NNN Apartment REIT, Inc. (Form: 8-K)

/s/ Gary A. Routzahn

Name:Gary A. Routzahn
Vice President, Manager


SECTION			PAGE

SIGNATURE PAGE
EXHIBITS

EXHIBIT A	-	Legal Description of the Land
EXHIBIT A-1 -		Reserved
EXHIBIT B EXHIBIT C EXHIBIT D EXHIBIT E EXHIBIT F EXHIBIT G EXHIBIT H EXHIBIT I EXHIBIT J EXHIBIT K EXHIBIT L EXHIBIT M	- - - - - - - - - - - - - - - - - - - - - - -	Rent Roll Reserved Reserved Reserved Schedule of Contracts Reserved Form of Certification of Non-Foreign Status Form of Certificate Regarding Representations and Warranties Form of Bill of Sale Form of Contract Assignment Form of Lease Assignment Form of Notice to Tenants

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is entered into as of February 21, 2007, between EL DORADO APARTMENTS, LLC, a Texas limited liability company (“Seller”) and TRIPLE NET PROPERTIES, LLC, a Virginia limited liability company (“Purchaser”).

A. Seller owns that certain real property located in Collin County, State of Texas (the “State”), consisting of approximately 13.698 acres of land, commonly known as the Villas at El Dorado Apartments, and more particularly described on Exhibit A attached hereto and incorporated herein by this reference (the “Land”), together with the improvements located thereon, containing 248 apartments, and all other improvements located thereon (the “Improvements”).

B. Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, all of Seller’s right, title and interest in and to the Property (hereinafter defined) for the price and on the terms and conditions hereinafter set forth.

C. The date the Escrow Agent (hereinafter defined) receives a fully executed copy of this Agreement shall be the “Effective Date”.

NOW, THEREFORE, in consideration of the foregoing, the covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Seller hereby agrees to sell and convey to Purchaser and Purchaser hereby agrees to purchase from Seller all of Seller’s right, title and interest in and to the following:

(b) All of Seller’s interest as lessor in all leases covering the Land and the Improvements (said leases, together with any and all amendments, modifications or supplements thereto, are hereinafter referred to collectively as the “Leases” and are identified in the Rent Roll (hereinafter defined) attached hereto as Exhibit B);

(c) All rights, privileges, easements and appurtenances appertaining to the Land and the Improvements including, without limitation, all easements, rights-of-way and other appurtenances used or connected with the beneficial use or enjoyment of the Land and the Improvements. The Land, the Improvements, and all such rights, privileges, easements and appurtenances (including, without limitation, Seller’s interest as lessor under the Leases) are sometimes hereinafter collectively referred to as the “Real Property”;

(d) All personal property, equipment, supplies and fixtures (collectively, the “Personal Property”) owned by Seller and used in the operation of the Real Property including, without limitation, all property described in the inventory delivered as part of the Due Diligence Documents; and

(e) All intangible property used in connection with the foregoing, if any, including, without limitation, any trademarks, trade names (including, without limitation, the exclusive right to use the name Villas at El Dorado Apartments), and any contract rights, licenses (to the extent transferable), permits (to the extent transferable) and warranties (to the extent transferable), all as may be more particularly described in the Due Diligence Documents (the “Intangible Personal Property”). The Real Property, the Personal Property and the Intangible Personal Property are sometimes hereinafter collectively referred to as the “Property”.

The purchase price for the Property is Nineteen Million and No/100 Dollars ($19,000,000.00) (the “Purchase Price”) and shall be paid to Seller by paying the balance of the Purchase Price by wire transfer of immediately available funds at the Closing (hereinafter defined), net of all prorations and adjustments as provided herein.

Within two (2) business days of the execution of this Agreement, Purchaser shall deliver to LandAmerica, 8201 Preston Road, Suite 288, Dallas, Texas 75225, as escrow agent (the “Escrow Agent”), by wire transfer in the amount of $150,000 (the “Initial Deposit” and together with the Extension Deposit, hereinafter defined, collectively the “Deposit”), which Deposit Escrow Agent shall hold and disburse in accordance with the terms and provisions of this Agreement and a written escrow agreement (the “Escrow Agreement”). For purposes of this Agreement, the term Deposit includes interest earned thereon, if any. Escrow Agent shall pay the Deposit to Seller at Closing and the Deposit shall be applied as a credit to the Purchase Price and shall otherwise be held and disbursed in accordance with the terms of this Agreement and the Escrow Agreement. If either Purchaser or Seller is entitled under this Agreement to the payment of the Deposit, or any portion thereof, and requests Escrow Agent to make such payment (whether to itself or the other party), the other party agrees to provide notice to Escrow Agent authorizing such payment, unless such other party disagrees with such request in which event the provisions of the Escrow Agreement shall control.

(a) As soon as possible following the execution of this Agreement, Purchaser shall order, at Seller’s expense, a title commitment on the Real Property (the “Commitment”), together with legible copies of all documents relating to the title exceptions referred to in the Commitment.

(b) The Due Diligence Documents include an existing survey of the Property (the “Survey”). As soon as possible following the execution of this Agreement, Purchaser shall order an update of the Survey sufficient to enable title company to amend the “areas and boundaries” exception to except only to “shortages in area” (the “Updated Survey”), showing, at Purchaser’s determination, lot lines and monuments, building lines, easements both burdening and benefiting the Real Property, utilities, including water and sewer lines to the point of connection with the public system, the Improvements (including loading docks, if any, and parking spaces), encroachments, if any, on the Real Property or over adjoining properties, and other matters located on or affecting the Real Property, together with a certificate as to whether the Real Property lies within a flood zone as determined by the Federal Emergency Management Agency. The Updated Survey shall be certified as true and correct by the surveyor for the benefit of Seller, Purchaser and title company. Seller shall pay for the cost of updating the Survey to a current date. Purchaser shall pay for any additional surveying desired beyond what was included in the Survey, including any revisions to the form of certificate.

By the end of the Due Diligence Period (hereinafter defined), Purchaser shall notify (the “Title Notice”) Seller of any title exceptions or survey matters which adversely affect Purchaser’s use, or the marketability of title to, the Real Property (“Disapproved Matters”). All other title exceptions set forth in the Commitment or shown on the Survey or Updated Survey shall constitute the “Permitted Encumbrances”. Seller shall have the right, but not the obligation, to remove, or cause to be removed, all Disapproved Matters or, in the alternative, obtain title insurance in a form reasonably satisfactory to Purchaser insuring against the effect of such Disapproved Matters. Notwithstanding the foregoing, Seller shall be obligated to remove all monetary encumbrances. Within five (5) days of receipt of the Title Notice, Seller shall notify Purchaser in writing of any Disapproved Matters which Seller is unable or unwilling to cause to be removed or satisfactorily insured against. If Seller shall fail to give any such notice within such time, Seller shall be deemed to have given a notice stating that it will not cause any Disapproved Matters to be removed or satisfactorily insured against. Purchaser shall then, within five (5) days after Seller gives or is deemed to have given its notice, elect, by giving written notice to Seller, (i) to terminate this Agreement and have the Deposit returned to it, or (ii) to waive its disapproval of such exceptions or survey matters (such exceptions or survey matters shall then be deemed to be “Permitted Encumbrances”). Failure by the Purchaser to give the Seller said notice shall constitute a determination by Purchaser to terminate this Agreement for title or survey objections.

Seller hereby represents and warrants to Purchaser that the following matters are true and correct as of the execution of this Agreement and will also be true and correct as of the Closing:

(a) Seller is a limited liability company duly organized and validly existing under the laws of the State of Texas. This Agreement has been, and all the documents executed by Seller which are to be delivered to Purchaser at the Closing will be, duly authorized, executed and delivered by Seller and will be legal, valid and binding obligations of Seller enforceable against Seller in accordance with their respective terms (except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, moratorium and other principles relating to or limiting the right of contracting parties generally), will be sufficient to convey title (if they purport to do so), and will not violate any provisions of any agreement to which Seller is a party or to which the Property or Seller is subject. No consent, waiver or approval by any third party is required in connection with the execution and delivery by Seller of this Agreement or the performance by Seller of the obligations to be performed by Seller under this Agreement.

(b) Seller has received no notice from any governmental authority advising of a violation of any applicable building codes, environmental, zoning, subdivision, and land use laws, and other local, state and federal laws and regulations.

(c) (i) To Seller’s knowledge, the Due Diligence Documents (other than as to the Contracts and the Operating Statements) delivered to Purchaser pursuant to this Agreement, are true, correct and complete in all material respects, (ii) the Contracts and the Operating Statements delivered to Purchaser pursuant to this Agreement, are true, correct and complete in all material respects, (iii) to Seller’s knowledge, all certificate(s) of occupancy and warranties are in full force and effect, and (iv) to Seller’s knowledge, all contracts or documents required to be delivered to Purchaser pursuant to this Agreement are in full force and effect, without material default by any party and without any right of set-off except as disclosed in writing at the time of such delivery.

(d) The Rent Roll attached hereto as Exhibit B is true, correct and complete in all material respects. As of the Closing, the Rent Roll delivered at the Closing will be true, correct and complete in all material respects. To Seller’s knowledge, the copies of the Leases delivered to Purchaser are, in all material respects, true, correct and complete copies and are in full force and effect, without default by any party and without any right of setoff, except as expressly provided by the terms of such Leases or as disclosed to Purchaser in writing at the time of delivery. The copies of the Leases and other agreements with the tenants under the Leases (the “Tenants”) delivered to Purchaser pursuant to this Agreement constitute the entire agreements with such Tenants relating to the Real Property, have not been amended, modified or supplemented in any material manner, except for such amendments, modifications and supplements delivered to Purchaser, and there are no other leases or tenancy agreements affecting the Real Property.

(e) Exhibit F attached hereto is a true and complete schedule of all of the Contracts (as hereinafter defined in Section 7), true, complete and correct copies of which will be included in the Due Diligence Documents. Those Contracts which cannot be terminated as of the Closing Date are designated as such on Exhibit F and are referred to herein as the “Non-Cancellable Contracts.” To Seller’s knowledge, the Contracts are in full force and effect, without material default by any party and without any claims made for the right of setoff, except as expressly provided by the terms of such Contracts or as disclosed to Purchaser in writing at the time of such delivery. The Contracts constitute the entire agreements with such vendors relating to the Property, have not been amended, modified or supplemented in any material respect, except for such amendments, modifications and supplements delivered to Purchaser, and there are no other agreements with any third parties (excluding, however, the Leases and Permitted Encumbrances) affecting the Property which will survive the Closing.

(f) To Seller’s knowledge, and except as disclosed to Purchaser in writing as part of the Due Diligence Documents, there are no condemnation, environmental, zoning or other land-use regulation proceedings, either instituted or threatened to be instituted, which would detrimentally affect the value of the Real Property or the use and operation of the Real Property for its intended purpose, and there are no assessments affecting the Real Property other than as set forth in the Commitment or in the Due Diligence Documents.

(g) Seller has received no notice advising that (i) any utility required by law for the present use and operation of the Property has not been installed across public property or valid easements to the boundary lines of the Real Property, or is not connected pursuant to valid permits, or (ii) such facilities are inadequate to service the Property or are not in good operating condition.

(h) At the Closing, there will be no outstanding contracts made by Seller for the construction or repair of any improvements to the Improvements which have not been fully paid for or are due to be paid for in the ordinary course of business, and Seller shall cause to be discharged or bonded off all mechanics’ or materialmen’s liens arising from any labor or materials furnished to the Improvements prior to the Closing.

(i) Except for de minimus amounts of same as may be customarily found in apartment complexes and used in compliance with all applicable laws (such as cleaners, fuel, pesticides and the like), Seller does not use, treat, store or dispose of, and, to Seller’s knowledge, Seller has not permitted anyone else to use, treat, store or dispose of, whether temporarily or permanently, any hazardous or toxic materials (“Hazardous Materials”) at, on or beneath the Real Property in violation of any federal, state or local law, regulation or ordinance. Seller has no knowledge of the presence, use, treatment, storage, release or disposal of any Hazardous Materials at, on or beneath the Real Property which has created or might create any liability of owners or occupants of the Real Property under any federal, state or local law or regulation or which would require reporting to a governmental agency. Except as disclosed in writing to Purchaser, to Seller’s knowledge no asbestos or PCBs are contained in or stored on the Real Property. To Seller’s knowledge, there are no storage tanks located in, on or under the Real Property.

(j) Seller has not received any notice from any insurance carrier of any defects or inadequacies in the Property, or in any portion thereof, which would adversely affect the insurability thereof or the cost of such insurance. Except as delivered to Purchaser, there are no pending insurance claims.

(k) Except as set forth in the Due Diligence Materials, there are no pending or, to Seller’s knowledge, threatened legal proceedings or actions of any kind or character affecting the Property or Seller’s interest therein. Except as delivered to Purchaser as part of the Due Diligence Documents, to Seller’s knowledge there are no litigation documents relating to any of the matters referred to in the preceding sentence.

(l) Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), and Seller will furnish to Purchaser, prior to the Closing, an affidavit in the form attached hereto as Exhibit H.

The representations and warranties made in this Agreement by Seller shall be continuing and shall be deemed remade by Seller as of the Closing with the same force and effect as if in fact made at that time. All representations and warranties made in this Agreement shall not merge into any instrument or conveyance delivered at the Closing but shall survive the Closing for a period of seven (7) months. To that end, Purchaser must notify Seller in writing of any claim of a breach of any representation or warranty on or before the date that is seven (7) months after the Closing. Any claim for a breach as to which Purchaser does not timely so notify Seller will be barred. Seller may attempt to cure the breach for a period of thirty (30) days after Seller receives the written notice. If Seller fails to cure the breach within the thirty (30) day cure period, Purchaser may file a pleading for recovery due to the breach in a court of competent jurisdiction on or before the date that is two (2) years after the Closing Date. Any suit that is not filed on or before that date will be barred. The provisions of this Section will survive the Closing.

Purchaser hereby represents and warrants to Seller that this Agreement has been, and all the documents to be delivered by Purchaser to Seller at the Closing will be, duly authorized, executed and delivered by Purchaser, are, and in the case of the documents to be delivered will be, legal and binding obligations of Purchaser, are, and in the case of the documents to be delivered will be, enforceable in accordance with their respective terms (except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, moratorium and other principles relating to or limiting the rights of contracting parties generally), and do not, and will not at the Closing, violate any provisions of any agreement to which Purchaser is a party.

(a) Seller has delivered, or will deliver to Purchaser no later than five (5) days following the execution hereof by all parties, the following documents and the documents (the “Due Diligence Documents”):

(i) A current rent roll pertaining to the Real Property (the “Rent Roll”) setting forth in respect of each Tenant unit: the name of the Tenant occupying such unit, the security deposit, pet deposit or other deposit paid by the Tenant, the term of the Lease for such unit, the commencement date for the term of the Lease for such space, the annual rent for each unit, and the expiration date of the term of such Lease, together with an aged delinquency report.

(ii) A statement of insurance coverage and premiums by policy type and copies of insurance certificates (or the actual policies, if available) for the fire, extended coverage, public liability insurance, flood insurance, if any, and any other insurance maintained by or for the benefit of Seller (the “Existing Insurance Policies”); provided that Seller need not deliver such Policies to the extent coverage is provided by Seller’s blanket policies.

(iii) A copy of all income and expense statements, year end financial and monthly operating statements for the Property and capital improvements (the “Operating Statements”) for the calendar year 2006 and, to the extent available, the current year, copies of operating and capital budgets for the current fiscal year.

(iv) The Survey, and any “as built” plans and specifications of the Improvements, floor plans, site plans and any other plans and specifications relating to the Real Property in the possession or control of Seller.

(v) Copies of any inspection, soils, engineering, environmental, ADA, zoning, termite seismic or architectural notices, plans, diagrams, studies or reports in the possession or control of Seller which relate to the physical condition or operation of the Real Property or the Personal Property or recommended improvements thereto.

(vi) A copy of the bill or bills issued for the most recent year for which bills have been issued for all real estate taxes (including assessed value) and personal property taxes, and a copy of any and all notices in the possession or control of Seller pertaining to real estate taxes or assessments applicable to the Real Property or the Personal Property (the “Tax Bills”).

(vii) A copy of all outstanding third party leasing, maintenance, repair, service, pest control and supply contracts (including, without limitation, janitorial, scavenger and landscaping agreements), equipment rental agreements, all contracts for repair or capital replacement to be performed at the Real Property, all contracts in Seller’s possession or control for repair or capital replacement covering work performed at the Real Property during the three (3) years immediately preceding the date hereof if the contract price was in excess of $10,000, and any other contracts relating to or affecting the Property (other than Leases) which will be binding upon the Property or Purchaser subsequent to the Closing, all as amended (collectively, the “Contracts”) together with a list of any Non-Cancellable Contracts.

(viii) A copy of all Leases and any other agreements which are in effect thereto with the Tenants of the Real Property, all as amended, shall be made available at the Property and need not be actually delivered to Purchaser.

(ix) Copies of all certificate(s) of occupancy, licenses, permits, authorizations and approvals in the possession or control of Seller which were obtained by Seller with respect to the Property, or any portion thereof, occupancy thereof or any present use thereof, including, without limitation, such permits as are necessary for the present operation of the Property with full use of all Improvements located thereon (the “Governmental Approvals”).

(x) A copy of all written guarantees and warranties relating to the Property in the possession or control of Seller.

(xi) Copies of pending insurance claims or litigation documents relating to the Property.

(xiii) Utility bills for the preceding twelve (12) months and a summary of all utility deposits.

(xii) Any other documents and information in the possession or control of Seller reasonably requested by Purchaser and used or useful in connection with Seller’s ownership or operation of the Property will either be made available to Purchaser at the Property or delivered to Purchaser.

Notwithstanding anything to the contrary contained in this Agreement, in the event that Seller, despite its good-faith efforts, shall be unable to fully perform its obligations to deliver all of the documents and information as required under this Section 7, then Purchaser’s sole remedy shall be the right to elect, on or before the expiration of the Due Diligence Period, by giving written notice to Seller, either (i) to terminate this Agreement and have the Deposit returned to it or (ii) to waive such failure to provide such documents and information and to consummate the transaction contemplated hereby with no adjustment in the Purchase Price. If Purchaser elects to terminate this Agreement as aforesaid, any money or documents shall be returned to the party depositing the same, and thereafter this Agreement shall become null and void with no further obligation on the part of either party.

For a period of time expiring on April 5, 2007 (the “Due Diligence Period”) and with prior reasonable notification to Seller, Purchaser, its agents and representatives shall be entitled: (i) to enter onto the Real Property during normal business hours to perform inspections and tests of the Real Property or the Personal Property, including all leased areas (subject to the rights of the Tenants and, at Seller’s option, with a representative of Seller present) and structural and mechanical systems within the Improvements; (ii) to examine and copy any and all books and records maintained by Seller or its agents relating to receipts and expenditures pertaining to the Property; (iii) subject to the terms of the Leases, to interview the Tenants during normal business hours; (iv) to examine for the presence or absence of hazardous or toxic materials, substances or wastes (collectively, “Hazardous Materials”); and (v) to review the documentation described in this subsection (a). Prior to entering upon the Land to make inspections, Purchaser shall provide and shall cause each third party making inspections to provide, to Seller liability insurance in the amount of $2,000,000 naming Seller as an additional insured. After making such tests and inspections, Purchaser agrees to promptly restore the Real Property and the Personal Property to their condition prior to such tests and inspections. Purchaser agrees to indemnify and hold harmless Seller from all loss, cost and expense (including reasonable attorneys’ fees) incurred, suffered by, or claimed against Seller by reason of any actual damage to the Real Property or the Personal Property or injury to persons caused by Purchaser and/or its agents, employees or contractors in exercising its rights under clauses (i) or (iv) above. The indemnification and hold harmless provisions of this Section 7 shall survive any termination of this Agreement. All such investigations and inspections shall be done in such a way as to minimize disruption of tenants’ business operations and interference with tenants generally.

In the event that all aspects of the Property are not acceptable to Purchaser in its sole discretion, Purchaser may give written notice thereof to Seller and Escrow Agent prior to the expiration of the Due Diligence Period, the Initial Deposit shall be returned to Purchaser and this Agreement shall terminate and both Seller and Purchaser shall thereafter be relieved from any and all liability under this Agreement except the indemnification obligation described in the preceding paragraph.

Failure of the Purchaser to give the Seller a letter objecting to any of the documentation described in subsection (a) of this Section 7 within the Due Diligence Period shall constitute a waiver by Purchaser to terminate this Agreement because of the unacceptability of these items.

Purchaser shall give Seller written notice of those Contracts, other than the Non-Cancellable Contracts, Purchaser desires Seller to terminate prior to Closing and Seller shall arrange to terminate those Contracts designated by Purchaser as of the Closing.

(b) PURCHASER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN SECTION 5, SELLER IS SELLING AND PURCHASER IS PURCHASING THE PROPERTY ON AN “AS IS WITH ALL FAULTS” BASIS AND THAT PURCHASER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ITS AGENTS, OR BROKERS AS TO ANY MATTERS CONCERNING THE PROPERTY, INCLUDING, WITHOUT LIMITATION: (i) the quality, nature, adequacy and physical condition of the Property, including, but not limited to, the structural elements, foundation, roof, appurtenances, access, landscaping, parking facilities and the electrical, mechanical, HVAC, plumbing, sewage, and utility systems, facilities and appliances, (ii) the quality, nature, adequacy, and physical condition of soils, geology and any groundwater, (iii) the existence, quality, nature, adequacy and physical condition of utilities serving the Property, (iv) the development potential of the Property, and the Property’s use, habitability, merchantability, or fitness, suitability, value or adequacy of the Property for any particular purpose, (v) the zoning or other legal status of the Property or any other public or private restrictions on use of the Property, (vi) the compliance of the Property or its operation with any applicable codes, laws, regulations, statutes, ordinances, covenants, conditions and restrictions of any governmental or quasi-governmental entity or of any other person or entity, (vii) the presence of Hazardous Materials on, under or about the Property or the adjoining or neighboring property, (viii) the quality of any labor and materials used in any improvements on the Real Property, (ix) the condition of title to the Property, (x) the Leases or Contracts and (xi) the economics of the operation of the Property.

(c) Without limiting the above, except with respect to a breach by Seller of any of the representations and warranties contained in Section 5 hereof or Seller’s obligations hereunder, or Seller’s fraud, Purchaser on behalf of itself and its successors and assigns waives its right to recover from, and forever releases and discharges, Seller, Seller’s affiliates, Seller’s investment manager, the partners, trustees, shareholders, directors, officers, employees and agents of each of them, and their respective heirs, successors, personal representatives and assigns, from any and all demands, claims, legal or administrative proceedings, losses, liabilities, damages, penalties, fines, liens, judgments, costs or expenses whatsoever (including, without limitation, attorneys’ fees and costs), whether direct or indirect, known or unknown, foreseen or unforeseen, that may arise on account of or in any way be connected with the physical condition of the Property or any law or regulation applicable thereto, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Safe Drinking Water Act (42 U.S.C. Section 300f et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), and the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.).

The following shall be conditions precedent to Purchaser’s obligation to consummate the purchase and sale transaction contemplated herein (“Purchaser’s Conditions Precedent”):

(a) Title shall have been approved by Purchaser under Section 4 with title company standing ready to issue an owner’s policy of title insurance in the form customarily delivered in the State insuring Purchaser’s interest in the Land and Improvements, dated the day of the Closing, with liability in the amount of the Purchase Price, subject only to the Permitted Encumbrances, together with such amendments and endorsements as Purchaser reasonably may require and as may be agreed upon with the Title Company prior to the expiration of the Due Diligence Period (the “Title Policy”).

(b) Seller shall have executed and delivered to Purchaser a certificate (the “Certificate”) in the form attached hereto as Exhibit I updating the representations and warranties of Seller through Closing, which Certificate Seller covenants to deliver unless new matters or knowledge of a defect arises, in which case Seller shall deliver a Certificate disclosing such matter and the representations and warranties shall be appropriately reformed to reflect any such disclosure. If the newly disclosed matter is material, Purchaser may then either (i) waive such matter and consummate the transaction contemplated hereby or (ii) terminate this Agreement, in which case the Deposit shall be returned to Purchaser and neither party shall have any further obligations or liabilities hereunder and any documents shall be returned to the party depositing the same.

In the event that any Purchaser’s Condition Precedent is not satisfied, Purchaser shall give written notice thereof to the Seller and Escrow Agent, the Deposit shall be returned to the Purchaser and this Agreement shall terminate and both Seller and Purchaser shall thereafter be relieved from any and all liability under this Agreement except for the indemnification and hold harmless provisions contained in Section 7.

(a) Prior to the expiration of the Due Diligence Period, Seller shall not enter into any Contract with respect to the Property without giving Purchaser written notice of its execution. After the expiration of the Due Diligence Period and prior to the Closing, Seller shall not enter into any Contract with respect to the Property which will survive the Closing or will otherwise affect the use, operation or enjoyment of the Property after the Closing, unless Seller first shall have obtained Purchaser’s prior written consent, not to be unreasonably withheld, conditioned or delayed. If Purchaser has not notified Seller within three (3) business days of receipt of a request for approval of its decision, Purchaser shall be deemed to have approved the matter.

(b) The Existing Insurance Policies, or equivalent coverage, shall remain continuously in force through the day of the Closing.

(c) At all times prior to the Closing, Seller shall (i) operate and manage the Property in the same manner it presently operates and manages the Property, (ii) maintain present services, (iii) maintain the Property in good repair and working order, reasonable wear and tear excepted, (iv) keep on hand sufficient materials, supplies, equipment and other personal property for the efficient operation and management of the Property in a first class manner, and (v) perform when due all of Seller’s material obligations under the Leases, the instruments securing any mortgage lien on the Property, Contracts, Governmental Approvals and other agreements relating to the Property and otherwise in accordance with applicable laws, ordinances, rules and regulations affecting the Property. Prior to and as of the Closing, Seller shall cause all units vacated at least seven (7) days prior to Closing to be made rent-ready and available for occupancy based on standards and methods used by Seller prior to execution of this Agreement, and shall cause all appliances in all vacant units to be clean and in working order (the “Appliance Standards”). As to units vacated within seven (7) days of Closing, in lieu of making same ready, Seller shall have the right to give Purchaser a credit of $750 for each such unit and upon Purchaser’s assumption of responsibility for same, assign the tenant’s security deposit to Purchaser for such unit. After full execution of this Agreement and until the Closing, Seller shall maintain substantially all existing personnel on the Property in their current employment positions at their current rates of compensation. In the event of the Closing of the purchase of the Property, Purchaser need not retain the existing employees and management agents of Seller for the Property, and, accordingly, on the Closing, Seller shall (i) cause all employment and management agreements respecting the Property to be terminated, and deliver evidence of such termination to Purchaser, and (iii) remove all employees and management personnel from the Property. Except for the obligation of Seller to use its reasonable efforts to fully enforce the material obligations of Tenants under the Leases, nothing contained in this Section 9(d) shall be deemed or construed as imposing any obligations of such Tenants onto Seller. Seller shall take steps to terminate, as of the day of the Closing, those of the Contracts designated in writing by Purchaser (no less than ten (10) days prior to Closing) which may by their terms be so terminated, excluding the Non-Cancellable Contracts. None of the Personal Property shall be removed from the Real Property, unless replaced by Personal Property of equal or greater utility and value unless such Personal Property has no material value.

(d) Seller shall pay in full, prior to the Closing, all bills and invoices for labor, goods, utility charges, material and services of any kind relating to the Property.

(e) Seller agrees to pay any brokerage or leasing fee or similar commission or other compensation with respect to the Leases, if any (“Leasing Commissions”) which is or will become due and payable prior to the Closing, except for lease renewals, or exercises of expansion options, entered into after the date of this Agreement which shall be Purchaser’s obligation if the Closing occurs. All other brokerage or leasing fees or similar commissions with respect to the Leases which, on an absolute or contingent basis, will become due and payable after the Closing, including fees or commissions or other compensation with respect to renewals are included as part of the Due Diligence Documents; the amount of such fees or commissions due on an absolute basis prior to Closing but unpaid as of Closing will be credited against the Purchase Price payable by Purchaser at the Closing, however, all such fees or commissions or other compensation due or payable after the Closing on an absolute or contingent basis, to the extent disclosed in the Due Diligence Documents, shall become obligations of Purchaser after the Closing.

(f) After the date hereof and prior to the Closing, except for leases in the ordinary course of business above, no part of the Property, or any interest therein, shall be alienated, liened, encumbered or otherwise transferred. Seller shall make all payments of principal and interest required under any mortgages encumbering the Property due prior to the Closing.

(g) Seller agrees that it will, at any time and from time to time after the Closing, upon the reasonable request of Purchaser and at Purchaser’s cost and expense, do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances and assurances as may be reasonably required for better assigning, transferring and conveying the Property to Purchaser. Purchaser agrees that it will, at any time and from time to time after the Closing, upon the reasonable request of Seller and at Seller’s cost and expense, do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances and assurances as may be reasonably required for better assigning, transferring and conveying the Property to Purchaser.

(h) Upon Purchaser’s request, for a period of six (6) months after the Closing, Seller shall make all Seller’s records with respect to the Property available to Purchaser for inspection, copying and audit by Purchaser’s designated accountants.

(i) Seller shall promptly notify Purchaser of any change in any condition with respect to the Real Property or of any event or circumstance which makes any representation or warranty of Seller to Purchaser under this Agreement materially untrue or misleading, or any covenant of Seller under this Agreement incapable or less likely of being performed.

(j) Seller shall deliver to Purchaser on a monthly basis until Closing updated operating statements and Rent Rolls.

(k) Seller shall not apply any tenant’s security deposit unless the tenant is out of its premises as of Closing.

(l) Seller shall give Purchaser prompt notice of any fire or other casualty affecting the Property.

(m) Seller shall give Purchaser prompt notice of any notice of violation issued by any governmental authorities with respect to the Property and received by Seller.

At the Closing, Seller shall deliver to Purchaser the following, in form and substance acceptable to Purchaser:

(a) A special warranty deed executed by Seller (the “Deed”), in recordable form, conveying the Property to Purchaser, free and clear of all liens, encumbrances, security interests, options and adverse claims of any kind or character except the Permitted Encumbrances and matters arising by or through Purchaser.

(b) A Bill of Sale, executed by Seller (the “Bill of Sale”) in the form attached hereto as Exhibit J, transferring, conveying and assigning and warranting to Purchaser, the Personal Property, free and clear of all liens, encumbrances, security interests, options and adverse claims of any kind or character other than the Permitted Encumbrances, together with the original certificates of title thereto, if any.

(c) An assignment (the “Contract Assignment”) in the form attached hereto as Exhibit K, executed by Seller, to Purchaser, of (i) those of the Contracts which Purchaser has elected in writing to assume (the “Assigned Contracts”) with the agreement of Seller to indemnify, protect, defend and hold Purchaser harmless from and against any and all claims, damages, losses, costs and expenses (including attorneys’ fees) arising in connection with the Assigned Contracts and related to the period prior to the Closing and a comparable indemnity from Purchaser relating to the period following the Closing, (ii) any and all guarantees and warranties used or made in connection with the operation, construction, improvement, alteration or repair of the Property, and (iii) all right, title and interest of Seller and its agents in and to the Intangible Personal Property (including the Governmental Approvals to the extent assignable).

(d) An assignment of lessor’s interest in the Leases (the “Lease Assignment”) in the form attached hereto as Exhibit L executed by Seller, to Purchaser, together with an agreement by Seller to indemnify, protect, defend and hold Purchaser harmless from and against any and all claims, damages, losses, costs and expenses (including attorneys’ fees) arising in connection with the Leases relating to the period prior to the Closing and a comparable indemnity from Purchaser relating to the period following the Closing.

(e) To the extent not previously delivered to Purchaser, originals of the Leases, the Contracts which have not been terminated pursuant to Section 9(c), certificate(s) of occupancy and other instruments evidencing the Governmental Approvals in Seller’s possession or, if such originals are not available, copies certified by Seller to be true, correct and complete copies of such originals.

(g) Letters executed by Seller and Seller’s management agent, if any, addressed to all Tenants (the “Tenant Letters”), in form of Exhibit M attached hereto, notifying and directing payment of all rent and other sums due from Tenants from and after the date of the Closing to be made at Purchaser’s direction.

(h) Reasonable proof of the due authorization, execution and delivery by Seller of this Agreement and the documents delivered by Seller pursuant hereto.

(i) A Rent Roll, prepared as of the day of the Closing, certified by Seller to be true and correct in all material respects through the day preceding the Closing.

(j) An affidavit from Seller in the form attached hereto as Exhibit H certifying that such Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Code.

(l) Any other documents, instruments or agreements called for hereunder which have not previously been delivered or which may be required by the Escrow Agent to issue the Title Policy.

(d) Any other documents, instruments or agreements reasonably necessary to close the transaction as contemplated by this Agreement.

The following shall be prorated and adjusted between Seller and Purchaser as of the day of the Closing, except as otherwise specified:

(a) Collected Rents and other charges, other than Delinquent Rents (as hereinafter defined), shall be prorated by credit to Purchaser. Prepaid rents and other charges shall be credited to Purchaser. Rents unpaid for the month in which the Closing occurs, which are uncollected as of Closing but which are received within the month in which the Closing occurs shall be prorated. Rents and other charges which at the Closing are thirty (30) or more days past due (“Delinquent Rents”) shall not be prorated. Rents and other amounts received by Purchaser after the Closing from a Tenant owing Delinquent Rents shall be applied (i) first, to all Purchaser’s costs of collection incurred with respect to such Tenant (including reasonable attorneys’ fees); (ii) second, to rents due for the month in which such payment is received by Purchaser; (iii) third, to rents attributable to any period after the Closing which are past due on the date of receipt; and (iv) then, to Delinquent Rents. Seller shall promptly remit to Purchaser all sums received by Seller from Tenants after the Closing other than for rents for which Purchaser received credit hereunder.

(b) The amount of all unforfeited or applied security and other Tenant deposits and interest due thereon, if any, shall be credited to Purchaser.

(c) If current bills for accrued general real estate, personal property and ad valorem taxes and assessments for the current tax year are not available, the same shall be prorated on the basis of the most recent assessed valuation and the most recent millage rate, re-prorated when actual figures are known.

(d) Such other items that are customarily prorated in transactions of this nature (including, without limitation, any utilities paid by Seller under the Leases) shall be prorated.

Purchaser shall be deemed to be the owner of the Property and, therefore, entitled to the income from the Property and responsible for the expenses of the Property for the entire day upon which the Closing occurs. All such prorations shall be made on the basis of the actual number of days of the month which shall have elapsed as of the day of the Closing. To the extent information necessary to make such prorations is not available at the Closing, the amount of such prorations shall be subject to adjustment in cash after the Closing as and when complete and accurate information becomes available. Seller and Purchaser agree to cooperate and use their best efforts to make such adjustments as soon as practical after the Closing. Except as set forth in this Section 12, all items of income and expense for the period prior to the Closing Date will be for the account of Seller and all items of income and expense for the period on and after the Closing Date will be for the account of Purchaser, all as determined by the accrual method of accounting. Bills received after the Closing Date which relate to expenses incurred, services performed or other amounts allocable to the period prior to the Closing Date shall be paid by Seller.

The purchase and sale contemplated herein shall close at the offices of the Escrow Agent on April 30, 2007 or at such other time, date and place as the parties shall mutually agree. As used herein, the terms “Closing” and “Closing Date” shall mean the date on which Escrow Agent (i) has received all funds and all documents (property executed and acknowledged, as necessary) as required hereunder, (ii) is in a position to record the Deed and issue the Title Policy, and (iii) has taken all actions necessary to consummate the transaction contemplated by this Agreement. In addition to Purchaser’s extension rights set forth in Section 19(r) below, Purchaser shall have the right to extend the closing date for thirty (30) days upon (i) giving Seller notice to do so at least three (3) business days prior to the originally scheduled Closing Date and (ii) payment of an extension deposit (the “Extension Deposit”) of $150,000.

Seller shall pay the base cost of the title policy and Purchaser shall pay for any amendments and endorsements and any lender coverage. The costs of the Updated Survey shall be paid as provided above. The costs to record the Deed shall be allocated between Seller and Purchaser in accordance with local custom, as determined by the Escrow Agent. Purchaser shall pay for all due diligence expenses. Each party shall bear the expense of its own counsel.

(a) In the event that prior to the Closing, the Improvements, or any part thereof, are destroyed or materially damaged (as defined in Section 15(e)), Purchaser shall have the right, exercisable by giving notice to Seller within fifteen (15) days after receiving written notice of such damage or destruction, either (i) to terminate this Agreement, in which case neither party shall have any further rights or obligations hereunder except any indemnification obligations of Purchaser and the Deposit shall be returned to Purchaser and any documents shall be returned to the party depositing the same, or (ii) to accept the Improvements in their then condition and to proceed with the Closing with an abatement or reduction in the Purchase Price in the amount of the deductible for the applicable insurance coverage, and to receive an assignment of all of Seller’s rights to any insurance proceeds payable by reason of such damage or destruction. If Purchaser elects to proceed under clause (ii) above, Seller shall not compromise, settle or adjust any claims to such proceeds without Purchaser’s prior written consent, not to be unreasonably withheld, conditioned or delayed.

