Document:

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                                                                    EXHIBIT 4.2

                        INTERSTATE HOTELS & RESORTS, INC.
                                 EXECUTIVE FUND

                         Effective as of January 1, 2004

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                        INTERSTATE HOTELS & RESORTS, INC.
                                 EXECUTIVE FUND

                         Effective as of January 1, 2004

                                TABLE OF CONTENTS

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                                                   ARTICLE I
                                                  DEFINITIONS

1.1      ACCOUNT........................................................................................     1
1.2      ADJUSTED ALLOCABLE SHARE.......................................................................     1
1.3      AGGREGATE CONTRIBUTION CREDITS.................................................................     1
1.4      ALLOCABLE SHARE................................................................................     1
1.5      AVAILABLE CONTRIBUTION CREDITS.................................................................     2
1.6      BENEFICIARY....................................................................................     2
1.7      BOARD..........................................................................................     2
1.8      CHANGE IN CONTROL..............................................................................     2
1.9      CHIEF EXECUTIVE OFFICER........................................................................     2
1.10     CODE...........................................................................................     2
1.11     COMPENSATION...................................................................................     2
1.12     COMPENSATION DEFERRAL ACCOUNT..................................................................     3
1.13     COMPENSATION DEFERRAL MAXIMUM PERCENTAGE.......................................................     3
1.14     COMPENSATION DEFERRALS.........................................................................     3
1.15     DEEMED INVESTMENT DATE.........................................................................     3
1.16     EFFECTIVE DATE.................................................................................     3
1.17     ELIGIBLE EMPLOYEE..............................................................................     3
1.18     EMPLOYER.......................................................................................     3
1.19     EMPLOYER CONTRIBUTION CREDIT ACCOUNT...........................................................     3
1.20     EMPLOYER CONTRIBUTION CREDITS..................................................................     4
1.21     ENTRY DATE.....................................................................................     4
1.22     ERISA..........................................................................................     4
1.23     INVESTMENT COMMITTEE...........................................................................     4
1.24     NEXT YEAR'S BONUS..............................................................................     4
1.25     NEXT YEAR'S BONUS DEFERRALS....................................................................     4
1.26     OTHER COMPENSATION.............................................................................     5
1.27     PARTICIPANT....................................................................................     5
1.28     PLAN...........................................................................................     5
1.29     PLAN SPONSOR...................................................................................     5
1.30     PLAN YEAR......................................................................................     5
1.31     QUALIFIED INVESTMENTS..........................................................................     5
1.32     QUALIFIED INVESTMENT DOLLAR LIMIT..............................................................     5
1.33     REGULAR BONUS..................................................................................     5
1.34     REGULAR BONUS DEFERRALS........................................................................     5
1.35     TRANSACTIONAL EXPENSES.........................................................................     5
1.36     TRUST..........................................................................................     5
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1.37     VALUATION DATE.................................................................................     5
1.38     YEAR OF VESTING................................................................................     6

                                                  ARTICLE II
                                        ELIGIBILITY AND PARTICIPATION

2.1      REQUIREMENTS...................................................................................     6
2.2      RE-EMPLOYMENT..................................................................................     6
2.3      CHANGE OF EMPLOYMENT CATEGORY..................................................................     6

                                                 ARTICLE III
                                          CONTRIBUTIONS AND CREDITS

3.1      EMPLOYER CONTRIBUTION CREDITS..................................................................     7
3.2      PARTICIPANT COMPENSATION DEFERRALS.............................................................     7

                                                  ARTICLE IV
                                             ALLOCATION OF FUNDS

4.1      DEEMED INVESTMENTS UNDER THE PLAN..............................................................     9
4.2      VALUATION OF QUALIFIED INVESTMENTS.............................................................    10
4.3      ALLOCATION OF DEEMED INVESTMENTS AND DEEMED EARNINGS OR LOSSES AMONG PLAN ACCOUNTS ............    11
4.4      SEPARATE BOOKKEEPING ACCOUNTS..................................................................    11
4.5      PAYMENT OF EXPENSES............................................................................    12

                                                  ARTICLE V
                                           ENTITLEMENT TO BENEFITS

5.1      NON-LIQUIDATING DISTRIBUTION FROM A QUALIFIED INVESTMENT.......................................    12
5.2      COMPLETE DISPOSITION BY PLAN SPONSOR OF A QUALIFIED INVESTMENT.................................    13
5.3      TERMINATION OF EMPLOYMENT......................................................................    12
5.4      CHANGE IN CONTROL..............................................................................    13
5.5      VESTING........................................................................................    13
5.6      RETURN OF COMPENSATION DEFERRALS AND RELINQUISHMENT OF CORRESPONDING EMPLOYER CONTRIBUTIONS....    13

                                                  ARTICLE VI
                                           DISTRIBUTION OF BENEFITS

6.1      AMOUNT AND METHOD OF PAYMENT...................................................................    14
6.2      TERMINATION BENEFIT............................................................................    14
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6.3      OTHER BENEFITS.................................................................................    15

                                                 ARTICLE VII
                                       BENEFICIARIES; PARTICIPANT DATA

7.1      DESIGNATION OF BENEFICIARIES...................................................................    15
7.2      INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;  INABILITY TO LOCATE
         PARTICIPANTS OR BENEFICIARIES..................................................................    16

                                                 ARTICLE VIII
                                       ADMINISTRATION AND RECORDKEEPING

8.1      ADMINISTRATIVE AND RECORDKEEPING AUTHORITY.....................................................    16
8.2      UNIFORMITY OF DISCRETIONARY ACTS...............................................................    17
8.3      LITIGATION.....................................................................................    17
8.4      CLAIMS PROCEDURE...............................................................................    17

                                                  ARTICLE IX
                                                  AMENDMENT

9.1      RIGHT TO AMEND.................................................................................    19
9.2      AMENDMENT TO ENSURE PROPER CHARACTERIZATION OF THE PLAN........................................    18
9.3      CHANGES IN LAW AFFECTING TAXABILITY............................................................    19

                                                  ARTICLE X
                                                 TERMINATION

10.1     PLAN SPONSOR'S RIGHT TO TERMINATE PLAN.........................................................    20
10.2     AUTOMATIC TERMINATION OF PLAN..................................................................    20
10.3     SUCCESSOR TO PLAN SPONSOR......................................................................    20

                                                  ARTICLE XI
                                                MISCELLANEOUS

11.1     LIMITATIONS ON LIABILITY OF PLAN SPONSOR AND EMPLOYER..........................................    20
11.2     CONSTRUCTION...................................................................................    21
11.3     SPENDTHRIFT PROVISION..........................................................................    21

                                                 ARTICLE XII
                                                    TRUST

12.1     ESTABLISHMENT OF TRUST.........................................................................    22
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                        INTERSTATE HOTELS & RESORTS, INC.
                                 EXECUTIVE FUND

                         Effective as of January 1, 2004

                                    RECITALS

         This Interstate Hotels & Resorts, Inc. Executive Fund (the "Plan") is
adopted by Interstate Hotels & Resorts, Inc. (the "Plan Sponsor") for certain
management employees of Interstate Management Company, LLC (the "Employer"). The
purpose of the Plan is to align the interests of those employees more closely
with the interests of the Plan Sponsor and the Employer, by offering them
incentive compensation benefits taxable under section 451 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Plan is intended to be a
"top-hat plan" (i.e., an unfunded deferred compensation plan maintained for a
select group of management or highly compensated employees) pursuant to sections
201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").

         Accordingly, the following Plan is adopted.

                                    ARTICLE I
                                   DEFINITIONS

         The following terms, as used herein, unless a different meaning is
implied by the context, have the following meaning:

         1.1      ACCOUNT means the balance credited to a notational account
maintained on the books of the Employer with respect to each Participant,
including amounts credited to the Participant's Compensation Deferral Account
and to his or her Employer Contribution Credit Account. Said Account shall be
determined as of the relevant Valuation Date hereunder.

         1.2      ADJUSTED ALLOCABLE SHARE means, with respect to each Qualified
Investment, the Allocable Share of the Plan for that Qualified Investment as
reduced pursuant to Section 4.1(d) and as reduced by any distributions (other
than as provided in Section 5.1) or forfeitures hereunder allocable to that
Qualified Investment.

         1.3      AGGREGATE CONTRIBUTION CREDITS means, for each Plan Year, the
aggregate Compensation Deferrals and Employer Contribution Credits credited
under the Plan for that Plan Year.

         1.4      ALLOCABLE SHARE means, with respect to each Plan Year, that
portion (expressed as a percentage, and as adjusted pursuant to Section 4.1(d))
of the Plan Sponsor's aggregate investment commitment to each Qualified
Investment arising during that Plan Year which the Board determines to be the
appropriate level at which Plan Accounts should be deemed to co-invest with the
Plan Sponsor in such Qualified Investment. The Board may establish for each Plan
Year the

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Allocable Share to apply to all Qualified Investments with a Deemed Investment
Date falling within that Plan Year.

         1.5      AVAILABLE CONTRIBUTION CREDITS means, with respect to each
Qualified Investment, the aggregate amount credited to Plan Accounts (including
deemed interest credited pursuant to Section 4.1(a)) that are available for
allocation to that Qualified Investment (i.e., amounts credited to Plan Accounts
that have not yet been deemed invested in other Qualified Investments and that
have not been returned to or relinquished by Participants pursuant to Section
5.5) as of the Deemed Investment Date for that Qualified Investment.

         1.6      BENEFICIARY means any person or persons so designated in
accordance with the provisions of Article VII.

         1.7      BOARD means the Board of Directors of the Plan Sponsor.

         1.8      CHANGE IN CONTROL means a transaction or series of
transactions occurring after the Effective Date, in which (i) any individual,
firm, corporation or other entity, or any group (as defined in Section 13(d)(3)
or the Securities Exchange Act of 1934 (the "Act")), becomes, directly or
indirectly, the beneficial owner (as defined in the general rules and
regulations of the Securities and Exchange Commission with respect to Sections
13(d) and 13(g) of the Act) of more than fifty percent (50%) of the then
outstanding shares of the Plan Sponsor's capital stock entitled to vote
generally in the election of directors of the Plan Sponsor; or (ii) the
stockholders of the Plan Sponsor approve a definitive agreement for (A) the
merger or other business combination of the Plan Sponsor with or into another
corporation pursuant to which the stockholders of the Plan Sponsor do not own,
immediately after the transaction, more than fifty percent (50%) of the voting
power of the corporation that survives and is a publicly owned corporation and
not a subsidiary of another corporation, or (B) the sale, exchange or other
disposition of all or substantially all of the assets of the Plan Sponsor; or
(iii) during any period of two (2) years or less, individuals who at the
beginning of such period constituted the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the stockholders of the Plan Sponsor, of each new director was
approved by a vote of at least seventy-five percent (75%) of the directors then
still in office who were directors at the beginning of the period.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have
taken place if beneficial ownership is acquired by, or a tender exchange offer
is commenced by, the Plan Sponsor or any of its subsidiaries, any profit
sharing, employee ownership or other employee benefit plan of the Plan Sponsor
or any subsidiary of any trustee of or fiduciary with respect to any such plan
when acting in such capacity, or any group comprised solely of such entities.

         1.9      CHIEF EXECUTIVE OFFICER means the Chief Executive Officer of
the Plan Sponsor.

         1.10     CODE means the Internal Revenue Code of 1986 and the
regulations thereunder, as amended from time to time.

         1.11     COMPENSATION means the total cash base salary compensation and
the total cash

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bonus compensation of the Participant with respect to the Plan Year of
reference, including the Participants Next Year's Bonus.

         1.12     COMPENSATION DEFERRAL ACCOUNT is defined in Section 3.2.

         1.13     COMPENSATION DEFERRAL PERCENTAGE means, for each Plan Year and
each item of Compensation that the Participant is permitted to defer with
respect to that Plan Year, the percentage of the Participant's base salary that
the Plan Sponsor establishes as the deferral percentage for that Plan Year with
respect to that item of Compensation. For each Plan Year, the Plan Sponsor may
establish a different Compensation Deferral Percentage with respect to each item
of Compensation that may be deferred for that Plan Year and with respect to any
Participant or group of Participants, and may increase the Compensation Deferral
Percentage for each such item of deferrable Compensation with respect to
Participants who have elected to defer the Compensation Deferral Percentage
(before such increase) with respect to that item.

         1.14     COMPENSATION DEFERRALS is defined in Section 3.2.

         1.15     DEEMED INVESTMENT DATE means, with respect to each Qualified
Investment, the date on which the Plan Sponsor's investment in that Qualified
Investment is made (as reasonably determined by the Plan Sponsor), as of which a
Participant's Account is deemed to become invested in that Qualified Investment.

         1.16     EFFECTIVE DATE means the effective date of the Plan, which
shall be January 1, 2004.

         1.17     ELIGIBLE EMPLOYEE means any individual employed by the
Employer in a Vice President or more senior position, or any other individual
employed by the Employer who is determined by the Plan Sponsor to be a member of
a select group of management or highly compensated employees of the Employer
(within the meaning of ERISA), who is designated by the Chief Executive Officer
to be an Eligible Employee under the Plan.

                  Generally, by each December 1, the Employer shall notify those
individuals, if any, who will be Eligible Employees for the next Plan Year. If
the Plan Sponsor determines that an individual first becomes an Eligible
Employee during a Plan Year, the Employer shall notify such individual of that
determination and of the date during the Plan Year on which the individual shall
first become an Eligible Employee.

         1.18     EMPLOYER means Interstate Management Company, LLC and its
successors and assigns unless otherwise herein provided, or any other
corporation or business organization which, with the consent of the Plan Sponsor
or its successors or assigns, assumes the Employer's obligations hereunder, or
any other corporation or business organization which agrees, with the consent of
the Plan Sponsor to become a party to the Plan.

         1.19     EMPLOYER CONTRIBUTION CREDIT ACCOUNT is defined in Section
3.1.

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         1.20     EMPLOYER CONTRIBUTION CREDITS is defined in Section 3.1.

         1.21     ENTRY DATE means, with respect to any individual, the day,
following the date on which that individual becomes an Eligible Employee, on
which that individual's Regular Bonus is payable (or would be payable, but for a
Regular Bonus Deferral election made by the Participant hereunder). If, pursuant
to Section 3.2, the Plan Sponsor permits deferrals of Participant's Next Year's
Bonus or Other Compensation in addition to Regular Bonus Deferrals, then Entry
Date shall mean, with respect to any individual who has not yet experienced an
Entry Date, the day, following the date on which the individual becomes an
Eligible Employee, that is (i) in the case of base salary deferrals, the first
day of a pay period, (ii) in the case of deferrals of bonuses other than the
Regular Bonus or the Next Year's Bonus, the day on which that bonus is (or would
be) payable, and (iii) in the case of Next Year's Bonus Deferrals, the day on
which those amounts first are deemed invested in a Qualified Investment.

         1.22     ERISA means the Employee Retirement Income Security Act of
1974 and the regulations thereunder, as amended from time to time.

         1.23     INVESTMENT COMMITTEE means the Investment Committee of the
Board.

         1.24     NEXT YEAR'S BONUS means the total annual bonus of the
Participant with respect to the Plan Year immediately following the Plan Year of
reference, generally payable in March of that following Plan Year.

         1.25     NEXT YEAR'S BONUS DEFERRALS means, with respect to each Plan
Year, that portion (if any) of a Participant's Next Year's Bonus that the
Participant is offered the opportunity to defer under the Plan, and that he or
she elects to defer pursuant to Section 3.2. A Participant's Next Year's Bonus
Deferrals shall be considered an "advance" by the Employer against the annual
bonus that is not otherwise payable to the Participant for more than a year
after the date of his or her deferral election, with the results that (i) any
Next Year's Bonus Deferrals made by a Participant with respect to a Plan Year
shall be charged against, and shall reduce, his or her Regular Bonus for the
following Plan Year (and for the Plan Year(s) after that, if the immediately
following Plan Year's Regular Bonus is insufficient to "repay" the Next Year's
Bonus Deferral "advance"), and, if any portion of those Next Year's Bonus
Deferrals has been deemed invested in one or more Qualified Investments prior to
the date on which the "advance" is repaid from the Regular Bonus for the
following Plan Year (and for the Plan Year(s) after that, if necessary), then
interest on that portion so deemed invested also shall be charged against, and
shall reduce, the Participant's Regular Bonus for the following Plan Year (and
for the Plan Year(s) after that, if necessary), such interest to be calculated
from the date(s) of the deemed investment in the Qualified Investment(s) through
the date(s) on which the "advance" is repaid, using the interest rate described
in Section 5.5(b), (ii) as provided in Section 4.1, a Participant's Next Year's
Bonus Deferrals will not be credited with any income or earnings until the
earlier of when they are deemed invested in one or more Qualified Investments or
when the "advance" is repaid from the Participant's Regular Bonus for following
Plan Year (and for the Plan Year(s) after that, if necessary), and (iii) a
Participant's Next Year's Bonus Deferrals will not be deemed invested in any
Qualified Investments unless and until his or her

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Compensation Deferrals, excluding Next Year's Bonus Deferrals, have been deemed
invested in full in Qualified Investments.

         1.26     OTHER COMPENSATION means the Compensation of the Participant
with respect to the Plan Year of reference, excluding the Participant's Regular
Bonus and Next Year's Bonus.

         1.27     PARTICIPANT means any individual so designated in accordance
with the provisions of Article II, including, where appropriate according to the
context of the Plan, any former Participant who is or may become (or whose
Beneficiary may become) eligible to receive a benefit under the Plan.

         1.28     PLAN means this Interstate Hotels & Resorts, Inc. Executive
Fund, as amended from time to time.

         1.29     PLAN SPONSOR means Interstate Hotels & Resorts, Inc. and its
successors and assigns.

         1.30     PLAN YEAR means the twelve (12) month period ending on the
December 31 of each year during which the Plan is in effect.

         1.31     QUALIFIED INVESTMENTS mean those hotel and corporate housing
properties in which the Plan Sponsor invests subsequent to the Effective Date
(including through whole ownership, joint ventures, sliver investments and
mezzanine loans) and in which the Board determines to have Plan Accounts deemed
co-invested with the Plan Sponsor.

         1.32     QUALIFIED INVESTMENT DOLLAR LIMIT means, for each Plan Year,
twenty five percent (25%) of the Aggregate Contribution Credits for that Plan
Year (unless, with respect to any Plan Year, the Board increases the Qualified
Investment Dollar Limit due to an anticipated insufficiency of Qualified
Investments available for deemed investment during such Plan Year or for any
other reason as determined by the Board).

         1.33     REGULAR BONUS means the annual bonus of the Participant with
respect to the Plan Year of reference, generally payable in March of that Plan
Year.

         1.34     REGULAR BONUS DEFERRALS is defined in Section 3.1.

         1.35     TRANSACTIONAL EXPENSES means, with respect to each Qualified
Investment, the aggregate expenses incurred by the Plan Sponsor and any other
co-investors in the Qualified Investment in connection with the acquisition
transaction involving that Qualified Investment, as reasonably determined by the
Plan Sponsor.

         1.36     TRUST means the trust fund, if any, established pursuant to
the Plan.

         1.37     VALUATION DATE means (i) in the case of deemed interest to be
credited pursuant to Section 4.1(a), such dates as shall be determined by the
Plan Sponsor in its discretion, (ii) in the

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case of a benefit entitlement arising out of a non-liquidating distribution from
a Qualified Investment to the Plan Sponsor pursuant to Section 5.1, the date of
the distribution, (iii) in the case of a benefit entitlement arising out of a
complete disposition of a Qualified Investment by the Plan Sponsor pursuant to
Section 5.2, the date of disposition, (iv) in the case of a benefit entitlement
arising out of a Change in Control (unless receipt of that benefit is waived
pursuant to Section 6.3), the date of the Change in Control and (v) in the case
of a benefit entitlement arising out of a termination of employment pursuant to
Section 5.3, the January 1 and July 1 of each Plan Year; and, where relevant in
the case of certain installment distributions made hereunder, a twelve (12)
month anniversary of such Valuation Date.

         1.38     YEAR OF VESTING means, with respect to each Qualified
Investment, the twelve (12) month anniversary of the Deemed Investment Date with
respect to that Qualified Investment, and each twelve (12) month anniversary
thereof until the complete disposition by the Plan Sponsor of that Qualified
Investment; provided that a Participant who experiences an entitlement event in
accordance with Section 5.3(a) shall cease to accrue any further Years of
Vesting following his or her termination of employment with the Employer, and a
Participant who, pursuant to Section 5.3(b), does not experience an entitlement
event in accordance with Section 5.3(a), shall accrue Years of Vesting following
his or her termination of employment solely with respect to his or her
Compensation Deferral Account.

                                   ARTICLE II
                          ELIGIBILITY AND PARTICIPATION

         2.1      REQUIREMENTS. Every Eligible Employee shall be eligible to
become a Participant on the first Entry Date occurring on or after the date on
which he or she becomes an Eligible Employee. No individual shall become a
Participant, however, if he or she is not an Eligible Employee on the date his
or her participation is to begin.

                  Participation in the Compensation Deferral Account portion of
the Plan is voluntary. In order to participate in the Compensation Deferral
Account portion of the Plan, an otherwise Eligible Employee must make written
application in such manner as may be required by Section 3.2 and by the Employer
and must agree to make Compensation Deferrals as provided in Article III.

                  Participation in the Employer Contribution Credit Account
portion of the Plan is automatic for all Participants.

         2.2      RE-EMPLOYMENT. If a Participant whose employment with the
Employer is terminated is subsequently re-employed with the Employer, he or she
shall become a Participant in accordance with the provisions of Section 2.1.

         2.3      CHANGE OF EMPLOYMENT CATEGORY. During any period in which a
Participant remains in the employ of the Employer, but ceases to be an Eligible
Employee, he or she shall not be eligible to make Compensation Deferrals or to
be credited with Employer Contribution Credits hereunder.

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                                   ARTICLE III
                            CONTRIBUTIONS AND CREDITS

         3.1      EMPLOYER CONTRIBUTION CREDITS. There shall be established and
maintained a separate Employer Contribution Credit Account in the name of each
Participant. There shall be established the following two (2) sub-accounts under
a Participant's Employer Contribution Credit Account: (a) the Employer Matching
Contribution Sub-Account; and (b) the Employer Discretionary Contribution
Sub-Account. Each such Sub-Account shall be credited or debited, as applicable,
with (a) amounts equal to the Employer's Contribution Credits credited to that
Sub-Account; and (b) amounts equal to any deemed earnings and losses (to the
extent realized, based upon deemed fair market value of the Sub-Account's deemed
assets as determined hereunder) allocated to that Sub-Account.

