STATEMENTS OR ACTIONS OF
THE LENDER IN CONNECTION WITH THIS NOTE OR ANY OF THE OTHER LOAN
DOCUMENTS.  BORROWER ACKNOWLEDGES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE LENDER TO DISBURSE THE MONEY
EVIDENCED BY THIS NOTE AND TO ENTER INTO THE OTHER LOAN DOCUMENTS.

 

6.5           Severability.  If any provision of this Note is held to be
invalid or unenforceable by a court of competent jurisdiction, the other
provisions of this Note shall remain in full force and effect.

 

SECTION 7 - NOTICES

 

7.1           Notices.  All notices, demands and other communications
(“Notice”) under or concerning this Note
shall be in writing.  Each Notice shall
be addressed to the intended recipient at its address set forth in the Loan
Agreement.  Each Notice shall be deemed
given on the earliest to occur of (1) the date when the Notice is received
by the addressee; (2) the first (1st) Business Day after the Notice is
delivered to a recognized overnight courier service, with arrangements made for
payment of charges, for next Business Day delivery; or (3) the third
Business Day after the Notice is deposited in the United States mail with
postage prepaid, certified mail, return receipt requested.

 

7.2           Any
party to this Agreement may change the address to which Notices intended for it
are to be directed by means of Notice given to the other party in accordance
with this Section 7.  Each party
agrees that it will not refuse or reject delivery of any Notice given in
accordance with this Section 7, that it will acknowledge, in writing, the
receipt of any Notice upon request by the other party and that any Notice
rejected or refused by it shall be deemed for 

 

7

 

purposes
of this Section 7 to have been received by the rejecting party on the date
so refused or rejected, as conclusively established by the records of the U.S.
Postal Service or the courier service. Any Notice under any other Loan Document
which does not specify how Notices are to be given shall be given in accordance
with this Section 7.

 

SECTION 8 - MISCELLANEOUS

 

8.1           Costs.  If, and as often as, this Note is referred to
an attorney for the collection of any sum payable hereunder, or to defend or
enforce any of Lender’s rights hereunder, or to commence an action,
cross-claim, third-party claim or counterclaim by Lender against Borrower
relating to this Note, Borrower agrees to pay to Lender all costs reasonably
incurred in connection therewith, including reasonable attorney’s fees
(including such fees incurred in appellate, bankruptcy or insolvency
proceedings), with or without the institution of any action or proceeding.

 

8.2           Modification.  Neither this Note nor any of the terms hereof
may be terminated, amended, supplemented, waived or modified orally, but only
by an instrument in writing executed by the party against which enforcement of
the termination, amendment, supplement, waiver or modification is sought.

 

8.3           Successors.  As used herein, the terms “Borrower” and “Lender”
shall be deemed to include their respective successors and assigns whether by
voluntary action of the parties or by operation of law.  All of the rights, privileges and obligations
hereof shall inure to the benefit of and bind such successors and assigns.

 

8.4           Loan
Agreement.  To the extent not
expressly stated otherwise herein, all of the terms and conditions of the Loan
Agreement shall survive the execution of this Note and shall remain in full
force and effect; provided, however, to the extent of any irreconcilable
conflict between the terms and conditions of the Loan Agreement and this Note,
the terms and provisions of this Note shall govern and control.

 

8.5           No
Waiver.  No failure or delay by
Lender in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  Without limiting the foregoing, no
disbursement by Lender after a default by Borrower hereunder shall constitute a
waiver of any of the Lender’s remedies established or referred to hereunder or
shall obligate Lender to make any further disbursement.  No waiver, consent or approval of any kind by
Lender shall be effective unless (and it shall be effective only to the extent)
expressly set out in a writing signed and delivered by Lender.  No notice to or demand on Borrower in any
case shall entitle Borrower to any other notice or demand in similar or other
circumstances, nor shall such notice or demand constitute a waiver of the
rights of Lender to any other or further actions.  In its sole discretion, Lender may, at any
time and from time to time, waive any one or more of the requirements contained
herein, but such waiver in any instance or under any particular circumstances
shall not be considered a waiver of such requirement or requirements in any
other instance or under any other circumstance.

 

8

 

8.6           Sole
and Absolute Discretion.  Any option,
consent, approval, discretion or similar right of Lender set forth in this Note
may be exercised by Lender in its sole and absolute discretion, unless the
provisions of this Note or another Loan Document specifically require another
standard.

 

[THE REMAINDER OF THIS PAGE
IS INTENTIONALLY LEFT BLANK]

 

9

 

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

 

	
   

  	
   

  	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  SW
  131 ST. ROSE MEZZANINE BORROWER LLC,

  
	
   

  	
   

  	
   

  	
  a
  Delaware limited liability company

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  SW
  130 St. Rose Limited Partnership, a Delaware

  
	
   

  	
   

  	
   

  	
   

  	
  limited
  partnership, its sole member

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  SW
  129 St. Rose Limited Partnership, a

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Delaware
  limited partnership, its general

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  SW
  104 Development GP LLC, a

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Delaware
  limited liability company, its

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  general
  partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/
  Timothy J. Hogan

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Timothy
  J. Hogan, Vice PresidentExhibit 10.6

 

 

 

SENIOR MEZZANINE LOAN AGREEMENT

 

 

 

BY

 

 

 

AND
BETWEEN

 

 

 

SW
131 ST. ROSE MEZZANINE BORROWER LLC

(“Borrower”)

 

 

 

AND

 

 

 

BEHRINGER
HARVARD ST. ROSE REIT, LLC

(“Lender”)

 

 

 

 

 

 

	
  1.

  	
  RECITALS

  	
  2

  
	
  2.

  	
  DEFINITIONS

  	
  2

  
	
  3.

  	
  THE LOAN; DISBURSEMENT
  OF LOAN

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Loan

  	
  9

  
	
   

  	
  (b)

  	
  Loan Disbursements

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  INTEREST PAYMENTS; NO
  USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY; REPAYMENT

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Interest

  	
  9

  
	
   

  	
  (b)

  	
  No Usury

  	
  10

  
	
   

  	
  (c)

  	
  Loan Commitment Fee

  	
  11

  
	
   

  	
  (d)

  	
  Prepayment

  	
  11

  
	
   

  	
  (e)

  	
  Maturity Date

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  SECURITY FOR LOAN;
  GUARANTY

  	
  11

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Security Instrument

  	
  11

  
	
   

  	
  (b)

  	
  Other Loan Documents

  	
  11

  
	
   

  	
  (c)

  	
  Guaranty

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  CONDITIONS PRECEDENT TO
  CLOSING OF THE LOAN

  	
  11

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Loan Documents

  	
  11

  
	
   

  	
  (b)

  	
  Third Party Agreements

  	
  12

  
	
   

  	
  (c)

  	
  Certification

  	
  12

  
	
   

  	
  (d)

  	
  Financial Statements

  	
  12

  
	
   

  	
  (e)

  	
  Insurance Policies

  	
  12

  
	
   

  	
  (f)

  	
  Contracts

  	
  13

  
	
   

  	
  (g)

  	
  Title Insurance Policy

  	
  13

  
	
   

  	
  (h)

  	
  ALTA Survey

  	
  13

  
	
   

  	
  (i)

  	
  Flood Plain Certification

  	
  13

  
	
   

  	
  (j)

  	
  Appraisal

  	
  13

  
	
   

  	
  (k)

  	
  Environmental Report

  	
  13

  
	
   

  	
  (l)

  	
  Certification of Organizational Documents

  	
  13

  
	
   

  	
  (m)

  	
  Legal Opinion

  	
  13

  
	
   

  	
  (n)

  	
  UCC Searches

  	
  14

  
	
   

  	
  (o)

  	
  Utilities

  	
  14

  
	
   

  	
  (p)

  	
  Environmental Disclosure

  	
  14

  
	
   

  	
  (q)

  	
  No Default

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  TITLE INSURANCE

  	
  14

  
	
   

  	
   

  	
   

  
	
  8.

  	
  INSURANCE

  	
  14

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Insurance Requirements

  	
  14

  
	
   

  	
  (b)

  	
  Initial Policies; Renewals

  	
  16

  
	
   

  	
  (c)

  	
  Notices

  	
  16

  
	
   

  	
  (d)

  	
  Notice of Casualty

  	
  16

  
	
   

  	
  (e)

  	
  Settlement of Claim

  	
  16

  

 

 

i

 

	
   

  	
  (f)

  	
  Application of Insurance Proceeds

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  EMINENT DOMAIN

  	
  17

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Notice of Condemnation

  	
  17

  
	
   

  	
  (b)

  	
  Settlement of Claim

  	
  18

  
	
   

  	
  (c)

  	
  Application of Condemnation Awards

  	
  18

  
	
   

  	
  (d)

  	
  Continuing Obligation to Repair

  	
  18

  
	
   

  	
  (e)

  	
  Lender Not Required to Act

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  RIGHTS OF ACCESS AND
  INSPECTION

  	
  18

  
	
  11.

  	
  EXPENSES

  	
  19

  
	
  12.

  	
  FINANCIAL REPORTS,
  PROPERTY REPORTS AND ANNUAL BUDGET

  	
  19

  
	
  13.

  	
  GENERAL COVENANTS OF
  BORROWER

  	
  21

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Commencement and Completion of Project

  	
  21

  
	
   

  	
  (b)

  	
  Lender Approval

  	
  21

  
	
   

  	
  (c)

  	
  Operation and Maintenance of Project

  	
  22

  
	
   

  	
  (d)

  	
  Restricted Sale and Encumbrance of Project and of
  Borrower Interests; Other Indebtedness

  	
  23

  
	
   

  	
  (e)

  	
  General Indemnity

  	
  24

  
	
   

  	
  (f)

  	
  Leases

  	
  25

  
	
   

  	
  (g)

  	
  Notices

  	
  26

  
	
   

  	
  (h)

  	
  Development

  	
  26

  
	
   

  	
  (i)

  	
  Management

  	
  26

  
	
   

  	
  (j)

  	
  Senior Loan

  	
  26

  
	
   

  	
  (k)

  	
  Principal Place of Business; Choice of Law

  	
  27

  
	
   

  	
  (l)

  	
  Compliance with Governmental Prohibitions

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  FURTHER ASSURANCES

  	
  28

  
	
  15.

  	
  APPRAISALS

  	
  28

  
	
  16.

  	
  GENERAL REPRESENTATIONS
  AND WARRANTIES OF BORROWER

  	
  28

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Organization; Corporate Powers; Authorization of
  Borrowing

  	
  28

  
	
   

  	
  (b)

  	
  Title to Property; Matters Affecting Property

  	
  29

  
	
   

  	
  (c)

  	
  Financial Statements

  	
  31

  
	
   

  	
  (d)

  	
  Budget Projections

  	
  31

  
	
   

  	
  (e)

  	
  Intentionally Deleted

  	
  32

  
	
   

  	
  (f)

  	
  No Loan Broker

  	
  32

  
	
   

  	
  (g)

  	
  No Default

  	
  32

  
	
   

  	
  (h)

  	
  Solvency

  	
  32

  
	
   

  	
  (i)

  	
  Violations of Governmental Prohibitions

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  EVENT OF DEFAULT

  	
  33

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Non-Payment

  	
  33

  
	
   

  	
  (b)

  	
  Insurance

  	
  33

  
	
   

  	
  (c)

  	
  Special Purpose Entity Covenants

  	
  33

  
	
   

  	
  (d)

  	
  Borrower

  	
  33

  
	
   

  	
  (e)

  	
  Guaranty

  	
  33

  
	
   

  	
  (f)

  	
  Construction

  	
  33

  

 

 

ii

 

	
   

  	
  (g)

  	
  Fraud or Material Misrepresentation

  	
  33

  
	
   

  	
  (h)

  	
  Sale, Encumbrance or Other Indebtedness

  	
  34

  
	
   

  	
  (i)

  	
  Reports and Documents

  	
  34

  
	
   

  	
  (j)

  	
  Other Breaches under this Agreement.

  	
  34

  
	
   

  	
  (k)

  	
  Other Breaches Under Other Loan Documents

  	
  34

  
	
   

  	
  (l)

  	
  Senior Loan Documents

  	
  34

  
	
   

  	
  (m)

  	
  Judgments

  	
  34

  
	
   

  	
  (n)

  	
  Bankruptcy Proceedings

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  REMEDIES

  	
  35

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Actions upon Event of Default

  	
  35

  
	
   

  	
  (b)

  	
  Lender’s Right to Perform

  	
  36

  
	
   

  	
  (c)

  	
  Appointment of Lender as Attorney-in-Fact

  	
  36

  
	
   

  	
  (d)

  	
  Cross-Default to Note, Security Instrument, and
  Other Loan Documents

  	
  36

  
	
   

  	
  (e)

  	
  Recourse Limitations

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
  ADDITIONAL ADVANCES

  	
  37

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Disbursement of Additional Advances

  	
  37

  
	
   

  	
  (b)

  	
  Conditions Precedent to Additional Advance.

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
  TRANSFER OF LOAN; LOAN
  SERVICER

  	
  39

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Lender’s Right to Transfer

  	
  39

  
	
   

  	
  (b)

  	
  Loan Servicer

  	
  39

  
	
   

  	
  (c)

  	
  Dissemination of Information

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
  LENDER’S EXPENSES;
  RIGHTS OF LENDER

  	
  39

  
	
  22.

  	
  MISCELLANEOUS

  	
  40

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Notices

  	
  40

  
	
   

  	
  (b)

  	
  Waivers

  	
  41

  
	
   

  	
  (c)

  	
  Lender Not Partner of Borrower; Borrower in Control

  	
  41

  
	
   

  	
  (d)

  	
  No Third Party

  	
  42

  
	
   

  	
  (e)

  	
  Time of Essence; Context

  	
  42

  
	
   

  	
  (f)

  	
  Successors and Assigns

  	
  42

  
	
   

  	
  (g)

  	
  Governing Jurisdiction

  	
  42

  
	
   

  	
  (h)

  	
  SUBMISSION TO JURISDICTION; SERVICE OF PROCESS

  	
  42

  
	
   

  	
  (i)

  	
  WAIVER WITH RESPECT TO DAMAGES

  	
  43

  
	
   

  	
  (j)

  	
  Entire Agreement

  	
  44

  
	
   

  	
  (k)

  	
  Headings

  	
  44

  
	
   

  	
  (l)

  	
  Severability

  	
  44

  
	
   

  	
  (m)

  	
  Counterparts

  	
  44

  
	
   

  	
  (n)

  	
  WAIVER OF JURY TRIAL

  	
  44

  
	
   

  	
  (o)

  	
  Sole and Absolute Discretion

  	
  44

  
	
   

  	
  (p)

  	
  Straight Debt Harbor

  	
  45

  
	
   

  	
  (q)

  	
  Assignment

  	
  45

  
	
   

  	
  (r)

  	
  Retainage of Subcontractors

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  23.

  	
  SPECIAL
  REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER

  	
  45

  

 

 

iii

 

	
  24.

  	
  JUNIOR MEZZANINE LOAN

  	
  48

  
	
  25.

  	
  SUBDIVISION AND RELEASE

  	
  50

  

 

 

iv

 

SENIOR MEZZANINE LOAN AGREEMENT

 

This SENIOR MEZZANINE LOAN AGREEMENT (this “Agreement”) is made and entered into as of December 31,
2008, by and between SW 131 ST. ROSE MEZZANINE BORROWER LLC, a Delaware limited
liability company, whose address is 2001 Bryan Street, Suite 3250, Dallas,
Texas 75201 (“Borrower”), and BEHRINGER HARVARD
ST. ROSE REIT, LLC, a Delaware limited liability company, whose address is
15601 Dallas Parkway, Suite 600, Addison, Texas, 75001 (“Lender”).

R E C I T A L S:

 

This Agreement is made with reference to the following facts:

 

A.            Borrower is
directly or indirectly the legal and beneficial owner of one-hundred percent
(100%) of the Equity Interests in SW 132 ST. ROSE SENIOR BORROWER LLC, a
Delaware limited liability company (“Mortgagor”).

 

B.            Mortgagor is
the owner of that certain land located in Henderson, Clark County, Nevada, and
more particularly described on Exhibit A attached hereto, together
with appurtenances (the “Land”).  The Land is comprised of a portion that is
zoned RH-36 (High Density Residential), which is generally the western 18.151
acres of the Land (the “Residential Tract”)
and a portion that is zoned CC-PUD (Community Commercial with Planned Unit
Development Overlay), which is generally the eastern 6.271 acres of the Land
(the “Commercial Tract”).  Mortgagor will construct on the Residential
Tract a 430-unit apartment complex (the “Project”).

 

C.            Contemporaneously
herewith, Mortgagor will enter into a Construction Loan Agreement with Bank of
America, N.A. and the lenders who from time to time agree to fund parts of such
loan (“Senior Lender”), providing a loan in
the amount of Thirty Eight Million Six Hundred Thousand and No/Dollars
($38,600,000) (the “Senior Loan”),
secured by a deed of trust, of even date herewith (together with any and all
extensions, renewals, substitutions, replacements, amendments, modifications
and/or restatements thereof) in favor of Senior Lender encumbering the Land and
the Project.

 

D.            Contemporaneously
with entering into the Senior Loan, SW 122 St. Rose Senior Borrower LLC, a
Delaware limited liability company (“Commercial Tract Borrower”),
will enter into a Term Loan Agreement with Bank of America, N.A., as lender for
its sole account (“Commercial Tract Lender”),
providing a loan in the amount of Two Million Nine Hundred Fifty Thousand and
No/Dollars ($2,950,000) (the “Commercial
Tract Loan”), secured by a deed of trust, of even date herewith
(together with any and all extensions, renewals, substitutions, replacements,
amendments, modifications and/or restatements thereof) in favor of Commercial
Tract Lender encumbering the Land and the Project.

 

 

1

 

E.             Borrower has
requested that Lender, as lender, make one or more loans to Borrower in the aggregate
amount of Twenty One Million Forty Three Thousand One Hundred Ninety Seven and
No/Dollars ($21,043,197) (the “Maximum Aggregate Advance
Amount”), one of such loans (the “Loan”)
will be made pursuant to this Agreement, which Loan is to be advanced as
hereinafter provided and is to be evidenced by the Note.  $14,185,154 of the Loan will be advanced
under this Agreement at the execution of this Agreement (the “Initial Advance”), subject to the terms and provisions of
this Agreement, and $1,000 of the Maximum Aggregate Advance Amount will be
advanced under the Junior Mezzanine Loan Agreement (defined below), subject to
the terms and provisions of the Junior Mezzanine Loan Agreement.  The Note is to be secured by the Senior
Subordinate Deed of Trust, Assignment of Rents and Leases, Security Agreement,
Fixture Filing and Financing Statement (the “Security
Instrument”) and other collateral as specified in Section 5
below.

 

F.             Mortgagor is
currently pursuing a subdivision of the Land and intends to convey to Commercial
Tract Borrower the Commercial Tract. 
When Commercial Tract Borrower acquires title to the Commercial Tract
(the “Transfer Date”), the lien of the
Security Instrument will be partially released as to the Commercial Tract.

 

G.            The proceeds of
the Loan are to be used by Borrower to, among other things, pay the costs and
expenses, if any, referred to in Section 3(b) below.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements hereinafter contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:

 

1.             RECITALS.  The recitals set forth above are true and
correct and are incorporated herein by reference.

 

2.             DEFINITIONS.  The following terms, when used in this
Agreement (including when used in the above recitals), shall have the following
meanings:

 

(a)           “Accounting Records”: 
shall mean such records used to prepare financial statements including
but not limited to:  (i) supporting
documentation for cash disbursements (including check copies and invoices); (ii) supporting
documentation for cash receipts (including deposit slips); (iii) contracts;
(iv) check registers; (v) monthly bank account reconciliations; (vi) general
ledger; (vii) job cost detail of construction in progress in the same form
as provided to Senior Lender; (viii) detail of draw requests on the Senior
Loan; (ix) Senior Lender’s monthly loan statement; and (x) such other
documentation in the possession of Borrower or its Affiliates or which Borrower
will use all commercially reasonable efforts to acquire, as Lender shall
reasonably require for the preparation of financial statements for the Project,
Mortgagor or Borrower.

 

 

2

 

(b)           “ADA” shall mean Americans with Disabilities Act of 1990,
Pub. L. No. 89-670, 104 Stat. 327 (1990), as amended, and all regulations
promulgated pursuant thereto.

 

(c)           “Additional Advance”: shall have the meaning given in Section 19
hereof.

 

(d)           “Affiliate”:  of any
specified person or entity shall mean any other person or entity, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified person or entity. 
For purposes of this definition, “control” shall mean the ability,
whether by the ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to make
management decisions on behalf of, or independently to select the managing
partner of, a partnership, or otherwise to have the power independently to
remove and then select a majority of those individuals exercising managerial
authority over an entity.  Control of an
entity shall be conclusively presumed in the case of the ownership of more than
50% of the equity interests in the entity.

 

(e)           “Annual Budget”:  shall
mean, for any period, the budget submitted to Lender and in effect for such
period as provided in Section 12 hereof.

 

(f)            “Approved Change Orders”: 
shall mean any change orders to the Plans requested by the Borrower and
approved by the Lender as outlined in Section 13(b) hereof.

 

(g)           “Available Assets”: 
shall have the meaning given in the Guaranty.

 

(h)           “Bankruptcy Proceedings”: 
shall have the meaning given in Section 17(n).

 

(i)            “Borrower”:  means the
entity identified as “Borrower” in the first paragraph of this Agreement,
together with its successors and assigns.

 

(j)            “Business Day”:  shall mean all days other than Saturday,
Sunday or any other day on which national banks doing business in Dallas,
Texas are not open for business.

 

(k)           “Code”:  the Internal
Revenue Code of 1986, as amended from time to time, or the corresponding
provisions of any successor federal income tax law.  Any reference to a particular provision of
the Code shall include any amendment of such provision or the corresponding
provision of any successor federal income tax law.

 

(l)            “Collateral”:  shall
have the meaning given in the Security Instrument.

 

 

3

 

(m)          “Commercial Deed of Trust”: 
shall mean that certain deed of trust made by the Mortgagor for the
benefit of the Commercial Tract Lender, which prior to the Transfer Date, will
encumber both the Residential Tract and the Commercial Tract, and after the
Transfer Date will encumber only the Commercial Tract.

 

(n)           “Commercial Tract”: 
shall have the meaning given in the Recitals of this Agreement.

 

(o)           “Commercial Tract Borrower”: 
shall have the meaning given in the Recitals of this Agreement.

 

(p)           “Commercial Tract Lender”: 
shall have the meaning given in the Recitals of this Agreement.

 

(q)           “Commercial Tract Loan”: 
shall have the meaning given in the Recitals of this Agreement.

 

(r)            “Completion”:  shall
have the meaning given in the Guaranty.

 

(s)           “Construction Budget”: 
shall mean the construction budget attached hereto as Exhibit D.

 

(t)            “Default Interest Rate”: 
shall have the meaning given in the Note.

 

(u)           “Draw Request”:  shall
mean a request for additional advances on the Loan and/or under the Junior
Mezzanine Loan Agreement submitted by Borrower in the form attached hereto as Exhibit E.

 

(v)           “Encumbrance”:  shall
mean any pledge, encumbrance, hypothecation or other grant of security
interest, whether direct or indirect, voluntary or involuntary or by operation
of law, and whether or not consented to by Lender, of or in (i) all or any
portion of, or interest in, the Project (other than any encumbrance by the
Senior Loan Documents and the Permitted Exceptions), or (ii) any Equity
Interests in Mortgagor,  or (iii) any
part of the Principal’s Equity Interests in Borrower.

 

(w)          “Environmental Indemnity”: 
shall mean the Mezzanine Environmental Indemnity Agreement of even date
herewith, executed by Borrower and containing representations, warranties,
covenants and indemnities in favor of Lender with respect to Hazardous
Materials.

 

(x)            “Equity Interests”: 
means, with respect to any Person, shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in such Person, and
any warrants, options or other rights entitling the holder thereof to purchase
or acquire from such Person any such equity interest issued by such Person.

 

 

4

 

(y)           “Estimated Collateral Value Statement”:  shall have the meaning given in the Guaranty.

 

(z)            “Estimated Value” means the estimated value of the property
encumbered by the Security Instrument, as such value may be determined from
time to time by Lender, less the amount, if any, of all other debt secured by
such property that is senior to both the Loan and the loan under the Junior
Mezzanine Loan Agreement.

 

(aa)         “Event of Default”: 
shall have the meaning given in Section 17 hereof.

 

(bb)         “Final Map”:  shall
have the meaning given in Section 25 hereof.

 

(cc)         “General Contractor”: 
means TCR Nevada Construction Limited Partnership, a Texas limited
partnership.

 

(dd)         “Governmental Authority”: shall mean any federal, state,
county, municipal, parish, provincial, tribal or other government, or any
department, commission, board, court, agency (including, without limitation,
the U. S. Environmental Protection Agency), whether of the United States of
America or any other country, or any instrumentality of any of them, or any
other political subdivision thereof (a) in which any portion of the Land
is located, (b) in which any of Mortgagor, Borrower, Guarantor or Lender
is located or conducts business, or (c) exercising jurisdiction over
Mortgagor, Borrower, Guarantor or Lender, or any of the Land, and any entity
exercising legislative, judicial, regulatory, or administrative functions of,
or pertaining to, government including, without limitation, any arbitration
panel, any court or any commission.

 

(ee)         “Governmental Requirements”: 
shall mean all laws, ordinances, rules, regulations, orders and
directives of any Governmental Authority applicable to any of Mortgagor,
Borrower, Guarantor, Lender or any of the Land, including, without limitation,
all applicable licenses, building codes, restrictive covenants, zoning and
subdivision ordinances, flood disaster, health and environmental laws and
regulations, and the ADA.

 

(ff)           “Guarantor”:  shall mean CFP Residential, L.P., Kenneth J.
Valach, J. Ronald Terwilliger, and Bruce Hart.

 

(gg)         “Guaranty”:  means that
certain Mezzanine Guaranty, of even date herewith, executed by the Guarantors,
jointly and severally, in favor of Lender.

 

(hh)         “Hazardous Materials”: 
shall have the meaning given in the Environmental Indemnity.

 

(ii)           “Indebtedness”:  shall
mean the principal of, interest on, and any other amounts due at any time
under, this Agreement, the Note, the Security 

 

 

5

 

Instrument
or any other Loan Document, including prepayment premiums, late charges,
default interest, and advances to protect the security of the Collateral.

 

(jj)           “Initial Advance”: 
shall have the meaning given in the Recitals of this Agreement.

 

(kk)         “Inspecting Architects/Engineers”:  shall mean architects and/or engineers
selected by Borrower and reasonably acceptable to Lender.

 

(ll)           “Junior Mezzanine Advance Amount” means the principal amount
outstanding under the Junior Mezzanine Loan Agreement.

 

(mm)       “Junior
Mezzanine Loan Agreement” means that certain Junior Mezzanine Loan
Agreement between Borrower and Lender dated of even date herewith.

 

(nn)         “Land”:  shall have the meaning given in the Recitals
of this Agreement; provided, however, that from and after the Transfer Date,
the Land shall be deemed to be comprised solely of the Residential Tract.

 

(oo)         “Leases”:  shall mean
all present and future leases, subleases, licenses, concessions or other
possessory interests now or hereafter in force, whether oral or written, covering
or affecting the Project, or any portion of the Project, and all modifications,
extensions or renewals.

 

(pp)         “Lender”:  means the
entity identified as “Lender” in the first paragraph of this Agreement and its
successors and assigns.

 

(qq)         “Loan”:  shall have the
meaning given in the Recitals of this Agreement.

 

(rr)           “Loan Documents”: 
shall mean the Note, this Loan Agreement, the Security Instrument, the
Guaranty, the Environmental Indemnity, and all other documents executed by
Borrower or Guarantors to evidence, secure or set out the terms of the Loan,
each as the same may hereafter be amended, modified and restated from time to
time.

 

(ss)         “Loan Commitment Fee”: 
means $631,296, which fee is payable as of the date of this Agreement.

 

(tt)           “Management Agreement”: shall mean the Management Agreement,
to be entered into between Mortgagor and Manager, upon the approval of Lender,
pursuant to which Manager will agree to manage the operations of the Project,
as the same may be amended from time to time, or any other management agreement
approved by Lender pursuant to Section 13(i) .

 

(uu)         “Manager”:  shall mean
a property management company approved by Lender pursuant to Section 13(i) hereof.

 

 

6

 

(vv)         “Maturity Date” shall have the meaning given in the Note.

 

(ww)       “Maximum
Aggregate Advance Amount” shall have the meaning given in the
Recitals of this Agreement.

 

(xx)          “Mortgagor”:  shall
have the meaning given in the Recitals of this Agreement.

 

(yy)         “Note”:  shall mean
that certain Senior Mezzanine Promissory Note, dated of even date herewith, in
the Maximum Aggregate Advance Amount, made payable by Borrower to the order of
Lender, evidencing all amounts outstanding under the Loan from time to time, as
the same may be amended from time to time.

 

(zz)          “Permits”:  shall mean
all licenses, permits, approvals, franchises, privileges, immunities, grants,
ordinances, classifications, certificates and registrations which are necessary
for Mortgagor to develop, construct and operate the Project.

 

(aaa)       “Permitted Exceptions”: 
shall mean (1) the title exceptions included in the Policy required
to be delivered to Lender pursuant to Section 7(a) hereof, as
the same may be endorsed from time to time with the consent of the Lender, (2) liens
and security interests securing the Loan, the Senior Loan and, prior to the
Transfer Date, the Commercial Tract Loan, (3) liens for taxes, assessments
or other governmental charges or levies that are not then due or that are being
contested in good faith and in accordance with applicable statutory procedures,
(4) mechanic’s liens against the Project which are bonded off, released of
record or otherwise remedied to Lender’s reasonable satisfaction within 30 days
of the date of creation, (5) Leases entered into on terms allowed by this
Agreement and (6) other matters approved in writing by Lender, which
includes any liens and security interests granted in connection with the Junior
Mezzanine Loan Agreement or the loan thereunder.

 

(bbb)      “Person”:  shall mean
any individual, corporation, partnership, limited liability company, joint
venture, estate, trust, or unincorporated association, any other entity, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of the
foregoing.

 

(ccc)       “Plans”:  shall mean
the plans and specifications identified in Exhibit C hereto.

 

(ddd)      “Policy”: shall have the meaning given in Section 7(a) hereof.

 

(eee)       “Principal”:  shall
mean SW 130 St. Rose Limited Partnership, a Delaware limited partnership, the
sole member of Borrower and the holder of all Equity Interests in Borrower, and
any person or entity who becomes 

 

 

7

 

the
owner of any Equity Interest in Borrower after the date of this Agreement and
is identified as such in an amendment or supplement to this Agreement.

 

(fff)         “Project”:  shall have
the meaning given in the Recitals of this Agreement.  The Project includes the Residential Tract.

 

(ggg)      “REA”:  shall have the
meaning given in Section 25 hereof.

 

(hhh)      “Residential Tract”: 
shall have the meaning given in the Recitals of this Agreement.

 

(iii)          “Sale”:  shall mean any
sale, assignment, transfer, conveyance or other disposition, whether voluntary
or involuntary, and whether or not consented to by Lender of (i) all or
any portion of, or interest in, the Land or the Project (other than the
conveyance of the Commercial Tract to the Commercial Tract Borrower), (ii) all
or any portion of the Equity Interests in Mortgagor, or (iii) all or any
portion of the Principal’s Equity Interests in Borrower.

 

(jjj)          “Security Instrument”: 
shall have the meaning given in the Recitals to this Agreement.

 

(kkk)       “Senior Deed of Trust”: 
shall mean that certain deed of trust securing the Senior Loan.

 

(lll)          “Senior Indemnity”: shall mean the
Environmental Indemnity Agreement between Mortgagor, Senior Lender and the
other parties thereto.

 

(mmm)    “Senior Loan”: shall have the meaning given in the Recitals
of this Agreement.

 

(nnn)      “Senior Loan Agreement”: 
shall mean the Construction Loan Agreement between Senior Lender and
Mortgagor evidencing the Senior Loan.

 

(ooo)      “Senior Loan Documents”: 
shall mean the Senior Note, the Senior Deed of Trust, the Senior Loan
Agreement, the Senior Indemnity Agreement, any guaranty provided by the
guarantors to the Senior Loan, financing statements filed in connection with
the Senior Loan, and all other documents executed by Mortgagor or Guarantor in
favor of Senior Lender to evidence or secure the Senior Loan or reasonably
related to the Senior Loan, including, but not limited to, budgets and draw
requests, as each may be amended, modified or restated with the consent of
Senior Lender.

 

(ppp)      “Senior Mezzanine Advance Amount” means the principal amount
outstanding on the Loan.

 

 

8

 

(qqq)      “Senior Note”:  shall
mean the promissory notes evidencing the Senior Loan and all schedules, riders,
allonges and addenda, as such promissory notes may be amended from time to time
with the consent of Senior Lender.

 

(rrr)         “Title Insurer”:  shall
mean Chicago Title Insurance Company.

 

(sss)       “Third Party Agreement”: 
shall mean any agreement other than Leases and the Permitted Exceptions
that will be binding on the Project, Mortgagor or Borrower after the closing of
the Loan.

 

(ttt)         “Transfer Date”:  shall
have the meaning given in the Recitals of this Agreement.

 

3.             THE LOAN;
DISBURSEMENT OF LOAN.

 

(a)           Loans.  On the basis of the covenants, agreements and
representations of Borrower contained herein and comparable provisions of the
Junior Mezzanine Loan Agreement and subject to the terms and conditions
hereinafter set forth and comparable provisions of the Junior Mezzanine Loan Agreement,
Lender shall lend to Borrower the Maximum Aggregate Advance Amount, the
proceeds of which are to be disbursed by Lender in accordance with the
provisions of Section 3(b) hereof and comparable provisions of
the Junior Mezzanine Loan Agreement.

 

(b)           Loan
Disbursements.  At the
execution of this Agreement, Lender has advanced the Initial Advance to the
Borrower.  All Additional Advances
against the Loan will be disbursed in accordance with Section 19
hereof.  Upon submission by Borrower of a
Draw Request, Lender shall (subject to satisfaction of the terms and conditions
of Section 19) advance to Borrower hereunder against the Loan the amount
requested by Borrower less the portion thereof simultaneously advanced pursuant
to the Junior Mezzanine Loan Agreement. 
In no event shall the aggregate principal amount outstanding hereunder
exceed the Maximum Aggregate Advance Amount less the Junior Mezzanine Advance
Amount as it stands at such time.

 

4.             INTEREST
PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY; REPAYMENT.

 

(a)           Interest.  Interest on the principal balance of the Loan
shall accrue and shall be payable in the amounts and at the times set forth in
the Note.  Borrower agrees to pay, on the
Maturity Date, the unpaid principal balance of the Loan, together with all
accrued but unpaid interest thereon.

 

(b)           No Usury.  The provisions of this Agreement, the Note,
the Security Instrument and of all other agreements between Borrower and
Lender, whether now existing or hereafter arising and whether written or oral, 

 

 

9

 

including,
but not limited to, the Loan Documents, are hereby expressly limited so that in
no contingency or event whatsoever, whether by reason of demand or acceleration
of the maturity of this Note or otherwise, shall the amount contracted for,
charged, taken, reserved, paid, or agreed to be paid to Lender for the use,
forbearance, retention or detention of the money loaned under the Note and
related indebtedness exceed the maximum amount permissible under applicable
law.  If, from any circumstance
whatsoever, performance or fulfillment of any provision hereof or of any
agreement between Borrower and Lender shall, at the time performance or fulfillment
of such provision shall be due, exceed the limit for interest prescribed by law
or otherwise transcend the limit of validity prescribed by applicable law, then
ipso facto the obligation to be performed or fulfilled shall be reduced to such
limit; and if, from any circumstance whatsoever, Lender shall ever receive
anything of value deemed interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive interest shall be applied to
the reduction of the principal balance owing under the Note in the inverse order
of its maturity (whether or not then due) or at the option of Lender be paid
over to Borrower, and not to the payment of interest.  All interest (including any amounts or
payments judicially or otherwise under the law deemed to be interest)
contracted for, charged, taken, reserved, paid or agreed to be paid to Lender
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of the Note, including any
extensions or renewals thereof, until payment in full of the Indebtedness so
that the interest on the Loan for such full period will not exceed at any time
the maximum amount permitted by applicable law. 
To the extent that Lender is relying on Chapter 303, as amended, of
the Texas Finance Code to determine the maximum amount of interest permitted by
applicable law on the principal of the Loan, Lender will utilize the weekly
rate ceiling from time to time in effect as provided in such Chapter 303,
as amended.  To the extent United States
federal law permits a greater amount of interest on the Loan than is permitted
under Texas law, Lender will rely on United States federal law instead of such
Chapter 303, as amended, for the purpose of determining the maximum amount
permitted by applicable law.  Additionally,
to the extent permitted by applicable law now or hereafter in effect, Lender
may, at its option and from time to time, implement any other method of
computing the maximum lawful rate under such Chapter 303, as amended, or
under other applicable law by giving notice, if required, to Borrower as
provided by applicable law now or hereafter in effect.  This Section 4(b) will
control all agreements between Borrower and Lender.

