View:
Download DOC
Download PDF
Download XLS
Prepared and filed by St Ives Burrups
Click here to Contents
 
 
United States
Securities and Exchange Commission
Washington, D.C. 20549
 
FORM 10-K
 
     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2005
 
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 
Commission File Number 1-12002
 
ACADIA REALTY TRUST
(Exact name of registrant as specified in its charter)
 
Maryland
 
23-2715194
(State of incorporation)
 
(I.R.S. employer identification no.)
 
1311 Mamaroneck Avenue, Suite 260
White Plains, NY 10605
(Address of principal executive offices)
 
(914) 288-8100
(Registrant’s telephone number)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Common Shares of Beneficial Interest, $.001 par value
(Title of Class)
 
New York Stock Exchange
(Name of Exchange on which registered)
 
Securities registered pursuant to Section 12(g) of the Act:
 
None
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
YES       NO  
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Securities Act.
 
YES       NO  
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
 
YES       NO  
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).
 
Large Accelerated Filer     
Accelerated Filer     
Non-accelerated Filer     
 
Indicate by checkmark whether the registrant ia a shell company (as defined in Rule 12b-2 of the Act)  YES       NO  
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was $586.4 million, based on a price of $18.65 per share, the average sales price for the Registrant’s shares of beneficial interest on the New York Stock Exchange on that date.
 
The number of shares of the registrant’s Common Shares of Beneficial Interest outstanding on March 15, 2006 was 31,758,241.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Part III – Definitive proxy statement for the 2006 Annual Meeting of Shareholders presently scheduled to be held May 15, 2006 to be filed pursuant to Regulation 14A.
 
 
Click here to Cover
 
TABLE OF CONTENTS
Form 10-K Report
 
Item No.
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
 
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Certain statements contained in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative thereof or other variations thereon or comparable terminology. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to those set forth under the heading “Risk Factors” in this Form 10-K. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein.
 
3
 
 
PART I
 
ITEM 1.  BUSINESS
 
GENERAL
 
Acadia Realty Trust (the “Company”, “Acadia”, “we”, “us” or “our”) was formed on March 4, 1993 as a Maryland Real Estate Investment Trust (“REIT”). We are a fully integrated, self-managed and self-administered equity REIT focused primarily on the ownership, acquisition, redevelopment and management of retail properties, including neighborhood and community shopping centers and mixed-use properties with retail components. We currently operate 75 properties, which we own or have an ownership interest in. These assets are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States which, in total, comprise approximately 10 million square feet. We also have non-operational investments in properties throughout the country through joint ventures.
 
All of our assets are held by, and all of our operations are conducted through, Acadia Realty Limited Partnership, a Delaware limited partnership (the “Operating Partnership”) and its majority-owned subsidiaries. As of December 31, 2005 we controlled 98% of the Operating Partnership as the sole general partner. As the general partner, we are entitled to share, in proportion to our percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners represent entities or individuals who contributed their interests in certain properties or partnerships to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Preferred OP Units”). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Company (“Common Shares”). This structure is commonly referred to as an umbrella partnership REIT or “UPREIT”.
 
Capital Market Transactions
 
On January 27, 2004, the Operating Partnership issued 4,000 Series B Preferred Units in connection with the acquisition from Klaff Realty, L.P. (“Klaff”) of its rights to provide asset management, leasing, disposition, development and construction services for an existing portfolio of retail properties. These units have a stated value of $1,000 each and are entitled to a quarterly preferred distribution of the greater of (i) $13.00 (5.2% annually) per Preferred OP Unit or (ii) the quarterly distribution attributable to a Preferred OP Unit if such unit were converted into a Common OP Unit. The Preferred OP Units are convertible into Common OP Units based on the stated value of $1,000 divided by $12.82 at any time. Additionally, the holder of the Preferred OP Units may redeem them at par for either cash or Common OP Units (at our option) after the earlier of the third anniversary of their issuance, or the occurrence of certain events including a change in the control of our Company. Finally, after the fifth anniversary of the issuance, we may redeem the Preferred OP Units and convert them into Common OP Units at market value as of the redemption date.
 
In March of 2004, a secondary public offering was completed for a total of 5,750,000 Common Shares. The selling shareholders, Yale University and its affiliates (“Yale”) and Ross Dworman, a former trustee and Chairman, sold 4,191,386 and 1,558,614 Common Shares, respectively. Yale was a major shareholder, owning, at one time, approximately one-third of all of our outstanding Common Shares. We did not sell any Common Shares in the offering and did not receive any proceeds from the offering.
 
During November 2004, we issued 1,890,000 Common Shares (the “Offering”). The Offering was made pursuant to shelf registration statements filed under the Securities Act of 1933, as amended, and previously declared effective by the Securities and Exchange Commission on March 29, 2000, May 14, 2003 and March 19, 2004. The $28.3 million in proceeds from the Offering, net of related costs, were used to retire above-market, fixed-rate indebtedness as well as to invest in real estate assets. Yale, and Kenneth F. Bernstein, our Chief Executive Officer, also sold 1,000,000, and 110,000 Common Shares, respectively, in connection with this transaction.
 
RECENT DEVELOPMENTS
 
Effective February 15, 2005, we acquired the balance of Klaff’s rights to provide the above services and certain potential future revenue streams. The consideration for this acquisition was $4.0 million in the form of 250,000 restricted Common OP Units, valued at $16 per unit, which are convertible into our Common Shares on a one-for-one basis after a five year lock-up period. As part of this transaction we also assumed all operational and redevelopment responsibility for the Klaff Properties a year earlier than was contemplated in the January 2004 transaction.
 
4
 
 
BUSINESS OBJECTIVES AND STRATEGIES
 
Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective:
 
–
Own and operate a portfolio of community and neighborhood shopping centers and mixed-use properties with a retail component located in markets with strong demographics
–
Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth
–
Generate internal growth within the portfolio through aggressive redevelopment, re-anchoring and leasing activities
–
Generate external growth through an opportunistic yet disciplined acquisition program. The emphasis is on targeting transactions with high inherent opportunity for the creation of additional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions
 
External Growth Strategy - Opportunistic Acquisition Platforms
 
In addition to our direct investments in real estate assets, we have also capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by establishing joint ventures in which we earn, in addition to a return on our equity interest, fees for our services. To date we have launched two acquisition joint ventures, Acadia Strategic Opportunity Fund, LP (“Fund I”) and Acadia Strategic Opportunity Fund II, LLC (“Fund II”).
 
Fund I
 
In September 2001, we and four of our institutional shareholders formed a joint venture, whereby the investors committed $70 million for the purpose of acquiring real estate assets. We committed an additional $20 million to Fund I, as the general partner with a 22% interest. In addition to a pro-rata return on our invested equity, we are entitled to a profit participation based upon certain investment return thresholds. Cash flow is distributed pro-rata to the partners (including us) until they have received a 9% cumulative return on, and a return of all capital contributions. Thereafter, remaining cash flow is distributed 80% to the partners (including us) and 20% to us. We also earn a fee for asset management services equal to 1.5% of the allocated invested equity, as well as fees for property management, leasing and construction services.
 
Our acquisition program was executed exclusively through Fund I through June 2004. Fund I focused on targeting assets for acquisition that had superior in-fill locations, restricted competition due to high barriers of entry and in-place below-market anchor leases with the potential to create significant additional value through re-tenanting, timely capital improvements and property redevelopment. Fund I considered both single assets and portfolios in its acquisition program. Although our core properties are located primarily in the Northeast, Mid-Atlantic and Midwest region, and therefore Fund I focused on potential acquisitions within these geographic areas, Fund I considered portfolio acquisitions outside the geographic footprint.
 
On January 4, 2006, Fund I recapitalized a one million square foot retail portfolio located in Wilmington Delaware (“Brandywine Portfolio”) through a merger of interests with affiliates of GDC Properties (“GDC”). The Brandywine Portfolio was recapitalized through a “cash-out” merger of the 77.8% interest, which was previously held by the institutional investors in Fund I to GDC at a valuation of $164 million. We, through a subsidiary, retained our existing 22.2% interest and will continue to operate the Brandywine Portfolio and earn fees for such services. At the closing, the Fund I investors received a return of all of their capital invested in Fund I and preferred return, thus triggering the payment to us of our additional 20% carried interest (“Promote”) in all future Fund I distributions. It is anticipated that up to $38 million of additional proceeds will be distributed to our investors from this transaction following, among other things, the successful replacement of bridge financing provided by us and our investors. Additionally there are 32 assets comprising approximately 2 million square feet remaining in Fund I in which our interest in cash flow and income will increase from 22.2% to 37.8% as a result of the Promote.
 
Fund II
 
Following our success with Fund I, we formed a second, larger acquisition joint venture.  In June of 2004, we launched Fund II, which includes all of the investors from Fund I as well as two additional institutional investors. With $300 million of committed discretionary capital, Fund II expects to be able to acquire up to $900 million of real estate assets on a leveraged basis. We are the managing member with a 20% interest in Fund II. The terms and structure of Fund II are substantially the same as Fund I with the exceptions that the Preferred Return is 8% and the asset management fee is calculated on committed equity of $250 million for the first twelve months and then on the total committed equity of $300 million thereafter.
 
5
 
 
As the demand for retail real estate has significantly increased in recent years, there has been a commensurate increase in selling prices. In an effort to generate superior risk-adjusted returns for our shareholders and joint venture investors, we have channeled our acquisition efforts through Fund II in two new opportunistic joint ventures launched during 2004 – the Retailer Controlled Property Venture and the New York Urban Infill Redevelopment Initiative.
 
Retailer Controlled Property Venture (the “RCP Venture”)
 
On January 27, 2004, through Funds I and II, we entered into the RCP Venture with Klaff and Klaff’s long time capital partner Lubert-Adler Management, Inc. (“Lubert-Adler”) for the purpose of making investments in surplus or underutilized properties owned by retailers. The initial size of the RCP Venture is expected to be approximately $300 million in equity based on anticipated investments of approximately $1 billion. Each participant in the RCP Venture has the right to opt out of any potential investment. Affiliates of Funds I and II have invested $24.6 million in the RCP Venture to date. Fund II anticipates investing the remaining portion of the original 20% of the equity of the RCP Venture. Cash flow is to be distributed to the partners until they have received a 10% cumulative return and a full return of all contributions. Thereafter, remaining cash flow is to be distributed 20% to Klaff (“Klaff’s Promote”) and 80% to the partners (including Klaff). We will also earn market-rate fees for property management, leasing and construction services on behalf of the RCP Venture. Fund II seeks to invest opportunistically in the RCP Venture primarily in the following three ways:
 
–
Working with financially healthy retailers to create value from their surplus real estate
–
Acquiring properties, designation rights or other control of real estate or leases associated with retailers in bankruptcy
–
Completing sale leasebacks with retailers in need of capital
 
During 2004, we made our first RCP Venture investment with our participation in the acquisition of Mervyn’s as discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K. The RCP Venture is also currently exploring additional investment opportunities.
 
New York Urban Infill Redevelopment Initiative
 
In September of 2004, we, through Fund II, launched our New York Urban Infill Redevelopment initiative. As retailers continue to recognize that many of the nation’s urban markets are underserved from a retail standpoint, Fund II is poised to capitalize on this trend by investing in redevelopment projects in dense urban areas where retail tenant demand has effectively surpassed the supply of available sites. During 2004, Fund II, together with an unaffiliated partner, P/A Associates, LLC (“P/A”), formed Acadia-P/A Holding Company, LLC (“Acadia-P/A”) for the purpose of acquiring, constructing, developing, owning, operating, leasing and managing certain retail real estate properties in the New York City metropolitan area.  P/A has agreed to invest 10% of required capital up to a maximum of $2.0 million and Fund II, the managing member, has agreed to invest the balance to acquire assets in which Acadia-P/A agrees to invest. Operating cash flow is generally to be distributed pro-rata to Fund II and P/A until they have received a 10% cumulative return and then 60% to Fund II and 40% to P/A. Distributions of net refinancing and net sales proceeds, as defined, follow the distribution of operating cash flow except that unpaid original capital is returned before the 60%/40% split between Fund II and P/A, respectively. Upon the liquidation of the last property investment of Acadia-P/A, to the extent that Fund II has not received an 18% internal rate of return (“IRR”) on all of its capital contributions, P/A is obligated to return a portion of its previous distributions, as defined, until Fund II has received an 18% IRR. To date, Fund II has, in conjunction with P/A, invested in six projects through Fund II as discussed further in “PROPERTY ACQUISITIONS” in this Item 1 of this Form 10-K.
 
Other Investments
 
We may also invest in preferred equity investments, mortgages, other real estate interests and other investments. The mortgages in which we invest in may be either first mortgages or mezzanine debt, where we believe the underlying value of the real estate collateral is in excess of its loan balance. In March of 2005, we invested $20 million in a preferred equity position (“Preferred Equity”) in Levitz SL, L.L.C. (“Levitz SL”), the owner of 2.5 million square feet of fee and leasehold interests in 30 locations (the “Properties”), the majority of which are currently leased to Levitz Furniture Stores. Klaff is a managing member of Levitz SL. The Preferred Equity receives a return of 10%, plus a minimum return of capital of $2 million per annum. At the end of 12 months, the rate of return will be reset to the six-month LIBOR plus 644 basis points. The Preferred Equity is redeemable at the option of Levitz SL at any time.
 
We also regularly engage in discussions with public and private entities regarding business combinations. Furthermore, we may consider either acquiring directly or engaging in additional joint ventures related to property acquisition and development. The requirements that acquisitions be accretive on a long-term basis based on our cost of capital, as well as increase the overall portfolio quality and value, are core to our acquisition program. As such, we constantly evaluate the blended cost of equity and debt and adjust the amount of acquisition activity to align the level of investment activity with capital flows.
 
6
 
 
Operating Strategy - Experienced Management Team with Proven Track Record
 
Our senior management team has an average of 8 years with us and our predecessors and 25 years in the real estate industry. During 2002, the management team successfully completed a multi-year portfolio repositioning initiative that significantly improved the quality of our portfolio and tenant base. We believe our management team has demonstrated the ability to create value internally through anchor recycling, property redevelopment and strategic non-core dispositions.
 
Operating functions such as leasing, property management, construction, finance and legal (collectively, the “Operating Departments”) are provided by our personnel, providing for fully integrated property management and development. By incorporating the Operating Departments in the acquisition process, acquisitions are appropriately priced giving effect to each asset’s specific risks and returns. Also, because of the Operating Departments involvement with, and corresponding understanding of, the acquisition process, transition time is minimized and management can immediately execute on its strategic plan for each asset.
 
We typically hold our properties for long-term investment. As such, we continuously review the existing portfolio and implement programs to renovate and modernize targeted centers to enhance the property’s market position. This in turn strengthens the competitive position of the leasing program to attract and retain quality tenants, increasing cash flow and consequently property value. We also periodically identify certain properties for disposition and redeploy the capital to existing centers or acquisitions with greater potential for capital appreciation. Our core portfolio consists primarily of neighborhood and community shopping centers, which are generally dominant centers in high barrier-to-entry markets. The anchors at these centers typically pay market or below-market rents and have low rent-to-sales ratios, which are, on average, less than 5%. Furthermore, supermarket and necessity-based retailers anchor the majority of our core portfolio. These attributes enable our properties to better withstand a weakening economy while also creating opportunities to increase rental income.
 
During 2004 and 2005 we sold two non-core properties and redeployed the capital to acquire two retail properties during 2005 as further discussed in “ASSET SALES” and PROPERTY ACQUISITIONS” in this Item 1 of this Form 10-K.
 
Financing Strategy
 
We intend to continue financing acquisitions and property redevelopment with sources of capital determined by management to be the most appropriate based on, among other factors, availability, pricing and other commercial and financial terms. The sources of capital may include cash on hand, bank and other institutional borrowing, the sale of properties and issuance of equity securities. We continually focus on maintaining a strong balance sheet when considering the sourcing of capital. We manage our interest rate risk primarily through the use of variable and fixed rate debt. We also utilize LIBOR swap agreements in managing our exposure to interest rate fluctuations. See Item 7A for a discussion on our market risk exposure related to our mortgage debt.
 
PROPERTY ACQUISITIONS
 
RCP Venture
 
In September 2004, we made our first RCP Venture investment with our participation in the acquisition of Mervyn’s. Affiliates of Fund I and Fund II, through separately organized, newly formed limited liability companies on a non-recourse basis, invested in the acquisition of Mervyn’s through the RCP Venture, which, as part of an investment consortium of Sun Capital and Cerberus, acquired Mervyn’s from Target Corporation. The total acquisition price was approximately $1.2 billion subject to debt of approximately $800.0 million. Our share of equity invested aggregated $24.6 million on a non-recourse basis and was divided equally between affiliates of Funds I and II. As of the date of acquisition, Mervyn’s was a 257-store discount retailer with a very strong West Coast concentration. During 2005, the consortium sold a portion of the portfolio as well as refinanced existing mortgage debt and distributed cash to the investors, of which a total of $42.7 million was distributed to affiliates of Fund I and Fund II of which our share amounted to $10.2 million. In February of 2006, the consortium distributed additional cash of which a total of $1.4 million was distributed to affiliates of Fund I and Fund II of which $0.4 million was our share.
 
New York Urban/Infill Redevelopment Initiative
 
Liberty Avenue - On December 20,2005, Acadia-P/A acquired the remaining 40-year term of a leasehold interest in land located at Liberty Avenue and 98th Street in Queens (Ozone Park), NY.  The development plans for this property includes 30,000 square feet of retail anchored by a CVS drug store and a 98,500 square foot self-storage facility to be operated by Storage Post. Acadia-P/A will be a partner in the self-storage complex with Storage Post, which is anticipated to be a partner in future retail projects in New York City where self storage will be a potential component of the redevelopment. The total cost of the redevelopment is expected to be approximately $13 million. The CVS 10,880 square foot lease has been executed and construction on this project has commenced.
 
7
 
 
New York Urban/Infill Redevelopment Initiative
 
 
216th Street - On December 1, 2005, Acadia-P/A acquired a 65,000 square foot parking garage located at 10th Avenue and 216th Street in the Inwood section of Manhattan for $7 million. Acadia-P/A plans to redevelop the building into a 60,000 square foot office building and are finalizing a lease where it would relocate an agency of the City of New York, which is a current tenant at another of our Urban/Infill Redevelopment projects. Inclusive of acquisition costs, total costs for the project, which also includes a 100-space rooftop parking deck, are anticipated to be $25 million.
 
161st Street - On August 5, 2005, Acadia-P/A purchased 244-268 161st Street located in the Bronx for $49.3 million, inclusive of closing costs. In connection with the transaction, Acadia-P/A borrowed $12.1 million from Bank of America as bridge financing. The loan carries variable-rate interest at LIBOR plus 1.5% with monthly payments of interest only. The loan matures March 31, 2006. The ultimate redevelopment plan for the property, a 100% occupied, 10-story office building, is to reconfigure the property so that approximately 50% of the income from the building will eventually be derived from retail tenants.
 
4650 Broadway - On April 6, 2005, Acadia-P/A acquired 4650 Broadway located in the Washington Heights/Inwood section of Manhattan. The property, a 140,000 square foot building, which is currently occupied by the City of New York and a commercial parking garage, was acquired for a purchase price of $25 million. Acadia-P/A plans to redevelop the site to include retail, commercial and residential components totaling over 300,000 square feet. The retail and commercial (including office, ‘Community Use’ and parking) portion comprise approximately 50% of the project and the residential component comprises the other 50%. Redevelopment of the project is anticipated to commence during 2007 with completion expected 18 months thereafter. Expected costs to complete the retail and commercial component of the project are estimated at $40 million before any potential sale of the residential air rights. In lieu of directly developing the residential portion of the project, the rights to this component may be sold while retaining ownership of the other portions of the project.
 
Pelham Manor - On October 1, 2004, Acadia-P/A entered into a 95-year, inclusive of extension options, ground lease to redevelop a 16-acre site in Pelham Manor, Westchester County, New York. The property is in an upper middle-income, infill neighborhood located approximately 10 miles from Manhattan with over 400,000 people in a three-mile radius. The redevelopment contemplates the demolition of the existing industrial and warehouse buildings, and replacing them with a multi-anchor community retail center. Acadia-P/A anticipates the redevelopment to cost between $30 and $33 million, with construction anticipated to commence during 2007. In the interim, the property will continue to be operated as an industrial and warehouse facility. Prior to commencement of the redevelopment process, the warehouse rents collected are projected to equal the ground rent payment.
 
Fordham Road - On September 29, 2004,  Acadia-P/A purchased 400 East Fordham Road in the Bronx, NY. The property, a multi-level retail and commercial building, is located at the intersection of East Fordham Road and Webster Avenue, near Fordham University. Sears is the major tenant of the property, retailing on four levels. The redevelopment of the property is scheduled to commence in 2007 following the expiration of the Sears lease, which was originally signed in 1964. However, depending on current negotiations with both Sears and other potential anchors, the timeframe of the redevelopment may be accelerated. As part of the redevelopment, there is the potential for additional expansion of up to 85,000 square feet of space. The total cost of the redevelopment project, including the acquisition cost of $30 million, is estimated to be between $65 and $70 million, depending on the ultimate scope of the project. On February 25, 2005, Acadia-P/A acquired vacant land adjacent to the 400 East Fordham Road property for $867,000.
 
In addition to the above New York Urban/Infill projects, Fund II also acquired the following:
 
During July 2005, Fund II acquired for $1.0 million, a 50% equity interest from its partner in the RCP Venture in the entity which has a leasehold interest in a former Levitz Furniture store located in Rockville, Maryland.
 
During November 2005, Fund II acquired a ground lease interest in a 112,000 square foot building occupied by Neiman Marcus. The property is located at Oakbrook Center, a super-regional Class A mall located in the Chicago Metro area. The ground lease was acquired for $6.9 million, including closing and other acquisition costs.
 
8
 
 
Fund I
 
To date, Fund I has purchased a total of 35 assets totaling 2.7 million square feet. During January 2006, Fund I recapitalized the Brandywine Portfolio, representing two assets totaling approximately 1.0 million square feet, through a merger of interests with GDC as discussed further in “BUSINESS OBJECTIVES AND STRATEGIES” in this Item 1 of this Form 10-K. Following are the Fund I acquisitions:
 
2004 Acquisitions
 
On March 11, 2004, Fund I, in conjunction with our long-time investment partner, Hendon Properties (“Hendon”), purchased a $9.6 million first mortgage loan from New York Life Insurance Company for $5.5 million. The loan, which was secured by the Hitchcock Plaza in Aiken, South Carolina, was in default at acquisition. Fund I and Hendon acquired the loan with the intention of pursuing ownership of the property securing the debt. Fund I provided 90% of the equity capital and Hendon provided the remaining 10% of the equity capital used to acquire the loan. Hendon is entitled to receive profit participation in excess of its proportionate equity interest. Subsequent to the acquisition of the loan, Fund I and Hendon obtained fee title to this property and currently plan to redevelop and re-anchor the center. We provided $3.2 million of mortgage financing to the project in connection with the purchase of the first mortgage loan. The note matured March 9, 2006, and bore interest at 7% for the first year and 6% for the second year. In addition to this loan, we invested $0.9 million, primarily our pro-rata share of equity, as a partner in Fund I. In September 2004, Fund I and Hendon purchased the Pine Log Plaza for $1.5 million. The 35,000 square foot center is located in front of and adjacent to Hitchcock Plaza. Related to this transaction, we provided an additional $0.75 million mortgage loan to the project with a March 2006 maturity and interest at 7% for the first year and 6% for the second year.
 
During February 2006, Fund I finalized an agreement with Hendon whereby Fund I converted its common equity to a preferred equity position with a 15% preferred return. In connection with this agreement, Hendon assumed all operational, redevelopment and leasing responsibilities. Hendon also secured construction financing from which the first mortgage loans to us were repaid.
 
In May 2004, Fund I and an unaffiliated partner, each with a 50% interest, acquired a 35,000 square foot shopping center in Tarrytown, New York, for $5.3 million. Related to this acquisition, we loaned $2.0 million to Fund I which bears interest at the prime rate and matured May 2005. This loan has been converted to a demand note. The 35,000 square foot, Westchester, NY property (New York City MSA), was formerly anchored by a 25,000 square foot Grand Union supermarket. The redeveloped property includes a 15,000 square foot Walgreen’s drugstore with the balance of space leased to shop tenants.
 
In May 2004, Fund I acquired a 50% interest in the Haygood Shopping Center and the Sterling Heights Shopping Center for an aggregate investment of $3.2 million. These assets are part of the portfolio that we currently manage as a result of our January 2004 acquisition of certain management contracts from Klaff. The Haygood Shopping Center is a 165,000 square foot shopping center located in Virginia Beach, VA. It is currently 73% occupied and anchored by a Farmfresh supermarket and Eckerd Drug. The Sterling Heights Shopping Center, located in Sterling Heights, MI (suburb of Detroit), totals 141,000 square feet. The property is 55% occupied and is anchored by Burlington Coat Factory. Redevelopment activities include the complete renovation of the property and the re-leasing of the current vacancy to Rite-Aid.
 
2003 Acquisitions
 
Brandywine Portfolio - In January of 2003, Fund I acquired a major open-air retail complex located in Wilmington, Delaware. The approximately 1.0 million square foot value-based retail complex consists of the following two properties:
 
Market Square Shopping Center - A 103,000 square foot community shopping center (including a 15,000 square foot outparcel building) which is 100% leased and anchored by a T.J. Maxx and a Trader Joe’s gourmet food market.
 
Brandywine Town Center - A two phase open-air value retail center. The first phase (“Phase I”) is approximately 450,000 square feet and 100% occupied, with tenants including Lowe’s, Bed Bath & Beyond, Regal Cinema, Michaels, Petsmart, Old Navy, Annie Sez, Thomasville Furniture and Dick’s Sporting Goods. The second phase (“Phase II”) consists of approximately 420,000 square feet of existing space, of which Target occupies 138,000 square feet and Bombay occupies 9,000 square feet. The balance of Phase II is currently not occupied.
 
The initial investment for this portfolio was approximately $86.3 million, inclusive of closing and other related acquisition costs. Fund I will also pay additional amounts for the current vacant space in Phase II when and if it is leased and occupied (the “Earn-out”). To date, Fund I has incurred costs of $30.3 million for Earn-out space.
 
During January of 2006, Fund I recapitalized this investment as further discussed in “BUSINESS OBJECTIVES AND STRATEGIES” in this Item 1 of this Form 10-K.
 
9
 
 
Kroger/Safeway Portfolio – In January of 2003, Fund I formed a joint venture (the “Kroger/Safeway JV”) with an affiliate of real estate developer and investor AmCap Incorporated (“AmCap”) for the purpose of acquiring a portfolio of twenty-five supermarket leases for $48.9 million inclusive of the closing and other related acquisition costs. The portfolio, which aggregates approximately 1.0 million square feet, consists of 25 anchor-only leases with Kroger (12 leases) and Safeway supermarkets (13 leases). The majority of the properties are free-standing and all are triple-net leases. The Kroger/Safeway JV acquired the portfolio subject to long-term ground leases with terms, including renewal options, averaging in excess of 80 years, which are master leased to a non-affiliated entity. The rental options for the supermarket leases at the end of their primary lease term in approximately seven years (“Primary Term”) are at an average of $5.13 per square foot. Although there is no obligation for the Kroger/Safeway JV to pay ground rent during the Primary Term, to the extent it exercises an option to renew a ground lease for a property at the end of the Primary Term, it will be obligated to pay an average ground rent of $1.55 per square foot.
 
The following table sets forth more specific information with respect to the 25 supermarket leases:
 
Location
 
Tenant
 
Gross
leasable
area
(“GLA”)
 
Current rent
 
Rent upon
initial option
commencement
 
Lease expiration
year/ Last option
expiration year
 
 
 
 
 
 
 
   Great Bend, KS
 
Kroger Co. (1)
 
 
48,000
 
$
3.60
 
$
2.40
 
 
2009/2049
 
   Cincinnati, OH
 
Kroger Co.
 
 
32,200
 
 
8.09
 
 
5.36
 
 
2009/2049
 
   Conroe, TX
 
Kroger Co. (2)
 
 
75,000
 
 
6.95
 
 
4.60
 
 
2009/2049
 
   Harahan, LA
 
Kroger Co. (2)
 
 
60,000
 
 
6.93
 
 
4.61
 
 
2009/2049
 
   Indianapolis, IN
 
Kroger Co.
 
 
34,000
 
 
5.85
 
 
3.87
 
 
2009/2049
 
   Irving, TX
 
Kroger Co.
 
 
43,900
 
 
6.53
 
 
4.32
 
 
2009/2049
 
   Pratt, KS
 
Kroger Co. (1)
 
 
38,000
 
 
5.68
 
 
3.78
 
 
2009/2049
 
   Roanoke, VA
 
Kroger Co.
 
 
36,700
 
 
13.02
 
 
8.62
 
 
2009/2049
 
   Shreveport, LA
 
Kroger Co.
 
 
45,000
 
 
10.52
 
 
6.96
 
 
2009/2049
 
   Wichita, KS
 
Kroger Co. (1)
 
 
50,000
 
 
11.23
 
 
7.48
 
 
2009/2049
 
   Wichita, KS
 
Kroger Co. (1)
 
 
40,000
 
 
10.48
 
 
6.97
 
 
2009/2049
 
   Atlanta, TX
 
Safeway (3)
 
 
31,000
 
 
7.35
 
 
3.98
 
 
2009/2049
 
   Batesville, AR
 
Safeway (1)
 
 
29,000
 
 
10.55
 
 
5.72
 
 
2009/2049
 
   Benton, AR
 
Safeway (1)
 
 
33,500
 
 
8.68
 
 
4.71
 
 
2009/2049
 
   Carthage, TX
 
Safeway (1)
 
 
27,700
 
 
7.59
 
 
4.12
 
 
2009/2049
 
   Little Rock, AR
 
Safeway (1)
 
 
36,000
 
 
12.15
 
 
6.58
 
 
2009/2049
 
   Longview, WA
 
Safeway
 
 
48,700
 
 
8.27
 
 
4.48
 
 
2009/2049
 
   Mustang, OK
 
Safeway (1)
 
 
30,200
 
 
7.66
 
 
4.15
 
 
2009/2049
 
   Roswell, NM
 
Safeway (2)
 
 
36,300
 
 
10.96
 
 
5.94
 
 
2009/2049
 
   Ruidoso, NM
 
Safeway (1)
 
 
38,600
 
 
11.01
 
 
5.97
 
 
2009/2049
 
   San Ramon, CA
 
Safeway
 
 
54,000
 
 
9.16
 
 
4.96
 
 
2009/2049
 
   Springerville, AZ
 
Safeway
 
 
30,500
 
 
8.92
 
 
4.83
 
 
2009/2049
 
   Tucson, AZ
 
Safeway
 
 
41,800
 
 
8.64
 
 
4.68
 
 
2009/2049
 
   Tulsa, OK
 
Safeway (1)
 
 
30,000
 
 
9.14
 
 
4.96
 
 
2009/2049
 
   Cary, NC
 
Kroger Co. (3)
 
 
48,000
 
 
6.88
 
 
4.55
 
 
2009/2049
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
1,018,100
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes:
(1)
The tenant is obligated to pay rent pursuant to the lease and has sub-leased this location to a supermarket sub-tenant.
(2)
The tenant is obligated to pay rent pursuant to the lease and has sub-leased this location to a non-supermarket sub-tenant.
(3)
The tenant is currently not operating at this location although they continue to pay rent in accordance with the lease.
 
Ohio Portfolio – In September of 2002, Fund I acquired three supermarket-anchored shopping centers located in Cleveland and Columbus, Ohio for a total purchase price of $26.7 million. Additional information on these properties is included in Item 2 of this Form 10-K.
 
ASSET SALES AND CAPITAL/ASSET RECYCLING
 
We periodically identify certain properties for disposition and redeploy the capital to existing centers or acquisitions with greater potential for capital appreciation. During July 2005, we sold the Berlin Shopping Center for $4.0 million and in 2004, we disposed of the East End Centre, for $12.4 million.
 
During July 2005 we purchased 4343 Amboy Road (“Amboy Road”) located in Staten Island, New York for $16.6 million in cash and $0.2 million in Common OP Units. The property, a 60,000 square foot neighborhood shopping center, is anchored by a Waldbaum’s supermarket and a Duane Reade drug store, and is subject to a 23-year ground lease.
 
10
 
 
During January 2006, we closed on a 20,000 square foot retail building in the Lincoln Park district in Chicago (“Clark/Diversey”). The property was acquired from an affiliate of Klaff  for $9.8 million. Tenants include Starbucks, Nine West, Vitamin Shoppe, The Body Shop, Papyrus and Cold Stone Creamery. Along with its strong location, the property has significant long-term growth potential.
 
Also during January 2006, we acquired a 60% interest in the A&P Shopping Plaza located in Boonton (“Boonton”), New Jersey. The property, which is 100% occupied and located in northeastern New Jersey, is a 63,000 square foot shopping center anchored by a 49,000 square foot A&P Supermarket.  The remaining 40% interest is owned by a principal of P/A. The interest was acquired for $3.2 million.
 
PROPERTY REDEVELOPMENT AND EXPANSION
 
Our redevelopment program focuses on selecting well-located neighborhood and community shopping centers and creating significant value through re-tenanting and property redevelopment. During 2005, we did not undertake any significant redevelopment projects within our core portfolio.
 
During 2004, we completed the redevelopment of the New Loudon Center, located in Latham, New York. A new anchor, The Bon Ton Department Store, opened for business during the fourth quarter of 2003 as part of the redevelopment of this shopping center. Occupying 66,000 square feet formerly occupied by an Ames department store, Bon Ton is paying base rent at a 15% increase over that of Ames. During 2004, Marshall’s, an existing tenant at the center, expanded its current 26,000 square foot store to 37,000 square feet. We also installed a new 49,000 square foot Raymour and Flanigan Furniture store at this center during 2004. This community shopping center is now 100% occupied. Costs incurred for this project totaled $418,000.
 
We also completed the redevelopment and re-anchoring of the Town Line Plaza, located in Rocky Hill, Connecticut during 2004. The former building, occupied by GU Markets, was demolished and replaced with a 66,000 square foot Super Stop & Shop. The new supermarket anchor is paying gross rent at a 33% increase over that of the former tenant with no interruption in rent payments. Costs to date for this project totaled $1.7 million.
 
FINANCIAL INFORMATION ABOUT MARKET SEGMENTS
 
We have two reportable segments: retail properties and multi-family properties. The accounting policies of the segments are the same as those described in the notes to the consolidated financial statements appearing in Item 8 of this Annual Report on Form 10-K. We evaluate property performance primarily based on net operating income before depreciation, amortization and certain non-recurring items. The reportable segments are managed separately due to the differing nature of the leases and property operations associated with retail versus residential tenants. We do not have any foreign operations. See the consolidated financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-K for certain information on industry segments as required by Item 1.
 
CORPORATE HEADQUARTERS AND EMPLOYEES
 
Our executive offices are located at 1311 Mamaroneck Avenue, Suite 260, White Plains, New York 10605, and our telephone number is (914) 288-8100. We have 158 employees, of which 94 are located at our executive office, 7 at the Pennsylvania regional office and the remaining property management personnel are located on-site at our properties.
 
COMPANY WEBSITE
 
All of our filings with the Securities and Exchange Commission, including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge at our website at www.acadiarealty.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. These filings can also be accessed through the Securities and Exchange Commission’s website at www.sec.gov. Alternatively, we will provide paper copies of our filings free of charge upon request.
 
CODE OF ETHICS AND WHISTLEBLOWER POLICIES
 
During 2003, our Board of Trustees adopted a Code of Ethics for Senior Financial Officers that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller and Assistant Controllers. The Board also adopted a Code of Business Conduct and Ethics applicable to all employees, as well as a “Whistleblower Policy”. Copies of these documents are available in the Investor Information section of our website.
 
11
 
 
ITEM 1A. RISK FACTORS
 
If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer. This section includes or refers to certain forward-looking statements. Refer to the explanation of the qualifications and limitations on such forward-looking statements discussed elsewhere in this Form 10-K.
 
We rely on revenues derived from major tenants.
 
We derive significant revenues from certain anchor tenants that occupy space in more than one center. We could be adversely affected in the event of the bankruptcy or insolvency of, or a downturn in the business of, any of our major tenants, or in the event that any such tenant does not renew its leases as they expire or renews at lower rental rates. Vacated anchor space not only would reduce rental revenues if not re-tenanted at the same rental rates but also could adversely affect the entire shopping center because of the loss of the departed anchor tenant’s customer drawing power. Loss of customer drawing power also can occur through the exercise of the right that most anchors have to vacate and prevent re-tenanting by paying rent for the balance of the lease term, or the departure of an anchor tenant that owns its own property. In addition, in the event that certain major tenants cease to occupy a property, such an action may result in a significant number of other tenants having the right to terminate their leases, or pay a reduced rent based on a percentage of the tenant’s sales, at the affected property, which could adversely affect the future income from such property.
 
Tenants may seek the protection of the bankruptcy laws, which could result in the rejection and termination of their leases and thereby cause a reduction in the cash flow available for distribution by us. Such reduction could be material if a major tenant files bankruptcy. See the discussion of bankruptcy risks under Risk Factors.
 
Limited control over joint venture investments.
 
Our joint venture investments may involve risks not otherwise present for investments made solely by us, including the possibility that our joint venture partner might have different interests or goals than we do. Other risks of joint venture investments include impasse on decisions, such as a sale, because neither we nor a joint venture partner would have full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures.
 
Through our investments in joint ventures we have also invested in operating businesses that have operational risk in addition to the risks associated with real estate investments, including among other risks, human capital issues, adequate supply of product and material, and merchandising issues,
 
During 2005, our investment in joint ventures provided Promote income. There can be no assurance that the joint ventures will continue to operate profitably and thus provide additional Promote income in the future.
 
Under the terms of our Fund II joint venture, we are required to first offer to Fund II all of our opportunities to acquire retail shopping centers. Only if (i) our joint venture partner elects not to approve Fund II’s pursuit of an acquisition opportunity; (ii) the ownership of the acquisition opportunity by Fund II would create a material conflict of interest for us; (iii) we require the acquisition opportunity for a “like-kind” exchange; or (iv) the consideration payable for the acquisition opportunity is our Common Shares, OP Units or other securities, may we pursue the opportunity directly. As a result, we may not be able to make attractive acquisitions directly and may only receive a minority interest in such acquisitions through Fund II.
 
We operate through a partnership structure, which could have an adverse effect on our ability to manage our assets.
 
Our primary property-owning vehicle is the Operating Partnership, of which we are the general partner. Our acquisition of properties through the Operating Partnership in exchange for interests in the Operating Partnership may permit certain tax deferral advantages to limited partners who contribute properties to the Operating Partnership. Since properties contributed to the Operating Partnership may have unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause adverse tax consequences to the limited partners who contributed such properties. Although we, as the general partner of the Operating Partnership, generally have no obligation to consider the tax consequences of our actions to any limited partner, there can be no assurance that the Operating Partnership will not acquire properties in the future subject to material restrictions designed to minimize the adverse tax consequences to the limited partners who contribute such properties. Such restrictions could result in significantly reduced flexibility to manage our assets.
 
12
 
 
There are risks relating to investments in real estate.
 
Value of Real Estate is Dependent on Numerous Factors. Real property investments are subject to varying degrees of risk. Real estate values are affected by a number of factors, including: changes in the general economic climate, local conditions (such as an oversupply of space or a reduction in demand for real estate in an area), the quality and philosophy of management, competition from other available space, the ability of the owner to provide adequate maintenance and insurance and to control variable operating costs. Shopping centers, in particular, may be affected by changing perceptions of retailers or shoppers regarding the safety, convenience and attractiveness of the shopping center and by the overall climate for the retail industry generally. Real estate values are also affected by such factors as government regulations, interest rate levels, the availability of financing and potential liability under, and changes in, environmental, zoning, tax and other laws. As substantially all of our income is derived from rental income from real property, our income and cash flow would be adversely affected if a significant number of our tenants were unable to meet their obligations, or if we were unable to lease on economically favorable terms a significant amount of space in our properties. In the event of default by a tenant, we may experience delays in enforcing, and incur substantial costs to enforce, our rights as a landlord. In addition, certain significant expenditures associated with each equity investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when circumstances cause a reduction in income from the investment.
 
The bankruptcy of, or a downturn in the business of, any of our major tenants may adversely affect our cash flows and property values.
 
The bankruptcy of, or a downturn in the business of, any of our major tenants causing them to reject their leases, or not renew their leases as they expire, or renew at lower rental rates may adversely affect our cash flows and property values. Furthermore, the impact of vacated anchor space and the potential reduction in customer traffic may adversely impact the balance of tenants at the center.
 
Certain of our tenants have experienced financial difficulties and have filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code (“Chapter 11 Bankruptcy”). Pursuant to bankruptcy law, tenants have the right to reject their leases. In the event the tenant exercises this right, the landlord generally has the right to file a claim for lost rent equal to the greater of either one year’s rent (including tenant expense reimbursements) for remaining terms greater than one year, or 15% of the rent remaining under the balance of the lease term, but not to exceed three years rent. Actual amounts to be received in satisfaction of those claims will be subject to the tenant’s final plan of reorganization and the availability of funds to pay its creditors.
 
Since January 1, 2003, there have been two significant tenant bankruptcies within our portfolio:
 
On May 30, 2003, The Penn Traffic Company (“Penn Traffic”) filed for protection under Chapter 11 Bankruptcy. Penn Traffic operates in one location in our wholly-owned portfolio in 52,000 square feet. Rental revenues from this tenant at this location were $0.4 million for the year ended December 31, 2005 and $0.5 million for each of the years ended December 31, 2004 and 2003. Penn Traffic also operated in a location occupying 55,000 square feet at a property in which we, through Fund I, hold a 22% ownership interest. Our pro-rata share of rental revenues from the tenant at this location were $0, $22,000 and $147,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Penn Traffic continues to operate in our wholly-owned location and has assumed this lease. Penn Traffic rejected the lease at the joint venture location on February 20, 2004.
 
On January 14, 2004, KB Toys (“KB”) filed for protection under Chapter 11 Bankruptcy. KB operated in five locations in our wholly-owned portfolio totaling approximately 41,000 square feet. Rental revenues from KB at these locations aggregated $0.3 million, $ 0.8 million and $0.7 million for the years ended December 31, 2005, 2004 and 2003, respectively. KB also operated in a location occupying 20,000 square feet at a property in which we hold a 22% ownership interest through Fund I. Our pro-rata share of rental revenues from the tenant at this location were $0, $37,000 and $87,000 for the years ended December 31, 2005, 2004 and 2003, respectively. KB rejected the lease at two of the locations and continues to operate in three of our wholly-owned locations but has neither assumed nor rejected these three leases. The tenant has rejected the lease at the Fund I property.
 
We could be adversely affected by poor market conditions where properties are geographically concentrated.
 
Our performance depends on the economic conditions in markets in which our properties are concentrated. We have significant exposure to the New York region, from which we derive 32% of the annual base rents within our wholly-owned portfolio. Our operating results could be adversely affected if market conditions, such as an oversupply of space or a reduction in demand for real estate, in this area becomes more competitive relative to other geographic areas.
 
Our ability to change our portfolio is limited because real estate investments are illiquid.
 
Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions will be limited. Our board of trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. We could change our investment, disposition and financing policies without a vote of our shareholders.
 
13
 
 
Market interest rates could have an adverse effect on our share price.
 
One of the factors that may influence the trading price of our Common Shares is the annual dividend rate on our Common Shares as a percentage of its market price. An increase in market interest rates may lead purchasers of our Common Shares to seek a higher annual dividend rate, which could adversely affect the market price of our Common Shares and our ability to raise additional equity in the public markets.
 
We could become highly leveraged, resulting in increased risk of default on our obligations and in an increase in debt service requirements which could adversely affect our financial condition and results of operations and our ability to pay distributions.
 
We have incurred, and expect to continue to incur, indebtedness in furtherance of our activities. Neither our Declaration of Trust nor any policy statement formally adopted by our board of trustees limits either the total amount of indebtedness or the specified percentage of indebtedness that we may incur. Accordingly, we could become more highly leveraged, resulting in increased risk of default on our obligations and in an increase in debt service requirements which could adversely affect our financial condition and results of operations and our ability to make distributions.
 
Our loan agreements contain customary representations, covenants and events of default. Certain loan agreements require us to comply with certain affirmative and negative covenants, including the maintenance of certain debt service coverage and leverage ratios. In addition, as of December 31, 2005, loans secured by five of our properties, totaling $44.5 million, are subject to cross-collateralization and cross-default provisions and two loans, aggregating $29.1 million, are also subject to cross-collateralization and cross-default provisions.
 
Interest expense on our variable debt as of December 31, 2005 would increase by $0.2 million annually for a 100 basis point increase in interest rates. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means.
 
We enter into interest-rate hedging transactions, including interest rate swaps and cap agreements, with counterparties. There can be no guarantee that the financial condition of these counterparties will enable them to fulfill their obligations under these agreements.
 
We may not be able to renew current leases and the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms.
 
Upon the expiration of current leases for space located in our properties, we may not be able to re-let all or a portion of that space, or the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms. If we are unable to re-let promptly all or a substantial portion of the space located in our properties or if the rental rates we receive upon re-letting are significantly lower than current rates, our net income and ability to make expected distributions to our shareholders will be adversely affected due to the resulting reduction in rent receipts. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases. See Item 2 – Properties – Lease Expirations in this Annual Report on Form 10-K for additional information as to the scheduled lease expirations in our portfolio.
 
Possible liability relating to environmental matters.
 
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to make distributions.
 
A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although our tenants are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of our tenants to satisfy any obligations with respect to the property leased to that tenant, we may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease.
 
14
 
 
From time to time, in connection with the conduct of our business, and prior to the acquisition of any property from a third party or as required by our financing sources, we authorize the preparation of Phase I environmental reports and, when necessary, Phase II environmental reports, with respect to our properties. Based upon these environmental reports and our ongoing review of our properties, as of the date of this prospectus supplement, we are not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that the environmental reports will reveal all environmental conditions at our properties or that the following will not expose us to material liability in the future:
 
–
The discovery of previously unknown environmental conditions
–
Changes in law
–
Activities of tenants
–
Activities relating to properties in the vicinity of our properties
 
Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition or results of operations.
 
Competition may adversely affect our ability to purchase properties and to attract and retain tenants.
 
There are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial resources than we have that compete with us in seeking properties for acquisition and tenants who will lease space in our properties. Our competitors include other REIT’s, financial institutions, insurance companies, pension funds, private companies and individuals. This competition may result in a higher cost for properties that we wish to purchase.
 
In addition, retailers at our properties face increasing competition from outlet malls, discount shopping clubs, internet commerce, direct mail and telemarketing, which could (i) reduce rents payable to us; (ii) reduce our ability to attract and retain tenants at our properties; and (iii) lead to increased vacancy rates at our properties.
 
We have pursued, and may in the future continue to pursue extensive growth opportunities which may result in significant demands on our operational, administrative and financial resources.
 
We have pursued extensive growth opportunities. This expansion has placed significant demands on our operational, administrative and financial resources. The continued growth of our real estate portfolio can be expected to continue to place a significant strain on its resources. Our future performance will depend in part on our ability to successfully attract and retain qualified management personnel to manage the growth and operations of our business and to finance such acquisitions. In addition, acquired properties may fail to operate at expected levels due to the numerous factors which may affect the value of real estate. There can be no assurance that we will have sufficient resources to identify and manage acquired properties or otherwise be able to maintain our historic rate of growth.
 
Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.
 
Our growth strategy is based on the acquisition and development of additional properties, including acquisitions through co-investment programs such as joint ventures. In the context of our business plan, “development” generally means an expansion or renovation of an existing property. The consummation of any future acquisitions will be subject to satisfactory completion of our extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. We cannot be sure that we will be able to implement our strategy because we may have difficulty finding new properties, negotiating with new or existing tenants or securing acceptable financing.
 
Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations. Redevelopment is subject to numerous risks, including risks of construction delays, cost overruns or force majeure that may increase project costs, new project commencement risks such as the receipt of zoning, occupancy and other required governmental approvals and permits, and the incurrence of development costs in connection with projects that are not pursued to completion.
 
Our board of trustees may change our investment policy without shareholder approval.
 
Our board of trustees will determine our investment and financing policies, our growth strategy and our debt, capitalization, distribution, acquisition, disposition and operating policies. Our board of trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. Although our board of trustees has no present intention to revise or amend our strategies and policies, it may do so at any time without a vote by our shareholders. Accordingly, our shareholders’ control over changes in our strategies and policies is limited to the election of trustees, and changes made by our board of trustees may not serve the interests of all of our shareholders and could adversely affect our financial condition or results of operations, including our ability to distribute cash to shareholders or qualify as a REIT.
 
15
 
 
There can be no assurance we have qualified or will remain qualified as a REIT for federal income tax purposes.
 
We believe that we have met the requirements for qualification as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 1993, and we intend to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code, for which there are only limited judicial or administrative interpretations. No assurance can be given that we have qualified or will remain qualified as a REIT. The Internal Revenue Code provisions and income tax regulations applicable to REIT’s are more complex than those applicable to corporations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to continue to qualify as a REIT. In addition, no assurance can be given that legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or the federal income tax consequences of such qualification. If we do not qualify as a REIT, we would not be allowed a deduction for distributions to shareholders in computing our net taxable income. In addition, our income would be subject to tax at the regular corporate rates. We also could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash available for distribution to our shareholders would be significantly reduced for each year in which we do not qualify as a REIT. In that event, we would not be required to continue to make distributions. Although we currently intend to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause us, without the consent of the shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.
 
Distribution requirements imposed by law limit our operating flexibility.
 
To maintain our status as a REIT for federal income tax purposes, we are generally required to distribute to our shareholders at least 90% of our taxable income for that calendar year. Our taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of (i) 85% of our ordinary income for that year; (ii) 95% of our capital gain net income for that year and; (iii) 100% of our undistributed taxable income from prior years. We intend to continue to make distributions to our shareholders to comply with the distribution requirements of the Internal Revenue Code and to reduce exposure to federal income and nondeductible excise taxes. Differences in timing between the receipt of income and the payment of expenses in determining our income and the effect of required debt amortization payments could require us to borrow funds on a short-term basis in order to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.
 
Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.
 
We carry comprehensive liability, fire, extended coverage and rent loss insurance on most of our properties, with policy specifications and insured limits customarily carried for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain rent loss insurance. In addition, there are certain types of losses, such as losses resulting from wars, terrorism or acts of God that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types would adversely affect our financial condition.
 
Limits on ownership of our capital shares.
 
For the Company to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of each taxable year after 1993, and such capital shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year). Our Declaration of Trust includes certain restrictions regarding transfers of our capital shares and ownership limits that are intended to assist us in satisfying these limitations. These restrictions and limits may not be adequate in all cases, however, to prevent the transfer of our capital shares in violation of the ownership limitations. The ownership limit discussed above may have the effect of delaying, deferring or preventing someone from taking control of us.
 
Actual or constructive ownership of our capital shares in excess of the share ownership limits contained in our Declaration of Trust would cause the violative transfer or ownership to be null and void from the beginning and subject to purchase by us at a price equal to the lesser of (i) the price stipulated in the challenged transaction; and (ii) the fair market value of such shares (determined in accordance with the rules set forth in our declaration of trust). As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares. Additionally, the constructive ownership rules for these limits are complex and groups of related individuals or entities may be deemed a single owner and consequently in violation of the share ownership limits.
 
16
 
 
Adverse legislative or regulatory tax changes could have an adverse effect on us.
 
There are a number of issues associated with an investment in a REIT that are related to the federal income tax laws, including, but not limited to, the consequences of failing to continue to qualify as a REIT. At any time, the federal income tax laws governing REIT’s or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or our shareholders. Recently enacted legislation reduces tax rates applicable to certain corporate dividends paid to most domestic noncorporate shareholders. REIT dividends generally would not be eligible for reduced rates because a REIT’s income generally is not subject to corporate level tax. As a result, investment in non-REIT corporations may be viewed as relatively more attractive than investment in REIT’s by domestic noncorporate investors. This could adversely affect the market price of the Company’s shares.
 
Concentration of ownership by certain investors.
 
Six shareholders own more than 5% individually, and 45.7% in the aggregate, of our Common Shares.  A significant concentration of ownership may allow an investor to exert a greater influence over our management and affairs and may have the effect of delaying, deferring or preventing a change in control of us.
 
Restrictions on a potential change of control.
 
Our Board of Trustees is authorized by our Declaration of Trust to establish and issue one or more series of preferred shares without shareholder approval. We have not established any series of preferred shares, however, the establishment and issuance of a series of preferred shares could make more difficult a change of control of us that could be in the best interest of the shareholders.
 
In addition, we have entered into an employment agreement with our Chief Executive Officer and severance agreements are in place with our senior vice presidents which provide that, upon the occurrence of a change in control of us, those executive officers would be entitled to certain termination or severance payments made by us (which may include a lump sum payment equal to defined percentages of annual salary and prior years’ average bonuses, paid in accordance with the terms and conditions of the respective agreement), which could deter a change of control of us that could be in our best interest.
 
The loss of a key executive officer could have an adverse effect on us.
 
Our success depends on the contribution of key management members. The loss of the services of Kenneth F. Bernstein, President and Chief Executive Officer, or other key executive-level employees could have a material adverse effect on our results of operations. Although we have entered into an employment agreement with our President, Kenneth F. Bernstein, the loss of his services could have an adverse effect on our operations.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2.    PROPERTIES
 
SHOPPING CENTER PROPERTIES
 
The discussion and tables in Item 2 include properties held through joint ventures in which we own a partial interest (“Joint Venture Portfolio”). Except where noted, it does not include our partial interest in 25 anchor-only leases with Kroger and Safeway supermarkets as previously discussed in  “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K , as the majority of these properties are free-standing and all are triple-net leases.
 
As of December 31, 2005, we owned and operated 46 shopping centers as part of our wholly-owned portfolio and the Joint Venture Portfolio, which included a mixed-use property (retail and residential), ten properties under redevelopment and one property under development. Our shopping centers, which total approximately 7.7 million square feet of gross leaseable area (“GLA”), are located in 15 states and are generally well-established, anchored community and neighborhood shopping centers. The operating properties are diverse in size, ranging from approximately 17,000 to 775,000 square feet with an average size of 199,000 square feet. As of December 31, 2005, our wholly-owned portfolio and the Joint Venture Portfolio (excluding properties under redevelopment) were 94.3% and 96.8% occupied, respectively. Our shopping centers are typically anchored by supermarkets or value-oriented retail.
 
We had approximately 671 leases as of December 31, 2005. Greater than 50% of our rental revenues were from national tenants. A majority of the income from the properties consists of rent received under long-term leases. Most of these leases provide for the payment of fixed minimum rent monthly in advance and for the payment by tenants of a pro-rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping centers. Minimum rents and expense reimbursements accounted for approximately 80% of our total revenues for the year ended December 31, 2005.
 
As of December 31, 2005, approximately 45% of our existing leases also provided for the payment of percentage rents either in addition to, or in place of, minimum rents. These arrangements generally provide for payment to us of a certain percentage of a tenant’s gross sales in excess of a stipulated annual amount. Percentage rents accounted for approximately 1% of the total 2005 revenues of the Company.
 
17
 
 
Five of our shopping center properties are subject to long-term ground leases in which a third party owns and has leased the underlying land to us. We pay rent for the use of the land at four locations and are responsible for all costs and expenses associated with the building and improvements at all five locations.
 
No individual property contributed in excess of 10% of our total revenues for the years ended December 31, 2005, 2004 and 2003.
 
Reference is made to our consolidated financial statements in Item 8 of this Annual Report on form 10-K for information on the mortgage debt pertaining to our properties.
 
The following sets forth more specific information with respect to each of our shopping centers at December 31, 2005:
 
Shopping Center
Location
Year
Constructed (C)
Acquired(A)
Ownership
Interest
GLA
Occupancy (1)
%
12/31/05
Anchor Tenants
Current Lease Expiration/
Lease Option Expiration
 
 
 
 
 
 
NEW YORK REGION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New York
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Soundview Marketplace
 
Port Washington
 
 
1998 (A
)
 
LI/Fee (5)
 
 
183,675
 
 
94%
 
King Kullen 2007/2022
Clearview Cinema 2010/2030
Village Commons Shopping Center
 
Smithtown
 
 
1998 (A
)
 
Fee
 
 
87,306
 
 
100%
 
Daffy’s 2008/2028
Walgreens 2021/none
Branch Shopping Plaza
 
Smithtown
 
 
1998 (A
)
 
LI (5)
 
 
125,724
 
 
99%
 
Waldbaum’s 2013/2028
CVS 2010/--
New Loudon Center
 
Latham
 
 
1982 (A
)
 
Fee
 
 
255,826
 
 
100%
 
Price Chopper 2015/2035
Marshall’s 2014/2029
Bon Ton 2014/2034
Raymore & Flanigan 2019/2034
AC Moore 2009/2014
Pacesetter Park Shopping Center
 
Pomona
 
 
1999 (A
)
 
Fee
 
 
96,698
 
 
96%
 
Stop & Shop 2020/2040
Amboy Road
 
Staten Island
 
 
2005 (A
)
 
LI (5)
 
 
59,979
 
 
100%
 
Waldbaum’s 2028/--
Duane Reade 2008/2018
Bartow Avenue
 
Bronx
 
 
2005 (C
)
 
Fee
 
 
14,694
 
 
51%
 
 
 
New Jersey
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Elmwood Park Shopping Center
 
Elmwood Park
 
 
1998 (A
)
 
Fee
 
 
149,085
 
 
98%
 
Pathmark 2017/2052
Walgreen’s 2022/2062
Marketplace of Absecon
 
Absecon
 
 
1998 (A
)
 
Fee
 
 
105,097
 
 
97%
 
Acme 2015/2055
Eckerd Drug 2020/2040
Ledgewood Mall
 
Ledgewood
 
 
1983 (A
)
 
Fee
 
 
517,077
 
 
95%
 
Wal-Mart 2019/2049
Macy’s 2010/2025
The Sports’ Authority 2007/2037
Circuit City 2020/2040
Marshall’s 2014/2034
Barnes & Noble 2010/2035
Ashley Furniture 2010/2030
NEW ENGLAND REGION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Connecticut
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Town Line Plaza
 
Rocky Hill
 
 
1998 (A
)
 
Fee
 
 
206,178
(2)
 
96%
 
Stop & Shop 2023/2063
Wal-Mart(2)
239 Greenwich Avenue
 
Greenwich
 
 
1998 (A
)
 
Fee
 
 
16,834
(3)(4)
 
100%
 
Restoration Hardware 2015/2025
Coach 2016/2021
Massachusetts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Methuen Shopping Center
 
Methuen
 
 
1998 (A
)
 
LI/Fee (5)
 
 
130,238
 
 
92%
 
DeMoulas Market 2015/2020
Wal-Mart 2011/2051
Crescent Plaza
 
Brockton
 
 
1984 (A
)
 
Fee
 
 
218,141
 
 
99%
 
Shaw’s 2012/2042
Home Depot 2021/2056
Rhode Island
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Walnut Hill Plaza
 
Woonsocket
 
 
1998 (A
)
 
Fee
 
 
283,235
 
 
99%
 
Shaw’s 2013/2043
Sears 2008/2033
CVS 2009/2014
Vermont
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Gateway Shopping Center
 
South Burlington
 
 
1999 (A
)
 
Fee
 
 
101,792
 
 
99%
 
Shaw’s 2024/2054
 
18
 
 
Shopping Center
 
Location
 
Year
Constructed (C)
Acquired(A)
 
Ownership
Interest
 
GLA
 
Occupancy (1)
%
12/31/05
 
Anchor Tenants
Current Lease Expiration/
Lease Option Expiration
 
 
 
 
 
 
 
 
MIDWEST REGION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Illinois
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hobson West Plaza
 
Naperville
 
 
1998 (A
)
 
Fee
 
 
99,044
 
 
99%
 
Bobak’s Market & Restaurant 2007/2032
 
Indiana
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Merrillville Plaza
 
Merrillville
 
 
1998 (A
)
 
Fee
 
 
235,605
 
 
94%
 
TJ Maxx 2009/2014
JC Penney 2008/2018
Office Max 2008/2028
Pier I 2009/--
David’s Bridal 2010/2020
Toys R Us 2014/2039
 
Michigan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bloomfield Town Square
 
Bloomfield Hills
 
 
1998 (A
)
 
Fee
 
 
214,866
 
 
97%
 
TJ Maxx 2009/--
Marshalls 2011/2026
Home Goods 2010/2025
 
Ohio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mad River Station
 
Dayton
 
 
1999 (A
)
 
Fee
 
 
155,739
(7)
 
82%
 
Babies ‘R’ Us 2010/2020
Office Depot 2010/--
Pier I 2010/--
 
MID-ATLANTIC REGION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pennsylvania
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Abington Towne Center
 
Abington
 
 
1998 (A
)
 
Fee
 
 
216,355
(6)
 
99%
 
TJ Maxx 2010/2020
Target (6)
 
Blackman Plaza
 
Wilkes-Barre
 
 
1968 (C
)
 
Fee
 
 
121,341
 
 
92%
 
Kmart 2009/2049
Eckerd Drug 2006/--
 
Bradford Towne Centre
 
Towanda
 
 
1993 (C
)
 
Fee
 
 
256,939
 
 
91%
 
P&C Foods 2014/2024
Kmart 2019/2069
 
Greenridge Plaza
 
Scranton
 
 
1986 (C
)
 
Fee
 
 
191,755
 
 
79%
 
Giant Food 2021/2051
 
Luzerne Street Shopping Center
 
Scranton
 
 
1983 (A
)
 
Fee
 
 
58,228
 
 
87%
 
Eckerd Drug 2009/2019
Price Rite/Wakefern 2015/2035
 
Mark Plaza
 
Edwardsville
 
 
1968 (C
)
 
LI/Fee (5)
 
 
216,047
 
 
97%
 
Redner’s Markets 2018/2028
Kmart 2009/2049
 
Pittston Plaza
 
Pittston
 
 
1994 (C
)
 
Fee
 
 
79,494
 
 
96%
 
Redner’s Markets 2018/2028
Eckerd Drug 2006/2016
 
Plaza 422
 
Lebanon
 
 
1972 (C
)
 
Fee
 
 
155,026
 
 
69%
 
Home Depot 2028/2058
 
Route 6 Mall
 
Honesdale
 
 
1994 (C
)
 
Fee
 
 
175,507
 
 
99%
 
Weis Markets (not owned)
Kmart 2020/2070
Eckerd Drug 2011/2026
Fashion Bug 2006/--
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wholly-owned portfolio
 
 
4,727,525
 
 
94%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PROPERTIES HELD IN JOINT VENTURES
 
NEW YORK REGION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New York
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crossroads Shopping Center
 
White Plains
 
 
1998(A
)
 
JV (8)
 
 
310,644
 
 
100%
 
Waldbaum’s 2007/2032
Kmart 2012/2022
B. Dalton 2012/2017
Modell’s 2009/2019
Pier I 2007/2017
Pay Half 2018/--
 
 
19
 
 
Shopping Center
 
Location
 
Year
Constructed (C)
Acquired(A)
 
Ownership
Interest
 
GLA
 
Occupancy (1)
%
12/31/05
 
Anchor Tenants
Current Lease Expiration/
Lease Option Expiration
 
 
 
 
 
 
 
 
MID-ATLANTIC REGION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Delaware
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brandywine Town Center
 
Wilmington
 
 
2003(A
)
 
JV (10)
 
 
775,932
 
 
100%
 
Annie Sez (Big M) 2007/2022
Michaels 2011/2026
Old Navy (The Gap) 2011/2016
Petsmart 2017/2042
Thomasville Furniture 2011/2021
World Market 2015/--
Access Group 2015/2025
Bed, Bath & Beyond 2014/2029
Dick’s Sporting Goods 2013/2028
Lowe’s Home Centers 2018/2048
Regal Cinemas 2017/2037
Target 2018/2068
Kincaid Furniture 2010/--
Transunion Settlement 2013/2018
The Bombay Company 2015/2025
Lane Home Furnishings 2015/--
Tutor Time 2010/2025
Moe’s 2015/--
MJM Designer 2015/--
New Balance
Market Square Shopping Center
 
Wilmington
 
 
2003(A
)
 
JV (10)
 
 
102,762
 
 
100%
 
Trader Joe’s 2013/2028
TJ Maxx 2006/2016
 
MIDWEST REGION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ohio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amherst Marketplace
 
Cleveland
 
 
2002(A
)
 
JV (10)
 
 
79,937
 
 
100%
 
Giant Eagle 2021/2041
Riser Foods Company/Pharmacy 2012/2027
 
Granville Centre
 
Columbus
 
 
2002(A
)
 
JV (10)
 
 
134,999
 
 
44%
 
California Fitness 2017/2027
 
Sheffield Crossing
 
Cleveland
 
 
2002(A
)
 
JV (10)
 
 
112,534
 
 
94%
 
Giant Eagle 2022/2042 Revco Drug 2012/2027
 
VARIOUS REGIONS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kroger/Safeway Portfolio
 
Various
 
 
2003 (A
)
 
JV (10)
 
 
1,018,100
 
 
100%
 
25 Kroger/Safeway Supermarkets 2009/2049
 
JV REDEVELOPMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Michigan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sterling Heights Shopping Center
 
Detroit
 
 
2004(A
)
 
JV (10)
 
 
154,838
 
 
55%
 
Burlington Coat Factory 2024/--
 
New York
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tarrytown Shopping Center
 
Westchester
 
 
2004(A
)
 
JV (10)
 
 
38,930
 
 
63%
 
Walgreen’s 2080/--
 
400 E. Fordham Road
 
Bronx
 
 
2004(A
)
 
JV (11)
 
 
117,355
 
 
100%
 
Sears 2007/--
 
Pelham Manor Shopping Plaza
 
Westchester/Bronx
 
 
2004(A
)
 
JV (5)(11)
 
 
398,775
 
 
51%
 
 
 
 
161st Street
 
Bronx
 
 
2005(A
)
 
JV (11)
 
 
223,611
 
 
100%
 
City of New York 2006/--
 
Sherman Avenue
 
New York
 
 
2005(A
)
 
JV (11)
 
 
134,773
 
 
100%
 
Pilot Garage 2007/--
 
South Carolina
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hitchcock Plaza
 
Aiken
 
 
2004(A
)
 
JV (10)
 
 
233,886
 
 
27%
 
 
 
 
Pine Log Plaza
 
Aiken
 
 
2004(A
)
 
JV (10)
 
 
35,064
 
 
91%
 
Farmer’s Furniture 2009/2014
 
Virginia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Haygood Shopping Center
 
Virginia Beach
 
 
2004(A
)
 
JV (10)
 
 
153,999
 
 
73%
 
Eckerd Drug 2009/--
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Joint Venture Portfolio
 
4,026,139
 
 
86%
 
 
 
 
 
 
 
 
 
 
 
 
 
20
 
 
Notes:
(1)
Does not include space leased for which rent has not yet commenced.
(2)
Includes a 92,500 square foot Wal-Mart which is not owned us.
(3)
In addition to the 16,834 square feet of retail GLA, this property also has 21 apartments comprising 14,434 square feet.
(4)
Coach is a new tenant and executed an eleven year lease with one five-year option.
(5)
We are a ground lessee under a long-term ground lease.
(6)
Includes a 157,616 square foot Target Store that is not owned by the Company.
(7)
The GLA for this property includes 28,205 square feet of office space.
(8)
We have a 49% investment in this property.
(9)
Does not include 80,000 square feet of new space in Phase II of the Brandywine Town Center, which will be paid for by Fund I on an Earn-out basis only if, and when, it is leased.
(10)
We have invested in this asset through Fund I.
(11)
We have invested in this asset through Fund II.
 
MAJOR TENANTS
 
No individual retail tenant accounted for more than 5.5% of minimum rents for the year ended December 31, 2005 or 10.0% of total leased GLA as of December 31, 2005. The following table sets forth certain information for the 20 largest retail tenants based upon minimum rents in place as of December 31, 2005. The table includes leases related to our partial interest in 25 anchor-only leases with Kroger and Safeway supermarkets. The below amounts include our pro-rata share of GLA and annualized base rent for our partial ownership interest in properties (GLA and rent in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of Total
Represented by Retail Tenant
 
Retail Tenant
 
Number of
Stores in
Portfolio
 
Total
GLA
 
Annualized Base
Rent (1)
 
 
 
 
 
 
Total
Portfolio GLA (2)
 
Annualized Base
Rent (2)
 
 
 
 
 
 
 
Albertson’s (Shaw’s, Acme)
 
 
4
 
 
221
 
$
3,013
 
 
4.0
%
 
5.5
%
Sears (Sears, Kmart)
 
 
7
 
 
553
 
 
2,156
 
 
10.0
%
 
4.0
%
T.J. Maxx (T.J. Maxx, Marshalls, A.J. Wrights)
 
 
10
 
 
296
 
 
2,132
 
 
5.4
%
 
3.9
%
A&P (Waldbaum’s)
 
 
2
 
 
119
 
 
1,913
 
 
2.2
%
 
3.5
%
Ahold (Giant, Stop & Shop)
 
 
3
 
 
179
 
 
1,569
 
 
3.2
%
 
2.9
%
Wal-Mart
 
 
2
 
 
210
 
 
1,515
 
 
3.8
%
 
2.8
%
Brook’s Drug
 
 
7
 
 
81
 
 
1,070
 
 
1.5
%
 
2.0
%
Home Depot
 
 
2
 
 
211
 
 
1,010
 
 
3.8
%
 
1.9
%
Pathmark
 
 
1
 
 
48
 
 
955
 
 
0.9
%
 
1.8
%
Redner’s Supermarket
 
 
2
 
 
112
 
 
876
 
 
2.0
%
 
1.6
%
Restoration Hardware
 
 
1
 
 
9
 
 
697
 
 
0.2
%
 
1.3
%
Kroger (3)
 
 
12
 
 
132
 
 
722
 
 
2.4
%
 
1.3
%
Safeway (4)
 
 
13
 
 
104
 
 
722
 
 
1.9
%
 
1.3
%
Price Chopper
 
 
2
 
 
77
 
 
804
 
 
1.4
%
 
1.5
%
Clearview Cinema (5)
 
 
1
 
 
25
 
 
686
 
 
0.5
%
 
1.3
%
Federated (Macy’s)
 
 
1
 
 
73
 
 
651
 
 
1.3
%
 
1.2
%
JC Penney
 
 
2
 
 
73
 
 
592
 
 
1.3
%
 
1.1
%
Walgreen’s
 
 
2
 
 
24
 
 
589
 
 
0.4
%
 
1.1
%
King Kullen
 
 
1
 
 
48
 
 
563
 
 
0.9
%
 
1.0
%
Payless Shoes
 
 
10
 
 
38
 
 
601
 
 
0.7
%
 
1.1
%
 
 
 
 
 
 
 
Total
 
 
85
 
 
2,633
 
$
22,836
 
 
47.8
%
 
42.1
%
 
 
 
 
 
 
 
 
21
 
 
Notes:
(1)
Base rents do not include percentage rents (except where noted), additional rents for property expense reimbursements, and contractual rent escalations due after December 31, 2005.
(2)
Represents total GLA and annualized base rent for our retail properties including its pro-rata share of Joint Venture Properties.
(3)
Kroger has sub-leased four of these locations to supermarket tenants, two locations to a non-supermarket tenant and ceased operations at one other location. Kroger is obligated to pay rent through the full term of these leases which expire in 2009.
(4)
Safeway has sub-leased seven of these locations to supermarket tenants, one location to a non-supermarket tenant and ceased operations at one other location. Safeway is obligated to pay rent through the full term of all these leases which expire in 2009.
(5)
Subsidiary of Cablevision.
 
LEASE EXPIRATIONS
 
The following table shows scheduled lease expirations for retail tenants in place as of December 31, 2005, assuming that none of the tenants exercise renewal options.  Leases related to our joint venture properties are shown separately below before our pro-rata share of annual base rent and GLA (GLA and rent in thousands):
 
Wholly-Owned
Portfolio:
 
 
 
 
 
 
Annualized Base Rent (1)
 
GLA
 
 
 
 
 
 
 
 
Leases maturing in
 
Number of
Leases
 
Current Annual
Rent
 
Percentage of
Total
 
Square
Feet
 
Percentage
of Total
 
 
 
 
 
 
 
2006
 
 
86
 
$
3,476
 
 
8
%
 
288
 
 
7
%
2007
 
 
66
 
 
4,386
 
 
10
%
 
390
 
 
9
%
2008
 
 
58
 
 
4,676
 
 
10
%
 
338
 
 
8
%
2009
 
 
66
 
 
4,716
 
 
10
%
 
547
 
 
13
%
2010
 
 
54
 
 
5,591
 
 
12
%
 
509
 
 
12
%
2011
 
 
23
 
 
2,340
 
 
5
%
 
213
 
 
5
%
2012
 
 
8
 
 
885
 
 
2
%
 
66
 
 
2
%
2013
 
 
15
 
 
2,295
 
 
5
%
 
157
 
 
4
%
2014
 
 
23
 
 
2,408
 
 
5
%
 
307
 
 
7
%
2015
 
 
19
 
 
3,678
 
 
8
%
 
242
 
 
6
%
Thereafter
 
 
33
 
 
11,071
 
 
25
%
 
1,146
 
 
27
%
 
 
 
 
 
 
 
Total
 
 
451
 
$
45,522
 
 
100
%
 
4,203
 
 
100
%
 
 
 
 
 
 
 
 
Joint Venture
Portfolio:
 
 
 
 
 
 
Annualized Base Rent (1)
 
GLA
 
 
 
 
 
 
 
 
Leases maturing in
 
Number of
Leases
 
Current Annual
Rent
 
Percentage of
Total
 
Square
Feet
 
Percentage
of Total
 
 
 
 
 
 
 
2006
 
 
51
 
$
6,497
 
 
16
%
 
491
 
 
14
%
2007
 
 
31
 
 
4,451
 
 
11
%
 
476
 
 
14
%
2008
 
 
23
 
 
1,565
 
 
4
%
 
67
 
 
2
%
2009
 
 
44
 
 
10,012
 
 
24
%
 
1,132
 
 
33
%
2010
 
 
11
 
 
705
 
 
2
%
 
43
 
 
1
%
2011
 
 
7
 
 
1,773
 
 
4
%
 
76
 
 
2
%
2012
 
 
6
 
 
1,377
 
 
3
%
 
139
 
 
4
%
2013
 
 
8
 
 
2,083
 
 
5
%
 
119
 
 
3
%
2014
 
 
13
 
 
2,172
 
 
5
%
 
119
 
 
3
%
Thereafter
 
 
26
 
 
10,621
 
 
26
%
 
819
 
 
24
%
 
 
 
 
 
 
 
Total
 
 
220
 
$
41,256
 
 
100
%
 
3,481
 
 
100
%
 
 
 
 
 
 
 
 
Notes:
(1)
Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 2005.
 
22
 
 
GEOGRAPHIC CONCENTRATIONS
 
The following table summarizes our retail properties by region as of December 31, 2005. (GLA and rent in thousands):
 
 
 
 
 
 
 
 
 
 
 
Percentage of Total
Represented by Region
 
 
 
 
 
 
 
 
 
Annualized Base
Rent per Leased
Square Foot
 
 
Region
 
GLA (1)
 
Occupied % (2)
 
Annualized
Base
Rent (2)
 
 
GLA
 
Annualized Base
Rent
 
 
 
 
 
 
 
 
Wholly-Owned Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New York Region
 
 
734
 
 
97
%
$
14,735
 
$
20.79
 
 
16
%
 
32
%
New England
 
 
1,195
 
 
98
%
 
9,847
 
 
9.19
 
 
25
%
 
22
%
Midwest
 
 
705
 
 
93
%
 
7,597
 
 
11.58
 
 
15
%
 
17
%
Mid-Atlantic
 
 
839
 
 
96
%
 
7,023
 
 
10.79
 
 
18
%
 
15
%
Northeastern Pennsylvania
 
 
1,254
 
 
89
%
 
6,320
 
 
5.67
 
 
26
%
 
14
%
 
 
 
 
 
 
 
 
Total Wholly-Owned Portfolio
 
 
4,727
 
 
94
%
$
45,522
 
$
10.83
 
 
100
%
 
100
%
 
 
 
 
 
 
 
 
Joint Venture Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest (3)
 
 
327
 
 
75
%
$
2,619
 
$
10.67
 
 
22
%
 
12
%
Mid-Atlantic (3,4)
 
 
879
 
 
100
%
 
13,961
 
 
15.89
 
 
58
%
 
62
%
New York Region (5)
 
 
311
 
 
100
%
 
6,054
 
 
19.49
 
 
20
%
 
26
%
 
 
 
 
 
 
 
 
Total Operating Properties
 
 
1,517
 
 
94
%
 
22,634
 
 
15.77
 
 
100
%
 
100
%
 
 
 
 
 
 
 
 
Redevelopment Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest (6)
 
 
155
 
 
55
%
 
427
 
 
5.02
 
 
11
%
 
4
%
Mid-Atlantic (6)
 
 
423
 
 
49
%
 
1,524
 
 
7.36
 
 
28
%
 
16
%
New York Region (7)
 
 
913
 
 
77
%
 
8,007
 
 
11.36
 
 
61
%
 
80
%
 
 
 
 
 
 
 
 
Total Redevelopment Properties
 
 
1,491
 
 
67
%
 
9,958
 
 
9.99
 
 
100
%
 
100
%
 
 
 
 
 
 
 
 
Total Joint Venture Portfolio
 
 
3,008
 
 
81
%
$
32,592
 
$
13.40
 
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
Notes:
(1)
Property GLA includes a total of 255 square feet which is not owned us. This square footage has been excluded for calculating annualized base rent per square foot.
(2)
The above occupancy and rent amounts do not include space which is currently leased, but for which rent payment has not yet commenced.
(3)
We have a 22% interest in Fund I which owns these properties.
(4)
Does not include 80,000 square feet of new space in Phase II of the Brandywine Town Center, which will be paid for by us on an “earn-out basis” only if, and when it is leased. Subsequent to December 31, 2005, the Brandywine portfolio was recapitalized through the conversion of the 77.8% interest previously held by institutional investors in Fund I to GDC Properties. We have retained our existing 22.2% interest.
(5)
We have a 49% interest in two partnerships which, together, own the Crossroads Shopping Center.
(6)
We have a 22% interest in Fund I which has interests ranging from 50% to 90% of these properties.
(7)
We have a 22% interest in Fund I which owns 50% of the Tarrytown Shopping Center and a 20% interest in Fund II which owns 97% of 400 East Fordham Road and Pelham Manor Shopping Plaza Sherman Avenue and 161st Street.
 
23
 
 
MULTI-FAMILY PROPERTIES
 
We own two multi-family properties located in the Mid-Atlantic and Midwest regions. The properties average 737 units and as of December 31, 2005, had an average occupancy rate of 98%. The following sets forth more specific information with respect to each of our multi-family properties at December 31, 2005:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multi-Family Property
 
Location
 
Year Acquired
 
Ownership
Interest
 
Units
 
% Occupied
 
 
 
 
 
 
 
Missouri (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gate House, Holiday House, Tiger Village and Colony Apartments
 
Columbia
 
 
1998
 
 
Fee
 
 
874
 
 
99
%
North Carolina
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Village Apartments
 
Winston Salem
 
 
1998
 
 
Fee
 
 
600
 
 
96
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Totals
 
 
 
 
 
1,474
 
 
98
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes:
(1)
We own four contiguous residential complexes in Columbia, Missouri which, although owned in two separate entities, are managed as a single property and therefore reflected as such.
 
ITEM 3.   LEGAL PROCEEDINGS
 
We are involved in other various matters of litigation arising in the normal course of business. While we are unable to predict with certainty the amounts involved, management is of the opinion that, when such litigation is resolved, our resulting liability, if any, will not have a significant effect on our consolidated financial position or results of operations.
 
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 2005.
 
PART II
 
ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
(a)   Market Information
 
The following table shows, for the period indicated, the high and low sales price for the Common Shares as reported on the New York Stock Exchange, and cash dividends paid during the two years ended December 31, 2005 and 2004:
 
Quarter Ended
 
High
 
Low
 
Dividend
Per Share
 
 
 
 
 
2005
 
 
 
 
 
 
 
 
 
 
March 31, 2005
 
$
16.60
 
$
15.60
 
$
0.1725
 
June 30, 2005
 
 
18.65
 
 
15.53
 
 
0.1725
 
September 30, 2005
 
 
19.89
 
 
17.45
 
 
0.1725
 
December 31, 2005
 
 
20.76
 
 
16.66
 
 
0.1850
 
2004
 
 
 
 
 
 
 
 
 
 
March 31, 2004
 
$
15.00
 
$
12.36
 
$
0.1600
 
June 30, 2004
 
 
14.30
 
 
11.38
 
 
0.1600
 
September 30, 2004
 
 
15.11
 
 
13.03
 
 
0.1600
 
December 31, 2004
 
 
16.49
 
 
14.70
 
 
0.1725
 
 
At March 15, 2006, there were 349 holders of record of the Company’s Common Shares.
 
(b)   Dividends
 
We have determined that for 2005, 95% of the total dividends distributed to shareholders represented ordinary income, 3% represented unrecaptured section 1250 gain and 2% represented nontaxable return of capital. Our cash flow is affected by a number of factors, including the revenues received from rental properties, our operating expenses, the interest expense on its borrowings, the ability of lessees to meet their obligations to us and unanticipated capital expenditures. Future dividends paid by us will be at the discretion of the Trustees and will depend on our actual cash flows, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Trustees deem relevant.
 
24
 
 
(c)    Issuer purchases of equity securities
 
We have an existing share repurchase program that authorizes management, at its discretion, to repurchase up to $20.0 million of our  outstanding Common Shares. Through March 15, 2006, we had repurchased 2.1 million Common Shares at a total cost of $11.7 million of which 2.0 million of these Common Shares have been subsequently reissued.  The program may be discontinued or extended at any time and there is no assurance that we will purchase the full amount authorized. There were no Common Shares repurchased by us during the fiscal year ended December 31, 2005.
 
(d)   Securities authorized for issuance under equity compensation plans
 
The following table provides information related to our 1999 Share Incentive Plan (the “1999 Plan”) and 2003 Share Incentive Plan (the “2003 Plan”) as of December 31, 2005:
 
 
 
Equity Compensation Plan Information
 
 
 
 
 
 
 
 
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights)
 
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
 
(c)
Number of securities
remaining available
for future issuance under
equity compensation plans
(excluding securities
reflected in column a)
 
 
 
 
Equity compensation plans approved by security holders
 
 
477,242
 
$
8.03
 
 
3,021,053
(1
)
Equity compensation plans not approved by security holders
 
 
—
 
 
—
 
 
—
 
 
Total
 
 
477,242
 
$
8.03
 
 
3,021,053
(1
)
 
Notes:
(1)
The 1999 and 2003 Plans authorize the issuance of options equal to up to a total of 12% of the total Common Shares outstanding from time to time on a fully diluted basis. However, not more than 4,000,000 of the Common Shares in the aggregate may be issued pursuant to the exercise of options and no participant may receive more than 5,000,000 Common Shares during the term of the 1999 and 2003 Plans. Remaining available is based on 31,542,942 outstanding Common Shares and 653,360 OP Units as of December 31, 2005, less the issuance of a total of 365,261 restricted shares granted through the same date.
 
25
 
 
ITEM 6.   SELECTED FINANCIAL DATA
 
The following table sets forth, on a historical basis, our selected financial data. This information should be read in conjunction with our audited consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Form 10-K.
 
 
 
Years ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
2002
 
2001
 
 
 
 
 
 
 
 
OPERATING DATA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
83,318
 
$
71,657
 
$
66,646
 
$
65,916
 
$
57,327
 
Operating expenses
 
 
38,958
 
 
33,774
 
 
33,361
 
 
29,737
 
 
27,959
 
Interest expense
 
 
11,423
 
 
10,436
 
 
9,896
 
 
9,545
 
 
10,800
 
Depreciation and amortization
 
 
16,763
 
 
15,470
 
 
17,195
 
 
14,040
 
 
12,983
 
Abandoned project costs
 
 
—
 
 
—
 
 
—
 
 
274
 
 
—
 
Gain in sale of land
 
 
—
 
 
932
 
 
1,187
 
 
1,530
 
 
—
 
Equity in earnings of unconsolidated partnerships
 
 
8,228
 
 
1,797
 
 
2,411
 
 
628
 
 
504
 
Minority interest
 
 
(695
)
 
(1,190
)
 
(1,399
)
 
(2,994
)
 
(1,372
)
Income taxes
 
 
(2,140
)
 
—
 
 
—
 
 
—
 
 
—
 
 
 
 
 
 
 
 
Income from continuing operations
 
 
21,567
 
 
13,516
 
 
8,393
 
 
11,484
 
 
4,717
 
(Loss) income from discontinued operations
 
 
(941
)
 
6,069
 
 
(540
)
 
7,915
 
 
5,234
 
 
 
 
 
 
 
 
Income before cumulative effect of a change in accounting principle
 
 
20,626
 
 
19,585
 
 
7,853
 
 
19,399
 
 
9,951
 
Cumulative effect of a change in accounting principle
 
 
—
 
 
—
 
 
—
 
 
—
 
 
(149
)
 
 
 
 
 
 
 
Net income
 
$
20,626
 
$
19,585
 
$
7,853
 
$
19,399
 
$
9,802
 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.68
 
$
0.46
 
$
0.32
 
$
0.45
 
$
0.16
 
(Loss) income from discontinued operations
 
 
(0.03
)
 
0.21
 
 
(0.02
)
 
0.32
 
 
0.20
 
Cumulative effect of a change in accounting principle
 
 
—
 
 
—
 
 
—
 
 
—
 
 
(0.01
)
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.65
 
$
0.67
 
$
0.30
 
$
0.77
 
$
0.35
 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.67
 
$
0.45
 
$
0.31
 
$
0.45
 
$
0.16
 
(Loss) income from discontinued operations
 
 
(0.03
)
 
0.20
 
 
(0.02
)
 
0.31
 
 
0.20
 
Cumulative effect of a change in accounting principle
 
 
—
 
 
—
 
 
—
 
 
—
 
 
(0.01
)
 
 
 
 
 
 
 
Diluted earnings per share
 
$
0.64
 
$
0.65
 
$
0.29
 
$
0.76
 
$
0.35
 
 
 
 
 
 
 
 
Weighted average number of Common Shares outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- basic
 
 
31,949
 
 
29,341
 
 
26,640
 
 
25,321
 
 
28,313
 
- diluted (1)
 
 
32,214
 
 
29,912
 
 
27,232
 
 
25,806
 
 
—
 
Cash dividends declared per Common Share
 
$
0.7025
 
$
0.6525
 
$
0.61
 
$
0.52
 
$
0.48
 
BALANCE SHEET DATA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate before accumulated depreciation
 
$
435,751
 
$
414,974
 
$
407,220
 
$
393,652
 
$
378,216
 
Total assets
 
 
499,058
 
 
405,647
 
 
388,184
 
 
410,935
 
 
493,939
 
Total mortgage indebtedness
 
 
238,448
 
 
153,361
 
 
173,070
 
 
181,690
 
 
190,462
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minority interest – Operating Partnership
 
 
9,204
 
 
5,743
 
 
7,875
 
 
22,745
 
 
37,387
 
Total equity
 
 
220,576
 
 
216,924
 
 
169,734
 
 
161,323
 
 
179,098
 
OTHER:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds from Operations (2)
 
$
35,842
 
$
30,004
 
$
27,664
 
$
30,162
 
$
13,487
 
Cash flows provided by (used in):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating activities
 
 
23,959
 
 
25,468
 
 
20,118
 
 
30,008
 
 
21,039
 
Investing activities
 
 
(59,478
)
 
(16,371
)
 
(20,940
)
 
47,553
 
 
(11,717
)
Financing activities
 
 
61,632
 
 
(9,757
)
 
(30,187
)
 
(66,531
)
 
(7,047
)
 
26
 
 
Notes:
(1)
For 2001, the weighted average number of shares outstanding on a diluted basis is not presented as the inclusion of additional shares was anti-dilutive.
(2)
The Company considers funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing the performance of the Company. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property and depreciation and amortization. However, the Company’s method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REIT’s. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating the Company’s performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, the Company defines FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Funds from Operations for the reconciliation of net income to FFO.
 
ITEM 7.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with our consolidated financial statements (including the related notes thereto) appearing elsewhere in this Form 10-K. Certain statements contained in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative thereof or other variations thereon or comparable terminology. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to those set forth under the heading “Risk Factors” in this Annual Report on Form 10-K. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein.
 
OVERVIEW
 
We currently operate 71 properties, which we own or have an ownership interest in, consisting of 69 neighborhood and community shopping centers and two multi-family properties, which are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States. We receive income primarily from the rental revenue from our properties, including recoveries from tenants, offset by operating and overhead expenses.
 
We focus on three primary areas in executing our business plan as follows:
 
–   Focus on maximizing the return on our existing portfolio through leasing and property redevelopment activities. Our redevelopment program is a significant and ongoing component of managing our existing portfolio and focuses on selecting well-located neighborhood and community shopping centers and creating significant value through re-tenanting and property redevelopment.
–   Pursue above-average returns through a disciplined and opportunistic acquisition program. The primary conduits for our acquisition program are through our existing acquisition joint venture, Acadia Strategic Opportunity Fund II, LLC (“Fund II”), as well as the Retailer Controlled Property Venture (“RCP Venture”) established to invest in surplus or underutilized properties owned or controlled by retailers and the New York Urban Infill Redevelopment initiative which focuses on investing in redevelopment projects in urban, dense areas where retail tenant demand has effectively surpassed the supply of available sites.
–   Maintain a strong balance sheet, which provides us with the financial flexibility to fund both property redevelopment and acquisition opportunities.
 
RESULTS OF OPERATIONS
 
Comparison of the year ended December 31, 2005 (“2005”) to the year ended December 31, 2004 (“2004”)
 
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
 
 
Revenues:
 
2005
 
2004
 
$
 
%
 
 
 
 
 
 
Minimum rents
 
$
52.7
 
$
50.7
 
$
2.0
 
 
4
%
Percentage rents
 
 
0.7
 
 
0.9
 
 
(0.2
)
 
(22
)%
Expense reimbursements
 
 
14.0
 
 
13.0
 
 
1.0
 
 
8
%
Other property income
 
 
0.8
 
 
0.6
 
 
0.2
 
 
33
%
Management fee income
 
 
11.5
 
 
4.8
 
 
6.7
 
 
140
%
Interest income
 
 
3.6
 
 
1.5
 
 
2.1
 
 
140
%
Other
 
 
—
 
 
0.2
 
 
(0.2
)
 
(100
)%
 
 
 
 
 
 
Total revenues
 
$
83.3
 
$
71.7
 
$
11.6
 
 
16
%
 
 
 
 
 
 
 
27
 
 
The increase in minimum rents was attributable to additional rents following the purchase of Amboy Road shopping center in July 2005, re-tenanting activities as well as increased occupancy across the portfolio.
 
Real estate tax reimbursements increased $0.5 million primarily as a result of general increases in real estate taxes as well as re-tenanting activities throughout the portfolio.  CAM expense reimbursements increased $0.5 million as a result of increased tenant reimbursements of higher snow removal costs in 2005.
 
Management fee income increased as a result of additional leasing fees from Fund I of $0.9 million, increased asset management fees of $2.2 million from Fund II (which was formed in June 2004), a $2.6 million increase in management fees related to the acquisition of certain management contract rights in January 2004 and February 2005  and promote income on the Mervyns investment in 2005 of $1.0 million.
 
The increase in interest income was a combination of additional interest income on our advances and notes receivable originated in 2004 and 2005 and additional interest income earned following our preferred equity investment in Levitz in 2005.
 
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
2005
 
2004
 
$
 
%
 
 
 
 
 
 
Property operating
 
$
14.3
 
$
14.5
 
$
(0.2
)
 
(1
)%
Real estate taxes
 
 
9.2
 
 
8.8
 
 
0.4
 
 
5
%
General and administrative
 
 
15.4
 
 
10.4
 
 
5.0
 
 
48
%
Depreciation and amortization
 
 
16.8
 
 
15.5
 
 
1.3
 
 
8
%
 
 
 
 
 
 
Total operating expenses
 
$
55.7
 
$
49.2
 
$
6.5
 
 
13
%
 
 
 
 
 
 
 
The decrease in property operating expenses was primarily a result of the recovery of $0.5 million in 2005 related to the settlement of our insurance claim in connection with the flood damage incurred at Mark Plaza.  A non-recurring charge of approximately $0.7 million related to this flood damage was recorded in 2004.  This decrease was partially offset by higher snow removal costs in 2005.
 
Real estate taxes increased as a result of general increases in real estate taxes experienced across the portfolio.
 
The increase in general and administrative expense was attributable to increased compensation expense and other overhead expenses following the expansion of our infrastructure related to increased investment activity in fund assets and asset management services.
 
Depreciation expense increased $0.3 million in 2005 which was primarily attributable to increased depreciation expense related to capitalized tenant installation costs in 2004 and 2005.  Amortization expense increased $1.0 million primarily as a result of the write-off of certain Klaff management contracts following the disposition of these assets.
 
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
 
 
Other:
 
 
2005
 
 
2004
 
 
$
 
 
%
 
 
 
 
 
 
Equity in earnings of unconsolidated partnerships
 
$
8.2
 
$
1.8
 
$
6.4
 
 
356
%
Interest Expense
 
 
(11.4
)
 
(10.4
)
 
(1.0
)
 
(10
)%
Gain on Sale
 
 
—
 
 
0.9
 
 
(0.9
)
 
(100
)%
Minority Interest
 
 
(0.7
)
 
(1.2
)
 
0.5
 
 
42
%
Income Taxes
 
 
(2.1
)
 
—
 
 
(2.1
)
 
(100
)%
(Loss) income from discontinued operations
 
 
(0.9
)
 
6.1
 
 
(7.0
)
 
(115
)%
 
Equity in earnings of unconsolidated partnerships increased primarily as a result of our $5.0 million share of gain, through our investment funds, from the sale of certain Mervyn’s locations and our share of bankruptcy proceeds from Penn Traffic through Fund I of $0.2 million.
 
The increase in interest expense was attributable to higher average outstanding balances in 2005 of $0.8 million and higher average interest rates on the portfolio mortgage debt in 2005.
 
The gain on sale of land in 2004 was related to a prior year sale of a contract to purchase land to the Target Corporation.  We received additional sales proceeds of $0.9 million which were being held in escrow pending the completion of certain site work by the buyer.  Of these proceeds, $0.5 million were distributed to our joint venture partner in the sale and are a component of minority interest in the accompanying financial statements.
 
Income taxes in 2005 relate to our share of the income taxes on gain, through our investment funds, from the sale of certain Mervyn’s locations during the third and fourth quarters of 2005.
 
Income (loss) from discontinued operations represents activity related to properties sold during 2004 and 2005.
 
28
 
 
Comparison of the year ended December 31, 2004 (“2004”) to the year ended December 31, 2003 (“2003”)
 
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
 
 
Revenues:
 
2004
 
2003
 
$
 
%
 
 
 
 
 
 
Minimum rents
 
$
50.7
 
$
48.1
 
$
2.6
 
 
5
%
Percentage rents
 
 
0.9
 
 
1.0
 
 
(0.1
)
 
(10
)%
Expense reimbursements
 
 
13.0
 
 
12.8
 
 
0.2
 
 
2
%
Other property income
 
 
0.6
 
 
0.7
 
 
(0.1
)
 
(14
)%
Management fee Income
 
 
4.8
 
 
2.0
 
 
2.8
 
 
140
%
Interest income
 
 
1.5
 
 
0.8
 
 
0.7
 
 
88
%
Other
 
 
0.2
 
 
1.2
 
 
(1.0
)
 
(83
)%
 
 
 
 
 
 
Total revenues
 
$
71.7
 
$
66.6
 
$
5.1
 
 
7.7
%
 
 
 
 
 
 
 
The increase in minimum rents was attributable to an increase in rents following the redevelopment of the Gateway shopping center in 2003 and an increase in rents from re-tenanting activities as well as increased occupancy across the portfolio.
 
Real estate tax reimbursements increased $0.5 million primarily as a result of general increases in real estate taxes as well as re-tenanting activities throughout the portfolio.  CAM expense reimbursements decreased $0.3 million primarily from tenant reimbursements of lower snow removal costs in 2004 offset by increased tenant reimbursements following re-tenanting activities across the portfolio.
 
Management fee income increased as a result of asset management fees from Fund II of $1.7 million and an increase in management fees $0.9 million related to the acquisition of certain management contract rights in 2004.
 
Other income decreased primarily due to a lump sum additional rent payment of $1.2 million received from a former tenant during 2003 in connection with the re-anchoring of the Branch Plaza.
 
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
2004
 
2003
 
$
 
%
 
 
 
 
 
 
Property operating
 
$
14.5
 
$
14.4
 
$
0.1
 
 
1
%
Real estate taxes
 
 
8.8
 
 
8.2
 
 
0.6
 
 
7
%
General and administrative
 
 
10.4
 
 
10.7
 
 
(0.3
)
 
(3
)%
Depreciation and amortization
 
 
15.5
 
 
17.2
 
 
(1.7
)
 
(10
)%
 
 
 
 
 
 
Total operating expenses
 
$
49.2
 
$
50.5
 
$
(1.3
)
 
(3
)%
 
 
 
 
 
 
 
Property operating expenses increased primarily due to the result of a non-recurring charge of approximately $0.7 million related to flood damage at the Mark Plaza in 2004 offset by higher snow removal costs during 2003.
 
Real estate taxes increased primarily due to a real estate tax refund received in 2003 related to the appeal of taxes paid in prior years at the Greenridge Plaza and higher real estate taxes throughout the portfolio in 2004.
 
General and administrative expense decreased primarily as the result of certain employee termination costs in 2003 and our capitalization of certain internal leasing costs in 2004 offset by additional professional fees related to Sarbanes-Oxley compliance in 2004.
 
Depreciation expense decreased $2.5 million.  This was a result of the write-off of $2.7 million of unamortized tenant improvement costs related to the buyout and termination of the former anchor at the Town Line Plaza redevelopment project in 2003.  This decrease was offset by increased depreciation expense in 2004 following the Gateway redevelopment project being placed in service during the second quarter of 2003.  Amortization expense increased $0.8 million primarily as a result of the amortization of investment in management contracts in 2004.
 
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
 
 
Other
 
2004
 
2003
 
$
 
%
 
 
 
 
 
 
Equity in earnings of unconsolidated partnerships
 
$
1.8
 
$
2.4
 
$
(0.6
)
 
(25
)%
Interest expense
 
 
(10.4
)
 
(9.9
)
 
(0.5
)
 
5
%
Gain on sale
 
 
0.9
 
 
1.2
 
 
(0.3
)
 
(25
)%
Minority interest
 
 
(1.2
)
 
(1.4
)
 
0.2
 
 
(14
)%
Operating loss from discontinued operations
 
 
(0.6
)
 
(0.6
)
 
0.0
 
 
—
 
Discontinued operations - gain on sale of  properties
 
 
6.7
 
 
0.0
 
 
6.7
 
 
100
%
 
Interest expense increase was primarily attributable to an increase of $0.4 million as a result of higher average interest rates on the portfolio debt for 2004 and a decrease of $0.1 million in capitalized interest in 2004.
 
Income from discontinued operations increased $6.7 million due to a property sale in 2004.
 
29
 
 
Funds from Operations
 
We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property and depreciation and amortization. However, our method of calculating FFO may be different from methods used by other REIT’s and, accordingly, may not be comparable to such other REIT’s. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity.
 
Consistent with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The reconciliations of net income to FFO for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 are as follows:
 
Reconciliation of Net Income to Funds from Operations
 
 
 
For the Years Ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
2002
 
2001
 
 
 
 
 
 
 
 
Net income
 
$
20,626
 
$
19,585
 
$
7,853
 
$
19,399
 
$
9,802
 
Depreciation of real estate and amortization of leasing costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wholly owned and consolidated partnerships
 
 
14,092
 
 
14,411
 
 
16,957
 
 
15,305
 
 
18,422
 
Unconsolidated partnerships
 
 
3,330
 
 
2,329
 
 
2,107
 
 
662
 
 
627
 
Income attributable to minority interest in operating partnership (1)
 
 
416
 
 
375
 
 
747
 
 
2,928
 
 
2,221
 
(Gain) loss on sale of properties
 
 
(2,622
)
 
(6,696
)
 
—
 
 
(8,132
)
 
(17,734
)
Cumulative effect of change in accounting principle
 
 
—
 
 
—
 
 
—
 
 
—
 
 
149
 
 
 
 
 
 
 
 
Funds from operations
 
$
35,842
 
$
30,004
 
$
27,664
 
$
30,162
 
$
13,487
 
 
 
 
 
 
 
 
 
Notes:
(1)
Represents income attributable to Common Operating Partnership Units and does not include distributions paid to Series A and B Preferred OP Unitholders.
 
LIQUIDITY AND CAPITAL RESOURCES
 
USES OF LIQUIDITY
 
Our principal uses of liquidity are expected to be for distributions to our shareholders and OP unit holders, debt service and loan repayments, and property investment which include the funding of our joint venture commitments, acquisition, redevelopment, expansion and re-tenanting activities.
 
Distributions
 
In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. For the first three quarters during 2005, we paid a quarterly dividend of $0.1725 per Common Share and Common OP Unit. In November of 2005, our Board of Trustees approved and declared a 7.2% increase in our quarterly dividend to $0.1850 per Common Share and Common OP Unit for the fourth quarter of 2005 which was paid January 13, 2006.
 
Acadia Strategic Opportunity Fund, LP (“Fund I”)
 
In September 2001, we committed $20.0 million to a newly formed joint venture with four of our institutional shareholders, who committed $70.0 million, for the purpose of acquiring a total of approximately $300.0 million of community and neighborhood shopping centers on a leveraged basis. As of December 31, 2005, we have contributed $19.2 million to Fund I.
 
We are the manager and general partner of Fund I with a 22% interest. In addition to a pro-rata return on our invested equity, we are entitled to a profit participation based upon certain investment return thresholds. Cash flow is to be distributed pro-rata to the partners (including us) until they have received a 9% cumulative return on, and a return of all capital contributions. Thereafter, remaining cash flow is to be distributed 80% to the partners (including us) and 20% to us. We also earn a fee for asset management services equal to 1.5% of the allocated equity in the remaining Fund I assets, as well as market-rate fees for property management, leasing and construction services.
 
30
 
 
As of December 31, 2005, Fund I has purchased a total of 35 properties totaling 2.8 million square feet as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K.
 
Acadia Strategic Opportunity Fund II, LLC (“Fund II”)
 
On June 15, 2004, we closed our second acquisition fund, Fund II, which includes all of the investors from Fund I as well as two additional institutional investors. With $300 million of committed discretionary capital, Fund II expects to be able to acquire up to $900 million of real estate assets on a leveraged basis. We are the managing member with a 20% interest in the joint venture. The terms and structure of Fund II are substantially the same as Fund I with the exceptions that the preferred return is 8% and the asset management fee is calculated on committed equity of $250 million through June 15, 2005 and then on the total committed equity of $300 million thereafter. As of December 31, 2005, we have contributed $67.0 million to Fund II.
 
Fund II has invested in the RCP Venture and the New York Urban/Infill Redevelopment initiatives and other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K .
 
Other Investments
 
During 2004 and 2005, we made the following other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K:
 
 
i)  $20.0 million in Levitz SL,
 
ii) $16.8 million in Amboy Road,
 
iii) $8.0 million for Klaff’s management rights,
 
iv) $3.2 million for Boonton and
 
v)  $9.8 million for Clark/Diversey.
 
Property Development, Redevelopment and Expansion
 
During 2005, we completed the development of the Bartow Avenue Center, located in Bronx, New York. A new anchor, Sleepy’s, opened for business during the second quarter.  This store occupies 6,430 square feet of formerly vacant space.  Costs incurred to date for this project totaled $7.5 million.
 
Our redevelopment program focuses on selecting well-located neighborhood and community shopping centers and creating significant value through re-tenanting and property redevelopment. During 2005, we did not undertake any significant redevelopment projects within our core portfolio.
 
Additionally, for the year ending December 31, 2006, we currently estimate that capital outlays of approximately $5.0 million to $7.0 million will be required for tenant improvements, related renovations and other property improvements.
 
Share Repurchase
 
Repurchases of our Common Shares is an additional use of liquidity as discussed in Item 5 of this Form 10-K.
 
SOURCES OF LIQUIDITY
 
We intend on using Fund II as the primary vehicle for our future acquisitions, including investments in the RCP Venture and New York Urban/Infill Redevelopment initiative. Sources of capital for funding our joint venture commitments, other property acquisitions, redevelopment, expansion and re-tenanting, as well as future repurchases of Common Shares are expected to be obtained primarily from issuance of public equity or debt instruments, cash on hand, additional debt financings and future sales of existing properties. As of December 31, 2005, we had a total of approximately $48.4 million of additional capacity under existing debt facilities, cash and cash equivalents on hand of $39.6 million, and 9 properties that are unencumbered and available as potential collateral for future borrowings. We anticipate that cash flow from operating activities will continue to provide adequate capital for all of our debt service payments, recurring capital expenditures and REIT distribution requirements.
 
Issuance of Equity
 
During November 2004, we issued 1,890,000 Common Shares (the “Offering”). The Offering was made under shelf registration statements filed under the Securities Act of 1933, as amended, and previously declared effective by the Securities and Exchange Commission. The $28.3 million in proceeds from the Offering, net of related costs, were used to retire above-market, fixed-rate indebtedness as well as to invest in real estate assets. Following this transaction, we have $46.7 million of remaining capacity to issue equity under our primary shelf registration statement.
 
31
 
 
Financing and Debt
 
At December 31, 2005, mortgage notes payable aggregated $238.4 million and were collateralized by 20 properties and related tenant leases. Interest rates on our outstanding mortgage indebtedness ranged from 5.0% to 7.6% with maturities that ranged from July 2007 to November 2015. Taking into consideration $92.4 million of notional principal under variable to fixed-rate swap agreements currently in effect, $216.8 million of the portfolio, or 91%, was fixed at a 5.8% weighted average interest rate and $21.6 million, or 9% was floating at a 5.8% weighted average interest rate. There is no debt maturing in 2005 and 2006. In 2007, $17.5 million is scheduled to mature at a weighted average interest rate of 5.9%. As we do not anticipate having sufficient cash on hand to repay such indebtedness, we will need to refinance this indebtedness or select other alternatives based on market conditions at that time.
 
The following summarizes the financing and refinancing transactions since December 31, 2004:
 
On February 25, 2005, we drew down $20.0 million under an existing revolving facility, which bears interest at LIBOR plus 150 basis points.  The proceeds from this drawdown were utilized for the Preferred Equity investment with Levitz SL, LLC.
 
During April 2005, we borrowed $7.4 million under an existing secured revolving facility which was repaid in May 2005.
 
On May 26, 2005, we closed on a $65.0 million cross-collateralized revolving facility which is collateralized by five of our properties.  The facility bears interest at LIBOR plus 130 basis points and matures June 1, 2010.  At closing, the lender advanced $12.0 million, of which $7.4 million was used to refinance an existing facility with the same lender.  On June 27, 2005, an additional $20.0 million was drawn on this line.  On October 21, 2005, $10.0 million was repaid on this line resulting in $22.0 million outstanding under this facility as of December 31, 2005.
 
On August 31, 2005, we closed on a $17.6 million loan, which bears interest at a fixed rate of 4.98%.   This loan, which matures September 2015, requires the payment of interest only until October 2010, and thereafter interest and principal based on 30 year amortization.  The proceeds from this loan were in part used to pay down $15.0 million on an existing line.
 
On October 17, 2005, we closed on a $12.5 million loan, which bears interest at a fixed rate of 5.12%.  This loan, which matures November 2015, requires the payment of interest only until November 2008, and thereafter interest and principal until maturity.  The proceeds from this loan were in part used to pay down $10.0 million on the aforementioned $65.0 million revolving facility.
 
On December 9, 2005, we closed on a $34.6 million loan, which bears interest at a fixed rate of 5.53%. This loan, which matures January 2016, requires the payment of interest only until January 2010, and thereafter interest and principal until maturity.
 
Asset Sales
 
Asset sales are an additional source of liquidity for us. During 2005 and 2004, we sold the Berlin Shopping Center and East End Centre as discussed in “ASSET SALES AND CAPITAL/ASSET RECYCLING” in Item 1 of this Form 10-K.
 
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
 
At December 31, 2005, maturities on our mortgage notes ranged from July 2007 to January 2016. In addition, we have non-cancelable ground leases at four of our shopping centers. We also lease space for our White Plains corporate office for a term expiring in 2010. The following table summarizes our debt maturities and obligations under non-cancelable operating leases of December 31, 2005:
 
 
 
 
(amounts in millions) 
 
Payments due by period
 
 
 
Contractual obligation
 
Total
 
Less than
1 year
 
1 to 3
years
 
3 to 5
years
 
More than
5 years
 
 
 
 
 
 
 
Future debt maturities
 
$
238.4
 
$
2.1
 
$
28.8
 
$
43.7
 
$
163.8
 
Interest obligations on debt
 
 
86.4
 
 
13.6
 
 
37.6
 
 
18.5
 
 
16.7
 
Operating lease obligations
 
 
38.2
 
 
1.8
 
 
3.8
 
 
3.6
 
 
29.0
 
 
 
 
 
 
 
 
Total
 
$
363.0
 
$
17.5
 
$
70.2
 
$
65.8
 
$
209.5
 
 
 
 
 
 
 
 
 
32
 
 
OFF BALANCE SHEET ARRANGEMENTS
 
We have investments in three joint ventures for the purpose of investing in operating properties as follows:
 
We own a 49% interest in two partnerships which own the Crossroads Shopping Center (“Crossroads”). We account for the investment in Crossroads using the equity method of accounting as we have a non-controlling investment in Crossroads, but exercise significant influence. As such, our financial statements reflect our share of income from, but not the assets and liabilities of, Crossroads. Our pro rata share of Crossroads mortgage debt as of December 31, 2005 was $31.4 million. This fixed-rate debt bears interest at 5.4% and matures in December 2014.
 
Reference is made to the discussion of Funds I and II under “Uses of Liquidity” in this Item 7 for additional detail related to our investment in and commitments to Funds I and II. As of December 31, 2005, we own a 22% interest in Fund I and 20% in Fund II for which we also use the equity method of accounting. Our pro rata share of Funds I and II fixed-rate mortgage debt as of December 31, 2005 was $24.4 million at a weighted average interest rate of 6.2%. Our pro rata share of Funds I and II variable-rate mortgage debt as of December 31, 2005 was $14.3 million at a weighted average interest rate of 5.8%. Maturities on these loans range from March 2006 to January 2023.
 
HISTORICAL CASH FLOW
 
The following discussion of historical cash flow compares our cash flow for the year ended December 31, 2005 (“2005’) with our  cash flow for the year ended December 31, 2004 (“2004”).
 
Cash and cash equivalents were $39.6 million and $13.5 million at December 31, 2005 and 2004, respectively. The increase of $26.1 million was a result of the following increases and decreases in cash flows:
 
 
 
Years Ended December 31,
 
 
 
 
(amounts in millions)
 
2005
 
2004
 
Variance
 
 
 
 
 
Net cash provided by operating activities
 
$
24.0
 
$
25.5
 
$
(1.5
)
Net cash used in investing activities
 
 
(59.5
)
 
(16.4
)
 
(43.1
)
Net cash provided by (used in) financing activities
 
 
61.6
 
 
(9.8
)
 
71.4
 
 
The variance in net cash provided by operating activities resulted from an increase of $2.4 million in operating income before non-cash expenses in 2005, which was primarily due to an increase in asset management and service fee income from our fund investments, additional fee income from the acquisition of certain management contracts rights in January 2004 and February 2005, promote income on the Mervyn’s investment in 2005, and additional interest income resulting from our preferred equity investment in 2005 and a decrease in distributions received from unconsolidated partnerships.  These increases were offset by additional general and administrative costs due to increased compensation and other overhead expenses following the expansion of our infrastructure.  In addition, a net decrease in cash provided by operating assets and liabilities of $3.9 million resulted primarily from an increase in receivables related to third party construction cost reimbursements offset by an increase in income taxes payable related to the Company’s share of the gain realized by Mervyn’s.
 
The increase in net cash used in investing activities resulted primarily from a $19.0 million Preferred Equity investment in 2005, an $18.5 million increase in expenditures for real estate acquisitions, development and tenant installation during 2005 and a decrease of $16.8 million of distributions received from unconsolidated partnerships.  These decreases were offset by a $3.7 million decrease in investments in and advances to unconsolidated partnerships in 2005 and $3.9 million of proceeds received from the sale of a property in 2005.
 
The increase in net cash provided by financing activities resulted from the following:
 
Debt repayment in 2004
$
100.9
Debt repayment in 2005
 
(39.0
)
Additional borrowings in 2005
 
47.8
 
Proceeds from issuance of Common Shares in 2004
 
(28.3
)
Proceeds of exercise of Stock Options in 2004
 
(9.0
)
Miscellaneous
 
(1.0
)
 
Total variance
$
(71.4
)
 

CRITICAL ACCOUNTING POLICIES
 
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our consolidated financial statements.
 
33
 
 
Valuation of Property Held for Use and Sale
 
On a quarterly basis, we review the carrying value of both properties held for use and for sale. We record impairment losses and reduce the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where we do not expect to recover our carrying costs on properties held for use, we reduce our carrying cost to fair value, and for properties held for sale, we reduce our carrying value to the fair value less costs to sell. For the year ended December 31, 2005, an impairment loss of $0.8 million was recognized related to a property that was sold in July of 2005. Management does not believe that the value of any properties in its portfolio was impaired as of December 31, 2005 or 2004.
 
Bad Debts
 
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make payments on arrearages in billed rents, as well as the likelihood that tenants will not have the ability to make payment on unbilled rents including estimated expense recoveries and straight-line rent. As of December 31, 2005, we had recorded an allowance for doubtful accounts of $2.8 million. If the financial condition of our tenants were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
 
INFLATION
 
Our long-term leases contain provisions designed to mitigate the adverse impact of inflation on our net income. Such provisions include clauses enabling us to receive percentage rents based on tenants’ gross sales, which generally increase as prices rise, and/or, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indexes. In addition, many of our leases are for terms of less than ten years, which permits us to seek to increase rents upon re-rental at market rates if current rents are below the then existing market rates. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation.
 
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
Reference is made to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
 
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Our primary market risk exposure is to changes in interest rates related to our mortgage debt. See the consolidated financial statements and notes thereto included in this Annual Report on Form 10-K for certain quantitative details related to our mortgage debt.
 
Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap agreements.  As of December 31, 2005, we had total mortgage debt of $238.4 million of which $216.8 million, or 91% was fixed-rate, inclusive of interest rate swaps, and $21.6 million, or 9%, was variable-rate based upon LIBOR plus certain spreads. As of December 31, 2005, we were a party to five interest rate swap transactions to hedge our exposure to changes in interest rates with respect to $92.4 million of LIBOR based variable-rate debt. We also have three forward-starting interest rate swaps which commence during 2006, and 2007 and mature from 2010 to 2012 that will hedge our exposure to changes in interest rates with respect to $24.5 million of refinanced LIBOR-based variable rate debt with the matching maturities.
 
34
 
 
The following table sets forth information as of December 31, 2005 concerning our long-term debt obligations, including principal cash flows by scheduled maturity and weighted average interest rates of maturing amounts (amounts in millions):
 
Consolidated mortgage debt:
 
Year
 
Scheduled
amortization
 
Maturities
 
Total
 
Weighted average
interest rate
 
 
 
 
 
 
2006
 
$
2.1
 
$
—
 
$
2.1
 
 
n/a
 
2007
 
 
3.9
 
 
12.5
 
 
16.4
 
 
6.5
%
2008
 
 
4.4
 
 
8.0
 
 
12.4
 
 
5.7
%
2009
 
 
5.3
 
 
—
 
 
5.3
 
 
n/a
 
2010
 
 
1.7
 
 
36.7
 
 
38.4
 
 
6.4
%
Thereafter
 
 
48.0
 
 
115.8
 
 
163.8
 
 
5.6
%
 
 
 
 
 
 
 
 
 
 
$
65.4
 
$
173.0
 
$
238.4
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage debt in unconsolidated partnerships (at our pro rata share):
 
Year
 
Scheduled
amortization
 
Maturities
 
Total
 
Weighted average
interest rate
 
 
 
 
 
 
2006
 
$
1.0
 
$
3.3
 
$
4.3
 
 
4.2
%
2007
 
 
1.4
 
 
8.4
 
 
9.8
 
 
5.4
%
2008
 
 
1.5
 
 
11.5
 
 
13.0
 
 
4.7
%
2009
 
 
1.5
 
 
—
 
 
1.5
 
 
n/a
 
2010
 
 
0.7
 
 
1.4
 
 
2.1
 
 
5.5
%
Thereafter
 
 
4.6
 
 
34.8
 
 
39.4
 
 
5.7
%
 
 
 
 
 
 
 
 
 
 
$
10.7
 
$
59.4
 
$
70.1
 
 
 
 
 
 
 
 
 
 
 
 
 
Of our total outstanding debt, $12.5 million will become due in 2007. As we intend on refinancing some or all of such debt at the then-existing market interest rates which may be greater than the current interest rate, our interest expense would increase by approximately $0.1 million annually if the interest rate on the refinanced debt increased by 100 basis points. Interest expense on our variable debt as of December 31, 2005 would not increase materially as we only have $21.6 million of floating rate debt after taking into account the effect of interest rate swaps hedging $92.4 million of notional principal. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means.
 
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
The financial statements and supplementary data listed in items 15(a) (1) and 15(a) (2) hereof are incorporated herein by reference.
 
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
On October 6, 2005, the Audit Committee of our Board of Directors agreed, by resolution, not to continue the engagement of our independent registered public accounting firm, Ernst and Young, LLP (“Ernst and Young”). The Audit committee further resolved to engage the accounting firm, BDO Seidman, LLP (“BDO”) effective immediately. The decision was based primarily on the Audit Committee’s efforts to reduce our costs for accounting services. We have not had any disagreements with Ernst and Young during the interim period from January 1, 2005 through the date of disengagement, nor any disagreements related to any prior years’ audits.
 
35
 
 
ITEM 9A.   CONTROLS AND PROCEDURES
 
(i) Disclosure Controls and Procedures
 
          We conducted an evaluation, under the supervision and with the participation of management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the our disclosure controls and procedures were effective as of December 31, 2005.
 
(ii) Internal Control Over Financial Reporting
 
(a) Management’s Annual Report on Internal Control Over Financial Reporting
 
Management of Acadia Realty Trust is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2005 as required by the Securities Exchange Act of 1934 Rule 13a-15(c). In making this assessment, we used the criteria set forth in the framework in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control–Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005.
 
BDO Seidman, LLP, an independent registered public accounting firm that audited our Financial Statements included in this Annual Report, has issued an attestation report on our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005  which appears in this item 9A.
 
Acadia Realty Trust
 
White Plains, New York
March 15, 2006
 
36
 
 
(b) Attestation report of the independent registered public accounting firm
 
The Shareholders and Trustees of
Acadia Realty Trust
 
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Acadia Realty Trust and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Acadia Realty Trust and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, management’s assessment that Acadia Realty Trust and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria.  Also, in our opinion, Acadia Realty Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Acadia Realty Trust and subsidiaries as of December 31, 2005 and the related consolidated statements of income, shareholders’ equity, and cash flows for the year ended December 31, 2005 and our report dated March 8, 2006 expressed an unqualified opinion thereon.
 
BDO Seidman, LLP
 
New York, New York
March 8, 2006
 
(c) Changes in internal control over financial reporting.
 
There was no change in our internal control over financial reporting during our fourth fiscal quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
37
 
 
PART III
 
ITEM 9B.   OTHER INFORMATION
 
None
 
ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
 
This item is incorporated by reference from the definitive proxy statement for the 2006 Annual Meeting of Shareholders presently scheduled to be held May 15, 2006, to be filed pursuant to Regulation 14A.
 
ITEM 11.   EXECUTIVE COMPENSATION
 
This item is incorporated by reference from the definitive proxy statement for the 2006 Annual Meeting of Shareholders presently scheduled to be held May 15, 2006, to be filed pursuant to Regulation 14A.
 
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
This item is incorporated by reference from the definitive proxy statement for the 2006 Annual Meeting of Shareholders presently scheduled to be held May 15, 2006, to be filed pursuant to Regulation 14A.
 
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
This item is incorporated by reference from the definitive proxy statement for the 2006 Annual Meeting of Shareholders presently scheduled to be held May 15, 2006, to be filed pursuant to Regulation 14A.
 
ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
This item is incorporated by reference from the definitive proxy statement for the 2006 Annual Meeting of Shareholders presently scheduled to be held May 15, 2006, to be filed pursuant to Regulation 14A.
 
38
 
PART IV
 
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
 
(a) Financial Statements – Form 10-K. The following consolidated financial information is included as a separate section of this Form 10-K
 
Report of Registered Public Accounting Firm for the year ended December 31, 2005
F-2
Report of Registered Public Accounting Firm for the years ended December 31, 2004 and 2003
F-3
Consolidated Balance Sheets as of December 31, 2005 and 2004
F-4
Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003
F-5
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
F-7
Notes to Consolidated Financial Statements
F-9
Schedule III – Real Estate and Accumulated Depreciation
F-37
 
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule.
 
39
 
 
 
 
 
Exhibit No.
 
Description
 
3.1
 
Declaration of Trust of the Company, as amended (1)
3.2
 
Fourth Amendment to Declaration of Trust (4)
3.3
 
Amended and Restated By-Laws of the Company (22)
4.1
 
Voting Trust Agreement between the Company and Yale University dated February 27, 2002 (14)
10.1
 
1999 Share Option Plan (8) (20)
10.2
 
2003 Share Option Plan (16) (20)
10.3
 
Form of Share Award Agreement (17) (21)
10.4
 
Form of Registration Rights Agreement and Lock-Up Agreement (18)
10.5
 
Registration Rights and Lock-Up Agreement (RD Capital Transaction) (11)
10.6
 
Registration Rights and Lock-Up Agreement (Pacesetter Transaction) (11)
10.7
 
Contribution and Share Purchase Agreement dated as of April 15, 1998 among Mark Centers Trust, Mark Centers Limited Partnership, the Contributing Owners and Contributing Entities named therein, RD Properties, L.P. VI, RD Properties, L.P. VIA and RD Properties, L.P. VIB (9)
10.8
 
Agreement of Contribution among Acadia Realty Limited Partnership, Acadia Realty Trust and Klaff Realty, LP and Klaff Realty, Limited (18)
10.9
 
Employment agreement between the Company and Kenneth F. Bernstein (6) (21)
10.11
 
Amendment to employment agreement between the Company and Kenneth F. Bernstein (18) (21)
10.12
 
First Amendment to Employment Agreement between the Company and Kenneth Bernstein dated as of January 1, 2001 (12) (21)
10.14
 
Letter of employment offer between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (15) (21)
10.15
 
Severance Agreement between the Company and Joel Braun, Sr. Vice President, dated April 6, 2001 (13) (21)
10.16
 
Severance Agreement between the Company and Joseph Hogan, Sr. Vice President, dated April 6, 2001 (13) (21)
10.17
 
Severance Agreement between the Company and Joseph Napolitano, Sr. Vice President dated April 6, 2001 (18) (21)
10.18
 
Severance Agreement between the Company and Robert Masters, Sr. Vice President and General Counsel dated January 2001 (18) (21)
10.19
 
Severance Agreement between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (15) (21)
10.20
 
Secured Promissory Note between RD Absecon Associates, L.P. and Fleet Bank, N.A. dated February 8, 2000 (7)
10.21
 
Promissory Note between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18)
10.22
 
Open-End Mortgage, Assignment of Leases and Rents, and Security Agreement between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18)
10.23
 
Promissory Note between Merrillville Realty, L.P. and Sun America Life Insurance Company dated July 7, 1999 (7)
10.24
 
Secured Promissory Note between Acadia Town Line, LLC and Fleet Bank, N.A. dated March 21, 1999 (7)
10.25
 
Promissory Note between RD Village Associates Limited Partnership and Sun America Life Insurance Company Dated September 21, 1999 (7)
10.26
 
Amended and Restated Mortgage Note between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 (3)
10.27
 
Mortgage and Security Agreement between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 (10)
10.28
 
Mortgage Note between Port Bay Associates, LLC and Fleet Bank, N.A. dated December 1, 2003 (18)
10.29
 
Mortgage and Security Agreement, and Assignment of Leases and Rents between Port Bay Associates, LLC and Fleet Bank, N.A. dated December 1, 2003 (18)
10.30
 
Note Modification Agreement between Port Bay Associates, LLC and Fleet Bank, N.A. dated December 1, 2003 (18)
10.31
 
Amended and Restated Promissory Note between Acadia Realty L.P. and Metropolitan Life Insurance Company for $25.2 million dated October 13, 2000 (10)
10.32
 
Amended and Restated Mortgage, Security Agreement and Fixture Filing between Acadia Realty L.P. and Metropolitan Life Insurance Company dated October 13, 2000 (10)
10.33
 
Term Loan Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10)
10.34
 
Mortgage Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10)
10.35
 
Promissory Note between RD Whitegate Associates, L.P. and Bank of America, N.A. dated December 22, 2000 (10)
10.36
 
Promissory Note between RD Columbia Associates, L.P. and Bank of America, N.A. dated December 22, 2000 (10)
10.37
 
Term Loan Agreement dated as of December 28, 2001, among Fleet National Bank and RD Branch Associates, L.P., et al (13)
10.38
 
Term Loan Agreement dated as of December 21, 2001, among RD Woonsocket Associates Limited Partnership, et al. and The Dime Savings Bank of New York, FSB (13)
 
40
 
 
 
 
 
Exhibit No.
 
Description
 
10.39
 
Option Extension of Term Loan as of December 19, 2003 between RD Woonsocket Associates Limited Partnership, et al. and Washington Mutual Bank, FA (18)
10.40
 
Revolving Loan Promissory Note dated as of November 22, 2002, among RD Elmwood Associates, L.P. and Washington Mutual Bank, FA (15)
10.41
 
Revolving Loan Agreement dated as of November 22, 2002, among RD Elmwood Associates, L.P. and Washington Mutual Bank, FA (15)
10.42
 
Mortgage Agreement dated as of November 22, 2002, among RD Elmwood Associates, L.P. and Washington Mutual Bank, FA (15)
10.43
 
Note Modification Agreement between RD Elmwood Associates, L.P. and Washington Mutual Bank, FA dated December 19, 2003 (18)
10.44
 
Prospectus Supplement Regarding Options Issued under the Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan (19) (21)
10.45
 
Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan Deferral and Distribution Election Form (19) (21)
10.46
 
Amended, Restated And Consolidated Promissory Note between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19)
10.47
 
Amended, Restated And Consolidated Mortgage, Assignment Of Leases And Rents And Security Agreement between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19)
10.48
 
Amended and Restated Term Loan Agreement between Fleet National Bank and Heathcote Associates, L.P., Acadia Town Line, LLC, RD Branch Associates, L.P., RD Abington Associates Limited Partnership, And RD Methuen Associates Limited Partnership dated September 30, 2004 (19)
10.49
 
Mortgage Modification Agreement between Fleet National Bank and Acadia Town Line, LLC dated September 30, 2004 (19)
10.49a
 
Mortgage Modification Agreement between Fleet National Bank and Heathcote Associates, L.P. dated September 30, 2004 (19)
10.49b
 
Mortgage Modification Agreement between Fleet National Bank and RD Branch Associates dated September 30, 2004 (19)
10.49c
 
Mortgage Modification Agreement between Fleet National Bank and RD Methuen Associates dated September 30, 2004 (19)
10.49d
 
Mortgage Modification Agreement between Fleet National Bank and RD Abington Associates Limited Partnership dated September 30, 2004 (19)
10.50
 
Revolving Loan Agreement between Fleet National Bank and The Bank of China and RD Absecon Associates, L.P., RD Bloomfield Associates, L.P.,RD Hobson Associates, L.P.,RD Village Associates, L.P., and RD Woonsocket Associates L.P.  dated May 26, 2005 (22)
10.51
 
Mortgage, Assignment of Leases and Rents and Security Agreement between Acadia Crescent Plaza, LLC and Greenwich Capital Financial Products, Inc. dated August 31, 2005 (22)
10.52
 
Mortgage, Assignment of Leases and Rents and Security Agreement between Pacesetter/Ramapo Associates and Greenwich Capital Financial Products, Inc. dated October 17, 2005 (22)
10.53
 
Loan Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22)
10.54
 
Mortgage and Security Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22)
21
 
List of Subsidiaries of Acadia Realty Trust (22)
23.1
 
Consent of Registered Public Accounting Firm to Form S-3 and Form S-8 (22)
23.2
 
Consent of former Registered Public Accounting Firm to Form S-3 and Form S-8 (22)
31.1
 
Certification of Chief Executive Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (22)
31.2
 
Certification of Chief Financial Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (22)
32.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (22)
32.2
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (22)
99.1
 
Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11)
99.2
 
First and Second Amendments to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11)
99.3
 
Third Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18)
99.4
 
Fourth Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18)
99.5
 
Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (2)
99.6
 
Certificate of Designation of Series B Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (18)
 
41
 
 
Notes:
(1)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal Year ended December 31, 1994
(2)
 
Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 1997
(3)
 
Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998
(4)
 
Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998
(5)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-11 (File No.33-60008)
(6)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form10-K filed for the fiscal year ended December 31, 1998
(7)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form10-K filed for the fiscal year ended December 31, 1999
(8)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-8 filed September 28, 1999
(9)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 8-K filed on April 20, 1998
(10)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 10-K filed for the fiscal year ended December 31, 2000
(11)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-3 filed on March 3, 2000
(12)
 
Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2001
(13)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2001
(14)
 
Incorporated by reference to the copy thereof filed as an Exhibit to Yale University’s Schedule 13D filed on September 25, 2002
(15)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2002
(16)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Definitive Proxy Statement on Schedule 14A filed April 29, 2003.
(17)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on July 2, 2003
(18)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003
(19)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004.
(20)
 
Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004.
(21)
 
Management contract or compensatory plan or arrangement.
(22)
 
Filed herewith.
 
42
 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
 
 
ACADIA REALTY TRUST
 
 
(Registrant)
 
 
 
 
By:
/s/ Kenneth F. Bernstein
 
 
 
 
Kenneth F. Bernstein
 
 
Chief Executive Officer,
 
 
President and Trustee
 
 
 
 
By:
/s/ Michael Nelsen
 
 
 
 
Michael Nelsen
 
 
Sr. Vice President and
 
 
Chief Financial Officer
 
 
 
 
By:
/s/ Jonathan W. Grisham
 
 
 
 
Jonathan W. Grisham
 
 
Vice President and
 
 
Chief Accounting Officer
 
Dated: March 15, 2006
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
 
 
/s/ Kenneth F. Bernstein
 
Chief Executive Officer,
 
March 15, 2006
 
President and Trustee
 
 
(Kenneth F. Bernstein)
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Michael Nelsen
 
Senior Vice President
 
March 15, 2006
 
and Chief Financial Officer
 
 
(Michael Nelsen)
 
(Principal Financial Officer)
 
 
 
 
 
 
 
/s/  Jonathan W. Grisham
 
Vice President
 
March 15, 2006
 
and Chief Accounting Officer
 
 
(Jonathan W. Grisham)
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
/s/ Douglas Crocker II
 
Trustee
 
March 15, 2006
 
 
 
 
Douglas Crocker II
 
 
 
 
 
 
 
 
 
/s/ Alan S. Forman
 
Trustee
 
March 15, 2006
 
 
 
 
(Alan S. Forman)
 
 
 
 
 
 
 
 
 
/s/ Suzanne Hopgood
 
Trustee
 
March 15, 2006
 
 
 
 
(Suzanne Hopgood)
 
 
 
 
 
 
 
 
 
/s/ Lorrence T. Kellar
 
Trustee
 
March 15, 2006
 
 
 
 
Lorrence T. Kellar
 
 
 
 
 
 
 
 
 
/s/ Wendy Luscombe
 
Trustee
 
March 15, 2006
 
 
 
 
(Wendy Luscombe)
 
 
 
 
 
 
 
 
 
/s/ Lee S. Wielansky
 
Trustee
 
March 15, 2006
 
 
 
 
(Lee S. Wielansky)
 
 
 
 
 
43
 
 
EXHIBIT INDEX
 
The following is an index to all exhibits filed with the Annual Report on Form 10-K other than those incorporated by reference herein:
 
Exhibit No.
 
Description
 
3.3
 
Amended and Restated By-Laws of the Company
10.50
 
Revolving Loan Agreement between Fleet National Bank and The Bank of China and RD Absecon Associates, L.P., RD Bloomfield Associates, L.P.,RD Hobson Associates, L.P.,RD Village Associates, L.P., and RD Woonsocket Associates L.P.  dated May 26, 2005
10.51
 
Mortgage, Assignment of Leases and Rents and Security Agreement between Acadia Crescent Plaza, LLC and Greenwich Capital Financial Products, Inc. dated August 31, 2005
10.52
 
Mortgage, Assignment of Leases and Rents and Security Agreement between Pacesetter/Ramapo Associates and Greenwich Capital Financial Products, Inc. dated October 17, 2005
10.53
 
Loan Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005
10.54
 
Mortgage and Security Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005
21
 
List of Subsidiaries of Acadia Realty Trust
23.1
 
Consent of Registered Public Accounting Firm to Form S-3 and Form S-8
23.2
 
Consent of former Registered Public Accounting Firm to Form S-3 and Form S-8
31.1
 
Certification of Chief Executive Officer pursuant to rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
 
Certification of Chief Financial Officer pursuant to rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
44
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
 
 
F-1
 
 
Report of Independent Registered Public Accounting Firm
 
The Shareholders and Trustees of
Acadia Realty Trust
 
We have audited the accompanying consolidated balance sheet of Acadia Realty Trust and subsidiaries (the “Company”) as of December 31, 2005 and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acadia Realty Trust and subsidiaries at December 31, 2005 and the consolidated results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Acadia Realty Trust and subsidiaries’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2006 expressed an unqualified opinion thereon.
 
