10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[Mark One]

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2008
OR
o	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: 000-53195

Behringer Harvard Multifamily REIT I, Inc.

(Exact name of registrant as specified in its charter)

Maryland	20-5383745
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
15601 Dallas Parkway, Suite 600, Addison, Texas	75001
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (866) 655-3600

Securities registered pursuant to section 12(b) of the Act:

None

Securities registered pursuant to section 12(g) of the Act:

Common stock, $0.0001 par value per share

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). Yes o  No x

Indicate bycheck markif the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes oNo x

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 x  No o

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.  o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes o   No x

While there is no established market for the registrant’s common stock, the aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant as of June 30, 2008 (the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $127.3 million, assuming a market value of $10.00 per share.

As of March 13, 2009, the Registrant had approximately 19.0 million shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant incorporates by reference portions of its Definitive Proxy Statement for the 2008 Annual Meeting of Stockholders, which is expected to be filed no later than April 20, 2009, into Part III of this Form 10-K to the extent stated herein.

BEHRINGER HARVARD MULTIFAMILY REIT I, INC.

FORM 10-K

Year Ended December 31, 2008

		Page
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	53
Item 2.	Properties	53
Item 3.	Legal Proceedings	56
Item 4.	Submission of Matters to a Vote of Security Holders	56
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	57
Item 6.	Selected Financial Data	60
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	61
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	78
Item 8.	Financial Statements and Supplementary Data	79
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	79
Item 9A(T).	Controls and Procedures	79
Item 9B.	Other Information	80
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	81
Item 11.	Executive Compensation	81
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	81
Item 13.	Certain Relationships and Related Transactions, and Director Independence	81
Item 14.	Principal Accounting Fees and Services	81
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	82
Signatures

2

Forward-Looking Statements

Certain statements in this Annual Report on Form 10-K constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements, include discussion and analysis of the financial condition of Behringer Harvard Multifamily REIT I, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), our anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our stockholders in the future and other matters.  These forward-looking statements are not historical facts but are the intent, belief, or current expectations of our management based on their knowledge and understanding of the business and industry.  Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.  These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false.  We caution investors not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Annual Report on Form 10-K.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.  The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of this Annual Report on Form 10-K.

Cautionary Note

The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Annual Report on Form 10-K are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties.  Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

PART I

1.             Business

Organization

Behringer Harvard Multifamily REIT I, Inc. (which may be referred to as the “Company,” “we,” “us,” or “our”) was organized in Maryland on August 4, 2006 and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT, we generally are not subject to corporate-level income taxes.  To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable income”, as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders.  If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates.  As of December 31, 2008 we believe we are in compliance with all applicable REIT requirements. 

We invest in and operate multifamily communities. These multifamily communities include conventional multifamily assets, such as mid-rise, high-rise, and garden style properties, and may also include student housing and age-restricted properties, typically requiring residents to be age 55 or older, as well as more opportunistic properties in various phases of development, redevelopment or repositioning.  We intend to make investments directly in wholly owned investments and indirectly through co-investment arrangements with other participants (“Co-Investment Ventures”).  Further, we may invest in commercial real estate, options to acquire real estate, real estate-related securities, collateralized mortgage-backed securities, mortgage, bridge, mezzanine or other loans and Section 1031 tenant-in-common interests, or in entities that make similar investments.  We completed our first investment in April 2007 and, as of December 31, 2008, we have made investments in ten multifamily communities, nine in various stages of development and one operating property.

We have no employees and are supported by related party service agreements. We are externally managed by Behringer Harvard Multifamily Advisors I LP (“Behringer Harvard Multifamily Advisors I”), a Texas limited partnership organized in 2006. Behringer Harvard Multifamily Advisors I is responsible for managing our affairs on a day-to-day basis and for identifying and

3

making real estate investments on our behalf.  Substantially all our business is conducted through our operating partnership Behringer Harvard Multifamily OP I LP, a Delaware limited partnership (“Behringer Harvard Multifamily OP I”). Our wholly-owned subsidiary, BHMF, Inc., a Delaware corporation (“BHMF Inc.”) owns less than 0.1% of Behringer Harvard Multifamily OP I as its sole general partner. The remaining ownership interest in Behringer Harvard Multifamily OP I is held as a limited partner’s interest by BHMF Business Trust, a Maryland business trust.

Our office is located at 15601 Dallas Parkway, Suite 600, Addison, Texas 75001, and our toll free telephone number is (866) 655-3600.  The name Behringer Harvard is the property of Behringer Harvard Holdings, LLC and is used by permission.

Offerings of our Common Stock

We are authorized to issue 875,000,000 shares of common stock, 1,000 shares of convertible stock and 124,999,000 shares of preferred stock. All shares of common stock have a par value of $.0001 per share. On August 4, 2006 (date of inception), we sold 1,249 shares of our common stock to Behringer Harvard Holdings, LLC (“Behringer Harvard Holdings”) for cash of $10,004. On November 28, 2007, we sold an additional 23,720 shares of our common stock to Behringer Harvard Holdings for cash of $189,997.

On November 22, 2006, we commenced a private offering pursuant to Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) to sell a maximum of approximately $400 million of common stock to accredited investors (the “Private Offering”). We held all Private Offering proceeds in escrow until after we had sold our initial $1.5 million of shares of common stock. In April 2007, the Company released the proceeds from escrow and began issuing shares of our common stock. We terminated the Private Offering on December 28, 2007. We sold a total of approximately 14.2 million shares of common stock and raised a total of approximately $127.3 million in gross offering proceeds in the Private Offering. Net proceeds, after selling commissions, dealer manager fees, and other offering costs, were approximately $114.3 million.

On September 5, 2008, we commenced a public offering (the “Initial Public Offering”) of up to 200,000,000 shares of common stock offered at a price of $10.00 per share pursuant to a Registration Statement on Form S-11 filed under the Securities Act.   The Initial Public Offering also covered the registration of up to an additional 50,000,000 shares of common stock at a price of $9.50 per share pursuant to our distribution reinvestment plan (“DRIP”).  We reserve the right to reallocate shares of our common stock between the primary offering and our DRIP.  As of December 31, 2008, we sold a total of approximately 1.1 million shares of common stock and raised a total of approximately $10.9 million in gross offering proceeds in the Initial Public Offering. Net proceeds, after selling commissions, dealer manager fees, and other offering costs, were approximately $9.5 million.

As of December 31, 2008, we had issued approximately 15.4 million shares of our common stock, including 24,969 shares owned by Behringer Harvard Holdings and 18,034 shares through the DRIP and 6,000 shares of restricted stock issued to our independent directors for no cash.  As of December 31, 2008, we had redeemed 16,667 shares of our common stock and had approximately 15.3 million shares of our common stock outstanding.  As of December 31, 2008, we had 1,000 shares of non-participation, non-voting convertible stock issued and outstanding and no shares of preferred stock issued and outstanding.  Aggregate gross offering proceeds from our offerings total approximately $138.1 million and net proceeds, after selling commissions, dealer manager fees, and organization and offering expenses, total approximately $123.7 million.

We intend to use the proceeds from our offerings of our common stock, after deducting offering expenses, primarily to make investments in multifamily communities, with a particular focus on using multiple strategies to acquire high quality multifamily communities that will produce rental income. We will acquire a blended portfolio consisting of core, stabilized income generating assets, assets that may benefit from enhancement or repositioning and development assets for stabilization to retain as core assets generating income with potential capital appreciation.

While conducting an offering, we admit new stockholders at least monthly. All subscription proceeds are held in a separate account until the subscribing investors are admitted as stockholders. Upon admission of new stockholders, subscription proceeds are transferred to operating cash and may be utilized as consideration for investments and the payment or reimbursement of dealer manager fees, selling commissions, offering expenses and operating expenses. Until required for such purposes, net offering proceeds are held in short-term, liquid investments including but not limited to money market accounts and FDIC-insured deposits.

Our common stock is not currently listed on a national securities exchange. However, management anticipates within four to six years after the termination of our public offering to begin the process of either listing the common stock on a national securities exchange or liquidating our assets, depending on the then-prevailing market conditions.

4

2008 Highlights

During 2008, we completed the following key transactions:

·Our Initial Public Offering become effective for sales in all 50 states and we issued approximately 1.1 million shares of our Initial Public Offering of common stock (inclusive of distribution reinvestments and without regard to redemptions), resulting in gross proceeds to us of approximately $10.9 million;

·We made distributions of $5.9 million;

·We earned net income of $2.6 million, compared to a net loss of $0.2 million in 2007;

·Our share of investment in unconsolidated Co-Investment Ventures was $96.5 million.  Significant real estate investments by these Co-Investment Ventures included:

·advanced approximately $49.1million under loans with a weighted average interest rate of 10.1% to partially fund seven multifamily developments located in Texas, Maryland, Florida, Nevada and Colorado, including the recapitalization mentioned below;

·recapitalized an existing investment in a 430 unit, multifamily community in Henderson, Nevada, acquiring a limited partnership interest for $5.2 million and advancing $14.7 million on a $21.0 million mezzanine loan;

·acquired a new limited partnership interest for $7.3 million in a 400 unit, multifamily community in Denver, Colorado; and

·acquired a new limited partnership interest for $2.9 million in a 168 unit, multifamily community in Clark County, Nevada.

Investment Objectives

Our overall investment objectives, in their relative order of importance are:

·to preserve and protect investors capital investments;

·to generate distributable cash to our stockholders;

·to realize growth in the value of our investments within four to six years of the termination of the offering; and

·to enable investors to realize a return on their investment by beginning the process of liquidation and distribution cash or listing our shares on a national securities exchange within four to six years of termination of the Initial Public Offering.

Investment Policies

Our investment strategy is designed to provide our stockholders with a diversified portfolio of investments in high quality multifamily investments. We intend to primarily invest in, acquire and operate multifamily communities, with a particular focus on using multiple strategies to acquire investments in high quality multifamily communities that produce stabilized rental income. We will invest in and acquire a blended portfolio consisting of “core,” stabilized income generating assets, assets that may benefit from enhancement or repositioning and development assets forstabilization to retain as core assets generating income with potential capital appreciation. As of December 31, 2008, all of these investments have been made in multifamily communities located in a top 50 metropolitan statistical area (“MSA”), nine development projects and one operating property.  Targeted communities include existing core properties that are already well positioned and producing rental income, as well as more opportunistic properties in various phases of development, redevelopment or in need of repositioning.  Further, we may invest in commercial real estate, including office buildings, shopping centers, business and industrial parks, manufacturing facilities, warehouses and distribution facilities and motel and hotel properties. We intend to make investments on our own or through Co-Investment Ventures. We may invest in real estate-related securities, including securities issued by other real estate companies, either for investment or in change of control transactions completed on a negotiated basis or otherwise. We also may originate or invest in commercial mortgage-backed securities, mortgage, bridge, mezzanine or other loans and Section 1031 tenant-in-common interests (including those issued by programs sponsored by

5

Behringer Harvard Holdings, LLC), or in entities that make investments similar to the foregoing. Although we intend to primarily invest in real estate assets located in the United States, in the future, we may make investments in real estate assets located outside the United States. As of December 31, 2008, we have not made any international investments. We will not make international investments until all of our non-independent directors and one of our independent directors have at least three years of relevant experience acquiring and managing such international investments.

As part of our long-term investment strategy to acquire high quality multifamily communities, as of December 31, 2008, we have made substantially all of our real estate investments by investing in Co-Investment Ventures. We believe the strategy will allow us to increase the number of investments thereby providing greater risk diversification and to participate with greater economic interest in larger real estate investments thereby providing greater access to high quality investment opportunities.  To accomplish this strategy, we intend to enter into additional Co-Investment Ventures which invest in mortgage, mezzanine or other loans, equity interests, or other co-ownership arrangements to acquire, develop or improve properties with third parties or certain affiliates of our advisor, including the real estate limited partnerships and REITs sponsored by affiliates of our advisor.  Investments in mezzanine and mortgage loans generally can provide higher current income than equity investments in development real estate projects. Accordingly, we expect to employ a loan strategy primarily during the development phase of the projects, generally lasting one to three years. In certain cases we may have the option of converting our loan investment into an equity position, where our reported earnings may initially decrease upon conversion, but stabilize as the completed project is leased up. We would attempt to realize value appreciate upon sale of the property. We believe this combination of loan and equity investments can lead to higher average returns and a higher-quality portfolio over the longer term. As of December 31, 2008, loan investments in development projects through Co-Investment Ventures represent a substantial portion of our total investment portfolio.

Current market conditions may provide us with near-term opportunities for investments in core properties, which are producing rental income where projecting occupancy and rental rates is more quantifiable and financing is available at satisfactory terms. Investments in development or redevelopment projects will depend on securing construction on satisfactory terms and underwriting assumptions which include realistic assessments of current rental rates and occupancies. These may be structured as Co-Investment Ventures or wholly owned investments. We expect to negotiate terms, particularly purchase price and financing terms, and in the case of equity investments, preferred returns and subordinations with respect to other equity holders. There is no assurance that we will be able to acquire new investments on these terms.

In the current economic environment, where both debt and equity capital has become scarce, many owners of real estate require additional capital funding, often in order to remove or reduce a construction loan, mezzanine loan, other loan or equity component of a project.  We will seek to acquire interests in multifamily communities by recapitalizing their capital structures in ways that affords us an advantaged, first-position priority return relative to other investors in the project.  In this environment, we envision the ability to provide debt and equity investment capital to recapitalizations on terms that favor us over existing investors in the project as to our percentage ownership and as to preferred current returns and preferred returns of invested capital.

We will look to acquire completed and stabilized multifamily communities that generate attractive current returns and that we believe will also generate a competitive growth component for total returns.  To date, one of our Co-Investment Ventures, Johns Creek Walk, was of this type.  If current economic conditions persist, we expect that the lack of capital will enable us to acquire more of these types of assets that meet our investment criteria and are being sold by distressed sellers.

When appropriate, we may also incorporate into our investment portfolio value-added multifamily communities that have either been mismanaged or otherwise have not realized what we believe to be full appreciation and income-generation potential.  Generally, we would make capital improvements or seek to aesthetically improve the asset and its amenities, increase rents, and stabilize occupancy with the goal of adding an attractive increase in yield and improving total returns.

Co-Investment Ventures

As of December 31, 2008, substantially all of our real estate investments have been conducted through Co-Investment Ventures. As of December 31, 2008 all of our unconsolidated joint ventures have been with Behringer Harvard Master Partnership I LP (“Behringer Harvard Master Partnership I”) in which we are the manager. The 1% general partner of Behringer Harvard Master Partnership I is Behringer Harvard Institutional GP LP, a related party that is indirectly owned by our sponsor, Behringer Harvard Holdings and the 99% limited partner is an unaffiliated social work sector pension fund based in The Netherlands, Stichting Pensioenfonds Zorg en Welijn (“PGGM” unless by its context “PGGM” also will include the 1% general partner interest). For each of our co-investments we have established a separate joint venture (“BHMP CO-JV”) to invest in individual projects.

6

Each individual operating property or development project has established one or more separate legal entities for the sole purpose of obtaining legally separated financing, investments in and holding its respective operating property or development project. The collective group of each operating property’s or development project’s separate legal entities is referred to herein as a “Property Entity.” Each Property Entity has been legally separated and is not co-mingled or cross-collateralized with any other Property Entity; however, we refer to the collective group herein as the “Property Entities.”

As of December 31, 2008, nine of our ten BHMP CO-JVs have made investments in mezzanine or mortgage loans in development, multifamily real estate projects. These BHMP CO-JVs are dependent on the borrowers to pay contractual interest and other obligations. In addition, as of December 31, 2008, seven of our ten BHMP CO-JVs have made equity investments where one   Property Entity is an operating multifamily project. These BHMP CO-JVs are dependent on individual multifamily tenants to pay contractual rents. We are not aware of any borrowers or tenants who will not be able to pay their contractual obligations, which if not paid would have a material impact on a BHMP CO-JV or our results of operations. See “Item 2. Properties” for a description of each of these investments.

Borrowing Policies

Our board of directors has adopted policies to generally limit our consolidated borrowings. Our consolidated borrowings shall not exceed 300% of our adjusted consolidated net assets. For these purposes we define adjusted consolidated net assets as our consolidated net equity less certain intangibles plus accumulated property and finance related depreciation and amortization.  Also, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests.  Our policy limitation, however, does not apply to unconsolidated investments of individual real estate assets and only will apply once we have ceased raising capital under the Initial Public Offering or any subsequent offering and invested substantially all of our capital.  As a result, we expect to borrow more than 75% of the contract purchase price of a particular real estate asset we acquire, to the extent our board of directors determines that borrowing these amounts is prudent.  For these purposes, the value of our assets is based on methodologies and policies determined by the board of directors and may include, but do not require, independent appraisals. As of December 31, 2008, we have no consolidated borrowings. Accordingly, as of December 31, 2008, these policies have not constrained our ability to incur debt. Should we incur consolidated borrowings, the board of directors may in their discretion modify these limits if in their judgment they determine there is substantial justification that borrowings of a greater amount is in our best interests. Our board of directors must review our aggregate borrowings at least quarterly.  In addition to these formal policies, our board will evaluate other factors in determining the aggregate borrowings both on a consolidated basis and individually on a per property basis as assets are acquired, disposed and refinanced. These factors may include debt service coverage, fixed rate and variable rate targets and scheduling of maturities. Following the investment of the proceeds to be raised in the Initial Public Offering, we will seek a long term leverage ratio of approximately 60% upon stabilization of the aggregate value of our assets.  Our board of directors must review our aggregate borrowings at least quarterly.

Similar to our investment policies, the current disruptions in the capital markets will require us to take a very flexible policy to borrowings. Notwithstanding the above policies, depending on market conditions we may elect lower leverage percentages or not borrow at all on a consolidated basis. We may also choose to have less financing in our Co-Investment Ventures or Property Entity properties. We will further evaluate both the individual and portfolio maturity terms, where in certain market conditions we may elect to extend maturities for financings deemed to have favorable terms. If we do choose to incur fewer borrowings, we would expect to acquire fewer properties. Depending on the market cap rates and interest rates, this may result in lower net returns on our investments.

Tax Status

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, and have qualified as a REIT since the year ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT.

Distribution Policy

In order to qualify as a REIT, we are required to distribute at least 90% of our annual REIT taxable income to our stockholders.  Until we generate sufficient cash flow from operations or funds from operations (“FFO”) to fully fund the payment of distributions, some or all of

7

our distributions will be paid from other sources.  As of December 31, 2008, our distributions were partially funded from operating cash flow and the remainder from other financing activities, such as our offering proceeds.  In addition, to the extent our investments are in development or redevelopment projects or in properties that have significant capital requirements, our ability to make distributions may be negatively impacted, especially during our early periods of operation.  As development projects are completed and begin to generate income, we expect to have additional funds available to distribute to you.  We cannot assure as to when we will begin to generate sufficient cash flow solely from operations to make distributions.

Distributions have and will continue to be authorized at the discretion of our board of directors, based on its analysis of our earnings, cash flow, anticipated cash flow, capital expenditure requirements, general financial condition or other factors that our board of directors deem relevant.  The board’s discretion will be influenced, in substantial part, by its obligation to cause us to comply with the REIT requirements. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period but may be paid in anticipation of cash flow that we expect to receive during a later period or of receiving funds in an attempt to make distributions relatively uniform.  Our board of directors currently declares distributions on a monthly or quarterly basis, portions of which are paid on a monthly basis.  Monthly distributions are paid based on daily record and distribution declaration dates so our investors will be entitled to be paid distributions beginning on the day they purchase shares.

Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions. There can be no assurance that future cash flow will support paying our currently established distributions or maintaining distributions at any particular level or at all.  Since we began operations, our board of directors has declared distributions as summarized below:

Period	Approximate Amount  Per Share  (Rounded)		Annualized  Percentage  Return
Fourth Quarter 2008	$	0.001780800	6.5%	(1)
Third Quarter 2008	$	0.001013699	4.0%	(2)
Second Quarter 2008	$	0.001013699	4.0%	(2)
First Quarter 2008	$	0.001013699	4.0%	(2)
December 2007	$	0.001013699	4.0%	(2)
July - November 2007	$	0.000986301	4.0%	(3)

(1)Assuming a share price of $10.00 per share

(2)Assuming a share price of $9.25 per share

(3)Assuming a share price of $9.00 per share

Competition

We are subject to significant competition in seeking real estate investments and residents.  We compete with many third parties engaged in real estate investment activities including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies and other entities.  We also face competition from other real estate investment programs, including other Behringer Harvard programs, for investments that may be suitable for us.  Many of our competitors have substantially greater financial and other resources than we have and may have substantially more operating experience than either us or Behringer Harvard Multifamily Advisors I.  They also may enjoy significant competitive advantages, among other things, related to cost of capital, governmental regulation, access to real estate investments and resident services.

8

Regulations

Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity.  We believe that we have all permits and approvals necessary under current law to operate our investments.

Environmental

As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future.  However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.

Employees

We have no employees.  Behringer Harvard Multifamily Advisors I and other affiliates of Behringer Harvard Holdings perform a full range of real estate services for us, including acquisitions, property management, accounting, legal, asset management, wholesale brokerage and investor relations services.

We are dependent on affiliates of Behringer Harvard Holdings for services that are essential to us, including the sale of shares of our common stock, asset acquisition decisions, property management and other general administrative responsibilities.  In the event that these companies were unable to provide these services to us, we would be required to provide such services ourselves or obtain such services from other sources.

Industry Segment

Our current business consists of investing in and operating multifamily communities. Substantially all of our consolidated net income is from real estate properties that we own through joint ventures, and we account for each joint venture under the equity method of accounting. Management evaluates operating performance on an individual joint venture level. However, as each of our joint ventures has similar economic characteristics in our consolidated financial statements, the company is managed on an enterprise-wide basis with one reportable segment.

Available Information

We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (the “SEC”).  We also have filed with the SEC registration statements on Form S-11 in connection with the Initial Public Offering of our common stock.  Copies of our filings with the SEC may be obtained from the website maintained for us and our affiliates at www.behringerharvard.com or at the SEC’s website at www.sec.gov.  Access to these filings is free of charge.  We are not incorporating our website or any information from the website into this Form 10-K.

Item 1A.  Risk Factors

The factors described below represent our principal risks.  Other factors may exist that we do not consider to be significant based on information that is currently available or that we are not currently able to anticipate.  Our stockholders or potential investors may be referred to as “you” or “your” and the Initial Public Offering may be referred to as “this offering” in this Item 1A, “Risk Factors” section.

9

Risks Related to an Investment in Behringer Harvard Multifamily REIT I

There is no public trading market for shares of our common stock; therefore, it will be difficult for you to sell your shares.  If you are able to sell your shares, you may have to sell them at a substantial discount from the offering price.

There is no public market for the shares.  In addition, the price you receive for the sale of any shares of our common stock is likely to be less than the proportionate value of our investments.  Therefore, you should purchase the shares only as a long-term investment.  The minimum purchase requirements and suitability standards imposed on prospective investors in this offering also apply to subsequent purchasers of our shares.  If you are able to find a buyer for your shares, you may not sell your shares to such buyer unless the buyer meets certain applicable blue sky (state-mandated) suitability standards, which may inhibit your ability to sell your shares.  Moreover, our board of directors has approved the share redemption program.  Our board of directors may reject any request for redemption of shares or amend, suspend or terminate our share redemption program at any time.  Therefore, it will be difficult for you to sell your shares promptly or at all.  You may not be able to sell your shares in the event of an emergency, and, if you are able to sell your shares, you may have to sell them at a substantial discount from the offering price.  It is also likely that your shares would not be accepted as the primary collateral for a loan.

Both we and our advisor have limited operating histories.

We and our advisor are recently organized companies and have limited operating histories.  We were incorporated in August 2006, and we have acquired real estate-related assets relating to only ten specific properties, and no assurances can be given that we will acquire any additional properties or real estate-related assets.  Neither our officers and directors, nor the officers and employees of our advisor, have extensive experience investing in or originating different forms of debt financing such as mortgages, bridge, mezzanine or other loans beyond this real estate program.

You should consider our Annual Report in light of the risks, uncertainties and difficulties frequently encountered by companies that are, like us, in their early stage of development.  To be successful in this market, we must, among other things:

·identify and acquire properties and other real estate-related assets that further our investment strategies;

·maintain our dealer manager’s network of licensed securities brokers and other agents;

·attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations;

·respond to competition for our targeted properties and other real estate-related assets as well as for potential investors in us; and

·continue to build and expand our operations structure to support our business.

We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could cause you to lose all or a portion of your investment.

The prior performance of real estate investment programs sponsored by affiliates of our advisor or our Chairman of the Board, Robert M. Behringer, may not be an indication of our future results.

You should not rely upon the past performance of other real estate investment programs sponsored by affiliates of our advisor or Robert M. Behringer to predict our future results.  Accordingly, the prior performance of real estate investment programs sponsored by affiliates of our Chairman of the Board, Mr. Behringer, and our advisor may not be indicative of our future results.

We may suffer from delays in locating suitable investments, which could adversely affect the return on your investment.

Our ability to achieve our investment objectives and to make distributions to our stockholders is dependent upon the performance of our advisor in the acquisition of our investments and the determination of any financing arrangements as well as the performance of our property manager, the selection of multifamily community residents and the negotiation of leases.  The current market for properties that meet our investment objectives is highly competitive as is the leasing market for such properties.  The more shares we sell in this offering, the greater our challenge will be to invest all of the net offering proceeds on attractive terms.  Except for the investments described in the “Item 2. Properties” section of this annual report, you will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments.  You must rely entirely on the oversight of our board of directors, the management ability of our advisor and the performance of the property manager.  We cannot be sure that our advisor will be successful in obtaining suitable investments on financially attractive terms.

10

We could suffer from delays in locating suitable investments as a result of our reliance on our advisor at times when management of our advisor is simultaneously seeking to locate suitable investments for other Behringer Harvard-sponsored programs, some of which have investment objectives and employ investment strategies that are similar to ours.  Although our sponsor generally seeks to avoid simultaneous public offerings of funds that have a substantially similar mix of fund characteristics, including targeted investment types, investment objectives and criteria, and anticipated fund terms, there may be periods during which one or more Behringer Harvard-sponsored programs are seeking to invest in similar properties.

Additionally, as a public company, we are subject to the ongoing reporting requirements under the Exchange Act.  Pursuant to the Exchange Act, we may be required to file with the SEC financial statements of properties we acquire and investments we make in real estate-related assets.  To the extent any required financial statements are not available or cannot be obtained, we will not be able to acquire the investment.  As a result, we may not be able to acquire certain properties or real estate-related assets that otherwise would be a suitable investment.  We could suffer delays in our investment acquisitions due to these reporting requirements.

Furthermore, where we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space.  Therefore, you could suffer delays in the receipt of distributions attributable to those particular properties.

Delays we encounter in the selection, acquisition and development of properties could adversely affect your returns.  In addition, if we are unable to invest our offering proceeds in real properties and real estate-related assets in a timely manner, we will hold the proceeds of this offering in an interest-bearing account, invest the proceeds in short-term, liquid investments, including, but not limited to, money market accounts and FDIC-insured deposits, or, ultimately, liquidate.  In such an event, our ability to pay distributions to our stockholders and the returns to our stockholders would be adversely affected.

Investors who invest in us at the beginning of our offering may realize a lower rate of return than later investors.

Because we have only minimal investments and have not identified a significant number of investments for which to apply proceeds from this offering, there can be no assurances as to when we will begin to generate sufficient cash flow to fully fund or continue making distributions.  As a result, investors who invest in us before we commence significant real estate operations or generate significant cash flow may realize a lower rate of return than later investors.  We expect to have little cash flow from operations available for distribution until we make substantial investments.  In addition, to the extent our investments may be in development or redevelopment projects, properties, or other real estate-related assets that have significant capital requirements, our ability to make distributions may be negatively impacted, especially during our early periods of operation.  Therefore, until such time as we have sufficient cash flow from operations to fund fully the payment of distributions therefrom, some or all of our distributions will be paid from other sources, such as from the proceeds of this or other offerings, cash advances to us by our advisor, cash resulting from a waiver of asset management fees, and borrowings, including borrowings secured by our assets, in anticipation of future operating cash flow.

Investors who invest later in this offering may realize a lower rate of return than investors who invest earlier in the offering to the extent we fund distributions from other than operating cash flow.

To the extent we incur debt to fund distributions earlier in this offering, the amount of cash available for distributions in future periods will be decreased by the repayment of such debt.  Similarly, if we use offering proceeds to fund distributions, later investors may experience immediate dilution in their investment because a portion of our net assets would have been used to fund distributions instead of retained in our company and used to make real estate investments.  Earlier investors will benefit from the investments made with funds raised later in the offering, while later investors may not share in all of the net offering proceeds raised from earlier investors.

We may have to make expedited decisions on whether to invest in certain properties or real estate-related assets, including prior to receipt of detailed information on the investment.

In the current real estate market, our advisor and board of directors may frequently be required to make expedited decisions in order to effectively compete for the acquisition of properties and other real estate-related assets.  Additionally, we may be required to make substantial non-refundable deposits prior to the completion of our analysis and due diligence on property or real estate-related asset acquisitions and the actual time period during which we will be allowed to conduct due diligence may be limited.  In these cases, the information available to our advisor and board of directors at the time of making any particular investment decision, including the decision to pay any non-refundable deposit and the decision to consummate any particular acquisition, may be limited, and our advisor and board of directors may not have access to detailed information regarding any particular investment property, such as physical

11

characteristics, environmental matters, zoning regulations or other local conditions affecting the investment property.  Therefore, no assurance can be given that our advisor and board of directors will have knowledge of all circumstances that may adversely affect an investment.  In addition, our advisor and board of directors expect to rely upon independent consultants in connection with their evaluation of proposed investment properties, and no assurance can be given as to the accuracy or completeness of the information provided by such independent consultants.

Because this is a blind pool offering and we have not specified properties or real estate-related assets to acquire with a significant portion of the proceeds from this offering, you will not have the opportunity to evaluate our additional investments before we make them.

Because we have not yet identified any additional investments that we may make with proceeds from this offering, we are only able to provide you with information to evaluate our current, limited number of investments.  We will seek to invest substantially all of the offering proceeds available to us for investment, after the payment of fees and expenses, in the acquisition of real estate and real estate-related assets.

Because we have only acquired a few interests in properties and other real estate-related assets, our success is totally dependent on our ability to acquire additional investments.  Thus, your investment will be subject to the risks generally attendant to real property and other real estate-related assets, such as:

·the risk that assets may not perform in accordance with expectations, including projected occupancy and rental rates for real properties;

·the risk that we may overpay for assets; and

·the risk that we may underestimate the cost of improvements required to bring an acquired property up to standards established for its intended use or its intended market position.

If we are unable to raise substantial funds in this offering, we will be limited in the number and type of properties and real estate-related assets we may acquire and the return on your investment in us may fluctuate with the performance of the specific investments we acquire.

This offering is being made on a “best efforts” basis, whereby the brokers participating in the offering are required to use only their best efforts to sell our shares and have no firm commitment or obligation to purchase any of the shares.  As a result, we cannot assure you as to the amount of proceeds that will be raised in this offering.  If we are unable to raise substantial funds in this offering, we will make fewer additional investments resulting in less diversification in terms of the number of assets owned, the geographic regions in which our properties and real estate-related assets are located and the types of assets that we acquire.  In such event, the likelihood of our profitability being affected by the performance of any one of our assets will increase.  For example, in the event we are not able to raise substantial proceeds from this offering, we will most likely be limited to make our additional investments only through one or more joint ventures with third parties and may only be able to make a few such investments.  As of December 31, 2008, we have made substantially all of our current investments through joint ventures and intend to continue this strategy.  If we are able to make only a few additional investments, we would not achieve broad diversification of our assets.  Additionally, we are not limited in the number or size of our assets or the percentage of net proceeds we may dedicate to a single asset.  Your investment in our shares will be subject to greater risk to the extent that we lack a diversified portfolio.  In addition, if we are unable to raise substantial funds, our fixed operating expenses, as a percentage of gross income, would be higher, and our financial condition and ability to make distributions could be adversely affected.

If we lose or are unable to obtain key personnel, our ability to implement our investment strategies could be delayed or hindered.

Our success depends to a significant degree upon the continued contributions of our chairman and certain executive officers and other key personnel of us, our advisor and its affiliates, including Robert M. Behringer and Robert S. Aisner, each of whom would be difficult to replace.  We do not have employment agreements with the executive officers and other key personnel of us, our advisor and its affiliates, and we cannot guarantee that they will remain affiliated with us.  Although several of the executive officers and other key personnel of us, our advisor and its affiliates, including Mr. Behringer and Mr. Aisner, have entered into employment agreements with affiliates of our advisor, including Harvard Property Trust, these agreements are terminable at will, and we cannot guarantee that such persons will remain affiliated with our advisor.  If any of our key personnel were to cease their affiliation with us, our advisor or its affiliates, our operating results could suffer.  Further, although Behringer Harvard Holdings has key person insurance on the lives

12

of Robert M. Behringer, Robert S. Aisner, Gerald J. Reihsen, III, Gary S. Bresky and M. Jason Mattox and Jeffrey S. Schwaber, we do not intend to separately maintain key person life insurance on these individuals, or any other person.  We believe that our future success depends, in large part, upon our advisor’s and its affiliates’ ability to hire and retain highly skilled managerial, operational and marketing personnel.  Competition for persons with these skills is intense, and we cannot assure you that our advisor will be successful in attracting and retaining such skilled personnel.  Further, we have established, and intend in the future to establish, strategic relationships with firms that have special expertise in certain services or as to assets both nationally and in certain geographic regions.  Maintaining these relationships will be important for us to effectively compete for assets.  We cannot assure you that we will be successful in attracting and retaining such strategic relationships.  If we lose or are unable to obtain the services of key personnel or do not establish or maintain appropriate strategic relationships, our ability to implement our investment strategies could be delayed or hindered.

If we internalize our management functions, your interest in us could be diluted, and we could incur other significant costs associated with being self-managed.

Our strategy may involve internalizing our management functions.  If we internalize our management functions, we may elect to negotiate to acquire our advisor’s and property manager’s assets and personnel.  Under our advisory management agreement, we are restricted from hiring or soliciting any employee of our advisor or its affiliates for one year from the termination of the agreement.  We are similarly restricted under our property management agreement with respect to the employees of our property manager or its affiliates.  These restrictions could make it difficult to internalize our management functions without acquiring assets and personnel from our advisor and its affiliates for consideration that would be negotiated at that time.  At this time, we cannot be sure of the form or amount of consideration or other terms relating to any such acquisition.  Such consideration could take many forms, including cash payments, promissory notes and shares of our stock.  The payment of such consideration could result in dilution of your interests as a stockholder and could reduce the net income per share and funds from operations per share attributable to your investment.

In addition, while we would no longer bear the costs of the various fees and expenses we expect to pay to our advisor under the advisory management agreement if we internalize management, our direct expenses would include general and administrative costs, including legal, accounting and other expenses related to corporate governance and SEC reporting and compliance.  We would also incur the compensation and benefits costs of our officers and other employees and consultants that we now expect will be paid by our advisor or its affiliates.  In addition, we may issue equity awards to officers, employees and consultants, which awards would decrease net income and funds from operations and may further dilute your investment.  We cannot reasonably estimate the amount of fees to our advisor we would save and the costs we would incur if we became self-managed.  If the expenses we assume as a result of an internalization are higher than the expenses we avoid paying to our advisor, our net income per share and funds from operations per share would be lower as a result of the internalization than it otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares.

As currently organized, we will not directly employ any employees.  If we elect to internalize our operations, we would employ personnel and would be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances.  Nothing in our charter prohibits us from entering into the transaction described above.

If we internalize our management functions, we could have difficulty integrating these functions as a stand-alone entity.  As of December 31, 2008, certain personnel of our advisor and its affiliates perform property management, asset management and general and administrative functions, including accounting and financial reporting, for multiple entities.  We could fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity.  An inability to manage an internalization transaction effectively could thus result in our incurring excess costs and/or suffering deficiencies in our disclosure controls and procedures or our internal control over financial reporting.  Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our portfolio.

If we pay distributions from sources other than our cash flow from operations, we will have fewer funds available to make investments and your overall return may be reduced.

Our organizational documents permit us to make distributions from any source, such as from the proceeds of our prior private offering, this offering or other offerings, cash advances to us by our advisor, cash resulting from a waiver of asset management fees, and borrowings, including borrowings secured by our assets, in anticipation of future operating cash flow.  If we fund distributions from financings or the net proceeds from this offering, we will have fewer funds available for acquiring properties and other investments, and your overall return may be reduced.  Further, to the extent distributions exceed cash flow from operations, a

13

stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize capital gain.  We paid approximately $5,937,182 and $515,214 in distributions, for the year ended December 31, 2008 and 2007, respectively.  We have elected to use offering proceeds from our offerings to pay a significant portion of these authorized distributions with the balance paid from operations and interest income.

Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses.

Maryland law provides that a director has no liability in that capacity if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances.  Our charter provides that generally no independent director shall be liable to us or our stockholders for monetary damages and that we will generally indemnify them for losses unless they are grossly negligent or engage in willful misconduct.  As a result, you and we may have more limited rights against our independent directors than might otherwise exist under common law, which could reduce your and our recovery from these persons if they act in a negligent manner. In addition, we may be obligated to fund the defense costs incurred by our independent directors (as well as by our other directors, officers, employees of our advisor and its affiliates and agents) in some cases, which would decrease the cash otherwise available for distributions to you.  We will also purchase and maintain insurance on behalf of all of our directors and officers against liability asserted against or incurred by them in their official capacities with us, whether or not we are required or have the power to indemnify them against the same liability.

We have relatively less experience with respect to international investments as compared to domestic investments, which could adversely affect our return on international investments.

The experience of our advisor and its affiliates with respect to investing in multifamily communities or other real estate-related assets located outside the United States is not as extensive as it is with respect to investments in the United States.  We may make international investments and when one of our independent directors has at least three years of relevant experience acquiring and managing such international investments.  If and when we do make international investments, our relatively limited experience with respect to such investments could adversely affect our return on them.

Your investment may be subject to additional risks if we make international investments.

In the future, we may make investments in real estate assets located outside the United States and may make or purchase mortgage, bridge, mezzanine or other loans or joint venture interests in mortgage, bridge, mezzanine or other loans made to a borrower located outside the United States or secured by property located outside the United States.  Any international investments may be affected by factors peculiar to the laws of the jurisdiction in which the borrower or the property is located.  These laws may expose us to risks that are different from and in addition to those commonly found in the United States.  Foreign investments could be subject to the following risks:

·governmental laws, rules and policies, including laws relating to the foreign ownership of real property or mortgages and laws relating to the ability of foreign persons or corporations to remove profits earned from activities within the country to the person’s or corporation’s country of origin;

·variations in currency exchange rates;

·adverse market conditions caused by inflation or other changes in national or local economic conditions;

·changes in relative interest rates;

·changes in the availability, cost and terms of mortgage funds resulting from varying national economic policies;

·changes in real estate and other tax rates, the tax treatment of transaction structures and other changes in operating expenses in a particular country where we have an investment;

·lack of uniform accounting standards (including availability of information in accordance with U.S. generally accepted accounting principles);

14

·changes in land use and zoning laws;

·more stringent environmental laws or changes in these laws;

·changes in the social stability or other political, economic or diplomatic developments in or affecting a country where we have an investment;

·we, our sponsor, our advisor and its affiliates have relatively less experience investing in real property or other investments outside the United States than within the United States; and

·legal and logistical barriers to enforcing our contractual rights.

Any of these risks could have an adverse effect on our business, results of operations and ability to pay distributions to our stockholders.

If our sponsor, our advisor or its affiliates waive certain fees due to them, our results of operations and distributions may be artificially high.

From time to time, our sponsor, our advisor or its affiliates may agree to waive or defer all or a portion of the acquisition, asset management or other fees, compensation or incentives due to them, pay general administrative expenses or otherwise supplement stockholder returns in order to increase the amount of cash available to make distributions to stockholders.  If our sponsor, our advisor or its affiliates choose to no longer waive or defer such fees and incentives, our results of operations will be lower than in previous periods and your return on your investment could be negatively affected.

Risks Related to Conflicts of Interest

We will be subject to conflicts of interest arising out of our relationships with our advisor and its affiliates, including the material conflicts discussed below.

Because a number of Behringer Harvard-sponsored real estate programs use investment strategies that are similar to ours, our advisor and its and our executive officers will face conflicts of interest relating to the purchase of properties and other real estate-related assets, and such conflicts may not be resolved in our favor.

Although our sponsor generally seeks to avoid simultaneous public offerings of funds that have a substantially similar mix of fund characteristics, including targeted investment types, investment objectives and criteria, and anticipated fund terms, there may be periods during which one or more Behringer Harvard-sponsored programs are seeking to invest in similar properties and other real estate-related investments.  In particular, Behringer Harvard Opportunity REIT II (which is currently conducting an initial public offering) and Behringer Harvard REIT II (which has filed a registration statement relating to a planned initial public offering) are seeking to raise significant offering proceeds for investment in a broad range of property types, including multifamily communities.  As a result, we may be buying properties and other real estate-related investments at the same time as one or more of the other Behringer Harvard-sponsored programs managed by officers and employees of our advisor and/or its affiliates, and these other Behringer Harvard-sponsored programs may use investment strategies that are similar to ours.  Our executive officers and the executive officers of our advisor are also the executive officers of other Behringer Harvard-sponsored REITs and their advisors, the general partners of Behringer Harvard-sponsored partnerships and/or the advisors or fiduciaries of other Behringer Harvard-sponsored programs, and these entities are and will be under common control.  There is a risk that our advisor will choose a property that provides lower returns to us than a property purchased by another Behringer Harvard-sponsored program.  In the event these conflicts arise, we cannot assure you that our best interests will be met when officers and employees acting on behalf of our advisor and on behalf of advisors and managers of other Behringer Harvard-sponsored programs decide whether to allocate any particular property to us or to another Behringer Harvard-sponsored program or affiliate of our advisor, which may have an investment strategy that is similar to ours.  In addition, we may acquire properties in geographic areas where other Behringer Harvard-sponsored programs own properties.  Similar conflicts of interest may apply if our advisor determines to make or purchase mortgage, bridge or mezzanine loans or participations in mortgage, bridge or mezzanine loans on our behalf, because other Behringer Harvard-sponsored programs may be competing with us for such investments.  You will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making your investment.

15

Behringer Harvard Multifamily Advisors I LP and its affiliates, including all of our executive officers and some of our directors will face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders.

Our advisor, Behringer Harvard Multifamily Advisors I LP and its affiliates, including our dealer manager and our property manager, are entitled to substantial fees from us under the terms of the advisory management agreement, dealer manager agreement and property management agreement.  These fees could influence our advisor’s advice to us as well as the judgment of affiliates of our advisor performing services for us.  Among other matters, these compensation arrangements could affect their judgment with respect to:

·the continuation, renewal or enforcement of our agreements with our advisor and its affiliates, including the advisory management agreement, the dealer-manager agreement and the property management agreement;

·public offerings of equity by us, which entitle Behringer Securities to dealer-manager fees and will likely entitle our advisor to increased acquisition and asset management fees;

·property sales, which entitle our advisor to real estate commissions and the possible issuance to our advisor of shares of our common stock through the conversion of our convertible stock;

·property acquisitions from other Behringer Harvard-sponsored programs, which might entitle affiliates of our advisor to real estate commissions and possible success-based sale fees in connection with its services for the seller;

·property acquisitions from third parties, which entitle our advisor to acquisition fees and asset management fees;

·borrowings to acquire properties, which borrowings will increase the acquisition and asset management fees payable to our advisor;

·whether we seek to internalize our management functions, which internalization could result in our retaining some of our advisor’s key officers and employees for compensation that is greater than that which they currently earn or which could require additional payments to affiliates of our advisor to purchase the assets and operations of our advisor;

·whether and when we seek to list our common stock on a national securities exchange, which listing could entitle our advisor to the issuance of shares of our common stock through the conversion of our convertible stock;

·whether and when we seek to sell our assets, which sale could entitle our advisor to real estate commissions; and

·whether and when we have paid distributions to common stockholders such that aggregate distributions are equal to 100% of the price at which we sold our outstanding shares of common stock plus an amount sufficient to produce a 7% cumulative, non-compounded, annual return at that price, which distributions could entitle our advisor to the issuance of shares of our common stock through the conversion of our convertible stock.

The fees our advisor receives in connection with transactions involving the purchase and management of an asset are based on the cost of the investment, including the amount budgeted for the development, construction, and improvement of each asset, and not based on the quality of the investment or the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us.  Furthermore, the advisor will refund these fees to the extent they are based on budgeted amounts that prove too high once development, construction, or improvements are completed, but the fact that these fees are initially calculated in part based on budgeted amounts could influence our advisor to overstate the estimated costs of development, construction, or improvements in order to accelerate the cash flow it receives.

In addition, the terms of our convertible stock allow for its conversion into shares of common stock if we terminate the advisor prior to the listing of our shares for trading on a national securities exchange other than as a result of the advisor’s material breach of the advisory management agreement.  To avoid the additional costs of engaging a new advisor or internalizing advisory functions, our independent directors may decide against terminating the advisory management agreement prior to the listing of our shares or disposition of our investments even if termination of the advisory management agreement would be in our best interest.  In addition, the conversion feature of our convertible stock could cause us to make different investment or disposition decisions than we

16

would otherwise make, in order to avoid the stock conversion.  Moreover, our advisor can influence whether and when our common stock is listed for trading on a national securities exchange or our assets are liquidated, and its interest in our convertible stock could influence its judgment with respect to listing or liquidation.

Our advisor will face conflicts of interest relating to joint ventures, tenant-in-common investments or other co-ownership arrangements that we enter with other Behringer Harvard-sponsored programs, which could result in a disproportionate benefit to another Behringer Harvard-sponsored program.

We may enter into joint ventures, tenant-in-common investments or other co-ownership arrangements with other Behringer Harvard-sponsored programs, including Behringer Harvard Opportunity REIT I, Behringer Harvard Opportunity REIT II, Behringer Harvard Short-Term Opportunity Fund I, Behringer Harvard Mid-Term Value Enhancement Fund I, Behringer Harvard REIT I and Behringer Harvard REIT II, for the acquisition, development or improvement of multifamily or other properties as well as the acquisition of real estate-related investments.  The executive officers of our advisor are also the executive officers of other Behringer Harvard-sponsored REITs and their advisors, the general partners of other Behringer Harvard-sponsored partnerships and/or the advisors or fiduciaries of other Behringer Harvard-sponsored programs.  These executive officers will face conflicts of interest in determining which Behringer Harvard-sponsored program should enter into any particular joint venture, tenant-in-common or co-ownership arrangement.  Further, the fiduciary obligation that our advisor or our board of directors may owe to a co-venturer, co-tenant or partner affiliated with our sponsor or advisor may make it more difficult for us to enforce our rights.  These persons may also have a conflict in structuring the terms of the relationship between our interests and the interests of the Behringer Harvard-sponsored co-venturer, co-tenant or partner as well as conflicts of interest in managing the joint venture.

In the event that we enter into a joint venture, tenant-in-common investment or other co-ownership arrangements with another Behringer Harvard-sponsored program or joint venture, our advisor and its affiliates may have a conflict of interest when determining when and whether to buy or sell a particular real estate property, and you may face certain additional risks.  For example, it is anticipated that Behringer Harvard Short-Term Opportunity Fund I will never have an active trading market.  Therefore, if we become listed for trading on a national securities exchange, we may develop more divergent goals and objectives from such joint venturer with respect to the sale of properties in the future.  In addition, in the event we enter into a joint venture with a Behringer Harvard-sponsored program that has a term shorter than ours, the joint venture may be required to sell its properties at the time of the other Behringer Harvard-sponsored program’s liquidation.  We may not desire to sell the properties at such time.  Even if the terms of any joint venture agreement between us and another Behringer Harvard-sponsored program grant us a right of first refusal to buy such properties, we may not have sufficient funds to exercise our right of first refusal under these circumstances.

Because Mr. Behringer and his affiliates indirectly control our advisor and other Behringer Harvard-sponsored programs, agreements and transactions among the parties with respect to any joint venture, tenant-in-common investment or other co-ownership arrangement between or among such parties will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers.  Under these joint ventures, neither co-venturer may have the power to control the venture, and under certain circumstances, an impasse could be reached regarding matters pertaining to the co-ownership arrangement, which might have a negative influence on the joint venture and decrease potential returns to you.  In the event that a co-venturer has a right of first refusal to buy out the other co-venturer, it may be unable to finance such buy-out at that time.  If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to elect to purchase an interest of a co-venturer subject to the buy/sell right, in which case we may be forced to sell our interest as the result of the exercise of such right when we would otherwise prefer to keep our interest.  Furthermore, we may not be able to sell our interest in a joint venture if we desire to exit the venture for any reason or if our interest is likewise subject to a right of first refusal of our co-venturer or partner, our ability to sell such interest may be adversely impacted by such right.

The sponsor’s master co-investment agreement, entered into by a subsidiary of our sponsor with a Dutch Pension Foundation and its affiliates (“PGGM”), requires it to offer PGGM a right of first refusal to co-invest with our sponsor or its affiliates in multifamily development projects that meet certain specified investment guidelines and fully constructed properties that have not yet reached a specific level of stabilization, a significant majority of the type of investments for which we intend to acquire.

Our sponsor has entered into a master co-investment agreement for multifamily-development projects.  Under the agreement, our sponsor or one of its affiliates will provide 55% of the capital for each investment, and our BHMP CO-JV, which is 99% owned by PGGM and 1% indirectly wholly owned by our sponsor, will provide 45% of the capital for each investment. Generally, our co-investment ownership with our Co-Investment Partner will incorporate a subsidiary REIT structure to acquire the multifamily development project investment.  PGGM has committed to invest up to $200 million under this arrangement and may increase its commitment to $300 million at any time prior to November 9, 2011.  As of December 31, 2008, PGGM had committed

17

approximately $85.2 million under this arrangement to existing projects.  The master co-investment arrangement is intended to allow for co-investments with any Behringer Harvard-sponsored program; however, because of our investment objectives, we believe that we are the most likely Behringer Harvard-sponsored program to co-invest with the Co-Investment Partner.  We have committed to invest up to $247 million to projects approved by our board of directors and expect that we will provide the 55% of capital for each such investment that is required from an affiliate of our sponsor.  In addition, we have agreed to increase this commitment to $370 million if PGGM were to increase its capital commitment to the BHMP CO-JV to $300 million.  Until PGGM has reached its $200 million commitment, PGGM has a right of first refusal to co-invest in multifamily-development investments of the type targeted by the master co-investment arrangement that are made by our sponsor or its affiliates.  This arrangement makes it unlikely that we will pursue on our own multifamily-development investment opportunities of the type targeted by the master co-investment arrangement until the capital commitment of PGGM has been substantially invested.

Our advisor’s executive officers and key personnel and the executive officers and key personnel of Behringer Harvard-affiliated entities that conduct our day-to-day operations and this offering will face competing demands on their time, and this may cause our investment returns to suffer.

We rely upon the executive officers of our advisor and the executive officers and employees of Behringer Harvard-affiliated entities to conduct our day-to-day operations and this offering.  These persons also conduct the day-to-day operations of other Behringer Harvard-sponsored programs, including (x) other public programs such as Behringer Harvard REIT I (which is also currently raising capital), Behringer Harvard Opportunity REIT I, Behringer Harvard Opportunity REIT II (which is also currently raising capital), Behringer Harvard Short-Term Opportunity Fund I, and Behringer Harvard Mid-Term Value Enhancement Fund I, (y) Behringer Harvard REIT II, a newly organized program that has filed a registration statement relating to an initial public offering, and (z) numerous private programs.  These persons may have other business interests as well.  Because these persons have competing interests on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities.  Should our advisor inappropriately devote insufficient time or resources to our business, the returns on our investments may suffer.

Our officers face conflicts of interest related to the positions they hold with entities affiliated with our advisor, which could diminish the value of the services they provide to us.

All of our executive officers, including Mr. Aisner, who serves as our Chief Executive Officer and a director, are also officers of one or more other entities affiliated with our advisor, including our property manager, our dealer manager and the advisors and fiduciaries to other Behringer Harvard-sponsored programs.  As a result, these individuals owe fiduciary duties to these other entities and their investors, which may conflict with the fiduciary duties that they owe to us and our stockholders.  Their loyalties to these other entities and investors could result in action or inaction that is detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities.  Conflicts with our business and interests are most likely to arise from involvement in activities related to: (1) allocation of new investments and management time and services between us and the other entities; (2) the timing and terms of the investment in or sale of an asset; (3) development of our properties by affiliates of our advisor; (4) investments with affiliates of our advisor; (5) compensation and incentives to our advisor; and (6) our relationship with our dealer manager and property manager.  If we do not successfully implement our business strategy, we may be unable to generate the cash needed to make distributions to you and to maintain or increase the value of our assets.

Your investment will be diluted upon conversion of the convertible stock.

Our advisor purchased 1,000 shares of our convertible stock for an aggregate purchase price of $1,000.  Under limited circumstances, these shares may be converted into shares of our common stock, resulting in dilution of our stockholders’ interest in us.  Our convertible stock will convert into shares of common stock on one of two events.  First, it will convert if we have paid distributions to common stockholders such that aggregate distributions are equal to 100% of the price at which we sold our outstanding shares of common stock plus an amount sufficient to produce a 7% cumulative, non-compounded, annual return at that price.  Alternatively, the convertible stock will convert if we list our shares of common stock on a national securities exchange and, on the 31st trading day after listing, the value of our company based on the average trading price of our shares of common stock since the listing, plus prior distributions, combine to meet the same 7% return threshold for our common stockholders.  Each of these two events is a “Triggering Event.”  Upon a Triggering Event, our convertible stock will, unless our advisory management agreement with our advisor has been terminated or not renewed on account of a material breach by our advisor, generally convert into shares of common stock with a value equal to 15% of the excess of the value of the company plus the aggregate value of distributions paid to date on the then outstanding shares of our common stock over the aggregate issue price of those outstanding shares plus a 7% cumulative, non-compounded, annual return on the issue price of those outstanding shares.  However, if our advisory management agreement with our

18

advisor expires without renewal or is terminated (other than because of a material breach by our advisor) prior to a Triggering Event, then upon a Triggering Event the holder of the convertible stock will be entitled to a prorated portion of the number of shares of common stock determined by the foregoing calculation, where such proration is based on the percentage of time that we were advised by our advisor.  As a result, following conversion, the holder of the convertible stock will be entitled to a portion of amounts distributable to our stockholders, which such amounts distributable to the holder could be significant.  Our advisor and Mr. Behringer can influence whether and when our common stock is listed for trading on a national securities exchange or our assets are liquidated, and their interest in our convertible stock could influence their judgment with respect to listing or liquidation.

Because we rely on affiliates of Behringer Harvard Holdings for the provision of advisory, property management and dealer manager services, if Behringer Harvard Holdings is unable to meet its obligations we may be required to find alternative providers of these services, which could result in a significant and costlydisruption of our business.

Behringer Harvard Holdings, through one or more of its subsidiaries, owns and controls our advisor, our property manager and our dealer manager. The operations of our advisor, our property manager and our dealer manager rely substantially on Behringer Harvard Holdings. In light of the common ownership of these entities and their reliance on Behringer Harvard Holdings, we consider the financial condition of Behringer Harvard Holdings when assessing the financial condition of our advisor, our property manager and our dealer manager. In the event that Behringer Harvard Holdings becomes unable to meet its obligations as they become due, we might be required to find alternative service providers, which could result in a significant disruption of our business and would likely adversely affect the value of your investment in us.

Risks Related to Our Business in General

A limit on the number of shares a person may own may discourage a takeover.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT.  Unless exempted by our board of directors, no person may own more than 9.8% of our outstanding shares of common or preferred stock.  This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might otherwise provide our stockholders with the opportunity to receive a control premium for their shares.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of the holders of our current common stock or discourage a third party from acquiring us.

Our charter permits our board of directors to issue up to 1,000,000,000 shares of capital stock.  Our board of directors, without any action by our stockholders, may:  (1) increase or decrease the aggregate number of shares; (2) increase or decrease the number of shares of any class or series we have authority to issue; or (3) classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of any such stock.  Thus, our board of directors could authorize the issuance of such stock with terms and conditions that could subordinate the rights of the holders of our current common stock or have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.

Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired.

Under Maryland law, “business combinations” between a Maryland corporation and an “interested stockholder” or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder.  These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities.  An interested stockholder is defined as:

·any person who beneficially owns 10% or more of the voting power of the then outstanding voting stock of the corporation; or

19

·an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder.  However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

After the expiration of the five-year period described above, any business combination between the Maryland corporation and an interested stockholder must generally be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

·80% of the votes entitled to be cast by holders of the then outstanding shares of voting stock of the corporation; and

·two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.  Maryland law also permits various exemptions from these provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder.  The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Maryland law also limits the ability of a third party to buy a large stake in us and exercise voting power in electing directors.

Maryland law provides a second anti-takeover statute, the Control Share Acquisition Act, which provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by the corporation’s disinterested stockholders by a vote of two-thirds of the votes entitled to be cast on the matter.  Shares of stock owned by interested stockholders, that is, by the acquirer, by officers or by directors who are employees of the corporation, are excluded from the vote on whether to accord voting rights to the control shares.  “Control shares” are voting shares of stock that would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power.  Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval.  A “control share acquisition” means the acquisition of control shares.  The control share acquisition statute does not apply (1) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (2) to acquisitions approved or exempted by a corporation’s charter or bylaws.  Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions by any person of shares of our stock.  We can offer no assurance that this provision will not be amended or eliminated at any time in the future.  This statute could have the effect of discouraging offers from third parties to acquire us and increasing the difficulty of successfully completing this type of offer by anyone other than our affiliates or any of their affiliates.

Our charter includes an anti-takeover provision that may discourage a stockholder from launching a tender offer for our shares.

Our charter provides that any tender offer made by a stockholder, including any “mini-tender” offer, must comply with most provisions of Regulation 14D of the Exchange Act.  The offering stockholder must provide our company notice of such tender offer at least ten business days before initiating the tender offer.  If the offering stockholder does not comply with these requirements, our company will have the right to redeem that stockholder’s shares and any shares acquired in such tender offer.  In addition, the noncomplying stockholder shall be responsible for all of our company’s expenses in connection with that stockholder’s noncompliance.  This provision of our charter may discourage a stockholder from initiating a tender offer for our shares and prevent you from receiving a premium price for your shares in such a transaction.

Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act.

We are not registered as an investment company under the Investment Company Act of 1940, as amended (“Investment Company Act”), based on exceptions that we believe are available to us.  If we were obligated to register as an investment company,

20

we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:

·limitations on capital structure;

·restrictions on specified investments;

·prohibitions on transactions with affiliates; and

·compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.

In order to be excluded from regulation under the Investment Company Act, we intend to engage primarily in the business of buying mortgages and other liens on or interests in real estate.  The position of the staff of the SEC’s Division of Investment Management generally requires us to maintain at least 55% of our assets directly in qualifying real estate interests in order for us to maintain our exception to the Investment Company Act.  Generally, mezzanine loans, second mortgages, commercial mortgage-backed securities (“CMBS”), tenant-in-common interests (“TICs”) and interests in joint ventures that own qualifying assets may constitute qualifying real estate interests under this exception if certain conditions are met.  Our ownership of mezzanine loans, second mortgages, CMBS, TICs and real estate joint venture interests, therefore, will be limited by provisions of the Investment Company Act and SEC staff interpretations.  Generally, the SEC’s Division of Investment Management has taken no formal position as to whether CMBS should be treated as qualifying assets and no recent formal position as to whether TICs should be treated as qualifying assets.

To maintain compliance with our exception to the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain.  In addition, we may have to acquire additional income- or loss-generating assets that we might not otherwise have acquired.

If we were required to register as an investment company but failed to do so, we could be prohibited from engaging in our business and criminal and civil actions could be brought against us.  In addition, our contracts could be unenforceable, and a court could appoint a receiver to take control of us and liquidate our business.

Rapid changes in the values of potential investments in CMBS or other real estate-related investments may make it more difficult for us to maintain our qualification as a REIT or exception from the Investment Company Act.

If the market value or income potential of our real estate-related investments, including potential investments in CMBS, declines as a result of increased interest rates, prepayment rates or other factors, we may need to increase our real estate investments and income and/or liquidate our non-qualifying assets in order to maintain our REIT qualification or our exception from registration under the Investment Company Act.  If the decline in real estate asset values and/or income occurs quickly, this may be especially difficult to accomplish.  This difficulty may be exacerbated by the illiquid nature of any non-real estate assets that we may own.  We may have to make investment decisions that we otherwise would not make absent REIT and Investment Company Act considerations.

Stockholders have limited control over changes in our policies and operations.

Our board of directors determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions.  Our board of directors may amend or revise these and other policies without a vote of the stockholders.  Our charter sets forth the stockholder voting rights required to be set forth therein under the NASAA REIT Guidelines.  Under our charter and the Maryland General Corporation Law, our stockholders currently have a right to vote only on the following matters:

·the election or removal of directors;

·any amendment of our charter, except that our board of directors may amend our charter without stockholder approval to:

·change our name;

21

·increase or decrease the aggregate number of our shares;

·increase or decrease the number of our shares of any class or series that we have the authority to issue;

·classify or reclassify any unissued shares by setting or changing the preferences, conversion or other rights, restrictions, limitations as to distributions, qualifications or terms and conditions of redemption of such shares;

·effect reverse stock splits; and

·after the listing of our shares of common stock on a national securities exchange, opting into any of the provisions of Subtitle 8 of Title 3 of the Maryland General Corporation;

·a reorganization as provided in our charter;

·our liquidation and dissolution; and

·our being a party to any merger, consolidation, sale or other disposition of substantially all of our assets (notwithstanding that Maryland law may not require stockholder approval).

All other matters are subject to the discretion of our board of directors.

Our board of directors may change our investment policies and objectives generally and at the individual investment level without stockholder approval, which could alter the nature of your investment.

Our charter requires that our independent directors review our investment policies with sufficient frequency and at least annually to determine that the policies we are following are in the best interest of the stockholders.  In addition to our investment policies and objectives, we may also change our stated strategy for any investment in an individual property.  These policies may change over time.  The methods of implementing our investment policies may also vary, as new investment techniques are developed.  Our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by our board of directors without the approval of our stockholders.  As a result, the nature of your investment could change without your consent.

You may not be able to sell your shares under the share redemption program and, if you are able to sell your shares under the program, you may not be able to recover the amount of your investment in our shares.

Our board of directors approved the share redemption program, but may amend, suspend or terminate our share redemption program at any time.  Our board of directors may reject any request for redemption of shares.  Further, there are many limitations on your ability to sell your shares pursuant to the share redemption program.  Any stockholder requesting repurchase of their shares pursuant to our share redemption program will be required to certify to us that such stockholder acquired the shares by either (1) a purchase directly from us or (2) a transfer from the original investor by way of (i) a bona fide gift not for value to, or for the benefit of, a member of the stockholder’s immediate or extended family, (ii) a transfer to a custodian, trustee or other fiduciary for the account of the stockholder or his or her immediate or extended family in connection with an estate planning transaction, including by bequest or inheritance upon death or (iii) operation of law.

In addition, our share redemption program contains other restrictions and limitations.  Shares will be redeemed on a quarterly basis, pro rata among all stockholders requesting redemption in such quarter, with a priority given to redemptions upon the death or qualifying disability of a stockholder or redemptions sought upon a stockholder’s confinement to a long-term care facility; next, to stockholders who demonstrate, in the discretion of our board of directors, another involuntary, exigent circumstance, such as bankruptcy; next, to stockholders subject to a mandatory distribution requirement under such stockholder’s IRA; and, finally, to other redemption requests.  You must hold your shares for at least one year prior to seeking redemption under the share redemption program, except that our board of directors may waive this one-year holding requirement with respect to redemptions sought upon the qualifying death or disability of a stockholder or redemptions sought upon a stockholder’s confinement to a long-term care facility or for other exigent circumstances and that if a stockholder is redeeming all of his or her shares the board of directors may waive the one-year holding requirement with respect to shares purchased pursuant to the distribution reinvestment plan. We will not redeem more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.  Our board of directors will determine from time to time, and at least quarterly, whether we have sufficient excess cash to

22

repurchase shares.  Generally, the cash available for redemption will be limited to proceeds from our distribution reinvestment plan plus 1% of the operating cash flow from the previous fiscal year (to the extent positive).

Further, our board of directors reserves the right to reject any request for redemption or to terminate, suspend, or amend the share redemption program at any time.  Therefore, in making a decision to purchase shares of our common stock, you should not assume that you will be able to sell any of your shares back to us pursuant to our share redemption program.

If you are able to resell your shares to us pursuant to our share redemption program, you will likely receive substantially less than the amount paid to acquire the shares from us or the fair market value of your shares, depending upon how long you owned the shares.

Other than redemptions following the death or qualifying disability of a stockholder or redemptions sought upon a stockholder’s confinement to a long-term care facility, the purchase price for such shares we repurchase under our proposed redemption program will equal (1) prior to the time we begin having appraisals performed by an independent third party, the amount by which (a) the lesser of (i) 90% of the average issue price for all of your shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) or (ii) 90% of the offering price of shares in our most recent offering exceeds (b) the aggregate amount of net sale proceeds per share, if any, distributed to stockholders prior to the redemption date as a result of the sale of one or more of our investments; or (2) after we begin obtaining appraisals performed by an independent third party, the lesser of (a) 100% of the average issue price per share for all of your shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) or (b) 90% of the net asset value per share, as determined by the most recent appraisal.  Accordingly, you may receive less by selling your shares back to us than you would receive if our investments were sold for their estimated values and such proceeds were distributed in our liquidation.

We may not successfully implement our exit strategy, in which case you may have to hold your investment for an indefinite period.

Depending upon then-prevailing market conditions, we intend to begin to consider the process of liquidating and distributing cash or listing our shares on a national securities exchange within four to six years after the termination of this primary offering.  If we have not begun the process to list our shares for trading on a national securities exchange or to liquidate at any time after the sixth anniversary of the termination of this primary offering, unless such date is extended by our board of directors including a majority of our independent directors, we will furnish a proxy statement to stockholders to vote on a proposal for our orderly liquidation upon the written request of stockholders owning 10% or more of our outstanding common stock.  The liquidation proposal would include information regarding appraisals of our portfolio.  By proxy, stockholders holding a majority of our shares could vote to approve our liquidation.  If our stockholders did not approve the liquidation proposal, we would obtain new appraisals and resubmit the proposal by proxy statement to our stockholders up to once every two years upon the written request of stockholders owning 10% or more of our outstanding common stock.

Market conditions and other factors could cause us to delay the listing of our shares on a national securities exchange or to delay the commencement of our liquidation beyond six years from the termination of this primary offering.  If so, our board of directors and our independent directors may conclude that it is not in our best interest for us to furnish a proxy statement to stockholders for the purpose of voting on a proposal for our orderly liquidation.  Our charter permits our board of directors, with the concurrence of a majority of our independent directors, to defer the furnishing of such a proxy indefinitely.  Therefore, if we are not successful in implementing our exit strategy, your shares may continue to be illiquid and you may, for an indefinite period of time, be unable to convert your investment into cash easily and could suffer losses on your investment.

We may incur costs associated with changing our name if we are no longer permitted to use “Behringer Harvard” in our name.

We entered into a service mark license agreement with Behringer Harvard Holdings for use of the name “Behringer Harvard.”  Pursuant to the agreement, when an affiliate of Behringer Harvard Holdings no longer serves as one of our officers or directors, Behringer Harvard Holdings may terminate our service mark license agreement and may require us to change our name to eliminate the use of the words “Behringer Harvard.”  We will be required to pay any costs associated with changing our name.

23

We established the offering price for the shares on an arbitrary basis; as a result, the offering price of the shares is not related to any independent valuation.

Our board of directors has arbitrarily determined the offering price of the shares, and such price bears no relationship to our book or asset values, or to any other established criteria for valuing outstanding shares.  Because the offering price is not based upon any independent valuation, the offering price may not be indicative of the proceeds that you would receive upon liquidation.

Because the dealer manager is an affiliate of our advisor, investors will not have the benefit of an independent review of us or the prospectus, which are customarily performed in underwritten offerings.

The dealer manager, Behringer Securities, is an affiliate of our advisor and will not make an independent review of us or the offering.  Accordingly, you do not have the benefit of an independent review of the terms of this offering.  Further, the due diligence investigation of us by the dealer manager cannot be considered to be an independent review and, therefore, may not be as meaningful as a review conducted by a broker-dealer or investment banker unaffiliated with our advisor.

Your indirect interest in our operating partnership, Behringer Harvard Multifamily OP I, will be diluted if we or our operating partnership issues additional securities.

Existing stockholders and new investors purchasing shares of common stock in this offering do not have preemptive rights to any shares issued by us in the future.  Our charter currently has authorized 1,000,000,000 shares of capital stock, of which 875,000,000 shares are designated as common stock, 124,999,000 shares are designated as preferred stock and 1,000 shares are designated as convertible stock.  Subject to any limitations set forth under Maryland law, our board of directors may amend our charter to increase the number of authorized shares of capital stock, or increase or decrease the number of shares of any class or series of stock designated, and may classify or reclassify any unissued shares without the necessity of obtaining stockholder approval.  Shares will be issued in the discretion of our board of directors.  Investors purchasing shares in this offering will likely experience dilution of their equity investment in us in the event that we:  (1) sell shares in this offering or sell additional shares in the future, including those issued pursuant to the distribution reinvestment plan; (2) sell securities that are convertible into shares of our common stock; (3) issue shares of our common stock in a private offering of securities to institutional investors; (4) issue shares of common stock upon the conversion of our convertible stock; (5) issue shares of common stock upon the exercise of any options granted to our independent directors or employees of our advisor and BHM Management, our property manager and an affiliate of our advisor, or their duly licensed affiliates; (6) issue restricted stock or other awards pursuant to our Incentive Award Plan; (7) issue shares to our advisor, its successors or assigns, in payment of an outstanding fee obligation as set forth under our advisory management agreement; or (8) issue shares of our common stock to sellers of properties acquired by us in connection with an exchange of limited partnership interests of Behringer Harvard Multifamily OP I.  In addition, the partnership agreement for Behringer Harvard Multifamily OP I contains provisions that allow, under certain circumstances, other entities, including other Behringer Harvard-sponsored programs, to merge into or cause the exchange or conversion of their interest for interests of Behringer Harvard Multifamily OP I.  Because the limited partnership interests of Behringer Harvard Multifamily OP I may be exchanged for shares of our common stock, any merger, exchange or conversion between Behringer Harvard Multifamily OP I and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders.  Because of these and other reasons described in this “Risk Factors” section, you should not expect to be able to own a significant percentage of our shares.

Payment of fees to our advisor and its affiliates will reduce cash available to us for investment and payment of distributions.

Our advisor and its affiliates will perform services for us in connection with, among other things, the offer and sale of our shares, the selection and acquisition of our properties and real estate-related assets, the management of our properties, the servicing of our mortgage, bridge, mezzanine or other loans, the administration of our other investments and the disposition of our assets.  They will be paid substantial fees for these services.  These fees will reduce the amount of cash available for investment or distributions to stockholders.

We may be restricted in our ability to replace our property manager under certain circumstances.

Under the terms of our property management agreement, we may terminate the agreement upon 30 days’ notice in the event of, and only in the event of, a showing of willful misconduct, gross negligence or deliberate malfeasance by the property manager in performing its duties.  Our board of directors may find the performance of our property manager to be unsatisfactory.  However,

24

unsatisfactory performance by the property manager may not constitute “willful misconduct, gross negligence or deliberate malfeasance.”  As a result, we may be unable to terminate the property management agreement at the desired time, which may have an adverse effect on the management and profitability of our properties.

Distributions may be paid from capital and there can be no assurance that we will be able to achieve expected cash flows necessary to continue to pay initially established distributions or maintain distributions at any particular level, or at all.

There are many factors that can affect the availability and timing of cash distributions to stockholders.  Distributions generally will be based upon such factors as the amount of cash available or anticipated to be available from real estate investments, mortgage, bridge or mezzanine loans and other investments, current and projected cash requirements and tax considerations.  Because we may receive income from interest or rents at various times during our fiscal year, distributions paid may not reflect our income earned in that particular distribution period.  The amount of cash available for distributions will be affected by many factors, such as our ability to acquire properties and real estate-related assets as offering proceeds become available, the income from those investments and yields on securities of other real estate programs that we invest in, as well as our operating expense levels and many other variables.  Actual cash available for distribution may vary substantially from estimates.  We can give no assurance that we will be able to achieve our anticipated cash flow or that distributions will increase over time.  Nor can we give any assurance that:  (1) rents from the properties will increase; (2) the securities we buy will increase in value or provide constant or increased distributions over time; (3) the loans we make will be repaid or paid on time; (4) loans will generate the interest payments that we expect; or (5) future acquisitions of properties, mortgage, bridge or mezzanine loans, other investments or our investments in securities will increase our cash available for distributions to stockholders.  Our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rates to stockholders.

Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions.  For instance:

·If a significant number of residents default or terminate on their leases, there could be a decrease or cessation of rental payments, which would mean less cash available for distributions.

·Any failure by a borrower under our mortgage, bridge, mezzanine or other loans to repay the loans or interest on the loans will reduce our income and distributions to stockholders.

·Cash available for distributions may be reduced if we are required to spend money to correct defects or to make improvements to properties.

·Cash available to make distributions may decrease if the assets we acquire have lower yields than expected.

·There may be a delay between the sale of the common stock and our purchase of real properties.  During that time, we may invest in lower yielding short-term instruments, which could result in a lower yield on your investment.

·If we lend money to others, such funds may not be repaid in accordance with the loan terms or at all, which could reduce cash available for distributions.

·Federal income tax laws require REITs to distribute at least 90% of their REIT taxable income to stockholders each year.  This limits the earnings that we may retain for corporate growth, such as asset acquisition, development or expansion and makes us more dependent upon additional debt or equity financing than corporations that are not REITs.  If we borrow more funds in the future, more of our operating cash will be needed to make debt payments and cash available for distributions may decrease.

·In connection with future acquisitions, we may issue additional shares of common stock, operating partnership units or interests in other entities that own our properties.  We cannot predict the number of shares of common stock, units or interests that we may issue, or the effect that these additional shares might have on cash available for distribution to you.  If we issue additional shares, they could reduce the cash available for distribution to you.

·We make distributions to our stockholders to comply with the distribution requirements of the Internal Revenue Code and to eliminate, or at least minimize, exposure to federal income taxes and the nondeductible REIT excise tax.  Differences in

25

timing between the receipt of income and the payment of expenses, and the effect of required debt payments, could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.

In addition, our board of directors, in its discretion, may retain any portion of our cash on hand for capital needs and capital improvements.  We cannot assure you that sufficient cash will be available to make distributions to you.

Until proceeds from this offering are invested and generating operating cash flow sufficient to make distributions to our stockholders, we may make some or all of our distributions  from sources other than cash flow from operations, including the proceeds of this offering, cash advanced to us by our advisor, cash resulting from a deferral of asset management fees and/or from borrowings (including  borrowings secured by our assets) in anticipation of future operating cash flow, which may reduce the amount of capital we ultimately invest and negatively impact the return on your investment and the value of your investment.

We expect that cash distributions to our stockholders generally will be paid from cash available or anticipated from the cash flow from our investments in properties, real estate securities, mortgage, bridge or mezzanine loans and other real estate-related assets.  However, until proceeds from this offering are invested and generating operating cash flow sufficient to make distributions to our stockholders, we may make some or all of our distributions from the proceeds of this offering, cash advanced to us by our advisor, cash resulting from a waiver or deferral of asset management fees, cash from the sale of our assets or a portion thereof and borrowings (including borrowings secured by our assets) in anticipation of future cash flow.  In addition, to the extent our investments are in development or redevelopment projects, or in properties that have significant capital requirements, our ability to make distributions may be negatively impacted, especially during our early period of operation.  Once our development projects are completed and begin to generate income, we intend to use such increased income to make distributions to our stockholders.  Accordingly, the amount of distributions paid at any time may not reflect current cash flow from our operations.  To the extent distributions are paid from the proceeds of this offering, cash advanced to us by our advisor, cash resulting from a deferral of asset management fees and/or from borrowings (including borrowings secured by our assets) in anticipation of future cash flow, we will have less capital available to invest in properties and other real estate-related assets, which may negatively impact our ability to make investments and substantially reduce current returns and capital appreciation.  In that event, we may not be able to invest the anticipated 91.1% of the gross proceeds raised in this offering (89.0% with respect to gross proceeds from our primary offering and 100% with respect to gross proceeds from our distribution reinvestment plan) for investment in real estate, loans and other investments, paying acquisition fees and expenses incurred in making such investments and for any capital reserves we may establish until such time as we have sufficient cash flows from operations to fund fully our distributions.

Our revenue and net income may vary significantly from one period to another due to investments in opportunity-oriented properties and portfolio acquisitions, which could increase the variability of our cash available for distributions.

We have made and may continue to make investments in opportunity-oriented properties in various phases of development, redevelopment or repositioning and portfolio acquisitions, which may cause our revenues and net income to fluctuate significantly from one period to another.  Projects do not produce revenue while in development or redevelopment.  During any period when our projects in development or redevelopment or those with significant capital requirements increase without a corresponding increase in stable revenue-producing properties, our revenues and net income will likely decrease.  Many factors may have a negative impact on the level of revenues or net income produced by our portfolio of investments, including higher than expected construction costs, failure to complete projects on a timely basis, failure of the properties to perform at expected levels upon completion of development or redevelopment, and increased borrowings necessary to fund higher than expected construction or other costs related to the project.  Further, our net income and stockholders’ equity could be negatively affected during periods with large portfolio acquisitions, which generally require large cash outlays and may require the incurrence of additional financing.  Any such reduction in our revenues and net income during such periods could cause a resulting decrease in our cash available for distributions during the same periods.

Development projects in which we invest may not be completed successfully or on time, and guarantors of the projects may not have the financial resources to perform their obligations under the guaranties they provide.

We may make equity investments in, acquire options to purchase interests in or make mezzanine loans to the owners of real estate development projects.  Our return on these investments is dependent upon the projects being completed successfully, on budget and on time.  To help ensure performance by the developers of properties that are under construction, completion of these properties is generally guaranteed either by a completion bond or performance bond.  Our advisor may rely upon the substantial net worth of the contractor or developer or a personal guarantee accompanied by financial statements showing a substantial net worth provided by an affiliate of the entity entering into the construction or development contract as an alternative to a completion bond or performance

26

bond.  For a particular investment, we may obtain guaranties that the project will be completed on time, on budget and in accordance with the plans and specifications and that the mezzanine loan will be repaid.  However, we may not obtain such guaranties and cannot ensure that the guarantors will have the financial resources to perform their obligations under the guaranties they provide.  We intend to manage these risks by ensuring, to the best of our ability, that we invest in projects with reputable, experienced and resourceful developers.  If we are unable to manage these risks effectively, our results of operations, financial condition and ability to make distributions to you will be adversely affected.

Our reliance on common developers/guarantors related to multiple development projects in which we may invest may materially adversely affect our operations should a developer/guarantor become unable to meet its obligations to us.  As of December 31, 2008, our interests in three loans on three separate development projects with a common developer/guarantor totaled 28% of our total assets.

We have made and may continue to make investments in multifamily development projects with common developers/guarantors, which increases our risks should a developer/guarantor become unable to meet its obligations to us.  As of December 31, 2008, three of our mezzanine loan investments on multifamily development projects contained provisions that provide a limited safeguard against the risk of bankruptcy of the project owner and the failure to complete the development project.  Under the terms of these three projects, a common developer, Fairfield Residential, LLC is: obligated to complete the projects should the project owners fail to do so; liable for construction cost overruns in excess of the construction budgets; and has agreed to repay the loans should the project owners become the subject of a bankruptcy proceeding to which our joint venture did not consent.  Our portion of the investments in the three loans collectively was $29,980,382 (26% of our total assets) and $33,786,827 (28% of our total assets) as of December 31, 2007 and 2008, respectively.  Should Fairfield Residential become unable to meet its obligations to us, our operations may be adversely effected, which could materially reduce the level of distributions to our stockholders.

Under certain circumstances, a subsidiary REIT may be required to sell its capital stock rather than its assets.

Under certain circumstances, a subsidiary REIT may be required to sell its capital stock rather than any assets held by that subsidiary REIT, which may limit the number of persons willing to acquire indirectly any assets held by that subsidiary REIT.  As a result, we may not be able to realize a return on our investment in a joint venture, such as a co-investment venture with our Co-Investment Partner, at the time or on the terms we desire.

Adverse economic conditions will negatively affect our returns and profitability.

Our operating results may be affected by many factors, including a continued or exacerbated general economic slowdown experienced by the nation as a whole or by the local economies where our properties and properties underlying our other real estate-related investments are located.  These factors include:

·poor economic conditions may result in defaults by residents of our multifamily communities and borrowers under our mortgage, bridge, mezzanine or other loans;

·job transfers and layoffs may cause resident vacancies at our multifamily communities to increase;

·increasing concessions, reduced rental rates or capital improvements may be required to maintain occupancy levels;

·increased insurance premiums may reduce funds available for distribution or, to the extent these increases are passed through to residents, may lead to resident defaults.  Also, increased insurance premiums may make it difficult to increase rents on apartment units to residents on turnover, which may adversely affect our ability to increase our returns; and

·the length and severity of any economic slowdown or downturn cannot be predicted.  Our operations could be negatively affected to the extent that an economic slowdown or downturn is prolonged or becomes more severe.

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments.

We invest our cash and cash equivalents between several banking institutions in an attempt to minimize exposure to any one of these entities.  However, the FDIC generally only insures limited amounts per depositor per insured bank.  Beginning October 3,

27

2008 through December 31, 2009, the FDIC is insuring up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories.  (Unlimited deposit insurance coverage will be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guarantee Program through December 31, 2009.)  As of December 31, 2008 and December 31, 2007, we had cash and cash equivalents and restricted cash deposited in interest bearing transaction accounts at certain financial institutions exceeding these federally insured levels.  If any of the banking institutions in which we have deposited funds ultimately fails, we may lose our deposits over the federally insured levels.  The loss of our deposits could reduce the amount of cash we have available to distribute or invest.

We and the other public Behringer Harvard-sponsored programs have experienced losses in the past, and we may continue experiencing similar losses in the future.

Historically, the public programs sponsored by affiliates of our advisor have experienced losses during the early periods of their operation.  Many of these losses can be attributed to the initial start-up costs and operating expenses incurred prior to purchasing properties or making other investments that generate revenue.  In addition, depreciation and amortization expenses substantially reduce income.  We may face similar circumstances during the early period of our operations.  We cannot assure you that, in the future, we will be profitable or that we will realize growth in the value of our assets.

We are uncertain of our sources for funding of future capital needs, which could adversely affect the value of our investments.

Substantially all of the proceeds of this offering will be used to make investments in real estate and real estate-related assets and to pay various fees and expenses related to the offering.  We will establish capital reserves on a property-by-property basis, as we deem appropriate.  In addition to any reserves we establish, a lender may require escrow of capital reserves in excess of our established reserves.  If these reserves are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements.  Accordingly, in the event that we develop a need for additional capital in the future for the improvement of our properties or for any other reason, we have not identified any sources for such funding, and we cannot assure you that such sources of funding will be available to us for potential capital needs in the future.

To hedge against exchange rate and interest rate fluctuations, we may use derivative financial instruments that may be costly and ineffective and may reduce the overall returns on your investment.

We may use derivative financial instruments to hedge exposures to changes in exchange rates and interest rates on loans secured by our assets and investments in collateralized mortgage-backed securities.  Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements.  Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from time to time.

To the extent that we use derivative financial instruments to hedge against exchange rate and interest rate fluctuations, we will be exposed to financing, basis risk and legal enforceability risks.  In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract.  If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us.  We intend to manage credit risk by dealing only with major financial institutions that have high credit ratings.  Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective.  We intend to manage basis risk by matching, to a reasonable extent, the contract index to the index upon which the hedged asset or liability is based.  Finally, legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract.  We intend to manage legal enforceability risks by ensuring, to the best of our ability, that we contract with reputable counterparties and that each counterparty complies with the terms and conditions of the derivative contract.  If we are unable to manage these risks effectively, our results of operations, financial condition and ability to make distributions to you will be adversely affected.

Complying with REIT requirements may limit our ability to hedge risk effectively.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge the risks inherent to our operations.  From time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps and floors, options to purchase these items, and futures and forward contracts.  Except to the extent provided by Treasury regulations, any income we derive from a hedging transaction which is clearly identified as such as specified in the Internal Revenue Code, including gain from the sale or disposition of such a transaction, will not constitute gross income for purposes of the 95% gross income test, and therefore will be exempt from this test, but only to the extent that the

28

transaction hedges indebtedness incurred or to be incurred by us to acquire or carry real estate assets.  Income from any hedging transaction will, however, be nonqualifying for purposes of the 75% gross income test.  The term “hedging transaction,” as used above, generally means any transaction we enter into in the normal course of our business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by us to acquire or carry real estate assets.  To the extent that we do not properly identify such transactions as hedges, hedge with other types of financial instruments, or hedge other types of indebtedness, the income from those transactions is not likely to be treated as qualifying income for purposes of the gross income tests.  As a result of these rules, we may have to limit the use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.

The State of Texas has enacted legislation that creates a “margin tax” and decreases state property taxes.  This tax reform could result in increased taxes on our operations in Texas that, when combined with decreased property taxes, could reduce the net cash available for distribution to you.

                In May 2006, the State of Texas enacted legislation that replaces the former Texas franchise tax with a new “margin tax,” which is effective for tax reports due on or after January 1, 2008 and which will compute the tax based on business done in calendar years beginning after December 31, 2006.  The new legislation expands the number of entities covered by the former Texas franchise tax, and specifically includes limited partnerships as subject to the new margin tax.  The tax generally is 1% of an entity’s taxable margin, which is the part of an entity’s total revenue less applicable deductions apportioned to Texas.  In May 2006, the State of Texas also enacted legislation that reduces the state property tax.  As a result of this Texas property tax legislation, reimbursable expenses from tenants at the property level may decrease due to decreased property taxes.  We expect to hold significant assets in Texas.  As a consequence, the new margin tax, when combined with the decreased property tax, could result in a net Texas state tax increase in future years and reduce the amount of cash we have available for distribution to you.

General Risks Related to Investments in Real Estate

The recent market disruptions may adversely affect our operating results and financial condition.

The global financial markets are currently undergoing pervasive and fundamental disruptions.  The continuation or intensification of such volatility has had and may continue to have an adverse impact on the availability of credit to businesses, generally, and has resulted in and could lead to further weakening of the U.S. and global economies.  The U.S. Department of Labor has acknowledged that the economic “slowdown” has developed into a recession, and many economists believe that the recession may last several more quarters.  To the extent that turmoil in the financial markets continues or intensifies, it has the potential to materially affect:

1.the value of our investments and the investments of our unconsolidated joint ventures;

2.the availability or the terms of financing that we and our unconsolidated joint ventures may anticipate utilizing or that may be utilized by the owners (the “Project Owners”) of the multifamily development projects in which we are an equity owner or junior lender or both;

3.our ability and that of the Project Owners to make principal and interest payments on, or refinance, any outstanding debt when due; and

4.the ability of our current residents to enter into new leases or satisfy their current rental payment obligations under existing leases and the ability of future residents to enter into leases during the lease-up stage of newly completed multifamily development projects.

The current market disruption could also affect our operating results and financial condition as follows:

Debt and Equity Markets.  The commercial real estate debt markets are currently experiencing volatility as a result of certain factors, including the tightening of underwriting standards by lenders and credit rating agencies and the significant inventory of unsold collateralized mortgage backed securities in the market.  Credit spreads for major sources of capital have widened significantly as investors have demanded a higher risk premium.  This is resulting in lenders increasing the cost for debt financing.  Should the overall

29

cost of borrowings increase, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of our acquisitions, developments and property contributions.  This may result in our investment operations generating lower overall economic returns and a reduced level of cash flow, which could potentially impact our ability to make distributions to our stockholders at current levels.  In addition, the recent dislocations in the debt markets have reduced the amount of capital that is available to finance real estate, which, in turn: (1) leads to a decline in real estate values generally; (2) slows real estate transaction activity; (3) reduces the loan to value upon which lenders are willing to extend debt; and (4) results in difficulty  in refinancing debt as it becomes due, all of which may reasonably be expected to have a material adverse impact on the value of real estate investments and the revenues, income or cash flow from the acquisition and operations of real properties and mortgage loans.  In addition, the current state of the debt markets has negatively impacted the ability to raise equity capital.

If we or the projects in which we have invested are unable to obtain debt financing on acceptable terms, or if lower levels of debt were available to us in respect of our investments whether as a result of declining real estate values or lower loan to value standards of lenders, or both, we may be forced to use a greater proportion of our offering proceeds to fund additional equity to our existing investments and to finance our acquisitions, reducing the number of investments we could otherwise make or dispose of some of our assets.  If the current debt market environment persists, we may modify our investment strategies in order to seek to optimize our portfolio performance.  Our strategies may include, among other options, limiting or eliminating the use of debt and focusing on those investments that do not require the use of leverage to meet our portfolio goals.  Such modifications to our investment strategies could adversely affect our performance.

For each of our current multifamily development projects where we or our unconsolidated joint ventures hold a mezzanine loan, there is a senior construction loan on the project.  These construction loans will mature on or before the maturity date of our mezzanine loans.  Upon maturity of the construction loans, such loans will need to be refinanced or otherwise satisfied.  Because our equity or lending positions are subordinate to the construction loans with respect to each of these development projects, higher borrowing costs or difficulty in obtaining financing as the senior construction loans become due could result in a partial or total loss of the value of any such investment.

Government Intervention.  The pervasive and fundamental disruptions that the global financial markets are currently undergoing have led to extensive and unprecedented governmental intervention.  Such intervention has in certain cases been implemented on an “emergency” basis, suddenly and substantially eliminating market participants’ ability to continue to implement certain strategies or manage the risk of their outstanding positions.  In addition, these interventions have typically been unclear in scope and application, resulting in confusion and uncertainty, which in itself has been materially detrimental to the efficient functioning of the markets as well as previously successful investment strategies.  Among measures proposed by legislators, especially as to residential mortgage loans, have been moratoriums on loan payments, limits on the ability of lenders to enforce loan provisions, including the collection of interest at rates agreed in the loan documents, and involuntary modification of loan agreements.  If these or other regulations adverse to lenders are implemented and applied to loans we have made, they could adversely impact our operations.  It is impossible to predict what, if any, additional interim or permanent governmental restrictions may be imposed or the effect of such restrictions on us and our results of operations.  There is likely to be increased regulation of the financial markets that could have a material impact on our operating results and financial condition.

Capitalization rates in major U.S. markets for multifamily communities have risen and many economists predict they are likely to continue to rise during 2009.  As a result, the value of investments we have made prior to 2009 may have declined in this environment.

In connection with the recent credit market disruptions and economic slowdown, there is evidence that capitalization rates in major U.S. markets for multifamily communities have risen in 2008 and many economists believe they are likely to continue to rise during 2009.  Increases in capitalization rates (the rate of return immediately expected upon investment in a real estate asset) reflect declines in the pricing of those assets upon sale.  As a result of capitalization increases, we expect that if we were required to sell our existing investments into the current market, we may experience a substantial decrease in the value of those investments and those of our unconsolidated joint ventures.  As a result, to the extent we may be required to test the current market, we may not be able to recover the carrying amount of our investments or the investments in our unconsolidated joint ventures.  Apart from the potential for such results on any such sale, we may also be required to recognize an impairment charge in earnings in respect of assets we currently own.

30

Increases in unemployment caused by a recessionary economy could adversely affect multifamily property occupancy and rental rates with high quality multifamily communities suffering even more severely.

Rising levels of unemployment in our multifamily markets could significantly decrease occupancy and rental rates.  In times of increasing unemployment, multifamily occupancy and rental rates have historically been adversely affected by:

·rental residents deciding to share rental units and therefore rent fewer units;

·potential residents moving back into family homes or delaying leaving family homes;

·a reduced demand for higher-rent units, such as those of high quality multifamily communities;

·a decline in household formation;

·persons enrolled in college delaying leaving college or choosing to proceed to or return to graduate school in the absence of available employment; and

·the inability or unwillingness of residents to pay rent increases.

Current credit market disruptions and recent economic trends may increase the likelihood of a commercial developer defaulting on its obligations with respect to our or our unconsolidated joint ventures’ projects or becoming bankrupt or insolvent, which could adversely impact us and those projects.

Current credit market disruptions and recent economic trends have caused an increase in developer failures.  The developers of the projects in which we have invested are exposed to risks not only with respect to our projects, but also other projects in which they are involved.  A default by a developer in respect of one of our multifamily development project investments, or the bankruptcy, insolvency or other failure of a developer for one of such projects, may require that we determine whether we want to assume the senior loan, take over development of the project, find another developer for the project, or sell our interest in the project.  Such developer failures could delay efforts to complete or sell the development project and could ultimately preclude us from full realization of our anticipated returns.  Such events could cause a decrease in the value of our assets and compel us to seek additional sources of liquidity, which may or may not be available, in order to hold and complete the development project through stabilization.

Generally, under bankruptcy law and our bankruptcy guarantees with our joint venture development partners, we may seek recourse from the developer-guarantor to complete our development project with a substitute developer partner.  However, in the event of a bankruptcy by the developer-guarantor, we cannot assure you that the developer or its trustee will continue or otherwise satisfy its obligations.  The bankruptcy of any developer and the rejection of its development obligations would likely cause us to have to complete the development on our own or find a replacement developer, which could result in delays and increased costs.  We cannot assure you that we would be able to complete the development on terms as favorable as when we first entered into the project.

Recent disruptions in the financial markets could adversely affect the multifamily property sector’s ability to obtain financing and credit enhancement from Fannie Mae and Freddie Mac, which could adversely impact us.

Fannie Mae and Freddie Mac are major sources of financing for the multifamily sector.  Fannie Mae reported a $25.2 billion loss for the fourth quarter of 2008 bringing its total losses for 2008 to $58.7 billion.  Freddie Mac has also experienced significant losses in the first three quarters of 2008, with additional losses also expected for the fourth quarter.  These losses coupled with the credit market’s poor perception of Fannie Mae and Freddie Mac, add to the considerable uncertainty surrounding the capital structure of both Fannie Mae and Freddie Mac.  Pursuant to legislation enacted in 2008, the U.S. government has already placed both Fannie Mae and Freddie Mac under its conservatorship.  Despite recent additional funding for both government-sponsored entities, their portfolio limitations are required to be reduced on a phased-in basis beginning in 2010.  If new U.S. government regulations heighten Fannie Mae’s and Freddie Mac’s underwriting standards, adversely affect interest rates and reduce the amount of capital they can make available to the multifamily sector, it could have a material adverse effect on both the multifamily sector and us because many private alternative sources of funding have been reduced or are unavailable.  Any potential reduction in loans, guarantees and credit-enhancement arrangements from Fannie Mae and Freddie Mac could jeopardize the effectiveness of the multifamily sector’s derivative securities market, potentially causing breaches in loan covenants, and through reduced loan availability, impact the value of multifamily assets, which could impair the value of a significant portion of multifamily communities.  Specifically, the potential for a decrease in liquidity made available to the multifamily sector by Fannie Mae and Freddie Mac could: (1) make it more difficult for us to secure new takeout financing for current multifamily development projects; (2) hinder our ability to refinance completed

31

multifamily assets; and (3) decrease the amount of available liquidity and credit that could be used to further diversify our portfolio of multifamily assets.

Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.

Our operating results will be subject to risks generally incident to the ownership of real estate, including:

·changes in general economic or local conditions;

·changes in supply of or demand for similar or competing properties in an area;

·changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;

·the illiquidity of real estate investments generally;

·changes in tax, real estate, environmental and zoning laws;

·periods of high interest rates and tight money supply;

·residents’ perceptions of the safety, convenience, and attractiveness of our properties and the neighborhoods where they are located; and

·our ability to provide adequate management, maintenance, and insurance.

In addition, local conditions in the markets in which we own or intend to own multifamily and multifamily communities or in which the collateral securing our loans is located may significantly affect occupancy or rental rates at such properties.  The risks that may adversely affect conditions in those markets include the following:

·layoffs, plant closings, relocations of significant local employers and other events negatively impacting local employment rates and the local economy;

·an oversupply of, or a lack of demand for, apartments;

·a decline in household formation;

·the inability or unwillingness of residents to pay rent increases; and

·rent control or rent stabilization laws or other housing laws, which could prevent us from raising rents.

For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.

If we have limited diversification of the geographic locations of our properties, our operating results will be affected by economic changes that have an adverse impact on the real estate market in those areas.

In the event that most of our properties are located in a single geographic area, our operating results and ability to make distributions are likely to be impacted by economic changes affecting the real estate markets in that area.  Your investment will be subject to greater risk to the extent that we lack a geographically diversified portfolio.

32

Our failure to integrate acquired communities and new personnel could create inefficiencies and reduce the return of your investment.

To grow successfully, we must be able to apply our experience in managing real estate to a larger number of properties.  In addition, we must be able to integrate new management and operations personnel as our organization grows in size and complexity.  Failures in either area will result in inefficiencies that could adversely affect our expected return on our investments and our overall profitability.

Short-term multifamily and apartment leases expose us to the effects of declining market rent, which could adversely impact our ability to make cash distributions to our stockholders.

We expect that substantially all of our apartment leases will be for a term of one year or less.  Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.

Any student-housing properties that we acquire will be subject to an annual leasing cycle, short lease-up period, seasonal cash flows, changing university admission and housing policies, and other risks inherent in the student-housing industry, any of which could have a negative impact on your investment.

Student-housing properties generally have short-term leases of 12 months, ten months, nine months, or shorter.  As a result, we may experience significantly reduced cash flows during the summer months from student-housing properties while most students are on vacation.  Furthermore, student-housing properties must be almost entirely re-leased each year, exposing us to increased leasing risk.  Student-housing properties are also typically leased during a limited leasing season that usually begins in January and ends in August of each year. We would, therefore, be highly dependent on the effectiveness of our marketing and leasing efforts and personnel during this season.

Changes in university admission policies could also adversely affect us. For example, if a university reduces the number of student admissions or requires that a certain class of students, such as freshman, live in a university-owned facility, the demand for units at our student-housing properties may be reduced and our occupancy rates may decline.  We rely on our relationships with colleges and universities for referrals of prospective student residents or for mailing lists of prospective student residents and their parents. Many of these colleges and universities own and operate their own competing on-campus facilities. Any failure to maintain good relationships with these colleges and universities could therefore have a material adverse effect on our ability to market our properties to students and their families.

Federal and state laws require colleges to publish and distribute reports of on-campus crime statistics, which may result in negative publicity and media coverage associated with crimes occurring on or in the vicinity of any student-housing properties. Reports of crime or other negative publicity regarding the safety of the students residing on, or near, our student-housing properties may have an adverse effect on our business.

We may face significant competition from university-owned student housing and from other residential properties that are in close proximity to any student-housing properties we may acquire, which could have a negative impact on our results of operations.

On-campus student housing has certain inherent advantages over off-campus student housing in terms of physical proximity to the university campus and integration of on-campus facilities into the academic community. Colleges and universities can generally avoid real estate taxes and borrow funds at lower interest rates than us.

Properties that have significant vacancies could be difficult to sell, which could diminish the return on your investment.

A property may incur vacancies either by the continued default of residents under their leases or the expiration of leases.  If vacancies continue for a long period of time, we may suffer reduced revenues resulting in decreased distributions to our stockholders.  In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

Many of our investments will be dependent on residents for revenue, and lease terminations could reduce our ability to make distributions to stockholders.

The success of our real property investments often will be materially dependent on the financial stability of our residents.  Lease payment defaults by residents could cause us to reduce the amount of distributions to stockholders.  A default by a significant number of residents on his or her lease payments to us would cause us to lose the revenue associated with such lease and cause us to

33

have to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage.  In the event of a lease default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property.  If a substantial number of leases are terminated, we cannot assure you that we will be able to lease the property for the rent previously received or sell the property without incurring a loss.  Additionally, loans that we make generally will relate to real estate.  As a result, the borrower’s ability to repay the loan may be dependent on the financial stability of our residents leasing the related real estate.

We may be unable to secure funds for future capital improvements, which could adversely impact our ability to make cash distributions to our stockholders.

When residents do not renew their leases or otherwise vacate their space, in order to attract replacement residents, we may be required to expend funds for capital improvements to the vacated apartment units.  In addition, we may require substantial funds to renovate an apartment community in order to sell it, upgrade it or reposition it in the market.  If we have insufficient capital reserves, we will have to obtain financing from other sources.  We intend to establish capital reserves in an amount we, in our discretion, believe is necessary.  A lender also may require escrow of capital reserves in excess of any established reserves.  If these reserves or any reserves otherwise established are designated for other uses or are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements.  We cannot assure you that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us.  Moreover, certain reserves required by lenders may be designated for specific uses and may not be available for capital purposes such as future capital improvements.  Additional borrowing for capital needs and capital improvements will increase our interest expense, and therefore our financial condition and our ability to make cash distributions to our stockholders may be adversely affected.

We may be unable to sell a property or real estate-related asset if or when we decide to do so, which could adversely impact our ability to make cash distributions to our stockholders.

We intend to hold the various real properties and real estate-related assets in which we invest until such time as our advisor determines that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that these objectives will not be met.  Otherwise, our advisor, subject to approval of our board of directors, may exercise its discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time, except upon our liquidation.  If we have not begun the process to list our shares for trading on a national securities exchange or to liquidate at any time after the sixth anniversary of the termination of this primary offering, unless such date is extended by our board of directors including a majority of our independent directors, we will furnish a proxy statement to stockholders to vote on a proposal for our orderly liquidation upon the written request of stockholders owning 10% or more of our outstanding common stock.  The liquidation proposal would include information regarding appraisals of our portfolio.  By proxy, stockholders holding a majority of our shares could vote to approve our liquidation.  If our stockholders did not approve the liquidation proposal, we would obtain new appraisals and resubmit the proposal by proxy statement to our stockholders up to once every two years upon the written request of stockholders owning 10% or more of our outstanding common stock.

The real estate market is affected, as discussed above, by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control.  We cannot predict whether we will be able to sell any asset for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us.  We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or real estate-related asset.  If we are unable to sell a property or real estate-related asset when we determine to do so, it could have a significant adverse effect on our cash flow and results of operations.

Our co-venture partners, co-tenants or other partners in co-ownership arrangements could take actions that decrease the value of an investment to us and lower your overall return.

We may enter into joint ventures, tenant-in-common investments or other co-ownership arrangements with other Behringer Harvard-sponsored programs or third parties having investment objectives similar to ours for the acquisition, development or improvement of properties as well as the acquisition of real estate-related investments.  We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons.  Such investments may involve risks not otherwise present with other forms of real estate investment, including, for example:

·the possibility that our co-venturer, co-tenant or partner in an investment might become bankrupt;

34

·the possibility that a co-venturer, co-tenant or partner in an investment might breach a loan agreement or other agreement or otherwise, by action or inaction, act in a way detrimental to us or the investment;

·that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals;

·the possibility that we may incur liabilities as the result of the action taken by our partner or co-investor; or

·that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT.

Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment.

Uninsured losses relating to real property or excessively expensive premiums for insurance coverage may adversely affect your returns.

Our advisor will attempt to ensure that all of our properties are adequately insured to cover casualty losses.  The nature of the activities at certain properties we may acquire, such as age-restricted communities or student housing, may expose us and our operators to potential liability for personal injuries and property damage claims.  In addition, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments.  Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims.  Mortgage lenders generally insist that specific coverage against terrorism be purchased by property owners as a condition for providing mortgage, bridge or mezzanine loans.  It is uncertain whether such insurance policies will continue to be available, or be available at reasonable cost, which could inhibit our ability to finance or refinance our properties.  In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses.  We cannot assure you that we will have adequate coverage for such losses.  In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss.  In addition, other than any potential capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure you that any such sources of funding will be available to us for such purposes in the future.  Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in decreased distributions to stockholders.

Our operating results may be negatively affected by potential development and construction delays and result in increased costs and risks, which could diminish the return on your investment.

We may use some or all of the offering proceeds available to us to acquire, develop and/or redevelop properties upon which we will develop multifamily communities and construct improvements.  We will be subject to risks relating to uncertainties associated with rezoning for development and environmental concerns of governmental entities and/or community groups and our developer’s ability to control construction costs or to build in conformity with plans, specifications and timetables.  The developer’s failure to perform may necessitate legal action by us to rescind the purchase or the construction contract or to compel performance.  Performance may also be affected or delayed by conditions beyond the developer’s control.  Delays in completion of a multifamily community also could give residents the right to terminate preconstruction leases for apartment units at a newly developed project.  We may incur additional risks when we make periodic progress payments or other advances to such developers prior to completion of construction.  These and other such factors can result in increased costs of a project or loss of our investment.  In addition, we will be subject to normal lease-up risks relating to newly constructed projects.  Furthermore, we must rely upon projections of rental income and expenses and estimates of the fair market value of property upon completion of construction when agreeing upon a price to be paid for the property at the time of acquisition of the property.  If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.

In addition, we may invest in unimproved real property (which we define as property not acquired for the purpose of producing rental or other operating income, has no development or construction in process at the time of acquisition and no development or construction is planned to commence within one year of the acquisition) or mortgage loans on unimproved property. 

35

Returns from development of unimproved properties are also subject to risks and uncertainties associated with rezoning the land for development and environmental concerns of governmental entities and/or community groups.  Although our intention is to limit any investment in unimproved property to property we intend to develop, your investment nevertheless is subject to the risks associated with investments in unimproved real property.

Our plan to reposition certain commercial properties through demolition, conversion and redevelopment into new multifamily communities may never commence after we make an investment in the property, be delayed or never reach completion, which could diminish the return on your investment.

We may make investments in a wide variety of commercial properties, including, without limitation, office buildings, shopping centers, business and industrial parks, manufacturing facilities, warehouses and distribution facilities and motel and hotel properties for purposes of repositioning these properties into multifamily communities.  After we make an investment, we or the developer, as applicable, may be unable to commence conversion of these properties and therefore may be required to continue operating the properties under their current purpose, which would include other than multifamily community uses.  In addition, we may also be unable to complete the demolition, conversion or redevelopment of these commercial properties and may be forced to hold or sell these properties at a loss.  Although we intend to focus on multifamily communities and limit any investment in commercial properties for repositioning into multifamily communities, your investment is subject to the risks associated with these commercial properties and traditional construction risks associated with this repositioning plan.

 If we contract with Behringer Development Company LP or its affiliates for newly developed property, we cannot guarantee that any earnest money deposit we make to Behringer Development Company LP or its affiliates will be fully refunded.

We may enter into one or more contracts, either directly or indirectly through joint ventures, tenant-in-common investments or other co-ownership arrangements, with affiliates of our advisor or others, to acquire real property from Behringer Development Company LP (“Behringer Development”), an affiliate of our advisor.  Properties acquired from Behringer Development or its affiliates may be existing income-producing properties, properties to be developed or properties under development.  We anticipate that we will be obligated to pay a substantial earnest money deposit at the time of contracting to acquire such properties.  In the case of properties to be developed by Behringer Development or its affiliates, we anticipate that we will be required to close the purchase of the property upon completion of the development of the property by Behringer Development or its affiliates.  At the time of contracting and the payment of the earnest money deposit by us, Behringer Development or its affiliates typically will not have acquired title to any real property.  Typically, Behringer Development or its affiliates will only have a contract to acquire land and a development agreement to develop a building on the land.  We may enter into such a contract with Behringer Development or its affiliates even if at the time of contracting we have not yet raised sufficient proceeds in our offering to enable us to close the purchase of such property.  However, we will not be required to close a purchase from Behringer Development or its affiliates, and will be entitled to a refund of our earnest money, in the following circumstances:

·Behringer Development or its affiliates fail to develop the property;

·a significant portion of the pre-leased residents of a new or recently redeveloped apartment community fail to take possession under their leases for any reason; or

·we are unable to raise sufficient proceeds from our offering to pay the purchase price at closing.

The obligation of Behringer Development or its affiliates to refund our earnest money will be unsecured, and no assurance can be made that we would be able to obtain a refund of such earnest money deposit from it under these circumstances since Behringer Development is an entity without substantial assets or operations.

We will face competition from third parties, including other multifamily communities, which may limit our profitability and the return on your investment.

The residential apartment community industry is highly competitive.  This competition could reduce occupancy levels and revenues at our multifamily communities, which would adversely affect our operations.  We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities, many of which have greater resources than we do.  Larger real estate programs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.  Our competitors include other multifamily communities both in

36

the immediate vicinity and the broader geographic market where our multifamily communities will be located.  Overbuilding of multifamily communities may occur.  If so, this will increase the number of apartment units available and may decrease occupancy and apartment rental rates.  In addition, increases in operating costs due to inflation may not be offset by increased apartment rental rates.  We may be required to expend substantial sums to attract new residents.

In connection with the recent credit market disruptions and economic slowdown, we may face increased competition from single-family homes and condominiums for rent, which could limit our ability to retain residents, lease apartment units or increase or maintain rents.

Any multifamily communities we invest in may compete with numerous housing alternatives in attracting residents, including single-family homes and condominiums available for rent.  Such competitive housing alternatives may become more prevalent in a particular area because of the tightening of mortgage lending underwriting criteria, homeowner foreclosures, the decline in single-family home and condominium sales and the lack of available credit.  The number of single-family homes and condominiums for rent in a particular area could limit our ability to retain residents, lease apartment units or increase or maintain rents.

If PGGM does not honor its commitments, our portfolio may not be as diverse and our investments may suffer.

Under arrangements managed by a subsidiary of our sponsor, we have entered into, and it is intended that we will continue to enter into, joint venture investments with PGGM in to-be-developed multifamily communities or newly constructed multifamily communities that have not yet reached stabilization.  As of December 31, 2008, we have made joint venture investments with PGGM in all of the properties and development projects in which we have invested.  PGGM has committed to our sponsor to invest up to $200 million in such joint ventures (with approximately $85.2 million committed to currently existing properties and projects) and PGGM has recently indicated that it expects to increase its commitment to invest with us to $300 million.  As such, we expect a substantial portion of our future investments will be made through such joint ventures.  We expect this investment strategy to increase the number of investments we make and the diversification of our investment portfolio.  However, if PGGM does not honor its current commitment to invest up to $200 million in such joint ventures, or does not increase its commitment to $300 million or more, our portfolio will not consist of as many investments or be as diverse as it otherwise would.

In addition, under the joint venture arrangements into which we have entered, and expect to continue to enter, with PGGM, we may in certain situations call for capital contributions to be made by PGGM.  This has typically been the case in the development projects in which we have co-invested with PGGM; as the development progresses, it is generally required that both we and PGGM contribute additional capital to the project.  If PGGM were unwilling or unable to contribute this capital when required, the project and our investment therein could suffer due to lack of funding or delays in funding.  In addition, we could, through our interest in the joint venture with PGGM, be in breach of our obligations to the other parties investing in the development project unless we were to fund PGGM’s portion on its behalf or obtain alternative sources of funding.  If we were to fund PGGM’s portion on its behalf, we would have less capital to invest in other assets and the diversification of our portfolio would suffer.  If we were unable to fund the portion of any project that PGGM is expected to, but does not, fund in accordance with the joint venture agreement, the joint venture may be unable to meet its funding obligations to the project and the value of our interest in the project may be reduced or eliminated.