 

(c)           Loan Commitment
Fee.  Concurrently with the closing
of the Loan, and as a condition precedent thereto, Lender shall receive the
Loan Commitment Fee.  The Loan Commitment
Fee shall be deemed to have been earned in full by Lender, and is
non-refundable, upon the disbursement of the Initial Advance.

 

 

10

 

(d)           Prepayment.  All amounts due and owing under the Note from
time to time may only be prepaid in accordance with the terms of the Note
except at any time after 150 days after Completion.

 

(e)           Maturity Date.

 

(i)            The outstanding
principal balance of the Note and all accrued and unpaid interest thereon shall
become due and payable on the Maturity Date unless the same is otherwise
accelerated in accordance with the provisions hereof or the other Loan
Documents.

 

(ii)           Subject to the
provisions of Section 13(d) hereof, in the event that the
Senior Note is paid in full at any time prior to the Maturity Date of the Loan,
the Indebtedness shall then be immediately due and payable regardless of the
then stated Maturity Date of the Loan.

 

5.             SECURITY
FOR LOAN; GUARANTY.

 

(a)           Security
Instrument.  The Loan
shall be secured by, among other things, the Security Instrument.

 

(b)           Other Loan
Documents.  The Loan
shall be further secured and supported by the Environmental Indemnity and the
other Loan Documents.

 

(c)           Guaranty.  As additional security for the Loan, the
Guarantors shall execute and deliver to Lender the Guaranty.

 

6.             CONDITIONS
PRECEDENT TO CLOSING OF THE LOAN.  Prior to the funding of the Loan (unless
otherwise provided), all of the following conditions shall have been satisfied,
and/or Borrower, Guarantor or Mortgagor, as applicable, shall have furnished to
Lender the following, all in form and substance satisfactory to Lender in its
sole and absolute discretion:

 

(a)           Loan Documents.  Borrower, Guarantor and Mortgagor, as
applicable, shall have provided to Lender duly executed and, where appropriate,
notarized originals of the Loan Documents, each satisfactory to Lender in its
sole and absolute discretion, including the following:

 

(i)            this Agreement;

 

(ii)           the Note;

 

(iii)          the Security
Instrument, in recordable form in the State of Nevada;

 

(iv)          the Guaranty;

 

(v)           the
Environmental Indemnity;

 

 

11

 

(vi)          Certification
of Organizational Documents; and

 

(vii)         such other
agreements by Borrower as may be required by other provisions of this
Agreement.

 

(b)           Third Party
Agreements.

 

(i)            Copies.  Borrower shall have provided to Lender
executed copies, certified by Borrower as being true, correct and complete, of
the Senior Loan Documents and the other Third Party Agreements then in effect,
if any.

 

(ii)           Intercreditor
and Subordination Agreement.  Senior Lender shall have provided to Lender
an executed copy of that certain Intercreditor and Subordination Agreement by
and between Senior Lender and Lender dated of even date herewith.

 

(c)           Certification.  Borrower shall have provided to Lender a
certification by Borrower as of the date of this Agreement (which is the date
that the commitment of Lender to make the Loan to Borrower becomes binding on
Lender) of the Construction Budget and the reasonably estimated costs of the
improvements that would be capitalized by Mortgagor as real property for
federal income tax purposes consistent with past practices of the affiliates of
Mortgagor.

 

(d)           Financial
Statements.  Borrower
shall have provided to Lender with (i) respect to Borrower, Mortgagor, and
the Project, financial statements and other financial information (including
but not limited to the items listed on Exhibit J after Completion
of the Project and to the extent not already provided pursuant to Section 12
hereof), certified by Borrower and Mortgagor as being true, correct and
complete in all material respects, and in the form and containing the detail
and supporting information as required by Lender for the underwriting for the
Loan, and (ii) with respect to all Guarantors, the Estimated Collateral
Value Statement, dated as of June 30, 2008.

 

(e)           Insurance
Policies.  Borrower
shall have provided to Lender the original insurance policies, certified copies
thereof or certificates thereof, together with evidence of premium payments,
for the insurance as more fully provided in Section 8 hereof, which
should include Hazard and Public Liability and Worker’s Compensation Insurance.

 

(f)            Contracts.  Borrower shall have provided or will provide
to Lender copies of any contracts regarding the Project entered into by
Mortgagor with any contractors or engineers and, if requested by Lender, copies
of contracts, if any, with any subcontractors for the construction or
installation of the improvements made or to be made in connection with the
Project.

 

 

12

 

(g)           Title Insurance
Policy.  Lender shall have received,
reviewed and approved Mortgagee’s Policy of Title Insurance described in Section 7
hereof.

 

(h)           ALTA Survey.  Lender shall have received a current ALTA
survey of the Land (the “Survey”)
completed in accordance with Senior Lender’s requirements, satisfactory to Lender
and to the Title Insurer and certified to Senior Lender, Lender (and its
successors and assigns) and the Title Insurer.

 

(i)            Flood Plain
Certification.  To the
extent not provided on the Survey, Lender shall have received evidence that the
Land is not located within any flood plain or, if the Land is located within a
flood plain, Borrower has obtained and is maintaining in full force and effect
a policy or policies of flood insurance pursuant to Section 8
hereof.  Any such certifications shall
also be certified to Lender and its successors and assigns.

 

(j)            Appraisal.  Lender shall have received an appraisal of
the Project prepared by a licensed appraiser acceptable to Lender, in form and
substance required by Senior Lender, but also addressed to Lender and its
successors and assigns, in an amount equal to or greater than $80,900,000.

 

(k)           Environmental
Report.  Lender shall have received an
environmental report covering the Land, prepared by a professional acceptable
to Lender, in form and substance as required by Senior Lender, and also
certified to Lender and its successors and assigns.

 

(l)            Certification
of Organizational Documents.  Lender shall have received a written
certification attaching the required documents with respect to both Mortgagor
and Borrower, confirming (i) that true, complete and correct copies of the
organizational documents have been attached to the certification, (ii) that
no modifications of such documents exist which have not been provided to
Lender, and (iii) that the provisions of Section 23 hereof
have been incorporated into the organizational documents.

 

(m)          Legal Opinion.  Lender shall have received a written legal
opinion or legal opinions from Borrower’s counsel (which counsel must be
acceptable to Lender) in form acceptable to Lender and its counsel, opining as
to such matters as Lender may reasonably require, including an opinion
regarding:  (1) due organization and
valid existence, (2) authority, (3) enforceability of the Loan
Documents, and (4) no usury.

 

(n)           UCC Searches.  Lender shall have received full Uniform
Commercial Code searches, performed by a search company and in jurisdictions
satisfactory to Lender, with respect to Borrower and the Mortgagor disclosing
no matters objectionable to Lender.

 

 

13

 

(o)                                 Utilities.  Lender shall have received evidence that all
sewer, water, electrical, telephone and any other utility services necessary to
obtain a certificate of occupancy for the Project are available at the Land in
adequate supply for the use and operation of the Land and each provider of
utility services has a binding obligation to deliver the necessary services to
the completed residences.  This evidence
may include letters from the applicable utility providers.

 

(p)                                 Environmental
Disclosure.  In accordance
with all applicable laws, Borrower shall provide a true, correct and complete
copy of any disclosure document or other instrument required by any such law
relating to environmental matters.

 

(q)                                 No Default.  The representations and warranties of Borrower
contained in this Agreement shall be true, correct and complete in all material
respects, except the representations in Section 16(c) which
need be accurate only as of the effective date of such financial statements,
and no Event of Default, as defined below, or circumstance or event which upon
the lapse of time, the giving of notice or both, could become an Event of
Default shall have occurred.

 

Lender acknowledges, by its execution of this
Agreement, that all conditions listed in this Section 6 have been
satisfied to Lender’s satisfaction or waived by Lender, both as to the Initial
Advance under the Loan and any Additional Advance to be made in the future.

 

7.                                      TITLE
INSURANCE. 
Concurrently with the closing of the Loan, Borrower shall deliver or cause
to be delivered to Lender, a Mortgagee’s Policy of Title Insurance (“Policy”) naming Mortgagor as fee simple
owner of the Land issued by the Title Insurer, meeting the following
requirements: (i) with coverage amount not less than the Loan Amount; (ii) dated
as of a date not earlier than the date of Closing; and (iii) the legal
description insured under such policy shall include any easements benefiting
the Land.

 

8.                                      INSURANCE.

 

(a)                                  Insurance
Requirements.  Borrower shall obtain and keep in full
force and effect builder’s risk insurance (the “Builder’s
Risk Insurance Policy”) coverage or permanent Commercial Property
Causes of Loss — Special Form insurance coverage as appropriate,
reasonably satisfactory to Lender, on the Project.  All insurance policies shall be issued by
carriers with a Best’s Insurance Reports policy holder’s rating of A- or
better, and a financial size category of Class IX or larger.  The policies shall provide for the following,
and any other coverage that Lender may from time to time deem reasonably
necessary.

 

(i)                                     Lender’s
contact information in its capacity as mortgagee and/or additional insured, as
appropriate:

 

 

14

 

Behringer Harvard St. Rose REIT, LLC and its
affiliates, successors and/or assigns

15601 Dallas Parkway, Ste. 600

Addison, Texas 75001

Attn:                    Risk Management

 

(ii)           Commercial Property
Causes of Loss — Special Form and/or Builders Risk in the amount of 100%
of the replacement cost of all structures and personal property located or to
be located on the Project. Coverage shall include ordinance and law, increased
cost of construction, and demolition costs. If the policy is written on a
CO-INSURANCE basis, the policy MUST contain an AGREED AMOUNT ENDORSEMENT as
evidence that the coverage is in an amount sufficient to insure the full amount
of the mortgage indebtedness. Unless inconsistent with the requirements of the
Senior Lender or the Commercial Tract Lender, “Behringer Harvard St. Rose REIT,
LLC and its affiliates, successors and/or assigns” is to be named as the
“Mortgagee” and “Loss Payee” (without contribution).

 

(iii)          Commercial General
Liability coverage in a minimum amount of not less than $1,000,000.00 per
occurrence and $2,000,000.00 in the aggregate, together with excess liability
coverage in a minimum amount of not less than $15,000,000.00.  “Behringer Harvard St. Rose REIT, LLC and its
affiliates, successors and/or assigns” is to be named as “Additional Insured”.  Please note this coverage must be separately
issued and provided for both (i) Mortgagor, (ii) Borrower, and (iii) Mortgagor’s
general contractor.

 

(iv)          Rent Loss or
business interruption coverage in a minimum amount of not less that the
appraised rentals for a minimum of twelve (12) months.

 

(v)           Flood hazard
coverage in at least the minimum amount available, if the Project is located in
a special flood hazard area (“Flood Hazard
Area”) as designated by the Federal Emergency Management Agency on
its Flood Hazard Boundary Map and Flood Insurance Rate Maps, and the Department
of Housing and Urban Development, Federal Insurance Administration, Special
Flood Hazard Area Maps.  Unless
inconsistent with the requirements of the Senior Lender or the Commercial Tract
Lender, “Behringer Harvard St. Rose REIT, LLC and its affiliates, successors
and/or assigns” is to be named as the “Mortgagee” and “Loss Payee” (without
contribution).

 

 

15

 

(vi)          Earthquake coverage
in the amounts/deductibles and in the form and substance reasonably
satisfactory to the Lender in the event the Project is located in an area with
a high degree of seismic activity.

 

(vii)         Workers Compensation
insurance as required by law.

 

(viii)        Such other types and
amounts of insurance with respect to the premises and the operation thereof
which are commonly maintained in the case of the other property and buildings
similar to the Project in nature, use, location, height, and type of
construction, as may from time to time be reasonably required by Lender in its
capacity as mortgage.

 

(ix)           Each policy shall
provide that it may not be canceled, reduced or terminated without at least
thirty (30) days prior written notice to the Lender.

 

(x)            Proof of insurance
required under (ii), (iv), (v), (vi) shall be evidenced on Accord Form 28
Evidence of Commercial Property Insurance. 
Proof of insurance required under (iii) and (vii) shall be
evidenced on Accord Form 25 Certificate of Liability Insurance.

 

(xi)           The evidence of
insurance must identify the Borrower as an Insured/Additional Insured.

 

(xii)          The Project
location must be referenced on the evidence of insurance.

 

(b)           Initial Policies;
Renewals.  The initial policies shall
be prepaid and delivered to the Lender prior to closing, and all renewal
policies shall be provided to Lender as evidence of such insurance.  Certificates as referenced in Section 8(a)(x) may
be substituted for actual policies.

 

(c)           Notices.  Borrower shall cause a copy of the
certificate(s) to be sent to Jill Buffington via — e-mail jbuffington@bhfunds.com
or facsimile (214) 655-1610 [Phone: (469) 341-2420], with the original being
mailed to the Lender as shown above in Section 8(a)(i).

 

(d)           Notice of
Casualty.  Borrower shall give to
Lender immediate notice of any material loss occurring on or with respect to
the Project.

 

(e)           Settlement of
Claim.  In case of loss covered by
any of such policies, Lender is authorized to adjust, collect and compromise,
in its discretion, all claims thereunder if an Event of Default has occurred
and is continuing at the time, subject to the rights of the Senior Lender and,
prior to the Transfer Date, the Commercial Tract Lender.  In the event of any adjustment, collection
and compromise by Lender, Borrower covenants to sign upon demand, or Lender may
sign or endorse on Borrower’s behalf, 

 

 

16

 

all
necessary proofs of loss, receipts, releases and other papers required by the
insurance companies to be signed by Borrower. 
Borrower hereby irrevocably appoints Lender as its attorney-in-fact for
the purposes set forth in the preceding sentence, subject to the rights of the
Senior Lender and, prior to the Transfer Date, the Commercial Tract
Lender.  Subject to the rights of the
Senior Lender and, prior to the Transfer Date, the Commercial Tract Lender,
Lender may deduct from such insurance proceeds any reasonable expenses incurred
by Lender in the collection and settlement thereof, including attorneys’ and
adjustors’ fees and charges.  Nothing
contained in this Agreement shall create any responsibility or obligation of
the Lender to collect any amounts owing on any insurance policy, to rebuild or
replace the damaged or destroyed portions of the Project or to perform any
other related act.  The Lender shall not,
by the fact of approving, disapproving, accepting, preventing, obtaining or
failing to obtain any insurance, incur any liability for or with respect to the
amount of insurance carried, the form or legal sufficiency of insurance
contracts, solvency of insurance companies, or payment or defense of lawsuits,
and Borrower hereby expressly assumes full responsibility therefor and all
liability, if any, with respect thereto.

 

(f)                                    Application of
Insurance Proceeds.  Any
insurance proceeds received by Mortgagor or Borrower under any of such casualty
policies shall, subject to the rights of the Senior Lender and, prior to the
Transfer Date, the Commercial Tract Lender, be applied, at the option of the
Lender, toward pre-payment or reimbursement of the Loan and any other amounts
evidenced or secured by the Loan Documents, or to the rebuilding or repairing
of the Project so damaged or destroyed, as the Lender in its sole and
unreviewable discretion may elect; provided, however, that Lender will allow
insurance proceeds to be used for restoration of the Project if (i) the
conditions for Borrower’s use of insurance contained in the Senior Loan
Documents are satisfied (substituting Lender for Senior Lender thereunder in
making related decisions) or (ii) so directed by the Senior Lender or, prior
to the Transfer Date, the Commercial Tract Lender.  Lender’s election to apply such insurance
proceeds to the Loan and other amounts evidenced or secured by the Loan
Documents shall not relieve Borrower of the duty to rebuild or repair.

 

9.                                      EMINENT
DOMAIN.

 

(a)                                  Notice of
Condemnation.  Borrower
shall give to Lender immediate notice of any taking by condemnation of any
portion of the Project or the institution of any proceedings the effect of
which is to achieve a taking of any portion of the Project by condemnation.

 

(b)                                 Settlement of
Claim.  In case the Project, or any
part or interest in any thereof, is taken by condemnation, then subject to the
rights of the Senior Lender or, prior to the Transfer Date, the Commercial
Tract Lender, the 

 

 

17

 

Lender
is hereby empowered to collect and receive all compensation and awards of any
kind whatsoever (referred to collectively herein as “Condemnation Awards”) which may be paid for any property taken
or for damages to any property not taken (all of which Borrower hereby assigns
to the Lender, subject to the rights of the Senior Lender and, prior to the
Transfer Date, the Commercial Tract Lender in the same).  Borrower covenants to sign upon demand, or
Lender may sign or endorse on Borrower’s behalf, all necessary proofs of loss,
receipts, releases and other papers required by the condemning authority to be
signed by Borrower for such purpose. 
Borrower hereby irrevocably appoints Lender as its attorney-in-fact for
the purposes set forth in this Section 9.  Lender may deduct from any Condemnation
Awards, any expenses reasonably incurred by Lender in the collection and
settlement thereof, including reasonable attorneys’ and adjusters’ fees and
charges.

 

(c)                                  Application of
Condemnation Awards.  All
Condemnation Awards so received shall, subject to the rights of the Senior
Lender or, prior to the Transfer Date, the Commercial Tract Lender, be
forthwith applied by the Lender, as it may elect in its sole and unreviewable
discretion, to the payment or reimbursement of the Loan or the other amounts
evidenced or secured by the Loan Documents, or to the repair and restoration of
any property not so taken or damaged; provided, however, that Lender will allow
Condemnation Awards to be used for restoration of the Project if (i) the
conditions for Borrower’s use of Condemnation Awards contained in the Senior
Loan Documents are satisfied (substituting Lender for Senior Lender thereunder
in making related decisions) or (ii) so directed by the Senior Lender or,
prior to the Transfer Date, the Commercial Tract Lender.

 

(d)                                 Continuing
Obligation to Repair.  No election
made by the Lender under this Section 9 shall relieve Borrower of
the duty to repair and restore.

 

(e)                                  Lender Not
Required to Act.  Nothing
contained in this Agreement shall create a responsibility or obligation of
Lender to collect any amounts owing on account of any such condemnation or
proceedings relating to the Project, to rebuild or replace any damaged or
destroyed property or to perform any other related act.

 

10.                               RIGHTS
OF ACCESS AND INSPECTION. 
Borrower shall cause Mortgagor to permit agents, representatives and
employees of Lender to inspect the Land and the installation of the Project or
any part thereof during reasonable business hours upon reasonable advance
notice.  Without limiting the foregoing,
Lender shall also be permitted access to the Project in order to examine, copy
and audit Mortgagor’s books and records (including as part of any audit
performed pursuant to Section 12(f) hereof) and any plans,
drawings, contracts, books or records relating to the Project.  Borrower shall, to the extent within its
control, cause any contractors or subcontractors to cooperate with Lender or
its agents in connection with any inspection. 
Lender is under no duty to visit or observe the Project or to examine
any books or 

 

 

18

 

records.  Any
site visit, observation or examination by Lender shall be solely for the
purpose of protecting Lender’s security and preserving Lender’s rights under
the Loan Documents.  Neither Borrower,
Mortgagor nor any other party is entitled to rely on any site visit,
observation or testing by Lender or its agents or representatives.  Lender owes no duty of care to protect
Borrower, Mortgagor or any other party against, or to inform Borrower or any
other party of, any adverse condition affecting the Project, including any
defects in the design or construction of any improvements on the Land or the
presence of any Hazardous Materials on the Land.  So long as no Event of Default has occurred
and is continuing, Lender shall give Borrower and Mortgagor reasonable prior
notice of its intent to enter the Project.

 

11.                               EXPENSES.  Borrower shall pay, as and when due, all
reasonable costs and expenses incurred in the procuring and making of the Loan
by Lender, including without limitation, to the extent reasonable, Title
Insurer’s fees and premiums, charges for examination of title to the Land,
expenses of surveys, transfer taxes and recording expenses, appraisal and
appraisal review fees, fees of an inspector and fees and expenses of any
attorneys, accountants, engineers, architects, surveyors, contractors,
inspectors or other consultants, professionals or independent contractors
employed, retained or utilized by Lender in connection with the Loan.  Borrower shall cause Mortgagor to pay when
due any and all insurance premiums, taxes, assessments, water, sewer and other
utility charges, impact fees, liens and encumbrances on the Project and any
other amounts payable for the cost of improvements to the Land, provided that
Borrower and/or Mortgagor may in good faith contest any such liens, claims or
amounts so long as it provides, for any filed lien, a bond in accordance with
statutory requirements or other security reasonably satisfactory to
Lender.  Borrower shall pay upon demand
or reimburse Lender for any and all reasonable fees, costs and expenses
incurred by Lender in collecting the Indebtedness after an Event of Default
including reasonable attorneys’ fees. 
All such amounts shall be paid to Lender or at Lender’s direction to
such other person to whom payments are due or Lender may, at its option, pay
such amounts and all sums paid shall be deemed a portion of the Indebtedness
and shall bear interest at the Default Interest Rate.

 

12.                               FINANCIAL
REPORTS, PROPERTY REPORTS AND ANNUAL BUDGET.  The parent company of Lender is a real estate
fund that issues securities, maintains U.S. GAAP audited financial statements
and/or is publicly registered with the United States Securities and Exchange
Commission (“SEC”).  As a result, such parent company is subject
to GAAP financial statement requirements and other reporting requirements.
These requirements include but are not limited to quarterly and annual
financial reporting (including for public companies on Form 10-Q and Form 10-K
and reporting under Rule 3-14 of Regulation S-X, which requires the filing
of pro forma financial statements of acquired properties).  In addition, certain accounting requirements
may dictate that Lender report Borrower, Mortgagor and/or the Project as a
subsidiary of Lender.  Therefore,
Borrower agrees to provide Lender with all information that Borrower or its Affiliates
have in their possession and Borrower will use all commercially reasonable
efforts to obtain such information not in its possession as Lender reasonably
requires in order to prepare, audit and/or review financial statements of the
Project, Mortgagor and Borrower for the applicable reporting periods.

 

(a)           Borrower agrees that
all accounting for the Project will be conducted by Borrower and/or the
Mortgagor and also by Lender.  Borrower
agrees to provide Lender with copies of all Accounting Records (other than
leases, 

 

 

19

 

which
Borrower and/or the Mortgagor may make available at the Project rather than
copying) on a monthly basis in order to enable Lender to prepare and maintain
financial statements on Borrower, Mortgagor and/or the Project in accordance
with accounting principles generally accepted in the United States of America.

 

(b)           Borrower agrees to
provide Accounting Records by the 10th of the month for the preceding month.

 

(c)           Borrower agrees to
allow Lender and Lender’s external independent accountants access to original
Accounting Records if needed in the process of their quarterly reviews and
various audit processes.

 

(d)           Borrower agrees to
cooperate with any inquiries or interviews by Lender or its external
independent accountants as may be necessary in relation to Lender’s or its
Affiliates’ compliance with the Sarbanes-Oxley Act of 2002.

 

(e)           In addition,
Borrower shall furnish to Lender:

 

(i)            within 30 days
after the end of each fiscal year of Mortgagor, and at any other time upon
Lender’s request, a statement that identifies all owners of any interest in
Mortgagor and the interest held by each, if Mortgagor is a corporation, all
officers and directors of Mortgagor, and if Mortgagor is a limited liability
company, all members and managers (whether members or not);

 

(ii)           within 10 days
after the end of each month, a monthly property management report for the
Project, showing the number of inquiries made and rental applications received
from tenants or prospective tenants, deposits received from tenants and any
other information reasonably requested by Lender;

 

(iii)          within 10 days
following the end of each month, a monthly statement of income and expense for
the Project; and

 

(iv)          beginning sixty (60)
days prior to the first occupancy of the Project and for each succeeding
calendar year, not later than ninety (90) days prior to the commencement of
such calendar year, an annual budget which sets forth, in sufficient detail,
Borrower’s projection of gross receipts and expenses for such period (the “Annual Budget”).  Each Annual Budget shall be for a calendar
year except that the Annual Budgets for the year of first occupancy of the
Project shall only cover the remainder of the then-current year.

 

(f)            If Borrower fails
to provide in a timely manner the Accounting Records, statements, schedules and
reports required by this Section 12, Lender shall have the right to
have Mortgagor’s and Borrower’s books and records 

 

 

20

 

audited
or to perform any other procedure reasonably requested by Lender, at Borrower’s
expense, by independent certified public accountants selected by Lender in
order to obtain such statements, schedules and reports, and all related costs
and expenses of Lender shall become immediately due and payable and shall
become an additional part of the Indebtedness as provided in Section 21.

 

(g)           If Lender acquires
the Project through foreclosure, Borrower shall deliver, or cause to be
delivered, to Lender upon written demand all books and records relating to the
Project or its operation. Otherwise, during the term of the Loan, to the extent
that copies of such books and records have not been provided pursuant to the
provisions of this Section 12 set forth above, Borrower will
provide Lender with all cost records necessary for Lender to perform its
accounting procedures including, but not limited to, balance sheets, income
statements, trial balance activity reports, general ledger detail reports, cash
receipts journal, check register or cash disbursements journal and copies of
checks and vendor invoices for all invoices paid.   Borrower agrees
to make available to Lender for examination and copying any other books and
records upon Lender’s written demand.

 

(h)           Borrower authorizes
Lender to obtain one (1) credit report per calendar year; provided,
however, that Lender may obtain a credit report on Borrower, Mortgagor and
Guarantors at any time, even if a credit report has been obtained in the same
calendar year, if an Event of Default has occurred.

 

13.                               GENERAL
COVENANTS OF BORROWER. 
Until the full and final payment of the Loan, unless Lender waives
compliance in writing, Borrower hereby covenants and agrees as follows:

 

(a)           Commencement and
Completion of Project.  Borrower
shall or shall cause Mortgagor to prosecute the construction and installation
with diligence so that the construction and Completion of the Project (other
than payment of claims that are being contested in accordance with the Loan
Documents) shall have occurred by the completion deadline set forth in the
Senior Loan Documents.

 

(b)           Lender Approval.  No changes to the Construction Budget or the
completion date required by the Senior Loan Documents shall be permitted
without Lender’s written consent, with the exception of (i) completion
date extensions due to force majeure and (ii) reallocation of amounts
among the line items of the Construction Budget; provided that Borrower shall
provide Lender with notice of any changes in connection with (i) and (ii) above
or any change orders modifying the Plans as provided below.  Lender shall have the right to approve all
contractors (except General Contractor) and all construction contracts between 

 

 

21

 

Mortgagor
and such contractors, with the exception of construction contracts that do not
exceed $100,000.00.  No changes to the
Plans shall be permitted without Lender’s written consent, with the exception
of (i) changes required by governmental authorities or Senior Lender and (ii) other
changes that, individually, do not increase or decrease Project costs by more
than $100,000 and, in the aggregate, do not increase or decrease Project costs
by more than $300,000.  Lender shall have
ten (10) business days to provide any approval required under this Section 13(b) but
if Lender does not provide written notice that it does not approve within the
ten (10) business days, then the action shall be deemed approved.

 

(c)           Operation and
Maintenance of Project.  In addition
to the terms, conditions and provisions set forth in the other Loan Documents:

 

(i)            Payment of
Lawful Claims.  Borrower shall pay or
discharge all lawful claims, including taxes, assessments and governmental
charges or levies imposed upon Borrower or its income or profits or upon any
property belonging to Borrower prior to the date upon which penalties attach
thereto; provided that Borrower may in good faith contest any such taxes,
assessments, charges or levies so long as it provides, for any filed lien, a
bond in accordance with statutory requirements or other security reasonably
satisfactory to Lender.  Without limiting
the generality of the foregoing, Borrower shall, or shall cause Mortgagor to,
pay (a) all taxes and recording expenses, including stamp taxes, if any,
relating to all documents and instruments securing the Loan, (b) the fees
and commissions (if any) lawfully due to brokers engaged by Borrower or its
Affiliates in connection with this transaction (and Borrower shall hold Lender
harmless from all such claims, whether or not lawfully due), and (c) the
fees and expenses of Lender’s counsel relating to Lender’s consultation with
such counsel in connection with the negotiation, documentation and closing of
the Loan and any subsequent modifications of the Loan.

 

(ii)           No Amendments.  Borrower shall not, nor shall it permit
Mortgagor to, without Lender’s prior written consent, enter into any amendments
or modifications of (a) if Borrower or Mortgagor is a corporation,
Borrower’s and Mortgagor’s by-laws and articles of incorporation, (b) if
Borrower or Mortgagor is a limited liability company, such entity’s operating
agreement or articles of organization, (c) if Borrower or Mortgagor is a
limited partnership, such entity’s partnership agreement or partnership
certificate, (d) the construction contract between Mortgagor and General
Contractor except for change orders (i) implementing changes required by
governmental authorities or Senior Lender and (ii) other changes that,
individually, do not increase or decrease Project costs by more than $100,000
and, in the aggregate, do not 

 

 

22

 

increase
or decrease Project costs by more than $300,000, (e) the Management
Agreement, or (f) the Senior Loan Documents.

 

(iii)          Maintenance and
Repair of Project.  After completion
of the Project, Borrower shall cause Mortgagor to (a) maintain the
Project, including the parking and landscaping portions thereof, in good
condition and repair, (b) promptly make all necessary structural and
non-structural repairs to the Project, (c) not demolish, alter, remove or
add to any improvements on the Land, excepting (i) the repair and
restoration of improvements following damage thereto as required by this
Agreement, and (ii) as otherwise required by any applicable law, rule or
regulations, and (d) not erect any new buildings, structures or building
additions on the Land, without the prior written consent of Lender.  Borrower shall pay when due all claims for
labor performed and materials furnished therefor in connection with any
improvements or construction activities on the Land; provided that Borrower may
in good faith contest any liens, claims or amounts so long as it provides, for
any filed lien, a bond in accordance with statutory requirements or other
security reasonably satisfactory to Lender.

 

(d)           Restricted Sale
and Encumbrance of Project and of Borrower Interests; Other Indebtedness.  Borrower shall not engage in any Sale or
Encumbrance without the prior written consent of Lender (which may be withheld
by Lender in Lender’s sole and absolute discretion).  Borrower will not issue any additional Equity
Interests in Borrower, except to Lender or Lender’s designee.  In addition, Borrower shall not permit
Mortgagor to issue any additional Equity Interests in Mortgagor.  In addition, Borrower shall not, nor shall it
permit Mortgagor to, incur any indebtedness, whether secured or unsecured,
other than (i) the Senior Loan and this Loan, (ii) obligations under
interest rate hedging arrangements related to the Senior Loan and (iii) trade
and operational indebtedness incurred in the ordinary course of business
(including construction and operation of the Project) or for its administrative
functions.  Notwithstanding the
foregoing, Lender’s consent shall not be required for:

 

(i)            the grant of a
leasehold interest in an individual dwelling unit for a term of two years or
less not containing an option to purchase and otherwise in compliance with Section 13(f) hereof;

 

(ii)           a Sale of obsolete,
worn out or damaged property or fixtures that is contemporaneously replaced by
items of equal or better function and quality, which are free of liens,
encumbrances and security interests other than Permitted Exceptions, those
created by the Loan Documents, the Senior Loan Documents or the Commercial Deed
of Trust or those otherwise consented to by Lender;

 

 

23

 

(iii)          a Sale that results
from theft, condemnation or other involuntary conversion;

 

(iv)          the Sale (including
through consumption) of personal property in the ordinary course of business
that is contemporaneously replaced by items of equal or better function and
quality;

 

(v)           the grant of an
easement if, before the grant, Lender determines (which determination must be
made reasonably) that the easement will not materially affect the operation or
value of the Project and Borrower pays to Lender, upon demand, all reasonable
costs and expenses incurred by Lender in connection with reviewing Borrower’s
request (it being understood that Lender has approved the REA);

 

(vi)          the creation of (1) a
lien for taxes, assessments or other governmental charges or levies that are
not then due or that are being contested in good faith and in accordance with
applicable statutory procedures or (2) a mechanic’s lien against the
Project which is bonded off, released of record or otherwise remedied to Lender’s
reasonable satisfaction within 30 days of the date of creation; and

 

(vii)         transfer of the
Commercial Tract to the Commercial Tract Borrower on or after the Transfer
Date.

 

Nothing in this Section 13(d) prohibits
Mortgagor from providing the Commercial Deed of Trust.

 

(e)           General Indemnity.  Borrower shall, at Borrower’s expense,
protect, defend, indemnify, save and hold Lender and each of its members and
its respective members, stockholders, directors, officers, employees and agents
(collectively the “Indemnified Parties”)
harmless against any and all claims, demands, losses, expenses (including court
costs and reasonable attorney’s fees and expenses), damages and causes of
action (whether legal or equitable in nature) asserted by any person or entity
arising out of, caused by or relating to the Project and the Lender’s exercise
of its rights under the Loan Documents upon an Event of Default, except to the
extent the same arises out of, is caused by or results from the gross
negligence or willful misconduct of an Indemnified Party.  Borrower shall pay to Lender upon demand all
claims, judgments, damages, losses and expenses (including court costs and
reasonable attorneys’ fees and expenses) incurred by Lender as a result of any
legal or other action arising out of the aforesaid matters.  Borrower acknowledges that the Indemnified
Parties may defend any matter covered by the above indemnification by counsel of
the relevant Indemnified Party’s choice, and the costs of such defense
(including reasonable attorney’s fees) are part of 

 

 

24

 

the
costs covered by the indemnity.  The
foregoing indemnification shall survive repayment of the Loan.

 

(f)            Leases.

 

(i)            Residential
Lease Requirements.  Mortgagor shall
have the right, and Borrower may permit Mortgagor to, enter into residential
Leases without Lender’s prior written consent, so long as all Leases for
residential dwelling units (A) are on forms approved by Lender, (B) shall
not include options to purchase, and (C) shall be for initial terms of at
least six months and not more than two years (with the exception of Leases for
up to 3% of the units in the Project, which may have terms of less than six
months).

 

(ii)           Commercial Lease
Requirements.  Mortgagor shall not,
nor shall Borrower permit Mortgagor to, enter into any non-residential Leases
without Lender’s prior written consent in each instance.  Mortgagor shall not, nor shall Borrower
permit Mortgagor to, modify the terms of, or extend or terminate, any Lease for
non-residential use (including any Lease in existence on the date of this
Agreement) without the prior written consent of Lender.  Borrower shall, without request by Lender,
deliver a copy of each executed non-residential Lease to Lender promptly after
such Lease is signed.

 

(iii)          Advance Rent.  Mortgagor shall not, nor shall Borrower
permit Mortgagor to, receive or accept rent under any Lease (whether residential
or non-residential) for more than two months in advance.

 

(iv)          Performance of
Obligations.  Borrower shall cause
Mortgagor to pay, perform and discharge, as and when payment, performance and
discharge are due, all obligations of Mortgagor as landlord under all Leases.

 

(v)           Security Interest.  Except for the assignment to Lender or Senior
Lender or, prior to the Transfer Date, the Commercial Tract Lender, Borrower
shall not permit Mortgagor to further assign, pledge, transfer or otherwise
encumber the Leases or the rents under the Leases.

 

(vi)          Defense; Pursuit
of Remedies.  Borrower shall or shall
cause Mortgagor to, at its sole cost and expense, appear in and defend any
action or proceeding arising from or connected with any of the Leases or any obligation
or liability of Mortgagor as landlord thereunder.  Borrower shall, or shall cause Mortgagor to,
use commercially reasonable efforts to pursue all remedies, including 

 

 

25

 

claims
for damages available at law or in equity, against any tenant under a Lease who
defaults in the performance of its obligations under the Lease.

 

(g)           Notices.  Borrower shall promptly notify Lender in
writing of any litigation affecting (a) Borrower, Mortgagor and any
general partner, managing member or controlling shareholder of Borrower or
Mortgagor (excluding a general partner, managing member or controlling
shareholder which is a natural person or trust), or (b) the Project, to
the extent the same may result in a material adverse change in (i) the
financial condition of any of the foregoing parties, (ii) Borrower’s
ability to timely perform any of its obligations under any of the Loan
Documents or Mortgagor’s ability to timely perform any of its obligations under
any of the Senior Loan Documents or (iii) the physical condition or
operation of the Project.

