10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

X	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
or
□	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: 000-51199
Inland Western Retail Real Estate Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland				42-1579325
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
2901 Butterfield Road, Oak Brook, Illinois				60523
(Address of principal executive offices)				(Zip Code)
630-218-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None				Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act: Title of class: Common stock, $.001 par value per share
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 by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.  Yes  o      No  [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 whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). .     Yes   o         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.  [ X ]
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer		□			Accelerated filer	o
Non-accelerated filer		[X]	(Do not check if a smaller reporting company)		Smaller reporting company	o
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]
As of June 30, 2009 the aggregate market value of the shares of common stock held by non-affiliates of the registrant was $3,802,270,522, assuming a market value of $8.50 per share.
As of February 23, 2010, there were 482,480,810 shares of common stock outstanding.

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

TABLE OF CONTENTS

                                                                               PART I

                                                                               PART II

                                                                               PART III

                                                                               PART IV

i

PART I

Item 1.  Business

General

Inland Western Retail Real Estate Trust, Inc. is a self-managed real estate investment trust (REIT) that acquires, manages, and develops a diversified portfolio of real estate, primarily multi-tenant shopping centers.  As of December 31, 2009, our portfolio consisted of 299 consolidated operating properties, of which 242 properties are wholly-owned by us, including one property classified as held for sale on the accompanying consolidated balance sheets (the wholly-owned properties), and 57 properties in three joint ventures in which we own between 50% and 99.5% (the consolidated joint venture operating properties); as well as interests in 11 other operating properties in two joint ventures that we do not consolidate in which we own between 20% and 96%.  We have also invested in six consolidated development properties, of which one property is wholly-owned by us and five properties in five joint venture s in which we own between 22% and 75%; as well as interests in five other development properties in one joint venture referred to above that we do not consolidate in which we own 96%.

In this report, all references to “we,” “our,” and “us” refer collectively to Inland Western Retail Real Estate Trust, Inc. and its subsidiaries including consolidated and unconsolidated joint ventures.  All amounts in this Form 10-K are stated in thousands with the exception of per share amounts, square foot amounts, per square foot amounts, number of properties, number of states, number of leases and number of employees.

The properties in our portfolio are located in 38 states.  At December 31, 2009, our wholly-owned and consolidated joint venture operating portfolio consisted of 183 multi-tenant shopping centers and 116 free-standing single-user properties of which 102 are net lease properties.  A net lease property is one which is leased to a tenant who is responsible for the base rent and all costs and expenses associated with their occupancy including property taxes, insurance and repairs and maintenance.  The portfolio contains an aggregate of approximately 44,496,000 square feet of gross leasable area, or GLA, of which approximately 86% of the GLA was physically leased at December 31, 2009.  Our anchor tenants include nationally and regionally recognized grocers, discount retailers and other tenants who provide basic household goods and services.  Of our total annualized portfolio rental revenue as of December 31, 2009, approximately 65% was generated by anchor or credit tenants.  The term “credit tenant” is subjective and we apply the term to tenants who we believe have a substantial net worth.

Business and Operating Strategies

Our goal is to maximize the possible return to our shareholders through the acquisition, development, redevelopment, creation of strategic joint ventures and management of related properties consisting of lifestyle, power, neighborhood and community multi-tenant shopping centers and single-user net lease properties.  We seek to provide an attractive return to our shareholders by taking advantage of our presence in many markets.  We believe we are able to accommodate the growth needs of tenants who are interested in working with one landlord in multiple locations.  Because of our focused acquisition strategy, we possess large amounts of retail space in certain markets, thus allowing us to lease and re-lease space at favorable rental rates.  We focus on the needs and problems facing our tenants, so we can provide solutions whenever possible.  Because of our size, we enjoy the benefits of p urchasing goods and services in large quantities, thus resulting, we believe, in cost savings and improved efficiency.  

The retail and real estate markets have been significantly impacted by the continued deterioration of the global credit markets and other macro economic factors including, among others, rising unemployment and a decline in consumer confidence leading to a decline in consumer spending.  Although a majority of our tenants (in particular, the anchor tenants) remain in relatively strong financial standing, the current economic environment has resulted in tenant bankruptcies affecting our real estate portfolio, including Mervyns, Linens ‘n Things and Circuit City, which occurred primarily in the fourth quarter of 2008 and first quarter of 2009.  In addition, certain other tenants may be experiencing financial difficulties.  The decrease in occupancy and the projected timing associated with re-leasing these vacated spaces has resulted in downward pressure on our 2009 operating results.  The re duced occupancy will likely have a negative impact on our consolidated cash flows, results of operations and financial position until an increase in occupancy is achieved.  Offsetting some of the current challenges within the retail environment, we have a low administrative cost relative to other retail REITs and historical averages, as well as a diversified tenant base with no one tenant exceeding

1

3.0% of total annualized revenues.  Significant tenants and “shadow” anchors include Target, Lowe’s Home Improvement, Home Depot, Wal-Mart, Best Buy, Kohl’s, T.J. Maxx, Marshalls, Publix Supermarkets, PetSmart and Bed Bath & Beyond, all of which we consider to be credit tenants.  

Current Strategies

It is our current strategy to have access to the capital resources necessary to manage our balance sheet, to repay upcoming debt maturities and, to a lesser extent, to consider making prudent investments should such opportunities arise.  Accordingly, we have been executing a plan to seek to obtain funds through additional debt or equity financings and/or joint venture capital in a manner consistent with our intention to operate with a conservative debt capitalization policy.  Our other sources of capital include proceeds from sales of developed and non-core assets; proceeds from the sales of securities in our marketable securities portfolio and existing unrestricted cash balances.  In addition, we are focused on controlling operating expenses and deferring certain discretionary capital expenditures and have reduced distributions to shareholders to preserve cash for upcoming debt maturities and pri ncipal paydowns.  We will also seek loan extensions, generally six months to three years, on certain maturing mortgage debt.  

For the year ended December 31, 2009, we have refinanced $1,034,462 of maturing debt through new mortgage financing and principal paydowns, repaid an additional $70,242 and retired $208,552 of maturing debt through asset sales.  As of December 31, 2009, we had $187,437 of mortgages payable that had matured.  Of this amount, the maturity date for $128,385 of mortgages payable has since been extended to May 1, 2010 and the total amount is under application for new mortgage financing.  In addition, we have made principal payments of $305 related to these mortgages payable and are in extension negotiations for the remaining $58,747.  As of December 31, 2009, we had $968,947 of mortgages payable, excluding amortization and liabilities associated with the investment property held for sale, maturing in 2010.  Of this amount, we have subsequently made mortgage payable repayments of $10,128.  We also have $469,741 of mortgages payable under application or commitment, subject to customary lender due diligence, with $96,925 of existing commitment proceeds remaining to be allocated.  We are in the process of allocating the remaining commitments, marketing, planning to seek extensions or planning to sell properties relating to the remaining $489,078 of 2010 maturities, which are primarily maturing in the latter half of the year.  Financing highlights from 2009 and 2010 year-to-date include:

·

$140,149 life insurance company mortgage refinancing through new mortgage financing and principal paydowns, extending certain 2009 and 2010 debt maturities through 2014;

·

$625,000 proceeds from a 10-year CMBS securitized loan sold by JP Morgan Chase, extending certain debt maturities through 2019;

·

$236,115 refinanced through individual loan refinancing, and

·

$300,000 and $111,150 forward loan commitments, subject to customary lender due diligence, which expire on March 31, 2010 and March 11, 2010, which are expected to be the loan funding dates, respectively, to be used to refinance 2010 debt maturities.

As a result of the above efforts, we were able to reduce our outstanding debt by $517,577 during 2009.

Our current business plan indicates that we will be able to operate in compliance with our loan covenants under our secured line of credit agreement as amended in April 2009 (see Note 10 to the consolidated financial statements), in 2010 and beyond, if we elect to extend the credit agreement upon its original maturity in October 2010 in accordance with the agreement.  In light of current economic conditions, we may not be able to obtain loan extensions or financing on favorable terms, or at all, in order to meet principal maturity obligations of the remaining 2010 debt maturities, which may cause an acceleration of our secured line of credit and trigger remedies available to lenders on assets securing matured mortgage debt, each of which could significantly impact future operations, liquidity and cash flows available for distribution.

We remain committed to managing and minimizing discretionary operating expenses and capital expenditures and raising the necessary debt capital and, to a lesser extent, equity capital to maximize our liquidity with little dilution to our shareholders.  In 2009, we implemented several steps in addition to our refinancing efforts integral to the successful execution of our plans to reduce leverage through a combination of capital retention and sales of non-core asset sales.  We

2

were able to reduce leverage and repay outstanding borrowings on our credit facility utilizing funds retained from implementing the following strategies:

·

Change to our distribution policy and suspension of our Share Repurchase Program (SRP) – Our strategy to retain capital, was to limit our distribution to an amount closer to the minimum required to maintain our REIT status.  The changes in our distribution policy and the suspension of our SRP resulted in $117,414 and $227,156, respectively, of additional available cash flow in 2009 when compared to 2008, which has been applied primarily to reduce outstanding debt.  

·

Asset Sales - We sold eight properties aggregating 1,579,000 square feet during 2009 for a total price of $338,057 and net proceeds of approximately $123,944 were applied primarily to reduce outstanding debt.  Additionally, upon sale of the assets, debt was extinguished resulting in a further reduction of leverage by approximately $208,552.  We are also currently in various stages of discussions with third parties for the sale of additional non-core assets.  Highlights of 2009 asset sales include:

­

172,400 square foot lifestyle center in Larkspur, California;

­

185,200 square foot corporate headquarters of Computershare in Canton, Massachusetts;

­

395,800 square foot office building fully leased to American Express in Salt Lake City, Utah;

­

389,400 square foot office building fully leased to American Express in Greensboro, North Carolina, and

­

185,000 square foot data center located in Santa Clara, California.

We believe we have made considerable progress in implementing the steps necessary to address our strategy to reduce leverage with minimal dilution to our shareholders while continuing to comply with our covenants and repay or refinance debt maturities as they become due.  However, there can be no assurance that we will be able to do so.

In tandem with our debt refinancing and deleveraging strategy, we remain focused on managing occupancy.  During 2009, we signed over 760 leases, including new leases and renewals, for a total of approximately 4,209,000 square feet.  Rental rates have generally been less than the previous rental rates, however, the rental rate spread continues to stabilize.  At the beginning of 2009, we had 3,210,000 square feet of vacant retail space specifically related to the bankruptcies of three national tenants – Circuit City, Linens ‘n Things and Mervyns.  We made significant progress re-leasing these vacancies throughout 2009 and into 2010, including:

·

962,000 square feet re-leased to national tenants whom we consider to be credit tenants, such as T.J. Maxx, Ross Dress for Less, Burlington Coat Factory, Best Buy and Kohl’s;

·

956,000 square feet is in active lease negotiations with signed letters of intent, and

·

605,000 square feet in active negotiations with identified tenants over terms of a letter of intent.

In aggregate, we have addressed or are actively addressing 78.6% of the total square footage of former Linens ‘n Things, Mervyns and Circuit City space.  Stated another way, we have addressed or are addressing:

·

21 out of 25 Linens ‘n Things vacancies;

·

19 out of 25 Mervyns vacancies, and

·

14 out of 18 Circuit City vacancies.

Ongoing Strategies

Asset Management Strategies

We own interests in approximately 46,938,000 square feet of GLA, of which approximately 44,496,000 square feet is consolidated, therefore, asset management of our properties is a key element of our operating strategy.  To achieve our goals, our asset management philosophy includes the following:

·

employ experienced, well-trained property managers, leasing agents and collection personnel;

3

·

actively manage costs and minimize operating expenses by centralizing management, leasing, marketing, financing, accounting, renovation and data processing activities;

·

improve rental income and cash flow by aggressively marketing rentable space and pursuing timely collection of outstanding tenant receivables;

·

emphasize required maintenance and periodic renovation to meet the needs of tenants and to maximize long-term returns;

·

maintain a diversified tenant base at our retail centers, consisting primarily of retail tenants that provide basic household goods and services, and

·

identify properties that will benefit from asset enhancement including renovation and development of land that we own.

Financing Strategies

We will, in some instances, incur indebtedness to acquire properties.  Overall, our borrowings have been approximately 50% to 60% of the cost of each property.  Our articles of incorporation provide that the aggregate amount of borrowing, in relation to our net assets, shall not, in the absence of a satisfactory showing that a higher level of borrowing is appropriate, exceed 300% of net assets.  We attempt to employ financing strategies to take advantage of trends we anticipate with regard to interest rates. One such strategy is if we believe interest rates will decline over a period of time, we may use variable rate financing with the option to fix the rate at a later date.  In other instances, we may elect not to place individual permanent debt on each acquisition.  Such decisions are made on an individual basis and are influenced by the availabi lity of cash on hand and our evaluation of the future trend of interest rates.

Acquisition Strategies

As management focuses on improving occupancy within our existing portfolio, we continue to remain open to opportunistic property acquisitions that meet our investment objectives.  We intend to maintain a diverse (by geographical location and type and size) portfolio of real estate primarily improved for use as retail centers.  The retail centers we have and expect to continue to acquire are located throughout the United States.

During the acquisition process, to ascertain the value of an investment property, we take into consideration many factors which require difficult, subjective and complex judgments to be made.  These judgments require us to make assumptions when valuing each investment property.  Such assumptions include projecting vacancy rates, rental rates, property operating expenses, capital expenditures and debt financing rates, among other assumptions.  The capitalization rate is also a significant driving factor in determining the property valuation which requires judgment of factors such as market knowledge, historical experience, length of leases, tenant financial strength, economy, demographics, environment, property location, visibility, age and physical condition, and investor return requirements, among others.  Furthermore, at the acquisition date, we require that every property acquired is suppo rted by an independent appraisal.  All of these factors are taken as a whole in determining the valuation of a given property.

Key elements of our acquisition strategy include:

·

selectively acquiring diversified and well-located properties of the type described above;

·

obtaining mortgage financing concurrently or subsequent to the purchase.  We may, however, acquire properties subject to existing indebtedness if we believe this is in our best interest, and

·

diversifying geographically by acquiring properties located primarily in major consolidated metropolitan statistical areas, in order to minimize the potential adverse impact of economic downturns in certain markets.

Operating Joint Ventures

We are focused on minimizing dilution to our shareholders, however, we may seek to obtain additional capital through the strategic formation of joint ventures in a matter consistent with our intention to operate with a conservative debt capitalization policy.

4

On November 29, 2009, we formed IW JV 2009, LLC (IW JV), a wholly-owned subsidiary, and transferred a portfolio of 55 investment properties and the entities which owned them into it.  Subsequently, in connection with a $625,000 debt refinancing transaction, which consisted of $500,000 of mortgages payable and $125,000 of notes payable, on December 1, 2009, we raised additional capital of $50,000 from a related party, Inland Equity Investors, LLC (Inland Equity) in exchange for a 23% noncontrolling interest in IW JV.  IW JV, which is controlled by us, and therefore consolidated, has an aggregate of $1,040,665 in total assets and will continue to be managed and operated by us.  Inland Equity is a newly-formed LLC owned by certain individuals, including Daniel L. Goodwin, who controls more than 5% of our common stock, and Robert D. Parks, who is the Chairman of our Board and affiliates of The Inland Real Estate Group, Inc.  

Effective April 27, 2007, we formed a strategic joint venture with a large state pension fund.  Under the joint venture agreement we are to contribute 20% of the equity and our joint venture partner is to contribute 80% of the equity, up to a total $500,000.  The joint venture may acquire assets using equity contributions and leverage up to $1,000,000.  As of December 31, 2009, we had contributed approximately $29,500 and may, at our discretion, contribute the remaining $70,500 in the next year.  As of December 31, 2009, the joint venture had acquired seven properties (which we contributed) with an estimated purchase price of approximately $336,000 and had assumed from us mortgages on these properties totaling approximately $188,000.  

Development Joint Ventures

Our development joint venture program involves partnering with regional developers.  We believe that a national platform of retail development requires strength and expertise in strategic local markets.  Furthering our strategy for development joint ventures, we signed an agreement with a regional developer in the Las Vegas area whereby we can commit, at our discretion, up to $112,500 of equity in future developments, $9,097 of which was committed as of December 31, 2009.  We seek to maintain a right of first offer with respect to completed developments; however, we will seek to get the best return and if that involves a sale of the developed property, at which time, we will share in the proceeds realized upon the consummation of a sale.  As of December 31, 2009, we have contributed $79,464 of equity to six development joint ventures.  

Given the current economic conditions, we have made the decision to put any ongoing pursuit of additional development projects on hold and focus on the completion of our current development properties and improvement of our existing portfolio.

Our consolidated joint ventures have the following projects under development:

Of the four construction loans related to our consolidated joint venture developments, two of the loans related to Parkway Towne Crossing and Wheatland Towne Crossing matured during the third quarter of 2009, both of which were extended as of December 31, 2009 as described below.  The loan related to Lake Mead Crossing matured during the fourth quarter of 2009, for which we obtained an extension through March 15, 2010.  We are in active negotiations with the respective lender to modify this construction loan which would require a partial pay down of principal and no additional funding by the lender.  All tenant improvements and capital expenditures necessary to complete this project would be required to be funded through equity contributions to the joint venture.    

On October 30, 2009, we entered into a modification and extension agreement on the Parkway Towne Crossing construction loan that matured during the third quarter of 2009.  As a result of this modification, the maturity date of the loan was extended to August 2012.  In addition, our guaranty of the construction loan increased from 25% to 35% of the outstanding principal balance.  Concurrently, we were assigned an additional 50% interest from our partner in the joint venture, bringing our total interest in the joint venture to 75%.  

5

On December 10, 2009, we entered into a modification and extension agreement on the Wheatland Towne Crossing construction loan that matured during the third quarter of 2009.  As a result of this modification, the maturity date of the loan was extended to September 2011.  In addition, our guaranty of the construction loan increased from 15% to 50% of the outstanding principal balance.  Concurrently, we were assigned an additional 50% interest from our partner in the joint venture, bringing our total interest in the joint venture to 75%.  

On December 1, 2009, we were notified by the lender for Green Valley Crossing that they stopped funding and made a demand for payment.  On January 15, 2010, the joint venture filed suit against the lender (as well as the financial institution that acquired it) seeking, among other things, a declaratory judgment that the lender acted improperly.  As this legal matter progresses, equity contributions may be required in order to continue the development of this project.

Our unconsolidated development joint venture has the following project under development:

On January 6, 2010, we entered into a modification and extension agreement on the construction loan related to our unconsolidated development joint venture. As a result of this modification, the maturity date of the loan was extended to September 2014.  In addition, the modification agreement resulted in forgiveness of debt of $3,897, which reduced construction loans payable.

Tax Status

We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Code, beginning with our taxable year ending December 31, 2003, and believe we have qualified as a REIT since such election.  Provided that we qualify for taxation as a REIT, we generally will not be subject to federal income tax on REIT taxable income that is distributed to shareholders.  If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates.  Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property, or net worth and to federal income and excise taxes on our undistributed income.  We have one wholly-owned consolidated subsidiary that has elected to be treated as a taxable REI T subsidiary, or TRS, for federal income tax purposes. A TRS is taxed on its net income at regular corporate tax rates.  The income tax expense incurred as a result of the TRS has not had a material impact on our consolidated financial statements.  

Competition

In seeking new investment opportunities, we compete with other real estate investors, including pension funds, insurance companies, foreign investors, real estate partnerships, other REITs, private individuals and other real estate companies, some of which have greater financial resources than we do.  With respect to properties presently owned by us, we compete with other owners of like properties for tenants.  There can be no assurance that we will be able to successfully compete with such entities in development, acquisition, and leasing activities in the future.

Our business is inherently competitive.  Property owners, including us, compete on the basis of location, visibility, quality and aesthetic value of construction, volume of traffic, strength and name recognition of tenants and other factors.  These factors combine to determine the level of occupancy and rental rates that we are able to achieve at our properties.  Further, our tenants compete with other forms of retailing, including e-commerce, catalog companies and direct consumer sales.  We may, at times, compete with newer properties or those in more desirable locations.  To remain competitive, we evaluate all of the factors affecting our centers and try to position them accordingly.  For example, we may decide to focus on renting space to specific retailers who will complement our existing tenants and increase traffic.   We believe the principal factors that retailers consider in making their leasing decision include:

·

consumer demographics

·

quality, design and location of properties

·

total number and geographic distribution of properties

6

·

diversity of retailers and anchor tenants at shopping center locations

·

management and operational expertise

·

rental rates

Based on these factors, we believe that the size and scope of our property portfolio, as well as the overall quality and attractiveness of our individual properties, enable us to compete effectively for retail tenants in our local markets. Because our revenue potential may be linked to the success of retailers, we indirectly share exposure to the same competitive factors that our retail tenants experience in their respective markets when trying to attract individual shoppers. These dynamics include general competition from other regional shopping centers, including outlet malls and other discount shopping centers, as well as competition with discount shopping clubs, catalog companies, Internet sales and telemarketing.

Environmental Matters

We believe that our portfolio of investment properties complies in all material respects with all federal, state and local environmental laws, ordinances and regulations regarding hazardous or toxic substances.  All of our investment properties have been subjected to Phase I or similar environmental audits at the time they were acquired.  These audits, performed by independent consultants, generally involve a review of records and visual inspection of the property.  These audits do not include soil sampling or ground water analysis.  These audits have not revealed, nor are we aware of, any environmental liability that we believe will have a material adverse effect on our operations.  These audits may not, however, reveal all potential environmental liabilities.  Further, the environmental condition of our investment properties may be adversely affected by our tenants, by conditions of nearby properties or by unrelated third parties.

Employees

As of December 31, 2009, we had 262 employees.  

Access to Company Information

We electronically file our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports and proxy statements with the U.S. Securities and Exchange Commission, or SEC.  The public may read and copy any of the reports that are filed with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)SEC-0330.  The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, through our website and by responding to requests addressed to our investor relations group, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports and proxy statements.  These reports are available as soon as reasonably practical after such material is electronically filed or furnished to the SEC. Our website address is www.inland-western.com.  The information contained on our website, or other websites linked to our website, is not part of this document.

Shareholders wishing to communicate directly with the board of directors or any committee can do so by writing to the attention of the Board of Directors or committee in care of Inland Western Retail Real Estate Trust, Inc. at 2901 Butterfield Road, Oak Brook, Illinois 60523.

Item 1A. Risk Factors  

In evaluating our company, careful consideration should be given to the following risk factors, in addition to the other information included in this annual report.  Each of these risk factors could adversely affect our business operating results and/or financial condition, as well as adversely affect the value of an investment in our stock.  In addition to the following disclosures, please refer to the other information contained in this report including the consolidated financial statements and the related notes.

The ongoing market disruptions may adversely affect our operating results and financial condition.  The global financial markets continue to undergo pervasive and fundamental disruptions.  The continuation or intensification of any

7

such volatility may have an adverse impact on the availability of credit to businesses generally and could lead to an overall further weakening of the United States and global economies.  To the extent that turmoil in the financial markets continues and/or intensifies, it has the potential to materially affect the value of our investment properties and our investment in unconsolidated joint ventures, the availability or the terms of financing that we and our unconsolidated joint ventures have or may anticipate utilizing, the ability of us and our unconsolidated joint ventures to make principal and interest payments on or refinance any outstanding debt when due.  It may also impact the ability of our tenants and potential tenants to enter into new leases or satisfy rental payments under existing leases.  The current market disruption could also affect our operating results and financial condition as fo llows:

·

Debt and equity markets.  Our results of operations are sensitive to the volatility of the credit 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 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 results in lenders increasing the cost for debt financing.  Should the overall cost of borrowings continue to 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, operations, developments and dispositions.  This may result in lower overall economic ret urns and reduce cash flow available for distribution, which could potentially impact our ability to make distributions to our shareholders and to comply with certain debt covenants that are based on available cash.  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, (i) will no longer allow real estate investors to rely on capitalization rate compression to generate returns (ii) has slowed real estate transaction activity and (iii) may result in an inability to refinance debt as it becomes due, all of which may reasonably be expected to have a material impact on revenues or income from the acquisition and operations of real properties and mortgage loans.  In addition, the state of the debt markets could have an impact on the overall amount of capital investing in real estate, which may result in price or value decreases of real estate assets and impact our ability to raise equity capital both for our own operations and for our current or future unconsolidated joint ventures.

·

Valuations.  The recent market volatility will likely make the valuation of our investment properties and those of our unconsolidated joint ventures more difficult.  There may be significant uncertainty in the valuation, or in the stability of the value, of our properties and those of our unconsolidated joint ventures, that could result in a substantial decrease in the value of our properties and those of our unconsolidated joint ventures.  As a result, we may not be able to recover the carrying amount of our properties and/or our investments in our unconsolidated joint ventures and we may be required to recognize an impairment charge, which will reduce our reported earnings.  Specifically, during the year ended December 31, 2009, we have taken approximately $64,700 in impairment charges against our investment properties and $24,831 in impairment charges against o ur marketable securities portfolio, both of which were taken due to the uncertainty of valuations in the current volatile marketplace.  In addition, other factors contributed to investment property impairment charges including significant declines in occupancy and tenant bankruptcies.  We also have recorded approximately $9,062 of impairment charges through our equity in loss of unconsolidated joint ventures.  In addition, any decline in value of our properties and those of our unconsolidated joint ventures could reduce the proceeds we are able to obtain through refinance, which may result in required pay down of principal.

·

Occupancy.  The condition of the current economy has put pressure on not only us, but our tenants and potential tenants as well.  As a result, occupancy across the United States is down from historical averages creating significant available GLA.  In order to attract larger, credit tenants to our properties, we may have to incur significant tenant improvements, other capital expenditures or less favorable rental rates as we focus on stabilizing our existing portfolio, which would reduce our available cash flow.

Our cash flows and operating results could be adversely affected by required payments of debt or related interest and other risks of our debt financing.  We are generally subject to the risks associated with debt financing. These risks include:

·

our cash flows may not satisfy required payments of principal and interest;

·

we may not be able to refinance existing indebtedness on our properties as necessary, or the terms of the refinancing may be less favorable to us than the terms of existing debt;

8

·

required debt payments are not reduced if the economic performance of any property declines;

·

debt service obligations could reduce funds available for distribution to our shareholders and funds available for development and acquisitions, and

·

necessary capital expenditures for purposes such as re-leasing space cannot be financed on favorable terms.

If a property is mortgaged to secure payment of indebtedness and we cannot make the mortgage maturity payments, or are unsuccessful in obtaining an extension, we may decide to surrender the property to the lender with a consequent loss of any prospective income and equity value from such property.  Although the loans we obtain are generally non-recourse, occasionally, when it is deemed to be necessary, we may guarantee all or a portion of the debt on a full-recourse basis. As of December 31, 2009, we had guaranteed $107,000 and $60,543 of the outstanding secured line of credit and mortgages payable, respectively.  The majority of our mortgages payable require monthly payments of interest only, although it has become more common for lenders to require principal and interest payments, as well as, reserves for taxes, insurance, and certain other costs.  Any of these risks can place strains on our cash fl ows, reduce our ability to grow and adversely affect our results of operations.

Our financial condition could be adversely affected by financial covenants under our credit or other debt agreements.  Our credit agreement contains certain financial and operating covenants, including, among other things, leverage ratios, certain coverage ratios, as well as limitations on our ability to incur secured indebtedness.  The credit agreement also contains customary default provisions including the failure to timely pay debt service issued thereunder, the failure to comply with our financial and operating covenants, and the failure to pay when due any other of our indebtedness.  These covenants could limit our ability to obtain additional funds needed to address cash shortfalls or pursue growth opportunities or transactions that would provide substantial return to our shareholders.  In ad dition, a breach of these covenants could cause a default and accelerate payment of advances under the credit agreement, which could have a material adverse effect on our financial condition.

On December 1, 2009, as part of the debt refinancing transaction of IW JV, (see Note 1 to the consolidated financial statements) we entered into a cash management agreement with the lender that requires all rents and other revenues to be deposited directly into a lockbox account established by the lender. In the event of a default, as defined, or the debt service coverage ratio falling below a set amount, the cash management agreement provides that excess cash flow, as defined, be held in a reserve account by lender as additional security and not disbursed to us until the earlier of a cash sweep event cure, as defined, or the repayment of the mortgage loan, senior mezzanine note and junior mezzanine note. As of December 31, 2009, we were in compliance with the terms of the cash management agreement.

Our current business plans indicate that we will be able to operate in compliance with our financial covenants under our credit agreement in 2010 and beyond if the maturity of our credit agreement is extended for one year from its original maturity date of October 2010, as permitted by the agreement.  Our current business plans also indicate that we will be able to operate in compliance with the cash management agreement described above.  The dislocation in the global credit markets that occurred in 2008 and 2009 has significantly impacted our projected cash flows and our financial position and effective leverage.  If there is a continued decline in the retail and real estate industries and a decline in consumer confidence leading to a decline in consumer spending and/or we are unable to successfully execute plans as further described below, we could violate thes e covenants, and as a result may be subject to higher finance costs and fees and/or an acceleration of the maturity date of advances under the credit agreement.  These facts and an inability to predict future economic conditions have encouraged us to adopt a strict focus on lowering leverage and increasing financial flexibility.

In an attempt to address the risks associated with the debt and equity capital markets, valuations, and conditions under our credit agreement, our board of directors made the decision to suspend our share repurchase program and approved a 2009 dividend policy that will maximize our cash flow, while still adhering to REIT payout requirements.  Our dividend policy may result in a reduction in the level of dividend payouts going forward.  The board of directors approved to move our cash distribution payment from a monthly basis to a quarterly basis.  We intend to continue to comply with our REIT distribution requirements and distribute no less than 90% of our taxable income.  

We are vulnerable to changes in the business and financial condition of retailers or demand for our space.  The retail shopping sector has been adversely affected by economic conditions, as well as the competitive nature of the retail business and the competition for market share where stronger retailers have out-positioned some of the weaker retailers.  These shifts have forced some market share away from weaker retailers and required them, in some cases, to declare bankruptcy and/or close stores.  As information becomes available regarding the status of our leases with tenants in

9

financial distress or their future plans for these spaces change, we may be required to write off and/or accelerate depreciation and amortization expense associated with a significant portion of the tenant improvements and lease intangibles in future periods.  Our income and ability to meet our financial obligations could also be adversely affected in the event of the bankruptcy, insolvency or significant downturn in the business of one of these tenants or any of our other major tenants.  In addition, our results could be adversely affected if any of these tenants do not renew their leases as they expire.

General Investment Risks

Our common stock is not currently listed on an exchange and cannot be readily sold.  There is currently no public trading market for our shares of common stock and we cannot assure our shareholders that one will develop.  We may never list the shares for trading on a national stock exchange.  The absence of an active public market for our shares could impair a shareholder’s ability to sell our shares or obtain an active trading market valuation of the value of their interest in us.

Increases in market interest rates may hurt the value of our stock.  We believe that our shareholders consider the distribution rate on REIT stocks, expressed as a percentage of the price of stocks, relative to the market interest rates as an important factor in deciding whether to buy or sell the stocks.  If market interest rates go up, prospective purchasers of REIT stocks may expect a higher distribution rate.  Higher interest rates would not, however, result in more funds being available for us to distribute and, in fact, would likely increase our borrowing costs and might decrease our funds available for distribution.  Thus, higher market interest rates could cause the value of our stock to decline.

Our share repurchase program is limited thereby reducing the potential liquidity of a shareholders’ investment.  Our board of directors suspended our share repurchase program effective November 19, 2008.  In addition, our amended credit agreement contains a prohibition on redemptions of our common shares until March 31, 2010, at which point this condition will be re-evaluated in combination with other covenants included in the credit agreement.  If reinstated, under our share repurchase program, a maximum of 5% of the weighted average number of shares of our common stock outstanding during the prior calendar year may be repurchased by us.  This limits the number of shares we could purchase.  If reinstated and we subsequently terminate or modify our share repurchase program or if we do not have sufficient funds available to repurchase all shares that our shareholders reques t to repurchase, then our shareholders’ ability to liquidate their shares will be further diminished.

There are conflicts of interest between us and our related parties.  Our operation and management, including our acquisition of properties, may be influenced or affected by conflicts of interest arising out of our relationship with related parties.  Those related parties could take actions that are more favorable to other entities than to us.  The resolution of conflicts in favor of other entities could have a negative impact on our financial performance.  

Our investment in marketable securities has, and may in the future, negatively impact our results.  Our investment in marketable securities consists of preferred and common stock which are classified as available-for-sale and recorded at fair value.  We have recognized other-than-temporary losses related to our investment in these securities primarily as a result of the severity of the decline in market value and the length of time over which these securities had experienced such declines.  As the equity market has started to recover, we have been able to sell marketable securities at prices in excess of our current book values.  However, if our stock positions do not continue to recover, we could take additional other-than-temporary impairments, which could be material to our operations.

General Real Estate Risks

There are inherent risks with real estate investments.  All real property investments are subject to some degree of risk.  Equity real estate investments cannot be quickly converted to cash.  This limits our ability to promptly vary our portfolio in response to changing economic, financial and investment conditions.  Real property investments are also subject to adverse changes in general economic conditions or local conditions which reduce the demand for rental space.  Other factors also affect real estate values, including:

·

possible federal, state or local regulations and controls affecting rents, prices of goods, fuel and energy consumption and prices, water and environmental restrictions;

·

increasing labor and material costs, and

·

the attractiveness of the property to tenants in the neighborhood.

10

The yields available from equity investments in real estate depend in large part on the amount of rental income earned, as well as property operating expenses and other costs we incur.  If our properties do not generate revenues sufficient to meet operating expenses, we may have to borrow amounts to cover fixed costs, and our cash available for distributions may be adversely affected.