                  Provided a Participant has elected to defer all or a portion
of his or her Regular Bonus pursuant to Section 3.2 (referred to herein as
"Regular Bonus Deferrals") with respect to a Plan Year, Employer Contribution
Credits shall be credited to the Participant's Employer Matching Contribution
Sub-Account for such Plan Year in an amount equal to one hundred fifty percent
(150%) of the Participant's Regular Bonus Deferrals (after adjustment, if
applicable, as provided in the first paragraph of Section 3.2) for such Plan
Year. The Plan Sponsor, by action of its Board, may increase or decrease (down
to zero (0)) this matching percentage with respect to any Plan Year, provided
that any decrease may only be made with respect to Regular Bonus Deferrals for
which Participants have not yet made deferral elections.

                  In addition to Employer Contribution Credits credited to
Participants' Employer Matching Contribution Sub-Accounts each Plan Year, as
provided above, the Plan Sponsor, by action of the Board, may credit Employer
Contribution Credits to Participants' Employer Discretionary Contribution
Sub-Accounts as well with respect to any Plan Year, at such times, in such
manner and to such extent as the Plan Sponsor shall determine in its sole
discretion, including for example, to match Next Year's Bonus Deferrals (if such
deferrals are permitted) and/or to match Other Compensation deferrals (if such
deferrals are permitted) similarly to the manner in which Regular Bonus
Deferrals are matched, as provided above.

                  A Participant shall become vested in amounts credited to his
or her Employer Contribution Credit Account as provided in Section 5.4.

         3.2      PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules
established by the Employer, a Participant may elect to defer each Plan Year a
Regular Bonus which would otherwise be paid to the Participant, in an amount
equal to that Plan Year's Compensation Deferral Percentage for Regular Bonuses.
In addition, the Plan Sponsor, by action of the Board, may permit Participants
to defer Next Year's Bonuses and/or Other Compensation under the Plan with
respect to any Plan Year, at such times, in such manner, and to such extent as
the Plan Sponsor shall determine, in its sole discretion, in an amount equal to
the applicable Compensation Deferral Percentage(s) for that Plan Year. Amounts
deferred pursuant to this Section 3.2 will be considered a Participant's
"Compensation Deferrals."

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                  The preceding notwithstanding, the Compensation Deferrals of
all Participants for a Plan Year may not exceed two million dollars ($2,000,000)
in the aggregate (unless, with respect to any Plan Year, the Board increases
this ceiling in its discretion). If all Participants' Compensation Deferral
elections with respect to a Plan Year would result in this limit being exceeded
for that Plan Year, then each Participant's Compensation Deferral election with
respect to that Plan Year shall be reduced on a pro rata basis, with the result
that each Participant's Compensation Deferrals for that Plan Year will be
determined by multiplying two million dollars ($2,000,000) (or such other
ceiling as the Board may establish) by a fraction, the numerator of which is the
Participant's Compensation Deferral election for the Plan Year and the
denominator is all Participants' Compensation Deferral elections for the Plan
Year.

                  Compensation Deferrals shall be made through regular payroll
deductions or through an election by the Participant to defer the payment of a
bonus not yet payable to him or her at the time of the election. Ordinarily, a
Participant shall make Compensation Deferral elections with respect to a coming
twelve (12) month Plan Year during the period beginning on the December 1 and
ending on the December 31 of the prior Plan Year, or during such other period as
is established by the Employer which ends no later than (i) in the case of a
base salary compensation deferral election, the day preceding the beginning of
the regular payroll period to which such election relates, (ii) in the case of a
Regular Bonus Deferral election, the day preceding the date on which the Regular
Bonus is first due to be paid and (iii) in the case of a Next Year's Bonus
Deferral election, the day preceding the date on which any portion of the Next
Year's Bonus is to become deemed invested in a Qualified Investment. The
Participant's Compensation Deferral election with respect to a Plan Year, once
made, is irrevocable for that Plan Year (except if and to the extent that the
Plan Sponsor, in its sole discretion, permits a complete revocation of a
Participant's Compensation Deferral election with respect to the remainder of
the Plan Year).

                  Compensation Deferrals shall be deducted by the Employer from
the pay of a deferring Participant and shall be credited to the Account of the
deferring Participant. There shall be established and maintained by the Employer
a separate Compensation Deferral Account in the name of each Participant, to
which shall be credited or debited, as applicable: (a) amounts equal to the
Participant's Compensation Deferrals; and (b) amounts equal to any deemed
earnings and losses (to the extent realized, based upon deemed fair market value
of the Account's deemed assets as determined hereunder) attributable or
allocable thereto.

                  A Participant shall become vested in amounts credited to his
or her Compensation Deferral Account as provided in Section 5.4.

                  In addition to the foregoing, the Plan Sponsor, by action of
its Board, may permit Participants to defer under the Plan amounts that would
otherwise be distributable to the Participants under the Interstate Hotels &
Resorts, Inc. Supplemental Deferred Compensation Plan. Any such deferrals, which
may be accomplished by the Participant surrendering his or her interest under
the Supplemental Deferred Compensation Plan in exchange for an agreement by the
Employer to credit his or her Compensation Deferral Account hereunder in the
amount so surrendered, shall be permitted solely at such times, in such manner,
to such extent, and subject to such terms and conditions as the Plan Sponsor
shall determine, in its sole discretion.

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                                   ARTICLE IV
                               ALLOCATION OF FUNDS

         4.1      DEEMED INVESTMENTS UNDER THE PLAN.

                  (a)      AMOUNTS CREDITED PENDING OR FOLLOWING QUALIFIED
INVESTMENT. Subject to Section 5.3, Participants' Compensation Deferral
Accounts, to the extent they have not yet been deemed invested in a Qualified
Investment as provided below, shall be deemed invested in money market funds or
similar cash equivalent, interest-bearing investments, as selected by the Plan
Sponsor in its discretion. The preceding notwithstanding, Participants' Next
Year's Bonus Deferrals and Employer Contribution Credit Accounts shall not be
credited with any deemed earnings or losses until they have been deemed invested
in a Qualified Investment, or, in the case of Next Year's Bonus Deferrals, until
they have been "repaid" from Regular Bonus(es) as provided in Section 1.25.

                           If any Participant is required to receive payment of
his or her vested Account in two (2) installments pursuant to Section 6.2(b),
his or her Account shall be considered as ceasing to be deemed invested in any
Qualified Investment following his or her receipt of the first (1st) installment
payment under Section 6.2(b), such that the amounts remaining unpaid shall be
deemed to be invested in money market funds or similar cash equivalent,
interest-bearing investments, as selected by the Plan Sponsor in its discretion,
until payment of the second (2nd) installment.

                  (b)      INVESTMENT IN QUALIFIED INVESTMENTS IN GENERAL.
Except as provided in subsection (a), Participants' Accounts shall be deemed to
be invested in Qualified Investments. With respect to each Plan Year's Qualified
Investments, the Board shall determine the Allocable Share, i.e., the level at
which the Plan will be deemed to participate with the Plan Sponsor, on a
pari-passu basis (on the same basis in gains, losses, Transactional Expenses,
cash distributions, etc.), in those Qualified Investments. For the Plan's
initial Plan Year (i.e., the 2004 calendar year), the Board has established as
the Allocable Share five percent (5%), meaning that, for example, if the Plan
Sponsor has committed to invest twenty million dollars ($20,000,000) in a
particular Qualified Investment with a 2004 Deemed Investment Date, one million
dollars ($1,000,000) in Available Contribution Credits should be deemed to be
co-invested by the Plan in that Qualified Investment. Notwithstanding the
preceding, the level at which the Plan may participate with the Plan Sponsor in
any Qualified Investment may not exceed the Qualified Investment Dollar Limit in
effect as of the Deemed Investment Date for that Qualified Investment.

                  (c)      CARRYFORWARDS. If the Available Contribution Credits
with respect to a particular Qualified Investment are greater than either (i)
the Allocable Share as of the Deemed Investment Date for that Qualified
Investment or (ii) the Qualified Investment Dollar Limit then in effect, the
amount by which such Available Contribution Credits exceed the lesser of (i) or
(ii) shall be carried forward for deemed investment in the next available
Qualified Investment, and, if any excess still remains, it shall be carried
forward for deemed investment in the next available Qualified Investment, and so
on. Subject to Section 5.5, if any such carryforwards, together with the
Aggregate Contribution Credits for a given Plan Year (plus any interest earned
thereon, pursuant to subsection (a)), exceed the amount deemed invested in
Qualified Investments during that Plan Year

                                        9

<PAGE>

(such as, for example, because of the absence or insufficiency of Qualified
Investments with respect to that Plan Year), such total shall be carried forward
for deemed investment in Qualifying Investments made during a future Plan Year
(regardless of whether the Participant makes a Compensation Deferral election
with respect to that future Plan Year), in the order in which those Qualified
Investments become available.

                  (d)      ADJUSTMENTS TO ALLOCABLE SHARE. If the Qualified
Investment Dollar Limit in effect as of the Deemed Investment Date for a
particular Qualified Investment is less than the Allocable Share then in effect,
the Allocable Share shall be reduced down to the Qualified Investment Dollar
Limit. If the Available Contribution Credits with respect to that Qualified
Investment are less than the Allocable Share as so reduced, the Allocable Share
shall be further reduced, down to the Available Contribution Credits. For
example, if the Board establishes as the Allocable Share with respect to a
particular Plan Year's Qualified Investments five percent (5%), then the
Allocable Share with respect to a Qualified Investment falling within that Plan
Year to which the Plan Sponsor has a twenty million dollar ($20,000,000)
investment commitment is one million dollars ($1,000,000) (that is, five percent
(5%) of twenty million dollars ($20,000,000)). However, if the Qualified
Investment Dollar Limit is then seven hundred fifty thousand dollars ($750,000),
the Allocable Share will be reduced to seven hundred fifty thousand dollars
($750,000). Further, if the Available Contribution Credits are then only five
hundred thousand dollars ($500,000) (for example, because all but five hundred
thousand dollars ($500,000) of that Plan Year's Aggregate Contribution Credits,
and all prior Plan Years' Aggregate Contribution Credits, have already been
deemed invested in other Qualified Investments or have been returned to or
relinquished by Participants pursuant to Section 5.5), the Allocable Share will
be further reduced to five hundred thousand dollars ($500,000), with the result
that the Plan (i.e., Participants' Accounts in the aggregate) will be deemed to
invest five hundred thousand dollars ($500,000) in the subject Qualified
Investment.

         4.2      VALUATION OF QUALIFIED INVESTMENTS. As of the appropriate
Valuation Date, the value of the deemed investment of all Plan Accounts in each
Qualified Investment shall be determined as follows:

                  (a)      For each hotel Qualified Investment, such value shall
be the product of (1) multiplied by (2), where:

                           (1)      equals (a) the trailing twelve (12) months
net operating income of the Qualified Investment as of the relevant Valuation
Date divided by the projected year five (5) capitalization rate established by
the Plan Sponsor with respect to the Qualified Investment (which rate shall be
set forth in the Investment Committee Memorandum for the Qualified Investment,
or substantially similar document, approved by the Investment Committee), minus
(b) two percent (2%) of (a) (representing assumed selling costs) plus the debt
and preferred equity of the Qualified Investment; and

                           (2)      equals a fraction, the numerator of which is
the Adjusted Allocable Share of the Qualified Investment as of the relevant
Valuation Date and the denominator of which is the aggregate investments made by
all parties in the Qualified Investment.

                                       10

<PAGE>

                           The preceding notwithstanding, (i) in the case of the
complete disposition of a hotel Qualified Investment by the Plan Sponsor, such
Qualified Investment shall instead be valued by reference to the actual net
proceeds of the disposition, and (ii) in any event in which the Plan Sponsor
determines in its sole and absolute discretion that the above formula does not
reflect fair market value of any Qualified Investment as of any Valuation Date,
the Plan Sponsor shall have the right to commission an independent valuation
firm selected and paid by the Plan Sponsor to value that Qualified Investment,
and to utilize such valuation in lieu of the above formula for making
distributions in respect of such Valuation Date.

                  (b)      Each non-hotel Qualified Investment shall be valued
solely by reference to a valuation prepared by an independent valuation firm
selected and paid by the Plan Sponsor.

         4.3      ALLOCATION OF DEEMED INVESTMENTS AND DEEMED EARNINGS OR LOSSES
AMONG PLAN ACCOUNTS. Subject to Section 5.3, as of each Valuation Date, the
portion of each Participant's Compensation Deferral Account that has not yet
been deemed to be invested in a Qualified Investment (except for the portion, if
any, representing the Participant's Next Year's Bonus Deferrals that have not
yet been repaid as provided in Section 1.25), and the portion (if any) of each
Participant's vested Account that has ceased to be deemed invested in a
Qualified Investment but is not yet distributable hereunder, shall be credited
with deemed interest in accordance with Section 4.1(a).

                  As of each Valuation Date, the portion of each Participant's
Account that is deemed to be invested in one or more Qualified Investments will
be debited or credited to reflect the value of the Participant's portion of the
aggregate deemed investments under the Plan in such Qualified Investment(s). The
portion of each Participant's Plan Account that is deemed to be invested in a
particular Qualified Investment shall be determined by multiplying the Allocable
Share with respect to that Qualified Investment (as reduced pursuant to Section
4.1(d)) by a fraction, the numerator of which is that Participant's Available
Contribution Credits as of the Deemed Investment Date for that Qualified
Investment and the denominator of which is all Participants' Available
Contribution Credits as of such Deemed Investment Date. As of the relevant
Valuation Date, the value of each Participant's Plan Account attributable to a
particular Qualified Investment shall be determined by multiplying the aggregate
value of the Plan's investment in such Qualified Investment as determined
pursuant to Section 4.2 by a fraction, the numerator of which is the portion of
such Participants' Account that is deemed to be invested in that Qualified
Investment (determined pursuant to the previous sentence) and the denominator of
which is the Adjusted Allocable Share with respect to that Qualified Investment
as of such Valuation Date.

                  Distributions under the Plan shall be valued as of the
Valuation Date occurring on or next following the event giving rise to the
distribution. As provided in Section 1.37, the Valuation Date in the case of a
distribution resulting from a complete disposition of a Qualified Property shall
be the date of such disposition.

         4.4      SEPARATE BOOKKEEPING ACCOUNTS. A separate bookkeeping account
under the Plan shall be established and maintained by the Employer to reflect
the Account for each

                                       11

<PAGE>

Participant, with bookkeeping sub-accounts to show separately the Participant's
Compensation Deferral Account and the Participant's Employer Contribution Credit
Account. Each sub-account will separately account for the credits and debits
described in Article III. For all purposes under the Plan, Compensation
Deferrals and Employer Contribution Credits shall be deemed invested in each
Qualified Investment in the ratio of Compensation Deferrals to Employer
Contribution Credits for the Plan Year in which falls the Deemed Investment Date
for that Qualified Investment (e.g., in a one (1) to one and one-half (1 1/2)
ratio with respect to the Plan's initial Plan Year).

         4.5      PAYMENT OF EXPENSES. Expenses associated with the
administration or operation of the Plan shall be paid by the Employer. For these
purposes, Transactional Expenses will not be considered to be an expense of
Plan administration or operation, but rather will be considered to be among the
costs of the Qualified Investments.

                                    ARTICLE V
                             ENTITLEMENT TO BENEFITS

         5.1      NON-LIQUIDATING DISTRIBUTION FROM A QUALIFIED INVESTMENT. Upon
a non-liquidating distribution (for example, a dividend) from a Qualified
Investment to the Plan Sponsor occurring prior to an entitlement event described
in Section 5.2 or 5.3, a Participant whose Account is deemed invested in
that Qualified Investment shall have his or her Account credited with its
allocable portion of such non-liquidating distribution. Such portion shall be
determined in accordance with the methodology set forth in Section 4.3, and
shall result in a cash distribution to the Participant in such amount in
accordance with Article VI, regardless of the Participant's Years of Vesting as
of the date of such distribution, whereupon the Participant's Account shall be
debited in the amount of such distribution.

         5.2      COMPLETE DISPOSITION BY PLAN SPONSOR OF A QUALIFIED
INVESTMENT. Upon a disposition by the Plan Sponsor of its entire interest in a
Qualified Investment, a Participant whose Account is then deemed invested in
that Qualified Investment (i.e., either because he or she remains an employee of
the Employer as of such disposition, or because, pursuant to Section 5.3(b), he
or she did not experience an entitlement event upon his or her termination of
employment with the Employer) shall become entitled to receive the vested
portion of his or her Account deemed invested in that Qualified Investment. Such
portion shall be determined and valued in accordance with the methodology set
forth in Section 4.3, and shall be distributed in accordance with Article VI.
The Participant shall also become entitled to receive the lesser of (i) the
unvested portion of his or her Compensation Deferral Account deemed invested in
that Qualified Investment, such portion to be determined and valued in
accordance with the methodology set forth in Section 4.3, or (ii) a return of
his or her Compensation Deferrals attributable to the unvested portion of his or
her Compensation Deferral Account deemed invested in that Qualified Investment,
with no deemed gains, earnings, interest or losses credited or debited thereto;
such amount to be distributed in accordance with Article VI.

         5.3      TERMINATION OF EMPLOYMENT.

                  (a) Involuntary Termination. Upon a Participant's termination
of employment with the Employer by reason of death, retirement (i.e.,
termination upon or after reaching age sixty-five (65)), disability (i.e.,
qualifying for long term disability benefits under the Employer's long-term
disability plan), or involuntary termination by the Employer other than for
cause (as reasonably determined by the Plan Sponsor), the Participant (or his or
her Beneficiary) shall become entitled to receive the vested portion of his or
her Account, such portion to be determined and valued in accordance with the
methodology set forth in Section 4.3, and to be distributed in accordance with
Article VI. The Participant shall also become entitled to receive the lesser of
(i) the unvested portion of his or her Compensation Deferral Account, such
portion to be determined and valued in accordance with the methodology set forth
in Section 4.3, or (ii) a return of his or her Compensation Deferrals
attributable to the unvested portion of his or her Compensation Deferral
Account, with no deemed gains, earnings, interest or losses credited or debited
thereto; such amount to be distributed in accordance with Article VI.

                  (b) Other Terminations. Upon a Participant's termination of
employment with the Employer for any reason other than those described in
Section 5.3(a), the Plan Sponsor, in its discretion, may determine that the
Participant shall nevertheless become entitled to receive the vested portion of
his or her Account in accordance with Section 5.3(a) (i.e., as if the
Participant's employment was involuntarily terminated without cause), or it may
determine that the Participant shall not become entitled to receive the vested
portion of his or her Account until the complete disposition(s) by the Plan
Sponsor of the Qualified Investment(s) in which the Participant's Account is
deemed invested as of his or her termination of employment, in accordance with
Section 5.2. The Plan Sponsor shall make this determination on a
Participant-by-Participant basis

                                       12

<PAGE>
         5.4      VESTING. Subject to Section 5.1 and Section 5.5, with respect
to amounts credited to a Participant's Account, such amounts shall vest with
respect to each Qualified Investment in which the Participant's Account is
deemed invested according to the following schedule:

<TABLE>
<CAPTION>
 YEARS OF VESTING                      VESTED PERCENTAGE
 ----------------                      -----------------
<S>                                    <C>
   Less than 1                                 0%
1 but less than 2                             20%
2 but less than 3                             40%
3 but less than 4                             60%
4 but less than 5                             80%
    5 or more                                100%
</TABLE>

                  Notwithstanding the foregoing, upon complete disposition by
the Plan Sponsor of a Qualified Investment, a Participant shall become one
hundred percent (100%) vested in that portion of his or her Account deemed
invested in that Qualified Investment. If a Participant terminates employment
for any reason prior to such disposition he or she shall become vested in his or
her Account, if at all, under the vesting schedule set forth above.

         5.5      RETURN OF COMPENSATION DEFERRALS AND RELINQUISHMENT OF
         CORRESPONDING EMPLOYER CONTRIBUTIONS. Notwithstanding anything in
         Section 5.4 or elsewhere in the Plan that may suggest otherwise:

                  (a)      RETURN OF CARRYFORWARDS. If any portion of the
Aggregate Contribution Credits credited to a Participant's Account with respect
to a particular Plan Year is carried forward to the following Plan Year pursuant
to Section 4.1 but is not deemed invested or committed to deemed investment (as
reasonably determined by the Plan Sponsor) in any Qualified Investment by the
end of that following Plan Year, then, as soon as practicable after the end of
that following Plan Year, the portion of such unused carryover amount that
represents Compensation Deferrals (and interest deemed credited thereon) shall
be distributed to the Participant, and the portion representing Employer
Contribution Credits shall be relinquished by, and shall no longer be available
to, the Participant.

                  (b)      RETURN OF NEXT YEAR'S BONUS DEFERRALS. With respect
to any Participant who has made a Next Year's Bonus Deferral election with
respect to a Plan Year and whose employment with the Employer is terminated for
any reason prior to the date on which the following Plan Year's Regular Bonus
would have been payable (or prior to the Regular Bonus payment date for the Plan
Year(s) after that, if the immediately following Plan Year's Regular Bonus is
insufficient to "repay" the Next Year's Bonus Deferral "advance"), such deferral
election, shall, upon such termination of

                                       13

<PAGE>

employment, become null and void to the extent the "advance" has not yet been
repaid from Regular Bonus(es), and any Employer Contribution Credits
representing matching contributions thereon shall be relinquished by, and shall
no longer be available to, the Participant. Such amounts shall be charged
against, and shall reduce, the Participant's Account. Further, if such
termination of employment occurs after any portion of the Participant's Next
Year's Bonus Deferral which has not yet been repaid from Regular Bonus(es) has
been deemed invested in one or more Qualified Investments and has become vested
as provided in Section 5.4, then, in addition, interest on such portion also
shall be charged against, and shall reduce, the Participant's Plan Account (such
interest to be calculated from the date(s) of vesting through the date of the
Participant's termination of employment, using an interest rate that shall be
established by the Plan Sponsor with respect to each Plan Year by the date on
which Participants make their Compensation Deferral elections for that Plan
Year). As a result of this charging of certain Participants' Accounts by their
Next Year's Bonus Deferrals and certain other items, as described in this
Section 5.5(b), each such Participant's interest in each Qualified Investment in
which his or her Next Year's Bonus Deferral has been deemed to be invested shall
be reduced using the allocation methodology set forth in Section 4.3, and, if
this still does not adequately reduce the Participant's Account as provided
herein, the Employer shall reduce the Participant's interests to the extent of
such shortfall in any other Qualified Investment in which the Participant has an
interest, in such reasonable manner as the Employer shall determine.