 

(h)           Development.  If after the date of this Agreement, Borrower
or Mortgagor intends to engage a developer of the Project, Lender shall have
the right to approve such new developer and the written development agreement
for the Project.

 

(i)            Management.  The Project shall be managed at all times by
Manager (or another professional residential rental property manager
satisfactory to Lender under a contract approved by Lender).  At the time such property management
agreement is executed, at the request of Lender, Mortgagor and the Manager
shall enter into a Subordination of Management Agreement in the form attached
as Exhibit K or another form reasonably acceptable to Lender.  Lender hereby accepts the Manager as the
initial property manager.  If Borrower or
Mortgagor intends to change the management of the Project, Lender shall have
the right to approve such new property manager and the written contract for the
management of the Project and require that Mortgagor and such new property
manager enter into a Subordination of Management Agreement on the form attached
as Exhibit K or on another form reasonably acceptable to Lender.

 

(j)            Senior Loan.  Borrower shall, or shall cause Mortgagor to,
fully and timely pay all amounts owing under the Senior Loan Documents and
timely and fully perform all of Mortgagor’s covenants and agreements contained
therein.  Borrower shall provide Lender
with copies of all notices (except routine notices which would not include any
notice related to any failure to comply with any terms of the Senior Loan
Documents or regarding any event of default under the Senior Loan Documents)
given or received by Mortgagor under or pursuant to the Senior Loan Documents,
promptly upon delivery or receipt as the case may be.  Without limiting the Lender’s right to
declare an Event of Default on account of a failure to comply with the terms
and provisions of the Senior Loan Documents, if Borrower or Mortgagor fail to
so pay or perform such obligations, and if such failure either (i) becomes
an Event of Default hereunder or (ii) prior 

 

 

26

 

to
becoming an Event of Default continues for twenty (20) days after Lender gives
written notice to Borrower to cure, the Lender may pay or perform the same
pursuant to Section 18(b) hereof.  Notwithstanding the foregoing, (i) Lender
shall have no obligation whatsoever to pay any of the amounts evidenced or
secured by, or to perform any of the covenants or obligations imposed by, any
Senior Loan Documents, and (ii) any such payment by Lender shall not cure
Mortgagor’s default hereunder or under the Senior Loan Documents but shall only
protect Lender’s interest in the Project. 
Borrower shall not, nor shall it permit Mortgagor to, amend or modify
any of the Senior Loan Documents without the prior written consent of Lender.

 

(k)           Principal Place
of Business; Choice of Law.  Borrower
shall not change its principal place of business or, if Borrower has more than
one place of business, its chief executive office, from its address set forth
in the first paragraph of this Agreement. 
In addition, Borrower shall not make an election under the Uniform
Commercial Code to treat, as the governing law for perfection of uncertificated
securities, the law of any jurisdiction other than the jurisdiction of its
formation.  Lender agrees not to
unreasonably withhold its consent to any change in Borrower’s principal place
of business or the governing law with respect to uncertificated securities so
long as (1) Borrower and any other party reasonably requested by Lender
executes all documents and instruments reasonably deemed necessary by Lender to
perfect the security interests granted pursuant to the Loan Documents, (2) Borrower
pays all of the Lender’s reasonable costs and expenses of perfecting such
security interests and (3) if requested by Lender, Borrower delivers to
Lender an opinion from counsel reasonably satisfactory to Lender opining as to
the continued perfection of such security interest.

 

(l)            Compliance with
Governmental Prohibitions.  No
portion of the Loan proceeds will be used, disbursed or distributed by Borrower
for any purpose, or to any person, in violation of any Law (as defined in Section 16
(i)) including, without limitation, any of the Terrorism Laws (as defined
in Section 16 (i)).  Borrower
shall provide Lender with immediate written notice (a) of any failure of
any of the representations and warranties set forth in Section 16(i) of
this Agreement to be true, correct and complete in all material respects at any
time, or (b) if Borrower obtains knowledge that Borrower or any holder at
any time of any direct or indirect equitable, legal or beneficial interest in
Borrower (other than Lender or an affiliate or designee of Lender) is the
subject of any of the Terrorism Laws. 
Borrower shall immediately and diligently take, or cause to be
immediately and diligently taken, all necessary action to comply with all
Terrorism Laws and to cause the representations and warranties set forth in Section 16(i) to
be true, correct and complete in all material respects.

 

 

27

 

 

14.                               FURTHER
ASSURANCES.  Borrower
shall, from time to time, upon Lender’s request, at Borrower’s sole cost and
expense, execute, deliver, record and furnish such documents and do such other
acts as Lender may reasonably deem necessary or desirable to (i) perfect
and maintain valid liens upon the security contemplated by the Loan Documents, (ii) correct
any errors of a typographical or other manifest nature which may be contained
in any of the Loan Documents, (iii) evidence Borrower’s compliance with
the Loan Documents, and (iv) consummate fully and carry out the intent of
the transactions contemplated under this Agreement or the Loan Documents.

 

15.                               APPRAISALS.  Lender has the right to obtain a new
appraisal or update an existing appraisal of the Project at any time while the
Loan or any portion thereof remains outstanding (a) when, in Lender’s
reasonable judgment, such an appraisal is warranted as a result of Lender’s
internal evaluation of the Loan, and/or (b) to comply with statutes,
rules, regulations or directives of governmental agencies having jurisdiction
over Lender.  Borrower shall pay, upon
demand, all reasonable appraisers’ fees and related expenses incurred by Lender
from time to time in obtaining such appraisal reports; provided, however, that
Borrower shall not be required to pay for a re-appraisal more than once every
three years unless an Event of Default has occurred and is continuing.

 

16.                               GENERAL
REPRESENTATIONS AND WARRANTIES OF BORROWER.  Borrower represents and warrants to Lender,
which representations and warranties shall survive the termination of this
Agreement, the repayment of the Loan, any investigations, inspections or
inquiries made by Lender or any of Lender’s representatives, and any
disbursements made by Lender hereunder, as follows:

 

(a)                                  Organization;
Corporate Powers; Authorization of Borrowing.

 

(i)                                     Organization.  Borrower’s ownership structure set forth on Exhibit F
attached hereto is a true and correct depiction of the Equity Interests in
Borrower and Mortgagor, and each entity set forth on Exhibit F is
duly organized and is validly existing and in good standing under the laws of
the state of its organization, and Mortgagor is qualified to do business in the
jurisdiction where the Land is located.

 

(ii)                                  Power and
Authority.  Borrower
has the full limited liability company power and authority to execute the Loan
Documents and to undertake and consummate the transactions contemplated hereby
and thereby, and to pay, perform and observe the conditions, covenants,
agreements and obligations herein and therein contained; and the Loan Documents
have been duly and validly executed by Borrower and constitute the legal, valid
and binding obligations of Borrower and are enforceable against Borrower in
accordance with their respective terms, except as such enforcement may be
qualified or limited by bankruptcy, insolvency or other similar laws affecting
creditors’ rights generally and general principles of equity.

 

 

28

 

(iii)                               Not a Foreign
Person.  Neither Borrower, nor any
entity that is a holder of an Equity Interest in Borrower, is organized under
the laws of any jurisdiction other than the United States or one of the states
thereof.

 

(iv)                              No Defaults
Under Existing Agreements.  The
consummation of the transactions contemplated hereby and the performance by
Borrower of its obligations under the Loan Documents will not result in any
breach of, or constitute a default under, the Senior Loan Documents, any other
material Third Party Agreements or any mortgage, deed of trust, bank loan or
security agreement, or other material instrument to which Borrower or Mortgagor
are a party or by which the Land or Borrower or Mortgagor are bound.

 

(v)                                 True and
Correct Copies of Documents.  All due diligence documents required to be
delivered by Borrower to Lender hereunder (including those due diligence
documents referred to in Section 6 hereof) are true, correct and
complete copies thereof and the same have not been amended or modified except
as expressly disclosed therein.

 

(vi)                              Outstanding
Debt to Lender.  During the
term of the Loan, Borrower will not borrow funds from Lender or an Affiliate of
Lender other than the Loan and the loan made pursuant to the Junior Mezzanine
Loan Agreement and as contemplated by the partnership agreement of Principal.

 

(b)                                 Title to
Property; Matters Affecting Property.

 

(i)                                     Title to
Property.  Mortgagor
has good and marketable fee simple title to the Land, subject only to the
Senior Loan Documents, the Loan Documents and the Permitted Exceptions, and
good, marketable and freely alienable title to all personal property located on
the Land, subject only to the Senior Loan Documents, the Loan Documents and the
Permitted Exceptions; Borrower will cause Mortgagor to protect or cause to be
protected the title to the Project, and Borrower will forever warrant and
defend the same against any other claims of any persons or parties whomsoever,
subject to the Senior Loan Documents, the Loan Documents and the Permitted
Exceptions.

 

(ii)                                  Mortgagor’s
Equity Interests.  Borrower
owns and will own one hundred percent (100%) of the Equity Interests in
Mortgagor, and Borrower has not transferred, conveyed, pledged or encumbered
(and will not transfer, convey, pledge or encumber) such interests except to
Lender.

 

 

29

 

(iii)                               No Actions.  There are no actions, suits or proceedings at
law or in equity (including condemnation or eminent domain proceedings)
currently pending, or to the knowledge of Borrower threatened, against
Mortgagor, Borrower, or the Project or, to the knowledge of Borrower, involving
the validity or enforceability of the Senior Loan Documents or the Loan
Documents or the priority of the liens granted thereunder, by or before any governmental
authority having or exercising jurisdiction over the Project.  Borrower will promptly notify Lender of any
such future actions, suits or proceedings. 
Except as provided in Exhibit G, to Borrower’s knowledge,
neither Borrower, nor Mortgagor, nor the Project is in default with respect to,
or in violation of, any order, writ, injunction, decree or demand of any court
or any governmental authority having or exercising jurisdiction over the
Project.

 

(iv)                              No Contracts
Giving Rise to Liens.  Neither
Borrower, nor Mortgagor, has made any contract or arrangement of any kind, that
does or could give rise to a lien on the Project, except for (i) the
Senior Loan Documents, the Loan Documents and the Permitted Exceptions and (ii) contracts
related to design and construction of the Project which have been provided to
Lender.  Borrower has not made any
contract or arrangement of any kind that does or could give rise to a lien or
encumbrance on any of the Equity Interests in Mortgagor.

 

(v)                                 No Construction.  Prior to the disbursement of the Loan and the
recordation of the Security Instrument, no construction whatsoever has been
performed on the Land by Borrower or its Affiliates.

 

(vi)                              Compliance with
Property Agreements.  Except as
provided in Exhibit H, the Project when constructed will in all
respects conform to and comply with all covenants, conditions, restrictions,
reservations, regulatory agreements, conditional or special use permits and
zoning ordinances affecting the Project whether or not recorded against the
Project.

 

(vii)                           Leases.  Except as provided in Exhibit I,
there are no Leases of the Land in effect as of the closing of the Loan.

 

(viii)                        Tax Treatment.  Borrower and Mortgagor are (and at all times
during the term of the Loan will be) disregarded as entities separate from
Principal within the meaning of Treasury Regulation §301.7701-3(b)(i)(2).  Borrower and Mortgagor have not elected (and
at all times during the term of the Loan will not elect) to be classified as an
association taxable as a corporation within the meaning of Treasury Regulation
§301.7701-3(c).

 

 

30

 

(ix)                                Permits.  All Permits required for the operation and
construction of the Project are in effect or Borrower expects them to be
available as required for construction of the Project in accordance with the
schedule required by the Senior Loan Documents. 
Once issued, all such Permits will remain in effect and the Project and
its contemplated use and operation will comply therewith.  All discretionary approvals for the
construction of the Project in accordance with the Plans have been obtained or
will be obtained prior to commencement of construction of the Project.

 

(x)                                   Hazardous
Substances.  So long as
Mortgagor owns the Project, Borrower shall cause Mortgagor to (a) keep the
Project free from Hazardous Substances, except those in de minimis amounts
ancillary to the Project activities that are used in compliance with all
environmental laws, (b) promptly notify Lender if Borrower or Mortgagor becomes
aware that any Hazardous Substance is on or near the Land or the Project in
violation of any environmental laws or if the Project otherwise is in violation
of any environmental laws, and (c) remove such Hazardous Substances
contamination that violates any environmental laws and/or cure such violations
as required by law.

 

(c)                                  Financial
Statements.  The
financial statements heretofore delivered to Lender by Borrower, Mortgagor and
Principal are true and correct in all material respects, have been prepared in
accordance with sound accounting practices, and fairly present the financial
condition(s) of the person(s) referred to therein as of the date(s) indicated;
no materially adverse change has occurred in the financial condition(s) reflected
in such financial statements since the date(s) shown thereon and no
additional borrowings or liabilities have been made or incurred by such person(s) since
the date(s) thereof other than the borrowing contemplated hereby, the
Senior Loan, or other borrowings disclosed in writing to and approved by
Lender.  The Estimated Collateral Value
Statement, dated as of June 30, 2008, for each Guarantor accurately lists
the Available Assets of the Guarantor (as defined in the Guaranty) as of such
date and the value of such Available Assets calculated on the basis provided in
the notes thereto.

 

(d)                                 Budget
Projections.  Borrower’s
and/or Mortgagor’s budget projections indicate that monthly income from Project
operations will be sufficient to pay the combined monthly accrual of interest
on the Senior Loan and the Loan by the Maturity Date and the projections are
reasonable in Borrower’s opinion and have been prepared in a manner consistent
with the past practices of affiliates of Borrower.

 

(e)                                  Intentionally
Deleted.

 

 

31

 

(f)                                    No Loan Broker.  Borrower has not dealt with any person, firm
or corporation who is or may be entitled to any finder’s fee, brokerage
commission, loan commission or other sum in connection with the execution of this
Agreement or the making of the Loan by Lender to Borrower.  Borrower does hereby indemnify and agree to
defend and hold Lender harmless from and against any and all loss, liability or
expense, including court costs and reasonable attorneys’ fees and expenses,
which Lender may suffer or sustain should such warranty or representation prove
inaccurate in whole or in part.

 

(g)                                 No Default.  There are no defaults under any of the Senior
Loan Documents or the Loan Documents on the part of Borrower, Mortgagor or, to
the knowledge of Borrower, the other parties signatory thereto, and no event
has occurred and is continuing which, with the giving of notice or the passage
of time, or both, would constitute a default under any thereof.

 

(h)                                 Solvency.  As of the date hereof, Borrower and Mortgagor
are each solvent and able to pay their debts as the same shall become due and
payable.

 

(i)                                     Violations of
Governmental Prohibitions. 
Neither the making of the Loan, nor the receipt of Loan proceeds by
Borrower, violates any federal, state, county, municipal and other governmental
and quasi-governmental statutes, laws, rules, orders, regulations, ordinances,
judgments or decrees (collectively, “Law”)
applicable to Borrower, including, without limitation, any of the Terrorism
Laws.  Neither the making of the Loan,
nor the receipt of Loan proceeds by Borrower or Mortgagor, violates any of the
Terrorism Laws applicable thereto.  To
Borrower’s best knowledge, no holder of any direct or indirect equitable, legal
or beneficial interest in Borrower or Principal (other than Lender or an
affiliate or designee of Lender) is the subject of any of the Terrorism
Laws.  No portion of the Loan proceeds
will be used, disbursed or distributed by Borrower for any purpose, or to any
person, directly or indirectly, in violation of any Law including, without
limitation, any of the Terrorism Laws.  “Terrorism Laws” means Executive Order 13224
issued by the President of the United States of America, the Terrorism
Sanctions Regulations (Title 31 Part 595 of the U.S. Code of Federal
Regulations), the Terrorism List Governments Sanctions Regulations (Title 31 Part 596
of the U.S. Code of Federal Regulations), and the Foreign Terrorist
Organizations Sanctions Regulations (Title 31 Part 597 of the U.S. Code of
Federal Regulations), and all other present and future federal, state and local
laws, ordinances, regulations, policies and any other requirements of any
governmental agency (including, without limitation, the United States
Department of the Treasury Office of Foreign Assets Control) addressing,
relating to, or attempting to eliminate, terrorist acts and acts of war, each
as hereafter supplemented, amended or modified from time to time, and the
present 

 

 

32

 

and
future rules, regulations and guidance documents promulgated under any of the
foregoing.

 

17.                               EVENT
OF DEFAULT.  Borrower
shall be in default under this Agreement upon the occurrence of any of the
following events (hereinafter referred to as an “Event of Default”):

 

(a)                                  Non-Payment.  The failure of Borrower to pay when due any
amount required by the Note, this Agreement or any other Loan Documents which
continues, in the case of monthly interest payments required under the Note,
for twenty (20) days or, in the case of other sums payable under the Note, this
Agreement or the Loan Documents, for 10 days following written demand for
payment on Borrower by Lender.

 

(b)                                 Insurance.  The failure of Borrower to keep in force any
insurance policy required hereunder or to deliver evidence of its renewal to
Lender and the continuation of such failure for 10 days following written
demand on Borrower by Lender.

 

(c)                                  Special Purpose
Entity Covenants.  The failure
of Borrower to comply with the provisions of Section 23.

 

(d)                                 Borrower.  The liquidation, dissolution or termination
of Borrower.

 

(e)                                  Guaranty.  The Guaranty for any reason shall cease to be
in full force and effect, or be declared null and void or unenforceable in
whole or in part; or the validity or enforceability of the Guaranty shall be
challenged or denied by any Guarantor. 
Notwithstanding the foregoing, a challenge or denial of the validity or
enforceability of the Guaranty will not be considered an Event of Default if,
excluding the Available Assets of the challenging guarantor, the collective
aggregate value of the Available Assets of the Guarantor (defined collectively
in the Guaranty) does not fall below $80,000,000.00.

 

(f)                                    Construction.  The cessation of the construction of any or
all of the Project after work thereon has commenced for a period of more than
30 consecutive days  without the
written consent of Lender, except for any cessation due to events of force
majeure as expressly permitted by the documents evidencing or securing the
Senior Loan, except as otherwise provided in Section 13(b) of
the Loan Agreement.

 

(g)                                 Fraud or
Material Misrepresentation  Fraud or material misrepresentation by
Borrower, Mortgagor or any of their partners, officers, directors or managers,
or by any Guarantor in connection with (i) the application for or creation
of the Indebtedness, (ii) any financial statement, rent roll, or other
report or information provided to Lender during the term of the Indebtedness,
or (iii) any request for Lender’s consent to any proposed action.

 

 

33

 

(h)                                 Sale,
Encumbrance or Other Indebtedness.  The taking of any action by Borrower,
Mortgagor, or any other person contrary to the provisions of Section 13(d) of
this Agreement.

 

(i)                                     Reports and
Documents.  The failure
of Borrower to deliver any notice, report, assignment, certificate, instrument
or other document which Borrower is required to deliver to Lender under any of
the Loan Documents within the twenty (20) days following written demand by
Lender therefor.

 

(j)                                     Other Breaches
under this Agreement. The failure by Borrower to perform any of its
obligations under this Agreement, as and when required, except as specifically
set forth otherwise herein, which continues for a period of 30 days after
notice of such failure by Lender to Borrower, if such failure is not reasonably
susceptible of cure within such 30 day period, and if Borrower promptly
commences such cure within such 30 day period and diligently prosecutes the
same to completion, then the cure period shall be extended for such period of
time as may be reasonably necessary to effect a cure but in no event shall such
period exceed 90 days.

 

(k)                                  Other Breaches
Under Other Loan Documents.  The failure of Borrower or any Guarantor,
indemnitor or obligor to perform and observe any covenant, obligation,
agreement or undertaking under any Loan Document other than this Agreement
following such notice and/or grace period, if any, as may be provided therein
for curing such failure.

 

(l)                                     Senior Loan
Documents.  The failure
of Borrower or Mortgagor or any Guarantor to perform and observe any covenant,
obligation, agreement or undertaking under any Senior Loan Documents following
any notice or cure period, if any, as may be provided therein for curing such
failure.

 

(m)                               Judgments.

 

(i)                                     An order,
judgment or decree shall be entered by any court of competent jurisdiction
appointing a custodian, receiver, trustee, or liquidator of Borrower or of all
or any substantial part of any of Borrower’s assets; or

 

(ii)                                  The failure of
Borrower to pay any money judgment against it at least twenty (20) days prior
to the date on which the assets of the Borrower may be sold to satisfy such
judgment; or

 

(iii)                               The failure to
have discharged within a period of twenty (20) days after the commencement
thereof any attachment, sequestration, or similar proceedings against any of
the assets of Borrower.

 

(n)                                 Bankruptcy
Proceedings.

 

 

34

 

(i)                                     If Borrower or
Mortgagor shall become insolvent, make a transfer in fraud of, or a general
assignment for the benefit of, creditors, or admit in writing its inability,
generally to pay its debts as they become due; or

 

(ii)                                  If Borrower or
Mortgagor shall have a receiver, custodian, liquidator or trustee appointed for
all or substantially all of its assets or for the Project in any proceeding
brought by Borrower, Mortgagor or the Project, or any such receiver or trustee
is appointed in any proceeding brought against Borrower, Mortgagor or the
Project and such appointment is not promptly contested and is not dismissed or
discharged within ninety (90) days after such appointment; or

 

(iii)                               If Borrower or
Mortgagor shall file a petition under Title 11 of the United States Code as
amended or under any similar Federal or state law or statute; or

 

(iv)                              If Borrower or
Mortgagor shall have a petition filed against it commencing an involuntary case
under any present or future Federal or state bankruptcy or similar law and such
petition is not dismissed or discharged within ninety (90) days after the
filing thereof; or

 

(v)                                 If Borrower or
Mortgagor shall request any composition, rearrangement, liquidation, extension,
reorganization or other relief as a debtor under any present or future Federal
or state bankruptcy or similar law now or hereafter existing.

 

The proceedings or events set forth in
paragraph (n) are collectively referred to as “Bankruptcy
Proceedings”.

 

18.                               REMEDIES.

 

(a)                                  Actions upon
Event of Default.  Upon the
occurrence and during the continuance of an Event of Default beyond any
applicable grace and cure period, Lender may, in addition to any other rights
or remedies available to it pursuant to this Agreement and the other Loan
Documents or at law or in equity, take such action, without notice or demand,
that Lender deems advisable to protect and enforce its rights against the
Collateral or the Project, including, without limitation, at its option and
without prior notice or demand, declare the unpaid principal balance of the
Note and all accrued but unpaid interest thereon, as well as all other sums
owing under the Loan Documents, immediately due and payable. Lender may make
any advances on the Loan after the happening of any one or more of said Events
of Default without thereby waiving the right to demand payment in 

 

 

35

 

full
of the Note and such other amounts and without liability to make any other or
further advances.

 

(b)                                 Lender’s Right
to Perform.  If Borrower
fails to perform any covenant or obligation contained herein or in the other
Loan Documents and such failure continues for a period of 30 days after written
notice of such failure by Lender to Borrower, or if such failure is not
reasonably susceptible of cure within such 30 day period and if Borrower
promptly commences such cure within such 30 day period and diligently
prosecutes the same to completion, then the cure period shall be extended for
such period of time as may be reasonably necessary to effect a cure but in no
event shall such period exceed 90 days, without in any way limiting Lender’s
right to exercise any of its rights, powers or remedies as provided hereunder,
or under any of the other Loan Documents, Lender may, but shall have no
obligation to, perform, or cause performance of, such covenant or obligation,
and all costs, expenses, liabilities, penalties and fines of Lender reasonably
incurred or paid in connection therewith shall be payable by Borrower to Lender
upon demand and if not paid shall be added to the Indebtedness (and to the
extent permitted under applicable laws, secured by the Security Instrument and
other Loan Documents) and shall bear interest from the date expended at the
Default Interest Rate.  Notwithstanding
the foregoing, Lender shall have no obligation to send notice to Borrower of
any such failure.

 

(c)                                  Appointment of
Lender as Attorney-in-Fact.  Borrower hereby irrevocably, unconditionally
and presently constitutes Lender as Borrower’s attorney-in-fact, with full
power of substitution, to be exercised by Lender only upon the occurrence and
during the continuation of an Event of Default, to exercise its rights under
the Security Instrument (in its own name or the name of a designee) for
purposes of preserving and protecting the Project or the Collateral and, as
Lender in its sole discretion deems necessary or proper, to execute,
acknowledge (when appropriate) and deliver all instruments and documents in the
name of Borrower which may be necessary or desirable in order to do any and
every act which Borrower might do on its own behalf in the performance of its
obligations hereunder.  This power of
attorney is a power coupled with an interest and is irrevocable.

 

(d)                                 Cross-Default
to Note, Security Instrument and Other Loan Documents.  At the option of Lender, any Event of Default
by Borrower under this Agreement shall constitute a default under the Note, the
Security Instrument or any of the other Loan Documents to the same extent as
though the Note had by its own terms become due and payable at maturity and
payment thereof had been refused, and in such event Lender may, without
liability to Borrower, assert and exercise any and all rights and remedies
provided for herein or in the Note, the Security Instrument or any of the other
Loan Documents or otherwise as may be provided by law.  

 

 

36

 

Such
rights and remedies may be asserted concurrently or successively from time to
time (either before or after commencement of foreclosure proceedings or before
or after the exercise of any other remedy of Lender) until the Note, including
interest thereon, and all of the Indebtedness of Borrower to Lender under this
Agreement and the other Loan Documents, have been paid in full.

 

(e)                                  Recourse
Limitations.  Borrower’s
liability in connection with this Agreement, the Note and the other Loan
Documents (including Borrower’s liability for all amounts due hereunder or
thereunder) is collectible only from the Project and other property encumbered
by the Security Instrument.  In no case
will any person who holds a direct or indirect ownership interest in Borrower,
or any officer, director, manager, trustee, employee, agent or affiliate of
Borrower or any such direct or indirect owner, have any responsibility for
Borrower’s obligations in connection with this Agreement, the Note and the
other Loan Documents (including Borrower’s liability for any amounts due
hereunder or thereunder); provided, however, that nothing in this Section 18(e) limits
the liability of any person under a guaranty or other agreement executed by
such person.

 

19.                               ADDITIONAL
ADVANCES

 

(a)                                  Disbursement of
Additional Advances.    Borrower
may submit a Draw Request in the form attached as Exhibit E from
time to time, but no more frequently than monthly (or twice monthly for the
following subcontractors: framing, drywall, retaining walls, electrical, trim,
carpentry, HVAC, floor coverings, concrete, final-clean and plumbing), for the
payment of the cost of labor, materials, and services supplied for the
construction of the Project and other costs incurred in connection with the
Project, all to the extent contemplated in the Construction Budget (“Additional Advance”).  Lender may require, at Borrower’s expense, an
inspection of, and favorable report upon, the Project, as built at the time of
the Draw Request, by the Inspecting Architects/Engineers prior to making any
Additional Advance.  Each Draw Request
shall be submitted by Borrower to Lender not less than ten (10) Business
Days prior to the date upon which the Additional Advance requested is desired
by Borrower.  Upon satisfaction of all
conditions precedent to Lender’s obligation to make Additional Advances
hereunder, and provided that the Additional Advance, when aggregated with the
Junior Mezzanine Advance Amount, does not exceed the Maximum Aggregate Advance
Amount and is consistent with the Construction Budget, Lender shall fund to
Borrower the requested Additional Advance (less the portion of the amount in
the related Draw Request that is simultaneously funded under the Junior
Mezzanine Loan Agreement), on the later of (i) the date such advance is
requested in the Draw Request, and (ii)  five (5) Business Days after

 

 

37

 

receipt
of a complete Draw Request, together with the required accompanying materials,
reasonably satisfactory to Lender.

 

(b)                                 Conditions
Precedent to Additional Advance.

 

(i)                                     There shall
exist no Event of Default;

 

(ii)                                  The Senior Loan
is in full force and effect;

 

(iii)                               There exists no
default by Mortgagor under the Senior Loan;

 

(iv)                              The
representations and warranties made in this Agreement shall be true and correct
in all material respects on and as of the date of each Additional Advance, with
the same effect as if made on such date, other than (i) those which by
their specific terms relate only to the Closing Date or another specified date,
and (ii) those which relate to Section 6(d) and Section 16(c) hereof
which need be true and correct only as of the effective date of this Agreement;

 

(v)                                 Borrower shall
have provided to Lender (a) the form lease for residential units within
the Project (it being agreed that Borrower has already provided such form to
Lender) and (b) copies of any non-residential Leases affecting the
Project;

 

(vi)                              Borrower shall have
provided to Lender copies of all available Plans prepared by any engineers or
architects in connection with the Project;

 

(vii)                           Lender shall
have received copies of any inspection reports prepared by the Inspecting
Architects/Engineers with respect to the specific Additional Advance and/or by
any Governmental Authority having jurisdiction over the Project and Lender
shall have received inspection reports, in form and substance reasonably
acceptable to Lender, from the Inspecting Architect/Engineers at not less than
thirty (30)-day intervals (and Lender shall request such reports from the
Inspecting Architect/Engineers);

 

(viii)                        Borrower shall
procure and deliver to Lender, if required by Lender, evidence reasonably
satisfactory to Lender that the amount theretofore invested by Mortgagor in the
Project, together with the funds remaining to be advanced to Borrower by Lender
under the terms of this Agreement and the Junior Mezzanine Loan Agreement and
to Mortgagor by Senior Lender under the Senior Loan, or sums which Borrower
agrees to make available, are adequate to meet all costs incurred and to be
incurred in connection with the construction of the Project;

 

 

38

 

(ix)                                Borrower shall
procure and deliver to Lender, if required by Lender, evidence reasonably
satisfactory to Lender supporting the amounts requested by Borrower, including,
without limitation, statements, invoices and bills evidencing the requested
amounts; and

 

(x)                                   Borrower shall
procure and deliver to Lender a lien waiver and/or subordination agreement from
each contractor or subcontractor who has performed work valued at or in excess
of $150,000 at or upon the Land, or who has supplied material, supplies or
equipment for the construction of the Project and who is intended to have been
paid by the proceeds of the Additional Advance current through the last payment
to such contractor or subcontractor.

 

20.                               TRANSFER
OF LOAN; LOAN SERVICER.

 

(a)                                  Lender’s Right
to Transfer  Borrower
hereby acknowledges that Lender shall have the right to transfer, assign or
sell the Loan Documents, or grant participation interests in all or any portion
of the Loan, in such manner and to such entities as Lender in its sole and
absolute discretion shall select.

 

(b)                                 Loan Servicer.  At the option of Lender, the Loan may be
serviced by a servicer selected by Lender and Lender may delegate all or any
portion of its responsibilities under this Agreement and the other Loan
Documents to such servicer pursuant to a servicing agreement between Lender and
such servicer.  A sale may result in a
change of the Loan servicer.  There also
may be one or more changes of Loan servicer unrelated to a sale of the Note.  If there is a change of Loan servicer,
Borrower will be given notice of the change.

 

(c)                                  Dissemination
of Information.  Lender may
forward to each purchaser, transferee, assignee, or servicer of, and each
participant or investor in, the Loan (collectively, the “Investor”), any governmental regulators or
others as may be required by securities law, all documents and information
which Lender now has or may hereafter acquire relating to the Indebtedness and
to Borrower, Mortgagor and Principal, except as limited by the Principal’s
partnership agreement, including financial statements, whether furnished by
Borrower or otherwise, as Lender determines necessary or desirable.  Borrower irrevocably waives any and all
rights it may have under applicable Laws to prohibit such disclosure.

 

21.                               LENDER’S
EXPENSES; RIGHTS OF LENDER.  Borrower shall promptly pay to Lender, upon
demand, with interest thereon from the date of demand at the Default Interest
Rate, reasonable attorneys’ fees and all other reasonable costs and expenses
paid or incurred by Lender in enforcing or exercising its rights or remedies
created by, connected with or 

 

 

39

 

provided for in this Agreement or any of the other
Loan Documents following an Event of Default, and payment thereof shall be
secured by the Security Instrument.

 

22.                               MISCELLANEOUS.

 

(a)                                  Notices. All notices,
demands and other communications (“Notice”)
under or concerning this Agreement shall be in writing.  Each Notice shall be addressed to the
intended recipient at its address set forth below, and a Notice shall be deemed
given on the earliest to occur of (1) the date when the Notice is received
by the addressee; (2) the first Business Day after the Notice is delivered
to a recognized overnight courier service, with arrangements made for payment
of charges for next Business Day delivery; or (3) the third Business Day
after the Notice is deposited in the United States mail with postage prepaid,
certified mail, return receipt requested.

 

If to Lender:                                                                               Behringer
Harvard St. Rose REIT, LLC

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention: 
Chief Legal Officer

Facsimile: 
(214) 655-1610

 

with copy to:                                                                          Behringer
Harvard St. Rose REIT, LLC

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention: 
Mark Alfieri

Facsimile: 
(214) 655-1610

 

with copy to:                                                                          Wick Phillips,
LLP

2100 Ross Avenue, Suite 950

Dallas, Texas 
75201

Attention: 
Walt Miller

Facsimile: 
(214) 692-6255

 

If to Borrower:                                                                   SW 131 St. Rose
Mezzanine Borrower LLC

2001 Bryan Street, Suite 3250

Dallas, Texas 75201

Attention: Timothy J. Hogan

Facsimile: (214) 922-8553

 

with a copy to:                                                                 SW 131 St. Rose
Mezzanine Borrower LLC

7373 N. Scottsdale Road, Suite C-228

Scottsdale, Arizona  85253

Attention: Bruce Hart

Facsimile: 
(480) 596-8848

 

 

40

 

with copy to:                                                                          Jones Day

325 John H. McConnell Blvd., Suite 600

Columbus, Ohio 43216

Attention: 
Michael K. Ording

Facsimile: (614) 461-4198

 

Any
party to this Agreement may change the address to which notices intended for it
are to be directed by means of notice given to the other party in accordance
with this Section 22(a). 
Each party agrees that it will not refuse or reject delivery of any
notice given in accordance with this Section 22(a), that it will
acknowledge, in writing, the receipt of any notice upon request by the other
party and that any notice rejected or refused by it shall be deemed for
purposes of this Section 22(a) to have been received by the
rejecting party on the date so refused or rejected, as conclusively established
by the records of the U.S. Postal Service or the courier service. Any notice
under the Note and any other Loan Document which does not specify how notices
are to be given shall be given in accordance with this Section 22(a).

 

(b)                                 Waivers.  No delay or omission in exercising any right
or power arising from any default shall be construed as a waiver of such
default or as an acquiescence therein, nor shall any single or partial exercise
thereof preclude any further exercise thereof or the exercise of any other
right or power arising from any default. 
No waiver of any breach of any of the covenants or conditions of this
Agreement shall be construed to be a waiver of or acquiescence in or consent to
any previous or subsequent breach of the same or of any other condition or
covenant.

 

(c)                                  Lender Not
Partner of Borrower; Borrower in Control.  Neither the execution nor the performance of
any of the Loan Documents by Lender, nor the exercise by the Lender of any of
its rights, privileges or remedies conferred under the Loan Documents or under
applicable law, shall be deemed to render the Lender a partner or a joint
venturer with Borrower, any guarantor of the Loan or any other person, or to
render Borrower an agent of Lender for any purposes.  Nothing contained herein shall characterize
or be deemed to characterize, or be used as a basis for characterizing, Lender
as a “mortgagee-in-possession”.  Lender
and Borrower agree that Mortgagor remains in control of the Project, and that
it determines the business plan for the Project and employment, management,
leasing and operating directions and decisions for the Project.  All of Lender’s rights, and actions taken by
Lender as provided or permitted, in or under this Agreement or the other Loan
Documents are for and in its capacity as a secured lender attempting to protect
the collateral security for the Loan and to collect the Indebtedness and any
other amounts owing or outstanding under the Note or the Loan Documents.

 

 

41

 

d)                                     No Third Party.  This Agreement is made for the sole benefit
of Borrower and Lender and Lender’s successors and assigns, and no other person
or persons shall have any rights or remedies under or by reason of this
Agreement or any right to the exercise of any right or power hereunder or
arising from any default, nor shall Lender owe any duty whatsoever to any
claimant for labor performed or materials furnished in connection with the
construction of the improvements to apply any undisbursed portion of the Loan
to the payment of any such claims.

 

(e)                                  Time of Essence; Context.  Time is hereby declared to be of the essence
of this Agreement and of every part hereof. 
When the context and construction so require, all words used in the
singular herein shall be deemed to have been used in the plural and the
masculine shall include the feminine and the neuter and vice versa.

 

(f)                                    Successors and Assigns.  This Agreement shall bind, and the rights
granted by this Agreement shall inure to, the respective successors and assigns
of Lender and Borrower.  However, a Sale
or Encumbrance prohibited by Section 13(d) shall be an Event
of Default.