Adverse economic conditions could reduce our income and distributions to shareholders.  Our properties are primarily retail establishments.  The economic performance of our properties has been and could continue to be affected by changes in local economic conditions.  Our performance is therefore linked to economic conditions in areas where we have acquired or intend to acquire properties and in the market for retail space generally.  Adverse conditions include, but are not limited to:

·

the regional and local economy, which may be negatively impacted by plant closings, industry slowdowns, adverse weather conditions, natural disasters and other factors

·

local real estate conditions, such as an oversupply of, or a reduction in demand for, retail space or retail goods, and the availability and creditworthiness of current and prospective tenants

·

perceptions by retailers or shoppers of the safety, convenience and attractiveness of the retail property

·

the convenience and quality of competing retail properties and other retailing options such as the Internet

·

changes in laws and regulations applicable to real property, including tax and zoning laws

·

changes in interest rate levels and the availability and cost of financing

If we are unable to generate sufficient revenue from our retail properties, including those held by joint ventures, we will be unable to meet operating and other expenses, including debt service, lease payments, capital expenditures and tenant improvements, and to make distributions from our joint ventures and then, in turn, to our shareholders.

Therefore, to the extent that there are adverse economic conditions in an area and in the market for retail space generally that impact the market rents for retail space, such conditions could result in a reduction of our income and cash available for distributions and thus affect the amount of distributions we can make to our shareholders.

The value of our stock may be negatively impacted if:

·

our tenants are unable to make rental payments, if their rental payments are reduced, or if they terminate a lease, our financial condition and ability to pay distributions will be adversely affected.  We are subject to the risk that tenants, as well as lease guarantors, if any, may be unable to make their lease payments or may decline to renew a lease upon its expiration.  A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant's election not to renew a lease upon its expiration, could have an adverse effect on our financial condition and our ability to pay distributions.

·

our financial condition and ability to make distributions is adversely affected by the bankruptcy or insolvency, a downturn in the business, or lease termination of a tenant that occupies a large area of the retail center (commonly referred to as an anchor tenant), as well as co-tenancy provisions that may be triggered by an anchor tenant vacancy.  Any anchor tenant, a tenant that is an anchor tenant at more than one retail center, or a tenant of any of the single-user net lease properties may become insolvent, may suffer a downturn in business, or may decide not to renew its lease.  Any of these events would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition.  A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if an anchor tenant's lease is terminated.  In certain properties where there are large tenants, other tenants may have a co-tenancy provision within their lease that requires that if certain large tenants or “shadow” tenants discontinue operations, a right of termination or reduced rent may exist.  In such event, we may be unable to re-lease the vacated space.  If we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to remodel the space to be able to re-lease the space to more than one tenant.  Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer.  The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center.  A transfer of a lease to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases at the r etail center.  

11

·

a tenant files for bankruptcy, we may be unable to collect balances due under relevant leases.  Any or all of the tenant’s or a guarantor of a tenant's lease obligations could be subject to a bankruptcy proceeding pursuant to Chapter 11 or Chapter 7 of the bankruptcy laws of the United States.  Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy rents from these entities or their properties, unless we receive an enabling order from the bankruptcy court.  Post-bankruptcy rents are to be paid currently.  If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full.  If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages.  If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid.  This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims.  A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums.  Such an event could cause a decrease or cessation of rental payments which would mean a reduction in our cash flow and the amount available for distributions to our shareholders.  In the event of a bankruptcy, we cannot assure our shareholders that the tenant or its trustee will assume our lease.  If a given lease is not assumed, our cash flow and the amounts available for distributions to our shareholders may be adversely affected.  The effects of recent tenant bankruptcies have triggered some co-tenancy clauses in certain other tenant leases. If an appropriate replacement tenant is not found within the allotted period of time, as an example 12 months, the co-tenancy provisions permit certain of these tenants to reduce their annual rents or terminate their lease.  The reduction in cash flow from the bankrupt tenants and tenants exercising their co-tenancy clauses may have a material impact on our consolidated financial statements.

Competition with third parties in acquiring properties will reduce our profitability and the return on an investment in our stock.  We compete with many other entities engaged in real estate investment activities, many of which have greater resources than we do.  Larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.  In addition, the number of entities and the amount of funds competing for suitable investment properties may increase.  This will result in increased demand for these assets and therefore increased prices paid for them.  If we pay higher prices for properties, our profitability is reduced and our shareholders will experience a lower return on their investment.

We may fail to dispose of properties on favorable terms.  Real estate investments can be illiquid, particularly as prospective buyers may experience increased costs of financing or difficulties obtaining financing, and could limit our ability to promptly make changes to our portfolio to respond to economic and other conditions.

It may be difficult to buy and sell real estate quickly, or at all, and transfer restrictions apply to some of our properties.Equity real estate investments are relatively illiquid, and this characteristic tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions.  In addition, significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment.  If income from a property declines while the related expenses do not decline, our income and cash available for distribution to our shareholders would be adversely affected.  A sign ificant portion of our properties are mortgaged to secure payment of indebtedness, and if we were unable to meet our mortgage payments, we could lose money as a result of foreclosure on the properties by the various mortgagees.  In addition, if it becomes necessary or desirable for us to dispose of one or more of the mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt.  The foreclosure of a mortgage on a property or inability to sell a property could adversely affect the level of cash available for distribution to our shareholders.  In certain transactions, if persons selling properties to us wish to defer the payment of taxes on the sales proceeds, we may elect to pay them in units of limited partnership interest in operating partnerships.

We may be required to expend funds to correct defects or to make improvements before a property can be sold.  We cannot assure our shareholders that we will have funds available to correct such defects or to make such improvements.  If we are unable to correct such defects, or make such investments, we may be unable to sell the asset or have to sell the asset at a reduced cost.

In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property.  These provisions would restrict our ability to sell a property.

12

Our properties are subject to competition for tenants and customers.  We have and intend to continue to acquire properties located in developed areas.  Therefore, there are numerous other retail properties within the market area of each of our properties which compete with our properties and which compete with us for tenants.  The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged.  We could be adversely affected if additional properties are built in locations near our properties, causing increased competition for customer traffic and creditworthy tenants.  This could result in fewer tenants or decreased cash flow from tenants or both and may require us to make capital improvements to properties which we would not have otherwise made, thus affecting cash available for distributions, and th e amount available for distributions to our shareholders.

We depend on leasing space to tenants on economically favorable terms and collecting rent from these tenants, who may not be able to pay.  Our results of operations will depend on our ability to continue to lease space in our properties on economically favorable terms.  If the sales of stores operating in our centers decline sufficiently, tenants might be unable to pay their existing minimum rents or expense recovery charges, since these rents and charges would represent a higher percentage of their sales.  If our tenants’ sales decline, new tenants would be less willing to pay minimum rents as high as they would otherwise pay.  In addition, as substantially all of our income is derived from rentals of real property, our income and cash available for distribution to our shareholders would be ad versely affected if a significant number of tenants were unable to meet their obligations to us.  During times of economic recession, including the current economic downturn, these risks will increase.

Bankruptcy or store closures of tenants may decrease our revenues or available cash.  Our leases generally do not contain provisions designed to ensure the creditworthiness of the tenant, and a number of companies in the retail industry, including some of our tenants, have declared bankruptcy or voluntarily closed certain of their stores in recent years.  The bankruptcy or closure of a major tenant, particularly an anchor tenant, may have a material adverse effect on the rental properties affected and the income produced by these properties and may make it substantially more difficult to lease the remainder of the affected rental properties.  As a result, the bankruptcy or closure of a major tenant and potential additional closures as a result of co-tenancy provisions could result in a lower level of rev enues and cash available for distribution to our shareholders.

Inflation may adversely affect our financial condition and results of operations.Should inflation increase in the future, we may experience any or all of the following:

·

decreasing tenant sales as a result of decreased consumer spending which could result in lower overage rents;

·

difficulty in replacing or renewing expiring leases with new leases at higher base and/or overage rents;

·

an inability to receive reimbursement from our tenants for their share of certain operating expenses, including common area maintenance, real estate taxes and insurance.

Inflation also poses a potential threat to us due to the probability of future increases in interest rates. Such increases would adversely impact us with higher interest rates on new debt and our existing variable rate debt.

The objectives of our partners in joint ventures may conflict with our objectives.  We have made and may continue to make investments in joint ventures or other partnership arrangements between us and our joint venture partners.  Investments in joint ventures which own real properties may involve risks otherwise not present when we purchase real properties directly.  For example, our partners may file for bankruptcy protection, may have economic or business interests or goals which are inconsistent with our interests or goals, or may take actions contrary to our instructions, requests, policies or objectives.  Among other things, actions by partners might subject real properties owned by the joint venture to liabilities greater than those contemplated by the terms of the joint venture or other adverse consequences.

Real estate related taxes may increase and if these increases are not passed on to tenants, our net income will be reduced.  Some local real property tax assessors reassess our properties as a result of our acquisition of the property.  Generally, from time to time, our property taxes increase as property values or assessment rates change or for other reasons deemed relevant by the assessors.   An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property.  Although some leases may permit us to pass through such tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis.  Increases not passed through to the tenants will adversely affect our net income, cash available for distributions and the amount o f distributions to our shareholders.

13

Construction and development activities expose us to risks such as cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, weather conditions and government regulation.  In connection with construction and development activities, our development joint venture partners as well as our employees perform oversight and review functions.  These functions include selecting sites, reviewing construction and tenant improvement design proposals, negotiating and contracting for feasibility studies, supervising compliance with local, state or federal laws and regulations, negotiating contracts, oversight of construction, accounting and obtaining financing.  We retain independent general contractors to perform the actual physical construction work on tenant improvements or the installation of heating, ventilation and air condi tioning systems.  These activities expose us to risks and potential cost recognition inherent in construction and development, including zoning, occupancy, governmental regulations, cost overruns, abandonment, carrying costs of projects under construction or development, availability and costs of materials and labor, inability to obtain financing or re-financings and adverse weather conditions.

Development joint venture projects may expose us to greater risks than those associated with the acquisition of operating properties.  We have entered into development joint venture arrangements with unaffiliated developers for the construction of shopping centers.  Development joint ventures include risks which are different and, in most cases, greater than the risks associated with our acquisition of fully developed and operating properties.  These development risks are in addition to general market risks and may include a completion of construction and principal guaranty from us to the construction lender and customary construction risks for circumstances beyond our reasonable control including, but not limited to, zoning risks and additional entitlement risks from the jurisdiction where the properties are located, leasing risks and construction delays.

Bankruptcy of our developers could impose delays and costs on us with respect to the development retail properties.  The bankruptcy of one of the developers in any of our development joint ventures could materially and adversely affect the relevant property or properties.  If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of the developer may require us to honor a completion guarantee and therefore might result in our ultimate liability for a greater portion of those obligations than we would otherwise bear.

If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits.  Each tenant is responsible for insuring its goods and premises and, in some circumstances, may be required to reimburse us for a share of the cost of acquiring comprehensive insurance for the property, including casualty, liability, fire and extended coverage customarily obtained for similar properties in amounts which we determine are sufficient to cover reasonably foreseeable losses.  Tenants on a net lease typically are required to pay all insurance costs associated with their space.  Material losses may occur in excess of insurance proceeds with respect to any property and we may not have sufficient resources to fund any loss in excess of any insurance proceeds.  However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments.  Insurance risks associated with potential terrorism acts could sharply increase the premium we pay for coverage against property and casualty claims.  Additionally, mortgage lenders in some cases have begun to insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage loans.  It is uncertain whether such insurance policies will be available, or 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 our shareholders that we will have adequate coverage for such losses.

Some of our properties are subject to potential natural or other disasters.  A number of our properties are located in areas which are subject to natural disasters.  In addition, many of our properties are located in coastal regions, and would therefore be effected by any future increases in sea levels or in the frequency or severity of hurricanes and tropical storms, whether such increases are caused by global climate changes or other factors.

We may incur costs to comply with environmental laws.Under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property, and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by the parties in connection with the contamination.  These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxic substances.  The presence of contamination or the failure to remediate contamination may adversely affec t the owner’s ability to sell or lease real estate or to borrow using the real

14

estate as collateral.  Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for some of our redevelopments and also govern emissions of and exposure to asbestos fibers in the air.  Federal and state laws also regulate the operation and removal of underground storage tanks.  In connection with the ownership, operation and management of our properties, we could be held liable for the costs of remedial action with respect to these regulated substances or tanks or related claims.

Our properties have been subjected to varying degrees of environmental assessment at various times.  However, the identification of new areas of contamination, a change in the extent or known scope of contamination or changes in cleanup requirements could result in significant costs to us.

Financing Risks

We incur mortgage indebtedness and other borrowings, which reduce the funds available for distribution and increase the risk of loss since defaults may result in foreclosure.  In addition, mortgages sometimes include cross-collateralization or cross-default provisions that increase the risk that more than one property may be affected by a default.  We incur or increase our mortgage debt by obtaining loans secured by our real properties to obtain funds to acquire additional real properties.  We may also borrow funds, if necessary, to satisfy the requirement that we distribute to our shareholders as dividends 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.  Currently, our aggregate borrowings secured by our properties are approximately 55% of the pro perties’ aggregate purchase prices.

We incur mortgage debt on a particular real property if 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 our shareholders may be adversely affected.  In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and our loss of the property securing the loan which 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 basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. & nbsp;We may give full or partial guarantees to lenders who lend to the entities that own our properties.  In such cases, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity.  For any mortgages containing cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default.

We may not be able to obtain capital to make investments.We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the Code for a REIT generally is that it distribute its net capital gains or pay tax on 100% of its undistributed capital gains and distribute at least 90% of its ordinary taxable income to its shareholders.  Our access to debt or equity financing depends on banks’ willingness to lend to us and on conditions in the capital markets in general.  We and other companies in the real estate industry have experienced less favorable terms for bank loans and capital markets financing from time to time.  Based on current market conditions, financing might not be a vailable on acceptable terms.

If mortgage debt is unavailable at reasonable rates, we will not be able to place financing on the properties, which could reduce distributions per share.  If we place mortgage debt on the properties, 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, our net income could be reduced, which would reduce cash available for distribution to our shareholders and may prevent us from borrowing more money.  If property values decline, proceeds from refinancings may not be sufficient to retire existing debt.

Beginning in the third quarter of 2007, a significant market deterioration, which originated in the sub-prime residential mortgage market and extended to the broader real estate credit markets, resulted in a tightening of lender underwriting standards and terms leading to an overall market recession in 2008.  Given our substantial amount of indebtedness and the significant deterioration in the credit markets, there can be no assurance that we will be able to refinance existing debt or obtain additional financing on satisfactory terms.  In addition, our ability to refinance our debt on acceptable terms will likely be constrained further by any future increases in our aggregate amount of outstanding debt.  Moreover, if market conditions or other factors lead our lenders to perceive an increased relative risk of our defaulting on a particular loan or loans, such len ders may seek to hedge against such risk which could further decrease our ability to obtain certain types of financing.

15

Our substantial indebtedness could adversely affect our financial health and operating flexibility.  We have a substantial amount of indebtedness.  As of December 31, 2009, we had an aggregate consolidated indebtedness outstanding of $4,110,985.  Aggregate indebtedness included $107,000 of secured, recourse indebtedness to us and $50,360 unsecured, non-recourse indebtedness to us, while $3,953,625 was secured by our properties and our equity interest in the entity owning the IW JV investment properties.  A majority of the secured indebtedness is non-recourse to us.  As a result of this substantial indebtedness, we are required to use a material portion of our cash flow to service principal and interest on our debt, which will limit the cash flow available for other desirable business oppor tunities.

Our substantial indebtedness could have important consequences to us and the value of our stock, including:

·

limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of our growth strategy or other purposes;

·

limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service the debt;

·

increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates;

·

limiting our ability to capitalize on business opportunities, including the acquisition of additional properties, and to react to competitive pressures and adverse changes in government regulation;

·

limiting our ability or increasing the costs to refinance indebtedness, and

·

limiting our ability to enter into marketing and hedging transactions by reducing the number of counterparties with whom we can enter into such transactions as well as the volume of those transactions.

The terms of our secured recourse credit agreement obtained in 2007 and amended in 2009, and certain other debt agreements, require us to satisfy certain customary affirmative and negative covenants and to meet financial ratios and tests including ratios and tests based on leverage, interest coverage, net worth and restricts our ability to incur recourse indebtedness.

Given the restrictions in our debt covenants on these and other activities, we may be significantly limited in our operating and financial flexibility and may be limited in our ability to respond to changes in our business or competitive activities.

A failure to comply with these covenants, including a failure to meet the financial tests or ratios, would likely result in an event of default under our credit agreement and would allow the lenders to accelerate payment under such agreement.  If payment is accelerated, our unsecured assets may not be sufficient to repay such debt in full.

We may have to reduce or eliminate our dividend.  In the event we are unable to refinance our debt on acceptable terms, we will be required to repay such debt or pay higher debt service costs in connection with less attractive financing terms.  In order to obtain the necessary cash for such payments, we may be compelled to take a number of actions, including the reduction or elimination of our dividend payments.   Our amended credit agreement limits the common dividend to no more than the minimum level necessary to remain in compliance with the REIT regulations until March 31, 2010.

Federal Income Tax Risks

If we fail to qualify as a REIT in any taxable year, our operations and distributions to shareholders will be adversely affected.  We intend to operate so as to continue qualifying as a REIT under the Code. A REIT generally is not taxed at the corporate level on income it currently distributes to its shareholders.  Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicial or administrative interpretations.  The determination of various factual matters and circumstances is not entirely within our control and may affect our ability to qualify, or continue to qualify, as a REIT.  In addition, future amendments to, or new enactments of, legislation, regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualifying as a REIT or the federal income tax cons equences of qualification.

16

If we were to fail to qualify as a REIT in any taxable year:

·

we would not be allowed to deduct distributions paid to shareholders when computing our taxable income;

·

we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates;

·

we would be disqualified from being taxed as a REIT for the four taxable years following the year during which we failed to qualify, unless entitled to relief under certain statutory provisions;

·

we would have less cash to pay distributions to shareholders, and

·

we may be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations we may incur as a result of being disqualified.

In certain circumstances, we may be subject to federal, state and local taxes.  Even if we qualify and maintain our status as a REIT, we may become subject to federal, state and local taxes as a REIT, which would reduce our cash available to pay distributions.  For example, if we have net income from a “prohibited transaction,” such income will be subject to a 100% tax as defined in the REIT tax rules.  We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs.  We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income.  In that event, our shareholders would be treated as if they earned that income and paid the tax on it directly.  However, shareholders that are tax-exempt, such as charities or qualified pension plans, would have to file tax returns to claim a refund of their deemed payment of such tax liability.  In addition, we may also be subject to state and local taxes on our income, property or net worth, 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 and local taxes paid by us will reduce our cash available for distributions.

An ownership limit and certain anti-takeover defenses and applicable law may hinder any attempt to acquire us.  Generally, for us to maintain our qualification as a REIT under the Code, not more than 50% in vote or value of the outstanding shares of our capital stock may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year.  The Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities.  No person other than Mr. Daniel L. Goodwin, Chairman and Chief Executive Officer of our former sponsor, his family and controlled entities own greater than 5% of our outstanding stock.

The annual statement of value for shareholders subject to Employee Retirement Income Security Act (ERISA) and to certain other plan shareholders is only an estimate and may not reflect the actual value of our shares.  The annual statement of estimated value for shareholders subject to ERISA and to certain other plan shareholders is only an estimate and may not reflect the actual value of our shares.  The annual statement of estimated value is based on the estimated value of each share of common stock based as of the close of our fiscal year.  The board of directors, in part, utilized third party sources and advice in estimating value, which reflects, among other things, the impact of the recent adverse trends in the economy and the real estate industry.  Because this is only an estimate, we may subsequently revise any annual valuation that is provided.  We cannot assure that:

·

this estimate of value could actually be realized by us or by our shareholders upon liquidation;

·

shareholders could realize this estimate of value if they were to attempt to sell their shares of common stock now or in the future;

·

this estimate of value reflects the price or prices at which our common stock would or could trade if it were listed on a national stock exchange or included for quotation on a national market system; or

·

the annual statement of value complies with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law.

In order for qualified plans to report account values as required by ERISA, we provide an estimated share value on an annual basis.  As of December 31, 2009, the value for our shares was estimated for ERISA purposes to be $6.85 per share.

17

Item 1B.  Unresolved Staff Comments

None.

Item 2. Properties

As of December 31, 2009, we owned, or consolidated, through separate limited partnerships, limited liability companies, or joint venture agreements a portfolio of 299 operating properties, including one property classified as held for sale on the accompanying consolidated balance sheets, containing an aggregate of approximately 44,496,000 square feet of GLA located in 38 states.  As of December 31, 2009, 288 of the properties in our portfolio and the related tenant leases are pledged as collateral securing mortgage debt of $3,765,200 net of discount of $3,011, which includes debt associated with investment properties held for sale in the amount of $32,670.  In addition, as of December 31, 2009, eleven of the properties in our portfolio and the related tenant leases are pledged as collateral securing our outstanding credit facility of $107,000.  As of December 31, 2009, approximately 86% of our GLA was physically leased and 87% of our GLA was economically leased.  The weighted average GLA occupied was 86% and 89% at December 31, 2009 and 2008, respectively.  The following table provides a summary of the properties in our portfolio at December 31, 2009.  For further details, see “Real Estate and Accumulated Depreciation (Schedule III)” herein.

The majority of the revenues from our properties consist of rents received under long-term operating leases.  Some leases provide for the payment of fixed base rent paid monthly in advance, and for the reimbursement by tenants to us for the tenant's pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees and certain building repairs paid by the landlord and recoverable under the terms of the lease.  Under these leases, the landlord pays all expenses and is reimbursed by the tenant for the tenant's pro rata share of recoverable expenses paid.  Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed based rent, as well as all costs and expenses associated with occupancy.  Under net leases where all expenses are paid directly by the tenant rather th an the landlord, such expenses are not included in the consolidated statements of operations and other comprehensive loss.  Under net leases where all expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included in “Property operating expenses” and reimbursements are included in “Tenant recovery income” on the consolidated statements of operations and other comprehensive loss.

Revenue from certain of our properties depends on the amount of the tenants' sales, making us vulnerable to general economic downturns and other conditions affecting the retail industry.  Some of the leases provide for base rent plus contractual base rent increases.  A number of the leases also include a percentage rent clause for additional rent above the

18

base amount based upon a specified percentage of the sales the tenant generates.  In addition, certain leases contain co-tenancy provisions which could allow for the payment of a reduced rent or percentage rent in lieu of contractual base rent.  During the year ended December 31, 2009, 186 tenants were billed percentage rent.  Under those leases which contain percentage rent clauses, the revenue from tenants may increase or decrease as the sales of the tenant increases or decreases.

Our strategy to mitigate our risk exposure to potential future downturns in the economy includes targeting retailers who serve primarily non-discretionary shopping needs, such as grocers and pharmacies; discount chains that can compete effectively during an economic downturn and national tenants with strong credit ratings who can withstand a downturn.  We believe that the diversification of our current and targeted tenant base and our focus on creditworthy tenants further reduces our risk exposure.  Selecting properties with high quality tenants and mitigating risk through diversifying our tenant base is at the forefront of our acquisition strategy.  

The following table lists the top 10 tenants in our portfolio according to the amount of GLA that each occupied at December 31, 2009.

The following table represents an analysis of lease expirations over the next 10 years based on the leases in place at December 31, 2009.

Item 3.  Legal Proceedings  

We previously disclosed in our Form 10-K for the fiscal years ended December 31, 2008 and December 31, 2007, respectively, the lawsuit filed against us and nineteen other defendants by City of St. Clair Shores General Employees Retirement System and Madison Investment Trust in the United States District Court for the Northern District of Illinois.  In an amended complaint filed on June 12, 2008, plaintiffs alleged that all the defendants violated the federal securities laws, and certain defendants breached fiduciary duties owed to us and our shareholders, in connection with our merger with our business manager/advisor and property managers as reflected in our Proxy Statement dated September 12, 2007 (Proxy Statement).  All the defendants, including us, filed motions to dismiss the lawsuit, arguing that the amended complaint failed to comply with various rules and standards for pleading the kinds of cla ims in issue. 

19

In a Memorandum Opinion and Order dated April 1, 2009 (Order), the court granted in part the defendants’ motions to dismiss the amended complaint.  The court dismissed five of the seven counts of the amended complaint in their entirety, including all claims that our board of directors breached their fiduciary duties to us and our shareholders in connection with the merger.  As to the remaining two counts, which alleged that the Proxy Statement contained false and misleading statements, or omitted to state material facts necessary to make the statements therein not false and misleading, in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (Exchange Act), the motions to dismiss were granted in part and denied in part.  The court also held that the amended complaint adequately alleged a claim under Section 14(a) of the Exchange Act against KPMG LLP, in connection with its independent audit report for the advisor and property managers’ financial statements, and William Blair & Company, LLC, in connection with its Fairness Opinion that the consideration to be paid by us under the merger agreement was fair to us from a financial point of view.  The court ordered the plaintiffs to file a second amended complaint conforming to the court’s Order.  Plaintiffs filed a second amended complaint on May 1, 2009.

All the defendants moved to dismiss the Second Amended Complaint, but at a June 4, 2009 hearing, the court denied the motion to dismiss.  All defendants have now answered the Second Amended Complaint, and the court has entered a discovery schedule.  The parties to the lawsuit have engaged in settlement negotiations through a non-binding mediation which is ongoing.  There can be no assurance that the mediation will be successful, that a settlement will be reached or that the matter will be resolved without trial.  We believe the plaintiff’s allegations are without merit and continue to vigorously defend the lawsuit.

In connection with this litigation, we continue to advance legal fees for certain directors and officers and William Blair & Company, LLC as part of our obligations under existing indemnity provisions.  

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

Our annual meeting of shareholders was held on October 13, 2009 and holders of 260,367,422 shares were present in person or by proxy.  (Share amounts in this item are not stated in thousands.)

(1)

Shareholders voted to approve the following persons to be elected to our board of directors.  The results of the vote are detailed in the following table:

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 shares of common stock.  In order for qualified plans to report account values as required by ERISA, we provide an estimated share value on an annual basis. As of December 31, 2009, the annual statement of value for shareholders subject to ERISA was estimated to be $6.85 per share.

The annual statement of value for shareholders subject to ERISA and to certain other plan shareholders is only an estimate and may not reflect the actual value of our shares. The annual statement of value is based on the estimated value of each share of common stock based as of the close of our fiscal year.  The board of directors, in part, utilized third party sources and advice in estimating value, which reflects, among other things, the impact of the recent adverse trends in the economy

20

and the real estate industry.  Because this is only an estimate, we may subsequently revise any annual valuation that is provided.  We cannot assure that:

·

this estimate of value could actually be realized by us or by our shareholders upon liquidation;

·

shareholders could realize this estimate of value if they were to attempt to sell their shares of common stock now or in the future;

·

this estimate of value reflects the price or prices at which our common stock would or could trade if it were listed on a national stock exchange or included for quotation on a national market system; or

·

the annual statement of value complies with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law.

In conjunction with our estimate of the value of a share of our stock for purposes of ERISA, the board of directors amended our distribution reinvestment program, or DRP, effective March 1, 2010, solely to modify the purchase price.  Under the DRP, a shareholder may acquire, from time to time, additional shares of our stock by reinvesting cash distributions payable by us to such shareholder, without incurring any brokerage commission, fees or service charges.  Thus, on or after March 1, 2010, additional shares of our stock purchased under the DRP will be purchased at a price of $6.85 per share.

On October 14, 2008, the board of directors voted to suspend the SRP until further notice, effective November 19, 2008.  However, on October 22, 2008, the 5% limit under the SRP was reached and the SRP was suspended at that time.  If reinstated, under our SRP, a maximum of 5% of the weighted average number of shares of our common stock outstanding during the prior calendar year may be repurchased by us.  This limits the number of shares we could purchase.  Our board of directors also has the ability to reinstate, change, suspend or terminate, at any time, our SRP.  

Shareholders

As of December 31, 2009, we had 110,346 shareholders of record.

Distributions

We paid monthly distributions from October 2003 through December 2008, after which we have been paying quarterly distributions.  The table below depicts the taxable distributions and their tax status for each year.

In December 2008, our board of directors amended our shareholder distribution policy so that, beginning in 2009, any distributions declared would occur quarterly as opposed to monthly.  Among other things, the terms of our credit agreement limit the common dividend to no more than the minimum level necessary to remain in compliance with the REIT regulations until March 31, 2010.

Equity Compensation Plan Information

We have adopted an Amended and Restated Independent Director Stock Option Plan, or the Plan, which, subject to certain conditions, provides for the grant to each independent director of options to acquire shares following their becoming a director and for the grant of additional options to acquire shares on the date of each annual shareholders’

21

meeting.  Generally, these options are granted with an exercise price equal to the fair value of the shares on the date granted and are subject to vesting.  Such options were granted, without registration under the Securities Act of 1933, or the Act, in reliance upon the exemption from registration in Section 4(2) of the Act, as transactions not involving any public offering.  None of such options have been exercised.  Therefore, no shares have been issued in connection with such options.

On October 13, 2009, the Plan was amended to increase the maximum number of shares available for future issuance from 75,000 to 375,000.  Grants made on that date are subject to shareholder approval of the Plan at the next annual meeting of shareholders.

The following table sets forth the following information as of December 31, 2009: (i) the number of shares of our common stock to be issued upon the exercise of outstanding options; (ii) the weighted-average exercise price of such options, and (iii) the number of shares of our commons stock remaining available for future issuance under our equity compensation plans, other than the outstanding options described above.

At our annual shareholders’ meeting held on October 14, 2008, our shareholders voted to approve the establishment of the Equity Compensation Plan, which, subject to certain conditions, authorizes (at the discretion of our board of directors) the issuance of stock options, restricted stock, stock appreciation rights and other similar awards to our employees in connection with compensation and incentive arrangements that may be established by the board of directors.  At December 31, 2009, no awards under the Equity Compensation Plan have been granted.   

22

Item 6. Selected Financial Data

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

For the years ended December 31, 2009, 2008, 2007, 2006 and 2005
(Amounts in thousands, except per share amounts)

The selected financial data above should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this annual report.  Previously reported selected financial data reflects certain reclassifications to income from discontinued operations as a result of the sale of investment properties in 2009 and one property held for sale as of December 31, 2009.  In addition, on January 1, 2009, we adopted new guidance on noncontrolling interests that required retrospective application, in which all periods presented reflect the necessary changes.

(a)

The net (loss) income and distributions declared per common share are based upon the weighted average number of common shares outstanding.  The $0.16 per share distribution declared for the year ended December 31, 2009 represented 53% of our funds from operations, or FFO, for the period.  Our distribution of current and accumulated earnings and profits for federal income tax purposes are taxable to shareholders as ordinary income.  Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof (a return of capital) and thereafter as taxable gain.  The distributions in excess of earnings and profits will have the effect of deferring taxation on the amount of the distribution until the sale of the shareholders’ shares.  For the year ended December 31, 2009, $39,293 (or approximately 46% of the $84,953 tax basis distribution in 2009) represented a return of capital.  In order to maintain our qualification as a REIT, we must make annual distributions to shareholders of at least 90% of our REIT taxable income.  REIT taxable income does not include capital gains.  Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet the REIT distribution requirements.  Distributions are determined by our board of directors and are dependent on a number of factors, including the amount of funds available for distribution, our financial condition, decisions by the board of directors to reinvest funds rather than to distribute the funds, our need for capital expenditures, the annual distribution required to maintain REIT status under the Code and other factors the board of directors may deem relevant.

(b)

One of our objectives is to provide cash distributions to our shareholders from cash generated by our operations. Cash generated from operations is not equivalent to our (loss) income from continuing operations as determined under accounting principles generally accepted in the United States (GAAP).  Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an

23

industry trade group, has promulgated a standard known as FFO. We believe that FFO, which is a non-GAAP performance measure, provides an additional and useful means to assess the operating performance of REITs. As defined by NAREIT, FFO means net (loss) income computed in accordance with GAAP, excluding gains (or losses) from sales of investment properties, plus depreciation and amortization on investment properties including adjustments for unconsolidated joint ventures in which the REIT holds an interest.  We have adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing our performance and operations to those of other REITs.  FFO is not intended to be an alternative to “Net Income” as an indicator of our performance nor to “Cash Flows from Operating Activities” as d etermined by GAAP as a measure of our capacity to pay distributions.

FFO is calculated as follows:

Depreciation and amortization related to investment properties for purposes of calculating FFO includes loss on lease terminations which encompasses the write-off of tenant related assets, including tenant improvements and in-place lease values, as a result of early lease terminations.  Total loss on lease terminations for the years ended December 31, 2009, 2008, and 2007 were $13,735, $67,092, and $11,788, respectively.  

The increase in FFO for the year ended December 31, 2009 compared to the same period in 2008 is primarily due to a decrease in non-cash impairment of goodwill of $377,916, a change in non-cash recognized gains (losses) on marketable securities of $178,927 and a decrease in impairment on investment properties of $25,600, partially offset by a decrease in revenues of $46,901, an increase in interest expense of $23,968 and impairment on two notes receivable of $17,322.

(c)

The following table compares cash flows provided by operating activities to distributions declared:

In 2005, the deficiency was funded through payments received under master leases and cash provided from financing activities.  

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

Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K may constitute “forward-looking statements.”  Forward-looking statements are statements that are not historical, including statements regarding management’s intentions, beliefs, expectations, representations, plans or predictions of the future and are typically identified by such words as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should” and “could.”  We intend that such forward-looking statements be subject to the safe harbor provisions created by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Federal Private Securities Litigation Reform Act of 1995 and we include this statement for the purpose of complying with such safe harbor provisions.  Future events and actual results, performance, transactions or achievements, financial or otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements.  Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to:

24

·

our financial condition will be materially adversely affected if we are unable to refinance all or substantially all of our remaining indebtedness which matured in 2009 of $187,437.  We have approximately an additional $968,947 of debt, excluding amortization and liabilities associated with the investment property held for sale, which will mature in 2010;

·

our financial condition may be affected by required debt service payments, the risk of default and restrictions on our ability to incur additional debt or enter into certain transactions under our credit agreement;

·

the level and volatility of interest rates as well as significant challenges in the debt markets that may adversely affect our ability to obtain permanent financing or refinance our existing indebtedness;

·

the ability to dispose of properties on favorable terms or at all as real estate investments can be illiquid, particularly as prospective buyers may experience increased costs of financing or difficulties obtaining financing;

·

risks of joint venture activities, including development joint ventures;

·

national or local economic, business, real estate and other market conditions, including the ability of the general economy to recover timely from the current volatile economic downturn;

·

general financial risks affecting the real estate industry, including the current economic downturn that may adversely affect the ability of our tenants, or new tenants, to enter into new leases or the ability of our existing tenants to renew their leases at rates at least as favorable as their current rates or at all;

·

financial stability of tenants, including the ability of tenants to pay rent, the decision of tenants to close stores and the effect of bankruptcy laws and our ability to re-lease any resulting vacant space;

·

risks of real estate development, including the failure of pending developments and redevelopments to be completed on time and within budget and the failure of newly acquired or developed properties to perform as expected;

·

the effect of inflation and other factors on fixed rental rates, operating expenses and real estate taxes;

·

the competitive environment in which we operate and the supply of and demand for retail goods and services in our markets;

·

the increase in property and liability insurance costs and the ability to obtain appropriate insurance coverage;

·

the ability to maintain our status as a REIT for federal income tax purposes;

·

the effects of hurricanes and other natural disasters;

·

environmental/safety requirements and costs, and

·

other risks identified in this Annual Report on Form 10-K and, from time to time, in other reports we file with the SEC.