 
BDO Seidman, LLP
 
 
New York, New York
 
March 8, 2006
 
 
F-2
 
 
Report of Independent Registered Public Accounting Firm
 
The Shareholders and Trustees of
Acadia Realty Trust
 
We have audited the accompanying consolidated balance sheet of Acadia Realty Trust and subsidiaries (the “Company”) as of December 31, 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acadia Realty Trust and subsidiaries at December 31, 2004, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
 
 
 
Ernst & Young LLP
 
 
New York, New York
 
March 10, 2005, except for Note 2B, as to which the date is March 15, 2006
 
 
F-3
 
 
Part I. Financial Information
 
Item 1. Financial Statements
 
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
 
 
 
December 31,
 
 
 
 
 
 
2005
 
2004
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
Land
 
$
54,963
 
$
52,472
 
Buildings and improvements
 
 
380,053
 
 
356,908
 
Construction in progress
 
 
735
 
 
5,594
 
 
 
 
 
 
 
 
435,751
 
 
414,974
 
Less: accumulated depreciation
 
 
118,309
 
 
105,278
 
 
 
 
 
Net real estate
 
 
317,442
 
 
309,696
 
Cash and cash equivalents
 
 
39,612
 
 
13,499
 
Restricted cash
 
 
512
 
 
612
 
Cash in escrow
 
 
5,396
 
 
4,467
 
Investment in management contracts, net of accumulated amortization of $1,938
 
 
3,178
 
 
3,422
 
Preferred equity investment
 
 
19,000
 
 
—
 
Investments in and advances to unconsolidated partnerships
 
 
47,021
 
 
27,684
 
Rents receivable, net
 
 
11,880
 
 
10,485
 
Notes receivable
 
 
15,733
 
 
10,087
 
Prepaid expenses
 
 
3,057
 
 
2,994
 
Deferred charges, net
 
 
15,880
 
 
12,624
 
Acquired lease intangibles
 
 
4,638
 
 
—
 
Other assets
 
 
15,709
 
 
4,809
 
Assets of discontinued operations
 
 
—
 
 
5,268
 
 
 
 
 
 
 
$
499,058
 
$
405,647
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Mortgage notes payable
 
$
238,448
 
$
153,361
 
Accounts payable and accrued expenses
 
 
7,319
 
 
7,627
 
Dividends and distributions payable
 
 
6,088
 
 
5,597
 
Derivative instruments
 
 
180
 
 
2,136
 
Share of distributions in excess of share of income and investment in unconsolidated partnerships
 
 
10,315
 
 
9,304
 
Other liabilities
 
 
5,396
 
 
3,096
 
Liabilities of discontinued operations
 
 
—
 
 
51
 
 
 
 
 
Total liabilities
 
 
267,746
 
 
181,172
 
 
 
 
 
Minority interest in Operating Partnership
 
 
9,204
 
 
5,743
 
Minority interests in majority- owned partnerships
 
 
1,532
 
 
1,808
 
 
 
 
 
Total minority interests
 
 
10,736
 
 
7,551
 
 
 
 
 
Shareholders’ equity:
 
 
 
 
 
 
 
Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 31,542,942 and
 
 
 
 
 
 
 
31,340,637 shares, respectively
 
 
31
 
 
31
 
Additional paid-in capital
 
 
223,199
 
 
222,715
 
Accumulated other comprehensive loss
 
 
(12
)
 
(3,180
)
Deficit
 
 
(2,642
)
 
(2,642
)
 
 
 
 
Total shareholders’ equity
 
 
220,576
 
 
216,924
 
 
 
 
 
 
 
$
499,058
 
$
405,647
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
F-4
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
 
 
 
Years ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
Minimum rents
 
$
52,737
 
$
50,667
 
$
48,100
 
Percentage rents
 
 
747
 
 
948
 
 
988
 
Expense reimbursements
 
 
13,980
 
 
12,983
 
 
12,833
 
Other property income
 
 
780
 
 
620
 
 
748
 
Management fee income from related parties
 
 
11,492
 
 
4,763
 
 
1,971
 
Interest income
 
 
3,582
 
 
1,466
 
 
788
 
Other
 
 
—
 
 
210
 
 
1,218
 
 
 
 
 
 
Total revenues
 
 
83,318
 
 
71,657
 
 
66,646
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
Property operating
 
 
14,323
 
 
14,544
 
 
14,419
 
Real estate taxes
 
 
9,253
 
 
8,762
 
 
8,208
 
General and administrative
 
 
15,382
 
 
10,468
 
 
10,734
 
Depreciation and amortization
 
 
16,763
 
 
15,470
 
 
17,195
 
 
 
 
 
 
Total operating expenses
 
 
55,721
 
 
49,244
 
 
50,556
 
 
 
 
 
 
Operating income
 
 
27,597
 
 
22,413
 
 
16,090
 
Equity in earnings of unconsolidated partnerships
 
 
8,228
 
 
1,797
 
 
2,411
 
Interest expense
 
 
(11,423
)
 
(10,436
)
 
(9,896
)
Gain on sale of land
 
 
—
 
 
932
 
 
1,187
 
Minority interest
 
 
(695
)
 
(1,190
)
 
(1,399
)
 
 
 
 
 
Income from continuing operations before income taxes
 
 
23,707
 
 
13,516
 
 
8,393
 
Income taxes
 
 
(2,140
)
 
—
 
 
—
 
 
 
 
 
 
Income from continuing operations
 
 
21,567
 
 
13,516
 
 
8,393
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
Operating (loss) income from discontinued operations
 
 
(138
)
 
(504
)
 
(592
)
Impairment of real estate
 
 
(770
)
 
—
 
 
—
 
(Loss) gain on sale of properties
 
 
(50
)
 
6,696
 
 
—
 
Minority interest
 
 
17
 
 
(123
)
 
52
 
 
 
 
 
 
(Loss) income from discontinued operations
 
 
(941
)
 
6,069
 
 
(540
)
 
 
 
 
 
Net income
 
$
20,626
 
$
19,585
 
$
7,853
 
 
 
 
 
 
Basic earnings per share
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.68
 
$
0.46
 
$
0.32
 
(Loss) income from discontinued operations
 
 
(0.03
)
 
0.21
 
 
(0.02
)
 
 
 
 
 
Basic earnings per share
 
$
0.65
 
$
0.67
 
$
0.30
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.67
 
$
0.45
 
$
0.31
 
(Loss) income from discontinued operations
 
 
(0.03
)
 
0.20
 
 
(0.02
)
 
 
 
 
 
Diluted earnings per share
 
$
0.64
 
$
0.65
 
$
0.29
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
F-5
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands, except per share amounts)
 
 
 
Common Shares
 
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
 
Deficit
 
Total
Shareholders’
Equity
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2002
 
 
25,257
 
$
25
 
$
170,851
 
$
(6,874
)
$
(2,679
)
$
161,323
 
Conversion of 2,058,804 OP Units to Common Shares by limited partners of the Operating Partnership
 
 
2,059
 
 
2
 
 
14,898
 
 
—
 
 
—
 
 
14,900
 
Conversion of 632 Series A Preferred OP Units to Common Shares by limited partners of the Operating Partnership
 
 
84
 
 
—
 
 
632
 
 
—
 
 
—
 
 
632
 
Employee restricted share award
 
 
8
 
 
—
 
 
410
 
 
—
 
 
—
 
 
410
 
Settlement of vested options
 
 
—
 
 
—
 
 
(750
)
 
—
 
 
—
 
 
(750
)
Dividends declared ($0.595 per Common Share)
 
 
—
 
 
—
 
 
(8,160
)
 
—
 
 
(7,853
)
 
(16,013
)
Employee exercise of 250 options
 
 
—
 
 
—
 
 
2
 
 
—
 
 
—
 
 
2
 
Unrealized gain on valuation of swap agreements
 
 
—
 
 
—
 
 
—
 
 
1,369
 
 
—
 
 
1,369
 
Common Shares purchased under Employee Stock Purchase Plan
 
 
1
 
 
—
 
 
8
 
 
—
 
 
—
 
 
8
 
Net income
 
 
—
 
 
—
 
 
—
 
 
—
 
 
7,853
 
 
7,853
 
 
 
 
 
 
 
 
 
Balance at December 31, 2003
 
 
27,409
 
 
27
 
 
177,891
 
 
(5,505
)
 
(2,679
)
 
169,734
 
Conversion of  746,762 OP Units to Common Shares by limited partners of the Operating Partnership
 
 
747
 
 
1
 
 
6,395
 
 
—
 
 
—
 
 
6,396
 
Shares issued to trustees and employees
 
 
5
 
 
—
 
 
443
 
 
—
 
 
—
 
 
443
 
Employee restricted share award
 
 
22
 
 
—
 
 
394
 
 
—
 
 
—
 
 
394
 
Settlement of vested options
 
 
—
 
 
—
 
 
(67
)
 
—
 
 
—
 
 
(67
)
Dividends declared ($0.6525 per Common Share)
 
 
—
 
 
—
 
 
—
 
 
—
 
 
(19,548
)
 
(19,548
)
Employee and trustee exercise of 1,262,000 options
 
 
1,262
 
 
1
 
 
9,265
 
 
—
 
 
—
 
 
9,266
 
Unrealized gain on valuation of swap agreements
 
 
—
 
 
—
 
 
—
 
 
2,325
 
 
—
 
 
2,325
 
Common Shares issued under Employee Stock Purchase Plan
 
 
6
 
 
—
 
 
84
 
 
—
 
 
—
 
 
84
 
Issuance of 1,890,000 Common Shares, net of issuance costs
 
 
1,890
 
 
2
 
 
28,310
 
 
—
 
 
—
 
 
28,312
 
Net income
 
 
—
 
 
—
 
 
—
 
 
—
 
 
19,585
 
 
19,585
 
 
 
 
 
 
 
 
 
Balance at December 31, 2004
 
 
31,341
 
 
31
 
 
222,715
 
 
(3,180
)
 
(2,642
)
 
216,924
 
Conversion of 796 Series A Preferred OP Units to Common Shares by limited partners of the Operating Partnership
 
 
92
 
 
—
 
 
696
 
 
—
 
 
—
 
 
696
 
Employee restricted share awards
 
 
52
 
 
—
 
 
1,030
 
 
—
 
 
—
 
 
1,030
 
Dividends declared ($0.69 per Common Share)
 
 
—
 
 
—
 
 
(1,691
)
 
—
 
 
(20,626
)
 
(22,317
)
Employee and trustee exercise of 51,200 options
 
 
51
 
 
—
 
 
345
 
 
—
 
 
—
 
 
345
 
Unrealized gain on valuation of swap agreements
 
 
—
 
 
—
 
 
—
 
 
3,168
 
 
—
 
 
3,168
 
Common Shares issued under Employee Stock Purchase Plan
 
 
7
 
 
—
 
 
104
 
 
—
 
 
—
 
 
104
 
Net income
 
 
—
 
 
—
 
 
—
 
 
—
 
 
20,626
 
 
20,626
 
 
 
 
 
 
 
 
 
Balance at December 31, 2005
 
 
31,543
 
$
31
 
$
223,199
 
$
(12
)
$
(2,642
)
$
220,576
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
F-6
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, except per share amounts)
 
 
 
Years ended December 31,
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
2005
 
2004
 
2003
 
 
 
 
 
Net income
 
$
20,626
 
$
19,585
 
$
7,853
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
16,853
 
 
16,077
 
 
17,909
 
Gain on sale of land
 
 
—
 
 
(932
)
 
(1,187
)
(Loss) gain on sale of property
 
 
50
 
 
(6,696
)
 
—
 
Impairment of real estate
 
 
770
 
 
—
 
 
—
 
Minority interests
 
 
678
 
 
1,313
 
 
1,347
 
Equity in earnings of unconsolidated partnerships
 
 
(8,228
)
 
(1,797
)
 
(2,411
)
Distributions of operating income from unconsolidated partnerships
 
 
596
 
 
1,645
 
 
1,540
 
Amortization of derivative settlement included in interest expense
 
 
440
 
 
99
 
 
—
 
Provision for bad debts
 
 
481
 
 
783
 
 
523
 
Amortization of FAS 141 above-market rent
 
 
217
 
 
—
 
 
—
 
Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
 
Restricted cash
 
 
100
 
 
(108
)
 
(504
)
Funding of escrows, net
 
 
(929
)
 
(1,125
)
 
105
 
Rents receivable
 
 
(1,517
)
 
(1,288
)
 
(3,958
)
Prepaid expenses
 
 
(29
)
 
99
 
 
(1,085
)
Other assets
 
 
(9,087
)
 
(3,004
)
 
(891
)
Accounts payable and accrued expenses
 
 
646
 
 
2,464
 
 
218
 
Due to/from related parties
 
 
—
 
 
(974
)
 
(126
)
Other liabilities
 
 
2,292
 
 
(673
)
 
785
 
 
 
 
 
 
Net cash provided by operating activities
 
 
23,959
 
 
25,468
 
 
20,118
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Expenditures for real estate and improvements
 
 
(25,629
)
 
(7,139
)
 
(13,531
)
Payments of accrued expense related to redevelopment project
 
 
—
 
 
—
 
 
(2,488
)
Investment in and advances to unconsolidated partnerships
 
 
(12,711
)
 
(16,422
)
 
(6,032
)
Return of capital from unconsolidated partnerships
 
 
1,011
 
 
15,136
 
 
62
 
Collection of notes receivable
 
 
1,868
 
 
3,929
 
 
3,232
 
Payment of deferred leasing costs
 
 
(1,034
)
 
(2,378
)
 
(2,183
)
Advances of notes receivable
 
 
(7,914
)
 
(10,429
)
 
—
 
Preferred equity investment
 
 
(19,000
)
 
—
 
 
—
 
Proceeds from sale of land
 
 
—
 
 
932
 
 
—
 
Proceeds from sale of property
 
 
3,931
 
 
—
 
 
—
 
 
 
 
 
 
Net cash used in investing activities
 
 
(59,478
)
 
(16,371
)
 
(20,940
)
 
 
 
 
 
 
F-7
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, except per share amounts)
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Principal payments on mortgage notes payable
 
 
(39,014
)
 
(100,928
)
 
(32,917
)
Proceeds received on mortgage notes payable
 
 
124,100
 
 
76,251
 
 
21,000
 
Payment of deferred financing and other costs
 
 
(1,193
)
 
(1,630
)
 
(241
)
Dividends paid
 
 
(21,869
)
 
(18,507
)
 
(14,896
)
Distributions to minority interests in Operating Partnership
 
 
(380
)
 
(416
)
 
(1,207
)
Distributions on preferred Operating Partnership Units
 
 
(342
)
 
(283
)
 
(199
)
Distributions to minority interests in majority-owned partnerships
 
 
(119
)
 
(606
)
 
(985
)
Common Shares issued under Employee Stock Purchase Plan
 
 
104
 
 
84
 
 
8
 
Settlement of options to purchase Common Shares
 
 
—
 
 
(67
)
 
(750
)
Exercise of options to purchase Common Shares
 
 
345
 
 
9,340
 
 
—
 
Termination of derivative instrument
 
 
—
 
 
(1,307
)
 
—
 
Issuance of Common Shares
 
 
—
 
 
28,312
 
 
—
 
 
 
 
 
 
Net cash provided by (used in) financing activities
 
 
61,632
 
 
(9,757
)
 
(30,187
)
 
 
 
 
 
Increase (decrease)  in cash and cash equivalents
 
 
26,113
 
 
(660
)
 
(31,009
)
Cash and cash equivalents, beginning of period
 
 
13,499
 
 
14,159
 
 
45,168
 
 
 
 
 
 
Cash and cash equivalents, end of period
 
$
39,612
 
$
13,499
 
$
14,159
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
 
 
 
Cash paid during the period for interest
 
$
11,456
 
$
11,777
 
$
11,645
 
 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
 
 
 
 
 
 
 
Acquisition of management contract rights through issuance of Common and Preferred Operating Partnership Units
 
$
4,000
 
$
4,000
 
 
—
 
 
 
 
 
 
Acquisition of property through issuance of Preferred Operating Partnership Units
 
$
200
 
$
—
 
$
—
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-8
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 
1.     Organization, Basis of Presentation and Summary of Significant Accounting Policies
 
Acadia Realty Trust (the “Company”) is a fully integrated, self-managed and self-administered equity real estate investment trust (“REIT”) focused primarily on the ownership, acquisition, redevelopment and management of retail properties, including neighborhood and community shopping centers and mixed-use properties with retail components.
 
All of the Company’s assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and its majority owned partnerships. As of December 31, 2005, the Company controlled 98% of the Operating Partnership as the sole general partner. As the general partner, the Company is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners represent entities or individuals who contributed their interests in certain properties or partnerships to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common or Preferred OP Units”). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Company (“Common Shares”). This structure is commonly referred to as an umbrella partnership REIT or “UPREIT”.
 
As of December 31, 2005, the Company operated 71 properties, which it owns or has an ownership interest in, principally located in the Northeast, Mid-Atlantic and Midwest regions of the United States.
 
Principles of Consolidation
 
The consolidated financial statements include the consolidated accounts of the Company and its majority owned partnerships, including the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in partnerships for which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or loss) of these partnerships are included in consolidated net income.
 
Variable interest entities within the scope of Financial Accounting Statements Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46-R”) are required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected returns, or both. Management has evaluated the applicability of FIN 46-R to its investments in certain joint ventures and determined that these joint ventures do not meet the requirements of a variable interest entity and, therefore, consolidation of these ventures is not required. Accordingly, these investments are accounted for using the equity method.
 
Use of Estimates
 
Accounting principles generally accepted in the United States of America (“GAAP”) require the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition and the collectability of trade accounts receivable. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
 
Real Estate
 
Real estate assets are stated at cost less accumulated depreciation. Expenditures for acquisition, development, construction and improvement of properties, as well as significant renovations are capitalized. Interest costs are capitalized until construction is substantially complete. Construction in progress includes costs for significant shopping center expansion and redevelopment. Depreciation is computed on the straight-line basis over estimated useful lives of 30 to 40 years for buildings and the shorter of the useful life or lease term for improvements, furniture, fixtures and equipment. Expenditures for maintenance and repairs are charged to operations as incurred.
 
F-9
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
1.     Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
 
Upon acquisitions of real estate, the Company assesses the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below market leases and acquired in-place leases and customer relationships) and acquired liabilities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142,” Goodwill and Other Intangible Assets”, and allocates purchase price based on these assessments.  The Company assesses fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.  Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.
 
The Company reviews its long-lived assets used in operations for impairment when there is an event, or change in circumstances that indicates impairment in value. The Company records impairment losses and reduces the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where the Company does not expect to recover its carrying costs on properties held for use, the Company reduces its carrying cost to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. During the year ended December 31, 2005, an impairment loss of $770 was recognized related to a property that was sold in July of 2005. Management does not believe that the values of its properties within the portfolio are impaired as of December 31, 2005.
 
Deferred Costs
 
Fees and costs paid in the successful negotiation of leases have been deferred and are being amortized on a straight-line basis over the terms of the respective leases. Fees and costs incurred in connection with obtaining financing have been deferred and are being amortized over the term of the related debt obligation.
 
Management Contracts
 
Income from management contracts, net of submanagement fees of $303 and $1,591 for the years ended December 31, 2005 and 2004, respectively, is recognized on an accrual basis as such fees are earned. The initial acquisition cost of the management contracts is being amortized over the estimated lives of the contracts acquired.
 
Revenue Recognition and Accounts Receivable
 
Leases with tenants are accounted for as operating leases. Minimum rents are recognized on a straight-line basis over the term of the respective leases. As of December 31, 2005 and 2004 unbilled rents receivable relating to straight-lining of rents were $6,988 and $6,506, respectively. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the tenant. Percentage rents are recognized in the period when the tenants’ sales breakpoint is met. In addition, leases typically provide for the reimbursement to the Company of real estate taxes, insurance and other property operating expenses. These reimbursements are recognized as revenue in the period the expenses are incurred.
 
The Company makes estimates of the uncollectability of its accounts receivable related to base rents, expense reimbursements and other revenues. An allowance for doubtful accounts has been provided against certain tenant accounts receivable that are estimated to be uncollectible. Once the amount is ultimately deemed to be uncollectible, it is written off. Rents receivable at December 31, 2005 and 2004 are shown net of an allowance for doubtful accounts of $2,843 and $2,841, respectively.
 
Interest income from notes receivable is recognized on an accrual basis based on the contractual terms of the notes.
 
Cash and Cash Equivalents
 
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
 
Restricted Cash and Cash in Escrow
 
Restricted cash and cash in escrow consists principally of cash held for real estate taxes, property maintenance, insurance, minimum occupancy and property operating income requirements at specific properties as required by certain loan agreements.
 
F-10
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
1.     Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
 
Income Taxes
 
The Company has made an election to be taxed, and believes it qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). To maintain REIT status for Federal income tax purposes, the Company is generally required to distribute to its stockholders at least 90% of its REIT taxable income as well as comply with certain other requirements as defined by the Code. Accordingly, the Company is not subject to federal corporate income tax to the extent that it distributes 100% of its REIT taxable income each year.
 
Although it may qualify for REIT status for Federal income tax purposes, the Company is subject to state income or franchise taxes in certain states in which some of its properties are located.  In addition, taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiaries (“TRS”) are subject to Federal, state and local income taxes.
 
TRS income taxes are accounted for under the asset and liability method as required SFAS No. 109, “Accounting for Income Taxes”.  Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of the TRS assets and liabilities.
 
Stock-based Compensation
 
Prior to 2002, the Company accounted for stock options under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Effective June 30, 2005, the Company adopted the fair value method of recording stock-based compensation contained in SFAS No. 123R, “Share-Based Payment”. As such, all stock options granted after December 31, 2001 are reflected as compensation expense in the Company’s consolidated financial statements over their vesting period based on the fair value at the date the stock-based compensation was granted. As provided for in SFAS No. 123, the Company elected the “prospective method” for the adoption of the fair value basis method of accounting for employee stock options. Under this method, the recognition provisions have been applied to all employee awards granted, modified or settled after January 1, 2002.
 
The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value based method of accounting for stock-based employee compensation for vested stock options granted prior to January 1, 2002. See Note 11 – “Share Incentive Plan” for the assumptions utilized in valuing the below vested stock options:
 
 
 
Years ended December 31,
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
As reported
 
$
19,585
 
$
7,853
 
 
 
 
 
Pro forma
 
$
19,561
 
$
7,829
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
As reported
 
$
0.67
 
$
0.30
 
 
 
 
 
Pro forma
 
$
0.67
 
$
0.29
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
As reported
 
$
0.65
 
$
0.29
 
 
 
 
 
Pro forma
 
$
0.65
 
$
0.29
 
 
 
 
 
 
Recent Accounting Pronouncements
 
On December 16, 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29”. The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 on its effective date did not have a material effect on the Company’s consolidated financial statements.
 
F-11
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
1.     Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
 
Recent Accounting Pronouncements, continued
 
On December 16, 2004, the FASB issued SFAS No. 123R (Revised 2004), “Share-Based Payment”.  SFAS 123R replaces SFAS No. 123, which the Company adopted on January 1, 2003. SFAS No. 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements and be measured based on the fair value of the equity or liability instruments issued. SFAS No. 123R is effective as of the first interim or annual reporting period that begins after June 15, 2005.  The Company does not believe that the adoption of SFAS No. 123R will have a material effect on the Company’s consolidated financial statements.
 
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections – A Replacement of APB Opinion No. 20 and SFAS No. 3”.   SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle by requiring that a voluntary change in accounting principle be applied retrospectively with all prior periods’ financial statements presented on the new accounting principle, unless it is impracticable to do so.  SFAS No. 154 also requires that a change in depreciation or amortization for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle and corrections of errors in previously issued financial statements should be termed a “restatement”.  SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The Company believes that the adoption of SFAS No. 154 will not have a material effect on its consolidated financial statements.
 
In 2005, the Emerging Issues Task Force (“EITF”) reached a consensus that the general partners in a limited partnership should determine whether they control a limited partnership based on the application of the framework as discussed in EITF 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights”. Under EITF 04-5, the general partners in a limited partnership are presumed to control that limited partnership regardless of the extent of the general partners’ ownership interest in the limited partnership. The assessment of whether the rights of the limited partners should overcome the presumption of control by the general partners is a matter of judgment that depends on facts and circumstances. If the limited partners have either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause or (b) substantive participating rights, the general partners do not control the limited partnership. EITF 04-5 was effective immediately for new partnerships formed and existing limited partnerships for which the partnership agreements are modified on or after June 29, 2005, and, for all other partnerships, EITF 04-5 would be effective no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005.  The provisions of EITF 04-5 may be initially applied through either one of two methods: (1) similar to a cumulative effect of a change in accounting principle or (2) retrospective application.  The Company is currently assessing the impact of EITF 04-5 as it relates to the method of accounting utilized for its investments in Funds I and II (note 4), which are currently accounted for under the equity method of accounting. There would be no impact on net income or shareholders’ equity for any of the reported periods in the accompanying consolidated financial statements if the Company were to consolidate these investments. If the Company was required to consolidate these investments, total assets, total liabilities and minority interest as of December 31, 2005 and December 31, 2004 would be as follows:
 
 
 
December 31,
 
 
 
 
 
 
2005
 
2004
 
 
 
 
 
Total assets
 
$
816,732
 
$
624,387
 
 
 
 
 
Total liabilities
 
$
484,473
 
$
343,741
 
 
 
 
 
Minority interest
 
$
111,683
 
$
63,722
 
 
 
 
 
 
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and No. 14”. This Statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” and resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of SFAS No. 133 to Beneficial Interests in Securitized Financial Assets.” This Statement (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and (e) amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company believes that the adoption of SFAS No. 155 will not have a material effect on its consolidated financial statements.
 
F-12
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
1.     Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
 
Comprehensive income
 
The following table sets forth comprehensive income for the years ended December 31, 2005, 2004 and 2003:
 
 
 
Years ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Net income
 
$
20,626
 
$
19,585
 
$
7,853
 
Other comprehensive income (1)
 
 
3,168
 
 
2,325
 
 
1,369
 
 
 
 
 
 
Comprehensive income
 
$
23,794
 
$
21,910
 
$
9,222
 
 
 
 
 
 
Notes:
(1)   Relates to the changes in the fair value of derivative instruments accounted for as cash flow hedges.
 
The following table sets forth the change in accumulated other comprehensive loss for the years ended December 31, 2005, 2004 and 2003:
 
 
 
Years ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Beginning balance
 
$
3,180
 
$
5,505
 
$
6,874
 
Unrealized gain on valuation of  derivative instruments
 
 
(3,168
)
 
(2,325
)
 
(1,369
)
 
 
 
 
 
Ending balance
 
$
12
 
$
3,180
 
$
5,505
 
 
 
 
 
 
 
Reclassifications
 
Certain 2004 and 2003 amounts were reclassified to conform to the 2005 presentation.
 
2.     Acquisition and Disposition of Properties and Discontinued Operations

A.     Acquisitions and Dispositions of Properties 

Currently the primary vehicle for the Company’s acquisitions is through its acquisition joint ventures (Note 4).
 
Dispositions relate to the sale of shopping centers and land. Gains from these sales are recognized in accordance with the provisions of SFAS No. 66, “Accounting for Sales of Real Estate”.
 
Acquisitions
 
During July of 2005, the Company purchased 4343 Amboy Road located in Staten Island, New York for $16,635 in cash and $200 in Common OP Units.
 
Dispositions
 
On July 7, 2005, the Company sold the Berlin Shopping Center for $4,000.  An impairment loss of $770 was recognized for the year ended December 31, 2005, to reduce the carrying value of this asset to fair value less costs to sell.
 
On November 22, 2004, the company disposed of the East End Centre, a 308,000 square foot shopping center in Wilkes-Barre, Pennsylvania, for approximately $12,405 resulting in a $6,696 gain on the sale.
 
On November 8, 2002, the Company and an unaffiliated joint venture partner completed the sale of a contract to purchase land in Bethel, Connecticut, to the Target Corporation for $1,540 after closing and other related costs. The joint venture received a $1,632 note receivable for the net purchase price and additional reimbursements due from the buyer and deferred recognition of the gain on sale in accordance with SFAS No. 66. The note was paid in full on January 10, 2003, and as such, the Company’s share of the deferred gain, or $634, was recognized in 2003. Additional amounts held in escrow from the closing of $932 were released to the Company during 2004 and recognized as additional gain. Of this amount, $466 was attributable to the Company’s joint venture partner and reflected in minority interest in the Company’s consolidated statement of income.
 
F-13
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
2.     Acquisition and Disposition of Properties and Discontinued Operations, continued

B.     Discontinued Operations 
 
Discontinued Operations
 
SFAS No. 144 requires discontinued operations presentation for disposals of a “component” of an entity.  In accordance with SFAS No. 144, for all periods presented, the Company reclassified its consolidated statements of income to reflect income and expenses for properties which became held for sale subsequent to December 31, 2001, as discontinued operations and reclassified its consolidated balance sheets to reflect assets and liabilities related to such properties as assets and liabilities related to discontinued operations.
 
The combined results of operations of either sold properties or properties held for sale are reported separately as discontinued operations for the years ended December 31, 2005, 2004 and 2003. These are related to the Berlin Shopping Center, which was sold on July 7, 2005 and the East End Centre, which was sold on November 22, 2004.
 
The combined results of operations and assets and liabilities of the properties classified as discontinued operations are summarized as follows:
 
ASSETS
 
December 31,
2004
 
 
 
Net real estate
 
$
4,827
 
Rents receivable, net
 
 
406
 
Prepaid expenses
 
 
35
 
 
 
 
Total Assets
 
$
5,268
 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
 
Accounts payable and accrued expenses
 
$
13
 
Other liabilities
 
 
38
 
 
 
 
Total liabilities
 
 
51
 
Capital
 
 
5,217
 
 
 
 
Total liabilities and capital
 
$
5,268
 
 
 
 
 
 
 
Years ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Total revenues
 
$
438
 
$
2,554
 
$
2,799
 
Total expenses
 
 
576
 
 
3,058
 
 
3,391
 
 
 
 
 
 
 
 
 
(138
)
 
(504
)
 
(592
)
Impairment of real estate
 
 
(770
)
 
—
 
 
—
 
(Loss) gain on sale of properties
 
 
(50
)
 
6,696
 
 
—
 
Minority interest
 
 
17
 
 
(123
)
 
52
 
 
 
 
 
 
(Loss) income from discontinued operations
 
$
(941
)
$
6,069
 
$
(540
)
 
 
 
 
 
 
F-14
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
3.     Segment Reporting
 
The Company has two reportable segments: retail properties and multi-family properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. The reportable segments are managed separately due to the differing nature of the leases and property operations associated with the retail versus residential tenants. The following table sets forth certain segment information for the Company, reclassified for discontinued operations, as of and for the years ended December 31, 2005, 2004, and 2003 (does not include unconsolidated partnerships):
 
2005
 
 
 
Retail
Properties
 
Multi-Family
Properties
 
All
Other
 
Total
 
 
 
 
 
 
 
Revenues
 
$
61,540
 
$
7,688
 
$
14,090
 
$
83,318
 
Property operating expenses and real estate taxes
 
 
19,323
 
 
4,253
 
 
—
 
 
23,576
 
Other Expenses
 
 
2,141
 
 
267
 
 
12,974
 
 
15,382
 
 
 
 
 
 
 
Net property income before depreciation and amortization
 
$
40,076
 
$
3,168
 
$
1,116
 
$
44,360
 
 
 
 
 
 
 
Depreciation and amortization
 
$
14,847
 
$
1,465
 
$
451
 
$
16,763
 
 
 
 
 
 
 
Interest expense
 
$
10,068
 
$
1,355
 
$
—
 
$
11,423
 
 
 
 
 
 
 
Real estate at cost
 
$
394,118
 
$
41,633
 
$
—
 
$
435,751
 
 
 
 
 
 
 
Total assets
 
$
413,158
 
$
37,295
 
$
48,605
 
$
499,058
 
 
 
 
 
 
 
Expenditures for real estate and improvements
 
$
19,759
 
$
1,018
 
$
—
 
$
20,777
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues for reportable segments
 
$
87,389
 
 
 
 
 
 
 
 
 
 
Elimination of intersegment management fee income
 
 
(1,514
)
 
 
 
 
 
 
 
 
 
Elimination of intersegment asset management fee income
 
 
(1,143
)
 
 
 
 
 
 
 
 
 
Elimination of intersegment service fees and interest income
 
 
(878
)
 
 
 
 
 
 
 
 
 
Elimination of promote fee income
 
 
(536
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consolidated revenues
 
$
83,318
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses and real estate taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
Total property operating expenses and real estate taxes for reportable segments
 
$
25,191
 
 
 
 
 
 
 
 
 
 
Elimination of intersegment management fee expense
 
 
(1,273
)
 
 
 
 
 
 
 
 
 
Elimination of intersegment interest expense
 
 
(342
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consolidated expenses
 
$
23,576
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to net income
 
 
 
 
 
 
 
 
 
 
 
 
 
Net property income before depreciation and amortization
 
$
44,360
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
(16,763
)
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated partnerships
 
 
8,228
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
(11,423
)
 
 
 
 
 
 
 
 
 
Gain on sale of property
 
 
—
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations
 
 
(941
)
 
 
 
 
 
 
 
 
 
Income taxes
 
 
(2,140
)
 
 
 
 
 
 
 
 
 
Minority interest
 
 
(695
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
20,626
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-15
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
3.   Segment Reporting, continued
 
2004
 
 
 
Retail
Properties
 
Multi-Family
Properties
 
All
Other
 
Total
 
 
 
 
 
 
 
Revenues
 
$
57,600
 
$
7,596
 
$
6,461
 
$
71,657
 
Property operating expenses and real estate taxes
 
 
19,172
 
 
4,134
 
 
—
 
 
23,306
 
Other expenses
 
 
3,733
 
 
490
 
 
6,245
 
 
10,468
 
 
 
 
 
 
 
Net property income before depreciation and amortization
 
$
34,695
 
$
2,972
 
$
216
 
$
37,883
 
 
 
 
 
 
 
Depreciation and amortization
 
$
13,709
 
$
1,433
 
$
328
 
$
15,470
 
 
 
 
 
 
 
Interest expense
 
$
8,918
 
$
1,518
 
$
—
 
$
10,436
 
 
 
 
 
 
 
Real estate at cost
 
$
374,359
 
$
40,615
 
$
—
 
$
414,974
 
 
 
 
 
 
 
Total assets
 
$
348,026
 
$
36,872
 
$
20,749
 
$
405,647
 
 
 
 
 
 
 
Expenditures for real estate and improvements
 
$
6,314
 
$
842
 
$
—
 
$
7,156
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues for reportable segments
 
$
73,784
 
 
 
 
 
 
 
 
 
 
Elimination of intersegment management fee income
 
 
(1,290
)
 
 
 
 
 
 
 
 
 
Elimination of intersegment asset management fee income
 
 
(708
)
 
 
 
 
 
 
 
 
 
Elimination of intersegment service fees and interest income
 
 
(129
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consolidated revenues
 
$
71,657
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses and real estate taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
Total property operating expenses and real estate taxes for reportable segments
 
$
24,432
 
 
 
 
 
 
 
 
 
 
Elimination of intersegment management fee expense
 
 
(1,126
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consolidated expense
 
$
23,306
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to net income
 
 
 
 
 
 
 
 
 
 
 
 
 
Net property income before depreciation and amortization
 
$
37,883
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
(15,470
)
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated partnerships
 
 
1,797
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
(10,436
)
 
 
 
 
 
 
 
 
 
Gain on sale of land
 
 
932
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
 
 
6,069
 
 
 
 
 
 
 
 
 
 
Minority interest
 
 
(1,190
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
19,585
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-16
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
3.     Segment Reporting, continued
 
2003
 
 
 
Retail
Properties
 
Multi-Family
Properties
 
All
Other
 
Total
 
 
 
 
 
 
 
Revenues
 
$
55,351
 
$
7,318
 
$
3,977
 
$
66,646
 
Property operating expenses and real estate taxes
 
 
18,440
 
 
4,187
 
 
—
 
 
22,627
 
Other expenses
 
 
7,892
 
 
1,005
 
 
1,837
 
 
10,734
 
 
 
 
 
 
 
Net property income before depreciation and amortization
 
$
29,019
 
$
2,126
 
$
2,140
 
$
33,285
 
 
 
 
 
 
 
Depreciation and amortization
 
$
15,538
 
$
1,336
 
$
321
 
$
17,195
 
 
 
 
 
 
 
Interest expense
 
$
8,366
 
$
1,530
 
$
—
 
$
9,896
 
 
 
 
 
 
 
Real estate at cost
 
$
367,446
 
$
39,774
 
$
—
 
$
407,220
 
 
 
 
 
 
 
Total assets
 
$
337,724
 
$
36,830
 
$
13,630
 
$
388,184
 
 
 
 
 
 
 
Expenditures for real estate and improvements
 
$
11,971
 
$
1,378
 
$
—
 
$
13,349
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues for reportable segments
 
$
68,286
 
 
 
 
 
 
 
 
 
 
Elimination of intersegment management fee income
 
 
(1,340
)
 
 
 
 
 
 
 
 
 
Elimination of intersegment asset management fee income
 
 
(300
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consolidated revenues
 
$
66,646
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses and real estate taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
Total property operating expenses and real estate taxes for reportable segments
 
$
23,784
 
 
 
 
 
 
 
 
 
 
Elimination of intersegment management fee expense
 
 
(1,157
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consolidated expense
 
$
22,627
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to net income
 
 
 
 
 
 
 
 
 
 
 
 
 
Net property income before depreciation and amortization
 
$
33,285
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
(17,195
)
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated partnerships
 
 
2,411
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
(9,896
)
 
 
 
 
 
 
 
 
 
Gain on sale of land
 
 
1,187
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations
 
 
(540
)
 
 
 
 
 
 
 
 
 
Minority interest
 
 
(1,399
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
7,853
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-17
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
4.     Investments in Unconsolidated Partnerships
 
Crossroads
 
The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads II Joint Venture (collectively, “Crossroads”) which collectively own a 311,000 square foot shopping center in White Plains, New York. The Company accounts for its investment in Crossroads using the equity method. Summary financial information of Crossroads and the Company’s investment in and share of income from Crossroads follows:
 
 
 
December 31,
 
 
 
 
 
 
2005
 
2004
 
 
 
 
 
Balance Sheets
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Rental property, net
 
$
6,458
 
$
6,939
 
Other assets
 
 
5,543
 
 
6,129
 
 
 
 
 
Total assets
 
$
12,001
 
$
13,068
 
 
 
 
 
Liabilities and partners’ equity
 
 
 
 
 
 
 
Mortgage note payable
 
$
64,000
 
$
64,000
 
Other liabilities
 
 
2,359
 
 
2,481
 
Partners’ equity
 
 
(54,358
)
 
(53,413
)
 
 
 
 
Total liabilities and partners’ equity
 
$
12,001
 
$
13,068
 
 
 
 
 
Company’s investment
 
$
(10,315
)
$
(9,304
)
 
 
 
 
 
 
 
Years Ended December 31,
 
 
 
 
 
 
 
2005
 
 
2004
 
 
2003
 
 
 
 
 
 
Statements of Income
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
8,772
 
$
8,160
 
$
8,324
 
Operating and other expenses
 
 
2,581
 
 
2,707
 
 
2,465
 
Interest expense
 
 
3,632
 
 
2,740
 
 
2,542
 
Depreciation and amortization
 
 
654
 
 
778
 
 
570
 
 
 
 
 
 
Net income
 
$
1,905
 
$
1,935
 
$
2,747
 
 
 
 
 
 
Company’s share of net income
 
$
988
 
$
1,112
 
$
1,377
 
Amortization of excess investment (See below)
 
 
392
 
 
392
 
 
392
 
 
 
 
 
 
Income from partnerships
 
$
596
 
$
720
 
$
985
 
 
 
 
 
 
 
The unamortized excess of the Company’s investment over its share of the net equity in Crossroads at the date of acquisition was $19,580. The portion of this excess attributable to buildings and improvements are being amortized over the life of the related property.
 
Acadia Strategic Opportunity Fund, LP (“Fund I”)
 
In 2001, the Company formed a joint venture, Fund I, with four of its institutional investors for the purpose of acquiring real estate assets.  The Company is the sole general partner with 22% interest in the joint venture and is also entitled to a profit participation in excess of its invested capital based on certain investment return thresholds.  The Company also earns market-rate fees for asset management as well as for property management, construction and leasing services.  Decisions made by the general partner as it relates to purchasing, financing and disposition of properties are subject to the unanimous disapproval of the Advisory Committee, which is comprised of representatives from each of the four institutional investors.
 
F-18
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
4.     Investments in Unconsolidated Partnerships, continued
 
As of December 31, 2005, Fund I owns or has an ownership interest in ten shopping centers and twenty-five anchor-only super market leases comprising 2.7 million square feet. Acquisitions completed during 2004 and 2003 were as follows:
 
On March 11, 2004, Fund I, in conjunction with the Company’s long-time investment partner, Hendon Properties (“Hendon”), purchased a $9,600 first mortgage loan from New York Life Insurance Company for $5,500. The loan, which was secured by the Hitchcock Plaza in Aiken, South Carolina, was in default at acquisition. Fund I and Hendon acquired the loan with the intention of pursuing ownership of the property securing the debt. Fund I provided 90% of the equity capital and Hendon provided the remaining 10% of the equity capital used to acquire the loan. Hendon is entitled to receive profit participation in excess of its proportionate equity interest. Subsequent to the acquisition of the loan, Fund I and Hendon obtained fee title to this property. The Company provided $3,150 of mortgage financing to the project in connection with the purchase of the first mortgage loan. The note matures March 9, 2006, and bears interest at 7% for the first year and 6% for the second year. In addition to this loan, the Company invested approximately $900, primarily its pro-rata share of equity as a partner in Fund I. In September 2004, Fund I and Hendon purchased the Pine Log Plaza for $1,500. The 35,000 square foot center is located in front of and adjacent to Hitchcock Plaza. Related to this transaction, the Company provided an additional $750 mortgage loan to the project with a March 2006 maturity and interest at 7% for the first year and 6% for the second year.
 
During May 2004, Fund I acquired a 50% interest in Haygood Shopping Center and Sterling Heights Shopping Center for an aggregate investment of $3,184. These assets are part of the portfolio that the Company currently manages as a result of its January 2004 acquisition of certain management contracts (note 7).
 
During May 2004, Fund I and an unaffiliated partner, each with a 50% interest, acquired a 35,000 square foot shopping center in Tarrytown, New York, for approximately $5,300.  Related to this acquisition, the Company loaned $2,000 to Fund I which bears interest at the prime rate and matured May 2005. This loan has been converted to a demand note.
 
During January 2003, Fund I and an unaffiliated joint venture party acquired a one million square foot supermarket portfolio consisting of twenty-five anchor-only leases with either Kroger or Safeway supermarkets (“Kroger/Safeway Portfolio”). The portfolio was acquired through long-term ground leases with terms, including renewal options, averaging in excess of 80 years, which are master leased to a non-affiliated entity. The purchase price of $48,900 (inclusive of closing and other related acquisition costs) included the assumption of $34,450 of existing fixed-rate debt which bears interest at a weighted-average rate of 6.6%. The mortgage debt fully amortizes through 2009, which is coterminous with the primary lease term of the supermarket leases. Fund I invested $11,250 of the equity capitalization of which the Company’s share was $2,500.
 
Also during January 2003, Fund I acquired a one million square foot portfolio for an initial purchase price of $86,287, inclusive of closing and other related acquisition costs. The portfolio consists of two shopping centers located in Wilmington, Delaware (“Brandywine Portfolio”). A portion of one of the properties is currently unoccupied, which Fund I will pay for on an “earn-out” basis only when it is leased. To date, Fund I has incurred costs of $30,302 for Earn-out space. At closing, Fund I assumed $38,082 of fixed-rate debt which bears interest at a weighted-average rate of 6.2% as well as obtained an additional fixed-rate loan of $30,000 which bears interest at 4.7%. Fund I invested equity of $19,270 in the acquisition, of which the Company’s share was $4,282. On January 4, 2006, the Company recapitalized the Brandywine Portfolio (note 21).
 
F-19
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
4.     Investments in Unconsolidated Partnerships, continued
 
The Company accounts for its investment in Fund I using the equity method. Summary financial information of Fund I and the Company’s investment in and share of income from Fund I is as follows:
 
 
 
December 31,
 
 
 
 
 
 
2005
 
2004
 
 
 
 
 
Balance Sheets
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Rental property, net
 
$
189,188
 
$
187,046
 
Other assets
 
 
20,835
 
 
13,077
 
 
 
 
 
Total assets
 
$
210,023
 
$
200,123
 
 
 
 
 
Liabilities and partners’ equity
 
 
 
 
 
 
 
Mortgage note payable
 
$
113,888
 
$
120,188
 
Other liabilities
 
 
16,756
 
 
24,060
 
Partners’ equity
 
 
79,379
 
 
55,875
 
 
 
 
 
Total liabilities and partners’ equity
 
$
210,023
 
$
200,123
 
 
 
 
 
Company’s investment
 
$
17,072
 
$
12,115
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
 
 
 
 
 
2005
 
 
2004
 
 
2003
 
 
 
 
 
 
Statements of Income
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
30,605
 
$
26,664
 
$
26,008
 
Operating and other expenses
 
 
5,282
 
 
5,807
 
 
5,017
 
Management and other fees
 
 
2,284
 
 
2,106
 
 
2,171
 
Interest expense
 
 
6,568
 
 
6,673
 
 
6,399
 
Depreciation and amortization
 
 
9,166
 
 
8,731
 
 
8,055
 
Minority interest
 
 
284
 
 
166
 
 
157
 
Equity in earnings (loss) in unconsolidated subsidiary
 
 
(235
)
 
207
 
 
—
 
Provision for income taxes
 
 
53
 
 
—
 
 
—
 
 
 
 
 
 
Net income
 
$
7,203
 
$
2,974
 
$
4,209
 
 
 
 
 
 
Company’s share of net income
 
$
2,228
 
$
1,170
 
$
1,426
 
 
 
 
 
 
 
F-20
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
4.     Investments in Unconsolidated Partnerships, continued
 
Acadia Strategic Opportunity Fund II, LLC (“Fund II”)
 
In June of 2004, the Company formed a joint venture, Fund II, with the investors from Fund I as well as two new institutional investors for the purpose of acquiring real estate assets.  The Company is the sole managing member with 20% interest in the joint venture and is also entitled to a profit participation in excess of its invested capital based on certain investment return thresholds.  The Company also earns market-rate fees for asset management as well as for property management, construction, legal and leasing services.  Decisions made by the managing member as it relates to purchasing, financing and disposition of properties are subject to the unanimous disapproval  of the Advisory Committee, which is comprised of representatives from each of the six institutional investors.
 
On September 29, 2004, in conjunction with an investment partner, P/A Associates, LLC (“P/A”), Fund II, through Acadia-P/A Holding Company, LLC (“Acadia-P/A”), purchased 400 East Fordham Road in the Bronx, NY for $30,197, inclusive of closing and other related acquisition costs. The Company had provided a bridge loan of $18,000 to Fund II in connection with this acquisition. Subsequent to the acquisition, Fund II repaid this loan from the Company with $18,000 of proceeds from a new loan from a bank which bears interest at LIBOR plus 175 basis points and matures November 2007.  On February 25, 2005, Acadia-P/A purchased a parcel of land adjacent to 400 E. Fordham Road for $867, inclusive of closing and related acquisition costs.
 
On October 1, 2004, Acadia-P/A entered into a 95-year ground lease to redevelop a 16-acre site in Pelham Manor, Westchester County, New York.
 
On April 6, 2005, Acadia-P/A purchased a 140,000 square foot building located in the Washington Heights section of Manhattan, NY.  The building was acquired for a purchase price of $25,000.  In September 2005, Acadia-P/A obtained a mortgage loan of $19,000 secured by this property which requires monthly payments of interest only at a fixed interest rate of 5.26% and matures September 2007.
 
During July 2005, Fund II, in conjunction with its partners in the Retailer Controlled Property Venture, invested $1,000 for a 50% interest in a leasehold located in Rockville, Maryland.
 
On August 5, 2005, Acadia-P/A purchased 260 East 161st Street in the Bronx, NY for $49,374, inclusive of closing and other related acquisition costs. Concurrent with the closing, Acadia-P/A obtained a short term loan of $12,066 which bears interest at LIBOR plus 150 basis points and matures March 2006.
 
On November 3, 2005, Fund II acquired a 36-year ground lease interest for a 112,000 square foot building located at Oakbrook Center in the Chicago Metro Area for $6,906, including closing and other acquisition costs. The term of the ground lease expires in July 2017 with three 10-year-options. The current tenant’s lease expires in October 2006 with five 5-year-options at the current rent plus one 15-year option at fair market value.  The tenant has exercised the first 5-year option which expires in October 2011.
 
In December 2005, Acadia-P/A acquired a 65,000 square foot parking garage located at 10th Avenue in Manhattan, New York.  The purchase price was $5,310, including closing and other acquisition costs. Concurrent with the closing, Acadia-P/A obtained a $4,900 short term loan which matures on March 31, 2006 and bears interest at LIBOR plus 125 basis points.
 
Also in December 2005, Acadia-P/A acquired the remaining 40-year term of a leasehold interest on land located at Liberty Avenue in Queens, New York for $308.
 
During the year of 2005, Fund II drew down a total of $24,400 (net of $10,000 of repayments) under an existing subscription credit facility, which bears interest at LIBOR plus 75 basis points. The line proceeds were utilized for various acquisitions during the year of 2005.
 
F-21
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
4.     Investments in Unconsolidated Partnerships, continued
 
The Company accounts for its investment in Fund II using the equity method. Summary financial information of Fund II and the Company’s investment in and share of income from Fund II as follows: 
 
 
 
December 31,
 
 
 
 
 
 
 
2005
 
 
2004
 
 
 
 
 
Balance Sheets
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Rental property, net
 
$
117,389
 
$
29,058
 
Other assets
 
 
16,662
 
 
4,434
 
 
 
 
 
Total assets
 
$
134,051
 
$
33,492
 
 
 
 
 
Liabilities and partners’ equity
 
 
 
 
 
 
 
Mortgage notes payable
 
$
78,366
 
$
18,000
 
Other liabilities
 
 
7,717
 
 
321
 
Partners’ equity
 
 
47,968
 
 
15,171
 
 
 
 
 
Total liabilities and partners’ equity
 
$
134,051
 
$
33,492
 
 
 
 
 
Company’s investment in Fund II
 
$
9,328
 
$
2,760
 
 
 
 
 
 
 
 
Year Ended
December 31, 2005
 
Period from June 15,
2004 (inception) to
December 31, 2004
 
 
 
 
 
Statements of Operations
 
 
 
 
 
 
 
Total revenue
 
$
4,685
 
$
885
 
Operating and other expenses
 
 
2,388
 
 
935
 
Management and other fees
 
 
4,286
 
 
2,039
 
Interest expense
 
 
2,124
 
 
262
 
Depreciation and amortization
 
 
1,972
 
 
248
 
Minority interest
 
 
(65
)
 
(27
)
Equity in earning of unconsolidated partnership
 
 
318
 
 
—
 
 
 
 
 
Net loss
 
$
(6,338
)
$
(2,572
)
 
 
 
 
Company’s share of net loss (1)
 
$
(390
)
$
(93
)
 
 
 
 
 
Notes:
 
(1)
The Company’s pro-rata share of net income is before Management and other fees as these amounts are paid to the Company.
 
Retailer Controlled Property Venture
 
On January 27, 2004, the Company entered into the Retailer Controlled Property Venture (“RCP Venture”) with Klaff Realty, L.P. (“Klaff”) and Klaff’s long-time capital partner Lubert-Adler Management, Inc. for the purpose of making investments in surplus or underutilized properties owned by retailers. On September 2, 2004, affiliates of Fund I and Fund II, through, newly formed limited liability companies, invested, on a non-recourse basis, in the acquisition of Mervyn’s through the RCP Venture, which, as part of an investment consortium of Sun Capital Partners, Inc. and Cerberus Capital Management L.P., acquired Mervyn’s from Target Corporation. The total acquisition price was $1,175,000, with such affiliates’ combined $23,520 share of the investment divided equally between them. The Company’s share of the acquisition totaled $4,965. During the year ended December 31, 2005, affiliates of Funds I and II contributed an additional total of $1,040 into the Mervyn’s investment, of which the Company’s share was $220. During the year ended December 31, 2005, the Company recognized $5,793 of income from the Mervyn’s investment representing its share of net income from this investment.  In addition, the Company recognized $979 as a result of its 20% carried interest in the Mervyn’s investment, which is included in Management Fee Income in the Consolidated Statements of Income.
 
F-22
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
4.     Investments in Unconsolidated Partnerships, continued
 
Preferred Equity Investment
 
In March of 2005, the Company invested $20,000 in a preferred equity position (“Preferred Equity”) with Levitz SL, L.L.C. (“Levitz SL”), the owner of 2.5 million square feet of fee and leasehold interests in 30 locations (the “Properties”), the majority of which are currently leased to Levitz Furniture Stores. Klaff Realty L.P. (“Klaff”) is a managing member of Levitz SL. The Preferred Equity receives a return of 10%, plus a minimum return of capital of $2,000 per annum. At the end of 12 months, the rate of return will be reset to the six-month LIBOR plus 644 basis points. The Preferred Equity is redeemable at the option of Levitz SL at any time, although if redeemed during the first 12 months, the redemption price is equal to the outstanding amount of the Preferred Equity, plus the return calculated for the remainder of the 12-month period. In October 2005, Levitz Furniture filed for bankruptcy under Chapter 11. The Company has a preferred equity investment of $19,000 at December 31, 2005. Levitz was in arrears in minimum return of capital by $0.5 million. This investment was not made based on Levitz remaining as a tenant, but rather based on the underlying value of the real estate, which management believes is sufficient to recover our equity investment and the return attributable thereto. Accordingly, no reserve is required at December 31, 2005.
 
5.     Deferred Charges
 
Deferred charges consist of the following as of December 31, 2005 and 2004:
 
 
 
December 31,
 
 
 
 
 
 
2005
 
2004
 
 
 
 
 
Deferred financing costs
 
$
6,537
 
$
7,263
 
Deferred leasing and other costs
 
 
20,815
 
 
16,889
 
 
 
 
 
 
 
 
27,352
 
 
24,152
 
Accumulated amortization
 
 
(11,472
)
 
(11,528
)
 
 
 
 
 
 
$
15,880
 
$
12,624
 
 
 
 
 
 
6.   Mortgage Loans
 
At December 31, 2005, mortgage notes payable aggregated $238,448 and were collateralized by 20 properties and related tenant leases. Interest rates ranged from 5.0% to 7.6%.  Mortgage payments are due in monthly installments of principal and/or interest and mature on various dates through 2016. Certain loans are cross-collateralized and cross-defaulted. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with certain affirmative and negative covenants, including the maintenance of certain debt service coverage and leverage ratios.
 
On February 25, 2005, the Company drew down $20,000 under an existing revolving facility, which bears interest at LIBOR plus 150 basis points.  The proceeds from this drawdown were utilized for the Preferred Equity investment (Note 4).
 
During  April  2005, the company borrowed $7,400 under an existing secured revolving facility.
 
On May 26, 2005, the Company closed on a $65,000 cross-collateralized revolving facility which is collateralized by five of the Company’s properties.  The facility bears interest at LIBOR plus 130 basis points and matures June 1, 2010.  At closing, the lender advanced $12,000, of which $7,400 was used to refinance an existing facility with the same lender.  On June 27, 2005, an additional $20,000 was drawn on this line.  On October 21, 2005, $10,000 was repaid on this line resulting in $22,000 outstanding under this facility as of December 31, 2005.
 
On August 31, 2005, the company closed on a $17,600 loan, which bears interest at a fixed rate of 4.98%.   This loan, which matures September 2015, requires the payment of interest only until October 2010, and thereafter interest and principal based on 30 year amortization.  The proceeds from this loan were in part used to pay down $15,000 on an existing line.
 
On October 17, 2005, the Company closed on a $12,500 loan, which bears interest at a fixed rate of 5.12%.  This loan, which matures November 2015, requires the payment of interest only until November 2008, and thereafter interest and principal until maturity.  The proceeds from this loan were in part used to pay down $10,000 on the aforementioned $65,000 revolving facility.
 
On December 9, 2005, the Company closed on a $34,600 loan, which bears interest at a fixed rate of 5.53%. This loan, which matures January 2016, requires the payment of interest only until January 2010, and thereafter interest and principal until maturity.
 
F-23
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
6.     Mortgage Loans, continued
 
The following table summarizes the Company’s mortgage indebtedness (exclusive of mortgage debt of discontinued operations) as of December 31, 2005 and 2004:
 
 
 
December 31,
2005
 
December 31,
2004
 
Interest Rate at
December 31, 2005
 
Maturity
 
Properties
Encumbered
 
Payment
Terms
 
 
 
 
 
 
 
 
 
Mortgage notes payable – variable rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington Mutual Bank, FA
 
$
29,131
 
$
29,900
 
 
5.89% (LIBOR + 1.50%)
 
 
04/01/11
 
 
(1
)
 
(13
)
Bank of America, NA
 
 
44,485
 
 
44,485
 
 
5.79% (LIBOR + 1.40%)
 
 
06/29/12
 
 
(2
)
 
(14
)
Bank of America, NA
 
 
10,082
 
 
10,252
 
 
5.79% (LIBOR + 1.40%)
 
 
06/29/12
 
 
(3
)
 
(13
)
Bank of America, NA
 
 
8,338
 
 
8,473
 
 
5.79% (LIBOR + 1.40%)
 
 
12/01/08
 
 
(4
)
 
(13
)
Bank of America, NA
 
 
22,000
 
 
—
 
 
5.69% (LIBOR + 1.30%)
 
 
06/01/10
 
 
(5
)
 
(17
)
Interest rate swaps
 
 
(92,376
)
 
(86,156
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total variable-rate debt
 
 
21,660
 
 
6,954
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable – fixed rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank of America, N.A.
 
 
15,882
 
 
16,062
 
 
7.55%
 
 
01/01/11
 
 
(6
)
 
(13
)
RBS Greenwich Capital
 
 
15,000
 
 
15,000
 
 
5.64%
 
 
09/06/14
 
 
(7
)
 
(12
)
RBS Greenwich Capital
 
 
15,894
 
 
16,000
 
 
5.19%
 
 
06/01/13
 
 
(8
)
 
(15
)
SunAmerica Life Insurance Company
 
 
12,936
 
 
13,189
 
 
6.46%
 
 
07/01/07
 
 
(9
)
 
(13
)
RBS Greenwich Capital
 
 
17,600
 
 
—
 
 
4.98%
 
 
09/06/15
 
 
(10
)
 
(13
)
RBS Greenwich Capital
 
 
12,500
 
 
—
 
 
5.12%
 
 
11/06/15
 
 
(11
)
 
(18
)
Bear Stearns Commercial Mortgage, Inc.
 
 
34,600
 
 
—
 
 
5.53%
 
 
01/01/16
 
 
(12
)
 
(19
)
Fleet National Bank – Interest Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
 
92,376
 
 
86,156
 
 
5.77%
 
 
(16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total fixed-rate debt
 
 
216,788
 
 
146,407
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
238,448
 
$
153,361
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes:
 
 
 
 
 
(1)
Bradford Towne Centre
 
(9)
Merrillville Plaza
 
Ledgewood Mall
 
 
 
 
 
 
(10)
Crescent Plaza
(2)
Branch Shopping Center
 
 
 
 
Abington Towne Center
 
(11)
Pacesetter Park Shopping Plaza
 
Methuen Shopping Center
 
 
 
 
 
 
(12)
Elmwood Park Shopping Center
(3)
Smithtown Shopping Center
 
 
 
 
 
 
(13)
Monthly principal and interest
(4)
Soundview Marketplace; there is additional capacity of $5,000 on this facility
 
 
 
 
 
 
(14)
Annual principal and monthly interest
(5)
Bloomfield Town Square
 
 
 
 
Walnut Hill Plaza
 
(15)
Interest only until 5/05; monthly principal and interest thereafter
 
Hobson West Plaza
 
 
 
 
Marketplace of Absecon
Village Apartments
 
(16)
Maturing between 10/1/06 and 1/1/11
 
There is additional capacity of $43,000 on this facility
 
 
 
 
 
 
(17)
Interest only monthly
(6)
GHT Apartments/Colony
 
 
 
(7)
New Loudon Center
 
(18)
Interest only until 11/08; monthly principal and interest thereafter
 
 
 
 
 
(8)
239 Greenwich Avenue
 
(19)
Interest only until 1/10; monthly principal and interest thereafter
 
F-24
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
6.     Mortgage Loans, continued
 
The scheduled principal repayments of all mortgage indebtedness as of December 31, 2005 are as follows:
 
2006
 
$
2,141
 
2007
 
 
16,383
 
2008
 
 
12,447
 
2009
 
 
5,328
 
2010
 
 
38,445
 
Thereafter
 
 
163,704
 
 
 
 
 
 
$
238,448
 
 
 
 
 
7.     Shareholders’ Equity and Minority Interests
 
Common Shares
 
In March of 2004, a secondary public offering was completed for a total of 5,750,000 Common Shares. The selling shareholders, Yale University and its affiliates (“Yale”) and Ross Dworman, a former trustee, sold 4,191,386 and 1,558,614 Common Shares, respectively. The Company did not sell any Common Shares in the offering and did not receive any proceeds from the offering.
 
During November 2004, the Company issued 1,890,000 Common Shares (the “Offering”). The $28,312 in proceeds from the Offering, net of related costs, was used to retire above-market, fixed-rate indebtedness as well as to invest in real estate assets. Yale and Kenneth F. Bernstein, the Company’s Chief Executive Officer, also sold 1,000,000, and 110,000 Common Shares, respectively, in connection with this transaction.  Mr. Bernstein sold 110,000 Common Shares in connection with his exercise of options to purchase 150,000 Common Shares.
 
In October 2005, the Board of Trustees approved a resolution permitting one of its institutional shareholders, which at the time owned approximately 3.8% of the Company’s outstanding Common Shares, to acquire additional shares through open market purchases.  This waiver of the Company’s share ownership limitation permitted this shareholder to acquire up to an additional 6% of the Company’s shares through December 31, 2005, or an aggregate of up to 9.8% of the Company’s Common Shares.
 
Through December 31, 2005, the Company had repurchased 2,051,605 Common Shares at a total cost of $11,650 (of which 2,009,509 of these Common Shares have been subsequently reissued) under its share repurchase program that allows for the repurchase of up to $20,000 of its outstanding Common Shares. The repurchased shares are reflected as a reduction of par value and additional paid-in capital.
 
Minority Interests
 
Minority interest in the Operating Partnership represents (i) the limited partners’ interest of 653,360 and 392,255 Common OP Units at December 31, 2005 and 2004, respectively, (ii) 884 and 1,580 Series A Preferred OP Units at December 31, 2005 and 2004, respectively, with a nominal value of $1,000 per unit, which are entitled to a preferred quarterly distribution of the greater of (a) $22.50 per unit (9% annually) per Series A Preferred OP Unit or (b) the quarterly distribution attributable to a Series A Preferred OP Unit if such unit were converted into a Common OP Unit, and (iii) 4,000 Series B Preferred OP Units at both December 31, 2005 and 2004 with a nominal value of $1,000 per unit, which are entitled to a preferred quarterly distribution of the greater of (a) $13.00 (5.2% annually) per unit or (b) the quarterly distribution attributable to a Series B Preferred OP Unit if such unit were converted into a Common OP Unit. Minority interests in majority-owned partnerships represent third-party interests in three partnerships in which the Company has a majority ownership position.
 
During July 2005, the Company issued to a third party 11,105 Restricted Common OP Units valued at $18.01 per unit in connection with the purchase of 4343 Amboy Road. The holder of the Common OP Units was restricted from selling these for six months from the date of the transaction.
 
F-25
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
7.     Shareholders’ Equity and Minority Interests, continued
 
In February 2005, the Company issued $4,000 (250,000 Restricted Common OP Units valued at $16.00 each) of Restricted Common OP Units to Klaff in consideration for the 25% balance of certain management contract rights as well as the rights to 25% of certain potential future revenue streams. This followed the acquisition of 75% of the management contract rights and 75% of certain potential future revenue streams from Klaff in January 2004 as reflected below.  The Restricted Common OP Units are convertible into the Company’s Common Shares on a one-for-one basis after a five-year lock-up period. $1,116 of the purchase price was allocated to investment in management contracts in the consolidated balance sheet and is being amortized over the estimated remaining life of the contracts. The remainder of the purchase price has been allocated to deferred charges in the consolidated balance sheet and will be allocated to future revenue streams as identified.
 
During 2005 and 2004, various limited partners converted a total of 746,762 and 2,058,804 Common OP Units into Common Shares on a one-for-one basis, respectively. Mr. Dworman, a trustee of the Company, received 34,841 of Common OP Units through various affiliated entities during 2003 (Note 8).
 
The Series A Preferred OP Units were issued on November 16, 1999 in connection with the acquisition of all the partnership interests of the limited partnership which owns the Pacesetter Park Shopping Center. Certain Series A Preferred OP Unit holders converted 696 Series A Preferred OP Units into 92,800 Common OP Units and then into Common Shares during 2005. The Series A Preferred OP Units are currently convertible into Common OP Units based on the stated value divided by $7.50. After the seventh anniversary following their issuance, either the Company or the holders can call for the conversion of the Series A Preferred OP Units at the lesser of $7.50 or the market price of the Common Shares as of the conversion date.
 
The Series B Preferred OP Units were issued to Klaff Realty LP (“Klaff”) in January 2004 in consideration for the acquisition of certain management contract rights. The Preferred OP Units are convertible into Common OP Units based on the stated value of $1,000 divided by $12.82 at any time. Additionally, Klaff may redeem them at par for either cash or Common OP Units after the earlier of the third anniversary of their issuance, or the occurrence of certain events including a change in the control of the Company. Finally, after the fifth anniversary of the issuance, the Company may redeem the Preferred OP Units and convert them into Common OP Units at market value as of the redemption date.
 
8.     Related Party Transactions
 
In February 2005, the Company issued $4,000 of Restricted Common OP Units to Klaff for the balance of certain management contract rights as well as the rights to certain potential future revenue streams (Note 7).
 
In March 2005, the Company completed a $20,000 Preferred Equity Investment with Levitz SL, of which Klaff, a common and preferred OP unit holder, is the managing member.
 
The Company earns certain management and service fees in connection with its investment in Fund I and Fund II (Note 4). Such fees earned by the Company aggregated $7,890, $3,504 and $1,689 for the years ended December 31, 2005, 2004 and 2003, respectively.
 
The Company also earns fees in connection with its rights to provide asset management, leasing, disposition, development and construction services for an existing portfolio of retail properties and/or leasehold interests in which Klaff, a preferred OP unit holder, has an interest. Net fees earned by the Company in connection with this portfolio were $3,602 and $885 for the years ended December 31, 2005 and 2004, respectively.  These amounts are net of the payment of sub-management fees to Klaff of $303 and $1,591 for the years ended December 31, 2005 and 2004, respectively.
 
The Company managed one property in which a major shareholder of the Company had an ownership interest and earned a management fee of 3% of tenant collections.  Management fees earned by the Company under this contract aggregated $142 for the year ended December 31, 2004.  In addition, the Company earned leasing commission of $157 related to this property for the year ended December 31, 2004.  In connection with the sale of the property on July 12, 2004, the management contract was terminated and the Company earned a $75 disposition fee.
 
Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of $100 for both years ended December 31, 2005 and 2004.
 
F-26
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
8.     Related Party Transactions, continued
 
On March 19, 2004, Ross Dworman, a former trustee of the Company, and certain entities controlled by Mr. Dworman converted 1,000,000 share options and 548,614 OP Units held by them in connection with a secondary public offering. Included in the Common OP Units converted to Common Shares during 2003 were 2,300 Common OP Units converted by Mr. Dworman who then transferred them to a charitable foundation in accordance with a pre-existing arrangement.
 
During the year ended December 31, 2004, Kenneth F. Bernstein, President and Chief Executive Officer, and certain trustees of the Company exercised 400,000 and 20,000 options to purchase Common Shares, respectively.
 
9.     Tenant Leases
 
Space in the shopping centers and other retail properties is leased to various tenants under operating leases that usually grant tenants renewal options and generally provide for additional rents based on certain operating expenses as well as tenants’ sales volume.
 
Minimum future rentals to be received under non-cancelable leases for shopping centers and other retail properties as of December 31, 2005 are summarized as follows:
 
2006
 
$
46,281
 
2007
 
 
43,456
 
2008
 
 
38,619
 
2009
 
 
34,344
 
2010
 
 
29,229
 
Thereafter
 
 
184,869
 
 
 
 
 
 
$
376,798
 
 
 
 
 
Minimum future rentals above include a total of $4,180 for three tenants (with four leases), which have filed for bankruptcy protection. None of these leases have been rejected nor affirmed. During the years ended December 31, 2005, 2004 and 2003, no single tenant collectively accounted for more than 10% of the Company’s total revenues.
 
10.   Lease Obligations
 
The Company leases land at five of its shopping centers, which are accounted for as operating leases and generally provide the Company with renewal options. Ground rent expense was $796, $791 and $780 for the years ended December 31, 2005, 2004 and 2003, respectively. The leases terminate during during 2008 to 2066. Three of these leases provides the Company with options to renew for additional terms aggregating from 20 to 44 years. The Company leases space for its White Plains corporate office for a term expiring in 2010. Office rent expense under this lease was $412, $239 and $242 for the years ended December 31, 2005, 2004 and 2003, respectively. Future minimum rental payments required for leases having remaining non-cancelable lease terms are as follows:
 
2006
 
$
1,792
 
2007
 
 
1,848
 
2008
 
 
1,930
 
2009
 
 
1,939
 
2010
 
 
1,731
 
Thereafter
 
 
28,974
 
 
 
 
 
 
$
38,214
 
 
 
 
 
11.   Share Incentive Plan
 
During 1999, the Company adopted the 1999 Share Incentive Plan (the “1999 Plan”), which replaced both the 1994 Share Option Plan and the 1994 Non-Employee Trustees’ Share Option Plan. The 1999 Plan authorizes the issuance of options equal to up to 8% of the total Common Shares outstanding from time to time on a fully diluted basis. However, not more than 4,000,000 of the Common Shares in the aggregate may be issued pursuant to the exercise of options and no participant may receive more than 5,000,000 Common Shares during the term of the 1999 Plan. Options are granted by the Share Option Plan Committee (the “Committee”), which currently consists of two non-employee Trustees, and will not have an exercise price less than 100% of the fair market value of the Common Shares and a term of greater than ten years at the grant date. Vesting of options is at the discretion of the Committee with the exception of options granted to non-employee Trustees, which vest in five equal annual installments beginning on the date of grant.
 
F-27
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
11.   Share Incentive Plan, continued
 
The 1999 Plan also provides for the granting of share appreciation rights, restricted shares and performance units/shares. Share appreciation rights provide for the participant to receive, upon exercise, cash and/or Common Shares, at the discretion of the committee, equal to the excess of the market value of the Common Shares at the exercise date over the market value of the Common Shares at the Grant Date. The Committee will determine the award and restrictions placed on restricted shares, including the dividends thereon and the term of such restrictions. The Committee also determines the award and vesting of performance units and performance shares based on the attainment of specified performance objectives of the Company within a specified performance period. Through December 31, 2005, no share appreciation rights or performance units/shares have been awarded.
 
During 2003, the Company adopted the 2003 Share Incentive Plan (the “2003 Plan”) because no Common Shares remained available for future grants under the 1999 Plan. The 2003 Plan provides for the granting of options, share appreciation rights, restricted shares and performance units (collectively, “Awards”) to officers, employees and trustees of the Company and consultants to the Company. The 2003 Plan is generally identical to the 1999 Plan, except that the maximum number of Common Shares that the Company may issue pursuant to the 2003 Plan is four percent of the Common Shares outstanding from time to time on a fully diluted basis. However, no participant may receive more than 1,000,000 Common Shares during the term of the 2003 Plan with respect to Awards. Pursuant to the 2003 Plan, non-employee Trustees receive an automatic grant of 3,000 options following each Annual Meeting of Shareholders.
 
As of December 31, 2005, the Company has 437,242 options outstanding to officers and employees. These fully vested options are for ten-year terms from the grant date and vested in three equal annual installments which began on the grant date. In addition, 40,000 options have been issued to non-employee Trustees of which 13,400 options were vested as of December 31, 2005.
 
During 2005, the Company issued a total of 109,826 restricted Common Shares (“Restricted Shares”) to executive officers (“Officers”) and 23,642 Restricted Shares (net of subsequent forfeitures) to certain employees (“Employees”) of the Company.  In general, the Restricted Shares carry all the rights of Common Shares including voting and dividend rights, but may not be transferred, assigned or pledged until the Recipients have a vested non-forfeitable right to such shares. Vesting with respect to the Restricted Shares issued to Officers, which is subject to the recipients’ continued employment with the Company through the applicable vesting dates, is ratably over four years commencing on the first anniversary of the Grant Date and each of the next three anniversaries thereafter. In addition, vesting on 50% of these Restricted Shares is also subject to certain total shareholder returns on the Company’s Common Shares. Vesting with respect to the Restricted Shares issued to Employees, which is subject to the Recipients’ continued employment with the Company through the applicable vesting dates, is ratably over five years commencing on the Grant Date and each of the next four anniversaries thereafter. In addition, vesting on 25% of these Restricted Shares is also subject to certain total shareholder returns on the Company’s Common Shares.
 
The total value of the above Restricted Share awards on the date of grant was $2,179 which will be recognized in compensation expense over the vesting period.
 
For the year ended December 31, 2004, 126,853 Restricted Shares (net of forfeitures) were issued pursuant to the 2003 Plan. The total value of the Restricted Share awards on the date of grant was $1,586 which will be recognized in expense over the vesting period.  No awards of share appreciation rights or performance units/shares were granted for the years ended December 31, 2005, 2004 and 2003.
 
For the years ended December 31, 2005, 2004 and 2003, $1,029, $764 and $410, respectively, were recognized in compensation expense related to Restricted Share grants. Unearned compensation of $3,541 as of December 31, 2005 will be recognized in expense as such shares vest.
 
Effective January 1, 2002, the Company adopted the fair value method of recording stock-based compensation contained in SFAS No. 123, “Accounting for Stock-Based Compensation”. As such, stock based compensation awards are expensed over the vesting period based on the fair value at the date the stock-based compensation was granted.
 
F-28
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
11.   Share Incentive Plan, continued
 
The Company has used the Binomial method for 2005 and the Black-Scholes option-pricing model in previous years for purposes of estimating the fair value in determining compensation expense for options granted for the years ended December 31, 2005, 2004 and 2003. The Company has also used this model for the pro forma information regarding net income and earnings per share as required by SFAS No. 123 for options issued for the year ended December 31, 2001 as if the Company had also accounted for these employee stock options under the fair value method. The fair value for the options issued by the Company was estimated at the date of the grant using the following weighted-average assumptions resulting in:
 
 
 
Years ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Risk-free interest rate
 
 
4.0
%
 
4.0
%
 
4.4
%
Dividend yield
 
 
4.2
%
 
4.2
%
 
5.8
%
Expected life
 
 
7.5 years
 
 
7.5 years
 
 
10.0 years
 
Expected volatility
 
 
18.0
%
 
18.0
%
 
18.0
%
Fair value at date of grant (per option)
 
$
2.57
 
$
2.17
 
$
0.82
 
 
Changes in the number of shares under all option arrangements are summarized as follows:
 
 
 
Years ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Outstanding at beginning of year
 
 
464,650
 
 
2,095,150
 
 
2,472,400
 
Granted
 
 
69,296
 
 
19,000
 
 
8,000
 
Option price per share granted
 
$
16.35
 
$
12.55-14.13
 
$
9.11-11.66
 
Cancelled
 
 
—
 
 
—
 
 
—
 
Exercisable at end of year
 
 
437,242
 
 
446,850
 
 
2,082,750
 
Settled (1)
 
 
 
 
 
39,500
 
 
385,000
 
Exercised
 
 
56,704
 
 
1,610,000
 
 
250
 
Expired
 
 
—
 
 
—
 
 
—
 
Outstanding at end of year
 
 
477,242
 
 
464,650
 
 
2,095,150
 
Option prices per share outstanding
 
 
$5.75-$16.35
 
 
$5.75-$14.13
 
 
$4.89-$11.66
 
 
(1)
Pursuant to the 1999 Plan these options were settled and did not result in the issuance of any additional Common Shares.
 
As of December 31, 2005 the outstanding options had a weighted average exercise price of $8.08 and a weighted average remaining contractual life of approximately 5.1 years.
 
12.   Employee Stock Purchase and Deferred Share Plan
 
In 2003, the Company adopted the Acadia Realty Trust Employee Stock Purchase Plan (the “Purchase Plan”), which allows eligible employees of the Company to purchase Common Shares through payroll deductions. The Purchase Plan provides for employees to purchase Common Shares on a quarterly basis at a 15% discount to the closing price of the Company’s Common Shares on either the first day or the last day of the quarter, whichever is lower. The amount of the payroll deductions will not exceed a percentage of the participant’s annual compensation that the Committee establishes from time to time, and a participant may not purchase more than 1,000 Common Shares per quarter. Compensation expense will be recognized by the Company to the extent of the above discount to the average closing price of the Common Shares with respect to the applicable quarter. During 2005, 2004 and 2003, 6,412, 6,397 and 810 Common Shares, respectively, were purchased by Employees under the Purchase Plan and the associated compensation expense was $16, $15 and $1 respectively.
 
In August of 2004, the Company adopted a Deferral and Distribution Election pursuant to the 1999 Share Incentive Plan and 2003 Share Incentive Plan, whereby the participants elected to defer receipt of 190,487 Common Shares (“Share Units”) that would otherwise be issued upon the exercise of certain options.  The payment of the option exercise price was made by tendering Common Shares that the participants owned for at least six months prior to the option exercise date.  The Share Units are equivalent to a Common Share on a one-for-one basis and carry a dividend equivalent right equal to the dividend rate for the Company’s Common shares. The deferral period is determined by each of the participants and generally terminates after the cessation of the participants continuous service with the Company, as defined in the agreement.  In December 2004, optionees exercised 346,000 options pursuant to the Deferred Share Election and tendered 155,513 Common Shares in consideration of the option exercise price.  In 2004 the Company issued 155,513 Common Shares to optionees and 190,487 Share Units.    During 2005 there were no additional Shared Units contributed to the plan.
 
F-29
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
13.   Employee 401(k) Plan
 
The Company maintains a 401(k) plan for employees under which the Company currently matches 50% of a plan participant’s contribution up to 6% of the employee’s annual salary. A plan participant may contribute up to a maximum of 15% of their compensation but not in excess of $14 for the year ended December 31, 2005. The Company contributed $128, $109, and $110 for the years ended December 31, 2005, 2004 and 2003, respectively.
 
14.   Dividends and Distributions Payable
 
On November 8, 2005, the Company declared a cash dividend for the quarter ended December 31, 2005 of $0.185 per Common Share. The dividend was paid on January 13, 2006 to shareholders of record as of December 31, 2005.
 
15.   Federal Income Taxes
 
The Company has elected to qualify as a REIT in accordance with the Internal Revenue Code (the “Code”) and intends at all times to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended.  To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual REIT taxable income to its shareholders. As a REIT, the Company generally will not be subject to corporate Federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. As the Company distributed sufficient taxable income for the years ended December 31, 2005, 2004 and 2003 no U.S. Federal income or excise taxes were incurred.  If the Company fails to qualify as a REIT in any taxable year, it will be subject to Federal income taxes at the regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Even though the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property and Federal income and excise taxes on any undistributed taxable income.  In addition, taxable income from non-REIT activities managed through the Company’s TRS’s are subject to Federal, state and local income taxes.
 
The primary difference between the GAAP and tax reported amounts of the Company’s assets and liabilities are a higher GAAP basis in its real estate properties.  This is primarily the result of assets acquired as a result of property contributions in exchange for OP Units .
 
F-30
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
15.   Federal Income Taxes, continued
 
Reconciliation between GAAP Net Income and Federal Taxable Income
 
The following table reconciles GAAP net income to taxable income for the years ended December 31, 2005, 2004 and 2003:
 
 
 
2005
(Estimated)
 
2004
(Actual)
 
2003
(Actual)
 
 
 
 
 
 
GAAP net income
 
$
20,626
 
$
19,585
 
$
7,853
 
Less: GAAP net income of TRS
 
 
1,349
 
 
—
 
 
—
 
 
 
 
 
 
GAAP net income from REIT operations (1)
 
 
19,277
 
 
19,585
 
 
7,853
 
Book/tax difference in depreciation and amortization
 
 
5,163
 
 
3,438
 
 
3,828
 
Book/tax difference on exercise of options to purchase Common Shares
 
 
(26
)
 
(8,970
)
 
—
 
Book/tax difference on capital transactions
 
 
(50
)
 
(1,354
)
 
—
 
Other book/tax differences, net
 
 
(748
)
 
1,953
 
 
(326
)
 
 
 
 
 
REIT taxable income before dividends paid deduction
 
$
23,616
 
$
14,652
 
$
11,355
 
 
 
 
 
 
 
(1)  – All adjustments to GAAP net income from REIT operations are net of amounts attributable to minority interest and TRS.
 
Characterization of Distributions:
 
The Company has determined that the cash distributed to the shareholders is characterized as follows for Federal income tax purposes:
 
 
 
For the years ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Ordinary income
 
 
95
%
 
59
%
 
100
%
Section 1250 gain
 
 
3
%
 
32
%
 
—
Return of capital
 
 
2
%
 
9
%
 
—
 
 
 
 
 
 
 
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
Taxable REIT Subsidiaries (“TRS”)
 
Income taxes have been provided for on the asset and liability method as required by SFAS No. 109. The Company’s TRS income and provision for income taxes for the year ended December 31, 2005 is summarized as follows:
 
 
 
 
2005
(Estimated)
 
 
 
 
TRS income before income taxes
 
$
3,458
 
Less provision for income taxes:
 
 
 
 
Federal
 
 
1,601
 
State and Local
 
 
508
 
 
 
 
Total provision for income taxes
 
 
2,109
 
 
 
 
GAAP net income TRS
 
$
1,349
 
 
 
 
 
The Company has provided a full valuation allowance against its deferred tax asset of $247 due to the current uncertainty of its realization and as such is not included in the accompanying Consolidated Balance Sheets at December 31, 2005. This deferred tax asset relates primarily to the differences in the timing of the recognition of income/(deductions) and gain/(loss) between the GAAP and tax basis of accounting for (i) real estate joint ventures activities, (ii) capital transactions and (iii) other deductible temporary differences.
 
F-31
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
15.     Federal Income Taxes, continued
 
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to taxable income before income taxes as follows:
 
 
 
2005
 
 
 
 
Federal provision at statutory tax rate (35%)
 
$
1,210
 
State and local taxes, net of federal benefit
 
 
330
 
Tax effect of:
 
 
 
 
Permanent differences
 
 
476
 
Valuation allowance against deferred tax asset
 
 
208
 
Utilization of loss and deduction carry forwards
 
 
(115
)
Other
 
 
31
 
 
 
 
Total provision for income taxes
 
$
2,140
 
 
 
 
16.     Financial Instruments
 
Fair Value of Financial Instruments:
 
SFAS No. 107, “Disclosures About Fair Value of Financial Instruments” requires disclosure on the fair value of financial instruments. Certain of the Company’s assets and liabilities are considered financial instruments. Fair value estimates, methods and assumptions are set forth below.
 
Cash and Cash Equivalents, Restricted Cash, Cash in Escrow, Rents Receivable, Notes Receivable, Prepaid Expenses, Other Assets, Accounts Payable and Accrued Expenses, Dividends and Distributions Payable, Due to Related Parties and Other Liabilities.  The carrying amount of these assets and liabilities approximates fair value due to the short-term nature of such accounts.
 
Derivative Instruments – The fair value of these instruments is based upon the estimated amounts the Company would receive or pay to terminate the contracts as of December 31, 2005 and 2004 and is determined using interest rate market pricing models.
 
Mortgage Notes Payable – As of December 31, 2005 and 2004, the Company has determined the estimated fair value of its mortgage notes payable are $235,297 and $153,612, respectively, by discounting future cash payments utilizing a discount rate equivalent to the rate at which similar mortgage notes payable would be originated under conditions then existing.
 
Derivative Financial Instruments:
 
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” , as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.  As required by SFAS 133, the Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
 
For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.
 
F-32
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
16.     Financial Instruments, continued
 
Derivative Financial Instruments, continued
 
As of December 31, 2005 and 2004, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations.  Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.
 
The following table summarizes the notional values and fair values of the Company’s derivative financial instruments as of December 31, 2005. The notional value does not represent exposure to credit, interest rate or market risks:
 
Hedge Type
 
Notional
Value
 
Rate
 
Forward Start
Date
 
Interest
maturity
 
Fair Value
 
 
 
 
 
 
 
LIBOR Swap
 
$
36,778
 
 
4.35
%
 
n/a
 
 
1/1/11
 
$
615
 
LIBOR Swap
 
 
20,000
 
 
4.53
%
 
n/a
 
 
10/1/06
 
 
24
 
LIBOR Swap
 
 
15,149
 
 
4.32
%
 
n/a
 
 
1/1/07
 
 
62
 
LIBOR Swap
 
 
11,719
 
 
4.11
%
 
n/a
 
 
1/1/07
 
 
72
 
LIBOR Swap
 
 
8,730
 
 
4.47
%
 
n/a
 
 
6/1/07
 
 
31
 
LIBOR Swap
 
4,640
 
 
4.71
%
 
10/2/06
 
 
1/1/10
 
 
5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap receivable
 
 
 
 
 
 
 
 
 
 
 
 
 
$
809
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIBOR Swap
 
 
11,410
 
 
4.90
%
 
10/2/06
 
 
10/1/11
 
 
(59
)
LIBOR Swap
 
 
8,434
 
 
5.14
%
 
6/1/07
 
 
3/1/12
 
 
(121
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap liability
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(180
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2005, the derivative instruments were reported at fair value as reflected above. The interest rate swap receivable is included in Other Assets in the Consolidated Balance Sheets. As of December 31, 2004, the derivative instruments were reported at fair value as a derivative instrument liability of $2,136. As of December 31, 2005 and 2004, unrealized losses totaling $12 and $3,219, respectively, represented the fair value of the aforementioned derivatives, of which $12 and $3,180, respectively, were reflected in accumulated other comprehensive loss, and $0 and $39, respectively, as a reduction of minority interest in the Operating Partnership. For the years ended December 31, 2004 and 2003, the Company recorded in interest expense an unrealized loss of $37 and unrealized gain of $51, respectively, due to partial ineffectiveness on one of the swaps which was terminated in November 2004. The ineffectiveness resulted from differences between the derivative notional and the principal amount of the hedged variable rate debt.
 
The Company’s interest rate hedges are designated as cash flow hedges and hedge the future cash outflows on mortgage debt. Interest rate swaps that convert variable payments to fixed payments, such as those held by the Company, as well as interest rate caps, floors, collars, and forwards are cash flow hedges. The unrealized gains and losses in the fair value of these hedges are reported on the balance sheet with a corresponding adjustment to either accumulated other comprehensive income or earnings depending on the type of hedging relationship. For cash flow hedges, offsetting gains and losses are reported in accumulated other comprehensive income. Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified to earnings. This reclassification occurs over the same time period in which the hedged items affect earnings.
 
F-33
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
17.     Earnings Per Common Share
 
Basic earnings per share was determined by dividing the applicable net income to common shareholders for the year by the weighted average number of Common Shares outstanding during each year consistent with SFAS No. 128. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted into Common Shares or resulted in the issuance of Common Shares that then shared in the earnings of the Company. The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the periods indicated:
 
 
 
Years ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations – basic earnings per share
 
$
21,567
 
$
13,516
 
$
8,393
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
Preferred OP Unit distributions
 
 
—
 
 
—
 
 
—
 
 
 
 
 
 
Numerator for diluted earnings per share
 
 
21,567
 
 
13,516
 
 
8,393
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
 
 
Weighted average shares – basic earnings per share
 
 
31,949
 
 
29,341
 
 
26,640
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
Employee stock options
 
 
265
 
 
571
 
 
592
 
 
 
 
 
 
Dilutive potential Common Shares
 
 
265
 
 
571
 
 
592
 
 
 
 
 
 
Denominator for diluted earnings per share
 
 
32,214
 
 
29,912
 
 
27,232
 
 
 
 
 
 
Basic earnings per share from continuing operations
 
$
0.68
 
$
0.46
 
$
0.32
 
 
 
 
 
 
Diluted earnings per share from continuing operations
 
$
0.67
 
$
0.45
 
$
0.31
 
 
 
 
 
 
 
The weighted average shares used in the computation of basic earnings per share include unvested restricted shares (Note 11) and Share Units (Note 12) that are entitled to receive dividend equivalent payments. The effect of the conversion of Common OP Units is not reflected in the above table as they are exchangeable for Common Shares on a one-for-one basis. The income allocable to such units is allocated on this same basis and reflected as minority interest in the accompanying consolidated financial statements. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings per share.
 
18.     Summary of Quarterly Financial Information (unaudited)
 
The quarterly results of operations of the Company for the years ended December 31, 2005 and 2004 are as follows:
 
 
 
March 31,
2005
 
June 30,
2005
 
September 30,
2005
 
December 31,
2005
 
Total for
Year
 
 
 
 
 
 
 
 
Revenue
 
$
19,613
 
$
20,346
 
$
20,745
 
$
22,614
 
$
83,318
 
Income from continuing operations
 
$
4,360
 
$
5,044
 
$
7,294
 
$
4,869
 
$
21,567
 
Income (loss) from discontinued operations
 
$
85
 
$
(699
)
$
(69
)
$
(258
)
$
(941
)
Net income
 
$
4,445
 
$
4,345
 
$
7,225
 
$
4,611
 
$
20,626
 
Net income per Common Share – basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.14
 
$
0.16
 
$
0.23
 
$
0.15
 
$
0.68
 
Income (loss) from discontinued operations
 
 
0.00
 
 
(0.02
)
 
(0.00
)
 
(0.01
)
 
(0.03
)
 
 
 
 
 
 
 
Net income
 
$
0.14
 
$
0.14
 
$
0.23
 
$
0.14
 
$
0.65
 
 
 
 
 
 
 
 
Net income per Common Share –diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.14
 
$
0.16
 
$
0.22
 
$
0.15
 
$
0.67
 
Income (loss) from discontinued operations
 
 
0.00
 
 
(0.02
)
 
(0.00
)
 
(0.01
)
 
(0.03
)
 
 
 
 
 
 
 
Net income
 
$
0.14
 
$
0.14
 
$
0.22
 
$
0.14
 
$
0.64
 
 
 
 
 
 
 
 
Cash dividends declared per Common
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share
 
$
0.1725
 
$
0.1725
 
$
0.1725
 
$
0.185
 
$
0.7025
 
Weighted average Common Shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
31,867,185
 
 
31,898,644
 
 
32,008,982
 
 
32,017,316
 
 
31,948,610
 
Diluted
 
 
32,139,833
 
 
32,144,529
 
 
32,706,201
 
 
32,293,926
 
 
32,214,231
 
 
F-34
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
18.     Summary of Quarterly Financial Information (unaudited), continued
 
 
 
March 31,
2004
 
June 30,
2004
 
September 30,
2004
 
December 31,
2004
 
Total for
Year
 
 
 
 
 
 
 
 
Revenue
 
$
17,226
 
$
17,466
 
$
18,087
 
$
18,878
 
$
71,657
 
Income from continuing operations
 
$
3,124
 
$
3,966
 
$
3,097
 
$
3,329
 
$
13,516
 
Loss (income) from discontinued operations
 
$
(274
)
$
(202
)
$
(202
)
$
6,747
 
$
6,069
 
Net income
 
$
2,850
 
$
3,764
 
$
2,895
 
$
10,076
 
$
19,585
 
Net income per Common Share – basic
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.11
 
$
0.13
 
$
0.11
 
$
0.11
 
$
0.46
 
Loss (income) from discontinued operations
 
 
(0.01
)
 
0.00
 
 
0.00
 
 
0.22
 
 
0.21
 
 
 
 
 
 
 
 
Net income
 
$
0.10
 
$
0.13
 
$
0.11
 
$
0.33
 
$
0.67
 
 
 
 
 
 
 
 
Net income per Common Share – diluted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.11
 
$
0.13
 
$
0.10
 
$
0.11
 
$
0.45
 
Loss (income) from discontinued operations
 
 
(0.01
)
 
0.00
 
 
0.00
 
 
0.21
 
 
0.20
 
 
 
 
 
 
 
 
Net income
 
$
0.10
 
$
0.13
 
$
0.10
 
$
0.32
 
$
0.65
 
 
 
 
 
 
 
 
Cash dividends declared per Common Share
 
$
0.16
 
$
0.16
 
$
0.16
 
$
0.1725
 
$
0.6525
 
Weighted average Common Shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
27,890,065
 
 
29,333,184
 
 
29,459,175
 
 
30,665,688
 
 
29,340,992
 
Diluted
 
 
28,763,751
 
 
29,793,310
 
 
29,953,528
 
 
31,645,852
 
 
29,912,405
 
 
19.     Commitments and Contingencies
 
Under various Federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, generated, released, manufactured or discharged from, on, at, under, or in a property. As such, the Company may be potentially liable for costs associated with any potential environmental remediation at any of its formerly or currently owned properties.
 
The Company conducts Phase I environmental reviews with respect to properties it acquires. These reviews include an investigation for the presence of asbestos, underground storage tanks and polychlorinated biphenyls (PCBs). Although such reviews are intended to evaluate the environmental condition of the subject property as well as surrounding properties, there can be no assurance that the review conducted by the Company will be adequate to identify environmental or other problems that may exist. Where a Phase I assessment is so recommended, a Phase II assessment was conducted to further determine the extent of possible environmental contamination. In all instances where a Phase I or II assessment has resulted in specific recommendations for remedial actions, the Company has either taken or scheduled the recommended remedial action. To mitigate unknown risks, the Company has obtained environmental insurance for most of its properties, which covers only unknown environmental risks.
 
The Company believes that it is in compliance in all material respects with all Federal, state and local ordinances and regulations regarding hazardous or toxic substances. Management is not aware of any environmental liability that they believe would have a material adverse impact on the Company’s financial position or results of operations. Management is unaware of any instances in which it would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. However, there can be no assurance that any such non-compliance, liability, claim or expenditure will not arise in the future.
 
For the year ended December 31, 2004, the Company accrued a reserve for $730 related to flood damage incurred at one of its properties.  Under the terms of the Company’s insurance policy, a maximum deductible of approximately $730 would apply in the event the flood damage was the direct result of a “named” storm.  During the first quarter of 2005, the Company reduced the reserve by $480 due to the settlement of the insurance claim.
 
The Company is involved in various matters of litigation arising in the normal course of business. While the Company is unable to predict with certainty the amounts involved, the Company’s management and counsel are of the opinion that, when such litigation is resolved, the Company’s resulting liability, if any, will not have a significant effect on the Company’s consolidated financial position or results of operations.
 
F-35
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
20.     Subsequent Events
 
On January 4, 2006, the institutional investors of Fund I merged their 78% interest in the Brandywine Portfolio into affiliates of GDC Properties Incorporated (“GDC”) in exchange for cash. The Company merged its 22% share of the Brandywine Portfolio into GDC in exchange for a 22% interest in GDC. Prior to the closing of this transaction, the Company provided $17.6 million of mortgage financing to GDC secured by certain properties within the Brandywine Portfolio.
 
F-36
 
 
ACADIA REALTY TRUST
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2005
 
Description
 
Encumbrances
 
Land
 
Buildings &
Improvements
 
Costs
capitalized
Subsequent
to
Acquisition
 
Land
 
Buildings &
Improvements
 
Total
 
Accumulated
Depreciation
 
Date of Acquisition
(a) Construction(c)
 
 
 
 
 
 
 
 
 
 
 
Shopping Centers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crescent Plaza
Brockton, MA
 
$
17,600
 
$
1,147
 
$
7,425
 
$
822
 
$
1,147
 
$
8,247
 
$
9,394
 
$
4,344
 
 
1984(a)
 
New Loudon Center
Latham, NY
 
 
15,000
 
 
505
 
 
4,161
 
 
10,840
 
 
505
 
 
15,001
 
 
15,506
 
 
8,024
 
 
1982(a)
 
Ledgewood Mall
Ledgewood, NJ
 
 
(1
)
 
619
 
 
5,434
 
 
33,096
 
 
619
 
 
38,530
 
 
39,149
 
 
25,506
 
 
1983(a)
 
Mark Plaza
Edwardsville, PA
 
 
—
 
 
—
 
 
4,268
 
 
4,765
 
 
—
 
 
9,033
 
 
9,033
 
 
5,709
 
 
1968(c)
 
Luzerne Street Plaza
Scranton, PA
 
 
—
 
 
35
 
 
315
 
 
1,722
 
 
35
 
 
2,037
 
 
2,072
 
 
1,141
 
 
1983(a)
 
Blackman Plaza
Wilkes-Barre, PA
 
 
—
 
 
120
 
 
—
 
 
1,599
 
 
120
 
 
1,599
 
 
1,719
 
 
587
 
 
1968(c)
 
Greenridge Plaza
Scranton, PA
 
 
—
 
 
1,335
 
 
6,314
 
 
2,292
 
 
1,335
 
 
8,606
 
 
9,941
 
 
4,652
 
 
1986(c)
 
Plaza 422
Lebanon, PA
 
 
—
 
 
190
 
 
3,004
 
 
720
 
 
190
 
 
3,724
 
 
3,914
 
 
2,714
 
 
1972(c)
 
Route 6 Mall
Honesdale, PA
 
 
—
 
 
—
 
 
—
 
 
12,695
 
 
1,664
 
 
11,031
 
 
12,695
 
 
4,262
 
 
1995(c)
 
Pittston Mall
Pittston, PA
 
 
—
 
 
1,500
 
 
—
 
 
5,956
 
 
1,521
 
 
5,935
 
 
7,456
 
 
2,139
 
 
1995(c)
 
Bartow Avenue
Bronx, NY
 
 
—
 
 
1,691
 
 
5,803
 
 
44
 
 
1,691
 
 
5,847
 
 
7,538
 
 
133
 
 
2002(c)
 
Amboy Rd. Shopping Ctr.
Staten Island, NY
 
 
—
 
 
—
 
 
11,909
 
 
—
 
 
—
 
 
11,909
 
 
11,909
 
 
145
 
 
2005(a)
 
Bradford Towne Centre
Towanda, PA
 
 
(1
)
 
—
 
 
—
 
 
16,100
 
 
817
 
 
15,283
 
 
16,100
 
 
6,158
 
 
1994(c)
 
Abington Towne Center
Abington, PA
 
 
(2
)
 
799
 
 
3,197
 
 
1,994
 
 
799
 
 
5,191
 
 
5,990
 
 
1,182
 
 
1998(a)
 
Bloomfield Town Square
Bloomfield Hills, MI
 
 
(3
)
 
3,443
 
 
13,774
 
 
4,684
 
 
3,443
 
 
18,458
 
 
21,901
 
 
3,561
 
 
1998(a)
 
Walnut Hill Plaza
Woonsocket, RI
 
 
(3
)
 
3,122
 
 
12,488
 
 
844
 
 
3,122
 
 
13,332
 
 
16,454
 
 
2,983
 
 
1998(a)
 
Elmwood Park Plaza
Elmwood Park, NJ
 
 
34,600
 
 
3,248
 
 
12,992
 
 
14,764
 
 
3,800
 
 
27,205
 
 
31,005
 
 
5,178
 
 
1998(a)
 
Merrillville Plaza
Hobart, IN
 
 
12,936
 
 
4,288
 
 
17,152
 
 
1,199
 
 
4,288
 
 
18,351
 
 
22,639
 
 
3,723
 
 
1998(a)
 
Soundview Marketplace
Port Washington, NY
 
 
8,338
 
 
2,428
 
 
9,711
 
 
5,994
 
 
3,227
 
 
14,904
 
 
18,131
 
 
3,355
 
 
1998(a)
 
Marketplace of Absecon
Absecon, NJ
 
 
(3
)
 
2,573
 
 
10,294
 
 
2,467
 
 
2,573
 
 
12,761
 
 
15,334
 
 
2,501
 
 
1998(a)
 
 
F-37
 
 
ACADIA REALTY TRUST
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2005
 
Description
 
Encumbrances
 
Land
 
Buildings & Improvements
 
Costs capitalized Subsequent to Acquisition
 
Land
 
Buildings & Improvements
 
Total
 
Accumulated Depreciation
 
Date of Acquisition (a) Construction(c)
 
 
 
 
 
 
 
 
 
 
 
Hobson West Plaza Naperville, IL
 
$
(3
)
$
1,793
 
$
7,172
 
$
687
 
$
1,793
 
$
7,859
 
$
9,652
 
$
1,700
 
 
1998(a)
 
Smithtown Shopping Center Smithtown, NY
 
 
10,082
 
 
3,229
 
 
12,917
 
 
1,230
 
 
3,229
 
 
14,147
 
 
17,376
 
 
3,173
 
 
1998(a)
 
Town Line Plaza Rocky Hill, CT
 
 
 
 
 
878
 
 
3,510
 
 
7,048
 
 
909
 
 
10,528
 
 
11,437
 
 
6,304
 
 
1998(a)
 
Branch Shopping Center Village of the Branch, NY
 
 
(2
)
 
3,156
 
 
12,545
 
 
619
 
 
3,156
 
 
13,164
 
 
16,320
 
 
2,523
 
 
1998(a)
 
The Methuen Shopping Center Methuen, MA
 
 
(2
)
 
956
 
 
3,826
 
 
—
 
 
956
 
 
3,826
 
 
4,782
 
 
705
 
 
1998(a)
 
Gateway Shopping Center Burlington, VT
 
 
(2
)
 
1,273
 
 
5,091
 
 
11,517
 
 
1,273
 
 
16,608
 
 
17,881
 
 
1,851
 
 
1999(a)
 
Mad River Station Dayton, OH
 
 
—
 
 
2,350
 
 
9,404
 
 
419
 
 
2,350
 
 
9,823
 
 
12,173
 
 
1,763
 
 
1999(a)
 
Pacesetter Park Shopping Center Ramapo, NY
 
 
12,500
 
 
1,475
 
 
5,899
 
 
971
 
 
1,475
 
 
6,870
 
 
8,345
 
 
1,223
 
 
1999(a)
 
239 Greenwich Greenwich, CT
 
 
15,894
 
 
1,817
 
 
15,846
 
 
359
 
 
1,817
 
 
16,205
 
 
18,022
 
 
2,761
 
 
1999(c)
 
Residential Properties Gate House, Holiday House, Tiger Village Columbia, MO
 
 
10,588
 
 
2,312
 
 
9,247
 
 
3,092
 
 
2,312
 
 
12,339
 
 
14,651
 
 
3,053
 
 
1998(a)
 
Village Apartments Winston Salem, NC
 
 
(3
)
 
3,429
 
 
13,716
 
 
2,727
 
 
3,429
 
 
16,443
 
 
19,872
 
 
3,769
 
 
1998(a)
 
Colony Apartments Columbia, MO
 
 
5,294
 
 
1,118
 
 
4,470
 
 
1,522
 
 
1,118
 
 
5,992
 
 
7,110
 
 
1,487
 
 
1998(a)
 
Undeveloped land
 
 
 
 
 
 
 
 
 
 
 
250
 
 
250
 
 
 
 
 
250
 
 
 
 
 
 
 
Properties under development
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
238,448
 
$
50,829
 
$
231,884
 
$
153,038
 
$
54,963
 
$
380,788
 
$
435,751
 
$
118,309
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-38
 
 
ACADIA REALTY TRUST
NOTES TO SCHEDULE III
December 31, 2005
 
1.
These properties serve as collateral for the financing with Washington Mutual Bank, FA in the amount of $29,131 (Note 6)
2.
These properties serve as collateral for the financing with Bank of America, FA in the amount of $44,485 (Note 6)
3.
These properties serve as collateral for the financing with Bank of America, NA in the amount of $22,000 (Note 6).
4.
Depreciation and investments in buildings and improvements reflected in the statements of income is calculated over the estimated useful life of the assets as follows:
 
 
Buildings
30 to 40 years
 
 
Improvements
Shorter of lease term or useful life
 
 
5.
The aggregate gross cost of property included above for Federal income tax purposes was $373,098 as of December 31, 2005.
6.
(a) Reconciliation of Real Estate Properties:
 
The following table reconciles the real estate properties from January 1, 2003 to December 31, 2005:
 
 
 
For the year ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Balance at beginning of year
 
$
414,974
 
$
407,220
 
$
393,652
 
Other improvements
 
 
8,868
 
 
6,909
 
 
13,568
 
Reclassification of tenant improvement activities
 
 
—
 
 
845
 
 
—
 
Property Acquired
 
 
11,909
 
 
—
 
 
—
 
 
 
 
 
 
Balance at end of year
 
$
435,751
 
$
414,974
 
$
407,220
 
 
 
 
 
 
 
 
(b)
Reconciliation of Accumulated Depreciation:
 
The following table reconciles accumulated depreciation from January 1, 2003 to December 31, 2005:
 
 
 
For the year ended December 31,
 
 
 
 
 
 
2005
 
2004
 
2003
 
 
 
 
 
 
Balance at beginning of year
 
$
105,278
 
$
91,777
 
$
76,454
 
Reclassification of tenant improvement activities
 
 
—
 
 
660
 
 
—
 
Depreciation related to real estate
 
 
13,031
 
 
12,841
 
 
15,323
 
 
 
 
 
 
Balance at end of year
 
$
118,309
 
$
105,278
 
$
91,777
 
 
 
 
 
 
 
F-39
 

                               ACADIA REALTY TRUST

                                     BYLAWS

                                   ARTICLE I

                                     OFFICES

         Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall be
located at 1311 Mamaroneck Avenue, Suite 260, White Plains, NY 10605 or at such
other place or places as the Trustees may designate.

         Section 2. ADDITIONAL OFFICES. The Trust may have additional offices at
such places as the Trustees may from time to time determine or the business of
the Trust may require.

                                   ARTICLE II

                            MEETINGS OF SHAREHOLDERS

         Section 1. PLACE. All meetings of shareholders shall be held at the
principal office of the Trust or at such other place within the United States as
shall be stated in the notice of the meeting.

         Section 2. ANNUAL MEETING. An annual meeting of the shareholders for
the election of Trustees and the transaction of any business within the powers
of the Trust shall be held each year on a date and at the time set by the
Trustees.

         Section 3. SPECIAL MEETINGS. The president or one-third of the Trustees
may call special meetings of the shareholders. Special meetings of shareholders
shall also be called by the secretary upon the written request of the holders of
shares entitled to cast not less than 40% of all the votes entitled to be cast
at such meeting. Such request shall state the purpose of such meeting and the
matters proposed to be acted on at such meeting. The secretary shall inform such
shareholders of the reasonably estimated cost of preparing and mailing notice of
the meeting and, upon payment to the Trust of such costs, the secretary shall
give notice to each shareholder entitled to notice of the meeting. Unless
requested by shareholders entitled to cast a majority of all the votes entitled
to be cast at such meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any special
meeting of the shareholders held during the preceding twelve months.

         Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of shareholders, the secretary shall give to each shareholder entitled
to vote at such meeting and to each shareholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by statute, the purpose for which the meeting is called, either by
mail or by presenting it to such shareholder personally or by leaving it at his
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail addressed to the shareholder
at his post office address as it appears on the records of the Trust, with
postage thereon prepaid.





         Section 5. SCOPE OF NOTICE. Any business of the Trust may be transacted
at an annual meeting of shareholders without being specifically designated in
the notice, except such business as is required by statute to be stated in such
notice. No business shall be transacted at a special meeting of shareholders
except as specifically designated in the notice.

         Section 6. QUORUM. At any meeting of shareholders, the presence in
person or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; provided,
however, this section shall not affect any requirement under any statute, the
Declaration of Trust or these Bylaws regarding the vote necessary for the
adoption of any measure. Any meeting of shareholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. Any
meeting of shareholders, regardless of whether a quorum is present or is not
present, may be adjourned from time to time by the chairman of the meeting, or
by the Board of Trustees, or by the shareholders entitled to vote at such
meeting, present in person or by proxy, by a majority in voting power thereof.
Any such adjournment of a meeting may be to a date not more than 120 days after
the original record date without notice other than announcement at the meeting.
At such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than 120 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given to each shareholder of record entitled to vote
at the meeting.

         The shareholders present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.

         Section 7. VOTING. A plurality of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. Each share may be voted for as many individuals as there are
Trustees to be elected and for whose election the share is entitled to be voted.
A majority of the votes cast at a meeting of shareholders duly called and at
which a quorum is present shall be sufficient to approve any other matter which
may properly come before the meeting, unless more than a majority of the votes
cast is required by statute or by the Declaration of Trust. Unless otherwise
provided in the Declaration, each outstanding share, regardless of class, shall
be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.

                                      -2-


         Section 8. PROXIES. A shareholder may vote the shares owned of record
by him, either in person or by proxy executed in writing by the shareholder or
by his duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the Trust before or at the time of the meeting. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy.

         Section 9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered in
the name of a corporation, partnership, trust or other entity, if entitled to be
voted, may be voted by the president or a vice president, a general partner or
trustee thereof, as the case may be, or a proxy appointed by any of the
foregoing individuals, unless some other person who has been appointed to vote
such shares pursuant to a bylaw or a resolution of the board of directors of
such corporation or other entity presents a certified copy of such bylaw or
resolution, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.

         Shares of the Trust directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.

         The Trustees may adopt by resolution a procedure by which a shareholder
may certify in writing to the Trust that any shares registered in the name of
the shareholder are held for the account of a specified person other than the
shareholder. The resolution shall set forth the class of shareholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; if the
certification is with respect to a record date or closing of the share transfer
books, the time after the record date or closing of the share transfer books
within which the certification must be received by the Trust; and any other
provisions with respect to the procedure which the Trustees consider necessary
or desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.

         Notwithstanding any other provision of the Declaration of Trust or
these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations Article
of the Annotated Code of Maryland shall not apply to shares acquired or owned,
directly or indirectly, by any person acting in concert with, or any "group" (as
defined in Section 13 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules thereunder).

                                      -3-


         Section 10. INSPECTORS. At any meeting of shareholders, the chairman of
the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the shareholders.

         Each report of an inspector shall be in writing and signed by him or by
a majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.

         The chairman of the meeting shall cause a copy of the inspector's
report to be delivered to the Trustees as soon as practicable after the meeting.

         Section 11. REPORTS TO SHAREHOLDERS. The Trustees shall deliver or
cause to be delivered to the shareholders such reports of the business and
operations of the Trust as are required under applicable federal, state or stock
exchange rules and regulations.

         Section 12. NOMINATIONS AND SHAREHOLDER BUSINESS.

         (a) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Trustees and the proposal of business to be considered
by the shareholders may be made at an annual meeting of shareholders (i)
pursuant to the procedures set forth in the Trust's notice of meeting, if any,
(ii) by or at the direction of the Trustees or (iii) by any shareholder of the
Trust who was a shareholder of record at the time of giving of notice provided
for in this Section 12(a), who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 12(a).

                  (2) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii) of paragraph
(a) (1) of this Section 12, the shareholder must have given timely notice
thereof in writing to the secretary of the Trust. To be timely, a shareholder's
notice shall be delivered to the secretary at the principal executive offices of
the Trust not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
shareholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is first made.
Such shareholder's notice shall set forth (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a Trustee, all
information relating to such person that is required to be disclosed in


                                      -4-


solicitations of proxies for election of Trustees, or is otherwise required, in
each case pursuant to Regulation l4A under the Exchange Act (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a Trustee if elected); (ii) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such shareholder, as they appear on the Trust's books, and of
such beneficial owner and (y) the class and number of shares of the Trust which
are owned beneficially and of record by such shareholder and such beneficial
owner.

                  (3) Notwithstanding anything in the second sentence of
paragraph (a) (2) of this Section 12 to the contrary, in the event that the
number of Trustees to be elected to the Board of Trustees is increased and there
is no public announcement naming all of the nominees for Trustee or specifying
the size of the increased Board of Trustees made by the Trust at least 70 days
prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Section 12(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
offices of the Trust not later than the close of business on the tenth day
following the day on which such public announcement is first made by the Trust.

         (b) Specia1 Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting. Nominations of persons
for election to the Board of Trustees may be made at a special meeting of
shareholders at which Trustees are to be elected pursuant to the Trust's notice
of meeting (i) by or at the direction of the Board of Trustees or (ii) by any
shareholder of the Trust who is a shareholder of record at the time of giving of
notice provided for in this Section 12(b), who is entitled to vote at the
meeting and who complied with the notice procedures set forth in this Section
12(b). In the event the Trust calls a special meeting of shareholders for the
purpose of electing one or more Trustees to the Board of Trustees, any such
shareholder may nominate a person or persons (as the case may be) for election
to such position as specified in the Trust's notice of meeting, if the
shareholder's notice required by Section 12(a)(2) shall be delivered to the
secretary at the principal executive offices of the Trust not earlier than the
90th day prior to such special meeting and not later than the close of business
on the later of the 60th day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Trustees to be elected at
such meeting.

                                      -5-


         (c) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 12 shall be eligible to serve as
Trustees and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 12. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 12 and, if any proposed nomination or business is not in
compliance with this Section 12, to declare that such defective nomination or
proposal be disregarded.

                  (2) For purposes of this Section 12, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Trust with the Securities and Exchange Commission pursuant to Section 13, 14
or 15(d) of the Exchange Act.

                  (3) Notwithstanding the foregoing provisions of this section
12, a shareholder shall also comply with all applicable requirements of state
law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 12. Nothing in this Section 12
shall be deemed to affect any rights of shareholders to request inclusion of
proposals in the Trust's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.

         Section 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
shareholder entitled to vote on the matter and any other shareholder entitled to
notice of a meeting of shareholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the shareholders.

         Section 14. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.

                                   ARTICLE III

                                    TRUSTEES

         Section 1. GENERAL POWERS; QUALIFICATIONS. The business and affairs of
the Trust shall be managed under the direction of its Board of Trustees. A
Trustee shall be an individual at least 21 years of age who is not under legal
disability.

         Section 2. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.

                                      -6-


         Section 3. SPECIAL MEETINGS. Special meetings of the Trustees may be
called by or at the request of the president or by a majority of the Trustees
then in office. The person or persons authorized to call special meetings of the
Trustees may fix any place, either within or without the State of Maryland, as
the place for holding any special meeting of the Trustees called by them.

         Section 4. NOTICE. Notice of any special meeting of the Trustees shall
be delivered personally or by telephone, electronic mail, facsimile
transmission, United States mail or courier to each Trustee at his or her
business or residence address. Notice by personal delivery, telephone,
electronic mail or facsimile transmission shall be given at least 24 hours prior
to the meeting. Notice by United States mail shall be given at least three days
prior to the meeting. Notice by courier shall be given at least two days prior
to the meeting. Telephone notice shall be deemed to be given when the Trustee or
his or her agent is personally given such notice in a telephone call to which
the Trustee or his or her agent is a party. Electronic mail notice shall be
deemed to be given upon transmission of the message to the electronic mail
address given to the Trust by the Trustee. Facsimile transmission notice shall
be deemed to be given upon completion of the transmission of the message to the
number given to the Trust by the Trustee and receipt of a completed answer-back
indicating receipt. Notice by United States mail shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Notice by courier shall be deemed to be given when deposited
with or delivered to a courier properly addressed. Neither the business to be
transacted at, nor the purpose of, any annual, regular or special meeting of the
Trustees need be stated in the notice, unless specifically required by statute
or these Bylaws.(1)

         Section 5. QUORUM. A majority of the Trustees shall constitute a quorum
for transaction of business at any meeting of the Trustees, provided that, if
less than a majority of such Trustees are present at said meeting, a majority of
the Trustees present may adjourn the meeting from time to time without further
notice, and provided further that if, pursuant to the Declaration of Trust or
these Bylaws, the vote of a majority of a particular group of Trustees is
required for action, a quorum must also include a majority of such group.




- ---------------
(1) Reflects Amendment No. 1 previously adopted by the Trustees, effective March
16, 2005.

                                      -7-



         The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.

         Section 6. VOTING. The action of the majority of the Trustees present
at a meeting at which a quorum is present shall be the action of the Trustees,
unless the concurrence of a greater proportion is required for such action by
applicable statute, the Declaration of Trust or these bylaws.

         Section 7. TELEPHONE MEETINGS. Trustees may participate in a meeting by
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.

         Section 8. INFORMAL ACTION BY TRUSTEES. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.

         Section 9. VACANCIES. If for any reason any or all the Trustees cease
to be Trustees, such event shall not terminate the Trust or affect these Bylaws
or the powers of the remaining Trustees hereunder (even if fewer than three
Trustees remain). Any vacancy (including a vacancy created by an increase in the
number of Trustees) shall be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the Trustees. Any individual
so elected as Trustee shall hold office for the unexpired term of the Trustee he
is replacing.

         Section 10. COMPENSATION. Trustees shall not receive any stated salary
for their services as Trustees but, by resolution of the Trustees, fixed sums
per year and/or per meeting. Expenses of attendance, if any, may be allowed to
Trustees for attendance at each annual, regular or special meeting of the
Trustees or of any committee thereof; but nothing herein contained shall be
construed to preclude any Trustees from serving the Trust in any other capacity
and receiving compensation therefor provided that any such compensation is
approved in advance by resolution of the Trustees.

         Section 11. REMOVAL OF TRUSTEES. The shareholders may, at any time,
remove any Trustee, with or without cause, by the affirmative vote of two-thirds
of all the votes entitled to be cast on the matter and may, by the affirmative
vote of a majority of all votes entitled to be cast on the matter, elect a
successor to fill any resulting vacancy for the balance of the term of the
removed Trustees.

         Section 12. LOSS OF DEPOSITS. No Trustee shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or shares have been
deposited.

                                      -8-


         Section 13. SURETY BONDS. Unless required by law, no Trustee shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.

         Section 14. RELIANCE. Each Trustee, officer, employee and agent of the
Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of the Trust,
regardless of whether such counsel or expert may also be a Trustee.

         Section 15. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS.
The Trustees shall have no responsibility to devote their full time to the
affairs of the Trust. Any Trustee or officer, employee or agent of the Trust, in
his personal capacity or in a capacity as an affiliate, employee, or agent of
any other person, or otherwise, may have business interests and engage in
business activities similar to or in addition to those of or relating to the
Trust.

         Section 16. LEAD TRUSTEE. The independent Trustees shall elect
annually, from among themselves, a Lead Trustee. The duties of the Lead Trustee
shall be to chair discussions among the independent Trustees, to facilitate
their communication with each other and management, and to be the spokesperson
on behalf of the independent Trustees in matters dealing with the press and
public when called upon.

                                   ARTICLE IV

                                   COMMITTEES

         Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Trustees may appoint
from among their members an Executive Committee, an Audit Committee and other
committees, composed of two or more Trustees, to serve at the pleasure of the
Trustees.

         Section 2. POWERS. The Trustees may delegate to committees appointed
under Section 1 of this Article any of the powers of the Trustees, except as
prohibited by law.

         Section 3. MEETINGS. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Trustee to act in the place of such
absent member.

         Section 4. TELEPHONE MEETINGS. Members of a committee of the Trustees
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.

                                      -9-


         Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Trustees may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.

         Section 6. NOTICE. Notice of any committee meeting shall be given in
the same manner as notice of special meetings of Trustees pursuant to ARTICLE
III, Section 4.

                                   ARTICLE V

                                    OFFICERS

         Section 1. GENERAL PROVISIONS. The officers of the Trust may consist of
a chairman of the board, a vice chairman of the board, a president, one or more
vice presidents, a treasurer, one or more assistant treasurers, a secretary, and
one or more assistant secretaries. In addition, the Trustees may from time to
time appoint such other officers with such powers and duties as they shall deem
necessary or desirable. The officers of the Trust shall be elected annually by
the Trustees at the first meeting of the Trustees held after each annual meeting
of shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be convenient. Each
officer shall hold office until his successor is elected and qualifies or until
his death, resignation or removal in the manner hereinafter provided. Any two or
more offices except president and vice president may be held by the same person.
In their discretion, the Trustees may leave unfilled any office except that of
president, treasurer and secretary. Election of an officer or agent shall not of
itself create contract rights between the Trust and such officer or agent.

         Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Trust
may be removed by the Trustees if in their judgment the best interests of the
Trust would be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Any officer of the Trust
may resign at any time by giving written notice of his resignation to the
Trustees, the chairman of the board, the president or the secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless otherwise stated in the resignation.

         Section 3. VACANCIES. A vacancy in any office may be filled by the
Trustees for the balance of the term.

                                      -10-


         Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate a chief
executive officer from among the elected officers. The chief executive officer
shall have responsibility for implementation of the policies of the Trust, as
determined by the Trustees, and for the administration of the business affairs
of the Trust.

         Section 5. CHIEF OPERATING OFFICER. The Trustees may designate a chief
operating officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.

         Section 6. CHIEF FINANCIAL OFFICER. The Trustees may designate a chief
financial officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.

         Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The chairman of the
board shall preside over the meetings of the Trustees and of the shareholders at
which he shall be present and shall in general oversee all of the business and
affairs of the Trust. In the absence of the chairman of the board, the vice
chairman of the board shall preside at such meetings at which he shall be
present. The chairman and the vice chairman of the board may execute any deed,
mortgage, bond, contract or other instrument, except in cases where the
execution thereof shall be expressly delegated by the Trustees or by these
Bylaws to some other officer or agent of the Trust or shall be required by law
to be otherwise executed. The chairman of the board and the vice chairman of the
board shall perform such other duties as may be assigned to them by the
Trustees.

         Section 8. PRESIDENT. In the absence of both the chairman and the vice
chairman of the board, the president shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present. In the absence of
a designation of a chief executive officer by the Trustees, the president shall
be the chief executive officer and shall be ex officio a member of all
committees that may, from time to time, be constituted by the Trustees. The
president may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Trustees or by these Bylaws to some other officer or agent of the Trust or shall
be required by law to be otherwise executed; and in general shall perform all
duties incident to the office of president and such other duties as may be
prescribed by the Trustees from time to time.

         Section 9. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Trustees. The Trustees may designate
one or more vice presidents as executive vice president, senior vice president
or assistant vice president or as vice president with any other similar title or
for particular areas of responsibility.

                                      -11-


         Section 10. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the shareholders, the Trustees and committees of the Trustees in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the trust records and of the seal of the Trust; (d) keep a
register of the post office address of each shareholder which shall be furnished
to the secretary by such shareholder; (e) have general charge of the share
transfer books of the Trust; and (f) in general perform such other duties as
from time to time may be assigned to him by the president or by the Trustees.

         Section 11. TREASURER. The treasurer shall have the custody of the
funds and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit all
moneys and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Trustees.

         He shall disburse the funds of the Trust as may be ordered by the
Trustees, taking proper vouchers for such disbursements, and shall render to the
president and Trustees, at the regular meetings of the Trustees or whenever they
may require it, an account of all his transactions as treasurer and of the
financial condition of the Trust.

         If required by the Trustees, he shall give the Trust a bond in such sum
and with such surety or sureties as shall be satisfactory to the Trustees for
the faithful performance of the duties of his office and for the restoration to
the Trust, in case of his death, resignation, retirement or removal from office,
all books, papers, vouchers, moneys and other property of whatever kind in his
possession or under his control belonging to the Trust.

         Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Trustees. The assistant treasurers shall, if required
by the Trustees, give bonds for the faithful performance of their duties in such
sums and with such surety or sureties as shall be satisfactory to the Trustees.

         Section 13. SALARIES. The salaries of the officers shall be fixed from
time to time by the Trustees and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a Trustee.

                                      -12-


                                   ARTICLE VI

                      CONTRACTS, LOANS, CHECKS AND DEPOSITS

         Section 1. CONTRACTS. Trustees may authorize any officer or agent to
enter into any contract or to execute and deliver any instrument in the name of
and on behalf of the Trust and such authority may be general or confined to
specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
valid and binding upon the Trustees and upon the Trust when authorized or
ratified by action of the Trustees.

         Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or officers, agent or agents
of the Trust and in such manner as shall from time to time be determined by the
Trustees.

         Section 3. DEPOSITS. All funds of the Trust not otherwise employed
shall be deposited from time to time to the credit of the Trust in such banks,
trust companies or other depositories as the Trustees may designate.

                                  ARTICLE VII

                                     SHARES

         Section 1. CERTIFICATES. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the president or a vice president and
countersigned by the secretary or an assistant secretary or the treasurer or an
assistant treasurer and may be sealed with the seal, if any, of the Trust. The
signatures may be either manual or facsimile. Certificates shall be
consecutively numbered; and if the Trust shall, from time to time, issue several
classes of shares, each class may have its own number series. A certificate is
valid and may be issued whether or not an officer who signed it is still an
officer when it is issued. Each certificate representing shares which are
restricted as to their transferability or voting powers, which are preferred or
limited as to their dividends or as to their allocable portion of the assets
upon liquidation or which are redeemable at the option of the Trust, shall have
a statement of such restriction, limitation, preference or redemption provision,
or a summary thereof, plainly stated on the certificate. In lieu of such
statement or summary, the Trust may set forth upon the face or back of the
certificate a statement that the Trust will furnish to any shareholder, upon
request and without charge, a full statement of such information.

         Section 2. TRANSFERS. Certificates shall be treated as negotiable and
title thereto and to the shares they represent shall be transferred by delivery
thereof to the same extent as those of a Maryland stock corporation. Upon
surrender to the Trust or the transfer agent of the Trust of a share certificate
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Trust shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.

                                      -13-


         The Trust shall be entitled to treat the holder of record of any share
or shares as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the State of Maryland.

         Section 3. LOST CERTIFICATE. The Trustees may direct a new certificate
to be issued in place of any certificate previously issued by the Trust alleged
to have been lost, stolen or destroyed upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen or destroyed.
When authorizing the issuance of a new certificate, the Trustees may, in their
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or his legal representative
to advertise the same in such manner as they shall require and/or to give bond,
with sufficient surety, to the Trust to indemnify it against any loss or claim
which may arise as a result of the issuance of a new certificate.

         Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any dividend or the allotment of any
other rights, or in order to make a determination of shareholders for any other
proper purpose. Such date, in any case, shall not be prior to the close of
business on the day the record date is fixed and shall be not more than 90 days
and, in the case of a meeting of shareholders, not less than ten days, before
the date on which the meeting or particular action requiring such determination
of shareholders is to be held or taken.

         In lieu of fixing a record date, the Trustees may provide that the
share transfer books shall be closed for a stated period but not longer than 20
days. If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.

         If no record date is fixed and the share transfer books are not closed
for the determination of shareholders, (a) the record date for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of shareholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the directors,
declaring the dividend or allotment of rights, is adopted.

                                      -14-


         When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except where the determination has been made
through the closing of the transfer books and the stated period of closing has
expired.

         Section 5. STOCK LEDGER. The Trust shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.

         Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may issue
fractional shares or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other provision
of the Declaration or these Bylaws, the Trustees may issue units consisting of
different securities of the Trust. Any security issued in a unit shall have the
same characteristics as any identical securities issued by the Trust, except
that the Trustees may provide that for a specified period securities of the
Trust issued in such unit may be transferred on the books of the Trust only in
such unit.

                                  ARTICLE VIII

                                 ACCOUNTING YEAR

         The Trustees shall have the power, from time to time, to fix the fiscal
year of the Trust by a duly adopted resolution.

                                   ARTICLE IX

                                    DIVIDENDS

         Section 1. DECLARATION. Dividends upon the shares of the Trust may be
declared by the Trustees, subject to the provisions of law and the Declaration
of Trust. Dividends may be paid in cash, property or shares of the Trust,
subject to the provisions of law and the Declaration.

         Section 2. CONTINGENCIES. Before payment of any dividends, there may be
set aside out of any funds of the Trust available for dividends such sum or sums
as the Trustees may from time to time, in their absolute discretion, think
proper as a reserve fund for contingencies, for equalizing dividends, for
repairing or maintaining any property of the Trust or for such other purpose as
the Trustees shall determine to be in the best interest of the Trust, and the
Trustees may modify or abolish any such reserve in the manner in which it was
created.

                                      -15-


                                   ARTICLE X

                      PROHIBITED INVESTMENTS AND ACTIVITIES

         Notwithstanding anything to the contrary in the Declaration of Trust,
the Trust shall not make any acquisition which it does not believe is in the
best interests of the Trust, and will not, without the approval of a majority of
the disinterested Trustees, (i) acquire from or sell to any Trustee, officer or
employee of the Trust, any corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in which a Trustee, officer or
employee of the Trust owns more than a one percent interest or any affiliate of
any of the foregoing, any of the assets or other property of the Trust, except
for the acquisition of certain properties in connection with the initial public
offering of shares by the Trust, which properties shall be described in the
prospectus relating to such initial public offering, (ii) make any loan to or
borrow from any of the foregoing persons or (iii) engage in any other
transaction with any of the foregoing persons. Each such transaction will be in
all respects on such terms as are, at the time of the transaction and under the
circumstances then prevailing, fair and reasonable to the Trust.

                                   ARTICLE XI

                                      SEAL

         Section 1. SEAL. The Trustees may authorize the adoption of a seal by
the Trust. The seal shall have inscribed thereon the name of the Trust and the
year of its organization. The Trustees may authorize one or more duplicate seals
and provide for the custody thereof.

         Section 2. AFFIXING SEAL. Whenever the Trust is required to place its
seal to a document, it shall be sufficient to meet the requirements of any law,
rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Trust.

                                  ARTICLE XII

                                 INDEMNIFICATION

         To the maximum extent permitted by Maryland law in effect from time to
time, the Trust, without requiring a preliminary determination of the ultimate
entitlement to indemnification, shall indemnify (a) any Trustee, officer or
shareholder or any former Trustee, officer or shareholder who has been
successful, on the merits or otherwise, in the defense of a proceeding to which
he was made a party by reason of such status, against reasonable expenses
incurred by him in connection with the proceeding, (b) any Trustee or officer or
any former Trustee or officer (including without limitation any individual who,
while a Trustee and at the request of the Trust, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
against any claim or liability to which he may become subject by reason of such
status unless it is established that (i) his act or omission was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) he
actually received an improper personal benefit in money, property or services or
(iii) in the case of a criminal proceeding, he had reasonable cause to believe
that his act or omission was unlawful and (c) each shareholder or former


                                      -16-


shareholder against any claim or liability to which he may become subject by
reason of his status as a shareholder or former shareholder. In addition, the
Trust shall pay or reimburse, in advance of final disposition of a proceeding,
reasonable expenses incurred by a Trustee, officer or shareholder or former
Trustee, officer or shareholder made a party to a proceeding by reason of his
status as a Trustee, officer or shareholder provided that, in the case of a
Trustee or officer, the Trust shall have received (i) a written affirmation by
the Trustee or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Trust as authorized by these Bylaws
and (ii) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by the Trust if it shall ultimately be determined that the standard
of conduct was not met. The Trust may, with the approval of its Trustees,
provide such indemnification and reimbursement of expenses to a person who
served a predecessor of the Trust in any of the capacities described in clause
(b) above and to any employee or agent of the Trust or a predecessor of the
Trust. Neither the amendment nor repeal of this Section, nor the adoption or
amendment of any other provision of the Declaration of Trust or these Bylaws
inconsistent with this Section, shall apply to or affect in any respect the
applicability of this paragraph with respect to any act or failure to act which
occurred prior to such amendment, repeal or adoption. Any indemnification or
payment or reimbursement of the expenses permitted by these Bylaws shall be
furnished in accordance with the procedures provided for indemnification and
payment or reimbursement of expenses under Section 2-418 of the Maryland General
Corporation Law (the "MGCL") for directors of Maryland corporations. The Trust
may provide to Trustees, officers and shareholders such other and further
indemnification or payment or reimbursement of expenses as may be permitted by
the MGCL, as in effect from time to time, for directors of Maryland
corporations.

                                  ARTICLE XIII

                                WAIVER OF NOTICE

         Whenever any notice is required to be given pursuant to the Declaration
of Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at nor the purpose of any meeting
need be set forth in the waiver of notice, unless specifically required by
statute. The attendance of any person at any meeting shall constitute a waiver
of notice of such meeting, except where such person attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.

                                      -17-


                                  ARTICLE XIV

                               AMENDMENT OF BYLAWS

                  The Trustees shall have the exclusive power to adopt, alter or
repeal any provision of these Bylaws and to make new Bylaws.

                        *   *   *   *   *   *   *   *   *



                  The foregoing are certified as the Amended and Restated Bylaws
of the Trust adopted by the Trustees on March 9, 2006


                                                     ---------------------------
                                                     Robert Masters, Secretary








                                                                       EX. 10.50

================================================================================


                            REVOLVING LOAN AGREEMENT

                            dated as of May 26, 2005


                                     between


                 FLEET NATIONAL BANK, a Bank of America company,
                            as a Lender and Arranger
                                   ("Lender"),


                THE BANK OF CHINA, NEW YORK BRANCH, as a Lender,


                 FLEET NATIONAL BANK, a Bank of America company,
                             as Administrative Agent
                            ("Administrative Agent")



                                       and


                   RD ABSECON ASSOCIATES, L.P. ("RD Absecon"),
        RD BLOOMFIELD ASSOCIATES, LIMITED PARTNERSHIP ("RD Bloomfield"),
                    RD HOBSON ASSOCIATES, L.P. ("RD Hobson"),
            RD VILLAGE ASSOCIATES LIMITED PARTNERSHIP ("RD Village"),
                                       and
         RD WOONSOCKET ASSOCIATES LIMITED PARTNERSHIP ("RD Woonsocket"),
                                  as Borrowers

      (RD Absecon, RD Bloomfield, RD Hobson, RD Village and RD Woonsocket,
      individually and collectively, as the context requires, "Borrower")


================================================================================








         THIS REVOLVING LOAN AGREEMENT ("this Agreement") dated as of May ___,
2005 by and among RD ABSECON ASSOCIATES, L.P., a Delaware limited partnership
("RD Absecon"), RD BLOOMFIELD ASSOCIATES, LIMITED PARTNERSHIP, a Delaware
limited partnership ("RD Bloomfield"), RD HOBSON ASSOCIATES, L.P., a Delaware
limited partnership ("RD Hobson"), RD VILLAGE ASSOCIATES LIMITED PARTNERSHIP, a
Delaware limited partnership ("RD Village") and RD WOONSOCKET ASSOCIATES LIMITED
PARTNERSHIP, a Delaware limited partnership ("RD Woonsocket"; RD Absecon, RD
Bloomfield, RD Hobson, RD Village and RD Woonsocket, collectively and
individually, as the context requires, "Borrower") and FLEET NATIONAL BANK, a
Bank of America company (in its individual capacity and not as Administrative
Agent, "Fleet"), THE BANK OF CHINA, NEW YORK BRANCH ("Bank of China"; Fleet,
Bank of China and each other lender who may become a Lender pursuant to Section
8.07, each, a "Lender" and collectively, "Lenders") and FLEET NATIONAL BANK, a
Bank of America company, as Administrative Agent for Lenders (together with its
successors in such capacity, "Administrative Agent").

         Borrower desires that Lenders extend credit as provided herein, and
Lenders are prepared to extend such credit. Accordingly, Borrower,
Administrative Agent and each Lender agree as follows:

         NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained, Borrower, Administrative Agent and Lenders hereby agree as
follows:

                                   ARTICLE I

                      DEFINITIONS AND RULES OF CONSTRUCTION

         Section 1.01. Definitions. The following terms, as used in this
Agreement, shall have the following meanings:

"Absecon/NJ Property" -- The fee interest in real property located at Whitehorse
         Pike in Absecon, New Jersey owned by RD Absecon.

"Additional Costs" -- Has the meaning specified in Section 3.01.

"Additional Interest" -- Any and all sums that shall become due and payable by
         Borrower under the Hedging Agreement.

"Additional Advance" -- Has the meaning set forth in Section 4.02 of this
         Agreement.

"Administrative Agent" -- Has the meaning specified in the preamble.

"Administrative Agent's Counsel" -- Schiff Hardin LLP, 623 Fifth Avenue, 28th
         Floor, New York, New York 10022.





"Administrative Agent's Office" -- Administrative Agent's office located as set
         forth on its signature page hereof, or such other address in the United
         States as Administrative Agent may designate by notice to Borrower and
         Lenders.

"Affiliate" -- With respect to any Person (the "first Person"), any other Person
         (1) which directly or indirectly controls, or is controlled by, or is
         under common control with the first Person or (2) 10% or more of the
         beneficial interest in which is directly or indirectly owned or held by
         the first Person. The term "control" means the possession, directly or
         indirectly, of the power, alone, to direct or cause the direction of
         the management and policies of a Person, whether through the ownership
         of voting securities, by contract, or otherwise.

"Anchors" -- Shall mean, with respect to each Property, (i) American Stores
         Properties, Inc., a wholly owned subsidiary of Albertson's, Inc. (a/k/a
         Acme) and Eckerd Corporation with respect to the Absecon/NJ Property,
         (ii) HomeGoods, Inc., Marshalls of MA, Inc., The TJX Companies, Inc.
         and OfficeMax North America, Inc. (f/k/a OfficeMax, Inc.) with respect
         to the Bloomfield/MI Property, (iii) Bobak Enterprises, with respect to
         the Hobson/IL Property; and (iv) Sears, Roebuck & Co., Shaws
         Supermarkets, Inc., a wholly-owned subsidiary of Albertson's, Inc.,
         Mark Stevens CVS, Inc. and Concord Buying Group Inc., with respect to
         the Woonsocket/RI Property.

"Applicable Lending Office" -- For each Lender and for the portions of the
         outstanding principal balance under its Note bearing interest at the
         Prime Based Rate or LIBO Based Rate, as applicable, the lending office
         of such Lender (or of an Affiliate of such Lender) designated as such
         on its signature page hereof or in the applicable Assignment and
         Assumption Agreement, or such other office of such Lender (or of an
         Affiliate of such Lender) as such Lender may from time to time specify
         to Administrative Agent and Borrower as the office by the portions of
         the outstanding principal balance under its Note bearing interest at
         the Prime Based Rate or LIBO Based Rate , as applicable, are to be made
         and maintained.

"Applicable Margin" -- With respect to the Prime Based Rate, 0.45% per annum;
         and with respect to the LIBO Based Rate, 1.30% per annum.

"Assignee" -- Has the meaning specified in Section 8.07.

"Assignment and Assumption Agreement" -- An Assignment and Assumption Agreement,
         substantially in the form of EXHIBIT A, pursuant to which a Lender
         assigns and an Assignee assumes rights and obligations in accordance
         with Section 11.05.

"Authorization Letter" -- The letter in the form of EXHIBIT F.

"Bloomfield/MI Property" -- The fee interest in real property located at 2257
         South Telegraph Road in Bloomfield, Michigan owned by RD Bloomfield.

                                       2


"Business Day" -- Any day on which commercial banks are not authorized or
         required to close in New York City; and, whenever such day relates to a
         LIBOR Amount, an Interest Period with respect to a LIBOR Amount, or
         notice with respect to a LIBOR Amount, any such day in which dealings
         in Dollar deposits are also carried out in the London interbank market
         and banks are also open for business in London.

"Code" -- The Internal Revenue Code of 1986.

"Contribution Agreement" -- That certain Subordination and Contribution
         Agreement dated as of the date hereof by and among Administrative Agent
         and Borrowers.

"Counterparty" -- Fleet National Bank, or any of its Affiliates, in their
         capacity as a party to the Hedging Agreement, if any, and its
         successors and assigns in such capacity.

"Default" -- Any event or circumstance which, with the giving of notice or the
         passage of time, or both, would become an Event of Default.

"Default Rate" -- A rate per annum equal to (1) with respect to Prime Based
         Loans, a variable rate 5% above the rate of interest then in effect
         thereon and (2) with respect to LIBOR Loans, a fixed rate 5% above
         rate(s) of interest in effect thereon at the time of Event of Default
         until the end of the then current Interest Period therefor and,
         thereafter, a variable rate 5% above the rate of interest for a Prime
         Based Loan.