                                   ARTICLE VI
                            DISTRIBUTION OF BENEFITS

         6.1      AMOUNT AND METHOD OF PAYMENT. A Participant (or his or her
Beneficiary) shall become entitled to receive, on or about the Valuation Date
applicable to the Participant's entitlement event as provided in Article V, a
distribution in an aggregate amount equal to the value of the Participant's
entitlement as provided in the applicable provision of Article V. Any payment
due hereunder will be paid by the Plan Sponsor from its general assets or from
the Trust, if there is one. Payments under the Plan shall be made in cash.

                  Except as provided immediately below or in Section 6.3, upon
the death of a Participant after payments hereunder have begun but before he or
she has received all payments to which he or she is entitled under the Plan, the
remaining benefit payments shall be paid to the person or persons designated in
accordance with Section 7.1, in the manner in which such benefits were payable
to the Participant, unless the Plan Sponsor elects a more rapid form of
distribution.

         6.2      TERMINATION BENEFIT.

                  (a)      ORDINARY DISTRIBUTIONS. In the case of distributions
to a Participant (or his or her Beneficiary) by virtue of an entitlement
pursuant to Section 5.3(a), an aggregate amount equal to the value of the
Participant's entitlement shall be paid to the Participant (or his or her
Beneficiary), as provided by Section 6.1, in a lump sum.

                                       14

<PAGE>
                  (b)      CERTAIN LARGE ACCOUNT DISTRIBUTIONS. Notwithstanding
subsection (a) above, if the amount to which a Participant (or his or her
Beneficiary) becomes entitled pursuant to Section 5.3(a) exceeds fifty thousand
dollars ($50,000) (or such other dollar amount as may be established by the Plan
Sponsor), and if the aggregate amounts to which all similarly situated
Participants (i.e., those who terminate employment immediately prior to the same
Valuation Date as applies to that Participant) or their Beneficiaries become
entitled pursuant to Section 5.3 exceed twenty five percent (25%) of the value
of all Participants' Accounts as of such Valuation Date, then the Plan Sponsor
may require that Participant (or his or her Beneficiary) to be paid the amount
to which he or she becomes entitled pursuant to Section 5.3(a) in up to two (2)
substantially equal annual installments notwithstanding that the Participant had
elected a lump sum distribution. However, this requirement to receive payments
in installments shall not apply with respect to the Account of any Participant
who has been involuntarily terminated from employment by the Employer other than
for cause (as reasonably determined by the Plan Sponsor).

                  As provided in Section 4.1(a), if a Participant is required
hereunder to receive payment in two (2) installments, his or her Account shall,
after payment of the first (1st) installment, no longer be deemed to be invested
in any Qualified Investment, but rather shall be deemed invested in an
interest-bearing investment.

         6.3      OTHER BENEFITS. In the case of distributions to a Participant
(or his or her Beneficiary) by virtue of an entitlement pursuant to Section 5.1
or Section 5.2, an aggregate amount equal to the value of the entitlement shall
be paid to the Participant (or his or her Beneficiary), as provided by Section
6.1, in a lump sum.

                                   ARTICLE VII
                         BENEFICIARIES; PARTICIPANT DATA

         7.1      DESIGNATION OF BENEFICIARIES. Each Participant from time to
time may designate any person or persons (who may be named contingently or
successively) to receive such benefits as may be payable under the Plan upon or
after the Participant's death, and such designation may be changed from time to
time by the Participant by filing a new designation. Each designation will
revoke all prior designations by the same Participant, shall be in the form
prescribed by the

                                       15

<PAGE>

Employer, and will be effective only when filed in writing with the Employer
during the Participant's lifetime.

                  In the absence of a valid Beneficiary designation, or if, at
the time any benefit payment is due to a Beneficiary, there is no living
Beneficiary validly named by the Participant, the Employer shall pay any such
benefit payment to the Participant's spouse, if then living, but otherwise to
the Participant's estate.

         7.2      INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement
or notice addressed to a Participant or to a Beneficiary at his or her last post
office address as shown on the Employer's records, shall be binding on the
Participant or Beneficiary for all purposes of the Plan. The Employer shall not
be obliged to search for any Participant or Beneficiary beyond the sending of a
registered letter to such last known address. If the Employer notifies any
Participant or Beneficiary that he or she is entitled to an amount under the
Plan and the Participant or Beneficiary fails to claim such amount or make his
or her location known to the Employer within three (3) years thereafter, then,
except as otherwise required by law, if the location of one or more of the next
of kin of the Participant is known to the Employer, the Employer may direct
distribution of such amount to any one or more or all of such next of kin, and
in such proportions as the Employer determines. If the location of none of the
foregoing persons can be determined, the Employer shall have the right to direct
that the amount payable shall be deemed to be a forfeiture and paid to the Plan
Sponsor, except that the dollar amount of the forfeiture, unadjusted for deemed
gains or losses in the interim, shall be paid by the Plan Sponsor if a claim for
the benefit subsequently is made by the Participant or the Beneficiary to whom
it was payable. If a benefit payable to an unlocated Participant or Beneficiary
is subject to escheat pursuant to applicable state law, the Plan Sponsor shall
not be liable to any person for any payment made in accordance with such law.

                                  ARTICLE VIII
                        ADMINISTRATION AND RECORDKEEPING

         8.1      ADMINISTRATIVE AND RECORDKEEPING AUTHORITY. Except as
otherwise specifically provided herein, the Employer shall have the sole
responsibility for and the sole control of the operation, administration and
recordkeeping of the Plan, and shall have the power and authority to take all
action and to make all decisions and interpretations which may be necessary or
appropriate in order to administer and operate the Plan, including, without
limiting the generality of the foregoing, the power, duty and responsibility to:

                  (a)      Resolve and determine all disputes or questions
arising under the Plan, including the power to determine the rights of
Participants and Beneficiaries, and their respective benefits, and to remedy any
ambiguities, inconsistencies or omissions, in the Plan.

                  (b)      Adopt such rules of procedure and regulations as in
its opinion may be necessary for the proper and efficient administration of the
Plan and as are consistent with the Plan.

                                       16

<PAGE>

                  (c)      Implement the Plan in accordance with its terms and
the rules and regulations adopted as above.

                  (d)      Subject to Sections 9.1 and 10.1, make determinations
concerning the crediting and distribution of Participants' benefits.

         8.2      UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the
administration or operation of the Plan discretionary actions by the Employer
are required or permitted, such action shall be consistently and uniformly
applied to all persons similarly situated, and no such action shall be taken
which shall discriminate in favor of any particular person or group of persons.

         8.3      LITIGATION. In any action or judicial proceeding affecting the
Plan, it shall be necessary to join as a party only the Plan Sponsor. Except as
may be otherwise required by law, no Participant or Beneficiary shall be
entitled to any notice or service of process, and any final judgment entered in
such action shall be binding on all persons interested in, or claiming under,
the Plan.

         8.4      CLAIMS PROCEDURE. This Section 8.4 is based on final
regulations issued by the Department of Labor and published in the Federal
Register on November 21, 2000 and codified at section 2560.503-1 of the
Department of Labor Regulations. If any provision of this Section 8.4 conflicts
with the requirements of those regulations, the requirements of those
regulations will prevail.

                  (a)      INITIAL CLAIM. A Participant or Beneficiary
(hereinafter referred to as a "Claimant") who believes he or she is entitled to
any Plan benefit under this Plan may file a claim with the Employer. The
Employer shall review the claim itself or appoint an individual or an entity to
review the claim.

                           The Claimant shall be notified within ninety (90)
days after the claim is filed whether the claim is allowed or denied, unless the
Claimant receives written notice from the Employer or appointee of the Employer
prior to the end of the ninety (90) day period stating that special
circumstances require an extension of the time for decision, such extension not
to extend beyond the day which is one hundred eighty (180) days after the day
the claim is filed.

                           If the Employer denies a claim, it must provide to
the Claimant, in writing or by electronic communication:

                           (i)      The specific reasons for the denial;

                           (ii)     A reference to the Plan provision upon which
the denial is based;

                           (iii)    A description of any additional information
or material that the Claimant must provide in order to perfect the claim;

                           (iv)     An explanation of why such additional
material or information is necessary;

                                       17

<PAGE>

                           (v)      Notice that the Claimant has a right to
request a review of the claim denial and information on the steps to be taken if
the Claimant wishes to request a review of the claim denial; and

                           (vi)     A statement of the Claimant's right to bring
a civil action under ERISA section 502(a) following a denial on review of the
initial denial.

                  (b)      REVIEW PROCEDURES. A request for review of a denied
claim must be made in writing to the Employer within sixty (60) days after
receiving notice of denial. The decision upon review will be made within sixty
(60) days after the Employer's receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case a
decision will be rendered not later than one hundred twenty (120) days after
receipt of a request for review. A notice of such an extension must be provided
to the Claimant within the initial sixty (60) day period and must explain the
special circumstances and provide an expected date of decision.

                           The reviewer shall afford the Claimant an opportunity
to review and receive, without charge, all relevant documents, information and
records and to submit issues and comments in writing to the Employer. The
reviewer shall take into account all comments, documents, records and other
information submitted by the Claimant relating to the claim regardless of
whether the information was submitted or considered in the initial benefit
determination.

                           Upon completion of its review of an adverse initial
claim determination, the Employer will give the Claimant, in writing or by
electronic notification, a notice containing:

                           (i)      its decision;

                           (ii)     the specific reasons for the decision;

                           (iii)    the relevant Plan provisions on which its
decision is based;

                           (iv)     a statement that the Claimant is entitled to
receive, upon request and without charge, reasonable access to, and copies of,
all documents, records and other information in the Plan's files which is
relevant to the Claimant's claim for benefits;

                           (v)      a statement describing the Claimant's right
to bring an action for judicial review under ERISA section 502(a); and

                           (vi)     if an internal rule, guideline, protocol or
other similar criterion was relied upon in making the adverse determination on
review, a statement that a copy of the rule, guideline, protocol or other
similar criterion will be provided without charge to the Claimant upon request.

                  (c)      CALCULATION OF TIME PERIODS. For purposes of the time
periods specified in this Section, the period of time during which a benefit
determination is required to be made begins at

                                       18

<PAGE>

the time a claim is filed in accordance with the Plan procedures without regard
to whether all the information necessary to make a decision accompanies the
claim. If a period of time is extended due to a Claimant's failure to submit all
information necessary, the period for making the determination shall be tolled
from the date the notification is sent to the Claimant until the date the
Claimant responds.

                  (d)      FAILURE OF PLAN TO FOLLOW PROCEDURES. If the Plan
fails to follow the claims procedures required by this Section, a Claimant shall
be deemed to have exhausted the administrative remedies available under the Plan
and shall be entitled to pursue any available remedy under ERISA section 502(a)
on the basis that the Plan has failed to provide a reasonable claims procedure
that would yield a decision on the merits of the claim.

                                   ARTICLE IX
                                    AMENDMENT

         9.1      RIGHT TO AMEND. The Plan Sponsor, by action of the Board,
shall have the right to amend the Plan at any time and with respect to any
provisions hereof, and all parties hereto or claiming any interest hereunder
shall be bound by such amendment; provided, however, that no such amendment
shall deprive any Participant or Beneficiary of a right accrued hereunder prior
to the date of the amendment.

         9.2      AMENDMENT TO ENSURE PROPER CHARACTERIZATION OF THE PLAN.
Notwithstanding the provisions of Section 9.1, the Plan may be amended at any
time, retroactively if required, if found necessary, in the opinion of the Plan
Sponsor, in order to ensure that the Plan is characterized as a
non-tax-qualified "top hat" plan of deferred compensation maintained for a
select group of management or highly compensated employees, as described under
ERISA sections 201(2), 301(a)(3) and 401(a)(1) and to conform the Plan and the
Trust, if there is one, to the provisions and requirements of any applicable law
(including ERISA and the Code).

         9.3      CHANGES IN LAW AFFECTING TAXABILITY. This Section shall become
operative upon the enactment of any change in applicable statutory law or the
promulgation by the Internal Revenue Service of a final regulation or other
pronouncement having the force of law, which statutory law, as changed, or final
regulation or pronouncement, as promulgated, would cause any Participant to
include in his or her federal gross income amounts accrued by the Participant
under the Plan on a date (an "Early Taxation Event") prior to the date on which
such amounts are made available to him or her hereunder.

                  (a)      AFFECTED RIGHT OR FEATURE NULLIFIED. Notwithstanding
any other Section of this Plan to the contrary (but subject to subsection (b),
below), as of an Early Taxation Event, the feature or features of this Plan that
would cause the Early Taxation Event shall be null and void, to the extent, and
only to the extent, required to prevent the Participant from being required to
include in his or her federal gross income amounts accrued by the Participant
under the Plan prior to the date on which such amounts are made available to him
or her hereunder. If only a portion of a Participant's Account is impacted by
the change in the law, then only such portion shall be subject to this Section,
with the remainder of the Account not so affected being subject to such rights
and features as if the

                                       19

<PAGE>

law were not changed. If the law only impacts Participants who have a certain
status with respect to the Employer, then only such Participants shall be
subject to this Section.

                  (b)      TAX DISTRIBUTION. If an Early Taxation Event is
earlier than the date on which the statute, regulation or pronouncement giving
rise to the Early Taxation Event is enacted or promulgated, as applicable (i.e.,
if the change in the law is retroactive), the Plan Sponsor shall have the right
to distribute to each Participant, as soon as practicable following such date of
enactment or promulgation, any amount up to the amounts that became taxable on
the Early Taxation Event.

                                    ARTICLE X
                                   TERMINATION

         10.1     PLAN SPONSOR'S RIGHT TO TERMINATE PLAN. The Plan Sponsor
reserves the right, at any time, to terminate the Plan and/or its obligation to
make further credits to Plan Accounts by action of the Board; provided, however,
that no such termination shall deprive any Participant or Beneficiary of a right
accrued hereunder prior to the date of termination and provided that, upon
termination, the full amount of each Participant's vested Plan Account(s) shall
become immediately distributable to him or her.

         10.2     AUTOMATIC TERMINATION OF PLAN. The Plan shall terminate
automatically upon the dissolution of the Plan Sponsor or upon the Plan
Sponsor's merger into or consolidation with any other corporation or business
organization which does not specifically adopt and agree to continue the Plan;
provided, however, that no such termination shall deprive any Participant or
Beneficiary of a right accrued hereunder prior to the date of termination and
provided that, upon termination, the full amount of each Participant's vested
Plan Account shall become immediately distributable to him or her.

         10.3     SUCCESSOR TO PLAN SPONSOR. Any corporation or other business
organization which is a successor to the Plan Sponsor by reason of a
consolidation, merger or purchase of substantially all of the assets of the Plan
Sponsor shall have the right to become a party to the Plan by adopting the same
by resolution of the entity's board of directors or other appropriate governing
body. If, within thirty (30) days from the effective date of such consolidation,
merger or sale of assets, such new entity does not become a party hereto, as
above provided, the Plan shall be terminated automatically, and the provisions
of the foregoing Sections shall become operative.

                                   ARTICLE XI
                                  MISCELLANEOUS

         11.1     LIMITATIONS ON LIABILITY OF PLAN SPONSOR AND EMPLOYER. Neither
the establishment of the Plan nor any modification hereof, nor the creation of
any Account under the Plan, nor the payment of any benefits under the Plan,
shall be construed as giving to any Participant or any other person any legal or
equitable right against the Plan Sponsor or the Employer or any officer or
employee thereof, except as provided by law or by any Plan provision. The Plan
Sponsor and Employer do not in any way guarantee any Participant's Account from
loss or depreciation, whether caused by poor investment performance of a
Qualified Investment or the inability to realize

                                       20

<PAGE>

upon a Qualified Investment due to an insolvency affecting a Qualified
Investment vehicle or any other reason. In no event shall the Plan Sponsor or
the Employer, or any successor, employee, officer, director or stockholder of
the Plan Sponsor or the Employer, be liable to any person on account of any
claim arising by reason of the provisions of the Plan or of any instrument or
instruments implementing its provisions, or for the failure of any Participant,
Beneficiary or other person to be entitled to any particular tax consequences
with respect to the Plan, or any credit or distribution hereunder.

         11.2     CONSTRUCTION. If any provision of the Plan is held to be
illegal or void, such illegality or invalidity shall not affect the remaining
provisions of the Plan, but shall be fully severable, and the Plan shall be
construed and enforced as if said illegal or invalid provisions had never been
inserted herein. For all purposes of the Plan, where the context permits, the
singular shall include the plural, and the plural shall include the singular.
Headings of Articles and Sections herein are inserted only for convenience of
reference and are not to be considered in the construction of the Plan. The laws
of Delaware shall govern, control and determine all questions of law arising
with respect to the Plan and the interpretation and validity of its respective
provisions, except where those laws are preempted by the laws of the United
States. Participation under the Plan will not give a Participant the right to be
retained in the service of the Employer nor any right or claim to any benefit
under the Plan unless such right or claim has specifically accrued hereunder.

                  The Plan is intended to be and at all times shall be
interpreted and administered so as to qualify as an unfunded plan of deferred
compensation, and no provision of this Plan shall be interpreted so as to give
any individual any right in any assets of the Plan Sponsor which right is
greater than the rights of any general unsecured creditor of the Plan Sponsor.

         11.3     SPENDTHRIFT PROVISION. No amount payable to a Participant or
any Beneficiary under the Plan will, except as otherwise specifically provided
by law, be subject in any manner to anticipation, alienation, attachment,
garnishment, sale, transfer, assignment (either at law or in equity), levy,
execution, pledge, encumbrance, charge or any other legal or equitable process,
and any attempt to do so will be void; nor will any benefit hereunder be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the person entitled thereto. Further, (a) the withholding of taxes
from Plan benefit payments, (b) the recovery under the Plan of overpayments of
benefits previously made to a Participant or any Beneficiary, (c) if applicable,
the transfer of benefit rights from the Plan to another plan, or (d) the direct
deposit of Plan benefit payments to an account in a banking institution (if not
actually part of an arrangement constituting an assignment or alienation) shall
not be construed as an assignment or alienation.

                  In the event that a Participant's or any Beneficiary's
benefits hereunder are garnished or attached by order of any court, the Plan
Sponsor may bring an action for a declaratory judgment in a court of competent
jurisdiction to determine the proper recipient of the benefits to be paid under
the Plan. During the pendency of said action, any benefits that become payable
shall be held as credits to a Participant's or Beneficiary's Account or, if the
Plan Sponsor prefers, paid into the court as they become payable, to be
distributed by the court to the recipient as it deems proper at the close of
said action.

                                       21

<PAGE>

                                   ARTICLE XII
                                      TRUST

         12.1     ESTABLISHMENT OF TRUST. The Plan Sponsor may, but need not,
establish in contemplation of a Change in Control a Trust with a qualified
institution, to serve as a vehicle through which to satisfy the Plan Sponsor's
benefit obligations under the Plan. It is intended that such Trust, which may
not provide for contributions thereto (except for a minimal contribution upon
establishment of the Trust) unless and until a Change in Control becomes
imminent, would be treated as a "grantor" trust under the Code, and therefore
would neither cause any Participant to realize current income on amounts
contributed thereto nor cause the Plan to be "funded", within the meaning of
ERISA.

         IN WITNESS WHEREOF, the Plan Sponsor has caused this Plan to be
executed and its seal to be affixed hereto, effective as of the 1st day of
January, 2004.

ATTEST/WITNESS:                        INTERSTATE HOTELS & RESORTS, INC.

_________________________________      By: _______________________________(SEAL)

Print Name:______________________      Print Name: _____________________________

                                       Date: ___________________________________

                                       22<PAGE>
                                                                    EXHIBIT 10.1

                              AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                           HINES REIT PROPERTIES, L.P.