(b) In the event that prior to the Closing there is any non-material damage to the Improvements, or any part thereof, Seller shall either repair or replace such damage prior to the Closing or credit Purchaser for the amount of the damage, in which case Purchaser shall accept the Improvements in their then condition and proceed with the Closing, and in either case Seller shall be entitled to retain all insurance proceeds payable by reason of such non-material damage. For purposes of contemplating any repairs or replacements under this Section 15(b), the Closing may be extended for a reasonable time to allow such repairs or replacements to be made by Seller.

(c) In the event that prior to the Closing, all or any material portion (as defined in Section 15(e)) of the Land and Improvements are subject to a taking by public authority, Purchaser shall have the right, exercisable by giving notice to Seller within fifteen (15) days after receiving written notice of such taking, either (i) to terminate this Agreement, in which case neither party shall have any further rights or obligations hereunder except any indemnification obligations of Purchaser and the Deposit shall be returned to Purchaser and any documents shall be returned to the party depositing the same, or (ii) to accept the Land and Improvements in their then condition, without a reduction in the Purchase Price, and to receive an assignment of all of Seller’s rights to any condemnation award payable by reason of such taking. If Purchaser elects to proceed under clause (ii) above, Seller shall not compromise, settle or adjust any claims to such award without Purchaser’s prior written consent, not to be unreasonably withheld, conditioned or delayed.

(d) In the event that prior to the Closing, any non-material portion of the Land or Improvements is subject to a taking, Purchaser shall accept the Property in its then condition and proceed with the Closing, in which case Purchaser shall be entitled to an assignment of all of Seller’s rights to any award in connection with such taking. In the event of any such non-material taking, Seller shall not compromise, settle or adjust any claims to such award without Purchaser’s prior written consent, not to be unreasonably withheld, conditioned or delayed.

(e) For the purpose of this Section 15, damage to the Improvements or a taking of a portion thereof shall be deemed to involve a material portion thereof if the reasonably estimated cost of restoration or repair of such damage or the amount of the condemnation award with respect of such taking shall exceed Two Hundred Thousand Dollars ($200,000), if the number of parking spaces is reduced or the entrances and entrance signs are relocated.

(f) In the event of material or non-material damage to the Improvements which is non-insured and Purchaser elects to proceed to Closing Purchaser shall receive a credit at Closing in the amount of the uninsured loss, provided, however, if the amount of the uninsured loss exceeds $200,000, the Seller shall have the right to terminate this Agreement and the Deposit shall be returned to Purchaser and any documents shall be returned to the party depositing the same.

(g) Seller agrees to give Purchaser prompt notice of any taking, damage or destruction of the Land or Improvements.

(a) The parties agree that, in the event of a default by Purchaser under this Agreement, the damages suffered by Seller would be difficult to ascertain. Seller and Purchaser agree that, in the event of a default by Purchaser, Seller’s sole remedy shall be to terminate this Agreement and retain the Deposit as liquidated damages, and Seller hereby specifically waives the right to seek specific performance of this Agreement by Purchaser.

(b) In the event of a default hereunder by Seller, Purchaser shall have at its option either to (i) bring an action for specific performance of this Agreement or (ii) terminate this Agreement, and have the Deposit returned to it. If specific performance is not available as a remedy due to Seller’s voluntary and intentional actions, such as conveying the property to a third party without notice of the contract, then upon termination by Purchaser pursuant to (ii) above, Seller shall reimburse Purchaser for its actual, out-of-pocket due diligence expenses, non-refundable fees and expenses paid to lenders, including but not limited to third party reports, attorneys’ fees, rate lock deposits, application fees and commitment fees.

(a) Seller hereby agrees to indemnify, hold harmless and defend Purchaser and any successor in interest (the “Indemnified Parties”) from and against:

(i) any loss, liability or damage suffered or incurred by the Indemnified Parties as a result of any legal action filed against Purchaser as a result of events arising at the Property prior to Closing and not caused by Purchaser; and

(ii) all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by the Indemnified Parties in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 17(a).

(b) Purchaser hereby agrees to indemnify, hold harmless and defend Seller from and against:

(i) any loss, liability or damage suffered or incurred by Seller as a result of any legal action filed against Seller as a result of events arising at the Property from and after Closing and not caused by Seller; and

(ii) all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Seller in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 17(b).

(a) Seller shall be solely responsible for brokerage commissions due Thompson Realty Corporation and Carbon Capital Management, LLC, each in the amount of .5% of the Purchase Price (the “Seller’s Broker”), which shall be due only in the event Closing occurs and not otherwise. Seller represents and warrants to Purchaser that no other brokerage commissions, finder’s fees or other compensation is due or payable by reason of the actions of Seller with respect to the transaction contemplated hereby. Seller agrees to indemnify and hold Purchaser harmless from and against any losses, damages, costs and expenses (including attorneys’ fees) incurred by Purchaser by reason of any breach or inaccuracy of the representation and warranty contained in this Section 18(a).

(b) Purchaser represents and warrants to Seller, Purchaser has not entered into any agreement or incurred any obligation which might result in the obligation to pay any brokerage commission, finder’s fee or other compensation with respect to the transaction contemplated hereby. Purchaser agrees to indemnify and hold Seller harmless from and against any losses, damages, costs and expenses (including attorneys’ fees) incurred by Seller by reason of any breach or inaccuracy of the representation and warranty contained in this Section 18(b).

(a) Each individual and entity executing this Agreement hereby represents and warrants that he or it has the capacity set forth on the signature pages hereof with full power and authority to bind the party on whose behalf he or it is executing this Agreement to the terms hereof.

(b) This Agreement is the entire Agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements between the parties with respect to the matters contained in this Agreement. Any waiver, modification, consent or acquiescence with respect to any provision of this Agreement shall be set forth in writing and duly executed by or in behalf of the party to be bound thereby. No waiver by any party of any breach hereunder shall be deemed a waiver of any other or subsequent breach.

(c) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Agreement attached thereto.

(d) Any communication, notice or demand of any kind whatsoever which either party may be required or may desire to give to or serve upon the other shall be in writing and delivered by personal service (including express or courier service) or by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:


Seller:		c/o Parkwood Management Comany 1221 West Airport Freeway , Suite 113 Irving, Texas 75062 Attn: Mr. Evan Jacobson
With copy to:		Clifford L. Friedman, Esq. Smith, Stern, Friedman & Nelms, P.C. 6688 N. Central Expressway, Suite 550 Dallas, Texas 75206
Purchaser:		Triple Net Properties, LLC c/o ROC Realty Advisors, LLC 1606 Santa Rosa Road, Suite 109 Richmond, VA 23229 Attn: Gus R. Remppies
With Copy to:		David F. Belkowitz, Esq. Hirschler Fleischer The Edgeworth Building 2100 E. Cary Street Richmond, VA 23223-7078

Any party may change its address for notice by written notice given to the other in the manner provided in this Section. Any such communication, notice or demand shall be deemed to have been duly given or served on the date personally served, if by personal service, or on the date shown on the return receipt or other evidence of delivery, if mailed.

(e) The parties agree to execute such instructions to the Escrow Agent and such other instruments and to do such further acts as may be reasonably necessary to carry out the provisions of this Agreement.

(f) The making, execution and delivery of this Agreement by the parties hereto has been induced by no representations, statements, warranties or agreements other than those expressly set forth herein.

(g) Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be valid under applicable law, but, if any provision of this Agreement shall be invalid or prohibited thereunder, such invalidity or prohibition shall be construed as if such invalid or prohibited provision had not been inserted herein and shall not affect the remainder of such provision or the remaining provisions of this Agreement.

(h) The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Section headings of this Agreement are solely for convenience of reference and shall not govern the interpretation of any of the provisions of this Agreement.

(i) This Agreement shall be governed by and construed in accordance with the laws of the State.

(j) This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and to their respective transferees, successors, and assigns; provided, however, that neither this Agreement nor any of the rights or obligations of Seller hereunder shall be transferred or assigned by Seller without the prior written consent of Purchaser. Purchaser shall have the right to assign all of its right, title and interest under this Agreement without the prior written consent of Seller to an entity managed or controlled by Purchaser or an affiliate of Purchaser. Except as to any such affiliate, or as provided for in Section 19(q) below, Purchaser may not otherwise assign this Agreement without Seller’s prior, written consent.

(l) Notwithstanding anything to the contrary contained herein, this Agreement shall not be deemed or construed to make the parties hereto partners or joint venturers, or to render either party liable for any of the debts or obligations of the other, it being the intention of the parties to merely create the relationship of seller and purchaser with respect to the Property to be conveyed as contemplated hereby.

(m) This Agreement shall not be recorded or filed in the public land or other public records of any jurisdiction by either party and any attempt to do so may be treated by the other party as a breach of this Agreement.

(n) Purchaser, during its inspection of the Real Property, agrees not to notify or advise of the existing tenants of the Real Property that the Real Property is for sale until such time as all conditions precedent to closing have been satisfied.

(o) During the period from the date of execution of this Agreement until the Closing or this Agreement is terminated, Seller agrees not to market the Property for sale, accept any offer for purchase, offer the Property for joint venture, apply for any financing, divulge to any potential purchaser or joint venturer or lender any written material with respect to the Property nor divulge nor communicate in any way to any potential purchaser or joint venturer or lender with respect to the Property, any information with respect to the Property.

(p) Unless provided to the contrary in any particular provision, all time periods shall refer to calendar days and shall expire at 5:00 p.m. Pacific Time on the last of such days; provided, however, that if the time for the performance of any obligation expires on a day which is not a business day (Saturday, Sunday and days on which banks in the state where the Property is located are closed), the time for performance shall be extended to the next business day.

(q) The Seller acknowledges that Purchaser intends to assign all of its rights, title and interest in and to this Agreement to a publicly registered company (“Registered Company”) promoted by the Purchaser, to which Seller hereby consents. The Seller acknowledges that it has been advised that if the purchaser is a Registered Company, the assignee is required to make certain filings with the Securities and Exchange Commission (the “SEC Filings”) that relate to the most recent pre-acquisition fiscal year (the “Audited Year”) for the Property. To assist the assignee in preparing the SEC Filings, the Seller agrees to provide the assignee with the following:

Copies of accounts receivable aging as of the end of the Audited Year and an explanation for all accounts over 30 days past due as of the end of the Audited Year; and

Signed representation letter at the end of the field work in form reasonably acceptable to Seller and its counsel and accountants.

(r) This Agreement is executed concurrently with Purchase and Sale Agreements (the “Other Agreements”) between Purchaser and San Marin Corpus Christi, Ltd., Northspring Park, LLC and FS Towne Crossing, Ltd., with respect to the San Marin Apartments, the Parks at Northgate Apartments and the Towne Crossing Apartments, respectively (collectively, the “Other Properties”). So long as Purchaser timely closes at least one of the Other Properties, Purchaser shall have the right to extend the Closing hereunder or under any of the remaining Other Agreements by up to ten (10) days per closing, so that as between this Agreement and the Other Agreements, the four closings shall occur approximately one every ten (10) days, or sooner. Notwithstanding the foregoing, however, Purchaser may not postpone Closing hereunder so that same occurs after the closing for the Parks at Northgate. Seller’s obligations under this Agreement are conditioned upon closing occurring under such Other Agreements. If the closing under any Other Agreement does not occur for reasons other than solely due to the default of the applicable seller thereunder, Seller shall have the right, but not the obligation, to terminate this Agreement. If under any such Other Agreement the seller thereunder is entitled to receive the Deposit (as such term is defined in the applicable Other Agreement), then Seller shall be entitled to receive the Deposit hereunder, and if under any such Other Agreement the Purchaser is entitled to receive the Deposit (as such term is defined in the applicable Other Agreement), then Purchaser shall be entitled to receive the Deposit hereunder.

(s) Either or both of Purchaser or Seller may structure this transaction as a like-kind exchange under Section 1031 of the Internal Revenue Code, whereby Purchaser completes a like-kind exchange by acquiring the Property as the exchange property or whereby Seller commences a like-kind exchange by selling the Property and thereafter acquiring exchange property. In either such event the parties agree to cooperate with each other, without any delay in the Closing and without cost, expense or liability to the cooperating party, in connection therewith. Such cooperation shall include the right to assign this Contract to a third-party accommodator; provided in such event the assigning party shall not be relieved of any liability or obligation hereunder.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written.

By: /s/ Evan K. Jacobson
Printed Name: Evan K. Jacobson
Title: Manager

PURCHASER:

THIS REINSTATEMENT OF AND FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this “First Amendment”) is made as of June 12, 2007, by and between EL DORADO APARTMENTS, LLC, a Texas limited liability company (“Seller”), and TRIPLE NET PROPERTIES, LLC, a Virginia limited liability company (“Purchaser”).

A. Seller and Purchaser executed a Purchase and Sale Agreement dated February 21, 2007 (the “Contract”), pursuant to the terms and conditions of which the Seller agreed to convey and Purchaser agreed to purchase certain real estate situated in McKinney, Collin County, Texas, as more particularly described therein (the “Property”).

B. Seller and Purchaser have agreed to make certain amendments, modifications and ratifications to the Contract as expressly set forth in this First Amendment and to reinstate the Contract.

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements set forth in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby agree as follows:

1. Capitalized Terms. All capitalized terms used but not otherwise defined in this Amendment shall have the meanings ascribed to them in the Contract.

a. SmartMoves® Contract Number S0301042 dated May 17, 2002, between Southwestern Bell Telephone, L.P. and Villas at Eldorado, Ltd., as evidenced by Memorandum of Contract dated May 17, 2002 recorded August 9, 2002 in Volume 5229, Page 6 of the Real Property records of Collin County, Texas, is a Non-Cancellable Contract, as defined in Section 5(e) of the Contract, and is to be listed on Exhibit F attached to the Contract.

b. The first paragraph of Section 3 of the Contract is amended and restated as follows:

“The purchase price for the Property is Eighteen Million and No/100 Dollars ($18,000,000) (the “Purchase Price”) and shall be paid to Seller by Purchaser (a) assuming the outstanding principal balance at Closing (hereinafter defined) of the existing loan in the original principal amount of $13,600,000 (“the “Loan”) made to Seller by Royal Bank of Canada now held by (the “Lender”), (b) paying the balance of the Purchase Price by wire transfer of immediately available funds at the Closing, net of all prorations and adjustments as provided herein and (c) paying the Seller for all escrow and reserves held by the Lender.”

(e) Purchaser acknowledges receipt of the loan documents evidencing and securing the Loan (the “Loan Documents”) and, subject to the matter referred to in Section 8(d) below, hereby approves same. Purchaser acknowledges that it has made application to Lender to assume the Loan, including paying all required fees and deposits and providing all required information.

(d) Approval by the Lender of the assumption of the Loan, the agreement of lender that publicly traded REIT shares of the assuming borrower’s limited partner may be freely transferred without violating due-on-sale provisions, and without any other changes in the terms of the Loan other than the substitution of guarantors/key principals.

e. It shall be a condition precedent to Seller’s obligation to consummate the purchase and sale transaction contemplated herein that Lender (i) consent to the transfer of the Property to Purchaser and the assumption of the Loan by Purchaser and (ii) release Seller and any affiliate of Seller, including Wendell A. Jacobson or any other individual guarantor, from any and all liability under the Loan Documents arising from any matter occurring on or after the Closing Date. In the event that such condition precedent is not satisfied, Seller shall give written notice thereof to the Purchaser and Escrow Agent, the Deposit shall be returned to the Purchaser and the Contract shall terminate and both Seller and Purchaser shall thereafter be relieved from any and all liability under the Contract except for the indemnification and hold harmless provisions contained in Section 7.

(m) An assumption agreement pursuant to which the Seller consents to Purchaser’s assumption of the Loan as required by Lender (the “Assumption Agreement”).

(e) The Assumption Agreement and such other documents required by Lender in connection with Purchaser’s assumption of the Loan, including the written agreement of any substitute guarantor.

“The purchase and sale contemplated herein shall close at the offices of the Escrow Agent within thirty (30) days after Lender’s approval of the Purchaser’s assumption of the Loan or at such other time, date and place as the parties shall mutually agree. If Lender has not approved the Purchaser’s assumption of the Loan (including the matters set forth in Sections 2(d) and (e) above) within sixty (60) days after the date hereof, either party shall have the right to terminate this Agreement and both Seller and Purchaser shall thereafter be relieved from any and all liability under the Contract except for the indemnification and hold harmless provisions contained in Section 7. If Purchaser shall be in default of any of its obligations hereunder, including those set forth in Section 14, the Deposit shall be paid to Seller. If Purchaser shall not be in default of any of its obligations hereunder, including those set forth in Section 14, the Deposit shall be paid to Purchaser. In the event that Purchaser has not been able to successfully complete its audit pursuant to Section 19(g) before Closing, Purchaser shall have the right to extend Closing to January 15, 2008; provided that, on or before the then scheduled Closing Date, (i) the Lender consents to the delay, and (ii) Purchaser pays to Seller an extension fee, which shall be non-refundable but applied to the Purchase Price, in the amount of $150,000.00.”

j. Section 14 is amended to add the following sentence at the end of the Section:

Purchaser will be responsible for any costs and fees involved in assuming the Loan. Purchaser agrees to use best efforts to obtain the approval of the Lender, but if the Lender refuses to consent to the assumption then this Agreement shall terminate without liability of Seller or Purchaser to the other except for Purchaser’s indemnification obligations under Section 7 and, so long as Purchaser has complied with its obligations regarding loan assumption, the Deposit shall be returned to Purchaser.

3. Other Agreements. Section 19(r) of the Contract is hereby deleted. Section 19(q) of the Contract remains in effect.

4. Due Diligence Period. Purchaser and Seller acknowledge that the Due Diligence Period has expired and the Initial Deposit is non-refundable to Purchaser, except in the event of a default by Seller, the failure of a Purchaser’s condition precedent, or a casualty or condemnation that permits the Purchaser or Seller to terminate the Contract.

5. Conflicts. In the event of any conflict between the terms of this First Amendment and the Contract, the terms of this First Amendment shall prevail.

6. Headings. The heading or captions of the paragraphs in this First Amendment are for convenience only and do not limit or expand the construction and intent of the contents of the respective paragraph.

7. Binding Effect. This First Amendment is binding upon and inures to the benefit of the parties and their respective successors and assigns, but this reference to assigns is not a consent to assignment by Purchaser.

8. Counterparts; Facsimile Signatures. This First Amendment may be executed in two or more counterparts, each of which is deemed an original and all of which together constitute one and the same instrument. Facsimile or electronic signatures are binding on the party providing them.

9. Ratification. The Contract as reinstated and amended and modified by this First Amendment is ratified and confirmed by the parties and remains in full force and effect.

IN WITNESS WHEREOF, Seller and Purchaser have executed this First Amendment as of the date first above written.

Signature Page of Seller to First Amendment to Agreement of Purchase and Sale

Signature Page of Purchaser to First Amendment to Agreement of Purchase and Sale

By: /s/ Richard Hutton
Printed Name: Richard Hutton
Title: Executive Vice President

THIS ASSIGNMENT OF CONTRACT (the “Assignment”) is made November 1, 2007 by TRIPLE NET PROPERTIES, LLC, a Virginia limited liability company (“Assignor”) to APARTMENT REIT VILLAS OF EL DORADO, LLC, a Delaware limited liability company (“Assignee”).

Assignor and El Dorado Apartments LLC, a Texas limited liability company, entered into that certain Purchase and Sale Agreement, dated February 21, 2007, as amended (as amended, the “Contract”) with respect to certain property known as the Villas at El Dorado Apartments, located in Collin County, Texas, as more particularly described in the Contract. Assignor desires to assign all of its rights, title and interest in and to the Contract to Assignee.

FOR and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor hereby assigns all of its rights, title and interest in and to the Contract to Assignee.

Assignee by its execution of this Assignment hereby assumes all of Assignor’s obligations under the Contract.


ASSIGNOR:	TRIPLE NET^-PROPERTIES, LLC,
	a Virginia limited liability company
	By: /s/ Jeff Hanson
	Name: Jeff Hanson
	Title: Chief Investment Officer
ASSIGNEE:	APARTMENT REIT VILLAS OF EL DORADO, LLC,
	a Delaware limited liability company
	By:	NNN Apartment REIT Holdings, L.P.,
		a Virginia limited partnership
		Its: Sole Member
		By:	NNN Apartment REIT Inc.,

AGREEMENT OF ASSUMPTION AND
MODIFICATION OF SECURITY INSTRUMENT AND OTHER LOAN DOCUMENTS

by
EL DORADO APARTMENTS, LLC, a Texas limited liability company
(“Transferor”)

APARTMENT REIT VILLAS OF EL DORADO, LLC, a Delaware limited liability company
(“New Borrower”)

THE BANK OF NEW YORK TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF
MORGAN STANLEY CAPITAL I INC., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-IQ14
(“Lender”)

THIS INSTRUMENT CONTAINS INDEMNIFICATION PROVISIONS AND PROVISIONS LIMITING LENDER’S LIABILITY FOR
NEGLIGENCE NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE
ANY OR ALL OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL
PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR
DRIVERS LICENSE NUMBER

THIS AGREEMENT OF ASSUMPTION AND MODIFICATION OF SECURITY INSTRUMENT AND OTHER LOAN DOCUMENTS (“Agreement”) made as of the 1st day of November, 2007, by and among EL DORADO APARTMENTS, LLC, a Texas limited liability company, with an address at P.O. Box 400, 400 North State Street, Fountain Green, Utah 84632 (“Transferor”), WENDELL A. JACOBSON having an address at P.O. Box 400, 400 North State Street, Fountain Green, Utah 84632 (“Original Guarantor”), APARTMENT REIT VILLAS OF EL DORADO, LLC, a Delaware limited liability company, having an address at 1551 N. Tustin Avenue, Suite 300, Santa Ana, California 92705, having a phone number of 877-888-7348 and facsimile number of 714-667-6860 (“New Borrower”), NNN APARTMENT REIT, INC. a Maryland corporation, having an address at 1551 N. Tustin Avenue, Suite 300, Santa Ana, California 92705 (“New Guarantor”), THE BANK OF NEW YORK TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF MORGAN STANLEY CAPITAL I INC., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-IQ14, having an address at c/o Capmark Finance Inc., 116 Welsh Road, Horsham, Pennsylvania 19044 (“Lender”).

A. Lender is the present Lender under that certain Deed of Trust, Security Agreement, Fixture Financing Statement and Assignment of Leases and Rents in the original principal sum of $13,600,000.00, dated November 29, 2006, given by Transferor for the benefit of Royal Bank of Canada, a Canadian chartered bank (“Original Lender”), as original lender, and recorded in Document No. 20061129001688770 in the official records of Collin County, Texas (as amended, the “Mortgage”), which Mortgage encumbers the real property described in Exhibit A attached hereto and the improvements thereon and was given in connection with that certain first lien mortgage loan in the amount of $13,600,000 made by Original Lender to Transferor (the “Loan”).

B. Lender is the owner and holder of that certain Promissory Note dated November 29, 2006 given by Transferor to Original Lender in the original principal sum of $13,600,000 (the “Note”) which Note evidences the Loan, and is secured by, among other things, the Mortgage.

C. The Original Lender transferred Loan to Lender pursuant to that certain assignment recorded in the official records of Collin County, Texas. The current servicer of the Loan is Capmark Finance Inc., a California corporation (“Servicer”), acting as Master Servicer, pursuant to that certain Pooling and Servicing Agreement dated May 1, 2007.

D. Original Guarantor is liable for Transferor’s obligations under the Note, Mortgage and all other documents executed in connection with the Loan including, without limitation, those documents listed in Exhibit B attached hereto and by this reference incorporated herein (collectively, the “Loan Documents”) pursuant to the terms of (i) that certain Limited Guaranty dated as of November 29, 2006, executed by Original Guarantor for the benefit of Original Lender (the “Existing Guaranty”) and (ii) that certain Environmental Indemnity Agreement dated as of November 29, 2006, executed by Original Guarantor and Transferor for the benefit of Original Lender (the “Existing Environmental Indemnity”).

E. Transferor and New Borrower have requested (i) the consent of Lender to the transfer of the Property (as that term is defined in the Mortgage) from Transferor to New Borrower, (ii) the consent of Lender to the assumption by the New Borrower and New Guarantor of the obligations of the Transferor and Original Guarantor, respectively, under the Loan Documents, and (iii) the release of Transferor and Original Guarantor from all liability for the payment of the Loan and the performance of the terms and conditions of the Loan Documents.

F. Lender has agreed to consent to the transfer of the Property, the assumption of the Loan and to the release of Transferor and Original Guarantor provided, as a condition precedent to such consent by Lender and in consideration of such consent, Transferor, Original Guarantor, New Guarantor and New Borrower shall agree in the manner set forth herein that, (a) New Borrower shall assume the obligations of Transferor to pay the indebtedness evidenced by the Note, (b) New Borrower shall assume the Transferor’s liability and obligation for the performance of all terms and conditions of the Note, the Mortgage, and all other Loan Documents, (c) New Guarantor shall assume all liability of Original Guarantor under the Existing Guaranty and the Existing Environmental Indemnity pursuant to a new guaranty and new environmental agreement to be entered into of even date herewith and (d) the Loan Documents shall be modified in the manner set forth herein.

NOW, THEREFORE, in pursuance of said agreement and, in consideration of Ten Dollars ($10.00), the mutual covenants and agreements contained herein, and other valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Assumption of Obligations. New Borrower hereby assumes and agrees to pay all sums owed under the Note, the Mortgage and the other Loan Documents, including all principal and interest due under the terms of the Note as the same may be amended pursuant to the terms hereof, and New Borrower hereby assumes and covenants to perform all the terms and conditions of the Note, the Mortgage, and the other Loan Documents, as all or any of the same may be amended pursuant to the terms hereof, and agrees to be personally bound for such performance to the same extent as if said Loan Documents had originally been executed by New Borrower, notwithstanding any failure of Transferor to perform on warranties or covenants running from Transferor to New Borrower. Transferor also hereby assigns, transfers, sells, and sets over unto New Borrower all of Transferor’s right, title and interest in and to the Escrow Accounts (as defined in Section 3(c) below) held by Servicer. New Borrower accepts the assignment of Transferor’s right, title and interest in and to the Escrow Accounts, and assumes all of the obligations of Transferor under the Mortgage, pursuant to which such Escrow Accounts are maintained to the extent that such obligations arise from and after the date hereof.

2. Assumption of Guaranteed Obligations. New Guarantor hereby assumes all obligations under the provisions of the Existing Guaranty by entering into that certain Guaranty of even date herewith in favor of Lender (the “New Guaranty”) and all obligations under the provisions of the Existing Environmental Indemnity by entering into that certain Environmental Indemnity Agreement of even date herewith in favor of Lender (the “New Environmental Indemnity”).

3. Transferor’s and Original Guarantor’s Representations and Warranties. Transferor and Original Guarantor represent and warrant to Lender and Servicer as of the date of this Agreement that to Transferor’s and Original Guarantor’s best knowledge:

(a)

The Note has an unpaid principal balance of $13,600,000.00, and prior to default bears interest at the rate of five and sixty-eight hundredths percent (5.68%) per annum (the “Interest Rate”);

(b)

The Note requires monthly payments of interest only for each Monthly Payment Date (as defined in the Note), until the December 1, 2016 payment date (the “Maturity Date”);

(c)

The escrows and reserves for the loan are as follows: $292,615.20 for real estates taxes, $41,330.00 for reserves and $13,421.70 for property insurance (collectively, the “Escrow Accounts”);

(d)

The Mortgage is a valid first lien on the Property for the full unpaid principal amount of the Loan and all other amounts stated in the Mortgage and the other Loan Documents;

(e)

There are no defenses, offsets or counterclaims to the Note, the Mortgage or the other Loan Documents;

(f)

There are no defaults by Transferor or Original Guarantor under the provisions of the Note, the Mortgage or the other Loan Documents;

(g)

All provisions of the Note, the Mortgage and other Loan Documents are in full force and effect;

(h)

There are no subordinate liens of any kind covering or relating to the Property, nor are there any mechanics’ liens or liens for unpaid taxes or assessments encumbering the Property, nor has notice of a lien or notice of intent to file a lien been received;

(i)

No consent, which has not been obtained, to the transfer of the Property to New Borrower is required under any agreement to which Transferor is a party, including, without limitation, under any trust agreement, lease, construction agreement, operating or management agreement or deed of trust, mortgage or security instrument (other than the Loan Documents); and

(j)

Transferor and Original Guarantor have no knowledge that any of the representations made by New Borrower in Section 4 below are not true and correct.

Transferor and Original Guarantor understand and intend that Lender will rely on the representations and warranties contained herein.

4. New Borrower Representations. New Borrower represents and warrants to Lender and Servicer as of the date of this Agreement that:

(a)

New Borrower is duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full power and authority to own, lease and operate the Property, and to conduct its affairs as now being conducted and as proposed to be conducted;

(b)

New Borrower has full power and authority to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, by assumption or otherwise, and to perform its obligations hereunder and thereunder and all such actions have been duly authorized by all necessary corporate action on its part;

(c)

This Agreement and the other documents executed in connection herewith have been duly executed and delivered by New Borrower, and the execution, delivery and performance of the respective terms thereof will not violate, conflict with, or constitute any default under any law, governmental regulation, the governing instruments of New Borrower, or any other agreement or instrument binding upon New Borrower;

(d)

No consent, approval, or authorization of, or registration or declaration with, any governmental authority is required in connection with the execution, delivery and performance by New Borrower of this Agreement and the other documents executed in connection herewith, and no other consent, which has not been obtained, is required to the transfer of the Property to New Borrower, or the assumption by New Borrower of the obligations under the Loan Documents, under any agreement to which New Borrower is a party;

(e)

This Agreement and the other Loan Documents to which it is a party, by assumption or otherwise, constitute legal, valid and binding obligations of New Borrower enforceable against it in accordance with their respective terms, subject to the effect of applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally;

(f)

New Borrower’s purchase of the Property has been conducted as an arms-length transaction with Transferor;

(g)

New Borrower is purchasing the property with funds that are a capital contribution and are not secured directly or indirectly by an interest in the New Borrower or the Property; and

(h)

New Borrower has no knowledge that any of the representations made by Transferor and Original Guarantor in Section 3 above are not true and correct.

New Borrower understands and intends that Lender will rely on the representations and warranties contained herein.

5. New Guarantor Representations. New Guarantor represents and warrants to Lender and Servicer as of the date of this Agreement that:

(a)

New Guarantor is duly organized, validly existing and in good standing under the laws of the State of Maryland, and has full power and authority to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, by assumption or otherwise, and to perform its obligations hereunder and thereunder;

(b)

This Agreement and the other documents executed in connection herewith have been duly executed and delivered by New Guarantor, and the execution, delivery and performance of the respective terms thereof will not violate, conflict with, or constitute any default under any law, governmental regulation, the governing instruments of New Guarantor, or any other agreement or instrument binding upon New Guarantor;

(c)

No consent, approval, or authorization of, or registration or declaration with, any governmental authority is required in connection with the execution, delivery and performance by New Guarantor of this Agreement and the other documents New Guarantor has executed in connection herewith, and no other consent, which has not been obtained, is required in connection with New Guarantor’s execution and delivery of any other agreement to which New Guarantor is a party;

(d)

This Agreement and the other Loan Documents to which it is a party, by assumption or otherwise, constitute legal, valid and binding obligations of New Guarantor enforceable against New Guarantor in accordance with their respective terms, subject to the effect of applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally; and

(e)

New Guarantor has no knowledge that any of the representations made by Transferor and Original Guarantor in Section 3 above are not true and correct.

New Guarantor understands and intends that Lender will rely on the representations and warranties contained herein.

6. Consent to Transfer. Lender hereby consents to the transfer of the Property and to the assumption by the New Borrower of all of the obligations of the Transferor under the Loan Documents as described in paragraph 1 above, subject to the terms and conditions set forth in this Agreement. Lender’s consent to the transfer of the Property to the New Borrower is not intended to be and shall not be construed as a consent to any subsequent transfer of the Property which requires the Lender’s consent pursuant to the terms of the Mortgage. Transferor agrees that the execution and delivery of this Agreement shall in no way release Transferor from any liability it has under the Loan Documents, except as otherwise provided in this Agreement.

7. Release of Transferor and Original Guarantor. In reliance on the Transferor’s and Original Guarantor’s representations and warranties in Section 3 above, New Borrower’s representations and warranties in Section 4 above, and New Guarantor’s representations and warranties in Section 5 above, Lender hereby releases Transferor and Original Guarantor from all their respective obligations under the Loan Documents, provided, however, Transferor and Original Guarantor are not released from any liability pursuant to the Existing Environmental Indemnity relating to the period of time prior to the date hereof, regardless of when any condition giving rise to such liability is discovered. If any material element of the representations and warranties made by Transferor or Original Guarantor contained in Section 3 above is false as of the date of this Agreement, then the releases set forth in this Section 7 will be canceled as of the date of this Agreement and the Transferor and the Original Guarantor will remain obligated under the Loan Documents as though there has been no such releases; further, a breach of New Borrower’s representations and warranties in Section 4 or New Guarantor’s representations and warranties in Section 5, will not affect the release of Transferor and Original Guarantor set-forth in this Section 7. This Agreement shall in no way affect, impair or diminish the priority or validity of the liens or covenants of title evidenced by the Loan Documents, nor, except as expressly set forth herein, release or discharge the liability of any party who may now be or after the date of this Agreement, become liable, primarily or secondarily, under the Loan Documents.

8. Modification to the Mortgage. Section 5.3 of the Mortgage is hereby amended by adding the following provisions:

(a)

The second to last sentence in Section 5.3 the of the Mortgage is hereby amended to include the following phrase at the end the sentence:

“and (C) any such statement that identifies all owners of any interest in Borrower and the interest held by each need not include an identification of any of the owners of the shares of a real estate investment trust of the type described in this Section 5.3 below.”

(b)

The following three paragraphs shall be added to the end of Section 5.3 of the Mortgage:

“Notwithstanding anything to the contrary in this Article 5 or any other provision of any of the other Loan Documents (A) NNN Apartment REIT, Inc., a Maryland corporation (the “REIT”), shall remain as, or directly or indirectly own 100% of, the sole general partner of NNN Apartment REIT Holdings, L.P., a Virginia limited partnership (the “Borrower Manager” and the sole member of the Borrower), and shall directly or indirectly own (through the Borrower Manager or any wholly-owned subsidiary thereof) not less than 51% of the issued and outstanding limited liability company membership interests in the Borrower, and (B) the REIT (as the sole general partner of the Borrower Manager) shall at all relevant times during which the Loan secured hereby is outstanding, maintain a comparable right and ability to manage and control the Borrower and the Property as existed as of the date of this Security Instrument.”

“Notwithstanding anything in this Security Instrument to the contrary, shares in an entity that is a real estate investment trust may be offered and sold to investors in an offering of such shares which has been registered with the Securities and Exchange Commission, or is exempt from registration, without regard to the limitations and/or restrictions on transfer set forth in Article 5 and any such sale or offering shall not constitute a transfer or sale of ownership interests in the Borrower.”

“Notwithstanding anything in this Security Instrument to the contrary, the REIT may acquire and/or dispose of shares of a real estate investment trust of the type described in Section 5.3, including its own shares, and/or any interests in NNN Apartment REIT Advisor, LLC and/or ROC REIT Advisors, LLC, or their successors, in each case without regard to the limitations and/or restrictions on transfer set forth in this Article 5 and any such acquisition or disposition shall not constitute a transfer or sale prohibited by this Article 5.”

9. Additional Conditions to Consent. In addition to the other conditions required under this Agreement, Lender requires: (a) New Borrower to use Servicer’s Auto Debit Service to make payments, (b) New Borrower to maintain insurance as required under the Mortgage and (c) New Borrower to provide Lender with a survey certified to Lender within 30 days of the date hereof.

10. Lender’s Rights and Remedies. Lender’s rights hereunder shall be reinstated and revived, with respect to any amount at any time paid on account of the Loan which thereafter shall be required to be restored or returned by Lender upon the bankruptcy, insolvency or reorganization of Transferor, as though such amount had not been paid. Lender’s rights hereunder shall be reinstated and revived, with respect to any amount at any time paid on account of the Loan which thereafter shall be required to be restored or returned by Lender upon the bankruptcy, insolvency or reorganization of New Borrower, as though such amount had not been paid. The lien created or granted by, and the enforceability of the Loan Documents at all times shall remain effective as to the full amount of the indebtedness evidenced and/or secured thereby, even though the indebtedness, including any part thereof or any other security or guaranty therefore, may be or hereafter may become invalid or otherwise unenforceable as against any of Transferor and/or New Borrower and whether or not any of them shall have any personal liability with respect thereto.

11. Costs. Transferor and/or New Borrower agree to pay all fees and costs (including reasonable attorney’s fees) incurred by Lender and Servicer in connection with Lender’s consent to and approval of the transfer of the Property, including an assumption fee equal to thirty-three hundredths percent (0.33%) of the outstanding principal balance of the Loan.

12. Payment of Interest and Principal. New Borrower shall pay and hereby promises to pay to Lender, or order, at the office of Servicer located at 116 Welsh Road, Horsham, Pennsylvania 19044 or at such other place as may be designated from time to time in writing by Lender, the outstanding principal balance of the Loan in the amount of $13,600,000.00 in lawful money of the United States of America, with interest thereon from the date of this Agreement to and including the Maturity Date payable in the manner as set forth in the Note and the Loan Agreement. During the term of the Loan, New Borrower shall establish and maintain a deposit account with a bank or other financial institution acceptable to Lender and authorize such bank or financial institution to permit Lender to debit said deposit account for all principal, interest, escrow and reserve payments due Lender under the Loan on the due dates for such payments through servicer’s automatic mortgage payment service.