PGGM is a Dutch pension fund subject to supervision and regulation by the Dutch central bank.  In its quarterly report for the fourth quarter of 2008, PGGM reported a 13.1% loss on its investments as a result of the current global recession.  This loss resulted in a cover ratio (i.e. assets divided by liabilities) of 92% at the end of the fourth quarter, compared with a cover ratio of 125% at the end of the third quarter.  It is our understanding that negative performance by PGGM, including deficits in its cover ratio, could cause the Dutch central bank to intervene in its investment decisions, including those with respect to our co-investments.

A concentration of our investments in the multifamily sector may leave our profitability vulnerable to a downturn or slowdown in such sector.

At any one time, a significant portion of our investments are likely to be in the multifamily sector.  As a result, we will be subject to risks inherent in investments in a single type of property.  If our investments are substantially in the multifamily sector, then the potential effects on our revenues, and as a result, on cash available for distribution to our stockholders, resulting from a downturn or slowdown in the multifamily sector could be more pronounced than if we had more fully diversified our investments.

37

Failure to succeed in new markets or in new property classes may have adverse consequences on our performance.

We may from time to time commence development activity or make acquisitions outside of our existing market areas or the property classes of our primary focus if appropriate opportunities arise.  Our historical experience in our existing markets in developing, owning and operating certain classes of property does not ensure that we will be able to operate successfully in new markets, should we choose to enter them, or that we will be successful in new property classes.  We may be exposed to a variety of risks if we choose to enter new markets, including an inability to evaluate accurately local market conditions, to obtain land for development or to identify appropriate acquisition opportunities, to hire and retain key personnel, and a lack of familiarity with local governmental and permitting procedures.  In addition, we may abandon opportunities to enter new markets or acquire new classes of property that we have begun to explore for any reason and may, as a result, fail to recover expenses already incurred.

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

From time to time, we may attempt to acquire multiple properties in a single transaction.  Portfolio acquisitions are more complex and expensive than single-property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition.  Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio.  In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio.  In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties.  To acquire multiple properties in a single transaction we may be required to accumulate a large amount of cash.  We would expect the returns that we can earn on such cash to be less than the ultimate returns in real property and therefore, accumulating such cash could reduce the funds available for distributions.  Any of the foregoing events may have an adverse effect on our operations.

If we set aside insufficient capital reserves, we may be required to defer necessary capital improvements.

If we do not have enough reserves for capital to supply needed funds for capital improvements throughout the life of the investment in a property and there is insufficient cash available from our operations, we may be required to defer necessary improvements to the property, which may cause the property to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential residents being attracted to the property.  If this happens, we may not be able to maintain projected rental rates for affected properties, and our results of operations may be negatively impacted.

The costs of compliance with environmental laws and other governmental laws and regulations may adversely affect our income and the cash available for any distributions.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety.  These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals.  Some of these laws and regulations may impose joint and several liability on residents, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal.  In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent the property or to use the property as collateral for future borrowing.

Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us.  We cannot assure you that future laws, ordinances or regulations will not impose any material environmental liability, or that the current environmental condition of our properties will not be affected by the operations of residents, by the existing condition of the land, by operations in the vicinity of the properties, such as the presence of underground storage tanks, or by the activities of unrelated third parties.  In addition, there are various local, state and federal fire, health, life-safety and similar regulations that we may be required to comply with, and that may subject us to liability in the form of fines or damages for noncompliance.  Any foreign investments we make will be subject to similar laws in the jurisdictions where they are located.

Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results.

Under various federal, state and local environmental laws, ordinances and regulations (including those of foreign jurisdictions), a current or previous owner or operator of real property may be liable for the cost of removal or remediation of

38

hazardous or toxic substances on, under or in such property.  The costs of removal or remediation could be substantial.  These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances.

Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures.  Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties.  Certain environmental laws and common law principles govern the presence, maintenance, removal and disposal of certain building materials, including asbestos and lead-based paint.  Such hazardous substances could be released into the air and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances.

In addition, when excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time.  Some molds may produce airborne toxins or irritants.  Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold at any of our projects could require us to undertake a costly remediation program to contain or remove the mold from the affected property or development project, which would reduce our operating results.

The cost of defending against such claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to you.

Our costs associated with and the risk of failing to comply with the Americans with Disabilities Act and the Fair Housing Act may affect cash available for distributions.

Our properties are generally expected to be subject to the Americans with Disabilities Act of 1990, as amended (“Disabilities Act”), or similar laws of foreign jurisdictions.  Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons.  The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities.  The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages.  We will attempt to acquire properties that comply with the Disabilities Act or similar laws of foreign jurisdictions or place the burden on the seller or other third party to ensure compliance with such laws.  However, we cannot assure you that we will be able to acquire properties or allocate responsibilities in this manner.  If we cannot, our funds used for compliance with these laws may affect cash available for distributions and the amount of distributions to you.

The multifamily communities we acquire must comply with Title III of the Disabilities Act, to the extent that such properties are “public accommodations” and/or “commercial facilities” as defined by the Disabilities Act.  Compliance with the Disabilities Act could require removal of structural barriers to handicapped access in certain public areas of our multifamily communities where such removal is readily achievable.  The Disabilities Act does not, however, consider residential properties, such as multifamily communities to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as the leasing office, are open to the public.

We also must comply with the Fair Housing Amendment Act of 1988 (“FHAA”), which requires that multifamily communities first occupied after March 13, 1991 be accessible to handicapped residents and visitors.  Compliance with the FHAA could require removal of structural barriers to handicapped access in a community, including the interiors of apartment units covered under the FHAA.  Recently there has been heightened scrutiny of multifamily housing communities for compliance with the requirements of the FHAA and Disabilities Act and an increasing number of substantial enforcement actions and private lawsuits have been brought against multifamily communities to ensure compliance with these requirements.  Noncompliance with the FHAA and Disabilities Act could result in the imposition of fines, awards of damages to private litigants, payment of attorneys’ fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation.

39

By owning age-restricted communities, we may incur liability by failing to comply with the FHAA, the Housing for Older Persons Act or certain state regulations, which may affect cash available for distributions.

Any age-restricted communities we acquire must comply with the FHAA and the Housing for Older Persons Act (“HOPA”).  The FHAA prohibits housing discrimination based upon familial status, which is commonly referred to as age-based discrimination.  However, there are exceptions for housing developments that qualify as housing for older persons.  The HOPA provides the legal requirements for such housing developments.  In order for housing to qualify as housing for older persons, the HOPA requires (i) all residents of such developments to be 62 years of age or older or (ii) that at least 80% of the occupied units are occupied by at least one person who is 55 years of age or older and that the housing community publish and adhere to policies and procedures that demonstrate this required intent and comply with rules issued by the United States Department of Housing and Urban Development for verification of occupancy.  In addition, certain states require that age-restricted housing communities register with the state.  Noncompliance with the FHAA, HOPA and state registration requirements could result in the imposition of fines, awards of damages to private litigants, payment of attorneys’ fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation.

If we sell properties by providing financing to purchasers, we will bear the risk of default by the purchaser.

If we decide to sell any of our properties, we intend to use commercially reasonable efforts to sell them for cash or in exchange for other property.  However, in some instances we may sell our properties by providing financing to purchasers.  If we provide financing to purchasers, we will bear the risk of default by the purchaser and will be subject to remedies provided by law, which could negatively impact distributions to our stockholders.  There are no limitations or restrictions on our ability to take purchase money obligations.  We may, therefore, take a purchase money obligation secured by a mortgage as partial payment for the purchase price of a property.  The terms of payment to us generally will be affected by custom in the area where the property being sold is located and the then-prevailing economic conditions.  If we receive promissory notes or other property in lieu of cash from property sales, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property are actually paid, sold or refinanced or we have otherwise disposed of such promissory notes or other property.  In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years.  If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to our stockholders.

Risks Associated with Debt Financing

We will incur mortgage indebtedness and other borrowings, which will increase our business risks.

We anticipate that we will acquire additional properties and other real estate-related assets by using either existing financing or borrowing new funds.  In addition, we may incur or increase our mortgage debt by obtaining loans secured by some or all of our real properties to obtain funds to acquire additional properties and other investments and for payment of distributions to stockholders.  We also may borrow funds if necessary to satisfy the requirement that we distribute to stockholders at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes.

There is no limitation on the amount we may invest in any single property or other asset or on the amount we can borrow for the purchase of any individual property or other investment.  Under our charter, the maximum amount of our indebtedness shall not exceed 300% of our “net assets” (as defined by the NASAA REIT Guidelines) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors.

In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests.  Our policy limitation, however, does not apply to individual real estate assets and only will apply once we have ceased raising capital under this or any subsequent offering and invested substantially all of our capital.  As a result, we expect to borrow more than 75% of the contract purchase price of each real estate asset we acquire to the extent our board of directors determines that borrowing these amounts is prudent.

We do not intend to incur mortgage debt on a particular real property unless we believe the property’s projected cash flow is sufficient to service the mortgage debt.  However, if there is a shortfall in cash flow, then the amount available for distributions to stockholders may be affected.  In addition, incurring mortgage debt increases the risk of loss because defaults on indebtedness secured

40

by a property may result in foreclosure actions initiated by lenders and our loss of the property securing the loan that is in default.  For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage.  If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds from the foreclosure.  We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties.  When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to our lender for satisfaction of the debt if it is not paid by such entity.  If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default.  If any of our properties are foreclosed upon due to a default, our ability to make distributions to our stockholders will be adversely affected.  In addition, since we intend to begin to consider the process of liquidating and distributing cash or listing our shares on a national securities exchange within four to six years after the termination of this primary offering, our approach to investing in properties utilizing leverage in order to accomplish our investment objectives over this period of time may present more risks to our stockholders than comparable real estate programs that have a longer intended duration and that do not utilize borrowing to the same degree.

If mortgage debt is unavailable at reasonable rates, we may not be able to finance the multifamily communities, which could reduce the number of properties we can acquire and the amount of cash distributions we can make.

When we place mortgage debt on multifamily communities, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms.  If interest rates are higher when the properties are refinanced, we may not be able to finance the properties at reasonable rates and our income could be reduced.  If this occurs, it would reduce cash available for distribution to our stockholders, and it may prevent us from borrowing more money.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

In connection with obtaining financing, a lender could impose restrictions on us that affect our ability to incur additional debt and our distribution and operating policies. In general, we expect our loan agreements to restrict our ability to encumber or otherwise transfer our interest in the respective property without the prior consent of the lender. Loan documents we enter into may contain other negative covenants that may limit our ability to further mortgage the property, discontinue insurance coverage, replace Behringer Harvard Multifamily Advisors I as our advisor or impose other limitations. Any such restriction or limitation may have an adverse effect on our operations and our ability to make distributions to you.

Our ability to obtain financing on reasonable terms could be impacted by negative capital market conditions.

Recently, domestic financial markets have experienced unusual volatility and uncertainty. Although this condition has occurred most visibly within the “subprime” single-family mortgage lending sector of the credit market, liquidity has tightened in overall domestic financial markets, including the investment grade debt and equity capital markets. Consequently, there is greater uncertainty regarding our ability to access the credit market in order to attract financing on reasonable terms. Investment returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure financing on reasonable terms, if at all.

Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders.

We may finance our property acquisitions using interest-only mortgage indebtedness. During the interest- only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.

41

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to our stockholders.

We may incur indebtedness that bears interest at a variable rate. In addition, from time to time we may pay mortgage loans or finance and refinance our properties in a rising interest rate environment. Accordingly, increases in interest rates could increase our interest costs, which could have an adverse effect on our operating cash flow and our ability to make distributions to you. In addition, if rising interest rates cause us to need additional capital to repay indebtedness in accordance with its terms or otherwise, we may need to liquidate one or more of our investments at times that may not permit realization of the maximum return on these investments.

If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to make distributions.

Some of our financing arrangements may require us to make a lump-sum or “balloon” payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT. Any of these results would have a significant, negative impact on your investment.

We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and could decrease the return on your investment and the value of your investment.

Our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets, but we may exceed this limit under some circumstances. Such debt may be at a level that is higher than real estate investment trusts with similar investment objectives or criteria. High debt levels would cause us to incur higher interest charges, would result in higher debt service payments, and could be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of your investment.

Risks Related to Investments in Real Estate-Related Assets

We have relatively less experience investing in mortgage, bridge, mezzanine or other loans as compared to investing directly in real property, which could adversely affect our return on loan investments.

The experience of our advisor and its affiliates with respect to investing in mortgage, bridge, mezzanine or other loans relating to multifamily communities is not as extensive as it is with respect to investments directly in real properties. However, we have made and may continue to make such loan investments to the extent our advisor determines that it is advantageous to us due to the state of the real estate market or in order to diversify our investment portfolio. Our less extensive experience with respect to mortgage, bridge, mezzanine or other loans could adversely affect our return on loan investments.

The bridge loans in which we may invest involve greater risks of loss than conventional mortgage loans.

We may provide or invest in bridge loans secured by first lien mortgages on a multifamily property to borrowers who are typically seeking short-term capital to be used in an acquisition or refinancing of real estate. We may also provide or invest in bridge loans secured by a pledge of the ownership interests of either the entity owning the real property or the entity that owns the interest in the entity owning the real property. The borrower has usually identified an undervalued multifamily asset that has been undermanaged or is located in a recovering market. If the market in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the bridge loan, and we may not recover some or all of our investment.

In addition, owners usually borrow funds under a conventional mortgage loan to repay a bridge loan. We may therefore be dependent on a borrower’s ability to obtain permanent financing to repay our bridge loan, which could depend on market conditions and other factors.  Bridge loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance.  In the event of any default under bridge loans held by us, we bear the risk of loss of principal and nonpayment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the

42

principal amount of the bridge loan.  To the extent we suffer such losses with respect to our investments in bridge loans, the value of our company and the price of our common stock may be adversely affected.

The mezzanine loans in which we invest involve greater risks of loss than senior loans secured by income-producing real properties.

We have and will continue to invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of either the entity owning the real property or the entity that owns the interest in the entity owning the real property. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of the entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment, which could have a negative impact on our ability to make distributions.

The construction loans in which we may invest involve greater risks of loss of investment and reduction of return than conventional mortgage loans.

If we decide to invest in construction loans secured by multifamily or other types of underlying properties, the nature of these loans pose a greater risk of loss than traditional mortgages. Since construction loans are madegenerally for the express purpose of either the original development or redevelopment of a property, the risk of loss is greater than a conventional mortgage because the underlying properties subject to construction loans are generally unable to generate income during the period of the loan. Construction loans may also be subordinate to the first lien mortgages. Any delays in completing the development or redevelopment multifamily project may increase the risk of default or credit risk of the borrower which may increase the risk of loss or risk of a lower than expected return to our portfolio.

Our mortgage, bridge, mezzanine or other loans may be impacted by unfavorable real estate market conditions, which could decrease the value of our loan investments.

If we make or invest in mortgage, bridge, mezzanine or other loans, we will be at risk of defaults on those loans caused by many conditions beyond our control, including local and other economic conditions affecting real estate values and interest rate levels. We do not know whether the values of the property securing the loans will remain at the levels existing on the dates of origination of the loans. If the values of the underlying properties drop, our risk will increase and the values of our interests may decrease.

Our mortgage, bridge, mezzanine or other loans will be subject to interest rate fluctuations, which could reduce our returns as compared to market interest rates.

If we invest in fixed-rate, long-term mortgage, bridge, mezzanine or other loans and interest rates rise, the loans could yield a return lower than then-current market rates. If interest rates decrease, we will be adversely affected to the extent that mortgage, bridge, mezzanine or other loans are prepaid, because we may not be able to make new loans at the previously higher interest rate.

Delays in liquidating defaulted mortgage, bridge, mezzanine or other loans could reduce our investment returns.

If there are defaults under our loans, we may not be able to repossess and quickly sell the properties securing such loans. The resulting time delay could reduce the value of our investment in the defaulted loans. An action to foreclose on a property securing a loan is regulated by state statutes and rules and is subject to the delays and expenses of any lawsuit brought in connection with the foreclosure if the defendant raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the loan.

Returns on our mortgage, bridge, mezzanine or other loans may be limited by regulations.

The mortgage, bridge or mezzanine loans in which we invest, or that we may make, may be subject to regulation by federal, state and local authorities (including those of foreign jurisdictions) and subject to various laws and judicial and administrative decisions. We may determine not to make mortgage, bridge, mezzanine or other loans in any jurisdiction in which we believe we have

43

not complied in all material respects with applicable requirements. If we decide not to make mortgage, bridge, mezzanine or other loans in several jurisdictions, it could reduce the amount of income we would otherwise receive.

Foreclosures create additional ownership risks that could adversely impact our returns on loan investments.

If we acquire property by foreclosure following defaults under our mortgage, bridge, mezzanine or other loans, we will have the economic and liability risks as the owner of that property. See “—General Risks Related to Investments in Real Estate.”

The liquidation of our assets may be delayed as a result of our investment in mortgage, bridge, mezzanine or other loans, which could delay distributions to our stockholders.

The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default. If our advisor determines that it is in our best interest to make or invest in mortgage, bridge, mezzanine or other loans, any intended liquidation of us may be delayed beyond the time of the sale of all of our properties until all mortgage, bridge or mezzanine loans expire or are sold, because we may enter into mortgage, bridge, mezzanine or other loans with terms that expire after the date we intend to have sold all of our properties.

Investments in real estate-related securities will be subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in subordinated real estate securities, which may result in losses to us.

We may invest in real estate-related securities of both publicly traded and private real estate companies. Our investments in real estate-related securities will involve special risks relating to the particular issuer of the real estate-related securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related equity securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related investments, including risks relating to rising interest rates.

Real estate-related securities are often unsecured and also may be subordinated to other obligations of the issuer. As a result, investments in real estate-related securities are subject to risks of:  (1) limited liquidity in the secondary trading market in the case of unlisted or thinly traded securities; (2) substantial market price volatility resulting from changes in prevailing interest rates in the case of traded equity securities; (3) subordination to the prior claims of banks and other senior lenders to the issuer; (4) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets; (5) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations; and (6) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic slowdown or downturn. These risks may adversely affect the value of outstanding real estate-related securities and the ability of the issuers thereof to repay principal and interest or make distribution payments.

Investments in real estate-related preferred equity securities involve a greater risk of loss than traditional debt financing.

We may invest in real estate-related preferred equity securities, which may involve a higher degree of risk than traditional debt financing due to a variety of factors, including that such investments are subordinate to traditional loans and are not secured by property underlying the investment. Furthermore, should the issuer default on our investment, we would be able to proceed only against the entity in which we have an interest, and not the property owned by such entity and underlying our investment. As a result, we may not recover some or all of our investment.

We may make investments in non-U.S. dollar denominated real property and real estate-related securities, which will be subject to currency rates exposure and the uncertainty of foreign laws and markets.

We may purchase real property or real estate-related securities denominated in foreign currencies. A change in foreign currency exchange rates may have an adverse impact on returns on our non-U.S. dollar denominated investments. Although we may hedge our foreign currency risk subject to the REIT income qualification tests, we may not be able to do so successfully and may incur losses on these investments as a result of exchange rate fluctuations.

44

We expect that a portion of any real estate-related securities investments we make will be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

Certain of the real estate-related securities that we may purchase in connection with privately negotiated transactions will not be registered under applicable securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default.

Interest rate and related risks may cause the value of our real estate-related securities to be reduced.

Interest rate risk is the risk that prevailing market interest rates change relative to the current yield on fixed income securities such as preferred and debt securities, and to a lesser extent dividend paying common stock. Generally, when market interest rates rise, the market value of these securities declines, and vice versa. In addition, when interest rates fall, issuers are more likely to repurchase their existing preferred and debt securities to take advantage of the lower cost of financing. As repurchases occur, principal is returned to the holders of the securities sooner than expected, thereby lowering the effective yield on the investment. On the other hand, when interest ratesrise, issuers are more likely to maintain their existing preferred and debt securities. As a result, repurchases decrease, thereby extending the average maturity of the securities. We intend to manage interest rate risk by purchasing preferred and debt securities with maturities and repurchase provisions that are designed to match our investment objectives. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to make distributions to you will be adversely affected.

We have relatively less experience investing in real estate-related securities than investing in real property as of December 31, 2008, which could adversely affect our return on such investments.

Aside from investments in real estate, we are permitted to invest in real estate-related securities, including securities issued by other real estate companies, collateralized mortgage-backed securities, mortgage, bridge, mezzanine or other loans and Section 1031 tenant-in-common interests. As of December 31, 2008, we own directly or through joint venture arrangements a limited number of mezzanine loans made to the owners of various development projects. In cases where our advisor determines that it is advantageous to us to make the types of investments in which our advisor or its affiliates have relatively less experience than in other areas, such as with respect to domestic real property, our advisor may employ persons, engage consultants or partner with third parties that have, in our advisor’s opinion, the relevant expertise necessary to assist our advisor in evaluating, making and administering such investments.

We may acquire real estate-related securities through tender offers, which may require us to spend significant amounts of time and money that otherwise could be allocated to our operations.

We may acquire real estate-related securities through tender offers, negotiated or otherwise, in which we solicit a target company’s stockholders to purchase their securities. The acquisition of these securities could require us to spend significant amounts of money that otherwise could be allocated to our operations. Additionally, in order to acquire the securities, the employees of our advisor likely will need to devote a substantial portion of their time to pursuing the tender offer — time that otherwise could be allocated to managing our business. These consequences could adversely affect our operations and reduce the cash available for distribution to our stockholders.

The CMBS in which we may invest are subject to all of the risks of the underlying mortgage loans and the risks of the securitization process.

Commercial mortgage-backed securities (“CMBS”) are securities that evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans.  Accordingly, these securities are subject to all of the risks of the underlying mortgage loans.

In a rising interest rate environment, the value of CMBS may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument.  The value of CMBS may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole.  In addition, CMBS are subject to the credit risk associated with the performance of the underlying mortgage properties.  In certain instances, third-party guarantees or other forms of credit support can reduce the credit risk.

45

CMBS are also subject to several risks created through the securitization process.  Subordinate CMBS are paid interest only to the extent that there are funds available to make payments.  To the extent the collateral pool includes delinquent loans, there is a risk that interest payment on subordinate CMBS will not be fully paid. Subordinate CMBS are also subject to greater credit risk than those CMBS that are more highly rated.

If we use leverage in connection with any potential investments in CMBS, the risk of loss associated with this type of investment will increase.

We may use leverage in connection with our investment in CMBS.  Although the use of leverage may enhance returns and increase the number of investments that can be made, it may also substantially increase the risk of loss.  There can be no assurance that leveraged financing will be available to us on favorable terms or that, among other factors, the terms of such financing will parallel the maturities of the underlying securities acquired.  Therefore, such financing may mature prior to the maturity of the CMBS acquired by us.  If alternative financing is not available, we may have to liquidate assets at unfavorable prices to pay off such financing. We may utilize repurchase agreements as a component of our financing strategy.  Repurchase agreements economically resemble short-term, variable-rate financing and usually require the maintenance of specific loan-to-collateral value ratios.  Ifthe market value of the CMBS subject to a repurchase agreement decline, we may be required to provide additional collateral or make cash payments to maintain the loan to collateral value ratio.  If we are unable to provide such collateral or cash repayments, we may lose our economic interest in the underlying CMBS.

We may have increased exposure to liabilities from litigation as a result of any participation by us in Section 1031 Tenant-in-Common transactions.

Behringer Development, an affiliate of our advisor, or its affiliates (“Behringer Harvard Exchange Entities”) regularly enter into transactions that qualify for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. Section 1031 tenant-in-common transactions (“Section 1031 TIC Transactions”) are structured as the acquisition of real estate owned in co-tenancy arrangements with parties seeking to defer taxes under Section 1031 of the Internal Revenue Code (“1031 Participants”). We may provide accommodation in support of or otherwise be involved in such Section 1031 TIC Transactions. Specifically, at the closing of certain properties acquired by a Behringer Harvard Exchange Entity, we may enter into a contractual arrangement with such entity providing:  (1) in the event that the Behringer Harvard Exchange Entity is unable to sell all of the co-tenancy interests in that property to 1031 Participants, we will purchase, at the Behringer Harvard Exchange Entity’s cost, any co-tenancy interests remaining unsold; (2) we will guarantee certain bridge loans associated with the purchase of the property in which tenant-in-common interests are to be sold; and/or (3) we will provide security for the guarantee of such bridge loans. Although our participation in Section 1031 TIC Transactions may have certain benefits to our business, including enabling us to invest capital more readily and over a more diversified portfolio and allowing us to acquire interests in properties that we would be unable to acquire using our own capital resources, there are significant tax and securities disclosure risks associated with the related offerings of co-tenancy interests to 1031 Participants. Changes in tax laws may negatively impact the tax benefits of like-kind exchanges or cause such transactions not to achieve their intended value. In certain Section 1031 TIC Transactions it is anticipated that we would receive fees in connection with our provision of accommodation in support of the transaction and, as such, even though we do not sponsor these Section 1031 TIC Transactions, we may be named in or otherwise required to defend against any lawsuits brought by 1031 Participants because of our affiliation with sponsors of such transactions. Furthermore, in the event that the Internal Revenue Service conducts an audit of the purchasers of co-tenancy interests and successfully challenges the qualification of the transaction as a like-kind exchange, purchasers of co-tenancy interests may file a lawsuit against the entity offering the co-tenancy interests, its sponsors, and/or us. We may be involved in one or more such offerings and could therefore be named in or otherwise required to defend against lawsuits brought by 1031 Participants. Any amounts we are required to expend defending any such claims will reduce the amount of funds available to us for investment by us in properties or other investments and may reduce the amount of funds available for distribution to our stockholders. In addition, disclosure of any such litigation may adversely affect our ability to raise additional capital in the future through the sale of stock.

We may have increased business and litigation risks as a result of any direct sales by us of tenant-in-common interests in Section 1031 Tenant-in-Common transactions.

We may directly sell tenant-in-common interests in our properties to 1031 Participants, which may expose us to significant tax and securities disclosure risks. Changes in tax laws may negatively impact the tax benefits of like-kind exchanges or cause such transactions not to achieve their intended value.  Furthermore, the Internal Revenue Service may determine that the sale of tenant-in-common interests is a “prohibited transaction” under the Internal Revenue Code, which would cause all of the gain we realize from any such sale to be payable as a tax to the Internal Revenue Service, with none of such gain available for distribution to our

46

stockholders. The Internal Revenue Service may conduct an audit of the purchasers of tenant-in-common interests and successfully challenge the qualification of the transaction as a like-kind exchange. We may be named in or otherwise required to defend against any lawsuits brought by stockholders or 1031 Participants in connection with Section 1031 TIC Transactions in which we directly sell tenant-in-common interests. In addition, as a seller of tenant-in-common interests, we will be required to comply with applicable federal and state securities laws and to provide fair and adequate disclosure to 1031 Participants relating to the respective Section 1031 TIC Transaction. Any alleged failure by us to comply with these requirements could expose us to risks of litigation. Any amounts we are required to expend in defending claims brought against us will reduce the amount of funds available for us to invest in properties or other investments and may reduce the amount of funds available for distribution to our stockholders. In addition,disclosure of any such litigation may adversely affect our ability to raise additional capital in the future through the sale of stock.

A portion of the properties we acquire may be in the form of tenant-in-common or other co-tenancy arrangements. We will be subject to risks associated with such co-tenancy arrangements that otherwise may not be present in non-co-tenancy real estate investments.

We may enter in tenant-in-common or other co-tenancy arrangements with respect to a portion of the properties we acquire. Whether acquired as a planned co-tenancy or as the result of an accommodation or other arrangement disclosed above, ownership of co-tenancy interests involves risks generally not otherwise present with an investment in real estate, including the following:

·the risk that a co-tenant may at any time have economic or business interests or goals that are or become inconsistent with our business interests or goals;

·the risk that a co-tenant may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;

·the possibility that an individual co-tenant might become insolvent or bankrupt, or otherwise default under the applicable mortgage loan financing documents, which may constitute an event of default under all of the applicable mortgage loan financing documents or allow the bankruptcy court to reject the tenants-in-common agreement or management agreement entered into by the co-tenants owning interests in the property;

·the possibility that a co-tenant might not have adequate liquid assets to make cash advances that may be required in order to fund operations, maintenance and other expenses related to the property, which could result in the loss of current or prospective tenants and may otherwise adversely affect the operation and maintenance of the property, and could cause a default under the mortgage loan financing documents applicable to the property and may result in late charges, penalties and interest, and may lead to the exercise of foreclosure and other remedies by the lender;

·the risk that a co-tenant could breach agreements related to the property, which may cause a default under, or result in personal liability for, the applicable mortgage loan financing documents, violate applicable securities law and otherwise adversely affect the property and the co-tenancy arrangement; or

·the risk that a default by any co-tenant would constitute a default under the applicable mortgage loan financing documents that could result in a foreclosure and the loss of all or a substantial portion of the investment made by the co-tenants.

Actions by a co-tenant might have the result of subjecting the property to liabilities in excess of those contemplated and may have the effect of reducing your returns.

In the event that our interests become adverse to those of the other co-tenants in a Section 1031 TIC Transaction, we may not have the contractual right to purchase the co-tenancy interests from the other co-tenants. Even if we are given the opportunity to purchase such co-tenancy interests in the future, we cannot guarantee that we will have sufficient funds available at the time to purchase such co-tenancy interests.  In addition, we may desire to sell our co-tenancy interests in a given property at a time when the other co-tenants in such property do not desire to sell their interests. Therefore, we may not be able to sell our interest in a property at the time we would like to sell. Finally, it is anticipated that it will be much more difficult to find a willing buyer for our co-tenancy interests in a property than it would be to find a buyer for a property we owned outright.

47

Our participation in Section 1031 TIC Transactions may limit our ability to borrow funds in the future, which could adversely affect the value of our investments.

Section 1031 TIC Transaction agreements we may enter that contain obligations to acquire unsold co-tenancy interests in properties may be viewed by institutional lenders as a contingent liability against our cash or other assets, which may limit our ability to borrow funds in the future. Furthermore, such obligations may be viewed by our lenders in such a manner as to limit our ability to borrow funds based on regulatory restrictions on lenders limiting the amount of loans they can make to any one borrower.

Our operating results will be negatively affected if our investments, including investments in tenant-in-common interests promoted by affiliates of our advisor, do not meet projected distribution levels.

Behringer Harvard Holdings and its affiliates have promoted a number of tenant-in-common real estate projects. Some of these projects have not met the distribution levels anticipated in the projections produced by Behringer Harvard Holdings and its affiliates. In addition, certain other projects have not achieved the leasing and operational thresholds projected by Behringer Harvard Holdings and its affiliates. If projections related to our investments, including any tenant-in-common interests in which we invest, are inaccurate, we may pay too much for an investment and our return on our investment could suffer.

Specifically, several tenant-in-common investment programs have not benefited from expected leasing improvements. Behringer Harvard Holdings has provided support for some of these programs in the form of leases for vacant space and other payments. In addition, the Beau Terre Office Park tenant-in-common program is currently underperforming relative to projections that were based on seller representations that Behringer Harvard Holdings now believes to be false. With respect to this program, Behringer Harvard Holdings has completed a settlement with the investors to support their returns and is pursuing a claim against the former on-site property manager and others on behalf of the stockholders and itself. In addition, in November 2007, Behringer Harvard Holdings and the investors completed a settlement with the seller and its agent.

Federal Income Tax Risks

Failure to qualify as a REIT would adversely affect our operations and our ability to make distributions.

DLA Piper US LLP has rendered an opinion to us that we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code for our taxable year ending December 31, 2007 and that our proposed method of operations will enable us to meet the requirements for qualification and taxation as a REIT beginning with our taxable year ending December 31, 2007. This opinion is based upon, among other things, our representations as to the manner in which we are and will be owned and the manner in which we will invest in and operate assets. However, our qualification as a REIT will depend upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Internal Revenue Code. DLA Piper US LLP will not review our compliance with the REIT qualification standards on an ongoing basis, and we may fail to satisfy the REIT requirements in the future. Also, this opinion represents DLA Piper US LLP’s legal judgment based on the law in effect as of the date of this prospectus. DLA Piper US LLP’s opinion is not binding on the Internal Revenue Service or the courts. Future legislative, judicial or administrative changes to the federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.

If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax on our taxable income for that year at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the distributions paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. Our failure to qualify as a REIT would adversely affect the return on your investment.

Our investment strategy may cause us to incur penalty taxes, lose our REIT status, or own and sell properties through taxable REIT subsidiaries, each of which would diminish the return to our stockholders.

It is possible that one or more sales of our properties may be “prohibited transactions” under provisions of the Internal Revenue Code. If we are deemed to have engaged in a “prohibited transaction” (i.e., we sell a property held by us primarily for sale in

48

the ordinary course of our trade or business) all income that we derive from such sale would be subject to a 100%penalty tax. The Internal Revenue Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% penalty tax. A principal requirement of the safe harbor is that the REIT must hold the applicable property for not less than two years prior to its sale.

If we desire to sell a property pursuant to a transaction that does not fall within the safe harbor, we may be able to avoid the 100% penalty tax if we acquired the property through a taxable REIT subsidiary (“TRS”), or acquired the property and transferred it to a TRS for a non-tax business purpose prior to the sale (i.e., for a reason other than the avoidance of taxes). However, there may be circumstances that prevent us from using a TRS in a transaction that does not qualify for the safe harbor. Additionally, even if it is possible to effect a property disposition through a TRS, we may decide to forgo the use of a TRS in a transaction that does not meet the safe harbor requirements based on our own internal analysis, the opinion of counsel or the opinion of other tax advisers that the disposition should not be subject to the 100% penalty tax. In cases where a property disposition is not effected through a TRS, the Internal Revenue Service could successfully assert that the disposition constitutes a prohibited transaction, in which event all of the net income from the sale of such property will be payable as a tax and none of the proceeds from such sale will be distributable by us to our stockholders or available for investment by us.

If we acquire a property that we anticipate will not fall within the safe harbor from the 100% penalty tax upon disposition, then we may acquire such property through a TRS in order to avoid the possibility that the sale of such property will be a prohibited transaction and subject to the 100% penalty tax. If we already own such a property directly or indirectly through an entity other than a TRS, we may contribute the property to a TRS if there is another, non-tax related business purpose for the contribution of such property to the TRS. Following the transfer of the property to a TRS, the TRS will operate the property and may sell such property and distribute the net proceeds from such sale to us, and we may distribute the net proceeds distributed to us by the TRS to our stockholders. Though a sale of the property by a TRS likely would eliminate the danger of the application of the 100% penalty tax, the TRS itself would be subject to a tax at the federal level, and potentially at the state and local levels, on the gain realized by it from the sale of the property as well as on the income earned while the property is operated by the TRS. This tax obligation would diminish the amount of the proceeds from the sale of such property that would be distributable to our stockholders. As a result, the amount available for distribution to our stockholders would be substantially less than if the REIT had not operated and sold such property through the TRS and such transaction was not successfully characterized as a prohibited transaction. The maximum federal corporate income tax rate currently is 35%. Federal, state and local corporate income tax rates may be increased in the future, and any such increase would reduce the amount of the net proceeds available for distribution by us to our stockholders from the sale of property through a TRS after the effective date of any increase in such tax rates.

As a REIT, the value of the non-mortgage securities we hold in TRSs may not exceed 20% (25% for our 2009 taxable year and beyond) of the value of all of our assets at the end of any calendar quarter. If the Internal Revenue Service were to determine that the value of our interests in TRSs exceeded this limit at the end of any calendar quarter, then we would fail to qualify as a REIT. If we determine it to be in our best interests to own a substantial number of our properties through one or more TRSs, then it is possible that the Internal Revenue Service may conclude that the value of our interests in our TRSs exceeds 20% (25% for our 2009 taxable year and beyond) of the value of our total assets at the end of any calendar quarter and therefore cause us to fail to qualify as a REIT. Additionally, as a REIT, no more than 25% of our gross income with respect to any year may, in general, be from sources other than real estate-related assets. Distributions paid to us from a TRS are typically considered to be non-real estate income. Therefore, we may fail to qualify as a REIT if distributions from TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25% of our gross income with respect to such year. We will use all reasonable efforts to structure our activities in a manner intended to satisfy the requirements for our continued qualification as a REIT. Our failure to qualify as a REIT would adversely affect the return on your investment.

Certain fees paid to us may affect our REIT status.

Income received in the nature of rental subsidies or rent guarantees, in some cases, may not qualify as rental income and could be characterized by the Internal Revenue Service as non-qualifying income for purposes of satisfying the “income tests” required for REIT qualification. In addition, in connection with our Section 1031 TIC Transactions, we or one of our affiliates may enter into a number ofcontractual arrangements with Behringer Harvard Exchange Entities whereby we will guarantee or effectively guarantee the sale of the co-tenancy interests being offered by any Behringer Harvard Exchange Entity. In consideration for entering into these agreements, we will be paid fees that could be characterized by the Internal Revenue Service as non-qualifying income for purposes of satisfying the “income tests” required for REIT qualification. If this fee income were, in fact, treated as non-qualifying, and if the aggregate of such fee income and any other non-qualifying income in any taxable year ever exceeded 5% of our gross revenues for such year, we could lose our REIT status for that taxable year and the four taxable years following the year of losing our

49

REIT status. We will use commercially reasonable efforts to structure our activities in a manner intended to satisfy the requirements for our continued qualification as a REIT. Our failure to qualify as a REIT would adversely affect the return on your investment.

Equity participation in mortgage, bridge, and mezzanine loans may result in taxable income and gains from these properties, which could adversely impact our REIT status.

If we participate under a loan in any appreciation of the properties securing the loan or its cash flow and the Internal Revenue Service characterizes this participation as “equity,” we might have to recognize income, gains and other items from the property for federal income tax purposes. This could affect our ability to qualify as a REIT.

Recharacterization of the Section 1031 TIC Transactions may result in taxation of income from a prohibited transaction, which would diminish distributions to our stockholders.

In the event that the Internal Revenue Service were to recharacterize the Section 1031 TIC Transactions such that we, rather than the Behringer Harvard Exchange Entity, are treated as the bona fide owner, for tax purposes, of properties acquired and resold by the Behringer Harvard Exchange Entity in connection with the Section 1031 TIC Transactions, such characterization could result in the fees paid to us by the Behringer Harvard Exchange Entity as being deemed income from a prohibited transaction, in which event the fee income paid to us in connection with the Section 1031 TIC Transactions would be subject to the 100% penalty tax. If this occurs, our ability to make cash distributions to our stockholders will be adversely affected.

You may have current tax liability on distributions you elect to reinvest in our common stock.

If you participate in our distribution reinvestment plan, you will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, you will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the shares of common stock received.

If our operating partnership fails to maintain its status as a partnership or other flow-through entity for tax purposes, its income may be subject to taxation, which would reduce the cash available to us for distribution to our stockholders.

We intend to maintain the status of Behringer Harvard Multifamily OP I, our operating partnership, as a partnership (or other flow-through entity) for federal income tax purposes. However, if the Internal Revenue Service were to successfully challenge the status of the operating partnership as an entity taxable as a partnership, Behringer Harvard Multifamily OP I would be taxable as a corporation. In such event, this would reduce the amount of distributions that the operating partnership could make to us. This could also result in our losing REIT status, and becoming subject to a corporate level tax on our income. This would substantially reduce the cash available to us to make distributions and the return on your investment. In addition, if any of the partnerships or limited liability companies through which the operating partnership owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the operating partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain REIT status.

In certain circumstances, we may be subject to federal and state taxes on income as a REIT, which would reduce our cash available for distribution to our stockholders.

Even if we qualify and maintain our status as a REIT, we may become subject to federal income taxes and related state taxes. For example, if we have net income from a “prohibited transaction,” such income will be subject to the 100% penalty tax. We may not be able to make sufficient distributions to avoid excise taxes applicable toREITs. We may also decide to retain income we earn from the sale or other disposition of our assets and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. We may also be subject to state and local taxes on our income or property, either directly or at the level of the operating partnership or at the level of the other companies through which we indirectly own our assets. Any federal or state taxes paid by us will reduce the cash available to us for distribution to our stockholders.

50

We may be disqualified from treatment as a REIT if a joint venture entity elects to qualify as a REIT and is later disqualified from treatment as a REIT.

As part of our joint ventures, such as our joint ventures with our Co-Investment Partner or future joint ventures with another Behringer Harvard-sponsored program, we have and we may in the future form subsidiary REITs that will acquire and hold assets, such as a co-investment project owned through a joint venture with our Co-Investment Partner. In order to qualify as a REIT, among numerous other requirements, each subsidiary REIT must have at least 100 persons as beneficial owners after the first taxable year for which it makes an election to be taxed as a REIT and satisfy all of the other requirements for REITs under the Internal Revenue Code. We may be unable to satisfy these requirements for the subsidiary REITs created in our joint ventures with PGGM or other joint ventures. In the event that a subsidiary REIT is disqualified from treatment as a REIT for whatever reason, we will be disqualified from treatment as a REIT as well, which would have a negative impact on our operations and our stockholders’ investment in us.

A subsidiary REIT may become subject to state taxation.

Certain states are currently considering whether to tax captive REITs, such as the subsidiary REITs. If any subsidiary REIT becomes subject to state taxation, that subsidiary REIT’s results of operations could be negatively affected.

Non-U.S. income or other taxes, and a requirement to withhold any non-U.S. taxes, may apply, and, if so, the amount of net cash from operations payable to you will be reduced.

We may acquire real property located outside the United States and may invest in stock or other securities of entities owning real property located outside the United States. As a result, we may be subject to foreign (i.e., non-U.S.) income taxes, stamp taxes, real property conveyance taxes, withholding taxes, and other foreign taxes or similar impositions in connection with our ownership of foreign real property or foreign securities. The country in which the real property is located may impose such taxes regardless of whether we are profitable and in addition to any U.S. income tax or other U.S. taxes imposed on profits from our investments in such real property or securities. If a foreign country imposes income taxes on profits from our investment in foreign real property or foreign securities, you will not be eligible to claim a tax credit on your U.S. federal income tax returns to offset the income taxes paid to the foreign country, and the imposition of any foreign taxes in connection with our ownership and operation of foreign real property or our investment in securities of foreign entities will reduce the amounts distributable to you. Similarly, the imposition of withholding taxes by a foreign country will reduce the amounts distributable to you. We expect the organizational costs associated with non-U.S. investments, including costs to structure the investments so as to minimize the impact of foreign taxes, will be higher than those associated with U.S. investments. Moreover, we may be required to file income tax or other information returns in foreign jurisdictions as a result of our investments made outside of the United States. Any organizational costs and reporting requirements will increase our administrative expenses and reduce the amount of cash available for distribution to you. You are urged to consult with your own tax advisers with respect to the impact of applicable non-U.S. taxes and tax withholding requirements on an investment in our common stock.

Our foreign investments will be subject to changes in foreign tax or other laws, as well as to changes in U.S. tax laws, and such changes could negatively impact our returns from any particular investment.

We may make investments in real estate located outside of the United States. Such investments will typically be structured to minimize non-U.S. taxes, and generally include the use of holding companies. Our ownership, operation and disposition strategy with respect to non-U.S. investments will take into account foreign tax considerations. For example, it is typically advantageous from a tax perspective in non-U.S. jurisdictions to sell interests in a holding company that owns real estate rather than the real estate itself. Buyers of such entities, however, will often discount their purchase price by any inherent or expected tax in such entity. Additionally, the pool of buyers for interests in such holding companies is typically more limited than buyers of direct interests in real estate, and we may be forced to dispose of real estate directly, thus potentially incurring higher foreign taxes and negatively effecting the return on the investment.

We will also capitalize our holding companies with debt and equity to reduce foreign income and withholding taxes as appropriate and with consultation with local counsel in each jurisdiction.  Such capitalization structures are complex and potentially subject to challenge by foreign and domestic taxing authorities.

We may use certain holding structures for our non-U.S. investments to accommodate the needs of one class of investors which reduce the after-tax returns to other classes of investors.  For example, if we interpose an entity treated as a corporation for United States tax purposes in our chain of ownership with respect to any particular investment, U.S. tax-exempt investors will

51

generally benefit as such investment will no longer generate unrelated business taxable income.  However, if a corporate entity is interposed in a non-U.S. investment holding structure, this would prevent individual investors from claiming a foreign tax credit for any non-U.S. income taxes incurred by the corporate entity or its subsidiaries.

Foreign investments are subject to changes in foreign tax or other laws.  Any such law changes may require us to modify or abandon a particular holding structure.  Such changes may also lead to higher tax rates on our foreign investments than we anticipated, regardless of structuring modifications.  Additionally, U.S. tax laws with respect to foreign investments are subject to change, and such changes could negatively impact our returns from any particular investment.

Legislative or regulatory action could adversely affect the returns to our investors.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in shares of our common stock.  Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect the taxation of a stockholder.  Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets.  You are urged to consult with your own tax adviser with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.  You also should note that our counsel’s tax opinion was based upon existing law and Treasury Regulations, applicable as of the date of its opinion, all of which will be subject to change, either prospectively or retroactively.

Congress passed major federal tax legislation in 2003, with modifications to that legislation in 2005.  One of the changes effected by that legislation generally reduced the tax rate on dividends paid by corporations to individuals to a maximum of 15% prior to 2011.  REIT distributions generally do not qualify for this reduced rate.  The tax changes did not, however, reduce the corporate tax rates.  Therefore, the maximum corporate tax rate of 35% has not been affected.  However, as a REIT, we generally would not be subject to federal or state corporate income taxes on that portion of our ordinary income or capital gain that we distribute currently to our stockholders, and we thus expect to avoid the “double taxation” to which other corporations are typically subject.

Although REITs continue to receive substantially better tax treatment than entities taxed as corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be taxed for federal income tax purposes as a corporation.  As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a corporation, without the vote of our stockholders.  Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

Risks Related to Investments by Tax-Exempt Entities and Benefit Plans Subject to ERISA

If you fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, you could be subject to criminal and civil penalties.

There are special considerations that apply to employee benefit plans subject to ERISA (such as profit sharing, section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRA) that are investing in our shares.  If you are investing the assets of such a plan or account in our common stock, you should satisfy yourself that:

·your investment is consistent with your fiduciary obligations under ERISA and the Internal Revenue Code;

·your investment is made in accordance with the documents and instruments governing your plan or IRA, including your plan’s or account’s investment policy;

·your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Internal Revenue Code;

·your investment will not impair the liquidity of the plan or IRA;

52

·your investment will not produce “unrelated business taxable income” for the plan or IRA;

·you will be able to value the assets of the plan annually in accordance with ERISA requirements and applicable provisions of the plan or IRA; and

·your investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Internal Revenue Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to equitable remedies.  In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

Description of Properties and Real Estate-Related Assets

Substantially all of our current investments have been made through BHMP CO-JVs.  We, through an indirect wholly owned subsidiary, are the manager of each of the BHMP CO-JVs, but the operations of each of the BHMP CO-JVs are conducted in accordance with operating plans prepared by us and approved by us and PGGM. In addition, without the consent of all members of the BHMP CO-JV, we may not approve or disapprove on behalf of the BHMP CO-JV certain major decisions affecting the BHMP CO-JV, such as (i) selling or otherwise disposing of the investment or any other property having a value in excess of $100,000, (ii) selling any additional interests in the BHMP CO-JV or its subsidiary REIT (with limited exceptions relating to the subsidiary REIT maintaining its status as a real estate investment trust or the sale of an interest to the developer of the project) or (iii) incurring or materially modifying any indebtedness of the BHMP CO-JV or the subsidiary REIT. As of December 31, 2008, each BHMP CO-JV has two members, and each BHMP CO-JV member possesses equal substantive participating rights to make decisions which constitute routine occurrences in each BHMP CO-JV’s ordinary course of business. These decisions include the requirement to approve initial and annual operating plans, initial and annual capital expenditures, any sales or dispositions of investments, and, any method of refinancing or raising additional debt or equity capital.  Investments in other Co-Investment Ventures may be on other terms.

Each BHMP CO-JV has been and any new Co-Investment Ventures will be evaluated under FIN 46R. If the venture is determined to not be a variable interest entity under FIN 46R, then the venture is evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and by Emerging Issues Task Force (“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.”  With respect to our existing BHMP CO-JVs, as a result of the equal substantive participating rights possessed by each partner, no single party controls each BHMP CO-JV. Accordingly, we account for each BHMP CO-JV using the equity method of accounting pursuant to SOP 78-9. The equity method of accounting requires these investments to be initially recorded at cost and subsequently increased (decreased) for our share of net income (loss), including eliminations for our share of inter-company transactions and reduced when distributions are received.

As of December 31, 2008, through our BHMP CO-JVs we have made real estate investments in one operating property and nine development projects. As of December 31, 2008, through our BHMP CO-JVs we entered into ten mezzanine or mortgage loans made to the Property Entitiesof nine development projects.  Through our BHMP CO-JVs we have also acquired separate equity investments and purchase options in nine projects.  Through a BHMP CO-JV, we have also made an equity investment in one operating property.

As of December 31, 2008 our wholly owned investments are not significant.

53

The following tables present summary information of the properties underlying our investments in BHMP CO-JVs and certain information for the Property Entitiesas of December 31, 2008 (please note throughout this Annual Report on Form 10-K that we have changed the name of Lovers Lane Townhomes project to the Grand Reserve project and the name of Alexan Russell Lofts project to The Venue):

BHMP CO-JV— Operating Properties

Name of Underlying Property	Location	No. of Units	Date Acquired	Occupancy Rate
The Reserve at Johns Creek	Fulton County, GA	210	August 2007	90	%

BHMP CO-JV— Development Properties

Name of Underlying Property	Location	No. of Units	Construction Commencement Date (or Estimated Commencement Date) (1)(2)	Estimated Construction Completion Date (1)
The Eclipse	Houston, TX	330	2nd Quarter 2007	2nd Quarter 2009
Tower 55 Hundred	Arlington County, VA	234	3rd Quarter 2007	3rd Quarter 2009
Fairfield at Baileys Crossing	Fairfax County, VA	414	3rd Quarter 2007	1st Quarter 2010
Satori	Broward County, FL	279	4th Quarter 2007	3rd Quarter 2009
Fairfield at Cameron House	Silver Spring, MD	325	1st Quarter 2008	1st Quarter 2010
Alexan Prospect	Denver, CO	400	2nd Quarter 2008	3rd Quarter 2010
The Venue	Clark County, NV	168	3rd Quarter 2008	4th Quarter 2009
Grand Reserve	Dallas, TX	149	3rd Quarter 2008	1st Quarter 2010
Alexan St. Rose	Henderson, NV	430	1st Quarter 2009	2nd Quarter 2011
		2,729

(1)   The above estimated completion and commencement of project construction dates, other than The Reserve at Johns Creek, which is an operating property, are based solely on current market conditions and construction estimates and are accurate only as of the date of this Annual Report on Form 10-K.  These estimates are subject to change at any time based on these and other factors.

(2)   Commencement dates subsequent to the date of this Annual Report are estimated, while those prior to the date of this Annual Report are actual.

In the ordinary course of our business, we and the BHMP CO-JVs contract with unaffiliated multifamily developers and provide equity and/or loans for a particular Property Entity (our “Project Commitments”). We fund an initial amount under our Project Commitments at contract inception and fund additional amounts as construction progresses, typically spanning one to three years. Estimated remaining payments on our share of Project Commitments for 2009 are approximately $8.2 million and are expected to be funded from current cash balances.

The following is a summary description of our portfolio of investments as of December 31, 2008 with information concerning our direct, wholly owned investments and a separate table showing BHMP CO-JVs investments in Property Entities.  The BHMP CO-JV tables are broken out between investments in loans and equity investments further separated between developments and operating properties (dollar amounts in millions):

54

Wholly Owned Investment — Loans

Multifamily Developments	Our Company Investment Information (1)
Name of Underlying Property	Maximum Advance		Amount Advanced		Interest Rate		Maturity Date	Equity Option
Grand Reserve	$	2.2	$	—	10.0	%	4/2012	(2)

BHMP CO-JVInvestments — Loans

Multifamily Developments	BHMP CO-JV Investment Information (1)
Name of Underlying Property	Maximum Advance		Amount Advanced		Interest Rate		Maturity Date	Equity Option
Grand Reserve	$	7.5	$	7.1	10.0	%	4/2012	(2)
The Eclipse	8.1		8.1		9.5	%	4/2012	(2)
Fairfield at Baileys Crossing	22.1		22.1		9.5	%	7/2012	(2)
Alexan St. Rose (3)	21.0		14.7		13.0	%	12/2013	(2)
Tower 55 Hundred	20.0		20.0		9.5	%	10/2012	(2)
Satori	14.8		14.8		10.0	%	10/2012	(2)
Fairfield at Cameron House	19.3		19.3		9.5	%	12/2012	(2)
Alexan Prospect	14.8		10.6		10.0	%	4/2013	(2)
The Venue	5.8		5.8		10.0	%	6/2013	—
Total BHMP CO-JV Loans to Developments	$	133.4	$	122.5

BHMP CO-JVInvestments — Equity

Multifamily Developments	BHMP CO-JV Investment Information (1)
Name of Underlying Property	Investment Amount		Property Entity Ownership (7)		Preferred Return (8)
The Eclipse	$	3.5	50.1	%	9.5	%
Tower 55 Hundred (5)	3.5		50.1	%	9.5	%
Alexan St. Rose (6)	5.2		60.0	%	9.5	%
Satori	7.4		50.0	%	9.5	%
Alexan Prospect	7.3		50.1	%	9.5	%
The Venue	2.9		50.1	%	9.5	%
Total BHMP CO-JV Equity Investments in Developments	$	29.8

Multifamily Operating	BHMP CO-JV Investment Information (1)
Name of Property	Investment Amount		Property Entity Ownership (7)		Preferred Return (8)
The Reserve at Johns Creek (4)	$	6.7	80.0	%	5.0	%
Total BHMP CO-JV Equity Investments	$	36.5
Total BHMP CO-JV Loans Advanced and Equity Investments	$	159.0

55

(1)We hold a 55% ownership interest in each BHMP CO-JV and PGGM owns the remaining 45% ownership interest, expect for The Reserve at Johns Creek Walk BHMP CO-JV, in which we hold a 64% ownership interest in the BHMP CO-JV and PGGM owns the remaining 36%.

(2)The BHMP CO-JVs acquired options to purchase a certain percentage ownership interest in the Property Entity, or to convert into equity. Options are generally exercisable for a period ranging from 60-90 days after project completion.

(3)The mezzanine loan investment made to the owner of the Alexan St. Rose project was made in the form of a senior mezzanine loan and a junior mezzanine loan, but they are referred to collectively as a single mezzanine loan.

(4)This property is managed by a party that is affiliated with the other equity investors in the Property Entity.

(5)BHMP CO-JV has a right to 50.1% of net proceeds after all other required distributions are made by the Property Entity.  In addition, our contributed capital is entitled to a preferred return.  In order to maintain our share of the back end interest (the residual profit after all other required distributions are made) and maintain the priority level of our capital, we must contribute 70% if certain capital is required by the Property Entity.

(6)BHMP CO JV has a right to 60% of net proceeds after all other required distributions are made by the Property Entity.  In addition, our contributed capital is entitled to a preferred return.  In order to maintain the priority level of our capital, we must contribute 50% if certain capital is required by the Property Entity.

(7)Property Entity ownership refers to the BHMP CO-JVs’ back end interest. Additional capital contributions may have different allocation percentages.

(8)Preferred Return refers to the rate of return on BHMP CO-JV’s invested capital which has a higher priority than certain other distributions to equity owners.

Item 3.    Legal Proceedings

We are not party to, and none of our properties are subject to, any material pending legal proceeding.

Item 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of 2008.

56

PART II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

There is no established public trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder. Pursuant to the Initial Public Offering, we are selling shares of our common stock to the public at a price of $10.00 per share and at a price of $9.50 per share pursuant to our distribution reinvestment plan. Unless and until our shares are listed on a national securities exchange, it is not expected that a public market for the shares will develop.

To assist the Financial Industry Regulatory Authority (“FINRA”) members and their associated persons that participated in the Initial Public Offering, pursuant to FINRA Rule 5110, we disclose in each annual report distributed to investors a per share estimated value of the shares, the method by which it was developed and the date of the data used to develop the estimated value. In addition, we prepare annual statements of estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in our shares. For these purposes, the value of a share of our common stock is estimated to be $10.00 per share. The basis for this valuation is the fact that the price paid to acquire a share in the Initial Public Offering is $10.00.  Although this estimated value is the price paid to acquire a share in our Initial Public Offering, this estimated value is not likely to reflect the proceeds you would receive upon our liquidation or upon the sale of your shares because (i) these estimates are not designed to reflect the price at which properties and other assets can be sold; (ii) no public market for our shares exists or is likely to develop; and (iii) the per share valuation method is not designed to arrive at a valuation that is related to any individual or aggregated value estimates or appraisals of the value of our assets.

For up to three full fiscal years after the Initial Public Offering or any subsequent offering of our shares (other than offerings related to a distribution reinvestment plan, employee benefit plan or the redemption of interests in our operating partnership), we may use the offering price of shares in our most recent offering as the estimated value of a share of our common stock (unless we have sold assets and made special distributions to stockholders of net proceeds from such sales, in which case the estimated value of a share of our common stock will equal the offering price less the amount of those special distributions constituting a return of capital.)  Notwithstanding the foregoing, in February 2009, FINRA released Regulatory Notice 09-09.  This notice confirms that the National Association of Securities Dealers (“NASD”) Rule 2340(c)(2) prohibits broker-dealers that are required to report an estimated value per share for non-traded REITs from using a per share estimated value developed from data that is more than 18 months old.  This would mean that broker-dealers that participate in a public offering of our shares could not use the last price paid to acquire a share in an offering as the estimated value per share of our common stock beyond 18 months after termination of the most recent offering.  We are currently evaluating how we will assist broker-dealers with this requirement.

Holders

As of March 13, 2009, we had approximately 19.0 million shares of common stock outstanding held by a total of approximately 3,600 stockholders.

Distributions

Until we generate sufficient cash flow from operations or FFO to fully fund the payment of distributions, some or all of our distributions will be paid from other sources.  We may generate cash to pay distributions from financing activities, components of which may include borrowings (including borrowings secured by our assets) in anticipation of future operating cash flow and proceeds of this offering.  In addition, from time to time, our advisor and its affiliates may agree to waive or defer all, or a portion, of the acquisition, asset management or other fees or other incentives due to them, enter into lease agreements for unleased space, pay general administrative expenses or otherwise supplement investor returns in order to increase the amount of cash available to make distributions to our stockholders.  In addition, to the extent we invest in development or redevelopment projects or in properties that have significant capital requirements, these properties may not immediately generate cash flow from operations or FFO.  Thus, our ability to make distributions may be negatively impacted, especially during our early periods of operation.

We expect our board of directors to declare distributions on a quarterly basis and to pay distributions to our stockholders on a monthly basis.  We intend to calculate these monthly distributions based on daily record dates so our investors will become eligible for distributions immediately upon purchasing shares.  Distributions will be paid to stockholders as of the record dates selected by the directors.

57

We are required to make distributions sufficient to satisfy the requirements for qualification as a REIT for tax purposes.  Generally, distributed income will not be taxable to us under the Internal Revenue Code if we distribute at least 90% of our REIT taxable income.

Distributions will be authorized at the discretion of our board of directors, based on its analysis of our earnings, cash flow, anticipated cash flow, capital expenditure requirements, general financial condition or other factors that our board of directors deem relevant.  The board’s discretion will be influenced, in substantial part, by its obligation to cause us to comply with the REIT requirements.  Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period but may be paid in anticipation of cash flow that we expect to receive during a later period or of receiving funds in an attempt to make distributions relatively uniform.

Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions.  There can be no assurance that future cash flow will support distributions at the rate that such distributions are paid in any particular distribution period.  See “Item 1.A. Risk Factors — Risks Related to Our Business in General — Distributions may be paid from capital and there can be no assurance that we will be able to generate the cash flows necessary to continue to pay initially established distributions or maintain distributions at any particular level, or to increase distributions over time.”

We are not prohibited from distributing our own securities in lieu of making cash distributions to stockholders.  We may issue securities as stock dividends in the future.

The distributions declared and paid during the years ended December 31, 2008 and 2007 exceeded FFO for the years ended December 31, 2008 and 2007 by approximately $2.7 million and $0.6 million, respectively.  Accordingly, for the years ended December 31, 2008 and 2007, approximately 58% and 32% of the distributions were funded from FFO.  Cash amounts distributed to stockholders in excess of FFO were funded from our offering proceeds.

Distributions as of December 31, 2008 and December 31, 2007 were as follows:

	Distributions
2008	Declared		Paid		Per Share
Fourth Quarter	$	2,394,437	$	1,996,413	0.164
Third Quarter	1,330,495		1,330,539		0.093
Second Quarter	1,330,847		1,330,802		0.092
First Quarter	1,301,225		1,279,428		0.092
	$	6,357,004	$	5,937,182	$	0.441

	Distributions
2007	Declared		Paid		Per Share
Fourth Quarter	$	730,682	$	396,450	0.092
Third Quarter	196,590		118,764		0.091
Second Quarter	—		—		—
First Quarter	—		—		—
	$	927,272	$	515,214	$	0.183

Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flow from investments and operations (except with respect to distributions related to sales of our assets).  However, operating performance cannot be accurately predicted due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate environment, the types and mix of investments in our portfolio and the accounting treatment of our investments in accordance with our accounting policies.  In addition, effective on March 2009, our board of directors increased our distribution rate for an annual effective rate of 6.5% to 7.0%. As a result, future distributions declared and paid may continue to exceed FFO.  FFO is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance.  See “Funds from Operations” section below for a reconciliation of FFO to our net income.

58

Recent Sales of Unregistered Securities

In connection with our initial capitalization, on August 4, 2006, we issued 1,249 shares of our common stock to Behringer Harvard Holdings for $8.01 per share.  In addition, on November 28, 2007, we issued 23,720 additional shares of our common stock to Behringer Harvard Holdings for $8.01 per share and 1,000 shares of our convertible stock to the Advisor for $1 per share.  The convertible stock generally is convertible into shares of common stock with a value equal to 15% of the amount by which (1) our enterprise value at the time of conversion, including the total amount of distributions paid to our stockholders, exceeds (2) the sum of the aggregate capital invested by our stockholders plus a 7% cumulative, non-compounded, annual return on such capital at the time of conversion, on a cash-on-cash basis.  We issued these shares of common stock and convertible stock in private transactions exempt from the registration requirements under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) of the Securities Act.

We also commenced a private offering to accredited investors on November 22, 2006 and terminated that offering on December 28, 2007.  In connection with the private offering, we issued an aggregate of approximately 14.2 million shares of its common stock for an aggregate purchase price of approximately $127.3 million in the private offering.  The Registrant issued these shares of common stock in private transactions exempt from the registration requirements under the Securities Act, pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

Use of Proceeds from Registered Securities

Pursuant to a Registration Statement on Form S-11 (SEC Registration No. 333-148414) filed under the Securities Act and declared effective by the SEC on September 2, 2008, we are offering for sale to the public on a “best efforts” basis (1) a maximum of 200,000,000 shares of our common stock at a price of $10.00 per share and (2) up to 50,000,000 additional shares pursuant to a distribution reinvestment plan pursuant to which our stockholders could elect to have their distributions reinvested in additional shares of our common stock at a price of up to $9.50 per share, for a total aggregate offering price of approximately $2.5 billion. As of December 31, 2008, we hadsold approximately 1.1 million shares of our common stock on a best efforts basis pursuant to the Initial Public Offering for aggregate gross offering proceeds of approximately $10.9 million.

The above-stated number of shares sold and the gross offering proceeds received from such sales does not include 24,969 shares of common stock purchased by Behringer Harvard Holdings in a private placement in 2006 or the 14.2 million shares from our Private Offering.

From the commencement of the Initial Public Offering through December 31, 2008, we incurred $5.6 million for O&O expenses in connection with the issuance and distribution of the registered securities pursuant to the Initial Public Offering.

From the commencement of the offerings through December 31, 2008, the net offering proceeds to us from the offerings, after deducting the total expenses incurred described above, were $123.7 million. From the commencement of the offerings through December 31, 2008, we have invested $96.5 million of such net proceeds to invest primarily in BHMP CO-JVs.  Of the amount used for the purchase of these investments, $4.4 million was paid to Behringer Multifamily Advisors, as acquisition and advisory fees and acquisition expense reimbursement.

Share Redemption Program

Our board of directors has adopted a share redemption program that permits our stockholders to sell their shares to us in limited circumstances after they have held them for at least one year, subject to certain conditions and limitations.  The purchase price for the redeemed shares is set forth in the prospectus for the Initial Public Offering of our common stock, as supplemented from time to time.  Our board of directors reserves the right in its sole discretion at any time, and from time to time, to (1) waive the one-year holding period in the event of other exigent circumstances affecting a stockholder such as bankruptcy or a mandatory distribution requirement under the stockholder’s IRA, (2) reject any request for redemption, (3) change the purchase price for redemptions, or (4) otherwise amend the terms for the share redemption program.  Under the terms of the program, we will not redeem in excess of 5% of the weighted-average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.  In addition, our board of directors will determine at least quarterly whether we have sufficient cash to repurchase shares, and such purchases will generally be limited to proceeds from the DRIP plus 1% of operating cash flow for the previous fiscal year.

59

During the fourth quarter ended December 31, 2008, we redeemed shares as follows:

2008	Total Number of Shares Redeemed	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Be Purchased Under the Plans or Programs
October	—	$	—	—	(1)
November	16,667	$	8.40	16,667	(1)
December	—	$	—	—	(1)
	16,667	$	8.40	16,667

(1)   A description of the maximum number of shares that may be purchased under our redemption program is included in the narrative preceding this table.

Stock-Based Compensation

We have adopted a stock-based incentive award plan for our directors and consultants and for employees, directors and consultants of our affiliates, and our advisor and its affiliates.  We account for this plan under the modified prospective method of Financial Accounting Standards Board (“FASB”) SFAS No. 123(R), “Share-Based Payment.”  In the modified prospective method, compensation cost is recognized for all share-based payments granted after the effective date and for all unvested awards granted prior to the effective date. In accordance with SFAS No. 123(R), prior period amounts were not restated. SFAS No. 123(R) also requires the tax benefits associated with these share-based payments to be classified as financing activities in the Consolidated Statements of Cash Flows, rather than operating cash flows as required under previous regulations. We have issued a total of 6,000 shares of restricted stock to our independent directors as of December 31, 2008.

Convertible Stock

Our authorized capital stock includes 1,000 shares of convertible stock, par value $0.0001 per share.  We have issued all of such shares to our advisor.  No additional consideration is due upon the conversion of the convertible stock.  There will be no distributions paid on shares of convertible stock.  The conversion of the convertible stock into common shares will result in dilution of the stockholders’ interests.

With certain limited exceptions, shares of convertible stock shall not be entitled to vote on any matter, or to receive notice of, or to participate in, any meeting of stockholders of the company at which they are not entitled to vote.  However, the affirmative vote of the holders of more than two-thirds of the outstanding shares of convertible stock is required for the adoption of any amendment, alteration or repeal of a provision of the charter that adversely changes the preferences, limitations or relative rights of the shares of convertible stock.

Upon the occurrence of (A) our making total distributions on the then outstanding shares of our common stock equal to the issue price of those shares (that is, the price paid for those shares) plus a 7% cumulative, non-compounded, annual return on the issue price of those outstanding shares; or (B) the listing of the shares of common stock for trading on a national securities exchange, each outstanding share of our convertible stock will convert into the number of shares of our common stock described below.  Before we will be able to pay distributions to our stockholders equal to the aggregate issue price of our then outstanding shares plus a 7% cumulative, non-compounded, annual return on the issue price of those outstanding shares, we will need to sell a portion of our assets.  Thus, the sale of one or more assets will be a practical prerequisite for conversion under clause (A) above.

Upon the occurrence of either such triggering event, each share of convertible stock shall, unless our advisory management agreement with Behringer Harvard Multifamily Advisors I has been terminated or not renewed on account of a material breach by our advisor, generally be converted into a number of shares of common stock equal to 1/1000 of the quotient of (A) 15% of the amount, if any, by which (1) the value of the company (determined in accordance with the provisions of the charter and summarized in the following paragraph) as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (2) the sum of the aggregate issue price of those outstanding shares plus a 7% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, divided by (B) the value of the company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion.  In the case of conversion upon the listing of our shares, the conversion of the convertible stock will not occur until the 31st trading day after the date of such listing.  However, if our advisory management agreement with Behringer Harvard Multifamily Advisors I expires without renewal or is terminated (other than because of a material breach by our advisor) prior to either such triggering event described in the foregoing paragraph (an “advisory management agreement termination”), then upon either such triggering event the holder of the convertible stock will be entitled to a prorated portion of the number of shares of common stock determined by the foregoing calculation, where such proration is based on the percentage of time that we were advised by Behringer Harvard Multifamily Advisors I.

Our board of directors will oversee the conversion of the convertible stock to ensure that any shares of common stock issuable in connection with the conversion is calculated in accordance with the terms of our charter and to evaluate the impact of the conversion on our REIT status.  If, in the good faith judgment of our board, full conversion of the convertible stock would jeopardize our status as a REIT, then only such number of shares of convertible stock (or fraction of a share thereof) shall be converted into a number of shares of common stock such that our REIT status would not be jeopardized.  The conversion of the remaining shares of convertible stock will be deferred until the earliest date after our board of directors determines that such conversion will not jeopardize our qualification as a real estate investment trust.  Any such deferral will not otherwise alter the terms of the convertible stock.

Item 6.    Selected Financial Data

We were formed on August 4, 2006.  Through December 31, 2008, all of our Co-Investment Ventures were BHMP CO-JVs.  As of December 31, 2008, we and our BHMP CO-JVs had investments in nine properties under development and one operating apartment community.   As of December 31, 2007, we and our BHMP CO-JVs had investments in seven properties under development and one operating apartment community.  As of December 31, 2006, we owned no properties.  Accordingly, the following selected financial data for each fiscal year presented below reflects significant increases in all categories. The following data should be read in conjunction with our consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.  The selected financial data presented below has been derived from our audited consolidated financial statements (in thousands, except per share amounts).

	As of December 31,
Balance Sheet Data:	2008		2007		2006
Cash and cash equivalents	$	23,771	$	53,378	$	20
Investments in unconsolidated real estate joint ventures	96,505		60,069		—
Total assets	120,894		115,442		20
Long term obligations	—		—		—
Total liabilities	8,500		2,022		11
Minority interest	—		—		10
Stockholders’ equity	112,394		113,420		(1		)

60

	For Year Ended					For the period from August 4, 2006 (date of inception) through
Operating Data:	2008		2007			December 31, 2006
Equity in earnings of unconsolidated real estate joint venture investments	$	4,276	$	793		$	—
Interest income	885		343			—
Net income (loss)	2,630		(207		)	(14		)
Basic and diluted earnings (loss) per share	0.18		(0.08		)	(11.25		)
Distributions declared per share — basic and diluted (1)	0.44		0.34			—

(1)We paid our first distribution in July 2007.

	For Year Ended						For the period from August 4, 2006 (date of inception) through
Cash Flow Data:	2008			2007			December 31, 2006
Cash Flow provided by operating activities	$	2,383		$	245		$	—
Cash Flow used in investing activities	$	(35,420	)	$	(60,792	)	$	—
Cash Flow provided by financing activities	$	3,430		$	113,904		$	20

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto:

Overview

We were incorporated on August 4, 2006 as a Maryland corporation and operate as a REIT for federal and state income tax purposes. We make investments in and operate high-quality multifamily communities. In particular, we were organized to invest in and operate high-quality multifamily communities that we believe have desirable locations, personalized amenities, and high quality construction. We began acquiring interests in multifamily communities in April 2007. As of December 31, 2008, all of our investments have been in high-quality development and operating multifamily communities located in the top 50 metropolitan statistical areas (“MSAs”) in the United States. Substantially all of our real estate investments are unconsolidated joint venture investments in BHMP CO-JVs. As of December 31, 2008, we have made ten separate investments in multifamily BHMP CO-JVs. Nine of the ten Property Entities are in development and one is an operating property. As of December 31, 2008, the BHMP CO-JVs have made ten mezzanine loans related to the development projects and seven equity investments in Property Entities, with equity purchase options for all Property Entities. The development properties are located in Texas, Virginia, Florida, Colorado, Nevada, Maryland, and an equity investment in a Property Entity with one operating property located in Georgia.

Our investment strategy is designed to provide our stockholders with a diversified portfolio and our management and board of directors have extensive experience in investing in numerous types of real estate, loans and other investments to execute this strategy. We intend to primarily invest in, acquire and operate multifamily communities, with a particular focus on using multiple strategies to acquire investments in high quality multifamily communities that produce stabilized rental income. We will invest in and acquire a blended portfolio consisting of core, stabilized income generating assets, assets that may benefit from enhancement or repositioning and development assets forstabilization to retain as core assets generating income with potential capital appreciation. Further, we may invest in commercial real estate, including office buildings, shopping centers, business and industrial parks, manufacturing facilities, warehouses and distribution facilities and motel and hotel properties. We intend to make investments on our

61

own or through Co-Investment Ventures. Directly or through Co-Investment Ventures, we may invest in real estate-related securities, including securities issued by other real estate companies, either for investment or in change of control transactions completed on a negotiated basis or otherwise. We also may originate or invest in commercial mortgage-backed securities, mortgage, bridge, mezzanine or other loans and Section 1031 tenant-in-common interests (including those issued by programs sponsored by Behringer Harvard Holdings), or in entities that make investments similar to the foregoing. Although we intend to primarily invest in real estate assets located in the United States, in the future, we may make investments in real estate assets located outside the United States. As of December 31, 2008, we have not made any international investments. We will not make international investments until all of our non-independent directors and one of our independent directors have at least three years of relevant experience acquiring and managing such international investments.

Through December 31, 2008, we have primarily executed our strategy through Co-Investment Ventures with PGGM. We believe our BHMP CO-JV program will allow us to increase the number of our investments, thereby increasing our risk diversification, and to participate with greater economic interest in larger or more selective real estate investments, thereby providing greater access to high quality investments. As of December 31, 2008, these BHMP CO-JV investments have included mezzanine and mortgage loans, equity interests and options to acquire equity interests. We intend to continue to invest in BHMP CO-JVs that will own these types of investments and that focus on multifamily operating communities, to-be-developed multifamily communities or newly constructed multifamily communities that have not yet stabilized, other than residential properties for assisted living, student housing or senior housing. However, we are not limited to co-investments with PGGM and may pursue other Co-Investment Ventures if they provide greater diversification or investment opportunities. We may also pursue direct investments consistent with our investment policies.

Through our arrangements with PGGM, we have received commitments from them to invest $200 million in approved BHMP CO-JV co-investments. PGGM has indicated its willingness to increase its commitment to $300 million. Generally PGGM will co-invest at 45% and we will contribute 55% of the investment requirements. We intend to fund our portion from proceeds of our Initial Public Offering. Our strategy is to utilize these combined funds to invest in Property Entities with other third parties, generally developers investing in multifamily communities. The partners to these Property Entities will then be a BHMP CO-JV and the developer partner, although there could be other third-party participants.

Each Property Entity agreement is unique and heavily negotiated, but we will generally seek the following provisions:

For development stage investments:

·Completion Guarantees — The developer provides us with a guarantee of completion and costs from a dedicated entity with cash, real estate and/or securities.  This entity is typically not the developer entity or the Property Entity, but what is referred to as “the guarantee entity.”  We believe that this guarantee is an important mitigant to guarantee completion of developments at budgeted costs.

·Developer Fee Subordination — We negotiate fee deferrals at various levels.  The fees, usually developer fees for managing the development, are deferred and only received by the developer after we have recouped certain of our investments, which may include our mezzanine loan and any accrued and unpaid interest, equity investment and preferred return.

·Cost Overrun Protection — Generally, we will seek to mandate that any cost overruns, including those due to delayed completions, be borne by the developer or other capital partners, which essentially reduces their share of net profit from development to the extent of any such overrun.  Because this is a significant compensation to the developer, the developer is highly motivated to remain on budget.

For operating and development stage investments:

·Equity Subordination — We will seek to require the other partners to provide an equity investment that is subordinate to our investment.  In these instances, some or all of our returns will take priority to the other partner equity.

·Hurdle Returns — We will seek to receive certain minimum returns before the other partners participate in operating cash flow or residual profits from a sale or other capital events. In these instances we may receive a preferred return on our capital investment or require that our capital investment earn a minimum required internal rate of return.

62

·Joint Funding Protection — Although our structures do not require that any of the partners fund capital calls for development or operating deficits, we seek to include higher preferred returns on these types of capital contributions. As we may have more incentive to keep the project funded, if the other partners do not contribute pro-rata with us, then these higher preferred returns, which are generally the first allocation of distributable cash, would significantly dilute non-contributing partners.

Not all of these provisions may be included in each Property Entity agreements, or if our investment is initially a loan, some of these provisions may only be effective if we elect to make an equity investment. We believe these provisions will help us achieve our return requirements and help mitigate certain of the real estate project risks; however, there is no assurance we will achieve those objectives.

We believe that economic conditions in the major metropolitan markets of the United States will continue to provide adequate demand for properly positioned multifamily communities; such conditions include an assessment of job and salary growth, lifestyle trends, as well as single-family home pricing and availability of credit. Our multifamily asset acquisition strategy concentrates on multifamily communities located in the top 50 MSAs across the United States. The U.S. Census population estimates are used to determine the largest MSAs. Our top 50 MSA strategy will focus on acquiring properties and other real estate assets that provide us with broad geographic diversity. Investments in multifamily communities have benefited from the changing demographic trends of the last ten years. These trends include continued growth in non-traditional households, the echo-boomer generation coming of age and entering the housing market, low rates of inflation, and increased immigration. Changes in domestic financial markets (discussed below) can affect the stability and direction of these historical trends and can adversely affect our strategy. Multifamily community demand is also affected by changes in credit market liquidity and repricing of risk affects the cost and availability of financing for purchase of single family homes.Based on projected economic and credit market conditions for the United States in 2008, as published by prominent real estate and economic advisory firms, we expect the national pace of real estate acquisitions to be slower in 2009 than in recent years.

Recently, domestic financial and real estate markets have experienced unusual volatility and uncertainty. Liquidity has tightened in most financial markets, including investment grade debt, commercial and construction real estate financing and equity capital markets. Multifamily fundamentals are also beginning to exhibit signs of softenening. These include an increase in unemployment and supply, particularly so-called shadow rental alternatives from unsold condominiums and single-family residences. These factors are contributing to lower rental rates, lower occupancy levels and lower valuations in many multifamily markets. With our strategy of investing in high quality projects in fundamentally sound long-term markets, we believe our existing portfolio is well positioned to perform over the life of the project. However, we may experience a decrease in net operating income in the interim, which may affect certain investment values and cash flow. On the other hand, if multifamily prices decline and cap rates increase, any new investments we may make may generate higher returns and cash flows.

The deterioration of the capital markets has also affected the liquidity and pricing of mezzanine loans, currently our primary investment type. Spreads on these loans have widened dramatically with limited secondary markets. We believe this market condition has not materially affected our mezzanine portfolio due to our strategy of investing in mezzanine loans based on the quality of the underlying real estate, the security and collateral backing the loans, our investment structures (which allow us the option to convert our loan investments into equity ownership) and our intent and ability to hold these loans to maturity. Further, government-sponsored entities such as Fannie Mae and Freddie Mac have and may continue to provide needed financing, refinancing and credit enhancement to the multifamily sector.

We evaluate our mezzanine investments and other real estate investments for impairment based on general and market specific factors. See “Critical Accounting Policies and Estimates” discussed below.

As discussed further below, we expect to meet our short-term liquidity requirements through the net cash raised from our prior private offering, our Initial Public Offering and cash flow from the operations of our current and future investments. For purposes of our long-term liquidity requirements, we expect that the net cash from our Initial Public Offering and from our current and future investments will generate sufficient cash flow to cover operating expenses and our monthly distribution.

We actively search for real estate opportunities and routinely evaluate making investments in potential operating properties and development projects. We expect to use the proceeds from our Initial Public Offering to substantially increase the number and amount of our investments in operating properties and potential development projects.  As of December 31, 2008, we sold a total of

63

approximately 1.1 million shares of common stock and raised a total of $10.9 million in gross proceeds in our Initial Public Offering.  In addition, we commenced the Private Offering to accredited investors on November 22, 2006 and terminated that offering on December 28, 2007. We sold a total of approximately 14.2 million shares of common stock and raised a total of approximately $127.3 million in gross offering proceeds in the Private Offering.

Property Portfolio

The following is a summary description of our investments as of December 31, 2008 and 2007 (amounts in millions). The information separates our wholly owned investments and investments in unconsolidated real estate joint ventures.  The increased balance on our investments in unconsolidated real estate joint ventures in 2008 is largely due to the addition of two new investments  in BHMP CO-JVs for approximately $15.6 million and advances on existing notes receivable for approximately $18.0 million.

	December 31,
	2008		2007
Wholly Owned Investment
Loan — Multifamily Development
Grand Reserve	$	—	$	—
Investments in Unconsolidated Real Estate Joint Ventures
Multifamily Operating
The Reserve at Johns Creek	4.8		5.9
Multifamily Developments
Grand Reserve	4.3		1.9
The Eclipse	7.0		4.5
Alexan St. Rose	14.4		2.8
Fairfield at Baileys Crossing	12.6		12.7
Tower 55 Hundred	13.9		13.7
Fairfield at Cameron House	10.9		7.0
Satori	13.0		11.6
Alexan Prospect	10.6		—
The Venue	5.0		—
Total - Development	91.7		54.2
Total Investments in Unconsolidated Real Estate Joint Ventures	$	96.5	$	60.1

For additional information concerning our investments, refer to “Item 2. Properties.”

Critical Accounting Policies and Estimates

The following critical accounting policies and estimates apply to both us and our Co-Investment Ventures, respectively.

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 accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes which would affect the reported amounts. These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. Our significant judgments, assumptions and estimates include the consolidation of variable interest entities (“VIEs”), the allocation of the purchase price of acquired properties and evaluating our real-estate related investments for impairment.

64

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements will include our accounts, the accounts of variable interest entities (“VIEs”) in which we are the primary beneficiary and the accounts of other subsidiaries over which we will have control. All inter-company transactions, balances and profits are eliminated in consolidation. Interests in entities acquired will be evaluated for consolidation based on Financial Accounting Standards Board Interpretation (“FIN”) 46R, which requires the consolidation of VIEs in which we are deemed to be the primary beneficiary. If the interest in the entity is determined to not be a VIE under FIN 46R, then the entity will be evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and by Emerging Issues Task Force (“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.”

There are judgments and estimates involved in determining if an entity in which we will make an investment will be a VIE and if so, if we will be the primary beneficiary. The entity will be evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. FIN 46R provides some guidelines as to what the minimum equity at risk should be, but the percentage can vary depending upon the industry or the type of operations of the entity and it will be up to our advisor to determine that minimum percentage as it relates to our business and the facts surrounding each of our acquisitions. In addition, even if the entity’s equity at risk is a very low percentage, our advisor will be required by FIN 46R to evaluate the equity at risk compared to the entity’s expected future losses to determine if there could still in fact be sufficient equity at the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility using a discount rate to determine the net present value of those future losses and allocation those losses between the equity owners, subordinated lenders or other variable interests. A change in the judgments, assumptions, allocations and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment on the equity method that should in fact be consolidated, the effects of which could be material to our results of operations and financial condition.

Notes Receivable

Notes receivable are reported at their outstanding principal balances net of any unearned income and unamortized deferred fees and costs. Included in notes receivable are both mortgage notes receivable and mezzanine notes receivable.  Loan origination fees and certain direct origination costs are generally deferred and recognized as adjustments to interest income over the lives of the related loans.

In accounting for notes receivables by our Co-Investment Ventures or us, there are judgments related to whether the investments are loans, investments in joint ventures or acquisitions of real estate. In applying Exhibit 1 of AICPA Practice Bulletin 1, “AICPA Notice to Practitioners regarding Acquisition, Development, and Construction Arrangements to Acquisition of an Operating Property” and EITF 86-21 “Application of the AICPA Notice to Practitioners regarding Acquisition, Development, and Construction Arrangements to Acquisition of an Operating Property”, we evaluate whether the loans contain any rights to participate in expected residual profits, the loans provide sufficient collateral or qualifying guarantees or include other characteristics of a loan. As a result of our review, neither our wholly owned loan nor the loans made through our BHMP CO-JVs contain a right to participate in expected residual profits. In addition the Property Entities or project borrower remain obligated to pay principal and interest due on the loan with sufficient collateral, reserves or qualifying guarantees to account for the investments as loans.

We assess notes receivables for impairment in accordance with SFAS No. 114 “Accounting by Creditors for Impairment of a Loan”. Based on specific circumstances we determine whether it is probable that there has been an adverse change in the estimated cash flows of the contractual payments for the notes receivable. We then assess whether the impairment is other than temporary based on factors including the general or market specific economic conditions for the project; the financial conditions of the borrower and guarantors, if any; the degree of any defaults by the borrower on any of its obligations; the assessment of the underlying project’s financial viability and other collateral; the length of time and extent of the condition and our or the Co-Investment Venture’s intent and ability to retain its investment in the issuer for a period sufficient to allow for any anticipated recovery in the market value. If the impairment is other than temporary, we recognize an impairment loss equal to the difference between our or the Co-Investment Venture’s investment in the loan and the present value of the estimated cash flows discounted at the loan’s effective interest rate. Where we have the intent and the ability to foreclose on our security interest in the property, we will use the property’s fair value as a basis for the impairment.

65

There are judgments involved in determining whether an impairment is other than temporary. As these types of loans are generally investment specific based on the particular loan terms and the underlying project characteristics, there is usually not any secondary market to evaluate impairments. Accordingly, we must rely on our subjective judgments and individual weightings of the specific factors. If loans are considered impaired, then judgments and estimates are required to determine the projected cash flows for the loan, considering the borrower’s or if applicable the guarantor’s financial condition and the consideration and valuation of the secured property and any other collateral.

Changes in these facts or in our judgments and assessments of these facts could result in impairment losses which could be material to our results of operations and financial condition.

Investments in Real Estate Joint Ventures

Substantially all of our current investments have been made through joint Co-Investment Ventures. We are the manager of the Co-Investment Venture’s affairs, but the operation of Co-Investment Ventures are conducted in accordance with operating plans prepared by us and approved by us and the other joint venture member (the “Co-Investment Partner”). In addition, without the consent of both members of the Co-Investment Venture, the manager may not approve or disapprove on behalf of the Co-Investment Venture certain major decisions affecting the Co-Investment Venture, such as (i) selling or otherwise disposing of the investment or any other property having a value in excess of $100,000, (ii) selling any additional interests in the Co-Investment Venture or its subsidiary REIT (with limited exceptions relating to the subsidiary REIT maintaining its status as a real estate investment trust or the sale of an interest to the developer of the project) or (iii) incurring or materially modifying any indebtedness of the Co-Investment Venture or the subsidiary REIT. As of December 31, 2008, each Venture has two members, and each Venture member possesses equal substantive participating rights to make decisions which constitute routine occurrences in each Venture’s ordinary course of business. These decisions include the requirement to approve initial and annual operating plans, initial and annual capital expenditures, any sales or dispositions of investments, and, any method of refinancing or raising additional debt or equity capital.

Each Co-Investment Venture is evaluated under FIN 46R. If the Co-Investment Venture is determined to not be a variable interest entity under FIN 46R, then the ventures are evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and by Emerging Issues Task Force (“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.” As a result of the equal substantive participating rights possessed by each partner, no single party controls each venture; accordingly, we account for each Co-Investment Venture using the equity method of accounting pursuant to SOP 78-9. The equity method of accounting requires these investments to be initially recorded at cost and subsequently increased (decreased) for our share of net income (loss), including eliminations for our share of inter-company transactions and reduced when distributions are received.

Each of the Property Entities have different profit sharing interests, some of which have numerous allocation and distribution provisions where certain equity investors receive preferred interests or deferred participations. In accordance with SOP 78-9, we allocate income and loss for determining our equity in earnings of unconsolidated joint ventures based on the underlying economic effect or participation in the benefit or loss. Although our policy is to use the concepts of a hypothetical liquidation at book value, judgment is required to determine which owners are bearing economic benefits or losses, particularly as properties move from development to operations and guarantees are triggered or removed. A change in these judgments could result in greater or lesser amounts of equity in earnings.

Where we or the BHMP CO-JV have both equity investments and loans to Property Entities and Property Entities are capitalizing interest expense during construction, we must evaluate whether our or the BHMP CO-JV’s interest should be recognized as income or if any of the interest income is allocated to ours or the BHMP CO-JVs’ partnership equity interest and then deferred until realization from third parties through a sale of the Property Entities’ property. There are judgments and estimates involved in determining which party is responsible for the interest and whether there has been a realization with respect to our interest. Where interest is paid from the Property Entity which are funded from the other partners, either directly or from loans guaranteed by the other partners, our policy is to consider the interest income realized and no amounts are deferred. If interest income is not paid currently, after the period the senior loan has funded, or if the circumstances indicate that we or the BHMP CO-JV have not realized the interest income, we or the BHMP CO-JV defer the portion of the interest that relates to our equity interest. A change in the judgments, assumptions or specific facts could result in us or the BHMP CO-JV recording interest income when it should be deferred and recognized when the underlying property is sold or in us or the BHMP CO-JV deferring the interest income when it should have been recorded as interest income. The effects of these changes could be material to our results of operations and financial condition.

66

Investment Impairments

For real estate we wholly own or record on a consolidated basis, we will monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable. When such events or changes in circumstances are present, we will assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition, to the carrying amount of the asset. In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we will recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value.

For real estate we may own through an investment in a joint venture, TIC interest or other similar investment structure, at each reporting date we will compare the estimated fair value of our investment to the carrying value. An impairment charge will be recorded to the extent the fair value of our investment is less than the carrying amount and the decline in value is determined to be other than a temporary decline.

In evaluating our investments for impairment, our advisor will make several judgments, assumptions and estimates, including, but not limited to, the projected date of disposition of our investments in real estate, the estimated future cash flows from our investments in real estate and the projected sales price of each of our investments in real estate. Recently, domestic financial and real estate markets have experienced unusual volatility and uncertainty with fewer non-distressed secondary transactions available to base these estimates and assumptions on. A change in these judgments, assumptions and estimates could result in understating or overstating the book value of our investments which could be material to our financial statements.

Real Estate

Upon the acquisition of real estate properties, we will allocate the purchase price of those properties to the tangible assets acquired, consisting of land and buildings, any assumed debt, identified intangible assets and asset retirement obligations based on their relative fair values in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141(R), “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.”  Identified intangible assets consist of the fair value of above-market and below-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions and tenant relationships. Initial valuations are subject to change until our information is finalized, which will be no later than twelve months from the acquisition date.

We will determine the fair value of assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that our advisor believes we could obtain. Any difference between the fair value and stated value of the assumed debt will be recorded as a discount or premium and amortized over the remaining life of the loan.

The fair value of the tangible assets acquired, consisting of land and buildings, will be determined by valuing the property as if it were vacant, and the “as-if-vacant” value will then be allocated to land and buildings. Land values will be derived from appraisals, and building values will be calculated as replacement cost less depreciation or our advisor’s estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods. The value of the building will be depreciated over the estimated useful life of twenty-five years to thirty-five years, using the straight-line method.

We will determine the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or (b) the remaining non-cancelable lease term plus any fixed rate renewal options for below market leases. We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the above determined lease term.

The total value of identified real estate intangible assets acquired will be further allocated to in-place lease values, in-place tenant improvements, in-place leasing commissions and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. The aggregate value for tenant improvements and leasing commissions will be based on estimates of these costs incurred at inception of the acquired leases, amortized through the date of acquisition. The aggregate value of in-place leases acquired and tenant relationships will be determined by applying a fair value model. The estimates of fair value of in-place leases will include an estimate of carrying costs during the expected lease-up periods for

67

the respective spaces considering then current market conditions. In estimating the carrying costs that would have otherwise been incurred had the leases not been in place, we will include such items as real estate taxes, insurance and other operating expenses as well as lost rental revenue during the expected lease-up period based on then current market conditions. The estimates of the fair value of tenant relationships will also include costs to execute similar leases including leasing commissions, legal and tenant improvements as well as an estimate of the likelihood of renewal as determined by our advisor on a tenant-by-tenant basis.

We will amortize the value of in-place leases and in-place tenant improvements over the initial term of the respective leases. The value of tenant relationship intangibles will be amortized over the initial term and any anticipated renewal periods, but in no event exceeding the remaining depreciable life of the building. If a tenant terminates its lease prior to expiration of the initial terms, the unamortized portion of the in-place lease value and tenant relationship intangibles will be charged to expense.

In allocating the purchase price of each of our properties, our advisor will make assumptions and use various estimates, including, but not limited to, the estimated useful lives of the assets, the cost of replacing certain assets, discount rates used to determine present values, market rental rates per square foot and the period required to lease the property up to its occupancy at acquisition if it were vacant. Many of these estimates will be obtained from independent third party appraisals. However, our advisor will be responsible for the source and use of these estimates. A change in these estimates and assumptions could result in the various categories of our real estate assets or related intangibles being overstated or understated which could result in an overstatement or understatement of depreciation or amortization expense. These variances could be material to our results of operations and financial condition.

Results of Operations

For the year ended 2008, we are reporting net income of $2.6 million, compared to a net loss of $0.2 million in 2007, primarily due to our 2008 results benefiting from additional investments in 2008 while our 2007 results included investments placed during 2007. These investments were funded from cash previously raised from our 2007 Private Offering and new proceeds from our 2008 Initial Public Offering.  These operating benefits were partially offset by higher asset management fees and general and administrative expenses due to our larger portfolio.

For 2008 and 2007, our primary investments have been mezzanine and mortgage development loans in Property Entities, substantially all BHMP CO-JVs.  As of December 31, 2008, we and our BHMP CO-JVs invested in nine properties under development and one operating multifamily community. As of December 31, 2007, we and our BHMP CO-JVs had investments in seven properties under development and one operating apartment community. We began acquiring interests in real estate in April 2007.

In June 2007, PGGM purchased 45% of the equity in two of our wholly-owned subsidiaries; one owning the Grand Reserve Senior Mezzanine Loan commitment and the other owning The Eclipse commitments. We entered into these commitments in April 2007 and had partially funded it as of June 2007.  The purchase resulted in our deconsolidating the investment and accounting for them on the equity method.  We recorded the transaction at the investment carry over basis and accordingly no gain or loss was recognized.

Accordingly, our results for 2008 are not directly comparable to 2007 or 2006, where our results of operations for each period presented reflect significant increases in all categories. This will likely by the case until we substantially invest the proceeds from the Initial Public Offering.

Fiscal year ended December 31, 2008 as compared to fiscal year ended December 31, 2007

Asset Management Fee and other fees. Asset management fees for the years ended December 31, 2008 and 2007 were approximately $0.9 million and $0.2 million, respectively. These fees are based on the amount of our real estate investment and the time period in place.  Accordingly, the increase is due to the timing and funded amounts of our investments for 2008 compared to 2007. We expect continued increases in these fees as a result of owning and acquiring additional real estate investments.

Interest Expense. Interest expense for the years ended December 31, 2008 and 2007 was approximately $0 and $0.6 million, respectively, and was comprised of interest costs due for borrowings under the credit facility with Behringer Harvard Operating Partnership I LP. We entered into this credit facility in April 2007 and borrowed a total of $36 million during 2007. This credit facility was terminated on December 20, 2007 and all amounts were paid in full. In the ordinary course of our business, we may enter into borrowing arrangements in the future, which would create additional interest expenses; however, as of December 31, 2008, there is no credit facility or company borrowings in place.

68

General and Administrative Expense. General and administrative expenses for the years ended December 31, 2008 and 2007 were approximately $1.6 million and $0.4 million respectively, and included corporate general and administrative expenses incurred and reimbursable, as well as compensation of our board of directors, auditing and tax fees, and legal fees. Significant increases in 2008 included new corporate legal and accounting allocations from our Advisor for $0.5 million, increased audit fees for $0.3 million and directors and officers insurance expenses of $0.2 million related to our Initial Public Offering.  We expect further increases as a result of owning and acquiring additional joint venture interests and other real estate investments.

Organization Expense. Organization expense for the years ended December 31, 2008 and 2007 was approximately $9,500 and $50,000, respectively.  In connection with the September 2, 2008 amendment to our Advisory Management Agreement, we recorded the remaining unreimbursed organization costs. We do not expect any significant additional organization expenses in the future.  In 2007, related to our Private Offering, we had an obligation to pay a fixed fee of 1.5% of our gross private offering proceeds to our advisor, which covered organization and offering expenses incurred on our behalf. We recorded the pro-rated share of organization expenses embedded in the fee as an expense. The private offering was terminated on December 28, 2007.

Interest Income. Interest income for the years ended December 31, 2008 and 2007 was approximately $0.9 million and $0.3 million, respectively, and primarily included interest earned on our bank deposits with funds from our Private Offering, which terminated on December 28, 2007, and to a lesser extent our Initial Public Offering in 2008. During 2008, we had a higher average balance as compared to 2007, which was only partially offset by lower interest rates in 2008. Our average interest rate as of December 31, 2008 and 2007 was 1.75% and 2.15%, respectively.  Our interest income on bank deposits is a function of the timing and magnitude of our acquisition activity, which we expect to increase.  As of December 31, 2008, interest income on direct, wholly owned investments, primarily mezzanine loans, has not been significant.

Equity in Earnings of Investments in Unconsolidated Real Estate Joint Ventures. Equity in earnings of joint venture investments for the years ended December 31, 2008 and 2007 was approximately $4.3 million and $0.8 million, respectively, and included our share in earnings from our unconsolidated joint venture investments. These net earnings increased due to the increased funding of investments and the acquisition of two joint venture investments. During 2008, we made $35.4 million of new investments in BHMP CO-JVs. Of this amount, approximately $27.0 million related to loan investments in Property Entities and approximately $8.4 million related to equity investments in Property Entities. A breakdown of our approximate equity earnings by type of underlying investments for the years ended December 31, 2008 and 2007 are as follows (amounts in millions):

	2008			2007
Loan investments	$	5.4		$	1.2
Equity investments	(1.1		)	(0.4		)
Total	$	4.3		$	0.8

Earnings from underlying loan investments increased due to investments in Property Entities for the Grand Reserve, Fairfield at Baileys, and Fairfield at Cameron House. Our weighted-average interest rate on the underlying loan investments was approximately 10.1% in 2008 and 9.7% in 2007. Equity in earnings from underlying equity investments was a loss in 2008 and related to one Property Entity that was an operating property, The Reserve at Johns Creek. A loss was recognized due to interest expense and depreciation exceeding net operating income for the project.

We would expect our equity in earnings related to underlying loan investments to increase until the Property Entities have completed the project development, when, if the mezzanine loans are converted to equity investments, our equity investments will increase. However, we anticipate equity investments to report less earnings due to depreciation and interest expense exceeding net operating income for the Property Entity during the first years of operations. Accordingly, as the proportion of our equity investments increases, we expect our net earnings in unconsolidated real estate joint ventures to decline for an interim period and may even reflect a net loss. Even if underlying loan investments are not converted to equity interests, our earnings in unconsolidated real estate joint ventures may decline due to restrictions on recording interest income, either due to deferral of interest or consolidation. See “Critical Accounting Policies and Estimates” discussed above.

We review our investments for impairments in accordance with our accounting policies. For the years ended 2008 and 2007 we have not recorded any impairment losses. However, this conclusion could change in future periods based in changes in certain factors, primarily:

69

·Status of guarantor’s financial position. If market prices continue to decline, parties that provided us guarantees may not have the assets or net worth as previously reported. If our analysis was dependent on a guarantor’s ability to perform, our judgments could change. Each of our development Property Entities depend upon the guarantor’s financial position.

·Project specific performance. All of our loan and equity investments in Property Entities are dependent on the level 3 assumptions (management derived market assumptions) included in our SFAS No. 157 fair value determinations. These assumptions particularly include projected rents, occupancy and terminal cap rates. If general and specific market conditions continue to deteriorate, changes in these assumptions will affect our fair value determinations.

·Workouts. In structuring the BHMP CO-JVs investment in Property Entities, some of our investments contain provisions that provide us with priority or preferential returns. If the underlying projects are affected by market conditions, which may not directly affect our returns, but do affect the other partners, the other partners may request workouts or other changes to the deal structures. Although we may not be contractually forced to accept these changes, there could be other factors that would cause us to accept certain modifications or enter into workouts. Based on the consequences of theses changes, our assessment of our investment could change.

We review for these and similar events in the preparation of our consolidated financial statements.

Fiscal year ended December 31, 2007 as compared to the period from August 4, 2006 (date of inception) through December 31, 2006

Asset Management Fees. Asset management fees for the year ended December 31, 2007 were approximately $0.2 million. There were no asset management fees for the year ended December 31, 2006.  The increase is due to acquiring joint venture interests in eight properties during 2007.  During the period ended December 31, 2006, we did not own or acquire any joint venture interests or real estate.

Interest Expense. Interest expense for the year ended December 31, 2007 was approximately $0.6 million.  There was no interest expense for the period ended December 31, 2006. The increase is due to interest costs due for borrowings under the credit facility with Behringer Harvard Operating Partnership I LP.  We entered into this credit facility in April 2007 and borrowed a total of $36.0 million during the year ending December 31, 2007.  This credit facility was terminated on December 20, 2007; all amounts were paid in full.

General and Administrative Expenses. General and administrative expenses for the years ended December 31, 2007 and 2006 were approximately $0.4 million and $14,000, respectively, and included corporate general and administrative expenses, as well as compensation of our board of directors, auditing and tax fees, and legal fees.  The increased amount in 2007 was due to increased corporate activity.

Organization Expense. Organization expense for the year ended December 31, 2007 was approximately $50,000.  There was no organization expense for the period ended December 31, 2006.  We had an obligation to pay a fixed fee of 1.5% of our gross private offering proceeds to our advisor, which covered organization and offering expenses incurred on our behalf. We have recorded the pro-rated share of organization expenses embedded in the fee as an expense. The private offering was terminated on December 28, 2007.

Interest Income.  Interest income for the year ended December 31, 2007 was approximately $0.3 million.  There was no interest revenue for the period ended December 31, 2006.  Interest income primarily included interest earned on our funds on deposit with banks that resulted from the receipt of proceeds from our Private Offering, which terminated on December 28, 2007, as well as interest earned on the Grand Reserve loans during the period they were accounted for as a loan.

Equity in Earnings of Investments in Unconsolidated Real Estate Joint Ventures.  Equity in earnings of joint venture investments for the year ended December 31, 2007 was approximately $0.8 million, and included our share in earnings from our unconsolidated joint venture investments.  There was no equity in earnings of joint venture investments for the period ended December 31, 2006. Equity in earnings generated from the joint venture investments were due primarily from interest and fees accrued on loans made to Property Entities.  Equity in earnings was reduced, in part, from a joint venture investment in an operating property that incurred a net loss after deducting interest, depreciation and amortization.

70

Cash Flow Analysis

Cash and cash equivalents decreased in 2008 by approximately $29.6 million primarily due to our Private Offering terminating in December 2007 and our Initial Public Offering not commencing until September 2008. Accordingly, we largely used our cash resources carried over from our 2007 Private Offering to fund our $36.6 million new investment acquisitions and fundings. During 2007 we raised $127.3 million from our Private Offering and invested $61.3 million in new investment acquisitions and fundings. There was no significant cash flow for our short period of operations in 2006.  Should we fund additional real estate investments, we may reduce the amount of available cash and cash equivalents in 2009.

Year ended December 31, 2008 as compared to the year ended December 31, 2007

As of December 31, 2008, we made BHMP CO-JV investments in nine properties under development and one joint venture interest in an operating multifamily community. We began to receive proceeds from our Private Offering in April 2007, which terminated on December 28, 2007.We began acquiring interests in real estate in April 2007.  As a result, our cash flows for the year ended December 31, 2008 reflect significant differences from the cash flows for the year ended December 31, 2007.

Cash flows provided by operating activities for the year ended December 31, 2008 were $2.4 million compared to $0.2 million in 2007. The increase was due to additional BHMP CO-JV investments in 2008, which were proportionally outstanding longer than compared to 2007. In 2008, we received operating distributions from BHMP CO-JVs of $4.3 million compared to $0.8 million in 2007. This was partially offset by additional asset management fees and general and administrative costs related to additional BHMP CO-JVs.

Cash flows used in investing activities for the year ended December 31, 2008 were $35.4 million compared to $60.8 million in 2007. Our primary investing activity is investment acquisitions or fundings, which are largely dependent on our capital raises. During 2007, we were investing proceeds from our Private Offering, which expired in December 2007. These proceeds provided the funding source for our 2007 acquisitions with funds not spent carrying over to 2008. We did not commence our Initial Public Offering until September 2008; therefore, new proceeds were not available earlier in the year. Consequently, investments in 2008 were down compared to 2007. As our Initial Public Offering continues into 2009, we would expect our new acquisitions to increase. Also providing a source of investing cash flow in 2008 were BHMP CO-JV distributions in 2008, which were in excess of the equity earnings in unconsolidated joint ventures. These are presented as an investing activity and not cash flows from operating activity.

Cash flow from financing activities for the year ended December 31, 2008 were $3.4 million compared to $113.9 million in 2007.  Financing activities decreased from 2007 to 2008 due to our Private Offering continuing through December 2007 and our Initial Public Offering not beginning until September 2008. As our Initial Public Offering continues into 2009, we would expect proceeds from the sale of common stock to increase. Distributions in 2008 were higher than 2007 due to higher distribution rates and increased common stock outstanding. As our board of directors has increased the distribution rate from an effective annual rate of 6.5% to 7.0% in March 2009, we would expect the amount of distributions to increase significantly. As discussed above, we expect to fund increased distributions from the increased amount of investments and to the extent necessary from the proceeds of our Initial Public Offering. Offering costs paid were significantly higher in 2007 compared to 2008 because offering costs paid are a factor of our common stock sales. Also, in 2007 we received financing cash flows from our credit facility. These amounts were repaid in December 2007 from proceeds of our capital raises.

The Company and Behringer Harvard Multifamily Advisors I intends to amend the Advisory Management Agreement, effective April 1, 2009.  Under the amended Advisory Management Agreement, we will reimburse our advisor for all Initial Public Offering organization and offering costs as well as all Private Offering organization and offering costs previously advanced by our advisor to the extent not previously reimbursed by us.  Our reimbursements will no longer be subject to a cap at the time of reimbursement, but will be reimbursed by our advisor at the end of the Initial Public Offering to the extent such amounts incurred by us exceed 1.5% of our gross Public Offering.  Accordingly, we expect payments of offerings costs to increase in 2009.

In accordance with the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association, also known as the NASAA REIT Guidelines, our charter requires that we monitor our expenses on a trailing twelve month basis.  Our charter defines the following terms and requires that our Total Operating Expenses (“TOE”) are deemed to be excessive if at the end of any quarter they exceed for the prior trailing twelve month period the greater of 2% of our Average Invested Assets (“AIA”) or 25% of our Net Income (“NI”).  For the trailing twelve months ended December 31, 2008, TOE of approximately $2.5 million exceeded 2% of our AIA (which was approximately $1.9 million) by approximately $0.6 million.  Our board of directors, including all of our independent directors, have reviewed this analysis and unanimously determined the excess to

71

be justified considering the fact that we were in the registration for our initial public offering of common stock from December 31, 2007 through September 2, 2008 and our rate of investments thereafter caused the expenses incurred as a result of being a public company for audit and legal services, director and officer liability insurance and fees for board of directors members in connection with service on the board of directors and its committees to be disproportionate to the Company’s AIA and NI.

Liquidity and Capital Resources

General

Our principal demands for funds will continue to be for making investments, on our own or through joint ventures, in existing core multifamily communities, multifamily communities in various stages of development, mortgage, bridge or mezzanine loans and other investments, for the payment of operating expenses and distributions, and for the payment of interest on our outstanding indebtedness, if any.  Generally, cash needs for items other than our investments are expected to be met from operations, and cash needs for our investments are expected to be met from the net proceeds from our Initial Public Offering and other offerings of our securities as well as mortgages secured by our real estate investments.  However, there may be a delay between the sale of our shares, making investments in real estate and loans and the receipt of income from such investments, which could result in a delay in the benefits to our stockholders of returns generated from our operations.  During this period, we may decide to temporarily invest any uninvested proceeds in investments that could lower returns than our targeted investments in real estate-related assets.  These lower returns may affect our ability to make distributions or the amount actually disbursed.

If debt financing is not available on terms and conditions we find acceptable, we may not be able to obtain financing for investments.  Recently, domestic and international financial markets have experienced unusual volatility and uncertainty.  If this volatility and uncertainty persists, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets will be significantly impacted.  If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase, and the return on the properties we do purchase likely will be lower.  In addition, we may find it difficult, costly or impossible to refinance indebtedness that is maturing.  If interest rates are higher when the properties are refinanced, we may not be able to finance the properties and our income could be reduced. In addition, if we pay fees to lock in a favorable interest rate, falling interest rates or other factors could require us to forfeit these fees.

Short Term Liquidity and Credit Facility

Our primary indicator of short-term liquidity is our cash and cash equivalents. As of December 31, 2008, our cash and cash equivalent balance was $23.8 million, compared to $53.4 million as of December 31, 2007. On a daily basis cash is affected by our net raise from our Initial Public Offering and distributions from our investments, primarily investments in unconsolidated joint ventures. Since September 2, 2008, we sold approximately 1.1 million shares of our common stock with gross proceeds of approximately $10.9 million.  Although there can be no assurance, we expect our common stock sales to increase in 2009. We also expect our operating cash flows to increase as additional investments are added to our portfolio.

Through December 20, 2007, we had the ability to borrow funds and use guarantees and letters of credit under a credit agreement with Behringer Harvard Operating Partnership I LP (the “Credit Facility”), and used borrowings under the Credit Facility to fund certain of our investments.  We pledged substantially all of the assets of Behringer Harvard Multifamily OP I and subsidiaries as collateral for the Credit Facility.  Interest was set at rates between 7.5% and 13% depending on defined leverage ratios.  In addition,

72

commitment, facility and other fees were approximately $0.3 million.  The Credit Facility had an aggregate commitment of $100 million, which could have been increased to a maximum of $400 million. This Credit Facility was terminated on December 20, 2007.  As of December 31, 2008, we have not replaced the Credit Facility and we currently rely on proceeds from our Initial Public Offering and operations to meet our liquidity requirements.  As the amount of our real estate investments grow, we would expect our expenses for asset management and general and administrative expenses to also increase. These expenses represent our primary short-term cash requirements.  Accordingly, as we evaluate the timing and magnitude of our offering proceeds, we may eventually decide to enter into a new credit facility with financial institutions to facilitate our cash management for these recurring expenses.