 

(g)                                 Governing Jurisdiction.  This Agreement and all of the other Loan
Documents (except as otherwise expressly provided therein with respect to the
enforcement of specific remedies) shall be governed by and construed in
accordance with the substantive law of the State of Texas without regard to the
application of choice of law principles.

 

(h)                                 SUBMISSION TO JURISDICTION;
SERVICE OF PROCESS.  BORROWER
AND LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE
COURTS OF THE STATE OF TEXAS SITTING IN DALLAS COUNTY, TEXAS, FOR THE PURPOSES
OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER LOAN DOCUMENT AND THE SUBJECT
MATTER THEREOF, OR THE LOAN.  EACH OF
BORROWER AND LENDER TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY
WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE,
IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN THE ABOVE-NAMED COURTS
ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF SUCH COURTS,
THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION BY ANY SUCH
COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM,
THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS  AGREEMENT, THE SUBJECT MATTER HEREOF, THE
OTHER LOAN DOCUMENTS, THE SUBJECT 

 

 

42

 

MATTER THEREOF, OR THE LOAN (AS APPLICABLE) MAY NOT BE ENFORCED IN
OR BY SUCH COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION,
SUIT OR PROCEEDING INSTITUTED IN STATE COURT TO FEDERAL COURT, OR TO REMAND AN
ACTION INSTITUTED IN FEDERAL COURT TO STATE COURT AND (C) HEREBY WAIVES
THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR
COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM
THE SAME SUBJECT MATTER.  BORROWER AND
LENDER EACH HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO
WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT TO SECTION 22(a) HEREOF,
BUT ANY SUCH SERVICE WILL BE EFFECTIVE ONLY WHEN RECEIVED AT SUCH ADDRESS.  BORROWER AND LENDER EACH AGREES THAT ITS SUBMISSION
TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE
EXPRESS BENEFIT OF THE OTHER PARTY. 
FINAL JUDGMENT AGAINST A PARTY IN ANY SUCH ACTION, SUIT OR PROCEEDING
SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (X) BY
SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH
SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF INDEBTEDNESS OR
LIABILITY OF THE PARTY THEREIN DESCRIBED, OR (Y) IN ANY OTHER MANNER
PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION.

 

(i)                                     WAIVER WITH RESPECT TO
DAMAGES.  BORROWER ACKNOWLEDGES THAT
LENDER DOES NOT HAVE ANY FIDUCIARY OR OTHER SPECIAL RELATIONSHIP WITH, OR
FIDUCIARY OR SPECIAL DUTY TO, BORROWER ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, AND THE RELATIONSHIP BETWEEN LENDER AND
BORROWER, IN CONNECTION HEREWITH AND THEREWITH, IS SOLELY THAT OF DEBTOR AND
CREDITOR.  TO THE EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER SHALL NOT ASSERT, AND BORROWER HEREBY WAIVES, ANY
CLAIMS AGAINST LENDER, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES)
ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS AGREEMENT, ANY
OTHER LOAN DOCUMENT, ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR
THEREBY, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

 

43

 

(j)                                     Entire Agreement.  This Agreement and all of the other Loan
Documents constitute the entire understanding between the parties hereto with
respect to the subject matter hereof, superseding all prior written or oral
understandings, and may not be modified, amended or terminated except by a
written agreement signed by each of the parties hereto or thereto that is to be
bound by the modification, amendment or termination.  Notwithstanding the foregoing, the provisions
of this Agreement are not intended to supersede the provisions of the Security
Instrument but shall be construed as supplemental thereto.  Borrower and Lender each hereby acknowledges
that this Agreement and the other Loan Documents accurately reflect the
agreements and understandings of the parties hereto with respect to the subject
matter hereof and hereby waives any claims against the other which it may now
have or may hereafter acquire to the effect that the actual agreements and
understandings of the parties hereto with respect to the subject matter hereof
may not be accurately set forth in this Agreement or such other Loan Documents.

 

(k)                                  Headings.  The various headings of this Agreement are
included for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.

 

(l)                                     Severability.  Each provision of this Agreement shall be
interpreted so as to be effective and valid under applicable law, but if any
such provision shall in any respect be ineffective or invalid under such law,
such ineffectiveness or invalidity shall not affect the remainder of such
provision or the remaining provisions of this Agreement.

 

(m)                               Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute but one and the same document.

 

(n)                                 WAIVER OF JURY TRIAL.  BORROWER AND LENDER EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS LOAN
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER STATEMENTS OR
ACTIONS OF THE LENDER OR BORROWER RELATED THERETO.  BORROWER AND LENDER EACH ACKNOWLEDGES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE OTHER TO ENTER INTO THIS AGREEMENT
AND EACH OTHER LOAN DOCUMENT, AND THAT THIS WAIVER SHALL BE EFFECTIVE AS TO
EACH OF THE OTHER LOAN DOCUMENTS AS IF FULLY INCORPORATED THEREIN.

 

(o)                                 Sole and Absolute Discretion.  Any option, consent, approval, or discretion
or similar right of Lender set forth in this Agreement or any of 

 

 

44

 

the other Loan Documents may be exercised by Lender in its sole,
absolute and unreviewable discretion, unless the provisions of this Agreement
or the other Loan Documents specifically requires a different standard.

 

(p)                                 Straight Debt Harbor.  It is the intent of Borrower and Lender that
the Loan shall be treated as a security that satisfies the requirements of Section 856(m)(1)(A) and
Section 856(m)(2) of the Code (the “Straight
Debt Safe Harbor”). 
Accordingly, notwithstanding any indication herein to the contrary, the
parties hereto agree that the terms of the Loan shall be interpreted in such a
manner that the Loan satisfies the Straight Debt Safe Harbor for so long as it
is owned by Lender; and the terms of the Note shall be applied such that the
Note has a constant effective yield to maturity, as determined under Section 1372
of the Code, at a fixed rate over the entire term of the Note equal to the
Interest Rate (as defined in the Note) (or, during any time at which an Event
of Default is continuing, at the Default Interest Rate); provided, however,
that such contraction shall not alter the dates of the principal or interest
payments (described in Section 1.1 of the Note) or the amounts of the
principal or interest payments required to be paid on an interest payment date
(described in Section 1.1. of the Note) prior to the Maturity Date or
earlier prepayment date.

 

(q)                                 Assignment.  Lender may, without the consent of any other
party, assign its rights and obligations under this Agreement and the Loan
Documents to any Affiliate of Lender.

 

(r)                                    Retainage of Subcontractors.  Lender understands and agrees that no
retainage will be withheld for general conditions or the following
subcontractor trades: floor and roof trusses, cabinets and countertops,
appliances, lumber, drywall, concrete and reinforcing materials, cultured stone
and CMU materials, interior trim, electric light fixtures, windows, doors and
millwork, HVAC components, metals, floor coverings, surveying and stocking,
materials testing and utilities. 
Borrower understands and agrees that ten (10%) retainage will be
withheld for all other subcontractors provided that at such time as the Project
is at least fifty percent (50%) completed (as confirmed by the Senior Lender’s
construction consultant, if any), retainage may be reduced to five percent (5%)
for such other subcontractors.

 

23.          SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BORROWER.  Borrower shall do all things necessary to preserve the existence of
Borrower and Mortgagor as a separate Special Purpose Bankruptcy Remote Entity
unless Lender otherwise consents, in its sole discretion, in writing.  Borrower covenants and agrees that with
respect to Borrower and Mortgagor, until payment in full of the Indebtedness,
it will not do, or permit Mortgagor to do, directly or indirectly, any of the
following unless Lender consents thereto, in its 

 

 

45

 

sole discretion, in
writing.  A “Special Purpose Bankruptcy
Remote Entity” means a corporation, limited partnership or limited liability
company which shall not:

 

(a)                                  engage in any business or
activity other than the ownership, construction, operation and maintenance, in
each case directly or indirectly, of the Land and the Project (in case of
Mortgagor) or the Equity Interests in Mortgagor (in case of Borrower) and
activities incidental thereto;

 

(b)                                 acquire or own any material
assets other than (i) the Equity Interests, (ii) the Land or the
Project, and (iii) such incidental personal property as may be necessary
for the operation of the Project or as may arise out of the other activities of
Borrower or Mortgagor;

 

(c)                                  merge into or consolidate
with any person, or dissolve, terminate or liquidate, or transfer or otherwise
dispose of all or substantially all of its assets or change its legal
structure;

 

(d)                                 fail to preserve its
existence as a person duly organized, validly existing and in good standing (if
applicable) under the laws of the jurisdiction of its organization or
formation, or amend, modify, or terminate the provisions of its organizational
documents if such amendment, modification, or termination would adversely
affect the ability of such Person to perform its obligations hereunder or under
the other Loan Documents or would affect any other clause of this Section 23;

 

(e)                                  own any subsidiary (except,
in the case of Borrower, the Mortgagor) or make any investment in any person
(except, in the case of Borrower, the Mortgagor);

 

(f)                                    commingle its assets with
the assets of any of its general partners, members, shareholders, Affiliates,
principals or of any other Person in such a manner that it will be costly or
difficult to segregate, ascertain or identify its individual assets from those
of any general partner, member, shareholder, principal or Affiliate of Borrower
or Mortgagor or any other Person;

 

(g)                                 incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any obligation), other
than (i) the Senior Loan, the Loan and the loan made pursuant to the
Junior Mezzanine Loan Agreement, (ii) obligations under interest rate
hedging arrangements related to the Senior Loan and (iii) trade and
operational indebtedness incurred in the ordinary course of business (including
construction and operation of the Project) or for its administrative functions;

 

(h)                                 fail to maintain its
records, books of account and bank accounts separate and apart from those of
its general partners, members, shareholders, principals and Affiliates and any
other Person;

 

 

46

 

(i)                                     enter into any contract or
agreement with any general partner, member, shareholder, principal or Affiliate
of Borrower or Mortgagor except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available
on an arms-length basis with third parties other than any general partner,
member, shareholder, principal or Affiliate of Borrower or Mortgagor;

 

(j)                                     seek the dissolution or
winding up of Borrower or Mortgagor;

 

(k)                                  maintain its assets in such
a manner that it will be costly or difficult to segregate, ascertain or
identify its individual assets from those of any general partner, member,
shareholder, principal or Affiliate of Borrower or Mortgagor or any other
Person.

 

(l)                                     hold itself out to be
responsible for the debts of another person, except through endorsement of
negotiable instruments in the ordinary course of collection;

 

(m)                               make any loans or advances
to any third party, including any general partner, member, shareholder, principal
or Affiliate of Borrower or Mortgagor (except, in the case of Borrower, to the
Mortgagor);

 

(n)                                 fail to file its own tax
returns, if any, as may be required under applicable law, to the extent that
Borrower or Mortgagor is (i) not part of a consolidated group filing a
consolidated return or returns or (ii) not treated as a “disregarded
entity” for tax purposes not required to file tax returns under applicable law;
or

 

(o)                                 fail either to hold itself
out to the public as a legal person separate and distinct from any other person
or to conduct its business solely in its own name if the result is (i) to
mislead others as to the identity of the person with which such other party is
transacting business; or (ii) to suggest that it is responsible for the
debts of any third party (including any general partner, principal or Affiliate
of Borrower or Mortgagor), provided, however, Mortgagor and Borrower may hold
itself out as doing business under the “Trammel Crow Residential” or “Alexan
Communities” names.

 

In addition to the foregoing, Borrower shall
have at least one independent manager who is provided by a nationally
recognized company that provides professional independent directors and who
shall not be at the time of initial appointment, and may not have been during
the preceding five years (i) a stockholder, director, officer, employee,
partner, member, attorney or counsel of Mortgagor or an Affiliate of Mortgagor
or Borrower, (ii) a customer, supplier (other than a supplier of
registered agent or registered office service) or other Person who derives any
of its purchases or revenues from its activities with Mortgagor or Borrower, (iii) a
Person or other entity controlling or under common control with any such
stockholder, director, officer employee, partner, customer, supplier (other
than a supplier of registered agent or registered office service) or other
Person or (iv) a member of the immediate family of any such 

 

 

47

 

stockholder, director, officer, employee,
partner, customer, supplier or other Person (the “Independent
Director”).  At any time while
the Loan is outstanding, the consent of the Independent Director should be
required to: (i) file, consent to the filing of, or join in any filing of,
a bankruptcy or insolvency petition; (ii) dissolve, liquidate, merge or
consolidate; (iii) engage in any business or activity other than the
ownership, construction, operation and maintenance, directly or indirectly, of
the Project; and (iv) amend the articles of organization, limited
liability agreement or partnership agreement.

 

24.          JUNIOR MEZZANINE LOAN.

 

(a)                                  Borrower and Lender are
entering into the Junior Mezzanine Loan Agreement contemporaneously with this
Agreement.  Under this Agreement and the
Junior Mezzanine Loan Agreement, Lender may advance to Borrower an aggregate
maximum principal amount up to, but not in excess of, the Maximum Aggregate
Advance Amount.  The Borrower and Lender
agree that, at any given time, any principal amounts advanced to Borrower by Lender
under this Agreement and the Junior Mezzanine Loan Agreement shall be allocated
as follows:

 

(i)                                     At all times while principal
amounts are outstanding and/or additional principal amounts may be advanced
under this Agreement or the Junior Mezzanine Loan Agreement, an aggregate
principal amount of at least $2,000 shall be advanced to Borrower by Lender
under this Agreement and the Junior Mezzanine Loan Agreement, taken together,
and the principal amount outstanding under this Agreement shall be at least
$1,000 and the principal amount outstanding under the Junior Mezzanine Loan
Agreement shall be at least $1,000;

 

(ii)                                  If an aggregate principal
amount of more than $2,000 has been advanced to Borrower by Lender under this
Agreement and the Junior Mezzanine Loan Agreement, Lender may decide whether
additional amounts requested by Borrower pursuant to a Draw Request are funded
pursuant to this Agreement or pursuant to the Junior Mezzanine Loan Agreement,
or in part pursuant to this Agreement and in part pursuant to the Junior
Mezzanine Loan Agreement, and if in parts pursuant to both this Agreement and
the Junior Mezzanine Loan Agreement, the respective parts funding pursuant to
each, so long as the aggregate amount advanced to Borrower pursuant to this Agreement
and the Junior Mezzanine Loan Agreement in all cases equals the amount
requested by Borrower in the Draw Request.

 

(b)                                 Borrower acknowledges that
Lender has advised it that Lender desires that at no time will the Senior
Mezzanine Advance Amount exceed the Estimated Value.  Accordingly, Borrower agrees that if at any
time the Senior Mezzanine Advance Amount is more than the Estimated Value, 

 

 

48

 

Lender shall, subject to Section 24(a)(i), be deemed to have
advanced principal under the Junior Mezzanine Loan Agreement in an amount equal
to the amount by which the Senior Mezzanine Advance Amount exceeds the
Estimated Value and to have used such advance to repay the portion of the Loan
then outstanding so as to reduce the Senior Mezzanine Advance Amount to the
Estimated Value.  Conversely, Borrower
agrees that if at any time the Senior Mezzanine Advance Amount is less than the
Estimated Value, Lender shall, subject to Section 24(a)(i), be
deemed to have advanced principal against the Loan in an amount equal to the
lesser of (i) the Junior Mezzanine Advance Amount minus $1,000 and (ii) the
amount by which the Estimated Value exceeds the Senior Mezzanine Advance
Amount, and in such event Lender shall be deemed to have used the amount so
advanced to repay a portion of the loan outstanding under the Junior Mezzanine
Loan Agreement.  An advance pursuant to
this Section 24(b) will not reduce the amount Borrower is
entitled to draw under this Agreement and the Junior Mezzanine Loan Agreement,
it being the intent of Lender and Borrower that Borrower will be entitled to
obtain advances up to the Maximum Aggregate Advance Amount.  An advance and contemporaneous repayment
made, or deemed to be made, pursuant to this Section 24(b) will
not be considered an advance in excess of the Maximum Aggregate Advance Amount
for purposes of this Agreement.

 

(c)                                  Borrower acknowledges that
Lender has advised it that Lender desires that at no time will the Senior
Mezzanine Advance Amount and the accrued and unpaid interest on the Loan, taken
together, exceed the Estimated Value. 
Therefore, to the extent that, after any adjustments pursuant to Section 24(b),
the Senior Mezzanine Advance Amount and the accrued and unpaid interest on the
Loan, taken together, exceed the Estimated Value, then such accrued and unpaid
interest will be deemed to be payable under the loan pursuant to the Junior
Mezzanine Loan Agreement rather than payable under the Loan to the extent
necessary to prevent the Senior Mezzanine Advance Amount and the accrued and
unpaid interest on the Loan, taken together, from exceeding the Estimated
Value.  Any such interest deemed to be
payable under the loan pursuant to the Junior Mezzanine Loan Agreement pursuant
to this Section 24(c) shall automatically to revert to being
payable under the Loan to the extent possible without causing the Senior
Mezzanine Advance Amount and the accrued and unpaid interest on the Loan, taken
together, from exceeding the Estimated Value. 
In no event shall the accrued and unpaid interest under the Loan, when
combined with the accrued and unpaid interest owing under the loan pursuant to
the Junior Mezzanine Loan Agreement, exceed the amount of interest that would
be owing (taking into account payments of interest made prior to the time in
question) if interest had accrued at the rate applicable under the Note and the
note issued pursuant to the Junior Mezzanine Loan Agreement on a principal
balance equal to the Senior Mezzanine Advance Amount plus the Junior Mezzanine
Advance Amount.

 

 

49

 

(d)                                 Lender shall endeavor to
give Borrower written notice of any advance, repayment or adjustment pursuant
to this Section 24 simultaneously with such action, and Lender shall,
upon request by Borrower, give Borrower written notice of the amount
outstanding under the Loan and the loan under the Junior Mezzanine Loan
Agreement.

 

25.          SUBDIVISION
AND RELEASE.

 

(a)                                  On or before June 30,
2009, Borrower will have caused the Mortgagor to have (i) obtained all
final, non-appealable approvals of all applicable Governmental Authorities
necessary to cause the Land to be lawfully subdivided into separate and
conforming legal lots comprised of the Commercial Tract and the Residential
Tract, substantially as reflected on the proposed subdivision map (a copy of
which is attached as Exhibit A-1 to the Senior Loan Agreement); (ii) recorded
(or cause to have been recorded) within the applicable real property records of
Clark County, Nevada the final subdivision map as so approved by all applicable
Governmental Authorities (the “Final Map”);
and (iii) caused the Title Insurer to have issued an endorsement to the
title insurance insuring that, after giving effect to the recordation of the
Final Map, the Residential Tract constitutes a separate, legal lot pursuant to
applicable laws.  If any Governmental
Authority conditions approval of the proposed subdivision map on revisions
thereto, Lender shall be deemed to have consented to such revisions if and to
the extent the Senior Lender consents to such revisions in accordance with the
Senior Loan Documents.

 

(b)                                 Lender shall
execute and deliver (or shall direct the trustee under the Security Instrument
to execute and deliver) a partial release or reconveyance of the lien of the
Security Instrument with respect to the Commercial Tract, subject to and
conditioned upon the satisfaction of each of the following conditions
precedent:

 

(i)                                     The Final Map
shall have been recorded in the applicable real property records of Clark
County, Nevada;

 

(ii)                                  The Title
Insurer shall have issued an endorsement to the title insurance insuring that
the Residential Tract constitutes a separate legal lot in accordance with the
requirements of applicable law;

 

(iii)                               Borrower or Mortgagor
shall have prepared and delivered to Lender, a reciprocal easement agreement
(and any documents referenced therein or executed therewith), in such form as
is approved by the Senior Lender in accordance with the Senior Loan Documents,
duly executed by Mortgagor and Commercial Tract Borrower, encumbering the
entirety of the Land and establishing non-exclusive, perpetual and reciprocal
easements for ingress, 

 

 

50

 

egress, access and public utilities over and across
the Land (the “REA”); and

 

(iv)                              Borrower shall
have reimbursed Lender for its out-of-pocket expenses incurred in connection
with such partial release.

 

(c)                                  Lender agrees
to execute and deliver a subordination of lien, in form and substance reasonably
acceptable to Borrower and the Senior Lender, subordinating the liens and
security interests of the Security Instrument to the REA.

 

[Signatures Follow on Next Page]

 

 

51

 

IN
WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the day and year first above written.

 

BORROWER:

 

SW
131 ST. ROSE MEZZANINE BORROWER LLC,

a
Delaware limited liability company

 

	
  By:
  

  	
  SW
  130 St. Rose Limited Partnership,

  
	
   

  	
  a
  Delaware limited partnership,

  
	
   

  	
  its
  sole member

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  SW
  129 St. Rose Limited Partnership,

  
	
   

  	
   

  	
  a
  Delaware limited partnership,

  
	
   

  	
   

  	
  its
  general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:
  

  	
  SW
  104 Development GP LLC,

  
	
   

  	
   

  	
   

  	
  a
  Delaware limited liability company,

  
	
   

  	
   

  	
   

  	
  its
  general partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/
  Timothy J. Hogan

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Timothy
  J. Hogan, Vice President

  	
   

  

 

 

 

LENDER:

 

BEHRINGER
HARVARD ST. ROSE REIT, LLC,

a
Delaware limited liability company

 

	
  By:
  

  	
  Behringer
  Harvard St. Rose Venture, LLC,

  
	
   

  	
  a
  Delaware limited liability company,

  
	
   

  	
  its
  manager

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  Behringer
  Harvard St. Rose, LLC,

  
	
   

  	
   

  	
  a
  Delaware limited liability company,

  
	
   

  	
   

  	
  its
  manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:
  

  	
  /s/
  Gerald J. Reihsen, III

  	
   

  
	
   

  	
   

  	
   

  	
  Gerald
  J. Reihsen, III

  
	
   

  	
   

  	
   

  	
  Executive
  Vice President-Corporate

  
	
   

  	
   

  	
   

  	
  Development &
  Legal and Secretary

  

 

 

 

 

EXHIBIT A

 

DESCRIPTION
OF THE LAND

 

All
that land situated in the County of Clark, State of Nevada, more particularly
described as follows:

 

PARCEL
1:

 

The
North Half (N 1⁄2) of the Northwest Quarter (NW 1⁄4) of the Southwest Quarter (SW
1⁄4) of the Northwest Quarter (NW 1⁄4) of Section 35, Township 22 South, Range
61 East, M.D.B.&M., Clark County, Nevada.

 

PARCEL
2:

 

The
South Half (S 1⁄2) of the Northeast Quarter (NE 1⁄4) of the Southwest Quarter (SW
1⁄4) of the Northwest Quarter (NW 1⁄4) of Section 35, Township 22 South, Range
61 East, M.D.B.&M.

 

EXCEPTING
THEREFROM that portion lying within St. Rose Parkway.

 

PARCEL
3:

 

That
portion of the Northwest Quarter (NW 1⁄4) of Section 35, Township 22 South,
Range 61 East, M.D.M., City of Henderson, Clark County, Nevada, more particularly
described as follows:

 

The
South Half (S 1⁄2) of the Northwest Quarter (NW 1⁄4) of the Southwest Quarter (SW
1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35.

 

TOGETHER
WITH:

 

Those
portions of the North Half (N 1⁄2) of the South Half (S 1⁄2) of the Southwest
Quarter (SW 1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35 lying
Northwesterly of the Northwesterly right of way of St. Rose Parkway.

 

PARCEL
4:

 

Being
a portion of the South Half (S 1⁄2) of the Southeast Quarter (SE 1⁄4) of the
Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4) of Section 35,
Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

 

TOGETHER
WITH that portion of the North Half (N 1⁄2) of the Northeast Quarter (NE 1⁄4) of
the Southwest Quarter (SW 1⁄4) of the Northwest Quarter (NW 1⁄4), also together
with that portion of the North Half (N 1⁄2) of the Northwest Quarter (NW 1⁄4) of
said Section 35, lying Northwesterly of St. Rose Parkway, further
described as follows:

 

 

BEGINNING
at the Southeast (SE) corner of the Northwest Quarter (NW 1⁄4) of the Northwest
Quarter (NW 1⁄4) of said Section 35, said corner being marked by an aluminum
cap marked “PLS 5269, 1994, NW 1/16”;

Thence
South 41°41’09” East,
174.75 feet to the Northwesterly line of St. Rose Parkway as granted in Book
250 as Document No. 202951, Official Records, Clark County, Nevada;

Thence
along said Northwesterly line, South 46°18’51” West, 297.97 feet to
a point of intersection of said Northwesterly line with the South line of the
North Half (N 1⁄2) of the Northeast Quarter (NE 1⁄4) of the Southwest Quarter (SW
1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35;

Thence
along the lines of said North Half (N 1⁄2) the following Three (3) courses:

1)              North 89°22’43” West,
553.55 feet;

2)              North 00°33’34” West,
330.00 feet;

3)              South 89°22’04” East,
663.09 feet to the POINT OF BEGINNING;

 

EXCEPTING THEREFROM:

 

A
portion of the South Half (S 1⁄2) of the Southeast Quarter (SE 1⁄4) of the
Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35,
described as follows:

 

BEGINNING
at the Southwest (SW) corner of the South Half (S 1⁄2) of the Southeast Quarter
(SE 1⁄4) of the Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35;

Thence
North 00°33’55” West,
330.09 feet to the Northwest (NW) corner of the South Half (S 1⁄2) of the
Southeast Quarter (SE 1⁄4) of the Northwest Quarter (NW 1⁄4) of the Northwest
Quarter (NW 1⁄4) of said Section 35; Thence South 89°21’56” East,
663.21 feet to the Northeast Corner of the South Half (S1/2) of the Southeast
Quarter (SE 1⁄4) of the Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4)
of said Section 35; Thence South 00°32’39” East, 330.06 feet to
the Southeast (SE) corner of the South Half (S 1⁄2) of the Southeast Quarter (SE
1⁄4) of the Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35;
Thence North 41°41’09” West,
316.13 feet; Thence South 48°18’51” West, 153.68 feet to
the beginning of a 500 foot radius curve, concave Northwesterly; Thence along
said curve to the right, 369.29 feet through a central angle of 42°19’05” to the
POINT OF BEGINNING.

(Deed
Reference 20070720 / 2463 and 2464)

 

SURVEYOR’S
PERIMETER LEGAL DESCRIPTION:

 

THE
FOLLOWING IS A METES AND BOUNDS LEGAL DESCRIPTION OF PARCELS 1, 2, 3 AND 4
COMBINED PREPARED BY THE CERTIFYING SURVEYOR.

 

THAT
PORTION OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 35, TOWNSHIP 22
SOUTH, RANGE 61 EAST, M.D.M., CITY OF HENDERSON, CLARK COUNTY, NEVADA,
DESCRIBED AS FOLLOWS:

 

BEGINNING
AT THE SOUTHEAST CORNER OF THE NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST QUARTER
(NW 1/4) OF SAID SECTION 35; THENCE SOUTH 41°41’09” EAST, A DISTANCE OF
174.75 FEET TO THE NORTHWESTERLY RIGHT-OF-WAY LINE OF ST. ROSE PARKWAY (300.00
FEET WIDE);   THENCE SOUTH 48°18’51” 

 

 

WEST
ALONG SAID RIGHT-OF-WAY LINE, A DISTANCE OF 1,278.38 FEET TO THE SOUTH LINE OF
THE NORTH HALF (N 1/2) OF THE SOUTHWEST QUARTER (SW 1/4) OF THE SOUTHWEST
QUARTER (SW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 35;
THENCE DEPARTING SAID RIGHT-OF-WAY LINE, NORTH 89°24’01” WEST ALONG SAID SOUTH
LINE, A DISTANCE OF 477.63 FEET TO THE WEST LINE OF SAID SECTION 35;   THENCE DEPARTING SAID SOUTH LINE, NORTH
00°34’46” WEST ALONG SAID WEST LINE, A DISTANCE OF 990.37 FEET TO THE SOUTH
LINE OF THE NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF
SAID SECTION 35;   THENCE DEPARTING
SAID WEST LINE, SOUTH 89°22’04” EAST ALONG SAID SOUTH LINE, A DISTANCE OF
663.09 FEET TO THE SOUTHEAST CORNER OF THE SOUTHWEST QUARTER (SW 1/4) OF SAID
NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 35,
SAME BEING THE BEGINNING OF A CURVE, CONCAVE NORTHWESTERLY, HAVING A RADIUS OF
500.00 FEET;   THENCE DEPARTING SAID
SOUTH LINE, NORTHEASTERLY 369.29 FEET ALONG SAID CURVE, THROUGH A CENTRAL ANGLE
OF 42°19’05”;   THENCE NORTH 48°18’51”
EAST, A DISTANCE OF 153.68 FEET; THENCE SOUTH 41°41’09” EAST, A DISTANCE OF
316.13 FEET TO THE SOUTHEAST CORNER OF THE NORTHWEST QUARTER (NW 1/4) OF THE
NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 35, SAME BEING THE POINT OF
BEGINNING.

 

Prepared
by:

Michael
A. Lathan, PLS No. 14414

DRC
Surveying Nevada, Inc.

9330
West Martin Avenue

Las
Vegas, Nevada  89148

 

 

EXHIBIT B

 

[INTENTIONALLY OMITTED]

 

 

EXHIBIT C

 

PLANS

 

[ATTACHED]

 

 

EXHIBIT D

 

CONSTRUCTION
BUDGET

 

	
  LINE ITEMS

  	
   

  	
  Total Costs

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  LAND COSTS

  	
   

  	
   

  	
   

  
	
  LAND

  	
   

  	
  14,200,000.00

  	
   

  
	
  TOTAL LAND COSTS

  	
   

  	
  14,200,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HARD COSTS

  	
   

  	
   

  	
   

  
	
  Construction Hard Costs

  	
   

  	
  34,235,846.00

  	
   

  
	
  Hard Costs Contingency

  	
   

  	
  1,431,465.00

  	
   

  
	
  TOTAL HARD COSTS

  	
   

  	
  35,667,311.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SOFT COSTS

  	
   

  	
   

  	
   

  
	
  Taxes

  	
   

  	
  220,000.00

  	
   

  
	
  Legal

  	
   

  	
  375,000.00

  	
   

  
	
  Closing Costs

  	
   

  	
  100,000.00

  	
   

  
	
  Municipal Fees

  	
   

  	
  4,150,000.00

  	
   

  
	
  Architect

  	
   

  	
  700,000.00

  	
   

  
	
  Engineering & Surveying

  	
   

  	
  200,000.00

  	
   

  
	
  Preleasing

  	
   

  	
  175,000.00

  	
   

  
	
  Marketing

  	
   

  	
  465,000.00

  	
   

  
	
  Mezzanine Loan Fee

  	
   

  	
  631,296.00

  	
   

  
	
  Non-Accrual Mezzanine Interest

  	
   

  	
  6,413,523.00

  	
   

  
	
  Financing Costs

  	
   

  	
  1,501,870.00

  	
   

  
	
  Deferred Developer Offsite Overhead

  	
   

  	
  3,613,196.00

  	
   

  
	
  Interest Reserve

  	
   

  	
  1,181,558.00

  	
   

  
	
  Operating Deficit

  	
   

  	
  275,237.00

  	
   

  
	
  Soft Cost Contingency

  	
   

  	
  275,000.00

  	
   

  
	
  TOTAL SOFT COSTS

  	
   

  	
  20,276,680.00

  	
   

  
	
  TOTAL BUDGET

  	
   

  	
  70,143,991.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SOURCE

  	
   

  	
   

  	
   

  
	
  Mezzanine Debt

  	
   

  	
  21,043,197.00

  	
   

  
	
  Equity Partner

  	
   

  	
  5,172,333.00

  	
   

  
	
  TCR Cash-including Pre Development Costs

  	
   

  	
  1,715,265.00

  	
   

  
	
  Deferred Equity-Offsite Overhead

  	
   

  	
  3,613,196.00

  	
   

  
	
  TOTAL SOURCES

  	
   

  	
  31,543,991.00

  	
   

  
	
  LOAN PROCEEDS

  	
   

  	
  38,600,000.00

  	
   

  

 

 

EXHIBIT E

 

DRAW
REQUEST

 

[BORROWER’S LETTERHEAD]

 

DRAW REQUEST NO.                          

 

TO:  BEHRINGER HARVARD ST. ROSE REIT, LLC (“Lender”)

 

	
  LOAN
  NO.

  	
   

  	
  DATE

  	
   

  
	
  PROJECT

  	
  ALEXAN
  ST. ROSE

  
	
  LOCATION

  	
  HENDERSON,
  NEVADA

  
	
  BORROWER

  	
  SW
  131 ST. ROSE MEZZANINE BORROWER LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
  FOR

  PERIOD

  ENDING

  	
   

  

 

In accordance with the Senior Mezzanine Loan
Agreement in the amount of up to $21,043,197 dated December     ,
2008 between Borrower and Lender, Borrower requests that $                    
be advanced from Loan proceeds.  The
proceeds should be credited to the account of                                         ,
Account No.                     ,
at                                         .

 

	
  1.

  	
  ORIGINAL CONTRACT SUM

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  TOTAL CHANGE ORDERS

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CONTRACT SUM TO DATE
  (Line 1 + 2)

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  TOTAL
  COMPLETED & STORED TO DATE

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  SOFT COSTS 

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  RETAINAGE:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  a.

  	
   

  	
  % of Completed Work

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  b.

  	
   

  	
  % of Stored Material

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total Retainage

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  TOTAL EARNED LESS
  RETAINAGE 

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
  (Line 4 less Line 6
  Total)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  LESS PREVIOUS PAYMENTS

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  CURRENT PAYMENT DUE

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  BALANCE TO FINISH, PLUS
  RETAINAGE 

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
  (Line 3 less Line 7)

  	
   

  	
   

  	
   

  	
   

  

 

 

The undersigned Borrower represents that, to the
best of Borrower’s knowledge, information, and belief, the Work covered by this
application has been completed substantially in accordance with the
above-referenced Contract, that all amounts have been paid by Borrower for Work
for which previous payments were received from Owner, and that the current
payment requested herein represents a just estimate of reimbursement to
Borrower.  Borrower further represents
that: (i) there are no known mechanic’s liens or materialmen’s liens
outstanding at the date of this application (other than items being contested
in accordance with the Loan Documents); (ii) all due and payable bills
with respect to the Work have been paid to date 
(other than items being contested in accordance with the Loan Documents)
or are included in the amount requested in this application; (iii) except
for such bills not paid but so included, there is no known basis for the filing
of any mechanic’s liens or materialmen’s liens on the Work or the Project
(other than items being contested in accordance with the Loan Documents); and (iv) effective
waivers and releases of liens have been obtained from all subcontractors
through the immediately preceding advance of Loan proceeds (other than items
being contested in accordance with the Loan Documents).

 

This Draw Request is
executed                     ,
200    .

 

BORROWER:

 

SW
131 ST. ROSE MEZZANINE BORROWER LLC,

a
Delaware limited liability company

 

	
  By:

  	
  SW
  130 St. Rose Limited Partnership,

  	
   

  	
   

  
	
   

  	
  a
  Delaware limited partnership,

  	
   

  	
   

  
	
   

  	
  its
  sole member

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  SW
  129 St. Rose Limited Partnership,

  	
   

  	
   

  
	
   

  	
   

  	
  a
  Delaware limited partnership,

  	
   

  	
   

  
	
   

  	
   

  	
  its
  general partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  SW
  104 Development GP LLC,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  a
  Delaware limited liability company,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  its
  general partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  	
   

  

 

 

NOTES:

 

Each Draw Request shall include invoices, receipts and/or
copies of checks evidencing the Cost of Work performed during the preceding
month and unconditional lien releases for all prior payments, from General
Contractor and all Subcontractors.  Raw
materials or work-in-process at a manufacturer’s plant location are not
eligible for payment.  For materials not
yet incorporated in the Work, the following shall be provided by Borrower as a
condition to payment:

 

1.                                       Items shall be
listed separately on the Draw Request;

 

2.                                       An appropriate
transfer of title shall be executed;

 

3.                                       The methods
used to store off-Site items shall be described;

 

4.                                       Items in
storage shall be identified as property of Borrower or Mortgagor, and a
description of the identification methods used shall be submitted for approval
by Lender;

 

5.                                       A written
inventory of items and method used to verify such inventory, including
Borrower’s certification that all quantities have been received in good
condition, shall be submitted for approval by Lender; and

 

6.                                       Proof of
insurance in Borrower’s name shall be secured.

 

Lender shall have the right to verify storage by a
physical inspection prior to invoice approval and at any time thereafter.  Such payment shall not relieve Borrower of
the responsibility for protecting, safeguarding, and proper installation of the
materials.