13. No Impairment of Lien. Nothing set forth herein shall affect the priority or extent of the lien of any of the Loan Documents, nor, except as expressly set forth herein, release or change the liability of any party who may now be or after the date of this Agreement, become liable, primarily or secondarily, under the Loan Documents.

14. Information and Materials Accurate. New Borrower and New Guarantor each represent and warrant to Lender and Servicer that all information and materials regarding New Borrower, New Guarantor and/or the Property provided to Servicer were true and correct in all respects as of the date provided to Servicer and remain true and correct as of the date of this Agreement.

15. References to Transferor. All references to Transferor, having an address at P.O. Box 400, 400 North State Street, Fountain Green, Utah 84632 as “Borrower” under the Note, the Mortgage and the other Loan Documents (except the “Existing Environmental Indemnity”) are hereby deleted in their entirety and all references to “Borrower” under the Note, the Mortgage and the other Loan Documents (except for the Existing Environmental Indemnity) shall be deemed to refer to Apartment REIT Villas of El Dorado, LLC, having an address at 1551 N. Tustin Avenue, Suite 300, Santa Ana, California 92705.

16. References to Original Guarantor. All references to the term “Guaranty” contained in any of the Loan Documents shall be deemed to refer to the New Guaranty, as defined above. All references to the Original Guarantor in the Note, the Mortgage and the other Loan Documents are hereby deleted in their entirety and shall be deemed to refer to the New Guarantor.

17. Notice. Each notice given hereunder and under the other Loan Documents shall be addressed to the intended recipient at its address set forth in this Agreement and shall be given in accordance with the requirements for notice set forth in the Mortgage.

18. No Offsets, Counterclaims or Defenses. New Borrower represents, warrants and covenants that there are no offsets, counterclaims or defenses against the Loan, this Agreement, the Mortgage, the Note, or any of the other Loan Documents and that New Borrower (and the undersigned representative of New Borrower) has full power, authority and legal right to execute this Agreement and to keep and observe all of the terms of this Agreement on New Borrower’s part to be observed and/or performed, and that the Note, the Mortgage and all other Loan Documents, and this Agreement constitute valid and binding obligations of New Borrower. New Guarantor represents, warrants and covenants that there are no offsets, counterclaims, or defenses against the New Guaranty or this Agreement and that New Guarantor has full power, authority and legal right to execute this Agreement and observe all of the terms of this Agreement on New Guarantor’s part to be observed and/or performed, and that the New Guaranty and this Agreement constitute valid and binding obligations of New Guarantor. All of the covenants, representations and warranties set forth in the Mortgage, the Note, and the other Loan Documents, as the same may have been modified or amended by the terms of this Agreement, are hereby restated, ratified and confirmed in all respects by New Borrower as of the date hereof and are and shall remain in full force and effect.

19. INDEMNIFICATION. NEW BORROWER, TRANSFEROR, ORIGINAL GUARANTOR AND NEW GUARANTOR, JOINTLY AND SEVERALLY, UNCONDITIONALLY AND IRREVOCABLY RELEASE AND FOREVER DISCHARGE LENDER AND SERVICER AND THEIR RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS, DIRECTORS, OFFICERS, EMPLOYEES, AND ATTORNEYS, AND EACH CURRENT OR SUBSTITUTE TRUSTEE UNDER THE MORTGAGE (COLLECTIVELY, THE “INDEMNITEES”) FROM ALL CLAIMS, AS DEFINED BELOW, AND JOINTLY AND SEVERALLY AGREE TO INDEMNIFY INDEMNITEES, AND HOLD THEM HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, CAUSES OF ACTION, COSTS AND EXPENSES OF EVERY KIND OR CHARACTER IN CONNECTION WITH THE CLAIMS OR THE TRANSFER OF THE PROPERTY. NOTWITHSTANDING THE FOREGOING, TRANSFEROR AND/OR ORIGINAL GUARANTOR SHALL NOT BE RESPONSIBLE FOR ANY CLAIMS ARISING FROM THE ACTION OR INACTION OF NEW BORROWER AND/OR NEW GUARANTOR, AND NEW BORROWER AND NEW GUARANTOR SHALL NOT BE RESPONSIBLE FOR ANY CLAIMS ARISING FROM THE ACTION OR INACTION OF TRANSFEROR AND/OR ORIGINAL GUARANTOR. AS USED IN THIS AGREEMENT, THE TERM “CLAIMS” SHALL MEAN ANY AND ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART, ON OR BEFORE THE DATE OF THIS AGREEMENT, WHICH THE TRANSFEROR, ORIGINAL GUARANTOR, NEW BORROWER AND NEW GUARANTORS, OR ANY OF THEIR RESPECTIVE PARTNERS, MEMBERS, OFFICERS, AGENTS OR EMPLOYEES, MAY NOW OR HEREAFTER HAVE AGAINST THE INDEMNITEES, IF ANY AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAWS, OR REGULATIONS, OR OTHERWISE IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE THERETO AND ANY LOSS, COST OR DAMAGE, OF ANY KIND OR CHARACTER, ARISING OUT OF OR IN ANY WAY CONNECTED WITH OR IN ANY WAY RESULTING FROM THE ACTS, ACTIONS OR OMISSIONS OF INDEMNITEES, INCLUDING ANY REQUIREMENT THAT THE LOAN DOCUMENTS BE MODIFIED AS A CONDITION TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, ANY CHARGING, COLLECTING OR CONTRACTING FOR PREPAYMENT PREMIUMS, TRANSFER FEES, OR ASSUMPTION FEES, ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF CONFIDENCE, BREACH OF FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, VIOLATION OF ANY FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR REGULATIONS, CONFLICT OF INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION OF MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS, TORTIOUS INTERFERENCE WITH CORPORATE GOVERNANCE OR PROSPECTIVE BUSINESS ADVANTAGE, BREACH OF CONTRACT, DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER, CONSPIRACY OR ANY CLAIM FOR WRONGFULLY ACCELERATING THE NOTE OR WRONGFULLY ATTEMPTING TO FORECLOSE ON ANY COLLATERAL RELATING TO THE NOTE, BUT IN EACH CASE ONLY TO THE EXTENT PERMITTED BY APPLICABLE LAW. TRANSFEROR AND NEW BORROWER AGREE THAT LENDER AND SERVICER HAVE NO FIDUCIARY OR SIMILAR OBLIGATIONS TO TRANSFEROR AND NEW BORROWER AND THAT THEIR RELATIONSHIP IS STRICTLY THAT OF CREDITOR AND DEBTOR. THIS RELEASE AND DISCHARGE IS ACCEPTED BY LENDER AND SERVICER PURSUANT TO THIS AGREEMENT AND SHALL NOT BE CONSTRUED AS AN ADMISSION OF LIABILITY ON THE PART OF EITHER. TRANSFEROR AND NEW BORROWER AND THE ORIGINAL GUARANTOR AND NEW GUARANTOR HEREBY REPRESENT AND WARRANT THAT THEY ARE THE CURRENT LEGAL AND BENEFICIAL OWNERS OF ALL CLAIMS, IF ANY, RELEASED HEREBY AND HAVE NOT ASSIGNED, PLEDGED OR CONTRACTED TO ASSIGN OR PLEDGE ANY SUCH CLAIM TO ANY OTHER PERSON.

20. No Modification or Waiver. This Agreement and any provisions hereof may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Transferor, Original Guarantor, New Borrower, New Guarantor or Lender, but only by an agreement in writing executed by the party against whom the enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

21. Insurance. Notwithstanding anything to the contrary contained in the Loan Documents the “all-risk” policy of insurance or the policy covering “special” causes against loss or damage by fire, casualty and other hazards must not exclude coverage for mold and terrorism.

22. Entire Agreement. This Agreement embodies and constitutes the entire understanding among the parties with respect to the transactions contemplated herein, and all prior or contemporaneous agreements, understandings, representations, and statements, oral or written, are merged into this Agreement. Except as expressly modified hereby, the Note, Mortgage and other Loan Documents shall remain in full force and effect. Transferor and Original Guarantor hereby ratify the agreements made by them to Lender in connection with the Loan and agree that, except to the extent modified hereby, all of such agreements remain in full force and effect.

23. Same Indebtedness: Priority of Liens Not Affected. This Agreement and the execution of other documents contemplated hereby do not constitute the creation of a new debt or the extinguishment of the debt evidenced by the Loan Documents, nor will they in any way affect or impair the liens and security interests created by the Loan Documents, which New Borrower acknowledges to be valid and existing liens on and security interests in the Property. New Borrower agrees that the lien and security interests created by the Mortgage continue to be in full force and effect, unaffected and unimpaired by this Agreement or by the transfer of the Property or any collateral described in financing statements filed in connection with the Loan Documents and that said liens and security interests shall so continue in their perfection and priority until the debt secured by the Loan Documents is fully discharged.

24. Incorporation of Recitals. The Recitals above are hereby incorporated herein and made a part hereof by this reference.

25. Severability. If any term, covenant or condition of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision.

26. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and the applicable laws of the United States of America.

27. Terms Not Defined. All capitalized words and phrases not otherwise defined herein shall have the meaning ascribed to them in the Note and/or the Mortgage.

28. Successors and Assignees Bound. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their, respective heirs, legal representatives, successors and assigns.

29. Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All such counterparts shall be construed together and shall constitute one instrument, but in making proof hereof it shall only be necessary to produce one such counterpart.

30. Conflicting Provisions. It is hereby agreed that the terms and conditions of the Mortgage, the Note and other Loan Documents not specifically modified herein shall remain in full force and effect and shall be binding upon New Borrower. It is understood and agreed that in the event there are any conflicting or omitted provisions or variations between the terms, conditions, rights, or remedies in the Mortgage, the Note or any other Loan Document and the terms of this Agreement (other than those specifically modified herein), those terms, conditions, rights or remedies which are most favorable to Lender shall remain in full force and effect and shall prevail. A default under the terms and conditions of this Agreement shall constitute a default under the terms and conditions of the aforesaid Mortgage, Note and other Loan Documents.

31. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, TRANSFEROR, ORIGINAL GUARANTOR, NEW GUARANTOR, NEW BORROWER, AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF EITHER PARTY OR ANY EXERCISE BY ANY PARTY OD THEIR RESPECTIVE RIGHTS UNDER THE LOAN DOCUMENTS OR IN ANY WAY RELATING TO THE LOAN OR THE PROPERTY (INCLUDING, WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIM OR DEFENSE ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER THIS AGREEMENT.

32. Final Agreement. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

IN WITNESS WHEREOF, Transferor, New Borrower, Original Guarantor, New Guarantor and Lender have duly executed this Agreement the day and year first above written.

On October 31, 2007, before me Joanna Clements, Notary Public, personally appeared EVAN K. JACOBSON, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity(ies) and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

[Seal] Jo-Anna Clements
[Seal] Notary Public, State of Texas
[Seal] My Commission Expires
[Seal] October 25, 2011

By: NNN Apartment REIT Holdings, L.P., a Virginia limited partnership, its sole member

On October 31, 2007, before me Brenda S. Holmes, Notary Public, personally appeared S. Jay Olander personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity(ies) and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

[Seal] Brenda M. Holmes
[Seal] Notary Public
[Seal] Reg # 224930
[Seal] My Commission Expires
[Seal] 09/30/2011
[Seal] Commonwealth of Virginia

On October 30, 2007, before me Tina Stephensen, Notary Public, personally appeared WENDELL A. JACOBSON personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity(ies) and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

[Seal] Tina Stephensen
[Seal] Notary Public -State of Utah
[Seal] 255 West Center POB 194
[Seal] Fountain Green, UT 84632
[Seal] Comm. Exp. 08-24 2010

On October 31, 2007, before me Brenda M. Holmes, Notary Public, personally appeared S. Jay Olander personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity(ies) and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

[Seal] Brenda M. Holmes
[Seal] Notary Public
[Seal] Reg # 224930
[Seal] My Commission Expires
[Seal] 09/30/2011
[Seal] Commonwealth of Virginia

ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF MORGAN STANLEY CAPITAL I INC., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-IQ14

By: Capmark Finance Inc., a California corporation (f/k/a GMAC Commercial Mortgage Corporation), as Master Servicer

On this the 30th day of October, 2007, before me, a Notary Public, the undersigned officer, personally appeared Gary A. Routzahn, known to me or satisfactorily proven to be the person whose name is subscribed to the within instrument, and who acknowledged to me that he is the Vice President of CAPMARK FINANCE INC., a California corporation, and that he, being duly authorized to do so, did execute the same on behalf of CAPMARK FINANCE INC. by signing his/her name as such Vice President, for all the purposes therein contained.

[Seal] Notarial Seal
[Seal] Sandy (illegible), Notary Public
[Seal] (illegible), Montgomery County
[Seal] My Commission Expires April 25, 2009

THIS INSTRUMENT CONTAINS INDEMNIFICATION PROVISIONS AND
PROVISIONS LIMITING LENDER’S LIABILITY FOR NEGLIGENCE

FOR VALUE RECEIVED and intending to be legally bound, EL DORADO APARTMENTS, LLC, a Texas limited liability company (“Borrower”), promises to pay to the order of ROYAL BANK OF CANADA, a Canadian chartered bank (“Lender”), at such place as Lender or any subsequent holder hereof may from time to time designate in writing, the principal sum of THIRTEEN MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($13,600,000.00), in lawful money of the United States of America, with interest thereon to be computed from the date of this Note at the Applicable Interest Rate (as hereinafter defined), and to be paid in installments as provided herein.

1.1 Applicable Interest Rate” shall mean an interest rate equal to five and sixty-eight

1.2 “Business Day” shall mean a day on which commercial banks are not authorized or

1.3 “Capital Reserves Fund” shall have the meaning specified in Section 8.1(b) hereof.

1.4 “Constant Monthly Payment” shall mean an interest only payment as determined by

1.7 “Default Repayment” shall mean a repayment of all or any portion of the principal amount of this Note made during the continuance of any Event of Default or after an acceleration of the Maturity Date under any circumstances, including, without limitation, a repayment occurring in connection with reinstatement of the Security Instrument provided by statute under foreclosure proceedings or exercise of a power of sale, any statutory right of redemption exercised by Borrower or any other person or entity having a statutory right to redeem or prevent foreclosure and any sale in foreclosure or under exercise of a power of sale or otherwise.

1.8 “Defeasance Deposit” shall mean an amount equal to the sum of (1) the amount which will be sufficient to purchase Government Securities necessary to meet the Scheduled Defeasance Payments; and (2) any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection with the transfer of this Note or otherwise required to accomplish the agreements of Section 5.2, all fees, costs and expenses incurred or to be incurred by Lender in the purchase of such Government Securities and the assumption payments referred to in Section 5.2(ii) hereof.

1.9 “Event of Default” shall have the meaning specified in Section 3.1 hereof.

1.10 “Government Securities” shall mean “Government Securities” as defined in Treasury
Regulations Section 1.860G-2(a)(8)(i), as amended.

1.13 “Loan Documents” shall mean this Note, the Security Instrument and any other documents or instruments which now or hereafter wholly or partially secure or guarantee payment of the Loan or which have otherwise been executed or are hereafter executed by Borrower and/or any other person or entity in connection with the Loan and any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part thereof.

1.14 “Lockout Period Expiration Date” shall mean the earlier of (a) the third anniversary of the date hereof and (b) two years after the “startup day” of any “real estate mortgage investment conduit” (as such terms are defined in Sections 860G and 860D, respectively, of the Internal Revenue Code of 1986, as amended, or any successor statute thereto) which may acquire the Loan.

1.16 “Monthly Payment Date” shall mean the first day of each calendar month prior to the Maturity Date, commencing on January 1, 2007.

1.17 “Open Prepayment Date” shall mean the date which is three months prior to the Maturity

1.18 “Payment Differential” shall mean, with respect to any Repayment Date, (x) the Applicable Interest Rate minus the Reinvestment Yield, divided by (y) 12, and multiplied by (z) the principal sum being repaid on such Repayment Date after application of the Constant Monthly Payment (if any) due on the date of the Default Repayment, provided that the Payment Differential shall in no event be less than zero.

1.19 “Pledge Agreement” shall have the meaning specified in Section 5.2(i)(5)(A) hereof.

1.20 “Property” shall mean certain premises located in McKinney, County of Collin, State of Texas, and other property, all as more particularly described in the Security Instrument.

1.21 “Reinvestment Yield” shall mean the lesser of (a)(i) the yield on the U.S. Treasury issue (primary issue) with the same maturity date as the Maturity Date or (ii) if no such U.S. Treasury issue is available, then the interpolated yield on the two U.S. Treasury issues (primary issues) with maturity dates (one prior to and one following) that are closest to the Maturity Date and (b)(i) the yield on the U.S. Treasury issue (primary issue) with a term equal to the remaining average life of the Debt or (ii) if no such U.S. Treasury issue is available, then the interpolated yield on the two U.S. Treasury issues (primary issues) with terms (one prior to and one following) that are closest to the remaining average life of the Debt, with each such yield being based on the bid price for such issue as published in The Wall Street Journal on the date that is 14 days prior to the Repayment Date (or, if such bid price is not published on that date, the next preceding date on which such bid price is so published) and converted to a monthly compounded nominal yield.


1.22		“Release Date” shall have the meaning specified in Section 5.2(i)(1) hereof.
1.23		“Repayment Date” shall have the meaning specified in Section 5.3 hereof.
1.24		“Reserves” shall mean the Immediate Repairs Fund and the Capital Reserves Fund, all as

1.25 “Scheduled Defeasance Payments” shall have the meaning specified in Section 5.2 hereof.

1.26 “Security Instrument” shall mean, as applicable, the Mortgage, Security Agreement Fixture Financing Statement and Assignment of Leases and Rents, the Deed of Trust, Security Agreement, Fixture Financing Statement and Assignment of Leases and Rents, or the Deed to Secure Debt, Security Agreement, Fixture Financing Statement and Assignment of Leases and Rents, of even date executed by Borrower in favor of Lender, covering the Property.

1.28 Whenever used, the singular number shall include the plural, the plural the singular, and the words “Lender” and “Borrower” shall include their respective successors, assigns, heirs, executors and administrators.

2.1 If this Note is dated a date other than the first day of a calendar month, an initial payment shall be due from Borrower to Lender on the date hereof on account of all interest scheduled to accrue on the principal sum of this Note from and after the date hereof through and including the last day of the current month.

2.2 Commencing on January 1, 2007, and continuing on each Monthly Payment Date thereafter until the Maturity Date, Borrower shall pay interest only in arrears computed at the Applicable Interest Rate on the outstanding principal. The balance of said principal sum and all interest and other sums payable under this Note and the other Loan Documents shall be due and payable on the Maturity n Date. Interest on the principal sum of this Note shall be calculated by multiplying the actual number of days elapsed in the period for which interest is being calculated by a daily rate based on a 360-day year.

2.3 Unless payments are made in the required amount in immediately available funds, in lawful money of the United States of America, at the place where this Note is payable, remittances in payment of all or any part of the Debt shall not, regardless of any receipt or credit issued therefore, constitute payment until the required amount is actually received by Lender in such money and funds immediately available at the place where this Note is payable (or any other place as Lender, in Lender’s sole discretion, may have established by delivery of written notice thereof to Borrower) and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Lender reserves the right to require any payment on this Note, whether such payment is a regular installment, prepayment or final payment, to be by wired federal funds or other immediately available funds.

2.4 All payments made by Borrower hereunder shall be made free and clear of, and without reduction for, or on account of, any income, stamp or other taxes, charges, fees, deductions or withholdings hereafter imposed, collected, withheld or assessed by any government or taxing authority (other than taxes on the overall net income or overall gross receipts of Lender imposed as a result of a present or former connection between Lender and the jurisdiction of the government or taxing authority imposing such taxes, provided, however, that this exclusion shall not apply to a connection arising solely from Lender’s having executed, delivered, performed its obligations under, received a payment under, or enforced this Note or any other Loan Document. If any such amounts are required to be withheld from amounts payable to Lender, the amounts payable to Lender under the Loan Documents shall be increased to the extent necessary to yield to Lender, after payment of such amounts, interest or any such other amounts payable at the rates or in the amounts specified herein. If any such amounts are payable by Borrower, Borrower shall pay all such amounts by their due date and promptly send Lender a certified copy of an original official receipt showing payment thereof. If Borrower fails to pay such amounts when due or to deliver the required receipt to Lender, Borrower shall indemnify Lender for any incremental taxes, interest or penalties that may become payable by Lender as a result of any such failure.

3.1 The whole of the principal sum of this Note, together with all interest accrued and unpaid thereon and all other sums due under the Security Instrument and this Note (all such sums herein collectively referred to as the “Debt”) shall without notice become immediately due and payable at the option of Lender upon the occurrence of an Event of Default. Each of the following shall constitute an “Event of Default” under this Note: (i) Borrower’s failure to pay any amounts owed pursuant to this Note within five days after such payment is due; (ii) Borrower’s failure to pay the outstanding principal amount and all accrued and unpaid interest in full on the Maturity Date; or (iii) the occurrence of any Event of Default under any of the other Loan Documents. All of the terms, covenants and conditions contained in the Security Instrument and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event that it should become necessary to employ counsel to collect the Debt or to protect or foreclose the security hereof, Borrower also agrees to pay reasonable attorneys’ fees for the services of such counsel whether or not suit is brought.

4.1 Borrower agrees that upon the occurrence of an Event of Default, Lender shall be entitled to receive and Borrower shall pay interest on the entire unpaid principal sum at a rate (the “Default Rate”) equal to the lesser of (i) the Applicable Interest Rate plus five percent (5%) and (ii) the maximum interest rate that Borrower is permitted by law to pay. The Default Rate shall be computed from the occurrence of the Event of Default until the earlier of the upon which the Event of Default is cured or the date upon which the Debt is paid in full. Interest calculated at the Default Rate shall be added to the Debt and shall be secured by the Security Instrument. This provision, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default.

5.1 Borrower shall not have the right or privilege to prepay all or any portion of the unpaid principal balance of this Note until the Open Prepayment Date. From and after the Open Prepayment Date, provided no Event of Default exists, the principal balance of this Note may be prepaid, in whole but not in part, on any Monthly Payment Date upon: (i) not more than 60 days and not less than 30 days prior written notice to Lender specifying the date on which prepayment is to be made (the “Prepayment Date”); (ii) payment of all accrued and unpaid interest on the outstanding principal balance of this Note to and including the Prepayment Date; and (iii) payment of all other sums then due under this Note, the Security Instrument and the other Loan Documents. Lender shall not be obligated to accept any prepayment of the principal balance of this Note unless it is accompanied by all sums due in connection therewith.

5.2 (1) At any time from and after the Lockout Period Expiration Date and provided no Event of Default exists at the time, Borrower may obtain the release of the Property from the lien of the Security Instrument upon the satisfaction of the following conditions precedent:

(1)

Borrower shall have provided Lender with not less than 30 days and not more than 60 days prior written notice specifying the date (the “Release Date”) on which the Defeasance Deposit is to be made;

(2)

Borrower shall have paid to Lender all interest accrued and unpaid on the principal balance of this Note to and including the Release Date;

(3)

Borrower shall have paid to Lender all other sums due and payable under this Note, the Security Instrument and the other Loan Documents through and including the Release Date (including, but not limited to, any Constant Monthly Payment which may be due and payable on the Release Date);

(4)

Borrower shall have paid to Lender the Defeasance Deposit and a $5,000 non-refundable processing fee; and

(A)

a security agreement, in form and substance satisfactory to Lender, creating a first priority lien on the Defeasance Deposit and the Government Securities purchased on behalf of Borrower with the Defeasance Deposit in accordance with the provisions of this Section 5.2 (the “Pledge Agreement”);

(B)

a release of the Property from the lien of the Security Instrument (for execution by Lender) in a form appropriate for the jurisdiction in which the Property is located;

(C)

an officer’s certificate of Borrower certifying that the requirements set forth in this Section 5.2 have been satisfied;

(D)

a certificate by Borrower’s nationally recognized independent public accountant acceptable to Lender, in form and substance acceptable to Lender, certifying that the cash flow from the Government Securities will be sufficient to timely meet all Scheduled Defeasance Payments;

(E)

an opinion of counsel in form and substance, and rendered by counsel satisfactory, to Lender at Borrower’s expense stating, among other things, that Lender will have a perfected first priority security interest in the Defeasance Deposit and the Government Securities to be purchased on behalf of Borrower and pledged to Lender and as to the enforceability of the Pledge Agreement and other related documents to be delivered in connection therewith;

(F)

if required by the Rating Agencies (as defined in the Security Instrument) and/or pooling and servicing agreement relating to the securitization of the Loan, evidence in writing from the applicable Rating Agencies to the effect that such release will not result in a qualification, downgrade or withdrawal of any rating in effect immediately prior to such defeasance with respect to any security backed by the Loan;

(G)

if the Loan has been sold in a Secondary Market Transaction (as defined in the Security Instrument), an opinion of counsel acceptable to Lender in form satisfactory to Lender stating, among other things, that the substitution of collateral will not cause the holder of the Loan to fail to maintain its status as a real estate mortgage investment conduit; and

(H)

such other certificates, documents or instruments as Lender may reasonably request.

The Defeasance Deposit shall be used to purchase Government Securities which provide payments which are (A) payable on or prior to, but as close as possible to, all successive Monthly Payment Dates after the Release Date and the Maturity Date and (B) in amounts necessary to meet the scheduled payments of principal and interest due under this Note on such dates (the “Scheduled Defeasance Payments”). Borrower, pursuant to the Pledge Agreement or other appropriate documents, shall authorize and direct that the payments received from the Government Securities be made directly to Lender and applied to satisfy the obligations of the Borrower under this Note.

(ii) Upon compliance with the requirements of this Section 5.2, the Property shall be released from the lien of the Security Instrument and the pledged Defeasance Deposit and the Government Securities purchased therewith shall be the sole source of collateral securing this Note. In connection with such release, Lender, or its designee, shall establish or designate a successor entity (the “Successor Borrower”) and Borrower shall transfer and assign all obligations, rights and duties under and to this Note together with the pledged Defeasance Deposit and/or Government Securities to such Successor Borrower. Such Successor Borrower shall assume the obligations of Borrower under this Note and the Pledge Agreement, and Borrower shall be relieved of its obligations hereunder and thereunder, except that Borrower shall be required to perform its obligations pursuant to this Section 5. Borrower shall pay $1,000.00 to any such Successor Borrower as consideration for assuming the obligations under this Note and the Pledge Agreement pursuant to such assignment. Borrower shall pay all costs and expenses incurred by Lender, including Lender’s attorneys’ fees and expenses and, if applicable, Rating Agency fees and expenses, if any, incurred in connection with this Section 5.2.

(iii) Following the delivery of the Defeasance Deposit to Lender, Borrower shall not have any right to prepay this Note.

5.3 Simultaneously with each Default Repayment occurring prior to the Monthly Payment Date which is one month prior to the Maturity Date, Borrower shall pay to Lender an amount equal to the greater of: (A) five percent (5%) of the principal amount of this Note being prepaid and (B) the present value of a series of payments each equal to the Payment Differential and payable on each Monthly Payment Date over the remaining original term of this Note and on the Maturity Date discounted at the Reinvestment Yield for the number of months remaining from the date of the Default Repayment (the “Repayment Date”) to each such Monthly Payment Date and the Maturity Date. In no event shall Lender be required to reinvest any repayment proceeds in U.S. Treasury obligations or otherwise.

6.1 If any installment payable under this Note is not paid in full within five days after the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to five percent (5%) of the full amount that was due. Such amount shall be added to the Debt and secured by the Security Instrument and the other Loan Documents.

7.1 This Note is secured by the liens and security interests created under the Loan Documents (including those arising under the Security Instrument).

8.1 Borrower shall establish the following reserves with Lender, to be held by Lender as further security for the Loan:

(a) Borrower shall deposit with Lender, on the first day of each calendar month on which a scheduled payment is due, the amount of $4,133.00, which shall be held by Lender for replacements and repairs required to be made to the Property during the calendar year (the “Capital Reserves Fund”).

8.2 Borrower hereby pledges to Lender, and grants a security interest in, any and all funds now or hereafter deposited in the Reserves as additional security for the payment of the Loan. Provided that no Event of Default has occurred and upon request by Borrower, Lender shall make disbursements from the Reserves as approved by Lender in its reasonable discretion, on a quarterly basis in amounts of no less than $2,500.00 upon delivery by Borrower of Borrower’s written request for such release, including a description and cost breakdown in reasonable detail of the costs and/or work covered by such request, accompanied by copies of paid invoices for the amounts requested and, if required by Lender, lien waivers and releases from all parties furnishing materials and/or services in connection with the requested payment. Lender may require an inspection of the Project at Borrower’s expense prior to making a quarterly disbursement in order to verify completion of the work for which reimbursement is sought. Lender may reasonably reassess its estimate of the amount necessary for the Reserves from time to time and may revise the monthly amounts required to be deposited into the Reserves upon 30 days notice to Borrower. The Reserves shall be held without interest in Lender’s name and may be commingled with Lender’s own funds at financial institutions selected by Lender in its reasonable discretion. Notwithstanding anything to the contrary contained herein, if an Event of Default has occurred and is continuing, (i) any amounts deposited into or remaining in any of the Reserves shall be held for the account of Lender and may be withdrawn by Lender to be applied in any manner as Lender may elect in its discretion, and (ii) Borrower shall have no further right with respect to the Reserves. Lender shall have no obligation to release any of the Reserves while any Event of Default exists or any material adverse change has occurred in Borrower, any Guarantor or the Property. All of Lender’s costs and expenses incurred in connection with the disbursement of the Reserves shall be promptly paid by Borrower or, at Lender’s sole discretion, deducted from the Reserves. No disbursement from the Reserves shall be made without Lender’s prior written consent, provided that Lender shall promptly refund to Borrower any sums held by Lender under this section upon Borrower’s payment in full of all sums secured by the Loan Documents. The Reserves shall not be, and do not constitute, trust funds held by Lender for the benefit of the Borrower.

9.1 Except as set forth herein, Borrower shall not be personally liable for amounts due under the Loan Documents, and Lender’s recovery against Borrower under this Note and the other Loan Documents shall be limited solely to the Property (as such term is defined in the Security Instrument); provided, however, that the limitation on recourse set forth in this Section 9 shall be null and void and completely inapplicable, and this Note shall be with full recourse to Borrower, in the event of (i) Borrower’s failure to comply with provisions of the Loan Documents prohibiting the sale, transfer or encumbrance of the Property, any other collateral, or any direct or indirect ownership interest in Borrower or (ii) the voluntary filing by Borrower, or the filing against Borrower by any Guarantor or any affiliate of any Guarantor, or an involuntary filing against Borrower in which Borrower or any Guarantor acts in collusion with the filing party with respect to the filing, of any proceeding for relief under any federal or state bankruptcy, insolvency or receivership laws or any assignment for the benefit of creditors made by Borrower.

9.2 Borrower shall be personally liable for any losses, liabilities or damages incurred by Lender (including, without limitation, attorneys’ fees and expenses) with respect to any of the following matters: (i) fraud or willful misrepresentation by Borrower or any Guarantor in connection with the Loan; (ii) material physical waste of the Property (as such term is defined in the Security Instrument) caused by the acts or omissions of Borrower, its agents, affiliates, officers or employees; (iii) Borrower’s failure to apply proceeds of rents or any other payments in respect of the leases and other income of the Property or any other collateral when received to the costs of maintenance and operation of the Property and to the payment of taxes, lien claims, insurance premiums, debt service, escrows, and other amounts due under the Loan Documents to the extent the Loan Documents require such proceeds to be then so applied; (iv) Borrower’s failure to deliver any insurance or condemnation proceeds or awards or any security deposits received by Borrower to Lender or to otherwise apply such sums as required under the terms of the Loan Documents or any other instrument now or hereafter securing this Note; (v) any breach by Borrower of any covenant in the Loan Documents regarding Hazardous Substances (as defined in the Environmental Indemnity Agreement of even date herewith to which Borrower and Lender are parties) or any representation or warranty of Borrower regarding Hazardous Substances proving to have been untrue when made; (vi) Borrower’s collection of rents more than one month in advance or entering into or modifying leases, or receipt of monies by Borrower or its general partner or managing member in connection with the modification of any leases, in violation of the Loan Documents; and (vii) Borrower’s failure to =maintain insurance as required by the Loan Documents.

9.3 Nothing contained in Section 9 shall be deemed to release, affect or impair the Debt evidenced by this Note, the obligations of Borrower under, or the liens and security interests created by, the Loan Documents, or Lender’s rights to enforce its remedies under this Note and the other Loan Documents, including, without limitation, the right to pursue any remedy for injunctive or other equitable relief, or any suit or action in connection with the preservation, enforcement or foreclosure of the liens, mortgages, assignments and security interests which are now or at any time hereafter security for the payment and performance of all obligations under this Note or the other Loan Documents.

9.4 The provisions of this Section 9 shall prevail and control over any contrary provisions elsewhere in this Note or the other Loan Documents.

10.1 This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance due hereunder at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. Accordingly, all agreements between Borrower and Lender with respect to the Loan are expressly limited so that in no event, whether by reason of acceleration of maturity or otherwise, shall the amount paid or agreed to be paid to Lender or charged by Lender for the use, forbearance or detention of the money to be loaned hereunder or otherwise, exceed the maximum amount allowed by law. If the Loan would be usurious under applicable law (including the laws of the State and the laws of the United States of America), then, notwithstanding anything to the contrary in the Loan Documents: (a) the aggregate amount of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received under the Loan Documents shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on this Note by the holder thereof; and (b) if maturity is accelerated as elected by Lender, or in the event of any prepayment, then any consideration which constitutes interest may never include more than the maximum amount allowed by applicable law. In such case, any excess interest provided for in the Loan Documents or otherwise, to the extent permitted by applicable law, shall be amortized, prorated, allocated and spread throughout the full stated term of this Note until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. If such amortization, proration, allocation and spreading is not permitted under applicable law, then such excess interest shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on this Note. The terms and provisions of this Section 10.1 shall control and supersede every other provision of the Loan Documents. The Loan Documents are contracts made under and shall be construed in accordance with and governed by the laws of the State, except that if at any time the laws of the United States of America permit Lender to contract for, take, reserve, charge or receive a higher rate of interest than is allowed by the laws of the State (whether such federal laws directly so provide or refer to the law of any state), then such federal laws shall to such extent govern as to the rate of interest which Lender may contract for, take, reserve, charge or receive under the Loan Documents.

11.1 This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

12.1 If Borrower consists of more than one person or entity, the obligations and liabilities of each such person or entity shall be joint and several.

13.1 Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest, notice of protest, notice of non-payment, notice of intent to accelerate the maturity hereof, notice of the acceleration of the maturity hereof, bringing of suit and diligence in taking any action to collect amounts called for hereunder. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Security Instrument or any other Loan Document made by agreement between Lender and any other person or entity shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower or any other person or entity who may become liable for the payment of all or any part of the Debt under this Note, the Security Instrument or the other Loan Documents.

14.1 Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer,

Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Security Instrument and the other Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and collateral not so transferred.

14.2 By acceptance of this Note, Lender and any subsequent holder of this Note agree that, if so requested in writing by the Borrower upon any refinancing of the Loan, upon full and final payment to Lender or such holder, as the case may be, of all principal, interest, expenses, fees and all other amounts owing to Lender or any subsequent holder on account of the Loan, the holder shall assign this Note, the Security Instrument, and such other Loan Documents as may be necessary to vest in such new lender the holder’s rights in the Loan, all at the expense of Borrower and without any representation, warranty or recourse to Lender or any holder hereunder or otherwise.

15.1 All notices or other written communications hereunder shall be deemed to have been properly given and shall be effective for all purposes (i) upon delivery, if delivered in person, (ii) one Business Day after having been deposited for overnight delivery with any reputable overnight courier service, (iii) three Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, or (iv) if by telecopy, upon transmittal to the recipient’s telecopy number. All such communications shall be mailed, sent or delivered, addressed to the party for whom it is intended at its address set forth below.


If to Borrower: If to Lender: With a copy to:		El Dorado Apartments, LLC P.O. Box 400 400 North State Street Fountain Green, Utah 84632 Attention: Wendell A. Jacobson Telecopy: (435) 445-3507 Royal Bank of Canada c/o Midland Loan Services, Inc. 10851 Mastin, Suite 700 Overland Park, Kansas 66210 Attention: Director of Servicing Telecopy: (913) 253-9001 Royal Bank of Canada New York Branch One Liberty Plaza, 3rd Floor New York, New York 10006-1404 Attention: Manager, Loans Administration Telecopy: (212) 428-2372

or addressed as either party may from time to time designate by written notice to the other party.

16.1 Wherever possible, each provision of this Note shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Note is held to be illegal, invalid or unenforceable in any respect, such provision shall be fully severable and shall be ineffective to the extent of such illegality, invalidity or unenforceability, without invalidating the remainder of such provision or the remaining provisions of this Note.

17.1 For purposes of this Note, the term “attorneys’ fees” shall include any and all reasonable attorneys’, paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Property, the Leases (as such term is defined in the Security Instrument) and the Rents (as such term is defined in the Security Instrument) and enforcing its rights hereunder and under the Security Instrument and the other Loan Documents.