Long-Term Liquidity, Acquisition and Property Entity Debt Financing

Our primary source for acquisitions is the funds from our Initial Public Offering. This is an offering of up to $2 billion in gross proceeds exclusive of our DRIP. Total offering expenses are expected to be approximately 11% of the gross proceeds, netting approximately 89% that is generally available for new investment, before funding of distributions and other operations as discussed above. Through December 31, 2008, we have raised gross proceeds of approximately $10.9 million and paid related offering costs of approximately $1.4 million.

We intend to supplement these and future Initial Public Offering proceeds with capital from our Co-Investment program. As of December 31, 2008, our only Co-Investment arrangements are with PGGM and the BHMP CO-JVs. PGGM has committed to invest up to $200 million in the BHMP CO-JVs, but may increase their commitment to $300 million at any time prior to November 9, 2011. Generally PGGM and its general partner will own 45% of each BHMP CO-JV and we will own the remaining 55%.

Through December 31, 2008, we and PGGM have contributed approximately $92.6 million and $73.5 million, respectively, to the BHMP CO-JVs for acquisition of investments, primarily mezzanine construction loans. PGGM’s contribution as of December 31, 2008, is their funding towards a remaining contractual commitment of approximately $11.8 million. For us to realize the commitment, we would generally be expected to contribute approximately $12.7 million. We anticipate raising this capital from our continuing proceeds of our Initial Public Offering. There is no assurance that we will be able to raise sufficient capital to meet these requirements and consequently, all or portions of the PGGM commitment may not be available to us.

For each equity investment made by the BHMP CO-JV in a Property Entity, we will also evaluate the use of existing or new property debt. Based on current market conditions and our investment and borrowing policies, we would expect to utilize Property Entity debt financing for 50 to 75% of acquisition or construction requirements. This Property Entity debt is not an obligation or contingency of the BHMP CO-JVs or of us but does allow us to increase our access to capital. As of December 31, 2008, the Property Entities had approximately $132.4 million of borrowings (exclusive of BHMP CO-JV debt), which are summarized as follows (amounts in millions):

	Amount		Interest Rates	Maturity Dates
Construction financing - variable interest rates	$	50.4	LIBOR+ 211bps (average)	October 2011through December 2012
Construction financing - fixed or capped interest rates	$	59.0	6.35% to 7.0%	April 2010 through November 2010
Permanent mortgages	$	23.0	6.46%	March 2013
Total	$	132.4

We would expect that the Property Entities would refinance these borrowings prior to their respective maturity date. There is no assurance that at those times market terms would allow financings at comparable interest rates or leverage levels. We would anticipate that for some of these properties lower leverage levels may be necessary, which may require additional contributions from the BHMP CO-JVs. To the best of our knowledge all of the Property Entities are compliant with each of their borrowings. See the following sections below on Off-Balance Sheet Arrangements and Contractual Obligations for further discussion of our Project Commitments.

Other potential future sources of capital may include proceeds from secure or unsecured financings, arrangements with other Co-Investment partners, proceeds from the sale of our investments, if and when they are sold, and undistributed cash flow from operations.

73

Distributions

Distributions are authorized at the discretion of our board of directors based on its analysis of our performance over the previous period, expectations of performance for future periods and other factors, including, but not limited, to our earnings, cash flow, anticipated cash flow, capital expenditure requirement, general financial condition or other factors that our board deems relevant.  The board’s discretion will be influenced, in substantial part, by its obligation to cause us to comply with the REIT requirements.  In light of the pervasive and fundamental disruptions in the global financial and real estate markets, we cannot provide assurance that we will be able to achieve expected cash flows necessary to continue to pay distributions as they may be established or maintain distributions at any particular level, or at all.  If the current economic conditions continue, our board could determine to reduce our current distribution rate or cease paying distributions at all in order to conserve cash. 

Until proceeds from our offerings are fully invested and generating sufficient operating cash flow from operations to fully fund the payment of distributions to stockholders, we have and will continue to pay some or all of our distributions from sources other than operating cash flow.  We may generate cash to pay distributions from financing activities, components of which may include proceeds from our offerings and borrowings (including borrowings secured by our assets) in anticipation of future operating cash flow.  In addition, from time to time, our advisor and its affiliates may agree to waive or defer all, or a portion, of the acquisition, asset management or other fees or other incentives due to them, pay general administrative expenses or otherwise supplement investor returns in order to increase the amount of cash available to make distributions to our stockholders.

The distributions declared and paid during the years ended December 31, 2008 and 2007 exceeded FFO for the years ended December 31, 2008 and 2007 by approximately $2.7 million and $0.6 million, respectively.  Accordingly, for the years ended December 31, 2008 and 2007, approximately 58% and 32% of the distributions were funded from FFO.  Cash amounts distributed to stockholders were funded primarily from our offerings.

Distributions as of December 31, 2008 and December 31, 2007 were as follows:

	Distributions
2008	Declared		Paid		Per Share
Fourth Quarter	$	2,394,437	$	1,996,413	0.164
Third Quarter	1,330,495		1,330,539		0.093
Second Quarter	1,330,847		1,330,802		0.092
First Quarter	1,301,225		1,279,428		0.092
	$	6,357,004	$	5,937,182	$	0.441

	Distributions
2007	Declared		Paid		Per Share
Fourth Quarter	$	730,682	$	396,450	0.092
Third Quarter	196,590		118,764		0.091
Second Quarter	—		—		—
First Quarter	—		—		—
	$	927,272	$	515,214	$	0.183

74

Over the long term, we expect that a greater percentage of our distributions will be paid from cash flow from investments and operations (except with respect to distributions related to sales of our assets).  However, operating performance cannot be accurately predicted due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate environment, the types and mix of investments in our portfolio and the accounting treatment of our investments in accordance with our accounting policies.  In addition, effective on March 2009, our board of directors increased our distribution rate for an annual effective rate of 6.5% to 7.0%. As a result, future distributions declared and paid may continue to exceed FFO.  FFO is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance.  See “Funds from Operations” section below for a reconciliation of FFO to our net income.

Off-Balance Sheet Arrangements

Our only BHMP CO-JV borrowing as of December 31, 2008 that meets the requirement of a consolidated BHMP CO-JV borrowing is the debt at The Reserve at Johns Creek.  The Reserve at Johns Creek is an operating apartment community wholly owned by a single-purpose limited liability company (the “The Reserve at Johns Creek Property Entity”). The Reserve at Johns Creek Property Entity, including its operating receipts lock-box account, serves as collateral for an interest-only bank loan with a principal balance of $23 million from an unaffiliated lender (the “Bank Loan”). The Bank Loan of $23 million was entered into during August 2007, matures in March 2013, and bears interest at a rate of 6.461%. The lender has no recourse to the BHMP CO-JV or us, only to The Reserve at Johns Creek Property Entity. Breaching the Bank Loan’s restrictions on encumbrances, sale, transfer, or refinancing of the property could constitute an event of default and increase the interest rate by 5%; uncured events of default can accelerate the loan’s maturity date.  No events of default have occurred. One of our BHMP CO-JVs owns an 80 percent equity interest in The Reserve at Johns Creek Property Entity, with the remaining 20% owned by the unaffiliated previous owner.

The investments in real estate and loans owned by us and our BHMP CO-JVs were entered into with unaffiliated developers and previous owners who own interests in the underlying real estate and development projects.  These unaffiliated parties and their affiliates have provided us with collateral interests in the properties, development projects, improvements, project owning entities and/or financial and performance guarantees of the developer and certain of its affiliates.  These Project Entities have also obtained additional financing that is senior to our investments, both our loans and equity investments. The senior loans are collateralized by the development and improvements and further secured with repayment and completion guarantees from the unaffiliated developer or their affiliates.  We have no contractual obligation on these senior level financings obtained by the unaffiliated developer, which includes land loans, construction loans, and ground leases.  These senior level financings have rates and terms that are different from our investment rates and terms.  In addition, financial institutions behind these loans have independent unfunded obligations under the loan terms.  See discussion above and Note 4 to our consolidated financial statements for information regarding borrowings for unconsolidated Property Entities.

75

We have no other off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

In the ordinary course of business, we and/or Co-Investment Ventures contract with unaffiliated commercial property development companies and provide equity and/or loans for our Project Commitments.  We generally fund an initial amount under our Project Commitments at contract inception and fund additional amounts as construction progresses, typically spanning one to three years.  As of December 31, 2008, all of our Co-Investment Ventures have been BHMP CO-JVs.

As of December 31, 2008, the BHMP CO-JVs held contracts for equity investments and/or loans with a total commitment value of approximately $173.0 million and the BHMP CO-JVs have currently funded approximately $162.0 million.  The BHMP CO-JVs will require additional capital from us and Behringer Harvard Master Partnership I in order to fund the remaining commitments of $11.0 million.  The BHMP CO-JVs may become obligated under contingent sell options to three Property Entities as described below. In addition, we hold the Grand Reserve Junior Mezzanine Loan with a total commitment value of approximately $2.2 million and have currently funded approximately $1,000.

The BHMP CO-JVs’ unfunded commitments for project construction will be generally funded as actual real estate project construction progresses. Estimated future payments and timing are as follows, as of December 31, 2008 (amounts in millions):

	The BHMP CO-JVs’ total unfunded commitments for project construction		The BHMP CO-JVs’ other contingent obligations under sell options		Our estimated portion of the BHMP CO-JVs’ unfunded commitments and contingent options		Our unfunded commitment on our mortgage loan		Our estimated total
2009	$	11.0	$	—	$	6.0	$	2.2	$	8.2
2010	—		55.8		30.7		—		30.7
Total	$	11.0	$	55.8	$	36.7	$	2.2	$	38.9

The contingent obligations under sell options relate to Fairfield at Baileys Crossing, Fairfield at Cameron House and the Grand Reserve Project Entities.  The options are generally exercisable after completion of the development and for a period of three years thereafter.  The option price is set by agreement and is either based on the fair value of the project at exercise or the cost of the project as defined in the respective agreement.  The information in the table above represents our current estimates and actual amounts may be more or less.  As of December 31, 2008, no sell options are exercisable.

On September 2, 2008, our board of directors authorized a share redemption program for investors who hold their shares for more than one year.  The purchase price for redeemed shares is set forth in the prospectus for our Initial Public Offering of common stock, as supplemented from time to time.  Our board of directors reserves the right in its sole discretion at any time, and from time to time, to (1) waive the one-year holding period in the event of the death, disability, need for long-term care, or other exigent circumstances such as bankruptcy, a mandatory distribution requirement under a stockholder’s IRA or with respect to shares purchased under or through our DRIP or automatic purchase plan, (2) reject any request for redemption, (3) change the purchase price for redemptions, or (4) terminate, suspend or amend the share redemption program.  Under the terms of the plan, during any calendar year, we will not redeem in excess of 5% of the weighted average number of shares outstanding during the twelve-month calendar-based period immediately prior to the date of redemption.  In addition, our board of directors will determine whether we have sufficient cash from operations to repurchase shares, and such purchases will generally be limited to proceeds of our DRIP plus 1% of operating cash flow for the previous fiscal year.  We redeemed 16,667 shares of common stock for $140,000 during the year ended December 31, 2008.

Funds from Operations

Funds from operations (“FFO”) is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance.  We use FFO as defined by the National Association of Real Estate Investment Trusts to be net income (loss), computed in accordance with GAAP excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries.  We believe that FFO is helpful to our investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income.  Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time.  Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient.  As a result, our management believes that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance.  Factors that impact FFO include start-up costs, fixed costs, delay in buying assets, lower yields on

76

cash held in accounts pending investment, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses.  In addition, FFO will be affected by the types of investments in our and/or our Co-Investment Ventures’ portfolio, which include but are not limited to equity and mezzanine, mortgage and bridge loan investments in existing operating properties and properties in various stages of development, mezzanine, mortgage and bridge loans and the accounting treatment of the investments in accordance with our accounting policies.  FFO should not be considered as an alternative to net income (loss), as an indication of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.

Our calculations of FFO are presented below:

	Year Ended December 31,
	2008		2007
Net income (loss)	$	2,630,263	$	(207,107	)
Real Estate Depreciation and Amortization	1,050,649		508,263
Funds from Operations (FFO)	$	3,680,912	$	301,156
GAAP weighted average common shares	14,351,399		2,730,621
FFO per share	$	0.26	$	0.11

·The real estate depreciation and amortization amount includes our consolidated real estate depreciation and amortization and our share of Co-Investment depreciation and amortization which is included in earnings of unconsolidated real estate joint venture investments.  As of December 31, 2008 and 2007, respectively, two and one of our BHMP CO-JVs recognize depreciation and amortization.

·We had limited operations in 2006 with no depreciation or amortization incurred.  FFO for 2006 was not significant.

Non-cash Items Included in Net Income (Loss)

Our Co-Investment Ventures recognize certain non-cash items as income or expense which we received our share in equity in earnings in unconsolidated real estate joint ventures. Provided below is additional information related to those items that are included in our net income (loss) above, which may be helpful in assessing our operating results.

·Accrued interest income on loans with deferred interest payment terms was approximately $278,000 and $274,000 for years ended December 31, 2008 and 2007, respectively;

·Amortization of intangible lease assets was approximately $308,000 and $0 for the years ended December 31, 2008 and 2007, respectively;

·Amortized loan fee income was approximately $308,000 and $55,000 for the years ended December 31, 2008 and 2007, respectively;

·Amortization of deferred financing and other costs was approximately $102,000 and $1,000 for the years ended December 31, 2008 and 2007, respectively.

In addition, FFO may be used to fund all or a portion of certain capitalizable items that are excluded from FFO, such as capital expenditures and payments of principal on any future debt, each of which may impact the amount of cash available for distribution to our stockholders.

77

Recently Announced Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  We adopted the provisions of  SFAS No. 157 effective January 1, 2008, and did not have a material effect on our consolidated results of operations or financial position.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP SFAS 157-2”).  FSP SFAS 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The provisions of FSP SFAS 157-2 are effective for our fiscal year beginning January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.”  The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates.  A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.  SFAS No. 159 was effective for fiscal years beginning after November 15, 2007.  We have not elected the fair value measurement option for any financial assets or liabilities at the present time.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  This Statement replaces SFAS No. 141 “Business Combinations” but retains the fundamental requirement that the acquisition method of accounting, or purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement is broader in scope than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration.  SFAS No. 141(R) applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  This Statement also makes certain other modifications to Statement 141, including a broader definition of a business and the requirement that acquisition related costs are expensed as incurred.  This statement applies to our business combinations occurring beginning January 1, 2009.  The acquisition of a real estate property has been determined to meet the definition of a business combination as defined in SFAS No. 141(R); however, investments in unconsolidated joint ventures are not affected.  Therefore, SFAS No. 141(R) will have a material effect on our accounting for future consolidated acquisitions of properties as acquisition costs will no longer be capitalized, but will be expensed beginning January 1, 2009.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to a relatively low inflation rate.  The majority of our fixed lease terms is less than 18 months and contains protection provisions applicable to reimbursement billings for utilities.

REIT Tax Election

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, and have qualified as a REIT since the year ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Recently, domestic financial markets have experienced unusual volatility and uncertainty. Although this condition has   occurred most visibly within the “subprime” single-family mortgage lending sector of the credit market, liquidity has tightened in overall domestic financial markets, including the investment grade debt, mezzanine and equity capital markets. Consequently, there is greater uncertainty regarding our ability to access the credit market in order to attract financing on reasonable terms. Investment

78

returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure financing on reasonable terms, if at all.

We are exposed to interest rate changes as a result of long-term debt used by the Property Entities.  Our interest rate risk management objectives are primarily to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, borrowings are done primarily at fixed rates or variable rates with the lowest margins available and in some cases, the ability to convert variable rates to fixed rates. With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.

As of December 31, 2008, we did not have any outstanding debt. Our BHMP CO-JVs had investments in Property Entities with funded aggregate senior debt (which consists of third party first mortgages and construction loans) of approximately $132.4 million and BHMP CO-JV mezzanine and mortgage debt of $74.0 million. Of the third-party Property Entity debt, approximately $82.0 million was at fixed rate and $50.4 million was at variable interest rates with a weighted average of LIBOR plus 211 bps. Included in the fixed rate are two Property Entity construction loans totaling $59.0 million which are subject to interest rate hedges which effectively cap the interest rate exposure at interest rates ranging between 6.35% to 7.0%.

As of December 31, 2008, we did not have any significant notes receivables. Our BHMP CO-JVs had mortgage receivables from Property Entities of approximately $122.5 million with a weighted average coupon of 10.1%, all of which were at fixed rates.

As of December 31, 2008 we also had approximately $23.8 million of bank deposits and money market accounts. During 2008, the interest rates on these accounts significantly decreased and as of December 31, 2008 had weighted average interest rate of 1.75%. We do not believe interest rates could significantly decrease further; however, if interest rates were to increase, we could earn a higher return on our cash and cash equivalents.

We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

Item 8.Financial Statements and Supplementary Data

The information required by this Item 8 is hereby included in our Consolidated Financial Statements beginning on page F-1 of the Annual Report on Form 10-K.

Item 9.Change in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A(T).Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of December 31, 2008, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2008, to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

79

Management’s Annual Report on Internal Control over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting that occurred during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.Other Information

None.

80

PART III

Item 10.Directors, Executive Officers and Corporate Governance

The information required by this Item will be presented in our definitive proxy statement for the annual meeting of stockholders to be held on June 23, 2009, which is expected to be filed with the Securities and Exchange Commission on or about April 20, 2009, and is incorporated herein by reference.

Item 11.Executive Compensation

The information required by this Item will be presented in our definitive proxy statement for the annual meeting of stockholders to be held on June 23, 2009, which is expected to be filed with the Securities and Exchange Commission on or about April 20, 2009, and is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be presented in our definitive proxy statement for the annual meeting of stockholders to be held on June 23, 2009, which is expected to be filed with the Securities and Exchange Commission on or about April 20, 2009, and is incorporated herein by reference.

Item 13.Certain Relationships and Related Transactions, and Director Independence

The information required by this Item will be presented in our definitive proxy statement for the annual meeting of stockholders to be held on June 23, 2009, which is expected be filed with the Securities and Exchange Commission on or about April 20, 2009, and is incorporated herein by reference.

Item 14.Principal Accounting Fees and Services

The information required by this Item will be presented in our definitive proxy statement for the annual meeting of stockholders to be held on June 23, 2009, which is expected to be filed with the Securities and Exchange Commission on or about April 20, 2009, and is incorporated herein by reference.

81

PART IV

Item 15.Exhibits, Financial Statement Schedules

(a) Financial Statement Schedules

All financial statement schedules are omitted because they are not applicable or the required information is presented in the consolidated financial statements and notes thereto.

(b) Exhibits

Exhibit Number	Description
3.1	Articles of Restatement, incorporated by reference to Exhibit 3.1.2 to Form 8-K filed on September 8, 2008
3.2	Third Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q filed on November 14, 2008
4.1	Form of Subscription Agreement, incorporated by reference to Exhibit B to the Company’s Post-Effective Amendment No. 1 to its Registration Statement on Form S-11 filed on March 6, 2009, Commission File No. 333-148414
4.2	Distribution Reinvestment Plan, incorporated by reference to Exhibit C to the Company’s Post-Effective Amendment No .1 to its Registration Statement on Form S-11 filed on March 6, 2009, Commission File No. 333-148414
4.3	Automatic Purchase Plan, incorporated by reference to Exhibit D to the Company’s Post-Effective Amendment No. 1 to its Registration Statement on Form S-11 filed on March 6, 2009, Commission File No. 333-148414
4.4	Share Redemption Program, incorporated by reference from the description under “Description of Shares—Share Redemption Program” in the Company’s Post-Effective Amendment No. 1 to its Registration Statement on Form S-11 filed on March 6, 2009, Commission File No. 333-148414
4.5	Statement regarding Restrictions on Transferability of Shares of Common Stock, incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-11/A filed on May 9, 2008
10.1	Amended and Restated Advisory Management Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on November 14, 2008
10.2	Amended and Restated Property Agreement, incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on November 14, 2008
10.3	Incentive Award Plan, incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-11/A filed on May 9, 2008, Commission File No. 333-148414
10.4	Service Mark Agreement, incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on November 14, 2008
10.5*	Senior and Junior Mezzanine Promissory Notes by and between SW 131 St. Rose Mezzanine Borrower LLC as borrower and Behringer Harvard St. Rose REIT, LLC as lender dated December 31, 2008
10.6*	Senior and Junior Mezzanine Loan Agreements by and between SW 131 St. Rose Mezzanine Borrower LLC as borrower and Behringer Harvard St. Rose REIT, LLC as lender dated December 31, 2008
10.7*	Senior and Junior Mezzanine Deeds of Trust, Assignments of Rents and Leases, Security Agreements, Fixture Filings and Financing Statements by and between SW 132 St. Rose Senior Borrower LLC as grantor and Behringer Harvard St. Rose REIT, LLC as lender dated December 31, 2008
10.8*	Mezzanine Guaranty Agreement by and between CFP Residential, L.P., Kenneth J. Valach, Bruce Hart and J. Ronald Terwilliger collectively as guarantor and Behringer St. Rose REIT, LLC as lender dated December 31, 2008
10.9*	Intercreditor and Subordination Agreement by and between Bank of America, N.A. on behalf of senior construction lenders and land loan lender and Behringer Harvard St. Rose REIT, LLC as subordinate lender dated December 31, 2008
10.10*	Sale, Purchase and Escrow Agreement between Verandah Owner Limited Partnership as seller and Harvard Property Trust, LLC as purchaser dated January 26, 2009
10.11*	Assignment and Assumption of Sale, Purchase and Escrow Agreement by and between Harvard Property Trust, LLC as assignor and Behringer Harvard Multifamily OP I LP as assignee dated January 28, 2009
10.12*	First Amendment to Sale, Purchase and Escrow Agreement by and between Verandah Owner Limited Partnership as seller and Behringer Harvard Multifamily OP I LP as purchaser dated February 20, 2009
21.1	Subsidiaries of the Company, incorporated by reference to Exhibit 21.1 to the Company’s Post-Effective Amendment No.1 to its Registration Statement on Form S-11 filed on March 6, 2009, Commission File No. 333-148414
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002**

* Filed herewith

** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.  Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

82

INDEX TO FINANCIAL STATEMENTS

Financial Statements	Page
Behringer Harvard Multifamily REIT I, Inc. — Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-4
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-5
Consolidated Statements of Operations for the years ended December 31, 2008 and 2007 and for the period from August 4, 2006 (date of inception) through December 31, 2006	F-6
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008 and 2007 and for the period from August 4, 2006 (date of inception) through December 31, 2006	F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007 and for the period from August 4, 2006 (date of inception) through December 31, 2006	F-8
Notes to Consolidated Financial Statements	F-9
Behringer Harvard Baileys Venture, LLC — Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-28
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-29
Consolidated Statements of Income for the year ended December 31, 2008 and for the period from June 26, 2007 (date of inception) through December 31, 2007	F-30
Consolidated Statements of Members’ Equity for the year ended December 31, 2008 and for the period from June 26, 2007 (date of inception) through December 31, 2007	F-31
Consolidated Statements of Cash Flows for the year ended December 31, 2008 and for the period from June 26, 2007 (date of inception) through December 31, 2007	F-32
Notes to Consolidated Financial Statements	F-33
Behringer Harvard Cameron House Venture, LLC — Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-38
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-39
Consolidated Statements of Income for the year ended December 31, 2008 and for the period from September 12, 2007 (date of inception) through December 31, 2007	F-40
Consolidated Statements of Members’ Equity for the year ended December 31, 2008 and for the period from September 12, 2007 (date of inception) through December 31, 2007	F-41
Consolidated Statements of Cash Flows for the year ended December 31, 2008 and for the period from September 12, 2007 (date of inception) through December 31, 2007	F-42
Notes to Consolidated Financial Statements	F-43

F-1

Behringer Harvard Columbia Venture, LLC — Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-48
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-49
Consolidated Statements of Income for the year ended December 31, 2008 and for the period from August 6, 2007 (date of inception) through December 31, 2007	F-50
Consolidated Statements of Members’ Equity for the year ended December 31, 2008 and for the period from August 6, 2007 (date of inception) through December 31, 2007	F-51
Consolidated Statements of Cash Flows for the year ended December 31, 2008 and for the period from August 6, 2007 (date of inception) through December 31, 2007	F-52
Notes to Consolidated Financial Statements	F-53
Behringer Harvard Johns Creek Venture, LLC — Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-59
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-60
Consolidated Statements of Operations for the year ended December 31, 2008 and for the period from August 3, 2007 (date of inception) through December 31, 2007	F-61
Consolidated Statements of Members’ Equity for the year ended December 31, 2008 and for the period from August 3, 2007 (date of inception) through December 31, 2007	F-62
Consolidated Statements of Cash Flows for the year ended December 31, 2008 and for the period from August 3, 2007 (date of inception) through December 31, 2007	F-63
Notes to Consolidated Financial Statements	F-64
Behringer Harvard Lovers Lane Venture I, LLC — Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-70
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-71
Consolidated Statements of Income for the year ended December 31, 2008 and for the period from June 1, 2007 (date of inception) through December 31, 2007	F-72
Consolidated Statements of Members’ Equity for the year ended December 31, 2008 and for the period from June 1, 2007 (date of inception) through December 31, 2007	F-73
Consolidated Statements of Cash Flows for the year ended December 31, 2008 and for the period from June 1, 2007 (date of inception) through December 31, 2007	F-74
Notes to Consolidated Financial Statements	.F-75
Behringer Harvard Satori Venture, LLC — Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-80
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-81

F-2

Consolidated Statements of Income for the year ended December 31, 2008 and for the period from June 26, 2007 (date of inception) through December 31, 2007	F-82
Consolidated Statements of Members’ Equity for the year ended December 31, 2008 and for the period from June 26, 2007 (date of inception) through December 31, 2007	F-83
Consolidated Statements of Cash Flows for the year ended December 31, 2008 and for the period from June 26, 2007 (date of inception) through December 31, 2007	F-84
Notes to Consolidated Financial Statements	.F-85
Behringer Harvard St. Rose Venture, LLC — Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-91
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-92
Consolidated Statements of Income for the year ended December 31, 2008 and for the period from July 9, 2007 (date of inception) through December 31, 2007	F-93
Consolidated Statements of Members’ Equity for the year ended December 31, 2008 and for the period from July 9, 2007 (date of inception) through December 31, 2007	F-94
Consolidated Statements of Cash Flows for the year ended December 31, 2008 and for the period from July 9, 2007 (date of inception) through December 31, 2007	F-95
Notes to Consolidated Financial Statements	F-96

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Behringer Harvard Multifamily REIT I, Inc.

Addison, Texas

We have audited the accompanying consolidated balance sheets of Behringer Harvard Multifamily REIT I, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2008 and for the period from August 4, 2006 (date of inception) through December 31, 2006.  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.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2008 and for the period from August 4, 2006 (date of inception) through December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 31, 2009

F-4

Behringer Harvard Multifamily REIT I, Inc.

Consolidated Balance Sheets

	December 31,			December 31,
	2008			2007
Assets
Investments in unconsolidated real estate joint ventures	$	96,504,812		$	60,068,633
Cash and cash equivalents	23,771,206			53,377,585
Receivables from affiliates	298,807			300,927
Notes receivable	1,175			70,986
Restricted cash	—			53,300
Escrow deposits	—			888,525
Other assets, net	318,381			681,917
Total assets	$	120,894,381		$	115,441,873
Liabilities and stockholders’ equity
Liabilities
Payables to affiliates	$	627,445		$	1,130,992
Distributions payable	831,878			412,058
Accrued offering costs payable to affiliates	6,918,354			282,214
Accounts payable and accrued liabilities	122,756			143,812
Subscriptions for common stock	—			53,300
Total liabilities	8,500,433			2,022,376
Commitments and contingencies
Stockholders’ equity
Preferred stock, $.0001 par value per share; 125,000,000 shares authorized, none outstanding	—			—
Non-participating, non-voting convertible stock, $.0001 par value per share; 1,000 shares authorized, 1,000 and 0 shares issued and outstanding at December 31, 2008 and December 31, 2007, respectively (see Note 6)	—			—
Common stock, $.0001 par value per share; 875,000,000 shares authorized, 15,347,792 and 14,272,919 shares issued and outstanding at December 31, 2008 and December 31, 2007, respectively	1,535			1,427
Additional paid-in capital	117,267,588			114,566,504
Cumulative distributions and net loss	(4,875,175		)	(1,148,434		)
Total stockholders’ equity	112,393,948			113,419,497
Total liabilities and stockholders’ equity	$	120,894,381		$	115,441,873

See Notes to Consolidated Financial Statements

F-5

Behringer Harvard Multifamily REIT I, Inc.

Consolidated Statements of Operations

						For the period
						from August 4,
						2006 (date of
	Year ended		Year ended			inception) through
	December 31,		December 31,			December 31,
	2008		2007			2006
Rental revenue	$	—	$	—		$	—
Expenses
Asset management and other fees	884,211		217,837			—
Organization expenses	9,458		49,709			—
Interest expense	—		642,124			—
General and administrative	1,589,750		433,895			14,055
Depreciation and amortization	46,705		—			—
Total expenses	2,530,124		1,343,565			14,055
Interest income	884,506		343,240			—
Equity in earnings of investments in unconsolidated real estate joint ventures	4,275,881		793,218			—
Net income (loss)	$	2,630,263	$	(207,107	)	$	(14,055	)
Weighted average number of common shares outstanding	14,351,399		2,730,621			1,249
Basic and diluted income (loss) per share	$	0.18	$	(0.08	)	$	(11.25	)

See Notes to Consolidated Financial Statements

F-6

Behringer Harvard Multifamily REIT I, Inc.

Consolidated Statements of Stockholders’ Equity

	Common Stock					Additional			Cumulative			Total
	Number		Par			Paid-in			Distributions and			Stockholders’
	of Shares		Value			Capital			Net Income (Loss)			Equity
Balance at August 4, 2006 (inception)	—		$	—		$	—		$	—		$	—
Net loss									(14,055		)	(14,055		)
Issuances of common stock under:
Sale of common stock, net	1,249		—			10,004			—			10,004
Incentive award plan	3,000		—			3,055			—			3,055
Balance at December 31, 2006	4,249		—			13,059			(14,055		)	(996		)
Net loss									(207,107		)	(207,107		)
Issuances of common stock under:
Sale of common stock, net	14,265,670		1,427			116,438,616			—			116,440,043
Offering costs						(1,909,606		)	—			(1,909,606		)
Incentive award plan	3,000		—			24,435			—			24,435
Distributions declared on common stock						—			(927,272		)	(927,272		)
Balance at December 31, 2007	14,272,919		1,427			114,566,504			(1,148,434		)	113,419,497
Net income									2,630,263			2,630,263
Issuances of common stock under:
Sale of common stock, net	1,073,506		107			9,554,808						9,554,915
Offering costs						(6,907,442		)				(6,907,442		)
Incentive award plan	—		—			22,399			—			22,399
Redemptions of common stock	(16,667	)	(1		)	(139,999		)	—			(140,000		)
Distributions declared on common stock						—			(6,357,004		)	(6,357,004		)
Stock issued pursuant to Distribution Reinvestment Plan, net	18,034		2			171,318			—			171,320
Balance at December 31, 2008	15,347,792		$	1,535		$	117,267,588		$	(4,875,175	)	$	112,393,948

See Notes to Consolidated Financial Statements

F-7

Behringer Harvard Multifamily REIT I, Inc.

Consolidated Statements of Cash Flows

									For the period from
									August 4, 2006 (date of
	Year  ended				Year  ended				inception) through
	December 31, 2008				December 31, 2007				December 31, 2006
Cash flows from operating activities
Net income (loss)	$		2,630,263		$		(207,107	)	$	(14,055		)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of deferred financing costs	—				327,994				—
Depreciation and amortization	46,705				—				—
Stock-based compensation	22,399				24,435				3,055
Equity in earnings of investments in unconsolidated real estate joint ventures	(4,275,881			)	(793,218			)	—
Distributions received from unconsolidated real estate joint ventures	4,275,881				793,218				—
Changes in operating assets and liabilities:
Accounts receivables and other receivables	28,218				(69,986			)	—
Other assets	(205,539			)	(164,107			)	—
Payables to affiliates	(67,735			)	130,475				—
Accounts payable and other liabilities	(70,875			)	203,607				11,000
Cash provided by operating activities	2,383,436				245,311				—
Cash flows from investing activities
Investments in unconsolidated real estate joint ventures	(36,614,540			)	(58,292,831			)	—
Issuances of notes receivable	—				(2,995,719			)	—
Advances to unconsolidated real estate joint ventures	—				(226,443			)	—
Repayments of advances to unconsolidated real estate joint ventures	18,849				—				—
Prepaid acquisition costs	—				(517,810			)	—
Proceeds from sales of interests in real estate ventures	—				1,969,242				—
Return of investments in unconsolidated real estate joint ventures	1,176,147				160,346
Escrow deposits	—				(888,525			)	—
Cash used in investing activities	(35,419,544			)	(60,791,740			)	—
Cash flows from financing activities
Proceeds from sales of common stock	10,711,736				127,498,054				10,004
Issuance (return) of incentive units	—				(10,000			)	10,000
Offering costs	(1,367,772			)	(12,967,617			)	—
Redemption of common stock	(140,000			)	—				—
Change in subscriptions for common stock	(53,300			)	53,300				—
Change in subscription cash received	53,300				(53,300			)	—
Distributions on common stock paid	(5,765,866			)	(515,214			)	—
Credit Facility:
Proceeds	—				35,672,006				—
Repayments	—				(36,000,000			)	—
Change in payables to affiliates	(8,369			)	226,781				—
Cash provided by financing activities	3,429,729				113,904,010				20,004
Net change in cash and cash equivalents	(29,606,379			)	53,357,581				20,004
Cash and cash equivalents at beginning of period	53,377,585				20,004				—
Cash and cash equivalents at end of period	$	23,771,206			$	53,377,585			$		20,004

See Notes to Consolidated Financial Statements

F-8

Behringer Harvard Multifamily REIT I, Inc.

Notes to Consolidated Financial Statements

1.Organization and Business

Organization

Behringer Harvard Multifamily REIT I, Inc. (which may be referred to as the “Company,” “we,” “us,” or “our”) was organized in Maryland on August 4, 2006 and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT, we generally are not subject to corporate-level income taxes.  To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable income”, as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders.  If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates.  As of December 31, 2008, we believe we are in compliance with all applicable REIT requirements.

We primarily invest in multifamily related investments. These may include conventional multifamily assets, such as mid-rise, high-rise, and garden style properties, and may also include student housing and age-restricted properties, typically requiring residents to be age 55 or older. We intend to make investments directly in wholly owned investments and indirectly through co-investments arrangements with other participants (“Co-Investment Ventures”).  Further, we either directly or indirectly may invest in commercial real estate, options to acquire real estate, real estate related securities, collateralized mortgage-backed securities, mortgage, bridge, mezzanine or other loans and Section 1031 tenant-in-common interests, or in entities that make similar investments.  We completed our first investment in April 2007 and, as of December 31, 2008, we have made ten investments in seven states, substantially all Co-Investment Ventures.

We have no employees and are supported by related party service agreements. We are externally managed by Behringer Harvard Multifamily Advisors I LP (“Behringer Harvard Multifamily Advisors I”), a Texas limited partnership. Behringer Harvard Multifamily Advisors I is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.  Substantially all our business is conducted through our operating partnership Behringer Harvard Multifamily OP I LP, a Delaware limited partnership (“Behringer Harvard Multifamily OP I”). Our wholly-owned subsidiary, BHMF, Inc., a Delaware corporation (“BHMF Inc.”) owns less than 0.1% of Behringer Harvard Multifamily OP I as its sole general partner. The remaining ownership interest in Behringer Harvard Multifamily OP I is held as a limited partner’s interest by BHMF Business Trust, a Maryland business trust.

Offerings of our Common Stock

We are authorized to issue 875,000,000 shares of common stock, 1,000 shares of convertible stock and 124,999,000 shares of preferred stock. All shares of common stock have a par value of $.0001 per share. On August 4, 2006 (date of inception), we sold 1,249 shares of our common stock to Behringer Harvard Holdings, LLC (“Behringer Harvard Holdings”) for cash of $10,004. On November 28, 2007, we sold an additional 23,720 shares of our common stock to Behringer Harvard Holdings for cash of $189,997.

On November 22, 2006, we commenced a private offering pursuant to Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) to sell a maximum of approximately $400 million of common stock to accredited investors (the “Private Offering”). We held all Private Offering proceeds in escrow until after we had sold our initial $1.5 million of shares of common stock. In April 2007, the Company released the proceeds from escrow and began issuing shares of our common stock. We terminated the Private Offering on December 28, 2007. We sold a total of approximately 14.2 million shares of common stock and raised a total of approximately $127.3 million in gross offering proceeds in the Private Offering. Net proceeds after selling commissions, dealer manager fees, and other offering costs were approximately $114.3 million.

On September 2, 2008, we commenced a public offering (the “Initial Public Offering”) of up to 200,000,000 shares of common stock offered at a price of $10.00 per share pursuant to a Registration Statement on Form S-11filed under the Securities Act.   The Initial Public Offering also covered the registration of up to an additional 50,000,000 shares of common stock at a price of $9.50 per share pursuant to our distribution reinvestment plan (“DRIP”).  We reserve the right to reallocate shares of our common stock between the primary offering and our DRIP.  As of December 31, 2008, we sold a total of approximately 1.1 million shares of common stock and raised a total of approximately $10.9 million in gross offering proceeds in the Initial Public Offering. Net proceeds after selling commissions, dealer manager fees, and other offering costs were approximately $9.5 million.

F-9

Our common stock is not currently listed on a national securities exchange. However, management anticipates within four to six years after the termination of our public offering to begin the process of either listing the common stock on a national securities exchange or liquidating our assets, depending on then-prevailing market conditions.

2.Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as the purchase price allocation for real estate acquisitions; impairment of long-lived assets, notes receivables and equity-method real estate investments; revenue recognition of note receivable interest income and equity in earnings of investments in unconsolidated real estate joint ventures; depreciation and amortization and allowance for doubtful accounts.  Actual results could differ from those estimates.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts, the accounts of variable interest entities in which we are the primary beneficiary and the accounts of other subsidiaries over which we have control.  All inter-company transactions, balances and profits have been eliminated in consolidation.  Interests in entities acquired are evaluated based on Financial Accounting Standards Board Interpretation (“FIN”) 46R, “Consolidation of Variable Interest Entities,” which requires the consolidation of variable interest entities in which we are deemed to be the primary beneficiary.  If the interest in the entity is determined to not be a variable interest entity under FIN 46R, then the entities are evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and by Emerging Issues Task Force (“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.”

Real Estate and Other Related Intangibles

For acquired real estate properties, we will allocate the purchase price of those properties to the tangible assets acquired, consisting of land, inclusive of associated rights, and buildings, any assumed debt, identified intangible assets and asset retirement obligations based on their relative fair values in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141(R), “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  Identified intangible assets consist of the fair value of above-market and below-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions and tenant relationships.

The fair value of any tangible assets that will be acquired, expected to consist of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods.  The values of buildings are depreciated over the estimated useful lives ranging from 25-35 years using the straight-line method.

We will determine the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) estimates of current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or (b) the remaining non-cancelable lease term plus any fixed rate renewal options for below market leases. We record thefair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the above determined lease term.

The total value of identified real estate intangible assets that we may acquire in the future is further allocated to in-place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant.  The aggregate value of in-place leases acquired and tenant relationships is determined by applying a fair value model.  The estimates of fair value of in-place leases includes an estimate of carrying costs during the expected lease-up periods for the respective spaces considering current market conditions.  In estimating fair value of in-place leases, we consider items such as real estate taxes, insurance and other operating expenses as well as lost rental revenue during the expected

F-10

lease-up period and carrying costs that would have otherwise been incurred had the leases not been in place, including tenant improvements and commissions.  The estimates of the fair value of tenant relationships also include costs to execute similar leases including leasing commissions, legal and tenant improvements as well as an estimate of the likelihood of renewal as determined by management on a tenant-by-tenant basis.

We will amortize the value of in-place leases acquired in the future to expense over the term of the respective leases. The value of tenant relationship intangibles is amortized to expense over the initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate their lease, the unamortized portion of the in-place lease value and tenant relationship intangibles would be charged to expense.

We will determine the fair value of assumed debt by calculating the net present value of the scheduled debt service payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain.  Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan.

Initial valuations are subject to change until our information is finalized, which is no later than 12 months from the acquisition date.

Impairment of Long Lived Assets and Investments in Unconsolidated Real Estate Joint Ventures

Upon the acquisition of any wholly-owned properties, we will monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable.  When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset including its eventual disposition, to the carrying amount of the asset.  In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value.

For real estate we own through an investment in a real estate joint venture or other similar real estate investment structure, at each reporting date we compare the estimated fair value of our real estate investment to the carrying value.  An impairment charge is recorded to the extent the fair value of our real estate investment is less than the carrying amount and the decline in value is determined to be other than a temporary decline.

No impairment charges have been recorded as of December 31, 2008 and December 31, 2007.

Cash and Cash Equivalents

We consider investments in bank deposits, money market funds and highly-liquid cash investments with original maturities of three months or less to be cash equivalents.

Restricted Cash

Restricted cash included subscription proceeds from our Private Offering that were held in a separate account until the subscribing investors were admitted as stockholders.  During our Private Offering, we admitted new stockholders at least monthly.  Upon acceptance of stockholders and issuance of shares of stock, we transfer the proceeds from restricted cash to cash and cash equivalents where its available for general business purposes.  With the termination of the Private Offering, there is no restricted cash as of December 31, 2008.

Note Receivable

Notes receivable are reported at their outstanding principal balances net of any unearned income and unamortized deferred fees and costs. Loan origination fees and certain direct origination costs are generally deferred and recognized as adjustments to interest income over the lives of the related loans.

In accounting for notes receivables by our Co-Investment Ventures or us we evaluate whether the investments are loans, investments in joint ventures or acquisitions of real estate. In applying Exhibit 1 of AICPA Practice Bulletin 1, “AICPA Notice to Practitioners regarding Acquisition, Development, and Construction Arrangements to Acquisition of an Operating Property” and EITF 86-21, “Application of the AICPA Notice to Practitioners regarding Acquisition, Development, and Construction Arrangements to Acquisition of an Operating Property”, we evaluate whether the loans contain any rights to participate in expected residual profits, the loans provide sufficient collateral or qualifying guarantees or include other characteristics of a loan. As a result of our review, neither

F-11

our wholly owned loan nor the loans made through our Co-Investment Ventures contain a right to participate in expected residual profits. In addition the project borrowers remain obligated to pay principal and interest due on the loan with sufficient collateral, reserves or qualifying guarantees to account for the investments as loans.

We assess notes receivables for impairment in accordance with SFAS No.114, “Accounting by Creditors for Impairment of a Loan”. Based on specific circumstances we determine whether it is probable that there has been an adverse change in the estimated cash flows of the contractual payments for the notes receivable. We then assess whether the impairment is other than temporary. If the impairment is other than temporary, we recognize an impairment loss equal to the difference between our or the Co-Investment Venture’s investment in the note receivable and the present value of the estimated cash flows discounted at the note receivable’s effective interest rate. Where we have the intent and the ability to foreclose on our security interest in the property, we will use the collateral’s fair value as a basis for the impairment.

There are judgments involved in determining whether an impairment is other than temporary. As these types of notes receivable are generally investment specific based on the particular loan terms and the underlying project characteristics, there is usually not any secondary market to evaluate impairments. Accordingly, we must rely on our subjective judgments and individual weightings of the specific factors. If  notes receivable are considered impaired, then judgments and estimates are required to determine the projected cash flows for the note receivable, considering the borrower’s or if applicable the guarantor’s financial condition and the consideration and valuation of the secured property and any other collateral. Changes in these facts or in our judgments and assessments of these facts could result in impairment losses which could be material to our consolidated financial statement.

Escrow Deposits

As of December 31, 2007, the escrow deposit related to our real estate investment in The Venue.

Investments in Unconsolidated Real Estate Joint Ventures

We or our Co-Investment Ventures account for certain investments in unconsolidated real estate joint ventures using the equity method of accounting because we exercise significant influence over, but do not control these entities.  These investments are initially recorded at cost and are adjusted for our share of equity in earnings and distributions.  We report our share of income and losses based on our economic interests in the entities.

In connection with the acquisition of investments in unconsolidated real estate joint ventures, we incur certain acquisition and advisory fees that are paid to Behringer Harvard Multifamily Advisors I or an affiliate.  These fees are capitalized as part of our basis in the investments in joint ventures.  We amortize any excess of the carrying value of our investments in joint ventures over the book value of the underlying equity over the estimated useful lives of the underlying operating property, which represents the assets to which the excess is most clearly related.

Organization and Offering Costs

Behringer Harvard Multifamily Advisors I or its affiliates are obligated to pay all of our Initial Public Offering and Private Offering organization and offering costs.  Offering costs include items such as legal and accounting fees, marketing, promotional and printing costs.  On November 22, 2006, we entered into an agreement with Behringer Harvard Multifamily Advisors I, where Behringer Harvard Multifamily Advisors I or its affiliates will earn fees and compensation in connection with their obligation to pay all of our organization and offering costs, and in connection with the acquisition, management, and sale of our assets (the “Advisory Management Agreement”).  In connection with the effectiveness of our Initial Public Offering on September 2, 2008, the fees and compensation under the Advisory Management Agreement were amended.

Initial Public Offering Costs

Under the amended Advisory Management Agreement, we will reimburse Behringer Harvard Multifamily Advisors I for all Initial Public Offering organization and offering costs incurred by them in an amount not to exceed 1.5% of our gross Initial Public Offering, (the “O&O Reimbursement”).  Total Initial Public Offering organization and offering costs incurred by Behringer Harvard Multifamily Advisors I are approximately $7.1 million and $0.5 million as of December 31, 2008 and 2007, respectively.  At the end of each reporting period, we estimate the total gross Initial Public Offering proceeds expected to be received over the entire offering period and recognize the amount of estimated total O&O Reimbursement as determined under SFAS No. 5, “Accounting for Contingencies”.  We have recognized the O&O Reimbursement at the lower amount of (a) 1.5% of the estimated total gross Initial Public Offering proceeds expected to be received over the entire offering period, or (b) the actual Public Offering costs incurred by Behringer Harvard Multifamily Advisors I or its affiliates.  The O&O Reimbursement obligation is recorded as an offset to additional

F-12

paid-in capital in accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Miscellaneous Accounting — Expenses of Offering.  Total unpaid O&O Reimbursement recorded as a liability and as an offset to additional paid-in capital was approximately $6.9 million as of December 31, 2008.  As of December 31, 2007, we had no obligation for such costs and none was recognized.  We used only proceeds from our Initial Public Offering to pay our O&O Reimbursement obligation and as a result we have paid approximately $0.2 million as of December 31, 2008.

Private Offering Costs

Behringer Harvard Multifamily Advisors I or its affiliates were obligated to pay all of our Private Offering organization and offering costs.  Our only obligation for those costs was to pay a fee to Behringer Harvard Multifamily Advisors I under our Advisor Management Agreement.  We incurred this fee obligation at the rate of 1.5% of the actual gross Private Offering proceeds (the “O&O Fee”), regardless of whether the actual amount of Private Offering costs incurred by Behringer Harvard Multifamily Advisors I or its affiliates was higher or lower than the O&O Fee. Total Private Offering organization and offering costs incurred by Behringer Harvard Multifamily Advisors I were approximately $3.5 million and $3.0 million as of December 31, 2008 and 2007, respectively. We had no obligation for Private Offering costs incurred by Behringer Harvard Multifamily Advisors I and its affiliates in excess of total amounts due under the O&O Fee. The amount of O&O Fees recorded was determined as 1.5% of the actual Private Offering proceeds received to date; no other amounts were considered by management to be probable of reimbursement. At the end of each reporting period, we recorded the pro-rated share of offering costs embedded in the O&O Fee as an offset to additional paid-in capital in accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Miscellaneous Accounting — Expenses of Offering.  Total unpaid O&O Fees recognized as a liability and as an offset to additional paid-in capital were approximately $50,000 as of December 31, 2007; no amounts remained unpaid as of December 31, 2008. Total O&O Fees recognized as an offset to additional paid-in capital were approximately $1.9 million as of December 31, 2008 and 2007, respectively.

The Advisory Management Agreement was amended on September 2, 2008 and the O&O Reimbursement obligation now includes Private Offering costs incurred by Behringer Harvard Multifamily Advisors I or its affiliates in excess of total amounts due under the O&O Fee.  As a result, approximately $1.6 million of such costs are included in our estimated total O&O Reimbursement obligation as of December 31, 2008.

As of December 31, 2008 and 2007, the amount of our accrued obligation under the O&O Fee for the private offering costs and O&O Reimbursement for the public offering costs has been recognized in our consolidated statements in accordance with SFAS No. 5.

Organization Costs

Behringer Harvard Multifamily Advisors I or its affiliates were obligated to pay all of our Private Offering organizational expenses. Our only obligation for these costs was to pay the O&O Fee as discussed above; we have no other obligations for these costs. Our organization costs are recorded as an expense in accordance with SOP 98-5, “Reporting on the Costs of Start-up Activities” and we recorded the pro-rata share of organization expenses embedded in the O&O Fee as an expense. We had no obligation for organization costs incurred by Behringer Harvard Multifamily Advisors I and its affiliates in excess of total amounts due under the O&O Fee, which are approximately $9,500.

The Advisory Management Agreement was amended on September 2, 2008 and the O&O Reimbursement obligation now includes Private Offering costs incurred by Behringer Harvard Multifamily Advisors I or its affiliates in excess of total amounts due under the O&O Fee.  In September 2008, we recognized as an expense organization costs incurred by Behringer Harvard Multifamily Advisors I and its affiliates in excess of total amounts due under the O&O Fee, which were approximately $9,500.

Redemption of Common Stock

The portion of the redeemed common stock in excess of the par value is charged to additional paid-in capital.

F-13

Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and have qualified as a REIT since the year ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT.

We have evaluated the current and deferred income tax related to the Texas margin tax and we have no significant tax liability or benefit as of December 31, 2008 and 2007. In addition, we recognized no current tax expense for the year ended December 31, 2008 and 2007 related to the Texas margin tax.

On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48 Accounting for uncertainty in income taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). Under FIN 48, we recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. As of December 31, 2008, we have no significant uncertain tax positions.

Stock Based Compensation

We have a stock-based incentive award plan for our directors and consultants and for employees, directors and consultants of our affiliates, and our advisor and its affiliates.  We account for this plan under the modified prospective method of SFAS No. 123R, “Share-Based Payment.” In the modified prospective method, compensation cost is recognized for all share-based payments granted after the effective date and for all unvested awards granted prior to the effective date. In accordance with SFAS No. 123R, prior period amounts were not restated. SFAS No. 123R also requires the tax benefits associated with these share-based payments to be classified as financing activities in the Consolidated Statements of Cash Flows, rather than as operating cash flows as required under previous regulations.

On November 14, 2006, we issued a total of 3,000 shares of restricted stock to our independent directors.  On November 28, 2007, we issued an additional 3,000 shares of restricted stock to our independent directors. These restricted share issuances each require a 12 month service and vesting period, have no exercise price, and each had an estimated fair value of approximately $24,000, for a total fair value of $48,000, using similar share prices at the time of $8.15 per share. The fair value of each issuance is being recognized as compensation expense on a straight-line basis over the required service period. For the year ended December 31, 2008 and 2007, we recognized stock-based compensation expense of approximately $22,000 and $24,000, respectively.

No other stock-based compensation has been issued.

Concentration of Credit Risk

As of December 31, 2008 and 2007 we had cash and cash equivalents deposited in certain financial institutions in excess of federally insured levels.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents.

We invest our cash and cash equivalents between several banking institutions in an attempt to minimize exposure to any one of these entities.  However, the Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank.  Beginning October 3, 2008 through December 31, 2009, the FDIC will insure up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories.  (Unlimited deposit insurance coverage will be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guarantee Program through December 31, 2009.)  As of December 31, 2008, we have cash and cash equivalents deposited at certain financial institutions in excess of federally insured levels.

Income per Share

We calculate earnings per share in accordance with SFAS No. 128, “Earnings Per Share”. Basic earnings per share is calculated by dividing net earnings available to common shares by the weighted-average common shares outstanding during the period. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed exercise of securities, including the effect of shares issuable under our stock-based incentive plans. Upon our adoption of a share redemption plan, the weighted-average common shares redeemable during the period will be excluded from basic earnings per share, and included in diluted earnings per share.

F-14

On November 14, 2006, we issued a total of 3,000 shares of restricted stock to our independent directors, which require a 12 month service and vesting period.  On November 28, 2007 we issued an additional 3,000 shares of restricted stock to our independent directors. The restricted shares have no exercise price and are presented as issued shares on our balance sheet. However, as a result of the outstanding performance requirements the number of shares are excluded from our basic earnings per share calculation until performance is achieved. As of December 31, 2008, the requirements for the restricted stock have been met and included in the dilutive earnings per share calculation.

The Behringer Harvard Multifamily REIT I, Inc. 2006 Amended and Restated Incentive Award Plan (“Incentive Award Plan”) was approved by the board of directors on November 14, 2006 and by the stockholders on November 15, 2006 and later amended and restated and approved by the board of directors on March 14, 2008.  The Incentive Award Plan authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards.  A total of 10,000,000 shares have been authorized and reserved for issuance under the Incentive Award Plan.

As of December 31, 2008 and December 31, 2007 we had 1,000 shares of convertible stock issued and outstanding, no shares of preferred stock issued and outstanding, and had no options to purchase shares of common stock outstanding.  The convertible stock is not included in the dilutive earnings per share calculation.

Reportable Segments

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for reporting and financial and descriptive information about an enterprise’s reportable segments. Our current business consists of investing in and operating multifamily communities. Substantially all of our consolidated net income is from real estate properties that we own through joint-ventures, and we account for each joint venture under the equity method of accounting. Our chief operating decision maker evaluates operating performance on an individual joint venture level. However, as each of our joint ventures has similar economic characteristics in our consolidated financial statements, the company is managed on an enterprise-wide basis with one reportable segment.

Fair Value of Financial Instruments

We believe the carrying values of cash and cash equivalents, notes receivables and receivables from affiliates approximates their fair values.

Reclassifications

Certain financial information from the previous fiscal year has been revised to conform to the current year presentation.  These revisions to the historical presentation do not reflect a material change to the information presented in the Consolidated Statements of Cash Flows, Balance Sheet and Stockholders’ Equity.

For the year ended December 31, 2007, in order to combine immaterial amounts we revised the presentation of the operating activities in our Consolidated Statement of Cash Flows to combine the accounts receivable caption $2,000 and the accrued interest on mortgage notes receivable caption $67,986 into one caption titled accounts receivable and other receivables $69,986.  We also revised the financing activities section by combining the credit facility financing fees caption $327,994 into the credit facility proceeds caption $35,672,006.

For the year ended December 31, 2007, in order to separately report the increased 2008 activity related to offering costs we revised the presentation of the Consolidated Balance Sheet to separately classify accrued offering costs payable to affiliates $282,214 from payables to affiliates by adding  the caption accrued offering costs payable to affiliates.

For the year ended December 31, 2007, in order to separately report the increased activity related to offering costs we revised the presentation of the Consolidated Statement of Stockholders’ Equity to separately classify offering costs $1,909,606 from sale of common stock, net.  We also are presenting the shares issued from our incentive award plan 3,000 shares separately from our shares issued in our sale of common stock.

F-15

3.Recently Announced Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  We adopted the provisions of SFAS 157 effective January 1, 2008, and it did not have a material effect on our consolidated results of operations or financial position.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP SFAS 157-2”).  FSP SFAS 157-2 delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The provisions of FSP SFAS 157-2 will expire for our fiscal year beginning January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.”  The fair value option established by SFAS No. 159 permit all entities to choose to measure eligible items at fair value at specified election dates.  A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.  SFAS No. 159 was effective for fiscal years beginning after November 15, 2007.  We have not elected the fair value measurement option for any financial assets or liabilities at the present time.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  This Statement replaces SFAS No. 141, “Business Combinations” but retains the fundamental requirement that the acquisition method of accounting, or purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement is broader in scope than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration.  SFAS No. 141(R) applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  This Statement also makes certain other modifications to Statement 141, including a broader definition of a business and the requirement that acquisition related costs are expensed as incurred.  This statement applies to our business combinations occurring beginning January 1, 2009.  The acquisition of a real estate property has been determined to meet the definition of a business combination as defined in SFAS No. 141(R); however, investments in unconsolidated joint ventures are not affected.  Therefore, SFAS No. 141(R) will have a material effect on our accounting for future consolidated acquisitions of  properties as acquisition costs will no longer be capitalized, but will be expensed beginning January 1, 2009.

4.Investments in Unconsolidated Real Estate Joint Ventures

As of December 31, 2008 and 2007, we had ten and eight investments in unconsolidated real estate joint ventures, respectively. All of our investments in unconsolidated real estate joint ventures are BHMP CO-JVs (as defined below). We are not limited to BHMP CO-JVs and we may choose other joint venture partners or investment structures.

BHMP CO-JV

We have entered into separate joint ventures with Behringer Harvard Master Partnership I LP (“Behringer Harvard Master Partnership I”) in which we are the manager. The 1% general partner of Behringer Harvard Master Partnership I is Behringer Harvard Institutional GP LP, which is an affiliate of Behringer Harvard Multifamily Advisors I, is indirectly owned by our sponsor, Behringer Harvard Holdings, LLC and the 99% limited partner of Behringer Harvard Master Partnership I is an unaffiliated social work sector pension fund based in The Netherlands, Stichting Pensioenfonds Zorg en Welijn (“PGGM”). Substantially all of the capital provided to Behringer Harvard Master Partnership I is from PGGM. We have no direct financial or other ownership interest in either of these entities.  Each separate joint venture with Behringer Harvard Master Partnership I is referred to as a BHMP CO-JV.  Currently, our ownership, contribution and distribution interests are 55% except for our one operating BHMP CO-JV, which has a 64% interest.

Until the maximum funding commitment from PGGM of $200 million has been placed, we expect substantially all of our future real estate acquisitions and real estate under development activities will use a joint venture structure with BHMP CO-JV.  The maximum funding commitment from PGGM may be increased to $300 million.

We have determined that our BHMP CO-JVs are not variable interest entities under FIN 46R, and thus have evaluated them for consolidation under SOP 78-9 and EITF 04-5. Each BHMP CO-JV has two partners, and each BHMP CO-JV partner possesses equal substantive participating rights to make decisions which constitute routine occurrences in each BHMP CO-JV’s ordinary course of business. These decisions include the requirement to approve initial and annual operating plans, initial and annual capital

F-16

expenditures, any sales or dispositions of investments, and, any method of refinancing or raising additional debt or equity capital. As a result of these equal substantive participating rights, no single party controls each BHMP CO-JV; accordingly, we account for each BHMP CO-JV using the equity method of accounting.

During April 2007, we entered into commitments for and partially funded equity investments in unconsolidated real estate joint ventures and interest-bearing loans to real estate joint ventures with two separate commercial real estate developers, the Lovers Lane Townhomes and the Eclipse, in our real estate development business (the “Two Development Contracts”). These Two Development Contracts were held by two separate subsidiaries that we fully consolidated in our financial statements (the “Two Subsidiaries”). Prior to June 1, 2007, our consolidated financial statements recognized 100% of these equity investments in real estate joint ventures as investments in unconsolidated real estate joint ventures, and, 100% of these interest-bearing real estate loans to real estate joint ventures as notes receivable, recognizing accrued interest income on a monthly basis.  During June 2007, Behringer Harvard Master Partnership I purchased for cash approximately 45% of the ownership interest in each of our two subsidiaries that held the Two Development Contracts. Subsequent to June 1, 2007, we no longer consolidate those two subsidiaries and prospectively recognize our remaining approximate 55% ownership interest under the equity method of accounting as investments in unconsolidated real estate joint ventures. We believe the carrying values of the joint ventures’ equity interests sold approximated fair value because of the short duration and lack of change in the entity’s underlying assets, the Two Development Contracts. We recorded Behringer Harvard Master Partnership I’s purchase as a reduction in the carrying value of our real estate investment balance; no gains or losses were incurred or recognized.

BHMP CO-JV Investments in unconsolidated real estate joint ventures

We have established one BHMP CO-JV to make investments in only one separate project or property. Each BHMP CO-JV owns 100% of the voting equity interest in one subsidiary REIT and substantially all business is conducted through its subsidiary REIT. Each subsidiary REIT has made equity investments and/or notes receivable to entities that own one real estate project (the “Property Entities”). Each BHMP CO-JV, its respective subsidiary REIT, and its respective Property Entity is an independent investment; investments are not commingled. The general partner of the Property Entities are generally commercial developers and were organized to own, construct, and finance only one particular real estate project. The Property Entities are not consolidated in our financial statements.

Our interests in the BHMP CO-JVs are recorded as investments in unconsolidated real estate joint ventures and use the equity method of accounting.  The following presents the BHMP CO-JVs’ combined balance sheet data (amounts in thousands):

	December 31,		December 31,
Balance sheet data:	2008		2007
Notes receivable, net (1)	$	119,911	$	76,379
Investments in unconsolidated real estate joint ventures	29,895		14,981
Land and buildings, net	30,988		32,803
Cash and restricted cash	7,997		1,797
Accounts receivable	27		31
Accrued interest receivable	1,616		1,041
Deferred financing costs and other assets, net	392		482
Total assets	$	190,826	$	127,514
Bank loan	$	23,000	$	23,000
Accrued liabilities	167		313
Other liabilities	222		104
Minority shareholder interest	1,784		2,085
Preferred units	229		—
Members’ equity:
Behringer Harvard Multifamily REIT I, Inc.	91,598		57,005
Behringer Harvard Master Partnership I LP	73,826		45,007
Total liabilities and members’ equity	$	190,826	$	127,514

(1) Note receivable balance include loans advanced less deferred commitment fees and other deferred financing liabilities

The Reserve at Johns Creek is an operating multifamily community wholly-owned by a single-purpose limited liability company (the “The Reserve at Johns Creek Property Entity”) and for 2008 and 2007 represents the only Property Entity reported on a consolidated basis by the BHMP CO-JV. One of our BHMP CO-JV owns an 80 percent equity interest in The Reserve at Johns Creek Property Entity, with an unaffiliated owner who owns the remaining 20 percent. The unaffiliated owner’s 20 percent

F-17

equity interest is presented in the BHMP CO-JV’s combined balance sheet data above as minority shareholder interest.  The Reserve at Johns Creek Property Entity, including its operating receipts lock-box account, serves as collateral for an interest-only bank loan with a principal balance of $23 million from an unaffiliated lender (the “Bank Loan”). The Bank Loan of $23 million was entered into during August 2007, matures in March 2013, and bears interest at a rate of 6.461%. The lender has no recourse to the BHMP CO-JV or us, only to The Reserve at Johns Creek Property Entity. Breaching the Bank Loan’s restrictions on encumbrances, sale, transfer, or refinancing of the property could constitute an event of default and increase the interest rate by 5%; uncured events of default can accelerate the loan’s maturity date.  Management believes no events of default have occurred.

The following presents the BHMP CO-JVs’ combined income statement data for the year ended December 31, 2008 and the period from their respective dates of inception in 2007, through December 31, 2007. The operating results of The Reserve at Johns Creek Walk Property Entity are consolidated in the BHMP CO-JV’s combined income statement data (amounts in thousands):

	2008			2007
Revenues
Rent, fees and other	$	3,036		$	1,191
Interest	10,207			2,294
	13,243			3,485
Expenses
General and operating	1,235			354
Real estate taxes	329			106
Interest expense	1,511			650
Depreciation and amortization	1,910			991
	4,985			2,101
Equity in loss of unconsolidated real estate joint venture investments	(515		)	—
Minority shareholder interest	301			177
Net income	$	8,044		$	1,561

Included in our equity in earnings of unconsolidated real estate joint venture investments for the year ended December 31, 2008 and 2007 is our share of the above BHMP CO-JVs’ net income in the amount of $4,275,881 and $793,218, respectively.

The following presents the reconciliation between our members’ equity interest in the BHMP CO-JVs and our total investments in unconsolidated real estate joint ventures (amounts in thousands):

	2008		2007
Balance of our Member’s equity in the BHMP CO-JVs	$	91,598	$	57,006
Other capitalized costs, net of amortization	4,907		3,063
Investments in unconsolidated real estate joint ventures	$	96,505	$	60,069

The BHMP CO-JVs’ notes receivable from and equity investments in Property Entities

Included in the BHMP CO-JV combined financial data are loans to and equity investments in ten Property Entities, one an operating property and eight in development.  All of the equity investments are accounted for using the equity method of accounting because the BHMP CO-JV exercises significant influence on, but does not control these entities. Below are the BHMP CO-JVs’ notes receivable from and equity investments in the Property Entities (amounts in millions):

F-18

Wholly Owned Investment — Loans

Multifamily Developments

	Our Company Investment Information (1)
Name of Underlying Property	Maximum Advance		Amount Advanced		Interest Rate		Maturity Date	Equity Option
Grand Reserve	$	2.2	$	—	10.0	%	4/2012	(2)

BHMP CO-JVInvestments — Loans

Multifamily Developments

	BHMP CO-JV Investment Information (1)
Name of Underlying Property	Maximum Advance		Amount Advanced		Interest Rate		Maturity Date	Equity Option
Grand Reserve	$	7.5	$	7.1	10.0	%	4/2012	(2)
The Eclipse	8.1		8.1		9.5	%	4/2012	(2)
Fairfield at Baileys Crossing	22.1		22.1		9.5	%	7/2012	(2)
Alexan St. Rose (3)	21.0		14.7		13.0	%	12/2013	(2)
Tower 55 Hundred	20.0		20.0		9.5	%	10/2012	(2)
Satori	14.8		14.8		10.0	%	10/2012	(2)
Fairfield at Cameron House	19.3		19.3		9.5	%	12/2012	(2)
Alexan Prospect	14.8		10.6		10.0	%	4/2013	(2)
The Venue	5.8		5.8		10.0	%	6/2013	—
Total BHMP CO-JV Loans to Developments	$	133.4	$	122.5

BHMP CO-JVInvestments — Equity

Multifamily Developments

	BHMP CO-JV Investment Information (1)
Name of Underlying Property	Investment Amount		Property Entity Ownership (7)		Preferred Return (8)
The Eclipse	$	3.5	50.1	%	9.5	%
Tower 55 Hundred (5)	3.5		50.1	%	9.5	%
Alexan St. Rose (6)	5.2		60.0	%	9.5	%
Satori	7.4		50.0	%	9.5	%
Alexan Prospect	7.3		50.1	%	9.5	%
The Venue	2.9		50.1	%	9.5	%
Total BHMP CO-JV Equity Investments in Developments	$	29.8

Multifamily Operating

	BHMP CO-JV Investment Information (1)
Name of Property	Investment Amount		Property Entity Ownership (7)		Preferred Return (8)
The Reserve at Johns Creek (4)	$	6.7	80.0	%	5.0	%
Total BHMP CO-JV Equity Investments	$	36.5
Total BHMP CO-JV Loans Advanced and Equity Investments	$	159.0

(1)We hold a 55% ownership interest in each BHMP CO-JV and PGGM owns the remaining 45% ownership interest, expect for The Reserve at Johns Creek Walk BHMP CO-JV, in which we hold a 64% ownership interest in the BHMP CO-JV and PGGM owns the remaining 36%.

(2)The BHMP CO-JVs acquired options to purchase a certain percentage ownership interest in the Property Entity, or to convert into equity. Options are generally exercisable for a period ranging from 60-90 days after project completion.

F-19

(3)The mezzanine loan investment made to the owner of the Alexan St. Rose project was made in the form of a senior mezzanine loan and a junior mezzanine loan, but they are referred to collectively as a single mezzanine loan.

(4)This property is managed by a party that is affiliated with the other equity investors in the Property Entity.

(5)BHMP CO-JV has a right to 50.1% of net proceeds after all other required distributions are made by the Property Entity.  In addition, our contributed capital is entitled to a preferred return.  In order to maintain our share of back end interest (the residual profit after all other required distributions are made) and maintain the priority level of our capital, we must contribute 70% if certain capital is required by the Property Entity.

(6)BHMP CO-JV has a right to 60% of net proceeds after all other required distributions are made by the Property Entity.  In addition, our contributed capital is entitled to a preferred return.  In order to maintain the priority level of our capital, we must contribute 50% if certain capital is required by the Property Entity.

(7)Property Entity ownership refers to the BHMP CO-JVs’ back end interest. Additional capital contributions may have different allocation percentages.

(8)Preferred Return refers to the rate of return on BHMP CO-JV’s invested capital which has a higher priority than certain other distributions to equity owners.

Our involvement with each of the Property Entities began at the time the BMMP CO-JV committed to making an investment, and our maximum potential loss exposure is limited to the funded portion of our commitments. The Property Entities also owe amounts under other mortgage loans, bank loans, and other liabilities balances which are obligations of the Property Entities. Neither we nor the BHMP CO-JVs have a primary or secondary obligation on those obligations of the Property Entities. The following table includes estimated information about the nature and size of the activities of the Property Entities. (see Note 7 for amounts of our unfunded commitments):

F-20

Project Name / Location / Description	Estimated Project Completion Date	Construction Cost (millions)
The Reserve at Johns Creek Walk / Fulton County, Georgia	Operating	$	33.5
A 3 story operating apartment community with 210 rental units within an overall mixed-use development containing retail and for-sale townhomes
The Eclipse / Houston, Texas	2nd Quarter 2009	35.7
Previously undeveloped land expected to be a 3 story apartment community with approximately 330 rental units
Satori / Broward County, Florida	3rd Quarter 2009	98.5
Previously developed land which has been demolished and is expected to be a 3 and 9 story structure apartment community with approximately 279 rental units
Tower 55 Hundred / Arlington County, Virginia	3rd Quarter 2009	99.8
Previously developed land which has been demolished and is expected to be a 10 story high-rise apartment community with approximately 234 rental units and an underground parking facility
The Venue / Clark County, Nevada	4th Quarter 2009	29.1
Previously undeveloped land expected to be a 3 story apartment structure with approximately 168 units
Fairfield at Baileys Crossing / Fairfax County, Virginia	1st Quarter 2010	147.6
Previously undeveloped land, expected to be a 3, 4 and 7 story structure apartment community with approximately 414 rental units and an attached parking structure
Grand Reserve / Dallas, Texas	1st Quarter 2010	38.7
Previously developed land which has been demolished and is expected to be a 2 story townhome community with approximately 149 rental units
Fairfield at Cameron House / Silver Spring, Maryland	1st Quarter 2010	128.9
Previously developed land which has been demolished and is expected to be a 15 story high-rise apartment community with approximately 325 rental units
Alexan Prospect / Denver, Colorado	3rd Quarter 2010	94.8
Previously undeveloped land expected to be a 4 story apartment structure with approximately 400 units
Alexan St. Rose / Henderson, Nevada	2nd Quarter 2011	70.1
Previously undeveloped land, expected to be a 3 story apartment community with approximately 430 rental units

F-21

Disclosure of summarized financial information of the Property Entities

Certain BHMP CO-JVs have made an equity investment in its respective Property Entity.  Each BHMP CO-JV and its respective Property Entity are independent investments; investments are not commingled. The Property Entities own development projects and typically have no operational income or loss until they begin leasing.  The following presents the summarized financial information of those unconsolidated Property Entities including The Eclipse, St. Rose, Satori, Tower 55 Hundred, Alexan Prospect, and The Venue (amounts in thousands):

	December 31, 2008		December 31, 2007
Land and construction in progress	$	244,679	$	85,522
Cash	254		538
Other assets	58		9
Total assets	$	244,991	$	86,069
Construction loans	$	109,422	$	7,601
BHMP CO-JV notes payable	74,021		35,873
Accounts payable, interest payable and other	28,119		25,168
Partners’ capital	33,429		17,427
Total liabilities and partners’ capital	$	244,991	$	86,069

The Eclipse Property Entity began initial leasing activities in October 2008. For the year ended December 31, 2008, revenues were approximately $48,000 and net loss was approximately $489,000. All other Property Entities operational losses were immaterial.

As of December 31, 2008 and 2007, two unaffiliated commercial property companies and their affiliates are developers, partners and guarantors in six and four of the Property Entities, respectively, representing 42% and 28% of our total assets, respectively.

5.Credit Facility with Behringer Harvard Operating Partnership I LP

On April 2, 2007, our operating partnership, Behringer Harvard Multifamily OP I, entered into a one-year credit facility with the operating partnership of Behringer Harvard REIT I, Inc., Behringer Harvard Operating Partnership I LP (the “Credit Facility”). The Credit Facility was terminated on December 20, 2007. During 2007 we paid cash for interest and other fees of approximately $925,000. As of December 31, 2008 and December 31, 2007, our investments in unconsolidated real estate joint ventures included approximately $283,000 of capitalized interest costs.

6.Stockholders Equity

Capitalization

As of December 31, 2008 and December 31, 2007, we had 15,347,792 and 14,272,919 shares of common stock outstanding, respectively, including 6,000 shares of restricted stock issued to our independent directors for no cash, and 24,969 shares owned by Behringer Harvard Holdings for cash of $200,001. As of December 31, 2008 and December 31, 2007, we had 1,000 shares of convertible stock and no shares of preferred stock issued and outstanding.

In 2006, Behringer Harvard Multifamily Advisors I purchased a special limited partnership interest in our operating partnership, Behringer Harvard Multifamily OP I, for cash of $10,000 (the “Incentive Unit”). This Incentive Unit entitled the special limited partner to receive an amount when certain events occur. On November 28, 2007, the Incentive Unit was canceled and the $10,000 cash purchase price was returned to Behringer Harvard Multifamily Advisors I. Concurrently, Behringer Harvard Multifamily REIT I, Inc. sold 1,000 shares of convertible stock to Behringer Harvard Multifamily Advisors I for $1,000.  In September 2008, we repurchased the outstanding convertible stock from our advisor, cancelled the stock and issued non-participating, non-voting convertible stock for $1,000. Management has reviewed the terms of the underlying convertible stock and determined the fair value under GAAP approximated the nominal value paid for the shares.

F-22

The convertible stock generally is convertible into shares of common stock with a value equal to 15% of the amount by which (1) our enterprise value at the time of conversion, including the total amount of distributions paid to our stockholders, exceeds (2) the sum of the aggregate capital invested by our stockholders plus a 7% cumulative, non-compounded, annual return on such capital at the time of conversion, on a cash-on-cash basis.  The convertible stock can be converted when the excess value described above is achieved or our common stock is listed on a national securities exchange.

Share Redemption Program

On September 2, 2008, our board of directors has authorized a share redemption program for investors who hold their shares for more than one year.  The purchase price for redeemed shares is set forth in the prospectus for our Initial Public Offering of common stock, as supplemented from time to time.  Our board of directors reserves the right in its sole discretion at any time, and from time to time, to (1) waive the one-year holding period in the event of the death, disability, need for long-term care, or other exigent circumstances such as bankruptcy, a mandatory distribution requirement under a stockholder’s IRA or with respect to shares purchased under or through our DRIP or automatic purchase plan, (2) reject any request for redemption, (3) change the purchase price for redemptions, or (4) terminate, suspend or amend the share redemption program.  Under the terms of the plan, during any calendar year, we will not redeem in excess of 5% of the weighted average number of shares outstanding during the twelve-month calendar-based period immediately prior to the date of redemption.  In addition, our board of directors will determine whether we have sufficient cash from operations to repurchase shares, and such purchases will generally be limited to proceeds of our DRIP plus 1% of operating cash flow for the previous fiscal year.  We redeemed 16,667 shares of common stock for $140,000 during the year ended December 31, 2008.

Distributions

We did not declare or pay any distributions prior to June 6, 2007.

Distributions as of December 31, 2008 and 2007 were as follows:

	Distributions
2008	Declared		Paid (including DRIP)
Fourth Quarter	$	2,394,437	$	1,996,413
Third Quarter	1,330,495		1,330,539
Second Quarter	1,330,847		1,330,802
First Quarter	1,301,225		1,279,428
	$	6,357,004	$	5,937,182
2007
Fourth Quarter	$	730,682	$	396,450
Third Quarter	196,590		118,764
Second Quarter	—		—
First Quarter	—		—
	$	927,272	$	515,214

7.Commitments and Contingencies

In the ordinary course of business, we and/or Co-Investment Ventures contract with unaffiliated commercial property development companies and provide equity and/or loans for a particular project (our “Project Commitments”).  We generally fund an initial amount under our Project Commitments at contract inception and fund additional amounts as construction progresses, typically spanning one to three years.  As of December 31, 2008, all of our Co-Investment Ventures have been BHMP CO-JVs.

As of December 31, 2008, the BHMP CO-JVs held contracts for equity investments and/or loans with a total commitment value of approximately $173.0 million and the BHMP CO-JVs have currently funded approximately $162.0 million. The BHMP CO-JVs will require additional capital from us and Behringer Harvard Master Partnership I in order to fund the remaining commitments of $11.0 million.  The BHMP CO-JVs may become obligated under contingent sell options to three Property Entities. In addition, we hold the Grand Reserve Junior Mezzanine Loan with a total commitment value of approximately $2.2 million and have currently funded approximately $1,000.

F-23

The BHMP CO-JVs’ unfunded commitments for project construction will be generally funded as actual real estate project construction progresses. Estimated future payments and timing are as follows, as of December 31, 2008 (amounts in millions):

	The BHMP CO-JVs’ total unfunded commitments for project construction		The BHMP CO-JVs’ other contingent obligations under sell options		Our estimated portion of the BHMP CO-JVs’ unfunded commitments and contingent options		Our unfunded loan commitment		Our estimated total
2009	$	11.0	$	—	$	6.0	$	2.2	$	8.2
2010	—		55.8		30.7		—		30.7
Total	$	11.0	$	55.8	$	36.7	$	2.2	$	38.9

The contingent obligations under sell options relate to Fairfield at Baileys Crossing, Fairfield at Cameron House and the Grand Reserve Project Entities.  The options are generally exercisable after completion of the development and for a period of three years thereafter.  The option price is set by agreement and is either based on the fair value of the project at exercise or the cost of the project as, defined.   The information in the table above represents our current estimates and actual amounts may be more or less.  As of December 31, 2008, no sell options are exercisable.

8.Related Party Arrangements

We have no employees and are supported by related party service agreements.  Our advisor and certain of its affiliates earn fees and compensation in connection with the acquisition, management and sale of our assets.   We are dependent on Behringer Harvard Multifamily Advisors I, Behringer Securities and BHM Management for certain services that are essential to us, including the sale of shares of our common stock, asset acquisition and disposition decisions, property management and leasing services and other general administrative responsibilities. In the event that these companies were unable to provide us with the respective services, we would be required to obtain such services from other sources.

Behringer Securities LP (“Behringer Securities”), an affiliate of our advisor, serves as the dealer manager for the Initial Public Offering and receives commissions of up to 7% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers.  In connection with the Initial Public Offering, up to 2.5% of gross proceeds before reallowance to participating broker-dealers are paid to Behringer Securities as a dealer manager fee; except that no dealer manager fee is paid on purchases made pursuant to our DRIP.  In the Initial Public Offering, Behringer Securities reallows all of its commissions to participating broker-dealers and reallows a portion of its dealer manager fee of up to 2.0% of the gross offering proceeds to be paid to such participating broker-dealers; provided, however, that Behringer Securities may reallow, in the aggregate, no more than 1.5% of gross offering proceeds for marketing fees and expenses, bona fide training and educational meetings and non-itemized, non-invoiced due diligence efforts, and no more than 0.5% of gross offering proceeds for bona fide, separately invoiced due diligence expenses incurred as fees, costs and other expenses from third parties. For the year ended December 31, 2008, we sold 1.1 million shares and therefore Behringer Securities earned commissions and dealer manager fees of approximately $0.7 million and $0.3 million, respectively. For the year ended December 31, 2007, we sold 14.2 million shares and therefore Behringer Securities earned commissions and dealer manager fees of approximately $7.9 million and $3.2 million, respectively.

On September 2, 2008, we entered into an Amended and Restated Advisory Management Agreement (the “Advisory Management Agreement”) with our advisor, Behringer Harvard Multifamily Advisors I.  The board of directors renewed the Advisory Management Agreement on November 13, 2008; therefore, the Advisory Management Agreement has a termination date of November 13, 2009 with the option to be renewed for an unlimited number of successive one-year terms.  The board of directors has a duty to evaluate the performance of our advisor annually before the parties can agree to renew the agreement.

All organization and offering expenses (excluding selling commissions and the dealer manager fee) are incurred and paid by Behringer Harvard Multifamily Advisors I or its affiliates. As related to the Private Offering, we paid Behringer Harvard Multifamily Advisors I a fixed rate of 1.5% of gross offering proceeds, regardless of whether the actual amount of organization and offering expenses is greater or less than 1.5% of gross offering proceeds. We began receiving proceeds from our Private Offering in April 2007 and terminated the private offering on December 28, 2007. We began receiving proceeds from our Initial Public Offering in October 2008.  For the years ended December 31, 2008 and 2007, Behringer Harvard Multifamily Advisors I earned approximately $0.2 million and $1.9 million, respectively, for organization and offering expenses. Under the terms of the amended Advisory Management Agreement, we will reimburse Behringer Harvard Multifamily Advisors I for all organization and offering costs they have incurred not to exceed 1.5% of our gross Initial Public Offering proceeds, including costs the Private Offering in excess of the O&O Fee.  As of December 31, 2008, we estimated our obligation to reimburse offering expenses in an amount of approximately $6.9 million and recorded it as a reduction of additional paid-in capital.

Included in general and administrative expense for the year ended December 31, 2008 is approximately $0.5 million for accounting and legal personnel costs incurred on our behalf by our advisor under the Advisory Management Agreement. None were incurred for the year ended December 31, 2007. These obligations are typically settled in cash within ninety days.

F-24

Through September 2008, Behringer Harvard Multifamily Advisors I or its affiliates received acquisition and advisory fees of 2.5% of (1) the contract purchase price paid or allocated in respect of the development, construction or improvement of each asset acquired directly by us, including any debt attributable to these assets, or (2) when we make an investment indirectly through another entity, our pro rata share of the gross asset value of real estate investments held by that entity. Behringer Harvard Multifamily Advisors I or its affiliates also received 2.5% of the funds advanced in respect of a loan or other investment. Behringer Harvard Multifamily Advisors I or its affiliates reimbursed for all expenses related to the selection and acquisition of assets, whether or not acquired by us. We began acquiring real estate investments in April 2007. Under the amended Advisory Management Agreement dated September 2, 2008, these rates were reduced to 1.75%. For the year ended December 31, 2008 and 2007, Behringer Harvard Multifamily Advisors I earned acquisition and advisory fees of approximately $1.8 million and $2.6 million, respectively.

Our advisor or its affiliates will also receive a non-accountable acquisition expense reimbursement in the amount of 0.25% of (a) funds advanced in respect of a loan or other investment, and, (b) the funds paid for purchasing an asset, including any debt attributable to the asset, plus 0.25% of the funds budgeted for development, construction or improvement in the case of assets that we acquire and intend to develop, construct or improve. We will also pay third parties, or reimburse the advisor or its affiliates, for any investment-related expenses due to third parties in the case of a completed investment, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses and other closing costs; we have no obligation to our advisor unless the acquisition is completed. Our advisor will be responsible, and we have no obligation, for paying all of the expenses it incurs associated with persons employed by the advisor to the extent dedicated to making investments for us, such as wages and benefits of the investment personnel.  Our advisor will also be responsible, and we have no obligation, for paying all of the investment-related expenses that we or our advisor incurs that are due to third parties with respect to investments we do not make.  For the year ended December 31, 2008, Behringer Harvard Multifamily Advisors I earned acquisition expense reimbursement of approximately $0.1 million.  No fees were earned in 2007.

Behringer Harvard Multifamily Advisors I or its affiliates will receive debt financing fees of 1% of the amount available to us under debt financing originated or refinanced by or for us. It is anticipated that our advisor will pay some or all of these fees to third parties with whom it subcontracts to coordinate financing for us. We began acquiring real estate investments in April 2007. For the year ended December 31, 2008 and 2007, Behringer Harvard Multifamily Advisors I earned debt financing fees of $0 and $0.2 million, respectively.

On September 2, 2008, the Company entered into an Amended and Restated Property Management Agreement (the “Property Management Agreement”) with our operating partnership and our property manager, Behringer Harvard Multifamily Management Services, LLC (“BHM Management”), an affiliate of our advisor. The Property Management Agreement has a term of two years from the effective date of the original property management agreement and will terminate on November 21, 2010 with automatic renewal periods of two years. If no party gives written notice to the other at least thirty days prior to the expiration date of the agreement that it will terminate, then it will automatically continue for consecutive two-year periods. The Property Management Agreement also provides that, in the event the Company terminates its advisory management agreement with the Advisor, the Manager, upon at least thirty days prior written notice, will have the right to terminate the agreement.

Through September 2008, we paid BHM Management fees for the management of our properties, which may be subcontracted to unaffiliated third parties. Such fees were equal to 3.75% of gross revenues. In the event that we contract directly with a non-affiliated third party property manager in respect of a property, we will pay BHM Management an oversight fee equal to 1% of gross revenues of the property managed. On September 2, 2008, we entered into an amended and restated property management agreement with BHM Management.  Under the terms of the amended and restated property management agreement, the oversight fee was reduced to 0.5%. In no event will we pay both a property management fee and an oversight fee to BHM Management with respect to a particular property. We will reimburse the costs and expenses incurred by BHM Management on our behalf, including fees and expenses of apartment locators and third-party accountants, the wages and salaries and other employee-related expenses of all on-site employees of BHM Management who are engaged in the operation, management, maintenance or access control of our properties, including taxes, insurance and benefits relating to such employees, and legal, travel and other out-of-pocket expenses that are directly related to the management of specific properties. For the year ended December 31, 2008, BHM Management earned approximately $13,000.  No fees were earned in 2007.

Through September 2008, Behringer Harvard Multifamily Advisors I received a monthly asset management fee for each asset. This amount was calculated based upon one-twelfth of 1% of aggregate asset value, as defined, as of the last day of the preceding month. We began acquiring real estate investments in April 2007. Under the amended Advisory Management Agreement, this fee is 0.75% of the higher of the cost of investment or value of the investment. For the year ended December 31, 2008 and 2007, Behringer Harvard Multifamily Advisors I earned asset management fees of approximately $0.9 million and $0.2 million, respectively.

Behringer Harvard Multifamily Advisors I or its affiliates are paid a disposition fee if our advisor provides a substantial amount of services, as determined by our independent directors, in connection with the sale of one or more properties.  In such event, we will pay our advisor (1) in the case of the sale of real property, the lesser of:  (A) one-half of the aggregate brokerage commission paid (including the subordinate disposition fee) or if none is paid, the amount that customarily would be paid, or (B) 3% of the sales price of each property sold, and (2) in the case of the sale of any asset other than real property, 3% of the sales price of such assets.  This fee shall not be earned or paid unless and until the stockholders have received total distributions in an amount equal to or in excess of the sum of the aggregate capital contributions by stockholders plus a 7% cumulative, non-compounded, annual return on

F-25

such capital contributions. Subordinated disposition fees that are not payable at the date of sale because stockholders have not yet received their required minimum distributions will be deferred and paid at such time as these subordination conditions have been satisfied.

We will pay a development fee to an affiliate in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project; provided, however, we will not pay a development fee to an affiliate of our advisor if our advisor or any of its affiliates elects to receive an acquisition and advisory fee based on the cost of such development. Behringer Harvard Multifamily Advisors I has earned no development fees since our inception.

For other expenses paid or incurred by the advisor in connection with the services provided to us that are not covered by a fee, we will reimburse our advisor, subject to the limitation that we will not reimburse our advisor for any amount by which its operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of:  (A) 2% of our average invested assets (“AIA”), or (B) 25% of our net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of our assets for that period.  Notwithstanding the above, we may reimburse the advisor for expenses in excess of this limitation if a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors.   For the trailing twelve months ended December 31, 2008, total operating expenses of approximately $2.5 million exceeded 2% of our AIA (which was approximately $1.9 million) by approximately $0.6 million.  Our board of directors, including all of our independent directors, have reviewed this analysis and unanimously determined the excess to be justified considering the fact that we were in the registration for our initial public offering of common stock from December 31, 2007 through September 2, 2008 and our rate of investments thereafter caused the expenses incurred as a result of being a public company for audit and legal services, director and officer liability insurance and fees for board of directors members in connection with service on the board of directors and its committees to be disproportionate to the Company’s AIA and net income, as defined above.

9.Supplemental disclosures of cash flow information

Supplemental cash flow information is summarized below:

					For the period
					from August 4, 2006
					(date of inception)
	December 31,		December 31,		through December 31,
	2008		2007		2006
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	$	—	$	246,674	$	—
Non-cash investing activities:
Escrow and prepaid acquisition costs	$	1,910,761	$	908,334	$	—
Conversion of note receivable into investments in unconsolidated real estate joint ventures	$	—	$	2,782,923	$	—
Payable to BHMP CO-JV	$	—	$	4,810	$	—
Non-cash financing activities:
Dividends payable and DRIP distributions	$	1,003,196	$	412,058	$	—
Accrued offering costs	$	6,918,354	$	—	$	—

F-26

10.Subsequent Events

On February 23, 2009, our board of directors authorized distributions payable to the stockholders of record each day during the months of March, April and May 2009.  This most recently declared distribution for March equals a daily amount of $0.000137 per share of common stock, which amount is in addition to the previously declared distribution for the month of March in an amount of $0.0017808 per share of common stock.  The distributions declared for April and May equal a daily amount of $0.0019178 per share of common stock.  Distributions payable to each stockholder of record during a month will be paid in cash on or before the 16th day of the following month.  A portion of each distribution may constitute a return of capital for tax purposes.  If the rate we are paying for each day in March, April and May were paid each day for a 365-day period, it would equal a 7.0% annualized rate based on a purchase price of $10.00 per share, an increase from the rate of 6.5% previously declared for March 2009 and prior months.

For the period January 1, 2009 through March 13, 2009, we have sold approximately 4.8 million shares of common stock for gross proceeds of approximately $48.0 million.

The Company and Behringer Harvard Multifamily Advisors I intends to amend the Advisory Management Agreement, effective April 1, 2009.  Under the amended Advisory Management Agreement, we will reimburse our advisor for all Initial Public Offering organization and offering costs as well as all Private Offering organization and offering costs previously advanced by our advisor to the extent not previously reimbursed by us.  Our reimbursements will no longer be subject to a cap at the time of reimbursement, but will be reimbursed by our advisor at the end of the Initial Public Offering to the extent such amounts incurred by us exceed 1.5% of our gross Public Offering.  Further, if the Advisory Management Agreement is terminated or not renewed for reasons other than a material breach by our advisor, the amended Advisory Management Agreement will require our advisor to reimburse the Initial Public Offering organization and offering costs only to the extent such amounts incurred by us through the termination date exceed 15% of our gross Initial Public Offering.

11.Quarterly Results (Unaudited)

Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2008 and 2007 (amounts in thousands, except per share data):

	2008 Quarters Ended
	March 31		June 30		September 30		December 31
Revenues
Rent revenue	$	—	$	—	$	—	$	—
Interest income	425		225		162		72
Net income	697		835		766		332
Basic and diluted weighted average shares outstanding	14,270,538		14,267,364		14,267,364		14,598,539
Basic and diluted earnings per share	$	0.05	$	0.06	$	0.05	$	0.02

	2007 Quarters Ended
	March 31			June 30			September 30			December 31
Revenues
Rent revenue	$	—		$	—		$	—		$	—
Interest income	5			71			11			256
Net income (loss)	(9		)	(280		)	(335		)	417
Basic and diluted weighted average shares outstanding	4,249			878,939			2,152,919			7,806,982
Basic and diluted earnings (loss) per share	$	(2.19	)	$	(0.32	)	$	(0.16	)	$	0.05

*****

F-27

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Manager and Members of

Behringer Harvard Baileys Venture, LLC

Addison, Texas

We have audited the accompanying consolidated balance sheets of Behringer Harvard Baileys Venture, LLC and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, members’ equity, and cash flows for the year ended December 31, 2008 and for the period from June 26, 2007 (date of  inception) through December 31, 2007.  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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the year ended December 31, 2008 and for the period from June 26, 2007 (date of inception) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 31, 2009

F-28

Behringer Harvard Baileys Venture, LLC

Consolidated Balance Sheets

as of December 31, 2008 and 2007

	2008		2007
Assets
Cash and cash equivalents	$	391,175	$	413,486
Accrued interest receivable	187,039		181,104
Mortgage note receivable, net	21,832,880		21,746,252
Deferred offering costs and other assets	5,367		13,218
Total assets	$	22,416,461	$	22,354,060
Liabilities, preferred units and members’ equity
Accrued liabilities	$	308	$	9,820
Commitments and contingencies
Preferred units; $500.00 par value per share; 12.5% dividend per annum; 125 units authorized, 124 units issued and outstanding at December 31, 2008; none issued and outstanding at December 31, 2007	28,902		—
Members’ equity	22,387,251		22,344,240
Total liabilities, preferred units and members’ equity	$	22,416,461	$	22,354,060

See Notes to Consolidated Financial Statements.

F-29

Behringer Harvard Baileys Venture, LLC

Consolidated Statements of Income

	Year ended December 31, 2008			For the period from June 26, 2007 (date of inception) through December 31, 2007
Interest income	$	2,230,529		$	1,063,571
General and administrative expenses	49,208			2,937
Net income	$	2,181,321		$	1,060,634
Preferred units dividends	(7,750		)	—
Net income attributable to the Members	$	2,173,571		$	1,060,634

See Notes to Consolidated Financial Statements.

F-30

Behringer Harvard Baileys Venture, LLC

Consolidated Statements of Members’ Equity

	Preferred Units			Members’ Equity			Total
Balance at June 26, 2007 (date of inception)	$	—		$	—		$	—
Contributions	—			22,144,509			22,144,509
Distributions	—			(860,903		)	(860,903		)
Net income	—			1,060,634			1,060,634
Balance at December 31, 2007	—			22,344,240			22,344,240
Preferred units:
Proceeds from issuance	62,000			—			62,000
Offering costs	(33,098		)	—			(33,098		)
Dividends	—			(7,750		)	(7,750		)
Contributions	—			64,741			64,741
Distributions	—			(2,195,301		)	(2,195,301		)
Net income	—			2,181,321			2,181,321
Balance at December 31, 2008	$	28,902		$	22,387,251		$	22,416,153

See Notes to Consolidated Financial Statements.

F-31

Behringer Harvard Baileys Venture, LLC

Consolidated Statements of Cash Flows

	Year ended December 31, 2008			For the period from June 26, 2007 (date of inception) through December 31, 2007
Cash flows from operating activities
Net income	$	2,181,321		$	1,060,634
Adjustments to reconcile net income to net cash provided by operating activities -
Amortization of deferred financing fees	(86,628		)	(41,218		)
Changes in operating assets and liabilities:
Accrued interest receivable	(5,935		)	(181,104		)
Accrued liabilities	308			—
Cash provided by operating activities	$	2,089,066		$	838,312
Cash flows from investing activities
Other assets	(1,969		)	(3,398		)
Advances on mortgage note receivable, net	—			(21,705,034		)
Cash used in investing activities	(1,969		)	(21,708,432		)
Cash flows from financing activities
Contributions	64,741			22,144,509
Distributions	(2,195,301		)	(860,903		)
Preferred units:
Proceeds from issuance	62,000			—
Offering costs	(33,098		)	—
Dividends paid	(7,750		)	—
Cash (used in) provided by financing activities	(2,109,408		)	21,283,606
Net change in cash and cash equivalents	(22,311		)	413,486
Cash and cash equivalents at beginning of period	413,486			—
Cash and cash equivalents at end of period	$	391,175		$	413,486
Supplemental schedule of noncash financing activities:
Accrued offering costs	$	—		$	9,820

See Notes to Consolidated Financial Statements.

F-32

Behringer Harvard Baileys Venture, LLC

Notes to Consolidated Financial Statements

1.             Organization and Business

Organization

Behringer Harvard Baileys Venture, LLC (which may be referred to as the “Company,” “we,” “us,” or “our”) was effectively organized in Delaware on June 26, 2007.

We are a co-investment joint venture between Behringer Harvard Multifamily OP I LP (“Behringer Harvard Multifamily OP I”), which, through its wholly owned subsidiary Behringer Harvard Baileys, LLC, is our manager and 55% owner, and, Behringer Harvard Master Partnership I LP (“Behringer Harvard Master Partnership I”), our 45% owner.  The 1% general partner of Behringer Harvard Master Partnership I is Behringer Harvard Institutional GP LP, a related party that is indirectly owned by Behringer Harvard Holdings, LLC and the 99% limited partner of Behringer Harvard Master Partnership I is an unaffiliated social work sector pension fund based in The Netherlands, Stichting Pensioenfonds Zorg en Welijn (“PGGM”). Substantially all of the capital provided to Behringer Harvard Master Partnership I is from PGGM.

Behringer Harvard Multifamily OP I is wholly-owned by Behringer Harvard Multifamily REIT I, Inc. (“Behringer Harvard Multifamily REIT I”). Behringer Harvard Multifamily OP I and Behringer Harvard Master Partnership I are collectively referred to herein as the Members and hold, indirectly and directly, respectively, 100% of our voting interests.

We were organized to own 100% of the voting equity interests and approximately 99% of the economic interests in one subsidiary, Behringer Harvard Baileys REIT, LLC (“Baileys REIT”). Substantially all of our business is conducted through Baileys REIT.  Baileys REIT was organized to make a mortgage loan to Fairfield Baileys LLC (the “Project Entity”), a wholly owned subsidiary of Fairfield Baileys Investors LP (“the Partnership Entity”). The Partnership Entity is owned by a commercial developer and by a third party investor (“BREOF Baileys”) and was organized to develop and own one apartment community, commonly known as Fairfield at Baileys Crossing (“Fairfield at Baileys Crossing”). Fairfield at Baileys Crossing is located in Fairfax County, Virginia, is currently under development, has an estimated construction budget of approximately $147.6 million (unaudited), and is expected to be an apartment community of approximately 414 rental units (unaudited) within three-, four- and seven-story structures (unaudited). Fairfield at Baileys Crossing is also expected to have an attached parking structure.

Neither we nor Baileys REIT have employees and both are supported by related party arrangements. Behringer Harvard Multifamily REIT I is externally managed by Behringer Harvard Multifamily Advisors I LP (“Behringer Harvard Multifamily Advisors I”), a Texas limited partnership organized in 2006.  Behringer Harvard Multifamily Advisors I, through Behringer Harvard Multifamily REIT I, is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.

2.             Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as amortization and accrued liabilities.  Actual results could differ from those estimates.

Income Taxes

Baileys REIT has elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code, and has qualified as a REIT since the period ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Even if we qualify for taxation

F-33

as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

We have adopted the provisions of FASB Interpretation No. 48 Accounting for uncertainty in income taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). Under FIN 48, we recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. To date, we are unaware of any uncertain tax positions.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the account of Baileys REIT.  All inter-company transactions, balances and profits are eliminated in consolidation.  Interests in entities acquired are evaluated for consolidation based on Financial Accounting Standards Board Interpretation (“FIN”) 46R “Consolidation of Variable Interest Entities,” which requires the consolidation of variable interest entities (“VIEs”) in which we are deemed to be the primary beneficiary.  If the interest in the entity is determined to not be a VIE under FIN 46R, then the entities are evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and Emerging Issues Task Force (“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.” We have determined that we are not a primary beneficiary of any VIEs.

Cash and Cash Equivalents

We consider investments in highly-liquid money market funds with original maturities of three months or less to be cash equivalents.  In the ordinary course of our business, cash requirements for substantially all of our investments and obligations are paid on our behalf directly from our Members to the other party. We have presented these transactions as cash inflows and outflows in our consolidated statement of cash flows.

Deferred Offering Costs

Amounts include costs related to our Preferred Units offering. In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

Mortgage Note Receivable

The mortgage note receivable is reported at its outstanding principal balance net of any unearned income from unamortized loan origination fees. Loan origination fees are generally deferred and are amortized as adjustments to interest income using a straight-line method that approximates the effective interest method over the life of the related debt. During 2007 we received origination fees of $433,000.  Included are unamortized deferred loan fees of $305,000 and $392,000 as of December 31, 2008 and 2007, respectively.

The mortgage note receivable is coterminous with the Project Entity’s construction loan and the Project Entity remains obligated to pay principal and interest due regardless of its intent or ability to sell or refinance the property. In addition, the mortgage note receivable does not contain a right to participate in expected residual profit from the sale or refinancing of the property. As a result, the mortgage note receivable is accounted for as a loan pursuant to the guidance in Exhibit I of AICPA Practice Bulletin 1 on accounting of real estate acquisition, development, or construction arrangements.

Impairment of Mortgage Note Receivable

We review the terms and conditions underlying the outstanding balance of the mortgage note receivable. If we determine that it is probable that all amounts due under the terms of the note will not be collected, an impairment charge is recorded to the extent that the investment in the note exceeds our estimate of the fair value of the collateral securing such note.

We assess impairment at the individual project basis. In evaluating the mortgage note receivable for impairment, management makes several estimates and assumptions about the financial condition of the borrower and the guarantor. In addition, management makes several estimates and assumptions about the property and the additional collateral provided by the guarantor, including but not limited to, the projected disposition dates, estimated future cash flows, and the projected sales prices.  A change in these estimates and assumptions could result in understating or overstating the carrying value of the mortgage note receivable which could be material to our consolidated financial statements.

F-34

No impairment charges have been recorded in 2008 or 2007.

Concentration of Credit Risk

In the ordinary course of our business, we hold cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.

The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank.  Beginning October 3, 2008 through December 31, 2009, the FDIC will insure up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories.  Unlimited deposit insurance coverage may be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guarantee Program through December 31, 2009.

3.             New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  We adopted the provisions of SFAS No. 157 effective January 1, 2008, and did not have a material effect on our consolidated results of operations or financial position.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP SFAS No. 157-2”).  FSP SFAS No. 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The provisions of FSP SFAS No. 157-2 are effective for our fiscal year beginning January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.”  The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates.  A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.  SFAS No. 159 was effective for fiscal years beginning after November 15, 2007.  We have not elected the fair value measurement option for any financial assets or liabilities at the present time.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  This Statement replaces SFAS No. 141 “Business Combinations” but retains the fundamental requirement that the acquisition method of accounting, or purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement is broader in scope than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration.  SFAS No. 141(R) applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  This Statement also makes certain other modifications to Statement 141, including a broader definition of a business and the requirement that acquisition related costs are expensed as incurred.  This statement applies to our business combinations occurring beginning January 1, 2009.  The acquisition of a real estate property has been determined to meet the definition of a business combination as defined in SFAS No. 141(R).  Therefore, SFAS No. 141(R) may have a material effect on our accounting for future consolidated acquisitions of properties as acquisition costs will no longer be capitalized, but will be expensed beginning January 1, 2009.

4.             Private Offering

The limited liability company agreement of Baileys REIT has established 125 units of Class A, preferred, cumulative, non-voting membership units (“Preferred Units”).  We commenced a private offering of the Preferred Units in November 2007.  During 2008, we sold 124 Preferred Units and raised gross offering proceeds totaling $62,000. Additional offering costs associated with the preferred units issuance incurred during 2008 were approximately $24,000 and have been recorded as an offset to the Preferred Units balance in accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Miscellaneous Accounting — Expenses of Offering.

F-35

Included in deferred offering costs are offering expenses incurred for the Preferred Units as of December 31, 2007 of $9,820. In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

The Preferred Units pay an annual dividend of 12.5% and are senior in priority to all other members’ equity of Baileys REIT.  Baileys REIT, at its option, may redeem the Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $500.00 per unit, plus all accrued and unpaid distributions thereon to and including the date fixed fore redemption, plus a premium per unit as follows: (1) until December 31, 2009, $100; (2) from January 1, 2010 to December 31, 2010, $75; (3) from January 1, 2011 to December 31, 2011, $50; (4) from January 1, 2012 to December 2012, $25; and thereafter, no redemption premium.  The Preferred Units are not redeemable by the holders and we have no current intent to exercise our redemption option.

5.             Related Party Arrangements

We are dependent on the Members and their affiliates for our operational and investment capital needs.  We are also ultimately dependent, through Behringer Harvard Multifamily REIT I, on Behringer Harvard Multifamily Advisors I and  Behringer Harvard Multifamily Management Services, LLC  for certain services that are essential to us, including, asset acquisition and disposition decisions, property management and leasing services and other general administrative responsibilities.  In the event that these companies were unable to provide us with the respective capital or services, we would be required to obtain such capital or services from other sources. We recognize all amounts at the time incurred by the Members on our behalf in our financial statements with an offset to Members Equity.

6.             Mortgage Note Receivable

In July 2007, Baileys REIT committed to make a mortgage loan in the amount of $22.1 million to the Project Entity (the “Mortgage Note”). We have fully funded the commitment as of December 31, 2007.  The Mortgage Note bears interest at the rate of 9.5% per annum and matures on July 9, 2012.  Through the maturity date interest is payable on a monthly basis from a budgeted interest reserve in the amount of $5,848,000 and from available net operational cash flows; at maturity, principal and unpaid interest is due.  However, if Baileys REIT does not exercise its option to convert the Mortgage Note into an equity interest in the Partnership Entity, as described below, then the payment of accrued interest on the Mortgage Note from funds other than the interest reserve will be  subordinate to the payment of a 9.5% preferred return payable to the partners in the Partnership Entity and to the return of their equity investment in the Partnership Entity.  Generally, no prepayment of the Mortgage Note may be made except (i) prepayment is permitted 150 days after the project is completed and (ii) prepayment is required if any of the interests in the Partnership Entity that are the subject of the purchase option are sold, including pursuant to the exercise of the purchase option or BREOF Baileys exercises its contingent sell option (as discussed below) or there is a sale of the project. The Mortgage Note is secured by (i) a lien pursuant to a deed of trust on the project that is subordinate to the lien granted to the senior lender and (ii) a pledge by the Partnership Entity of all of the ownership interests in the Project Entity.  In connection with the making of the Mortgage Note, Baileys REIT agreed with BREOF Baileys that if Baileys REIT exercises any of its remedies under these security arrangements, including foreclosure or a power of sale, such that Baileys REIT acquires the Project Entity or the project or receives any proceeds under a power of sale of the Project Entity or the project, BREOF Baileys is entitled to share in such ownership or proceeds under substantially the same co-ownership terms of the Partnership Entity, as though Baileys REIT had exercised the option discussed below.

The Mortgage Note is also supported by a guarantee from the commercial developer which has guaranteed completion of the development of the project in accordance with its plans and specifications if, for any reason, the Project Entity abandons the project before its completion or fails to complete the project on the agreed schedule and pay all construction costs in full, including construction cost overruns in excess of the construction budget.  The developer has also guaranteed repayment of the Mortgage Note should the Project Entity become the subject of a bankruptcy or insolvency proceeding, provided Baileys REIT does not consent in writing to or otherwise join as a party in such proceeding.

The Partnership Entity and Project Entity were formed by the commercial developer to purchase, finance, and develop one real estate project; they are not consolidated into our financial statements.  Our involvement with the Partnership Entity and Project Entity began at the time we committed to the Mortgage Note, and our potential loss exposure is limited to the funded portion of our commitment.  The Partnership Entity and Project Entity also owe other parties, including the senior project lender.  Neither we nor Baileys REIT have a primary or secondary obligation with respect to such obligation.

F-36

7.             Commitments and Contingencies

The Fairfield at Baileys Crossing project is currently under development and is estimated to be completed in the first calendar quarter of 2010.

Contingent purchase option.  Baileys REIT has a contingent purchase option to acquire a 60% limited partnership interest in the Partnership Entity (the “Purchase Option”).  The Purchase Option is not currently exercisable and cannot be exercised until the development is complete and the property has been certificated for occupancy. Baileys REIT may exercise the Purchase Option within 90 days of completion of the Fairfield at Baileys Crossroads project or 30 days of an uncured event of default under the senior loan.  The exercise price will generally be calculated at the conversion amount of the Mortgage Note plus any additional amounts necessary to adjust the owners’ capital account balances to their stated ownership percentages at the time of exercise. Upon exercise, any outstanding principal and interest on the Mortgage Note will become second-priority capital in the Partnership Entity and Baileys REIT will be entitled to receive an annual preferred return of 9.5%.

BREOF Baileys contingent sell option.  BREOF Baileys has an option to sell its stated limited partnership interest to Baileys REIT at a price to be negotiated in the future or in the absence of mutual agreement between the parties, the amount that would be distributable to BREOF Baileys if the project was sold, as determined by an arbitration process on the limited partners, proceeds upon a sale (the “Sell Option”). The Sell Option is not currently exercisable and cannot be exercised until development is complete and the property has been certificated for occupancy. The Sell Option becomes exercisable upon completion of the project and expires in 36 months. BREOF Baileys equity balance is approximately $11.8 million (unaudited) as of December 31, 2008 and 2007.

Developer Partners’ contingent sell option and BREOF Baileys tag-along right.  If Baileys REIT exercises the Purchase Option and is a limited partner in the Partnership Entity, then the partners owned by the developer (the “Developer Partners”) have a right, commencing on the 13th month following completion of the project and continuing until the fourth anniversary of the completion of the project, to initiate a procedure to ascertain the fair market value of the project and, thus, to ascertain the value of the partnership interests of the Developer Partners in the Partnership Entity.  If such value is not mutually agreed upon by the Developer Partners and Baileys REIT, then such value would equal the distributions that the Developer Partners would receive if the project were sold at its fair market value, which would be determined by an arbitration process.  Once such value is agreed upon or determined, Baileys REIT has an option to purchase the Developer Partners’ interests at that price or to request that the Developer Partners cause the Project Entity to sell the project for a price that is not less than the determined fair market value.  The Developer Partners may then elect whether to proceed with causing a sale of the project.  If the Developer Partners do not elect to cause a sale of the project or are unable to consummate such a sale, then the Developer Partners do not have any additional right to initiate a liquidity event similar to that described in this paragraph.  If Baileys REIT elects to purchase the Developer Partners’ interests as provided above, then the limited partner has an option to require Baileys REIT to purchase the limited partners’ interest for an amount equal to the distributions that the limited partner would receive if the project were sold at fair market value as determined above.  If the limited partner elects not to exercise this tag-along right, then any partner in the Partnership Entity may initiate the buy/sell procedures described below.

Baileys REIT’s Call Right.  If Baileys REIT exercises the Purchase Option and is a limited partner in the Partnership Entity, then Baileys REIT has a right, commencing upon the earlier of either (i) 48 months after completion of the project or (ii) an election by the limited partner not to exercise its tag-along rights in connection with the exercise of the developer partners’ contingent sell option, to initiate a procedure to ascertain the fair market value of the project and, thus, to ascertain the value of the partnership interests of all of then-current partners in the partnership.  If such value is not mutually agreed upon by Baileys REIT and the other partners, then such value would equal the collective distributions that the other partners would receive if the project were sold at its fair market value, which would be determined by an arbitration process.  Once such value is agreed upon or determined, Baileys REIT has an option to purchase the other partners’ interests at that price.  If Baileys REIT does not elect to purchase the other parties’ interests, then any partner has the right to initiate buy/sell procedures described below.