We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of December 31, 2009.  The following discussion and analysis compares the year ended December 2009 to the years ended December 31, 2008 and 2007, and should be read in conjunction with our consolidated financial statements and the related notes included in this report.

Executive Summary

We are a self-managed REIT that acquires, manages, and develops a diversified portfolio of real estate, primarily multi-tenant shopping centers.  As of December 31, 2009, our portfolio consisted of 299 consolidated operating properties, 242 properties wholly-owned by us, including one property classified as held for sale on the accompanying consolidated balance sheets (the wholly-owned properties) and 57 properties in three joint ventures (the consolidated joint venture operating properties); and 11 other operating properties in two joint ventures that we do not consolidate.  We have also

25

invested in six consolidated development properties, one property wholly-owned by us and five properties in five joint ventures; and five other development properties in one joint venture referred to above that we do not consolidate.

Our goal is to maximize the possible return to our shareholders through the acquisition, development, redevelopment, creation of strategic joint ventures and management of the related properties consisting of neighborhood and community multi-tenant shopping centers and single-user net lease properties.  We attempt to manage our assets by leasing and re-leasing space at favorable rates, controlling costs, maintaining strong tenant relationships and creating additional value through redeveloping and repositioning our centers.  We distribute funds generated from operations to our shareholders and intend to continue to make distributions in order to maintain our REIT status.

The properties in our portfolio are located in 38 states.  As of December 31, 2009, our wholly-owned and consolidated joint venture operating properties consisted of 183 multi-tenant shopping centers and 116 free-standing, single-user properties of which 102 are net lease properties.  The wholly-owned and consolidated operating property portfolio contains an aggregate of approximately 44,496,000 square feet GLA, of which approximately 86% was physically leased and 87% was economically leased.  The weighted average occupied GLA was 86% and 89% as of December 31, 2009 and 2008, respectively.  Our anchor tenants include nationally and regionally recognized grocers, discount retailers and other tenants who provide basic household goods and services.  Of our total annualized revenue as of December 31, 2009, approximately 65% is generated by anchor or credit tenants, including PetSmart, Bed Ba th & Beyond, Ross Dress for Less, Wal-Mart, Home Depot, Kohl’s, Best Buy and several others.  The term “credit tenant” is subjective and we apply the term to tenants whom we believe have a substantial net worth.

Of the 299 wholly-owned and consolidated joint venture operating properties as of December 31, 2009, 133 properties were located west of the Mississippi River.  These 133 properties equate to approximately 46% of our GLA and approximately 45% of our annualized base rental income as of December 31, 2009.  The remaining 166 properties are located east of the Mississippi River.

During the year ended December 31, 2009, we invested approximately $30,974 for the acquisition of an additional phase at one of our existing operating properties and the funding of nine earnouts at three existing properties, containing a total GLA of approximately 80,470 square feet.  We also contributed approximately $2,729 and $2,912 for real estate development on our consolidated and unconsolidated joint ventures, respectively.  We received approximately $37,302 in investor proceeds through our DRP, $172,007 in proceeds from the sale of eight operating properties and obtained approximately $974,938 in proceeds from mortgages and notes payable, all of which were used primarily to repay mortgages and notes payable of $1,152,767.

We continue to monitor potential credit issues of our tenants, and analyze the possible effects on our consolidated financial statements and liquidity.  In addition to the collectability assessment of outstanding accounts receivable, we also evaluate the related real estate for recoverability of our current carrying value, as well as, any tenant related deferred charges for recoverability, which may include straight-line rents, deferred lease costs, tenant improvements, tenant inducements and intangible assets and liabilities.

Economic Conditions and Outlook

The retail market in the United States significantly weakened in 2008 and continued to be challenged in 2009. Consumer spending has declined in response to erosion in housing values and stock market investments, more stringent lending practices and job losses. Retail sales have declined and tenants have become more selective in new store openings. Some retailers have closed existing locations and as a result, we have experienced a loss in occupancy. The reduced occupancy will likely continue to have a negative impact on our consolidated cash flows, results of operations and financial position in 2010. Offsetting some of the current challenges within the retail environment, we have lower administrative cost relative to other retail formats and historic averages as well as a diversified tenant base with no one tenant exceeding 3.0% of 2009 annualized revenues.  Significant tenants and “shadow” ancho rs include Target, Lowe’s Home Improvement, Home Depot, Wal-Mart, Best Buy, Kohl’s, T.J. Maxx, Marshalls, Publix Supermarkets, PetSmart and Bed Bath & Beyond, with all strong credit ratings who can withstand a downturn.  We believe that the diversification of our current and targeted tenant base and our focus on creditworthy tenants further reduces our risk exposure.  Selecting properties with high quality tenants and mitigating risk through diversifying our tenant base is at the forefront of our leasing strategy.  

The retail shopping sector has been affected by the competitive nature of the retail business and the competition for market share, as well as general economic conditions where stronger retailers have out-positioned some of the weaker

26

retailers. These shifts have forced some market share away from weaker retailers and required them, in some cases, to declare bankruptcy and/or close stores. Certain retailers have announced store closings even though they have not filed for bankruptcy protection. However, these store closings often represent a relatively small percentage of our overall gross leasable area and therefore, we do not expect these closings, individually, to have a material adverse effect on our overall long-term performance. Overall, we believe our portfolio remains stable. However, there can be no assurance that these events will not adversely affect us (see Item 1A. Risk Factors here in this report).

We monitor potential credit issues of our tenants and analyze the possible effects to our financial statements. In addition to the collectability assessment of outstanding accounts receivable, we evaluate the related real estate for recoverability, as well as any tenant related deferred charges for recoverability, which may include straight-line rents, deferred lease costs, tenant improvements, tenant inducements and intangible assets (Tenant Related Deferred Charges). We routinely evaluate our exposure relating to tenants in financial distress. Where appropriate, we have either written off the unamortized balance or accelerated depreciation and amortization expense associated with the Tenant Related Deferred Charges for such tenants.

As was the case in 2009, we believe retailers with strong balance sheets, low debt and experienced management teams will continue to capitalize on the current times to increase their market share and upgrade existing locations.  The weak performers will continue to close their doors as a result of economic times.  We will continue to experience stress in our portfolio in the form of tenant evictions, collection issues and requests for rent relief.  We are, however, pleased with our success to date in the re-leasing of our vacant spaces, and still see opportunities.  We continue to have interest from some of the strongest retailers for expansion in our centers.  We believe that our well-located, high-demographic and newer properties will continue to be viewed by these retailers as prime locations for expansion.

The continued turmoil in the economy could result in a higher level of retail store closings and limit the demand for leasing space in our shopping centers resulting in a decline in our occupancy percentages and rental revenues.  Additionally, certain tenants negotiate co-tenancy clauses into their lease agreements, which allow them to reduce their rents or close their stores in the event that a co-tenant closes their store.  We believe that our investment focus on neighborhood and community shopping centers that conveniently provide daily necessities will help lessen the current economy’s negative impact to our shopping centers, although the negative impact could still be significant.  We are closely monitoring the operating performance and tenants’ sales in our shopping centers, including those tenants operating retail formats that are experiencing significant changes from competition and business practice, or reductions in sales.

The lack of available credit is causing a decline in the sale of shopping centers and their values, thereby reducing capital availability for new developments or other new investments, which is a key part of our capital recycling strategy.  The lack of liquidity in the capital markets has also resulted in significant increases in the cost to refinance maturing loans and in refinancing risks.  We anticipate that as real estate values decline, refinancing maturing secured loans, including those maturing in our joint ventures, may require us and our joint venture partners to contribute additional capital in order to reduce refinancing requirements to acceptable loan-to-value levels required for new financings.  

Leasing and Occupancy

While our portfolio occupancy is down from our historical average of 94.8%, in certain cases, the loss of a weaker tenant creates an opportunity to re-lease space to a stronger retailer.  More importantly, the quality of our property revenue stream is high and consistent, as it is generally derived from retailers with good credit profiles under long-term leases and little reliance on overage rents generated by tenant sales performance.  We believe that the quality of our shopping center portfolio is strong.  Notwithstanding the decline in occupancy experienced in 2009, we continue to sign a large number of new leases.  Rental rates have generally been below the previous rate, however the rental spread continues to stabilize.  We have been able to achieve these results without significant capital investment in tenant improvements or leasing commissions to date, however, we anticipate an i ncrease in the need for capital to facilitate leasing going forward.  While tenants may come and go over time, shopping centers that are well-located and actively managed are expected to perform well.  We are very conscious of, and sensitive to, the risks posed by the economy, but we are currently comfortable that the position of our portfolio and the general diversity and credit quality of our tenant base should enable us to successfully navigate through these challenging economic times.

During 2009, we signed over 760 leases including new leases and renewals for a total of approximately 4,209,000 square feet.  Rental rates have generally been less than the previous rental rates, however, the rental rate spread continues to

27

stabilize.  At the beginning of 2009, we had 3,210,000 square feet of vacant retail space specifically related to the bankruptcies of three national tenants – Circuit City, Linens ‘n Things and Mervyns.  We made significant progress re-leasing these vacancies over the course of the year, including:

·

962,000 square feet re-leased to strong national tenants such as T.J. Maxx, Ross Dress for Less, Burlington Coat Factory, Best Buy and Kohl’s;

·

956,000 square feet in active lease negotiations with signed letters of intent, and

·

605,000 square feet in active negotiations with identified tenants over terms of a letter of intent.

In aggregate, we have addressed or are actively addressing 78.6% of the total square footage of former Linens ‘n Things, Mervyns and Circuit City space.  Stated another way, we have addressed or are addressing:

·

21 out of 25 Linens ‘n Things vacancies;

·

19 out of 25 Mervyns vacancies, and

·

14 out of 18 Circuit City vacancies.

Asset Dispositions

We sold eight properties, aggregating 1,579,000 square feet during 2009, generating $123,944 of net proceeds on sale and an aggregate gain on disposition of $26,383 related to carrying costs of the assets.  As part of our deleveraging strategy, we are actively marketing non-core assets for sale.  Opportunities for large portfolio asset sales are not occurring as frequently; therefore, we are focusing on selling single tenant assets and smaller shopping centers.  We evaluate all potential sale opportunities taking into account the long-term growth prospects of assets being sold, the use of proceeds and the impact our balance sheet including financial covenants, in addition to the impact on operating results.  We plan to continue to be a net seller of assets in 2010.  Asset sales activities in 2009 include a:

·

172,400 square foot lifestyle center in Larkspur, California;

·

185,200 square foot corporate headquarters of Computershare in Canton, Massachusetts;

·

395,800 square foot office building fully leased to American Express in Salt Lake City, Utah;

·

389,400 square foot office building fully leased to American Express in Greensboro, North Carolina, and

·

185,000 square foot data center located in Santa Clara, California.

Due to sales from our securities portfolio, we obtained proceeds of $125,088 during 2009, which has also assisted in our deleveraging efforts.

Results of Operations

We believe that property net operating income (NOI) is a useful measure of our operating performance.  We define NOI as operating revenues (rental income, tenant recovery income, other property income, excluding straight-line rental income and amortization of acquired above and below market lease intangibles) less property operating expenses (real estate tax expense and property operating expense, excluding straight-line ground rent expense and straight-line bad debt expense).  Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs.

This measure provides an operating perspective not immediately apparent from GAAP operating income or net (loss) income.  We use NOI to evaluate our performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on our operating results.

However, NOI should only be used as an alternative measure of our financial performance.  For reference and as an aid in understanding our computation of NOI, a reconciliation of NOI to net (loss) income as computed in accordance with GAAP has been presented.

28

Comparison of the years ended December 31, 2009 to December 31, 2008

The table below presents operating information for our same store portfolio consisting of 297 operating properties acquired or placed in service prior to January 1, 2008, along with a reconciliation to net operating income.  The properties in the same store portfolios as described were owned for the years ended December 31, 2009 and 2008.

29

Net operating income decreased by $37,105, or 7.7%.  Total rental income, tenant recovery and other property income decreased by $42,672, or 6.1%, and total property operating expenses decreased by $5,567, or 2.6%, for the year ended December 31, 2009, as compared to December 31, 2008.

Rental income.  Rental income decreased $40,316 or 7.5%, on a same store basis from $540,159 to $499,843.  The same store decrease is primarily due to:

·

a decrease of $33,071 in rental income due to tenant bankruptcies, primarily Linens ‘n Things, Circuit City and Mervyns;

·

a decrease of $3,488, composed of $7,123 as a result of early termination of certain tenant leases, offset by $3,635 from new tenant leases replacing former tenants;

·

a decrease of $4,409 due to reduced rent as a result of co-tenancy provisions in certain leases and reduced percentage rent as a result of decreased tenant sales; partially offset by

·

an increase of $1,939 due to earnouts completed subsequent to December 31, 2007.

Overall, rental income decreased $33,812, or 6.2%, from $548,990 to $515,178, primarily due to the same store portfolio described above, partially offset by an increase of $6,504 in other investment properties primarily due to:

·

an increase of $3,158 due to investment properties acquired subsequent to December 31, 2007, and

·

an increase of $2,854 related to development properties placed into service subsequent to December 31, 2007.

Tenant recovery income.  Tenant recovery income decreased $10,326, or 8.0%, on a same store basis from $128,448 to $118,122, primarily due to:

·

a 14.0% decrease in common area maintenance recovery income primarily due to reduced recoverable property operating expenses described below and reduced occupancy due to tenant vacancies resulting from 2008 bankruptcies and early lease terminations, and

·

a 3.0% decrease in real estate tax recovery primarily resulting from reduced occupancy as described above.

Overall, tenant recovery income decreased $8,623, or 6.6%, from $130,581 to $121,958, primarily due to the increase in the same store portfolio described above, partially offset by recovery income from investment properties purchased after December 31, 2007 and phases of developments that have been placed into service subsequent to December 31, 2007.  

Other property income.  Other property income decreased overall by $237, or 1.2%, due to decreases in termination fee income, parking revenue and direct recovery income.

Property operating expenses. Property operating expenses decreased $13,245, or 10.6%, on a same store basis from $124,533 to $111,288.  The same store decrease is primarily due to:

·

a decrease in bad debt expense of $7,968, and

·

a decrease in certain non-recoverable and recoverable property operating expenses of $881 and $4,734, respectively.

Overall, property operating expenses decreased $11,938, or 9.4%, from $127,570 to $115,632, due to the decrease in the same store portfolio described above, partially offset by an increase in bad debt expense of $209 partially offset by an increase in certain non-recoverable and recoverable property operating expenses of $536 and $628, respectively, in other investment properties.

Real estate taxes.  Real estate taxes increased $4,473, or 5.2%, on a same store basis from $86,295 to $90,768.  This increase is primarily due to:

·

an increase of $2,370 related to investment properties where vacated tenants with triple net leases had paid real estate taxes directly to the taxing authorities during 2008;

·

an increase of $1,078 in prior year estimates adjusted during 2009, based on actual real estate taxes paid;

·

a net increase of $382 over 2008 real estate tax expense due to normal increases and decreases in assessed values;

·

a decrease of $348 in real estate tax refunds received during 2009 for prior year tax assessment adjustments, and

·

an increase in tax consulting fees of $295 as a result of successful reductions to proposed increases to assessed valuations or tax rates at certain properties.  

Overall, real estate taxes increased $6,371, or 7.3%, from $87,778 to $94,149.  The other investment properties representing properties acquired subsequent to December 31, 2007 and phases of developments that have been placed into service resulted in an increase in real estate taxes of $1,898.

30

Other income. Other income increased $1,075, or 2.4%. This increase was primarily due to:

·

an increase of $18,039 in recognized gain on marketable securities due to sales of securities in 2009, and

·

an increase of $3,989 in gain on interest rate locks resulting from a Treasury rate lock termination.

These increases were partially offset by:

·

a decrease in dividend income of $13,878 due to sales of marketable securities, dividend reductions and suspensions;

·

a decrease of $4,388 in straight-line rental income primarily due to reduced occupancy from tenant vacancies from tenant bankruptcies in 2008 and tenants with co-tenancy rent reductions in 2009 as a result of such bankruptcies, and

·

a decrease in interest income of $2,846 as a result of full or partial payoffs of notes receivable subsequent to December 31, 2007, the impairment of a note receivable as of June 30, 2009 and $1,623 as a result of short-term investments receiving lower interest rates in interest bearing accounts.

Other expenses. Other expenses decreased $589,882, or 48.4%. This decrease was primarily due to:

·

a $377,916 impairment of goodwill recognized in 2008;

·

recognized loss on marketable securities of $160,888 in 2008 as a result of a $160,327 decline in 2008 in the fair value of certain marketable securities determined to be other-than-temporary;

·

a decrease of $53,357 in loss on lease terminations as a result of a decrease in tenants that vacated prior to lease expiration due to tenant bankruptcies and current economic challenges facing tenants during 2009 as compared to 2008;

·

a $25,600 decrease in provision for impairment of investment properties due to a $54,400 asset impairment related to four single-user properties and four multi-tenant properties during 2009, compared to asset impairments of $80,000 related to seven single-user properties and four multi-tenant properties during 2008, and

·

a $16,778 decrease in loss on interest rate locks due to impairment recorded during 2008.

These decreases were partially offset by:

·

an increase of $23,968 in interest expense primarily due to:

­

higher interest rates on refinanced debt resulting in an increase of $6,666 and additional interest expense of $4,068 incurred prior to the completion of certain long-term refinancings;

­

prepayment penalties and other costs associated with refinancings of $5,066;

­

decreases in capitalized interest of $6,256 due to certain phases of our developments being placed into service;

­

an increase in interest on our line of credit of $3,389 due primarily to an increase in the interest rate, and

­

an increase of $2,650 related to the fixed variable spread related to our interest rate swaps, partially offset by decreases in margin payable interest of $3,192 due to decreases in the margin payable balance.

·

an increase of $17,322 related to the impairment of two notes receivable in 2009 (see Note 8 to the consolidated financial statements).

Discontinued operations.  Discontinued operations consist of amounts related to eight properties that were sold during 2009 and one property that was held for sale as of December 31, 2009.  We have closed on the sale of eight properties during the twelve months ended December 31, 2009, aggregating 1,579,000 square feet, for a combined sales price of $338,057.  The aggregated sales resulted in the extinguishment or repayment of $208,552 of debt, net sales proceeds totaling $123,944 and total gains on sale of $26,383. The properties sold included three office buildings, three single-user retail properties and two multi-tenant properties.

On September 14, 2009, we entered into a contract to sell a 100,000 square foot medical center located in Cupertino, California.  This property qualified for held for sale accounting treatment during the fourth quarter of 2009, at which time depreciation and amortization ceased since it met all of our held for sale criteria. As such, the assets and liabilities are separately classified as held for sale on the consolidated balance sheet as of December 31, 2009 and the operations for all periods presented are classified as discontinued operations on the consolidated statements of operations and other comprehensive loss.

31

Comparison of the years ended December 31 2008 to December 31, 2007

The table below presents operating information for our same store portfolio consisting of 287 operating properties acquired or placed in service prior to January 1, 2007, along with a reconciliation to net operating income.  The properties in the same store portfolios as described were owned for the years ended December 31, 2008 and 2007.

32

Net operating income increased by $10,918, or 2.3%.  Total rental income, tenant recovery and other property income increased by $14,818, or 2.2%, and total property operating expenses increased by $3,900, or 1.8%, for the year ended December 31, 2008, as compared to December 31, 2007.

Rental income.  Rental income increased $4,565 or 0.9%, on a same store basis from $503,038 to $507,603.  The same store increase is primarily due to:

·

an increase of $3,594 in rental income due to base rent increases related to existing tenants;

·

an increase of $3,249 due to the buildout and leasing of additional square footage;

·

an increase of $826 due to earnouts during 2008;

·

partially offset by a decrease of $3,236 due to tenant early lease terminations and tenant bankruptcies.

Overall, rental income increased $19,551, or 3.7%, from $529,439 to $548,990.  The same store increase was $4,565, and the other properties experienced:

·

an increase of $21,327 due to properties acquired subsequent to January 1, 2007, partially offset by a decrease of $7,683 due to the contribution of seven properties to an unconsolidated joint venture during 2007.

Tenant recovery income.  Tenant recovery income decreased $10,005, or 7.7%, on a same store basis from $129,963 to $119,958, primarily due to:

·

reduced occupancy as a result of increased tenant vacancies resulting from bankruptcies and early lease terminations resulting from the current economic challenges facing tenants, and

·

a reduction in the 2007 tenant recovery income estimates as a result of the common area maintenance and real estate tax expense reconciliation processes completed during the year ended December 31, 2008.

Overall, tenant recovery income decreased $9,953, or 7.1%, from $140,534 to $130,581, primarily due to the decrease in the same store portfolio described above.  In addition, increases in tenant recovery income related to properties acquired subsequent to December 31, 2006 were partially offset by the decrease resulting from the contribution of seven properties to an unconsolidated joint venture during 2007.

Other property income.  Other property income increased overall by $5,220, or 35.9%.  The increase is attributable primarily to:

·

a $2,944 increase in lease termination fee income;

·

a $618 increase in settlements received from vacated tenants; and

·

a $1,134 increase in parking revenue generated by a same store property.

Property operating expenses. Property operating expenses decreased $3,495, or 2.9%, on a same store basis from $119,368 to $115,873.  As a result of the merger on November 15, 2007, the property management fees for the twelve months ended December 31, 2008 were eliminated in consolidation and replaced by the actual operating expenses of the property management companies.  As a result, the same store decrease in property management fees of $27,656 was partially offset by $14,806 of actual operating expenses attributable to the property management companies.  In addition, there was a decrease in insurance expense of $867, primarily due to an overall reduction in insurance premiums.  The net decrease was partially offset by the following items:

·

an increase in bad debt expense of $5,423, and

·

an increase in certain non-recoverable and recoverable property operating expenses of $3,310.

Overall, property operating expenses increased $966, or 0.8%, from $126,604 to $127,570, due to the decrease in the same store portfolio described above, offset by an increase of $4,461 in other investment properties as follows:

·

an increase in bad debt expense of $1,131, and

·

an increase in certain non-recoverable and recoverable property operating expenses of $3,330 related to the acquisition of properties and completions of earnouts subsequent to December 31, 2006.

33

Real estate taxes.  Real estate taxes increased $657, or 0.8%, on a same store basis from $78,326 to $78,983.  The same store increase is primarily due to:

·

an increase of $790 related to properties where vacated tenants with triple net leases had previously paid real estate taxes directly to the taxing authorities and accordingly were not previously reflected in the consolidated financial statements;

·

an increase in tax consulting fees of $222 as a result of successful challenges of the assessed valuations of certain properties, and

·

an increase of $1,969 in 2008 real estate taxes resulting from increases in assessed valuations or increased tax rates at certain properties; partially offset by

·

a decrease of $1,799 in 2007 estimates adjusted during 2008 based on actual 2007 real estate taxes paid, and

·

an increase in prior year refunds of $525.

Overall, real estate taxes increased $2,934, or 3.5%, from $84,844 to $87,778.  The same store increase was $657 and the other investment properties experienced an increase in real estate taxes of $4,033 due to properties acquired subsequent to December 31, 2006; partially offset by a decrease in real estate taxes of $1,946 due to the contribution of seven properties to an unconsolidated joint venture during 2007.

Other income. Other income decreased $26,830, or 37.2%. This decrease was due primarily to:

·

a decrease in interest income of $9,342 primarily due to decreases of $3,790 as a result of full or partial payoffs of notes receivable subsequent to December 31, 2007 and $5,120 as a result of decreases in operating cash and short-term investments in interest bearing accounts;

·

an $11,749 gain on contributed properties and a $2,486 gain on extinguishment of debt during the year ended December 31, 2007, as a result of seven properties contributed to a joint venture, and

·

a decrease in straight-line rental income of $2,553 due primarily to the aging of tenant leases.

Other expenses. Other expenses increased $675,157, or 124.3%.  This increase was primarily due to:

·

a $377,916 impairment of goodwill recognized in the year ended December 31, 2008;

·

an increase of $140,921 in recognized losses on marketable securities as a result of a $160,327 decline in 2008 in fair value of certain marketable securities determined to be other-than-temporary;

·

a $66,440 increase in provision for impairment of investment properties due to a $13,560 asset impairment related to one multi-tenant property during 2007, compared to asset impairments of $80,000 related to seven single-user properties and four multi-tenant properties during 2008;

·

an increase of $6,872 in bad debt expense related to deferred rent receivables due to increased tenant bankruptcies and the current economic challenges facing tenants;

·

an $8,984 increase in depreciation and amortization consisting of $11,568 related to properties acquired or placed in service subsequent to January 1, 2007, partially offset by $3,909 of expenses related to seven properties that were contributed to a joint venture during 2007;

·

an increase in loss on lease terminations of $55,304 due to an increase in tenants that vacated prior to lease expiration during 2008 resulting from an increase in tenant bankruptcies and current economic challenges facing tenants;

·

a $5,524 recognized loss from an unconsolidated joint venture as a result of the write-off of an investment in a development joint venture;

·

losses in 2008 of $16,778 related to the write-down of two interest rate locks to their net realizable value;

·

an increase in interest expense of $8,049 resulting from various factors including: an increase in interest incurred in 2008 on the line of credit due to increase in the amounts drawn, increases in the outstanding mortgage payables in the 2008, interest incurred on a $50,000 note payable, outstanding since June 2007, and construction loan interest related to increases in the outstanding balances in construction loans in 2008, partially offset by an increase in capitalized interest in 2008 due to additional qualifying assets under development, and

34

·

an increase in general and administrative expenses of $3,462 due to an increase in salaries of $2,318 resulting from an increase in the number of employees and an increase in legal fees of $1,402 associated with a litigation matter.

These increases in other expenses were partially offset by a $23,750 decrease in advisor management fees paid to our former business manager/advisor prior to the previously described merger.

Discontinued operations.  Discontinued operations consist of amounts related to eight properties that were sold during 2009 and one property that was held for sale as of December 31, 2009.  Refer to discussion comparing 2009 and 2008 results for more detail on the transactions that resulted in discontinued operations.

Liquidity and Capital Resources

Current Environment

We rely on capital to buy, develop and improve our properties. Events in 2008 and early 2009, including recent failures and near failures of a number of large financial service companies, have made the capital markets increasingly volatile. We continuously evaluate opportunities to refinance and issue additional debt or raise additional equity.

The debt capital markets have been volatile and challenging and numerous financial institutions have experienced unprecedented write-offs and liquidity issues.  As a result, lender prospects are limited.  Rates available from commercial and investment banks are widely divergent when and if they are willing to quote a rate for a new mortgage loan.  We also have noted that life insurance companies appear to be becoming more selective in relation to new lending opportunities.  Life insurance companies also appear to be more interested in smaller individual property loans versus large portfolios.  The overall trend from lenders appears to be that the quality of sponsorship and relationship strength are critical factors in their decision making process and deposits from borrowers may be required for credit to be extended.

Part of our overall strategy includes actively addressing debt that has matured or is maturing in 2010 and beyond, and considering alternative courses of action given that the capital markets continue to be volatile.  We intend to balance the amount and timing of our debt maturities upon refinance.  We continually evaluate our debt maturities, and based on our current assessment, we believe we have viable refinancing alternatives, but such alternatives may materially impact our expected financial results due to higher interest rates.  Higher interest rates may be offset by lower debt levels as we continue to pay down principal upon refinance in our attempt to reduce outstanding debt on our consolidated balance sheets.  Although the credit environment continues to be much more challenging than that of just a few years ago, we believe that the credit markets have opened up considerably when com pared to conditions existing in late 2008 and early 2009.  As such, we continue to pursue opportunities with the nation’s largest banks, life insurance companies, regional and local banks, and have demonstrated reasonable success in addressing maturing debt.

It is our current strategy to have access to the capital resources necessary to manage our consolidated balance sheet, to repay upcoming maturities and, to a lesser extent, to consider making prudent investments should such opportunities arise.  Accordingly, we are executing a plan to seek to obtain funds through additional debt or equity financings and/or joint venture capital in a manner consistent with our intention to operate with a conservative debt capitalization policy.  Our other sources of capital include proceeds from sales of developed and non-core assets; proceeds from the sales of securities in our marketable securities portfolio and existing unrestricted cash balances.  In addition, we focused on controlling operating expenses and deferring certain discretionary capital expenditures and have reduced distributions to shareholders to preserve cash for upcoming debt maturities and princ ipal paydowns.  We will also seek loan extensions, generally six months to three years, on certain maturing mortgage debt.  For the year ended December 31, 2009, we refinanced $1,034,462 through new mortgage financing and principal paydowns, repaid an additional $70,242, and retired through asset sales $208,552 of maturing debt.  As of December 31, 2009, we had $187,437 of mortgages payable that had matured.  Of this amount, the maturity date for $128,385 of mortgages payable has since been extended to May 1, 2010 and the total amount is under application for new mortgage financing.  In addition, we have made principal payments of $305 related to these mortgages payable and are in extension negotiations for the remaining $58,747.  As of December 31, 2009, we had $968,947 of mortgages payable, excluding amortization and liabilities associated with the investment property held for sale, maturing in 2010.  Of this amount, we have subsequently made mortgage payable repayments o f $10,128.  We also have $469,741 of mortgages payable under application or commitment, subject to customary lender due diligence, with $96,925 of existing commitment proceeds remaining to be allocated.  We are in the

35

process of allocating the remaining commitments, marketing, planning to seek extensions or planning to sell properties relating to the remaining $489,078 of 2010 maturities, which are primarily maturing in the latter half of the year.

We have made significant strides in disposing of non-core assets as a means of recycling capital.  We closed on the sale of eight assets during the year ended December 31, 2009, aggregating 1,579,000 square feet, for a total sales price of $338,057 and total debt reduction of $208,552.  The properties sold included: a 172,400 square foot lifestyle center located in Larkspur, California; a 395,800 square foot office building fully leased to American Express in Salt Lake City, Utah; a 389,400 square foot office building fully leased to American Express in Greensboro, North Carolina; the 185,200 square foot corporate office headquarters for Computershare in Canton, Massachusetts; a 149,700 square foot single-user retail building located in Jonesboro, Arkansas, a 185,000 square foot multi-tenant property located in Santa Clara, California, a 57,200 square foot single-user retail building located in Wilming ton, North Carolina and a 44,300 square foot single-user property located in Mountain Brook, Alabama.  

Due to sales from our securities portfolio, we obtained proceeds of $125,088 during 2009, which has also assisted in our deleveraging efforts.  The collective refinance and sales efforts have had the effect of reducing the overall leverage of our consolidated balance sheet by approximately $517,577.

At the current operating levels, we anticipate that cash flow from operating activities will continue to provide adequate capital for all scheduled interest and monthly principal payments on outstanding indebtedness and dividend payments in order to maintain REIT status.  We are committed to managing and minimizing discretionary operating and capital expenditures and raising the necessary equity and/or securing debt to repay outstanding borrowings as they mature and comply with financial covenants in 2010 and beyond.  In light of current economic conditions, we may not be able to obtain loan extensions or financing on favorable terms, or at all, in order to meet principal maturity obligations on certain of our indebtedness, which may cause an acceleration of our secured line of credit and remedies available to lenders on assets securing matured mortgage debt, each of which could significantly impact fu ture operations, liquidity and cash flows available for distribution.

General

We remain focused on our balance sheet, identifying future financings at reasonable pricing and evaluating opportunities created by the distress in the financial markets.  Our strategy has been and continues to be to procure financing on an individual asset, non-recourse basis to preserve our corporate credit.  This strategy reflects our primary interest in maintaining a strong balance sheet, while attempting to capitalize on attractive investment opportunities that have been created by current market conditions, although there currently appear to be fewer such opportunities.  We continue to review prospective investments based upon risk and return attributes, although there currently appear to be few such opportunities.

As of December 31, 2009, we had cash and cash equivalents of $125,904.  We are committed to managing and minimizing discretionary operating expenses and capital expenditures.  At the current operating levels, we anticipate that cash flow from operating activities will continue to provide adequate capital for: required monthly principal and interest payments on outstanding debt, current and anticipated tenant improvement or other capital obligations, the shareholder distributions required to maintain REIT status and compliance with financial covenants of our credit agreement in 2010 and beyond.  In 2010, we plan to be a net seller of assets by divesting certain recently developed assets and non-core assets.  These asset sales are primarily designed to assist in the pay down of debt maturing in 2010.  However, there can be no assurance that future sales will occur, or, if they do occur, th at they will materially assist in reducing our indebtedness.

During the year ended December 31, 2009, we obtained mortgage payable proceeds of $849,938 and made mortgage payable repayments of $1,152,767.  Included in these amounts are $500,000 of mortgage payable proceeds and $626,965 of mortgage payable repayments related to the debt refinancing transaction for IW JV.  We also obtained $125,000 of notes payable proceeds as part of this refinancing transaction.  During the year ended December 31, 2009, $160,489 of mortgage debt was also assumed by the purchaser in the sales of investment properties.  The new mortgages payable that we entered into during the year ended December 31, 2009 have interest rates ranging from 1.64% to 8.00% and maturities from two to ten years.  The stated interest rates of the loans repaid or assumed during the year ended December 31, 2009 ranged from 1.86% to 6.50%. We also entered into modifications of existing loan ag reements which extended the maturities of $131,051 of mortgages payable up to three years.