<PAGE>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                            <C>
ARTICLE I PARTNERSHIP..............................................................................................1
         1.1      CREATION OF PARTNERSHIP: PARTNERSHIP INTERESTS...................................................1
         1.2      NAME.............................................................................................2
         1.3      APPROVAL OF ASSIGNMENT TO, AND ADMISSION OF, HREH................................................2

ARTICLE II DEFINITIONS.............................................................................................2
         2.1      DEFINITIONS......................................................................................2

ARTICLE III CAPITALIZATION.........................................................................................11
         3.1      INITIAL CAPITAL..................................................................................11
         3.2      ISSUANCE AND REDEMPTION OF PARTNERSHIP INTERESTS.................................................11
         3.3      ADDITIONAL FUNDS.................................................................................18
         3.4      CAPITAL ACCOUNTS.................................................................................19
         3.5      INTEREST ON AND RETURN OF CAPITAL................................................................20
         3.6      NEGATIVE CAPITAL ACCOUNTS........................................................................20
         3.7      LIMIT ON CONTRIBUTIONS AND OBLIGATIONS OF PARTNERS...............................................21
         3.8      REDEMPTION AND REPURCHASE OF UNITS...............................................................21
         3.9      REDEMPTION AND REPURCHASE OF INTERESTS OWNED BY HINES CONTROLLED
                  ENTITIES.........................................................................................21

ARTICLE IV OFFICE AND REGISTERED AGENT.............................................................................21

ARTICLE V PURPOSES AND POWERS OF PARTNERSHIP.......................................................................22
         5.1      PURPOSES OF THE PARTNERSHIP......................................................................22
         5.2      POWERS...........................................................................................22
         5.3      REIT REQUIREMENTS................................................................................22

ARTICLE VI TERM....................................................................................................22

ARTICLE VII ALLOCATIONS............................................................................................23
         7.1      PROFITS..........................................................................................23
         7.2      LOSSES...........................................................................................24
         7.3      SPECIAL ALLOCATIONS..............................................................................24
         7.4      CURATIVE ALLOCATIONS.............................................................................26
         7.5      TAX ALLOCATIONS: CODE SECTION 704(c).............................................................26

ARTICLE VIII CASH AVAILABLE FOR DISTRIBUTION.......................................................................27
         8.1      DEFINITION OF AVAILABLE CASH.....................................................................27
         8.2      TIMING AND PRIORITY OF DISTRIBUTIONS OF AVAILABLE CASH...........................................27
         8.3      CONSENT TO ALLOCATIONS AND DISTRIBUTIONS.........................................................28
         8.4      RIGHT TO LIMIT DISTRIBUTIONS.....................................................................28
</Table>

                                       i

<PAGE>
<Table>
<S>                                                                                                            <C>
ARTICLE IX MANAGEMENT OF PARTNERSHIP...............................................................................28
         9.1      GENERAL PARTNER..................................................................................28
         9.2      LIMITATIONS ON POWER AND AUTHORITY OF PARTNERS...................................................29
         9.3      LIMITED PARTNERS.................................................................................30
         9.4      LIABILITY OF GENERAL PARTNER.....................................................................30
         9.5      INDEMNITY........................................................................................30
         9.6      OTHER ACTIVITIES OF PARTNERS AND AGREEMENTS WITH RELATED PARTIES.................................30
         9.7      OTHER MATTERS CONCERNING THE GENERAL PARTNER.....................................................31
         9.8      PARTNER EXCULPATION..............................................................................32
         9.9      GENERAL PARTNER EXPENSES AND LIABILITIES.........................................................32

ARTICLE X BANKING..................................................................................................32

ARTICLE XI ACCOUNTING..............................................................................................32
         11.1     FISCAL YEAR......................................................................................32
         11.2     BOOKS OF ACCOUNT.................................................................................32
         11.3     METHOD OF ACCOUNTING.............................................................................33
         11.4     TAX MATTERS......................................................................................33

ARTICLE XII TRANSFERS OF PARTNERSHIP INTERESTS.....................................................................34
         12.1     GENERAL PARTNER..................................................................................34
         12.2     LIMITED PARTNER..................................................................................34
         12.3     ADMISSION ADJUSTMENTS............................................................................36
         12.4     TRANSFERS TO LENDERS.............................................................................36

ARTICLE XIII ADMISSION OF NEW PARTNERS.............................................................................36

ARTICLE XIV TERMINATION, LIQUIDATION AND DISSOLUTION OF PARTNERSHIP................................................36
         14.1     TERMINATION EVENTS...............................................................................36
         14.2     METHOD OF LIQUIDATION............................................................................37
         14.3     DATE OF TERMINATION..............................................................................38
         14.4     RECONSTITUTION UPON BANKRUPTCY...................................................................38
         14.5     DEATH, LEGAL INCOMPETENCY, ETC. OF A LIMITED PARTNER.............................................38

ARTICLE XV POWER OF ATTORNEY.......................................................................................38

ARTICLE XVI AMENDMENT OF AGREEMENT.................................................................................39

ARTICLE XVII MISCELLANEOUS.........................................................................................40
         17.1     NOTICES..........................................................................................40
         17.2     MODIFICATIONS....................................................................................40
         17.3     SUCCESSORS AND ASSIGNS...........................................................................40
         17.4     DUPLICATE ORIGINALS..............................................................................41
         17.5     CONSTRUCTION.....................................................................................41
         17.6     GOVERNING LAW....................................................................................41
         17.7     OTHER INSTRUMENTS................................................................................41
         17.8     GENERAL PARTNER WITH INTEREST AS LIMITED PARTNER.................................................41
</Table>

                                       ii
<PAGE>
<Table>
<S>                                                                                                            <C>
         17.9     LEGAL CONSTRUCTION...............................................................................41
         17.10    GENDER...........................................................................................41
         17.11    PRIOR AGREEMENTS SUPERSEDED......................................................................41
         17.12    NO THIRD PARTY BENEFICIARY.......................................................................41
         17.13    PURCHASE FOR INVESTMENT..........................................................................41
         17.14    ACCESS TO RECORDS................................................................................42
         17.15    WAIVER...........................................................................................42
         17.16    COUNTERPARTS.....................................................................................42
</Table>

Schedule A - Partners, Capital Accounts and Partnership Interests

                                      iii
<PAGE>

                              AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                           HINES REIT PROPERTIES, L.P.

         THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") has been executed and delivered effective as of the ___ day of
_______________, 2003 (the "Effective Date"), by Hines Real Estate Investment
Trust, Inc., a Maryland corporation (the "General Partner" or the "Company"),
and those persons and entities identified as "Limited Partners" in Schedule A
(the "Limited Partners"), (the General Partner and each Limited Partner being a
"Partner" and collectively, the "Partners").

                                    RECITALS

         WHEREAS, effective as of August 20, 2003, the General Partner and HALP
Associates Limited Partnership entered into that certain Agreement of Limited
Partnership (the "Original Agreement") of Hines REIT Properties, L.P. in
accordance with the Delaware Revised Uniform Limited Partnership Act as amended
(the "Act").

         WHEREAS, as of August 27, 2003, the Original Agreement was amended
pursuant to the First Amendment to Agreement of Limited Partnership for Hines
REIT Properties, L.P. (the "First Amendment").

         WHEREAS, the Partners deem it to be in their best interest to amend and
restate the Original Agreement, as amended by the First Amendment, in accordance
with the Act and this Agreement.

         THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Partners agree as follows:

                                    ARTICLE I
                                  PARTNERSHIP

                  1.1 CREATION OF PARTNERSHIP: PARTNERSHIP INTERESTS. The
General Partner is the sole general partner and the Limited Partners are the
sole limited partners of the Partnership. All Partnership profits, losses, and
distributive shares of tax items accruing prior to the date of this Agreement
shall be allocated in accordance with, and the respective rights and obligations
of the Partners with respect to the period prior to the date of this Agreement
shall be governed by, the Agreement of Limited Partnership of the Partnership
that existed prior to this Agreement. No Partner has any interest in any
Partnership property solely as a result of being a Partner and the interests of
all Partners in the Partnership are, for all purposes, personal property.

                                       1
<PAGE>

                  1.2 NAME. The Partnership name shall be "Hines REIT
Properties, L.P.," but the General Partner may from time to time change the name
of the Partnership or may adopt such trade or fictitious names as it may
determine.

                  1.3 APPROVAL OF ASSIGNMENT TO, AND ADMISSION OF, HREH.
Effective as of the date hereof, HALP has made an assignment of 21,739.13 OP
Units (representing all of the OP Units owned by HALP) to HREH. Such assignment
is hereby approved and HREH is hereby admitted as a limited partner of the
Partnership.

                                   ARTICLE II
                                   DEFINITIONS

                  2.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth respectively after each:

         "Act" shall mean the Delaware Revised Uniform Limited Partnership Act,
as amended from time to time, and any successor statute.

         "Adjusted Capital Account" shall mean, at any time, the then balance in
the Capital Account of a Partner, after giving effect to the following
adjustments:

                           (i) add to such Capital Account any amounts that such
         Partner is obligated to restore or is deemed obligated to restore under
         any provision of this Agreement or as described in the penultimate
         sentences of Regulations Section 1.704-2(g)(1) and Regulations Section
         1.704-2(i)(5), or any successor provisions; and

                           (ii) subtract from such Capital Account the items
         described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

         "Adjusted Capital Account Deficit" shall mean, with respect to any
Partner, the deficit balance, if any, in that Partner's Adjusted Capital
Account.

         "Affiliate" means (i) any Person directly or indirectly owning,
controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other Person, (ii) any Person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with the power to vote, by such other Persons, (iii) any
Person directly or indirectly controlling, controlled by, or under common
control with such other Person, (iv) any executive officer, director, trustee or
general partner of such other person, or (v) any legal entity for which such
Person acts as an executive officer, director, trustee or general partner.

         "Agreement" shall mean this Agreement of Limited Partnership, as it may
be amended from time to time.

         "Articles of Incorporation" means the Articles of Incorporation of the
Company.

                                       2
<PAGE>

         "Available Cash" shall have the meaning provided in Section 8.1.

         "Bankruptcy" of a Partner shall mean (a) the filing by a Partner of a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States Code
(or corresponding provisions of future laws) or any other federal or state
insolvency law, or a Partner's filing an answer consenting to or acquiescing in
any such petition, (b) the making by a Partner of any assignment for the benefit
of its creditors or the admission by a Partner in writing of its inability to
pay its debts as they mature, or (c) the expiration of sixty (60) days after the
filing of any involuntary petition under Title 11 of the United States Code (or
corresponding provisions of future laws), seeking liquidation, reorganization,
arrangement or readjustment of its debts under any other Federal or state
insolvency law, provided that the same shall not have been vacated, set aside or
stayed within such 60-day period.

         "Board of Directors" means the Board of Directors of the Company.

         "Business Day" means any day other than Saturday or Sunday during which
national banks located in Houston, Texas are customarily open for business.

         "Capital Account" shall mean the capital account maintained by the
Partnership for each Partner as described in Section 3.4 below.

         "Capital Contribution" shall mean, when used in respect of a Partner,
if applicable, the initial capital contribution of such Partner as set forth in
Section 3.1 below, and any other amounts of money and/or the Gross Asset Value
of other property contributed by such Partner to the capital of the Partnership
with respect to the Partner's interest in the Partnership, including the Capital
Contribution made by any predecessor holder of the Partnership Interest of such
Partner.

         "Capital Transaction Gain or Loss" shall mean any Profits or Losses
described in paragraphs (iii), (iv) and (vi) of the definition of Profits and
Losses contained in this Article 2.

         "Cash Amount" means an amount of cash equal to the value of the REIT
Shares Amount, which shall be based upon Net Asset Value on the date of receipt
by the General Partner of a Notice of Redemption.

         "Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time, and any successor statute.

         "Common Share" means a share of common stock, $.001 par value per
share, of the Company.

         "Company" means Hines Real Estate Investment Trust, Inc., a Maryland
corporation and the General Partner of the Partnership.

         "Contributing Partner" shall have the meaning provided in Section
3.2(B)(v).

                                       3
<PAGE>

         "Depreciation" shall mean for any fiscal year or portion thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such period for Federal income tax
purposes, except that if the Gross Asset Value of an asset differs from its
adjusted basis for Federal income tax purposes at the beginning of such period,
Depreciation shall be an amount that bears the same relationship to such
beginning Gross Asset Value as the depreciation, amortization or cost recovery
deduction in such period for Federal income tax purposes bears to the beginning
adjusted tax basis; provided, however, that if the adjusted basis for Federal
income tax purposes of an asset at the beginning of such period is zero,
Depreciation shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the General Partner.

         "Effective Date" shall have the meaning provided in the introductory
paragraph of this Agreement.

         "Exchange Date" shall have the meaning provided in Section 3.2(G).

         "General Partner" means Hines Real Estate Investment Trust, Inc., a
Maryland corporation, sometimes also referred to in this Agreement as the
"Company."

         "Gross Asset Value" means, with respect to any Partnership asset, the
asset's adjusted basis for Federal income tax purposes, except as follows:

                  (i) The initial Gross Asset Value of any asset contributed by
         a Partner to the Partnership shall be the gross fair market value of
         such asset, as agreed to by the General Partner and the Contributing
         Partner;

                  (ii) The Gross Asset Value of all Partnership assets shall be
         adjusted to equal their respective gross fair market values, which
         shall be determined in a manner consistent with the determination of
         Net Asset Value, as of the following times: (a) the acquisition of an
         additional interest in the Partnership by any new or existing Partner
         in exchange for more than a de minimis Capital Contribution; (b) the
         distribution by the Partnership to a Partner of more than a de minimis
         amount of Partnership property as consideration for an interest in the
         Partnership; (c) the liquidation of the Partnership within the meaning
         of Regulations Section 1.704-1(b)(2)(ii)(g); and (d) upon the
         occurrence of any other event for which an adjustment to Gross Asset
         Value is permitted under the Regulations; provided, however, that
         adjustments pursuant to clauses (a), (b) and (d) above shall be made
         only if the General Partner reasonably determines that such adjustments
         are necessary or appropriate to reflect the relative economic interests
         of the Partners in the Partnership;

                  (iii) The Gross Asset Value of any Partnership asset
         distributed to any Partner shall be adjusted to equal the gross fair
         market value of such asset on the date of distribution, which shall be
         determined in a manner consistent with the determination of Net Asset
         Value;

                                       4
<PAGE>

                  (iv) The Gross Asset Value of Partnership assets shall be
         increased (or decreased) to reflect any adjustments to the adjusted
         basis of such assets pursuant to Code Section 734(b) or Code Section
         743(b), but only to the extent that such adjustments are taken into
         account in determining Capital Accounts pursuant to Regulations Section
         1.704-1(b)(2)(iv)(m) and paragraph (vi) of the definition of Profits
         and Losses in this Article II below; provided, however, that Gross
         Asset Value shall not be adjusted pursuant to this paragraph (iv) to
         the extent the General Partner determines that an adjustment pursuant
         to paragraph (ii) above is necessary or appropriate in connection with
         a transaction that would otherwise result in an adjustment pursuant to
         this paragraph (iv); and

                  (v) If the Gross Asset Value of an asset has been determined
         or adjusted pursuant to paragraphs (i), (ii) or (iv) above, such Gross
         Asset Value shall thereafter be adjusted by the Depreciation taken into
         account with respect to such asset for purposes of computing Profits
         and Losses.

         "HALP" shall mean HALP Associates Limited Partnership.

         "Hines Controlled Entity" shall mean any partnership, limited liability
company, corporation, trust or other entity which is, directly or indirectly,
controlled by (a) Hines Interests Limited Partnership, and/or (b) Jeffrey C.
Hines and/or Gerald D. Hines or, in the event of the death or disability of
Jeffrey C. Hines and/or Gerald D. Hines, the heirs, legal representatives or
estates of either or both of them.

         "HREH" shall mean Hines Real Estate Holdings Limited Partnership.

         "Issuance Date" means with respect to OP Units or the Participation
Interest owned by a Partner, the date upon which such OP Units or the
Participation Interest are issued to such Partner (and with respect to
Preference Units, shall have the meaning set forth in the applicable Preference
Unit Term Sheet).

         "Limited Partner" shall mean any Person (i) whose name is set forth as
a Limited Partner on Schedule A attached hereto or who has become a Limited
Partner pursuant to the terms and conditions of this Agreement, and (ii) who
holds a partnership interest. "Limited Partners" means all such persons.

         "Listing Date" shall mean the date on which the Common Shares are first
listed on a national securities exchange or included for quotation on a national
market system.

         "Majority-in-Interest of the Limited Partners" shall mean, as of any
given time, Limited Partners who own more than fifty percent (50%) of the
Percentage Interests in the Partnership held by Limited Partners.

         "Market Price" means, with respect to any Specified Redemption Date:
(a) the last reported sales price per share of the Common Shares at the close of
trading (whether or not the last reported sale occurred on such date) as
reported in the Wall Street Journal on the first Business Day of the calendar
quarter immediately preceding the date of receipt by the General

                                       5
<PAGE>

Partner of the Notice of Redemption, or (b) if the Common Shares are not traded
on a national exchange, the Net Asset Value per Common Share as of the date of
receipt by the General Partner of the Notice of Redemption.

         "Net Asset Value" as of a particular date means the net fair market
value of the Partnership's equity as of such date, as approved by the Board of
Directors, which shall generally equal the net proceeds that would be available
for distribution by the Partnership if all properties owned directly or
indirectly (through one or more special purpose entities) by the Partnership
were sold at their fair market value in an all cash sale as of such date, and
all expected transaction costs (including all closing costs customarily borne by
a seller in the market where each Property is located and estimated legal fees
and expenses) were paid, and all liabilities were repaid, out of such proceeds.

         "Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(c).

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

         "Notice of Redemption" means a written notice delivered by a Redeeming
Partner to the Partnership (with a copy to the General Partner) under Section
3.2(C), pursuant to which the Redeeming Partner exercises the Redemption Right
with respect to all or a portion of its OP Units or Participation Interest in
accordance with the provisions of Section 3.2(C).

         "OP Units" are units of Partnership Interest more particularly
described in Section 3.2.

         "OP Unit Value" shall mean, as of any given time, the number of OP
Units into which a Preference Unit is convertible (whether or not the conversion
can then be effected), or the value of the Preference Unit expressed in OP Units
if the Preference Unit is not convertible into OP Units, as provided for in the
applicable Preference Unit Term Sheet.

         "Other Securities" shall have the meaning set forth in Section
3.2(B)(iv).

         "Participation Interest" shall have the meaning set forth in Section
3.2(A).

         "Participation Interest Unit Equivalents" shall mean, as of any
Specified Redemption Date with respect to part or all of the Participation
Interest, the lesser of (i) the number of outstanding OP Units of the
Partnership, multiplied by a fraction whose numerator is the Percentage Interest
attributable to the Participation Interest as of such date and whose denominator
is 100% minus the Percentage Interest attributable to the Participation Interest
as of such date or (ii) the number of outstanding OP Units of the Partnership,
multiplied by a fraction (a) whose numerator is the aggregate amount that would
be distributed in respect of the Participation Interest if an amount equal to
Net Asset Value as of such date were distributed among the Partners in
accordance with Section 14.2(C) hereof and (b) whose denominator equals (x) the
aggregate amount that would be distributed to all Partners if an amount equal to
Net Asset Value as of such date were distributed among the Partners in
accordance with Section 14.2(C), minus (y) the amount determined under clause
(a).

                                       6
<PAGE>

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

         "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i)(3).

         "Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2).

         "Partners" shall mean, collectively, the General Partner and the
Limited Partners, or any additional or successor partners of the Partnership
admitted to the Partnership in accordance with the terms of this Agreement.
References to a Partner shall be to any one of the Partners.

         "Partnership Interest" shall mean the ownership interest of a Partner
in the Partnership at any particular time, including the right of such Partner
to any and all benefits to which such Partner may be entitled as provided in
this Agreement, and to the extent not inconsistent with this Agreement, under
the Act, together with the obligations of such Partner to comply with all of the
terms and provisions of this Agreement and the Act.

         "Partnership Minimum Gain" has the meaning set forth in Regulations
Sections 1.704-2(b)(2) and 1.704-2(d).

         "Percentage Interest" shall be determined as of the end of each
calendar month in the following manner:

                  (i) The Percentage Interest of the holder of the Participation
         Interest as of the end of a particular calendar month shall equal the
         sum of (a) the Percentage Interest of such holder as of the end of the
         immediately preceding month (which shall be 0% in the case of each
         calendar month beginning prior to the Effective Date), multiplied by a
         fraction whose numerator is the number of OP Units outstanding as of
         the end of the immediately preceding month and whose denominator is the
         number of OP Units outstanding as of the end of the current month, plus
         (b) 0.0625% of the net equity invested in those real estate investments
         reflected on the balance sheet of the Partnership as of the end of such
         month, divided by the Unreturned Capital (as defined below) of the
         Partnership as of the end of the current month, plus (c) 0.5% of the
         Gross Real Estate Investments (as defined below) made by the
         Partnership during the current month, divided by the Unreturned Capital
         of the Partnership as of the end of the current month. For purposes of
         the foregoing, the "Unreturned Capital" of the Partnership as of the
         end of a month means the excess (if any) of the aggregate amount of
         Capital Contributions made by all Partners to the Partnership through
         the end of such month, over the aggregate amount of Capital
         Contributions returned to all Partners as a result of redemption
         distributions and distributions of sales proceeds by the Partnership to
         the Partners through the end of such month. The "Gross Real Estate
         Investments" of the Partnership shall generally mean the gross amount
         invested by the Partnership in any real estate investments (either
         directly or indirectly through one or more partnerships, limited
         liability companies, or special purpose entities and including any real
         estate investments

                                       7
<PAGE>

         contributed to the Partnership in exchange for Units), including any
         debt attributable to such investments; provided, however, that in the
         case of amounts invested by the Partnership in any entity that is not
         wholly-owned by the Partnership, "Gross Real Estate Investments" shall
         mean the Partnership's allocable share of the Gross Real Estate
         Investments of such entity.

                  (ii) The Percentage Interest as of the end of a particular
         calendar month for each Partner holding Units shall equal (a) 100%
         minus the Percentage Interest attributable to the Participation
         Interest, multiplied by (b) the sum of the OP Unit Value of any
         Preference Units held by that Partner and the number of OP Units held
         by that Partner, divided by (c) the sum of the OP Unit Value of all
         Preference Units issued and outstanding at the time and the total
         number of OP Units issued and outstanding at the time.

                  (iii) The Percentage Interests determined under clauses (i)
         and (ii) as of the end of a particular month shall become effective as
         of the beginning of the immediately following month.

         The respective Percentage Interests of the Partners as of the date of
this Agreement are set forth in Schedule A attached to this Agreement.

         "Person" means an individual, corporation, partnership, estate, trust,
a portion of a trust set aside for or to be used exclusively for the purposes
described in Section 642(c) of the Code, association, private foundation within
the meaning of Section 509(a) of the Code, joint stock company or other entity
and also includes a group as that term is used for purposes of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended.

         "Preference Units" are units of Partnership Interest more particularly
described in Section 3.2(A)(ii).

         "Preference Unit Term Sheet" shall have the meaning provided in Section
3.2(B)(1).

         "Private Placement PTP Exemption" shall mean the exemption from
publicly traded partnership status provided in Regulations Section 1.7704-1(h)
(which generally applies if (i) all interests in a partnership are issued in a
transaction or series of transactions that are not required to be registered
under the Securities Act and (ii) the partnership does not have more than 100
partners at any time during taxable year of the partnership).