Buy/Sell Rights.  Under the limited circumstances described above, any partner in the Partnership Entity may initiate buy/sell procedures with respect to their partnership interests.  Under those procedures, a partner could make an offer to purchase the interests of the other partners based on an offer price for the partnership’s assets and the other partners would either elect to sell their interests based on that price or elect to purchase the offering partner’s partnership interests based on that price.  The partnership agreement includes provisions requiring some partners to act as a group in connection with the exercise of the buy/sell provisions.

*****

F-37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Manager and Members of

Behringer Harvard Cameron House Venture, LLC

Addison, Texas

We have audited the accompanying consolidated balance sheets of Behringer Harvard Cameron House Venture, LLC and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, members’ equity, and cash flows for the year ended December 31, 2008 and for the period from September 12, 2007 (date of  inception) through December 31, 2007.  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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the year ended December 31, 2008 and for the period from September 12, 2007 (date of inception) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 31, 2009

F-38

Behringer Harvard Cameron House Venture, LLC

Consolidated Balance Sheets

as of December 31, 2008 and 2007

	2008		2007
Assets
Cash and cash equivalents	$	189,397	$	602,690
Accrued interest receivable	166,191		58,980
Mortgage note receivable, net	19,038,554		12,042,077
Deferred offering costs and other assets	5,569		12,006
Total assets	$	19,399,711	$	12,715,753
Liabilities, preferred units and members’ equity
Accrued liabilities	$	308	$	209,603
Commitments and contingencies
Preferred units, $500.00 par value per share;	26,473		—
12.5% dividend per annum; 125 units authorized, 121 units issued and outstanding at December 31, 2008; none issued and outstanding at December 31, 2007
Members’ equity	19,372,930		12,506,150
Total liabilities, preferred units and members’ equity	$	19,399,711	$	12,715,753

See Notes to Consolidated Financial Statements.

F-39

Behringer Harvard Cameron House Venture, LLC

Consolidated Statements of Income

	Year ended December 31, 2008			For the period from September 12, 2007 (date of inception) through December 31, 2007
Interest income	$	1,691,279		$	85,203
General and administrative expenses	49,167			2,937
Net income	$	1,642,112		$	82,266
Preferred units dividends	(7,080		)	—
Net income attributable to the Members	$	1,635,032		$	82,266

See Notes to Consolidated Financial Statements.

F-40

Behringer Harvard Cameron House Venture, LLC

Consolidated Statements of Members’ Equity

	Preferred Units			Members’ Equity			Total
Balance at September 12, 2007 (date of inception)	$	—		$	—		$	—
Contributions	—			12,423,884			12,423,884
Net income	—			82,266			82,266
Balance at December 31, 2007	—			12,506,150			12,506,150
Preferred units:
Proceeds from issuance	60,500			—			60,500
Offering costs	(34,027		)	—			(34,027		)
Dividends	—			(7,080		)	(7,080		)
Contributions	—			6,985,181			6,985,181
Distributions	—			(1,753,433		)	(1,753,433		)
Net income	—			1,642,112			1,642,112
Balance at December 31, 2008	$	26,473		$	19,372,930		$	19,399,403

See Notes to Consolidated Financial Statements.

F-41

Behringer Harvard Cameron House Venture, LLC

Consolidated Statements of Cash Flows

	Year ended December 31, 2008			For the period from September 12, 2007 (date of inception) through December 31, 2007
Cash flows from operating activities
Net income	$	1,642,112		$	82,266
Adjustments to reconcile net income to net cash provided by operating activities -
Amortization of deferred financing fees	(75,669		)	(3,661		)
Changes in operating assets and liabilities:
Accrued interest receivable	(107,211		)	(58,980		)
Accrued liabilities	(201,475		)	201,783
Cash provided by operating activities	1,257,757			221,408
Cash flows from investing activities
Other assets	(1,383		)	(4,186		)
Advances on mortgage note receivable, net	(6,920,808		)	(12,038,416		)
Cash used in investing activities	(6,922,191		)	(12,042,602		)
Cash flows from financing activities
Contributions	6,985,181			12,423,884
Distributions	(1,753,433		)	—
Preferred units:
Proceeds from issuance	60,500			—
Offering costs	(34,027		)	—
Dividends paid	(7,080		)	—
Cash provided by financing activities	5,251,141			12,423,884
Net change in cash and cash equivalents	(413,293		)	602,690
Cash and cash equivalents at beginning of period	602,690			—
Cash and cash equivalents at end of period	$	189,397		$	602,690
Supplemental schedule of noncash financing activities -
Accrued offering costs	$	—		$	7,820

See Notes to Consolidated Financial Statements.

F-42

Behringer Harvard Cameron House Venture, LLC

Notes to Consolidated Financial Statements

1.Organization and Business

Organization

Behringer Harvard Cameron House Venture, LLC (which may be referred to as the “Company,” “we,” “us,” or “our”) was effectively organized in Delaware on September 12, 2007.

We are a co-investment joint venture between Behringer Harvard Multifamily OP I LP (“Behringer Harvard Multifamily OP I”), which, through its wholly owned subsidiary Behringer Harvard Cameron House, LLC, our manager and 55% owner, and, Behringer Harvard Master Partnership I LP (“Behringer Harvard Master Partnership I”), our 45% owner.  The 1% general partner of Behringer Harvard Master Partnership I is Behringer Harvard Institutional GP LP, a related party that is indirectly owned by Behringer Harvard Holdings, LLC and the 99% limited partner of Behringer Harvard Master Partnership I is an unaffiliated social work sector pension fund based in The Netherlands, Stichting Pensioenfonds Zorg en Welijn (“PGGM”). Substantially all of the capital provided to Behringer Harvard Master Partnership I is from PGGM.

Behringer Harvard Multifamily OP I is wholly owned by Behringer Harvard Multifamily REIT I, Inc. (“Behringer Harvard Multifamily REIT I”). Behringer Harvard Multifamily OP I and Behringer Harvard Master Partnership I are collectively referred to herein as the Members and hold indirectly and directly, respectively, 100% of our voting interests.

We were organized to own 100% of the voting equity interests and approximately 99% of the economic interests in one subsidiary, Behringer Harvard Cameron House REIT, LLC, (“Cameron House REIT”). Substantially all of our business is conducted through Cameron House REIT. Cameron House REIT was organized to make a mortgage loan to FF Cameron House LLC (the “Mortgage Borrower”), which is wholly owned by Fairfield Silver Spring, L.P. (“the Project Entity”). The Project Entity is owned by a commercial developer and by a third party investor (“BREOF Cameron House”) and was organized to develop and own one apartment community, commonly known as Fairfield at Cameron House (“Fairfield at Cameron House”). Fairfield at Cameron House is currently under development in Silver Spring, Maryland, has an estimated construction budget of approximately $128.9 million (unaudited), and is expected to be a 15 story multifamily high-rise (unaudited) with approximately 325 rental units (unaudited).

Neither we nor Cameron House REIT have employees and both are supported by related party arrangements. Behringer Harvard Multifamily REIT I is externally managed by Behringer Harvard Multifamily Advisors I LP (“Behringer Harvard Multifamily Advisors I”), a Texas limited partnership organized in 2006.  Behringer Harvard Multifamily Advisors I, through Behringer Harvard Multifamily REIT I, is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.

2.Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as amortization and accrued liabilities.  Actual results could differ from those estimates.

Income Taxes

Cameron House REIT has elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code, and has qualified as a REIT since the period ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Even if we qualify for

F-43

taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

We have adopted the provisions of FASB Interpretation No. 48 Accounting for uncertainty in income taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). Under FIN 48, we recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. To date, we are unaware of any uncertain tax positions.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the accounts Cameron House REIT.  All inter-company transactions, balances and profits have been eliminated in consolidation.  Interests in entities acquired are evaluated for consolidation based on Financial Accounting Standards Board Interpretation (“FIN”) 46R “Consolidation of Variable Interest Entities,” which requires the consolidation of variable interest entities (“VIEs”) in which we are deemed to be the primary beneficiary.  If the interest in the entity is determined to not be a VIE under FIN 46R, then the entities are evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and Emerging Issues Task Force (“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.” We have determined that we are not a primary beneficiary of any VIEs.

Cash and Cash Equivalents

We consider investments in highly-liquid money market funds with original maturities of three months or less to be cash equivalents.  In the ordinary course of our business, cash requirements for substantially all of our investments and obligations are paid on our behalf directly from our Members to the other party. We have presented these transactions as cash inflows and outflows in our consolidated statement of cash flows.

Deferred Offering Costs

Amounts include costs related to our Preferred Units offering. In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

Mortgage Note Receivable

The mortgage note receivable is reported at its outstanding principal balance net of any unearned interest income from unamortized loan origination fees. Loan origination fees are generally deferred and are amortized as adjustments to interest income using a straight-line method that approximates the effective interest method over the life of the related debt. During 2007 we received origination fees of $378,000. Included are unamortized deferred origination fees of $299,000 and $375,000 as of December 31, 2008 and 2007, respectively.

The Mortgage Borrower remains obligated to pay principal and interest due regardless of its intent or ability to sell or refinance the property. In addition, the mortgage note receivable does not contain a right to participate in expected residual profit from the sale or refinancing of the property. As a result, the mortgage note receivable is accounted for as a loan pursuant to the guidance in Exhibit I of AICPA Practice Bulletin 1 on accounting of real estate acquisition, development, or construction arrangements.

Impairment of Mortgage Note Receivable

We review the terms and conditions underlying the outstanding balance of the mortgage note receivable. If we determine that it is probable that all amounts due under the terms of the note will not be collected, an impairment charge is recorded to the extent that the investment in the note exceeds our estimate of the fair value of the collateral securing such note.

We assess impairment at the individual project basis. In evaluating the mortgage note receivable for impairment, management makes several estimates and assumptions about the financial condition of the borrower and the guarantor. In addition, management makes several estimates and assumptions about the property and the additional collateral provided by the guarantor, including but not limited to, the projected disposition dates, estimated future cash flows, and the projected sales prices.  A change in these estimates and assumptions could result in understating or overstating the carrying value of the mortgage note receivable which could be material to our consolidated financial statements.

F-44

No impairment charges have been recorded in 2008 or 2007.

Concentration of Credit Risk

In the ordinary course of our business, we hold cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.

The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank.  Beginning October 3, 2008 through December 31, 2009, the FDIC will insure up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories.  Unlimited deposit insurance coverage may be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guarantee Program through December 31, 2009.

3.New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  We adopted the provisions of SFAS No. 157 effective January 1, 2008, and did not have a material effect on our consolidated results of operations or financial position.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP SFAS No. 157-2”).  FSP SFAS No. 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The provisions of FSP SFAS No. 157-2 are effective for our fiscal year beginning January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.”  The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates.  A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  We have not elected the fair value measurement option for any financial assets or liabilities at the present time.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  This Statement replaces SFAS No. 141 “Business Combinations” but retains the fundamental requirement that the acquisition method of accounting, or purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement is broader in scope than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration.  SFAS No. 141(R) applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  This Statement also makes certain other modifications to Statement 141, including a broader definition of a business and the requirement that acquisition related costs are expensed as incurred.  This statement applies to our business combinations beginning January 1, 2009.  The acquisition of a real estate property has been determined to meet the definition of a business combination as defined in SFAS No. 141(R).  Therefore, SFAS No. 141(R) may have a material effect on our accounting for future consolidated acquisitions of properties as acquisition costs will no longer be capitalized, but will be expensed beginning January 1, 2009.

4.Private Offering

The limited liability company agreement of Cameron House REIT has established 125 units of Class A, preferred, cumulative, non-voting membership units (“Preferred Units”).  We commenced a private offering of the Preferred Units in November 2007.   During 2008, we sold 121 Preferred Units and raised gross offering proceeds totaling $60,500. Additional offering costs associated with the Preferred Units issuance incurred during 2008 were approximately $24,000 and have been recorded as an offset to the Preferred Units balance in accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Miscellaneous Accounting — Expenses of Offering.

Included in deferred offering costs are offering expenses incurred for the Preferred Units as of December 31, 2007 of $7,820. In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 financial statements as an offset to the Preferred Units balance.

F-45

The Preferred Units pay an annual dividend of 12.5% and are senior in priority to all other members’ equity of Cameron House REIT.  Cameron House’s REIT, at its option, may redeem the Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $500.00 per unit, plus all accrued and unpaid distributions thereon to and including the date fixed fore redemption, plus a premium per unit as follows: (1) until December 31, 2009, $100; (2) from January 1, 2010 to December 31, 2010, $75; (3) from January 1, 2011 to December 31, 2011, $50; (4) from January 1, 2012 to December 2012, $25; and thereafter, no redemption premium.  The Preferred Units are not redeemable by the unit holders and we have no current intent to exercise our redemption option.

5.Related Party Arrangements

We are dependent on the Members and their affiliates for our operational and investment capital needs.  We are also ultimately dependent, through Behringer Harvard Multifamily REIT I, on Behringer Harvard Multifamily Advisors I and  Behringer Harvard Multifamily Management Services, LLC  for certain services that are essential to us, including, asset acquisition and disposition decisions, property management and leasing services and other general administrative responsibilities.  In the event that these companies were unable to provide us with the respective capital or services, we would be required to obtain such capital or services from other sources. We recognize all amounts at the time incurred by the Members on our behalf in our financial statements with an offset to Members Equity.

6.Mortgage Note Receivable

In December 2007, Cameron House REIT committed to make a mortgage loan in the amount of $19.3 million to the Mortgage Borrower (the “Mortgage Note”). We funded $12.4 million of the commitment as of December 31, 2007, and funded the remaining balance in 2008.  The Mortgage Note bears interest at the rate of 9.5% per annum and matures on December 11, 2012.  Through the maturity date, interest is payable on a monthly basis from a budgeted interest reserve in the amount of $4,593,000 and from available net operational cash flows. At maturity principal and unpaid interest is due.  However, if Cameron REIT does not exercise its option to convert the Mortgage Note into an equity interest in the Partnership Entity, as described below, then the payment of accrued interest on the Mortgage Note from funds other than the interest reserve will be subordinate to the payment of a 9.5% preferred return payable to the partners in the Project Entity and to the return of their equity investment in the Project Entity.  All unpaid interest on the Mortgage Note will be payable upon final maturity of the Mortgage Note.  Generally no prepayment of the Mortgage Note may be made except (i) prepayment is permitted 150 days after the project is completed and (ii) prepayment is required if any of the interests in the Project Entity that are the subject of the purchase option are sold (including pursuant to the exercise of the purchase option) or there is a sale of the project.

The Mortgage Note is secured by a lien pursuant to a deed of trust on the project that is subordinate to the lien granted to the senior lender.  In connection with the making of the Mortgage Note, Cameron House REIT agreed with BREOF Cameron that if Cameron House REIT exercises any of its remedies under these security arrangements, including foreclosure or a power of sale, such that Cameron House REIT acquires the Project Entity or the project or receives any proceeds under a power of sale of the Project Entity or the project, BREOF Cameron is entitled to share in such ownership or proceeds under substantially the same co-ownership terms of the Partnership Entity, as though Cameron House REIT had exercised the option discussed below.

The Mortgage Note is also supported by a guarantee from the commercial developer which has guaranteed completion of the development of the project in accordance with its plans and specifications if, for any reason, the Mortgage Borrower abandons the project before its completion or fails to complete the project on the agreed schedule and pay all construction costs in full, including construction cost overruns in excess of the construction budget.  The developer has also guaranteed repayment of the Mortgage Loan should the Mortgage Borrower become the subject of a bankruptcy or insolvency proceeding, provided Cameron House REIT does not consent in writing to or otherwise join as a party in such proceeding.  In addition the Project Entity has issued a guaranty of payment and performance in respect of the Mortgage Note.

The Project Entity and Mortgage Borrower were formed by the commercial developer to purchase, finance, and develop one real estate project; these entities are not consolidated into our financial statements. Our involvement with them began at the time we committed to the Mortgage Note, and our potential loss exposure is limited to the funded portion of our commitment. The Project Entity and Mortgage Borrower also owe amounts to other parties, including the senior construction lender. Neither we nor Cameron House REIT have a primary or secondary obligation with respect to such obligations.

F-46

7.Commitments and Contingencies

The Fairfield at Cameron House project is currently under development and is estimated to be completed in the first calendar quarter of 2010.

Contingent purchase option.  Cameron House REIT has a contingent purchase option to acquire a 60% limited partnership interest in the Project Entity (the “Purchase Option”).  The Purchase Option is not currently exercisable and cannot be exercised until development is complete and the property has been certified for occupancy. Cameron House REIT may exercise the Purchase Option within 90 days of completion of the Fairfield at Cameron House project.  The exercise price will generally be calculated at the conversion amount of the Mortgage Note plus any additional amounts necessary to adjust the owners’ capital accounts to their stated ownership percentages at the time of exercise.  Upon exercise, any outstanding principal and interest on the Mortgage Note will become second-priority capital in the Project Entity and Cameron House REIT will be entitled to receive an annual preferred return of 9.5%.

BREOF Cameron’s contingent sell option.  BREOF Cameron has an option to sell its limited partnership interest in the Project Entity to Cameron House REIT at a price to be negotiated in the future or in the absence of mutual agreement between the parties, the amount that would be distributable to BREOF Cameron if the project was sold, as determined by an arbitration process (the “Sell Option”).  The Sell Option is not currently exercisable and cannot be exercised until development is complete and the property has been certified for occupancy.  The Sell Option becomes exercisable upon completion of the project and expires after 90 days. This limited partnership equity balance is approximately $10.3 million (unaudited) as of December 31, 2008 and 2007.

Developer Partners’ contingent sell option and BREOF Cameron’s tag-along right.  If Cameron House REIT exercises the Purchase Option and is a limited partner in the Project Entity, then the partners owned by the developers (the “Developer Partners”) have a right, commencing on the 13th month following completion of the project and continuing until the fourth anniversary of the completion of the project, to initiate a procedure to ascertain the fair market value of the project and, thus, to ascertain the value of the partnership interests of the Developer Partners in the Project Entity.  If such value is not mutually agreed upon by the Developer Partners and Cameron House REIT, then such value would equal the distributions that the Developer Partners would receive if the project were sold at its fair market value, which would be determined by an arbitration process.  Once such value is agreed upon or determined, Cameron House REIT has an option to purchase the Developer Partners’ interests at that price or to request that the Developer Partners cause the Project Entity to sell the project for a price that is not less than the determined fair market value. The Developer Partners may then elect whether to proceed with causing a sale of the project.  If the Developer Partners do not elect to cause a sale of the project or are unable to consummate such a sale, then the Developer Partners do not have any additional right to initiate a liquidity event similar to that described in this paragraph.  If Cameron House REIT elects to purchase the Developer Partners’ interests as provided above, then the limited partner has an option to require Cameron House REIT to purchase the limited partner’s interest for an amount equal to the distributions that the limited partner would receive if the project were sold at fair market value as determined above.  If BREOF Cameron elects not to exercise this tag-along right, then any partner in the Project Entity may initiate the buy/sell procedures described below.

Cameron House REIT’s Call Right.  If Cameron House REIT exercises the Purchase Option and is a limited partner in the Project Entity, then Cameron House REIT has a right, commencing upon the earlier of either (i) 48 months after completion of the project or (ii) an election by BREOF Cameron House not to exercise its tag-along rights in connection with the exercise of the developer partners’ put right, to initiate a procedure to ascertain the fair market value of the project and, thus, to ascertain the value of the partnership interests of all of then-current partners in the Project Entity.  If such value is not mutually agreed upon by Cameron House REIT and the other partners, then such value would equal the collective distributions that the other partners would receive if the project were sold at its fair market value, which would be determined by an arbitration process.  Once such value is agreed upon or determined, Cameron House REIT has an option to purchase the other partners’ interests at that price.  If Cameron House REIT does not elect to purchase the other parties’ interests, then any partner has the right to initiate buy/sell procedures described below.

Buy/Sell Rights.  Under the limited circumstances described above, any partner in the Project Entity may initiate buy/sell procedures with respect to their partnership interests.  Under those procedures, a partner could make an offer to purchase the interests of the other partners based on an offer price for the partnership’s assets and the other partners would either elect to sell their interests based on that price or elect to purchase the offering partner’s partnership interests based on that price.  The partnership agreement includes provisions requiring some partners to act as a group in connection with the exercise of the buy/sell provisions.

*****

F-47

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Manager and Members of

Behringer Harvard Columbia Venture, LLC

Addison, Texas

We have audited the accompanying consolidated balance sheets of Behringer Harvard Columbia Venture, LLC and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, members’ equity, and cash flows for the year ended December 31, 2008 and for the period from August 6, 2007 (date of  inception) through December 31, 2007.  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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the year ended December 31, 2008 and for the period from August 6, 2007 (date of inception) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 31, 2009

F-48

Behringer Harvard Columbia Venture, LLC

Consolidated Balance Sheets

as of December 31, 2008 and 2007

	2008		2007
Assets
Cash and cash equivalents	$	198,142	$	268,559
Accrued interest receivable	163,242		163,242
Mortgage note receivable, net	19,502,329		19,382,600
Investment in unconsolidated real estate joint venture	3,532,456		3,552,938
Deferred offering costs	—		9,820
Total assets	$	23,396,169	$	23,377,159
Liabilities, preferred units and members’ equity
Accrued liabilities	$	1,086	$	9,820
Commitments and contingencies
Preferred units; $500.00 par value per share; 12.5% dividend per annum; 125 units authorized, 124 units issued and outstanding at December 31, 2008; none issued and outstanding at December 31, 2007	28,902		—
Members’ equity	23,366,181		23,367,339
Total liabilities, preferred units and members’ equity	$	23,396,169	$	23,377,159

See Notes to Consolidated Financial Statements.

F-49

Behringer Harvard Columbia Venture, LLC

Consolidated Statements of Income

	Year ended December 31, 2008			For the period from August 6, 2007 (date of inception) through December 31, 2007
Interest income	$	2,052,176		$	458,193
General and administrative expenses	49,724			2,939
Equity in loss of unconsolidated real estate joint venture	23,476			—
Net income	$	1,978,976		$	455,254
Preferred units dividends	(7,750		)	—
Net income attributable to the Members	$	1,971,226		$	455,254

See Notes to Consolidated Financial Statements.

F-50

Behringer Harvard Columbia Venture, LLC

Consolidated Statements of Members’ Equity

	Preferred Units			Members’ Equity			Total
Balance at August 6, 2007 (date of inception)	$	—		$	—		$	—
Contributions	—			23,510,731			23,510,731
Distributions	—			(598,646		)	(598,646		)
Net income	—			455,254			455,254
Balance at December 31, 2007	—			23,367,339			23,367,339
Preferred units:
Proceeds from issuance	62,000			—			62,000
Offering costs	(33,098		)	—			(33,098		)
Dividends	—			(7,750		)	(7,750		)
Contributions	—			65,505			65,505
Distributions	—			(2,037,889		)	(2,037,889		)
Net income	—			1,978,976			1,978,976
Balance at December 31, 2008	$	28,902		$	23,366,181		$	23,395,083

See Notes to Consolidated Financial Statements.

F-51

Behringer Harvard Columbia Venture, LLC

Consolidated Statements of Cash Flows

	Year ended December 31, 2008			For the period from August 6, 2007 (date of inception) through December 31, 2007
Cash flows from operating activities
Net income	$	1,978,976		$	455,254
Adjustments to reconcile net income to net cash provided by operating activities -
Amortization of deferred financing fees	(119,729		)	(26,392		)
Equity in loss of unconsolidated real estate joint venture	23,476			—
Changes in operating assets and liabilities:
Accrued interest receivable	—			(163,242		)
Accrued liabilities	1,086			—
Cash provided by operating activities	1,883,809			265,620
Cash flows from investing activities
Advances on mortgage note receivable, net	—			(19,356,208		)
Investment in unconsolidated real estate joint venture	(2,994		)	(3,552,938		)
Cash used in investing activities	(2,994		)	(22,909,146		)
Cash flows from financing activities
Contributions	65,505			23,510,731
Distributions	(2,037,889		)	(598,646		)
Preferred units:
Proceeds from issuance	62,000			—
Offering costs	(33,098		)	—
Dividends paid	(7,750		)	—
Cash (used in) provided by financing activities	(1,951,232		)	22,912,085
Net change in cash and cash equivalents	(70,417		)	268,559
Cash and cash equivalents at beginning of period	268,559			—
Cash and cash equivalents at end of period	$	198,142		$	268,559
Supplemental schedule of noncash financing activities -
Accrued offering costs	$	—		$	9,820

See Notes to Consolidated Financial Statements.

F-52

Behringer Harvard Columbia Venture, LLC

Notes to Consolidated Financial Statements

1.             Organization and Business

Organization

Behringer Harvard Columbia Venture, LLC (which may be referred to as the “Company,” “we,” “us,” or “our”) was effectively organized in Delaware on August 6, 2007.

We are a co-investment joint venture between Behringer Harvard Multifamily OP I LP (“Behringer Harvard Multifamily OP I”), which, through its wholly owned subsidiary Behringer Harvard Columbia, LLC, is our manager and 55% owner, and, Behringer Harvard Master Partnership I LP (“Behringer Harvard Master Partnership I”), our 45% owner.  The 1% general partner of Behringer Harvard Master Partnership I is Behringer Harvard Institutional GP LP, a related party that is indirectly owned by Behringer Harvard Holdings, LLC and the 99% limited partner of Behringer Harvard Master Partnership I is an unaffiliated social work sector pension fund based in The Netherlands, Stichting Pensioenfonds Zorg en Welijn (“PGGM”). Substantially all of the capital provided to Behringer Harvard Master Partnership I is from PGGM.

Behringer Harvard Multifamily OP I is wholly owned by Behringer Harvard Multifamily REIT I, Inc. (“Behringer Harvard Multifamily REIT I”). Behringer Harvard Multifamily OP I and Behringer Harvard Master Partnership I are collectively referred to herein as the Members and hold indirectly and directly, respectively, 100% of our voting interests.

We were organized to own 100% of the voting equity interests and approximately 99% of the economic interests in one subsidiary, Behringer Harvard Columbia REIT, LLC, (“Columbia REIT”). Substantially all of our business is conducted through Columbia REIT. Columbia REIT was organized to make a mortgage loan to West Columbia Pike, LLC (the “Project Entity”) and an equity investment in Fairfield Columbia Pike Limited Partnership (the “Partnership Entity”). Prior to our equity investment, the Partnership Entity was owned by a commercial developer and was organized to develop and own one apartment community, commonly known as Tower 55 Hundred (“Tower 55 Hundred”). Tower 55 Hundred is currently under development in Arlington County, Virginia, has an estimated construction budget of approximately $99.8 million (unaudited), and is expected to be a ten-story high-rise apartment community (unaudited) with approximately 234 rental units (unaudited) and an underground parking facility.  Tower 55 Hundred project is wholly owned by the Project Entity, which is wholly owned by the Partnership Entity.

Neither we nor Columbia REIT have employees and both are supported by related party arrangements. Behringer Harvard Multifamily REIT I is externally managed by Behringer Harvard Multifamily Advisors I LP (“Behringer Harvard Multifamily Advisors I”), a Texas limited partnership organized in 2006.  Behringer Harvard Multifamily Advisors I, through Behringer Harvard Multifamily REIT I, is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.

2.             Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as amortization and accrued liabilities.  Actual results could differ from those estimates.

Income Taxes

Columbia REIT has elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code, and has qualified as a REIT since the period ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Even if we qualify for taxation

F-53

as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

We have adopted the provisions of FASB Interpretation No. 48 Accounting for uncertainty in income taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). Under FIN 48, we recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. To date, we are unaware of any uncertain tax positions.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the accounts of Columbia REIT.  All inter-company transactions, balances and profits are eliminated in consolidation.  Interests in entities acquired are evaluated for consolidation based on Financial Accounting Standards Board Interpretation (“FIN”) 46R “Consolidation of Variable Interest Entities,” which requires the consolidation of variable interest entities (“VIEs”) in which we are deemed to be the primary beneficiary.  If the interest in the entity is determined to not be a VIE under FIN 46R, then the entities are evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and by Emerging Issues Task Force (“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.” We have determined that we are not a primary beneficiary of any VIEs.

The Project Entity and Partnership Entity uses ratios that are different than the stated equity percentages for obligations and allocation of profits and losses, specified costs and expenses, distributions of cash from operations, and distributions of cash proceeds from liquidation.

Cash and Cash Equivalents

We consider investments in highly-liquid money market funds with original maturities of three months or less to be cash equivalents. In the ordinary course of our business, cash requirements for substantially all of our investments and obligations are paid on our behalf directly from our Members to the other party. We have presented these transactions as cash inflows and outflows in our consolidated statement of cash flows.

Deferred Offering Costs

Amounts include costs related to our Preferred Units offering. In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

Mortgage Note Receivable

The mortgage note receivable is reported at its outstanding principal balance net of any unearned income from unamortized loan origination fees. Loan origination fees are generally deferred and are amortized as adjustments to interest income using a straight-line method that approximates the effective interest method over the life of the related debt. During 2007 we received origination fees of $599,000.  Included are unamortized deferred origination fees of $453,000 and $572,000 as of December 31, 2008 and 2007, respectively.

The mortgage note receivable is coterminous with the Project Entity’s construction loan and the Project Entity remains obligated to pay principal and interest due regardless of its intent or ability to sell or refinance the property. In addition, the mortgage note receivable does not contain a right to participate in expected residual profit from the sale or refinancing of the property. As a result, the mortgage note receivable is accounted for as a loan pursuant to the guidance in Exhibit I of AICPA Practice Bulletin 1 on accounting of real estate acquisition, development, or construction arrangements.

Investment in Unconsolidated Real Estate Joint Venture

We account for our investment in real estate joint venture using the equity method of accounting because we exercise significant influence over, but do not control the Partnership Entity. This investment is initially recorded at cost and is adjusted for our share of equity in earnings and distributions. The Tower 55 Hundred project is under development and has no income or losses.

F-54

Impairment of Long Lived Assets and Mortgage Note Receivable

For real estate we own through an investment in a real estate venture, at each reporting date we compare the estimated fair value of our real estate investment to the carrying value. An impairment charge is recorded to the extent the fair value of our real estate investment is less than the carrying amount and the decline in value is determined to be other than a temporary decline.

We review the terms and conditions underlying the outstanding balance of the mortgage note receivable. If we determine that it is probable that all amounts due under the terms of the note will not be collected, an impairment charge is recorded to the extent that the investment in the note exceeds our estimate of the fair value of the collateral securing such note.

We assess impairment at the individual project basis. In evaluating the investment in real estate venture and mortgage note receivable for impairment, management makes several estimates and assumptions about the financial condition of the borrower and the guarantor. In addition, management makes several estimates and assumptions about the property and the additional collateral provided by the guarantor, including but not limited to, the projected disposition dates, estimated future cash flows, and the projected sales prices.  A change in these estimates and assumptions could result in understating or overstating the carrying value of the mortgage note receivable which could be material to our consolidated financial statements.

No impairment charges have been recorded in 2008 or 2007.

Concentration of Credit Risk

In the ordinary course of our business, we hold cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.

The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank.  Beginning October 3, 2008 through December 31, 2009, the FDIC will insure up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories.  Unlimited deposit insurance coverage may be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guarantee Program through December 31, 2009.

3.             New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  We adopted the provisions of SFAS No. 157 effective January 1, 2008, and did not have a material effect on our consolidated results of operations or financial position.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP SFAS No. 157-2”).  FSP SFAS No. 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The provisions of FSP SFAS No. 157-2 are effective for our fiscal year beginning January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.”  The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates.  A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.  SFAS No. 159 was effective for fiscal years beginning after November 15, 2007.  We have not elected the fair value measurement option for any financial assets or liabilities at the present time.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  This Statement replaces SFAS No. 141 “Business Combinations” but retains the fundamental requirement that the acquisition method of accounting, or purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement is broader in scope than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration.  SFAS No. 141(R) applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  This Statement also makes certain other modifications to Statement 141, including a broader definition of a business and the requirement that acquisition related costs are expensed as incurred. 

F-55

This statement applies to our business combinations beginning January 1, 2009. The acquisition of a real estate property has been determined to meet the definition of a business combination as defined in SFAS No. 141(R).  Therefore, SFAS No. 141(R) may have a material effect on our accounting for future consolidated acquisitions of properties as acquisition costs will no longer be capitalized, but will be expensed beginning January 1, 2009.

4.Private Offering

The limited liability company agreement of Columbia REIT has established 125 units of Class A, preferred, cumulative, non-voting membership units (“Preferred Units”).  We commenced a private offering of the Preferred Units in November 2007. During 2008, we sold 124 Preferred Units and raised gross offering proceeds totaling $62,000. Additional offering costs associated with the Preferred Units issuance incurred during 2008 were approximately $24,000 and have been recorded as an offset to the Preferred Units balance in accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Miscellaneous Accounting — Expenses of Offering.

Included in deferred offering costs are offering expenses incurred for the Preferred Units as of December 31, 2007 of $9,820. In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 financial statements as an offset to the Preferred Units balance.

The Preferred Units pay an annual dividend of 12.5% and are senior in priority to all other members’ equity of Columbia REIT.  Columbia’s REIT, at its option, may redeem the Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $500.00 per unit, plus all accrued and unpaid distributions thereon to and including the date fixed fore redemption, plus a premium per unit as follows: (1) until December 31, 2009, $100; (2) from January 1, 2010 to December 31, 2010, $75; (3) from January 1, 2011 to December 31, 2011, $50; (4) from January 1, 2012 to December 2012, $25; and thereafter, no redemption premium.  The Preferred Units are not redeemable by the unit holders and we have no current intent to exercise our redemption option.

5.             Related Party Arrangements

We are dependent on the Members and their affiliates for our operational and investment capital needs.  We are also ultimately dependent, through Behringer Harvard Multifamily REIT I, on Behringer Harvard Multifamily Advisors I and  Behringer Harvard Multifamily Management Services, LLC  for certain services that are essential to us, including, asset acquisition and disposition decisions, property management and leasing services and other general administrative responsibilities.  In the event that these companies were unable to provide us with the respective capital or services, we would be required to obtain such capital or services from other sources. We recognize all amounts at the time incurred by the Members on our behalf in our financial statements with an offset to Members Equity.

6.             Mortgage Note Receivable and Investment in Unconsolidated Real Estate Venture

In October 2007, Columbia REIT committed to make a mortgage loan in the amount of $19,960,000 to the Project Entity (the “Mortgage Note”). We have fully funded the commitment as of December 31, 2007.  The Mortgage Note bears interest at the rate of 9.5% per annum and matures on October 10, 2012. Through the maturity date, interest is payable on a monthly basis from a budgeted interest reserve in the amount of $3,791,000 and from net operational cash flows. At maturity, principal and unpaid interest is due.  Subsequent to project completion, cash payments for interest from available net operational cash flows will be subordinate to the payment of the 9.5% preferred return payable to the partners in the Partnership Entity and to the return of their equity investment in the Partnership Entity.  Generally no prepayment of the Mortgage Note may be made except (i) prepayment is permitted 150 days after the project is completed and (ii) prepayment is required if any of the interests in the Partnership Entity that are the subject of the purchase option are sold (including the exercise of the purchase option) or there is a sale of the Tower 55 Hundred project.

The Mortgage Note is secured by a lien pursuant to a deed of trust on the Tower 55 Hundred project that is subordinate to the lien granted to the senior lender.  The Mortgage Note is also supported by a guarantee from the developer, who has guaranteed completion of the development of the Tower 55 Hundred project in accordance with its plans and specifications if, for any reason the Project Entity abandons the Tower 55 Hundred project before its completion or fails to complete the project on the agreed schedule and pay all construction costs in full including construction cost overruns in excess of the construction budget.  The developer has also guaranteed repayment of the Mortgage Note should the Project Entity become the subject of a bankruptcy or insolvency proceeding, provided Columbia REIT does not consent in writing to or otherwise join as a party in such proceeding.

F-56

In October 2007, Columbia REIT funded a 50.1% limited partnership interest in the Partnership Entity in the amount of $3,552,938. Partnership distributions are made generally to first return capital contributions to the partners with preferred returns and to pay certain deferred fees to the developer.  Thereafter, returns are paid to the partners in accordance with their respective percentage interests.

The Project Entity and Partnership Entity use ratios that are different than the stated partnership interests for obligations and allocation of profits and losses, specified costs and expenses, distributions of cash from operations, and distributions of cash proceeds from liquidation.

The Partnership Entity and the Project Entity were formed by the commercial developer to purchase, finance, and develop one real estate project; these entities are not consolidated into our financial statements. Our involvement with these entities began at the time we committed to the Mortgage Note and equity investment and our potential loss exposure is limited to the funded portion of these commitments. The entities also owe amounts to other parties,including the senior project lender. Neither we nor Columbia REIT have a primary or secondary obligation with respect to such obligations.

7.             Commitments and Contingencies

The Tower 55 Hundred project is currently under development and is estimated to be completed in the third calendar quarter of 2009.

Contingent conversion option.  Columbia REIT has a contingent conversion option to convert the Mortgage Note into its limited partnership interest in the Partnership Entity (the “Conversion Option”).  The Conversion Option is not currently exercisable and cannot be exercised until development is complete and the property has been certified for occupancy. Columbia REIT may exercise the Conversion Option within 90 days of completion of the Tower 55 Hundred project and the exercise price will be the outstanding balance of the Mortgage Note and unpaid interest.  Upon exercise, outstanding principal and interest on the Mortgage Note will become second-priority capital in the Partnership Entity, Columbia REIT will be entitled to an annual preferred return of 9.5%, and Columbia REIT will continue to hold a stated limited partnership interest of 50.1% and in accordance with the partnership distribution priorities.

Developer Partners’ contingent sell option.  The partners owned by the developers (the “Developer Partners”) have a right, commencing on the date of completion of the Tower 55 Hundred project and continuing until the fourth anniversary of the completion of the Tower 55 Hundred project, to initiate a procedure to ascertain the fair market value of the Tower 55 Hundred project and, thus, to ascertain the value of the partnership interests of the Developer Partners in the Partnership Entity.  If such value is not mutually agreed upon by the Developer Partners and Columbia REIT, then such value would equal the distributions that the Developer Partners would receive if the Tower 55 Hundred project were sold at its fair market value, which would be determined by an arbitration process.  Once such value is agreed upon or determined, Columbia REIT has an option to purchase the Developer Partners’ interests at that price or to request that the Developer Partners cause the Project Entity to sell the Tower 55 Hundred project for a price that is not less than the determined fair market value.  The Developer Partners may then elect whether to proceed with causing a sale of the Tower 55 Hundred project.  If the Developer Partners do not elect to cause a sale of the Tower 55 Hundred project or are unable to consummate such a sale, then the Developer Partners do not have any additional right to initiate a liquidity event similar to that described in this paragraph.

Columbia REIT’s Call Right.  If the Developer Partners do not exercise their put right described above, then Columbia REIT has a right, commencing on the fourth anniversary of the date of completion of the Tower 55 Hundred project, to initiate a procedure to ascertain the fair market value of the Tower 55 Hundred project and, thus, to ascertain the value of the partnership interests of all of then-current partners in the Partnership Entity.  If such value is not mutually agreed upon by Columbia REIT and the other partners, then such value would equal the collective distributions that the other partners would receive if the Tower 55 Hundred project were sold at its fair market value, which would be determined by an arbitration process.  Once such value is agreed upon or determined, Columbia REIT has an option to purchase the other partners’ interests at that price.  If Columbia REIT initiates this procedure but does not elect to purchase the other parties’ interests, then any partner has the right to initiate buy/sell procedures described below.

Buy/Sell Rights.  Under the limited circumstances described above, any partner in the Partnership Entity may initiate buy/sell procedures with respect to their partnership interests.  Under those procedures, a partner could make an offer to purchase the interests of the other partners based on an offer price for the partnership’s assets and the other partners would either elect to sell their interests based on that price or elect to purchase the offering partner’s partnership interests based on that price.  The partnership agreement includes provisions requiring the Developer Partners to act as a group in connection with the exercise of the buy/sell provisions.

F-57

8.Disclosure of summarized financial information of the unconsolidated real estate joint venture

	December 31, 2008		December 31, 2007
Balance sheet data:
Cash	$	30,835	$	52,239
Land and construction in progress	60,516,585		32,344,321
Other assets	15,560		—
Total assets	$	60,562,980	$	32,396,560
Construction loan	$	30,117,453	$	7,578,946
Note payable to Columbia REIT	19,954,854		19,954,854
Accounts payable, interest payable and other	6,981,211		1,309,822
Partners’ capital	3,509,462		3,552,938
Total liabilities and partners’ capital	$	60,562,980	$	32,396,560

The Tower 55 Hundred project is currently under development, had insignificant net income (loss) for the period ended December 31, 2007, and incurred a net loss of $23,476 for the year ended December 31, 2008.

*****

F-58

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Manager and Members of

Behringer Harvard Johns Creek Venture, LLC

Addison, Texas

We have audited the accompanying consolidated balance sheets of Behringer Harvard Johns Creek Venture, LLC and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, members’ equity, and cash flows for the year ended December 31, 2008 and for the period from August 3, 2007 (date of  inception) through December 31, 2007.  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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the year ended December 31, 2008 and for the period from August 3, 2007 (date of inception) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 31, 2009

F-59

Behringer Harvard Johns Creek Venture, LLC

Consolidated Balance Sheets

as of December 31, 2008 and 2007

	2008		2007
Assets
Real estate
Land	$	3,204,758	$	3,204,758
Building, improvements and other, net	27,783,718		29,598,700
Total real estate	30,988,476		32,803,458
Cash and cash equivalents	388,573		139,806
Restricted cash	201,827		192,234
Accounts receivable, net	27,482		31,159
Prepaid expenses and other assets	4,572		16,763
Deferred financing costs, net	282,041		343,656
Total assets	$	31,892,971	$	33,527,076
Liabilities, preferred units and members’ equity
Resident security deposits and prepaid rent	$	94,027	$	103,512
Accounts payable and accrued expenses	110,588		44,358
Interest payable	127,964		—
Mortgage loan	23,000,000		23,000,000
Total liabilities	23,332,579		23,147,870
Commitments and contingencies
Minority interest	1,784,113		2,085,194
Preferred units, $500.00 par value per share; 12.5% dividend per annum; 125 units authorized, 124 units issued and outstanding at December 31, 2008; none issued and outstanding at December 31, 2007	28,902		—
Members’ equity	6,747,377		8,294,012
Total liabilities, preferred units and members’ equity	$	31,892,971	$	33,527,076

See Notes to Consolidated Financial Statements.

F-60

Behringer Harvard Johns Creek Venture, LLC

Consolidated Statements of Operations

	Year ended December 31, 2008			For the period from August 3, 2007 (date of inception) through December 31, 2007
Revenues
Rent	$	2,799,931		$	1,138,799
Fees and other	236,462			52,163
Total revenues	3,036,393			1,190,962
Operating costs and expenses:
General and operating expenses	843,062			330,736
Real estate taxes	329,082			105,554
Interest expense	1,510,797			650,154
Depreciation and amortization	1,909,545			990,688
Total operating costs and expenses	4,592,486			2,077,132
Net loss before minority interest	(1,556,094		)	(886,170		)
Minority interest	301,081			176,646
Net loss	$	(1,255,012	)	$	(709,524	)
Preferred units dividends	(7,750		)	—
Net loss attributable to the Members	$	(1,262,762	)	$	(709,524	)

See Notes to Consolidated Financial Statements.

F-61

Behringer Harvard Johns Creek Venture, LLC

Consolidated Statements of Members’ Equity

	Preferred Units			Members’ Equity			Total
Balance at August 3, 2007 (date of inception)	$	—		$	—		$	—
Contributions	—			9,210,105			9,210,105
Distributions	—			(206,569		)	(206,569		)
Net loss	—			(709,524		)	(709,524		)
Balance at December 31, 2007	—			8,294,012			8,294,012
Preferred units
Proceeds from issuance	62,000			—			62,000
Offering costs	(33,098		)	—			(33,098		)
Dividends	—			(7,750		)	(7,750		)
Contributions	—			68,139			68,139
Distributions	—			(352,013		)	(352,013		)
Net loss	—			(1,255,012		)	(1,255,012		)
Balance at December 31, 2008	$	28,902		$	6,747,376		$	6,776,278

See Notes to Consolidated Financial Statements.

F-62

Behringer Harvard Johns Creek Venture, LLC

Consolidated Statements of Cash Flows

	Year ended December 31, 2008			For the period from August 3, 2007 (date of inception) through December 31, 2007
Cash flows from operating activities:
Net loss	$	(1,255,012	)	$	(709,524	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	1,842,570			990,688
Amortization of deferred financing costs	66,975			26,847
Minority interest	(301,082		)	(176,646		)
Changes in operating assets and liabilities:
Accounts receivable	3,677			(31,159		)
Prepaids and other assets	2,371			(6,943		)
Accounts payable and accrued expenses	71,594			40,320
Interest payable	127,964			—
Cash provided by operating activities	559,057			133,583
Cash flows from investing activities
Purchases of real estate	(32,947		)	(31,495,042		)
Change in restricted cash	(9,593		)	(192,234		)
Cash used in investing activities	(42,540		)	(31,687,276		)
Cash flows from financing activities
Contributions	68,139			9,210,105
Distributions	(352,013		)	(206,569		)
Distributions to minority interest holders	—			(37,264		)
Resident security deposits	(5,029		)	97,730
Proceeds from Mortgage loan	—			23,000,000
Deferred financing costs	—			(370,503		)
Preferred units:
Proceeds from issuance	62,000			—
Offering costs	(33,098		)	—
Dividends paid	(7,750		)	—
Cash (used in) provided by financing activities	(267,751		)	31,693,499
Net change in cash and cash equivalents	248,766			139,806
Cash and cash equivalents at beginning of period	139,806			—
Cash and cash equivalents at end of period	$	388,572		$	139,806
Supplemental schedule of noncash investing and financing activities:
Purchases of land, building, and other	$	—		$	2,299,104
Issuance of minority interest	$	—		$	2,299,104
Accrued offering costs	$	—		$	9,820

See Notes to Consolidated Financial Statements.

F-63

Behringer Harvard Johns Creek Venture, LLC

Notes to Consolidated Financial Statements

1.Organization and Business

Organization

Behringer Harvard Johns Creek Venture, LLC (which may be referred to as the “Company,” “we,” “us,” or “our”) was effectively organized in Delaware on August 3, 2007.

We are a co-investment joint venture between Behringer Harvard Multifamily OP I LP (“Behringer Harvard Multifamily OP I”), which, through its wholly owned subsidiary Behringer Harvard Johns Creek, LLC, is our manager and 64% owner, and, Behringer Harvard Master Partnership I LP (“Behringer Harvard Master Partnership I”), our 36% owner.  The 1% general partner of Behringer Harvard Master Partnership I is Behringer Harvard Institutional GP LP, a related party that is indirectly owned by Behringer Harvard Holdings, LLC and the 99% limited partner of Behringer Harvard Master Partnership I is an unaffiliated social work sector pension fund based in The Netherlands, Stichting Pensioenfonds Zorg en Welijn (“PGGM”). Substantially all of the capital provided to Behringer Harvard Master Partnership I is from PGGM.

Behringer Harvard Multifamily OP I is wholly owned by Behringer Harvard Multifamily REIT I, Inc. (“Behringer Harvard Multifamily REIT I”). Behringer Harvard Multifamily OP I and Behringer Harvard Master Partnership I are collectively referred to herein as the Members and hold, indirectly and directly, respectively, 100% of our voting interests.

We were organized to own 100% of the voting equity interests and approximately 99% of the economic interests in one subsidiary, Behringer Harvard Johns Creek REIT, LLC, (“Johns Creek REIT”). Substantially all of our business is conducted through Johns Creek REIT. Johns Creek REIT was organized to hold, directly and indirectly, an 80% equity interest in Johns Creek Realty Partners, LLC. Johns Creek Realty Partners, LLC was organized to own 100% of The Reserve at Johns Creek Walk, a three-story 210 unit operating apartment community located in Fulton County, Georgia. The 20% minority equity interest in Johns Creek Realty Partners, LLC is held by an unaffiliated company; this company owns the overall mixed-use development which surrounds The Reserve at Johns Creek Walk apartment community. Leasing of The Reserve at Johns Creek Walk development began in May 2006 and construction was completed in December 2006. Occupancy rates for The Reserve at Johns Creek Walk were approximately 90% and 93% (unaudited) as of December 31, 2008 and 2007, respectively.

Neither we nor Johns Creek REIT have employees and both are supported by related party arrangements. Behringer Harvard Multifamily REIT I is externally managed by Behringer Harvard Multifamily Advisors I LP (“Behringer Harvard Multifamily Advisors I”), a Texas limited partnership organized in 2006.  Behringer Harvard Multifamily Advisors I, through Behringer Harvard Multifamily REIT I, is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.

2.Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as amortization and accrued liabilities.  Actual results could differ from those estimates.

Income Taxes

Johns Creek REIT has elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the internal Revenue Code, and has qualified as a REIT since the period ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Even if we qualify for taxation

F-64

as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

We have adopted the provisions of FASB Interpretation No. 48 Accounting for uncertainty in income taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). Under FIN 48, we recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.  To date, we are unaware of any uncertain tax positions.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the accounts of Johns Creek REIT and Johns Creek Realty Partners, LLC.  All inter-company transactions, balances and profits are eliminated in consolidation.  Interests in entities acquired are evaluated for consolidation based on Financial Accounting Standards Board Interpretation (“FIN”) 46R “Consolidation of Variable Interest Entities,” which requires the consolidation of variable interest entities (“VIEs”) in which we are deemed to be the primary beneficiary.  If the interest in the entity is determined to not be a VIE under FIN 46R, then the entities are evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and Emerging Issues Task Force (“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.” We have determined that we are not a primary beneficiary of any VIEs.

In the ordinary course of our business, cash requirements for substantially all of our investments and obligations are paid on our behalf directly from our Members to the other party. We have presented these transactions as cash inflows and outflows in our consolidated statement of cash flows.

Real Estate

Included in our consolidated financial statements is The Reserve at Johns Creek Walk. We allocated the cost of the purchase of The Reserve at Johns Creek Walk to the tangible assets acquired, consisting of land, inclusive of associated rights, buildings, equipment, and identified intangible assets based on their relative fair values in accordance with No. 142, “Goodwill and Other Intangible Assets.”  Identified intangible assets consist of the fair value of above-market and below-market in-place leases.

The fair value of any tangible assets that were acquired, consisted of land and buildings, and was determined by valuing the property as if it were vacant, and the “as-if-vacant” value was then allocated to land and buildings.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods.

We have determined the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of current market lease rates for the corresponding in-place leases, measured over a period equal to the determined lease term.  We recorded the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the determined lease term.

The total value of identified real estate intangible assets that we acquired is further allocated to in-place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant.  The aggregate value of in-place leases acquired and tenant relationships was determined by applying a fair value model.  The estimates of fair value of in-place leases includes an estimate of carrying costs during the expected lease-up periods for the respective spaces considering current market conditions.  In estimating fair value of in-place leases, we considered items such as real estate taxes, insurance and other operating expenses as well as lost rental revenue during the expected lease-up period and carrying costs that would have otherwise been incurred had the leases not been in place, including tenant improvements and commissions.  The estimates of the fair value of tenant relationships also include costs to execute similar leases including leasing commissions, legal and tenant improvements as well as an estimate of the likelihood of renewal as determined by management on a tenant-by-tenant basis.

We amortize the value of in-place leases acquired in the future to expense over the term of the respective leases.  The value of tenant relationship intangibles is amortized to expense over the initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building.  Should a tenant

F-65

terminate their lease, the unamortized portion of the in-place lease value and tenant relationship intangibles would be charged to expense.

The values of the land improvements, equipment, building and intangible assets are being depreciated on a straight-line basis over the respective estimated useful lives. Following is our allocation of the purchase price and related depreciation information:

	Depreciable Life (years)	Purchase Price Allocation		As of December 31, 2008			As of December 31, 2007
Land		$	3,204,758	$	3,204,758		$	3,204,758
Equipment	5	400,595		431,783			400,595
Intangible assets	1.75	1,167,134		1,167,134			1,167,134
Building and improvements	25	29,018,058		29,018,058			29,021,659
Total		33,790,545		33,821,733			33,794,146
Less: accumulated depreciation and amortization		—		(2,833,258		)	(990,688		)
Total real estate, net		$	33,790,545	$	30,988,475		$	32,803,458

Impairment of Real Estate

We monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable.  When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset including its eventual disposition, to the carrying amount of the asset.  In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value.

In evaluating our properties for impairment, management makes several estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership and the projected sales price of each of the properties.  A change in these estimates and assumptions could result in understating or overstating the carrying value of our investments which could be material to our consolidated financial statements.

No impairment charges have been recorded in 2008 or 2007.

Cash and Cash Equivalents

We consider investments in highly-liquid money market funds with original maturities of three months or less to be cash equivalents.

Restricted Cash

Restricted cash includes deposits for real estate taxes and deposits paid by residents.

Accounts Receivable

Accounts receivable consists of amounts due from residents for rent and utilities.

Deferred Financing Costs

We incurred costs in connection with obtaining the $23 million mortgage loan. These deferred financing costs are recorded at cost and are amortized to interest expense using a straight-line method that approximates the effective interest method over the life of the related debt.  Accumulated amortization of deferred financing fees for year ended December 31, 2008 and 2007 was approximately $94,000 and $27,000, respectively.

F-66

Minority Interest

The accounts of Johns Creek Realty Partners, LLC are consolidated into our financial statements, and present the 20% equity interest in Johns Creek Realty Partners, LLC held by an unaffiliated company as minority interest.

Rental Revenue

Rental income is recognized monthly on a straight-line basis over the respective lease terms - typically 6 to 24 months. Included in rental income are monthly reimbursements due from our residents for utilities usage.

Other Assets

Amounts include costs related to our Preferred Units offering. In connection with our receipt of offering proceeds in 2008, these amounts have been reclassified in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

Concentration of Credit Risk

In the ordinary course of our business, we hold cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.

The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank.  Beginning October 3, 2008 through December 31, 2009, the FDIC will insure up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories.  Unlimited deposit insurance coverage may be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guarantee Program through December 31, 2009.

3.New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No.157”). SFAS No.157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  We adopted the provisions of SFAS No.157 effective January 1, 2008, and did not have a material effect on our consolidated results of operations or financial position.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP SFAS No. 157-2”).  FSP SFAS No. 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The provisions of FSP SFAS No. 157-2 are effective for our fiscal year beginning January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.”  The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates.  A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  We have not elected the fair value measurement option for any financial assets or liabilities at the present time.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  This Statement replaces SFAS No. 141 “Business Combinations” but retains the fundamental requirement that the acquisition method of accounting, or purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement is broader in scope than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration.  SFAS No. 141(R) applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  This Statement also makes certain other modifications to Statement 141, including a broader definition of a business and the requirement that acquisition related costs are expensed as incurred.  This statement applies to our business combinations occurring beginning January 1, 2009.  The acquisition of a real estate property has been determined to meet the definition of a business combination as defined in SFAS No. 141(R).  Therefore, SFAS No. 141(R) may have a

F-67

material effect on our accounting for future consolidated acquisitions of properties as acquisition costs will no longer be capitalized, but will be expensed beginning January 1, 2009.

4.Private Offering

The limited liability company agreement of Johns Creek REIT has established 125 units of Class A, preferred, cumulative, non-voting membership units (“Preferred Units”). We commenced a private offering of the Preferred Units in November 2007. During 2008, we sold 124 Preferred Units and raised gross offering proceeds totaling $62,000. Additional offering costs associated with the Preferred Units issuance incurred during 2008 were approximately $24,000 and have been recorded as an offset to the Preferred Units balance in accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Miscellaneous Accounting — Expenses of Offering.

Included in deferred offering costs are offering expenses incurred for the Preferred Units as of December 31, 2007 of $9,820. In connection with our receipt of offering proceeds in 2008, these amounts have been reclassified in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

The Preferred Units pay an annual dividend of 12.5% and are senior in priority to all other members’ equity of Johns Creek REIT.  Johns Creek’s REIT, at its option, may redeem the Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $500.00 per unit, plus all accrued and unpaid distributions thereon to and including the date fixed fore redemption, plus a premium per unit as follows: (1) until December 31, 2009, $100; (2) from January 1, 2010 to December 31, 2010, $75; (3) from January 1, 2011 to December 31, 2011, $50; (4) from January 1, 2012 to December 2012, $25; and thereafter, no redemption premium. The Preferred Units are not redeemable by the unit holders and we have no current intent to exercise our redemption option.

5.Related Party Arrangements

We are dependent on the Members and their affiliates for our operational and investment capital needs.  We are also ultimately dependent, through Behringer Harvard Multifamily REIT I, on Behringer Harvard Multifamily Advisors I and  Behringer Harvard Multifamily Management Services, LLC  for certain services that are essential to us, including, asset acquisition and disposition decisions, property management and leasing services and other general administrative responsibilities.  In the event that these companies were unable to provide us with the respective capital or services, we would be required to obtain such capital or services from other sources. We recognize all amounts at the time incurred by the Members on our behalf in our financial statements with an offset to Members Equity.

As compensation for managing the administrative affairs of the property, the minority member receives management fees at the rate of 3% of net income from operations; amounts are recorded monthly in general and operating expenses. Total management fees incurred and recorded for year ending December 31, 2008 and during the period from August 3, 2007 (inception) through December 31, 2007 were approximately $91,000 and $36,000, respectively. Included in the December 31, 2008 and 2007 balance of accounts payable is the unpaid monthly balance of management fees in the amount of $7,800 and $7,800, respectively.

Under an arrangement between Behringer Harvard Multifamily REIT I and its advisor, Behringer Harvard Multifamily Advisors I, we paid a financing fee to Behringer Harvard Multifamily Advisors I in connection with securing the property’s $23 million mortgage loan in 2007. The amount paid of $230,000 was based on 1% of the financing made available to the property.

F-68

6.Acquisition of The Reserve at Johns Creek Walk

Prior to our acquisition, The Reserve at Johns Creek Walk was owned by Abbotts Bridge Apartment Partners, LLC. On August 3, 2007, our wholly owned entity, Johns Creek Realty Partners, LLC purchased The Reserve at Johns Creek Walk for a total purchase price of approximately $33.8 million, including acquisition costs of $241,000. Johns Creek Realty Partners, LLC funded the purchase price using proceeds from a $23 million mortgage loan, issuing a 20% equity interest to the shareholders of Abbotts Bridge Apartment Partners, LLC, and paid cash for the remaining amounts. In connection with the acquisition, Johns Creek Realty Partners, LLC was indemnified by the former owners from all obligations existing on or before the date of purchase.

7.Bank Loan

On August 3, 2007, Johns Creek Realty Partners, LLC (the “Property Entity”) entered into a senior mortgage arrangement with an unaffiliated lending institution, and borrowed $23 million to finance the acquisition (the “Mortgage Loan”).  The Property Entity, including its operating receipts lock-box account, serves as collateral for the interest-only Mortgage Loan, which matures in March 2013 and bears interest at a rate of 6.461%; no principal payments are due until maturity. The lender has recourse only to the Property Entity. Breaching the Mortgage Loan’s restrictions on encumbrances, sale, transfer, or refinancing of the property could constitute an event of default and increase the interest rate by 5%; uncured events of default can accelerate the loan’s maturity date.  We believe no events of default have occurred as of December 31, 2008.

*****

F-69

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Manager and Members of

Behringer Harvard Lovers Lane Venture I, LLC

Addison, Texas

We have audited the accompanying consolidated balance sheets of Behringer Harvard Lovers Lane Venture I, LLC and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, members’ equity, and cash flows for the year ended December 31, 2008 and for the period from June 1, 2007 (date of  inception) through December 31, 2007.  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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the year ended December 31, 2008 and for the period from June 1, 2007 (date of inception) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 31, 2009

F-70

Behringer Harvard Lovers Lane Venture I, LLC

Consolidated Balance Sheets

as of December 31, 2008 and 2007

	2008		2007
Assets
Cash and cash equivalents	$	36,040	$	80,814
Accrued interest receivable	689,755		185,163
Mortgage note receivable, net	6,810,395		2,917,755
Deferred offering costs and other assets	50,685		57,313
Total assets	$	7,586,875	$	3,241,045
Liabilities, preferred units and members’ equity
Accrued liabilities	$	308	$	9,820
Commitments and contingencies
Preferred units, $500.00 par value per share;	28,902		—
12.5% dividend per annum; 125 units authorized,
124 units issued and outstanding at December 31, 2008;
none issued and outstanding at December 31, 2007
Members’ equity	7,557,665		3,231,225
Total liabilities, preferred units and members’ equity	$	7,586,875	$	3,241,045

See Notes to Consolidated Financial Statements.

F-71

Behringer Harvard Lovers Lane Venture I, LLC

Consolidated Statements of Income

	Year ended December 31, 2008			For the period from June 1, 2007 (date of inception) through December 31, 2007
Interest income	$	533,170		$	195,646
General and administrative expenses	49,205			3,370
Net income	$	483,965		$	192,276
Preferred units dividends	(7,750		)	—
Net income attributable to the Members	$	476,215		$	192,276

See Notes to Consolidated Financial Statements.

F-72

Behringer Harvard Lovers Lane Venture I, LLC

Consolidated Statements of Members’ Equity

	Preferred Units			Members’ Equity			Total
Balance at June 1, 2007 (date of inception)	$	—		$	—		$	—
Contributions	—			3,045,580			3,045,580
Distributions	—			(6,631		)	(6,631		)
Net income	—			192,276			192,276
Balance at December 31, 2007	—			3,231,225			3,231,225
Preferred units:
Proceeds from issuance	62,000			—			62,000
Offering costs	(33,098		)	—			(33,098		)
Dividends	—			(7,750		)	(7,750		)
Contributions	—			4,065,828			4,065,828
Distributions	—			(215,603		)	(215,603		)
Net income	—			483,965			483,965
Balance at December 31, 2008	$	28,902		$	7,557,665		$	7,586,567

See Notes to Consolidated Financial Statements.

F-73

Behringer Harvard Lovers Lane Venture I, LLC

Consolidated Statements of Cash Flows

	Year ended December 31, 2008				For the period from June 1, 2007 (date of inception) through December 31, 2007
Cash flows from operating activities
Net income	$	483,965			$	192,276
Adjustments to reconcile net income to net cash used in operating activities -
Amortization of deferred financing fees	(27,564			)	(10,482		)
Changes in operating assets and liabilities:
Accrued interest receivable	(504,592			)	(185,163		)
Accrued liabilities	308				—
Cash used in operating activities	(47,883			)	(3,369		)
Cash flows from investing activities
Other assets	(3,192			)	(47,493		)
Advances on mortgage note receivable	(3,865,076			)	(2,907,273		)
Cash used in investing activities	(3,868,268			)	(2,954,766		)
Cash flows from financing activities
Contributions	4,065,828				3,045,580
Distributions	(215,603			)	(6,631		)
Preferred units:
Proceeds from issuance	62,000				—
Offering costs	(33,098			)	—
Dividends paid	(7,750			)	—
Cash provided by financing activities	3,871,377				3,038,949
Net change in cash and cash equivalents	(44,774			)	80,814
Cash and cash equivalents at beginning of period	80,814				—
Cash and cash equivalents at end of period	$		36,040		$	80,814
Supplemental schedule of noncash financing activities -
Accrued offering costs	$		—		$	9,820

See Notes to Consolidated Financial Statements.

F-74

Behringer Harvard Lovers Lane Venture I, LLC

Notes to Consolidated Financial Statements

1.Organization and Business

Organization

Behringer Harvard Lovers Lane Venture I, LLC (which may be referred to as the “Company,” “we,” “us,” or “our”) was effectively organized in Delaware on June 1, 2007.

We are a co-investment joint venture between Behringer Harvard Multifamily OP I LP (“Behringer Harvard Multifamily OP I”), which, through its wholly owned subsidiary Behringer Harvard Lovers Lane I, LLC, is our manager and 55% owner, and, Behringer Harvard Master Partnership I LP (“Behringer Harvard Master Partnership I”), our 45% owner.  The 1% general partner of Behringer Harvard Master Partnership I is Behringer Harvard Institutional GP LP, a related party that is indirectly owned by Behringer Harvard Holdings, LLC and the 99% limited partner of Behringer Harvard Master Partnership I is an unaffiliated social work sector pension fund based in The Netherlands, Stichting Pensioenfonds Zorg en Welijn (“PGGM”). Substantially all of the capital provided to Behringer Harvard Master Partnership I is from PGGM.

Behringer Harvard Multifamily OP I is wholly owned by Behringer Harvard Multifamily REIT I, Inc. (“Behringer Harvard Multifamily REIT I”). Behringer Harvard Multifamily OP I and Behringer Harvard Master Partnership I are collectively referred to herein as the Members and hold, indirectly and directly, respectively, 100% of our voting interests.

We were organized to own 100% of the voting equity interests and approximately 99% of the economic interests in one subsidiary, Behringer Harvard Lovers Lane REIT I, LLC. Substantially all of our business is conducted through Behringer Harvard Lovers Lane REIT I, LLC (“Lovers REIT”). The REIT was organized to make a mortgage loan to GS Lovers Lane Prop Sub, LP (the “Project Entity”) and to acquire an option to purchase the Project Entity or the property it owns. The Project Entity is owned by a commercial developer and was organized to develop and own one apartment community, commonly known as Grand Reserve (the “Grand Reserve”). The Grand Reserve was an operating apartment community at the time we made our investment in GS Lovers Lane Prop Sub, LP. During 2007, the property ceased renewing leases, achieved zero occupancy as of December 31, 2007, and has since been demolished. The Grand Reserve is currently under development in Dallas, Texas, has an estimated construction budget of approximately $38.7 million (unaudited), and is expected to be a two story townhome community (unaudited) with approximately 149 rental units (unaudited).

During April 2007, Behringer Harvard Multifamily OP I entered into an interest-bearing loan to the Project Entity for the Grand Reserve project.  In connection with our formation, Behringer Harvard Multifamily OP I assigned the loan and the contingent option to purchase the Grand Reserve property to our wholly-owned subsidiary, Lovers REIT in return for 55% of our members’ equity and cash of $1,348,000 which was contributed by our other equity member, Behringer Harvard Master Partnership I LP. The funded balance of the loan at the time of the assignment was $2,995,000.

Neither we nor Lovers REIT have employees and both are supported by related party arrangements. Behringer Harvard Multifamily REIT I is externally managed by Behringer Harvard Multifamily Advisors I LP (“Behringer Harvard Multifamily Advisors I”), a Texas limited partnership organized in 2006.  Behringer Harvard Multifamily Advisors I, through Behringer Harvard Multifamily REIT I, is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.

2.Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as amortization and accrued liabilities.  Actual results could differ from those estimates.

F-75

Income Taxes

Lovers REIT has elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code, and has qualified as a REIT since the period ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

On May 18, 2006, the State of Texas enacted a new law which replaced the existing state franchise tax with a “margin tax,” effective January 1, 2007.  We have evaluated the current and deferred income tax related to the Texas margin tax and we have no significant tax liability or benefit as of December 31, 2008 and the period ended 2007. In addition, we recognized no current tax expense for the year ended December 31, 2008 and 2007 related to the Texas margin tax.

We have adopted the provisions of FASB Interpretation No. 48 Accounting for uncertainty in income taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). Under FIN 48, we recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. To date, we are unaware of any uncertain tax positions.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the accounts of Lovers REIT.  All inter-company transactions, balances and profits are eliminated in consolidation.  Interests in entities acquired are evaluated for consolidation based on Financial Accounting Standards Board Interpretation (“FIN”) 46R “Consolidation of Variable Interest Entities,” which requires the consolidation of variable interest entities (“VIEs”) in which we are deemed to be the primary beneficiary.  If the interest in the entity is determined to not be a VIE under FIN 46R, then the entities are evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and Emerging Issues Task Force (“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.” We have determined that we are not a primary beneficiary of any VIEs.

Cash and Cash Equivalents

We consider investments in highly-liquid money market funds with original maturities of three months or less to be cash equivalents.  In the ordinary course of our business, cash requirements for substantially all of our investments and obligations are paid on our behalf directly from our Members to the other party. We have presented these transactions as cash inflows and outflows in our consolidated statement of cash flows.

Deferred Offering Costs

Amounts include costs related to our Preferred Units offering. In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

Mortgage Note Receivable

The mortgage note receivable is reported at its outstanding principal balance net of any unearned income from unamortized loan origination fees. Loan origination fees are generally deferred and are amortized as adjustments to interest income using a straight-line method that approximates the effective interest method over the life of the related debt. During 2007 we received origination fees of $87,000 and in 2008 we received fees of $122,000. Included are unamortized deferred origination fees of $171,000 and $77,000 as of December 31, 2008 and 2007, respectively.

The Project Entity remains obligated to pay principal and interest due regardless of its intent or ability to sell or refinance the property. In addition, the mortgage note receivable does not contain a right to participate in expected residual profit from the sale or refinancing of the property. As a result, the mortgage note receivable is accounted for as a loan pursuant to the guidance in Exhibit I of AICPA Practice Bulletin 1 on accounting of real estate acquisition, development, or construction arrangements.

F-76

Impairment of Mortgage Note Receivable

We review the terms and conditions underlying the outstanding balances of the mortgage note receivable. If we determine that it is probable that all amounts due under the terms of the note will not be collected, an impairment charge is recorded to the extent that the investment in the note exceeds our estimate of the fair value of the collateral securing such note.

We assess impairment at the individual project basis. In evaluating the mortgage note receivable for impairment, management makes several estimates and assumptions about the financial condition of the borrower and the guarantor. In addition, management makes several estimates and assumptions about the property and the additional collateral provided by the guarantor, including but not limited to, the projected disposition dates, estimated future cash flows, and the projected sales prices.  A change in these estimates and assumptions could result in understating or overstating the carrying value of the mortgage note receivable which could be material to our consolidated financial statements.

No impairment charges have been recorded in 2008 and 2007.

Concentration of Credit Risk

In the ordinary course of our business, we hold cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.

The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank.  Beginning October 3, 2008 through December 31, 2009, the FDIC will insure up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories.  Unlimited deposit insurance coverage may be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guarantee Program through December 31, 2009.

3.New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  We adopted the provisions of SFAS No. 157 effective January 1, 2008, and did not have a material effect on our consolidated results of operations or financial position.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP SFAS No. 157-2”).  FSP SFAS No. 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The provisions of FSP SFAS No. 157-2 are effective for our fiscal year beginning January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.”  The fair value option established by SFAS No. 159 permit all entities to choose to measure eligible items at fair value at specified election dates.  A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.  SFAS No. 159 was effective for fiscal years beginning after November 15, 2007.  We have not elected the fair value measurement option for any financial assets or liabilities at the present time.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  This Statement replaces SFAS No. 141 “Business Combinations” but retains the fundamental requirement that the acquisition method of accounting, or purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement is broader in scope than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration.  SFAS No. 141(R) applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  This Statement also makes certain other modifications to Statement 141, including a broader definition of a business and the requirement that acquisition related costs are expensed as incurred.  This statement applies to our business combinations beginning January 1, 2009.  The acquisition of a real estate property has been determined to meet the definition of a business combination as defined in SFAS No. 141(R).  Therefore, SFAS No. 141(R) may have a

F-77

material effect on our accounting for future consolidated acquisitions of properties as acquisition costs will no longer be capitalized, but will be expensed beginning January 1, 2009.

4.Private Offering

The limited liability company agreement of Lovers REIT has established 125 units of Class A, preferred, cumulative, non-voting membership units (“Preferred Units”). We commenced a private offering of the Preferred Units in November 2007 and have issued no Preferred Units as of December 31, 2007. During 2008, we sold 124 Preferred Units and raised gross offering proceeds totaling $62,000. Additional offering costs associated with the Preferred Units issuance incurred during 2008 were approximately $24,000 and have been recorded as an offset to the Preferred Units balance in accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Miscellaneous Accounting — Expenses of Offering.

Included in deferred offering costs are offering expenses incurred for the Preferred Units as of December 31, 2007 of $9,820. In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

The Preferred Units pay an annual dividend of 12.5% and are senior in priority to all other members’ equity of Lovers REIT. Lovers REIT, at its option, may redeem the Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $500.00 per unit, plus all accrued and unpaid distributions thereon to and including the date fixed fore redemption, plus a premium per unit as follows: (1) until December 31, 2009, $100; (2) from January 1, 2010 to December 31, 2010, $75; (3) from January 1, 2011 to December 31, 2011, $50; (4) from January 1, 2012 to December 2012, $25; and thereafter, no redemption premium. The Preferred Units are not redeemable by the unit holders and we have no current intent to exercise our redemption option.

5.Related Party Arrangements

We are dependent on the Members and their affiliates for our operational and investment capital needs.  We are also ultimately dependent, through Behringer Harvard Multifamily REIT I, on Behringer Harvard Multifamily Advisors I and  Behringer Harvard Multifamily Management Services, LLC  for certain services that are essential to us, including, asset acquisition and disposition decisions, property management and leasing services and other general administrative responsibilities.  In the event that these companies were unable to provide us with the respective capital or services, we would be required to obtain such capital or services from other sources. We recognize all amounts at the time incurred by the Members on our behalf in our financial statements with an offset to Members Equity.

An affiliate of Behringer Harvard Multifamily OP I LP has entered into a junior mezzanine loan receivable with a aggregate commitment of $2,184,000.  The junior mezzanine loan receivable bears interest at an annual rate of 10% and with final maturity date of April 2012.   As of December 31, 2008 and 2007, $1,000 had been advanced.

6.Mortgage Note Receivable

Lovers REIT has committed to make a mortgage loan in the amount of $7,488,000 (the “Mortgage Note”) to GS Lovers Lane Property Sub, LP (the “Project Entity”).  We funded a total of $6,982,000 and $2,995,000 under the commitment as of December 31, 2008 and 2007, respectively. The Mortgage Note matures on the earlier of (i) April 12, 2012 and (ii) the maturity date of the construction loan for the project (which is currently April 23, 2011), including any extensions thereof.  The maturity date may be accelerated to (i) 180 days after the expiration of the put option described below or (ii) the date that the senior loan is paid in full.  Generally no prepayment of the Mortgage Note may be made except (i) in connection with the sale of the Project Entity or the Grand Reserve project (in which case prepayment is required) or (ii) 150 days after the project is completed or deemed complete by the senior lender.

The Mortgage Note accrues interest at a rate of 10% per annum.  Until the completion of the project, no payments will be due and all interest will accrue.  Thereafter, any unpaid accrued interest on the notes is payable on a monthly basis from net cash flow to the extent net cash flow from the Grand Reserve project is sufficient to make such payments.  If net cash flow is insufficient to make such payments, then the interest will continue to accrue and will be payable on a monthly basis when and to the extent net cash flow from the Grand Reserve project is sufficient to make such payments.  All accrued and unpaid interest on the Mortgage Note will be payable upon final maturity of the Mortgage Note.

F-78

The Mortgage Note is secured by a second priority interest lien on the Grand Reserve project.  The Mortgage Note is also supported by a guarantee from an affiliate of the commercial developer that has guaranteed (i) full repayment of the Mortgage Note if neither the purchase option nor put option described below is exercised, (ii) the construction and completion of the Grand Reserve project in the event the Project Entity abandons the project or fails to complete the project on the agreed schedule, (iii) the payment of any costs that exceed the approved budget for construction of the project, and (iv) prompt payment of the Mortgage Note in the event that the Project Entity files a voluntary bankruptcy or insolvency proceeding prior to the completion of the project.  In connection with the purchase option described below, the guarantor has also guaranteed certain obligations of the owner of the Project Entity under the option agreement.

The Project Entity was formed by the commercial developer to purchase, finance, and develop one real estate project; this entity is not consolidated into our financial statements. Our involvement with the Project Entity began at the time we committed to the Mortgage Note, and our potential loss exposure is limited to the funded portion of our commitment. The Project Entity and certain of its affiliates also owe amounts to other parties, including the senior project lender. Neither we nor  Lovers REIT have a primary or secondary obligation with respect to such obligations.

7.Commitments and Contingencies

The Grand Reserve project is currently under development and is estimated to be completed in the first calendar quarter of 2010.

Contingent purchase option.  The Lovers REIT has a contingent option to acquire the completed Grand Reserve project or the Project Entity (the “Purchase Option”). The Purchase Option is not currently exercisable and cannot be exercised until development is complete and the property has been certificated for occupancy. The Purchase Option becomes exercisable for a period of 120 days after the earlier of (i) one year after the date the project is completed or (ii) the date it receives notice that 90% of the units are leased and occupied.  The exercise price will be an amount equal to the sum of (i) the lower of (a) the total project costs plus interest on the Mortgage Note and a junior mezzanine loan made by Behringer Harvard Multifamily OP I and (b) $38,686,000 plus interest on the Mortgage Note and a junior mezzanine loan made by Behringer Harvard Multifamily OP I, plus (ii) $8,750 per apartment unit in the Grand Reserve project, plus (iii) $1,161,000.

Partnership contingent sell option.  The partners of the Project Entity have an option to sell the completed Grand Reserve project to Lovers REIT (the “Sell Option”). The Sell Option is not currently exercisable and cannot be exercised until development is complete and the property has been certified for occupancy. The Sell Option becomes exercisable for a period of one year after the earlier of (i) the expiration of the Purchase Option or (ii) the date it receives notice from Lovers REIT that it waives its purchase option. The exercise price will be equal to the lesser of (i) the total project costs plus interest on the Mortgage Note and a junior mezzanine loan made by Behringer Harvard Multifamily OP I and (ii) $38,686,000 plus interest on the Mortgage Note and a junior mezzanine loan made by Behringer Harvard Multifamily OP I.

Lovers REIT Right of First Offer.  If neither the purchase option nor put right described above is exercised, then the owner of the Project Entity may cause the Project Entity to sell the Grand Reserve project, subject to a right of first offer by Lovers REIT.

Lovers REIT may terminate the above options if the project is not completed by February 28, 2010.

*****

F-79

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Manager and Members of

Behringer Harvard Satori Venture, LLC

Addison, Texas

We have audited the accompanying consolidated balance sheets of Behringer Harvard Satori Venture, LLC and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, members’ equity, and cash flows for the year ended December 31, 2008 and for the period from June 26, 2007 (date of  inception) through December 31, 2007.  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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the year ended December 31, 2008 and for the period from June 26, 2007 (date of inception) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 31, 2009

F-80

Behringer Harvard Satori Venture, LLC

Consolidated Balance Sheets

as of December 31, 2008 and 2007

	2008		2007
Assets
Cash and cash equivalents	$	165,290	$	—
Accrued interest receivable	—		190,603
Mortgage note receivable, net	14,604,849		12,217,558
Investment in unconsolidated real estate joint venture	7,373,438		7,364,304
Deferred offering costs	—		9,820
Total assets	$	22,143,577	$	19,782,285
Liabilities, preferred units and members’ equity
Accrued liabilities	$	598	$	9,820
Commitments and contingencies
Preferred units, $500.00 par value per share;	28,902		—
12.5% dividend per annum; 125 units authorized,
124 units issued and outstanding at December 31, 2008;
none issued and outstanding at December 31, 2007
Members’ equity	22,114,077		19,772,465
Total liabilities, preferred units and members’ equity	$	22,143,577	$	19,782,285

See Notes to Consolidated Financial Statements.

F-81

Behringer Harvard Satori Venture, LLC

Consolidated Statements of Income

	Year ended  December 31, 2008			For the period  from June 26,  2007 (date of  inception)  through  December 31,  2007
Interest income	$	1,508,140		$	197,752
General and administrative expenses	49,088			2,938
Net income	$	1,459,052		$	194,814
Preferred units dividends	(7,750		)	—
Net income attributable to the Members	$	1,451,302		$	194,814

See Notes to Consolidated Financial Statements.

F-82

Behringer Harvard Satori Venture, LLC

Consolidated Statements of Members’ Equity

	Preferred Units			Members’ Equity			Total
Balance at June 26, 2007 (date of inception)	$	—		$	—		$	—
Contributions	—			19,799,276			19,799,276
Distributions	—			(221,625		)	(221,625		)
Net income	—			194,814			194,814
Balance at December 31, 2007	—			19,772,465			19,772,465
Preferred units:
Proceeds from issuance	62,000			—			62,000
Offering costs	(33,098		)	—			(33,098		)
Dividends	—			(7,750		)	(7,750		)
Contributions	—			2,414,463			2,414,463
Distributions	—			(1,524,153		)	(1,524,153		)
Net income	—			1,459,052			1,459,052
Balance at December 31, 2008	$	28,902		$	22,114,077		$	22,142,979

See Notes to Consolidated Financial Statements.

F-83

Behringer Harvard Satori Venture, LLC

Consolidated Statements of Cash Flows

	Year ended December 31,  2008			For the period from June 26, 2007 (date of inception) through December 31,  2007
Cash flows from operating activities
Net income	$	1,459,052		$	194,814
Adjustments to reconcile net income to net cash provided by (used in) operating activities -
Amortization of deferred financing fees	(44,325		)	(7,149		)
Changes in operating assets and liabilities:
Accrued interest receivable	190,603			(190,603		)
Accrued liabilities	598			—
Cash provided by (used in) operating activities	1,605,928			(2,938		)
Cash flows from investing activities
Advances on mortgage note receivable, net	(2,342,966		)	(12,210,409		)
Investment in unconsolidated real estate joint venture	(9,134		)	(7,364,304		)
Cash used in investing activities	(2,352,100		)	(19,574,713		)
Cash flows from financing activities
Contributions	2,414,463			19,799,276
Distributions	(1,524,153		)	(221,625		)
Preferred units:
Proceeds from issuance	62,000			—
Offering costs	(33,098		)	—
Dividends paid	(7,750		)	—
Cash provided by financing activities	911,462			19,577,651
Net change in cash and cash equivalents	165,290			—
Cash and cash equivalents at beginning of period	—			—
Cash and cash equivalents at end of period	$	165,290		$	—
Supplemental schedule of noncash financing activities -
Accrued offering costs	$	—		$	9,820

See Notes to Consolidated Financial Statements.

F-84

Behringer Harvard Satori Venture, LLC

Notes to Consolidated Financial Statements

1.             Organization and Business

Organization

Behringer Harvard Satori Venture, LLC (which may be referred to as the “Company,” “we,” “us,” or “our”) was effectively organized in Delaware on June 26, 2007.

We are a co-investment joint venture between Behringer Harvard Multifamily OP I LP (“Behringer Harvard Multifamily OP I”), which, through its wholly owned subsidiary Behringer Harvard Satori, LLC, our manager and 55% owner, and, Behringer Harvard Master Partnership I LP (“Behringer Harvard Master Partnership I”), our 45% owner.  The 1% general partner of Behringer Harvard Master Partnership I is Behringer Harvard Institutional GP LP, a related party that is indirectly owned by Behringer Harvard Holdings, LLC and the 99% limited partner of Behringer Harvard Master Partnership I is an unaffiliated social work sector pension fund based in The Netherlands, Stichting Pensioenfonds Zorg en Welijn (“PGGM”). Substantially all of the capital provided to Behringer Harvard Master Partnership I is from PGGM.

Behringer Harvard Multifamily OP I is wholly owned by Behringer Harvard Multifamily REIT I, Inc. (“Behringer Harvard Multifamily REIT I”). Behringer Harvard Multifamily OP I and Behringer Harvard Master Partnership I are collectively referred to herein as the Members and hold, indirectly and directly, respectively, 100% of our voting interests.

We were organized to own 100% of the voting equity interests and approximately 99% of the economic interests in one subsidiary, Behringer Harvard Satori REIT, LLC, (“Satori REIT”). Substantially all of our business is conducted through Satori REIT. Satori REIT was organized to make a mortgage loan to Sunrise Investors LLLP (the “Project Entity”) and an equity investment in Satori Holding, LLC (the “Holding Entity”). Prior to our equity investment, the Holding Entity was wholly owned by a commercial developer and was organized to develop and own one apartment community, commonly known as Satori (“Satori”). Satori is located in Broward County, Florida, is currently under development, has an estimated construction budget of approximately $98.5 million (unaudited), and is expected to be an apartment community of approximately 279 rental units (unaudited) within buildings of three- to nine-story structures (unaudited). The Satori Apartment Community is also expected to have a parking structure. The Project Entity is directly and indirectly a wholly owned subsidiary of the Holding Entity.

Neither we nor Satori REIT have employees and both are supported by related party arrangements. Behringer Harvard Multifamily REIT I is externally managed by Behringer Harvard Multifamily Advisors I LP (“Behringer Harvard Multifamily Advisors I”), a Texas limited partnership organized in 2006.  Behringer Harvard Multifamily Advisors I, through Behringer Harvard Multifamily REIT I, is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.

2.             Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as amortization and accrued liabilities.  Actual results could differ from those estimates.

F-85

Income Taxes

Satori REIT has elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code, and has qualified as a REIT since the period ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

We have adopted the provisions of FASB Interpretation No. 48 Accounting for uncertainty in income taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). Under FIN 48, we recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. To date, we are unaware of any uncertain tax positions.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the accounts Satori REIT.  All inter-company transactions, balances and profits are eliminated in consolidation.  Interests in entities acquired are evaluated for consolidation based on Financial Accounting Standards Board Interpretation (“FIN”) 46R “Consolidation of Variable Interest Entities,” which requires the consolidation of variable interest entities (“VIEs”) in which we are deemed to be the primary beneficiary.  If the interest in the entity is determined to not be a VIE under FIN 46R, then the entities are evaluated for consolidation under the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and Emerging Issues Task Force (“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.” We have determined that we are not a primary beneficiary of any VIEs.

The Partnership Entity uses ratios that are different than the stated equity percentages for obligations and allocation of profits and losses, specified costs and expenses, distributions of cash from operations, and distributions of cash proceeds from liquidation.

Cash and Cash Equivalents

We consider investments in highly-liquid money market funds with original maturities of three months or less to be cash equivalents. In the ordinary course of our business, cash requirements for substantially all of our investments and obligations are paid on our behalf directly from our Members to the other party. We have presented these transactions as cash inflows and outflows in our consolidated statement of cash flows.

Deferred Offering Costs

Amounts incurred related to our Preferred Units offering.  In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 financial statements as an offset to the Preferred Units balance.

 Mortgage Note Receivable

The mortgage note receivable is reported at its outstanding principal balance net of any unearned income from unamortized loan origination fees. Loan origination fees are generally deferred and are amortized as adjustments to interest income using a straight-line method that approximates the effective interest method over the life of the related debt. During 2007 we received origination fees of $222,000. Included are unamortized loan origination fees of $170,000, and $214,000 as of December 31, 2008 and 2007, respectively.

The mortgage note receivable is coterminous with the Project Entity’s construction loan and the Project Entity remains obligated to pay principal and interest due regardless of its intent or ability to sell or refinance the property. In addition, the mortgage note receivable does not contain a right to participate in expected residual profit from the sale or refinancing of the property. As a result, the mortgage note receivable is accounted for as a loan pursuant to the guidance in Exhibit I of AICPA Practice Bulletin 1 on accounting of real estate acquisition, development, or construction arrangements.

F-86

Investment in Unconsolidated Real Estate Joint Venture

We account for our investment in real estate joint venture using the equity method of accounting because we exercise significant influence over, but do not control the Project Entities. This investment is initially recorded at cost and is adjusted for our share of equity in earnings and distributions. The Satori Apartment Community project is under development and has no income or losses.

Impairment of Long Lived Assets and Mortgage Note Receivable

For real estate we own through an investment in a real estate joint venture, at each reporting date we compare the estimated fair value of our real estate investment to the carrying value. An impairment charge is recorded to the extent the fair value of our real estate investment is less than the carrying amount and the decline in value is determined to be other than a temporary decline.

We review the terms and conditions underlying the outstanding balance of the mortgage note receivable. If we determine that it is probable that all amounts due under the terms of the note will not be collected, an impairment charge is recorded to the extent that the investment in the note exceeds our estimate of the fair value of the collateral securing such note.

We assess impairment at the individual project basis. In evaluating the investment in real estate venture and mortgage note receivable for impairment, management makes several estimates and assumptions about the financial condition of the borrower and the guarantor. In addition, management makes several estimates and assumptions about the property and the additional collateral provided by the guarantor, including but not limited to, the projected disposition dates, estimated future cash flows, and the projected sales prices.  A change in these estimates and assumptions could result in understating or overstating the carrying value of the mortgage note receivable which could be material to our consolidated financial statements.

No impairment charges have been recorded in 2008 or 2007.

3.             New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  We adopted the provisions of SFAS No. 157 effective January 1, 2008, and did not have a material effect on our consolidated results of operations or financial position.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP SFAS No. 157-2”).  FSP SFAS No. 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The provisions of FSP SFAS No. 157-2 are effective for our fiscal year beginning January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.”  The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates.  A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  We have not elected the fair value measurement option for any financial assets or liabilities at the present time.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  This Statement replaces SFAS No. 141 “Business Combinations” but retains the fundamental requirement that the acquisition method of accounting, or purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement is broader in scope than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration.  SFAS No. 141(R) applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  This Statement also makes certain other modifications to Statement 141, including a broader definition of a business and the requirement that acquisition related costs are expensed as incurred.  This statement applies to our business combinations occurring beginning January 1, 2009. The acquisition of a real estate property has been determined to meet the definition of a business combination as defined in SFAS No. 141(R).  Therefore, SFAS No. 141(R) may have a material effect on our accounting for future consolidated acquisitions of properties as acquisition costs will no longer be capitalized, but will be expensed beginning January 1, 2009.

F-87

4.Private Offering

The limited liability company agreement of Satori REIT has established 125 units of Class A, preferred, cumulative, non-voting membership units (“Preferred Units”).  We commenced a private offering of the Preferred Units in November 2007.  During 2008, we sold 124 Preferred Units and raised gross offering proceeds totaling $62,000. Additional offering costs associated with the Preferred Units issuance incurred during 2008 were approximately $24,000 and have been recorded as an offset to the Preferred Units balance in accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Miscellaneous Accounting — Expenses of Offering.

Included in deferred offering costs are offering expenses incurred for the Preferred Units as of December 31, 2007 of $9,820. In connection with our receipt of offering proceeds in 2008, these amounts have been reclassified in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

The Preferred Units pay an annual dividend of 12.5% and are senior in priority to all other members’ equity of Satori REIT. Satori’s REIT, at its option, may redeem the Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $500.00 per unit, plus all accrued and unpaid distributions thereon to and including the date fixed fore redemption, plus a premium per unit as follows: (1) until December 31, 2009, $100; (2) from January 1, 2010 to December 31, 2010, $75; (3) from January 1, 2011 to December 31, 2011, $50; (4) from January 1, 2012 to December 2012, $25; and thereafter, no redemption premium.  The Preferred Units are not redeemable by the unit holders and we have no current intent to exercise our redemption option.

5.             Related Party Arrangements

We are dependent on the Members and their affiliates for our operational and investment capital needs.  We are also ultimately dependent, through Behringer Harvard Multifamily REIT I, on Behringer Harvard Multifamily Advisors I and  Behringer Harvard Multifamily Management Services, LLC  for certain services that are essential to us, including, asset acquisition and disposition decisions, property management and leasing services and other general administrative responsibilities.  In the event that these companies were unable to provide us with the respective capital or services, we would be required to obtain such capital or services from other sources. We recognize all amounts at the time incurred by the Members on our behalf in our financial statements with an offset to Members Equity.

6.             Mortgage Note Receivable and Investment in Unconsolidated Real Estate Venture

In November 2007, Satori REIT committed to make a mortgage loan in the amount of $14,775,000 to the Project Entity and the Holding Entity (the “Mortgage Note”). We funded $12,432,034 of the commitment as of December 31, 2007, and funded the remaining balance in 2008. The Mortgage Note bears interest at the rate of 10% per annum and matures on October 29, 2012.  Through maturity, interest is payable on a monthly basis from a budgeted interest reserve in the amount of $3,230,000 and from available net operational cash flows.  At maturity, principal and unpaid interest is due.  Generally, no prepayment of the Mortgage Note may be made without Satori REIT’s approval except after the project’s completion or the interest reserve is fully paid.

The Mortgage Note is secured by a lien pursuant to a mortgage on the project that is subordinate to the lien on the project granted to the senior lender.  The Mortgage Note is also supported by a guarantee from the developer, which has guaranteed completion of the development of the project in accordance with its plans and specifications if, for any reason, the Project Entity abandons the project before its completion, fails to complete the project on time (except for certain excused delays) or fails to pay all costs in full for the construction.  The developer is liable for construction cost overruns in excess of the construction budget, with limited exceptions for (i) construction interest, construction period property taxes and property insurance if an excused delay occurs when constructing the project and (ii) certain costs arising from aspects of the project approved by Satori REIT or to bring the project into compliance with laws first enacted after construction commenced.  The developer has also guaranteed repayment of the Mortgage Note should the Project Entity become the subject of a bankruptcy or insolvency proceeding, provided such proceeding is voluntary or, if involuntary, not dismissed within 90 days of the filing.

In November 2007, Satori REIT funded a stated 50% membership equity interest in the Holding Entity in the amount of $7,350,000. Pursuant to the operating agreement, distributions are made generally to first return capital contributions to the members with preferred returns and to pay certain deferred fees to the developer.  Thereafter, returns are paid to the members in accordance with their respective percentage interests.

F-88

The Project Entity and Holding Entity use ratios that are different than the stated partnership interest for obligations and allocation of profits and losses, specified costs and expenses, distributions of cash from operations, and distributions of cash proceeds from liquidation.

The Holding Entity and its subsidiaries were formed by the commercial developer to purchase, finance, and develop one real estate project; these entities are not consolidated into our financial statements. Our involvement with these entities began at the time we committed to the Mortgage Note and equity investment, and our potential loss exposure is limited to the funded portion of these commitments. These entities also owe amounts to other parties, including the senior project lender. Neither we nor Satori REIT have a primary or secondary obligation with respect to such obligations.

7.             Commitments and Contingencies

Satori project is currently under development and is estimated to be completed in the third calendar quarter of 2009.

Contingent conversion option.  Satori REIT has a contingent conversion option to convert the Mortgage Note into its membership interest in the Holding Entity (the “Conversion Option”).  The Conversion Option is currently not exercisable and cannot be exercised until the development is complete and the property is certified for occupancy. Satori REIT may exercise the Conversion Option within 90 days of completion of the Satori project and the exercise price will be the outstanding balance of the Mortgage Note and unpaid interest.  Upon exercise, any outstanding principal and interest on the Mortgage Note will become second-priority capital contributed in the Holding Entity, where Satori REIT will be entitled to a preferred return of 9.5%, and Satori REIT will continue to hold a membership interest of 50%.

Developer Member’s contingent sell option.  The member owned by the developer (the “Developer Member”) has a right, commencing on the date of completion of the project and continuing until the third anniversary of the completion of the project, to initiate a procedure to ascertain the fair market value of the project and, thus, to ascertain the value of the membership interests of the members of the Holding Entity.  If such value is not mutually agreed upon by the Developer Member and Satori REIT, then such value would equal the distributions that the Developer Member would receive if the project were sold at its fair market value, which would be determined by an arbitration process.  Once such value is agreed upon or determined, Satori REIT has an option to purchase the Developer Member’s 50% interest at that price or to request that the Developer Member causes the Project Entity to sell the project for a price that is not less than the determined fair market value.  The Developer Member may then elect whether to proceed with causing a sale of the project.  If the Developer Member does not elect to cause a sale of the project or is unable to consummate such a sale, then the Developer Member may recommence this procedure from the beginning.

Satori REIT’s Call Right.  If Developer Member does not commence its put right proceedings described above or the project is not sold pursuant to such proceedings, Satori REIT has a right, commencing on the third anniversary of the date of completion of the project, to initiate those same proceedings by ascertaining the fair market value of the project and, thus, to ascertain the value of the membership interests of all of the members of the Holding Entity.  If such value is not mutually agreed upon by the Developer Member and Satori REIT, then such value would equal the distributions that the Developer Member would receive if the project were sold at its fair market value, which would be determined by an arbitration process.  Once such value is agreed upon or determined, Satori REIT has an option to purchase the Developer Member’s interest at that price or to request that the Developer Member causes the Project Entity to sell the project for a price that is not less than the determined fair market value.  The Developer Member may then elect whether to proceed with causing a sale of the project.  If the Developer Member does not elect to cause a sale of the project or is unable to consummate such a sale, then Satori REIT may recommence this procedure from the beginning.

Buy/Sell Rights.  Each member of the Holding Entity has a right, commencing on the third anniversary of the date of completion of the project and not during any time that the put right or call right proceedings described above are ongoing, to initiate buy/sell procedures with respect to its membership interest.  Under those procedures, a member could make an offer to purchase the interests of the other member based on an offer price for the company’s assets and the other member would either elect to sell its interest based on that price or elect to purchase the offering member’s membership interests based on that price.

F-89

8.Disclosure of summarized financial information of the unconsolidated real estate joint venture

	December 31,  2008		December 31,  2007
Balance sheet data:
Cash	$	17,760	$	485,287
Land and construction in progress	77,522,937		25,637,019
Other assets	12,362		8,864
Total assets	$	77,553,059	$	26,131,170
Construction loan	$	41,864,192	$	—
Note payable to Satori REIT	14,775,000		12,432,034
Accounts payable, interest payable and other	11,063,867		3,849,136
Partners’ capital	9,850,000		9,850,000
Total liabilities and partners’ capital	$	77,553,059	$	26,131,170

The Satori project is currently under development and had insignificant net income (loss) for the year or period ended December 31, 2008 and 2007.

*****

F-90

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Manager and Members of

Behringer Harvard St. Rose Venture, LLC

Addison, Texas

We have audited the accompanying consolidated balance sheets of Behringer Harvard St. Rose Venture, LLC and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, members’ equity, and cash flows for the year ended December 31, 2008 and for the period from July 9, 2007 (date of  inception) through December 31, 2007.  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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the year ended December 31, 2008 and for the period from July 9, 2007 (date of inception) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 31, 2009

F-91

Behringer Harvard St. Rose Venture, LLC

Consolidated Balance Sheets

as of December 31, 2008 and 2007

	2008		2007
Assets
Cash and cash equivalents	$	6,160,613	$	78,069
Accrued interest receivable	5,315		237,343
Mortgage notes receivable, net	14,087,362		4,585,927
Investment in unconsolidated real estate joint venture	5,179,585		—
Deferred offering costs	—		9,820
Total assets	$	25,432,875	$	4,911,159
Liabilities, preferred units and members’ equity
Accrued liabilities	$	8,099	$	9,820
Due to Members	—		663
Total liabilities	8,099		10,483
Commitments and contingencies
Preferred units, $500.00 par value per share; 12.5% dividend per annum; 125 units authorized, 124 units issued and outstanding at December 31, 2008; none issued and outstanding at December 31, 2007	28,902		—
Members’ equity	25,395,874		4,900,676
Total liabilities, preferred units and members’ equity	$	25,432,875	$	4,911,159

See Notes to Consolidated Financial Statements.

F-92

Behringer Harvard St. Rose Venture, LLC

Consolidated Statements of Income

	Year ended December 31, 2008			For the period from July 9, 2007 (date of inception) through December 31, 2007
Interest income	$	700,530		$	248,899
General and administrative expenses	78,194			4,796
Net income	$	622,336		$	244,103
Preferred units dividends	(7,750		)	—
Net income attributable to the Members	$	614,586		$	244,103

See Notes to Consolidated Financial Statements.

F-93

Behringer Harvard St. Rose Venture, LLC

Consolidated Statements of Members’ Equity

	Preferred Units			Members’ Equity			Total
Balance at July 9, 2007 (date of inception)	$	—		$	—		$	—
Contributions	—			4,719,905			4,719,905
Distributions	—			(63,332		)	(63,332		)
Net income	—			244,103			244,103
Balance at December 31, 2007	—			4,900,676			4,900,676
Preferred units:
Proceeds from issuance	62,000			—			62,000
Offering costs	(33,098		)	—			(33,098		)
Dividends	—			(7,750		)	(7,750		)
Contributions	—			19,958,018			19,958,018
Distributions	—			(77,406		)	(77,406		)
Net income	—			622,336			622,336
Balance at December 31, 2008	$	28,902		$	25,395,875		$	25,424,776

See Notes to Consolidated Financial Statements.

F-94

Behringer Harvard St. Rose Venture, LLC

Consolidated Statements of Cash Flows

	Year ended December 31, 2008			For the period from July 9, 2007 (date of inception) through December 31, 2007
Cash flows from operating activities
Net income	$	622,336		$	244,103
Adjustments to reconcile net income to net cash provided by (used in) operating activities -
Amortization of deferred financing fees	(129,521		)	(11,556		)
Changes in operating assets and liabilities:
Accrued interest receivable	232,028			(237,343		)
Due to Members	(663		)	—
Accrued liabilities	599			—
Cash provided by (used in) operating activities	724,779			(4,796		)
Cash flows from investing activities
Issuance of mortgage notes receivable, net	(9,371,914		)	(4,574,371		)
Investment in unconsolidated real estate joint venture	(5,172,085		)	—
Cash used in investing activities	(14,543,999		)	(4,574,371		)
Cash flows from financing activities
Contributions	19,958,018			4,719,905
Distributions	(77,406		)	(62,669		)
Preferred units:
Proceeds from issuance	62,000			—
Offering costs	(33,098		)	—
Dividends paid	(7,750		)	—
Cash provided by financing activities	19,901,764			4,657,236
Net change in cash and cash equivalents	6,082,544			78,069
Cash and cash equivalents at beginning of period	78,069			—
Cash and cash equivalents at end of period	$	6,160,613		$	78,069
Supplemental schedule of noncash financing activities:
Investment in unconsolidated real estate joint venture	$	7,500		$	—
Deferred offering costs	$	—		$	9,820

See Notes to Consolidated Financial Statements.

F-95

Behringer Harvard St. Rose Venture, LLC

Notes to Consolidated Financial Statements

1.Organization and Business

Organization

Behringer Harvard St. Rose Venture, LLC (which may be referred to as the “Company,” “we,” “us,” or “our”) was effectively organized in Delaware on July 9, 2007.

We are a co-investment joint venture between Behringer Harvard Multifamily OP I LP (“Behringer Harvard Multifamily OP I”), which, through its wholly owned subsidiary Behringer Harvard St. Rose, LLC, is our manager and 55% owner, and, Behringer Harvard Master Partnership I LP (“Behringer Harvard Master Partnership I”), our 45% owner.  The 1% general partner of Behringer Harvard Master Partnership I is Behringer Harvard Institutional GP LP, a related party that is indirectly owned by Behringer Harvard Holdings, LLC and the 99% limited partner of Behringer Harvard Master Partnership I is an unaffiliated social work sector pension fund based in The Netherlands, Stichting Pensioenfonds Zorg en Welijn (“PGGM”). Substantially all of the capital provided to Behringer Harvard Master Partnership I is from PGGM.

Behringer Harvard Multifamily OP I is wholly-owned by Behringer Harvard Multifamily REIT I, Inc. (“Behringer Harvard Multifamily REIT I”). Behringer Harvard Multifamily OP I and Behringer Harvard Master Partnership I are collectively referred to herein as the Members and, indirectly and directly, respectively, hold 100% of our voting interests.

We were organized to own 100% of the voting equity interests and approximately 99% of the economic interests in one subsidiary, Behringer Harvard St. Rose REIT, LLC (“St. Rose REIT”). Substantially all of our business is conducted through St. Rose REIT. St. Rose REIT was organized to invest in the St. Rose Project (as described below), which investment has been made in the form of a  mortgage loan to SW 131 St. Rose Mezzanine Borrower LLC (the “Mortgage Borrower”) and an equity investment in SW 130 St. Rose Limited Partnership (the “Partnership Entity”). Prior to our equity investment, the Partnership Entity was wholly  owned by a commercial real estate developer and was organized to develop and own one apartment community, St. Rose ( the “St. Rose Project”). The St. Rose Project is currently under development in Henderson, Nevada, has an estimated construction budget of approximately $70.1 million (unaudited), and is expected to be a 24 building (unaudited), three-story garden apartment community (unaudited) with approximately 430 rental units (unaudited).  The St. Rose Project is wholly owned by SW 132 Senior Borrower LLC (the “Project Entity”), which is wholly owned by the Mortgage Borrower.

Neither we nor St. Rose REIT have employees and both are supported by related party arrangements. Behringer Harvard Multifamily REIT I is externally managed by Behringer Harvard Multifamily Advisors I LP (“Behringer Harvard Multifamily Advisors I”), a Texas limited partnership organized in 2006.  Behringer Harvard Multifamily Advisors I, through Behringer Harvard Multifamily REIT I, is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.

2.Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as amortization and accrued liabilities.  Actual results could differ from those estimates.

Income Taxes

St. Rose REIT has elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code, and has qualified as a REIT since the period ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Even if we qualify for taxation

F-96

as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

We have adopted the provisions of FASB Interpretation No. 48 Accounting for uncertainty in income taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). Under FIN 48, we recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. To date, we are unaware of any uncertain tax positions.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the accounts of St. Rose REIT.  All inter-company transactions, balances and profits are eliminated in consolidation.  Interests in entities acquired are evaluated based on Financial Accounting Standards Board Interpretation (“FIN”) 46R “Consolidation of Variable Interest Entities,” which requires the consolidation of variable interest entities (“VIEs”) in which we are deemed to be the primary beneficiary.  If the interest in the entity is determined to not be a VIE under FIN 46R, then the entities are evaluated for consolidation under the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures,” and Emerging Issues Task Force (“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.” We have determined that we are not a primary beneficiary of any VIEs.

The Partnership Entity uses ratios that are different than the stated partnership interests for obligations and allocation of profits and losses, specified costs and expenses, distributions of cash from operations, and distributions of cash proceeds from liquidation.

Cash and Cash Equivalents

We consider investments in highly-liquid money market funds with original maturities of three months or less to be cash equivalents. In the ordinary course of our business, cash requirements for substantially all of our investments and obligations are paid on our behalf directly from our Members to the other party. We have presented these transactions as cash inflows and outflows in our consolidated statement of cash flows.

Deferred Offering Costs

Amounts include costs related to our Preferred Units offering. In connection with our receipt of offering proceeds in 2008, these amounts have been recorded in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

Mortgage Note Receivable

The mortgage note receivable is reported at its outstanding principal balance net of unearned income from unamortized deferred loan origination fees and costs. Loan origination fees and costs are generally deferred and are amortized as adjustments to interest income using a straight-line method that approximates the effective interest method over the life of the related debt. During 2007 we received origination fees of $141,000; the net deferred balance as of December 31, 2007 was $129,000.  As of December 31, 2008, amounts incurred for deferred financing costs and related accumulated amortization was $7,500 and $0 respectively. As of December 31, 2007, amounts incurred for deferred financing costs and related accumulated amortization were $26,000 and $2,000, respectively.

During 2008, we received origination fees of $631,000; the net deferred balance as of December 31, 2008 was $631,000. As of December 31, 2008, amounts incurred for deferred financing costs and related accumulated amortization were $7,300 and $0, respectively.

The Mortgage Borrower remains obligated to pay principal and interest due regardless of its intent or ability to sell or refinance the property. In addition, the mortgage note receivable does not contain a right to participate in expected residual profit from the sale or refinancing of the property. As a result, the mortgage note receivable is accounted for as a loan pursuant to the guidance in Exhibit I of AICPA Practice Bulletin 1 on accounting of real estate acquisition, development, or construction arrangements.

Investment in Unconsolidated Real Estate Venture

We account for our investment in real estate joint venture using the equity method of accounting because we exercise significant influence over, but do not control the Project Entities. This investment is initially recorded at cost and is adjusted for our share of equity in earnings and distributions.  We report our share of income and losses based on our ownership interests in the entities.  The St. Rose Project is under development and has no income or losses.

F-97

Impairment of Long Lived Assets and Mortgage Note Receivable

For real estate we own through an investment in a real estate joint venture, at each reporting date we compare the estimated fair value of our real estate investment to the carrying value. An impairment charge is recorded to the extent the fair value of our real estate investment is less than the carrying amount and the decline in value is determined to be other than a temporary decline.

We review the terms and conditions underlying the outstanding balance of the mortgage note receivable. If we determine that it is probable that all amounts due under the terms of the note will not be collected, an impairment charge is recorded to the extent that the investment in the note exceeds our estimate of the fair value of the collateral securing such note.

We assess impairment at the individual project basis. In evaluating the investment in real estate venture and mortgage note receivable for impairment, management makes several estimates and assumptions about the financial condition of the borrower and the guarantor. In addition, management makes several estimates and assumptions about the property and the additional collateral provided by the guarantor, including but not limited to, the projected disposition dates, estimated future cash flows, and the projected sales prices.  A change in these estimates and assumptions could result in understating or overstating the carrying  value of the mortgage note receivable which could be material to our consolidated financial statements.

No impairment charges have been recorded in 2008 or 2007.

Concentration of Credit Risk

In the ordinary course of our business, we hold cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.

The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank.  Beginning October 3, 2008 through December 31, 2009, the FDIC will insure up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories.  Unlimited deposit insurance coverage may be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guarantee Program through December 31, 2009.

3.New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  We adopted the provisions of SFAS No. 157 effective January 1, 2008, and did not have a material effect on our consolidated results of operations or financial position.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP SFAS No. 157-2”).  FSP SFAS No. 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The provisions of FSP SFAS No. 157-2 are effective for our fiscal year beginning January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.”  The fair value option established by SFAS No. 159 permit all entities to choose to measure eligible items at fair value at specified election dates.  A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.  SFAS No. 159 was effective for fiscal years beginning after November 15, 2007.  We have not elected the fair value measurement option for any financial assets or liabilities at the present time.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  This Statement replaces SFAS No. 141 “Business Combinations” but retains the fundamental requirement that the acquisition method of accounting, or purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement is broader in scope than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration.  SFAS No. 141(R) applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  This Statement also makes certain other modifications to

F-98

Statement 141, including a broader definition of a business and the requirement that acquisition related costs are expensed as incurred.  This statement applies to our business combinations beginning after January 1, 2009. The acquisition of a real estate property has been determined to meet the definition of a business combination as defined in SFAS No. 141(R).  Therefore, SFAS No. 141(R) may have a material effect on our accounting for future consolidated acquisitions of properties as acquisition costs will no longer be capitalized, but will be expensed beginning January 1, 2009.

4.Private Offering

The limited liability company agreement of St. Rose REIT has established 125 units of Class A, preferred, cumulative, non-voting membership units (“Preferred Units”). We commenced a private offering of the Preferred Units in November 2007 and issued no Preferred Units as of December 31, 2007. During 2008, we sold 124 Preferred Units and raised gross offering proceeds totaling $62,000. Additional offering costs associated with the Preferred Units issuance incurred during 2008 were approximately $24,000 and have been recorded as an offset to the Preferred Units balance in accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Miscellaneous Accounting — Expenses of Offering.

Included in deferred offering costs are offering expenses incurred of $9,820 for the Preferred Units as of December 31, 2007. In connection with our receipt of offering proceeds in 2008, these amounts have been reclassified in the December 31, 2008 consolidated financial statements as an offset to the Preferred Units balance.