36

We continue to evaluate our maturing mortgage debt, and based on management’s current assessment, to the extent we obtain viable financing and refinancing alternatives, such alternatives may have a material adverse impact on our expected financial results as lenders increase the cost of debt financing and tighten their underwriting standards.  As of December 31, 2009, we had $187,437 of mortgages payable that had matured.  Of this amount, the maturity date for $128,385 of mortgages payable has since been extended to May 1, 2010 and the total amount is under application for new mortgage financing.  In addition, we have made principal payments of $305 related to these mortgages payable and are in extension negotiations for the remaining $58,747.  As of December 31, 2009, we had $968,947 of mortgages payable, excluding amortization and liabilities associated with the investment property hel d for sale, maturing in 2010.  Of this amount, we have subsequently made mortgage payable repayments of $10,128.  We also have $469,741 of mortgages payable under application or commitment, subject to customary lender due diligence, with $96,925 of existing commitment proceeds remaining to be allocated.  We are in the process of allocating the remaining commitments, marketing, planning to seek extensions or planning to sell properties relating to the remaining $489,078 of 2010 maturities, which are primarily maturing in the latter half of the year.  As we continue our efforts to refinance our maturing mortgage debt, certain of our non-recourse loans may mature due to lack of replacement financings, timing issues related to loan closings and protracted extension negotiations.  Subject to limitations, such maturities are not prohibited under our credit agreement (see Note 10 to the consolidated financial statements).  No assurance can be provided that the aforementioned obligation s will be refinanced, extended or repaid as currently anticipated.

Our leases typically provide that the tenant bears responsibility for their pro-rata share of a majority of all property costs and expenses associated with ongoing maintenance and operation, including, but not limited to, utilities, property taxes and insurance.  In addition, in some instances our leases provide that the tenant is responsible for their pro-rata share of roof and structural repairs.  Certain of our properties are subject to leases under which we retain responsibility for certain costs and expenses associated with the property.  We anticipate that capital demands to meet obligations related to capital improvements with respect to properties will be minimal for the foreseeable future (as many of our properties have recently been constructed or rehabbed) and can be met with funds from operations and working capital.

We believe that our current capital resources (including cash on hand) and anticipated refinancings are sufficient to meet our liquidity needs for 2010.  We further believe that our individually procured, non-recourse indebtedness positions us well for the refinancing efforts facing us for 2010.  We intend to seek refinancing on all of our indebtedness coming due 2010; but, when we deem appropriate, we will seek extensions of the existing indebtedness.  We cannot provide assurance that the lenders will honor such extension requests; however, given the non-recourse nature of our indebtedness, we believe our ability to obtain reasonable extensions is likely.  We also believe that the prospect of being a net seller of real estate assets in 2010 will further benefit our refinancing efforts and our cash position.

Liquidity

We anticipate that cash flow from operating activities will continue to provide adequate capital for: required monthly principal and interest payments on outstanding indebtedness, current and anticipated tenant improvement or other capital obligations, the shareholder distribution required to maintain REIT status and compliance with financial covenants of our credit agreement in 2010 and beyond.  To assist in the refinancing needs, we intend to utilize a combination of equity proceeds from expected asset sales, retained capital as a result of the suspension of the share repurchase program, and the change in the distribution policy announced with the intention of limiting the distribution to the minimum requirement of 90% of taxable income to maintain our REIT status.  Through these measures, during the year ended December 31, 2009, we were able to reduce outstanding debt on our consolidated balance she et by $517,577 during the year ended December 31, 2009 and maintain a cash balance well in excess of $100,000.

In addition, we are pursuing refinancings and extensions in order to fund our debt repayments and, to the extent deemed appropriate, minimizing further capital expenditures.  While we review numerous investment opportunities, we do not expect to invest significant capital in these investment opportunities until debt maturities are appropriately addressed.

37

Our primary uses and sources of our consolidated cash are as follows:

Uses	Sources
Short-Term:
· Tenant improvement allowances · Improvements made to individual properties that are not recoverable through common area maintenance charges to tenants · Distribution payments · Debt repayment requirements, including principal, interest and costs to refinance · Corporate and administrative expenses	· Operating cash flow · Available borrowings under revolving credit facilities · Distribution reinvestment plan · Secured loans collateralized by individual properties · Asset sales
Long-Term:
· Acquisitions · New development · Major redevelopment, renovation or expansion programs at individual properties · Debt repayment requirements, including both principal and interest	· Secured loans collateralized by individual properties · Construction loans · Long-term project financing · Joint venture financing with institutional partners · Marketable securities · Asset sales

Mortgages and Notes Payable.  Mortgages payable outstanding, excluding liabilities associated with the investment property held for sale, as of December 31, 2009 were $3,828,625 (of which $60,543 is recourse to us) and had a weighted average interest rate of 5.57% at December 31, 2009.  Of this amount, $3,715,027 had fixed rates ranging from 4.25% to 10.24% and a weighted average fixed rate of 5.63% at December 31, 2009.  The remaining $113,598 of outstanding indebtedness represented variable rate loans with a weighted average interest rate of 3.56% at December 31, 2009.  Properties with a net carrying value of $5,649,570 at December 31, 2009 and related tenant leases are pledged as collateral of the mortgage loans. Development properties with a net carrying value of $88,524 at December 31, 2009 and related tenant leases are pledged as collateral of the construction loans.  As of December 31, 2009, scheduled maturities for our outstanding mortgage indebtedness had various due dates through March 1, 2037.  

Notes payable outstanding as of December 31, 2009 were $175,360.  These notes payable had fixed interest rates ranging from 2.00% to 14.00% and a weighted average fixed interest rate of 10.50% at December 31, 2009.  

Shareholder Liquidity.  Effective November 19, 2008, the board of directors voted to suspend the SRP until further notice.

We maintain a DRP, subject to certain share ownership restrictions, which allows our shareholders who have purchased shares in our offerings to automatically reinvest distributions by purchasing additional shares from us.  Such purchases under the DRP are not subject to selling commissions or the marketing contribution and due diligence expense allowance.  In conjunction with our estimate of the value of a share of our stock for purposes of ERISA, the board of directors amended our DRP, effective March 1, 2010, solely to modify the purchase price.  Thus, on or after March 1, 2010, additional shares of our stock purchased under the DRP will be purchased at a price of $6.85 per share.  In the event (if ever) of a listing on a national stock exchange, shares purchased by us for the DRP will be purchased on such exchange or market at the then prevailing market price, and will be sold to participa nts at that price.  Participants were able to acquire shares under the DRP at a price equal to $8.50 during the period from March 1, 2009 through February 28, 2010.  Prior to March 1, 2009, participants were able to acquire shares under the DRP at a price equal to $10.00 per share.  The price per share had been $9.50 up to the payment of the distribution made in October 2006, at which point it was increased to $10.00 per share.  As of December 31, 2009, we had issued 66,082 shares pursuant to the DRP for an aggregate amount of $642,772.

Capital Resources

At December 31, 2009, our capitalization consisted of $4,110,985 of debt and $2,445,719 of total equity.  At December 31, 2009, our total debt consisted of $3,890,387 of fixed-rate debt and $220,598 of variable-rate debt, including $83,250

38

of variable-rate debt that was effectively swapped to a fixed rate.  At December 31, 2008, our total debt consisted of $4,110,495 of fixed-rate debt and $517,107 of variable-rate debt.

We maintain our line of credit agreement with a syndicate of financial institutions (Line Lenders).  While not a significant component of our capital structure, the credit agreement provides for borrowings of $200,000 as amended, as described below, if certain financial covenants are maintained and has a maturity date of October 14, 2010, with a one-year extension option.  The credit agreement requires compliance with certain covenants, such as, among other things, a leverage ratio, fixed charge coverage, minimum net worth requirements, distribution limitations and investment restrictions, as well as limitations on our ability to incur recourse indebtedness.  The credit agreement also contains customary default provisions including the failure to timely pay debt service payable thereunder, the failure to comply with our financial and operating covenants, and the failure to pay when our consolidated indebtedness becomes due.  In the event our Line Lenders declare a default, as defined in the credit agreement, this could result in an acceleration of any outstanding borrowings on the line of credit.

On April 17, 2009, we entered into an amendment to the credit agreement.  The terms of the amendment to the credit agreement stipulate:

·

a reduction of the aggregate commitment from $225,000 to $200,000 at closing, eliminating the optional borrowing capacity of $75,000;

·

an initial collateral pool secured by first priority liens (assignment of partnership interests to be converted to mortgage liens within 90 days of closing) in eight retail assets valued at approximately $200,000;

·

the requirement that the maximum advance rate on the appraised value of the initial collateral pool be 80% beginning September 30, 2009;

·

pay down of the line from net proceeds of asset sales;

·

an assignment of corporate cash flow in the event of default;

·

an increase in interest rate to LIBOR (3% floor) plus 3.50%;

·

an increase in the unused fees to 0.35% or to 0.50% depending on the undrawn amount;

·

the requirement for a comprehensive collateral pool (secured by mortgage interests in each asset) subject to certain covenants, including a reduction in the maximum advance rate on the appraised value of the collateral pool from 80% to 60% and minimum requirements related to the value of the collateral pool, the number of properties included in the collateral pool, leverage and debt service coverage beginning March 31, 2010;

·

an increase of the amount of non-recourse cross-default permissions from $50,000 to $250,000 and permissions for maturity defaults under non-recourse indebtedness for up to 90 days subject to extension at discretion of the lenders;

·

an agreement to prohibit redemptions of our common shares and limit the common dividend to no more than the minimum level necessary to remain in compliance with the REIT regulations until March 31, 2010, and

·

customary fees associated with the modification.

In exchange for these changes, certain of the financial covenants under the credit agreement have been modified, namely the leverage ratio, minimum net worth and fixed charge coverage covenants, retroactive to January 1, 2009.  In addition to the eight properties that were included in the initial collateral pool, we added three more properties during the third quarter.  At September 30, 2009, the total appraised value of the retail assets in the collateral pool was approximately $236,910. In accordance with the terms of the agreement, the collateral pool will be appraised again on March 31, 2010.  As of December 31, 2009, we were in compliance with all of the financial covenants under our credit agreement with the exception of the requirement to limit the common stock dividend to no more than the minimum level necessary to remain in compliance with the REIT regulations. We have since obtained the necessary approval from our lenders waiving this covenant as of December 31, 2009.  The outstanding balance on the line of credit at December 31, 2009 and 2008 was $107,000 and $225,000, respectively.

39

Our current business plans indicate that we will be able to operate in compliance with these covenants, as amended, in 2010 and beyond; however, the current dislocation in the global credit markets has significantly impacted our expected cash flows, access to non-recourse mortgage capital and our financial position and effective leverage.  If the current dislocation in the global credit markets continues or worsens or if there is a continued decline in the retail and real estate industries and a further weakening in consumer confidence leading to a decline in consumer spending such that we are unable to successfully execute plans as further described below, we could violate these covenants, and as a result may be subject to higher finance costs and fees and/or an acceleration of the maturity date of advances under the credit agreement.  These risk factors and an inability to predict future economic con ditions have encouraged us to adopt a strict focus on lowering leverage and increasing financial flexibility.

It is management’s current strategy to have access to the capital resources necessary to manage our balance sheet, to repay upcoming maturities and, to a lesser extent, to consider making prudent investments should such opportunities arise.  Accordingly, we may seek to obtain funds through additional debt or equity financings and/or joint venture capital in a manner consistent with our intention to operate with a conservative debt capitalization policy.  In light of the current economic conditions, we may not be able to obtain financing on favorable terms, or at all, which may negatively impact future cash flows available for distribution.  Foreclosure on mortgaged properties as a result of an inability to refinance existing indebtedness would have a negative impact on our financial condition and results of operations.

We previously entered into an interest rate lock agreement with a lender to secure interest rates on mortgage debt on properties we owned or planned to purchase in the future.  We had outstanding interest rate lock deposits under an agreement that locked only the Treasury portion of mortgage debt interest, which had a maturity date of June 30, 2008, and was extended to July 31, 2009.  This Treasury rate lock agreement locked the Treasury portion at a rate of 5.582% on $85,000 in notional amounts, and could have been converted into full rate locks upon allocation of properties.  The carrying value of the rate lock deposits as of December 31, 2008 was $1,220.  During 2009, we were not required to make additional rate lock deposits and on August 5, 2009, we terminated the Treasury rate lock agreement which resulted in a gain of $3,989 during the third quarter of 2009.

The majority of our loans require monthly payments of interest only, although it has become more common for lenders to require principal and interest payments, as well as, reserves for real estate taxes, insurance and certain other costs.  Although the loans we obtain are generally non-recourse, occasionally, when it is deemed to be necessary, we may guarantee all or a portion of the debt on a full-recourse basis.  As of December 31, 2009, we had guaranteed $60,543 of the outstanding mortgages payable (see Note 18 to the consolidated financial statements).  At times, we have borrowed funds financed as part of a cross-collateralized package, with cross-default provisions, in order to enhance the financial benefits.  In those circumstances, one or more of the properties may secure the debt of another of our properties.  Individual decisions regarding interest rates, loan-to-value, debt yie ld, fixed versus variable-rate financing, term and related matters are often based on the condition of the financial markets at the time the debt is issued, which may vary from time to time.

Distributions declared and paid are determined by our board of directors and are dependent on a number of factors, including the amount of funds available for distribution, flow of funds, our financial condition, any decision by our board of directors to reinvest funds rather than to distribute the funds, our capital expenditures, the annual distribution required to maintain REIT status under the Code, credit agreement limitations and other factors the board of directors may deem relevant.

Statement of Cash Flows Comparison for the Years Ended December 31, 2009, 2008 and 2007

Cash Flows from Operating Activities

Cash flows provided by operating activities were $249,837, $309,351 and $318,641 for the years ended December 31, 2009, 2008 and 2007, respectively, which consists primarily of net income from property operations, plus non-cash changes for depreciation and amortization and provision for impairment of investment properties, marketable securities and notes receivable.  

Cash Flows from Investing Activities

Cash flows provided by (used in) investing activities were $193,706, $(178,555) and $(511,676), respectively, for the years ended December 31, 2009, 2008 and 2007.  Of these amounts, $40,778, $132,233 and $434,913, respectively, were

40

used for acquisition of new properties and earnouts at existing properties and $15,297, $73,137 and $96,276, respectively, were used for existing developments projects during the years ended December 31, 2009, 2008 and 2007.  During the years ended December 31, 2009, 2008 and 2007, we sold eight, none and four properties, respectively, which resulted in sales proceeds of $172,007, none and $117,614, respectively.  In addition, during the years ended December 31, 2009, 2008 and 2007, we purchased marketable securities of $190, $28,433 and $59,673, respectively, and sold marketable securities of $125,088, $34,789 and $31,478, respectively.

We will attempt to dispose of select non-core assets during 2010.  It is uncertain given current market conditions when and whether we will be successful in disposing of these assets and whether such sales could recover our original cost.  Additionally, tenant improvement costs associated with re-leasing space recently vacated or currently leased by our bankrupt tenants could be significant.

Cash Flows from Financing Activities

Cash flows (used in) provided by financing activities were $(438,806), $(126,989) and $82,644, respectively, for the years ended December 31, 2009, 2008 and 2007.  We paid none, $227,156 and $140,143, respectively, for shares repurchased through the SRP for the years ended December 31, 2009, 2008 and 2007.  We also (used)/generated $(333,423), $306,459 and $264,186, respectively, for the years ended December 31, 2009, 2008 and 2007, related to the net activity from proceeds from new mortgages secured by our properties, a secured line of credit, other financings, a co-venture arrangement, principal payments, payoffs and the payment and refund of fees and deposits.  During the years ended December 31, 2009, 2008 and 2007, we also (used)/generated $(56,340), $(51,700) and $107,962, respectively, through the net purchase of securities on margin.  We paid $47,651, $155,592 and $135,267, respective ly, in distributions, net of distributions reinvested through DRP, to our shareholders for the years ended December 31, 2009, 2008 and 2007.

Effects of Transactions with Related and Certain Other Parties

On November 15, 2007, we acquired our business manager/advisor and property managers in exchange for 37,500 newly issued shares of our stock.  Under the terms of the plan of merger, 55% of the 37,500 shares of our common stock were deposited into an escrow fund, subject to terms and conditions.  The business manager/advisor and property managers became subsidiaries of ours.  Prior to the merger, we paid an advisor asset management fee up to a maximum of 1% of the average invested assets, as defined, to our former business manager/advisor.  The fee was payable quarterly in an amount equal to 1/4 up to a maximum of 1% of our average invested assets as of the last day of the immediately preceding quarter.  Our business manager/advisor was entitled to maximum fees of $68,083 for the year ended December 31, 2007.    The business manager/advisor elected not to be paid the maximu m advisor asset management fee and as a result we only incurred fees to our business manager/advisor totaling $23,750 for the year ended December 31, 2007.

Prior to the merger, the property managers were entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services.  Subsequent to the merger, the property managers are entitled to receive property management fees totaling 4.5% of gross operating income, however, the property management fees are eliminated in the consolidation and replaced by the actual operating expenses of the property managers.  We incurred property management fees of $30,036 for the year ended December 31, 2007.  

Prior to the merger, the business manager/advisor and the property managers were also entitled to reimbursement for general and administrative costs, primarily salaries and related employee benefits.  For the year ended December 31, 2007, we incurred $6,296 of these reimbursements.  None of these reimbursements remained unpaid at December 31, 2008.  

An Inland affiliate, who is a registered investment advisor, provides investment advisory services to us related to our securities investment account for a fee (paid monthly) of up to one percent per annum based upon the aggregate fair value of our assets invested.  Subject to our approval and the investment guidelines we provide to them, the Inland affiliate has discretionary authority with respect to the investment and reinvestment and sale (including by tender) of all securities held in that account.  The Inland affiliate has also been granted power to vote all investments held in the account.  We incurred fees totaling $67, $1,390 and $2,107 for the years ended December 31, 2009, 2008 and 2007, respectively.  As of December 31, 2009 and 2008, fees of $20 and $160 remained unpaid, respectively.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.  Effective for the period from November 1, 2008 through September 30, 2009, the investment advisor has agreed to waive all fees due at our request.  Fees were incurred again beginning on October 1, 2009.

41

An Inland affiliate provides loan servicing for us for a monthly fee based upon the number of loans being serviced.  Such fees totaled $372, $405 and $562 for the years ended December 31, 2009, 2008 and 2007, respectively.  As of December 31, 2009 and 2008, none remained unpaid.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

An Inland affiliate facilitates the mortgage financing we obtain on some of our properties.  We pay the Inland affiliate 0.2% of the principal amount of each loan obtained on our behalf.  Such costs are capitalized as loan fees and amortized over the respective loan term as a component of interest expense.  For the years ended December 31, 2009, 2008 and 2007, we had incurred none, $1,330 and $873, respectively, in loan fees to this Inland affiliate.  As of December 31, 2009 and 2008, none remained unpaid.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

We have a property acquisition agreement and a transition property due diligence services agreement with an Inland affiliate.  In connection with our acquisition of new properties, the Inland affiliate will give us a first right as to all retail, mixed use and single-user properties and, if requested, provide various services including services to negotiate property acquisition transactions on our behalf and prepare suitability, due diligence, and preliminary and final pro forma analyses of properties proposed to be acquired.  We will pay all reasonable third-party out-of-pocket costs incurred by this entity in providing such services; pay an overhead cost reimbursement of $12 per transaction, and, to the extent these services are requested, pay a cost of $7 for due diligence expenses and a cost of $25 for negotiation expenses per transaction.  We incurred none, $19 and $134 of such costs for the years ended December 30, 2009, 2008 and 2007, respectively.  None of these costs remained unpaid as of December 31, 2009 and 2008.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

On April 30, 2009, we sold two single-user office buildings to Inland American Real Estate Trust, Inc. (IARETI) with an aggregate sales price of $99,000, which resulted in net sales proceeds of $34,572 and a gain on sale of $7,010.  The properties were located in Salt Lake City, Utah and Greensboro, North Carolina with approximately 395,800 square feet and 389,400 square feet, respectively.  The sale resulted in the assumption of debt in the amount of $63,189 by IARETI.  The special committee, consisting of independent directors, reviewed and recommended approval of these transactions to our board of directors.

On June 24, 2009, we sold an approximately 185,200 square foot single-user office building located in Canton, Massachusetts, to IARETI with a sales price of $62,632, which resulted in net sales proceeds of $17,991 and a gain on sale of $2,337.  The sale resulted in the assumption of debt in the amount of $44,500 by IARETI.  The special committee, consisting of independent directors, reviewed and recommended approval of this transaction to our board of directors.

We have an institutional investor relationships services agreement with an Inland affiliate.  Under the terms of the agreement, the Inland affiliate will attempt to secure institutional investor commitments in exchange for advisory and client fees and reimbursement of project expenses.  We incurred $34, $10 and $257 during the years ended December 31, 2009, 2008 and 2007, respectively.  None of these costs remained unpaid as of December 31, 2009 and 2008.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

An Inland affiliate has a legal services agreement with us, where that Inland affiliate will provide us with certain legal services in connection with our real estate business.  We will pay the Inland affiliate for legal services rendered under the agreement on the basis of actual time billed by attorneys and paralegals at the Inland affiliate’s hourly billing rate then in effect.  The billing rate is subject to change on an annual basis, provided, however, that the billing rates charged by the Inland affiliate will not be greater than the billing rates charged to any other client and will not be greater than 90% of the billing rate of attorneys of similar experience and position employed by nationally recognized law firms located in Chicago, Illinois performing similar services.  For the years ended December 31, 2009, 2008 and 2007, we incurred $551, $500 and $897, respectively, of these cos ts.  Legal services costs totaling $123 and $189 remained unpaid as of December 31, 2009 and 2008, respectively.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

We have consulting agreements with Daniel L. Goodwin, Robert D. Parks, our chairman, and G. Joseph Cosenza, who each provide us with strategic assistance for the term of their respective agreement including making recommendations

42

and providing guidance to us as to prospective investment, financing, acquisition, disposition, development, joint venture and other real estate opportunities contemplated from time to time by us and our board of directors.  The consultants also provide additional services as may be reasonably requested from time to time by our board of directors.  The term of each agreement runs until November 15, 2010 unless terminated earlier.  We may terminate these consulting agreements at any time.  The consultants do not receive any compensation for their services, but we are obligated to reimburse their ordinary and necessary out-of-pocket business expenses in fulfilling their duties under the consulting agreements.  There were no reimbursements required under the consulting agreements for the years ended December 31, 2009, 2008 and 2007.

We have service agreements with certain Inland affiliates, including office and facilities management services, insurance and risk management services, computer services, personnel services, property tax services and communications services.  Generally, these agreements provide that we obtain certain services from the Inland affiliates through the reimbursement of a portion of their general and administrative costs.  For the years ended December 31, 2009, 2008 and 2007, we incurred $3,027, $2,814 and $3,141, respectively, of these reimbursements.  Of these costs, $194 and $209 remained unpaid as December 31, 2009 and 2008, respectively.  The services are to be provided on a non-exclusive basis in that we shall be permitted to employ other parties to perform any one or more of the services and that the applicable counterparty shall be permitted to perform any one or more of the services to oth er parties.  The agreements have various expiration dates, but are cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

We sublease our office space from an Inland affiliate.  The lease calls for annual base rent of $496 and additional rent in any calendar year of our proportionate share of taxes and common area maintenance costs.  Additionally, the Inland affiliate paid certain tenant improvements under the lease in the amount of $395 and such improvements are being repaid by us over a period of five years.  The sublease calls for an initial term of five years which expires in November 2012, with one option to extend for an additional five years.  Of these costs, $175 and none remained unpaid as of December 31, 2009 and 2008, respectively.

On December 1, 2009, we raised additional capital of $50,000 from a related party, Inland Equity Investors, LLC (Inland Equity), in exchange for a 23% noncontrolling interest in IW JV.  See Notes 1 and 11 to the consolidated financial statements for additional information.  The independent directors committee reviewed and recommended approval of this transaction to our board of directors.

Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and Contracts and Commitments

Off-Balance Sheet Arrangements

Effective April 2007, we formed a strategic joint venture with a large state pension fund.  Under the joint venture agreement we are to contribute 20% of the equity and our joint venture partner is to contribute 80% of the equity, up to a total of $500,000.  The joint venture may acquire assets using equity contributions and leverage up to $1,000,000.  As of December 31, 2009, we had contributed approximately $29,500 and may, at our discretion, contribute the remaining $70,500 in the next year.  As of December 31, 2009, the joint venture had acquired seven properties (which we contributed) with an estimated purchase price of approximately $336,000 and had assumed from us mortgages on these properties totaling approximately $188,000.  Under the agreement, we are the managing member of the joint venture and earn various fees for acquisition, asset management and property management.  We e arned fees of $1,193, $1,209 and $786 during the years ended December 31, 2009, 2008 and 2007, respectively.  We account for our interest in the joint venture using the equity method of accounting.

Other than described above, we have no off-balance sheet arrangements as of December 31, 2009 that are reasonably likely to have a current or future material effect on our financial condition, results of operations and cash flows.

43

Contractual Obligations

The table below presents our obligations and commitments, excluding liabilities associated with the investment property held for sale, to make future payments under debt obligations and lease agreements as of December 31, 2009.

(1)

In addition to principal payments, the amounts reflected include interest payments. Interest payments related to the variable rate debt were calculated using the corresponding interest rates as of December 31, 2009.  The table excludes accelerated principal payments that may be required as a result of conditions included in certain loan agreements. In these cases, the total outstanding mortgage payable is included in the year corresponding to the loan maturity date and the interest payments are calculated accordingly. The table also excludes other financings and co-venture obligations as described in Note 1 and Note 11 to the consolidated financial statements as we are unable to determine the exact timing and amount of future payments.

(2)

Fixed rate debt and related interest includes a $50,000 note payable to an unconsolidated joint venture.  This note has no maturity but interest is reflected at the stated rate through December 31, 2010, although we may choose not to repay in 2010.  Included in the variable rate debt is $107,000 of borrowings under our credit agreement due in 2010.

The remaining borrowings and related interest outstanding through December 31, 2010 includes amortization and maturities of mortgages and notes payable. This includes sixty-eight mortgage loans, one construction loan, and one note payable that mature in 2010. The mortgages payable of $187,437 that had matured as of December 31, 2009 are also included in these amounts. Mortgage loans are intended to be refinanced or paid off in 2010 using a combination of equity raised from expected asset sales, retained capital as a result of the suspension of the share repurchase program, and the change in the dividend policy announced with the intention of paying at least 90% of taxable income to maintain our REIT status. The construction loans will be extended, paid off at the time of sale of the property, or converted to permanent financing upon completion. Amounts related to interest for fixed rate and variable rate deb t will be paid from the operations of our properties.

(3)

We lease land under non-cancelable leases at certain of the properties expiring in various years from 2018 to 2105. The property attached to the land will revert back to the lessor at the end of the lease. We lease office space under non-cancellable leases expiring in various years from 2010 to 2012.

(4)

Purchase obligations include earnouts on previously acquired properties.

Contracts and Commitments

We have acquired several properties which have earnout components, meaning that we did not pay for portions of these properties that were not rent producing at the time of acquisition.  We are obligated, under these agreements, to pay for those portions, as additional purchase price, when a tenant moves into its space and begins to pay rent.  The earnout payments are based on a predetermined formula.  Each earnout agreement has a time limit regarding the obligation to pay any additional monies.  The time limits generally range from one to three years.  If, at the end of the time period allowed, certain space has not been leased and occupied, generally, we will own that space without any further payment obligation.  As of December 31, 2009, based on pro-forma leasing rates, we may pay as much as $10,146 in the future as retail space covered by earnout agreements is occupied and becom es rent producing.

44

We have entered into one construction loan agreement, one secured installment note and one other installment note agreement, one of which was impaired as of December 31, 2009, in which we have committed to fund up to a total of $8,680, excluding the impaired note agreement.  Each loan, except one, requires monthly interest payments with the entire principal balance due at maturity.  The combined receivable balance at December 31, 2009 and 2008 was $8,330 and $25,715, net of allowances of $17,209 and $300, respectively.  We are not required to fund any additional amounts on these loans as all of the agreements are non-revolving and all fundings have occurred.

Although the loans we obtain are generally non-recourse, occasionally, when it is deemed to be necessary, we may guarantee all or a portion of the debt on a full-recourse basis. As of December 31, 2009, we had guaranteed $107,000 and $37,020 of the outstanding secured line of credit and mortgage loans, respectively.  We also guarantee a portion of the construction debt associated with certain of the consolidated development joint ventures.  The guarantees are released as certain leasing parameters are met. As of December 31, 2009, the amount guaranteed by us was $23,523; however, as these guarantees are with consolidated entities, the potential liability associated with these guarantees has not been recorded.

As of December 31, 2009, we had seven irrevocable letters of credit outstanding for security in mortgage loans.  Certain of these letters of credit relate to loan fundings against earnout spaces and will be released once we pay the remaining portion of the purchase price for these properties.  The remainder of these letters of credit will be held as additional collateral until the maturity of the loans or the collateral is replaced.  There was one letter of credit outstanding as of December 31, 2009 for the benefit of the Captive.  This letter of credit serves as collateral for payment of potential claims within the limits of self-insurance and will remain outstanding until all claims are closed.  There was also one letter of credit outstanding as security for utilities and completion of one development project.  The balance of the outstanding letters of credit at December 31, 2009 was $13,726.  Subsequent to the year ended December 31, 2009, we replaced three irrevocable letters of credit for security in mortgage loans with $6,165 of cash collateral and released one $1,247 irrevocable letter of credit for security in a mortgage loan as the loan was repaid on December 31, 2009.

We previously entered into an interest rate lock agreement with a lender to secure interest rates on mortgage debt on properties it owned or planned to purchase in the future.  We had outstanding interest rate lock deposits under an agreement that locked only the Treasury portion of mortgage debt interest, which had a maturity date of June 30, 2008, and was extended to July 31, 2009.  This Treasury rate lock agreement locked the Treasury portion at a rate of 5.582% on $85,000 in notional amounts, and could have been converted into full rate locks upon allocation of properties.  The carrying value of the rate lock deposits as of December 31, 2008 was $1,220.  During 2009, we were not required to make additional rate lock deposits and on August 5, 2009, it terminated the Treasury rate lock agreement which resulted in a gain of $3,989 during the third quarter of 2009.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and the 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 periods.  For example, significant estimates and assumptions have been made with respect to useful lives of assets; capitalization of development and leasing costs; provision for impairment, including estimates of holding periods, capitalization rates, and discount rates (where applicable); provision for income taxes; recoverable amounts of receivables; deferred taxes and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions.  Actual results could differ from those estimates.

Summary of Significant Accounting Policies

Critical Accounting Policies and Estimates

The following disclosure pertains to accounting policies and estimates we believe are most “critical” to the portrayal of our financial condition and results of operations which require our most difficult, subjective or complex judgments.  These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain.  GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates.  This discussion addresses our judgment pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different con ditions and assumptions.

45

Acquisition of Investment Property

We allocate the purchase price of each acquired investment property between the estimated fair values of land, building and improvements, acquired above market and below market lease intangibles, in-place lease value, any assumed financing that is determined to be above or below market, and the value of customer relationships, if any, and goodwill, if determined to meet the definition of a business under the guidance. The allocation of the purchase price is an area that requires judgment and significant estimates. Beginning in 2009, transaction costs associated with any acquisitions are expensed as incurred. In some circumstances, we engage independent real estate appraisal firms to provide market information and evaluations that help support our purchase price allocations; however, we are ultimately responsible for the purchase price allocations. We determine whether any financing assumed is above or below mark et based upon comparison to similar financing terms at the time of acquisition for similar investment properties. We allocate a portion of the purchase price to the estimated, acquired in-place lease value based on estimated lease execution costs for similar leases, as well as, lost rental payments during an assumed lease-up period when calculating as-if-vacant fair values. We consider various factors including geographic location and size of the leased space. We also evaluate each significant acquired lease based upon current market rates at the acquisition date and consider various factors, including geographical location, size and location of the leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market. If an acquired lease is determined to be above or below market, we allocate a portion of the purchase price to such above or below market leases based upon the present value of the difference between th e contractual lease rate and the estimated market rate. For below market leases with fixed rate renewals, renewal periods are included in the calculation of below market lease values. The determination of the discount rate used in the present value calculation is based upon a risk adjusted rate. This discount rate is a significant factor in determining the market valuation which requires our evaluation of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property.

Impairment of Long-Lived Assets

Our investment properties, including developments in progress, are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Impairment indicators are assessed separately for each property and include, but are not limited to, the property’s low occupancy rate, difficulty in leasing space and financially troubled tenants.  Impairment indicators for developments in progress are assessed by project and include, but are not limited to, significant changes in project completion dates, development costs and market factors.

If an indicator of potential impairment exists, the asset would be tested for recoverability by comparing its carrying value to the estimated future undiscounted operating cash flows, which is based upon many factors which require us to make difficult, complex or subjective judgments.  Such assumptions include, but are not limited to, projecting vacancy rates, rental rates, operating expenses, lease terms, tenant financial strength, economic factors, demographics, property location, capital expenditures, holding period, capitalization rates and sales value.  An investment property is considered to be impaired when the estimated future undiscounted operating cash flows are less than its carrying value.

Our investments in unconsolidated joint ventures are reviewed for potential impairment, in addition to impairment evaluations of the individual assets underlying these investments, whenever events or changes in circumstances warrant such an evaluation.  To the extent an impairment has occurred, the excess of the carrying value of the asset over its estimated fair value is recorded as a provision for impairment of investment properties.  To determine whether impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until the carrying value is fully recovered.

Cost Capitalization, Depreciation and Amortization Policies

Our policy is to review all expenses paid and capitalize any items which are deemed to be an upgrade or a tenant improvement.  These costs are included in the investment properties classification as an addition to buildings and improvements.