"Delinquency Amount"; "Delinquency Notice"; "Delinquent Lender" -- Have the
         respective meanings specified in Section 7.16.

"DSC Test" -- Has the meaning set forth in Section 2.04 of this Agreement.

"Dollars" and "$" -- Lawful money of the United States of America.

"Electing Lender"; "Election Notice"; "Election Period" -- Have the respective
         meanings specified in Section 7.16.

"Eligible Assignee" -- An entity which is (i) a commercial bank organized under
         the Laws of the United States, or any State thereof, and having (x)
         total assets in excess of $1,000,000,000 and (y) a combined capital and
         surplus of at least $250,000,000; (ii) a commercial bank organized
         under the laws of any other country which is a member of the
         Organization of Economic Cooperation and Development ("OECD"), or a
         political subdivision of any such country, and having (x) total assets
         in excess of $1,000,000,000 and (y) a combined capital and surplus of
         at least $250,000,000, provided that such bank is acting through a
         branch or agency located in the country in which it is organized or
         another country which is also a member of OECD; (iii) a life insurance
         company organized under the Laws of any State of the United States, or
         organized under the laws of any country and licensed as a life insurer
         by any State within the United States and having admitted assets of at
         least $1,000,000,000; or (iv) a nationally recognized investment
         banking company, or an Affiliate thereof (other than any Person which
         is directly or indirectly an Affiliate of Borrower or Guarantor, or of
         any member or partner of Borrower or Guarantor) organized under the
         Laws of any State of the United States, and licensed or qualified to
         conduct such business under the Laws of any such State and having (1)
         total assets of at least $1,000,000,000 and (2) a net worth of at least
         $250,000,000.

                                       3


"Employee Benefit Plan" -- Any employee benefit or other plan established or
         maintained, or to which contributions have been made, by Borrower or
         Guarantor.

"ERISA" -- The Employee Retirement Income Security Act of 1974, including the
         rules and regulations promulgated thereunder.

"ERISA Affiliate" -- Any corporation which is a member of the same controlled
         group of corporations (within the meaning of Section 414(b) of the
         Code) as Borrower and/or Guarantor, or any trade or business which is
         under common control (within the meaning of Section 414(c) of the Code)
         with Borrower and/or Guarantor, or any organization which is required
         to be treated as a single employer with Borrower and/or Guarantor under
         Section 414(m) or 414(o) of the Code.

"Event of Default" -- Has the meaning given to such term in the Mortgage.

"Federal Funds Rate" -- For any day, the rate per annum equal to the weighted
         average of the rates on overnight Federal funds transactions as
         published by the Federal Reserve Bank of New York for such day or, for
         any day that is not a banking day in New York City, for the immediately
         preceding banking day.

"Fiscal Year" -- The calendar year or such other annual period as Borrower and
         Administrative Agent may mutually agree upon.

"Financial Statements" -- Statements of the assets, liabilities (direct or
         contingent), income, expenses and cash flow of Borrower and Guarantor,
         prepared in accordance with generally accepted accounting principles in
         the United States as in effect from time to time and consistently
         applied.

"Fronting Fee" -- Has the meaning set forth in Section 8.20 of this Agreement.

"GAAP" -- Generally accepted accounting principles in the United States as in
         effect from time to time, consistently applied.

"Good Faith Contest" -- The contest of an item if (1) the item is diligently
         contested in good faith, and, if appropriate, by proceedings timely
         instituted, (2) adequate reserves are established with respect to the
         contested item, (3) during the period of such contest, the enforcement
         of any contested item is effectively stayed and (4) the failure to pay
         or comply with the contested item during the period of the contest is
         not likely to (x) result in a Material Adverse Change or (y) have an
         adverse effect on the Mortgaged Property under any Mortgage or any part
         thereof, or on Lenders' interest therein.

                                       4


"Governmental Approvals" -- Any authorization, consent, approval, license,
         permit, certification, or exemption of, registration or filing with or
         report or notice to, any Governmental Authority.

"Governmental Authorities" -- The United States, the state in which the Property
         is located and any political subdivision, agency, department,
         commission, board, bureau or instrumentality of either of them,
         including any local authorities, which exercises jurisdiction over
         Borrower, Guarantor, the Property or the Improvements.

"Guarantor" -- Jointly and severally, Acadia Realty Limited Partnership, a
         Delaware limited partnership and any other person(s) or entity(ies) who
         may hereafter become a guarantor of any or all of Borrower's
         obligations in respect of the Loan.

"Guaranty" -- The guaranty(ies) of all or part of Borrower's obligations, to be
         executed by Guarantor.

"Hazardous Materials" -- Has the meaning given to such term in the Mortgage.

"Hedging Agreement" -- Any ISDA Master Agreement or other documentation with
         respect to an interest rate hedging transaction entered into by and
         between any Borrower, as any of the same may be amended, modified or
         supplemented from time to time, including any and all "confirmations"
         under any thereof.

"Hobson/IL Property" -- The fee interest in real property located at 931 West
         75th Street in Naperville, Illinois owned by RD Hobson.

"Improvements" -- Shall mean, with respect to the indicated Property: (i) a one
         story Neighborhood Shopping Center containing 105,093 square feet with
         respect to the Absecon/NJ Property, (ii) a one story Community Shopping
         Center containing 229,506 square feet with respect to the RD Bloomfield
         Property, (iii) a one story Neighborhood Shopping Center containing
         99,042 square feet with respect to the Hobson/IL Property, (iv) one
         story Neighborhood Shopping Center containing 269,921 square feet with
         respect to the Woonsocket/RI Property and (v) a two story, 578,706
         n.r.s.f./600 unit apartment community with 1,158 surface parking spaces
         with respect to the Village/NC Property.

"Indemnity" -- An agreement from Borrower and Guarantor or, if there is no
         Guarantor, such other persons or entities as shall be satisfactory to
         Lender, whereby, among other things, Lender is indemnified regarding
         Hazardous Materials.

"Individual Loan Commitment" -- With respect to each Lender, the amount set
         forth below opposite the name of such Lender (subject to change in
         accordance with the terms of this Agreement).

                                       5


                  Lender                      Individual Loan Commitment
                  ------                      ---------------------------

                  Fleet                               $32,500,000

                  Bank of China                       $32,500,000

Upon any reduction in the Total Loan Commitment, each Lender's Individual Loan
Commitment shall reduce by the Lender's Pro Rata Share of the reduction of the
Total Loan Commitment.

"Insolvency Event" -- Shall mean the occurrence of any of the Events of Default
         described in clauses (d) through (h) of the Mortgage.

"Interest Period" -- The period during which interest at the LIBO Based Rate,
         determined as provided in this Agreement, shall be applicable to the
         LIBO Rate Request Amount in question, provided, however, that each such
         period shall be either one (1), two (2), three (3) months (or, if
         available, four (4), or six (6) months or such other periods as
         Administrative Agent may make available from time to time), which shall
         be measured from the date specified by Borrower in each LIBO Rate
         Request for the commencement of the computation of interest at the LIBO
         Based Rate, to the numerically corresponding day in the calendar month
         in which such period terminates (or, if there be no numerical
         correspondent in such month, or if the date selected by Borrower for
         such commencement is the last Business Day of a calendar month, then
         the last Business Day of the calendar month in which such period
         terminates, or if the numerically corresponding day is not a Business
         Day then the next succeeding Business Day, unless such next succeeding
         Business Day enters a new calendar month, in which case such period
         shall end on the next preceding Business Day) and in no event shall any
         such period extend beyond the Maturity Date.

"Initial Advance" -- The first advance of Loan proceeds to be made hereunder.

"Law" -- Any federal, state or local law, statute, rule, regulation,
         ordinance, order, decree, directive, requirement, code, notice of
         violation or rule of common law, now or hereafter in effect, and in
         each case as amended, and any judicial or administrative interpretation
         thereof by a Governmental Authority or otherwise, including any
         judicial or administrative order, determination, consent decree or
         judgment.

"Lender"; "Lenders" -- Has the respective meanings specified in the preamble.

"Lender Reply Period" -- Has the meaning specified in Section 8.06.

"Lenders L/C Fee" -- Has the meaning set forth in Section 8.20 of this
         Agreement.

"Letter of Credit" -- Has the meaning set forth in Section 8.20 of this
         Agreement.

                                       6


"LIBO Rate" -- The rate per annum (at Administrative Agent's option, rounded
         up, if necessary, to the nearest 1/32 of 1%) that appears on Dow Jones
         Page 3750 at approximately 11:00 a.m. (London time) on the date (the
         "LIBOR Determination Date") two (2) Business Days prior to the first
         day of the applicable Interest Period, for amounts comparable to the
         LIBO Rate Request Amount for the same period of time as the Interest
         Period selected by Borrower in the LIBO Rate Request; or, if such rate
         does not appear on Dow Jones Page 3750 as of approximately 11:00 a.m.
         (London time) on the LIBOR Determination Date, the rate (at
         Administrative Agent's option, rounded up, if necessary, to the nearest
         1/32 of 1%) for deposits in Dollars for a period comparable to the
         applicable Interest Period that appears on the Reuters Screen LIBO Page
         as of approximately 11:00 a.m. (London time) on the LIBOR Determination
         Date. If such rate does not appear on either Dow Jones Page 3750 or on
         the Reuters Screen LIBO Page as of approximately 11:00 a.m. (London
         time) on the LIBOR Determination Date, the LIBO Rate for the Interest
         Period will be determined on the basis of the offered rates for
         deposits in Dollars for an amount comparable to the LIBO Rate Request
         Amount for the same period of time as such Interest Period that are
         offered by four (4) major banks in the London interbank market at
         approximately 11:00 a.m. (London time) on the LIBOR Determination Date.
         Administrative Agent will request that the principal London office of
         each of the four (4) major banks provide a quotation of its Dollar
         deposit offered rate. If at least two (2) such quotations are provided,
         the LIBO Rate will be the arithmetic mean of the quotations. If fewer
         than two (2) quotations are provided as requested, the LIBO Rate will
         be determined on the basis of the rates quoted for loans in Dollars to
         leading European banks for amounts comparable to such LIBO Rate Request
         Amount for the same period of time as such Interest Period offered by
         major banks in New York City at approximately 11:00 a.m. (New York
         time) on the LIBOR Determination Date. In the event that Administrative
         Agent is unable to obtain any such quotation as provided above, it will
         be deemed that the LIBO Rate cannot be determined. For purposes of the
         foregoing definition, "Dow Jones Page 3750" means the display
         designated as "Page 3750" on the Dow Jones Markets Service (or such
         other page as may replace Page 3750 on that service or such other
         service as may be nominated by the British Bankers' Association as the
         information vendor for the purpose of displaying British Bankers'
         Association Interest Settlement Rates for Dollar deposits); and
         "Reuters Screen LIBO Page" means the display designated as page "LIBO"
         on the Reuters Monitor Money Rates Service (or such other page as may
         replace the LIBO page on that service for the purpose of displaying
         interbank rates from London in Dollars).

"LIBO Rate Request" -- Borrower's telephonic notice (to be promptly confirmed
         in writing), to be received by Administrative Agent by 12 Noon (New
         York time) three (3) Business Days prior to the date specified in the
         LIBO Rate Request for the commencement of the Interest Period (which
         specified date must be a Business Day), of (a) its intention to have
         (i) all or any portion of the Principal Amount which is not then the
         subject of an Interest Period (other than an Interest Period which is
         terminating on the Business Day specified in the notice) and/or (ii)
         all or any portion of any advance of proceeds of the Loan evidenced by
         the Notes which is to be made on the Business Day specified in the
         notice, bear interest at the LIBO Based Rate and (b) the Interest
         Period desired by Borrower in respect of the amount specified.

                                       7


"LIBO Rate Request Amount" -- The amount, to be specified by Borrower in each
         LIBO Rate Request, which Borrower desires bear interest at the LIBO
         Based Rate and which, at Administrative Agent's option, shall be an
         integral multiple of $100,000.

"LIBOR Loan" -- All or any portion (as the context requires) of any Lender's
         Loan which shall accrue interest at the LIBOR Based Rate.

"Loan" -- The loan in the Loan Amount made by Lender to Borrower under this
         Agreement.

"Loan Allocation" -- Shall mean, with respect to the indicated Property: (i)
         $12,060,000 for the Absecon/NJ Property, (ii) $16,730,000 for the
         Bloomfield/MI Property, (iii) $7,450,000 for the Hobson/IL Property,
         (iv) $17,840,000 for the Woonsocket/RI Property and (v) $10,920,000 for
         the Village/NC Property.

"Loan Amount" -- $65,000,000 (subject to change in accordance with the terms
         of this Agreement).

"Loan Documents" -- This Agreement, the Notes, the Mortgages, the Indemnity,
         the Authorization Letter, the Solvency Certificate, the Contribution
         Agreement, Uniform Commercial Code financing statements in respect of
         the Mortgaged Property and any other collateral given to Lender as
         security for the Loan, and any other documents which evidence or secure
         the Loan.

"Loan to Value Test" -- Has the meaning set forth in Section 2.03 of this
         Agreement.

"Major Lease" -- Any lease for space in excess of 10,000 square feet of the
         rentable area of the Improvements.

"Material Adverse Change" means either (1) a material adverse change in the
         status of the business, results of operations, financial condition,
         property or prospects of Borrower or (2) any event or occurrence of
         whatever nature which is likely to (x) have a material adverse effect
         on the ability of Borrower to perform its obligations under the Loan
         Documents or (y) create, in the sole and absolute judgment (reasonably
         exercised) of Lender, a material risk of sale or forfeiture of any of
         the Mortgaged Property (other than an immaterial portion thereof) under
         any Mortgage or otherwise materially impair any of the Mortgaged
         Property under any Mortgage or Lenders' rights therein.

"Maturity Date" -- June 1, 2010.

"Mortgage" -- For each Property, the Mortgage (or Deed of Trust), Assignment of
         Leases and Rents and Security Agreement in respect thereof, each dated
         the date hereof, from the respective Mortgagor for the benefit of
         Administrative Agent, as agent for Lenders, to secure the payment and
         performance of Borrower's obligations hereunder, under the Notes and
         otherwise in respect of the Loans.

                                       8


"Mortgaged Property" means, for each Property, the Property, the Improvements
         thereon and all other property constituting the "Mortgaged Property",
         as said quoted term is defined in the applicable Mortgage.

"Multiemployer Plan" -- A Plan defined as such in Section 3(37) of ERISA to
         which contributions have been made by Borrower or any ERISA Affiliate
         and which is covered by Title IV of ERISA.

"Net Operating Income"

                  (a) all revenues from the ownership, use, occupancy, leasing
         and operation of the Property during the period in question, determined
         in accordance with GAAP (but adjusted to eliminate the effects of
         straight-lining of rents and further adjusted to exclude extraordinary
         and non-recurring sources of income), including all rental and other
         payments, including, without limitation, base rent, additional rent,
         promotional revenues, percentage rent and payments for common area
         maintenance, taxes, insurance and operating expenses and proceeds of
         rental loss or business interruption service, excluding tenant security
         deposits collected but not applied to tenants' obligations, and
         interest on such deposits;

         minus

                  (b) all expenses in connection with the Property during such
         period, determined in accordance with GAAP, including insurance
         premiums, real estate taxes, promotional expenses, maintenance and
         repair expenses, management fees and any other operational expenses,
         all as determined in accordance with GAAP, but not including debt
         service payable under the Loan.

"Non-Delinquent Lender" -- Each Lender other than the Delinquent Lender(s).

"Non-Excluded Taxes" -- Has the meaning specified in Section 8.14.

"Note"; "Notes" -- Have the respective meanings specified in Section 2.06.

"Obligations" -- Each and every obligation, covenant and agreement of Borrower,
         now or hereafter existing, contained in this Agreement, and any of the
         other Loan Documents, whether for principal, reimbursement obligations,
         interest, fees, expenses, indemnities or otherwise, and any amendments
         or supplements thereto, extensions or renewals thereof or replacements
         therefor, including, but not limited to, all indebtedness, obligations
         and liabilities of Borrower to Administrative Agent and any Lender now
         existing or hereafter incurred under or arising out of or in connection
         with the Notes, this Agreement, the other Loan Documents, and any
         documents or instruments executed in connection therewith; in each case
         whether direct or indirect, joint or several, absolute or contingent,
         liquidated or unliquidated, now or hereafter existing, renewed or
         restructured, whether or not from time to time decreased or
         extinguished and later increased, created or incurred, and including
         all indebtedness of Borrower, under any instrument now or hereafter
         evidencing or securing any of the foregoing.

                                       9


"Participant"; "Participation" -- Have the respective meanings specified in
         Section 8.07.

"Payor" -- Has the meaning specified in Section 7.12.

"Pension Plan" -- Any employee pension benefit plan within the meaning of
         Section 3(2) of ERISA with respect to which Borrower, Guarantor or any
         ERISA Affiliate at any relevant time has liability or an obligation to
         contribute.

"Person" -- An individual, partnership, corporation, limited liability company,
         business trust, joint stock company, trust, unincorporated association,
         joint venture or other entity of whatever nature.

"Plan" -- Any employee benefit or other plan established or maintained, or to
         which contributions have been made, by Borrower or any ERISA Affiliate
         and which is covered by Title IV of ERISA or to which Section 412 of
         the Code applies.

"Premises Documents" -- Has the meaning given to such term in the Mortgage.

"Prime Based Loan" -- All or any portion (as the context requires) of a
         Lender's Loan which shall accrue interest at a rate determined in
         relation to the Prime Based Rate.

"Prime Based Rate" -- The Applicable Margin plus the greater of (i) the
         Federal Funds Rate plus 1/2 of 1% per annum or (ii) the prime
         commercial lending rate as announced from time to time by
         Administrative Agent at Administrative Agent's Office (it being
         understood that said "prime commercial lending rate" is a reference
         rate and does not necessarily represent the lowest or best rate being
         charged to customers), each change in said rates to be effective,
         without notice or demand of any kind, as of the date of such change.

"Principal Amount" -- At any time, the aggregate outstanding principal amount of
         the Notes.

"Property" means, individually and collectively, as the context requires, each
         of the Absecon/NJ Property, the Bloomfield/MI Property, the Hobson/IL
         Property, the Village/NC Property and the Woonsocket/RI Property.

"Pro Rata Share" -- With respect to each Lender, the ratio of such Lender's
         Individual Loan Commitment to the Loan Amount. As of the date hereof,
         the Lenders' respective Pro Rata Shares are as follows:

                                       10


                  Lender                                  Pro Rata Share
                  ------                                  --------------

                  Fleet                                         50%

                  Bank of China                                 50%

"Regulation D" and "Regulation U" -- Respectively, Regulation D and Regulation U
         of the Board of Governors of the Federal Reserve System.

"Regulatory Change" -- With respect to any Lender and the charging and
         collecting of interest at the LIBO Based Rate, any change after the
         date hereof in federal, state or foreign laws or regulations (including
         Regulation D) or the adoption or making after such date of any
         interpretations, directives or requests applying to a class of banks
         including such Lender under any federal, state or foreign laws or
         regulations (whether or not having the force of law) by any court or
         governmental or monetary authority charged with the interpretation or
         administration thereof, excluding any change the effect of which is
         reflected in a change in the LIBO Based Rate.

"Release Price" -- Shall mean, with respect to the indicated Property: (i)
         $13,880,000 for the Absecon/NJ Property, (ii) $19,250,000 for the
         Bloomfield/MI Property, (iii) $8,566,000 for the Hobson/IL Property,
         (iv) $12,570,000 for the RD Village Property, and, (v) $20,528,000 for
         the RD Woonsocket Property.

"Replacement Lender" -- Has the meaning set forth in Section 7.20 of this
         Agreement.

"Required Lenders" -- At any time, those Non-Delinquent Lenders having Pro Rata
         Shares aggregating more than 50%; provided, however, that during the
         existence of an Event of Default, the "Required Lenders" shall be those
         Non-Delinquent Lenders holding at least 66-2/3% of the then aggregate
         unpaid principal amount of the Loans.

"Required Payment" -- Has the meaning specified in Section 7.12.

"Requisition" -- A written statement by or on behalf of Borrower, in form and
         substance satisfactory to Administrative Agent, setting forth the
         amount of the Loan advance requested in each instance and instructions
         for the payment of the same, and certifying the purpose for which such
         advance is to be used.

"Reserve Requirement" -- The rate at which reserves (including any marginal,
         supplemental or emergency reserves) are actually required to be
         maintained by any Lender or any Lender's respective Participants, if
         any, under Regulation D against "Euro-Currency Liabilities", as such
         quoted term is used in Regulation D. Without limiting the effect of the
         foregoing, the Reserve Requirement shall reflect any other reserves
         required to be maintained by any Lender or any Lender's respective
         Participants, if any, by reason of any Regulatory Change against (i)
         any category of liabilities which includes deposits by reference to
         which the LIBO Based Rate is to be determined as provided in this
         Agreement or (ii) any category of extensions of credit or other assets
         which includes loans the interest rate on which is determined on the
         basis of rates used in determining the LIBO Rate.

                                       11


"Solvency Certificate" -- A certificate in the form of EXHIBIT G executed by
         each of the Borrowers.

"Solvent" -- When used with respect to any Person, that the fair value of the
         property of such Person, on a going concern basis, is greater than the
         total amount of liabilities (including, without limitation, contingent
         liabilities) of such Person.

"Title Insurer" -- The issuer(s), approved by Administrative Agent, of the
         title insurance policy or policies insuring the Mortgage. "Total Loan
         Commitment" -- An amount equal to the aggregate amount of all
         Individual Loan Commitments.

"Treasury Rate" -- The yield rate (i) on the 10 year U.S. Treasury Security due
         on or closest to the Maturity Date (as defined in the Note), as such
         yield rate is reported in the Wall Street Journal on the second
         Business Day preceding the date of calculation.

"Unrestricted Cash and Cash Equivalents" means the following assets of Guarantor
         (and Guarantor's pro rata share thereof with respect to unconsolidated
         joint ventures in which Guarantor has the power and authority to cause
         distributions from such joint venture), in each case, not subject to
         any lien, security interest or restriction: (i) cash, (ii) securities
         issued or directly and fully guaranteed or insured by the United States
         of America or any agency or instrumentality thereof (provided that the
         full faith and credit of the United States of America is pledged in
         support thereof) having maturities of not more than six (6) months from
         the date of acquisition, (iii) shares of money market funds invested in
         the securities described in clause (ii) above and (iv) Dollar
         denominated time deposits or certificates of deposit of any domestic
         United States commercial bank whose long-term debt is rated at least A
         by Standard & Poor's Rating Services, a division of The McGraw-Hill
         Companies, Inc. or A2 by Moody's Investors Service, Inc. and having
         capital and surplus in excess of $500,000,000.

"Village/NC Property" -- The fee interest in real property located at 240
         Village Crossing Lane in Winston-Salem, North Carolina owned by RD
         Village.

"Woonsocket/RI Property" -- The fee interest in real property located at 1500
         Diamond Hill Road in Woonsocket, Rhode owned by RD Woonsocket.

         Section 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP.

         Section 1.03. Computation of Time Periods. Except as otherwise provided
herein, in this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and words "to" and "until" each means "to but excluding".

                                       12


Section 1.04. Rules of Construction. Except as expressly provided otherwise,
when used in this Agreement (i) "or" is not exclusive, (ii) "hereunder",
"herein", "hereof" and the like refer to this Agreement as a whole, (iii)
"Article", "Section", "Schedule" and "Exhibit" refer to Articles, Sections,
Schedules and Exhibits of this Agreement, (iv) terms defined in the singular
 shall have a correlative meaning when used in the plural and vice versa, (v) a
reference to a Law includes any amendment, modification or supplement to, or
replacement of, such Law and (vi) a reference to a document shall mean such
document as the same may be amended, modified or supplemented from time to time
in accordance with its terms. The cover page and the Exhibits and Schedules, if
any, annexed hereto are incorporated as a part of this Agreement with the same
effect as if set forth in the body hereof. Any table of contents and all
captions and headings herein are for convenience only and shall not affect the
interpretation or construction hereof.

                                   ARTICLE II

                                    THE LOAN

         Section 2.01. Generally. Subject to the terms and conditions of this
Agreement, each of the Lenders severally agrees to lend to Borrower in an amount
up to its Individual Loan Commitment pursuant to which the Lender shall from
time to time advance and re-advance to Borrower an amount equal to its Pro Rata
Share of the excess of the Total Loan Commitment over the sum of (1) all
previous advances of the Loans which remain unpaid and (2) the outstanding
amount of all Letters of Credit. Within the limits set forth herein, Borrower
may borrow from time to time under this Section 2.01 and prepay from time to
time pursuant to Section 2.13 (subject, however, to the restrictions on
prepayment set forth in said Section), and thereafter re-borrow pursuant to this
Section 2.01. The Loans may be outstanding as (1) Base Rate Loans, (2) LIBOR
Loans or (3) a combination of the foregoing, as Borrower shall elect and notify
Administrative Agent in accordance with Section 2.10. The LIBOR Loan and Base
Rate Loan of each Lender shall be maintained at such Lender's Applicable Lending
Office.

         Section 2.02. Nature of Lenders' Obligations. The obligations of
Lenders under this Agreement are several, and no Lender shall be responsible for
the failure of any other Lender to make any advance of the Loan to be made by
such other Lender. However, the failure of any Lender to make any advance of the
Loan to be made by it hereunder on the date specified therefor shall not relieve
any other Lender of its obligation to make any advance of its portion of the
Loan specified hereby to be made on such date.

         Section 2.03. Purpose. The Loan shall be made for the business purposes
of working capital, distributions to Borrower's parent company and repayment of
existing debt. Borrower covenants and agrees that in no event shall proceeds of
the Loan, or any part thereof, be used, directly or indirectly, for any other
purpose, for any illegal purpose or for the purpose, whether immediate,
incidental or ultimate, of buying or carrying "margin stock" within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System, or in
connection with any hostile acquisition or for any illegal purpose.

                                       13


         Section 2.04. Advances. The Initial Advance shall be in the amount of
$12,000,000 and shall be made upon satisfaction of the conditions set forth in
Section 4.01. Subsequent advances shall be made no more frequently than once a
month thereafter, upon satisfaction of the conditions set forth in Section 4.02.
In no event shall Lenders be obligated to make an advance hereunder if (i) the
Principal Amount of the Loan following such advance (the "Post Advance Amount")
would exceed 65% of the appraised value of the Mortgaged Property (the "Loan to
Value Test") as determined by an independent appraisal conducted at Borrower's
expense by an appraiser selected by Administrative Agent, which appraisal shall
be conclusive as to value absent manifest error, provided, however, that
Borrower shall not be obligated to pay for more than one (1) appraisal per any
twelve (12) consecutive month period so long as no Event of Default exists or
(ii) if Net Operating Income is not 135% or more of debt service on the Initial
Advance or the Post Advance Amount, as the case may be (the "DSC Test"). For
purposes of determining compliance with the DSC Test, Net Operating Income shall
be calculated on a semi-annual basis using six months' actual figures and the
projected figures for the next succeeding six months and debt service shall be
calculated using an interest rate equal to the greater of (a) the actual
interest rate; (b) the Treasury Rate plus 200 basis points or (c) an interest
rate equal to 8.0% and a (25) year equal payment self liquidating amortization
schedule. For purposes of determining compliance with the Loan to Value Test, a
new appraisal shall not be required for each advance provided the appraisal
required in connection therewith shall not be more than twelve (12) months old
and any required reappraisals shall be made at Borrower's expense, subject to
the limitation set forth in clause (i) above.

         Section 2.05. Procedure for Advance. Borrower shall submit to
Administrative Agent a request for the advance of proceeds of the Loan stating
the amount requested and the purpose for which such advance is to be used no
later than 10:00 a.m. (New York time) on the date five (5) Business Days, prior
to the date the advance is to be made. Administrative Agent, upon its receipt
and approval of the request for advance, will so notify all Lenders by
facsimile. Not later than 10:00 a.m. (New York time) on the date set for such
advance, each Lender shall, through its Applicable Lending Office and subject to
the conditions of this Agreement, make the amount to be advanced by it on such
day available to Administrative Agent, at Administrative Agent's Office and in
immediately available funds for the account of Borrower. The amount so received
by Administrative Agent shall, subject to the conditions of this Agreement, be
made available to Borrower, in immediately available funds, by Administrative
Agent's crediting one or more bank accounts of Borrower or any one or more of
them designated by Borrower in its request for advance. Each Advance made
pursuant to this Agreement shall be in an amount at least equal to $1,000,000
and in integral multiples of $100,000.

         Section 2.06. Notes. The Loan shall be evidenced by notes of Borrower
in the form of EXHIBIT D, duly completed and executed by Borrower (one for each
Lender in an amount equal to such Lender's Individual Loan Commitment, payable
for the account of such Lender's Applicable Lending Office), in an aggregate
principal amount equal to the Loan Amount (such notes, as the same may hereafter
be amended, modified, extended, severed, assigned, substituted, renewed or
restated from time to time (including, without limitation, any substitute notes
pursuant to Section 8.07), each, a "Note" and collectively, the "Notes"). The
Notes shall mature, and all outstanding principal and other sums thereunder
shall be paid in full, on the Maturity Date, as the same may be accelerated or
extended.

                                       14


         Each Lender is hereby authorized by Borrower to endorse on the schedule
attached to the Note held by it, the amount of each advance and each payment of
principal received by such Lender for the account of its Applicable Lending
Office(s) on account of its Loan, which endorsement shall, in the absence of
manifest error, be conclusive as to the outstanding balance of the Loan made by
such Lender. The failure by any Lender to make such notations with respect to
its Loans or each advance or payment shall not limit or otherwise affect the
obligations of Borrower under this Agreement or the Notes.

         In case of any loss, theft, destruction or mutilation of any Lender's
Note, Borrower shall, upon its receipt of an affidavit of an officer of such
Lender as to such loss, theft, destruction or mutilation and an appropriate
indemnification, execute and deliver a replacement Note to such Lender in the
same principal amount and otherwise of like tenor as the lost, stolen, destroyed
or mutilated Note.

         Section 2.07. Payments and Distributions; Certain Consequences of
Delinquent Lender Status. Borrower shall make each payment under this Agreement
and under the Notes not later than 11:00 a.m. (New York time) on the date when
due to Administrative Agent at Administrative Agent's Office in immediately
available funds. Administrative Agent will thereafter, on the day of its receipt
of each such payment, cause to be distributed to each Lender (i) such Lender's
appropriate share (based upon the respective outstanding principal amounts of
the Notes and the respective rates of interest thereunder) of the payments of
principal and interest, and its appropriate share of the payments of other sums,
in like funds for the account of such Lender's Applicable Lending Office.
Payments by Borrower hereunder or under the Notes or other Loan Documents shall
be made without setoff or counterclaim.

         Except to the extent otherwise provided in this Agreement, whenever any
payment to be made under this Agreement or under the Notes is due on any day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of the payment of interest and, if applicable, fees, as the case may
be.

         Notwithstanding the foregoing provisions of this Section, (i)
Administrative Agent shall make no payment to a Delinquent Lender until the
Non-Delinquent Lenders have been paid in full all outstanding principal, accrued
and unpaid interest and any other sums owing to them under the Loan Documents,
it being understood that payments of interest on account of the outstanding
principal amount of the Note held by the Delinquent Lender shall be held by
Administrative Agent in a non-interest bearing account and not distributed to
the Delinquent Lender until such time as all principal, interest and other sums
due to the Non-Delinquent Lenders have been paid in full; (ii) any payments
(other than interest, as provided in clause (i) above) which would otherwise be
due a Delinquent Lender shall be distributed to the Non-Delinquent Lenders until


                                       15


such time as all principal, interest and other sums due to the Non-Delinquent
Lenders have been paid in full (except that any such amounts otherwise due a
Delinquent Lender received by Administrative Agent during an Election Period
shall be retained by Administrative Agent until the expiration of the Election
Period and either paid to the Delinquent Lender, if the delinquency is cured, or
paid to the Non-Delinquent Lenders, if the delinquency is not cured); and (iii)
Administrative Agent shall deduct, from amounts due (or, in the case of a
Delinquent Lender, amounts that would otherwise be payable to such Delinquent
Lender being held by Administrative Agent pursuant to clause (i) above) a Lender
in default under its obligations under Section 7.05 or the reimbursement
provisions of this Section 2.07 regarding interpleader actions, the amount owing
by such Lender pursuant to said Section 7.05 or the reimbursement provisions of
this Section 2.07 regarding interpleader actions and pay the amount so deducted
to itself, the other Lenders, or such other party as is entitled to such amount,
as applicable.

         If, following such time as all amounts owing under the Loan to the
Non-Delinquent Lenders and Administrative Agent have been paid in full,
Administrative Agent is holding funds in respect of amounts payable to the
Delinquent Lender as provided in the third paragraph of this Section,
Administrative Agent shall file an interpleader action in New York State Supreme
Court, New York County and shall deposit the funds so held (less a sum equal to
Administrative Agent's reasonable fees and expenses in connection with said
interpleader action and deposit) with said court and Administrative Agent shall
thereupon be relieved of responsibility to any party with respect to the funds
deposited. Borrower and each Delinquent Lender hereby jointly and severally
agree to reimburse Administrative Agent for all costs and expenses that
Administrative Agent may incur in connection with the foregoing interpleader
action.

         Except as provided above in this Section and in Section 7.16, each
Lender's interest in the Loan shall be of equal priority with the interest of
each other Lender.

         Section 2.08. Interest. Borrower shall have the option, subject to the
terms and conditions set forth in this Agreement, of paying interest on the
Principal Amount or portions thereof at the Prime Based Rate or the LIBO Based
Rate. If Borrower desires the application of the LIBO Based Rate, it shall
submit a LIBO Rate Request to Administrative Agent, which LIBO Rate Request
shall be irrevocable, subject to Borrower's right to convert the rate of
interest payable under the Notes with respect to any LIBOR Amount from the LIBO
Based Rate to the Prime Based Rate as provided in Section 2.10. Administrative
Agent shall, on the day of its receipt of the LIBO Rate Request from Borrower,
notify each Lender by facsimile of the specified LIBOR Amount and the amount of
the Lender's portion thereof, the Interest Period and date of commencement
thereof, and the interest rate applicable to such LIBOR Amount. Each LIBO Rate
Request shall be applicable to the Notes in accordance with the Lenders'
respective Pro Rata Shares, so that, barring a conversion or suspension of the
LIBO Based Rate by one or more, but not all, Lenders, pursuant to Article III,
the outstanding principal amounts of each of the Notes shall contain segments
bearing interest at the Prime Based Rate and/or LIBO Based Rate(s) under
particular Interest Period(s), each of which segments shall correspond to a
proportional segment of the outstanding principal amount of every other Note. In
the event that Borrower fails to submit a LIBO Rate Request with respect to a
LIBOR Amount not later than 12 Noon (New York time) three (3) Business Days
prior to the last day of the relevant Interest Period, the LIBOR Amount in
question shall bear interest, commencing at the end of such Interest Period, at
the Prime Based Rate for a one (1) month Interest Period.

                                       16


         Interest shall be computed on an actual/360-day basis (i.e., interest
for each day during which any portion of the Principal Amount is bearing
interest at a particular interest rate per annum shall be computed at such rate
divided by 360).

         Borrower shall pay interest on the Principal Amount to Administrative
Agent for the account of Lenders. Interest on the Principal Amount shall be
payable, in arrears, monthly on the first day of the first month following the
Initial Advance and on the first day of each month thereafter until the Notes
are repaid in full.

         Section 2.09. Limitation on Number of Interest Periods. Borrower shall
not have the right to have more than five (5) Interest Periods, in the
aggregate, in respect of the Loan in effect at any one time, whether or not any
portion of the Principal Amount is then bearing interest at the Prime Based
Rate.

         Section 2.10. Conversions of Interest Rate. Provided there exists no
Event of Default, Borrower shall have the right to convert, from time to time,
the rate of interest payable under the Notes with respect to any portion of the
Principal Amount to the LIBO Based Rate or the Prime Based Rate, subject to the
terms of this Agreement (including, without limitation, the payment of all
amounts due in connection with any such conversion from the LIBO Based Rate on a
date other than the last day of an applicable Interest Period) and provided
that, in the case of a conversion from the LIBO Based Rate, the entire LIBOR
Amount is the subject of the conversion. Conversions shall be accomplished (i)
in the case of a conversion from the Prime Based Rate to the LIBO Based Rate, by
Borrower's submission of a LIBO Rate Request in accordance with Section 2.08 or
(ii) in the case of a conversion from the LIBO Based Rate to the Prime Based
Rate, by Borrower's request to Administrative Agent by telephone (to be promptly
confirmed in writing), to be received by Administrative Agent at least three (3)
Business Days prior to the date specified for such conversion, specifying the
LIBOR Amount with respect to which the interest rate is to be converted and the
date of the conversion. With respect to any portion of the Principal Amount
subject to the LIBO Based Rate, Borrower shall not have the right to convert
from one Interest Period to another other than the last day of an applicable
Interest Period. On the date of its receipt of such request, Administrative
Agent shall notify each Lender thereof either by telephone or by facsimile.

         Section 2.11. Inapplicability of LIBO Based Rate. Any portion of the
Principal Amount to which the LIBO Based Rate is not or cannot pursuant to the
terms of this Agreement be applicable shall bear interest at the Prime Based
Rate. Upon the occurrence of an Event of Default, the entire Principal Amount
shall, at the option of the Required Lenders, immediately and without notice to
Borrower, bear interest at the Prime Based Rate. In addition, following the
occurrence of an Event of Default, Borrower shall have no right to submit a LIBO
Rate Request with respect to any LIBOR Amount for which the current Interest
Period is expiring. The foregoing provisions shall not be construed as a waiver
by Lenders of their right to pursue any other remedies available to them under
the Mortgage or any other Loan Document nor shall they be construed to limit in
any way the application of the Default Rate as provided in the Mortgage.

                                       17


         Section 2.12. Late Payment Premium. Borrower shall pay to
Administrative Agent for the account of Lenders a late payment premium in the
amount of 5% of any payments of principal or interest under the Loan made more
than ten (10) days after the due date thereof, which late payment premium shall
be due with any such late payment.

         Section 2.13. Voluntary Prepayments. Borrower may, upon at least five
(5) Business Days' notice (which notice shall be irrevocable) to Administrative
Agent, prepay the Principal Amount, in whole or part, without premium or
penalty; provided, however, that (i) any partial prepayment under this Section
shall be in a principal amount of not less than $1,000,000 and an integral
multiple of $100,000, (ii) prepayment of a LIBOR Amount other than on the last
day of the applicable Interest Period shall be subject to the provisions of
Section 3.03 and (iii) each prepayment under this Section shall include all
interest accrued on the amount of principal prepaid (and all late charges and
other sums that may be payable) through the date of prepayment. Amounts prepaid
may not be reborrowed.

         Section 2.14. Annual Commitment Reduction/Required Amortization.
Commencing on the first day of June, 2006 and on the first day of each April
thereafter until the Maturity Date both the Loan Amount and the Total Loan
Commitment shall reduce by the amount set forth on Schedule A attached hereto
and, to the extent the Loan Amount as so reduced would exceed the Principal
Amount, Borrower shall, on the date of reduction make a mandatory principal
payment in the amount of such excess such that, at no time, shall the Principal
Amount exceed the Loan Amount as reduced from time to time. After any release of
a Property, in accordance with Section 8.18 or otherwise, Administrative Agent
shall recalculate the required annual amortization payments due hereunder in
accordance with a constant annual payment mortgage schedule based on the
Principal Amount at such time and an assumed interest rate of 8% per annum,
which would fully amortize over a term equal to (x) twenty-five (25) years less
(y) the number of full twelve (12) month periods elapsed since the date hereof.
Administrative Agent shall provide Borrower with a schedule of such recalculated
amortization payment schedule upon request and such schedule shall be final and
binding upon Borrower absent manifest error.

         Section 2.15. Nature of Lenders' Obligations; Borrower's Rights and
Obligations in Event a Lender Fails to Make an Advance. The obligations of
Lenders under this Agreement are several, and no Lender shall be responsible for
the failure of any other Lender to fund the portion required to be funded by
such other Lender of an advance of the Loan.

                                       18


                                  ARTICLE III

                             YIELD MAINTENANCE ETC.

         Section 3.01. Additional Costs and Other Effects of Regulatory Changes;
Taxes. Borrower shall pay directly to a Lender, promptly upon demand, such
amounts as are necessary to compensate such Lender for Additional Costs
resulting from any Regulatory Change which (i) subjects such Lender to any tax,
duty or other charge with respect to the Loan or its Note, or changes the basis
of taxation of any amounts payable to such Lender under the Loan or its Note
(other than taxes imposed on the overall net income of such Lender or of its
Applicable Lending Office by the jurisdiction in which such Lender's principal
office or such Applicable Lending Office is located), (ii) imposes, modifies or
deems applicable any reserve, special deposit or similar requirements relating
to any extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender, (iii) imposes on such Lender or, in the case of
LIBOR Amounts, on the London interbank market, any other condition affecting the
Loan or its Note, or any of such extensions of credit or liabilities or (iv)
imposes any capital adequacy requirements on such Lender by virtue of the Loan
or the Notes. Such Lender will notify Borrower (with a copy to Administrative
Agent) of any event occurring after the date hereof which would entitle it to
compensation pursuant to this paragraph as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation, and will
designate a different Applicable Lending Office for those portions of the Loan
affected by such event if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in such Lender's sole opinion, be
disadvantageous to it, provided that such Lender shall have no obligation to so
designate an Applicable Lending Office located in the United States.

         Without limiting the effect of the immediately preceding paragraph, in
the event that, by reason of any Regulatory Change, (i) a Lender incurs
Additional Costs based on or measured by the excess above a specified level of
the amount of (1) a category of deposits or other liabilities of such Lender
which includes deposits by reference to which the LIBO Rate is determined as
provided in this Agreement and/or (2) a category of extensions of credit or
other assets of such Lender which includes loans the interest on which is
determined on the basis of rates referred to in the definition of "LIBO Rate" in
Section 1.01, (ii) a Lender becomes subject to restrictions on the amount of
such a category of liabilities or assets which it may hold or (iii) it shall be
unlawful or impossible for a Lender to make or maintain its Pro Rata Share of
the Loan (or any portion thereof) at the LIBO Based Rate, then such Lender's
obligation to make or maintain its Pro Rata Share of the Loan (or any portion
thereof) at the LIBO Based Rate (and Borrower's right to request the same) shall
be suspended and such Lender shall give notice thereof to Borrower (with a copy
to Administrative Agent) and, upon the giving of such notice, interest payable
on the affected Note shall be converted to the Prime Based Rate, unless such
Lender may lawfully continue to maintain its Pro Rata Share of the Loan (or any
portion thereof) then bearing interest at the LIBO Based Rate to the end of the
current Interest Period(s), at which time the interest rate on the affected Note
shall convert to the Prime Based Rate. If subsequent to any conversion to the
Prime Based Rate as provided above such Lender determines that such Regulatory
Change has ceased to be in effect, such Lender will so notify Borrower (with a
copy to Administrative Agent), and Borrower may convert the rate of interest
payable under the affected Note with respect to those portions of the Principal
Amount bearing interest at the Prime Based Rate to the LIBO Based Rate by
submitting a LIBO Rate Request in respect thereof and otherwise complying with
the provisions of this Agreement with respect thereto.

                                       19


         Determinations by each Lender of the existence or effect of any
Regulatory Change on its costs of making or maintaining its Pro Rate Share of
the Loan, or portions thereof, at the LIBO Based Rate, or on amounts receivable
by it in respect thereof, and of the additional amounts required to compensate
such Lender in respect of Additional Costs, shall be conclusive, so long as made
on a reasonable basis.

         Section 3.02. Limitations on Availability of LIBO Based Rate. Anything
herein to the contrary notwithstanding, if, at the time of or prior to the
determination of the LIBO Based Rate in respect of any LIBO Rate Request Amount
as provided in this Agreement, (i) Administrative Agent determines (which
determination shall be conclusive, so long as made on a reasonable basis) that
by reason of circumstances affecting the London interbank market generally,
adequate and fair means do not or will not exist for determining the LIBO Rate
applicable to an Interest Period or (ii) a Lender determines (which
determination shall be conclusive, so long as made on a reasonable basis) that
the LIBO Rate will not accurately reflect the cost to such Lender of making or
maintaining its Pro Rata Share of the Loan (or any portion thereof) at the LIBO
Based Rate, then Administrative Agent, in the case of the circumstances
described in clause (i) above, or such Lender, in the case of the circumstances
described in clause (ii) above, shall give Borrower prompt notice thereof (with
a copy to Administrative Agent in the case of the notice from such Lender), and
the LIBO Rate Request Amount in question, in the case of the circumstances
described in clause (i) above, or such Lender's portion thereof, in the case of
the circumstances described in clause (ii) above, shall bear interest, or
continue to bear interest, as the case may be, at the Prime Based Rate. If at
any time subsequent to Administrative Agent's or such Lender's giving of such
notice, Administrative Agent or such Lender, as the case may be, determines that
because of a change in circumstances the LIBO Based Rate is again available to
Borrower, Administrative Agent or such Lender, as the case may be, shall so
notify Borrower (with a copy to Administrative Agent, in the case of the notice
from such Lender) and Borrower may convert the rate of interest payable under
the Notes or such Lender's Note, as the case may be, from the Prime Based Rate
to the LIBO Based Rate by submitting a LIBO Rate Request in respect thereof and
otherwise complying with the provisions of this Agreement with respect thereto.

         Section 3.03. Certain Compensation. Borrower shall pay directly to a
Lender, immediately upon request and notwithstanding contrary provisions
contained in the Mortgage or other Loan Documents, such amounts as shall, in the
judgment of such Lender (which shall be conclusive so long as made on a
reasonable basis), compensate it for any loss, cost or expense incurred by it as
a result of (i) any payment or prepayment (under any circumstances whatsoever,
whether voluntary or involuntary) of any portion of the Principal Amount bearing
interest at the LIBO Based Rate on a date other than the last day of an
applicable Interest Period, (ii) the conversion (for any reason whatsoever,
whether voluntary or involuntary) of the rate of interest payable under such
Lender's Note from the LIBO Based Rate to the Prime Based Rate with respect to
any portion of the Principal Amount then bearing interest at the LIBO Based Rate


                                       20


on a date other than the last day of an applicable Interest Period, (iii) the
failure of all or a portion of an advance of the Loan which was to have borne
interest at the LIBO Based Rate pursuant to a LIBO Rate Request to be made, (iv)
any failure by Borrower to prepay any portion of the Principal Amount bearing
interest at the LIBO Based Rate on the date specified in Borrower's notice of
prepayment or (v) the failure of Borrower to borrow, continue or convert in
accordance with a LIBO Rate Request submitted by it, which amounts shall
include, without limitation, an amount equal the Present Value (determined as
hereinafter provided) of the dollar amount which is obtained by multiplying the
number of days from the date of the occurrence to the last day of the applicable
Interest Period by a number which is calculated by (i) multiplying the amount
prepaid, converted, not advanced, not prepaid or not borrowed, as the case may
be, by the excess of the LIBO Based Rate applicable thereto over the current
rate for United States Treasury securities (bills on a discounted basis shall be
converted to a bond equivalent) with a maturity date closest to the last day of
the applicable Interest Period and (ii) dividing the product thereof by 360. For
purposes of this Section, Present Value shall be determined by using the number
of days during the period from the date of occurrence to and including the last
day of the applicable Interest Period and using the above-referenced United
States Treasury security rate. A determination by a Lender as to the amounts
payable to it pursuant to this Section shall be conclusive absent manifest
error.

         Section 3.04. "Lender" to Include Participants. For purposes of this
Article III and of the definition of "Additional Costs" in Section 1.01, the
term "Lender" shall, at each Lender's option, be deemed to include such Lender's
present and future Participants in the Loan to the extent of each such
Participant's actual Additional Costs or other losses, costs or expenses payable
pursuant to this Article III.

                                   ARTICLE IV

                              CONDITIONS PRECEDENT

         Section 4.01. Conditions Precedent to Loan. Lenders shall not be
obligated to make the Initial Advance until the following conditions shall have
been satisfied:

                  (a) There shall exist no Default or Event of Default, and no
         Default or Event of Default would result from the making of the Loan;

                  (b) The representations and warranties made to Administrative
         Agent or Lenders herein, in the other Loan Documents and in any other
         document, certificate or statement executed or delivered to
         Administrative Agent or Lenders in connection with the Loan shall be
         true and correct on and as of the date of the advance of the Loan with
         the same effect as if made on such date;

                  (c) The Improvements shall not have been materially injured or
         damaged by fire or other casualty; and

                                       21


                  (d) Lenders shall have received and approved each of the
         following:

                        (1) Loan Fees and Expenses. (i) A non-refundable
                  facility fee in respect of this Loan (without credit for any
                  amounts paid under existing credit facilities refinanced
                  hereby) in the amount of $325,000, to be retained by Lenders
                  whether or not any advances are made hereunder and (ii) all
                  fees and expenses incurred by Administrative Agent (including,
                  without limitation, the reasonable fees and expenses of
                  Administrative Agent's Counsel, Lenders' environmental and
                  insurance consultants, and the preparer of the appraisal
                  required by paragraph (4) below);

                        (2) Loan Documents. This Agreement and each of the other
                  Loan Documents, duly executed by the parties thereto, and,
                  where applicable, duly acknowledged and in proper form for
                  recording or filing, as the case may be, and all necessary or
                  desirable recordings and filings shall have been duly made;

                        (3) Financial Statements. Current Financial Statements
                  and such other financial data (including, without limitation,
                  current financial statements of tenants under leases in
                  respect of the Mortgaged Property and of parties to any of the
                  Premises Documents, and of the guarantor(s), if any, of any
                  such tenants or parties) as Administrative Agent shall
                  require;

                        (4) Appraisal. An independent M.A.I. appraisal of the
                  Property and Improvements complying in all respects with the
                  standards for real estate appraisals established pursuant to
                  the Financial Institutions Reform, Recovery, and Enforcement
                  Act of 1989;

                        (5) Insurance Policies. The policies of insurance
                  required by the Mortgage, together with evidence of the
                  payment of the premiums therefor;

                        (6) Hazardous Materials Report/Reliance Letter. A
                  detailed report by a properly qualified engineer, which shall
                  include, inter alia, a certification that such engineer has
                  obtained and examined a list of prior owners, tenants and
                  other users of all or any portion of the Property or any
                  improvements thereon, and has made an on-site physical
                  examination of the Property, and a visual observation of the
                  surrounding areas, and has found no evidence of past or
                  present Hazardous Materials activities or the presence of
                  Hazardous Materials, together with, if required by
                  Administrative Agent, a "reliance letter" addressed to
                  Administrative Agent with respect to such report;

                                       22


                        (7) Title Policy. A paid title insurance policy, in the
                  amount of the Loan Allocation for each property in ALTA
                  10-17-92 or other form approved by Administrative Agent's
                  Counsel with such endorsements as shall be reasonably
                  requested by Administrative Agent's Counsel (including
                  "tie-in" endorsements aggregating liability under such
                  policies to the extent permitted by Law), issued by the Title
                  Insurer which shall insure the Mortgage to be a valid lien on
                  Borrower's interest in the premises free and clear of all
                  defects and encumbrances except those previously received and
                  approved by Administrative Agent's Counsel, and shall contain
                  (i) full coverage against mechanics' liens (filed and
                  inchoate), (ii) a reference to the survey but no survey
                  exceptions except those theretofore approved by Administrative
                  Agent's Counsel, (iii) such affirmative insurance and
                  endorsements as Administrative Agent's Counsel may require,
                  and (iv) if any such policy is dated earlier than the date of
                  the disbursement of the Loan, an endorsement to such policy,
                  in form approved by Administrative Agent's Counsel, redating
                  the policy and setting forth no additional exceptions except
                  those approved by Administrative Agent's Counsel; and shall be
                  accompanied by such reinsurance agreements between the Title
                  Insurer and title companies approved by Lender, in ALTA 1994
                  facultative form, as Lender may require;

                        (8) Survey. A current ALTA/ACSM, as-built survey of the
                  Property, certified to Lender and the Title Insurer showing
                  (i) the location of the perimeter of the Property by courses
                  and distances, (ii) all easements, rights-of-way, and utility
                  lines referred to in the title policy required by this
                  Agreement or which actually service or cross the Property
                  (with instrument, book and page number indicated), (iii) the
                  lines of the streets abutting the Property and the width
                  thereof, and any established building lines (and that such
                  roads have been dedicated for public use and are completed and
                  have been accepted by all required Governmental Authorities),
                  (iv) any encroachments and the extent thereof upon the
                  Property, (v) locations of all portions (with the acreage
                  thereof also identified) of the Property, if any, which are
                  located in an area designated as a "flood prone area" as
                  defined by U.S. Department of Housing and Urban Development
                  pursuant to the Flood Disaster Protection Act of 1973 and (vi)
                  the Improvements, and the relationship thereof by distances to
                  the perimeter of the Property, established building, setback
                  and street lines and (vi) if the Property is described as
                  being on a filed map, a legend relating the survey to said
                  map;

                        (9) Leases and Premises Documents. Certified copies of
                  all leases in respect of the Mortgaged Property, accompanied
                  by, in the case of Anchors and any other leases specified by
                  Administrative Agent, estoppel certificates from the tenants
                  thereunder and executed notice-of-assignment letters in the
                  form of EXHIBIT B in respect thereof; executed subordination
                  and attornment agreements, in Administrative Agent's usual
                  form, in respect of such leases as Administrative Agent may
                  require; a certified copy of the standard form of lease or
                  contract of sale, as the case may be, Borrower will use in
                  connection with the leasing of space in the Improvements or
                  the sale of portions of the Property; certified copies of all
                  Premises Documents, together with estoppel certificates from
                  the parties thereto and a certified current rent roll for the
                  Improvements;

                                       23


                        (10) Requisition. A Requisition for the Initial Advance,

                        (11) Counsel Opinions. Opinions of Borrower's counsel
                  and local counsel (and, if required by Lender, of a local
                  counsel selected by Lender or Administrative Agent's Counsel)
                  to the effects set forth on EXHIBIT C;

                        (12) Organizational Documents. If Borrower, the
                  mortgagor or grantor under any Mortgage (if different from
                  Borrower), Guarantor or any general partner or member of any
                  of them is a corporation, current copies of the following
                  documents with respect to each (unless otherwise indicated):

                              (i) a good-standing certificate from the
                        jurisdiction of its incorporation and, as to Borrower
                        and the mortgagor or grantor under the Mortgage only,
                        from the jurisdiction in which the Property is located,

                              (ii) a resolution, certified by the corporate
                        secretary, of the shareholders or directors of the
                        corporation authorizing the consummation of the
                        transactions contemplated hereby and the execution,
                        delivery and performance of the Loan Documents and any
                        other documents to be executed, delivered or performed
                        by said corporation (including any substitute or
                        replacement Notes to be executed and delivered pursuant
                        to the terms hereof), and

                              (iii) a certificate of the corporate secretary as
                        to the incumbency of the officers executing any of the
                        documents required hereby,

                  and, if Borrower, the mortgagor or grantor under the Mortgage
                  (if different from Borrower), Guarantor or any general partner
                  or member of any of them is a partnership, venture, limited
                  liability company or trust:

                              (iv) the entity's organizational agreement and all
                        amendments and attachments thereto, certified by a
                        general partner, venturer, member or trustee to be true
                        and complete,

                              (v) any certificates filed or required to be filed
                        by the entity in the jurisdictions of its formation and
                        where the Property is located in order for it to do
                        business in those jurisdictions, and

                              (vi) evidence of the authorization of the
                        consummation of the transactions contemplated hereby and
                        the execution, delivery and performance of the Loan
                        Documents and any other documents to be executed,
                        delivered or performed by said entity (including any
                        substitute or replacement notes to be executed and
                        delivered pursuant to the terms hereof), and including
                        any required consents by partners, venturers, members,
                        trustees or beneficiaries;

                                       24



                        (13) Management and Leasing Contracts. Copies, certified
                  to be true and complete, of all existing contracts providing
                  for the management, maintenance, operation or leasing of the
                  Property and Improvements, together with, in each case, such
                  collateral assignments or "will-serve" letters as
                  Administrative Agent may require;

                        (14) Permits and Approvals. Copies of the certificate(s)
                  of occupancy for the Improvements and of any and all other
                  authorizations (including plot plan and subdivision approvals,
                  zoning variances, water, sewer, building and other permits)
                  required by Governmental Authorities or otherwise necessary
                  for the use, occupancy and operation of the Property and/or
                  Improvements for their intended purposes in accordance with
                  all applicable Laws;

                        (15) Intentionally Omitted;

                        (16) Chattel Searches. UCC searches against Borrower or
                  other owner of the Mortgaged Property and advice from the
                  Title Insurer to the effect that searches of proper public
                  records disclose no leases of personalty or financing
                  statements filed or recorded against the Mortgaged Property,
                  Borrower or other owner of any Mortgaged Property;

                        (17) Intentionally Omitted; and

                        (18) Additional Documentation. Such other approvals,
                  opinions or documents as Lender may reasonably request
                  including, but not limited to, (i) a current certified rent
                  roll for the Mortgaged Property and tenant estoppel letters
                  for all Anchors, (ii) ground lessor estoppel certificates from
                  the ground lessor with respect to any ground leases encumbered
                  by the Mortgage and (iii) current financial statements of
                  Guarantor showing a minimum net worth of $100,000,000 (the
                  "Net Worth Requirement") and a minimum Unrestricted Cash and
                  Cash Equivalents of $10,000,000 (the "Liquidity Requirement").

         Section 4.02. Conditions to Advances After the Initial Advance. In
addition to the Initial Advance, an amount of Loan proceeds (each such advance,
an "Additional Advance") shall be made available to Borrower subject to the
satisfaction of the following conditions:

                  (a) Subject to the limitations set forth in Section 2.04 and
         Section 4.02(h) with respect to any Additional Advance), the amount of
         each Additional Advance subsequent to the Initial Advance shall be in
         the minimum amount of $100,000 (unless less than said amount is
         available for disbursement pursuant to the terms hereof at the time of
         such Additional Advance, in which case the amount of such subsequent
         advance shall be equal to such remaining availability).

                                       25


                  (b) All conditions of Section 4.01 shall have been and remain
         satisfied as of the date of such advances;

                  (c) There shall exist no Default or Event of Default;

                  (d) The representations and warranties made to Administrative
         Agent and Lenders herein, in the other Loan Documents and in any other
         document, certificate or statement executed or delivered to
         Administrative Agent or Lenders in connection with the Loan shall be
         true and correct on and as of the date of the advance with the same
         effect as if made on such date (except for the updated rent roll);

                  (e) Lender shall have received a Requisition, and, if
         required, a title continuation report;

                  (f) There shall have occurred no material adverse change in
         the condition or value of the "Mortgaged Property", as defined in the
         Mortgage;

                  (g) Mortgagor shall furnish Administrative Agent with a
         statement, duly acknowledged, of the amount due whether for principal
         or interest, on the Loan and whether any offsets, counterclaims or
         defenses exist against the indebtedness secured hereby; and

                  (h) The aggregate outstanding proceeds of the Loan, including
         the amount of the advance being requested, shall not exceed the amount
         necessary to satisfy the Loan to Value Test and the DSC Test for
         Additional Advances.

                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

         Borrower and Guarantor represent and warrant to Administrative Agent
and Lenders that:

         Section 5.01. Due Formation, Power and Authority. If it, the mortgagor
or grantor under the Mortgage (if different from Borrower), Guarantor or any
general partner or member of any of them is a corporation, partnership, venture,
limited liability company or trust, each such entity is duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
formation, is qualified to do business (if required) and is in good standing in
the jurisdiction in which the Property is located, and has full power and
authority to consummate the transactions contemplated hereby and to execute,
deliver and perform this Agreement and any other Loan Document to which it is a
party.

                                       26


         Section 5.02. Legally Enforceable Agreements. Each Loan Document to
which Borrower or Guarantor is a party is a legal, valid and binding obligation
of such party, enforceable against Borrower or Guarantor, as the case may be, in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar Laws affecting
creditors' rights generally.

         Section 5.03. Financial Statements. Financial Statements have been
heretofore delivered to Lenders which are true, correct and current in all
respects and which fairly present the respective financial conditions of the
subjects thereof as of the respective dates thereof; no material adverse change
has occurred in the financial conditions reflected therein since the respective
dates thereof and no borrowings (other than the Loan) which might give rise to a
lien or claim against the Mortgaged Property or proceeds of the Loan have been
made by Borrower or others since the dates thereof.

         Section 5.04. Compliance With Laws; Payment of Taxes. Borrower and
Guarantor are in compliance with, and the transactions contemplated hereby and
by the other Loan Documents do not and will not violate any provision of, or
require any filing, registration, consent or approval under, any Law presently
in effect having applicability to Borrower or Guarantor; Borrower has filed all
tax returns (federal, state and local) required to be filed and has paid all
taxes, assessments and governmental charges and levies due and payable
(including those in respect of the Mortgaged Property), including interest and
penalties.

         Section 5.05. Litigation. There are no actions, suits or proceedings
pending or threatened against or affecting it, Guarantor, the Mortgaged
Property, the validity or enforceability of the Mortgage or the priority of the
lien thereof at law, in equity or before or by any Governmental Authorities
except actions, suits or proceedings which have been disclosed to Administrative
Agent and Lenders in writing and which are fully covered by insurance or would,
if adversely determined, not substantially impair the ability of Borrower or
Guarantor to pay when due any amounts which may become payable under the Notes
or Guaranty or to otherwise pay and perform their respective obligations in
connection with the Loan; to Borrower's knowledge, neither it nor Guarantor is
in default with respect to any order, writ, injunction, decree or demand of any
court or Governmental Authorities.

         Section 5.06. No Conflicts or Defaults. The consummation of the
transactions contemplated hereby and the performance hereof and of the other
Loan Documents have not resulted and will not result in any breach of, or
constitute a default under, any mortgage, deed of trust, lease, bank loan or
credit agreement, corporate charter, by-laws, partnership agreement or other
instrument to which Borrower or Guarantor is a party or by which either of them
may be bound or affected.

         Section 5.07. Solvency. Borrower and Guarantor are, and upon
consummation of the transactions contemplated by this Agreement, the other Loan
Documents and any other related documents, will be, Solvent.

                                       27


         Section 5.08. Governmental Regulation. Borrower is not subject to
regulation under the Investment Company Act of 1940 or any Law limiting its
ability to incur indebtedness for money borrowed as contemplated hereby.

         Section 5.09. Insurance. Borrower has in force, and has paid the
premiums in respect of, all of the insurance required by the Mortgage.

         Section 5.10. ERISA. Neither Borrower nor Guarantor nor any other
Person, including any fiduciary, has engaged in any prohibited transaction (as
defined in Section 4975 of the Code or Section 406 of ERISA) which could subject
Borrower or Guarantor or any Person whom they have an obligation to indemnify to
any tax or penalty imposed under Section 4975 of the Code or Section 502 of
ERISA; neither Borrower nor Guarantor nor any ERISA Affiliate maintains,
contributes to or has any liability with respect to a Multiemployer Plan or any
other plan subject to Title IV of ERISA; each Employee Benefit Plan is
administered in accordance with its terms and in compliance with all applicable
Laws, including any reporting requirements; each Pension Plan intending to
qualify under Section 401(a) or 401(k) of the Code does so qualify; there is no
lien outstanding or security interest given in connection with a Pension Plan;
neither Borrower nor Guarantor nor any ERISA Affiliate has any liability with
respect to an accumulated funding deficiency (whether or not waived) under
Section 412 of the Code or Section 302 of ERISA; neither Borrower nor Guarantor
has any liability for retiree medical or death benefits (contingent or
otherwise) other than as required by Section 4980B of the Code; and no part of
the funds to be used by Borrower or Guarantor in satisfaction of their
respective obligations under this Agreement and the other Loan Documents
constitute "plan assets" of any "employee benefit plan" within the meaning of
ERISA or of any "plan" within the meaning of Section 4975(e)(1) of the Code, as
interpreted by the Internal Revenue Service and the United States Department of
Labor in rules, regulations, releases or bulletins or as interpreted under
applicable case law.

         Section 5.11. Other Documents. The Major Leases and Premises Documents
are unmodified and in full force and effect, there are no defaults (or events
which with notice or the passage of time, or both, would constitute such a
default) under any thereof and all conditions to the effectiveness and
continuing effectiveness thereof required to be satisfied as of the date hereof
have been satisfied.

         Section 5.12. No Defaults. There exists no Default or Event of Default.

         Section 5.13. Accuracy of Information; Full Disclosure. Neither this
Agreement nor any documents, financial statements, reports, notices, schedules,
certificates, statements or other writings furnished by or on behalf of Borrower
or Guarantor to Lender in connection with the negotiation of this Agreement or
the other Loan Documents or the consummation of the transactions contemplated
hereby, or required herein or by the other Loan Documents to be furnished by or
on behalf of Borrower or Guarantor, contains any untrue or misleading statement
of a material fact or omits a material fact necessary to make the statements
herein or therein not misleading; there is no fact which Borrower has not
disclosed to Administrative Agent and Lenders in writing which materially
affects adversely nor, so far as Borrower can now foresee, will materially
affect adversely any of the Mortgaged Property or the business affairs or
financial condition of Borrower or Guarantor, or the ability of Borrower or
Guarantor to perform this Agreement and the other Loan Documents.

                                       28


         Section 5.14. Separate Tax and Zoning Lot. Each Mortgaged Property
constitutes a distinct parcel for purposes of zoning and of taxes, assessments
and impositions (public or private) and are not otherwise considered as part of
a larger single lot for purposes of zoning or of taxes, assessments or
impositions (public or private).

         Section 5.15. The Improvements. There are no structural defects in the
Improvements or violations of any requirement of any Governmental Authorities
with respect thereto; the use, occupancy and operation of the Improvements
comply with all applicable permits and restrictive covenants affecting the
Mortgaged Property, as well as with the Premises Documents and with all zoning,
building, environmental, ecological, landmark, subdivision and other Laws, and
all requirements for such use, occupancy and operation have been satisfied;
there exist a sufficient number of parking spaces necessary to satisfy the
requirements of the Premises Documents and any leases and all zoning and other
applicable legal requirements with respect to the Mortgaged Property, and all
required landscaping, sidewalks and other amenities, and all off-site
improvements, related to the Improvements have been completed.

         Section 5.16. Utility Services. All utility services necessary for the
use and operation of the Improvements for their intended purposes are available
and servicing the Property, including water supply, storm and sanitary sewer,
gas, electric power and telephone facilities.

         Section 5.17. Creation of Liens. It has entered into no contract or
arrangement of any kind the performance of which by the other party thereto
would give rise to a lien on the Mortgaged Property or any part thereof.

         Section 5.18. Roads. All roads necessary for the full utilization of
the Improvements for their intended purposes have been completed and dedicated
to public use and accepted by all appropriate Governmental Authorities.

         Section 5.19. Requisition as Reaffirmation. Each Requisition submitted
to Administrative Agent, and the receipt of the funds requested thereby, shall
constitute an affirmation by Borrower that the representations and warranties
contained herein and in the other Loan Documents remain true and correct as of
the respective dates of such Requisitions.

         Section 5.20. Patriot Act.

         (a) As of the date hereof, none of the funds or other assets of
Borrower or of any of its direct or indirect owners (including Guarantor)
constitute property of, or are beneficially owned, directly or indirectly, by,
any Person subject to trade restrictions under United States Law, including
those who are covered by the International Emergency Economic Powers Act, 50
U.S.C. ss.ss.1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et
seq., and any Executive Orders or regulations promulgated thereunder (an
"Embargoed Person") with the result that the investment in Borrower (whether
directly or indirectly) is prohibited by such applicable Law or the Loan is in
violation of such Law; (ii) no Embargoed Person has any interest of any nature
whatsoever (whether directly or indirectly) in Borrower with the result that the
investment in Borrower (whether directly or indirectly) is prohibited by such
applicable Law or the Loan is in violation of such Law; and (iii) none of the
funds of Borrower have been derived from any unlawful activity with the result
that the investment in Borrower (whether directly or indirectly) is prohibited
by such applicable Law or the Loan is in violation of such Law.

                                       29


         (b) Neither Borrower nor any of its direct or indirect owners
(including Guarantor) is in violation of the U.S. Federal Bank Secrecy Act, as
amended, and its implementing regulations (31 CFR part 103), the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, Public Law 107-56 and the regulations
promulgated thereunder, any order issued with respect to anti-money laundering
by the U.S. Department of the Treasury's Office of Foreign Assets Control
("OFAC"), or any other anti-money laundering Law.

         (c) Neither Borrower nor any if its direct or indirect owners
(including Guarantor) is a Person with whom United States Persons are restricted
from doing business with under (a) regulations issued by OFAC (including those
persons and entities named on OFAC's Specially Designated Nationals and Blocked
Persons list) or under any United States Law (including the September 24, 2001,
Executive Order Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism) or (b) any other Law. Without
limiting the foregoing, Borrower is not presently funding its obligations
hereunder with funds from any of the Persons referred to in this paragraph (c).

         (d) Guarantor has joined in this Agreement, for the purposes, among
other things, of joining in the representations to Administrative Agent and
Lenders in this Section 5.20.

                                   ARTICLE VI

                              COVENANTS OF BORROWER

         Borrower covenants and agrees with Administrative Agent and Lenders
that it will promptly:

         Section 6.01. Compliance with Laws; Payment of Taxes. Comply with all
Laws applicable to it or the Mortgaged Property, or any part thereof, such
compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed on it or the
Mortgaged Property, or any part thereof, and promptly furnish Administrative
Agent with reports of any official searches made by Governmental Authorities and
any claims of violations thereof.

                                       30


         Section 6.02. Leases and Premises Documents. Not enter into any Major
Lease without the prior written consent of Administrative Agent, not to be
unreasonably withheld or delayed; and deliver to Administrative Agent certified
copies of all leases in respect of the Mortgaged Property and all Premises
Documents and all amendments to any thereof (in any case, whether executed
before or after the date hereof) together with (i) if requested by
Administrative Agent, current financial statements of the tenants thereunder or
parties thereto as the case may be, and of the guarantor(s), if any, of such
tenants or parties and (ii) in the case of all Major Leases, a
notice-of-assignment letter in the form of EXHIBIT B; and keep all Premises
Documents and, except as may be permitted by the Mortgage, all leases in full
force and effect.

         Section 6.03. Inspection Fee. Commencing on the first anniversary of
the date hereof and on each anniversary thereafter during the term of the Loan,
deliver to Administrative Agent, for its own account, a non-refundable
administrative inspection fee in the amount of $1,000.00 (the "Inspection Fee")
with respect to the costs associated with Lender's annual inspection of the
Property.

         Section 6.04. Continuing Accuracy of Representations and Warranties.
Cause all of the representations and warranties made to Administrative Agent or
Lenders herein and in the other Loan Documents to be continuously true and
correct.

         Section 6.05. Covenants, Restrictions and Easements. Comply with all
restrictions, covenants and easements affecting the Mortgaged Property or the
Improvements and cause the satisfaction of all conditions hereof.

         Section 6.06. Financial Covenants. Comply at all times with the DSC
Test and the Loan to Value Test, as calculated in accordance with Section 2.04
hereof, provided, however, that such non-compliance shall not constitute an
Event of Default under the Mortgage and hereunder if, within forty-five (45)
days of the date upon which Mortgagor receives written notice from
Administrative Agent of Borrower's non-compliance thereof (the "Notice Date"),
Mortgagor complies with the provisions of this Section 6.06, by either (i)
agreeing in writing to permanently reduce the Loan Amount and the Total Loan
Commitments by an amount which would bring Borrower into compliance with the DSC
Test and the Loan to Value Test and, to the extent the Loan Amount as so reduced
would exceed the Principal Amount, making a mandatory principal payment in the
amount of such excess such that, at no time, shall the Principal Amount exceed
the Loan Amount as reduced from time to time, with Borrower paying all
applicable prepayment or other charges, if any, provided for herein or in the
Note with respect to such mandatory principal payment or (ii) delivering to
Administrative Agent cash, a letter of credit from a financial institution
acceptable to Administrative Agent, or such other collateral as may be
acceptable to Lender in its sole discretion in an amount equal to the amount
that would have been required to have been prepaid pursuant to (i) above in
order to cure such default. In the case of Guarantor, Guarantor shall comply at
all times with the Liquidity Requirement and the Net Worth Requirement.

                                       31


         Section 6.07. Payment of Costs. Pay all costs and expenses required for
the satisfaction of the conditions hereof, including, without limitation (i) all
document and stamp taxes, recording and filing expenses and fees and commissions
lawfully due to brokers in connection with the transactions contemplated hereby,
(ii) any taxes, insurance premiums, liens, security interests or other claims or
charges against the Property or Improvements and (iii) all costs of completion
of the work to be performed by Borrower in space to be occupied in the
Improvements (including public space) to permit the lawful occupancy thereof for
the purposes contemplated by actual or prospective lessees or owners of such
space as set forth in the individual leases, subleases or purchase contracts
thereof or in detailed work letters or other agreements or letters of intent
with respect thereto, or, in cases where there are no such leases, subleases,
contracts, work letters or other documents as aforesaid, as set forth in
Borrower's standard work letter or the standard form of lease or contract, if
any, required by paragraph (10) of Section 4.01(d), or, in cases where none of
the foregoing exists, to the level of building standard in accordance with
industry practices, as conclusively determined by the Engineering Consultant.

         Section 6.08. Brokers. Indemnify Administrative Agent and Lenders
against claims of brokers arising by reason of the execution hereof or the
consummation of the transactions contemplated hereby.

         Section 6.09. Correction of Defects. Upon demand of Administrative
Agent or the Engineering Consultant, correct any defects (including structural)
in the Improvements.

         Section 6.10. Unused Fee. Borrower shall, during the term of the Loan,
pay to Administrative Agent for the account of each Lender a fee (the "Unused
Fee"), computed on the daily unused Individual Loan Commitment of such Lender
based on the Loan Amount for each day at a rate per annum equal to 0.10%,
calculated on the basis of a year of three hundred sixty (360) days for the
actual number of days elapsed. The accrued Unused Fee shall be due and payable
quarterly in arrears on the first day of July, October, January and April of
each year commencing on July 1, 2005, and upon the Maturity Date (as stated, by
acceleration or otherwise) or earlier termination of the Loan.

         Section 6.11. Reporting and Miscellaneous Document Requirements.
Furnish directly to each Lender:

                  (1) Semi-Annual Financial Statements of Borrower. On a
         semi-annual basis, as soon as available and in any event within ninety
         (90) days after the end of each applicable semi-annual period,
         Financial Statements of Borrower, in reasonable detail (including
         detailed balance sheet, income statement, cash flow statement and
         one-year projections) and stating in comparative form the respective
         figures for the corresponding date and period in the prior semi-annual
         period;

                  (2) Annual Financial Statements of Borrower. On a annual
         basis, as soon as available and in any event within ninety (90) days
         after the end of each applicable annual period, Financial Statements of
         Borrower, in reasonable detail (including detailed balance sheet,
         income statement, cash flow statement and one-year projections) and
         stating in comparative form the respective figures for the
         corresponding date and period in the prior annual period;

                                       32


                  (3) Quarterly and Annual Financial Statements of Acadia Realty
         Trust. As soon as available and in any event within one hundred twenty
         (120) days after the end of each calendar quarter and Fiscal Year,
         Financial Statements of Acadia Realty Trust, a Maryland real estate
         investment trust ("Sponsor"), which is the parent of Guarantor, as of
         the end of and for such calendar quarter and Fiscal Year, in reasonable
         detail (including detailed balance sheet, income statement, cash flow
         statement, and contingent liability schedule) and stating in
         comparative form the respective figures for the corresponding date and
         period in the prior Fiscal Year, audited (with respect to the annual
         financial statements only) by one of the so-called "Big Four"
         accounting firms or another firm of certified public accountants
         reasonably acceptable to Administrative Agent , provided that,
         notwithstanding the foregoing, so long as Sponsor timely files 10Q and
         10K reports with the Securities and Exchange Commission, Sponsor shall
         have complied with this clause (3);

                  (4) Covenant Compliance Certificates. Within sixty (60) days
         after the end of each fiscal quarter, Guarantor shall submit to Lender
         a Covenant Compliance Certificate certified by a principal financial or
         accounting officer or general partner, as the case may be, in the Form
         of EXHIBIT E-1 hereto certifying, on the basis of Guarantor's unaudited
         financial statements, that Guarantor has met the Liquidity Requirement
         for the applicable period. As soon as available and in any event within
         one hundred twenty (120) days after the end of each Fiscal Year,
         Guarantor shall submit to Lender a Covenant Compliance Certificate
         certified by a principal financial or accounting officer or general
         partner, as the case may be, in the Form of EXHIBIT E-2 hereto
         certifying, on the basis of Guarantor's audited Financial Statements as
         of the end of and for such Fiscal Year, that Guarantor has met the Net
         Worth Requirement and the Liquidity Requirement;

                  (5) Notice of Litigation. Promptly after the commencement and
         knowledge thereof, notice of all actions, suits, and proceedings before
         any court or arbitrator or any Governmental Authority, affecting (i)
         Borrower which, if determined adversely to Borrower are likely to
         result in a Material Adverse Change or (ii) all or any portion of the
         Mortgaged Property under any Mortgage;

                  (6) Notices of Defaults and Events of Default. As soon as
         possible and in any event within ten (10) days after Borrower becomes
         aware of the occurrence of a Default or any Event of Default, a written
         notice setting forth the details of such Default or Event of Default
         and the action which is proposed to be taken with respect thereto;

                  (7) Material Adverse Change. As soon as is practicable and in
         any event within five (5) days after knowledge of the occurrence of any
         event or circumstance which is likely to result in or has resulted in a
         Material Adverse Change, written notice thereof;

                                       33


                  (8) Offices. Thirty (30) days' prior written notice of any
         change in the chief executive office or principal place of business of
         Borrower;

                  (9) Environmental and Other Notices. As soon as possible and
         in any event within ten (10) days after receipt, copies of (i) all
         Environmental Notices received by Borrower which are not received in
         the ordinary course of business and which relate to any Property or a
         situation which is likely to result in a Material Adverse Change and
         (ii) all reports of any official searches made by any Governmental
         Authority having jurisdiction over any Property or the Improvements
         thereon, and of any claims of violations thereof and, on an annual
         basis, delivered with Borrower's annual Financial Statements, a report
         from Borrower regarding the status of the environmental matters
         discussed in Section 6.12;

                  (10) Insurance Coverage. Promptly, such information concerning
         Borrower's insurance coverage as Administrative Agent may reasonably
         request;

                  (11) Bankruptcy of Tenants. Promptly after becoming aware of
         the same, written notice of the bankruptcy, insolvency or cessation of
         operations of any tenant in the Improvements on any Property to which
         5% or more of the aggregate minimum rent from such Improvements is
         attributable;

                  (12) Leasing Reports and Property Information. (i) Upon
         request by Administrative Agent, but no more often than quarterly, an
         updated rent roll, leasing report, and operating and cash statements
         for each Property and (ii) (ii) as soon as available and in any event
         within ninety (90) days after the end of each Fiscal Year, tenant sales
         report for each Property, to the extent Borrower is entitled to receive
         same pursuant to the terms of the respective leases; and

                  (13) General Information. Promptly, such other information
         respecting the condition or operations, financial or otherwise, of
         Borrower, Guarantor or any Properties of Borrower as Administrative
         Agent may from time to time reasonably request.

         Section 6.12. Specified Environmental Matters.

         (a) The Michigan Department of Environmental Quality ("MDEQ") has noted
certain environmental concerns at the Bloomfield/MI Property related to past
and/or present automotive service related activities thereon. Borrower hereby
agrees to (i) cooperate with any parties responsible for the environmental
concern, and with MDEQ in order that MDEQ completes its monitoring and
assessment of the Bloomfield/MI Property and issues appropriate closure
documentation confirming that no further action is necessary with respect to
such environmental concerns and (ii) promptly deliver complete copies of all
such documentation to Administrative Agent.

                                       34


         (b) The Rhode Island Department of Environmental Management ("RIDEM")
has noted certain environmental concerns requiring remediation at the
Woonsocket/RI Property, which RD Woonsocket has performed to a substantial
degree. Borrower hereby agrees to cause all such remediation and related
monitoring to be completed such that RIDEM issues appropriate closure
documentation confirming that no further action is necessary with respect to
such remediation and monitoring on or before the second anniversary of the date
hereof, provided that, if RIDEM requires further monitoring of environmental
conditions which RIDEM has previously noted as of the date hereof, Borrower
shall continue such monitoring to completion and shall not be in default of this
covenant so long as Borrower delivers complete copies of the orders from RIDEM
extending such monitoring period, along with any and all documents related
thereto.

                                  ARTICLE VII

                  ADMINISTRATIVE AGENT; RELATIONS AMONG LENDERS

         Section 7.01. Appointment, Powers and Immunities of Administrative
Agent. Each Lender hereby irrevocably appoints and authorizes Administrative
Agent to act as its agent hereunder and under any other Loan Document with such
powers as are specifically delegated to Administrative Agent by the terms of
this Agreement and any other Loan Document, together with such other powers as
are reasonably incidental thereto. Administrative Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and any
other Loan Document or required by Law, and shall not by reason of this
Agreement be a fiduciary or trustee for any Lender except to the extent that
Administrative Agent acts as an agent with respect to the receipt or payment of
funds, nor shall Administrative Agent have any fiduciary duty to Borrower nor
shall any Lender have any fiduciary duty to Borrower or any other Lender. No
implied covenants, responsibilities, duties, obligations or liabilities shall be
read into this Agreement or otherwise exist against Administrative Agent.
Neither Administrative Agent nor any of its directors, officers, employees,
agents, attorneys-in-fact or Affiliates shall be responsible to Lenders for any
recitals, statements, representations or warranties made by Borrower or any
officer, partner or official of Borrower or any other Person contained in this
Agreement or any other Loan Document, or in any certificate or other document or
instrument referred to or provided for in, or received by any of them under,
this Agreement or any other Loan Document, or for the value, legality, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or any other document or instrument referred to or
provided for herein or therein, for the perfection or priority of any lien
securing the obligations hereunder or thereunder or for any failure by Borrower
or any Guarantor to perform any of its obligations hereunder or thereunder.
Administrative Agent may employ agents and attorneys-in-fact and shall not be
responsible, except as to money or securities received by it or its authorized
agents, for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. Neither Administrative Agent nor any of its
directors, officers, employees, agents, attorneys-in-fact or Affiliates shall be
liable or responsible for any action taken or omitted to be taken by it or them
hereunder or under any other Loan Document or in connection herewith or
therewith, except for its or their own gross negligence or willful misconduct.

                                       35


         Section 7.02. Reliance by Administrative Agent. Administrative Agent
shall be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by Administrative Agent.
Administrative Agent may deem and treat each Lender as the holder of its Note
and interest in the Loan for all purposes hereof and shall not be required to
deal with any Person who has acquired a Participation in the Loan from a Lender.
As to any matters not expressly provided for by this Agreement or any other Loan
Document, Administrative Agent shall in all cases be fully protected in acting,
or in refraining from acting, in accordance with instructions signed by the
Required Lenders, and such instructions of the Required Lenders and any action
taken or failure to act pursuant thereto shall be binding on all of Lenders and
any other holder of all or any portion of the Loan or Participation therein.

         Section 7.03. Defaults. Administrative Agent shall not be deemed to
have knowledge of the occurrence of a Default or of an Event of Default unless
Administrative Agent has actual knowledge thereof or has received notice from a
Lender or Borrower specifying such Default or Event of Default and stating that
such notice is a "Notice of Default." In the event that Administrative Agent has
such actual knowledge or receives such a notice of the occurrence of a Default
or Event of Default, Administrative Agent shall give prompt notice thereof to
Lenders. Administrative Agent shall promptly send to each Lender a copy of any
notice of a Default or Event of Default that Administrative Agent sends to
Borrower or Guarantor. Administrative Agent, following consultation with
Lenders, shall (subject to Section 7.07) take such action with respect to such
Default or Event of Default which is continuing, including with respect to the
exercise of remedies or the realization on, or operation or disposition of, any
or all of the Mortgaged Property or any other collateral for the Loan, as shall
be directed by the Required Lenders; provided, however, that, unless and until
Administrative Agent shall have received such directions, Administrative Agent
may take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem to be in the best interest of
Lenders. In no event shall Administrative Agent be required to take any such
action which it determines would be contrary to the Loan Documents or to Law.
Each of Lenders acknowledges and agrees that no individual Lender may separately
enforce or exercise any of the provisions of any of the Loan Documents
(including, without limitation, the Notes) other than through Administrative
Agent.

         Section 7.04. Rights of Administrative Agent as Lender. With respect to
its Note and interest in the Loan, Administrative Agent in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as Administrative
Agent, and the terms "Lender" and "Lenders" shall include Administrative Agent
in its capacity as a Lender. Administrative Agent and its affiliates may
(without having to account therefor to any Lender) accept deposits from, lend
money to (on a secured or unsecured basis), and generally engage in any kind of
banking, trust or other business with, Borrower or Guarantor (and any affiliates
of them) as if it were not acting as Administrative Agent.

                                       36


         Section 7.05. Sharing of Costs by Lenders; Indemnification of
Administrative Agent. Each Lender shall pay its ratable share, based on the
respective outstanding principal balances under its Note and the other Notes, of
any expenses incurred (and not paid or reimbursed by Borrower after demand for
payment is made by Administrative Agent) by or on behalf of Lenders in
connection with any Default or Event of Default, including, without limitation,
costs of enforcement of the Loan Documents and any advances to pay taxes or
insurance premiums, to complete the Improvements or otherwise to preserve the
lien of the Mortgage or to preserve or protect the Mortgaged Property. In the
event a Lender fails to pay its share of expenses as aforesaid, and all or a
portion of such unpaid amount is paid by Administrative Agent and/or one or more
of the other Lenders, then the defaulting Lender shall reimburse Administrative
Agent and/or the other Lender(s) for the portion of such unpaid amount paid by
it or them, as the case may be, together with interest thereon at the Prime
Based Rate from the date of payment by Administrative Agent and/or the other
Lender(s). In addition, each Lender agrees to reimburse and indemnify
Administrative Agent (to the extent it is not paid by on or behalf of Borrower,
after demand for payment is made by Administrative Agent, under Section 8.13 or
under the applicable provisions of any other Loan Document, but without limiting
the obligation of Borrower under said Section 8.13 or such provisions), for such
Lender's ratable share, based upon the respective outstanding principal balances
under its Note and the other Notes, of any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against Administrative Agent in any way relating to or
arising out of this Agreement, any other Loan Document or any other documents
contemplated by or referred to herein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses which Borrower is
obligated to pay under Section 8.13 or under the applicable provisions of any
other Loan Document) or the enforcement of any of the terms hereof or thereof or
of any such other documents or instruments; provided, however, that no Lender
shall be liable for (i) any of the foregoing to the extent they arise from the
gross negligence or willful misconduct of the party to be indemnified or (ii)
any loss of principal or interest with respect to Administrative Agent's Note or
interest in the Loan.

         Section 7.06. Non-Reliance on Administrative Agent and Other Lenders.
Each Lender acknowledges that it has, independently and without reliance on
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own analysis of the
collateral for the Loan and of the credit of Borrower and Guarantor, and its own
decision to enter into this Agreement, and that it will, independently and
without reliance upon Administrative Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement or any other Loan Document. Administrative Agent shall not
be required to keep itself informed as to the performance or observance by
Borrower of this Agreement or any other Loan Document or any other document
referred to or provided for herein or therein or to inspect the properties
(including, without limitation, the Properties) or books of Borrower. Except for
notices, reports and other documents and information expressly required to be
furnished to Lenders by Administrative Agent hereunder, Administrative Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the affairs, financial condition or business of
Borrower or Guarantor (or any Affiliate of them) which may come into the
possession of Administrative Agent or any of its Affiliates. Administrative
Agent shall not be required to file this Agreement, any other Loan Document or
any document or instrument referred to herein or therein, for record or give
notice of this Agreement, any other Loan Document or any document or instrument
referred to herein or therein, to anyone.

                                       37


         Section 7.07. Failure of Administrative Agent to Act. Except for action
expressly required of Administrative Agent hereunder, Administrative Agent shall
in all cases be fully justified in failing or refusing to act hereunder unless
it shall have received further assurances (which may include cash collateral) of
the indemnification obligations of Lenders under Section 7.05 in respect of any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. If any indemnity furnished to Administrative
Agent for any purpose shall, in the opinion of Administrative Agent, be
insufficient or become impaired, Administrative Agent may call for additional
indemnity and cease, or not commence, the action indemnified against until such
additional indemnity is furnished.

         Section 7.08. Resignation or Removal of Administrative Agent.
Administrative Agent may resign on at least thirty (30) days' written notice to
Lenders and Borrower or upon the occurrence of an Event of Default.
Administrative Agent may be removed at any time with cause by the Required
Lenders, provided that Borrower and the other Lenders shall be promptly notified
thereof. Upon such resignation or removal of Administrative Agent, the Required
Lenders shall have the right to appoint a successor Administrative Agent, which
successor Administrative Agent shall (provided there exists no Event of Default)
be subject to Borrower's approval, such approval not to be unreasonably withheld
or delayed. If no successor Administrative Agent shall have been so appointed by
the Required Lenders, and shall have accepted such appointment, within twenty
(20) days after the resignation or the Required Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
Lenders, appoint a successor Administrative Agent, which shall be one of
Lenders, within ten (10) days. The Required Lenders or the retiring
Administrative Agent, as the case may be, shall upon the appointment of a
successor Administrative Agent promptly so notify Borrower and the other
Lenders. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Article VII shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Administrative Agent.

                                       38


         Section 7.09. Amendments Concerning Agency Function. Notwithstanding
anything to the contrary contained in this Agreement, Administrative Agent shall
not be bound by any waiver, amendment, supplement or modification of this
Agreement or any other Loan Document which affects its duties, rights, and/or
function hereunder or thereunder unless it shall have given its prior written
consent thereto.

         Section 7.10. Liability of Administrative Agent. Administrative Agent
shall not have any liabilities or responsibilities to Borrower on account of the
failure of any Lender to perform its obligations hereunder or to any Lender on
account of the failure of Borrower to perform its obligations hereunder or under
any other Loan Document.

         Section 7.11. Transfer of Agency Function. Without the consent of
Borrower or any Lender, Administrative Agent may at any time or from time to
time transfer its functions as Administrative Agent hereunder to any of its
offices wherever located in the United States, provided that Administrative
Agent shall promptly notify Borrower and Lenders thereof.

         Section 7.12. Non-Receipt of Funds by Administrative Agent;
Adjustments.

         (a) Unless Administrative Agent shall have received notice from a
Lender or Borrower (either one as appropriate being the "Payor") prior to the
date on which such Lender is to make payment hereunder to Administrative Agent
of Loan proceeds or Borrower is to make payment to Administrative Agent, as the
case may be (either such payment being a "Required Payment"), which notice shall
be effective upon receipt, that the Payor will not make the Required Payment in
full to Administrative Agent, Administrative Agent may assume that the Required
Payment has been made in full to Administrative Agent on such date, and
Administrative Agent in its sole discretion may, but shall not be obligated to,
in reliance upon such assumption, make the amount thereof available to the
intended recipient on such date. If and to the extent the Payor shall not have
in fact so made the Required Payment in full to Administrative Agent, the
recipient of such payment shall repay to Administrative Agent forthwith on
demand such amount made available to it together with interest thereon, for each
day from the date such amount was so made available by Administrative Agent
until the date Administrative Agent recovers such amount, at the Federal Funds
Rate.

         (b) If, after Administrative Agent has paid each Lender's share of any
payment received or applied by Administrative Agent in respect of the Loan, that
payment is rescinded or must otherwise be returned or paid over by
Administrative Agent, whether pursuant to any bankruptcy or insolvency Law,
sharing of payments clause of any loan agreement or otherwise, such Lender
shall, at Administrative Agent's request, promptly return its share of such
payment or application to Administrative Agent, together with such Lender's
proportionate share of any interest or other amount required to be paid by
Administrative Agent with respect to such payment or application. In addition,
if a court of competent jurisdiction shall adjudge that any amount received and
distributed by Administrative Agent is to be repaid, each Person to whom any
such distribution shall have been made shall either repay to Administrative
Agent its share of the amount so adjudged to be repaid or shall pay over the
same in such manner and to such Persons as shall be determined by such court.

                                       39


         Section 7.13. Withholding Taxes. Each Lender represents that it is
entitled to receive any payments to be made to it hereunder without the
withholding of any tax and will furnish to Administrative Agent such forms,
certifications, statements and other documents as Administrative Agent may
reasonably request from time to time to evidence such Lender's exemption from
the withholding of any tax imposed by any jurisdiction or to enable
Administrative Agent to comply with any applicable Laws relating thereto.
Without limiting the effect of the foregoing, if any Lender is not created or
organized under the Laws of the United States or any state thereof, such Lender
will furnish to Administrative Agent Form W-8ECI or Form W-8BEN of the U.S.
Internal Revenue Service, or such other forms, certifications, statements or
documents, duly executed and completed by such Lender, as evidence of such
Lender's complete exemption from the withholding of United States tax with
respect thereto. Administrative Agent shall not be obligated to make any
payments hereunder to such Lender in respect of the Loan until such Lender shall
have furnished to Administrative Agent the requested form, certification,
statement or document.

         Section 7.14. Sharing of Payments among Lenders. If a Lender shall
obtain payment of any principal of its Note or of interest thereon through the
exercise of any right of setoff, banker's lien or counterclaim, or by any other
means (including direct payment), and such payment results in such Lender
receiving a greater payment than it would have been entitled to had such payment
been paid directly to Administrative Agent for disbursement to Lenders, then
such Lender shall promptly purchase for cash from the other Lenders
Participations in the Loan in such amounts, and make such other adjustments from
time to time as shall be equitable, to the end that all Lenders shall share
ratably the benefit of such payment. To such end Lenders shall make appropriate
adjustments among themselves (by the resale of Participations sold or otherwise)
if such payment is rescinded or must otherwise be restored.

         Section 7.15. Possession of Documents. Each Lender shall maintain
possession of its own Note. Administrative Agent shall hold all other Loan
Documents and related documents in its possession and maintain separate records
and accounts with respect to the Loan, reflecting the interests of Lenders in
the Loan, and shall permit Lenders and their representatives access at all
reasonable times to inspect such Loan Documents, related documents, records and
accounts.

         Section 7.16. Effect of a Lender's Failure to Make an Advance. In the
event any Lender fails for any reason to fund the portion it is required to fund
of any advance of Loan proceeds by 3:00 p.m. on the second Business Day after
the date established by Administrative Agent as the date such advance is to be
made, such Lender shall be a "Delinquent Lender" for all purposes hereunder
until and unless such delinquency is cured in accordance with the terms of and
by the time permitted under Section 7.17, and the following provisions shall
apply:

                                       40


                  (a) Administrative Agent shall notify (such notice being
         referred to as the "Delinquency Notice") each Lender and Borrower of
         any Lender's failure to fund. Each Non-Delinquent Lender shall have the
         right, but in no event or under any circumstance the obligation, to
         fund such Delinquent Lender's portion of such advance, provided that,
         within twenty (20) days of the date of the Delinquency Notice (the
         "Election Period"), such Non-Delinquent Lender or Lenders (each such
         Lender, an "Electing Lender") irrevocably commit(s) by notice in
         writing (an "Election Notice") to Administrative Agent, the other
         Lenders and Borrower to fund the Delinquent Lender's portion of the
         advance that is the subject of the delinquency and to assume the
         Delinquent Lender's obligations with respect to the advancing of the
         entire undisbursed portion of the Delinquent Lender's Individual Loan
         Commitment (such entire undisbursed portion of the Delinquent Lender's
         Individual Loan Commitment, including its portion of the advance that
         is the subject of the delinquency, the "Delinquency Amount"). If
         Administrative Agent receives more than one Election Notice within the
         Election Period, then the Electing Lenders sending such notices shall
         be deemed to have committed to fund ratable shares of the Delinquency
         Amount based upon the amounts of their respective Individual Loan
         Commitments. If there are one or more Electing Lenders and the
         Delinquent Lender fails to cure during the Election Period as provided
         in Section 7.17, then upon the expiration of the Election Period, each
         Electing Lender's Individual Loan Commitment shall be automatically
         increased by the Delinquency Amount (if there is only one Electing
         Lender) or such Electing Lender's ratable share, determined as
         aforesaid, of the Delinquency Amount (if there are two or more Electing
         Lenders), and the Delinquent Lender's Individual Loan Commitment shall
         automatically be reduced by the Delinquency Amount. Administrative
         Agent shall thereupon notify Borrower and each Lender of (i) the
         adjusted amounts of the Individual Loan Commitments and (ii) if the
         advance that was the subject of the delinquency was not made pursuant
         to Section 7.12 or was refunded by Borrower pursuant to paragraph (e)
         of this Section, the rescheduled date of such advance (which shall be
         no sooner than three (3) Business Days after such notice). In the event
         Administrative Agent shall have funded, pursuant to Section 7.12, the
         entire advance that was the subject of the delinquency (including the
         Delinquent Lender's portion), and Borrower shall not have refunded such
         advance pursuant to paragraph (e) of this Section, the Electing
         Lender(s) shall remit to Administrative Agent the Delinquent Lender's
         portion of the advance, or their ratable shares thereof, as the case
         may be, within three (3) Business Days of the notice provided for in
         the immediately preceding sentence, and Administrative Agent shall
         reimburse itself from such funds for making the Delinquent Lender's
         portion of the advance. Notwithstanding anything to the contrary
         contained herein, if Administrative Agent advances its own funds in
         respect of a Delinquent Lender's portion of an advance, Administrative
         Agent shall be entitled to the interest on the portion of the Principal
         Amount represented thereby, from the date Administrative Agent makes
         such advance until the date it is reimbursed therefor.

                                       41


                  (b) In connection with the adjustment of the amounts of the
         Individual Loan Commitments of the Delinquent Lender and Electing
         Lender(s) upon the expiration of the Election Period as aforesaid,
         Borrower covenants that it shall, promptly following the request of the
         Electing Lender(s), execute and deliver to each Electing Lender and the
         Delinquent Lender substitute notes substantially in the form of EXHIBIT
         D and stating: "This Note is a substitute note as contemplated by
         Section 7.16 of the Loan Agreement; it replaces and is in lieu of that
         certain note made by Maker dated [date of Note] to the order of
         [Lender] in the principal sum of [Lender's original Individual Loan
         Commitment]." Such substitute notes shall be in amounts equal to such
         Lenders' respective Individual Loan Commitments, as adjusted. All such
         substitute notes shall constitute "Notes" and the obligations evidenced
         by such substitute notes shall be secured by the Mortgage. In
         connection with Borrower's execution of substitute notes as aforesaid,
         Borrower shall deliver to Administrative Agent evidence, satisfactory
         to Administrative Agent, of all requisite partnership, corporate or
         other action to authorize Borrower's execution and delivery of the
         substitute notes and any related documents. The execution and delivery
         of substitute notes as required above shall be a condition precedent to
         any further advances of Loan proceeds. Upon receipt of its substitute
         note, the Electing Lender and the Delinquent Lender will return to
         Borrower their notes that were replaced, provided that the delivery of
         a substitute note to the Delinquent Lender pursuant to this Section
         7.16 shall operate to void and replace the note previously held by the
         Delinquent Lender regardless of whether the Delinquent Lender returns
         same as required hereby. Borrower, Administrative Agent and Lenders
         shall execute such modifications to the Loan Documents as shall, in the
         reasonable judgment of Administrative Agent, be necessary or desirable
         in connection with the adjustment of the amounts of Individual Loan
         Commitments in accordance with the foregoing provisions of this
         Section.

                  (c) In the event that no Lender elects to commit to fund the
         Delinquency Amount within the Election Period as provided in paragraph
         (a) of this Section, Administrative Agent shall, upon the expiration of
         the Election Period, so notify Borrower and each Lender and the
         provisions of Section 2.15 shall apply.

                  (d) Subject to a Delinquent Lender's right to cure as provided
         in Section 7.17, but notwithstanding anything else to the contrary
         contained in this Agreement, the Delinquent Lender's interest in, and
         any and all amounts due to a Delinquent Lender under, the Loan
         Documents (including, without limitation, all principal, interest, fees
         and expenses) shall be subordinate in lien priority and to the
         repayment of all amounts (including, without limitation, interest) then
         or thereafter due or to become due to the Non-Delinquent Lenders under
         the Loan Documents (including future advances), and the Delinquent
         Lender thereafter shall have no right to participate in any discussions
         among and/or decisions by Lenders hereunder and/or under the other Loan
         Documents. Further, any Delinquent Lender shall be bound by any
         amendment to, or waiver of, any provision of, or any action taken or
         omitted to be taken by Administrative Agent and/or the Non-Delinquent
         Lenders under, any Loan Document which is made subsequent to the
         Delinquent Lender's becoming a Delinquent Lender.

                                       42


                  (e) If, pursuant to the operation of Section 7.12, an advance
         of Loan proceeds is made without Administrative Agent's receipt of a
         Delinquent Lender's portion thereof, Borrower shall, upon demand of
         Administrative Agent, refund the entire such advance to Administrative
         Agent. Borrower's failure to do so within ten (10) days of such demand
         shall, notwithstanding anything to the contrary contained herein or in
         the Mortgage, constitute an Event of Default under the Mortgage. Upon
         its receipt of such funds from Borrower, Administrative Agent shall
         promptly remit to each Non-Delinquent Lender its appropriate share
         thereof.

         Section 7.17. Cure by Delinquent Lender. A Delinquent Lender may cure a
delinquency arising out of its failure to fund its required portion of any
advance if, within the Election Period, it remits to Administrative Agent its
required portion of such advance (together with interest thereon at the Default
Rate from the date such advance was to have been made if such advance was made
by Administrative Agent and not refunded by Borrower pursuant to paragraph (e)
of Section 7.16), in which event Administrative Agent shall so notify Borrower
and the Non-Delinquent Lenders (i) of its receipt of such funds and (ii)(A) if
the advance that was the subject of the delinquency shall not have been made (or
shall have been refunded by Borrower pursuant to paragraph (e) of Section 7.16),
of the rescheduled date of the advance (which shall be no sooner then three (3)
Business Days after such notice) or (B) if Administrative Agent shall have
funded the entire advance that was the subject of the delinquency (including the
Delinquent Lender's portion) and Borrower shall not have refunded such advance
pursuant to paragraph (e) of Section 7.16, of its intention to reimburse itself
from funds received from the Delinquent Lender (which reimbursement is hereby
authorized) for funding the Delinquent Lender's required portion of the advance.
In the event any Delinquent Lender cures a delinquency prior to the expiration
of the Election Period (or thereafter with the consent of all of the
Non-Delinquent Lenders), such Delinquent Lender nonetheless shall be bound by
any amendment to or waiver of any provision of, or any action taken or omitted
to be taken by Administrative Agent and/or the Non-Delinquent Lenders under, any
Loan Document which is made subsequent to that Lender's becoming a Delinquent
Lender and prior to its curing the delinquency as provided in this Section,
provided that such amendment or waiver of action was taken in accordance with
the provisions of this Agreement. A Delinquent Lender shall have absolutely no
right to cure any delinquency after the expiration of the Election Period unless
all Non-Delinquent Lenders in their sole discretion elect to permit such cure.

         Section 7.18. Delinquent Lender Not Excused. Nothing contained in
Sections 7.16 or 7.17 shall release or in any way limit a Delinquent Lender's
obligations as a Lender hereunder and/or under any other of the Loan Documents.
Further, a Delinquent Lender shall indemnify and hold harmless Administrative
Agent, each of the Non-Delinquent Lenders and Borrower from any claim, loss, or
costs incurred by any of them as a result of a Delinquent Lender's failure to
comply with the requirements of this Agreement, including, without limitation,
any and all additional losses, damages, costs and expenses (including, without
limitation, attorneys' fees) incurred by Administrative Agent and any Lender as
a result of and/or in connection with (i) a Non-Delinquent Lender's acting as an
Electing Lender, (ii) any enforcement action brought by Administrative Agent
against a Delinquent Lender, and (iii) any action brought against Administrative
Agent and/or Lenders. The indemnification provided above shall survive any
termination of this Agreement.

                                       43


         Section 7.19. Notices Regarding Delinquent Lender. Notices by
Administrative Agent or Lenders pursuant to Sections 7.16 or 7.17 may be by
telephone (to be promptly confirmed in writing).

         Section 7.20. Replacement Lender. In the event any Lender becomes a
Delinquent Lender and none of the other Lenders elects to be an Electing Lender
pursuant to Section 7.16, Borrower shall have the right, provided there exists
no Default or Event of Default, to cause another financial institution,
reasonably acceptable to (x) the Required Lenders if such institution is not an
Eligible Assignee or (y) Administrative Agent if such institution is an Eligible
Assignee, to assume the Delinquent Lender's obligations with respect to the
Delinquency Amount on the then-existing terms and conditions of the Loan
Documents (such replacement institution, a "Replacement Lender"). Such
assumption shall be pursuant to a written instrument reasonably satisfactory to
Administrative Agent. Upon such assumption, the Replacement Lender shall become
a "Lender" for all purposes hereunder, with an Individual Loan Commitment in an
amount equal to the Delinquency Amount, and the Delinquent Lender's Individual
Loan Commitment shall automatically be reduced by the Delinquency Amount. In
connection with the foregoing, Borrower shall execute and deliver to the
Replacement Lender and the Delinquent Lender substitute notes substantially in
the form of EXHIBIT D and stating: "This Note is a substitute note as
contemplated by Section 7.20 of the Loan Agreement; it replaces and is in lieu
of that certain note made by Maker dated [date of Note] to the order of
[Delinquent Lender] in the principal sum of [Delinquent Lender's original
Individual Loan Commitment]." Such substitute notes shall be in amounts equal
to, in the case of the Replacement Lender's note, the Delinquency Amount and, in
the case of the Delinquent Lender's note, its Individual Loan Commitment, as
reduced as aforesaid. Such substitute notes shall constitute "Notes" and the
obligations evidenced by such substitute notes shall be secured by the Mortgage.
In connection with Borrower's execution of substitute notes as aforesaid,
Borrower shall deliver to Administrative Agent evidence, satisfactory to
Administrative Agent, of all requisite partnership/corporate action to authorize
Borrower's execution and delivery of the substitute notes and any related
documents. Upon delivery of the foregoing substitute note(s), each Delinquent
Lender shall return to Borrower its note which was replaced, provided that the
delivery of a substitute note to the Delinquent Lender pursuant to this Section
7.20 shall operate to void and replace the note previously held by the
Delinquent Lender regardless of whether Delinquent Lender returns same as
required hereby.

         Borrower, Administrative Agent and Lenders shall execute such
modifications to the Loan Documents as shall, in the reasonable judgment of
Administrative Agent, be necessary or desirable in connection with the
substitution of Lenders in accordance with the foregoing provisions of this
Section.

         Lenders shall reasonably cooperate with Borrower's attempts to obtain a
Replacement Lender, but they shall not be obligated to modify the Loan Documents
in connection therewith, other than modifications pursuant to the immediately
preceding paragraph or modifications which are favorable to Lenders.

                                       44


                                  ARTICLE VIII

                        GENERAL CONDITIONS AND PROVISIONS

         Section 8.01. Disbursement Not Waiver. The disbursement by Lenders of
the Loan made prior to or without the fulfillment by Borrower of all of the
conditions precedent thereto, whether or not known to Lenders, shall not
constitute a waiver by Lenders of the requirement that all conditions, including
the non-performed conditions, shall be satisfied.

         Section 8.02. No Third-Party Beneficiaries. This Agreement is solely
for the benefit of Administrative Agent, Lenders and Borrower. All conditions of
the obligations of Lenders hereunder are imposed solely and exclusively for the
benefit of Lenders and may be freely waived or modified in whole or in part by
Lenders at any time if in their sole discretion it deems it advisable to do so,
and no person other than Borrower (provided, however, that all conditions have
been satisfied) shall have standing to require Lenders to disburse the Loan or
to be a beneficiary of this Agreement.

         Section 8.03. Documentation Etc. Satisfactory. All documentation and
proceedings deemed by Administrative Agent or Administrative Agent's Counsel to
be necessary or required in connection herewith and the documents relating
hereto shall be subject to the prior approval of, and satisfactory to, both of
them as to form and substance. In addition, the Persons responsible for the
execution and delivery of, and signatories to, all of such documentation, shall
be acceptable to, and subject to the approval of, Administrative Agent and
Administrative Agent's Counsel. Administrative Agent or Administrative Agent's
Counsel shall receive copies, certified if requested by either of them, of all
documents which they may require in connection with the transactions
contemplated hereby.

         Section 8.04. Lender's Determination Conclusive. Administrative Agent
shall, at all times, be free to independently establish to its satisfaction and
in its absolute discretion the existence or nonexistence of any fact or facts
the existence or nonexistence of which is a condition hereof.

         Section 8.05. Notices. Except as expressly provided otherwise, all
notices, demands, consents, approvals and statements required or permitted
hereunder shall be in writing and shall be deemed to have been sufficiently
given or served for all purposes when presented personally, three (3) days after
mailing by registered or certified mail, postage prepaid, or one (1) day after
delivery to a nationally recognized overnight courier service providing evidence
of the date of delivery, addressed to a party at its address on the signature
page hereof or of the applicable Assignment and Assumption Agreement, or at such
other address of which a party shall have notified the party giving such notice
in writing in accordance with the foregoing requirements.

                                       45


         Section 8.06. Amendments and Waivers. No amendment or material waiver
of any provision of this Agreement or any other Loan Document, nor consent to
any material departure by Borrower or any Guarantor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the party
against whom such amendment, waiver or consent is sought to be enforced (it
being understood, however, that the signatures of the Required Lenders and,
solely for purposes of its acknowledgement thereof, Administrative Agent, shall
be sufficient to bind Lenders to any such amendment, waiver or consent), and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by all Lenders, do any of
the following: (i) reduce the principal of, or interest on, the Notes or any
fees due hereunder or any other amount due hereunder or under any other Loan
Document; (ii) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees due hereunder or under any other Loan
Document; (iii) change the definition of Required Lenders; (iv) release any
material portion of the Mortgaged Property or other collateral for the Loan
other than in accordance with the Loan Documents; (v) amend this Section or any
other provision requiring the consent of all Lenders; (vi) release, in whole or
in part, any Guarantor other than in accordance with the Loan Documents; or
(vii) increase the Loan Amount. Without limiting the foregoing, acceptance by
Administrative Agent or Lenders of any sum required to be paid pursuant hereto
or any other Loan Document, after its due date, or in an amount less than the
sum then due, shall not constitute a waiver by Administrative Agent or Lenders
of their right to require prompt payment when due of all other such sums or to
declare a default or to exercise such other rights provided herein or in the
other Loan Documents for such late or reduced payment.

         All communications from Administrative Agent to Lenders requesting
Lenders' determination, consent, approval or disapproval (i) shall be given in
the form of a written notice to each Lender, (ii) shall be accompanied by or
include a description or copy of the matter or thing as to which such
determination, approval, consent or disapproval is requested and (iii) shall
include Administrative Agent's recommended course of action or determination in
respect thereof. Each Lender shall reply promptly, but in any event within ten
(10) Business Days (or five (5) Business Days with respect to any decision to
accelerate or stop acceleration of the Loan) after receipt of the request
therefor by Administrative Agent (the "Lender Reply Period"). Unless a Lender
shall give written notice to Administrative Agent that it objects to the
recommendation or determination of Administrative Agent (together with a written
explanation of the reasons behind such objection) within the Lender Reply
Period, such Lender shall be deemed to have approved or consented to such
recommendation or determination.

         Section 8.07. Assignment; Participation. Any Non-Delinquent Lender may
at any time grant to one or more banks or other institutions not affiliated with
Borrower or Guarantor (each a "Participant") participating interests in its Pro
Rata Share of the Loan (the "Participations"). In the event of any such grant by
a Lender of a Participation to a Participant, such Lender shall remain
responsible for the performance of its obligations hereunder, and Borrower and
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations hereunder. Any agreement
pursuant to which any Lender may grant a Participation shall provide that such
Lender shall retain the sole right and responsibility to enforce the obligations
of Borrower hereunder and under any other Loan Document, including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement or any other Loan Document; provided that such
participation agreement may provide that such Lender will not agree to any
modification, amendment or waiver described in clauses (i) through (vii) of
Section 8.06 without the consent of the Participant.

                                       46


         Upon request by Borrower, each Lender agrees to provide Borrower with
notice of all Participations sold by such Lender. Borrower agrees to provide all
assistance reasonably requested by a Lender to enable such Lender to sell
Participations as aforesaid, or make assignments of its interest in the Loan as
hereinafter provided in this Section.

         A Lender may at any time assign to any Eligible Assignee not affiliated
with Borrower or Guarantor with the consent of Administrative Agent, which
consents shall not be unreasonably withheld or delayed (such assignee, a
"Consented Assignee"), or to one or more banks or other institutions which are
majority owned subsidiaries of a Lender or of the parent of a Lender (each
Consented Assignee or subsidiary bank or institution, an "Assignee") all or a
proportionate part of all of its rights and obligations under this Agreement and
its Note, and such Assignee shall assume rights and obligations, pursuant to an
Assignment and Assumption Agreement executed by such Assignee and the assigning
Lender, provided that, after giving effect to such assignment, in each case, the
Assignee's portion of the Loan and, in the case of a partial assignment of a
Lender's interest, the assigning Lender's portion of the Loan will each be equal
to or greater than $5,000,000. Upon (i) execution and delivery of such
instrument, (ii) payment by such Assignee to the assigning Lender of an amount
equal to the purchase price agreed between such Lender and such Assignee and
(iii) payment by such Assignee to Administrative Agent of a fee, for
Administrative Agent's own account, in the amount of $3,500, such Assignee shall
be a party to this Agreement and shall have all the rights and obligations of a
Lender as set forth in such Assignment and Assumption Agreement, and the
assigning Lender shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this paragraph,
substitute notes, in the form of EXHIBIT D, shall be issued to the assigning
Lender (in the case of a partial assignment) and Assignee by Borrower, in
exchange for the return of the assigning Lender's original Note. All such
substitute notes shall constitute "Notes" and the obligations evidenced by such
substitute notes shall constitute obligations secured by the Mortgage. In
connection with Borrower's execution of substitute notes as aforesaid, Borrower
shall deliver to Administrative Agent such evidence of the due authorization,
execution and delivery of the substitute notes and any related documents as
Administrative Agent may reasonably request. If the Assignee is not incorporated
under the Laws of the United States or a state thereof, it shall, prior to the
first date on which interest or fees are payable hereunder for its account,
deliver to Borrower and Administrative Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in accordance
with Section 7.13.

                                       47


         Borrower, Administrative Agent and Lenders shall execute such
modifications to the Loan Documents as shall, in the reasonable judgment of
Administrative Agent, be necessary or desirable in connection with assignments
in accordance with the foregoing provisions of this Section.

         Any Lender may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Lender from its obligations hereunder.

         Borrower recognizes that in connection with a Lender's selling of
Participations or making of assignments, any or all documentation, financial
statements, appraisals and other data, or copies thereof, relevant to Borrower,
Guarantor or the Loan may be exhibited to and retained by any such Participant
or Assignee or prospective Participant or Assignee.

         Section 8.08. Setoff. In addition to (and without limitation of) any
right of setoff, bankers' lien or counterclaim Administrative Agent or any
Lender may otherwise have, Administrative Agent and each Lender shall be
entitled, but only with the prior consent of Administrative Agent, to offset
balances (general or special, time or demand, provisional or final) held by it
for the account of Borrower at any of Administrative Agent's or such Lender's
offices against any amount payable by Borrower to Administrative Agent or such
Lender hereunder or under any other Loan Document which is not paid when due
(regardless of whether such balances are then due to Borrower), in which case it
shall promptly notify Borrower and (in the case of a Lender) Administrative
Agent thereof; provided, however, that Administrative Agent's or such Lender's
failure to give such notice shall not affect the validity thereof. Payments by
Borrower hereunder or under the other Loan Documents shall be made without
setoff or counterclaim.

         Section 8.09. Successors and Assigns. Except as herein provided, this
Agreement shall be binding upon and inure to the benefit of Borrower,
Administrative Agent and Lenders and their respective heirs, personal
representatives, successors and assigns. Notwithstanding the foregoing,
Borrower, without the prior written consent of Lender in each instance, may not
assign, transfer or set over to another, in whole or in part, all or any part of
its benefits, rights, duties and obligations hereunder, including, but not
limited to, performance of and compliance with conditions hereof and the right
to receive the proceeds of the Loan.

         Section 8.10. Severability. The provisions hereof are intended to be
severable. Any provisions hereof, or the application thereof to any Person or
circumstance, which, for any reason, in whole or in part, is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof (or the remaining portions of such provision) or the
application thereof to any other Person or circumstance, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision (or portion thereof) or the application
thereof to any Person or circumstance in any other jurisdiction.

                                       48


         Section 8.11. Non-Waiver; Remedies Cumulative. No failure or delay on
Lender's part in exercising any right, remedy, power or privilege (hereinafter
in this Section, each a "Remedy") hereunder or under any of the other Loan
Documents shall operate as a waiver of any such Remedy or shall be deemed to
constitute Administrative Agent's or any Lender's acquiescence in any default by
Borrower or Guarantor under any of said documents. A waiver by Administrative
Agent or any Lender of any Remedy hereunder or under any of the other Loan
Documents on any one occasion shall not be construed as a bar to any other or
future exercise thereof or of any other Remedy. The Remedies provided in said
documents are cumulative, may be exercised singly or concurrently and are not
exclusive of any Remedies provided therein or by Law.

         Section 8.12. Certain Waivers. Borrower hereby irrevocably and
unconditionally waives (i) promptness and diligence, (ii) notice of any actions
taken by Administrative Agent or any Lender hereunder or under any other Loan
Document or any other agreement or instrument relating hereto or thereto except
to the extent otherwise provided herein, (iii) all other notices, demands and
protests, and all other formalities of every kind in connection with the
enforcement of Borrower's obligations hereunder and under the other Loan
Documents, the omission of or delay in which, but for the provisions of this
Section, might constitute grounds for relieving Borrower of any of its
obligations hereunder or under the other Loan Documents, (iv) any requirement
that Administrative Agent or any Lender protect, secure, perfect or insure any
lien on any collateral for the Loan or exhaust any right or take any action
against Borrower, Guarantor or any other Person or against any collateral for
the Loan, (v) any right or claim of right to cause a marshalling of Borrower's
assets and (vi) all rights of subrogation or contribution, whether arising by
contract or operation of law or otherwise by reason of payment by Borrower
pursuant hereto or to any other Loan Document. BORROWER FURTHER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, IN CONNECTION WITH ANY SUIT, ACTION OR
PROCEEDING BROUGHT BY OR ON BEHALF OF ADMINISTRATIVE AGENT OR LENDERS WITH
RESPECT TO THIS AGREEMENT, THE NOTES OR OTHERWISE IN RESPECT OF THE LOAN, ANY
AND EVERY RIGHT BORROWER MAY HAVE TO (W) INJUNCTIVE RELIEF, (X) A TRIAL BY JURY,
(Y) INTERPOSE ANY COUNTERCLAIM THEREIN, OTHER THAN A COMPULSORY COUNTERCLAIM,
AND (Z) HAVE THE SAME CONSOLIDATED WITH ANY OTHER OR SEPARATE SUIT, ACTION OR
PROCEEDING. NOTHING CONTAINED IN THE IMMEDIATELY PRECEDING SENTENCE SHALL
PREVENT OR PROHIBIT BORROWER FROM INSTITUTING OR MAINTAINING A SEPARATE ACTION
AGAINST ADMINISTRATIVE AGENT OR LENDERS WITH RESPECT TO ANY ASSERTED CLAIM.

         Section 8.13. Expenses; Indemnification. The Loan shall be made without
cost to Lender. Borrower covenants and agrees to pay all costs, expenses and
charges (including, without limitation, all fees and charges of engineers,
appraisers, the Engineering Consultant and Administrative Agent's Counsel)
incurred by Administrative Agent or any Lender in connection with (i) the
preparation for and consummation of the transactions contemplated hereby or for
the performance hereof and of the other Loan Documents, and for any services
which may be required in addition to those normally and reasonably contemplated
hereby and (ii) the enforcement hereof or of any or all of the other Loan
Documents; provided, however, that Borrower shall not be responsible for (1) the
fees and expenses of legal counsel for Lenders other than Fleet incurred in
connection with said counsel's review of this Agreement and the other Loan
Documents prior to execution and (2) costs, expenses and charges incurred by


                                       49


Administrative Agent and Lenders in connection with the administration or
syndication of the Loan. If Borrower fails to pay promptly any costs, charges or
expense required to be paid by it as aforesaid, and Administrative Agent or any
Lender pays such costs, charges or expenses, Borrower shall reimburse
Administrative Agent or such Lender, as appropriate, on demand for the amounts
so paid, together with interest thereon at the Default Rate. Borrower further
agrees to indemnify Administrative Agent and each Lender and their respective
directors, officers, employees and agents from, and hold each of them harmless
against, (x) any and all losses arising out of or by reason of any investigation
or litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to any actual or proposed use by
Borrower of the proceeds of the Loan, including, without limitation, the fees
and disbursements of counsel incurred in connection with any such investigation,
litigation or other proceedings and (y) any and all claims, actions, suits,
proceedings, costs, expenses, losses, damages and liabilities of any kind,
including in tort, penalties and interest, arising out or by reason of any
matter relating, directly or indirectly, to the Mortgage or the ownership,
condition, development, construction, sale, rental or financing of the Property
or Improvements or any part thereof (but excluding any such losses, liabilities,
claims, damages or expenses incurred solely by reason of the gross negligence or
willful misconduct of the party to be indemnified). The obligations of Borrower
under this Section and under Sections 3.01, 3.03 and 6.08 shall survive the
repayment of all amounts due under or in connection with any of the Loan
Documents and the termination of the Loan.

         Section 8.14. Gross-Up For Taxes. All payments made by Borrower under
the Note and other Loan Documents shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding income taxes and franchise or other taxes
(imposed in lieu of income taxes) imposed on Lender as a result of a present or
former connection between Lender and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from Lender's
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or the Note). If any such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions or withholdings
("Non-Excluded Taxes") is required to be withheld from any amounts payable to
Lender under the Note or other Loan Documents, the amounts so payable to Lender
shall be increased to the extent necessary to yield to Lender (after payment of
all Non-Excluded Taxes) interest or any such other amounts payable with respect
to the Loan at the rates or in the amounts specified in the Note or other Loan
Documents. Whenever any Non-Excluded Taxes are payable by Borrower, as promptly
as possible thereafter Borrower shall send to Lender a certified copy of an
original official receipt received by Borrower showing payment thereof. If
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to Lender the required receipts or other required
documentary evidence, Borrower shall indemnify Lender for any incremental taxes,
interest or penalties that may become payable by Lender as a result of any such
failure. The agreements in this Section shall survive the termination of this
Agreement and the payment of the Note and all other amounts payable in respect
of the Loan.

                                       50


         Section 8.15. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.

         Section 8.16. Governing Law; Jurisdiction. This Agreement and the
rights and obligations of the parties hereunder shall in all respects be
governed by, and construed and enforced in accordance with, the Laws of the
State of New York (without giving effect to New York's principles of conflicts
of law). Borrower, Administrative Agent and each Lender hereby irrevocably
submit to the non-exclusive jurisdiction of any New York State or Federal court
sitting in The City of New York (or any county in New York State where any
portion of the Property is located) over any suit, action or proceeding arising
out of or relating to this Agreement, and Borrower hereby agrees and consents
that, in addition to any methods of service of process provided for under
applicable Law, all service of process in any such suit, action or proceeding in
any New York State or Federal court sitting in The City of New York (or such
other county in New York State) may be made by certified or registered mail,
return receipt requested, directed to Borrower at the address indicated on the
cover page hereof, and service so made shall be complete five (5) days after the
same shall have been so mailed.

         Section 8.17. Integration. The Loan Documents constitute the entire
agreement among Administrative Agent, Borrower and Lenders relating to the
transactions contemplated thereby (except with respect to agreements among
Lenders or with Administrative Agent relating solely to compensation,
consideration and the syndication of the Loan) and supersede any prior oral or
written statements or agreements with respect to such transactions.

         Section 8.18. Releases. Provided no Default or Event of Default exists,
Borrower shall have the right to obtain the release of any of the Properties
from the Mortgage encumbering the same, at Borrower's expense, so long as (i)
Borrower pays to Administrative Agent for the account of Lenders an amount equal
to the lesser of (x) the greater of (A) the Release Price for the Property that
is the subject of such release and (B) the amount necessary to reduce the Loan
to an amount which satisfies the DSC Test on the basis of Net Operating Income
from the parcels not being released or (y) the then outstanding principal amount
of the Loan, which amount shall be applied to the reduction of outstanding
principal under the Loan, (ii) Administrative Agent receives such reasonable
documentation as Administrative Agent shall request confirming that the amount
of any Additional Interest secured by the Mortgage encumbering the Property
which is being released shall be secured by the credit of Guarantor, and (iii)
Administrative Agent receives such other documents, opinions and assurances as
Administrative Agent may reasonably request. Upon any such release of a
Property, such Property shall no longer constitute a "Property" hereunder and
the Total Loan Commitment shall be reduced by the amount of the Release Price
for such Property.

                                       51


         Section 8.19. Exculpation. Neither Borrower nor any Guarantor shall be
personally liable for payment of the principal of the Note or interest thereon,
and in the event of any failure by Borrower to pay any portion of such principal
or interest, Lenders will look, with respect to the then outstanding balance of
such principal and interest, solely to the Mortgaged Property and such other
collateral as has been, or hereafter shall be, given to secure payment of the
Note. The foregoing limitation on liability shall not impair or otherwise affect
the validity or enforceability of (a) the debt evidenced by the Note or the Loan
Agreement or of any other obligations evidenced by the Note, the Loan Agreement,
the Mortgage or any of the Loan Documents or (b) Lenders' liens, security
interests, rights and remedies (including, without limitation, the remedies of
foreclosure and/or sale) with respect to the Mortgaged Property or any other
property, security, collateral and/or assets (including the proceeds thereof)
encumbered, pledged or assigned by the Mortgages or any other security for the
Loan. In addition, the foregoing limitation on liability shall not limit
anyone's obligations or be applicable with respect to: (i) liability under any
guaranty(ies) or indemnity(ies) delivered or afforded to Lenders; (ii) any fraud
or material misrepresentation; (iii) taxes of any kind (whether characterized as
transfer, gains or other taxes) payable in connection with the foreclosure sale
of the Mortgaged Property, irrespective of who pays such taxes; (iv) application
of any proceeds of the Loan to any purpose other than as provided in the Loan
Documents; (v) the application of any insurance or condemnation proceeds or
other funds or payments other than strictly in accordance with the Loan
Documents; (vi) the misapplication of any security deposits; (vii) rents, sales
proceeds, or other sums received after default under the Loan Documents which
are not applied to expenses of operating the Mortgaged Property or paid to
Lenders or a duly appointed receiver of the Mortgaged Property; (viii) any
failure to deliver to Lenders, after demand therefor, any agreements relating to
the operation, management, leasing, use, occupancy or construction of the
Mortgaged Property; (ix) any intentional physical waste in respect of the
Mortgaged Property; (x) any failure to pay or discharge any real estate tax,
other tax, assessment, fine, penalty or lien against the Mortgaged Property to
the extent revenue from leases of the Mortgaged Property was available to pay
same; (xi) liability as landlord under any lease(s) relating to the Mortgaged
Property which liability accrued prior to Lenders' succeeding to such interest
of Borrower, which Lenders are or become obligated for by virtue of Lenders
succeeding to the interests of Borrower, provided, however, that such liability
shall only apply with respect to any liability of Borrower under such leases
which Lenders assumes pursuant to subordination, non-disturbance and attornment
agreements required pursuant to the terms of such leases; (xii) liability under
any agreement relating to the operation or maintenance of the Mortgaged Property
which liability accrued prior to Lenders' succeeding to such interest of
Borrower which Lenders are or become obligated for by virtue of Lenders
succeeding to the interests of Borrower, provided, however, that such liability
shall only apply with respect to agreements which are not terminable by their
terms upon thirty (30) days' written notice; (xiii) liability to pay for the
premiums on and keep in full force and effect insurance in respect of the
Mortgaged Property in accordance with the Loan Documents to the extent revenue


                                       52


from leases of the Mortgaged Property was available to pay same; or (xiv)
liability for Hazardous Substances that may exist upon or be discharged from the
Mortgaged Property. Borrower and any Guarantor shall in any event be and shall
remain personally liable for each of the matters to which reference is made in
the preceding sentence and Lenders may seek, obtain and enforce one or more
money judgments in any appropriate proceeding(s) with respect thereto. The
limitation on personal liability contained in this paragraph shall become
automatically null and void and shall be of no further force or effect, and
Borrower and each Guarantor shall be and remain personally liable for payment of
the principal of the Note and interest thereon, in accordance with the terms and
provisions of this Loan Agreement, in the event that Borrower, or anyone acting
on behalf of Borrower, shall (A) file a petition or answer seeking any relief of
any kind under the bankruptcy laws of the United States (or if an Insolvency
Event shall otherwise occur), (B) assert in writing or in any legal proceedings
of any kind that any provisions of any of the Loan Documents are in whole or in
part unenforceable, invalid or not legally binding, or (C) fail fully to
cooperate with Lenders or a receiver in Lenders' or such receiver's efforts to
collect Rents directly from tenants after a default under the Loan Documents.

         Section 8.20. Letters of Credit.

         (a) Borrower, with the consent of Administrative Agent, may request, in
lieu of advances of proceeds of the Loan, that Administrative Agent issue
unconditional, irrevocable standby letters of credit (each, a "Letter of
Credit") for the account of Borrower. Promptly upon Borrower's request for, and
then upon issuance of, a Letter of Credit, Administrative Agent shall notify
each Lender.

         (b) The amount of any Letter of Credit shall be limited to the amount
of proceeds of the Loan available to be advanced hereunder, it being understood
that the amount of each Letter of Credit issued and outstanding shall effect a
reduction, by an equal amount, of proceeds available to Borrower under the Loan.
Administrative Agent's issuance of each Letter of Credit shall be subject to
Borrower having satisfied all conditions precedent to its entitlement to an
advance of Loan proceeds. Each Letter of Credit shall expire no later than one
(1) month prior to the Maturity Date. If the Letter of Credit is returned
undrawn upon or expires without being drawn upon, then the amount of Loan
proceeds allocated to the Letter of Credit shall again become available to be
advanced with the terms hereof.

         (c) In connection with, and as a further condition to the issuance of,
each Letter of Credit, Borrower shall execute and deliver to Administrative
Agent an application for the Letter of Credit on Administrative Agent's standard
form therefor, together with such other documents, opinions and assurances as
Administrative Agent shall reasonably require, and shall pay such fees as
Administrative Agent shall require.

         (d) The parties hereto acknowledge and agree that, immediately upon
notice from Administrative Agent of any drawing under a Letter of Credit, each
Lender shall, notwithstanding the existence of a Default or Event of Default or
the non-satisfaction of any conditions precedent to the making of an advance of
the Loan, advance proceeds of the Loan, in an amount equal to its ratable share
(based upon the undisbursed amounts of the Lenders' respective Individual Loan
Commitments) of such drawing, which advance shall be made to Administrative
Agent to reimburse Administrative Agent, for its own account, for such drawing.
Borrower hereby irrevocably authorizes Lenders to make such advances. Each
Lender further acknowledges that its obligation to fund its share of drawings
under Letters of Credit as aforesaid shall survive the Lenders' termination of
this Agreement or enforcement of remedies hereunder or under the other Loan
Documents. In the event that any advance cannot for any reason be made on the
date otherwise required above (including, without limitation, as a result of the
commencement of a proceeding under any applicable bankruptcy or insolvency Law
with respect to Borrower), then each Lender shall purchase (on or as of the date
such advance would otherwise have been made) from Administrative Agent a
participation interest in any unreimbursed drawing in an amount equal to its Pro
Rata Share of such unreimbursed drawing.

                                       53


         (e) Borrower agrees, upon the occurrence of an Event of Default and at
the written request of Administrative Agent, (i) to deposit with Administrative
Agent cash collateral in the amount of all the outstanding Letters of Credit,
which cash collateral shall be held by Administrative Agent as security for
Borrower's obligations in connection with the Letters of Credit and (ii) to
execute and deliver to Administrative Agent such documents as Administrative
Agent reasonably requests to confirm and perfect the assignment of such cash
collateral to Administrative Agent.

         (f) In connection with each Letter of Credit, Borrower hereby covenants
to pay to Administrative Agent the following fees, payable quarterly in arrears
(on the first Business Day of each calendar quarter following the issuance of
the Letter of Credit): (1) a fee (the "Lenders L/C Fee") for the account of
Lenders, computed daily on the amount of the Letter of Credit issued and
outstanding at a per annum rate equal to 0.75% and (2) a fee (the "Fronting
Fee") for Administrative Agent's own account, computed daily on the amount of
the Letter of Credit issued and outstanding at a rate per annum equal to 0.15%.
It is understood and agreed that the last installment of the foregoing fees
provided for in this paragraph (f) with respect to any particular Letter of
Credit shall be due and payable on the first day of the calendar quarter
following the return, undrawn, or cancellation, of such Letter of Credit. In
addition, Borrower shall pay to Administrative Agent, Administrative Agent's
customary administrative fees in connection with the issuance, extension,
amendment and drawing of all Letters of Credit.

         Section 8.21. Concerning Irrevocable Authorizations. Any and all
advances made at any time by Lenders pursuant to the irrevocable authorizations
granted by Section 8.20 shall require no further direction, authorization or
request for disbursement from Borrower and may be made whether or not there
exists a Default or Event of Default. Any and all such disbursements shall be
added to the outstanding principal balance evidenced by the Notes and shall be
secured by the Mortgage.

         Section 8.22. Usury. Anything herein to the contrary notwithstanding,
the obligations of Borrower under this Agreement and the Notes shall be subject
to the limitation that payments of interest shall not be required to the extent
that receipt thereof would be contrary to provisions of Law applicable to a
Lender limiting rates of interest which may be charged or collected by such
Lender.

                                       54


         Section 8.23. Documentation Satisfactory. All documentation required
from or to be submitted on behalf of Borrower in connection with this Agreement
and the documents relating hereto shall be subject to the prior approval of, and
be satisfactory in form and substance to, Administrative Agent, its counsel and,
where specifically provided herein, Lenders. In addition, the persons or parties
responsible for the execution and delivery of, and signatories to, all of such
documentation, shall be acceptable to, and subject to the approval of,
Administrative Agent and its counsel.


                  [Remainder of page intentionally left blank]




                                       55


         IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written, the execution hereof by
Borrower constituting a certification by the party or parties executing on its
behalf that the representations and warranties made in Article IV are true and
correct as of the date hereof and that each of them duly holds and is incumbent
in the position indicated under his or her name.

                             FLEET NATIONAL BANK, a Bank of America
                             company (as Lender and Administrative Agent)


                             By
                               -------------------------------------------------
                               Denise M. Smyth
                               Vice President

                             Address for notices and Applicable Lending Office:

                             Fleet National Bank, a Bank of America company
                             1185 Avenue of the Americas, 16th Floor
                             New York, New York 10036
                             Attention: Ms. Denise M. Smyth
                             Telephone: 212/819-6144
                             Telefax: 212/819-6294


                             THE BANK OF CHINA, NEW YORK BRANCH (as Lender)


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

                             Address for notices and Applicable Lending Office:

                             The Bank of China, New York Branch
                             410 Madison Avenue
                             New York, New York 10017
                             Attention: Mr. Ted Louie
                             Telephone: 212/935-3101 x353
                             Telefax: 212/658-0919


                             RD ABSECON ASSOCIATES, L.P., a Delaware
                             limited partnership

                             By:  RD Absecon, Inc., a Delaware corporation,
                                  its general partner


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


                             RD BLOOMFIELD ASSOCIATES, LIMITED
                             PARTNERSHIP, a Delaware limited partnership

                             By:  Acadia Property Holdings, LLC, its general
                                  partner

                                  By:  Acadia Realty Limited Partnership,
                                       its sole member

                                       By:  Acadia Realty Trust, its
                                            general partner


                                            By
                                              ---------------------------------
                                              Robert Masters
                                              Senior Vice President





                             RD HOBSON ASSOCIATES, L.P., a Delaware
                             limited partnership

                             By:  Acadia Property Holdings, LLC, its general
                                  partner

                                  By:  Acadia Realty Limited Partnership,
                                       its sole member

                                       By:  Acadia Realty Trust, its
                                            general partner


                                            By
                                              ---------------------------------
                                              Robert Masters
                                              Senior Vice President

                             RD VILLAGE ASSOCIATES LIMITED
                             PARTNERSHIP, a Delaware limited partnership

                             By:  Acadia Property Holdings, LLC, its general
                                  partner

                                  By:  Acadia Realty Limited Partnership,
                                       its sole member

                                       By:  Acadia Realty Trust, its
                                            general partner


                                            By
                                              ---------------------------------
                                              Robert Masters
                                              Senior Vice President



                             RD WOONSOCKET ASSOCIATES LIMITED
                             PARTNERSHIP, a Delaware limited partnership

                             By:  Acadia Property Holdings, LLC, its general
                                  partner

                                  By:  Acadia Realty Limited Partnership,
                                       its sole member

                                       By:  Acadia Realty Trust, its
                                            general partner


                                            By
                                              ---------------------------------
                                              Robert Masters
                                              Senior Vice President

                             Address for notices for all Borrowers:

                             c/o Acadia Realty Trust
                             1311 Mamaroneck Avenue, Suite 260
                             White Plains, New York 10605
                             Attention: Mr. Robert Masters




                  The undersigned joins in the execution and authorizes the
delivery of this Loan Agreement for the purpose of accepting and agreeing to the
provisions of Section 5.20, Section 6.06, Section 6.11 and Section 8.19 hereof.