         "Private Transfer" shall mean:

                  (i) transfers in which the basis of the Partnership Interest
         in the hands of the transferee is determined, in whole or in part, by
         reference to its basis in the hands of the transferor or is determined
         under Code Section 732;

                  (ii) transfers at death, including transfers from an estate or
         testamentary trust;

                  (iii)    transfers between members of a family;

                                       8
<PAGE>

                  (iv) transfers involving the issuance of interests by (or on
         behalf of) the Partnership in exchange for cash, property, or services;

                  (v) transfers involving distributions from a qualified
         retirement plan or an individual retirement account;

                  (vi) the transfer by a Partner and any related persons (within
         the meaning of Code Section 267(b) or 707(b)(1)) in one or more
         transactions during any 30 calendar day period of Partnership Interests
         representing in the aggregate more than 2 percent of the total
         interests in Partnership capital or profits;

                  (vii) transfers by one or more Partners of interests
         representing in the aggregate 50 percent or more of the total interests
         in Partnership capital and profits in one transaction or a series of
         related transactions; and

                  (viii) transfers not recognized by the Partnership within the
         meaning of Regulations Section 1.7704-1(d)(2) (i.e., transfers in cases
         where the Partnership neither admits the transferee as a partner nor
         recognizes any rights of the transferee as a partner).

         "Profits" and "Losses" shall mean for each fiscal year or portion
thereof, an amount equal to the Partnership's items of taxable income or loss
for such year or period, determined by the General Partner in accordance with
Code Section 703(a) with the following adjustments:

                  (i) any income which is exempt from Federal income tax and not
         otherwise taken into account in computing Profits or Losses shall be
         added to taxable income or loss;

                  (ii) any expenditures of the Partnership described in Code
         Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
         expenditures under Regulations Section 1.704-1(b)(2)(iv)(i) and not
         otherwise taken into account in computing Profits or Losses, will be
         subtracted from taxable income or loss;

                  (iii) in the event that the Gross Asset Value of any
         Partnership asset is adjusted pursuant to the definition of Gross Asset
         Value contained in this Article 2, the amount of such adjustment shall
         be taken into account as gain or loss from the disposition of such
         asset for purposes of computing Profits and Losses;

                  (iv) gain or loss resulting from any disposition of
         Partnership assets with respect to which gain or loss is recognized for
         Federal income tax purposes shall be computed by reference to the Gross
         Asset Value of the property disposed of, notwithstanding that the
         adjusted tax basis of such property differs from its Gross Asset Value;

                                       9
<PAGE>

                  (v) in lieu of the depreciation, amortization and other cost
         recovery deductions taken into account in computing such taxable income
         or loss, there shall be taken into account Depreciation for such fiscal
         year or other period;

                  (vi) to the extent an adjustment to the adjusted tax basis of
         any Partnership asset pursuant to Code Section 734(b) or Code Section
         743(b) is required pursuant to Regulations Section
         1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
         Accounts as a result of a distribution other than in complete
         liquidation of a Partner's Partnership Interest, is required pursuant
         to the last sentence of Regulations Section 1.704-1(b)(2)(iv)(m)(2) to
         be taken into account in determining Capital Accounts, the amount of
         such adjustment shall be treated as an item of gain (if the adjustment
         increases the basis of the asset) or loss (if the adjustment decreases
         the basis of the asset) from the disposition of the asset and shall be
         taken into account for purposes of computing Profits or Losses; and

                  (vii) any items specially allocated pursuant to Section 7.3 or
         Section 7.4 shall not be considered in determining Profits or Losses.

         "Recapitalization" shall have the meaning provided in Section 3.2(F).

         "Record Date" shall have the meaning provided in Section 9.1.

         "Redeeming Partner" shall have the meaning provided in Section 3.2(C).

         "Redemption Amount" means either the Cash Amount or the REIT Shares
Amount as determined pursuant to Section 3.2 hereof.

         "Redemption Right" shall have the meaning provided in Section 3.2(C).

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

         "REIT" shall have the meaning provided in Section 5.3.

         "REIT Requirements" shall have the meaning provided in Section 5.3.

         "REIT Shares Amount" means a number of Common Shares equal to (i) in
the case of a Partner redeeming OP Units, the number of OP Units offered for
redemption by a Redeeming Partner, as adjusted pursuant to Sections 3.2(F) and
(G) and (ii) in the case of Partner redeeming part or all of the Participation
Interest, the number of Participation Interest Unit Equivalents, as adjusted
pursuant to Section 3.2(a).

         "Rights" shall have the meaning provided in Section 3.2(G).

                                       10
<PAGE>

         "Specified Redemption Date" means with respect to a Redeeming Partner,
the date that is ten Business Days after receipt by the General Partner of the
Notice of Redemption from such Partner.

         "TMP" shall have the meaning provided in Section 11.4.

         "Transfer" shall mean any sale, transfer, gift, exchange, assignment,
devise or other disposition, any pledge or collateral assignment, and any other
event that causes any Person to acquire beneficial ownership, or any agreement
to take any such actions or cause any such events, with respect to Units or
Partnership Interests, or the right to vote or receive distributions with
respect to Units or Partnership Interests, including (a) the granting or
exercise of any option (or any disposition of any option), (b) any disposition
of any securities or rights convertible into or exchangeable for Units or
Partnership Interests or any interest in Units or Partnership Interests or any
exercise of any such conversion or exchange right, and (c) Transfers of
interests in other entities that result in changes in beneficial ownership of
Units or Partnership Interests; in each case, whether voluntary or involuntary,
whether owned of record or beneficially owned, and whether by operation of law
or otherwise; provided, however, neither the conversion of a Preference Unit
into one or more OP Units nor the redemption of an OP Unit or Participation
Interest in accordance with Section 3.2 constitutes a Transfer. The terms
"Transferor," "Transferee," "Transferred" and "Transferring" have correlative
meanings.

         "Units" has the meaning set forth in Section 3.2(A).

                                  ARTICLE III
                                 CAPITALIZATION

                  3.1 INITIAL CAPITAL. As of the effective date hereof, the
Partners have made or will make contributions of cash and/or property to the
Partnership, and the amount of such cash contributions and the Gross Asset Value
of such in-kind Capital Contributions are reflected in the Capital Account
balance of each such Partner as set forth opposite such Partner's name on the
attached Schedule A, as amended from time to time, under the heading "Agreed
Capital Account".

                  3.2 ISSUANCE AND REDEMPTION OF PARTNERSHIP INTERESTS.

                           A. The interest of a Partner in the Partnership that
         has been received in exchange for Capital Contributions is referred to
         as being evidenced by one or more "Units." Units may be either "OP
         Units" or "Preference Units":

                                    (i) An "OP Unit" is a unit of Partnership
                  Interest that has been received in exchange for Capital
                  Contributions and that, as more particularly provided for
                  below in Section 3.2(C), may be redeemed for the Redemption
                  Amount. The General Partner may create separate classes or
                  series of OP Units having privileges, variations, and
                  designations as may be determined by the General Partner in
                  its sole and absolute discretion.

                                       11
<PAGE>

                                    (ii) A "Preference Unit" is a unit of
                  Partnership Interest having such rights, preferences and other
                  privileges, variations and designations as may be determined
                  by the General Partner in its sole and absolute discretion
                  (but not in violation of the provisions of Section 3.2(B) or
                  the terms of any other Preference Unit(s) Term Sheets). There
                  may be more than one series or class of Preference Units
                  having differing terms and conditions, but all Preference
                  Units within a given series or class shall have the same
                  rights, preferences and other privileges, variations and
                  designations. With respect to each series or class of
                  Preference Units, the General Partner may also, in its
                  discretion, determine and fix, among other terms and
                  conditions, any of the following: (a) the series to which such
                  Preference Units shall belong, (b) the distribution rate
                  therefor, (c) the price at and the terms and conditions on
                  which such Preference Units may be redeemed, (d) the amount
                  payable in respect of such Preference Units in the event of
                  involuntary or voluntary liquidation, (e) the terms and
                  conditions on which such Preference Units may be converted and
                  the securities into which such Preference Units may be
                  converted (and/or the valuation of such Preference Units as
                  measured in OP Units), if such Preference Units are issued
                  with the privilege of conversion, and (f) the number of such
                  Preference Units to be issued as a part of such series. Once
                  determined and fixed as herein provided, however, the terms
                  and conditions of a particular series or class of Preference
                  Units may not be changed without the written consent of the
                  holders of at least 67% of the Preference Units within the
                  class or series (or such greater percentage as may be provided
                  for in any the applicable Preference Unit Term Sheet).

         The aggregate total of all Units outstanding as of the date of this
         Agreement is 21,958.69, all of which consist of OP Units. As of the
         date of this Agreement, each Partner is deemed to hold Units as shown
         on Schedule A.

                  Effective as of the date hereof, the Partnership is issuing to
         HALP a limited partnership interest denominated as a "Participation
         Interest." The Participation Interest is in addition to, and distinct
         from, the Units described above and any references to "Units" or OP
         Units shall not be deemed to include the Participation Interest. It is
         intended that the Participation Interest constitute a profits interest
         within the meaning of Section 2.02 of IRS Revenue Procedure 93-27,
         1993-2 C.B. 343.

                           B. From time to time hereafter, subject to and in
         accordance with the provisions of this Section 3.2(B), the General
         Partner shall cause the Partnership to issue additional Units as
         follows:

                                    (i) OP Units to the Company upon the
                  issuance by the Company of additional Common Shares (other
                  than in exchange for OP Units) and the contribution of the net
                  proceeds thereof as a Capital Contribution to the Partnership
                  as provided for in Section 3.3(B) below, it being understood,
                  however, that the Company may issue Common Shares in
                  connection with share option plans, dividend reinvestment
                  plans, restricted share plans or other benefit or compensation
                  plans without receiving any proceeds and that the issuance of

                                       12
<PAGE>

                  such Common Shares shall nonetheless entitle the Company to
                  receive additional OP Units pursuant to this clause (i);

                                    (ii) OP Units to Partners (including the
                  General Partner) that hold Preference Units that are
                  convertible into OP Units, upon the exercise of such
                  conversion in accordance with the terms and conditions of the
                  Preference Unit Term Sheet applicable thereto;

                                    (iii) OP Units to Partners holding OP Units
                  (including the General Partner) if and to the extent of each
                  such Partner's participation in any reinvestment program
                  contemplated by Section 3.3(C) below;

                                    (iv) Preference Units to the Company upon
                  the issuance by the Company of securities other than Common
                  Shares whether debt or equity securities ("Other Securities")
                  and the contribution of the net proceeds thereof as a Capital
                  Contribution to the Partnership as provided for in Section
                  3.3(B) below; and

                                    (v) in all other cases, OP Units and/or
                  Preference Units, as determined by the General Partner, in its
                  discretion, to existing or newly-admitted Partners (including
                  the General Partner), in exchange for the contribution by a
                  Partner (the "Contributing Partner") of Capital Contributions
                  to the Partnership.

         Issuance of OP Units as aforesaid shall be in accordance with the
following:

                  (a) the number of OP Units issued to the Company under clause
         (i) of this Section 3.2(B) shall be equal to the number of Common
         Shares issued;

                  (b) the number of OP Units issued to a Partner under clause
         (ii) of this Section 3.2(B) shall be as provided for in the Preference
         Unit Term Sheet pursuant to which the Preference Units being converted
         exist;

                  (c) the number of OP Units issued to a Limited Partner under
         clause (iii) of this Section 3.2(B) shall be as provided for in the
         applicable reinvestment program; and

                  (d) the number of OP Units issued to a Contributing Partner
         under clause (v) of this Section 3.2(B) shall be equal to the quotient
         (rounded to the nearest whole number) arrived at by dividing (x) the
         initial Gross Asset Value of the property contributed as additional
         Capital Contributions (net of any debt to which such property is
         subject or assumed by the Partnership in connection with such
         contribution) by (y) the Net Asset Value attributable to each OP Unit.

         Issuance of Preference Units as aforesaid shall be in accordance with
the following:

                  (1) Preference Units issued pursuant to clause (v) of this
         Section 3.2(B) shall have the terms and conditions specified in an
         agreement (a "Preference Unit Term Sheet") executed by and between the
         Partnership (at the direction or in the discretion of the General
         Partner) and the Contributing Partner. The number of Preference Units

                                       13
<PAGE>

         issued to a Contributing Partner under clause (v) of this Section
         3.2(B) shall be equal to the quotient (rounded to the nearest whole
         number) arrived at by dividing (x) the net fair market value of any
         property or assets contributed as additional capital contributions by
         (y) price per Preference Unit provided for in the Preference Unit Term
         Sheet; and

                  (2) Preference Units issued pursuant to clause (iv) of this
         Section 3.2(B) shall have economic terms substantially identical to
         those of the applicable Other Securities.

         Units may also be issued to some or all of the Partners holding
         Preference Units if and to the extent of such Partner's participation
         in any reinvestment program contemplated by Section 3.3(C). Upon the
         issuance of additional OP Units and/or Preference Units in accordance
         with the provisions of this Section 3.2(B), each recipient of such
         Units shall either execute this Agreement or a joinder to this
         Agreement (which joinder, as to Preference Units, may be a part of any
         applicable Preference Unit Term Sheet) and, as applicable, the
         Percentage Interest of all of the Partners shall thereupon be
         appropriately adjusted by the General Partner.

                           C. Subject to the provisions of Sections 3.2(D) and
         (F), on or after the later of (i) the date which is one year after the
         Issuance Date or (ii) upon the completion of an initial public offering
         of the Common Shares of the Company pursuant to a registration
         statement filed with the Securities and Exchange Commission, each
         Limited Partner shall have the right (the "Redemption Right") to
         require the Partnership to redeem on a Specified Redemption Date all or
         a portion of the OP Units or Participation Interest held by such
         Limited Partner at a redemption price equal to and in the form of the
         Redemption Amount. The Redemption Right shall be exercised pursuant to
         a Notice of Redemption delivered to the Partnership (with a copy to the
         General Partner) by the Limited Partner who is exercising the
         Redemption Right (the "Redeeming Partner"); provided, however, that the
         Partnership shall not be obligated to satisfy such Redemption Right if
         the Company elects to purchase the OP Units or Participation Interest
         subject to the Notice of Redemption pursuant to Section 3.2(E).
         Notwithstanding the foregoing provisions of this Section 3.2(C), the
         Company agrees to use its best efforts to cause the closing of the
         acquisition of redeemed Partnership Interests hereunder to occur as
         quickly as reasonably possible. The Redeeming Partner shall have no
         right, with respect to any OP Units or Participation Interest so
         redeemed, to receive any distribution paid with respect to such OP
         Units or Participation Interest if the Record Date for such
         distribution is on or after the Specified Redemption Date. If, and
         beginning with the first day of the first taxable year in which, the
         Partnership no longer qualifies for the Private Placement PTP
         Exemption, the Redemption Right shall comply with the requirements of
         Regulations Section 1.7704-1(f) and shall be construed and administered
         in accordance therewith.

                           D. In addition to other restrictions set forth on the
         Redemption Rights in any other provision of this Agreement, the
         following restrictions apply to Redemption Rights:

                                    (i) Notwithstanding any other provision of
                  this Article 3, but subject to the last sentence of clause
                  (iii) below, a Limited Partner shall be

                                       14
<PAGE>

                  entitled to exercise the Redemption Right only if (x) the
                  redemption or purchase of the Limited Partner's OP Units or
                  Participation Interest would constitute a Private Transfer or
                  (y) the Percentage Interest attributable to the OP Units or
                  Participation Interest to be purchased or redeemed, when
                  aggregated with other Transfers of Partnership Interests
                  within the same taxable year of the Partnership (but not
                  including Private Transfers), would constitute a Percentage
                  Interest of ten percent (10%) or less.

                                    (ii) The General Partner may establish such
                  policies and procedures as it may deem necessary or desirable
                  in its discretion to administer the 10% Percentage Interest
                  limit set forth in subparagraph (i) above, including without
                  limitation imposing further limitations on the OP Units or
                  Participation Interest with respect to which the Redemption
                  Right may be exercised during any period of time shorter than
                  a calendar year and establishing procedures to allocate the
                  ability to exercise the Redemption Right among the Limited
                  Partners.

                                    (iii) The restrictions set forth in clauses
                  (i) and (ii) above shall continue in effect until such time as
                  the Partnership is no longer potentially subject to
                  classification as a publicly traded partnership, as defined in
                  Code Section 7704, in the absence of such restrictions, as
                  determined by the General Partner in its discretion. The
                  restrictions set forth in clauses (i) and (ii) above, together
                  with the restrictions on the Transfer of Partnership Interests
                  set forth in Section 12(B), are intended to limit transfers of
                  interests in the Partnership in such a manner as to permit the
                  Partnership to qualify for the safe harbors from treatment as
                  a publicly traded partnership set forth in Regulations
                  Sections 1.7704-1(d), (e), (f) and (j) and shall be construed
                  and administered in accordance therewith. The General Partner
                  may modify the restrictions set forth in clauses (i) and (ii)
                  above, and the provisions of Section 12(B), from time to time
                  in its discretion to ensure that the Partnership complies and
                  continues to comply with the Code and Regulations requirements
                  described above. Notwithstanding anything herein to the
                  contrary, the provisions of subparagraphs (i)-(iii) shall only
                  apply if, and beginning with the first day of the first
                  taxable year in which, the Partnership no longer qualifies for
                  the Private Placement PTP Exemption.

                                    (iv) A Limited Partner shall not be entitled
                  to exercise either a Redemption Right or any right to convert
                  a Preference Unit into an OP Unit if such exercise would (a)
                  result in the total Common Shares and any other ownership or
                  beneficial interests in the Company being owned by fewer than
                  one hundred persons within the meaning of Code Section
                  856(a)(5); (b) result in such Limited Partner or any other
                  person owning, directly or constructively under Code Section
                  856(d)(5), in excess of 9.9% of the total Common Shares (and
                  any other ownership or beneficial interests) in the Company;
                  (c) cause more than 50% of the value of the Company's Common
                  Shares (and any other ownership or beneficial interests) to be
                  held by five or fewer individuals and certain organizations
                  under Code Section 856(h) and 542(a)(2); (d) cause the Company
                  to own, directly or constructively, 10% or more of the
                  ownership interests of any person that is a tenant with
                  respect to any real property owned or constructively

                                       15
<PAGE>

                  owned by the Company (so as to prevent the application of Code
                  Section 856(d)(2)); or (e) cause the acquisition of Common
                  Shares (and any other ownership or beneficial interests) in
                  the Company by such Limited Partner to be "integrated" with
                  any other distribution of interests in the Company for
                  purposes of complying with the registration provisions of the
                  Securities Act of 1933. The General Partner may modify the
                  restrictions set forth in this Section 3.2(D)(iv) from time to
                  time in its discretion to ensure that the Partnership complies
                  and continues to comply with Code Section 856. The General
                  Partner may, in its sole discretion, waive the restrictions on
                  redemption set forth in this Section 3.2(D)(iv); provided,
                  however, that in the event a restriction is waived, the
                  redeeming partner shall be paid the Cash Amount.

                                    (v) A Limited Partner shall not be entitled
                  to exercise a Redemption Right if it prejudices or affects the
                  continuity of the Partnership for purposes of Code Section
                  708. Prior to any such redemption described in the preceding
                  sentence, the General Partner may require an opinion of
                  counsel satisfactory to the General Partner to the effect that
                  such redemption will not cause adverse tax consequences to the
                  nonredeeming Partners, and such Limited Partner exercising the
                  Redemption Right shall be responsible for paying said
                  counsel's fee for his opinion.

         Provided, however, that the General Partner may exempt a Limited
         Partner from the foregoing restrictions to the same extent, and under
         the same circumstances, that the General Partner may waive similar
         restrictions pursuant to its Articles of Incorporation.

                           E. Notwithstanding the provisions of Section 3.2(C),
         a Limited Partner that exercises the Redemption Right shall be deemed
         to have offered to sell the OP Units or Participation Interest
         described in the Notice of Redemption to the Company, and the Company
         (or any designee thereof) may, in its sole and absolute discretion,
         elect to purchase directly and acquire such OP Units or Participation
         Interest by paying to the Redeeming Partner either the Cash Amount or
         the REIT Shares Amount, as elected by the Company or any designee
         thereof (each in its sole and absolute discretion), on the Specified
         Redemption Date, whereupon the Company or any designee thereof shall
         acquire the OP Units or Participation Interest offered for redemption
         by the Redeeming Partner and shall be treated for all purposes of this
         Agreement as the owner of such OP Units or Participation Interest. If
         the Company or any designee thereof shall elect to exercise its right
         to purchase OP Units or a Participation Interest under this Section
         3.2(E) with respect to a Notice of Redemption, it shall so notify the
         Redeeming Partner within five Business Days after the receipt by the
         General Partner of such Notice of Redemption. Unless the Company or any
         designee thereof (each in its sole and absolute discretion) shall
         exercise its right to purchase OP Units or a Participation Interest
         from the Redeeming Partner pursuant to this Section 3.2(E), neither the
         Company nor any designee thereof shall have any obligation to the
         Redeeming Partner or the Partnership with respect to such Redeeming
         Partner's exercise of such Redemption Right. In the event that the
         Company or any designee thereof shall exercise its right to purchase OP
         Units or a Participation Interest with respect to the exercise of a
         Redemption Right in the manner described in the first sentence of this
         Section 3.2(E), the Partnership shall have no

                                       16
<PAGE>

         obligation to pay any amount to the Redeeming Partner with respect to
         such Redeeming Partner's exercise of such Redemption Right, and each of
         the Redeeming Partner, the Partnership, and the Company or any designee
         thereof, as the case may be, shall treat the transaction between the
         Company or any designee thereof, as the case may be, and the Redeeming
         Partner for federal income tax purposes as a sale of the Redeeming
         Partner's OP Units or Participation Interest to the Company or any
         designee thereof. Each Redeeming Partner agrees to execute such
         documents as the General Partner may reasonably require in connection
         with the issuance of Common Shares upon exercise of the Redemption
         Right. Any OP Units or Participation Interest acquired by the General
         Partner pursuant to such Redemption Right shall, upon and after such
         acquisition, be treated as a general partner interest.