Depreciation expense is computed using the straight-line method.  Buildings and improvements are depreciated based upon estimated useful lives of 30 years for buildings and associated improvements and 15 years for site improvements and most other capital improvements.  Acquired in-place lease value, customer relationship value, other leasing costs and tenant improvements are amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense.  The portion of the purchase price allocated to acquired above market lease intangibles and

46

acquired below market lease intangibles are amortized on a straight-line basis over the life of the related lease as an adjustment to net rental income and over the respective renewal period for below market leases with fixed renewal rates.

Loss on Lease Terminations

In situations in which a lease or leases associated with a significant tenant have been or are expected to be terminated early, we evaluate the remaining useful lives of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above and below market lease intangibles, in-place lease intangibles, and leasing commissions).  Based upon consideration of the facts and circumstances of the termination, we may write-off or accelerate the depreciation and amortization associated with the applicable asset group.  If we conclude that a write-off of the asset group is appropriate, such charges are reported in the consolidated statements of operations and other comprehensive loss as “Loss on lease terminations.” 

Investment Properties Held For Sale

In determining whether to classify an investment property as held for sale, we consider whether: (i) management has committed to a plan to sell the investment property; (ii) the investment property is available for immediate sale in its present condition; (iii) we have initiated a program to locate a buyer; (iv) we believe that the sale of the investment property is probable; (v) we have received a significant non-refundable deposit for the purchase of the investment property; (vi) we are actively marketing the investment property for sale at a price that is reasonable in relation to its current value, and (vii) actions required for us to complete the plan indicate that it is unlikely that any significant changes will be made.

If all of the above criteria are met, we classify the investment property as held for sale.  When these criteria are met, we suspend depreciation (including depreciation for tenant improvements and building improvements) and amortization of acquired in-place lease value and customer relationship values.  The assets and liabilities associated with those investment properties that are held for sale are classified separately on the consolidated balance sheets for the most recent reporting period.  Additionally, the operations for the periods presented are classified on the consolidated statements of operations and other comprehensive loss as discontinued operations for all periods presented.

Partially-Owned Entities

If we determine that we are an owner in a variable interest entity (VIE) and that our variable interest will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both, then we will consolidate the entity.  For partially-owned entities determined not to be a VIE, we analyze rights held by each partner to determine which would be the consolidating party.  We generally consolidate entities (in the absence of other factors when determining control) when we have over a 50% ownership interest in the entity.  However, we also evaluate who controls the entity even in circumstances in which we have greater than a 50% ownership interest.  If we do not control the entity due to the lack of decision-making abilities, we will not consolidate the entity.

Marketable Securities

Investments in marketable securities are classified as “available for sale” and accordingly are carried at fair value, with unrealized gains and losses reported as a separate component of shareholders’ equity.  Declines in the value of these investments in marketable securities that management determines are other-than-temporary are recorded as recognized gain (loss) on marketable securities on the consolidated statement of operations and other comprehensive loss.

To determine whether an impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until a market price recovery and consider whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary, amongst other things.  Evidence considered in this assessment includes the nature of the investment, the reasons for the impairment (i.e. credit or market related), the severity and duration of the impairment, changes in value subsequent to the end of the reporting period and forecasted performance of the investee.  All available information is considered in making this determination with no one factor being determinative.

47

Allowance for Doubtful Accounts

We periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under their lease agreements.  We also maintain an allowance for receivables arising from the straight-lining of rents.  This receivable arises from revenue recognized in excess of amounts currently due under the lease agreements.  Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates.

Notes receivable are evaluated for impairment.  The allowance for uncollectable notes receivable is our best estimate of the amount of credit losses in our existing notes.  The allowance is determined upon a review of the applicable facts and circumstances.  A note is impaired if it is probable that we will not collect all principal and interest contractually due. The impairment is measured based on the present value of expected future cash flows discounted at a current market rate or on the fair value of the collateral when foreclosure is probable. We do not accrue interest when a note is considered impaired. When ultimate collectability of the principal balance of the impaired note is in doubt, all cash receipts on the impaired note are applied to reduce the principal amount of the note until the principal has been recovered and is recognized as interest income thereafter.  These amounts ar e included in the allowance for doubtful accounts in the consolidated balance sheets.

Derivative and Hedging Activities

We adopted accounting guidance as of January 1, 2009, which amends and expands the disclosure requirements related to derivative instruments and hedging activities with the intent to provide users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and the related hedged items affect an entity’s financial position, financial performance and cash flows.  The guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

All derivatives are recorded on the consolidated balance sheets at their fair values within “Other assets,” or “Other liabilities.”  On the date that we enter into a derivative, we may designate the derivative as a hedge against the variability of cash flows that are to be paid in connection with a recognized liability.  Subsequent changes in the fair value of a derivative designated as a cash flow hedge that is determined to be highly effective are recorded in other comprehensive loss, until earnings are affected by the variability of cash flows of the hedged transactions.  Any hedge ineffectiveness or changes in the fair value for any derivative not designated as a hedge is reported in net loss.  We do not use derivatives for trading or speculative purposes.

Revenue Recognition

We commence revenue recognition on our leases based on a number of factors.  In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset.  Generally, this occurs on the lease commencement date.  The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins.  If we are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.  If we conclude we are not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduce revenue recognized over the term of the lease.  In these circumstances, we begin revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements.  We consider a number of different factors to evaluate whether we or the lessee are the owner of the tenant improvements for accounting purposes.  These factors include:

·

whether the lease stipulates how and on what a tenant improvement allowance may be spent;

·

whether the tenant or landlord retains legal title to the improvements;

·

the uniqueness of the improvements;

·

the expected economic life of the tenant improvements relative to the length of the lease;

48

·

who constructs or directs the construction of the improvements, and

·

whether the tenant or landlord is obligated to fund cost overruns.

The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.  In making that determination, we consider all of the above factors.  No one factor, however, necessarily establishes its determination.  

Rental income is recognized on a straight-line basis over the term of each lease.  The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease is recorded as deferred rent receivable and is included as a component of “Accounts and notes receivable” in the consolidated balance sheets.

Reimbursements from tenants for recoverable real estate taxes and operating expenses are accrued as revenue in the period the applicable expenditures are incurred.  We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period.

We record lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and collectibility is reasonably assured.  Upon early lease termination, we provide for losses related to recognized tenant specific intangibles and other assets or adjust the remaining useful life of the assets if determined to be appropriate.  

Our policy for percentage rental income is to defer recognition of contingent rental income (i.e. purchase/excess rent) until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved.  

In conjunction with certain acquisitions, we receive payments under master lease agreements pertaining to certain non-revenue producing spaces either at the time of, or subsequent to, the purchase of these properties.  Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income.  These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements.  Master lease payments are received through a draw of funds escrowed at the time of purchase and generally cover a period from three months to three years.  These funds may be released to either us or the seller when certain leasing conditions are met.

Profits from sales of real estate are not recognized under the full accrual method unless a sale is consummated; the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property; our receivable, if applicable, is not subject to future subordination; we have transferred to the buyer the usual risks and rewards of ownership, and we do not have substantial continuing involvement with the property.

Impact of Recently Issued Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (FASB) issued accounting guidance in order to clarify the application of fair value measurements in the current economic environment, modify the recognition of other-than-temporary impairments of debt securities, and require companies to disclose the fair values of financial instruments in interim periods.  This guidance, as more fully discussed below, is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  We elected to early adopt the guidance as of January 1, 2009.

•

First, the guidance provides clarity in calculating fair value in a disorderly market or a market with little activity.  The adoption of this guidance did not have a material impact on our consolidated financial statements as (a) our fair value measurements of investments in marketable securities are Level 1 fair value measurements, (b) our fair value measurements of derivative instruments are based on the current and forward term structures of interest rates for which there has not been a significant decline in the volume and level of activity, and (c) although our fair value measurements are made for certain disclosures, except as disclosed in Note 17 to the consolidated financial statements, the carrying values of these items approximate their fair values and are based on inputs for which the volume and level of activity have not significantly decreased;  

•

Second, the guidance defines other-than-temporary impairment as it relates to debt securities.  Our investments in marketable securities primarily consist of perpetual preferred stock of other publicly traded real estate companies  However, given the credit characteristics associated with these securities, we treat these securities as

49

equity securities and accordingly the adoption of the guidance did not have a material impact on the our consolidated financial statements;

•

Third, the guidance requires enhanced interim fair value disclosures similar to the required annual disclosures.  The adoption of the guidance resulted in certain incremental disclosures as presented within (see Note 17 to the consolidated financial statements).

In May 2009, the FASB issued accounting guidance related to subsequent events, which introduces the concept of financial statements being available to be issued as a measurement date.  Under the guidance, the effects of events that occur subsequent to the balance sheet date should be evaluated through the date the financial statements are either “issued” or “available to be issued.”  The guidance defines financial statements that are “issued” as being widely distributed to shareholders and other financial statement users for general use, and “available to be issued” as being complete in form and format that complies with GAAP and having all necessary approvals.  As we widely distribute financial statements to financial statement users and evaluate subsequent events through the issuance date, the adoption of the guidance on April 1, 2009 did not have a material impact on our consolidated financial statements.  See Note 20 to the consolidated financial statements for subsequent events disclosures.  

In June 2009, the FASB issued accounting guidance which recodified accounting guidance within the hierarchy of GAAP. This Codification has become the exclusive source of authoritative U.S. GAAP for nongovernmental entities, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. All content in the Codification will carry the same level of authority, essentially modifying the GAAP hierarchy to include only two levels of GAAP: authoritative and nonauthoritative.  This guidance is effective for interim periods ending after September 15, 2009.  We adopted the guidance as of July 1, 2009 and it did not have a material impact on our consolidated financial statements and notes to the financial statements, aside from changing the nomenclature used to reference accounting literature.  

In August 2009, the FASB issued accounting guidance which proposes new, and clarifies existing, disclosures about fair value measurements. The guidance requires clarification for circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: (1) a valuation technique that uses either the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as an asset; or (2) another valuation technique that is consistent with the principles in the current guidance such as the income and market approach to valuation. The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relat ing to the existence of a restriction that prevents the transfer of the liability. This update further clarifies that if the fair value of a liability is determined by reference to a quoted price in an active market for an identical liability, that price would be considered a Level 1 measurement in the fair value hierarchy. Similarly, if the identical liability has a quoted price when traded as an asset in an active market, it is also a Level 1 fair value measurement if no adjustments to the quoted price of the asset are required. The guidance is effective for reporting periods beginning after issuance. The adoption of the guidance on October 1, 2009 did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued guidance which provides additional requirements and clarifies existing disclosures about fair value measurements.  The guidance requires entities to provide fair value measurement disclosures for each “class” of assets and liabilities, opposed to the old guidance which required disclosures by “major category” of assets and liabilities.  The term “major category” was often interpreted to be a line item on the statement of financial position, whereas the term “class” represents a subset of assets or liabilities within a line item in the statement of financial position, thus expanding on the level of disaggregation.  The guidance also requires an entity to disclose the amounts of significant transfers between Levels 1 and 2, and all significant transfers into and out of Level 3, of the fair value hierarchy.  Furthermore, en tities are required to disclose the reasons for those transfers, and the entity’s policy for determining when transfers between levels are recognized.  A description of the valuation techniques and inputs used to determine the fair value of each class of assets or liabilities for Levels 2 and 3 must also be disclosed, including any valuation technique changes and the reason for those changes.  This update further amends the reconciliation of the beginning and ending balances of Level 3 recurring fair value measurements, requiring a separate disclosure of total gains and losses recognized in other comprehensive income and disclosing separately purchases, sales, issuances, and settlements, as opposed to net as previously required.  The guidance is effective for periods ending after December 15, 2009.  The adoption of the guidance did not have a material impact on the consolidated financial statements.

50

In January 2010, the FASB issued guidance clarifying the accounting for distributions to shareholders with components of stock and cash.  Prior to this amendment, it was unclear as to whether the stock portion of a distribution should be accounted for as a new share issuance that is reflected in earnings per share prospectively or as a stock dividend by retroactively restating shares outstanding and earnings per share for all periods presented.  The amendment clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or shares with potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance and is reflected in EPS prospectively and is not a stock dividend.  The guidance is effective for periods ending after December 15, 2009.  The adoption of the guidance did not h ave a material impact on the consolidated financial statements.

In January 2010, the FASB issued guidance related to decreases in the ownership of a subsidiary.  The guidance clarified that any transaction that involves in-substance real estate should be considered under guidance for sales of real estate and is retroactively effective for periods beginning on or after December 15, 2008.  Under this guidance, the transfer of 23% interest in IW JV to Inland Equity for $50,000 was accounted for as a financing transaction and is reflected in “Co-venture obligation” on the consolidated balance sheets.  

Subsequent Events

During the period from January 1, 2010 through the date of this 10-K filing, we:

·

issued 738 additional shares of common stock through the DRP resulting in a total of 482,481 of common stock outstanding at February 23, 2010;

·

paid distributions of $15,657, representing $0.0325 per share, to shareholders in January 2010 for the quarter ended December 31, 2009;

·

paid $3,430 to our partner in a consolidated joint venture in full redemption of its interest;

·

funded additional capital of $920 on one existing consolidated development joint venture;

·

funded one earnout of $501 to purchase an additional 5,011 square feet at one existing property;

·

replaced three irrevocable letters of credit for security in mortgage loans with $6,165 of cash collateral;

·

released one $1,247 irrevocable letter of credit for security in a mortgage loan as the loan was repaid on December 31, 2009;

·

borrowed an additional $12,860 of margin debt related to our investment in marketable securities;

·

funded additional capital of $1,384 on one existing unconsolidated development joint venture in connection with the execution of a construction loan modification agreement.  The modification agreement extended the maturity date to September 5, 2014, and resulted in debt forgiveness of $3,897, which reduced construction loans payable;

·

made mortgage payable repayments of $10,128. The stated interest rates of the loans repaid ranged from 5.06% to 5.12%;

·

had $187,437 of mortgage loans that had matured as of December 31, 2009. We have since extended the maturity of $128,385 of these loans from December 1, 2009 to May 1, 2010, made principal payments of $305 and are in the process of negotiating extensions on the remaining $58,747;

·

entered into a $300,000 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, which expires on March 31, 2010, which is expected to be the loan funding date, to be used to refinance 2010 debt maturities. In conjunction with this commitment, we also entered into a rate lock agreement to lock the interest rate at 6.39%. We made deposits of $8,500 related to both of these agreements. Subsequent to entering into these agreements, we made additional rate lock deposits of $3,000 and paid $1,050 to extend the rate lock agreement from February 10, 2010 to March 12, 2010;

·

entered into a $101,220 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance a debt maturing in 2010 on an existing property. In conjunction with this commitment, we also entered into a rate lock agreement to lock the interest at 6.57% and made a deposit of $2,024 toward this agreement, which will expire on March 11, 2010, which is expected to be the loan funding date;

51

·

entered into a $9,930 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance debt maturing in 2010 on an existing property. In conjunction with this commitment, we also entered into a rate lock agreement to lock the interest at 6.46% and made a deposit of $199 toward this agreement, which will expire on March 11, 2010, which is expected to be the loan funding date;

·

borrowed an additional $60,000 on the line of credit, and

·

obtained an extension through March 15, 2010, which is the date the loan modification is expected to be completed, on a construction loan associated with a consolidated development joint venture.

In January 2010, our board of directors amended the DRP effective March 1, 2010, solely to modify the purchase price to $6.85 per share.

Inflation

For our multi-tenant shopping centers, inflation is likely to increase rental income from leases to new tenants and lease renewals, subject to market conditions.  Our rental income and operating expenses for those properties owned, or expected to be owned and operated under net leases, are not likely to be directly affected by future inflation, since rents are or will be fixed under those leases and property expenses are the responsibility of the tenants.  The capital appreciation of single-user net lease properties is likely to be influenced by interest rate fluctuations.  To the extent that inflation determines interest rates, future inflation may have an effect on the capital appreciation of single-user net lease properties.  As of December 31, 2009, we owned 116 single-user properties of which 102 are net lease properties.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

We may be exposed to interest rate changes primarily as a result of long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations.  Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs.  To achieve our objectives we borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates.

We previously entered into an interest rate lock agreement with a lender to secure interest rates on mortgage debt on properties we owned or planned to purchase in the future.  We had outstanding interest rate lock deposits under an agreement that locked only the Treasury portion of mortgage debt interest, which had a maturity date of June 30, 2008, and was extended to July 31, 2009.  This Treasury rate lock agreement locked the Treasury portion at a rate of 5.582% on $85,000 in notional amounts, and could have been converted into full rate locks upon allocation of properties.  The carrying value of the rate lock deposits as of December 31, 2008 was $1,220.  During 2009, we were not required to make additional rate lock deposits and on August 5, 2009, we terminated the Treasury rate lock agreement which resulted in a gain of $3,989 during the third quarter of 2009.

With regard to variable-rate financing, we 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.  We maintain risk management control systems to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions.  The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows.

We may use additional derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our properties.  To the extent we do, we are exposed to credit risk and market risk.  Credit risk is the failure of the counterparty to perform under the terms of the derivative contract.  When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us.  When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, we generally are not exposed to the credit risk of the counterparty.  It is our policy to enter into these transactions with the same party providing the financing, with the right of offset.  Alternatively, we will minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.  Market risk is the adverse eff ect on the value of a financial instrument that results from a change in interest rates.  The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

52

The carrying amount of our mortgages payable, notes payable and line of credit is approximately $181,290 higher than its fair value as of December 31, 2009.

Our interest rate risk is monitored using a variety of techniques. The table below presents the mortgages payable, notes payable, margin payable and line of credit maturities and weighted average interest rates by year to evaluate the expected cash flows and sensitivity to interest rate changes.

The maturity table excludes other financings and co-venture obligations (see Note 1 and Note 11 to the consolidated financial statements).  The maturity table also excludes accelerated principal payments that may be required as a result of covenants or conditions included in certain loan agreements, including the cash management agreement entered into with a lender on December 1, 2009 (see Note 9 to the consolidated financial statements).  In these cases, the total outstanding mortgage payable is included in the year corresponding to the loan maturity date.  The maturity table includes $187,437 of mortgages payable that had matured as of December 31, 2009.  Of this amount, the maturity date for $128,385 of mortgages payable has since been extended to May 1, 2010 and the total amount is under application for new mortgage financing. In addition, we have made principal payments of $305 related t o these mortgages payable and are in extension negotiations for the remaining $58,747.  

We had $220,598 of variable-rate debt with a weighted average interest rate of 4.38% at December 31, 2009.  An increase in the variable interest rate on this debt constitutes a market risk.  If interest rates increase by 1%, based on debt outstanding as of December 31, 2009, interest expense would increase by approximately $2,206 on an annualized basis.

The table incorporates only those interest rate exposures that existed as of December 31, 2009.  It does not consider those interest rate exposures or positions that could arise after that date.  The information presented herein is merely an estimate and has limited predictive value.  As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on the interest rate exposures that arise during the period, our hedging strategies at that time and future changes in the level of interest rates.

Equity Price Risk

We are exposed to equity price risk as a result of our investments in marketable securities.  Equity price risk changes as the volatility of equity prices changes or the values of corresponding equity indices change.

Other-than-temporary impairments were $24,831, $160,327 and $20,021 for the years ended December 31, 2009, 2008 and 2007, respectively.  The overall stock market and REIT stocks have declined since late 2007, including our REIT stock investments, which have resulted in our recognizing other-than-temporary impairments.  At this point in time, certain of our investments continue to generate dividend income while other investments of ours have ceased generating dividend income or are doing so at reduced rates.  As the equity market has started to recover, we have been able to sell marketable securities at prices in excess of our current book values.  However, if our stock positions do not continue to recover in 2010, we could take additional other-than-temporary impairments, which could be material to our operations.

53

ITEM 8.  Consolidated Financial Statements and Supplementary Data

Index

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Financial Statements

       Notes to Consolidated Financial Statements

65

Valuation and Qualifying Accounts (Schedule II)

104

Real Estate and Accumulated Depreciation (Schedule III)

105

Schedules not filed:

All schedules other than the two listed in the Index have been omitted as the required information is either not applicable or the information is already presented in the consolidated financial statements or related notes thereto.

54

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Inland Western Retail Real Estate Trust, Inc.:

We have audited the accompanying consolidated balance sheet of Inland Western Retail Real Estate Trust, Inc., and subsidiaries (the “Company”) as of December 31, 2009, and the related consolidated statements of operations and other comprehensive loss, equity, and cash flows for the year ended December 31, 2009. Our audit also included the financial statement schedules listed in the Table of Contents at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Inland Western Retail Real Estate Trust, Inc., and subsidiaries as of December 31, 2009, and the results of their operations and their cash flows for the year ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2009, the Company changed its method of accounting for noncontrolling interests and retrospectively adjusted all periods presented in the consolidated financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Chicago, Illinois

February 26, 2010

55

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Inland Western Retail Real Estate Trust, Inc.:

We have audited the internal control over financial reporting of Inland Western Retail Real Estate Trust, Inc., and subsidiaries (the “Company”) as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with g enerally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2009 of the Company and our report dated February 26, 2010 expressed an unqualified opinion on those financial statements and financial statement schedules and included an explanatory paragraph relating to the change in method of accounting for noncontrolling interests.

/s/ Deloitte & Touche LLP

Chicago, Illinois

February 26, 2010

56

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Inland Western Retail Real Estate Trust, Inc.:

We have audited the accompanying consolidated balance sheet of Inland Western Retail Real Estate Trust, Inc. (the Company) and subsidiaries, as of December 31, 2008, and the related consolidated statements of operations and other comprehensive loss, equity, and cash flows for each of the years in the two-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited the 2008 and 2007 information in financial statement schedules II and III. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inland Western Retail Real Estate Trust, Inc. and subsidiaries as of December 31, 2008, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the 2008 and 2007 information in the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in notes 1 and 3 to the consolidated financial statements, Inland Western Retail Real Estate Trust, Inc. and subsidiaries retrospectively applied certain reclassifications associated with discontinued operations and upon the adoption of an accounting standard related to noncontrolling interests.

/s/ KPMG LLP

Chicago, Illinois

March 31, 2009, except for Notes 1 and 3, which are as of February 26, 2010

57

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Consolidated Balance Sheets

December 31, 2009 and 2008

(in thousands, except per share amounts)

See accompanying notes to consolidated financial statements

58

iwest 10-k 12.31.09 final.doc

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Consolidated Statements of Operations and Other Comprehensive Loss

For the Years Ended December 31, 2009, 2008 and 2007

 (in thousands, except per share amounts)

See accompanying notes to consolidated financial statements

59

iwest 10-k 12.31.09 final.doc

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Consolidated Statements of Equity

For the Years Ended December 31, 2009, 2008 and 2007

 (in thousands, except per share amounts)

See accompanying notes to consolidated financial statements

60

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Consolidated Statements of Equity

(Continued)

For the Years Ended December 31, 2009, 2008 and 2007

 (in thousands, except per share amounts)

See accompanying notes to consolidated financial statements

61

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2009, 2008 and 2007

(in thousands, except per share amounts)

 

See accompanying consolidated financial statements

62

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Consolidated Statements of Cash Flows

(Continued)

For the Years Ended December 31, 2009, 2008 and 2007

 (in thousands, except per share amounts)

 

See accompanying consolidated financial statements

63

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Consolidated Statements of Cash Flows

(Continued)

For the Years Ended December 31, 2009, 2008 and 2007

 (in thousands, except per share amounts)

 

See accompanying consolidated financial statements

64

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

(1)  Organization and Basis of Presentation

Inland Western Retail Real Estate Trust, Inc. (the “Company”) was formed on March 5, 2003 to acquire and manage a diversified portfolio of real estate, primarily multi-tenant shopping centers and single-user net lease properties.

All amounts in this Form 10-K are stated in thousands with the exception of per share amounts, square foot amounts, number of properties, number of states, number of leases and number of employees.

The Company issued a total of 459,484 shares of its common stock at $10.00 per share, resulting in gross proceeds of $4,595,193.  In addition, as of December 31, 2009, the Company had issued 66,082 shares through its DRP at prices ranging from $8.50 to $10.00 per share for gross proceeds of $642,772 and had repurchased a total of 43,823 shares through its SRP (suspended as of November 19, 2008) at prices ranging from $9.25 to $10.00 per share for an aggregate cost of $432,487.  As a result, the Company had total shares outstanding of 481,743 and had realized total net offering proceeds of $4,805,478 as of December 31, 2009.

On November 15, 2007, pursuant to an agreement and plan of merger approved by its shareholders on November 13, 2007, the Company acquired, through a series of mergers, four entities affiliated with its former sponsor, Inland Real Estate Investment Corporation, which provided business management/advisory and property management services to the Company. Shareholders of the acquired companies received an aggregate of 37,500 shares of the Company’s common stock, valued under the merger agreement at $10.00 per share.  Under the terms of the plan of merger, 55% of the 37,500 shares of the Company’s common stock were deposited into an escrow fund, subject to terms and conditions.  On November 12, 2009, the disbursement period to release the shares had been extended to May 15, 2010.

The Company accounted for the merger transaction as a consummation of a business combination between parties with a pre-existing relationship. According to accounting principles generally accepted in the United States (GAAP), the settlement of an executory contract in a business combination as a result of a preexisting relationship should be measured at the lesser of (a) the amount by which the contract is favorable or unfavorable from the perspective of the acquirer when compared to pricing for current market transactions for the same or similar items or (b) any stated settlement provisions in the contract available to the counterparty to which the contract is unfavorable. The Company has determined that its agreements with its former business manager/advisor and property managers resulted in zero allocation of the purchase price to contract termination costs. The assets and liabilities of the acquired c ompanies were recorded at their estimated fair value at the date of the transaction. The purchase price in excess of the fair value of the assets and liabilities of the acquired companies was allocated to goodwill.

In determining the purchase price, an independent third party rendered an opinion on the $10.00 per share value of the shares, as well as the aggregate purchase price of $375,000. Additional costs totaling $4,019 were also incurred as part of the merger transaction consisting of financial and legal advisory services and accounting and proxy related costs. As part of the merger, the Company assigned values to these tangible and intangible assets at their estimated fair values.

The following table summarizes the estimated fair values of the allocation of the purchase price:

As a result of the Company’s impairment test conducted during the fourth quarter of 2008, the Company determined that the entire goodwill balance was impaired and, as such, the Company recorded impairment of $377,916. See Note 13 for additional information on goodwill.

The Company is qualified and has elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended, or the Code, commencing with the tax year ended December 31, 2003.  Since the Company

65

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax on taxable income that is distributed to shareholders.  If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates.  Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income.  The Company has one wholly-owned subsidiary that has elected to be treated as a taxable REIT subsidiary (TRS) for federal income tax purposes.  A TRS is taxed on its taxable income at regular corporate tax rates.  The income tax expense incurred as a result of the TRS did not have a material impact on the Company’s accompanying consolidated financial sta tements.  On November 15, 2007, the Company acquired four qualified REIT subsidiaries.  Their income is consolidated with REIT income for federal and state income tax purposes.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and the 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 periods.  For example, significant estimates and assumptions have been made with respect to useful lives of assets; capitalization of development and leasing costs; provision for impairment, including estimates of holding periods, capitalization rates and discount rates (where applicable); provision for income taxes; recoverable amounts of receivables; deferred taxes and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions.  Actual results could differ from those estimates.

Certain reclassifications, primarily as a result of discontinued operations, have been made to the 2008 and 2007 consolidated financial statements to conform to the 2009 presentation.  In addition, on January 1, 2009, the Company adopted guidance on noncontrolling interests that required retrospective application, in which all periods presented reflect the necessary changes.

It is the Company’s current strategy to have access to the capital resources necessary to manage its balance sheet, to repay upcoming maturities and, to a lesser extent, to consider making prudent investments should such opportunities arise.  Accordingly, the Company is executing a plan to seek to obtain funds through additional debt or equity financings and/or joint venture capital in a manner consistent with the Company’s intention to operate with what it believes to be a conservative debt capitalization policy.  The Company’s other sources of capital include proceeds from sales of developed and non-core assets, proceeds from the sales of securities in the Company’s marketable securities portfolio, and existing unrestricted cash balances.  In addition, the Company is focused on controlling operating expenses and deferring certain discretionary capital expenditures and has red uced distributions to shareholders to preserve cash for upcoming debt maturities and principal paydowns.  The Company will also seek loan extensions, generally six months to three years, on certain maturing mortgage debt. 

For the year ended December 31, 2009, the Company has refinanced $1,034,462 through new mortgage financing and principal paydowns, repaid an additional $70,242 and retired through asset sales $208,552 of maturing debt.  As of December 31, 2009, the Company had $187,437 of mortgages payable that had matured. Of this amount, the maturity date for $128,385 of mortgages payable has since been extended to May 1, 2010 and the total amount is under application for new mortgage financing.  In addition, the Company has made principal payments of $305 related to these mortgages payable and is in extension negotiations for the remaining $58,747.  As of December 31, 2009, the Company had $968,947 of mortgages payable, excluding amortization and liabilities associated with the investment property held for sale, maturing in 2010. Of this amount, the Company has subsequently made mortgage payable repayments of $ 10,128.  The Company also has $469,741 of mortgages payable under application or commitment, subject to customary lender due diligence, with $96,925 of existing commitment proceeds remaining to be allocated.  The Company is in the process of allocating the remaining commitments, marketing, planning to seek extensions or planning to sell properties relating to the remaining $489,078 of 2010 maturities, which are primarily maturing in the latter half of the year.  The Company’s current business plan indicates that it will be able to operate in compliance with its loan covenants under its secured line of credit agreement (see Note 10), as amended, in 2010 and beyond if the Company elects to extend the credit agreement upon its original maturity in October 2010.    In light of current economic conditions, the Company may not be able to obtain loan extensions or financing on favorable terms, or at all, in order to meet principal maturity obligations of the remaining 2009 and 201 0 debt maturities, which may cause an acceleration of its secured line of credit and trigger

66

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

remedies available to lenders on assets securing matured mortgage debt, each of which could significantly impact future operations, liquidity and cash flows available for distribution.

The accompanying consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries and consolidated joint venture investments.  Wholly-owned subsidiaries generally consist of limited liability companies (LLCs) and limited partnerships (LPs).

The Company’s property ownership is summarized below:

The Company consolidates certain property holding entities and other subsidiaries in which it owns less than a 100% equity interest if it is deemed to be the primary beneficiary in a variable interest entity (VIE), (an entity in which the contractual, ownership, or pecuniary interests change with changes in the fair value of the entity’s net assets, as defined by the Financial Accounting Standards Board (FASB)). The Company also consolidates entities that are not VIEs in which it has financial and operating control in accordance with GAAP.  All significant intercompany balances and transactions have been eliminated in consolidation.  Investments in real estate joint ventures in which the Company has the ability to exercise significant influence, but does not have financial or operating control, are accounted for using the equity method of accounting.  Accordingly, the Company’s sh are of the income (or loss) of these unconsolidated joint ventures is included in consolidated net (loss) income.

The Company is the controlling member in various consolidated entities.  The organizational documents of these entities contain provisions that require the entities to be liquidated through the sale of their assets upon reaching a future date as specified in each respective organizational document or through put/call arrangements.  As controlling member, the Company has an obligation to cause these property owning entities to distribute proceeds of liquidation to the noncontrolling interest partners in these partially-owned entities only if the net proceeds received by each of the entities from the sale of assets warrant a distribution based on the agreements.  Some of the limited liability company (LLC) or limited partnership (LP) agreements for these entities contain put/call provisions which grant the right to the outside owners and the Company to require each LLC or LP to redeem the ownership interest of the outside owners during future periods.  In instances where outside ownership interests are subject to put/call arrangements requiring settlement for fixed amounts, the LLC or LP is treated as a 100% owned subsidiary by the Company with the amount due to the outside owner reflected as a financing and included in “Other financings” in the accompanying consolidated balance sheets.  Interest expense is recorded on such liabilities in amounts equal to the preferential returns due to the outside owners as provided in the LLC or LP agreements.  In instances where outside ownership interests are subject to call arrangements without fixed settlement amounts, the LLC is treated as a 100% owned subsidiary by the Company with the amount due to the outside owner reflected as a financing and included in “Co-venture obligation” in the accompanying consolidated balance sheets.  Expense is recorded on such liabilities in amounts equal to the preferential returns d ue to the outside owners as provided in the LLC agreement.

In December 2007, the FASB issued accounting guidance on noncontrolling interests in consolidated financial statements, effective for fiscal years beginning on or after December 15, 2008.  The Company adopted the guidance on January 1, 2009.  The guidance defines noncontrolling interest as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.  As a result of the adoption of the guidance on noncontrolling interests, the Company retrospectively adjusted all periods presented in the consolidated financial statements for the balances related to the

67

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

noncontrolling interests associated with the insurance association captive and two consolidated joint venture investments to permanent equity.  Noncontrolling interests associated with the Company’s other consolidated joint venture investments continue to be classified outside of permanent equity as those interests are redeemable by the Company at the discretion of the noncontrolling interest holder.  The Company made this determination based on an evaluation of the terms in applicable agreements, specifically the redemption provisions.  The amount at which these interests would be redeemed is based on a formula contained in each respective agreement and, as of December 31, 2009 and 2008, was determined to approximate the carrying value of these interests.  Accordingly, no adjustment was made during the year ended December 31, 2009 and 2008.

On the consolidated statements of operations and other comprehensive loss, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to Company shareholders and noncontrolling interests.  Consolidated statements of equity are included in the annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.

Below is a table reflecting the activity of the redeemable noncontrolling interests for the years ended December, 2009 and 2008:

Effective January 1, 2009, the Company transferred real estate and $3,438 to a venture partner in redemption of its interest in the venture.  The transaction was accounted for at fair value, with the carrying value of the non-monetary assets exceeding the estimated fair value, and resulted in a loss of $3,447.  Such loss is included in “Other (expense) income” in the accompanying consolidated statements of operations and other comprehensive loss and was fully allocated to the partner pursuant to the joint venture agreement.  On April 15, 2009, a final cash payment of $1,048 was made.

During 2009, the Company paid certain joint venture partners for the redemption of their interests in certain consolidated joint ventures.