18.1 This Note shall be governed and construed in accordance with the laws of the State and the applicable laws of the United States of America

18.2 Borrower irrevocably submits to the nonexclusive jurisdiction of any federal or state court sitting in the county and State where the Property is located over any suit, action or proceeding arising out of or relating to this Note, the Security Instrument or any other Loan Document. Borrower irrevocably waives, to the fullest extent it may effectively do so under applicable law, any objection it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that the same has been brought in an inconvenient forum. Borrower irrevocably appoints the Secretary of State of the State as its authorized agent to accept and acknowledge on its behalf any and all process which may be served in any such suit, action or proceeding, consents to such process being served (i) by mailing a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to Borrower’s address shown above or notified to the Lender in writing and (ii) by serving the same upon such agent, and agrees that such service shall in every respect be deemed effective service upon Borrower. Nothing herein shall, however, preclude or prevent Lender from bringing actions against Borrower in any other jurisdiction as may be necessary to enforce any of the Loan Documents or to realize upon the security for the Loan provided in any of the Loan Documents.

19.1 BORROWER AND LENDER HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE, THIS NOTE, THE SECURITY INSTRUMENT AND THE OTHER LOAN DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.

DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FINANCING STATEMENT
AND ASSIGNMENT OF LEASES AND RENTS

Dated as of November 29, 2006
Property Location: 3250 Hudson Crossing, McKinney, Texas 75070

DOCUMENT PREPARED BY
Andrews Kurth LLP
1717 Main Street, Suite 3700
Dallas, Texas 75201
Attention: Jong S. Kim, Esc

THIS INSTRUMENT CONTAINS INDEMNIFICATION PROVISIONS AND
PROVISIONS LIMITING LENDER’S LIABILITY FOR NEGLIGENCE
NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL
PERSON, YOU MAY REMOVE OR STRIKE ANY OR ALL OF THE FOLLOWING
INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR
RECORD IN THE PUBLIC RECORDS:
YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER


3 - BORROWER. COVENANTS, REPRESENTATIONS AND WARRANTIES:
3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9		Payment of Debt Warranty of Title Insurance Payment of Taxes, etc Tax and Insurance Escrow Fund Funds for Replacements, Tenant Improvements and Other Obligations Condemnation Leases and Rents Maintenance of Property


3.10 Books, Records and Financial Reporting
3.11 Change of Name, Identity or Structure
3.12 Existence 3.13 OFAC 3.14 USA Patriot Act 3.15 ERISA Compliance 3.16 Business Purpose 3.17 Separate Tax Lot 4 OTHER. COVENANTS:
4.1 4.2 4.3 4.4		Compliance with Law Single Purpose Entity Requirements Restoration Control and Management
5 TRANSFER OR ENCUMBRANCE OF PROPERTY:
5.1 5.2 5.3 5.4 5.5 6 — FURTHER ASSURANCES:		Lender Reliance No Sale/Encumbrance Sale/Encumbrance Defined Lender’s Rights Assumption
6.1 6.2 6.3 6.4 6.5 7 — DEFAULT:		Estoppel Certificates Changes in the Laws Regarding Taxation Recording of Security Instrument, etc. Third Party Reports Performance of Other Agreements; Further Acts
7.1 8 — RIGHTS AND REMEDIES:		Events of Default
8.1 8.2 8.3 8.4 8.5 8.6 9 — INDEMNIFICATION:		Right to Cure Defaults Remedies Right of Entry Actions and Proceedings Additional Rights of Lender Attorneys’ Fees for Enforcement
9.1 9.2 9.3		Indemnification Mortgage and Intangible Tax ERISA Indemnification

10.1 Waiver of Counterclaim: Waiver of Trial by Jury
10.2 Marshalling and Other Matters
10.3 Sole Discretion of Lender

11.1 Notices
11.2 Authority; Legal Status; Not a Foreign Person
11.3 No Oral Change
11.4 Liability
11.5 Severability
11.6 Headings, etc.
11.7 Duplicate Originals; Counterparts
11.8 Number and Gender
11.9 Subrogation
11.10 Definitions
11.11 Transfer of Loan
11.12 Promotional Materials
11.13 Replacement Documents
11.14 Governing Law
11.15 Entire Agreement
11.16 The Trustee’s Fees
11.17 Certain Rights
11.18 Retention of Money
11.19 Perfection of Appointment
11.20 Succession Instruments
11.21 Reliance of Trustee

DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FINANCING STATEMENT
AND ASSIGNMENT OF LEASES AND RENTS

DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FINANCING STATEMENT AND ASSIGNMENT OF LEASES AND RENTS (this “Security Instrument”) is made as of the 29th day of November, 2006, by EL DORADO APARTMENTS, LLC, a Texas limited liability company, as trustor (“Borrower”) to JONG S. KIM, ESQ., as trustee (“Trustee”), for the benefit of ROYAL BANK OF CANADA, a Canadian chartered bank, as beneficiary (“Lender”).

A. Borrower by its promissory note of even date herewith payable to the order of Lender is indebted to Lender in the principal sum of THIRTEEN MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($13,600,000,00) in lawful money of the United States of America (the note and all extensions, renewals, modifications, substitutions and amendments thereof shall collectively be referred to as the “Note”), with interest from the date thereof at the rates set forth in the Note, principal and interest to be payable in accordance with the terms and conditions provided in the Note.

B. This Security Instrument and the grants, assignments and transfers made hereinbelow are given for the purpose of securing the payment of the Debt (as defined below) and the performance of the Other Obligations (as defined below), in such order of priority as Lender may determine in its sole discretion. All the covenants, conditions and agreements contained in the Note and the other Loan Documents are hereby made a part of this Security Instrument to the same extent and with the same force as if fully set forth herein.

1.1 “Affiliate” shall mean, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person or of an Affiliate of such Person.

1.2 “Bankruptcy Code” shall mean 11 U.S C § 101 et seq., as the same may be amended from time to time

1.3 “Business Day” shall mean a day on which commercial banks are not authorized or required by law to close in New York, New York.

1.4 “Casualty Consultant” shall mean an independent consulting engineer selected by Lender n connection with a Restoration at the Property.

1.5 “Condemnation Proceeds” shall mean the net amount of all awards and payments received by Lender with respect to a taking referenced in Section 3.7 of this Security Instrument, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same.

1.6 “Debt” shall mean the aggregate of the indebtedness evidenced by the Note in lawful money of the United States of America, interest, late charges, prepayment premiums and other sums, as provided in the Note, this Security Instrument or the other Loan Documents, all other moneys agreed or provided to be paid by Borrower in the Note, this Security Instrument or the other Loan Documents and all sums advanced pursuant to this Security Instrument to protect and preserve the Property and the lien and the security interest created hereby.


1.7		“Deposits” shall have the meaning specified in Section 2 4 hereof.
1.8		“Event of Default” shall have the meaning specified in Section 7.1 hereof.
1.9		“Executive Order” shall have the meaning specified in Section 3 13(a) hereof

1.10 “Full Replacement Cost” shall have the meaning specified in Section 3 3(a) hereof

1.13 “Insurance Premiums” shall have the meaning specified in Section 3.3(d) hereof.

1.14 “Insurance Proceeds” shall mean the net amount of all insurance proceeds received by Lender pursuant to Subsections 3,3(a)(i), (iii), (iv) and (vi) of this Security Instrument as a result of damage or destruction to the Property (or any proceeds of self- insurance maintained in lieu of such insurance policies), after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same.

1.16 “Land” shall mean the real property described in Exhibit A attached hereto and made a part hereof;

1.17 “Lease Guaranty” or “Lease Guaranties” shall have the meaning specified in Section 2 1 hereof,

1.18 “Leases” shall mean all leases and other agreements affecting the use, enjoyment or occupancy of the Land and the Improvements.

1.19 “Loan Documents” shall mean the Note, this Security Instrument and any other documents or instruments which now or shall hereafter wholly or partially secure or guarantee payment of the Note or which have otherwise been executed or are hereafter executed by Borrower and/or any other Person in connection with the loan evidenced by the Note (the “Loan”) and any renewal, extension, amendment, modification, consolidation, or change of, or substitution or replacement for, all or any part thereof.

1.20 “Losses” shall mean all liabilities, obligations, claims, demands, damages, penalties, causes of action, losses, fines, costs and expenses (including without limitation reasonable attorneys’ fees and expenses), imposed upon or incurred by or asserted against Lender or Trustee, whether before or after an action in mortgage foreclosure, sale of the Property, satisfaction of this Security Instrument and/or cancellation of the Note.

1.21 “Material Action” means to file any insolvency, or reorganization case or proceeding, to institute proceedings to have Borrower be adjudicated bankrupt or insolvent, to institute proceedings under any applicable insolvency law, to seek any relief under any law relating to relief from debts or the protection of debtors, to consent to the filing or institution of bankruptcy or insolvency proceedings against Borrower, to file a petition seeking, or consent to, reorganization or relief with respect to Borrower under any applicable federal or state law relating to bankruptcy or insolvency, to seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian, or any similar official of or for Borrower or a substantial part of its property, to make any assignment for the benefit of creditors of Borrower, to admit in writing Borrower’s inability to pay its debts generally as they become due, or to take action in furtherance of any of the foregoing.

1.22 “Minor Leases” shall have the meaning specified in Section 3.8(c) hereof.

1.23 “Net Proceeds” shall mean Insurance Proceeds or Condemnation Proceeds, whichever the case may be.

1.24 “Note” shall have the meaning set forth in the introductory Section above.

1.25 “Obligations” shall mean Borrower’s obligations for the payment of the Debt and the performance of the Other Obligations.

1.26 “OFAC” shall mean The Office of Foreign Assets Control of the U.S Department of the Treasury.

1.27 “Other Charges” shall mean all ground rents, maintenance charges, other governmental impositions, and other charges, now or hereafter levied or assessed or imposed against the Property or any part thereof.

1.28 “Other Obligations” shall mean the obligations of Borrower (other than the obligation to repay the Debt) contained in this Security Instrument, the Note and the other Loan Documents.

1.29 “Permitted Exceptions” shall mean the outstanding liens, easements, restrictions, security interests and other exceptions to title set forth in the policy of title insurance insuring the lien of this Security Instrument, together with the liens and security interests in favor of Lender created by the Loan Documents, none of which, individually or in the aggregate, materially interfere with the benefits of the security intended to be provided by this Security Instrument, materially and adversely affect the value of the Property, impair the use or operation of the Property or impair Borrower’s ability to pay its obligations in a timely manner.

1.30 “Person” shall mean any individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, real estate investment trust, government or any agency or political subdivision thereof, or any other form of entity

1.31 “Personal Property” shall have the meaning specified in Section 2.1 hereof.

1.32 “Principal” shall mean any Person which directly or indirectly controls Borrower by operation of law or otherwise.


1.33		“Prohibited Person” shall have the meaning specified in Section 3 1.3 hereof
1.34		“Property” shall have the meaning specified in Section 2.1 hereof.
1.35		“Qualified Insurer” shall have the meaning specified in Section 3.3(d) hereof.

1.36 “Rating Agency” shall mean each of Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc , Moody’s Investors Service, Inc., Fitch, Inc, and Dominion Bond Rating Service, Inc , or any successor thereto or any other nationally- recognized statistical rating agency which has been approved by Lender


1.37		“Rents” shall have the meaning specified in Section 2,1 hereof.
1.38		“Residential Leases” shall have the meaning specified in Section 3.8(b) hereof.
1.39		“Restoration” shall have the meaning specified in Section 4.3(a) hereof.

1.40 “Secondary Market Transaction” shall have the meaning specified in Section 11.11 hereof.

1.42 “Single Purpose Entity Requirements” shall have the meaning specified in Section 4.2 hereof.

1.43 “Tax and Insurance Escrow Fund” shall have the meaning specified in Section 3.5 hereof,

1.44 “Taxes” shall mean all taxes, assessments, water charges, and sewer rents, now or hereafter levied or assessed or imposed against the Property or any part thereof

1.46 “Uniform Commercial Code” shall mean the Uniform Commercial Code as adopted and enacted by the state or states where any of the Property is located.

2.1 Property Mortgaged. Borrower, for and in consideration of the sum of Ten Dollars ($10.00) and other valuable consideration in hand paid, the receipt of which hereby is acknowledged, and the further consideration, uses, purposes and trusts herein set forth and declared, has granted, bargained, transferred, assigned, set-over and conveyed and by these presents does grant, bragain, transfer, assign, set-over and convey unto Trustee and unto its successors in the trust hereby created and its assigns, forever, all of the Borrower’s right, title and interest in, and to the following property, rights, interests and estates now owned, or hereafter acquired by Borrower (collectively, the “Property”):

(b) all additional lands, estates and development rights hereafter acquired by Borrower for use in connection with the Land and the development of the Land and all additional lands and estates therein which may, from time to time, by supplemental mortgage or otherwise be expressly made subject to the lien of this Security Instrument;

(c) the buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Land (the “Improvements”);

(d) all easements, rights of way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating or pertaining to the Land and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof and all the estates, rights, titles, interests, property, possession, claim and demand whatsoever, both at law and in equity, of Borrower of, in and to the Land and the Improvements and every part and parcel thereof, with the appurtenances thereto;

(e) all furnishings, machinery, equipment, fixtures (including, but not limited to, all heating, air conditioning, plumbing, lighting, communications and elevator fixtures) and other property of every kind and nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, and usable in connection with the present or future operation and occupancy of the Land and the Improvements and all building equipment, materials and supplies of any nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, or usable in connection with the present or future operation and occupancy of the Land and the Improvements (collectively, the “Personal Property”), and the right, title and interest of Borrower in and to any of the Personal Property which may be subject to any security interests, as defined in the Uniform Commercial Code, superior in lien to the lien of this Security Instrument and all proceeds and products of the above;

(f) all Leases heretofore or hereafter entered into, whether before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code and all right, title and interest of Borrower, its successors and assigns therein and thereunder, including, without limitation, cash or securities deposited thereunder to secure the performance by the lessees of their obligations thereunder and all rents, additional rents, revenues (including, but not limited to, any payments made by tenants under the Leases in connection with the termination of any Lease), issues and profits (including all oil and gas or other mineral royalties and bonuses) from the Land and the Improvements (the “Rents”) whether paid or accruing before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Debt; any and all lease guaranties, letters of credit and any other credit support (individually, a “Lease Guaranty” and, collectively, the “Lease Guaranties”) given by any guarantor in connection with any of the Leases; and all rights, powers, privileges, options and other benefits of Borrower as lessor under the Leases and beneficiary under all Lease Guaranties;

(g) all awards or payments, including interest thereon, which may heretofore and hereafter be made with respect to the Property, whether from the exercise of the right of eminent domain (including but not limited to any transfer made in lieu of or in anticipation of the exercise of the right), for a change of grade, or for any other injury to or decrease in the value of the Property;

(h) all proceeds of and any unearned premiums on any insurance policies covering the Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Property;

(i) all refunds, rebates or credits in connection with a reduction in real estate taxes and assessments charged against the Property as a result of tax certiorari or any applications or proceedings for reduction; all proceeds of the conversion, voluntary or involuntary, of any of the foregoing including, without limitation, proceeds of insurance and condemnation awards, into cash or liquidation claims;

(j) all agreements, contracts, certificates, instruments, franchises, permits, licenses, plans, specifications and other documents, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction, management or operation of the Land and any part thereof and any Improvements or respecting any business or activity conducted on the Land and any part thereof and all right, title and interest of Borrower therein and thereunder, including, without limitation, the right, upon the happening of any default hereunder, to receive and collect any sums payable to Borrower^. thereunder;

(k) all tradenames, trademarks, servicemarks, logos, copyrights, goodwill, books and records and all other general intangibles relating to or used in connection with the operation of the Property; and

(l) any and all other rights of Borrower in and to the items set forth in Subsections (a) through (m) above.

TO HAVE AND TO HOLD the above granted and described Property unto Trustee, as trustee for the benefit of Lender, to its successors in the trust created by this Security Instrument and to its or their respective assigns, forever, in trust, upon the terms and conditions set forth herein;

IN TRUST, WITH THE POWER OF SALE, to secure payment to Lender of the Debt at the time and in the manner provided for its payment in the Note and in this Security Instrument;

PROVIDED, HOWEVER, these presents are upon the express condition that, if Borrower shall well and truly pay to Lender the Debt at the time and in the manner provided in the Note and this Security Instrument, shall well and truly perform the Other Obligations as set forth in this Security Instrument and shall well and truly abide by and comply with each and every covenant and condition set forth herein and in the Note, these presents and the estate hereby granted shall cease, terminate and be void.

2.2 Leases and Rents. Borrower does hereby absolutely and unconditionally assign to Lender Borrower’s right, title and interest in all current and future Leases and Rents, it being intended by Borrower that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Such assignment to Lender shall not be construed to bind Lender to the performance of any of the covenants, conditions or provisions contained in any such Lease or otherwise impose any obligation upon Lender. Nevertheless, subject to the terms of this Section 2.2 and Section 3.8, Lender grants to Borrower a revocable license to operate and manage the Property and to collect the Rents.. Borrower shall hold the Rents, or a portion thereof sufficient to discharge all current sums due on the Debt, in trust for the benefit of Lender for use in the payment of such sums. Upon an Event of Default, the license granted to Borrower herein shall automatically be revoked, and Lender shall immediately be entitled to all Rents, whether or not Lender enters upon or takes control of the Property. Lender is hereby granted and assigned by Borrower the right, at its option, upon revocation of the license granted herein, to enter upon the Property in person, by agent or by court-appointed receiver to collect the Rents. Any Rents collected after the revocation of the license may be applied toward payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper.

2.3 Security Agreement. This Security Instrument is both a real property mortgage and a “security agreement” within the meaning of the Uniform Commercial Code, The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Borrower in the Property. Borrower by executing and delivering this Security Instrument has granted and hereby grants to Lender, as security for the Debt, a first and prior security interest in the Property to the full extent that the Property may be subject to the Uniform Commercial Code and agrees that Lender shall have all the rights and remedies of a secured party under the Uniform Commercial Code with respect to the Property

2.4 Pledge of Monies Held. Borrower hereby pledges to Lender any and all monies now or hereafter held by Lender, including, without limitation, any sums deposited in the Tax and Insurance Escrow Fund, the Reserves (as defined in the Note), Net Proceeds, and condemnation awards or payments described in Section 3,7 (collectively, “Deposits”), as additional security for the Obligations until expended or applied as provided in this Security Instrument.

Borrower represents and warrants to and covenants and agrees with Lender as follows:

3.1 Payment of Debt. Borrower will pay the Debt at the time and in the manner provided in the Note and in this Security Instrument.

3.2 Warranty of Title. Borrower has paid for and has good title to the Property and has the right to mortgage, grant, bargain, sell, pledge, assign, warrant, set over, transfer and convey the same. Borrower possesses an unencumbered fee simple absolute estate in the Land and the Improvements and owns the Property free and clear of all liens, encumbrances and charges whatsoever except for the Permitted Exceptions. Borrower shall forever warrant, defend and preserve the title and the validity and priority of the lien of this Security Instrument and shall forever warrant and defend the same to Lender against the claims of all Persons whomsoever.

3.3 Insurance. Borrower shall obtain and maintain, or cause to be obtained and maintained, insurance for Borrower and the Property providing at least the coverages set forth herein.

(a) Casualty and Business Interruption Borrower shall keep the Property insured against damage by fire and the other hazards covered by a standard extended coverage and all-risk insurance policy and shall maintain such other casualty insurance as reasonably required by Lender. Borrower’s insurance policy pursuant to this Subsection shall (i) be in an amount equal to 100% of the “Full Replacement Cost,” which for purposes of this Security Instrument shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) without reduction for depreciation or co-insurance, (ii) provide for a deductible not greater than $10,000, and (iii) provide for inflation guard adjustment or coverage. Such insurance shall include coverage against acts of terrorism. Lender reserves the right to require from time to time the following additional insurance: boiler and machinery; flood; earthquake/sinkhole; workers’ compensation; and/or building law or ordinance (which shall include sufficient coverage for (1) costs to comply with building and zoning codes and ordinances, (2) demolition costs, and (3) increased costs of construction). Borrower shall keep the Property insured against loss by flood if the Property is located currently or at any time in the future in an area identified by the Federal Emergency Management Agency as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994 (as such acts may from time to time be amended) in an amount at least equal to the lesser of (A) the maximum amount of the Loan and (B) the maximum limit of coverage available under said acts. Any such flood insurance policy shall be issued in accordance with the requirements and current guidelines of the Federal Insurance Administration. Borrower shall maintain use and occupancy insurance covering, as applicable, rental income or business interruption, with coverage in an amount not less than twelve months anticipated gross rental income or gross business earnings, as applicable in each case, attributable to the Property. All insurance proceeds payable to Lender pursuant to this Subsection shall be held by Lender and shall be applied to the obligations secured hereunder; provided, however, that nothing contained herein shall be deemed to relieve Borrower of its obligations to pay the obligations secured hereunder on the respective dates of payment provided for in the Note except to the extent such amounts are actually paid out of the proceeds of such insurance. Borrower shall not maintain any separate or additional insurance which is contributing in the event of loss unless it is properly endorsed and otherwise reasonably satisfactory to Lender in all respects. The proceeds of insurance paid on account of any damage or destruction to the Property shall be paid to Lender to be applied as provided in Section 4.3.

(b) Liability. Borrower shall maintain (i) commercial general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Property, providing for limits of liability of not less than $5,000,000 for both injury to or death of a person and for property damage per occurrence, and to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate, and (ii) other liability insurance as reasonably required by Lender.

(c) Other Insurance Borrower shall maintain such other insurance and in such amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Property located in or around the region in which the Property is located,

(d) Form and Quality All insurance shall be obtained under valid and enforceable insurance policies and shall be endorsed in form and substance acceptable to Lender to name Lender as an additional insured, loss payee or mortgagee thereunder, as its interest may appear, with loss payable to Lender, without contribution, under a standard New York (or local equivalent) mortgagee clause. All such insurance and endorsements shall be fully paid for and contain provisions and expiration dates satisfactory to Lender and shall be issued by insurance companies licensed to do business in the state where the Property is located, with a general company and financial size rating of “A” or better by Standard & Poor’s Ratings Services Each such insurer shall be referred to herein as a “Qualified Insurer.” Each policy shall provide that such policy may not be canceled or materially changed except upon 15 days’ prior written notice of intention of non-renewal, cancellation or material change to Lender and that no act or thing done by Borrower shall invalidate any policy as against Lender. Blanket policies shall be permitted only if (i) Lender receives appropriate endorsements and/or duplicate policies containing Lender’s right to continue coverage on a pro rata pass-through basis and that coverage will not be affected by any loss on other properties covered by the policies, (ii) the policy contains a sublimit equal to the replacement cost of the Property in an amount approved by Lender which is expressly allocated for the Property, and (iii) such policy is approved in advance in writing by Lender and Lender’s interest is included therein as provided in this Security Instrument and such policy is issued by a Qualified Insurer. Borrower authorizes Lender to pay the premiums for such policies (the “Insurance Premiums”) from the Tax and Insurance Escrow Fund as the same become due and payable annually in advance, Borrower shall assign the policies or proofs of insurance to Lender, in such manner and form that Lender and its successors and assigns shall at all times have and hold the same as security for the payment of the Loan. The proceeds of insurance policies coming into the possession of Lender shall not be deemed trust fiends, and Lender shall be entitled to apply such proceeds as herein provided. In addition, no later than 30 days prior to the expiration dates of the policies which Borrower is now or hereafter required to maintain hereunder, Borrower shall deliver to Lender certified copies of new or renewal policies (also marked “premium paid” or accompanied by evidence satisfactory to Lender of payment of the Insurance Premiums due thereunder annually in advance), together^. with certificates of insurance therefor setting forth, among other things, the amounts of insurance maintained, the risks covered by such insurance and the Qualified Insurer(s) which carry such insurance.

(e) Other Insurance Matters. If at any time Borrower fails to deposit funds into the Tax and Insurance Escrow Fund sufficient to permit Lender to pay the Insurance Premiums when due, or if Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, without notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate, and all expenses incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and until paid shall be secured by this Security Instrument and shall bear interest at the Applicable Interest Rate (as defined in the Note). In addition, in the event of foreclosure of this Security Instrument, or other transfer of title to the Property in extinguishment in whole or in part of the Debt, all right, title and interest of Borrower in and to such policies then in force concerning the Property and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or Lender or other transferee in the event of such other transfer of title.

(f) In the event of foreclosure of this Security Instrument, or other transfer of title to the Property in extinguishment in whole or in part of the Debt, all right, title and interest of Borrower in and to such policies then in force concerning the Property and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or Lender or other transferee in the event of such other transfer of title.

3.4 Payment of Taxes, etc. Borrower shall pay all Taxes and all Other Charges as same become due and payable. Borrower shall not suffer and shall promptly cause to be paid and discharged any lien or charge whatsoever which may be or become a lien or charge against the Property. Except to the extent sums sufficient to pay all Taxes have been deposited with Lender in accordance with the terms of this Security Instrument, Borrower shall furnish to Lender receipts for the payment of the Taxes and Other Charges prior to the date the same shall become delinquent and upon request by Lender.

3.5 Tax and Insurance Escrow Fund. Borrower shall pay to Lender on each date that a regularly scheduled payment of principal or interest is due under the Note (i) one-twelfth of an amount which would be sufficient to pay the Taxes payable, or estimated by Lender to be payable, during the next ensuing twelve (12) months and (ii) one-twelfth of an amount which would be sufficient to pay the Insurance Premiums due for the renewal of the coverage afforded by the insurance policies upon the expiration thereof (said amounts in (i) and (ii) above herein called the “Tax and Insurance Escrow Fund”). The Tax and Insurance Escrow Fund shall not constitute a trust fund and may be commingled with other monies held by Lender. No earnings or interest on the Tax and Insurance Escrow Fund shall be payable to Borrower Lender will apply the Tax and insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums, Lender shall credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. If the Tax and Insurance Escrow Fund is not sufficient to pay the items set forth in (i) and (ii) above, Borrower shall promptly pay to Lender, upon demand, an amount which Lender shall estimate as sufficient to make up the deficiency. Upon the occurrence of an Event of Default Lender may apply any sums then present in the Tax and Insurance Escrow Fund in such priority and proportions as Lender in its discretion shall deem proper

3.6 Funds for Replacements, Tenant Improvements and Other Obligations. In addition to Borrower’s covenants and agreements hereunder, Borrower shall pay to Lender on the first day of each calendar month on which a scheduled payment is due, until the Note is paid in full, the amount(s), if any, designated by Lender in Section 8 of the Note, to maintain the funds described therein for required repairs, capital improvements, tenant improvements, brokerage commissions, leasing obligations and/or any other obligations with respect to the Property.

3.7 Condemnation. Borrower shall promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Notwithstanding any taking by any public or quasi-public authority through eminent domain or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Security Instrument and the Debt shall not be reduced until any award or payment therefor shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the award by the condemning authority but shall be entitled to receive out of the award, interest at the rate or rates provided herein and in the Note,

(a) Borrower represents and warrants as follows: (i) Borrower is the sole owner of the entire lessor’s interest in the Leases; (ii) the Leases are valid and enforceable; (iii) the terms of all alterations, modifications and amendments to the Leases are reflected in the certified occupancy statement delivered to and approved by Lender; (iv) none of the Rents reserved in the Leases have been assigned or otherwise pledged or hypothecated; (v) none of the R.ents have been collected for more than one month in advance; (vi) the premises demised under the Leases have been completed and the tenants under the Leases have accepted the same and have taken possession of the same on a rent paying basis; (vii) there exist no offsets or defenses to the payment of any portion of the Rents; (viii) no Lease contains an option to purchase, right of first refusal to purchase, or any other similar provision; and (ix) no Person has any possessory interest in, or right to occupy, the Property except under and pursuant to a Lease,

(b) Except as otherwise consented to by Lender, all Leases shall be written on the standard form of lease which shall have been approved by Lender. Upon request, Borrower shall furnish Lender with executed copies of all Leases. No material changes may be made to the Lender approved standard lease without the prior written consent of Lender, which approval shall not be unreasonably withheld or delayed. In addition, all renewals of Leases and all proposed Leases shall provide for rental rates and terms comparable to existing local market rates and terms and shall be arm’s-length transactions with bona fide, independent third party tenants All proposed Leases and renewals of existing Leases, other than Minor Leases and Leases for residential purposes only (“Residential Leases”), shall be subject to the prior approval of Lender and its counsel, at Borrower’s expense, which approval shall not be unreasonably withheld or delayed if the proposed Lease or renewal Lease (i) is on the Lender-approved form, subject only to commercially reasonable variations therefrom, (ii) is negotiated in an arm’s-length transaction with an independent third party tenant and (iii) provides for rental rates and terms comparable to existing local market terms All Leases entered into after the date hereof shall provide that they are subordinate to this Security Instrument and that the lessee agrees to attorn to Lender, Borrower (i) shall observe and perform all the obligations imposed upon the lessor under the Leases and shall not do or permit to be done anything to impair the value of the Leases as security for the Obligations; (ii) shall enforce all of the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed, short of termination thereof; however, Borrower may terminate Residential Leases in the ordinary course of business and terminate Leases other than Residential Leases as the result of a default by the lessee thereunder or in connection with the replacement of a Lease with a substitute Lease entered into in accordance with the requirements of this Security Instrument; (iii) shall not collect any of the Rents more than one month in advance; (vi) shall not execute any other assignment of the lessor’s interest in the Leases or the Rents; (iv) shall not alter, modify or change the terms of the Leases without the prior written consent of Lender, or cancel or terminate the Leases or accept a surrender thereof; (vi) shall not alter, modify or change the terms of any Lease Guaranty with respect to any Lease other than a Residential Lease or cancel or terminate any Lease Guaranty without the prior written consent of Lender

(c) Notwithstanding the provisions of Subsection 3,8(b), renewals of existing commercial Leases and proposed Leases for commercial space covering less than twenty percent (20%) of the total rentable space for the Property and accounting for rental income which in the aggregate is less than twenty percent (20%) of the total rental income for the Property shall not be subject to the prior approval of Lender provided that (i) the renewal Lease or proposed Lease shall provide for rental rates and terms comparable to existing local market rates and terms and (ii) the renewal Lease or proposed Lease shall be an arm’s-length transaction with a bona fide, independent third party tenant (Leases meeting the foregoing requirements shall be referred to herein as “Minor Leases”).

(d) All security deposits of tenants, whether held in cash or any other form, shall not be commingled with any other funds of Borrower and, if cash, shall be deposited by Borrower at such commercial or savings bank or banks as may be reasonably satisfactory to Lender. Borrower shall, upon request, provide Lender with evidence reasonably satisfactory to Lender of Borrower’s compliance with the foregoing. Following the occurrence and during the continuance of any Event of Default, Borrower shall, upon Lender’s request, if permitted by any applicable legal requirements, turn over to Lender the security deposits (and any interest theretofore earned thereon) with respect to all or any portion of the Property, to be held by Lender subject to the terms of the Leases

3.9 Maintenance of Property. Borrower shall cause the Property to be used, operated, occupied and maintained in a good and safe condition and repair and in accordance with all applicable laws and regulations, and shall neither commit nor suffer any waste The Improvements and the Personal Property shall not be removed, demolished or materially altered (except for normal replacement of the Personal Property) without the consent of Lender. Borrower shall not initiate, join in, acquiesce in, or consent to any change in any private restrictive covenant, zoning law or other public or private restriction, limiting or defining the uses which may be made of the Property or any part thereof. If under applicable zoning provisions the use of all or any portion of the Property is or shall become a nonconforming use, Borrower will not cause or permit such nonconforming use to be discontinued or abandoned without the express written consent of Lender.

(a) Borrower shall keep accurate books and records of account and furnish to Lender its financial statements as follows:

(i)

Until the Loan is sold in a Secondary Market Transaction, Borrower shall furnish to Lender within fifteen days after the end of each calendar month, a current rent roll and a detailed operating statement (showing monthly activity and year to date) stating operating revenues, operating expenses, operating income and net cash flow for the calendar month just ended.

(ii)

Within 45 days after the end of each calendar quarter, Borrower^. Shall furnish to Lender a current rent roll and a detailed operating statement (showing quarterly activity and year to date) stating operating revenues, operating expenses, operating income and net cash flow for the calendar quarter just ended.

(iii)

Within 90 days after the end of each fiscal year of Borrower, Borrower shall furnish to Lender a current (as of the end of such fiscal year) balance sheet and profit and loss statement of Borrower prepared and certified by Borrower, and a detailed operating statement stating operating revenues, operating expenses, operating income and net cash flow for each of Borrower and the Property, and, if required by Lender, prepared on a review basis and certified by an independent public accountant reasonably satisfactory to Lender.

All certified rent rolls required by this Section shall be signed and dated by Borrower, detailing the names of all tenants of the Improvements, the portion of the Improvements occupied by each tenant, the rent and any other charges payable under each Lease, and the term of each Lease,

(iv)

At least 30 days prior to the commencement of each such fiscal year, Borrower will provide to Lender its proposed annual operating and capital improvements budget for such fiscal year for review and approval by Lender.

(b) Each such financial statement shall be in scope and detail reasonably satisfactory to Lender and certified by the chief’ financial representative of Borrower.

(c) All financial statements shall be prepared in accordance with generally accepted accounting principles in the United States of America in effect on the date of such statement and consistently applied (or such other accounting basis reasonably acceptable for Lender),

(d) Upon Lender’s request, Borrower shall cause each Guarantor to furnish to Lender no later than 90 days after the end of the fiscal year for such Guarantor a financial statement for said fiscal year certified to Lender and prepared in a form reasonably acceptable to Lender.

(e) Borrower, its Affiliates and any Guarantor shall furnish Lender with such other additional financial or management information as may, from time to time, be reasonably required by Lender, in form and substance reasonably satisfactory to Lender.

3.11 Change of Name, Identity or Structure. Borrower will not change Borrower’s name, identity (including its trade name or names), state of formation, or organizational structure unless Borrower shall have obtained the prior written consent of Lender to such change and shall have taken all actions necessary or requested by Lender to file or amend any financing statement or continuation statement to assure perfection and the continuation of the perfection of security interests under the Loan Documents.

3.12 Existence. Borrower will continuously preserve its existence as an entity duly organized, validly existing and in good standing under the laws of the jurisdiction where it is organized and shall maintain its rights to do business in the state where the Property is located together with its franchises and trade names

3.13 OFAC. Borrower represents and warrants that neither Borrower or any of its respective Affiliates is a Prohibited Person and Borrower and all of its respective Affiliates are in full compliance with all applicable orders, rules, regulations and recommendations of OFAC. At all times throughout the term of the Loan, Borrower and all of its respective Affiliates shall (i) not be a Prohibited Person and (ii) be in full compliance with all applicable orders, rules, regulations and recommendations of OFAC

(a) listed in the Annex to, or otherwise subject to the provisions of, Executive

Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (the “Executive Order”);

(b) that is owned or controlled by, or acting for or on behalf of, any Person that is listed to the Annex to, or is otherwise subject to the provisions of, the Executive Order.

(c) with whom Lender is prohibited from dealing or otherwise engaging in any transaction by any terrorism or money laundering law, including the Executive Order;

(d) who commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order;

(e) that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, www.ustreas.gov/offices/enforcement/ofac, or at any replacement website or other replacement official publication of such list; or

As used herein, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a Person, whether through ownership of voting securities, by contract or otherwise.

3.14 USA Patriot Act. Lender hereby notifies Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, .2001)), it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Lender to identify Borrower in accordance with said Act, Borrower shall promptly provide such information upon request by Lender

3.15 ERISA Compliance. As of the date hereof and throughout the term of this Security Instrument, 0) Borrower is not and will not be an “employee benefit plan” as defined in Section 3(3) of ERISA, that is subject to Title I of ERISA; (ii) the assets of Borrower do not and will not constitute “plan assets” of one or more such plans for purposes of Title I of ERISA; (iii) Borrower is not and will not be a “governmental plan” within the meaning of Section 3(32) of ERISA; and (iv) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of and fiduciary obligations with respect to governmental plans. Borrower shall deliver to Lender such certifications or other evidence as requested by Lender from time to time of Borrower’s compliance with the foregoing representations and covenants

3.16 Business Purpose. The Loan is solely for the business purpose of Borrower and is not for personal, family, household, or agricultural purposes

3.17 Separate Tax Lot. The Property is assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a part of such lot or lots, and no other land or improvements are assessed and taxed together with the Property or any portion thereof.

4.1 Compliance with Law. Borrower has all requisite licenses, permits, franchises, qualifications, certificates of occupancy or other governmental authorizations to own, lease and operate the Property and carry on its business, and the Property is in compliance with all applicable legal requirements and is free of structural defects, and all building systems contained therein are in good working order, subject to ordinary wear and tear.. The Property does not constitute, in whole or in part, a legally non conforming use under applicable legal requirements

4.2 Single Purpose Entity Requirements. Borrower shall comply with the following single purpose entity requirements (“Single Purpose Entity Requirements”) in order to maintain its status as a separate entity and to avoid any confusion or potential consolidation with any Affiliate. Borrower’s organizational documents shall contain the Single Purpose Entity Requirements.