 

 

EXHIBIT F

 

OWNERSHIP
CHART

 

[ATTACHED]

 

 

EXHIBIT G

 

PENDING
ACTIONS AT LAW

 

None.

 

 

EXHIBIT H

 

VIOLATIONS
OF PROPERTY AGREEMENTS

 

None.

 

 

EXHIBIT I

 

LEASES

 

None.

 

 

EXHIBIT J

 

FINANCIAL
INFORMATION

 

Borrower must provide the
following items, as applicable, to Lender, in addition to any other items
requested by Lender prior to Closing or during the term of this Agreement:

 

a)              Detailed accrued expense
listing for each quarter ended during the current calendar year and for the
prior full fiscal year

b)             Detailed straight line rent
schedule for each quarter ended during the current calendar year and for the
prior full fiscal year

c)              Details/abstracts of all
permits and licenses for tenants (i.e. satellite dishes on roof)

d)             Detailed listing of all
tenants with termination options

e)              Listing of all service
contracts and equipment leases, including contracts for elevator, landscaping,
electricity, cleaning, HVAC service, security, pest control, disposal, parking
lot maintenance, insurance, etc.

f)                Access to service contracts

g)             Detail of the cash receipts
and disbursements journal, downloaded to Excel if possible for the prior full
fiscal year and the year to date period of the current year

h)             Detailed general ledger of
revenues and expenses for each quarter during the current calendar year and the
prior full fiscal year

i)                 Detailed income statements
by month for the current year and for the prior full fiscal year

j)                 Copies of property tax
invoices for the current year and the previous full fiscal year

k)              Operating expense
reconciliations by tenant for the current year to date period and the previous
full fiscal year

l)                 Rent roll – current year and
prior year end

m)           Lease abstracts, including
amendments, exhibits and side letters for each tenant

n)             Management/leasing
agreement, current year and prior year end

o)             Check registers for the
period from the current year to date period being reviewed through the date of
the accountants/auditors field work

p)             Access to vendor accounts
payable files

q)             Leases in effect during the
prior full fiscal year and during the current year being reviewed

 

 

EXHIBIT K

 

FORM OF
SUBORDINATION OF MANAGEMENT AGREEMENT

 

[ATTACHED]

 

 

 

 

 

 

JUNIOR MEZZANINE LOAN AGREEMENT

 

 

 

BY

 

 

 

AND
BETWEEN

 

 

 

SW
131 ST. ROSE MEZZANINE BORROWER LLC

(“Borrower”)

 

 

 

AND

 

 

 

BEHRINGER
HARVARD ST. ROSE REIT, LLC

(“Lender”)

 

 

 

 

 

 

 

	
  1.

  	
  RECITALS

  	
  2

  
	
  2.

  	
  DEFINITIONS

  	
  2

  
	
  3.

  	
  THE LOAN; DISBURSEMENT
  OF LOAN

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Loan

  	
  9

  
	
   

  	
  (b)

  	
  Loan Disbursements

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  INTEREST PAYMENTS; NO
  USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY; REPAYMENT

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Interest

  	
  9

  
	
   

  	
  (b)

  	
  No Usury

  	
  10

  
	
   

  	
  (c)

  	
  Intentionally Deleted

  	
  11

  
	
   

  	
  (d)

  	
  Prepayment

  	
  11

  
	
   

  	
  (e)

  	
  Maturity Date

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  SECURITY FOR LOAN;
  GUARANTY

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Security Instrument

  	
  11

  
	
   

  	
  (b)

  	
  Other Loan Documents

  	
  11

  
	
   

  	
  (c)

  	
  Guaranty

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  CONDITIONS PRECEDENT TO
  CLOSING OF THE LOAN

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Loan Documents

  	
  11

  
	
   

  	
  (b)

  	
  Third Party Agreements

  	
  12

  
	
   

  	
  (c)

  	
  Certification

  	
  12

  
	
   

  	
  (d)

  	
  Financial Statements

  	
  12

  
	
   

  	
  (e)

  	
  Insurance Policies

  	
  12

  
	
   

  	
  (f)

  	
  Contracts

  	
  13

  
	
   

  	
  (g)

  	
  Title Insurance Policy

  	
  13

  
	
   

  	
  (h)

  	
  ALTA Survey

  	
  13

  
	
   

  	
  (i)

  	
  Flood Plain Certification

  	
  13

  
	
   

  	
  (j)

  	
  Appraisal

  	
  13

  
	
   

  	
  (k)

  	
  Environmental Report

  	
  13

  
	
   

  	
  (l)

  	
  Certification of Organizational Documents

  	
  13

  
	
   

  	
  (m)

  	
  Legal Opinion

  	
  13

  
	
   

  	
  (n)

  	
  UCC Searches

  	
  14

  
	
   

  	
  (o)

  	
  Utilities

  	
  14

  
	
   

  	
  (p)

  	
  Environmental Disclosure

  	
  14

  
	
   

  	
  (q)

  	
  No Default

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  TITLE INSURANCE

  	
  14

  
	
  8.

  	
  INSURANCE

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Insurance Requirements

  	
  14

  
	
   

  	
  (b)

  	
  Initial Policies; Renewals

  	
  16

  
	
   

  	
  (c)

  	
  Notices

  	
  16

  
	
   

  	
  (d)

  	
  Notice of Casualty

  	
  16

  
	
   

  	
  (e)

  	
  Settlement of Claim

  	
  16

  

 

 

i

 

	
   

  	
  (f)

  	
  Application of Insurance Proceeds

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  EMINENT DOMAIN

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Notice of Condemnation

  	
  17

  
	
   

  	
  (b)

  	
  Settlement of Claim

  	
  18

  
	
   

  	
  (c)

  	
  Application of Condemnation Awards

  	
  18

  
	
   

  	
  (d)

  	
  Continuing Obligation to Repair

  	
  18

  
	
   

  	
  (e)

  	
  Lender Not Required to Act

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  RIGHTS OF ACCESS AND
  INSPECTION

  	
  18

  
	
  11.

  	
  EXPENSES

  	
  19

  
	
  12.

  	
  FINANCIAL REPORTS,
  PROPERTY REPORTS AND ANNUAL BUDGET

  	
  19

  
	
  13.

  	
  GENERAL COVENANTS OF
  BORROWER

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Commencement and Completion of Project

  	
  21

  
	
   

  	
  (b)

  	
  Lender Approval

  	
  21

  
	
   

  	
  (c)

  	
  Operation and Maintenance of Project

  	
  22

  
	
   

  	
  (d)

  	
  Restricted Sale and Encumbrance of Project and of
  Borrower Interests; Other Indebtedness

  	
  23

  
	
   

  	
  (e)

  	
  General Indemnity

  	
  24

  
	
   

  	
  (f)

  	
  Leases

  	
  25

  
	
   

  	
  (g)

  	
  Notices

  	
  26

  
	
   

  	
  (h)

  	
  Development

  	
  26

  
	
   

  	
  (i)

  	
  Management

  	
  26

  
	
   

  	
  (j)

  	
  Senior Loan

  	
  26

  
	
   

  	
  (k)

  	
  Principal Place of Business; Choice of Law

  	
  27

  
	
   

  	
  (l)

  	
  Compliance with Governmental Prohibitions

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  FURTHER ASSURANCES

  	
  28

  
	
  15.

  	
  APPRAISALS

  	
  28

  
	
  16.

  	
  GENERAL REPRESENTATIONS
  AND WARRANTIES OF BORROWER

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Organization; Corporate Powers; Authorization of
  Borrowing

  	
  28

  
	
   

  	
  (b)

  	
  Title to Property; Matters Affecting Property

  	
  29

  
	
   

  	
  (c)

  	
  Financial Statements

  	
  31

  
	
   

  	
  (d)

  	
  Budget Projections

  	
  31

  
	
   

  	
  (e)

  	
  Intentionally Deleted

  	
  32

  
	
   

  	
  (f)

  	
  No Loan Broker

  	
  32

  
	
   

  	
  (g)

  	
  No Default

  	
  32

  
	
   

  	
  (h)

  	
  Solvency

  	
  32

  
	
   

  	
  (i)

  	
  Violations of Governmental Prohibitions

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  EVENT OF DEFAULT

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Non-Payment

  	
  33

  
	
   

  	
  (b)

  	
  Insurance

  	
  33

  
	
   

  	
  (c)

  	
  Special Purpose Entity Covenants

  	
  33

  
	
   

  	
  (d)

  	
  Borrower

  	
  33

  
	
   

  	
  (e)

  	
  Guaranty

  	
  33

  
	
   

  	
  (f)

  	
  Construction

  	
  33

  

 

 

ii

 

	
   

  	
  (g)

  	
  Fraud or Material Misrepresentation

  	
  33

  
	
   

  	
  (h)

  	
  Sale, Encumbrance or Other Indebtedness

  	
  34

  
	
   

  	
  (i)

  	
  Reports and Documents

  	
  34

  
	
   

  	
  (j)

  	
  Other Breaches under this Agreement.

  	
  34

  
	
   

  	
  (k)

  	
  Other Breaches Under Other Loan Documents

  	
  34

  
	
   

  	
  (l)

  	
  Senior Loan Documents

  	
  34

  
	
   

  	
  (m)

  	
  Judgments

  	
  34

  
	
   

  	
  (n)

  	
  Bankruptcy Proceedings

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  REMEDIES

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Actions upon Event of Default

  	
  35

  
	
   

  	
  (b)

  	
  Lender’s Right to Perform

  	
  36

  
	
   

  	
  (c)

  	
  Appointment of Lender as Attorney-in-Fact

  	
  36

  
	
   

  	
  (d)

  	
  Cross-Default to Note, Security Instrument, and
  Other Loan Documents

  	
  36

  
	
   

  	
  (e)

  	
  Recourse Limitations

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
  ADDITIONAL ADVANCES

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Disbursement of Additional Advances

  	
  37

  
	
   

  	
  (b)

  	
  Conditions Precedent to Additional Advance.

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
  TRANSFER OF LOAN; LOAN
  SERVICER

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Lender’s Right to Transfer

  	
  39

  
	
   

  	
  (b)

  	
  Loan Servicer

  	
  39

  
	
   

  	
  (c)

  	
  Dissemination of Information

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
  LENDER’S EXPENSES;
  RIGHTS OF LENDER

  	
  39

  
	
  22.

  	
  MISCELLANEOUS

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Notices

  	
  40

  
	
   

  	
  (b)

  	
  Waivers

  	
  41

  
	
   

  	
  (c)

  	
  Lender Not Partner of Borrower; Borrower in Control

  	
  41

  
	
   

  	
  (d)

  	
  No Third Party

  	
  42

  
	
   

  	
  (e)

  	
  Time of Essence; Context

  	
  42

  
	
   

  	
  (f)

  	
  Successors and Assigns

  	
  42

  
	
   

  	
  (g)

  	
  Governing Jurisdiction

  	
  42

  
	
   

  	
  (h)

  	
  SUBMISSION TO JURISDICTION; SERVICE OF PROCESS

  	
  42

  
	
   

  	
  (i)

  	
  WAIVER WITH RESPECT TO DAMAGES

  	
  43

  
	
   

  	
  (j)

  	
  Entire Agreement

  	
  44

  
	
   

  	
  (k)

  	
  Headings

  	
  44

  
	
   

  	
  (l)

  	
  Severability

  	
  44

  
	
   

  	
  (m)

  	
  Counterparts

  	
  44

  
	
   

  	
  (n)

  	
  WAIVER OF JURY TRIAL

  	
  44

  
	
   

  	
  (o)

  	
  Sole and Absolute Discretion

  	
  44

  
	
   

  	
  (p)

  	
  Straight Debt Harbor

  	
  45

  
	
   

  	
  (q)

  	
  Assignment

  	
  45

  
	
   

  	
  (r)

  	
  Retainage of Subcontractors

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  23.

  	
  SPECIAL
  REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER

  	
  45

  

 

 

iii

 

	
  24.

  	
  SENIOR MEZZANINE LOAN

  	
  48

  
	
  25.

  	
  SUBDIVISION AND RELEASE

  	
  49

  

 

 

iv

 

 

JUNIOR MEZZANINE LOAN AGREEMENT

 

This JUNIOR MEZZANINE LOAN AGREEMENT (this “Agreement”) is made and entered into as of December 31,
2008, by and between SW 131 ST. ROSE MEZZANINE BORROWER LLC, a Delaware limited
liability company, whose address is 2001 Bryan Street, Suite 3250, Dallas,
Texas 75201 (“Borrower”), and BEHRINGER HARVARD
ST. ROSE REIT, LLC, a Delaware limited liability company, whose address is
15601 Dallas Parkway, Suite 600, Addison, Texas, 75001 (“Lender”).

R E C I T A L S:

 

This Agreement is made with reference to the following facts:

 

A.         Borrower is
directly or indirectly the legal and beneficial owner of one-hundred percent
(100%) of the Equity Interests in SW 132 ST. ROSE SENIOR BORROWER LLC, a
Delaware limited liability company (“Mortgagor”).

 

B.            Mortgagor is
the owner of that certain land located in Henderson, Clark County, Nevada, and
more particularly described on Exhibit A attached hereto, together
with appurtenances (the “Land”). The
Land is comprised of a portion that is zoned RH-36 (High Density Residential),
which is generally the western 18.151 acres of the Land (the “Residential Tract”) and a portion that is
zoned CC-PUD (Community Commercial with Planned Unit Development Overlay),
which is generally the eastern 6.271 acres of the Land (the “Commercial Tract”). Mortgagor will
construct on the Residential Tract a 430-unit apartment complex (the “Project”).

 

C.            Contemporaneously
herewith, Mortgagor will enter into a Construction Loan Agreement with Bank of
America, N.A. and the lenders who from time to time agree to fund parts of such
loan (“Senior Lender”), providing a loan in
the amount of Thirty Eight Million Six Hundred Thousand and No/Dollars
($38,600,000) (the “Senior Loan”),
secured by a deed of trust, of even date herewith (together with any and all
extensions, renewals, substitutions, replacements, amendments, modifications
and/or restatements thereof) in favor of Senior Lender encumbering the Land and
the Project.

 

D.            Contemporaneously
with entering into the Senior Loan, SW 122 St. Rose Senior Borrower LLC, a
Delaware limited liability company (“Commercial Tract Borrower”),
will enter into a Term Loan Agreement with Bank of America, N.A., as lender for
its sole account (“Commercial Tract Lender”),
providing a loan in the amount of Two Million Nine Hundred Fifty Thousand and
No/Dollars ($2,950,000) (the “Commercial
Tract Loan”), secured by a deed of trust, of even date herewith
(together with any and all extensions, renewals, substitutions, replacements,
amendments, modifications and/or restatements thereof) in favor of Commercial
Tract Lender encumbering the Land and the Project.

 

 

1

 

E.             Borrower has
requested that Lender, as lender, make one or more loans to Borrower in the
aggregate amount of Twenty One Million Forty Three Thousand One Hundred Ninety
Seven and No/Dollars ($21,043,197) (the “Maximum Aggregate Advance
Amount”), one of such loans (the “Loan”)
will be made pursuant to this Agreement, which Loan is to be advanced as hereinafter
provided and is to be evidenced by the Note. $14,185,154 of the Maximum
Aggregate Advance Amount will be advanced under the Senior Mezzanine Loan
Agreement, subject to the terms and provisions of the Senior Mezzanine Loan
Agreement, and $1,000 of the Loan will be advanced under this Agreement at the
execution of this Agreement (the “Initial Advance”),
subject to the terms and provisions of this Agreement. The Note is to be
secured by the Junior Subordinate Deed of Trust, Assignment of Rents and Leases,
Security Agreement, Fixture Filing and Financing Statement (the “Security Instrument”) and other collateral as specified in Section 5
below.

 

F.             Mortgagor is
currently pursuing a subdivision of the Land and intends to convey to
Commercial Tract Borrower the Commercial Tract. When Commercial Tract Borrower
acquires title to the Commercial Tract (the “Transfer
Date”), the lien of the Security Instrument will be partially
released as to the Commercial Tract.

 

G.            The proceeds of
the Loan are to be used by Borrower to, among other things, pay the costs and
expenses, if any, referred to in Section 3(b) below.

 

NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and agreements hereinafter contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

1.             RECITALS. The recitals
set forth above are true and correct and are incorporated herein by reference.

 

2.             DEFINITIONS. The following
terms, when used in this Agreement (including when used in the above recitals),
shall have the following meanings:

 

(a)                                  “Accounting
Records”: shall mean such records used to prepare financial
statements including but not limited to: (i) supporting documentation for
cash disbursements (including check copies and invoices); (ii) supporting
documentation for cash receipts (including deposit slips); (iii) contracts;
(iv) check registers; (v) monthly bank account reconciliations; (vi) general
ledger; (vii) job cost detail of construction in progress in the same form
as provided to Senior Lender; (viii) detail of draw requests on the Senior
Loan; (ix) Senior Lender’s monthly loan statement; and (x) such other
documentation in the possession of Borrower or its Affiliates or which Borrower
will use all commercially reasonable efforts to acquire, as Lender shall
reasonably require for the preparation of financial statements for the Project,
Mortgagor or Borrower.

 

 

2

 

(b)                                 “ADA”
shall mean Americans with Disabilities Act of 1990, Pub. L. No. 89-670,
104 Stat. 327 (1990), as amended, and all regulations promulgated pursuant
thereto.

 

(c)                                  “Additional
Advance”: shall have the meaning given in Section 19
hereof.

 

(d)                                 “Affiliate”:
of any specified person or entity shall mean any other person or entity,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified person or entity. For purposes of
this definition, “control” shall mean the ability, whether by the ownership of
shares or other equity interests, by contract or otherwise, to elect a majority
of the directors of a corporation, to make management decisions on behalf of,
or independently to select the managing partner of, a partnership, or otherwise
to have the power independently to remove and then select a majority of those
individuals exercising managerial authority over an entity. Control of an
entity shall be conclusively presumed in the case of the ownership of more than
50% of the equity interests in the entity.

 

(e)                                  “Annual
Budget”: shall mean, for any period, the budget submitted to Lender
and in effect for such period as provided in Section 12 hereof.

 

(f)                                    “Approved
Change Orders”: shall mean any change orders to the Plans requested
by the Borrower and approved by the Lender as outlined in Section 13(b) hereof.

 

(g)                                 “Available
Assets”: shall have the meaning given in the Guaranty.

 

(h)                                 “Bankruptcy
Proceedings”: shall have the meaning given in Section 17(n).

 

(i)                                     “Borrower”:
means the entity identified as “Borrower” in the first paragraph of this
Agreement, together with its successors and assigns.

 

(j)                                     “Business Day”: shall mean all days other than Saturday,
Sunday or any other day on which national banks doing business in Dallas,
Texas are not open for business.

 

(k)                                  “Code”:
the Internal Revenue Code of 1986, as amended from time to time, or the
corresponding provisions of any successor federal income tax law. Any reference
to a particular provision of the Code shall include any amendment of such
provision or the corresponding provision of any successor federal income tax
law.

 

(l)                                     “Collateral”:
shall have the meaning given in the Security Instrument.

 

 

3

 

(m)                               “Commercial
Deed of Trust”: shall mean that certain deed of trust made by the
Mortgagor for the benefit of the Commercial Tract Lender, which prior to the
Transfer Date, will encumber both the Residential Tract and the Commercial
Tract, and after the Transfer Date will encumber only the Commercial Tract.

 

(n)                                 “Commercial
Tract”: shall have the meaning given in the Recitals of this
Agreement.

 

(o)                                 “Commercial
Tract Borrower”: shall have the meaning given in the Recitals of
this Agreement.

 

(p)                                 “Commercial
Tract Lender”: shall have the meaning given in the Recitals of this
Agreement.

 

(q)                                 “Commercial
Tract Loan”: shall have the meaning given in the Recitals of this
Agreement.

 

(r)                                    “Completion”:
shall have the meaning given in the Guaranty.

 

(s)                                  “Construction
Budget”: shall mean the construction budget attached hereto as Exhibit D.

 

(t)                                    “Default
Interest Rate”: shall have the meaning given in the Note.

 

(u)                                 “Draw Request”:
shall mean a request for additional advances on the Loan and/or under the
Senior Mezzanine Loan Agreement submitted by Borrower in the form attached
hereto as Exhibit E.

 

(v)                                 “Encumbrance”:
shall mean any pledge, encumbrance, hypothecation or other grant of security
interest, whether direct or indirect, voluntary or involuntary or by operation
of law, and whether or not consented to by Lender, of or in (i) all or any
portion of, or interest in, the Project (other than any encumbrance by the
Senior Loan Documents and the Permitted Exceptions), or (ii) any Equity
Interests in Mortgagor, or (iii) any part of the Principal’s Equity
Interests in Borrower.

 

(w)                               “Environmental
Indemnity”: shall mean the Mezzanine Environmental Indemnity
Agreement of even date herewith, executed by Borrower and containing
representations, warranties, covenants and indemnities in favor of Lender with
respect to Hazardous Materials.

 

(x)                                   “Equity
Interests”: means, with respect to any Person, shares of capital
stock, partnership interests, membership interests in a limited liability
company, beneficial interests in a trust or other equity ownership interests in
such Person, and any warrants, options or other rights entitling the holder
thereof to purchase or acquire from such Person any such equity interest issued
by such Person.

 

 

4

 

(y)                                 “Estimated
Collateral Value Statement”: shall have the meaning given in the
Guaranty.

 

(z)                                   “Estimated
Value” means the estimated value of the property encumbered by the
Security Instrument, as such value may be determined from time to time by
Lender, less the amount, if any, of all other debt secured by such property
that is senior to both the Loan and the loan under the Senior Mezzanine Loan
Agreement.

 

(aa)                            “Event of
Default”: shall have the meaning given in Section 17
hereof.

 

(bb)                          “Final Map”:
shall have the meaning given in Section 25 hereof.

 

(cc)                            “General
Contractor”: means TCR Nevada Construction Limited Partnership, a
Texas limited partnership.

 

(dd)                          “Governmental
Authority”: shall mean any federal, state, county, municipal,
parish, provincial, tribal or other government, or any department, commission,
board, court, agency (including, without limitation, the U. S. Environmental
Protection Agency), whether of the United States of America or any other
country, or any instrumentality of any of them, or any other political
subdivision thereof (a) in which any portion of the Land is located, (b) in
which any of Mortgagor, Borrower, Guarantor or Lender is located or conducts
business, or (c) exercising jurisdiction over Mortgagor, Borrower,
Guarantor or Lender, or any of the Land, and any entity exercising legislative,
judicial, regulatory, or administrative functions of, or pertaining to,
government including, without limitation, any arbitration panel, any court or
any commission.

 

(ee)                            “Governmental
Requirements”: shall mean all laws, ordinances, rules, regulations,
orders and directives of any Governmental Authority applicable to any of
Mortgagor, Borrower, Guarantor, Lender or any of the Land, including, without
limitation, all applicable licenses, building codes, restrictive covenants,
zoning and subdivision ordinances, flood disaster, health and environmental
laws and regulations, and the ADA.

 

(ff)                                “Guarantor”: shall mean
CFP Residential, L.P., Kenneth J. Valach, J. Ronald Terwilliger, and Bruce
Hart.

 

(gg)                          “Guaranty”:
means that certain Mezzanine Guaranty, of even date herewith, executed by the
Guarantors, jointly and severally, in favor of Lender.

 

(hh)                          “Hazardous
Materials”: shall have the meaning given in the Environmental
Indemnity.

 

(ii)                                  “Indebtedness”:
shall mean the principal of, interest on, and any other amounts due at any time
under, this Agreement, the Note, the Security

 

 

5

 

Instrument or any other Loan Document, including prepayment premiums,
late charges, default interest, and advances to protect the security of the
Collateral.

 

(jj)                                  “Initial
Advance”: shall have the meaning given in the Recitals of this
Agreement.

 

(kk)                            “Inspecting
Architects/Engineers”: shall mean architects and/or engineers
selected by Borrower and reasonably acceptable to Lender.

 

(ll)                                  “Junior
Mezzanine Advance Amount” means the principal amount outstanding
under the Loan.

 

(mm)                      “Land”: shall have the meaning given in the Recitals of this Agreement;
provided, however, that from and after the Transfer Date, the Land shall be
deemed to be comprised solely of the Residential Tract.

 

(nn)                          “Leases”:
shall mean all present and future leases, subleases, licenses, concessions or
other possessory interests now or hereafter in force, whether oral or written,
covering or affecting the Project, or any portion of the Project, and all
modifications, extensions or renewals.

 

(oo)                          “Lender”:
means the entity identified as “Lender” in the first paragraph of this
Agreement and its successors and assigns.

 

(pp)                          “Loan”:
shall have the meaning given in the Recitals of this Agreement.

 

(qq)                          “Loan
Documents”: shall mean the Note, this Loan Agreement, the Security
Instrument, the Guaranty, the Environmental Indemnity, and all other documents
executed by Borrower or Guarantors to evidence, secure or set out the terms of
the Loan, each as the same may hereafter be amended, modified and restated from
time to time.

 

(rr)                                “Management
Agreement”: shall mean the Management Agreement, to be entered into
between Mortgagor and Manager, upon the approval of Lender, pursuant to which
Manager will agree to manage the operations of the Project, as the same may be
amended from time to time, or any other management agreement approved by Lender
pursuant to Section 13(i) .

 

(ss)                            “Manager”:
shall mean a property management company approved by Lender pursuant to Section 13(i) hereof.

 

(tt)                                “Maturity
Date” shall have the meaning given in the Note.

 

(uu)                          “Maximum
Aggregate Advance Amount” shall have the meaning given in the
Recitals of this Agreement.

 

 

6

 

(vv)                          “Mortgagor”:
shall have the meaning given in the Recitals of this Agreement.

 

(ww)                      “Note”:
shall mean that certain Junior Mezzanine Promissory Note, dated of even date
herewith, in the Maximum Aggregate Advance Amount, made payable by Borrower to
the order of Lender, evidencing all amounts outstanding under the Loan from
time to time, as the same may be amended from time to time.

 

(xx)                              “Permits”:
shall mean all licenses, permits, approvals, franchises, privileges,
immunities, grants, ordinances, classifications, certificates and registrations
which are necessary for Mortgagor to develop, construct and operate the
Project.

 

(yy)                          “Permitted
Exceptions”: shall mean (1) the title exceptions included in
the Policy required to be delivered to Lender pursuant to Section 7(a) hereof,
as the same may be endorsed from time to time with the consent of the Lender, (2) liens
and security interests securing the Loan, the Senior Loan and, prior to the
Transfer Date, the Commercial Tract Loan, (3) liens for taxes, assessments
or other governmental charges or levies that are not then due or that are being
contested in good faith and in accordance with applicable statutory procedures,
(4) mechanic’s liens against the Project which are bonded off, released of
record or otherwise remedied to Lender’s reasonable satisfaction within 30 days
of the date of creation, (5) Leases entered into on terms allowed by this
Agreement and (6) other matters approved in writing by Lender, which
includes any liens and security interests granted in connection with the Senior
Mezzanine Loan Agreement or the loan thereunder.

 

(zz)                              “Person”:
shall mean any individual, corporation, partnership, limited liability company,
joint venture, estate, trust, or unincorporated association, any other entity,
any federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of the
foregoing.

 

(aaa)                      “Plans”:
shall mean the plans and specifications identified in Exhibit C
hereto.

 

(bbb)                   “Policy”: shall
have the meaning given in Section 7(a) hereof.

 

(ccc)                      “Principal”:
shall mean SW 130 St. Rose Limited Partnership, a Delaware limited partnership,
the sole member of Borrower and the holder of all Equity Interests in Borrower,
and any person or entity who becomes the owner of any Equity Interest in
Borrower after the date of this Agreement and is identified as such in an
amendment or supplement to this Agreement.

 

 

7

 

(ddd)                   “Project”: shall
have the meaning given in the Recitals of this Agreement. The Project includes
the Residential Tract.

 

(eee)                      “REA”:
shall have the meaning given in Section 25 hereof.

 

(fff)                            “Residential
Tract”: shall have the meaning given in the Recitals of this
Agreement.

 

(ggg)                   “Sale”: shall
mean any sale, assignment, transfer, conveyance or other disposition, whether
voluntary or involuntary, and whether or not consented to by Lender of (i) all
or any portion of, or interest in, the Land or the Project (other than the
conveyance of the Commercial Tract to the Commercial Tract Borrower), (ii) all
or any portion of the Equity Interests in Mortgagor, or (iii) all or any
portion of the Principal’s Equity Interests in Borrower.

 

(hhh)                   “Security Instrument”:
shall have the meaning given in the Recitals to this Agreement.

 

(iii)                               “Senior Deed
of Trust”: shall mean that certain deed of trust securing the Senior
Loan.

 

(jjj)                               “Senior Indemnity”: shall mean the Environmental Indemnity
Agreement between Mortgagor, Senior Lender and the other parties thereto.

 

(kkk)                      “Senior Loan”:
shall have the meaning given in the Recitals of this Agreement.

 

(lll)                               “Senior Loan
Agreement”: shall mean the Construction Loan Agreement between
Senior Lender and Mortgagor evidencing the Senior Loan.

 

(mmm)             “Senior Loan Documents”:
shall mean the Senior Note, the Senior Deed of Trust, the Senior Loan
Agreement, the Senior Indemnity Agreement, any guaranty provided by the
guarantors to the Senior Loan, financing statements filed in connection with
the Senior Loan, and all other documents executed by Mortgagor or Guarantor in
favor of Senior Lender to evidence or secure the Senior Loan or reasonably
related to the Senior Loan, including, but not limited to, budgets and draw
requests, as each may be amended, modified or restated with the consent of
Senior Lender.

 

(nnn)                   “Senior Mezzanine Advance
Amount” means the principal amount outstanding on the Senior
Mezzanine Loan Agreement.

 

(ooo)                   “Senior Mezzanine Loan
Agreement” means that certain Senior Mezzanine Loan Agreement
between Borrower and Lender dated of even date herewith.

 

 

8

 

(ppp)                   “Senior Note”: shall
mean the promissory notes evidencing the Senior Loan and all schedules, riders,
allonges and addenda, as such promissory notes may be amended from time to time
with the consent of Senior Lender.

 

(qqq)                   “Title Insurer”:
shall mean Chicago Title Insurance Company.

 

(rrr)                            “Third Party
Agreement”: shall mean any agreement other than Leases and the
Permitted Exceptions that will be binding on the Project, Mortgagor or Borrower
after the closing of the Loan.

 

(sss)                      “Transfer
Date”: shall have the meaning given in the Recitals of this
Agreement.

 

3.             THE LOAN;
DISBURSEMENT OF LOAN.

 

(a)                                  Loans. On the basis
of the covenants, agreements and representations of Borrower contained herein
and comparable provisions of the Senior Mezzanine Loan Agreement and subject to
the terms and conditions hereinafter set forth and comparable provisions of the
Senior Mezzanine Loan Agreement, Lender shall lend to Borrower the Maximum
Aggregate Advance Amount, the proceeds of which are to be disbursed by Lender
in accordance with the provisions of Section 3(b) hereof and
comparable provisions of the Senior Mezzanine Loan Agreement.

 

(b)                                 Loan Disbursements. At the
execution of this Agreement, Lender has advanced the Initial Advance to the
Borrower. All Additional Advances against the Loan will be disbursed in
accordance with Section 19 hereof. Upon submission by Borrower of a
Draw Request, Lender shall (subject to satisfaction of the terms and conditions
of Section 19) advance to Borrower hereunder against the Loan the amount
requested by Borrower less the portion thereof, if any, simultaneously advanced
pursuant to the Senior Mezzanine Loan Agreement. In no event shall the
aggregate principal amount outstanding hereunder exceed the Maximum Aggregate
Advance Amount less the Senior Mezzanine Advance Amount as it stands at such
time.

 

4.             INTEREST PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY;
REPAYMENT.

 

(a)                                  Interest. Interest on
the principal balance of the Loan shall accrue and shall be payable in the
amounts and at the times set forth in the Note. Borrower agrees to pay, on the
Maturity Date, the unpaid principal balance of the Loan, together with all
accrued but unpaid interest thereon.

 

(b)                                 No Usury. The
provisions of this Agreement, the Note, the Security Instrument and of all
other agreements between Borrower and Lender, whether now existing or hereafter
arising and whether written or oral,

 

 

9

 

including, but not limited to, the Loan Documents, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
demand or acceleration of the maturity of this Note or otherwise, shall the
amount contracted for, charged, taken, reserved, paid, or agreed to be paid to
Lender for the use, forbearance, retention or detention of the money loaned
under the Note and related indebtedness exceed the maximum amount permissible
under applicable law. If, from any circumstance whatsoever, performance or
fulfillment of any provision hereof or of any agreement between Borrower and
Lender shall, at the time performance or fulfillment of such provision shall be
due, exceed the limit for interest prescribed by law or otherwise transcend the
limit of validity prescribed by applicable law, then ipso facto the obligation
to be performed or fulfilled shall be reduced to such limit; and if, from any
circumstance whatsoever, Lender shall ever receive anything of value deemed
interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive interest shall be applied to the reduction of the
principal balance owing under the Note in the inverse order of its maturity
(whether or not then due) or at the option of Lender be paid over to Borrower,
and not to the payment of interest. All interest (including any amounts or
payments judicially or otherwise under the law deemed to be interest)
contracted for, charged, taken, reserved, paid or agreed to be paid to Lender
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of the Note, including any
extensions or renewals thereof, until payment in full of the Indebtedness so
that the interest on the Loan for such full period will not exceed at any time
the maximum amount permitted by applicable law. To the extent that Lender is
relying on Chapter 303, as amended, of the Texas Finance Code to determine
the maximum amount of interest permitted by applicable law on the principal of
the Loan, Lender will utilize the weekly rate ceiling from time to time in
effect as provided in such Chapter 303, as amended. To the extent United
States federal law permits a greater amount of interest on the Loan than is
permitted under Texas law, Lender will rely on United States federal law
instead of such Chapter 303, as amended, for the purpose of determining
the maximum amount permitted by applicable law. Additionally, to the extent
permitted by applicable law now or hereafter in effect, Lender may, at its
option and from time to time, implement any other method of computing the
maximum lawful rate under such Chapter 303, as amended, or under other
applicable law by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect. This Section 4(b) will
control all agreements between Borrower and Lender.

 

(c)                                  Intentionally Deleted.

 

(d)                                 Prepayment. All amounts
due and owing under the Note from time to time may only be prepaid in
accordance with the terms of the Note except at any time after 150 days after
Completion.

 

 

10

 

(e)                                  Maturity Date.

 

(i)                                     The outstanding principal
balance of the Note and all accrued and unpaid interest thereon shall become
due and payable on the Maturity Date unless the same is otherwise accelerated
in accordance with the provisions hereof or the other Loan Documents.

 

(ii)                                  Subject to the provisions of
Section 13(d) hereof, in the event that the Senior Note is
paid in full at any time prior to the Maturity Date of the Loan, the
Indebtedness shall then be immediately due and payable regardless of the then
stated Maturity Date of the Loan.

 

5.             SECURITY FOR LOAN; GUARANTY.

 

(a)                                  Security Instrument. The Loan
shall be secured by, among other things, the Security Instrument.

 

(b)                                 Other Loan Documents. The Loan
shall be further secured and supported by the Environmental Indemnity and the
other Loan Documents.

 

(c)                                  Guaranty. As additional
security for the Loan, the Guarantors shall execute and deliver to Lender the
Guaranty.

 

6.             CONDITIONS PRECEDENT TO CLOSING
OF THE LOAN. Prior to the funding of the Loan (unless otherwise
provided), all of the following conditions shall have been satisfied, and/or
Borrower, Guarantor or Mortgagor, as applicable, shall have furnished to Lender
the following, all in form and substance satisfactory to Lender in its sole and
absolute discretion:

 

(a)                                  Loan Documents. Borrower,
Guarantor and Mortgagor, as applicable, shall have provided to Lender duly
executed and, where appropriate, notarized originals of the Loan Documents,
each satisfactory to Lender in its sole and absolute discretion, including the
following:

 

(i)                                     this Agreement;

 

(ii)                                  the Note;

 

(iii)                               the Security Instrument, in
recordable form in the State of Nevada;

 

(iv)                              the Guaranty;

 

(v)                                 the Environmental Indemnity;

 

(vi)                              Certification of
Organizational Documents; and

 

 

11

 

(vii)                           such other agreements by
Borrower as may be required by other provisions of this Agreement.

 

(b)                                 Third Party Agreements.