The Preferred Units pay an annual dividend of 12.5% and are senior in priority to all other members’ equity of St. Rose REIT.  St. Rose REIT, at its option, may redeem the Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $500.00 per unit, plus all accrued and unpaid distributions thereon to and including the date fixed fore redemption, plus a premium per unit as follows: (1) until December 31, 2009, $100; (2) from January 1, 2010 to December 31, 2010, $75; (3) from January 1, 2011 to December 31, 2011, $50; (4) from January 1, 2012 to December 2012, $25; and thereafter, no redemption premium.  The Preferred Units are not redeemable by the unit holders and we have no current intent to exercise our redemption option.

5.Related Party Arrangements

We are dependent on the Members and their affiliates for our operational and investment capital needs.  We are also ultimately dependent, through Behringer Harvard Multifamily REIT I, on Behringer Harvard Multifamily Advisors I and  Behringer Harvard Multifamily Management Services, LLC  for certain services that are essential to us, including, asset acquisition and disposition decisions, property management and leasing services and other general administrative responsibilities.  In the event that these companies were unable to provide us with the respective capital or services, we would be required to obtain such capital or services from other sources. We recognize all amounts at the time incurred by the Members on our behalf in our financial statements with an offset to Members Equity.

6.Mortgage Note Receivable and Investment in Unconsolidated Real Estate Venture

As of December 31, 2008, St. Rose REIT has funded $14,718,000 of $21,043,000 under a senior mortgage note commitment and a seperately issued junior mortgage note commitment (collectively referred to herein as the “Mortgage Note”).  The Mortgage Note accrues interest at the rate of 13% per annum.  The Mortgage Note  matures on December 30, 2013. Any unpaid accrued interest on the Mortgage Note is payable on a monthly basis, first, from a budgeted interest reserve account in the amount of $6,414,000 and, then, from net cash flow from the St. Rose Project if sufficient to make payments.  If net cash flow is insufficient to make payments, then the interest will continue to accrue and will be payable on a monthly basis when and to the extent that net cash flow from the St. Rose Project is sufficient to make payments. All accrued and unpaid interest on the Mortgage Note will be payable upon final maturity of the Mortgage Note.   Generally no prepayment of the Mortgage Note may be made until 150 days after the project is completed.

The Mortgage Note is secured by a lien pursuant to a deed of trust on the St. Rose Project that is subordinate to the lien granted to the senior lender.  The Mortgage Note is also supported by a guarantee from affiliates of the commercial developer that have guaranteed (i) construction and completion of the St. Rose Project if, for any reason, the Project Entity abandons the project or fails to complete the project on the agreed schedule and (ii) the payment of any costs that exceed the approved budget for construction of the project (provided, however, that the following expenses will not be calculated as “cost overruns” to be repaid by the guarantors: operating deficits, taxes and solely to the extent increased by “acts of God,” construction interest). They have also guaranteed full and prompt payment of the Mortgage Borrower’s obligations in connection with the Mortgage Note in the event that the Mortgage Borrower files a voluntary bankruptcy or insolvency proceeding prior to the completion of the project.

F-99

In July 2007, St. Rose REIT had entered into a separate mortgage loan commitment for $11,356,000 also related to the St. Rose Project but with an affiliate of the Mortgage Borrower. This mortgage loan had an annual interest rate of 10.75% with a final maturity date of December 2012. As of December 31, 2007, $4,691,000 had been advanced under this commitment.  In December 2008, this mortgage loan was cancelled and restructured as the Mortgage Note. The statement of cash flows for the year ended December 31, 2008 presents this restructuring on a net basis in advances of mortgage note receivable.

On December 31, 2008, St. Rose REIT funded an equity investment in the Partnership Entity in the amount of $5,172,000 in return for a 50% limited partnership interest. The equity investment was made in the form of a capital contribution to the Partnership Entity, which contribution constitutes 75.1% of the initial capital contributed to the partnership. Pursuant to the provisions of the partnership agreement, St. Rose REIT’s pro-rata share of any additional contributions required by the partnership is 50% of such additional capital and that of the other partner, which is the general partner and an affiliate of the developer, is 50%.  Pursuant to the provisions of the partnership agreement, distributions are made generally to return capital contributions to the partners with preferred returns and to pay certain deferred fees to the developer.  Thereafter, distributions are paid 40% to the general partner and 60% to the limited partner (St. Rose REIT).

The land and certain of the construction in progress for the Partnership Entity were purchased from an affiliate of its general partner for approximately $18.3 million.  The purchase was paid in cash and funded from the proceeds of the Mortgage Note and cash contributions to the Partnership Entity. Accordingly, the assets have been recorded based on the cash consideration paid.

Summarized financial information for the investment in unconsolidated real estate joint venture is as follows:

	December 31, 2008		December 31, 2007
Balance sheet data:
Cash	$	—	$	—
Land and construction in progress	22,734,775		—
Other assets	—		—
Total assets	$	22,734,775	$	—
Construction loan	$	1,000	$	—
Notes payable to St. Rose REIT	14,718,320		—
Accounts payable, accrued interest and other	1,130,608
Partners’ capital	6,884,847		—
Total liabilities and partners’ capital	$	22,734,775	$	—

The St. Rose Project is currently under development and had insignificant net income (loss) for the period ended December 31, 2007 and the year ended December 31, 2008.

The Partnership Entity and its subsidiaries were formed to purchase, finance, and develop one real estate project; they are not consolidated into our financial statements. Our involvement with the Partnership Entity began at the time we committed to the Mortgage Note and equity investment and our potential loss exposure is limited to the funded portion of our limited partnership interest and Mortgage Note commitments. The Partnership Entity, also owe amounts to other parties, including senior construction lenders. Neither we nor St. Rose REIT I have a primary or secondary obligation with respect to such obligations.

7.Commitments and Contingencies

The St. Rose Project is currently under development and is estimated to be completed in the second calendar quarter of 2011.

Land for the Project. The Project Entity owns approximately 24 acres of land in the City of Henderson, Clark County, Nevada, a portion of which is intended to be used for commercial development (the “Commercial Tract”) and a portion of which is intended to be used for the St. Rose Project (the “Residential Tract”).  The Project Entity holds the Commercial Tract in trust for an

F-100

affiliate of the commercial developer (“SW 122”). The entire land parcel is encumbered by a mortgage securing a $2,950,000 loan made to SW 122 by Bank of America, N.A. (the “SW 122 Loan”). Similarly, the Project Entity has granted a lien against the land as security for an approximately $38,600,000 construction loan to the Project Entity from Bank of America, N.A. (“St. Rose Senior Lender”).  The parties intend for a subdivision plat to be recorded that will legally separate the land into the Commercial Tract and Residential Tract.  At such time, (i) the Project Entity will convey the Commercial Tract to SW 122, (ii) St. Rose Senior Lender will release its lien against the Commercial Tract as security for the construction loan for the St. Rose Project and its lien against the Residential Tract for the SW 122 Loan and (iii) St. Rose REIT will, as mortgage lender to the Project Entity, release its lien against the Commercial Tract.  SW 122 is responsible for all costs related to ownership of the Commercial Tract.  If the Commercial Tract and Residential Tract are not legally subdivided by March 31, 2009, the general partner of the Partnership Entity (which is in affiliate of the commercial developer) will cause SW 122 to repay its $2,950,000 loan from St. Rose Senior Lender.

Developer Partner’s contingent sell option. The partners owned by the developers (the “Developer Partners”) have a right, commencing on the date of completion of the St. Rose Project and continuing until the second anniversary of the completion of the St. Rose Project, to initiate a procedure to ascertain the fair market value of the St. Rose Project and, thus, to ascertain the value of the partnership interests of the Development Partners in the Partnership Entity. If such value is not mutually agreed upon by St. Rose REIT and the Development Partners, then such value would equal the distributions that the Development Partners  would receive if the St. Rose Project were sold at its fair market value, which would be determined by a bid process, or if qualified bids are not received or the Developer Partner elects to forego the qualified bid process, then by an arbitration process.  Once such value is agreed upon or determined, St. Rose REIT has an option to purchase the Developer Partners’ interest at that price or to request that the Developer Partners cause the Project Entity to sell the St. Rose Project (or cause the Partnership Entity to sell its interests in the Mortgage Borrower and the Project Entity) for a price that is not less than the determined fair market value. If the Developer Partners are unable to consummate such a sale, then the Developer Partners and St. Rose REIT may each initiate buy/sell procedures described below.

St. Rose REIT’s Call Right. If the Developer Partners do not initiate their pricing procedures and  put right  as described above, then St. Rose REIT has a right, commencing on the first day after the second anniversary of the date of completion and continuing until the third anniversary of the completion of the St. Rose Project, to initiate a procedure to ascertain the fair market value of the St. Rose Project and, thus, to ascertain the value of the partnership interests of all of then-current partners in the Partnership Entity. If such value is not mutually agreed upon by St. Rose REIT and the other partners, then such value would equal the collective distributions that the other partners would receive if the St. Rose Project were sold at its fair market value, which would be determined by a bid process, or if qualified bids are not received or the Developer Partner elects to forego the qualified bid process, then by an arbitration process. Once such value is agreed upon or determined, St. Rose REIT has an option to purchase the Developer Partner’s interest at that price or to request that the Developer Partner cause the Project Entity to sell the St. Rose Project (or cause the Partnership Entity to sell its interests in the Mortgage Borrower and the Project Entity) for a price that is not less than the determined fair market value. If the Developer Partner is unable to consummate such a sale, then the Developer Partner and St. Rose REIT may each initiate buy/sell procedures described below.

Buy/Sell Rights. Under the limited circumstances described above or if, after the third anniversary of the date of completion neither party has initiated the pricing procedures described above, then either partner in the Partnership Entity may initiate buy/sell procedures with respect to their partnership interests. Under those procedures, a partner could make an offer to purchase the interests of the other partner based on an offer price for the partnership’s assets and the other partner would either elect to sell its interest based on that price or elect to purchase the offering partner’s partnership interests based on that price.

8.Subsequent Events

The Commercial Tract and Residential Tract were legally subdivided in March 2009 and the Project Entity conveyed the Commercial Tract to SW 122.  The St. Rose Senior Lender released its lien on the Commercial Tract as security for the Construction Loan and its lien on the Residential Tract for the SW 122 Loan, and the Project Entity released its title to the Commercial Tract in March 2009.

*****

F-101

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, thereunto duly authorized.

Dated:     March 31, 2009	By:	/s/ Robert S. Aisner
		Robert S. Aisner
		Chief Executive Officer and
		Director

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.

March 31, 2009	/s/ Robert S. Aisner
	Robert S. Aisner
	Chief Executive Officer and
	Director
	(Principal Executive Officer)
March 31, 2009	/s/ Gary S. Bresky
	Gary S. Bresky
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)
March 31, 2009	/s/ Robert J. Chapman
	Robert J. Chapman
	President
March 31, 2009	/s/ Robert M. Behringer
	Robert M. Behringer
	Chairman of the Board
March 31, 2009	/s/ E. Alan Patton
	E. Alan Patton
	Director
March 31, 2009	/s/ Roger D. Bowler
	Roger D. Bowler
	Director
March 31, 2009	/s/ Sami S. Abbasi
	Sami S. Abbasi
	Director
March 31, 2009	/s/ Jonathan L. Kempner
	Jonathan L. Kempner
	Director

EX-10.5

Exhibit 10.5

SENIOR MEZZANINE PROMISSORY NOTE

$21,043,197 December 31, 2008

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

DEFINITIONS

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

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

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

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

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

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

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

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

“Maturity Date” shall mean December 31, 2013.

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

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

SECTION 1 - STATED MATURITY; INTEREST AND PRINCIPAL PAYMENTS.

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

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

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

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

2

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

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

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

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

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

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

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

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

3

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

SECTION 2 - DEFAULT; REMEDIES

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

2.2           Default Interest Rate; Late Charges.

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

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

4

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

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

SECTION 3 - SECURITY

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

SECTION 4 - WAIVER

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

SECTION 5 - EXCULPATION

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

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

5

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

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

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

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

6

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

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

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

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

SECTION 7 - NOTICES

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

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

7

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

SECTION 8 - MISCELLANEOUS

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

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

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

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

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

8

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

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

9

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

BORROWER:
SW 131 ST. ROSE MEZZANINE BORROWER LLC,
a Delaware limited liability company
By:	SW 130 St. Rose Limited Partnership, a Delaware
	limited partnership, its sole member
	By:	SW 129 St. Rose Limited Partnership, a
		Delaware limited partnership, its general
		partner
		By:	SW 104 Development GP LLC, a
			Delaware limited liability company, its
			general partner
			By:	/s/ Timothy J. Hogan
				Timothy J. Hogan, Vice President

JUNIOR MEZZANINE PROMISSORY NOTE

$21,043,197 December 31, 2008

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

DEFINITIONS

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

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

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

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

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

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

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

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

“Maturity Date” shall mean December 31, 2013.

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

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

SECTION 1 - STATED MATURITY; INTEREST AND PRINCIPAL PAYMENTS.

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

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

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

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

2

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

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

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

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

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

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

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

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

3

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

SECTION 2 - DEFAULT; REMEDIES

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

2.2           Default Interest Rate; Late Charges.

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

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

4

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

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

SECTION 3 - SECURITY

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

SECTION 4 - WAIVER

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

SECTION 5 - EXCULPATION

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

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

5

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

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

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

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

6

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

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

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

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

SECTION 7 - NOTICES

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

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

7

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

SECTION 8 - MISCELLANEOUS

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

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

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

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

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

8

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

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

9

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

BORROWER:
SW 131 ST. ROSE MEZZANINE BORROWER LLC,
a Delaware limited liability company
By:	SW 130 St. Rose Limited Partnership, a Delaware
	limited partnership, its sole member
	By:	SW 129 St. Rose Limited Partnership, a
		Delaware limited partnership, its general
		partner
		By:	SW 104 Development GP LLC, a
			Delaware limited liability company, its
			general partner
			By:	/s/ Timothy J. Hogan
				Timothy J. Hogan, Vice President

EX-10.6

Exhibit 10.6

SENIOR MEZZANINE LOAN AGREEMENT

BY

AND BETWEEN

SW 131 ST. ROSE MEZZANINE BORROWER LLC
(“Borrower”)

AND

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

1.	RECITALS		2
2.	DEFINITIONS		2
3.	THE LOAN; DISBURSEMENT OF LOAN		9
	(a)	Loan	9
	(b)	Loan Disbursements	9
4.	INTEREST PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY; REPAYMENT		9
	(a)	Interest	9
	(b)	No Usury	10
	(c)	Loan Commitment Fee	11
	(d)	Prepayment	11
	(e)	Maturity Date	11
5.	SECURITY FOR LOAN; GUARANTY		11
	(a)	Security Instrument	11
	(b)	Other Loan Documents	11
	(c)	Guaranty	11
6.	CONDITIONS PRECEDENT TO CLOSING OF THE LOAN		11
	(a)	Loan Documents	11
	(b)	Third Party Agreements	12
	(c)	Certification	12
	(d)	Financial Statements	12
	(e)	Insurance Policies	12
	(f)	Contracts	13
	(g)	Title Insurance Policy	13
	(h)	ALTA Survey	13
	(i)	Flood Plain Certification	13
	(j)	Appraisal	13
	(k)	Environmental Report	13
	(l)	Certification of Organizational Documents	13
	(m)	Legal Opinion	13
	(n)	UCC Searches	14
	(o)	Utilities	14
	(p)	Environmental Disclosure	14
	(q)	No Default	14
7.	TITLE INSURANCE		14
8.	INSURANCE		14
	(a)	Insurance Requirements	14
	(b)	Initial Policies; Renewals	16
	(c)	Notices	16
	(d)	Notice of Casualty	16
	(e)	Settlement of Claim	16

i

	(f)	Application of Insurance Proceeds	17
9.	EMINENT DOMAIN		17
	(a)	Notice of Condemnation	17
	(b)	Settlement of Claim	18
	(c)	Application of Condemnation Awards	18
	(d)	Continuing Obligation to Repair	18
	(e)	Lender Not Required to Act	18
10.	RIGHTS OF ACCESS AND INSPECTION		18
11.	EXPENSES		19
12.	FINANCIAL REPORTS, PROPERTY REPORTS AND ANNUAL BUDGET		19
13.	GENERAL COVENANTS OF BORROWER		21
	(a)	Commencement and Completion of Project	21
	(b)	Lender Approval	21
	(c)	Operation and Maintenance of Project	22
	(d)	Restricted Sale and Encumbrance of Project and of Borrower Interests; Other Indebtedness	23
	(e)	General Indemnity	24
	(f)	Leases	25
	(g)	Notices	26
	(h)	Development	26
	(i)	Management	26
	(j)	Senior Loan	26
	(k)	Principal Place of Business; Choice of Law	27
	(l)	Compliance with Governmental Prohibitions	27
14.	FURTHER ASSURANCES		28
15.	APPRAISALS		28
16.	GENERAL REPRESENTATIONS AND WARRANTIES OF BORROWER		28
	(a)	Organization; Corporate Powers; Authorization of Borrowing	28
	(b)	Title to Property; Matters Affecting Property	29
	(c)	Financial Statements	31
	(d)	Budget Projections	31
	(e)	Intentionally Deleted	32
	(f)	No Loan Broker	32
	(g)	No Default	32
	(h)	Solvency	32
	(i)	Violations of Governmental Prohibitions	32
17.	EVENT OF DEFAULT		33
	(a)	Non-Payment	33
	(b)	Insurance	33
	(c)	Special Purpose Entity Covenants	33
	(d)	Borrower	33
	(e)	Guaranty	33
	(f)	Construction	33

ii

	(g)	Fraud or Material Misrepresentation	33
	(h)	Sale, Encumbrance or Other Indebtedness	34
	(i)	Reports and Documents	34
	(j)	Other Breaches under this Agreement.	34
	(k)	Other Breaches Under Other Loan Documents	34
	(l)	Senior Loan Documents	34
	(m)	Judgments	34
	(n)	Bankruptcy Proceedings	35
18.	REMEDIES		35
	(a)	Actions upon Event of Default	35
	(b)	Lender’s Right to Perform	36
	(c)	Appointment of Lender as Attorney-in-Fact	36
	(d)	Cross-Default to Note, Security Instrument, and Other Loan Documents	36
	(e)	Recourse Limitations	37
19.	ADDITIONAL ADVANCES		37
	(a)	Disbursement of Additional Advances	37
	(b)	Conditions Precedent to Additional Advance.	38
20.	TRANSFER OF LOAN; LOAN SERVICER		39
	(a)	Lender’s Right to Transfer	39
	(b)	Loan Servicer	39
	(c)	Dissemination of Information	39
21.	LENDER’S EXPENSES; RIGHTS OF LENDER		39
22.	MISCELLANEOUS		40
	(a)	Notices	40
	(b)	Waivers	41
	(c)	Lender Not Partner of Borrower; Borrower in Control	41
	(d)	No Third Party	42
	(e)	Time of Essence; Context	42
	(f)	Successors and Assigns	42
	(g)	Governing Jurisdiction	42
	(h)	SUBMISSION TO JURISDICTION; SERVICE OF PROCESS	42
	(i)	WAIVER WITH RESPECT TO DAMAGES	43
	(j)	Entire Agreement	44
	(k)	Headings	44
	(l)	Severability	44
	(m)	Counterparts	44
	(n)	WAIVER OF JURY TRIAL	44
	(o)	Sole and Absolute Discretion	44
	(p)	Straight Debt Harbor	45
	(q)	Assignment	45
	(r)	Retainage of Subcontractors	45
23.	SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER		45

iii

24.	JUNIOR MEZZANINE LOAN	48
25.	SUBDIVISION AND RELEASE	50

iv

SENIOR MEZZANINE LOAN AGREEMENT

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

R E C I T A L S:

This Agreement is made with reference to the following facts:

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

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

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

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

1

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

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

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

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

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

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

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

2

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

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

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

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

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

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

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

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

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

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

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

3

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

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

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

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

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

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

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

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

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

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

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

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

4

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

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

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

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

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

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

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

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

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

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

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

5

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

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

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

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

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

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

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

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

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

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

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

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

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

6

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

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

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

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

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

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

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

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

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

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

7

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

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

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

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

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

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

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

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

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

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

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

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

8

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

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

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

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

3.THE LOAN; DISBURSEMENT OF LOAN.

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

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

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

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

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

9

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

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

10

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

(e)Maturity Date.

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

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

5.SECURITY FOR LOAN; GUARANTY.

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

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

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

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

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

(i)this Agreement;

(ii)the Note;

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

(iv)the Guaranty;

(v)the Environmental Indemnity;

11

(vi)Certification of Organizational Documents; and

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

(b)Third Party Agreements.

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

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

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

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

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

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

12

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

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

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

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

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

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

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

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

13

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

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

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

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

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

8.INSURANCE.

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

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

14

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

15601 Dallas Parkway, Ste. 600

Addison, Texas 75001

Attn:Risk Management

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

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

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

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

15

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

(vii)         Workers Compensation insurance as required by law.

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

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

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

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

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

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

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

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

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

16

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

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

9.EMINENT DOMAIN.

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

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

17

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

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

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

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

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

18

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

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

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

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

19

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

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

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

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

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

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

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

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

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

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

20

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

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

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

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

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

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

21

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

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

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

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

22

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

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

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

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

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

23

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

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

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

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

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

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

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

24

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

(f)            Leases.

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

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

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

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

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

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

25

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

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

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

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

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

26

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

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

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

27

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

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

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

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

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

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

28

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

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

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

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

(b)Title to Property; Matters Affecting Property.

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

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

29

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

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

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

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

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

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

30

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

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

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

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

(e)Intentionally Deleted.

31

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

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

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

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

32

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

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

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

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

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

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

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

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

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

33

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

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

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

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

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

(m)Judgments.

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

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

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

(n)Bankruptcy Proceedings.

34

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

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

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

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

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

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

18.REMEDIES.

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

35

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

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

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

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

36

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

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

19.ADDITIONAL ADVANCES

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

37

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

(b)Conditions Precedent to Additional Advance.

(i)There shall exist no Event of Default;

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

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

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

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

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

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

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

38

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

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

20.TRANSFER OF LOAN; LOAN SERVICER.

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

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

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

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

39

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

22.MISCELLANEOUS.

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

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

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention:  Chief Legal Officer

Facsimile:  (214) 655-1610

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

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention:  Mark Alfieri

Facsimile:  (214) 655-1610

with copy to:Wick Phillips, LLP

2100 Ross Avenue, Suite 950

Dallas, Texas  75201

Attention:  Walt Miller

Facsimile:  (214) 692-6255

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

2001 Bryan Street, Suite 3250

Dallas, Texas 75201

Attention: Timothy J. Hogan

Facsimile: (214) 922-8553

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

7373 N. Scottsdale Road, Suite C-228

Scottsdale, Arizona  85253

Attention: Bruce Hart

Facsimile:  (480) 596-8848

40

with copy to:Jones Day

325 John H. McConnell Blvd., Suite 600

Columbus, Ohio 43216

Attention:  Michael K. Ording

Facsimile: (614) 461-4198

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

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

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

41

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

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

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

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

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

42

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

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

43

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

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

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

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

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

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

44

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

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

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

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

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

45

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

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

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

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

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

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

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

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

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

46

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

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

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

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

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

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

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

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

47

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

24.          JUNIOR MEZZANINE LOAN.

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

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

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

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

48

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

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

49

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

25.          SUBDIVISION AND RELEASE.

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

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

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

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

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

50

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

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

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

[Signatures Follow on Next Page]

51

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

BORROWER:

SW 131 ST. ROSE MEZZANINE BORROWER LLC,

a Delaware limited liability company

By:	SW 130 St. Rose Limited Partnership,
	a Delaware limited partnership,
	its sole member
	By:	SW 129 St. Rose Limited Partnership,
		a Delaware limited partnership,
		its general partner
		By:	SW 104 Development GP LLC,
			a Delaware limited liability company,
			its general partner
			By:	/s/ Timothy J. Hogan
				Timothy J. Hogan, Vice President

LENDER:

BEHRINGER HARVARD ST. ROSE REIT, LLC,

a Delaware limited liability company

By:	Behringer Harvard St. Rose Venture, LLC,
	a Delaware limited liability company,
	its manager
	By:	Behringer Harvard St. Rose, LLC,
		a Delaware limited liability company,
		its manager
		By:	/s/ Gerald J. Reihsen, III
			Gerald J. Reihsen, III
			Executive Vice President-Corporate
			Development & Legal and Secretary

EXHIBIT A

DESCRIPTION OF THE LAND

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

PARCEL 1:

The North Half (N ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

PARCEL 2:

The South Half (S ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M.

EXCEPTING THEREFROM that portion lying within St. Rose Parkway.

PARCEL 3:

That portion of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.M., City of Henderson, Clark County, Nevada, more particularly described as follows:

The South Half (S ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35.

TOGETHER WITH:

Those portions of the North Half (N ½) of the South Half (S ½) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35 lying Northwesterly of the Northwesterly right of way of St. Rose Parkway.

PARCEL 4:

Being a portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

TOGETHER WITH that portion of the North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼), also together with that portion of the North Half (N ½) of the Northwest Quarter (NW ¼) of said Section 35, lying Northwesterly of St. Rose Parkway, further described as follows:

BEGINNING at the Southeast (SE) corner of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35, said corner being marked by an aluminum cap marked “PLS 5269, 1994, NW 1/16”;

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

Thence along said Northwesterly line, South 46°18’51” West, 297.97 feet to a point of intersection of said Northwesterly line with the South line of the North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35;

Thence along the lines of said North Half (N ½) the following Three (3) courses:

1)North 89°22’43” West, 553.55 feet;

2)North 00°33’34” West, 330.00 feet;

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

EXCEPTING THEREFROM:

A portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35, described as follows:

BEGINNING at the Southwest (SW) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35;

Thence North 00°33’55” West, 330.09 feet to the Northwest (NW) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence South 89°21’56” East, 663.21 feet to the Northeast Corner of the South Half (S1/2) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence South 00°32’39” East, 330.06 feet to the Southeast (SE) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence North 41°41’09” West, 316.13 feet; Thence South 48°18’51” West, 153.68 feet to the beginning of a 500 foot radius curve, concave Northwesterly; Thence along said curve to the right, 369.29 feet through a central angle of 42°19’05” to the POINT OF BEGINNING.

(Deed Reference 20070720 / 2463 and 2464)

SURVEYOR’S PERIMETER LEGAL DESCRIPTION:

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

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

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

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

Prepared by:

Michael A. Lathan, PLS No. 14414

DRC Surveying Nevada, Inc.

9330 West Martin Avenue

Las Vegas, Nevada  89148

EXHIBIT B

[INTENTIONALLY OMITTED]

EXHIBIT C

PLANS

[ATTACHED]

EXHIBIT D

CONSTRUCTION BUDGET

LINE ITEMS	Total Costs
LAND COSTS
LAND	14,200,000.00
TOTAL LAND COSTS	14,200,000.00
HARD COSTS
Construction Hard Costs	34,235,846.00
Hard Costs Contingency	1,431,465.00
TOTAL HARD COSTS	35,667,311.00
SOFT COSTS
Taxes	220,000.00
Legal	375,000.00
Closing Costs	100,000.00
Municipal Fees	4,150,000.00
Architect	700,000.00
Engineering & Surveying	200,000.00
Preleasing	175,000.00
Marketing	465,000.00
Mezzanine Loan Fee	631,296.00
Non-Accrual Mezzanine Interest	6,413,523.00
Financing Costs	1,501,870.00
Deferred Developer Offsite Overhead	3,613,196.00
Interest Reserve	1,181,558.00
Operating Deficit	275,237.00
Soft Cost Contingency	275,000.00
TOTAL SOFT COSTS	20,276,680.00
TOTAL BUDGET	70,143,991.00
SOURCE
Mezzanine Debt	21,043,197.00
Equity Partner	5,172,333.00
TCR Cash-including Pre Development Costs	1,715,265.00
Deferred Equity-Offsite Overhead	3,613,196.00
TOTAL SOURCES	31,543,991.00
LOAN PROCEEDS	38,600,000.00

EXHIBIT E

DRAW REQUEST

[BORROWER’S LETTERHEAD]

DRAW REQUEST NO.                          

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

LOAN NO.		DATE
PROJECT	ALEXAN ST. ROSE
LOCATION	HENDERSON, NEVADA
BORROWER	SW 131 ST. ROSE MEZZANINE BORROWER LLC
FOR PERIOD ENDING

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

1.	ORIGINAL CONTRACT SUM			$
2.	TOTAL CHANGE ORDERS			$
3.	CONTRACT SUM TO DATE (Line 1 + 2)			$
4.	TOTAL COMPLETED & STORED TO DATE			$
5.	SOFT COSTS			$
6.	RETAINAGE:
	a.		% of Completed Work	$
	b.		% of Stored Material	$
		Total Retainage		$
7.	TOTAL EARNED LESS RETAINAGE			$
	(Line 4 less Line 6 Total)
8.	LESS PREVIOUS PAYMENTS			$
9.	CURRENT PAYMENT DUE			$
10.	BALANCE TO FINISH, PLUS RETAINAGE			$
	(Line 3 less Line 7)

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

This Draw Request is executed                     , 200    .

BORROWER:

SW 131 ST. ROSE MEZZANINE BORROWER LLC,

a Delaware limited liability company

By:	SW 130 St. Rose Limited Partnership,
	a Delaware limited partnership,
	its sole member
	By:	SW 129 St. Rose Limited Partnership,
		a Delaware limited partnership,
		its general partner
		By:	SW 104 Development GP LLC,
			a Delaware limited liability company,
			its general partner
			By:
			Name:
			Title:

NOTES:

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

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

2.An appropriate transfer of title shall be executed;

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

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

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

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

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

EXHIBIT F

OWNERSHIP CHART

[ATTACHED]

EXHIBIT G

PENDING ACTIONS AT LAW

None.

EXHIBIT H

VIOLATIONS OF PROPERTY AGREEMENTS

None.

EXHIBIT I

LEASES

None.

EXHIBIT J

FINANCIAL INFORMATION

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

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

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

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

d)Detailed listing of all tenants with termination options

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

f)Access to service contracts

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

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

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

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

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

l)Rent roll – current year and prior year end

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

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

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

p)Access to vendor accounts payable files

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

EXHIBIT K

FORM OF SUBORDINATION OF MANAGEMENT AGREEMENT

[ATTACHED]

JUNIOR MEZZANINE LOAN AGREEMENT

BY

AND BETWEEN

SW 131 ST. ROSE MEZZANINE BORROWER LLC
(“Borrower”)

AND

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

1.	RECITALS		2
2.	DEFINITIONS		2
3.	THE LOAN; DISBURSEMENT OF LOAN		9
	(a)	Loan	9
	(b)	Loan Disbursements	9
4.	INTEREST PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY; REPAYMENT		9
	(a)	Interest	9
	(b)	No Usury	10
	(c)	Intentionally Deleted	11
	(d)	Prepayment	11
	(e)	Maturity Date	11
5.	SECURITY FOR LOAN; GUARANTY		11
	(a)	Security Instrument	11
	(b)	Other Loan Documents	11
	(c)	Guaranty	11
6.	CONDITIONS PRECEDENT TO CLOSING OF THE LOAN		11
	(a)	Loan Documents	11
	(b)	Third Party Agreements	12
	(c)	Certification	12
	(d)	Financial Statements	12
	(e)	Insurance Policies	12
	(f)	Contracts	13
	(g)	Title Insurance Policy	13
	(h)	ALTA Survey	13
	(i)	Flood Plain Certification	13
	(j)	Appraisal	13
	(k)	Environmental Report	13
	(l)	Certification of Organizational Documents	13
	(m)	Legal Opinion	13
	(n)	UCC Searches	14
	(o)	Utilities	14
	(p)	Environmental Disclosure	14
	(q)	No Default	14
7.	TITLE INSURANCE		14
8.	INSURANCE		14
	(a)	Insurance Requirements	14
	(b)	Initial Policies; Renewals	16
	(c)	Notices	16
	(d)	Notice of Casualty	16
	(e)	Settlement of Claim	16

i

	(f)	Application of Insurance Proceeds	17
9.	EMINENT DOMAIN		17
	(a)	Notice of Condemnation	17
	(b)	Settlement of Claim	18
	(c)	Application of Condemnation Awards	18
	(d)	Continuing Obligation to Repair	18
	(e)	Lender Not Required to Act	18
10.	RIGHTS OF ACCESS AND INSPECTION		18
11.	EXPENSES		19
12.	FINANCIAL REPORTS, PROPERTY REPORTS AND ANNUAL BUDGET		19
13.	GENERAL COVENANTS OF BORROWER		21
	(a)	Commencement and Completion of Project	21
	(b)	Lender Approval	21
	(c)	Operation and Maintenance of Project	22
	(d)	Restricted Sale and Encumbrance of Project and of Borrower Interests; Other Indebtedness	23
	(e)	General Indemnity	24
	(f)	Leases	25
	(g)	Notices	26
	(h)	Development	26
	(i)	Management	26
	(j)	Senior Loan	26
	(k)	Principal Place of Business; Choice of Law	27
	(l)	Compliance with Governmental Prohibitions	27
14.	FURTHER ASSURANCES		28
15.	APPRAISALS		28
16.	GENERAL REPRESENTATIONS AND WARRANTIES OF BORROWER		28
	(a)	Organization; Corporate Powers; Authorization of Borrowing	28
	(b)	Title to Property; Matters Affecting Property	29
	(c)	Financial Statements	31
	(d)	Budget Projections	31
	(e)	Intentionally Deleted	32
	(f)	No Loan Broker	32
	(g)	No Default	32
	(h)	Solvency	32
	(i)	Violations of Governmental Prohibitions	32
17.	EVENT OF DEFAULT		33
	(a)	Non-Payment	33
	(b)	Insurance	33
	(c)	Special Purpose Entity Covenants	33
	(d)	Borrower	33
	(e)	Guaranty	33
	(f)	Construction	33

ii

	(g)	Fraud or Material Misrepresentation	33
	(h)	Sale, Encumbrance or Other Indebtedness	34
	(i)	Reports and Documents	34
	(j)	Other Breaches under this Agreement.	34
	(k)	Other Breaches Under Other Loan Documents	34
	(l)	Senior Loan Documents	34
	(m)	Judgments	34
	(n)	Bankruptcy Proceedings	35
18.	REMEDIES		35
	(a)	Actions upon Event of Default	35
	(b)	Lender’s Right to Perform	36
	(c)	Appointment of Lender as Attorney-in-Fact	36
	(d)	Cross-Default to Note, Security Instrument, and Other Loan Documents	36
	(e)	Recourse Limitations	37
19.	ADDITIONAL ADVANCES		37
	(a)	Disbursement of Additional Advances	37
	(b)	Conditions Precedent to Additional Advance.	38
20.	TRANSFER OF LOAN; LOAN SERVICER		39
	(a)	Lender’s Right to Transfer	39
	(b)	Loan Servicer	39
	(c)	Dissemination of Information	39
21.	LENDER’S EXPENSES; RIGHTS OF LENDER		39
22.	MISCELLANEOUS		40
	(a)	Notices	40
	(b)	Waivers	41
	(c)	Lender Not Partner of Borrower; Borrower in Control	41
	(d)	No Third Party	42
	(e)	Time of Essence; Context	42
	(f)	Successors and Assigns	42
	(g)	Governing Jurisdiction	42
	(h)	SUBMISSION TO JURISDICTION; SERVICE OF PROCESS	42
	(i)	WAIVER WITH RESPECT TO DAMAGES	43
	(j)	Entire Agreement	44
	(k)	Headings	44
	(l)	Severability	44
	(m)	Counterparts	44
	(n)	WAIVER OF JURY TRIAL	44
	(o)	Sole and Absolute Discretion	44
	(p)	Straight Debt Harbor	45
	(q)	Assignment	45
	(r)	Retainage of Subcontractors	45
23.	SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER		45

iii

24.	SENIOR MEZZANINE LOAN	48
25.	SUBDIVISION AND RELEASE	49

iv

JUNIOR MEZZANINE LOAN AGREEMENT

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

R E C I T A L S:

This Agreement is made with reference to the following facts:

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

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

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

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

1

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

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

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

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

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

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

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

2

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

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

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

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

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

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

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

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

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

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

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

3

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

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

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

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

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

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

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

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

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

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

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

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

4

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

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

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

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

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

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

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

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

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

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

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

5

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

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

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

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

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

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

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

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

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

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

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

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

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

6

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

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

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

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

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

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

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

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

7

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

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

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

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

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

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

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

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

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

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

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

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

8

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

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

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

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

3.THE LOAN; DISBURSEMENT OF LOAN.

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

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

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

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

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

9

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

(c)Intentionally Deleted.

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

10

(e)Maturity Date.

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

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

5.SECURITY FOR LOAN; GUARANTY.

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

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

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

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

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

(i)this Agreement;

(ii)the Note;

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

(iv)the Guaranty;

(v)the Environmental Indemnity;

(vi)Certification of Organizational Documents; and

11

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

(b)Third Party Agreements.

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

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

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

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

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

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

12

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

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

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

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

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

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

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

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

13

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

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

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

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

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

8.INSURANCE.

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

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

14

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

15601 Dallas Parkway, Ste. 600

Addison, Texas 75001

Attn:Risk Management

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

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

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

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

15

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

(vii)Workers Compensation insurance as required by law.

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

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

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

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

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

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

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

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

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

16

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

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

9.             EMINENT DOMAIN.

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

17

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

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

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

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

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

18

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

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

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

19

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

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

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

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

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

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

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

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

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

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

20

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

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

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

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

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

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

21

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

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

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

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

22

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

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

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

23

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

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

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

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

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

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

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

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

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

24

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

(f)Leases.

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

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

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

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

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

25

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

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

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

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

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

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

26

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

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

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

27

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

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

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

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

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

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

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

28

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

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

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

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

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

(b)Title to Property; Matters Affecting Property.

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

29

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

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

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

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

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

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

30

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

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

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

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

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

31

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

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

(e)Intentionally Deleted.

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

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

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

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

32

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

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

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

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

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

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

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

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

33

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

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

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

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

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

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

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

(m)Judgments.

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

34

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

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

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

(n)Bankruptcy Proceedings.

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

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

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

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

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

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

35

18.          REMEDIES.

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

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

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

36

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

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

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

19.          ADDITIONAL ADVANCES

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

37

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

(b)Conditions Precedent to Additional Advance.

(i)There shall exist no Event of Default;

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

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

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

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

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

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

38

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

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

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

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

20.          TRANSFER OF LOAN; LOAN SERVICER.

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

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

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

39

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

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

22.          MISCELLANEOUS.

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

If to Lender:Behringer Harvard St. Rose REIT, LLC
15601 Dallas Parkway, Suite 600
Addison, Texas  75001
Attention:  Chief Legal Officer
Facsimile:  (214) 655-1610

with copy to:Behringer Harvard St. Rose REIT, LLC
15601 Dallas Parkway, Suite 600
Addison, Texas  75001
Attention:  Mark Alfieri
Facsimile:  (214) 655-1610

with copy to:Wick Phillips, LLP
2100 Ross Avenue, Suite 950
Dallas, Texas  75201
Attention:  Walt Miller
Facsimile:  (214) 692-6255

40

If to Borrower:SW 131 St. Rose Mezzanine Borrower LLC
2001 Bryan Street, Suite 3250
Dallas, Texas 75201
Attention: Timothy J. Hogan
Facsimile: (214) 922-8553

with a copy to:SW 131 St. Rose Mezzanine Borrower LLC
7373 N. Scottsdale Road, Suite C-228
Scottsdale, Arizona  85253
Attention: Bruce Hart
Facsimile:  (480) 596-8848

with copy to:Jones Day
325 John H. McConnell Blvd., Suite 600
Columbus, Ohio 43216
Attention:  Michael K. Ording
Facsimile: (614) 461-4198

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

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

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

41

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

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

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

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

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

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

42

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

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

43

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

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

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

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

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

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

44

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

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

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

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

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

45

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

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

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

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

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

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

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

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

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

46

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

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

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

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

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

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

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

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

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

47

In addition to the foregoing, Borrower shall have at least one independent manager who is provided by a nationally recognized company that provides professional independent directors and who shall not be at the time of initial appointment, and may not have been during the preceding five years (i) a stockholder, director, officer, employee, partner, member, attorney or counsel of Mortgagor or an Affiliate of Mortgagor or Borrower, (ii) a customer, supplier (other than a supplier of registered agent or registered office service) or other Person who derives any of its purchases or revenues from its activities with Mortgagor or Borrower, (iii) a Person or other entity controlling or under common control with any such stockholder, director, officer employee, partner, customer, supplier (other than a supplier of registered agent or registered office service) or other Person or (iv) a member of the immediate family of any such stockholder, director, officer, employee, partner, customer, supplier or other Person (the “Independent Director”).  At any time while the Loan is outstanding, the consent of the Independent Director should be required to: (i) file, consent to the filing of, or join in any filing of, a bankruptcy or insolvency petition; (ii) dissolve, liquidate, merge or consolidate; (iii) engage in any business or activity other than the ownership, construction, operation and maintenance, directly or indirectly, of the Project; and (iv) amend the articles of organization, limited liability agreement or partnership agreement.

24.          SENIOR MEZZANINE LOAN.

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

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

(ii)If an aggregate principal amount of more than $2,000 has been advanced to Borrower by Lender under this Agreement and the Senior Mezzanine Loan Agreement, Lender may decide whether additional amounts requested by Borrower pursuant to a Draw Request are funded pursuant to this Agreement or pursuant to the Senior Mezzanine Loan Agreement, or in part pursuant to this Agreement and in part pursuant to the Senior Mezzanine Loan Agreement, and if in parts pursuant to both this Agreement and the

48

Senior Mezzanine Loan Agreement, the respective parts funding pursuant to each, so long as the aggregate amount advanced to Borrower pursuant to this Agreement and the Senior Mezzanine Loan Agreement in all cases equals the amount requested by Borrower in the Draw Request.

(b)Borrower acknowledges that Lender has advised it that Lender desires that at no time will the Senior Mezzanine Advance Amount exceed the Estimated Value.  Accordingly, Borrower agrees that if at any time the Senior Mezzanine Advance Amount is more than the Estimated Value, Lender shall, subject to Section 24(a)(i), be deemed to have advanced principal under this Agreement in an amount equal to the amount by which the Senior Mezzanine Advance Amount exceeds the Estimated Value and to have used such advance to repay the portion of the loan under the Senior Mezzanine Loan Agreement then outstanding so as to reduce the Senior Mezzanine Advance Amount to the Estimated Value.  Conversely, Borrower agrees that if at any time the Senior Mezzanine Advance Amount is less than the Estimated Value, Lender shall, subject to Section 24(a)(i), be deemed to have advanced principal against the loan made under the Senior Mezzanine Loan Agreement in an amount equal to the lesser of (i) the Junior Mezzanine Advance Amount minus $1,000 and (ii) the amount by which the Estimated Value exceeds the Senior Mezzanine Advance Amount, and in such event Lender shall be deemed to have used the amount so advanced to repay a portion of the Loan.  An advance pursuant to this Section 24(b) will not reduce the amount Borrower is entitled to draw under this Agreement and the Senior Mezzanine Loan Agreement, it being the intent of Lender and Borrower that Borrower will be entitled to obtain advances up to the Maximum Aggregate Advance Amount.  An advance and contemporaneous repayment made, or deemed to be made, pursuant to this Section 24(b) will not be considered an advance in excess of the Maximum Aggregate Advance Amount for purposes of this Agreement.

(c)Borrower acknowledges that Lender has advised it that Lender desires that at no time will the Senior Mezzanine Advance Amount and the accrued and unpaid interest on the loan pursuant to the Senior Mezzanine Loan Agreement, taken together, exceed the Estimated Value.  Therefore, to the extent that, after any adjustments pursuant to Section 24(b), the Senior Mezzanine Advance Amount and the accrued and unpaid interest on the loan pursuant to the Senior Mezzanine Loan Agreement, taken together, exceed the Estimated Value, then such accrued and unpaid interest will be deemed to be payable under the Loan rather than payable under the loan pursuant to the Senior Mezzanine Loan Agreement to the extent necessary to prevent the Senior Mezzanine Advance Amount and the accrued and unpaid interest on the loan pursuant to the Senior Mezzanine Loan Agreement, taken together, from exceeding the Estimated Value.  Any such interest deemed to be payable under the Loan pursuant to this Section 

49

24(c) shall automatically to revert to being payable under the loan pursuant to the Senior Mezzanine Loan Agreement to the extent possible without causing the Senior Mezzanine Advance Amount and the accrued and unpaid interest on the loan pursuant to the Senior Mezzanine Loan Agreement, taken together, from exceeding the Estimated Value.  In no event shall the accrued and unpaid interest under the Loan, when combined with the accrued and unpaid interest owing under the loan pursuant to the Senior Mezzanine Loan Agreement, exceed the amount of interest that would be owing (taking into account payments of interest made prior to the time in question) if interest had accrued at the rate applicable under the Note and the note issued pursuant to the Senior Mezzanine Loan Agreement on a principal balance equal to the Junior Mezzanine Advance Amount plus the Senior Mezzanine Advance Amount.

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

25.          SUBDIVISION AND RELEASE.

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

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

50

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

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

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

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

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

[Signatures Follow on Next Page]

51

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

BORROWER:
SW 131 ST. ROSE MEZZANINE BORROWER LLC,
a Delaware limited liability company
By:	SW 130 St. Rose Limited Partnership,
	a Delaware limited partnership,
	its sole member
	By:	SW 129 St. Rose Limited Partnership,
		a Delaware limited partnership,
		its general partner
		By:	SW 104 Development GP LLC,
			a Delaware limited liability company,
			its general partner
			By:	/s/ Timothy J. Hogan
				Timothy J. Hogan, Vice President

LENDER:
BEHRINGER HARVARD ST. ROSE REIT, LLC,
a Delaware limited liability company
By:	Behringer Harvard St. Rose Venture, LLC,
	a Delaware limited liability company,
	its manager
	By:	Behringer Harvard St. Rose, LLC,
		a Delaware limited liability company,
		its manager
		By:	/s/ Gerald J. Reihsen, III
			Gerald J. Reihsen, III
			Executive Vice President-Corporate
			Development & Legal and Secretary

EXHIBIT A

DESCRIPTION OF THE LAND

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

PARCEL 1:

The North Half (N ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

PARCEL 2:

The South Half (S ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M.

EXCEPTING THEREFROM that portion lying within St. Rose Parkway.

PARCEL 3:

That portion of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.M., City of Henderson, Clark County, Nevada, more particularly described as follows:

The South Half (S ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35.

TOGETHER WITH:

Those portions of the North Half (N ½) of the South Half (S ½) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35 lying Northwesterly of the Northwesterly right of way of St. Rose Parkway.

PARCEL 4:

Being a portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

TOGETHER WITH that portion of the North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼), also together with that portion of the North Half (N ½) of the Northwest Quarter (NW ¼) of said Section 35, lying Northwesterly of St. Rose Parkway, further described as follows:

BEGINNING at the Southeast (SE) corner of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35, said corner being marked by an aluminum cap marked “PLS 5269, 1994, NW 1/16”;

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

Thence along said Northwesterly line, South 46°18’51” West, 297.97 feet to a point of intersection of said Northwesterly line with the South line of the North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35;

Thence along the lines of said North Half (N ½) the following Three (3) courses:

1)North 89°22’43” West, 553.55 feet;

2)North 00°33’34” West, 330.00 feet;

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

EXCEPTING THEREFROM:

A portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35, described as follows:

BEGINNING at the Southwest (SW) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35;

Thence North 00°33’55” West, 330.09 feet to the Northwest (NW) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence South 89°21’56” East, 663.21 feet to the Northeast Corner of the South Half (S1/2) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence South 00°32’39” East, 330.06 feet to the Southeast (SE) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence North 41°41’09” West, 316.13 feet; Thence South 48°18’51” West, 153.68 feet to the beginning of a 500 foot radius curve, concave Northwesterly; Thence along said curve to the right, 369.29 feet through a central angle of 42°19’05” to the POINT OF BEGINNING.

(Deed Reference 20070720 / 2463 and 2464)

SURVEYOR’S PERIMETER LEGAL DESCRIPTION:

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

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

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

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

Prepared by:

Michael A. Lathan, PLS No. 14414

DRC Surveying Nevada, Inc.

9330 West Martin Avenue

Las Vegas, Nevada  89148

EXHIBIT B

[INTENTIONALLY OMITTED]

EXHIBIT C

PLANS

[ATTACHED]

EXHIBIT D

CONSTRUCTION BUDGET

LINE ITEMS	Total Costs
LAND COSTS
LAND	14,200,000.00
TOTAL LAND COSTS	14,200,000.00
HARD COSTS
Construction Hard Costs	34,235,846.00
Hard Costs Contingency	1,431,465.00
TOTAL HARD COSTS	35,667,311.00
SOFT COSTS
Taxes	220,000.00
Legal	375,000.00
Closing Costs	100,000.00
Municipal Fees	4,150,000.00
Architect	700,000.00
Engineering & Surveying	200,000.00
Preleasing	175,000.00
Marketing	465,000.00
Mezzanine Loan Fee	631,296.00
Non-Accrual Mezzanine Interest	6,413,523.00
Financing Costs	1,501,870.00
Deferred Developer Offsite Overhead	3,613,196.00
Interest Reserve	1,181,558.00
Operating Deficit	275,237.00
Soft Cost Contingency	275,000.00
TOTAL SOFT COSTS	20,276,680.00
TOTAL BUDGET	70,143,991.00
SOURCE
Mezzanine Debt	21,043,197.00
Equity Partner	5,172,333.00
TCR Cash-including Pre Development Costs	1,715,265.00
Deferred Equity-Offsite Overhead	3,613,196.00
TOTAL SOURCES	31,543,991.00
LOAN PROCEEDS	38,600,000.00

EXHIBIT E

DRAW REQUEST

[BORROWER’S LETTERHEAD]

DRAW REQUEST NO.                          

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

LOAN NO.		DATE
PROJECT	ALEXAN ST. ROSE
LOCATION	HENDERSON, NEVADA
BORROWER	SW 131 ST. ROSE MEZZANINE BORROWER LLC
FOR PERIOD ENDING

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

1.	ORIGINAL CONTRACT SUM			$
2.	TOTAL CHANGE ORDERS			$
3.	CONTRACT SUM TO DATE (Line 1 + 2)			$
4.	TOTAL COMPLETED & STORED TO DATE			$
5.	SOFT COSTS			$
6.	RETAINAGE:
	a.		% of Completed Work	$
	b.		% of Stored Material	$
		Total Retainage		$
7.	TOTAL EARNED LESS RETAINAGE			$
	(Line 4 less Line 6 Total)
8.	LESS PREVIOUS PAYMENTS			$
9.	CURRENT PAYMENT DUE			$
10.	BALANCE TO FINISH, PLUS RETAINAGE			$
	(Line 3 less Line 7)

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

This Draw Request is executed                     , 200    .

BORROWER:

SW 131 ST. ROSE MEZZANINE BORROWER LLC,

a Delaware limited liability company

By:	SW 130 St. Rose Limited Partnership,
	a Delaware limited partnership,
	its sole member
	By:	SW 129 St. Rose Limited Partnership,
		a Delaware limited partnership,
		its general partner
		By:	SW 104 Development GP LLC,
			a Delaware limited liability company,
			its general partner
			By:
			Name:
			Title:

NOTES:

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

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

2.An appropriate transfer of title shall be executed;

3.The methods used to store off-Site items shall be described;

4.Items in storage shall be identified as property of Borrower or Mortgagor, and a description of the identification methods used shall be submitted for approval by Lender;

5.A written inventory of items and method used to verify such inventory, including Borrower’s certification that all quantities have been received in good condition, shall be submitted for approval by Lender; and

6.Proof of insurance in Borrower’s name shall be secured.

Lender shall have the right to verify storage by a physical inspection prior to invoice approval and at any time thereafter.  Such payment shall not relieve Borrower of the responsibility for protecting, safeguarding, and proper installation of the materials.

EXHIBIT F

OWNERSHIP CHART

[ATTACHED]

EXHIBIT G

PENDING ACTIONS AT LAW

None.

EXHIBIT H

VIOLATIONS OF PROPERTY AGREEMENTS

None.

EXHIBIT I

LEASES

None.

EXHIBIT J

FINANCIAL INFORMATION

Borrower must provide the following items, as applicable, to Lender, in addition to any other items requested by Lender prior to Closing or during the term of this Agreement:

a)Detailed accrued expense listing for each quarter ended during the current calendar year and for the prior full fiscal year

b)Detailed straight line rent schedule for each quarter ended during the current calendar year and for the prior full fiscal year

c)Details/abstracts of all permits and licenses for tenants (i.e. satellite dishes on roof)

d)Detailed listing of all tenants with termination options

e)Listing of all service contracts and equipment leases, including contracts for elevator, landscaping, electricity, cleaning, HVAC service, security, pest control, disposal, parking lot maintenance, insurance, etc.

f)Access to service contracts

g)Detail of the cash receipts and disbursements journal, downloaded to Excel if possible for the prior full fiscal year and the year to date period of the current year

h)Detailed general ledger of revenues and expenses for each quarter during the current calendar year and the prior full fiscal year

i)Detailed income statements by month for the current year and for the prior full fiscal year

j)Copies of property tax invoices for the current year and the previous full fiscal year

k)Operating expense reconciliations by tenant for the current year to date period and the previous full fiscal year

l)Rent roll – current year and prior year end

m)Lease abstracts, including amendments, exhibits and side letters for each tenant

n)Management/leasing agreement, current year and prior year end

o)Check registers for the period from the current year to date period being reviewed through the date of the accountants/auditors field work

p)Access to vendor accounts payable files

q)Leases in effect during the prior full fiscal year and during the current year being reviewed

EXHIBIT K

FORM OF SUBORDINATION OF MANAGEMENT AGREEMENT

[ATTACHED]

EX-10.7

Exhibit 10.7

APN:	177-35-201-001
	177-35-201-002
	177-35-201-003
	177-35-201-006

The mailing address to which this Mortgage
should be returned after recordation is:

WICK PHILLIPS, LLP

2100 Ross Avenue, Suite 950

Dallas, Texas  75201

Attention:  Walt Miller, Esq.

SENIOR MEZZANINE DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT

(This Document Serves as a Fixture Filing under

Nevada Revised Statutes Section 104.9502)

Dated to be effective as of December 31, 2008

made by

SW 132 ST. ROSE SENIOR BORROWER LLC,

 a Delaware limited liability company (Grantor)

to

Chicago Title Agency of Nevada, Inc., as Trustee

(Trustee)

for the benefit of

BEHRINGER HARVARD ST. ROSE REIT, LLC,
a Delaware limited liability company (Lender)

DEED OF TRUST — Page 1

SENIOR MEZZANINE DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT

Grantor’s Organizational Identification Number: 26-3831531

THIS SENIOR MEZZANINE DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this “Mortgage”) is made this 31st day of December, 2008, by Grantor, in favor of Trustee for the benefit of Lender.

RECITALS

A.            This Mortgage is being executed by Grantor for the purpose of securing a loan from Lender to SW 131 St. Rose Mezzanine Borrower LLC, a Delaware limited liability company (the “Borrower”).  The Borrower is directly or indirectly the legal and beneficial owner of all (100%) of the equity interests in Grantor.

B.            Grantor is the owner of the Land (as defined below) and is currently pursuing a subdivision of the Land, and Grantor intends to convey approximately 6.272 acres of the Land (the “Commercial Tract”) to its affiliate, SW 122 St. Rose Senior Borrower LLC, a Delaware limited liability company (the “Commercial Tract Borrower”).  The Land other than the Commercial Tract (the “Multi-Family Tract”) will be used by Grantor to develop a 430-unit apartment complex.

C.            When Commercial Tract Borrower acquires title to the Commercial Tract (the date of such acquisition is referred to herein as the “Transfer Date”), Lender will cause the lien of this Mortgage to be released as to the Commercial Tract.

D.            Concurrently with the execution of this Mortgage, Grantor also is executing (1) that certain Deed of Trust, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement to and in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., as administrative agent for itself and certain other lenders (the “Multi-Family DOT”), to secure, in part, the obligations of the Grantor in connection with a $38,600,000 loan (the “Senior Loan”), (2) that certain Deed of Trust, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement to and in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., for its own account as lender (the “Commercial DOT”), to secure, in part, the obligations of the Commercial Tract Borrower in connection with a $2,950,000 loan (the “Commercial Loan”), and (3) that certain Junior Mezzanine Deed of Trust, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement to and in favor of Trustee, as trustee, for the benefit of Lender (the “Junior Mezzanine DOT”), to secure, in part, the obligations of the Borrower under the Junior Mezzanine Loan Documents.  The Multi-Family DOT and the Commercial DOT are referred to herein as the “Senior DOTs”).

E.             This Mortgage is subject and subordinate to the Senior DOTs, the obligations of the Grantor and/or Commercial Tract Borrower in respect of the Senior Loan and the

DEED OF TRUST — Page 2

Commercial Loan, respectively, and the rights of the administrative agent and/or lenders arising in connection with the Senior Loan and the Commercial Loan, respectively.

ARTICLE 1

Definitions; Granting Clauses; Secured Indebtedness

Section 1.1.            Principal Secured.  This Mortgage secures the aggregate principal amount of up to TWENTY ONE MILLION FORTY THREE THOUSAND ONE HUNDRED NINETY SEVEN AND NO/100 DOLLARS ($21,043,197.00) together with interest thereon.  This instrument secures future advances as defined in Nevada Revised Statutes (as amended, NRS) 106.320, and is goverened by NRS 106.300 to 106.400, inclusive.

Section 1.2.            Definitions.

(a)           In addition to other terms defined herein, each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Grantor”:  SW 132 ST. ROSE SENIOR BORROWER LLC, a Delaware limited liability, whose mailing address is 2001 Bryan Street, Suite 3250, Dallas, Texas 75201, Attention: Tim Hogan, and its permitted successors and assigns.

“Lender”:  BEHRINGER HARVARD ST. ROSE REIT, LLC, a Delaware limited liability company, or any subsequent holder(s) of the Notes at the time in question.

“Mezzanine Loan Agreement”:  The Senior Mezzanine Loan Agreement dated of even date herewith between Lender and Borrower, which is incorporated herein by reference for all purposes.

“Promissory Note”:  The Senior Mezzanine Promissory Note made by Borrower pursuant to the Mezzanine Loan Agreement, payable to the order of Lender, in the principal face amount of up to $21,043,197.00, bearing interest as therein provided.

“Trustee”:  Chicago Title Agency of Nevada, Inc., a Nevada corporation.

“UCC”:   The Nevada Uniform Commercial Code,  NRS Section 104.1101 et seq., as amended from time to time.

(b)           Any term used or defined in the UCC, as in effect from time to time, and not defined in this Mortgage has the meaning given to the term in the UCC, as in effect from time to time, when used in this Mortgage. However, if a term is defined in NRS Section 104.9101 et seq. of the UCC differently than in another title of the UCC, the term has the meaning specified in said NRS Section 104.9101 et seq.

DEED OF TRUST — Page 3

(c)           Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Mezzanine Loan Agreement.

Section 1.3.            Granting Clause.  In consideration of the provisions of this Mortgage and the sum of TEN AND NO/100 DOLLARS ($10.00) cash in hand paid and other good and valuable consideration the receipt and sufficiency of which are acknowledged by Grantor, Grantor does hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and SET OVER to Trustee, IN TRUST with the power of sale for the benefit and security of Lender, with GENERAL WARRANTY, the following:  (a)  the real property described in Exhibit A which is attached hereto and incorporated herein by reference (the “Land”) together with: (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (1) streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (2) any strips or gores between the Land and abutting or adjacent properties; (3) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (4) all water and water rights, ditches and ditch rights, reservoirs, reservoir rights and storage rights, wells and well rights, well permits, springs and spring rights, groundwater rights (whether tributary, nontributary or not-nontributary), water contracts, water allotments, water taps, stock certificates, shares in ditch or reservoir or water companies, and all other rights of any kind or nature in or to the use of water, whether or not adjudicated, which are appurtenant to, historically used on or in connection with, or located on or under the Land (collectively, “Water Rights”), together with any and all associated structures and facilities for the diversion, carriage, transmission, conveyance, measurement, storage or use of said Water Rights, and any and all easements, rights of way, fixtures, personal property, contract rights, licenses, permits or decrees associated with or used in connection with any such Water Rights or which may be necessary for the development, operation or maintenance of such Water Rights; and (5) timber, crops and mineral interests on or pertaining to the Land (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”); (b) all fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land); (c) Grantor’s rights, but not liability for any breach by Grantor, under all (i) plans and specifications for the Improvements; (ii) insurance policies to the extent transferable, or proceeds thereof (to the extent not transferable) (or additional or supplemental coverage related thereto, including  from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal

DEED OF TRUST — Page 4

government sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements; (iii) Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, rebates or refunds of impact fees or other taxes, assessments or charges; (iv) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories; (v) leases, rents, royalties, bonuses, issues, profits, revenues and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof); (vi) as-extracted collateral produced from or allocated to the Land including, without limitation, oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom, and the proceeds thereof; and (vii) engineering, accounting, title, legal, and other technical or business data concerning the Property which are in the possession of Grantor or in which Grantor can otherwise grant a security interest; and (d) all (i) accounts and proceeds (cash or non-cash and including payment intangibles) of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including but not limited to proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance (or additional or supplemental coverage related thereto, including  from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government sponsored program or entity) relating thereto (including premium refunds), proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any Law, and proceeds arising out of any damage thereto; (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3; (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3; and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including but not limited to rights of ingress and egress and remainders, reversions and reversionary rights or interests; and if the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate;

TO HAVE AND TO HOLD the foregoing rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (herein collectively called the “Property”), unto Trustee, and its successors or substitutes in this trust, in trust, in fee simple forever, subject to the terms, provisions and conditions herein set forth, to secure the obligations of Borrower under the Notes and Loan Documents (as hereinafter defined) and all other indebtedness and matters defined as “Secured Indebtedness” in Section 1.5 of this Mortgage.

Notwithstanding any of the above, the lien of this Mortgage does not extend to the names “Trammell Crow Residential”, “Alexan” and “TCR” or any variant thereof or the “TCR” logo or to any written or printed material that contains any of such names or such logo, and if Lender forecloses against the Premises, or Lender acquires the Premises (whether through foreclosure,

DEED OF TRUST — Page 5

deed in lieu of foreclosure or other means), or if Lender takes possession of the Premises, or if a receiver is appointed for the Premises, then Lender will not use, and any person acquiring the Premises through foreclosure, deed in lieu of foreclosure or other means shall not use, in connection with the Premises any of the names “Trammell Crow Residential”, “Alexan” or “TCR” or any variant thereof or the “TCR” logo.  The limitation of names listed in this Section 1.3 does not imply a license or right to use any other name, service mark, trademark or logo that is proprietary to Grantor or any of its affiliates.

Section 1.4.            Security Interest.  Grantor hereby grants to Lender a security interest in all of the Property which constitutes personal property or fixtures, all proceeds and products thereof, and all supporting obligations ancillary to or arising in any way in connection therewith (herein sometimes collectively called the “Collateral”) to secure the obligations of Grantor under the Notes and Loan Documents and all other indebtedness and matters defined as Secured Indebtedness in Section 1.5 of this Mortgage.  In addition to its rights hereunder or otherwise, Lender shall have all of the rights of a secured party under the UCC, as in effect from time to time, or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable Law.

Section 1.5.            Secured Indebtedness, Notes, Loan Documents, Other Obligations.  This Mortgage is made to secure and enforce the payment and performance of the following promissory notes, obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases, and modifications thereof in whole or in part from time to time (collectively the “Secured Indebtedness”):  (a) the Promissory Note and all other promissory notes given in substitution therefor or in modification, supplement, increase, renewal or extension thereof, in whole or in part (such promissory note or promissory notes, whether one or more, as from time to time renewed, extended, supplemented, increased or modified and all other notes given in substitution therefor, or in modification, renewal or extension thereof, in whole or in part, being hereinafter called the “Notes”); (b)  all indebtedness, liabilities, duties, covenants, promises and other obligations whether joint or several, direct or indirect, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, owed by Borrower to Lender now or hereafter incurred or arising pursuant to or permitted by the provisions of the Notes, this Mortgage, or any other document now or hereafter evidencing, governing, guaranteeing or securing the loan evidenced by the Notes executed by Borrower or any Guarantor (as defined in the Mezzanine Loan Agreement), including but not limited to any loan or credit agreement, letter of credit or reimbursement agreement, tri-party financing agreement or other agreement between Borrower and Lender, or among Borrower, Lender and any other party or parties, pertaining to the repayment or use of the proceeds of the loan evidenced by the Notes (the Notes, this Mortgage and such other documents, as they or any of them may have been or may be from time to time renewed, extended, supplemented, increased or modified, being herein sometimes collectively called the “Loan Documents”; provided, however, the Environmental Indemnity is not a Loan Document); (c) all future advances made by Lender to Grantor or Borrower; provided, however, this clause (c) shall not operate or be effective to constitute or require any assumption or payment by any person, in any way, of any debt of any other person to the extent that the same would violate or exceed the limit provided in any applicable usury or other Law; and (d) the obligations of Grantor under this Mortgage.  Should the Secured

DEED OF TRUST — Page 6

Indebtedness decrease or increase pursuant to the terms of the Notes or otherwise, at any time or from time to time, this Mortgage shall retain its priority position of record until (a) the termination of Lender’s obligations to make advances under the Loan Documents and the full, final and complete payment of all the Secured Indebtedness then outstanding, or (b) the full release and termination of the liens and security interests created by this Mortgage.

Section 1.6.            Subordinate Deed of Trust.  This Mortgage, the Promissory Note, the Mezzanine Loan Agreement and the other Loan Documents, and all rights of Lender under this Mortgage, are subject and subordinate to the Senior DOTs, the other Senior Loan Documents and the rights of the Senior Lender arising thereunder.  In the event of a conflict between the provisions of the Senior Loan Documents and the provisions of the Loan Documents, the provisions of the Senior Loan Documents shall control.  To the extent that Grantor is required to perform any obligation under both the Senior Loan Documents and this Mortgage, Grantor shall be deemed to have complied with the applicable provision of this Mortgage as long as Grantor has performed the corresponding obligation for the benefit of the Senior Lender pursuant to the Senior Loan Documents.  Reference is hereby made to that certain Intercreditor and Subordination Agreement executed by Lender and the Senior Lender, acting in its own capacity or as administrative agent on behalf of itself and/or other lenders (the “Intercreditor Agreement”).  This Mortgage is subject to termination and release upon the occurrence of certain events or circumstances as more particularly described in Section 7 of the Intercreditor Agreement.

ARTICLE 2

Representations, Warranties and Covenants

Section 2.1.            Grantor represents, warrants, and covenants as follows:

(a)           Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements, and conditions imposed upon it by this Mortgage and will not permit an Event of Default to occur hereunder.  Time shall be of the essence in this Mortgage.

(b)           Title and Permitted Encumbrances.  Grantor has, in Grantor’s own right, and Grantor covenants to maintain, lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for (i) the matters, if any, set forth under on Exhibit B attached hereto, but only to the extent that the same are valid and subsisting and affect the Property, (ii) the liens and security interests evidenced by this Mortgage, (iii) statutory liens for real estate taxes, assessments and other governmental charges on the Property which are not yet delinquent or are being contested in accordance with Section 2.1(c) or comparable provisions of the documents evidencing or securing the Senior Loan or the Commercial Loan, (iv) rights of tenants under leases, (v)  the liens and security interests evidenced by the Senior DOTs, (vi) other liens and security interests (if any) in favor of Lender or otherwise approved by Lender, (vii) mechanics’ liens being

DEED OF TRUST — Page 7

contested in accordance with Section 2.1(l) or comparable provisions of the documents evidencing or securing the Senior Loan or the Commercial Loan, and (viii) the Junior Mezzanine DOT (the matters described in the foregoing clauses (i), (ii), (iii), (iv), (v), (vi), (vii) and (viii) being herein called the “Permitted Encumbrances”).  Grantor, and Grantor’s successors and assigns, will warrant generally and forever defend title to the Property, subject as aforesaid, to Trustee, and its successors or substitutes, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Except as permitted in the Mezzanine Loan Agreement, Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or permit modification of any Permitted Encumbrance without the prior written consent of Lender.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Lender of any existing or future violation or other breach thereof by Grantor, by the Property or otherwise.  No part of the Property constitutes all or any part of the homestead of Grantor.  If any right or interest of Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee and Lender, or either of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All reasonable expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Lender or Trustee (as the case may be) with interest as provided in the Notes, and the party (Lender or Trustee, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)           Taxes and Other Impositions.  Grantor will pay, or cause to be paid, all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including but not limited to all ad valorem taxes assessed against the Property or any part thereof, and shall deliver promptly to Lender such evidence of the payment thereof as Lender may require; provided, however, that Grantor may contest the payment of any such tax or other imposition to the extent and in the manner permitted by Law if and so long as the following conditions are satisfied: (i) Grantor shall have notified Lender of Grantor’s contest; (ii) Grantor shall diligently and in good faith contest the same by appropriate legal proceedings which shall operate to prevent the enforcement or collection of the same and the sale of the Property, or any part thereof, to satisfy the same; (iii) Grantor shall have furnished to Lender a cash deposit reasonably satisfactory to Lender, or an indemnity bond reasonably satisfactory to Lender with a surety reasonably satisfactory to Lender, in the amount of the tax or other imposition plus a reasonable additional sum to pay all costs, interest and penalties that may be imposed or incurred in connection therewith (or in the statutory amount, in the case of a bond authorized by statute), to assure payment of the matters under contest and to prevent any sale or forfeiture of the Property or any part thereof, but in each case, only to the extent Grantor has not furnished a cash deposit or indemnity bond to the Senior Lender pursuant to the Senior Loan Documents; (iv) Grantor shall promptly upon final determination thereof pay the amount of any such tax or other imposition so determined, together with all costs, interest

DEED OF TRUST — Page 8

and penalties which may be payable in connection therewith; and (v) the failure to pay the tax or other imposition does not constitute an event of default under any other deed of trust, mortgage or security interest covering or affecting any part of the Property and does not subject Lender to any civil or criminal liability or to any damages or expense not reimbursed by Grantor.  Notwithstanding the foregoing, Grantor shall immediately upon request of Lender pay (and if Grantor shall fail so to do, Lender may, but shall not be required to, pay or cause to be discharged or bonded against) any such tax or other imposition notwithstanding such contest if in the reasonable opinion of Lender, the Property shall be in jeopardy or in danger of being forfeited or foreclosed.  Lender may pay over any such cash deposit or part thereof to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established.

(d)           Insurance.  Grantor shall obtain and maintain at no expense to Lender or Trustee insurance in respect of the Property by the Mezzanine Loan Agreement.  Grantor shall cause all premiums on policies required hereunder to be paid as they become due and payable and promptly deliver to Lender evidence reasonably satisfactory to Lender of the timely payment thereof.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements in this paragraph with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Lender, then subject to the rights of the Senior Lender, Lender shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Lender.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies (to the extent transferable) referred to in this Section (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in the purchaser at foreclosure or other such transferee, to the extent permissible under such policies, subject to the rights of the Senior Lender, Lender shall have the right (but not the obligation) to receive the proceeds of, all insurance for loss of or damage to the Property, and if an Event of Default exists (after taking into consideration applicable notice, grace and cure periods) to make proof of loss for, settle and adjust any claim under such insurance, regardless of whether or not such insurance policies are required by Lender, and the reasonable expenses incurred by Lender in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Lender on demand.  Lender shall not be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor or to any third party.  Any such proceeds received by Lender shall be applied as provided in the applicable provisions of the Mezzanine Loan Agreement.

(e)           Reserve for Insurance, Taxes and Assessments.  Upon the occurrence of an Event of Default (after taking into consideration applicable notice, grace and cure periods), in order to secure the performance and discharge of Grantor’s obligations referred to below, but not in lieu of such payment and performance, Grantor will deposit with Lender a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this paragraph shall include without limitation any recurring charge which could result in a lien against the Property) against

DEED OF TRUST — Page 9

the Property for the current year and the premiums for such policies of insurance for the current year (to the extent such premiums have not been paid), all as estimated by Lender and prorated to the end of the calendar month following the month during which Lender’s request is made, and thereafter will deposit with Lender, on each date when an installment of principal and/or interest is due on the Notes, sufficient funds (as estimated from time to time by Lender) to permit Lender to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance; provided, however, Grantor shall not be obligated to make any such deposits to the extent it makes deposits of a similar character with the Senior Lender under the Senior Loan Documents.  All such funds shall be deposited into an interest bearing account and, provided that no Event of Default or event which, with notice or passage of time or both, would constitute an Event of Default has occurred and is then continuing, Grantor shall, upon written request to Lender, be entitled to receive the interest accrued on such account.  Lender shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  To the extent permitted by Law, any excess over the amounts required for such purposes shall be held by Lender for future credit against amounts due under this paragraph or refunded to Grantor, at Lender’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Lender.  All such funds so deposited (including any interest to which Grantor is not entitled under the provisions above) shall be applied by Lender toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Lender by Grantor (which statements shall be presented by Grantor to Lender a reasonable time before the applicable amount is due); provided, however, that, if an Event of Default shall then exist hereunder (after taking into consideration applicable notice, grace and cure periods), such funds shall be applied first to past or currently due taxes, assessments, charges or premiums, together with any penalties or late charges with respect thereto, and the balance may be applied at Lender’s option to the Secured Indebtedness in the order determined by Lender in its sole discretion.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including without limitation the foreclosure of a subordinate lien or security interest or a transfer by operation of Law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Lender under this paragraph but subject to the rights of Lender hereunder.

(f)            Condemnation.  Immediately upon obtaining knowledge thereof, Grantor shall notify Lender of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor’s expense, diligently prosecute any such proceedings, and shall consult with Lender and its attorneys and experts, and cooperate with them in the carrying on the defense of any such proceedings.  Lender shall have the right (but not the obligation) to participate in any such proceeding and to be represented by counsel of its own choice.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, Lender shall be entitled to receive all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  To the extent permitted by applicable Law and except as otherwise expressly provided herein, Grantor hereby specifically, unconditionally and

DEED OF TRUST — Page 10

irrevocably waives all rights of a property owner granted under applicable law which provide for allocation of condemnation proceeds between a property owner and a lienholder, including the provisions of NRS 37.115.  Grantor shall, promptly upon request of Lender, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and, subject to the rights of administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, to enable Lender to collect and receipt for any such sums.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, all such sums are hereby assigned to Lender, and shall be applied as provided in the applicable provisions of the Mezzanine Loan Agreement.  In any event the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused.  Lender shall not be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Lender is hereby authorized, in the name of Grantor, to execute and deliver valid acquittances for, and to appeal from, any such award, judgment or decree.  All reasonable costs and expenses (including but not limited to reasonable attorneys’ fees) incurred by Lender in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Lender pursuant to this Mortgage.

(g)           Compliance with Legal Requirements.  Grantor, the Property and the use, operation and maintenance thereof and all activities thereon do and shall comply in all material respects with all applicable Legal Requirements (hereinafter defined).  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Mortgage to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning Law or similar Law.  The Property will contain within its boundaries a sufficient number of parking spaces to satisfy all Laws.  There are no written or oral agreements with any third parties regarding parking, ingress and egress, use or maintenance of common areas or otherwise except as provided in the Permitted Encumbrances.  Grantor has obtained or will obtain when required and shall preserve and keep in full force and effect, all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Lender.  Without limiting the foregoing, Grantor hereby agrees that upon receipt of any notice of noncompliance with restrictive covenants affecting the Property because of the encroachment of the Improvements over the building line, Grantor shall immediately (x) provide Lender with written notice thereof and (y) commence to cure such noncompliance and pursue such cure to completion. Grantor has received no notice and has no knowledge of any such noncompliance.  As used in this Mortgage:  (i) the term “Legal Requirement” means any Law (hereinafter defined), agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company) that is binding on Grantor or the Property, as any of the same now exists or may be

DEED OF TRUST — Page 11

changed or amended or come into effect in the future; and (ii) the term “Law” means any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

(h)           Condition of Property.  Upon payment of applicable connection fees, the Property will be separately served by electric, gas, storm and sanitary sewers, sanitary water supply, telephone and other utilities required for the use thereof as represented by Grantor at or within the boundary lines of the Property or at points from which extensions of facilities contemplated by the Mezzanine Loan Agreement will originate.  All streets, alleys and easements necessary to serve the Property for the use represented by Grantor have been completed and are serviceable and (i) such streets have been dedicated and accepted by applicable governmental entities, (ii) such streets benefit the Property pursuant to valid and binding easement agreements which permit Grantor and its successors, assigns and mortgagees, the uninterrupted use of the same for ingress and egress to and from the Property or (iii) the right-of-way for such streets have been established and such streets will be constructed as part of the improvements provided for in the Mezzanine Loan Agreement.  To Grantor’s knowledge, design conditions of the Property are such that no drainage or surface or other water will, in any actionable way, drain across or rest upon either the Property or land of others.  No portion of any of the buildings that are or are to be part of the Property is within a flood plain except as shown on a survey delivered to Lender, and none of the Improvements creates (or when constructed will create) an encroachment over, across or upon any of the Property boundary lines, rights of way or easements, and no building or other improvement on adjoining land creates such an encroachment onto the Property except as shown on a survey delivered to Lender.

(i)            Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Lender, (i) remove from the Property any fixtures or personal property covered by this Mortgage except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except Permitted Encumbrances and the liens and security interests created by this Mortgage and the other Loan Documents), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof, or (iii) make any alteration to the Property involving  any single estimated expenditure exceeding $300,000, except pursuant to plans and specifications approved in writing by Lender.  Upon request of Lender but no more often than once in any twelve month period (unless Lender determines in its good faith business judgment, that it needs a current inventory more frequently), Grantor will deliver to Lender an inventory describing and showing the make, model, and location of all fixtures and personal property used in the management, maintenance and operation of the Property owned by Grantor with a certification by Grantor that said inventory is a true and complete schedule of all such fixtures and personal property owned by Grantor used in the management, maintenance and operation of the Property, that such items specified in the inventory constitute all of the fixtures and personal property required in the management, maintenance and operation of the Property except for items identified or leased by Grantor in accordance with this Mortgage and other

DEED OF TRUST — Page 12

items owned by service providers and that all such items are owned by Grantor free and clear of any lien or security interest (except Permitted Encumbrances and the liens and security interests created by this Mortgage and the other Loan Documents).  If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance has not been obtained or is not obtainable) shall result in damage to or loss or destruction of the Property in excess of $75,000.00, Grantor shall give prompt notice thereof to Lender and, unless Lender agrees otherwise, Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(j)            No Other Liens.   Grantor will not, without the prior written consent of Lender, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Mortgage, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Lender, Grantor will cause the same to be promptly discharged and released; provided, however, that Grantor may contest involuntary mechanics’ and materialmen’s liens to the extent and in the manner permitted by Law if and so long as Grantor shall have satisfied all of the conditions of Section 2.1 (c) (regarding contest by Grantor of taxes or other impositions), which conditions shall also apply in all respects to Grantor’s privilege to contest involuntary mechanics’ or materialmen’s liens under this paragraph.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Lender, except that Grantor may lease certain furniture and accessories for display in the model units on the Property, certain furniture and equipment for the clubhouse and management offices and cable, television, telephone, internet access, laundry and security equipment pursuant to lease agreements approved by Lender.  If Lender consents to the voluntary grant by Grantor of any deed of trust or mortgage, lien, security interest, or other encumbrance (other than the Permitted Encumbrances) (hereinafter called “Subordinate Mortgage”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Mortgage, any such Subordinate Mortgage shall contain express covenants to the effect that:

(1)           the Subordinate Mortgage is unconditionally subordinate to this Mortgage;

(2)           if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Mortgage, no tenant of any of the Leases (hereinafter defined) shall be named as a party defendant, and no action shall

DEED OF TRUST — Page 13

be taken that would terminate any occupancy or tenancy without the prior written consent of Lender;

(3)           Rents, (hereinafter defined) if collected by or for the holder of the Subordinate Mortgage, shall be applied first to the payment of the Senior Loan and the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property, prior to being applied to any indebtedness secured by the Subordinate Mortgage;

(4)           written notice of default under the Subordinate Mortgage and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Mortgage or to seek the appointment of a receiver for all or any part of the Property shall be given to Lender with or immediately after the occurrence of any such default or commencement; and

(5)           neither the holder of the Subordinate Mortgage, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Lender.

(k)           Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith (except for fees and charges that Grantor is contesting in good faith in accordance with the provisions of this Mortgage).  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy, or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or any other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Lender.  Grantor will not do or suffer to be done any intentional act whereby the value of any part of the Property may be lessened; provided, however, this sentence is not intended and shall not be construed, to prohibit Grantor from making adjustments to the rental rates for apartment units in the Property that are necessary to meet market rental rates for apartment projects of similar quality located in the general vicinity of the Property.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Lender, there shall be no drilling or exploration for or extraction, removal or production of any mineral, hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.

DEED OF TRUST — Page 14

(l)            Debts for Construction, Etc.  Grantor will cause all debts and liabilities of any character (including without limitation all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid, subject to Grantor’s right to contest the validity or amounts thereof in accordance with procedures like those in Section 2.1(c).

(m)          Financial Matters.  Grantor is solvent after giving effect to all borrowings contemplated by the Loan Documents and no proceeding under any Debtor Relief Law (hereinafter defined) is pending (or, to Grantor’s knowledge, threatened) by or against Grantor, as a debtor.

(n)           Status of Grantor; Suits and Claims; Loan Documents.  If Grantor is a corporation, partnership, limited liability company, or other legal entity, Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business in, and in good standing in, each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  This Mortgage has been duly authorized, executed and delivered by Grantor, and the obligations hereunder and the performance hereof by Grantor in accordance with its terms are and will continue to be within Grantor’s power and authority (without the necessity of joinder or consent of any other person), are not and will not be in contravention of any Legal Requirement or any other document or agreement to which Grantor or the Property is subject, and do not and will not result in the creation of any encumbrance against any assets or properties of Grantor, except for the liens of the Permitted Encumbrances and as otherwise expressly contemplated by the Loan Documents.  There is no suit, action, claim, investigation, inquiry, proceeding or demand pending (or, to Grantor’s knowledge, threatened) against Grantor or which affects the Property (including, without limitation, any which challenges or otherwise pertains to Grantor’s title to the Property) or the validity, enforceability or priority of any of the Loan Documents, except as has been disclosed in writing to Lender in connection with the loan evidenced by the Notes.  There is no judicial or administrative action, suit or proceeding pending (or, to Grantor’s knowledge, threatened) against Grantor, except as has been disclosed in writing to Lender in connection with the loan evidenced by the Notes.  This Mortgage constitutes a legal, valid and binding obligation of Grantor enforceable in accordance with its terms, except as the enforceability hereof may be limited by Debtor Relief Laws (hereinafter defined) and except as the availability of certain remedies may be limited by general principles of equity.  Grantor is not a “foreign person” within the meaning of the Internal Revenue Code of 1986, as amended, Sections 1445 and 7701 (i.e. Grantor is not a non-resident alien, foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined therein and in any regulations promulgated thereunder).  Grantor’s exact legal name is correctly set forth at the end of this Mortgage.  If Grantor is not an individual, Grantor is an organization of the type and (if not an unregistered entity) is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Mortgage.  If Grantor is an unregistered entity (including, without limitation, a general partnership) it is organized under the laws of the state specified in the introductory paragraph of this Mortgage.  Grantor will not cause or permit any change to be made in its name, identity (including its trade

DEED OF TRUST — Page 15

name or names), or corporate or partnership structure, unless Grantor shall have notified Lender in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action reasonably required by Lender for the purpose of further perfecting or protecting the lien and security interest of Lender in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Lender.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording including, without limitation, software, writings, plans, specifications and schematics concerning the Property, will be (unless Grantor notifies Lender of any change in writing at least 30 days prior to the date of such change) the address of Grantor set forth at the end of this Mortgage and such other additional addresses within the United States of which Grantor has notified Lender.  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Mortgage.  Grantor shall promptly notify Lender (i) of any change of its organizational identification number, or (ii) if Grantor does not now have an organization identification number and later obtains one, of such organizational identification number.

(o)           Certain Environmental Matters.  To the extent applicable to Grantor, Grantor shall comply with the terms and covenants and agreements with respect to environmental matters of that certain Environmental Indemnity Agreement pertaining to the Property (the “Environmental Indemnity”) among Borrower and Lender.

(p)           Further Assurances.  Grantor will, promptly on request of Lender, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Mortgage; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including, without limitation, further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as are, in Lender’s reasonable judgment, necessary, desirable or proper to carry out more effectively the purposes of this Mortgage, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Lender to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Lender to enable Lender to comply with the requirements or requests of any agency having jurisdiction over Lender or any examiners of such agencies with respect to the Grantor or the Property; provided, however, such further acts shall be consistent with the terms contained in this Mortgage and shall not unreasonably alter the rights and obligations of Grantor under this Mortgage.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Lender pursuant to this Mortgage.

(q)           Reserved.

(r)            Reserved.

DEED OF TRUST — Page 16

(s)           Taxes on Notes or Mortgage.  In the event of the enactment after this date of any Law of any governmental entity applicable to Lender, the Notes, the Property or this Mortgage deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the Laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Mortgage or the Secured Indebtedness or Lender, then, and in any such event, Grantor, upon demand by Lender, shall pay such taxes, assessments, charges or liens, or reimburse Lender therefor; provided, however, that if in the opinion of counsel for Lender (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by Law, then and in such event, Lender may elect, to the extent permitted by applicable law, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(t)            Statement Concerning Mortgage.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Lender a written statement in such form as may be reasonably required by Lender stating that (i) this Mortgage is a valid and binding obligation of Grantor, enforceable against Grantor in accordance with its terms; (ii) this Mortgage has not been released, subordinated or modified; and (iii) Grantor has no offsets or defenses against the enforcement of this Mortgage.  If any of the foregoing statements are untrue, Grantor shall, alternatively, specify the reasons therefor.

Section 2.2.            Performance by Lender on Grantor’s Behalf.  Grantor agrees that, if Grantor fails to perform any act or to take any action which under this Mortgage, Grantor is required to perform or take, and if such failure then constitutes an Event of Default hereunder (whether or not the Secured Indebtedness has been accelerated), Lender, in Grantor’s name or its own name, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Lender and any money so paid by Lender, shall be a demand obligation owing by Grantor to Lender (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness and Lender, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  After the occurrence and during the continuance of an Event of Default, Lender shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Lender shall waive or cure any Event of Default or waive any right, remedy or recourse of Lender.  Any such payment may be made by Lender in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Lender pursuant to this Mortgage shall bear interest, from the date such amount becomes due until paid, whether before or after a sale as described in Section 5.2 at the Default Interest Rate (as defined in the Mezzanine Loan Agreement) but never in excess of the maximum nonusurious amount permitted by applicable Law, which interest shall be payable to Lender on demand; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the

DEED OF TRUST — Page 17

Secured Indebtedness.  The amount and nature of any expense by Lender hereunder and the time when paid shall be fully established by the certificate of Lender or any of Lender’s officers or agents.

Section 2.3.            Absence of Obligations of Lender with Respect to Property.  Notwithstanding anything in this Mortgage to the contrary, including, without limitation, the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable Law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Lender does not assume or shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Lender may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Lender’s interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that Lender shall not have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Lender elects otherwise by written notification.

Section 2.4.            Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Lender at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable Law, required by Lender to establish or maintain the validity, perfection and priority of the security interests granted in this Mortgage.  Grantor also ratifies its authorization for Lender to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Mortgage.  Grantor hereby irrevocably constitutes and appoints Lender and any officer or agent of Lender, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact shall lawfully do, have done in the past or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

ARTICLE 3

Assignment of Rents and Leases

Section 3.1.            Assignment.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, Grantor hereby assigns to Lender all Rents (as hereinafter defined) and all of Grantor’s rights in and under all Leases (hereinafter defined).  So long as no Event of Default (hereinafter defined) has occurred, Grantor shall have a license (which license shall terminate automatically and

DEED OF TRUST — Page 18

without further notice upon the occurrence of an Event of Default) to collect, but not prior to accrual, the Rents under the Leases and, where applicable, subleases (such Rents to be held in trust for Lender, subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable) and to otherwise deal with all Leases as permitted by this Mortgage.  Each month, provided no Event of Default has occurred, Grantor may retain such Rents as were collected that month and held in trust for Lender; provided, however, that all Rents collected by Grantor shall be applied solely to the ordinary and necessary expenses of owning and operating the Property and obligations under the Senior Loan Documents or paid to Lender before application to any other purpose.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, upon the revocation of such license, Lender shall have the right, power and privilege (but shall be under no duty) to demand possession of the Rents, which demand shall to the fullest extent permitted by applicable Law be sufficient action by Lender to entitle Lender to immediate and direct payment of the Rents (including delivery to Lender of Rents collected for the period in which the demand occurs and for any subsequent period), for application as provided in this Mortgage.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Lender upon written demand by Lender, without further consent of Grantor, without any obligation of such tenants to determine whether an Event of Default has in fact occurred and regardless of whether Lender has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Lender to the tenants.  Any such payments to Lender shall constitute payments to Grantor under the Leases, and, subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, Grantor hereby irrevocably appoints Lender as its attorney-in-fact to do all things, after an Event of Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including, without limitation, (i) collecting Rents with or without suit and applying the same, less expenses of collection, to the Senior Loan, with any excess applied to any of the obligations secured hereunder or under the Loan Documents or to expenses of operating and maintaining the Property, at the option of the Lender, all in such manner as may be determined by Lender, (ii) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant, and (iii) employing agents therefor and paying such agents reasonable compensation for their services.  The curing of such Event of Default, unless other Events of Default also then exist, shall entitle Grantor to recover its aforesaid license to do any such things which Grantor might otherwise do with respect to the Property and the Leases thereon and to again collect such Rents.  The powers and rights granted in this paragraph shall be in addition to the other remedies herein provided for upon the occurrence of an Event of Default and may be exercised independently of or concurrently with any of said remedies.  Nothing in the foregoing shall be construed to impose any obligation upon Lender to exercise any power or right granted in this paragraph, or to assume any liability under any Lease of any part of the Property (and no liability shall attach to Lender for failure or inability to collect any Rents under any such Lease), or as constituting Lender a mortgagee in possession in the absence of the actual taking of possession of the Property by Lender, or as constituting an action, rendering any of Grantor’s obligations to Lender unenforceable, in violation of any of the provisions of NRS Section 40.430 or otherwise limiting any rights

DEED OF TRUST — Page 19

available to Lender.  The assignment contained in this Section shall become null and void upon the release of this Mortgage.  As used herein: (i) “Lease” means each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property, or any part thereof, or interest therein, and each existing or future guaranty of payment or performance thereunder, and all extensions, renewals, modifications and replacements of each such lease, sublease, agreement or guaranty; and (ii) “Rents” means all of the rents, revenue, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including but not limited to the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy including, without limitation, rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Laws (as defined in the Loan Agreement), together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and all future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

Section 3.2.            Reserved.

Section 3.3.            No Liability of Lender. Lender’s acceptance of this assignment shall not be deemed to constitute Lender a “mortgagee in possession,” nor obligate Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Lender.  Lender shall not be liable for any injury or damage to person or property in or about the Property, or for Lender’s failure to collect or to exercise diligence in collecting Rents, but shall be accountable only for Rents that it shall actually receive.  Neither the assignment of Leases and Rents nor enforcement of Lender’s rights regarding Leases and Rents (including collection of Rents) nor possession of the Property by Lender nor Lender’s consent to or approval of any Lease (nor all of the same), shall render Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.  If Lender seeks or obtains any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall same constitute an election of judicial relief for any foreclosure or any other purpose.  Lender shall not have or assume any obligations as lessor or landlord with respect to any Lease.  The rights of Lender under this Article 3 shall be cumulative of all other rights of Lender under the Loan Documents or otherwise.

DEED OF TRUST — Page 20

ARTICLE 4

Default

Section 4.1.            Events of Default.  The occurrence of any one of the following shall be a default under this Mortgage (each, an “Event of Default”):

(a)           Failure to Pay Secured Indebtedness.  The failure of Borrower or Grantor to pay when due any amount required by this Mortgage, the Promissory Note or any other Loan Document which continues, in the case of monthly interest payments required under the Note for twenty (20) days or, in the case of other sums payable under this Mortgage, the Promissory Note or any other Loan Document, for ten (10) days following written demand for payment on Borrower by Lender.

(b)           Nonperformance of Covenants.  The failure by Borrower or Grantor to perform any of its obligations under this Mortgage, the Promissory Note or any other Loan Document, as and when required, except as specifically set forth otherwise herein, which continues for a period of thirty (30) days after notice of such failure by Lender to Borrower and/or Grantor, if such failure is not reasonably susceptible of cure within such thirty (30)-day period and, if Borrower and/or Grantor promptly commences such cure within such thirty (30)-day period and diligently prosecutes the same to completion, then the cure period shall be extended for such period of time as may be reasonably necessary to effect a cure but in no event shall such period exceed ninety (90) days.

(c)           Default under other Loan Documents.  The occurrence of an Event of Default (after taking into consideration applicable notice, grace and cure periods) under any other Loan Document.

Section 4.2.            Notice and Cure.  If any provision of this Mortgage or any other Loan Document provides for Lender to give to Grantor or Borrower any notice regarding an Event of Default or incipient Event of Default, then if Lender shall fail to give such notice to Grantor or Borrower as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek appropriate equitable relief to enforce the agreement to give such notice and to have any acceleration of the maturity of the Notes and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such Event of Default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Lender, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents and to the extent that Grantor and Borrower have any cure rights with respect to any event or circumstance which, upon notice or the passage of time, or both, could constitute an Event of Default hereunder, such cure periods shall run concurrently and not consecutively.

DEED OF TRUST — Page 21

ARTICLE 5

Remedies

Section 5.1.            Certain Remedies.  If an Event of Default shall occur, Lender may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable Law):

(a)           Acceleration; Termination.  Lender may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable.  Upon any such declaration, such Secured Indebtedness shall, subject to NRS Section 107.080, thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind upon Grantor, all of which are hereby expressly waived by Grantor.

(b)           Enforcement of Assignment of Rents.  In addition to the rights of Lender under Article 3 hereof, prior or subsequent to taking possession of any portion of the Property or taking any action with respect to such possession, Lender may, subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable: (1) collect and/or sue for the Rents in Lender’s own name, give receipts and releases therefor, and after deducting all reasonable expenses of collection, including reasonable attorneys’ fees and expenses, apply the net proceeds thereof to the Secured Indebtedness in such manner and order as Lender may elect and/or to the operation and management of the Property, including the payment of reasonable management, brokerage and attorney’s fees and expenses; and (2) require Grantor to transfer all security deposits and records thereof to Lender together with original counterparts of the Leases, upon which transfer Lender shall be responsible for returning such deposits to tenants.

(c)           Non-Judicial Sale.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, Lender may (1) dispose of some or all of the Property, in any combination consisting of both real and personal property, together in one sale to be held in accordance with the Law and procedures applicable to real property, as permitted by Section 9604 of the Uniform Commercial Code as enacted in the State of Nevada, NRS Section 104.9604, and other applicable laws, and Grantor agrees that such a sale of personal property together with real property constitutes a commercially reasonable sale of the personal property and (2) by delivery to Trustee and Grantor (and any other parties to whom notice is required under NRS Section 107.080) of written notice of declaration of default and demand for sale, cause to be filed of record a written notice of default and election to sell the Property in accordance with the requirements of applicable Nevada law.  If required by Trustee, Lender shall also deposit with Trustee this Mortgage and Notes or other Loan Documents or other agreements and such documents as required by Trustee evidencing expenditures or advances secured hereby and Lender shall comply with the requirements of NRS Section 107.220.  After the lapse of such time as there may be required by law following recordation of such notice of default, and notice of sale having been given as then required by Law, Trustee, without demand on Grantor, shall sell the Property, in accordance with

DEED OF TRUST — Page 22

applicable Law, either as a whole or in separate parcels, and in such order as it or Lender may determine, at public auction to the highest bidder for cash in lawful money of the United States.  Lender may, in its sole discretion, elect that the Property be sold in separate parcels through two or more successive sales.  If Lender elects more than one sale of separate parcels of the Property, Lender may, at its option, cause the same to be conducted simultaneously or successively, on the same day or at such different days or times and in such order as Lender may deem to be in its best interests, and no such sale shall terminate or otherwise effect the first lien of this Mortgage or Trustee’s power of sale hereunder until all indebtedness secured hereby has been fully paid.  The place of sale shall be in the county in which the Property to be sold, or any part thereof, is situated.  If Lender elects to dispose of the Property through more than one sale, Grantor shall pay the costs and expenses of each such sale and of any proceedings where the same may be made or conducted.  Trustee may, subject to applicable Law, postpone and change the time and place of sale of all or any portion of the Property by public announcement at any time and place fixed by it in said notice of sale and from time to time and place to place thereafter, without any further posting or notice thereof, may postpone such sale in public announcement to the time and place fixed by such postponement, whether or not said place fixed by any postponement be in the same city or other place as fixed in said notice of sale. Trustee shall deliver to such purchaser its deed conveying the Property so sold, but without any covenants or warranty, express or implied.  The recital in such deed of any matters of fact or otherwise shall be prima facie evidence of the truthfulness thereof.

(d)           Uniform Commercial Code.  Without limitation of Lender’s rights of enforcement with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Lender may exercise its rights of enforcement with respect to the Collateral or any part thereof under the UCC, as in effect from time to time, as amended  (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable Law), subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and in conjunction with, in addition to or in substitution for those rights and remedies:

(1)           Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, Lender may enter upon Grantor’s premises to take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable Law, to render it unusable;

(2)           Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, Lender may require Grantor to assemble the Collateral and make it available at a place Lender designates which is mutually convenient to allow Lender to take possession or dispose of the Collateral;

(3)           written notice mailed to Grantor as provided herein at least ten (10) days prior to the date of public sale of the Collateral or prior to the date after which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if

DEED OF TRUST — Page 23

Lender fails to comply with this clause (3) in any respect, its liability for such failure shall be limited to the liability (if any) imposed on it as a matter of law under the UCC, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law);

(4)           any sale made pursuant to the provisions of this paragraph shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in paragraph (c) above in this Section 5.1;

(5)           in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Lender, be sold as a whole;

(6)           it shall not be necessary that Lender take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this Section is conducted and it shall not be necessary that the Collateral or any part thereof be present at the location of such sale;

(7)           with respect to application of proceeds from disposition of the Collateral under this Section 5.1 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses (including, without limitation, the allocated costs for in-house legal services) incurred by Lender;

(8)           any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any default, or as to Lender having declared all of such indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Lender, shall be taken as prima facie evidence of the truth of the facts so stated and recited;

(9)           Lender may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Lender, including the sending of notices and the conduct of the sale, but in the name and on behalf of Lender;

(10)         Lender may comply with any applicable Laws in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral;

(11)         Lender may sell the Collateral without giving any warranties as to the Collateral, and specifically disclaim all warranties including, without limitation, warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be

DEED OF TRUST — Page 24

considered to affect adversely the commercial reasonableness of any sale of the Collateral;

(12)         Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale (but such acknowledgement does not authorize a private sale except when allowed by the UCC); and

(13)         Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that, in such event, Lender shall have no liability or responsibility to Grantor for such loss so long as Lender has acted as allowed by this Mortgage, the UCC and other applicable Laws.

(e)           Lawsuits.  Lender may, to the fullest extent permitted by applicable Law, proceed by a suit or suits in equity or at law, whether for collection of the Secured Indebtedness, the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Property under the judgment or decree of any court or courts of competent jurisdiction.

(f)            Entry on Property.  Lender is authorized, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable Law subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, to enter upon the Property, or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording including, without limitation, all software, writings, plans, specifications and schematics relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Lender shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act specifically for such purpose.  All reasonable costs, expenses and liabilities of every character incurred by Lender in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Lender pursuant to this Mortgage.  If necessary to obtain the possession provided for above, Lender may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Lender pursuant to this Section, Lender shall not be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Lender in managing the Property unless such loss is caused by the gross negligence or willful misconduct of Lender, nor shall Lender be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Lender with respect to the Property taken under this Section unless by the gross negligence or willful misconduct of Lender.

(g)           Receiver.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, Lender

DEED OF TRUST — Page 25

shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property whether such receivership be incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Lender, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Lender to application of Rents as provided in this Mortgage.  Nothing herein is to be construed to deprive Lender of any other right, remedy or privilege it may have under the Law to have a receiver appointed.  Any money advanced by Lender in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Lender pursuant to this Mortgage.

(h)           Termination of Commitment to Lend.  Lender may terminate any commitment or obligation to lend or disburse funds under any Loan Document.

(i)            Other Rights and Remedies.  Lender may exercise any and all other rights and remedies which Lender may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2.            Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Lender or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable Laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including but not limited to all reasonable attorneys’ fees and legal expenses, advertising costs, auctioneer’s fees, costs of title rundowns and lien searches, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and charges of every character insurance fees, costs of repairs, maintenance, inspection and testing fees, receivers and management fees, leasing and sales commissions, advertising costs and expenses, taxes and assessments, surveys, engineering studies and reports, engineering fees and expenses, soils tests, space planning costs and expenses, contractors fees, all other costs incurred by Lender to maintain, preserve and protect the Property (not exceeding 5% of the gross proceeds of such sale), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Notes and the amounts due and unpaid and owed to Lender under the Mezzanine Loan Agreement, this Mortgage, the Environmental Indemnity, or any other Loan Document, the order and manner of application to the items in this clause FIRST to be in the sole discretion of Lender; and SECOND, the remainder, if any there shall be, shall be paid to Grantor, or to Grantor’s heirs, devisees, representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by Law; provided, however, that if Lender is uncertain which person or persons are so entitled, Lender may interplead such remainder in any court of competent jurisdiction, and the amount of any reasonable attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

DEED OF TRUST — Page 26

Section 5.3.            Lender as Purchaser.  Lender shall have the right to become the purchaser at any sale held by Trustee or substitute or successor or by any receiver or public officer or at any public sale, and Lender shall have the right to credit upon the amount of Lender’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Lender may elect.

Section 5.4.            Foreclosure as to Matured Debt.  Lender shall have the right to proceed with foreclosure (judicial or nonjudicial) of the liens and security interests hereunder without declaring the entire Secured Indebtedness due, and in such event any such foreclosure sale may be made subject to the unmatured part of the Secured Indebtedness; and any such sale shall not in any manner affect the unmatured part of the Secured Indebtedness, but as to such unmatured part this Mortgage shall remain in full force and effect just as though no sale had been made.  The proceeds of such sale shall be applied as provided in Section 5.2 hereof except that the amount paid under clause FIRST thereof shall be only the matured portion of the Secured Indebtedness the remainder, if any, shall be applied as provided in clause SECOND of Section 5.2 hereof.  Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Secured Indebtedness.

Section 5.5.            Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee and Lender shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.6.            Discretion as to Security.  Lender may resort to any security given by this Mortgage or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Lender in its sole and uncontrolled discretion (but subject to any agreements between Lender applicable thereto in the Mezzanine Loan Agreement), and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Mortgage.

Section 5.7.            Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, and to the fullest extent permitted by applicable Law, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s heirs, devisees, representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable Law, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution, notice of intention to mature or

DEED OF TRUST — Page 27

declare due the whole of the Secured Indebtedness, notice of election to mature or declare due the whole of the Secured Indebtedness and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of Law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Lender under the terms of this Mortgage to a sale of the Property for the collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Lender under the terms of this Mortgage to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.  Grantor waives any right or remedy which Grantor may have or be able to assert pursuant to any provision of any statute or rule of law, pertaining to the rights and remedies of sureties.  If any law referred to in this Section and now in force, of which Grantor or Grantor’s heirs, devisees, representatives, successors or assigns or any other persons claiming any interest in the Property might take advantage despite this Section, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to preclude the application of this Section.

Section 5.8.            Delivery of Possession After Foreclosure.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, in the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s heirs, devisees, representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable Law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, after such foreclosure, any Leases to tenants or subtenants that are subject to this Mortgage (either by their date, their express terms, or by agreement of the tenant or subtenant) shall, at the sole option of Lender or any purchaser at such sale, either (i) continue in full force and effect, and the tenant(s) or subtenant(s) thereunder will, upon request, attorn to and acknowledge in writing to the purchaser or purchasers at such sale or sales as landlord thereunder, or (ii) upon notice to such effect from Lender, the Trustees or any purchaser or purchasers, terminate within thirty (30) days from the date of sale.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, in the event the tenant fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and maintain a summary action for possession of the Property (such as an action for forcible detainer) in any court having jurisdiction.

DEED OF TRUST — Page 28

ARTICLE 6

Miscellaneous

Section 6.1.            Scope of Mortgage.  This Mortgage is a deed of trust and mortgage of both real and personal property, a security agreement, an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment, and also covers proceeds and fixtures.

Section 6.2.            Effective as a Financing Statement.  This Mortgage shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Mortgage shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the UCC, as, in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Mortgage shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The mailing address of Grantor is the address of Grantor set forth at the end of this Mortgage and the address of Lender from which information concerning the security interests hereunder may be obtained is the address of Lender set forth at the end of this Mortgage.  A carbon, photographic or other reproduction of this Mortgage or of any financing statement relating to this Mortgage shall be sufficient as a financing statement for any of the purposes referred to in this Section.

Section 6.3.            Notice to Account Debtors.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, in addition to the rights granted elsewhere in this Mortgage, Lender may, from and after the occurrence of an Event of Default, so long as such Event of Default remains uncured hereunder, notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Lender directly.

Section 6.4.            Waiver by Lender.  Lender may at any time and from time to time by a specific writing intended for the purpose: (a) waive compliance by Grantor with any covenant herein made by Grantor to the extent and in the manner specified in such writing; (b) consent to Grantor’s doing any act which hereunder Grantor is prohibited from doing, or to Grantor’s failing to do any act which hereunder Grantor is required to do, to the extent and in the manner specified in such writing; (c) release any part of the Property or any interest therein from the lien and security interest of this Mortgage, without the joinder of Trustee; or (d) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document, without impairing or releasing the liability of any other party.  No such act shall in any way affect the rights or powers of Lender or Trustee hereunder except to the extent specifically agreed to by Lender in such writing.

DEED OF TRUST — Page 29

Section 6.5.            No Impairment of Security.  The lien, security interest and other security rights of Lender hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Lender including, but not limited to, any renewal, extension or modification which Lender may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Lender may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Lender shall not release or impair the lien, security interest or other security rights of Lender hereunder or affect the liability of Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby Lender’s consent to any junior lien).

Section 6.6.            Acts Not Constituting Waiver by Lender.  Lender may waive any Event of Default without waiving any other prior or subsequent Event of Default.  Lender may remedy any Event of Default without waiving the Event of Default remedied.  Neither failure by Lender to exercise, nor delay by Lender in exercising, nor discontinuance of the exercise of any right, power or remedy (including but not limited to the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Event of Default shall be construed as a waiver of such Event of Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Lender of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No modification or waiver of any provision hereof nor consent to any departure by Grantor therefrom shall in any event be effective unless the same shall be in writing and signed by Lender and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to nor demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.  Remittances in payment of any part of the Secured Indebtedness other than in the required amount in immediately available U.S. funds shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in immediately available U.S. funds and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks.  Acceptance by Lender of any payment in an amount less than the amount then due on any Secured Indebtedness shall be deemed an acceptance on account only and shall not in any way excuse the existence of an Event of Default hereunder notwithstanding any notation on or accompanying such partial payment to the contrary.

Section 6.7.            Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Lender may, without notice to Grantor, deal with such successor or successors in interest with reference to this Mortgage and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or for the payment of the indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Lender, and no extension of the time for the payment of the Secured Indebtedness given by Lender shall operate to release, discharge, modify, change or affect, in whole or in part, the liability of

DEED OF TRUST — Page 30

Grantor hereunder.  Grantor agrees that it shall be bound by any modification of this Mortgage made by Lender and any subsequent owner of the Property, with or without notice to Grantor, and no such modifications shall impair the obligations of Grantor under this Mortgage.  Nothing in this Section shall be construed to imply Lender’s consent to any transfer of the Property.

Section 6.8.            Place of Payment; Forum; Waiver of Jury Trial.  All Secured Indebtedness which may be owing hereunder at any time by Grantor shall be payable at the address of Lender set forth at the end of this Mortgage.  EACH PARTY HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE COURT, OR ANY UNITED STATES FEDERAL COURT, SITTING IN THE CITY OF DALLAS, STATE OF TEXAS, AND IN THE COUNTY IN WHICH THE LAND IS LOCATED TO THE EXTENT OF ACTIONS REQUIRED TO BE MAINTAINED WHERE THE LAND IS LOCATED, OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS MORTGAGE OR THE SECURED INDEBTEDNESS.  EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT THE PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT FORUM.  Each Party 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 such court may be made by certified or registered mail, return receipt requested, directed to the other party at its address stated at the end of this Mortgage, or at a subsequent address of which the other parties received actual notice in accordance with this Mortgage.  Nothing herein shall affect the right of a party to serve process in any manner permitted by Law.  TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY KNOWINGLY AND FREELY WAIVES THE RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS MORTGAGE.   EACH PARTY ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS AN IMPORTANT RIGHT, THAT ITS WAIVER OF THIS RIGHT IS A NEGOTIATED TERM OF THE LOAN AND THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL OF ITS CHOOSING WITH RESPECT TO THIS WAIVER.

Section 6.9.            Subrogation to Existing Liens; Vendor’s Lien. To the extent that proceeds of the Notes are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, Lender shall be subrogated to any and all rights, security interests, and liens and charges or encumbrances owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, irrespective of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Mortgage shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Lender is subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Lender, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with the said

DEED OF TRUST — Page 31

indebtedness.  If all or any portion of the proceeds of the loan evidenced by the Notes or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien or purchase money lien is waived.  Lender may foreclose under this Mortgage or under the vendor’s lien or purchase money lien without waiving the other or may foreclose under both.

Section 6.10.          Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Mortgage or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Mortgage.

Section 6.11.          Nature of Loan; Compliance with Usury Laws.  The loan evidenced by the Notes is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor and Lender to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements between Lender and Grantor are hereby limited by the provisions of this Section which shall override and control all such agreements, whether now existing or hereafter arising.  In no way, nor in any event or contingency (including but not limited to prepayment, default, demand for payment, or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable, or received under this Mortgage, the Notes or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If, from any possible construction of this Mortgage, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this Section and this Mortgage shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Lender shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Borrower or Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate maturity of the Notes or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State where the Property is located or where the Secured Indebtedness is payable, or the federal laws of the United States applicable to this transaction, whichever laws allow the greatest interest, as such laws now exist or may be changed or amended or come into effect in the future.

DEED OF TRUST — Page 32

Section 6.12.          Substitute Trustee.  The Lender may, from time to time, by an instrument in writing, substitute a successor or successors to any trustee named herein or acting hereunder, which instrument, executed and acknowledged by Lender and recorded in the office of the recorder of the county or counties where the Property is situated, shall be conclusive proof of proper substitution of such successor trustee or trustees, who shall, without conveyances from the trustee predecessor, succeed in all its title, estate, rights, powers and duties.  Such instrument shall contain the name and address of the new trustee. The procedure herein provided for substitution of trustees shall not be exclusive of other provisions for substitution provided by law.