(a) Limited Purpose. The sole purpose conducted or promoted by Borrower since its organization and at least during the term of the Loan is to engage only in the following activities:

(i) to acquire, own, hold, lease, operate, manage, maintain, develop and improve the Property;

(iii) to sell, transfer, service, convey, dispose of pledge, assign, borrow money against, finance, refinance or otherwise deal with the Property to the extent permitted under the Loan Documents; and

(iv) to engage in any lawful act or activity and to exercise any powers permitted to corporations/limited partnerships/limited liability companies organized under the laws of the state of its formation that are related or incidental to and necessary, convenient or advisable for the accomplishment of the above mentioned purposes.

the Loan Documents or in any other document governing the formation, management or operation of Borrower, Borrower shall not:

obligated for the debts of any other Person or hold out its credit as being available to pay the obligations of any other Person;

(ii) engage, directly or indirectly, in any business other than as required or permitted to be performed under this Section;

(iii) incur, create or assume any indebtedness or liabilities other than (A) the Loan and (B) unsecured trade payables incurred in the ordinary course of its business that are related to the ownership and operation of the Property not to exceed two percent (2%) of the outstanding balance of the Loan, and which are not evidenced by a note, must be paid within 60 days and are otherwise expressly permitted under the Loan Documents;

(iv) make or permit to remain outstanding any loan or advance to, or own or acquire any stock or securities of, any Person, except that Borrower may invest in those investments permitted under the Loan Documents;

(v) to the fullest extent permitted by law, engage in any dissolution, liquidation, consolidation, merger, sale or other transfer of any of its assets outside the ordinary course of Borrower’s business;

(vi) buy or hold evidence of indebtedness issued by any other Person (other than cash or investment-grade securities);

(vii) form, acquire or hold any subsidiary (whether corporate, partnership, limited liability company or other) or own any equity interest in any other Person;

(viii) own any asset or property other than the Property and incidental personal property necessary for the ownership or operation of the Property;

(ix) take any Material Action without the unanimous written approval of all members of Borrower;

(x) amend, modify or otherwise change its organizational documents with respect to the Single Purpose Entity Requirements; or

(xi) permit any indebtedness, other than the Loan, to be secured by the Property

(c) Separateness Covenants. Borrower agrees that in the conduct of its operations since its organization and so long as any obligation under the Loan is outstanding it has observed and will continue to observe the following covenants:

(i) maintain books and records and bank accounts separate from those of any other Person;

(ii) maintain its assets in such a manner that it is not costly or difficult to segregate, identify or ascertain such assets;

(iii) comply with all organizational formalities necessary to maintain its separate existence;

(iv) hold itself out to creditors and the public as a legal entity separate and distinct from any other Person;

(v) maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other Person and not have its assets listed on any financial statement of any other Person; except that Borrower’s assets may be included in a consolidated financial statement of its Affiliate so long as appropriate notation is made on such consolidated financial statements to indicate the separateness of Borrower from such Affiliate and to indicate that Borrower’s assets and credit are not available to satisfy the debts and other obligations of such Affiliate or any other Person;

(vi) prepare and file its own tax returns separate from those of any Person to the extent required by applicable law and pay any taxes required to be paid by applicable law;

(vii) allocate and charge fairly and reasonably any common employee or overhead shared with Affiliates;

(viii) not enter into any transaction with Affiliates except on an arm’s-length basis on terms which are intrinsically fair and no less favorable than would be available for unaffiliated third parties, and pursuant to written, enforceable agreements;

(xiii) not permit any Affiliate to guarantee or pay its obligations (other than limited guarantees and indemnities set forth in the Loan Documents);

(xv) pay its liabilities and expenses out of and to the extent of its own fluids;

(xvi) maintain a sufficient number of employees in light of its contemplated business purpose and pay the salaries of its own employees, if any, only from its own funds;

(xvii) maintain adequate capital in light of its contemplated business purpose, transactions and liabilities; provided, however, that the foregoing shall not require any equity owner to make additional capital contributions to Borrower; and

(xviii) cause the managers, officers, employees, agents and other representatives of Borrower to act at all times with respect to Borrower consistently and in furtherance of the foregoing and in its best interests of Borrower,

Failure of Borrower to comply with any of the foregoing covenants or any other covenants contained in this Agreement shall not affect the status of Borrower as a separate legal entity.

(a) If the Property shall be damaged or destroyed, in whole or in part, by fire or other casualty or the Property or any portion thereof is taken by a condemning authority, Borrower shall promptly furnish notice of such event to Lender and commence and diligently prosecute the completion of the repair and restoration of the Property as nearly as possible to the condition the Property was in immediately prior to such fire or other casualty or taking, with such alterations as may be approved by Lender (the “Restoration”) and otherwise in accordance with this, except in instances where Lender has failed or elected not to disburse Net Proceeds to Borrower under this Section 4.3 (provided that such exception shall not apply if the failure to disburse is attributable to Borrower’s failure to comply with the conditions set forth in Clauses (A), (D) and (I) of Subsection 4.3(c)(1) or in Subsection 4.3(c)(ii) or any other conditions set forth in this Section 4.3 which Borrower has the practical ability to satisfy). Lender may, but shall not be obligated to make proof of loss if not made promptly by Borrower,

principal balance of the Debt and the costs of completing the Restoration shall be less than five percent (5%) of the outstanding principal balance of the Debt, the Net Proceeds will be disbursed by Lender to Borrower upon receipt, provided that all of the conditions set forth in Subsection 4.3(c)(i) are met and Borrower delivers to Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Security Instrument.

(c) If the Net Proceeds are equal to or greater than five percent (5%) of the outstanding principal balance of the Debt or the costs of completing the Restoration is equal to or greater than five percent (5%) of the outstanding principal balance of the Debt, Lender shall make the Net Proceeds available for the Restoration in accordance with the provisions of this Subsection 4.3(c)

(i) The Net Proceeds shall be made available to Borrower for the Restoration provided that each of the following conditions is met: (A) no Event of Default shall have occurred and be continuing under the Note, this Security Instrument or any of the other Loan Documents; (B) (1) in the event that the Net Proceeds are Insurance Proceeds, less than fifty percent (50%) of the total floor area of the Improvements has been damaged, destroyed, or rendered unusable as a result of such fire or other casualty or (2) in the event the Net Proceeds are Condemnation Proceeds, less than ten percent (10%) of the land constituting the Property is taken, and such land is located along the perimeter or periphery of the Property; (C) Leases demising in the aggregate a percentage amount equal to or greater than fifty percent (50%) (with respect to casualties) or ninety percent (90%) (with respect to condemnation) of the total net rentable space in the Property which has been demised under executed and delivered Leases in effect as of the date of the occurrence of such fire or other casualty or taking, as the case may be, shall remain in full force and effect during and after the completion of the Restoration; (D) Borrower shall have commenced the Restoration as soon as reasonably practicable (but in no event later than ninety (90) days after such damage or destruction or taking, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion; (F) Lender shall be satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note at the Applicable Interest Rate, which will be incurred with respect to the Property as a result of the occurrence of any such fire or other casualty or taking, whichever the case may be, will be covered out of (1) the Net Proceeds, (2) the insurance coverage referred to in Subsection 3.3(a)(iii), if applicable, or (3) by other funds of Borrower; (F) Lender shall be satisfied that following the completion of the Restoration, the ratio of sustainable net cash flow for the Property (after deduction for underwritten reserves) to debt service payable under the Note shall be at least 1,20 to 1,0; (G) Lender shall be reasonably satisfied that the Restoration will be completed on or before the earliest to occur of (1) twelve (12) months prior to the Maturity Date (as defined in the Note), (2) twelve (12) months after the occurrence of such fire or other casualty or taking, whichever the case may be, (3) the earliest date required for such completion under the terms of any Leases which are required in accordance with the provisions of this Subsection 4.3(c) to remain in effect subsequent to the occurrence of such fire or other casualty or taking, whichever the case may be and the completion of the Restoration and (4) such time as may be required under any applicable zoning laws, ordinances, rules or regulations in order to repair and restore the Property to the condition it was in immediately prior to such fire or other casualty or to as nearly as possible the condition it was in immediately prior to such taking, as applicable; (H) the Property and the use thereof after the Restoration will be in compliance with and permitted under all applicable zoning laws, ordinances, rules and regulations; (1) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable laws, rules and regulations; and (I) such fire or other casualty or taking, as applicable, does not result in the loss of access to the Property or the Improvements,

(ii) The Net Proceeds shall be held by Lender and, until disbursed in accordance with the provisions of this Subsection 43(c), shall constitute additional security for the Obligations. The Net Proceeds shall be disbursed by Lender to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of evidence satisfactory to Lender^. that (A) all materials installed and work and labor performed (except to the extent that they are to be paid for out of the requested disbursement) in connection with the Restoration have been paid for in full, and (B) there exist no notices of pendency, stop orders, mechanic’s or materialman’s liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the Property arising out of the Restoration which have not either been fully bonded to the satisfaction of Lender and discharged of record or in the alternative fully insured to the satisfaction of Lender by the title company insuring the lien of this Security Instrument

(iii) All plans and specifications required in connection with the Restoration shall be subject to prior review and approval in all respects by Lender and by the Casualty Consultant, which approval shall not be unreasonably withheld or delayed Lender shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender and the Casualty Consultant, which approval shall not be unreasonably withheld or delayed. All costs and expenses incurred by Lender in connection with making the Net Proceeds available for the Restoration including, without limitation, reasonable counsel fees and disbursements and the Casualty Consultant’s fees, shall be paid by Borrower.

(iv) In no event shall Lender be obligated to make disbursements of the Net Proceeds more frequently than once every thirty (30) days or in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Casualty Consultant, minus a construction retainage to be held back from contractors, subcontractors and materialmen engaged in the Restoration until the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Subsection 43(c) and that all approvals necessary for the re-occupancy and use of the Property have been obtained from all appropriate governmental and quasi governmental authorities, and Lender receives evidence reasonably satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Casualty Retainage

(v) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the reasonable opinion of Lender, be sufficient to pay in full the balance of the costs which are estimated by the Casualty Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency with Lender before any further disbursement of the Net Proceeds shall be made. The deficiency deposited with Lender shall be held by Lender and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds and until so disbursed pursuant to this Subsection 43(c) shall constitute additional security for the Obligations, With respect to Restorations following a casualty in which the Improvements are restored to substantially the same condition as they existed prior to the casualty, the excess, if any, of the Net Proceeds and the remaining balance, if any, of the deficiency deposited with Lender after the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Subsection 43(c), and the receipt by Lender of evidence reasonably satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to Borrower, provided no Event of Default shall have occurred and shall be continuing under the Note, this Security Instrument or any of the other Loan Documents

(d) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Subsection 43(c)(v) may be retained and applied by Lender toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Lender in its discretion shall deem proper or, at the discretion of Lender, the same may be paid, either in whole or in part, to Borrower for such purposes as Lender shall designate, in its discretion.. Provided no Event of Default exists under the Note, this Security Instrument or the other Loan Documents, Borrower shall not be obligated to pay any prepayment premium or other prepayment consideration in connection with a prepayment resulting from the application of Net Proceeds to the Debt pursuant to the preceding sentence Any such prepayment shall be applied to the principal last due under the Note and shall not release Borrower from the obligation to pay the Constant Monthly Payments (as defined in the Note) next becoming due under the Note and the Constant Monthly Payment shall not be adjusted or recalculated as a result of such partial prepayment. If Lender shall receive and retain Net Proceeds, the lien of this Security Instrument shall be reduced only by the amount thereof received and retained by Lender and actually applied by Lender in reduction of the Debt.

4.4 Control and Management. There shall be no change in the day-to-day control and management of Borrower or Borrower’s general partner or managing member without the prior written consent of Lender. Borrower shall not terminate, replace or appoint any manager or terminate or amend the management agreement for the Property without Lender’s prior written approval, which approval shall not be unreasonably withheld. Any change in ownership or control of the manager shall be cause for Lender to re-approve such manager and management agreement. Each manager shall hold and maintain all necessary licenses, certifications and permits required by law.. Borrower shall fully perform all of its covenants, agreements and obligations under the management agreement. The management fee payable under the property management agreement shall not exceed four percent (4%) of rental collections, with 3% payable as a management fee and 1% as an asset management fee (the l% asset management fee shall only be payable if, and to the extent, net cash flow from the Property (after the payment of any and all operating expenses, debt service, capital expenditures and impounds) is available). No deferred fees shall be permitted

5.1 Lender Reliance. Borrower acknowledges that Lender has examined and relied on the experience of Borrower and its general partners, managing members, principals and (if Borrower is a trust) beneficial owners in owning and operating properties such as the Property in agreeing to make the Loan, and will continue to rely on Borrower’s ownership of the Property as a means of maintaining the value of the Property as security for payment and performance of the Obligations. Borrower acknowledges that Lender has a valid interest in maintaining the value of the Property so as to ensure that, should Borrower default in the payment or the performance of the Obligations, Lender can recover^. the Debt by a sale of the Property.

5.2 No Sale/Encumbrance. Borrower agrees that Borrower shall not, without the prior written consent of Lender, sell, convey, mortgage, grant, bargain, encumber, pledge, assign, or otherwise transfer the Property or any part thereof or permit the Property or any part thereof to be sold, conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise transferred.

5.3 Sale/Encumbrance Defined. A sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Article 5 shall be deemed to include, but not be limited to, (a) an installment sales agreement wherein Borrower agrees to sell the Property or any part thereof for a price to be paid in installments; (b) an agreement by Borrower leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower’s right, title and interest in and to any Leases or any Rents; (c) if Borrower or any general partner or managing member of Borrower is a corporation, the voluntary or involuntary sale, conveyance, transfer or pledge of such corporation’s stock (or the stock of any corporation directly or indirectly controlling such corporation by operation of law or otherwise) or the creation or issuance of new stock by which an aggregate of more than 49% of such corporation’s stock shall become vested in another party; (d) if Borrower or any general partner or managing member of Borrower is a limited or general partnership or joint venture, the change, removal or resignation of a general partner or managing partner, or the transfer or pledge of the partnership interest of any general partner or managing partner of such partnership or any profits or proceeds relating to such partnership interest or the transfer or pledge of more than 49% in the aggregate of any limited partnership interests in such partnership or any profits or proceeds related to such interests whether in one transfer or pledge or a series of transfers or pledges; (e) if Borrower or any general partner or managing member of Borrower is a limited liability company, the change, removal or resignation of the managing member of such company, or the transfer or pledge of the membership interest of the managing member of such company or any profits or proceeds relating to such membership interest or the transfer or pledge of more than 49% in the aggregate of any membership interests in such company or any profits or proceeds related to such interests whether in one transfer or pledge or a series of transfers or pledges; and (f) without limitation to the foregoing, any voluntary or involuntary sale, transfer, conveyance or pledge by any Principal of its direct or indirect controlling interest in Borrower. Notwithstanding the foregoing, the following transfers shall not be deemed to be a sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment or transfer within the meaning of this Article 5: (A) transfer by devise or descent or by operation of law upon the death of a partner, member or stockholder of Borrower or any general partner or managing member thereof provided that Borrower immediately notifies Lender of such transfer, and (B) with the exception of the general partner/managing member interests in Borrower, a sale, transfer or hypothecation for estate planning purposes of a partnership, shareholder or membership interest in Borrower by the current partner(s), shareholder(s) or member(s), as applicable, to an immediate family member (i.e., parents, spouses, siblings, children or grandchildren) of such partner, shareholder or member (or a trust for the benefit of any such persons) Any of the transfers contemplated herein may be done in one or more transfers during the term of the Loan so long as it complies with the foregoing provisions.

5.4 Lender’s Rights. Lender reserves the right to condition the consent required under this Article 5 upon a modification of the terms hereof and on assumption of the Note, this Security Instrument and the other Loan Documents as so modified by the proposed transferee, (“Transferee”) as further described below. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon Borrower’s sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property without Lender’s consent. This provision shall apply to every sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property regardless of whether voluntary or not, and whether or not Lender has consented to any previous sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property. Borrower agrees to bear and shall pay or reimburse Lender on demand for all reasonable expenses (including, without limitation, reasonable attorneys’ fees and disbursements, title search costs and title insurance endorsement premiums and Rating Agency fees and expenses) incurred by Lender in connection with the review, approval and documentation of any such sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property or any interest in Borrower. Lender’s consent to one such sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer shall not be deemed to be a waiver of Lender’s light to require such consent to any future occurrence of same. Any such sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property or any interest in Borrower made in contravention of this Article 5 shall be null and void and of no force and effect.

5.5 Assumption. Lender’s consent to the sale or transfer of the Property will not be unreasonably withheld after consideration of all relevant factors, provided that:

(a) Borrower delivers to Lender no less than 60 days’ prior written notice of the proposed sale or transfer;

(c) Transferee and the proposed guarantor(s), if any, and the Property all satisfy Lender’s then applicable credit review and underwriting standards, taking into consideration, among other things, that Transferee and the proposed guarantor(s) shall be reputable Persons of good character, creditworthy, with sufficient financial worth considering the obligations assumed and undertaken, as evidenced by financial statements and other information reasonably requested by Lender, and Transferee shall satisfy Lender’s then applicable criteria for a single purpose entity;

(d) Lender’s reasonable determination that Transferee possesses satisfactory recent experience in the ownership and operation of properties similar to the Property;

(e) Transferee shall have executed and delivered to Lender an assumption agreement in form and substance acceptable to Lender, evidencing such Transferee’s agreement to abide and be bound by the terms of the Note, this Security Instrument and the other Loan Documents, and a consent to the sale or transfer by each existing guarantor(s) and a reaffirmation of each guarantor’s obligations and liabilities under the Loan Documents or the execution of new guaranties by new guarantors reasonably satisfactory to Lender, together with such legal opinions and title insurance endorsements as may be reasonably requested by Lender;

(f) Lender shall have received an assumption fee equal to one-third of one percent (.33%) of the then unpaid principal balance of the Note in addition to the payment of all costs and expenses incurred by Lender in connection with such assumption (including reasonable attorneys’ fees and costs); and

(g) if required by Lender, Lender shall have received confirmation in writing from the Rating Agencies to the effect that such transfer will not result in a qualification, downgrade or withdrawal of any rating initially assigned or to be assigned in a Secondary Market Transaction.

Subject to Section 9 of the Note, Lender shall fully release Borrower and each existing guarantor from any further obligation or liability to Lender under the Note and the other Loan Documents upon the assumption by Transferee and each new guarantor of all such obligations and liabilities and the satisfaction of all other conditions precedent to a sale or transfer in accordance with the provisions of this Section.

(a) Borrower, shall furnish to Lender, within ten days following demand, a certified statement, (A) setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note (if known to Borrower), (iii) the rate of interest on the Note, (iv) the date installments of interest and/or principal were last paid, and (v) any offsets or defenses to the payment of the Debt, if any, and (B) stating that the Note and this Security Instrument are valid, legal and binding obligations and have not been modified or if modified giving the particulars of such modification.

(b) Borrower shall use its best efforts to deliver to Lender, promptly upon request, duly executed estoppel certificates from any one or more lessees as required by Lender attesting to such facts regarding the Lease as Lender may reasonably require, provided that (i) Borrower shall not be required to honor more than two requests made by Lender in any twelvemonth period and (ii) in no event shall Borrower be required to obtain estoppel certificates from lessees containing more information than that required to be certified pursuant to the tern^-is of the related Lease.

(a) If any law is enacted or adopted or amended after the date of this Security Instrument which deducts the Debt from the value of the Property for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Lender’s interest in the Property, Borrower will pay the tax, with interest and penalties thereon, if any. If Lender is advised by counsel chosen by it that the payment of tax by Borrower would be unlawful or taxable to Lender or unenforceable or provide the basis for a defense of usury, then Lender shall have the option by written notice of not less than 90 days to declare the Debt immediately due and payable.

(b) Borrower will not claim or demand or be entitled to any credit or credits against the Debt for any part of the Taxes or Other Charges assessed against the Property, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of the Property, or any part thereof, for real estate tax purposes by reason of this Security Instrument or the Debt, If such claim, credit or deduction shall be required by law, Lender shall have the option, by written notice of not less than 90 days, to declare the Debt immediately due and payable.

(c) If at any time the United States of America, any State thereof or any subdivision of any such State shall require revenue or other stamps to be affixed to the Note, this Security Instrument, or any of the other Loan Documents or impose any other tax or charge on the same, Borrower will pay for the same, with interest and penalties thereon, if any

6.3 Recording of Security Instrument etc. Borrower shall, at its expense, cause this Security Instrument, and any security instrument creating a lien or security interest or evidencing the lien hereof upon the Property and each instrument of further assurance, to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien or security interest hereof upon, and the interest of Lender in, the Property. Borrower will pay all filing, registration or recording fees, and all taxes and expenses incident to the preparation, execution and acknowledgment of this Security Instrument and the Note, any mortgage supplemental hereto, any security instrument with respect to the Property and any instrument of further assurance

6.4 Third Party Reports. Lender may commission new or updated appraisals, phase I and phase II environmental reports, property condition surveys and (if the Property is located in an area with a high degree of seismic activity) seismic risk assessments of the Property to be prepared by third parties designated by Lender after the date hereof. Borrower shall cooperate with each third party and Lender in the preparation of such reports and shall reimburse Lender within ten days after Lender’s demand for all costs incurred by Lender in connection with such reports, provided that Borrower shall not be obligated to reimburse Lender for the cost of more than one appraisal, one phase I environmental report, one phase II environmental report, one property condition survey and one seismic risk assessment following the date hereof.

6.5 Performance of Other Agreements; Further Acts. Borrower shall observe and perform each and every term to be observed or performed by Borrower pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Property. Borrower will, at no cost or expense to Lender, do any act or execute any additional documents as may be required by Lender to confirm the lien of this Security Instrument and any of the agreements set forth herein. Borrower, on demand, will execute and deliver and hereby authorizes Lender to execute in the name of Borrower or without the signature of Borrower to the extent Lender may lawfully do so, and to file in the appropriate filing or recording offices, one or more financing statements, chattel mortgages or other instruments, to evidence more effectively the security interest of Lender in the Property. Borrower grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender at law and in equity, including without limitation such rights and remedies available to Lender pursuant to this Section.

7.1 Events of Default. The occurrence of any one or more of the following events shall constitute an “Event of Default”: (a) if any portion of the Debt is not paid on the date the same is due or if the entire Debt is not paid on or before the Maturity Date; (b) if any of the Taxes or Other Charges is not paid prior to the date the same becomes delinquent except to the extent sums sufficient to pay such Taxes and Other Charges have been deposited with Lender in accordance with the terms of this Security Instrument; (c) if the insurance policies are not kept in full force and effect, or if the insurance policies are not delivered to Lender upon request or Borrower has not delivered evidence of the renewal of the insurance policies 30 days prior to their expiration as provided in Section 3.3(e); (d) if Borrower violates or does not comply with any of the prOvisions of Sections 3.8 or 4.2 or Article 5 or 9; (e) if any representation or warranty of Borrower or any Guarantor, or any general partner, principal or beneficial owner of any of the foregoing, made herein or in any guaranty, environmental indemnity or any certificate, report, financial statement or other instrument or document furnished to Lender shall have been false or misleading in any material respect when made; (f) if Borrower or any Guarantor shall make an assignment for the benefit of creditors or if Borrower or any Guarantor shall generally not be paying its debts as they become due; (g) if a receiver, liquidator, or trustee is appointed for Borrower or any Guarantor or for the Property or any material portion of the assets of Borrower^. or of any Guarantor, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower or any Guarantor or if any proceeding for the dissolution or liquidation of Borrower or of any Guarantor shall be instituted; however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or such Guarantor, upon the same not being discharged, stayed or dismissed within 60 days; (h) if Borrower shall be in default beyond any applicable notice or cure period under any other mortgage, deed of trust, deed to secure debt or other security agreement covering any part of the Property whether it be superior or junior in lien to this Security Instrument; (i) if the Property becomes subject to any mechanic’s, materialman’s or other lien other than a lien for local real estate taxes and assessments not then delinquent and the lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of 30 days after Borrower has first received notice thereof; (j) if any federal tax lien is filed against the Property and same is not discharged of record within 30 days after Borrower has first received notice thereof; (k) if within ten days of Lender’s demand therefor Borrower fails to provide Lender with the written certification and evidence referred to in Section 3..14 hereof or Borrower fails to comply with its obligations under Section 11.11; (I) if any default beyond any applicable notice or cure period occurs under any guaranty or indemnity executed in connection herewith and such default continues after the expiration of applicable grace periods, if any; or (m) if for more than ten days after notice from Lender, Borrower shall continue to be in default under any other term, covenant or condition of the Note, this Security Instrument or the other Loan Documents in the case of any default which can be cured by the payment of a sum of money or for 30 days after notice fit:Tr] Lender in the case of any other default, provided that if such default cannot reasonably be cured within such .30 day period and Borrower shall have commenced to cure such default within such .30 day period and thereafter diligently and expeditiously proceeds to cure the same, such 30 day period shall be extended for so long as it shall require Borrower in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of 60 days.

8.1 Right to Cure Defaults. Upon the occurrence of any Event of Default or if Borrower fails to make any payment or to do any act as herein provided, Lender may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder, make or do the same in such manner and to such extent as Lender may deem necessary to protect the security hereof Lender is authorized to enter upon the Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Property or to foreclose this Security Instrument or collect the Debt, and the cost and expense thereof (including reasonable attorneys’ fees to the extent permitted by law), whether incurred before or after a mortgage foreclosure, with interest at the Applicable Interest Rate, shall constitute a portion of the Debt and shall be due and payable to Lender upon demand. All such costs and expenses incurred by Lender in remedying such Event of Default or in appearing in, defending, or bringing any such action or proceeding shall bear interest at the Applicable Interest Rate, for the period after notice from Lender that such cost or expense was incurred to the date of payment to Lender. All such costs and expenses incurred by Lender together with interest thereon calculated at the Applicable Interest Rate shall constitute a portion of the Debt and be secured by this Security Instrument and the other Loan Documents and shall be immediately due and payable upon demand by Lender therefor.

(a) Upon the occurrence of any Event of Default, Borrower agrees that Trustee or Lender may take such action, without notice or demand, as Lender deems advisable to protect and enforce Trustee’s or Lender’s rights against Borrower and in and to the Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Lender. may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Trustee or Lender: (a) declare the entire unpaid Debt to be immediately due and payable; (b) with or without entry, institute proceedings, .judicial or otherwise, for the complete or partial foreclosure of this Security Instrument under any applicable provision of law in which case the Property or any interest therein may be sold for cash or upon credit in one or more parcels or in several interests or portions and in any order or manner, any partial foreclosure to be subject to the continuing lien and security interest of this Security Instrument for the balance of the Debt not then due, unimpaired and without loss of priority; (c) sell for cash or upon credit the Property or any part thereof and all estate, claim, demand, right, title and interest of Borrower therein and rights of redemption thereof, pursuant to power of sale, judicial decree or otherwise, at one or more sales, as an entirety or in one or more parcels; (d) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, in the Note or in the other Loan Documents; (e) recover judgment on the Note either before, during or after any proceedings for the enforcement of this Security Instrument or the other Loan Documents; (f) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Debt and without regard for the solvency of Borrower, any Guarantor, Indemnitor or of any Person liable for the payment of the Debt; (g) enter into or upon the Property, either personally or by its agents, nominees or attorneys, and dispossess Borrower and its agents and servants therefrom, without liability for trespass, damages or otherwise, and exclude Borrower and its agents or servants wholly therefrom, and take possession of all books, records and accounts relating thereto and Borrower agrees to surrender possession of the Property and of such books, records and accounts to Lender upon demand, and thereupon Lender may exercise all rights and powers of Borrower with respect to the Property including, without limitation, (I) the right to use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Property and conduct the business thereat; (2) the right to make or complete any construction, alterations, additions, renewals, replacements and improvements to or on the Property as Lender deems advisable; and (3) the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents of the Property and every part thereof; (11) require Borrower to pay monthly in advance to Lender, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of such part of the Property as may be occupied by Borrower; (i) require Borrower to vacate and surrender possession of the Property to Lender or to such receiver and, in default thereof, Borrower may be evicted by summary proceedings or otherwise; (j) apply the receipts from the Property, any Deposits and interest thereon and/or any unearned Insurance Premiums paid to Lender upon the surrender of any insurance policies maintained hereof (it being agreed that Lender shall have the right to surrender such policies upon the occurrence of an Event of Default), to the payment of the Obligations, in such order, priority and proportions as Lender shall deem appropriate in its sole discretion; or (k) exercise any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing: (I) the right to take possession of the Personal Property or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Personal Property, and (2) request Borrower at its expense to assemble the Personal Property and make it available to Lender at a convenient place acceptable to Lender Any notice of sale, disposition or other intended action by Lender with respect to the Personal Property sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Borrower, Upon any foreclosure or other sale of the Property pursuant to the terms hereof, Lender may bid for and purchase the Property and shall be entitled to apply all or any part of the secured indebtedness as a credit against the purchase price. If Lender elects to sell or offer for sale the Property in such portions, order and parcels as Lender may determine pursuant to this subsection, with or without having first taken possession of same, such sale shall be made in accordance with the applicable provisions of Section 51.002 of the Texas Property Code, as amended, or, if and to the extent such statute is not then in force, with the applicable requirements, at the time of the sale, of the successor statute or statutes, if any, governing sales of Texas real property under powers of sale conferred by deeds of trust relating to the sale of real estate or by Chapter 9 of the UCC relating to the sale of collateral after default by a debtor (as such laws now exist or may be hereafter amended or succeeded), or by any other present or subsequent articles or enactments relating to same,

(b) In the event of a sale, by foreclosure, power of sale, or otherwise, of less than all of the Property, this Security Instrument shall continue as a lien and security interest on the remaining portion of the Property unimpaired and without loss of priority Notwithstanding the provisions of this Section 8.2 to the contrary, if any Event of Default as described in Subsection 71(f) or Subsection 7.1(g) shall occur, the entire unpaid Debt shall be automatically due and payable, without any further notice, demand or other action by Lender.

(c) Except as prohibited by law, the proceeds of any sale made under or by virtue of this Section 8.2, together with any other sums which then may be held by Lender under this Security Instrument, whether under the provisions of this Section 8.2 or otherwise, shall be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper.

(d) Lender may adjourn from time to time any sale by it to be made under or by virtue of this Security Instrument by announcement at the time and place appointed for such sale or sales being adjourned; and, except as otherwise provided by any applicable provision of law, Lender, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned.

8.3 Right of Entry. Lender and its agents shall have the right to enter and inspect the Property at all reasonable times

8.4 Actions and Proceedings. Lender has the right to appear in and defend any action or proceeding brought with respect to the Property and to bring any action or proceeding, in the name and on behalf of Borrower, which Lender, in its discretion, decides should be brought to protect its interest in the Property,

(a) The failure of Lender to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Security Instrument. Borrower shall not be relieved of Borrower’s obligations hereunder by reason of (i) the failure of Lender to comply with any request of Borrower or any Guarantor to take any action to foreclose this Security Instrument or otherwise enforce any of the provisions hereof or of the Note or the other Loan Documents, (ii) the release, regardless of consideration, of the whole or any part of the Property, or of any Person liable for the Debt or any portion thereof, or (iii) any agreement or stipulation by Lender extending the time of payment or otherwise modifying or supplementing the terms of the Note, this Security Instrument or the other Loan Documents

(b) It is agreed that the risk of loss or damage to the Property is on Borrower, and Lender shall have no liability whatsoever for decline in value of the Property, for failure to maintain the insurance policies, or for failure to determine whether insurance in force is adequate as to the amount of risks insured,

(c) Trustee or Lender may resort for the payment of the Debt to any other security for the debt held by Trustee or Lender in such order and manner as Trustee or Lender, in its discretion, may elect Lender may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Trustee or Lender thereafter to foreclose this Security Instrument. The rights of Lender and Trustee under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Trustee or Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Lender and Trustee shall not be limited exclusively to the rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity

8.6 Attorneys’ Fees for Enforcement. Borrower shall pay to Lender on demand any and all expenses, including legal expenses and attorneys’ fees, incurred or paid by Lender in protecting its interest in the Property or in collecting any amount payable hereunder or in enforcing its rights hereunder with respect to the Property, whether or not any legal proceeding is commenced hereunder or thereunder and whether or not any default or Event of Default shall have occurred and be continuing, together with interest thereon at the Default Rate (as defined in the Note) from the date paid or incurred by Lender until such expenses are paid by Borrower.

9.1 Indemnification. Borrower shall protect, defend, indemnify and save harmless Lender and Trustee from and against any and all Losses, including those arising from the joint, concurrent, or comparative negligence of Lender, except to the extent any Losses are caused by Lender’s gross negligence or willful misconduct, by reason of (a) ownership of this Security Instrument, the Property or any interest therein or receipt of any Rents; (b) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (c) any use, nonuse or condition in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (d) any failure on the part of Borrower to perform or comply with any of the terms of this Security Instrument; (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof; (f) the failure of any Person to file timely with the Internal Revenue Service an accurate Form 1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and Barter Exchange Transactions, which may be required in connection with this Security Instrument, or to supply a copy thereof in a timely fashion to the recipient of the proceeds of the transaction in connection with which this Security Instrument is made; or (g) any failure of the Property to be in compliance with any Applicable Law.. Any amounts payable to Lender or Trustee by reason of the application of this Section 9.1 shall be secured by this Security Instrument and the other Loan Documents and shall become immediately due and payable and shall bear interest at the Applicable Interest Rate from the date loss or damage is sustained by Lender or Trustee until paid. The obligations and liabilities of Borrower under this Section 9.1 shall survive any termination, satisfaction, assignment, entry of a judgment of foreclosure, delivery of a deed in a non-judicial foreclosure or delivery of a deed in lieu of foreclosure of this Security Instrument

9.2 Mortgage and Intangible Tax. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless Lender and Trustee from and against any and all Losses imposed upon or incurred by or asserted against Lender or Trustee and directly or indirectly arising out of or in any way relating to any tax on the making and/or recording of this Security Instrument, the Note or any of the other Loan Documents.

9.3 ERISA Indemnification. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless Lender and Trustee from and against any and all Losses, including those arising from the joint, concurrent, or comparative negligence of Lender, except to the extent any Losses are caused by Lender’s gross negligence or willful misconduct (including, without limitation, attorneys’ fees and costs incurred in the investigation, Deed of Trust, Security Agreement, defense, and settlement of Losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required, in Lender’s sole discretion) that Lender may incur, directly or indirectly, as a result of a default under Section 114.

10.1 Waiver of Counterclaim: Waiver of Trial by Jury. Borrower hereby waives the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against it by Lender. EACH OF BORROWER AND LENDER WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY COUNTERCLAIM ASSERTED BY LENDER AGAINST BORROWER, OR IN ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SECURITY INSTRUMENT, THE NOTE, ANY OF THE OTHER LOAN DOCUMENTS OR THE DEBT.

10.2 Marshalling and Other Matters. Borrower hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, Borrower hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Security Instrument on behalf of Borrower, on behalf of each and every Person acquiring any interest in or title to the Property subsequent to the date of this Security Instrument and on behalf of all Persons to the extent permitted by applicable law.

10.3 Sole Discretion of Lender. Wherever pursuant to this Security Instrument, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide that arrangements or terms are satisfactory or not satisfactory shall be in the sole discretion of Lender and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein.

11.1 Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person, (ii) one Business Day (as defined below) after having been deposited for overnight delivery with any reputable overnight courier service, (iii) three Business Days after having been deposited in any post office or mail depository regularly maintained by the U S Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, or (iv) if by telecopy, upon transmittal to the recipient’s telecopy number. All such communications shall be mailed, sent or delivered, addressed to the party for whom it is intended at its address set forth below.


If to Borrower:		El Dorado Apartments, LLC P.O. Box 400 400 North State Street Fountain Green, Utah 84632 Attention: Wendell A Jacobson Telecopy: (435) 445-3507
If to Lender:		Royal Bank of Canada c/o Midland Loan Services, Inc. 10851 Mastin, Suite 700 Overland Park, Kansas 66210 Attention: Director of Servicing Telecopy: (913) 253-9001
With a copy to:		Royal Bank of Canada New York Branch One Liberty Plaza, .3rd Floor New York, New York 10006-1404 Attention: Manager, Loans Administration Telecopy: (212) 428-2372

or addressed as either party may from time to time designate by written notice to the other party.

11.2 Authority; Legal Status; Not a Foreign Person. Borrower has full power, authority and right to execute, deliver and perform its obligations pursuant to this Security Instrument, to mortgage, give, grant, bargain, sell, convey, confirm, hypothecate and assign the Property pursuant to the terms hereof and to keep and observe all of the terms of this Security Instrument on Borrower’s part to be performed. Borrower (a) is duly organized, validly existing and in good standing under the laws of its state of organization or incorporation; (b) is duly qualified to transact business and is in good standing in the State where the Property is located; and (c) has all necessary approvals, governmental and otherwise, and full power and authority to own the Property and carry on its business as now conducted and proposed to be conducted Borrower now has and shall continue to have the full right, power and authority to operate and lease the Property, to encumber the Property as provided herein and to perform all of the other obligations to be performed by Borrower under the Note, this Security Instrument and the other Loan Documents, Borrower represents and warrants that Borrower is not a “foreign person” within the meaning of 1445(f)(3) of the Internal Revenue Code of 1986, as amended and the related Treasury Department regulations, including temporary regulations.

11.3 No Oral Change. This Security Instrument, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

11.4 Liability. If Borrower consists of more than one Person, the obligations and liabilities of each such person hereunder shall be joint and several. This Security Instrument shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns forever.