                           F. The Company shall at all times reserve and keep
         available out of its authorized but unissued Common Shares, solely for
         the purpose of effecting the exchange of OP Units and the Participation
         Interest for Common Shares, such number of Common Shares as shall from
         time to time be sufficient to effect the redemption of the
         Participation Interest and all outstanding OP Units not owned by the
         Company, and any Preference Units not owned by the Company that are
         convertible into OP Units (whether or not the conversion can then be
         effected). No Limited Partner shall, by virtue of being the holder of
         the Participation Interest or one or more OP Units and/or Preference
         Units be deemed to be a shareholder of or have any other interest in
         the Company. In the event of any change in the outstanding Common
         Shares of the Company or its successor by reason of any share dividend,
         split, recapitalization, merger, consolidation, combination, exchange
         of shares or other similar corporate change other than the issuance of
         Rights, as further described in Section 3.2(G) (a "Recapitalization"),
         the number of OP Units held by each Partner shall be adjusted upward or
         downward to equal such number of Common Shares of the Company (or as
         applicable, the Common Shares or equivalent class of securities of the
         successor thereto) as would have been held by the Partner immediately
         following the Recapitalization if such Partner had held a number of
         Common Shares equal to such number of OP Units immediately prior to
         such Recapitalization. In the event the Company or any designee thereof
         acquires OP Units or a Participation Interest pursuant to such Section
         3.2(E), the General Partner shall record the transfer on the books of
         the Partnership so that the Company or any designee thereof, as
         applicable, is thereupon the owner and holder of such OP Units or
         Participation Interest. As is more particularly described in Section
         3.2(D)(iv), notwithstanding any other provisions of this Section 3.2, a
         Limited Partner shall not have the right to exercise a Redemption Right
         if, upon payment of the REIT Shares Amount to such Limited Partner, (i)
         the Company would, as a result thereof, no longer qualify (or it would
         be reasonably possible in the judgement of the General Partner that the
         Company no longer would qualify) as a real estate investment trust
         under the Code; or (ii) the payment of such REIT Shares Amount to the
         Limited Partner would constitute or be reasonably possible in the
         judgment of the General Partner to constitute a violation of applicable
         federal or state securities laws or would violate any applicable
         provisions of the organizational documents of the Company (including
         without limitation any restrictions on ownership of securities of the
         Company set forth in the Articles of Incorporation or Bylaws of the
         Company). In either such event, to the extent the consequences
         described in (i) or (ii) could be eliminated by reasonable action of
         the General Partner or the Company without any material detriment

                                       17
<PAGE>

         to the General Partner or the Company and at the expense of such
         Limited Partner(s) requesting such exchange, the Company or the General
         Partner shall take all such reasonable action to effect the exchange of
         OP Units or a Participation Interest for Common Shares by such Limited
         Partner(s) as herein provided.

                           G. In the event that a Redeeming Partner exercises
         the Redemption Right, and the Company or any designee thereof elects to
         make the payment of the REIT Shares Amount to the Redeeming Partner
         referenced in accordance with the first sentence of Section 3.2(E), and
         in the event that the Company issues to all of its holders of Common
         Shares as of a certain record date rights, options, warrants or
         convertible or exchangeable securities entitling such shareholders to
         subscribe for or purchase Common Shares or any other securities or
         property (collectively, "Rights"), with the record date for such Rights
         issuance falling within the period starting on the date that the
         Company receives the Redemption Notice from the Redeeming Partner and
         ending on the day immediately preceding the date upon which the Company
         or its designee delivers the Common Shares to the Redeeming Partner in
         exchange for such Redeeming Partner's OP Units (the date upon which
         such exchange occurs being referred to herein as the "Exchange Date"),
         which Rights will not be distributed before the Exchange Date, then the
         amount payable by the Company or its designee to the Redeeming Partner
         in exchange for its OP Units or Participation Interest under this
         Section 3.2 shall also include such Rights that the Redeeming Partner
         would have received if it had been the owner of the Common Shares to be
         delivered by the Company to the Redeeming Partner prior to the record
         date for the issuance of the Rights (as the same may be expressed for
         any purpose hereunder in a number of OP Units or Common Shares as
         determined by the General Partner).

                  3.3 ADDITIONAL FUNDS.

                           A. No Partner shall be assessed or, except as
         otherwise provided in this Agreement, be required to contribute
         additional funds or other property to the Partnership. Any additional
         funds or other property required by the Partnership, as determined by
         the General Partner in its sole discretion, may, at the option of the
         General Partner and without an obligation to do so (except as provided
         for in Section 3.3(B) below), be contributed by the General Partner or
         any other Partner (provided such other Partner is willing to do so and
         the General Partner consents thereto, each in its sole and absolute
         discretion) as additional Capital Contributions. If and as the General
         Partner or any other Partner makes additional Capital Contributions to
         the Partnership, each such Partner shall receive additional OP Units
         and/or Preference Units as provided for in Section 3.2(B) above. The
         General Partner shall also have the right (but not the obligation) to
         raise any additional funds required for the Partnership in accordance
         with the provisions of Section 9.7(E) below and/or by causing the
         Partnership to borrow the necessary funds from third parties on such
         terms and conditions as the General Partner shall deem appropriate in
         its sole discretion. If the General Partner elects to cause the
         Partnership to borrow the additional funds, or if the Partnership
         issues a guaranty, indemnity or similar undertaking in connection with
         the indebtedness of the Company as aforesaid, in any such case one or
         more of the Partnership's assets may be encumbered to secure the loan
         or undertaking. Except as provided for in Section 3.3(C) below, no

                                       18
<PAGE>

         Limited Partner shall have the right to make additional Capital
         Contributions to the Partnership without the prior written consent of
         the General Partner.

                           B. Except for (i) the capitalization of any
         wholly-owned entity of the General Partner which is the general partner
         of a partnership having the Partnership as a limited partner, (ii) the
         net proceeds generated by the issuance of Other Securities that
         evidence debt (and are not equity securities) that are loaned by the
         Company to the Partnership, and (iii) where the Company determines that
         the net proceeds generated by the issuance of Common Shares or Other
         Securities (whether for debt or equity) are to be retained by the
         Company for a valid business reason consistent with the purposes of the
         Partnership and such retention does not materially adversely affect the
         Limited Partners, the net proceeds of any and all funds raised by or
         through the Company through the issuance of Common Shares or Other
         Securities shall be contributed to the Partnership as additional
         Capital Contributions, and in such event the Company shall be issued
         additional Units pursuant to Section 3.2(B) above.

                           C. If the General Partner creates and administers a
         reinvestment program in substantial conformance with a dividend
         reinvestment program which may be available from time to time to
         holders of the Common Shares, each Limited Partner holding OP Units
         shall have the right to reinvest any or all cash distributions payable
         to it from time to time pursuant to this Agreement (subject to the
         restrictions described in Article 12), by having some or all (as the
         Limited Partner elects) of such distributions contributed to the
         Partnership as additional Capital Contributions, and in such event the
         Partnership shall issue to each such Limited Partner additional OP
         Units pursuant to Section 3.2(B)(iii) above, or the General Partner, in
         its sole discretion, may elect to cause distributions with respect to
         which a Limited Partner has elected reinvestment to be contributed to
         the Company in exchange for the issuance of Common Shares. At the
         option of the General Partner, such a program may also be made
         available with respect to Preference Units.

                  3.4 CAPITAL ACCOUNTS. A separate capital account ("Capital
Account") shall be maintained for each Partner.

                           A. To each Partner's Capital Account there shall be
         added the amount of cash and the Gross Asset Value of any property
         contributed by such Partner to the Partnership pursuant to any
         provision of this Agreement, such Partner's distributive share of
         Profits and any items in the nature of income or gain which are
         specially allocated pursuant to Section 7.3, Section 7.4 or Section
         14.2(C) hereof, and the amount of any Partnership liabilities assumed
         by such Partner or which are secured by any Partnership property
         distributed to such Partner.

                           B. From each Partner's Capital Account there shall be
         subtracted the amount of cash and the Gross Asset Value of any
         Partnership property distributed to such Partner pursuant to any
         provision of this Agreement, such Partner's distributive share of
         losses and any items in the nature of expenses or losses which are
         specially allocated pursuant to Section 7.3, Section 7.4 or Section
         14.2(C) hereof, and the amount of any

                                       19
<PAGE>

         liabilities of such Partner assumed by the Partnership or which are
         secured by any property contributed by such Partner to the Partnership.

                           C. In the event all or a portion of a Partnership
         Interest is transferred in accordance with the terms of this Agreement
         (including a transfer of OP Units or a Participation Interest in
         exchange for Common Shares, pursuant to Section 3.2(E)), the transferee
         shall succeed to the Capital Account of the transferor to the extent it
         relates to the transferred Partnership Interest.

                           D. In determining the amount of any liability for
         purposes of Sections 3.4(A) and 3.4(B) above, there shall be taken into
         account Code Section 752(c) and any other applicable provisions of the
         Code and Regulations.

                           E. This Section 3.4 and the other provisions of this
         Agreement relating to the maintenance of Capital Accounts are intended
         to comply with Regulations Section 1.704-1(b), and shall be interpreted
         and applied in a manner consistent with such Regulations. In the event
         the General Partner shall determine that it is prudent to modify the
         manner in which the Capital Accounts, or any debits or credits thereto
         (including, without limitation, debits or credits relating to
         liabilities which are secured by contributed or distributed property or
         which are assumed by the Partnership, or the Partners) are computed in
         order to comply with such Regulations, the General Partner may make
         such modification, provided that it is not likely to have a material
         effect on the amounts distributed to any Partner pursuant to Section
         14.2 upon the liquidation of the Partnership. The General Partner also
         shall (i) make any adjustments that are necessary or appropriate to
         maintain equality between the Capital Accounts of the Partners and the
         amount of Partnership capital reflected on the Partnership's balance
         sheet, as computed for book purposes, in accordance with Regulations
         Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate
         modifications in the event unanticipated events might otherwise cause
         this Agreement not to comply with Regulations Section 1.704-1(b).

                  3.5 INTEREST ON AND RETURN OF CAPITAL.

                           A. No Partner shall be entitled to any interest on
         its Capital Account or on its Capital Contributions to the Partnership.

                           B. Except as expressly provided for in this
         Agreement, no Partner shall have the right to demand or to receive the
         return of all or any part of its Capital Contributions to the
         Partnership and there shall be no priority of one Partner over another
         Partner as to the return of capital contributions or withdrawals or
         distributions of profits and losses. No Partner shall have the right to
         demand or receive property other than cash in return for the
         contributions of such Partner to the Partnership.

                  3.6 NEGATIVE CAPITAL ACCOUNTS. Upon the liquidation of the
Partnership or the liquidation of the Participation Interest, the holder of the
Participation Interest shall be required to pay to the Partnership any deficit
or negative balance which may exist in its Capital Account at such time
(determined after taking into account the allocations described in Article 7 or
Section 14.2(C) for the year in which such liquidation or redemption occurs).
Subject to the

                                       20
<PAGE>

provisions of any guarantee or other written agreement between a Partner and the
Partnership, or except as provided in the preceding sentence, no Partner shall
otherwise be required to pay to the Partnership any deficit or negative balance
which may exist in its Capital Account.

                  3.7 LIMIT ON CONTRIBUTIONS AND OBLIGATIONS OF PARTNERS. Except
as provided in Sections 3.1, 3.2 and 3.3 (or the provisions of any guarantee or
other written agreement between a Partner and the Partnership), no Partner shall
be required to make any additional advances or contributions to or on behalf of
the Partnership or guarantee any obligations of the Partnership.

                  3.8 REDEMPTION AND REPURCHASE OF UNITS. Notwithstanding any
other provision of this Agreement which may be contrary to this Section 3.8, in
the event of the proposed repurchase or redemption for cash by the Company of
(i) Common Shares or (ii) Other Securities with respect to which the Partnership
had previously issued Preference Units pursuant to Section 3.2(B)(iv) of this
Agreement, then, in such event, the Partnership shall provide cash to the
Company concurrently with such repurchase or redemption or for such purpose
equal to the proposed repurchase or redemption price, and one OP Unit owned by
the General Partner (or, in the case of redemption or repurchase by the Company
of Other Securities contemplated by clause (ii) above, one Preference Unit owned
by the General Partner which had been issued with respect to such Other
Securities) shall be canceled with respect to each Common Share (or share of
Other Securities) so repurchased or redeemed.

                  3.9 REDEMPTION AND REPURCHASE OF INTERESTS OWNED BY HINES
CONTROLLED ENTITIES. Notwithstanding any other provision of this Agreement which
may be contrary to this Section 3.9, if at any time the General Partner is not
sponsored by a Hines Controlled Entity, HALP, HREH, and each other Hines
Controlled Entity may redeem all or a portion of the Participation Interest
and/or Units it owns at any time, or from time to time. The redemption price of
the portion of the Participation Interest and/or Units being redeemed will be
equal to the Cash Amount attributable to such Participation Interest or Units,
as the case may be. The holder may elect, at its option, to receive cash or
Common Shares (or a combination of same) in connection with such redemption.

                                   ARTICLE IV
                          OFFICE AND REGISTERED AGENT

                  The address of the registered office of the Partnership in the
State of Delaware is located at 1209 Orange Street, City of Wilmington, County
of New Castle, State of Delaware 19801, and the registered agent for service of
process on the Partnership in the State of Delaware at such registered office is
the Corporation Trust Company. The principal office of the Partnership is
located at 2800 Post Oak Boulevard, Suite 5000, Houston, Texas 77056-6118 or
such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner may deem advisable.

                                       21
<PAGE>

                                   ARTICLE V
                       PURPOSES AND POWERS OF PARTNERSHIP

                  5.1 PURPOSES OF THE PARTNERSHIP. The objects and purposes of
the Partnership are to engage in any lawful business activities in which a
partnership formed under the Act may engage or participate, with its primary
objects and purposes being, either as a partner in a partnership or joint
venture or otherwise, to purchase, own, maintain, mortgage, encumber, construct,
develop, equip, manage, lease, finance, operate, dispose of or otherwise deal
with real property, interests in real property or mortgages secured by real
property.

                  5.2 POWERS. The Partnership purposes may be accomplished by
taking any action which is not prohibited under the Act.

                  5.3 REIT REQUIREMENTS. Each Limited Partner understands and
acknowledges that the General Partner intends to elect to be treated as a real
estate investment trust ("REIT") under Code Section 856. Each Limited Partner
further understands and acknowledges that in order to maintain its status as a
REIT, the General Partner must comply with numerous and complex rules and
regulations set forth in the Code and the Regulations, many of which are applied
on a quarterly and/or annual basis (the "REIT Requirements"), and that the
management and operation of the Partnership will have a material effect on the
ability of the General Partner to continue to maintain its status as a REIT.
Accordingly, notwithstanding any other provision of this Agreement or any
non-mandatory provision of the Act, the Partnership shall not take any action
which (or fail to take any action, the omission of which) (i) could adversely
affect the ability of the General Partner to qualify or continue to qualify as a
REIT, (ii) could subject the General Partner to any additional taxes under Code
Section 857 or Code Section 4981 or other potentially adverse consequences under
the Code, or (iii) otherwise could cause the General Partner to violate the REIT
Requirements, specifically including, but not limited to, restrictions on
Redemption Rights in Section 3.2(D)(iv). In addition, notwithstanding any other
provision of this Agreement or any non-mandatory provision of the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the General Partner's business judgement that such action or
omission is necessary or advisable in order (i) to protect the ability of the
General Partner to continue to qualify as a REIT or (ii) to avoid the General
Partner incurring any taxes under Code Section 857 or Code Section 4981, is
expressly authorized under this Agreement and is approved by all of the Limited
Partners.

                                   ARTICLE VI
                                      TERM

                  The term of the Partnership shall continue until the
Partnership is terminated upon the occurrence of an event described in Section
14.1 below.

                                       22
<PAGE>

                                  ARTICLE VII
                                   ALLOCATIONS

                  7.1 PROFITS.

                           A. After giving effect to the special allocations set
         forth in Sections 7.3, 7.4, and 14.2(C), Profits for any fiscal year
         other than Capital Transactions Gains shall be allocated as follows:

                           (i) first, gross profits shall be allocated to the
                  holder of the Participation Interest, until the cumulative
                  amount of Profits allocated to such holder pursuant to this
                  Section 7.1(A) with respect to its Participation Interest
                  equals the cumulative amount of distributions, other than
                  distributions of proceeds from transactions resulting in
                  Capital Transaction Gains or Losses, made to such holder
                  pursuant to Section 8.2 hereof with respect to its
                  Participation Interest; and

                           (ii) thereafter, remaining Profits shall be allocated
                  among the Partners in proportion to the number of OP Units
                  held by each such Partner.

                           B. After giving effect to the allocations set forth
         in Sections 7.3, 7.4 and 14.2(C), Capital Transaction Gains shall be
         computed separately with respect to each property and shall be
         allocated among the Partners as follows:

                           (i) first, among the Partners in proportion to, and
                  to the extent of, any deficit balance in each such Partner's
                  Capital Account;

                           (ii) second, to the holder of the Participation
                  Interest in the minimum amount needed so as to cause its
                  Capital Account balance to equal the product of the Percentage
                  Interest attributable to the Participation Interest and the
                  aggregate Capital Account balances of all the Partners (after
                  giving effect to the allocation in this clause (ii)); and

                           (iii) thereafter, among the Partners in proportion to
                  their respective Percentage Interests.

                           C. In the event that the Partnership issues
         additional Units to the General Partner or any Limited Partner pursuant
         to Section 3.2 hereof, the General Partner shall make such revisions to
         this Section 7.1 as it determines are necessary to reflect the terms of
         the issuance of such additional Units, including such revisions as are
         needed to ensure that such allocations (i) will comply with the terms
         of Regulations Sections 1.704-1 and -2 and Code Section 514(c)(9)(E),
         (ii) will properly reflect the varying interests of the Partners in the
         Partnership, and (iii) will cause the Capital Accounts of the Partners
         held by them to be in the ratios in which the Partners are entitled to
         receive distributions with respect to their Partnership Interests
         pursuant to Article 8 hereof.

                                       23
<PAGE>

                  7.2 LOSSES.

                           A. After giving effect to the special allocations set
         forth in Sections 7.3, 7.4, and 14.2(C), all Losses (including Capital
         Transaction Losses, which shall be computed and allocated separately
         with respect to each property) shall be allocated among the Partners as
         follows:

                           (i) first, among the Partners in proportion to the
                  number of OP Units held by each such Partner, until the
                  aggregate Capital Account balances of the Partners holding OP
                  Units is reduced to an amount equal to the product of (a) 100%
                  minus the Percentage Interest attributable to the
                  Participation Interest and (b) the aggregate Capital Account
                  balances of all the Partners (after giving effect to the
                  allocation in this clause (i));

                           (ii) second, among the Partners in proportion to
                  their respective positive Capital Account balances; and

                           (iii) thereafter, among the Partners in proportion to
                  the number of OP Units held by each such Partner.

                           B. The Losses allocated pursuant to Section 7.2(A)
         above shall not exceed the maximum amount of Losses that can be so
         allocated without causing any Limited Partner to have an Adjusted
         Capital Account Deficit at the end of any fiscal year. All Losses in
         excess of the limitations set forth in this Section 7.2(B) shall be
         allocated among the other Partners in proportion to the number of OP
         Units held by each such other Partner.

                           C. In the event that the Partnership issues
         additional Units to the General Partner or any Limited Partner pursuant
         to Section 3.2 hereof, the General Partner shall make such revisions to
         this Section 7.2 as it determines are necessary to reflect the terms of
         the issuance of such additional Units, including such revisions as are
         needed to ensure that such allocations (i) will comply with the terms
         of Regulations Sections 1.704-1 and -2 and Code Section 514(c)(9)(E),
         (ii) will properly reflect the varying interests of the Partners in the
         Partnership, and (iii) will cause the Capital Accounts of the Partners
         to be in the ratios in which the Partners are entitled to receive
         distributions with respect to their Partnership Interests pursuant to
         Article 8 hereof.

                  7.3 SPECIAL ALLOCATIONS. The following special allocations
shall be made in the following order:

                           A. Except as otherwise provided in Regulations
         Section 1.704-2(f), and notwithstanding any other provision of this
         Article 7, if there is a net decrease in Partnership Minimum Gain
         during any fiscal year, each Partner shall be specially allocated items
         of Partnership income and gain for such fiscal year (and, if necessary,
         subsequent fiscal years) in an amount equal to such Partner's share of
         the net decrease in Partnership Minimum Gain, determined in accordance
         with Regulations Section 1.704-2(g). The items to be so allocated shall
         be determined in accordance with

                                       24
<PAGE>

         Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section
         7.3(A) is intended to comply with the minimum gain chargeback
         requirement in Regulations Section 1.704-2(f) and shall be interpreted
         consistently therewith.

                           B. Except as otherwise provided in Regulations
         Section 1.704-2(i)(4), and notwithstanding any other provision of this
         Article 7, if there is a net decrease in Partner Nonrecourse Debt
         Minimum Gain attributable to a Partner Nonrecourse Debt during any
         Partnership fiscal year, each Partner who has a share of the Partner
         Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
         Debt, determined in accordance with Regulations Section 1.704-2(i)(5),
         shall be specially allocated items of Partnership income and gain for
         such fiscal year (and, if necessary, subsequent fiscal years) in an
         amount equal to such Partner's share of the net decrease in Partner
         Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
         Debt, determined in accordance with Regulations Section 1.704-2(i)(4).
         The items to be so allocated shall be determined in accordance with
         Regulations Sections 1.704-2(i)(4) and 1.704-2(i)(2). This Section
         7.3(B) is intended to comply with the minimum gain chargeback
         requirement in Regulations Section 1.704-2(i)(4) and shall be
         interpreted consistently therewith.

                           C. In the event any Partner unexpectedly receives any
         adjustments, allocations, or distributions described in Regulations
         Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
         1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be
         specially allocated to each such Partner in an amount and manner
         sufficient to eliminate, to the extent required by the Regulations, the
         Adjusted Capital Account Deficit of such Partner as quickly as
         possible, provided that an allocation pursuant to this Section 7.3(C)
         shall be made only if and to the extent that such Partner would have an
         Adjusted Capital Account Deficit after all other allocations provided
         for in this Article 7 have been tentatively made, as if this Section
         7.3(C) were not in this Agreement.

                           D. In the event any Partner has a deficit Capital
         Account at the end of any Partnership fiscal year which is in excess of
         the sum of (i) the amount such Partner is obligated to restore pursuant
         to any provision of this Agreement, and (ii) the amount such Partner is
         deemed to be obligated to restore pursuant to the penultimate sentences
         of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such
         Partner shall be specially allocated items of Partnership income and
         gain in the amount of such excess as quickly as possible, provided that
         an allocation pursuant to this Section 7.3(D) shall be made only if and
         to the extent that such Partner would have a deficit Capital Account
         after all other allocations provided for in this Article 7 have been
         made as if Section 7.3(C) hereof and this Section 7.3(D) were not in
         the Agreement.