                             ACADIA REALTY LIMITED PARTNERSHIP

                             By:  Acadia Realty Trust, a Maryland real estate
                                  investment trust, its general partner


                                  By
                                    --------------------------------------------
                                    Robert Masters
                                    Senior Vice President





                                    EXHIBIT A

                       Assignment and Assumption Agreement


         ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of ____________, 200__,
among [NAME OF ASSIGNING BANK] ("Assignor") and [NAME OF ASSIGNEE] ("Assignee").

                              Preliminary Statement

         1. This Assignment and Assumption Agreement (this "Agreement") relates
to the Revolving Loan Agreement (as the same may be amended from time to time,
the "Loan Agreement") dated ____________, 200__ among _________________________
("Borrower"), the lender(s) party thereto (each a "Lender" and, collectively,
"Lenders") and _________________________, as administrative agent
("Administrative Agent"). All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Loan Agreement.

         2. Subject to the terms and conditions set forth in the Loan Agreement,
Assignor has made an Individual Loan Commitment to Borrower in an aggregate
principal amount of $____________ ("Assignor's Loan Commitment").

         3. The aggregate outstanding principal amount under Assignor's Loan
Commitment at the commencement of business on the date hereof is $____________.

         4. Assignor desires to assign to Assignee all of the rights of Assignor
under the Loan Agreement in respect of a portion of Assignor's Loan Commitment
and the loan made pursuant thereto, such portion being in an amount equal to
$____________ (the "Assigned Loan and Commitment"), of which $____________ is
currently outstanding and $____________ is still to be disbursed to Borrower
pursuant to the Loan Agreement; and Assignee desires to accept assignment of
such rights and assume the corresponding obligations from Assignor on such
terms.

         NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:

         SECTION 1. Assignment. Assignor hereby assigns and sells to Assignee
all of the rights of Assignor under the Loan Agreement in and to the Assigned
Loan and Commitment, and Assignee hereby accepts such assignment from Assignor
and assumes all of the obligations of Assignor under the Loan Agreement with
respect to the Assigned Loan and Commitment, including, without limitation,
Assignor's obligations with respect to the undisbursed portion, if any, thereof.
Upon the execution and delivery hereof by Assignor, Assignee, Administrative
Agent and the payment of the amount specified in Section 2 hereof required to be
paid on the date hereof, (1) Assignee shall, as of the commencement of business
on the date hereof, succeed to the rights and obligations of a Lender under the
Loan Agreement with an Individual Loan Commitment in an amount equal to the
Assigned Loan and Commitment, and (2) the Individual Loan Commitment of Assignor
shall, as of the commencement of business on the date hereof, be reduced
correspondingly and Assignor released from its obligations under the Loan
Agreement to the extent such obligations have been assumed by Assignee. Assignor
represents and warrants that it (x) owns the Assigned Loan and Commitment free
and clear of all liens and other encumbrances and (y) is legally authorized to
enter into and perform this Agreement. Except as provided in the immediately
preceding sentence, the assignment provided for herein shall be without
representation or warranty by, or recourse to, Assignor.




         SECTION 2. Payments. As consideration for the assignment and sale
contemplated in Section 1 hereof, Assignee shall pay to Assignor on the date
hereof, in immediately available funds, an amount equal to the outstanding
principal amount under the Assigned Loan and Commitment recited in paragraph 4
of the Preliminary Statement above. Each of Assignor and Assignee hereby agrees
that if it receives any amount under the Loan Agreement which is for the account
of the other party hereto, it shall receive the same for the account of such
other party to the extent of such other party's interest therein and shall
promptly pay the same to such other party.

         SECTION 3. Consent; Execution and Delivery of Note. This Agreement is
conditioned upon the consent of Administrative Agent. The execution of this
Agreement and Administrative Agent is evidence of this consent; [CONSENTS NOT
REQUIRED FOR CERTAIN ASSIGNMENTS TO ENTITIES RELATED TO A LENDER.] Pursuant to
Section 8.07 of the Loan Agreement, Borrower has agreed to execute and deliver
Notes payable to the respective orders of Assignee and Assignor to evidence the
assignment and assumption provided for herein. Assignee has designated as its
Applicable Lending Office, and as its address for notices, the office identified
as such below.

         SECTION 4. Non-Reliance on Assignor. Assignor makes no representation
or warranty in connection with, and shall have no responsibility with respect
to, the solvency, financial condition, or statements of Borrower or any other
party to any Loan Document, or the validity and enforceability of the
obligations of Borrower or any other party to a Loan Document in respect of the
Loan Agreement or any other Loan Document. Assignee acknowledges that it has,
independently and without reliance on Assignor, and based on such documents and
information as it has deemed appropriate, made its own analysis of the
collateral for the Loan, credit analysis of Borrower and Guarantor and decision
to enter into this Agreement and will continue to be responsible for making its
own independent appraisal of the collateral for the Loan and of the business,
affairs and financial condition of Borrower and the other parties to the Loan
Documents.

         SECTION 5. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the Laws of the State of New York
(without giving effect to New York's principles of conflicts of law).

                                       2


         SECTION 6. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

         SECTION 7. Certain Representations and Agreements by Assignee. Assignee
represents that it is legally authorized to enter into and perform this
Agreement. In addition, Assignee hereby represents that it is entitled to
receive any payments to be made to it under the Loan Agreement or hereunder
without the withholding of any tax and agrees to furnish the evidence of such
exemption as specified therein and otherwise to comply with the provisions of
Section 7.13 of the Loan Agreement.

         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.

                              [NAME OF ASSIGNOR]


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


                              [NAME OF ASSIGNEE]


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

                              Assignee's Applicable Lending Office and Address
                              for Notices:

                              [Assignee]
                              [Address]
                              Attention:   _______________
                              Telephone:   (___) ________


                              [NAME OF ADMINISTRATIVE AGENT]


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


                              [NAME OF BORROWER]


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



                                       3



                                    EXHIBIT B

                          Notice-of-Assignment of Lease
                           (On Letterhead of Borrower)



                                                     __________, 200_


[Name and Address of Tenant]

                  Re:      Lease Dated:
                           Lender:
                           Address of Lender:
                           Mortgage Dated:

Dear Sir/Madam:

         The undersigned has assigned by a mortgage or deed of trust (the
"Mortgage") dated as shown above to the Lender identified above (hereinafter
"Lender") all its estate, right, title and interest in, to and under the Lease
between you and the undersigned dated as set forth above, as said Lease may have
been heretofore modified or amended (the "Lease"), together with all right,
title and interest of the undersigned as lessor thereunder, including, without
limitation, the right upon the occurrence of an Event of Default (as defined in
the Mortgage) to collect and receive all earnings, revenues, rents, issues,
profits and income of the property subject to the Mortgage.

         [CERTAIN PROVISIONS OF THE MORTGAGE, THE TEXT OF WHICH ARE ATTACHED
HERETO, RESTRICT SOME OF THE UNDERSIGNED'S RIGHTS UNDER THE LEASE. HOWEVER,
S][S]aid assignment does not impair or diminish any of our obligations to you
under the provisions of the Lease, nor are any such obligations imposed upon
Lender, its successors or assigns.

         Pursuant to said assignment you are hereby notified that in the event
of a demand on you by Lender or its successors and assigns for the payment to it
of the rents due under the Lease, you may, and are hereby authorized and
directed to, pay said rent to Lender and we hereby agree that the receipt by you
of such a demand shall be conclusive evidence of Lender's right to the receipt
thereof and that the payment of the rents by you to Lender pursuant to such
demand shall constitute performance in full of your obligation under the Lease
for the payment of rent to the undersigned.

- -----------------------

NOTE:   To be sent in accordance with notice requirements of the Lease.

*       To be used if property located in New York




         Kindly indicate your receipt of this letter and your agreement to the
effect set forth below by signing the enclosed copy thereof and mailing it to
Lender at its address identified above to the attention of its Real Estate
Finance Office.

                                       [BORROWER]


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


         The undersigned acknowledges receipt of the original of this letter and
agrees for the benefit of Lender that it shall notify Lender of any default on
the part of the landlord under the Lease which would entitle the undersigned to
cancel the Lease or to abate the rent payable thereunder, and further agrees
that, notwithstanding any provision of the Lease, no notice of cancellation
thereof, nor of any abatement, shall be effective unless Lender has received the
notice aforesaid and has failed within 30 days of the date thereof to cure, or
if the default cannot be cured within 30 days has failed to commence and to
diligently prosecute the cure, of landlord's default which gave rise to the
right to cancel or abate.

                                       [NAME OF TENANT]


                                       By
                                         ---------------------------------------
                                         -----------------------------,
                                         its authorized officer



                                       2


                                    EXHIBIT C

Required Contents of Borrower's Counsel Opinion

         (1) If Borrower, the mortgagor or grantor under the Mortgage (if
different from Borrower), Guarantor or any general partner or member of any of
them is a corporation, partnership, venture, limited liability company or trust,
each such entity is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its formation, is qualified to do business (or
such opinion shall specifically state that such qualification is not required)
and is in good standing in the jurisdiction in which the Property is located,
and has full power and authority to consummate the transactions contemplated by
the Loan Documents and to execute, deliver and perform all Loan Documents to
which it is a party.

         (2) There are no actions, suits or proceedings pending or threatened
against or affecting Borrower, Guarantor, the Mortgaged Property, the validity
or enforceability of the Mortgage or the priority of the lien thereof at law, in
equity or before or by any Governmental Authorities except actions, suits or
proceedings which have been disclosed to Lender in writing and which are fully
covered by insurance or would, if adversely determined, not substantially impair
the ability of Borrower or Guarantor to pay when due any amounts which may
become payable under the Note or Guaranty or to otherwise pay and perform their
respective obligations in connection with the Loan; neither Borrower nor
Guarantor is in default with respect to any order, writ, injunction, decree or
demand of any court or Governmental Authorities.

         (3) The consummation of the transactions contemplated by and the
performance of the Loan Documents have not resulted and will not result in any
breach of, or constitute a default under, any mortgage, deed of trust, lease,
bank loan or credit agreement, corporate charter, by-laws, partnership agreement
or other instrument to which Borrower or Guarantor is a party or by which either
of them may be bound or affected.

         (4) There exist no violations of any laws, statutes, ordinances, rules,
orders, regulations or requirements of any Governmental Authorities with respect
to the Improvements and that the use thereof complies with all applicable zoning
and other laws, etc. and with all restrictions, covenants, leases and easements
affecting the Mortgaged Property.

         (5) The Property is not part of a larger tract of land owned by
Borrower, its affiliates or Guarantor, or otherwise considered as part of one
zoning or tax lot, or, if they are, that any authorization or variance required
for the subdivision of such larger tract which a sale of the Property would
entail has been obtained from all appropriate Governmental Authorities so that
the Property and Improvements constitute one zoning or tax lot (including
parking and utility facilities and street access, if relevant) capable of being
conveyed as such.


                                       4


Required Contents of Borrower's Local Counsel Opinion (and, if required by
Lender, of a local counsel selected by Lender or its counsel)

         (1) The Loan Documents have each been duly authorized, executed and
delivered by the parties thereto (other than Lender) and, under the laws of the
jurisdiction in which the Property is located (were such laws to apply), are
valid and binding instruments enforceable against such parties in accordance
with their respective terms, subject, however, to the qualifications that (a)
some of the rights and remedies set forth in the Note and Mortgage may be
limited by bankruptcy, insolvency, reorganization and other laws of general
application to the enforcement of creditors' rights and (b) certain remedies and
waivers contained in the Mortgage may be limited by applicable laws of said
jurisdiction, none of which qualifications will materially interfere with the
practical realization of the benefits and security provided by said documents
except for the economic consequences of any procedural delay which may result
therefrom.

         (2) Considering the significant relationship that the State of New York
has to the Loan, the courts of the jurisdiction in which the Property is located
will, in all likelihood, honor any designations by the parties of New York as
the governing law contained in the Loan Documents.

         (3) The Mortgage will create the lien it purports to create on the
property covered by the Mortgage and will effectively assign the leases
purported to be assigned thereby if the Mortgage and any necessary UCC-1
financing statements are recorded or filed, as the case may be, and specifying
local law requirements as to (1) the manner in which, and offices where, such
recording and filing must be made and (2) the re-recording of the Mortgage and
refiling of the financing statements, all in order to establish, preserve and
protect such lien and assignment and Lender's interest in the property covered
by the Mortgage.

         (4) In the event of a foreclosure or other method of enforcement of the
remedies provided for in the Mortgage, any leases of the Mortgaged Property
will, at the option of the holder of the Mortgage, remain in full force and
effect between the lessees thereunder and such holder or any purchaser of the
Mortgaged Property pursuant to such remedial action. The opinion shall state
whether the foregoing results as a matter of law or by reason of compliance with
Section 1.14(c) of the Mortgage.

         (5) All rights of redemption in respect of the Mortgage will be
extinguished upon the consummation of a sale of the Mortgaged Property pursuant
to any remedial provisions provided for in the Mortgage, [or if the foregoing is
not the case, the opinion shall specify the period of time which must expire
following such consummation in order for said rights of redemption to be
extinguished under local law, and shall state whether the applicable result
obtains as a matter of law or pursuant to any waiver provided for in the
Mortgage].

                                       2



         (6) There are no changes or additions to the Mortgage and other Loan
Documents which are required by local law, and none which are customary in local
practice and which would not unsubstantially enhance the rights and benefits of
Lender thereunder.

         (7) To such other effects as Lender or its counsel may reasonably
require.



                                       3


                                    EXHIBIT D

                                      Note


$____________                                                 New York, New York
                                                             ____________, 200__


         For value received, RD ABSECON ASSOCIATES, L.P., a Delaware limited
partnership ("RD Absecon"), RD BLOOMFIELD ASSOCIATES, LIMITED PARTNERSHIP, a
Delaware limited partnership ("RD Bloomfield"), RD HOBSON ASSOCIATES, L.P., a
Delaware limited partnership ("RD Hobson"), RD VILLAGE ASSOCIATES LIMITED
PARTNERSHIP ("RD Village"), a Delaware limited partnership and RD WOONSOCKET
ASSOCIATES LIMITED PARTNERSHIP, a Delaware limited partnership ("RD Woonsocket";
RD Absecon, RD Bloomfield, RD Hobson, RD Village and RD Woonsocket, collectively
and individually, as the context requires, "Maker") hereby covenant and promise
to pay to the order of [NAME OF LENDER], or its successors or assigns
(collectively, "Lender"), at the principal office of FLEET NATIONAL BANK, a Bank
of America company, located at 1185 Avenue of the Americas, New York, New York
10036 ("Administrative Agent") for the account of the Applicable Lending Office
of Lender, the principal sum of _________________________ Dollars
($____________) or, if less, the amount loaned by the Lender under its Loan to
Borrower pursuant to the Loan Agreement (as defined below) and actually
outstanding, in lawful money of the United States and in immediately available
funds, in accordance with the terms set forth in the Loan Agreement. Maker also
covenants and promises to pay interest on the unpaid principal balance hereof,
for the period such balance is outstanding, in like money, at said office for
the account of said Applicable Lending Office, at the time and at a rate per
annum as provided in the Loan Agreement (as defined below). Any amount or
principal hereof which is not paid when due, whether at stated maturity, by
acceleration, or otherwise, shall bear interest from the date when due until
said principal amount is paid in full, payable on demand, at the Default Rate.

         The date and amount of each advance of the Loan made by Lender to
Borrower under the Loan Agreement referred to below, and each payment of said
Loan, shall be recorded by Lender on its books and, prior to any transfer of
this Note (or, at the discretion of Lender, at any other time), may be endorsed
by Lender on the schedule attached hereto and any continuance thereof.

         This Note is one of the Notes referred to in the Revolving Loan
Agreement dated as of the date hereof (as the same may be amended or
supplemented from time to time, the "Loan Agreement") among Maker, as Borrower,
the lenders named therein (including Lender), as Lenders, and Administrative
Agent, as Administrative Agent for Lenders. All of the terms, conditions and
provisions of the Loan Agreement are hereby incorporated by reference. All
capitalized terms used herein and not defined herein shall have the meanings
given to them in the Loan Agreement.





         This Note is secured by the various Mortgages which contain, among
other things, provisions for the prepayment of and acceleration of this Note
upon the happening of certain stated events. Reference to such of the Mortgages
is hereby made for a description of the "Mortgaged Property" encumbered thereby
and the rights of Maker and Lenders (including Lender) with respect to such
Mortgaged Property.

         Maker agrees that it shall be bound by any agreement extending the time
or modifying the terms of payment set forth above and in the Loan Agreement,
made by or on behalf of Lenders and the owner or owners of the Mortgaged
Property, whether with or without notice to Maker, and Maker shall continue
liable to pay the amount due hereunder in accordance with the terms set forth
herein and in the Loan Agreement, but with interest at a rate no greater than
the rate of interest provided therein, according to the terms of any such
agreement of extension or modification.

         Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity, or in bankruptcy, receivership or any other court
proceeding (whether at the trial or appellate level), or should this Note be
placed in the hands of attorneys for collection upon default, Maker agrees to
pay, in addition to the principal, interest and other sums due and payable
hereon, all costs of collecting or attempting to collect this Note, including
reasonable attorneys' fees and expenses.

         All parties to this Note, whether principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, protest, notice of
protest and notice of dishonor.

         This Note shall be governed by the Laws of the State of New York
(without giving effect to New York's principles of conflicts of law), provided
that, as to the maximum lawful rate of interest which may be charged or
collected, if the Laws applicable to Lender permit it to charge or collect a
higher rate than the Laws of the State of New York, then such Law applicable to
Lender shall apply to Lender under this Note.

         IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first above written.

                                       [NAME OF BORROWER]


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



                                       2




- ---------------------------------------------------------------------------------------------------------
                               Amount               Amount               Balance
         Date                of Advance           of Payment           Outstanding           Notation By
- ---------------------------------------------------------------------------------------------------------
                          

- ---------------------------------------------------------------------------------------------------------



                                       3


                                   EXHIBIT E-1

                    FINANCIAL COVENANT COMPLIANCE CERTIFICATE

                  This Certificate is furnished pursuant to Section 6.11(3) of
that certain Revolving Loan Agreement (the "Loan Agreement") by and among RD
ABSECON ASSOCIATES, L.P., RD BLOOMFIELD ASSOCIATES, LIMITED PARTNERSHIP, RD
HOBSON ASSOCIATES, L.P., RD VILLAGE ASSOCIATES LIMITED PARTNERSHIP and RD
WOONSOCKET ASSOCIATES LIMITED PARTNERSHIP (collectively and individually, as the
context requires, "Borrower") and FLEET NATIONAL BANK, a Bank of America company
(in its individual capacity and not as Administrative Agent, "Fleet"), THE BANK
OF CHINA, NEW YORK BRANCH ("Bank of China") and Fleet, in its capacity as
Administrative Agent, Section 6.11(3) of which Loan Agreement was agreed to and
acknowledged by ACADIA REALTY LIMITED PARTNERSHIP ("Guarantor"). Capitalized
terms used in this Certificate and Schedule 1 attached hereto, unless otherwise
defined herein or in said Schedule 1, have the meanings given to them in the
Loan Agreement.

                  The undersigned, the ____________________ of Guarantor, hereby
certifies to Lender that Schedule 1 attached hereto sets forth the financial
data and computations relating to Guarantor's compliance with the Liquidity
Requirement, which data and computations, to the best knowledge and belief of
the undersigned, are true, complete and correct.

                  The undersigned certifies that he/she is authorized to execute
and deliver this Certificate on behalf of Guarantor.

                  WITNESS my hand this _____ day of _______________, ____.



                                       -----------------------------------------
                                       Name:




                                   EXHIBIT E-2

                    FINANCIAL COVENANT COMPLIANCE CERTIFICATE


                  This Certificate is furnished pursuant to Section 6.11(3) of
that certain Revolving Loan Agreement ("Loan Agreement") by and among RD ABSECON
ASSOCIATES, L.P., RD BLOOMFIELD ASSOCIATES, LIMITED PARTNERSHIP, RD HOBSON
ASSOCIATES, L.P., RD VILLAGE ASSOCIATES LIMITED PARTNERSHIP and RD WOONSOCKET
ASSOCIATES LIMITED PARTNERSHIP (collectively and individually, as the context
requires, "Borrower") and FLEET NATIONAL BANK, a Bank of America company (in its
individual capacity and not as Administrative Agent, "Fleet"), THE BANK OF
CHINA, NEW YORK BRANCH ("Bank of China") and Fleet, in its capacity as
Administrative Agent, Section 6.11(3) of which Loan Agreement was agreed to and
acknowledged by ACADIA REALTY LIMITED PARTNERSHIP ("Guarantor"). Capitalized
terms used in this Certificate and Schedule 1 attached hereto, unless otherwise
defined herein or in said Schedule 1, have the meanings given to them in the
Loan Agreement.

                  The undersigned, the ____________________ of Guarantor, hereby
certifies to Lender that Schedule 1 attached hereto sets forth the audited
financial data and computations relating to Guarantor's compliance with the Net
Worth Requirement and the Liquidity Requirement, which data and computations, to
the best knowledge and belief of the undersigned, are true, complete and
correct.

                  The undersigned certifies that he/she is authorized to execute
and deliver this Certificate on behalf of Guarantor.

                  WITNESS my hand this _____ day of _______________, ____.



                                       ----------------------------------------
                                       Name:


                                       2


                                    EXHIBIT F

                              AUTHORIZATION LETTER




                                                     May ___, 2005


[Name and address of Administrative Agent]


                  Re:      Revolving Loan Agreement dated as of May ___, 2005
                           (the "Loan Agreement"; capitalized terms not
                           otherwise defined herein shall have the meanings
                           ascribed to such terms in the Loan Agreement) among
                           us, as Borrower, the Lenders named therein, and you,
                           as Administrative Agent for said Lenders
                           -----------------------------------------------------
Dear Sir/Madam:

         In connection with the captioned Loan Agreement, we hereby designate
any of the following persons to give to you instructions, including notices
required pursuant to the Loan Agreement, orally, by telephone or teleprocess, or
in writing:

                  Michael Nelsen
                  Robert Masters
                  Richard Hartmann

         Instructions may be honored on the oral, telephonic, teleprocess or
written instructions of anyone purporting to be any one of the above designated
persons even if the instructions are for the benefit of the person delivering
them. We will furnish you with written confirmation of each such instruction
signed by any person designated above (including any telecopy which appears to
bear the signature of any person designated above) on the same day that the
instruction is provided to you, but your responsibility with respect to any
instruction shall not be affected by your failure to receive such confirmation
or by its contents.

         You and Lenders shall be fully protected in, and shall incur no
liability to us for, acting upon any instructions which you in good faith
believe to have been given by any person designated above, and in no event shall
you or Lenders be liable for special, consequential or punitive damages. In
addition, we agree to hold you and Lenders and your and their respective agents
harmless from any and all liability, loss and expense arising directly or
indirectly out of instructions that we provide to you in connection with the
Loan Agreement except for liability, loss or expense occasioned by your gross
negligence or willful misconduct.





         Upon notice to us, you may, at your option, refuse to execute any
instruction, or part thereof, without incurring any responsibility for any loss,
liability or expense arising out of such refusal if you in good faith believe
that the person delivering the instruction is not one of the persons designated
above or if the instruction is not accompanied by an authentication method that
we have agreed to in writing.

         We will promptly notify you in writing of any change in the persons
designated above and, until you have actually received such written notice and
have had a reasonable opportunity to act upon it, you are authorized to act upon
instructions, even though the person delivering them may no longer be
authorized.

                                        Very truly yours,

                                        [BORROWERS]


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


                                       2


                                    EXHIBIT G

                              SOLVENCY CERTIFICATE


         The person executing this certificate is the Senior Vice President
and/or Chief Financial Officer of Acadia Realty Trust, the General Partner of
Acadia Realty Limited Partnership, sole member of Acadia Property Holdings, LLC,
the General Partner of RD _______________, a ____________ ("Borrower"), and is
familiar with its properties, assets and businesses, and is duly authorized to
execute this certificate on behalf of Borrower pursuant to Section 4.01(2) of
the Revolving Loan Agreement dated the date hereof (the "Loan Agreement") among
Borrower along with certain affiliated co-borrowers, the lenders party thereto
(each a "Lender" and collectively, "Lenders") and Fleet National Bank, a Bank of
America company, as administrative agent for Lenders (in such capacity, together
with its successors in such capacity, "Administrative Agent"). In executing this
Certificate, such person is acting solely in his or her capacity as the Senior
Vice President and/or Chief Financial Officer of Borrower, and not in his or her
individual capacity. Unless otherwise defined herein, terms defined in the Loan
Agreement are used herein as therein defined.

         The undersigned further certifies that he has carefully reviewed the
Loan Agreement and the other Loan Documents and the contents of this Certificate
and, in connection herewith, has made such investigation and inquiries as he
deems reasonably necessary and prudent therefor. The undersigned further
certifies that the financial information and assumptions which underlie and form
the basis for the representations made in this Certificate were reasonable when
made and were made in good faith and continue to be reasonable as of the date
hereof.

         The undersigned understands that Administrative Agent and Lenders are
relying on the truth and accuracy of this Certificate in connection with the
transactions contemplated by the Loan Agreement.

         The undersigned certifies that Borrower is Solvent.

         IN WITNESS WHEREOF, the undersigned has executed this Certificate on
May 26, 2005.


                                       -----------------------------------------

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





                                   SCHEDULE A


                                                 Annual Loan Amount Reduction/
Payment Date                                         Amortization Payment
- ------------                                     -----------------------------

June 1, 2006                                                $850,000
June 1, 2007                                                 920,000
June 1, 2008                                               1,000,000
June 1, 2009                                               1,080,000
June 1, 2010                                               1,175,000
June 1, 2011                                               1,265,000
June 1, 2012                                               1,375,000





                                TABLE OF CONTENTS


                                                                                                     Page
                                                                                                     ----
                           
ARTICLE I                      DEFINITIONS AND RULES OF CONSTRUCTION....................................1
         Section 1.01.         Definitions..............................................................1
         Section 1.02.         Accounting Terms........................................................12
         Section 1.03.         Computation of Time Periods.............................................12
         Section 1.04.         Rules of Construction...................................................13

ARTICLE II                     THE LOAN................................................................13
         Section 2.01.         Generally...............................................................13
         Section 2.02.         Nature of Lenders' Obligations..........................................13
         Section 2.03.         Purpose.................................................................13
         Section 2.04.         Advances................................................................14
         Section 2.05.         Procedure for Advance...................................................14
         Section 2.06.         Notes...................................................................14
         Section 2.07.         Payments and Distributions; Certain Consequences of
                               Delinquent Lender Status................................................15
         Section 2.08.         Interest................................................................16
         Section 2.09.         Limitation on Number of Interest Periods................................17
         Section 2.10.         Conversions of Interest Rate............................................17
         Section 2.11.         Inapplicability of LIBO Based Rate......................................17
         Section 2.12.         Late Payment Premium....................................................18
         Section 2.13.         Voluntary Prepayments...................................................18
         Section 2.14.         Annual Commitment Reduction/Required Amortization.......................18
         Section 2.15.         Nature of Lenders' Obligations; Borrower's Rights and
                               Obligations in Event a Lender Fails to Make an
                               Advance.................................................................18

ARTICLE III                    YIELD MAINTENANCE ETC...................................................19
         Section 3.01.         Additional Costs and Other Effects of Regulatory Changes; Taxes.........19
         Section 3.02.         Limitations on Availability of LIBO Based Rate..........................20
         Section 3.03.         Certain Compensation....................................................20
         Section 3.04.         "Lender" to Include Participants........................................21

ARTICLE IV                     CONDITIONS PRECEDENT....................................................21
         Section 4.01.         Conditions Precedent to Loan............................................21
         Section 4.02.         Conditions to Advances After the Initial Advance........................25

ARTICLE V                      REPRESENTATIONS AND WARRANTIES..........................................26
         Section 5.01.         Due Formation, Power and Authority......................................26
         Section 5.02.         Legally Enforceable Agreements..........................................27
         Section 5.03.         Financial Statements....................................................27

                                       i




                                                                                                     Page
                                                                                                     ----
                           
         Section 5.04.         Compliance With Laws; Payment of Taxes..................................27
         Section 5.05.         Litigation..............................................................27
         Section 5.06.         No Conflicts or Defaults................................................27
         Section 5.07.         Solvency................................................................27
         Section 5.08.         Governmental Regulation.................................................28
         Section 5.09.         Insurance...............................................................28
         Section 5.10.         ERISA...................................................................28
         Section 5.11.         Other Documents.........................................................28
         Section 5.12.         No Defaults.............................................................28
         Section 5.13.         Accuracy of Information; Full Disclosure................................28
         Section 5.14.         Separate Tax and Zoning Lot.............................................29
         Section 5.15.         The Improvements........................................................29
         Section 5.16.         Utility Services........................................................29
         Section 5.17.         Creation of Liens.......................................................29
         Section 5.18.         Roads...................................................................29
         Section 5.19.         Requisition as Reaffirmation............................................29
         Section 5.20.         Patriot Act.............................................................29

ARTICLE VI                     COVENANTS OF BORROWER...................................................30
         Section 6.01.         Compliance with Laws; Payment of Taxes..................................30
         Section 6.02.         Leases and Premises Documents...........................................31
         Section 6.03.         Inspection Fee..........................................................31
         Section 6.04.         Continuing Accuracy of Representations and Warranties...................31
         Section 6.05.         Covenants, Restrictions and Easements...................................31
         Section 6.06.         Financial Covenants.....................................................31
         Section 6.07.         Payment of Costs........................................................31
         Section 6.08.         Brokers.................................................................32
         Section 6.09.         Correction of Defects...................................................32
         Section 6.10.         Unused Fee..............................................................32
         Section 6.11.         Reporting and Miscellaneous Document Requirements.......................32
         Section 6.12.         Specified Environmental Matters.........................................34

ARTICLE VII                    ADMINISTRATIVE AGENT; RELATIONS AMONG LENDERS...........................35
         Section 7.01.         Appointment, Powers and Immunities of Administrative Agent..............35
         Section 7.02.         Reliance by Administrative Agent........................................36
         Section 7.03.         Defaults................................................................36
         Section 7.04.         Rights of Administrative Agent as Lender................................36
         Section 7.05.         Sharing of Costs by Lenders; Indemnification of Administrative Agent....37
         Section 7.06.         Non-Reliance on Administrative Agent and Other Lenders..................37
         Section 7.07.         Failure of Administrative Agent to Act..................................38
         Section 7.08.         Resignation or Removal of Administrative Agent..........................38

                                       ii




                                                                                                     Page
                                                                                                     ----
                           
         Section 7.09.         Amendments Concerning Agency Function...................................39
         Section 7.10.         Liability of Administrative Agent.......................................39
         Section 7.11.         Transfer of Agency Function.............................................39
         Section 7.12.         Non-Receipt of Funds by Administrative Agent; Adjustments...............39
         Section 7.13.         Withholding Taxes.......................................................40
         Section 7.14.         Sharing of Payments among Lenders.......................................40
         Section 7.15.         Possession of Documents.................................................40
         Section 7.16.         Effect of a Lender's Failure to Make an Advance.........................40
         Section 7.17.         Cure by Delinquent Lender...............................................43
         Section 7.18.         Delinquent Lender Not Excused...........................................43
         Section 7.19.         Notices Regarding Delinquent Lender.....................................44
         Section 7.20.         Replacement Lender......................................................44

ARTICLE VIII                   GENERAL CONDITIONS AND PROVISIONS.......................................45
         Section 8.01.         Disbursement Not Waiver.................................................45
         Section 8.02.         No Third-Party Beneficiaries............................................45
         Section 8.03.         Documentation Etc. Satisfactory.........................................45
         Section 8.04.         Lender's Determination Conclusive.......................................45
         Section 8.05.         Notices.................................................................45
         Section 8.06.         Amendments and Waivers..................................................46
         Section 8.07.         Assignment; Participation...............................................46
         Section 8.08.         Setoff..................................................................48
         Section 8.09.         Successors and Assigns..................................................48
         Section 8.10.         Severability............................................................48
         Section 8.11.         Non-Waiver; Remedies Cumulative.........................................49
         Section 8.12.         Certain Waivers.........................................................49
         Section 8.13.         Expenses; Indemnification...............................................49
         Section 8.14.         Gross-Up For Taxes......................................................50
         Section 8.15.         Counterparts............................................................51
         Section 8.16.         Governing Law; Jurisdiction.............................................51
         Section 8.17.         Integration.............................................................51
         Section 8.18.         Releases................................................................51
         Section 8.19.         Exculpation.............................................................52
         Section 8.20.         Letters of Credit.......................................................53
         Section 8.21.         Concerning Irrevocable Authorizations...................................54
         Section 8.22.         Usury...................................................................54
         Section 8.23.         Documentation Satisfactory..............................................55


                                      iii


EXHIBITS                                                                   Page
- --------                                                                   ----

A        Assignment and Assumption Agreement
B        Lease Assignment Letter
C        Contents of Opinion Letters
D        Note
E-1      Quarterly Financial Covenant Compliance Certificate
E-2      Annual Financial Covenant Compliance Certificate
F        Authorization Letter
G        Solvency Certificate

                                       iv




                            ACADIA CRESCENT PLAZA LLC
                                   (Mortgagor)

                                       to

                   GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
                                   (Mortgagee)




                    MORTGAGE, ASSIGNMENT OF LEASES AND RENTS
                             AND SECURITY AGREEMENT




                           Dated: As of August 31,2005


             Property Location:   715 Crescent Street Brockton,
                                  Massachusetts

               DOCUMENT PREPARED BY AND WHEN RECORDED, RETURN TO:

                                Kaye Scholer LLP
                                 425 Park Avenue
                          New York, New York 10022-3598
                        Attention: Stephen Gliatta, Esq.













              MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AN SECURITY
                                    AGREEMENT


         THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT
(herein "INSTRUMENT") is made as of August 31, 2005, and is given by the
mortgagor, ACADIA CRESCENT PLAZA LLC, a Delaware limited liability company whose
address is c/o Acadia Realty Trust, 1311 Mamaroneck Avenue, White Plains, New
York 10605, (herein "BORROWER"), to the mortgagee, GREENWICH. CAPITAL FINANCIAL
PRODUCTS, INC., a corporation organized and existing under the laws of the state
of Delaware, whose address is 600 Steamboat Road, Greenwich, Connecticut 06830,
together with its successors, assigns and transferees (herein "LENDER").

                                    RECITALS

                  A. Lender is making a secured loan to Borrower in the original
principal amount of $17,600,000 (the "LOAN"). The Loan is evidenced by that
certain Promissory Note dated the date hereof made by Borrower to Lender in such
principal amount (as the same may be amended, modified, restated, severed,
consolidated, renewed, replaced, or supplemented from time to time, the "Note").

         BORROWER, in consideration of the indebtedness herein recited,
irrevocably grants, conveys, mortgages and assigns to Lender WITH MORTGAGE
COVENANTS, WITH STATUTORY POWER OF SALE AND RIGHTS OF ENTRY AND POSSESSION, THE
following described property located in the County of Plymouth, State of
Massachusetts, and more particularly described on Exhibit "A" attached hereto
and incorporated herein by reference for all purposes.

         TOGETHER with all buildings, improvements and tenements now or
hereafter erected on the property, and all heretofore or hereafter vacated
alleys and streets abutting the property, and all easements, rights,
appurtenances, rents (subject however to the assignment of rents to Lender
herein), royalties, mineral, oil and gas rights and profits, water, water
rights, and water stock appurtenant to the property, and all fixtures,
machinery, equipment, engines, boilers, incinerators, building materials,
appliances and goods of every nature whatsoever now or hereafter located in, or
on, or used, or intended to be used in connection with the property, including,
but not limited to, those for the purposes of supplying or distributing heating,
cooling, electricity, gas, water, air and light; and all elevators, and related
machinery and equipment, fire prevention and extinguishing apparatus, security
and access control apparatus, plumbing, bath tubs, water heaters, water closets,
sinks, ranges, stoves, refrigerators, dishwashers, disposals, washers, dryers,
awnings, storm windows, storm doors, screens, blinds, shades, curtains and
curtain rods, mirrors, cabinets, paneling, rugs, attached floor coverings,
furniture, pictures, antennas, trees and plants, tax refunds, trade names,
licenses, permits, Borrower's rights to insurance proceeds, unearned insurance
premiums and chooses in action; all of which, including replacements and
additions thereto and substitutions therefor, shall be deemed to be and remain a
part of the real property covered by this Instrument; and all of the foregoing,
together with said property are herein referred to as the "PROPERTY";








         TOGETHER with all right, title and interest in, to and under any and
all leases now or hereinafter in existence (as amended or supplemented from time
to time) and covering space in or applicable to the Property (hereinafter
referred to collectively as the "Leases" and singularly as a "LEASE"), together
with all rents, earnings, income, profits, benefits and advantages arising from
the Property and from said Leases and all other sums due or to become due under
and pursuant thereto, and together with any and all guarantees of or under any
of said Leases, and together with all rights, powers, privileges, options and
other benefits of Borrower as lessor under the Leases, including, without
limitation, the immediate and continuing right to receive and collect all rents,
income, revenues, issues, profits, condemnation awards, insurance proceeds,
moneys and security payable or receivable under the Leases or pursuant to any of
the provisions thereof, whether as rent or otherwise, the right to accept or
reject any offer made by any tenant pursuant to its Lease to purchase the
Property and any other property subject to the Lease as therein provided and to
perform all other necessary or appropriate acts with respect to such Leases as
agent and attorney-in-fact for Borrower, and the right to make all waivers and
agreements, to give and receive all notices, consents and releases, to take such
action upon the happening of a default under any Lease, including the
commencement, conduct and consummation of proceedings at law or in equity as
shall be permitted under any provision of any Lease or by any law, and to do any
and all other things whatsoever which the Borrower is or may become entitled to
do under any such Lease together with all accounts receivable, contract rights,
franchises, interests, estates or other claims, both at law and in equity,
relating to the Property, to the extent not included in rent earnings and income
under any of the Leases;

         TOGETHER with all right, title and interest in, to and under any and
all reserve, deposit or escrow accounts (the "ACCOUNTS") made pursuant to any
loan document made between Borrower and Lender with respect to the Property,
together with all income, profits, benefits and advantages arising therefrom,
and together with all rights, powers, privileges, options and other benefits of
Borrower under the Accounts, and together with the right to do any and all other
things whatsoever which the Borrower is or may become entitled to do under the
Accounts;

         TOGETHER with all agreements, contracts, certificates, guaranties,
warranties, instruments, franchises, permits, licenses, plans, specifications
and other documents, now or hereafter entered into, and all rights therein and
thereto, pertaining to the use, occupancy, construction, management or operation
of the Property and any part thereof and any improvements or respecting any
business or activity conducted on the Property and any part thereof and all
right, title and interest of Borrower therein, including the right to receive
and collect any sums payable to Borrower thereunder and all deposits or other
security or advance payments made" by Borrower with respect to any of the
services related to the Property or the operation thereof;

         TOGETHER with 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

         TOGETHER with any and all proceeds resulting or arising from any of the
foregoing (the Property, the Leases, the Accounts, and all other property,
whether real, personal, tangible, or intangible, described above, and all
proceeds thereof, may be referred to collectively as the "COLLATERAL").





                                        2







         THIS INSTRUMENT SECURES TO LENDER (a) the repayment of the indebtedness
evidenced by the Note in the principal sum of SEVENTEEN MILLION SIX HUNDRED
THOUSAND AND NO1100 DOLLARS $17,6000,000 (the "Principal"), with interest
thereon, with the balance of the indebtedness, if not sooner paid, due and
payable on September 6, 2015 (the "MATURITY DATE"), and all renewals, extensions
and modifications thereof; (b) the performance of the covenants and agreements
of Borrower contained in an Environmental Indemnity Agreement (herein so-called)
between Lender and Borrower dated of even date herewith; (c) the payment of all
other sums, with interest thereon, advanced by Lender in accordance herewith to
protect the security of this Instrument; and (d) the performance of the
covenants and agreements of Borrower herein contained, or contained in any other
Loan Document, INCLUDING BORROWER'S COVENANT TO REPAY ALL FUTURE ADVANCES (the
Note, this Instrument, and all other documents or instruments given by Borrower
or others and accepted by Lender for purposes of evidencing, securing,
perfecting, or guaranteeing the indebtedness evidenced by the Note may be
referred to as the "LOAN DOCUMENTS"). Without limitation of the foregoing, the
following documents and instruments of even date herewith are also Loan
Documents: (i) Assignment of Leases and Rents from Borrower to Lender, (ii)
Assignment of Agreements, Licenses, Permits and Contracts from Borrower to
Lender, (iii) the Clearing Account Agreement (the "CLEARING ACCOUNT AGREEMENT")
among Borrower, Lender, Acadia Realty Limited Partnership ("MANAGER") and Bank
of America, N.A., (iv) the Deposit Account Agreement (the "DEPOSIT ACCOUNT
AGREEMENT") AMONG Borrower, Lender, Manager and Deposit Bank, (v) the Guaranty
of Recourse Obligations (the "GUARANTY") made by Acadia Realty Limited
Partnership, a Delaware limited partnership ("GUARANTOR"), (vi) the Certificate
of Borrower and (vii) Environmental Indemnity Agreement made by Borrower for the
benefit of Lender (the "ENVIRONMENTAL INDEMNITY AGREEMENT"), AS each of the
foregoing may be (and each of the foregoing defined terms shall refer to such
documents as they may be) amended, restated, replaced, supplemented or otherwise
modified from time to time.

         Borrower covenants that Borrower is lawfully seized of the estate
hereby conveyed and has the right to mortgage, grant, convey and assign the
Property, that the Property is unencumbered, and that Borrower will warrant and
defend generally the title to the Property against all claims and demands,
subject to any easements and restrictions listed in a schedule of exceptions to
coverage in any title insurance policy insuring Lender's interest in the
Property.

         Borrower represents, warrants, covenants and agrees in favor of Lender
as follows:

         SECTION 1. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall promptly
pay when due the principal of and interest on the indebtedness evidenced by the
Note, any prepayment and late charges provided in the Note and all other sums
secured by this Instrument.

         SECTION 2. INTENTIONALLY DELETED.

         SECTION 3. APPLICATION OF PAYMENTS. Lender may apply any payments
received from or on behalf of Borrower to any of the obligations of Borrower
then due under the Loan Documents, in any order determined by Lender.



                                        3







         SECTION 4. CHARGES; LIENS. Borrower shall pay all rents, taxes, charges
assessments and impositions attributable to the Property (collectively "Taxes")
when due. Unless Lender is paying such Taxes in accordance with Section 25,
Borrower shall promptly furnish to Lender all notices of amounts due under this
Section, and in the event Borrower shall make payment directly, Borrower shall
promptly furnish to Lender receipts evidencing such payments. Except only for
the liens and security interests in favor of Lender under this Instrument and
the other Loan Documents, which Borrower shall pay and discharge in accordance
with the Loan Documents, Borrower shall promptly discharge any lien encumbering
all or any portion of or interest in the Property (unless such lien is bonded
within 30 days after Borrower first receives notice of such lien), irrespective
of the priority of the same. Borrower shall pay, when due, the claims of all
persons supplying labor or materials to or in connection with the Property
(unless such claims are the subject of a bona fide dispute in which Borrower is
contesting the amount or validity thereof).

         SECTION 5. HAZARD INSURANCE. Borrower shall at all times keep the
improvements now existing or hereafter erected on the Property insured against
all losses, hazards, casualties, liabilities and contingencies as Lender shall
reasonably require and in such amounts and for such periods as Lender shall
reasonably require. Borrower shall purchase and maintain policies of insurance
with respect to the Property in such amounts and covering such risks as shall be
satisfactory to Lender, including, but not limited to, the following:

                  (a) Property damage insurance covering loss or damage to the
Property caused by fire, lightning, hail, windstorm, explosion, hurricane (to
the extent available), vandalism, malicious mischief, and, if available and
subject to subsection (i) below, coverage for damage or destruction caused by
the acts of "Terrorists" (or such policies shall have no exclusion from coverage
with respect thereto) and such other losses, hazards, casualties, liabilities
and contingencies as are normally and usually covered by fire policies in effect
where the Property is located endorsed to include all of the extended coverage
perils and other broad form perils, including the standard "all risks" clauses.
Such policy shall be in an amount not less than that necessary to comply with
any coinsurance percentage stipulated in the policy, but not less than 100% of
the full replacement cost of the improvements on the Property (without any
deduction for depreciation) and shall contain a replacement cost endorsement.
The deductible under such policy, if any, shall not exceed the lesser of five
percent (5%) of Net Operating Income or $25,000. Further, if any of the
improvements or the use of the Property shall at any time constitute legal
nonconforming structures or uses under current zoning ordinances, such policy
shall contain an "Ordinance or Law Coverage" or "Enforcement" endorsement
providing coverage for demolition, increased cost of construction and inability
to rebuild.

                  (b) Broad form boiler and machinery insurance in an amount
equal to the lesser of 100% of the full replacement cost of the building
(without any deduction for depreciation) in which the boiler or similar vessel
is located, or $2,000,000. In addition, Lender may require a rider to such
policy to extend such coverage to electrical machinery and equipment, air
conditioning, refrigeration, and mechanical objects!!

                  (c) If the Property is in an area prone to geological
phenomena, including, but not limited to, sinkholes, mine subsidence or
earthquakes, insurance covering such risks in an amount equal to 100% of the
full replacement cost of the improvements on the Property (without any deduction
for depreciation), and with a maximum permissible deductible equal to the lesser
of $25,000 or 10% of the face value of the policy.





                                       4





                  (d) Flood insurance if the Property is in an area now or
hereafter designated by the Federal Emergency Management Agency as a Zone "A" &
"V" Special Hazard Area, or such other Special Hazard Area if Lender so requires
in its sole discretion. Such policy shall be in an amount equal to 100% of the
full replacement cost of the improvements on the Property (without any deduction
for depreciation), and shall have a maximum permissible deductible of $3,000.

                  (e) Business interruption or rent loss insurance in an amount
equal to the gross income or rentals from the Property for an indemnity period
of eighteen months, such amount being adjusted annually.

                  (f) During any period of reconstruction, renovation or
alteration of the Property in excess of 10% of the Note, a completed value, "All
Risks" Builders Risk form or "Course of Construction" insurance policy in
non-reporting form and in an amount satisfactory to Lender in Lender's sole
discretion.

                  (g) Commercial General Liability insurance covering bodily
injury and death in an amount not less than $1,000,000 per occurrence and
$2,000,000 in the aggregate with no deductible, together with at least
$25,000,000 excess and/or umbrella liability insurance for any and all claims.

                  (h) If required by applicable state laws, worker's
compensation or employer's liability insurance in accordance with such laws.

                  (i) Notwithstanding anything in subsection (a) above to the
contrary, Borrower shall be required to obtain and maintain coverage in its
property insurance policy (or by a separate policy) against loss or damage by
terrorist acts provided that such coverage is available. Borrower shall obtain
such coverage from a carrier which otherwise satisfies the rating criteria
specified in this Section 5 (a "QUALIFIED CARRIER") or in the event that such
coverage is not available from a Qualified Carrier, Borrower shall obtain such
coverage from the highest rated insurance company providing such coverage. If
such coverage with respect to terrorist acts is available as aforesaid, Borrower
shall obtain and maintain such coverage in an amount equal to 100% of the "Full
Replacement Cost" of the Property.

                  (j) Such other insurance and endorsements, if any, as Lender
may reasonably require from time to time, or which are required by the Loan
Documents.

         Each carrier providing any insurance, or portion thereof, required by
this Section shall be issued by companies approved by Lender and licensed to do
business in the State, with a claims paying ability rating of "A" or better by
S&P (and the equivalent by any other Rating Agency) and a rating of A:X or
better in the current Best's Insurance Reports; provided, that, the liability
insurance required under paragraph (g) of this Section shall be issued by
companies approved by Lender and licensed to do business in the State, with a
claims paying ability rating of "A" or better by S&P (and the equivalent by any
other Rating Agency) and a rating of A:X or better in the current Best's
Insurance Reports. Borrower shall cause all insurance (except general public




                                        5







liability insurance) carried in accordance with this Section to be payable to
Lender as a mortgagee and not as a coinsured, and, in the case of all policies
of insurance carried by each lessee for the benefit of Borrower, if any, to
cause all such policies to be payable to Lender as Lender's interest may appear.
All premiums on insurance policies shall be paid, in the manner provided under
Section 25(d) hereof, or in such other inane as Lender may designate in writing.

         All insurance policies and renewals thereof (i) shall be in a form
acceptable to Lender, (ii) shall provide for a term of not less than one year,
(iii) shall provide by way of endorsement, rider or otherwise that such
insurance policy shall not be canceled, endorsed, altered, or reissued to effect
a change in coverage unless such insurer shall have first given Lender 30 days
prior written notice thereof, (iv) shall include a standard mortgagee clause in
favor of and in form acceptable to Lender, (v) shall provide for claims to be
made on an occurrence basis, except that boiler and machinery coverage may be
made on an accident basis, and (vi) shall contain an agreed value clause updated
annually (if the amount of coverage under such policy is based upon the
replacement cost of the Property). All property damage insurance policies
(except for flood and earthquake policies) must automatically reinstate after
each loss.

         Notwithstanding anything to the contrary contained herein, the
insurance coverages required under this Section 5 may be effected under a
blanket policy or policies covering the Property and other property and assets
not constituting a part of the security for the Loan; provided that Borrower
shall provide evidence reasonably satisfactory to Lender that the insurance
premiums for the Property are separately allocated under such policy to the
Property and that (i) payment of such allocated amount shall maintain the
effectiveness of such policy as to the Property notwithstanding the failure of
payment of any other portion of premiums, and (ii) overall insurance limits will
under no circumstance limit the amount that will be paid in respect of the
Property, and provided further that any such blanket policy shall contain an
amendment setting forth that (A) the aggregate limit under such policy shall
apply separately to each property covered thereunder, and (B) unless otherwise
agreed to by Lender (which consent shall not be unreasonably withheld), the
limit of such policy shall be a "true blanket limit" and not limited by a
schedule of values for the properties covered thereby (any such blanket policies
which complies with such conditions, an "ACCEPTABLE BLANKET POLICY").

         Lender shall have the right to hold the policies, and Borrower shall
promptly furnish to Lender all renewal notices and all receipts of paid
premiums. Not less than five (5) days prior to the expiration date of any
insurance policy required hereunder, a certificate of insurance evidencing the
renewal of such policy, together with evidence satisfactory to Lender of payment
in full of the annual premium therefor, shall be delivered by Borrower to
Lender. Not more than forty-five (45) days after to the expiration date of any
insurance policy required hereunder, Borrower shall deliver to Lender a renewal
insurance policy in form satisfactory to Lender.

         If the Property is damaged or destroyed, in whole or in part, by fire
or other casualty (a "Casualty"), Borrower shall give immediate written notice
thereof to Lender and to the insurance carrier. If a Casualty covered by any of
the policies of insurance (an "INSURED CASUALTY") occurs where the loss does not
exceed $1,000,000, provided no Event of Default has occurred and is continuing,
Borrower may settle and adjust any claim without the prior consent of Lender;
provided such adjustment is carried out in a competent and timely manner, and
Borrower is hereby authorized to collect and receipt for the insurance proceeds.





                                        6







In the event of an Insured Casualty where the loss equals or exceeds $1,000,000
(a "Significant Casualty"), Borrower may settle and adjust any claim with the
prior consent of Lender (which consent shall not be unreasonably withheld or
delayed) unless an Event of Default has occurred and is continuing in which case
Lender may settle and adjust any claim without the consent of Borrower and agree
with the insurer(s) on the amount to be paid on the loss, which settlement and
adjustment shall be in Lender's sole and absolute discretion. The proceeds with
respect to any Significant Casualty shall be due and payable solely to Lender
and held by Lender in the Casualty/Condemnation Subaccount and disbursed in
accordance herewith. If Borrower or any party other than Lender is a payee on
any check representing insurance proceeds with respect to a Significant
Casualty, Borrower shall immediately endorse, and cause all such third parties
to endorse, such check payable to the order of Lender. Borrower hereby
irrevocably appoints Lender as its atton-ley-infact, coupled with an interest,
to endorse such check payable to the order of Lender. Borrower further
authorizes Lender, at Lender's option, (a) to hold the balance of such proceeds
with respect to any Significant Casualty to be used to reimburse Borrower for
the cost of reconstruction or repair of the Property or (b) subject to the
immediately following paragraph, to apply such proceeds to the payment of the
sums secured by this Instrument whether or not then due, in any order. The
expenses incurred by Lender in the settlement, adjustment and collection of any
insurance proceeds shall become part of the Debt and shall be reimbursed by
Borrower to Lender upon demand.

         Lender shall not exercise Lender's option to apply insurance proceeds
to the payment of the sums secured by this Instrument if all of the following
conditions are met: (i) no Event of Default has occurred which is then
continuing; (ii) Lender determines that there will be sufficient funds to
restore and repair the Property to the Pre-existing Condition (as hereinafter
defined); (iii) Lender agrees in writing that the rental income of the Property,
after restoration and repair of the Property to the Pre-existing Condition, will
be sufficient to meet all operating costs and other expenses, payments for
reserves and loan repayment obligations (including any obligations under any
permitted subordinate financing) relating to the Property and maintain a Debt
Service Coverage Ratio of at least 1.25 to 1.0; (iv) Lender determines that
restoration and repair of the Property to the Pre-existing Condition will be
completed within one year of the date of the loss or casualty to the Property,
but in no event later than six months prior to the Maturity Date; (v) less than
30 percent of the total floor area of the improvements has been damaged,
destroyed or rendered unusable as a result of such fire or other casualty; (vi)
tenant leases demising in the aggregate at least 65% of the total rentable space
at the Property in effect as of the date of the occurrence of such fire or other
casualty remain in full force and effect during and after the completion of the
restoration and repair of the Property; and (vii) Lender is reasonably satisfied
that the Property can be restored and repaired as nearly as possible to the
condition it was in immediately prior to such casualty and in compliance
with-all applicable zoning, building and other laws and codes (the "Pre-existing
Condition"). If Lender elects to make the insurance proceeds available for the
restoration and repair of the Property, Borrower agrees that, if at any time
during the restoration and repair, the cost of completing such restoration and
repair, as determined by Lender, exceeds the undisbursed insurance proceeds,
Borrower shall, immediately upon demand by Lender, deposit the amount of such
excess with Lender, and Lender shall first disburse such deposit to pay for the
costs of such restoration and repair on the same terms and conditions as the
insurance proceeds are disbursed.



                                        7






         If the insurance proceeds are held by Lender to reimburse Borrower for
the cost of restoration and repair of the Property, then Borrower shall restore
the Property to the equivalent of its original condition or such other condition
as Lender may approve in writing, and Borrower shall promptly begin such
restoration and at all times thereafter diligently prosecute such restoration to
completion. Lender may, at Lender's option, condition disbursement of said
proceeds on Lender's approval of such plans and specifications of an architect
satisfactory to Lender, contractor's cost estimates, architect's certificates,
waivers of liens, sworn statements of mechanics and materialmen and such other
evidence of costs, percentage completion of construction, application of
payments; and satisfaction of liens as Lender may reasonably require. If the
insurance proceeds are applied to the payment of the sums secured by this
Instrument, any such application of proceeds to principal shall not extend or
postpone the due dates of the monthly installments due under the Note, under
Section 25(d) hereof, or otherwise under the Loan Documents, or change the
amounts of such installments. If the Property is sold at foreclosure or pursuant
to power of sale or if Lender acquires title to the Property, Lender shall have
all of the right, title and interest of Borrower in and to any insurance
policies and unearned premiums thereon and in and to the proceeds resulting from
any damage to the Property prior to such sale or acquisition.

         SECTION 6. PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower (a) shall
not commit waste or permit impairment or deterioration of the Property, (b)
shall not abandon the Property, (c) shall restore or repair promptly and in a
good and workmanlike manner all or any part of the Property to the equivalent of
its original condition, or such other condition as Lender may approve in
writing, in the event of any damage, injury or loss thereto, whether or not
insurance proceeds are available to cover in whole or in part the costs of such
restoration or repair, (d) shall keep the Property, including improvements,
fixtures, equipment, machinery and appliances thereon in good repair and shall
replace fixtures, equipment, machinery and appliances on the Property when
necessary to keep such items in good repair, (e) shall comply with all laws,
ordinances, regulations and requirements of any governmental body applicable to
the Property, (f) shall provide for management of the Property by Acadia Realty
Limited Partnership, or otherwise provide for professional third-party
management of the Property by a commercial property manager with substantial
experience in managing properties of the applicable kind, and otherwise
satisfactory to Lender, pursuant to a contract approved by Lender in writing,
unless such requirement shall be waived by Lender in writing, (g) shall
generally operate and maintain the Property in a manner to ensure maximum
rentals, and (h) shall give notice in writing to Lender of and, unless otherwise
directed in writing by Lender, appear in and defend any action or proceeding
purporting to affect the Property, the security of this instrument or the rights
or powers of Lender. Neither Borrower nor any tenant or other person shall
remove, demolish or alter any improvement now existing or hereafter erected on
the Property or any fixture, equipment, machinery or appliance in or on the
Property except when incident to the replacement of fixtures, equipment,
machinery and appliances with items of like kind.

         SECTION 7. USE OF PROPERTY. Unless required by applicable law or unless
Lender has otherwise agreed in writing, Borrower shall not allow changes in the
use for which all or any part of the Property was intended at the time this
Instrument was executed. Borrower shall not subdivide the Property or initiate
or acquiesce in a change in the zoning classification of the Property without
Lender's prior written consent.



                                        8







         SECTION 8. PROTECTION OF LENDER'S SECURITY. If Borrower fails to
perform the covenants and agreements contained in this Instrument, or if any
action or proceeding is commenced which affects the Property or title thereto or
the interest of Lender therein, including, but not limited to, eminent domain,
insolvency, code enforcement, or arrangements or proceedings involving a
bankrupt or decedent, Lender, at Lender's option, may make such appearances,
disburse such sums and take such action as Lender deems necessary, in its sole
discretion, to protect Lender's interest, including, but not limited to, (i)
disbursement of attorney's fees, (ii) entry upon the Property to make repairs,
(iii) procurement of satisfactory insurance as provided herein, (iv) the payment
of any Taxes then due and payable, and (v) payment of any other amounts
contemplated in any of the Loan Documents. Any amounts disbursed by Lender
pursuant to this Section, with interest thereon, shall become additional
indebtedness of Borrower secured by this Instrument. Unless Borrower and Lender
agree to other terms of payment, such amounts shall be immediately due and
payable upon demand and shall bear interest from the date of disbursement at the
rate then applicable to principal under the Note unless collection from Borrower
of interest at such rate would be contrary to applicable law, in which event
such amounts shall bear interest at the highest rate which may be collected from
Borrower under applicable law. Nothing contained in this Section or elsewhere in
any of the Loan Documents shall require Lender to incur any expense or take any
action hereunder.

        SECTION 9. INSPECTION. Lender may make or cause to be made reasonable
entries upon and inspections of the Property including, but not limited to,
Phase I and/or Phase II environmental audits and inspections.

        SECTION 10. BOOKS AND RECORDS. Borrower shall keep and maintain at all
times at Borrower's address stated herein, or such other place as Lender may
approve in writing, complete and accurate books of accounts and records adequate
to reflect correctly the results of the operation of the Property and copies of
all written contracts, leases and other instruments which affect the Property.
Such books, records, contracts, leases and other instruments shall be subject to
examination and inspection at any reasonable time by Lender.

        Borrower shall furnish to Lender annually, within 120 days after each
calendar year, a complete copy of Borrower's annual financial statements
prepared as a compilation (without a review and without disclosures) by a "big
four" accounting firm or another independent certified public accountant
reasonably acceptable to Lender, each in accordance with GAAP or a federal
income tax basis of accounting, in either case, consistently applied, and
containing balance sheets and statements of profit and loss for Borrower and the
Property in such detail as Lender may reasonably request. Each such statement
(x) shall be in form and substance satisfactory to Lender, (y) shall set forth
the financial condition and the income and expenses for the Property for the
immediately preceding calendar year, including _statements of annual Net
Operating Income as well as (1) a list of commercial tenants, if any, occupying
more than twenty percent of the rentable space of the Property, (2) a breakdown
showing (a) the year in which each commercial Lease then in effect expires, and
(b) the percentage of rentable space covered by such commercial Lease as stated
in such Lease, and (z) shall be accompanied by an Officer's Certificate (as
defined in Section 25 hereof) certifying (1) that such statement is true,
correct, complete and accurate and presents fairly the financial condition of
the Property and has been prepared in accordance with GAAP or a federal income
tax basis of accounting, in either case, consistently applied, and (2) whether
there exists an Event of Default, and if so, the nature thereof, the period of
time it has existed and the action then being taken to remedy it.


                                        9







         On or before the 45th day after the end of each three-month fiscal
quarter of Borrower (which may include months for which reports shall have been
submitted under the prior sentence), Borrower shall deliver to Lender management
prepared financial statements for such quarter. Each set of such financial
statements (i) shall consist of an operating statement of income and expenses of
the Property, (ii) shall be in form and detail reasonably satisfactory to Lender
and (iii) shall be accompanied by an Officer's Certificate certifying that the
applicable statements are true, complete, and accurate and do not omit to state
any material information. All of such financial statements shall provide
information for the applicable month or quarter and on a year-to-date basis (and
at the end of the fourth quarter, for the year).

         Borrower shall furnish, together with the foregoing financial
statements and at any other time upon Lender's request, a rent schedule for the
Property, certified by Borrower, showing the name of each tenant, and for each
tenant, the space occupied, the lease expiration date, the rent payable and the
rent paid.

         In addition to the above delivery of financial statements and rent
schedule, Borrower shall deliver to Lender updated versions of such financial
statements at any other time upon Lender's request, including operating
statements of income and expenses of the Property. Borrower shall also furnish
to Lender, during any Cash Management Period, the Annual Budget in accordance
with Section 28(h) of this Instrument. Further, Borrower shall provide to
Lender, as soon as the same are available to Borrower, all financial statements
and sales reports received from any tenant at the Property.

         SECTION 11. CONDEMNATION. Borrower shall promptly give Lender notice of
the actual or threatened commencement of any condemnation or eminent domain
proceeding affecting the Property (a "CONDEMNATION") and shall deliver to Lender
copies of any and all papers served in connection with such Condemnation.
Following the occurrence of a Condemnation, Borrower, regardless of whether an
Award is available, shall promptly proceed to restore, repair, replace or
rebuild the Property in accordance with Legal Requirements to the extent
practicable to be of at least equal value and of substantially the same
character (and to have the same utility) as prior to such Condemnation. If a
Condemnation occurs where the award or payment in respect thereof (an "Award")
does not exceed $500,000 or which results in the taking of 5% or less of the
Property, provided no Event of Default has occurred and is continuing, Borrower
may make any compromise, adjustment or settlement in connection with such
Condemnation without the prior consent of Lender; provided such adjustment is
carried out in a competent and timely manner, and Borrower is hereby authorized
to collect and receipt for the Award. In the event of a Condemnation where the
Award is in excess of $500,000 or which results in the taking of more than 5% of
the Property, Lender is hereby irrevocably appointed as Borrower's
attorney-in-fact, coupled with an interest, with exclusive power to collect,
receive and retain any Award and, so long as no Event of Default is continuing,
with Borrower's consent (which consent shall not be unreasonably withheld or
delayed) to make any compromise, adjustment or settlement in connection with
such Condemnation. Borrower shall cause any Award that is payable to Borrower to
be paid directly to Lender. Lender shall hold such Award in the
Casualty/Condemnation Subaccount and disburse such Award in accordance with the
terms hereof.



                                       10






         Borrower authorizes Lender to apply such Award, after the deduction of
Lender's expenses incurred in the collection of such amounts, at Lender's
option, to restoration or repair of the Property or to payment of the sums
secured by this Instrument, whether or not then due, in the order determined by
Lender, with the balance, if any, to Borrower. Unless Borrower and Lender
otherwise agree in writing, any application of proceeds to principal shall not
extend or postpone the due date of the monthly installments due hereunder or
under any of the Loan Documents or change the amount of such installments.
Borrower agrees to execute such further evidence of assignment of any awards,
proceeds, damages or claims arising in connection with such condemnation or
taking as Lender may require.

         SECTION 12. BORROWER AND LIEN NOT RELEASED. From time to time, Lender
may, at Lender's option, without giving notice to or obtaining the consent of
Borrower, Borrower's successors or assigns or of any junior lienholder or
guarantors, without liability on Lender's part and notwithstanding Borrower's
breach of any covenant or agreement of Borrower in this Instrument, extend the
time for payment of said indebtedness or any part thereof, reduce the payments
thereon, release anyone liable on any of said indebtedness, accept a renewal
note or notes therefor, modify the terms and time of payment of said
indebtedness, release from the lien of this Instrument any part of the Property,
take or release other or additional security, reconvey any part of the Property,
consent to any map or plan of the Property, consent to the granting of any
easement, join in any extension or subordination agreement, and agree in writing
with Borrower to modify the rate of interest or period of amortization of the
Note or change the amount of the monthly installments payable thereunder. Any
actions taken by Lender pursuant to the terms of this Section shall not affect
the obligation of Borrower or Borrower's successors or assigns to pay the sums
secured by this Instrument and to observe the covenants of Borrower contained
herein, shall not affect the guaranty of any person, corporation, partnership or
other entity for payment of the indebtedness secured hereby, and shall not
affect the lien or priority of lien hereof on the Property. Borrower shall pay
Lender a reasonable service charge, together with such title insurance premiums
and attorney's fees as may be incurred at Lender's option, for any such action
if taken at Borrower's request.

         SECTION 13. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument
is intended to be a security agreement pursuant to the Uniform Commercial Code
for any of the items specified above as part of the Collateral which, under
applicable law, may be subject' to a security interest pursuant to the Uniform
Commercial Code, and Borrower hereby grants Lender a security interest in said
items. Borrower agrees that Lender may file this Instrument, or a reproduction
thereof, in the real estate records or other appropriate index, as a financing
statement for any of the items specified above as part of the Collateral. Any
reproduction of this Instrument or of any other security agreement or financing
statement shall be sufficient as a financing statement. In addition, Borrower
agrees to execute and deliver to Lender, upon Lender's request, any financing
statements, as well as extensions, renewals and amendments thereof, and
reproductions of this Instrument in such form as Lender may require to perfect a
security interest with respect to said items. Borrower shall pay all costs of
filing such financing statements and any extensions, renewals, amendments and
releases thereof, and shall pay all reasonable costs and expenses of any record
searches for financing statements Lender may reasonably require. Without the


                                       11








prior written consent of Lender, Borrower shall not create or suffer to be
created pursuant to the Uniform Commercial Code any other security interest in
said items, including replacements and additions thereto. Upon Borrower's breach
of any covenant or agreement of Borrower contained in this Instrument, including
the covenants to pay when due all sums secured by this Instrument, Lender shall
have the remedies of a secured party under the Uniform Commercial Code and, at
Lender's option, may also invoke the remedies provided herein or in any of the
Loan Documents, or pursuant to any applicable law as to such items. In
exercising any of said remedies, Lender may proceed against the items of real
property and any items of personal property specified above as part of the
Collateral separately or together and in any order whatsoever, without in any
way affecting the availability of Lender's remedies under the Uniform Commercial
Code or of the remedies provided herein or in any of the Loan Documents. For
purposes of the Security Agreement and the fixture filing, the Borrower shall
constitute the "DEBTOR" and shall have the address specified in the first
paragraph of this Instrument and the Lender shall constitute the "SECURITY
PARTY" and shall have the address specified in the first paragraph of this
Instrument.

         SECTION 14. LEASES OF THE PROPERTY. Borrower shall comply with and
observe Borrower's obligations as landlord under all leases of the Property or
any part thereof. Borrower will not lease any portion of the Property for any
use contrary to the existing character of the Property except with the prior
written approval of Lender. Borrower may execute or modify, without Lender's
prior written consent, any lease of space at the Property now existing or
hereafter made which affects less than 10,000 square feet of space at the
Property and provided the term of such lease is five years or less (an "EXEMPT
LEASE") provided such lease:

                           (i) is on a standard lease form pre-approved by
Lender;

                           (ii) is at a net effective rent (after taking into
account any free rent, construction allowances or other
concessions granted by landlord) no less than the current actual rent or fair
market rent then prevailing for similar properties and leases in the market
area;

                           (iii) contains rent or other concessions which are
legally required or are otherwise customary and reasonable for similar
properties and leases in the market area;

                           (iv) represents a bona fide arm's length transaction;

                           (v) does not permit any use which would violate any
provision of any existing lease or is otherwise inconsistent with the uses and
quality of existing tenants;

                           (vi) is provided to Lender within ten days after
execution;

                           (vii) as modified or amended does not become a lease
which fails to satisfy the criteria for an Exempt Lease pursuant to this
Section;

                           (viii) as modified or amended does not materially
modify the financial terms of Borrower's standard form of lease or materially
reduce the rights and remedies of the Borrower or Lender under said standard
lease;



                                       12






                           (ix) is subordinate by its terms to this Instrument
provided that Lender shall have agreed to provide such tenant with a
non-disturbance agreement in form and substance reasonably acceptable to Lender;
provides that the tenant thereunder is required to attorney to Lender, such
attornment to be effective upon Lender's acquisition of title to the Property;
that the tenant agrees to execute such further evidences of attornment as Lender
may from time to time request; that the attornment of the tenant shall not be
terminated by foreclosure; that in no event shall Lender, as holder of this
Instrument or as successor landlord, be liable to the tenant for any act or
omission of any prior landlord or for any liability or obligation of any prior
landlord occurring prior to the date that Lender or any subsequent owner acquire
title to the Property; and that Lender may, at Lender's option, accept or reject
such attornment.

        Borrower shall be required to obtain Lender's consent, which shall not
be unreasonably withheld, for the creation of any lease and subleases at the
Property other than an Exempt Lease. The request for approval of each such
proposed lease shall be made to Lender in writing and Borrower shall furnish to
Lender (and any loan servicer specified from time to time by Lender): (i) such
biographical and financial information about the proposed tenant as Lender may
reasonably require in conjunction with its review, (ii) a copy of the proposed
form of lease, and (iii) a summary of the material terms of such proposed lease
(including, without limitation, rental terms and the term of the proposed lease
and any options). Lender's failure to approve or disapprove any such lease or
sublease within ten (10) Business Days after Lender's receipt of such request
shall be deemed to constitute Lender's approval thereof.

        As to all leases other than Exempt Leases, Borrower shall not, without
the prior written consent of Lender (which shall not be unreasonably withheld),
(i) cancel, amend or modify any such lease, (ii) approve any assignment,
sublease or underlease of any such lease, or (iii) cancel or modify any
guaranty, or release any security deposit or letter of credit constituting
security pertaining to any such lease. Lender's failure to approve or disapprove
any of the matters described in the preceding sentence within ten (10) Business
Days after Lender's receipt of such request shall be deemed to constitute
Lender's approval thereof.

        Borrower shall promptly send Lender copies of any notices of default
received from the tenant under any lease; and will enforce (short of terminating
such lease) the performance by the tenant of the tenant's obligations under any
lease.

         Except for security deposits, no lease, whether an Exempt Lease or
otherwise, shall provide for payment of rent more than one month in advance, and
Borrower shall not under any circumstances collect any such rent more than one
month in advance.

         Borrower, at Lender's request, shall furnish Lender with executed
copies of all leases hereafter made of all or any part of the Property, and all
leases hereafter entered into (other than Exempt Leases) will be in form and
substance subject to the approval of Lender. All leases of the Property or a
separate agreement in recordable form and substance satisfactory to Lender shall
specifically provide that such leases are subordinate to this Instrument; that
the tenant attorns to Lender, such attornment to be effective upon Lender's
acquisition of title to the Property; that the tenant agrees to execute such
further evidences of attornment as Lender may from time to time request; that
the attornment of the tenant shall not be terminated by foreclosure; that in no
event shall Lender, as holder of this Instrument or as successor landlord, be

                                       13






liable to the tenant for any act or omission of any prior landlord or for any
liability or obligation of any prior landlord occurring prior to the date that
Lender or any subsequent owner acquire title to the Property; and that Lender
may, at Lender's option, accept or reject such attornment. Notwithstanding the
foregoing, Lender agrees to enter into a non-disturbance agreement with any
tenant at the Property, which agreement shall be in form and substance and on
terms and conditions reasonably acceptable to Lender. Except as otherwise
provided in this Section, Borrower shall not, without Lender's written consent,
(1) execute, modify, surrender or terminate, either orally or in writing, any
lease at the Property now existing or hereafter made of all or any part of the
Property, (2) permit an assignment or sublease of a lease, or (3) request or
consent to the subordination of any lease of all or any part of the Property to
any lien subordinate to this Instrument. Notwithstanding the foregoing and
provided that (i) no Event of Default is continuing and (ii) the total occupancy
level at the Property remains in excess of 92% (after giving effect to the
termination in question), Borrower may, without Lender's consent, terminate a
Lease which covers less than 7,000 rentable square feet provided that (i) the
tenant under such Lease is in default under such Lease and (ii) Borrower shall
give Lender not less than thirty (30) days prior written notice specifying the
date on which Borrower will terminate such Lease. If Borrower becomes aware that
any tenant proposes to do, or is doing, any act or thing which may give rise to
any right of set-off against rent, Borrower shall (i) take such steps as shall
be reasonably calculated to prevent the accrual of any right to a set-off
against rent, (ii) notify Lender thereof and of the amount of said set-offs, and
(iii) within ten days after such accrual, reimburse the tenant who shall have
acquired such right to set-off or take such other steps as shall effectively
discharge such set-off and as shall assure that rents thereafter due shall
continue to be payable without set-off or deduction.

Upon Lender's request, Borrower shall absolutely assign to Lender, by written
instrument satisfactory to Lender, all leases now existing or hereafter made of
all or any part of the Property and all security deposits made by tenants in
connection with such leases of the Property. Upon assignment by Borrower to
Lender of any leases of the Property, Lender shall have all of the rights and
powers possessed by Borrower prior to such assignment and Lender shall have the
right to modify, extend or terminate such existing leases and to execute new
leases, in Lender's sole discretion.

         SECTION 15. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN
BORROWER.

                  (a) As used in this Section 15 and elsewhere in this
Instrument, the following capitalized terms shall have the respective meanings
set forth below:

                      (i) "CONTROL": with respect to any Person, either (i)
ownership directly or indirectly of 49% or more of all equity interests in such
Person or (ii) the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, through the
ownership of voting securities, by contract or otherwise.

                      (ii) "Key Principals": Acadia Realty Limited Partnership,
a Delaware limited partnership, and Acadia Realty Trust, a Maryland real estate
investment trust,



                                       14







                           (iii) "PERMITTED ENCUMBRANCES": (i) the liens created
by the Loan Documents, (ii) all liens and other matters disclosed in Lender's
title insurance policy, (iii) liens, if any, for Taxes not yet due and payable
and not delinquent and (iv) any workers', mechanics' or other similar liens on
the Property provided that any such Lien is bonded or discharged within 30 days
after Borrower first receives notice of such lien and (v) such other title and
survey exceptions as Lender approves in writing in Lender's discretion.

                           (iv) "Permitted Transfers": (i) a Lease entered into
in accordance with the Loan Documents, (ii) a Permitted Encumbrance, (iii) a
Transfer and Assumption, (iv) provided that no Event of Default shall then
exist, (1) a Transfer of an indirect interest in Borrower other than the
membership interest held by Acadia Realty Limited Partnership (the "SOLE
MEMBER"), (2) a Transfer of publicly traded shares in Acadia Realty Trust or (3)
a Transfer of an interest in the Sole Member to any Person, in either case,
provided that (A) such Transfer shall not (x) cause the transferee (other than
any Key Principal), together with its Affiliates, to acquire Control of Borrower
or the Sole Member or to increase its direct or indirect interest in Borrower or
in the Sole Member to an amount which equals or exceeds 49% or (y) result in
Borrower or the Sole Member no longer being Controlled by any Key Principal, (B)
after giving effect to such Transfer, Key Principals (in the aggregate) shall
continue to own at least 51% of all equity interests (direct or indirect) in
Borrower, (C) Borrower shall give Lender notice of such Transfer together with
copies of all instruments effecting such Transfer not less than 10 days prior to
the date of such Transfer, and (D) the legal and financial structure of Borrower
and its members and the single purpose nature and bankruptcy remoteness of
Borrower and its members after such Transfer, shall satisfy Lender's then
current applicable underwriting criteria and requirements, (v) provided that no
Event of Default shall then exist, a Transfer of a direct or indirect interest
in Borrower or Sole Member that occurs by devise or bequest or by operation of
law upon the death of a natural person that was the holder of such interest to a
member of the immediate family of such interest holder or a trust established
for the benefit of such immediate family member, provided that (A) no such
Transfer shall result in a change of the day to day operations of the Property,
(B) Borrower shall give Lender notice of such Transfer together with copies of
all instruments effecting such Transfer not less than 20 days after the date of
such Transfer, (C) the legal and financial structure of Borrower and Sole
Member, and the single purpose nature and bankruptcy remoteness of Borrower and
Sole Member after such Transfer, shall satisfy Lender's then current applicable
underwriting criteria and requirements, (D) if any such Transfer would result in
a change of Control of Borrower or Sole Member and occurs prior to the
occurrence of a Secondary Market Transaction, such Transfer is approved by
Lender in writing within 30 Business Days after any such Transfer, and (E) if
any such Transfer would result in a change of Control of Borrower or Sole Member
and occurs after the occurrence of a Secondary Market Transaction, Borrower, at
Borrower's sole cost and expense, shall, within 30 Business Days after any such
Transfer, (a) deliver (or cause to be delivered) if required by Lender or any
Rating Agency a Rating Comfort Letter to Lender, (b) obtain the prior written
consent of Lender which shall not be unreasonably withheld and (c) reimburse
Lender for all reasonable expenses incurred by Lender in connection with such
Transfer, or (vi) provided that no Event of Default shall then exist, a Transfer
of a direct or indirect interest in Borrower or Sole Member to any Person (other
than any Key Principal) (the "New Sponsor"), pursuant to which, after giving
effect to such Transfer, the New Sponsor, together with its Affiliates, acquires
Control of Borrower or the Sole Member or holds a direct or indirect interest in
Borrower or in Sole Member in an amount equaling or exceeding 49% provided that
(A) Lender consents to such Transfer, which consent shall not be unreasonably


                                       15






withheld, (B) Borrower delivers to Lender evidence reasonably satisfactory to
Lender showing that, after giving effect to such Transfer, Borrower and Sole
Member remain in full compliance with Section 29 hereof, as the provisions
thereof may be modified by Lender taking into account the ownership structure of
New Sponsor and its Affiliates, (C) if the Loan (as defined in Section 32(e)
hereof), by itself or together with other loans, has been the subject of a
Secondary Market Transaction, then Lender shall have received a Rating Comfort
Letter from the applicable Rating Agencies, (D) if the Loan has not been the
subject of a Secondary Market Transaction, then Lender shall have determined in
its reasonable discretion (taking into consideration such factors as Lender may
determine, including the attributes of the loan pool in which the Loan might
reasonably be expected to be securitized) that no rating for any securities that
would be issued in connection with such securitization will be diminished,
qualified, or withheld by reason of such Transfer to New Sponsor, (E) the
identity, experience, and financial condition of the New Sponsor shall be
satisfactory to Lender in its reasonable discretion, (F) a replacement
guarantor(s) (the identity, experience and financial condition of which shall be
satisfactory to Lender in its reasonable discretion) shall execute and deliver
to Lender any and all documents reasonably required by Lender, in form and
substance reasonably required by Lender, in Lender's sole discretion, after
which Guarantor shall be released from all liabilities and obligations under the
Guaranty, and (G) counsel to New Sponsor and replacement guarantor(s) shall
deliver to Lender opinions in form and substance satisfactory to Lender as to
such matters as Lender shall reasonably require, which may include opinions as
to substantially the same matters as were required in connection with the
origination of the Loan.

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

                           (vi) "RATING AGENCY": each of Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), Moody's
Investors Service, Inc. ("MOODY'S"), and Fitch IBCA Duff & Phelps ("Fitch") or
any other nationally-recognized statistical rating organization to the extent
any of the foregoing have been engaged by Lender or its designee in connection
with or in anticipation of any Secondary Market Transaction.

                           (vii) "RATING COMFORT LETTER": a letter issued by
each of the applicable Rating Agencies which confirms that the taking of the
action referenced to therein will not result in any qualification, withdrawal or
downgrading of any existing ratings of Securities created in a Secondary Market
Transaction.

                          (viii) "SECONDARY MARKET TRANSACTION": any of (i) the
sale, assignment, or other transfer of all or any portion of the loan evidenced
by the Note and this Instrument or the Loan Documents or any interest therein to
one or more investors, (ii) the sale, assignment, or other transfer of one or
more participation interests in the loan evidenced by the Note and this
Instrument or Loan Documents to one or more investors, or (iii) the transfer or
deposit of all or any portion of the loan evidenced by the Note and this
Instrument or Loan Documents to or with one or more trusts or other entities
which may sell certificates or other instruments to investors evidencing an
ownership interest in the assets of such trust or the right to receive income or
proceeds therefrom.



                                       16






                      (ix) "TRANSFER": any sale, conveyance, transfer, lease or
assignment, or the entry into any agreement to sell, convey, transfer, lease or
assign, whether by law or otherwise, of, on, in or affecting (i) all or part of
the Property (including any legal or beneficial direct or indirect interest
therein), (ii) any direct or indirect interest in Borrower (including any profit
interest), or (iii) any direct or indirect interest in the Sole Member.

                      (x) "TRANSFER AND ASSUMPTION": is defined in paragraph (c)
of this Section 15.

                  (b) Borrower shall not directly or indirectly make, suffer or
permit the occurrence of any Transfer other than a Permitted Transfer.

                  (c) Notwithstanding the foregoing, Borrower shall have a
one-time right to Transfer the Property to another party (the "TRANSFEREE
BORROWER") and have the Transferee Borrower assume all of Borrower's obligations
under the Loan Documents, and have replacement guarantors and indemnitors assume
all of the obligations of the indemnitors and guarantors of the Loan Documents
(collectively, a "TRANSFER AND ASSUMPTION"). Borrower may make a written
application to Lender for Lender's consent to the Transfer and Assumption,
subject to the conditions set forth in subparagraphs (i) and (ii) of this
paragraph (c). Together with such written application, Borrower will pay to
Lender the reasonable review fee then required by Lender. Borrower also shall
pay on demand all of the reasonable costs and expenses incurred by Lender,
including reasonable attorneys' fees and expenses, and including the fees and
expenses of Rating Agencies and other outside entities, in connection with
considering any proposed Transfer and Assumption, whether or not the same is
peiinitted or occurs.

                      (i) Lender's consent, which may be withheld in Lender's
reasonable discretion, to a Transfer and Assumption shall be subject to the
following conditions:

                                   (2) Borrower has submitted to Lender true,
                 correct and complete copies of any and all information and
                 documents of any kind reasonably requested by Lender concerning
                 the Property, Transferee Borrower, replacement guarantors and
                 indemnitors and Borrower;

                                   (3) Evidence reasonably satisfactory to
                 Lender has been provided showing that the Transferee Borrower
                 and such of its Affiliates as shall be designated by Lender
                 comply and will comply with Section 29 hereof, as those
                 provisions may be modified by Lender taking into account the
                 ownership structure of Transferee Borrower and its Affiliates;

                                   (4) if the Loan (as defined in Section 32(e)
                 hereof), by itself or together with other loans, has been the
                 subject of a Secondary Market Transaction, then Lender shall
                 have received a Rating Comfort Letter from the applicable
                 Rating Agencies;

                                            (1)

     No Event of Default has occurred and is continuing;

                                       17





                                   (5) If the Loan has not been the subject of a
                 Secondary Market Transaction, then Lender shall have determined
                 in its reasonable discretion (taking into consideration such
                 factors as Lender may determine, including the attributes of
                 the loan pool in which the Loan might reasonably be expected to
                 be securitized) that no rating for any securities that would be
                 issued in connection with such securitization will be
                 diminished, qualified, or withheld by reason of the Transfer
                 and Assumption;

                                   (6) Borrower shall have paid all of Lender's
                 reasonable costs and expenses in connection with considering
                 the Transfer and Assumption, and shall have .paid the amount
                 reasonably requested by Lender as a deposit against Lender's
                 costs and expenses in connection with effecting the Transfer
                 and Assumption;

                                   (7) Borrower, the Transferee Borrower, and
                 the replacement guarantors and indemnitors shall have indicated
                 in writing in form and substance reasonably satisfactory to
                 Lender their readiness and ability to satisfy the conditions
                 set forth in subsection (ii) below; and

                                   (8) The identity, experience, and financial
                 condition of the Transferee Borrower and the replacement
                 guarantors and indemnitors shall be satisfactory to Lender in
                 its reasonable discretion.

                          (ii) If Lender consents to the Transfer and
Assumption, the Transferee Borrower and/or Borrower as the case
may be, shall immediately deliver the following to Lender:

                                   (1) Borrower shall deliver to Lender an
                 assumption fee in the amount of 1.00% of the then unpaid
                 Principal;

                                   (2) Borrower, Transferee Borrower and the
                 original and replacement guarantors and indemnitors shall
                 execute and deliver to Lender any and all documents reasonably
                 required by Lender, in form and substance reasonably required
                 by Lender, in Lender's sole discretion;

                                   (3) Counsel to the Transferee Borrower and
                 replacement guarantors and indemnitors shall deliver to Lender
                 opinions in form and substance satisfactory to Lender as to
                 such matters as Lender shall reasonably require, which may
                 include opinions as to substantially the same matters as were
                 required in connection with the origination of the Loan;

                                   (4) Borrower shall cause to be delivered to
                 Lender, an endorsement (relating to the change in the identity
                 of the vestee and execution and delivery of the Transfer and
                 Assumption documents) to Lender's title insurance policy in
                 form and substance acceptable to Lender, in Lender's reasonable
                 discretion (the "ENDORSEMENT"); and




                                       18







                                   (5) Borrower shall deliver to Lender a
                 payment in the amount of all remaining unpaid costs incurred by
                 Lender in connection with the Transfer and Assumption,
                 including but not limited to, Lender's reasonable attorneys
                 fees and expenses, all recording fees, and all fees payable to
                 the title company for the delivery to Lender of the
                 Endorsement.

         SECTION 16. FURTHER ENCUMBRANCES. Except only for the liens and
security interests in favor of Lender under this Instrument and the other Loan
Documents, without Lender's prior written consent, which Lender may withhold in
its sole discretion, Borrower shall not execute, cause, allow or suffer any
mortgage, deed of trust, deed to secure debt, assignment of leases or rents,
statutory lien, mechanic's lien or other similar involuntary lien (with respect
to any such statutory lien, mechanic's lien or other similar involuntary lien,
unless such lien is bonded or discharged within 30 days after Borrower first
receives notice of such lien), irrespective of its priority, to encumber all or
any portion of the Property or the leases, rents or profits thereof, or any
interest in any of the foregoing.

         SECTION 17. GENE INDEMNITY. In addition to any other indemnification
obligation set forth elsewhere in the Loan Documents, Borrower shall, at its
sole cost and expense, protect, defend, indemnify, release and hold harmless the
Lender and its shareholders, directors, officers, agents, employees,
contractors, attorneys, servicers, and successors and assigns (the "IIIDEMNILED
PARTIES") from and against any and all claims, suits, liabilities (including,
without limitation, strict liabilities), actions, proceedings, obligations,
debts, damages, losses, costs, expenses, diminutions in value, fines, penalties,
charges, fees, expenses, judgments, awards, amounts paid in settlement, or
punitive damages, of whatever kind or nature (including, but not limited to
attorneys' fees and other costs of defense) (the "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 (but excluding Losses arising out of Lender's gross negligence or
willful misconduct): (a) ownership of this Instrument or any of the Loan
Documents, or ownership of the Property or any interest therein, or demand for
or receipt of any Rents; (b) any amendment to, or restructuring of, any of the
Loan Documents or the obligations evidenced or secured thereby; (c) any and all
lawful action that may be taken by Lender in connection with the enforcement of
the provisions of any of the Loan Documents, whether or not suit is filed in
connection with same, or in connection with Borrower, any guarantor or
indemnitor and/or any member, partner, joint venturer or shareholder thereof
becoming a party to a voluntary or involuntary federal or state bankruptcy,
insolvency or similar proceeding; (d)>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; (e) 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; (f) any failure on
the part of Borrower to perform or be in compliance with any of the terms of any
of the Loan Documents; (g) performance of any labor or services or the
furnishing of any materials or other property in respect of the Property or any
part thereof; (h) 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 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 Instrument is made; (i) any failure of the Property to be in

                                       19








compliance with any applicable laws; (j) the enforcement by any Indemnified
Party of the provisions of this Section; (k) any and all claims and demands
whatsoever which may be asserted against Lender by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants, or agreements contained in any Lease; (1) the payment of any
commission, charge or brokerage fee to anyone which may be payable in connection
with the funding of the loan evidenced by the Note; or (m) any misrepresentation
made by Borrower in any of the Loan Documents. Any amounts payable to any
Indemnified Party by reason of the application of this Section shall become
immediately due and payable upon demand and shall bear interest at rate then
applicable to principal outstanding under the Note.

         SECTION 18. ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN
POSSESSION. As part of the consideration for the indebtedness evidenced by the
Note, Borrower hereby absolutely and unconditionally assigns and transfers to
Lender all the rents and revenues of the Property, including those now due, past
due, or to become due by virtue of any lease or other agreement for the
occupancy or use of all or any part of the Property, regardless of to whom the
rents and revenues of the Property are payable. Borrower hereby authorizes
Lender or Lender's agents to collect the aforesaid rents and revenues and hereby
directs each tenant of the Property to pay such rents to Lender or Lender's
agents; provided, however, that prior to written notice given by Lender to
Borrower of an Event of Default, Borrower shall collect and receive all rents
and revenues of the Property as trustee for the benefit of Lender and Borrower,
to apply the rents and revenues so collected to the sums secured by this
Instrument in any order determined by Lender, so long as no such Event of
Default has occurred, to the account of Borrower, it being intended by Borrower
and Lender that this assignment of rents constitutes an absolute assignment and
not an assignment for additional security only. Upon delivery of written notice
by Lender to Borrower of an Event of Default, and without the necessity of
Lender entering upon and taking and maintaining full control of the Property in
person, by agent or by a court-appointed receiver, Lender shall immediately be
entitled to possession of all rents and revenues of the Property as specified in
this Section as the same become due and payable, including, but not limited to,
rents then due and unpaid, and all such rents shall immediately upon delivery of
such notice and during the continuance of such Event(s) of Default be held by
Borrower as trustee for the benefit of Lender only; provided, however, that the
written notice by Lender to Borrower of such Event(s) of Default shall contain a
statement that Lender exercises its rights to such rents. Borrower agrees that
commencing upon delivery of such written notice of Borrower's breach by Lender
to Borrower, each tenant of the Property shall make such rents payable to and
pay such rents to Lender or Lender's agents on Lender's written demand to any
tenant therefor, delivered to such tenant personally, by mail or by delivering
such demand to the tenant at its location in the Property, without any liability
on the part of said tenant to inquire further as to the existence of" a default
by Borrower. Borrower hereby covenants that Borrower has not executed any prior
assignment of said rents, that Borrower has not performed, and will not perform,
any acts or has not executed, and will not execute, any instrument which would
prevent Lender from exercising its rights under this Section, and that at the
time of execution of this Instrument there has been no anticipation or
prepayment of any of the rents of the Property for more than one month prior to
the due dates of such rents. Borrower covenants that Borrower will not hereafter
collect or accept payment of any rents of the Property more than one month prior
to the due dates of such rents. Borrower further covenants that Borrower will
execute and deliver to Lender such further assignments of rents and revenues of
the Property as Lender may from time to time request.



                                       20







         Upon an Event of Default, or upon Borrower's breach of any material
covenant of Borrower as landlord or lessor under any lease beyond applicable
notice and cure periods, Lender shall be entitled to the appointment of a
receiver for the Property, without notice to Borrower or any other person or
entity and Lender may in person, -by agent or by a courtappointed receiver,
regardless of the adequacy of Lender's security, enter upon and take and
maintain full control of the Property in order to perform all acts necessary and
appropriate for the operation and maintenance thereof including, but not limited
to, the execution, cancellation or modification of leases, the collection of all
rents and revenues of the Property, the enforcement or fulfillment of any terms,
condition or provision of any lease, the making of repairs to the Property and
the execution or termination of contracts providing for the management or
maintenance of the Property, all on such terms as are deemed best to protect the
security of this Instrument. In the event Lender elects to seek the appointment
of a receiver for the Property upon Borrower's breach of any covenant or
agreement of Borrower in this Instrument, Borrower hereby expressly consents to
the appointment of such receiver. Lender or the receiver shall be entitled to
receive a reasonable fee for so managing the Property.

        All rents and revenues collected subsequent to delivery of written
notice by Lender to Borrower that an Event of Default has occurred and during
the continuance of such Event of Default shall be applied first to the costs, if
any, of taking control of and managing the Property and collecting the rents,
including, but not limited to, attorney's fees, receiver's fees, premiums on
receiver's bonds, costs of repairs to the Property, premiums on insurance
policies, Taxes, and the costs of discharging any obligation or liability of
Borrower as lessor or landlord of the Property and then to the sums secured by
this Instrument. Lender or the receiver shall have access to the books and
records used in the operation and maintenance of the Property and shall be
liable to account only for those rents actually received. Other than for
Lender's gross negligence or willful misconduct under this Section, Lender shall
not be liable to Borrower, anyone claiming under or through Borrower or anyone
having an interest in the Property by reason of anything done or left undone by
Lender under this Section.

        If the rents of the Property are not sufficient to meet the costs, if
any, of taking control of and managing the Property and collecting the rents,
any funds expended by Lender for such purposes shall become indebtedness of
Borrower to Lender secured by this Instrument pursuant to Section 8 hereof.
Unless Lender and Borrower agree in writing to other terms of payment, such
amounts shall be payable upon notice from Lender to Borrower requesting payment
thereof and shall bear interest from the date of disbursement at the rate stated
in the Note unless payment of interest at such rate would be contrary to
applicable law,. in which event such amounts shall bear interest at the highest
rate which may be collected from Borrower under applicable law.

         Any entering upon and taking and maintaining of control of the Property
by Lender or the receiver and any application of rents as provided herein shall
not cure or waive any default hereunder or invalidate any other right or remedy
of Lender under applicable law or provided herein. This assignment of rents of
the Property shall terminate at such time as this Instrument ceases to secure
indebtedness held by Lender.


                                       21







         SECTION 1.9. DEFAULTS; ACCELE TI No REMEDIES. Each of the following
shall constitute an "Event of Default" under this Instrument:

                  (a) Any failure of Borrower to pay any money as and when due
under the Note or under any of the other Loan Documents;

                  (b) Any breach of Sections 5, 15, 16, or 29 of this
Instrument, or the Environmental Indemnity Agreement;

                  (c) Other than as specified in items (a) or (b) above, any
breach of any covenant, representation, warranty, or other obligation of
Borrower or any guarantor or indemnitor under the Note, this Instrument, or any
of the other Loan Documents, which breach is not completely cured on or before
the 30th day after notice of the same from Lender to Borrower; provided however
that if the default is capable of cure but with diligence cannot be cured within
such period of 30 days, and if Borrower shall have given Lender evidence
satisfactory to Lender that Borrower has commenced the cure within 10 days after
the first notice of default and at all times after such commencement has pursued
such cure diligently, then such period shall be extended for so long as is
reasonably necessary, but in no event beyond the 60th day after the original
notice of default.

         If Lender shall have the right to exercise any of its remedies by
reason of any default as to which there is no grace period or by reason of
expiration of any grace period without cure of any applicable default, then
there shall be no requirement of notice and time to cure for any other or
subsequent default.

         Upon the occurrence and during the continuance of any Event of Default,
Lender may, at Lender's option, declare all of the sums secured by this
Instrument to be immediately due and payable without further demand, and may
exercise any and all remedies permitted hereunder, under any of the Loan
Documents, or pursuant to applicable law. Without limitation of the foregoing,
Lender may invoke the power of sale granted herein. Borrower acknowledges that
the power of sale herein granted may be exercised by Lender without prior
judicial hearing. Borrower has the right to bring an action to assert the
non-existence of a breach or any other defense of Borrower to acceleration and
sale. Lender shall be entitled to collect from Borrower all costs and expenses
incurred in pursuing such remedies, including, but not limited to, reasonable
attorney's fees and costs of environmental reports, appraisals, documentary
evidence, abstracts, and title reports.

         Any deed delivered to the purchaser at any sale pursuant hereto may be
without any covenant or warranty, expressed or implied. The recitals in the deed
shall be prima facie evidence of the truth of the statements made therein. The
proceeds of the sale shall be applied in the following order: (a) to all costs
and expenses of the sale, including, but not limited to, fees for any
foreclosure services, attorney's fees and costs of title evidence; (b) to all
sums secured by this Instrument in such order as Lender, in Lender's sole
discretion, directs; and (c) the excess, if any, to the person or persons
legally entitled thereto.

        SECTION 20. ACCELERATION IN CASE OF BORROWER'S INSOLVENCY. If Borrower
shall voluntarily file a petition under Title 11 of the U.S. Code (the "Act"),
as such Act may from time to time be amended, or under any similar or successor


                                       22








Federal statute relating to bankruptcy, insolvency, arrangements or
reorganizations, or under any state bankruptcy or insolvency act, or file an
answer in any involuntary proceeding admitting insolvency or inability to pay
debts, or if Borrower shall fail to obtain a vacation of involuntary proceedings
brought for the reorganization, dissolution or liquidation of Borrower, within
120 days of the filing of such involuntary proceeding, or if Borrower shall be
adjudged a bankrupt, or if a trustee or receiver shall be appointed for Borrower
or Borrower's property, or if the Property shall become subject to the
jurisdiction of a Federal bankruptcy court or similar state court, or if
Borrower shall make an assignment for the benefit of Borrower's creditors, or if
there is an attachment, execution or other judicial seizure of any portion of
Borrower's assets and such seizure is not discharged within 10 days, then Lender
may, at Lender's option, declare all of the sums secured by this Instrument to
be immediately due and payable without prior notice to Borrower, and Lender may
invoke any remedies permitted or provided for herein or in any of the Loan
Documents or pursuant to applicable law. Any attorney's fees and other expenses
incurred by Lender in connection with Borrower's bankruptcy or any of the other
aforesaid events shall be additional indebtedness of Borrower secured by this
Instrument pursuant to Section 8 hereof.

         SECTION 21. REMEDIES CUMULATIVE. Each remedy provided in this
Instrument is distinct and cumulative to all other rights or remedies under this
instrument or afforded by law or equity, and may be exercised concurrently,
independently, or successively, in any order whatsoever.

         SECTION 22. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives
the right to assert any statute of limitations as a bar to the enforcement of
the lien of this Instrument or to any action brought to enforce the Note or any
other obligation secured by this Instrument.

         SECTION 23. WAIVER OF MARSHALLING. Notwithstanding the existence of any
other security interest in the Property held by Lender or by any other party,
Lender shall have the right to determine the order in which any or all of the
Property shall be subjected to the remedies provided herein. Lender shall have
the right to determine the order in which any or all portions of the
indebtedness secured hereby are satisfied from the proceeds realized upon the
exercise of the remedies provided herein. Borrower, any party who consents to
this Instrument and any party who now or hereafter acquires a security interest
in the Property and who has actual or constructive notice hereof hereby waives
any and all right to require the marshalling of assets in connection with the
exercise of any of the remedies permitted by applicable law or provided herein.

         SECTION 24. RELEASE. Upon payment of all sums secured by this
Instrument, Lender shall release this Instrument. Borrower shall pay Lender $100
for the release of this Instrument.

         SECTION 25. CASH MANAGEMENT ARRANGEMENTS.

                  (a) As used in this Section 25 and elsewhere in this
Instrument and the other Loan Documents, the following capitalized terms shall
have the respective meanings set forth below:


                                       23








                 "Approved Capital Expenses": Capital Expenses incurred by
Borrower; provided, that, during a Cash Management Period, such Capital Expenses
shall either be (i) included in the Approved Capital Budget (as defined in
Section 28(h) hereof) for the current calendar month or (ii) approved by Lender.

                 "Approved Leasing Expenses": actual out-of-pocket expenses
incurred by Borrower and payable to third parties (including Affiliates of
Borrower or Guarantor, provided that, such expenses payable to Affiliates of
Borrower or Guarantor shall satisfy the conditions set forth below) in leasing
space at the Property pursuant to Leases entered into in accordance with the
Loan Documents, including brokerage commissions and tenant improvements, which
expenses (i) are (A) specifically approved by Lender in connection with
approving the applicable Lease, (B) incurred in the ordinary course of business
and on market terms and conditions in connection with Leases which do not
require Lender's approval under the Loan Documents, or (C) otherwise approved by
Lender, which approval shall not be unreasonably withheld or delayed, and (ii)
are substantiated by executed Lease documents and brokerage agreements.

                 "APPROVED OPERATING EXPENSES": during a Cash Management Period,
operating expenses incurred by Borrower which (i) are included in the Approved
Operating Budget (as defined in Section 28(h) hereof) for the current calendar
month, (ii) are for real estate taxes, insurance premiums, electric, gas, oil,
water, sewer or other utility service to the Property or (iii) have been
approved by Lender.

                 "AVAILABLE CASH": as of each Payment Date during the
continuance of Cash Management Period, the amount of Rents, if any, remaining in
the Deposit Account after the application of all of the payments required under
clauses (i) through (vi) of paragraph (1) of this Section 25.

                 "BUSINESS DAY": any day other than a Saturday, Sunday or any
day on which commercial banks in New York, New York are authorized or required
to close.

                 "CALCULATION DATE": the last day of each calendar quarter.

                 "CASH MANAGEMENT PERIOD": shall commence upon Lender giving
notice to the Clearing Bank of the occurrence of any of the following: (i) the
Maturity Date, (ii) an Event of Default, (iii) if, as of any Calculation Date,
the Debt Service Coverage Ratio is less than 1.10:1 (A "DSCR CASH MANAGEMENT
PERIOD'), or (iv) the commencement of a Rollover Sweep Period; and shall end
upon Lender giving notice to the Clearing Bank that the sweeping of funds into
the Deposit Account may cease, which notice Lender shall only be required to
give if (1) the Loan and all other obligations under the Loan Documents have
been repaid in full or (2) the Maturity Date has not occurred and (A) with
respect for the matters described in clause (ii) above, such Event of Default
has been cured and no other Event of Default has occurred and is continuing or
(B) with respect to the matter described in clause (iii) above, Lender has
determined that the Property has achieved a Debt Service Coverage Ratio of at
least 1.10:1 for two consecutive Calculation Dates or (C) with respect to the
matter described in clause (iv) above, the subject Rollover Sweep Period has
ended.



                                       24







                 "GEARING ACCOUNT": the account maintained by Borrower at the
Clearing Bank as more fully described in the Clearing Account Agreement.

                 "Debt": the unpaid Principal, all interest accrued and unpaid
thereon, any Prepayment Consideration (as defined in the Note) and all other
sums due to Lender in respect of the loan evidenced by the Note and this
Instrument or under any Loan Document.

                 "DEBT SERVICE": with respect to any particular period, the
scheduled principal and interest payments due under the Note in such period.

                 "DEBT SERVICE COVERAGE RATIO": as of any date, the ratio
calculated by Lender of (i) the Net Operating Income for the 12-month period
ending with the most recently completed calendar month to (ii) the Debt Service
with respect to such period (but assuming, only for the purpose of calculating
the Debt Service Coverage Ratio, that the Amortization Commencement Date (as
defined in the Note) has already occurred).

                 "DEFAULT RATE": the rate of five percent per annum in excess of
the rate provided in the first paragraph of the Note, or, if such increased rate
of interest may not be collected from Borrower under applicable law, then at the
maximum increased rate of interest which may be collected from Borrower under
applicable law, if either (a) any installment under the Note or any other amount
owing thereunder or under any of the other Loan Documents is not received by the
holder hereof within five calendar days after the same is due, or (b) any other
Event of Default occurs, in each case, only while such installment remains past
due or such other Event of Default remains uncured.

                 "DEPOSIT ACCOUNT": an Eligible Account at the Deposit Bank
controlled by Lender.

                 "DEPOSIT BATIK": Wachovia Bank, National Association, or such
other bank or depository selected by Lender in its discretion.

                 "ELIGIBLE INSTITUTION": A depository institution insured by the
Federal Deposit Insurance Corporation the short term unsecured debt obligations
or commercial paper of which are rated at least A-1 by S&P, P--1 by Moody's and
F-1+ by Fitch. in the case of accounts in which funds are held for thirty (30)
days or less or, in the case of letters of credit or accounts in which funds are
held for more than thirty (30) days, the long term unsecured debt obligations of
which are rated at least "AA" by Fitch and S&P and "Aa2" by Moody's.

                 "INTEREST PERIOD": (i) the period from the date hereof through
the first day thereafter that is the 5th day of a calendar month and (ii) each
period thereafter from the 6th day of each calendar month through the 5th day of
the following calendar month; except that the Interest Period, if any, that
would otherwise commence before and end after the Maturity Date shall end on the
Maturity Date.

                 "GOVERNMENTAL AUTHORITY": any court, board, agency, commission,
office or authority of any nature whatsoever for any governmental unit (federal,
state, county, district, municipal, city or otherwise) now or hereafter in
existence.



                                       25







                  "LEGAL REQUIREMENTS": statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions of Governmental
Authorities affecting Borrower, any Loan Document or all or part of the Property
or the construction, ownership, use, alteration or operation thereof, whether
now or hereafter enacted and in force, and all permits, licenses and
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instrument, either of record or
known to Borrower, at any time in force affecting all or part of the Property.

                  "MAJOR LEASE": (i) that certain Lease between Topps of
Brockton, Inc., as landlord, and Stop & Shop, Inc., as tenant, dated as of May
10, 1966, as amended by letter agreements dated May 24, 1966, February 3, 1970,
February 22, 1973 and June 7, 1983, as amended by that certain Amendment of
Lease dated January 31, 1996, as amended by letter agreements dated March 19,
1986, March 31, 1986, May 6, 1993 and May 28, 1993, as amended by that certain
1993 Amendment of Lease dated April 30, 1993, as assigned by Stop & Shop, Inc.
to Bradlees New England, Inc. ("BRADLEES") by that certain Assignment of Lease
dated June 7, 1988 and by that certain Assignment and Assumption dated June 17,
1988, as assigned by Bradlees to Home Depot U.S.A. Inc. ("HOME DEPOT TENANT") by
that certain Assignment of Lease effective March 16, 2001, as amended by that
certain Amendment of Lease between Acadia Realty Limited partnership
(successor-in-interest to Topps of Brockton, Inc.) and Home Depot Tenant dated
as of May 7, 2002 (as further amended, modified or assigned) and (ii) that
certain Lease for Supermarket Premises Located on Crescent Street (Route 27)
Brockton, Massachusetts between Shaw's Supermarkets, Inc. ("SHA)VS TENANT"), as
tenant, and Marvin L. Slomowitz, as landlord, dated as of March 19, 1986, as
amended by that certain First Amendment of Lease dated as of October 20, 1987
(as further amended, modified or assigned).

                  "MAJOR TENANT": any tenant under a Major Lease.

                  "NET OPERATING INCOME": for any period, the actual net
operating income of the Property determined on a cash basis of accounting, after
deducting therefrom deposits to (but not withdrawals from) any reserves required
under this Instrument, and without giving credit for (i) non-recurring
extraordinary items of income; or (ii) rent payable under leases where the
tenant thereunder is not open for business (i.e. "goes dark").

                  "OFFICER'S CERTIFICATE": a certificate delivered to Lender by
Borrower which is signed by a senior executive officer of the Sole Member.

                  "PAYMENT DATE": the 6th day of each calendar month or, upon
Lender's exercise of its right to change the Payment Date in accordance with the
terms and conditions of the Note, the New Payment Date (as defined in the Note)
(in either case, if such day is not a Business Day, the Payment Date shall be
the first Business Day thereafter). The first Payment Date hereunder shall be
November 6, 2005.

                  "PERMITTED INVESTMENTS": any investment suitable for the
investment of escrows and reserves established under mortgage loans included in
a Securitization in which some or all of the certificates issued are rated "AAA"
(or the equivalent rating) by the Rating Agencies, as the standards therefor are
established from time to time, or such investments which are otherwise
reasonably acceptable to Lender. If the Loan is subject to a Securitization,
then the Rating Agencies referred to immediately above shall be the Rating
Agencies that have rated the securities issued in such Securitization.



                                       26







                 "RENTS": all rents, rent equivalents, moneys payable as damages
(including payments by reason of the rejection of a lease in a bankruptcy
proceeding) or in lieu of rent or rent equivalents, royalties (including all oil
and gas or other mineral royalties and bonuses), income, fees, receivables,
receipts, revenues, deposits (including security, utility and other deposits),
accounts, cash, issues, profits, charges for services rendered, and other
payment and consideration of whatever form or nature received by or paid to or
for the account of or benefit of Borrower, Manager or any of their agents or
employees from any and all sources arising from or attributable to the Property,
including all receivables, customer obligations, installment payment obligations
and other obligations now existing or hereafter arising or created out of the
sale, lease, sublease, license, concession or other grant of the right of the
use and occupancy of the Property or rendering of services by Borrower, Manager
or any of their agents or employees and proceeds, if any, from business
interruption or other loss of income insurance.

                 "ROLLOVER SWEEP EVENT": (i) the date that is twelve (12) months
prior to the stated expiration (including any renewal term) of a Major Lease
(i.e., October 31, 2055 for Home Depot Tenant; December 31, 2041 for Shaw's
Tenant); (ii) the date required under a Major Lease by which the applicable
Major Tenant is required to give notice of its exercise of a renewal option
thereunder (and such renewal has not been so exercised) (i.e. October 31, 2020
for Home Depot Tenant; April 5, 2011 for Shaw's Tenant); (iii) the occurrence of
the early termination or early cancellation of a Major Lease; (iv) if any Major
Tenant at the Property shall discontinue its business at its premises (i.e.,
"goes dark") or give notice that it intends to discontinue its business; (v)
upon a default under a Major Lease by the Major Tenant thereunder beyond any
applicable notice and cure period; or (vi) the bankruptcy or insolvency
proceeding of a Major Tenant (and the subject lease has not been affirmed or
assumed and assigned).

                 "ROLLOVER SWEEP PERIOD": shall commence upon the occurrence of
a Rollover Sweep Event, and shall end upon the earlier to occur of: (A) the date
on which Lender has determined that sufficient funds have been collected in the
Rollover Reserve Subaccount to cover the anticipated tenant improvement costs
and leasing commissions in connection with the re-tenanting of the space(s) that
gave rise to such Rollover Sweep Period; (B) if the portion of the Property
which was the subject of the Rollover Sweep Event has been leased to a new
tenant pursuant to a Lease entered into in accordance with the provisions of
this Instrument (1) the receipt by Lender of evidence reasonably satisfactory to
Lender that all Approved Leasing Expenses in connection therewith have been paid
in full and (2) the receipt by Lender of an estoppel certificate from such new
tenant in which such new tenant certifies that the Lease is in full force and
effect, all conditions precedent to the commencement of rent under such Lease
have been satisfied, such new tenant has accepted delivery of the demised
premises and the payment of rent under such Lease has commenced. Notwithstanding
the foregoing, if any Rollover Sweep Period is triggered by the occurrence of
(a) an event discussed in clause (v) of the definition of Rollover Sweep Event,
such Rollover Sweep Period shall also end if the subject Major Tenant default
has been cured and no other Major Tenant default has occurred for a period of
six (6) consecutive months following such time or (b) an event described in
clause (vi) of the definition of Rollover Sweep Event, such Rollover Sweep
Period shall also end upon the assumption of the applicable lease by the tenant
thereunder pursuant to Section 365 of the Bankruptcy Code.





                                       27








                  (b) CASH MANAGEMENT ARRANGEMENTS. Borrower shall cause all
Rents to be transmitted directly by non-residential tenants of the Property into
a trust account (the "Clearing Account") maintained by Borrower at a local bank
selected by Borrower, which shall at all times be an Eligible Institution (the
"CLEARING BANK") as more fully described in the Clearing Account Agreement.
Without in any way limiting the foregoing, all Rents received by Borrower or
Manager shall be deposited into the Clearing Account within one Business Day of
receipt. Funds deposited into the Clearing Account shall be swept by the
Clearing Bank on a daily basis into Borrower's operating account at the Clearing
Bank, unless a Cash Management Period is continuing, in which event such funds
shall be swept on a daily basis into an Eligible Account (as defined in the
Deposit Account Agreement) at the Deposit Bank controlled by Lender (the
"DEPOSIT ACCOUNT") and applied and disbursed in accordance with this Instrument.
Funds in the Deposit Account shall be invested at Lender's discretion only in
Permitted Investments. Lender will also establish subaccounts of the Deposit
Account which shall at all times be Eligible Accounts (and may be ledger or book
entry accounts and not actual accounts) (such subaccounts are referred to herein
as "SUBACCOUNTS"). The Deposit Account and any Subaccount will be under the sole
control and dominion of Lender, and Borrower shall have no right of withdrawal
therefrom. Borrower shall pay for all expenses of opening and maintaining all of
the above accounts.

                  (c)      REQUIRED REPAIRS.

                           (i) COMPLETION OF REQUIRED REPAIRS. Borrower shall
perform and complete each item of the repairs and environmental remedial work at
the Property described on Schedule 2 (the "REQUIRED REPAIRS") within six (6)
months of the date hereof or such shorter period of time for such item set forth
on Schedule 2.

                           (ii) REQUIRED REPAIRS RESERVES. On the date hereof,
Borrower shall deposit with Lender the aggregate amount set forth on Schedule 2
as being required to complete the Required Repairs and Lender shall cause such
amount to be transferred to a Subaccount (the "REQUIRED REPAIRS SUBACCOUNT").
Provided no Default or Event of Default shall have occurred and is continuing,
Lender shall disburse funds held in the Required Repairs Sub account to
Borrower, within 15 days after the delivery by Borrower to Lender of a request
therefor (but not more often than once per month), in increments of at least
$5,000, accompanied by the following items (which items shall be in form and
substance satisfactory to Lender): (i) an Officer's Certificate (A) certifying
that the Required Repairs or any portion thereof which are the subject of the
requested disbursement have been completed in a good and worlananlike manner and
in accordance with all applicable laws, (B) identifying each Person that
supplied materials or labor in connection with such Required Repairs or any
portion thereof and (C) stating that each such Person has been or, upon receipt
of the requested disbursement, will be paid in full with respect to the portion
of the Required Repairs which is the subject of the requested disbursement; (ii)
copies of appropriate lien waivers or other evidence of payment satisfactory to
Lender; (iii) at Lender's option, a title search for the Property indicating
that it is free from all liens not previously approved by Lender; (iv) a copy of
each license required to be obtained with respect to the portion of the Required
Repairs which is the subject of the requested disbursement; and (v) such other
evidence as Lender shall reasonably


                                       28








request that the Required Repairs which are the subject of the requested
disbursement have been completed and paid for. Provided no Default or Event of
Default shall have occurred and is continuing, upon Borrower's completion of all
Required Repairs in accordance with this Section, Lender shall release any funds
remaining in the Required Repairs Subaccount, if any, to Borrower.

                  (d)      TAXES AND INSURANCE.

                           (i) Borrower shall pay to Lender on each Payment Date
(1) onetwelfth of the yearly Taxes that Lender estimates will be payable during
the next 12 months in order to accumulate with Lender sufficient funds to pay
all such Taxes at least 30 days prior to their respective due dates and" (2)
one-twelfth of the insurance premiums that Lender estimates will be payable for
the renewal of a separate "stand-alone" policy providing the coverage afforded
by the insurance policies required under this Instrument upon the expiration
thereof in order to accumulate with Lender sufficient funds to pay all such
insurance premiums at least 30 days prior to the expiration of the insurance
policies. Such amounts will be transferred by Lender to a Subaccount (the "TAX
AND INSURANCE SUBACCOUNT"). Provided that no Event of Default has occurred and
is continuing, Lender will (a) apply funds in the Tax and Insurance Subaccount
to payments of Taxes required to be made by Borrower pursuant to this
Instrument, provided that Borrower has promptly supplied Lender with notices of
all Taxes due, or (b) reimburse Borrower for payments of (x) Taxes and (y)
insurance premiums paid in connection with the purchase of a separate
"stand-alone" policy providing the coverage afforded by the insurance policies
required under this Instrument upon the expiration thereof, in each case, due
upon presentation of evidence acceptable to Lender of such payment by Borrower;
subject, however, to Borrower's right to contest Taxes in accordance with this
Instrument. In making any payment or reimbursement relating to Taxes and
insurance premiums, Lender may do so according to any bill, statement or
estimate procured from the appropriate public office (with respect to taxes) or
insurer or agent (with respect to insurance premiums), without inquiry into the
accuracy of such bill, statement or estimate or into the validity of any tax,
assessment, sale, forfeiture, tax lien or title or claim thereof. If Lender
determines in its reasonable judgment that the funds in the Tax and Insurance
Subaccount will be insufficient to pay (or in excess of) the Taxes or insurance
premiums next coming due, Lender may increase (or decrease) the monthly
contribution required to be made by Borrower to the Tax and Insurance
Subaccount. Notwithstanding the foregoing, so long as any Acceptable Blanket
Policy is in effect with respect to any of the policies required pursuant to
Section 5 above, payments required under the foregoing clause (2) shall be
suspended to the extent that insurance premiums relate to such Acceptable
Blardcet Policy(ies).

                           (ii)     Intentionally Deleted.

                  (e) CAPITAL EXPENSE RESERVES. Borrower shall pay to Lender on
each Payment Date an amount initially equal to one-twelfth of the product
obtained by multiplying $0.20 by the aggregate number of rentable square feet of
space in the Property. Lender will transfer such amounts into a Subaccount (the
"CAPITAL RESERVE SUBACCOUNT"). Provided that no Event of Default has occurred
and is continuing, Lender shall disburse funds held in the Capital Reserve
Subaccount to Borrower, within 15 days after the delivery by Borrower to Lender
of a request therefor (but not more often than once per month), in increments of
at least $5,000 provided that (1) such disbursement is for an Approved Capital



                                       29







Expense; (ii) Lender shall have (if it desires) verified (by an inspection
conducted at Borrower's expense) perfouunance of the work associated with such
Approved Capital Expense; and (iii) the request for disbursement is accompanied
by (A) an Officer's Certificate certifying (1) that such funds will be used to
pay or reimburse Borrower for Approved Capital Expenses and a description
thereof, (2) that all outstanding trade payables (other than those to be paid
from the requested disbursement or those constituting Permitted Indebtedness)
have been paid in full, (3) that the same has not been the subject of a previous
disbursement, and (4) that all previous disbursements have been used to pay the
previously identified Approved Capital Expenses, and (B) for any such
disbursement of more than $25,000, at Lender's option (which option shall be
exercised in Lender's reasonable judgment), a title search for the Property
indicating that the Property is free from all Liens, claims and other
encumbrances not previously approved by Lender and (C) such other evidence as
Lender shall reasonably request that the Approved Capital Expenditures at the
Property to be funded by the requested disbursement have been completed and are
paid for or will be paid upon such disbursement to Borrower.

                  (f) ROLLOVER RESERVES. Borrower shall pay to Lender $3,800 on
each Payment Date (the "MONTHLY ROLLOVER PAYMENT"); provided, however, Borrower
shall not be required to make any Monthly Rollover Payment on any Payment Date
when the balance on deposit in the Rollover Reserve Subaccount is equal to or
greater than $125,000 (excluding any amounts deposited pursuant to the fourth
sentence of this subsection (f)). Additionally, if a Rollover Sweep Period has
commenced, and no other Cash Management Period is then continuing, then on the
immediately succeeding Payment Date and on each Payment Date thereafter during
the continuance of such Rollover Sweep Period, all Available Cash shall be paid
to Lender. Lender will transfer such amounts into a Subaccount (the "ROLLOVER
RESERVE SUBACCOUNT"). Borrower shall also pay to Lender for transfer into the
Rollover Reserve Subaccount all payments received from tenants in connection
with the early termination or cancellation of any Leases, including fees,
penalties and commissions. Provided that no Event of Default has occurred and is
continuing, Lender shall disburse funds held in the Rollover Reserve Subaccount
to Borrower, within 15 days after the delivery by Borrower to Lender of a
request therefor (but not more often than once per month), in increments of at
least $5,000, provided (i) such disbursement is for an Approved Leasing Expense;
(ii) Lender shall have (if it desires) verified (by an inspection conducted at
Borrower's expense) performance of any construction work associated with such
Approved Leasing Expense; and (iii) the request for disbursement is accompanied
by (A) an Officer's Certificate certifying (1) that such funds will be used only
to pay (or reimburse Borrower for) Approved Leasing Expenses and a description
thereof, (2) that all outstanding trade payables (other than those to be paid
from the requested disbursement or those constituting Permitted Indebtedness)
have been paid in full, (3) that the same has not been the subject of a previous
disbursement, and (4) that all previous disbursements have been used only to pay
(or reimburse Borrower for) the previously identified Approved Leasing Expenses,
and (B) reasonably detailed supporting documentation as to the amount, necessity
and purpose therefor. Provided that no Event of Default has occurred and is
continuing, the remaining funds in the Rollover Reserve Subaccount (to the
extent not drawn upon pursuant to this Section 25(f)) allocable to any specific
portion of the commercial space at the Property which is the subject of the
Rollover Sweep Event will be disbursed to Borrower within 10 days after written
request therefor, provided that Borrower has delivered (i) evidence reasonably
satisfactory to Lender that (y) such commercial space has been re-let pursuant
to Leases entered into in accordance with this Instrument and (z) all Approved


                                       30







Leasing Expenses which have been incurred or which Lender anticipates will be
incurred with respect to such space have been paid in full and (ii) an estoppel
certificate from the applicable tenant occupying such portion of the commercial
space at the Property in a form reasonably satisfactory to Lender pursuant to
which such tenant certifies to Lender that (1) such tenant has taken occupancy
of its demised premises, (2) all of the conditions precedent to such tenant's
obligation to commence the payment of rent under its Lease have been satisfied
(including Borrower's contribution to the cost of any tenant improvement work)
and (3) such tenant has commenced the payment of rent under its Lease.

                  (g) OPERATING EXPENSE SUBACCOUNT. During a Cash Management
Period, Borrower shall pay to Lender on or before each Payment Date the monthly
amount set forth in the Approved Operating Budget for the following month as
being necessary for payment of Approved Operating Expenses at the Property for
such month, which amounts shall be transferred into a Subaccount for the payment
of Approved Operating Expenses (the "OPERATING EXPENSE SUBACCOUNT"). Provided no
Event of Default has occurred and is continuing, Lender shall disburse funds
held in the Operating Expense Subaccount to Borrower, within 15 days after
delivery by Borrower to Lender of a request therefor (but not more often than
once per month), in increments of at least $1,000, provided (i) such
disbursement is for an Approved Operating Expense; and (ii) such disbursement is
accompanied by (A) an Officer's Certificate certifying (1) that such funds will
be used to pay Approved Operating Expenses and a description thereof, (2) that
all outstanding trade payables (other than those to be paid from the requested
disbursement or those constituting Permitted Indebtedness) have been paid in
full, (3) that the same has not been the subject of a previous disbursement, and
(4) that all previous disbursements have been or will be used to pay the
previously identified Approved Operating Expenses, and (B) reasonably detailed
documentation' satisfactory to Lender as to the amount, necessity and purpose
therefor.

                  (h) CASUALTY/CONDEMNATION SUBACCOUNT. Borrower shall pay, or
cause to be paid, to Lender all insurance proceeds or Awards due to any Casualty
or Condemnation which Borrower is required to deposit with Lender to be
transferred to a Subaccount (the "CASUALTY/CONDEMNATION SUBACCOUNT") in
accordance with the provisions of Sections 5 and 11. All amounts in the
Casualty/Condemnation Subaccount shall be disbursed in accordance with the
provisions of Sections 5 and 11.

                  (i) SECURITY DEPOSITS. Borrower shall keep all security
deposits under Leases at a separately designated account under Borrower's
control at the Clearing Bank (and in the case of a letter of credit, assigned
with full power of attorney and executed sight drafts to Lender) so that the
security deposits shall not be commingled with any other funds of Borrower (such
account, the "SECURITY DEPOSIT ACCOUNT"). Upon the occurrence and during the
continuance of an Event of Default, Borrower shall, upon Lender's request, if
permitted by applicable Legal Requirements, turn over to Lender the security
deposits (and any interest theretofore earned thereon) under Leases, to be held
by Lender in a Subaccount (the "SECURITY DEPOSIT SUBACCOUNT") subject to the
terms of the Leases. Security deposits held in the Security Deposit Subaccount
will be released by Lender upon notice from Borrower together with such evidence
as Lender may reasonably request that such security deposit is required to be
returned to a tenant pursuant to the terms of a Lease or may be applied as Rent
pursuant to the rights of Borrower under the applicable Lease. Any letter of
credit or other instrument that Borrower receives in lieu of a cash security



                                       31








deposit under any Lease entered into after the date hereof shall (i) be
maintained in full force and effect in the full amount unless replaced by a cash
deposit as hereinabove described and (ii) if permitted pursuant to any Legal
Requirements, name Lender as payee or mortgagee thereunder (or at Lender's
option, be fully assignable to Lender).

                  (j) CASH COLLATERAL SUBACCOUNT. If a Cash Management Period
shall have commenced, then on the immediately succeeding Payment Date and on
each Payment Date thereafter during the continuance of such Cash Management
Period, all Available Cash shall be paid to Lender, which amounts shall be
transferred by Lender into a Subaccount (the "CASH COLLATERAL SUBACCOUNT") as
cash collateral for Borrower's obligations under the Loan Documents. At Lender's
option, during the continuance of a Rollover Sweep Period, any funds that have
been deposited into the Cash Collateral Subaccount may be transferred by Lender
into the Rollover Reserve Subaccount, to be applied and disbursed in accordance
with the provisions of Section 25(f) hereof. Any funds in the Cash Collateral
Subaccount Account and not previously disbursed or applied shall be disbursed to
Borrower upon the termination of such Cash Management Period. Lender shall have
the right, but not the obligation, at any time (i) during the continuance of an
Event of Default or (ii) subsequent to the second Calculation Date following the
commencement of a Cash Management Period (whether or not an Event of Default is
then continuing), in its sole and absolute discretion to apply all sums then on
deposit in the Cash Collateral Subaccount to Borrower's obligations under the
Loan Documents, in such order and in such manner as Lender shall elect in its
sole and absolute discretion, including to make a prepayment of principal
(together with the Prepayment Consideration (as defined in the Note) applicable
thereto). Additionally, Lender shall have the right, but not the obligation, at
any time subsequent to the second Calculation Date following the commencement of
a DSCR Cash Management Period (whether or not an Event of Default is then
continuing), in its sole and absolute discretion to apply all sums then on
deposit in the Cash Collateral Subaccount towards a partial Defeasance (as
defined in the Note) of the Loan (together with any Defeasance costs associated
therewith), and Borrower shall execute such documents and take such other
actions necessary to satisfy the Defeasance requirements set forth in Section 3
of the Note.

                  (k) GRANT OF SECURITY INTEREST; APPLICATION OF FUNDS. As
security for payment of the Loan and the performance by Borrower of all other
terms, conditions and provisions of the Loan Documents, Borrower hereby pledges
and assigns to Lender, and grants to Lender a security interest in, all
Borrower's right, title and interest in and to all Rents and in and to all
payments to or monies held in the Clearing Account, the Deposit Account, all
Subaccounts created pursuant to this Instrument (collectively, the "CASH
MANAGEMENT ACCOUNTS"). Borrower hereby grants to Lender a continuing security
interest in, and agrees to hold in trust for the benefit of Lender, all Rents in
its possession prior to the (i) payment of such Rents to Lender or (ii) deposit
of such Rents into the Clearing Account. Borrower shall not, without obtaining
the prior written consent of Lender, further pledge, assign or grant any
security interest in any Cash Management Account, or permit any lien to attach
thereto, or any levy to be made thereon, or any UCC Financing Statements, except
those naming Lender as the secured party, to be filed with respect thereto. This
Instrument is, among other things, intended by the parties to be a security
agreement for purposes of the UCC. Upon the occurrence and during the
continuance of an Event of Default, Lender may apply any sums in any Cash
Management Account in any order and in any manner as Lender shall elect in
Lender's discretion without seeking the appointment of a receiver and without
adversely affecting the rights of Lender to foreclose the Lien of the Instrument

                                       32








or exercise its other rights under the Loan Documents. Cash Management Accounts
shall not constitute trust funds and may be commingled with other monies held by
Lender. All interest which accrues on the funds in any Cash Management Account
(other than the Tax and Insurance Subaccount) shall accrue for the benefit of
Borrower and shall be taxable to Borrower and shall be added to and disbursed in
the same manner and under the same conditions as the principal sum on which said
interest accrued. Upon repayment in full of Borrower's obligations under the
Loan Documents, all remaining funds in the Subaccounts, if any, shall be
promptly disbursed to Borrower.

                  (1)      PROPERTY CASH FLOW ALLOCATION.

                           (i) During any Cash Management Period, all Rents
deposited into the Deposit Account during the immediately preceding Interest
Period shall be applied on each Payment Date as follows in the following order
of priority: (i) First, to make payments into the Tax and Insurance Subaccount
as required under paragraph (d) of this Section 25; (ii) Second, to pay the
monthly portion of the fees charged by the Deposit Bank in accordance with the
Deposit Account Agreement; (iii) Third, to Lender to pay the principal and
interest due under the Note on such Payment Date (plus, if applicable, interest
at the Default Rate and all other amounts, other than those described under
other clauses of this paragraph (1) of this Section 25, then due to Lender under
the Loan Documents); (iv) Fourth, to make payments into the Capital Reserve
Subaccount as required under paragraph (e) of this Section 25; (v) Fifth, to
make payments of the Monthly Rollover Payment into the Rollover Reserve
Subaccount, as required under paragraph (f) of this Section 25; (vi) Sixth, to
make payments for Approved Operating Expenses as required under paragraph (g) of
this Section 25; (vii) Seventh, during the continuance of a Rollover Sweep
Period (and if no other Cash Management Period is then continuing) to make
payments in an amount equal to all remaining Available Cash on such Payment Date
into the Rollover Reserve Subaccount as required under paragraph (f) of this
Section 25; and (viii) Lastly, during the continuance of a Cash Management
Period described in clauses (i), (ii) or (iii) of the defined term "Cash
Management Period", to make payments in an amount equal to all remaining
Available Cash on such Payment Date into the Cash Collateral Subaccount in
accordance with paragraph {j) of this Section 25. Upon the termination of any
Cash Management Period, provided no Event of Default is then continuing, any
funds in the Operating Expense Subaccount and not previously disbursed or
applied shall be fully disbursed to Borrower.

                           (ii) The failure of Borrower to make all of the
payments required under clauses (i) through (viii) of paragraph (i) above in
full on each Payment Date shall constitute an Event of Default under this
Instrument; provided, however, if adequate funds are available in the Deposit
Account for such payments, the failure by the Deposit Bank to allocate such
funds into the appropriate Subaccounts shall not constitute an Event of Default.
Notwithstanding anything to the contrary contained in this Section 25, after the
occurrence and during the continuance of an Event of Default, Lender may apply
all Rents deposited into the Deposit Account and other proceeds of repayment in
such order and in such manner as Lender shall elect.



                                       33







         SECTION 26. NONRECOURSE LOAN. Subject to the provisions of this
Section, and notwithstanding any provision of the Loan Documents other than this
Section, the personal liability of Borrower, and of any general partner of
Borrower, to pay the principal of and interest on the debt evidenced by the Note
and any other agreement evidencing Borrower's obligations under the Note shall
be limited to (a) the Collateral, (b) the personal property described in and
pledged under any Loan Document other than this Instrument, and (c) the rents,
profits, issues, products and income of the Property, including any received or
collected by or on behalf of Borrower after an Event of Default.

        Except as provided in this Section, Lender shall not seek (a) any
judgment for a deficiency against Borrower, any general partner or member of
Borrower, or Borrower's successors or assigns, in any action to enforce any
right or remedy under the Note, this Instrument or the other Loan Documents, or
(b) any judgment on the Note except as may be necessary in any action brought
under the Instrument to enforce the lien against the Property or any other
Collateral.

        Notwithstanding the foregoing, Borrower and any general partner of
Borrower shall be fully and personally liable for payment and performance of all
obligations set forth in the Loan Documents, including the payment of all
principal, interest, and other amounts under the Note, in the event of (i) the
occurrence of an uncured default under Sections 15, 16 or 29 of this Instrument,
or (ii) the occurrence of any condition or event described in Section 20 (except
that in the event of involuntary proceedings described therein, neither Borrower
nor any general partner of Borrower shall be fully and personally liable under
this Section 26 unless either Borrower or any general partner of Borrower or any
Person owning an interest (directly or indirectly) in Borrower or any general
partner of Borrower consents to, aids, solicits, supports, or otherwise
cooperates or colludes to cause such event or fails to contest such event).

        Further, Borrower and any general partner of Borrower shall be
personally liable in the amount of any loss, damage or cost resulting from (a)
fraud or intentional misrepresentation by Borrower in connection with obtaining
the loan evidenced by the Note, (b) insurance proceeds, condemnation awards, or
other sums or payments attributable to the Property not applied in accordance
with the provisions of the Loan Documents (except to the extent that Borrower
did not have the legal right, because of a bankruptcy, receivership or similar
judicial proceeding, to direct disbursement of such sums or payments), (c) all
rents, profits, issues, products and income of the Property received or
collected by or on behalf of Borrower after and during an Event of Default and
not applied to payment of principal and interest due under the Note, and to the
payment of actual and reasonable operating expenses of the Property, as they
become due or payable (except to the extent that such application of such funds
is prevented by bankruptcy, receivership, or similar judicial proceeding in
which Borrower is legally prevented from directing the disbursement of such
sums), (d) misappropriation (including failure to turn over to Lender on demand
following an Event of Default) of tenant security deposits and rents collected
in advance, or of funds held by Borrower for the benefit of another party, or
(e) Borrower's failure to pay transfer fees and charges due Lender under the
Loan Documents in connection with any subordinate financing or any transfer of
all or any part of the Property, or any interest therein, from Borrower to
Borrower's transferee, or transfer of any beneficial interest in Borrower (if
Borrower is not a natural person or persons but is a corporation, partnership,
limited liability company, trust or other legal entity) other than a Permitted
Transfer, or (f) failure by Borrower, any general partner of Borrower, or any


                                       34








indemnitor or guarantor to comply with the covenants, obligations, liabilities,
warranties and representations contained in the Environmental Indemnity
Agreement or otherwise pertaining to environmental matters, or (g) in the event
Lender has waived (or Borrower has failed to pay) the monthly collection for
real and personal property taxes, assessments, insurance premiums, or ground
rents, then failure by Borrower to pay any or all such taxes, assessments,
premiums and rents, or (h) in the event that Lender has waived (or Borrower has
not complied with) the requirement for third party property management, then any
management fee taken by Borrower or any principal or affiliate of Borrower after
an Event of Default, or (i) breach of any of Sections 15, 16 or 29 of this
Instrument, or (j) the occurrence of any condition or event described in Section
20 (except that in the event of involuntary proceedings described therein,
neither Borrower nor any general partner of Borrower shall be fully and
personally liable under this Section 26 unless either Borrower or any general
partner of Borrower or any Person owning an interest (directly or indirectly) in
Borrower or any general partner of Borrower consents to, aids, solicits,
supports, or otherwise cooperates or colludes to cause such event or fails to
contest such event).

        No provision of this Section shall (i) affect the enforcement of the
Environmental Indemnity Agreement or any guaranty or similar agreement executed
in connection with the debt evidenced by the Note, (ii) release or reduce the
debt evidenced by the Note, (iii) impair the lien of this Instrument, (iv)
impair the rights of Lender to enforce any provisions of this Instrument, (v)
limit Lender's ability to obtain a deficiency judgment or judgment on the Note
or otherwise against Borrower to the extent necessary to obtain any amount for
which Borrower may be liable in accordance with this Section.