 

(i)                                     Copies. Borrower
shall have provided to Lender executed copies, certified by Borrower as being
true, correct and complete, of the Senior Loan Documents and the other Third
Party Agreements then in effect, if any.

 

(ii)                                  Intercreditor and
Subordination Agreement. Senior Lender shall have provided to Lender
an executed copy of that certain Intercreditor and Subordination Agreement by
and between Senior Lender and Lender dated of even date herewith.

 

(c)                                  Certification. Borrower shall
have provided to Lender a certification by Borrower as of the date of this
Agreement (which is the date that the commitment of Lender to make the Loan to
Borrower becomes binding on Lender) of the Construction Budget and the
reasonably estimated costs of the improvements that would be capitalized by
Mortgagor as real property for federal income tax purposes consistent with past
practices of the affiliates of Mortgagor.

 

(d)                                 Financial Statements. Borrower
shall have provided to Lender with (i) respect to Borrower, Mortgagor, and
the Project, financial statements and other financial information (including
but not limited to the items listed on Exhibit J after Completion
of the Project and to the extent not already provided pursuant to Section 12
hereof), certified by Borrower and Mortgagor as being true, correct and
complete in all material respects, and in the form and containing the detail
and supporting information as required by Lender for the underwriting for the
Loan, and (ii) with respect to all Guarantors, the Estimated Collateral
Value Statement, dated as of June 30, 2008.

 

(e)                                  Insurance Policies. Borrower
shall have provided to Lender the original insurance policies, certified copies
thereof or certificates thereof, together with evidence of premium payments,
for the insurance as more fully provided in Section 8 hereof, which
should include Hazard and Public Liability and Worker’s Compensation Insurance.

 

(f)                                    Contracts. Borrower
shall have provided or will provide to Lender copies of any contracts regarding
the Project entered into by Mortgagor with any contractors or engineers and, if
requested by Lender, copies of contracts, if any, with any subcontractors for
the construction or installation of the improvements made or to be made in
connection with the Project.

 

 

12

 

(g)                                 Title Insurance Policy. Lender shall
have received, reviewed and approved Mortgagee’s Policy of Title Insurance
described in Section 7 hereof.

 

(h)                                 ALTA Survey. Lender shall
have received a current ALTA survey of the Land (the “Survey”) completed in accordance with
Senior Lender’s requirements, satisfactory to Lender and to the Title Insurer
and certified to Senior Lender, Lender (and its successors and assigns) and the
Title Insurer.

 

(i)                                     Flood Plain Certification. To the extent
not provided on the Survey, Lender shall have received evidence that the Land
is not located within any flood plain or, if the Land is located within a flood
plain, Borrower has obtained and is maintaining in full force and effect a
policy or policies of flood insurance pursuant to Section 8 hereof.
Any such certifications shall also be certified to Lender and its successors
and assigns.

 

(j)                                     Appraisal. Lender shall
have received an appraisal of the Project prepared by a licensed appraiser
acceptable to Lender, in form and substance required by Senior Lender, but also
addressed to Lender and its successors and assigns, in an amount equal to or
greater than $80,900,000.

 

(k)                                  Environmental Report. Lender shall
have received an environmental report covering the Land, prepared by a
professional acceptable to Lender, in form and substance as required by Senior
Lender, and also certified to Lender and its successors and assigns.

 

(l)                                     Certification of
Organizational Documents. Lender shall have received a written
certification attaching the required documents with respect to both Mortgagor
and Borrower, confirming (i) that true, complete and correct copies of the
organizational documents have been attached to the certification, (ii) that
no modifications of such documents exist which have not been provided to
Lender, and (iii) that the provisions of Section 23 hereof
have been incorporated into the organizational documents.

 

(m)                               Legal Opinion. Lender shall
have received a written legal opinion or legal opinions from Borrower’s counsel
(which counsel must be acceptable to Lender) in form acceptable to Lender and
its counsel, opining as to such matters as Lender may reasonably require,
including an opinion regarding: (1) due organization and valid existence, (2) authority,
(3) enforceability of the Loan Documents, and (4) no usury.

 

(n)                                 UCC Searches. Lender shall
have received full Uniform Commercial Code searches, performed by a search
company and in jurisdictions satisfactory to Lender, with respect to Borrower
and the Mortgagor disclosing no matters objectionable to Lender.

 

 

13

 

(o)                                 Utilities. Lender shall
have received evidence that all sewer, water, electrical, telephone and any
other utility services necessary to obtain a certificate of occupancy for the
Project are available at the Land in adequate supply for the use and operation
of the Land and each provider of utility services has a binding obligation to
deliver the necessary services to the completed residences. This evidence may
include letters from the applicable utility providers.

 

(p)                                 Environmental Disclosure. In accordance
with all applicable laws, Borrower shall provide a true, correct and complete
copy of any disclosure document or other instrument required by any such law
relating to environmental matters.

 

(q)                                 No Default. The
representations and warranties of Borrower contained in this Agreement shall be
true, correct and complete in all material respects, except the representations
in Section 16(c) which need be accurate only as of the
effective date of such financial statements, and no Event of Default, as
defined below, or circumstance or event which upon the lapse of time, the
giving of notice or both, could become an Event of Default shall have occurred.

 

Lender acknowledges, by its execution of this Agreement, that all
conditions listed in this Section 6 have been satisfied to Lender’s
satisfaction or waived by Lender, both as to the Initial Advance under the Loan
and any Additional Advance to be made in the future.

 

7.             TITLE INSURANCE. Concurrently
with the closing of the Loan, Borrower shall deliver or cause to be delivered
to Lender, a Mortgagee’s Policy of Title Insurance (“Policy”) naming Mortgagor as fee simple owner of the Land
issued by the Title Insurer, meeting the following requirements: (i) with
coverage amount not less than the Loan Amount; (ii) dated as of a date not
earlier than the date of Closing; and (iii) the legal description insured
under such policy shall include any easements benefiting the Land.

 

8.             INSURANCE.

 

(a)                                  Insurance Requirements.  Borrower
shall obtain and keep in full force and effect builder’s risk insurance (the “Builder’s Risk Insurance Policy”) coverage or permanent
Commercial Property Causes of Loss — Special Form insurance coverage as
appropriate, reasonably satisfactory to Lender, on the Project. All insurance
policies shall be issued by carriers with a Best’s Insurance Reports
policy holder’s rating of A- or better, and a financial size category of Class IX
or larger. The policies shall provide for the following, and any other coverage
that Lender may from time to time deem reasonably necessary.

 

(i)                                     Lender’s contact information
in its capacity as mortgagee and/or additional insured, as appropriate:

 

 

14

 

Behringer Harvard St. Rose REIT, LLC and its
affiliates, successors and/or assigns

15601 Dallas Parkway, Ste. 600

Addison, Texas 75001

Attn:       Risk Management

 

(ii)                                  Commercial Property Causes
of Loss — Special Form and/or Builders Risk in the amount of 100% of the
replacement cost of all structures and personal property located or to be
located on the Project. Coverage shall include ordinance and law, increased
cost of construction, and demolition costs. If the policy is written on a
CO-INSURANCE basis, the policy MUST contain an AGREED AMOUNT ENDORSEMENT as
evidence that the coverage is in an amount sufficient to insure the full amount
of the mortgage indebtedness. Unless inconsistent with the requirements of the
Senior Lender or the Commercial Tract Lender, “Behringer Harvard St. Rose REIT,
LLC and its affiliates, successors and/or assigns” is to be named as the “Mortgagee”
and “Loss Payee” (without contribution).

 

(iii)                               Commercial General Liability
coverage in a minimum amount of not less than $1,000,000.00 per occurrence and
$2,000,000.00 in the aggregate, together with excess liability coverage in a
minimum amount of not less than $15,000,000.00. “Behringer Harvard St. Rose
REIT, LLC and its affiliates, successors and/or assigns” is to be named as “Additional
Insured”. Please note this coverage must be separately issued and provided for
both (i) Mortgagor, (ii) Borrower, and (iii) Mortgagor’s general
contractor.

 

(iv)                              Rent Loss or business
interruption coverage in a minimum amount of not less that the appraised
rentals for a minimum of twelve (12) months.

 

(v)                                 Flood hazard coverage in at
least the minimum amount available, if the Project is located in a special
flood hazard area (“Flood Hazard Area”)
as designated by the Federal Emergency Management Agency on its Flood Hazard
Boundary Map and Flood Insurance Rate Maps, and the Department of Housing and
Urban Development, Federal Insurance Administration, Special Flood Hazard Area
Maps. Unless inconsistent with the requirements of the Senior Lender or the
Commercial Tract Lender, “Behringer Harvard St. Rose REIT, LLC and its
affiliates, successors and/or assigns” is to be named as the “Mortgagee” and “Loss
Payee” (without contribution).

 

 

15

 

(vi)                              Earthquake coverage in the
amounts/deductibles and in the form and substance reasonably satisfactory to
the Lender in the event the Project is located in an area with a high degree of
seismic activity.

 

(vii)                           Workers Compensation
insurance as required by law.

 

(viii)                        Such other types and amounts
of insurance with respect to the premises and the operation thereof which are
commonly maintained in the case of the other property and buildings similar to
the Project in nature, use, location, height, and type of construction, as may
from time to time be reasonably required by Lender in its capacity as mortgage.

 

(ix)                                Each policy shall provide
that it may not be canceled, reduced or terminated without at least thirty (30)
days prior written notice to the Lender.

 

(x)                                   Proof of insurance required
under (ii), (iv), (v), (vi) shall be evidenced on Accord Form 28
Evidence of Commercial Property Insurance. 
Proof of insurance required under (iii) and (vii) shall be
evidenced on Accord Form 25 Certificate of Liability Insurance.

 

(xi)                                The evidence of insurance
must identify the Borrower as an Insured/Additional Insured.

 

(xii)                             The Project location must be
referenced on the evidence of insurance.

 

(b)                                 Initial Policies; Renewals.  The initial policies shall be prepaid and
delivered to the Lender prior to closing, and all renewal policies shall be
provided to Lender as evidence of such insurance.  Certificates as referenced in Section 8(a)(x) may
be substituted for actual policies.

 

(c)                                  Notices.  Borrower shall cause a copy of the
certificate(s) to be sent to Jill Buffington via — e-mail
jbuffington@bhfunds.com or facsimile (214) 655-1610 [Phone: (469) 341-2420],
with the original being mailed to the Lender as shown above in Section 8(a)(i).

 

(d)                                 Notice of Casualty.  Borrower shall give to Lender immediate
notice of any material loss occurring on or with respect to the Project.

 

(e)                                  Settlement of Claim.  In case of loss covered by any of such
policies, Lender is authorized to adjust, collect and compromise, in its
discretion, all claims thereunder if an Event of Default has occurred and is
continuing at the time, subject to the rights of the Senior Lender, prior to
the Transfer Date, the Commercial Tract Lender, and the rights of the lender
under the Senior Mezzanine Loan Agreement. 
In the event of any adjustment, collection and compromise by Lender,
Borrower covenants to sign upon

 

16

demand, or Lender may sign or endorse on Borrower’s behalf, all
necessary proofs of loss, receipts, releases and other papers required by the
insurance companies to be signed by Borrower. 
Borrower hereby irrevocably appoints Lender as its attorney-in-fact for
the purposes set forth in the preceding sentence, subject to the rights of the
Senior Lender, prior to the Transfer Date, the Commercial Tract Lender, and the
rights of the lender under the Senior Mezzanine Loan Agreement.  Subject to the rights of the Senior Lender,
prior to the Transfer Date, the Commercial Tract Lender, and the rights of the
lender under the Senior Mezzanine Loan Agreement, Lender may deduct from such
insurance proceeds any reasonable expenses incurred by Lender in the collection
and settlement thereof, including attorneys’ and adjustors’ fees and
charges.  Nothing contained in this
Agreement shall create any responsibility or obligation of the Lender to
collect any amounts owing on any insurance policy, to rebuild or replace the
damaged or destroyed portions of the Project or to perform any other related
act.  The Lender shall not, by the fact
of approving, disapproving, accepting, preventing, obtaining or failing to
obtain any insurance, incur any liability for or with respect to the amount of
insurance carried, the form or legal sufficiency of insurance contracts, solvency
of insurance companies, or payment or defense of lawsuits, and Borrower hereby
expressly assumes full responsibility therefor and all liability, if any, with
respect thereto.

 

(f)                                    Application of Insurance
Proceeds.  Any
insurance proceeds received by Mortgagor or Borrower under any of such casualty
policies shall, subject to the rights of the Senior Lender, prior to the
Transfer Date, the Commercial Tract Lender, and the rights of the lender under
the Senior Mezzanine Loan Agreement, be applied, at the option of the Lender,
toward pre-payment or reimbursement of the Loan and any other amounts evidenced
or secured by the Loan Documents, or to the rebuilding or repairing of the
Project so damaged or destroyed, as the Lender in its sole and unreviewable discretion
may elect; provided, however, that Lender will allow insurance proceeds to be
used for restoration of the Project if (i) the conditions for Borrower’s
use of insurance contained in the Senior Loan Documents are satisfied
(substituting Lender for Senior Lender thereunder in making related decisions)
or (ii) so directed by the Senior Lender, the lender under the Senior
Mezzanine Loan Agreement or, prior to the Transfer Date, the Commercial Tract
Lender.  Lender’s election to apply such
insurance proceeds to the Loan and other amounts evidenced or secured by the
Loan Documents shall not relieve Borrower of the duty to rebuild or repair.

 

9.             EMINENT DOMAIN.

 

(a)                                  Notice of Condemnation.  Borrower shall give to Lender immediate
notice of any taking by condemnation of any portion of the Project or the 

 

17

institution of any proceedings the effect of which is to achieve a
taking of any portion of the Project by condemnation.

 

(b)                                 Settlement of Claim.  In case the Project, or any part or interest
in any thereof, is taken by condemnation, then subject to the rights of the
Senior Lender, the lender under the Senior Mezzanine Loan Agreement or, prior
to the Transfer Date, the Commercial Tract Lender, the Lender is hereby
empowered to collect and receive all compensation and awards of any kind
whatsoever (referred to collectively herein as “Condemnation Awards”) which may be paid for any property taken
or for damages to any property not taken (all of which Borrower hereby assigns
to the Lender, subject to the rights of the Senior Lender, the lender under the
Senior Mezzanine Loan Agreement and, prior to the Transfer Date, the Commercial
Tract Lender in the same).  Borrower
covenants to sign upon demand, or Lender may sign or endorse on Borrower’s
behalf, all necessary proofs of loss, receipts, releases and other papers
required by the condemning authority to be signed by Borrower for such
purpose.  Borrower hereby irrevocably
appoints Lender as its attorney-in-fact for the purposes set forth in this Section 9.  Lender may deduct from any Condemnation
Awards, any expenses reasonably incurred by Lender in the collection and
settlement thereof, including reasonable attorneys’ and adjusters’ fees and
charges.

 

(c)                                  Application of Condemnation
Awards.  All Condemnation Awards so
received shall, subject to the rights of the Senior Lender the lender under the
Senior Mezzanine Loan Agreement or, prior to the Transfer Date, the Commercial
Tract Lender, be forthwith applied by the Lender, as it may elect in its sole
and unreviewable discretion, to the payment or reimbursement of the Loan or the
other amounts evidenced or secured by the Loan Documents, or to the repair and
restoration of any property not so taken or damaged; provided, however, that
Lender will allow Condemnation Awards to be used for restoration of the Project
if (i) the conditions for Borrower’s use of Condemnation Awards contained
in the Senior Loan Documents are satisfied (substituting Lender for Senior
Lender thereunder in making related decisions) or (ii) so directed by the
Senior Lender the lender under the Senior Mezzanine Loan Agreement or, prior to
the Transfer Date, the Commercial Tract Lender.

 

(d)                                 Continuing Obligation to
Repair.  No election made by the Lender
under this Section 9 shall relieve Borrower of the duty to repair
and restore.

 

(e)                                  Lender Not Required to Act.  Nothing contained in this Agreement shall
create a responsibility or obligation of Lender to collect any amounts owing on
account of any such condemnation or proceedings relating to the Project, to
rebuild or replace any damaged or destroyed property or to perform any other
related act.

 

18

10.          RIGHTS OF ACCESS AND INSPECTION.  Borrower shall cause Mortgagor to permit
agents, representatives and employees of Lender to inspect the Land and the
installation of the Project or any part thereof during reasonable business
hours upon reasonable advance notice.  Without
limiting the foregoing, Lender shall also be permitted access to the Project in
order to examine, copy and audit Mortgagor’s books and records (including as
part of any audit performed pursuant to Section 12(f) hereof)
and any plans, drawings, contracts, books or records relating to the Project.  Borrower shall, to the extent within its
control, cause any contractors or subcontractors to cooperate with Lender or
its agents in connection with any inspection. 
Lender is under no duty to visit or observe the Project or to examine
any books or records.  Any site visit,
observation or examination by Lender shall be solely for the purpose of
protecting Lender’s security and preserving Lender’s rights under the Loan
Documents.  Neither Borrower, Mortgagor
nor any other party is entitled to rely on any site visit, observation or
testing by Lender or its agents or representatives.  Lender owes no duty of care to protect
Borrower, Mortgagor or any other party against, or to inform Borrower or any
other party of, any adverse condition affecting the Project, including any
defects in the design or construction of any improvements on the Land or the
presence of any Hazardous Materials on the Land.  So long as no Event of Default has occurred
and is continuing, Lender shall give Borrower and Mortgagor reasonable prior
notice of its intent to enter the Project.

 

11.          EXPENSES.  Borrower shall pay, as and when due, all
reasonable costs and expenses incurred in the procuring and making of the Loan
by Lender, including without limitation, to the extent reasonable, Title
Insurer’s fees and premiums, charges for examination of title to the Land,
expenses of surveys, transfer taxes and recording expenses, appraisal and
appraisal review fees, fees of an inspector and fees and expenses of any
attorneys, accountants, engineers, architects, surveyors, contractors,
inspectors or other consultants, professionals or independent contractors
employed, retained or utilized by Lender in connection with the Loan.  Borrower shall cause Mortgagor to pay when
due any and all insurance premiums, taxes, assessments, water, sewer and other
utility charges, impact fees, liens and encumbrances on the Project and any
other amounts payable for the cost of improvements to the Land, provided that
Borrower and/or Mortgagor may in good faith contest any such liens, claims or
amounts so long as it provides, for any filed lien, a bond in accordance with
statutory requirements or other security reasonably satisfactory to
Lender.  Borrower shall pay upon demand
or reimburse Lender for any and all reasonable fees, costs and expenses
incurred by Lender in collecting the Indebtedness after an Event of Default
including reasonable attorneys’ fees. 
All such amounts shall be paid to Lender or at Lender’s direction to
such other person to whom payments are due or Lender may, at its option, pay
such amounts and all sums paid shall be deemed a portion of the Indebtedness
and shall bear interest at the Default Interest Rate.

 

12.          FINANCIAL REPORTS,
PROPERTY REPORTS AND ANNUAL BUDGET.  The parent company of Lender is a real estate
fund that issues securities, maintains U.S. GAAP audited financial statements
and/or is publicly registered with the United States Securities and Exchange
Commission (“SEC”).  As a result, such parent company is subject
to GAAP financial statement requirements and other reporting requirements.
These requirements include but are not limited to quarterly and annual
financial reporting (including for public companies on Form 10-Q and Form 10-K
and reporting under Rule 3-14 of Regulation S-X, which requires the filing
of pro forma financial statements of acquired properties).  In addition, certain accounting requirements
may dictate that Lender report Borrower, Mortgagor and/or the 

 

19

Project as a subsidiary of
Lender.  Therefore, Borrower agrees to
provide Lender with all information that Borrower or its Affiliates have in
their possession and Borrower will use all commercially reasonable efforts to
obtain such information not in its possession as Lender reasonably requires in
order to prepare, audit and/or review financial statements of the Project,
Mortgagor and Borrower for the applicable reporting periods.

 

(a)                                  Borrower agrees that all
accounting for the Project will be conducted by Borrower and/or the Mortgagor
and also by Lender.  Borrower agrees to
provide Lender with copies of all Accounting Records (other than leases, which
Borrower and/or the Mortgagor may make available at the Project rather than
copying) on a monthly basis in order to enable Lender to prepare and maintain
financial statements on Borrower, Mortgagor and/or the Project in accordance
with accounting principles generally accepted in the United States of America.

 

(b)                                 Borrower agrees to provide
Accounting Records by the 10th of the month for the preceding month.

 

(c)                                  Borrower agrees to allow
Lender and Lender’s external independent accountants access to original
Accounting Records if needed in the process of their quarterly reviews and
various audit processes.

 

(d)                                 Borrower agrees to cooperate
with any inquiries or interviews by Lender or its external independent
accountants as may be necessary in relation to Lender’s or its Affiliates’
compliance with the Sarbanes-Oxley Act of 2002.

 

(e)                                  In addition, Borrower shall
furnish to Lender:

 

(i)                                     within 30 days after the end
of each fiscal year of Mortgagor, and at any other time upon Lender’s request,
a statement that identifies all owners of any interest in Mortgagor and the
interest held by each, if Mortgagor is a corporation, all officers and
directors of Mortgagor, and if Mortgagor is a limited liability company, all
members and managers (whether members or not);

 

(ii)                                  within 10 days after the end
of each month, a monthly property management report for the Project, showing
the number of inquiries made and rental applications received from tenants or
prospective tenants, deposits received from tenants and any other information
reasonably requested by Lender;

 

(iii)                               within 10 days following the
end of each month, a monthly statement of income and expense for the Project;
and

 

(iv)                              beginning sixty (60) days
prior to the first occupancy of the Project and for each succeeding calendar
year, not later than ninety (90) days prior to the commencement of such
calendar year, an annual 

 

20

budget
which sets forth, in sufficient detail, Borrower’s projection of gross receipts
and expenses for such period (the “Annual
Budget”).  Each Annual Budget
shall be for a calendar year except that the Annual Budgets for the year of
first occupancy of the Project shall only cover the remainder of the
then-current year.

 

(f)                                    If Borrower fails to provide
in a timely manner the Accounting Records, statements, schedules and reports
required by this Section 12, Lender shall have the right to have
Mortgagor’s and Borrower’s books and records audited or to perform any other
procedure reasonably requested by Lender, at Borrower’s expense, by independent
certified public accountants selected by Lender in order to obtain such
statements, schedules and reports, and all related costs and expenses of Lender
shall become immediately due and payable and shall become an additional part of
the Indebtedness as provided in Section 21.

 

(g)                                 If Lender acquires the
Project through foreclosure, Borrower shall deliver, or cause to be delivered,
to Lender upon written demand all books and records relating to the Project or
its operation. Otherwise, during the term of the Loan, to the extent that
copies of such books and records have not been provided pursuant to the
provisions of this Section 12 set forth above, Borrower will
provide Lender with all cost records necessary for Lender to perform its
accounting procedures including, but not limited to, balance sheets, income
statements, trial balance activity reports, general ledger detail reports, cash
receipts journal, check register or cash disbursements journal and copies of
checks and vendor invoices for all invoices paid.   Borrower agrees
to make available to Lender for examination and copying any other books and
records upon Lender’s written demand.

 

(h)                                 Borrower authorizes Lender
to obtain one (1) credit report per calendar year; provided, however, that
Lender may obtain a credit report on Borrower, Mortgagor and Guarantors at any
time, even if a credit report has been obtained in the same calendar year, if
an Event of Default has occurred.

 

13.          GENERAL COVENANTS OF BORROWER.  Until the full and final payment of the Loan,
unless Lender waives compliance in writing, Borrower hereby covenants and
agrees as follows:

 

(a)                                  Commencement and Completion
of Project.  Borrower
shall or shall cause Mortgagor to prosecute the construction and installation
with diligence so that the construction and Completion of the Project (other
than payment of claims that are being contested in accordance with the Loan
Documents) shall have occurred by the completion deadline set forth in the
Senior Loan Documents.

 

21

(b)                                 Lender Approval.  No changes to the Construction Budget or the
completion date required by the Senior Loan Documents shall be permitted
without Lender’s written consent, with the exception of (i) completion
date extensions due to force majeure and (ii) reallocation of amounts
among the line items of the Construction Budget; provided that Borrower shall
provide Lender with notice of any changes in connection with (i) and (ii) above
or any change orders modifying the Plans as provided below.  Lender shall have the right to approve all
contractors (except General Contractor) and all construction contracts between
Mortgagor and such contractors, with the exception of construction contracts
that do not exceed $100,000.00.  No
changes to the Plans shall be permitted without Lender’s written consent, with
the exception of (i) changes required by governmental authorities or
Senior Lender and (ii) other changes that, individually, do not increase
or decrease Project costs by more than $100,000 and, in the aggregate, do not
increase or decrease Project costs by more than $300,000.  Lender shall have ten (10) business days
to provide any approval required under this Section 13(b) but
if Lender does not provide written notice that it does not approve within the
ten (10) business days, then the action shall be deemed approved.

 

(c)                                  Operation and Maintenance of
Project.  In addition to the terms,
conditions and provisions set forth in the other Loan Documents:

 

(i)                                     Payment of Lawful Claims.  Borrower shall pay or discharge all lawful
claims, including taxes, assessments and governmental charges or levies imposed
upon Borrower or its income or profits or upon any property belonging to
Borrower prior to the date upon which penalties attach thereto; provided that
Borrower may in good faith contest any such taxes, assessments, charges or
levies so long as it provides, for any filed lien, a bond in accordance with
statutory requirements or other security reasonably satisfactory to
Lender.  Without limiting the generality
of the foregoing, Borrower shall, or shall cause Mortgagor to, pay (a) all
taxes and recording expenses, including stamp taxes, if any, relating to all
documents and instruments securing the Loan, (b) the fees and commissions
(if any) lawfully due to brokers engaged by Borrower or its Affiliates in
connection with this transaction (and Borrower shall hold Lender harmless from
all such claims, whether or not lawfully due), and (c) the fees and
expenses of Lender’s counsel relating to Lender’s consultation with such
counsel in connection with the negotiation, documentation and closing of the
Loan and any subsequent modifications of the Loan.

 

(ii)                                  No Amendments.  Borrower shall not, nor shall it permit
Mortgagor to, without Lender’s prior written consent, enter into any amendments
or modifications of (a) if Borrower or Mortgagor is a corporation,
Borrower’s and Mortgagor’s by-laws and articles 

 

22

of
incorporation, (b) if Borrower or Mortgagor is a limited liability
company, such entity’s operating agreement or articles of organization, (c) if
Borrower or Mortgagor is a limited partnership, such entity’s partnership
agreement or partnership certificate, (d) the construction contract
between Mortgagor and General Contractor except for change orders (i) implementing
changes required by governmental authorities or Senior Lender and (ii) other
changes that, individually, do not increase or decrease Project costs by more
than $100,000 and, in the aggregate, do not increase or decrease Project costs
by more than $300,000, (e) the Management Agreement, or (f) the
Senior Loan Documents.

 

(iii)                               Maintenance and Repair of
Project.  After completion of the
Project, Borrower shall cause Mortgagor to (a) maintain the Project,
including the parking and landscaping portions thereof, in good condition and
repair, (b) promptly make all necessary structural and non-structural
repairs to the Project, (c) not demolish, alter, remove or add to any
improvements on the Land, excepting (i) the repair and restoration of
improvements following damage thereto as required by this Agreement, and (ii) as
otherwise required by any applicable law, rule or regulations, and (d) not
erect any new buildings, structures or building additions on the Land, without
the prior written consent of Lender. 
Borrower shall pay when due all claims for labor performed and materials
furnished therefor in connection with any improvements or construction
activities on the Land; provided that Borrower may in good faith contest any
liens, claims or amounts so long as it provides, for any filed lien, a bond in
accordance with statutory requirements or other security reasonably
satisfactory to Lender.

 

(d)                                 Restricted Sale and
Encumbrance of Project and of Borrower Interests; Other Indebtedness.  Borrower shall not engage in any Sale or
Encumbrance without the prior written consent of Lender (which may be withheld
by Lender in Lender’s sole and absolute discretion).  Borrower will not issue any additional Equity
Interests in Borrower, except to Lender or Lender’s designee.  In addition, Borrower shall not permit
Mortgagor to issue any additional Equity Interests in Mortgagor.  In addition, Borrower shall not, nor shall it
permit Mortgagor to, incur any indebtedness, whether secured or unsecured,
other than (i) the Senior Loan and this Loan, (ii) obligations under
interest rate hedging arrangements related to the Senior Loan and (iii) trade
and operational indebtedness incurred in the ordinary course of business
(including construction and operation of the Project) or for its administrative
functions.  Notwithstanding the
foregoing, Lender’s consent shall not be required for:

 

23

(i)                                     the grant of a leasehold
interest in an individual dwelling unit for a term of two years or less not containing
an option to purchase and otherwise in compliance with Section 13(f) hereof;

 

(ii)                                  a Sale of obsolete, worn out
or damaged property or fixtures that is contemporaneously replaced by items of
equal or better function and quality, which are free of liens, encumbrances and
security interests other than Permitted Exceptions, those created by the Loan
Documents, the Senior Loan Documents or the Commercial Deed of Trust or those
otherwise consented to by Lender;

 

(iii)                               a Sale that results from
theft, condemnation or other involuntary conversion;

 

(iv)                              the Sale (including through
consumption) of personal property in the ordinary course of business that is
contemporaneously replaced by items of equal or better function and quality;

 

(v)                                 the grant of an easement if,
before the grant, Lender determines (which determination must be made
reasonably) that the easement will not materially affect the operation or value
of the Project and Borrower pays to Lender, upon demand, all reasonable costs
and expenses incurred by Lender in connection with reviewing Borrower’s request
(it being understood that Lender has approved the REA);

 

(vi)                              the creation of (1) a
lien for taxes, assessments or other governmental charges or levies that are
not then due or that are being contested in good faith and in accordance with
applicable statutory procedures or (2) a mechanic’s lien against the
Project which is bonded off, released of record or otherwise remedied to Lender’s
reasonable satisfaction within 30 days of the date of creation; and

 

(vii)                           transfer of the Commercial
Tract to the Commercial Tract Borrower on or after the Transfer Date.

 

Nothing in this Section 13(d) prohibits
Mortgagor from providing the Commercial Deed of Trust.

 

(e)                                  General Indemnity.  Borrower shall, at Borrower’s expense,
protect, defend, indemnify, save and hold Lender and each of its members and
its respective members, stockholders, directors, officers, employees and agents
(collectively the “Indemnified Parties”)
harmless against any and all claims, demands, losses, expenses (including court
costs and reasonable attorney’s fees and expenses), damages and causes of
action (whether legal or equitable in nature) asserted by any person or entity
arising out of, caused by or relating to the Project and the Lender’s 

 

24

exercise
of its rights under the Loan Documents upon an Event of Default, except to the
extent the same arises out of, is caused by or results from the gross
negligence or willful misconduct of an Indemnified Party.  Borrower shall pay to Lender upon demand all
claims, judgments, damages, losses and expenses (including court costs and
reasonable attorneys’ fees and expenses) incurred by Lender as a result of any
legal or other action arising out of the aforesaid matters.  Borrower acknowledges that the Indemnified
Parties may defend any matter covered by the above indemnification by counsel
of the relevant Indemnified Party’s choice, and the costs of such defense
(including reasonable attorney’s fees) are part of the costs covered by the
indemnity.  The foregoing indemnification
shall survive repayment of the Loan.

 

(f)                                    Leases.

 

(i)                                     Residential Lease
Requirements.  Mortgagor
shall have the right, and Borrower may permit Mortgagor to, enter into residential
Leases without Lender’s prior written consent, so long as all Leases for
residential dwelling units (A) are on forms approved by Lender, (B) shall
not include options to purchase, and (C) shall be for initial terms of at
least six months and not more than two years (with the exception of Leases for
up to 3% of the units in the Project, which may have terms of less than six
months).

 

(ii)                                  Commercial Lease
Requirements.  Mortgagor
shall not, nor shall Borrower permit Mortgagor to, enter into any non-residential
Leases without Lender’s prior written consent in each instance.  Mortgagor shall not, nor shall Borrower
permit Mortgagor to, modify the terms of, or extend or terminate, any Lease for
non-residential use (including any Lease in existence on the date of this
Agreement) without the prior written consent of Lender.  Borrower shall, without request by Lender,
deliver a copy of each executed non-residential Lease to Lender promptly after
such Lease is signed.

 

(iii)                               Advance Rent.  Mortgagor shall not, nor shall Borrower
permit Mortgagor to, receive or accept rent under any Lease (whether
residential or non-residential) for more than two months in advance.

 

(iv)                              Performance of Obligations.  Borrower shall cause Mortgagor to pay,
perform and discharge, as and when payment, performance and discharge are due,
all obligations of Mortgagor as landlord under all Leases.

 

(v)                                 Security Interest.  Except for the assignment to Lender the
lender under the Senior Mezzanine Loan Agreement, Senior Lender or, 

 

25

prior
to the Transfer Date, the Commercial Tract Lender, Borrower shall not permit
Mortgagor to further assign, pledge, transfer or otherwise encumber the Leases
or the rents under the Leases.

 

(vi)                              Defense; Pursuit of Remedies.  Borrower shall or shall cause Mortgagor to,
at its sole cost and expense, appear in and defend any action or proceeding
arising from or connected with any of the Leases or any obligation or liability
of Mortgagor as landlord thereunder.  Borrower
shall, or shall cause Mortgagor to, use commercially reasonable efforts to
pursue all remedies, including claims for damages available at law or in
equity, against any tenant under a Lease who defaults in the performance of its
obligations under the Lease.

 

(g)                                 Notices.  Borrower shall promptly notify Lender in
writing of any litigation affecting (a) Borrower, Mortgagor and any
general partner, managing member or controlling shareholder of Borrower or
Mortgagor (excluding a general partner, managing member or controlling
shareholder which is a natural person or trust), or (b) the Project, to
the extent the same may result in a material adverse change in (i) the
financial condition of any of the foregoing parties, (ii) Borrower’s
ability to timely perform any of its obligations under any of the Loan
Documents or Mortgagor’s ability to timely perform any of its obligations under
any of the Senior Loan Documents or (iii) the physical condition or
operation of the Project.

 

(h)                                 Development.  If after the date of this Agreement, Borrower
or Mortgagor intends to engage a developer of the Project, Lender shall have
the right to approve such new developer and the written development agreement
for the Project.

 

(i)                                     Management.  The Project shall be managed at all times by
Manager (or another professional residential rental property manager
satisfactory to Lender under a contract approved by Lender).  At the time such property management
agreement is executed, at the request of Lender, Mortgagor and the Manager shall
enter into a Subordination of Management Agreement in the form attached as Exhibit K
or another form reasonably acceptable to Lender.  Lender hereby accepts the Manager as the
initial property manager.  If Borrower or
Mortgagor intends to change the management of the Project, Lender shall have
the right to approve such new property manager and the written contract for the
management of the Project and require that Mortgagor and such new property
manager enter into a Subordination of Management Agreement on the form attached
as Exhibit K or on another form reasonably acceptable to Lender.

 

(j)                                     Senior Loan.  Borrower shall, or shall cause Mortgagor to,
fully and timely pay all amounts owing under the Senior Loan Documents and
timely and fully perform all of Mortgagor’s covenants and agreements 

 

26

contained
therein.  Borrower shall provide Lender
with copies of all notices (except routine notices which would not include any
notice related to any failure to comply with any terms of the Senior Loan
Documents or regarding any event of default under the Senior Loan Documents)
given or received by Mortgagor under or pursuant to the Senior Loan Documents,
promptly upon delivery or receipt as the case may be.  Without limiting the Lender’s right to
declare an Event of Default on account of a failure to comply with the terms
and provisions of the Senior Loan Documents, if Borrower or Mortgagor fail to
so pay or perform such obligations, and if such failure either (i) becomes
an Event of Default hereunder or (ii) prior to becoming an Event of
Default continues for twenty (20) days after Lender gives written notice to
Borrower to cure, the Lender may pay or perform the same pursuant to Section 18(b) hereof.  Notwithstanding the foregoing, (i) Lender
shall have no obligation whatsoever to pay any of the amounts evidenced or
secured by, or to perform any of the covenants or obligations imposed by, any
Senior Loan Documents, and (ii) any such payment by Lender shall not cure
Mortgagor’s default hereunder or under the Senior Loan Documents but shall only
protect Lender’s interest in the Project. 
Borrower shall not, nor shall it permit Mortgagor to, amend or modify
any of the Senior Loan Documents without the prior written consent of Lender.