11.5 Severability. Wherever possible, each provision of this Security Instrument shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Security Instrument is held to be illegal, invalid or unenforceable in any respect, such provision shall be fully severable and shall be ineffective to the extent of such illegality, invalidity or unenforceability without invalidating the remainder of such provision or the remaining provisions of this Security Instrument

11.6 Headings, etc. The headings and captions of various sections of this Security Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof,

11.7 Duplicate Originals; Counterparts. This Security Instrument may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original, This Security Instrument may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Security Instrument.

11.8 Number and Gender. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa

11.9 Subrogation. If any or all of the proceeds of the Note have been used to extinguish, extend or renew any indebtedness heretofore existing against the Property, then, to the extent of the funds so used, Lender shall be subrogated to all of the rights, claims, liens, titles, and interests existing against the Property heretofore held by, or in favor of, the holder of such indebtedness, and such former rights, claims, liens, titles, and interests, if any, are not waived but rather are continued in full force and effect in favor of Lender and are merged with the lien and security interest created herein as cumulative security for the payment and performance of the Obligations,

11.10 Definitions. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Security Instrument may be used interchangeably in singular or plural form and the word “Borrower” shall mean “each Borrower and any subsequent owner or owners of the Property or any part thereof or any interest therein”, the word “Lender” shall mean “Lender and its successors and any subsequent holder of the Note”, the word “Note” shall mean “the Note and any other evidence of indebtedness secured by this Security Instrument”, the word “Person” shall include an individual, corporation, partnership, trust, unincorporated association, government, governmental authority, and any other entity, the word “Property” shall include any portion of the Property and any interest therein and the phrases “attorneys’ fees”, “legal fees” and “counsel fees” shall include any and all reasonable attorneys’, paralegal and law cleric fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Property, the Leases and the Rents and enforcing its rights hereunder Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.

11.11 Transfer of Loan. Borrower acknowledges that Lender and its successors and assigns may (i) sell the Note, this Security Instrument and the other Loan Documents and any and all servicing rights thereto to one or more investors as a whole loan, (ii) participate the Loan to one or more investors, (iii) deposit the Note, this Security Instrument and the other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (iv) otherwise sell the Loan or interest therein to investors (the transactions referred to in clauses (i) through (iv) are herein each referred to as a “Secondary Market Transaction”). In connection with a Secondary Market Transaction, Lender and its successors and assigns may, at any time, issue mortgage pass through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (the “Securities”). Lender may forward to each purchaser, transferee, assignee, servicer, participant, investor in such Securities or any Rating Agency rating such Securities (all of the foregoing entities collectively referred to as the “investor”) and each prospective Investor, all documents and information which Lender now has or may hereafter acquire relating to the Debt and to Borrower, any Guarantor and the Property, whether furnished by Borrower, any Guarantor or otherwise, as Lender determines necessary or desirable. Borrower agrees to cooperate with Lender in connection with any transfer made or any Securities created pursuant to this Section Borrower shall also promptly furnish and Borrower consents to Lender furnishing to such Investors or such prospective Investors or any Rating Agency any and all available information concerning the Property, the Leases, the financial condition of Borrower and any Guarantor as may be requested by Lender, any Investor, any prospective Investor or any Rating Agency (including, but not limited to, copies of information previously supplied to Lender) in connection with any sale, transfer or participation interest. In addition to any other obligations Borrower may have under this Section, Borrower shall execute such amendments to the Loan Documents and Borrower’s organizational documents as may be requested by the holder of the Note or any Investor to effect the assignment of the Note and the other Loan Documents and/or issuance of Securities; provided, however, that Borrower shall not be required to modify or amend any Loan Document if the overall effect of such modification or amendment would modify or amend any material economic term of the Note or the other Loan Documents

11.12 Promotional Materials. Borrower authorizes Lender to issue press releases, advertisements and other marketing materials in connection with Lender’s own promotional activities, including in connection with a Secondary Market Transaction. Such materials may describe the Loan terms and Lender’s participation therein in the Loan. All references to Lender contained in any press release, advertisement or marketing material prepared by Borrower shall be approved in writing by Lender in advance of issuance

11.13 Replacement Documents. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any other Loan Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or other Loan Document, Borrower will issue, in lieu thereof, a replacement Note or other Loan Document, dated the date of such lost, stolen, destroyed or mutilated Note or other Loan Document, in the same principal amount thereof and otherwise of like tenor.

11.14 Governing Law. This Security Instrument shall be governed by the laws of the State in which the Land is located, without regard to rules pertaining to conflicts of law.

11.15 Entire Agreement. The Note, this Security Instrument and the other Loan Documents constitute the entire understanding and agreement between Borrower and Lender with respect to the transactions arising in connection with the Debt and supersede all prior written or oral understandings and agreements between Borrower and Lender with respect thereto. Borrower hereby acknowledges that, except as incorporated in writing in the Note, this Security Instrument and the other Loan Documents, there are not, and were not, made, and no Persons are or were authorized by Lender to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the transaction which is the subject of the Note, this Security Instrument and the other Loan Documents

11.16 The Trustee’s Fees. Borrower shall pay all reasonable costs, fees and expenses incurred by the Trustee and the Trustee’s agents and counsel in connection with the performance by the Trustee of the Trustee’s duties hereunder and all costs, fees and expenses shall be secured by this Security Instrument.

11.17 Certain Rights. With the approval of Lender, the Trustee shall have the right to take any and all of the following actions: (i) to select, employ, and advise with counsel (who may be, but need not be, counsel for Lender) upon any matters arising hereunder, including the interpretation of the Note, this Security Instrument or the other Loan Documents, and shall be fully protected in relying as to legal matters on the advice of counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through its agents or attorneys, (iii) to select and employ, in and about the execution of its duties hereunder, suitable accountants, engineers and other experts, agents and attorneys-in-fact, either corporate or individual, not regularly in the employ of the Trustee, and the Trustee shall not be answerable for any act, default, negligence, or misconduct of any such accountant, engineer or other expert, agent or attorney-in-fact, if selected with reasonable care, or for any error of judgment or act done by the Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for the Trustee’s gross negligence or bad faith, and (iv) any and all other lawful action as Lender may instruct the Trustee to take to protect or enforce Lender’s rights hereunder, The Trustee shall not be personally liable in case of entry by the Trustee, or anyone entering by virtue of the powers herein granted to the Trustee, upon the Property for debts contracted for or liability or damages incurred in the management or operation of the Property. The Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting an action taken or proposed to be taken by the Trustee hereunder, believed by the Trustee in good faith to be genuine. The Trustee shall be entitled to reimbursement for actual expenses incurred by the Trustee in the performance of the Trustee’s duties hereunder and to reasonable compensation for such of the Trustee’s services hereunder as shall be rendered.

11.18 Retention of Money. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by applicable law) and the Trustee shall be under no liability for interest on any moneys received by the Trustee hereunder.

11.19 Perfection of Appointment. Should any deed, conveyance, or instrument of any nature be required from Borrower by any Trustee or substitute trustee to more fully and certainly vest in and confirm to the Trustee or substitute trustee such estates rights, powers, and duties, then, upon request by the Trustee or substitute trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be caused to be recorded and/or filed by Borrower.

11.20 Succession Instruments. Any substitute trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed, or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its predecessor in the rights hereunder with like effect as if originally named as the Trustee herein; but nevertheless, upon the written request of Lender or of the substitute trustee, the Trustee ceasing to act shall execute and deliver any instrument transferring to such substitute trustee, upon the trusts herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and moneys held by such Trustee to the substitute trustee so appointed in the Trustee’s place

11.21 Reliance of Trustee. As to all matters concerning the existence of defaults hereunder and the amount of the Debt subject to the Note and secured hereby, as well as similar or related matters, the Trustee is hereby authorized by Borrower to rely conclusively upon, without further inquiry, the affidavit of any officer of Lender.

IN WITNESS WHEREOF, this Security Instrument has been executed as an instrument under seal by Borrower the day and year first above written

This instrument was acknowledged before me this 24th^-day of November 2006, by Wendell A Jacobson, Manager of EL DORADO APARTMENTS, LLC, a Texas limited liability company on

[Seal] Jenny J. Bailey
[Seal] Notary Public, State of Utah
[Seal] My Commission Expires
[Seal] May 26, 2008
[Seal] 400 North State St., Fountain Green, UT 84632

THIS INSTRUMENT CONTAINS INDEMNIFICATION PROVISIONS AND
PROVISIONS LIMITING LENDER’S LIABILITY FOR NEGLIGENCE


		November 1, 2007
THE BANK OF NEW YORK TRUST COMPANY,
NATIONAL ASSOCIATION,
AS TRUSTEE FOR THE REGISTERED
HOLDERS OF MORGAN STANLEY
CAPITAL I INC., COMMERCIAL
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 2007-IQ14, having an address at
c/o Capmark Finance Inc. 116 Welsh Road
Horsham, Pennsylvania 19044
Attention: Servicing Department (99-1069656)
RE:		Loan in the original principal amount of THIRTEEN MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($13,600,000.00) (the “Loan”) currently held by THE BANK OF NEW YORK TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF MORGAN STANLEY CAPITAL I INC., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-IQ14 (“Lender”), assumed by APARTMENT REIT VILLAS OF EL DORADO, LLC, a Delaware limited liability company (“Borrower”), secured by a Deed of Trust, Security Agreement, Fixture Financing Statement and Assignment of Leases and Rents (the “Security Instrument”) encumbering real property commonly known as Villas of El Dorado (the “Property”)

FOR VALUE RECEIVED, and to induce Lender to consent to the assumption of the Loan by Borrower pursuant to that certain Agreement of Assumption and Modification of Security Instrument and Other Loan Documents, dated as of the date hereof (the “Assumption Agreement”), such Loan evidenced by that certain promissory note dated November 29, 2006 made by El Dorado Apartments, LLC, a Texas limited liability company (“Original Borrower”) to the order of Royal Bank of Canada, a Canadian chartered bank (“Original Lender”) in the original principal amount of THIRTEEN MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($13,600,000.00) (the “Note”) and secured by the Security Instrument and by certain other Loan Documents (as defined in the Security Instrument), the undersigned, NNN APARTMENT REIT, INC., a Maryland corporation having an address at 1551 N. Tustin Avenue, Suite 300, Santa Ana, California 92705 (hereinafter individually referred to as “Guarantor”) hereby enters into this Limited Guaranty (“Guaranty”) in favor of Lender and hereby absolutely and unconditionally guarantees to Lender the prompt and unconditional payment of the Guaranteed Obligations (hereinafter defined) of Borrower. Capitalized terms used herein and not specifically defined herein shall have the respective meanings ascribed to those terms in the Security Instrument.

Guarantor, as a primary obligor and not merely as a surety, for consideration received, the receipt and sufficiency of which is hereby acknowledged, and at the request of Borrower, hereby absolutely, unconditionally and irrevocably guarantees AND PROMISES TO PAY TO Lender or order, on demand, in lawful money of the United States of America, in immediately available funds, all sums for which Borrower is now or hereafter liable to Lender with respect to the matters specifically set forth in Sections 9.1 and 9.2 of the Note (the “Guaranteed Obligations”).

It is expressly understood and agreed that this is a continuing guaranty and that the obligations of Guarantor hereunder are and shall be absolute under any and all circumstances, without regard to the validity, regularity or enforceability of the Note, the Assumption Agreement, the Security Instrument or the other Loan Documents. Guarantor hereby acknowledges having received and reviewed true copies of the Note, the Security Instrument and the other Loan Documents.

Any and all present and future debts and obligations of Borrower to Guarantor are hereby waived and postponed in favor of and subordinated to the full payment and performance of all present and future debts and obligations of Borrower to Lender. Until payment in full of the Debt (as such term is defined in the Security Instrument) (including interest accruing on the Note after the commencement of a proceeding by or against Borrower under the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. Sections 101 et seq., and the regulations adopted and promulgated pursuant thereto (collectively, the “Bankruptcy Code”), which interest the parties agree shall remain a claim that is prior and superior to any claim of Guarantor notwithstanding any contrary practice, custom or ruling in cases under the Bankruptcy Code generally), Guarantor agrees not to accept any payment or satisfaction of any kind of indebtedness of Borrower to Guarantor and hereby assigns such indebtedness to Lender, including the right to file proof of claim and to vote thereon in connection with any such proceeding under the Bankruptcy Code, including the right to vote on any plan of reorganization. Further, if Guarantor shall comprise more than one person, firm or corporation, Guarantor agrees that until such payment in full of the Debt, (a) no one of them shall accept payment from the others by way of contribution on account of any payment made hereunder by such party to Lender, (b) no one of them will take any action to exercise or enforce any rights to such contribution, and (c) if any of Guarantor should receive any payment, satisfaction or security for any indebtedness of Borrower to any of Guarantor or for any contribution by the others of Guarantor for payment made hereunder by the recipient to Lender, the same shall be delivered to Lender in the form received, endorsed or assigned as may be appropriate for application on account of, or as security for, the Debt and until so delivered, shall be held in trust for Lender as security for the Debt.

Guarantor agrees that, with or without notice or demand, Guarantor will reimburse Lender, to the extent that Borrower does not make such reimbursement, for all expenses (including attorneys’ fees) incurred by Lender in connection with collection of the Guaranteed Obligations or any portion thereof or enforcement of this Guaranty.

Lender may apply all moneys available to Lender for application in payment or reduction of the Debt, in such manner and in such amounts and at such time or times and in such order and priority as Lender may see fit, to the payment or reduction of such portion of the Debt as Lender may elect

Guarantor hereby waives: notice of acceptance hereof, presentment and protest of any instrument and notice thereof, notice of default and all other notices to which Guarantor might otherwise be entitled; any and all defenses, including, without limitation, any and all defenses which Borrower or any other party may have to the fullest extent permitted by law; and any rights to any homestead exemptions on record or by operation of law as of the date of this Guaranty respecting any property owned by Guarantor.

Guarantor further agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall in no way be terminated, affected or impaired by reason of (a) the assertion by Lender of any rights or remedies which it may have under or with respect to the Note, the Security Instrument, or the other Loan Documents, against any person obligated thereunder or against the owner of the Property, (b) any failure to file or record any of such instruments or to take or perfect any security intended to be provided thereby, (c) the release or exchange of any property covered by the Security Instrument or other collateral for the Loan, (d) Lender’s failure to exercise, or delay in exercising, any such right or remedy or any right or remedy Lender may have hereunder or in respect of this Guaranty, or (e) the commencement of a case under the Bankruptcy Code by or against any person obligated under the Note, the Security Instrument or the other Loan Documents, or the death of any Guarantor, or (f) any payment made on the Debt or any other indebtedness arising tinder the Note, the Security Instrument or the other Loan Documents, whether made by Borrower or Guarantor or any other person or entity, which is required to be refunded pursuant to any bankruptcy or insolvency law; it being understood that no payment so refunded shall he considered as a payment of any portion of the Debt, nor shall it have the effect of reducing the liability of Guarantor hereunder, it is further understood, that if Borrower shall have taken advantage of, or be subject to the protection of, any provision in the Bankruptcy Code, the effect of which is to prevent or delay Lender from taking any remedial action against Borrower, including the exercise of any option Lender has to declare the Debt due and payable on the happening of any default or event by which under the terms of the Note, the Security Instrument or the other Loan Documents, the Debt shall become due and payable, Lender may, as against Guarantor, nevertheless, declare the Debt due and payable and enforce any or all of its rights and remedies against Guarantor provided for herein.

This is a continuing guaranty of payment and not of collection and upon any default of Borrower under the Note, the Security Instrument or the other Loan Documents, Lender may, at its option, proceed directly and at once, without notice, against Guarantor to collect and recover the full amount of the liability hereunder or any portion thereof, without proceeding against Borrower or any other person or entity, or foreclosing upon, selling, or otherwise disposing of or collecting or applying against the Debt any of the Property or other collateral for the Loan. Guarantor hereby waives the pleading of any statute of limitations as a defense to the obligation hereunder.

Guarantor further covenants that this Guaranty shall remain and continue in full force and effect as to any modification, extension or renewal of the Note, the Security Instrument, or any of the other Loan Documents, that Lender shall not be under a duty to protect, secure or insure any security or lien provided by the Security Instrument or other such collateral, and that other indulgences or forbearances may be granted under any or all of such documents, all of which may be made, done or suffered without notice to, or further consent of, Guarantor.

Guarantor and its representative executing below have full power, authority and legal right to execute this Guaranty and to perform all its obligations under this Guaranty.

All understandings, representations and agreements heretofore had with respect to this Guaranty are merged into this Guaranty which alone fully and completely expresses the agreement of Guarantor and Lender.

This Guaranty may be executed in one or more counterparts by some or all of the parties hereto, each of which counterparts shall be an original and all of which together shall constitute a single agreement of Guaranty. The failure of any party hereto to execute this Guaranty, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder.

This Guaranty may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Lender or Borrower, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

Lender’s delay or omission in exercising any of Lender’s rights and remedies shall not constitute a waiver of those rights and remedies, nor shall Lender’s waiver of any right or remedy operate as a waiver of any other right or remedy available to Lender. Lender’s waiver of any right or remedy on any one occasion shall not be considered a waiver of same on any subsequent occasion, nor shall this be considered to be a continuing waiver.

The term “Lender” as used in this Guaranty shall mean and include the party named above as Lender and its successors and assigns, in whose favor the provisions of this Guaranty shall also inure. The term “Guarantor” as used in this Guaranty shall mean and include the party and/or parties named above as Guarantor and their respective heirs, executors, administrators, legal representatives, successors and assigns, all of whom shall be bound by the provisions of this Guaranty. The term “Borrower” as used in this Guaranty shall mean and include the party referenced above as Borrower and its successors and assigns as permitted in accordance with the terms of the Note, the Security Instrument and other Loan Documents.

This Guaranty, all acts and transactions hereunder, and the rights and obligations of the parties hereto shall be governed, construed and interpreted according to the laws of the State where the Property is located.

Wherever possible, each provision of this Guaranty shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Guaranty is held to be illegal, invalid or unenforceable in any respect, such provision shall be fully severable and shall be ineffective to the extent of such illegality, invalidity or unenforceability, without invalidating the remainder of such provision or the remaining provisions of this Guaranty.

Guarantor irrevocably submits to the nonexclusive jurisdiction of any federal or state court sitting in the state where the Property is located over any suit, action or proceeding arising out of or relating to this Guaranty. Guarantor irrevocably waives, to the fullest extent it may effectively do so under applicable law, any objection it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such Court and any claim that the same has been brought in an inconvenient forum. Guarantor irrevocably appoints the Secretary of State of the state where the Property is located as its authorized agent to accept and acknowledge on its behalf any and all process which may be served in any such suit, action or proceeding, consents to such process being served (i) by mailing a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to Guarantor’s address shown above or as notified to the Lender in writing and (ii) by serving the same upon such agent, and agrees that such service shall in every respect be deemed effective service upon Guarantor.

For purposes of this Guaranty, the term “attorneys’ fees” shall include any and all reasonable attorneys’, paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Property, the Leases (as defined in the Security Instrument) and the Rents (as such term is defined in the Security Instrument) and enforcing its rights hereunder.

EACH OF GUARANTOR AND, BY ITS ACCEPTANCE HEREOF, LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AND AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, WAIVES ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS GUARANTY, THE GUARANTEED OBLIGATIONS, ALL MATTERS CONTEMPLATED HEREBY AND ALL DOCUMENTS EXECUTED IN CONNECTION HEREWITH. GUARANTOR CERTIFIES THAT NEITHER LENDER NOR ANY OF ITS REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT IN THE EVENT OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.

IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the date first above set-forth.

THIS INSTRUMENT CONTAINS INDEMNIFICATION PROVISIONS AND
PROVISIONS LIMITING LENDER’S LIABILITY FOR NEGLIGENCE

THIS ENVIRONMENTAL INDEMNITY AGREEMENT (“Agreement”) is made as of the 1st day of November, 2007 by APARTMENT REIT VILLAS OF EL DORADO, LLC, a Delaware limited liability company (“Borrower”), and NNN APARTMENT REIT, INC., a Maryland corporation (individually, “Principal”, Borrower and Principal hereinafter individually and collectively referred to as “Indemnitor”), for the benefit of THE BANK OF NEW YORK TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF MORGAN STANLEY CAPITAL I INC., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-IQ14, having an address at c/o Capmark Finance Inc., 116 Welsh Road, Horsham, Pennsylvania 19044 (“Indemnitee”) and other Indemnified Parties (as hereinafter defined).

A. Borrower is the current fee owner of that certain real property located in the City of McKinney, County of Collin and State of Texas, known as Villas of El Dorado and more particularly described in Exhibit A attached hereto (said real property, together with any real property hereafter encumbered by the lien of the Security Instrument (as defined in the Note), being herein collectively referred to as the “Land”, the Land, together with all structures, buildings and improvements now or hereafter located on the Land, being collectively referred to as the “Property”).

B. Indemnitee is the current holder of a loan (“Loan”) assumed by Borrower in the original principal amount of $13,600,000.00, evidenced by a certain promissory note dated November 29, 2006 in the principal amount of $13,600,000.00 made by El Dorado, LLC, a Texas limited liability company (“Original Borrower”) to the order of Royal Bank of Canada, a Canadian chartered bank (“Note”) and secured by, among other things, the Security Instrument which will encumber the Property.

C. Pursuant to that certain Agreement of Assumption and Modification of Security Instrument and Other Loan Documents dated as of the date hereof (the “Assumption Agreement”), Indemnitee consented to the transfer of the Loan from Original Borrower to Borrower (the “Transfer”)

D. Indemnitee is unwilling to consent to the Transfer unless Indemnitor agrees to provide the indemnification, representations, warranties, and covenants and other matters described in this Agreement for the benefit of the Indemnified Parties.

E. Principal will derive substantial benefit from the Loan. Indemnitor enters into this Agreement to induce Indemnitee to consent to the Transfer.

As used in this Agreement, the following terms shall have the following meanings:

“Business Day” means a day on which commercial banks are not authorized or required by law to close in New York, New York.

“Environmental Law” means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to protection of human health or the environment, relating to Hazardous Substances, relating to liability for or costs of Remediation or prevention of Releases of Hazardous Substances or relating to liability for or costs of other actual or threatened danger to human health or the environment. The term “Environmental Law” includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Substances Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide, and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. The term “Environmental Law” also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the property; requiring notification or disclosure of Releases of Hazardous Substances or other environmental condition of the Property to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to the Property; and relating to wrongful death, personal injury, or property or other damage in connection with any physical condition or use of the Property.

“Hazardous Substances” includes but is not limited to any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present or future Environmental Laws or that may have a negative impact on human health or the environment, including but not limited to petroleum and petroleum products, asbestos and asbestos-containing materials, mold, polychlorinated biphenyls, lead, radon, radioactive materials, flammables and explosives.

“Indemnified Parties” includes Indemnitee, any person or entity who is or will have been involved in the origination of the Loan, any person or entity who is or will have been involved in the servicing of the Loan, any person or entity in whose name the encumbrance created by the Security Instrument is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan, including, but not limited to, custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties.

“Legal Action” means any claim, suit or proceeding, whether administrative or judicial in nature.

“Losses” includes any liabilities, obligations, claims, demands, damages, penalties, causes of action, losses, fines, costs and expenses (including without limitation reasonable attorneys’ fees and expenses).

“Release” includes but is not limited to any release, deposit, discharge, emission, leaking, leaching, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Substances.

“Remediation” includes but is not limited to any response, remedial, removal, or corrective action; any activity to clean up, detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance; any actions to prevent, cure or mitigate any, Release of any Hazardous Substance; any action to comply with any Environmental Laws or with any permits issued pursuant thereto; any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or evaluation relating to any Hazardous Substances or to anything referred to herein.

NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Indemnitor hereby represents, warrants, covenants and agrees for the benefit of Indemnified Parties as follows:

1. Environmental Representations and Warranties. To the best of Indemnitor’s knowledge, (a) there are no Hazardous Substances or underground storage tanks at, in, on or under the Property, except those that are both (i) in compliance with all Environmental Laws and with permits issued pursuant thereto and (ii) fully disclosed to Indemnitee in writing pursuant to the written report(s) resulting from the environmental assessment(s) of the Property delivered to Indemnitee (such report(s) are identified in Exhibit B attached hereto and are referred to below collectively as the “Environmental Report”); (b) there are no past, present or threatened Releases of Hazardous Substances at, in, on, under or from the Property except as described in the Environmental Report; (c) there is no threat of any Release of Hazardous Substances migrating to the Property except as described in the Environmental Report; (d) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Property, except as described in the Environmental Report; (e) Indemnitor does not know of and has not received any written notice or other communication from any person or entity (including but not limited to a governmental entity) relating to Hazardous Substances or Remediation thereof, of possible liability of any person or entity pursuant to any Environmental Law, of other environmental conditions in connection with the Property, or regarding any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and (f) Indemnitor has truthfully and fully provided to Indemnitee in writing any and all information relating to conditions at, in, on, under or from the Property that is known to any Indemnitor and that is contained in the files and records of any Indemnitor, including, but not limited to, any reports relating to Hazardous Substances at, in, on, under or from the Property and/or to the environmental condition of the Property.

2. Environmental Covenants. Indemnitor covenants and agrees that: (a) all uses and operations on or of the Property by Indemnitor or any other person or entity shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (b) there shall be no intentional Releases of Hazardous Substances at, in, on, under or from the Property by Indemnitor or anyone controlled by, controlling or under common control with Indemnitor; (c) Indemnitor shall keep the Property free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Indemnitor or any other person or entity (“Environmental Liens”); (d) Indemnitor shall, at its sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Property pursuant to any written request of Indemnitee (provided that such request is made based upon Indemnitee’s reasonable belief that there are Hazardous Substances at, in, on, under or from the Property which are not in compliance with Environmental Laws) and share with Indemnitee the reports and other results thereof, and Indemnitee and the other Indemnified Parties shall be entitled to rely on such reports and other results thereto (e) Indemnitor shall, at its sole cost and expense, comply with all reasonable written requests of Indemnitee to (i) reasonably effectuate Remediation of any condition (including but not limited to a Release of a Hazardous Substance) at, in, on, under or from the Property; (ii) comply with any Environmental Law; (iii) comply with any directive from any governmental authority; and (iv) take any other reasonable action necessary or appropriate for the protection of human health or the environment; and (f) Indemnitor shall immediately notify Indemnitee in writing of (i) any presence or Releases or threatened Releases of Hazardous Substances at, in, on, under, from or migrating towards the Property; (ii) any non-compliance with any Environmental Laws related in any way to the Property; (iii) any actual or potential Environmental Lien; (iv) any required or proposed Remediation of environmental conditions relating to the Property; and (v) any written or oral notice or other communication of which any Indemnitor becomes aware from any source whatsoever (including but not limited to a governmental entity) relating in any way to environmental conditions in connection with the Property or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Agreement.

3. Indemnified Parties’ Rights/Cooperation and Access. Indemnitor shall cooperate with and provide access to the Property to Indemnified Parties and any person or entity designated by Indemnified Parties to assess any and all aspects of the environmental condition of the Property and its use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Indemnitee’s sole and absolute discretion) and taking samples of soil, groundwater or other water, air or building materials, and conducting other invasive testing. Except as otherwise provided in Section 5.4 of the Security Instrument, with respect to any assessment or audit requested by Indemnitee following the occurrence of an Event of Default or based upon Indemnitee’s reasonable belief that there are Hazardous Substances at, in, on, under or from the Property which are not in compliance with Environmental Laws, all such investigations shall be performed at Indemnitor’s sole cost and expense.

4. INDEMNIFICATION. INDEMNITOR COVENANTS AND AGREES, AT ITS SOLE COST AND EXPENSE, TO PROTECT, DEFEND, INDEMNIFY, RELEASE AND HOLD INDEMNIFIED PARTIES HARMLESS FROM AND AGAINST ANY AND ALL LOSSES IMPOSED UPON OR INCURRED BY OR ASSERTED AGAINST ANY INDEMNIFIED PARTIES AND DIRECTLY OR INDIRECTLY ARISING OUT OF OR IN ANY WAY RELATING TO ANY ONE OR MORE OF THE FOLLOWING (EXCEPT TO THE EXTENT THE SAME RELATE SOLELY TO HAZARDOUS SUBSTANCES FIRST INTRODUCED TO THE PROPERTY BY ANYONE OTHER THAN INDEMNITOR OR ITS RESPECTIVE AGENTS OR EMPLOYEES FOLLOWING THE FORECLOSURE OF THE SECURITY INSTRUMENT (OR THE DELIVERY AND ACCEPTANCE OF A DEED IN LIEU OF SUCH FORECLOSURE), THE EXPIRATION OF ANY APPLICABLE RIGHT OF REDEMPTION AND THE OBTAINING BY THE PURCHASER AT SUCH FORECLOSURE SALE OR GRANTEE UNDER SUCH DEED OF POSSESSION OF THE PROPERTY): (A) THE PAST, PRESENT OR FUTURE PRESENCE, RELEASE OR THREATENED RELEASE OF ANY HAZARDOUS SUBSTANCES AT, IN, ON, UNDER OR FROM THE PROPERTY; (B) ANY PAST, PRESENT OR THREATENED NON-COMPLIANCE OR VIOLATIONS OF ANY ENVIRONMENTAL LAWS (OR PERMITS ISSUED PURSUANT TO ANY ENVIRONMENTAL LAW) IN CONNECTION WITH THE PROPERTY OR OPERATIONS THEREON; (C) ANY LEGAL OR ADMINISTRATIVE PROCESSES OR PROCEEDINGS OR JUDICIAL PROCEEDINGS IN ANY WAY CONNECTED WITH ANY MATTER ADDRESSED IN THIS AGREEMENT; (D) ANY PERSONAL INJURY, WRONGFUL DEATH, OR PROPERTY OR OTHER DAMAGE ARISING UNDER ANY STATUTORY OR COMMON LAW OR TORT LAW THEORY CONCERNING HAZARDOUS SUBSTANCES; AND (E) ANY MISREPRESENTATION OR INACCURACY IN ANY REPRESENTATION OR WARRANTY OR MATERIAL BREACH OR FAILURE TO PERFORM ANY COVENANTS OR OTHER OBLIGATIONS IN THIS AGREEMENT OR ANY COVENANTS OR OTHER OBLIGATIONS IN THE SECURITY INSTRUMENT WHICH ARE RELATED TO HAZARDOUS SUBSTANCES OR ENVIRONMENTAL LAW.

5. Duty to Defend and Attorneys and Other Fees and Expenses. Upon written request by any Indemnified Party, Indemnitor shall defend, and provide legal representation for such Indemnified Party with respect to any of the matters referenced in Section 4 above (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals approved by Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may, in their sole and absolute discretion, engage their own attorneys and other professionals to defend or assist them with respect to such matters, and, at the option of Indemnified Parties, their attorneys shall control the resolution of such matters. Upon demand, Indemnitor shall pay or, in the sole and absolute discretion of Indemnified Parties, reimburse Indemnified Parties for the payment of reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith.

6. Unimpaired Liability. The liability of Indemnitor under this Agreement shall in no way be limited or impaired by, and Indemnitor hereby consents to and agrees to be bound by, any amendment or modification of the provisions of the Note, the Security Instrument or any of the other Loan Documents (as defined in the Security Instrument).

7. Enforcement. Indemnified Parties may enforce the obligations of Indemnitor without first resorting to or exhausting any security or collateral and without first having recourse to the Note, the Security Instrument or any other Loan Documents or any of the Property, through foreclosure proceedings or otherwise. Nothing herein shall inhibit or prevent Indemnitee from suing on the Note, foreclosing or exercising any power of sale under the Security Instrument, or exercising any other rights and remedies thereunder.

8. Survival. The obligations and liabilities of Indemnitor under this Agreement shall survive indefinitely notwithstanding any termination, satisfaction, assignment, entry of a judgment of foreclosure, exercise of any power of sale or delivery of a deed in lieu of foreclosure of the Security Instrument.

9. Interest. Any amounts payable to any Indemnified Parties under this Agreement shall become immediately due and payable on demand and, if not paid within 30 days of such demand, shall bear interest at a per annum rate equal to the Default Rate (as defined in the Note).

10. Waivers. (a) Indemnitor hereby waives (i) any right or claim, of right to cause a marshalling of any Indemnitor’s assets or to cause Indemnitee or other Indemnified Parties to proceed against any of the security for the Loan before proceeding under this Agreement against Indemnitor; (ii) all rights and remedies accorded by applicable law to Indemnitor except any rights of subrogation which Indemnitor may have, provided that the indemnity provided for hereunder shall neither be contingent upon the existence of any such rights of subrogation nor subject to any claims or defenses whatsoever which may be asserted in connection with the enforcement or attempted enforcement of such subrogation rights including, without limitation, any claim that such subrogation rights were abrogated by any acts of Indemnitee or other Indemnified Parties; (iii) any right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against or by Indemnitee or other Indemnified Parties; (iv) notice of acceptance hereof and of any action taken or omitted in reliance hereon; (v) presentment for payment, demand of payment, protest or notice of nonpayment or failure to perform or observe, or other proof, notice or demand; and (vi) all homestead exemption rights against the obligations hereunder (to the extent applicable) and the benefits Of any statutes of limitations or repose. Notwithstanding anything to the contrary contained herein, Indemnitor hereby agrees to postpone the exercise of any rights of subrogation with respect to any collateral securing the Loan until the Loan shall have been paid in full.

(b) INDEMNITOR HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE NOTE, THE SECURITY INSTRUMENT, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS GOVERNING THE LOAN OR ANY ACTS OR OMISSIONS OF ANY INDEMNIFIED PARTIES IN CONNECTION THEREWITH.

11. Subrogation. Indemnitor shall take any and all reasonable actions, including institution of legal action against third parties, necessary or appropriate to obtain reimbursement, payment or compensation from such persons responsible for the presence of any Hazardous Substances at, in, on, under or from the Property or otherwise obligated by law to bear the cost. Indemnified Parties shall be and hereby are subrogated to all of Indemnitor’s rights now or hereafter in such claims.

12. Transfer of Loan. Indemnitee may, at any time, sell, transfer or assign the Loan, the Note, the Security Instrument, this Agreement and the other Loan Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (the “Securities”). Indemnitee may forward to each purchaser, transferee, assignee, servicer, participant or investor in such Securities or any credit rating agency rating such Securities (the foregoing entities hereinafter collectively referred to as the “Investor”) and each prospective Investor all documents and information (including but not limited to financial information) which Indemnitee now has or may hereafter acquire relating to Indemnitor and the Property, whether furnished by Indemnitor or otherwise, as Indemnitee determines necessary or desirable. In connection with any such sale, transfer or assignment of the Loan, Indemnitor further agrees that upon request by Indemnitee, Indemnitor shall, within 15 days after request by Lender, enter into such amendments or modifications to this Agreement or any of the other Loan Documents, as applicable, as may be reasonably required by Indemnitee in order to facilitate any such sale, transfer or assignment without impairing Indemnitor’s rights or increasing Indemnitor’s obligations hereunder or under any of the other Loan Documents.

13. Notices. All notices or other written communications hereunder shall be deemed to have been properly given and shall be effective for all purposes (i) upon delivery, if delivered in person, (ii) one Business Day after having been deposited for overnight delivery with any reputable overnight courier service, (iii) three Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, or (iv) if by telecopy, upon transmittal to the recipient’s telecopy number. All such communications shall be mailed, sent or delivered, addressed to the party for whom it is intended at its address set forth in the Assumption Agreement.

14. Submission to Jurisdiction. With respect to any claim or action arising hereunder, Indemnitor (a) irrevocably submits to the nonexclusive jurisdiction of the courts of the State in which the Property is located and the United States District Court located in the county in which the Property is located and appellate courts from any thereof, (b) irrevocably waives any objection which it may have at any time to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any such court and (c) irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

15. No Third-Party Beneficiary. The terms of this Agreement are for the sole and exclusive protection and use of Indemnified Parties. No party shall be a third-party beneficiary hereunder, and no provision hereof shall operate or inure to the use and benefit of any such third party. It is agreed that those persons and entities included in the definition of Indemnified Parties are not such excluded third party beneficiaries.

16. Counterparts. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument arid all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement or any counterpart hereof shall not relieve the other signatories from, their obligations hereunder.

17. No Oral Change. This Agreement and any provisions hereof may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of any Indemnitor or any Indemnified Party, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

18. Headings. The headings and captions of the various sections of this Agreement are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof.

19. Number and Gender/Successors and Assigns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons referred to may require. Without limiting the effect of specific references in any provision of this Agreement, the term “Indemnitor” shall be deemed to refer to each and every person or entity comprising an Indemnitor from time to time, as the sense of a particular provision may require, and to include the heirs, executors, administrators, legal representatives, successors and assigns of Indemnitor, all of whom shall be bound by the provisions of this Agreement, provided that no obligation of arty Indemnitor may be assigned except with the written consent of Indemnitee. Each reference herein to the term “Indemnitee” shall be deemed to include its successors and assigns. This Agreement shall inure to the benefit of Indemnified Parties and their respective successors and assigns.

20. Joint and Several Liability. If Indemnitor consists of more than one person or entity, the obligations and liabilities of each such person hereunder are joint and several.

21. Release of Liability. Any one or more parties liable under or pursuant to this Agreement may be released without affecting the liability of any party not so released.