        SECTION 27. REPRESENTATIONS OF BORROWER. The Borrower hereby represents
and warrants to Lender the following:

                 (a) Organization. Borrower is a limited liability company,
validly existing and in good standing under the laws of Delaware. There are no
proceedings or actions pending, threatened or contemplated for the liquidation,
termination or dissolution of Borrower.

                 (b) Rent Roll. Borrower has delivered to Lender a certified
rent roll (the "RENT ROLL"), a copy of which is attached hereto as Schedule 3,
which constitutes a true, correct, and complete list of each and every lease
affecting the Property (for each commercial tenant, together with all extensions
and amendments thereof) (the "EXISTING LEASES"); Borrower has delivered to
Lender a true, correct, and complete copy of each of the Existing Leases which
are entered into by commercial or retail tenants; and there are no other leases,
assignments, modifications, extensions, renewals, or other agreements of any
kind whatsoever (written or oral) outstanding with respect to the leases or the
Property.

                  (c)     Leases. Unless otherwise specified in the Rent Roll:
                          (i) the Existing Leases are in full force and effect;

                           (ii) Borrower has not given any notice of default to
any tenant under an Existing Lease (an "EXISTING TENANT") which remains uncured;





                                       35







                           (iii) no Existing Tenant has any set off, claim or
defense to the enforcement of any Existing Lease;

                           (iv) no Existing Tenant is in arrears in the payment
of rent for more than 30 days, additional rent or any other charges whatsoever
due under any Existing Lease; or, to the knowledge of Borrower, is materially in
default in the performance of any other obligations of such Existing Tenant
under the applicable Existing Lease; and

                           (v) Borrower has completed all work or alterations
required of the landlord or lessor under each Existing Lease; and all of the
other obligations of landlord or lessor under the Existing Leases have been
performed.

                  (d) Rents. The Rent Roll truly and completely discloses all
     annual and monthly rents payable by all Existing Tenants, including all
     percentage rents, if any, expiration dates of the Existing Leases, and the
     amount of security deposit being held by Borrower under each Existing
     Lease, if any; and Borrower has not granted any Existing Tenant any rent
     concessions (whether in form of cash contributions, work agreements,
     assumption of an Existing Tenant's other obligations, or otherwise) or
     extensions of time whatsoever not reflected in such Rent Roll.

                  (e) Lease Issues. There are no legal proceedings commenced
     (or, to the best of the knowledge of the Borrower, threatened) against
     Borrower by any Existing Tenant; no rental in excess of one month's rent
     has been prepaid under any of the Existing Leases; each of the Leases is
     valid and binding on the parties thereto in accordance with its terms; and
     the execution of this Instrument and the other Loan Documents will not
     constitute an event of default under any of the Existing Leases.

                  (f) Security Deposits. Borrower currently holds the security
     deposits (if any) specified in the Existing Leases and has not given any
     credit, refund, or set off against such security deposits to any person.

                  (g)

     Intentionally Deleted.

                  (h) No Undisclosed Tenants. Except for Borrower, there are no
     persons or entities occupying space in the Property as tenants other than
     the persons or entities specifically named in the Existing Leases.

                  (i) Title. Except as specifically listed in the schedule of
     exceptions to coverage in the title policy insuring Lender's interest in
     the Property, Borrower is now in possession of the Property; Borrower's
     possession of the Property is peaceable and undisturbed; Borrower does not
     know any facts by reason of which any claim to the Property, or any part
     thereof, might arise or be set up adverse to Borrower; and the Property is
     free and clear of (i) any lien for Taxes (except real property taxes not
     yet due and payable for the calendar year in which this Instrument is being
     executed), and (ii) any easements, rights-of-way, restrictions,
     encumbrances, liens or other exceptions to title by mortgage, decree,
     judgment, agreement, instrument, or, to the knowledge of Borrower,
     proceeding in any court. The Permitted Encumbrances (as defined in Section
     15 hereof) do not materially and adversely affect the value, operation or
     use of the Property, or Borrower's ability to repay the Loan. This
     Instrument when properly recorded in the appropriate records, together


                                       36





with any UCC Financing Statements required to be filed in connection therewith,
will create (i) a valid, perfected first priority lien on the Borrower's
interest in the Property and (ii) valid and perfected first priority security
interests in and to, and perfected collateral assignments of, all personalty
(including the Leases), all in accordance with the teuiis thereof, in each case
subject only to any applicable Peuiiitted Encumbrances. There are no pending or
proposed special or other assessments for public improvements or otherwise
affecting the Property, or any contemplated improvements to the Property that
may result in such special or other assessments.

                  (j) Liens. All charges for labor, materials or other work of
any kind furnished in connection with the construction, improvement, renovation
or rehabilitation of the Property or any portion thereof have been paid in full,
and no unreleased affidavit claiming a lien against the Property, or any portion
thereof, for the supplying of labor, materials or services for the construction
of improvements on the Property has been executed or recorded in the mechanic's
lien or other appropriate records in the county in which the Property is
located.

                  (k) Compliance with Law. The Property and the current and
contemplated uses of the Property are in compliance with all applicable federal,
state and municipal laws, rules, regulations and ordinances, applicable
restrictions, zoning ordinances, building codes and regulations, building lines
and easements, including, without limitation, federal and state environmental
protection law and the Americans with Disabilities Act of 1990, the Fair Housing
Amendments Act of 1988, all state and local laws or ordinances related to
handicapped access, and any statute, rule, regulation, ordinance, or order of
governmental bodies or regulatory agencies, or any order or decree of any court
adopted or enacted with respect thereto; no governmental authority having
jurisdiction over any aspect of the Property has made a claim or determination
that there is any such violation; the Property is not included in any area
identified by the Secretary of Housing and Urban Development pursuant to the
Flood Disaster Protection Act of 1973, as amended, as an area having special
flood hazards; and all permits, licenses and the like which are necessary for
the operation of the Property have been issued and are in full force and effect.

                 (1) Adverse Changes; Full and Accurate Disclosure. There have
been no material adverse changes, financial or otherwise, in the condition of
Borrower from that disclosed to Lender in the loan application submitted to
Lender by Borrower, or in any supporting data submitted in connection with the
Loan, and all of the information contained therein was true and correct when
submitted and is now substantially and materially true and correct on the date
hereof. No statement of fact made by Borrower in any Loan Documents contains any
untrue statement of a material fact or omits to state any material fact
necessary to make statements contained therein not misleading. There is,,no
material fact presently known to Borrower that has not been disclosed to Lender
which adversely affects, or, as far as Borrower can foresee, might adversely
affect, the Property or the business, operations or condition (financial or
otherwise) of Borrower. All financial data, including the statements of cash
flow and income and operating expense, that have been delivered to Lender in
respect of Borrower and the Property (i) are true, complete and correct in all
material respects, (ii) accurately represent the financial condition of Borrower
and the Property as of the date of such reports, and (iii) to the extent
prepared by an independent certified public accounting firm, have been prepared
in accordance with GAAP or federal income tax basis of accounting, in either
case, consistently applied throughout the periods covered, except as disclosed


                                       37







therein. Borrower has no contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments, unrealized or anticipated losses from any
unfavorable commitments or any liabilities or obligations not expressly
permitted by this Instrument. Since the date of such financial statements, there
has been no materially adverse change in the financial condition, operations or
business of Borrower or the Property from that set forth in said financial
statements.

                  (m) Claims, Litigation. There is no claim, litigation or
condemnation proceeding pending, or, to the knowledge of the Borrower,
threatened, against the Property or Borrower, which would be likely to have a
material adverse affect on the Property or Borrower's ability to perform its
obligations in the connection with the Loan.

                  (n) Single Purpose. Borrower does not own any real property or
assets other than the Property and does not operate any business other than the
management and operation of the Property.

                  (o) Bankruptcy. No proceedings in bankruptcy or insolvency has
ever been instituted by or against Borrower or any affiliate thereof, and no
such proceeding is now pending or contemplated.

                  (p) Solvency. Borrower is, and if there are any general
partners or members of Borrower, such partners or members are, solvent pursuant
to the laws of the United States, as reflected by the entries in Borrower's
books and records and as reflected by the actual facts.

                  (q) Enforceability of Loan Documents. The Loan Documents have
been duly authorized, executed and delivered by Borrower and constitute valid
and binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms. No approval, consent, order or authorization of any
governmental authority and no designation, registration, declaration or filing
with any governmental authority is required in connection with the execution and
delivery of the Note, this Instrument or any other Loan Document. Neither
Borrower nor any guarantor or indemnitor has any defense or offset to the
enforcement of any Loan Document, or any claim against Lender. Neither Borrower
nor any guarantor or indemnitor has any right whatsoever against Lender other
than the express contractual obligations of Lender set forth in the Loan
Documents, Any rights or claims contrary to this provision, whether known or
unknown, are hereby expressly waived.

                  (r) Non-contravention. The execution and delivery of the Loan
Documents will not violate or contravene in any way the articles of
incorporation or bylaws or partnership agreement, articles of organization or
operating agreement as the case may be, of Borrower or any indenture, agreement
or instrument to which Borrower is a party or by which it or its property may be
bound, or be in conflict with, result in a breach of or constitute a default
under any such indenture, agreement or other instrument, result in the creation
or imposition of any lien, charge or encumbrance of any nature whatsoever upon
any of the property or assets of Borrower, except as contemplated by the
provisions of such Loan Documents, and no action or approval with respect
thereto by any third person is required.




                                       38








                  (s) Homestead. No part of the Property is all or a part of
Borrower's homestead or the homestead of anyone.

                  (t) Utilities. The Property is served by all utilities
required for the current or contemplated use thereof. All utility service is
provided by public utilities and the Property has accepted or is equipped to
accept such utility service.

                  (u) Public Roads. All public roads and streets necessary for
service of and access to the Property for the current or contemplated use
thereof have been completed, are serviceable and all-weather and are physically
and legally open for use by the public.


                  (v) Water and Sewers. The Property is serviced by public water
and sewer systems.


                  (w) casualty.


                  (x) Damage. The Property is free from damage caused by fire or
other Waste Disposal. All liquid and solid waste disposal, septic and sewer
systems located on the Property are in a good and safe condition and repair and
in compliance with all applicable laws.

                  (y) Agreements. Borrower is not a party to any agreement or
instrument or subject to any restriction which might adversely affect Borrower
or the Property, or Borrower's business, properties, operations or condition,
financial or otherwise. Borrower is not in default in any material respect in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any Permitted Encumbrance or any other agreement or
instrument to which it is a party or by which it or the Property is bound.

                  (z) No Plan Assets. As of the date hereof and throughout the
entire term of the loan evidenced by the Note and this Instrument (the "Term")
(i) Borrower is not and will not be an "employee benefit plan," as defined in
Section 3(3) of ERISA, subject to Title I of ERISA, (ii) none of the assets of
Borrower constitutes or will constitute "plan assets" of one or more such plans
within the meaning of 29 C.F.R. Section 2510.3-101, (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 regulating investment of, and fiduciary obligations with respect
to, governmental plans.

                  (aa) Federal Reserve Regulations; Investment Company Act. No
part of the proceeds of the loan evidenced by the Note, this Instrument and the
other Loan Documents will be used for the purpose of purchasing or acquiring any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System or for any other purpose that would be inconsistent
with such Regulation U or any other regulation of such Board of Governors, or
for any purpose prohibited by Legal Requirements (as defined in Section 25
hereof) or any Loan Document. Borrower is not (i) an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended; (ii) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended; or (iii) subject to any other
federal or state law or regulation which purports to restrict or regulate its
ability to borrow money.

                                       39







                  (bb) Fraudulent Transfer. Borrower has not entered into the
loan evidenced by the Note, this instrument and the other Loan Documents, or any
Loan Document with the actual intent to hinder, delay, or defraud any creditor,
and Borrower has received reasonably equivalent value in exchange for its
obligations under the Loan Documents. Giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of Borrower's assets
exceeds and will, immediately following the execution and delivery of the Loan
Documents, exceed Borrower's total liabilities, including subordinated,
unliquidated, disputed or contingent liabilities, including the maximum amount
of its contingent liabilities or its debts as such debts become absolute and
matured. Borrower's assets do not and, immediately following the execution and
delivery of the Loan Documents will not, constitute unreasonably small capital
to carry out its business as conducted or as proposed to be conducted. Borrower
does not intend to, and does not believe that it will, incur debts and
liabilities (including contingent liabilities and other commitments) beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts to be payable on or in respect of obligations of Borrower).

                  (cc) No Other Debt. There is no indebtedness with respect to
the Property or any excess cash flow or any residual interest therein, whether
secured or unsecured, other than Permitted Encumbrances and Permitted
Indebtedness (as defined in Section 28(i) hereof).

                 (dd) Flood Zone. No portion of the Property is located in an
area as identified by the Federal Emergency Management Agency as an area having
special flood hazards.

         SECTION 28. BORROWER'S ADDITIONAL COVENANTS. Borrower hereby covenants,
agrees and undertakes as follows:

                 (a) Alterations of Property. Borrower shall not undertake or
commence any alterations of any improvements on the Property the cost of which
is in excess of five percent of the then original principal amount of the Note,
without the prior written consent of Lender, not to be unreasonably withheld;
provided, however, that Lender may, in its sole and absolute discretion,
withhold consent to any alteration the cost of which is reasonably estimated to
exceed $2,000,000.

                  (b) Further Assurances. Borrower shall from time to time, at
the request of Lender, (i) promptly correct any defect, error or omission which
may be discovered in the contents of this Instrument or in any other Loan
Document or in the execution or acknowledgment thereof; (ii) execute,
acknowledge, deliver and record and/or file such further documents or
instruments (including, without limitation, further mortgages, security
agreements, financing statements, continuation statements, assignments of rents
or leases and environmental indemnity agreements) and perform such further acts
and provide such further assurances as may be necessary, desirable or proper, in
Lender's opinion, to carry out more effectively the purposes of this Instrument
and such other instruments and to subject to the liens and security interests
hereof and thereof any property intended by the terms hereof or thereof to be
covered hereby or thereby, including specifically, but without limitation, any
renewals, additions, substitutions, replacements, or appurtenances to the
Property; provided that such documents or instruments do not materially increase



                                       40







Borrower's liability under the Loan Documents; and (iii) execute, acknowledge,
deliver, procure, and file and/or record any document or instrument (including
specifically, but without limitation, any financing statement) deemed advisable
by Lender to protect the liens and the security interests herein granted against
the rights or interests of third persons; provided that such documents or
instruments do not materially increase Borrower's liability under the Loan
Documents. Borrower will pay all reasonable costs connected with any of the
foregoing in this paragraph.

                  (c) Mortgage Taxes,. Borrower shall at any time any law shall
be enacted imposing or authorizing the imposition of any tax upon this
Instrument, or upon any rights, titles, liens or security interests created
hereby, or upon the obligations secured hereby or any part thereof, immediately
pay all such taxes; provided that, if such law as enacted makes it unlawful for
Borrower to pay such tax, Borrower shall not pay nor be obligated to pay such
tax, and in the alternative, Borrower may, in the event of the enactment of such
a law, and must, if it is unlawful for Borrower to pay such taxes, prepay the
obligations secured hereby in full within 60 days after demand therefor by
Lender.

                  (d) Minerals. Borrower shall not permit any drilling or
exploration for or extraction, removal or production of any mineral, natural
element, compound or substance from the surface or subsurface of the Property
regardless of the depth thereof or the method of mining or extraction thereof.

                  (e) Maintenance of Borrower and Sole Member Names. Borrower
shall not change, or permit Sole Member to change, its name, identity (including
its trade name or names) or employer identification number, in any such case,
without notifying Lender of such change in writing at least thirty (30) days
prior to the effective date of such change. Borrower shall deliver, or cause
Sole Member to deliver, to Lender, prior to or contemporaneously with the
effective date of any such change, any financing statement or financing
statement change reasonably required by Lender, if any, to establish or maintain
the validity, perfection and priority of the security interests granted herein.

                  (f) Costs and Expenses. Borrower shall pay on demand all
reasonable and bona fide out-of-pocket costs, fees and expenses and other
expenditures, including, but not limited to, reasonable attorneys' fees and
expenses, paid or incurred by Lender to third parties incident to this
Instrument or any other Loan Document (including, but not limited to, reasonable
attorneys' fees and expenses in connection with the negotiation, preparation and
execution hereof and of any other Loan Document and any amendment hereto or
thereto, any release hereof, any consent, approval or waiver hereunder or under
any other Loan Document, the making of any advance under the Note, and any suit
to which Lender is a party involving this Instrument or the Property) or
incident to the enforcement of the obligations secured hereby or the exercise of
any right or remedy of Lender under any Loan Document.

                 (g) Compliance with Laws. Borrower shall maintain and keep the
Property in compliance in all material respects with all applicable legal
requirements (including with respect to parking (and any required striping
thereof) and applicable zoning and land use laws, regulations and ordinances).




                                       41








                  (h) Annual Budget. Borrower shall prepare and submit (or shall
cause Manager to prepare and submit) to Lender within thirty (30) days after a
Cash Management Period and by November 30"' of each year thereafter during the
Term until such Cash Management Period has ended, for approval by Lender, which
approval shall not be unreasonably withheld or delayed, a proposed pro forma
budget for the Property for the succeeding calendar year (the "ANNUAL BUDGET",
and each Annual Budget approved (or deemed approved pursuant to the terms of
this Section 28(h)) by Lender is referred to herein as the "APPROVED ANNUAL
BUDGET"), and, promptly after preparation thereof, any revisions to such Annual
Budget. Lender's failure to approve or disapprove any Annual Budget or revision
within 30 days after Lender's receipt thereof shall be deemed to constitute
Lender's approval thereof The Annual Budget shall consist of (i) an operating
expense budget showing, on a month-bymonth basis, in reasonable detail, each
line item of the Borrower's anticipated operating income and operating expenses
(on a cash and accrual basis), including amounts required to establish, maintain
and/or increase any monthly payments required hereunder (and once such Annual
Budget has been approved (or deemed approved pursuant to the terms of this
Section 28(h)) by Lender, such operating expense budget shall be referred to
herein as the "APPROVED OPERATING BUDGET"), and (ii) a Capital Expense budget
showing, on a month-by-month basis, in reasonable detail, each line item of
anticipated Capital Expenses (and once such Annual Budget has been approved (or
deemed approved pursuant to the terms of this Section 28(h)) by Lender, such
Capital Expense budget shall be referred to herein as the "APPROVED CAPITAL
BUDGET"). UNTIL such time that any Annual Budget has been approved (or deemed to
have been approved pursuant to the terms of this Section 28(h)) by Lender, the
prior Approved Annual Budget shall apply for all purposes hereunder (with such
adjustments as reasonably determined by Lender (including increases for any
non-discretionary expenses).

                  (i) Indebtedness. Borrower shall not directly or indirectly
create, incur or assume any indebtedness other than the indebtedness evidenced
by the Loan Documents and unsecured trade payables incurred in the ordinary
course of business relating to the ownership and operation of the Property which
do not exceed, at any time, a maximum amount of 2% of the original amount of the
Loan and are paid within sixty (60) days of the date incurred (collectively,
"PERMITTED INDEBTEDNESS").

         SECTION 29. COVENANTS WITH RESPECT TO SINGLE PURPOSE, INDEBTEDNESS,
OPERATIONS, FUNDAMENTAL CHANGES OF BORROWER.

                  (a) Pertaining to Borrower. Borrower represents, warrants and
covenants as of the date of hereof and until such time as the indebtedness
secured hereby is paid in full, that Borrower

                           (i) does not own and will not own any assets other
than the Property (including incidental personal property necessary for the
operation thereof and proceeds therefrom) or direct or indirect ownership
interests in Borrower (the "OWNERSHIP INTERESTS");

                           (ii) was and will be organized solely for the purpose
of owning the Property and is not engaged and will not engage in any business,
directly or indirectly, other than the ownership, management and operation of
the Property or the Ownership Interests;



                                       42







                           (iii) has not entered and will not enter into any
contract or agreement with any partner, member, shareholder, trustee,
beneficiary, principal or affiliate of any Borrower Party except upon terms and
conditions that are intrinsically fair and substantially similar to those that
would be available on an arms-length basis with third parties other than such
affiliate;

                           (iv) has not incurred and will not incur any debt,
secured or unsecured, direct or contingent (including guaranteeing any
obligation), other than (i) the obligations secured by this Instrument, and (ii)
trade payables or accrued expenses incurred in the ordinary course of business
of operating the Property which (1) do not exceed, at any time, (a) with respect
to Borrower, a maximum amount of 2% of the original amount of the Principal, and
(b) with respect to Sole Member, $10,000 and (2) are paid within sixty (60) days
of the date incurred;

                           (v) has not made and will not make any loan or
advances to any person or entity;

                           (vi) has remained and will remain solvent and pay its
own liabilities, indebtedness, and obligations of any
kind from its own separate assets as the same shall become due;

                           (vii) has not, and without the unanimous consent of
all of its partners, directors or members, as applicable, will not, with respect
to itself or to any other entity in which it has a direct or indirect legal or
beneficial ownership interest (A) file a bankruptcy, insolvency or
reorganization petition or otherwise institute insolvency proceedings or
otherwise seek any relief under any laws relating to the relief from debts or
the protection of debtors generally, (B) seek or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar
official for such entity or for all or any portion of such entity's properties,
(C) make any assignment for the benefit of such entity's creditors or (D) take
any action that might cause such entity to become insolvent;

                           (viii) has done or caused to be done and will do all
things necessary to preserve its existence, and will not, nor will any partner,
member, shareholder, trustee, beneficiary, or principal amend, modify or
otherwise change its partnership certificate, partnership agreement, articles of
incorporation, by-laws, articles of organization, operating agreement, or other
organizational documents in any manner except as necessary to reflect Permitted
Transfers;

                           (ix) has maintained and shall continuously maintain
its existence and be qualified to do business in all states necessary to- carry
on its business, specifically including in the case of Borrower, the state where
the Property is located;

                           (x) has conducted and operated and will conduct and
operate its business as presently conducted and operated;

                           (xi) has maintained and will maintain books and
records and bank accounts separate from those of its partners, members,
shareholders, trustees, beneficiaries, principals, affiliates, and any other
person or entity;


                                       43








                           (xii) has been and will be, and at all times has held
and will hold itself out to the public as, a legal entity separate and distinct
from any other (including any of its partners, members, shareholders, trustees,
beneficiaries, principals and affiliates), and not as a department or division
of any entity;

                           (xiii) has not failed and will not fail to correct
any known misunderstanding regarding the separate identity of such entity;

                           (xiv) has and will maintain adequate capital for the
normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations;

                           (xv) has not and will not seek, acquiesce in, or
suffer or permit its liquidation, dissolution or winding up, in whole or in
part;

                           (xvi) has not entered and will not enter into any
transaction of merger or consolidation, or acquire by purchase or otherwise all
or substantially all of the business or assets of, or any stock of beneficial
ownership of, any person or entity;

                           (xvii) has not commingled and will not commingle or
permit to be commingled its funds or other assets with those of any other person
or entity;

                           (xviii) has and will maintain its assets in such a
manner that it is not costly or difficult to segregate, ascertain or identify
its individual assets from those of any other person or entity;

                           (xix) except as expressly provided for in the Loan
Documents, does not and will not hold itself out to be responsible for the debts
or obligations of any other person or entity;

                           (xx) except as expressly provided for in the Loan
Documents, has not and will not guarantee or otherwise become liable on or in
connection with any obligation of any other person or entity;

                           (xxi) has not done or shall not do any act which
would make it impossible to carry on its ordinary business;

                           (xxii) has not and will not possess or assign the
Property for other than a business or company purpose;

                           (xxiii) has not held and shall not hold its assets
other than in its name;

                           (xxiv) has paid and will pay its own liabilities,
including the salaries of its own employees, out of its own funds and assets;

                           (xxv) has observed and will observe all partnership,
corporate or limited liability company formalities, as applicable;



                                       44








                           (xxvi) has maintained and will maintain an
arm's-length relationship with its Affiliates;

                           (xxvii) has not and will not acquire obligations or
securities of its partners, members or shareholders;

                           (xxviii) has allocated and will allocate fairly and
reasonably shared expenses, including shared office space, and uses separate
stationery, invoices and checks;

                           (xxix) except in connection with the Loan, has not
pledged and will not pledge its assets for the benefit of any other Person;

                           (xxx) has not identified and will not identify its
partners, members or shareholders, or any Affiliate of any of them, as a
division or part of it;

                           (xxxi) has and will have no obligation to indemnify
its partners, officers, directors, members or Special Members (as defined
below), as the case may be, or has such an obligation that is fully subordinated
to the Debt and will not constitute a claim against it if cash flow in excess of
the amount required to pay the Debt is insufficient to pay such obligation; and

                           (xxxii) will consider the interests of its creditors
in connection with all corporate, partnership or limited liability actions, as
applicable.

                           (xxxiii) has not instituted and shall not institute
proceedings to be adjudicated bankrupt or insolvent; consent to the institution
of bankruptcy or insolvency proceedings against it; file a petition seeking, or
consent to, reorganization or relief under any applicable federal or state law
relating to bankruptcy; consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of it or a
substantial part of its property; or make any assignment for the benefit of
creditors; or admit in writing its inability to pay its debts generally as they
become due;

                           (xxxiv) has and will have an operating agreement
which provides that the business and affairs of Borrower shall be managed by or
under the direction of a board of one or more directors designated by Sole
Member,

                           (xxxv) has and will have an operating agreement which
provides that, as long as any portion of the Debt remains outstanding, (A) upon
the occurrence of any event that causes Sole Member to cease to be a member of
Borrower (other than (x) upon an assignment by Sole Member of all of its limited
liability company interest in Borrower and the admission of the transferee, if
permitted pursuant to the organizational documents of Borrower and the Loan
Documents, or (y) the resignation of Sole Member and the admission of an
additional member of Borrower, if permitted pursuant to the organizational
documents of Borrower and the Loan Documents), the person acting as the sole
member of borrower (the "SPECIAL MEMBER") of Borrower shall, without any action
of any Person and simultaneously with Sole Member ceasing to be a member of
Borrower, automatically be admitted as the Special Member and shall preserve and
continue the existence of Borrower without dissolution, (B) no Special Member
may resign or transfer its rights as Special Member unless (x) a successor



                                       45






Special Member has been admitted to Borrower as a Special Member, and (y) such
successor Special Member has also accepted its appointment as a Special Member
and (C) except as expressly permitted pursuant to the terms of this Agreement,
Sole Member may not resign and no additional member shall be admitted to
Borrower; (v) has and will have an operating (,)agreement which provides that,
as long as any portion of the Debt remains outstanding, (A) Borrower shall be
dissolved, and its affairs shall be would up only upon the first to occur of the
following: (x) the termination of the legal existence of the last remaining
member of Borrower or the occurrence of any other event which terminates the
continued membership of the last remaining member of Borrower in Borrower unless
the business of Borrower is continued in a manner permitted by its operating
agreement or the Delaware Limited Liability Company Act (the "DELAWARE ACT") or
(y) the entry of a decree of judicial dissolution under Section 18-802 of the
Delaware Act; (B) upon the occurrence of any event that causes the last
remaining member of Borrower to cease to be a member of Borrower or that causes
Sole Member to cease to be a member of Borrower (other than (x) upon an
assignment by Sole Member of all of its limited liability company interest in
Borrower and the admission of the transferee, if permitted pursuant to the
organizational documents of Borrower and the Loan Documents, or (y) the
resignation of Sole Member and the admission of an additional member of
Borrower, if permitted pursuant to the organizational documents of Borrower and
the Loan Documents), to the fullest extent permitted by law, the personal
representative of such member shall be authorized to, and shall, within 90 days
after the occurrence of the event that terminated the continued membership of
such member in Borrower, agree in writing to continue the existence of Borrower
and to the admission of the personal representative or its nominee or designee,
as the case may be, as a substitute member of Borrower, effective as of the
occurrence of the event that terminated the continued membership of such member
in Borrower; (C) the bankruptcy of Sole Member or a Special Member shall not
cause such member or Special Member, respectively, to cease to be a member of
Borrower and upon the occurrence of such an event, the business of Borrower
shall continue without dissolution; (D) in the event of dissolution of Borrower,
Borrower shall conduct only such activities as are necessary to wind up its
affairs (including the sale of the assets of Borrower in an orderly manner), and
the assets of Borrower shall be applied in the manner, and in the order of
priority, set forth in Section 18-804 of the Delaware Act; and (E) to the
fullest extent permitted by law, each of Sole Member and the Special Members
shall irrevocably waive any right or power that they might have to cause
Borrower or any of its assets to be partitioned, to cause the appointment of a
receiver for all or any portion of the assets of Borrower, to compel any sale of
all or any portion of the assets of Borrower pursuant to any applicable law or
to file a complaint or to institute any proceeding at law or in equity to cause
the dissolution, liquidation, winding up or termination of Borrower.

                           (xxxvi) shall comply with all (and shall not suffer
to be inaccurate any) of the assumptions, statements, certifications,
representations, warranties and covenants regarding or made by Borrower
contained in or appended to any opinion of Borrower's legal counsel delivered in
connection with the transaction in which the Loan Documents are executed.

         SECTION 30. NOTICE. All notices given under this Instrument shall be in
writing, and sent to the other party at its address set forth below or at such
other address as such party may designate by notice to the other party and shall
be deemed given on the earliest of (i) actual receipt, duly evidenced by any
commercially reasonable means, (ii) three Business Days after mailing, by
certified or registered U.S. Mail, return receipt requested, postage prepaid,
(iii) one Business Day after timely delivery, fee prepaid, to a national


                                       46






overnight delivery service (such as FedEx, Purolater Courier, U.P.S. Next Day
Air), (iv) the date of transmission of notice sent by telecopier or facsimile
machine (with a copy thereof sent in accordance with clause (ii) above) provided
notice was transmitted on a Business Day, otherwise notice shall be deemed given
on the next Business Day.

         The applicable addresses are as
         follows: To Borrower:
                     ---------

         c/o Acadia Realty Trust
         1311 Mamaroneck
         Avenue White Plains,
         New York 10605
         Attention: Robert Masters, Esq.
         Telephone No.: (914) 288-8139
         Facsimile No.: (914) 428-3646

         With a Copy to:
         ---------------

         c/o Acadia Realty Trust
         1311 Mamaroneck Avenue
         White Plains, New York 10605
         Attention: Michael Nelsen
         Telephone No_: (914) 288-8138
         Facsimile No.: (914) 288-2138

         To Lender:
         ----------

         Greenwich Capital Financial Products, Inc.
         600 Steamboat Road
         Greenwich, Connecticut 06830
         Attention: Commercial Mortgage Loan Department
         Telephone No.: (203) 618-2373
         Facsimile No_: (203) 629-8363

         With a Copy to:
         ---------------

         Kaye Scholer LLP
         425 Park Avenue
         New York, New York 10022
         Attention: Stephen Gliatta, Esq.
         Telephone No.: (212) 836-8618
         Facsimile No.: (212) 836-8689

         Borrower hereby requests that any notice of default or notice of sale
in any judicial or nonjudicial foreclosure proceeding be mailed to Borrower at
its address as specified herein.



                                       47









         SECTION 31. UNIFORM INSTRUMENT; GOVERNING LAW; SEVE ILITY. This form of
instrument combines uniform covenants for national use and non-uniform covenants
with limited variations by jurisdiction to constitute a uniform security
instrument covering real property and related fixtures and personal property.
THIS INSTRUMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY BORROWER
AND ACCEPTED BY LENDER IN THE STATE OF NEW YO WHICH STATE THE PARTIES AGREE HAS
A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION
EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
INSTRUMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF
CONFLICT LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT
THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT
OF THE LIENS CREATED PURSUANT TO THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND
CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH TIE PROPERTY IS LOCATED, IT
BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE,
THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND THE
ENFORCEABILITY OF ALL LOAN DOCUMENTS AND THE DEBT.. TO THE FULLEST EXTENT
PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY
CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS INSTRUMENT
OR THE OTHER LOAN DOCUMENTS, AND THIS INSTRUMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENE OBLIGATIONS LAW. In the
event that any provision of this Instrument or the Note conflicts with
applicable law, such conflict shall not affect other provisions of this
Instrument or the Note which can be given effect without the conflicting
provisions, and to this end the provisions of this Instrument and the Note are
declared to be severable. In the event that any applicable law limiting the
amount of interest or other charges permitted to be collected from Borrower is
interpreted so that any charge provided for in this Instrument or in the Note,
whether considered separately or together with other charges levied in
connection with this Instrument and the Note, violates such law, and Borrower is
entitled to the benefit of such law, such charge is hereby reduced to the extent
necessary to eliminate such violation. The amounts, if any, previously paid to
Lender in excess of the amounts payable to Lender pursuant to such charges as
reduced shall be applied by Lender to reduce the principal of the indebtedness
evidenced by the Note. For the purposes of determining whether any applicable
law limiting the amount of interest or other charges permitted to be collected
from Borrower has been violated, all indebtedness which is secured by this
Instrument or evidenced by the Note and which constitutes interest, as well as
all other charges levied in connection with such indebtedness which constitute
interest, shall be deemed to be allocated and spread over the stated term of the
Note. Unless otherwise required by applicable law, such allocation and spreading
shall be effected in such a manner that the rate of interest computed thereby is
unifoiin throughout the stated term of the Note.





                                       48








        SECTION 32. RESTRUCTURING LOAN, SECONDARY MARIKET TRANSACTIONS.

                 (a) Secondary Market Transactions Generally. Lender shall have
the right to engage in one or more Secondary Market Transactions (as defined in
Section 15 hereof), and to structure and restructure all or any part of the
Loan, including without limitation in multiple tranches, as a wraparound loan,
or for inclusion in a REMIC or other Securitization (as defined in Section 15
hereof). Without limitation, Lender shall have the right to cause the Note and
this Instrument to be split into a first and a second mortgage loan in whatever
proportion Lender determines, and thereafter to engage in Secondary Market
Transactions with respect to all or any part of the indebtedness and loan
documentation. Borrower acknowledges that it is the intention of the parties
that all or a portion of the Loan will be securitized and that all or a portion
of the Loan (either itself, or in combination with other loans) will be rated by
one or more Rating Agencies (as defined in Section 15 hereof). Borrower further
acknowledges that additional structural modifications may be required to satisfy
issues raised by any Rating Agencies.

                 (b) Cooperation; Limitations. Borrower shall use all reasonable
efforts and cooperate reasonably and in good faith with Lender in effecting any
such restructuring or Secondary Market Transaction. Such cooperation shall
include without limitation, executing and delivering such reasonable amendments
to the Loan Documents as Lender may request, provided however that no such
amendment shall on an over-all basis modify (i) the interest rate payable under
the Note; (ii) the stated maturity date of the Note, (iii) the amortization of
the principal amount of the Note, (iv) any other economic terms of the Loan, or
(v) the non-recourse provisions of the Loan. Such cooperation also shall include
using best efforts to obtain such certificates and assurances from governmental
entities and others as Lender may request. Borrower shall not be required to
incur any cost in connection with such restructure or Secondary Market
Transaction or to provide additional collateral that was not initially
contemplated by the parties to effect any such restructuring or Secondary Market
Transaction.

                 (c) Information. Borrower shall provide such information and
documents relating to the Borrower and its principals, the manager of the
Property, the Property and the business and operations of all of the foregoing
as Lender may reasonably request in connection with any such Secondary Market
Transaction. Lender shall be permitted to share all such information with the
investment banking firms, Rating Agencies, accounting firms, law firms, other
third party advisory firms, potential investors, and other parties involved in
any proposed Secondary Market Transaction. Any such infoiuuation _ may be
incorporated into offering documents for the Secondary Market Transactions.
Lender and all of the aforesaid third-party advisors and professional firms and
investors shall be entitled to rely upon such information, and Borrower shall
indemnify, defend, and hold harmless Lender from and against any losses, claims,
damages and liabilities that arise out of or are based upon any actual or
alleged untrue or misleading statement of material fact contained in such
information or the actual or alleged omission of any material fact without which
such information is materially misleading. Lender may publicize the existence of
the Loan in connection with Lender's Secondary Market Transaction activities or
otherwise.




                                       49







                  (d) Additional Provisions. In any Secondary Market
Transaction, Lender may transfer its obligations under the Loan Documents (or
may transfer the portion thereof corresponding to the transferred portion of the
obligations of Borrower), and thereafter Lender shall be relieved of any
obligations under the Loan Documents arising after the date of said transfer
with respect to the transferred interest. Each transferee investor shall be
deemed to be a "Lender" under the applicable Loan Documents.

                  (e) Certain Definitions. As used herein, the following terms
have the meanings indicated:

                  "LOAN": all obligations of Borrower under the Loan Documents.

                  "SECURITIZATION": mean a rated offering of securities
         representing direct or indirect interests in one or more mortgage loans
         or the right to receive income therefrom.

         SECTION 33. SUCCESSORS AND ASSIGNS BOUND. This Instrument and the other
Loan Documents shall be binding upon and inure to the benefit of Borrower and
Lender and their respective successors and assigns forever, subject to Section
15 hereof. Notwithstanding the foregoing, Lender shall have no liability under
any of the Loan Documents for any matter arising after Lender transfers its
interest in the Note to any successor. However, Lender shall continue to have
the benefit of all rights having accrued under the Loan Documents theretofore,
and all rights under all obligations of indemnification set forth in the Loan
Documents for matters arising theretofore, then, and thereafter.

         SECTION 34. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by
Lender in exercising any right or remedy hereunder, or otherwise afforded by
applicable law, shall not be a waiver of or preclude the exercise of any right
or remedy. The acceptance by Lender of payment of any sum secured by this
Instrument after the due date of such payment shall not be a waiver of Lender's
right to either require prompt payment when due of all other sums so secured or
to declare a default for failure to make prompt payment. The procurement of
insurance or the payment of taxes or other liens or charges by Lender shall not
be a waiver of Lender's right to accelerate the maturity of the indebtedness
secured by this Instrument, nor shall Lender's receipt of any awards, proceeds
or damages, whether as proceeds of insurance or condemnation awards or
otherwise, operate to cure or waive Borrower's default in payment of sums
secured by this Instrument.

         SECTION 35. ESTOPPEL CERTIFICATE. Borrower shall within ten days of a
written request from Lender furnish Lender with a written statement, duly
acknowledged, setting forth the sums secured by this Instrument and any right of
set-off, counterclaim or other defense which exists against such sums and the
obligations of this Instrument and attaching true, correct and complete copies
of the Note, this Instrument and any other Loan Documents and any and all
modifications, amendments and substitutions thereof

         SECTION 36. WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THE BORROWER MAY HAVE TO A TRIAL
BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR
IN CONJUNCTION WITH THE NOTE, THIS INSTRUMENT, ANY OTHER LOAN DOCUMENT, ANY
OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF EITHER PARTY.





                                       50






         SECTION 37. MISCELLANEOUS.

                 (a) No Oral Change. No provision of this instrument or any of
the other Loan Documents may 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, except 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.

                 (b) Liability. If Borrower consists of more than one person,
the obligations and liabilities of each such person hereunder and under the
other Loan Documents shall be joint and several.

                 (c) Captions. The captions and headings of the Sections,
paragraphs, and other provisions of this Instrument are for convenience only and
are not to be used to interpret or define the provisions hereof.

                 (d) Duplicate Originals; Counterparts. This Instrument and any
of the Loan Documents may be executed in any number of duplicate originals and
each duplicate original shall be deemed to be an original. This Instrument and
any of the Loan Documents may be executed in multiple counterparts.

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

                 (f) 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 performance and repayment of the obligations secured
hereby.

                 (g) Entire Agreement. The Note, this Instrument and the other
Loan Documents constitute the entire understanding and agreement between
Borrower and Lender pertaining to the subject matter hereof and thereof, and
supersede all prior written or oral understandings and agreements between
Borrower and Lender with respect thereto, including the prior agreements
evidenced by any application or commitment issued in connection with this
transaction. Borrower hereby acknowledges that, except as incorporated in
writing in the Loan Documents, there are not, and were not, 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 Loan Documents, except only to the
extent expressly set forth in the Loan Documents.





                                       51







                  (h) Action through Agents. In exercising any rights hereunder
or under any of the Loan Documents or taking any actions provided for herein or
therein, Lender may act through its employees, agents or independent contractors
as authorized by Lender.

         SECTION 38. STATE OF MASSACHUSETTS PROVISIONS.

                  (a) In the event of any inconsistencies between the terms and
conditions of this Article 38 and the other terms and conditions of this
Instrument, the terms and conditions of this Article 38 shall control and be
binding.

                 (b) Statutory Power of Sale. This Instrument is upon the
STATUTORY CONDITION and the other conditions set forth herein, for any breach of
which Lender shall have the STATUTORY POWER OF SALE.

                  [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]



































                                       52









         IN WITNESS WHEREOF, Lender and Borrower have executed this Instrument
or has caused the same to be executed by its representatives thereunto duly
authorized.

                                                BORROWER:

                                                ACADIA CRESCENT PLAZA LLC, a
                                                Delaware limited liability
                                                company

                                                By: ____________________________
                                                    Name: Robert Masters
                                                    Title: Senior Vice President


                                                LENDER:

                                                GREENWICH CAPITAL FINANCIAL
                                                PRODUCTS, INC., a Delaware
                                                corporation


                                                By: ____________________________
                                                    Name:
                                                    Title:
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]







        IN WITNESS WHERE OF, Lender and Borrower have executed this Instrument
or has caused the same to be executed by its representatives thereunto duly
authorized.



                                           ACADIA CRESCENT PLAZA LLC, a Delaware
                                            limited liability company

                                           By: _________________________________
                                               Name: Robert Masters
                                               Title: Senior Vice President


                                           LENDER:

                                           GREENWICH CAPITAL FINANCIAL PRODUCTS,
                                           INC., a Delaware corporation





                                           By: _________________________________
                                               Name:  Steve Anderson
                                               Title: Managing Director













                                 ACKNOWLEDGMENT
STATE OF________________________

COUNTY OF ) ____________________


         On this 3rd day of________________________ 2005, before me, the
undersigned notary public, personally appeared Robert sters, proved to me
through satisfactory evidence of identification, which was a driver's license,
to be the person whose name is signed on the preceding or attached document, and
acknowledged to me that he signed it voluntarily for its stated purpose, as
Senior Vice President of Acadia Crescent Plaza LLC, a Delaware limited liability
company.




Notary Public
                                     My Commission expires______________________


                                                                 LORI M. SWEDLOW
                                                        C TYNo 01 SW491 New York

                           Qualified in Nassau County
                        Commission Expires Dec. 14, 2005


                                                             /s/ LORI M. SWEDLOW











 STATE                                      OF sV <. i cu- L___________________)
                                            ss.:
 COUNTY OF D r
           ---
                              ld'_________)
                              ---


                 On this "3O day of ) S t 2005, before me, the undersigned
 notary public, personally appeared A6,p d&rip.-i, proved to me through
 satisfactory evidence of identification, which was a driver's license, to be
 the person whose name is signed on the preceding or attached document, and
 acknowledged to me that he signed it voluntarily for its stated purpose, as~.t
 -tom, f'e Q~,/of Greenwich Capital Financial Products, Inc. a Delaware
 corporation.
                                  Notary Public
                                       My commission expires____________________
  (NOTARIAL SEAL) My commission expires:
                                              [GRAPHIC OMITTED][GRAPHIC OMITTED]
       ANNU L/ T

      NOTARY PU1LI
1.(1)1y CQMMlh [ON, I Xc1RF r=l1C o 3 i, 2U(3t?
                                  31128437.doc





















                                    EXHIBIT A
                        LEGAL DESCRIPTION OF REAL ESTATE


PARCEL 1:

That certain parcel of vacant land located on the southerly side of Crescent
Street, Brockton, Plymouth County, Massachusetts, and shown as Lot Cl on a Plan
entitled "Plan of Land in Brockton, Mass.", Owner: Robert E. Naser, dated
September 17, 1982, prepared by Loring H. Jacobs Co., Division of Boston Survey
Consultants, Inc., recorded with the Plymouth County Registry of Deeds as Plan
No. 668 of 1982 in Plan Book 23, Page 387.

Said Lot Cl containing 59,837 S.F. according to said Plan.

Together with a Right of Way as shown on said Plan for the benefit of Lot Cl as
set forth in a Deed from Robert E. Naser to Elizabeth Kelly, Trustee of
Lancaster Realty Trust dated November 24, 1982, recorded in Book 5254, Page 144.

PARCEL 2:

A parcel of land containing 22,544 Acres on a plan entitled "Plan of Land,
Brockton, Mass., Owned by Marvin L. Slomowitz", Scale 1" = 50', June 5, 1985,
prepared by Linenthal Eisenberg Anderson, Inc., which plan is recorded with the
Plymouth County Registry of Deeds in Plan Book 31, Page 721.

Together with the right to use of the utility lines and/or services and other
rights in, to and under the following instruments benefiting the land, all as
shown on that certain "Plan of Crescent Street Plaza, Brockton, Massachusetts,
Prepared for Marvin L. Slomowitz and Metropolitan Life Insurance Company", dated
June 20, 1988, and last revised October 14, 1988, by Linenthal Eisenberg
Anderson, Inc. (the "Survey"): (a) Drainage Easement recorded in Book 1689, Page
111, and shown on Plan entitled "Plan of Brockton owned by Harry A. Campitt and
David T. Chase", dated April 12, 1966, recorded as Plan No. 39301 of 1966 as
supplemented by Agreement between Marvin L. Slomowitz and the City of Brockton
recorded in Book 6664, Page 140 and (b) Easement recorded in Book 3638, Page
403.


                                       55









                                   SCHEDULE 2
- --------------------------------------------------------------------------------

                                REQUIRED REPAIRS
- --------------------------------------------------------------------------------

Full depth asphalt repairs and overlay                                $12,000
Repair curbs                                                          $1,600
Repair fencing                                                        $500
Gutter and downspout replacement                                      $1,600
Repair masonry pilaster at pedestrian walkway                         $1,000
Investigate and repair roof leaks                                     $3,000
                                                                      ---------

Total:                                                                $19,700
125%                                                                  $24,625











                                   SCHEDULE 3

                                    Rent Roll

                                  See Attached.


     
      atabaso; Bldg Status:

- -----------------------------------------------------------------------------------------------------------------------------------
AKR PROD                                                             Rent Roll                                  Page:    1
All                                                                Crescent Plaza                               Date:    8/31/2005
                                                                      813112005                                 Time:    12:27 PM
- -----------------------------------------------------------------------------------------------------------------------------------

                                                  GLA      Monthly   Annual    Monthly           Expense       Monthly --
Occupant Name     Rent Start   Expiraflon     Sgtt    Base   Rent   Rate PSF    Cost   Recovery   Stop      Other Income

- -------------------------------------------------------------------------------------------------------------------------


 Future Rent increases -
   PSF
  Cal    Date    Monthly Amount
- -------------------------------

Vacant Suites
0031 -30101    Vacant                                               7,500
Occupled
Suites

                                                     11/3012008                   2,480      5,833.33   28,23


               BANK BOSTONICB RICHARD ELLIS,          4/2411992
 0031   -31001
 0031   -31002 BROCKTON CVS #861                      313011987   11312008        8,750     11,571.92     15,87      2.399.81
 0031   -31003 CARDSMART RETAIL CORP. #8              611711999  6130/2006        3,020      2,403.42      9.55        349.96
 0031   -31004 FASHION BUG #670                       111211994  1/31/2010       17,000
 0031   -31005 DOTS INC. #258                         8/1211993  1/3112008        4,400     3,750.00      10.23        805.81
 0031   -31006 FEN Q.CHEN DBA DOLLAR SHOP             911612003  9/30/2008        2,624     2.702,72      12,36        686,84


 0031   -31007 GAMESTOP INC, ST#2225                  4/2412003  4/3012008        1,518      1,707.75     13,50        398,49
 0031   .31008 GENERAL NUTRITION CORP.,#3297           9/911995  9130/2005        1,500      1,375,00     11,00        655.86
 0031   -31009 HOME DEPOT USA INC., 02611             311512001 10131/2021      106,760     50,177.20      5.64     14,990.01







 0031   -31010 Sleepy's, Inc.                         8126/2005 11/30/2010        7,500      7,500,00     12,00        900.00
 0031   31011  MASSACHUSETTS DENTAL GROUF              7/1/1996  613012006        1,500      1,760.00     14.06        406.60
 0031   -31012 PAYLESS 9HOESOURCE #4467              1012311992 1013112007        3,500      3,208.33     11.00        605.80
 0031   -31013 SHAWS SUPERMARKET INC.,47407            41111987 1213112012       50,225     43,080.00     10.29      6,461.20

   Totals:    Oc cupled Wt:                              96.56%   13 Units      210,777    135,069.67 26,662,38          0.00
                Leased/Unocoupied Sgft:                            0 Units            0
              VacantSgft                                  3.44%    1 Units        7,500
                             Total SgIt                14 Units    218,277   135,069.67


  FMR    101112005     2,783.63  12,7$
  PMR    1011/2006     2,866.72  13.11
  FMR    1011/2007     2,952.00  13.50


  FMR    111112008    55,159.33   6.20
  FMR    1111/2016    60,675.27   6.62
  FMR    1111/2021    66,725.00   7.50
  FMR    1111/2026    73,397.50   8.25
  FMR    1111/2031    80,781.73   9.08
  FMR    11/1/2036    88,966,67  10.00
  FMR    111112041    97,863.33  11,00
  FMR    111112046   107,649.66  12,10





     
- ------------------------------------------------------------------------------------------------------------------------------------
Database:   AKR_PROD                                                              Rent Roll                         Page:          2
Bids Status:All                                                                Crescent Plaza                       Date:  8131/2005
                                                                                  813112005                         Time:      12:27

- -----------------------------------------------------------------------------------------------------------------------------------

                                                  GLA      Monthly   Annual    Monthly           Expense       Monthly --
Occupant Name     Rent Start   Expiraflon     Sgtt    Base   Rent   Rate PSF    Cost   Recovery   Stop      Other Income

- -------------------------------------------------------------------------------------------------------------------------


 Future Rent increases -
   PSF
  Cal    Date    Monthly Amount
- -------------------------------



Total Crescent Plaza:
                                          96,56%   13 Unit$      210,777    135,069.67              28,662.38                 0.00
                                         -------------------------------------------------------------------------------------------
                       Occupied Sqh:
                   Leased/Unoccuptad               0 Units             0
                                Sgft
                         VacantSgft:      3.440%   1 Units         7,500
                         Total Sgtt:               14 Units      218,277    135,069.67
Grind Total:
                                                                                                                              0.00
                     Occupied Still:     96.56%0   13 Units      210,777    135,069.67              26,652.33
                   Leased/Unoccupied               0 UnIts             0
                                Sgft
                        Vacant Sgft:       3,44%   1 Units         7,500
                         Total Sgtt:               14 Units      218,277    135,069.67






                          PACESETTER/RAMAPO ASSOCIATES
                                   (Mortgagor)

                                       to

                   GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
                                   (Mortgagee)


                    MORTGAGE, ASSIGNMENT OF LEASES AND RENTS
                             AND SECURITY AGREEMENT



                          Dated: As of October 17, 2005


                  Property Location: Pacesetter Shopping Center

                                                     Pomona, New York

             DOCUMENT PREPARED BY AND WHEN RECORDED, RETURN TO:

                                Kaye Scholer LLP
                                 425 Park Avenue
                          New York, New York 10022-3598
                        Attention: Stephen Gliatta, Esq.



THIS MORTGAGE DOES NOT COVER REAL PROPERTY PRINCIPALLY IMPROVED BY ONE OR MORE
STRUCTURES CONTAINING, IN THE AGGREGATE, NOT MORE THAN SIX RESIDENTIAL DWELLING
UNITS, EACH HAVING ITS OWN SEPARATE COOKING FACILITIES


              MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY
                                    AGREEMENT

          ,THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT
 (herein "INSTRUMENT") is made as of October 17, 2005, and is given by the
 mortgagor, PACESETTER! APO ASSOCIATES, a New York limited partnership whose
 address is c/o Acadia Realty Trust, 1311 Mamaroneck Avenue, White Plains, New
 York 10605, (herein "BORROWER"), to the mortgagee, GREENWICH CAPITAL FINANCIAL
 PRODUCTS, INC., a corporation organized and existing under the laws of the
 state of Delaware, whose address is 600 Steamboat Road, Greenwich, Connecticut
 06830, together with its successors, assigns and transferees (herein "LENDER").




                                    RECITALS

           Lender is making a secured loan to Borrower in the original principal
amount of $12,500,000 (the "LOAN"). The Loan is evidenced by that certain
Promissory Note dated the date hereof made by Borrower to Lender in such
principal amount (as the same may be amended, modified, restated, severed,
consolidated, renewed, replaced, or supplemented from time to time, the "NOTE").

           BORROWER, in consideration of the indebtedness herein recited,
irrevocably grants, conveys, mortgages and assigns to Lender WITH POWER OF SALE
AND RIGHTS OF ENTRY AND POSSESSION, the following described property located in
the County of Rockland, State of New York, and more particularly described on
Exhibit "A" attached hereto and incorporated herein by reference for all
purposes.

           TOGETHER with all buildings, improvements and tenements now or
hereafter erected on the property, and all heretofore or hereafter vacated
alleys and streets abutting the property, and all easements, rights,
appurtenances, rents (subject however to the assignment of rents to Lender
herein), royalties, mineral, oil and gas rights and profits, water, water
rights, and water stock appurtenant to the property, and all fixtures,
machinery, equipment, engines, boilers, incinerators, building materials,
appliances and goods of every nature whatsoever now or hereafter located in, or
on, or used, or intended to be used in connection with the property, including,
but not limited to, those for the purposes of supplying or distributing heating,
cooling, electricity, gas, water, air and light; and all elevators, and related
machinery and equipment, fire prevention and extinguishing apparatus, security
and access control apparatus, plumbing, bath tubs, water heaters, water closets,
sinks, ranges, stoves, refrigerators, dishwashers, disposals, washers, dryers,
awnings, storm windows, storm doors, screens, blinds, shades, curtains and
curtain rods, mirrors, cabinets, paneling, rugs, attached floor coverings,
furniture, pictures, antennas, trees and plants, tax refunds, trade names,
licenses, permits, Borrower's rights to insurance proceeds, unearned insurance
premiums and chooses in action; all of which, including replacements and
additions thereto and substitutions therefor, shall be deemed to be and remain a
part of the real property covered by this Instrument; and all of the foregoing,
together with said property are herein referred to as the "PROPERTY";

           TOGETHER with all right, title and interest in, to and under any and
all leases now or hereinafter in existence (as amended or supplemented from time
to time) and covering space in or applicable to the Property (hereinafter
referred to collectively as the "LEASES" and singularly as a "LEASE"), together
with all rents, earnings, income, profits, benefits and advantages arising from
the Property and from said Leases and all other sums due or to become due under
and pursuant thereto, and together with any and all guarantees of or under any
of said Leases, and together with all rights, powers, privileges, options and
other benefits of Borrower as lessor under the Leases, including, without
limitation, the immediate and continuing right to receive and collect all rents,
income, revenues, issues, profits, condemnation awards, insurance proceeds,
moneys and security payable or receivable under the Leases or pursuant to any of
the provisions thereof, whether as rent or otherwise, the right to accept or
reject any offer made by any tenant pursuant to its Lease to purchase the
Property and any other property subject to the Lease as therein provided and to
perform all other necessary or appropriate acts with respect to such Leases as
agent and attorney-in-fact for Borrower, and the right to make all waivers and
agreements, to give and receive all notices, consents and releases, to take such
action upon the happening of a default under any Lease, including the

                                       1



commencement, conduct and consummation of proceedings at law or in equity as
shall be permitted under any provision of any Lease or by any law, and to do any
and all other things whatsoever which the Borrower is or may become entitled to
do under any such Lease together with all accounts receivable, contract rights,
franchises, interests, estates or other claims, both at law and in equity,
relating to the Property, to the extent not included in rent earnings and income
under any of the Leases;

          TOGETHER with all right, title and interest in, to and under any and
all reserve, deposit or escrow accounts (the "ACCOUNTS") made pursuant to any
loan document made between Borrower and Lender with respect to the Property,
together with all income, profits, benefits and advantages arising therefrom,
and together with all rights, powers, privileges, options and other benefits of
Borrower under the Accounts, and together with the right to do any and all other
things whatsoever which the Borrower is or may become entitled to do under the
Accounts;

         TOGETHER with all agreements, contracts, certificates, guaranties,
warranties, instruments, franchises, permits, licenses, plans, specifications
and other documents, now or hereafter entered into, and all rights therein and
thereto, pertaining to the use, occupancy, construction, management or operation
of the Property and any part thereof and any improvements or respecting any
business or activity conducted on the Property and any part thereof and all
right, title and interest of Borrower therein, including the right to receive
and collect any sums payable to Borrower thereunder and all deposits or other
security or advance payments made by Borrower with respect to any of the
services related to the Property or the operation thereof;

         TOGETHER with 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

         TOGETHER with any and all proceeds resulting or arising from any of the
foregoing (the Property, the Leases, the Accounts, and all other property,
whether real, personal, tangible, or intangible, described above, and all
proceeds thereof, may be referred to collectively as the "COLLATERAL").

        THIS INSTRUMENT SECURES TO LENDER (a) the repayment of the indebtedness
evidenced by the Note in the principal sum of TWELVE MILLION FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS $12,500,000 (the "Principal'), with interest
thereon, with the balance of the indebtedness, if not sooner paid, due and
payable on November 6, 2015 (the "MATURITY DATE"), and all renewals, extensions
and modifications thereof; (b) the performance of the covenants and agreements
of Borrower contained in an Environmental Indemnity Agreement (herein so-called)
between Lender and Borrower dated of even date herewith; (c) the payment of all
other sums, with interest thereon, advanced by Lender in accordance herewith to
protect the security of this Instrument; and (d) the performance of the
covenants and agreements of Borrower herein contained, or contained in any other
Loan Document, INCLUDING BORROWER'S COVENANT TO REPAY ALL FUTURE ADVANCES (the
Note, this Instrument, and all other documents or instruments given by Borrower

                                       2



or others and accepted by Lender for purposes of evidencing, securing,
perfecting, or guaranteeing the indebtedness evidenced by the Note may be
referred to as the "LOAN DOCUMENTS"). Without limitation of the foregoing, the
following documents and instruments of even date herewith are also Loan
Documents: (i) Assignment of Leases and Rents from Borrower to Lender, (ii)
Assignment of Agreements, Licenses, Permits and Contracts from Borrower to
Lender, (iii) the Clearing Account Agreement (the "CLEARING ACCOUNT AGREEMENT")
among Borrower, Lender, Acadia Realty Limited Partnership ("MANAGER") and Bank
of America, N.A., (iv) the Deposit Account Agreement (the "DEPOSIT ACCOUNT
AGREEMENT") AMONG Borrower, Lender, Manager and Deposit Bank, (v) the Guaranty
of Recourse Obligations (the "GUARANTY") made by Acadia Realty Limited
Partnership, a Delaware limited partnership ("GUARANTOR"), (vi) the Certificate
of Borrower and (vii) Environmental Indemnity Agreement made by Borrower for the
benefit of Lender (the "ENVIRONMENTAL INDEMNITY AGREEMENT"), as each of the
foregoing may be (and each of the foregoing defined terms shall refer to such
documents as they may be) amended, restated, replaced, supplemented or otherwise
modified from time to time.

         Borrower covenants that Borrower is lawfully seized of the estate
hereby conveyed and has the right to mortgage, grant, convey and assign the
Property, that the Property is unencumbered, and that Borrower will warrant and
defend generally the title to the Property against all claims and demands,
subject to any easements and restrictions listed in a schedule of exceptions to
coverage in any title insurance policy insuring Lender's interest in the
Property.

          Borrower represents, warrants, covenants and agrees in favor of Lender
as follows:

          SECTION 1. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall promptly
pay when due the principal of and interest on the indebtedness evidenced by the
Note, any prepayment and late charges provided in the Note and all other sums
secured by this Instrument.

          SECTION 2. INTENTIONALLY DELETED.

          SECTION 3. APPLICATION OF PAYMENTS. Lender may apply any payments
received from or on behalf of Borrower to any of the obligations of Borrower
then due under the Loan Documents, in any order determined by Lender.
31142680.DOC

         SECTION 4. CHARGES; LIENS. Borrower shall pay all rents, taxes, charges
assessments and impositions attributable to the Property (collectively "TAXES")
when due. Unless Lender is paying such Taxes in accordance with Section 25,
Borrower shall promptly furnish to Lender all notices of amounts due under this
Section, and in the event Borrower shall make payment directly, Borrower shall
promptly furnish to Lender receipts evidencing such payments. Except only for
the liens and security interests in favor of Lender under this Instrument and
the other Loan Documents, which Borrower shall pay and discharge in accordance
with the Loan Documents, Borrower shall promptly discharge any lien encumbering
all or any portion of or interest in the Property (unless such lien is bonded
within 30 days after Borrower first receives notice of such lien), irrespective
of the priority of the same. Borrower shall pay, when due, the claims of all
persons supplying labor or materials to or in connection with the Property
(unless such claims are the subject of a bona fide dispute in which Borrower is
contesting the amount or validity thereof).

                                       3




         SECTION 5. HAZARD INSURANCE. Borrower shall at all times keep the
improvements now existing or hereafter erected on the Property insured against
all losses, hazards, casualties, liabilities and contingencies as Lender shall
reasonably require and in such amounts and for such periods as Lender shall
reasonably require. Borrower shall purchase and maintain policies of insurance
with respect to the Property in such amounts and covering such risks as shall be
satisfactory to Lender, including, but not limited to, the following:

                  (a) Property damage insurance covering loss or damage to the
Property caused by fire, lightning, hail, windstorm, explosion, hurricane (to
the extent available), vandalism, malicious mischief, t nd, if available and
subject to subsection (i) below, coverage for damage or destruction caused by
the acts of "Terrorists" (or such policies shall have no exclusion from coverage
with respect thereto) and such other losses, hazards, casualties, liabilities
and contingencies as are nonnially and usually covered by fire policies in
effect where the Property is located endorsed to include all of the extended
coverage perils and other broad form perils, including the standard "all risks"
clauses. Such policy shall be in an amount not less than that necessary to
comply with any coinsurance percentage stipulated in the policy, but not less
than 100% of the full replacement cost of the improvements on the Property
(without any deduction for depreciation) and shall contain a replacement cost
endorsement. The deductible under such policy, if any, shall not exceed the
lesser of five percent (5%) of Net Operating Income or $25,000. Further, if any
of the improvements or the use of the Property shall at any time constitute
legal nonconforming structures or uses under current zoning ordinances, such
policy shall contain an "Ordinance or Law Coverage" or "Enforcement" endorsement
providing coverage for demolition, increased cost of construction and inability
to rebuild.

                  (b) Broad form boiler and machinery insurance in an amount
equal to the lesser of 100% of the full replacement cost of the building
(without any deduction for depreciation) in which the boiler or similar vessel
is located, or $2,000,000. In addition, Lender may require a rider to such
policy to extend such coverage to electrical machinery and equipment, air
conditioning, refrigeration, and mechanical objects.

                  (c) If the Property is in an area prone to geological
phenomena, including, but not limited to, sinkholes, mine subsidence or
earthquakes, insurance covering such risks in an amount equal to 100% of the
full replacement cost of the improvements on the Property (without any deduction
for depreciation), and with a maximum permissible deductible equal to the lesser
of $25,000 or 10% of the face value of the policy.

                  (d) Flood insurance if the Property is in an area now or
hereafter designated by the Federal Emergency Management Agency as a Zone "A" &
"V" Special Hazard Area, or such other Special Hazard Area if Lender so requires
in its sole discretion. Such policy shall be in an amount equal to $5,000,000 of
flood coverage on the total Property, plus $500,000 of federal flood coverage on
each of the buildings at the Property, and shall have a maximum permissible
deductible of $3,000.

                  (e) Business interruption or rent loss insurance in an amount
equal to the gross income or rentals from the Property for an indemnity period
of eighteen months, such amount being adjusted annually.

                                       4



                  (f) During any period of reconstruction, renovation or
alteration of the Property in excess of 10% of the Note, a completed value, "All
Risks" Builders Risk form or "Course of Construction" insurance policy in
non-reporting form and in an amount satisfactory to Lender in Lender's sole
discretion.

                  (g) Commercial General Liability insurance covering bodily
injury and death in an amount not less than $1,000,000 per occurrence and
$2,000,000 in the aggregate with no deductible, together with at least
$10,000,000 excess and/or umbrella liability insurance for any and all claims.

                  (h) If required by applicable state laws, worker's
compensation or employer's liability insurance in accordance with such laws.

                  (i) Notwithstanding anything in subsection (a) above to the
contrary, Borrower shall be required to obtain and maintain coverage in its
property insurance policy (or by a separate policy) against loss or damage by
terrorist acts provided that such coverage is available. Borrower shall obtain
such coverage from a carrier which otherwise satisfies the rating criteria
specified in this Section 5 (a "QUALIFIED CARRIER") or in the event that such
coverage is not available from a Qualified Carrier, Borrower shall obtain such
coverage from the highest rated insurance company providing such coverage. If
such coverage with respect to terrorist acts is available as aforesaid, Borrower
shall obtain and maintain such coverage in an amount equal to 100% of the "Full
Replacement Cost" of the Property.

                  (j) Such other insurance and endorsements, if any, as Lender
may reasonably require from time to time, or which are required by the Loan
Documents.

         Each carrier providing any insurance, or portion thereof, required by
this Section shall be issued by companies approved by Lender and licensed to do
business in the State, with a claims paying ability rating of "A" or better by
S&P (and the equivalent by any other Rating Agency) and a rating of A:X or
better in the current Best's Insurance Reports; provided, that, the liability
insurance required under paragraph (g) of this Section shall be issued by
companies approved by Lender and licensed to do business in the State, with a
claims paying ability rating of "A" or better by S&P (and the equivalent by any
other Rating Agency) and a rating of A:X or better in the current Best's
Insurance Reports. Borrower shall cause all insurance (except general public
liability insurance) carried in accordance with this Section to be payable to
Lender as a mortgagee and not as a coinsured, and, in the case of all policies
of insurance carried by each lessee for the benefit of Borrower, if any, to
cause all such policies to be payable to Lender as Lender's interest may appear.
All premiums on insurance policies shall be paid, in the manner provided under
Section 25(d) hereof, or in such other manner as Lender may designate in
writing.

         All insurance policies and renewals thereof (i) shall be in a form
acceptable to Lender, (ii) shall provide for a term of not less than one year,
(iii) shall provide by way of endorsement, rider or otherwise that such
insurance policy shall not be canceled, endorsed, altered, or reissued to effect

                                       5



a change in coverage unless such insurer shall have first given Lender 30 days
prior written notice thereof, (iv) shall include a standard mortgagee clause in
favor of and in form acceptable to Lender, (v) shall provide for claims to be
made on an occurrence basis, except that boiler and machinery coverage may be
made on an accident basis, and (vi) shall contain an agreed value clause updated
annually (if the amount of coverage under such policy is based upon the
replacement cost of the Property). All property damage insurance policies
(except for flood and earthquake policies) must automatically reinstate after
each loss.

         Notwithstanding anything to the contrary contained herein, the
insurance coverages required under this Section 5 may be effected under a
blanket policy or policies covering the Property and other property and assets
not constituting a part of the security for the Loan; provided that Borrower
shall provide evidence reasonably satisfactory to Lender that the insurance
premiums for the Property are separately allocated under such policy to the
Property and that (i) payment of such allocated amount shall maintain the
effectiveness of such policy as to the Property notwithstanding the failure of
payment of any other portion of premiums, and (ii) overall insurance limits will
under no circumstance limit the amount that will be paid in respect of the
Property, and provided further that any such blanket policy shall contain an
amendment setting forth that (A) the aggregate limit under such policy shall
apply separately to each property covered thereunder, and (B) unless otherwise
agreed to by Lender (which consent shall not be unreasonably withheld), the
limit of such policy shall be a "true blanket limit" and not limited by a
schedule of values for the properties covered thereby (any such blanket policies
which complies with such conditions, an "ACCEPTABLE BLANKET POLICY").

         Lender shall have the right to hold the policies, and Borrower shall
promptly furnish to Lender all renewal notices and all receipts of paid
premiums. Not less than five (5) days prior to the expiration date of any
insurance policy required hereunder, a certificate of insurance evidencing the
renewal of such policy, together with evidence satisfactory to Lender of payment
in full of the annual premium therefor, shall be delivered by Borrower to
Lender. Not more than forty-five (45) days after to the expiration date of any
insurance policy required hereunder, Borrower shall deliver to Lender a renewal
insurance policy in form satisfactory to Lender.

          If the Property is damaged or destroyed, in whole or in part, by fire
or other casualty (a "CASUALTY"), Borrower shall give immediate written notice
thereof to Lender and to the insurance carrier. If a Casualty covered by any of
the policies of insurance (an "INSURED CASUALTY") occurs where the loss does not
exceed $1,000,000, provided no Event of Default has occurred and is continuing,
Borrower may settle and adjust any claim without the prior consent of Lender;
provided such adjustment is carried out in a competent and timely manner, and
Borrower is hereby authorized to collect and receipt for the insurance proceeds.
In the event of an Insured Casualty where the loss equals or exceeds $1,000,000
(a "SIGNIFICANT CASUALTY"), Borrower may settle and adjust any claim with the
prior consent of Lender (which consent shall not be unreasonably withheld or
delayed) unless an Event of Default has occurred and is continuing in which case
Lender may settle and adjust any claim without the consent of Borrower and agree
with the insurer(s) on the amount to be paid on the loss, which settlement and
adjustment shall be in Lender's sole and absolute discretion. The proceeds with
respect to any Significant Casualty shall be due and payable solely to Lender
and held by Lender in the Casualty/Condemnation Subaccount and disbursed in
accordance herewith. If Borrower or any party other than Lender is a payee on
any check representing insurance proceeds with respect to a Significant

                                       6



Casualty, Borrower shall immediately endorse, and cause all such third parties
to endorse, such check payable to the order of Lender. Borrower hereby
irrevocably appoints Lender as its attorney-infact, coupled with an interest, to
endorse such check payable to the order of Lender. Borrower further authorizes
Lender, at Lender's option, (a) to hold the balance of such proceeds with
respect to any Significant Casualty to be used to reimburse Borrower for the
cost of reconstruction or repair of the Property or (b) subject to the
immediately following paragraph, to apply such proceeds to the payment of the
sums secured by this Instrument whether or not then due, in any order. The
expenses incurred by Lender in the settlement, adjustment and collection of any
insurance proceeds shall become part of the Debt and shall be reimbursed by
Borrower to Lender upon demand.

          Lender shall not exercise Lender's option to apply insurance proceeds
to the payment of the sums secured by this Instrument if all of the following
conditions are met: (i) no Event of Default has occurred which is then
continuing; (ii) Lender deteimines that there will be sufficient funds to
restore and repair the Property to the Pre-existing Condition (as hereinafter
defined); (iii) Lender agrees in writing that the rental income of the Property,
after restoration and repair of the Property to the Pre-existing Condition, will
be sufficient to meet all operating costs and other expenses, payments for
reserves and loan repayment obligations (including any obligations under any
permitted subordinate financing) relating to the Property and maintain a Debt
Service Coverage Ratio of at least 1.25 to 1.0; (iv) Lender deteiiiiines that
restoration and repair of the Property to the Pre-existing Condition will be
completed within one year of the date of the loss or casualty to the Property,
but in no event later than six months prior to the Maturity Date; (v) less than
30 percent of the total floor area of the improvements has been damaged,
destroyed or rendered unusable as a result of such fire or other casualty; (vi)
tenant leases demising in the aggregate at least 65% of the total rentable space
at the Property in effect as of the date of the occurrence of such fire or other
casualty remain in full force and effect during and after the completion of the
restoration and repair of the Property; and (vii) Lender is reasonably satisfied
that the Property can be restored and repaired as nearly as possible to the
condition it was in immediately prior to such casualty and in compliance with
all applicable zoning, building and other laws and codes (the "PRE-EXISTING
CONDITION"). If Lender elects to make the insurance proceeds available for the
restoration and repair of the Property, Borrower agrees that, if at any time
during the restoration and repair, the cost of completing such restoration and
repair, as determined by Lender, exceeds the undisbursed insurance proceeds,
Borrower shall, immediately upon demand by Lender, deposit the amount of such
excess with Lender, and Lender shall first disburse such deposit to pay for the
costs of such restoration and repair on the same terms and conditions as the
insurance proceeds are disbursed.

          If the insurance proceeds are held by Lender to reimburse Borrower for
the cost of restoration and repair of the Property, then Borrower shall restore
the Property to the equivalent of its original condition or such other condition
as Lender may approve in writing, and Borrower shall promptly begin such
restoration and at all times thereafter diligently prosecute such restoration to
completion. Lender may, at Lender's option, condition disbursement of said
proceeds on Lender's approval of such plans and specifications of an architect
satisfactory to Lender, contractor's cost estimates, architect's certificates,
waivers of liens, sworn statements of mechanics and materialmen and such other
evidence of costs, percentage completion of construction, application of
payments; and satisfaction of liens as Lender may reasonably require. If the

                                       7



insurance proceeds are applied to the payment of the sums secured by this
Instrument, any such application of proceeds to principal shall not extend or
postpone the due dates of the monthly installments due under the Note, under
Section 25(d) hereof, or otherwise under the Loan Documents, or change the
amounts of such installments. If the Property is sold at foreclosure or pursuant
to power of sale or if Lender acquires title to the Property, Lender shall have
all of the right, title and interest of Borrower in and to any insurance
policies and unearned premiums thereon and in and to the proceeds resulting from
any damage to the Property prior to such sale or acquisition.

          SECTION 6. PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower (a)
shall not commit waste or permit impairment or deterioration of the Property,
(b) shall not abandon the Property, (c) shall restore or repair promptly and in
a good and workmanlike manner all or any part of the Property to the equivalent
of its original condition, or such other condition as Lender may approve in
writing, in the event of any damage, injury or loss thereto, whether or not
insurance proceeds are available to cover in whole or in part the costs of such
restoration or repair, (d) shall keep the Property, including improvements,
fixtures, equipment, machinery and appliances thereon in good repair and shall
replace fixtures, equipment, machinery and appliances on the Property when
necessary to keep such items in good repair, (e) shall comply with all laws,
ordinances, regulations and requirements of any governmental body applicable to
the Property, (f) shall provide for management of the Property by Acadia Realty
Limited Partnership, or otherwise provide for professional third-party
management of the Property by a commercial property manager with substantial
experience in managing properties of the applicable kind, and otherwise
satisfactory to Lender, pursuant to a contract approved by Lender in writing,
unless such requirement shall be waived by Lender in writing, (g) shall
generally operate and maintain the Property in a manner to ensure maximum
rentals, and (h) shall give notice in writing to Lender of and, unless otherwise
directed in writing by Lender, appear in and defend any action or proceeding
purporting to affect the Property, the security of this Instrument or the rights
or powers of Lender. Neither Borrower nor any tenant or other person shall
remove, demolish or alter any improvement now existing or hereafter erected on
the Property or any fixture, equipment, machinery or appliance in or on the
Property except when incident to the replacement of fixtures, equipment,
machinery and appliances with items of like kind.

         SECTION 7. USE OF PROPERTY. Unless required by applicable law or unless
Lender has otherwise agreed in writing, Borrower shall not allow changes in the
use for which all or any part of the Property was intended at the time this
Instrument was executed. Borrower shall not subdivide the Property or initiate
or acquiesce in a change in the zoning classification of the Property without
Lender's prior written consent.

         SECTION 8. PROTECTION OF LENDER'S SECURITY. If Borrower fails to
perform the covenants and agreements contained in this Instrument, or if any
action or proceeding is commenced which affects the Property or title thereto or
the interest of Lender therein, including, but not limited to, eminent domain,
insolvency, code enforcement, or arrangements or proceedings involving a
bankrupt or decedent, Lender, at Lender's option, may make such appearances,
disburse such sums and take such action as Lender deems necessary, in its sole
discretion, to protect Lender's interest, including, but not limited to, (i)
disbursement of attorney's fees, (ii) entry upon the Property to make repairs,
(iii) procurement of satisfactory insurance as provided herein, (iv) the payment
of any Taxes then due and payable, and (v) payment of any other amounts

                                       8



contemplated in any of the Loan Documents. Any amounts disbursed by Lender
pursuant to this Section, with interest thereon, shall become additional
indebtedness of Borrower secured by this Instrument. Unless Borrower and Lender
agree to other terms of payment, such amounts shall be immediately due and
payable upon demand and shall bear interest from the date of disbursement at the
rate then applicable to principal under the Note unless collection from Borrower
of interest at such rate would be contrary to applicable law, in which event
such amounts shall bear interest at the highest rate which may be collected from
Borrower under applicable law. Nothing contained in this Section or elsewhere in
any of the Loan Documents shall require Lender to incur any expense or take any
action hereunder.

         SECTION 9. INSPECTION. Lender may make or cause to be made reasonable
entries upon and inspections of the Property including, but not limited to,
Phase I and/or Phase II environmental audits and inspections.

         SECTION 10. BOOKS AND RECORDS. Borrower shall keep and maintain at all
times at Borrower's address stated herein, or such other place as Lender may
approve in writing, complete and accurate books of accounts and records adequate
to reflect correctly the results of the operation of the Property and copies of
all written contracts, leases and other instruments which affect the Property.
Such books, records, contracts, leases and other instruments shall be subject to
examination and inspection at any reasonable time by Lender.

          Borrower shall furnish to Lender annually, within 120 days after each
calendar year, a complete copy of Borrower's annual financial statements
prepared as a compilation (without a review and without disclosures) by a "big
four" accounting firm or another independent certified public accountant
reasonably acceptable to Lender, each in accordance with GAAP or a federal
income tax basis of accounting, in either case, consistently applied, and
containing balance sheets and statements of profit and loss for Borrower and the
Property in such detail as Lender may reasonably request. Each such statement
(x) shall be in form and substance satisfactory to Lender, (y) shall set forth
the financial condition and the income and expenses for the Property for the
immediately preceding calendar year, including statements of annual Net
Operating Income as well as (1) a list of commercial tenants, if any, occupying
more than twenty percent of the rentable space of the Property, (2) a breakdown
showing (a) the year in which each commercial Lease then in effect expires, and
(b) the percentage of rentable space covered by such commercial Lease as stated
in such Lease, and (z) shall be accompanied by an Officer's Certificate (as
defined in Section 25 hereof) certifying (1) that such statement is true,
correct, complete and accurate and presents fairly the financial condition of
the Property and has been prepared in accordance with GAAP or a federal income
tax basis of accounting, in either case, consistently applied, and (2) whether
there exists an Event of Default, and if so, the nature thereof, the period of
time it has existed and the action then being taken to remedy it.

         On or before the 45th day after the end of each three-month fiscal
quarter of Borrower (which may include months for which reports shall have been
submitted under the prior sentence), Borrower shall deliver to Lender management
prepared financial statements for such quarter. Each set of such financial
statements (i) shall consist of an operating statement of income and expenses of
the Property, (ii) shall be in form and detail reasonably satisfactory to Lender
and (iii) shall be accompanied by an Officer's Certificate certifying that the
applicable statements are true, complete, and accurate and do not omit to state
any material information. All of such financial statements shall provide
information for the applicable month or quarter and on a year-to-date basis (and
at the end of the fourth quarter, for the year).

                                       9



         Borrower shall furnish, together with the foregoing financial
statements and at any other time upon Lender's request, a rent schedule for the
Property, certified by Borrower, showing the name of each tenant, and for each
tenant, the space occupied, the lease expiration date, the rent payable and the
rent paid.

         In addition to the above delivery of financial statements and rent
schedule, Borrower shall deliver to Lender updated versions of such financial
statements at any other time upon Lender's request, including operating
statements of income and expenses of the Property. Borrower shall also furnish
to Lender, during any Cash Management Period, the Annual Budget in accordance
with Section 28(h) of this Instrument. Further, Borrower shall provide to
Lender, as soon as the same are available to Borrower, all financial statements
and sales reports received from any tenant at the Property.

         SECTION 11. CONDEMNATION. Borrower shall promptly give Lender notice of
the actual or threatened commencement of any condemnation or eminent domain
proceeding affecting the Property (a "CONDEMNATION") and shall deliver to Lender
copies of any and all papers served in connection with such Condemnation.
Following the occurrence of a Condemnation, Borrower, regardless of whether an
Award is available, shall promptly proceed to restore, repair, replace or
rebuild the Property in accordance with Legal Requirements to the extent
practicable to be of at least equal value and of substantially the same
character (and to have the same utility) as prior to such Condemnation. If a
Condemnation occurs where the award or payment in respect thereof (an "AWARD")
does not exceed $500,000 or which results in the taking of 5% or less of the
Property, provided no Event of Default has occurred and is continuing, Borrower
may make any compromise, adjustment or settlement in connection with such
Condemnation without the prior consent of Lender; provided such adjustment is
carried out in a competent and timely manner, and Borrower is hereby authorized
to collect and receipt for the Award. In the event of a Condemnation where the
Award is in excess of $500,000 or which results in the taking of more than 5% of
the Property, Lender is hereby irrevocably appointed as Borrower's
attorney-in-fact, coupled with an interest, with exclusive power to collect,
receive and retain any Award and, so long as no Event of Default is continuing,
with Borrower's consent (which consent shall not be unreasonably withheld or
delayed) to make any compromise, adjustment or settlement in connection with
such Condemnation. Borrower shall cause any Award that is payable to Borrower to
be paid directly to Lender. Lender shall hold such Award in the
Casualty/Condemnation Subaccount and disburse such Award in accordance with the
terms hereof.

          Borrower authorizes Lender to apply such Award, after the deduction of
Lender's expenses incurred in the collection of such amounts, at Lender's
option, to restoration or repair of the Property or to payment of the sums
secured by this Instrument, whether or not then due, in the order determined by
Lender, with the balance, if any, to Borrower. Unless Borrower and Lender

                                       10



otherwise agree in writing, any application of proceeds to principal shall not
extend or postpone the due date of the monthly installments due hereunder or
under any of the Loan Documents or change the amount of such installments.
Borrower agrees to execute such further evidence of assignment of any awards,
proceeds, damages or claims arising in connection with such condemnation or
taking as Lender may require.

          SECTION 12. BORROWER AND LIEN NOT RELEASED. From time to time, Lender
may, at Lender's option, without giving notice to or obtaining the consent of
Borrower, Borrower's successors or assigns or of any junior lienholder or
guarantors, without liability on Lender's part and notwithstanding Borrower's
breach of any covenant or agreement of Borrower in this Instrument, extend the
time for payment of said indebtedness or any part thereof, reduce the payments
thereon, release anyone liable on any of said indebtedness, accept a renewal
note or notes therefor, modify the terms and time of payment of said
indebtedness, release from the lien of this Instrument any part of the Property,
take or release other or additional security, reconvey any part of the Property,
consent to any map or plan of the Property, consent to the granting of any
easement, join in any extension or subordination agreement, and agree in writing
with Borrower to modify the rate of interest or period of amortization of the
Note or change the amount of the monthly installments payable thereunder. Any
actions taken by Lender pursuant to the terms of this Section shall not affect
the obligation of Borrower or Borrower's successors or assigns to pay the sums
secured by this Instrument and to observe the covenants of Borrower contained
herein, shall not affect the guaranty of any person, corporation, partnership or
other entity for payment of the indebtedness secured hereby, and shall not
affect the lien or priority of lien hereof on the Property. Borrower shall pay
Lender a reasonable service charge, together with such title insurance premiums
and attorney's fees as may be incurred at Lender's option, for any such action
if taken at Borrower's request.

         SECTION 13. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument
is intended to be a security agreement pursuant to the Uniform Commercial Code
for any of the items specified above as part of the Collateral which, under
applicable law, may be subject to a security interest pursuant to the Unifoiin
Commercial Code, and Borrower hereby grants Lender a security interest in said
items. Borrower agrees that Lender may file this Instrument, or a reproduction
thereof, in the real estate records or other appropriate index, as a financing
statement for any of the items specified above as part of the Collateral. Any
reproduction of this Instrument or of any other security agreement or financing
statement shall be sufficient as a financing statement. In addition, Borrower
agrees to execute and deliver to Lender, upon Lender's request, any financing
statements, as well as extensions, renewals and amendments thereof, and
reproductions of this Instrument in such form as Lender may require to perfect a
security interest with respect to said items. Borrower shall pay all costs of
filing such financing statements and any extensions, renewals, amendments and
releases thereof, and shall pay all reasonable costs and expenses of any record
searches for financing statements Lender may reasonably require. Without the
prior written consent of Lender, Borrower shall not create or suffer to be
created pursuant to the Uniform Commercial Code any other security interest in

                                       11



said items, including replacements and additions thereto. Upon Borrower's breach
of any covenant or agreement of Borrower contained in this Instrument, including
the covenants to pay when due all sums secured by this Instrument, Lender shall
have the remedies of a secured party under the Uniform Commercial Code and, at
Lender's option, may also invoke the remedies provided herein or in any of the
Loan Documents, or pursuant to any applicable law as to such items. In
exercising any of said remedies, Lender may proceed against the items of real
property and any items of personal property specified above as part of the
Collateral separately or together and in any order whatsoever, without in any
way affecting the availability of Lender's remedies under the Uniform Commercial
Code or of the remedies provided herein or in any of the Loan Documents. For
purposes of the Security Agreement and the fixture filing, the Borrower shall
constitute the "DEBTOR" and shall have the address specified in the first
paragraph of this Instrument and the Lender shall constitute the "SECURITY
PARTY" and shall have the address specified in the first paragraph of this
Instrument.

         SECTION 14. LEASES OF THE PROPERTY. Borrower shall comply with and
observe Borrower's obligations as landlord under all leases of the Property or
any part thereof. Borrower will not lease any portion of the Property for any
use contrary to the existing character of the Property except with the prior
written approval of Lender. Borrower may execute or modify, without Lender's
prior written consent, any lease of space at the Property now existing or
hereafter made which affects less than 5,000 square feet of space at the
Property and provided the term of such lease is five years or less (an "EXEMPT
LEASE") provided such lease:

                           (i) is on a standard lease form pre-approved by
Lender;

                           (ii) is at a net effective rent (after taking into
account any free rent, construction allowances or other concessions granted by
landlord) no less than the current actual rent or fair market rent then
prevailing for similar properties and leases in the market area;

                           (iii) contains rent or other concessions which are
legally required or are otherwise customary and reasonable for similar
properties and leases in the market area;

                           (iv) represents a bona fide arm's length transaction;

                           (v) does not permit any use which would violate any
provision of any existing lease or is otherwise inconsistent with the uses and
quality of existing tenants;

                           (vi) is provided to Lender within ten days after
execution;

                           (vii) as modified or amended does not become a lease
which fails to satisfy the criteria for an Exempt Lease pursuant to this
Section;

                           (viii) as modified or amended does not materially
modify the financial terms of Borrower's standard form of lease or materially
reduce the rights and remedies of the Borrower or Lender under said standard
lease;

                                       12



                           (ix) is subordinate by its terms to this Instrument
provided that Lender shall have agreed to provide such tenant with a
non-disturbance agreement in form and substance reasonably acceptable to Lender;
provides that the tenant thereunder is required to attorn to Lender, such
attornment to be effective upon Lender's acquisition of title to the Property;
that the tenant agrees to execute such further evidences of attornment as Lender
may from time to time request; that the attornment of the tenant shall not be
terminated by foreclosure; that in no event shall Lender, as holder of this
Instrument or as successor landlord, be liable to the tenant for any act or
omission of any prior landlord or for any liability or obligation of any prior
landlord occurring prior to the date that Lender or any subsequent owner acquire
title to the Property; and that Lender may, at Lender's option, accept or reject
such attornment.

         Borrower shall be required to obtain Lender's consent, which shall not
be unreasonably withheld, for the creation of any lease and subleases at the
Property other than an Exempt Lease. The request for approval of each such
proposed lease shall be made to Lender in writing and Borrower shall furnish to
Lender (and any loan servicer specified from time to time by Lender): (i) such
biographical and financial infoiination about the proposed tenant as Lender may
reasonably require in conjunction with its review, (ii) a copy of the proposed
form of lease, and (iii) a summary of the material terms of such proposed lease
(including, without limitation, rental terms and the teuii of the proposed lease
and any options). Lender's failure to approve or disapprove any such lease or
sublease within ten (10) Business Days after Lender's receipt of such request
shall be deemed to constitute Lender's approval thereof.

         As to all leases other than Exempt Leases, Borrower shall not, without
the prior written consent of Lender (which shall not be unreasonably withheld),
(i) cancel, amend or modify any such lease, (ii) approve any assignment,
sublease or underlease of any such lease, or (iii) cancel or modify any
guaranty, or release any security deposit or letter of credit constituting
security pertaining to any such lease. Lender's failure to approve or disapprove
any of the matters described in the preceding sentence within ten (10) Business
Days after Lender's receipt of such request shall be deemed to constitute
Lender's approval thereof.

         Borrower shall promptly send Lender copies of any notices of default
received fro e tenant under any lease; and will enforce (short of terminating
such lease) the performance by he tenant of the tenant's obligations under any
lease.

         Except for security deposits, no lease, whether an Exempt Lease or
otherwise, shall provide for payment of rent more than one month in advance, and
Borrower shall not under any circumstances collect any such rent more than one
month in advance.

         Borrower, at Lender's request, shall furnish Lender with executed
copies of all leases hereafter made of all or any part of the Property, and all
leases hereafter entered into (other than Exempt Leases) will be in foiln and
substance subject to the approval of Lender. All leases of the Property or a
separate agreement in recordable fouu and substance satisfactory to Lender shall
specifically provide that such leases are subordinate to this Instrument; that
the tenant attorns to Lender, such attornment to be effective upon Lender's
acquisition of title to the Property; that the tenant agrees to execute such
further evidences of attornment as Lender may from time to time request; that
the attornment of the tenant shall not be terminated by foreclosure; that in no
event shall Lender, as holder of this Instrument or as successor landlord,

                                       13



be liable to the tenant for any act or omission of any prior landlord or for any
liability or obligation of any prior landlord occurring prior to the date that
Lender or any subsequent owner acquire title to the Property; and that Lender
may, at Lender's option, accept or reject such attornment. Notwithstanding the
foregoing, Lender agrees to enter into a non-disturbance agreement with any
tenant at the Property, which agreement shall be in form and substance and on
terms and conditions reasonably acceptable to Lender. Except as otherwise
provided in this Section, Borrower shall not, without Lender's written consent,
(1) execute, modify, surrender or terminate, either orally or in writing, any
lease at the Property now existing or hereafter made of all or any part of the
Property, (2) permit an assignment or sublease of a lease, or (3) request or
consent to the subordination of any lease of all or any part of the Property to
any lien subordinate to this Instrument. Notwithstanding the foregoing and
provided that (i) no Event of Default is continuing and (ii) the total occupancy
level at the Property remains in excess of 92% (after giving effect to the
termination in question), Borrower may, without Lender's consent, teiininate a
Lease which covers less than 5,000 rentable square feet provided that (i) the
tenant under such Lease is in default under such Lease and (ii) Borrower shall
give Lender not less than thirty (30) days prior written notice specifying the
date on which Borrower will terminate such Lease. If Borrower becomes aware that
any tenant proposes to do, or is doing, any act or thing which may give rise to
any right of set-off against rent, Borrower shall (i) take such steps as shall
be reasonably calculated to prevent the accrual of any right to a set-off
against rent, (ii) notify Lender thereof and of the amount of said set-offs, and
(iii) within ten days after such accrual, reimburse the tenant who shall have
acquired such right to set-off or take such other steps as shall effectively
discharge such set-off and as shall assure that rents thereafter due shall
continue to be payable without set-off or deduction.

         Upon Lender's request, Borrower shall absolutely assign to Lender, by
written instrument satisfactory to Lender, all leases now existing or hereafter
made of all or any part of the Property and all security deposits made by
tenants in connection with such leases of the Property. Upon assignment by
Borrower to Lender of any leases of the Property, Lender shall have all of the
rights and powers possessed by Borrower prior to such assignment and Lender
shall have the right to modify, extend or terminate such existing leases and to
execute new leases, in Lender's sole discretion.

            SECTION 15. TRANSFERS OF THE PROPERTY OR BENEFICIAL IN ERESTS IN
BORROWER.

                     (a) As used in this Section 15 and elsewhere in this
   Instrument, the following capitalized terms shall have the respective
   meanings set forth below:

                         (i) "CONTROL": with respect to any Person, either (i)
   ownership directly or indirectly of 49% or more of all equity interests in
   such Person or (ii) the possession, directly or indirectly, of the power to
   direct or cause the direction of the management and policies of such Person,
   through the ownership of voting securities, by contract or otherwise.

                                       14




                         (ii) "KEY PRINCIPALS": Acadia Realty Limited
   Partnership, a Delaware limited partnership, and Acadia Realty Trust, a
   Maryland real estate investment trust.


                         (iii) "Permitted Encumbrances": (i) the liens created
by the Loan Documents, (ii) all liens and other matters disclosed in Lender's
title insurance policy, (iii) liens, if any, for Taxes not yet due and payable
and not delinquent and (iv) any workers', mechanics' or other similar liens on
the Property provided that any such Lien is bonded or discharged within 30 days
after Borrower first receives notice of such lien and (v) such other title and
survey exceptions as Lender approves in writing in Lender's discretion.

                         (iv) "PERMITTED TRANSFERS": (i) a Lease entered into in
accordance with the Loan Documents, (ii) a Permitted Encumbrance, (iii) a
Transfer and Assumption, (iv) provided that no Event of Default shall then
exist, (1) a Transfer of an indirect interest in Borrower other than the general
partnership interest held by Managing Entity (as defined in Section 29 hereof),
(2) a Transfer of publicly traded shares in Acadia Realty Trust or (3) a
Transfer of an interest in the Managing Entity to any Person, in either case,
provided that (A) such Transfer shall not (x) cause the transferee (other than
any Key Principal), together with its Affiliates, to acquire Control of Borrower
or the Managing Entity or to increase its direct or indirect interest in
Borrower or in the Managing Entity to an amount which equals or exceeds 49% or
(y) result in Borrower or the Managing Entity no longer being Controlled by any
Key Principal, (B) after giving effect to such Transfer, Key Principals (in the
aggregate) shall continue to own at least 51 % of all equity interests (direct
or indirect) in Borrower, (C) Borrower shall give Lender notice of such Transfer
together with copies of all instruments effecting such Transfer not less than 10
days prior to the date of such Transfer, and (D) the legal and financial
structure of Borrower and its members and the single purpose nature and
bankruptcy remoteness of Borrower and its members after such Transfer, shall
satisfy Lender's then current applicable underwriting criteria and requirements,
(v) provided that no Event of Default shall then exist, a Transfer of a direct
or indirect interest in Borrower or Managing Entity that occurs by devise or
bequest or by operation of law upon the death of a natural person that was the
holder of such interest to a member of the immediate family of such interest
holder or a trust established for the benefit of such immediate family member,
provided that (A) no such Transfer shall result in a change of the day to day
operations of the Property, (B) Borrower shall give Lender notice of such
Transfer together with copies of all instruments effecting such Transfer not
less than 20 days after the date of such Transfer, (C) the legal and financial
structure of Borrower and Managing Entity, and the single purpose nature and
bankruptcy remoteness of Borrower and Managing Entity after such Transfer, shall
satisfy Lender's then current applicable underwriting criteria and requirements,
(D) if any such Transfer would result in a change of Control of Borrower or
Managing Entity and occurs prior to the occurrence of a Secondary Market
Transaction, such Transfer is approved by Lender in writing within 30 Business
Days after any such Transfer, and (E) if any such Transfer would result in a
change of Control of Borrower or Managing Entity and occurs after the occurrence
of a Secondary Market Transaction, Borrower, at Borrower's sole cost and
expense, shall, within 30 Business Days after any such Transfer, (a) deliver (or
cause to be delivered) if required by Lender or any Rating Agency a Rating
Comfort Letter to Lender, (b) obtain the prior written consent of Lender which
shall not be unreasonably withheld and (c) reimburse Lender for all reasonable
expenses incurred by Lender in connection with such Transfer, or (vi) provided
that no Event of Default shall then exist, a Transfer of a direct or indirect
interest in Borrower or Managing Entity to any Person (other than any Key
Principal) (the "NEW SPONSOR"), pursuant to which, after giving effect to such
Transfer, the New Sponsor, together with its Affiliates, acquires Control of


                                       15



Borrower or the Managing Entity or holds a direct or indirect interest in
Borrower or in Managing Entity in an amount equaling or exceeding 49% provided
that (A) Lender consents to such Transfer, which consent shall not be
unreasonably withheld, (B) Borrower delivers to Lender evidence reasonably
satisfactory to Lender showing that, after giving effect to such Transfer,
Borrower and Managing Entity remain in full compliance with Section 29 hereof,
as the provisions thereof may be modified by Lender taking into account the
ownership structure of New Sponsor and its Affiliates, (C) if the Loan (as
defined in Section 32(e) hereof), by itself or together with other loans, has
been the subject of a Secondary Market Transaction, then Lender shall have
received a Rating Comfort Letter from the applicable Rating Agencies, (D) if the
Loan has not been the subject of a Secondary Market Transaction, then Lender
shall have detei_mined in its reasonable discretion (taking into consideration
such factors as Lender may determine, including the attributes of the loan pool
in which the Loan might reasonably be expected to be securitized) that no rating
for any securities that would be issued in connection with such securitization
will be diminished, qualified, or withheld by reason of such Transfer to New
Sponsor, (E) the identity, experience, and financial condition of the New
Sponsor shall be satisfactory to Lender in its reasonable discretion, (F) a
replacement guarantor(s) (the identity, experience and financial condition of
which shall be satisfactory to Lender in its reasonable discretion) shall
execute and deliver to Lender any and all documents reasonably required by
Lender, in folin and substance reasonably required by Lender, in Lender's sole
discretion, after which Guarantor shall be released from all liabilities and
obligations under the Guaranty, and (G) counsel to New Sponsor and replacement
guarantor(s) shall deliver to Lender opinions in form and substance satisfactory
to Lender as to such matters as Lender shall reasonably require, which may
include opinions as to substantially the same matters as were required in
connection with the origination of the Loan.

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

                           (vi) "RATING AGENCY": each of Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), and Fitch IBCA Duff & Phelps ("Fitch") or
any other nationally-recognized statistical rating organization to the extent
any of the foregoing have been engaged by Lender or its designee in connection
with or in anticipation of any Secondary Market Transaction.

                           (vii) "RATING COMFORT LETTER": a letter issued by
each of the applicable Rating Agencies which confirms that the taking of the
action referenced to therein will not result in any qualification, withdrawal or
downgrading of any existing ratings of Securities created in a Secondary Market
Transaction.

                                       16



                           (viii) "SECONDARY MARKET TRANSACTION": any of (i) the
sale, assignment, or other transfer of all or any portion of the loan evidenced
by the Note and this Instrument or the Loan Documents or any interest therein to
one or more investors, (ii) the sale, assignment, or other transfer of one or
more participation interests in the loan evidenced by the Note and this
Instrument or Loan Documents to one or more investors, or (iii) the transfer or
deposit of all or any portion of the loan evidenced by the Note and this
Instrument or Loan Documents to or with one or more trusts or other entities
which may sell certificates or other instruments to investors evidencing an
ownership interest in the assets of such trust or the right to receive income or
proceeds therefrom.

                           (IX) "TRANSFER": any sale, conveyance, transfer,
lease or assignment, or the entry into any agreement to sell, convey, transfer,
lease or assign, whether by law or otherwise, of, on, in or affecting (i) all or
part of the Property (including any legal or beneficial direct or indirect
interest therein), (ii) any direct or indirect interest in Borrower (including
any profit interest), or (iii) any direct or indirect interest in the Managing
Entity.

                           (X) "TRANSFER AND ASSUMPTION": is defined in
paragraph (c) of this Section 15.

                  (b) Borrower shall not directly or indirectly make, suffer or
pennit the occurrence of any Transfer other than a Permitted Transfer.

                  (c) Notwithstanding the foregoing, Borrower shall have a
one-time right to Transfer the Property to another party (the "TRANSFEREE
BORROWER") and have the Transferee Borrower assume all of Borrower's obligations
under the Loan Documents, and have replacement guarantors and indemnitors assume
all of the obligations of the indemnitors and guarantors of the Loan Documents
(collectively, a "TRANSFER AND ASSUMPTION"). Borrower may make a written
application to Lender for Lender's consent to the Transfer and Assumption,
subject to the conditions set forth in subparagraphs (i) and (ii) of this
paragraph (c). Together with such written application, Borrower will pay to
Lender the reasonable review fee then required by Lender. Borrower also shall
pay on demand all of the reasonable costs and expenses incurred by Lender,
including reasonable attorneys' fees and expenses, and including the fees and
expenses of Rating Agencies and other outside entities, in connection with
considering any proposed Transfer and Assumption, whether or not the same is
permitted or occurs.

                           (i) Lender's consent, which may be withheld in
Lender's reasonable discretion, to a Transfer and Assumption shall be subject to
the following conditions:


                                       17




                                            (2) Borrower has submitted to Lender
                  true, correct and complete copies of any and all information
                  and documents of any kind reasonably requested by Lender
                  concerning the Property, Transferee Borrower, replacement
                  guarantors and indemnitors and Borrower;

                                            (3) Evidence reasonably satisfactory
                  to Lender has been provided showing that the Transferee
                  Borrower and such of its Affiliates as shall be designated by
                  Lender comply and will comply with Section 29 hereof, as those
                  provisions may be modified by Lender taking into account the
                  ownership structure of Transferee Borrower and its Affiliates;

                                            (4) If the Loan (as defined in
                  Section 32(e) hereof), by itself or together with other loans,
                  has been the subject of a Secondary Market Transaction, then
                  Lender shall have received a Rating Comfort Letter from the
                  applicable Rating Agencies;

                                            (1)

     No Event of Default has occurred and is continuing;


                                            (5) If the Loan has not been the
                  subject of a Secondary Market Transaction, then Lender shall
                  have determined in its reasonable discretion (taking into
                  consideration such factors as Lender may determine, including
                  the attributes of the loan pool in which the Loan might
                  reasonably be expected to be securitized) that no rating for
                  any securities that would be issued in connection with such
                  securitization will be diminished, qualified, or withheld by
                  reason of the Transfer and Assumption;

                                            (6) Borrower shall have paid all of
                  Lender's reasonable costs and expenses in connection with
                  considering the Transfer and Assumption, and shall have paid
                  the amount reasonably requested by Lender as a deposit against
                  Lender's costs and expenses in connection with effecting the
                  Transfer and Assumption;

                                            (7) Borrower, the Transferee
                  Borrower, and the replacement guarantors and indenmitors shall
                  have indicated in writing in form and substance reasonably
                  satisfactory to Lender their readiness and ability to satisfy
                  the conditions set forth in subsection (ii) below; and

                                            (8) The identity, experience, and
                  financial condition of the Transferee Borrower and the
                  replacement guarantors and indemnitors shall be satisfactory
                  to Lender in its reasonable discretion.

                           (ii) If Lender consents to the Transfer and
Assumption, the Transferee Borrower and/or Borrower as the case
may be, shall immediately deliver the following to Lender:

                                            (1) Borrower shall deliver to Lender
                  an assumption fee in the amount of 1.00% of the then unpaid
                  Principal;

                                       18



                                            (2) Borrower, Transferee Borrower
                  and the original and replacement guarantors and indemnitors
                  shall execute and deliver to Lender any and all documents
                  reasonably required by Lender, in form and substance
                  reasonably required by Lender, in Lender's sole discretion;

                                            (3) Counsel to the Transferee
                  Borrower and replacement guarantors and indemnitors shall
                  deliver to Lender opinions in foiui and substance satisfactory
                  to Lender as to such matters as Lender shall reasonably
                  require, which may include opinions as to substantially the
                  same matters as were required in connection with the
                  origination of the Loan;

                                            (4) Borrower shall cause to be
                  delivered to Lender, an endorsement (relating to the change in
                  the identity of the vestee and execution and delivery of the
                  Transfer and Assumption documents) to Lender's title insurance
                  policy in form and substance acceptable to Lender, in Lender's
                  reasonable discretion (the "ENDORSEMENT"); and

                                            (5) Borrower shall deliver to Lender
                  a payment n the amount of all remaining unpaid costs incurred
                  by Lender in connection with the Transfer and Assumption,
                  including but not limited to, Lender's reasonable attorneys
                  fees and expenses, all recording fees, and all fees payable to
                  the title company for the delivery to Lender of the
                  Endorsement.

          SECTION 16. FURTHER ENCUMBRANCES. Except only for the liens and
 security interests in favor of Lender under this Instrument and the other Loan
 Documents, without Lender's prior written consent, which Lender may withhold in
 its sole discretion, Borrower shall not execute, cause, allow or suffer any
 mortgage, deed of trust, deed to secure debt, assignment of leases or rents,
 statutory lien, mechanic's lien or other similar involuntary lien (with respect
 to any such statutory lien, mechanic's lien or other similar involuntary lien,
 unless such lien is bonded or discharged within 30 days after Borrower first
 receives notice of such lien), irrespective of its priority, to encumber all or
 any portion of the Property or the leases, rents or profits thereof, or any
 interest in any of the foregoing.

          SECTION 17. GENERAL INDEMNITY. In addition to any other
 indemnification obligation set forth elsewhere in the Loan Documents, Borrower
 shall, at its sole cost and expense, protect, defend, indemnify, release and
 hold harmless the Lender and its shareholders, directors, officers, agents,
 employees, contractors, attorneys, servicers, and successors and assigns (the
 "INDEMNIFIED PARTIES") from and against any and all claims, suits, liabilities
 (including, without limitation, strict liabilities), actions, proceedings,
 obligations, debts, damages, losses, costs, expenses, diminutions in value,
 fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in
 settlement, or punitive damages, of whatever kind or nature (including, but not
 limited to attorneys' fees and other costs of defense) (the "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 (but excluding Losses arising out of Lender's gross negligence or
 willful misconduct): (a) ownership of this Instrument or any of the Loan


                                       19



Documents, or ownership of the Property or any interest therein, or demand for
or receipt of any Rents; (b) any amendment to, or restructuring of, any of the
Loan Documents or the obligations evidenced or secured thereby; (c) any and all
lawful action that may be taken by Lender in connection with the enforcement of
the provisions of any of the Loan Documents, whether or not suit is filed in
connection with same, or in connection with Borrower, any guarantor or
indemnitor and/or any member, partner, joint venturer or shareholder thereof
becoming a party to a voluntary or involuntary federal or state bankruptcy,
insolvency or similar proceeding; (d) 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; (e) 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; (f) any failure on
the part of Borrower to perfoim or be in compliance with any of the terms of any
of the Loan Documents; (g) performance of any labor or services or the
furnishing of any materials or other property in respect of the Property or any
part thereof; (h) 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 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 Instrument is made; (i) any failure of the Property to be in
compliance with any applicable laws; {j) the enforcement by any Indemnified
Party of the provisions of this Section; (k) any and all claims and demands
whatsoever which may be asserted against Lender by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
teams, covenants, or agreements contained in any Lease; (1) the payment of any
commission, charge or brokerage fee to anyone which may be payable in connection
with the funding of the loan evidenced by the Note; or (m) any misrepresentation
made by Borrower in any of the Loan Documents. Any amounts payable to any
Indemnified Party by reason of the application of this Section shall become
immediately due and payable upon demand and shall bear interest at rate then
applicable to principal outstanding under the Note.

         SECTION 18. ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN
POSSESSION. As part of the consideration for the indebtedness evidenced by the
Note, Borrower hereby absolutely and unconditionally assigns and transfers to
Lender all the rents and revenues of the Property, including those now due, past
due, or to become due by virtue of any lease or other agreement for the
occupancy or use of all or any part of the Property, regardless of to whom the
rents and revenues of the Property are payable. Borrower hereby authorizes
Lender or Lender's agents to collect the aforesaid rents and revenues and hereby
directs each tenant of the Property to pay such rents to Lender or Lender's
agents; provided, however, that prior to written notice given by Lender to
Borrower of an Event of Default, Borrower shall collect and receive all rents
and revenues of the Property as trustee for the benefit of Lender and Borrower,
to apply the rents and revenues so collected to the sums secured by this
Instrument in any order determined by Lender, so long as no such Event of
Default has occurred, to the account of Borrower, it being intended by Borrower
and Lender that this assignment of rents constitutes an absolute assignment and
not an assignment for additional security only. Upon delivery of written notice
by Lender to Borrower of an Event of Default, and without the necessity of
Lender entering upon and taking and maintaining full control of the Property in


                                       20



person, by agent or by a court-appointed receiver, Lender shall immediately be
entitled to possession of all rents and revenues of the Property as specified in
this Section as the same become due and payable, including, but not limited to,
rents then due and unpaid, and all such rents shall immediately upon delivery of
such notice and during the continuance of such Event(s) of Default be held by
Borrower as trustee for the benefit of Lender only; provided, however, that the
written notice by Lender to Borrower of such Event(s) of Default shall contain a
statement that Lender exercises its rights to such rents. Borrower agrees that
commencing upon delivery of such written notice of Borrower's breach by Lender
to Borrower, each tenant of the Property shall make such rents payable to and
pay such rents to Lender or Lender's agents on Lender's written demand to any
tenant therefor, delivered to such tenant personally, by mail or by delivering
such demand to the tenant at its location in the Property, without any liability
on the part of said tenant to inquire further as to the existence of a default
by Borrower. Borrower hereby covenants that Borrower has not executed any prior
assignment of said rents, that Borrower has not performed, and will not
perfoiin, any acts or has not executed, and will not execute, any instrument
which would prevent Lender from exercising its rights under this Section, and
that at the time of execution of this Instrument there has been no anticipation
or prepayment of any of the rents of the Property for more than one month prior
to the due dates of such rents. Borrower covenants that Borrower will not
hereafter collect or accept payment of any rents of the Property more than one
month prior to the due dates of such rents. Borrower further covenants that
Borrower will execute and deliver to Lender such further assignments of rents
and revenues of the Property as Lender may from time to time request.

          Upon an Event of Default, or upon Borrower's breach of any material
covenant of Borrower as landlord or lessor under any lease beyond applicable
notice and cure periods, Lender shall be entitled to the appointment of a
receiver for the Property, without notice to Borrower or any other person or
entity and Lender may in person, by agent or by a courtappointed receiver,
regardless of the adequacy of Lender's security, enter upon and take and
maintain full control of the Property in order to perfoi in all acts necessary
and appropriate for the operation and maintenance thereof including, but not
limited to, the execution, cancellation or modification of leases, the
collection of all rents and revenues of the Property, the enforcement or
fulfillment of any terms, condition or provision of any lease, the making of
repairs to the Property and the execution or termination of contracts providing
for the management or maintenance of the Property, all on such terms as are
deemed best to protect the security of this Instrument. In the event Lender
elects to seek the appointment of a receiver for the Property upon Borrower's
breach of any covenant or agreement of Borrower in this Instrument, Borrower
hereby expressly consents to the appointment of such receiver. Lender or the
receiver shall be entitled to receive a reasonable fee for so managing the
Property.


                                       21



          All rents and revenues collected subsequent to delivery of written
notice by Lender to Borrower that an Event of Default has occurred and during
the continuance of such Event of Default shall be applied first to the costs, if
any, of taking control of and managing the Property and collecting the rents,
including, but not limited to, attorney's fees, receiver's fees, premiums on
receiver's bonds, costs of repairs to the Property, premiums on insurance
policies, Taxes, and the costs of discharging any obligation or liability of
Borrower as lessor or landlord of the Property and then to the sums secured by
this Instrument. Lender or the receiver shall have access to the books and
records used in the operation and maintenance of the Property and shall be
liable to account only for those rents actually received. Other than for
Lender's gross negligence or willful misconduct under this Section, Lender shall
not be liable to Borrower, anyone claiming under or through Borrower or anyone
having an interest in the Property by reason of anything done or left undone by
Lender under this Section.

          If the rents of the Property are not sufficient to meet the costs, if
any, of taking control of and managing the Property and collecting the rents,
any funds expended by Lender for such purposes shall become indebtedness of
Borrower to Lender secured by this Instrument pursuant to Section 8 hereof.
Unless Lender and Borrower agree in writing to other temis of payment, such
amounts shall be payable upon notice from Lender to Borrower requesting payment
thereof and shall bear interest from the date of disbursement at the rate stated
in the Note unless payment of interest at such rate would be contrary to
applicable law, in which event such amounts shall bear interest at the highest
rate which may be collected from Borrower under applicable law.

          Any entering upon and taking and maintaining of control of the
Property by Lender or the receiver and any application of rents as provided
herein shall not cure or waive any default hereunder or invalidate any other
right or remedy of Lender under applicable law or provided herein. This
assignment of rents of the Property shall terminate at such time as this
Instrument ceases to secure indebtedness held by Lender.

          SECTION 19. DEFAULTS; ACCELERATION; REMEDIES. Each of the following
shall constitute an "EVENT OF DEFAULT" under this Instrument:

                  (a) Any failure of Borrower to pay any money as and when due
under the Note or under any of the other Loan Documents;

                  (b) Any breach of Sections 5, 15, 16, or 29 of this
Instrument, or the Environmental Indemnity Agreement;

                  (c) Other than as specified in items (a) or (b) above, any
breach of any covenant, representation, warranty, or other obligation of
Borrower or any guarantor or indemnitor under the Note, this Instrument, or any
of the other Loan Documents, which breach is not completely cured on or before
the 30th day after notice of the same from Lender to Borrower; provided however
that if the default is capable of cure but with diligence cannot be cured.
within such period of 30 days, and if Borrower shall have given Lender evidence
satisfactory to Lender that Borrower has commenced the cure within 10 days after
the first notice of default and at all times after such commencement has pursued
such cure diligently, then such period shall be extended for so long as is
reasonably necessary, but in no event beyond the 60th day after the original
notice of default.


                                       22




         If Lender shall have the right to exercise any of its remedies by
reason of any default as to which there is no grace period or by reason of
expiration of any grace period without cure of any applicable default, then
there shall be no requirement of notice and time to cure for any other or
subsequent default.

         Upon the occurrence and during the continuance of any Event of Default,
Lender may, at Lender's option, declare all of the sums secured by this
Instrument to be immediately due and payable without further demand, and may
exercise any and all remedies permitted hereunder, under any of the Loan
Documents, or pursuant to applicable law. Without limitation of the foregoing,
Lender may invoke the power of sale granted herein. Borrower acknowledges that
the power of sale herein granted may be exercised by Lender without prior
judicial hearing. Borrower has the right to bring an action to assert the
non-existence of a breach or any other defense of Borrower to acceleration and
sale. Lender shall be entitled to collect from Borrower all costs and expenses
incurred in pursuing such remedies, including, but not limited to, reasonable
attorney's fees and costs of environmental reports, appraisals, documentary
evidence, abstracts, and title reports.

         Any deed delivered to the purchaser at any sale pursuant hereto may be
without any covenant or warranty, expressed or implied. The recitals in the deed
shall be prima facie evidence of the truth of the statements made therein. The
proceeds of the sale shall be applied in the following order: (a) to all costs
and expenses of the sale, including, but not limited to, fees for any
foreclosure services, attorney's fees and costs of title evidence; (b) to all
sums secured by this Instrument in such order as Lender, in Lender's sole
discretion, directs; and (c) the excess, if any, to the person or persons
legally entitled thereto.

          SECTION 20. ACCELERATION IN CASE OF BORROWER'S INSOLVENCY. If Borrower
shall voluntarily file a petition under Title I I of the U.S. Code (the "Act"),
as such Act may from time to time be amended, or under any similar or successor
Federal statute relating to bankruptcy, insolvency, arrangements or
reorganizations, or under any state bankruptcy or insolvency act, or file an
answer in any involuntary proceeding admitting insolvency or inability to pay
debts, or if Borrower shall fail to obtain a vacation of involuntary proceedings
brought for the reorganization, dissolution or liquidation of Borrower, within
120 days of the filing of such involuntary proceeding, or if Borrower shall be
adjudged a bankrupt, or if a trustee or receiver shall be appointed for Borrower
or Borrower's property, or if the Property shall become subject to the
jurisdiction of a Federal bankruptcy court or similar state court, or if
Borrower shall make an assignment for the benefit of Borrower's creditors, or if
there is an attachment, execution or other judicial seizure of any portion of
Borrower's assets and such seizure is not discharged within 10 days, then Lender
may, at Lender's option, declare all of the sums secured by this Instrument to
be immediately due and payable without prior notice to Borrower, and Lender may
invoke any remedies permitted or provided for herein or in any of the Loan
Documents or pursuant to applicable law. Any attorney's fees and other expenses
incurred by Lender in connection with Borrower's bankruptcy or any of the other
aforesaid events shall be additional indebtedness of Borrower secured by this
Instrument pursuant to Section 8 hereof.


                                       23




         SECTION 21. REMEDIES CUMULATIVE. Each remedy provided in this
Instrument is distinct and cumulative to all other rights or remedies under this
Instrument or afforded by law or equity, and may be exercised concurrently,
independently, or successively, in any order whatsoever.

         SECTION 22. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives
the right to assert any statute of limitations as a bar to the enforcement of
the lien of this Instrument or to any action brought to enforce the Note or any
other obligation secured by this Instrument.

         SECTION 23. WAIVER OF MARSHALLING. Notwithstanding the existence of any
other security interest in the Property held by Lender or by any other party,
Lender shall have the right to determine the order in which any or all of the
Property shall be subjected to the remedies provided herein. Lender shall have
the right to determine the order in which any or all portions of the
indebtedness secured hereby are satisfied from the proceeds realized upon the
exercise of the remedies provided herein. Borrower, any party who consents to
this Instrument and any party who now or hereafter acquires a security interest
in the Property and who has actual or constructive notice hereof hereby waives
any and all right to require the marshalling of assets in connection with the
exercise of any of the remedies permitted by applicable law or provided herein.

         SECTION 24. RELEASE. Upon payment of all sums secured by this
Instrument, Lender shall release this Instrument. Borrower shall pay Lender $100
for the release of this Instrument.

         SECTION 25. CASH MANAGEMENT ARRANGEMENTS.

                  (a) As used in this Section 25 and elsewhere in this
Instrument and the other Loan Documents, the following capitalized terms shall
have the respective meanings set forth below:

                  "APPROVED CAPITAL EXPENSES": Capital Expenses incurred by
Borrower; provided, that, during a Cash Management Period, such Capital Expenses
shall either be (i) included in the Approved Capital Budget (as defined in
Section 28(h) hereof) for the current calendar month or (ii) approved by Lender.

                  "APPROVED LEASING EXPENSES": actual out-of-pocket expenses
incurred by Borrower and payable to third parties (including Affiliates of
Borrower or Guarantor, provided that, such expenses payable to Affiliates of
Borrower or Guarantor shall satisfy the conditions set forth below) in leasing
space at the Property pursuant to Leases entered into in accordance with the
Loan Documents, including brokerage commissions and tenant improvements, which
expenses (i) are (A) specifically approved by Lender in connection with
approving the applicable Lease, (B) incurred in the ordinary course of business
and on market terms and conditions in connection with Leases which do not
require Lender's approval under the Loan Documents, or (C) otherwise approved by
Lender, which approval shall not be unreasonably withheld or delayed, and (ii)
are substantiated by executed Lease documents and brokerage agreements.


                                       24



                  "APPROVED OPERATING EXPENSES": during a Cash Management
Period, operating expenses incurred by Borrower which (i) are included in the
Approved Operating Budget (as defined in Section 28(h) hereof) for the current
calendar month, (ii) are for real estate taxes, insurance premiums, electric,
gas, oil, water, sewer or other utility service to the Property or (iii) have
been approved by Lender.

                  "AVAILABLE CASH": as of each Payment Date during the
continuance of Cash Management Period, the amount of Rents, if any, remaining in
the Deposit Account after the application of all of the payments required under
clauses (i) through (vi) of paragraph (1) of this Section 25.

                  "BUSINESS DAY": any day other than a Saturday, Sunday or any
day on which commercial banks in New York, New York are authorized or required
to close.

                  "CALCULATION DATE": the last day of each calendar quarter.

                  "CASH MANAGEMENT PERIOD": shall commence upon Lender giving
notice to the Clearing Bank of the occurrence of any of the following: (i) the
Maturity Date, (ii) an Event of Default, (iii) if, as of any Calculation Date,
the Debt Service Coverage Ratio is less than 1.10:1 (a "DSCR CASH MANAGEMENT
PERIOD"), or (iv) the commencement of a Rollover Sweep Period; and shall end
upon Lender giving notice to the Clearing Bank that the sweeping of funds into
the Deposit Account may cease, which notice Lender shall only be required to
give if (1) the Loan and all other obligations under the Loan Documents have
been repaid in full or (2) the Maturity Date has not occurred and (A) with
respect for the matters described in clause (ii) above, such Event of Default
has been cured and no other Event of Default has occurred and is continuing or
(B) with respect to the matter described in clause (iii) above, Lender has
determined that the Property has achieved a Debt Service Coverage Ratio of at
least 1.10:1 for two consecutive Calculation Dates or (C) with respect to the
matter described in clause (iv) above, the subject Rollover Sweep Period has
ended.

                  "CLEARING ACCOUNT": the account maintained by Borrower at the
Clearing Bank as more fully described in the Clearing Account Agreement.

                  "DEBT": the unpaid Principal, all interest accrued and unpaid
thereon, any Prepayment Consideration (as defined in the Note) and all other
sums due to Lender in respect of the loan evidenced by the Note and this
Instrument or under any Loan Document.

                  "DEBT SERVICE": with respect to any particular period, the
scheduled principal and interest payments due under the Note in such period.

                  "DEBT SERVICE COVERAGE RATIO": as of any date, the ratio
calculated by Lender of (i) the Net Operating Income for the 12-month period
ending with the most recently completed calendar month to (ii) the Debt Service
with respect to such period (but assuming, only for the purpose of calculating
the Debt Service Coverage Ratio, that the Amortization Commencement Date (as
defined in the Note) has already occurred).

                                       25



                  "DEFAULT RATE": the rate of five percent per annum in excess
of the rate provided in the first paragraph of the Note, or, if such increased
rate of interest may not be collected from Borrower under applicable law, then
at the maximum increased rate of interest which may be collected from Borrower
under applicable law, if either (a) any installment under the Note or any other
amount owing thereunder or under any of the other Loan Documents is not received
by the holder hereof within five calendar days after the same is due, or (b) any
other Event of Default occurs, in each case, only while such installment remains
past due or such other Event of Default remains uncured.

                  "DEPOSIT ACCOUNT": an Eligible Account at the Deposit Bank
controlled by Lender.

                  "DEPOSIT BANK": Wachovia Bank, National Association, or such
other bank or depository selected by Lender in its discretion.

                  "ELIGIBLE INSTITUTION": a depository institution insured by
the Federal Deposit Insurance Corporation the short term unsecured debt
obligations or commercial paper of which are rated at least A-1 by S&P, P-1 by
Moody's and F-l+ by Fitch. in the case of accounts in which funds are held for
thirty (30) days or less or, in the case of letters of credit or accounts in
which funds are held for more than thirty (30) days, the long term unsecured
debt obligations of which are rated at least "AA" by Fitch and S&P and "Aa2" by
Moody's.

                  "INTEREST PERIOD": (i) the period from the date hereof through
the first day thereafter that is the 5th day of a calendar month and (ii) each
period thereafter from the 6th day of each calendar month through the 5th day of
the following calendar month; except that the Interest Period, if any, that
would otherwise commence before and end after the Maturity Date shall end on the
Maturity Date.

                  "GOVERNMENTAL AUTHORITY": any court, board, agency,
commission, office or authority of any nature whatsoever for any governmental
unit (federal, state, county, district, municipal, city or otherwise) now or
hereafter in existence.

                  "LEGAL REQUIREMENTS": statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions of Governmental
Authorities affecting Borrower, any Loan Document or all or part of the Property
or the construction, ownership, use, alteration or operation thereof, whether
now or hereafter enacted and in force, and all permits, licenses and
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instrument, either of record or
known to Borrower, at any time in force affecting all or part of the Property.

                  "MAJOR LEASE": (i) that certain Lease between Borrower, as
landlord, and The Stop & Shop Supermarkets Company LLC ("STOP & SHOP TENANT"),
as tenant, dated as of September 28, 1995, as amended and supplemented by the
following: Construction and Cost Reimbursement Agreement dated September 28,
1995, Letter Agreement dated February 11, 1997, Letter Agreement dated April 21,
1997, First Amendment to Lease dated February 14, 1997, Letter Agreement dated
April 27, 1997, Letter dated February 14, 2001, Letter dated February 20, 2001,
Lease Assignment and Assumption Agreement dated March 4, 2001, Second Amendment
of Lease dated May 1, 2002, Letter dated May 12, 2003, (as further amended,
modified or assigned).


                                       26



                  "MAJOR TENANT": any tenant under a Major Lease.

                  "NET OPERATING INCOME": for any period, the actual net
operating income of the Property determined on a cash basis of accounting, after
deducting therefrom deposits to (but not withdrawals from) any reserves required
under this Instrument, and without giving credit for (1) non-recurring
extraordinary items of income; or (ii) rent payable under leases where the
tenant thereunder is not open for business (i.e. "goes dark").

                  "OFFICER'S CERTIFICATE": a certificate delivered to Lender by
Borrower which is signed by a senior executive officer of the Managing Entity.

                  "PAYMENT DATE": the 6th day of each calendar month or, upon
Lender's exercise of its right to change the Payment Date in accordance with the
teinis and conditions of the Note, the New Payment Date (as defined in the Note)
(in either case, if such day is not a Business Day, the Payment Date shall be
the first Business Day thereafter). The first Payment Date hereunder shall be
December 6, 2005.

                  "PERMITTED INVESTMENTS": any investment suitable for the
investment of escrows and reserves established under mortgage loans included in
a Securitization in which some or all of the certificates issued are rated "AAA"
(or the equivalent rating) by the Rating Agencies, as the standards therefor are
established from time to time, or such investments which are otherwise
reasonably acceptable to Lender. If the Loan is subject to a Securitization,
then the Rating Agencies referred to immediately above shall be the Rating
Agencies that have rated the securities issued in such Securitization.

                  "RENTS": all rents, rent equivalents, moneys payable as
damages (including payments by reason of the rejection of a lease in a
bankruptcy proceeding) or in lieu of rent or rent equivalents, royalties
(including all oil and gas or other mineral royalties and bonuses), income,
fees, receivables, receipts, revenues, deposits (including security, utility and
other deposits), accounts, cash, issues, profits, charges for services rendered,
and other payment and consideration of whatever form or nature received by or
paid to or for the account of or benefit of Borrower, Manager or any of their
agents or employees from any and all sources arising from or attributable to the
Property, including all receivables, customer obligations, installment payment
obligations and other obligations now existing or hereafter arising or created
out of the sale, lease, sublease, license, concession or other grant of the
right of the use and occupancy of the Property or rendering of services by
Borrower, Manager or any of their agents or employees and proceeds, if any, from
business interruption or other loss of income insurance.


                                       27



                  "ROLLOVER SWEEP EVENT": (i) the date that is twelve (12)
months prior to the stated expiration (including any renewal term) of a Major
Lease (i.e., August 31, 2039 for Stop & Shop Tenant); (ii) the date required
under a Major Lease by which the applicable Major Tenant is required to give
notice of its exercise of a renewal option thereunder (and such renewal has not
been so exercised) (i.e. August 31, 2019 for Stop & Shop Tenant); (iii) the
occurrence of the early termination or early cancellation of a Major Lease; (iv)
if any Major Tenant at the Property shall discontinue its business at its
premises (i.e., "goes dark") or give notice that it intends to discontinue its
business; (v) upon a default under a Major Lease by the Major Tenant thereunder
beyond any applicable notice and cure period; or (vi) the bankruptcy or
insolvency proceeding of a Major Tenant (and the subject lease has not been
affirlied or assumed and assigned).

                  "ROLLOVER SWEEP PERIOD": shall commence upon the occurrence of
a Rollover Sweep Event, and shall end upon the earlier to occur of: (A) the date
on which Lender has detetlnined that sufficient funds have been collected in the
Rollover Reserve Subaccount to cover the anticipated tenant improvement costs
and leasing commissions in connection with the re-tenanting of the space(s) that
gave rise to such Rollover Sweep Period; (B) if the portion of the Property
which was the subject of the Rollover Sweep Event has been leased to a new
tenant pursuant to a Lease entered into in accordance with the provisions of
this Instrument (1) the receipt by Lender of evidence reasonably satisfactory to
Lender that all Approved Leasing Expenses in connection therewith have been paid
in full and (2) the receipt by Lender of an estoppel certificate from such new
tenant in which such new tenant certifies that the Lease is in full force and
effect, all conditions precedent to the commencement of rent under such Lease
have been satisfied, such new tenant has accepted delivery of the demised
premises and the payment of rent under such Lease has commenced. Notwithstanding
the foregoing, if any Rollover Sweep Period is triggered by the occurrence of
(a) an event discussed in clause (v) of the definition of Rollover Sweep Event,
such Rollover Sweep Period shall also end if the subject Major Tenant default
has been cured and no other Major Tenant default has occurred for a period of
six (6) consecutive months following such time or (b) an event described in
clause (vi) of the definition of Rollover Sweep Event, such Rollover Sweep
Period shall also end upon the assumption of the applicable lease by the tenant
thereunder pursuant to Section 365 of the Bankruptcy Code.

                  (b) CASH MANAGEMENT ARRANGEMENTS. Borrower shall cause all
Rents to be transmitted directly by non-residential tenants of the Property into
a trust account (the "CLEARING ACCOUNT") maintained by Borrower at a local bank
selected by Borrower, which shall at all times be an Eligible Institution (the
"CLEARING BANK") as more fully described in the Clearing Account Agreement.
Without in any way limiting the foregoing, all Rents received by Borrower o
Manager shall be deposited into the Clearing Account within one Business Day of
receipt. Funds deposited into the Clearing Account shall be swept by the
Clearing Bank on a daily basis into Borrower's operating account at the Clearing
Bank, unless a Cash Management Period is continuing, in which event such funds
shall be swept on a daily basis into an Eligible Account (as defined in the
Deposit Account Agreement) at the Deposit Bank controlled by Lender (the
"DEPOSIT ACCOUNT") and applied and disbursed in accordance with this Instrument.
Funds in the Deposit Account shall be invested at Lender's discretion only in
Permitted Investments. Lender will also establish subaccounts of the Deposit
Account which shall at all times be Eligible Accounts (and may be ledger or book
entry accounts and not actual accounts) (such subaccounts are referred to herein
as "SUBACCOUNTS"). The Deposit Account and any Subaccount will be under the sole
control and dominion of Lender, and Borrower shall have no right of withdrawal
therefrom. Borrower shall pay for all expenses of opening and maintaining all of
the above accounts.

                                       28



                  (c) REQUIRED REPAIRS.

                            (i) COMPLETION OF REQUIRED REPAIRS. Borrower shall
perform and complete each item of the repairs and environmental remedial work at
the Property described on Schedule 2 (the "REQUIRED REPAIRS") within six (6)
months of the date hereof or such shorter period of time for such item set forth
on Schedule 2.

                            (ii) REQUIRED REPAIRS RESERVES. On the date hereof,
Borrower shall deposit with Lender the aggregate amount set forth on Schedule 2
as being required to complete the Required Repairs and Lender shall cause such
amount to be transferred to a Subaccount (the "REQUIRED REPAIRS SUBACCOUNT").
Provided no Default or Event of Default shall have occurred and is continuing,
Lender shall disburse funds held in the Required Repairs Subaccount to Borrower,
within 15 days after the delivery by Borrower to Lender of a request therefor
(but not more often than once per month), in increments of at least $5,000,
accompanied by the following items (which items shall be in form and substance
satisfactory to Lender): (i) an Officer's Certificate (A) certifying that the
Required Repairs or any portion thereof which are the subject of the requested
disbursement have been completed in a good and workmanlike manner and in
accordance with all applicable laws, (B) identifying each Person that supplied
materials or labor in connection with such Required Repairs or any portion
thereof and (C) stating that each such Person has been or, upon receipt of the
requested disbursement, will be paid in full with respect to the portion of the
Required Repairs which is the subject of the requested disbursement; (ii) copies
of appropriate lien waivers or other evidence of payment satisfactory to Lender;
(iii) at Lender's option, a title search for the Property indicating that it is
free from all liens not previously approved by Lender; (iv) a copy of each
license required to be obtained with respect to the portion of the Required
Repairs which is the subject of the requested disbursement; and (v) such other
evidence as Lender shall reasonably request that the Required Repairs which are
the subject of the requested disbursement have been completed and paid for.
Provided no Default or Event of Default shall have occurred and is continuing,
upon Borrower's completion of all Required Repairs in accordance with this
Section, Lender shall release any funds remaining in the Required Repairs
Subaccount, if any, to Borrower.

                   (d)      TAXES AND INSURANCE.

                            (i) Borrower shall pay to Lender on each Payment
Date (1) onetwelfth of the yearly Taxes that Lender estimates will be payable
during the next 12 months in order to accumulate with Lender sufficient funds to
pay all such Taxes at least 30 days prior to their respective due dates and (2)
one-twelfth of the insurance premiums that Lender estimates will be payable for
the renewal of a separate "stand-alone" policy providing the coverage afforded
by the insurance policies required under this Instrument upon the expiration
thereof in order to accumulate with Lender sufficient funds to pay all such


                                       29



insurance premiums at least 30 days prior to the expiration of the insurance
policies. Such amounts will be transferred by Lender to a Subaccount (the "TAX
AND INSURANCE SUBACCOUNT"). Provided that no Event of Default has occurred and
is continuing, Lender will (a) apply funds in the Tax and Insurance Subaccount
to payments of Taxes required to be made by Borrower pursuant to this
Instrument, provided that Borrower has promptly supplied Lender with notices of
all Taxes due, or (b) reimburse Borrower for payments of (x) Taxes and (y)
insurance premiums paid in connection with the purchase of a separate
"stand-alone" policy providing the coverage afforded by the insurance policies
required under this Instrument upon the expiration thereof, in each case, due
upon presentation of evidence acceptable to Lender of such payment by Borrower;
subject, however, to Borrower's right to contest Taxes in accordance with this
Instrument. In making any payment or reimbursement relating to Taxes and
insurance premiums, Lender may do so according to any bill, statement or
estimate procured from the appropriate public office (with respect to taxes) or
insurer or agent (with respect to insurance premiums), without inquiry into the
accuracy of such bill, statement or estimate or into the validity of any tax,
assessment, sale, forfeiture, tax lien or title or claim thereof. If Lender
determines in its reasonable judgment that the funds in the Tax and Insurance
Subaccount will be insufficient to pay (or in excess of) the Taxes or insurance
premiums next coming due, Lender may increase (or decrease) the monthly
contribution required to be made by Borrower to the Tax and Insurance
Subaccount. Notwithstanding the foregoing, so long as any Acceptable Blanket
Policy is in effect with respect to any of the policies required pursuant to
Section 5 above, payments required under the foregoing clause (2) shall be
suspended to the extent that insurance premiums relate to such Acceptable
Blanket Policy(ies).

                           (ii)     Intentionally Deleted.

                  (e) CAPITAL EXPENSE RESERVES. Borrower shall pay to Lender on
each Payment Date an amount initially equal to $1,615. Lender will transfer such
amounts into a Subaccount (the "CAPITAL RESERVE SUBACCOUNT"). Provided that no
Event of Default has occurred and is continuing, Lender shall disburse funds
held in the Capital Reserve Subaccount to Borrower, within 15 days after the
delivery by Borrower to Lender of a request therefor (but not more often than
once per month), in increments of at least $5,000 provided that (i) such
disbursement is for an Approved Capital Expense; (ii) Lender shall have (if it
desires) verified (by an inspection conducted at Borrower's expense) performance
of the work associated with such Approved Capital Expense; and (iii) the request
for disbursement is accompanied by (A) an Officer's Certificate certifying (1)
that such funds will be used to pay or reimburse Borrower for Approved Capital
Expenses and a description thereof, (2) that all outstanding trade payables
(other than those to be paid from the requested disbursement or those
constituting Permitted Indebtedness) have been paid in full, (3) that the same
has not been the subject of a previous disbursement, and (4) that all previous
disbursements have been used to pay the previously identified Approved Capital
Expenses, and (B) for any such disbursement of more than $25,000, at Lender's
option (which option shall be exercised in Lender's reasonable judgment), a
title search for the Property indicating that the Property is free from all
Liens, claims and other encumbrances not previously approved by Lender and (C)
such other evidence as Lender shall reasonably request that the Approved Capital
Expenditures at the Property to be funded by the requested disbursement have
been completed and are paid for or will be paid upon such disbursement to
Borrower.