On January 16, 2009, the Company paid a venture partner, whose interest was previously classified in “Other financings” in the accompanying consolidated balance sheets, $3,410 for the full redemption of its interest in a consolidated joint venture.

On April 28, 2009, the Company paid a venture partner, whose interest was previously classified in “Other financings” in the accompanying consolidated balance sheets, $5,812 for the full redemption of its interest in a consolidated joint venture.  Included in the payment was accrued preferential return in the amount of $114.

On June 4, 2009, the Company paid certain venture partners, whose interests were previously classified in “Other financings” in the accompanying consolidated balance sheets, $40,539 for the redemption of all or a part of their interests in various consolidated joint ventures.

On June 29, 2009, the Company paid a venture partner, whose interest was previously classified in “Other financings” in the accompanying consolidated balance sheets, $6,352 for the full redemption of its interest in a consolidated joint venture.

The Company is party to an agreement with an LLC formed as an insurance association captive (the “Captive”), which is wholly-owned by the Company and three related parties, Inland Real Estate Corporation (IREC), Inland American Real Estate Trust, Inc. (IARETI) and Inland Diversified Real Estate Trust, Inc. (IDRETI).  The Captive is serviced by a related

68

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

party, Inland Risk and Management Services, Inc. for a fee of $25 per quarter.  The Company entered into the agreement with the Captive to stabilize its insurance costs, manage its exposures and recoup expenses through the functions of the Captive program.  The Captive was initially capitalized in 2006 with $750 in cash from the original members IREC, IARETI, a non-affiliated entity which withdrew from the Captive in October 2007, and the Company, of which the Company’s initial contribution was $188.  In August 2009, IDRETI was admitted as a member to the Captive with an initial contribution of $188, at the approval of the members.  Additional contributions were made in the form of premium payments to the Captive determined for each member based upon its respective loss experiences.  The Captive insures a portion of the members’ property and general liability losses.  Thes e losses will be paid by the Captive up to and including a certain dollar limit, which varies based on the type of loss, after which the losses are covered by a third-party insurer.  It has been determined that the Captive is a VIE and the Company is the primary beneficiary.  Therefore, the Captive has been consolidated by the Company.  The other members’ interests are reflected as “Noncontrolling interests” in the accompanying consolidated financial statements.

On November 29, 2009, the Company formed IW JV 2009, LLC (IW JV), a wholly-owned subsidiary, and transferred a portfolio of 55 investment properties and the entities which owned them into it.  Subsequently, in connection with a $625,000 debt refinancing transaction, which consisted of $500,000 of mortgages payable and $125,000 of notes payable, on December 1, 2009, the Company raised additional capital of $50,000 from a related party, Inland Equity Investors, LLC (Inland Equity) in exchange for a 23% noncontrolling interest in IW JV.  IW JV, which is controlled by the Company, and therefore consolidated, has an aggregate of $1,040,665 in total assets and will continue to be managed and operated by the Company.  Inland Equity is a newly-formed LLC owned by certain individuals, including Daniel L. Goodwin, who controls more than 5% of the common stock of the Company, and Robert D. Parks, who is the Chairman of the Board of the Company and affiliates of The Inland Real Estate Group, Inc.  The independent directors committee reviewed and recommended approval of this transaction to the Company’s board of directors.

Noncontrolling interests are adjusted for additional contributions by noncontrolling interest holders and distributions to noncontrolling interest holders, as well as the noncontrolling interest holders’ share of the net income or losses of each respective entity.

(2)  Summary of Significant Accounting Policies

Investment Properties: Investment properties are recorded at cost less accumulated depreciation.  Ordinary repairs and maintenance are expensed as incurred.  Expenditures for significant betterments and improvements are capitalized.

In December 2007, the FASB issued accounting guidance on business combinations, which establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, if any; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  The guidance was effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The Company adopted the guidance on January 1, 2009 and all subsequent real estate acquisitions are accounted for accordingly, as the Company believes most operating real estate assets meet the revised definition of a business under the guidance.

The Company allocates the purchase price of each acquired investment property between the estimated fair values of land, building and improvements, acquired above market and below market lease intangibles, in-place lease value, any assumed financing that is determined to be above or below market, the value of customer relationships, if any, and goodwill if determined to meet the definition of a business under the guidance.  The allocation of the purchase price is an area that requires judgment and significant estimates.  Beginning in 2009, transaction costs associated with any acquisitions are expensed as incurred.  In some circumstances, the Company engages independent real estate appraisal firms to provide market information and evaluations that help support the Company’s purchase price allocations; however, the Company is ultimately responsible for the purchase price allocations.  The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms at the time of acquisition for similar investment properties.  The Company allocates a portion of the purchase price to the estimated, acquired in-place lease value based on

69

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

estimated lease execution costs for similar leases, as well as, lost rental payments during an assumed lease-up period when calculating as-if-vacant fair values.  The Company considers various factors, including geographic location and size of the leased space.  The Company also evaluates each significant acquired lease based upon current market rates at the acquisition date and considers various factors, including geographical location, size and location of the leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market.  If an acquired lease is determined to be above or below market, the Company allocates a portion of the purchase price to such above or below market leases based upon the present value of the difference between the contractual lease rate and the estimated market rate.  For b elow market leases with fixed rate renewals, renewal periods are included in the calculation of below market lease values.  The determination of the discount rate used in the present value calculation is based upon a risk adjusted rate.  This discount rate is a significant factor in determining the market valuation which requires the Company’s evaluation of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property.

The portion of the purchase price allocated to acquired in-place lease intangibles is amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense.  The Company incurred amortization expense pertaining to acquired in-place lease intangibles of $46,508, $50,413 and $50,398 for the years ended December 31, 2009, 2008 and 2007, respectively.

The portion of the purchase price allocated to acquired above market lease value and acquired below market lease value is amortized on a straight-line basis over the life of the related lease as an adjustment to rental income and over the respective renewal period for below market leases with fixed rate renewals.  Amortization pertaining to the above market lease value of $6,307, $7,156 and $7,259 for the years ended December 31, 2009, 2008 and 2007, respectively, was applied as a reduction to rental income.  Amortization pertaining to the below market lease value of $8,647, $9,660 and $10,459 for the years ended December 31, 2009, 2008 and 2007, respectively, was applied as an increase to rental income.

The following table presents the amortization during the next five years and thereafter related to the acquired in-place lease value and acquired above and below market lease intangibles for properties owned at December 31, 2009:

Depreciation expense is computed using the straight-line method.  Buildings and improvements are depreciated based upon estimated useful lives of 30 years for buildings and associated improvements and 15 years for site improvements and most other capital improvements.  Tenant improvements and leasing fees are amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense.

Impairment: The Company’s investment properties, including developments in progress, are reviewedfor potential impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Impairment indicators are assessed separately for each property and include, but are not limited to, the property’s low occupancy rate, difficulty in leasing space and financially troubled tenants.  Impairment indicators for developments in progress are assessed by project and include, but are not limited to, significant changes in project completion dates, development costs and market factors.

If an indicator of potential impairment exists, the asset would be tested for recoverability by comparing its carrying value to the estimated future undiscounted operating cash flows, which is based upon many factors which requires the Company to make difficult, complex or subjective judgments.  Such assumptions include, but are not limited to, projecting vacancy rates, rental rates, operating expenses, lease terms, tenant financial strength, economic factors, demographics, property location, capital expenditures, holding period, capitalization rates and sales value.  An investment property is considered to be impaired when the estimated future undiscounted operating cash flows are less than its carrying value.

70

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

The Company’s investments in unconsolidated joint ventures are reviewed for potential impairment, in addition to impairment evaluations of the individual assets underlying these investments, whenever events or changes in circumstances warrant such an evaluation.  To determine whether impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until the carrying value is fully recovered.

To the extent impairment has occurred, the excess of the carrying value of the asset over its estimated fair value is recorded as a provision for impairment of investment properties.

Below is a summary of impairment losses for the years ended December 31, 2009, 2008 and 2007:

Impairment of consolidated investment properties is included in “Provision for impairment of investment properties” on the accompanying consolidated statements of operations and other comprehensive loss, except for $10,300, which is included in discontinued operations in 2009.  The Company can provide no assurance that material impairment charges with respect to the Company’s investment properties and investments in unconsolidated joint ventures will not occur in future periods. The Company’s tests for impairment at December 31, 2009 were based on the most current information available to the Company.  If the conditions mentioned above deteriorate further or if the Company’s plans regarding the Company’s assets change, subsequent tests for impairment could result in additional impairment charges in the future.  Furthermore, certain of the Company’s properties had fair values less than their carrying amounts.  However, based on the Company’s plans with respect to those properties, the Company believes that the carrying amounts are recoverable and therefore, under applicable GAAP guidance, no additional impairments were taken.  Accordingly, the Company will continue to monitor circumstances and events in future periods to determine whether additional impairments are warranted.

Development Projects: The Company capitalizes costs incurred during the development period such as construction, insurance, architectural, legal, interest and other financing costs, and real estate taxes.  At such time as the development is considered substantially complete, those costs included in developments in progress are reclassified to land and building and other improvements.  Development payables of $485 and $4,339 at December 31, 2009 and 2008, respectively, consist of costs incurred and not yet paid pertaining to these development projects and are included in “Accounts payable and accrued expenses” on the accompanying consolidated balance sheets.  During the years ended December 31, 2009, 2008 and 2007, the Company capitalized interest cost of $1,194, $7,485 and $4,438, respectively.  

Loss on Lease Terminations:  In situations in which a lease or leases associated with a significant tenant have been, or are expected to be, terminated early, the Company evaluates the remaining useful lives of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above and below market lease intangibles, in-place lease intangibles, and leasing commissions).  Based upon consideration of the facts and circumstances of the termination, the Company may write-off the depreciation and amortization associated with the applicable asset group.  If the Company concludes that a write-off of the asset group is appropriate, such charges are reported in the consolidated statements of operations and other comprehensive loss as “Loss on lease terminations.”  The Company recorded loss on lease termi nations of $13,735, $67,092 and $11,788 for the years ended December 31, 2009, 2008 and 2007, respectively.

Investment Properties Held For Sale: In determining whether to classify an investment property as held for sale, the Company considers whether: (i) management has committed to a plan to sell the investment property; (ii) the investment property is available for immediate sale in its present condition; (iii) the Company has initiated a program to locate a

71

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

buyer; (iv) the Company believes that the sale of the investment property is probable; (v) the Company has received a significant non-refundable deposit for the purchase of the investment property; (vi) the Company is actively marketing the investment property for sale at a price that is reasonable in relation to its current value, and (vii) actions required for the Company to complete the plan indicate that it is unlikely that any significant changes will be made.

If all of the above criteria are met, the Company classifies the investment property as held for sale.  When these criteria are met, the Company suspends depreciation (including depreciation for tenant improvements and building improvements) and amortization of acquired in-place lease value and customer relationship values.  The assets and liabilities associated with those investment properties that are held for sale are classified separately on the consolidated balance sheets for the most recent reporting period.  Additionally, the operations for the periods presented are classified on the consolidated statements of operations and other comprehensive loss as discontinued operations for all periods presented.  There was one single-user property classified as held for sale at December 31, 2009 and one multi-tenant property classified as held for sale at December 31, 2008.  Refer to Note 3 for more information.

Partially-Owned Entities: If the Company determines that it is an owner in a VIE and that its variable interest will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both, then it will consolidate the entity.  For partially-owned entities determined not to be a VIE, the Company analyzes rights held by each partner to determine which would be the consolidating party. The Company generally consolidates entities (in the absence of other factors when determining control) when it has over a 50% ownership interest in the entity.  However, the Company also evaluates who controls the entity even in circumstances in which it has greater than a 50% ownership interest.  If the Company does not control the entity due to the lack of decision-making abilities, it will not consolidate the entity.

Cash and Cash Equivalents: The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements purchased with a maturity of three months or less, at the date of purchase, to be cash equivalents.  The Company maintains its cash and cash equivalents at various financial institutions.  The combined account balances at one or more institutions periodically exceed the Federal Depository Insurance Corporation (FDIC) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.  The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions’ non-performance.

Marketable Securities: Investments in marketable securities are classified as “available-for-sale” and accordingly are carried at fair value, with unrealized gains and losses reported as a separate component of shareholders’ equity.  Declines in the value of these investments in marketable securities that the Company determines are other-than-temporary are recorded as recognized gain (loss) on marketable securities on the consolidated statements of operations and other comprehensive loss.

To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary, among other things.  Evidence considered in this assessment includes the nature of the investment, the reasons for the impairment (i.e. credit or market related), the severity and duration of the impairment, changes in value subsequent to the end of the reporting period and forecasted performance of the investee.  All available information is considered in making this determination with no one factor being determinative.

Notes Receivable:  Notes receivable relate to real estate financing arrangements and bear interest at market rates based on the borrower’s credit quality and are initially recorded at face value.  Interest income is recognized over the life of the note using the effective interest method and the Company generally requires collateral.  The Company has not and does not intend to sell these receivables.  Amounts collected on notes receivable are included in net cash provided by (used in) investing activities in the consolidated statements of cash flows.

Notes receivable are evaluated for impairment.  The allowance for uncollectable notes receivable is the Company’s best estimate of the amount of credit losses in the Company’s existing notes.  The allowance is determined upon a review of the applicable facts and circumstances.  A note is impaired if it is probable that the Company will not collect all principal

72

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

and interest contractually due. The impairment is measured based on the present value of expected future cash flows discounted at a current market rate or on the fair value of the collateral when foreclosure is probable. The Company does not accrue interest when a note is considered impaired. When ultimate collectability of the principal balance of the impaired note is in doubt, all cash receipts on the impaired note are applied to reduce the principal amount of the note until the principal has been recovered and is recognized as interest income thereafter.  Based upon the Company’s judgment, one note receivable with a balance of $300 was impaired and fully reserved for as of December 31, 2009 and 2008 and one other note receivable with a balance of $16,909 was impaired and fully reserved for as of December 31, 2009.  These amounts are included in the allowance for doubtful accounts in the consoli dated balance sheets.

Allowance for Doubtful Accounts: The Company periodically evaluates the collectability of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under their lease agreements.  The Company also maintains an allowance for receivables arising from the straight-lining of rents.  These receivables arise from revenue recognized in excess of amounts currently due under the lease agreements.  As stated previously, this also includes allowances for notes receivable.  Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates.

Restricted Cash and Escrows: Restricted cash and escrows include funds received by third party escrow agents from sellers pertaining to master lease agreements.  The Company records the third party escrow funds as both an asset and a corresponding liability, until certain leasing conditions are met.  Restricted cash and escrows also consist of lenders’ escrows and funds restricted through other lender agreements and are included as a component of “Other assets” in the accompanying consolidated balance sheets.

Derivative Instruments and Hedging Activities: The Company adopted accounting guidance as of January 1, 2009, which amends and expands the disclosure requirements related to derivative instruments and hedging activities with the intent to provide users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and the related hedged items affect an entity’s financial position, financial performance and cash flows.  The guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

All derivatives are recorded on the consolidated balance sheetsat their fair values within “Other assets” or “Other liabilities.”  On the date that the Company enters into a derivative, it may designate the derivative as a hedge against the variability of cash flows that are to be paid in connection with a recognized liability.  Subsequent changes in the fair value of a derivative designated as a cash flow hedge that is determined to be highly effective are recorded in “Accumulated other comprehensive income (loss),” until earnings are affected by the variability of cash flows of the hedged transactions.  Any hedge ineffectiveness or changes in fair value for any derivative not designated as a hedge is reported in net loss.  The Company does not use derivatives for trading or speculative pu rposes.

Conditional Asset Retirement Obligations: The Company evaluates the potential impact of conditional asset retirement obligations on its consolidated financial statements.  The term conditional asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity.  Thus, the timing and/or method of settlement may be conditional on a future event.  Based upon the Company’s evaluation, the accrual of a liability for asset retirement obligations was not warranted as of December 31, 2009 and 2008.

Revenue Recognition: The Company commences revenue recognition on its leases based on a number of factors.  In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset.  Generally, this occurs on the lease commencement date.  The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins.  If the Company is the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically

73

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

when the improvements are substantially complete.  If the Company concludes it is not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduce revenue recognized over the term of the lease.  In these circumstances, the Company begins revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements.  The Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes.  These factors include:

·

whether the lease stipulates how and on what a tenant improvement allowance may be spent;

·

whether the tenant or the Company retains legal title to the improvements;

·

the uniqueness of the improvements;

·

the expected economic life of the tenant improvements relative to the length of the lease;

·

who constructs or directs the construction of the improvements, and

·

whether the tenant or the Company is obligated to fund cost overruns.

The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.  In making that determination, the Company considers all of the above factors.  No one factor, however, necessarily establishes its determination.

Rental income is recognized on a straight-line basis over the term of each lease.  The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease is recorded as deferred rent receivable and is included as a component of “Accounts and notes receivable” in the accompanying consolidated balance sheets.

Reimbursements from tenants for recoverable real estate taxes and operating expenses are accrued as revenue in the period the applicable expenditures are incurred.  The Company makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period.

The Company records lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and collectability is reasonably assured.  Upon early lease termination, the Company provides for losses related to recognized tenant specific intangibles and other assets or adjusts the remaining useful life of the assets if determined to be appropriate, in accordance with its policy related to loss on lease terminations.

The Company’s policy for percentage rental income is to defer recognition of contingent rental income until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved.  The Company earnedpercentage rental income of $6,338, $6,425 and $1,677 for the years ended December 31, 2009, 2008 and 2007, respectively.  

In conjunction with certain acquisitions, the Company receives payments under master lease agreements pertaining to certain non-revenue producing spaces either at the time of, or subsequent to, the purchase of these properties.  Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income.  These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements.  Master lease payments are received through a draw of funds escrowed at the time of purchase and generally cover a period from three months to three years.  These funds may be released to either the Company or the seller when certain leasing conditions are met.  The Company received $1,231, $3,067 and $4,790 of these payments during the years ended December 31, 2009, 2008 and 2007, respectively.

Profits from sales of real estate are not recognized under the full accrual method by the Company unlessa sale is consummated; the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property; the Company’s receivable, if applicable, is not subject to future subordination; the Company has transferred to the buyer the usual risks and rewards of ownership; and the Company does not have substantial continuing involvement

74

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

with the property.  During the year ended December 31, 2009, the Company sold eight investment properties.  Refer to Note 3 for further information.  No investment properties were sold during the year ended December 31, 2008.

Rental Expense: Rental expense associated with land and office space that the Company leases under non-cancellable operating leases is recorded on a straight-line basis over the term of each lease.  The difference between rental expenses incurred on a straight-line basis and rent payments due under the provisions of the lease agreement is recorded as a deferred liability and is included as a component of “Other liabilities” in the accompanying consolidated balance sheets.  See Note 7 for additional information pertaining to these leases.

Loan Fees: Loan fees are generally amortized, using the effective interest method (or other methods which approximate the effective interest method), over the life of the related loans as a component of interest expense.  Debt prepayment penalties and certain fees associated with exchanges or modifications of debt are expensed as incurred as a component of interest expense.

Segment Reporting: The Company assesses and measures operating results of its properties based on net property operations. The Company internally evaluates the operating performance of its portfolio of properties and does not differentiate properties by geography, size or type. Each of the Company’s investment properties is considered a separate operating segment, as each property earns revenue and incurs expenses, individual operating results are reviewed and discrete financial information is available. However, the Company’s properties are aggregated into one reportable segment as the Company evaluates the aggregate performance of the properties.  

New Accounting Pronouncements

In April 2009, the FASB issued accounting guidance in order to clarify the application of fair value measurements in the current economic environment, modify the recognition of other-than-temporary impairments of debt securities, and require companies to disclose the fair values of financial instruments in interim periods.  This guidance, as more fully discussed below, is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company elected to early adopt the guidance as of January 1, 2009.

•

First, the guidance provides clarity in calculating fair value in a disorderly market or a market with little activity.  The adoption of this guidance did not have a material impact on the consolidated financial statements as (a) the Company’s fair value measurements of investments in marketable securities are classified as Level 1 fair value measurements, (b) the Company’s fair value measurements of derivative instruments are based on the current and forward term structures of interest rates for which there has not been a significant decline in the volume and level of activity, and (c) although the Company’s fair value measurements are made for certain disclosures, except as disclosed in Note 17, the carrying values of these items approximate their fair values and are based on inputs for which the volume and level of activity have not significantly decreased;  

•

Second, the guidance defines other-than-temporary impairment as it relates to debt securities.  The Company’s investments in marketable securities primarily consist of perpetual preferred stock of other publicly traded real estate companies.  However, given the credit characteristics associated with these securities, the Company treats these securities as equity securities and accordingly the adoption of the guidance did not have a material impact on the Company’s consolidated financial statements;

•

Third, the guidance requires enhanced interim fair value disclosures similar to the required annual disclosures. The adoption of the guidance resulted in certain incremental disclosures as presented within Note 17.

In May 2009, the FASB issued accounting guidance related to subsequent events, which introduces the concept of financial statements being available to be issued as a measurement date.  Under the guidance, the effects of events that occur subsequent to the balance sheet date should be evaluated through the date the financial statements are either “issued” or “available to be issued.”  The guidance defines financial statements that are “issued” as being widely distributed to shareholders and other financial statement users for general use, and “available to be issued” as being complete in form and format that complies with GAAP and having all necessary approvals.  As the Company widely distributes financial statements to financial statement users and evaluates subsequent events through the issuance date, the

75

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

adoption of the guidance on April 1, 2009 did not have a material impact on the Company’s consolidated financial statements. Refer to Note 20 for subsequent events disclosures.  

In June 2009, the FASB issued accounting guidance which recodified accounting guidance within the hierarchy of GAAP.  This Codification has become the exclusive source of authoritative U.S. GAAP for nongovernmental entities, except for Securities and Exchange Commission (SEC) rules and interpretive releases, which are also authoritative GAAP for SEC registrants.  All content in the Codification will carry the same level of authority, essentially modifying the GAAP hierarchy to include only two levels of GAAP: authoritative and nonauthoritative.  This guidance is effective for interim periods ending after September 15, 2009.  The Company adopted the guidance as of July 1, 2009 and it did not have a material impact on the consolidated financial statements and notes to the financial statements, aside from changing the nomenclature used to reference accounting literature.  

In August 2009, the FASB issued accounting guidance which proposes new, and clarifies existing, disclosures about fair value measurements. The guidance requires clarification for circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: (1) a valuation technique that uses either the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as an asset; or (2) another valuation technique that is consistent with the principles in the current guidance such as the income and market approach to valuation. The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relat ing to the existence of a restriction that prevents the transfer of the liability. This update further clarifies that if the fair value of a liability is determined by reference to a quoted price in an active market for an identical liability, that price would be considered a Level 1 measurement in the fair value hierarchy. Similarly, if the identical liability has a quoted price when traded as an asset in an active market, it is also a Level 1 fair value measurement if no adjustments to the quoted price of the asset are required. The guidance is effective for reporting periods beginning after issuance. The adoption of the guidance on October 1, 2009 did not have a material impact on the consolidated financial statements.

In January 2010, the FASB issued guidance which provides additional requirements and clarifies existing disclosures about fair value measurements.  The guidance requires entities to provide fair value measurement disclosures for each “class” of assets and liabilities, opposed to the old guidance which required disclosures by “major category” of assets and liabilities.  The term “major category” was often interpreted to be a line item on the statement of financial position, whereas the term “class” represents a subset of assets or liabilities within a line item in the statement of financial position, thus expanding on the level of disaggregation.  The guidance also requires an entity to disclose the amounts of significant transfers between Levels 1 and 2, and all significant transfers into and out of Level 3, of the fair value hierarchy.  Furthermore, en tities are required to disclose the reasons for those transfers, and the entity’s policy for determining when transfers between levels are recognized.  A description of the valuation techniques and inputs used to determine the fair value of each class of assets or liabilities for Levels 2 and 3 must also be disclosed, including any valuation technique changes and the reason for those changes.  This update further amends the reconciliation of the beginning and ending balances of Level 3 recurring fair value measurements, requiring a separate disclosure of total gains and losses recognized in other comprehensive income and disclosing separately purchases, sales, issuances, and settlements, as opposed to net as previously required.  The guidance is effective for periods ending after December 15, 2009.  The adoption of the guidance did not have a material impact on the consolidated financial statements.

In January 2010, the FASB issued guidance clarifying the accounting for distributions to shareholders with components of stock and cash.  Prior to this amendment, it was unclear as to whether the stock portion of a distribution should be accounted for as a new share issuance that is reflected in earnings per share prospectively or as a stock dividend by retroactively restating shares outstanding and earnings per share for all periods presented.  The amendment clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or shares with potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance and is reflected in EPS prospectively and is not a stock dividend.  The guidance is effective for periods ending after December 15, 2009.  The adoption of the guidance did not h ave a material impact on the consolidated financial statements.

76

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

In January 2010, the FASB issued guidance related to decreases in the ownership of a subsidiary.  The guidance clarified that any transaction that involves in-substance real estate should be considered under guidance for sales of real estate and is retroactively effective for periods beginning on or after December 15, 2008.  Under this guidance, the transfer of 23% interest in IW JV to Inland Equity for $50,000 was accounted for as a financing transaction and is reflected in “Co-venture obligation” on the consolidated balance sheets.  

(3)  Discontinued Operations and Investment Properties Held for Sale

The Company employs a business model, which utilizes asset management as a key component of monitoring its investment properties, to ensure that each property continues to meet expected investment returns and standards.  This strategy calls for the Company to sell properties that do not meet its standards.

On January 15, 2009, the Company closed on the sale of an approximately 172,400 square foot multi-tenant lifestyle center located in Larkspur, California, with a sales price of $65,000, which resulted in net sales proceeds of $31,123 and a gain on sale of $12,223 as the criteria under the full accrual method were met as of this date.  The sale resulted in the repayment of $33,630 of debt.  This property qualified for held for sale accounting treatment during the fourth quarter of 2008, at which time depreciation and amortization ceased since it met all of the Company’s held for sale criteria.  As such, the assets and liabilities are separately classified as held for sale on the consolidated balance sheets as of December 31, 2008 and the operations for all periods presented are classified as discontinued operations on the consolidated statements of operations and other comprehensive loss.

On April 30, 2009, the Company closed on the sale of two single-user office buildings with an aggregate sales price of $99,000, which resulted in net sales proceeds of $34,572 and a gain on sale of $7,010.  The properties were located in Salt Lake City, Utah and Greensboro, North Carolina with approximately 395,800 and 389,400 square feet, respectively.  The sale resulted in the assumption of debt in the amount of $63,189 by the purchaser.

On June 24, 2009, the Company closed on the sale of an approximately 185,200 square foot single-user office building, located in Canton, Massachusetts with a sales price of $62,632, which resulted in net sales proceeds of $17,991 and a gain on sale of $2,337.  The sale resulted in the assumption of debt in the amount of $44,500 by the purchaser.

On October 9, 2009, the Company closed on the sale of an approximately 149,700 square foot single-user property located in Jonesboro, Arkansas, with a sales price of $9,400 which resulted in net proceeds of $3,085, and the repayment of debt of $6,089 which had matured.  

On October 30, 2009, the Company closed on the sale of an approximately 185,000 square foot multi-tenant property located in Santa Clara, California, with a sales price of $90,525, which resulted in net sales proceeds of $34,304 and a gain on sale of $5,010.  The sale resulted in the assumption of debt in the amount of $52,800 by the purchaser.

On November 10, 2009, the Company closed on the sale of an approximately 57,200 square foot single-user property located in Wilmington, North Carolina, with a sales price of $5,400, which resulted in net sales proceeds of $1,309.  The sale resulted in the repayment of debt in the amount of $3,960 which had matured.

On December 1, 2009, the Company closed on the sale of an approximately 44,300 square foot single-user property located in Mountain Brook, Alabama, with a sales price of $6,100, which resulted in net sales proceeds of $1,560.  The sale resulted in the repayment of debt in the amount of $4,384.

On September 14, 2009, the Company entered into a contract to sell a 100,000 square foot medical center located in Cupertino, California.  This property qualified for held for sale accounting treatment during the fourth quarter of 2009, at which time depreciation and amortization ceased since it met all of the Company’s held for sale criteria. As such, the assets and liabilities are separately classified as held for sale on the consolidated balance sheet as of December 31, 2009 and the operations for all periods presented are classified as discontinued operations on the consolidated statements of operations and other comprehensive loss.

77

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

The Company does not allocate general corporate interest expense to discontinued operations.  The results of operations for the investment properties sold or held for sale during the years ended December 31, 2009, 2008 and 2007 are presented in the table below:

The following assets and liabilities relate to one investment property which was classified as held for sale as of December 31, 2009 (see December 31, 2009 column) and one other investment property which was classified as held for sale as of December 31, 2008 (see December 31, 2008 column), and are presented in the table below:

(4)  Transactions with Related Parties

On November 15, 2007, the Company acquired its business manager/advisor and property managers in exchange for 37,500 newly issued shares of its stock.  Under the terms of the plan of merger, 55% of the 37,500 shares of the Company’s common stock were deposited into an escrow fund, subject to terms and conditions.  The business manager/advisor and property managers became subsidiaries of the Company.  Prior to the merger, the Company paid an advisor asset management fee up to a maximum of 1% of the average invested assets, as defined, to its former business manager/advisor.  The fee was payable quarterly in an amount equal to 1/4 up to a maximum of 1% of the Company’s average invested assets as of the last day of the immediately preceding quarter.  The Company’s business manager/advisor was entitled to maximum fees of $68,083 for the year ended December 31, 2007.  The business manager/advisor elected not to be paid the maximum advisor asset management fee and as a result the Company only incurred fees to its business manager/advisor totaling $23,750 for the year ended December 31, 2007.

Prior to the merger, the property managers were entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services.  Subsequent to the merger, the property managers are entitled to receive property management fees totaling 4.5% of gross operating income, however, the property management fees are

78

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

eliminated in consolidation and replaced by the actual operating expenses of the property managers.  The Company incurred property management fees of $30,036 for the year ended December 31, 2007.  

Prior to the merger, the business manager/advisor and property managers were also entitled to reimbursement for general and administrative costs, primarily salaries and related employee benefits.  For the year ended December 31, 2007, the Company incurred $6,296 of these reimbursements.  None of the reimbursements remained unpaid at December 31, 2008.

An Inland affiliate, who is a registered investment advisor, provides investment advisory services to the Company related to the Company’s securities investment account for a fee (paid monthly) of up to one percent per annum based upon the aggregate fair value of the Company’s assets invested.  Subject to the Company’s approval and the investment guidelines it provides to them, the Inland affiliate has discretionary authority with respect to the investment and reinvestment and sale (including by tender) of all securities held in that account.  The Inland affiliate has also been granted power to vote all investments held in the account.  The Company incurred fees totaling $67, $1,390 and $2,107 for the years ended December 31, 2009, 2008 and 2007, respectively.  As of December 31, 2009 and 2008, fees of $20 and $160 remained unpaid, respectively.  The agreement is non-exclu sive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.  Effective for the period from November 1, 2008 through September 30, 2009, the investment advisor agreed to waive all fees due at the request of the Company.  Fees were incurred again beginning on October 1, 2009.

An Inland affiliate provides loan servicing for the Company for a monthly fee based upon the number of loans being serviced.  Such fees totaled $372, $405 and $562 for the years ended December 31, 2009, 2008 and 2007, respectively.  As of December 31, 2009 and 2008, none remained unpaid.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

An Inland affiliate facilitates the mortgage financing the Company obtains on some of its properties.  The Company pays the Inland affiliate 0.2% of the principal amount of each loan obtained on the Company’s behalf.  Such costs are capitalized as loan fees and amortized over the respective loan term as a component of interest expense.  For the years ended December 31, 2009, 2008 and 2007, the Company had incurred none, $1,330 and $873, respectively, in loan fees to this Inland affiliate.  As of December 31, 2009 and 2008, none remained unpaid.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

The Company has a property acquisition agreement and a transition property due diligence services agreement with an Inland affiliate.  In connection with the Company’s acquisition of new properties, the Inland affiliate will give the Company a first right as to all retail, mixed use and single-user properties and, if requested, provide various services including services to negotiate property acquisition transactions on the Company’s behalf and prepare suitability, due diligence, and preliminary and final pro forma analyses of properties proposed to be acquired.  The Company will pay all reasonable third-party out-of-pocket costs incurred by this entity in providing such services; pay an overhead cost reimbursement of $12 per transaction, and, to the extent these services are requested, pay a cost of $7 for due diligence expenses and a cost of $25 for negotiation expenses per transaction. &nb sp;The Company incurred none, $19 and $134 of such costs for the years ended December 31, 2009, 2008 and 2007, respectively.  None of these costs remained unpaid as of December 31, 2009 and 2008.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

On April 30, 2009, the Company sold two single-user office buildings to IARETI with an aggregate sales price of $99,000, which resulted in net sales proceeds of $34,572 and a gain on sale of $7,010.  The properties were located in Salt Lake City, Utah and Greensboro, North Carolina with approximately 395,800 square feet and 389,400 square feet, respectively.  The sale resulted in the assumption of debt in the amount of $63,189 by IARETI.  The special committee, consisting of independent directors, reviewed and recommended approval of these transactions to the Company’s board of directors.

79

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

On June 24, 2009, the Company sold an approximately 185,200 square foot single-user office building located in Canton, Massachusetts, to IARETI with a sales price of $62,632, which resulted in net sales proceeds of $17,991 and a gain on sale of $2,337.  The sale resulted in the assumption of debt in the amount of $44,500 by IARETI.  The special committee, consisting of independent directors, reviewed and recommended approval of this transaction to the Company’s board of directors.