Section 6.13.          No Liability of Trustee.  The Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee’s gross negligence or willful misconduct.  The Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by him hereunder, believed by him in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by Law), and Trustee shall be under no liability for interest on any moneys received by him hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein named Trustee or his successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof. Grantor will reimburse Trustee for, and save him harmless against, any and all liability and expenses which may be incurred by him in the performance of his duties, and except those resulting from Trustee’s gross negligence or willful misconduct.  The foregoing indemnity shall not terminate upon discharge of the Secured Indebtedness or foreclosure, or release or other termination, of this Mortgage.

Section 6.14.          Releases.  If all of the Secured Indebtedness be paid as the same becomes due and payable and all of the covenants, warranties, undertakings and agreements made in this Mortgage are kept and performed and all obligations, if any, of Lender for further advances have been terminated or Grantor is entitled to a reconveyance of this Mortgage in accordance with the terms of the Loan Documents, then, and in that event only, all rights under this Mortgage shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the release hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and such liens and security interests shall be released by Lender in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Lender or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, release or termination of this Mortgage.

Section 6.15.          Notices. All notices, requests, consents, demands and other communications required or which any party desires to give hereunder shall be in writing and, unless otherwise specifically provided herein, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom

DEED OF TRUST — Page 33

directed at the addresses specified in this Mortgage (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided that, service of a notice required by NRS Section 107.080 shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in this Mortgage or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16.          Invalidity of Certain Provisions.  A determination that any provision of this Mortgage is unenforceable or invalid shall not affect the enforceability or validity of any other provision and the determination that the application of any provision of this Mortgage to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17.          Gender; Titles; Construction.  Within this Mortgage, words of any gender shall be held and construed to include any other gender, and words in the singular number shall be held and construed to include the plural, unless the context otherwise requires.  Titles appearing at the beginning of any subdivisions hereof are for convenience only, do not constitute any part of such subdivisions, and shall be disregarded in construing the language contained in such subdivisions.  The use of the words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Mortgage and not to any particular Article, Section, paragraph or provision.  The term “person” and words importing persons as used in this Mortgage shall include firms, associations, partnerships (including limited partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18.          Reporting Compliance.  Grantor agrees to comply with any and all reporting requirements applicable to this Mortgage which are imposed upon it by Law, including but not limited to The International Investment Survey Act of 1976, The Agricultural Foreign Investment Disclosure Act of 1978, The Foreign Investment in Real Property Tax Act of 1980 and the Tax Reform Act of 1984 and further agrees upon request of Lender to furnish Lender with evidence of such compliance.

Section 6.19.          Reserved.

Section 6.20.          Grantor.  Unless the context clearly indicates otherwise, as used in this Mortgage, “Grantor” means the grantors named in Section 1.2 hereof or any of them.  The obligations of Grantor hereunder shall be joint and several.  If any Grantor, or any signatory who signs on behalf of any Grantor, is a corporation, partnership or other legal entity, Grantor, represents and warrants to Lender that this instrument is executed, acknowledged and delivered

DEED OF TRUST — Page 34

by Grantor’s duly authorized representatives.  If Grantor is an individual, no power of attorney granted by Grantor herein shall terminate on Grantor’s disability.

Section 6.21.          Execution; Recording.  This Mortgage has been executed in several counterparts, all of which are identical, and all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Mortgage, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Mortgage shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Mortgage and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Lender shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.22.          Successors and Assigns.  The terms, provisions, covenants and conditions hereof shall be binding upon Grantor, and the heirs, devisees, representatives, successors and assigns of Grantor, and shall inure to the benefit of Trustee and Lender shall constitute covenants running with the Land.  All references in this Mortgage to Grantor shall be deemed to include all such heirs, devisees, representatives, successors and assigns of Grantor.

Section 6.23.          Modification or Termination.  The Loan Documents may only be modified or terminated by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

Section 6.24.          No Partnership, Etc.  The relationship between Lender and Grantor is solely that of lender and owner of collateral.  Lender does not have a fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Lender or in any way make Lender a co-principal with Grantor with reference to the Property.  All agreed contractual duties between or among Lender, Trustee and Grantor are set forth herein and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

Section 6.25.          Applicable Law.  THIS MORTGAGE, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION, SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEVADA (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEVADA ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION.

DEED OF TRUST — Page 35

Section 6.26.          Construction Mortgage.  This Mortgage constitutes a “construction mortgage” as defined in NRS 104.9334 to the extent that it secures an obligation incurred for the construction of the Improvements, including the acquisition cost of the Land.

Section 6.27.          Entire Agreement.  This Mortgage, together with the Loan Documents to which Grantor is a party, constitute the entire understanding and agreement between Grantor and Lender with respect to the transactions arising in connection with the liens and security interests granted hereby and supersede all prior written or oral understandings and agreements between Grantor and Lender with respect to such matters.  Grantor 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 matters addressed in the Loan Documents.

Section 6.28.  Adoption of Statutory Covenants.  The following covenants, Nos. 6 (provided that a default, as referenced in such covenant, shall mean an Event of Default, as defined in Section 4.1 of this Mortgage), 7 (a reasonable), 8 (provided that the recital therein shall be prima facie proof of such default) and 9 of NRS Section 107.030, where not in conflict with the provisions of the Loan Documents, are hereby adopted and made a part of this Mortgage.

THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[Remainder of Page Intentionally Left Blank]

DEED OF TRUST — Page 36

IN WITNESS WHEREOF, Grantor has executed this instrument under seal as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
2001 Bryan Street, Suite 3250 Dallas, Texas 75201	SW 132 ST. ROSE SENIOR BORROWER LLC, a Delaware limited liability company
Attention: Tim Hogan
Telephone: (214) 922-8575 Facsimile: (214) 922-8553	By:SW 131 St. Rose Mezzanine Borrower LLC, a Delaware limited liability company, its sole member By:SW 130 St. Rose Limited Partnership, a Delaware limited partnership, its sole member
	By:SW 129 St. Rose Limited Partnership, a Delaware limited partnership, its general partner
	By:SW 104 Development GP LLC, a Delaware limited liability company, its general partner

By: /s/ Timothy J. Hogan

Name:        Timothy J. Hogan

Title:          Vice President

The address of Lender is:

Behringer Harvard St. Rose REIT, LLC

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention:  Chief Legal Officer

STATE OF TEXAS	§
	§
COUNTY OF DALLAS	§

This instrument was acknowledged before me on December 30, 2008, by Timothy J. Hogan,  Vice President of SW 104 Development GP LLC, a Delaware limited liability company, on behalf of such company, as general partner of SW 129 St. Rose Limited Partnership, a Delaware limited partnership, general partner of SW 130 St. Rose Limited Partnership, a Delaware limited partnership, sole member of SW 131 St. Rose Mezzanine Borrower LLC, a Delaware limited liability company, sole member of SW 132 St. Rose Senior Borrower LLC, a Delaware limited liability company.

/s/ Tai Lee
Printed Name:	T. Lee
Notary Public, State of Texas

DEED OF TRUST — Signature Page

EXHIBIT A

LAND

All that land situated in the County of Clark, State of Nevada, more particularly described as follows:

PARCEL 1:

The North Half (N ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

PARCEL 2:

The South Half (S ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M.

EXCEPTING THEREFROM that portion lying within St. Rose Parkway.

PARCEL 3:

That portion of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.M., City of Henderson, Clark County, Nevada, more particularly described as follows:

The South Half (S ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35.

TOGETHER WITH:

Those portions of the North Half (N ½) of the South Half (S ½) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35 lying Northwesterly of the Northwesterly right of way of St. Rose Parkway.

PARCEL 4:

Being a portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

TOGETHER WITH that portion of the North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼), also together with that portion of the North Half (N ½) of the Northwest Quarter (NW ¼) of said Section 35, lying Northwesterly of St. Rose Parkway, further described as follows:

DEED OF TRUST - EXHIBIT A — Page 1

BEGINNING at the Southeast (SE) corner of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35, said corner being marked by an aluminum cap marked “PLS 5269, 1994, NW 1/16”;

Thence South 41°41’09” East, 174.75 feet to the Northwesterly line of St. Rose Parkway as granted in Book 250 as Document No. 202951, Official Records, Clark County, Nevada;

Thence along said Northwesterly line, South 46°18’51” West, 297.97 feet to a point of intersection of said Northwesterly line with the South line of the North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35;

Thence along the lines of said North Half (N ½) the following Three (3) courses: North 89°22’43” West, 553.55 feet; North 00°33’34” West, 330.00 feet; South 89°22’04” East, 663.09 feet to the POINT OF BEGINNING;

EXCEPTING THEREFROM:

A portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35, described as follows:

BEGINNING at the Southwest (SW) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence North 00°33’55” West, 330.09 feet to the Northwest (NW) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence South 89°21’56” East, 663.21 feet to the Northeast Corner of the South Half (S1/2) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence South 00°32’39” East, 330.06 feet to the Southeast (SE) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence North 41°41’09” West, 316.13 feet; Thence South 48°18’51” West, 153.68 feet to the beginning of a 500 foot radius curve, concave Northwesterly; Thence along said curve to the right, 369.29 feet through a central angle of 42°19’05” to the POINT OF BEGINNING.

(Deed Reference 20070720 / 2463 and 2464)

DEED OF TRUST - EXHIBIT A — Page 2

EXHIBIT B

PERMITTED ENCUMBRANCES

1.State, County and/or City taxes for the fiscal year 2008-2009 a lien not yet due and payable.

2.Any taxes that may be due, but not assessed, for new construction which can be assessed on the unsecured property rolls, in the Office of the Clark County Assessor, per Nevada Statute 361.260.

3.Water rights, claims or title to water, whether or not shown by the public record.

4.Mineral rights, reservations, easements and exclusions in patent from the United States of America:

Recorded:January 24, 1962 in Book 339

Document No.:273895, Official Records, Clark County, Nevada

Affects:Parcel 1

Said patent further reserves, and is subject to, a right-of-way not exceeding thirty-three (33) feet in width for roadway and public utility purposes to be located along the boundaries of said land.

The above rights of way, not dedicated, have been vacated by an instrument recorded August 15, 2007 in Book 20070815, Instrument No. 0002160, Official Records, Clark County, Nevada.

5.Mineral rights, reservations, easements and exclusions in patent from the United States of America:

Recorded:January 30, 1962 in Book 340

Document No.:274775, Official Records, Clark County, Nevada.

Affects:A portion of Parcel 4

Said patent further reserves, and is subject to, a right-of-way not exceeding thirty-three (33) feet in width for roadway and public utility purposes to be located along the boundaries of said land.

The above rights of way, not dedicated, have been vacated by an instrument recorded August 15, 2007 in Book 20070815, Instrument No. 0002160, Official Records, Clark County, Nevada.

DEED OF TRUST - EXHIBIT B — Page 1

6.Mineral rights, reservations, easements and exclusions in patent from the United States of America:

Recorded:February 10, 1970 in Book 10

Document No.:7408, Official Records, Clark County, Nevada

Affects:Parcel 3 and a portion of Parcel 4

7.Mineral rights, reservations, easements and exclusions in patent from the United States of America:

Recorded:November 28, 1979 in Book 1152

Document No.:1111857, Official Records, Clark County, Nevada

Affects:Parcel 2

Said patent further reserves, and is subject to, a right-of-way not exceeding thirty-three (33) feet in width for roadway and public utility purposes to be located along the boundaries of said land.

There is also reserved a right of way for a Federal Aid Highway under the Act of November 9, 1921 (42 Stat. 212).

The above rights of way, not dedicated, have been vacated by an instrument recorded August 15, 2007 in Book 20070815, Instrument No. 0002160, Official Records, Clark County, Nevada.

8.The terms, covenants, conditions and provisions as contained in an instrument, entitled “City of Henderson Zoning Resolution No. 3635”:

Recorded:May 09, 2007 in Book 20070509

Document No.:0002301, Official Records, Clark County, Nevada

9.An Easement affecting a portion of said land for the purpose stated herein, and incidental purposes:

In Favor of:Cox Communications Las Vegas, Inc.

For:Cable and Information Facilities

Recorded:April 30, 2008 in Book 20080430

Document No.:0000512, Official Records, Clark County, Nevada

DEED OF TRUST - EXHIBIT B — Page 2

APN:177-35-201-001

177-35-201-002

177-35-201-003

177-35-201-006

The mailing address to which this Mortgage
should be returned after recordation is:

WICK PHILLIPS, LLP

2100 Ross Avenue, Suite 950

Dallas, Texas  75201

Attention:  Walt Miller, Esq.

JUNIOR MEZZANINE DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT

(This Document Serves as a Fixture Filing under

Nevada Revised Statutes Section 104.9502)

Dated to be effective as of December 31, 2008

made by

SW 132 ST. ROSE SENIOR BORROWER LLC,

a Delaware limited liability company (Grantor)

to

Chicago Title Agency of Nevada, Inc., as Trustee

(Trustee)

for the benefit of

BEHRINGER HARVARD ST. ROSE REIT, LLC,
a Delaware limited liability company (Lender)

DEED OF TRUST — Page 1

JUNIOR MEZZANINE DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT

Grantor’s Organizational Identification Number: 26-3831531

THIS JUNIOR MEZZANINE DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this “Mortgage”) is made this 31st day of December, 2008, by Grantor, in favor of Trustee for the benefit of Lender.

R E C I T A L S

A.            This Mortgage is being executed by Grantor for the purpose of securing a loan from Lender to SW 131 St. Rose Mezzanine Borrower LLC, a Delaware limited liability company (the “Borrower”).  The Borrower is directly or indirectly the legal and beneficial owner of all (100%) of the equity interests in Grantor.

B.            Grantor is the owner of the Land (as defined below) and is currently pursuing a subdivision of the Land, and Grantor intends to convey approximately 6.272 acres of the Land (the “Commercial Tract”) to its affiliate, SW 122 St. Rose Senior Borrower LLC, a Delaware limited liability company (the “Commercial Tract Borrower”).  The Land other than the Commercial Tract (the “Multi-Family Tract”) will be used by Grantor to develop a 430-unit apartment complex.

C.            When Commercial Tract Borrower acquires title to the Commercial Tract (the date of such acquisition is referred to herein as the “Transfer Date”), Lender will cause the lien of this Mortgage to be released as to the Commercial Tract.

D.            Concurrently with the execution of this Mortgage, Grantor also is executing (1) that certain Deed of Trust, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement to and in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., as administrative agent for itself and certain other lenders (the “Multi-Family DOT”), to secure, in part, the obligations of the Grantor in connection with a $38,600,000 loan (the “Senior Loan”), (2) that certain Deed of Trust, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement to and in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., for its own account as lender (the “Commercial DOT”), to secure, in part, the obligations of the Commercial Tract Borrower in connection with a $2,950,000 loan (the “Commercial Loan”), and (3) that certain Senior Mezzanine Deed of Trust, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement to and in favor of Trustee, as trustee, for the benefit of Lender (the “Senior Mezzanine DOT”), to secure, in part, the obligations of the Borrower under the Senior Mezzanine Loan Documents.  The Multi-Family DOT and the Commercial DOT are referred to herein as the “Senior DOTs”).

E.             This Mortgage is subject and subordinate to (1) the Senior DOTs, the obligations of the Grantor and/or Commercial Tract Borrower in respect of the Senior Loan and the Commercial Loan, respectively, and the rights of the administrative agent and/or lenders arising

DEED OF TRUST — Page 2

in connection with the Senior Loan and the Commercial Loan, respectively, and (2) the Senior Mezzanine DOT, the obligations of the Grantor and/or the Borrower in respect of the obligations under the Senior Mezzanine Loan Documents, and the rights of the Lender arising in connection therewith.

ARTICLE 1

Definitions; Granting Clauses; Secured Indebtedness

Section 1.1.            Principal Secured.  This Mortgage secures the aggregate principal amount of up to TWENTY ONE MILLION FORTY THREE THOUSAND ONE HUNDRED NINETY SEVEN AND NO/100 DOLLARS ($21,043,197.00) together with interest thereon.  This instrument secures future advances as defined in Nevada Revised Statutes (as amended, NRS) 106.320, and is goverened by NRS 106.300 to 106.400, inclusive.

Section 1.2.            Definitions.

(a)           In addition to other terms defined herein, each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Grantor”:  SW 132 ST. ROSE SENIOR BORROWER LLC, a Delaware limited liability, whose mailing address is 2001 Bryan Street, Suite 3250, Dallas, Texas 75201, Attention: Tim Hogan, and its permitted successors and assigns.

“Lender”:  BEHRINGER HARVARD ST. ROSE REIT, LLC, a Delaware limited liability company, or any subsequent holder(s) of the Notes at the time in question.

“Mezzanine Loan Agreement”:  The Junior Mezzanine Loan Agreement dated of even date herewith between Lender and Borrower, which is incorporated herein by reference for all purposes.

“Promissory Note”:  The Junior Mezzanine Promissory Note made by Borrower pursuant to the Mezzanine Loan Agreement, payable to the order of Lender, in the principal face amount of up to $21,043,197.00, bearing interest as therein provided.

“Trustee”:  Chicago Title Agency of Nevada, Inc., a Nevada corporation.

“UCC”:   The Nevada Uniform Commercial Code,  NRS Section 104.1101 et seq., as amended from time to time.

(b)           Any term used or defined in the UCC, as in effect from time to time, and not defined in this Mortgage has the meaning given to the term in the UCC, as in effect from time to time, when used in this Mortgage. However, if a term is defined in NRS Section 104.9101 et seq. of the UCC differently than in another title of the UCC, the term has the meaning specified in said NRS Section 104.9101 et seq.

DEED OF TRUST — Page 3

(c)           Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Mezzanine Loan Agreement.

Section 1.3.            Granting Clause.  In consideration of the provisions of this Mortgage and the sum of TEN AND NO/100 DOLLARS ($10.00) cash in hand paid and other good and valuable consideration the receipt and sufficiency of which are acknowledged by Grantor, Grantor does hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and SET OVER to Trustee, IN TRUST with the power of sale for the benefit and security of Lender, with GENERAL WARRANTY, the following:  (a)  the real property described in Exhibit A which is attached hereto and incorporated herein by reference (the “Land”) together with: (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (1) streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (2) any strips or gores between the Land and abutting or adjacent properties; (3) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (4) all water and water rights, ditches and ditch rights, reservoirs, reservoir rights and storage rights, wells and well rights, well permits, springs and spring rights, groundwater rights (whether tributary, nontributary or not-nontributary), water contracts, water allotments, water taps, stock certificates, shares in ditch or reservoir or water companies, and all other rights of any kind or nature in or to the use of water, whether or not adjudicated, which are appurtenant to, historically used on or in connection with, or located on or under the Land (collectively, “Water Rights”), together with any and all associated structures and facilities for the diversion, carriage, transmission, conveyance, measurement, storage or use of said Water Rights, and any and all easements, rights of way, fixtures, personal property, contract rights, licenses, permits or decrees associated with or used in connection with any such Water Rights or which may be necessary for the development, operation or maintenance of such Water Rights; and (5) timber, crops and mineral interests on or pertaining to the Land (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”); (b) all fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land); (c) Grantor’s rights, but not liability for any breach by Grantor, under all (i) plans and specifications for the Improvements; (ii) insurance policies to the extent transferable, or proceeds thereof (to the extent not transferable) (or additional or supplemental coverage related thereto, including  from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal

DEED OF TRUST — Page 4

government sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements; (iii) Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, rebates or refunds of impact fees or other taxes, assessments or charges; (iv) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories; (v) leases, rents, royalties, bonuses, issues, profits, revenues and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof); (vi) as-extracted collateral produced from or allocated to the Land including, without limitation, oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom, and the proceeds thereof; and (vii) engineering, accounting, title, legal, and other technical or business data concerning the Property which are in the possession of Grantor or in which Grantor can otherwise grant a security interest; and (d) all (i) accounts and proceeds (cash or non-cash and including payment intangibles) of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including but not limited to proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance (or additional or supplemental coverage related thereto, including  from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government sponsored program or entity) relating thereto (including premium refunds), proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any Law, and proceeds arising out of any damage thereto; (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3; (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3; and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including but not limited to rights of ingress and egress and remainders, reversions and reversionary rights or interests; and if the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate;

TO HAVE AND TO HOLD the foregoing rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (herein collectively called the “Property”), unto Trustee, and its successors or substitutes in this trust, in trust, in fee simple forever, subject to the terms, provisions and conditions herein set forth, to secure the obligations of Borrower under the Notes and Loan Documents (as hereinafter defined) and all other indebtedness and matters defined as “Secured Indebtedness” in Section 1.5 of this Mortgage.

Notwithstanding any of the above, the lien of this Mortgage does not extend to the names “Trammell Crow Residential”, “Alexan” and “TCR” or any variant thereof or the “TCR” logo or to any written or printed material that contains any of such names or such logo, and if Lender forecloses against the Premises, or Lender acquires the Premises (whether through foreclosure,

DEED OF TRUST — Page 5

deed in lieu of foreclosure or other means), or if Lender takes possession of the Premises, or if a receiver is appointed for the Premises, then Lender will not use, and any person acquiring the Premises through foreclosure, deed in lieu of foreclosure or other means shall not use, in connection with the Premises any of the names “Trammell Crow Residential”, “Alexan” or “TCR” or any variant thereof or the “TCR” logo.  The limitation of names listed in this Section 1.3 does not imply a license or right to use any other name, service mark, trademark or logo that is proprietary to Grantor or any of its affiliates.

Section 1.4.            Security Interest.  Grantor hereby grants to Lender a security interest in all of the Property which constitutes personal property or fixtures, all proceeds and products thereof, and all supporting obligations ancillary to or arising in any way in connection therewith (herein sometimes collectively called the “Collateral”) to secure the obligations of Grantor under the Notes and Loan Documents and all other indebtedness and matters defined as Secured Indebtedness in Section 1.5 of this Mortgage.  In addition to its rights hereunder or otherwise, Lender shall have all of the rights of a secured party under the UCC, as in effect from time to time, or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable Law.

Section 1.5.            Secured Indebtedness, Notes, Loan Documents, Other Obligations.  This Mortgage is made to secure and enforce the payment and performance of the following promissory notes, obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases, and modifications thereof in whole or in part from time to time (collectively the “Secured Indebtedness”):  (a) the Promissory Note and all other promissory notes given in substitution therefor or in modification, supplement, increase, renewal or extension thereof, in whole or in part (such promissory note or promissory notes, whether one or more, as from time to time renewed, extended, supplemented, increased or modified and all other notes given in substitution therefor, or in modification, renewal or extension thereof, in whole or in part, being hereinafter called the “Notes”); (b)  all indebtedness, liabilities, duties, covenants, promises and other obligations whether joint or several, direct or indirect, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, owed by Borrower to Lender now or hereafter incurred or arising pursuant to or permitted by the provisions of the Notes, this Mortgage, or any other document now or hereafter evidencing, governing, guaranteeing or securing the loan evidenced by the Notes executed by Borrower or any Guarantor (as defined in the Mezzanine Loan Agreement), including but not limited to any loan or credit agreement, letter of credit or reimbursement agreement, tri-party financing agreement or other agreement between Borrower and Lender, or among Borrower, Lender and any other party or parties, pertaining to the repayment or use of the proceeds of the loan evidenced by the Notes (the Notes, this Mortgage and such other documents, as they or any of them may have been or may be from time to time renewed, extended, supplemented, increased or modified, being herein sometimes collectively called the “Loan Documents”; provided, however, the Environmental Indemnity is not a Loan Document); (c) all future advances made by Lender to Grantor or Borrower; provided, however, this clause (c) shall not operate or be effective to constitute or require any assumption or payment by any person, in any way, of any debt of any other person to the extent that the same would violate or exceed the limit provided in any applicable usury or other Law; and (d) the obligations of Grantor under this Mortgage.  Should the Secured

DEED OF TRUST — Page 6

Indebtedness decrease or increase pursuant to the terms of the Notes or otherwise, at any time or from time to time, this Mortgage shall retain its priority position of record until (a) the termination of Lender’s obligations to make advances under the Loan Documents and the full, final and complete payment of all the Secured Indebtedness then outstanding, or (b) the full release and termination of the liens and security interests created by this Mortgage.

Section 1.6.            Subordinate Deed of Trust.  This Mortgage, the Promissory Note, the Mezzanine Loan Agreement and the other Loan Documents, and all rights of Lender under this Mortgage, are subject and subordinate to (a) the Senior DOTs, the other Senior Loan Documents and the rights of the Senior Lender arising thereunder, and (b) the Senior Mezzanine DOT, the other Senior Mezzanine Loan Documents and the rights of the Lender arising thereunder.  In the event of a conflict between the provisions of the Senior Loan Documents and the provisions of the Loan Documents, the provisions of the Senior Loan Documents shall control.  To the extent that Grantor is required to perform any obligation under (i) both the Senior Loan Documents and this Mortgage or (ii) both the Senior Mezzanine Loan Documents and this Mortgage, Grantor shall be deemed to have complied with the applicable provision of this Mortgage as long as Grantor has performed the corresponding obligation for the benefit of the Senior Lender pursuant to the Senior Loan Documents or for the benefit of the Lender pursuant to the Senior Mezzanine Loan Documents, as applicable.  Reference is hereby made to that certain Intercreditor and Subordination Agreement executed by Lender and the Senior Lender, acting in its own capacity or as administrative agent on behalf of itself and/or other lenders (the “Intercreditor Agreement”).  This Mortgage is subject to termination and release upon the occurrence of certain events or circumstances as more particularly described in Section 7 of the Intercreditor Agreement.

ARTICLE 2

Representations, Warranties and Covenants

Section 2.1.            Grantor represents, warrants, and covenants as follows:

(a)           Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements, and conditions imposed upon it by this Mortgage and will not permit an Event of Default to occur hereunder.  Time shall be of the essence in this Mortgage.

(b)           Title and Permitted Encumbrances.  Grantor has, in Grantor’s own right, and Grantor covenants to maintain, lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for (i) the matters, if any, set forth under on Exhibit B attached hereto, but only to the extent that the same are valid and subsisting and affect the Property, (ii) the liens and security interests evidenced by this Mortgage, (iii) statutory liens for real estate taxes, assessments and other governmental charges on the Property which are not yet delinquent or are being contested in accordance with Section 2.1(c) or comparable provisions of the documents evidencing or

DEED OF TRUST — Page 7

securing the Senior Loan or the Commercial Loan, (iv) rights of tenants under leases, (v)  the liens and security interests evidenced by the Senior DOTs, (vi) other liens and security interests (if any) in favor of Lender or otherwise approved by Lender, (vii) mechanics’ liens being contested in accordance with Section 2.1(l) or comparable provisions of the documents evidencing or securing the Senior Loan or the Commercial Loan, and (viii) the Senior Mezzanine DOT (the matters described in the foregoing clauses (i), (ii), (iii), (iv), (v), (vi), (vii) and (viii) being herein called the “Permitted Encumbrances”).  Grantor, and Grantor’s successors and assigns, will warrant generally and forever defend title to the Property, subject as aforesaid, to Trustee, and its successors or substitutes, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Except as permitted in the Mezzanine Loan Agreement, Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or permit modification of any Permitted Encumbrance without the prior written consent of Lender.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Lender of any existing or future violation or other breach thereof by Grantor, by the Property or otherwise.  No part of the Property constitutes all or any part of the homestead of Grantor.  If any right or interest of Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee and Lender, or either of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All reasonable expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Lender or Trustee (as the case may be) with interest as provided in the Notes, and the party (Lender or Trustee, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)           Taxes and Other Impositions.  Grantor will pay, or cause to be paid, all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including but not limited to all ad valorem taxes assessed against the Property or any part thereof, and shall deliver promptly to Lender such evidence of the payment thereof as Lender may require; provided, however, that Grantor may contest the payment of any such tax or other imposition to the extent and in the manner permitted by Law if and so long as the following conditions are satisfied: (i) Grantor shall have notified Lender of Grantor’s contest; (ii) Grantor shall diligently and in good faith contest the same by appropriate legal proceedings which shall operate to prevent the enforcement or collection of the same and the sale of the Property, or any part thereof, to satisfy the same; (iii) Grantor shall have furnished to Lender a cash deposit reasonably satisfactory to Lender, or an indemnity bond reasonably satisfactory to Lender with a surety reasonably satisfactory to Lender, in the amount of the tax or other imposition plus a reasonable additional sum to pay all costs, interest and penalties that may be imposed or incurred in connection therewith (or in the statutory amount, in the case of a bond authorized by statute), to assure payment of the matters under contest and to prevent any sale or forfeiture of the Property or any part thereof, but in each case, only to the

DEED OF TRUST — Page 8

extent Grantor has not furnished a cash deposit or indemnity bond to either the Senior Lender pursuant to the Senior Loan Documents or the Lender pursuant to the Senior Mezzanine Loan Documents; (iv) Grantor shall promptly upon final determination thereof pay the amount of any such tax or other imposition so determined, together with all costs, interest and penalties which may be payable in connection therewith; and (v) the failure to pay the tax or other imposition does not constitute an event of default under any other deed of trust, mortgage or security interest covering or affecting any part of the Property and does not subject Lender to any civil or criminal liability or to any damages or expense not reimbursed by Grantor.  Notwithstanding the foregoing, Grantor shall immediately upon request of Lender pay (and if Grantor shall fail so to do, Lender may, but shall not be required to, pay or cause to be discharged or bonded against) any such tax or other imposition notwithstanding such contest if in the reasonable opinion of Lender, the Property shall be in jeopardy or in danger of being forfeited or foreclosed.  Lender may pay over any such cash deposit or part thereof to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established.

(d)           Insurance.  Grantor shall obtain and maintain at no expense to Lender or Trustee insurance in respect of the Property by the Mezzanine Loan Agreement.  Grantor shall cause all premiums on policies required hereunder to be paid as they become due and payable and promptly deliver to Lender evidence reasonably satisfactory to Lender of the timely payment thereof.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements in this paragraph with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Lender, then subject to the rights of the Senior Lender and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Lender shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Lender.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies (to the extent transferable) referred to in this Section (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in the purchaser at foreclosure or other such transferee, to the extent permissible under such policies, subject to the rights of the Senior Lender and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Lender shall have the right (but not the obligation) to receive the proceeds of, all insurance for loss of or damage to the Property, and if an Event of Default exists (after taking into consideration applicable notice, grace and cure periods) to make proof of loss for, settle and adjust any claim under such insurance, regardless of whether or not such insurance policies are required by Lender, and the reasonable expenses incurred by Lender in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Lender on demand.  Lender shall not be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor or to any third party.  Any such proceeds received by Lender shall be applied as provided in the applicable provisions of the Mezzanine Loan Agreement.

DEED OF TRUST — Page 9

(e)           Reserve for Insurance, Taxes and Assessments.  Upon the occurrence of an Event of Default (after taking into consideration applicable notice, grace and cure periods), in order to secure the performance and discharge of Grantor’s obligations referred to below, but not in lieu of such payment and performance, Grantor will deposit with Lender a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this paragraph shall include without limitation any recurring charge which could result in a lien against the Property) against the Property for the current year and the premiums for such policies of insurance for the current year (to the extent such premiums have not been paid), all as estimated by Lender and prorated to the end of the calendar month following the month during which Lender’s request is made, and thereafter will deposit with Lender, on each date when an installment of principal and/or interest is due on the Notes, sufficient funds (as estimated from time to time by Lender) to permit Lender to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance; provided, however, Grantor shall not be obligated to make any such deposits to the extent it makes deposits of a similar character with the Senior Lender under the Senior Loan Documents or has made such deposits to the Lender under the Senior Mezzanine DOT.  All such funds shall be deposited into an interest bearing account and, provided that no Event of Default or event which, with notice or passage of time or both, would constitute an Event of Default has occurred and is then continuing, Grantor shall, upon written request to Lender, be entitled to receive the interest accrued on such account.  Lender shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  To the extent permitted by Law, any excess over the amounts required for such purposes shall be held by Lender for future credit against amounts due under this paragraph or refunded to Grantor, at Lender’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Lender.  All such funds so deposited (including any interest to which Grantor is not entitled under the provisions above) shall be applied by Lender toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Lender by Grantor (which statements shall be presented by Grantor to Lender a reasonable time before the applicable amount is due); provided, however, that, if an Event of Default shall then exist hereunder (after taking into consideration applicable notice, grace and cure periods), such funds shall be applied first to past or currently due taxes, assessments, charges or premiums, together with any penalties or late charges with respect thereto, and the balance may be applied at Lender’s option to the Secured Indebtedness in the order determined by Lender in its sole discretion.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including without limitation the foreclosure of a subordinate lien or security interest or a transfer by operation of Law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Lender under this paragraph but subject to the rights of Lender hereunder.

(f)            Condemnation.  Immediately upon obtaining knowledge thereof, Grantor shall notify Lender of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor’s expense, diligently prosecute any such proceedings, and shall consult with Lender and its attorneys and experts, and cooperate with them in the carrying on the defense of any such proceedings.  Lender shall have the right (but not the obligation) to participate in any such proceeding and to be represented by

DEED OF TRUST — Page 10

counsel of its own choice.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Lender shall be entitled to receive all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  To the extent permitted by applicable Law and except as otherwise expressly provided herein, Grantor hereby specifically, unconditionally and irrevocably waives all rights of a property owner granted under applicable law which provide for allocation of condemnation proceeds between a property owner and a lienholder, including the provisions of NRS 37.115.  Grantor shall, promptly upon request of Lender, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and, subject to the rights of administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, to enable Lender to collect and receipt for any such sums.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, all such sums are hereby assigned to Lender, and shall be applied as provided in the applicable provisions of the Mezzanine Loan Agreement.  In any event the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused.  Lender shall not be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Lender is hereby authorized, in the name of Grantor, to execute and deliver valid acquittances for, and to appeal from, any such award, judgment or decree.  All reasonable costs and expenses (including but not limited to reasonable attorneys’ fees) incurred by Lender in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Lender pursuant to this Mortgage.

(g)           Compliance with Legal Requirements.  Grantor, the Property and the use, operation and maintenance thereof and all activities thereon do and shall comply in all material respects with all applicable Legal Requirements (hereinafter defined).  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Mortgage to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning Law or similar Law.  The Property will contain within its boundaries a sufficient number of parking spaces to satisfy all Laws.  There are no written or oral agreements with any third parties regarding parking, ingress and egress, use or maintenance of common areas or otherwise except as provided in the Permitted Encumbrances.  Grantor has obtained or will obtain when required and shall preserve and keep in full force and effect, all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that

DEED OF TRUST — Page 11

the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Lender.  Without limiting the foregoing, Grantor hereby agrees that upon receipt of any notice of noncompliance with restrictive covenants affecting the Property because of the encroachment of the Improvements over the building line, Grantor shall immediately (x) provide Lender with written notice thereof and (y) commence to cure such noncompliance and pursue such cure to completion. Grantor has received no notice and has no knowledge of any such noncompliance.  As used in this Mortgage:  (i) the term “Legal Requirement” means any Law (hereinafter defined), agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company) that is binding on Grantor or the Property, as any of the same now exists or may be changed or amended or come into effect in the future; and (ii) the term “Law” means any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

(h)           Condition of Property.  Upon payment of applicable connection fees, the Property will be separately served by electric, gas, storm and sanitary sewers, sanitary water supply, telephone and other utilities required for the use thereof as represented by Grantor at or within the boundary lines of the Property or at points from which extensions of facilities contemplated by the Mezzanine Loan Agreement will originate.  All streets, alleys and easements necessary to serve the Property for the use represented by Grantor have been completed and are serviceable and (i) such streets have been dedicated and accepted by applicable governmental entities, (ii) such streets benefit the Property pursuant to valid and binding easement agreements which permit Grantor and its successors, assigns and mortgagees, the uninterrupted use of the same for ingress and egress to and from the Property or (iii) the right-of-way for such streets have been established and such streets will be constructed as part of the improvements provided for in the Mezzanine Loan Agreement.  To Grantor’s knowledge, design conditions of the Property are such that no drainage or surface or other water will, in any actionable way, drain across or rest upon either the Property or land of others.  No portion of any of the buildings that are or are to be part of the Property is within a flood plain except as shown on a survey delivered to Lender, and none of the Improvements creates (or when constructed will create) an encroachment over, across or upon any of the Property boundary lines, rights of way or easements, and no building or other improvement on adjoining land creates such an encroachment onto the Property except as shown on a survey delivered to Lender.

(i)            Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Lender, (i) remove from the Property any fixtures or personal property covered by this Mortgage except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except Permitted Encumbrances and the liens and security interests created by this Mortgage and the other Loan Documents), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof, or (iii) make any alteration to the

DEED OF TRUST — Page 12

Property involving  any single estimated expenditure exceeding $300,000, except pursuant to plans and specifications approved in writing by Lender.  Upon request of Lender but no more often than once in any twelve month period (unless Lender determines in its good faith business judgment, that it needs a current inventory more frequently), Grantor will deliver to Lender an inventory describing and showing the make, model, and location of all fixtures and personal property used in the management, maintenance and operation of the Property owned by Grantor with a certification by Grantor that said inventory is a true and complete schedule of all such fixtures and personal property owned by Grantor used in the management, maintenance and operation of the Property, that such items specified in the inventory constitute all of the fixtures and personal property required in the management, maintenance and operation of the Property except for items identified or leased by Grantor in accordance with this Mortgage and other items owned by service providers and that all such items are owned by Grantor free and clear of any lien or security interest (except Permitted Encumbrances and the liens and security interests created by this Mortgage and the other Loan Documents).  If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance has not been obtained or is not obtainable) shall result in damage to or loss or destruction of the Property in excess of $75,000.00, Grantor shall give prompt notice thereof to Lender and, unless Lender agrees otherwise, Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(j)            No Other Liens.   Grantor will not, without the prior written consent of Lender, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Mortgage, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Lender, Grantor will cause the same to be promptly discharged and released; provided, however, that Grantor may contest involuntary mechanics’ and materialmen’s liens to the extent and in the manner permitted by Law if and so long as Grantor shall have satisfied all of the conditions of Section 2.1 (c) (regarding contest by Grantor of taxes or other impositions), which conditions shall also apply in all respects to Grantor’s privilege to contest involuntary mechanics’ or materialmen’s liens under this paragraph.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Lender, except that Grantor may lease certain furniture and accessories for display in the model units on the Property, certain furniture and equipment for the clubhouse and management offices and cable, television, telephone, internet access, laundry and security equipment pursuant to lease agreements approved by Lender.  If Lender consents to the voluntary grant by Grantor of any deed of trust or mortgage, lien, security

DEED OF TRUST — Page 13

interest, or other encumbrance (other than the Permitted Encumbrances) (hereinafter called “Subordinate Mortgage”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Mortgage, any such Subordinate Mortgage shall contain express covenants to the effect that:

(1)           the Subordinate Mortgage is unconditionally subordinate to this Mortgage;

(2)           if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Mortgage, no tenant of any of the Leases (hereinafter defined) shall be named as a party defendant, and no action shall be taken that would terminate any occupancy or tenancy without the prior written consent of Lender;

(3)           Rents, (hereinafter defined) if collected by or for the holder of the Subordinate Mortgage, shall be applied first to the payment of the Senior Loan and the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property, prior to being applied to any indebtedness secured by the Subordinate Mortgage;

(4)           written notice of default under the Subordinate Mortgage and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Mortgage or to seek the appointment of a receiver for all or any part of the Property shall be given to Lender with or immediately after the occurrence of any such default or commencement; and

(5)           neither the holder of the Subordinate Mortgage, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Lender.

(k)           Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith (except for fees and charges that Grantor is contesting in good faith in accordance with the provisions of this Mortgage).  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy, or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or any other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Lender.  Grantor will not do or suffer to be done any intentional act whereby the value of any part of the Property may be lessened; provided, however, this sentence is not

DEED OF TRUST — Page 14

intended and shall not be construed, to prohibit Grantor from making adjustments to the rental rates for apartment units in the Property that are necessary to meet market rental rates for apartment projects of similar quality located in the general vicinity of the Property.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Lender, there shall be no drilling or exploration for or extraction, removal or production of any mineral, hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.

(l)            Debts for Construction, Etc.  Grantor will cause all debts and liabilities of any character (including without limitation all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid, subject to Grantor’s right to contest the validity or amounts thereof in accordance with procedures like those in Section 2.1(c).

(m)          Financial Matters.  Grantor is solvent after giving effect to all borrowings contemplated by the Loan Documents and no proceeding under any Debtor Relief Law (hereinafter defined) is pending (or, to Grantor’s knowledge, threatened) by or against Grantor, as a debtor.

(n)           Status of Grantor; Suits and Claims; Loan Documents.  If Grantor is a corporation, partnership, limited liability company, or other legal entity, Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business in, and in good standing in, each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  This Mortgage has been duly authorized, executed and delivered by Grantor, and the obligations hereunder and the performance hereof by Grantor in accordance with its terms are and will continue to be within Grantor’s power and authority (without the necessity of joinder or consent of any other person), are not and will not be in contravention of any Legal Requirement or any other document or agreement to which Grantor or the Property is subject, and do not and will not result in the creation of any encumbrance against any assets or properties of Grantor, except for the liens of the Permitted Encumbrances and as otherwise expressly contemplated by the Loan Documents.  There is no suit, action, claim, investigation, inquiry, proceeding or demand pending (or, to Grantor’s knowledge, threatened) against Grantor or which affects the Property (including, without limitation, any which challenges or otherwise pertains to Grantor’s title to the Property) or the validity, enforceability or priority of any of the Loan Documents, except as has been disclosed in writing to Lender in connection with the loan evidenced by the Notes.  There is no judicial or administrative action, suit or proceeding pending (or, to Grantor’s knowledge, threatened) against Grantor, except as has been disclosed in writing to Lender in connection with the loan evidenced by the Notes.  This Mortgage constitutes a legal, valid and binding obligation of Grantor enforceable in accordance with its terms, except as the enforceability hereof may be limited by Debtor Relief Laws (hereinafter defined) and except as the availability of certain remedies may be limited by general principles of equity.  Grantor is not a “foreign person” within the meaning

DEED OF TRUST — Page 15

of the Internal Revenue Code of 1986, as amended, Sections 1445 and 7701 (i.e. Grantor is not a non-resident alien, foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined therein and in any regulations promulgated thereunder).  Grantor’s exact legal name is correctly set forth at the end of this Mortgage.  If Grantor is not an individual, Grantor is an organization of the type and (if not an unregistered entity) is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Mortgage.  If Grantor is an unregistered entity (including, without limitation, a general partnership) it is organized under the laws of the state specified in the introductory paragraph of this Mortgage.  Grantor will not cause or permit any change to be made in its name, identity (including its trade name or names), or corporate or partnership structure, unless Grantor shall have notified Lender in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action reasonably required by Lender for the purpose of further perfecting or protecting the lien and security interest of Lender in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Lender.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording including, without limitation, software, writings, plans, specifications and schematics concerning the Property, will be (unless Grantor notifies Lender of any change in writing at least 30 days prior to the date of such change) the address of Grantor set forth at the end of this Mortgage and such other additional addresses within the United States of which Grantor has notified Lender.  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Mortgage.  Grantor shall promptly notify Lender (i) of any change of its organizational identification number, or (ii) if Grantor does not now have an organization identification number and later obtains one, of such organizational identification number.

(o)           Certain Environmental Matters.  To the extent applicable to Grantor, Grantor shall comply with the terms and covenants and agreements with respect to environmental matters of that certain Environmental Indemnity Agreement pertaining to the Property (the “Environmental Indemnity”) among Borrower and Lender.

(p)           Further Assurances.  Grantor will, promptly on request of Lender, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Mortgage; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including, without limitation, further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as are, in Lender’s reasonable judgment, necessary, desirable or proper to carry out more effectively the purposes of this Mortgage, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Lender to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Lender to enable Lender to comply with the requirements or requests of any agency having jurisdiction over Lender or any examiners of such agencies with respect to the

DEED OF TRUST — Page 16

Grantor or the Property; provided, however, such further acts shall be consistent with the terms contained in this Mortgage and shall not unreasonably alter the rights and obligations of Grantor under this Mortgage.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Lender pursuant to this Mortgage.

(q)           Reserved.

(r)            Reserved.

(s)           Taxes on Notes or Mortgage.  In the event of the enactment after this date of any Law of any governmental entity applicable to Lender, the Notes, the Property or this Mortgage deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the Laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Mortgage or the Secured Indebtedness or Lender, then, and in any such event, Grantor, upon demand by Lender, shall pay such taxes, assessments, charges or liens, or reimburse Lender therefor; provided, however, that if in the opinion of counsel for Lender (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by Law, then and in such event, Lender may elect, to the extent permitted by applicable law, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(t)            Statement Concerning Mortgage.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Lender a written statement in such form as may be reasonably required by Lender stating that (i) this Mortgage is a valid and binding obligation of Grantor, enforceable against Grantor in accordance with its terms; (ii) this Mortgage has not been released, subordinated or modified; and (iii) Grantor has no offsets or defenses against the enforcement of this Mortgage.  If any of the foregoing statements are untrue, Grantor shall, alternatively, specify the reasons therefor.

Section 2.2.            Performance by Lender on Grantor’s Behalf.  Grantor agrees that, if Grantor fails to perform any act or to take any action which under this Mortgage, Grantor is required to perform or take, and if such failure then constitutes an Event of Default hereunder (whether or not the Secured Indebtedness has been accelerated), Lender, in Grantor’s name or its own name, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Lender and any money so paid by Lender, shall be a demand obligation owing by Grantor to Lender (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness and Lender, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  After the occurrence and during the continuance of an Event of

DEED OF TRUST — Page 17

Default, Lender shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Lender shall waive or cure any Event of Default or waive any right, remedy or recourse of Lender.  Any such payment may be made by Lender in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Lender pursuant to this Mortgage shall bear interest, from the date such amount becomes due until paid, whether before or after a sale as described in Section 5.2 at the Default Interest Rate (as defined in the Mezzanine Loan Agreement) but never in excess of the maximum nonusurious amount permitted by applicable Law, which interest shall be payable to Lender on demand; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the Secured Indebtedness.  The amount and nature of any expense by Lender hereunder and the time when paid shall be fully established by the certificate of Lender or any of Lender’s officers or agents.

Section 2.3.            Absence of Obligations of Lender with Respect to Property.  Notwithstanding anything in this Mortgage to the contrary, including, without limitation, the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable Law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Lender does not assume or shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Lender may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Lender’s interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that Lender shall not have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Lender elects otherwise by written notification.

Section 2.4.            Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Lender at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable Law, required by Lender to establish or maintain the validity, perfection and priority of the security interests granted in this Mortgage.  Grantor also ratifies its authorization for Lender to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Mortgage.  Grantor hereby irrevocably constitutes and appoints Lender and any officer or agent of Lender, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact shall lawfully do, have done in the past or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

DEED OF TRUST — Page 18

ARTICLE 3

Assignment of Rents and Leases

Section 3.1.Assignment.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Grantor hereby assigns to Lender all Rents (as hereinafter defined) and all of Grantor’s rights in and under all Leases (hereinafter defined).  So long as no Event of Default (hereinafter defined) has occurred, Grantor shall have a license (which license shall terminate automatically and without further notice upon the occurrence of an Event of Default) to collect, but not prior to accrual, the Rents under the Leases and, where applicable, subleases (such Rents to be held in trust for Lender, subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents) and to otherwise deal with all Leases as permitted by this Mortgage.  Each month, provided no Event of Default has occurred, Grantor may retain such Rents as were collected that month and held in trust for Lender; provided, however, that all Rents collected by Grantor shall be applied solely to the ordinary and necessary expenses of owning and operating the Property and obligations under the Senior Loan Documents or paid to Lender before application to any other purpose.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, upon the revocation of such license, Lender shall have the right, power and privilege (but shall be under no duty) to demand possession of the Rents, which demand shall to the fullest extent permitted by applicable Law be sufficient action by Lender to entitle Lender to immediate and direct payment of the Rents (including delivery to Lender of Rents collected for the period in which the demand occurs and for any subsequent period), for application as provided in this Mortgage.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Lender upon written demand by Lender, without further consent of Grantor, without any obligation of such tenants to determine whether an Event of Default has in fact occurred and regardless of whether Lender has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Lender to the tenants.  Any such payments to Lender shall constitute payments to Grantor under the Leases, and, subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Grantor hereby irrevocably appoints Lender as its attorney-in-fact to do all things, after an Event of Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including, without limitation, (i) collecting Rents with or without suit and applying the same, less expenses of collection, to the Senior Loan, with any excess applied to any of the obligations secured hereunder, under the Loan Documents or the Senior Mezzanine Loan Documents or to expenses

DEED OF TRUST — Page 19

of operating and maintaining the Property, at the option of the Lender, all in such manner as may be determined by Lender, (ii) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant, and (iii) employing agents therefor and paying such agents reasonable compensation for their services.  The curing of such Event of Default, unless other Events of Default also then exist, shall entitle Grantor to recover its aforesaid license to do any such things which Grantor might otherwise do with respect to the Property and the Leases thereon and to again collect such Rents.  The powers and rights granted in this paragraph shall be in addition to the other remedies herein provided for upon the occurrence of an Event of Default and may be exercised independently of or concurrently with any of said remedies.  Nothing in the foregoing shall be construed to impose any obligation upon Lender to exercise any power or right granted in this paragraph, or to assume any liability under any Lease of any part of the Property (and no liability shall attach to Lender for failure or inability to collect any Rents under any such Lease), or as constituting Lender a mortgagee in possession in the absence of the actual taking of possession of the Property by Lender, or as constituting an action, rendering any of Grantor’s obligations to Lender unenforceable, in violation of any of the provisions of NRS Section 40.430 or otherwise limiting any rights available to Lender.  The assignment contained in this Section shall become null and void upon the release of this Mortgage.  As used herein: (i) “Lease” means each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property, or any part thereof, or interest therein, and each existing or future guaranty of payment or performance thereunder, and all extensions, renewals, modifications and replacements of each such lease, sublease, agreement or guaranty; and (ii) “Rents” means all of the rents, revenue, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including but not limited to the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy including, without limitation, rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Laws (as defined in the Loan Agreement), together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and all future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

Section 3.2.Reserved.

Section 3.3.No Liability of Lender. Lender’s acceptance of this assignment shall not be deemed to constitute Lender a “mortgagee in possession,” nor obligate Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Lender.  Lender shall not be liable for any injury or damage to

DEED OF TRUST — Page 20

person or property in or about the Property, or for Lender’s failure to collect or to exercise diligence in collecting Rents, but shall be accountable only for Rents that it shall actually receive.  Neither the assignment of Leases and Rents nor enforcement of Lender’s rights regarding Leases and Rents (including collection of Rents) nor possession of the Property by Lender nor Lender’s consent to or approval of any Lease (nor all of the same), shall render Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.  If Lender seeks or obtains any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall same constitute an election of judicial relief for any foreclosure or any other purpose.  Lender shall not have or assume any obligations as lessor or landlord with respect to any Lease.  The rights of Lender under this Article 3 shall be cumulative of all other rights of Lender under the Loan Documents or otherwise.

ARTICLE 4

Default

Section 4.1.Events of Default.  The occurrence of any one of the following shall be a default under this Mortgage (each, an “Event of Default”):

(a)Failure to Pay Secured Indebtedness.  The failure of Borrower or Grantor to pay when due any amount required by this Mortgage, the Promissory Note or any other Loan Document which continues, in the case of monthly interest payments required under the Note for twenty (20) days or, in the case of other sums payable under this Mortgage, the Promissory Note or any other Loan Document, for ten (10) days following written demand for payment on Borrower by Lender.

(b)Nonperformance of Covenants.  The failure by Borrower or Grantor to perform any of its obligations under this Mortgage, the Promissory Note or any other Loan Document, as and when required, except as specifically set forth otherwise herein, which continues for a period of thirty (30) days after notice of such failure by Lender to Borrower and/or Grantor, if such failure is not reasonably susceptible of cure within such thirty (30)-day period and, if Borrower and/or Grantor promptly commences such cure within such thirty (30)-day period and diligently prosecutes the same to completion, then the cure period shall be extended for such period of time as may be reasonably necessary to effect a cure but in no event shall such period exceed ninety (90) days.

(c)Default under other Loan Documents.  The occurrence of an Event of Default (after taking into consideration applicable notice, grace and cure periods) under any other Loan Document.

Section 4.2.Notice and Cure.  If any provision of this Mortgage or any other Loan Document provides for Lender to give to Grantor or Borrower any notice regarding an Event of Default or incipient Event of Default, then if Lender shall fail to give such notice to Grantor or Borrower as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek

DEED OF TRUST — Page 21

appropriate equitable relief to enforce the agreement to give such notice and to have any acceleration of the maturity of the Notes and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such Event of Default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Lender, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents and to the extent that Grantor and Borrower have any cure rights with respect to any event or circumstance which, upon notice or the passage of time, or both, could constitute an Event of Default hereunder, such cure periods shall run concurrently and not consecutively.

ARTICLE 5

Remedies

Section 5.1.Certain Remedies.  If an Event of Default shall occur, Lender may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable Law):

(a)Acceleration; Termination.  Lender may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable.  Upon any such declaration, such Secured Indebtedness shall, subject to NRS Section 107.080, thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind upon Grantor, all of which are hereby expressly waived by Grantor.

(b)Enforcement of Assignment of Rents.  In addition to the rights of Lender under Article 3 hereof, prior or subsequent to taking possession of any portion of the Property or taking any action with respect to such possession, Lender may, subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents: (1) collect and/or sue for the Rents in Lender’s own name, give receipts and releases therefor, and after deducting all reasonable expenses of collection, including reasonable attorneys’ fees and expenses, apply the net proceeds thereof to the Secured Indebtedness in such manner and order as Lender may elect and/or to the operation and management of the Property, including the payment of reasonable management, brokerage and attorney’s fees and expenses; and (2) require Grantor to transfer all security deposits and records thereof to Lender together with original counterparts of the Leases, upon which transfer Lender shall be responsible for returning such deposits to tenants.

(c)Non-Judicial Sale.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Lender may (1) dispose of some or all of the Property, in any

DEED OF TRUST — Page 22

combination consisting of both real and personal property, together in one sale to be held in accordance with the Law and procedures applicable to real property, as permitted by Section 9604 of the Uniform Commercial Code as enacted in the State of Nevada, NRS Section 104.9604, and other applicable laws, and Grantor agrees that such a sale of personal property together with real property constitutes a commercially reasonable sale of the personal property and (2) by delivery to Trustee and Grantor (and any other parties to whom notice is required under NRS Section 107.080) of written notice of declaration of default and demand for sale, cause to be filed of record a written notice of default and election to sell the Property in accordance with the requirements of applicable Nevada law.  If required by Trustee, Lender shall also deposit with Trustee this Mortgage and Notes or other Loan Documents or other agreements and such documents as required by Trustee evidencing expenditures or advances secured hereby and Lender shall comply with the requirements of NRS Section 107.220.  After the lapse of such time as there may be required by law following recordation of such notice of default, and notice of sale having been given as then required by Law, Trustee, without demand on Grantor, shall sell the Property, in accordance with applicable Law, either as a whole or in separate parcels, and in such order as it or Lender may determine, at public auction to the highest bidder for cash in lawful money of the United States.  Lender may, in its sole discretion, elect that the Property be sold in separate parcels through two or more successive sales.  If Lender elects more than one sale of separate parcels of the Property, Lender may, at its option, cause the same to be conducted simultaneously or successively, on the same day or at such different days or times and in such order as Lender may deem to be in its best interests, and no such sale shall terminate or otherwise effect the first lien of this Mortgage or Trustee’s power of sale hereunder until all indebtedness secured hereby has been fully paid.  The place of sale shall be in the county in which the Property to be sold, or any part thereof, is situated.  If Lender elects to dispose of the Property through more than one sale, Grantor shall pay the costs and expenses of each such sale and of any proceedings where the same may be made or conducted.  Trustee may, subject to applicable Law, postpone and change the time and place of sale of all or any portion of the Property by public announcement at any time and place fixed by it in said notice of sale and from time to time and place to place thereafter, without any further posting or notice thereof, may postpone such sale in public announcement to the time and place fixed by such postponement, whether or not said place fixed by any postponement be in the same city or other place as fixed in said notice of sale. Trustee shall deliver to such purchaser its deed conveying the Property so sold, but without any covenants or warranty, express or implied.  The recital in such deed of any matters of fact or otherwise shall be prima facie evidence of the truthfulness thereof.

(d)Uniform Commercial Code.  Without limitation of Lender’s rights of enforcement with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Lender may exercise its rights of enforcement with respect to the Collateral or any part thereof under the UCC, as in effect from time to time, as amended  (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable Law), subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, and in conjunction with, in addition to or in substitution for those rights and remedies:

DEED OF TRUST — Page 23

(1)Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Lender may enter upon Grantor’s premises to take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable Law, to render it unusable;

(2)Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Lender may require Grantor to assemble the Collateral and make it available at a place Lender designates which is mutually convenient to allow Lender to take possession or dispose of the Collateral;

(3)written notice mailed to Grantor as provided herein at least ten (10) days prior to the date of public sale of the Collateral or prior to the date after which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if Lender fails to comply with this clause (3) in any respect, its liability for such failure shall be limited to the liability (if any) imposed on it as a matter of law under the UCC, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law);

(4)any sale made pursuant to the provisions of this paragraph shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in paragraph (c) above in this Section 5.1;

(5)in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Lender, be sold as a whole;

(6)it shall not be necessary that Lender take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this Section is conducted and it shall not be necessary that the Collateral or any part thereof be present at the location of such sale;

(7)with respect to application of proceeds from disposition of the Collateral under this Section 5.1 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses (including, without limitation, the allocated costs for in-house legal services) incurred by Lender;

(8)any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any default, or as to Lender having declared all of such indebtedness to be due and payable, or as to notice of

DEED OF TRUST — Page 24

time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Lender, shall be taken as prima facie evidence of the truth of the facts so stated and recited;

(9)Lender may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Lender, including the sending of notices and the conduct of the sale, but in the name and on behalf of Lender;

(10)Lender may comply with any applicable Laws in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral;

(11)Lender may sell the Collateral without giving any warranties as to the Collateral, and specifically disclaim all warranties including, without limitation, warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral;

(12)Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale (but such acknowledgement does not authorize a private sale except when allowed by the UCC); and

(13)Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that, in such event, Lender shall have no liability or responsibility to Grantor for such loss so long as Lender has acted as allowed by this Mortgage, the UCC and other applicable Laws.

(e)Lawsuits.  Lender may, to the fullest extent permitted by applicable Law, proceed by a suit or suits in equity or at law, whether for collection of the Secured Indebtedness, the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Property under the judgment or decree of any court or courts of competent jurisdiction.

(f)Entry on Property.  Lender is authorized, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable Law subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, to enter upon the Property, or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording including, without limitation, all software, writings, plans, specifications and schematics relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Lender shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act

DEED OF TRUST — Page 25

specifically for such purpose.  All reasonable costs, expenses and liabilities of every character incurred by Lender in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Lender pursuant to this Mortgage.  If necessary to obtain the possession provided for above, Lender may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Lender pursuant to this Section, Lender shall not be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Lender in managing the Property unless such loss is caused by the gross negligence or willful misconduct of Lender, nor shall Lender be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Lender with respect to the Property taken under this Section unless by the gross negligence or willful misconduct of Lender.

(g)Receiver.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, Lender shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property whether such receivership be incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Lender, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Lender to application of Rents as provided in this Mortgage.  Nothing herein is to be construed to deprive Lender of any other right, remedy or privilege it may have under the Law to have a receiver appointed.  Any money advanced by Lender in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Lender pursuant to this Mortgage.

(h)Termination of Commitment to Lend.  Lender may terminate any commitment or obligation to lend or disburse funds under any Loan Document.

(i)Other Rights and Remedies.  Lender may exercise any and all other rights and remedies which Lender may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2.Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Lender or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable Laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including but not limited to all reasonable attorneys’ fees and legal expenses, advertising costs, auctioneer’s fees, costs of title rundowns and lien searches, inspection fees, appraisal costs, fees for professional services, environmental assessment and

DEED OF TRUST — Page 26

remediation fees, all court costs and charges of every character insurance fees, costs of repairs, maintenance, inspection and testing fees, receivers and management fees, leasing and sales commissions, advertising costs and expenses, taxes and assessments, surveys, engineering studies and reports, engineering fees and expenses, soils tests, space planning costs and expenses, contractors fees, all other costs incurred by Lender to maintain, preserve and protect the Property (not exceeding 5% of the gross proceeds of such sale), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Notes and the amounts due and unpaid and owed to Lender under the Mezzanine Loan Agreement, this Mortgage, the Environmental Indemnity, or any other Loan Document, the order and manner of application to the items in this clause FIRST to be in the sole discretion of Lender; and SECOND, the remainder, if any there shall be, shall be paid to Grantor, or to Grantor’s heirs, devisees, representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by Law; provided, however, that if Lender is uncertain which person or persons are so entitled, Lender may interplead such remainder in any court of competent jurisdiction, and the amount of any reasonable attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

Section 5.3.Lender as Purchaser.  Lender shall have the right to become the purchaser at any sale held by Trustee or substitute or successor or by any receiver or public officer or at any public sale, and Lender shall have the right to credit upon the amount of Lender’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Lender may elect.

Section 5.4.Foreclosure as to Matured Debt.  Lender shall have the right to proceed with foreclosure (judicial or nonjudicial) of the liens and security interests hereunder without declaring the entire Secured Indebtedness due, and in such event any such foreclosure sale may be made subject to the unmatured part of the Secured Indebtedness; and any such sale shall not in any manner affect the unmatured part of the Secured Indebtedness, but as to such unmatured part this Mortgage shall remain in full force and effect just as though no sale had been made.  The proceeds of such sale shall be applied as provided in Section 5.2 hereof except that the amount paid under clause FIRST thereof shall be only the matured portion of the Secured Indebtedness the remainder, if any, shall be applied as provided in clause SECOND of Section 5.2 hereof.  Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Secured Indebtedness.

Section 5.5.Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee and Lender shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any other Loan Document or provided for by law or in equity shall not

DEED OF TRUST — Page 27

prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.6.Discretion as to Security.  Lender may resort to any security given by this Mortgage or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Lender in its sole and uncontrolled discretion (but subject to any agreements between Lender applicable thereto in the Mezzanine Loan Agreement), and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Mortgage.

Section 5.7.Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, and to the fullest extent permitted by applicable Law, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s heirs, devisees, representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable Law, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution, notice of intention to mature or declare due the whole of the Secured Indebtedness, notice of election to mature or declare due the whole of the Secured Indebtedness and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of Law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Lender under the terms of this Mortgage to a sale of the Property for the collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Lender under the terms of this Mortgage to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.  Grantor waives any right or remedy which Grantor may have or be able to assert pursuant to any provision of any statute or rule of law, pertaining to the rights and remedies of sureties.  If any law referred to in this Section and now in force, of which Grantor or Grantor’s heirs, devisees, representatives, successors or assigns or any other persons claiming any interest in the Property might take advantage despite this Section, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to preclude the application of this Section.

Section 5.8.Delivery of Possession After Foreclosure.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, in the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s heirs, devisees, representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per

DEED OF TRUST — Page 28

day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable Law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, after such foreclosure, any Leases to tenants or subtenants that are subject to this Mortgage (either by their date, their express terms, or by agreement of the tenant or subtenant) shall, at the sole option of Lender or any purchaser at such sale, either (i) continue in full force and effect, and the tenant(s) or subtenant(s) thereunder will, upon request, attorn to and acknowledge in writing to the purchaser or purchasers at such sale or sales as landlord thereunder, or (ii) upon notice to such effect from Lender, the Trustees or any purchaser or purchasers, terminate within thirty (30) days from the date of sale.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, and without duplication of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents, in the event the tenant fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and maintain a summary action for possession of the Property (such as an action for forcible detainer) in any court having jurisdiction.

ARTICLE 6

Miscellaneous

Section 6.1.Scope of Mortgage.  This Mortgage is a deed of trust and mortgage of both real and personal property, a security agreement, an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment, and also covers proceeds and fixtures.

Section 6.2.Effective as a Financing Statement.  This Mortgage shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Mortgage shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the UCC, as, in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Mortgage shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The mailing address of Grantor is the address of Grantor set forth at the end of this Mortgage and the address of Lender from which information concerning the security interests hereunder may be obtained is the address of Lender set forth at the end of this Mortgage.  A carbon, photographic or other reproduction of this Mortgage or of any financing statement relating to this Mortgage shall be sufficient as a financing statement for any of the purposes referred to in this Section.

DEED OF TRUST — Page 29

Section 6.3.            Notice to Account Debtors.  Subject to the rights of the administrative agent and/or lenders in respect of the Senior Loan, the Commercial Loan or the Senior DOTs, as applicable, in addition to the rights granted elsewhere in this Mortgage (but without duplication of any of Lender’s rights under the Senior Mezzanine DOT or other Senior Mezzanine Loan Documents), Lender may, from and after the occurrence of an Event of Default, so long as such Event of Default remains uncured hereunder, notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Lender directly.

Section 6.4.            Waiver by Lender.  Lender may at any time and from time to time by a specific writing intended for the purpose: (a) waive compliance by Grantor with any covenant herein made by Grantor to the extent and in the manner specified in such writing; (b) consent to Grantor’s doing any act which hereunder Grantor is prohibited from doing, or to Grantor’s failing to do any act which hereunder Grantor is required to do, to the extent and in the manner specified in such writing; (c) release any part of the Property or any interest therein from the lien and security interest of this Mortgage, without the joinder of Trustee; or (d) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document, without impairing or releasing the liability of any other party.  No such act shall in any way affect the rights or powers of Lender or Trustee hereunder except to the extent specifically agreed to by Lender in such writing.

Section 6.5.            No Impairment of Security.  The lien, security interest and other security rights of Lender hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Lender including, but not limited to, any renewal, extension or modification which Lender may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Lender may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Lender shall not release or impair the lien, security interest or other security rights of Lender hereunder or affect the liability of Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby Lender’s consent to any junior lien).

Section 6.6.            Acts Not Constituting Waiver by Lender.  Lender may waive any Event of Default without waiving any other prior or subsequent Event of Default.  Lender may remedy any Event of Default without waiving the Event of Default remedied.  Neither failure by Lender to exercise, nor delay by Lender in exercising, nor discontinuance of the exercise of any right, power or remedy (including but not limited to the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Event of Default shall be construed as a waiver of such Event of Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Lender of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No modification or waiver of any provision hereof nor consent to any departure by Grantor therefrom shall in any event be effective unless the same shall be in writing and signed

DEED OF TRUST — Page 30

by Lender and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to nor demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.  Remittances in payment of any part of the Secured Indebtedness other than in the required amount in immediately available U.S. funds shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in immediately available U.S. funds and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks.  Acceptance by Lender of any payment in an amount less than the amount then due on any Secured Indebtedness shall be deemed an acceptance on account only and shall not in any way excuse the existence of an Event of Default hereunder notwithstanding any notation on or accompanying such partial payment to the contrary.

Section 6.7.            Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Lender may, without notice to Grantor, deal with such successor or successors in interest with reference to this Mortgage and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or for the payment of the indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Lender, and no extension of the time for the payment of the Secured Indebtedness given by Lender shall operate to release, discharge, modify, change or affect, in whole or in part, the liability of Grantor hereunder.  Grantor agrees that it shall be bound by any modification of this Mortgage made by Lender and any subsequent owner of the Property, with or without notice to Grantor, and no such modifications shall impair the obligations of Grantor under this Mortgage.  Nothing in this Section shall be construed to imply Lender’s consent to any transfer of the Property.

Section 6.8.            Place of Payment; Forum; Waiver of Jury Trial.  All Secured Indebtedness which may be owing hereunder at any time by Grantor shall be payable at the address of Lender set forth at the end of this Mortgage.  EACH PARTY HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE COURT, OR ANY UNITED STATES FEDERAL COURT, SITTING IN THE CITY OF DALLAS, STATE OF TEXAS, AND IN THE COUNTY IN WHICH THE LAND IS LOCATED TO THE EXTENT OF ACTIONS REQUIRED TO BE MAINTAINED WHERE THE LAND IS LOCATED, OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS MORTGAGE OR THE SECURED INDEBTEDNESS.  EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT THE PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT FORUM.  Each Party 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 such court may be made by certified or registered mail, return receipt requested, directed to the other party at its address stated at the end of this Mortgage, or at a subsequent address of which the other parties received actual notice in accordance with this Mortgage.  Nothing herein shall affect the right of a party to serve process

DEED OF TRUST — Page 31

in any manner permitted by Law.  TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY KNOWINGLY AND FREELY WAIVES THE RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS MORTGAGE.   EACH PARTY ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS AN IMPORTANT RIGHT, THAT ITS WAIVER OF THIS RIGHT IS A NEGOTIATED TERM OF THE LOAN AND THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL OF ITS CHOOSING WITH RESPECT TO THIS WAIVER.

Section 6.9.            Subrogation to Existing Liens; Vendor’s Lien. To the extent that proceeds of the Notes are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, Lender shall be subrogated to any and all rights, security interests, and liens and charges or encumbrances owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, irrespective of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Mortgage shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Lender is subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Lender, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with the said indebtedness.  If all or any portion of the proceeds of the loan evidenced by the Notes or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien or purchase money lien is waived.  Lender may foreclose under this Mortgage or under the vendor’s lien or purchase money lien without waiving the other or may foreclose under both.

Section 6.10.          Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Mortgage or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Mortgage.

Section 6.11.          Nature of Loan; Compliance with Usury Laws.  The loan evidenced by the Notes is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor and Lender to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements between Lender and Grantor are hereby limited by the provisions of this Section which shall override and control all such agreements, whether now existing or hereafter arising.  In no way, nor in any event or contingency (including but not limited to prepayment, default, demand for payment, or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable, or received under this Mortgage, the Notes or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If, from any possible construction of this Mortgage, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject

DEED OF TRUST — Page 32

to the provisions of this Section and this Mortgage shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Lender shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Borrower or Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate maturity of the Notes or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State where the Property is located or where the Secured Indebtedness is payable, or the federal laws of the United States applicable to this transaction, whichever laws allow the greatest interest, as such laws now exist or may be changed or amended or come into effect in the future.

Section 6.12.          Substitute Trustee.  The Lender may, from time to time, by an instrument in writing, substitute a successor or successors to any trustee named herein or acting hereunder, which instrument, executed and acknowledged by Lender and recorded in the office of the recorder of the county or counties where the Property is situated, shall be conclusive proof of proper substitution of such successor trustee or trustees, who shall, without conveyances from the trustee predecessor, succeed in all its title, estate, rights, powers and duties.  Such instrument shall contain the name and address of the new trustee. The procedure herein provided for substitution of trustees shall not be exclusive of other provisions for substitution provided by law.

Section 6.13.          No Liability of Trustee.  The Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee’s gross negligence or willful misconduct.  The Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by him hereunder, believed by him in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by Law), and Trustee shall be under no liability for interest on any moneys received by him hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein named Trustee or his successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof. Grantor will reimburse Trustee for, and save him harmless against, any and all liability and expenses which may be incurred by him in the performance of his duties, and except those resulting from Trustee’s gross negligence or willful misconduct.  The foregoing indemnity shall

DEED OF TRUST — Page 33

not terminate upon discharge of the Secured Indebtedness or foreclosure, or release or other termination, of this Mortgage.

Section 6.14.          Releases.  If all of the Secured Indebtedness be paid as the same becomes due and payable and all of the covenants, warranties, undertakings and agreements made in this Mortgage are kept and performed and all obligations, if any, of Lender for further advances have been terminated or Grantor is entitled to a reconveyance of this Mortgage in accordance with the terms of the Loan Documents, then, and in that event only, all rights under this Mortgage shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the release hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and such liens and security interests shall be released by Lender in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Lender or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, release or termination of this Mortgage.

Section 6.15.          Notices. All notices, requests, consents, demands and other communications required or which any party desires to give hereunder shall be in writing and, unless otherwise specifically provided herein, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified in this Mortgage (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided that, service of a notice required by NRS Section 107.080 shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in this Mortgage or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16.          Invalidity of Certain Provisions.  A determination that any provision of this Mortgage is unenforceable or invalid shall not affect the enforceability or validity of any other provision and the determination that the application of any provision of this Mortgage to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17.          Gender; Titles; Construction.  Within this Mortgage, words of any gender shall be held and construed to include any other gender, and words in the singular number shall be held and construed to include the plural, unless the context otherwise requires.  Titles appearing at the beginning of any subdivisions hereof are for convenience only, do not constitute any part of such subdivisions, and shall be disregarded in construing the language contained in such subdivisions.  The use of the words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Mortgage and not to any particular

DEED OF TRUST — Page 34

Article, Section, paragraph or provision.  The term “person” and words importing persons as used in this Mortgage shall include firms, associations, partnerships (including limited partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18.          Reporting Compliance.  Grantor agrees to comply with any and all reporting requirements applicable to this Mortgage which are imposed upon it by Law, including but not limited to The International Investment Survey Act of 1976, The Agricultural Foreign Investment Disclosure Act of 1978, The Foreign Investment in Real Property Tax Act of 1980 and the Tax Reform Act of 1984 and further agrees upon request of Lender to furnish Lender with evidence of such compliance.

Section 6.19.          Reserved.

Section 6.20.          Grantor.  Unless the context clearly indicates otherwise, as used in this Mortgage, “Grantor” means the grantors named in Section 1.2 hereof or any of them.  The obligations of Grantor hereunder shall be joint and several.  If any Grantor, or any signatory who signs on behalf of any Grantor, is a corporation, partnership or other legal entity, Grantor, represents and warrants to Lender that this instrument is executed, acknowledged and delivered by Grantor’s duly authorized representatives.  If Grantor is an individual, no power of attorney granted by Grantor herein shall terminate on Grantor’s disability.

Section 6.21.          Execution; Recording.  This Mortgage has been executed in several counterparts, all of which are identical, and all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Mortgage, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Mortgage shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Mortgage and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Lender shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.22.          Successors and Assigns.  The terms, provisions, covenants and conditions hereof shall be binding upon Grantor, and the heirs, devisees, representatives, successors and assigns of Grantor, and shall inure to the benefit of Trustee and Lender shall constitute covenants running with the Land.  All references in this Mortgage to Grantor shall be deemed to include all such heirs, devisees, representatives, successors and assigns of Grantor.

Section 6.23.          Modification or Termination.  The Loan Documents may only be modified or terminated by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

DEED OF TRUST — Page 35

Section 6.24.          No Partnership, Etc.  The relationship between Lender and Grantor is solely that of lender and owner of collateral.  Lender does not have a fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Lender or in any way make Lender a co-principal with Grantor with reference to the Property.  All agreed contractual duties between or among Lender, Trustee and Grantor are set forth herein and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

Section 6.25.          Applicable Law.  THIS MORTGAGE, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION, SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEVADA (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEVADA ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION.

Section 6.26.          Construction Mortgage.  This Mortgage constitutes a “construction mortgage” as defined in NRS 104.9334 to the extent that it secures an obligation incurred for the construction of the Improvements, including the acquisition cost of the Land.

Section 6.27.          Entire Agreement.  This Mortgage, together with the Loan Documents to which Grantor is a party, constitute the entire understanding and agreement between Grantor and Lender with respect to the transactions arising in connection with the liens and security interests granted hereby and supersede all prior written or oral understandings and agreements between Grantor and Lender with respect to such matters.  Grantor 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 matters addressed in the Loan Documents.

Section 6.28.          Adoption of Statutory Covenants.  The following covenants, Nos. 6 (provided that a default, as referenced in such covenant, shall mean an Event of Default, as defined in Section 4.1 of this Mortgage), 7 (a reasonable), 8 (provided that the recital therein shall be prima facie proof of such default) and 9 of NRS Section 107.030, where not in conflict with the provisions of the Loan Documents, are hereby adopted and made a part of this Mortgage.

THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

DEED OF TRUST — Page 36

[Remainder of Page Intentionally Left Blank]

DEED OF TRUST — Page 37

IN WITNESS WHEREOF, Grantor has executed this instrument under seal as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
2001 Bryan Street, Suite 3250 Dallas, Texas 75201 Attention: Tim Hogan	SW 132 ST. ROSE SENIOR BORROWER LLC, a Delaware limited liability company
Telephone: (214) 922-8575	By:	SW 131 St. Rose Mezzanine Borrower LLC, a Delaware
Facsimile: (214) 922-8553		limited liability company, its sole member
		By:	SW 130 St. Rose Limited Partnership, a Delaware
			limited partnership, its sole member
			By:	SW 129 St. Rose Limited Partnership, a Delaware
				limited partnership, its general partner
				By:	SW 104 Development GP LLC, a Delaware
					limited liability company, its general partner
					By:	/s/ Timothy J. Hogan
					Name:     Timothy J. Hogan
					Title:       Vice President

The address of Lender is:

Behringer Harvard St. Rose REIT, LLC

15601 Dallas Parkway, Suite 600

Addison, Texas  75001

Attention:  Chief Legal Officer

STATE OF TEXAS	§
	§
COUNTY OF DALLAS	§

This instrument was acknowledged before me on December 30, 2008, by Timothy J. Hogan,  Vice President of SW 104 Development GP LLC, a Delaware limited liability company, on behalf of such company, as general partner of SW 129 St. Rose Limited Partnership, a Delaware limited partnership, general partner of SW 130 St. Rose Limited Partnership, a Delaware limited partnership, sole member of SW 131 St. Rose Mezzanine Borrower LLC, a Delaware limited liability company, sole member of SW 132 St. Rose Senior Borrower LLC, a Delaware limited liability company.

/s/ Tai Lee
Printed Name:	T. Lee
Notary Public, State of Texas

DEED OF TRUST — Signature Page

EXHIBIT A

LAND

All that land situated in the County of Clark, State of Nevada, more particularly described as follows:

PARCEL 1:

The North Half (N ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

PARCEL 2:

The South Half (S ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M.

EXCEPTING THEREFROM that portion lying within St. Rose Parkway.

PARCEL 3:

That portion of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.M., City of Henderson, Clark County, Nevada, more particularly described as follows:

The South Half (S ½) of the Northwest Quarter (NW ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35.

TOGETHER WITH:

Those portions of the North Half (N ½) of the South Half (S ½) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35 lying Northwesterly of the Northwesterly right of way of St. Rose Parkway.

PARCEL 4:

Being a portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of Section 35, Township 22 South, Range 61 East, M.D.B.&M., Clark County, Nevada.

TOGETHER WITH that portion of the North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼), also together with that portion of the North Half (N ½) of the Northwest Quarter (NW ¼) of said Section 35, lying Northwesterly of St. Rose Parkway, further described as follows:

DEED OF TRUST — EXHIBIT A — Page 1

BEGINNING at the Southeast (SE) corner of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35, said corner being marked by an aluminum cap marked “PLS 5269, 1994, NW 1/16”;

Thence South 41°41’09” East, 174.75 feet to the Northwesterly line of St. Rose Parkway as granted in Book 250 as Document No. 202951, Official Records, Clark County, Nevada;

Thence along said Northwesterly line, South 46°18’51” West, 297.97 feet to a point of intersection of said Northwesterly line with the South line of the North Half (N ½) of the Northeast Quarter (NE ¼) of the Southwest Quarter (SW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence along the lines of said North Half (N ½) the following Three (3) courses: North 89°22’43” West, 553.55 feet; North 00°33’34” West, 330.00 feet; South 89°22’04” East, 663.09 feet to the POINT OF BEGINNING;

EXCEPTING THEREFROM:

A portion of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35, described as follows:

BEGINNING at the Southwest (SW) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence North 00°33’55” West, 330.09 feet to the Northwest (NW) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence South 89°21’56” East, 663.21 feet to the Northeast Corner of the South Half (S1/2) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence South 00°32’39” East, 330.06 feet to the Southeast (SE) corner of the South Half (S ½) of the Southeast Quarter (SE ¼) of the Northwest Quarter (NW ¼) of the Northwest Quarter (NW ¼) of said Section 35; Thence North 41°41’09” West, 316.13 feet; Thence South 48°18’51” West, 153.68 feet to the beginning of a 500 foot radius curve, concave Northwesterly; Thence along said curve to the right, 369.29 feet through a central angle of 42°19’05” to the POINT OF BEGINNING.

(Deed Reference 20070720 / 2463 and 2464)

DEED OF TRUST — EXHIBIT A — Page 2

EXHIBIT B

PERMITTED ENCUMBRANCES

1.State, County and/or City taxes for the fiscal year 2008-2009 a lien not yet due and payable.

2.Any taxes that may be due, but not assessed, for new construction which can be assessed on the unsecured property rolls, in the Office of the Clark County Assessor, per Nevada Statute 361.260.

3.Water rights, claims or title to water, whether or not shown by the public record.

4.Mineral rights, reservations, easements and exclusions in patent from the United States of America:

Recorded:January 24, 1962 in Book 339

Document No.:273895, Official Records, Clark County, Nevada

Affects:Parcel 1

Said patent further reserves, and is subject to, a right-of-way not exceeding thirty-three (33) feet in width for roadway and public utility purposes to be located along the boundaries of said land.

The above rights of way, not dedicated, have been vacated by an instrument recorded August 15, 2007 in Book 20070815, Instrument No. 0002160, Official Records, Clark County, Nevada.

5.Mineral rights, reservations, easements and exclusions in patent from the United States of America:

Recorded:January 30, 1962 in Book 340

Document No.:274775, Official Records, Clark County, Nevada.

Affects:A portion of Parcel 4

Said patent further reserves, and is subject to, a right-of-way not exceeding thirty-three (33) feet in width for roadway and public utility purposes to be located along the boundaries of said land.

The above rights of way, not dedicated, have been vacated by an instrument recorded August 15, 2007 in Book 20070815, Instrument No. 0002160, Official Records, Clark County, Nevada.

DEED OF TRUST — EXHIBIT B — Page 1

6.Mineral rights, reservations, easements and exclusions in patent from the United States of America:

Recorded:February 10, 1970 in Book 10

Document No.:7408, Official Records, Clark County, Nevada

Affects:Parcel 3 and a portion of Parcel 4

7.Mineral rights, reservations, easements and exclusions in patent from the United States of America:

Recorded:November 28, 1979 in Book 1152

Document No.:1111857, Official Records, Clark County, Nevada

Affects:Parcel 2

Said patent further reserves, and is subject to, a right-of-way not exceeding thirty-three (33) feet in width for roadway and public utility purposes to be located along the boundaries of said land.

There is also reserved a right of way for a Federal Aid Highway under the Act of November 9, 1921 (42 Stat. 212).

The above rights of way, not dedicated, have been vacated by an instrument recorded August 15, 2007 in Book 20070815, Instrument No. 0002160, Official Records, Clark County, Nevada.

8.The terms, covenants, conditions and provisions as contained in an instrument, entitled “City of Henderson Zoning Resolution No. 3635”:

Recorded:May 09, 2007 in Book 20070509

Document No.:0002301, Official Records, Clark County, Nevada

9.An Easement affecting a portion of said land for the purpose stated herein, and incidental purposes:

In Favor of:Cox Communications Las Vegas, Inc.

For:Cable and Information Facilities

Recorded:April 30, 2008 in Book 20080430

Document No.:0000512, Official Records, Clark County, Nevada

DEED OF TRUST — EXHIBIT B — Page 2

EX-10.8

Exhibit 10.8

MEZZANINE GUARANTY

This Mezzanine Guaranty (“Guaranty”) is entered into as of December 31, 2008, by CFP Residential, L.P., a Texas limited partnership, Kenneth J. Valach, an individual, Bruce Hart, an individual, and J. Ronald Terwilliger, an individual (collectively, the “Guarantor”) for the benefit of Behringer Harvard St. Rose REIT, LLC, a Delaware limited liability company, and/or any subsequent holder of the Note (the “Lender”).

RECITALS

A.SW 131 St. Rose Mezzanine Borrower LLC, a Delaware limited liability company (the “Borrower”) has requested that Lender make one or more loans (structured as one loan, or as a senior loan and a junior loan, or in another manner agreed on by the Mezzanine Lender and the Borrower) in the aggregate amount of up to Twenty One Million Forty Three Thousand One Hundred Ninety Seven and No/100 Dollars ($21,043,197) (the “Loan”).  The Loan will be evidenced by a Senior Mezzanine Promissory Note and a Junior Mezzanine Promissory Note from Borrower to Lender each dated as of the date of this Guaranty (collectively, the “Note”).  As of the date of this Guaranty, the Note will be secured by liens on the Land (as defined in the Loan Agreement) created by subordinate deeds of trust, dated the same date as the Note, for the benefit of Lender (each, a “Deed of Trust”), made by SW 132 St. Rose Senior Borrower LLC, a Delaware limited liability company (“Mortgagor”), which is a wholly owned subsidiary of Borrower.  Each Deed of Trust is referred to herein collectively as the “Security Instrument.”

B.The Loan is being made as more particularly described in the Senior Mezzanine Loan Agreement and Junior Mezzanine Loan Agreement, each dated as of the date of this Guaranty, between Borrower and Lender (collectively, the “Loan Agreement”).  Borrower will cause Mortgagor to construct on the Land (as defined in the Loan Agreement) the Project (as defined in the Loan Agreement).

C.The Project is to be constructed in accordance with, and pursuant to the terms and conditions and requirements of, the Loan Agreement and other Loan Documents.

D.As a condition to making the Loan to Borrower, Lender requires that the Guarantor execute this Guaranty.  Guarantor has an economic interest in Borrower or will otherwise obtain a material financial benefit from the Loan.

NOW, THEREFORE, in order to induce Lender to make the Loan to Borrower, and in consideration thereof, the Guarantor hereby agrees, unconditionally and irrevocably as follows:

1.Defined Terms.  Unless otherwise expressly defined herein, capitalized terms used in this Guaranty shall have the meaning given to such terms in the Loan Agreement.

2.Guaranteed Obligations.

(a)As an inducement to Lender to extend or continue to extend credit and other financial accommodations to Borrower, Guarantor, for value received, does hereby unconditionally and absolutely guarantee the prompt and complete performance and

-1-

payment of the Guaranteed Obligations.  For purposes of this Guaranty, the term “Guaranteed Obligations” shall mean (i) the “Completion Obligations” (as hereinafter defined), and (ii) the “Bankruptcy Obligations” (as hereinafter defined).

(i)For purposes of this Guaranty, the term “Completion Obligations” shall mean that (i) Guarantor will cause the Completion of the Project in substantial accordance with the Plans, and in accordance with the terms and conditions of the Loan Agreement and other Loan Documents, if for any reason, or under any contingency, Mortgagor shall abandon construction of the Project or shall fail to cause the Completion of the Project within the construction time set forth in the Loan Agreement and Loan Documents, and (ii) Guarantor will pay all cost overruns for construction of the Project.  In the preceding sentence, “cost overruns” means costs of constructing the Project that, in the aggregate, exceed the amount provided in the Construction Budget, except that the following expenses shall not be included in calculating cost overruns: operating deficits, taxes and, solely to the extent increased by force majeure, construction interest.  “Completion” of the Project will occur upon the issuance of the final certificate of occupancy; the receipt of evidence reasonably satisfactory to Lender that no building has been constructed over any easements or setback areas and no other improvements prohibited by the terms of the easements or setbacks have been constructed within such easements or setbacks, as applicable; the issuance of a certificate of substantial completion from the Mortgagor’s architect; and receipt of a contractor’s release and the receipt of lien waivers or similar evidence of payment from the general contractor and all major subcontractors (i.e., subcontractors whose contract amount exceeds $100,000) to Lender’s reasonable satisfaction; provided, however, that if Senior Lender shall deem the Project to have reached Completion, then Lender shall deem the Project to have reached Completion.

(ii)For purposes of this Guaranty, the term “Bankruptcy Obligations” shall mean all principal, interest and other amounts due and owing by Borrower under the Note, the Security Instruments and any other Loan Documents, but only if there is a filing of a voluntary bankruptcy or insolvency proceeding of the Borrower prior to Completion.

(b)Without limiting the rights and remedies of Lender, if after the occurrence of an Event of Default and after Lender has so requested, Guarantor does not promptly proceed with and diligently prosecute the applicable Completion Obligations, then Lender may, at its option, without notice to Guarantor or anyone else, cause Completion of the Project either before or after commencement of foreclosure proceedings, and either on or before the exercise of any other right or remedy of Lender against Borrower or Guarantor, with such changes to the Plans that Lender deems necessary or advisable to complete the Project, and Guarantor waives any right to contest such necessary expenditures.  The amount of any and all expenditures made by Lender for the foregoing purposes, to the extent they exceed the unexpended portion of the Construction Budget shall bear interest from the date made until repaid to Lender, at a rate per annum equal to the Interest Rate provided for in the Note and, together with such interest, shall be due

-2-

and payable by Guarantor to Lender upon demand.  Lender does not have and shall never have any obligation to cause the Completion of the Project or take such action.

3.Survival.  The obligations of Guarantor under this Guaranty shall survive any foreclosure proceeding, any foreclosure sale, any delivery of any deed in lieu of foreclosure, and any release of record of the Security Instruments.

4.Guaranty of Performance and Payment.  Guarantor’s performance and payment obligations under this Guaranty constitute a guaranty of performance and payment and not merely a guaranty of collection.

5.Present, Unconditional and Irrevocable Guaranty; Waivers.  The obligations of Guarantor under this Guaranty shall be performed without demand by Lender, other than as provided herein and shall be present, unconditional, absolute and irrevocable irrespective of the genuineness, validity, regularity or enforceability of the Note, the Security Instruments, or any other Loan Document, and without regard to any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or a guarantor.  This Guaranty shall be effective as a waiver of, and Guarantor expressly waives, any and all rights to which Guarantor may otherwise have been entitled under any suretyship laws in effect from time to time, including (without limitation) any rights pursuant to Rule 31 of the Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code, and Chapter 34 of the Texas Business and Commerce Code.  Without limiting the generality of the foregoing, Guarantor hereby waives, to the fullest extent permitted by law, diligence in collecting the Guaranteed Obligations, presentment, demand for payment, protest, all notices with respect to the Note and this Guaranty which may be required by statute, rule of law or otherwise to preserve Lender’s rights against Guarantor under this Guaranty, including notice of acceptance, notice of any amendment of the Loan Documents, notice of the occurrence of any default or Event of Default, notice of intent to accelerate, notice of acceleration, notice of dishonor, notice of foreclosure, notice of protest, and notice of the incurring by Borrower of any obligation or indebtedness.  Guarantor also waives, to the fullest extent permitted by law, all rights to require Lender to (a) proceed against Borrower or any other guarantor of Borrower’s payment or performance with respect to the Guaranteed Obligations (an “Other Guarantor”), (b) if Borrower or any Other Guarantor is a partnership, proceed against any general partner of Borrower or the Other Guarantor, (c) proceed against or exhaust any collateral held by Lender to secure the repayment of the Guaranteed Obligations, or (d) pursue any other remedy it may now or hereafter have against Borrower, or, if Borrower is a partnership, any general partner of Borrower.

6.Valuation of the Property Upon Foreclosure.  The following shall be the basis for the determination of the fair market value of any property encumbered by the Deed of Trust (the “Mortgaged Property”) as of the date of the foreclosure sale in proceedings governed by Sections 51.003, 51.004 and 51.005 of the Texas Property Code (as amended from time to time), to the extent those provision apply: (i) the Mortgaged Property shall be valued in an “as is” condition as of the date of the foreclosure sale, without any assumption or expectation that the Mortgaged Property will be repaired or improved in any manner before a resale of the Mortgaged Property after foreclosure; (ii) the valuation shall be based upon an assumption that the foreclosure purchaser desires a resale of the Mortgaged Property for cash promptly (but no

-3-

later than twelve (12) months) following the foreclosure sale; (iii) all reasonable closing costs customarily borne by the seller in commercial real estate transactions should be deducted from the gross fair market value of the Mortgaged Property, including, without limitation, brokerage commissions, title insurance, a survey of the Property, tax prorations, attorneys’ fees, and marketing costs; (iv) the gross fair market value of the Mortgaged Property shall be further discounted to account for any estimated holding costs associated with maintaining the Mortgaged Property pending sale, including, without limitation, utilities expenses, property management fees, taxes and assessments (to the extent not accounted for in (iii) above), and other maintenance, operational and ownership expenses; and (v) any expert opinion testimony given or considered in connection with a determination of the fair market value of the Mortgaged Property must be given by persons having at least five (5) years experience in appraising property similar to the Mortgaged Property and who have conducted and prepared a complete written appraisal of the Mortgaged Property taking into consideration the factors set forth above.

7.Modification of Loan Documents.  At any time or from time to time and any number of times, without notice to Guarantor and without affecting the liability of Guarantor, (a) the time for payment of the principal of or interest on the Guaranteed Obligations may be extended or the Guaranteed Obligations may be renewed in whole or in part; (b) the time for Borrower’s performance of or compliance with any covenant or agreement contained in the Note, the Loan Agreement, the Security Instruments or any other Loan Document, whether presently existing or hereinafter entered into, may be extended or such performance or compliance may be waived; (c) the Maturity Date may be accelerated as provided in the Note, the Security Instruments or any other Loan Document; (d) the Note, the Loan Agreement, the Security Instruments or any other Loan Document may be modified or amended by Lender and Borrower in any respect, including an increase in the principal amount; and (e) any security for the Guaranteed Obligations may be modified, exchanged, surrendered or otherwise dealt with or additional security may be pledged or mortgaged for the Guaranteed Obligations.

8.Joint and Several Guaranty.  If more than one person executes this Guaranty, the obligations of those persons under this Guaranty shall be joint and several.  Lender, in its discretion, may (a) bring suit against Guarantor, or any one or more of the Persons constituting Guarantor, and any Other Guarantor, jointly and severally, or against any one or more of them; (b) compromise or settle with any one or more of the Persons constituting Guarantor, or any Other Guarantor, for such consideration as Lender may deem proper; (c) release one or more of the Persons constituting Guarantor, or any Other Guarantor, from liability; and (d) otherwise deal with Guarantor and any Other Guarantor, or any one or more of them, in any manner, and no such action shall impair the rights of Lender to collect from another Guarantor any amount guaranteed by such other Guarantor under this Guaranty.  Nothing contained in this paragraph shall in any way affect or impair the rights or obligations of Guarantor with respect to any Other Guarantor.

9.Subordination.  Any indebtedness of Borrower held by Guarantor now or in the future (including but not limited to (i) all debts and liabilities of Borrower to Guarantor whether the obligations of Borrower are direct, contingent, primary, secondary, joint and several or otherwise, whether the obligations are evidenced by note, contract, open account or otherwise and irrespective of the creation of such debts or liabilities or manner acquired by Guarantor, (ii) any dividends and payments pursuant to debtor relief or insolvency proceedings referred to

-4-

below and (iii) all liens, security interests, judgment liens, charges or other encumbrances on Borrower’s assets securing payment thereof) is and shall be subordinated to the Guaranteed Obligations, and upon the occurrence of an Event of Default, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty, except to the extent that such amounts are actually applied toward Borrower’s or Mortgagor’s obligations under the Loan Documents, Guarantor shall not receive, or collect, directly or indirectly any amount in connection with the foregoing.  If any amount is received by Guarantor on such indebtedness of Borrower held by Guarantor at the time an Event of Default exists, it shall be received by Guarantor in trust, as trustee for Lender, and Guarantor agrees to pay such amounts promptly to Lender.  In the event of receivership, bankruptcy, reorganization, arrangement or other debtor relief or insolvency proceedings involving Borrower as debtor, Lender shall have the right to prove its claims in any such proceeding so as to establish its rights hereunder and shall have the right to receive directly from the receiver, trustee or other custodian (whether or not an Event of Default shall have occurred or be continuing under any of the Loan Documents), dividends and payments that are payable upon any obligation of Borrower to Guarantor now existing or hereafter arising, and to have all benefits of any security therefor, until the Guaranteed Obligations have been fully and finally paid and performed.  Guarantor hereby acknowledges and agrees that the foregoing provisions shall be operative without the necessity of execution of any further documents.  Notwithstanding the foregoing, upon the request of Lender, Guarantor hereby agrees to execute a subordination agreement, in form and content reasonably acceptable to Lender, evidencing the provisions of this Section 9.

10.Waiver of Subrogation Rights.  Any right or claim for subrogation or reimbursement against Borrower by reason of any payment by Guarantor under this Guaranty, is subordinated to the Guaranteed Obligations on the terms provided in Section 9 above, whether such right or claim arises at law or in equity or under any contract or statute.

11.No Discharge of Guarantor.  If any payment by Borrower is held to constitute a preference under any applicable bankruptcy, insolvency, or similar laws, or if for any other reason Lender is required to refund any sums to Borrower, such refund shall not constitute a release of any liability of Guarantor under this Guaranty.

12.Financial Statements.  Guarantor agrees that, until Completion, Guarantor will provide to Lender no later than December 31 of each year a Collateral Value Statement for each of the Persons constituting Guarantor dated as of the preceding June 30, prepared using substantially the same methodology as the Collateral Value Statements of the Guarantors dated as of June 30, 2008, with the exception that the capitalization rate employed in establishing property values may be reduced to a rate not lower than 6.5%.  Each such Collateral Value Statement shall be accompanied by a certificate executed by the Person to whom such Collateral Value Statement relates certifying that, to the knowledge of such Person, the Collateral Value Statement fairly presents the collateral value of the assets shown in such Collateral Value Statement determined on the same basis as described in the notes to the Collateral Value Statements, dated as of June 30, 2008, qualified as appropriate if the capitalization rate employed in establishing property values is reduced as contemplated above.

13.Representation and Warranty.  Guarantor represents and warrants to Lender, jointly and severally, that (i) CFP Residential, L.P., has the limited partnership power and

-5-

authority to enter into this Guaranty, to incur the obligations provided for herein, and to execute and deliver the same to Lender, (ii) when executed and delivered, this Guaranty will constitute a valid and legally binding obligation of each Guarantor, enforceable against such Guarantor in accordance with its terms (subject to bankruptcy, insolvency, reorganization and similar laws and to general principles of equity) and (iii) each Guarantor will directly or indirectly benefit from the Loan.

14.Counterparts.  This Guaranty may be executed in one or more counterparts, each of which shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument.  The persons comprising Guarantor may execute different counterparts of this Guaranty.

15.Notices.  Any notice, election, communication, request, approval or other document or demand required or permitted under this Guaranty shall be in writing.  Each notice, election, communication, request, approval or other document or demand shall be addressed to the intended recipient, in the case of Lender, at its address set forth in the Loan Agreement or, in the case of a Guarantor, at its address set forth on the signature page of this Guaranty.  Each notice, election, communication, request, approval or other document or demand shall be deemed given on the earliest to occur of (1) the date when the notice is received by the addressee; (2) the first Business Day after the notice is delivered to a recognized overnight courier service, with arrangements made for payment of charges, for next Business Day delivery; or (3) the third Business Day after the notice is deposited in the United States mail with postage prepaid, certified mail, return receipt requested.  As used in this Section 15, the term “Business Day” means any day other than a Saturday, a Sunday or any other legal holiday.  Any party to this Agreement may change the address to which notices intended for it are to be directed by means of notice given to the other party in accordance with this Section 15.

16.Assignment by Lender.  Lender may assign its rights under this Guaranty in whole or in part and, upon any such assignment, all the terms and provisions of this Guaranty shall inure to the benefit of such assignee to the extent so assigned. The terms used to designate any of the parties herein shall be deemed to include the estate, legal representatives, successors and assigns of such party.

17.Entire Agreement.  This Guaranty and the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements. There are no unwritten oral agreements between the parties.  All prior or contemporaneous agreements, understandings, representations, and statements, oral or written, are merged into this Guaranty and the other Loan Documents.  Guarantor acknowledges that it has received a copy of the Note and all other Loan Documents.  Neither this Guaranty nor any of its provisions may be waived, modified, amended, discharged, or terminated except by an agreement in writing signed by the party against which the enforcement of the waiver, modification, amendment, discharge, or termination is sought, and then only to the extent set forth in that agreement.

18.Governing Law.  This Guaranty shall be governed by, and construed in accordance with, the substantive law of the State of Texas without regard to the application of choice of law principles.

-6-

19.SUBMISSION TO JURISDICTION/SERVICE OF PROCESS.  GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE STATE COURTS OF THE STATE OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS GUARANTY, THE SUBJECT MATTER HEREOF, OR THE LOAN. GUARANTOR TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN THE ABOVE-NAMED COURTS ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS GUARANTY, THE SUBJECT MATTER HEREOF, OR THE LOAN (AS APPLICABLE) MAY NOT BE ENFORCED IN OR BY SUCH COURT AND (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY LENDER IN STATE COURT TO FEDERAL COURT, OR TO REMAND AN ACTION INSTITUTED IN FEDERAL COURT TO STATE COURT (UNLESS THE FEDERAL COURT HAS NO SUBJECT MATTER JURISDICTION).  EACH GUARANTOR HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT HERETO, BUT SERVICE WILL BE EFFECTIVE ONLY UPON DELIVERY.  GUARANTOR AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF LENDER AND ITS ASSIGNS.  FINAL JUDGMENT AGAINST GUARANTOR IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF INDEBTEDNESS OR LIABILITY OF GUARANTOR THEREIN DESCRIBED, OR (Y) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION.  LENDER MAY AT ITS OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS, AGAINST GUARANTOR OR ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE THE SUBMITTING PARTY OR SUCH ASSETS MAY BE FOUND.

20.WAIVER WITH RESPECT TO DAMAGES.  GUARANTOR ACKNOWLEDGES THAT LENDER DOES NOT HAVE ANY FIDUCIARY RELATIONSHIP WITH, OR FIDUCIARY DUTY TO, GUARANTOR ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OTHER LOAN DOCUMENT, AND THE RELATIONSHIP BETWEEN LENDER AND GUARANTOR, IN CONNECTION HEREWITH AND THEREWITH IS SOLELY THAT OF GUARANTOR OF A DEBTOR AND CREDITOR.  TO THE EXTENT PERMITTED BY APPLICABLE LAW, GUARANTOR AND LENDER EACH SHALL NOT ASSERT, AND GUARANTOR AND LENDER EACH HEREBY WAIVES, ANY CLAIMS AGAINST THE OTHER, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES

-7-

(AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS GUARANTY, ANY OTHER LOAN DOCUMENT, ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

21.Liability.

(a)Notwithstanding anything in this Guaranty to the contrary, Lender shall look for satisfaction of the obligations of a Guarantor under this Guaranty only to the following real and personal property of such Guarantor (the “Available Assets”):

(1)the legal and beneficial interests of such Guarantor in any entity that is, at the time of enforcement of this Guaranty, (i) engaged in the business of holding, constructing, developing or providing property management or overhead services for real estate designed for residential use in the United States and (ii) affiliated in any way with Trammell Crow Residential Company, or any subsidiary thereof or any successor or assign of all or substantially all of the assets thereof; and

(2)any receivables due the Guarantors from any entity described in the foregoing item (1).

Except for the Available Assets, Lender shall not look to a Guarantor’s tangible or intangible real and personal property (including cash, cash equivalents, securities, partnership interests, receivable or similar intangible personal property) for satisfaction of any Guarantor’s obligations under this Guaranty.  Subject to Section 21(b), Lender may not look to the tangible or intangible proceeds of any assets of a Guarantor, including proceeds of the Available Assets, except as specifically provided in paragraph (2) above.

(b)Notwithstanding the limitations in Section 21(a), Lender may look to proceeds of Available Assets realized by a Guarantor (i) after the Aggregate Collateral Value, as reported in the annual Collateral Value Statements prepared for the Guarantors, is less than $80,000,000 or (ii) as a result of a transaction that causes the Aggregate Collateral Value to be less than $80,000,000.  As used in this paragraph, the term “Aggregate Collateral Value” means the aggregate value of the Available Assets as calculated on the basis provided in the notes to the Collateral Value Statements of the Guarantors dated as of June 30, 2008, with the exception that the capitalization rate employed in establishing property values may be reduced to a rate not lower than 6.5% at the option of Guarantor.  However, notwithstanding this Section 21(b), in no event will Lender be entitled to satisfy any obligation of a Guarantor from any of the following assets (collectively, “Excluded Assets”): (i) the personal residences of the Guarantor, (ii) the Guarantor’s nonbusiness real estate, including rural, vacation and resort property, up to $1,000,000 in value, (iii) the Guarantor’s personal automobiles and other tangible personal property, including household goods, clothing, silverware, gems, jewelry and works of art, not to exceed $1,500,000 in values, (iv) the interests listed in Section 21(c) and (v) proceeds of Excluded Assets.

-8-

(c)In no case may Lender look to any of the following owned by a Guarantor (even if it otherwise would be available under the terms of this Section 21) or any proceeds thereof: stock in AvalonBay Communities, Inc., units in Avalon DownREIT V, L.P., stock in Gables Residential Trust, units in Gables Realty Limited Partnership, units in Equity Residential Properties Trust, units in ERP Operating Limited Partnership, stock in BRE Properties, Inc, units in BRE Property Investors, LLC, units in AMLI Residential Property Trust, units in AMLI Residential Properties, L.P., units in Merry Land DownREIT I, L.P., ownership in J. Ronald Terwilliger Grantor Trust, stock in JRT Holdings, Inc., ownership in Terwilliger Partners, LLLP and interests in TCR Affordable Housing Limited Partnership.

(d)The term “residential” as used in this Section 21 means single family and multi family dwellings, residential land/lot developments, and senior living communities.

(e)If the collective aggregate value of the Available Assets of the Guarantor, as reported in the Collateral Value Statement delivered under Section 12 (prepared using substantially the same methodology as the Collateral Value Statements of the Guarantors dated as of June 30, 2008, with the exception that the capitalization rate employed in establishing property values may be reduced to a rate not lower than 6.5%) falls to less than $80,000,000 and if the Guarantor, Mortgagor and/or Borrower fail to correct such deficiency within 30 days following delivery of a deficiency notice from Lender, then such failure shall, at the option of Lender, constitute an Event of Default on the part of Borrower under the Loan Documents.  Guarantor, Mortgagor and/or the Borrower shall have the right to correct any deficiency in Available Assets by (i) obtaining and delivering to Lender one or more new guaranties, each of which shall be in the form and content substantially the same as this Guaranty from one or more persons whose Available Assets  are sufficient to correct the deficiency, (ii) delivering to Lender and thereafter maintaining in full force and effect (for so long as the deficiency exists) an unconditional and irrevocable letter of credit, in a face amount sufficient to correct the deficiency, naming Lender as beneficiary, and otherwise in form and content and issued by an institution acceptable to Lender in the exercise of good faith business judgment, or (iii) the amendment of this Guaranty (in form and substance acceptable to Lender in the exercise of its good faith business judgment) in such a manner such that the definition of Available Assets is expanded to include  additional assets that are not then included in the definition of Available Assets, sufficient to correct the deficiency and otherwise acceptable to Lender in its good faith business judgment.

22.Change of Address.  Guarantor (or each Guarantor, if more than one) agrees to notify Lender (in the manner for giving notices provided in Section 15 above) of any change in Guarantor’s address within a reasonable time after such change of address occurs.

23.Successors and Assigns.  This Guaranty shall be binding upon Guarantor and Guarantor’s executors, personal representatives, successors and assigns and shall inure to the benefit of Lender and its successors and assigns.

-9-

24.Attorney’s Fees.  If it becomes necessary for Lender to employ counsel to enforce the obligations of Guarantor hereunder, Guarantor agrees to pay the reasonable attorneys’ fees and expenses incurred by Lender in connection therewith.

25.WAIVER OF JURY TRIAL.  GUARANTOR AND LENDER EACH (A) AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS GUARANTY OR THE RELATIONSHIP BETWEEN THE PARTIES AS GUARANTOR AND LENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.

[Signature Pages Follow]

-10-

IN WITNESS WHEREOF, Guarantor has signed and delivered this Guaranty or has caused this Guaranty to be signed and delivered by its duly authorized representative.

GUARANTOR:
CFP Residential, L.P., a Texas limited partnership
By:	Crow Family, Inc., a Texas corporation, its general partner
	By:	/s/ Harlan R. Crow
			Harlan R. Crow, Chief Executive Officer

Kenneth Valach, an individual

/s/ Kenneth Valach

J. Ronald Terwilliger, an individual

/s/ J. Ronald Terwilliger

Bruce Hart, an individual

/s/ Bruce Hart

EX-10.9

Exhibit 10.9

INTERCREDITOR AND SUBORDINATION AGREEMENT

by and between

BANK OF AMERICA, N.A., a national banking association,
in its capacity as Administrative Agent on behalf of the Senior Construction Lenders
and for its own benefit, as Land Loan Lender

and

BEHRINGER HARVARD ST. ROSE REIT, LLC,
a Delaware limited liability company
as Subordinate Lender

Dated as of December 31, 2008

Project:  Alexan St. Rose Apartments, Henderson, Clark County, Nevada

INTERCREDITOR AND SUBORDINATION AGREEMENT

This INTERCREDITOR AND SUBORDINATION AGREEMENT (this “Agreement”) dated as of December 31, 2008, by and between BEHRINGER HARVARD ST. ROSE REIT, LLC, a Delaware limited liability company (“Subordinate Lender”) and BANK OF AMERICA, N.A., a national banking association, as Administrative Agent for itself, and the other Senior Construction Lenders now or hereafter made a party to the Senior Construction Loan Agreement described and defined below (in such capacity, together with any successor Administrative Agent appointed pursuant to such Senior Construction Loan Agreement, the “Administrative Agent”), and as Land Loan Lender and a Senior Construction Lender (as such terms are defined below), whose address for the purposes of notice is 700 Louisiana, 5th Floor, P.O. Box 2518, Houston, TX 77252-2518 Attention:  Real Estate Loan Administration; and acknowledged and consented to by SW 132 St. Rose Senior Borrower LLC, a Delaware limited liability company (“Borrower”), and SW 131 St. Rose Mezzanine Borrower LLC, a Delaware limited liability company (“Mezzanine Borrower”).