                                       30



                  (f) ROLLOVER RESERVES. Borrower shall pay to Lender $6,045 on
each Payment Date (the "MONTHLY ROLLOVER PAYMENT"); provided, however, Borrower
shall not be required to make any Monthly Rollover Payment on any Payment Date
when the balance on deposit in the Rollover Reserve Subaccount is equal to or
greater than $125,000 (excluding any amounts deposited pursuant to the fourth
sentence of this subsection (f)). Additionally, if a Rollover Sweep Period has
commenced, and no other Cash Management Period is then continuing, then on the
immediately succeeding Payment Date and on each Payment Date thereafter during
the continuance of such Rollover Sweep Period, all Available Cash shall be paid
to Lender. Lender will transfer such amounts into a Subaccount (the "ROLLOVER
RESERVE SUBACCOUNT"). Borrower shall also pay to Lender for transfer into the
Rollover Reserve Subaccount all payments received from tenants in connection
with the early termination or cancellation of any Leases, including fees,
penalties and commissions. Provided that no Event of Default has occurred and is
continuing, Lender shall disburse funds held in the Rollover Reserve Subaccount
to Borrower, within 15 days after the delivery by Borrower to Lender of a
request therefor (but not more often than once per month), in increments of at
least $5,000, provided (i) such disbursement is for an Approved Leasing Expense;
(ii) Lender shall have (if it desires) verified (by an inspection conducted at
Borrower's expense) performance of any construction work associated with such
Approved Leasing Expense; and (iii) the request for disbursement is accompanied
by (A) an Officer's Certificate certifying (1) that such funds will be used only
to pay (or reimburse Borrower for) Approved Leasing Expenses and a description
thereof, (2) that all outstanding trade payables (other than those to be paid
from the requested disbursement or those constituting Permitted Indebtedness)
have been paid in full, (3) that the same has not been the subject of a previous
disbursement, and (4) that all previous disbursements have been used only to pay
(or reimburse Borrower for) the previously identified Approved Leasing Expenses,
and (B) reasonably detailed supporting documentation as to the amount, necessity
and purpose therefor. Provided that no Event of Default has occurred and is
continuing, the remaining funds in the Rollover Reserve Subaccount (to the
extent not drawn upon pursuant to this Section 25(f)) allocable to any specific
portion of the commercial space at the Property which is the subject of the
Rollover Sweep Event will be disbursed to Borrower within 10 days after written
request therefor, provided that Borrower has delivered (i) evidence reasonably
satisfactory to Lender that (y) such commercial space has been re-let pursuant
to Leases entered into in accordance with this Instrument and (z) all Approved
Leasing Expenses which have been incurred or which Lender anticipates will be
incurred with respect to such space have been paid in full and (ii) an estoppel
certificate from the applicable tenant occupying such portion of the commercial
space at the Property in a foamm reasonably satisfactory to Lender pursuant to
which such tenant certifies to Lender that (1) such tenant has taken occupancy
of its demised premises, (2) all of the conditions precedent to such tenant's
obligation to commence the payment of rent under its Lease have been satisfied
(including Borrower's contribution to the cost of any tenant improvement work)
and (3) such tenant has commenced the payment of rent under its Lease.

                                       31



                   (g) OPERATING EXPENSE SUBACCOUNT. During a Cash Management
Period, Borrower shall pay to Lender on or before each Payment Date the monthly
amount set forth in the Approved Operating Budget for the following month as
being necessary for payment of Approved Operating Expenses at the Property for
such month, which amounts shall be transferred into a Subaccount for the payment
of Approved Operating Expenses (the "OPERATING EXPENSE SUBACCOUNT"). Provided no
Event of Default has occurred and is continuing, Lender shall disburse funds
held in the Operating Expense Subaccount to Borrower, within 15 days after
delivery by Borrower to Lender of a request therefor (but not more often than
once per month), in increments of at least $1,000, provided (i) such
disbursement is for an Approved Operating Expense; and (ii) such disbursement is
accompanied by (A) an Officer's Certificate certifying (1) that such funds will
be used to pay Approved Operating Expenses and a description thereof, (2) that
all outstanding trade payables (other than those to be paid from the requested
disbursement or those constituting Permitted Indebtedness) have been paid in
full, (3) that the same has not been the subject of a previous disbursement, and
(4) that all previous disbursements have been or will be used to pay the
previously identified Approved Operating Expenses, and (B) reasonably detailed
documentation satisfactory to Lender as to the amount, necessity and purpose
therefor.

                   (h) CASUALTY/CONDEMNATION SUBACCOUNT. Borrower shall pay, or
cause to be paid, to Lender all insurance proceeds or Awards due to any Casualty
or Condemnation which Borrower is required to deposit with Lender to be
transferred to a Subaccount (the "CASUALTY/CONDEMNATION SUBACCOUNT") in
accordance with the provisions of Sections 5 and 11. All amounts in the
Casualty/Condemnation Subaccount shall be disbursed in accordance with the
provisions of Sections 5 and 11.

                   (i) SECURITY DEPOSITS. Borrower shall keep all security
deposits under Leases at a separately designated account under Borrower's
control at the Clearing Bank (and in the case of a letter of credit, assigned
with full power of attorney and executed sight drafts to Lender) so that the
security deposits shall not be commingled with any other funds of Borrower (such
account, the "SECURITY DEPOSIT ACCOUNT"). Upon the occurrence and during the
continuance of an Event of Default, Borrower shall, upon Lender's request, if
permitted by applicable Legal Requirements, turn over to Lender the security
deposits (and any interest theretofore earned thereon) under Leases, to be held
by Lender in a Subaccount (the "SECURITY DEPOSIT SUBACCOUNT") subject to the
terms of the Leases. Security deposits held in the Security Deposit Subaccount
will be released by Lender upon notice from Borrower together with such evidence
as Lender may reasonably request that such security deposit is required to be
returned to a tenant pursuant to the teens of a Lease or may be applied as Rent
pursuant to the rights of Borrower under the applicable Lease. Any letter of
credit or other instrument that Borrower receives in lieu of a cash security
deposit under any Lease entered into after the date hereof shall (i) be
maintained in full force and effect in the full amount unless replaced by a cash
deposit as hereinabove described and (ii) if permitted pursuant to any Legal
Requirements, name Lender as payee or mortgagee thereunder (or at Lender's
option, be fully assignable to Lender).

                   (j) CASH COLLATERAL SUBACCOUNT. If a Cash Management Period
shall have commenced, then on the immediately succeeding Payment Date and on
each Payment Date thereafter during the continuance of such Cash Management


                                       32



Period, all Available Cash shall be paid to Lender, which amounts shall be
transferred by Lender into a Subaccount (the "Cash COLLATERAL SUBACCOUNT") as
cash collateral for Borrower's obligations under the Loan Documents. At Lender's
option, during the continuance of a Rollover Sweep Period, any funds that have
been deposited into the Cash Collateral Subaccount may be transferred by Lender
into the Rollover Reserve Subaccount, to be applied and disbursed in accordance
with the provisions of Section 25(f) hereof. Any funds in the Cash Collateral
Subaccount Account and not previously disbursed or applied shall be disbursed to
Borrower upon the teiuiination of such Cash Management Period. Lender shall have
the right, but not the obligation, at any time (i) during the continuance of an
Event of Default or (ii) subsequent to the second Calculation Date following the
commencement of a Cash Management Period (whether or not an Event of Default is
then continuing), in its sole and absolute discretion to apply all sums then on
deposit in the Cash Collateral Subaccount to Borrower's obligations under the
Loan Documents, in such order and in such manner as Lender shall elect in its
sole and absolute discretion, including to make a prepayment of principal
(together with the Prepayment Consideration (as defined in the Note) applicable
thereto). Additionally, Lender shall have the right, but not the obligation, at
any time subsequent to the second Calculation Date following the commencement of
a DSCR Cash Management Period (whether or not an Event of Default is then
continuing), in its sole and absolute discretion to apply all sums then on
deposit in the Cash Collateral Subaccount towards a partial Defeasance (as
defined in the Note) of the Loan (together with any Defeasance costs associated
therewith), and Borrower shall execute such documents and take such other
actions necessary to satisfy the Defeasance requirements set forth in Section 3
of the Note.

                   (k) GRANT OF SECURITY INTEREST; APPLICATION OF FUNDS. As
security for payment of the Loan and the performance by Borrower of all other
terms, conditions and provisions of the Loan Documents, Borrower hereby pledges
and assigns to Lender, and grants to Lender a security interest in, all
Borrower's right, title and interest in and to all Rents and in and to all
payments to or monies held in the Clearing Account, the Deposit Account, all
Subaccounts created pursuant to this Instrument (collectively, the "CASH
MANAGEMENT ACCOUNTS"). Borrower hereby grants to Lender a continuing security
interest in, and agrees to hold in trust for the benefit of Lender, all Rents in
its possession prior to the (i) payment of such Rents to Lender or (ii) deposit
of such Rents into the Clearing Account. Borrower shall not, without obtaining
the prior written consent of Lender, further pledge, assign or grant any
security interest in any Cash Management Account, or permit any lien to attach
thereto, or any levy to be made thereon; or any UCC Financing Statements, except
those naming Lender as the secured party, to be filed with respect thereto. This
Instrument is, among other things, intended by the parties to be a security
agreement for purposes of the UCC. Upon the occurrence and during the
continuance of an Event of Default, Lender may apply any sums in any Cash
Management Account in any order and in any manner as Lender shall elect in
Lender's discretion without seeking the appointment of a receiver and without
adversely affecting the rights of Lender to foreclose the Lien of the Instrument
or exercise its other rights under the Loan Documents. Cash Management Accounts
shall not constitute trust funds and may be commingled with other monies held by
Lender. All interest which accrues on the funds in any Cash Management Account
(other than the Tax and Insurance Subaccount) shall accrue for the benefit of
Borrower and shall be taxable to Borrower and shall be added to and disbursed in
the same manner and under the same conditions as the principal sum on which said
interest accrued. Upon repayment in full of Borrower's obligations under the
Loan Documents, all remaining funds in the Subaccounts, if any, shall be
promptly disbursed to Borrower.


                                       33




                  (1)      PROPERTY CASH FLOW ALLOCATION.

                           (i) During any Cash Management Period, all Rents
deposited into the Deposit Account during the immediately preceding Interest
Period shall be applied on each Payment Date as follows in the following order
of priority: (i) First, to make payments into the Tax and Insurance Subaccount
as required under paragraph (d) of this Section 25; (ii) Second, to pay the
monthly portion of the fees charged by the Deposit Bank in accordance with the
Deposit Account Agreement; (iii) Third, to Lender to pay the principal and
interest due under the Note on such Payment Date (plus, if applicable, interest
at the Default Rate and all other amounts, other than those described under
other clauses of this paragraph (1) of this Section 25, then due to Lender under
the Loan Documents); (iv) Fourth, to make payments into the Capital Reserve
Subaccount as required under paragraph (e) of this Section 25; (v) Fifth, to
make payments of the Monthly Rollover Payment into the Rollover Reserve
Subaccount, as required under paragraph (f) of this Section 25; (vi) Sixth, to
make payments for Approved Operating Expenses as required under paragraph (g) of
this Section 25; (vii) Seventh, during the continuance of a Rollover Sweep
Period (and if no other Cash Management Period is then continuing) to make
payments in an amount equal to all remaining Available Cash on such Payment Date
into the Rollover Reserve Subaccount as required under paragraph (f) of this
Section 25; and (viii) Lastly, during the continuance of a Cash Management
Period described in clauses (i), (ii) or (iii) of the defined term "Cash
Management Period", to make payments in an amount equal to all remaining
Available Cash on such Payment Date into the Cash Collateral Subaccount in
accordance with paragraph (j) of this Section 25. Upon the termination of any
Cash Management Period, provided no Event of Default is then continuing, any
funds in the Operating Expense Subaccount and not previously disbursed or
applied shall be fully disbursed to Borrower.

                           (ii) The failure of Borrower to make all of the
payments required under clauses (i) through (viii) of paragraph (i) above in
full on each Payment Date shall constitute an Event of Default under this
Instrument; provided, however, if adequate funds are available in the Deposit
Account for such payments, the failure by the Deposit Bank to allocate such
funds into the appropriate Subaccounts shall not constitute an Event of Default.

Notwithstanding anything to the contrary contained in this Section 25, after the
occurrence and during the continuance of an Event of Default, Lender may apply
all Rents deposited into the Deposit Account and other proceeds of repayment in
such order and in such manner as Lender shall elect.

        SECTION 26. NONRECOURSE LOAN. Subject to the provisions of this Section,
and notwithstanding any provision of the Loan Documents other than this Section,
the personal liability of Borrower, and of any general partner of Borrower, to
pay the principal of and interest on the debt evidenced by the Note and any
other agreement evidencing Borrower's obligations under the Note shall be
limited to (a) the Collateral, (b) the personal property described in and
pledged under any Loan Document other than this Instrument, and (c) the rents,
profits, issues, products and income of the Property, including any received or
collected by or on behalf of Borrower after an Event of Default.

                                       34




         Except as provided in this Section, Lender shall not seek (a) any
judgment for a deficiency against Borrower, any general partner or member of
Borrower, or Borrower's successors or assigns, in any action to enforce any
right or remedy under the Note, this Instrument or the other Loan Documents, or
(b) any judgment on the Note except as may be necessary in any action brought
under the Instrument to enforce the lien against the Property or any other
Collateral.

         Notwithstanding the foregoing, Borrower and any general partner of
Borrower shall be fully and personally liable for payment and performance of all
obligations set forth in the Loan Documents, including the payment of all
principal, interest, and other amounts under the Note, in the event of (i) the
occurrence of an uncured default under Sections 15, 16 or 29 of this Instrument,
or (ii) the occurrence of any condition or event described in Section 20 (except
that in the event of involuntary proceedings described therein, neither Borrower
nor any general partner of Borrower shall be fully and personally liable under
this Section 26 unless either Borrower or any general partner of Borrower or any
Person owning an interest (directly or indirectly) in Borrower or any general
partner of Borrower consents to, aids, solicits, supports, or otherwise
cooperates or colludes to cause such event or fails to contest such event).

         Further, Borrower and any general partner of Borrower shall be
personally liable in the amount of any loss, damage or cost resulting from (a)
fraud or intentional misrepresentation by Borrower in connection with obtaining
the loan evidenced by the Note, (b) insurance proceeds, condemnation awards, or
other sums or payments attributable to the Property not applied in accordance
with the provisions of the Loan Documents (except to the extent that Borrower
did not have the legal right, because of a bankruptcy, receivership or similar
judicial proceeding, to direct disbursement of such sums or payments), (c) all
rents, profits, issues, products and income of the Property received or
collected by or on behalf of Borrower after and during an Event of Default and
not applied to payment of principal and interest due under the Note, and to the
payment of actual and reasonable operating expenses of the Property, as they
become due or payable (except to the extent that such application of such funds
is prevented by bankruptcy, receivership, or similar judicial proceeding in
which Borrower is legally prevented from directing the disbursement of such
sums), (d) misappropriation (including failure to turn over to Lender on demand
following an Event of Default) of tenant security deposits and rents collected
in advance, or of funds held by Borrower for the benefit of another party, or
(e) Borrower's failure to pay transfer fees and charges due Lender under the
Loan Documents in connection with any subordinate financing or any transfer of
all or any part of the Property, or any interest therein, from Borrower to
Borrower's transferee, or transfer of any beneficial interest in Borrower (if


                                       35



Borrower is not a natural person or persons but is a corporation, partnership,
limited liability company, trust or other legal entity) other than a Permitted
Transfer, or (f) failure by Borrower, any general partner of Borrower, or any
indemnitor or guarantor to comply with the covenants, obligations, liabilities,
warranties and representations contained in the Environmental Indemnity
Agreement or otherwise pertaining to environmental matters, or (g) in the event
Lender has waived (or Borrower has failed to pay) the monthly collection for
real and personal property taxes, assessments, insurance premiums, or ground
rents, then failure by Borrower to pay any or all such taxes, assessments,
premiums and rents, or (h) in the event that Lender has waived (or Borrower has
not complied with) the requirement for third party property management, then any
management fee taken by Borrower or any principal or affiliate of Borrower after
an Event of Default, or (i) breach of any of Sections 15, 16 or 29 of this
Instrument, or (j) the occurrence of any condition or event described in Section
20 (except that in the event of involuntary proceedings described therein,
neither Borrower nor any general partner of Borrower shall be fully and
personally liable under this Section 26 unless either Borrower or any general
partner of Borrower or any Person owning an interest (directly or indirectly) in
Borrower or any general partner of Borrower consents to, aids, solicits,
supports, or otherwise cooperates or colludes to cause such event or fails to
contest such event).

         No provision of this Section shall (i) affect the enforcement of the
Environmental Indemnity Agreement or any guaranty or similar agreement executed
in connection with the debt evidenced by the Note, (ii) release or reduce the
debt evidenced by the Note, (iii) impair the lien of this Instrument, (iv)
impair the rights of Lender to enforce any provisions of this Instrument, (v)
limit Lender's ability to obtain a deficiency judgment or judgment on the Note
or otherwise against Borrower to the extent necessary to obtain any amount for
which Borrower may be liable in accordance with this Section.

         SECTION 27. REPRESENTATIONS OF BORROWER. The Borrower hereby represents
and warrants to Lender the following:

                   (a) Organization. Borrower is a limited partnership duly
organized, validly existing and in good standing under the laws of New York.
There are no proceedings or actions pending, threatened or contemplated for the
liquidation, termination or dissolution of Borrower.

                   (b) Rent Roll. Borrower has delivered to Lender a certified
rent roll (the "RENT ROLL"), a copy of which is attached hereto as Schedule 3,
which constitutes a true, correct, and complete list of each and every lease
affecting the Property (for each commercial tenant, together with all extensions
and amendments thereof) (the "EXISTING LEASES"); Borrower has delivered to
Lender a true, correct, and complete copy of each of the Existing Leases which
are entered into by commercial or retail tenants; and there are no other leases,
assignments, modifications, extensions, renewals, or other agreements of any
kind whatsoever (written or oral) outstanding with respect to the leases or the
Property.

                   (c) Leases. Unless otherwise specified in the Rent Roll:

                           (i) the Existing Leases are in full force and effect;


                                       36




                           (ii) Borrower has not given any notice of default to
any tenant under an Existing Lease (an "EXISTING TENANT") which remains uncured;


                           (iii) no Existing Tenant has any set off, claim or
defense to the enforcement of any Existing Lease;

                           (iv) no Existing Tenant is in arrears in the payment
of rent for more than 30 days, additional rent or any other charges whatsoever
due under any Existing Lease; or, to the knowledge of Borrower, is materially in
default in the performance of any other obligations of such Existing Tenant
under the applicable Existing Lease; and

                            (v) Borrower has completed all work or alterations
required of the landlord or lessor under each Existing Lease; and all of the
other obligations of landlord or lessor under the Existing Leases have been
performed.

                   (d) Rents. The Rent Roll truly and completely discloses all
annual and monthly rents payable by all Existing Tenants, including all
percentage rents, if any, expiration dates of the Existing Leases, and the
amount of security deposit being held by Borrower under each Existing Lease, if
any; and Borrower has not granted any Existing Tenant any rent concessions
(whether in form of cash contributions, work agreements, assumption of an
Existing Tenant's other obligations, or otherwise) or extensions of time
whatsoever not reflected in such Rent Roll.

                   (e) Lease Issues. There are no legal proceedings commenced
(or, to the best of the knowledge of the Borrower, threatened) against Borrower
by any Existing Tenant; no rental in excess of one month's rent has been prepaid
under any of the Existing Leases; each of the Leases is valid and binding on the
parties thereto in accordance with its terms; and the execution of this
Instrument and the other Loan Documents will not constitute an event of default
under any of the Existing Leases.

                   (f) Security Deposits. Borrower currently holds the security
deposits (if any) specified in the Existing Leases and has not given any credit,
refund, or set off against such security deposits to any person.

                   (g) Intentionally Deleted.

                   (h) No Undisclosed Tenants. Except for Borrower, there are no
persons or entities occupying space in the Property as tenants other than the
persons or entities specifically named in the Existing Leases.

                   (i) Title. Except as specifically listed in the schedule of
     exceptions to coverage in the title policy insuring Lender's interest in
     the Property, Borrower is now in possession of the Property; Borrower's
     possession of the Property is peaceable and undisturbed; Borrower does not
     know any facts by reason of which any claim to the Property, or any part
     thereof, might arise or be set up adverse to Borrower; and the Property is
     free and clear of (i) any lien for Taxes (except real property taxes not
     yet due and payable for the calendar year in which this Instrument is being
     executed), and (ii) any easements, rights-of-way, restrictions,
     encumbrances, liens or other exceptions to title by mortgage, decree,
     judgment, agreement, instrument, or, to the knowledge of Borrower,
     proceeding in any court. The Permitted Encumbrances (as defined in Section
     15 hereof) do not materially and adversely affect the value, operation or
     use of the Property, or Borrower's ability to repay the Loan. This
     Instrument when properly recorded in the appropriate records, together with
     any UCC Financing Statements required to be filed in connection therewith,
     will create (i) a valid, perfected first priority lien on the Borrower's
     interest in the Property and (ii) valid and perfected first priority
     security interests in and to, and perfected collateral assignments of, all
     personalty (including the Leases), all in accordance with the terms
     thereof, in each case subject only to any applicable Permitted
     Encumbrances. There are no pending or proposed special or other assessments
     for public improvements or otherwise affecting the Property, or any
     contemplated improvements to the Property that may result in such special
     or other assessments.


                                       37



                  (j) Liens. All charges for labor, materials or other work of
any kind furnished in connection with the construction, improvement, renovation
or rehabilitation of the Property or any portion thereof have been paid in full,
and no unreleased affidavit claiming a lien against the Property, or any portion
thereof, for the supplying of labor, materials or services for the construction
of improvements on the Property has been executed or recorded in the mechanic's
lien or other appropriate records in the county in which the Property is
located.

                  (k) Compliance with Law. The Property and the current and
contemplated uses of the Property are in compliance with all applicable federal,
state and municipal laws, rules, regulations and ordinances, applicable
restrictions, zoning ordinances, building codes and regulations, building lines
and easements, including, without limitation, federal and state environmental
protection law and the Americans with Disabilities Act of 1990, the Fair Housing
Amendments Act of 1988, all state and local laws or ordinances related to
handicapped access, and any statute, rule, regulation, ordinance, or order of
governmental bodies or regulatory agencies, or any order or decree of any court
adopted or enacted with respect thereto; no governmental authority having
jurisdiction over any aspect of the Property has made a claim or determination
that there is any such violation; the Property is not included in any area
identified by the Secretary of Housing and Urban Development pursuant to the
Flood Disaster Protection Act of 1973, as amended, as an area having special
flood hazards; and all permits, licenses and the like which are necessary for
the operation of the Property have been issued and are in full force and effect.

                  (1) Adverse Changes; Full and Accurate Disclosure. There have
been no material adverse changes, financial or otherwise, in the condition of
Borrower from that disclosed to Lender in the loan application submitted to
Lender by Borrower, or in any supporting data submitted in connection with the
Loan, and all of the information contained therein was true and correct when
submitted and is now substantially and materially true and correct on the date
hereof. No statement of fact made by Borrower in any Loan Documents contains any
untrue statement of a material fact or omits to state any material fact
necessary to make statements contained therein not misleading. There is no
material fact presently known to Borrower that has not been disclosed to Lender
which adversely affects, or, as far as Borrower can foresee, might adversely
affect, the Property or the business, operations or condition (financial or
otherwise) of Borrower. All financial data, including the statements of cash
flow and income and operating expense, that have been delivered to Lender in
respect of Borrower and the Property (i) are true, complete and correct in all
material respects, (ii) accurately represent the financial condition of Borrower
and the Property as of the date of such reports, and (iii) to the extent
prepared by an independent certified public accounting firm, have been prepared
in accordance with GAAP or federal income tax basis of accounting, in either
case, consistently applied throughout the periods covered, except as disclosed
therein. Borrower has no contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments, unrealized or anticipated losses from any
unfavorable commitments or any liabilities or obligations not expressly
permitted by this Instrument. Since the date of such financial statements, there
has been no materially adverse change in the financial condition, operations or
business of Borrower or the Property from that set forth in said financial
statements.


                                       38




                  (m) Claims, Litigation. There is no claim, litigation or
condemnation proceeding pending, or, to the knowledge of the Borrower,
threatened, against the Property or Borrower, which would be likely to have a
material adverse affect on the Property or Borrower's ability to perform its
obligations in the connection with the Loan.

                  (n) Single Purpose. Borrower does not own any real property or
assets other than the Property and does not operate any business other than the
management and operation of the Property.

                  (o) Bankruptcy. No proceedings in bankruptcy or insolvency has
ever been instituted by or against Borrower or any affiliate thereof, and no
such proceeding is now pending or contemplated.

                  (p) Solvency. Borrower is, and if there are any general
partners or members of Borrower, such pai tilers or members are, solvent
pursuant to the laws of the United States, as reflected by the entries in
Borrower's books and records and as reflected by the actual facts.

                  (q) Enforceability of Loan Documents. The Loan Documents have
been duly authorized, executed and delivered by Borrower and constitute valid
and binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms. No approval, consent, order or authorization of any
governmental authority and no designation, registration, declaration or filing
with any governmental authority is required in connection with the execution and
delivery of the Note, this Instrument or any other Loan Document. Neither
Borrower nor any guarantor or indemnitor has any defense or offset to the
enforcement of any Loan Document, or any claim against Lender. Neither Borrower
nor any guarantor or indemnitor has any right whatsoever against Lender other
than the express contractual obligations of Lender set forth in the Loan
Documents. Any rights or claims contrary to this provision, whether known or
unknown, are hereby expressly waived.

                  (r) Non-contravention. The execution and delivery of the Loan
Documents will not violate or contravene in any way the articles of
incorporation or bylaws or partnership agreement, articles of organization or
operating agreement as the case may be, of Borrower or any indenture, agreement
or instrument to which Borrower is a party or by which it or its property may be
bound, or be in conflict with, result in a breach of or constitute a default
under any such indenture, agreement or other instrument, result in the creation
or imposition of any lien, charge or encumbrance of any nature whatsoever upon
any of the property or assets of Borrower, except as contemplated by the
provisions of such Loan Documents, and no action or approval with respect
thereto by any third person is required.


                                       39




                  (s) Homestead. No part of the Property is all or a part of
Borrower's homestead or the homestead of anyone.

                  (t) Utilities. The Property is served by all utilities
required for the current or contemplated use thereof. All utility service is
provided by public utilities and the Property has accepted or is equipped to
accept such utility service.

                  (u) Public Roads. All public roads and streets necessary for
service of and access to the Property for the current or contemplated use
thereof have been completed, are serviceable and all-weather and are physically
and legally open for use by the public.

                   (v) Water and Sewers. The Property is serviced by public
water and sewer systems.

                   (w) Damage. The Property is free from damage caused by fire
or other casualty.

                   (x) Waste Disposal. All liquid and solid waste disposal,
septic and sewer systems located on the Property are in a good and safe
condition and repair and in compliance with all applicable laws.

                  (y) Agreements. Borrower is not a party to any agreement or
instrument or subject to any restriction which might adversely affect Borrower
or the Property, or Borrower's business, properties, operations or condition,
financial or otherwise. Borrower is not in default in any material respect in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any Permitted Encumbrance or any other agreement or
instrument to which it is a party or by which it or the Property is bound.

                  (z) No Plan Assets. As of the date hereof and throughout the
entire term of the loan evidenced by the Note and this Instrument (the "Term")
(i) Borrower is not and will not be an "employee benefit plan," as defined in
Section 3(3) of ERISA, subject to Title I of ERISA, (ii) none of the assets of
Borrower constitutes or will constitute "plan assets" of one or more such plans
within the meaning of 29 C.F.R. Section 2510.3-101, (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 regulating investment of, and fiduciary obligations with respect
to, governmental plans.


                                       40




                  (aa) Federal Reserve Regulations; Investment Company Act. No
part of the proceeds of the loan evidenced by the Note, this Instrument and the
other Loan Documents will be used for the purpose of purchasing or acquiring any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System or for any other purpose that would be inconsistent
with such Regulation U or any other regulation of such Board of Governors, or
for any purpose prohibited by Legal Requirements (as defined in Section 25
hereof) or any Loan Document. Borrower is not (i) an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended; (ii) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended; or (iii) subject to any other
federal or state law or regulation which purports to restrict or regulate its
ability to borrow money.

                  (bb) Fraudulent Transfer. Borrower has not entered into the
loan evidenced by the Note, this Instrument and the other Loan Documents, or any
Loan Document with the actual intent to hinder, delay, or defraud any creditor,
and Borrower has received reasonably equivalent value in exchange for its
obligations under the Loan Documents. Giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of Borrower's assets
exceeds and will, immediately following the execution and delivery of the Loan
Documents, exceed Borrower's total liabilities, including subordinated,
unliquidated, disputed or contingent liabilities, including the maximum amount
of its contingent liabilities or its debts as such debts become absolute and
matured. Borrower's assets do not and, immediately following the execution and
delivery of the Loan Documents will not, constitute unreasonably small capital
to carry out its business as conducted or as proposed to be conducted. Borrower
does not intend to, and does not believe that it will, incur debts and
liabilities (including contingent liabilities and other commitments) beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts to be payable on or in respect of obligations of Borrower).

                  (cc) No Other Debt. There is no indebtedness with respect to
the Property or any excess cash flow or any residual interest therein, whether
secured or unsecured, other than Pei initted Encumbrances and Permitted
Indebtedness (as defined in Section 28(i) hereof).

                  (dd) Flood Zone. No portion of the Property is located in an
area as identified by the Federal Emergency Management Agency as an area having
special flood hazards.

         SECTION 28. BORROWER'S ADDITIONAL COVENANTS. Borrower hereby covenants,
agrees and undertakes as follows:

                  (a) Alterations of Property. Borrower shall not undertake or
commence any alterations of any improvements on the Property the cost of which
is in excess of five percent of the then original principal amount of the Note,
without the prior written consent of Lender, not to be unreasonably withheld;
provided, however, that Lender may, in its sole and absolute discretion,
withhold consent to any alteration the cost of which is reasonably estimated to
exceed $2,000,000.


                                       41




                  (b) Further Assurances. Borrower shall from time to time, at
the request of Lender, (i) promptly correct any defect, error or omission which
may be discovered in the contents of this Instrument or in any other Loan
Document or in the execution or acknowledgment thereof; (ii) execute,
acknowledge, deliver and record and/or file such further documents or
instruments (including, without limitation, further mortgages, security
agreements, financing statements, continuation statements, assignments of rents
or leases and environmental indemnity agreements) and perform such further acts
and provide such further assurances as may be necessary, desirable or proper, in
Lender's opinion, to carry out more effectively the purposes of this Instrument
and such other instruments and to subject to the liens and security interests
hereof and thereof any property intended by the terms hereof or thereof to be
covered hereby or thereby, including specifically, but without limitation, any
renewals, additions, substitutions, replacements, or appurtenances to the
Property; provided that such documents or instruments do not materially increase
Borrower's liability under the Loan Documents; and (iii) execute, acknowledge,
deliver, procure, and file and/or record any document or instrument (including
specifically, but without limitation, any financing statement) deemed advisable
by Lender to protect the liens and the security interests herein granted against
the rights or interests of third persons; provided that such documents or
instruments do not materially increase Borrower's liability under the Loan
Documents. Borrower will pay all reasonable costs connected with any of the
foregoing in this paragraph.

                  (c) Mortgage Taxes. Borrower shall at any time any law shall
be enacted imposing or authorizing the imposition of any tax upon this
Instrument, or upon any rights, titles, liens or security interests created
hereby, or upon the obligations secured hereby or any part thereof, immediately
pay all such taxes; provided that, if such law as enacted makes it unlawful for
Borrower to pay such tax, Borrower shall not pay nor be obligated to pay such
tax, and in the alternative, Borrower may, in the event of the enactment of such
a law, and must, if it is unlawful for Borrower to pay such taxes, prepay the
obligations secured hereby in full within 60 days after demand therefor by
Lender.

                  (d) Minerals. Borrower shall not permit any drilling or
exploration for or extraction, removal or production of any mineral, natural
element, compound or substance from the surface or subsurface of the Property
regardless of the depth thereof or the method of mining or extraction thereof.

                  (e) M enance of Borrower and Managing Entity Names. Borrower
shall not change, or permit Managing Entity to change, its name, identity
(including its trade name or names) or employer identification number, in any
such case, without notifying Lender of such change in writing at least thirty
(30) days prior to the effective date of such change. Borrower shall deliver, or
cause Managing Entity to deliver, to Lender, prior to or contemporaneously with
the effective date of any such change, any financing statement or financing
statement change reasonably required by Lender, if any, to establish or maintain
the validity, perfection and priority of the security interests granted herein.


                                       42




                  (f) Costs and Expenses. Borrower shall pay on demand all
reasonable and bona fide out-of-pocket costs, fees and expenses and other
expenditures, including, but not limited to, reasonable attorneys' fees and
expenses, paid or incurred by Lender to third parties incident to this
Instrument or any other Loan Document (including, but not limited to, reasonable
attorneys' fees and expenses in connection with the negotiation, preparation and
execution hereof and of any other Loan Document and any amendment hereto or
thereto, any release hereof, any consent, approval or waiver hereunder or under
any other Loan Document, the making of any advance under the Note, and any suit
to which Lender is a party involving this Instrument or the Property) or
incident to the enforcement of the obligations secured hereby or the exercise of
any right or remedy of Lender under any Loan Document.

                  (g) Compliance with Laws. Borrower shall maintain and keep the
Property in compliance in all material respects with all applicable legal
requirements (including with respect to parking (and any required striping
thereof) and applicable zoning and land use laws, regulations and ordinances).

                  (h) Annual Budget. Borrower shall prepare and submit (or shall
cause Manager to prepare and submit) to Lender within thirty (30) days after a
Cash Management Period and by November 30th of each year thereafter during the
Term until such Cash Management Period has ended, for approval by Lender, which
approval shall not be unreasonably withheld or delayed, a proposed pro forma
budget for the Property for the succeeding calendar year (the "ANNUAL BUDGET",
and each Annual Budget approved (or deemed approved pursuant to the terms of
this Section 28(h)) by Lender is referred to herein as the "APPROVED ANNUAL
BUDGET"), and, promptly after preparation thereof, any revisions to such Annual
Budget. Lender's failure to approve or disapprove any Annual Budget or revision
within 30 days after Lender's receipt thereof shall be deemed to constitute
Lender's approval thereof. The Annual Budget shall consist of (i) an operating
expense budget showing, on a month-bymonth basis, in reasonable detail, each
line item of the Borrower's anticipated operating income and operating expenses
(on a cash and accrual basis), including amounts required to establish, maintain
and/or increase any monthly payments required hereunder (and once such Annual
Budget has been approved (or deemed approved pursuant to the terms of this
Section 28(h)) by Lender, such operating expense budget shall be referred to
herein as the "APPROVED OPERATING BUDGET"), and (ii) a Capital Expense budget
showing, on a month-by-month basis, in reasonable detail, each line item of
anticipated Capital Expenses (and once such Annual Budget has been approved (or
deemed approved pursuant to the terms of this Section 28(h)) by Lender, such
Capital Expense budget shall be referred to herein as the "APPROVED CAPITAL
BUDGET"). Until such time that any Annual Budget has been approved (or deemed to
have been approved pursuant to the terms of this Section 28(h)) by Lender, the
prior Approved Annual Budget shall apply for all purposes hereunder (with such
adjustments as reasonably determined by Lender (including increases for any
non-discretionary expenses).

                  (i) Indebtedness. Borrower shall not directly or indirectly
create, incur or assume any indebtedness other than the indebtedness evidenced
by the Loan Documents and unsecured trade payables incurred in the ordinary
course of business relating to the ownership and operation of the Property which
do not exceed, at any time, a maximum amount of 2% of the original amount of the
Loan and are paid within sixty (60) days of the date incurred (collectively,
"PERMITTED INDEBTEDNESS").


                                       43



         SECTION 29. COVENANTS WITH RESPECT TO SINGLE PURPOSE, INDEBTEDNESS,
OPERATIONS, FUNDAMENTAL CHANGES OF BORROWER

                  (a) Pertaining to Borrower Parties. Borrower represents,
warrants and covenants as of the date of hereof and until such time as the
indebtedness secured hereby is paid in full, that each of Borrower and Acadia
Pacesetter LLC, a Delaware limited liability company (the latter, or any
permitted successor and assignee thereto in accordance with the terms of this
Instrument, may be referred to as "Managing Entity" and both Borrower and
Managing Entity may be referred to as "Borrower Parties")

                           (i) does not own and will not own any assets other
than the Property (including incidental personal
property necessary for the operation thereof and proceeds therefrom) or direct
or indirect ownership interests in Borrower (the "OWNERSHIP INTERESTS");

                           (ii) was and will be organized solely for the purpose
of owning the Property and is not engaged and will not engage in any business,
directly or indirectly, other than the ownership, management and operation of
the Property or the Ownership Interests;

                           (iii) has not entered and will not enter into any
contract or agreement with any partner, member, shareholder, trustee,
beneficiary, principal or affiliate of any Borrower Party except upon terms and
conditions that are intrinsically fair and substantially similar to those that
would be available on an arms-length basis with third parties other than such
affiliate;

                           (iv) has not incurred and will not incur any debt,
secured or unsecured, direct or contingent (including guaranteeing any
obligation), other than (i) the obligations secured by this Instrument, and (ii)
trade payables or accrued expenses incurred in the ordinary course of business
of operating the Property which (1) do not exceed, at any time, (a) with respect
to Borrower, a maximum amount of 2% of the original amount of the Principal, and
(b) with respect to Managing Entity, $10,000 and (2) are paid within sixty (60)
days of the date incurred;

                           (v) has not made and will not make any loan or
advances to any person or entity;

                           (vi) has remained and will remain solvent and pay its
own liabilities, indebtedness, and obligations of any kind from its own separate
assets as the same shall become due;


                                       44



                           (vii) has not, and without the unanimous consent of
all of its partners, directors or members, as applicable, will not, with respect
to itself or to any other entity in which it has a direct or indirect legal or
beneficial ownership interest (A) file a bankruptcy, insolvency or
reorganization petition or otherwise institute insolvency proceedings or
otherwise seek any relief under any laws relating to the relief from debts or
the protection of debtors generally, (B) seek or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar
official for such entity or for all or any portion of such entity's properties,
(C) make any assignment for the benefit of such entity's creditors or (D) take
any action that might cause such entity to become insolvent;

                           (viii) has done or caused to be done and will do all
things necessary to preserve its existence, and will not, nor will any partner,
member, shareholder, trustee, beneficiary, or principal amend, modify or
otherwise change its partnership certificate, partnership agreement, articles of
incorporation, by-laws, articles of organization, operating agreement, or other
organizational documents in any manner except as necessary to reflect Permitted
Transfers;

                           (ix) has maintained and shall continuously maintain
its existence and be qualified to do business in all states necessary to carry
on its business, specifically including in the case of Borrower, the state where
the Property is located;

                           (x) has conducted and operated and will conduct and
operate its business as presently conducted and operated;

                           (xi) has maintained and will maintain books and
records and bank accounts separate from those of its partners, members,
shareholders, trustees, beneficiaries, principals, affiliates, and any other
person or entity;


                           (xii) has been and will be, and at all times has held
and will hold itself out to the public as, a legal entity separate and distinct
from any other (including any of its partners, members, shareholders, trustees,
beneficiaries, principals and affiliates), and not as a department or division
of any entity;

                           (xiii) has not failed and will not fail to correct
any known misunderstanding regarding the separate identity of such entity;

                           (xiv) has and will maintain adequate capital for the
normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations;

                           (xv) has not and will not seek, acquiesce in, or
suffer or permit its liquidation, dissolution or winding up, in whole or in
part;

                           (xvi) has not entered and will not enter into any
transaction of merger or consolidation, or acquire by purchase or otherwise all
or substantially all of the business or assets of, or any stock of beneficial
ownership of, any person or entity;


                                       45



                           (xvii) has not commingled and will not commingle or
permit to be commingled its funds or other assets with those of any other person
or entity;

                           (xviii) has and will maintain its assets in such a
manner that it is not costly or difficult to segregate, ascertain or identify
its individual assets from those of any other person or entity;

                           (xix) except as expressly provided for in the Loan
Documents, does not and will not hold itself out to be responsible for the debts
or obligations of any other person or entity;

                           (xx) except as expressly provided for in the Loan
Documents, has not and will not guarantee or otherwise become liable on or in
connection with any obligation of any other person or entity;

                           (xxi) has not done or shall not do any act which
would make it impossible to carry on its ordinary business;

                           (xxii) has not and will not possess or assign the
Property for other than a business or company purpose;

                           (xxiii) has not held and shall not hold its assets
other than in its name;

                           (xxiv) has paid and will pay its own liabilities,
including the salaries of its own employees, out of its own funds and assets;

                           (xxv) has observed and will observe all partnership,
corporate or limited liability company founalities, as applicable;

                           (xxvi) has maintained and will maintain an
arm's-length rela ionship with its Affiliates;

                           (xxvii) has not and will not acquire obligations or
securities of its partners, members or shareholders;

                           (xxviii) has allocated and will allocate fa rly and
reasonably shared expenses, including shared office space, and uses separate
stationery, invoices and checks;

                           (xxix) except in connection with the Loan, has not
pledged and will not pledge its assets for the benefit of any other Person;

                           (xxx) has not identified and will not identify its
partners, members or shareholders, or any Affiliate of any of them, as a
division or part of it;


                                       46



                           (xxxi) has and will have no obligation to indemnify
its partners, officers, directors, members or Special Members (as defined
below), as the case may be, or has such an obligation that is fully subordinated
to the Debt and will not constitute a claim against it if cash flow in excess of
the amount required to pay the Debt is insufficient to pay such obligation; and

                           (xxxii) will consider the interests of its creditors
i co ection with all corporate, partnership or limited liability actions, as
applicable.

                           (xxxiii) has not instituted and shall not nstitute
proceedings to be adjudicated bankrupt or insolvent; consent to the institution
of bankruptcy or insolvency proceedings against it; file a petition seeking, or
consent to, reorganization or relief under any applicable federal or state law
relating to bankruptcy; consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of it or a
substantial part of its property; or make any assignment for the benefit of
creditors; or admit in writing its inability to pay its debts generally as they
become due;

                           (xxxiv) shall comply with all (and shall not suffer
to be inaccurate any) of the assumptions, statements, certifications,
representations, warranties and covenants regarding or made by Borrower
contained in or appended to any opinion of Borrower's legal counsel delivered in
connection with the transaction in which the Loan Documents are executed.

                  (b) PERTAINING TO MANAGING ENTITY. Borrower also represents,
warrants and covenants as of the date of hereof and until such time as the
indebtedness secured hereby is paid in full, that Managing Entity:

                           (i) has and will at all times act as the sole general
partner with all of the rights, powers, obligations and liabilities thereof
under the partnership agreement of Borrower and shall take any and all actions
and do any and all things necessary or appropriate to the accomplishment of the
same and will engage in no other business;

                           (ii) has and will have an operating agreement which
provides that the business and affairs of Managing Entity shall be managed by or
under the direction of a board of one or more directors designated by Acadia
Realty Limited Partnership, a Delaware limited partnership, its sole member (the
"SOLE MEMBER");

                           (iii) not and will not, for itself or for Borrower
(i) liquidate or dissolve, in whole or in part; (ii) consolidate, merge or enter
into any form of consolidation with or into any other person or entity, nor
convey, transfer or lease its or Borrower's assets substantially as an entirety
to any person or entity nor permit any person or entity to consolidate, merge or
enter into any form of consolidation with or into itself or Borrower; or (iii)
amend any provisions of its or Borrower's organizational documents containing
provisions similar to those contained in this Section 29;


                                       47



                           (iv) has and will have an operating agreement which
provides that, as long as any portion of the Debt remains outstanding, (A) upon
the occurrence of any event that causes Sole Member to cease to be a member of
Managing Entity (other than (x) upon an assignment by Sole Member of all of its
limited liability company interest in Managing Entity and the admission of the
transferee, if permitted pursuant to the organizational documents of Managing
Entity and the Loan Documents, or (y) the resignation of Sole Member and the
admission of an additional member of Managing Entity, if permitted pursuant to
the organizational documents of Managing Entity and the Loan Documents), the
person acting as the sole member of Managing Entity (the "SPECIAL MEMBER")
shall, without any action of any Person and simultaneously with Sole Member
ceasing to be a member of Managing Entity, automatically be admitted as the
Special Member and shall preserve and continue the existence of Managing Entity
without dissolution, (B) no Special Member may resign or transfer its rights as
Special Member unless (x) a successor Special Member has been admitted to
Managing Entity as a Special Member, and (y) such successor Special Member has
also accepted its appointment as a Special Member and (C) except as expressly
permitted pursuant to the terms of this Agreement, Sole Member may not resign
and no additional member shall be admitted to Managing Entity; (v) has and will
have an operating agreement which provides that, as long as any portion of the
Debt remains outstanding, (A) Managing Entity shall be dissolved, and its
affairs shall be would up only upon the first to occur of the following: (x) the
termination of the legal existence of the last remaining member of Managing
Entity or the occurrence of any other event which tenulinates the continued
membership of the last remaining member of Managing Entity in Managing Entity
unless the business of Managing Entity is continued in a manner permitted by its
operating agreement or the Delaware Limited Liability Company Act (the "DELAWARE
ACT") or (y) the entry of a decree of judicial dissolution under Section 18-802
of the Delaware Act; (B) upon the occurrence of any event that causes the last
remaining member of Managing Entity to cease to be a member of Managing Entity
or that causes Sole Member to cease to be a member of Managing Entity (other
than (x) upon an assignment by Sole Member of all of its limited liability
company interest in Managing Entity and the admission of the transferee, if
permitted pursuant to the organizational documents of Managing Entity and the
Loan Documents, or (y) the resignation of Sole Member and the admission of an
additional member of Managing Entity, if permitted pursuant to the
organizational documents of Managing Entity and the Loan Documents), to the
fullest extent permitted by law, the personal representative of such member
shall be authorized to, and shall, within '90 days after the occurrence of the
event that terminated the continued membership of such member in Managing
Entity, agree in writing to continue the existence of Managing Entity and to the
admission of the personal representative or its nominee or designee, as the case
may be, as a substitute member of Managing Entity, effective as of the
occurrence of the event that terminated the continued membership of such member
in Managing Entity; (C) the bankruptcy of Sole Member or a Special Member shall
not cause such member or Special Member, respectively, to cease to be a member
of Managing Entity and upon the occurrence of such an event, the business of
Managing Entity shall continue without dissolution; (D) in the event of
dissolution of Managing Entity, Managing Entity shall conduct only such
activities as are necessary to wind up its affairs (including the sale of the
assets of Managing Entity in an orderly manner), and the assets of Managing
Entity shall be applied in the manner, and in the order of priority, set forth
in Section 18-804 of the Delaware Act; and (E) to the fullest extent permitted
by law, each of Sole Member and the Special Members shall irrevocably waive any
right or power that they might have to cause Managing Entity or any of its
assets to be partitioned, to cause the appointment of a receiver for all or any
portion of the assets of Managing Entity, to compel any sale of all or any
portion of the assets of Managing Entity pursuant to any applicable law or to
file a complaint or to institute any proceeding at law or in equity to cause the
dissolution, liquidation, winding up or termination of Managing Entity.


                                       48




         SECTION 30. NOTICE. All notices given under this Instrument shall be in
writing, and sent to the other party at its address set forth below or at such
other address as such party may designate by notice to the other party and shall
be deemed given on the earliest of (i) actual receipt, duly evidenced by any
commercially reasonable means, (ii) three Business Days after mailing, by
certified or registered U.S. Mail, return receipt requested, postage prepaid,
(iii) one Business Day after timely delivery, fee prepaid, to a national
overnight delivery service (such as FedEx, Purolater Courier, U.P.S. Next Day
Air), (iv) the date of transmission of notice sent by telecopier or facsimile
machine (with a copy thereof sent in accordance with clause (ii) above) provided
notice was transmitted on a Business Day, otherwise notice shall be deemed given
on the next Business Day.

         The applicable addresses are as follows:

         To Borrower:

         c/o Acadia Realty Trust
         1311 Mamaroneck Avenue
         White Plains, New York 10605
         Attention: Robert Masters, Esq.
         Telephone No.: (914) 288-8139
         Facsimile No.: (914) 428-3646

         With a Copy to:

         c/o Acadia Realty Trust
         1311 Mamaroneck Avenue
         White Plains, New York 10605
         Attention: Michael Nelsen
         Telephone No.: (914) 288-8138
         Facsimile No.: (914) 288-2138

         To Lender:

         Greenwich Capital Financial
         Products, Inc. 600 Steamboat Road
         Greenwich, Connecticut 06830
         Attention: Commercial Mortgage Loan
         Department Telephone No.: (203) 618-2373
         Facsimile No.: (203) 629-8363

         With a Copy to:

         Kaye Scholer LLP
         425 Park Avenue
         New York, New York
         10022 Attention: Stephen Gliatta, Esq.
         Telephone No.: (212) 836-8618
         Facsimile No.: (212) 836-8689

         Borrower hereby requests that any notice of default or notice of sale
in any judicial or nonjudicial foreclosure proceeding be mailed to Borrower at
its address as specified herein.

         SECTION 31. UNIFORM INSTRUMENT; GOVERNING LAW; SEVERABILITY. This form
of instrument combines uniform covenants for national use and non-uniform
covenants with limited variations by jurisdiction to constitute a uniform
security instrument covering real property and related fixtures and personal
property. THIS INSTRUMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY
BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, WHICH STATE THE
PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE
UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS INSTRUMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO
PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF
AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY
AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER
JURISDICTION GOVERNS THIS INSTRUMENT OR THE OTHER LOAN DOCUMENTS, AND THIS
INSTRUMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF
THE NEW YORK GENERAL OBLIGATIONS LAW. In the event that any provision of this
Instrument or the Note conflicts with applicable law, such conflict shall not
affect other provisions of this Instrument or the Note which can be given effect
without the conflicting provisions, and to this end the provisions of this
Instrument and the Note are declared to be severable. In the event that any

                                       49



applicable law limiting the amount of interest or other charges permitted to be
collected from Borrower is interpreted so that any charge provided for in this
Instrument or in the Note, whether considered separately or together, with other
charges levied in connection with this Instrument and the Note, violates such
law, and Borrower is entitled to the benefit of such law, such charge is hereby
reduced to the extent necessary to eliminate such violation. The amounts, if
any, previously paid to Lender in excess of the amounts payable to Lender
pursuant to such charges as reduced shall be applied by Lender to reduce the
principal of the indebtedness evidenced by the Note. For the purposes of
determining whether any applicable law limiting the amount of interest or other
charges permitted to be collected from Borrower has been violated, all
indebtedness which is secured by this Instrument or evidenced by the Note and
which constitutes interest, as well as all other charges levied in connection
with such indebtedness which constitute interest, shall be deemed to be
allocated and spread over the stated term of the Note. Unless otherwise required
by applicable law, such allocation and spreading shall be effected in such a
manner that the rate of interest computed thereby is uniform throughout the
stated term of the Note.

         SECTION 32. RESTRUCTURING LOAN, SECONDARY MARKET TRANSACTIONS.

                   (a) Secondary Market Transactions Generally. Lender shall
have the right to engage in one or more Secondary Market Transactions (as
defined in Section 15 hereof), and to structure and restructure all or any part
of the Loan, including without limitation in multiple tranches, as a wraparound
loan, or for inclusion in a REMIC or other Securitization (as defined in Section
15 hereof). Without limitation, Lender shall have the right to cause the Note
and this Instrument to be split into a first and a second mortgage loan in
whatever proportion Lender determines, and thereafter to engage in Secondary
Market Transactions with respect to all or any part of the indebtedness and loan
documentation. Borrower acknowledges that it is the intention of the parties
that all or a portion of the Loan will be securitized and that all or a portion
of the Loan (either itself, or in combination with other loans) will be rated by
one or more Rating Agencies (as defined in Section 15 hereof). Borrower further
acknowledges that additional structural modifications may be required to satisfy
issues raised by any Rating Agencies.

                   (b) Cooperation; Limitations. Borrower shall use all
reasonable efforts and cooperate reasonably and in good faith with Lender in
effecting any such restructuring or Secondary Market Transaction. Such
cooperation shall include without limitation, executing and delivering such
reasonable amendments to the Loan Documents as Lender may request, provided
however that no such amendment shall on an over-all basis modify (i) the
interest rate payable under the Note; (ii) the stated maturity date of the Note,
(iii) the amortization of the principal amount of the Note, (iv) any other
economic terms of the Loan, or (v) the non-recourse provisions of the Loan. Such
cooperation also shall include using best efforts to obtain such certificates
and assurances from governmental entities and others as Lender may request.
Borrower shall not be required to incur any cost in connection with such
restructure or Secondary Market Transaction or to provide additional collateral
that was not initially contemplated by the parties to effect any such
restructuring or Secondary Market Transaction.


                                       50



                   (c) Information. Borrower shall provide such information and
documents relating to the Borrower and its principals, the manager of the
Property, the Property and the business and operations of all of the foregoing
as Lender may reasonably request in connection with any such Secondary Market
Transaction. Lender shall be permitted to share all such information with the
investment banking firms, Rating Agencies, accounting firms, law firms, other
third party advisory finns, potential investors, and other parties involved in
any proposed Secondary Market Transaction. Any such information may be
incorporated into offering documents for the Secondary Market Transactions.
Lender and all of the aforesaid third-party advisors and professional firms and
investors shall be entitled to rely upon such information, and Borrower shall
indemnify, defend, and hold harmless Lender from and against any losses, claims,
damages and liabilities that arise out of or are based upon any actual or
alleged untrue or misleading statement of material fact contained in such
information or the actual or alleged omission of any material fact without which
such information is materially misleading. Lender may publicize the existence of
the Loan in connection with Lender's Secondary Market Transaction activities or
otherwise.

                   (d) Additional Provisions. In any Secondary Market
Transaction, Lender may transfer its obligations under the Loan Documents (or
may transfer the portion thereof corresponding to the transferred portion of the
obligations of Borrower), and thereafter Lender shall be relieved of any
obligations under the Loan Documents arising after the date of said transfer
with respect to the transferred interest. Each transferee investor shall be
deemed to be a "Lender" under the applicable Loan Documents.

                   (e) Certain Definitions. As used herein, the following terms
have the meanings indicated:

                  "LOAN": All obligations of Borrower under the Loan Documents.

                  "SECURITIZATION": mean a rated offering of securities
         representing direct or indirect interests in one or more mortgage loans
         or the right to receive income therefrom.

         SECTION 33. SUCCESSORS AND ASSIGNS BOUND. This Instrument and the other
Loan Documents shall be binding upon and inure to the benefit of Borrower and
Lender and their respective successors and assigns forever, subject to Section
15 hereof. Notwithstanding the foregoing, Lender shall have no liability under
any of the Loan Documents for any matter arising after Lender transfers its
interest in the Note to any successor. However, Lender shall continue to have
the benefit of all rights having accrued under the Loan Documents theretofore,
and all rights under all obligations of indemnification set forth in the Loan
Documents for matters arising theretofore, then, and thereafter.


                                       51



         SECTION 34. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by
Lender in exercising any right or remedy hereunder, or otherwise afforded by
applicable law, shall not be a waiver of or preclude the exercise of any right
or remedy. The acceptance by Lender of payment of any sum secured by this
Instrument after the due date of such payment shall not be a waiver of Lender's
right to either require prompt payment when due of all other sums so secured or
to declare a default for failure to make prompt payment. The procurement of
insurance or the payment of taxes or other liens or charges by Lender shall not
be a waiver of Lender's right to accelerate the maturity of the indebtedness
secured by this Instrument, nor shall Lender's receipt of any awards, proceeds
or damages, whether as proceeds of insurance or condemnation awards or
otherwise, operate to cure or waive Borrower's default in payment of sums
secured by this Instrument.

         SECTION 35. ESTOPPEL CERTIFICATE. Borrower shall within ten days of a
written request from Lender furnish Lender with a written statement, duly
acknowledged, setting forth the sums secured by this Instrument and any right of
set-off, counterclaim or other defense which exists against such sums and the
obligations of this Instrument and attaching true, correct and complete copies
of the Note, this Instrument and any other Loan Documents and any and all
modifications, amendments and substitutions thereof.

         SECTION 36. WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THE BORROWER MAY HAVE TO A TRIAL
BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR
IN CONJUNCTION WITH THE NOTE, THIS INSTRUMENT, ANY OTHER LOAN DOCUMENT, ANY
OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF EITHER PARTY.

         SECTION 37. MISCELLANEOUS.

                  (a) No Oral Change. No provision of this Instrument or any of
the other Loan Documents may 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, except 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.

                  (b) Liability. If Borrower consists of more than one person,
the obligations and liabilities of each such person hereunder and under the
other Loan Documents shall be joint and several.

                  (c) Captions. The captions and headings of the Sections,
paragraphs, and other provisions of this Instrument are for convenience only and
are not to be used to interpret or define the provisions hereof.

                  (d) Duplicate Originals; Counterparts. This Instrument and any
of the Loan Documents may be executed in any number of duplicate originals and
each duplicate original shall be deemed to be an original. This Instrument and
any of the Loan Documents may be executed in multiple counterparts.


                                       52



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

                  (f) 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 perfoiiuiance and repayment of the
obligations secured hereby.

                  (g) Entire Agreement. The Note, this Instrument and the other
Loan Documents constitute the entire understanding and agreement between
Borrower and Lender pertaining to the subject matter hereof and thereof, and
supersede all prior written or oral understandings and agreements between
Borrower and Lender with respect thereto, including the prior agreements
evidenced by any application or commitment issued in connection with this
transaction. Borrower hereby acknowledges that, except as incorporated in
writing in the Loan Documents, there are not, and were not, 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 Loan Documents, except only to the
extent expressly set forth in the Loan Documents.

                  (h) Action through Agents. In exercising any rights hereunder
or under any of the Loan Documents or taking any actions provided for herein or
therein, Lender may act through its employees, agents or independent contractors
as authorized by Lender.

                                     PART II
                      STATE OF NEW YORK SPECIFIC PROVISIONS

                  (i) CONFLICTS WITH PART I. (i) In the event of any conflict
between the provisions of this Part II and any provision of Part I, then the
provisions of this Part II shall control.

                            (ii) The terms, covenants and conditions contained
herein shall be construed as affording to Mortgagee rights additional to, and
not exclusive of, the rights conferred under the provisions of Section 254 of
the Real Property Law of the State of New York.


                                       53



                            (iii) In compliance with Section 13 and Article 3-A
of the Lien Law of the State of New York, Mortgagor will receive all advances
secured by this Mortgage and will hold the right to receive all such advances as
a trust fund to be applied first for the purpose of paying the cost of
improvements, and will apply all such advances first to the payment of the cost
of improvements before using any part of such advances for any other purpose.
Mortgagor will indemnify and hold Mortgagee harmless from and against any loss,
liability, cost or expense, including, without limitation, any judgments,
reasonable attorneys' fees, costs of appeal bonds and printing costs, arising
out of or relating to any proceeding instituted by any claimant alleging a
violation by Mortgagor of any applicable lien law provisions including, without
limitation, any section of Article 3-A of the New York Lien Law.

                            (iv) NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED HEREIN, THE MAXIMUM AMOUNT OF PRINCIPAL INDEBTEDNESS SECURED BY THIS
MORTGAGE AT THE TIME OF EXECUTION OR WHICH UNDER ANY CONTINGENCY MAY HEREAFTER
BECOME SECURED HEREBY AT ANY TIME IS TWELVE MILLION FIVE HUNDRED THOUSAND AND
NO/l00 DOLLARS ($12,500,000) PROVIDED THAT SUCH LIMITATION SHALL NOT LIMIT THE
SECURITY OF THIS MORTGAGE WITH RESPECT TO (I) INTEREST ON THE AFORESAID MAXIMUM
AMOUNT OF PRINCIPAL INDEBTEDNESS AT THE RATES SET FORTH IN THE NOTE, (II) SUMS
TO PAY TAXES, (III) SUMS TO PAY PREMIUMS ON INSURANCE POLICIES COVERING THE
MORTGAGED PROPERTY, (IV) EXPENSES INCURRED AFTER AN EVENT OF DEFAULT IN
UPHOLDING OR ENFORCING THE LIEN OF THIS MORTGAGE, INCLUDING, BUT NOT LIMITED TO,
THE EXPENSES OF ANY LITIGATION TO PROSECUTE OR DEFEND THE RIGHTS AND LIEN
CREATED BY THIS MORTGAGE, (V) ANY AMOUNT, COSTS OR CHARGE TO WHICH MORTGAGEE
BECOMES SUBROGATED, UPON PAYMENT, WHETHER UNDER RECOGNIZED PRINCIPLES OF LAW OR
EQUITY, OR UNDER EXPRESS STATUTORY AUTHORITY, AND (VI) ANY OTHER AMOUNT SECURED
BY THIS MORTGAGE WHICH, IF NOT LIMITED BY SUCH LIMITATION, WOULD NOT INCREASE
THE AMOUNT OF MORTGAGE RECORDING TAXES, IF ANY, PAYABLE WITH RESPECT TO THIS
MORTGAGE.

                            (v) This Mortgage does not cover real property
principally improved or to be improved by one or more structures containing in
the aggregate not more than six residential dwelling units, each having their
own separated cooking facilities.

                            (vi) Reference is made to Section 291-f of the Real
Property Law of New York for purposes of obtaining the benefit of said Section
in connection with this Mortgage.

                            (vii) Upon the occurrence and during the continuance
of an Event of Default and acceleration of the indebtedness secured hereby,
Mortgagee shall have the right to sell the Mortgaged Property, including,
without limitation, pursuant to Article 14 of the New York Real Property Actions
and Proceedings Law, as same may have been or may hereafter be amended.

      [Remainder of Page Intentionally Left Blank; Signature Page Follows]

                                       54



         IN WITNESS WHEREOF, Borrower has executed this Instrument or has caused
the same to be executed by its representatives thereunto duly authorized.

                                   BORROWER:

                                   PACESETTER/RAMAPO
                                   ASSOCIATES, a New York limited
                                   partnership

                                   By:   A is Pacesetter, LLC, a Delaware
                                         limited liability party, its general
                                         partner


                                      By: ________________________________
                                          Name: Robert Masters
                                          Title: Senior Vice President


                            MORTGAGOR ACKNOWLEDGMENT

STATE OF NEW YORK . COUNTY OF NEW YORK
                                       SS.

                  On they day of October in the year 2005, before me, a Notary
Public in and for the said State, personally appeared Robert Masters, 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/she executed the same in his/her capacity, and that by his/her signature
on this instrument, the person, or the entity upon behalf o the person acted,
executed this instrument.




(NOTARIAL SEAL)

                             My Commission Expires:



                                                         /s/ Kara A. Lobdell
                                                         -----------------------
                                                         Notary Public



                                       55



                                    EXHIBIT A
                        LEGAL DESCRIPTION OF REAL ESTATE

ALL that certain plot, piece or parcel of land, situate, lying and being in the
Town of Ramapo, County of Rockland, State of New York, bounded and described as
follows:

BEGINNING at a point on the southerly side of Route 202 (New York State highway
#1448) said point being the northwesterly corner of the premises, the
northeasterly corner of land now or formerly of Broadcast Construction Corp.,
and said point lying easterly 1673.53 feet from the easterly right of way line
of Camp Hill Road and said point lying distant westerly 441.50 feet from New
York State Highway monument; and

RUNNING THENCE along the southerly side of Route 202 (New York State Highway #
1448) in an easterly direction the following (2) courses and distances:

         1.       North 78 degrees 38 minutes 55 seconds east 441.50 feet to a
                  New York State Highway monument;

         2.       THENCE north 78 degrees 11 minutes 35 seconds east 279.01 feet
                  to the northeasterly corner of the premises and to the
                  northwesterly corner of other lands now or formerly of Kanaje
                  Corporation;

THENCE south 11 degrees 48 minutes 25 seconds east 140.00 feet along the
westerly line of other premises of said Kanaje Corporation; to the southeasterly
corner of the premises;

THENCE north 78 degrees 11 minutes 35 seconds east along the southerly line of
said other lands of Kanaje Corporation 86.35 feet to the northwesterly corner of
lands occupied by a Pomona Post Office;

THENCE south 11 degrees 48 minutes 25 seconds east along the westerly line of
said Post Office and other lands of Kanaje Corporation 490.00 feet to the
southeasterly corner of the premises;

THENCE south 78 degrees 11 minutes 35 seconds west along the southerly line of
the premises and the northerly line of other lands of Kanaje Corporation 649.56
feet to the southwesterly corner of the premises and to a point in the easterly
line of lands now or fouuerly of Broadcast Construction Corp.;

THENCE northerly along the westerly line of the premises and the easterly line
of lands now or formerly of Broadcast Construction Corp. the following four (4)
courses and distances;

                                       56



                               EXHIBIT A CONTINUED


1. North 12 degrees 23 minutes 65 seconds east 111.15 feet to a point;
2. THENCE north 32 degrees 36 minutes 15 seconds west 231.96 feet to a point;
3. THENCE north 77 degrees 36 minutes 15 seconds west 210.98 feet to a point;
4. THENCE north 5 degrees 38 58 cast 239.83 feet to the southerly side of
   Route 202 (New York State Highway #1448) the northwesterly corner of the
   premises the northeasterly corner of lands now or foiinerly of Broadcast
   Construction Corp. and the point or place of BEGINNING.


TOGETHER WITH THE BENEFITS and SUBJECT TO THE BURDENS OF:

                    1) Grant of Right of Way recorded in Liber 984 page 66.
                    2) Revised Grant of Right of Way in Liber 987 page 1042. 3)
                    Easement in Instrument ID No. 1997-00020251.


NOTE: The above recited easements are as shown on a certain Survey made by
Gerald T. O'Buckley dated October 25, 1999.


                                END OF EXHIBIT A



                                    SCHEDULE2
                                REQUIRED REPAIRS


                                (attached hereto)

                                      EBI
                                   CONSULTING
                                     [LOGO]
                                        I


EXECUTIVE SUMMARY
     RS & REPLACEMENT RESERVES SUMMARY



                                                                                       
- ----------------------------------------------------------------------------------------------------------------------
   Property Name: Pacesetter Park Shopping Center                 Property Type: Retail
         Address: 1581 U.S. Route 202                              Property Age: 28
  City and State: Pomona, New York                      No. of units or tenants: 24
Site Survey Date: September 22, 2005                                Square feet: 96,666
     Report Date: September 27, 2005                                  Loan Term: 10
   EBI Project #: 11053647                                        Analysis Term: 12
- ----------------------------------------------------------------------------------------------------------------------
Sec                                                   Condition                    Action     Immediate    Replacement
- ----------------------------------------------------------------------------------------------------------------------
Section          e                        c (lent  00             Poo        A     eq red      e airs       Reserves
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
SITE CONDITIONS'                                             --                           --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
      Topography and Drainage                        --                                   --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
      Pavement and Parking                                                                --                   $29,678
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
(R)   Site Amenities & Landscaping                                                                  $2,750
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
 2    Utilities                                    N                                                    --
- ----------------------------------------------------------------------------------------------------------------------
BUILDING ONDITIONS
- ----------------------------------------------------------------------------------------------------------------------
(R)   Subs ct e                                      --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
(R)   Superstructure
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
(R)   Facades (Walls, Windows & Doors)                                                              $7,750     $28,512
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
3.4   Roofing                                                                                      $26,600     $90,380
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
      Basements/Attics
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
3.6   ADA Compliance
- ----------------------------------------------------------------------------------------------------------------------
INTERIOR FINISHES -& COMPONENTS
- ----------------------------------------------------------------------------------------------------------------------
      Interior Finishes & Components
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
                                                                     --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
4.2                                                  --                                   --                   $33,000
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
4.3                                                                                                     $0
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
4 4  Fire/Life Safety                                                --                                 $0
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
     Elevators                                                       --                                             --[_]
- ----------------------------------------------------------------------------------------------------------------------
(:ODE COMPLIANC
- ----------------------------------------------------------------------------------------------------------------------
5.0 Code Compliance                                                                                     $0
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
                                                                                          --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
                                                     --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
S         N       S       S
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
       None                                          --                                   --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- -------------------------------------------------------------------------------------------- ------------- -----------
                                                                     TOTALS:                       $37,100    $181,570
- -------------------------------------------------------------------------------------------- ------------- -----------

Dollars                                                                                           PV         Inflated
 per sf/yr                                                                                      Dollars      Dollars
- -------------------------------------------------------------------------------------------- ------------- -----------
Present Value of Replacement Reserves Cost Estimate                  $0.16                        $181,570          --
- -------------------------------------------------------------------------------------------- ------------- -----------
Inflated Value of Replacement Reserves Cost Estimate                 $0.19                              --    $214,780
- -------------------------------------------------------------------------------------------- ------------- -----------
Immediate Repairs and Deferred Maintenance Cost Estimate                                           $37,100          --
- -------------------------------------------------------------------------------------------- ------------- -----------

                                 EBI Consulting
                   11053 647 Pomona, NY PCR rev 10-12-05 D AB
                                    Exhibit A



                                    SCHEDULE2
                                                          REQUIRED REPAIRS


                                (attached hereto)

                                      EBI
                                   CONSULTING
                                     [LOGO]
                                        I


EXECUTIVE SUMMARY
     RS & REPLACEMENT RESERVES SUMMARY



                                                                                       
- ----------------------------------------------------------------------------------------------------------------------
   Property Name: Pacesetter Park Shopping Center                 Property Type: Retail
         Address: 1581 U.S. Route 202                              Property Age: 28
  City and State: Pomona, New York                      No. of units or tenants: 24
Site Survey Date: September 22, 2005                                Square feet: 96,666
     Report Date: September 27, 2005                                  Loan Term: 10
   EBI Project #: 11053647                                        Analysis Term: 12
- ----------------------------------------------------------------------------------------------------------------------
Sec                                                   Condition                    Action     Immediate    Replacement
- ----------------------------------------------------------------------------------------------------------------------
Section          e                        c (lent  00             Poo        A     eq red      e airs       Reserves
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
SITE CONDITIONS'                                             --                           --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
      Topography and Drainage                        --                                   --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
      Pavement and Parking                                                                --                   $29,678
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
(R) Site Amenities & Landscaping $2,750
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
 2    Utilities                                    N                                                    --
- ----------------------------------------------------------------------------------------------------------------------
BUILDING ONDITIONS
- ----------------------------------------------------------------------------------------------------------------------
(R) Subs ct e --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
(R)   Superstructure
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
(R)   Facades (Walls, Windows & Doors)                                                              $7,750     $28,512
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
3.4   Roofing                                                                                      $26,600     $90,380
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
      Basements/Attics
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
3.6   ADA Compliance
- ----------------------------------------------------------------------------------------------------------------------
INTERIOR FINISHES -& COMPONENTS
- ----------------------------------------------------------------------------------------------------------------------
      Interior Finishes & Components
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
                                                                     --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
4.2                                                  --                                   --                   $33,000
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
4.3                                                                                                     $0
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
4 4  Fire/Life Safety                                                --                                 $0
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
     Elevators                                                       --                                             --[_]
- ----------------------------------------------------------------------------------------------------------------------
(:ODE COMPLIANC
- ----------------------------------------------------------------------------------------------------------------------
5.0 Code Compliance                                                                                     $0
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
                                                                                          --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
                                                     --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
S         N       S       S
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------
       None                                          --                                   --
- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- --------------------------------------- ------- ------- ------- ------- ------- ------------ ------------- -----------

- -------------------------------------------------------------------------------------------- ------------- -----------
                                                                     TOTALS:                       $37,100    $181,570
- -------------------------------------------------------------------------------------------- ------------- -----------

Dollars                                                                                           PV         Inflated
 per sf/yr                                                                                      Dollars      Dollars
- -------------------------------------------------------------------------------------------- ------------- -----------
Present Value of Replacement Reserves Cost Estimate                  $0.16                        $181,570          --
- -------------------------------------------------------------------------------------------- ------------- -----------
Inflated Value of Replacement Reserves Cost Estimate                 $0.19                              --    $214,780
- -------------------------------------------------------------------------------------------- ------------- -----------
Immediate Repairs and Deferred Maintenance Cost Estimate                                           $37,100          --
- -------------------------------------------------------------------------------------------- ------------- -----------

                                 EBI Consulting
                   11053 647 Pomona, NY PCR rev 10-12-05 D AB
                                    Exhibit A





                                                                                               
TABLE I - IMMEDIATE REPAIRS
Pacesetter Park Shopping Center 1581 U.S. Route 202 Pomona, New York EBI Project # 11053647

                                                        WE BI


          EBl Comulnng
- -------- ----------------------------------------------------------------------------------------------------------

                                                                  O

                                                                h

                                                                  0
                                                   N   I     U
                                                       0
 0                                                           W
               RECOMMENDED WORK                                           COMMENTS OR ADDITIONAL DESCRIPTION
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
ILE:C
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
         (R)    Repair dumpster enclosure             0  O0           750  damage during unloading. The     cted
                                                                           area requires removal of CMU and
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                                                                           There is       y constructed railing, step and
                                                                           deck used as a service entrance at one of the
         (R)(R) Re-build service entry               000 00  1mu      000  tenan paces, n Deli, The wood does not appear
                                                                           to be hazard as reated, the railings are
                                                                           non-coMaliampliant and the current construction
                                                                           poses a hazard as the posts and railings ara
                                                                           inadequately supported. Removal and replacement
                                                                           is recommended.
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
(R)                                                            (R)
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
         (R)(R)
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                                                                          Exterior sealant throughout the Subject Property
                Sealant and control joint       500   $3 50  be(1)        is dried-out and no longer inelastic, survey and
                                                                          repair program should be implemented to address
         M      renewal                                                   severely deteriorated sections until EIFS facades
                                                                          are replaced.
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                                                                          Vertical cracking ens observed at a few isolated
                                                                          areas along the CMU rear facades, In particular,
                Repair vertical CMU cracking          00  0     s  $2500  this occurred at building corners and one more
                                                                          significant cracking was observed at the rear of
                                                                          the Stop & Shop Supermarket, This particular crack
                                                                          was approximately 118" to 112" wide at the top.
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                                                                          The modified bitumen roofing over a large portion
                                                                          of the East building is severely deteriorated wan
                                                                          evidence of air entrapment, seams that are
                Modifed bitumen roof         10,000   $2.50   ? of $25000 dried-out and lifting. . surfaces that have
                replacement                                               hardened, an excessive amount of pigeon droppings
                                                                          throughout, lashings that exhibit open punctures,
                                                                          rusted gutters, aged leaders, abandoned HVAC units,
                                                                          deteriorated HVAC dunnage, and poorly maintained
                                                                          pitch pockets. This section o roofing and gutter
                                                                          and leader system should be replaced so as not
                                                                          to affect the metal decking and building structure.
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                                                                          The corrugated metal canopy roof protecting the
                Metal decking replacement       200    $800  do  a   $600 loading areas at the rear of the Stop & Shop
                                |_|                                       Supermarket is rusted through in several areas.
                                                                          The smooth surfaced built-up-bofin.ao.eatsori.
                                                                          inalandissevere) worn. Sectional replacement
                                                                          o1 the deckin.
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
Ka                                                       _
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                                                                          o  ewe e rans omers appear o .e .is oogeo or
                Re-aecure transformers                 $000    c a     $0 una igne. rom i a oase, openings wide enough to
                                                                          view conductors. This may have been caused by
                                                                          snow removal and storage. The utility company
                                                                          should be contacted immediately to address
                                                                          and repair these a..arent hazardous conditions,
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                                                                          Access to several of the electrical panels
                Remove stored materials                                   observed within the tenant spaces is impeded
                from p et                              $000      c     $0 by stored materials, This poses a safety
                                                                          hazard and is considered a code violation (NEC).
                                                                          Tenants should be notified to remove stored
                                                                          materials from electrical panels to provide for
                                                                          3 toot clearance.
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                                                                          A metal box which should contain six (6) spare
             to  Provide spare sprinkler box           $000      o     $0 sprinkler heads and wrench was not
                 and wrench                                               provided at either of the sprinkler mains.
                                                                          This is a safety hazard and code violation
                                                                          (NPPA) This should be provided by the sprinkler
                                                                          service firm and can be done so at minimal cost.
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                                                       $000   c o      $0 The fire sprinkler main serving the West
       o                                                                  building was labeled with out of date
                                                                          Inspection tags. Perform annual inspection
                                                                          as typically required by code,
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
                Co    t                                $000           (R)
- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------

- -------- ------ --------------------------- ------- ------- ------ ------

- -------- ------ --------------------------- ------- ------- ------ ------ -----------------------------------------------
PROPERTY AND LOAN INFORMATION               Buildin a Area  96,666 Pro o e Age    28rs   No. of Floors Surve Date 9122105
                                           -------------------------- -----------------------------------------------
                                                                   Pr  o.e T pe   Retail No, of Buildin. a  . - -
- ------------------------------------------ -------------------------- ----------------------------------------------
TABLE 2 - REPLA CEMENT RESER VES Pacesetter Park Shopping Center
1581 U.S. Route 202
Pomona, New York
EBI Pro ect 4            11053647

                                                                 1






                                                                                                            
- ---------------------------- -------------------------- ----------------------------------------------------------------------------
            W                                                                              Ann ulCoIs

            u                                    O
                                                            ----------------------------------------------------------------------
                                                                  1    1    -1    I     I           l  .              2016  2017
                                                                                            n--i                   eal
                                                            ----------------------------------------------------------------------
                 U  10           W               6.     0


                                 k               W
                    2   O,,
                U                        0
N                                        U       '
                                 CO
                W       (0)                             W 8
RECO
 ENDED
 WORK
- ----------------------------------------------------------------------------------------------------------------------------------
ONE
- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
Patching,
 crack
 sealing,
 sealing
 and   5           296           $0         per(                                                     4 839
 stn(.)'                784          10       o e    $14839
- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
Exterior
 painting         8   7       63 0     1    0         r(degree) e
                                  680                $14256   1 56                                        1   5           -
- ----------------------------------------------------------------------------------------------------------------------------------
Ongoing
 roof
 repairs              20 vat
                     0         (C)       $2       ump m $4000              a---                             4 000 4 000 4 000 4 00.
                                       000 00
- ----------------------------------------------------------------------------------------------------------------------------------
Modified
 bitumen
 roof                20      8
 replacemen          11             $250  porfoe e  8 03                                            28
                          241                                                                          03
- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
Partial
 NVAC
 unit               --p                      each,S
 replacemen                    1    $5         par$5 500          00      5          5 500         5 00        500        5 Or
                                       500 00                                 500
- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
                                                                    t r                                         9 500 4 000 9 50.
- ----------------------------------------------------------------------------------------------------------------------------------
                                                            100   0300%06 09%     '                   -MI ., .
                                                               00%           _T"JMt  7""              ,.,
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                  52 086         i.-
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                        NETPRESEN         oF               RESERV:
                                                                             PRESENVALUE                  ECOMME              YEA
                                                                             INFLATVALUE        OF    TOTADED   RESERVPER S
                                                                                              RECOMM                     PE
                                                                                              FNr1F11 ANNUA
                                                                                                       -,.....
- ----------------------------------------------------------------------------------------------------------------------------------
0 LOAN
  FOR                    u                            PropertyAye        28 No. ofFloors                        Site
  A T 0                                                                     yrs                                    Survey Date
                               ---------------------------------------------------------------------------------------------------
                               Te ants o Units           24 roperty Type           No of             Analysis erm   2  sport Date
                                                                            RetailBuildings                       y -
- ----------------------------------------------------------------------------------------------------------------------------------

dget for 10% replacement only.

                                 EB/ Consulting
                   11053147 Pomona. AT PCR rev 10(.)12-05 DAB
                                    FoO ee 2




                                    SCHEDULE3
                                    Rent Roll
                                  See Attached.
                                  31142680.DOC


OD                                  Rent Roll                           Page:
                         Pacesetter Park Shopping Center                Date:
                                                                        Time:
                                   10/11/2005



- -----------------------------------------------------------------------------------------------------------------------------------
                                           GLA      Monthly     Annual      Monthly     Expense       Monthly        Future Rent In
int Name          Rent Start Expiration    Sqft     Base Rent Rate PSF   Cost Recovery    Stop    Other Income  Cat   Date    Mont
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                             
PARTIES, Inc.     1/1/2006   12/31/2015    2,373


it                                         2,373

it                                         2,281


INNIL MATHEWS     9/1/1997   8/31/2009       949     1,996.86     25.25        373.57                          FMR   9/112006

FREEDMAN D.V.M.   7/1/1999   6/30/2009     1,008     1,932.00     23.00        530.03

(MARY INC.        3/20/1998  6/30/2008     3,650     5,246.88     17.25      1,919.30                          FMR   8/1/2006

Y'S GYM INC       4/16/2001  4/30/2008     1,200     1,804.00     18.04        631.03                          FMR   5/1/2006
                                                                                                               FMR   5/1/2007
vIAGINATION
 OPTICAL CORP.,   9/25/1992  2/28/2009       960     1,600.00     20.00        504.80                          FMR  3/11/2006
                                                                                                               FMR   3/1/2007
                                                                                                               FMR   3/1/2008

'& SHOP
 SUPER CO.,
 ST#533            1/1/1980  8/31/2020    52,052    29,355.44     6.77      25,314.67                          FMR   9/1/2006
                                                                                                               FMR   9/1/2007
                                                                                                               FMR   9/1/2008
                                                                                                               FMR   9/1/2009
                                                                                                               FMR   9/1/2010
                                                                                                               FMR   9/1/2011
                                                                                                               FMR   9/1/2012
                                                                                                               FMR   9/1/2013
                                                                                                               FMR   9/1/2014
                                                                                                               FMR   9/1/2015
                                                                                                               FMR   9/1/2016
                                                                                                               FMR   9/1/2017
                                                                                                               FMR   9/1/2018
                                                                                                               FMR   9/1/2019

I.SCHWARTZ/
 POMONA CHIRO      2/1/1992  1/31/2009     1,279     1,918.50    18.00         608.36                          FMR   3/1/2007

LE CHANGES        10/1/1999  9/30/2009     1,600     2,666.67    20.00         841.37                          FMR   3/1/2009

- -OGURU INC.        7/1/1998  6/30/2008     1,630     3,402.63    25.05         857.15                          FMR   7/1/2006
                                                                                                               FMR   7/1/2007
                                                                                                               FMR   1/1/2006
\ILBOX
 ASSOCIATES INC. 12/29/2000 12/31/2010     1,353     2,367.75    21.00         725.00                          FMR   1/1/2008
- -----------------------------------------------------------------------------------------------------------------------------------







- -----------------------------------------------------------------------------------------------------------------------------------
                                                                Rent Roll
DD                                                                                                                                F
                                                     Pacesetter Park Shopping Center                                              C
                                                                10/11/2005                                                        T
- -----------------------------------------------------------------------------------------------------------------------------------
                                           GLA      Monthly     Annual      Monthly     Expense       Monthly        Future Rent In
int Name          Rent Start Expiration    Sqft     Base Rent Rate PSF   Cost Recovery    Stop    Other Income  Cat   Date    Mont
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                             
                                                                                                               FMR   1/1/2010

RESTAURANT
 INC.              5/1/1999 4/3012009      1,280     2,826.67    26.50         673.08                          FMR   5/1/2006
                                                                                                               FMR   5/1/2007
                                                                                                               FMR   5/1/2008
DNA
 ORIENTAL
 RESTAURANT        3/1/1999 2/28/2009      1,200     2,450.00    24.50         630.81                          FMR   3/1/2006
                                                                                                               FMR   3/1/2007
                                                                                                               FMR   3/1/2008
r'N PLACE/
 POMONA
 HARDWA            7/1/2004 6/30/2009      5,081     6,575.66    15.53       2,184.69                          FMR   7/112006
                                                                                                               FMR   7/1/2007
                                                                                                               FMR   7/1/2008
% LEICHTNER
 DBA RONA'S       3115/2004 3/31/2009        899     1,395.70    18.63         318.98                          FMR   4/1/2006
                                                                                                               FMR   4/1/2007
                                                                                                               FMR   4/1/2008
VAY REAL
 ESTATE CORP      2/17/2003 2/28/2008      1,353     1,912.24    16.96         659.17                          FMR   3/1/2006
                                                                                                               FMR   3/1/2007
dY NAILS/
 JUNG SUK AN       6/1/2005 5/31/2010        772     1,434.63    22.30         377.82                          FMR   6/1/2006
                                                                                                               FMR   6/1/2007
                                                                                                               FMR   6/1/2008
                                                                                                               FMR   6/1/2009
JCH OF
 CLASS
 CLEANING
 INC 6/1/2005     5/31/2010     1,490   3,152.59        25.39   783.48                                         FMR   6/1/2007
                                                                                                               FMR   6/1/2008
                                                                                                               FMR   6/1/2009

;TCO BANK NA       9/312002 9/30/2022      2,205     3,491.25    19.00       1,144.52                          FMR   10/1/2007
                                                                                                               FMR   10/1/2012
                                                                                                               FMR   10/1/2017

BLOCK EASTERN
 ENTERPRIS         3/6/2005 4/30/2009      1,891     2,521.33    16.00         791.06                          FMR   5/1/2006

WS DELI, CORP.    3114/2005 4/30/2015      4,862     7,293.00    18.00       2,033.95                          FMR   3/112006
                                                                                                               FMR   3/1/2007
                                                                                                               FMR   3/1/2008
                                                                                                               FMR   3/112009
                                                                                                               FMR   3/1/2010
                                                                                                               FMR   3/1/2011
                                                                                                               FMR   3/1/2012
                                                                                                               FMR   3/1/2013
                                                                                                               FMR   3/1/2014

0( Conerstone
  Realty          3/21/2005 3/31/2010      1,492     1,865.00    15.00         624.15                          FMR 12/19/2005
                                                                                                               FMR 12/19/2006
IILL'S VIDEO
  CENTER INC.,   12/19/200012/31/2010      3,838     5,040.57    15.76       2,018.19                          FMR 12/19/2007
                                                                                                               FMR 12/19/2008
                                                                                                               FMR 12/19/2009
- ----------------------------------------------------------------------------------------------------------------------------------







- -----------------------------------------------------------------------------------------------------------------------------------
                                                                Rent Roll
DD                                                                                                                                F
                                                     Pacesetter Park Shopping Center                                              C
                                                                10/11/2005                                                        T
- -----------------------------------------------------------------------------------------------------------------------------------
                                           GLA      Monthly     Annual      Monthly     Expense       Monthly        Future Rent In
int Name          Rent Start Expiration    Sqft     Base Rent Rate PSF   Cost Recovery    Stop    Other Income  Cat   Date    Mont
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                             
     Occupied Sqft:  95.19%  22 Units     92,044    92,249.37               44,545.18                     0.00
       Vacant Sqft:   4.81%   2 Units      4,654
        Total Sqft:          24 Units     96,698    92,249.37

TTTER PARK SHOPPING
            Center:  95.19%  22 Units     92,044    92,249.37               44,545.18                    0.00
    Occupied Sy ft:
      Vacant Sy ft:   4.81%   2 Units      4,654
        Total Sqft:          24 Units     96,698    92,249.37


    Occupied Sy ft:  95.19%  22 Units     92,044    92,249.37               44,545.18                    0.00
       Vacant Sqft:   4.81%   2 Units      4,654
        Total Sqft:          24 Units     96,698    92,249.37





                                 LOAN AGREEMENT



                         Dated as of December ___, 2005



                                     Between



                          RD ELMWOOD ASSOCIATES, L.P.,
                                   as Borrower



                                       and



                     BEAR STEARNS COMMERCIAL MORTGAGE, INC.,
                                    as Lender






                                TABLE OF CONTENTS


                                                                                                              Page
                                                                                                              ----
     
I.       DEFINITIONS; PRINCIPLES OF CONSTRUCTION.................................................................1
         Section 1.1         Definitions.........................................................................1
         Section 1.2         Principles of Construction.........................................................22
II.      GENERAL TERMS..........................................................................................22
         Section 2.1         Loan Commitment; Disbursement to Borrower..........................................22
         Section 2.2         Interest Rate......................................................................23
         Section 2.3         Loan Payment.......................................................................28
         Section 2.4         Prepayments........................................................................29
         Section 2.5         Defeasance.........................................................................30
         Section 2.6         Release of Property................................................................30
         Section 2.7         Lockbox Account/Cash Management....................................................31
III.     CONDITIONS PRECEDENT...................................................................................34
         Section 3.1         Conditions Precedent to Closing....................................................34
IV.      REPRESENTATIONS AND WARRANTIES.........................................................................38
         Section 4.1         Borrower Representations...........................................................38
         Section 4.2         Survival of Representations........................................................48
V.       BORROWER COVENANTS.....................................................................................48
         Section 5.1         Affirmative Covenants..............................................................48
         Section 5.2         Negative Covenants.................................................................58
VI.      INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS....................................................63
         Section 6.1         Insurance..........................................................................63
         Section 6.2         Casualty...........................................................................67
         Section 6.3         Condemnation.......................................................................67
         Section 6.4         Restoration........................................................................67
VII.     RESERVE FUNDS..........................................................................................72
         Section 7.1         Required Repairs...................................................................72
         Section 7.2         Tax and Insurance Escrow Fund......................................................73
         Section 7.3         Replacements Reserve...............................................................73
         Section 7.4         Rollover Reserve...................................................................77
         Section 7.5         Tenant Reserves....................................................................78
         Section 7.6         Reserve Funds, Generally...........................................................79
VIII.    DEFAULTS...............................................................................................79
         Section 8.1         Event of Default...................................................................79
         Section 8.2         Remedies...........................................................................81
         Section 8.3         Remedies Cumulative; Waivers.......................................................83
IX.      SPECIAL PROVISIONS.....................................................................................83
         Section 9.1         Sale of Notes and Securitization...................................................83
         Section 9.2         Securitization Indemnification.....................................................85
         Section 9.3         Exculpation........................................................................88
         Section 9.4         Matters Concerning Manager.........................................................89
         Section 9.5         Servicer...........................................................................90






      
X.       MISCELLANEOUS..........................................................................................90
         Section 10.1        Survival...........................................................................90
         Section 10.2        Lender's Discretion................................................................90
         Section 10.3        Governing Law......................................................................90
         Section 10.4        Modification, Waiver in Writing....................................................92
         Section 10.5        Delay Not a Waiver.................................................................92
         Section 10.6        Notices............................................................................92
         Section 10.7        Trial by Jury......................................................................93
         Section 10.8        Headings...........................................................................93
         Section 10.9        Severability.......................................................................93
         Section 10.10       Preferences........................................................................94
         Section 10.11       Waiver of Notice...................................................................94
         Section 10.12       Remedies of Borrower...............................................................94
         Section 10.13       Expenses; Indemnity................................................................94
         Section 10.14       Schedules Incorporated.............................................................95
         Section 10.15       Offsets, Counterclaims and Defenses................................................95
         Section 10.16       No Joint Venture or Partnership; No Third Party Beneficiaries......................96
         Section 10.17       Publicity..........................................................................96
         Section 10.18       Waiver of Marshalling of Assets....................................................96
         Section 10.19       Waiver of Counterclaim.............................................................96
         Section 10.20       Conflict; Construction of Documents; Reliance......................................96
         Section 10.21       Brokers and Financial Advisors.....................................................97
         Section 10.22       Prior Agreements...................................................................97
         Section 10.23       Joint and Several Liability........................................................97
         Section 10.24       Certain Additional Rights of Lender (VCOC).........................................97
         Section 10.25       MERS...............................................................................97


                                       2




                                    SCHEDULES


Schedule I          -      Rent Roll

Schedule II         -      Required Repairs - Deadlines for Completion

Schedule III        -      Organizational Chart of Borrower



                                       3


                                 LOAN AGREEMENT

                  THIS LOAN AGREEMENT, dated as of December ___, 2005 (as
amended, restated, replaced, supplemented or otherwise modified from time to
time, this "AGREEMENT"), between BEAR STEARNS COMMERCIAL MORTGAGE, INC., a New
York corporation, having an address at 383 Madison Avenue, New York, New York
10179 ("LENDER") and RD ELMWOOD ASSOCIATES, L.P., a Delaware limited
partnership, having its principal place of business at c/o Acadia Realty Trust,
1311 Mamaroneck Avenue - Suite 260, White Plains, New York 10605 ("BORROWER").

                              W I T N E S S E T H:

                  WHEREAS, Borrower desires to obtain the Loan (as hereinafter
defined) from Lender; and

                  WHEREAS, Lender is willing to make the Loan to Borrower,
subject to and in accordance with the terms of this Agreement and the other Loan
Documents (as hereinafter defined).

                  NOW THEREFORE, in consideration of the making of the Loan by
Lender and the covenants, agreements, representations and warranties set forth
in this Agreement, the parties hereto hereby covenant, agree, represent and
warrant as follows:

                  I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION.

                  SECTION 1.1. DEFINITIONS. For all purposes of this Agreement,
except as otherwise expressly required or unless the context clearly indicates a
contrary intent:

                  "ACQUIRED PROPERTY" shall have the meaning set forth in
Section 5.1.11(g)(i) hereof.

                  "ACQUIRED PROPERTY STATEMENTS" shall have the meaning set
forth in Section 5.1.11(g)(i) hereof.

                  "ADDITIONAL INSOLVENCY OPINION" shall have the meaning set
forth in Section 4.1.30(c) hereof.

                  "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.

                  "AFFILIATED LOANS" shall mean a loan made by Lender to an
Affiliate of Borrower, Principal or Guarantor.

                  "AFFILIATED MANAGER" shall mean any Manager in which Borrower,
Principal, or Guarantor has, directly or indirectly, any legal, beneficial or
economic interest.




                  "AGENT" shall mean Wells Fargo Bank, N.A., a national banking
institution, or any successor Eligible Institution acting as Agent under the
Cash Management Agreement.

                  "AGREEMENT" shall mean this Loan Agreement, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time.

                  "ALTA" shall mean American Land Title Association, or any
successor thereto.

                  "ANNUAL BUDGET" shall mean the operating budget, including all
planned Capital Expenditures, for the Property prepared by Borrower in
accordance with Section 5.1.11.(e) hereof for the applicable Fiscal Year or
other period.

                  "APPROVED ANNUAL BUDGET" shall have the meaning set forth in
Section 5.1.11(e) hereof.

                  "ASSIGNMENT OF LEASES" shall mean that certain first priority
Assignment of Leases and Rents, dated as of the date hereof, from Borrower, as
assignor, to MERS, as nominee of Lender as assignee, assigning to Lender all of
Borrower's interest in and to the Leases and Rents of the Property as security
for the Loan, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time.

                  "AWARD" shall mean any compensation paid by any Governmental
Authority in connection with a Condemnation in respect of all or any part of the
Property.

                  "BANKRUPTCY ACTION" shall mean with respect to any Person (a)
such Person filing a voluntary petition under the Bankruptcy Code or any other
Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary
petition against such Person under the Bankruptcy Code or any other Federal or
state bankruptcy or insolvency law, in which such Person colludes with, or
otherwise assists such Person, or causes to be solicited petitioning creditors
for any involuntary petition against such Person; (c) such Person filing an
answer consenting to or otherwise acquiescing in or joining in any involuntary
petition filed against it, by any other Person under the Bankruptcy Code or any
other Federal or state bankruptcy or insolvency law; (d) such Person consenting
to or acquiescing in or joining in an application for the appointment of a
custodian, receiver, trustee, or examiner for such Person or any portion of the
Property; (e) such Person making an assignment for the benefit of creditors, or
admitting, in writing or in any legal proceeding, its insolvency or inability to
pay its debts as they become due.

                  "BANKRUPTCY CODE" shall mean Title 11 of the United States
Code, 11 U.S.C. ss.101, et seq., as the same may be amended from time to time,
and any successor statute or statutes and all rules and regulations from time to
time promulgated thereunder, and any comparable foreign laws relating to
bankruptcy, insolvency or creditors' rights or any other Federal or state
bankruptcy or insolvency law.

                  "BASIC CARRYING COSTS" shall mean, the sum of the following
costs associated with the Property for the relevant Fiscal Year or payment
period: (a) Taxes, (b) Other Charges and (c) Insurance Premiums.

                                       2


                  "BORROWER" shall have the meaning set forth in the
introductory paragraph hereto, together with its successors and permitted
assigns.

                  "BSCMI" shall mean Bear Stearns Commercial Mortgage, Inc., a
New York corporation, and its successors in interest.

                  "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or any other day on which national banks in New York, New York, or the
place of business of any Servicer are not open for business.

                  "CAPITAL EXPENDITURES" shall mean, for any period, the amount
expended for items capitalized under GAAP (including expenditures for building
improvements or major repairs, leasing commissions and tenant improvements).

                  "CASH MANAGEMENT ACCOUNT" shall have the meaning set forth in
Section 2.7.2 hereof.

                  "CASH MANAGEMENT AGREEMENT" shall mean that certain Cash
Management Agreement, dated as of the date hereof, by and among Borrower, Agent
and Lender, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time.

                  "CASUALTY" shall have the meaning set forth in Section 6.2
hereof.

                  "CASUALTY CONSULTANT" shall have the meaning set forth in
Section 6.4(b)(iii) hereof.

                  "CASUALTY RETAINAGE" shall have the meaning set forth in
Section 6.4(b)(iv) hereof.

                  "CLOSING DATE" shall mean the date of the funding of the Loan.

                  "CODE" shall mean the Internal Revenue Code of 1986, as
amended, as it may be further amended from time to time, and any successor
statutes thereto, and applicable U.S. Department of Treasury regulations issued
pursuant thereto in temporary or final form.

                  "CONDEMNATION" shall mean a temporary or permanent taking by
any Governmental Authority as the result or in lieu or in anticipation of the
exercise of the right of condemnation or eminent domain, of all or any part of
the Property, or any interest therein or right accruing thereto, including any
right of access thereto or any change of grade affecting the Property or any
part thereof.

                  "CONDEMNATION PROCEEDS" shall have the meaning set forth in
Section 6.4(b).

                  "CONTROL" shall mean 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. "CONTROLLED" and "CONTROLLING" shall have correlative
meanings.

                                       3


                  "COVERED DISCLOSURE INFORMATION" shall have the meaning set
forth in Section 9.2(b) hereof.

                  "DEBT" shall mean the outstanding principal amount set forth
in, and evidenced by, this Agreement and the Note together with all interest
accrued and unpaid thereon and all other sums (including the Defeasance Payment
Amount, any Yield Maintenance Premium and any Yield Maintenance Default Premium)
due to Lender in respect of the Loan under the Note, this Agreement, the
Mortgage or any other Loan Document.

                  "DEBT SERVICE" shall mean, with respect to any particular
period of time, scheduled principal and interest payments due under this
Agreement and the Note.

                  "DEBT SERVICE COVERAGE RATIO" shall mean a ratio for the
applicable period in which:

                  (a) the numerator is the Net Operating Income (excluding
                      interest on credit accounts and using annualized operating
                      expenses for any recurring expenses not paid monthly
                      (e.g., Taxes and Insurance Premiums)) for such period as
                      set forth in the statements required hereunder, without
                      deduction for (i) actual management fees incurred in
                      connection with the operation of the Property, or (ii)
                      amounts paid to the Reserve Funds, less (A) management
                      fees equal to the greater of (1) assumed management fees
                      of four percent (4%) of Gross Income from Operations or
                      (2) the actual management fees incurred, and (B)
                      Replacement Reserve Fund contributions equal to $0.15 per
                      square foot of gross leasable area at the Property, (C)
                      Rollover Reserve Fund contributions equal to $43,000.00
                      per annum; and

                  (b) the denominator is the aggregate amount of principal and
                      interest due and payable on the Note for such period.

                  "DEBT SERVICE COVERAGE RATIO DETERMINATION DATE" shall mean
the date that Lender determines the Debt Service Coverage Ratio in accordance
with this Agreement.

                  "DEFAULT" shall mean the occurrence of any event hereunder or
under any other Loan Document which, but for the giving of notice or passage of
time, or both, would be an Event of Default.

                  "DEFAULT RATE" shall mean, with respect to the Loan, a rate
per annum equal to the lesser of (a) the maximum rate permitted by applicable
law or (b) five percent (5%) above the Interest Rate.

                  "DEFEASANCE DATE" shall have the meaning set forth in Section
2.5.1(a)(i) hereof.

                  "DEFEASANCE DEPOSIT" shall mean an amount equal to the
remaining principal amount of the Note, the Defeasance Payment Amount, any costs
and expenses incurred or to be incurred in the purchase of U.S. Obligations
necessary to meet the Scheduled Defeasance Payments and any revenue, documentary
stamp or intangible taxes or any other tax or charge due in connection with the
transfer of the Note or otherwise required to accomplish the agreements of
Sections 2.4 and 2.5 hereof (including, without limitation, any fees and
expenses of accountants, attorneys and the Rating Agencies incurred in
connection therewith).

                                       4


                  "DEFEASANCE EVENT" shall have the meaning set forth in Section
2.5.1(a) hereof.

                  "DEFEASANCE EXPIRATION DATE" shall mean the date that is
earlier to occur of (a) two (2) years from the "startup day" within the meaning
of Section 860G(a)(9) of the Code for the REMIC Trust or (b) the third (3rd)
anniversary of the first (1st) Payment Date.

                  "DEFEASANCE PAYMENT AMOUNT" shall mean the amount (if any)
which, when added to the remaining principal amount of the Note, will be
sufficient to purchase U.S. Obligations providing the required Scheduled
Defeasance Payments.

                  "DISCLOSURE DOCUMENT" shall mean a prospectus, prospectus
supplement, private placement memorandum, or similar offering memorandum or
offering circular, or such other information reasonably requested by Lender, in
each case in preliminary or final form, used to offer Securities in connection
with a Securitization.

                  "ELIGIBLE ACCOUNT" shall mean a separate and identifiable
account from all other funds held by the holding institution that is either (a)
an account or accounts maintained with a federal or state-chartered depository
institution or trust company which complies with the definition of Eligible
Institution or (b) a segregated trust account or accounts maintained with a
federal or state chartered depository institution or trust company acting in its
fiduciary capacity which, in the case of a state chartered depository
institution or trust company, is subject to regulations substantially similar to
12 C.F.R. ss.9.10(b), having in either case a combined capital and surplus of at
least Fifty Million and 00/100 Dollars ($50,000,000.00) and subject to
supervision or examination by federal and state authority. An Eligible Account
will not be evidenced by a certificate of deposit, passbook or other instrument.

                  "ELIGIBLE INSTITUTION" shall mean a depository institution or
trust company, the short term unsecured debt obligations or commercial paper of
which are rated at least "A-1+" by S&P, "P-1" by Moody's and "F-1+" by Fitch in
the case of accounts in which funds are held for thirty (30) days or less (or,
in the case of accounts in which funds are held for more than thirty (30) days,
the long-term unsecured debt obligations of which are rated at least "AA" by
Fitch and S&P and "Aa2" by Moody's).

                  "EMBARGOED PERSON" shall have the meaning set forth in Section
5.1.23 hereof.

                  "ENVIRONMENTAL INDEMNITY" shall mean that certain
Environmental Indemnification Agreement, dated as of the date hereof, executed
by Borrower, Principal and Guarantor in connection with the Loan for the benefit
of Lender, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and the
rulings issued thereunder.

                  "EVENT OF DEFAULT" shall have the meaning set forth in Section
8.1(a) hereof.

                                       5


                  "EXCHANGE ACT" shall have the meaning set forth in Section
9.2(a) hereof.

                  "EXCHANGE ACT FILING" shall have the meaning set forth in
Section 5.1.11(h) hereof.

                  "EXTRAORDINARY EXPENSE" shall have the meaning set forth in
Section 5.1.11(d) hereof.

                  "FISCAL YEAR" shall mean each twelve (12) month period
commencing on January 1 and ending on December 31 during each year of the term
of the Loan.

                  "FITCH" shall mean Fitch, Inc.

                  "GAAP" shall mean generally accepted accounting principles in
the United States of America as of the date of the applicable financial report.

                  "GOVERNMENTAL AUTHORITY" shall mean any court, board, agency,
commission, office or other authority of any nature whatsoever for any
governmental unit (foreign, federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence.

                  "GROSS INCOME FROM OPERATIONS" shall mean, for any period, all
sustainable income, computed in accordance with GAAP, derived from the ownership
and operation of the Property from whatever source during such period,
including, but not limited to, Rents from tenants in occupancy, open for
business and paying full contractual rent without right of offset or credit,
utility charges, escalations, forfeited security deposits, interest on credit
accounts, service fees or charges, license fees, parking fees, rent concessions
or credits, income from vending machines, business interruption or other loss of
income or rental insurance proceeds or other required pass-throughs and interest
on Reserve Accounts, if any, but excluding Rents from month-to-month tenants,
straight line lease adjustments, or tenants that are included in any Bankruptcy
Action, sales, use and occupancy or other taxes on receipts required to be
accounted for by Borrower to any Governmental Authority, refunds and
uncollectible accounts, sales of furniture, fixtures and equipment, Insurance
Proceeds (other than business interruption or other loss of income or rental
insurance), Awards, unforfeited security deposits, utility and other similar
deposits and any disbursements to Borrower from the Reserve Funds, if any. Gross
income shall not be diminished as a result of the Mortgage or the creation of
any intervening estate or interest in the Property or any part thereof.

                  "GUARANTOR" shall mean Acadia Realty Limited Partnership, a
Delaware limited partnership.

                  "GUARANTY" shall mean that certain Guaranty Agreement, dated
as of the date hereof, executed and delivered by Guarantor in connection with
the Loan to and for the benefit of Lender, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.

                  "IMPROVEMENTS" shall have the meaning set forth in the
granting clause of the Mortgage.

                                       6


                  "INDEBTEDNESS" of a Person, at a particular date, means the
sum (without duplication) at such date of (a) all indebtedness or liability of
such Person (including, without limitation, amounts for borrowed money and
indebtedness in the form of mezzanine debt or preferred equity); (b) obligations
evidenced by bonds, debentures, notes, or other similar instruments; (c)
obligations for the deferred purchase price of property or services (including
trade obligations); (d) obligations under letters of credit; (e) obligations
under acceptance facilities; (f) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business) and other contingent
obligations to purchase, to provide funds for payment, to supply funds, to
invest in any Person or entity, or otherwise to assure a creditor against loss;
and (g) obligations secured by any Liens, whether or not the obligations have
been assumed (other than the Permitted Encumbrances).

                  "INDEMNIFIED PERSON" shall have the meaning set forth in
Section 9.2(b) hereof.

                  "INDEMNIFYING PERSON" shall mean each of Borrower, Principal
and Guarantor.

                  "INDEPENDENT DIRECTOR" shall mean a natural person serving as
director of a corporation or manager of a limited liability company who is not
at the time of initial appointment, or at any time while serving in such
capacity, and has not been at any time during the preceding five (5) years: (a)
a stockholder, director (with the exception of serving as the Independent
Director of Borrower or Principal), trustee, officer, employee, partner, member,
attorney or counsel of the Borrower or Principal or any Affiliate of either of
them; (b) a creditor, customer, supplier or other Person who derives any of its
purchases or revenues from its activities with the Borrower or Principal or any
Affiliate of either of them; (c) a Person or other entity Controlling or under
common Control with any Person excluded from serving as Independent Director
under subparagraph (a) or (b); or (d) a member of the immediate family of any
Person excluded from serving as Independent Director under subparagraph (a) or
(b). A natural person who satisfies the foregoing definition other than
subparagraph (b) shall not be disqualified from serving as an Independent
Director of the Principal if such individual is an independent director provided
by a nationally-recognized company that provides professional independent
directors and that also provides other corporate services in the ordinary course
of its business. A natural person who otherwise satisfies the foregoing
definition except for being the independent director of a "special purpose
entity" affiliated with Borrower or Principal shall not be disqualified from
serving as an Independent Director of Borrower or Principal if such "special
purpose entity" does not own a direct or indirect equity interest in Borrower or
in any co-borrower and if such individual is provided by a nationally-recognized
company that provides professional independent directors. For purposes of this
paragraph, a "special purpose entity" is an entity, whose organizational
documents contain restrictions on its activities substantially similar to those
set forth in the definition of Special Purpose Entity in this Agreement.

                  "INSOLVENCY OPINION" shall mean that certain non-consolidation
opinion letter dated the date hereof delivered by Levenfeld Pearlstein, LLC in
connection with the Loan.

                  "INSURANCE PREMIUMS" shall have the meaning set forth in
Section 6.1(b) hereof.

                  "INSURANCE PROCEEDS" shall have the meaning set forth in
Section 6.4(b) hereof.

                                       7


                  "INTEREST RATE" shall mean a rate of Five and Five Hundred
Thirty-One Thousandths percent (5.531%) per annum.

                  "LEASE" shall mean any lease, sublease or subsublease,
letting, license, concession or other agreement (whether written or oral and
whether now or hereafter in effect) pursuant to which any Person is granted a
possessory interest in, or right to use or occupy all or any portion of any
space in the Property by or on behalf of Borrower, and (a) every modification,
amendment or other agreement relating to such lease, sublease, subsublease, or
other agreement entered into in connection with such lease, sublease,
subsublease, or other agreement and (b) every guarantee of the performance and
observance of the covenants, conditions and agreements to be performed and
observed by the other party thereto.

                  "LEGAL REQUIREMENTS" shall mean, all federal, state, county,
municipal and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions of Governmental Authorities
affecting the Property or any part thereof, or the construction, use, alteration
or operation thereof, or any part thereof, whether now or hereafter enacted and
in force, and all permits, licenses and authorizations and regulations relating
thereto, and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Borrower, at any time in force
affecting Borrower, the Property or any part thereof, including, without
limitation, any which may (a) require repairs, modifications or alterations in
or to the Property or any part thereof, or (b) in any way limit the use and
enjoyment thereof.

                  "LENDER" shall have the meaning set forth in the introductory
paragraph hereto, together with its successors and assigns.

                  "LIABILITIES" shall have the meaning set forth in Section
9.2(b) hereof.

                  "LICENSES" shall have the meaning set forth in Section 4.1.22
hereof.

                  "LIEN" shall mean, any mortgage, deed of trust, lien, pledge,
hypothecation, assignment, security interest, or any other encumbrance, charge
or transfer of, on or affecting Borrower, the Property, any portion thereof or
any interest therein, including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, the filing of any financing
statement, and mechanic's, materialmen's and other similar liens and
encumbrances.

                  "LOAN" shall mean the loan made by Lender to Borrower pursuant
to this Agreement.

                  "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the
Note, the Mortgage, the Assignment of Leases, the Environmental Indemnity, the
O&M Agreement, the Guaranty, the Cash Management Agreement and all other
documents executed and/or delivered in connection with the Loan.

                  "LOCKBOX ACCOUNT" shall have the meaning set forth in Section
2.7.1 hereof.

                                       8


                  "LOCKBOX AGREEMENT" shall mean that certain Lockbox and
Blocked Account Agreement dated the date hereof among Borrower, Lender and
Lockbox Bank, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time, relating to funds deposited in the Lockbox
Account.

                  "LOCKBOX BANK" shall mean Wells Fargo, N.A., or any successor
or permitted assigns thereof.

                  "LOCKBOX TRIGGER CURE": shall mean (a) with respect to a
Lockbox Trigger Event described in clause (a) of the definition thereof, the
acceptance of a cure of the related Event of Default by Lender, (b) with respect
to a Lockbox Trigger Event caused by (i) a Material Action relating to Manager,
the replacement of such Manager with a Qualified Manager within sixty (60) days
of the occurrence of the related Material Action and (ii) a Material Action
relating to Pathmark. and or Walgreen, (x) the reletting of at least
seventy-five percent (75%) (on a square footage basis) of the space previously
occupied by Pathmark and/or Walgreen, as the case may be, as of the Closing Date
pursuant to Leases reasonably acceptable to Lender and the tenants thereunder
are in possession, open for business and paying rent as evidenced by estoppel
certificates reasonably acceptable to Lender and (y) the Debt Service Coverage
Ratio thereafter equaling or exceeding 1.10 to 1.0 for two (2) consecutive
calendar quarters, (c) with respect to a Lockbox Trigger Event described in
clause (d) of the definition thereof, the Property maintaining a Debt Service
Coverage Ratio of 1.05 to 1.0 for one calendar quarter on a trailing six month
basis annualized; provided, however, in no event shall there be more than two
(2) Lockbox Trigger Cures in any twelve (12) month period or more than four (4)
Lockbox Trigger Cures during the term of the Loan.

                  "LOCKBOX TRIGGER EVENT" shall mean, (a) an Event of Default
shall have occurred, (b) the insolvency of Borrower, the Manager, Pathmark
and/or Walgreen, (c) if Pathmark and/or Walgreen shall cease its respective
operations at the Property, or (d) that as of any Debt Service Coverage Ratio
Determination Date the Debt Service Coverage Ratio for the trailing twelve (12)
month period, as determined by Lender in accordance with the applicable
provisions of this Agreement, is less than 1.05 to 1.

                  "LOCKBOX TRIGGER EVENT PERIOD" shall have the meaning set
forth in the Cash Management Agreement.

                  "MANAGEMENT AGREEMENT" shall mean any management agreement
entered into by and between Borrower and Manager, pursuant to which Manager is
to provide management and other services with respect to the Property, or, if
the context requires, the Replacement Management Agreement.

                  "MANAGER" shall mean a Qualified Manager who is managing the
Property in accordance with the terms and provisions of this Agreement pursuant
to a Management Agreement or a Replacement Management Agreement, as applicable.

                                       9


                  "MATERIAL ACTION" means, with respect to any Person, to file
any insolvency or reorganization case or proceeding, to institute proceedings to
have such Person 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 such Person, to file
a petition seeking, or consent to, reorganization or relief with respect to such
Person 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
such Person or a substantial part of its property, to make any assignment for
the benefit of creditors of such Person, to admit in writing such Person's
inability to pay its debts generally as they become due, or to take action in
furtherance of any of the foregoing.

                  "MATURITY DATE" shall mean January 1, 2016, or such other date
on which the final payment of principal of the Note becomes due and payable as
therein or herein provided, whether at such stated maturity date, by declaration
of acceleration, or otherwise.

                  "MAXIMUM LEGAL RATE" shall mean the maximum nonusurious
interest rate, if any, that at any time or from time to time may be contracted
for, taken, reserved, charged or received on the indebtedness evidenced by the
Note and as provided for herein or the other Loan Documents, under the laws of
such state or states whose laws are held by any court of competent jurisdiction
to govern the interest rate provisions of the Loan.

                  "MERS" shall have the meaning set forth in Section 10.25
hereof.

                  "MONTHLY DEBT SERVICE PAYMENT AMOUNT" shall mean (a) an amount
equal to interest in an amount equal to $5,315.91 per day only on the
outstanding principal balance of the Loan, calculated in accordance with the
terms hereof, for each Payment Date commencing with the Payment Date occurring
in February, 2006 through and including the Payment Date occurring in January,
2010 and (b) a constant monthly payment of $197,128.49 with respect to each
Payment Date thereafter.

                  "MOODY'S" shall mean Moody's Investors Service, Inc.

                  "MORTGAGE" shall mean, that certain first priority Mortgage
(or Deed of Trust or Deed to Secure Debt) and Security Agreement, dated the date
hereof, executed and delivered by Borrower to MERS, as nominee of Lender, as
security for the Loan and encumbering the Property, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time.

                  "NET CASH FLOW" shall mean, for any period, the amount
obtained by subtracting Operating Expenses and Capital Expenditures for such
period from Gross Income from Operations for such period.

                  "NET CASH FLOW SCHEDULE" shall have the meaning set forth in
Section 5.1.11(b) hereof.

                  "NET OPERATING INCOME" shall mean the amount obtained by
subtracting Operating Expenses from Gross Income from Operations.

                  "NET PROCEEDS" shall have the meaning set forth in Section
6.4(b) hereof.

                                       10


                  "NET PROCEEDS DEFICIENCY" shall have the meaning set forth in
Section 6.4(b)(vi) hereof.

                  "NOTE" shall mean that certain Promissory Note, dated the date
hereof, in the principal amount of Thirty-Four Million Six Hundred Thousand and
00/100 Dollars ($34,600,000), made by Borrower in favor of Lender, as the same
may be amended, restated, replaced, supplemented or otherwise modified from time
to time, including any Defeased Note and Undefeased Note that may exist from
time to time.

                  "O&M AGREEMENT" shall mean, that certain Operations and
Maintenance Agreement, dated as of the date hereof, between Borrower and Lender
given in connection with the Loan, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.

                   "OFFICER'S CERTIFICATE" shall mean a certificate delivered to
Lender by Borrower which is signed by an authorized officer of the general
partner or managing member of Borrower.

                  "OPERATING EXPENSES" shall mean the total of all expenditures,
computed in accordance with GAAP, of whatever kind relating to the operation,
maintenance and management of the Property that are incurred on a regular
monthly or other periodic basis, including without limitation, utilities,
ordinary repairs and maintenance, insurance, license fees, property taxes and
assessments, advertising expenses, management fees, payroll and related taxes,
computer processing charges, operational equipment or other lease payments as
approved by Lender, and other similar costs, but excluding depreciation, Debt
Service, Capital Expenditures and contributions to the Reserve Funds.

                  "OTHER CHARGES" shall mean all ground rents, maintenance
charges, impositions other than Taxes, and any other charges, including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Property, now or hereafter levied or assessed or
imposed against the Property or any part thereof.

                  "OTHER OBLIGATIONS" shall have the meaning as set forth in the
Mortgage.

                  "PATHMARK" shall mean Parthmark Stores, Inc.

                  "PAYMENT DATE" shall mean the first (1st) day of each calendar
month during the term of the Loan or, if such day is not a Business Day, the
immediately preceding Business Day.

                   "PERMITTED ENCUMBRANCES" shall mean, with respect to the
Property, collectively, (a) the Liens and security interests created by the Loan
Documents, (b) all Liens, encumbrances and other matters disclosed in the Title
Insurance Policy, (c) Liens, if any, for Taxes imposed by any Governmental
Authority not yet due or delinquent, and (d) such other title and survey
exceptions as Lender has approved or may approve in writing in Lender's sole
discretion, which Permitted Encumbrances in the aggregate do not materially
adversely affect the value or use of the Property or Borrower's ability to repay
the Loan.

                                       11


                  "PERMITTED INVESTMENTS" shall have the meaning set forth in
the Cash Management Agreement.

                  "PERMITTED RELEASE DATE" shall mean the date that is the third
(3rd) anniversary of the first Payment Date.

                  "PERMITTED TRANSFER" means any of the following: (a) any
transfer, directly as a result of the death of a natural person, of stock,
membership interests, partnership interests or other ownership interests
previously held by the decedent in question to the Person or Persons lawfully
entitled thereto and (b) any transfer, directly as a result of the legal
incapacity of a natural person, of stock, membership interests, partnership
interests or other ownership interests previously held by such natural person to
the Person or Persons lawfully entitled thereto.

                  "PERSON" shall mean any individual, corporation, partnership,
joint venture, limited liability company, estate, trust, unincorporated
association, any federal, state, county or municipal government or any bureau,
department or agency thereof and any fiduciary acting in such capacity on behalf
of any of the foregoing.

                  "PERSONAL PROPERTY" shall have the meaning set forth in the
granting clause of the Mortgage.

                  "PHYSICAL CONDITIONS REPORT" shall mean, a structural
engineering report prepared by a company satisfactory to Lender regarding the
physical condition of the Property, satisfactory in form and substance to Lender
in its sole discretion, which report shall, among other things, (a) confirm that
the Property and its use complies, in all material respects, with all applicable
Legal Requirements (including, without limitation, zoning, subdivision and
building laws) and (b) include a copy of a final certificate of occupancy with
respect to all Improvements on the Property.

                  "POLICIES" shall have the meaning specified in Section 6.1(b)
hereof.

                  "POLICY" shall have the meaning specified in Section 6.1(b)
hereof.

                  "PREPAYMENT RATE" shall mean the bond equivalent yield (in the
secondary market) on the United States Treasury Security that as of the
Prepayment Rate Determination Date has a remaining term to maturity closest to,
but not exceeding, the remaining term to the Maturity Date as most recently
published in the "Treasury Bonds, Notes and Bills" section in The Wall Street
Journal as of such Prepayment Rate Determination Date. If more than one issue of
United States Treasury Securities has the same remaining term to the Maturity
Date, the "Prepayment Rate" shall be the yield on such United States Treasury
Security most recently issued as of the Prepayment Rate Determination Date. The
rate so published shall control absent manifest error. If the publication of the
Prepayment Rate in The Wall Street Journal is discontinued, Lender shall
determine the Prepayment Rate on the basis of "Statistical Release H.15 (519),
Selected Interest Rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System, or on the basis of such other
publication or statistical guide as Lender may reasonably select.

                                       12


                  "PREPAYMENT RATE DETERMINATION DATE" shall mean the date which
is five (5) Business Days prior to the date that such prepayment shall be
applied in accordance with the terms and provisions of Section 2.4.1 hereof.

                  "PRINCIPAL" shall mean the Special Purpose Entity that is the
general partner of Borrower, if Borrower is a limited partnership, or member of
Borrower, if Borrower is a limited liability company.

                  "PROPERTY" shall mean the parcel of real property, the
Improvements thereon and all personal property owned by Borrower and encumbered
by the Mortgage, together with all rights pertaining to such property and
Improvements, as more particularly described in the granting clauses of the
Mortgage and referred to therein as the "Property".

                  "PROVIDED INFORMATION" shall mean any and all financial and
other information provided at any time prepared by, or on behalf of, any
Indemnifying Person with respect to the Property, Borrower, Principal, Guarantor
and/or Manager, including, without limitation, any financial data or financial
statements required under Section 5.1.11.

                  "QUALIFIED MANAGER" shall mean in the reasonable judgment of
Lender, a reputable and experienced management organization (which may be an
Affiliate of Borrower) possessing experience in managing properties similar in
size, scope, use and value as the Property, provided, that Borrower shall have
obtained (i) prior written confirmation from the applicable Rating Agencies that
management of the Property by such Person will not cause a downgrade, withdrawal
or qualification of the then current ratings of the Securities or any class
thereof and (ii) if such Person is an Affiliate of Borrower, an Additional
Insolvency Opinion.

                  "RATING AGENCIES" shall mean each of S&P, Moody's and Fitch,
or any other nationally recognized statistical rating agency which has been
approved by Lender.

                  "RELATED ENTITIES" shall have the meaning set forth in Section
5.2.10(e) hereof.

                  "RELATED LOAN" shall mean a loan made to an Affiliate of
Borrower or secured by a Related Property, that is included in a Securitization
with the Loan.

                  "RELATED PARTIES" shall have the meaning set forth in the
definition of Special Purpose Entity.

                  "RELATED PARTY" shall have the meaning set forth in the
definition of Special Purpose Entity.

                  "RELATED PROPERTY" shall mean a parcel of real property,
together with improvements thereon and personal property related thereto, that
is "related", within the meaning of the definition of Significant Obligor, to
one or more of the Properties.

                  "REMIC TRUST" shall mean a "real estate mortgage investment
conduit" within the meaning of Section 860D of the Code that holds the Note.

                                       13


                  "RENTS" shall mean, all rents (including percentage rents),
rent equivalents, moneys payable as damages or in lieu of rent or rent
equivalents, royalties (including, without limitation, all oil and gas or other
mineral royalties and bonuses), income, receivables, receipts, revenues,
deposits (including, without limitation, security, utility and other deposits),
accounts, cash, issues, profits, charges for services rendered, all other
amounts payable as rent under any Lease or other agreement relating to the
Property, including, without limitation, charges for electricity, oil, gas,
water, steam, heat, ventilation, air-conditioning and any other energy,
telecommunication, telephone, utility or similar items or time use charges, HVAC
equipment charges, sprinkler charges, escalation charges, license fees,
maintenance fees, charges for Taxes, Operating Expenses or other reimbursables
payable to Borrower (or to the Manager, if any, for the account of Borrower)
under any Lease, and other consideration of whatever form or nature received by
or paid to or for the account of or benefit of Borrower or its agents or
employees from any and all sources arising from or attributable to the Property.


                  "REPLACEMENT MANAGEMENT AGREEMENT" shall mean, collectively,
(a) either (i) a management agreement with a Qualified Manager substantially in
the same form and substance as the Management Agreement, or (ii) a management
agreement with a Qualified Manager, which management agreement shall be
reasonably acceptable to Lender in form and substance, provided, with respect to
this subclause (ii), Lender, at its option, may require that Borrower shall have
obtained prior written confirmation from the applicable Rating Agencies that
such management agreement will not cause a downgrade, withdrawal or
qualification of the then current rating of the Securities or any class thereof
and (b) an assignment of management agreement and subordination of management
fees substantially in the form then used by Lender (or of such other form and
substance reasonably acceptable to Lender), executed and delivered to Lender by
Borrower and such Qualified Manager at Borrower's expense.

                  "REPLACEMENT RESERVE ACCOUNT" shall have the meaning set forth
in Section 7.3.1 hereof.

                  "REPLACEMENT RESERVE FUND" shall have the meaning set forth in
Section 7.3.1 hereof.

                  "REPLACEMENT RESERVE MONTHLY DEPOSIT" shall have the meaning
set forth in Section 7.3.1 hereof.

                  "REPLACEMENTS" shall have the meaning set forth in Section
7.3.1 hereof.

                  "RESERVE FUNDS" shall mean, collectively, the Tax and
Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund,
the Rollover Reserve Fund and any other escrow fund established by the Loan
Documents.

                  "RESIZING EVENT" shall have the meaning set forth in Section
9.1.2.

                  "RESTORATION" shall mean the repair and restoration of the
Property after a Casualty or Condemnation as nearly as possible to the condition
the Property was in immediately prior to such Casualty or Condemnation, with
such alterations as may be reasonably approved by Lender.

                                       14


                  "RESTRICTED PARTY" shall mean collectively, (a) Borrower,
Principal, any Guarantor, and any Affiliated Manager and (b) any shareholder,
partner, member, non-member manager, any direct or indirect legal or beneficial
owner of, Borrower, Principal, any Guarantor, any Affiliated Manager or any
non-member manager.

                  "ROLLOVER RESERVE ACCOUNT" shall have the meaning set forth in
Section 7.4.1 hereof.

                  "ROLLOVER RESERVE FUND" shall have the meaning set forth in
Section 7.4.1 hereof.

                  "S&P" shall mean Standard & Poor's Ratings Group, a division
of the McGraw-Hill Companies.

                  "SALE OR PLEDGE" shall mean a voluntary or involuntary sale,
conveyance, assignment, transfer, encumbrance, pledge, grant of option or other
transfer or disposal of a legal or beneficial interest, whether direct or
indirect.

                  "SCHEDULED DEFEASANCE PAYMENTS" shall have the meaning set
forth in Section 2.5.1(b) hereof.

                  "SECURITIES" shall have the meaning set forth in Section 9.1
hereof.

                  "SECURITIES ACT" shall have the meaning set forth in Section
9.2(a) hereof.

                  "SECURITIZATION" shall have the meaning set forth in Section
9.1 hereof.

                  "SECURITY AGREEMENT" shall have the meaning set forth in
Section 2.5.1(a)(vi) hereof.

                  "SERVICER" shall have the meaning set forth in Section 9.5
hereof.

                  "SERVICING AGREEMENT" shall have the meaning set forth in
Section 9.5 hereof.

                  "SEVERED LOAN DOCUMENTS" shall have the meaning set forth in
Section 8.2(c) hereof.

                  "SIGNIFICANT OBLIGOR" shall have the meaning set forth in Item
1101(k) of Regulation AB under the Securities Act.

                  "SPECIAL PURPOSE ENTITY" shall mean a corporation, limited
partnership or limited liability company that, since the date of its formation
and at all times on and after the date thereof, has complied with and shall at
all times comply with the following requirements unless it has received either
prior consent to do otherwise from Lender or a permitted administrative agent
thereof, or, while the Loan is securitized, confirmation from each of the
applicable Rating Agencies that such noncompliance would not result in the
requalification, withdrawal, or downgrade of the ratings of any Securities or
any class thereof:

                                       15


                      (i) is and shall be organized solely for the purpose of
                  (A) in the case of Borrower, acquiring, developing, owning,
                  holding, selling, leasing, transferring, exchanging, managing
                  and operating the Property, entering into and performing its
                  obligations under the Loan Documents with Lender, refinancing
                  the Property in connection with a permitted repayment of the
                  Loan, and transacting lawful business that is incident,
                  necessary and appropriate to accomplish the foregoing; or (B)
                  in the case of a Principal, acting as a general partner of the
                  limited partnership that owns the Property or as member of the
                  limited liability company that owns the Property and
                  transacting lawful business that is incident, necessary and
                  appropriate to accomplish the foregoing;

                      (ii) has not engaged and shall not engage in any business
                  unrelated to (A) the acquisition, development, ownership,
                  management or operation of the Property, or (B) in the case of
                  a Principal, acting as general partner of the limited
                  partnership that owns the Property or acting as a member of
                  the limited liability company that owns the Property, as
                  applicable;

                      (iii) has not owned and shall not own any real property
                  other than, in the case of Borrower, the Property;

                      (iv) does not have, shall not have and at no time had any
                  assets other than (A) in the case of Borrower, the Property
                  and personal property necessary or incidental to its ownership
                  and operation of the Property or (B) in the case of a
                  Principal, its partnership interest in the limited partnership
                  or the member interest in the limited liability company that
                  owns the Property and personal property necessary or
                  incidental to its ownership of such interests;

                      (v) has not engaged in, sought, consented or permitted to
                  and shall not engage in, seek, consent to or permit (A) any
                  dissolution, winding up, liquidation, consolidation or merger,
                  (B) any sale or other transfer of all or substantially all of
                  its assets or any sale of assets outside the ordinary course
                  of its business, except as permitted by the Loan Documents, or
                  (C) in the case of a Principal, any transfer of its
                  partnership or membership interests; (vi) shall not cause,
                  consent to or permit any amendment of its limited partnership
                  agreement, articles of incorporation, articles of
                  organization, certificate of formation, operating agreement or
                  other formation document or organizational document (as
                  applicable) with respect to the matters set forth in this
                  definition;

                      (vii) if such entity is a limited partnership, has and
                  shall have at least one general partner and has and shall
                  have, as its only general partners, Special Purpose Entities
                  each of which (A) is a corporation or single-member Delaware
                  limited liability company, (B) has one Independent Director,
                  and (C) holds a direct interest as general partner in the
                  limited partnership of not less than 0.5% (or 0.1%, if the
                  limited partnership is a Delaware entity);

                                       16


                      (viii) if such entity is a corporation, has and shall have
                  at least one (1) Independent Director, and shall not cause or
                  permit the board of directors of such entity to take any
                  Material Action either with respect to itself or, if the
                  corporation is a Principal, with respect to Borrower or any
                  action requiring the unanimous affirmative vote of one hundred
                  percent (100%) of the members of its board of directors unless
                  one Independent Director shall have participated in such vote
                  and shall have voted in favor of such action;

                      (ix) if such entity is a limited liability company (other
                  than a limited liability company meeting all of the
                  requirements applicable to a single-member limited liability
                  company set forth in this definition of "Special Purpose
                  Entity"), has and shall have at least one (1) member that is a
                  Special Purpose Entity, that is a corporation, that has at
                  least one (1) Independent Director and that directly owns at
                  least one-half-of-one percent (0.5%) of the equity of the
                  limited liability company (or 0.1% if the limited liability
                  company is a Delaware entity);

                      (x) if such entity is a single-member limited liability
                  company, (A) is and shall be a Delaware limited liability
                  company, (B) has and shall have at least one (1) Independent
                  Director serving as manager of such company, (C) shall not
                  take any Material Action and shall not cause or permit the
                  members or managers of such entity to take any Material
                  Action, either with respect to itself or, if the company is a
                  Principal, with respect to Borrower, in each case unless one
                  Independent Director then serving as manager of the company
                  shall have participated and consented in writing to such
                  action, and (D) has and shall have either (1) a member which
                  owns no economic interest in the company, has signed the
                  company's limited liability company agreement and has no
                  obligation to make capital contributions to the company, or
                  (2) two natural persons or one entity that is not a member of
                  the company, that has signed its limited liability company
                  agreement and that, under the terms of such limited liability
                  company agreement becomes a member of the company immediately
                  prior to the withdrawal or dissolution of the last remaining
                  member of the company;

                      (xi) has not and shall not (and, if such entity is (a) a
                  limited liability company, has and shall have a limited
                  liability agreement or an operating agreement, as applicable,
                  (b) a limited partnership, has a limited partnership
                  agreement, or (c) a corporation, has a certificate of
                  incorporation or articles that, in each case, provide that
                  such entity shall not) (1) dissolve, merge, liquidate,
                  consolidate; (2) sell all or substantially all of its assets;
                  (3) amend its organizational documents with respect to the
                  matters set forth in this definition without the consent of
                  Lender; or (4) without the affirmative vote of one Independent
                  Director of itself or the consent of a Principal that is a
                  member or general partner in it: (A) file or consent to the
                  filing of any bankruptcy, insolvency or reorganization case or
                  proceeding, institute any proceedings under any applicable
                  insolvency law or otherwise seek relief under any laws
                  relating to the relief from debts or the protection of debtors
                  generally, file a bankruptcy or insolvency petition or
                  otherwise institute insolvency proceedings; (B) seek or
                  consent to the appointment of a receiver, liquidator,
                  assignee, trustee, sequestrator, custodian or any similar
                  official for the entity or a substantial portion of its
                  property; (C) make an assignment for the benefit of the
                  creditors of the entity; or (D) take any action in furtherance
                  of any of the foregoing;

                                       17


                      (xii) has at all times been and shall at all times remain
                  solvent and has paid and shall pay its debts and liabilities
                  (including, a fairly-allocated portion of any personnel and
                  overhead expenses that it shares with any Affiliate) from its
                  assets as the same shall become due, and has maintained and
                  shall maintain adequate capital for the normal obligations
                  reasonably foreseeable in a business of its size and character
                  and in light of its contemplated business operations;

                      (xiii) has not failed and shall not fail to correct any
                  known misunderstanding regarding the separate identity of such
                  entity and has not identified and shall not identify itself as
                  a division of any other Person;

                      (xiv) has maintained and shall maintain its bank accounts,
                  books of account, books and records separate from those of any
                  other Person and, to the extent that it is required to file
                  tax returns under applicable law, has filed and shall file its
                  own tax returns, except to the extent that it is required by
                  law to file consolidated tax returns and, if it is a
                  corporation, has not filed and shall not file a consolidated
                  federal income tax return with any other corporation, except
                  to the extent that it is required by law to file consolidated
                  tax returns;

                      (xv) has maintained and shall maintain its own records,
                  books, resolutions and agreements;

                      (xvi) has not commingled and shall not commingle its funds
                  or assets with those of any other Person and has not
                  participated and shall not participate in any cash management
                  system with any other Person;

                      (xvii) has held and shall hold its assets in its own name;

                      (xviii) has conducted and shall conduct its business in
                  its name or in a name franchised or licensed to it by an
                  entity other than an Affiliate of itself or of Borrower,
                  except for business conducted on behalf of itself by another
                  Person under a business management services agreement that is
                  on commercially-reasonable terms, so long as the manager, or
                  equivalent thereof, under such business management services
                  agreement holds itself out as an agent of Borrower;

                      (xix) (A) has maintained and shall maintain its financial
                  statements, accounting records and other entity documents
                  separate from those of any other Person; (B) has shown and
                  shall show, in its financial statements, its asset and
                  liabilities separate and apart from those of any other Person;
                  and (C) has not permitted and shall not permit its assets to
                  be listed as assets on the financial statement of any of its
                  Affiliates except as required by GAAP; provided, however, that
                  any such consolidated financial statement contains a note
                  indicating that the Special Purpose Entity's separate assets
                  and credit are not available to pay the debts of such
                  Affiliate and that the Special Purpose Entity's liabilities do
                  not constitute obligations of the consolidated entity;

                                       18


                      (xx) has paid and shall pay its own liabilities and
                  expenses, including the salaries of its own employees, out of
                  its own funds and assets, and has maintained and shall
                  maintain a sufficient number of employees in light of its
                  contemplated business operations;

                      (xxi) has observed and shall observe all partnership,
                  corporate or limited liability company formalities, as
                  applicable;

                      (xxii) has not incurred any Indebtedness other than (i)
                  acquisition financing with respect to the Property;
                  construction financing with respect to the Improvements and
                  certain off-site improvements required by municipal and other
                  authorities as conditions to the construction of the
                  Improvements; and first mortgage financings secured by the
                  Property; and Indebtedness pursuant to letters of credit,
                  guaranties, interest rate protection agreements and other
                  similar instruments executed and delivered in connection with
                  such financings, (ii) unsecured trade payables and operational
                  debt not evidenced by a note, and (iii) Indebtedness incurred
                  in the financing of equipment and other personal property used
                  on the Property;

                      (xxiii) has not incurred and shall have no Indebtedness
                  other than (i) the Loan, (ii) liabilities incurred in the
                  ordinary course of business relating to the ownership and
                  operation of the Property and the routine administration of
                  Borrower, in amounts not to exceed $690,000 which liabilities
                  are not more than sixty (60) days past the date incurred, are
                  not evidenced by a note and are paid when due, and which
                  amounts are normal and reasonable under the circumstances, and
                  (iii) such other liabilities that are permitted pursuant to
                  this Agreement;

                      (xxiv) has not assumed, guaranteed or become obligated and
                  shall not assume or guarantee or become obligated for the
                  debts of any other Person, has not held out and shall not hold
                  out its credit as being available to satisfy the obligations
                  of any other Person or has not pledged and shall not pledge
                  its assets for the benefit of any other Person, in each case
                  except as permitted pursuant to this Agreement;

                      (xxv) has not acquired and shall not acquire obligations
                  or securities of its partners, members or shareholders or any
                  other owner or Affiliate;

                      (xxvi) has allocated and shall allocate fairly and
                  reasonably any overhead expenses that are shared with any of
                  its Affiliates, constituents, or owners, or any guarantors of
                  any of their respective obligations, or any Affiliate of any
                  of the foregoing (individually, a "Related Party" and
                  collectively, the "Related Parties"), including, but not
                  limited to, paying for shared office space and for services
                  performed by any employee of an Affiliate;

                                       19


                      (xxvii) has maintained and used and shall maintain and use
                  separate stationery, invoices and checks bearing its name and
                  not bearing the name of any other entity unless such entity is
                  clearly designated as being the Special Purpose Entity's
                  agent;

                      (xxviii) has not pledged and shall not pledge its assets
                  to or for the benefit of any other Person other than with
                  respect to loans secured by the Property and no such pledge
                  remains outstanding except to Lender to secure the Loan;

                      (xxix) has held itself out and identified itself and shall
                  hold itself out and identify itself as a separate and distinct
                  entity under its own name or in a name franchised or licensed
                  to it by an entity other than an Affiliate of Borrower and not
                  as a division or part of any other Person;

                      (xxx) has maintained and shall maintain its assets in such
                  a manner that it shall not be costly or difficult to
                  segregate, ascertain or identify its individual assets from
                  those of any other Person;

                      (xxxi) has not made and shall not make loans to any Person
                  and has not held and shall not hold evidence of indebtedness
                  issued by any other Person or entity (other than cash and
                  investment-grade securities issued by an entity that is not an
                  Affiliate of or subject to common ownership with such entity);

                      (xxxii) has not identified and shall not identify its
                  partners, members or shareholders, or any Affiliate of any of
                  them, as a division or part of it, and has not identified
                  itself and shall not identify itself as a division of any
                  other Person;

                      (xxxiii) other than capital contributions and
                  distributions permitted under the terms of its organizational
                  documents, has not entered into or been a party to, and shall
                  not enter into or be a party to, any transaction with any of
                  its partners, members, shareholders or Affiliates except in
                  the ordinary course of its business and on terms which are
                  commercially reasonable terms comparable to those of an
                  arm's-length transaction with an unrelated third party;

                      (xxxiv) has not had and shall not have any obligation to,
                  and has not indemnified and shall not indemnify its partners,
                  officers, directors or members, as the case may be, in each
                  case unless such an obligation or indemnification is fully
                  subordinated to the Debt and shall not constitute a claim
                  against it in the event that its cash flow is insufficient to
                  pay the Debt;

                      (xxxv) if such entity is a corporation, has considered and
                  shall consider the interests of its creditors in connection
                  with all corporate actions;

                      (xxxvi) has not had and shall not have any of its
                  obligations guaranteed by any Affiliate except as provided by
                  the Loan Documents;

                                       20


                      (xxxvii) has not formed, acquired or held and shall not
                  form, acquire or hold any subsidiary, except that a Principal
                  may acquire and hold its interest in Borrower;

                      (xxxviii) has complied and shall comply with all of the
                  terms and provisions contained in its organizational
                  documents.