 

(k)                                  Principal Place of Business;
Choice of Law.  Borrower
shall not change its principal place of business or, if Borrower has more than
one place of business, its chief executive office, from its address set forth
in the first paragraph of this Agreement. 
In addition, Borrower shall not make an election under the Uniform
Commercial Code to treat, as the governing law for perfection of uncertificated
securities, the law of any jurisdiction other than the jurisdiction of its
formation.  Lender agrees not to
unreasonably withhold its consent to any change in Borrower’s principal place
of business or the governing law with respect to uncertificated securities so
long as (1) Borrower and any other party reasonably requested by Lender
executes all documents and instruments reasonably deemed necessary by Lender to
perfect the security interests granted pursuant to the Loan Documents, (2) Borrower
pays all of the Lender’s reasonable costs and expenses of perfecting such
security interests and (3) if requested by Lender, Borrower delivers to
Lender an opinion from counsel reasonably satisfactory to Lender opining as to
the continued perfection of such security interest.

 

(l)                                     Compliance with Governmental
Prohibitions.  No portion
of the Loan proceeds will be used, disbursed or distributed by Borrower for any
purpose, or to any person, in violation of any Law (as defined in Section 16
(i)) including, without limitation, any of the Terrorism Laws (as defined
in Section 16 (i)).  Borrower
shall provide Lender with immediate written notice (a) of any failure of
any of the representations and warranties set forth in Section 16(i) of
this Agreement to be true, correct 

 

27

and
complete in all material respects at any time, or (b) if Borrower obtains
knowledge that Borrower or any holder at any time of any direct or indirect
equitable, legal or beneficial interest in Borrower (other than Lender or an
affiliate or designee of Lender) is the subject of any of the Terrorism
Laws.  Borrower shall immediately and
diligently take, or cause to be immediately and diligently taken, all necessary
action to comply with all Terrorism Laws and to cause the representations and
warranties set forth in Section 16(i) to be true, correct and
complete in all material respects.

 

14.          FURTHER ASSURANCES.  Borrower shall, from time to time, upon
Lender’s request, at Borrower’s sole cost and expense, execute, deliver, record
and furnish such documents and do such other acts as Lender may reasonably deem
necessary or desirable to (i) perfect and maintain valid liens upon the
security contemplated by the Loan Documents, (ii) correct any errors of a
typographical or other manifest nature which may be contained in any of the
Loan Documents, (iii) evidence Borrower’s compliance with the Loan
Documents, and (iv) consummate fully and carry out the intent of the
transactions contemplated under this Agreement or the Loan Documents.

 

15.          APPRAISALS.  Lender has the right to obtain a new
appraisal or update an existing appraisal of the Project at any time while the
Loan or any portion thereof remains outstanding (a) when, in Lender’s
reasonable judgment, such an appraisal is warranted as a result of Lender’s
internal evaluation of the Loan, and/or (b) to comply with statutes,
rules, regulations or directives of governmental agencies having jurisdiction
over Lender.  Borrower shall pay, upon
demand, all reasonable appraisers’ fees and related expenses incurred by Lender
from time to time in obtaining such appraisal reports; provided, however, that
Borrower shall not be required to pay for a re-appraisal more than once every
three years unless an Event of Default has occurred and is continuing.

 

16.          GENERAL REPRESENTATIONS AND WARRANTIES OF BORROWER.  Borrower represents and warrants to Lender,
which representations and warranties shall survive the termination of this
Agreement, the repayment of the Loan, any investigations, inspections or
inquiries made by Lender or any of Lender’s representatives, and any disbursements
made by Lender hereunder, as follows:

 

(a)                                  Organization; Corporate
Powers; Authorization of Borrowing.

 

(i)                                     Organization.  Borrower’s ownership structure set forth on Exhibit F
attached hereto is a true and correct depiction of the Equity Interests in
Borrower and Mortgagor, and each entity set forth on Exhibit F is
duly organized and is validly existing and in good standing under the laws of
the state of its organization, and Mortgagor is qualified to do business in the
jurisdiction where the Land is located.

 

(ii)                                  Power and Authority.  Borrower has the full limited liability
company power and authority to execute the Loan Documents and 

 

28

to
undertake and consummate the transactions contemplated hereby and thereby, and
to pay, perform and observe the conditions, covenants, agreements and
obligations herein and therein contained; and the Loan Documents have been duly
and validly executed by Borrower and constitute the legal, valid and binding obligations
of Borrower and are enforceable against Borrower in accordance with their
respective terms, except as such enforcement may be qualified or limited by
bankruptcy, insolvency or other similar laws affecting creditors’ rights
generally and general principles of equity.

 

(iii)                               Not a Foreign Person.  Neither Borrower, nor any entity that is a
holder of an Equity Interest in Borrower, is organized under the laws of any
jurisdiction other than the United States or one of the states thereof.

 

(iv)                              No Defaults Under Existing
Agreements.  The
consummation of the transactions contemplated hereby and the performance by
Borrower of its obligations under the Loan Documents will not result in any
breach of, or constitute a default under, the Senior Loan Documents, any other
material Third Party Agreements or any mortgage, deed of trust, bank loan or
security agreement, or other material instrument to which Borrower or Mortgagor
are a party or by which the Land or Borrower or Mortgagor are bound.

 

(v)                                 True and Correct Copies of
Documents.  All due
diligence documents required to be delivered by Borrower to Lender hereunder
(including those due diligence documents referred to in Section 6
hereof) are true, correct and complete copies thereof and the same have not been
amended or modified except as expressly disclosed therein.

 

(vi)                              Outstanding Debt to Lender.  During the term of the Loan, Borrower will
not borrow funds from Lender or an Affiliate of Lender other than the Loan and
the loan made pursuant to the Senior Mezzanine Loan Agreement and as
contemplated by the partnership agreement of Principal.

 

(b)                                 Title to Property; Matters
Affecting Property.

 

(i)                                     Title to Property.  Mortgagor has good and marketable fee simple
title to the Land, subject only to the Senior Loan Documents, the Loan
Documents and the Permitted Exceptions, and good, marketable and freely
alienable title to all personal property located on the Land, subject only to
the Senior Loan Documents, the Loan Documents and the Permitted Exceptions;
Borrower will cause Mortgagor to protect or cause to be protected the title to
the 

 

29

Project,
and Borrower will forever warrant and defend the same against any other claims
of any persons or parties whomsoever, subject to the Senior Loan Documents, the
Loan Documents and the Permitted Exceptions.

 

(ii)                                  Mortgagor’s Equity Interests.  Borrower owns and will own one hundred
percent (100%) of the Equity Interests in Mortgagor, and Borrower has not
transferred, conveyed, pledged or encumbered (and will not transfer, convey,
pledge or encumber) such interests except to Lender.

 

(iii)                               No Actions.  There are no actions, suits or proceedings at
law or in equity (including condemnation or eminent domain proceedings) currently
pending, or to the knowledge of Borrower threatened, against Mortgagor,
Borrower, or the Project or, to the knowledge of Borrower, involving the
validity or enforceability of the Senior Loan Documents or the Loan Documents
or the priority of the liens granted thereunder, by or before any governmental
authority having or exercising jurisdiction over the Project.  Borrower will promptly notify Lender of any
such future actions, suits or proceedings. 
Except as provided in Exhibit G, to Borrower’s knowledge,
neither Borrower, nor Mortgagor, nor the Project is in default with respect to,
or in violation of, any order, writ, injunction, decree or demand of any court
or any governmental authority having or exercising jurisdiction over the
Project.

 

(iv)                              No Contracts Giving Rise to
Liens.  Neither Borrower, nor
Mortgagor, has made any contract or arrangement of any kind, that does or could
give rise to a lien on the Project, except for (i) the Senior Loan
Documents, the Loan Documents and the Permitted Exceptions and (ii) contracts
related to design and construction of the Project which have been provided to
Lender.  Borrower has not made any
contract or arrangement of any kind that does or could give rise to a lien or
encumbrance on any of the Equity Interests in Mortgagor.

 

(v)                                 No Construction.  Prior to the disbursement of the Loan and the
recordation of the Security Instrument, no construction whatsoever has been
performed on the Land by Borrower or its Affiliates.

 

(vi)                              Compliance with Property
Agreements.  Except as
provided in Exhibit H, the Project when constructed will in all
respects conform to and comply with all covenants, conditions, restrictions,
reservations, regulatory agreements, conditional or special use permits and
zoning ordinances affecting the Project whether or not recorded against the
Project.

 

30

 

(vii)                           Leases.  Except as provided in Exhibit I,
there are no Leases of the Land in effect as of the closing of the Loan.

 

(viii)                        Tax Treatment.  Borrower and Mortgagor are (and at all times
during the term of the Loan will be) disregarded as entities separate from
Principal within the meaning of Treasury Regulation §301.7701-3(b)(i)(2).  Borrower and Mortgagor have not elected (and
at all times during the term of the Loan will not elect) to be classified as an
association taxable as a corporation within the meaning of Treasury Regulation
§301.7701-3(c).

 

(ix)                                Permits.  All Permits required for the operation and
construction of the Project are in effect or Borrower expects them to be
available as required for construction of the Project in accordance with the
schedule required by the Senior Loan Documents. 
Once issued, all such Permits will remain in effect and the Project and
its contemplated use and operation will comply therewith.  All discretionary approvals for the
construction of the Project in accordance with the Plans have been obtained or
will be obtained prior to commencement of construction of the Project.

 

(x)                                   Hazardous
Substances.  So long as
Mortgagor owns the Project, Borrower shall cause Mortgagor to (a) keep the
Project free from Hazardous Substances, except those in de minimis amounts
ancillary to the Project activities that are used in compliance with all
environmental laws, (b) promptly notify Lender if Borrower or Mortgagor
becomes aware that any Hazardous Substance is on or near the Land or the
Project in violation of any environmental laws or if the Project otherwise is
in violation of any environmental laws, and (c) remove such Hazardous
Substances contamination that violates any environmental laws and/or cure such
violations as required by law.

 

(c)                                  Financial
Statements.  The
financial statements heretofore delivered to Lender by Borrower, Mortgagor and
Principal are true and correct in all material respects, have been prepared in
accordance with sound accounting practices, and fairly present the financial
condition(s) of the person(s) referred to therein as of the date(s) indicated;
no materially adverse change has occurred in the financial condition(s) reflected
in such financial statements since the date(s) shown thereon and no
additional borrowings or liabilities have been made or incurred by such person(s) since
the date(s) thereof other than the borrowing contemplated hereby, the
Senior Loan, or other borrowings disclosed in writing to and approved by
Lender.  The Estimated Collateral Value
Statement, dated as of June 30, 2008, for each Guarantor accurately lists
the Available Assets of the Guarantor (as defined in the Guaranty) as of such
date and the value of 

 

31

 

such
Available Assets calculated on the basis provided in the notes thereto.

 

(d)                                 Budget
Projections.  Borrower’s
and/or Mortgagor’s budget projections indicate that monthly income from Project
operations will be sufficient to pay the combined monthly accrual of interest on
the Senior Loan and the Loan by the Maturity Date and the projections are
reasonable in Borrower’s opinion and have been prepared in a manner consistent
with the past practices of affiliates of Borrower.

 

(e)                                  Intentionally
Deleted.

 

(f)                                    No Loan Broker.  Borrower has not dealt with any person, firm
or corporation who is or may be entitled to any finder’s fee, brokerage
commission, loan commission or other sum in connection with the execution of
this Agreement or the making of the Loan by Lender to Borrower.  Borrower does hereby indemnify and agree to
defend and hold Lender harmless from and against any and all loss, liability or
expense, including court costs and reasonable attorneys’ fees and expenses,
which Lender may suffer or sustain should such warranty or representation prove
inaccurate in whole or in part.

 

(g)                                 No Default.  There are no defaults under any of the Senior
Loan Documents or the Loan Documents on the part of Borrower, Mortgagor or, to
the knowledge of Borrower, the other parties signatory thereto, and no event
has occurred and is continuing which, with the giving of notice or the passage
of time, or both, would constitute a default under any thereof.

 

(h)                                 Solvency.  As of the date hereof, Borrower and Mortgagor
are each solvent and able to pay their debts as the same shall become due and
payable.

 

(i)                                     Violations of
Governmental Prohibitions. 
Neither the making of the Loan, nor the receipt of Loan proceeds by
Borrower, violates any federal, state, county, municipal and other governmental
and quasi-governmental statutes, laws, rules, orders, regulations, ordinances,
judgments or decrees (collectively, “Law”)
applicable to Borrower, including, without limitation, any of the Terrorism
Laws.  Neither the making of the Loan,
nor the receipt of Loan proceeds by Borrower or Mortgagor, violates any of the
Terrorism Laws applicable thereto.  To
Borrower’s best knowledge, no holder of any direct or indirect equitable, legal
or beneficial interest in Borrower or Principal (other than Lender or an affiliate
or designee of Lender) is the subject of any of the Terrorism Laws.  No portion of the Loan proceeds will be used,
disbursed or distributed by Borrower for any purpose, or to any person,
directly or indirectly, in violation of any Law including, without limitation,
any of the Terrorism Laws.  “Terrorism Laws” means Executive Order 13224
issued by the President of the 

 

32

 

United
States of America, the Terrorism Sanctions Regulations (Title 31 Part 595
of the U.S. Code of Federal Regulations), the Terrorism List Governments
Sanctions Regulations (Title 31 Part 596 of the U.S. Code of Federal
Regulations), and the Foreign Terrorist Organizations Sanctions Regulations
(Title 31 Part 597 of the U.S. Code of Federal Regulations), and all other
present and future federal, state and local laws, ordinances, regulations,
policies and any other requirements of any governmental agency (including,
without limitation, the United States Department of the Treasury Office of
Foreign Assets Control) addressing, relating to, or attempting to eliminate,
terrorist acts and acts of war, each as hereafter supplemented, amended or
modified from time to time, and the present and future rules, regulations and
guidance documents promulgated under any of the foregoing.

 

17.          EVENT OF DEFAULT.  Borrower shall be in default under this
Agreement upon the occurrence of any of the following events (hereinafter
referred to as an “Event of Default”):

 

(a)                                  Non-Payment.  The failure of Borrower to pay when due any
amount required by the Note, this Agreement or any other Loan Documents which
continues, in the case of monthly interest payments required under the Note,
for twenty (20) days or, in the case of other sums payable under the Note, this
Agreement or the Loan Documents, for 10 days following written demand for
payment on Borrower by Lender.

 

(b)                                 Insurance.  The failure of Borrower to keep in force any
insurance policy required hereunder or to deliver evidence of its renewal to
Lender and the continuation of such failure for 10 days following written
demand on Borrower by Lender.

 

(c)                                  Special Purpose
Entity Covenants.  The failure
of Borrower to comply with the provisions of Section 23.

 

(d)                                 Borrower.  The liquidation, dissolution or termination
of Borrower.

 

(e)                                  Guaranty.  The Guaranty for any reason shall cease to be
in full force and effect, or be declared null and void or unenforceable in
whole or in part; or the validity or enforceability of the Guaranty shall be
challenged or denied by any Guarantor. 
Notwithstanding the foregoing, a challenge or denial of the validity or
enforceability of the Guaranty will not be considered an Event of Default if,
excluding the Available Assets of the challenging guarantor, the collective
aggregate value of the Available Assets of the Guarantor (defined collectively
in the Guaranty) does not fall below $80,000,000.00.

 

(f)                                    Construction.  The cessation of the construction of any or
all of the Project after work thereon has commenced for a period of more than
30

 

33

 

consecutive
days  without the written consent of Lender,
except for any cessation due to events of force majeure as expressly permitted
by the documents evidencing or securing the Senior Loan, except as otherwise
provided in Section 13(b) of the Loan Agreement.

 

(g)                                 Fraud or
Material Misrepresentation  Fraud or material misrepresentation by
Borrower, Mortgagor or any of their partners, officers, directors or managers,
or by any Guarantor in connection with (i) the application for or creation
of the Indebtedness, (ii) any financial statement, rent roll, or other
report or information provided to Lender during the term of the Indebtedness,
or (iii) any request for Lender’s consent to any proposed action.

 

(h)                                 Sale,
Encumbrance or Other Indebtedness.  The taking of any action by Borrower,
Mortgagor, or any other person contrary to the provisions of Section 13(d) of
this Agreement.

 

(i)                                     Reports and
Documents.  The failure
of Borrower to deliver any notice, report, assignment, certificate, instrument
or other document which Borrower is required to deliver to Lender under any of
the Loan Documents within the twenty (20) days following written demand by
Lender therefor.

 

(j)                                     Other Breaches
under this Agreement. The failure by Borrower to perform any of its
obligations under this Agreement, as and when required, except as specifically
set forth otherwise herein, which continues for a period of 30 days after
notice of such failure by Lender to Borrower, if such failure is not reasonably
susceptible of cure within such 30 day period, and if Borrower promptly
commences such cure within such 30 day period and diligently prosecutes the
same to completion, then the cure period shall be extended for such period of
time as may be reasonably necessary to effect a cure but in no event shall such
period exceed 90 days.

 

(k)                                  Other Breaches
Under Other Loan Documents.  The failure of Borrower or any Guarantor,
indemnitor or obligor to perform and observe any covenant, obligation,
agreement or undertaking under any Loan Document other than this Agreement
following such notice and/or grace period, if any, as may be provided therein
for curing such failure.

 

(l)                                     Senior Loan
Documents.  The failure
of Borrower or Mortgagor or any Guarantor to perform and observe any covenant,
obligation, agreement or undertaking under any Senior Loan Documents following
any notice or cure period, if any, as may be provided therein for curing such
failure.

 

(m)                               Judgments.

 

(i)                                     An order,
judgment or decree shall be entered by any court of competent jurisdiction
appointing a custodian, receiver, trustee, or 

 

34

 

liquidator
of Borrower or of all or any substantial part of any of Borrower’s assets; or

 

(ii)                                  The failure of Borrower to
pay any money judgment against it at least twenty (20) days prior to the date on which the assets of the
Borrower may be sold to satisfy such judgment; or

 

(iii)                               The failure to have
discharged within a period of twenty (20) days after the commencement thereof any attachment,
sequestration, or similar proceedings against any of the assets of Borrower.

 

(n)                                 Bankruptcy
Proceedings.

 

(i)                                     If Borrower or Mortgagor
shall become insolvent, make a transfer in fraud of, or a general assignment
for the benefit of, creditors, or admit in writing its inability, generally to
pay its debts as they become due; or

 

(ii)                                  If Borrower or Mortgagor
shall have a receiver, custodian, liquidator or trustee appointed for all or
substantially all of its assets or for the Project in any proceeding brought by
Borrower, Mortgagor or the Project, or
any such receiver or trustee is appointed in any proceeding brought against
Borrower, Mortgagor or the Project and such appointment is not promptly
contested and is not dismissed or discharged within ninety (90) days after such
appointment; or

 

(iii)                               If Borrower or Mortgagor
shall file a petition under Title 11 of the United States Code as amended or under any similar Federal or
state law or statute; or

 

(iv)                              If Borrower or Mortgagor
shall have a petition filed against it commencing an involuntary case under any
present or future Federal or state bankruptcy or similar law and such petition
is not dismissed or discharged within ninety (90) days after the filing thereof;
or

 

(v)                                 If Borrower or Mortgagor shall request
any composition, rearrangement, liquidation, extension, reorganization or other
relief as a debtor under any present or future Federal or state bankruptcy or
similar law now or hereafter existing.

 

The proceedings or events set forth in
paragraph (n) are collectively referred to as “Bankruptcy
Proceedings”.

 

35

 

18.          REMEDIES.

 

(a)                                  Actions upon
Event of Default.  Upon the
occurrence and during the continuance of an Event of Default beyond any
applicable grace and cure period, Lender may, in addition to any other rights
or remedies available to it pursuant to this Agreement and the other Loan
Documents or at law or in equity, take such action, without notice or demand,
that Lender deems advisable to protect and enforce its rights against the
Collateral or the Project, including, without limitation, at its option and
without prior notice or demand, declare the unpaid principal balance of the
Note and all accrued but unpaid interest thereon, as well as all other sums
owing under the Loan Documents, immediately due and payable. Lender may make
any advances on the Loan after the happening of any one or more of said Events
of Default without thereby waiving the right to demand payment in full of the
Note and such other amounts and without liability to make any other or further
advances.

 

(b)                                 Lender’s Right
to Perform.  If Borrower
fails to perform any covenant or obligation contained herein or in the other
Loan Documents and such failure continues for a period of 30 days after written
notice of such failure by Lender to Borrower, or if such failure is not
reasonably susceptible of cure within such 30 day period and if Borrower
promptly commences such cure within such 30 day period and diligently
prosecutes the same to completion, then the cure period shall be extended for
such period of time as may be reasonably necessary to effect a cure but in no
event shall such period exceed 90 days, without in any way limiting Lender’s
right to exercise any of its rights, powers or remedies as provided hereunder,
or under any of the other Loan Documents, Lender may, but shall have no
obligation to, perform, or cause performance of, such covenant or obligation,
and all costs, expenses, liabilities, penalties and fines of Lender reasonably
incurred or paid in connection therewith shall be payable by Borrower to Lender
upon demand and if not paid shall be added to the Indebtedness (and to the
extent permitted under applicable laws, secured by the Security Instrument and
other Loan Documents) and shall bear interest from the date expended at the
Default Interest Rate.  Notwithstanding
the foregoing, Lender shall have no obligation to send notice to Borrower of
any such failure.

 

(c)                                  Appointment of
Lender as Attorney-in-Fact.  Borrower hereby irrevocably, unconditionally
and presently constitutes Lender as Borrower’s attorney-in-fact, with full
power of substitution, to be exercised by Lender only upon the occurrence and
during the continuation of an Event of Default, to exercise its rights under
the Security Instrument (in its own name or the name of a designee) for
purposes of preserving and protecting the Project or the Collateral and, as
Lender in its sole discretion deems necessary or proper, to execute,
acknowledge (when appropriate) and deliver all instruments and documents in the
name of Borrower which 

 

36

 

may
be necessary or desirable in order to do any and every act which Borrower might
do on its own behalf in the performance of its obligations hereunder.  This power of attorney is a power coupled
with an interest and is irrevocable.

 

(d)                                 Cross-Default
to Note, Security Instrument and Other Loan Documents.  At the option of Lender, any Event of Default
by Borrower under this Agreement shall constitute a default under the Note, the
Security Instrument or any of the other Loan Documents to the same extent as
though the Note had by its own terms become due and payable at maturity and
payment thereof had been refused, and in such event Lender may, without
liability to Borrower, assert and exercise any and all rights and remedies
provided for herein or in the Note, the Security Instrument or any of the other
Loan Documents or otherwise as may be provided by law.  Such rights and remedies may be asserted
concurrently or successively from time to time (either before or after
commencement of foreclosure proceedings or before or after the exercise of any
other remedy of Lender) until the Note, including interest thereon, and all of
the Indebtedness of Borrower to Lender under this Agreement and the other Loan
Documents, have been paid in full.

 

(e)                                  Recourse
Limitations.  Borrower’s
liability in connection with this Agreement, the Note and the other Loan
Documents (including Borrower’s liability for all amounts due hereunder or
thereunder) is collectible only from the Project and other property encumbered
by the Security Instrument.  In no case
will any person who holds a direct or indirect ownership interest in Borrower,
or any officer, director, manager, trustee, employee, agent or affiliate of
Borrower or any such direct or indirect owner, have any responsibility for
Borrower’s obligations in connection with this Agreement, the Note and the
other Loan Documents (including Borrower’s liability for any amounts due
hereunder or thereunder); provided, however, that nothing in this Section 18(e) limits
the liability of any person under a guaranty or other agreement executed by
such person.

 

19.          ADDITIONAL ADVANCES

 

(a)                                  Disbursement of
Additional Advances.    Borrower
may submit a Draw Request in the form attached as Exhibit E from
time to time, but no more frequently than monthly (or twice monthly for the
following subcontractors: framing, drywall, retaining walls, electrical, trim,
carpentry, HVAC, floor coverings, concrete, final-clean and plumbing), for the
payment of the cost of labor, materials, and services supplied for the
construction of the Project and other costs incurred in connection with the Project,
all to the extent contemplated in the Construction Budget (“Additional Advance”).  Lender may require, at Borrower’s expense, an
inspection of, and favorable report upon, the Project, as built at the time of 

 

37

 

the
Draw Request, by the Inspecting Architects/Engineers prior to making any
Additional Advance.  Each Draw Request
shall be submitted by Borrower to Lender not less than ten (10) Business
Days prior to the date upon which the Additional Advance requested is desired
by Borrower.  Upon satisfaction of all
conditions precedent to Lender’s obligation to make Additional Advances
hereunder, and provided that the Additional Advance, when aggregated with the
Senior Mezzanine Advance Amount, does not exceed the Maximum Aggregate Advance
Amount and is consistent with the Construction Budget, Lender shall fund to
Borrower the requested Additional Advance (less the portion of the amount in
the related Draw Request that is simultaneously funded under the Senior
Mezzanine Loan Agreement), on the later of (i) the date such advance is
requested in the Draw Request, and (ii)  five (5) Business Days after
receipt of a complete Draw Request, together with the required accompanying
materials, reasonably satisfactory to Lender.

 

(b)                                 Conditions
Precedent to Additional Advance.

 

(i)                                     There shall exist no Event
of Default;

 

(ii)                                  The Senior Loan is in full force and
effect;

 

(iii)                               There exists no default by Mortgagor
under the Senior Loan;

 

(iv)                              The representations and warranties
made in this Agreement shall be true and correct in all material respects on
and as of the date of each Additional Advance, with the same effect as if made
on such date, other than (i) those which by their specific terms relate
only to the Closing Date or another specified date, and (ii) those
which relate to Section 6(d) and Section 16(c) hereof
which need be true and correct only as of the effective date of this Agreement;

 

(v)                                 Borrower shall have provided
to Lender (a) the form lease for residential units within the Project (it being agreed that Borrower has
already provided such form to Lender) and (b) copies of any
non-residential Leases affecting the Project;

 

(vi)                              Borrower shall have provided
to Lender copies of all available Plans prepared by any engineers or architects in connection with the
Project;

 

(vii)                           Lender shall have received
copies of any inspection reports prepared by the Inspecting
Architects/Engineers with respect to the specific Additional Advance and/or by
any Governmental Authority having jurisdiction over the Project and Lender
shall have received inspection reports, in form and substance reasonably
acceptable to Lender, from the Inspecting Architect/Engineers at 

 

38

 

not
less than thirty (30)-day intervals (and Lender shall request such reports from
the Inspecting Architect/Engineers);

 

(viii)                        Borrower shall procure and
deliver to Lender, if required by Lender, evidence reasonably satisfactory to
Lender that the amount theretofore invested by Mortgagor in the Project,
together with the funds remaining to be advanced to Borrower by Lender under
the terms of this Agreement and the Senior Mezzanine Loan Agreement and to Mortgagor by Senior Lender
under the Senior Loan, or sums which Borrower agrees to make available, are
adequate to meet all costs incurred and to be incurred in connection with the
construction of the Project;

 

(ix)                                Borrower shall procure and
deliver to Lender, if required by Lender, evidence reasonably satisfactory to Lender
supporting the amounts requested by Borrower, including, without limitation,
statements, invoices and bills evidencing the requested amounts; and

 

(x)                                   Borrower shall procure and
deliver to Lender a lien waiver and/or subordination agreement from each
contractor or subcontractor who has performed work valued at or in excess of
$150,000 at or upon the Land, or who
has supplied material, supplies or equipment for the construction of the
Project and who is intended to have been paid by the proceeds of the Additional
Advance current through the last payment to such contractor or subcontractor.

 

20.          TRANSFER OF LOAN; LOAN SERVICER.

 

(a)                                  Lender’s Right
to Transfer  Borrower
hereby acknowledges that Lender shall have the right to transfer, assign or
sell the Loan Documents, or grant participation interests in all or any portion
of the Loan, in such manner and to such entities as Lender in its sole and
absolute discretion shall select.

 

(b)                                 Loan Servicer.  At the option of Lender, the Loan may be
serviced by a servicer selected by Lender and Lender may delegate all or any
portion of its responsibilities under this Agreement and the other Loan
Documents to such servicer pursuant to a servicing agreement between Lender and
such servicer.  A sale may result in a change
of the Loan servicer.  There also may be
one or more changes of Loan servicer unrelated to a sale of the Note.  If there is a change of Loan servicer,
Borrower will be given notice of the change.

 

(c)                                  Dissemination
of Information.  Lender may
forward to each purchaser, transferee, assignee, or servicer of, and each
participant or investor in, the Loan (collectively, the “Investor”), any governmental regulators or
others 

 

39

 

as may be required by securities law, all documents and information
which Lender now has or may hereafter acquire relating to the Indebtedness and
to Borrower, Mortgagor and Principal, except as limited by the Principal’s
partnership agreement, including financial statements, whether furnished by
Borrower or otherwise, as Lender determines necessary or desirable.  Borrower irrevocably waives any and all
rights it may have under applicable Laws to prohibit such disclosure.

 

21.          LENDER’S EXPENSES; RIGHTS OF LENDER.  Borrower shall promptly pay to Lender, upon
demand, with interest thereon from the date of demand at the Default Interest
Rate, reasonable attorneys’ fees and all other reasonable costs and expenses
paid or incurred by Lender in enforcing or exercising its rights or remedies created
by, connected with or provided for in this Agreement or any of the other Loan
Documents following an Event of Default, and payment thereof shall be secured
by the Security Instrument.

 

22.          MISCELLANEOUS.

 

(a)                                  Notices. All notices,
demands and other communications (“Notice”)
under or concerning this Agreement shall be in writing.  Each Notice shall be addressed to the
intended recipient at its address set forth below, and a Notice shall be deemed
given on the earliest to occur of (1) the date when the Notice is received
by the addressee; (2) the first Business Day after the Notice is delivered
to a recognized overnight courier service, with arrangements made for payment
of charges for next Business Day delivery; or (3) the third Business Day
after the Notice is deposited in the United States mail with postage prepaid,
certified mail, return receipt requested.

 

If to Lender:                                                                               Behringer
Harvard St. Rose REIT, LLC

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention:  Chief Legal Officer

Facsimile:  (214) 655-1610

 

with copy to:                                                                          Behringer
Harvard St. Rose REIT, LLC

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention:  Mark Alfieri

Facsimile:  (214) 655-1610

 

with copy to:                                                                          Wick Phillips,
LLP

2100 Ross Avenue, Suite 950

Dallas, Texas  75201

Attention:  Walt Miller

Facsimile:  (214) 692-6255

 

40

 

 

If
to Borrower:                                                                   SW 131 St. Rose Mezzanine Borrower LLC

2001 Bryan Street, Suite 3250

Dallas, Texas 75201

Attention: Timothy J. Hogan

Facsimile: (214) 922-8553

 

with
a copy to:                                                                 SW 131 St. Rose
Mezzanine Borrower LLC

7373 N. Scottsdale Road, Suite C-228

Scottsdale, Arizona  85253

Attention: Bruce Hart

Facsimile:  (480) 596-8848

 

with
copy to:                                                                          Jones Day

325 John H. McConnell Blvd., Suite 600

Columbus, Ohio 43216

Attention:  Michael K. Ording

Facsimile: (614) 461-4198

 

Any
party to this Agreement may change the address to which notices intended for it
are to be directed by means of notice given to the other party in accordance
with this Section 22(a). 
Each party agrees that it will not refuse or reject delivery of any
notice given in accordance with this Section 22(a), that it will
acknowledge, in writing, the receipt of any notice upon request by the other
party and that any notice rejected or refused by it shall be deemed for
purposes of this Section 22(a) to have been received by the
rejecting party on the date so refused or rejected, as conclusively established
by the records of the U.S. Postal Service or the courier service. Any notice
under the Note and any other Loan Document which does not specify how notices
are to be given shall be given in accordance with this Section 22(a).

 

(b)                                 Waivers.  No delay or omission in exercising any right
or power arising from any default shall be construed as a waiver of such
default or as an acquiescence therein, nor shall any single or partial exercise
thereof preclude any further exercise thereof or the exercise of any other
right or power arising from any default. 
No waiver of any breach of any of the covenants or conditions of this
Agreement shall be construed to be a waiver of or acquiescence in or consent to
any previous or subsequent breach of the same or of any other condition or
covenant.

 

(c)                                  Lender Not Partner of
Borrower; Borrower in Control.  Neither the execution nor the performance of
any of the Loan Documents by Lender, nor the exercise by the Lender of any of
its rights, privileges or remedies conferred under the Loan Documents or under
applicable law, shall be deemed to render the Lender a partner or a joint
venturer with Borrower, any guarantor of the Loan or any other person, or to
render Borrower an agent of Lender for any purposes.  Nothing contained herein shall

 

41

 

                                                characterize or
be deemed to characterize, or be used as a basis for characterizing, Lender as
a “mortgagee-in-possession”.  Lender and
Borrower agree that Mortgagor remains in control of the Project, and that it
determines the business plan for the Project and employment, management,
leasing and operating directions and decisions for the Project.  All of Lender’s rights, and actions taken by
Lender as provided or permitted, in or under this Agreement or the other Loan
Documents are for and in its capacity as a secured lender attempting to protect
the collateral security for the Loan and to collect the Indebtedness and any
other amounts owing or outstanding under the Note or the Loan Documents.

 

(d)                                 No Third Party.  This Agreement is made for the sole benefit
of Borrower and Lender and Lender’s successors and assigns, and no other person
or persons shall have any rights or remedies under or by reason of this
Agreement or any right to the exercise of any right or power hereunder or
arising from any default, nor shall Lender owe any duty whatsoever to any
claimant for labor performed or materials furnished in connection with the
construction of the improvements to apply any undisbursed portion of the Loan
to the payment of any such claims.

 

(e)                                  Time of Essence; Context.  Time is hereby declared to be of the essence
of this Agreement and of every part hereof. 
When the context and construction so require, all words used in the
singular herein shall be deemed to have been used in the plural and the
masculine shall include the feminine and the neuter and vice versa.

 

(f)                                    Successors and Assigns.  This Agreement shall bind, and the rights
granted by this Agreement shall inure to, the respective successors and assigns
of Lender and Borrower.  However, a Sale
or Encumbrance prohibited by Section 13(d) shall be an Event
of Default.

 

(g)                                 Governing Jurisdiction.  This Agreement and all of the other Loan Documents
(except as otherwise expressly provided therein with respect to the enforcement
of specific remedies) shall be governed by and construed in accordance with the
substantive law of the State of Texas without regard to the application of
choice of law principles.

 

(h)                                 SUBMISSION TO JURISDICTION;
SERVICE OF PROCESS.  BORROWER
AND LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE
COURTS OF THE STATE OF TEXAS SITTING IN DALLAS COUNTY, TEXAS, FOR THE PURPOSES
OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER LOAN DOCUMENT AND THE SUBJECT
MATTER THEREOF, OR THE LOAN.  EACH OF
BORROWER AND LENDER TO THE

 

 

42

 

                                                EXTENT PERMITTED
BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF
MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER
PROCEEDING BROUGHT IN THE ABOVE-NAMED COURTS ANY CLAIM THAT IT IS NOT SUBJECT
PERSONALLY TO THE JURISDICTION OF SUCH COURTS, THAT ITS PROPERTY IS EXEMPT OR
IMMUNE FROM ATTACHMENT OR EXECUTION BY ANY SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER OR THAT THIS 
AGREEMENT, THE SUBJECT MATTER HEREOF, THE OTHER LOAN DOCUMENTS, THE
SUBJECT MATTER THEREOF, OR THE LOAN (AS APPLICABLE) MAY NOT BE ENFORCED IN
OR BY SUCH COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION,
SUIT OR PROCEEDING INSTITUTED IN STATE COURT TO FEDERAL COURT, OR TO REMAND AN
ACTION INSTITUTED IN FEDERAL COURT TO STATE COURT AND (C) HEREBY WAIVES
THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR
COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM
THE SAME SUBJECT MATTER.  BORROWER AND
LENDER EACH HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO
WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT TO SECTION 22(a) HEREOF,
BUT ANY SUCH SERVICE WILL BE EFFECTIVE ONLY WHEN RECEIVED AT SUCH ADDRESS.  BORROWER AND LENDER EACH AGREES THAT ITS
SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE
FOR THE EXPRESS BENEFIT OF THE OTHER PARTY. 
FINAL JUDGMENT AGAINST A PARTY IN ANY SUCH ACTION, SUIT OR PROCEEDING
SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (X) BY
SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH
SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF INDEBTEDNESS OR
LIABILITY OF THE PARTY THEREIN DESCRIBED, OR (Y) IN ANY OTHER MANNER
PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION.