The Company has an institutional investor relationships services agreement with an Inland affiliate.  Under the terms of the agreement, the Inland affiliate will attempt to secure institutional investor commitments in exchange for advisory and client fees and reimbursement of project expenses.  The Company incurred $34, $10 and $257 during the years ended December 31, 2009, 2008 and 2007, respectively.  None of these costs remained unpaid as of December 31, 2009 and 2008.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

An Inland affiliate has a legal services agreement with the Company, where that Inland affiliate will provide the Company with certain legal services in connection with the Company’s real estate business.  The Company will pay the Inland affiliate for legal services rendered under the agreement on the basis of actual time billed by attorneys and paralegals at the Inland affiliate’s hourly billing rate then in effect.  The billing rate is subject to change on an annual basis, provided, however, that the billing rates charged by the Inland affiliate will not be greater than the billing rates charged to any other client and will not be greater than 90% of the billing rate of attorneys of similar experience and position employed by nationally recognized law firms located in Chicago, Illinois performing similar services.  For the years ended December 31, 2009, 2008 and 2007, the Company incur red $551, $500 and $897, respectively, of these costs.  Legal services costs totaling $123 and $189 remained unpaid as of December 31, 2009 and 2008, respectively.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

The Company has consulting agreements with Daniel L. Goodwin, Robert D. Parks, the Company’s chairman, and G. Joseph Cosenza, who each provide it with strategic assistance for the term of their respective agreement including making recommendations and providing guidance to the Company as to prospective investment, financing, acquisition, disposition, development, joint venture and other real estate opportunities contemplated from time to time by it and its board of directors.  The consultants also provide additional services as may be reasonably requested from time to time by the Company’s board of directors.  The term of each agreement runs until November 15, 2010 unless terminated earlier.  The Company may terminate these consulting agreements at any time.  The consultants do not receive any compensation for their services, but the Company is obligated to reimburse their ordinary and necessary out-of-pocket business expenses in fulfilling their duties under the consulting agreements.  There were no reimbursements required under the consulting agreements for the years ended December 31, 2009, 2008 and 2007.

The Company has service agreements with certain Inland affiliates, including office and facilities management services, insurance and risk management services, computer services, personnel services, property tax services and communications services.  Generally, these agreements provide that the Company obtain certain services from the Inland affiliates through the reimbursement of a portion of their general and administrative costs.  For the years ended December 31, 2009, 2008 and 2007, the Company incurred $3,027, $2,814 and $3,141, respectively, of these reimbursements.  Of these costs, $194 and $209 remained unpaid as of December 31, 2009 and 2008, respectively.  The services are to be provided on a non-exclusive basis in that the Company shall be permitted to employ other parties to perform any one or more of the services and that the applicable counterparty shall be permitted to perform any one or more of the services to other parties.  The agreements have various expiration dates, but are cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

The Company subleases its office space from an Inland affiliate.  The lease calls for annual base rent of $496 and additional rent in any calendar year of its proportionate share of taxes and common area maintenance costs.  Additionally, the Inland affiliate paid certain tenant improvements under the lease in the amount of $395 and such improvements are being repaid by the Company over a period of five years.  The sublease calls for an initial term of five years which expires

80

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

in November 2012, with one option to extend for an additional five years.  Of these costs, $175 and none remained unpaid as of December 31, 2009 and 2008, respectively.

On December 1, 2009, the Company raised additional capital of $50,000 from a related party, Inland Equity, in exchange for a 23% noncontrolling interest in IW JV.  Refer to Notes 1 and 11 for additional information.  The independent directors committee reviewed and recommended approval of this transaction to the Company’s board of directors.

(5)  Marketable Securities

Investment in marketable securities of $29,117 and $118,421 (original cost basis of $83,730 and $296,457, respectively) as of December 31, 2009 and 2008, respectively, consists of preferred and common stock investments which are classified as available-for-sale and recorded at fair value.  Unrealized holding gains and losses on available-for-sale securities are excluded from earnings (losses) and reported as a separate component of other comprehensive loss until realized.  Recognized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis.  Dividend income is recognized when earned.

Net unrealized gain (loss) was equal to $35,594, $(115,716) and $(68,964) for the years ended December 31, 2009, 2008 and 2007, respectively.  During the years ended December 31, 2009, 2008 and 2007, the Company recognized losses of $24,831, $160,327 and $20,021, respectively, related to declines in the value of securities which were determined to be other-than-temporary.  In addition, during the years ended December 31, 2009, 2008 and 2007, the Company recognized net gain (loss) of $42,870, $(561) and $54, respectively, on sales of securities.

During the years ended December 31, 2009, 2008 and 2007, dividend income of $10,132, $24,010 and $23,729, respectively, was earned on marketable securities and is included in “Dividend income” in the accompanying consolidated statements of operations and other comprehensive loss.  As of December 31, 2009 and 2008, $112 and $2,062, respectively, of dividend income remained unpaid and is included in “Other assets” in the accompanying consolidated balance sheets.

Of the investments held as of December 31, 2009, the Company had gross unrealized gains of $12,432 and gross unrealized losses of $61 recorded in “Accumulated other comprehensive income (loss).”  The Company does not consider the investments with gross unrealized losses to be other than temporarily impaired as of December 31, 2009.  The Company evaluates investments for impairment quarterly.  If the Company concludes that an investment is other than temporarily impaired, an impairment charge will be recognized during that period.  

Gross unrealized losses on marketable securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position at December 31, 2009 were as follows:

This table includes one security position which was in an unrealized loss position at December 31, 2009.

81

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

Gross unrealized losses on marketable securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position at December 31, 2008 were as follows:

This table includes 19 security positions which were in an unrealized loss position at December 31, 2008.

(6)  Stock Option Plan

The Company’s Independent Director Stock Option Plan (Plan), as amended, provides, subject to certain conditions, for the grant to each independent director of options to acquire shares following their becoming a director and for the grant of additional options to acquire shares on the date of each annual shareholders’ meeting.

As of December 31, 2009 and 2008, there had been a total of 105 and 70, respectively, options granted, none of which had been exercised or expired.

Under the Company’s Plan, prior to January 1, 2008, each non-employee director was entitled to be granted an option to acquire three thousand shares as of the date they became a director and an option to acquire an additional five hundred shares on the date of each annual shareholders’ meeting, commencing with the annual meeting in 2004, so long as the director remained a member of the board of directors on such date.  Options granted during the Company’s initial offering period are all currently exercisable at $8.95 per share.  Subsequent to the Company’s initial offering period, options granted as of each annual shareholders’ meeting become fully exercisable on the second anniversary of the date of grant at the fair value of a share on the last business day preceding the date of each annual meeting.  

Beginning January 1, 2008, each non-employee director was entitled to be granted an option under the Company’s Plan to acquire five thousand shares as of the date they initially become a director.  At the time of this change, all non-employee directors other than Richard P. Imperiale and Kenneth E. Masick had previously received their initial grants of options, and Messrs. Imperiale and Masick received their initial grants of options on January 1, 2008.  In addition, each non-employee director was entitled to be granted an option to acquire an additional five thousand shares on the date of each annual shareholders’ meeting, commencing with the annual meeting in 2008, so long as the director remains a member of the board of directors on such date.  All such options will be granted at the fair value of a share on the last business day preceding the date of each annual shareholders’ me eting and will become fully exercisable on the second anniversary of the date of grant.

The Company calculates the per share weighted average fair value of options granted on the date of the grant using the Black Scholes option pricing model utilizing certain assumptions regarding the expected dividend yield, risk free interest rate, expected life and expected volatility rate.  Compensation expense of $24, $8 and $2 related to these stock options was recorded during the years ended December 31, 2009, 2008 and 2007, respectively.  

(7)  Leases

Master Lease Agreements

In conjunction with certain acquisitions, the Company receives payments under master lease agreements pertaining to certain non-revenue producing spaces at the time of purchase for periods, generally ranging from three months to three years after the date of purchase or until the spaces are leased.  As these payments are received, they are recorded as a reduction in the purchase price of the respective property rather than as rental income.  The cumulative amount of such payments was $26,577, $25,346 and $22,279, as of December 31, 2009, 2008 and 2007, respectively.

82

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

Operating Leases

The majority of revenues from the Company’s properties consist of rents received under long-term operating leases.  Some leases provide for the payment of fixed base rent paid monthly in advance, and for the reimbursement by tenants to the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the landlord and recoverable under the terms of the lease.  Under these leases, the landlord pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid.  Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed based rent, as well as, all costs and expenses associated with occupancy.  Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included on the accompanying consolidated statements of operations and other comprehensive loss.  Under net leases where all expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included in “Property operating expenses” and reimbursements are included in “Tenant recovery income” on the accompanying consolidated statements of operations and other comprehensive loss.

In certain municipalities, the Company is required to remit sales taxes to governmental authorities based upon the rental income received from properties in those regions.  These taxes may be reimbursed by the tenant to the Company depending upon the terms of the applicable tenant lease.  As with other recoverable expenses, the presentation of the remittance and reimbursement of these taxes is on a gross basis whereby sales tax expenses are included in “Property operating expenses” and sales tax reimbursements are included in “Other property income” on the accompanying consolidated statements of operations and other comprehensive loss.  Such taxes remitted to governmental authorities and reimbursed by tenants were $2,015, $2,199 and $2,820, for the years ended December 31, 2009, 2008 and 2007, respectively.  

Minimum lease payments to be received under operating leases, excluding payments under master lease agreements and assuming no expiring leases are renewed, are as follows:

The remaining lease terms range from one year to seventy-two years.

In certain properties where there are large tenants, other tenants may have co-tenancy provisions within their lease that requires that if certain large tenants or “shadow” tenants discontinue operations, a right of termination or reduced rent may exist.

83

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

The Company leases land under non-cancellable operating leases at certain of its properties expiring in various years from 2018 to 2105.  For the years ended December 31, 2009, 2008 and 2007, ground lease rent expense was $10,074, $10,814 and $9,445, respectively, and is included in “Property operating expenses” on the accompanying consolidated statements of operations and other comprehensive loss.  In addition, the Company leases office space for certain management offices from third parties and the Company subleases its corporate office space from an Inland affiliate.  For the years ended December 31, 2009, 2008 and 2007, office rent expense was $810, $774 and $134, respectively, and is included in “Property operating expenses” in the accompanying consolidated statements of operations and other comprehensive loss.  Minimum future rental payments to be paid under the groun d leases and office leases are as follows:

(8)  Notes Receivable

The Company has provided mortgage and development financing to third parties.

The following table summarizes the Company’s notes receivable at December 31, 2009 and 2008:

84

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

(9)  Mortgages and Notes Payable

The following table summarizes the Company’s mortgages and notes payable at December 31, 2009 and 2008:

Mortgages Payable

Mortgages payable outstanding, excluding liabilities associated with the investment property held for sale, as of December 31, 2009 were $3,828,625 and had a weighted average interest rate of 5.57% at December 31, 2009.  Of this amount, $3,715,027 had fixed rates ranging from 4.25% to 10.24% and a weighted average fixed rate of 5.63% at December 31, 2009.  The remaining $113,598 of outstanding indebtedness represented variable rate loans with a weighted average interest rate of 3.56% at December 31, 2009.  Properties with a net carrying value of $5,649,570 at December 31, 2009 and related tenant leases are pledged as collateral of the mortgage loans.  Development properties with a net carrying value of $88,524 at December 31, 2009 and related tenant leases are pledged as collateral of the construction loans.  As of December 31, 2009, scheduled maturities for the Company’s outstandin g mortgage indebtedness had various due dates through March 1, 2037.

During the year ended December 31, 2009, the Company obtained mortgage payable proceeds of $849,938 and made mortgage payable repayments of $1,152,767.  Included in these amounts are $500,000 of mortgage payable proceeds and $626,965 of mortgage payable repayments related to the debt refinancing transaction for IW JV as discussed in Note 1. See the notes payable section below for additional information on $125,000 of notes payable proceeds also obtained as part of this refinancing transaction.  In addition, $160,489 of mortgage debt was assumed by the purchaser in the sales of investment properties.  The new mortgages payable that the Company entered into during the year ended December 31, 2009 have interest rates ranging from 1.64% to 8.00% and maturities from two to ten years.  The stated interest rates of the loans repaid or assumed during the year ended December 31, 2009 ranged from 1.86% to 6.50%.  The Company also entered into modifications of existing loan agreements which extended the maturities of $131,051 of mortgages payable up to three years.

On December 1, 2009, the Company and the lender involved in the IW JV debt refinancing transaction (as referenced above and discussed more fully in Note 1) entered into a cash management agreement that requires all rents and other revenues to be deposited directly into a lockbox account established by the lender. In the event of a default, as defined, or the debt service coverage ratio falling below 1.09, the cash management agreement provides that excess cash flow, as defined, be held in a reserve account by lender as additional security and not disbursed to the Company until the earlier of a cash sweep event cure, as defined, or the repayment of the mortgage loan, senior mezzanine note and junior mezzanine note.

85

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

Mortgages payable outstanding, excluding liabilities associated with the investment property held for sale, as of December 31, 2008 were $4,295,834 and had a weighted average interest rate of 4.88% at December 31, 2008. Of this amount, $4,060,067 had fixed rates ranging from 3.99% to 7.48% and a weighted average fixed rate of 4.94% at December 31, 2008.  Excluding the mortgage debt assumed from sellers at acquisition and debt of consolidated joint venture investments, the highest fixed rate on the Company’s mortgage debt was 5.94%.  The remaining $235,767 of outstanding indebtedness represented variable rate loans with a weighted average interest rate of 3.81% at December 31, 2008.  Properties with a net carrying value of $6,158,082 at December 31, 2008 and related tenant leases are pledged as collateral.  Development properties with a net carrying value of $112,300 at December 31, 2008 and related tenant leases are pledged as collateral of the construction loans.  As of December 31, 2008, scheduled maturities for the Company’s outstanding mortgage indebtedness had various due dates through March 1, 2037.

The majority of the Company’s mortgages payable require monthly payments of interest only, although it has become more common for lenders to require principal and interest payments, as well as, reserves for real estate taxes, insurance and certain other costs.  Although the loans obtained by the Company are generally non-recourse, occasionally, when it is deemed to be necessary, the Company may guarantee all or a portion of the debt on a full-recourse basis.  As of December 31, 2009, the Company has guaranteed $60,543 of the outstanding mortgages payable (see Note 18).  At times, the Company has borrowed funds financed as part of a cross-collateralized package, with cross-default provisions, in order to enhance the financial benefits.  In those circumstances, one or more of the properties may secure the debt of another of the Company’s properties.  Individual decisions regardin g interest rates, loan-to-value, debt yield, fixed versus variable-rate financing, term and related matters are often based on the condition of the financial markets at the time the debt is issued, which may vary from time to time.  

As of December 31, 2009, the Company had $187,437 of mortgages payable that had matured. Of this amount, the maturity date for $128,385 of mortgages payable has since been extended to May 1, 2010 and the total amount is under application for new mortgage financing.  In addition, the Company has made principal payments of $305 related to these mortgages payable and is in extension negotiations for the remaining $58,747.  As of December 31, 2009, the Company had $968,947 of mortgages payable, excluding amortization and liabilities associated with the investment property held for sale, maturing in 2010. Of this amount, the Company has subsequently made mortgage payable repayments of $10,128. The Company also has $469,741 of mortgages payable under application or commitment, subject to customary lender due diligence, with $96,925 of existing commitment proceeds remaining to be allocated. The Company is in the process of allocating the remaining commitments, marketing, planning to seek extensions or planning to sell properties relating to the remaining $489,078 of 2010 maturities, which are primarily maturing in the latter half of the year.

As of December 31, 2009, the Company was in compliance with all financial covenants related to the outstanding mortgages payable.

Notes Payable

Notes payable outstanding as of December 31, 2009 and 2008, were $175,360 and $50,428, respectively.  Of these amounts, $50,000 represented a note payable to an unconsolidated joint venture.  The note bears interest at 4.80% and is to be repaid on the earlier to occur of (i) an event of default, as defined, or (ii) upon termination of the unconsolidated joint venture’s operating agreement.  The Company has the right to prepay the note without penalty.  The remaining $360 and $428, respectively, is a ten year $600 note, net of amortization, with a third party that bears interest at a rate of 2.00%.

86

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

During the year ended December 31, 2009, the Company obtained notes payable proceeds of $125,000 from a third party lender related to the debt refinancing transaction for IW JV as discussed in Note 1. The following table summarizes these notes payable as of December 31, 2009:

See the mortgages payable section above for additional information on the cash management agreement applicable to the senior mezzanine and junior mezzanine notes payable.

Derivative Instruments and Hedging Activities       

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.  The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the amount, sources, and duration of its debt funding and, to a limited extent, the use of derivative instruments.

Specifically, the Company has entered into derivative instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative instruments, described below, are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to certain of the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

During 2008, the Company executed two interest rate swaps, as described more fully below, to hedge the variable cash flows associated with variable-rate debt. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in “Accumulated other comprehensive income (loss)” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2009 and 2008, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2009 and 2008, the Company recorded no hedge ineffectiveness in earnings.

Amounts reported in “Accumulated other comprehensive income (loss)” related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During 2010, the Company estimates that an additional $2,910 will be reclassified as an increase to interest expense.  

87

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

As of December 31, 2009 and 2008, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

In May 2008, the Company entered into an interest rate swap with a notional amount of $8,250 for a five-year term.  This swap was executed to hedge the interest rate risk associated with a variable-rate borrowing and effectively converts one-month London InterBank Offered Rate (LIBOR) into a fixed-rate of approximately 3.81% for $8,250 of term loan debt.  In June 2008, the Company entered into an interest rate swap with a notional amount of $75,000 for a three-year term.  This swap was executed to hedge the interest rate risk associated with a variable-rate borrowing and effectively converts one-month LIBOR into a fixed-rate of approximately 4.06% for $75,000 of term loan debt.  The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives other than as described above.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2009 and 2008.

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and other comprehensive loss for the years ended December 31, 2009 and 2008.

Credit-risk-related Contingent Features

Derivative financial investments expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements.  The Company believes it minimizes the credit risk on these transactions by transacting with major creditworthy financial institutions.  As part of the Company’s on-going control procedures, it monitors the credit ratings of counterparties and the exposure to any single entity, which minimizes credit risk concentration.  The Company believes the likelihood of realized losses from counterparty non-performance is remote.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company’s agreements with each of its derivative counterparties also contains a provision whereby if the Company consolidates with, merges with or into, or transfers all or substantially all its assets to another entity and the creditworthiness of the resulting, surviving, or transferee entity is materially weaker than the Company’s, the counterparty has the right to terminate the derivative obligations.

As of December 31, 2009, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $4,257. As of December 31, 2009, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions

88

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

at December 31, 2009, it could have been required to settle its obligations under the agreements at their termination value of $4,257.

Margin Payable

The Company purchases a portion of its securities through a margin account.  As of December 31, 2009 and 2008, the Company had recorded a payable of none and $56,340, respectively, for securities purchased on margin.    This debt bears a variable interest rate of LIBOR plus 35 basis points.  At December 31, 2009, this rate was equal to 0.58%.  Interest expense on this debt in the amount of $252, $3,443 and $3,481 is recognized within “Interest expense” in the accompanying consolidated statements of operations and other comprehensive loss for the years ended December 31, 2009, 2008 and 2007, respectively.  This debt is due upon demand.  The value of the Company’s marketable securities serves as collateral for this debt.  During the year ended December 31, 2009, the Company borrowed an additional $29,750 on its margin account and paid down $86,090 to redu ce its payable to none as of December 31, 2009.

Debt Maturities

The following table shows the mortgages payable, notes payable, margin payable and line of credit maturities during the next five years:

The maturity table excludes other financings and co-venture obligation as described in Note 1 and Note 11.  The maturity table also excludes accelerated principal payments that may be required as a result of covenants or conditions included in certain loan agreements, including the cash management agreement discussed in the notes payable section above.  In these cases, the total outstanding mortgage payable is included in the year corresponding to the loan maturity date.  The maturity table includes $187,437 of mortgages payable that had matured as of December 31, 2009 in the 2010 column. See the mortgages payable section above for additional information on how the Company is addressing its 2009 and 2010 mortgages payable maturities.

(10)  Line of Credit  

On October 15, 2007, the Company entered into an unsecured credit agreement with KeyBank National Association and other financial institutions for up to $225,000 with an optional unsecured borrowing capacity of $75,000, for a total unsecured borrowing capacity of $300,000.  The agreement has an initial term of three years with a one-year extension option.  The line of credit required interest-only payments monthly on the outstanding balance at the rate equal to LIBOR plus 80 to 125 basis points depending on the ratio of the Company’s net worth to total recourse indebtedness.  The Company was also required to pay, on a quarterly basis, fees ranging from 0.125% to 0.20%, per annum, on the average daily undrawn funds under this agreement.  The credit agreement requires compliance with certain covenants, such as a leverage ratio, fixed charge coverage, minimum net wort h requirements, distribution limitations and investment restrictions, as well as its ability to incur recourse indebtedness.  The credit agreement also contains customary default

89

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

provisions including the failure to timely pay debt service payable thereunder, the failure to comply with the Company’s financial and operating covenants, and the failure to pay when the Company’s consolidated indebtedness becomes due.  In the event the Company’s lenders declare a default, as defined in the credit agreement, this could result in an acceleration of any outstanding borrowings.

On April 17, 2009, the Company entered into an amendment to the credit agreement.  The terms of the amendment to the credit agreement stipulate:

·

a reduction of the aggregate commitment from $225,000 to $200,000 at closing, eliminating the optional borrowing capacity of $75,000;

·

an initial collateral pool secured by first priority liens (assignment of partnership interests to be converted to mortgage liens within 90 days of closing) in eight retail assets valued at approximately $200,000;

·

the requirement that the maximum advance rate on the appraised value of the initial collateral pool be 80% beginning September 30, 2009;

·

pay down of the line from net proceeds of asset sales;

·

an assignment of corporate cash flow in the event of default;

·

an increase in interest rate to LIBOR (3% floor) plus 3.50%;

·

an increase in the unused fees to 0.35% or to 0.50% depending on the undrawn amount;

·

the requirement for a comprehensive collateral pool (secured by mortgage interests in each asset) subject to certain covenants including a reduction in the maximum advance rate on the appraised value of the collateral pool from 80% to 60% and minimum requirements related to the value of the collateral pool, the number of properties included in the collateral pool, leverage and debt service coverage beginning March 31, 2010;

·

an increase of the amount of non-recourse cross-default permissions from $50,000 to $250,000 and permissions for maturity defaults under non-recourse indebtedness for up to 90 days subject to extension at discretion of the lenders;

·

an agreement to prohibit redemptions of the Company’s common shares and limit the common dividend to no more than the minimum level necessary to remain in compliance with the REIT regulations until March 31, 2010, and

·

customary fees associated with the modification.

In exchange for these changes, certain of the financial covenants under the credit agreement have been modified, namely the leverage ratio, minimum net worth and fixed charge coverage covenants, retroactive to January 1, 2009.  In addition to the eight properties that were included in the initial collateral pool, the Company added three more properties during the third quarter.  At September 30, 2009, the total appraised value of the retail assets in the collateral pool was approximately $236,910. In accordance with the terms of the agreement, the collateral pool will be appraised again on March 31, 2010.  As of December 31, 2009, the Company was in compliance with all of the financial covenants under the credit agreement with the exception of the requirement to limit the common stock dividend to no more than the minimum level necessary to remain in compliance with the REIT regulations. The Compan y has since obtained the necessary approval from the lenders waiving this covenant as of December 31, 2009.  The outstanding balances on the line of credit December 31, 2009 and 2008 were $107,000 and $225,000, respectively.

(11)  Co-venture Obligation

As discussed in Note 1, on December 1, 2009, the Company transferred a 23% noncontrolling interest in IW JV to a related party, Inland Equity, in exchange for $50,000.

The Company is the controlling member in IW JV.  The organizational documents of IW JV contains provisions that require the entity to be liquidated through the sale of its assets upon reaching a future date as specified in the

90

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

organizational document or through a call arrangement.  As controlling member, the Company has an obligation to cause these property owning entities to distribute proceeds from liquidation to the noncontrolling interest partner only if the net proceeds received by each of the entities from the sale of assets warrant a distribution based on the agreements.  In addition, at any time after 90 days from the date of Inland Equity’s contribution, the Company has the option to call Inland Equity’s interest in IW JV for an amount which is the greater of either: (a) fair market value of Inland Equity’s interest or (b) $50,000, plus an additional distribution of $5,000 and any unpaid preferred return or promote.  Since the outside ownership interest in IW JV is subject to a call arrangement, the transaction does not qualify as a sale and is accounted for as a financing arrangement.  Acco rdingly, IW JV is treated as a 100% owned subsidiary by the Company with the amount due to Inland Equity reflected as a financing in “Co-venture obligation” in the accompanying consolidated balance sheets.  

If Inland Equity retains an ownership interest in IW JV through the liquidation of the joint venture, Inland Equity may be entitled to receive an additional distribution of $5,000, depending on the availability of proceeds at the time of liquidation.  

Pursuant to the terms of the IW JV agreement, Inland Equity earns a preferred return of 6% annually, paid monthly and cumulative on any unpaid balance.  Inland Equity earns an additional 5% annually, set aside monthly and paid quarterly, if the portfolio net income is above a target amount as specified in the agreement.  Expense is recorded on such liability in the amount equal to the preferred return, incentive and other compensation due to Inland Equity as provided by the LLC agreement and is included in “Co-venture obligation expense” in the accompanying consolidated statements of operations and other comprehensive loss.

The Company currently anticipates exercising its call option prior to reaching the liquidation date.  As a result, the Company is accreting the estimated additional amount it would be required to pay upon exercise of the call option over the anticipated exercise period of three years.

 (12)  Investment in Unconsolidated Joint Ventures

The following table summarizes the Company’s investments in unconsolidated joint ventures:

The Company has the ability to exercise significant influence, but does not have the financial or operating control over these investments, and as a result the Company accounts for these investments using the equity method of accounting.  Under the equity method of accounting, the net equity investment of the Company is reflected on the accompanying consolidated balance sheets and the accompanying consolidated statements of operations and other comprehensive loss includes the Company’s share of net income or loss from the unconsolidated joint venture.  Distributions from these investments that are related to income from operations are included as operating activities and distributions that are related to capital transactions are included in investing activities in the Company’s consolidated statements of cash flows.

Effective April 27, 2007, the Company formed a strategic joint venture (MS Inland) with a large state pension fund (the “institutional investor”).  Under the terms of the agreement the profits and losses of MS Inland are split 80% and 20% between the institutional investor and the Company, respectively, except for the interest earned on the initial invested funds, of which the Company is allocated 95%.  The Company’s share of profits in MS Inland were $1,699, $1,581, and $2,229, for the years ended December 31, 2009, 2008, and 2007, respectively.  The Company received net cash distributions from MS Inland totaling $4,176, $4,910, and $2,719, for the years ended December 31, 2009, 2008, and 2007, respectively.

The difference between the Company’s investment in MS Inland and the amount of the underlying equity in net assets of MS Inland is due to basis differences resulting from the Company’s contribution of property assets at its historical net

91

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

book value versus the fair value of the contributed properties.  Such differences are amortized over the depreciable lives of MS Inland’s property assets.  The Company recorded $326, $320, and $214 of amortization related to this difference for the years ended December 31, 2009, 2008, and 2007, respectively.  

MS Inland may acquire additional assets using leverage, consistent with its existing business plan, of approximately 50% of the original purchase price, or current market value if higher.  The Company is the managing member of MS Inland and earns fees for providing property management, acquisition and leasing services to MS Inland.  The Company earned fees of $1,193, $1,209, $786 during the years ended December 31, 2009, 2008, and 2007, respectively.  

On August 28, 2007, the Company formed an unconsolidated joint venture, Hampton Retail Colorado (Hampton), which subsequently, through wholly-owned subsidiaries Hampton Owned Colorado (Hampton Owned) and Hampton Leased Colorado (Hampton Leased), acquired nine single-user retail properties and eight leasehold assets, respectively.  The ownership percentages associated with Hampton, at December 31, 2009 and 2008, are based upon the maximum capital contribution obligations under the terms of the joint venture.  During the year ended December 31, 2009, Hampton determined that the carrying value of certain of its assets were not recoverable and accordingly recorded an impairment loss in the amount of $9,411, of which the Company’s share is $9,062.  Impairment loss was recorded during the year ended December 31, 2008 in the amount of $3,639, of which the Company’s share was $3,504.  No impair ment loss was recorded during the year ended December 31, 2007.  The Company’s share of net loss in Hampton was $13,282, $6,664, and none for years ended December 31, 2009, 2008, and 2007, respectively, and is included in “Equity in (loss) income of unconsolidated joint venture” in the accompanying consolidated statements of operations and other comprehensive loss.  

On July 10, 2009, Hampton Leased sold a leasehold asset for $150.  Also, during the year ended December 31, 2009, the right to possess two leasehold assets was judicially revoked without opposition from Hampton Leased.  These assets were previously impaired and had no carrying value at the time of termination.  During the year ended December 31, 2008, one leasehold asset expired and was not renewed by Hampton Leased.  

On October 20, 2009, Hampton Leased assigned the rights and liabilities to the four remaining leasehold assets to the previous owner, which resulted in a loss of $682.

The Company previously held an investment in an unconsolidated joint venture, San Gorgonio Village.  During the year ended December 31, 2008, the Company determined that its investment in San Gorgonio Village was not recoverable as a result of construction cost overruns and uncertainty regarding the Company’s intentions to continue with the development project. As a result, a $5,524 impairment loss was recorded on the Company’s investment in this unconsolidated joint venture and is included in “Impairment of investment in unconsolidated entity” on the accompanying consolidated statements of operations and other comprehensive loss.  On December 29, 2008, the Company withdrew from the joint venture and was released of any future liability resulting in a $5,524 total loss of the Company’s investment in unconsolidated joint venture.

The Company reviewed the carrying value of its investment in unconsolidated joint ventures and determined that no impairment indicators existed as of December 31, 2009 and 2008.  As a result, the carrying value of its investment in the unconsolidated joint ventures was determined to be fully recoverable as of December 31, 2009 and 2008.

(13)  Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2009 and 2008 are as follows:

The Company performed its goodwill impairment analysis using the two step method on an annual basis and whenever events or changes in circumstances indicated that the carrying amount may not be recoverable. The recoverability of

92

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

goodwill is measured at the reporting unit level, which the Company determined to be the enterprise-level, by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The Company determined fair value using a weighting of both a variation of the market approach (comparable market multiples) and income approach (discounted cash flows). The use of the comparable market multiples compared the Company to other comparable companies based on valuation multiples to arrive at fair value. The Company regularly compares itself to its peer group and accordingly believes the judgments used to arrive at these comparable companies were reasonable. The use of projected discounted future cash flows was based on assumptions that were consistent with the Company’s base line forecast.

The Company completed its annual goodwill impairment test during the fourth quarter of 2008 and determined that the carrying value exceeded its fair value, indicating potential goodwill impairment existed. Certain unanticipated events occurring primarily in the fourth quarter of 2008 caused the carrying value of goodwill to exceed its fair value. The primary events were the severe dislocations and liquidity disruptions in the credit and equity markets that took place late in 2008 and three significant tenants who declared bankruptcy liquidations during the fourth quarter of 2008 and early in 2009. As a result, the Company’s forecast information used in the income approach reflected the impact of these bankruptcies. Similarly, 2008 and 2009 information used in the market approach was negatively impacted. Having determined that the goodwill was potentially impaired, the Company performed the second step of th e goodwill impairment analysis, which involved calculating the implied fair value of its goodwill by allocating the fair value of its reporting unit to all of its assets and liabilities other than goodwill (including both recognized and unrecognized intangible assets) and comparing the residual amount to the carrying value of goodwill. The Company determined that goodwill was impaired and accordingly recorded a non-cash goodwill impairment charge of $377,916. After recognition of the goodwill impairment charge, no goodwill remained at December 31, 2008.

(14)  Earnings per Share

Basic earnings (loss) per share (EPS) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”).  Diluted EPS is computed by dividing net income (loss) by the common shares plus shares issuable upon exercising options.  As of December 31, 2009 and 2008, options to purchase 105 and 70 shares of common stock at the weighted average exercise price of $9.30 and $9.70 per share, respectively, were outstanding.  The Company is in a net loss position for the years ended December 31, 2009 and 2008, therefore, the options to purchase shares are not considered in a loss per share-dilutive since their effect is anti-dilutive.

The basic and diluted weighted average number of common shares outstanding was 480,310; 481,442 and 454,287 for the years ended December 31, 2009, 2008 and 2007, respectively.  

93

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

The following is a reconciliation between weighted average shares used in the basic and diluted EPS calculations, excluding amounts attributable to noncontrolling interests:

(15)  Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code.  To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute at least 90% of its adjusted taxable income to the Company’s shareholders.  The Company intends to continue to adhere to these requirements and to maintain its REIT status.  As a REIT, the Company is entitled to a deduction for some or all of the distributions it pays to shareholders.  Accordingly, the Company generally will not be subject to federal income taxes as long as it distributes an amount equal to or in excess of 90% of its taxable income currently to shareholders.  The Company is also generally subject to federal income taxes on any taxable income that is not currently distributed to its shareholders.  If the Company fails to qualify as a REIT in any t axable year, it will be subject to federal income taxes and may not be able to qualify as a REIT for four subsequent taxable years.

REIT qualification reduces, but does not eliminate, the amount of state and local taxes the Company pays.  In addition, the Company’s consolidated financial statements include the operations of one wholly-owned subsidiary that has elected to be treated as a TRS that is not entitled to a dividends paid deduction and is subject to corporate federal, state and local income taxes.  The Company recorded no income tax expense related to the TRS for the years ended December 31, 2009, 2008 and 2007, as a result of losses incurred during these periods.

As a REIT, the Company may also be subject to certain federal excise taxes if it engages in certain types of transactions.  Deferred income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the estimated future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which these temporary differences are expected to reverse.  Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including future reversal of existing taxable temporary differences, future projected taxable income and tax planning strategies.  In assessing t he realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  The Company has considered various factors, including future reversals of existing taxable temporary differences, projected future taxable income and tax-planning strategies in making this assessment.  

94

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

The Company believes any deferred tax asset will not be realized in future periods and therefore, has recorded a valuation allowance for the entire balance, resulting in no effect on the consolidated financial statements.

The Company’s deferred tax assets and liabilities as of December 31, 2009 were as follows:

The Company’s deferred tax assets and liabilities result from the activities of the TRS.  As of December 31, 2009, the TRS had a federal net operating loss (NOL) of $11,234, which will be available to offset future taxable income.  The TRS also had net capital losses (NCL) in excess of capital gains of $4,544 as of December 31, 2009, which can be carried forward to offset future capital gains.  If not used, the NOL and NCL will begin to expire in 2027 and 2013, respectively.