                      (xxxix) has conducted and shall conduct its business so
                  that each of the assumptions made about it and each of the
                  facts stated about it in the Insolvency Opinion are true;

                      (xl) has not permitted and shall not permit any Affiliate
                  or constituent party independent access to its bank accounts;

                      (xli) is and shall continue to be duly formed, validly
                  existing, and in good standing in the state of its
                  incorporation or formation and in all other jurisdictions
                  where it is qualified to do business;

                      (xlii) has paid all taxes which it owes and is not
                  currently involved in any dispute with any taxing authority;

                      (xliii) is not now party to any lawsuit, arbitration,
                  summons, or legal proceeding that resulted in a judgment
                  against it that has not been paid in full;

                      (xliv) has no judgments or Liens of any nature against it
                  except for tax liens not yet due and the Permitted
                  Encumbrances;

                      (xlv) has provided Lender with complete financial
                  statements that reflect a fair and accurate view of the
                  entity's financial condition; and

                      (xlvi) has no material contingent or actual obligations
                  not related to the Property.

                  "STATE" shall mean, the State or Commonwealth in which the
Property or any part thereof is located.

                  "SUCCESSOR BORROWER" shall have the meaning set forth in
Section 2.5.3 hereof.

                  "SURVEY" shall mean a survey of the Property prepared by a
surveyor licensed in the State and satisfactory to Lender and the company or
companies issuing the Title Insurance Policy, and containing a certification of
such surveyor satisfactory to Lender.

                  "TAX AND INSURANCE ESCROW FUND" shall have the meaning set
forth in Section 7.2 hereof.

                  "TAXES" shall mean all real estate and personal property
taxes, assessments, water rates or sewer rents, now or hereafter levied or
assessed or imposed against the Property or part thereof.

                                       21


                  "THRESHOLD AMOUNT" shall have the meaning set forth in Section
5.1.21 hereof.

                  "TITLE INSURANCE POLICY" shall mean, an ALTA mortgagee title
insurance policy in the form acceptable to Lender (or, if the Property is in a
State which does not permit the issuance of such ALTA policy, such form as shall
be permitted in such State and acceptable to Lender) issued with respect to the
Property and insuring the lien of the Mortgage.

                  "TRANSFER" shall have the meaning set forth in Section
5.2.10(b) hereof.

                  "TRANSFEREE" shall have the meaning set forth in Section
5.2.10(e)(iii) hereof.

                  "TRANSFEREE'S PRINCIPALS" shall mean collectively, (A)
Transferee's managing members, general partners or principal shareholders and
(B) such other members, partners or shareholders which directly or indirectly
shall own a fifty-one percent (51%) or greater economic and voting interest in
Transferee..
                  "UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform
Commercial Code as in effect in the State in which the Property is located.

                  "U.S. OBLIGATIONS" shall mean non-redeemable securities
evidencing an obligation to timely pay principal and/or interest in a full and
timely manner that are (a) direct obligations of the United States of America
for the payment of which its full faith and credit is pledged, (b) other
non-callable "government securities" as defined in Treasury Regulations Section
1.860G-2(a)(8)(i), as amended, which will not result in a downgrade, withdrawal
or qualification of the ratings for the Securities or any class thereof issued
in connection with a Securitization which are then outstanding (c) issued by an
agency of the United States of America only if (i) the Rating Agencies provide
confirmation acceptable to Lender in its sole discretion which will not result
in a downgrade, withdrawal or qualification of the ratings for the Securities or
any class thereof issued in connection with a Securitization which are then
outstanding and (ii) a tax opinion provided by Borrower's counsel in form and
substance acceptable to Lender in its sole discretion confirming that, if a
Securitization has occurred, the REMIC trust formed pursuant to such
Securitization will not fail to maintain its status as a "real estate mortgage
investment conduit" within the meaning of Section 860D of the Code or (d) other
instruments which, if a Securitization has occurred, the REMIC Trust formed
pursuant to such Securitization will not fail to maintain its status as a "real
estate mortgage investment conduit" within the meaning of Section 860D of the
Code and which will not result in a downgrade, withdrawal or qualification of
the ratings for the Securities or any class thereof issued in connection with a
Securitization which are then outstanding.

                  "WALGREEN" shall mean Walgreen Eastern Co., Inc.

                  "YIELD MAINTENANCE DEFAULT PREMIUM" shall mean an amount equal
to the greater of (a) five percent (5%) of the outstanding principal balance of
the Loan to be prepaid or satisfied and (b) the Defeasance Payment Amount that
would be required if a Defeasance Event were to occur at such time (whether or
not then permitted) in an amount equal to the outstanding principal amount of
the Loan to be prepaid or satisfied.

                                       22


                  "YIELD MAINTENANCE PREMIUM" shall mean an amount equal to the
greater of (a) one percent (1%) of the outstanding principal of the Loan to be
prepaid or satisfied and (b) the excess, if any, of (i) the sum of the present
values of all then-scheduled payments of principal and interest under the Note
assuming that all outstanding principal and interest on the Loan is paid on the
Maturity Date (with each such payment and assumed payment discounted to its
present value at the date of prepayment at the rate which, when compounded
monthly, is equivalent to the Prepayment Rate when compounded semi-annually and
deducting from the sum of such present values any short-term interest paid from
the date of prepayment to the next succeeding Payment Date in the event such
payment is not made on a Payment Date), over (ii) the principal amount being
prepaid.

                  SECTION 1.2 PRINCIPLES OF CONSTRUCTION. All references to
sections and schedules are to sections and schedules in or to this Agreement
unless otherwise specified. All uses of the word "including" shall mean
"including, without limitation" unless the context shall indicate otherwise.
Unless otherwise specified, the words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise specified, all meanings attributed to defined terms herein
shall be equally applicable to both the singular and plural forms of the terms
so defined.

                  II. GENERAL TERMS

                  SECTION 2.1 LOAN COMMITMENT; DISBURSEMENT TO BORROWER.

                  2.1.1 AGREEMENT TO LEND AND BORROW. Subject to and upon the
terms and conditions set forth herein, Lender hereby agrees to make and Borrower
hereby agrees to accept the Loan on the Closing Date.

                  2.1.2 SINGLE DISBURSEMENT TO BORROWER. Borrower may request
and receive only one (1) borrowing hereunder in respect of the Loan and any
amount borrowed and repaid hereunder in respect of the Loan may not be
reborrowed.

                  2.1.3 THE NOTE, MORTGAGE AND LOAN DOCUMENTS. The Loan shall be
evidenced by the Note and secured by the Mortgage, the Assignment of Leases and
the other Loan Documents.

                  2.1.4 USE OF PROCEEDS. Borrower shall use the proceeds of the
Loan to (a) acquire the Property or repay and discharge any existing loans
relating to the Property, (b) pay all past-due Basic Carrying Costs, if any,
with respect to the Property, (c) make deposits into the Reserve Funds on the
Closing Date in the amounts provided herein, (d) pay costs and expenses incurred
in connection with the closing of the Loan, as approved by Lender, (e) fund any
working capital requirements of the Property and (f) distribute the balance, if
any, to Borrower.

                  SECTION 2.2 INTEREST RATE.

                                       23


                  2.2.1 INTEREST RATE. Interest on the outstanding principal
balance of the Loan shall accrue from (and include) the Closing Date to but
excluding the Maturity Date at the Interest Rate.

                  2.2.2 INTEREST CALCULATION. Interest on the outstanding
principal balance of the Loan shall be calculated by multiplying (a) the actual
number of days elapsed in the period for which the calculation is being made by
(b) a daily rate based on a three hundred sixty (360) day year by (c) the
outstanding principal balance.

                  2.2.3 DEFAULT RATE. In the event that, and for so long as, any
Event of Default shall have occurred and be continuing, the outstanding
principal balance of the Loan and, to the extent permitted by law, all accrued
and unpaid interest in respect of the Loan and any other amounts due pursuant to
the Loan Documents, shall accrue interest at the Default Rate, calculated from
the date such payment was due without regard to any grace or cure periods
contained herein.

                  2.2.4 USURY SAVINGS. This Agreement, the Note and the other
Loan Documents are subject to the express condition that at no time shall
Borrower be obligated or required to pay interest on the principal balance of
the Loan at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the Maximum Legal Rate. If, by the
terms of this Agreement or the other Loan Documents, Borrower is at any time
required or obligated to pay interest on the principal balance due hereunder at
a rate in excess of the Maximum Legal Rate, the Interest Rate or the Default
Rate, as the case may be, shall be deemed to be immediately reduced to the
Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate
shall be deemed to have been payments in reduction of principal and not on
account of the interest due hereunder. All sums paid or agreed to be paid to
Lender for the use, forbearance, or detention of the sums due under the Loan,
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Loan until payment
in full so that the rate or amount of interest on account of the Loan does not
exceed the Maximum Legal Rate of interest from time to time in effect and
applicable to the Loan for so long as the Loan is outstanding.

                  SECTION 2.3 LOAN PAYMENT.

                  2.3.1 MONTHLY DEBT SERVICE PAYMENTS. Borrower shall pay to
Lender (a) on the Closing Date, an amount equal to interest only on the
outstanding principal balance of the Loan from the Closing Date up to and
including December 31, 2005 and (b) on each Payment Date thereafter up to and
including the Maturity Date, Borrower shall make a payment to Lender of
principal and interest in an amount equal to the Monthly Debt Service Payment
Amount, which payments shall be applied first to accrued and unpaid interest and
the balance to principal.

                  2.3.2 PAYMENTS GENERALLY. The first (1st) interest accrual
period hereunder shall commence on and include the Closing Date and shall end on
and include December 31, 2005. Each interest accrual period thereafter shall
commence on the first (1st) day of each calendar month during the term of this
Agreement and shall end on and include the final calendar date of such calendar
month. For purposes of making payments hereunder, but not for purposes of
calculating interest accrual periods, if the day on which such payment is due is
not a Business Day, then amounts due on such date shall be due on the
immediately preceding Business Day and with respect to payments of principal due
on the Maturity Date, interest shall be payable at the Interest Rate or the
Default Rate, as the case may be, through and including the day immediately
preceding such Maturity Date. All amounts due under this Agreement and the other
Loan Documents shall be payable without setoff, counterclaim, defense or any
other deduction whatsoever.

                                       24


                  2.3.3 PAYMENT ON MATURITY DATE. Borrower shall pay to Lender
on the Maturity Date the outstanding principal balance of the Loan, all accrued
and unpaid interest and all other amounts due hereunder and under the Note, the
Mortgage and the other Loan Documents.

                  2.3.4 LATE PAYMENT CHARGE. If any principal, interest or any
other sums due under the Loan Documents (including the amounts due on the
Maturity Date) are not paid by Borrower on or prior to the date on which it is
due, Borrower shall pay to Lender upon demand an amount equal to the lesser of
five percent (5%) of such unpaid sum or the Maximum Legal Rate in order to
defray the expense incurred by Lender in handling and processing such delinquent
payment and to compensate Lender for the loss of the use of such delinquent
payment. Any such amount shall be secured by the Mortgage and the other Loan
Documents to the extent permitted by applicable law.

                  2.3.5 METHOD AND PLACE OF PAYMENT. Except as otherwise
specifically provided herein, all payments and prepayments under this Agreement
and the Note shall be made to Lender not later than 11:00 A.M., New York City
time, on the date when due and shall be made in lawful money of the United
States of America in immediately available funds at Lender's office or as
otherwise directed by Lender, and any funds received by Lender after such time
shall, for all purposes hereof, be deemed to have been paid on the next
succeeding Business Day.

                  SECTION 2.4 PREPAYMENTS.

                  2.4.1 VOLUNTARY PREPAYMENTS. Except as otherwise provided in
this Section 2.4.1 and Section 2.4.2, Borrower shall not have the right to
prepay the Loan in whole or in part prior to the Maturity Date. If for any
reason Borrower prepays the Loan on a date other than a Payment Date, Borrower
shall pay Lender, in addition to the Debt, all interest which would have accrued
on the amount of the Loan through and including the Payment Date next occurring
following the date of such prepayment. Notwithstanding anything to the contrary
contained herein, commencing on the Payment Date two (2) months prior to the
Maturity Date, or on any Payment Date thereafter (or on after date thereafter,
provided that interest is paid through the next Payment Date), Borrower may, at
its option, prepay the Debt in whole or in part without payment of the Yield
Maintenance Premium.

                  2.4.2 MANDATORY PREPAYMENTS. On the next occurring Payment
Date following the date on which Lender actually receives any Net Proceeds, if
Lender is not obligated to make such Net Proceeds available to Borrower for the
Restoration of the Property or otherwise remit such Net Proceeds to Borrower
pursuant to Section 6.4 hereof, Borrower shall prepay or authorize Lender to
apply Net Proceeds as a prepayment of all or a portion of the outstanding
principal balance of the Loan together with accrued interest and any other sums
due hereunder in an amount equal to one hundred percent (100%) of such Net
Proceeds; provided, however, if an Event of Default has occurred and is
continuing, Lender may apply such Net Proceeds to the Debt (until paid in full)
in any order or priority in its sole discretion. Other than following an Event
of Default, no Yield Maintenance Premium shall be due in connection with any
prepayment made pursuant to this Section 2.4.2.

                                       25


                  2.4.3 PREPAYMENTS AFTER DEFAULT. If following an Event of
Default, payment of all or any part of the Debt is tendered by Borrower or
otherwise recovered by Lender, such tender or recovery shall be (a) made on the
next occurring Payment Date together with the Monthly Debt Service Payment and
(b) deemed a voluntary prepayment by Borrower in violation of the prohibition
against prepayment set forth in Section 2.4.1 hereof and Borrower shall pay, in
addition to the Debt, an amount equal to the Yield Maintenance Default Premium.

                  2.4.4 PREPAYMENT PRIOR TO DEFEASANCE EXPIRATION DATE. If the
Permitted Release Date has occurred but the Defeasance Expiration Date has not
occurred, the Debt may be prepaid in whole (but not in part) prior to the date
permitted under Section 2.4.1 hereof upon not less than thirty (30) days prior
written notice to Lender specifying the Payment Date on which prepayment is to
be made (a "PREPAYMENT DATE") provided no Event of Default exists and upon
payment of an amount equal to the greater of (a) the Yield Maintenance Premium
and (b) one percent (1%) of the outstanding principal balance of the Loan as of
the Prepayment Date. Lender shall notify Borrower of the amount and the basis of
determination of the required prepayment consideration. If any notice of
prepayment is given, the Debt shall be due and payable on the Prepayment Date.
Lender shall not be obligated to accept any prepayment of the Debt unless it is
accompanied by the prepayment consideration due in connection therewith. If for
any reason Borrower prepays the Loan on a date other than a Payment Date,
Borrower shall pay Lender, in addition to the Debt, all interest which would
have accrued on the amount of the Loan through and including the Payment Date
next occurring following the date of such prepayment.

                  SECTION 2.5 DEFEASANCE.

                  2.5.1 VOLUNTARY DEFEASANCE. (a) Provided no Event of Default
shall then exist, Borrower shall have the right at any time after the Defeasance
Expiration Date and prior to the date voluntarily prepayments are permitted
under Section 2.4.1 hereof to voluntarily defease all, but not part, of the Loan
by and upon satisfaction of the following conditions (such event being a
"DEFEASANCE EVENT"):

                        (i) Borrower shall provide not less than thirty (30)
                  days prior written notice to Lender specifying the Payment
                  Date (the "DEFEASANCE DATE") on which the Defeasance Event is
                  to occur;

                        (ii) Borrower shall pay to Lender all accrued and unpaid
                  interest on the principal balance of the Loan to and including
                  the Defeasance Date. If for any reason the Defeasance Date is
                  not a Payment Date, the Borrower shall also pay interest that
                  would have accrued on the Note through and including the
                  Payment Date immediately preceding the next Payment Date,
                  provided, however, if the Defeasance Deposit shall include
                  short-term interest computed from the date of such prepayment
                  through to the next succeeding Payment Date, Borrower shall
                  not be required to pay such short term interest pursuant to
                  this sentence;

                                       26


                        (iii) Borrower shall pay to Lender all other sums, not
                  including scheduled interest or principal payments, then due
                  under the Note, this Agreement, the Mortgage and the other
                  Loan Documents;

                        (iv) Borrower shall pay to Lender the required
                  Defeasance Deposit for the Defeasance Event;

                        (v) Borrower shall execute and deliver a pledge and
                  security agreement, in form and substance that would be
                  reasonably satisfactory to a prudent lender creating a first
                  priority lien on the Defeasance Deposit and the U.S.
                  Obligations purchased with the Defeasance Deposit in
                  accordance with the provisions of this Section 2.5 (the
                  "Security Agreement");

                        (vi) Borrower shall deliver an opinion of counsel for
                  Borrower that is standard in commercial lending transactions
                  and subject only to customary qualifications, assumptions and
                  exceptions opining, among other things, that Borrower has
                  legally and validly transferred and assigned the U.S.
                  Obligations and all obligations, rights and duties under and
                  to the Note to the Successor Borrower, that Lender has a
                  perfected first priority security interest in the Defeasance
                  Deposit and the U.S. Obligations delivered by Borrower and
                  that any REMIC Trust formed pursuant to a Securitization will
                  not fail to maintain its status as a "real estate mortgage
                  investment conduit" within the meaning of Section 860D of the
                  Code as a result of such Defeasance Event;

                        (vii) Borrower shall deliver confirmation in writing
                  from each of the applicable Rating Agencies to the effect that
                  such release will not result in a downgrade, withdrawal or
                  qualification of the respective ratings in effect immediately
                  prior to such Defeasance Event for the Securities issued in
                  connection with the Securitization which are then outstanding.
                  If required by the applicable Rating Agencies, Borrower shall
                  also deliver or cause to be delivered an Additional Insolvency
                  Opinion with respect to the Successor Borrower in form and
                  substance satisfactory to Lender and the applicable Rating
                  Agencies;

                        (viii) Borrower shall deliver an Officer's Certificate
                  certifying that the requirements set forth in this Section
                  2.5.1(a) have been satisfied;

                        (ix) Borrower shall deliver a certificate of Borrower's
                  independent certified public accountant certifying that the
                  U.S. Obligations purchased with the Defeasance Deposit
                  generate monthly amounts equal to or greater than the
                  Scheduled Defeasance Payments;

                        (x) Borrower shall deliver such other certificates,
                  documents or instruments as Lender may reasonably request; and

                                       27


                        (xi) Borrower shall pay all costs and expenses of Lender
                  incurred in connection with the Defeasance Event, including
                  (A) any costs and expenses associated with a release of the
                  Lien of the Mortgage as provided in Section 2.6 hereof, (B)
                  reasonable attorneys' fees and expenses incurred in connection
                  with the Defeasance Event, (C) the costs and expenses of the
                  Rating Agencies, (D) any revenue, documentary stamp or
                  intangible taxes or any other tax or charge due in connection
                  with the transfer of the Note, or otherwise required to
                  accomplish the defeasance and (E) the costs and expenses of
                  Servicer and any trustee, including reasonable attorneys'
                  fees.

                  (b) In connection with the Defeasance Event, Borrower shall
use the Defeasance Deposit to purchase U.S. Obligations which provide payments
on or prior to, but as close as possible to, all successive scheduled Payment
Dates after the Defeasance Date upon which interest and principal payments are
required under this Agreement and the Note, and in amounts equal to the
scheduled payments due on such Payment Dates under this Agreement and the Note
(including, without limitation, scheduled payments of principal, interest,
servicing fees (if any), and any other amounts due under the Loan Documents on
such Payment Dates) and assuming the Note is prepaid in full on the Anticipated
Repayment Date (the "Scheduled Defeasance Payments"). Borrower, pursuant to the
Security Agreement or other appropriate document, shall authorize and direct
that the payments received from the U.S. Obligations may be made directly to the
Lockbox Account (unless otherwise directed by Lender) and applied to satisfy the
Debt Service obligations of Borrower under this Agreement and the Note. Any
portion of the Defeasance Deposit in excess of the amount necessary to purchase
the U.S. Obligations required by this Section 2.5 and satisfy Borrower's other
obligations under this Section 2.5 and Section 2.6 shall be remitted to
Borrower.

                  2.5.2 COLLATERAL. Each of the U.S. Obligations that are part
of the defeasance collateral shall be duly endorsed by the holder thereof as
directed by Lender or accompanied by a written instrument of transfer in form
and substance that would be satisfactory to a prudent lender (including, without
limitation, such instruments as may be required by the depository institution
holding such securities or by the issuer thereof, as the case may be, to
effectuate book-entry transfers and pledges through the book-entry facilities of
such institution) in order to perfect upon the delivery of the defeasance
collateral a first priority security interest therein in favor of Lender in
conformity with all applicable state and federal laws governing the granting of
such security interests.

                  2.5.3 SUCCESSOR BORROWER. In connection with any Defeasance
Event, Borrower shall establish a successor entity (the "SUCCESSOR BORROWER")
designated by Lender in its sole discretion, which shall be a Special Purpose
Entity, which shall not own any other assests or have any other liabilities or
operate other property (except in connection with other defeased loans held in
the same securitized loan pool with the Loan). Borrower shall transfer and
assign all obligations, rights and duties under and to the Note, together with
the pledged U.S. Obligations to such Successor Borrower. Such Successor Borrower
shall assume the obligations under the Note and the Security Agreement and
Borrower shall be relieved of its obligations under such documents. Borrower
shall pay One Thousand and 00/100 Dollars ($1,000) to any such Successor
Borrower as consideration for assuming the obligations under the Note and the
Security Agreement. Notwithstanding anything in this Agreement to the contrary,
no other assumption fee shall be payable upon a transfer of the Note in
accordance with this Section 2.5.3, but Borrower shall pay all costs and
expenses incurred by Lender, including Lender's attorneys' fees and expenses and
any fees and expenses of any Rating Agencies, incurred in connection therewith.

                                       28


                  SECTION 2.6 RELEASE OF PROPERTY. Except as set forth in this
Section 2.6, no repayment, prepayment or defeasance of all or any portion of the
Loan shall cause, give rise to a right to require, or otherwise result in, the
release of the Lien of the Mortgage on the Property.

                  2.6.1 RELEASE OF PROPERTY.

                  (a) If Borrower has elected to defease the entire Loan and the
requirements of Section 2.5 and this Section 2.6 have been satisfied, all of the
Property shall be released from the Lien of the Mortgage and the U.S.
Obligations, pledged pursuant to the Security Agreement, shall be the sole
source of collateral securing the Note.

                  (b) In connection with the release of the Mortgage, Borrower
shall submit to Lender, not less than thirty (30) days prior to the Defeasance
Date, a release of Lien (and related Loan Documents) for the Property for
execution by Lender. Such release shall be in a form appropriate in the
jurisdiction in which the Property is located and that would be satisfactory to
a prudent lender and contains standard provisions, if any, protecting the rights
of the releasing lender . In addition, Borrower shall provide all other
documentation Lender reasonably requires to be delivered by Borrower in
connection with such release, together with an Officer's Certificate certifying
that such documentation (i) is in compliance with all Legal Requirements, and
(ii) will effect such releases in accordance with the terms of this Agreement.

                  2.6.2 RELEASE ON PAYMENT IN FULL. Lender shall, upon the
written request and at the expense of Borrower, upon payment in full of all
principal and interest due on the Loan and all other amounts due and payable
under the Loan Documents in accordance with the terms and provisions of the Note
and this Agreement, release the Lien of the Mortgage on the Property.

                  SECTION 2.7 LOCKBOX ACCOUNT/CASH MANAGEMENT.

                  2.7.1 LOCKBOX ACCOUNT/CASH MANAGEMENT. (a) During the term of
the Loan, Borrower shall establish and maintain an account (the "LOCKBOX
ACCOUNT") with Lockbox Bank in trust for the benefit of Lender, which Lockbox
Account shall be under the sole dominion and control of Lender. The Lockbox
Account shall be entitled "RP Elmwood Associates, L.P., as Borrower and Bear
Stearns Commercial Mortgage, Inc., as Lender, pursuant to Loan Agreement dated
as of December 9, 2005 - Lockbox Account". Borrower hereby grants to Lender a
first-priority security interest in the Lockbox Account and all deposits at any
time contained therein and the proceeds thereof and will take all actions
necessary to maintain in favor of Lender a perfected first priority security
interest in the Lockbox Account, including, without limitation, executing and
filing UCC-1 Financing Statements and continuations thereof. Lender and Servicer
shall have the sole right to make withdrawals from the Lockbox Account and all
costs and expenses for establishing and maintaining the Lockbox Account shall be
paid by Borrower. All monies now or hereafter deposited into the Lockbox Account
shall be deemed additional security for the Debt.

                                       29


                  (b) Borrower shall, or shall cause Manager, if any, to,
deliver irrevocable written instructions to all tenants under Leases to deliver
all Rents payable thereunder directly to the Lockbox Account. Borrower shall,
and shall cause Manager, if any, to, deposit all amounts received by Borrower or
Manager, if any, constituting Rents into the Lockbox Account within one (1)
Business Day after receipt thereof.

                  (c) Borrower shall obtain from Lockbox Bank its agreement to
transfer to the Cash Management Account in immediately available funds by
federal wire transfer all amounts on deposit in the Lockbox Account once every
Business Day throughout the term of the Loan.

                  (d) Upon the occurrence of an Event of Default, Lender may, in
addition to any and all other rights and remedies available to Lender, apply any
sums then present in the Lockbox Account to the payment of the Debt in any order
in its sole discretion.

                  (e) The Lockbox Account shall be an Eligible Account and shall
not be commingled with other monies held by Borrower or Lockbox Bank.

                  (f) Borrower shall not further pledge, assign or grant any
security interest in the Lockbox Account or the monies deposited therein or
permit any lien or encumbrance to attach thereto, or any levy to be made
thereon, or any UCC-1 Financing Statements, except those naming Lender as the
secured party, to be filed with respect thereto.

                  (g) Borrower shall indemnify Lender and hold Lender harmless
from and against any and all actions, suits, claims, demands, liabilities,
losses, damages, obligations and costs and expenses (including litigation costs
and reasonable attorneys fees and expenses) arising from or in any way connected
with the Lockbox Account and/or the Lockbox Agreement (unless arising from the
gross negligence or willful misconduct of Lender) or the performance of the
obligations for which the Lockbox Account was established.

                  2.7.2 CASH MANAGEMENT ACCOUNT. (a) During the term of the
Loan, Borrower shall establish and maintain a segregated Eligible Account (the
"CASH MANAGEMENT ACCOUNT") to be held by Agent in trust and for the benefit of
Lender, which Cash Management Account shall be under the sole dominion and
control of Lender. The Cash Management Account shall be entitled "RP Elmwood
Associates, L.P., as Borrower and Bear Stearns Commercial Mortgage, Inc., as
Lender, pursuant to Loan Agreement dated as of December 9, 2005 - Cash
Management Account." Borrower hereby grants to Lender a first priority security
interest in the Cash Management Account and all deposits at any time contained
therein and the proceeds thereof and will take all actions necessary to maintain
in favor of Lender a perfected first priority security interest in the Cash
Management Account, including, without limitation, executing and filing UCC-1
Financing Statements and continuations thereof. Borrower will not in any way
alter or modify the Cash Management Account and will notify Lender of the
account number thereof. Lender and Servicer shall have the sole right to make
withdrawals from the Cash Management Account and all costs and expenses for
establishing and maintaining the Cash Management Account shall be paid by
Borrower.

                  (b) The insufficiency of funds on deposit in the Cash
Management Account shall not relieve Borrower from the obligation to make any
payments, as and when due pursuant to this Agreement and the other Loan
Documents, and such obligations shall be separate and independent, and not
conditioned on any event or circumstance whatsoever.

                                       30


                  (c) All funds on deposit in the Cash Management Account
following the occurrence of an Event of Default may be applied by Lender in such
order and priority as Lender shall determine.

                  (d) Borrower hereby agrees that Lender may modify the Cash
Management Agreement for the purpose of establishing additional sub-accounts in
connection with any payments otherwise required under this Agreement and the
other Loan Documents and Lender shall provide notice thereof to Borrower.

                  2.7.3 PAYMENTS RECEIVED UNDER THE CASH MANAGEMENT AGREEMENT.
Notwithstanding anything to the contrary contained in this Agreement or the
other Loan Documents, and provided no Event of Default has occurred and is
continuing, Borrower's obligations with respect to the payment of the Monthly
Debt Service Payment Amount and amounts required to be deposited into the
Reserve Funds, if any, shall be deemed satisfied to the extent sufficient
amounts are deposited in the Cash Management Account to satisfy such obligations
pursuant to the Cash Management Agreement on the dates each such payment is
required, regardless of whether any of such amounts are so applied by Lender.

                  III. CONDITIONS PRECEDENT

                  SECTION 3.1 CONDITIONS PRECEDENT TO CLOSING. The obligation of
Lender to make the Loan hereunder is subject to the fulfillment by Borrower or
waiver by Lender of the following conditions precedent no later than the Closing
Date:

                  3.1.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH
CONDITIONS. The representations and warranties of Borrower contained in this
Agreement and the other Loan Documents shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if made on and as
of such date, and no Default or an Event of Default shall have occurred and be
continuing; and Borrower shall be in compliance in all material respects with
all terms and conditions set forth in this Agreement and in each other Loan
Document on its part to be observed or performed.

                  3.1.2 LOAN AGREEMENT AND NOTE. Lender shall have received a
copy of this
Agreement and the Note, in each case, duly executed and delivered on behalf of
Borrower.

                  3.1.3 DELIVERY OF LOAN DOCUMENTS; TITLE INSURANCE; REPORTS;
LEASES.

                  (a) MORTGAGE, ASSIGNMENT OF LEASES. Lender shall have received
from Borrower fully executed and acknowledged counterparts of the Mortgage and
the Assignment of Leases and evidence that counterparts of the Mortgage and
Assignment of Leases have been delivered to the title company for recording, in
the reasonable judgment of Lender, so as to effectively create upon such
recording valid and enforceable Liens upon the Property, of the requisite
priority, in favor of Lender or Lender's nominee (or such other trustee as may
be required or desired under local law), subject only to the Permitted
Encumbrances and such other Liens as are permitted pursuant to the Loan
Documents. Lender shall have also received from Borrower fully executed
counterparts of the other Loan Documents.

                                       31


                  (b) TITLE INSURANCE. Lender shall have received the Title
Insurance Policy issued by a title company acceptable to Lender and dated as of
the Closing Date, with reinsurance and direct access agreements acceptable to
Lender. Such Title Insurance Policy shall (i) provide coverage in amounts
satisfactory to Lender, (ii) insure Lender that the Mortgage creates a valid
lien on the Property of the requisite priority, free and clear of all exceptions
from coverage other than Permitted Encumbrances and standard exceptions and
exclusions from coverage (as modified by the terms of any endorsements), (iii)
contain such endorsements and affirmative coverages as Lender may reasonably
request, and (iv) name Lender as the insured. The Title Insurance Policy shall
be assignable. Lender also shall have received evidence that all premiums in
respect of such Title Insurance Policy have been paid.

                  (c) SURVEY. Lender shall have received a current title survey
for the Property, certified to the title company and Lender and their successors
and assigns, in form and content satisfactory to Lender and prepared by a
professional and properly licensed land surveyor satisfactory to Lender in
accordance with the Accuracy Standards for ALTA/ACSM Land Title Surveys as
adopted by American Land Title Association, American Congress on Surveying &
Mapping and National Society of Professional Surveyors in 1999. The survey shall
reflect the same legal description contained in the Title Insurance Policy
referred to in clause (b) above and shall include, among other things, a metes
and bounds description of the real property comprising part of the Property
reasonably satisfactory to Lender. The surveyor's seal shall be affixed to the
survey and the surveyor shall provide a certification for the survey in form and
substance acceptable to Lender.

                  (d) INSURANCE. Lender shall have received valid certificates
of insurance for the policies of insurance required hereunder, satisfactory to
Lender in its sole discretion, and evidence of the payment of all premiums
payable for the existing policy period.

                  (e) ENVIRONMENTAL REPORTS. Lender shall have received a Phase
I environmental report (and, if recommended by the Phase I environmental report,
a Phase II environmental report) in respect of the Property, in each case
satisfactory in form and substance to Lender.

                  (f) ZONING. Lender shall have received, at Lender's option,
(i) letters or other evidence with respect to the Property from the appropriate
municipal authorities (or other Persons) concerning applicable zoning and
building laws, and (ii) either (A) an ALTA 3.1 zoning endorsement for the
applicable Title Insurance Policy or (B) a zoning opinion letter, in each case
in substance reasonably satisfactory to Lender.

                  (g) ENCUMBRANCES. Borrower shall have taken or caused to be
taken such actions in such a manner so that Lender has a valid and perfected
first priority Lien as of the Closing Date with respect to the Mortgage, subject
only to applicable Permitted Encumbrances and such other Liens as are permitted
pursuant to the Loan Documents, and Lender shall have received satisfactory
evidence thereof.

                                       32


                  3.1.4 RELATED DOCUMENTS. Each additional document not
specifically referenced herein, but relating to the transactions contemplated
herein, shall be in form and substance reasonably satisfactory to Lender, and
shall have been duly authorized, executed and delivered by all parties thereto
and Lender shall have received and approved certified copies thereof.

                  3.1.5 DELIVERY OF ORGANIZATIONAL DOCUMENTS. On or before the
Closing Date, Borrower shall deliver or cause to be delivered to Lender copies
certified by Borrower of all organizational documentation related to Borrower
and/or the formation, structure, existence, good standing and/or qualification
to do business, as Lender may request in its sole discretion, including, without
limitation, amendments (as requested by Lender), good standing certificates,
qualifications to do business in the appropriate jurisdictions, resolutions
authorizing the entering into of the Loan and incumbency certificates as may be
requested by Lender.

                  3.1.6 OPINIONS OF BORROWER'S COUNSEL. Lender shall have
received opinions from Borrower's counsel (a) the Insolvency Opinion, and (b)
with respect to due execution, authority, enforceability of the Loan Documents
and such other matters as Lender may require, all such opinions in form, scope
and substance satisfactory to Lender and Lender's counsel in their sole
discretion.

                  3.1.7 BUDGETS. Borrower shall have delivered, and Lender shall
have approved, the Annual Budget for the current Fiscal Year.

                  3.1.8 BASIC CARRYING COSTS. Borrower shall have paid all Basic
Carrying Costs relating to the Property which are in arrears, including without
limitation, (a) accrued but unpaid Insurance Premiums due pursuant to the
Policies, (b) currently due Taxes (including any in arrears) relating to the
Property, and (c) currently due Other Charges relating to the Property, which
amounts shall be funded with proceeds of the Loan.

                  3.1.9 COMPLETION OF PROCEEDINGS. All organizational and other
proceedings taken or to be taken in connection with the transactions
contemplated by this Agreement and other Loan Documents and all documents
incidental thereto shall be satisfactory in form and substance to Lender, and
Lender shall have received all such counterpart originals or certified copies of
such documents as Lender may reasonably request.

                  3.1.10 PAYMENTS. All payments, deposits or escrows required to
be made or established by Borrower under this Agreement, the Note and the other
Loan Documents on or before the Closing Date shall have been paid.

                  3.1.11 TENANT ESTOPPELS. Lender shall have received an
executed tenant estoppel letter, which shall be in form and substance
satisfactory to Lender, from (a) each tenant identified by Lender as an "anchor
tenant" of the Property, (b) each tenant leasing an entire building at the
Property, (c) each tenant paying base rent in an amount equal to or exceeding
five percent (5%) of the Gross Income from Operations from the Property occupied
by such tenant and (d) disregarding the area leased by those described in
clauses (a), (b) and (c), lessees of not less than seventy-five percent (75%) of
the remaining gross leasable area of the Property.

                                       33


                  3.1.12 TRANSACTION COSTS. Borrower shall have paid or
reimbursed Lender for all title insurance premiums, recording and filing fees,
costs of environmental reports, Physical Conditions Report, appraisals and other
reports, the fees and costs of Lender's counsel and all other third party
out-of-pocket expenses incurred in connection with the origination and closing
of the Loan.

                  3.1.13 MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change in the financial condition or business condition of
Borrower, Principal, Guarantor or the Property since the date of the most recent
financial statements delivered to Lender. The income and expenses of the
Property, the occupancy thereof, and all other features of the transaction shall
be as represented to Lender without material adverse change. Neither Borrower,
Principal, Guarantor nor any of their respective constituent Persons shall be
the subject of any bankruptcy, reorganization, or insolvency proceeding.

                  3.1.14 LEASES AND RENT ROLL. Lender shall have received copies
of all tenant leases, which tenant leases shall be certified by Borrower as
being true, correct and complete and certified copies of all ground leases
affecting the Property, if any. Lender shall have received a current certified
rent roll of the Property, reasonably satisfactory in form and substance to
Lender.

                  3.1.15 SUBORDINATION AND ATTORNMENT. Lender shall have
received appropriate instruments acceptable to Lender subordinating all of the
Leases designated by Lender to the Mortgage. Lender shall have received an
agreement to attorn to Lender satisfactory to Lender from any tenant under a
Lease that does not provide for such attornment by its terms.

                  3.1.16 TAX LOT. Lender shall have received evidence that the
Property constitutes one (1) or more separate tax lots, which evidence shall be
reasonably satisfactory in form and substance to Lender.

                  3.1.17 PHYSICAL CONDITIONS REPORT. Lender shall have received
a Physical Conditions Report with respect to the Property, which report shall be
issued by an engineer selected by Lender and shall be reasonably satisfactory in
form and substance to Lender.

                  3.1.18 INTENTIONALLY OMITTED.

                  3.1.19 APPRAISAL. Lender shall have received an appraisal of
the Property, from an appraiser selected by Lender, which appraisal shall be
satisfactory in form and substance to Lender.

                  3.1.20 FINANCIAL STATEMENTS. Lender shall have received a
balance sheet with respect to the Property for the two (2) most recent Fiscal
Years and statements of income and statements of cash flows with respect to the
Property for the three (3) most recent Fiscal Years, each in form and substance
satisfactory to Lender.

                  3.1.21 FURTHER DOCUMENTS. Lender or its counsel shall have
received such other documents and further approvals, opinions, documents and
information as Lender or its counsel may have reasonably requested including the
Loan Documents in form and substance satisfactory to Lender and its counsel.

                                       34


                  IV. REPRESENTATIONS AND WARRANTIES

                  SECTION 4.1 BORROWER REPRESENTATIONS. Borrower represents and
warrants as of the date hereof and as of the Closing Date that:

                  4.1.1 ORGANIZATION. Borrower has been duly organized and is
validly existing and in good standing with requisite power and authority to own
its properties and to transact the businesses in which it is now engaged.
Borrower is duly qualified to do business and is in good standing in each
jurisdiction where it is required to be so qualified in connection with its
properties, businesses and operations. Borrower possesses all rights, licenses,
permits and authorizations, governmental or otherwise, necessary to entitle it
to own its properties and to transact the businesses in which it is now engaged,
and the sole business of Borrower is the ownership, management and operation of
the Property. The ownership interests in Borrower are as set forth on the
organizational chart attached hereto as Schedule III.

                  4.1.2 PROCEEDINGS. Borrower has taken all necessary action to
authorize the execution, delivery and performance of this Agreement and the
other Loan Documents. This Agreement and such other Loan Documents have been
duly executed and delivered by or on behalf of Borrower and constitute legal,
valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms, subject only to applicable bankruptcy,
insolvency and similar laws affecting rights of creditors generally, and
subject, as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).

                  4.1.3 NO CONFLICTS. The execution, delivery and performance of
this Agreement and the other Loan Documents by Borrower will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any of the property
or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, partnership agreement, management agreement or other
agreement or instrument to which Borrower is a party or by which any of
Borrower's property or assets is subject, nor will such action result in any
violation of the provisions of any statute or any order, rule or regulation of
any Governmental Authority having jurisdiction over Borrower or any of
Borrower's properties or assets, and any consent, approval, authorization,
order, registration or qualification of or with any court or any such
Governmental Authority required for the execution, delivery and performance by
Borrower of this Agreement or any other Loan Documents has been obtained and is
in full force and effect.

                  4.1.4 LITIGATION. There are no actions, suits or proceedings
at law or in equity by or before any Governmental Authority or other agency now
pending or threatened against or affecting Borrower, Guarantor, Principal or the
Property, which actions, suits or proceedings, if determined against Borrower,
Guarantor, Principal or the Property, might materially adversely affect the
condition (financial or otherwise) or business of Borrower, Guarantor, Principal
or the condition or ownership of the Property.

                                       35


                  4.1.5 AGREEMENTS. Borrower is not a party to any agreement or
instrument or subject to any restriction which might materially and adversely
affect Borrower or the Property, or Borrower's business, properties or assets,
operations or condition, financial or otherwise. Borrower is not in default in
any material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument to
which it is a party or by which Borrower or the Property is bound. Borrower has
no material financial obligation under any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which Borrower is a party or
by which Borrower or the Property is otherwise bound, other than (a) obligations
incurred in the ordinary course of the operation of the Property as permitted
pursuant to clause (xxiii) of the definition of "Special Purpose Entity" set
forth in Section 1.1 hereof and (b) obligations under the Loan Documents.

                  4.1.6 TITLE. Borrower has good, marketable and insurable fee
simple title to the real property comprising part of the Property and good title
to the balance of the Property, free and clear of all Liens whatsoever except
the Permitted Encumbrances, such other Liens as are permitted pursuant to the
Loan Documents and the Liens created by the Loan Documents. The Permitted
Encumbrances in the aggregate do not materially and adversely affect the value,
operation or use of the Property (as currently used) or Borrower's ability to
repay the Loan. The Mortgage, when properly recorded in the appropriate records,
together with any Uniform Commercial Code financing statements required to be
filed in connection therewith, will create (a) a valid, perfected first priority
lien on the Property, subject only to Permitted Encumbrances and the Liens
created by the Loan Documents and (b) perfected security interests in and to,
and perfected collateral assignments of, all personalty (including the Leases),
all in accordance with the terms thereof, in each case subject only to any
applicable Permitted Encumbrances, such other Liens as are permitted pursuant to
the Loan Documents and the Liens created by the Loan Documents. There are no
claims for payment for work, labor or materials affecting the Property which are
or may become a Lien prior to, or of equal priority with, the Liens created by
the Loan Documents.

                  4.1.7 SOLVENCY. Borrower has (a) not entered into this
transaction or executed the Note, this Agreement or any other Loan Documents
with the actual intent to hinder, delay or defraud any creditor and (b) received
reasonably equivalent value in exchange for its obligations under such Loan
Documents. Giving effect to the Loan, the fair saleable value of Borrower's
assets exceeds and will, immediately following the making of the Loan, exceed
Borrower's total liabilities, including, without limitation, subordinated,
unliquidated, disputed and contingent liabilities. The fair saleable value of
Borrower's assets is and will, immediately following the making of the Loan, be
greater than Borrower's probable liabilities, including the maximum amount of
its contingent liabilities on its debts as such debts become absolute and
matured. Borrower's assets do not and, immediately following the making of the
Loan will not, constitute unreasonably small capital to carry out its business
as conducted or as proposed to be conducted. Borrower does not intend to, and
does not believe that it will, incur debt and liabilities (including contingent
liabilities and other commitments) beyond its ability to pay such debt and
liabilities as they mature (taking into account the timing and amounts of cash
to be received by Borrower and the amounts to be payable on or in respect of
obligations of Borrower). No petition in bankruptcy has been filed against
Borrower or any constituent Person in the last seven (7) years, and neither
Borrower nor any constituent Person in the last seven (7) years has ever made an
assignment for the benefit of creditors or taken advantage of any insolvency act
for the benefit of debtors. Neither Borrower nor any of its constituent Persons
are contemplating either the filing of a petition by it under any state or
federal bankruptcy or insolvency laws or the liquidation of all or a major
portion of Borrower's assets or property, and Borrower has no knowledge of any
Person contemplating the filing of any such petition against it or such
constituent Persons.

                                       36


                  4.1.8 FULL AND ACCURATE DISCLOSURE. No statement of fact made
by Borrower in this Agreement or in any of the other Loan Documents contains any
untrue statement of a material fact or omits to state any material fact
necessary to make statements contained herein or therein not misleading. There
is no material fact presently known to Borrower which has not been disclosed to
Lender which adversely affects, nor as far as Borrower can foresee, might
adversely affect, the Property or the business, operations or condition
(financial or otherwise) of Borrower.

                  4.1.9 NO PLAN ASSETS. Borrower does not sponsor, is not
obligated to contribute to, and is not itself an "employee benefit plan," as
defined in Section 3(3) of ERISA, subject to Title I of ERISA or Section 4975 of
the Code, and none of the assets of Borrower constitutes or will constitute
"plan assets" of one or more such plans within the meaning of 29 C.F.R. Section
2510.3-101. In addition, (a) Borrower is not a "governmental plan" within the
meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower are
not subject to any state or other statute , regulation or other restriction
regulating investments of, or fiduciary obligations with respect to,
governmental plans within the meaning of Section 3(32) of ERISA which is similar
to the provisions of Section 406 of ERISA or Section 4975 of the Code and which
prohibit or otherwise restrict the transactions contemplated by this Agreement,
including but not limited to the exercise by Lender of any of its rights under
the Loan Documents.

                  4.1.10 COMPLIANCE. Borrower and the Property and the use
thereof comply in all material respects with all applicable Legal Requirements,
including, without limitation, building and zoning ordinances and codes.
Borrower is not in default or violation of any order, writ, injunction, decree
or demand of any Governmental Authority. There has not been committed by
Borrower or any other Person in occupancy of or involved with the operation or
use of the Property any act or omission affording the federal government or any
other Governmental Authority the right of forfeiture as against the Property or
any part thereof or any monies paid in performance of Borrower's obligations
under any of the Loan Documents.

                  4.1.11 FINANCIAL INFORMATION. All financial data, including,
without limitation, the statements of cash flow and income and operating
expense, that have been delivered to Lender in connection with the Loan (i) are
true, complete and correct in all material respects, (ii) accurately represent
the financial condition of Borrower and the Property, as applicable, as of the
date of such reports, and (iii) to the extent prepared or audited by an
independent certified public accounting firm, have been prepared in accordance
with GAAP throughout the periods covered, except as disclosed therein. Except
for Permitted Encumbrances, Borrower does not have any contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments that are known to Borrower
and reasonably likely to have a materially adverse effect on the Property or the
operation thereof as a shopping center, except as referred to or reflected in
said financial statements. Since the date of such financial statements, there
has been no materially adverse change in the financial condition, operations or
business of Borrower from that set forth in said financial statements.

                                       37


                  4.1.12 CONDEMNATION. No Condemnation or other similar
proceeding has been commenced or, to Borrower's best knowledge, is threatened or
contemplated with respect to all or any portion of the Property or for the
relocation of roadways providing access to the Property.

                  4.1.13 FEDERAL RESERVE REGULATIONS. No part of the proceeds of
the Loan will be used for the purpose of purchasing or acquiring any "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System or for any other purpose which would be inconsistent with
such Regulation U or any other Regulations of such Board of Governors, or for
any purposes prohibited by Legal Requirements or by the terms and conditions of
this Agreement or the other Loan Documents.

                  4.1.14 UTILITIES AND PUBLIC ACCESS. The Property has rights of
access to public ways and is served by water, sewer, sanitary sewer and storm
drain facilities adequate to service the Property for its intended uses. All
public utilities necessary or convenient to the full use and enjoyment of the
Property are located either in the public right-of-way abutting the Property
(which are connected so as to serve the Property without passing over other
property) or in recorded easements serving the Property and such easements are
set forth in and insured by the Title Insurance Policy. All roads necessary for
the use of the Property for its current purposes have been completed and
dedicated to public use and accepted by all Governmental Authorities.

                  4.1.15 NOT A FOREIGN PERSON. Borrower is not a "foreign
person" within the meaning of ss.1445(f)(3) of the Code.

                  4.1.16 SEPARATE LOTS. The Property is comprised of one (1) or
more parcels which constitute a separate tax lot or lots and does not constitute
a portion of any other tax lot not a part of the Property.

                  4.1.17 ASSESSMENTS. There are no pending or proposed special
or other assessments for public improvements or otherwise affecting the
Property, nor are there any contemplated improvements to the Property that may
result in such special or other assessments.

                  4.1.18 ENFORCEABILITY. The Loan Documents are not subject to
any right of rescission, set-off, counterclaim or defense by Borrower or
Guarantor, including the defense of usury, nor would the operation of any of the
terms of the Loan Documents, or the exercise of any right thereunder, render the
Loan Documents unenforceable (subject to principles of equity and bankruptcy,
insolvency and other laws generally affecting creditors' rights and the
enforcement of debtors' obligations), and neither Borrower nor Guarantor have
asserted any right of rescission, set-off, counterclaim or defense with respect
thereto.

                  4.1.19 NO PRIOR ASSIGNMENT. There are no prior assignments of
the Leases or any portion of the Rents due and payable or to become due and
payable which are presently outstanding.

                  4.1.20 INSURANCE. Borrower has obtained and has delivered to
Lender certified copies of the Policies reflecting the insurance coverages,
amounts and other requirements set forth in this Agreement. No claims have been
made or are currently pending, outstanding or otherwise remain unsatisfied under
any such Policy, and neither Borrower nor any other Person, has done, by act or
omission, anything which would impair the coverage of any such Policy.

                                       38


                  4.1.21 USE OF PROPERTY. The Property is used exclusively for
retail shopping center purposes and other appurtenant and related uses.

                  4.1.22 CERTIFICATE OF OCCUPANCY; LICENSES. All certifications,
permits, licenses and approvals, including without limitation, certificates of
completion and occupancy permits required for the legal use, occupancy and
operation of the Property as a retail shopping center (collectively, the
"LICENSES"), have been obtained and are in full force and effect. Borrower shall
keep and maintain all Licenses necessary for the operation of the Property as a
retail shopping center with related retail uses. The use being made of the
Property is in conformity with the certificate of occupancy issued for the
Property.

                  4.1.23 FLOOD ZONE. None of the Improvements on the Property
are located in an area as identified by the Federal Emergency Management Agency
as an area having special flood hazards and, if so located, the flood insurance
required pursuant to Section 6.1(a)(i) is in full force and effect with respect
to the Property.

                  4.1.24 PHYSICAL CONDITION. The Property, including, without
limitation, all buildings, improvements, parking facilities, sidewalks, storm
drainage systems, roofs, plumbing systems, HVAC systems, fire protection
systems, electrical systems, equipment, elevators, exterior sidings and doors,
landscaping, irrigation systems and all structural components, are in good
condition, order and repair in all material respects; there exists no structural
or other material defects or damages in the Property, whether latent or
otherwise, and Borrower has not received notice from any insurance company or
bonding company of any defects or inadequacies in the Property, or any part
thereof, which would adversely affect the insurability of the same or cause the
imposition of extraordinary premiums or charges thereon or of any termination or
threatened termination of any policy of insurance or bond.

                  4.1.25 BOUNDARIES. All of the improvements which were included
in determining the appraised value of the Property lie wholly within the
boundaries and building restriction lines of the Property, and no improvements
on adjoining properties encroach upon the Property, and no easements or other
encumbrances upon the Property encroach upon any of the Improvements, so as to
affect the value or marketability of the Property except those which are insured
against by the Title Insurance Policy.

                  4.1.26 LEASES. The Property is not subject to any leases other
than the Leases described in the rent roll attached hereto as Schedule I and
made a part hereof. Borrower is the owner and lessor of landlord's interest in
the Leases. No Person has any possessory interest in the Property or right to
occupy the same except under and pursuant to the provisions of the Leases. The
current Leases are in full force and effect and there are no defaults thereunder
by either party and there are no conditions that, with the passage of time or
the giving of notice, or both, would constitute defaults thereunder. No Rent
(including security deposits) has been paid more than one (1) month in advance
of its due date. All work to be performed by Borrower under each Lease has been
performed as required and has been accepted by the applicable tenant, and any
payments, free rent, partial rent, rebate of rent or other payments, credits,
allowances or abatements required to be given by Borrower to any tenant has
already been received by such tenant. There has been no prior sale, transfer or
assignment, hypothecation or pledge of any Lease or of the Rents received
therein. No tenant listed on Schedule I has assigned its Lease or sublet all or
any portion of the premises demised thereby, no such tenant holds its leased
premises under assignment or sublease, nor does anyone except such tenant and
its employees occupy such leased premises. No tenant under any Lease has a right


                                       39


or option pursuant to such Lease or otherwise to purchase all or any part of the
leased premises or the building of which the leased premises are a part. No
tenant under any Lease has any right or option for additional space in the
Improvements. No hazardous wastes or toxic substances, as defined by applicable
federal, state or local statutes, rules and regulations, have been disposed,
stored or treated by any tenant under any Lease on or about the leased premises
nor does Borrower have any knowledge of any tenant's intention to use its leased
premises for any activity which, directly or indirectly, involves the use,
generation, treatment, storage, disposal or transportation of any petroleum
product or any toxic or hazardous chemical, material, substance or waste.

                  4.1.27 SURVEY. The Survey for the Property delivered to Lender
in connection with this Agreement has been prepared in accordance with the
provisions of Section 3.1.3(c) hereof, and does not fail to reflect any material
matter affecting the Property or the title thereto.

                  4.1.28 INVENTORY. Borrower is the owner of all of the
Equipment, Fixtures and Personal Property (as such terms are defined in the
Mortgage) located on or at the Property and shall not lease any Equipment,
Fixtures or Personal Property other than as permitted hereunder. All of the
Equipment, Fixtures and Personal Property are sufficient to operate the Property
in the manner required hereunder and in the manner in which it is currently
operated.

                  4.1.29 FILING AND RECORDING TAXES. All transfer taxes, deed
stamps, intangible taxes or other amounts in the nature of transfer taxes
required to be paid by any Person under applicable Legal Requirements currently
in effect in connection with the transfer of the Property to Borrower have been
paid. All mortgage, mortgage recording, stamp, intangible or other similar tax
required to be paid by any Person under applicable Legal Requirements currently
in effect in connection with the execution, delivery, recordation, filing,
registration, perfection or enforcement of any of the Loan Documents, including,
without limitation, the Mortgage, have been paid, and, under current Legal
Requirements, the Mortgage is enforceable in accordance with its terms by Lender
(or any subsequent holder thereof), subject to principles of equity and
bankruptcy, insolvency and other laws generally applicable to creditors' rights
and the enforcement of debtors' obligations.

                  4.1.30 SPECIAL PURPOSE ENTITY/SEPARATENESS. (a) Until the Debt
has been paid in full, Borrower hereby represents, warrants and covenants that
(i) Borrower is, shall be and shall continue to be a Special Purpose Entity and
(ii) Principal is, shall be and shall continue to be a Special Purpose Entity.

                  (b) The representations, warranties and covenants set forth in
Section 4.1.30(a) shall survive for so long as any amount remains payable to
Lender under this Agreement or any other Loan Document.

                                       40


                  (c) All of the facts stated and all of the assumptions made in
the Insolvency Opinion, including, but not limited to, in any exhibits attached
thereto, are true and correct in all respects and all facts stated and all
assumptions made in any subsequent non-consolidation opinion required to be
delivered in connection with the Loan Documents (an "ADDITIONAL INSOLVENCY
OPINION"), including, but not limited to, any exhibits attached thereto, will
have been and shall be true and correct in all respects. Borrower has complied
and will comply with, and Principal has complied and Borrower will cause
Principal to comply with, all of the assumptions made with respect to Borrower
and Principal in the Insolvency Opinion. Borrower will have complied and will
comply with all of the assumptions made with respect to Borrower and Principal
in any Additional Insolvency Opinion. Each entity other than Borrower and
Principal with respect to which an assumption shall be made in any Additional
Insolvency Opinion will have complied and will comply with all of the
assumptions made with respect to it in any Additional Insolvency Opinion.

                  4.1.31 PROPERTY MANAGEMENT. As of the Closing Date, there is
no Management Agreement in effect with respect to, and no property management
fee is or will be owed or payable to any Person in connection with the
management of, the Property. The Property is managed solely by at will employees
of Borrower's affiliate (presently the Guarantor), and no Manager shall be
retained or appointed without the prior written consent of Lender. If such
consent is granted, (a) the Property will be managed at all times by such
Manager pursuant to a Management Agreement approved by Lender (unless terminated
as herein provided), and (b) Borrower shall (i) diligently perform all terms and
covenants of such Management Agreement, (ii) not surrender, terminate, cancel,
or materially modify such Management Agreement, (iii) not enter into any other
agreement relating to the management or operation of the Property with any other
Person, (iv) not consent to the assignment by such Manager of its interest under
such Management Agreement, or (v) not waive or release any of its rights and
remedies under such Management Agreement, in each case, without the consent of
Lender, which consent shall not be unreasonably withheld or delayed. If at any
time Lender consents to the appointment of a Manager, such Manager and Borrower
shall, as a condition to Lender's consent, execute a subordination of management
agreement in form and substance reasonably satisfactory to Lender.

                  4.1.32 ILLEGAL ACTIVITY. No portion of the Property has been
or will be purchased with proceeds of any illegal activity.

                  4.1.33 NO CHANGE IN FACTS OR CIRCUMSTANCES; DISCLOSURE. All
information submitted by and on behalf of Borrower to Lender and in all
financial statements, rent rolls (including the rent roll attached hereto as
Schedule I), reports, certificates and other documents submitted in connection
with the Loan or in satisfaction of the terms thereof and all statements of fact
made by Borrower in this Agreement or in any other Loan Document, are accurate,
complete and correct in all material respects. There has been no material
adverse change in any condition, fact, circumstance or event that would make any
such information inaccurate, incomplete or otherwise misleading in any material
respect or that otherwise materially and adversely affects or might materially
and adversely affect the use, operation or value of the Property or the business
operations or the financial condition of Borrower. Borrower has disclosed to
Lender all material facts and has not failed to disclose any material fact that
could cause any Provided Information or representation or warranty made herein
to be materially misleading.

                  4.1.34 INVESTMENT COMPANY ACT. Borrower is not (a) an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended; (b) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended; or (c)
subject to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.

                                       41


                  4.1.35 EMBARGOED PERSON. As of the date hereof and at all
times throughout the term of the Loan, including after giving effect to any
Transfers permitted pursuant to the Loan Documents, (a) none of the funds or
other assets of Borrower and Guarantor constitute property of, or are
beneficially owned, directly or indirectly, by any Embargoed Person; (b) no
Embargoed Person has any interest of any nature whatsoever in Borrower or
Guarantor, as applicable, with the result that the investment in Borrower or
Guarantor, as applicable (whether directly or indirectly), is prohibited by law
or the Loan is in violation of law; and (c) none of the funds of Borrower or
Guarantor, as applicable, have been derived from any unlawful activity with the
result that the investment in Borrower or Guarantor, as applicable (whether
directly or indirectly), is prohibited by law or the Loan is in violation of
law.

                  4.1.36 PRINCIPAL PLACE OF BUSINESS; STATE OF ORGANIZATION.
Borrower's principal place of business as of the date hereof is the address set
forth in the introductory paragraph of this Agreement. The Borrower is organized
under the laws of the State of Delaware.

                  4.1.37 LOAN TO VALUE. The maximum principal amount of the Loan
does not exceed eighty percent (80%) of the fair market value of the Property.

                  4.1.38 MORTGAGE TAXES. As of the date hereof, Borrower
represents that it has paid all state, county and municipal recording and all
other taxes imposed upon the execution and recordation of the Mortgage.

                  4.1.39 CASH MANAGEMENT ACCOUNT. Borrower hereby represents and
warrants to Lender that:

                  (a) This Agreement, together with the other Loan Documents,
create a valid and continuing security interest (as defined in the Uniform
Commercial Code of the State of New York) in the Lockbox Account and Cash
Management Account in favor of Lender, which security interest is prior to all
other Liens, other than Permitted Encumbrances, and is enforceable as such
against creditors of and purchasers from Borrower. Other than in connection with
the Loan Documents and except for Permitted Encumbrances, Borrower has not sold,
pledged, transferred or otherwise conveyed the Lockbox Account and Cash
Management Account;

                  (b) Each of the Lockbox Account and Cash Management Account
constitute "deposit accounts" and/or "securities accounts" within the meaning of
the Uniform Commercial Code of the State of New York);

                  (c) Pursuant and subject to the terms hereof and the other
applicable Loan Documents, the Lockbox Bank and Agent have agreed to comply with
all instructions originated by Lender, without further consent by Borrower,
directing disposition of the Lockbox Account and Cash Management Account and all
sums at any time held, deposited or invested therein, together with any interest
or other earnings thereon, and all proceeds thereof (including proceeds of sales
and other dispositions), whether accounts, general intangibles, chattel paper,
deposit accounts, instruments, documents or securities; and

                                       42


                  (d) The Lockbox Account and Cash Management Account are not in
the name of any Person other than Borrower, as pledgor, or Lender, as pledgee.
Borrower has not consented to the Lockbox Bank and Agent complying with
instructions with respect to the Lockbox Account and Cash Management Account
from any Person other than Lender.

                  SECTION 4.2 SURVIVAL OF REPRESENTATIONS. Borrower agrees that
all of the representations and warranties of Borrower set forth in Section 4.1
hereof and elsewhere in this Agreement and in the other Loan Documents shall
survive for so long as any amount remains owing to Lender under this Agreement
or any of the other Loan Documents by Borrower. All representations, warranties,
covenants and agreements made in this Agreement or in the other Loan Documents
by Borrower shall be deemed to have been relied upon by Lender notwithstanding
any investigation heretofore or hereafter made by Lender or on its behalf.

                  V. BORROWER COVENANTS

                  SECTION 5.1 AFFIRMATIVE COVENANTS. From the date hereof and
until payment and performance in full of all obligations of Borrower under the
Loan Documents or the earlier release of the Lien of the Mortgage encumbering
the Property (and all related obligations) in accordance with the terms of this
Agreement and the other Loan Documents, Borrower hereby covenants and agrees
with Lender that:

                  5.1.1 EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS. Borrower
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its existence, rights, licenses, permits and franchises
and comply with all Legal Requirements applicable to it and the Property. There
shall never be committed by Borrower, and Borrower shall never permit any other
Person in occupancy of or involved with the operation or use of the Property to
commit any act or omission affording the federal government or any state or
local government the right of forfeiture against the Property or any part
thereof or any monies paid in performance of Borrower's obligations under any of
the Loan Documents. Borrower hereby covenants and agrees not to commit, permit
or suffer to exist any act or omission affording such right of forfeiture.
Borrower shall at all times maintain, preserve and protect all franchises and
trade names and preserve all the remainder of its property used or useful in the
conduct of its business and shall keep the Property in good working order and
repair, and from time to time make, or cause to be made, all reasonably
necessary repairs, renewals, replacements, betterments and improvements thereto,
all as more fully provided in the Mortgage. Borrower shall keep the Property
insured at all times by financially sound and reputable insurers, to such extent
and against such risks, and maintain liability and such other insurance, as is
more fully provided in this Agreement. Borrower shall operate the Property in
accordance with the terms and provisions of the O&M Agreement in all material
respects. After prior written notice to Lender, Borrower, at its own expense,
may contest by appropriate legal proceeding promptly initiated and conducted in
good faith and with due diligence, the validity of any Legal Requirement, the
applicability of any Legal Requirement to Borrower or the Property or any
alleged violation of any Legal Requirement, provided that (i) no Default or
Event of Default has occurred and remains uncured; (ii) Borrower is permitted to
do so under the provisions of any mortgage or deed of trust superior in lien to
the Mortgage; (iii) such proceeding shall be permitted under and be conducted in
accordance with the provisions of any instrument to which Borrower is subject
and shall not constitute a default thereunder and such proceeding shall be
conducted in accordance with all applicable statutes, laws and ordinances; (iv)
neither the Property nor any part thereof or interest therein will be in danger
of being sold, forfeited, terminated, cancelled or lost; (v) Borrower shall


                                       43


promptly upon final determination thereof comply with any such Legal Requirement
determined to be valid or applicable or cure any violation of any Legal
Requirement; (vi) such proceeding shall suspend the enforcement of the contested
Legal Requirement against Borrower or the Property; and (vii) Borrower shall
furnish such security as may be required in the proceeding, or as may be
requested by Lender, to insure compliance with such Legal Requirement, together
with all interest and penalties payable in connection therewith. Lender may
apply any such security, as necessary to cause compliance with such Legal
Requirement at any time when, in the reasonable judgment of Lender, the
validity, applicability or violation of such Legal Requirement is finally
established or the Property (or any part thereof or interest therein) shall be
in danger of being sold, forfeited, terminated, cancelled or lost.

                  5.1.2 TAXES AND OTHER CHARGES. Borrower shall pay all Taxes
and Other Charges now or hereafter levied or assessed or imposed against the
Property or any part thereof as the same become due and payable; provided,
however, Borrower's obligation to directly pay Taxes shall be suspended for so
long as Borrower complies with the terms and provisions of Section 7.2 hereof.
Borrower will deliver to Lender receipts for payment or other evidence
satisfactory to Lender that the Taxes and Other Charges have been so paid or are
not then delinquent no later than ten (10) days prior to the date on which the
Taxes and/or Other Charges would otherwise be delinquent if not paid. Borrower
shall furnish to Lender receipts for the payment of the Taxes and the Other
Charges prior to the date the same shall become delinquent (provided, however,
Borrower is not required to furnish such receipts for payment of Taxes in the
event that such Taxes have been paid by Lender pursuant to Section 7.2 hereof).
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, and shall promptly pay for all utility services provided to the
Property. After prior written notice to Lender, Borrower, at its own expense,
may contest by appropriate legal proceeding, promptly initiated and conducted in
good faith and with due diligence, the amount or validity or application in
whole or in part of any Taxes or Other Charges, provided that (i) no Default or
Event of Default has occurred and remains uncured; (ii) Borrower is permitted to
do so under the provisions of any mortgage or deed of trust superior in lien to
the Mortgage; (iii) such proceeding shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which Borrower is
subject and shall not constitute a default thereunder and such proceeding shall
be conducted in accordance with all applicable statutes, laws and ordinances;
(iv) neither the Property nor any part thereof or interest therein will be in
danger of being sold, forfeited, terminated, cancelled or lost; (v) Borrower
shall promptly upon final determination thereof pay the amount of any such Taxes
or Other Charges, together with all costs, interest and penalties which may be
payable in connection therewith; (vi) such proceeding shall suspend the
collection of such contested Taxes or Other Charges from the Property; and (vii)
Borrower shall furnish such security as may be required in the proceeding, or as
may be requested by Lender, to insure the payment of any such Taxes or Other
Charges, together with all interest and penalties thereon. Lender may pay over
any such cash deposit or part thereof held by Lender to the claimant entitled
thereto at any time when, in the judgment of Lender, the entitlement of such
claimant is established or the Property (or part thereof or interest therein)
shall be in danger of being sold, forfeited, terminated, cancelled or lost or
there shall be any danger of the Lien of the Mortgage being primed by any
related Lien.

                                       44


                  5.1.3 LITIGATION. Borrower shall give prompt written notice to
Lender of any litigation or governmental proceedings pending or threatened
against Borrower and/or Guarantor which might materially adversely affect
Borrower's or Guarantor's condition (financial or otherwise) or business or the
Property.

                  5.1.4 ACCESS TO PROPERTY. Borrower shall permit agents,
representatives and employees of Lender to inspect the Property or any part
thereof at reasonable hours upon reasonable advance notice.

                  5.1.5 NOTICE OF DEFAULT. Borrower shall promptly advise Lender
of any material adverse change in Borrower's condition, financial or otherwise,
or of the occurrence of any Default or Event of Default of which Borrower has
knowledge.

                  5.1.6 COOPERATE IN LEGAL PROCEEDINGS. Borrower shall cooperate
fully with Lender with respect to any proceedings before any court, board or
other Governmental Authority which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the other Loan Documents
and, in connection therewith, permit Lender, at its election, to participate in
any such proceedings.

                  5.1.7 PERFORM LOAN DOCUMENTS. Borrower shall observe, perform
and satisfy all the terms, provisions, covenants and conditions of, and shall
pay when due all costs, fees and expenses to the extent required under the Loan
Documents executed and delivered by, or applicable to, Borrower.

                  5.1.8 AWARD AND INSURANCE BENEFITS. Borrower shall cooperate
with Lender in obtaining for Lender the benefits of any Awards or Insurance
Proceeds lawfully or equitably payable in connection with the Property, and
Lender shall be reimbursed for any expenses incurred in connection therewith
(including attorneys' fees and disbursements, and the payment by Borrower of the
expense of an appraisal on behalf of Lender in case of Casualty or Condemnation
affecting the Property or any part thereof) out of such Insurance Proceeds.

                  5.1.9 FURTHER ASSURANCES. Borrower shall, at Borrower's sole
cost and expense:

                  (a) furnish to Lender all instruments, documents, boundary
surveys, footing or foundation surveys, certificates, plans and specifications,
appraisals, title and other insurance reports and agreements, and each and every
other document, certificate, agreement and instrument required to be furnished
by Borrower pursuant to the terms of the Loan Documents or which are reasonably
requested by Lender in connection therewith;

                  (b) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts necessary
or desirable, to evidence, preserve and/or protect the collateral at any time
securing or intended to secure the obligations of Borrower under the Loan
Documents, as Lender may reasonably require; and

                                       45


                  (c) do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the better and more effective carrying out
of the intents and purposes of this Agreement and the other Loan Documents, as
Lender shall reasonably require from time to time.

                  5.1.10 PRINCIPAL PLACE OF BUSINESS, STATE OF ORGANIZATION.
Borrower will not cause or permit any change to be made in its name, identity
(including its trade name or names), place of organization or formation (as set
forth in Section 4.1.36 hereof) or Borrower's corporate or partnership structure
unless Borrower shall have first notified Lender in writing of such change at
least thirty (30) days prior to the effective date of such change, and shall
have first taken all action required by Lender for the purpose of perfecting or
protecting the lien and security interests of Lender pursuant to this Agreement,
the Cash Management Agreement and the other Loan Documents and, in the case of a
change in Borrower's structure, without first obtaining the prior consent of
Lender. Upon Lender's request, Borrower shall execute and deliver additional
financing statements, security agreements and other instruments which may be
necessary to effectively evidence or perfect Lender's security interest in the
Property as a result of such change of principal place of business or place of
organization. Borrower's principal place of business and chief executive office,
and the place where Borrower keeps its books and records, including recorded
data of any kind or nature, regardless of the medium or recording, including
software, writings, plans, specifications and schematics, has been for the
preceding four months (or, if less, the entire period of the existence of
Borrower) and will continue to be the address of Borrower set forth at the
introductory paragraph of this Agreement (unless Borrower notifies Lender in
writing at least thirty (30) days prior to the date of such change). Borrower's
organizational identification number, if any, assigned by the state of
incorporation or organization is correctly set forth in the introductory
paragraph of this Agreement. Borrower shall promptly notify Lender of any change
in its organizational identification number. If Borrower does not now have an
organizational identification number and later obtains one, Borrower promptly
shall notify Lender of such organizational identification number.

                  5.1.11 FINANCIAL REPORTING. (a) Borrower will keep and
maintain or will cause to be kept and maintained on a Fiscal Year basis, in
accordance with GAAP (or such other accounting basis acceptable to Lender),
proper and accurate books, records and accounts reflecting all of the financial
affairs of Borrower and all items of income and expense in connection with the
operation of the Property. Lender shall have the right from time to time at all
times during normal business hours upon reasonable notice to examine such books,
records and accounts at the office of Borrower or any other Person maintaining
such books, records and accounts and to make such copies or extracts thereof as
Lender shall desire. After the occurrence of an Event of Default, Borrower shall
pay any costs and expenses incurred by Lender to examine Borrower's accounting
records with respect to the Property, as Lender shall determine to be necessary
or appropriate in the protection of Lender's interest. Upon Lender's reasonable
request, Borrower shall deliver to Lender such other information necessary and
sufficient to fairly represent the financial condition of Borrower and the
Property.

                                       46


                  (b) Borrower will furnish to Lender annually, within one
hundred twenty (120) days following the end of each Fiscal Year of Borrower, a
complete internal copy of Borrower's annual (unaudited) financial statements
covering the Property for such Fiscal Year and containing statements of profit
and loss for Borrower and the Property and a balance sheet for Borrower. Such
statements shall set forth the financial condition and the results of operations
for the Property for such Fiscal Year, and shall include, but not be limited to,
amounts representing annual Net Cash Flow, Net Operating Income, Gross Income
from Operations and Operating Expenses. Borrower's annual financial statements
shall be accompanied by (i) a comparison of the budgeted income and expenses and
the actual income and expenses for the prior Fiscal Year and (ii) an Officer's
Certificate stating that each such annual financial statement presents fairly
the financial condition and the results of operations of Borrower and the
Property being reported upon and has been prepared in accordance with GAAP.
Together with Borrower's annual financial statements, Borrower shall furnish to
Lender an Officer's Certificate certifying as of the date thereof whether there
exists an event or circumstance which constitutes a Default or Event of Default
under the Loan Documents executed and delivered by, or applicable to, Borrower,
and if such Default or Event of Default exists, the nature thereof, the period
of time it has existed and the action then being taken to remedy the same.

                  (c) Borrower will furnish, or cause to be furnished, to Lender
on or before thirty (30) days after the end March, June, September and December
throughout the term of the Loan the following items, accompanied by an Officer's
Certificate stating that such items are true, correct, accurate, and complete
and fairly present the financial condition and results of the operations of
Borrower and the Property (subject to normal year-end adjustments) as
applicable: (i) monthly and year-to-date operating statements (including Capital
Expenditures) prepared for each calendar month, noting Net Operating Income,
Gross Income from Operations, and Operating Expenses (not including any
contributions to the Replacement Reserve Fund and the Required Repair Fund), and
other information necessary and sufficient to fairly represent the financial
position and results of operation of the Property during such calendar month,
and containing a comparison of budgeted income and expenses and the actual
income and expenses together with a detailed explanation of any variances of
five percent (5%) or more between budgeted and actual amounts for such periods
for an individual items in excess of $5,000, all in form satisfactory to Lender;
(ii) a calculation reflecting the annual Debt Service Coverage Ratio for the
immediately preceding twelve (12) month period as of the last day of such month
accompanied by an Officers' Certificate with respect thereto; and (iii) a Net
Cash Flow Schedule. In addition, such Officer's Certificate shall also state the
representations and warranties of Borrower set forth in Section 4.1.30 are true
and correct as of the date of such certificate and that there are no trade
payables outstanding for more than sixty (60) days.

                  (d) Borrower will furnish, or cause to be furnished, to Lender
on or before thirty (30) days after the end March, June, September and December
throughout the term of the Loan, a occupancy report for the subject month,
including an average daily rate, accompanied by an Officer's Certificate stating
that such report is true, correct, accurate, and complete and fairly presents
the financial condition and results of the operations of Borrower and the
Property (subject to normal year-end adjustments) as applicable.

                                       47


                  (e) For the partial year period commencing on the date hereof,
and for each Fiscal Year thereafter, Borrower shall submit to Lender an Annual
Budget not later than thirty (30) days prior to the commencement of such period
or Fiscal Year in form reasonably satisfactory to Lender. The Annual Budget
shall be subject to Lender's written approval (each such Annual Budget, an
"APPROVED ANNUAL BUDGET"). In the event that Lender objects to a proposed Annual
Budget submitted by Borrower, Lender shall advise Borrower of such objections
within fifteen (15) days after receipt thereof (and deliver to Borrower a
reasonably detailed description of such objections) and Borrower shall promptly
revise such Annual Budget and resubmit the same to Lender. Lender shall advise
Borrower of any objections to such revised Annual Budget within ten (10) days
after receipt thereof (and deliver to Borrower a reasonably detailed description
of such objections) and Borrower shall promptly revise the same in accordance
with the process described in this subsection until Lender approves the Annual
Budget. Until such time that Lender approves a proposed Annual Budget, the most
recently Approved Annual Budget shall apply; provided that, such Approved Annual
Budget shall be adjusted to reflect actual increases in Taxes, Insurance
Premiums and Other Charges. Notwithstanding anything to the contrary contained
herein, Lender hereby approves Borrower's 2006 Annual Budget attached hereto as
Schedule 5.1.11(e).

                  (f) In the event that, Borrower must incur an extraordinary
operating expense or capital expense not set forth in the Approved Annual Budget
(each an "EXTRAORDINARY EXPENSE"), then Borrower shall promptly deliver to
Lender a reasonably detailed explanation of such proposed Extraordinary Expense
for Lender's approval, except in the case of emergency (provided that Borrower
will notify Lender promptly after such emergency).

                  (g) Reserved.

                  (h) Reserved.

                  (i) Rerserved.

                  (j) Reserved.

                  (k) Reserved.

                  (l) Any reports, statements or other information required to
be delivered under this Agreement shall be delivered (i) in paper form, (ii) on
a diskette, and (iii) if requested by Lender and within the capabilities of
Borrower's data systems without change or modification thereto, in electronic
form and prepared using a Microsoft Word for Windows or WordPerfect for Windows
files (which files may be prepared using a spreadsheet program and saved as word
processing files). Borrower agrees that Lender may disclose information
regarding the Property and Borrower that is provided to Lender pursuant to this
Section 5.1.11(k) in connection with the Securitization to such parties
requesting such information in connection with such Securitization.

                  5.1.12 BUSINESS AND OPERATIONS. Borrower will continue to
engage in the businesses presently conducted by it as and to the extent the same
are necessary for the ownership, maintenance, management and operation of the
Property. Borrower will qualify to do business and will remain in good standing
under the laws of the jurisdiction of its formation as and to the extent the
same are required for the ownership, maintenance, management and operation of
the Property. Borrower shall at all times during the term of the Loan, continue
to own all of Equipment, Fixtures and Personal Property which are necessary to
operate the Property in the manner required hereunder and in the manner in which
it is currently operated.

                                       48


                  5.1.13 TITLE TO THE PROPERTY. Borrower will warrant and defend
(a) the title to the Property and every part thereof, subject only to Liens
permitted hereunder (including Permitted Encumbrances) and (b) the validity and
priority of the Lien of the Mortgage and the Assignment of Leases on the
Property, subject only to Liens permitted hereunder (including Permitted
Encumbrances), in each case against the claims of all Persons whomsoever.
Borrower shall reimburse Lender for any losses, costs, damages or expenses
(including reasonable attorneys' fees and court costs) incurred by Lender if an
interest in the Property, other than as permitted hereunder, is claimed by
another Person.

                  5.1.14 COSTS OF ENFORCEMENT. In the event (a) that the
Mortgage encumbering the Property is foreclosed in whole or in part or that the
Mortgage is put into the hands of an attorney for collection, suit, action or
foreclosure, (b) of the foreclosure of any mortgage encumbering the Property
prior to or subsequent to the Mortgage in which proceeding Lender is made a
party, or (c) of the bankruptcy, insolvency, rehabilitation or other similar
proceeding in respect of Borrower or any of its constituent Persons or an
assignment by Borrower or any of its constituent Persons for the benefit of its
creditors, Borrower, its successors or assigns, shall be chargeable with and
agrees to pay all costs of collection and defense, including attorneys' fees and
costs, incurred by Lender or Borrower in connection therewith and in connection
with any appellate proceeding or post-judgment action involved therein, together
with all required service or use taxes.

                  5.1.15 ESTOPPEL STATEMENT. (a) After request by Lender,
Borrower shall within ten (10) days furnish Lender with a statement, duly
acknowledged and certified, setting forth (i) the original principal amount of
the Note, (ii) the unpaid principal amount of the Note, (iii) the Interest Rate
of the Note, (iv) the date installments of interest and/or principal were last
paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi)
that the Note, this Agreement, the Mortgage and the other Loan Documents are
valid, legal and binding obligations and have not been modified or if modified,
giving particulars of such modification.

                  (b) Borrower shall deliver to Lender upon request, tenant
estoppel certificates from each commercial tenant leasing space at the Property
in form and substance reasonably satisfactory to Lender provided that Borrower
shall not be required to deliver such certificates more frequently than two (2)
times in any calendar year.

                  5.1.16 LOAN PROCEEDS. Borrower shall use the proceeds of the
Loan received by it on the Closing Date only for the purposes set forth in
Section 2.1.4 hereof.

                  5.1.17 PERFORMANCE BY BORROWER. Borrower shall in a timely
manner observe, perform and fulfill each and every covenant, term and provision
of each Loan Document executed and delivered by, or applicable to, Borrower, and
shall not enter into or otherwise suffer or permit any amendment, waiver,
supplement, termination or other modification of any Loan Document executed and
delivered by, or applicable to, Borrower without the prior written consent of
Lender.

                                       49


                  5.1.18 CONFIRMATION OF REPRESENTATIONS. Borrower shall
deliver, in connection with any Securitization, (a) one (1) or more Officer's
Certificates certifying as to the accuracy of all representations made by
Borrower in the Loan Documents as of the date of the closing of such
Securitization in all relevant jurisdictions, and (b) certificates of the
relevant Governmental Authorities in all relevant jurisdictions indicating the
good standing and qualification of Borrower, Principal and Guarantor as of the
date of the Securitization.

                  5.1.19 NO JOINT ASSESSMENT. Borrower shall not suffer, permit
or initiate the joint assessment of the Property (a) with any other real
property constituting a tax lot separate from the Property, and (b) which
constitutes real property with any portion of the Property which may be deemed
to constitute personal property, or any other procedure whereby the lien of any
taxes which may be levied against such personal property shall be assessed or
levied or charged to such real property portion of the Property.

                  5.1.20 LEASING MATTERS. Any Leases with respect to the
Property written after the date hereof, for more than 10,000 square feet shall
be approved by Lender, which approval shall not be unreasonably withheld,
conditioned or delayed. Upon request, Borrower shall furnish Lender with
executed copies of all Leases. All renewals of Leases and all proposed Leases
shall provide for rental rates comparable to existing local market rates. All
proposed Leases shall be on commercially reasonable terms and shall not contain
any terms which would materially affect Lender's rights under the Loan
Documents. All Leases executed after the date hereof shall provide that they are
subordinate to the Mortgage and that the lessee agrees to attorn to Lender or
any purchaser at a sale by foreclosure or power of sale. Borrower (i) shall
observe and perform the obligations imposed upon the lessor under the Leases in
a commercially reasonable manner; (ii) shall enforce and may amend or terminate
the terms, covenants and conditions contained in the Leases upon the part of the
lessee thereunder to be observed or performed in a commercially reasonable
manner and in a manner not to impair the value of the Property involved except
that no termination by Borrower or acceptance of surrender by a tenant of any
Leases shall be permitted unless by reason of a tenant default and then only in
a commercially reasonable manner to preserve and protect the Property; provided,
however, that no such termination or surrender of any Lease covering more than
10,000 square feet will be permitted without the written consent of Lender;
(iii) shall not collect any of the rents more than one (1) month in advance
(other than security deposits); (iv) shall not execute any other assignment of
lessor's interest in the Leases or the Rents (except as contemplated by the Loan
Documents); (v) shall not alter, modify or change the terms of the Leases in a
manner inconsistent with the provisions of the Loan Documents; and (vi) shall
execute and deliver at the request of Lender all such further assurances,
confirmations and assignments in connection with the Leases as Lender shall from
time to time reasonably require. Notwithstanding anything to the contrary
contained herein, Borrower shall not enter into a lease of all or substantially
all of the Property without Lender's prior written consent. Further
notwithstanding anything to the contrary contained herein, Borrower shall
provide Lender at least fifteen (15) days prior notice for the approval or
rejection of any proposed Lease demising over 10,000 (each a "Material Lease").
In the event that Lender fails to respond within the required time period, such
failure shall be deemed to be the consent and approval of the Material Lease by
Lender if (I) Borrower has delivered to Lender all required documents and
information necessary to adequately and completely evaluate the Material Lease,
(II) Borrower has resubmitted the Material Lease with the notation "IMMEDIATE
RESPONSE REQUIRED, FAILURE TO RESPOND TO THIS LEASE APPROVAL REQUEST WITHIN
FIFTEEN (15) BUSINESS DAYS FROM RECEIPT SHALL BE DEEMED TO BE LENDER'S APPROVAL
OF THE LEASE" prominently displayed in bold, all caps and fourteen (14) point or
larger font at the top of each page of the Material Lease and the envelope
containing such Material Lease and (III) Lender does not approve or reject the
proposed Material Lease within fifteen (15) Business Days from the date Lender
receives the resubmitted request; provided, however, in no event shall Lender's
consent be deemed given without the written approval of Lender if the Lease is
for 10,000 square feet or greater.

                                       50


                  5.1.21 ALTERATIONS. Borrower shall obtain Lender's prior
written consent to any alterations to any Improvements, which consent shall not
be unreasonably withheld or delayed except with respect to alterations that may
have a material adverse effect on Borrower's financial condition, the value of
the Property or the Net Operating Income. Notwithstanding the foregoing,
Lender's consent shall not be required in connection with any alterations that
will not have a material adverse effect on Borrower's financial condition, the
value of the Property or the Net Operating Income, provided that such
alterations are made in connection with (a) tenant improvement work performed
pursuant to the terms of any Lease executed on or before the date hereof, (b)
tenant improvement work performed pursuant to the terms and provisions of a
Lease and not adversely affecting any structural component of any Improvements,
any utility or HVAC system contained in any Improvements or the exterior of any
building constituting a part of any Improvements, or (c) alterations performed
in connection with the Restoration of the Property after the occurrence of a
Casualty or Condemnation in accordance with the terms and provisions of this
Agreement. If the total unpaid amounts due and payable with respect to
alterations to the Improvements at the Property (other than such amounts to be
paid or reimbursed by tenants under the Leases) shall at any time exceed Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) (the "THRESHOLD
AMOUNT"), Borrower shall promptly deliver to Lender as security for the payment
of such amounts and as additional security for Borrower's obligations under the
Loan Documents any of the following: (A) cash, (B) U.S. Obligations, (C) other
securities having a rating acceptable to Lender and that the applicable Rating
Agencies have confirmed in writing will not, in and of itself, result in a
downgrade, withdrawal or qualification of the initial, or, if higher, then
current ratings assigned to any Securities or any class thereof in connection
with any Securitization or (D) a completion and performance bond or an
irrevocable letter of credit (payable on sight draft only) issued by a financial
institution having a rating by S&P of not less than "A-1+" if the term of such
bond or letter of credit is no longer than three (3) months or, if such term is
in excess of three (3) months, issued by a financial institution having a rating
that is acceptable to Lender and that the applicable Rating Agencies have
confirmed in writing will not, in and of itself, result in a downgrade,
withdrawal or qualification of the initial, or, if higher, then current ratings
assigned to any Securities or class thereof in connection with any
Securitization. Such security shall be in an amount equal to the excess of the
total unpaid amounts with respect to alterations to the Improvements on the
Property (other than such amounts to be paid or reimbursed by tenants under the
Leases) over the Threshold Amount and Lender may apply such security from time
to time at the option of Lender to pay for such alterations.

                  5.1.22 OPERATION OF PROPERTY. (a) Borrower shall cause the
Property to be maintained in a good and safe condition and repair. (b) To the
extent a Management Agreement is in effect, Borrower shall cause the Property to
be operated, in all material respects, in accordance with the Management
Agreement (or Replacement Management Agreement) as applicable. In the event that
the Management Agreement expires or is terminated (without limiting any
obligation of Borrower to obtain Lender's consent to any termination or
modification of the Management Agreement in accordance with the terms and
provisions of this Agreement), Borrower shall promptly enter into a Replacement
Management Agreement with Manager or another Qualified Manager, as applicable.

                                       51


                  (c) Borrower shall: (i) promptly perform and/or observe, in
all material respects, all of the covenants and agreements required to be
performed and observed by it under the Management Agreement, if any, and do all
things necessary to preserve and to keep unimpaired its material rights
thereunder; (ii) promptly notify Lender of any material default under the
Management Agreement of which it is aware; (iii) promptly deliver to Lender a
copy of each financial statement, business plan, capital expenditures plan,
notice, report and estimate received by it under the Management Agreement; and
(iv) enforce the performance and observance of all of the covenants and
agreements required to be performed and/or observed by Manager under the
Management Agreement, in a commercially reasonable manner.

                  5.1.23 EMBARGOED PERSON. Borrower has performed and shall
perform reasonable due diligence to insure that at all times throughout the term
of the Loan, including after giving effect to any Transfers permitted pursuant
to the Loan Documents, (a) none of the funds or other assets of Borrower,
Principal and Guarantor constitute property of, or are beneficially owned,
directly or indirectly, by any person, entity or government subject to trade
restrictions under U.S. law, including, but not limited to, The USA PATRIOT Act
(including the anti-terrorism provisions thereof), the International Emergency
Economic Powers Act, 50 U.S.C. ss.ss. 1701, et seq., The Trading with the Enemy
Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations
promulgated thereunder including those related to Specially Designated Nationals
and Specially Designated Global Terrorists, with the result that the investment
in Borrower, Principal or Guarantor, as applicable (whether directly or
indirectly), is prohibited by law or the Loan made by the Lender is in violation
of law ("EMBARGOED PERSON"); (b) no Embargoed Person has any interest of any
nature whatsoever in Borrower, Principal or Guarantor, as applicable, with the
result that the investment in Borrower, Principal or Guarantor, as applicable
(whether directly or indirectly), is prohibited by law or the Loan is in
violation of law; and (c) none of the funds of Borrower, Principal or Guarantor,
as applicable, have been derived from, or are the proceeds of, any unlawful
activity, including money laundering, terrorism or terrorism activities, with
the result that the investment in Borrower, Principal or Guarantor, as
applicable (whether directly or indirectly), is prohibited by law or the Loan is
in violation of law, or may cause the Property to be subject to forfeiture or
seizure.

                  SECTION 5.2 NEGATIVE COVENANTS. From the date hereof until
payment and performance in full of all obligations of Borrower under the Loan
Documents or the earlier release of the Lien of the Mortgage and any other
collateral in accordance with the terms of this Agreement and the other Loan
Documents, Borrower covenants and agrees with Lender that it will not do,
directly or indirectly, any of the following:

                  5.2.1 OPERATION OF PROPERTY. (a) Borrower shall not, without
Lender's prior written consent (which consent shall not be unreasonably
withheld): (i) surrender, terminate, cancel, amend or modify the Management
Agreement; provided, that Borrower may, without Lender's consent, replace the
Manager so long as the replacement manager is a Qualified Manager pursuant to a
Replacement Management Agreement; (ii) reduce or consent to the reduction of the
term of the Management Agreement; (iii) increase or consent to the increase of
the amount of any charges under the Management Agreement; or (iv) otherwise
modify, change, supplement, alter or amend, or waive or release any of its
rights and remedies under, the Management Agreement in any material respect.

                                       52


                  (b) Following the occurrence and during the continuance of an
Event of Default, Borrower shall not exercise any rights, make any decisions,
grant any approvals or otherwise take any action under the Management Agreement
without the prior written consent of Lender, which consent may be granted,
conditioned or withheld in Lender's sole discretion.

                  5.2.2 LIENS. Borrower shall not create, incur, assume or
suffer to exist any Lien on any portion of the Property or permit any such
action to be taken, except:

                        (i) Permitted Encumbrances;

                        (ii) Liens created by or permitted pursuant to the Loan
                  Documents; and

                        (iii) Liens for Taxes or Other Charges not yet due.

                  5.2.3 DISSOLUTION. Borrower shall not (a) engage in any
dissolution, liquidation or consolidation or merger with or into any other
business entity, (b) engage in any business activity not related to the
ownership and operation of the Property, (c) transfer, lease or sell, in one
transaction or any combination of transactions, the assets or all or
substantially all of the properties or assets of Borrower except to the extent
permitted by the Loan Documents, (d) modify, amend, waive or terminate its
organizational documents or its qualification and good standing in any
jurisdiction or (e) cause the Principal to (i) dissolve, wind up or liquidate or
take any action, or omit to take an action, as a result of which the Principal
would be dissolved, wound up or liquidated in whole or in part, or (ii) amend,
modify, waive or terminate the certificate of incorporation or bylaws of the
Principal, in each case, without obtaining the prior written consent of Lender
or Lender's designee.

                  5.2.4 CHANGE IN BUSINESS. Borrower shall not enter into any
line of business other than the ownership and operation of the Property, or make
any material change in the scope or nature of its business objectives, purposes
or operations, or undertake or participate in activities other than the
continuance of its present business. Nothing contained in this Section 5.2.4 is
intended to expand the rights of Borrower contained in Section 5.2.10(d) hereof.

                  5.2.5 DEBT CANCELLATION. Borrower shall not cancel or
otherwise forgive or release any claim or debt (other than termination of Leases
in accordance herewith) owed to Borrower by any Person, except for adequate
consideration and in the ordinary course of Borrower's business.

                  5.2.6 ZONING. Borrower shall not initiate or consent to any
zoning reclassification of any portion of the Property or seek any variance
under any existing zoning ordinance or use or permit the use of any portion of
the Property in any manner that could result in such use becoming a
non-conforming use under any zoning ordinance or any other applicable land use
law, rule or regulation, without the prior consent of Lender.

                                       53


                  5.2.7 INTENTIONALLY OMITTED.

                  5.2.8 INTENTIONALLY OMITTED.

                  5.2.9 ERISA. (a) Borrower shall not engage in any transaction
which would cause any obligation, or action taken or to be taken, hereunder (or
the exercise by Lender of any of its rights under the Note, this Agreement or
the other Loan Documents) to be a non-exempt (under a statutory or
administrative class exemption) prohibited transaction under ERISA.

                  (b) Borrower further covenants and agrees to deliver to Lender
such certifications or other evidence from time to time throughout the term of
the Loan, as requested by Lender in its sole discretion, that (A) Borrower is
not and does not maintain an "employee benefit plan" as defined in Section 3(3)
of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within
the meaning of Section 3(32) of ERISA; (B) Borrower is not subject to any state
statute regulating investment of, or fiduciary obligations with respect to
governmental plans and (C) one or more of the following circumstances is true:

                        (i) Equity interests in Borrower are publicly offered
                  securities, within the meaning of 29 C.F.R.
                  ss.2510.3-101(b)(2);

                        (ii) Less than twenty-five percent (25%) of each
                  outstanding class of equity interests in Borrower are held by
                  "benefit plan investors" within the meaning of 29 C.F.R.
                  ss.2510.3-101(f)(2); or

                        (iii) Borrower qualifies as an "operating company" or a
                  "real estate operating company" within the meaning of 29
                  C.F.R. ss.2510.3-101(c) or (e).

                  5.2.10 TRANSFERS. (a) Borrower acknowledges that Lender has
examined and relied on the experience of Borrower and its stockholders, general
partners, 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 repayment of the
Debt and the performance of the Other 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 repayment of the Debt or the
performance of the Other Obligations, Lender can recover the Debt by a sale of
the Property.

                  (b) Without the prior written consent of Lender, and except to
the extent otherwise set forth in this Section 5.2.10, Borrower shall not, and
shall not permit any Restricted Party do any of the following (collectively, a
"Transfer"): (i) sell, convey, mortgage, grant, bargain, encumber, pledge,
assign, grant options with respect to, or otherwise transfer or dispose of
(directly or indirectly, voluntarily or involuntarily, by operation of law or
otherwise, and whether or not for consideration or of record) the Property or
any part thereof or any legal or beneficial interest therein or (ii) permit a
Sale or Pledge of an interest in any Restricted Party, other than (A) pursuant
to Leases of space in the Improvements to tenants in accordance with the
provisions of Section 5.1.20 and (B) Permitted Transfers.

                                       54


                  (c) A Transfer shall include, but not be limited to, (i) an
installment sales agreement wherein Borrower agrees to sell the Property or any
part thereof for a price to be paid in installments; (ii) 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; (iii) if a Restricted Party is a corporation,
any merger, consolidation or Sale or Pledge of such corporation's stock or the
creation or issuance of new stock; (iv) if a Restricted Party is a limited or
general partnership or joint venture, any merger or consolidation or the change,
removal, resignation or addition of a general partner or the Sale or Pledge of
the partnership interest of any general partner or any profits or proceeds
relating to such partnership interest, or the Sale or Pledge of limited
partnership interests or any profits or proceeds relating to such limited
partnership interest or the creation or issuance of new limited partnership
interests; (v) if a Restricted Party is a limited liability company, any merger
or consolidation or the change, removal, resignation or addition of a managing
member or non-member manager (or if no managing member, any member) or the Sale
or Pledge of the membership interest of a managing member (or if no managing
member, any member) or any profits or proceeds relating to such membership
interest, or the Sale or Pledge of non-managing membership interests or the
creation or issuance of new non-managing membership interests; (vi) if a
Restricted Party is a trust or nominee trust, any merger, consolidation or the
Sale or Pledge of the legal or beneficial interest in a Restricted Party or the
creation or issuance of new legal or beneficial interests; or (vii) the removal
or the resignation of the managing agent (including, without limitation, an
Affiliated Manager) other than in accordance with Section 5.1.22 hereof.

                  (d) Notwithstanding the provisions of this Section 5.2.10,
Lender's consent shall not be required in connection with one or a series of
Transfers, of not more than forty-nine percent (49%) of the stock, the limited
partnership interests or non-managing membership interests (as the case may be)
in a Restricted Party; provided, however, no such Transfer shall result in the
change of Control in a Restricted Party, and as a condition to each such
Transfer, Lender shall receive not less than thirty (30) days prior notice of
such proposed Transfer. If after giving effect to any such Transfer, more than
forty-nine percent (49%) in the aggregate of direct or indirect interests in a
Restricted Party are owned by any Person and its Affiliates that owned less than
forty-nine percent (49%) direct or indirect interest in such Restricted Party as
of the Closing Date, Borrower shall, no less than thirty (30) days prior to the
effective date of any such Transfer, deliver to Lender an Additional Insolvency
Opinion acceptable to Lender and the Rating Agencies. In addition, at all times,
Acadia Realty Trust must continue to Control Borrower, Guarantor and Manager, if
any, and own, directly or indirectly, at least a 51% legal and beneficial
interest in Borrower, Guarantor and Manager. Notwithstanding anything to the
contrary contained herein, provided the conditions set forth in this subsection
(d) are satisfied, Lender's consent shall not be required in connection the
Transfer publicly traded shares in Acadia Realty Trust.

                  (e) No consent to any assumption of the Loan shall occur on or
before the first (1st) anniversary of the first (1st) Payment Date. Thereafter,
Lender's consent to a one (1) time Transfer of the Property and assumption of
the Loan shall not be unreasonably withheld provided that Lender receives sixty
(60) days prior written notice of such Transfer and no Event of Default has
occurred and is continuing, and further provided that the following additional
requirements are satisfied:

                                       55


                        (i) Borrower shall pay Lender a transfer fee equal to
                  one percent (1%) of the outstanding principal balance of the
                  Loan at the time of such transfer;

                        (ii) Borrower shall pay any and all reasonable
                  out-of-pocket costs incurred in connection with such Transfer
                  (including, without limitation, Lender's counsel fees and
                  disbursements and all recording fees, title insurance premiums
                  and mortgage and intangible taxes and the fees and expenses of
                  the Rating Agencies pursuant to clause (x) below);

                        (iii) The proposed transferee (the "Transferee") or
                  Transferee's Principals must have demonstrated expertise in
                  owning and operating properties similar in location, size,
                  class and operation to the Property, which expertise shall be
                  reasonably determined by Lender;

                        (iv) Transferee and Transferee's Principals shall, as of
                  the date of such transfer, have an aggregate net worth and
                  liquidity reasonably acceptable to Lender;

                        (v) Transferee, Transferee's Principals and all other
                  entities which may be owned or Controlled directly or
                  indirectly by Transferee's Principals ("Related Entities")
                  must not have been party to any bankruptcy proceedings,
                  voluntary or involuntary, made an assignment for the benefit
                  of creditors or taken advantage of any insolvency act, or any
                  act for the benefit of debtors within seven (7) years prior to
                  the date of the proposed Transfer;

                        (vi) Transferee shall assume all of the obligations of
                  Borrower under the Loan Documents in a manner satisfactory to
                  Lender in all respects, including, without limitation, by
                  entering into an assumption agreement in form and substance
                  satisfactory to Lender;

                        (vii) There shall be no material litigation or
                  regulatory action pending or threatened against Transferee,
                  Transferee's Principals or Related Entities which is not
                  reasonably acceptable to Lender;

                        (viii) Transferee, Transferee's Principals and Related
                  Entities shall not have defaulted under its or their
                  obligations with respect to any other Indebtedness in a manner
                  which is not reasonably acceptable to Lender;

                        (ix) Transferee and Transferee's Principals must be able
                  to satisfy all the representations and covenants set forth in
                  Sections 4.1.30, 4.1.35, 5.1.23 and 5.2.9 of this Agreement,
                  no Default or Event of Default shall otherwise occur as a
                  result of such Transfer, and Transferee and Transferee's
                  Principals shall deliver (A) all organizational documentation
                  reasonably requested by Lender, which shall be reasonably
                  satisfactory to Lender and (B) all certificates, agreements
                  and covenants reasonably required by Lender;

                                       56


                        (x) Transferee shall be approved by the Rating Agencies
                  selected by Lender, which approval, if required by Lender,
                  shall take the form of a confirmation in writing from such
                  Rating Agencies to the effect that such Transfer will not
                  result in a requalification, reduction, downgrade or
                  withdrawal of the ratings in effect immediately prior to such
                  assumption or transfer for the Securities or any class thereof
                  issued in connection with a Securitization which are then
                  outstanding;

                        (xi) Borrower or Transferee, at its sole cost and
                  expense, shall deliver to Lender an Additional Insolvency
                  Opinion reflecting such Transfer satisfactory in form and
                  substance to Lender;

                        (xii) Prior to any release of Guarantor, one (1) or more
                  substitute guarantors reasonably acceptable to Lender shall
                  have assumed all of the liabilities and obligations of
                  Guarantor under the Guaranty and Environmental Indemnity
                  executed by Guarantor or execute a replacement guaranty and
                  environmental indemnity reasonably satisfactory to Lender;

                        (xiii) Borrower shall deliver, at its sole cost and
                  expense, an endorsement to the Title Insurance Policy, as
                  modified by the assumption agreement, as a valid first lien on
                  the Property and naming the Transferee as owner of the
                  Property, which endorsement shall insure that, as of the date
                  of the recording of the assumption agreement, the Property
                  shall not be subject to any additional exceptions or liens
                  other than those contained in the Title Policy issued on the
                  date hereof and the Permitted Encumbrances; and

                        (xiv) The Property shall be managed by a Qualified
                  Manager pursuant to a Replacement Management Agreement.

                  Immediately upon a Transfer to such Transferee and the
satisfaction of all of the above requirements, the named Borrower and Guarantor
herein shall be released from all liability under this Agreement, the Note, the
Mortgage and the other Loan Documents accruing after such Transfer. The
foregoing release shall be effective upon the date of such Transfer, but Lender
agrees to provide written evidence thereof reasonably requested by Borrower.

                  (f) 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 Transfer without
Lender's consent. This provision shall apply to every Transfer regardless of
whether voluntary or not, or whether or not Lender has consented to any previous
Transfer.

                                       57


                  VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS

                  SECTION 6.1 INSURANCE. (a) Borrower shall obtain and maintain,
or cause to be maintained, insurance for Borrower and the Property providing at
least the following coverages:

                        (i) comprehensive all risk insurance ("Special Form")
                  including, but not limited to, loss caused by any type of
                  windstorm or hail on the Improvements and the Personal
                  Property, (A) in an amount equal to one hundred percent (100%)
                  of the "Full Replacement Cost," which for purposes of this
                  Agreement shall mean actual replacement value (exclusive of
                  costs of excavations, foundations, underground utilities and
                  footings) with a waiver of depreciation, but the amount shall
                  in no event be less than the outstanding principal balance of
                  the Loan; (B) containing an agreed amount endorsement with
                  respect to the Improvements and Personal Property waiving all
                  co-insurance provisions or to be written on a no co-insurance
                  form; (C) providing for no deductible in excess of Ten
                  Thousand and 00/100 Dollars ($10,000.00) for all such
                  insurance coverage excluding windstorm and earthquake and (D)
                  if any of the Improvements or the use of the Property shall at
                  any time constitute legal non-conforming structures or uses,
                  coverage for loss due to operation of law in an amount equal
                  to the full Replacement Cost, coverage for demolition costs
                  and coverage for increased costs of construction. In addition,
                  Borrower shall obtain: (x) if any portion of the Improvements
                  is currently or at any time in the future located in a
                  federally designated "special flood hazard area", flood hazard
                  insurance in an amount equal to the lesser of (1) the
                  outstanding principal balance of the Note or (2) the maximum
                  amount of such insurance 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
                  each may be amended or such greater amount as Lender shall
                  require and (y) earthquake insurance in amounts and in form
                  and substance satisfactory to Lender in the event the Property
                  is located in an area with a high degree of seismic activity;

                        (ii) business income insurance (A) with loss payable to
                  Lender; (B) covering all risks required to be covered by the
                  insurance provided for in subsection (i) above; (C) in an
                  amount equal to one hundred percent (100%) of the projected
                  gross revenues from the operation of the Property (as reduced
                  to reflect expenses not incurred during a period of
                  Restoration) for a period of at least twenty-four (24) months
                  after the date of the Casualty; and (D) containing an extended
                  period of indemnity endorsement which provides that after the
                  physical loss to the Improvements and Personal Property has
                  been repaired, the continued loss of income will be insured
                  until such income either returns to the same level it was at
                  prior to the loss, or the expiration of six (6) months from
                  the date that the Property is repaired or replaced and
                  operations are resumed, whichever first occurs, and
                  notwithstanding that the policy may expire prior to the end of
                  such period. The amount of such business income insurance
                  shall be determined prior to the date hereof and at least once
                  each year thereafter based on Borrower's reasonable estimate
                  of the gross revenues from the Property for the succeeding
                  twenty-four (24) month period. Notwithstanding the provisions
                  of Section 2.7.1 hereof, all proceeds payable to Lender
                  pursuant to this subsection shall be held by Lender and shall
                  be applied to the obligations secured by the Loan Documents
                  from time to time due and payable hereunder and under the
                  Note; provided, however, that nothing herein contained shall
                  be deemed to relieve Borrower of its obligations to pay the
                  obligations secured by the Loan Documents on the respective
                  dates of payment provided for in this Agreement and the other
                  Loan Documents except to the extent such amounts are actually
                  paid out of the proceeds of such business income insurance;

                                       58


                        (iii) at all times during which structural construction,
                  repairs or alterations are being made with respect to the
                  Improvements, and only if the Property coverage form does not
                  otherwise apply, (A) owner's contingent or protective
                  liability insurance, otherwise known as Owner Contractor's
                  Protective Liability, covering claims not covered by or under
                  the terms or provisions of the above mentioned commercial
                  general liability insurance policy and (B) the insurance
                  provided for in subsection (i) above written in a so-called
                  builder's risk completed value form (1) on a non-reporting
                  basis, (2) against all risks insured against pursuant to
                  subsection (i) above, (3) including permission to occupy the
                  Property and (4) with an agreed amount endorsement waiving
                  co-insurance provisions;

                        (iv) comprehensive boiler and machinery insurance, if
                  steam boilers or other pressure-fixed vessels are in
                  operation, in amounts as shall be reasonably required by
                  Lender on terms consistent with the commercial property
                  insurance policy required under subsection (i) above;

                        (v) commercial general liability insurance against
                  claims for personal injury, bodily injury, death or property
                  damage occurring upon, in or about the Property, such
                  insurance (A) to be on the so-called "occurrence" form with a
                  combined limit of not less than Two Million and 00/100 Dollars
                  ($2,000,000.00) in the aggregate and One Million and 00/100
                  Dollars ($1,000,000.00) per occurrence; (B) 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 (C) to cover at least
                  the following hazards: (1) premises and operations; (2)
                  products and completed operations on an "if any" basis; (3)
                  independent contractors; (4) blanket contractual liability for
                  all written contracts and (5) contractual liability covering
                  the indemnities contained in Article 9 of the Mortgage to the
                  extent the same is available;

                        (vi) automobile liability coverage for all owned and
                  non-owned vehicles, including rented and leased vehicles
                  containing minimum limits per occurrence of One Million
                  Dollars and 00/100 Dollars ($1,000,000.00);

                        (vii) worker's compensation and employee's liability
                  subject to the worker's compensation laws of the applicable
                  state;

                        (viii) umbrella and excess liability insurance in an
                  amount not less than Fifty Million and 00/100 Dollars
                  ($50,000,000.00) per occurrence on terms consistent with the
                  commercial general liability insurance policy required under
                  subsection (v) above, including, but not limited to,
                  supplemental coverage for employer liability and automobile
                  liability, which umbrella liability coverage shall apply in
                  excess of the automobile liability coverage in clause (vi)
                  above;

                                       59


                        (ix) the insurance required under this Section 6.1(a)
                  above shall cover perils of terrorism and acts of terrorism
                  and Borrower shall maintain insurance for loss resulting from
                  perils and acts of terrorism on terms (including amounts)
                  consistent with those required under Sections 6.1(a) above at
                  all times during the term of the Loan; and

                        (x) upon sixty (60) days written notice, such other
                  reasonable insurance, including, but not limited to, sinkhole
                  or land subsidence insurance, and in such reasonable 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.

                  (b) All insurance provided for in Section 6.1(a) hereof, shall
be obtained under valid and enforceable policies (collectively, the "Policies"
or in the singular, the "Policy"), and shall be subject to the approval of
Lender as to insurance companies, amounts, deductibles, loss payees and
insureds. The Policies shall be issued by financially sound and responsible
insurance companies authorized to do business in the State and having a claims
paying ability rating of "AA" or better (and the equivalent thereof) by at least
two (2) of the Rating Agencies rating the Securities (one (1) of which shall be
S&P if they are rating the Securities and one (1) of which will be Moody's if
they are rating the Securities), or if only one (1) Rating Agency is rating the
Securities, then only by such Rating Agency. The Policies described in Section
6.1 hereof (other than those strictly limited to liability protection) shall
designate Lender as loss payee. Not less than ten (10) days prior to the
expiration dates of the Policies theretofore furnished to Lender, certificates
of insurance evidencing the Policies accompanied by evidence satisfactory to
Lender of payment of the premiums due thereunder (the "Insurance Premiums"),
shall be delivered by Borrower to Lender.

                  (c) Any blanket insurance Policy shall specifically allocate
to the Property the amount of coverage from time to time required hereunder and
shall otherwise provide the same protection as would a separate Policy insuring
only the Property in compliance with the provisions of Section 6.1(a) hereof.

                  (d) All Policies provided for or contemplated by Section
6.1(a) hereof, except for the Policy referenced in Section 6.1(a)(vii) of this
Agreement, shall name Borrower as the insured and Lender as the additional
insured, as its interests may appear, and in the case of property damage, boiler
and machinery, flood and earthquake insurance, shall contain a so-called New
York standard non-contributing mortgagee clause in favor of Lender providing
that the loss thereunder shall be payable to Lender.

                  (e) All Policies shall contain clauses or endorsements to the
effect that:

                                       60



                        (i) no act or negligence of Borrower, or anyone acting
                  for Borrower, or of any tenant or other occupant, or failure
                  to comply with the provisions of any Policy, which might
                  otherwise result in a forfeiture of the insurance or any part
                  thereof, shall in any way affect the validity or
                  enforceability of the insurance insofar as Lender is
                  concerned;

                        (ii) the Policy shall not be materially changed (other
                  than to increase the coverage provided thereby) or canceled
                  without at least thirty (30) days written notice to Lender and
                  any other party named therein as an additional insured;

                        (iii) the issuers thereof shall give written notice to
                  Lender if the Policy has not been renewed thirty (30) days
                  prior to its expiration; and

                        (iv) Lender shall not be liable for any Insurance
                  Premiums thereon or subject to any assessments thereunder.

                  (f) If at any time 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 after three (3) Business Days notice to
Borrower if prior to the date upon which any such coverage will lapse or at any
time Lender deems necessary (regardless of prior notice to Borrower) to avoid
the lapse of any such coverage. All premiums 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
the Mortgage and shall bear interest at the Default Rate.

                  SECTION 6.2 CASUALTY. If the Property shall be damaged or
destroyed, in whole or in part, by fire or other casualty (a "Casualty"),
Borrower shall give prompt notice of such damage to Lender and shall promptly
commence and diligently prosecute the completion of the Restoration of the
Property pursuant to Section 6.4 hereof as nearly as possible to the condition
the Property was in immediately prior to such Casualty, with such alterations as
may be reasonably approved by Lender and otherwise in accordance with Section
6.4 hereof. Borrower shall pay all costs of such Restoration whether or not such
costs are covered by insurance. Lender may, but shall not be obligated to make
proof of loss if not made promptly by Borrower. In addition, Lender may
participate in any settlement discussions with any insurance companies (and
shall approve the final settlement, which approval shall not be unreasonably
withheld or delayed) with respect to any Casualty in which the Net Proceeds or
the costs of completing the Restoration are equal to or greater than One Million
and 00/100 Dollars ($1,000,000.00) and Borrower shall deliver to Lender all
instruments required by Lender to permit such participation.

                                       61


                  SECTION 6.3 CONDEMNATION. Borrower shall promptly give Lender
notice of the actual or threatened commencement of any proceeding for the
Condemnation of the Property and shall deliver to Lender copies of any and all
papers served in connection with such proceedings. Lender may participate in any
such proceedings, and Borrower shall from time to time deliver to Lender all
instruments requested by it to permit such participation. Borrower shall, at its
expense, diligently prosecute any such proceedings, and shall consult with
Lender, its attorneys and experts, and cooperate with them in the carrying on or
defense of any such proceedings. Notwithstanding any taking by any public or
quasi-public authority through Condemnation 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 Agreement and the Debt
shall not be reduced until any Award 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 or in the Note.
If any portion of the Property is taken by a condemning authority, Borrower
shall promptly commence and diligently prosecute the Restoration of the Property
pursuant to Section 6.4 hereof and otherwise comply with the provisions of
Section 6.4 hereof. If the Property is sold, through foreclosure or otherwise,
prior to the receipt by Lender of the Award, Lender shall have the right,
whether or not a deficiency judgment on the Note shall have been sought,
recovered or denied, to receive the Award, or a portion thereof sufficient to
pay the Debt.

                  SECTION 6.4 RESTORATION. The following provisions shall apply
in connection with the Restoration of the Property:

                  (a) If the Net Proceeds shall be less than One Million and
00/100 Dollars ($1,000,000.00) and the costs of completing the Restoration shall
be less than One Million and 00/100 Dollars ($1,000,000.00), the Net Proceeds
will be disbursed by Lender to Borrower upon receipt, provided that all of the
conditions set forth in Section 6.4(b)(i) hereof 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
Agreement.

                  (b) If the Net Proceeds are equal to or greater than One
Million and 00/100 Dollars ($1,000,000.00) or the costs of completing the
Restoration is equal to or greater than One Million and 00/100 Dollars
($1,000,000.00) Lender shall make the Net Proceeds available for the Restoration
in accordance with the provisions of this Section 6.4. The term "Net Proceeds"
for purposes of this Section 6.4 shall mean: (i) the net amount of all insurance
proceeds received by Lender pursuant to Section 6.1 (a)(i), (iv), (ix) and (x)
as a result of such damage or destruction, after deduction of its reasonable
costs and expenses (including, but not limited to, reasonable counsel fees), if
any, in collecting same ("Insurance Proceeds"), or (ii) the net amount of the
Award, after deduction of its reasonable costs and expenses (including, but not
limited to, reasonable counsel fees), if any, in collecting same ("Condemnation
Proceeds"), whichever the case may be.

                        (i) The Net Proceeds shall be made available to Borrower
                  for Restoration provided that each of the following conditions
                  are met:

                           (A) no Event of Default shall have occurred and be
                        continuing;

                           (B) (1) in the event the Net Proceeds are Insurance
                        Proceeds, less than twenty-five percent (25%) of the
                        total floor area of the Improvements on the Property has
                        been damaged, destroyed or rendered unusable as a result
                        of such 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, and no portion of the Improvements is located
                        on such land;

                                       62


                           (C) Leases demising in the aggregate a percentage
                        amount equal to or greater than the Rentable Space
                        Percentage of the total 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 Casualty or Condemnation, whichever the case may
                        be, shall remain in full force and effect during and
                        after the completion of the Restoration, notwithstanding
                        the occurrence of any such Casualty or Condemnation,
                        whichever the case may be, and Borrower and/or Tenant,
                        as applicable under the respective Lease, will make all
                        necessary repairs and restorations thereto at their sole
                        cost and expense. The term "Rentable Space Percentage"
                        shall mean (1) in the event the Net Proceeds are
                        Insurance Proceeds, a percentage amount equal to ninety
                        percent (90%) and (2) in the event the Net Proceeds are
                        Condemnation Proceeds, a percentage amount equal to
                        ninety percent (90%);

                           (D) Borrower shall commence the Restoration as soon
                        as reasonably practicable (but in no event later than
                        sixty (60) days after such Casualty or Condemnation,
                        whichever the case may be, occurs) and shall diligently
                        pursue the same to satisfactory completion;

                           (E) Lender shall be satisfied that any operating
                        deficits, including all scheduled payments of principal
                        and interest under the Note, which will be incurred with
                        respect to the Property as a result of the occurrence of
                        any such Casualty or Condemnation, whichever the case
                        may be, will be covered out of (1) the Net Proceeds, (2)
                        the insurance coverage referred to in Section 6.1(a)(ii)
                        hereof, if applicable, or (3) by other funds of
                        Borrower;

                           (F) Lender shall be satisfied that the Restoration
                        will be completed on or before the earliest to occur of
                        (1) six (6) months prior to the Maturity Date, (2) the
                        earliest date required for such completion under the
                        terms of any Leases, (3) such time as may be required
                        under all applicable Legal Requirements in order to
                        repair and restore the Property to the condition it was
                        in immediately prior to such Casualty or to as nearly as
                        possible the condition it was in immediately prior to
                        such Condemnation, as applicable, or (4) the expiration
                        of the insurance coverage referred to in Section
                        6.1(a)(ii) hereof;

                                       63


                           (G) the Property and the use thereof after the
                        Restoration will be in compliance with and permitted
                        under all applicable Legal Requirements;

                           (H) the Restoration shall be done and completed by
                        Borrower in an expeditious and diligent fashion and in
                        compliance with all applicable Legal Requirements;

                           (I) such Casualty or Condemnation, as applicable,
                        does not result in the loss of access to the Property or
                        the Improvements;

                           (J) the Debt Service Coverage Ratio for the Property,
                        after giving effect to the Restoration, shall be equal
                        to or greater than 1.05 to 1.0;

                           (K) Borrower shall deliver, or cause to be delivered,
                        to Lender a signed detailed budget approved in writing
                        by Borrower's architect or engineer stating the entire
                        cost of completing the Restoration, which budget shall
                        be acceptable to Lender; and

                           (L) the Net Proceeds together with any cash or cash
                        equivalent deposited by Borrower with Lender are
                        sufficient in Lender's discretion to cover the cost of
                        the Restoration.

                        (ii) The Net Proceeds shall be held by Lender in an
                  interest-bearing account and, until disbursed in accordance
                  with the provisions of this Section 6.4(b), shall constitute
                  additional security for the Debt and Other Obligations under
                  the Loan Documents. 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 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 issuing the Title Insurance
                  Policy.

                        (iii) All plans and specifications required in
                  connection with the Restoration shall be subject to prior
                  review and acceptance in all respects by Lender and by an
                  independent consulting engineer selected by Lender (the
                  "Casualty Consultant"). 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. 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.

                                       64


                        (iv) In no event shall Lender be obligated to make
                  disbursements of the Net Proceeds 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 the Casualty Retainage. The term "Casualty
                  Retainage" shall mean an amount equal to ten percent (10%) of
                  the costs actually incurred for work in place as part of the
                  Restoration, as certified by the Casualty Consultant, until
                  the Restoration has been completed. The Casualty Retainage
                  shall in no event, and notwithstanding anything to the
                  contrary set forth above in this Section 6.4(b), be less than
                  the amount actually held back by Borrower from contractors,
                  subcontractors and materialmen engaged in the Restoration. The
                  Casualty Retainage shall not be released until the Casualty
                  Consultant certifies to Lender that the Restoration has been
                  completed in accordance with the provisions of this Section
                  6.4(b) 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 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; provided, however,
                  that Lender will release the portion of the Casualty Retainage
                  being held with respect to any contractor, subcontractor or
                  materialman engaged in the Restoration as of the date upon
                  which the Casualty Consultant certifies to Lender that the
                  contractor, subcontractor or materialman has satisfactorily
                  completed all work and has supplied all materials in
                  accordance with the provisions of the contractor's,
                  subcontractor's or materialman's contract, the contractor,
                  subcontractor or materialman delivers the lien waivers and
                  evidence of payment in full of all sums due to the contractor,
                  subcontractor or materialman as may be reasonably requested by
                  Lender or by the title company issuing the Title Insurance
                  Policy, and Lender receives an endorsement to the Title
                  Insurance Policy insuring the continued priority of the lien
                  of the Mortgage and evidence of payment of any premium payable
                  for such endorsement. If required by Lender, the release of
                  any such portion of the Casualty Retainage shall be approved
                  by the surety company, if any, which has issued a payment or
                  performance bond with respect to the contractor, subcontractor
                  or materialman.

                        (v) Lender shall not be obligated to make disbursements
                  of the Net Proceeds more frequently than once every calendar
                  month.

                        (vi) If at any time the Net Proceeds or the undisbursed
                  balance thereof shall not, in the opinion of Lender in
                  consultation with the Casualty Consultant, 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 (the "Net Proceeds Deficiency") with Lender before
                  any further disbursement of the Net Proceeds shall be made.
                  The Net Proceeds 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 Section 6.4(b) shall
                  constitute additional security for the Debt and Other
                  Obligations under the Loan Documents.

                                       65


                        (vii) The excess, if any, of the Net Proceeds (and the
                  remaining balance, if any, of the Net Proceeds Deficiency)
                  deposited with Lender after the Casualty Consultant certifies
                  to Lender that the Restoration has been completed in
                  accordance with the provisions of this Section 6.4(b), and the
                  receipt by Lender of evidence satisfactory to Lender that all
                  costs incurred in connection with the Restoration have been
                  paid in full, shall be deposited in the Cash Management
                  Account to be disbursed in accordance with the Cash Management
                  Agreement, provided no Event of Default shall have occurred
                  and shall be continuing under the Note, this Agreement or any
                  of the other Loan Documents.

                  (c) 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 Section 6.4(b)(vii) hereof may be retained and applied by Lender
toward the payment of the Debt in accordance with Section 2.4.2 hereof, whether
or not then due and payable in such order, priority and proportions as Lender in
its sole 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 approve, in its discretion.

                  (d) In the event of foreclosure of the Mortgage, 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 the Policies that are
not blanket 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.

                  VII. RESERVE FUNDS

                  SECTION 7.1 REQUIRED REPAIRS.

                  7.1.1 DEPOSITS. Borrower shall perform the repairs at the
Property, as more particularly set forth on Schedule II hereto (such repairs
hereinafter referred to as "Required Repairs"). Borrower shall complete the
Required Repairs on or before the required deadline for each repair as set forth
on Schedule II. It shall be an Event of Default under this Agreement if (a)
Borrower does not complete the Required Repairs at the Property by the required
deadline for each repair as set forth on Schedule II, or (b) Borrower does not
satisfy each condition contained in Section 7.1.2 hereof. Upon the occurrence of
such an Event of Default, Lender, at its option, may withdraw all Required
Repair Funds from the Required Repair Account and Lender may apply such funds
either to completion of the Required Repairs at the Property or toward payment
of the Debt in such order, proportion and priority as Lender may determine in
its sole discretion. Lender's right to withdraw and apply Required Repair Funds
shall be in addition to all other rights and remedies provided to Lender under
this Agreement and the other Loan Documents. On the Closing Date, Borrower shall
deposit with Lender the amount for the Property set forth on such Schedule II
hereto to perform the Required Repairs for the Property. Amounts so deposited
with Lender shall be held by Lender in accordance with Section 7.5 hereof.
Amounts so deposited shall hereinafter be referred to as Borrower's "Required
Repair Fund" and the account in which such amounts are held shall hereinafter be
referred to as Borrower's "Required Repair Account".

                                       66


                  7.1.2 RELEASE OF REQUIRED REPAIR FUNDS. Lender shall disburse
to Borrower the Required Repair Funds from the Required Repair Account from time
to time upon satisfaction by Borrower of each of the following conditions: (a)
Borrower shall submit a written request for payment to Lender at least thirty
(30) days prior to the date on which Borrower requests such payment be made and
specifies the Required Repairs to be paid, (b) on the date such request is
received by Lender and on the date such payment is to be made, no Default or
Event of Default shall exist and remain uncured, (c) Lender shall have received
an Officers' Certificate (i) stating that all Required Repairs to be funded by
the requested disbursement have been completed in good and workmanlike manner
and in accordance with all applicable federal, state and local laws, rules and
regulations, such certificate to be accompanied by a copy of any license, permit
or other approval by any Governmental Authority required to commence and/or
complete the Required Repairs, (ii) identifying each Person that supplied
materials or labor in connection with the Required Repairs to be funded by the
requested disbursement, and (iii) stating that each such Person has been paid in
full or will be paid in full upon such disbursement, such Officers' Certificate
to be accompanied by lien waivers or other evidence of payment satisfactory to
Lender, (d) at Lender's option, a title search for the Property indicating that
the Property is free from all liens, claims and other encumbrances not
previously approved by Lender, and (e) Lender shall have received such other
evidence as Lender shall reasonably request that the Required Repairs to be
funded by the requested disbursement have been completed and are paid for or
will be paid upon such disbursement to Borrower. Lender shall not be required to
make disbursements from the Required Repair Account with respect to the Property
unless such requested disbursement is in an amount greater than Twenty-five
Thousand and 00/100 Dollars ($25,000.00) (or a lesser amount if the total amount
in the Required Repair Account is less than Twenty-five Thousand and 00/100
Dollars ($25,000.00), in which case only one disbursement of the amount
remaining in the account shall be made) and such disbursement shall be made only
upon satisfaction of each condition contained in this Section 7.1.2.

                  SECTION 7.2 TAX AND INSURANCE ESCROW FUND. Borrower shall pay
to Lender on each Payment Date (a) one-twelfth (1/12)of the Taxes and Other
Charges that Lender estimates will be payable during the next ensuing twelve
(12) months in order to accumulate with Lender sufficient funds to pay all such
Taxes and Other Charges at least thirty (30) days prior to their respective due
dates, and (b) one-twelfth (1/12) of the Insurance Premiums that Lender
estimates will be payable for the renewal of the coverage afforded by the
Policies upon the expiration thereof in order to accumulate with Lender
sufficient funds to pay all such Insurance Premiums at least thirty (30) days
prior to the expiration of the Policies (said amounts in (a) and (b) above
hereinafter called the "Tax and Insurance Escrow Fund"). The Tax and Insurance
Escrow Fund and the Monthly Debt Service Payment Amount, shall be added together
and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply
the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums
required to be made by Borrower pursuant to Section 5.1.2 hereof and under the
Mortgage. In making any payment relating to the Tax and Insurance Escrow Fund,
Lender may do so according to any bill, statement or estimate procured from the
appropriate public office (with respect to Taxes) or insurer or agent (with
respect to Insurance Premiums), without inquiry into the accuracy of such bill,
statement or estimate or into the validity of any tax, assessment, sale,
forfeiture, tax lien or title or claim thereof. If the amount of the Tax and
Insurance Escrow Fund shall exceed the amounts due for Taxes, Other Charges and
Insurance Premiums pursuant to Section 5.1.2 hereof, Lender shall, in its sole
discretion, return any excess to Borrower or credit such excess against future
payments to be made to the Tax and Insurance Escrow Fund. Any amount remaining
in the Tax and Insurance Escrow Fund after the Debt has been paid in full shall
be returned to Borrower. If at any time Lender reasonably determines that the
Tax and Insurance Escrow Fund is not or will not be sufficient to pay Taxes,
Other Charges and Insurance Premiums by the dates set forth in (a) and (b)
above, Lender shall notify Borrower of such determination and Borrower shall
increase its monthly payments to Lender by the amount that Lender estimates is
sufficient to make up the deficiency at least thirty (30) days prior to the due
date of the Taxes and Other Charges and/or thirty (30) days prior to expiration
of the Policies, as the case may be. Notwithstanding anything contained in this
Section 7.2 to the contrary, Borrower shall not be required to make monthly
escrow payments to Tax and Insurance Escrow Fund for Insurance Premiums so long
as (i) no Event of Default exists hereunder (or under any of the other Loan
Documents), (ii) Borrower maintains a blanket insurance policy including the
Property and (iii) Borrower provides evidence reasonably acceptable to Lender
that such Insurance Premiums due under said blanket policy have been paid on or
before the due date therefore.

                                       67


                  SECTION 7.3 REPLACEMENTS AND REPLACEMENT RESERVE.

                  7.3.1 REPLACEMENT RESERVE FUND. Borrower shall pay to Lender
on each Payment Date one-twelfth (1/12) of $22,576.00 [$0.15 psf] (the
"Replacement Reserve Monthly Deposit") reasonably estimated by Lender in its
sole discretion to be due for replacements and repairs required to be made to
the Property during the calendar year (collectively, the "Replacements").
Amounts so deposited shall hereinafter be referred to as Borrower's "Replacement
Reserve Fund" and the account in which such amounts are held shall hereinafter
be referred to as Borrower's "Replacement Reserve Account". Lender may reassess
its estimate of the amount necessary for the Replacement Reserve Fund from time
to time, and may increase the monthly amounts required to be deposited into the
Replacement Reserve Fund upon thirty (30) days notice to Borrower if Lender
determines in its reasonable discretion that an increase is necessary to
maintain the proper maintenance and operation of the Property.

                  7.3.2 DISBURSEMENTS FROM REPLACEMENT RESERVE ACCOUNT. (a)
Lender shall make disbursements from the Replacement Reserve Account to pay
Borrower only for the costs of the Replacements. Lender shall not be obligated
to make disbursements from the Replacement Reserve Account to reimburse Borrower
for the costs of routine maintenance to the Property, replacements of inventory
or for costs which are to be reimbursed from the Required Repair Fund or
Rollover Reserve Fund.

                  (b) Lender shall, upon written request from Borrower and
satisfaction of the requirements set forth in this Section 7.3.2, disburse to
Borrower amounts from the Replacement Reserve Account necessary to pay for the
actual approved costs of Replacements or to reimburse Borrower therefor, upon
completion of such Replacements (or, upon partial completion in the case of
Replacements made pursuant to Section 7.3.2(e) hereof) as determined by Lender.
In no event shall Lender be obligated to disburse funds from the Replacement
Reserve Account if a Default or an Event of Default exists.

                                       68


                  (c) Each request for disbursement from the Replacement Reserve
Account shall be in a form specified or approved by Lender and shall specify (i)
the specific Replacements for which the disbursement is requested, (ii) the
quantity and price of each item purchased, if the Replacement includes the
purchase or replacement of specific items, (iii) the price of all materials
(grouped by type or category) used in any Replacement other than the purchase or
replacement of specific items, and (iv) the cost of all contracted labor or
other services applicable to each Replacement for which such request for
disbursement is made. With each request Borrower shall certify that all
Replacements have been made in accordance with all applicable Legal Requirements
of any Governmental Authority having jurisdiction over the Property. Each
request for disbursement shall include copies of invoices for all items or
materials purchased and all contracted labor or services provided and, unless
Lender has agreed to issue joint checks as described below in connection with a
particular Replacement, each request shall include evidence satisfactory to
Lender of payment of all such amounts. Except as provided in Section 7.3.2(e)
hereof, each request for disbursement from the Replacement Reserve Account shall
be made only after completion of the Replacement for which disbursement is
requested. Borrower shall provide Lender evidence of completion of the subject
Replacement satisfactory to Lender in its reasonable judgment.

                  (d) Borrower shall pay all invoices in connection with the
Replacements with respect to which a disbursement is requested prior to
submitting such request for disbursement from the Replacement Reserve Account
or, at the request of Borrower, Lender will issue joint checks, payable to
Borrower and the contractor, supplier, materialman, mechanic, subcontractor or
other party to whom payment is due in connection with a Replacement. In the case
of payments made by joint check, Lender may require a waiver of lien from each
Person receiving payment prior to Lender's disbursement from the Replacement
Reserve Account. In addition, as a condition to any disbursement, Lender may
require Borrower to obtain lien waivers from each contractor, supplier,
materialman, mechanic or subcontractor who receives payment in an amount equal
to or greater than Twenty-five Thousand and 00/100 Dollars ($25,000.00) for
completion of its work or delivery of its materials. Any lien waiver delivered
hereunder shall conform to the requirements of applicable law and shall cover
all work performed and materials supplied (including equipment and fixtures) for
the Property by that contractor, supplier, subcontractor, mechanic or
materialman through the date covered by the current reimbursement request (or,
in the event that payment to such contractor, supplier, subcontractor, mechanic
or materialmen is to be made by a joint check, the release of lien shall be
effective through the date covered by the previous release of funds request).

                  (e) If (i) the cost of a Replacement exceeds Twenty-five
Thousand and 00/100 Dollars ($25,000.00), (ii) the contractor performing such
Replacement requires periodic payments pursuant to terms of a written contract,
and (iii) Lender has approved in writing in advance such periodic payments, a
request for reimbursement from the Replacement Reserve Account may be made after
completion of a portion of the work under such contract, provided (A) such
contract requires payment upon completion of such portion of the work, (B) the
materials for which the request is made are on site at the Property and are
properly secured or have been installed in the Property, (C) all other
conditions in this Agreement for disbursement have been satisfied, (D) funds
remaining in the Replacement Reserve Account are, in Lender's judgment,
sufficient to complete such Replacement and other Replacements when required,
and (E) if required by Lender, each contractor or subcontractor receiving
payments under such contract shall provide a waiver of lien with respect to
amounts which have been paid to that contractor or subcontractor.

                                       69


                  (f) Borrower shall not make a request for disbursement from
the Replacement Reserve Account more frequently than once in any calendar month
and (except in connection with the final disbursement) the total cost of all
Replacements in any request shall not be less than Twenty-five Thousand and
00/100 Dollars ($25,000.00).