R E C I T A L S:

A.Pursuant to the terms, provisions and conditions set forth in that certain Construction Loan Agreement, dated of even date herewith (“Senior Construction Loan Agreement”), by and between Borrower, Administrative Agent and the lenders now or hereafter made a party thereto (such lenders are sometimes referred to herein, collectively, as the “Senior Construction Lenders”), Senior Construction Lenders have made or are about to make a loan to Borrower in the original principal amount of $38,600,000.00 (the “Senior Construction Loan”), for the purpose of financing, in part, construction of the Improvements (as defined in the Senior Construction Loan Agreement) on approximately 18.151 acres (such 18.151 acres more or less is referred to herein as the “Multi-Family Tract”) of the 24.423 acre parcel of real property described on Exhibit A attached hereto (the “Site Parcel”);

B.The Senior Construction Loan is evidenced, in part, by one or more Deed of Trust Notes issued by Borrower in accordance with the Senior Construction Loan Agreement (such notes, together with any additional notes in substitution and replacement thereof, issued by Borrower in accordance with the Senior Construction Loan Agreement, as amended, modified, replaced, restated, extended or renewed from time to time, are referred to herein, collectively, as the “Senior Construction Loan Note”);

C.Borrower’s Affiliate, SW 122 St. Rose Senior Borrower LLC, a Delaware limited liability company (“Land Loan Borrower”) also intends to obtain a $2,950,000 land loan (the “Senior Land Loan”) from Bank of America, N.A., as a lender for its sole account (in such capacity, “Land Loan Lender”), for the purpose of financing all of the Site Parcel except the Multi-Family Tract (such portion of the Site Parcel is referred to herein as the “Commercial Tract”);

D.The Senior Land Loan is evidenced, in part, by (i) a Deed of Trust Note issued by Land Loan Borrower to the order of Land Loan Lender in the amount of $2,950,000 (such note, together with any note issued in substitution and replacement thereof by Land Loan Borrower, as amended, modified, replaced, restated, extended or renewed from time to time, are referred to

herein, collectively, as the “Senior Land Loan Note”); and (ii) a certain Term Loan Agreement of even date with the Senior Land Loan Note between Land Loan Lender and Land Loan Borrower (as amended, supplemented, modified, restated, renewed or extended from time to time, the “Senior Land Loan Agreement”);

E.The Senior Construction Loan Note and the Senior Land Loan Note and the total indebtedness evidenced thereby are guaranteed by J. Ronald Terwilliger, CFP Residential, L.P., Bruce Hart, and Kenneth J. Valach (collectively, the “Guarantors”), pursuant to one or more Limited Recourse Guaranty Agreements dated of even date herewith, executed by Guarantors to and for the benefit of Administrative Agent, for itself and on behalf of the Senior Construction Lenders, and to Land Loan Lender, respectively (collectively, the “Senior Guaranties”);

F.Borrower and Guarantors also executed and delivered to Administrative Agent, for itself and on behalf of the Senior Construction Lenders, and to Land Loan Lender, respectively, Environmental Indemnity Agreements, each dated of even date herewith (together, the “Senior Environmental Indemnity”);

G.Pursuant to the terms, provisions and conditions set forth in that certain Senior Mezzanine Loan Agreement, dated of even date herewith, between Mezzanine Borrower and Subordinate Lender (the “Senior Mezzanine Loan Agreement”), and that certain Junior Mezzanine Loan Agreement, dated of even date herewith, between Mezzanine Borrower and Subordinate Lender (the “Junior Mezzanine Loan Agreement”; the Senior Mezzanine Loan Agreement and the Junior Mezzanine Loan Agreement are sometimes referred to herein, together, as the “Mezzanine Loan Agreement”), Subordinate Lender made one or more loans to Mezzanine Borrower in the aggregate principal amount of $21,043,197.00 (collectively, the “Mezzanine Loan”), which Mezzanine Loan is evidenced by that certain Senior Mezzanine Promissory Note and Junior Mezzanine Promissory Note, each dated of even date with the Mezzanine Loan Agreement (collectively, the “Mezzanine Note”), made by Mezzanine Borrower in favor of Subordinate Lender in the amount of the Mezzanine Loan;

H.The Commercial Tract and Multi-Family Tract are not currently separate, legal lots and, in order to properly convey fee title of the Commercial Tract to Land Loan Borrower and to separate the legal entitlements that currently inure to the entirety of the Site Parcel, Borrower must complete a legal subdivision of the Site Parcel;

I.Land Loan Borrower has prepared and submitted to the appropriate governmental authorities a proposed subdivision map, which map will, upon approval by all applicable governmental authorities and recordation of the same, establish the Multi-Family Tract and Commercial Tract as separate, legal lots;

J.Because the final subdivision of the Site Parcel has not yet been completed as described in Section 1.2 of the Senior Construction Loan Agreement, on the date hereof, Borrower will execute and deliver the following documents:  (i) to Administrative Agent, that certain Deed of Trust, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement dated of even date herewith, executed by Borrower for the benefit of Administrative Agent, on behalf of the Senior Construction Lenders, encumbering the entirety of the Site Parcel, which shall be recorded as a first priority lien and security interest in the Official

2

Records of Clark County, Nevada (as amended, supplemented, modified, restated, renewed or extended from time to time, collectively, the “Senior Construction Loan Deed of Trust”); (ii) to Land Loan Lender, that certain Deed of Trust, Assignment of Rents and Leases, Security Agreement, Fixture Filing and Financing Statement dated of even date herewith, executed by Borrower for the benefit of Commercial Tract Lender, encumbering the entirety of the Site Parcel, which shall be recorded as a second priority lien and security interest in the Official Records of Clark County, Nevada (the “Senior Land Loan Deed of Trust”) (the Senior Construction Loan Deed of Trust and the Senior Land Loan Deed of Trust are sometimes referred to herein as the “Senior Deed of Trust”); and (iii) to Subordinate Lender, those certain Deeds of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of even date herewith, executed by Borrower for the benefit of Subordinate Lender, encumbering the entirety of the Site Parcel, which shall be recorded as third and fourth priority liens and security interests, respectively, in the Official Records of Clark County, Nevada (collectively, the “Mezzanine Deed of Trust”);

K.Upon completion of the final subdivision of the Site Parcel as described in Section 1.2 of the Senior Construction Loan Agreement, (i) Borrower will convey the Commercial Tract to Land Loan Borrower, subject to the lien of the Senior Land Loan Deed of Trust, (ii) Land Loan Borrower will assume and perform the obligations of Borrower under the Senior Land Loan Deed of Trust (whereupon Borrower will be released from all obligations and liabilities of, under or in respect of the Senior Land Loan or the loan documents executed in connection with the Senior Land Loan), (iii) Administrative Agent will execute a partial release as to the Senior Construction Loan Deed of Trust to release the Commercial Tract from the lien thereof, (iv) Land Loan Lender will execute a partial release as to the Senior Land Loan Deed of Trust to release the Multi-Family Tract from the lien thereof, and (v) Subordinate Lender will execute a partial release as to each Mezzanine Deed of Trust to release the Commercial Tract from the lien thereof.

L.The Senior Construction Loan Documents contain restrictions on Borrower’s ability to incur additional indebtedness.  Senior Construction Lenders are unwilling to make the Senior Construction Loan and Land Loan Lender is unwilling to make the Senior Land Loan, unless Subordinate Lender agrees, subject to the provisions of this Agreement, to subordinate and make inferior:  (i) the right, title, security interest, lien and interest created by the Mezzanine Loan Documents to the right, title, security interest, lien and interest of the Senior Deed of Trust and the other Senior Construction Loan Documents and Senior Land Loan Documents; and (ii) Subordinate Lender’s rights to receive any payments under or on account of the Mezzanine Loan Obligations to Senior Construction Lender’s and Land Loan Lender’s rights to receive payments under or on account of the Senior Construction Loan Obligations and Senior Land Loan Obligations, respectively.

NOW THEREFORE, for and in consideration of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Administrative Agent, for itself and on behalf of the Senior Construction Lenders, Land Loan Lender, and Subordinate Lender hereby agree as follows:

1.Recitals Incorporated.  The recitals set forth hereinabove are incorporated herein by reference to the same extent and with the same force and effect as if fully set forth herein

3

below, provided, however, that such recitals shall not be deemed to modify the express provisions hereinafter set forth.

2.Definitions.  The following terms shall have the meanings indicated below:

“Affiliate” means, as to any particular Person, any Person directly or indirectly, through one or more intermediaries, controlling, Controlled by or under common Control with the Person or Persons in question.

“Agreement” means this Agreement, as the same may be amended, modified and in effect from time to time, pursuant to the terms hereof.

“Award” is defined in Section 16.

“Bankruptcy Code” means the Bankruptcy Code of the United States of America, as the same may be amended or modified from time to time.

“Bankruptcy Event” means (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to Borrower, Mezzanine Borrower or their partners or members, or (b) any liquidation, dissolution or other winding up of Borrower, Mezzanine Borrower or their partners or members, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets or liabilities of Borrower, Mezzanine Borrower or their partners or members.

“Borrower Affiliate” means Borrower, Mezzanine Borrower, and Guarantors and any of their constituent partners, members or shareholders, however remote, of Borrower, Mezzanine Borrower or any Guarantor, as applicable.

“Business Day” means any day other than Saturday, Sunday or a day that is a legal holiday under the laws of the State of Texas or the State of Nevada or on which banking institutions in the State of Texas or the State of Nevada are required by law or other governmental action to close.

“Buy-Sell Rights” means any option of Subordinate Lender pursuant to the Partnership Agreement to acquire any beneficial ownership interests of the Investment Partnership.

“Commercial Tract” is defined in the Recitals to this Agreement.

“Control” means the ownership, directly or indirectly, in the aggregate of more than fifty percent (50%) of the beneficial ownership interests of an entity and the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity, whether through the ability to exercise voting power, by contract or otherwise.  “Controlled by,” “controlling” and “under common control with” shall have the respective correlative meaning thereto.

4

“Default” means a “Default” as such term is defined in the Senior Loan Agreement.

“Default Notice” is defined in Section 8(a).

“Enforcement Action” means any (i) judicial or non-judicial foreclosure proceeding, the exercise of any power of sale, the taking of a deed or assignment in lieu of foreclosure, the obtaining of a receiver or the taking of any other enforcement action against the Property or Borrower, including, without limitation, the taking of possession or control of the Property, (ii) acceleration of, or demand or action taken in order to collect, all or any indebtedness secured by the Property (other than giving of notices of default and statements of overdue amounts) or (iii) exercise of any right or remedy available to Administrative Agent, on behalf of the Senior Construction Lenders, under the Senior Construction Loan Documents, at law, in equity or otherwise with respect to Borrower and/or the Property; or (iv) prior to the Transfer Date, the exercise of any right or remedy available to Land Loan Lender under the Senior Land Loan Documents, at law, in equity or otherwise with respect to Borrower and/or the Property.

“Guarantors” is defined in the Recitals to this Agreement.

“Improvements” is defined in the Senior Construction Loan Agreement.

“Interest Reserve” is defined in the Mezzanine Loan Agreement.

“Investment Partnership” means SW 130 St. Rose Limited Partnership.

“Land Loan Borrower” and “Land Loan Lender” each is defined in the Recitals to this Agreement.

“Mezzanine Deed of Trust” is defined in the Recitals to this Agreement.

“Mezzanine Loan” or “Mezzanine Loan Obligations” means all indebtedness, obligations and liabilities of Mezzanine Borrower under the Mezzanine Loan Documents, including all principal, interest (including interest accruing subsequent to, and interest that would have accrued but for, the filing of any petition under any bankruptcy, insolvency or similar law or the commencement of any Proceeding), default interest, late charges, prepayment fees, expenses, fees, reimbursements, indemnities and other amounts payable thereunder, in each case whether now or hereafter arising, direct or indirect, primary or secondary, joint, several or joint and several, liquidated or unliquidated, final or contingent and whether incurred as a maker, endorser, guarantor or otherwise.

“Mezzanine Loan Agreement” is defined in the Recitals to this Agreement.

“Mezzanine Loan Documents” means the Mezzanine Note, the Mezzanine Loan Agreement, the Mezzanine Deed of Trust and the other documents listed on Exhibit B hereto, as any of the foregoing may be modified, amended, extended, supplemented,

5

restated or replaced from time to time, subject to the limitations and agreements contained in this Agreement.

“Mezzanine Note” is defined in the Recitals to this Agreement

“Multi-Family Tract” is defined in the Recitals to this Agreement.

“Partnership Agreement” means the Limited Partnership Agreement of the Investment Partnership dated on or about the date hereof between Behringer Harvard St. Rose REIT, LLC, as the sole limited partner, and SW 129 St. Rose Limited Partnership, as the sole general partner.

“Person” means any person, individual, sole proprietorship, partnership, joint venture, corporation, limited liability company, unincorporated organization, association, institution, entity, party, including any government and any political subdivision, agency, or instrumentality thereof.

“Proceeding” means (a) any voluntary or involuntary case, action or proceeding before any court or other governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code.

“Property” means, collectively, the real property and all other property (whether real, personal or otherwise) encumbered by the Senior Deed of Trust from time to time; provided, however, that from and after the Transfer Date the term “Property” shall not include the Commercial Tract.

“Property Manager” means Riverstone Residential Group, LLC, the initial property manager for the Property or any successor thereto as property manager of the Property, each as approved by Administrative Agent, on behalf of the Senior Construction Lenders.

“Protective Advances” means any and all sums advanced or expended by Senior Lender or by Subordinate Lender (whether deemed optional or obligatory advances, or otherwise) which Senior Lender or Subordinate Lender, as the case may be, deems necessary or appropriate (a) to complete construction of the Improvements, including any hard costs or soft costs incurred in connection therewith, with such changes to the plans and specifications therefor as may be necessary or desirable in the discretion of Administrative Agent to complete such Improvements as expeditiously as possible on such terms and with such labor and materials as may be available at any given time, (b) to pay and discharge any liens against the Property, (c) to market the Property or any portion thereof for sale or to pursue and obtain any development rights or approvals required to make the same marketable for multi-family and commercial uses including, the issuance or execution of standby letters of credit or developer’s agreements pertaining to the Property or surrounding properties, (d) to repair, maintain or otherwise protect the

6

Property and the Improvements thereon or to prevent waste or destruction or to defend Borrower’s title or the lien priority of Senior Lender, (e) to pay taxes, assessments or insurance premiums in respect of the Property or any improvements thereon or to otherwise protect the security interests of Senior Lender in the Property, the Improvements and any other Senior Loan Senior Loan Collateral, or (f) in connection with the protection or exercise by Senior Lender or Subordinate Lender of its or their rights or remedies under the Senior Construction Loan Documents, Senior Land Loan Documents or the Mezzanine Loan Documents, as the case may be.

“Purchase” is defined in Section 8.

“Purchase Closing Date” is defined in Section 8.

“Qualified Manager” shall mean a property manager of the Property which (i) is a reputable management company having at least five (5) years’ experience in the management of commercial properties with similar uses as the Property and in the jurisdiction in which the Property is located, (ii) has, for at least five (5) years prior to its engagement as property manager, managed at least (5) properties of the same property type as the Property, (iii) at the time of its engagement as property manager has at least 5,000 units under management, and (iv) is not the subject of a bankruptcy or similar insolvency proceeding.  Notwithstanding the foregoing, the initial Person identified herein as the Property Manager is hereby approved as a Qualified Manager.

“Required Lenders” is defined in the Senior Construction Loan Agreement.

“Senior Construction Loan,” “Senior Construction Loan Agreement,” and “Senior Construction Loan Deed of Trust,” each is defined in the Recitals to this Agreement.

“Senior Construction Loan Documents” means the Senior Construction Loan Agreement, the Senior Construction Loan Deed of Trust, the Senior Guaranties and the Senior Environmental Indemnity executed in connection with the Senior Construction Loan, and any security agreement, pledge agreement, UCC financing statements, any interest rate swap, collar or other interest rate protection agreement that Borrower may now or hereafter enter into with Administrative Agent, on behalf of the Senior Construction Lenders, pertaining to the Senior Construction Loan, and any other document listed on Exhibit C attached hereto, as any of the foregoing may be modified, amended, extended, supplemented, restated or replaced from time to time, subject to the limitations and agreements contained in this Agreement.

“Senior Construction Loan Lenders” and “Senior Construction Loan Note” each is defined in the Recitals to this Agreement.

“Senior Deed of Trust” is defined in the Recitals to this Agreement.

“Senior Environmental Indemnity” is defined in the Recitals to this Agreement.

“Senior Guaranties” is defined in the Recitals to this Agreement.

7

“Senior Land Loan,” “Senior Land Loan Agreement,” “Senior Land Loan Deed of Trust,” and “Senior Land Loan Note,” each is defined in the Recitals to this Agreement.

“Senior Land Loan Documents” means the Senior Land Loan Agreement, the Senior Land Loan Deed of Trust, the Senior Guaranties and the Senior Environmental Indemnity executed in connection with the Senior Land Loan, and any security agreement, pledge agreement, UCC financing statements, any interest rate swap, collar or other interest rate protection agreement that Borrower may now or hereafter enter into with Land Loan Lender, pertaining to the Senior Land Loan, as any of the foregoing may be modified, amended, extended, supplemented, restated or replaced from time to time.

“Senior Lender” means Administrative Agent, on behalf of the Senior Construction Loan Lenders, Senior Construction Loan Lenders, and Land Loan Lender; provided, however, that after the Transfer Date the term “Senior Lender” shall mean and refer only to Administrative Agent, on behalf of the Senior Construction Loan Lenders, and Senior Construction Loan Lenders.

“Senior Loan” means, together, the Senior Construction Loan and the Senior Land Loan; provided, however, that after the Transfer Date, “Senior Loan” shall mean and refer only to the Senior Construction Loan.

“Senior Loan Collateral” means, collectively, the Property, any improvements thereon and any and all other property (whether real, personal or otherwise) and interests in property which now constitutes or hereafter will constitute collateral or other security for payment of the Senior Loan pursuant to the Senior Loan Documents.

“Senior Loan Documents” means the Senior Construction Loan Documents and the Senior Land Loan Documents; provided, however, that after the Transfer Date, “Senior Loan Documents” shall mean and refer only to the Senior Construction Loan Documents.

“Senior Loan Obligations” means all present and future indebtedness, obligations and liabilities of Borrower under the Senior Loan Documents, including (a) all principal (including principal which is borrowed, repaid and reborrowed), interest (including interest accruing subsequent to, and interest that would have accrued but for, the filing of any petition under any bankruptcy, insolvency or similar law or the commencement of any Proceeding), default interest, late charges, prepayment fees, expenses, fees, reimbursement obligations relating to the issuance or execution by Senior Lender of standby letters of credit or developer’s agreements pertaining to the Property or surrounding properties, other reimbursements, interest rate swaps, collars or other interest rate protection agreements that Borrower may enter into with Senior Lender pertaining to the Senior Loan, indemnities and other amounts payable thereunder, in each case whether now or hereafter arising, direct or indirect, primary or secondary, joint, several or joint and several, liquidated or unliquidated, final or contingent, and whether incurred as maker, endorser or otherwise; (b) all indebtedness arising from all present and future optional or obligatory advances (including advances to cover overdrafts that pertain to the Property) under the Senior Note or any other Senior Loan Document, (c) all amounts due

8

and owing to Swap Bank (as defined in the Senior Construction Loan Agreement) in respect of any Swap Transactions (as defined in the Senior Construction Loan Deed of Trust), (c) any and all amendments, modifications, extensions, renewals, refinancing or refundings of any of such indebtedness, obligations or liabilities, and (d) any and all sums advanced or expended by Senior Lender (whether deemed optional or obligatory advances, or otherwise) which Senior Lender deems necessary or appropriate (1) to market the Property or any portion thereof for sale, (2) to repair, maintain or otherwise protect the Property and any improvements thereon or to prevent waste or destruction or to pay or prevent liens or to defend Borrower’s title or Senior Lender’s lien priority, (3) to pay taxes, assessments or insurance premiums in respect of the Property or any improvements thereon or to otherwise protect Senior Lender’s security interest in the Property, any such improvements and any other Senior Loan Collateral, or (4) in connection with Senior Lender’s protection or exercise of its rights or remedies under the Senior Loan Documents.  To the extent any payment on any of the Senior Loan Obligations, whether by or on behalf of Borrower, as proceeds of security or enforcement of any right of setoff or otherwise, is recovered by or required to be paid over to Borrower or a receiver, trustee in bankruptcy, liquidating trustee, agent or other Person in a Proceeding, such Senior Loan Obligation or any part thereof originally intended to be satisfied by such payment shall be deemed to be reinstated and outstanding as if such payment had not occurred.  All outstanding Senior Loan Obligations shall be and remain Senior Loan Obligations for all purposes of this Agreement, regardless of whether they are allowed, not allowed or subordinated in any Proceeding.

“Senior Note” is defined in the Recitals to this Agreement.

“Special Modification Terms” means any amendment or modification of the Senior Loan Documents entered into after the date of this Agreement with respect to the following:  (a) increase the principal amount secured by the Senior Deed of Trust (other than increases in respect of Protective Advances), (b) increase the interest rate (other than an increase to a default rate and imposition of late charges), (c) amend or modify the provisions limiting transfers of interests in Borrower or the Property, (d) shorten the maturity date (except that the foregoing shall not be deemed to restrict or prohibit Senior Lender from accelerating the maturity of the Senior Loan or Senior Loan Obligations during the existence of a Default), or (e) amend the default section under the Senior Loan Documents in a manner that shortens grace or cure periods or adds any provisions to cross-default or cross-collateralize the Senior Loan with any other indebtedness.

“Subordinate Lender’s Outside Date” means a date first occurring after the issuance of a Default Notice that is the date Subordinate Lender’s cure period applicable to such Default Notice, as more particularly set forth in Section 8(b) below, expires unless Subordinate Lender has elected in writing to purchase the Senior Loan pursuant to Section 8(c) below, in which event, “Subordinate Lender’s Outside Date” shall be the Purchase Closing Date.

“Transfer Date” has the meaning assigned to such term in the Senior Construction Loan Agreement.

9

3.Approval of Loans and Loan Documents.

(a)Subordinate Lender hereby acknowledges that (i) it has received and reviewed and, subject to the terms and conditions of this Agreement, hereby consents to and approves of the making of the Senior Loan and, subject to the terms and provisions of this Agreement, all of the terms and provisions of the Senior Loan Documents, (ii) the execution, delivery and performance of the Senior Loan Documents will not constitute a default or an event which, with the giving of notice or the lapse of time, or both, would constitute a default under the Mezzanine Loan Documents, (iii) Senior Lender is under no obligation or duty to, nor has Senior Lender represented that Senior Lender will, see to the application of the proceeds of the Senior Loan by Borrower or any other Person to whom Senior Lender disburses such proceeds, and (iv) any application or use of the proceeds of the Senior Loan for purposes other than those provided in the Senior Loan Documents shall not affect, impair or defeat the terms and provisions of this Agreement or the Senior Loan Documents.  The foregoing consent and acknowledgement by Subordinate Lender is not intended and shall not be construed to (i) impose any duty or obligation on Subordinate Lender with respect to Senior Lender or with respect to the Senior Loan Documents other than as expressly set forth in this Agreement (and no such duty or obligation shall be implied), or (ii) amend or modify the respective obligations of the parties to the Mezzanine Loan Documents other than as expressly set forth herein.

(b)Senior Lender hereby acknowledges that (i) it hereby consents to and approves of the making of the Mezzanine Loan and, subject to the terms and provisions of this Agreement, the terms of the Mezzanine Loan Documents, (ii) the execution and delivery of the Mezzanine Loan Documents will not constitute a default or an event which, with the giving of notice or the lapse of time, or both, would constitute a default under the Senior Loan Documents, (iii) Subordinate Lender is under no obligation or duty to, nor has Subordinate Lender represented that it will, see to the application of the proceeds of the Mezzanine Loan by Mezzanine Borrower or any other Person to whom Subordinate Lender disburses such proceeds and (iv) any application or use of the proceeds of the Mezzanine Loan for purposes other than those provided in the Mezzanine Loan Documents shall not affect, impair or defeat the terms and provisions of this Agreement or the Mezzanine Loan Documents.  The foregoing consent and acknowledgement by Senior Lender is not intended and shall not be construed to (i) impose any duty or obligation on Senior Lender with respect to Subordinate Lender or with respect to the Mezzanine Loan Documents other than as expressly set forth in this Agreement (and no such duty or obligation shall be implied), or (ii) amend or modify the respective obligations of the parties to the Senior Loan Documents other than as expressly set forth herein.

4.Representations, Warranties and Covenants.

(a)Subordinate Lender hereby represents, warrants and covenants as follows:

(i)Exhibit B attached hereto and made a part hereof is a true, correct and complete listing of all of the Mezzanine Loan Documents.  To Subordinate Lender’s knowledge, there currently exists no default or event which, with the

10

giving of notice or the lapse of time, or both, would constitute a default under any of the Mezzanine Loan Documents.

(ii)Subordinate Lender is the legal and beneficial owner of the entire Mezzanine Loan free and clear of any lien, security interest, option or other charge or encumbrance.

(iii)There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived.

(b)Administrative Agent, for and on behalf of the Senior Construction Loan Lenders and Land Loan Lender each hereby severally represents, warrants and covenants as follows:

(i)Exhibit C attached hereto and made a part hereof is a true, correct and complete listing of the Senior Construction Loan Documents and Senior Land Loan Documents, respectively, as of the date hereof.  To Administrative Agent’s knowledge, there currently exists no default or event which, with the giving of notice or the lapse of time, or both, would constitute a default under any of the Senior Construction Loan Documents.  To Land Loan Lender’s knowledge, there currently exists no default or event which, with the giving of notice or the lapse of time, or both, would constitute a default under any of the Senior Land Loan Documents.

(ii)There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived.

5.Subordination.  Subject to the terms of this Agreement, Subordinate Lender, for itself and its successors and assigns (including, without limitation, all subsequent holders of the Mezzanine Note and the Mezzanine Deed of Trust) does hereby subordinate (a) the Mezzanine Deed of Trust and the other Mezzanine Loan Documents, (b) except as set forth in Section 6 below, payment of all of the Mezzanine Loan Obligations, and (c) all of its right, title, security interest, lien, and interest in and to the Property, any improvements thereon and any other Senior Loan Collateral and all sales proceeds, other proceeds, rents, issues, and profits therefrom, to (i) the Senior Deed of Trust and all other Senior Loan Documents, (ii) payment of all of the Senior Loan Obligations, (iii) all of the right, title, security interest, lien and interest held by Senior Lender and the successors and assigns of Senior Lender (including, without limitation, all subsequent holders of the Senior Note and the Senior Deed of Trust), in and to the Property, any improvements thereon and any other Senior Loan Collateral and all sales proceeds, proceeds from insurance or condemnation, other proceeds, rents, issues, and profits therefrom, under and pursuant to (1) the Senior Note, (2) the Senior Deed of Trust, and (3) all other Senior Loan Documents, and any and all extensions, renewals, modifications, and replacements thereof, subject to Section 9 hereof.  From and after the date hereof, all of the documents, indebtedness, right, title, security interest, lien, and interest described in clauses (a), (b) and (c) hereinabove shall be subject and subordinate to all of the documents, indebtedness, right, title, security interest, lien, and interest described in clauses (i), (ii) and (iii) hereinabove.

11

6.Restrictions Regarding Payments.  Subordinate Lender, for itself and its successors and assigns (including, without limitation, all subsequent holders of the Mezzanine Note and the Mezzanine Deed of Trust) does hereby agree that, notwithstanding anything provided in the Mezzanine Loan Documents to the contrary, so long as the Senior Loan Obligations remain outstanding, unless Administrative Agent, on behalf of the Senior Construction Loan Lenders, and prior to the Transfer Date, Land Loan Lender, shall consent in writing:

(a)Payments.  Except as provided in paragraph (b) below, Subordinate Lender shall not accept or receive payments (including, without limitation, whether in cash or other property and whether received directly, indirectly or by set off, counterclaim or otherwise) from Borrower, Guarantors and/or from the Property prior to the date that all obligations of Borrower to Administrative Agent and Senior Lender under the Senior Loan Documents are paid.  If a Proceeding shall have occurred or a Default shall have occurred and be continuing, Administrative Agent and Senior Lender shall be entitled to receive payment and performance in full of all amounts due or to become due to Administrative Agent and Senior Lender before Subordinate Lender is entitled to receive any payment on account of the Mezzanine Loan Obligations.  All payments or distributions upon or with respect to the Mezzanine Loan Obligations which are received by Subordinate Lender contrary to the provisions of this Agreement shall be received and held in trust by the Subordinate Lender for the benefit of Senior Lender and shall be paid over to Administrative Agent, for the benefit of Senior Lender, in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to, or held as collateral (in the case of non cash property or securities) for, the payment or performance of the Senior Loan Obligations in accordance with the terms of the Senior Loan Documents.  Nothing contained herein shall prohibit the Subordinate Lender from making Protective Advances (and adding the amount thereof to the principal balance of the Mezzanine Loan Obligations) notwithstanding the existence of a Default under the Senior Loan Obligations at such time.  Notwithstanding anything to the contrary contained herein, Subordinate Lender shall not be permitted to accept any prepayment of the Mezzanine Loan without the prior written consent of the Required Lenders at any time that any of the Senior Loan Obligations remain outstanding and unpaid.

(b)Permitted Payments.  Notwithstanding the foregoing or any provision of this Agreement to the contrary, provided that no Default shall then exist under the Senior Loan Documents and no Proceeding is pending, Subordinate Lender may accept (i) commitment fees and scheduled payments of interest (calculated at the non-default rate) as and when the same is due and payable from the Interest Reserve in accordance with the terms and conditions of the Mezzanine Loan Documents or from Net Cash Flow (as such term is defined in the Mezzanine Note), and (ii) other amounts payable to Subordinate Lender on any settlement statement evidencing the initial advance of Mezzanine Loan to Mezzanine Borrower, and Subordinate Lender shall have no obligation to pay over to Senior Lender any such amounts paid to Subordinate Lender in accordance with the terms of this paragraph.

(c)Payments Held in Trust for Senior Lender.  In the event that any payment is made to Subordinate Lender which is not permitted under this Agreement,

12

such payments shall be held by Subordinate Lender in trust for the benefit of Senior Lender and shall be paid forthwith over and delivered to Senior Lender for application to the payment of all of the Senior Loan Obligations remaining unpaid.

7.Enforcement of Mezzanine Loan Documents.  So long as any of the Senior Loan Obligations remains outstanding, Subordinate Lender agrees as follows:

(a)Subordinate Lender shall not assert, foreclose, enforce, realize upon or bring a legal action with respect to the Mezzanine Loan Obligations, or any part thereof, the Mezzanine Deed of Trust, any of the other Mezzanine Loan Documents; provided, however, that (i) upon the occurrence of any default under the Mezzanine Loan Documents and so long as no Default exists under the Senior Loan Documents, Subordinate Lender may seek collection from or otherwise pursue Guarantors under the guaranty of the Mezzanine Loan described in Exhibit B attached hereto; and/or (ii) Subordinate Lender may seek collection from or otherwise pursue Guarantors under the applicable provisions of the Partnership Agreement and the joinder page thereto.  Subordinate Lender shall, prior to commencing any action to enforce any rights against the Guarantors, give Administrative Agent written notice of the default which would permit Subordinate Lender to commence such enforcement action, and Subordinate Lender shall promptly provide Administrative Agent with copies of any and all material notices, pleadings, agreements, motions and briefs served upon, delivered to or with any party to any such enforcement action and otherwise keep Administrative Agent reasonably apprised as to the status of any enforcement action.

(b)In addition, the Mezzanine Deed of Trust shall, by its terms, be deemed to have been released and discharged and Subordinate Lender shall have no further rights, claims or interests in the Property or any other property, rights or interests encumbered by the Mezzanine Deed of Trust and Subordinate Lender shall, if requested by Administrative Agent or any title company, immediately deliver to Administrative Agent a written release or reconveyance of lien confirming the release and termination of the Mezzanine Deed of Trust upon the occurrence of any one or more of the following events (each, a “Termination Event”):

(i)the occurrence or commencement of any Proceeding with respect to Borrower, Mezzanine Borrower or the Investment Partnership, or any other owner of any interest, direct or indirect in Borrower, Mezzanine Borrower or the Investment Partnership;

(ii)the conveyance of the Property to Administrative Agent, any Senior Lender, or their designees in connection with a deed in lieu of foreclosure transaction; or

(iii)a Default resulting from a Monetary Default which is not cured by Subordinate Lender within the cure period specified in Section 10 of this Agreement and following which the Senior Loan Obligations are accelerated pursuant to the Senior Loan Documents.

13

To induce Administrative Agent and Senior Lender to consent to the Mezzanine Deed of Trust, Subordinate Lender hereby covenants and agrees that until the Senior Loan Obligations have been paid in full and all preconditions to the release and discharge of the Senior Deed of Trust have been satisfied (i) the Mezzanine Deed of Trust shall not be amended, modified or supplemented without the prior written consent of the Required Lenders, (ii) the Senior Deed of Trust shall govern and control over any contrary provision of the Mezzanine Deed of Trust with respect to casualty and condemnation and the distribution of insurance proceeds and condemnation awards, and (iii) Subordinate Lender hereby appoints Administrative Agent as its attorney-in-fact, coupled with an interest, to execute, deliver and record such releases and discharges as may be necessary to fully release the Mezzanine Deed of Trust from the Property and all other property, rights and interests encumbered by the Mezzanine Deed of Trust, which such power may be exercised only after a Termination Event.

(c)Administrative Agent, on behalf of the Senior Construction Lenders, hereby consents to Subordinate Lender’s right, pursuant to the Mezzanine Loan Documents, under certain circumstances, to cause the termination of the Property Manager.  If both Subordinate Lender and Administrative Agent shall have such rights at any time, and Administrative Agent shall fail to exercise such rights on behalf of the Senior Construction Lenders, Subordinate Lender may exercise such rights, provided such exercise may be superseded by any subsequent exercise of such rights by Administrative Agent pursuant to the Senior Loan Documents.  Upon the occurrence of any event which would entitle Subordinate Lender to cause the termination of the Property Manager pursuant to the Mezzanine Loan Documents, Subordinate Lender shall have the right to select, or cause the selection, of a replacement property manager (including any asset manager) or leasing agent for the Property, which replacement manager, asset manager and/or leasing agent shall (i) be a Qualified Manager and (ii) be subject to the reasonable approval of Administrative Agent (or the Required Lenders if the consent of the Required Lenders is necessary).  Notwithstanding anything in this Section to the contrary, if a Default under the Senior Loan then exists or any other event shall have occurred pursuant to which Administrative Agent, on behalf of the Senior Construction Lenders, has the right to select any replacement manager, asset manager and/or leasing agent pursuant to the Senior Loan Documents, Administrative Agent shall have the sole right to select any replacement manager, asset manager and/or leasing agent, whether or not a new manager or leasing agent was retained by Subordinate Lender.

8.Default under Senior Loan Documents.

(a)Default Notice.  Prior to commencing any Enforcement Action under the Senior Loan Documents, Senior Lender shall provide Subordinate Lender with a copy of any written notice (the “Default Notice”) sent by Senior Lender to Borrower regarding the occurrence of a Default.

(b)Subordinate Lender’s Cure Right.  Subordinate Lender shall have the right, but not the obligation, to cure any Default under any of the Senior Loan Documents within the later of the (i) the expiration of Borrower’s cure period under the Senior Loan

14

Documents with respect to such Default or (ii) five (5) Business Days after the giving of the Default Notice if such cure can be accomplished by the payment of a liquidated sum of money (herein, a “Monetary Default”).  In addition, if the Default Notice relates to a Default other than a Monetary Default (herein, a “Non-Monetary Default”), Subordinate Lender shall have the right, but not the obligation to cure such Non-Monetary Default provided that if such Non Monetary Default is susceptible of cure but cannot reasonably be cured within thirty (30) days and if curative action was promptly commenced and is being continuously and diligently pursued by Subordinate Lender, Subordinate Lender shall be given an additional period of time as is reasonably necessary for Subordinate Lender in the exercise of due diligence to cure such Non-Monetary Default for so long as (i) Subordinate Lender makes or causes to be made timely payment of Borrower’s regularly scheduled monthly principal and/or interest and/or other payments under the Senior Loan Documents and any other amounts due under the Senior Loan Documents, (ii) such additional period of time does not exceed thirty (30) days, unless such Non-Monetary Default is of a nature that it cannot be cured within such thirty (30) days, in which case, Subordinate Lender shall have such additional time as is reasonably necessary to cure such Non-Monetary Default not to exceed one hundred twenty (120) days from the Default Notice so long as Subordinate Lender is diligently pursuing same, (iii) such Non-Monetary Default is not caused by a Proceeding, and (iv) during such cure period, there is (1) no material impairment to the value, use or operation of the Property, and (2) no violations of any applicable law, regulation or ordinance having jurisdiction over the Property.  Subordinate Lender acknowledges and agrees that Senior Lender’s failure to provide Subordinate Lender with a copy of any Default Notice delivered to Borrower shall not defeat or impair the subordination and other agreements herein made, nor shall it defeat, impair or prevent Senior Lender from exercising any of its rights or remedies as a result of such Default in whole or in part subject to Subordinate Lender’s right to cure upon Senior Lender’s delivery to Subordinate Lender of the applicable Default Notice.  The foregoing cure periods shall automatically terminate upon the occurrence of a Proceeding.  During any cure period granted herein to Subordinate Lender, Senior Lender shall be entitled to begin exercising any rights and remedies it has under the Senior Loan Documents and under applicable law as a result of such Default, and such Default shall not be cured unless and until the particular Default under the Senior Loan Documents has been remedied and Senior Lender has been fully reimbursed for all costs and expenses incurred by Senior Lender in so exercising its rights (including attorneys’ fees and costs and foreclosure costs).

(c)Subordinate Lender’s Right to Purchase Senior Loan.  Upon delivery of a copy of the Default Notice to Subordinate Lender, Subordinate Lender shall have the right, but not the obligation, to purchase the Senior Loan at par for a purchase price equal to the sum of (i) all amounts, if any, due and payable to Swap Bank in connection with the termination of any Swap Transactions and the early termination and acceleration of all Swap Transactions executed by Borrower, (ii) the outstanding principal balance of the Senior Loan, together with all accrued interest and other amounts due thereon (including, without limitation, any late charges, default interest, breakage fees, exit fees, advances and post petition interest), and (iii) any Protective Advances made by Administrative Agent, on behalf of Senior Lender, and any interest charged by Senior Lender on any advances for monthly payments of principal and/or interest on the Senior Loan

15

Obligations and/or on any Protective Advances), including all costs and expenses (including legal fees and expenses) actually incurred by Administrative Agent and Senior Lender in enforcing the terms of the Senior Loan Documents (the “Loan Purchase Price”).  If Subordinate Lender elects in writing to purchase the Senior Loan (the “Purchase”), the Purchase shall close (“Purchase Closing Date”) on a date selected by Subordinate Lender that is no later than (30) days after the delivery of a copy of the Default Notice to Subordinate Lender.  Concurrently with payment to Senior Lender of the Loan Purchase Price, Senior Lender shall deliver or cause to be delivered to Subordinate Lender all Senior Loan Documents held by or on behalf of Senior Lender and will execute in favor of Subordinate Lender or its designee assignment documentation, in form and substance reasonably acceptable to Subordinate Lender, Administrative Agent and the Required Lenders, at the sole cost and expense of Subordinate Lender, to assign the Senior Loan and the rights of Senior Lender under the Senior Loan Documents (without recourse, representations or warranties, except for representations as to the outstanding balance of the Senior Loan and as to Senior Lender’s not having assigned or encumbered its rights in the Senior Loan).  Upon consummation of the Purchase, Subordinate Lender shall be subrogated to the rights of Senior Lender under the Senior Loan Documents.

(d)Failure to Elect to Purchase Senior Loan.  If Subordinate Lender has the right to purchase the Senior Loan under Section 8(c), and the Subordinate Lender does not elect to purchase the Senior Loan and close the Purchase by the Purchase Closing Date, then Senior Lender thereafter shall have the right to amend, modify, restructure or extend the Senior Deed of Trust or any other Senior Loan Documents (including without limitation any and all Special Modification Terms) without notice to or the consent of Subordinate Lender.  In such event, the Mezzanine Loan, the Mezzanine Deed of Trust and the other Mezzanine Loan Documents and all indebtedness, obligations, liens and security interests evidenced or secured thereby or from time to time outstanding thereunder shall continue to be junior, subject, and subordinate in all respects to the Senior Loan, the Senior Deed of Trust and the Senior Loan Documents, as so amended, modified, extended, or restructured (including without limitation any and all Special Modification Terms).  Third parties including title insurance companies insuring the priority of the Senior Deed of Trust are hereby authorized to rely on this provision as to the priority of the Senior Loan Documents, as so amended, modified, extended or restructured, without any requirement to confirm such senior position from Subordinate Lender.

(e)No Sale to Borrower Affiliate.  Senior Lender covenants not to sell any of the Senior Loan Obligations to Borrower or any Borrower Affiliate without the prior written consent of Subordinate Lender.  Subordinate Lender covenants not to sell any of the Mezzanine Loan Obligations to Borrower or any Borrower Affiliate without the prior written consent of Administrative Agent and the Required Lenders.

9.Changes in Special Modification Terms.  Except as otherwise provided in Section 8(d), Senior Lender shall not modify any of the Special Modification Terms in the Senior Loan Documents without the prior written approval of Subordinate Lender.  In addition and notwithstanding the foregoing provisions of this Section 9, any amounts funded by Senior

16

Lender under the Senior Loan Documents as a result of (A) the making of any Protective Advances by Senior Lender, or (B) interest accruals (including default interest and late charges), shall not be deemed to contravene this Section 9.  Administrative Agent shall deliver to Subordinate Lender copies of any and all modifications, amendments, extensions, consolidations, spreaders, restatements, alterations, changes or revisions to any one or more of the Senior Loan Documents (including, without limitation, any side letters, waivers or consents entered into, executed or delivered by Administrative Agent, on behalf of Senior Lender) within a reasonable time after any of such applicable instruments have been executed by Administrative Agent.

10.Senior Lender’s Freedom of Action.  Subordinate Lender agrees that Senior Lender may at any time and from time to time, without notice to or the consent of Subordinate Lender, and without affecting the subordination and other agreements herein made by Subordinate Lender, do any one or more of the following in Senior Lender’s sole and absolute discretion (subject, however, to the restriction on Special Modification Terms set forth herein):

(a)Extend, renew, modify, amend, increase, diminish or waive any of the terms of any of the Senior Loan Documents, including, without limitation, payment provisions under any of the Senior Loan Documents and provisions relating to the Property or grant any other indulgence to Borrower or any other Person in respect of any or all of the Senior Loan Obligations or any other matter;

(b)Make such Protective Advances as Senior Lender may deem appropriate (it being understood that Senior Lender has not in any way committed to make any such Protective Advances);

(c)At any time after Subordinate Lender’s Outside Date, add or substitute, or take any action or omit to take any action which results in the release of any endorser, guarantor or any collateral or security;

(d)Apply any sums received from Borrower, any guarantor, endorser, or cosigner, or from the disposition of any Senior Loan Collateral or security, to any indebtedness whatsoever owing from such Person or secured by such Senior Loan Collateral or security, in such manner and order as Senior Lender determines in its sole discretion, and regardless of whether such indebtedness is part of the Senior Loan Obligations, is secured, or is due and payable;

(e)Make loans or advances to Borrower secured in whole or in part by the Senior Loan Collateral or refrain from making any such loans or advances;

(f)Accept partial payments of, compromise or settle, refuse to enforce, or release all or any parties to, any or all of the Senior Loan Obligations;

(g)Settle, release (with or without receipt of consideration therefor, and whether by operation of law or otherwise), compound, compromise, collect or liquidate any of the Senior Loan Obligations in any manner permitted by applicable law; provided, however, Senior Lender shall not release any of the Senior Loan Collateral or any guarantor of the Senior Loan Obligations prior to Subordinate Lender’s Outside Date; and

17

(h)Accept, release (with or without receipt of consideration), waive, surrender, enforce, exchange, modify, impair or extend the time for the performance, discharge or payment of, any and all property of any kind securing any or all of the Senior Loan Obligations or any guaranty of any or all of the Senior Loan Obligations, or on which Senior Lender at any time may have a lien, or refuse to enforce its rights or make any compromise or settlement or agreement therefor in respect of any or all of such property; Senior Lender is not under and shall not hereafter be under any obligation to marshal any assets in favor of Subordinate Lender, or against or in payment of any or all of the Senior Loan Obligations, and may proceed against any of the Senior Loan Collateral in such order and manner as it elects; provided, however, Senior Lender shall not release any of the Senior Loan Collateral or any guarantor of the Senior Loan Obligations prior to Subordinate Lender’s Outside Date.

All such actions, rights and matters set forth in (a) through (h) above shall be senior in all respects to the Mezzanine Loan Obligations and the Mezzanine Loan Documents which shall automatically be subordinate to such actions, rights and matters set forth in (a) through (h) above.  Third parties including title insurance companies insuring the priority of the Senior Loan Documents are hereby authorized to rely upon this provision as to the priority of such matters without requirement to confirm such senior position from Subordinate Lender.

11.Buy-Sell Rights.  Notwithstanding any provision of this Agreement to the contrary, Subordinate Lender shall have the right, without the consent of Senior Lender in each instance, to exercise the Buy-Sell Rights after the Completion Date (as defined in the Senior Loan Documents).

12.No Transfer of Mezzanine Loan; Refinancing.  Subordinate Lender agrees that it shall not sell, assign, pledge, encumber or otherwise transfer any portion of its interest in the Mezzanine Loan Documents without the prior written consent of the Required Lenders, which consent shall be given or withheld in the good faith business judgment of Required Lenders; provided, that Subordinate Lender shall have the right to transfer its interest in the Mezzanine Loan (or any part thereof or interest therein) to an Affiliate upon fifteen (15) days’ prior written notice to Administrative Agent and delivery to Administrative Agent by such affiliate of an assumption agreement whereby it assumes all of Subordinate Lender’s obligations hereunder.  Any such transferee must assume in writing the obligations of Subordinate Lender hereunder and agree to be bound by the terms and provisions of this Agreement.  Such transferee shall also reaffirm, in writing, in all material respects each of the representations and warranties contained herein for the benefit of Administrative Agent and Senior Lender.  Subordinate Lender shall provide Administrative Agent, for the benefit of and distribution to Senior Lender, such financial and other information on the proposed assignee as Administrative Agent or Senior Lender reasonably requests.  In addition, so long as any of the Senior Loan Obligations remains outstanding, any refinance of the Mezzanine Loan Obligations shall be subject to the prior written approval of the Required Lenders as to the terms thereof and the refinance lender, which approval may be granted or withheld by Required Lenders in their sole discretion.

13.Modification of Mezzanine Loan Documents.  Subordinate Lender shall have the right, without the consent of Senior Lender in each instance, to enter into any amendment, deferral, extension, modification, increase, renewal, replacement, consolidation, supplement or

18

waiver (collectively, a “Mezzanine Loan Modification”) of the Mezzanine Loan or the Mezzanine Loan Documents; provided that no such Mezzanine Loan Modification shall (a) increase the interest rate or principal amount of the Mezzanine Loan; (b) increase in any other material respect any monetary obligations of Mezzanine Borrower under the Mezzanine Loan Documents; (c) shorten the scheduled maturity date of the Mezzanine Loan; (d) cross default the Mezzanine Loan with any other indebtedness; or (e) amend the payment provisions of the Mezzanine Note (or the definition of “Net Cash Flow” in the Mezzanine Note) or otherwise modify the amount or timing of the payments on the Mezzanine Note.  Notwithstanding the foregoing provisions, any amounts funded by the Subordinate Lender under the Mezzanine Loan Documents as a result of (i) the making of any Protective Advances or other advances by the Subordinate Lender, or (ii) interest accruals or accretions and any compounding thereof (including default interest), shall not be deemed to contravene this Section 13.  Subordinate Lender shall deliver to Administrative Agent, for distribution to Senior Lender, copies of any and all modifications, amendments, extensions, consolidations, spreaders, restatements, alterations, changes or revisions to any one or more of the Mezzanine Loan Documents (including, without limitation, any side letters, waivers or consents entered into, executed or delivered by Subordinate Lender) within a reasonable time after any of such applicable instruments have been executed by Subordinate Lender.

14.Dealings with Borrower.

(a)In making disbursements under any of the Senior Loan Documents, Senior Lender has no duty to, nor has Senior Lender represented that it will, see to the application of any proceeds by the Person or Persons to whom Senior Lender disburses such proceeds.  Any application or use of such proceeds for purposes other than those provided for in the Senior Loan Documents does not and shall not defeat the subordination herein made, in whole or in part.

(b)In making disbursements under any of the Senior Loan Documents, Senior Lender may waive any and all conditions to a disbursement contained in the Senior Loan Documents.  No such waiver shall defeat the subordination herein made, in whole or in part.

(c)The rights granted to Senior Lender hereunder are solely for its protection and nothing herein contained shall impose on Senior Lender any duties with respect to Borrower.

15.Assignment of the Senior Loan Obligations.  Senior Lender may assign or transfer any or all of the Senior Loan Obligations and/or any interest therein or herein, subject to this Agreement, and, notwithstanding any such assignment or transfer or any subsequent assignment or transfer thereof, such Senior Loan Obligations shall be and remain senior to the Mezzanine Loan Obligations, and the Mezzanine Loan Obligations shall be and remain subject and subordinate to the Senior Loan Obligations for the purposes of this Agreement, and every immediate and successive assignee or transferee of any of the Senior Loan Obligations or of any interest therein or herein shall, to the extent of the interest of such assignee or transferee in the Senior Loan Obligations, be entitled to the benefits of this Agreement and subject to the burdens of this Agreement to the same extent as if such assignee or transferee were Senior Lender;

19

provided, however, that, unless Senior Lender shall otherwise consent in writing, Senior Lender shall have an unimpaired right, prior and superior to that of any such assignee or transferee, to enforce this Agreement, as to those portions of the Senior Loan Obligations which Senior Lender has not assigned or transferred.

16.Casualty.  In the event of a casualty to the Improvements or a condemnation or taking under a power of eminent domain of all or any portion of the Property, Senior Lender shall have a first and prior interest in and to any payments, awards, proceeds, distributions, or consideration arising from any such event (the “Award”).  However, if the amount of the Award is in excess of all amounts owed to Administrative Agent and Senior Lender under the Senior Loan Documents, then upon payment in full of the Senior Loan Obligations, such excess Award shall be paid to or at the direction of Subordinate Lender, unless other Persons have claims to such awards or proceeds, in which case Administrative Agent shall only be required to provide notice to Subordinate Lender of such excess Award and of any such claims thereto.  In the event of any competing claims for any such excess Award other than claims by Borrower, Administrative Agent shall continue to hold such excess Award until Administrative Agent receives an agreement signed by all Persons making a claim to the excess Award or a final order of a court of competent jurisdiction directing Administrative Agent as to how and to which Persons, the excess Award is to be distributed.  Alternatively, Administrative Agent may tender such excess Award to the registry of any state or federal court sitting in Dallas, Texas, pending resolution of all competing claims thereto, whereupon Administrative Agent shall have no further obligations with respect to such excess Award.  If Administrative Agent shall release any Award or portion thereof to Borrower pursuant to the Senior Loan Documents in order to repair and restore the Property in accordance with the terms and provisions of the Senior Loan Documents, such Award or portion thereof made available to Borrower for the repair or restoration of the Property shall not be subject to attachment by Subordinate Lender

17.Bankruptcy.

(a)Upon any distribution of the assets or properties of Borrower or upon any dissolution, winding up, liquidation, bankruptcy or reorganization involving Borrower (whether in bankruptcy, insolvency or receivership proceedings or any other Proceeding, or upon an assignment for the benefit of creditors or otherwise):

(i)Senior Lender shall first be entitled to receive payment in full of the principal of and interest on the Senior Loan Obligations and all fees and any other payments (including post-petition interest and all costs and expenses) due pursuant to the terms of the Senior Loan Documents, before Subordinate Lender is entitled to receive any payment on account of the Mezzanine Loan Obligations; and

(ii)any payment or distribution of the assets or properties of Borrower of any kind or character, whether in cash, property, or securities, to which Subordinate Lender would be entitled except for the provisions of this Agreement, shall be paid by the debtor in possession, liquidating trustee or agent or other person making such payment or distribution directly to Senior Lender; and

20

(iii)in the event that, notwithstanding the foregoing, any payment or distribution of the assets or properties of Borrower of any kind or character, whether in cash, property, or securities, shall be received by Subordinate Lender on account of principal, interest, fees, or other amounts on or with respect to the Mezzanine Loan Obligations before all of the Senior Loan Obligations are paid in full, such payments or distribution shall be received and held in trust for and shall be paid over to Senior Lender forthwith, for application to the payment of the Senior Loan Obligations until all such Senior Loan Obligations shall have been paid in full in accordance with the terms of the Senior Loan Documents.

(b)To effectuate the foregoing, Subordinate Lender does hereby irrevocably assign to Senior Lender all of Subordinate Lender’s rights as a secured or unsecured creditor in any Proceeding and authorizes Senior Lender to take, or refrain from taking, any action to assert, enforce, modify, waive, release or extend Subordinate Lender’s lien and/or claim in such Proceeding, including but not limited to (i) filing a proof of claim arising out of the Mezzanine Loan Obligations, (ii) voting or refraining from voting claims arising from the Mezzanine Loan Obligations, either in Administrative Agent’s name, on behalf of Senior Lender, or in the name of Administrative Agent as attorney-in-fact of Subordinate Lender including without limitation, the right to vote to accept or reject a plan, or to make any election under Section 1111(b) of the Bankruptcy Code, and no other parties other than Administrative Agent shall have the right to exercise such voting rights, (iii) accepting or rejecting any payment or distribution made with respect to any claim arising from the Mezzanine Loan Obligations and applying such payment and distribution to payment of Senior Lender’s claim until the Senior Loan Obligations are paid and satisfied in full in accordance with their terms, and (iv) taking any and all actions and executing any and all instruments necessary to effectuate the foregoing and, among other things, to establish Senior Lender’s entitlement to assert Subordinate Lender’s claim in such Proceeding.  Notwithstanding the foregoing provisions, with respect to any plan of reorganization proposed in a Proceeding in respect of which creditors are voting, Administrative Agent may vote on behalf of Subordinate Lender only if the proposed plan would result in Senior Lender being “impaired” (as such term is defined in the Bankruptcy Code).

(c)Subordinate Lender agrees that Administrative Agent and Senior Lender owe no fiduciary duty to Subordinate Lender in connection with the administration of the Senior Loan Obligations and the Senior Loan Documents and Subordinate Lender agrees not to assert any such claim.  Administrative Agent, on behalf of Senior Lender, agrees that Subordinate Lender owes no fiduciary duty to Administrative Agent and Senior Lender in connection with the administration of the Mezzanine Loan and the Mezzanine Loan Documents and each of Administrative Agent and Senior Lender agree not to assert any such claim.

(d)No payment or distribution to Administrative Agent or Senior Lender pursuant to the provisions of this Agreement and no Protective Advance by Subordinate Lender shall entitle Subordinate Lender to exercise any right of subrogation in respect thereof prior to the payment in full of the Senior Loan Obligations, and Subordinate Lender agrees that, except with respect to the enforcement of its remedies under the

21

Mezzanine Loan Documents permitted hereunder, prior to the satisfaction of all Senior Loan Obligations, Subordinate Lender shall not acquire, by subrogation or otherwise, any lien, security interest, estate, right or other interest in any portion of the Property or any other collateral now securing the Senior Loan Obligations or the proceeds therefrom, including without limitation, any lien, security interest, estate, right or other interest in any portion of the Property that is or may be prior to, or of equal priority to, any of the Senior Loan Documents or the liens, rights, estates and interests created thereby.

(e)The provisions of this Agreement shall be applicable both before and after the commencement, whether voluntary or involuntary, of any Proceeding involving Borrower, Mezzanine Borrower or Investment Partnership.  For as long as the Senior Loan Obligations shall remain outstanding, Subordinate Lender shall not, and shall not solicit any person or entity to, and shall not direct or cause any Borrower Affiliate to:  (i) commence any Proceeding; (ii) institute proceedings to have any Borrower Affiliate adjudicated a bankrupt or insolvent; (iii) consent to, or acquiesce in, the institution of bankruptcy or insolvency proceedings against any Borrower Affiliate; (iv) file a petition or consent to the filing of a petition seeking reorganization, arrangement, adjustment, winding up, dissolution, composition, liquidation or other relief by or on behalf of any Borrower Affiliate; (v) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for any Borrower Affiliate, the Property (or any portion thereof) or any other collateral securing the Senior Loan Obligations (or any portion thereof); (vi) make an assignment for the benefit of any creditor of any Borrower Affiliate; (vii) seek to consolidate the Property or any other assets of any Borrower Affiliate with the assets of any other Borrower Affiliate in any Proceeding; or (viii) take any action in furtherance of any of the foregoing.

18.Additional Waivers and Agreements.

(a)Subordinate Lender waives the right to require Senior Lender to proceed against Borrower or any other Person liable on any Senior Loan Obligation, to proceed against or exhaust any security held from Borrower or other Person, or to pursue any other remedy in Senior Lender’s power whatsoever, and Subordinate Lender waives the right to have the property of Borrower first applied to the discharge of any Senior Loan Obligation.  Subject to the terms of this Agreement, Senior Lender may, at its election, exercise any right or remedy Senior Lender may have against Borrower or any security held by Senior Lender, including, without limitation, the right to foreclose upon any such security by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, without affecting or impairing in any way the obligations of Subordinate Lender hereunder, except to the extent the Senior Loan Obligations have been paid, and Subordinate Lender waives any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy against Borrower or any such security, whether resulting from such election by Senior Lender or otherwise except to the extent expressly set forth in this Agreement.

(b)Subordinate Lender assumes all responsibility for keeping itself informed as to the condition (financial or otherwise), business, assets and operations of Borrower,

22

the condition of any Senior Loan Collateral and all other circumstances that might in any way affect Subordinate Lender’s risk under this Agreement (including, without limitation, the risk of nonpayment of the Senior Loan Obligations), and Senior Lender shall have no duty or obligation whatsoever to obtain or disclose to Subordinate Lender any information or documents relative to such condition, business, assets, or operations of Borrower or such risk, whether acquired by Senior Lender in the course of its relationship with Borrower or otherwise.

(c)Subordinate Lender acknowledges that Senior Lender has made no warranties or representations to it with respect to the due execution, legality, validity, completeness or enforceability of the Senior Loan Documents or the collectability of the Senior Loan Obligations evidenced thereby.

(d)If any of the Senior Loan Obligations or any lien securing same, should be invalidated, avoided or set aside, the subordination provided for herein nevertheless shall continue in full force and effect and, as between Senior Lender and Subordinate Lender, shall be and be deemed to remain in full force and effect.

(e)So long as Subordinate Lender receives a Default Notice as provided in this Agreement and fails to cure the applicable Default within the time period provide in Section 8(b) above, Subordinate Lender expressly waives the right to receive any additional notice from Senior Lender of any judicial or nonjudicial foreclosure or sale of any real property or interest therein subject to the Senior Deed of Trust or other instruments, and Subordinate Lender’s failure to receive any such additional notice shall not impair or affect Subordinate Lender’s obligations to Senior Lender or the enforceability of this Agreement or any lien or any liens created hereby, granted to or otherwise held by Senior Lender.

(f)Subordinate Lender hereby expressly, unconditionally and irrevocably waives all rights (i) under Sections 361 through 365, 502(e) and 509 of the Bankruptcy Code (or any similar sections hereafter in effect under any other Federal or state laws or legal or equitable principles relating to bankruptcy, insolvency, reorganizations, liquidations or otherwise for the relief of debtors or protection of creditors), and (ii) to seek or obtain conversion to a different type of proceeding or to seek or obtain dismissal of a proceeding, in each case in relation to a bankruptcy, reorganization, insolvency or other proceeding under similar laws with respect to Borrower.  Without limiting the generality of the foregoing, Subordinate Lender hereby expressly, unconditionally and irrevocably waives (A) the right to seek to provide credit (secured or otherwise) to Borrower in any way under Section 364 of the Bankruptcy Code unless the same is subordinated in right and time of payment in all aspects to the Senior Loan Obligations in a manner acceptable to Senior Lender in its sole and absolute discretion; (B) the right to take a position inconsistent with or contrary to that of Senior Lender (including a position by Senior Lender to take no action) if Borrower seeks to use, sell or lease Senior Loan Collateral (or the proceeds or products thereof) under Section 363 of the Bankruptcy Code; (C) the right to receive any Senior Loan Collateral security (including any “super priority” or equal or “priming” or replacement lien) for any Mezzanine Loan Obligation unless Senior Lender has received a senior position acceptable to Senior Lender in its

23

sole and absolute discretion to secure all Senior Loan Obligations (in the same Senior Loan Collateral to the extent Senior Loan Collateral is involved); and (D) the right to seek adequate protection in respect of Senior Loan Collateral (or the proceeds or products thereof) under Section 363 or 361 of the Bankruptcy Code.

(g)Notwithstanding anything contained in the Mezzanine Loan Documents to the contrary, Subordinate Lender shall not have any approval rights with respect to the Senior Loan Obligations relating to the construction of the Improvements on the Property, revisions to the plans and specifications for the Improvements, changes in the construction budget, change orders, amendments to construction contracts and subcontracts and approval of completion of the Improvements and revisions to the construction schedule, disbursement conditions and completion date if such items have been approved by Administrative Agent or the Required Lenders; provided, however, the foregoing shall not affect any covenants or provisions of the Mezzanine Loan Documents relating to same as between Mezzanine Borrower and Subordinate Lender.

(h)Subordinate Lender agrees that it shall not prohibit Borrower from performing any act that Borrower is permitted to perform under the Senior Loan Documents, subject to any restrictions contained in this Agreement.

(i)This Agreement shall bind all successors and permitted assigns of Subordinate Lender, Administrative Agent and Senior Lender and shall inure to the benefit of all successors and permitted assigns of Administrative Agent, Senior Lender and Subordinate Lender.  The rights of Administrative Agent and Senior Lender hereunder may be exercised only by Administrative Agent and any successor to Administrative Agent appointed pursuant to the Senior Construction Loan Agreement, on behalf of Senior Lender; provided, however, that Subordinate Lender shall have no obligation to deal with or accept performance from any party other than Administrative Agent unless and until Subordinate Lender receives notice of the resignation or replacement of the Administrative Agent named herein.  Administrative Agent may, but shall not be required to, at any time request instructions from the Required Lenders with respect to any actions or approvals which, by the terms of this Agreement or of any of the Senior Construction Loan Documents, Administrative Agent is permitted or required to take or to grant without instructions from the Required Lenders, and if such instructions are requested, Administrative Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever for refraining from taking any action or withholding any approval under this Agreement until it shall have received such instructions from the Required Lenders.

(j)Nothing provided herein is intended to create a joint venture, partnership, tenancy in common or joint tenancy relationship between or among any of the parties hereto.

(k)Nothing herein contained shall operate to release (i) Borrower from its obligation to keep and perform all of the terms, conditions, obligations, covenants and agreements contained in the Senior Loan Documents, or any liability of Borrower under the Senior Loan Documents, or (ii) Mezzanine Borrower from its obligation to keep and

24

perform all of the terms, conditions, obligations, covenants and agreements contained in the Mezzanine Loan Documents or any liability of Mezzanine Borrower under the Mezzanine Loan Documents.  This Agreement is a continuing agreement and shall remain in full force and effect until the earliest of (i) payment in full of the Senior Loan Obligations, or (ii) transfer of the Property by foreclosure of the Senior Deed of Trust or the exercise of the power of sale contained therein or by deed in lieu of foreclosure; provided, however, that any rights or remedies of either party hereto arising out of any breach of any provision hereof occurring prior to such date of termination shall survive such termination.

(l)In the event that any provision of this Agreement or the application hereof to any party hereto shall, to any extent, be invalid or unenforceable under any applicable statute, regulation, or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute, regulation or rule of law, and the remainder of this Agreement and the application of any such invalid or unenforceable provisions to parties, jurisdictions or circumstances other than to whom or to which it is held invalid or unenforceable, shall not be affected thereby nor shall same affect the validity or enforceability of any other provision of this Agreement.

(m)Time is of the essence of this Agreement.

(n)Each of Administrative Agent and Senior Lender and Subordinate Lender are sophisticated lenders and/or investors in real estate and their respective decision to enter into the Senior Loan Obligations and the Mezzanine Loan Obligations, respectively, is based upon their own independent expert evaluation of the terms, covenants, conditions and provisions of, respectively, the Senior Loan Documents and the Mezzanine Loan Documents and such other matters, materials and market conditions and criteria which each of Administrative Agent, Senior Lender, and Subordinate Lender deem relevant.  Each of Administrative Agent and Subordinate Lender has not relied in entering into this Agreement, and respectively, the Senior Loan Obligations, the Senior Loan Documents, the Mezzanine Loan or the Mezzanine Loan Documents, upon any oral or written information, representation, warranty or covenant from the other, or any of the other’s representatives, employees, Affiliates or agents other than the representations and warranties of the other contained herein.  Each of Administrative Agent and Subordinate Lender further acknowledges that no employee, agent or representative of the other has been authorized to make, and that each of Administrative Agent and Subordinate Lender have not relied upon, any statements, representations, warranties or covenants other than those specifically contained in this Agreement.  Without limiting the foregoing, each of Administrative Agent and Subordinate Lender acknowledges that the other has made no representations or warranties as to the Senior Loan Obligations or the Mezzanine Loan or the Property (including, without limitation, the cash flow of the Property, the value, marketability, condition or future performance thereof, the existence, status, adequacy or sufficiency of the leases, the tenancies or occupancies of the Property, or the sufficiency of the cash flow of the Property, to pay all amounts which may become due from time to time pursuant to the Senior Loan Documents or the Mezzanine Loan Documents).

25

19.Continuing Benefits.  No right of Senior Lender or any present or future holder of the Senior Loan Obligations to enforce the subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of Borrower or any other party, whether borrower, guarantor or otherwise, or by any noncompliance by Borrower or any borrower, guarantor or otherwise with the terms of the Senior Note or any other of the Senior Loan Documents regardless of any knowledge thereof which such holder may have or be otherwise charged with.

20.No Waiver; Modification.  Except as otherwise expressly provided in this Agreement, neither this Agreement nor the transactions herein contemplated shall operate to waive the enforcement after the date hereof of any due on sale, due on encumbrance or accelerating transfer provision contained in the Senior Loan Documents or the Mezzanine Loan Documents.  No delay on the part of Senior Lender or Subordinate Lender in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Senior Lender or Subordinate Lender of any right or remedy shall preclude other or further exercise thereof or the exercise of any right or remedy; nor shall any modification or waiver of any of the provisions of this Agreement be binding upon Senior Lender or Subordinate Lender except as expressly set forth in a writing duly signed and delivered by or on behalf of Senior Lender or Subordinate Lender.  This Agreement may be executed in any number of counterparts.

21.Reinstatement of Agreement.  The provisions of this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Loan Obligations or the Mezzanine Loan Obligations is invalidated, declared to be fraudulent or preferential, set aside, rescinded or must otherwise be returned by Senior Lender or Subordinate Lender, as the case may be, under any bankruptcy law, state or federal law, common law or equitable cause, all as though such payment had not been made.

22.Borrower’s Waiver.  Each of Borrower and Mezzanine Borrower hereby waives (a) notice of acceptance of this Agreement by Senior Lender and Subordinate Lender, (b) notice of the existence or creation or nonpayment of all or any of the Senior Loan Obligations and the Mezzanine Loan Obligations, and (c) all diligence in the collection or protection of or realization upon the Senior Loan Obligations or the collateral therefor or the Mezzanine Loan Obligations.

23.Book Entry.  Subordinate Lender will make appropriate entries in the books and records of Subordinate Lender to indicate that the Mezzanine Loan Obligations are subject to the Senior Loan Obligations.

24.Notices.  Any notice which a party is required or may desire to give the other shall be in writing and may be sent by facsimile, personal delivery or by mail (either (i) by United States registered or certified mail, return receipt requested, postage prepaid, or (ii) by Federal Express or similar generally recognized overnight carrier regularly providing proof of delivery), addressed as follows (subject to the right of a party to designate a different address for itself by notice similarly given at least fifteen (15) days in advance):

26

If to Subordinate Lender:	Behringer Harvard St. Rose REIT, LLC 15601 Dallas Parkway, Suite 600 Dallas, TX 75001 Attention: Chief Legal Officer Telecopy: (214) 655-1610
With a copy to:	Behringer Harvard St. Rose REIT, LLC 15601 Dallas Parkway, Suite 600 Dallas, TX 75001 Attention: Mark Alfieri Telecopy: (214) 655-1610
With a copy to:	Wick Phillips, LLP 2100 Ross Avenue, Suite 950 Dallas, TX 75201 Attention: Walter D. Miller Telecopy: (214) 692-6255
If to Senior Lender:	Bank of America, N.A. TX4-213-05-06 700 Louisiana, 5th Floor P.O. Box 2518 Houston, TX 77252-2518 Attention: Real Estate Loan Administration Telecopy: (713) 247-6124
With a copy to:	Greenberg Traurig, LLP 2200 Ross Avenue, Suite 5200 Dallas, TX 75201 Attention: Tina M. Ross Telecopy: (972) 665-3601
If to Borrower or Mezzanine Borrower:	2001 Bryan Street, Suite 3250 Dallas, Texas 75201 Attention: Tim Hogan Facsimile: (214) 922-8553
With a copy to:	Jones Day 325 John H. McConnell Blvd. Suite 600 Columbus, Ohio 43215-2673 Attention: Michael Ording Telecopy: (614) 461-4198

25.Priority.  The priorities herein specified are applicable irrespective of the time of creation of Senior Lender Obligations or the Subordinate Lender Obligations.

27

26.Further Assurances.  So long as the Senior Loan Obligations and the Mezzanine Loan Obligations remain outstanding, either party shall execute, acknowledge, and deliver upon the demand of the other party, at any time or times, any and all further documents or instruments in recordable form for the purpose of further confirming the subordination and the agreements herein set forth.

27.Estoppel Certificate.  Each of Senior Lender and Subordinate Lender hereby agrees that within ten (10) days after written demand of the other party, it shall execute, acknowledge and deliver a certification setting forth the total amount of indebtedness owed to it under the Senior Loan Documents or the Mezzanine Loan Documents, as the case may be, and such other certifications as may be reasonably requested by the other party.  Notwithstanding the foregoing, neither Senior Lender or Subordinate Lender shall be obligated to give such certification more frequently than once every other calendar month.

28.Governing Law.  This Agreement shall be governed by the laws of the State of Texas (without reference to its conflict of laws principles).

29.Forum.  Senior Lender and Subordinate Lender each hereby irrevocably submits generally and unconditionally to any state or federal court sitting in Dallas County, Texas, over any suit, action or proceeding arising out of or relating to this Agreement or the Senior Loan or the Mezzanine Loan.  Senior Lender and Subordinate Lender each hereby irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue in any such court and any claim that any such court is an inconvenient forum.

30.Waiver of Jury Trial.  SENIOR LENDER AND SUBORDINATE LENDER WAIVE TRIAL BY JURY IN RESPECT OF ANY CLAIM, COUNTERCLAIM, ACTION OR CAUSE OF ACTION RELATING TO OR ARISING OUT OF THIS AGREEMENT.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY SENIOR LENDER AND SUBORDINATE LENDER AND SENIOR LENDER AND SUBORDINATE LENDER HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.  SENIOR LENDER AND SUBORDINATE LENDER ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 30 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  SENIOR LENDER AND SUBORDINATE LENDER EACH FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

28

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written.

SUBORDINATE LENDER:
BEHRINGER HARVARD ST. ROSE REIT, LLC, a Delaware limited liability company
By:	Behringer Harvard St. Rose Venture, LLC, a Delaware limited liability company, its manager
	By:	Behringer Harvard St Rose, LLC, a Delaware limited liability company, its manager
		By:	/s/ Gerald J. Reihsen, III
			Gerald J. Reihsen, III Executive Vice President-Corporate Development & Legal and Secretary

Signature Page

SENIOR LENDER:
BANK OF AMERICA, N.A., a national banking association, in its capacity as Administrative Agent on behalf of the Senior Construction Lenders and for its own benefit, as Land Loan Lender
By:	/s/ Johanna Christiansen
	Name:	Johanna Christiansen
	Title:	Senior Vice President

Signature Page

ACKNOWLEDGMENT AND CONSENT

The undersigned hereby executes and delivers this Acknowledgment and Consent to and regarding the terms, conditions and covenants set forth in the Intercreditor and Subordination Agreement attached hereto (the “Intercreditor Agreement”).  The undersigned states that it has received a copy of the foregoing Intercreditor Agreement and agrees that it will recognize all rights granted therein to the respective lenders that are party thereto, and that it will not undertake any act or perform any obligation which is not in accordance with the provisions of the Intercreditor Agreement.

The undersigned further acknowledges and agrees that it is not an intended beneficiary under the Intercreditor Agreement.

EXECUTED as of December 31, 2008.

BORROWER:
SW 132 ST. ROSE SENIOR BORROWER, LLC, a Delaware limited liability company
By:	SW 131 St. Rose Mezzanine Borrower, LLC, a Delaware limited liability company, its sole member
	By:	SW 130 St. Rose Limited Partnership, a Delaware limited partnership, its sole member
		By:	SW 129 St. Rose Limited Partnership, a Delaware limited partnership, its general partner
			By:	SW 104 Development GP LLC, a Delaware limited liability company, its general partner
				By:	/s/ Timothy J. Hogan
					Name:	Timothy J. Hogan
					Title:	Vice President

Acknowledgement and Consent

MEZZANINE BORROWER:
SW 131 ST. ROSE MEZZANINE BORROWER, LLC, a Delaware limited liability company, its sole member
By:	SW 130 St. Rose Limited Partnership, a Delaware limited partnership, its sole member
	By:	SW 129 St. Rose Limited Partnership, a Delaware limited partnership, its general partner
		By:	SW 104 Development GP LLC, a Delaware limited liability company, its general partner
			By:	/s/ Timothy J. Hogan
				Name:	Timothy J. Hogan
				Title:	Vice President

Acknowledgement and Consent

EXHIBIT A

PROPERTY DESCRIPTION

PARCEL I:

THE NORTH HALF (N ½) OF THE NORTHWEST QUARTER (NW ¼) OF THE SOUTHWEST QUARTER (SW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SECTION 35, TOWNSHIP 22 SOUTH, RANGE 61 EAST, M.D.B.&M., CLARK COUNTY, NEVADA.

PARCEL II:

THE SOUTH HALF (S ½) OF THE NORTHEAST QUARTER (NE ¼) OF THE SOUTHWEST QUARTER (SW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SECTION 35, TOWNSHIP 22 SOUTH, RANGE 61 EAST, M.D.B.&M.

EXCEPTING THEREFROM THAT PORTION LYING WITHIN ST. ROSE PARKWAY.

PARCEL III:

THAT PORTION OF THE NORTHWEST QUARTER (NW ¼) OF SECTION 35, TOWNSHIP 22 SOUTH, RANGE 61 EAST, M.D.M., CITY OF HENDERSON, CLARK COUNTY, NEVADA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

THE SOUTH HALF (S ½) OF THE NORTHWEST QUARTER (NW ¼) OF THE SOUTHWEST QUARTER (SW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35.

TOGETHER WITH:

THOSE PORTIONS OF THE NORTH HALF (N ½) OF THE SOUTH HALF (S ½) OF THE SOUTHWEST QUARTER (SW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35 LYING NORTHWESTERLY OF THE NORTHWESTERLY RIGHT-OF-WAY OF ST. ROSE PARKWAY.

PARCEL IV:

BEING A PORTION OF THE SOUTH HALF (S ½) OF THE SOUTHEAST QUARTER (SE ¼) OF THE NORTHWEST QUARTER (NW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SECTION 35, TOWNSHIP 22 SOUTH, RANGE 61 EAST, M.D.B & M., CLARK COUNTY, NEVADA.

TOGETHER WITH THAT PORTION OF THE NORTH HALF (N ½) OF THE NORTHEAST QUARTER (NE ¼) OF THE SOUTHWEST QUARTER (SW ¼) OF THE NORTHWEST QUARTER (NW ¼), ALSO TOGETHER WITH THAT PORTION OF THE NORTH HALF (N ½) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35, LYING NORTHWESTERLY OF ST. ROSE PARKWAY, FURTHER DESCRIBED AS FOLLOWS:

A-1

BEGINNING AT THE SOUTHEAST CORNER OF THE NORTHWEST QUARTER (NW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35, SAID CORNER BEING MARKED BY AN ALUMINUM CAP MARKED “PLS 5269, 1994, NW 1/16”;

THENCE SOUTH 41°41’09” EAST, 174.75 FEET TO THE NORTHWESTERLY LINE OF ST. ROSE PARKWAY AS GRANTED IN BOOK 250 AS DOCUMENT NO. 202981, OFFICIAL RECORDS OF CLARK COUNTY, NEVADA;

THENCE ALONG SAID NORTHWESTERLY LINE, SOUTH 46°18’51” WEST, 297.97 FEET TO A POINT OF INTERSECTION OF SAID NORTHWESTERLY LINE WITH THE SOUTH LINE OF THE NORTH HALF (N ½) OF THE NORTHEAST QUARTER (NE ¼) OF THE SOUTHWEST QUARTER (SW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35;

THENCE ALONG THE LINES OF SAID NORTH HALF (N ½) THE FOLLOWING THREE (3) COURSES:

1.NORTH 89°22’43” WEST, 553.55 FEET;

2.NORTH 00°33’34” WEST, 330.00 FEET;

3.SOUTH 89°22’04” EAST, 663.09 FEET TO THE POINT OF BEGINNING.

EXCEPTING THEREFROM:

A PORTION OF THE SOUTH HALF (S ½) OF THE SOUTHEAST QUARTER (SE ¼) OF THE NORTHWEST QUARTER (NW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35, DESCRIBED AS FOLLOWS:

BEGINNING AT THE SOUTHWEST CORNER OF THE SOUTH HALF (S ½) OF THE SOUTHEAST QUARTER (SE ¼) OF THE NORTHWEST QUARTER (NW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35; THENCE NORTH 00 33’55” WEST, 330.09 FEET TO THE NORTHWEST CORNER OF THE SOUTH HALF (S ½) OF THE SOUTHEAST QUARTER (SE ¼) OF THE NORTHWEST QUARTER (NW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35; THENCE SOUTH 89°21’56” EAST, 663.21 FEET TO THE NORTHEAST CORNER OF THE SOUTH HALF (S ½) OF THE SOUTHEAST QUARTER (SE ¼) OF THE NORTHWEST QUARTER (NW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35; THENCE SOUTH 00°32’39” EAST, 330.06 FEET TO THE SOUTHEAST CORNER OF THE SOUTH HALF (S ½) OF THE SOUTHEAST QUARTER (SE ¼) OF THE NORTHWEST QUARTER (NW ¼) OF THE NORTHWEST QUARTER (NW ¼) OF SAID SECTION 35; THENCE NORTH 41°41’09” WEST, 316.13 FEET; THENCE SOUTH 48°18’51” WEST, 153.68 FEET TO THE BEGINNING OF A 500 FOOT RADIUS CURVE, CONCAVE NORTHWESTERLY; THENCE ALONG SAID CURVE TO THE RIGHT, 369.29 FEET THROUGH A CENTRAL ANGLE OF 42°19’05” TO THE POINT OF BEGINNING.

A-2

EXHIBIT B

DESCRIPTION OF MEZZANINE LOAN DOCUMENTS

1.Senior Mezzanine Loan Agreement and Junior Mezzanine Loan Agreement, each dated December 31, 2008 (the “Effective Date”), between Subordinate Lender and Mezzanine Borrower, relating to the Mezzanine Loan.

2.Senior Mezzanine Promissory Note and Junior Mezzanine Promissory Note, each dated as of the Effective Date in the aggregate principal amount of the Mezzanine Loan, executed by Mezzanine Borrower payable to the order of Subordinate Lender.

3.Senior Mezzanine Deed of Trust, Assignment of Rents, Security Agreement, Fixture Filing and Financing Statement and Junior Mezzanine Deed of Trust, Assignment of Rents, Security Agreement, Fixture Filing and Financing Statement, each dated as of the Effective Date and executed by Borrower in favor of the Trustee named therein for the benefit of Subordinate Lender.

4.Mezzanine Guaranty, dated as of the Effective Date and executed by Guarantors in favor of Subordinate Lender.

5.Mezzanine Environmental Indemnity Agreement, dated as of the Effective Date and executed by Mezzanine Borrower in favor of Subordinate Lender.

B-1

EXHIBIT C

DESCRIPTION OF SENIOR LOAN DOCUMENTS

Senior Construction Loan Documents.

1.Construction Loan Agreement dated as of the Effective Date between Administrative Agent, Senior Construction Lenders and Borrower.

2.One or more Deed of Trust Notes issued by Borrower to and for the benefit of the Senior Construction Lenders, in the aggregate principal amount of the Senior Construction Loan.

3.Deed of Trust, Assignment of Rents and Leases, Security Agreement, Financing Statement and Fixture Filing dated as of the Effective Date, executed by Borrower in favor of the Trustee named therein to Administrative Agent, for the benefit of Senior Construction Lenders.

4.Limited Recourse Guaranty Agreements, each dated as of the Effective Date, executed by Guarantors to and for the benefit of Administrative Agent, on behalf of the Senior Construction Lenders.

5.Environmental Indemnity Agreement dated as of the Effective Date, executed by Borrower and Guarantor to and for the benefit of Administrative Agent, on behalf of the Senior Construction Lenders.

6.Notice of Final Agreement dated as of the Effective Date, executed by Borrower and Guarantors in favor of Administrative Agent, on behalf of the Senior Construction Lenders.

7.UCC-1 Financing Statements covering Borrower in favor of Administrative Agent, on behalf of the Senior Construction Lenders.

8.Any Master Agreement now or hereafter executed by Borrower and Swap Bank and any and all amendments thereto and Swap Transactions executed thereunder.

Senior Land Loan Documents.

1.Term Loan Agreement dated as of the Effective Date between Land Loan Lender and Land Loan Borrower.

2.Deed of Trust Note issued by Land Loan Borrower to and for the benefit of Land Loan Lender, in the aggregate principal amount of the Land Loan.

3.Deed of Trust, Assignment of Rents and Leases, Security Agreement, Financing Statement and Fixture Filing dated as of the Effective Date, executed by Borrower in favor of the Trustee named therein for the benefit of Land Loan Lender.

C-1

4.Limited Recourse Guaranty Agreements, each dated as of the Effective Date, executed by Guarantors to and for the benefit of Land Loan Lender.

5.Environmental Indemnity Agreement dated as of the Effective Date, executed by Land Loan Borrower and Guarantor to and for the benefit of Land Loan Lender.

6.Notice of Final Agreement dated as of the Effective Date, executed by Land Borrower and Guarantors and Land Loan Lender.

7.UCC-1 Financing Statements covering Land Loan Borrower in favor of Land Loan Lender.

C-2

EX-10.10

Exhibit 10.10

SALE, PURCHASE AND ESCROW AGREEMENT

BETWEEN

VERANDAH OWNER LIMITED PARTNERSHIP

(Seller)

AND

HARVARD PROPERTY TRUST, LLC

(Purchaser)

AND

PARTNERS TITLE COMPANY

(Escrow Agent)

TABLE OF CONTENTS

Table of Contents

			Page
ARTICLE I PURCHASE AND SALE			1
	1.1	Background	1
	1.2	Purchase and Sale	1
ARTICLE II PURCHASE PRICE			3
	2.1	Price	3
	2.2	Investments	3
	2.3	Interest on the Deposit	4
	2.4	Existing Loan	4
	2.5	Option Consideration	5
ARTICLE III CONDITIONS TO THE PARTIES’ OBLIGATIONS			5
	3.1	Conditions to Purchaser’s Obligation to Purchase	5
	3.2	Conditions to Seller’s Obligation to Sell	6
ARTICLE IV PURCHASER’S DELIVERIES AND SELLER’S DELIVERIES TO ESCROW AGENT			7
	4.1	Purchaser’s Deliveries	7
	4.2	Seller’s Deliveries	7
	4.3	Failure to Deliver	8
ARTICLE V INVESTIGATION OF PROPERTY			8
	5.1	Survey	8
	5.2	Intentionally Deleted	8
	5.3	Review of Survey and Title	8
	5.4	Inspection of Property	9
	5.5	Operational Information	10
	5.6	No Obligation to Cure	11
	5.7	Inspection Period	11
	5.8	Right to Audit	11
	5.9	Proprietary Documents; Confidentiality	11
	5.10	Purchaser’s Responsibilities	12
	5.11	Purchaser’s Agreement to Indemnify	12
ARTICLE VI THE CLOSING			13
	6.1	Date and Manner of Closing	13
ARTICLE VII PRORATION, FEES, COSTS AND ADJUSTMENTS			13
	7.1	Prorations	13
	7.2	Seller’s Closing Costs	16

	7.3	Purchaser’s Closing Costs	16
ARTICLE VIII DISTRIBUTION OF FUNDS AND DOCUMENTS			16
	8.1	Delivery of the Purchase Price	16
	8.2	Other Monetary Disbursements	16
	8.3	Recorded Documents	16
	8.4	Documents to Purchaser	16
	8.5	Documents to Seller	17
	8.6	All Other Documents	17
ARTICLE IX RETURN OF DOCUMENTS AND FUNDS UPON TERMINATION			17
	9.1	Return of Seller’s Documents	17
	9.2	Return of Purchaser’s Documents	17
	9.3	Deposit	18
	9.4	Disbursement of Deposit	18
	9.5	No Effect on Rights of Parties; Survival	18
ARTICLE X DEFAULT			18
	10.1	Seller’s Remedies	18
	10.2	Purchaser’s Remedies	19
ARTICLE XI REPRESENTATIONS AND WARRANTIES			20
	11.1	Seller’s Warranties and Representations	20
	11.2	Purchaser’s Warranties and Representations	23
	11.3	No Other Warranties and Representations	24
ARTICLE XII CASUALTY AND CONDEMNATION			25
	12.1	Uniform Vendor and Purchaser Act Not Applicable	26
ARTICLE XIII CONDUCT PRIOR TO CLOSING			26
	13.1	Conduct	26
	13.2	Actions Prohibited	27
	13.3	Modification of Existing Leases and Service Contracts	28
	13.4	New Leases and Contracts	28
	13.5	Right to Cure	28
ARTICLE XIV OCCUPANCY CONTINGENCY			28
ARTICLE XV NOTICES			29
ARTICLE XVI TRANSFER OF POSSESSION			31
	16.1	Transfer of Possession	31
	16.2	Delivery of Documents at Closing	31
ARTICLE XVII GENERAL PROVISIONS			31
	17.1	Captions	31
	17.2	Exhibits	31

	17.3	Entire Agreement	31
	17.4	Modification	32
	17.5	Attorneys’ Fees	32
	17.6	Governing Law	32
	17.7	Time of Essence	32
	17.8	Survival of Warranties	32
	17.9	Assignment by Purchaser	32
	17.10	Severability	33
	17.11	Successors and Assigns	33
	17.12	Interpretation	33
	17.13	Counterparts	33
	17.14	Recordation	33
	17.15	Limitation on Liability	33
	17.16	Possession of Advisor	34
	17.17	Business Day	34
	17.18	Waiver of Jury Trial	34
ARTICLE XVIII ESCROW AGENT DUTIES AND DISPUTES			34
	18.1	Other Duties of Escrow Agent	34
	18.2	Disputes	35
	18.3	Reports	35

EXHIBITS

EXHIBIT A	—	Description of Land
EXHIBIT B	—	Rent Roll
EXHIBIT C	—	Form of Assignment of Leases and Contracts
EXHIBIT D	—	Form of Blanket Conveyance, Bill of Sale and Assignment
EXHIBIT E	—	Intentionally Omitted
EXHIBIT F	—	Service Contracts
EXHIBIT G	—	Form of Notice to Tenants
EXHIBIT H	—	FIRPTA Affidavit
EXHIBIT I	—	Form of Deed
EXHIBIT J	—	Personal Property
EXHIBIT K	—	Due Diligence Materials
EXHIBIT L	—	Lease Guidelines

INDEX OF DEFINED TERMS

Term	Section
Additional Funds	2.1.2
Advisor	5.4
Apartment Development	1.1
Assignment of Escrow Accounts	4.2.9
Assignment of Leases and Contracts	4.1.2
Assumption Documents	4.2.8
Blanket Conveyance	4.1.3
Closing	6.1
Code	11.2.5
Deed	4.2.1
Deposit	2.1.1
Due Diligence Materials	5.4
ERISA	11.2.5
Escrow Agent	Introduction
Existing Survey	5.1
Final Closing Date	6.1
Guarantor	3.2.4
Improvements	1.2(a)
Indemnitor	3.2.4
Inspection Period	5.6
Intangibles	1.2(e)
Land	1.2(a)
Lender	2.4
Lender Consent	2.4(e)
Lender Consent Notice	2.4(e)
Leases	1.2(c)
Limitation Period	10.2
Lists	11.1.11(2)(a)
Loan	2.4(a)
Loan Assumption Fee	7.2
Loan Documents	2.4(a)
Maximum Liability Cap	16.15
Mortgage	2.4(a)
Note	2.4(a)
Occupancy Condition	Art. XV
OFAC	11.1.14
Option Consideration	2.5
Order(s)	11.1.14
Original Lender	2.4(a)
Owner’s Affidavit	4.2.10
Permitted Exceptions	5.3

Permitted Outside Parties	5.9
Personal Property	1.2(b)
Property	1.2
Property Documents	5.9
Purchase Price	2.1
Purchaser	Introduction
Purchaser’s Action	10.1
Purchaser Assumption Documents	4.1.6
Real Property	1.2(a)
Rent Ready Condition	13.1.4
Rent Roll	1.2(c)
Seller	Introduction
Seller Assumption Documents	4.2.8
Seller Parties	16.15
Seller’s Broker	11.1.1
Service Contracts	1.2(d)
Survey	5.1
Tenant Payments	7.1.1
Title Commitment	3.1.3(i)
Title Company	3.1.3
Title Cure Period	5.3
Title Documents	5.3
Title Objections	5.3
Title Policy	3.1.3
Title Report	5.2
Title Review Period	5.3
Underlying Documents	3.1.3(i)

SALE, PURCHASE AND ESCROW AGREEMENT

This Agreement, dated as of January 26, 2009, is made by and between Verandah Owner Limited Partnership, a Delaware limited partnership (“Seller”), and Harvard Property Trust, LLC, a Delaware limited liability company (“Purchaser”) and constitutes (i) a contract of sale and purchase between the parties and (ii) an escrow agreement among Seller, Purchaser and Partners Title Company (“Escrow Agent”), the consent of which appears at the end hereof.

ARTICLE I

PURCHASE AND SALE

1.1Background.  Seller is the owner of a 301-unit apartment development commonly known as The Verandah at Meyerland Apartments (the “Apartment Development”) located at 4620 N. Braeswood Avenue, Houston, Harris County, Texas.  Purchaser is willing to enter into a contract to buy the Apartment Development on the terms provided in this Agreement, and Seller has indicated that it is willing to enter into a contract to sell the Apartment Development to Purchaser on the terms provided herein.

1.2Purchase and Sale.  Seller shall sell and convey to Purchaser, and Purchaser shall buy from Seller, the Property (as hereinafter defined) for the consideration and upon and subject to the terms, provisions, and conditions of this Agreement. The “Property” means:

(a)to the extent owned by Seller, the land situated in Harris County, Texas, more particularly described in Exhibit A (the “Land”), together with: (i) the Apartment Development and other improvements situated on the Land and all other structures, fixtures, buildings, and improvements situated on the Land (such buildings, structures, fixtures, and improvements being herein called the “Improvements”); (ii) any and all rights, titles, powers, privileges, easements, licenses, rights-of-way and interests appurtenant to the Land and the Improvements; (iii) all rights, titles, powers, privileges, licenses, easements, rights-of-way, and interests, if any, of Seller, either at law or in equity, in possession or in expectancy, in and to any real estate lying in the streets, highways, roads, alleys, rights-of-way or sidewalks, open or proposed, in front of, above, over, under, through or adjoining the Land and in and to any strips or gores of real estate adjoining the Land; (iv) and all rights, titles, powers, privileges, interests, licenses, easements, and rights-of-way appurtenant or incident to any of the foregoing, including, without limitation, to the extent owned by Seller, all mineral, oil, gas and other hydrocarbon substances on and under and that may be produced from the Land, as well as all development rights, land use entitlements, air rights, water, water rights, riparian rights, and water stock relating to the Land (Land and Improvements being sometimes collectively herein referred to as the “Real Property”);

(b)all equipment, fixtures, appliances, inventory, and other personal property of whatever kind or character owned by Seller and attached to or installed or located on or in the Land or the Improvements, including, without limitation, furniture, furnishings,

1

drapes and floor coverings, office equipment and supplies, heating, lighting, refrigeration, plumbing, ventilating, incinerating, cooking, laundry, communication, electrical, dishwashing, and air conditioning equipment, disposals, window screens, storm windows, recreational equipment, pool equipment, patio furniture, sprinklers, hoses, tools and lawn equipment (the “Personal Property”), a current list of the Personal Property being attached hereto as Exhibit J;

(c)all right, title, and interest of Seller in and to all leases, rental agreements, licenses, and other similar arrangements permitting occupancy or use by another of any apartment unit in the Improvements or any other space or area on the Land or in the Improvements, a current rent roll as of the date shown thereon being attached hereto as Exhibit B (the “Rent Roll”) (collectively, “Leases”), all guaranties of Leases, all rents, revenues, income, profits and receipts due under Leases or otherwise receivable by the owner of the Property for use or occupancy of any of the Property, and all security and other deposits and advance payments under Leases (subject to proration as provided in this Agreement);

(d)all right, title, and interest of Seller in and to all contracts to which Seller is a party relating to the operation, maintenance, or management of the Property, including any agreements for electric, gas, telephone, cable television, security alarm monitoring, sewer, trash collection or similar services, supply contracts, and brokerage and leasing agreements (collectively, the “Service Contracts”) to the extent that Service Contracts are assignable without consent, a current list of Service Contracts being attached hereto as Exhibit F, but specifically excluding any contract with any affiliate of Seller (which shall be terminated on or prior to the date of Closing (as hereinafter defined)) and specifically excluding any contracts terminated by Seller pursuant to Section 5.6;

(e)all right, title and interest of Seller in and to (i) all transferable permits, licenses, approvals, utility rights, development rights and similar rights related to the Property, if any, whether granted by governmental authorities or private persons, to the extent that such transferable permits, licenses, approvals, utility rights, development rights and similar rights are assignable without consent, (ii) all trademarks, trade names, or symbols under which the Land or the Improvements (or any part thereof) is operated including, without limitation, the name of “The Verandah at Meyerland” and the Internet domain name www.verandahmeyerland.com, (iii) all telephone numbers serving the Apartment Development, (iv) all of the right, title, and interest in and to all site plans, surveys, soil and substrata studies, architectural drawings, plans and specifications, engineering plans and studies, floor plans, landscape plans and other plans or studies of any kind that relate to the Land, the Improvements or the Personal Property in the possession of or under the control of Seller, and (v) all assignable warranties and  guaranties covering all or any part of the Property provided by any person and expressly including any warranty or guaranty from an affiliate of Seller, if any, (collectively, the “Intangibles”), provided that any cost to assign or transfer any of the Intangibles shall be paid by Purchaser; and

2

(f)all other rights, privileges and appurtenances owned by Seller directly relating to the above-described properties.

ARTICLE II

PURCHASE PRICE

2.1Price.  In consideration of the covenants herein contained, Seller hereby agrees to sell and Purchaser hereby agrees to purchase the Property for a total purchase price of TWENTY-NINE MILLION AND TWO-HUNDRED THOUSAND DOLLARS ($29,200,000) (the “Purchase Price”), which shall be paid by Purchaser as follows:

2.1.1Deposit.  Purchaser has delivered concurrently with its execution of this Agreement, or will deliver within two (2) business days, to Escrow Agent by bank wire of immediately available funds the sum of TWO-HUNDRED THOUSAND DOLLARS ($200,000) (the “Deposit”).

2.1.2Addition to Deposit.  On or before the expiration of the Investigation Period (as defined in Section 5.7), Purchaser shall deliver to Escrow Agent, by bank wire transfer of immediately available funds, an additional TWO-HUNDRED THOUSAND DOLLARS ($200,000) (the “Additional Funds”), unless Purchaser shall have terminated this Agreement in accordance with Section 5.7.  The Additional Funds shall be deemed part of the Deposit, for an aggregate Deposit of four-hundred thousand Dollars ($400,000).  If Purchaser fails to deliver the Additional Funds to Escrow Agent on or before the expiration of the Investigation Period (provided Purchaser has not terminated this Agreement in accordance with Section 5.7), such failure shall be a default under this Agreement.

2.1.3Balance of Purchase Price.  Purchaser shall, at least one (1) day before the Closing (as defined in Section 6.1), deliver to Escrow Agent, by bank wire transfer of immediately available funds, a sum equal to the balance of the Purchase Price, it being understood that Purchaser shall receive a credit against the Purchase Price in the amount of the outstanding principal balance of the Loan (as described in Section 2.4 below) as of the date of Closing which shall be $24,000,000, and which Purchaser shall assume subject to the terms thereof at Closing.  The balance of the Purchase Price received by Seller at Closing shall be adjusted to reflect prorations and other adjustments pursuant to Article VII.

2.2Investments.  Following the collection of the Deposit, Escrow Agent shall, at the direction of Purchaser, invest the Deposit in:

(i)obligations of the United States government, its agencies or independent departments;

(ii)certificates of deposit issued by a banking institution whose principal office is in New York City or Houston with assets in excess of $1 billion; or

3

(iii)an interest-bearing account of a banking institution whose principal office is in New York City or Houston with assets in excess of $1 billion.

No investment of the Deposit shall have a maturity date beyond the Final Closing Date (as defined in Section 6.1).

2.3Interest on the Deposit.  Any interest earned on the Deposit shall be credited and delivered to the party entitled to receive the Deposit, provided, however, that if the transaction closes, at Closing any interest earned on the Deposit shall be credited to Purchaser by applying the same against the Purchase Price.

2.4Existing Loan.  (a)  Seller has advised Purchaser that, as of the date of this Agreement, the Property is encumbered by a lien securing certain indebtedness (the “Loan”), which indebtedness is more particularly described in that certain Deed of Trust and Security Agreement given by Seller to Charles E. Odom, as trustee for Deutsche Banc Mortgage Capital, L.L.C., a Delaware limited liability company, as beneficiary (the “Original Lender”) dated as of August 11, 2006 and recorded on August 14, 2006 under Clerk’s File No. Z524614 of the Official Public Records of Harris County, Texas, as assigned by Original Lender to Wells Fargo Bank, N.A. as trustee for the Registered Holders of Banc of America Commercial Mortgage Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-4 (the “Lender”) pursuant to that certain Assignment of Deed of Trust and Security Agreement and Assignment of Assignment of Leases and Rents by Original Lender in favor of Lender dated as of August 29, 2006 and recorded on December 29, 2006 under Clerk’s File No. 20060294331 of the Official Public Records of Harris County, Texas (collectively, the “Mortgage”) and the Promissory Note in the original principal amount of $24,000,000 dated as of August 11, 2006 payable to Original Lender (the “Note” and together with the Mortgage, collectively the “Loan Documents”).  Provided that Seller and Purchaser obtain the approval of Lender as herein provided, Purchaser shall assume the Loan at Closing, subject to the terms and provisions of the Loan Documents.

(b)Promptly after the execution of this Agreement and the delivery to Seller of such information as is currently available to Purchaser to satisfy the requirements of Lender with respect to a transfer of the Property, Seller shall deliver to Lender a loan assumption request together with the applicable application fee set forth in the Loan Documents.  Purchaser and Seller shall then use commercially reasonable efforts to pursue the approval of Lender to the assignment and assumption of the Loan. Purchaser and Seller hereby agree to cooperate with the other in connection with the foregoing, including, without limitation, promptly furnishing all financial and other information reasonably required by Lender in connection with the foregoing, including without limitation any relating both to Purchaser and its partners or members, and otherwise satisfying Lender’s transfer requirements.

(c)Purchaser shall have the right to contact Lender directly to discuss the Loan and the terms of any assumption thereof, provided Purchaser shall use commercially reasonable efforts to advise Seller of all material matters (excluding confidential financial information) that Purchaser discusses with Lender with respect to the assignment and assumption of the Loan.

4

(d)In connection with the assumption of the Loan, Purchaser shall be solely responsible for the payment of any and all Lender application fees, $50,000 of the Loan assumption fee and other Lender fees and expenses (including Lender attorneys’ fees), including, without limitation, any portion thereof required to be paid at the time the request for consent is submitted to Lender, and any rating agency fees, provided however that Seller shall be obligated to pay $190,000 of the one percent (1%) Loan assumption fee ($240,000) and all of its expenses in connection with obtaining Lender Consent, including its own attorney fees.

(e)Seller and Purchaser shall use commercially reasonable efforts to obtain Lender’s agreement to the form of Loan Assumption and Consent Agreement in a form that is satisfactory to Purchaser, Lender and Seller (the “Lender Consent”).  If Purchaser and Lender are unable to agree upon an acceptable form of assumption agreement within thirty (30) days after Purchaser is in receipt of draft loan assumption documents from the Lender, Purchaser shall notify Seller in writing specifying the issues with respect to which Purchaser and Lender have failed to agree (the “Lender Consent Notice”).  Thereafter, Seller and/or Purchaser may terminate this Agreement by written notice to the other delivered within five (5) business days after receipt of the Lender Consent Notice, in which event, the obligations of the parties hereunder shall be null and void and of no further force and effect except those expressly stated to survive termination of this Agreement and the Deposit shall be returned to Purchaser, within five (5) business days after receipt of the termination notice by the non-terminating party.

2.5Option Consideration.  Seller hereby acknowledges receipt of the sum of ONE HUNDRED AND NO/100 DOLLARS ($100.00) cash (the “Option Consideration”) from Purchaser, as consideration for execution of this Agreement by Seller. If the purchase and sale of the Property is consummated pursuant to this Agreement, the Option Consideration shall be applied toward the cash portion of the Purchase Price paid by Purchaser. If this Agreement is terminated pursuant to a default by Seller hereunder, the Option Consideration shall be immediately returned by Seller to Purchaser. If this Agreement is terminated for any reason other than a default by Seller hereunder, Seller shall be entitled to retain the Option Consideration.

ARTICLE III

CONDITIONS TO THE PARTIES’ OBLIGATIONS

3.1Conditions to Purchaser’s Obligation to Purchase.  Purchaser’s obligation to purchase is expressly conditioned upon each of the following:

3.1.1Performance by Seller.  Performance in all material respects of the obligations and covenants of, and deliveries required of, Seller hereunder.

3.1.2Delivery of Title and Possession.  Delivery at the Closing of (i) all Closing documents as set forth in Section 4.2 hereof and (ii) possession as provided in Section 17.1.

3.1.3Title Insurance.  Delivery at the Closing of the standard current form of Texas Land Title Association (TLTA) owner’s policy of title insurance (the “Title

5

Policy”), or an irrevocable commitment to issue the same, with liability in the amount of the Purchase Price issued by Partners Title Company as agent for Chicago Title Insurance Company (the “Title Company”), insuring that good and indefeasible fee title to the Real Property vests in Purchaser subject to the Permitted Exceptions (as defined in Section 5.3) and the standard printed exceptions.

(i)Purchaser will procure a commitment for title insurance issued by the Title Company (the “Title Commitment, and all supporting encumbrance documents (the “Underlying Documents”).

(ii)Seller will pay via a closing adjustment the base premium for the basic cost of the Title Policy not to exceed $91,577.00.  At its option, Purchaser may direct the Title Company to issue additional title insurance endorsements if Purchaser pays for the extra cost of such additional endorsements, provided that the Title Company’s failure to issue any such additional endorsements shall not affect Purchaser’s obligations under this Agreement.

3.1.4Seller’s Representations.  The representations and warranties by Seller set forth in Section 11.1 being true and correct in all material respects as of the Closing except as modified by notice (in accordance with Section 11.1) to which Purchaser does not object in writing by the later of (i) three business days after receipt thereof or (ii) the end of the Investigation Period.

3.1.5Loan Assumption.  Lender’s willingness to execute and deliver Lender’s Consent .

3.2Conditions to Seller’s Obligation to Sell.  Seller’s obligation to sell is expressly conditioned upon each of the following:

3.2.1Performance by Purchaser.  Performance in all material respects of the obligations and covenants of, and deliveries required of, Purchaser hereunder.

3.2.2Receipt of Purchase Price.  Receipt of the Purchase Price and any adjustments due Seller under Article VII at the Closing in the manner herein provided.

3.2.3Loan Assumption.  Purchaser’s assumption of the Loan in accordance with Section 2.4 hereof and Purchaser’s satisfaction of all conditions required by Lender in connection therewith.

3.2.4Release. Release of all indemnities from Harry Bookey (the “Guarantor”) and Seller (collectively, the “Indemnitor”) with respect to that certain Environmental Indemnity Agreement dated August 11, 2006, by Indemnitor in favor of Original Lender, and the release of Guarantor from obligations and liability under the Guaranty and Indemnity dated as of August 11, 2006, by Guarantor in favor of Original Lender.  In addition, Seller’s obligation to sell is conditioned upon Seller’s receipt from Lender of a release of all of Seller’s obligations under the Loan Documents accruing on and after the Closing.

6

ARTICLE IV

PURCHASER’S DELIVERIES AND SELLER’S DELIVERIES TO ESCROW AGENT

4.1Purchaser’s Deliveries.  Purchaser shall, at or before the Closing, deliver to Escrow Agent each of the following:

4.1.1Purchase Price.  The balance of the Purchase Price as set forth in Article II.

4.1.2Assignment of Leases and Contracts.  Four (4) executed counterparts of the Assignment and Assumption of Leases, Contracts and Other Property Interests (the “Assignment of Leases and Contracts”) in the form of Exhibit C.

4.1.3Blanket Conveyance, Bill of Sale and Assignment.  Four (4) executed counterparts of a blanket conveyance, bill of sale, and assignment (the “Blanket Conveyance”) in the form of Exhibit D.

4.1.4Closing Statement.  An executed settlement statement reflecting the prorations and adjustments required under Article VII.

4.1.5Cash – Prorations.  The amount, if any, required of Purchaser under Article VII.

4.1.6Loan Assumption.  Such documents as may reasonably be required by Lender to be executed or delivered by Purchaser in connection with the assumption by Purchaser of the Loan (the “Purchaser Assumption Documents”).

4.2Seller’s Deliveries.  Seller shall, at or before the Closing, deliver to Escrow Agent each of the following:

4.2.1Deed.  A special warranty deed (the “Deed”) in the form of Exhibit I with respect to the Real Property, executed and acknowledged by Seller, pursuant to which Seller shall convey title to the Real Property subject to the Permitted Exceptions as defined in Section 5.3 hereof.

4.2.2Assignment of Leases and Contracts.  Four (4) executed counterparts of the Assignment of Leases and Contracts in the form of Exhibit C, and (whether through the closing escrow or through such other method of delivery as the parties may establish) original executed Leases (or copies if originals are not in Seller’s possession) and the Service Contracts which are to be assumed hereunder pursuant to Section 5.6 hereof.

4.2.3Blanket Conveyance, Bill of Sale and Assignment.  Four (4) executed counterparts of the Blanket Conveyance.

4.2.4Notices to Tenants.  A notice signed by Seller (or Seller’s manager for the Improvements) addressed to the tenants under the Leases in the form of Exhibit G.

7

4.2.5FIRPTA Affidavit.  Four (4) executed copies of an affidavit in the form of Exhibit H with respect to the Foreign Investment in Real Property Tax Act.

4.2.6Closing Statement.  An executed settlement statement reflecting the prorations and adjustments required under Article VII.

4.2.7Cash – Prorations.  The amount, if any, required of Seller under Article VII.

4.2.8Loan Assumption.  Such documents as may reasonably be required by Lender to be executed or delivered by Seller in connection with the assumption by Purchaser of the Loan (the “Seller Assumption Documents,” together with the Purchaser Assumption Documents, the “Assumption Documents”).

4.2.9Assignment of Deed of Trust Escrow Accounts.  Four (4) executed counterparts of the Assignment of Deed of Trust Escrow Accounts (the “Assignment of Escrow Accounts”).

4.2.10Owner’s Affidavit.  A customary owner’s affidavit (the “Owner’s Affidavit”) in a form reasonably satisfactory to the Title Company certifying to the Title Company that there are no unpaid bills or claims relating to the Property as of the date of Closing except as specified, and whatever documentation may be reasonably requested or required in order to confirm the proper authority of Seller to consummate this transaction and to issue the Title Policy.

4.3Failure to Deliver.  The failure of Purchaser or Seller to make any delivery required above by and in accordance with this Article IV which is not waived by the other party shall constitute a default hereunder by Purchaser or Seller, as applicable.

ARTICLE V

INVESTIGATION OF PROPERTY

5.1Survey.  Seller has, in accordance with Section 5.6 below and as one of the Due Diligence Materials (as defined therein), delivered to Purchaser an existing survey of the Land and Improvements prepared by Terra Surveying Co., Inc. (the “Existing Survey”).  Within the Title Review Period (hereinafter defined), Purchaser, using commercially reasonable efforts, and at its sole expense, shall cause to be delivered to Seller and Title Company a current plat of an “as-built” “update” of the Existing Survey in form acceptable to Purchaser (the “Survey”), and a field note description thereof, prepared and certified as to all matters shown thereon by a licensed professional engineer or surveyor acceptable to the Title Company and in such form and substance sufficient to permit deletion from the Title Policy of the survey exception except for “shortages in area”.

5.2Intentionally Deleted.

5.3Review of Survey and Title.  Purchaser shall have a period (the “Title Review Period”) ending at 5 p.m. Central Standard Time fifteen (15) days after the Effective Date within

8

which to review the Survey, the Title Commitment, and the Underlying Documents (collectively, “Title Documents”) and give Seller written notice of its objection to the condition of title reflected by the Title Documents (the “Title Objections”). With regard to any objection so made by Purchaser, Seller shall reasonably cooperate with Purchaser to remedy such objection, but Seller shall not be obligated to pay any sum of money or to incur any obligation or liability to any third party as any inducement to remove an objection to title other than (i) a voluntary lien against the Property recorded subsequent to the date of the Title Commitment and consented to by Seller, or (ii) any mechanic’s or materialman’s lien arising from work contracted for by Seller.  If Seller does not cure such objections or agree in writing to cure such objections within ten (10) days after receipt of Purchaser’s written objections (the “Title Cure Period”), Purchaser may, at its option, (i) waive such uncured objections and accept such title as Seller can deliver, or (ii) terminate this Agreement by notice in writing delivered to Seller within five (5) business days after the end of the Title Cure Period and receive back the Deposit.  In such event, if no termination notice is given under (ii) above, Purchaser shall be deemed to have waived such uncured objections and shall accept such title as Seller can deliver.  In the event of such termination, neither party shall have any further rights or obligations under this Agreement except for those that expressly survive the termination hereof.  In the event Purchaser fails to furnish Seller, on or before the end of the Title Review Period, either written notice that the Survey, the Title Report, and the Underlying Documents are satisfactory, or written notice of Purchaser objections to the Survey, the Title Report, and/or the Underlying Documents, Purchaser shall be deemed to have waived any objection to the Survey, Title Report, and the Underlying Documents and shall accept such title as Seller can deliver.  In any event, any title matters that Seller does not expressly agree in writing to cure by written notice to Purchaser or that Seller is not expressly obligated to cure as provided above and that the Title Company does not agree to remove shall be “Permitted Exceptions” and deemed waived by Purchaser if Purchaser does not elect to terminate this Agreement prior to the expiration of the Title Cure Period.  The term “Permitted Exceptions” shall mean: the specific exceptions in the Title Report that the Title Company has not agreed to remove from the Title Report as of the end of the Title Cure Period and that Seller is not required to remove as provided above; any other lien, encumbrance, easement or other exception or matter voluntarily imposed or consented to by Purchaser prior to or as of the Closing or matters created by, through or under Purchaser; items shown on the Survey which have not been removed as of the end of the Title Cure Period; real estate taxes not yet due and payable; rights of tenants under the Leases and any other leases executed in accordance with this Agreement after the date hereof, and the rights of tenants thereunder; rights of tenants or licensees under Service Contracts not terminated as of Closing; all exceptions (including printed exceptions) to title contained or disclosed in the Title Commitment other than Title Objections identified and not thereafter waived by Purchaser; all matters, rights and interests that would be discovered by an inspection or survey of the Property; and the deed of trust and any other security instruments securing or evidencing the Loan.