22. Rights Cumulative. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies which Indemnitee has under the Note, the Security Instrument or the other Loan Documents or would otherwise have at law or in equity.

23. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be illegal, invalid or unenforceable in any respect, such provision shall be fully severable and shall be ineffective to the extent of such illegality, invalidity or unenforceability, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

24. Governing Law. This Agreement shall be deemed to be governed, construed, applied and enforced in accordance with the laws of the state in which the Property is located and the applicable laws of the United States of America.

25. Attorneys’ Fees. For purposes of this Agreement, the term “attorneys’ fees” shall include any and all reasonable attorneys’, paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Indemnitee in protecting its interest in the Property, the Leases (as such term is defined in the Security Instrument) and the Rents (as such term is defined in the Security Instrument) and enforcing its rights hereunder.

26. Miscellaneous. Whenever pursuant to this Agreement (i) Indemnitee exercises any right given to it to approve or disapprove, (ii) any arrangement or term is to be satisfactory to Indemnitee, or (iii) any other decision or determination is to be made by Indemnitee, the decision of Indemnitee to approve or disapprove, all decisions that arrangements or terms are satisfactory or not satisfactory and all other decisions and determinations made by. Indemnitee, shall be in the sole and absolute discretion of Indemnitee and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein.

IN WITNESS WHEREOF, this Agreement has been executed and delivered by Indemnitor and is effective as of the day and year first above written.

By: NNN Apartment REIT Holdings, L.P., a Virginia limited partnership, its sole member

THIS LOAN AGREEMENT (the “Agreement”) is made as of the 1^st day of November, 2007 by and between NNN APARTMENT REIT, INC., a Maryland corporation (the “Company”), and WACHOVIA BANK, NATIONAL ASSOCIATION a national banking association (the “Lender”).

The Company has requested the Lender to extend to the Company a loan to fund the acquisition of Properties and the Lender has agreed to do so on the terms and subject to the conditions set forth herein. All capitalized terms not otherwise defined herein are defined in Paragraph 10 hereof.

Now, therefore, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1(a) Loan. Subject to the conditions set forth herein, so long as no Event of Default has occurred and is continuing, Lender may elect, in Lender’s sole and absolute discretion, to advance to the Company, from time to time from the date hereof until the day immediately preceding the Maturity Date, an aggregate principal amount up to the Aggregate Availability (collectively, the “Loan” and each, an “Advance”). If the Lender, in its sole and absolute discretion, refuses to fund a requested Advance, the Lender shall use its best efforts to provide prompt notice thereof to the Company. So long as no Event of Default has occurred and is continuing, amounts repaid by the Company prior to the Maturity Date may be reborrowed by the Company, provided that the aggregate principal amount outstanding at any time shall not exceed the Aggregate Availability. In the event that in connection with any Advance made hereunder, the Company has not commenced repayment of such Advance within three (3) months following the applicable Advance Date by a principal amount of at least $500,000, such amount to consist of Equity Proceeds, such failure to repay such Advance in such amount shall constitute an Event of Default hereunder.

1(b) Interest Rate. The Loan shall bear interest at the Applicable LIBOR Rate, except as otherwise provided herein.

1(c) Payment of Interest. The Company shall pay to the Lender interest on each Advance from the date of funding of such Advance to but not including the date of payment thereof in accordance with Paragraph 2(c). As provided in Paragraph 2(m) below, interest payable while the Loan is a Prime Rate Loan shall be payable monthly, in arrears, and interest payable while the Loan is a LIBOR Loan shall be payable at the end of the applicable Interest Period.

1(d) Request for Loan. If the Company desires to have the Lender make an Advance, the Chief Financial Officer, Chief Information Officer, President or any Executive Vice President of the Company (each, a “Responsible Officer”) shall make a Loan Request to the Lender no later than 12:00 p.m. on the proposed funding date. Such Loan Request shall specify the amount of such Advance, which shall be in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. The Lender shall, subject to the provisions of Paragraph 1(a), make available the amount of the proposed Advance to the Company on the same date (such date, the “Advance Date”).

1(e) Payment of Origination Fee. The Company shall pay to the Lender a origination fee in the amount of Fifty Thousand Dollars ($50,000.00) (the “Origination Fee”) on the Closing Date, which fee shall be fully earned by the Lender as of such date and shall be non-refundable.

2(a) Use of Proceeds. The proceeds of the Loan shall be used by the Company solely to fund the acquisition of Properties; more specifically, the intent is that proceeds shall finance those required acquisition costs of a Property which are in excess of the costs funded through a Property Loan on such Property in the approximate principal amount of sixty-five percent (65%) of such Property’s appraised value; provided that the sum of such Property Loan proceeds and any proceeds disbursed hereunder in connection with such acquisition shall not exceed ninety percent (90%) of such Property’s appraised value.

2(b) Note. The obligations of the Company to repay the Loan shall be evidenced by a note payable to the order of the Lender in the form attached hereto as Exhibit A (as amended, restated or supplemented, the “Note”).

(i) All outstanding principal amounts together with all accrued and unpaid interest outstanding on the Maturity Date shall be paid in full on the Maturity Date.

(ii) Subject to the conditions set forth below, the Company may, no less than sixty (60) days prior to the then-current Maturity Date, request through written notice to the Lender that the Lender extend the then current Maturity Date for one additional twelve (12) month period to November 1, 2009. The Lender, in its sole and absolute discretion, may elect to extend the then-current Maturity Date in accordance with such request; provided, that in no event shall the Lender extend the then-current Maturity Date unless:

(A) as of the then current Maturity Date, the aggregate outstanding principal amount of the Property Loans does not exceed sixty-five percent (65%) of the aggregate Appraised Value of the Properties as of such date;

(B) the Lender shall have received an appraisal of any or all of the Properties, if so requested by the Lender; and

(C) as of the then-current Maturity Date, the Company shall have delivered to the Lender a compliance certificate demonstrating that (1) the Property Debt Service Coverage Ratio as of such date, and after giving effect to any Advance requested on such date, is not less than 1.50 to 1.00 and (2) the Total Debt Service Coverage Ratio as of such date, and after giving effect to any Advance requested on such date, is not less than 1.10 to 1.00.

2(d) Inability to Determine Rate. If the Lender determines (which determination shall be conclusive and binding upon the Company, provided such determination is made on a reasonable basis) that by reason of circumstances affecting the London interbank eurodollar market adequate and reasonable means do not exist for ascertaining the LIBOR Rate for any Interest Period, then the Lender shall forthwith give facsimile notice of such determination, confirmed in writing, to the Company. If such notice is given, the Loan shall be converted on the last day of the then current Interest Period to a Prime Rate Loan. Until such notice has been withdrawn by the Lender, the Company shall not have the right to request LIBOR Loans or to continue a LIBOR Loan as such. The Lender shall withdraw such notice in the event that the circumstances giving rise thereto no longer obtain and that adequate and reasonable means exist for ascertaining the LIBOR Rate, and following withdrawal of such notice by the Lender, the Company shall have the right to request LIBOR Loans (to the extent otherwise available hereunder) and any portion of the Loan then outstanding shall be maintained as a LIBOR Loan, in each case, in accordance with the terms and conditions of this Agreement.

2(e) Illegality. Notwithstanding any other provisions herein, if any law, regulation, treaty or directive or any change therein or in the interpretation or application thereof, shall make it unlawful for the Lender to make or maintain the Loan as a LIBOR Loan as contemplated by this Agreement, the Lender shall forthwith give facsimile notice to the Company of such illegality, and upon giving such notice, the Company may not request LIBOR Loans, if a Loan is then outstanding as a LIBOR Loan, then it shall be converted automatically to a Prime Rate Loan at the end of the respective Interest Period or within such earlier period as required by law. If subsequently Lender determines that the cause of such illegality has ceased to exist, Lender will notify the Company by facsimile notice, and the Company may request LIBOR Loans (to the extent otherwise available hereunder) and the portion of the Loan then outstanding shall thereafter be maintained as a LIBOR Loan, in each case, in accordance with the terms and conditions of this Agreement.

2(f) Requirements of Law; Increased Costs. In the event that any change subsequent to the date hereof in any applicable law, order, regulation, treaty or directive issued by any central bank or other Governmental Authority, or in the governmental or judicial interpretation or application thereof, or compliance by the Lender with any request or directive (whether or not having the force of law) by any central bank or other Governmental Authority:

(1) subjects Lender to any tax of any kind whatsoever with respect to this Agreement or the Loan made hereunder, or change the basis of taxation of payments to Lender of principal, fee, interest or any other amount payable hereunder (except for change in the rate of tax on the overall net income of Lender);

(2) imposes, modifies or holds applicable any reserve, capital requirement, special deposit, compulsory loan or similar requirements against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender which are not otherwise included in the determination of the LIBOR Rate or the Prime Rate; or

and the result of any of the foregoing is to increase the cost to Lender of making, renewing or maintaining the Loan or to reduce any amount receivable in respect thereof or to reduce the rate of return on the capital of Lender or any Person controlling Lender, then, in any such case, the Company shall, subject to the provisions hereof pay to the Lender within 15 days (the “15 day period”) of written demand made by the Lender, any additional amounts necessary to compensate Lender for such additional cost or reduced amounts receivable or rate of return as determined by Lender with respect to this Agreement or the Loan made hereunder. If Lender becomes entitled to claim any additional amounts pursuant to this Paragraph 2(f), it shall promptly notify the Company of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence containing the calculation thereof in reasonable detail submitted by Lender to the Company shall be conclusive in the absence of manifest error. The provisions hereof shall survive the termination of this Agreement and payment of the outstanding Loan and all other amounts payable hereunder.

2(g) Funding. The Lender shall be entitled to fund all or any portion of the Loan in any manner it may determine in its sole discretion. All calculations and transactions hereunder shall be conducted as though the Lender actually funds each Advance as a LIBOR Loan through the purchase in London of offshore dollar deposits in the amount of such Advance in maturities corresponding to the applicable Interest Period.

2(j) Computations. All computations of interest and fees payable hereunder shall be based upon a year of 360 days for the actual number of days elapsed.

(1) The Company may voluntarily prepay the Loan in whole or in part at any time.

(2) The Company shall make mandatory prepayments of principal in an amount equal to one hundred percent (100%) of all Equity Proceeds. Such prepayment shall be due and payable to Lender no later than three (3) Business Days after the Company’s receipt of any such Equity Proceeds.

(3) If at any time the outstanding principal amount of the Loan exceeds the Aggregate Availability, the Company shall repay the Loan immediately upon notice thereof from the Lender in an amount equal to such excess.

(4) Upon the occurrence of any event triggering a prepayment requirement under clauses (1) through and including (3) above, the Company shall promptly deliver to the Lender a Notice of Prepayment/Repayment substantially in the form attached hereto as Exhibit B.

(5) The Company shall pay all interest accrued but unpaid concurrently with the prepayment of any principal.

(6) Each prepayment or repayment of principal shall be applied to the Advance then outstanding which was made on the earliest date as among all outstanding Advances, until such Advance is paid in full; any excess principal shall then be applied to the Advance then outstanding which was made on the earliest date as among all remaining outstanding Advances; and continuing on in like manner until all outstanding Advances have been paid in full.

2(m) Interest and Fee Billing and Payment. The Lender shall (1) while the Loan is a Prime Rate Loan, on or before the fifth Business Day of each month, and (2) while the Loan is a LIBOR Loan, on the last day of the applicable Interest Period, deliver to the Company an interest and fee billing for the immediately preceding month or Interest Period, as the case may be, which billing shall set forth interest accrued and payable on the Loan and fees payable hereunder for such period and which billing shall be payable, in the case of a billing delivered pursuant to subparagraph (1) above, no later than the second Business Day following receipt thereof by the Company and, in the case of a billing delivered pursuant to subparagraph (2) above, on the last day of the applicable Interest Period. In the alternative, the Company may, within one (1) Business Day following receipt of such billing by the Company, authorize the Lender by telephone (which authorization shall be promptly followed by a written confirmation thereof) to debit the Company’s accounts maintained with the Lender for the amount of such accrued interest and fees payable.

2(n) Nature and Place of Payments. All payments made on account of the Obligations shall be made without set-off or counterclaim in lawful money of the United States of America in immediately available same day funds, free and clear of and without deduction for any taxes, fees or other charges of any nature whatsoever imposed by any taxing authority upon the Lender and if received by the Lender by 2:00 p.m. (Charlotte, North Carolina time) such payment will be credited on the Business Day received. If a payment is received after 2:00 p.m. (Charlotte, North Carolina time) by the Lender, such payment will be credited on the next succeeding Business Day and interest thereon shall be payable at the then applicable rate until credited. If any payment required to be made by the Company hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension.

2(o) Post-Maturity Interest. Any Obligations not paid when due (whether at stated maturity, upon acceleration or otherwise) shall bear interest from the date due until paid in full at a per annum rate equal to four percent (4%) above the then applicable interest rate, or, if such Obligations do not otherwise bear interest, four percent (4%) above the Applicable Prime Rate.

3(a) Security Instruments. Repayment of the Loan shall be secured pursuant to the Pledge Agreement by a first priority security interest in the Pledged Assets. To effect such lien, the Company shall execute and deliver, or shall cause to be executed and delivered, to the Lender all certificates, transfer forms, filings and recordations, as applicable, that are necessary to perfect the security interest in the Pledged Assets, in each case, in form and substance reasonably acceptable to the Lender in its sole discretion.

3(b) Further Documents. The Company agrees to execute and deliver, and to cause to be executed and delivered, to the Lender from time to time such confirmation and supplementary security agreements, financing statements and other documents, instruments and agreements as the Lender may reasonably require, which are in the Lender’s judgment necessary or desirable to obtain for the Lender the benefit of the Loan Documents. The Company also hereby authorizes the Lender to execute and file, on behalf of the Credit Parties, all financing statements which are in the Lender’s judgment necessary to obtain for the Lender the benefit of the Loan Documents.

4(a) As conditions precedent to the Lender’s election to make the initial Loan hereunder:

(1) The Company shall have delivered, and shall have caused the Pledgor to deliver, to the Lender, in form and substance satisfactory to the Lender and its counsel each of the following:

(D) Such credit applications, financial statements, authorizations and such information concerning the Credit Parties and their respective businesses, operations and conditions (financial and otherwise) as the Lender may reasonably request;

(E) A certificate of the Secretary or an Assistant Secretary of each Credit Party certifying the names and true signatures of the officers of such Credit Party authorized to execute and deliver the Loan Documents;

(F) A copy of the Articles of Incorporation or Certificate of Limited Partnership, as applicable, of each Credit Party certified by the Secretary or an Assistant Secretary of such Credit Party as of the date of this Agreement as being accurate and complete;

(G) A copy of the Bylaws or Limited Partnership Agreement of each Credit Party certified by the Secretary or an Assistant Secretary of such Credit Party as of the date of this Agreement as being accurate and complete;

(H) Resolutions of each Credit Party adopted by the requisite parties authorizing such Credit Party to enter into the transactions contemplated by the Loan Documents and to execute and deliver the Loan Documents to which such Credit Party is as party;

(I) A certificate of the Secretary of State of the State of Maryland, certifying as of a recent date that the Company is in good standing;

(J) A certificate of the State Corporation Commission of the Commonwealth of Virginia, certifying as of a recent date that the Pledgor is in good standing;

(K) Original limited partnership certificates with respect to Apartment REIT Hidden Lakes, L.P. evidencing the Ownership Interests therein pledged to the Lender pursuant to the Pledge Agreement, together with an undated transfer form for each such certificate duly executed in blank by the registered owner thereof;

(L) A duly executed consent from the sole general partner of each limited partnership the Ownership Interests of which are pledged by the Pledgor to the Lender pursuant to the Pledge Agreement; and

(M) An opinion of counsel for the Credit Parties in form and substance satisfactory to the Lender and its counsel.

(2) All acts and conditions (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings or registrations) required to be done and performed and to have happened precedent to the execution, delivery and performance of the Loan Documents and to constitute the same legal, valid and binding obligations, enforceable in accordance with their respective terms, shall have been done and performed and shall have happened in due and strict compliance with all applicable laws.

(3) All documentation, including, without limitation, documentation for corporate and legal proceedings in connection with the transactions contemplated by the Loan Documents shall be satisfactory in form and substance to the Lender and its counsel, and all legal and financial due diligence on the Company and the Pledgor and their respective operations and conditions shall be completed and shall be satisfactory to Lender and its counsel.

4(b) As conditions precedent to the Lender’s election to make any Advance hereunder (including without limitation the initial Loan):

(b) a written description in form and substance satisfactory to the Lender of the Property to be acquired in connection with such Advance (or such other information with respect to such Property as the Lender may reasonably request); and

(c) a certificate in form and substance satisfactory to the Lender from a Responsible Officer of the Company certifying that as of the date of such Advance and after giving effect thereto, each Credit Party is in compliance with the covenants set forth in Paragraphs 6 and 7 hereof.

(2) The representations and warranties of the Credit Parties contained in the Loan Documents shall be accurate and complete in all material respects as if made on and as of the date of such Advance.

(4) Following the funding of the requested Advance, the aggregate principal amount outstanding under the Loan Documents shall not exceed the Aggregate Availability.

By making a Loan Request to the Lender hereunder, the Credit Parties shall be deemed to have represented and warranted the accuracy and completeness of the statements set forth in subparagraphs 4(b)(2) through 4(b)(4) above.

The Company represents and warrants to the Lender, on behalf of itself and as sole general partner of the Pledgor, that:

5(a) Corporate Existence; Compliance with Law. The Company: (1) is duly organized, validly existing and in good standing as a corporation under the laws of Maryland and is qualified to do business in each other jurisdiction where its ownership of property or conduct of business requires such qualification and where failure to qualify could have a material adverse effect on the Company or its property or business or on the ability of the Company to pay or perform the Obligations, (2) has the corporate power and authority and the legal right to own and operate its property and to conduct business in the manner in which it does and proposes so to do, and (3) is in compliance with all Requirements of Law and Contractual Obligations, the failure to comply with which could have a material adverse effect on the business, operations, assets or financial or other condition of the Company. The Pledgor: (1) is duly organized, validly existing and in good standing as a limited partnership under the laws of Virginia and is qualified to do business in each other jurisdiction where its ownership of property or conduct of business requires such qualification and where failure to qualify could have a material adverse effect on the Pledgor or its property or business or on the ability of the Pledgor to perform its obligations under the Pledge Agreement, (2) has the corporate power and authority and the legal right to own and operate its property and to conduct business in the manner in which it does and proposes so to do, and (3) is in compliance with all Requirements of Law and Contractual Obligations, the failure to comply with which could have a material adverse effect on the business, operations, assets or financial or other condition of the Pledgor.

5(b) Corporate Power; Authorization; Enforceable Obligations The Company has the corporate power and authority and the legal right to execute, deliver and perform the Loan Documents to which the Company is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents to which the Company is a party. The Loan Documents to which the Company is a party have been duly executed and delivered on behalf of the Company and constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally and the effect of equitable principles whether applied in an action at law or a suit in equity. The Pledgor has the limited partnership power and authority and the legal right to execute, deliver and perform the Loan Documents to which the Pledgor is a party and has taken all necessary limited partnership action to authorize the execution, delivery and performance of the Loan Documents to which the Pledgor is a party. The Loan Documents to which the Pledgor is a party have been duly executed and delivered on behalf of the Pledgor and constitute legal, valid and binding obligations of the Pledgor enforceable against the Pledgor in accordance with their respective terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally and the effect of equitable principles whether applied in an action at law or a suit in equity.

5(c) Financial Condition. The financial statements which have been furnished to the Lender, are complete and correct and have been prepared to present fairly, in accordance with GAAP, the financial condition of the Company and its Subsidiaries at such dates and the results of its operations and changes in financial position for the fiscal periods then ended.

5(d) Ownership of Assets. The Company, through the Pledgor and its Subsidiaries, is and will be the sole lawful owner of those apartment properties listed on Schedule 5(d) attached hereto (as such Schedule may be updated from time to time in accordance with Paragraph 6(i)) (collectively, subject to any such updates, the “Properties”). The Company, through the Pledgor and its Subsidiaries, has full right and title in and to the Properties, free and clear of any lien, security interest, pledge, mortgage, adverse claim or right, charge or encumbrance (other than encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property, which in the aggregate are not substantial in amount and which do not, in any case, detract from the value of such property or impair the use thereof in the ordinary conduct of business) other than as set forth in the Property Loan Documents or as otherwise noted on Schedule 5(d) as of the date hereof.

5(e) Contrary Agreements. Neither the Company nor the Pledgor has made, nor will either Credit Party at any time without obtaining the prior written consent of the Lender make, any agreement which prohibits or restricts the pledging or creation of liens upon the Ownership Interests of the Property Owners or which creates a lien on the Ownership Interests of the Property Owners, other than as set forth in or permitted pursuant to the Property Loan Documents and as created pursuant to the Pledge Agreement.

5(f) No Legal Bar. The execution, delivery and performance of the Loan Documents, the borrowing hereunder and the use of the proceeds thereof, will not violate any Requirement of Law or any Contractual Obligation of the Company or of the Pledgor the violation of which could have a material adverse effect on the business, operations, assets or financial or other condition of the Company or of the Pledgor.

5(g) Consents, etc. No consent, approval, authorization of, or registration, declaration or filing with, any Governmental Authority is required on the part of the Company or of the Pledgor in connection with the execution and delivery of the Loan Documents or the performance of or compliance with the terms, provisions and conditions hereof or thereof.

5(h) Investment Company Act. Neither the Company nor the Pledgor is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

5(i) Federal Reserve Board Regulations. Neither the Company nor the Pledgor is engaged, or will engage, principally or as one of its important activities, in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin stock” within the respective meanings of such terms under Regulation U. No part of the proceeds of the Loan issued hereunder will be used, directly or indirectly, for “purchasing” or “carrying” “margin stock” as so defined or for any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of the Board of Governors of the Federal Reserve System.

5(j) Subsidiaries. The attached Schedule II is a complete listing of any and all

5(k) Further Documents. Each of the Company and the Pledgor agrees to execute and deliver and to cause to be executed and delivered to the Lender from time to time such documents, instruments and agreements as the Lender may reasonably require, which are in the Lender’s reasonable judgment necessary to obtain for the Lender the benefit of the Loan Documents.

5(l) REIT Status. The Company is a “real estate investment trust” within the meaning of Section 856 of the Code, and is being operated in accordance with the rules for qualification as a “real estate investment trust” under Sections 856 through 860 of the Code.

6. Affirmative Covenants. The Company hereby covenants and agrees with the Lender, on behalf of itself and as sole general partner of the Pledgor, that, as long as any Obligations remain unpaid, each of the Company and the Pledgor shall:

6(a) Payment of Indebtedness. Pay or otherwise satisfy at or before maturity or before it becomes delinquent or accelerated, as the case may be, all its Indebtedness (including taxes), except Indebtedness being contested in good faith by appropriate proceedings and for which provision is made to the satisfaction of the Lender for the payment thereof in the event the Company or the Pledgor, as applicable, is found to be obligated to pay such Indebtedness and which Indebtedness is thereupon promptly paid by the Company or the Pledgor, as applicable.

6(b) Maintenance of Existence and Properties. Maintain its corporate existence and obtain and maintain all rights, privileges, licenses, approvals, franchises, properties and assets necessary or desirable in the normal conduct of its business.

6(c) Inspection of Property; Books and Records; Audits; Financial Statements; Equity Proceeds.

(1) Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and

(2) Permit: (i) representatives of the Lender to (A) visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by the Lender, (but, prior to the occurrence of an Event of Default, only upon not less than two Business Days’ prior notice), and (B) discuss the business, operations, properties and financial and other condition of the Company or the Pledgor with officers and employees of the Company or the Pledgor, and with the independent certified public accountants of the Company or the Pledgor, (ii) representatives of the Lender to conduct periodic operational audits of the Company’s or the Pledgor’s business and operations of the Company or the Pledgor and (iii) representatives of the Lender to conduct appraisals with respect to any Property upon the Lender’s request.

(3) Prepare and deliver to Lender, upon request, for each of its first three (3) fiscal quarters in each fiscal year, beginning with the fiscal quarter in which closing occurs, on or before the fiftieth (50^th) day following the end of such fiscal quarter, a copy of the Company’s 10Q report as filed with the Securities and Exchange Commission and for each fiscal year, on or before the ninety-fifth (95^th) day following the end of such fiscal year, a copy of the Company’s 10K report as filed with the Securities and Exchange Commission, in each case certified to be true and correct by the Chief Financial Officer of the Company.

(4) Prepare and deliver to Lender as soon as practicable and in any event within thirty (30) days after the end of each month in each fiscal year, a certificate certified by the Chief Financial Officer of the Company of the amount of all Equity Proceeds received by the Company during such period.

(1) The occurrence of any Potential Default or Event of Default known to responsible management personnel of the Company or the Pledgor and the proposed method of cure thereof;

(2) Any litigation or proceeding affecting the Company, the Pledgor or any Property Owner which could reasonably be expected to have a material adverse effect on the business, operations, property, or financial or other condition of the Company, the Pledgor or any Property Owner;

(3) A material adverse change known to responsible management personnel of the Company or the Pledgor in the business, operations, property or financial or other condition of the Company, the Pledgor or any Property Owner;

(4) A default under the terms of any Indebtedness to which the Company, the Pledgor or any Property Owner is a party (whether or not such default gives rise to the right of the affected lender to accelerate such Indebtedness); and

(6) Any violation of any Requirements of Law or Contractual Obligations to which the Company, the Pledgor or any Property Owner may be subject or a party.

6(e) Expenses and Indemnification. (1) Pay all reasonable out-of-pocket costs and expenses (including fees and disbursements of legal counsel): (A) of the Lender incident to the preparation, negotiation and administration of the Loan Documents, including with respect to or in connection with any waiver or amendment thereof or thereto, (B) of the Lender associated with any periodic audits or appraisals conducted pursuant to Paragraph 6(c)(2)(ii) or (iii) above (provided, that so long as no Event of Default has occurred and is continuing, the Company shall only be required to reimburse the Lender for such expenses with respect to an audit, or with respect to an appraisal of any Property, on up to one (1) occasion per fiscal year per audit or per Property), and (C) of the Lender incident to the enforcement of payment of the Obligations, whether by judicial proceedings or otherwise, including, without limitation, in connection with bankruptcy, insolvency, liquidations, reorganization, moratorium or other similar proceedings involving the Company, the Pledgor or any Property Owner or a “workout” of the Obligations.

(2) Defend, indemnify and hold harmless the Lender and its parents, Subsidiaries, Affiliates, employees, agents, officers and directors, from and against any losses, penalties, fines, liabilities, settlements, damages, costs and expenses, suffered by any such Person in connection with any claim (including, without limitation, any environmental claims or civil penalties or fines assessed by OFAC), investigation, litigation or other proceeding (whether or not the Lender is a party thereto) and the prosecution and defense thereof, arising out of or in any way connected with this Agreement or any other Loan Document or any Advances, or any documents, reports or other information provided to the Lender or contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby, including without limitation reasonable attorney’s and consultant’s fees, except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the Lender.

(3) The obligations of the Company and the Pledgor under this Paragraph 6(e) shall survive payment of all other Obligations.

6(f) Loan Documents. Comply with and observe all terms and conditions of the Loan Documents applicable to the Company or to the Pledgor.

6(g) Insurance. Obtain and maintain insurance with responsible companies in such amounts and against such risks as are usually carried by corporations engaged in similar businesses similarly situated, including, without limitation, errors and omissions coverage and fidelity coverage in form and substance acceptable to the Lender, and furnish the Lender on request full information as to all such insurance, and to provide within five (5) days after receipt, certificates or other documents evidencing the renewal of each such policy.

6(h) Compliance With Laws and Approvals. Observe and remain in compliance in all material respects with all applicable laws and maintain in full force and effect all governmental approvals, in each case applicable to the conduct of its business.

6(i) Grant of Lien and Security Interest. In the event that, prior to the Maturity Date, in connection with the acquisition of any Property with the proceeds of an Advance hereunder, an additional Property Owner is formed or acquired by the Company or any Subsidiary thereof (whether now existing or hereafter organized), the Company shall, or shall cause such Subsidiary to, (i) pledge a security interest in all of the Ownership Interests of such newly formed or acquired Property Owner by delivering to the Lender a duly executed supplement to the Pledge Agreement or such other document as the Lender shall deem appropriate for such purpose and comply with the terms of the Pledge Agreement, (ii) deliver to the Lender the Property Loan Documents executed or to be executed in connection with the acquisition of such Property, which Property Loan Documents shall be on terms and conditions reasonably satisfactory to the Lender and shall include, without limitation, due on sale and transfer provisions (including provisions that specifically permit and consent to the pledge of one hundred percent (100%) of the Ownership Interests of such Property Owner to the Lender as security for the Obligations) reasonably satisfactory to the Lender in its sole discretion, (iii) deliver to the Lender the organizational documents of such Property Owner, which documents shall be on terms and conditions reasonably satisfactory to the Lender (including, without limitation, terms that permit the transfer of the Ownership Interests in such Property Owner in connection with the pledge thereof to the Lender), (iv) deliver to the Lender such documents and certificates referred to in Paragraph 4 as the Lender may reasonably request, (v) deliver to the Lender such updated Schedules to the Loan Documents as requested by the Lender with respect to such additional Property Owner and Property and (vi) deliver to the Lender such other documents as may be reasonably requested by the Lender, all in form, content and scope reasonably satisfactory to the Lender and all at the expense of the Company. For the avoidance of doubt, it is hereby agreed and acknowledged by the parties hereto that the foregoing Paragraph 6(i) shall not apply to the acquisition of the Villas of El Dorado by Apartment REIT Villas of El Dorado, LLC.

6(j) Rent Rolls. Upon the request of the Lender, promptly (and in all events within two (2) Business Days after the request therefor) deliver to the Lender updated rent rolls with respect to each Property.

7. Negative Covenants. The Company hereby agrees with the Lender, on behalf of itself and as sole general partner of the Pledgor, that, as long as any Obligations remain unpaid, neither the Company nor the Pledgor shall at any time, directly or indirectly:

7(a) Consolidation and Merger; Change of Business. Liquidate or dissolve or enter into any consolidation or merger or enter into any partnership, joint venture, syndicate or other combination or make any change in the nature of its business as presently conducted.

7(b) Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of any of its assets (other than obsolete or worn out property but including, without limitation, the Properties), whether now owned or hereafter acquired, without the prior written consent of Lender.

7(c) Additional Indebtedness. Incur any additional Indebtedness (at the Company or Pledgor level, or on or secured by (including, without limitation, any lien, pledge, encumbrance or hypothecation of or on) any real property owned by the Company, the Pledgor, or any of their Subsidiaries) other than trade payables incurred in the ordinary course of business.

7(d) Embargoed Person. Permit (1) any of the funds or assets of the Company or the Pledgor that are used to repay the Loan to constitute property of, or be beneficially owned directly or, to the Company’s and the Pledgor’s best knowledge, indirectly, by any person subject to sanctions or trade restrictions under United States law (“Embargoed Person” or “Embargoed Persons”) that are identified on (A) the “List of Specially Designated Nationals and Blocked Persons” maintained by the Office of Foreign Assets Control (OFAC), U.S. Department of the Treasury, and/or to Company’s and the Pledgor’s best knowledge, as of the date thereof, based upon reasonable inquiry by Company and the Pledgor, on any other similar list maintained by OFAC pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or regulation promulgated thereunder, with the result that the investment in the Company or the Pledgor (whether directly or indirectly), is prohibited by law, or the Loan made by Lender would be in violation of law, or (B) Executive Order 13224 (September 23, 2001) issued by the President of the United States (“Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism”), any related enabling legislation or any other similar Executive Orders, and (2) any Embargoed Person to have any direct interest, and to the Company’s and the Pledgor’s best knowledge, as of the date hereof, based upon reasonable inquiry by the Company and the Pledgor, indirect interest, of any nature whatsoever in the Company or the Pledgor, as applicable, with the result that the investment in the Company or the Pledgor (whether directly or indirectly), is prohibited by law or the Loan is in violation of law.

7(e) Anti-Money Laundering. Permit any of the funds of Company or Pledgor, as applicable, that are used to repay the Loan to be derived from any unlawful activity, with the result that the investment in the Company or Pledgor (whether directly or indirectly), is prohibited by law or the Loan is in violation of law.

7(f) Distributions During Default. Upon the occurrence of any Event of Default, and for so long as any such Event of Default in ongoing, the Company shall make no dividends or distributions to any equity holder except to the extent required by law.

7(g) No Contrary Agreements. The Company shall not make, and shall not permit any of its Subsidiaries (including without limitation the Pledgor or any Property Owner) to make, any agreement which (i) prohibits or restricts the pledging or creation of liens upon any Property (other than the liens created pursuant to the Property Loan Documents) or (ii) creates a lien on any Property (other than the liens created pursuant to the Property Loan Documents).

7(h) Management Fees. The Company shall not pay, and shall not permit any of its Subsidiaries (including without limitation the Pledgor or any Property Owner) to pay, management fees in respect of any Property in excess of five percent (5%) of the gross income with respect to such Property.

7(i) Amendments to Property Loan Documents. The Company shall not, and shall not permit any of its Subsidiaries (including, without limitation, the Pledgor or any Property Owner) to (i) amend or modify any of the terms or provisions of any Property Loan Document in any respect which would adversely affect the rights or interests of the Lender hereunder or under any other Loan Document, including, without limitation, by increasing the amount of any Indebtedness evidenced by any Property Loan Documents, or (ii) incur any additional Indebtedness secured by any Property or by any Ownership Interests in any Property Owner.

7(j) REIT Status and Compliance. The Company shall not (i) revoke its election to be a “real estate investment trust” within the meaning of Section 856 of the Code or (ii) take or fail to take any action that will cause such election to be terminated or to cease to be valid at any time, in either case which would cause an Event of Default.

8. Events of Default. Upon the occurrence of any of the following events (an “Event of Default”):

8(a) The Company shall fail to pay principal (including, without limitation, pursuant to Section 2(k)) or interest on the Loan, or the fee specified in paragraph 1(e), in each case, (i) within five (5) days after notice of such failure has been given to the Company by the Lender (provided, that this Paragraph 8(a)(i) shall only apply to the Company’s failure to pay any such amount on up to two (2) occasions per fiscal year) or (ii) otherwise, when due; or

8(b) Any representation or warranty made by any Credit Party in any Loan Document or in connection with any Loan Document shall be false or untrue in any material respect on or as of the date made; or

8(c) Any provision of this Agreement or any provision of any other Loan Document shall for any reason cease to be valid and binding on the Company or any other Credit Party party thereto or any such Person shall so state in writing, or any Loan Document shall for any reason cease to create a valid and perfected first priority Lien on, or security interest in, any of the Pledged Assets purported to be covered thereby, in each case, other than in accordance with the express terms hereof or thereof; or

8(d) Any Credit Party shall fail to observe or perform any other term or provision contained in the Loan Documents and such failure shall continue for thirty (30) days; or

8(e) Any Credit Party shall default in any payment of principal of or interest on any Indebtedness in the aggregate principal amount of $100,000 or more (and without regard for the dollar amount of the defaulted payment), or any other event shall occur, the effect of which is to permit such Indebtedness to be declared or otherwise to become due prior to its stated maturity; or

8(f) (1) Any Credit Party shall commence any case, proceeding or other action (i) relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to such Credit Party, or seeking to adjudicate such Credit Party a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to such Credit Party or its debts, or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for such Credit Party or for all or any substantial part of the assets of such Credit Party, or such Credit Party shall make a general assignment for the benefit of its creditors; or (2) there shall be commenced against any Credit Party any case, proceeding or other action of a nature referred to in clause (1) above which (i) results in the entry of an order for relief or any such adjudication or appointment, or (ii) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (3) there shall be commenced against any Credit Party any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of the assets of such Credit Party which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within sixty (60) days from the entry thereof; or (4) any Credit Party shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in (other than in connection with a final settlement), any of the acts set forth in clauses (1), (2) or (3) above; or (5) any Credit Party shall generally not, or shall be unable to, or shall admit in writing its inability to pay its debts as they become due; or

8(g) One or more judgments or decrees in an aggregate amount in excess of $100,000 shall be entered against any Credit Party and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within sixty (60) days from the entry thereof;

(1) Automatically upon the occurrence of an Event of Default under Paragraph 8(f) above; and

the principal balance of outstanding Loan and interest accrued but unpaid thereon shall become immediately due and payable, without demand upon or presentment to the Company, which are expressly waived by the Company.

Notwithstanding anything to the contrary contained above, the parties hereto agree that in the event that the Company fails to make any mandatory payment of principal and interest as set forth in Paragraph 2(c)(i) above as and when due, the Lender may, at its sole option, (a) elect to obtain consent from each lender party to any Property Loan Documents to obtain a pledge of up to one hundred percent (100%) of the Ownership Interests of each Property Owner as security for the Obligations, and upon receiving any such consent shall require the Pledgor to grant such a pledge in favor of the Lender as security for the Obligations or (b) require repayment of the Loan with any net income from any Property or from any other assets of the Company. The Company and the Pledgor shall use their best efforts to assist the Lender in obtaining such consent and such pledge. The exercise of any rights of the Lender hereunder shall not constitute a waiver of any Event of Default which may have occurred.

9(a) Assignment. The Company may not assign its rights or obligations under this Agreement without the prior written consent of the Lender. Subject to the foregoing, all provisions contained in this Agreement or any document or agreement referred to herein or relating hereto shall inure to the benefit of the Lender, and its successors and assigns, and shall be binding upon the Company, and its successors and assigns.