                  7.3.3 PERFORMANCE OF REPLACEMENTS. (a) Borrower shall make
Replacements when required in order to keep the Property in condition and repair
consistent with other first class, full service shopping centers in the same
market segment in the metropolitan area in which the Property is located, and to
keep the Property or any portion thereof from deteriorating. Borrower shall
complete all Replacements in a good and workmanlike manner as soon as
practicable following the commencement of making each such Replacement.

                  (b) Lender reserves the right, at its option, to approve all
contracts or work orders with materialmen, mechanics, suppliers, subcontractors,
contractors or other parties providing labor or materials in connection with the
Replacements. Upon Lender's request, Borrower shall assign any contract or
subcontract to Lender.

                  (c) In the event Lender determines in its reasonable
discretion that any Replacement is not being performed in a workmanlike or
timely manner or that any Replacement has not been completed in a workmanlike or
timely manner, Lender shall have the option to withhold disbursement for such
unsatisfactory Replacement and to proceed under existing contracts or to
contract with third parties to complete such Replacement and to apply the
Replacement Reserve Fund toward the labor and materials necessary to complete
such Replacement, without providing any prior notice to Borrower and to exercise
any and all other remedies available to Lender upon an Event of Default
hereunder.

                  (d) In order to facilitate Lender's completion or making of
such Replacements pursuant to Section 7.3.3(c) above, Borrower grants Lender the
right to enter onto the Property and perform any and all work and labor
necessary to complete or make such Replacements and/or employ watchmen to
protect the Property from damage. All sums so expended by Lender, to the extent
not from the Replacement Reserve Fund, shall be deemed to have been advanced
under the Loan to Borrower and secured by the Mortgage. For this purpose
Borrower constitutes and appoints Lender its true and lawful attorney-in-fact
with full power of substitution to complete or undertake such Replacements in
the name of Borrower. Such power of attorney shall be deemed to be a power
coupled with an interest and cannot be revoked. Borrower empowers said
attorney-in-fact as follows: (i) to use any funds in the Replacement Reserve
Account for the purpose of making or completing such Replacements; (ii) to make
such additions, changes and corrections to such Replacements as shall be
necessary or desirable to complete such Replacements; (iii) to employ such
contractors, subcontractors, agents, architects and inspectors as shall be
required for such purposes; (iv) to pay, settle or compromise all existing bills
and claims which are or may become Liens against the Property, or as may be
necessary or desirable for the completion of such Replacements, or for clearance
of title; (v) to execute all applications and certificates in the name of
Borrower which may be required by any of the contract documents; (vi) to
prosecute and defend all actions or proceedings in connection with the Property
or the rehabilitation and repair of the Property; and (vii) to do any and every
act which Borrower might do in its own behalf to fulfill the terms of this
Agreement.

                                       70


                  (e) Nothing in this Section 7.3.3 shall: (i) make Lender
responsible for making or completing any Replacements; (ii) require Lender to
expend funds in addition to the Replacement Reserve Fund to make or complete any
Replacement; (iii) obligate Lender to proceed with any Replacements; or (iv)
obligate Lender to demand from Borrower additional sums to make or complete any
Replacement.

                  (f) Borrower shall permit Lender and Lender's agents and
representatives (including, without limitation, Lender's engineer, architect, or
inspector) or third parties making Replacements pursuant to this Section 7.3.3
to enter onto the Property during normal business hours (subject to the rights
of tenants under their Leases) to inspect the progress of any Replacements and
all materials being used in connection therewith, to examine all plans and shop
drawings relating to such Replacements which are or may be kept at the Property,
and to complete any Replacements made pursuant to this Section 7.3.3. Borrower
shall cause all contractors and subcontractors to cooperate with Lender or
Lender's representatives or such other persons described above in connection
with inspections described in this Section 7.3.3(f) or the completion of
Replacements pursuant to this Section 7.3.3.

                  (g) Lender may require an inspection of the Property at
Borrower's expense prior to making a monthly disbursement from the Replacement
Reserve Account in order to verify completion of the Replacements for which
reimbursement is sought. Lender may require that such inspection be conducted by
an appropriate independent qualified professional selected by Lender and/or may
require a copy of a certificate of completion by an independent qualified
professional acceptable to Lender prior to the disbursement of any amounts from
the Replacement Reserve Account. Borrower shall pay the expense of the
inspection as required hereunder, whether such inspection is conducted by Lender
or by an independent qualified professional.

                  (h) The Replacements and all materials, equipment, fixtures,
or any other item comprising a part of any Replacement shall be constructed,
installed or completed, as applicable, free and clear of all mechanic's,
materialmen's or other liens (except for those Liens existing on the date of
this Agreement which have been approved in writing by Lender).

                  (i) Before each disbursement from the Replacement Reserve
Account, Lender may require Borrower to provide Lender with a search of title to
the Property effective to the date of the disbursement, which search shows that
no mechanic's or materialmen's liens or other liens of any nature have been
placed against the Property since the date of recordation of the related
Mortgage and that title to the Property is free and clear of all Liens (other
than the lien of the related Mortgage and any other Liens previously approved in
writing by Lender, if any).

                                       71


                  (j) All Replacements shall comply with all applicable Legal
Requirements of all Governmental Authorities having jurisdiction over the
Property and applicable insurance requirements including, without limitation,
applicable building codes, special use permits, environmental regulations, and
requirements of insurance underwriters.

                  (k) In addition to any insurance required under the Loan
Documents, Borrower shall provide or cause to be provided workmen's compensation
insurance, builder's risk, and public liability insurance and other insurance to
the extent required under applicable law in connection with a particular
Replacement. All such policies shall be in form and amount reasonably
satisfactory to Lender. All such policies which can be endorsed with standard
mortgagee clauses making loss payable to Lender or its assigns shall be so
endorsed. Certified copies of such policies shall be delivered to Lender.

                  7.3.4 FAILURE TO MAKE REPLACEMENTS. (a) It shall be an Event
of Default under this Agreement if Borrower fails to comply with any provision
of this Section 7.3 and such failure is not cured within thirty (30) days after
notice from Lender. Upon the occurrence of such an Event of Default, Lender may
use the Replacement Reserve Fund (or any portion thereof) for any purpose,
including but not limited to completion of the Replacements as provided in
Section 7.3.3, or for any other repair or replacement to the Property or toward
payment of the Debt in such order, proportion and priority as Lender may
determine in its sole discretion. Lender's right to withdraw and apply the
Replacement Reserve Fund shall be in addition to all other rights and remedies
provided to Lender under this Agreement and the other Loan Documents.

                  (b) Nothing in this Agreement shall obligate Lender to apply
all or any portion of the Replacement Reserve Fund on account of an Event of
Default to payment of the Debt or in any specific order or priority.

                  7.3.5 BALANCE IN THE REPLACEMENT RESERVE ACCOUNT. The
insufficiency of any balance in the Replacement Reserve Account shall not
relieve Borrower from its obligation to fulfill all preservation and maintenance
covenants in the Loan Documents.

                  SECTION 7.4 ROLLOVER RESERVE.

                  7.4.1 DEPOSITS TO ROLLOVER RESERVE FUND. Borrower shall pay to
Lender on each Payment Date the sum of $3,583.33, which amounts shall be
deposited with and held by Lender for tenant improvement and leasing commission
obligations incurred following the date hereof. Amounts so deposited shall
hereinafter be referred to as the "Rollover Reserve Fund" and the account to
which such amounts are held shall hereinafter be referred to as the "Rollover
Reserve Account".

                  7.4.2 WITHDRAWAL OF ROLLOVER RESERVE FUNDS. Lender shall make
disbursements from the Rollover Escrow Fund for tenant improvement and leasing
commission obligations incurred by Borrower. All such expenses shall be approved
by Lender in its sole discretion. Lender shall make disbursements as requested
by Borrower on a quarterly basis in increments of no less than $5,000.00 upon
delivery by Borrower of Lender's standard form of draw 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 Property at Borrower's expense prior to making a quarterly disbursement in
order to verify completion of improvements for which reimbursement is sought.
All earnings or interest on the Rollover Escrow Fund shall be and become part of
such Rollover Escrow Fund and shall be disbursed as provided in this Section
7.4.

                                       72


                  SECTION 7.5 RESERVE FUNDS, GENERALLY. Borrower grants to
Lender a first-priority perfected security interest in each of the Reserve Funds
and any and all monies now or hereafter deposited in each Reserve Fund as
additional security for payment of the Debt. Until expended or applied in
accordance herewith, the Reserve Funds shall constitute additional security for
the Debt. Upon the occurrence of an Event of Default, Lender may, in addition to
any and all other rights and remedies available to Lender, apply any sums then
present in any or all of the Reserve Funds to the payment of the Debt in any
order in its sole discretion. The Reserve Funds shall not constitute trust funds
and may be commingled with other monies held by Lender. The Reserve Funds shall
be held in an Eligible Account in Permitted Investments in accordance with the
terms and provisions of the Cash Management Agreement. All interest on a Reserve
Fund shall not be added to or become a part thereof and shall be the sole
property of and shall be paid to Lender, except the Rollover Escrow Fund.
Borrower shall be responsible for payment of any federal, state or local income
or other tax applicable to the interest earned on the Reserve Funds credited or
paid to Borrower. Borrower shall not, without obtaining the prior written
consent of Lender, further pledge, assign or grant any security interest in any
Reserve Fund or the monies deposited therein or permit any lien or encumbrance
to attach thereto, or any levy to be made thereon, or any UCC-1 Financing
Statements, except those naming Lender as the secured party, to be filed with
respect thereto. Lender shall not be liable for any loss sustained on the
investment of any funds constituting the Reserve Funds. Borrower shall indemnify
Lender and hold Lender harmless from and against any and all actions, suits,
claims, demands, liabilities, losses, damages, obligations and costs and
expenses (including litigation costs and reasonable attorneys fees and expenses)
arising from or in any way connected with the Reserve Funds or the performance
of the obligations for which the Reserve Funds were established. Borrower shall
assign to Lender all rights and claims Borrower may have against all persons or
entities supplying labor, materials or other services which are to be paid from
or secured by the Reserve Funds; provided, however, that Lender may not pursue
any such right or claim unless an Event of Default has occurred and remains
uncured.

                  VIII. DEFAULTS

                  SECTION 8.1 EVENT OF DEFAULT. (a) Each of the following events
shall constitute an event of default hereunder (an "Event of Default"):

                        (i) if any portion of the Debt is not paid within five
                  (5) days of the date when due (except that Borrower shall not
                  be afforded such 5-day cure period for the portion of the Debt
                  due and payable on the Maturity Date);

                        (ii) if any of the Taxes (other than Taxes being
                  contested pursuant to Section 5.1.2 of this Agreement) are not
                  paid when the same are due and payable or Other Charges are
                  not paid within five (5) days after the date that the same are
                  due and payable;

                                       73


                        (iii) if the Policies are not kept in full force and
                  effect, or if certified copies of the Policies are not
                  delivered to Lender upon request;

                        (iv) if Borrower Transfers or otherwise encumbers any
                  portion of the Property without Lender's prior written consent
                  in violation of the provisions of this Agreement and Article 6
                  of the Mortgage;

                        (v) if any material representation or warranty made by
                  Borrower herein or in any other Loan Document, or in any
                  report, certificate, financial statement or other instrument,
                  agreement or document furnished to Lender shall have been
                  false or misleading in any material respect as of the date the
                  representation or warranty was made;

                        (vi) if Borrower, Principal, Guarantor or any other
                  guarantor under any guaranty issued in connection with the
                  Loan shall make an assignment for the benefit of creditors;

                        (vii) if a receiver, liquidator or trustee shall be
                  appointed for Borrower, Principal, Guarantor or any other
                  guarantor under any guarantee issued in connection with the
                  Loan or if Borrower, Principal, Guarantor or such other
                  guarantor shall be adjudicated a bankrupt or insolvent, 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, Principal, Guarantor or such other
                  guarantor, or if any proceeding for the dissolution or
                  liquidation of Borrower, Principal, Guarantor or such other
                  guarantor shall be instituted; provided, however, if such
                  appointment, adjudication, petition or proceeding was
                  involuntary and not consented to by Borrower, Principal,
                  Guarantor or such other guarantor, upon the same not being
                  discharged, stayed or dismissed within ninety (90) days;

                        (viii) if Borrower attempts to assign its rights under
                  this Agreement or any of the other Loan Documents or any
                  interest herein or therein in contravention of the Loan
                  Documents;

                        (ix) if Borrower breaches any covenant contained in
                  Section 4.1.30 hereof;

                        (x) with respect to any term, covenant or provision set
                  forth herein which specifically contains a notice requirement
                  or grace period, if Borrower shall be in default under such
                  term, covenant or condition after the giving of such notice or
                  the expiration of such grace period;

                        (xi) if any of the assumptions contained in the
                  Insolvency Opinion delivered to Lender in connection with the
                  Loan, or in any Additional Insolvency Opinion delivered
                  subsequent to the closing of the Loan, is or shall become
                  untrue in any material respect;

                                       74


                        (xii) if a material default has occurred and continues
                  beyond any applicable cure period under the Management
                  Agreement (or any Replacement Management Agreement) and if
                  such default permits the Manager thereunder to terminate or
                  cancel the Management Agreement (or any Replacement Management
                  Agreement);

                        (xiii) if Borrower shall continue to be in Default under
                  any of the terms, covenants or conditions of Section 9.1
                  hereof, or fails to cooperate with Lender in connection with a
                  Securitization pursuant to the provisions of Section 9.1
                  hereof, for three (3) days after notice to Borrower from
                  Lender;

                        (xiv) if Borrower shall continue to be in Default under
                  any of the other terms, covenants or conditions of this
                  Agreement not specified in subsections (i) to (xii) above, for
                  twenty (20) days after notice to Borrower from Lender, in the
                  case of any Default which can be cured by the payment of a sum
                  of money, or for thirty (30) days after notice from Lender in
                  the case of any other Default; provided, however, that if such
                  non-monetary Default is susceptible of cure but cannot
                  reasonably be cured within such thirty (30) day period and
                  provided further that Borrower shall have commenced to cure
                  such Default within such thirty (30) day period and thereafter
                  diligently and expeditiously proceeds to cure the same, such
                  thirty (30) day period shall be extended for such time as is
                  reasonably necessary for Borrower in the exercise of due
                  diligence to cure such Default, such additional period not to
                  exceed sixty (60) days; or

                        (xv) if there shall be default under any of the other
                  Loan Documents beyond any applicable cure periods contained in
                  such documents, whether as to Borrower or the Property, or if
                  any other such event shall occur or condition shall exist, if
                  the effect of such default, event or condition is to
                  accelerate the maturity of any portion of the Debt or to
                  permit Lender to accelerate the maturity of all or any portion
                  of the Debt.

                  (b) Upon the occurrence of an Event of Default (other than an
Event of Default described in clauses (vi), (vii) or (viii) above) and at any
time thereafter, in addition to any other rights or remedies available to it
pursuant to this Agreement and the other Loan Documents or at law or in equity,
Lender may take such action, without notice or demand, that Lender deems
advisable to protect and enforce its rights against Borrower and the Property,
including, without limitation, declaring the Debt to be immediately due and
payable, and Lender may enforce or avail itself of any or all rights or remedies
provided in the Loan Documents against Borrower and any or all of the Property,
including, without limitation, all rights or remedies available at law or in
equity; and upon any Event of Default described in clauses (vi), (vii) or (viii)
above, the Debt and Other Obligations of Borrower hereunder and under the other
Loan Documents shall immediately and automatically become due and payable,
without notice or demand, and Borrower hereby expressly waives any such notice
or demand, anything contained herein or in any other Loan Document to the
contrary notwithstanding.

                                       75


                  SECTION 8.2 REMEDIES. (a) Upon the occurrence of an Event of
Default, all or any one or more of the rights, powers, privileges and other
remedies available to Lender against Borrower under this Agreement or any of the
other Loan Documents executed and delivered by, or applicable to, Borrower or at
law or in equity may be exercised by Lender at any time and from time to time,
whether or not all or any of the Debt shall be declared due and payable, and
whether or not Lender shall have commenced any foreclosure proceeding or other
action for the enforcement of its rights and remedies under any of the Loan
Documents with respect to all or any part of the Property. Any such actions
taken by Lender shall be cumulative and concurrent and may be pursued
independently, singularly, successively, together or otherwise, at such time and
in such order as Lender may determine in its sole discretion, to the fullest
extent permitted by law, without impairing or otherwise affecting the other
rights and remedies of Lender permitted by law, equity or contract or as set
forth herein or in the other Loan Documents. Without limiting the generality of
the foregoing, Borrower agrees that if an Event of Default is continuing (i)
Lender is not subject to any "one action" or "election of remedies" law or rule,
and (ii) all liens and other rights, remedies or privileges provided to Lender
shall remain in full force and effect until Lender has exhausted all of its
remedies against the Property and the Mortgage has been foreclosed, sold and/or
otherwise realized upon in satisfaction of the Debt or the Debt has been paid in
full.

                  (b) With respect to Borrower and the Property, nothing
contained herein or in any other Loan Document shall be construed as requiring
Lender to resort to the Property for the satisfaction of any of the Debt in any
preference or priority, and Lender may seek satisfaction out of the Property, or
any part thereof, in its absolute discretion in respect of the Debt. In
addition, Lender shall have the right from time to time to partially foreclose
the Mortgage in any manner and for any amounts secured by the Mortgage then due
and payable as determined by Lender in its sole discretion including, without
limitation, the following circumstances: (i) in the event Borrower defaults
beyond any applicable grace period in the payment of one or more scheduled
payments of principal and interest, Lender may foreclose the Mortgage to recover
such delinquent payments or (ii) in the event Lender elects to accelerate less
than the entire outstanding principal balance of the Loan, Lender may foreclose
the Mortgage to recover so much of the principal balance of the Loan as Lender
may accelerate and such other sums secured by the Mortgage as Lender may elect.
Notwithstanding one or more partial foreclosures, the Property shall remain
subject to the Mortgage to secure payment of sums secured by the Mortgage and
not previously recovered.

                  (c) Lender shall have the right from time to time to sever the
Note and the other Loan Documents into one or more separate notes, mortgages and
other security documents (the "Severed Loan Documents") in such denominations as
Lender shall determine in its sole discretion for purposes of evidencing and
enforcing its rights and remedies provided hereunder. Borrower shall execute and
deliver to Lender from time to time, promptly after the request of Lender, a
severance agreement and such other documents as Lender shall request in order to
effect the severance described in the preceding sentence, all in form and
substance reasonably satisfactory to Lender. Borrower hereby absolutely and
irrevocably appoints Lender as its true and lawful attorney, coupled with an
interest, in its name and stead to make and execute all documents necessary or
desirable to effect the aforesaid severance, Borrower ratifying all that its
said attorney shall do by virtue thereof; provided, however, Lender shall not
make or execute any such documents under such power until three (3) days after
notice has been given to Borrower by Lender of Lender's intent to exercise its
rights under such power. Borrower shall be obligated to pay any costs or
expenses incurred in connection with the preparation, execution, recording or
filing of the Severed Loan Documents and the Severed Loan Documents shall not
contain any representations, warranties or covenants not contained in the Loan
Documents and any such representations and warranties contained in the Severed
Loan Documents will be given by Borrower only as of the Closing Date.

                                       76


                  SECTION 8.3 REMEDIES CUMULATIVE; WAIVERS. The rights, powers
and remedies of Lender under this Agreement shall be cumulative and not
exclusive of any other right, power or remedy which Lender may have against
Borrower pursuant to this Agreement or the other Loan Documents, or existing at
law or in equity or otherwise. Lender's rights, powers and remedies may be
pursued singularly, concurrently or otherwise, at such time and in such order as
Lender may determine in Lender's sole discretion. No delay or omission to
exercise any remedy, right or power accruing upon an Event of Default shall
impair any such remedy, right or power or shall be construed as a waiver
thereof, but any such remedy, right or power may be exercised from time to time
and as often as may be deemed expedient. A waiver of one Default or Event of
Default with respect to Borrower shall not be construed to be a waiver of any
subsequent Default or Event of Default by Borrower or to impair any remedy,
right or power consequent thereon.

                  IX. SPECIAL PROVISIONS

                  SECTION 9.1 SECURITIZATION.

                  9.1.1 SALE OF NOTES AND SECURITIZATION. Borrower acknowledges
and agrees that Lender may sell all or any portion of the Loan and the Loan
Documents, or issue one or more participations therein, or consummate one or
more private or public securitizations of rated single- or multi-class
securities (the "Securities") secured by or evidencing ownership interests in
all or any portion of the Loan and the Loan Documents or a pool of assets that
include the Loan and the Loan Documents (such sales, participations and/or
securitizations, collectively, a "Securitization"). At the request of Lender,
and to the extent not already required to be provided by or on behalf of
Borrower under this Agreement, Borrower shall use reasonable efforts to provide
information not in the possession of Lender or which may be reasonably required
by Lender or take other actions reasonably required by Lender, in each case in
order to satisfy the market standards to which Lender customarily adheres or
which may be reasonably required by prospective investors and/or the Rating
Agencies in connection with any such Securitization including, without
limitation, to:

                  (a) provide additional and/or updated Provided Information,
together with appropriate verification and/or consents related to the Provided
Information through letters of auditors or opinions of counsel of independent
attorneys reasonably acceptable to Lender, prospective investors and/or the
Rating Agencies;

                  (b) assist in preparing descriptive materials for
presentations to any or all of the Rating Agencies, and work with, and if
requested, supervise, third-party service providers engaged by Borrower and
approved by Lender, Principal and their respective affiliates to obtain,
collect, and deliver information requested or required by Lender, prospective
investors and/or the Rating Agencies;

                                       77


                  (c) deliver (i) an Additional Insolvency Opinion and an
opinion with respect to, due execution and enforceability with respect to the
Property, Borrower, Principal, Guarantor and their respective Affiliates and the
Loan Documents, including, without limitation, a so called "10b-5" opinion, and
(ii) revised organizational documents for Borrower, which counsel opinions and
organizational documents shall be reasonably satisfactory to Lender, prospective
investors and/or the Rating Agencies;

                  (d) if required by any prospective investor and/or any Rating
Agency, use commercially reasonable efforts to deliver such additional tenant
estoppel letters, subordination agreements or other agreements from parties to
agreements that affect the Property, which estoppel letters, subordination
agreements or other agreements shall be reasonably satisfactory to Lender,
prospective investors and/or the Rating Agencies;

                  (e) make such representations and warranties as of the closing
date of the Securitization with respect to the Property, Borrower, Principal,
Guarantor and the Loan Documents as may be reasonably requested by Lender,
prospective investors and/or the Rating Agencies and consistent with the facts
covered by such representations and warranties as they exist on the date
thereof, including the representations and warranties made in the Loan
Documents;

                  (f) execute such amendments to the Loan Documents as may be
requested by Lender, prospective investors and/or the Rating Agencies to effect
the Securitization;

                  (g) if requested by Lender, review any information regarding
the Property, Borrower, Principal, Guarantor, Manager and the Loan which is
contained in a preliminary or final private placement memorandum, prospectus,
prospectus supplement (including any amendment or supplement to either thereof),
or other disclosure document to be used by Lender or any affiliate thereof; and

                  (h) supply to Lender such documentation, financial statements
and reports in form and substance required in order to comply with any
applicable securities laws.

                  9.1.2 LOAN COMPONENTS. Borrower covenants and agrees that in
connection with any Securitization of the Loan, upon Lender's request Borrower
shall deliver one or more new component notes to replace the original note or
modify the original note to reflect multiple components of the Loan or create
one or more mezzanine loans (including amending Borrower's organizational
structure to provide for one or more mezzanine borrowers) [or re-size the
Components of the Loan] (each a "RESIZING EVENT"). Lender agrees that such new
notes or modified note or mezzanine notes [or re-sized Components] shall
immediately after the Resizing Event have the same initial weighted average
coupon as the original note prior to such Resizing Event, notwithstanding that
such new notes or modified note or mezzanine notes or [re-sized Component] may,
in connection with the application of principal to such new notes or modified
note or mezzanine notes [or re-sized Components], subsequently cause the
weighted average spread of such new notes or modified note or mezzanine notes
[or re-sized Components] to change (but not increase, except that the weighted
average spread may subsequently increase due to involuntary prepayments or if an
Event of Default shall occur) and apply principal, interest rates and
amortization of the Loan between such new components and/or mezzanine loans in a
manner specified by Lender in its sole discretion such that the pricing and
marketability of the Securities and the size of each class of Securities and the
rating assigned to each such class by the Rating Agencies shall provide the most
favorable rating levels and achieve the optimum bond execution for the Loan. In
connection with any Resizing Event, Borrower covenants and agrees to modify the
Cash Management Agreement with respect to the newly created components and/or
mezzanine loans.

                                       78


                  9.1.3 SECURITIZATION COSTS. All reasonable third party costs
and expenses incurred by Borrower and Guarantor in connection with Borrower's
complying with requests made under this Section 9.1 (including, without
limitation, the fees and expenses of the Rating Agencies) shall be paid by
Lender.

                  SECTION 9.2 SECURITIZATION INDEMNIFICATION. (a) Borrower
understands that certain of the Provided Information may be included in
Disclosure Documents in connection with the Securitization and may also be
included in filings with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), or provided or made
available to investors or prospective investors in the Securities, the Rating
Agencies, and service providers relating to the Securitization. In the event
that the Disclosure Document is required to be revised prior to the sale of all
Securities, Borrower will cooperate with the holder of the Note in updating the
Disclosure Document by providing all current information necessary to keep the
Disclosure Document accurate and complete in all material respects.

                  (b) The Indemnifying Persons agree to provide, in connection
with the Securitization, an indemnification agreement (A) certifying that (i)
the Indemnifying Persons have carefully examined the Disclosure Documents,
including without limitation, the sections entitled "Risk Factors," "Special
Considerations," "Description of the Mortgages," "Description of the Mortgage
Loans and Mortgaged Property," "The Manager," "The Borrower" and "Certain Legal
Aspects of the Mortgage Loan," and (ii) such sections and such other information
in the Disclosure Documents (to the extent such information relates to or
includes any Provided Information or any information regarding the Properties,
Borrower, Manager and/or the Loan) (collectively with the Provided Information,
the "Covered Disclosure Information") do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading, (B) jointly and severally indemnifying Lender, BSCMI (whether or
not it is the Lender), any Affiliate of BSCMI that has filed any registration
statement relating to the Securitization or has acted as the sponsor or
depositor in connection with the Securitization, any Affiliate of BSCMI that
acts as an underwriter, placement agent or initial purchaser of Securities
issued in the Securitization, any other co-underwriters, co-placement agents or
co-initial purchasers of Securities issued in the Securitization, and each of
their respective officers, directors, partners, employees, representatives,
agents and Affiliates and each Person or entity who Controls any such Person
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (collectively, the "Indemnified Persons"), for any losses, claims,
damages, liabilities, costs or expenses (including without limitation legal fees
and expenses for enforcement of these obligations (collectively, the
"Liabilities") to which any such Indemnified Person may become subject insofar
as the Liabilities arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Covered


                                       79


Disclosure Information or arise out of or are based upon the omission or alleged
omission to state in the Covered Disclosure Information a material fact required
to be stated therein or necessary in order to make the statements in the Covered
Disclosure Information, in light of the circumstances under which they were
made, not misleading and (C) agreeing to reimburse each Indemnified Person for
any legal or other expenses incurred by such Indemnified Person, as they are
incurred, in connection with investigating or defending the Liabilities. This
indemnity agreement will be in addition to any liability which Borrower may
otherwise have. Moreover, the indemnification and reimbursement obligations
provided for in clauses (B) and (C) above shall be effective, valid and binding
obligations of the Indemnifying Persons whether or not an indemnification
agreement described in clause (A) above is provided.

                  (c) In connection with Exchange Act Filings, the Indemnifying
Persons jointly and severally agree to indemnify (i) the Indemnified Persons for
Liabilities to which any such Indemnified Person may become subject insofar as
the Liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact in the Covered Disclosure Information, or
the omission or alleged omission to state in the Covered Disclosure Information
a material fact required to be stated therein or necessary in order to make the
statements in the Covered Disclosure Information, in light of the circumstances
under which they were made, not misleading and (ii) reimburse each Indemnified
Person for any legal or other expenses incurred by such Indemnified Persons, as
they are incurred, in connection with defending or investigating the
Liabilities.

                  (d) Promptly after receipt by an Indemnified Person of notice
of any claim or the commencement of any action, the Indemnified Person shall, if
a claim in respect thereof is to be made against any Indemnifying Person, notify
such Indemnifying Person in writing of the claim or the commencement of that
action; provided, however, that the failure to notify such Indemnifying Person
shall not relieve it from any liability which it may have under the
indemnification provisions of this Section 9.2 except to the extent that it has
been materially prejudiced by such failure and, provided further that the
failure to notify such Indemnifying Person shall not relieve it from any
liability which it may have to an Indemnified Person otherwise than under the
provisions of this Section 9.2. If any such claim or action shall be brought
against an Indemnified Person, and it shall notify any Indemnifying Person
thereof, such Indemnifying Person shall be entitled to participate therein and,
to the extent that it wishes, assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Person. After notice from any Indemnifying
Person to the Indemnified Person of its election to assume the defense of such
claim or action, such Indemnifying Person shall not be liable to the Indemnified
Person for any legal or other expenses subsequently incurred by the Indemnified
Person in connection with the defense thereof except as provided in the
following sentence; provided, however, if the defendants in any such action
include both an Indemnifying Person, on the one hand, and one or more
Indemnified Persons on the other hand, and an Indemnified Person shall have
reasonably concluded that there are any legal defenses available to it and/or
other Indemnified Persons that are different or in addition to those available
to the Indemnifying Person, the Indemnified Person or Persons shall have the
right to select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such Indemnified Person


                                       80


or Persons. The Indemnified Person shall instruct its counsel to maintain
reasonably detailed billing records for fees and disbursements for which such
Indemnified Person is seeking reimbursement hereunder and shall submit copies of
such detailed billing records to substantiate that such counsel's fees and
disbursements are solely related to the defense of a claim for which the
Indemnifying Person is required hereunder to indemnify such Indemnified Person.
No Indemnifying Person shall be liable for the expenses of more than one (1)
such separate counsel unless such Indemnified Person shall have reasonably
concluded that there may be legal defenses available to it that are different
from or additional to those available to another Indemnified Person.

                  (e) Without the prior written consent of BSCMI (which consent
shall not be unreasonably withheld or delayed), no Indemnifying Person shall
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not any Indemnified Person is an actual or
potential party to such claim, action, suit or proceeding) unless the
Indemnifying Person shall have given BSCMI reasonable prior written notice
thereof and shall have obtained an unconditional release of each Indemnified
Person hereunder from all liability arising out of such claim, action, suit or
proceedings. As long as an Indemnifying Person has complied with its obligations
to defend and indemnify hereunder, such Indemnifying Person shall not be liable
for any settlement made by any Indemnified Person without the consent of such
Indemnifying Person (which consent shall not be unreasonably withheld or
delayed).

                  (f) The Indemnifying Persons agree that if any indemnification
or reimbursement sought pursuant to this Section 9.2 is finally judicially
determined to be unavailable for any reason or is insufficient to hold any
Indemnified Person harmless (with respect only to the Liabilities that are the
subject of this Section 9.2), then the Indemnifying Persons, on the one hand,
and such Indemnified Person, on the other hand, shall contribute to the
Liabilities for which such indemnification or reimbursement is held unavailable
or is insufficient: (x) in such proportion as is appropriate to reflect the
relative benefits to the Indemnifying Persons, on the one hand, and such
Indemnified Person, on the other hand, from the transactions to which such
indemnification or reimbursement relates; or (y) if the allocation provided by
clause (x) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (x)
but also the relative faults of the Indemnifying Persons, on the one hand, and
all Indemnified Persons, on the other hand, as well as any other equitable
considerations. Notwithstanding the provisions of this Section 9.2, (A) no party
found liable for a fraudulent misrepresentation shall be entitled to
contribution from any other party who is not also found liable for such
fraudulent misrepresentation, and (B) the Indemnifying Persons agree that in no
event shall the amount to be contributed by the Indemnified Persons collectively
pursuant to this paragraph exceed the amount of the fees actually received by
the Indemnified Persons in connection with the closing of the Loan.

                  (g) The Indemnifying Persons agree that the indemnification,
contribution and reimbursement obligations set forth in this Section 9.2 shall
apply whether or not any Indemnified Person is a formal party to any lawsuits,
claims or other proceedings. The Indemnifying Persons further agree that the
Indemnified Persons are intended third party beneficiaries under this Section
9.2.

                                       81


                  (h) The liabilities and obligations of the Indemnified Persons
and the Indemnifying Persons under this Section 9.2 shall survive the
termination of this Agreement and the satisfaction and discharge of the Debt.

                  (i) Notwithstanding anything to the contrary contained herein,
Borrower shall have no obligation to act as depositor with respect to the Loan
or an issuer or registrant with respect to the Securities issued in any
Securitization.

                  SECTION 9.3 EXCULPATION. Subject to the qualifications below,
Lender shall not enforce the liability and obligation of Borrower to perform and
observe the obligations contained in the Note, this Agreement, the Mortgage or
the other Loan Documents by any action or proceeding wherein a money judgment
shall be sought against Borrower, except that Lender may bring a foreclosure
action, an action for specific performance or any other appropriate action or
proceeding to enable Lender to enforce and realize upon its interest under the
Note, this Agreement, the Mortgage and the other Loan Documents, or in the
Property, the Rents, or any other collateral given to Lender pursuant to the
Loan Documents; provided, however, that, except as specifically provided herein,
any judgment in any such action or proceeding shall be enforceable against
Borrower only to the extent of Borrower's interest in the Property, in the Rents
and in any other collateral given to Lender, and Lender, by accepting the Note,
this Agreement, the Mortgage and the other Loan Documents, agrees that it shall
not sue for, seek or demand any deficiency judgment against Borrower in any such
action or proceeding under or by reason of or under or in connection with the
Note, this Agreement, the Mortgage or the other Loan Documents. The provisions
of this Section shall not, however, (a) constitute a waiver, release or
impairment of any obligation evidenced or secured by any of the Loan Documents;
(b) impair the right of Lender to name Borrower as a party defendant in any
action or suit for foreclosure and sale under the Mortgage; (c) affect the
validity or enforceability of or any guaranty made in connection with the Loan
or any of the rights and remedies of Lender thereunder; (d) impair the right of
Lender to obtain the appointment of a receiver; (e) impair the enforcement of
any of the Assignment of Leases; (f) constitute a prohibition against Lender to
seek a deficiency judgment against Borrower in order to fully realize the
security granted by the Mortgage or to commence any other appropriate action or
proceeding in order for Lender to exercise its remedies against the Property; or
(g) constitute a waiver of the right of Lender to enforce the liability and
obligation of Borrower, by money judgment or otherwise, to the extent of any
loss, damage, cost, expense, liability, claim or other obligation incurred by
Lender (including attorneys' fees and costs reasonably incurred) arising out of
or in connection with the following:

                        (i) fraud or intentional misrepresentation by Borrower
                  or Principal or Guarantor in connection with the Loan;

                        (ii) the gross negligence or willful misconduct of
                  Borrower;

                        (iii) the breach of any representation, warranty,
                  covenant or indemnification provision in the Environmental
                  Indemnity Agreement or in the Mortgage concerning
                  environmental laws, hazardous substances and asbestos and any
                  indemnification of Lender with respect thereto in either
                  document;

                                       82


                        (iv) the removal or disposal of any portion of the
                  Property after an Event of Default;

                        (v) the misapplication or conversion by Borrower of (A)
                  any Insurance Proceeds paid by reason of any loss, damage or
                  destruction to the Property, (B) any Awards received in
                  connection with a Condemnation of all or a portion of the
                  Property, (C) any Rents following an Event of Default, or (D)
                  any Rents paid more than one month in advance;

                        (vi) failure to pay charges for labor or materials or
                  other charges that can create Liens on any portion of the
                  Property; and

                        (vii) any security deposits, advance deposits or any
                  other deposits collected with respect to the Property which
                  are not delivered to Lender upon a foreclosure of the Property
                  or action in lieu thereof, except to the extent any such
                  security deposits were applied in accordance with the terms
                  and conditions of any of the Leases prior to the occurrence of
                  the Event of Default that gave rise to such foreclosure or
                  action in lieu thereof.

                  Notwithstanding anything to the contrary in this Agreement,
the Note or any of the Loan Documents, (A) Lender shall not be deemed to have
waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or
any other provisions of the Bankruptcy Code to file a claim for the full amount
of the Debt secured by the Mortgage or to require that all collateral shall
continue to secure all of the Debt owing to Lender in accordance with the Loan
Documents, and (B) the Debt shall be fully recourse to Borrower (i) in the event
of: (a) Borrower filing a voluntary petition under the Bankruptcy Code or any
other Federal or state bankruptcy or insolvency law; (b) the filing of an
involuntary petition against Borrower under the Bankruptcy Code or any other
Federal or state bankruptcy or insolvency law, in which Borrower colludes with,
or otherwise assists such Person, or solicits or causes to be solicited
petitioning creditors for any involuntary petition against Borrower from any
Person; (c) Borrower filing an answer consenting to or otherwise acquiescing in
or joining in any involuntary petition filed against it, by any other Person
under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency
law; (d) Borrower consenting to or acquiescing in or joining in an application
for the appointment of a custodian, receiver, trustee, or examiner for Borrower
or any portion of the Property; (e) Borrower making an assignment for the
benefit of creditors, or admitting, in writing or in any legal proceeding, its
insolvency or inability to pay its debts as they become due; (ii) if the first
full monthly payment of principal and interest on the Note is not paid when due;
(iii) if Borrower fails to permit on-site inspections of the Property, fails to
provide financial information, fails to maintain its status as a Single Purpose
Entity or fails to appoint a new property manager upon the request of Lender as
permitted under this Agreement, each as required by, and in accordance with, the
terms and provisions of this Agreement or the Mortgage; (iv) if Borrower fails
to obtain Lender's prior written consent to any Indebtedness or voluntary Lien
encumbering the Property; or (v) if Borrower fails to obtain Lender's prior
written consent to any Transfer as required by this Agreement or the Mortgage.

                                       83


                  SECTION 9.4 MATTERS CONCERNING MANAGER. If (a) an Event of
Default occurs, (b) Manager shall become bankrupt or insolvent or (c) a default
occurs under the Management Agreement, Borrower shall, at the request of Lender,
terminate the Management Agreement and replace the Manager with a Qualified
Manager pursuant to a Replacement Management Agreement, it being understood and
agreed that the management fee for such Qualified Manager shall not exceed then
prevailing market rates.

                  SECTION 9.5 SERVICER. At the option of Lender, the Loan may be
serviced by a servicer/trustee (any such servicer/trustee, together with its
agents, nominees or designees, are collectively referred to as "Servicer")
selected by Lender and Lender may delegate all or any portion of its
responsibilities under this Agreement and the other Loan Documents to Servicer
pursuant to a servicing agreement (the "Servicing Agreement") between Lender and
Servicer. Borrower shall be responsible for any reasonable set-up fees or any
other initial costs relating to or arising under the Servicing Agreement;
provided, however, that Borrower shall not be responsible for payment of the
monthly servicing fee due to Servicer under the Servicing Agreement.

                  X. MISCELLANEOUS

                  SECTION 10.1 SURVIVAL. This Agreement and all covenants,
agreements, representations and warranties made herein and in the certificates
delivered pursuant hereto shall survive the making by Lender of the Loan and the
execution and delivery to Lender of the Note, and shall continue in full force
and effect so long as all or any of the Debt is outstanding and unpaid unless a
longer period is expressly set forth herein or in the other Loan Documents.
Whenever in this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the legal representatives, successors and
assigns of such party. All covenants, promises and agreements in this Agreement,
by or on behalf of Borrower, shall inure to the benefit of the legal
representatives, successors and assigns of Lender.

                  SECTION 10.2 LENDER'S DISCRETION. Whenever pursuant to this
Agreement, 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 whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of Lender and shall be final and
conclusive.

                  SECTION 10.3 GOVERNING LAW.

                  (a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK,
THE LOAN WAS MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK,
AND THE PROCEEDS OF THE LOAN DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE
STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP
TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL
RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE NOTE AND THE
OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF
AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION,
AND ENFORCEMENT OF THE LIEN AND SECURITY INTEREST CREATED PURSUANT HERETO AND
PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED


                                       84


ACCORDING TO THE LAW OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IT BEING
UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE
LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND
ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING
HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS, AND THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

                  (b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR
BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS MAY AT LENDER'S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN
THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW
YORK GENERAL OBLIGATIONS LAW AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW
OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT,
ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES
HEREBY DESIGNATE AND APPOINT:

                  Corporation Service Company
                  2711 Centerville Road, Suite 400
                  Wilmington, DE 19808


AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY
AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN
ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF
PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE
MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUCH SUIT,
ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT
NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II)
MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT
WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE
DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL
PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN
OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

                                       85


                  SECTION 10.4 MODIFICATION, WAIVER IN WRITING. No modification,
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, or of the Note, or of any other Loan Document, nor consent to any
departure by Borrower therefrom, shall in any event be effective unless the same
shall be in a writing signed by the party against whom enforcement is sought,
and then such waiver or consent shall be effective only in the specific
instance, and for the purpose, for which given. Except as otherwise expressly
provided herein, no notice to, or demand on Borrower, shall entitle Borrower to
any other or future notice or demand in the same, similar or other
circumstances.

                  SECTION 10.5 DELAY NOT A WAIVER. Neither any failure nor any
delay on the part of Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under the Note or under any other Loan Document, or any
other instrument given as security therefor, shall operate as or constitute a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege. In particular, and not by way of limitation, by accepting payment
after the due date of any amount payable under this Agreement, the Note or any
other Loan Document, Lender shall not be deemed to have waived any right either
to require prompt payment when due of all other amounts due under this
Agreement, the Note or the other Loan Documents, or to declare a default for
failure to effect prompt payment of any such other amount.

                  SECTION 10.6 NOTICES. All notices, consents, approvals and
requests required or permitted hereunder or under any other Loan Document shall
be given in writing and shall be effective for all purposes if hand delivered or
sent by (a) certified or registered United States mail, postage prepaid, return
receipt requested or (b) expedited prepaid delivery service, either commercial
or United States Postal Service, with proof of attempted delivery, and by
telecopier (with answer back acknowledged), addressed as follows (or at such
other address and Person as shall be designated from time to time by any party
hereto, as the case may be, in a written notice to the other parties hereto in
the manner provided for in this Section):

                  If to Lender:    Bear Stearns Commercial Mortgage, Inc.
                                   383 Madison Avenue
                                   New York, New York 10179
                                   Attention: J. Christopher Hoeffel
                                   Facsimile No.: (212) 272-7047

                  with a copy to:  Kelley Drye & Warren LLP
                                   101 Park Avenue
                                   New York, New York 10178
                                   Attention: Paul A. Keenan, Esq.
                                   Facsimile No.: (212) 808-7897

                                       86


                  If to Borrower:  c/o Acadia Realty Trust
                                   1311 Mamaroneck Avenue, Suite 260
                                   White Plains, New York  10605
                                   Attention: Mr. Michael Nelsen, Chief
                                              Financial Officer
                                   Facsimile No.: (914) 288.2162

                  With a copy to:  Acadia Realty Trust
                                   1311 Mamaroneck Avenue, Suite 260
                                   White Plains, New York  10605
                                   Attention: Robert Masters, Esq., General
                                              Counsel
                                   Facsimile No.: (914) 288.2162

A notice shall be deemed to have been given: in the case of hand delivery, at
the time of delivery; in the case of registered or certified mail, when
delivered or the first attempted delivery on a Business Day; or in the case of
expedited prepaid delivery and telecopy, upon the first attempted delivery on a
Business Day; or in the case of telecopy, upon sender's receipt of a
machine-generated confirmation of successful transmission after advice by
telephone to recipient that a telecopy notice is forthcoming.

                  SECTION 10.7 TRIAL BY JURY.

                  BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY
ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO
THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE
LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION
THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND
VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.
LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING
AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.

                  SECTION 10.8 HEADINGS. The Article and/or Section headings and
the Table of Contents in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.

                  SECTION 10.9 SEVERABILITY. Wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

                                       87


                  SECTION 10.10 PREFERENCES. Lender shall have the continuing
and exclusive right to apply or reverse and reapply any and all payments by
Borrower to any portion of the obligations of Borrower hereunder. To the extent
Borrower makes a payment or payments to Lender, which payment or proceeds or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
obligations hereunder or part thereof intended to be satisfied shall be revived
and continue in full force and effect, as if such payment or proceeds had not
been received by Lender.

                  SECTION 10.11 WAIVER OF NOTICE. Borrower shall not be entitled
to any notices of any nature whatsoever from Lender except with respect to
matters for which this Agreement or the other Loan Documents specifically and
expressly provide for the giving of notice by Lender to Borrower and except with
respect to matters for which Borrower is not, pursuant to applicable Legal
Requirements, permitted to waive the giving of notice. Borrower hereby expressly
waives the right to receive any notice from Lender with respect to any matter
for which this Agreement or the other Loan Documents do not specifically and
expressly provide for the giving of notice by Lender to Borrower.

                  SECTION 10.12 REMEDIES OF BORROWER. In the event that a claim
or adjudication is made that Lender or its agents have acted unreasonably or
unreasonably delayed acting in any case where by law or under this Agreement or
the other Loan Documents, Lender or such agent, as the case may be, has an
obligation to act reasonably or promptly, Borrower agrees that neither Lender
nor its agents shall be liable for any monetary damages, and Borrower's sole
remedies shall be limited to commencing an action seeking injunctive relief or
declaratory judgment. The parties hereto agree that any action or proceeding to
determine whether Lender has acted reasonably shall be determined by an action
seeking declaratory judgment.

                  SECTION 10.13 EXPENSES; INDEMNITY. (a) Borrower covenants and
agrees to pay or, if Borrower fails to pay, to reimburse, Lender upon receipt of
written notice from Lender for all reasonable costs and expenses (including
reasonable attorneys' fees and disbursements) incurred by Lender in connection
with (i) the preparation, negotiation, execution and delivery of this Agreement
and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby and all the costs of furnishing all opinions by
counsel for Borrower (including without limitation any opinions requested by
Lender as to any legal matters arising under this Agreement or the other Loan
Documents with respect to the Property); (ii) Borrower's ongoing performance of
and compliance with Borrower's respective agreements and covenants contained in
this Agreement and the other Loan Documents on its part to be performed or
complied with after the Closing Date, including, without limitation, confirming
compliance with environmental and insurance requirements; (iii) Lender's ongoing
performance and compliance with all agreements and conditions contained in this
Agreement and the other Loan Documents on its part to be performed or complied
with after the Closing Date; (iv) the negotiation, preparation, execution,
delivery and administration of any consents, amendments, waivers or other
modifications to this Agreement and the other Loan Documents and any other
documents or matters requested by Lender; (v) securing Borrower's compliance
with any requests made pursuant to the provisions of this Agreement; (vi) the
filing and recording fees and expenses, title insurance and reasonable fees and
expenses of counsel for providing to Lender all required legal opinions, and
other similar expenses incurred in creating and perfecting the Lien in favor of
Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing
or preserving any rights, in response to third party claims or the prosecuting
or defending of any action or proceeding or other litigation, in each case


                                       88


against, under or affecting Borrower, this Agreement, the other Loan Documents,
the Property, or any other security given for the Loan; and (viii) enforcing any
obligations of or collecting any payments due from Borrower under this
Agreement, the other Loan Documents or with respect to the Property (including
any fees incurred by Servicer in connection with the transfer of the Loan to a
special servicer prior to a Default or Event of Default) or in connection with
any refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or of any insolvency or bankruptcy
proceedings; provided, however, that Borrower shall not be liable for the
payment of any such costs and expenses to the extent the same arise by reason of
the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any
cost and expenses due and payable to Lender may be paid from any amounts in the
Lockbox Account or Cash Management Account, as applicable.

                  (b) Borrower shall indemnify, defend and hold harmless Lender
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for Lender in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not Lender shall be designated a party thereto), that may be imposed
on, incurred by, or asserted against Lender in any manner relating to or arising
out of (i) any breach by Borrower of its obligations under, or any material
misrepresentation by Borrower contained in, this Agreement or the other Loan
Documents, or (ii) the use or intended use of the proceeds of the Loan
(collectively, the "Indemnified Liabilities"); provided, however, that Borrower
shall not have any obligation to Lender hereunder to the extent that such
Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or
willful misconduct of Lender. To the extent that the undertaking to indemnify,
defend and hold harmless set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, Borrower shall pay
the maximum portion that it is permitted to pay and satisfy under applicable law
to the payment and satisfaction of all Indemnified Liabilities incurred by
Lender.

                  (c) Borrower covenants and agrees to pay for or, if Borrower
fails to pay, to reimburse Lender for, any fees and expenses incurred by any
Rating Agency in connection with any Rating Agency review of the Loan, the Loan
Documents or any transaction contemplated thereby or any consent, approval,
waiver or confirmation obtained from such Rating Agency pursuant to the terms
and conditions of this Agreement or any other Loan Document and Lender shall be
entitled to require payment of such fees and expenses as a condition precedent
to the obtaining of any such consent, approval, waiver or confirmation.

                  SECTION 10.14 SCHEDULES INCORPORATED. The Schedules annexed
hereto are hereby incorporated herein as a part of this Agreement with the same
effect as if set forth in the body hereof.

                  SECTION 10.15 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any
assignee of Lender's interest in and to this Agreement, the Note and the other
Loan Documents shall take the same free and clear of all offsets, counterclaims
or defenses which are unrelated to such documents which Borrower may otherwise
have against any assignor of such documents, and no such unrelated counterclaim
or defense shall be interposed or asserted by Borrower in any action or
proceeding brought by any such assignee upon such documents and any such right
to interpose or assert any such unrelated offset, counterclaim or defense in any
such action or proceeding is hereby expressly waived by Borrower.

                                       89


                  SECTION 10.16 NO JOINT VENTURE OR PARTNERSHIP; NO THIRD PARTY
BENEFICIARIES. (a) Borrower and Lender intend that the relationships created
hereunder and under the other Loan Documents be solely that of borrower and
lender. Nothing herein or therein is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship between Borrower
and Lender nor to grant Lender any interest in the Property other than that of
mortgagee, beneficiary or lender.

                  (b) This Agreement and the other Loan Documents are solely for
the benefit of Lender and Borrower and nothing contained in this Agreement or
the other Loan Documents shall be deemed to confer upon anyone other than Lender
and Borrower any right to insist upon or to enforce the performance or
observance of any of the obligations contained herein or therein. All conditions
to the obligations of Lender to make the Loan hereunder are imposed solely and
exclusively for the benefit of Lender and no other Person shall have standing to
require satisfaction of such conditions in accordance with their terms or be
entitled to assume that Lender will refuse to make the Loan in the absence of
strict compliance with any or all thereof and no other Person shall under any
circumstances be deemed to be a beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by Lender if, in Lender's sole
discretion, Lender deems it advisable or desirable to do so.

                  SECTION 10.17 PUBLICITY. All news releases, publicity or
advertising by Borrower or its Affiliates through any media intended to reach
the general public which refers to the Loan Documents or the financing evidenced
by the Loan Documents, to Lender, BSCMI, or any of their Affiliates shall be
subject to the prior written approval of Lender.

                  SECTION 10.18 WAIVER OF MARSHALLING OF ASSETS. To the fullest
extent permitted by law, Borrower, for itself and its successors and assigns,
waives all rights to a marshalling of the assets of Borrower, Borrower's
partners and others with interests in Borrower, and of the Property, and agrees
not to assert any right under any laws pertaining to the marshalling of assets,
the sale in inverse order of alienation, homestead exemption, the administration
of estates of decedents, or any other matters whatsoever to defeat, reduce or
affect the right of Lender under the Loan Documents to a sale of the Property
for the collection of the Debt without any prior or different resort for
collection or of the right of Lender to the payment of the Debt out of the net
proceeds of the Property in preference to every other claimant whatsoever.

                  SECTION 10.19 WAIVER OF COUNTERCLAIM. Borrower hereby waives
the right to assert a counterclaim, other than a compulsory counterclaim, in any
action or proceeding brought against it by Lender or its agents.

                                       90


                  SECTION 10.20 CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE.
In the event of any conflict between the provisions of this Agreement and any of
the other Loan Documents, the provisions of this Agreement shall control. The
parties hereto acknowledge that they were represented by competent counsel in
connection with the negotiation, drafting and execution of the Loan Documents
and that such Loan Documents shall not be subject to the principle of construing
their meaning against the party which drafted same. Borrower acknowledges that,
with respect to the Loan, Borrower shall rely solely on its own judgment and
advisors in entering into the Loan without relying in any manner on any
statements, representations or recommendations of Lender or any parent,
subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation
whatsoever in the exercise of any rights or remedies available to it under any
of the Loan Documents or any other agreements or instruments which govern the
Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of
Lender of any equity interest any of them may acquire in Borrower, and Borrower
hereby irrevocably waives the right to raise any defense or take any action on
the basis of the foregoing with respect to Lender's exercise of any such rights
or remedies. Borrower acknowledges that Lender engages in the business of real
estate financings and other real estate transactions and investments which may
be viewed as adverse to or competitive with the business of Borrower or its
Affiliates.

                  SECTION 10.21 BROKERS AND FINANCIAL ADVISORS. Borrower hereby
represents that it has dealt with no financial advisors, brokers, underwriters,
placement agents, agents or finders in connection with the transactions
contemplated by this Agreement. Borrower hereby agrees to indemnify, defend and
hold Lender harmless from and against any and all claims, liabilities, costs and
expenses of any kind (including Lender's attorneys' fees and expenses) in any
way relating to or arising from a claim by any Person that such Person acted on
behalf of Borrower or Lender in connection with the transactions contemplated
herein. The provisions of this Section 10.21 shall survive the expiration and
termination of this Agreement and the payment of the Debt.

                  SECTION 10.22 PRIOR AGREEMENTS. This Agreement and the other
Loan Documents contain the entire agreement of the parties hereto and thereto in
respect of the transactions contemplated hereby and thereby, and all prior
agreements among or between such parties, whether oral or written, including,
without limitation, the Application Letter dated October 28, 2005 (as amended)
between Borrower and Lender are superseded by the terms of this Agreement and
the other Loan Documents.

                  SECTION 10.23 JOINT AND SEVERAL LIABILITY. If Borrower
consists of more than one (1) Person the obligations and liabilities of each
Person shall be joint and several.

                  SECTION 10.24 CERTAIN ADDITIONAL RIGHTS OF LENDER (VCOC).
Notwithstanding anything to the contrary contained in this Agreement, Lender
shall have:

                  (a) the right to routinely consult with and advise Borrower's
management regarding the significant business activities and business and
financial developments of Borrower; provided, however, that such consultations
shall not include discussions of environmental compliance programs or disposal
of hazardous substances. Consultation meetings should occur on a regular basis
(no less frequently than quarterly) with Lender having the right to call special
meetings at any reasonable times and upon reasonable advance notice;

                  (b) the right, in accordance with the terms of this Agreement,
to examine the books and records of Borrower at any reasonable times upon
reasonable notice;

                                       91


                  (c) the right, in accordance with the terms of this Agreement,
including, without limitation, Section 5.1.11 hereof, to receive monthly,
quarterly and year end financial reports, including balance sheets, statements
of income, shareholder's equity and cash flow, a management report and schedules
of outstanding indebtedness; and

                  (d) the right, without restricting any other rights of Lender
under this Agreement (including any similar right), to approve any acquisition
by Borrower of any other significant property (other than personal property
required for the day to day operation of the Property).

The rights described above in this Section 10.24 may be exercised by any entity
which owns and controls, directly or indirectly, substantially all of the
interests in Lender.

                  SECTION 10.25 MERS. Mortgage Electronic Registration Systems,
Inc., a Delaware corporation ("MERS"), serves as mortgagee of record and secured
party solely as nominee, in an administrative capacity, for Lender and only
holds legal title to the interests granted, assigned, and transferred in the
Security Instruments and the Assignments of Leases. MERS shall at all times
comply with the instructions of Lender. If necessary to comply with law or
custom, MERS (for the benefit of Lender) may be directed by Lender to exercise
any or all of those interests, including without limitation, the right to
foreclose and sell the Property, and take any action required of Lender,
including without limitation, a release, discharge or reconveyance of the
Mortgage. Subject to the foregoing, all references in the Loan Documents to
"Mortgagee" shall include Lender and its successors and assigns. The
relationship of Mortgagor and Lender under the Mortgage and the other Loan
Documents is, and shall at all times remain, solely that of borrower and lender
(the role of MERS thereunder being solely that of nominee as set forth above and
not that of a lender); and Mortgagee neither undertakes nor assumes any
responsibility or duty to Borrower or to any other Person with respect to the
Property.




                         [NO FURTHER TEXT ON THIS PAGE]


                                       92


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

                         RD ELMWOOD ASSOCIATES, L.P.,
                         a Delaware limited partnership

                         BY:      Acadia Elmwood Park LLC,
                                  Its general partner

                         By:___________________________
                            Name: Robert Masters
                            Title: Senior Vice President


                         BEAR STEARNS COMMERCIAL MORTGAGE, INC.,
                         a New York corporation



                         By:___________________________________________________
                         Name:
                         Title:



                                       93


                                     JOINDER

                  By executing this Joinder (the "Joinder"), the undersigned
("Joinder Parties") hereby covenant, warrant and agree to comply with all of the
terms and conditions set forth in Section 9.2 hereof.

                  1. WAIVERS. With respect to the obligations of the Joinder
Parties pursuant to Section 9.2 hereof, to the fullest extent permitted by
applicable law, each Joinder Party waives all rights and defenses of sureties,
guarantors, accommodation parties and/or co-makers and agrees that its
obligations under this Joinder shall be primary, absolute and unconditional, and
that its obligations under this Joinder shall be unaffected by any of such
rights or defenses, including:

                  (a) the unenforceability of any Loan Document against Borrower
and/or any guarantor or other Joinder Party;

                  (b) any release or other action or inaction taken by Lender
with respect to the collateral, the Loan, Borrower, any guarantor and/or other
Joinder Party, whether or not the same may impair or destroy any subrogation
rights of any Joinder Party, or constitute a legal or equitable discharge of any
surety or indemnitor;

                  (c) the existence of any collateral or other security for the
Loan, and any requirement that Lender pursue any of such collateral or other
security, or pursue any remedies it may have against Borrower, any guarantor
and/or any other Joinder Party;

                  (d) any requirement that Lender provide notice to or obtain a
Joinder Party's consent to any modification, increase, extension or other
amendment of the Loan, including the guaranteed obligations;

                  (e) any right of subrogation (until payment in full of the
Loan, including the guaranteed obligations, and the expiration of any applicable
preference period and statute of limitations for fraudulent conveyance claims);

                  (f) any defense based on any statute of limitations;

                  (g) any payment by Borrower to Lender if such payment is held
to be a preference or fraudulent conveyance under bankruptcy laws or Lender is
otherwise required to refund such payment to Borrower or any other party; and

                  (h) any voluntary or involuntary bankruptcy, receivership,
insolvency, reorganization or similar proceeding affecting Borrower or any of
its assets.

                  2. AGREEMENTS. With respect to the obligations of the Joinder
Parties pursuant to Section 9.2 hereof, each Joinder Party further represents,
warrants and agrees that:

                  (a) The obligations under this Joinder are enforceable against
each such party and are not subject to any defenses, offsets or counterclaims;




                  (b) The provisions of this Joinder are for the benefit of
Lender and its successors and assigns;

                  (c) Lender shall have the right to (i) renew, modify, extend
or accelerate the Loan, (ii) pursue some or all of its remedies against
Borrower, any guarantor or any Joinder Party, (iii) add, release or substitute
any collateral for the Loan or party obligated thereunder, and (iv) release
Borrower, any guarantor or any Joinder Party from liability, all without notice
to or consent of any Joinder Party (or other Joinder Party) and without
affecting the obligations of any Joinder Party (or other Joinder Party)
hereunder;

                  (d) To the maximum extent permitted by law, each Joinder Party
hereby knowingly, voluntarily and intentionally waives the right to a trial by
jury in respect of any litigation based hereon. This waiver is a material
inducement to Lender to enter into this Agreement.

                  This Joinder shall be governed by the laws of the State of New
York.

Executed as of December ____, 2005.



                          ACADIA REALTY LIMITED PARTNERSHIP
                          a Delaware limited partnership

                          By:  Acadia Realty Trust,
                               its general partner


                         By:___________________________
                               Name:
                               Title:


                                       2


                                   SCHEDULE I

                                   (RENT ROLL)


                                    SCH I-1


                                   SCHEDULE II

                  (REQUIRED REPAIRS - DEADLINES FOR COMPLETION)


- ------------------------------------------------------------------------------------------------------------------------
                                                                                                       Repair Deadline
Item                                          Quantity           Unit Cost          Immediate Cost     for Completion
- --------------------------------------------- ------------------ ------------------ ------------------ -----------------
                                           
- --------------------------------------------- ------------------ ------------------ ------------------ -----------------

- --------------------------------------------- ------------------ ------------------ ------------------ -----------------

- --------------------------------------------- ------------------ ------------------ ------------------ -----------------

- --------------------------------------------- ------------------ ------------------ ------------------ -----------------

- --------------------------------------------- ------------------ ------------------ ------------------ -----------------

- --------------------------------------------- ------------------ ------------------ ------------------ -----------------

- --------------------------------------------- ------------------ ------------------ ------------------ -----------------

- ------------------------------------------------------------------------------------------------------------------------


                                    SCH II-1





                                  SCHEDULE III

                       (ORGANIZATIONAL CHART OF BORROWER)


     
     ---------------------------------------------------------------------------------

                                     RD ELMWOOD ASSOCIATES, L.P.
                                    a Delaware limited partnership

     ---------------------------------------------------------------------------------
                  |                                                         |
                  |                                                         |
                  |                                                         |
           General Partner                                           Limited Partner
                (1%)                                                      (99%)
                  |                                                         |
                  |                                                         |
- ------------------------------------                      --------------------------------------

       ACADIA ELMWOOD PARK LLC                               ACADIA REALTY LIMITED PARTNERSHIP
a Delaware limited liability company                          a Delaware limited partnership

- ------------------------------------                      --------------------------------------
               |                                               |                        |
               |                                               |                        |
           Sole Member                                   General Partner         Limited Partners
               |                                             (98%)                    (2%)
               |                                               |                        |
               |                                               |                        |
   --------------------------                       ------------------------  ---------------------

      ACADIA REALTY LIMITED                            ACADIA REALTY TRUST
          PARTNERSHIP                                a Maryland real estate    INDIVIDUAL INVESTORS
                                                        investment trust

   --------------------------                       ------------------------  ---------------------
        |                 |
        |                 |
 General Partner   Limited Partners
      (98%)             (2%)
        |                 |
        |                 |
- -----------------  ----------------

  ACADIA REALTY      INDIVIDUAL
     TRUST           INVESTORS

- -----------------  ----------------



                                    SCH III-1





                               SCHEDULE 5.1.11(E)

                         (BORROWER'S 2006 ANNUAL BUDGET)



                                       2




                        MORTGAGE AND SECURITY AGREEMENT

                 THIS SECURITY INSTRUMENT AND SECURITY AGREEMENT (this "Security
Instrument") is made as of this P. day of December, 2005, by RD ELMWOOD
ASSOCIATES, L.P., a Delaware limited partnership, having its principal place of
business at c/o Acadia Realty Trust, 1311 Mamaroneck Avenue - Suite 260, White
Plains, New York 10605, as mortgagor ("Borrower") for the benefit of MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS, INC., A DELAWARE CORPORATION, HAVING AN ADDRESS
AT 1595 SPRING HILL ROAD, SUITE 310 VIENNA, VIRGINIA 22182 ("MERS"), AS NOMINEE
OF BEAR STEARNS COMMERCIAL MORTGAGE, INC., a New York corporation, having an
address at 383 Madison Avenue, New York, New York 10179, as mortgagee
("Lender").
                                   WITNESSETH:

                  WHEREAS, this Security Instrument is given to secure a loan
(the "Loan") in the principal sum of Thirty-Four Million Six Hundred Thousand
and No/100 Dollars ($34,600,000.00) advanced pursuant to that certain Loan
Agreement, dated as of the date hereof, between Borrower and Lender (as the same
may hereafter be amended, restated, replaced, supplemented, renewed, extended or
otherwise modified from time to time, the "Loan Agreement") and evidenced by
that certain Promissory Note, dated the date hereof, made by Borrower in favor
of Lender (as the same may hereafter be amended, restated, replaced,
supplemented, renewed, extended or otherwise modified from time to time, the
"Note");

                  WHEREAS, Borrower desires to secure the payment of the Debt
(as defined in the Loan Agreement) and the performance of all of its obligations
under the Note, the Loan Agreement and the other Loan Documents (as herein
defined); and

                  WHEREAS, this Security Instrument is given pursuant to the
Loan Agreement, and payment, fulfillment, and performance by Borrower of its
obligations thereunder and under the other Loan Documents are secured hereby,
and each and every term and provision of the Loan Agreement, the Note, and that
certain Assignment of Leases and Rents of even date herewith made by Borrower in
favor of MFRS, as nominee of Lender delivered in connection with this Security
Agreement (as the same may be amended, restated, replaced, supplemented,
renewed, extended or otherwise modified from time to time, the "Assignment of
Leases"), including the rights, remedies, obligations, covenants, conditions,
agreements, indemnities, representations and warranties of the parties therein,
are hereby incorporated by reference herein as though set forth in full and
shall be considered a part of this Security Instrument (the Loan Agreement, the
Note, this Security Instrument, the Assignment of Leases and Rents and all other
documents evidencing or securing the Debt (including all additional mortgages,
deeds to secure debt and assignments of leases and rents) or executed or
delivered in connection therewith, are hereinafter referred to collectively as
the "Loan Documents").

                  NOW THEREFORE, in consideration of the making of the Loan by
Lender and the covenants, agreements, representations and warranties set forth
in this Security Instrument:




                         ARTICLE 1 - GRANTS OF SECURITY

         SECTION 1.1 PROPERTY MORTGAGED. Borrower does hereby irrevocably
mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to
MERS, as nominee of Lender and its successors and assigns the following
property, rights, interests and estates now owned, or hereafter acquired by
Borrower (collectively, the "Property"):

                  (a) Land. The real property described in Exhibit A attached
hereto and made a part hereof (the "Land");

                  (b) Additional Land. 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) Improvements. The buildings, structures, fixtures,
additions, enlargements, extensions, modifications, repairs, replacements and
improvements now or hereafter erected or located on the Land (collectively, the
"Improvements");

                  (d) Easements. All easements, nights-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 reversions 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,
rights of dower, rights of curtesy, 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) Equipment. All "equipment," as such term is defined in
Article 9 of the Unifouuu Commercial Code (as hereinafter defined), now owned or
hereafter acquired by Borrower, which is used at or in connection with the
Improvements or the Land or is located thereon or therein (including, but not
limited to, all machinery, equipment, furnishings, and electronic
data-processing and other office equipment now owned or hereafter acquired by
Borrower and any and all additions, substitutions and replacements of any of the
foregoing), together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto (collectively, the
"Equipment"). Notwithstanding the foregoing, Equipment shall not include any
property belonging to tenants under leases except to the extent that Borrower
shall have any right or interest therein;

                                      -2-



                  (f) Fixtures. All Equipment now owned, or the ownership of
which is hereafter acquired, by Borrower which is so related to the Land and
Improvements founing part of the Property that it is deemed fixtures or real
property under the law of the particular state in which the Equipment is
located, including, without limitation, all building or construction materials
intended for construction, reconstruction, alteration or repair of or
installation on the Property, construction equipment, appliances, machinery,
plant equipment, fittings, apparatuses, fixtures and other items now or
hereafter attached to, installed in or used in connection with (temporarily or
permanently) any of the Improvements or the Land, including, but not limited to,
engines, devices for the operation of pumps, pipes, plumbing, call and sprinkler
systems, fire extinguishing apparatuses and equipment, heating, ventilating,
incinerating, electrical, air conditioning and air cooling equipment and
systems, gas and electric machinery, appurtenances and equipment, pollution
control equipment, security systems, disposals, dishwashers, refrigerators and
ranges, recreational equipment and facilities of all kinds, and water, gas,
electrical, storm and sanitary sewer facilities, utility lines and equipment
(whether owned individually or jointly with others, and, if owned jointly, to
the extent of Borrower's interest therein) and all other utilities whether or
not situated in easements, all water tanks, water supply, water power sites,
fuel stations, fuel tanks, fuel supply, and all other structures, together with
all accessions, appurtenances, additions, replacements, betteitnents and
substitutions for any of the foregoing and the proceeds thereof (collectively,
the "Fixtures"). Notwithstanding the foregoing, "Fixtures" shall not include any
property which tenants are entitled to remove pursuant to leases except to the
extent that Borrower shall have any right or interest therein;

                  (g) Personal Property. All furniture, furnishings, objects of
art, machinery, goods, tools, supplies, appliances, general intangibles,
contract rights, accounts, accounts receivable, franchises, licenses,
certificates and permits, and all other personal property of any kind or
character whatsoever as defined in and subject to the provisions of the Uniform
Commercial Code, whether tangible or intangible, other than Fixtures, which are
now or hereafter owned by Borrower and which are located within or about the
Land and the Improvements, together with all accessories, replacements and
substitutions thereto or therefor and the proceeds thereof (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, as adopted and enacted by the state or
states where any of the Property is located (the "Uniform Commercial Code"),
superior in lien to the lien of this Security Instrument and all proceeds and
products of the above;

                  (h) Leases and Rents. All leases, subleases or subsubleases,
lettings, licenses, concessions or other agreements (whether written or oral)
pursuant to which any Person is granted a possessory interest in, or right to
use or occupy all or any portion of the Land and the Improvements, and every
modification, amendment or other agreement relating to such leases, subleases,
subsubleases, or other agreements entered into in connection with such leases,
subleases, subsubleases, or other agreements and every guarantee of the
performance and observance of the covenants, conditions and agreements to be
performed and observed by the other party thereto, heretofore or hereafter
entered into (collectively, the "Leases"), 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, issues and profits
(including all oil and gas or other mineral royalties and bonuses) from the Land
and the Improvements whether paid or accruing before or after the filing by or
against Borrower of any petition for relief under the Bankruptcy Code
(collectively, the "Rents") 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;

                                      -3-



                  (i) Condemnation Awards. 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), or for a change of grade, or for any other injury to or
decrease in the value of the Property;

                  (j) Insurance Proceeds,. All proceeds in respect of the
Property under 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;

                  (k) Tax Certiorari. All refunds, rebates or credits in
connection with reduction in real estate taxes and assessments charged against
the Property as a result of tax certiorari or any applications or proceedings
for reduction;

                  (1) Conversion. 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;

                  (m) Rights. The right, in the name and on behalf of Borrower,
to appear in and defend any action or proceeding brought with respect to the
Property and to commence any action or proceeding to protect the interest of
Lender in the Property;

                  (n) Agreements. 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 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;

                  (o) Trademarks. 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;

                  (p) Accounts. All reserves, escrows and deposit accounts
maintained by Borrower with respect to the Property, including, without
limitation (i) all accounts established pursuant to the Cash Management
Agreement, including, without limitation, that and (ii) all accounts t,
including, without limitation, that certain Account Number [__________________
at-{;______ together with all deposits or wire transfers made to the Lockbox
Account or Cash Management Account and all cash, checks, drafts, certificates,
securities, investment property, financial assets, instruments and other
property held therein from time to time and all proceeds, products,
distributions or dividends or substitutions thereon and thereof; and



                                      -4-



                  (q) Other Rights. Any and all other rights of Borrower in and
to the items set forth in Subsections (a) through (p) above.

                  AND without limiting any of the other provisions of this
Security Instrument, to the extent permitted by applicable law, Borrower
expressly grants to MERS, as nominee of Lender, as secured party, a security
interest in the portion of the Property which is or may be subject to the
provisions of the Uniform Commercial Code which are applicable to secured
transactions; it being understood and agreed that the Improvements and Fixtures
are part and parcel of the Land (the Land, the Improvements and the Fixtures
collectively referred to as the "Real Property") appropriated to the use thereof
and, whether affixed or annexed to the Real Property or not, shall for the
purposes of this Security Instrument be deemed conclusively to be real estate
and mortgaged hereby.

         SECTION 1.2 ASSIGNMENT OF RENTS. Borrower hereby absolutely and
unconditionally assigns to MERS, as nominee of Lender all of Borrower's right,
title and interest in and to 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. Nevertheless,
subject to the terms of the Assignment of Leases, the Cash Management Agreement
and Section 7.1(h) of this Security Instrument, Lender grants to Borrower a
revocable license to collect, receive, use and enjoy the Rents and Borrower
shall hold the Rents, or a portion thereof sufficient to discharge all current
sums due on the Debt, for use in the payment of such sums.

         SECTION 1.3 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. By executing and delivering this Security Instrument,
Borrower hereby grants to MERS, as nominee of Lender, as security for the
Obligations (hereinafter defined), a security interest in the Fixtures, the
Equipment and the Personal Property to the full extent that the Fixtures, the
Equipment and the Personal Property may be subject to the Uniform Commercial
Code (said portion of the Property so subject to the Uniform Commercial Code
being called the "Collateral"). If an Event of Default shall occur and be
continuing, Lender, in addition to any other rights and remedies which it may
have, shall have and may exercise immediately and without demand, 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,
the right to take possession of the Collateral or any part thereof, and to take
such other measures as Lender may deem necessary for the care, protection and
preservation of the Collateral. Upon request or demand of Lender after the
occurrence and during the continuance of an Event of Default, Borrower shall, at
its expense, assemble the Collateral and make it available to Lender at a
convenient place (at the Land if tangible property) reasonably acceptable to
Lender. Borrower shall pay to Lender on demand any and all expenses, including
reasonable legal expenses and attorneys' fees, incurred or paid by Lender in
protecting its interest in the Collateral and in enforcing its rights hereunder
with respect to the Collateral after the occurrence and during the continuance
of an Event of Default. Any notice of sale, disposition or other intended action
by Lender with respect to the Collateral sent to Borrower in accordance with the
provisions hereof at least ten (10) business days prior to such action, shall,
except as otherwise provided by applicable law, constitute reasonable notice to
Borrower. The proceeds of any disposition of the Collateral, or any part
thereof, may, except as otherwise required by applicable law, be applied by
Lender to the payment of the Debt in such priority and proportions as Lender in
its discretion shall deem proper. Borrower's (debtor's) principal place of
business is as set forth on page one hereof and the address of Lender (secured
party) is as set forth on page one hereof.

                                      -5-



         SECTION 1.4 FIXTURE FILING. Certain of the Property is or will become
"fixtures" (as that term is defined in the Uniform Commercial Code) on the Land,
and this Security Instrument, upon being filed for record in the real estate
records of the city or county wherein such fixtures are situated, shall operate
also as a financing statement filed as a fixture filing in accordance with the
applicable provisions of said Uniform Commercial Code upon such of the Property
that is or may become fixtures.

         SECTION 1.5 PLEDGES OF MONIES HELD. Borrower hereby pledges to Lender
any and all monies now or hereafter held by Lender or on behalf of Lender,
including, without limitation, any sums deposited in the Lockbox Account or Cash
Management Account, the Reserve Funds and Net Proceeds, as additional security
for the Obligations until expended or applied as provided in this Security
Instrument.

         SECTION 1.6 Grants to MERS. This Security Instrument and the grants,
assignments and transfers made to MFRS in this Article 1 shall inure to MERS
solely in its capacity as Lender's nominee.


                               CONDITIONS TO GRANT

                  TO HAVE AND TO HOLD the above granted and described Property
unto and to the use and benefit of Lender and its successors and assigns,
forever;

                  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, the Loan Agreement 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, the
Loan Agreement and the other Loan Documents, these presents and the estate
hereby granted shall cease, terminate and be void; provided, however, that
Borrower's obligation to indemnify and hold harmless Lender pursuant to the
provisions hereof shall survive any such payment or release.

                    ARTICLE 2 - DEBT AND OBLIGATIONS SECURED

          SECTION 2.1 DEBT. This Security Instrument and the grants, assignments
and transfers made in Article I are given for the purpose of securing the Debt.

          SECTION 2.2 OTHER OBLIGATIONS. This Security Instrument and the
grants, assignments and transfers made in Article I are also given for the
purpose of securing the following (the "Other Obligations"):



                                      -6-



                  (a) the performance of all other obligations of Borrower
contained herein;

                  (b) the performance of each obligation of Borrower contained
in the Loan Agreement and any other Loan Document; and

                  (c) the performance of each obligation of Borrower contained
in any renewal, extension, amendment, modification, consolidation, change of, or
substitution or replacement for, all or any part of the Note, the Loan Agreement
or any other Loan Document.

         SECTION 2.3 DEBT AND OTHER OBLIGATIONS. Borrower's obligations for the
payment of the Debt and the performance of the Other Obligations shall be
referred to collectively herein as the "Obligations."


                              ARTICLE 3 - BORROWER

                  COVENANTS Borrower covenants and agrees

                  that:

         SECTION 3.1 PAYMENT OF DEBT. Borrower will pay the Debt at the time and
in the manner provided in the Loan Agreement, the Note and this Security
Instrument.

         SECTION 3.2 INCORPORATION BY REFERENCE. All the covenants, conditions
and agreements contained in (a) the Loan Agreement, (b) the Note and (c) all and
any of 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.

         SECTION 3.3 INSURANCE. Borrower shall obtain and maintain, or cause to
be maintained, in full force and effect at all times insurance with respect to
Borrower and the Property as required pursuant to the Loan Agreement.

         SECTION 3.4 MAINTENANCE OF PROPERTY. Borrower shall cause the Property
to be maintained in a good and safe condition and repair. The Improvements, the
Fixtures, the Equipment and the Personal Property shall not be removed,
demolished or materially altered (except for noinal replacement of the Fixtures,
the Equipment or the Personal Property, tenant finish and refurbishment of the
Improvements) without the consent of Lender. Borrower shall promptly repair,
replace or rebuild any part of the Property which may be destroyed by any
Casualty or become damaged, worn or dilapidated or which may be affected by any
Condemnation, and shall complete and pay for any structure at any time in the
process of construction or repair on the Land.

         SECTION 3.5 WASTE. Borrower shall not commit or suffer any waste of the
Property or make any change in the use of the Property which will in any way
materially increase the risk of fire or other hazard arising out of the
operation of the Property, or take any action that might invalidate or allow the
cancellation of any Policy, or do or permit to be done thereon anything that may
in any way materially impair the value of the Property or the security of this
Security Instrument. Borrower will not, without the prior written consent of
Lender, permit any drilling or exploration for or extraction, removal, or
production of any minerals from the surface or the subsurface of the Land,
regardless of the depth thereof or the method of mining or extraction thereof.


                  SECTION 3.6 PAYMENT FOR LABOR AND MATERIALS.

                  (a) Borrower will promptly pay when due all bills and costs
for labor, materials, and specifically fabricated materials ("Labor and Material
Costs") incurred in connection with the Property and never permit to exist
beyond the due date thereof in respect of the Property or any part thereof any
lien or security interest, even though inferior to the liens and the security
interests hereof, and in any event never permit to be created or exist in
respect of the Property or any part thereof any other or additional lien or
security interest other than the liens or security interests hereof except for
the Permitted Encumbrances.

                                      -7-



                  (b) After prior written notice to Lender, Borrower, at its own
expense, may contest by appropriate legal proceeding, promptly initiated and
conducted in good faith and with due diligence, the amount or validity or
application in whole or in part of any of the Labor and Material Costs, provided
that (i) no Event of Default has occurred and is continuing under the Loan
Agreement, the Note, this Security Instrument or any of the other Loan
Documents, (ii) Borrower is permitted to do so under the provisions of any other
mortgage, deed of trust or deed to secure debt affecting the Property, (iii)
such proceeding shall suspend the collection of the Labor and Material Costs
from Borrower and from the Property or Borrower shall have paid all of the Labor
and Material Costs under protest, (iv) such proceeding shall be permitted under
and be conducted in accordance with the provisions of any other instrument to
which Borrower is subject and shall not constitute a default thereunder, (v)
neither the Property nor any part thereof or interest therein will be in danger
of being sold, forfeited, terminated, canceled or lost, and (vi) Borrower shall
have furnished the security as may be required in the proceeding, or as may be
reasonably requested by Lender to insure the payment of any contested Labor and
Material Costs, together with all interest and penalties thereon.

         SECTION 3.7 PERFORMANCE OF OTHER AGREEMENTS. Borrower shall observe and
perform each and every term, covenant and provision to be observed or performed
by Borrower pursuant to the Loan Agreement, any other Loan Document and any
other agreement or recorded instrument affecting or pertaining to the Property
and any amendments, modifications or changes thereto.

           SECTION 3.8 CHANGE OF NAME, IDENTITY OR STRUCTURE. Borrower shall not
change Borrower's name, identity (including its trade name or names) or, if not
an individual, Borrower's corporate, partnership or other structure without
notifying Lender of such change in writing at least thirty (30) days prior to
the effective date of such change and, in the case of a change in Borrower's
structure, without first obtaining the prior written consent of Lender. Borrower
shall execute and deliver to Lender, prior to or contemporaneously with the
effective date of any such change, any financing statement or financing
statement change required by Lender to establish or maintain the validity,
perfection and priority of the security interest granted herein. At the request
of Lender, Borrower shall execute a certificate in form satisfactory to Lender
listing the trade names under which Borrower intends to operate the Property,
and representing and warranting that Borrower does business under no other trade
name with respect to the Property.

                                      -8-



         SECTION 3.9 TITLE. Borrower has good, marketable and insurable fee
simple title to the real property comprising part of the Property and good title
to the balance of such Property, free and clear all Liens (as defined in the
Loan Agreement) whatsoever except the Permitted Encumbrances (as defined in the
Loan Agreement), such other Liens as are permitted pursuant to the Loan
Documents and the Liens created by the Loan Documents. The Permitted
Encumbrances in the aggregate do not materially and adversely affect the value,
operation or use of the Property or Borrower's ability to repay the Loan. This
Security Instrument, when property recorded in the appropriate records, together
with any Uniform Commercial Code financing statements required to be filed in
connection therewith, will create (a) a valid, perfected first priority lien on
the Property, subject only to Permitted Encumbrances and the Liens created by
the Loan Documents and (b) perfected security interests in and to, and perfected
collateral assignments of, all personalty (including the Leases), all in
accordance with the terms thereof, in each case subject only to any applicable
Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan
Documents and the Liens created by the Loan Documents. There are no claims for
payment for work, labor or materials affecting the Property which are past due
and are or may become a lien prior to, or of equal priority with, the Liens
created by the Loan Documents unless such claims for payments are being
contested in accordance with the terms and conditions of this Security
Instrument.
                      ARTICLE 4 - OBLIGATIONS AND RELIANCES

         SECTION 4.1 RELATIONSHIP OF BORROWER AND LENDER. The relationship
between Borrower and Lender is solely that of debtor and creditor, and Lender
has no fiduciary or other special relationship with Borrower, and no term or
condition of any of the Loan Agreement, the Note, this Security Instrument and
the other Loan Documents shall be construed so as to deem the relationship
between Borrower and Lender to be other than that of debtor and creditor.

          SECTION 4.2 NO RELIANCE ON LENDER. The general partners, members,
 principals and (if Borrower is a trust) beneficial owners of Borrower are
 experienced in the ownership and operation of properties similar to the
 Property, and Borrower and Lender are relying solely upon such expertise and
 business plan in connection with the ownership and operation of the Property.
 Borrower is not relying on Lender's expertise, business acumen or advice in
 connection with the Property.

          SECTION 4.3 NO LENDER OBLIGATIONS.

                  (a) Notwithstanding the provisions of Subsections 1.1(h) and
(n) or Section 1.2, Lender is not undertaking the performance of (i) any
obligations under the Leases; or (ii) any obligations with respect to such
agreements, contracts, certificates, instruments, franchises, permits,
trademarks, licenses and other documents.

                  (b) By accepting or approving anything required to be
observed, performed or fulfilled or to be given to Lender pursuant to this
Security Instrument, the Loan Agreement, the Note or the other Loan Documents,
including, without limitation, any officer's certificate, balance sheet,
statement of profit and loss or other financial statement, survey, appraisal, or
insurance policy, Lender shall not be deemed to have warranted, consented to, or
affirmed the sufficiency, the legality or effectiveness of same, and such
acceptance or approval thereof shall not constitute any warranty or affirmation
with respect thereto by Lender.


                                      -9-



         SECTION 4.4 RELIANCE. Borrower recognizes and acknowledges that in
accepting the Loan Agreement, the Note, this Security Instrument and the other
Loan Documents, Lender is expressly and primarily relying on the truth and
accuracy of the warranties and representations set forth in Section 4.1 of the
Loan Agreement without any obligation to investigate the Property and
notwithstanding any investigation of the Property by Lender; that such reliance
existed on the part of Lender prior to the date hereof, that the warranties and
representations are a material inducement to Lender in making the Loan; and that
Lender would not be willing to make the Loan and accept this Security Instrument
in the absence of the warranties and representations as set forth in Section 4.1
of the Loan Agreement.

                         ARTICLE 5 - FURTHER ASSURANCES

         SECTION 5.1 RECORDING OF MORTGAGE, ETC. Borrower forthwith upon the
execution and delivery of this Security Instrument and thereafter, from time to
time, will cause this Security Instrument and any of the other Loan Documents
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 and perfect the
lien or security interest hereof upon, and the interest of Lender in, the
Property. Borrower will pay all taxes, filing, registration or recording fees,
and all expenses incident to the preparation, execution, acknowledgment and/or
recording of the Note, this Security Instrument, the other Loan Documents, any
note, deed of trust or mortgage supplemental hereto, any security instrument
with respect to the Property and any instrument of further assurance, and any
modification or amendment of the foregoing documents, and all federal, state,
county and municipal taxes, duties, imposts, assessments and charges arising out
of or in connection with the execution and delivery of this Security Instrument,
any deed of trust or mortgage supplemental hereto, any security instrument with
respect to the Property or any instrument of further assurance, and any
modification or amendment of the foregoing documents, except where prohibited by
law so to do.

         SECTION 5.2 FURTHER ACTS, ETC. Borrower will, at the cost of Borrower,
and without expense to Lender, do, execute, acknowledge and deliver all and
every further acts, deeds, conveyances, deeds of trust, mortgages, assignments,
notices of assignments, transfers and assurances as Lender shall, from time to
time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Lender the property and rights hereby
mortgaged, deeded, granted, bargained, sold, conveyed, confirmed, pledged,
assigned, warranted and transferred or intended now or hereafter so to be, or
which Borrower may be or may hereafter become bound to convey or assign to
Lender, or for carrying out the intention or facilitating the performance of the
terms of this Security Instrument or for filing, registering or recording this
Security Instrument, or for complying with all Legal Requirements. Borrower, on
demand, will execute and deliver, and in the event it shall fail to so execute
and deliver, hereby authorizes Lender to execute in the name of Borrower or
without the signature of Borrower to the extent Lender may lawfully do so, one
or more financing statements 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 5.2.


                                      -10-



         SECTION 5.3 CHANGES IN TAX, DEBT, CREDIT AND DOCUMENTARY STAMP LAWS.

                  (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 one hundred
twenty (120) days to declare the Debt immediately due and payable.

                  (b) Borrower will not claim or demand or be entitled to any
credit or credits on account of 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 one
hundred twenty (120) 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.

          SECTION 5.4 SEVERING OF MORTGAGE. This Security Instrument and the
Note shall, at any time until the same shall be fully paid and satisfied, at the
sole election of Lender, be severed into two or more notes and two or more
security instruments in such denominations as Lender shall determine in its sole
discretion, each of which shall cover all or a portion of the Property to be
more particularly described therein. To that end, Borrower, upon written request
of Lender, shall execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered by the then owner of the Property, to Lender and/or
its designee or designees substitute notes and security instruments in such
principal amounts, aggregating not more than the then unpaid principal amount of
this Security Instrument, and containing teiiiis, provisions and clauses similar
to those contained herein and in the Note, and such other documents and
instruments as may be required by Lender.

          SECTION 5.5 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-



                       ARTICLE 6 - DUE ON SALE/ENCUMBRANCE

         SECTION 6.1 LENDER RELIANCE. Borrower acknowledges that Lender has
examined and relied on the experience of Borrower and its general partners,
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 repayment of the Debt and
the perfoiiuuance of the Other 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 repayment of the Debt or the performance of
the Other Obligations, Lender can recover the Debt by a sale of the Property.

         SECTION 6.2 NO SALE/ENCUMBRANCE. Neither Borrower nor any Restricted
Party shall Transfer the Property or any part thereof or any interest therein or
permit or suffer the Property or any part thereof or any interest therein to be
Transferred other than as expressly peiuiitted pursuant to the terms of the Loan
Agreement.

                  ARTICLE 7 - RIGHTS AND REMEDIES UPON DEFAULT

         SECTION 7.1, REMEDIES. Upon the occurrence and during the continuance
of any Event of Default, Borrower agrees that Lender may take such action,
without notice or demand, as it deems advisable to protect and enforce its
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 Lender:

                  (a) declare the entire unpaid Debt to be immediately due and
payable;

                  (b) institute proceedings, judicial or otherwise, for the
complete 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;

                  (c) with or without entry, to the extent permitted and
pursuant to the procedures provided by applicable law, institute proceedings for
the partial foreclosure of this Security Instrument for the portion of the Debt
then due and payable, 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;

                  (d) 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 or
otherwise, at one or more sales, as an entirety or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by law;

                  (e) institute an action, suit or proceeding in equity for the
specific perfoiinrance of any covenant, condition or agreement contained herein,
in the Note, the Loan Agreement or in the other Loan Documents;


                  (f) recover judgment on the Note either before, during or
after any proceedings for the enforcement of this Security Instrument or the
other Loan Documents;


                                      -12-



                  (g) 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, Indemnifying Person with respect to the Loan or of any
Person liable for the payment of the Debt;

                  (h) the license granted to Borrower under Section 1.2 hereof
shall automatically be revoked and Lender may 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 (i)
use, operate, manage, control, insure, maintain, repair, restore and otherwise
deal with all and every part of the Property and conduct the business thereat;
(ii) complete any construction on the Property in such manner and form as Lender
deems advisable; (iii) make alterations, additions, renewals, replacements and
improvements to or on the Property; (iv) exercise all rights and powers of
Borrower with respect to the Property, whether in the name of Borrower or
otherwise, including, without limitation, 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; (v) 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; (vi) 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; and (vii) apply the receipts from the Property to the payment of the
Debt, in such order, priority and proportions as Lender shall deem appropriate
in its sole discretion after deducting therefrom all expenses (including
reasonable attorneys' fees) incurred in connection with the aforesaid operations
and all amounts necessary to pay the Taxes, Other Charges, insurance and other
expenses in connection with the Property, as well as just and reasonable
compensation for the services of Lender, its counsel, agents and employees;

                  (i) 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 Fixtures, the Equipment, 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 Fixtures, the Equipment, the Personal Property, and (ii)
request Borrower at its expense to assemble the Fixtures, the Equipment, 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 Fixtures, the Equipment, 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;


                                      -13-



                  (j) apply any sums then deposited or held in escrow or
otherwise by or on behalf of Lender in accordance with the teiiiis of the Loan
Agreement, this Security Instrument or any other Loan Document to the payment of
the following items in any order in. its uncontrolled discretion:


                           (i) Taxes and Other Charges;

                           (ii) Insurance Premiums;

                           (iii)Interest on the unpaid principal balance of the
         Note;

                           (iv)Amortization of the unpaid principal balance of
         the Note;

                           (v) All other sums payable pursuant to the Note, the
         Loan Agreement, this Security Instrument and the other Loan Documents,
         including without limitation advances made by Lender pursuant to the
         terms of this Security Instrument;


                  (k) pursue such other remedies as Lender may have under
applicable law; or

                  (1) apply the undisbursed balance of any Net Proceeds
Deficiency deposit, together with interest thereon, to the payment of the Debt
in such order, priority and proportions as Lender shall deem to be appropriate
in its discretion.

In the event of a sale, by foreclosure, power of sale or otherwise, of less than
all of 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.

         SECTION 7.2 APPLICATION OF PROCEEDS. The purchase money, proceeds and
avails of any disposition of the Property, and or any part thereof, or any other
sums collected by Lender pursuant to the Note, this Security Instrument or the
other Loan Documents, may be applied by Lender to the payment of the Debt in
such priority and proportions as Lender in its discretion shall deem proper.

         SECTION 7.3 RIGHT TO CURE DEFAULTS. Upon the occurrence and during the
continuance of any Event of Default, 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 any payment or do any act required of
Borrower hereunder 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), with interest as
provided in this Section 73, 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 such failed payment or act or in
appearing in, defending, or bringing any such action or proceeding shall bear
interest at the Default 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
Default Rate shall be deemed to 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.

         SECTION 7.4 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.

                                      -14-



         SECTION 7.5 RECOVERY OF SUMS REQUIRED TO BE PAID. Lender shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Debt as the same become due, without regard to whether
or not the balance of the Debt shall be due, and without prejudice to the right
of Lender thereafter to bring an action of foreclosure, or any other action, for
a default or defaults by Borrower existing at the time such earlier action was
commenced.

         SECTION 7.6 EXAMINATION OF BOOKS AND RECORDS. At reasonable times and
upon reasonable notice, Lender, its agents, accountants and attorneys shall have
the right to examine the records, books, management and other papers of Borrower
which reflect upon their financial condition, at the Property or at any office
regularly maintained by Borrower where the books and records are located. Lender
and its agents shall have the right to make copies and extracts from the
foregoing records and other papers. In addition, at reasonable times and upon
reasonable notice, Lender, its agents, accountants and attorneys shall have the
right to examine and audit the books and records of Borrower pertaining to the
income, expenses and operation of the Property during reasonable business hours
at any office of Borrower where the books and records are located. This Section
7.6 shall apply throughout the term of the Note and without regard to whether an
Event of Default has occurred or is continuing.

         SECTION 7.7 OTHER RIGHTS, ETC. (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 or Indemnifying Person with respect to the
Loan 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.

                  (a) 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 Policies, or for
failure to determine whether insurance in force is adequate as to the amount of
risks insured. Possession by Lender shall not be deemed an election of judicial
relief if any such possession is requested or obtained with respect to any
Property or collateral not in Lender's possession.


                                      -15-



                  (b) Lender may resort for the payment of the Debt to any other
security held by Lender in such order and manner as 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 Lender
thereafter to foreclose this Security Instrument. The rights of Lender 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 Lender shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Lender 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.

         SECTION 7.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY. Lender may
release any portion of the Property for such consideration as Lender may require
without, as to the remainder of the Property, in any way impairing or affecting
the lien or priority of this Security Instrument, or improving the position of
any subordinate lienholder with respect thereto, except to the extent that the
obligations hereunder shall have been reduced by the actual monetary
consideration, if any, received by Lender for such release, and may accept by
assignment, pledge or otherwise any other property in place thereof as Lender
may require without being accountable for so doing to any other lienholder. This
Security Instrument shall continue as a lien and security interest in the
remaining portion of the Property.

         SECTION 7.9 VIOLATION OF LAWS. If the Property is not in material
compliance with Legal Requirements, Lender may impose additional requirements
upon Borrower in connection herewith including, without limitation, monetary
reserves or financial equivalents.

         SECTION 7.10 RECOURSE AND CHOICE OF REMEDIES. Notwithstanding any other
provision of this Security Instrument or the Loan Agreement, including, without
limitation, Section 9.4 of the Loan Agreement, Lender and other Indemnified
Parties (as hereinafter defined) are entitled to enforce the obligations of
Borrower, any Guarantor and Indemnifying Person contained in Sections 9.2 and
9.3 herein without first resorting to or exhausting any security or collateral
and without first having recourse to the Note or any of the Property, through
foreclosure or acceptance of a deed in lieu of foreclosure or otherwise, and in
the event Lender commences a foreclosure action against the Property, Lender is
entitled to pursue a deficiency judgment with respect to such obligations
against Borrower and any Guarantor or Indemnifying Person with respect to the
Loan. The provisions of Sections 9.2 and 9.3 herein are exceptions to any
nonrecourse or exculpation provisions in the Loan Agreement, the Note, this
Security Instrument or the other Loan Documents, and Borrower and any Guarantor
or Indemnifying Person with respect to the Loan are fully and personally liable
for the obligations pursuant to Sections 9.2 and 9.3 herein. The liability of
Borrower and any guarantor or indemnitor with respect to the Loan pursuant to
Sections 9.2 and 9.3 herein is not limited to the original principal amount of
the Note. Notwithstanding the foregoing, nothing herein shall inhibit or prevent
Lender from foreclosing or exercising any other rights and remedies pursuant to
the Loan Agreement, the Note, this Security Instrument and the other Loan
Documents, whether simultaneously with foreclosure proceedings or in any other
sequence. A separate action or actions may be brought and prosecuted against
Borrower pursuant to Sections 9.2 and 9.3 herein whether or not action is
brought against any other Person or whether or not any other Person is joined in
the action or actions. In addition, Lender shall have the right but not the
obligation to join and participate in, as a party if it so elects, any
administrative or judicial proceedings or actions ini fated in connection with
any matter addressed in Article 8 or Section 9.4 herein.


                                      -16-



        SECTION 7.11 RIGHT OF ENTRY. Upon reasonable notice to Borrower, Lender
and its agents shall have the right to enter and inspect the Property at all
reasonable times.

         SECTION 7.12 REFERENCES TO LENDER. Notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents, all references
herein to "Lender" shall be deemed to collectively or individually (as the
context requires) refer to Lender or to MERS, acting on behalf of and at the
sole direction of Lender in its capacity as Lender's nominee, as each of their
interests may appear; provided, that, unless Lender, in its sole discretion,
shall determine otherwise, only Lender (and not MERS) shall be deemed to be
"Lender" with respect to (a) any consent or similar approval right granted to
Lender hereunder or under any of the other Loan Documents (including, without
limitation, any consent or similar approval right that is deemed granted if not
approved or denied within a specified time period), (b) any items, documents or
other information required to be delivered to Lender hereunder or under any of
the other Loan Documents (other than notices expressly required to be sent to
MERS) or (c) any future funding or other obligations of Lender to Borrower or
any affiliate of Borrower hereunder or under any of the other Loan Documents, if
any.

         SECTION 7.13 FAILURE TO ACT. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents, the failure of MERS to
take any action hereunder or under any of the other Loan Documents shall not (a)
be deemed to be a waiver of any term or condition of this Security Instrument or
any of the other Loan Documents, or (b) adversely affect any rights of Lender
hereunder or under any of the other Loan Documents.


                        ARTICLE 8 - ENVIRONMENTAL HAZARDS

         SECTION 8.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Except as
otherwise disclosed by that certain Phase I environmental report (or Phase II
environmental report, if required) delivered to Lender by Borrower in connection
with the origination of the Loan (such report is referred to below as the
"Environmental Report"), (a) there are no Hazardous Substances (defined below)
or underground storage tanks in, on, or under the Property, except those that
are (i) in compliance with Environmental Laws (defined below) and with permits
issued pursuant thereto (to the extent such peunits are required under
Environmental Law), (ii) de-minimis amounts necessary to operate the Property
for the purposes set forth in the Loan Agreement which will not result in an
environmental condition in, on or under the Property and which are otherwise
permitted under and used in compliance with Environmental Law and (iii) fully
disclosed to Lender in writing pursuant the Environmental Report; (b) there are
no past, present or threatened Releases (defined below) of Hazardous Substances
in, on, under or from the Property which has not been fully remediated in
accordance with Environmental Law; (c) there is no threat of any Release of
Hazardous Substances migrating to the Property; (d) there is no past or present
non-compliance with Environmental Laws, or with permits issued pursuant thereto,
in connection with the Property which has not been fully remediated in
accordance with Environmental Law; (e) Borrower does not know of, and has not
received, any written or oral notice or other communication from any Person
(including but not limited to a Governmental Authority) relating to Hazardous
Substances or Remediation (defined below) thereof, of possible liability of any
Person pursuant to any Environmental Law, other environmental conditions in
connection with the Property, or any actual or potential administrative or
judicial proceedings in connection with any of the foregoing; and (f) Borrower
has truthfully and fully disclosed provided to Lender, in writing, any and all
information relating to environmental conditions in, on, under or from the
Property that is known to Borrower and has provided to Lender all information
that is contained in Borrower's files and records, including, but not limited
to, any reports relating to Hazardous Substances in, on, under or from the
Property and/or to the environmental condition of the Property.

                                      -17-



                  "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. 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. 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, 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; or relating to wrongful death,
personal injury, or property or other damage in connection with any physical
condition or use of the Property.

                   "HAZARDOUS SUBSTANCES" include but are 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,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives, but excluding substances of kinds and in amounts ordinarily and
customarily used or stored in similar properties for the purpose of cleaning or
other maintenance or operations and otherwise in compliance with all
Environmental Laws.

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


                                      -18-



                  "REMEDIATION" includes but is not limited to any response,
remedial, removal, or corrective action, any activity to cleanup, 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 in Article 8.

         SECTION 8.2 ENVIRONMENTAL COVENANTS. Borrower covenants and agrees
that: (a) all uses and operations on or of the Property, whether by Borrower or
any other Person, shall be in compliance with all Environmental Laws and permits
issued pursuant thereto; (b) there shall be no Releases of Hazardous Substances
in, on, under or from the Property; (c) there shall be no Hazardous Substances
in, on, or under the Property, except those that are (i) in compliance with all
Environmental Laws and with permits issued pursuant thereto (to the extent such
permits are required by Environmental Law), (ii) de-minimis amounts necessary to
operate the Property for the purposes set forth in the Loan Agreement which will
not result in an environmental condition in, on or under the Property and which
are otherwise permitted under and used in compliance with Environmental Law and
(iii) fully disclosed to Lender in writing; (d) Borrower 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 Borrower or any other
Person (the "Environmental Liens"); (e) Borrower shall, at its sole cost and
expense, fully and expeditiously cooperate in all activities pursuant to Section
8.3 below, including but not limited to providing all relevant information and
making knowledgeable persons available for interviews; (f) Borrower 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 reasonable written request of Lender made in the event that
Lender has reason to believe that an environmental hazard exists on the Property
(including but not limited to sampling, testing and analysis of soil, water,
air, building materials and other materials and substances whether solid, liquid
or gas), and share with Lender the reports and other results thereof, and Lender
and other Indemnified Parties shall be entitled to rely on such reports and
other results thereof; (g) Borrower shall, at its sole cost and expense, comply
with all reasonable written requests of Lender made in the event that Lender has
reason to believe that an environmental hazard exists on the Property (i)
reasonably effectuate Remediation of any condition (including but not limited to
a Release of a Hazardous Substance) 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 protection of human health or the environment; (h) Borrower
shall not do or allow any tenant or other user of the Property to do any act
that materially increases the dangers to human health or the environment, poses
an unreasonable risk of harm to any Person (whether on or off the Property),
impairs or may impair the value of the Property, is contrary to any requirement
of any insurer, constitutes a public or private nuisance, constitutes waste, or
violates any covenant, condition, agreement or easement applicable to the
Property; and (i) Borrower shall immediately notify Lender in writing of (A) any
presence or Releases or threatened Releases of Hazardous Substances in, on,
under, from or migrating towards the Property; (B) any non-compliance with any
Environmental Laws related in any way to the Property; (C) any actual or
potential Environmental Lien; (D) any required or proposed Remediation of
environmental conditions relating to the Property; and (E) any written or oral
notice or other communication of which Borrower becomes aware from any source
whatsoever (including but not limited to a governmental entity) relating in any
way to Hazardous Substances or Remediation thereof, possible liability of any
Person pursuant to any Environmental Law, other environmental conditions in
connection with the Property, or any actual or potential administrative or
judicial proceedings in connection with anything referred to in this Article 8.

                                      -19-



         SECTION 8.3 LENDER'S RIGHTS. In the event that Lender has reason to
believe that an environmental hazard exists on the Property that does not, in
Lender's sole discretion, endanger any tenants or other occupants of the
Property or their guests or the general public or materially and adversely
affect the value of the Property, upon reasonable notice from Lender, Borrower
shall, at Borrower's expense, promptly cause an engineer or consultant
satisfactory to Lender to conduct an environmental assessment or audit (the
scope of which shall be determined in Lender's sole and absolute discretion) and
take any samples of soil, groundwater or other water, air, or building materials
or any other invasive testing requested by Lender and promptly deliver the
results of any such assessment, audit, sampling or other testing; provided,
however, if such results are not delivered to Lender within a reasonable period
or if Lender has reason to believe that an environmental hazard exists on the
Property that, in Lender's sole judgment, endangers any tenant or other occupant
of the Property or their guests or the general public or may materially and
adversely affect the value of the Property, upon reasonable notice to Borrower,
Lender and any other Person designated by Lender, including but not limited to
any receiver, any representative of a governmental entity, and any environmental
consultant, shall have the right, but not the obligation, to enter upon the
Property at all reasonable times 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 Lender's sole and absolute discretion) and taking samples of soil,
groundwater or other water, air, or building materials, and reasonably
conducting other invasive testing. Borrower shall cooperate with and provide
Lender and any such Person designated by Lender with access to the Property.

                           ARTICLE 9 - INDEMNIFICATION

         SECTION 9.1 GENERAL INDEMNIFICATION. Borrower shall, at its sole cost
and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all claims, suits, liabilities
(including, without limitation, strict liabilities), actions, proceedings,
obligations, debts, damages, losses, costs, expenses, diminutions in value,
fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in
settlement, punitive damages, foreseeable and unforeseeable consequential
damages, of whatever kind or nature (including but not limited to reasonable
attorneys' fees and other costs of defense) (collectively, the "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: (a) ownership of this Security Instrument, the Property or any
interest therein or receipt of any Rents; (b) any amendment to, or restructuring
of, the Debt, the Note, the Loan Agreement, this Security Instrument, or any
other Loan Documents; (c) any and all lawful action that may be taken by Lender
in connection with the enforcement of the provisions of this Security
Instrument, the Loan Agreement, the Note or any of the other Loan Documents,
whether or not suit is filed in connection with same, or in connection with
Borrower, any Guarantor or Indemnifying Person and/or any partner, joint
venturer or shareholder thereof becoming a party to a voluntary or involuntary
federal or state bankruptcy, insolvency or similar proceeding; (d) 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; (e) 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; (f) any failure on the part of Borrower to perform or be in compliance
with any of the teinis of this Security Instrument, the Note, the Loan Agreement
or any of the other Loan Documents; (g) perfounnance of any labor or services or
the furnishing of any materials or other property in respect of the Property or
any part thereof; (h) 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; (i) any failure of the Property to
be in compliance with any Legal Requirements; (j) the enforcement by any
Indemnified Party of the provisions of this Article 9; (k) any and all claims
and demands whatsoever which may be asserted against Lender by reason of any
alleged obligations or undertakings on its part to perform or discharge any of
the terms, covenants, or agreements contained in any Lease; (1) the payment of
any commission, charge or brokerage fee to anyone claiming through Borrower
which may be payable in connection with the funding of the Loan; or (m) any
misrepresentation made by Borrower in this Security Instrument or any other Loan
Document. Any amounts payable to Lender by reason of the application of this
Section 9.1 shall become immediately due and payable and shall bear interest at
the Default Rate from the date loss or damage is sustained by Lender until paid.

                                      -20-



For purposes of this Article 9, the term "Indemnified Parties" means Lender and
any Person who is or will have been involved in the origination of the Loan, any
Person who is or will have been involved in the servicing of the Loan secured
hereby, any Person in whose name the encumbrance created by this Security
Instrument is or will have been recorded, any Person who may hold or acquire or
will have held a full or partial interest in the Loan secured hereby (including,
but not limited to, investors or prospective investors in the Securities, as
well as custodians, trustees and other fiduciaries who hold or have held a full
or partial interest in the Loan secured hereby for the benefit of third parties)
as well as the respective directors, officers, shareholders, partners,
employees, agents, servants, representatives, contractors, subcontractors,
affiliates, subsidiaries, participants, successors and assigns of any and all of
the foregoing (including, but not limited to, any other Person who holds or
acquires or will have held a participation or other full or partial interest in
the Loan, whether during the term of the Loan or as a part of or following a
foreclosure of the Loan and any successors by merger, consolidation or
acquisition of all or a substantial portion of Lender's assets and business).

         SECTION 9.2 MORTGAGE AND/OR INTANGIBLE TAX. Borrower shall, at its sole
cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties 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 tax on the making and/or recording
of this Security Instrument, the Note or any of the other Loan Documents, but
excluding any income, franchise or other similar taxes.

         SECTION 9.3 ERISA INDEMNIFICATION. Borrower shall, at its sole cost and
expense, protect, defend, indemnify, release and hold harmless the Indemnified
Parties from and against any and all Losses (including, without limitation,
reasonable attorneys' fees and costs incurred in the investigation, 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 Sections 4.1.9 or 5.2.12 of the Loan Agreement.

         SECTION 9.4 ENVIRONMENTAL INDEMNIFICATION. Borrower shall, at its sole
cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all Losses and costs of Remediation
(whether or not perfonned voluntarily), engineers' fees, environmental
consultants' fees, and costs of investigation (including but not limited to
sampling, testing, and analysis of soil, water, air, building materials and
other materials and substances whether solid, liquid or gas) 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: (a) any presence of any Hazardous Substances in, on, above, or under
the Property; (b) any past, present or threatened Release of Hazardous
Substances in, on, above, under or from the Property; (c) any activity by
Borrower, any Person affiliated with Borrower or any tenant or other user of the
Property in connection with any actual, proposed or threatened use, treatment,
storage, holding, existence, disposition or other Release, generation,
production, manufacturing, processing, refining, control, management, abatement,
removal, handling, transfer or transportation to or from the Property of any
Hazardous Substances at any tine located in, under, on or above the Property;
(d) any activity by Borrower, any Person affiliated with Borrower or any tenant
or other user of the Property in connection with any actual or proposed
Remediation of any Hazardous Substances at any time located in, under, on or
above the Property, whether or not such Remediation is voluntary or pursuant to
court or administrative order, including but not limited to any removal,
remedial or corrective action; (e) any past or present non-compliance or
violations of any Environmental Laws (or permits issued pursuant to any
Environmental Law) in connection with the Property or operations thereon,
including but not limited to any failure by Borrower, any Affiliate of Borrower
or any tenant or other user of the Property to comply with any order of any
Governmental Authority in connection with any Environmental Laws; (f) the
imposition, recording or filing of any Environmental Lien encumbering the
Property; (g) any administrative processes or proceedings or judicial
proceedings in any way connected with any matter addressed in Article 8 and this
Section 9.4; (h) any past, present or threatened injury to, destruction of or
loss of natural resources in any way connected with the Property, including but
not limited to costs to investigate and assess such injury, destruction or loss;
(i) any acts of Borrower or other users of the Property in arranging for
disposal or treatment, or arranging with a transporter for transport for
disposal or treatment, of Hazardous Substances owned or possessed by such
Borrower or other users, at any facility or incineration vessel owned or
operated by another Person and containing such or any similar Hazardous
Substance; (j) any acts of Borrower or other users of the Property, in accepting
any Hazardous Substance for transport to disposal or treatment facilities,

                                      -21-



incineration vessels or sites selected by Borrower or such other users, from
which there is a Release, or a threatened Release of any Hazardous Substance
which causes the incurrence of costs for Remediation; (k) any personal injury,
wrongful death, or property damage arising under any statutory or common law or
tort law theory, including but not limited to damages assessed for the
maintenance of a private or public nuisance or for the conducting of an
abnormally dangerous activity on or near the Property; and (1) any
misrepresentation or inaccuracy in any representation or warranty or material
breach or failure to perform any covenants or other obligations pursuant to
Article 8. This indemnity shall survive any termination, satisfaction or
foreclosure of this Security Instrument, subject to the provisions of Section
10.5. Notwithstanding the foregoing, Borrower shall have no liability for any
Losses imposed upon or incurred by or asserted against any Indemnified Parties
and described in this Section 9.4 to the extent that such Losses arose solely by
actions, conditions or events relating to the Hazardous Substances placed in,
on, above or under the Property after the date that Lender (or any purchaser at
a foreclosure sale) actually acquired title to the Property and were not caused
by the direct or indirect actions of Borrower or any officer or director of
Borrower or any employee, agent, contractor or Affiliate of Borrower.

         SECTION 9.5 DUTY TO DEFEND; ATTORNEYS' FEES AND OTHER FEES AND
EXPENSES. Upon written request by any Indemnified Party, Borrower shall defend
such Indemnified Party (if requested by any Indemnified Party, in the name of
the Indemnified Party) by attorneys and other professionals approved by the
Indemnified Parties. Notwithstanding the foregoing, if the defendants in any
such claim or proceeding include both Borrower and any Indemnified Party and
Borrower and such Indemnified Party shall have reasonably concluded that there
are any legal defenses available to it and/or other Indemnified Parties that are
different from or additional to those available to Borrower, such Indemnified
Party shall have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such action on behalf of
such Indemnified Party, provided that no compromise or settlement shall be
entered without Borrower's consent, which consent shall not be unreasonably
withheld. Upon demand, Borrower shall pay or, in the sole and absolute
discretion of the Indemnified Parties, reimburse, the Indemnified Parties for
the payment of reasonable fees and disbursements of attorneys, engineers,
environmental consultants, laboratories and other professionals in connection
therewith.
                              ARTICLE 10 - WAIVERS

         SECTION 10.1 WAIVER OF COUNTERCLAIM. To the extent permitted by
applicable law, 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 arising out of or in any way connected with this Security
Instrument, the Loan Agreement, the Note, any of the other Loan Documents, or
the Obligations.

         SECTION 10.2 MARSHALLING AND OTHER MATTERS. To the extent permitted by
applicable law, Borrower hereby waives 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, and 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.


                                      -22-



         SECTION 10.3 WAIVER OF NOTICE. To the extent permitted by applicable
law, Borrower shall not be entitled to any notices of any nature whatsoever from
Lender except with respect to matters for which this Security Instrument
specifically and expressly provides for the giving of notice by Lender to
Borrower and except with respect to matters for which Lender is required by
applicable law to give notice, and Borrower hereby expressly waives the right to
receive any notice from Lender with respect to any matter for which this
Security Instrument does not specifically and expressly provide for the giving
of notice by Lender to Borrower.

         SECTION 10.4 WAIVER OF STATUTE OF LIMITATIONS. To the extent pet titted
by applicable law, Borrower hereby expressly waives and releases to the fullest
extent permitted by law, the pleading of any statute of limitations as a defense
to payment of the Debt or performance of its Other Obligations.

         SECTION 10.5 SURVIVAL. The indemnifications made pursuant to Sections
9.3 and 9.4 herein and the representations and warranties, covenants, and other
obligations arising under Article 8, shall continue indefinitely in full force
and effect and shall survive and shall in no way be impaired by any of the
following: any satisfaction or other teunination of this Security Instrument,
any assignment or other transfer of all or any portion of this Security
Instrument or Lender's interest in the Property (but, in such case, shall
benefit both Indemnified Parties and any assignee or transferee), any exercise
of Lender's rights and remedies pursuant hereto including, but not limited to,
foreclosure or acceptance of a deed in lieu of foreclosure, any exercise of any
rights and remedies pursuant to the Loan Agreement, the Note or any of the other
Loan Documents, an.y transfer of all or any portion of the Property (whether by
Borrower or by Lender following foreclosure or acceptance of a deed in lieu of
foreclosure or at any other time), any amendment to this Security Instrument,
the Loan Agreement, the Note or the other Loan Documents, and any act or
omission that might otherwise be construed as a release or discharge of Borrower
from the obligations pursuant hereto.

                            ARTICLE 11 - EXCULPATION

                   The provisions of Section 9.3 of the Loan Agreement are
hereby incorporated by reference into this Security Instrument to the same
extent and with the same force as if fully set forth herein.

                              ARTICLE 12 - NOTICES

                   All notices or other written communications hereunder shall
 be delivered in accordance with Section 10.6 of the Loan Agreement.

                   Notices to Mortgagee hereunder and under any of the other
 Loan Documents shall include a copy thereof to Lender (to be addressed and
 delivered in accordance with this Section 10.6 of the Loan Agreement) and shall
 be sent as follows:

                   Mortgagee: MERS Commercial
                              P.O. Box 2300
                              Flint, Michigan 48501-2300

                                      -23-



                           ARTICLE 13 - APPLICABLE LAW

        SECTION 13.1 GOVERNING LAW. This Security Instrument shall be governed
in accordance with the terms and provisions of Section 10.3 of the Loan
Agreement.

        SECTION 13.2 USURY LAWS. Notwithstanding anything to the contrary, (a)
all agreements and communications between Borrower and Lender are hereby and
shall automatically be limited so that, after taking into account all amounts
deemed interest, the interest contracted for, charged or received by Lender
shall never exceed the maximum lawful rate or amount, (b) in calculating whether
any interest exceeds the lawful maximum, all such interest shall be amortized,
prorated, allocated and spread over the full amount and term of all principal
indebtedness of Borrower to Lender, and (c) if through any contingency or event,
Lender receives or is deemed to receive interest in excess of the lawful
maximum, any such excess shall be deemed to have been applied toward payment of
the principal of any and all then outstanding indebtedness of Borrower to
Lender, or if there is no such indebtedness, shall immediately be returned to
Borrower.

         SECTION 13.3. PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers
and remedies provided in this Security Instrument may be exercised only to the
extent that the exercise thereof does not violate any applicable provisions of
law and are intended to be limited to the extent necessary so that they will not
render this Security Instrument invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any applicable law. If any
term of this Security Instrument or any application thereof shall be invalid or
unenforceable, the remainder of this Security Instrument and any other
application of the term shall not be affected thereby.

                            ARTICLE 14 - DEFINITIONS

                  All capitalized terms not defined herein shall have the
respective meanings set forth in the Loan Agreement. 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 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 "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
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 and the Rents and enforcing its rights hereunder.

                      ARTICLE 15 - MISCELLANEOUS PROVISIONS

         SECTION 15.1 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.


                                      -24-



         SECTION 15.2 SUCCESSORS AND ASSIGNS. This Security Instrument shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns forever.

         SECTION 15.3 INAPPLICABLE PROVISIONS. If any term, covenant or
condition of the Loan Agreement, the Note or this Security Instrument is held to
be invalid, illegal or unenforceable in any respect, the Loan Agreement, the
Note and this Security Instrument shall be construed without such provision.

         SECTION 15.4 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.

         SECTION 15.5 NUMBER AND GENDER. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter focus, and the singular form of nouns and pronouns shall include the
plural and vice versa.

         SECTION 15.6 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 fotuier 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 repayment of the Debt, the performance and
discharge of Borrower's obligations hereunder, under the Loan Agreement, the
Note and the other Loan Documents and the performance and discharge of the Other
Obligations.

         SECTION 15.7 ENTIRE AGREEMENT. The Note, the Loan Agreement, 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, the Loan Agreement, this Security Instrument and the other Loan
Documents, there are not, and were not, 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, the Loan Agreement, this Security Instrument and the other Loan
Documents.

         SECTION 15.8 LIMITATION ON LENDER'S RESPONSIBILITY. No provision of
this Security Instrument shall operate to place any obligation or liability for
the control, care, management or repair of the Property upon Lender, nor shall
it operate to make Lender responsible or liable for any waste committed on the
Property by the tenants or any other Person, or for any dangerous or defective
condition of the Property, or for any negligence in the management, upkeep,
repair or control of the Property resulting in loss or injury or death to any
tenant, licensee, employee or stranger. Nothing herein contained shall be
construed as constituting Lender a "mortgagee in possession.


                                      -25-



                     ARTICLE 16 - STATE-SPECIFIC PROVISIONS

         SECTION 16.1 PRINCIPLES OF CONSTRUCTION. In the event of any
inconsistencies between the terms and conditions of this Article 16 and the
terms and conditions of this Security Instrument, the terms and conditions of
this Article 16 shall control and be binding.

         SECTION 16.2 HAZARDOUS SUBSTANCES. Borrower shall not conduct or cause
or permit to be conducted on the Property any activity which constitutes an
Industrial Establishment (as such teen is defined in the New Jersey Industrial
Site Recovery Act, as amended ("ISRA")) without the prior written consent of
Lender, which consent shall not be unreasonably withheld. In the event that the
provisions of ISRA become applicable to the Property subsequent to the date
hereof, Borrower shall give prompt written notice thereof to Lender and shall
take immediate requisite action to insure compliance with ISRA. Borrower shall
deliver to Lender copies of all correspondence, notices and submissions that it
sends to or receives from the New Jersey Department of Environmental Protection
in connection with such ISRA compliance. Borrower's obligation to comply with
ISRA shall, notwithstanding its general applicability, also specifically apply
to sale, transfer, closure or termination of operations associated with any
foreclosure action respecting the Property, including, without limitation, a
foreclosure action brought with respect to this Security Instrument. Borrower
hereby represents and warrants to Lender the Property is not located within a
"freshwater wetlands" or a "transition area," each as defined by N.J.S.A.
13:9B-3, and is not subject to the terms of the New Jersey Freshwater Wetlands
Protection Act, as amended, N.J.S.A. 13:9B-1 et. Ms or the rules and regulations
promulgated thereunder.

         SECTION 16.3 CONTINUING ENFORCEMENT OF SECURITY INSTRUMENT. If, after
receipt of any payment of all or any part of the obligations under the Note,
this Security Instrument, and the other Loan Documents, Lender is compelled or
agrees, for settlement purposes, to surrender such payment to any Person for any
reason (including, without limitation, a determination that such payment is void
or voidable as a preference or fraudulent conveyance, an impeiuniissible setoff,
or a diversion of trust funds), then this Security Instrument and the other Loan
Documents shall continue in full force and effect, and Borrower shall be liable
for, and shall indemnify, defend and hold harmless Lender with respect to the
full amount so surrendered. The provisions of this Section shall survive the
cancellation or discharge of this Security Instrument and shall remain effective
notwithstanding the payment of the obligations, under the Note, this Security
Instrument and the other Loan Documents, the cancellation of the Note, the
release of any security interest, lien or encumbrance securing the obligations
under the Note, this Security Instrument and the other Loan Documents, or any
other action which Lender may have taken in reliance upon its receipt of such
payment. Any cancellation, release or other such action by Lender shall be
deemed to have been conditioned upon any payment of the obligations under the
Note, this Security Instrument and the other Loan Documents, having become final
and irrevocable.

                                      -26-




         SECTION 16.4 MODIFICATION OF SECURITY INSTRUMENT. This Security
Instrument is subject to "modification" as such term is defined in P.L. 1985
c.353 (N.J.S.A. 46:9-8.1 et.see .} and shall be subject to the priority
provisions thereof.

         SECTION 16.5 NO CREDIT FOR TAXES PAID. Borrower waives any right it may
have to a credit against interest due under the Debt secured by the Security
Instrument pursuant to N.J.S.A. 54:4 - 33.

         SECTION 16.6 RECEIPT OF COPY. Borrower hereby acknowledges receipt of a
true copy of this Security Instrument without charge.











                                      -27-




         IN WITNESS WHEREOF, this Security Instrument has been executed by
Borrower as of the day and year first above written.

                                            RD ELMWOOD ASSOCIATES, L.P.,
                                            a Delaware limited partnership

BY: Aca ood Park LLC, Its ge


                                            By:
                                                --------------------------------
                                                Name: Robert Masters Title:
                                                Senior Vice President



 STATE OF NEW YORK COUNTY OF


                   On the_________, day of ~D 005, before me, the undersigned, a
 Notary Public in and for said State, personally appeared
                             known to me on the basis of satisfactory evidence
to be the individual(s) whose name(s) is/are subscribed to the within instrument
and acknowledged that he/she/they executed the same in his/her/theix
capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person upon behalf of which the individual(s) acted,
executed the instrument.



                                      -28-



               }
               :   ss.:
               )

                  Iff.a.1


                           XXXXXXXXXX

  ch0
                              Notary Public


                                  B 5294P25-3,
                                    EXHIBIT A
                               (LEGAL DESCRIPTION)


ALL that certain tract or parcel of land and premises, situate, lying and being
in the Borough of Elmwood Park, in the County of Bergen, and State of New
Jersey, more particularly described as .follows:

TRACT I (Lot 2, Block 301:

BEGINNING at a point in the westerly right-of-way line of Iozia Terrace (60 feet
wide), said point being measured South 19 degrees and 45 minutes and 40 seconds
East, a distance of 24.56 feet from the intersection of the said westerly
right-of-way line of Iozia Terrace with the southerly right-of-way line of New
Jersey State Highway Route 4, also known as Broadway (110 feet wide), and from
said point proceeding; thence

Continuing along the said westerly right-of-way line of lozia Terrace, South 19
degrees and 45 minutes and 40 seconds East, a distance of 275.92 feet to its
intersection with the northerly line of Lot 3 in Block 301; thence

(2)  Departing the westerly right-of-way line of Iozia Terrace along the
     northerly line of Lots 3 and I in Block 301, South 71 degrees and 11
     minutes and 40 seconds West, a distance of 762.53 feet to the intersection
     of the said northerly line of Lot 1 in Block 301 with the easterly
     right-of-way line of Boulevard (70 feet wide) and a point of curvature;
     thence

Continuing along the said easterly right-of-way line of Boulevard and a curve to
the right having a radius of 868.83 feet and a central angle of 00 degrees and
44 minutes and 50 seconds, and an arc length of 11.33 feet to a point; thence

(4)  Continuing along the same, North 19 degrees and 11 minutes and 00 seconds
     West, a distance of 264.77 feet to a point; thence

(1)



(3)



(5)


     Continuing along the same and a curve to the right having a radius of 25.00
     feet and a central angle of 90 degrees and 26 minutes and 30 seconds, a
     distance along an arc of 39.46 feet to a point on the southerly
     right-of-way line of New Jersey State Highway Route No. 4, also known as
     Broadway; thence





(6)  Along the said southerly right-of-way line of New Jersey State Highway
     Route No. 4, also known as Broadway, North 71 degrees and 15 minutes and 30
     seconds East, a distance of 709.83 feet to a point of curvature; thence

(7)


     Continuing along the same and a curve to the right having a radius of 25.00
     feet and a central angle of 88 degrees and 58 minutes and 50 seconds, a
     distance along an arc of 38.83 feet to the point or place of BEGINNING.

                                    EXH. A-i
                               NJOI /KEENP/68031.1


                                   1529 P - 4

The above description is in accordance with a survey drawn by Lapatka
Associates, Inc. dated November 17, 2005.

TRACT II (Lots 3 and 4. Block 201):

BEGINNING at a point in the westerly right-of-way line of Boulevard (70 feet
wide), said point being measured South 19 degrees and 11 minutes and 00 seconds
East, a distant of 24.81 feet from the intersection of the said westerly
right-of-way line of Boulevard with the southerly rightof-way line of New Jersey
State Highway Route 4, also known as Broadway (110 feet wide), and from said
point proceeding; thence,

(1)


Continuing along the said westerly right-of-way line of Boulevard, South 19
degrees and 11 minutes and 00 seconds East, a distance of 265.69 feet to a point
of curvature; thence

(2)      Continuing along the same and a curve to the left having a radius of
         938.83 feet and a central angle of 00 degrees and 39 minutes and 52
         seconds, a distance along an arc of 10.89 feet to its intersection with
         the northerly line of Lot 5 in Block 201; thence

                                       (3)


     Departing the westerly right-of-way line of Boulevard along the said
     northerly line of Lot 5 in Block 201, South 71 degrees and 11 minutes and
     40 seconds West, a distance of 90.01 feet to an angle point; thence

(4)  Continuing along the same, North 18 degrees and 48 minutes and 20 seconds
     West, a distance of 1.10 feet to an angle point; thence

Continuing along the same, South 70 degrees and 12 minutes and 00 seconds West a
distance of 63.22 feet to an angle point; thence

(6)  Continuing along the same, South 71 degrees and 11 minutes and 40 seconds
     West, a distance of 436.87 feet to its intersection with the easterly line
     of Lot 2 in Block 201; thence





Along the said easterly line of Lot 2 in Block 201, North 19 degrees and 16
minutes and 30 seconds West, a distance of 300.00 feet to its intersection with
the southerly night-ofway line of New Jersey State Highway Route No. 4, also
known as Broadway; thence

Along the said southerly right-of-way line of New Jersey State Highway Route No.
4, also known as Broadway, North 70 degrees and 43 minutes and 30 seconds East,
a distance of 219.59 feet to an angle point in same; thence

Continuing along the same, North 71 degrees and 15 minutes and 30 seconds East,
a distance of 346.10 feet to a point of curvature; thence

(10)     Continuing along the same and a curve to the right having a radius of
         25.00 feet and a central angle of 89 degrees and 33 minutes and 30
         seconds, a distance along an arc of39.08 feet to the point or place
         of BEGINNING.

                                                    EXH. A-2


(5)


(7) (8)



(9)


The above description is in accordance with a survey drawn by Lapatka
Associates, Inc. dated November 17, 2005.

Being known as Lots 3 & 4 in Block 201, and Lot 2 in Block 301, on the Official
Tax Map of the Borough of Elmwood Park in the County of Bergen and State of New
Jersey. Being also known as 58, 80 and 100 Broadway.









                                                   EXH. A-3


                    RD ELMWOOD ASSOCIATES, L.P., as Borrower
                                   (Borrower)
                                       to

 MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., as nominee of Lender (Lender)



                                  MORTGAGE AND
                               SECURITY AGREEMENT




                          Dated: As of December 9, 2005
       Location: 100 Broadway, E lmwood Park Shopping Center, Elmwood, NJ
                                 County: Bergen
                          MFRS MIN: 800010100000022938



                   PREPARED BY AND UPON RECORDATION RETURN TO:

                                       LAND TITLE AGENCY, INC.
                                       464 VALLEY BROOK AVENUE
                                       LYNDHURST, NJ 07071
                                        (201) 804.8844
















                       LIST OF SUBSIDIARIES OF ACADIA REALTY TRUST


239 Greenwich Associates Limited Partnership
ABR Amboy Road LLC
Acadia 239 Greenwich Avenue, LLC
Acadia Amherst, LLC
Acadia Bartow Avenue, LLC
Acadia Berlin LLC
Acadia Boonton LLC
Acadia Brandywine Condominium, LLC
Acadia Brandywine Subsidiary, LLC
Acadia Brandywine Town Center, LLC
Acadia Clark-Diversey LLC
Acadia Crescent Plaza LLC
Acadia Crossroads, LLC
Acadia D.R. Management, Inc.
Acadia Elmwood Park LLC
Acadia Granville, LLC
Acadia Haygood, LLC
Acadia Heathcote, LLC
Acadia Hendon Hitchcock Plaza, LLC
Acadia K-H, LLC
Acadia Levitz, LLC
Acadia Liberty Self Storage LLC
Acadia Mad River Property LLC
Acadia Market Square, LLC
Acadia Merrillville Realty, Inc.
Acadia Merrillville Realty, L.P.
Acadia Mervyn I, LLC
Acadia Mervyn II, LLC
Acadia Mervyn Investors I, LLC
Acadia Mervyn Investors II, LLC
Acadia Mervyn Promote Member I, LLC
Acadia Mervyn Promote Member II, LLC
Acadia Naamans Road LLC
Acadia New Loudon, LLC
Acadia Pacesetter LLC
Acadia Property Holdings, LLC
Acadia Realty Acquisition I, LLC
Acadia Realty Acquisition II, LLC
Acadia Realty Limited Partnership
Acadia Realty Trust
Acadia Rockville, LLC
Acadia Sheffield Crossing, LLC
Acadia Sterling Heights, LLC
Acadia Strategic Opportunity Fund II, LLC
Acadia Strategic Opportunity Fund, LP
Acadia Tarrytown, LLC
Acadia Town Line, LLC
Acadia-Noddle Tarrytown Development Co., LLC
Acadia Oakbrook LLC
Acadia-P/A 161st Street LLC
Acadia-P/A Canarsie, LLC
Acadia-P/A Holding Company, LLC
Acadia-P/A Liberty LLC
Acadia-P/A Sherman Avenue, LLC




Acadia-PA East Fordham Acquisitions, LLC
ACRS, Inc.
AII BC LLC
AII BH LLC
AII BS LLC
AII BTC LLC
AII MS LLC
AmCap Acadia 8th Addition, LLC
AmCap Acadia 9th Addition, LLC
AmCap Acadia Agent, LLC
AmCap Acadia Atlanta LP
AmCap Acadia Batesville, LLC
AmCap Acadia Benton, LLC
AmCap Acadia Carthage LP
AmCap Acadia Cary, LLC
AmCap Acadia Cincinnati, LLC
AmCap Acadia Conroe LP
AmCap Acadia Great Bend, LLC
AmCap Acadia Hanrahan, LLC
AmCap Acadia Indianapolis, LLC
AmCap Acadia Irving LP
AmCap Acadia K-H Holding, LLC
AmCap Acadia K-H, LLC
AmCap Acadia Little Rock, LLC
AmCap Acadia Longview, LLC
AmCap Acadia Mustang, LLC
AmCap Acadia Pratt, LLC
AmCap Acadia Roanoke, LLC
AmCap Acadia Roswell, LLC
AmCap Acadia Ruidoso, LLC
AmCap Acadia San Ramon, LLC
AmCap Acadia Shreveport, LLC
AmCap Acadia Springerville, LLC
AmCap Acadia Tucson, LLC
AmCap Acadia Tulsa, LLC
APA 216st Street LLC
ARA BC LLC
ARA BH LLC
ARA BS LLC
ARA BTC LLC
ARA MS LLC
Blackman Fifty L.P.
Blackman Fifty Realty Corp.
Crossroads II
Crossroads II, LLC
Crossroads Joint Venture
Crossroads Joint Venture, LLC
Heathcote Associates, L.P.
Mark Plaza Fifty L.P.
Mark Plaza Fifty Realty Corp.
Mark Twelve Associates, L.P.
New Castle Fifty Realty Corp.
P/A-Acadia Pelham Manor, LLC
Pacesetter/Ramapo Associates
Port Bay Associates, LLC
RD Abington Associates Limited Partnership
RD Absecon Associates, L.P.




RD Absecon, Inc.
RD Bloomfield Associates Limited Partnership
RD Branch Associates L.P.
RD Columbia Associates, L.P.
RD Elmwood Associates, L.P.
RD Hobson Associates, L.P.
RD Methuen Associates Limited Partnership
RD Smithtown, LLC
RD Village Associates Limited Partnership
RD Whitegate Associates, L.P.
RD Woonsocket Associates Limited Partnership






            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-95966 and 333-87993) pertaining to the 1999 Share
Incentive Plan of Acadia Realty Trust; in the Registration Statement (Form S-3
No. 33-31630) of Acadia Realty Trust; in the Registration Statement (Form S-3
No. 333-104727) of Acadia Realty Trust; and in the Registration Statement (Form
S-8 No. 333-106758) pertaining to the 2003 Employee Share Incentive Plan of
Acadia Realty Trust of our report dated March 8, 2006, related to the
consolidated financial statements and schedule and the effectiveness of internal
control over financial reporting of Acadia Realty Trust included in this Annual
Report on Form 10-K for the year ended December 31, 2005.



                                    /s/ BDO Seidman, LLP


New York, New York
March 8, 2006




            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-95966 and 333-87993) pertaining to the 1999 Share Incentive
Plan of Acadia Realty Trust; in the Registration Statement (Form S-3 No.
33-31630) of Acadia Realty Trust; in the Registration Statement (Form S-3 No.
333-104727) of Acadia Realty Trust; and in the Registration Statement (Form S-8
No. 333-106758) pertaining to the 2003 Employee Share Incentive Plan of Acadia
Realty Trust of our report dated March 10, 2005, except as to Note 2B as to
which the date is March 15, 2006, with respect to the consolidated balance sheet
of Acadia Realty Trust and subsidiaries as of December 31, 2004, and the Related
Consolidated Statements of Income, Shareholders' Equity and Cash Flows for the
Period Ended December 31, 2004 included in this Annual Report on Form 10-K for
the year ended December 31, 2005.



                                    /s/ ERNST & YOUNG LLP

New York, New York
March 15, 2006




    CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A - 14A
                (SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)

I, Kenneth F. Bernstein, certify that:

1. I have reviewed this annual report on Form 10-K of Acadia Realty Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the
registrant and we have:

(a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal year that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.


/s/ Kenneth F. Bernstein
- ------------------------
Kenneth F. Bernstein
President and Chief Executive Officer
March 15, 2006




    CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A - 14A
                 (SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)

I, Michael Nelsen, certify that:

1. I have reviewed this annual report on Form 10-K of Acadia Realty Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the
registrant and we have:

(a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal year that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.



/s/ Michael Nelsen
- ------------------
Michael Nelsen
Senior Vice President and Chief Financial Officer
March 15, 2006





   CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION
                          1350, AS ADOPTED PURSUANT TO
                 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

In connection with the Annual Report of Acadia Realty Trust (the "Company") on
Form 10-K for the year ended December 31, 2005, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Kenneth F. Bernstein,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.



/s/ Kenneth F. Bernstein
- ------------------------
Kenneth F. Bernstein
President and Chief Executive Officer
March 15, 2006






CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Acadia Realty Trust (the "Company") on
Form 10-K for the year ended December 31, 2005, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Michael Nelsen, Sr.
Vice President and Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.



/s/ Michael Nelsen
- ------------------
Michael Nelsen
Senior Vice President and Chief Financial Officer
March 15, 2006