 

(i)                                     WAIVER WITH RESPECT TO
DAMAGES.  BORROWER ACKNOWLEDGES THAT
LENDER DOES NOT HAVE ANY FIDUCIARY OR OTHER SPECIAL RELATIONSHIP WITH, OR
FIDUCIARY OR SPECIAL DUTY TO, BORROWER ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, AND THE RELATIONSHIP BETWEEN LENDER
AND BORROWER, IN CONNECTION HEREWITH AND THEREWITH, IS SOLELY THAT OF DEBTOR
AND CREDITOR.  TO

 

43

 

 

                                                THE EXTENT
PERMITTED BY APPLICABLE LAW, BORROWER SHALL NOT ASSERT, AND BORROWER HEREBY
WAIVES, ANY CLAIMS AGAINST LENDER, ON ANY THEORY OF LIABILITY, FOR SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL
DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS AGREEMENT,
ANY OTHER LOAN DOCUMENT, ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR
THEREBY, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

(j)                                     Entire Agreement.  This Agreement and all of the other Loan
Documents constitute the entire understanding between the parties hereto with
respect to the subject matter hereof, superseding all prior written or oral
understandings, and may not be modified, amended or terminated except by a
written agreement signed by each of the parties hereto or thereto that is to be
bound by the modification, amendment or termination.  Notwithstanding the foregoing, the provisions
of this Agreement are not intended to supersede the provisions of the Security
Instrument but shall be construed as supplemental thereto.  Borrower and Lender each hereby acknowledges
that this Agreement and the other Loan Documents accurately reflect the
agreements and understandings of the parties hereto with respect to the subject
matter hereof and hereby waives any claims against the other which it may now
have or may hereafter acquire to the effect that the actual agreements and
understandings of the parties hereto with respect to the subject matter hereof
may not be accurately set forth in this Agreement or such other Loan Documents.

 

(k)                                  Headings.  The various headings of this Agreement are
included for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.

 

(l)                                     Severability.  Each provision of this Agreement shall be
interpreted so as to be effective and valid under applicable law, but if any
such provision shall in any respect be ineffective or invalid under such law,
such ineffectiveness or invalidity shall not affect the remainder of such
provision or the remaining provisions of this Agreement.

 

(m)                               Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute but one and the same document.

 

(n)                                 WAIVER OF JURY TRIAL.  BORROWER AND LENDER EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS LOAN
AGREEMENT OR ANY OF THE OTHER LOAN

 

 

44

 

                                                DOCUMENTS, OR
ANY OTHER STATEMENTS OR ACTIONS OF THE LENDER OR BORROWER RELATED THERETO.  BORROWER AND LENDER EACH ACKNOWLEDGES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE OTHER TO ENTER INTO THIS AGREEMENT
AND EACH OTHER LOAN DOCUMENT, AND THAT THIS WAIVER SHALL BE EFFECTIVE AS TO
EACH OF THE OTHER LOAN DOCUMENTS AS IF FULLY INCORPORATED THEREIN.

 

(o)                                 Sole and Absolute Discretion.  Any option, consent, approval, or discretion
or similar right of Lender set forth in this Agreement or any of the other Loan
Documents may be exercised by Lender in its sole, absolute and unreviewable
discretion, unless the provisions of this Agreement or the other Loan Documents
specifically requires a different standard.

 

(p)                                 Straight Debt Harbor.  It is the intent of Borrower and Lender that
the Loan shall be treated as a security that satisfies the requirements of Section 856(m)(1)(A) and
Section 856(m)(2) of the Code (the “Straight
Debt Safe Harbor”). 
Accordingly, notwithstanding any indication herein to the contrary, the
parties hereto agree that the terms of the Loan shall be interpreted in such a
manner that the Loan satisfies the Straight Debt Safe Harbor for so long as it
is owned by Lender; and the terms of the Note shall be applied such that the
Note has a constant effective yield to maturity, as determined under Section 1372
of the Code, at a fixed rate over the entire term of the Note equal to the
Interest Rate (as defined in the Note) (or, during any time at which an Event
of Default is continuing, at the Default Interest Rate); provided, however,
that such contraction shall not alter the dates of the principal or interest
payments (described in Section 1.1 of the Note) or the amounts of the
principal or interest payments required to be paid on an interest payment date
(described in Section 1.1. of the Note) prior to the Maturity Date or
earlier prepayment date.

 

(q)                                 Assignment.  Lender may, without the consent of any other
party, assign its rights and obligations under this Agreement and the Loan
Documents to any Affiliate of Lender.

 

(r)                                    Retainage of Subcontractors.  Lender understands and agrees that no
retainage will be withheld for general conditions or the following subcontractor
trades: floor and roof trusses, cabinets and countertops, appliances, lumber,
drywall, concrete and reinforcing materials, cultured stone and CMU materials,
interior trim, electric light fixtures, windows, doors and millwork, HVAC
components, metals, floor coverings, surveying and stocking, materials testing
and utilities.  Borrower understands and
agrees that ten (10%) retainage will be withheld for all other subcontractors
provided that at such time as the Project is at least

 

 

45

 

                                                fifty percent
(50%) completed (as confirmed by the Senior Lender’s construction consultant,
if any), retainage may be reduced to five percent (5%) for such other
subcontractors.

 

23.          SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BORROWER.  Borrower shall do all things necessary to preserve the existence of
Borrower and Mortgagor as a separate Special Purpose Bankruptcy Remote Entity
unless Lender otherwise consents, in its sole discretion, in writing.  Borrower covenants and agrees that with
respect to Borrower and Mortgagor, until payment in full of the Indebtedness,
it will not do, or permit Mortgagor to do, directly or indirectly, any of the
following unless Lender consents thereto, in its sole discretion, in writing.  A “Special Purpose Bankruptcy Remote Entity”
means a corporation, limited partnership or limited liability company which
shall not:

 

(a)                                  engage in any business or
activity other than the ownership, construction, operation and maintenance, in
each case directly or indirectly, of the Land and the Project (in case of
Mortgagor) or the Equity Interests in Mortgagor (in case of Borrower) and
activities incidental thereto;

 

(b)                                 acquire or own any material
assets other than (i) the Equity Interests, (ii) the Land or the
Project, and (iii) such incidental personal property as may be necessary
for the operation of the Project or as may arise out of the other activities of
Borrower or Mortgagor;

 

(c)                                  merge into or consolidate
with any person, or dissolve, terminate or liquidate, or transfer or otherwise
dispose of all or substantially all of its assets or change its legal
structure;

 

(d)                                 fail to preserve its
existence as a person duly organized, validly existing and in good standing (if
applicable) under the laws of the jurisdiction of its organization or
formation, or amend, modify, or terminate the provisions of its organizational
documents if such amendment, modification, or termination would adversely
affect the ability of such Person to perform its obligations hereunder or under
the other Loan Documents or would affect any other clause of this Section 23;

 

(e)                                  own any subsidiary (except,
in the case of Borrower, the Mortgagor) or make any investment in any person
(except, in the case of Borrower, the Mortgagor);

 

(f)                                    commingle its assets with
the assets of any of its general partners, members, shareholders, Affiliates,
principals or of any other Person in such a manner that it will be costly or
difficult to segregate, ascertain or identify its individual assets from those
of any general partner, member, shareholder, principal or Affiliate of Borrower
or Mortgagor or any other Person;

 

(g)                                 incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any obligation), other
than (i) the Senior Loan, the Loan and

 

 

46

 

                                                the loan made
pursuant to the Senior Mezzanine Loan Agreement, (ii) obligations under
interest rate hedging arrangements related to the Senior Loan and (iii) trade
and operational indebtedness incurred in the ordinary course of business
(including construction and operation of the Project) or for its administrative
functions;

 

(h)                                 fail to maintain its
records, books of account and bank accounts separate and apart from those of
its general partners, members, shareholders, principals and Affiliates and any
other Person;

 

(i)                                     enter into any contract or
agreement with any general partner, member, shareholder, principal or Affiliate
of Borrower or Mortgagor except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available
on an arms-length basis with third parties other than any general partner,
member, shareholder, principal or Affiliate of Borrower or Mortgagor;

 

(j)                                     seek the dissolution or winding
up of Borrower or Mortgagor;

 

(k)                                  maintain its assets in such
a manner that it will be costly or difficult to segregate, ascertain or
identify its individual assets from those of any general partner, member,
shareholder, principal or Affiliate of Borrower or Mortgagor or any other
Person.

 

(l)                                     hold itself out to be
responsible for the debts of another person, except through endorsement of
negotiable instruments in the ordinary course of collection;

 

(m)                               make any loans or advances
to any third party, including any general partner, member, shareholder,
principal or Affiliate of Borrower or Mortgagor (except, in the case of
Borrower, to the Mortgagor);

 

(n)                                 fail to file its own tax
returns, if any, as may be required under applicable law, to the extent that
Borrower or Mortgagor is (i) not part of a consolidated group filing a
consolidated return or returns or (ii) not treated as a “disregarded
entity” for tax purposes not required to file tax returns under applicable law;
or

 

(o)                                 fail either to hold itself
out to the public as a legal person separate and distinct from any other person
or to conduct its business solely in its own name if the result is (i) to
mislead others as to the identity of the person with which such other party is
transacting business; or (ii) to suggest that it is responsible for the
debts of any third party (including any general partner, principal or Affiliate
of Borrower or Mortgagor), provided, however, Mortgagor and Borrower may hold
itself out as doing business under the “Trammel Crow Residential” or “Alexan
Communities” names.

 

 

47

 

 

In addition to the foregoing, Borrower shall
have at least one independent manager who is provided by a nationally
recognized company that provides professional independent directors and who
shall not be at the time of initial appointment, and may not have been during
the preceding five years (i) a stockholder, director, officer, employee,
partner, member, attorney or counsel of Mortgagor or an Affiliate of Mortgagor
or Borrower, (ii) a customer, supplier (other than a supplier of
registered agent or registered office service) or other Person who derives any
of its purchases or revenues from its activities with Mortgagor or Borrower, (iii) a
Person or other entity controlling or under common control with any such
stockholder, director, officer employee, partner, customer, supplier (other
than a supplier of registered agent or registered office service) or other
Person or (iv) a member of the immediate family of any such stockholder,
director, officer, employee, partner, customer, supplier or other Person (the “Independent Director”). 
At any time while the Loan is outstanding, the consent of the
Independent Director should be required to: (i) file, consent to the
filing of, or join in any filing of, a bankruptcy or insolvency petition; (ii) dissolve,
liquidate, merge or consolidate; (iii) engage in any business or activity
other than the ownership, construction, operation and maintenance, directly or
indirectly, of the Project; and (iv) amend the articles of organization,
limited liability agreement or partnership agreement.

 

24.          SENIOR MEZZANINE LOAN.

 

(a)                                  Borrower and Lender are
entering into the Senior Mezzanine Loan Agreement contemporaneously with this
Agreement.  Under this Agreement and the
Senior Mezzanine Loan Agreement, Lender may advance to Borrower an aggregate
maximum principal amount up to, but not in excess of, the Maximum Aggregate
Advance Amount.  The Borrower and Lender
agree that, at any given time, any principal amounts advanced to Borrower by
Lender under this Agreement and the Senior Mezzanine Loan Agreement shall be
allocated as follows:

 

(i)                                     At all times while principal
amounts are outstanding and/or additional principal amounts may be advanced
under this Agreement or the Senior Mezzanine Loan Agreement, an aggregate
principal amount of at least $2,000 shall be advanced to Borrower by Lender
under this Agreement and the Senior Mezzanine Loan Agreement, taken together,
and the principal amount outstanding under this Agreement shall be at least
$1,000 and the principal amount outstanding under the Senior Mezzanine Loan
Agreement shall be at least $1,000;

 

(ii)                                  If an aggregate principal
amount of more than $2,000 has been advanced to Borrower by Lender under this
Agreement and the Senior Mezzanine Loan Agreement, Lender may decide whether
additional amounts requested by Borrower pursuant to a Draw Request are funded
pursuant to this Agreement or pursuant to the Senior Mezzanine Loan Agreement,
or in part pursuant to this Agreement and in part pursuant to the Senior
Mezzanine Loan Agreement, and if in parts pursuant to both this Agreement and
the

 

 

48

 

                                                Senior
Mezzanine Loan Agreement, the respective parts funding pursuant to each, so
long as the aggregate amount advanced to Borrower pursuant to this Agreement
and the Senior Mezzanine Loan Agreement in all cases equals the amount
requested by Borrower in the Draw Request.

 

(b)                                 Borrower acknowledges that
Lender has advised it that Lender desires that at no time will the Senior
Mezzanine Advance Amount exceed the Estimated Value.  Accordingly, Borrower agrees that if at any
time the Senior Mezzanine Advance Amount is more than the Estimated Value, Lender
shall, subject to Section 24(a)(i), be deemed to have advanced
principal under this Agreement in an amount equal to the amount by which the
Senior Mezzanine Advance Amount exceeds the Estimated Value and to have used
such advance to repay the portion of the loan under the Senior Mezzanine Loan
Agreement then outstanding so as to reduce the Senior Mezzanine Advance Amount
to the Estimated Value.  Conversely,
Borrower agrees that if at any time the Senior Mezzanine Advance Amount is less
than the Estimated Value, Lender shall, subject to Section 24(a)(i),
be deemed to have advanced principal against the loan made under the Senior
Mezzanine Loan Agreement in an amount equal to the lesser of (i) the
Junior Mezzanine Advance Amount minus $1,000 and (ii) the amount by which
the Estimated Value exceeds the Senior Mezzanine Advance Amount, and in such
event Lender shall be deemed to have used the amount so advanced to repay a
portion of the Loan.  An advance pursuant
to this Section 24(b) will not reduce the amount Borrower is
entitled to draw under this Agreement and the Senior Mezzanine Loan Agreement,
it being the intent of Lender and Borrower that Borrower will be entitled to
obtain advances up to the Maximum Aggregate Advance Amount.  An advance and contemporaneous repayment
made, or deemed to be made, pursuant to this Section 24(b) will
not be considered an advance in excess of the Maximum Aggregate Advance Amount
for purposes of this Agreement.

 

(c)                                  Borrower acknowledges that
Lender has advised it that Lender desires that at no time will the Senior
Mezzanine Advance Amount and the accrued and unpaid interest on the loan
pursuant to the Senior Mezzanine Loan Agreement, taken together, exceed the
Estimated Value.  Therefore, to the
extent that, after any adjustments pursuant to Section 24(b), the
Senior Mezzanine Advance Amount and the accrued and unpaid interest on the loan
pursuant to the Senior Mezzanine Loan Agreement, taken together, exceed the
Estimated Value, then such accrued and unpaid interest will be deemed to be
payable under the Loan rather than payable under the loan pursuant to the
Senior Mezzanine Loan Agreement to the extent necessary to prevent the Senior
Mezzanine Advance Amount and the accrued and unpaid interest on the loan
pursuant to the Senior Mezzanine Loan Agreement, taken together, from exceeding
the Estimated Value.  Any such interest
deemed to be payable under the Loan pursuant to this Section 

 

 

49

 

                                                24(c) shall
automatically to revert to being payable under the loan pursuant to the Senior
Mezzanine Loan Agreement to the extent possible without causing the Senior
Mezzanine Advance Amount and the accrued and unpaid interest on the loan
pursuant to the Senior Mezzanine Loan Agreement, taken together, from exceeding
the Estimated Value.  In no event shall
the accrued and unpaid interest under the Loan, when combined with the accrued
and unpaid interest owing under the loan pursuant to the Senior Mezzanine Loan
Agreement, exceed the amount of interest that would be owing (taking into
account payments of interest made prior to the time in question) if interest
had accrued at the rate applicable under the Note and the note issued pursuant
to the Senior Mezzanine Loan Agreement on a principal balance equal to the
Junior Mezzanine Advance Amount plus the Senior Mezzanine Advance Amount.

 

(d)                                 Lender shall endeavor to
give Borrower written notice of any advance, repayment or adjustment pursuant
to this Section 24 simultaneously with such action, and Lender
shall, upon request by Borrower, give Borrower written notice of the amount
outstanding under the Loan and the loan under the Senior Mezzanine Loan
Agreement.

 

25.          SUBDIVISION
AND RELEASE.

 

(a)                                  On or before June 30,
2009, Borrower will have caused the Mortgagor to have (i) obtained all
final, non-appealable approvals of all applicable Governmental Authorities
necessary to cause the Land to be lawfully subdivided into separate and
conforming legal lots comprised of the Commercial Tract and the Residential
Tract, substantially as reflected on the proposed subdivision map (a copy of
which is attached as Exhibit A-1 to the Senior Loan Agreement); (ii) recorded
(or cause to have been recorded) within the applicable real property records of
Clark County, Nevada the final subdivision map as so approved by all applicable
Governmental Authorities (the “Final Map”);
and (iii) caused the Title Insurer to have issued an endorsement to the
title insurance insuring that, after giving effect to the recordation of the
Final Map, the Residential Tract constitutes a separate, legal lot pursuant to
applicable laws.  If any Governmental
Authority conditions approval of the proposed subdivision map on revisions
thereto, Lender shall be deemed to have consented to such revisions if and to
the extent the Senior Lender consents to such revisions in accordance with the
Senior Loan Documents.

 

(b)                                 Lender shall
execute and deliver (or shall direct the trustee under the Security Instrument
to execute and deliver) a partial release or reconveyance of the lien of the
Security Instrument with respect to the Commercial Tract, subject to and
conditioned upon the satisfaction of each of the following conditions
precedent:

 

 

50

 

(i)                                     The Final Map
shall have been recorded in the applicable real property records of Clark
County, Nevada;

 

(ii)                                  The Title
Insurer shall have issued an endorsement to the title insurance insuring that
the Residential Tract constitutes a separate legal lot in accordance with the
requirements of applicable law;

 

(iii)                               Borrower or
Mortgagor shall have prepared and delivered to Lender, a reciprocal easement
agreement (and any documents referenced therein or executed therewith), in such
form as is approved by the Senior Lender in accordance with the Senior Loan
Documents, duly executed by Mortgagor and Commercial Tract Borrower,
encumbering the entirety of the Land and establishing non-exclusive, perpetual
and reciprocal easements for ingress, egress, access and public utilities over
and across the Land (the “REA”); and

 

(iv)                              Borrower shall
have reimbursed Lender for its out-of-pocket expenses incurred in connection
with such partial release.

 

(c)                                  Lender agrees
to execute and deliver a subordination of lien, in form and substance
reasonably acceptable to Borrower and the Senior Lender, subordinating the
liens and security interests of the Security Instrument to the REA.

 

[Signatures Follow on Next Page]

 

51

 

 

IN
WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the day and year first above written.

 

	
  BORROWER:

  
	
   

  
	
  SW
  131 ST. ROSE MEZZANINE BORROWER LLC,

  
	
  a
  Delaware limited liability company

  
	
   

  
	
  By:

  	
  SW
  130 St. Rose Limited Partnership,

  
	
   

  	
  a
  Delaware limited partnership,

  
	
   

  	
  its sole member

  
	
   

  
	
   

  	
  By:

  	
  SW
  129 St. Rose Limited Partnership,

  
	
   

  	
   

  	
  a
  Delaware limited partnership,

  
	
   

  	
   

  	
  its general
  partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  SW
  104 Development GP LLC,

  
	
   

  	
   

  	
   

  	
  a
  Delaware limited liability company,

  
	
   

  	
   

  	
   

  	
  its general
  partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/
  Timothy J. Hogan

  
	
   

  	
   

  	
   

  	
   

  	
  Timothy
  J. Hogan, Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 

	
  LENDER:

  
	
   

  
	
  BEHRINGER
  HARVARD ST. ROSE REIT, LLC,

  
	
  a
  Delaware limited liability company

  
	
   

  
	
  By:

  	
  Behringer
  Harvard St. Rose Venture, LLC,

  
	
   

  	
  a
  Delaware limited liability company,

  
	
   

  	
  its
  manager

  
	
   

  
	
   

  	
  By:

  	
  Behringer
  Harvard St. Rose, LLC,

  
	
   

  	
   

  	
  a
  Delaware limited liability company,

  
	
   

  	
   

  	
  its
  manager

  
	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Gerald J. Reihsen, III

  
	
   

  	
   

  	
   

  	
  Gerald
  J. Reihsen, III

  
	
   

  	
   

  	
   

  	
  Executive
  Vice President-Corporate

  
	
   

  	
   

  	
   

  	
  Development &
  Legal and Secretary

  

 

 

EXHIBIT A

 

DESCRIPTION
OF THE LAND

 

All
that land situated in the County of Clark, State of Nevada, more particularly
described as follows:

 

PARCEL
1:

 

The
North Half (N 1⁄2) of the Northwest Quarter (NW 1⁄4) of the Southwest Quarter (SW
1⁄4) of the Northwest Quarter (NW 1⁄4) of Section 35, Township 22 South, Range
61 East, M.D.B.&M., Clark County, Nevada.

 

PARCEL
2:

 

The
South Half (S 1⁄2) of the Northeast Quarter (NE 1⁄4) of the Southwest Quarter (SW
1⁄4) of the Northwest Quarter (NW 1⁄4) of Section 35, Township 22 South, Range
61 East, M.D.B.&M.

 

EXCEPTING
THEREFROM that portion lying within St. Rose Parkway.

 

PARCEL
3:

 

That
portion of the Northwest Quarter (NW 1⁄4) of Section 35, Township 22 South,
Range 61 East, M.D.M., City of Henderson, Clark County, Nevada, more particularly
described as follows:

 

The
South Half (S 1⁄2) of the Northwest Quarter (NW 1⁄4) of the Southwest Quarter (SW
1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35.

 

TOGETHER
WITH:

 

Those
portions of the North Half (N 1⁄2) of the South Half (S 1⁄2) of the Southwest
Quarter (SW 1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35 lying
Northwesterly of the Northwesterly right of way of St. Rose Parkway.

 

PARCEL
4:

 

Being
a portion of the South Half (S 1⁄2) of the Southeast Quarter (SE 1⁄4) of the
Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4) of Section 35,
Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

 

TOGETHER
WITH that portion of the North Half (N 1⁄2) of the Northeast Quarter (NE 1⁄4) of
the Southwest Quarter (SW 1⁄4) of the Northwest Quarter (NW 1⁄4), also together
with that portion of the North Half (N 1⁄2) of the Northwest Quarter (NW 1⁄4) of
said Section 35, lying Northwesterly of St. Rose Parkway, further
described as follows:

BEGINNING
at the Southeast (SE) corner of the Northwest Quarter (NW 1⁄4) of the Northwest
Quarter (NW 1⁄4) of said Section 35, said corner being marked by an aluminum
cap marked “PLS 5269, 1994, NW 1/16”;

Thence
South 41°41’09” East,
174.75 feet to the Northwesterly line of St. Rose Parkway as granted in Book
250 as Document No. 202951, Official Records, Clark County, Nevada;

Thence
along said Northwesterly line, South 46°18’51” West, 297.97 feet to
a point of intersection of said Northwesterly line with the South line of the
North Half (N 1⁄2) of the Northeast Quarter (NE 1⁄4) of the Southwest Quarter (SW
1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35;

Thence
along the lines of said North Half (N 1⁄2) the following Three (3) courses:

1)              North 89°22’43” West,
553.55 feet;

2)              North 00°33’34” West,
330.00 feet;

3)              South 89°22’04” East,
663.09 feet to the POINT OF BEGINNING;

 

EXCEPTING THEREFROM:

 

A
portion of the South Half (S 1⁄2) of the Southeast Quarter (SE 1⁄4) of the
Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35,
described as follows:

 

BEGINNING
at the Southwest (SW) corner of the South Half (S 1⁄2) of the Southeast Quarter
(SE 1⁄4) of the Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35;

Thence
North 00°33’55” West,
330.09 feet to the Northwest (NW) corner of the South Half (S 1⁄2) of the
Southeast Quarter (SE 1⁄4) of the Northwest Quarter (NW 1⁄4) of the Northwest
Quarter (NW 1⁄4) of said Section 35; Thence South 89°21’56” East,
663.21 feet to the Northeast Corner of the South Half (S1/2) of the Southeast
Quarter (SE 1⁄4) of the Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4)
of said Section 35; Thence South 00°32’39” East, 330.06 feet to
the Southeast (SE) corner of the South Half (S 1⁄2) of the Southeast Quarter (SE
1⁄4) of the Northwest Quarter (NW 1⁄4) of the Northwest Quarter (NW 1⁄4) of said Section 35;
Thence North 41°41’09” West,
316.13 feet; Thence South 48°18’51” West, 153.68 feet to
the beginning of a 500 foot radius curve, concave Northwesterly; Thence along
said curve to the right, 369.29 feet through a central angle of 42°19’05” to the
POINT OF BEGINNING.

(Deed
Reference 20070720 / 2463 and 2464)

 

SURVEYOR’S
PERIMETER LEGAL DESCRIPTION:

 

THE
FOLLOWING IS A METES AND BOUNDS LEGAL DESCRIPTION OF PARCELS 1, 2, 3 AND 4
COMBINED PREPARED BY THE CERTIFYING SURVEYOR.

 

THAT
PORTION OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 35, TOWNSHIP 22
SOUTH, RANGE 61 EAST, M.D.M., CITY OF HENDERSON, CLARK COUNTY, NEVADA,
DESCRIBED AS FOLLOWS:

 

BEGINNING
AT THE SOUTHEAST CORNER OF THE NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST
QUARTER (NW 1/4) OF SAID SECTION 35; THENCE SOUTH 41°41’09” EAST, A
DISTANCE OF 174.75 FEET TO THE NORTHWESTERLY RIGHT-OF-WAY LINE OF ST. ROSE
PARKWAY (300.00 FEET WIDE);   THENCE
SOUTH 48°18’51”

WEST
ALONG SAID RIGHT-OF-WAY LINE, A DISTANCE OF 1,278.38 FEET TO THE SOUTH LINE OF
THE NORTH HALF (N 1/2) OF THE SOUTHWEST QUARTER (SW 1/4) OF THE SOUTHWEST
QUARTER (SW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 35;
THENCE DEPARTING SAID RIGHT-OF-WAY LINE, NORTH 89°24’01” WEST ALONG SAID SOUTH
LINE, A DISTANCE OF 477.63 FEET TO THE WEST LINE OF SAID SECTION 35;   THENCE DEPARTING SAID SOUTH LINE, NORTH
00°34’46” WEST ALONG SAID WEST LINE, A DISTANCE OF 990.37 FEET TO THE SOUTH
LINE OF THE NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF
SAID SECTION 35;   THENCE DEPARTING
SAID WEST LINE, SOUTH 89°22’04” EAST ALONG SAID SOUTH LINE, A DISTANCE OF
663.09 FEET TO THE SOUTHEAST CORNER OF THE SOUTHWEST QUARTER (SW 1/4) OF SAID
NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 35,
SAME BEING THE BEGINNING OF A CURVE, CONCAVE NORTHWESTERLY, HAVING A RADIUS OF
500.00 FEET;   THENCE DEPARTING SAID
SOUTH LINE, NORTHEASTERLY 369.29 FEET ALONG SAID CURVE, THROUGH A CENTRAL ANGLE
OF 42°19’05”;   THENCE NORTH 48°18’51”
EAST, A DISTANCE OF 153.68 FEET; THENCE SOUTH 41°41’09” EAST, A DISTANCE OF
316.13 FEET TO THE SOUTHEAST CORNER OF THE NORTHWEST QUARTER (NW 1/4) OF THE
NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 35, SAME BEING THE POINT OF
BEGINNING.

 

Prepared
by:

Michael
A. Lathan, PLS No. 14414

DRC
Surveying Nevada, Inc.

9330
West Martin Avenue

Las
Vegas, Nevada  89148

 

EXHIBIT B

 

[INTENTIONALLY OMITTED]

EXHIBIT C

 

PLANS

 

[ATTACHED]

EXHIBIT D

 

CONSTRUCTION
BUDGET

 

	
  LINE
  ITEMS

  	
  Total
  Costs

  
	
   

  	
   

  
	
  LAND
  COSTS

  	
   

  
	
  LAND

  	
  14,200,000.00

  
	
  TOTAL LAND COSTS

  	
  14,200,000.00

  
	
   

  	
   

  
	
  HARD
  COSTS

  	
   

  
	
  Construction Hard Costs

  	
  34,235,846.00

  
	
  Hard Costs Contingency

  	
  1,431,465.00

  
	
  TOTAL HARD COSTS

  	
  35,667,311.00

  
	
   

  	
   

  
	
  SOFT COSTS

  	
   

  
	
  Taxes

  	
  220,000.00

  
	
  Legal

  	
  375,000.00

  
	
  Closing Costs

  	
  100,000.00

  
	
  Municipal Fees

  	
  4,150,000.00

  
	
  Architect

  	
  700,000.00

  
	
  Engineering &
  Surveying

  	
  200,000.00

  
	
  Preleasing

  	
  175,000.00

  
	
  Marketing

  	
  465,000.00

  
	
  Mezzanine Loan Fee

  	
  631,296.00

  
	
  Non-Accrual Mezzanine
  Interest

  	
  6,413,523.00

  
	
  Financing Costs

  	
  1,501,870.00

  
	
  Deferred Developer
  Offsite Overhead

  	
  3,613,196.00

  
	
  Interest Reserve

  	
  1,181,558.00

  
	
  Operating Deficit

  	
  275,237.00

  
	
  Soft Cost Contingency

  	
  275,000.00

  
	
  TOTAL SOFT COSTS

  	
  20,276,680.00

  
	
  TOTAL BUDGET

  	
  70,143,991.00

  
	
   

  	
   

  
	
  SOURCE

  	
   

  
	
  Mezzanine Debt

  	
  21,043,197.00

  
	
  Equity Partner

  	
  5,172,333.00

  
	
  TCR Cash-including Pre
  Development Costs

  	
  1,715,265.00

  
	
  Deferred Equity-Offsite
  Overhead

  	
  3,613,196.00

  
	
  TOTAL SOURCES

  	
  31,543,991.00

  
	
  LOAN PROCEEDS

  	
  38,600,000.00

  

 

 

EXHIBIT E

 

DRAW
REQUEST

 

[BORROWER’S LETTERHEAD]

 

DRAW REQUEST NO.                          

 

TO:  BEHRINGER HARVARD ST. ROSE REIT, LLC (“Lender”)

 

	
  LOAN
  NO.

  	
   

  	
  DATE

  	
   

  
	
  PROJECT

  	
  ALEXAN
  ST. ROSE

  
	
  LOCATION

  	
  HENDERSON,
  NEVADA

  
	
  BORROWER

  	
  SW
  131 ST. ROSE MEZZANINE BORROWER LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
  FOR

  PERIOD

  ENDING

  	
   

  

 

In accordance with the Junior Mezzanine Loan
Agreement in the amount of up to $21,043,197 dated December     ,
2008 between Borrower and Lender, Borrower requests that $                    
be advanced from Loan proceeds.  The
proceeds should be credited to the account of                                         ,
Account No.                     ,
at                                         .

 

	
  1.

  	
  ORIGINAL CONTRACT SUM

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  TOTAL CHANGE ORDERS

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CONTRACT SUM TO DATE
  (Line 1 + 2)

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  TOTAL
  COMPLETED & STORED TO DATE

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  SOFT COSTS 

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  RETAINAGE:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  a.

  	
   

  	
  % of Completed Work

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  b.

  	
   

  	
  % of Stored Material

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total Retainage

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  TOTAL EARNED LESS
  RETAINAGE 

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
  (Line 4 less Line 6
  Total)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  LESS PREVIOUS PAYMENTS

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  CURRENT PAYMENT DUE

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  BALANCE TO FINISH, PLUS
  RETAINAGE 

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
  (Line 3 less Line 7)

  	
   

  	
   

  	
   

  	
   

  

 

 

The undersigned Borrower represents that, to the
best of Borrower’s knowledge, information, and belief, the Work covered by this
application has been completed substantially in accordance with the
above-referenced Contract, that all amounts have been paid by Borrower for Work
for which previous payments were received from Owner, and that the current
payment requested herein represents a just estimate of reimbursement to
Borrower.  Borrower further represents
that: (i) there are no known mechanic’s liens or materialmen’s liens
outstanding at the date of this application (other than items being contested
in accordance with the Loan Documents); (ii) all due and payable bills
with respect to the Work have been paid to date 
(other than items being contested in accordance with the Loan Documents)
or are included in the amount requested in this application; (iii) except
for such bills not paid but so included, there is no known basis for the filing
of any mechanic’s liens or materialmen’s liens on the Work or the Project
(other than items being contested in accordance with the Loan Documents); and (iv) effective
waivers and releases of liens have been obtained from all subcontractors
through the immediately preceding advance of Loan proceeds (other than items
being contested in accordance with the Loan Documents).

 

This Draw Request is
executed                     ,
200    .

 

BORROWER:

 

SW
131 ST. ROSE MEZZANINE BORROWER LLC,

a
Delaware limited liability company

 

	
  By:

  	
  SW
  130 St. Rose Limited Partnership,

  	
   

  	
   

  
	
   

  	
  a
  Delaware limited partnership,

  	
   

  	
   

  
	
   

  	
  its
  sole member

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  SW
  129 St. Rose Limited Partnership,

  	
   

  	
   

  
	
   

  	
   

  	
  a
  Delaware limited partnership,

  	
   

  	
   

  
	
   

  	
   

  	
  its
  general partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  SW
  104 Development GP LLC,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  a
  Delaware limited liability company,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  its
  general partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  	
   

  

 

 

NOTES:

 

Each Draw Request shall include invoices, receipts and/or
copies of checks evidencing the Cost of Work performed during the preceding
month and unconditional lien releases for all prior payments, from General
Contractor and all Subcontractors. Raw materials or work-in-process at a
manufacturer’s plant location are not eligible for payment.  For materials not yet incorporated in the
Work, the following shall be provided by Borrower as a condition to payment:

 

1.                                       Items shall be
listed separately on the Draw Request;

 

2.                                       An appropriate
transfer of title shall be executed;

 

3.                                       The methods
used to store off-Site items shall be described;

 

4.                                       Items in
storage shall be identified as property of Borrower or Mortgagor, and a description
of the identification methods used shall be submitted for approval by Lender;

 

5.                                       A written
inventory of items and method used to verify such inventory, including Borrower’s
certification that all quantities have been received in good condition, shall
be submitted for approval by Lender; and

 

6.                                       Proof of
insurance in Borrower’s name shall be secured.

 

Lender shall have the right to verify storage by a
physical inspection prior to invoice approval and at any time thereafter.  Such payment shall not relieve Borrower of
the responsibility for protecting, safeguarding, and proper installation of the
materials.

 

 

EXHIBIT F

 

OWNERSHIP
CHART

 

[ATTACHED]

 

 

EXHIBIT G

 

PENDING
ACTIONS AT LAW

 

None.

 

 

EXHIBIT H

 

VIOLATIONS
OF PROPERTY AGREEMENTS

 

None.

 

 

EXHIBIT I

 

LEASES

 

None.

 

 

EXHIBIT J

 

FINANCIAL
INFORMATION

 

Borrower must provide the
following items, as applicable, to Lender, in addition to any other items
requested by Lender prior to Closing or during the term of this Agreement:

 

a)              Detailed accrued expense
listing for each quarter ended during the current calendar year and for the
prior full fiscal year

b)             Detailed straight line rent
schedule for each quarter ended during the current calendar year and for the
prior full fiscal year

c)              Details/abstracts of all
permits and licenses for tenants (i.e. satellite dishes on roof)

d)             Detailed listing of all
tenants with termination options

e)              Listing of all service
contracts and equipment leases, including contracts for elevator, landscaping,
electricity, cleaning, HVAC service, security, pest control, disposal, parking
lot maintenance, insurance, etc.

f)                Access to service contracts

g)             Detail of the cash receipts
and disbursements journal, downloaded to Excel if possible for the prior full
fiscal year and the year to date period of the current year

h)             Detailed general ledger of
revenues and expenses for each quarter during the current calendar year and the
prior full fiscal year

i)                 Detailed income statements
by month for the current year and for the prior full fiscal year

j)                 Copies of property tax
invoices for the current year and the previous full fiscal year

k)              Operating expense
reconciliations by tenant for the current year to date period and the previous
full fiscal year

l)                 Rent roll – current year and
prior year end

m)           Lease abstracts, including
amendments, exhibits and side letters for each tenant

n)             Management/leasing
agreement, current year and prior year end

o)             Check registers for the
period from the current year to date period being reviewed through the date of
the accountants/auditors field work

p)             Access to vendor accounts
payable files

q)             Leases in effect during the
prior full fiscal year and during the current year being reviewed

 

 

EXHIBIT K

 

FORM OF
SUBORDINATION OF MANAGEMENT AGREEMENT

 

[ATTACHED]

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