5.4Inspection of Property.  Seller, at its expense, shall deliver or make available to Purchaser copies of all material documents on the attached list attached hereto as Exhibit K, in addition to materials and documents previously delivered to Purchaser (together, the “Due Diligence Materials”) Purchaser and its agents and duly authorized representatives shall have the right to inspect the condition of the Land, Improvements and Personal Property and the books and records of Seller pertaining thereto during reasonable business hours.  Seller hereby agrees

9

to give Purchaser its reasonable cooperation in connection with such inspections, provided that (i) Purchaser must give Seller twenty-four (24) hours’ prior telephone or written notice of any such inspection or test, and with respect to any intrusive inspection or test (i.e., core sampling) must obtain Seller’s prior written consent (which consent may be given, withheld or conditioned in Seller’s sole discretion), (ii) prior to performing any inspection or test, Purchaser must deliver a certificate of insurance to Seller evidencing that Purchaser and its contractors, agents and representatives have in place not less than $1,000,000 of comprehensive general liability insurance (including a contractual liability endorsement insuring Purchaser’s indemnity obligation under this Agreement) covering any accident or damage arising in connection with the presence of Purchaser, its contractors, agents and representatives on the Property, which insurance shall name Seller and BlackRock Realty Advisors, Inc. (“Advisor”) as additional insureds thereunder, issued by a licensed company qualified to do business in the State in which the Property is located, and (iii) all such tests shall be conducted by Purchaser in compliance with Purchaser’s responsibilities set forth in Section 5.9 below.  Purchaser shall bear the cost of all such inspections or tests.

5.5Operational Information.  In addition, Seller agrees specifically to provide upon request of Purchaser or make available to Purchaser (in Seller’s offices or at the management office of Seller’s local property manager or at the Property), to the extent in Seller’s possession or control and to the extent not previously delivered under Section 5.4 above or made available to Purchaser under Section 5.4 above, the following:

5.5.1Leases and Contracts.  Copies of the Leases and the Contracts.

5.5.2Plans and Specifications.  To the extent in Seller’s possession, copies of all plans and specifications for the Improvements.

5.5.3Reports.  To the extent in Seller’s possession, copies of all environmental reports prepared by third parties.

5.5.4Permits.  To the extent in Seller’s possession, copies of all governmental permits, certificates of occupancy and approvals, in each case regarding the Property.

5.5.5Loan Documents.  Copies of the Loan Documents.

5.5.6Other.  Such additional customary documentation and instruments as Purchaser may reasonably request.

  If Purchaser terminates this Agreement as set forth in Section 5.6 below, then the Due Diligence Materials and all other information, documents and materials furnished by Seller to Purchaser shall be returned promptly to Seller (which obligation shall survive the termination of this Agreement).  Purchaser agrees that, in the exercise of the right of access granted hereby, it will not unreasonably interfere with or permit unreasonable interference with any person occupying or providing service at the Property.  Purchaser agrees that it or its agents will not communicate with any tenants without the consent of Seller.

10

5.6No Obligation to Cure.  Nothing contained in this Agreement or otherwise shall require Seller to render its title marketable or to remove or correct any exception or matter disapproved by Purchaser or to spend any money or incur any expense in order to do so except as set forth in Section 5.3 hereof.

5.7Inspection Period.  Purchaser shall have until 5 p.m. Central Standard Time on February 20, 2009 (“Inspection Period”) within which to review, examine, inspect, test and satisfy itself as to the condition of the Land, Improvements and Personal Property and the operational information relating thereto. In the event that such inspection indicates that the Property is not satisfactory to Purchaser, in Purchaser’s sole and absolute discretion, Purchaser may terminate this Agreement by notice in writing delivered to Seller prior to the expiration of the Inspection Period, in which event the Deposit will be returned to Purchaser, and neither party shall have any further right or obligation hereunder other than as set forth herein with respect to rights or obligations which survive termination.  If this Agreement is not terminated by written notice to Seller in the manner and within the time provided in this Section 5.7, Purchaser’s right to terminate this Agreement pursuant to this Section 5.7 and any and all objections with respect to the Inspection Period will be deemed to have been waived by Purchaser for all purposes.  Except as provided below, Seller shall cause all Service Contracts to be terminated effective as of or prior to the date of Closing, provided that (i) Seller shall have no obligation to assign or terminate, and Purchaser shall be obligated to assume, any Service Contracts which by their terms cannot be assigned or  terminated without penalty or payment of a fee and (ii) Seller shall not terminate any Service Contracts which Purchaser notifies Seller in writing prior to the expiration of the Inspection Period that it desires to assume.  At Closing Seller shall assign and Purchaser must assume the obligations arising from and after the Closing Date under those Service Contracts that Purchaser is obligated or desires to assume pursuant to this Section 5.7.

5.8Right to Audit.  At Purchaser’s request, at any time before Closing or within one (1) year after Closing, and without material cost or expense to Seller, Seller shall provide to Purchaser’s designated independent auditor reasonable access to the books and records of the Property to the extent in Seller’s possession, and all related information in Seller’s possession regarding the period for which Purchaser is required to have the Property audited under the regulations of the Securities and Exchange Commission, Purchaser agrees to indemnify and hold harmless Seller from any claim, damage, loss, or liability to which Seller is at any time subjected by any person who is not a party to this Agreement as a result of Seller’s compliance with this paragraph, except to the extent any such claim, damage, loss or liability arises from Seller’s fraud or intentional misrepresentation, which indemnification shall survive the Closing or earlier termination of this Agreement.

5.9Proprietary Documents; Confidentiality.  Purchaser acknowledges that the documents and information provided or made available to Purchaser pursuant to this Agreement, including without limitation the documents and information described in Sections 5.4 and 5.5 above (collectively, the “Property Documents”) are proprietary and confidential and will be delivered to Purchaser solely to assist Purchaser in determining the feasibility of purchasing the Property.  Purchaser shall not use the Property Documents for any purpose other than as set forth in the preceding sentence.  Purchaser shall not disclose the contents to any person other than to those persons who are responsible for determining the feasibility of Purchaser’s acquisition of the Property and who have agreed to preserve the confidentiality of such information as required

11

hereby (collectively, “Permitted Outside Parties”); provided, however, Purchaser shall disclose only such information to a particular Permitted Outside Party as is reasonably necessary for that Permitted Outside Party to perform its role in assisting Purchaser to determine the feasibility of its acquisition of the Property, and nothing more. Purchaser shall not divulge the contents of the Property Documents and other information except in strict accordance with the confidentiality standards set forth in this Section 5.9.  In permitting Purchaser to review the Property Documents or any other information, Seller has not waived any privilege or claim of confidentiality with respect thereto, and no third party benefits or relationships of any kind, either express or implied, have been offered, intended or created.  Purchaser shall not at any time issue a press release or otherwise communicate with media representatives regarding this sale and purchase unless such release or communication occurs after the Closing, but in no event shall such press release or media communication include information regarding the Purchase Price.  Purchaser shall promptly deliver all Property Documents to Seller in the event that the  Closing does not occur.  This Section 5.9 shall survive the Closing or termination of this Agreement.

5.10Purchaser’s Responsibilities.  In conducting any inspections, investigations or tests of the Property and/or Property Documents, Purchaser and its agents and representatives shall:  (i) not disturb the tenants or interfere with their use of the Property pursuant to their respective Leases; (ii) not interfere with the operation and maintenance of the Property; (iii) not damage any part of the Property or any personal property owned or held by any tenant or any third party; (iv) not injure or otherwise cause bodily harm to Seller or its agents, guests, invitees, contractors and employees or any tenants or their guests or invitees; (v) comply with all applicable laws; (vi) promptly pay when due the costs of all tests, investigations, and examinations done with regard to the Property; (vii) allow Seller to have a representative present during any such inspection or test; (viii) cooperate with any reasonable request by Seller in connection with the timing of any such inspection or test; (ix) provide Seller, upon Seller’s request, with a copy of any written inspection or test report or summary prepared by any third party; (x) not permit any liens to attach to the Property by reason of the exercise of its rights hereunder; (xi) not reveal or disclose prior to Closing any information obtained during the Inspection Period concerning the Property and the Property Documents to anyone other than the Permitted Outside Parties, in accordance with the confidentiality standards set forth in Section 5.9 above, or except as may be otherwise required by law.  Purchaser agrees at its own expense to promptly repair or restore the Property, if any inspection or test requires or results in any damage to or alteration of the condition of the Property, and that the obligations set forth in this sentence shall survive the Closing or any termination of this Agreement.

5.11Purchaser’s Agreement to Indemnify.  Purchaser hereby agrees to indemnify, defend and hold harmless Seller, Advisor, and their affiliates, members, partners, subsidiaries, shareholders, officers, directors and agents from and against any and all liens, claims, causes of action, damages, liabilities, losses, injuries, costs, and expenses (including reasonable attorneys’ fees and costs) arising out of inspections or tests by Purchaser or its employees, consultants, agents or representatives permitted under this Agreement ; provided, however, the indemnity shall not extend to protect Seller from any pre-existing liabilities for matters merely discovered by Purchaser (i.e., latent environmental contamination) so long as Purchaser’s actions do not aggravate any pre-existing liability of Seller.  Furthermore, Purchaser shall be liable only for direct damages, and not incidental, consequential or punitive damages (except to the extent

12

Seller is liable to third parties for such incidental, consequential or punitive damages for which Purchaser shall provide indemnity) and Purchaser shall not be liable for claims to the extent arising in whole or in part from the negligence of Seller, its agents, independent contractors, servants and/or employees.  Purchaser’s obligations under this Section 5.11 shall survive the termination of this Agreement and shall survive the Closing.

ARTICLE VI

THE CLOSING

6.1Date and Manner of Closing.  Escrow Agent shall close the escrow (the “Closing”) as soon as all conditions to closing contained in this Agreement have been satisfied (or deemed satisfied) or waived in writing which shall in any event be not later than 12:00 noon Central Standard Time on the date that is ten (10) days after the later of (i) the expiration of the Investigation Period or (ii) Lender’s confirmation of its willingness to immediately execute and deliver the Lender Consent (the “Final Closing Date”), and thereafter recording and delivering all documents and funds as set forth in Article VIII.  Notwithstanding anything herein to the contrary, the Final Closing Date shall occur on or before May 1, 2009, after which date either party shall have the right to terminate this Agreement by written notice to the other, in which event the Deposit shall be returned to the Purchaser.

ARTICLE VII

PRORATION, FEES, COSTS AND ADJUSTMENTS

7.1Prorations.  Prior to the Closing, Seller and Purchaser shall determine the amounts of the prorations in accordance with this Agreement within no less than two (2) days prior to Closing.  Purchaser shall review and approve such determination promptly and prior to the Closing, such approval not to be unreasonably withheld or delayed.  Thereafter, Purchaser and Seller shall each inform Escrow Agent of such amounts.

7.1.1Certain Items Prorated.  In accordance with the notifications, Escrow Agent shall prorate between the parties (and the parties shall deposit funds therefor with Escrow Agent or shall instruct Escrow Agent to debit against sums held by Escrow Agent owing to such party), as of 11:59 p.m. the day prior to the Closing, all income and operating expenses with respect to the Property and payable to or by the owner of the Property, including, without limitation:  (i) all real property and personal property taxes and assessments on the basis of the fiscal period for which assessed (if the Closing shall occur before the tax rate is fixed, the apportionment of taxes shall be based on the tax rate for the preceding period applied to the latest assessed valuation and after the Closing, when the actual real property and personal property taxes are finally fixed, Seller and Purchaser shall promptly make a recalculation of such proration, and the appropriate party shall make the applicable payment reflecting the recalculation to the other party); (ii) rents and other tenant payments and tenant reimbursements, if any (collectively, “Tenant Payments”), received and collected under the Leases; (iii) charges for water, sewer, electricity, gas, fuel and other utility charges, all of which shall be read promptly

13

before Closing, unless Seller elects to close its own applicable account, in which event Purchaser shall open its own account and the respective charges shall not be prorated; (iv) amounts prepaid and amounts accrued but unpaid on Service Contracts which are to be assumed by Purchaser under the terms hereof; and (v) periodic fees for licenses, permits or other authorizations, if any, with respect to the Property.  If such charges, expenses and income are unavailable at the Closing, a readjustment shall be made within thirty (30) days after the Closing of these items.

7.1.2Leasing Commissions.  At the Closing, Purchaser and Seller shall prorate, based on the portion of the term of the applicable Lease occurring before and after the Closing, all leasing commissions entered into after the end of the Investigation Period, any renewal or extension of an existing Lease after such date and any new lease referred to in Section 13.4.

7.1.3Taxes.

(a)Real property tax refunds and credits received after the Closing which are attributable to a fiscal tax year prior to the year of Closing shall belong to Seller.  Any such refunds and credits attributable to the fiscal tax year during which the Closing occurs shall be apportioned between Seller and Purchaser after deducting the reasonable out-of-pocket expenses of collection thereof.  This apportionment obligation shall survive the Closing.

(b)If any tax appeal or certiorari proceedings shall not have been finally resolved or settled prior to the Closing and shall relate to the year 2008 or a prior year, Seller, at its sole cost and expense, shall be entitled to control the disposition of any such tax appeal or certiorari proceeding and shall be entitled to any refunds received therefrom.  With respect to the 2009 tax year, Purchaser shall be entitled to control any tax protest and any refunds received therefrom, net of any expenses incurred by Purchaser in connection therewith, shall be prorated between the parties on the basis of the portions accruing to periods before and after the Closing.

(c)Payment of rollback taxes that are the result of the change of Purchaser’s use of the property after Closing that result in the assessment of additional taxes, penalties or interest (assessment) for periods before Closing shall be the responsibility of Purchaser

7.1.4Security and Other Deposits.  At the Closing, Seller shall deliver to Purchaser all unapplied refundable security and pet deposits (plus interest accrued thereon to the extent required to be paid by the applicable Leases or applicable laws) required to be held by Seller under the Leases and Purchaser shall pay Seller an amount equal to all utility and contract deposits then held by third parties with respect to the Property and transferred to Purchaser hereunder.

14

7.1.5Adjustments.

(a)With respect to delinquent rentals and any other rentals not collected as of the Closing (and thus not prorated as of Closing), Purchaser shall make a commercially reasonable and customary attempt to collect the same for Seller’s benefit after the Closing and such collection, if any, shall be remitted to Seller promptly upon receipt by Purchaser. Nothing contained herein shall operate to require Purchaser to institute any lawsuit or other legal collection procedure to collect such delinquent rentals. Purchaser and Seller agree that any sums received by Purchaser from any tenants after Closing shall be applied (i) first to rentals due for the month during which the Closing occurs (and said rentals shall be allocated between Seller and Purchaser as if same had been prorated at Closing, with the amount due Seller to be paid to Seller promptly upon receipt by Purchaser), (ii) second, to current rentals due after the month in which the Closing occurs, (iii) third, to delinquent rentals owed with respect to the period after the month in which the Closing occurs, and (iv) fourth, to delinquent rentals owed with respect to the period prior to Closing, regardless of the designation of such sums by the tenant. In addition to Purchaser’s agreement set forth above to pursue delinquent rents for the benefit of Seller, Seller shall have the right to pursue collection of delinquent rents, but Seller agrees that it will initiate no suit or legal proceeding to collect delinquent rents from a tenant so long as they remain a tenant of the Property.

(b)Seller shall receive a credit for the amount of all reserve escrow accounts under the Loan to be assigned to Purchaser at the Closing.

(c)Purchaser shall not receive a credit at the Closing for its prorated portion of any bonus or other up front payment previously made and received by Seller under or in connection with any Service Contract, including, without limitation, laundry room leases, security system, internet, satellite and cable TV leases or contracts entered into prior to Closing.

7.1.6Insurance.  Seller’s existing liability and property insurance pertaining to the Property shall be canceled as of the Closing, and Seller shall receive any premium refund due thereon.

7.1.7Loan Escrows and Interest.  In the event Lender retains any tax, insurance or other escrow amount (including any amounts which have been funded but held back) and are assigned to Purchaser pursuant to the Assignment of Escrow Account, the amounts thereof shall be paid to Seller at Closing.  Any accrued and unpaid interest on the Loan shall be credited against the Purchase Price.  Seller shall notify Purchaser of such amounts, if any, no later than five (5) days prior to the Closing.

7.1.8Survival.  The provisions of this Article VII shall survive the Closing of this transaction and the payment of any consideration and the delivery of all closing instruments.

15

7.2Seller’s Closing Costs.  Seller shall pay (i)  one-half of Escrow Agent’s escrow fee or escrow termination charge, (ii) the cost of any update to the Existing Survey of the Property, (iii) $91,577 towards the cost of the base Title Policy, (iv) all brokerage fees, (v) $190,000 of the one percent (1%) loan assumption fee of $240,000 (the “Loan Assumption Fee”), and (vi) Seller’s own attorneys’ fees.  In addition, Seller shall be responsible for any sales or use taxes imposed, if any, resulting from this transaction.

7.3Purchaser’s Closing Costs.   Purchaser shall pay (i) any documentary stamp or transfer tax, (ii) one-half of Escrow Agent’s escrow fee or escrow termination charge, (iii) the cost of any other title insurance endorsements ordered by Purchaser and any difference in price between the base title premium for the base Title Policy and $91,577, (iv) any costs incurred in recording the Deed or any other instruments, (v) any costs incurred in connection with Purchaser’s investigation of the Property pursuant to Article V, including the cost of any new environmental assessment commissioned by Purchaser, (vi) all costs and expenses of Lender in connection with obtaining Lender Consent as described in Section 2.4(d) hereof, any rating agency fees and $50,000 of the Loan Assumption Fee, and (vii) Purchaser’s own attorneys’ fees.

ARTICLE VIII

DISTRIBUTION OF FUNDS AND DOCUMENTS

8.1Delivery of the Purchase Price.  At the Closing, Escrow Agent shall deliver the Purchase Price to Seller, and the transaction shall not be considered closed until such delivery occurs.

8.2Other Monetary Disbursements.  Escrow Agent shall, at the Closing, hold for personal pickup or arrange for wire transfer, (i) to Seller, or order, as instructed by Seller, all sums and any proration or other credits to which Seller is entitled and less any appropriate proration or other charges and (ii) to Purchaser, or order, any excess funds therefore delivered to Escrow Agent by Purchaser and all sums and any proration or other credits to which Purchaser is entitled and less any appropriate proration or other charges.

8.3Recorded Documents.  Escrow Agent shall cause the Deed and any other documents that Seller or Purchaser desires to record to be recorded with the appropriate county recorder and, after recording, returned to the grantee, beneficiary or person acquiring rights under said document or for whose benefit said document was required.

8.4Documents to Purchaser.  Escrow Agent shall at the Closing deliver by overnight express delivery to Purchaser the following:

(1)one conformed copy of the Deed showing all recording data;

(2)two originals of the Assignment of Leases and Contracts;

(3)two originals of the Blanket Conveyance;

(4)two originals of the Assignment of Escrow Accounts;

(5)one original of the Notice to Tenants;

(6)two originals of the FIRPTA Affidavit;

(7)one original of the Closing Statement;

16

(8)one original of all Assumption Documents;

(9)one original of the Title Policy; and

(10)one original of any Owner Affidavit.

8.5Documents to Seller.  Escrow Agent shall at the Closing deliver by overnight express delivery to Seller, the following:

(1)one conformed copy of the Deed showing all recording data;

(2)two originals of the Assignment of Leases and Contracts;

(3)two originals of the Blanket Conveyance;

(4)two originals of the Assignment of Escrow Accounts;

(5)one copy of the Notice to Tenants;

(6)two originals of the FIRPTA Affidavit;

(7)one original of the Closing Statement;

(8)one copy of all Assumption Documents;

(9)one copy of the Title Policy; and

(10)one copy of any Owner Affidavit.

8.6All Other Documents.  Escrow Agent shall at the Closing deliver by overnight express delivery, each other document received hereunder by Escrow Agent to the person acquiring rights under said document or for whose benefit said document was required.

ARTICLE IX

RETURN OF DOCUMENTS AND FUNDS UPON TERMINATION

9.1Return of Seller’s Documents.  If escrow or this Agreement is terminated by Purchaser for any reason, Purchaser shall, within five (5) days following such termination, deliver to Seller all documents and materials relating to the Property previously delivered to Purchaser by Seller and copies of all reports and studies obtained by Purchaser from third parties in connection with the Property and Purchaser’s investigation thereof.  Such items shall be delivered without representation or warranty as to accuracy or completeness and with no right of Seller to rely thereon without the consent of the third party.  Escrow Agent shall deliver all documents and materials deposited by Seller and then in Escrow Agent’s possession to Seller and shall destroy any documents executed by both Purchaser and Seller.  Upon delivery by Escrow Agent to Seller (or such destruction, as applicable) of such documents and materials, Escrow Agent’s obligations with regard to such documents and materials under this Agreement shall be deemed fulfilled and Escrow Agent shall have no further liability with regard to such documents and materials to either Seller or Purchaser.

9.2Return of Purchaser’s Documents.  If escrow or this Agreement is terminated by Seller for any reason, Escrow Agent shall deliver all documents and materials deposited by Purchaser and then in Escrow Agent’s possession to Purchaser and shall destroy any documents executed by both Purchaser and Seller. Upon delivery by Escrow Agent to Purchaser (or such destruction, as applicable) of such documents and materials, Escrow Agent’s obligations with regard to such documents and materials under this Agreement shall be deemed fulfilled and

17

Escrow Agent shall have no further liability with regard to such documents and materials to either Seller or Purchaser.

9.3Deposit.  If escrow or this Agreement is terminated (i) pursuant to Section 2.4(e), Section 5.7, Section 10.2, Article XII, or Article XIV, or (ii) due to the failure of a condition set forth in Section 3.1, then Purchaser shall be entitled to obtain the return of the Deposit pursuant to Section 9.4 below.  If the Closing does not take place and escrow or this Agreement is terminated for any other reason, Seller shall be entitled to the Deposit by retaining or causing Escrow Agent to deliver the Deposit to Seller pursuant to Section 9.4 below.

9.4Disbursement of Deposit.  If Escrow Agent receives a notice from either party instructing Escrow Agent to deliver the Deposit to such party, Escrow Agent shall deliver a copy of the notice to the other party within three (3) days after receipt of the notice.  If the other party does not object to the delivery of the Deposit as set forth in the notice within three (3) business days after receipt of the copy of the notice, Escrow Agent shall, and is hereby authorized to, deliver the Deposit to the party requesting it pursuant to the notice.  Any objection hereunder shall be by notice setting forth the nature and grounds for the objection and shall be sent to Escrow Agent and to the party requesting the Deposit.

9.5No Effect on Rights of Parties; Survival.  The return of documents and monies as set forth above shall not affect the right of either party to seek such legal or equitable remedies as such party may have under Article X with respect to the enforcement of this Agreement.  The obligations under this Article IX shall survive termination of this Agreement.

ARTICLE X

DEFAULT

10.1Seller’s Remedies.  If, for any reason whatsoever (other than the failure of a condition set forth in Section 3.1 and other than a termination of this Agreement pursuant to Section 2.4(e), Section 5.7, Section 10.2, Article XII, or Article XIV), Purchaser fails to complete the acquisition as herein provided, Purchaser shall be in breach of its obligations hereunder and Seller shall be released from any further obligations hereunder.  BY INITIALING BELOW, PURCHASER AND SELLER HEREBY ACKNOWLEDGE AND AGREE THAT SELLER’S ACTUAL DAMAGES IN THE EVENT OF SUCH A BREACH OF THIS AGREEMENT BY PURCHASER WOULD BE EXTREMELY DIFFICULT OR IMPOSSIBLE TO DETERMINE, THAT THE AMOUNT OF THE DEPOSIT IS THE PARTIES’ BEST AND MOST ACCURATE ESTIMATE OF THE DAMAGES SELLER WOULD SUFFER IN THE EVENT THE TRANSACTION PROVIDED FOR IN THIS AGREEMENT FAILS TO CLOSE, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT.  PURCHASER AND SELLER AGREE THAT SELLER’S RIGHT TO RETAIN THE DEPOSIT SHALL BE THE SOLE AND EXCLUSIVE REMEDY OF SELLER AT LAW IN THE EVENT OF SUCH A BREACH OF THIS AGREEMENT BY PURCHASER. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION 10.1, IF PURCHASER BRINGS AN ACTION AGAINST SELLER FOR AN ALLEGED BREACH OR DEFAULT BY SELLER OF ITS OBLIGATIONS UNDER THIS AGREEMENT, RECORDS A LIS PENDENS OR

18

OTHERWISE ENJOINS OR RESTRICTS SELLER’S ABILITY TO SELL AND TRANSFER THE PROPERTY OR REFUSES TO CONSENT TO OR INSTRUCT RELEASE OF THE DEPOSIT TO SELLER IF REQUIRED BY ESCROW AGENT AND SELLER IS ENTITLED THERETO UNDER THE TERMS HEREOF (EACH A “PURCHASER’S ACTION”), SELLER SHALL NOT BE RESTRICTED BY THE PROVISIONS OF THIS SECTION 10.1 FROM BRINGING AN ACTION AGAINST PURCHASER SEEKING EXPUNGEMENT OR RELIEF FROM ANY IMPROPERLY FILED LIS PENDENS, INJUNCTION OR OTHER RESTRAINT, AND/OR RECOVERING FEES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES) WHICH SELLER MAY SUFFER OR INCUR AS A RESULT OF ANY PURCHASER’S ACTION BUT ONLY TO THE EXTENT THAT SELLER IS THE PREVAILING PARTY; AND THE AMOUNT OF ANY SUCH FEES, COSTS AND EXPENSES AWARDED TO SELLER SHALL BE IN ADDITION TO THE LIQUIDATED DAMAGES SET FORTH HEREIN.  NOTHING IN THIS AGREEMENT SHALL, HOWEVER, BE DEEMED TO LIMIT PURCHASER’S LIABILITY TO SELLER FOR DAMAGES OR INJUNCTIVE RELIEF FOR BREACH OF PURCHASER’S INDEMNITY OBLIGATIONS UNDER SECTION 5.11 ABOVE OR FOR ATTORNEYS’ FEES AND COSTS AS PROVIDED IN SECTION 16.5 BELOW.

ACCEPTED AND AGREED TO:

/s/ HB	/s/ MA
Seller	Purchaser

10.2Purchaser’s Remedies.  If the sale is not completed as herein provided solely by reason of any material default of Seller, Purchaser shall be entitled, as its sole and exclusive remedy, to either (i) (a) terminate this Agreement (by delivering notice to Seller which includes a waiver of any right, title or interest of Purchaser in the Property) and (b) if Purchaser so elects, pursue an action at law for recovery of Purchaser’s actual out-of-pocket third-party costs incurred as part of Purchaser’s due diligence efforts and attorney’s fees incurred in connection with the negotiation and preparation of this Agreement and representation of Purchaser hereunder, up to but not to exceed $150,000, which action must be commenced, if at all, within the sixty (60) day period following the occurrence of such material default of Seller  (the “Limitation Period”); provided, however, that if, within the Limitation Period, Purchaser gives Seller written notice of such a breach and Seller commences to cure and thereafter terminates such cure effort, Purchaser shall have an additional thirty (30) days from the date of such termination within which to commence an action at law for third-party costs, as aforesaid, as a consequence of Seller’s failure to cure or (ii) treat this Agreement as being in full force and effect and pursue only the specific performance of this Agreement, provided that Purchaser must commence any action for specific performance within sixty (60) days after the scheduled Final Closing Date.  Purchaser waives any right to pursue any other remedy at law or equity for such default of Seller, including, without limitation, any right to seek, claim or obtain damages (other than for costs under (i)(b) and (ii) above), punitive damages or consequential damages.  Except as set forth herein and in this Agreement, in no case shall Seller ever be liable to Purchaser under any statutory, common law, equitable or other theory of law, either prior to or following the Closing, for any lost rents, profits, “benefit of the bargain,” business opportunities or any form of consequential damage in connection with any claim, liability, demand or cause of action in any

19

way or manner relating to the Property, the condition of the Property, this Agreement, or any transaction or matter between the parties contemplated hereunder.  Purchaser’s remedies hereunder are in addition to the right to receive the return of the Deposit, subject to Section 9.4, to the extent it is not applied to the Purchase Price in connection with Purchaser’s action for specific performance.

ARTICLE XI

REPRESENTATIONS AND WARRANTIES

11.1Seller’s Warranties and Representations.  The matters set forth in this Section 11.1 constitute representations and warranties by Seller which are now and (subject to matters contained in any notice given pursuant to the next succeeding sentence) shall, in all material respects, at the Closing be true and correct.  If Seller has actual knowledge that any of the representations and warranties contained in this Article XI may cease to be true, Seller shall give prompt notice to Purchaser (which notice shall include copies of the instrument, correspondence, or document, if any, upon which Seller’s notice is based).  As set forth in Section 3.1.4 hereof, the obligation of Purchaser to consummate this transaction shall be contingent upon the lack of any material variance with respect to the truth and accuracy of all such representations and warranties to the extent of Seller’s actual knowledge as of the date scheduled for Closing.  Otherwise, Purchaser shall have the right to terminate this Agreement in accordance with Section 3.1.4 hereof.  As used in this Section 11.1, the phrase “to the extent of Seller’s actual knowledge” shall mean the actual knowledge of Joe Tortorello, the asset manager of Advisor responsible for the Property.  There shall be no duty imposed or implied to investigate, inquire, inspect, or audit any such matters, and there shall be no personal liability on the part of such asset manager.  To the extent Purchaser has or acquires actual knowledge or is deemed to know prior to the expiration of the Investigation Period that these representations and warranties are inaccurate, untrue or incorrect in any way, such representations and warranties shall be deemed modified to reflect Purchaser’s knowledge or deemed knowledge.  Purchaser shall be deemed to know a representation or warranty is untrue, inaccurate or incorrect if this Agreement or any files, documents, materials, analyses, studies, tests, or reports disclosed or made available to Purchaser at the office of Seller’s property manager prior to the expiration of the Investigation Period contains information which is inconsistent with such representation or warranty.

11.1.1No Broker.  Seller has not engaged or dealt with any broker or finder in connection with the sale contemplated by this Agreement, except Apartment Realty Advisors (the “Seller’s Broker”).  Seller shall pay a brokerage commissions to the Seller’s Broker in accordance with a separate agreement.  Seller shall indemnify and hold harmless Purchaser from any claims, costs, damages or liabilities (including attorneys’ fees) arising from any breach of the representation contained in this Section 11.1.1 or if the same shall be based on any statement, representation or agreement by Seller with respect to the payment of any brokerage commissions or finder’s fees.

11.1.2Organization.  Seller has been duly formed, validly exists and is in good standing in the jurisdiction of its formation and in the state in which the Property is located.

20

11.1.3Power and Authority.  Seller has the legal power, right and authority to enter into this Agreement and to consummate the transactions contemplated hereby.

11.1.4Proceedings. Seller has not received any written notice of any pending or threatened condemnation or similar proceeding affecting any part of the Property.

11.1.5Contravention.  Seller is not prohibited from consummating the transactions contemplated by this Agreement by any law, regulation, agreement, instrument, restriction, order or judgment.

11.1.6Service Contracts.  The Service Contracts listed on Exhibit F comprise all of the material service contracts which currently affect the Property as of the date hereof.

11.1.7Compliance.  Seller has not received written notice from any governmental authority that the Property is not in material compliance with all applicable laws, except for such failures to comply, if any, which have been remedied.

11.1.8Employees.  Seller has no employees on-site at the Property providing on-site services to the Property and all such services are performed by Seller’s third party manager of the Property.

11.1.9Litigation.  To the extent of Seller’s actual knowledge, there is no legal action, suit, proceeding or claim affecting Seller or the Land, Improvements or Personal Property or any portion thereof relating to or arising out of the ownership, operation, use or occupancy of the Property being prosecuted in any court or by or before any federal, state, county or municipal department, commission, board, bureau or agency or other governmental instrumentality.

11.1.10Special Assessments.  Seller has received no written notice of any pending improvement liens or special assessments to be made against the Property by any governmental authority.

11.1.11Leases.  Based on information provided by Seller’s property manager and to Seller’s actual knowledge, the Rent Roll lists all Leases affecting the Land and Improvements other than those Leases entered into by Seller subsequent to the Effective Date, and is the rent roll used in the ordinary course of business, and is true and correct.

11.1.12No Contracts.  There are no options, contracts or other obligations outstanding for the sale, exchange or transfer of the Property or any portion thereof or the business operated thereon.

11.1.13Environmental Issues.  Seller has not received any written notice of and has no actual knowledge that any governmental authority or any employee or agent thereof has determined, or threatens to determine, that there is a presence, release, threat of release, placement on or in the Property, of any Pollutants. Seller has not entered into any agreements with any governmental authority or agency (federal, state or local) or any tenant or prior owner of the Property or any owner of any property located near the

21

Property, relating in any way to the presence, release, threat of release, placement on or in the Property, or the generation, transportation, storage, treatment, or disposal at the Property, of any Pollutants.  For purposes hereof, “Pollutants” shall mean asbestos, PCB and any substance that is defined or listed as a hazardous, toxic or dangerous substance under any existing statute, including, without limitation, any substance that is a “hazardous substance” under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, as the same be further amended, petroleum, natural gas, natural gas liquids, liquefied natural gas, and synthetic gas usable for fuel, and any materials regulated by Texas law.

11.1.14PATRIOT Act.

(1)Seller is in compliance with the requirements of Executive Order No. 133224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (the “Order”) and other similar requirements contained in the rules and regulations of the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) and in any enabling legislation or other Executive Orders or regulations in respect thereof (the Order and such other rules, regulations, legislation, or orders are collectively called the “Orders”).  Further, Seller covenants and agrees to make its policies, procedures and practices regarding compliance with the Orders, if any, available to Purchaser for its review and inspection during normal business hours and upon reasonable prior notice.

(2)Neither Seller nor any beneficial owner of Seller:

(a)is listed on the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to the Order and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Orders (such lists are collectively referred to as the “Lists”);

(b)is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or

(c)is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders.

Notwithstanding anything contained herein to the contrary, for the purposes of this provision, the phrase “any beneficial owner of Seller” shall not include (x) any holder of a direct or indirect interest in a publicly traded company whose shares are listed and traded on a United States national stock exchange, or (y) any limited partner, unit holder or shareholder owning an interest of five percent (5%) or less in Seller or in the holder of any direct or indirect interest in Seller.

22

11.2Purchaser’s Warranties and Representations.  The matters set forth in this Section 11.2 constitute representations, warranties and covenants by Purchaser which are now and shall, at the Closing, be true and correct.

11.2.1No Broker.  Except for Seller’s Broker, Purchaser has not engaged or dealt with any broker or finder in connection with the sale contemplated by this Agreement.  Purchaser shall indemnify and hold harmless Seller and Advisor from any claims, costs, damages or liabilities (including attorneys’ fees) arising from any breach of the representation contained in this Section 11.2.1 or if the same shall be based on any statement, representation or agreement by Purchaser with respect to the payment of any brokerage commissions or finder’s fees.

11.2.2Power and Authority.  Purchaser has the legal power, right and authority to enter into this Agreement and to consummate the transactions contemplated hereby.

11.2.3Independent Investigation.  The consummation of this transaction shall constitute Purchaser’s acknowledgment that it has independently inspected and investigated the Property and, together with the terms and conditions of this Agreement including Seller’s representations and warranties under Section 11.1 hereof, has made and entered into this Agreement based upon such inspection and investigation and its own examination of the condition of the Property.

11.2.4Purchaser Reliance.  Purchaser is experienced in and knowledgeable about the ownership and management of real estate, and it has relied and will rely exclusively on its own consultants, advisors, counsel, employees, agents, principals and/or studies, investigations and/or inspections with respect to the Property, its condition, value and potential.  Purchaser agrees that, notwithstanding the fact that it has received certain information from Seller or its agents or consultants, Purchaser has relied solely upon and will continue to rely solely upon its own analysis and will not rely on any information provided by Seller or its agents or consultants, except as expressly set forth in Section 11.1.

11.2.5ERISA.  Purchaser represents, warrants and covenants that it is not using the assets of any (i) “employee benefit plan” (within the meaning of Section 3(3) of  the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), (ii) “plan” (within the meaning of Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the “Code”)) or (iii) entity whose underlying assets include “plan assets” by reason of a plan’s investment in such entity, to fund its purchase of the Property under this Agreement.

11.2.6PATRIOT Act.

(1)Purchaser is in compliance with the requirements of the Orders.  Further, Purchaser covenants and agrees to make its policies, procedures and practices regarding compliance with the Orders, if any, available to Seller for its review and inspection during normal business hours and upon reasonable prior notice.

23

(2)Neither Purchaser nor any beneficial owner of Purchaser:

(a)is listed on the Lists;

(b)is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or

(c)is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders.

11.2.7PATRIOT Act Notice.  Purchaser hereby covenants and agrees that if Purchaser obtains knowledge that Purchaser or any of its beneficial owners becomes listed on the Lists or is indicted, arraigned, or custodially detained on charges involving money laundering or predicate crimes to money laundering, Purchaser shall immediately notify Seller in writing, and in such event, Seller shall have the right to terminate this Agreement without penalty or liability to Purchaser immediately upon delivery of written notice thereof to Purchaser.

11.3No Other Warranties and Representations.  Except as specifically set forth in this Article XI, neither Seller nor Advisor has made, makes or has authorized anyone to make, any warranty or representation as to the Leases, the Service Contracts, any written materials delivered to Purchaser, the persons preparing such materials, the truth, accuracy or completeness of such materials, the present or future physical condition, development potential, zoning, building or land use law or compliance therewith, the operation, income generated by, or any other matter or thing affecting or relating to the Property or any matter or thing pertaining to this Agreement.  Purchaser expressly acknowledges that no such warranty or representation has been made and that Purchaser is not relying on any warranty or representation whatsoever other than as is expressly set forth in this Article XI.  Purchaser shall accept the Property “as is” and in its condition on the date of Closing subject only to the express provisions of this Agreement and hereby acknowledges and agrees that EXCEPT AS SET FORTH IN SECTION 11.1 OF THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT, FUTURE OR OTHERWISE, OF, AS TO, CONCERNING OR WITH RESPECT TO, THE PROPERTY.

11.3.1No Environmental Representations.  Except as set forth in Section 11.1.13 hereof, Seller makes no representations or warranties as to whether the Property contains asbestos, radon or any hazardous materials or harmful or toxic substances, or pertaining to the extent, location or nature of same, if any.  Further, to the extent that Seller has provided to Purchaser information from any inspection, engineering or environmental reports concerning asbestos, radon or any hazardous materials or harmful or toxic substances, Seller makes no representations or warranties with respect to the

24

accuracy or completeness, methodology of preparation or otherwise concerning the contents of such reports.

11.3.2Release of Claims.  Subject to the express provisions hereof and except for the representations and warranties under Sections 11.1.13 hereof, Purchaser acknowledges and agrees that Seller makes no representation or warranty as to, and Purchaser, for itself, its successors and assigns, hereby waives and releases Seller from any present or future claims, at law or in equity, whether known or unknown, foreseeable or otherwise, arising from or relating to the presence or alleged presence of asbestos, radon or any hazardous materials or harmful or toxic substances in, on, under or about the Property, including without limitation any claims under or on account of (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as the same may have been or may be amended from time to time, and similar state statutes, and any regulations promulgated thereunder, (ii) any other federal, state or local law, ordinance, rule or regulation, now or hereafter in effect, that deals with or otherwise in any manner relates to, environmental matters of any kind, (iii) this Agreement, or (iv) the common law.  Purchaser hereby specifically acknowledges that Purchaser has carefully reviewed this Section 11.3.2 and has discussed its import with legal counsel and that the provisions of this Section 11.3.2 are a material part of this Agreement.

This Section 11.3.2 shall survive the Closing forever.

ARTICLE XII

CASUALTY AND CONDEMNATION

Promptly upon learning thereof, Seller shall give Purchaser written notice of any condemnation, damage or destruction of the Property occurring prior to the Closing.  If prior to the Closing any portion of the Property is condemned such that there is a material and adverse effect on use of the Property, or is materially damaged or destroyed by an insured casualty, Purchaser shall have the option of either (i) applying the proceeds of any condemnation award or payment under any insurance policies (other than business interruption or rental loss insurance applicable to the period prior to Closing) toward the payment of the Purchase Price to the extent such condemnation awards or insurance payments have been received by Seller, receiving from Seller an amount equal to any applicable deductible under any such insurance policy and receiving an assignment from Seller of Seller’s right, title and interest in any such awards or payments not theretofore received by Seller (including business interruption or rental loss insurance of Seller which would be applicable to any period subsequent to Closing), or (ii) terminating this Agreement by delivering written notice of such termination to Seller and Escrow Agent within ten (10) days after Purchaser has received written notice from Seller of such condemnation or material damage or destruction.  If, prior to the Closing, a portion of the Property is damaged or destroyed and such portion is not a material portion of the Property, the proceeds of any condemnation award or payment and any applicable deductible under any insurance policies shall be applied toward the payment of the Purchase Price to the extent such condemnation awards or insurance payments have been received by Seller and Seller shall assign to Purchaser all of Seller’s right, title and interest in any unpaid awards or payments.  With respect to option (i) described above and the preceding sentence as it relates to the requirement

25

of Seller to assign to Purchaser the right to receive insurance awards and payments to be due Seller, Seller agrees that in the event that Seller’s insurance carrier(s) do not permit assignment thereof Seller agrees to request from the insurance carrier(s) a “policy endorsement” whereby Purchaser shall be added as a “loss payee” under the Purchaser’s policies effective as of the Closing Date.  For purposes of this Article XII, in defining a casualty, the terms “Material” and “Materially” shall mean damage valued at greater than $1,000,000.  If the damage or destruction arises out of an uninsured risk, Seller shall elect, by written notice within ten (10) days of the occurrence of such damage or destruction either to terminate this Agreement or to close the transaction contemplated hereby with a reduction of the Purchase Price equal to the costs of repairing the Property, as reasonably estimated by an engineer engaged by Seller and reasonably acceptable to Purchaser.

12.1Uniform Vendor and Purchaser Act Not Applicable: It is the express intent of the parties hereto that the provisions of this Article XII govern the rights of the parties in the event of damage to or condemnation of the property and that the Uniform Vendor and Purchaser Act (Section 5.007 of the Texas Property Code) not apply to this agreement.

ARTICLE XIII

CONDUCT PRIOR TO CLOSING

13.1Conduct.  From and after the date hereof and through Closing, Seller covenants and agrees to operate the Property as follows:

13.1.1Seller will cause the Property to be maintained and operated in a good and workmanlike manner in accordance with the manner as is being conducted by Seller at the time of execution hereof, and will keep the Improvements and Personal Property in good order and operating condition (reasonable wear and tear and casualty accepted), causing all necessary repairs, renewals and replacements to be promptly made. Seller will not knowingly use or occupy the Property in a manner that constitutes waste or a public or private nuisance or that makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto. Seller will not do any act whereby the value of any part of the Property may be materially lessened.

13.1.2Seller will advise Purchaser promptly of any change in any applicable laws, regulations, restrictions, rulings, or orders that might affect the value or use of the Property by Purchaser of which Seller obtains written notice after the Effective Date. Seller will also advise Purchaser promptly of any litigation, arbitration or administrative hearing concerning or affecting the Property of which Seller obtains written notice after the Effective Date.

13.1.3Without obtaining Purchaser’s prior consent, which consent will not be unreasonably withheld, Seller will enter into no lease with respect to any portion of the Property unless such lease is on a standard form customarily utilized at the Property and is in conformity with the Seller’s Lease Guidelines; which are attached hereto as Exhibit L.

26

13.1.4Subject to the prorations prescribed herein, Seller will cause to be paid all trade accounts, costs and expenses of operation and maintenance of the Property incurred and accruing or due prior to Closing.

13.1.5Seller will not knowingly take any action, which action would have the effect of materially violating any of the Representations and Warranties of Seller set forth in Section 11.1 of the Agreement.

13.1.6Seller will not, without the prior written consent of Purchaser, remove any equipment forming a part of the Property except such as is replaced by Seller by an article of substantially equal suitability and value, free and clear of any lien or security interest.

13.1.7Intentionally Omitted

13.1.8Seller will not, without Purchaser’s prior written consent, enter into any contracts of a continuing nature (or any optional renewal of Service Contracts) for services, supplies, or materials affecting the Property that cannot be canceled on thirty (30) days’ notice.

13.1.9If any apartment unit is vacated more than five (5) business days prior to Closing, then prior to Closing Seller shall return such unit to rentable condition in accordance with Seller’s customary cleaning, painting, and repair standards for vacant units (the condition of such an apartment unit after cleaning is referred to herein as a “Rent Ready Condition”); provided if Seller fails to return any such vacated unit to a Rent Ready Condition prior to Closing, or a unit is vacated within five (5) business days of Closing and Seller fails to return such unit to rent ready condition by Closing, then at Closing Seller shall credit Purchaser an amount equal to the reasonably estimated cost to return such unit to a Rent Ready Condition, up to, but not to exceed, $500.

13.2Actions Prohibited.  Seller shall not, without the prior written approval of Purchaser:

(i)make any material structural alterations or additions to the Property except as (a) in the ordinary course of operating the Property, (b) required for maintenance and repair, (c) required by any of the Leases or the Service Contracts or (d) required by this Agreement;

(ii)sell, transfer, encumber or change the status of title of all or any portion of the Property;

(iii)change or attempt to change, directly or indirectly, the current zoning of the Real Property in a manner materially adverse to it; or

(iv)cancel, amend or modify, in a manner materially adverse to the Property, any license or permit held by Seller with respect to the Property or any part thereof which would be binding upon Purchaser after the Closing.

27

13.3Modification of Existing Leases and Service Contracts.  Prior to the expiration of the Investigation Period, Seller may cancel, amend and modify any of the Leases and any of the Contracts, provided such action is in the ordinary course of business and notice is given to Purchaser within five (5) business days after such action and in any event at least two (2) business days prior to the expiration of the Investigation Period.  After the expiration of the Investigation Period, Seller may not cancel, amend, or modify any material Service Contracts (except those Purchaser has elected to terminate under Section 5.6) or Leases, in a manner binding upon Purchaser after the Closing, unless such action is in the ordinary course of business, the Service Contract is cancelable on thirty (30) days or less notice without penalty or premium, and unless Seller obtains prior written consent thereof from Purchaser, which consent shall not be unreasonably withheld.

13.4New Leases and Contracts.  Prior to the expiration of the Investigation Period (and up and until the Closing Date with respect to new leases), Seller may enter into any new lease or service contract affecting the Property, or any part thereof, provided such new lease is in conformity with Seller’s Lease Guidelines or otherwise consented to in writing by Purchaser and, with respect to service contracts, notice is given to Purchaser within five (5) business days after such action and in any event at least two (2) business days prior to the expiration of the Investigation Period and the service contract is cancelable on thirty (30) days notice, or less without penalty or premium.  After the expiration of the Investigation Period, Seller may not enter into any service contract without Purchaser’s consent, which consent will not be unreasonably withheld or delayed.  Notwithstanding the preceding sentence, after the expiration of the Investigation Period, Seller may enter into any new service contracts without Purchaser’s consent if doing so is in the ordinary course of operating the Property and the contract (i) will not be binding on Purchaser after Closing unless Purchaser elects prior to Closing to assume such service contract or (ii) is cancelable on thirty (30) days or less notice without penalty or premium.

If Seller shall request Purchaser’s approval to any of the foregoing matters, Purchaser shall have five (5) days from its receipt of such request to give Seller notice of its approval or disapproval of such matter.  If Purchaser does not give such notice, such matter shall be deemed approved by Purchaser.

13.5Right to Cure.  If any title defect or other  matter which would entitle Purchaser to terminate this Agreement shall first arise after Purchaser notifies Seller of its Title Objections pursuant to Section 5.3 and prior to the Closing or if Seller shall have breached any representation or warranty hereunder, Seller may elect, by written notice to Purchaser, to cure such title defect or other matter by causing it to be removed, insured over or bonded to cure such breach and Seller may adjourn the Closing for up to thirty (30) days to do so.  Nothing contained in this Section 13.5 shall require Seller to cure any such title defect or other matter or to incur any liability or expense to do so.

ARTICLE XIV

OCCUPANCY CONTINGENCY

Anything in this Agreement to the contrary notwithstanding, it shall be condition

28

precedent to Purchaser’s obligation to close that as of the Closing Date, Actual Occupancy (as defined below) shall be at least 85.0% (the “Occupancy Condition”).  If as of the Closing Date the above Occupancy Condition has not been achieved or exceeded, then Seller may, at its option by written notice to Purchaser, elect to extend the Closing Date by thirty (30) days in order to provide more time to achieve or exceed the Occupancy Condition. If Seller does not elect to extend the Closing Date, or if Seller extends the Closing Date but the Occupancy Condition still has not been achieved or exceeded as of the extended Closing Date, then Purchaser may, at its option, elect either to (i) terminate this Agreement, whereupon the Deposit will be returned to Purchaser, and neither party shall have any further right or obligation hereunder other than as set forth herein with respect to rights or obligations which survive termination, or (ii) waive the Occupancy Condition and close.  If the Occupancy Condition has not been achieved or exceeded and Purchaser does not advise Seller in writing of its election to terminate this Agreement on or before the scheduled Closing Date, then Purchaser shall be deemed to have elected to waive the Occupancy Condition and close, whereupon the Closing shall occur on the scheduled Closing Date.

In determining whether the Occupancy Condition has been “exceeded” or “achieved,”  the specific percentage occupancy numbers shall be rounded up to the nearest whole number if the fractional portion of said number is equal to or greater than .5 but shall not be rounded down to the nearest whole number if the fractional portion of said number is less than ..5.  By way of illustration, 84.5% would be rounded up to 85.0%, but 84.4% would not be rounded down to 84.0%.

As used herein, the term “Actual Occupancy” shall mean, with respect to all apartment units on the Property (except for the model unit), the percentage of said units for which a leasehold tenancy exists pursuant to a lease signed by both landlord and tenant (regardless of whether the tenant has taken physical occupancy or commenced payment of rent) but shall be reduced based on move-out notices received by Seller as of the Closing Date.

ARTICLE XV

NOTICES

All notices, demands or other communications given hereunder shall be in writing and shall be deemed to have been duly delivered (i) upon the delivery (or refusal to accept delivery) by messenger or overnight express delivery service (or, if such date is not on a business day, on the business day next following such date), or (ii) on the third (3rd) business day next following the date of its mailing by certified mail, postage prepaid, at a post office maintained by the United States Postal Service, or (iii) upon the receipt by facsimile transmission as evidenced by a receipt transmission report (followed by next day delivery by one of the other means identified in (i)-(ii)), addressed as follows:

29

If to Purchaser, to:

Harvard Property Trust, LLC
Attn: Mark T. Alfieri, Senior Vice President
15601 Dallas Parkway, #600
Addison, Texas 75001
Facsimile:  (214) 655-1610

with a copy to:

Robert L. Abbott, P.C.
Attn:  Robert L. Abbott
2828 Routh Street, Suite 500
Dallas, Texas 75201
Facsimile:  (214) 848-9823

If to Seller, to:

Verandah Owner Limited Partnership
c/o BH Equities, L.L.C.
400 Locust Street, Suite 790
Des Moines, Iowa 50309
Attention: Nicholas Roby, Esq.
Facsimile: (515) 244-2742

with a copy to:

c/o BlackRock Realty Advisors, Inc.
300 Campus Drive, 3rd Floor,
Florham Park, New Jersey 07932
Attention: Mario Mirabelli, Vice President
Facsimile: (646) 521-4990

and

Diamond Verandah LLC
c/o BlackRock Realty Advisors, Inc.
300 Campus Drive, 3rd Floor,
Florham Park, New Jersey 07932
Attention: Jeremy Litt, Esq.
Facsimile: (646) 521-4998

and

30

Goodwin Procter LLP
Exchange Place
Boston, Massachusetts  02109
Attention:  Lawrence R. Cahill, Esq.
Facsimile:  (617) 227-8591

If to Escrow Agent, to:

Partners Title Company
712 Main Street, Suite 2000E
Houston, Texas 77002-3218
Attention:  Reno Hartfiel, Executive VP / General Counsel
Facsimile: (713) 238-9199

Either party may, by notice given as aforesaid, change the address or addresses, or designate an additional address or additional addresses, for its notices, provided, however, that no notice of a change of address shall be effective until actual receipt of such notice.

ARTICLE XVI

TRANSFER OF POSSESSION

16.1Transfer of Possession.  Possession of the Property shall be transferred to Purchaser at the time of Closing subject to the Permitted Exceptions.

16.2Delivery of Documents at Closing.  At the time of Closing, Seller shall deliver to Purchaser originals or copies of any additional documents, instruments or records in the possession of Seller or its agents which are necessary for the ownership and operation of the Property.

ARTICLE XVII

GENERAL PROVISIONS

17.1Captions.  Captions in this Agreement are inserted for convenience of reference only and do not define, describe or limit the scope or the intent of this Agreement or any of the terms hereof.

17.2Exhibits.  All exhibits referred to herein and attached hereto are a part hereof.

17.3Entire Agreement.  This Agreement contains the entire agreement between the parties relating to the transaction contemplated hereby and all prior or contemporaneous agreements, understandings, representations and statements, oral or written, are merged herein.

31

17.4Modification.  No modification, waiver, amendment, discharge or change of this Agreement shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver, amendment, discharge or change is or may be sought.

17.5Attorneys’ Fees.  Should any party hereto employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all reasonable attorneys’ fees and all costs, whether incurred at the trial or appellate level, including but not limited to service of process, filing fees, court and court reporter costs, investigative costs, expert witness fees and the cost of any bonds, whether taxable or not, and such reimbursement shall be included in any judgment, decree or final order issued in that proceeding.  The “prevailing party” means the party in whose favor a judgment, decree, or final order is rendered.

17.6Governing Law.  This Agreement shall be construed and enforced in accordance with the laws of the State in which the Property is located.

17.7Time of Essence.  Time is of the essence to this Agreement and to all dates and time periods set forth herein.

17.8Survival of Warranties.  Only those warranties and representations contained in Sections 11.1 and 11.2 and the provisions of Section 11.3 shall survive the Closing, the delivery of the Deed and the payment of the Purchase Price, provided that (i) such representations and warranties (but not such provisions) shall cease and terminate nine (9) months after the date of Closing, except in respect of any representation or warranty as to which Purchaser or Seller, as the case may be, shall have commenced, on or before such nine (9) month anniversary, a legal proceeding based on the breach thereof as of the date of Closing, and then only for so long as such proceeding shall continue and limited to the breach therein claimed, (ii) Seller shall have no liability to Purchaser with respect thereto unless and until the damages suffered by Purchaser as a result thereof shall equal or exceed $25,000 in the aggregate, and (iii) the maximum total liability for which Seller shall be responsible with respect to all representations and warranties shall not exceed the Maximum Liability Cap in the aggregate.  Unless otherwise expressly herein stated to survive, all other representations, covenants, indemnities, conditions and agreements contained herein shall merge into and be superseded by the various documents executed and delivered at Closing and shall not survive the Closing.  Seller shall have no liability to Purchaser after Closing for any matter disclosed by Seller pursuant to the terms of this Agreement or disclosed to Purchaser prior to Closing.

17.9Assignment by Purchaser.  Purchaser may not assign its rights under this Agreement.  Notwithstanding the foregoing, Purchaser may upon written notice to Seller assign its rights under this Agreement to (a) any affiliate of Purchaser, or (b) any entity in which Purchaser, or the principals thereof, have control as defined herein, provided that  in each instance’ Purchaser remains liable for Purchasers obligations hereunder.  For purposes of this Section 16.9, an “affiliate” means (i) any entity that controls, is controlled by, or is under common control, with the entity in question, or (ii) any investment program or any of its affiliates, sponsored by Behringer Harvard Holdings, LLC, the general partner of Purchaser.  The

32

term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities or otherwise

17.10Severability.  If any term, covenant, condition, provision or agreement herein contained is held to be invalid, void or otherwise unenforceable by any court of competent jurisdiction, the fact that such term, covenant, condition, provision or agreement is invalid, void or otherwise unenforceable shall in no way affect the validity or enforceability of any other term, covenant, condition, provision or agreement herein contained.

17.11Successors and Assigns.  All terms of this Agreement shall be binding upon, inure to the benefit of and be enforceable by, the parties hereto and their respective legal representatives, successors and assigns (subject to Section 16.9).

17.12Interpretation.  Seller and Purchaser acknowledge each to the other that both they and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto.

17.13Counterparts.  This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed an original; such counterparts shall together constitute but one agreement.

17.14Recordation.  This Agreement may not be recorded and any attempt to do so shall be of no effect whatsoever.

17.15Limitation on Liability.  In any action brought to enforce the obligations of Seller under this Agreement or any other document delivered in connection herewith, the judgment or decree shall be subject to the provisions of Section 16.8 and shall, otherwise in any event, be enforceable against Seller only up to an amount not to exceed 2.5% of the Purchase Price (“Maximum Liability Cap”).  In connection with this Agreement, Advisor is acting as the investment adviser to Seller and shall not have any individual liability hereunder. No shareholder, officer, employee or agent of or consultant to Advisor or of or to Seller shall be held to any personal liability hereunder, and no resort shall be had to their property or assets, or the property or assets of Advisor for the satisfaction of any claims hereunder or in connection with the affairs of Advisor.  Furthermore, Seller’s liability under this Agreement is explicitly limited to Seller’s interest in the Property, including any proceeds thereof.  Purchaser shall have no recourse against any other property or assets of Seller, if any, any assets of the Advisor, or to any of the past, present or future, direct or indirect, shareholders, partners, members, managers, principals, directors, officers, agents, incorporators, affiliates or representatives of Seller or the Advisor (collectively, “Seller Parties”) or of any of the assets or property of any of the Seller Parties for the payment or collection of any amount, judgment, judicial process, arbitral award, fee or cost or for any other obligation or claim arising out of or based upon this Agreement and requiring the payment of money by Seller.  Except as otherwise expressly set forth in this Agreement, neither Seller nor any Seller Party shall be subject to levy, lien, execution, attachment or other enforcement procedure for the satisfaction of any of Purchaser’s rights or remedies under or with respect to this Agreement, at law, in equity or otherwise.  Purchaser shall

33

not seek enforcement of any judgment, award, right or remedy against any property or asset of Seller or any Seller Parties other than Seller’s interest in the Property or any proceeds thereof.  The provisions of this Section shall survive the termination of this Agreement.

17.16Possession of Advisor.  As used in this Agreement, the “possession” or “receipt” of a document, notice or similar writing by Seller shall be deemed to be only the possession, receipt or notice of such document by Advisor.

17.17Business Day.  As used in this Agreement, “business day” shall be deemed to be any day other than a day on which banks in the state of Texas shall be permitted or required to close.

17.18Waiver of Jury Trial.  PURCHASER AND SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ANY ACTIONS OF EITHER PARTY ARISING OUT OF OR RELATED IN ANY MANNER WITH THIS AGREEMENT OR THE PROPERTY (INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT OR ANY CLAIMS OR DEFENSES ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR SELLER TO ENTER INTO AND ACCEPT THIS AGREEMENT AND THE DOCUMENTS TO BE DELIVERED BY PURCHASER AT CLOSING, AND SHALL SURVIVE THE CLOSING OR TERMINATION OF THIS AGREEMENT.  Each party hereby authorizes and empowers the other to file this Section 16.18 and this Agreement with the clerk or judge of any court of competent jurisdiction as a written consent to waiver of jury trial.

ARTICLE XVIII

ESCROW AGENT DUTIES AND DISPUTES

18.1Other Duties of Escrow Agent.  Escrow Agent shall not be bound in any way by any other agreement or contract between Seller and Purchaser, whether or not Escrow Agent has knowledge thereof.  Escrow Agent’s only duties and responsibilities with respect to the Deposit shall be to hold the Deposit and other documents delivered to it as agent and to dispose of the Deposit and such documents in accordance with the terms of this Agreement.  Without limiting the generality of the foregoing, Escrow Agent shall have no responsibility to protect the Deposit and shall not be responsible for any failure to demand, collect or enforce any obligation with respect to the Deposit or for any diminution in value of the Deposit from any cause, other than Escrow Agent’s gross negligence or willful misconduct.  In the event of any dispute hereunder, Escrow Agent may, at the expense of Seller and Purchaser, consult with counsel and accountants in connection with its duties under this Agreement.  Escrow Agent shall not be liable to the parties hereto for any act taken, suffered or permitted by it in good faith in accordance with the advice of counsel and accountants.  Escrow Agent shall not be obligated to take any action hereunder that may, in its reasonable judgment, result in any liability to it unless Escrow Agent

34

shall have been furnished with reasonable indemnity satisfactory in amount, form and substance to Escrow Agent.

18.2Disputes.  Escrow Agent is acting as a stakeholder only with respect to the Deposit.  If there is any dispute as to whether Escrow Agent is obligated to deliver the Deposit or as to whom the Deposit is to be delivered, Escrow Agent shall not make any delivery, but shall hold the Deposit until receipt by Escrow Agent of an authorization in writing, signed by all the parties having an interest in the dispute, directing the disposition of the Deposit, or, in the absence of authorization, Escrow Agent shall hold the Deposit until the final determination of the rights of the parties in an appropriate proceeding.  Escrow Agent shall have no responsibility to determine the authenticity or validity of any notice, instruction, instrument, document or other item delivered to it, and it shall be fully protected in acting in accordance with any written notice, direction or instruction given to it under this Agreement and believed by it to be authentic.  If written authorization is not given, or proceedings for a determination are not begun, within thirty (30) days after the date scheduled for the closing of title and diligently continued, Escrow Agent may, but is not required to, bring an appropriate action or proceeding for leave to deposit the Deposit with a court of the State of Texas pending a determination.  Escrow Agent shall be reimbursed for all costs and expenses of any action or proceeding, including, without limitation, attorneys’ fees and disbursements incurred in its capacity as Escrow Agent, by the party determined not to be entitled to the Deposit.  Upon making delivery of the Deposit in the manner provided in this Agreement, Escrow Agent shall have no further liability hereunder.  In no event shall Escrow Agent be under any duty to institute, defend or participate in any proceeding that may arise between Seller and Purchaser in connection with the Deposit.

18.3Reports.  Escrow Agent shall be responsible for the timely filing of any reports or returns required pursuant to the provisions of Section 6045(e) of the Internal Revenue Code of 1986 (and any similar reports or returns required under any state or local laws) in connection with the closing of the transaction contemplated by this Agreement.

[Remainder of Page Intentionally Left Blank]

35

IN WITNESS WHEREOF, this Agreement has been executed as of the date first set forth above.

SELLER:
VERANDAH OWNER LIMITED PARTNERSHIP,
a Delaware limited partnership
By:	Houston Verandah Investor Limited Partnership, a Delaware limited partnership, its general partner
	By:	BH Verandah, L.L.C., an Iowa limited liability company, its general partner
		By:	BH Equities L.L.C., an Iowa limited liability company, its managing member
			By:	/s/ Harry Bookey
				Name: Harry Bookey
				Title: Manager
PURCHASER:
HARVARD PROPERTY TRUST, LLC,
a Delaware limited liability company
	By:	/s/ Mark T. Alfieri
		Mark T. Alfieri, Senior Vice President

36

CONSENT AND AGREEMENT OF ESCROW AGENT

The undersigned Escrow Agent hereby agrees to (i) accept the foregoing Agreement, (ii) be escrow agent under said Agreement, and (iii) be bound by said Agreement in the performance of its duties as escrow agent.

PARTNERS TITLE COMPANY
By:	/s/ Reno Hartfiel
	Name: Reno Hartfiel
	Title:   Executive Vice President & General Counsel

1

EXHIBIT A

Description of Land

Being a tract or parcel containing 5.313 acres (231,427 square feet) of land situated in the James D. Owen Survey, Abstract Number 612; being out of and a part of Unrestricted Block 7, of MEYER PARK, SECTION 2, a subdivision plat of record in Volume 142, Page 30, Harris County Map Records; and being out of and a part of that certain tract of land (Tract One) conveyed to Aramco Services Company as described in deed recorded under Harris County Clerk’s File (H.C.C.F.) Number H104446, Harris County, Texas; and being that certain called 5.313 acre tract conveyed to Verandah IH-610, L.P. as described in deed recorded under H.C.C.F. number W636306; and said 5.313 acre tract being more particularly described by metes and bounds as follows (bearings are oriented to said record plat):

BEGINNING at 1-inch iron rod found in the north right-of-way (R.O.W.) line of Braeswood Boulevard (100 feet wide) and marking the most southerly southwest corner of the aforesaid Block 7 and the herein described tract;

THENCE, North 06°18’24” West, along a southwest line of said Block 7, a distance of 150.00 feet to an interior corner of said Block and the herein described tract, from which a found 1-inch iron rod bears South 60°43’ West, 0.26 feet;

THENCE, South 71°35’50” West, along a southwest line of said Block 7, a distance of 150.00 feet to the curved east R.O.W. line of Interstate Highway 610 (West Loop South) (Width Varies) for the most westerly southwest corner of said Block 7 and the herein described tract and for a point of tangency of a non-tangent curve to the right, from which a found 1-inch iron rod bears North 66°35’ West, 0.36 feet;

THENCE, Northerly, an arc distance of 288.32 feet along said east R.O.W. line and the west line of said Block 7 and along said curve to the right, having a central angle of 01°26’45”, a radius of 11,425.80 feet and a chord which bears North 05°14’26” West, 288.31 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set marking the northwest corner of the herein described tract;

THENCE, departing said east R.O.W. line and over and across the aforesaid Aramco Services Company tract, the following courses and distances:

North 89°49’01” East, a distance of 86.98 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

South 45°41’49” East, a distance of 14.27 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 34.78 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 44°49’01” East, a distance of 14.14 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

1

North 89°49’01” East, a distance of 215.65 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 44°49’01” East, a distance of 52.57 feet to an “X” set in concrete for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 396.89 feet to “X” set in concrete set in the curved west R.O.W. line of Meyer Park Drive (60 feet wide) and the east line of the aforesaid Block 7 and marking a point of curvature of a non-tangent curve to the left and the northeast corner of the herein described tract;

THENCE, Southerly, an arc distance of 170.01 feet along said west R.O.W. line and the east line of said Block 7 and along said curve to the left, having a central angle of 10°49’14”, a radius of 900.22 feet and a chord which bears South 16°02’49” East, 169.76 feet to the most northerly end of a cutback-line for the most easterly southeast corner of said Block 7 and the herein described tract, from which a found 5/8-inch iron rod bears South 05°53’ East, 0.17 feet;

THENCE, South 23°32’34” West, along said cutback-line, a distance of 14.16 feet to the aforesaid north R.O.W. line of Braeswood Boulevard for the most southerly southeast corner of said Block 7 and the herein described tract, from which a found 5/8-inch iron rod bears South 16°31’ East, 0.65 feet;

THENCE, South 68°32’34” West, along the common line of said north R.O.W. line and the south line of said Block 7, a distance of 435.95 feet to a point of curvature of a tangent curve to the right, from which a found 5/8-inch iron rod bears South 19°40’ West, 0.22 feet;

THENCE, Southwesterly, an arc distance of 107.06 feet continuing along said common line and said curve to the right, having a central angle of 01°04’14”, a radius of 5,730.00 feet and a chord which bears South 69°04’41” West, 107.06 feet to a point of reverse curvature for a tangent curve to the left, from which a found 5/8-inch iron rod bears South 62°55’ West, 0.20 feet;

THENCE, Southwesterly, an arc distance of 107.06 feet continuing along said common line and said curve to the left, having a central angle, of 01°04’14”, a radius of 5,730.00 feet and a chord which bears South 69°04’41” West, 107.06 feet to a point of tangency, from which a found 5/8-inch iron rod bears South 09°03’ East, 0.55 feet;

THENCE, South 68°32’34” West, continuing along said common line, a distance of 45.05 feet to the POINT OF BEGINNING and containing 5.313 acres (231,427 square feet) of land.  This description is based on the Land Title Survey and plat made by Terra Surveying Company, Inc., dated July 1, 2002, latest revision dated April 27, 2005.  TSC Project Number 0038-0101-S.

2

EXHIBIT B

Rent Roll

EXHIBIT C

ASSIGNMENT OF TENANT LEASES AND ASSUMPTION AGREEMENT

(The Verandah at Meyerland Apartments, Houston, Texas)

THIS ASSIGNMENT OF TENANT LEASES AND ASSUMPTION AGREEMENT is made as of the            day of               , 2009, by and between VERANDAH OWNER LIMITED PARTNERSHIP, a Delaware limited partnership (“Assignor”), and                                                       , a                    limited partnership (“Assignee”).

W I T N E S S E T H:

For good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee hereby agree as follows:

1.Assignor hereby sells, transfers, assigns and conveys to Assignee all right, title and interest of Assignor in and to all leases, rental agreements, licenses, and other similar arrangements permitting occupancy or use by another of any apartment unit in the Improvements or any other space or area on the Land or in the Improvements, including, without limitation, each of the leases described on the rent roll attached hereto as Exhibit B-1, which Assignor represents that, based on information provided by Assignor’s property manager and to Assignor’s knowledge (as defined in that certain Sale, Purchase and Escrow Agreement dated                       , 2009 (the “Sale Agreement”), by and between Assignor, as Seller, and Harvard Property Trust, LLC, as Purchaser, whose rights thereunder have been assigned to Assignee), that certain Sale, Purchase and Escrow Agreement among Assignor, Assignee and Partners Title Company) , is true, complete and correct, along with the leases, agreements and/or licenses identified in Exhibit B-2 attached hereto (collectively, the “Leases”), along with Assignee’s right, title and interest in and to all guaranties of Leases, all rents, revenues, income, profits and receipts due under Leases or otherwise receivable by the owner of the Land and Improvements for use or occupancy of any of the Land or Improvements, and all security and other deposits and advance payments under Leases (subject to proration and/or retention by Assignor as provided in the Purchase Agreement) to the extent assignable.  As used herein, the term “Land” shall mean the land situated in Harris County, Texas, more particularly described in Exhibit A attached hereto (the “Land”), and the term “Improvements” shall mean the all structures, fixtures, buildings, and improvements situated on the Land.

2.This Assignment of Tenant Leases and Assumption Agreement shall be construed and enforced in accordance with the laws of the State of Texas.

3.Consistent with the Purchase Agreement, which is hereby incorporated by reference as if herein set out in full and except as set forth herein, the Leases conveyed hereunder are conveyed by Assignor and accepted by Assignee WITHOUT ANY REPRESENTATION OR WARRANTIES OF WHATSOEVER NATURE, EXPRESS OR IMPLIED, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN THE PURCHASE AGREEMENT.

4.Assignee hereby accepts the assignment of the Leases and agrees to assume and discharge, in accordance with the terms thereof, all of the obligations thereunder from and after the date hereof.

5.Assignee agrees to indemnify and hold harmless Assignor from any cost, liability,

damage or expense (including attorneys’ fees) arising out of or relating to Assignee’s failure to perform any of the foregoing obligations accruing on or after the date hereof.

6.Assignor agrees to indemnify and hold harmless Assignee from any cost, liability, damage or expense (including attorneys’ fees) arising out of or relating to Assignor’s failure to perform any of the obligations of Assignor under the Leases, to the extent accruing prior to the date hereof.

7.This Assignment and Assumption may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

[Signature pages immediately follow.]

IN WITNESS WHEREOF, the parties hereto have executed this Assignment of Tenant Leases and Assumption Agreement as of the date first above written.

ASSIGNOR:
VERANDAH OWNER LIMITED PARTNERSHIP, a Delaware limited partnership
By:	Houston Verandah Investor Limited Partnership, a Delaware limited partnership, its general partner
	By:	BH Verandah, L.L.C., an Iowa limited liability company, its general partner
		By:	BH Equities L.L.C., an Iowa limited liability company, its managing member
			By:
				Name: Harry Bookey
				Title: Manager

THE STATE OF	§
	§
COUNTY OF	§

This instrument was acknowledged before me on this            day of                                 , 2009, by Harry Bookey, the Manager of BH Equities L.L.C., an Iowa limited liability company, the managing member of BH Verandah, L.L.C., an Iowa limited liability company, the general partner of Houston Verandah Investor Limited Partnership, a Delaware limited partnership, the general partner of Verandah Owner Limited Partnership, a Delaware limited partnership, on behalf of said limited liability company and limited partnership.

	NOTARY PUBLIC in and for the
	State of
My Commission Expires:	Printed Name of Notary:

IN WITNESS WHEREOF, the parties hereto have executed this Assignment of Tenant Leases and Assumption Agreement as of the date first above written.

	ASSIGNEE:
	[PURCHASER ENTITY]
	By:
		Name:
		Title:
THE STATE OF	§
	§
COUNTY OF	§

This instrument was acknowledged before me on this            day of                                , 2009, by                                                         ,                                                    of                                                                                    , on behalf of said limited partnership.

		NOTARY PUBLIC in and for the
		State of
My Commission Expires:		Printed Name of Notary:
Exhibit A	Leases
Exhibit B	Real Property

EXHIBIT D

Form of Blanket Conveyance, Bill of Sale and Assignment

(The Verandah at Meyerland Apartments, Houston, Texas)

THIS BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT is made as of the            day of                         , 2009, by and between VERANDAH OWNER LIMITED PARTNERSHIP, a Delaware limited partnership (“Assignor”), and                                                                       , a                                              (“Assignee”).

W I T N E S S E T H:

For good and valuable consideration, receipt and sufficiency of which are hereby acknowledged Assignor and Assignee hereby agree as follows:

1.Assignor hereby sells, transfers, assigns and conveys to Assignee the following:

a.All right, title and interest of Assignor in and to all equipment, fixtures, appliances, inventory, and other personal property of whatever kind or character owned by Assignor and attached to or installed or located on or in the Land or the Improvements (defined below), including, without limitation, furniture, furnishings, drapes and floor coverings, office equipment and supplies, heating, lighting, refrigeration, plumbing, ventilating, incinerating, cooking, laundry, communication, electrical, dishwashing, and air conditioning equipment, disposals, window screens, storm windows, recreational equipment, pool equipment, patio furniture, sprinklers, hoses, tools and lawn equipment, and specifically including, without limitation, the items listed on Exhibit B attached hereto to the extent attached to or installed or located on or in the Land or the Improvements (defined below)  (the “Personal Property”).  As used herein, the term “Land” shall mean the land situated in Harris County, Texas, more particularly described in Exhibit A attached hereto (the “Land”), and the term “Improvements” shall mean the all structures, fixtures, buildings, and improvements situated on the Land.

b.All right, title, and interest of Assignor in and to those contracts and agreements described on Exhibit C attached hereto (collectively, the “Service Contracts”).

c.All right, title and interest of Assignor in and to (i) all transferable permits, licenses, approvals, utility rights, development rights and similar rights related to the Property, if any, whether granted by governmental authorities or private persons, (ii) all trademarks, trade names, or symbols under which the Land or the Improvements (or any part thereof) is operated including, without limitation, the name of “The Verandah at Meyerland” and the Internet domain name “                                              ,” (iii) all telephone numbers serving the Apartment Development (as defined in the Purchase Agreement), and (iv) all of the right, title, and interest in and to all site plans, surveys, soil and substrata studies, architectural drawings, plans and specifications, engineering plans and studies, floor plans, landscape plans and other plans or studies of any kind that relate to the Land, the Improvements or the Personal Property in the possession of or under the control of Assignor (collectively, the “Intangibles”), provided that any cost to assign or transfer any of the Intangibles shall be paid by Assignee.

2.This Blanket Conveyance, Bill of Sale and Assignment is given pursuant to that certain Sale, Purchase and Escrow Agreement dated                                by and between Assignor and Assignee (the “Purchase Agreement”), providing for, among other things, the conveyance of the Personal Property,

the Service Contracts, and the Intangibles.

3.Consistent with the Purchase Agreement, which is hereby incorporated by reference, the property conveyed hereunder is conveyed by Assignor and accepted by Assignee AS IS, WHERE IS, AND WITHOUT ANY WARRANTIES OF WHATSOEVER NATURE, EXPRESS OR IMPLIED, EXCEPT AS EXPRESSLY SET FORTH IN THE PURCHASE AGREEMENT, IT BEING THE INTENTION OF ASSIGNOR AND ASSIGNEE EXPRESSLY TO NEGATE AND EXCLUDE ALL WARRANTIES, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, WARRANTIES CREATED BY ANY AFFIRMATION OF FACT OR PROMISE OR BY ANY DESCRIPTION OF THE PROPERTY CONVEYED HEREUNDER, OR BY ANY SAMPLE OR MODEL THEREOF, AND ALL OTHER WARRANTIES WHATSOEVER CONTAINED IN OR CREATED BY THE STATE OF TEXAS UNIFORM COMMERCIAL CODE.

4.Assignee hereby accepts the assignment of the Personal Property, the Service Contracts, and the Intangibles Personal Property and agrees to assume and discharge, in accordance with the terms thereof, all of the obligations thereunder accruing and applicable to the period from and after the date hereof.

5.Assignee agrees to indemnify and hold harmless Assignor from any cost, liability, damage or expense (including attorneys’ fees) arising out of or relating to Assignee’s failure to perform any of the foregoing obligations arising from and accruing on or after the date hereof.

6.Assignor agrees to indemnify and hold harmless Assignee from any cost, liability, damage or expense (including attorneys’ fees) arising out of or relating to Assignor’s failure to perform any of the obligations of Assignor under the Service Contracts or the Intangibles, to the extent accruing prior to the date hereof.

7.This Blanket Conveyance, Bill of Sale and Assignment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

[Signature pages immediately follow.]

IN WITNESS WHEREOF, the parties hereto have executed this Blanket Conveyance, Bill of Sale and Assignment as of the date first above written.

ASSIGNOR:
VERANDAH OWNER LIMITED PARTNERSHIP, a Delaware limited partnership
By:	Houston Verandah Investor Limited Partnership, a Delaware limited partnership, its general partner
	By:	BH Verandah, L.L.C., an Iowa limited liability company, its general partner
		By:	BH Equities L.L.C., an Iowa limited liability company, its managing member
			By:
				Name: Harry Bookey
				Title: Manager

ASSIGNEE:
By:
	By:
	Name:
	Title:

EXHIBIT E

Intentionally Deleted

EXHIBIT F

Service Contracts

EXHIBIT G

Form of Notice to Tenants

	, 20
Re:

Dear Tenant:

Please be advised that effective __________________, 20___, ____________________________ has sold the above-referenced property to _________________________________. Your security deposit has been transferred to such entity and such entity shall be responsible for holding the same in accordance with the terms of your lease. Effective ___________, 20___, all future rental payments should be sent to the following address:

Any questions regarding maintenance and management of the property should be addressed to:

Very truly yours,
VERANDAH OWNER LIMITED PARTNERSHIP, a Delaware limited partnership
By:	Houston Verandah Investor Limited Partnership, a Delaware limited partnership, its general partner
	By:	BH Verandah, L.L.C., an Iowa limited liability company, its general partner
		By:	BH Equities L.L.C., an Iowa limited liability company, its managing member
			By:
				Name: Harry Bookey
				Title: Manager

EXHIBIT H

FIRPTA Affidavit

Transferor’s Certification of Non-Foreign Status

To inform [PURCHASER ENTITY], a                                      (“Transferee”), that withholding of tax under Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), will not be required upon the transfer of certain real property to Transferee by Verandah Owner Limited Partnership, a Delaware limited partnership (“Transferor”), the undersigned hereby certifies the following on behalf of Transferor:

1.Transferor is not a foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Code and the Income Tax Regulations promulgated thereunder);

2.Seller is not a disregarded entity as defined in §1.1445-2(b)(2)(iii);

3.Transferor’s U.S. employer identification number is                     ;and

4.Transferor’s office address is c/o BH Equities, L.L.C. 400 Locust Street, Suite 790, Des Moines, Iowa 50309, Attn: Nicholas Roby, Esq.

Transferor understands that this Certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalty of perjury I declare that I have examined this Certification and to the best of my knowledge and belief it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of Transferor.

Dated:                             , 20

VERANDAH OWNER LIMITED PARTNERSHIP, a Delaware limited partnership
By:	Houston Verandah Investor Limited Partnership, a Delaware limited partnership, its general partner
	By:	BH Verandah, L.L.C., an Iowa limited liability company, its general partner
		By:	BH Equities L.L.C., an Iowa limited liability company, its managing member
			By:
				Name: Harry Bookey
				Title: Manager

EXHIBIT I

Form of Special Warranty Deed

THE STATE OF TEXAS	§
	§	KNOW ALL MEN BY THESE PRESENTS THAT:
COUNTY OF HARRIS	§

VERANDAH OWNER LIMITED PARTNERSHIP, a Delaware limited partnership (whether one or more, “Grantor”), for and in consideration of the sum of TEN AND NO/100 DOLLARS ($10.00), and other good and valuable consideration paid by                                   , a                                  (the “Grantee”), the receipt and sufficiency of which are hereby acknowledged and confessed, subject to the exceptions, liens, encumbrances, terms and provisions hereinafter set forth and described, has GRANTED, BARGAINED, SOLD and CONVEYED, and by these presents does hereby GRANT, BARGAIN, SELL and CONVEY, unto Grantee all of that certain lot, tract or parcel of land situated in Harris County, Texas, and being more particularly described in Exhibit “A” attached hereto and incorporated herein by reference for all purposes.

TOGETHER WITH, all and singular, the rights, benefits, privileges, easements, tenements, hereditaments, appurtenances and interests thereon or in anywise appertaining thereto and with all improvements located thereon belonging to Grantor (said land, rights, benefits, privileges, easements, tenements, hereditaments, appurtenances, improvements and interests being hereinafter referred to as the “Property”).

For the same consideration recited above, Grantor hereby BARGAINS, SELLS and TRANSFERS, without warranty, express or implied, all interest, if any, of Grantor in (i) strips or gores, if any, between the Property and abutting or immediately adjacent properties, and (ii) any land lying in or under the bed of any street, alley, road or right-of-way, opened or proposed, abutting or immediately adjacent to the Property.

This conveyance is made subject and subordinate to the encumbrances and exceptions (“Permitted Exceptions”) described in Exhibit “B” attached hereto and incorporated herein by reference for all purposes, but only to the extent they affect or relate to the Property.

ALL GRANTS, BARGAINS, SALES AND TRANSFERS ARE MADE “AS—IS, WITHOUT REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, EXCEPT AS SET FORTH IN THE DEED AND IN ARTICLE XI OF THAT CERTAIN SALE, PURCHASE AND ESCROW AGREEMENT DATED                     , 2009 (THE “SALE AGREEMENT”), BY AND BETWEEN GRANTOR, AS SELLER, AND HARVARD PROPERTY TRUST, LLC, AS PURCHASER, WHOSE RIGHTS THEREUNDER HAVE BEEN ASSIGNED TO GRANTEE, WITHOUT WARRANTY OF HABITABILITY, SUITABILITY, MERCHANTIBILITY FOR FITNESS FOR A PARTICULAR PURPOSE, WITH NO RELIANCE OF ANY BUYER ON ANY REPRESENATION WITH RESPECT TO PROPERTY CONDITION EXCEPT AS DESCRIBED ABOVE WITH RESPECT TO THE SALE AGREEMENT, AND WITH KNOWLEDGE THAT

ANY BUYER IS INSTEAD RELYING ON ITS OWN EXAMINATION OF THE PROPERTY.

At no time prior to January 1, 2015 shall all or any portion of the Property be established as a condominium regime under the laws of the State of Texas unless the then current owner of the Property (the “Owner”) (i) shall have given written notice to Grantor and Verandah IH 610, L.P. of Owner’s intention to file such condominium declaration and establish all or any portion of the Property as a condominium regime and (ii) shall have, at least sixty (60) days prior to the recordation of a condominium declaration covering the Property, recorded in the Official Public Records of Real Property of Harris County, Texas an affidavit, in the form attached hereto as Exhibit “C,” swearing that such notice was properly given. If Owner fails to timely file the affidavit prior to recording any such condominium declaration as provided herein, then such condominium declaration shall be null and void ab initio. However, if the affidavit is timely filed as provided herein, all subsequent purchasers may rely on the affidavit as conclusive proof that the notice was properly given, and the condominium declaration shall be fully effective and will not be void or voidable for failure to have properly given such notice. The notice required hereunder shall be delivered to Grantor and Verandah IH 610, L.P. by United States Mail, as a certified item with postage prepaid and return receipt requested, addressed as follows:

Verandah Owner Limited Partnership
c/o BlackRock Realty Advisors, Inc.
300 Campus Drive, 3rd Floor, Florham Park, New Jersey 07932
Attention: Jeremy Litt, Esq.

with a copy to

Goodwin Procter LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Lawrence R. Cahill, Esq.

and

Verandah IH 610, L.P.

c/o Verandah Development, Inc.

8588 Katy Freeway, Suite 230

Houston, Texas 77024

with a copy to

J. Robert Fisher

Winstead Sechrest & Minick P.C.

910 Travis Street, Suite 2400

Houston, Texas 77002

TO HAVE AND TO HOLD the Property, subject to the Permitted Exceptions as aforesaid, unto Grantee, and Grantee’s successors and assigns, forever; and Grantor does hereby bind Grantor, and Grantor’s successors and assigns, to WARRANT and FOREVER DEFEND, all and singular, the Property, subject to the Permitted Exceptions, unto Grantee, and Grantee’s successors and assigns, against every person whomsoever lawfully claiming or to claim the same or any part thereof, by, through or under Grantor, but not otherwise.

Grantee, by its acceptance hereof, does hereby assume and agree to pay any and all ad valorem taxes and special assessments pertaining to the Property for calendar year 2009 and subsequent years, there having been a proper proration of ad valorem taxes for the current calendar year between Grantor and Grantee.

[Remainder of page left intentionally blank]

EXECUTED as of the              day of                                   , 200

GRANTOR:
VERANDAH OWNER LIMITED PARTNERSHIP, a Delaware limited partnership
By:	Houston Verandah Investor Limited Partnership, a Delaware limited partnership, its general partner
	By:	BH Verandah, L.L.C., an Iowa limited liability company, its general partner
		By:	BH Equities L.L.C., an Iowa limited liability company, its managing member
			By:
				Name: Harry Bookey
				Title: Manager

THE STATE OF	§
	§
COUNTY OF	§

This instrument was acknowledged before me on this            day of                              , 2009, by Harry Bookey, the Manager of BH Equities L.L.C., an Iowa limited liability company, the managing member of BH Verandah, L.L.C., an Iowa limited liability company, the general partner of Houston Verandah Investor Limited Partnership, a Delaware limited partnership, the general partner of Verandah Owner Limited Partnership, a Delaware limited partnership, on behalf of said limited liability company and limited partnership.

	NOTARY PUBLIC in and for the
	State of
My Commission Expires:	Printed Name of Notary:

GRANTEE’S ADDRESS FOR TAX NOTICES:

When recorded, return to:

List of Exhibits:
Exhibit A	—	Property Description
Exhibit B	—	Permitted Exceptions
Exhibit C	—	Affidavit

EXHIBIT “A” TO SPECIAL WARRANTY DEED

PROPERTY DESCRIPTION

Being a tract or parcel containing 5.313 acres (231,427 square feet) of land situated in the James D. Owen Survey, Abstract Number 612; being out of and a part of Unrestricted Block 7, of MEYER PARK, SECTION 2, a subdivision plat of record in Volume 142, Page 30, Harris County Map Records; and being out of and a part of that certain tract of land (Tract One) conveyed to Aramco Services Company as described in deed recorded under Harris County Clerk’s File (H.C.C.F.) Number H104446, Harris County, Texas; and being that certain called 5.313 acre tract conveyed to Verandah IH-610, L.P. as described in deed recorded under H.C.C.F. number W636306; and said 5.313 acre tract being more particularly described by metes and bounds as follows (bearings are oriented to said record plat):

BEGINNING at 1-inch iron rod found in the north right-of-way (R.O.W.) line of Braeswood Boulevard (100 feet wide) and marking the most southerly southwest corner of the aforesaid Block 7 and the herein described tract;

THENCE, North 06°18’24” West, along a southwest line of said Block 7, a distance of 150.00 feet to an interior corner of said Block and the herein described tract, from which a found 1-inch iron rod bears South 60°43’ West, 0.26 feet;

THENCE, South 71°35’50” West, along a southwest line of said Block 7, a distance of 150.00 feet to the curved east R.O.W. line of Interstate Highway 610 (West Loop South) (Width Varies) for the most westerly southwest corner of said Block 7 and the herein described tract and for a point of tangency of a non-tangent curve to the right, from which a found 1-inch iron rod bears North 66°35’ West, 0.36 feet;

THENCE, Northerly, an arc distance of 288.32 feet along said east R.O.W. line and the west line of said Block 7 and along said curve to the right, having a central angle of 01°26’45”, a radius of 11,425.80 feet and a chord which bears North 05°14’26” West, 288.31 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set marking the northwest corner of the herein described tract;

THENCE, departing said east R.O.W. line and over and across the aforesaid Aramco Services Company tract, the following courses and distances:

North 89°49’01” East, a distance of 86.98 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

South 45°41’49” East, a distance of 14.27 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 34.78 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 44°49’01” East, a distance of 14.14 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 215.65 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 44°49’01” East, a distance of 52.57 feet to an “X” set in concrete for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 396.89 feet to “X” set in concrete set in the curved west R.O.W. line of Meyer Park Drive (60 feet wide) and the east line of the aforesaid Block 7 and marking a point of curvature of a non-tangent curve to the left and the northeast corner of the herein described tract;

THENCE, Southerly, an arc distance of 170.01 feet along said west R.O.W. line and the east line of said Block 7 and along said curve to the left, having a central angle of 10°49’14”, a radius of 900.22 feet and a chord which bears South 16°02’49” East, 169.76 feet to the most northerly end of a cutback-line for the most easterly southeast corner of said Block 7 and the herein described tract, from which a found 5/8-inch iron rod bears South 05°53’ East, 0.17 feet;

THENCE, South 23°32’34” West, along said cutback-line, a distance of 14.16 feet to the aforesaid north R.O.W. line of Braeswood Boulevard for the most southerly southeast corner of said Block 7 and the herein described tract, from which a found 5/8-inch iron rod bears South 16°31’ East, 0.65 feet;

THENCE, South 68°32’34” West, along the common line of said north R.O.W. line and the south line of said Block 7, a distance of 435.95 feet to a point of curvature of a tangent curve to the right, from which a found 5/8-inch iron rod bears South 19°40’ West, 0.22 feet;

THENCE, Southwesterly, an arc distance of 107.06 feet continuing along said common line and said curve to the right, having a central angle of 01°04’14”, a radius of 5,730.00 feet and a chord which bears South 69°04’41” West, 107.06 feet to a point of reverse curvature for a tangent curve to the left, from which a found 5/8-inch iron rod bears South 62°55’ West, 0.20 feet;

THENCE, Southwesterly, an arc distance of 107.06 feet continuing along said common line and said curve to the left, having a central angle, of 01°04’14”, a radius of 5,730.00 feet and a chord which bears South 69°04’41” West, 107.06 feet to a point of tangency, from which a found 5/8-inch iron rod bears South 09°03’ East, 0.55 feet;

THENCE, South 68°32’34” West, continuing along said common line, a distance of 45.05 feet to the POINT OF BEGINNING and containing 5.313 acres (231,427 square feet) of land.  This description is based on the Land Title Survey and plat made by Terra Surveying Company, Inc., dated July 1, 2002, latest revision dated April 27, 2005.  TSC Project Number 0038-0101-S.

EXHIBIT “B” TO SPECIAL WARRANTY DEED

PERMITTED EXCEPTIONS

EXHIBIT “C” TO SPECIAL WARRANTY DEED

AFFIDAVIT

STATE OF TEXAS	§
	§
COUNTY OF HARRIS	§

AFFIDAVIT

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS  INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

This Affidavit is executed as of the          day of                               , 20        by                                               , who, after being duly sworn by the undersigned notary public, upon (his/her) oath did depose and say as follows:

My name is                                                                         , I am over the age of 21 years, have personal knowledge of the facts set forth in this Affidavit and am in all things competent to give this Affidavit.

I am the                                        of                                            (“Owner”), the owner of the real property located in Houston, Harris County, Texas (the “Property”).  This Affidavit is given pursuant to the requirements set forth in that certain Special Warranty Deed dated                     , 200    ecorded under Clerk’s File No.                                      in the Official Public Records of Real Property of Harris County, Texas (the “Deed”).

Owner intends, not sooner that sixty (60) days from the date of the recordation of this Affidavit in the Official Public Records of Real Property of Harris County, Texas, to subject all or a part of the Property to a declaration for the purposes of establishing a condominium regime over all or a part of the Property.

Prior to the recordation of this Affidavit Owner, fully in accordance with the terms of the Deed, gave written notice of its intent to subject all or a part of the Property to a declaration for the purposes of establishing a condominium regime over all or a part of the Property to the grantor under the Deed.  Such written notice was delivered to such grantor by United States certified mail, as a certified item with postage paid and return receipt requested, addressed as follows:

Verandah Owner Limited Partnership
c/o BlackRock Realty Advisors, Inc.

300 Campus Drive, 3rd Floor, Florham Park, New Jersey 07932

Attention: Jeremy Litt, Esq.

with a copy to

Goodwin Procter LLP

Exchange Place

Boston, Massachusetts  02109

Attention:  Lawrence R. Cahill, Esq.

End of Affidavit

Name:	(typed or printed)
Address:

SUBSCRIBED, SWORN TO AND ACKNOWLEDGED by                                              before me this          day of                             , 20      .

Notary Public in and for the State of

EXHIBIT “A” TO AFFIDAVIT

PROPERTY DESCRIPTION

Being a tract or parcel containing 5.313 acres (231,427 square feet) of land situated in the James D. Owen Survey, Abstract Number 612; being out of and a part of Unrestricted Block 7, of MEYER PARK, SECTION 2, a subdivision plat of record in Volume 142, Page 30, Harris County Map Records; and being out of and a part of that certain tract of land (Tract One) conveyed to Aramco Services Company as described in deed recorded under Harris County Clerk’s File (H.C.C.F.) Number H104446, Harris County, Texas; and being that certain called 5.313 acre tract conveyed to Verandah IH-610, L.P. as described in deed recorded under H.C.C.F. number W636306; and said 5.313 acre tract being more particularly described by metes and bounds as follows (bearings are oriented to said record plat):

BEGINNING at 1-inch iron rod found in the north right-of-way (R.O.W.) line of Braeswood Boulevard (100 feet wide) and marking the most southerly southwest corner of the aforesaid Block 7 and the herein described tract;

THENCE, North 06°18’24” West, along a southwest line of said Block 7, a distance of 150.00 feet to an interior corner of said Block and the herein described tract, from which a found 1-inch iron rod bears South 60°43’ West, 0.26 feet;

THENCE, South 71°35’50” West, along a southwest line of said Block 7, a distance of 150.00 feet to the curved east R.O.W. line of Interstate Highway 610 (West Loop South) (Width Varies) for the most westerly southwest corner of said Block 7 and the herein described tract and for a point of tangency of a non-tangent curve to the right, from which a found 1-inch iron rod bears North 66°35’ West, 0.36 feet;

THENCE, Northerly, an arc distance of 288.32 feet along said east R.O.W. line and the west line of said Block 7 and along said curve to the right, having a central angle of 01°26’45”, a radius of 11,425.80 feet and a chord which bears North 05°14’26” West, 288.31 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set marking the northwest corner of the herein described tract;

THENCE, departing said east R.O.W. line and over and across the aforesaid Aramco Services Company tract, the following courses and distances:

North 89°49’01” East, a distance of 86.98 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

South 45°41’49” East, a distance of 14.27 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 34.78 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 44°49’01” East, a distance of 14.14 feet to a 5/8-inch iron rod with plastic cap stamped

“Terra Surveying” set for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 215.65 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 44°49’01” East, a distance of 52.57 feet to an “X” set in concrete for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 396.89 feet to “X” set in concrete set in the curved west R.O.W. line of Meyer Park Drive (60 feet wide) and the east line of the aforesaid Block 7 and marking a point of curvature of a non-tangent curve to the left and the northeast corner of the herein described tract;

THENCE, Southerly, an arc distance of 170.01 feet along said west R.O.W. line and the east line of said Block 7 and along said curve to the left, having a central angle of 10°49’14”, a radius of 900.22 feet and a chord which bears South 16°02’49” East, 169.76 feet to the most northerly end of a cutback-line for the most easterly southeast corner of said Block 7 and the herein described tract, from which a found 5/8-inch iron rod bears South 05°53’ East, 0.17 feet;

THENCE, South 23°32’34” West, along said cutback-line, a distance of 14.16 feet to the aforesaid north R.O.W. line of Braeswood Boulevard for the most southerly southeast corner of said Block 7 and the herein described tract, from which a found 5/8-inch iron rod bears South 16°31’ East, 0.65 feet;

THENCE, South 68°32’34” West, along the common line of said north R.O.W. line and the south line of said Block 7, a distance of 435.95 feet to a point of curvature of a tangent curve to the right, from which a found 5/8-inch iron rod bears South 19°40’ West, 0.22 feet;

THENCE, Southwesterly, an arc distance of 107.06 feet continuing along said common line and said curve to the right, having a central angle of 01°04’14”, a radius of 5,730.00 feet and a chord which bears South 69°04’41” West, 107.06 feet to a point of reverse curvature for a tangent curve to the left, from which a found 5/8-inch iron rod bears South 62°55’ West, 0.20 feet;

THENCE, Southwesterly, an arc distance of 107.06 feet continuing along said common line and said curve to the left, having a central angle, of 01°04’14”, a radius of 5,730.00 feet and a chord which bears South 69°04’41” West, 107.06 feet to a point of tangency, from which a found 5/8-inch iron rod bears South 09°03’ East, 0.55 feet;

THENCE, South 68°32’34” West, continuing along said common line, a distance of 45.05 feet to the POINT OF BEGINNING and containing 5.313 acres (231,427 square feet) of land.  This description is based on the Land Title Survey and plat made by Terra Surveying Company, Inc., dated July 1, 2002, latest revision dated April 27, 2005.  TSC Project Number 0038-0101-S.]

EXHIBIT J

Personal Property

EXHIBIT K

Due Diligence Materials

EXHIBIT L

Seller’s Lease Guidelines

EX-10.11

Exhibit 10.11

ASSIGNMENT AND ASSUMPTION OF

SALE, PURCHASE AND ESCROW AGREEMENT

THIS ASSIGNMENT is made and entered into as of this 28th day of January, 2009, by and between HARVARD PROPERTY TRUST, LLC, a Delaware limited liability company (hereinafter referred to as “Assignor”), and BEHRINGER HARVARD MULTIFAMILY OP I LP, a Delaware limited partnership (hereinafter referred to as “Assignee”).

W I T N E S S E T H :

WHEREAS, Verandah Owner Limited Partnership, a Delaware limited partnership, and Assignor have entered into that certain Sale, Purchase and Escrow Agreement dated as of January 26, 2009 (the “Agreement”), relating to that certain land and improvements located at 4620 N. Braeswood Avenue, Houston, Texas, known as The Verandah at Meyerland Apartments, being more particularly described in Exhibit A attached hereto and made a part hereof; and

WHEREAS, as permitted by the Agreement, Assignor and Assignee have agreed that Assignor shall transfer and assign to Assignee all right, title and interest of Assignor in and to the Agreement; and

WHEREAS, Assignor and Assignee have further agreed that Assignee shall expressly assume all of the obligations of Assignor arising under the Agreement.

NOW, THEREFORE, for and in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, Assignor and Assignee hereby agree as follows:

1.Transfer and Assignment.  Assignor hereby sells, transfers, assigns and sets over to Assignee, its successors and assigns, all right, title and interest of Assignor in and to the Agreement.

2.Assumption of Obligations.  Assignee hereby assumes and agrees to observe and perform all of the terms, covenants and conditions of Assignor under the Agreement arising from and after the date of this Assignment.

3.Binding Effect.  This instrument shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and assigns.

IN WITNESS WHEREOF, Assignor and Assignee have each caused this Assignment to be executed by its duly authorized signatory as of the day and year first above written.

ASSIGNOR:
HARVARD PROPERTY TRUST, LLC,
a Delaware limited liability company
By:	/s/ Gerald J. Reihsen, III
	Gerald J. Reihsen, III
	Executive Vice President — Corporate Development & Legal and Secretary

ASSIGNEE:
BEHRINGER HARVARD MULTIFAMILY OP I LP,
a Delaware limited partnership
By:	BHMF, Inc.,
	a Delaware corporation,
	its general partner
	By:	/s/ Gerald J. Reihsen, III
		Gerald J. Reihsen, III
		Executive Vice President — Corporate
		Development & Legal and Assistant Secretary

EXHIBIT A

LEGAL DESCRIPTION

Being a tract or parcel containing 5.313 acres (231,427 square feet) of land situated in the James D. Owen Survey, Abstract Number 612; being out of and a part of Unrestricted Block 7, of MEYER PARK, SECTION 2, a subdivision plat of record in Volume 142, Page 30, Harris County Map Records; and being out of and a part of that certain tract of land (Tract One) conveyed to Aramco Services Company as described in deed recorded under Harris County Clerk’s File (H.C.C.F.) Number H104446, Harris County, Texas; and being that certain called 5.313 acre tract conveyed to Verandah IH-610, L.P. as described in deed recorded under H.C.C.F. number W636306; and said 5.313 acre tract being more particularly described by metes and bounds as follows (bearings are oriented to said record plat):

BEGINNING at 1-inch iron rod found in the north right-of-way (R.O.W.) line of Braeswood Boulevard (100 feet wide) and marking the most southerly southwest corner of the aforesaid Block 7 and the herein described tract;

THENCE, North 06°18’24” West, along a southwest line of said Block 7, a distance of 150.00 feet to an interior corner of said Block and the herein described tract, from which a found 1-inch iron rod bears South 60°43’ West, 0.26 feet;

THENCE, South 71°35’50” West, along a southwest line of said Block 7, a distance of 150.00 feet to the curved east R.O.W. line of Interstate Highway 610 (West Loop South) (Width Varies) for the most westerly southwest corner of said Block 7 and the herein described tract and for a point of tangency of a non-tangent curve to the right, from which a found 1-inch iron rod bears North 66°35’ West, 0.36 feet;

THENCE, Northerly, an arc distance of 288.32 feet along said east R.O.W. line and the west line of said Block 7 and along said curve to the right, having a central angle of 01°26’45”, a radius of 11,425.80 feet and a chord which bears North 05°14’26” West, 288.31 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set marking the northwest corner of the herein described tract;

THENCE, departing said east R.O.W. line and over and across the aforesaid Aramco Services Company tract, the following courses and distances:

North 89°49’01” East, a distance of 86.98 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

South 45°41’49” East, a distance of 14.27 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 34.78 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 44°49’01” East, a distance of 14.14 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 215.65 feet to a 5/8-inch iron rod with plastic cap stamped “Terra Surveying” set for an interior corner of the herein described tract;

North 44°49’01” East, a distance of 52.57 feet to an “X” set in concrete for an interior corner of the herein described tract;

North 89°49’01” East, a distance of 396.89 feet to “X” set in concrete set in the curved west R.O.W. line of Meyer Park Drive (60 feet wide) and the east line of the aforesaid Block 7 and marking a point of curvature of a non-tangent curve to the left and the northeast corner of the herein described tract;

THENCE, Southerly, an arc distance of 170.01 feet along said west R.O.W. line and the east line of said Block 7 and along said curve to the left, having a central angle of 10°49’14”, a radius of 900.22 feet and a chord which bears South 16°02’49” East, 169.76 feet to the most northerly end of a cutback-line for the most easterly southeast corner of said Block 7 and the herein described tract, from which a found 5/8-inch iron rod bears South 05°53’ East, 0.17 feet;

THENCE, South 23°32’34” West, along said cutback-line, a distance of 14.16 feet to the aforesaid north R.O.W. line of Braeswood Boulevard for the most southerly southeast corner of said Block 7 and the herein described tract, from which a found 5/8-inch iron rod bears South 16°31’ East, 0.65 feet;

THENCE, South 68°32’34” West, along the common line of said north R.O.W. line and the south line of said Block 7, a distance of 435.95 feet to a point of curvature of a tangent curve to the right, from which a found 5/8-inch iron rod bears South 19°40’ West, 0.22 feet;

THENCE, Southwesterly, an arc distance of 107.06 feet continuing along said common line and said curve to the right, having a central angle of 01°04’14”, a radius of 5,730.00 feet and a chord which bears South 69°04’41” West, 107.06 feet to a point of reverse curvature for a tangent curve to the left, from which a found 5/8-inch iron rod bears South 62°55’ West, 0.20 feet;

THENCE, Southwesterly, an arc distance of 107.06 feet continuing along said common line and said curve to the left, having a central angle, of 01°04’14”, a radius of 5,730.00 feet and a chord which bears South 69°04’41” West, 107.06 feet to a point of tangency, from which a found 5/8-inch iron rod bears South 09°03’ East, 0.55 feet;

THENCE, South 68°32’34” West, continuing along said common line, a distance of 45.05 feet to the POINT OF BEGINNING and containing 5.313 acres (231,427 square feet) of land.  This description is based on the Land Title Survey and plat made by Terra Surveying Company, Inc., dated July 1, 2002, latest revision dated April 27, 2005.  TSC Project Number 0038-0101-S.

EX-10.12

Exhibit 10.12

FIRST AMENDMENT TO

SALE, PURCHASE AND ESCROW AGREEMENT

                THIS FIRST AMENDMENT TO SALE, PURCHASE AND ESCROW AGREEMENT (the “Amendment”) is made and entered into effective as of February 20, 2009, by and between Verandah Owner Limited Partnership, a Delaware limited partnership (“Seller”), and Behringer Harvard Multifamily OP I LP, a Delaware limited partnership (“Purchaser”) with reference to the following recitals of fact:

R E C I T A L S:

A.            Harvard Property Trust, LLC (“Original Purchaser”) and Seller were parties to that certain Sale, Purchase and Escrow Agreement, with an Effective Date of January 26, 2009 (the “Original Agreement’), pursuant to which Original Purchaser agreed to purchase and Seller agreed to sell, inter alia, that certain real property located in Harris County, Texas, commonly known as The Verandah at Meyerland Apartments.

B.            Original Purchaser did assign all of its right, title and interest under the Original Agreement pursuant to Assignment and Assumption of Sale, Purchase and Escrow Agreement dated January 29, 2009.

C.            Purchaser and Seller now desire to modify the Agreement in accordance with the terms and conditions set forth in this Amendment.  For purposes hereof, the Original Agreement and this Amendment are collectively referred to as the “Agreement.”

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.             Original Agreement.  Purchaser and Seller acknowledge that the Original Agreement is in full force and effect, except as modified by this Amendment.  All capitalized terms not otherwise defined herein shall have the meaning set forth in the Original Agreement.  In the event of any inconsistency between the terms and conditions set forth in the Original Agreement and the terms and conditions set forth in this Agreement, the terms and conditions in this Amendment shall control.

2.             Purchase Price.  The Purchase Price as defined in Section 2.1 of the Original Agreement is hereby reduced by $600,000.00 making the amended Purchase Price Twenty-Eight Million Six Hundred Thousand and 00/100 Dollars ($28,600,000.00).

3.             Deposit.  Upon full execution of this Amendment, Purchaser agrees that except as set forth in the last sentence hereof, the $200,000 Deposit under Section 2.1.1 of the Agreement shall become non-refundable notwithstanding that Purchaser shall still retain the right to terminate the Agreement under Section 5.7 as modified by paragraph 4 below.  The completion prior to Closing of the repairs from water damage as described on the attached letter from Frank Crystal & Company to Units 122 and 222 shall also be a condition precedent for the $200,000 Deposit and any Additional Funds deposited under Section 2.1.2 of the Agreement to become non-refundable.

4.             Inspection Period.  The Inspection Period as defined in Section 5.7 of the Original Agreement is hereby extended such that the Inspection Period shall expire Tuesday, at 5 P.M. Central

1

Standard Time, on February 24, 2009.  In addition, any use in the Agreement of the term “Investigation Period” shall mean the Inspection Period, the use of such terms being one and the same.

5.             No Other Modifications.  Except as otherwise provided herein, all other terms and provisions of the Agreement shall remain in full force and effect, unmodified by this Amendment.

6.             Binding Effect.  The provisions of this Amendment shall be binding upon and inure to the benefit of the heirs, representatives, successors and permitted assigns of the parties hereto.

7.             Counterparts.  This Amendment may be executed in any number of original counterparts.  Any such counterpart, when executed, shall constitute an original of this Amendment, and all such counterparts together shall constitute one and the same Amendment.  For purposes of this Amendment, facsimile signatures shall be deemed to be originals.

IN WITNESS WHEREOF, this Amendment has been duly executed by the parties hereto as of the day and year written above.

SELLER:	VERANDAH OWNER LIMITED PARTNERSHIP,
	a Delaware limited partnership
	By:	Houston Verandah Investor Limited Partnership, a Delaware limited partnership, its general partner
		By:	BH Verandah, L.L.C., an Iowa limited liability company, its general partner
			By:	BH Equities L.L.C., an Iowa limited liability company, its managing member
				By:	/s/ Harry Bookey
					Name: Harry Bookey
					Title: Manager
PURCHASER:	BEHRINGER HARVARD MULTIFAMILY OP I LP,
	a Delaware limited partnership
	By:	BHMF, Inc.
		a Delaware corporation,
		its general partner
		By:	/s/ Gerald J. Reihsen, III
			Gerald J. Reihsen, III
			Executive Vice President — Corporate
			Development & Legal and Assistant Secretary

2

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Robert S. Aisner, certify that:

1. I have reviewed this annual report on Form 10-K of Behringer Harvard Multifamily REIT I, Inc.;

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)) for the registrant and have [language omitted in accordance with SEC Releases Nos. 34-47986 and 34-54942]:

(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) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Releases Nos. 34-47986 and 34-54942];

(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 quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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 the registrant’s board of directors (or persons performing the equivalent functions):

(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.

Dated this 31st day of March, 2009.
	/s/ Robert S. Aisner
	Robert S. Aisner
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Gary S. Bresky, certify that:

1. I have reviewed this annual report on Form 10-K of Behringer Harvard Multifamily REIT I, Inc.;

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)) for the registrant and have [language omitted in accordance with SEC Releases Nos. 34-47986 and 34-54942]:

(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) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Releases Nos. 34-47986 and 34-54942];

(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 quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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 the registrant’s board of directors (or persons performing the equivalent functions):

(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.

Dated this 31st day of March, 2009.
	/s/ Gary S. Bresky
	Gary S. Bresky
	Chief Financial Officer

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATIONS

This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

The undersigned, who are the Chief Executive Officer and Chief Financial Officer of Behringer Harvard Multifamily REIT I, Inc. (the “Company”), each hereby certify as follows:

The Annual Report on Form 10-K of the Company (the “Report”), which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and all information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated this 31st day of March, 2009.

/s/ Robert S. Aisner

Robert S. Aisner

Chief Executive Officer

/s/ Gary S. Bresky

Gary S. Bresky

Chief Financial Officer