                           E. If and to the extent Partners holding Preference
         Units receive preferred distributions from the Partnership (other than
         distributions pursuant to Section 14.2(C) in final liquidation of the
         Partnership), each such Partner shall be allocated Partnership gross
         income in an amount equal to the amount of preferred distributions
         received with respect to such Preference Units, prior to any
         allocations of Profit and Loss pursuant to Sections 7.1 and 7.2 above.
         For purposes of this Section 7.3(E), any payment with respect to a
         Preference Unit that, under the applicable Preference Unit Term Sheet,

                                       25
<PAGE>

         constitutes a payment in redemption of such Preference Unit (and a
         return of the Partner's Capital Contribution with respect to such
         Preference Unit) shall not result in a special allocation of gross
         income to the Partner receiving such payments under this Section
         7.3(E), except to the extent such payment is specifically attributable
         to accrued and unpaid preferred distributions with respect to such
         Preference Unit provided for in such Preference Unit Term Sheet.

                           F. Nonrecourse Deductions for any fiscal year shall
         be allocated among the Partners in accordance with their respective
         Percentage Interests.

                           G. Any Partner Nonrecourse Deductions for any fiscal
         year shall be specially allocated to the Partner who bears the economic
         risk of loss with respect to the Partner Nonrecourse Debt to which such
         Partner Nonrecourse Deductions are attributable, in accordance with
         Regulations Section 1.704-2(i)(1).

                           H. To the extent an adjustment to the adjusted tax
         basis of any Partnership asset pursuant to Code Section 734(b) is
         required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4), to
         be taken into account in determining Capital Accounts as the result of
         a distribution to a Partner in complete liquidation of its interest in
         the Partnership, the amount of such adjustment to Capital Accounts
         shall be treated as an item of gain (if the adjustment increases the
         basis of the asset) or loss (if the adjustment decreases such basis)
         and such gain or loss shall be specifically allocated to the Partner to
         whom such distribution was made.

                  7.4 CURATIVE ALLOCATIONS. The allocations set forth in
Sections 7.2(C), 7.3(A), 7.3(B), 7.3(C), 7.3(D), 7.3(F), 7.3(G), and 7.3(H)
above (the "Regulatory Allocations") are intended to comply with certain
requirements of the Regulations under Code Section 704(b). It is the intent of
the Partners that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations of
other items of Partnership income, gain, loss, or deduction pursuant to this
Section 7.4. Therefore, notwithstanding any other provision of this Article 7
(other than the Regulatory Allocations), the General Partner shall make such
offsetting special allocations of Partnership income, gain, loss, or deduction
in whatever manner it determines appropriate so that, after such offsetting
allocations are made, each Partner's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Partner would have had if
the Regulatory Allocations were not part of the Agreement and all Partnership
items were allocated pursuant to Section 7.1(A)(ii) and 7.2(A) (subject,
however, to Section 7.3(E) above). In exercising its discretion under this
Section 7.4, the General Partner shall take into account future Regulatory
Allocations under Section 7.3(A) and 7.3(B) that, although not yet made, are
likely to offset other Regulatory Allocations previously made under Sections
7.3(F) and 7.3(G).

                  7.5 TAX ALLOCATIONS: CODE SECTION 704(c).

                           A. Income, gain, loss, and deduction with respect to
         any property contributed to the capital of the Partnership shall,
         solely for tax purposes, be allocated among the Partners so as to take
         account of any variation between the adjusted basis of such property to
         the Partnership for Federal income tax purposes and its initial Gross

                                       26
<PAGE>

         Asset Value in accordance with any permissible method or methods under
         Code Section 704(c) and the Regulations thereunder, as determined in
         the sole discretion of the General Partner.

                           B. In the event the Gross Asset Value of any
         Partnership asset is adjusted pursuant to the definition of "Gross
         Asset Value" contained in Article 2 above, subsequent allocations of
         income, gain, loss and deduction with respect to such asset shall take
         account of any variation between the adjusted basis of such asset for
         Federal income tax purposes and its Gross Asset Value in the same
         manner or manners permitted under Code Section 704(c) and the
         Regulations thereunder.

                           C. The portion of any gain recognized by the
         Partnership on the disposition of property which is classified as
         ordinary income under Sections 751, 1245 or 1250 of the Code, or which
         is classified as "unrecaptured section 1250 gain" under Section 1(h)(7)
         of the Code, shall be allocated among the Partners in the ratio in
         which the deductions giving rise to such ordinary income or
         unrecaptured section 1250 gain were allocated; provided, however, that
         the amount of ordinary income or unrecaptured section 1250 gain so
         allocated shall not exceed the gain from such sale or disposition that
         is so allocable to the Partner.

                           D. Any elections or other decisions relating to the
         allocations provided under this Section 7.5 shall be made by the
         General Partner using any permissible manner under the Code or the
         Regulations that the General Partner may elect in its sole discretion.
         Allocations pursuant to this Section 7.5 are solely for purposes of
         Federal, state, and local taxes and shall not affect, or in any way be
         taken into account in computing, any Partner's Capital Account or share
         of Profits, Losses, other items, or distributions pursuant to any
         provision in this Agreement.

                                  ARTICLE VIII
                         CASH AVAILABLE FOR DISTRIBUTION

                  8.1 DEFINITION OF AVAILABLE CASH. As used in this Agreement,
"Available Cash" shall mean and be defined as all cash receipts of the
Partnership from whatever source during the period in question in excess of all
items of Partnership expense (other than non-cash expenses such as depreciation)
and other cash needs of the Partnership, including, without limitation,
investments by the Partnership, amounts paid by the Partnership as principal on
debts and advances during such period, capital expenditures, payments to any
dealer manager, advisor or property manager under any dealer manager, advisory
and/or property management agreement, other fees and expense reimbursements,
funds used for redemptions, and any reserves (as determined by the General
Partner) established or increased during such period. In the discretion of the
General Partner, but subject to Section 5.3, reserves may include cash held for
future acquisitions.

                  8.2 TIMING AND PRIORITY OF DISTRIBUTIONS OF AVAILABLE CASH.
Available Cash shall be distributed to or for the benefit of the Partners of
record as of the applicable Record Date not less frequently than monthly. All
such distributions shall, subject to the rights of any

                                       27
<PAGE>

holder of Preference Units, be distributed among the Partners holding OP Units
and Participation Interests in proportion to their respective Percentage
Interests as of the applicable Record Date.

                  8.3 CONSENT TO ALLOCATIONS AND DISTRIBUTIONS. Each of the
Partners hereby consents to the allocations and distributions provided for in
this Agreement.

                  8.4 RIGHT TO LIMIT DISTRIBUTIONS. The right of any Partner to
receive distributions of any nature pursuant to the terms of this Agreement
shall be subject to the terms of any agreement between such Partner and the
Partnership limiting, restricting or providing rights of set-off with respect to
such distributions.

                                   ARTICLE IX
                            MANAGEMENT OF PARTNERSHIP

                  9.1 GENERAL PARTNER. The General Partner shall be the sole
manager of the Partnership business, and shall have the right and power to make
all decisions and take any and every action with respect to the property, the
business and affairs of the Partnership and shall have all the rights, power and
authority generally conferred by law, or necessary, advisable or consistent with
accomplishing the purposes of the Partnership. All such decisions or actions
made or taken by the General Partner hereunder shall be binding upon all of the
Partners and the Partnership. The powers of the General Partner to manage the
Partnership business shall include, without limitation, the power and authority
to, directly or indirectly:

                           (i) operate any business normal or customary for the
                  owner of or investor in commercial property of the type held
                  by the Partnership;

                           (ii) perform any and all acts necessary or
                  appropriate to the operation of the Partnership's assets,
                  including, but not limited to, preparing, negotiating,
                  executing and delivering leases and rental agreements with
                  regard to real and personal property owned by the Partnership,
                  preparing applications for rezoning, preparing objections to
                  rezoning of other property and establishing bank accounts in
                  the name of the Partnership;

                           (iii) improve, renovate and/or perform construction
                  activities with regard to the properties owned by the
                  Partnership and to retain such contractors, subcontractors and
                  other persons or entities as may be required in connection
                  with such activities;

                           (iv) procure and maintain such insurance as may be
                  available in such amounts and covering such risks as are
                  deemed appropriate by the General Partner;

                           (v) take and hold all real, personal and mixed
                  property of the Partnership in the name of the Partnership or
                  in the name of a nominee;

                                       28
<PAGE>

                           (vi) negotiate, execute and deliver agreements on
                  behalf of and in the name of the Partnership;

                           (vii) borrow money (whether on a secured or unsecured
                  basis), finance and refinance the assets of the Partnership or
                  any part thereof or interest therein, and in connection
                  therewith, issue notes, bonds, securities and other
                  undertakings and evidences of indebtedness and documents
                  related thereto (including, without limitation, guaranties,
                  indemnities and similar undertakings to support loans obtained
                  or debt securities issued by the Company);

                           (viii) coordinate all accounting and clerical
                  functions of the Partnership and employ such accountants,
                  lawyers, property managers, leasing agents and other
                  management or service personnel as may from time to time be
                  required to carry on the business of the Partnership;

                           (ix) acquire any assets, and encumber, sell, assign,
                  transfer, ground lease or otherwise dispose of any or all of
                  the assets of the Partnership, or any part thereof or interest
                  therein including, without limitation, by way of any Unit
                  dividend, split, recapitalization, merger, consolidation,
                  combination, exchange of Units or other similar Partnership
                  organizational change;

                           (x) organize one or more partnerships, corporations,
                  limited liability companies or other business entities which
                  are controlled, directly or indirectly, by the Partnership and
                  make any capital contributions (in cash or in kind) required
                  pursuant to the organizational documents or subscription
                  agreements relating to any such partnerships, corporations,
                  limited liability companies or other business entities; and

                           (xi) establish the date (the "Record Date") for the
                  purpose of making any proper determination in connection with,
                  but not limited to, the following matters: (a) which Partners
                  are entitled to receive distributions, (b) consent to any
                  matter for which the consent of Partners is permitted or
                  required under any provision hereof, or (c) otherwise when
                  Partners are allocated rights hereunder.

                  9.2 LIMITATIONS ON POWER AND AUTHORITY OF PARTNERS.
Notwithstanding the powers of the General Partner set forth in Section 9.1
above, the General Partner shall not have the right or power to do any of the
following unless any such action is approved by a Majority-in-Interest of the
Limited Partners:

                           A. do any act in contravention of this Agreement, or
         any amendment hereto; or

                           B. do any act which would make it impossible to carry
         on the ordinary business of the Partnership, except to the extent that
         such act is specifically permitted by the terms hereof (it being
         understood and agreed that a sale of any or all of the assets of the
         Partnership, for example, would be an ordinary part of the
         Partnership's business and affairs and is specifically permitted
         hereby).

                                       29
<PAGE>

                  9.3 LIMITED PARTNERS. The Limited Partners shall have no right
or authority to act for or to bind the Partnership and no Limited Partner (other
than the General Partner if the General Partner is also a Limited Partner) shall
participate in the conduct or control of the Partnership's affairs or business.

                  9.4 LIABILITY OF GENERAL PARTNER. The General Partner shall
not be liable or accountable, in damages or otherwise, to the Partnership or to
any other Partner for any error of judgment or for any mistakes of fact or law
or for anything which it may do or refrain from doing hereafter in connection
with the business and affairs of the Partnership except (i) in the case of
fraud, willful misconduct (such as an intentional breach of fiduciary duty or an
intentional breach of this Agreement) or gross negligence, and (ii) for other
breaches of this Agreement, but the liability of the General Partner under this
clause (ii) shall be limited to its interest in the Partnership as more
particularly provided for in Section 9.8. The General Partner shall not have any
personal liability for the return of any Limited Partner's Capital
Contributions.

                  9.5 INDEMNITY. The Partnership shall indemnify and shall hold
the General Partner (and the officers and directors thereof) harmless from any
liability, loss, cost or damage, including without limitation reasonable legal
fees and court costs, incurred by it by reason of anything it may do or refrain
from doing hereafter for and on behalf of the Partnership or in connection with
its business or affairs; provided, however, that the Partnership shall not be
required to indemnify (i) the General Partner for any liability, loss, cost or
damage which it might incur as a result of its fraud, willful misconduct or
gross negligence in the performance of its duties hereunder, (ii) any officer or
director (other than "Independent Directors", as such term is defined in the
Articles of Incorporation) of the General Partner for any liability, loss, cost
or damage which it might incur as a result of misconduct or negligence of such
person, and (iii) any Independent Directors of the General Partner for any
liability, loss, cost or damage which it might incur as a result of willful
misconduct or gross negligence of such person. In addition, the General Partner
shall be entitled to reimbursement from the Partnership for any amounts paid by
it in satisfaction of indemnification obligations owed by the General Partner to
present or former officers or directors of the General Partner or its
predecessors, as provided for in or pursuant to the Articles of Incorporation
and Bylaws of the General Partner. The right of indemnification set forth in
this Section 9.5 shall be in addition to any rights to which the person or
entity seeking indemnification may otherwise be entitled and shall inure to the
benefit of the successors and assigns of any such person or entity. No Partner
shall be personally liable with respect to any claim for indemnification
pursuant to this Section 9.5, but such claim shall be satisfied solely out of
assets of the Partnership.

                  9.6 OTHER ACTIVITIES OF PARTNERS AND AGREEMENTS WITH RELATED
PARTIES. Except as may otherwise be agreed to in writing, each Limited Partner,
and its affiliates, shall be free to engage in, to conduct or to participate in
any business or activity whatsoever, including, without limitation, the
acquisition, development, management and exploitation of real and personal
property (other than property of the Partnership), without any accountability,
liability or obligation whatsoever to the Partnership or to any other Partner,
even if such business or activity competes with or is enhanced by the business
of the Partnership. The General Partner, in the exercise of its power and
authority under this Agreement, may contract and otherwise deal with or
otherwise obligate the Partnership to entities in which the General Partner or
any one or more

                                       30
<PAGE>

of the officers, directors or shareholders of the General Partner may have an
ownership or other financial interest, whether direct or indirect.

                  9.7 OTHER MATTERS CONCERNING THE GENERAL PARTNER.

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

                           B. The General Partner may exercise any of the powers
         granted or perform any of the duties imposed by this Agreement either
         directly or through agents. The General Partner may consult with legal
         counsel, accountants, appraisers, management consultants, investment
         bankers and other consultants selected by it, each of whom may serve as
         consultants for the Partnership. An opinion by any consultant on a
         matter which the General Partner believes to be within its professional
         or expert competence shall be full and complete protection as to any
         action taken or omitted by the General Partner based on the opinion and
         actions taken or omitted in accordance therewith. The General Partner
         shall not be responsible for the misconduct, negligence, acts or
         omissions of any consultant or contractor of the Partnership or of the
         General Partner, and shall assume no obligation other than to use due
         care in the selection of all consultants and contractors.

                           C. No mortgagee, grantee, creditor or any other
         person dealing with the Partnership shall be required to investigate
         the authority of the General Partner or secure the approval of or
         confirmation by any Limited Partner of any act of the General Partner
         in connection with the conduct of any ordinary or extraordinary
         Partnership business.

                           D. The General Partner may retain such persons or
         entities as it shall determine (including the General Partner or any
         entity in which the General Partner shall have an interest or with
         which it is affiliated) to provide services to or on behalf of the
         Partnership. The General Partner shall be entitled to reimbursement
         from the Partnership for its out-of-pocket expenses (including, without
         limitation, amounts paid or payable to the General Partner or any
         entity in which the General Partner shall have an interest or with
         which it is affiliated) incurred in connection with Partnership
         business. Such expenses shall be deemed to include without limitation
         those expenses required in connection with the administration of the
         Partnership such as the maintenance of Partnership books and records,
         management of the Partnership property and assets and preparation of
         information respecting the Partnership needed by the Partners in the
         preparation of their individual tax returns.

                           E. The General Partner may loan to the Partnership
         the net proceeds of loans obtained or debt securities issued by the
         Company so long as the terms of such loan to the Partnership are
         substantially equivalent to the corresponding loan obtained or debt
         securities issued by the Company.

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<PAGE>

                  9.8 PARTNER EXCULPATION. Except for fraud, willful misconduct
and gross negligence, no Partner shall have any personal liability whatsoever,
whether to the Partnership or to any other Partner, for the debts or liabilities
of the Partnership or its obligations hereunder, and the full recourse of any
Partner shall be limited to the interest of that Partner in the Partnership. To
the fullest extent permitted by law, no officer, director or shareholder of the
General Partner shall be liable to the Partnership for money damages except for
(i) active and deliberate dishonesty established by a final judgment, order or
decree of a court of competent jurisdiction or (ii) actual receipt of an
improper benefit or profit in money, property or services. Without limitation of
the foregoing, and except for fraud, willful misconduct and gross negligence, no
property or assets of any Partner, other than its interest in the Partnership,
shall be subject to levy, execution or other enforcement procedures for the
satisfaction of any judgment (or other judicial process) in favor of any other
Partners and arising out of, or in connection with, this Agreement. No advisor,
trustee, manager, trust manager, member, director, officer, partner, employee,
beneficiary, shareholder, participant or agent of any Partner (or of any partner
of a Partner) shall be personally liable in any matter or to any extent under or
in connection with this Agreement, and the Partnership, each Partner and their
respective successors and assigns shall look solely to the interest of the other
Partner in the Partnership for the payment of any claim or for any performance
hereunder.

                  9.9 GENERAL PARTNER EXPENSES AND LIABILITIES. The Partnership
will pay or reimburse the General Partner for all ongoing accounting and
administrative expenses of the General Partner so that, absent extraordinary
circumstances, the General Partner will not bear any expenses beyond those borne
by the Partnership. The Partnership shall pay all out-of-pocket costs and
expenses (including legal, accounting, tax, consulting and other professional
fees and expenses and travel and entertainment expenses) incurred by the
Partnership, the General Partner, and the General Partner and its Affiliates in
connection with the structuring and organization of the Partnership and the
General Partner and the offering and sale of Units and Common Shares and Other
Securities.

                                   ARTICLE X
                                    BANKING

                  The funds of the Partnership shall be kept in accounts
designated by the General Partner and all withdrawals therefrom shall be made on
such signature or signatures as shall be designated by the General Partner.

                                   ARTICLE XI
                                   ACCOUNTING

                  11.1 FISCAL YEAR. The fiscal year and taxable year of the
Partnership (the "fiscal year") shall end on the last day of December of each
year, unless another fiscal year end is selected by the General Partner.

                  11.2 BOOKS OF ACCOUNT. The Partnership books of account shall
be maintained at the principal office designated in Article 4 or at such other
locations and by such person or persons as may be designated by the General
Partner. The Partnership shall pay the expense of

                                       32
<PAGE>

maintaining its books of account. Each Partner shall have, during reasonable
business hours and upon reasonable prior notice, access to the books of the
Partnership and in addition, at its expense, shall have the right to copy such
books. The General Partner, at the expense of the Partnership, shall cause to be
prepared and distributed to the Partners annual financial data sufficient to
reflect the status and operations of the Partnership and its assets and to
enable each Partner to file its federal income tax return.

                  11.3 METHOD OF ACCOUNTING. The Partnership books of account
shall be maintained and kept, and its income, gains, losses and deductions shall
be accounted for, in accordance with generally accepted accounting principles
consistently applied, or such other method of accounting as may be adopted
hereafter by the General Partner.

                  11.4 TAX MATTERS.

                  A. The General Partner is hereby designated the Tax Matters
         Partner (hereinafter referred to as the "TMP") of the Partnership and
         shall have all rights and obligations of the TMP under the Code. The
         Partnership shall reimburse the TMP for any and all out-of-pocket costs
         and expenses (including attorneys' and accountants' fees) incurred or
         sustained by it in its capacity as TMP. The Partnership shall
         indemnify, defend and hold the TMP harmless from and against any loss,
         liability, damage, cost or expense (including attorneys' and
         accountants' fees) sustained or incurred as a result of any act or
         decision concerning the Partnership tax matters and within the scope of
         its responsibility as TMP. If the Partnership is the subject of an
         income tax audit by any federal, state, local or foreign authority,
         then to the extent the Partnership is treated as an entity for purposes
         of the audit, including administrative settlement and judicial review,
         the TMP shall be authorized to act for, and its decision shall be final
         and binding upon, the Partnership and each Partner.

                  B. The General Partner shall take such steps as are necessary
         to ensure that the Partnership is taxed as a partnership under the
         Code. Subject to the preceding sentence, the General Partner shall have
         the exclusive right to make any determination whether the Partnership
         shall make available elections (including any election pursuant to Code
         Section 754 to adjust the tax basis of Partnership assets) for federal,
         state, or local tax purposes, and the General Partner shall be absolved
         from all liability and other consequences from its making or failing to
         make any such election. All decisions and other matters concerning the
         computation and allocation or tax items and attributes which are not
         otherwise specifically provided for by the terms of this Agreement
         shall be determined by the General Partner, and the General Partner
         shall be absolved from all liability and other consequences from any
         such decisions which are made in good faith.

                  C. The General Partner shall take all such actions as are
         reasonably necessary for the Partnership to comply with any withholding
         or comparable requirements under federal, state, local and foreign law
         and shall remit any amounts withheld to, and file required forms with,
         the applicable taxing jurisdictions. All amounts withheld from
         distributions shall be treated as having been distributed to the
         Partner with respect to whom the withholding was made. Any amounts that
         are required to be withheld by the Partnership with respect to a
         Partner which are in excess or in advance of distributions to

                                       33
<PAGE>

         such Partnership shall be paid over by such Partner to the Partnership.
         Each Partner agrees to furnish the Partnership with such
         representations and forms as the General Partner shall reasonably
         request to assist in complying with the Partnership's withholding
         obligations. A Partner subject to withholding shall pay to or reimburse
         the Partnership for taxes, related interest and penalties, and all
         other costs and expenses incurred by the Partnership in connection with
         such withholding obligation, except for interest, penalties or costs
         (but not taxes) that are incurred as a result of the gross negligence
         or willful misconduct of the Partnership or the General Partner

                                  ARTICLE XII
                       TRANSFERS OF PARTNERSHIP INTERESTS

                  12.1 GENERAL PARTNER. The General Partner may not Transfer its
interest in the Partnership without the consent of a Majority-in-Interest of the
Limited Partners unless (i) the Transfer of such interest is to a Hines
Controlled Entity or to an entity that is, directly or indirectly, wholly-owned
by the Company and/or a Hines Controlled Entity, or (ii) the Transfer of such
interest is pursuant to or in connection with a Recapitalization and either (a)
the Recapitalization has been approved by the consent of a Majority-in-Interest
of the Limited Partners, or (b) an appropriate adjustment to the number of OP
Units held by each Partner has been made in accordance with Section 3.2(F).