9(b) Amendment. Neither this Agreement nor any of the other Loan Documents may be amended or terms or provisions hereof or thereof waived unless such amendment or waiver is in writing and signed by the Lender and the Company (and by each other Person, if any, party to such Loan Document).

9(c) Cumulative Rights; No Waiver. The rights, powers and remedies of the Lender under the Loan Documents are cumulative and in addition to all rights, powers and remedies provided under any and all agreements among the Credit Parties and the Lender relating hereto, at law, in equity or otherwise. Any delay or failure by the Lender to exercise any right, power or remedy shall not constitute a waiver thereof by the Lender, and no single or partial exercise by the Lender of any right, power or remedy shall preclude other or further exercise thereof or any exercise of any other rights, powers or remedies.

9(d) Entire Agreement. This Agreement and the documents and agreements referred to herein embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings relating to the subject matter hereof and thereof.

9(e) Survival. All representations, warranties, covenants and agreements on the part of the Credit Parties contained in the Loan Documents shall survive the termination of this Agreement and shall be effective until the Obligations are paid and performed in full or longer as expressly provided herein.

9(f) Notices. All notices given by any party to the others under the Loan Documents shall be in writing unless otherwise provided for herein, delivered personally or by depositing the same in the United States mail, registered, with postage prepaid, addressed to the party at the address set forth on Schedule I attached hereto. Any party may change the address to which notices are to be sent by notice of such change to each other party given as provided herein. Such notices shall be effective on the date received or, if mailed, on the third Business Day following the date mailed.

9(g) Governing Law/Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina. TO THE EXTENT PERMITTED BY LAW, EACH OF LENDER AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THE LOAN DOCUMENTS.

9(h) Counterparts. This Agreement and the other Loan Documents may be executed in any number of counterparts, all of which together shall constitute one agreement.

9(i) Binding Arbitration. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to the Note or any other Loan Document (“Disputes”), between or among parties to the Note or any other Loan Document shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaim, claims brought as class actions, claims arising from Loan Documents executed in the future, or claims concerning any aspect of the past, present or future relationships arising out of or connected with the Loan Documents. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the “Arbitration Rules”) of the American Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in Charlotte, North Carolina. The expedited procedures set forth in Rule 51, et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted. Notwithstanding the foregoing, this paragraph shall not apply to any hedging arrangement that is a Loan Document.

10. Definitions. For purposes of this Agreement, the terms set forth below shall have the following meanings:

“Affiliate” shall mean, as to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with, such Person. “Control” as used herein means the power to direct the management and policies of such Person.

“Aggregate Availability” shall mean, as of any date of determination, the lesser of (a) $10,000,000.00 and (b) the difference of (i) ninety percent (90%) of the aggregate Appraised Value for all of the Properties as of such date, minus (ii) the aggregate outstanding principal amount of the Property Loans as of such date.

“Agreement” shall mean this Agreement, as the same may be amended, restated, supplemented, modified, extended or replaced from time to time.

"Applicable LIBOR Rate” shall mean, with respect to a LIBOR Loan, the rate per annum (rounded upward, if necessary, to the next higher 1/32 of one percent (.03125%)) calculated in accordance with the following formula:

“Appraised Value” shall mean, as of any date of determination, for each Property, the amount that such Property would receive in an arm’s length sale of such Property as determined by an appraiser mutually acceptable to the Company and the Lender. If an updated appraisal is requested by the Lender with respect to any Property, the appraiser shall render its decision on the Appraised Value of the subject Property within thirty (30) days of the Lender’s request for such appraisal. The costs and expenses of any appraisal made with respect to any Property shall be paid by the Company.

“Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banks in Charlotte, North Carolina are authorized or obligated to close their regular banking business.

“Closing Date” shall mean the date of this Agreement or such later Business Day upon which each condition described in Paragraph 4 shall be satisfied or waived in all respects in a manner acceptable to the Lender, in its sole discretion.

“Company” shall have the meanings given such term in the introductory paragraph hereof.

“Contractual Obligation” as to any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound.

“Credit Parties” shall mean, collectively, the Company and the Pledgor, and “Credit Party” shall mean either such Person individually.

“Equity Proceeds” shall mean any and all sums invested in the Company (including dividend reinvestment) on or after the date hereof in the nature of equity including, without limitation, common and preferred stock (whether or nor convertible into common stock), options or warrants to acquire stock, and subordinated debt (whether or not convertible into stock), net of any reasonable and customary costs of sale and issuance of such equity.

“Facility Interest Expense” shall mean, for any period, that portion of Interest Expense attributable solely to interest due and payable on the credit facility evidenced by the Loan Documents; provided, that for the purpose of this definition, the principal amount outstanding under this Agreement shall be deemed to be $10,000,000.

“GAAP” shall mean generally accepted accounting principles in the United States of America in effect from time to time.

“Governmental Authority” shall mean any nation or government, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Indebtedness” of any Person shall mean all items of indebtedness which, in accordance with GAAP and practices thereof, would be included in determining liabilities as shown on the liability side of a statement of condition of such Person as of the date as of which indebtedness is to be determined, including: without limitation, all obligations for money borrowed, all amounts for which such Person may be obligated under gestation or other repurchase facilities, and shall also include all indebtedness and liabilities of others assumed or guaranteed by such Person or in respect of which such Person is secondarily or contingently liable (other than by endorsement of instruments in the course of collection) whether by reason of any agreement to acquire such indebtedness or to supply or advance sums or otherwise.

“Interest Expense” shall mean, for any period, the gross interest expense (including, without limitation, interest expense attributable to capital leases and all net payment obligations pursuant to hedging agreements or interest rate contracts) of the applicable Person determined on a consolidated basis, without duplication, in accordance with GAAP.

"Interest Period” shall mean with respect to the Loan while it is a LIBOR Loan, the period commencing on the date of each Advance and ending one month thereafter, and each subsequent one (1) month period thereafter beginning on the date following the last day of the immediately preceding Interest Period.

“Lender” shall have the meaning given such term in the introductory paragraph hereof.

"LIBOR Loan” shall mean the Loan at such time as it is bearing interest at the Applicable LIBOR Rate.

"LIBOR Rate” shall mean, with respect to a LIBOR Loan, for any Interest Period, the rate obtained on the Reuters Screen LIBOR01 Page as being the rate at which deposits in immediately available U.S. dollars having a maturity equal to approximately one (1) month are offered to or by reference banks in the London interbank market, as determined by the Lender at the opening of business on the Business Day which is two (2) Business Days preceding the last day of the previous Interest Period.

"LIBOR Reserve Percentage” shall mean for any day, that percentage expressed as a decimal, which is in effect on such day, as specified by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum aggregate reserve requirement (including all basis, supplemental, marginal and other reserves) which is imposed on eurocurrency liabilities.

“Lien” shall mean any security interest, mortgage, pledge, lien, claim on property, charge or encumbrance (including any conditional sale or other title retention agreement), any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction.

“Loan Documents” shall mean this Agreement, the Note, the Pledge Agreement and each other document, instrument and agreement executed by the Company or the Pledgor in connection herewith, as any of the same may be amended, extended or replaced from time to time.

“Loan Request” shall mean a request by the Company to the Lender of an Advance under this Agreement, which Loan Request shall (i) specify the principal amount of the Advance so requested and (ii) contain a certification by the Company that the Company is in compliance with Paragraph 4(b).

“Maturity Date” shall mean November 1, 2008 as such date may be extended by the Lender, in its sole and absolute discretion, in accordance with Paragraph 2(c).

“Net Operating Income” shall mean, with respect to any Property, as calculated as of the last day of each fiscal quarter of the Company, the sum of (i) the net income (or loss) before extraordinary items derived from such Property for the period of four (4) consecutive fiscal quarters of the Company ending on such date, as determined in accordance with GAAP, plus (ii) to the extent deducted in the determination of net income (or loss) for such Property for such period, (A) Interest Expense, (B) federal, state and local income taxes, (C) depreciation and (D) amortization.

“Note” shall mean have the meaning given such term in Paragraph 2(b) hereof.

“Obligations” shall mean any and all debts, obligations and liabilities of the Credit Parties to the Lender (whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred), arising out of or related to the Loan Documents.

“Ownership Interests” means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests and (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“Person” shall mean any corporation, natural person, firm, joint venture, partnerships, trust, unincorporated organization or Governmental Authority.

“Pledge Agreement” shall mean that certain pledge agreement in the form attached hereto as Exhibit C of even date herewith executed by the Pledgor in favor of the Lender, as amended, restated, supplemented or otherwise modified from time to time.

“Pledged Assets” shall mean the “Collateral,” as defined in the Pledge Agreement.

“Pledgor” shall mean NNN Apartment REIT Holdings, L.P., a Virginia limited partnership, or any successor or permitted assign thereof.

"Potential Default” shall mean an event which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default.

“Prime Rate” shall mean a rate per annum equal to the rate announced from time to time by the Lender to be its “Prime Rate” as such “Prime Rate” may change from time to time, said changes to occur on the first date the “Prime Rate” changes; it being understood that the “Prime Rate” is the rate announced by the Lender from time to time as its “Prime Rate” and is not necessarily the lowest interest rate charged by the Lender to its customers.

"Prime Rate Loan” shall mean the Loan at such time as it is bearing interest at the Applicable Prime Rate.

“Property Debt Service Coverage Ratio” shall mean, as of any fiscal quarter end, the ratio of (a) the aggregate Net Operating Income for all of the Properties for the period of the four (4) consecutive fiscal quarters ending on or immediately prior to such date to (b) Property Interest Expense for the period of four (4) consecutive fiscal quarters ending on or immediately prior to such date.

“Property Interest Expense” shall mean, for any period, that portion of Interest Expense attributable solely to interest due and payable on the Property Loans, in the aggregate.

“Property Loan Document” shall mean any agreement, note, instrument, certificate or other document executed by any Property Owner in connection with the Property Loan to which such Property Owner is a party, all as may be amended, restated, supplemented or otherwise modified from time to time.

“Property Loans” shall mean those certain first priority real estate-secured loans made or to be made by various financial institutions to the Property Owners, each of which Property Loans is secured by a first priority lien on the related Property.

“Property Owners” shall mean the collective reference to: Apartment REIT Walker Ranch, L.P., Apartment REIT Hidden Lakes, L.P., Apartment REIT Park at North Gate, L.P., Apartment REIT Residences at Braemar, LLC, Apartment REIT Bay Point Resort, LLC, Apartment REIT Towne Crossing, L.P., Apartment REIT Villas of El Dorado, LLC and to any other Person which may become the fee owner of a Property on or after the date hereof.

“Requirements of Law” shall mean, as to any Person, the Articles or Certificate of Incorporation and Bylaws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or a final and binding determination of an arbitrator or a determination of a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Subsidiary” shall mean any corporation, partnership, limited liability company or joint venture more than fifty percent (50%) of the stock or other ownership interest of which having by the terms thereof ordinary voting power to elect the board of directors, managers or trustees of such corporation, partnership or joint venture (irrespective of whether or not at the time stock of any other class or classes of such corporation, partnership or joint venture shall have or might have voting power by reason of the happening of any contingency) shall, at the time as of which any determination is being made, be owned, either directly or through Subsidiaries.

“Total Debt Service Coverage Ratio” shall mean, as of any fiscal quarter end, the ratio of (a) the aggregate Net Operating Income for all of the Properties for the period of the four (4) consecutive fiscal quarters ending on or immediately prior to such date to (b) the sum of (i) Property Interest Expense and (ii) Facility Interest Expense, each for the period of four (4) consecutive fiscal quarters ending on or immediately prior to such date.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and sealed as of the day and year first above written.

By: /s/ Stanley J. Olander, Jr.
Name: Stanley J. Olander, Jr.
Title CEO and President

FOR VALUE RECEIVED, NNN APARTMENT REIT, INC., a Maryland corporation (the “Company”) hereby unconditionally promises to pay to the order of WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association (the “Lender”), at the office of WACHOVIA BANK, located at One Wachovia Center, TW-16, 301 South College Street, Charlotte, North Carolina 28288-0172, in lawful money of the United States and in immediately available funds, on the dates required under that certain Loan Agreement dated as of November 1, 2007 by and between the Company and the Lender (as the same may be amended, extended or replaced from time to time, the “Agreement” and with the capitalized terms not otherwise defined herein used with the meanings given such terms in the Agreement), the sum of $10,000,000.00, the principal amount of the Loan made under the Agreement, or such lesser amount as has been actually disbursed to the Company by the Lender from time to time pursuant to the Agreement.

The Company further agrees to pay interest in like money and funds at the office of the Lender referred to above, on the unpaid principal balance hereof from the date advanced until paid in full on the dates and at the applicable rates set forth in the Agreement. The holder of this Note is hereby authorized to record the date and amount of each payment of principal and interest, and applicable interest rates and other information with respect thereto, on the schedules annexed to and constituting a part of this Note (or by any analogous method the holder hereof may elect consistent with its customary practices) and any such recordation shall, absent manifest error, constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure to make a notation or the inaccuracy of any notation shall not limit or otherwise affect the obligations of the Company under the Note, the Agreement or any other documents which may evidence or govern this indebtedness.

This Note is the Note referred to in, and is entitled to all the benefits of, the Agreement. Reference is hereby made to the Agreement for rights and obligations of payment and prepayment, Events of Default and the rights of acceleration of the maturity hereof upon the occurrence of an Event of Default.

This Note shall be governed by, and construed in accordance with, the laws of the State of North Carolina, and is being executed by the duly authorized officers of the Company as of the day and year first above written.

By: /s/ Stanley J. Olander, Jr.
Name: Stanley J. Olander, Jr.
Title: CEO and President

THIS PLEDGE AGREEMENT (PARTNERSHIP INTERESTS) (as amended, modified, replaced, renewed, restated or extended from time to time, this “Agreement”), dated as of the 1^st day of November, 2007, by and between WACHOVIA BANK, N.A., a national banking association (“Lender”), and NNN APARTMENT REIT HOLDINGS, L.P., a Virginia limited partnership (“Pledgor”).

WHEREAS: Pursuant to that certain Loan Agreement of even date herewith by and between NNN APARTMENT REIT, INC., a Maryland corporation (“Borrower”) and Lender (as the same may be amended, modified, renewed, restated, extended or replaced from time to time, the “Loan Agreement”), Lender has agreed to extend credit to Borrower on the terms and subject to the conditions set forth therein; and

WHEREAS: Pledgor owns one hundred percent (100%) of (i) the limited partnership interests in each of APARTMENT REIT WALKER RANCH, L.P., a Texas limited partnership (“Walker Ranch”), APARTMENT REIT HIDDEN LAKES, L.P., a Texas limited partnership (“Hidden Lakes”), APARTMENT REIT PARK AT NORTH GATE, L.P., a Texas limited partnership (“North Gate”) and APARTMENT REIT TOWNE CROSSING, L.P., a Texas limited partnership (“Towne Crossing”) (collectively, the “Owned LP’s” or the “Owned Companies” and each an “Owned Company”), (ii) the membership interests in each of Apartment REIT Walker Ranch GP, LLC, a Delaware limited liability company, Apartment REIT Hidden Lakes GP, LLC, a Delaware limited liability company, Apartment REIT Park at North Gate GP, LLC, a Delaware limited liability company and Apartment REIT Towne Crossing GP, LLC, a Delaware limited liability company (collectively, the “Property Owner GP’s”), each of which Property Owner GP’s is the sole general partner of the respective Owned LP, and (iii) [INTENTIONALLY OMITTED]; and

WHEREAS: As consideration for the credit facilities to be made available to Borrower pursuant to the Loan Agreement, Pledgor has agreed, as required pursuant to Paragraph 3 of the Loan Agreement, to pledge as security for Borrower’s obligations under the Loan Agreement certain of the Partnership Interests Pledgor owns in the Owned Companies; and

WHEREAS: Pledgor has agreed not to sell, convey, transfer or encumber in any way any of the general or limited partnership interests, or membership interests, as applicable, owned by Pledgor in any of the Property Owner GP’s or the Owned Companies so long as the Loan remains in effect; and

WHEREAS, one hundred percent (100%) of the general partnership interests in Pledgor are owned by Borrower, and one hundred percent (100%) of the limited partnership interests in Pledgor are owned by NNN Apartment REIT Advisor, LLC, a limited liability company which is under common ownership with Borrower, and Pledgor will derive benefit from the credit facilities to be made available to Borrower by Lender pursuant to the Loan Agreement;

NOW, THEREFORE, in consideration of the credit facilities to be made available pursuant to the Loan Agreement and other good and valuable consideration, the receipt of which is hereby acknowledged by the parties hereto, the parties do hereby agree as follows:

1. Definitions. All capitalized undefined terms used herein shall have the respective meanings assigned thereto in the Loan Agreement. In addition, the following terms, when used herein, shall have the following meanings:

“Collateral” means, collectively, (i) [INTENTIONALLY OMITTED], (ii) with respect to each of Walker Ranch, Hidden Lakes and Towne Crossing, forty-nine percent (49%) of the Partnership Interests of Pledgor in such Owned LP, whether now owned or hereafter acquired, (iii) with respect to North Gate, one hundred percent (100%) of the Partnership Interests of Pledgor in such Owned LP, whether now owned or hereafter acquired, and (iv) all proceeds of the property described in each of items (i), (ii) and (iii) above, including, without limitation, proceeds from any permitted sale or other disposition thereof (including without limitation all payment intangibles relating thereto).

“Partnership Interests” means the entire limited partnership interests of Pledgor in each of the Owned LP’s, including, without limitation, Pledgor’s capital account, its interest as a limited partner in the net cash flow, net profit and net loss, and items of income, gain, loss, deduction and credit of each of the Owned LP’s, its interest in all distributions made or to be made by any of the Owned LP’s to Pledgor and all of the other rights, titles and interests of Pledgor as a limited partner of each of the Owned LP’s, whether set forth in the partnership agreement of such Owned LP, by separate agreement or otherwise.

“UCC” means the North Carolina Uniform Commercial Code, or as to any matter governed by the Uniform Commercial Code of another jurisdiction, the Uniform Commercial Code of such other jurisdiction.

2. Pledge and Security Interest. As collateral security for the due and punctual payment and performance by Borrower of all of its obligations under the Loan Agreement and the other Loan Documents (collectively, the “Obligations”), Pledgor hereby pledges and assigns to Lender a continuing first priority security interest in and to the Collateral.

3. Pledgor Remains Liable. Anything herein to the contrary notwithstanding, (a) Pledgor shall remain liable to perform all of its duties and obligations as a limited partner of each of the Owned LP’s, to the same extent as if this Agreement had not been executed, (b) the exercise by Lender of any of its rights hereunder shall not release Pledgor from any of its duties or obligations as a limited partner of any Owned Company, and (c) Lender shall not have any obligation or liability as a limited partner of any Owned Company by reason of this Agreement.

(b) Pledgor (i) owns one hundred percent (100%) of the limited partnership interests in, and is the sole limited partner of, each of the Owned LP’s, and (ii) owns one hundred percent (100%) of the membership interests in, and is the sole member of, each of the Property Owner GP’s, each of which owns one hundred percent (100%) of the general partnership interests in, and is the sole general partner of, the respective Owned LP.

(d) The jurisdiction in which Pledgor is located for purposes of Section 9-307 of the UCC is the State of Virginia.

(e) Pledgor conducts business only under the name “NNN APARTMENT REIT HOLDINGS, L.P.,” and does not use and has not used any trade name, fictitious name or similar name.

(f) Properly completed financing or other statements have been filed in all necessary jurisdictions with respect to the Collateral, and certificates representing the Collateral have been delivered as may be required, so that the pledge and security interest granted pursuant to this Agreement constitutes a valid, continuing and perfected security interest in and lien on the Collateral under the UCC.

(g) Pledgor has full power and authority to execute this Agreement and to perform its obligations hereunder, and the execution and delivery of this Agreement, and the performance of Pledgor’s obligations hereunder, have been duly authorized by all necessary corporate or other action of Pledgor.

(h) The execution, delivery and performance by Pledgor of this Agreement does not conflict with, or result in a breach or violation of, (i) any law, regulation or court order applicable to Pledgor or its property, (ii) any document or instrument to which Pledgor is a party or by which its assets may be bound, (iii) [INTENTIONALLY OMITTED], (iv) the partnership agreement of any of the Owned LP’s, or (v) any document, instrument or agreement evidencing or relating to any credit facility or loan to which any of the Owned Companies is a party.

(i) No authorization, approval or other action by, and no notice to or filing with, any governmental authority (other than as set forth in Section 4(f) above) is required (i) for the execution, delivery and performance of this Agreement by Pledgor, or (ii) for the exercise by the Lender of any rights or remedies in respect of the Collateral hereunder.

(j) None of the Partnership Interests in North Gate, Towne Crossing or Walker Ranch are dealt in or traded on securities markets, and the terms of the respective partnership agreements governing the Partnership Interests in North Gate, Towne Crossing and Walker Ranch do not provide that such interests are securities governed by Article 8 of the UCC. None of the Partnership Interests in North Gate, Towne Crossing or Walker Ranch is evidenced by a certificate of ownership.

(j) None of the Partnership Interests in Hidden Lakes are dealt in or traded on securities markets; however, the terms of the partnership agreement governing the Partnership Interests in Hidden Lakes provide that such interests are securities governed by Article 8 of the UCC. The Partnership Interests in Hidden Lakes are evidenced by a certificate of ownership.

(a) Pledgor will, at all times the Loan Agreement remains in full force and effect, remain the legal and beneficial owner of the Collateral free and clear of all liens and encumbrances except for liens and encumbrances in favor of Lender. In furtherance of the foregoing, Pledgor will not sell, convey, transfer, assign or encumber in any way, all or any portion of the Collateral.

(b) Pledgor will, at all times the Loan Agreement remains in full force and effect, remain the legal and beneficial owner of (i) [INTENTIONALLY OMITTED], (ii) all Partnership Interests in each Owned LP, and (iii) all membership interests in each Property Owner GP, each of which in turn will remain the beneficial owner of all general partnership interests in the respective Owned LP, in each case free and clear of all liens and encumbrances except for, as to the Collateral, liens and encumbrances in favor of Lender. In furtherance of the foregoing, Pledgor will not sell, convey, transfer, assign or encumber in any way, all or any portion of any Partnership Interests, or any membership interests in the Property Owner GP’s, and will not permit the sale, conveyance, transfer, assignment or encumbrance, in any way, of any general partnership interests owned by any Property Owner GP in any Owned LP, in each case except in favor of Lender.

(c) Except upon thirty (30) days prior written notice to the Lender, Pledgor will not (i) change its name, identity, or corporate structure or jurisdiction of incorporation so as to make any financing or other statement filed as provided herein become seriously misleading, (ii) with respect to Hidden Lakes, opt out of Article 8 for purposes of classifying the Partnership Interests therein as securities or (iii) with respect to any other Owned LP, opt into Article 8 for purposes of classifying the Partnership Interests therein as securities.

(d) Pledgor will, upon request of Lender, prepare and deliver such financing statements, notices of lien, notices of assignment and continuations or amendments to any of the foregoing, and other documents (and pay the costs of filing or recording the same in all public offices deemed necessary by Lender) and do such other acts and things, all as Lender may from time to time request to establish and maintain a valid perfected first priority pledge and security interest in the Collateral to secure the payment of the Obligations. Pledgor hereby constitutes and appoints Lender (and any of its officers) as its attorney-in-fact with full power and authority to execute and deliver all documents necessary to perfect and keep perfected the security interests created hereby. This power of attorney hereby granted is a special power of attorney coupled with an interest and shall be irrevocable by Pledgor.

(e) Pledgor will pay or cause to be paid, prior to delinquency, all taxes, charges, liens and assessments against the Collateral, except to the extent and so long as (i) the same are being contested in good faith by appropriate proceedings, and (ii) the effect of any lien, charge or encumbrance is stayed pending final resolution.

(f) Pledgor will pay promptly on demand by Lender all advances, charges, costs and expenses, including reasonable attorneys’ fees, incurred or paid by Lender in protecting and preserving the Collateral or in exercising any right, power or remedy conferred by this Agreement.

(g) Without the prior written consent of the Lender, the Pledgor will not (i) vote to enable, or take any other action to permit, any Owned Company to issue any additional Partnership Interests, except for such additional Partnership Interests that will be subject to the security interest granted herein in favor of the Lender or (ii) enter into any agreement or undertaking restricting the right or ability of the Pledgor or the Lender to sell, assign or transfer any Collateral. The Pledgor will defend the right, title and interest of the Lender in and to the Collateral against the claims and demands of all Persons whomsoever.

(h) The Pledgor will deliver to the Lender all Partnership Interests evidenced by a certificate (including, without limitation, certificates evidencing the Partnership Interests in Hidden Lakes), together with such effective endorsements and assignments as may be required. If the Pledgor shall become entitled to receive or shall receive (i) any certificate evidencing any Collateral, whether in addition to, in substitution of, or as a conversion of, or in exchange for, any Collateral, or otherwise in respect thereof or (ii) any sums paid upon or in respect of any Collateral upon the liquidation or dissolution of any Owned Company, the Pledgor shall accept the same as the agent for the Lender, hold the same in trust for the Lender, segregated from other funds of the Pledgor, and promptly deliver the same to the Lender in accordance with the terms hereof.

6. Events of Default. The occurrence of an “Event of Default” (as defined in the Loan Agreement) which has not been cured during the applicable cure period, if any, provided for therein, shall constitute an event of default (an “Event of Default”) hereunder.

7. Lender’s Rights and Remedies Upon Default. Upon the occurrence of any Event of Default, Lender shall be entitled, at its option, to exercise all such rights and remedies with respect to the Collateral as (i) are available under the UCC and (ii) are otherwise available at law or in equity. Without limiting the foregoing, the Lender shall have the right to receive any and all cash dividends, payments or distributions made in respect of any Partnership Interests or other proceeds paid in respect of any Partnership Interests, and any or all of any Partnership Interests shall be registered in the name of the Lender or its nominee, and the Lender or its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such Partnership Interests at any meeting of partners of the relevant Owned Companies and (B) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Partnership Interests as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Partnership Interests upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the partnership structure of any Owned Company or upon the exercise by the Pledgor or the Lender of any right, privilege or option pertaining to such Partnership Interests, and in connection therewith, the right to deposit and deliver any and all of the Partnership Interests with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Lender may determine), all without liability except to account for property actually received by it; but the Lender shall have no duty to the Pledgor to exercise any such right, privilege or option and the Lender shall not be responsible for any failure to do so or delay in so doing. In furtherance thereof, the Pledgor hereby authorizes and instructs each Owned Company to (i) comply with any instruction received by it from the Lender in writing that (A) states that an Event of Default has occurred and is continuing and (B) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from the Pledgor, and the Pledgor agrees that each Owned Company shall be fully protected in so complying following receipt of such notice and prior to notice that such Event of Default is no longer continuing, and (ii) except as otherwise expressly permitted hereby, pay any dividends, distributions or other payments with respect to any Partnership Interests directly to the Lender.

(a) Lender shall have the right at all times to enforce the provisions of this Agreement in strict accordance with the terms hereof, notwithstanding any conduct or custom on its part in refraining from so doing at any time. No amendment or waiver of any provision of this Agreement shall be effective unless the same shall be in writing and executed by the parties hereto (subject to the provisions of the Loan Agreement), and no waiver or omission to act by Lender as to any Event of Default shall operate as a waiver of any other Event of Default or of the same Event of Default at a future time, and no single or partial exercise by Lender of any right or remedy shall preclude any other or future exercise of that or of any other right or remedy. The provisions, rights and remedies hereof are cumulative to and concurrent with those of all other agreements and documents held by Lender in connection with the Obligations.

(b) This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until payment in full of the Obligations.

(c) This Agreement, unless otherwise expressly set forth herein, shall be governed by, and construed in accordance with, the laws of the State of North Carolina.

(d) TO THE EXTENT PERMITTED BY LAW, PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO THIS AGREEMENT AND INTO THE LOAN AGREEMENT.

(e) Any and all notices, elections or demands permitted or required to be made under this Agreement shall be in writing, signed by the party giving such notice, election or demand and shall be delivered personally, or sent by overnight courier or by certified mail, postage prepaid, to the other party at the address set forth below, or at such other address within the continental United States of America as may have theretofore been designated in writing in accordance with the terms and conditions hereof:


PLEDGOR:		NNN Apartment REIT Holdings, L.P.
		c/o NNN Apartment REIT, Inc.
		1551 N. Tustin Ave., Suite 200
		Santa Ana, CA 92705
		Attention: ________________
LENDER:		Wachovia Bank, National Association
		One Wachovia Center, 16^th Floor
		301 South College Street
		Charlotte, NC 28288-0172
		Attention: Chris Troutman

(f) In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.

(g) This Agreement may be executed in any number of counterparts and all the counterparts taken together shall be deemed to constitute one and the same instrument.

(h) This Agreement constitutes the final, exclusive and complete statement of the agreement of the parties hereto with respect to the subject matter hereof and all other prior or contemporaneous agreements with respect to the subject matter hereof are superseded hereby.

(i) The Pledgor hereby waives and releases any rights, demands, and defenses the Pledgor may have with respect to the Lender pursuant to any law or statute that requires that the Lender make demand upon, assert claims against, or collect from Borrower or other persons or entities, foreclose any security interest, sell collateral, exhaust any remedies, or take any other action against Borrower or other persons or entities prior to making demand upon, collecting from or taking action against the Pledgor under this Agreement, including any such rights the Pledgor might otherwise have had under N.C.G.S. §§ 26-7, et seq. and any successor statute and any other applicable law.

IN WITNESS WHEREOF, Pledgor and Lender have duly executed this Agreement, or caused this Agreement to be duly executed, as of the day and year first above written.

By: /s/ Stanley J. Olander, Jr.
Name: Stanley J. Olander, Jr.
Title: CEO and President

Santa Ana, California, November 7, 2007 – NNN Apartment REIT, Inc. has acquired Villas of El Dorado. The acquisition closed on November 2, 2007.

Villas of El Dorado is an approximately 193,000-square-foot, 248-unit gated apartment community located in the Dallas/Fort Worth suburb of McKinney, Texas. Built in 2002 on 13.7 acres, the property consists of 12 three-story apartment buildings and an additional building that houses the clubhouse and leasing office. The apartment community offers five floor plans ranging in size from 621-square-foot one bedroom/one bathroom units to 1,186-square-foot three bedroom/two bathroom units, with an average unit size of 777 square feet. Unit amenities include built-in computer desks, bookshelves, nine-foot ceilings, garden-size bathtubs in master bedrooms, private balconies or patios, washer/dryer connections, walk-in closets, and microwave ovens. Community amenities include a swimming pool with hot tub, business center, fitness center, barbeque and picnic area, playground and laundry facilities.

Villas of El Dorado provides 410 parking spaces, including 248 carports, resulting in a parking ratio of 1.65 spaces per unit. The property is currently 94 percent leased.

The United States Census Bureau listed McKinney as the nation’s fastest growing city from 2000 to 2006 among cities with more than 100,000 people. According to the McKinney Economic Development Corporation, in the past decade more than 7,000 new jobs have been created, approximately 45 new corporations have been recruited and the regional economy has increased by $3.6 billion. In 2004, McKinney was awarded the Community Economic Development Award (CEDA) by the Texas Economic Development Council.

The McKinney Independent School District (ISD) is a Recognized District by the Texas Education Agency. In 2006, Texas Monthly magazine named 10 McKinney ISD elementary and middle schools in its list of “Best Public Schools in Texas,” which honors top performing public schools in the state. The rankings are based upon data compiled by the National Center for Educational Accountability (NCEA), a research division of the University of Texas in Austin.

“McKinney is a high-growth, high-income market, making it an ideal location for an investment by NNN Apartment REIT,” said Stanley J. Olander Jr., president, chief executive officer and chairman of NNN Apartment REIT. “McKinney was the nation’s fastest-growing city in population in its size category for the entire 2000-2006 period, skyrocketing from a population of 54,409 in 2000 to 107,530 in 2006, a 97.6 percent increase.”

NNN Apartment REIT offers a monthly distribution of 7.0 percent per annum, and is seeking to acquire properties in geographically-diverse markets throughout the United States that are poised for strong population and economic growth. As of October 31, 2007, Apartment REIT has sold approximately 7.2 million shares of its common stock for more than $71.8 million through its initial public offering, which began in the third quarter of 2006.

NNN Apartment REIT purchased the Villas of El Dorado from El Dorado Apartments, LLC, which was represented by Arthur Kline of Thompson Realty, an unaffiliated third party.

NNN Realty Advisors, Inc., a nationwide commercial real estate asset management and services firm. Triple Net Properties, LLC and affiliates manage a growing portfolio of nearly 39 million square feet of real estate, including more than 10,100 apartment units, with a combined market value in excess of $5.4 billion. Triple Net Properties, LLC and affiliates are currently buying and selling properties throughout the United States, offering a full range of commercial real estate investments, including tenant-in-common (TIC) programs for investors structuring tax-deferred (like-kind) exchanges under Section 1031 of the Internal Revenue Code, real estate investment trusts (REITs), value added property funds, and institutional investments.

This press release contains certain forward-looking statements with respect to the future population, job growth and economic performance of McKinney, Texas. Forward-looking statements are statements that are not descriptions of historical facts and include statements regarding management’s intentions, beliefs, expectations, plans or predictions of the future, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties and contingencies include, but are not limited to, the following: uncertainties relating to changes in general economic and real estate conditions; uncertainties relating to the economy of McKinney, Texas; uncertainties relating to the implementation of our real estate investment strategy; and other risk factors as outlined in the Company’s prospectus, as amended from time to time, and as detailed from time to time in our periodic reports, as filed with the Securities and Exchange Commission.


Maryland	000-52612	20-3975609
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)

1551 N. Tustin Avenue, Suite 200, Santa Ana, California		92705
_________________________________ (Address of principal executive offices)		___________ (Zip Code)


	NNN Apartment REIT, Inc.

November 7, 2007	By:	/s/ Stanley J. Olander, Jr.

		Name: Stanley J. Olander, Jr.
		Title: Chief Executive Officer and President


Exhibit No.		Description

10.1		Purchase and Sale Agreement by and between El Dorado Apartments, LLC and Triple Net Properties, LLC, dated February 21, 2007
10.2		Reinstatement of and First Amendment to Purchase and Sale Agreement by and between El Dorado Apartments, LLC and Triple Net Properties, LLC, dated June 12, 2007
10.3		Assignment of Contract by Triple Net Properties, LLC to Apartment REIT Villas of El Dorado, LLC, dated November 1, 2007
10.4		Agreement of Assumption and Modification of Security Instrument and Other Loan Documents by and among El Dorado Apartments, LLC; Wendell A. Jacobson; Apartment REIT Villas of El Dorado, LLC; NNN Apartment REIT, Inc.; and The Bank of New York Trust Company, National Association, as Trustee for the Registered Holders of Morgan Stanley Capital I Inc., Commercial Mortgage Pass-Through Certificates, Series 2007-IQ14, dated as of November 1, 2007
10.5		Promissory Note by El Dorado Apartments, LLC in favor of Royal Bank of Canada, dated November 29, 2006
10.6		Deed of Trust, Security Agreement, Fixture Financing Statement and Assignment of Leases and Rents by El Dorado Apartments, LLC for the benefit of Royal Bank of Canada, dated November 29, 2006
10.7		Limited Guaranty by NNN Apartment REIT, Inc. in favor of The Bank of New York Trust Company, National Association, as Trustee for the Registered Holders of Morgan Stanley Capital I Inc., Commercial Mortgage Pass-Through Certificates, Series 2007-IQ14, dated November 1, 2007
10.8		Environmental Indemnity Agreement by Apartment REIT Villas of El Dorado, LLC and NNN Apartment REIT, Inc. for the benefit of The Bank of New York Trust Company, National Association, as Trustee for the Registered Holders of Morgan Stanley Capital I Inc., Commercial Mortgage Pass-Through Certificates, Series 2007-IQ14, dated November 1, 2007
10.9		Loan Agreement by and between NNN Apartment REIT, Inc. and Wachovia Bank, National Association, dated November 1, 2007
10.10		Promissory Note by NNN Apartment REIT, Inc. in favor of Wachovia Bank, National Association, dated November 1, 2007
10.11		Pledge Agreement (Partnership Interests) by and between Wachovia Bank, National Association and NNN Apartment REIT Holdings, L.P., dated November 1, 2007
99.1		NNN Apartment REIT, Inc. Press Release, dated November 7, 2007


RECORDING REQUESTED BY AND	(El Dorado)
WHEN RECORDED MAIL TO:		(99-1069656	)


By:	/s/ S. Jay Olander
	Name: Title:	S. Jay Olander Chief Executive Officer


Date of Report (Date of Earliest Event Reported):		November 1, 2007


Registrant’s telephone number, including area code:		714-667-8252


At the Closing, Purchaser shall deliver to Seller:
(a) (b)		An executed counterpart of the Contract Assignment. An executed counterpart of the Lease Assignment.


		TABLE OF CONTENTS
1 - DEFINITIONS:
2 - GRANTS OF SECURITY:
2.1 2.2 2.3	Property Mortgaged Leases and Rents Security Agreement


(A)		A duly executed original of this Agreement;
(B)		A duly executed original of the Note;
(C)		A duly executed original of the Pledge Agreement;