                  12.2 LIMITED PARTNER.

                           A. No Limited Partner or substituted Limited Partner
         may Transfer all or any part of its interest in the Partnership, unless
         each of the following conditions are met:

                           (i) The Limited Partner obtains the prior written
                  consent of the General Partner (which consent may be given or
                  withheld in the sole discretion of the General Partner),
                  except for (x) the exchange of OP Units or a Participation
                  Interest for Common Shares, pursuant to Section 3.2(C) above
                  or (y) the Transfer of Units or Participation Interests by any
                  Hines Controlled Entity to any other Hines Controlled Entity.

                           (ii) Either (x) the Partnership qualifies for the
                  Private Placement PTP Exemption for the entire taxable year of
                  such Transfer and for all prior taxable years, (y) the
                  Transfer is a Private Transfer, or (z) the Partnership is no
                  longer potentially subject to classification as a publicly
                  traded partnership, as defined in Section 7704 of the Code, as
                  determined by the General Partner in its sole discretion.

                           (iii) Such Transfer is not limited or prohibited by,
                  and complies with, any restrictions on transferability
                  contained in the Articles of Incorporation and Bylaws of the
                  Company and/or any applicable agreement executed by the
                  transferor.

                                       34
<PAGE>

                           (iv) Such Transfer would not violate the securities
                  laws of any jurisdiction applicable to the Partnership or the
                  Partnership Interest to be assigned or transferred;

                           (v) Such Transfer would not cause the Partnership to
                  lose its status as a partnership for U.S. federal income tax
                  purposes or cause the Partnership to become subject to the
                  Investment Company Act;

                           (vi) Such Transfer would not cause (A) all or any
                  portion of the assets of the Partnership (1) to constitute
                  "plan assets" (under ERISA, the Code or the applicable
                  provisions of any similar law) of any existing or contemplated
                  investor, or (2) to be subject to the provisions of ERISA, the
                  Code or any applicable similar law, or (B) the General Partner
                  to become a fiduciary with respect to any existing or
                  contemplated investor, pursuant to ERISA or the applicable
                  provisions of any similar law, or otherwise.

                           (vii) Such Transfer would not cause a termination of
                  the Partnership under Code Section 708.

                           (viii) The Transferor delivers opinions of counsel
                  regarding the foregoing matters in form and substance
                  reasonably acceptable to the General Partner as a condition to
                  any such Transfer.

                           (ix) The Transfer would not, in the opinion of the
                  General Partner, (y) by treating the interest in the
                  Partnership so transferred as if it had been exchanged for
                  Common Shares in accordance with Section 3.2(C) above, violate
                  the limitations on ownership of Common Shares contained in the
                  Articles of Incorporation and/or Bylaws of the Company, or (z)
                  violate any State or Federal securities laws.

                           (x) The Transferee shall have agreed to be bound by
                  the terms of this Agreement and shall have executed a
                  counterpart hereof or joinder hereto.

                           B. A Limited Partner shall notify the General Partner
         of any Transfer of beneficial interest or other interest which occurs
         without a transfer of record ownership, as well as any pledge or other
         collateral transfer.

                           C. No part of the interest of a Limited Partner shall
         be subject to the claims of any creditor, any spouse for alimony or
         support, or to legal process, and may not be voluntarily or
         involuntarily alienated or encumbered except as may be specifically
         provided for in this Agreement. A Limited Partner shall not be
         permitted to retire or withdraw from the Partnership except as
         expressly permitted by this Agreement.

                           D. Any Transferee of all or any portion of a Limited
         Partner's interest in the Partnership in accordance and compliance with
         the provisions of this Section 12.2 shall be entitled to receive
         Profits, Losses and distributions hereunder attributable to such
         interest acquired by reason of such Transfer, from and after the
         effective date of the

                                       35
<PAGE>

         Transfer of such interest; provided, however, anything in this
         Agreement to the contrary notwithstanding, (i) without the prior
         written consent of the General Partner, no Transferee shall be
         considered a substituted Limited Partner; (ii) the Partnership and the
         General Partner shall be entitled to treat the Transferor of such
         interest as the absolute owner thereof in all respects, and shall incur
         no liability for the allocation of Profits and Losses or distributions
         which are made to such Transferor until such time as the written
         instrument of Transfer has been received by the General Partner and the
         "effective date" of the Transfer has passed, and (c) the General
         Partner shall have the right to require any such Transferor to exchange
         such Partnership Interest for Common Shares or cash, pursuant to
         Section 3.2(C) above. The "effective date" of any Transfer shall be the
         last day of the month set forth on the written instrument of Transfer
         or such other date consented to in writing by the General Partner as
         the "effective date."

                  12.3 ADMISSION ADJUSTMENTS. The General Partner shall, when
necessary, cause this Agreement to be amended from time to time (and shall cause
Schedule A to be revised), to reflect the admission or withdrawal of Partners,
and the issuance, conversion and redemption of any Preference Units and/or OP
Units (including the corresponding adjustment to Percentage Interests).

                  12.4 TRANSFERS TO LENDERS. Notwithstanding any other provision
of this Agreement to the contrary, no transfer of any Units or Participation
Interest may be made to a lender to the Partnership or any person who is related
(within the meaning of Regulations Section 1.752-4(b)) to any lender to the
Partnership whose loan constitutes a Nonrecourse Liability, without the consent
of the General Partner, which consent may be given or withheld by the General
Partner in its sole and absolute discretion, provided that as a condition to
such consent being granted the lender will be required to enter into an
arrangement with the Partnership and the General Partner to exchange or redeem
for the Cash Amount or the REIT Shares Amount any Units or Participation
Interest in which a security interest is held simultaneously with the time at
which such lender would be deemed to be a partner in the Partnership for
purposes of allocating liabilities to such lender under Code Section 752.

                                  ARTICLE XIII
                           ADMISSION OF NEW PARTNERS

                  The General Partner shall admit to the Partnership as limited
partners those persons and entities who are not already Partners and who receive
a Participation Interest, OP Units and/or Preference Units in accordance with
the provisions of this Agreement.

                                  ARTICLE XIV
             TERMINATION, LIQUIDATION AND DISSOLUTION OF PARTNERSHIP

                  14.1 TERMINATION EVENTS. The Partnership shall be dissolved
and its affairs wound up in the manner hereinafter provided upon the earliest to
occur of the following events:

                           A. the sale of all or substantially all of the assets
         of the Partnership; or

                                       36
<PAGE>

                           B. subject to Section 14.4 below, the entry of a
         final judgment, order or decree of a court of competent jurisdiction
         adjudicating as bankrupt either the Partnership or the General Partner,
         and the expiration without appeal of the period, if any, allowed by
         applicable law to appeal therefrom.

                  14.2 METHOD OF LIQUIDATION. Upon the happening of any of the
events specified in Section 14.1 above, the General Partner (or if there be no
General Partner, a liquidating trustee selected by a Majority-in-Interest of the
Limited Partners) shall immediately commence to wind up the Partnership's
affairs and shall liquidate the assets of the Partnership as promptly as
possible, unless the General Partner, or the liquidating trustee, shall
determine that an immediate sale of Partnership assets would cause undue loss to
the Partnership, in which event the liquidation may be deferred for a reasonable
time. The Partners shall continue to share distributions, Profits and Losses
during the period of liquidation in the same proportions as before dissolution
(subject to Section 14.2(C) below). The proceeds from liquidation of the
Partnership, including repayment of any debts of Partners to the Partnership,
shall be applied in the following order:

                           A. Debts of the Partnership, including repayments of
         principal and interest on loans and advances made by the General
         Partner pursuant to Sections 3.3 and/or 9.7 above; then

                           B. To the establishment of any reserves deemed
         necessary or appropriate by the General Partner, or by the person(s)
         winding up the affairs of the Partnership in the event there is no
         remaining General Partner of the Partnership, for any contingent or
         unforeseen liabilities or obligations of the Partnership. Such reserves
         established hereunder shall be held for the purpose of paying any such
         contingent or unforeseen liabilities or obligations and, at the
         expiration of such period as the General Partner, or such person(s)
         deems advisable, the balance of such reserves shall be distributed in
         the manner provided hereinafter in this Section 14.2 as though such
         reserves had been distributed contemporaneously with the other funds
         distributed hereunder; and then

                           C. To the Partners in accordance with their
         respective positive Capital Account balances, after giving effect to
         all contributions, distributions and allocations for all periods. In
         connection therewith, income, gain and loss of the Partnership (and to
         the extent necessary to achieve the purposes hereof, items of gross
         income and deduction) with respect to the sale or other disposition of
         all or substantially all of the Partnership's assets and/or the
         Partnership's operations in connection therewith (whether or not
         attributable to the taxable year in which the distribution pursuant to
         this Section 14.2(C) is to be made or a preceding taxable year) shall
         be allocated among the Partners so that each Partner's Capital Account
         shall equal, after taking into account the prior balance (positive or
         negative) in such Partner's Capital Account and the effect of such
         allocation, the amount that such Partner would be entitled to receive
         if the Partnership were to make a distribution to the Partners pursuant
         to the provisions of Section 8.2 hereof in an amount equal to the
         remaining liquidation proceeds to be distributed under this Section
         14.2(C).

                                       37
<PAGE>

                  14.3 DATE OF TERMINATION. The Partnership shall be terminated
when all notes received in connection with any liquidating sales or other
dispositions have been paid or distributed and all of the cash or property
available for application and distribution under Section 14.2 above (including
reserves) shall have been applied and distributed in accordance therewith.

                  14.4 RECONSTITUTION UPON BANKRUPTCY.

                           A. Notwithstanding any dissolution of the Partnership
         under Section 14.1(D) above, if the Partnership is reconstituted as set
         forth in this Section 14.4, then the business of the Partnership shall
         be continued with the Partnership's property and the Partnership's
         assets shall not be liquidated.

                           B. If the Partnership is dissolved by reason of the
         bankruptcy of the General Partner, a successor general partner may, in
         the discretion of the General Partner hereunder with the written
         consent of a Majority-in-Interest of the Limited Partners, be admitted
         within 90 days after the dissolution, effective as of the date of
         dissolution. Upon the admission of such successor general partner,
         without any further consent or approval of any other Partner, the
         Partnership shall be reconstituted as a successor limited partnership.

                           C. If the Partnership is dissolved by reason of the
         bankruptcy of the Partnership in a proceeding for the reorganization
         (and not the liquidation) of the Partnership, then, with the consent of
         the Company and a Majority-in-Interest of the Limited Partners, the
         Partnership may be reconstituted within 90 days after dissolution,
         effective as of the date of dissolution, whereupon the Partnership
         shall be reconstituted as a successor limited partnership.

                  A. The successor limited partnership reconstituted in
         accordance with the foregoing provisions of this Section 14.4 shall
         continue the business of the Partnership with the Partnership's
         property. The Percentage Interests of the Partners in the successor
         limited partnership shall be in proportion to their respective
         Percentage Interests in the dissolved Partnership. Such successor
         limited partnership shall be governed by the terms and provisions of
         this Agreement and references in this Agreement to the Partnership or
         to the Partners or their rights and obligations shall be understood to
         comprehend such successor limited partnership and the Partners thereof
         and their rights and obligations.

                  14.5 DEATH, LEGAL INCOMPETENCY, ETC. OF A LIMITED PARTNER. The
death, legal incompetency, insolvency, dissolution or bankruptcy of a Limited
Partner shall not dissolve or terminate the Partnership. Upon the death or
incapacity of an individual Limited Partner, such individual Limited Partner's
interest in the Partnership shall be transferred either by will, the laws of
intestacy or otherwise to the legal representative or successor of such
individual Limited Partner.

                                   ARTICLE XV
                               POWER OF ATTORNEY

                  Each Limited Partner hereby irrevocably constitutes and
appoints the General

                                       38
<PAGE>

Partner, with full power of substitution, its true and lawful attorney, for it
and in its name, place and stead and for its use and benefit, to sign, swear to,
acknowledge, file and record:

                  A. this Agreement, and subject to Article 16 below, amendments
         to this Agreement;

                  B. any certificates, instruments and documents (including
         assumed and fictitious name certificates) as may be required by, or may
         be appropriate under, the laws of the State of Delaware, the State of
         Texas or any other State or jurisdiction in which the Partnership is
         doing or intends to do business, in order to discharge the purposes of
         the Partnership or otherwise in connection with the use of the name or
         names used by the Partnership;

                  C. any other instrument which may be required to be filed or
         recorded by the Partnership on behalf of the Partners under the laws of
         any State or by any governmental agency in order for the Partnership to
         conduct its business;

                  D. any documents which may be required to effect the
         continuation of the Partnership, the admission of a substitute or
         additional Partner, the dissolution and termination of the Partnership
         or the amendment and restatement of Schedule A, provided such
         continuation, admission, dissolution and termination or amendment and
         restatement of Schedule A, is not in violation of any provision of this
         Agreement; and

                  E. any documents which may be required or desirable to have
         the General Partner appointed, and act as, the TMP.

The foregoing grant of authority is a special power of attorney coupled with an
interest, is irrevocable and shall survive the death or incapacity of any
individual Limited Partner, and shall survive the delivery of any assignment by
a Limited Partner of the whole or any portion of his interest in the
Partnership.

                                  ARTICLE XVI
                             AMENDMENT OF AGREEMENT

                  A. Each Limited Partner, by his execution of or joinder in
         this Agreement, hereby irrevocably appoints the General Partner with
         power of substitution, as his true and lawful attorney coupled with an
         interest, in his name, place and stead to amend this Agreement in any
         respect other than:

                           (i) to enlarge the obligation of any Partner to make
                  contributions to the capital of the Partnership; or

                           (ii) except as otherwise provided for in this
                  Agreement or as required by law, to modify the allocation of
                  Profits or Losses or distributions among the Partners as
                  provided for in Articles 7 and 8 above, respectively; or

                           (iii) to amend Articles 1 or 12 or Section 9.2; or

                                       39
<PAGE>

                           (iv) to amend this Article 16.

                  B. With respect to amendments regarding Sections 16(A)(ii) or
         16(A)(iii), this Agreement may be amended with the written consent of
         the General Partner and those Limited Partners holding not less than
         67% of the aggregate of Percentage Interests held by all Limited
         Partners. Notwithstanding the foregoing, the terms and conditions of a
         particular series of Preference Units may not be changed without the
         written consent of the holders of at least 67% of the Preference Units
         within the class or series (or such greater percentage as may be
         provided for in the applicable Preference Unit Term Sheet).

                  C. With respect to amendments regarding Section 16(A)(i), this
         Agreement may be amended only with the written consent of the General
         Partner and any Partner adversely affected by such amendment. With
         respect to amendments regarding Section 16(A)(iv) this Agreement may be
         amended only with the written consent of all Partners.

         In the event this Agreement shall be amended pursuant to this Article
16, the General Partner shall cause this Agreement to be amended to reflect the
amendment.

                                  ARTICLE XVII
                                  MISCELLANEOUS

                  17.1 NOTICES. Any notice, election or other communication
provided for or required by this Agreement shall be in writing and shall be
deemed to have been given when delivered by hand or by telecopy or other
facsimile transmission, the first business day after sent by overnight courier
(such as Federal Express), or on the second business day after deposit in the
United States Mail, certified or registered, return receipt requested, postage
prepaid, properly addressed to the Partner to whom such notice is intended to be
given at the address for the Partner set forth on Schedule A of this Agreement,
or at such other address as such person may have previously furnished in writing
to the Partnership and each Partner with copies to the General Partner at 2800
Post Oak Boulevard, Suite 5000, Houston, Texas 77056-6118.

                  17.2 MODIFICATIONS. Except as otherwise provided in this
Agreement, no change or modification of this Agreement, nor any waiver of any
term or condition in the future, shall be valid or binding upon a Partner unless
such change or modification shall be in writing and signed by such Partner.

                  17.3 SUCCESSORS AND ASSIGNS. Any person acquiring or claiming
an interest in the Partnership, in any manner whatsoever, shall be subject to
and bound by all of the terms, conditions and obligations of this Agreement to
which his predecessor-in-interest was subject or bound, without regard to
whether such a person has executed a counterpart hereof or any other document
contemplated hereby. No person, including the legal representative, heir or
legatee of a deceased Partner, shall have any rights or obligations greater than
those set forth in this Agreement, and no person shall acquire an interest in
the Partnership or become a Partner thereof except as expressly permitted by and
pursuant to the terms of this Agreement. Subject to the foregoing, and the
provisions of Article 12 above, this Agreement shall be binding upon and

                                       40
<PAGE>

inure to the benefit of the Partners and their respective successors, assigns,
heirs, legal representatives, executors and administrators.

                  17.4 DUPLICATE ORIGINALS. For the convenience of the Partners,
any number of counterparts hereof may be executed, and each such counterpart
shall be deemed to be an original instrument, and all of which taken together
shall constitute one agreement.

                  17.5 CONSTRUCTION. The titles of the Articles, Sections and
subsections herein have been inserted as a matter of convenience of reference
only and shall not control or affect the meaning or construction of any terms or
provisions herein.

                  17.6 GOVERNING LAW. This Agreement shall be governed by the
laws of the State of Delaware. Except to the extent the Act is inconsistent with
the provisions of this Agreement, the provisions of such Act shall apply to the
Partnership.

                  17.7 OTHER INSTRUMENTS. The parties hereto covenant and agree
that they will execute such other and further instruments and documents as, in
opinion of the General Partner, are or may become necessary or desirable to
effectuate and carry out the Partnership as provided for by this Agreement.

                  17.8 GENERAL PARTNER WITH INTEREST AS LIMITED PARTNER. If the
General Partner ever has an interest as a Limited Partner in the Partnership,
the General Partner shall, with respect to such interest, enjoy all of the
rights and be subject to all of the obligations and duties of a Limited Partner.

                  17.9 LEGAL CONSTRUCTION. In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein

                  17.10 GENDER. Whenever the context shall so require, all words
herein in any gender shall be deemed to include the masculine, feminine or
neuter gender, all singular words shall include the plural, and all plural words
shall include the singular.

                  17.11 PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes
any prior understandings or written or oral agreements among the Partners, or
any of them, respecting the within subject matter and contains the entire
understanding amongst the Partners with respect thereto.

                  17.12 NO THIRD PARTY BENEFICIARY. The terms and provisions of
this Agreement are for the exclusive use and benefit of General Partner and the
Limited Partners and shall not inure to the benefit of any other person or
entity.

                  17.13 PURCHASE FOR INVESTMENT. Each Partner represents,
warrants and agrees that it has acquired and will hold its interest in the
Partnership for its own account for investment only and not for the purpose of,
or with a view toward, the resale or distribution of all or any part thereof,
nor with a view toward selling or otherwise distributing such interest or any
part thereof

                                       41
<PAGE>

at any particular time or under any predetermined circumstances. Each Partner
further represents and warrants that it is a sophisticated investor, able and
accustomed to handling sophisticated financial matters for itself, particularly
real estate investments, and that it has a sufficiently high net worth that it
does not anticipate a need for the funds it has invested in the Partnership in
what it understands to be a highly speculative and illiquid investment.

                  17.14 ACCESS TO RECORDS. Any Shareholder and any designated
representative thereof shall be permitted reasonable access to all records of
the Partnership at and during reasonable times, and may inspect and copy any of
them for a reasonable charge.

                  17.15 WAIVER. No consent or waiver, express or implied, by any
Partner to or of any breach or default by any other Partner in the performance
by such other Partner of its obligations hereunder shall be deemed or construed
to be a consent to or waiver of any other breach or default in the performance
by such other Partner of the same or any other obligations of such Partner
hereunder. Failure on the part of any Partner to complain of any act or failure
to act on the part of any other Partner or to declare any other Partner in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Partner of its rights hereunder.

                  17.16 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, which when taken together, shall constitute but one original.

                                       42
<PAGE>

         IN WITNESS WHEREOF, this Agreement has been executed and sworn to as of
the day and year first above written by the General Partner and the undersigned
Limited Partners.

                                     GENERAL PARTNER:

                                     HINES REAL ESTATE INVESTMENT TRUST, INC.,
                                     a Maryland corporation

                                     By:
                                        ----------------------------------------
                                        Name:
                                             ----------------------------
                                        Title:
                                              ---------------------------

                                     LIMITED PARTNERS:

                                     HINES REAL ESTATE HOLDINGS LIMITED
                                     PARTNERSHIP

                                     By:      JCH Investments, Inc.,
                                              its General Partner

                                              By:
                                                 -------------------------------
                                              Name:
                                                   -----------------------------
                                              Title:
                                                    ----------------------------

                                     HALP ASSOCIATES LIMITED PARTNERSHIP

                                     By:   Hines Interests Limited Partnership,
                                           its General Partner

                                           By:    Hines Holdings, Inc.,
                                                  its General Partner

                                                  By:
                                                     ---------------------------
                                                  Name:
                                                       -------------------------
                                                  Title:
                                                        ------------------------

                                       43

<PAGE>

                                   SCHEDULE A

              Partners, Capital Accounts and Partnership Interests

<Table>
<Caption>
                                                                                                        AGREED
                                                                                       PREFERENCE       CAPITAL        PERCENTAGE
          NAME AND ADDRESS OF PARTNERS                                OP UNITS           UNITS          ACCOUNT         INTEREST
          ----------------------------                              -------------      ----------       --------       ----------
<S>                                                                 <C>                <C>              <C>            <C>
General Partner:

         Hines Real Estate Investment Trust, Inc.                          219.56                       $  2,020           1%

Limited Partners:

         Hines Real Estate Holdings Limited Partnership                 21,739.13                       $200,000          99%

         HALP Associates Limited Partnership                        Participation                       $      0           0%
                                                                    Interest
</Table>

                                       44

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