Differences between net (loss) income per the consolidated statements of operations and other comprehensive loss and the Company’s taxable income (loss) primarily relate to impairment charges recorded on investment properties, other-than-temporary impairment on the investments in marketable securities, the timing of revenue recognition, and investment property depreciation and amortization.

The following table reconciles the Company’s net (loss) income to taxable income before the dividends paid deduction for the years ended December 31, 2009, 2008 and 2007:

The Company’s dividends paid deduction is summarized below:

A summary of the tax characterization of the dividends paid for the years ended December 31, 2009, 2008 and 2007 follows:

95

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

The Company records a provision for income taxes if the result of a tax position meets a “more likely than not” recognition threshold.  As a result of this provision, liabilities of $237 and $130 are recorded as of December 31, 2009 and 2008, respectively.  The Company believes that it has no uncertain tax positions that do not meet the “more likely than not” recognition threshold as of December 31, 2009.  The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2009.  Returns for the calendar years 2006 through 2009 remain subject to examination by federal and various state tax jurisdictions.

(16)  Provision for Impairment of Investment Properties

The Company identified certain indicators of impairment for certain of its properties, such as the property’s low occupancy rate, difficulty in leasing space and financially troubled tenants.  The Company performed a cash flow analysis and determined that the carrying value of the property exceeded its undiscounted cash flows based upon the estimated holding period for the asset.  Therefore, the Company has recorded impairment losses related to these properties consisting of the excess carrying value of the assets over their estimated fair values within the accompanying consolidated statements of operations and other comprehensive loss.

During the year ended December 31, 2009, the Company recorded investment property impairment charges as summarized below:

96

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

During the year ended December 31, 2008, the Company recorded investment property impairment charges as summarized below:

During the year ended December 31, 2007, the Company recorded an asset impairment of $13,560 related to the multi-tenant retail property located in University Heights, Ohio.

(17)  Fair Value Measurements

In September 2006, the FASB issued accounting guidance related to fair value measurements.  It defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements.  The guidance applies to all required or permitted fair value measurements, except for share-based payments transactions.  The guidance was effective for financial statements issued for fiscal years beginning after November 15, 2007.  In February 2007, the FASB delayed the effective date of the guidance for non-financial assets and non-financial liabilities measured on a non-recurring basis to fiscal years beginning after November 15, 2008.  The Company adopted the guidance on January 1, 2008, and, as it does not require any new fair value measurements or remeasurements of previously computed fair values, the adoption did not have a material effect on the Company’s consolidated financial statements.

97

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of the Company’s financial instruments at December 31, 2009 and 2008.  The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date.

 

The carrying values shown in the table are included in the consolidated balance sheets under the indicated captions, except for notes receivable and derivative liability, which are included in “Accounts and notes receivable” and “Other liabilities,” respectively.

The fair value of the financial instruments shown in the above table as of December 31, 2009 and 2008 represent the Company’s best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in a transaction between market participants at that date.  Those fair value measurements maximize the use of observable inputs.  However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability.  Those judgments are developed by the Company based on the best information available in those circumstances.

The following methods and assumptions were used to estimate the fair value of each financial instrument:

·

Investment in marketable securities: Marketable securities classified as available-for-sale are measured using quoted market prices at the reporting date multiplied by the quantity held.

·

Notes receivable: The Company estimates the fair value of its notes receivable by discounting the future cash flows of each instrument at rates that approximate those offered by lending institutions for loans with similar terms to companies with comparable risk.

·

Mortgages payable: The Company estimates the fair value of its mortgages payable by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company’s lenders.

·

Line of credit: The carrying value of the Company’s line of credit approximates fair value because of the relatively short maturity of the instrument.

·

Other financings: Other financings on the consolidated balance sheets represent the equity interest of the noncontrolling member in certain consolidated entities where the LLC or LP agreement contains put/call arrangements, which grant the right to the outside owners and the Company to require each LLC or LP to redeem the ownership interest in future periods for fixed amounts.  The Company believes the fair value of other financings is that amount which is the fixed amount at which it would settle, which approximates its carrying value.

98

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

·

Co-venture obligation: The Company estimates the fair value of co-venture obligation based on the amount at which it believes the obligation will settle and the timing of such payment.  The fair value of the co-venture obligation includes the estimated additional amount the Company would be required to pay upon exercise of the call option.  The carrying value of the co-venture obligation includes $139 of cumulative co-venture obligation expense accretion relating to the estimated additional distribution.

·

Derivative liability: The fair value of the derivative liability is determined using pricing models developed based on the LIBOR swap rate and other observable market data. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements.

Fair Value Hierarchy

GAAP specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs).  The following summarizes the fair value hierarchy:

·

Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

·

Level 2 Inputs – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

·

Level 3 Inputs – Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.

The guidancerequires the use of observable market data, when available, in making fair value measurements.  When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.  However, as of December 31, 2009 and 2008, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation.  As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The following table presents the Company’s assets and liabilities, measured on a recurring basis, and related valuation inputs within the fair value hierarchy utilized to measure fair value as of December 31, 2009 and 2008:

During the year ended December 31, 2009, the Company recorded asset impairment charges of $64,700 related to ten of its consolidated operating properties and one consolidated development property with a combined fair value of $208,335.  $10,300 of these asset impairment charges are related to three properties included in discontinued operations at December

99

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

31, 2009, with a combined fair value of $55,500.  The Company’s estimated fair value, measured on a non-recurring basis, relating to this impairment assessment was based upon a discounted cash flow model that included all estimated cash inflows and outflows over a specific holding period.  These cash flows are comprised of unobservable inputs which include contractual rental revenues and forecasted rental revenues and expenses based upon market conditions and expectation for growth.  Capitalization rates and discount rates utilized in this model were based upon observable rates that the Company believed to be within a reasonable range of current market rates for the property.  Based on these inputs, the Company had determined that its valuation of its consolidated operating properties were classified within Level 3 of the fair value hierarchy.

(18)  Commitments and Contingencies

The Company has acquired several properties which have earnout components, meaning the Company did not pay for portions of these properties that were not rent producing at the time of acquisition.  The Company is obligated, under these agreements, to pay for those portions when a tenant moves into its space and begins to pay rent.  The earnout payments are based on a predetermined formula.  Each earnout agreement has a time limit regarding the obligation to pay any additional monies.  The time limits generally range from one to three years.  If, at the end of the time period allowed, certain space has not been leased and occupied, the Company will generally own that space without any further payment obligation to the seller.  As of December 31, 2009, based on pro-forma leasing rates, the Company may pay as much as $10,146 in the future as retail space covered by earnout agreements i s occupied and becomes rent producing.

The Company has entered into one construction loan agreement, one secured installment note and one other installment note agreement, one of which was impaired as of December 31, 2009, in which the Company has committed to fund up to a total of $8,680, excluding the impaired note agreement.  Each loan, except one, requires monthly interest payments with the entire principal balance due at maturity.  The combined receivable balance at December 31, 2009 and 2008 was $8,330 and $25,715, net of allowances of $17,209 and $300, respectively.  The Company is not required to fund any additional amounts on these loans as all of the agreements are non-revolving and all fundings have occurred.

Although the loans obtained by the Company are generally non-recourse, occasionally, when it is deemed to be necessary, the Company may guarantee all or a portion of the debt on a full-recourse basis. As of December 31, 2009, the Company has guaranteed $107,000 and $37,020 of the outstanding secured line of credit and mortgage loans, respectively.  The Company also guarantees a portion of the construction debt associated with certain of its consolidated development joint ventures.  The guarantees are released as certain leasing parameters are met.  As of December 31, 2009, the amount guaranteed by the Company was $23,523; however, as these guarantees are with consolidated entities, the potential full liability associated with these guarantees has not been recorded.

On November 30, 2006, the Company entered into a consolidated joint venture, Stroud Commons, LLC for the purpose of acquiring land and developing a shopping center in Stroudsburg, Pennsylvania.  As part of the project, the joint venture obtained construction debt, of which the Company has guaranteed 25%.  On January 9, 2009, the Company paid off the entire outstanding balance of $27,160, re-leasing the guarantee.

On August 31, 2006, the Company entered into a consolidated joint venture, Inland Western/Weber JV Frisco Parkway Limited Partnership for the purpose of acquiring land and developing a shopping center in Frisco, Texas.  As part of the project, the joint venture obtained construction debt, which as of December 31, 2009, had an outstanding balance of $20,862, of which the Company has guaranteed 35%, or $7,302.  

On September 15, 2006, the Company entered into a consolidated joint venture, Inland Western/Weber JV Dallas Wheatland Limited Partnership for the purpose of acquiring land and developing a shopping center in Dallas, Texas.  As part of the project, the joint venture obtained construction debt, which as of December 31, 2009, had an outstanding balance of $6,181, of which the Company has guaranteed 50%, or $3,091.

On August 9, 2006, the Company entered into a consolidated joint venture, Lake Mead Crossing, LLC for the purpose of acquiring land and developing a shopping center in Henderson, Nevada.  As part of the project, the joint venture obtained

100

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

construction debt which as of December 31, 2009, had an outstanding balance of $57,963, of which the Company has guaranteed 15%, or $8,694.

On June 4, 2008, the Company entered into a consolidated joint venture, Green Valley Crossing, LLC (Green Valley) for the purpose of acquiring land and developing a shopping center located in Henderson, Nevada.  In connection with the acquisition by Green Valley, an adjacent land parcel was acquired by Target Corporation (Target).  Under the terms of the agreement, Target had the option to put the adjacent parcel back to Green Valley if certain normal development activities, such as obtaining permits and establishing utilities at the site, were not completed by January 20, 2009.  Green Valley would be obligated to reimburse Target for the purchase price of the land in addition to certain costs incurred.  The Company had guaranteed the put option with Green Valley.  On December 1, 2008, the put agreement was released.  In addition, as part of the projec t, the joint venture obtained construction debt which as of December 31, 2009, had an outstanding balance of $11,089, of which the Company has guaranteed 40%, or $4,436.  Upon achieving a debt service coverage ratio of 1.10 for a period of 90 consecutive days, the guaranteed amount is reduced to 25% of the outstanding loan balance.  Upon achieving a debt service coverage ratio of 1.25 for a period of 90 consecutive days, the guaranteed amount is further reduced to 15% of the outstanding debt balance.

As of December 31, 2009, the Company had seven irrevocable letters of credit outstanding for security in mortgage loans.  Certain of these letters of credit relate to loan fundings against earnout spaces and will be released once the Company pays the remaining portion of the purchase price for these properties.  The remainder of these letters of credit will be held as additional collateral until the maturity of the loans or the collateral is replaced.  There was one letter of credit outstanding as of December 31, 2009 for the benefit of the Captive.  This letter of credit serves as collateral for payment of potential claims within the limits of self-insurance and will remain outstanding until all claims are closed.  There was also one letter of credit outstanding as security for utilities and completion of one development project.  The balance of the outstanding letters of credit at December 31, 2009 was $13,726.  Subsequent to the year ended December 31, 2009, the Company replaced three irrevocable letters of credit for security in mortgage loans with $6,165 of cash collateral and released one $1,247 irrevocable letter of credit for security in a mortgage loan as the loan was repaid on December 31, 2009.

The Company previously entered into an interest rate lock agreement with a lender to secure interest rates on mortgage debt on properties it owned or planned to purchase in the future.  The Company had outstanding interest rate lock deposits under an agreement that locked only the Treasury portion of mortgage debt interest, which had a maturity date of June 30, 2008, and was extended to July 31, 2009.  This Treasury rate lock agreement locked the Treasury portion at a rate of 5.582% on $85,000 in notional amounts, and could have been converted into full rate locks upon allocation of properties.  The carrying value of the rate lock deposits as of December 31, 2008 was $1,220.  During 2009, the Company was not required to make additional rate lock deposits and on August 5, 2009, the Company terminated the Treasury rate lock agreement which resulted in a gain of $3,989 during the third quarter o f 2009.

(19)  Litigation

The Company previously disclosed in its Form 10-K for the fiscal years ended December 31, 2008 and December 31, 2007, respectively, the lawsuit filed against the Company and nineteen other defendants by City of St. Clair Shores General Employees Retirement System and Madison Investment Trust in the United States District Court for the Northern District of Illinois.  In an amended complaint filed on June 12, 2008, plaintiffs alleged that all the defendants violated the federal securities laws, and certain defendants breached fiduciary duties owed to the Company and its shareholders, in connection with the Company’s merger with its business manager/advisor and property managers as reflected in its Proxy Statement dated September 12, 2007 (Proxy Statement).  All the defendants, including the Company, filed motions to dismiss the lawsuit, arguing that the amended complaint failed to comply with v arious rules and standards for pleading the kinds of claims in issue.

In a Memorandum Opinion and Order dated April 1, 2009 (Order), the court granted in part the defendants’ motions to dismiss the amended complaint.  The court dismissed five of the seven counts of the amended complaint in their entirety, including all claims that the Company’s board of directors breached their fiduciary duties to the Company and its shareholders in connection with the merger.  As to the remaining two counts, which alleged that the Proxy Statement

101

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

contained false and misleading statements, or omitted to state material facts necessary to make the statements therein not false and misleading, in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (Exchange Act), the motions to dismiss were granted in part and denied in part.  The court also held that the amended complaint adequately alleged a claim under Section 14(a) of the Exchange Act against KPMG LLP, in connection with its independent audit report for the advisor and property managers’ financial statements, and William Blair & Company, LLC, in connection with its Fairness Opinion that the consideration to be paid by the Company under the merger agreement was fair to the Company from a financial point of view.  The court ordered the plaintiffs to file a second amended complaint conforming to the court’s Order.  Plaintiffs filed a second amended compla int on May 1, 2009.

All the defendants moved to dismiss the Second Amended Complaint, but at a June 4, 2009 hearing, the court denied the motion to dismiss.  All defendants have now answered the Second Amended Complaint, and the court has entered a discovery schedule.  The parties to the lawsuit have engaged in settlement negotiations through a non-binding mediation which is ongoing.  There can be no assurance that the mediation will be successful, that a settlement will be reached or that the matter will be resolved without trial.  The Company believes the plaintiff’s allegations are without merit and continues to vigorously defend the lawsuit.  

In connection with this litigation, the Company continues to advance legal fees for certain directors and officers and William Blair & Company, LLC as part of its obligations under existing indemnity provisions.  

(20)  Subsequent Events

During the period from January 1, 2010 through the date of this 10-K filing, the Company:

·

issued 738 additional shares of common stock through the DRP resulting in a total of 482,481 of common stock outstanding at February 23, 2010;

·

paid distributions of $15,657, representing $0.0325 per share, to shareholders in January 2010 for the quarter ended December 31, 2009;

·

paid $3,430 to the Company’s partner in a consolidated joint venture in full redemption of its interest;

·

funded additional capital of $920 on one existing consolidated development joint venture;

·

funded one earnout of $501 to purchase an additional 5,011 square feet at one existing property;

·

replaced three irrevocable letters of credit for security in mortgage loans with $6,165 of cash collateral;

·

released one $1,247 irrevocable letter of credit for security in a mortgage loan as the loan was repaid on December 31, 2009;

·

borrowed an additional $12,860 of margin debt related to its investment in marketable securities;

·

funded additional capital of $1,384 on one existing unconsolidated development joint venture in connection with the execution of a construction loan modification agreement.  The modification agreement extended the maturity date to September 5, 2014, and resulted in debt forgiveness of $3,897, which reduced construction loans payable;

·

made mortgage payable repayments of $10,128. The stated interest rates of the loans repaid ranged from 5.06% to 5.12%;

·

had $187,437 of mortgage loans that had matured as of December 31, 2009. The Company has since extended the maturity of $128,385 of these loans from December 1, 2009 to May 1, 2010, made principal payments of $305 and is in the process of negotiating extensions on the remaining $58,747;

·

entered into a $300,000 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, which expires on March 31, 2010, which is expected to be the loan funding date, to be used to refinance 2010 debt maturities. In conjunction with this commitment, the Company also entered into a rate lock agreement to lock the interest rate at 6.39%. The Company made deposits of $8,500 related to both of these agreements. Subsequent to entering into these agreements, the Company made additional rate lock deposits of $3,000 and paid $1,050 to extend the rate lock agreement from February 10, 2010 to March 12, 2010;

102

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes to Consolidated Financial Statements

·

entered into a $101,220 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance debt maturing in 2010 on an existing property. In conjunction with this commitment, the Company also entered into a rate lock agreement to lock the interest at 6.57% and made a deposit of $2,024 toward this agreement, which will expire on March 11, 2010, which is expected to be the loan funding date;

·

entered into a $9,930 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance debt maturing in 2010 on an existing property. In conjunction with this commitment, the Company also entered into a rate lock agreement to lock the interest at 6.46% and made a deposit of $199 toward this agreement, which will expire on March 11, 2010, which is expected to be the loan funding date;

·

borrowed an additional $60,000 on the line of credit, and

·

obtained an extension through March 15, 2010, which is the date the loan modification is expected to be completed, on a construction loan associated with a consolidated development joint venture.

In January 2010, the Company’s board of directors amended the DRP effective March 1, 2010, solely to modify the purchase price to $6.85 per share.

(21)  Quarterly Financial Information (unaudited)

(a)

Represents revenue that has been reclassified to discontinued operations since previously reported amounts in form 10-Q or 10-K.

103

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule II

Valuation and Qualifying Accounts

For the Years Ended December 31, 2009, 2008 and 2007

(in thousands)

104

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

December 31, 2009

(in thousands)

105

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

106

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

107

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

108

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

109

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

110

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

111

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

112

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

113

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

114

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

115

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

116

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

117

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

118

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

(Continued)

December 31, 2009

(in thousands)

119

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Notes:

(A)

The initial cost to the Company represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired.

(B)

The aggregate cost of real estate owned at December 31, 2009 for Federal income tax purposes was approximately $7,278,960 (unaudited).

(C)

Adjustments to basis include payments received under master lease agreements as well as additional tangible costs associated with the investment properties, including any earnout of tenant space.

(D)

Reconciliation of real estate owned:

(E)

Reconciliation of accumulated depreciation:

120

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to the members of senior management and the Board of Directors.

Based on management’s evaluation as of December 31, 2009, our chief executive officer, president, chief financial officer and treasurer and chief accounting officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and is accumulated and communicated to our management, including our chief executive officer, president, chief financial officer and treasurer and our chief accounting officer to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting  

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.  The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by Deloitte & Touche LL P, an Independent Registered Public Accounting Firm, as stated in their report which is included herein.

Changes in Internal Controls

There were no changes to our internal controls over financial reporting during the fiscal quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B.  Other Information

None.

121

PART III

Item 10.  Directors, Executive Officers and Corporate Governance  of the Registrant

Executive Officers and Directors

Our current directors and executive officers and their positions are as follows:

Name	Age*	Position and office with us
Robert D. Parks	65	Chairman of the Board and Director
Brenda G. Gujral	67	Director
Kenneth H. Beard	69	Director
Frank A. Catalano, Jr.	49	Director
Paul R. Gauvreau	70	Director
Gerald M. Gorski	66	Director
Richard P. Imperiale	50	Director
Kenneth E. Masick	64	Director
Barbara A. Murphy	72	Director
Steven P. Grimes	43	Chief Executive Officer, President, Chief Financial Officer and Treasurer
Dennis K. Holland	57	General Counsel and Secretary
Shane C. Garrison	40	Chief Investment Officer
Niall J. Byrne	53	Vice President and President of Property Management
James W. Kleifges	59	Chief Accounting Officer

*As of January 1, 2010

Robert D. Parks has been our Chairman of the Board and a director since our inception on March 5, 2003.  He is a director of The Inland Real Estate Group of Companies, Inc. and one of its four original principals; Chairman of the Board of Inland Real Estate Investment Corporation (IREIC); Mr. Parks is Chairman of the Board and a director of Inland American Real Estate Trust, Inc. (IARETI).  He is also a director of Inland Real Estate Exchange Corporation and a director of Inland Investment Advisors, Inc.  Mr. Parks was formerly a director of Inland Securities Corporation and formerly President, Chief Executive Officer and a director of Inland Real Estate Corporation.

Mr. Parks is responsible for the ongoing administration of existing investment programs, corporate budgeting and administration for IREIC.  He oversees and coordinates the marketing of all investments and investor relations.

Prior to joining the Inland organization, Mr. Parks taught in Chicago’s public schools.  He received his B.A. from Northeastern Illinois University and his M.A. from the University of Chicago.  He is a registered Direct Participation Program Limited Principal with the Financial Industry Regulatory Authority.  He is a member of the Real Estate Investment Association, the Financial Planning Association, the Foundation for Financial Planning as well as a member of the National Association of Real Estate Investment Trusts (NAREIT).

Brenda G. Gujral has been one of our directors since our inception and previously served as our chief executive officer until November 15, 2007.  She was the president and a director of IREIC from July 1987 through September 1992 at which time she took a leave to work in a family business.  She returned to Inland in a part-time position from October 1995 until January 1998 at which time she was again named president and director of IREIC becoming its chief executive officer in January of 2008.  She served as president, chief operating officer and a director of Inland Securities Corporation from January 1997 until June 2009, and has been a director of Inland Securities Corporation since January 1997.  Additionally, Ms. Gujral has served as a director of Inland Investment Advisors, Inc., an investment advisor, since January 2001.  Ms. Gujral also has served as president and director of IARETI since its inception in October 2004, the chairman of the board of Inland Real Estate Exchange Corporation since May 2001, and a director of Inland Opportunity

122

Business Manager & Advisor, Inc. since April 2009.  Ms. Gujral was a director of Inland Retail Real Estate Trust, Inc. from its inception in September 1998 until it was acquired in February 2007.

Ms. Gujral has overall responsibility for the operations of IREIC, including investor relations, regulatory compliance and filings, review of asset management activities and broker-dealer marketing and communication.  Ms. Gujral works with the internal and outside legal counsel in structuring IREIC’s investment programs and in connection with preparing offering documents and registering the related securities with the Securities Exchange Commission (SEC) and state securities commissions.

Ms. Gujral has been with the Inland organization for twenty-nine years, becoming an officer in 1982.  Prior to joining Inland, she worked for the Land Use Planning Commission establishing an office in Portland, Oregon, to implement land use legislation for that state.  She is a graduate of California State University.  She holds Series 7, 22, 39 and 63 certifications from the Financial Industry Regulatory Authority and is a licensed real estate salesperson and a member of NAREIT.

Kenneth H. Beard has been one of our independent directors since our inception on March 5, 2003.  He is President and Chief Executive Officer of KHB Group, Inc. and Midwest Mechanical Construction, mechanical engineering and construction companies.  From 1999 to 2002, he was President and Chief Executive Officer of Exelon Services, a subsidiary of Exelon Corporation.  From 1974 to 1999, Mr. Beard was President and Chief Executive Officer of Midwest Mechanical, Inc., a heating, ventilation and air conditioning construction and service company that he founded in 1974.  From 1964 to 1974, Mr. Beard was employed by The Trane Company, a manufacturer of heating, ventilating and air conditioning equipment.

Mr. Beard holds a MBA and BSCE from the University of Kentucky and is a licensed mechanical engineer.  He is past chairman of the foundation board of the Wellness House in Hinsdale, Illinois, a cancer support organization and serves on the Dean’s Advisory Council of the University of Kentucky, School of Engineering.  Mr. Beard is a past member of the Oak Brook, Illinois, Plan Commission (1981 to 1991) and a past board member of Harris Bank, Hinsdale, Illinois (1985 to 2004).

Frank A. Catalano, Jr. has been one of our directors since our inception on March 5, 2003.  He has served as President of Catalano & Associates since 1999.  Catalano & Associates is a real estate company that includes brokerage, property management and rehabilitation and leasing of office buildings.  Mr. Catalano’s experience also includes mortgage banking.  Since February 1, 2008, he has been with Gateway-Funding as their Regional Vice President.  From 2002 until August 2007, he was a Vice President of American Home Mortgage Company.  He also was President and Chief Executive Officer of CCS Mortgage, Inc. from 1995 through 2000.

Mr. Catalano is a member of the Elmhurst Chamber of Commerce and its past chairman of the board.  He is also a member of the Elmhurst Jaycees, Elmhurst Memorial Healthcare Board of Governors and Elmhurst Kiwanis.  Mr. Catalano holds a mortgage banker’s license.

Paul R. Gauvreau has been one of our directors since our inception on March 5, 2003.  He is the retired Chief Financial Officer, Financial Vice President and Treasurer of Pittway Corporation, a New York Stock exchange listed manufacturer and distributor of professional burglar and fire alarm systems and equipment from 1966 until its sale to Honeywell, Inc. in 2001.  He was President of Pittway’s non-operating real estate and leasing subsidiaries through 2001.  He was a financial consultant to Honeywell, Inc., Genesis Cable, L.L.C. and ADUSA, Inc.  He was a director and audit committee member of Cylink Corporation, a NASDAQ Stock Market listed manufacturer of voice and data security products from 1998 until its merger with Safenet, Inc. in February 2003.

Mr. Gauvreau holds an MBA from the University of Chicago and a BSC from Loyola University of Chicago.  He is on the Board of Trustees, Chairman of the Finance Committee and Treasurer of Benedictine University, Lisle, Illinois and a member of the Board of Directors of the Children’s Brittle Bone Foundation, Pleasant Prairie, Wisconsin.

Gerald M. Gorski has been one of our directors since July 1, 2003.  He has been a Partner in the law firm of Gorski & Good, Wheaton, Illinois since 1978.  Mr. Gorski’s practice is limited to governmental law.  His firm represents numerous

123

units of local government in Illinois and Mr. Gorski has served as a Special Assistant State’s Attorney and Special Assistant Attorney General in Illinois.  He received a B.A from North Central College with majors in Political Science and Economics and a J.D. from DePaul University Law School where he was placed on the Deans Honor List.  Mr. Gorski serves as the Vice Chairman of the Board of Commissioners for the DuPage Airport Authority.  Further, Mr. Gorski has also served as Chairman of the Board of Directors of the DuPage National Technology Park.  He has written numerous articles on various legal issues facing Illinois municipalities; has been a speaker at a number of municipal law conferences and is a member of the Illinois Bar Association, the Institute for Local Government Law and the International Municipal Lawyers Association.

Richard P. Imperiale has been a director since January 2008 and is President and founder of the Uniplan Companies, a Milwaukee, Wisconsin based investment advisory holding company.  Uniplan and its affiliates manage and advise over $500 million in client accounts.  Uniplan specializes in providing clients with consistently superior risk-adjusted returns managing equity, REIT and specialty portfolios.  Mr. Imperiale started his career as a credit analyst for the First Wisconsin National Bank (now U.S. Bank).  In 1983, Mr. Imperiale joined B.C. Ziegler & Company, a Midwest regional brokerage firm where he was instrumental in the development of portfolio strategies for one of the first hedged municipal bond mutual funds in the country. In 1984, Mr. Imperiale founded Uniplan, Inc., with the objective of managing investment portfolios to achieve the greatest long-term risk-adjusted retu rn for conservative institutional clients.  Mr. Imperiale is widely quoted in local and national media on matters pertaining to investments and is a regular guest on CNNfn's Power Lunch.  He has appeared on Bloomberg News, CNBC and is a frequent guest on the syndicated radio talk show, Money Sense.  He authored the book Real Estate Investment Trusts: New Strategies For Portfolio Management, published by John Wiley & Sons, 2002.  

He attended Marquette University Business School where he received a B.S. in Finance.  In addition, Mr. Imperiale completed the postgraduate lecture series in corporate finance at the University of Chicago Graduate School of Business and received a certificate in legal research from Concordia University.

Kenneth E. Masick has been one of our directors since January 2008. He retired from Wolf & Company LLP, certified public accountants, in April 2009, being there as a partner since its formation in 1978.  That firm, one of the largest in the Chicago area specializes in audit, tax and consulting services to privately owned businesses.  Mr. Masick was partner-in-charge of the firm’s audit and accounting department and was responsible for the firm’s quality control.  His accounting experience also includes feasibility studies and due diligence activities with acquisitions.  Mr. Masick has been in public accounting since his graduation from Southern Illinois University in 1967. He is a member of the American Institute of Certified Public Accountants and the Illinois CPA society.  Mr. Masick also holds Series 7, 24, 27 and 63 licenses from FINRA.  He also was tre asurer and director of Wolf Financial Management LLC, a securities broker-dealer firm.  Mr. Masick also held the position of director with Inland Retail Real Estate Trust, Inc.

Barbara A. Murphy has been one of our directors since July 1, 2003.  She is the Chairwoman of the DuPage Republican Party.  Ms. Murphy is also a member of Illinois Motor Vehicle Review Board and a member of Matrimonial Fee Arbitration Board.  Ms. Murphy is a former Chairman and current Committeeman for The Milton Township Central Committee.  After serving for twenty years, she recently retired from the position of Milton Township Trustee.  Ms. Murphy previously served as State Central Committeewoman for the Sixth Congressional District and has also served on the DuPage Civic Center Authority Board, the DuPage County Domestic Violence Task Force and the Illinois Toll Highway Advisory Committee.  Ms. Murphy is a founding member of the Family Shelter Service Board.  As a former volunteer for Central DuPage Hospital, she acted as the “surgery hostess” (cared f or families while a family member was undergoing surgery).  Ms. Murphy was a department manager and buyer for J.W. Robinson’s and Bloomingdale’s and the co-owner of Daffy Down Dilly Gift Shop in Glen Ellyn.

Steven P. Grimes became our Chief Operating Officer and Chief Financial Officer on November 15, 2007.  Mr. Grimes became our Chief Executive Officer, President, Chief Financial Officer and Treasurer on October 13, 2009.  He joined Inland as Chief Financial Officer of Inland Western Retail Real Estate Advisory Services, Inc., our former business manager/advisor, in February 2004.  Since that time, Mr. Grimes has held the positions of our Principal Financial Officer and Treasurer.  During his time as Principal Financial Officer, Mr. Grimes oversaw the acquisition of over $8.3 billion in real estate assets and over $4.3 billion in financings and has led our SEC and Sarbanes Oxley compliance efforts.  

124

Prior to joining the Inland organization, Mr. Grimes was a Director with Cohen Financial, a mortgage brokerage firm, and was a senior manager with Deloitte in their Chicago-based real estate practice.  Mr. Grimes received his B.S. in Accounting from Indiana University and is a Certified Public Accountant.  He is a member of NAREIT and ICSC.  Mr. Grimes is a member of the AICPA and the Illinois CPA Society. Previously Mr. Grimes has served on accounting subcommittees of National Council of Real Estate Investment Fiduciaries (NCREIF) and Pension Real Estate Association (PREA).  

Dennis K. Holland joined us as General Counsel and Secretary on November 15, 2007.  Prior to that time he served as Associate Counsel in The Inland Real Estate Group, Inc. (TIREG) law department.  Mr. Holland joined TIREG in December 2003.  Mr. Holland is involved in all aspects of our business, including real estate acquisitions and financings, sales, securities laws, corporate governance matters, leasing and tenant matters, litigation management and manages our law department.  He received his B.S. in Economics from Bradley University in 1974 and a J.D. from the John Marshall Law School in 1979.  Mr. Holland is licensed to practice law in Illinois.  He is a member of NAREIT and ICSC and is a member of ICSC’s Bankruptcy Task Force.  Prior to joining TIREG, Mr. Holland served as Deputy General Counsel with Heller Financial, Inc. and in a business role with GE Capita l following its acquisition of Heller Financial.  

Shane C. Garrison joined Inland US Management LLC, one of our property management companies, in 2004.  As Vice President of Asset Management and a member of IREIC’s senior advisory committee, he spearheaded our development and joint venture initiatives.  On November 15, 2007, Mr. Garrison was appointed Chief Investment Officer. Mr. Garrison sits on the Board of the MS Inland joint venture and is a member of the Inland Western Investment Committee.

Previously, Mr. Garrison was head of asset management for ECI Properties, responsible for its real estate portfolio, which included industrial and retail properties.  Prior to ECI Properties, he was the general manager of the Midwest region for Circuit City.

He has an MBA in Real Estate Finance from DePaul University in Chicago and a B.S. in Business Administration from Illinois State University.  He is an active member of the Urban Land Institute (ULI), NAREIT and ICSC.

Niall J. Byrne joined us as Vice President and President of Property Management on November 15, 2007.  Mr. Byrne is responsible for the oversight of all the property management functions for our portfolio of nearly 300 properties, which aggregate to approximately 45 million square feet.  In 2005, he joined Inland Holdco Management LLC as a Senior Vice President of the property managers, providing management and leasing services to us.  As a member of IREIC’s senior advisory committee, he was involved in our development, acquisitions and joint venture initiatives.  On November 15, 2007, Mr. Byrne was appointed President of Property Management.

Previously, Mr. Byrne was Vice President of Asset Management of a large commercial and residential portfolio of properties at American Landmark Properties, Ltd.  Prior to joining American Landmark Properties, Ltd., Mr. Byrne was Senior Vice President/Director of Operations for Providence Management Company, LLC (PMC Chicago).  At PMC Chicago, he oversaw all aspects of property operations, daily management and asset management functions for an 8,000-unit multi-family portfolio.  He also has over fifteen years of real estate experience with the Chicago-based Habitat Company and with American Express/Balcor.

Mr. Byrne received his B.S. in Accounting from DePaul University.  He holds an Illinois CPA Certificate and Illinois Real Estate sales license and has five years of public accounting experience.  He is a member of NAREIT and ICSC, where he has participated in numerous continuing professional educational seminars.

James W. Kleifges became our Chief Accounting Officer on November 15, 2007.  In March 2007, he joined IREIC as Chief Accounting Officer of Inland Western Retail Real Estate Advisory Services, Inc., our former business manager/advisor.  From January 2005 through February 2007, Mr. Kleifges was Vice President, Chief Financial Officer, Treasurer and Assistant Secretary of Inland Retail Real Estate Trust, Inc., an affiliate until its merger with a third party in February 2007, a transaction valued in excess of $6 billion.  From August 2004 through December 2004, Mr. Kleifges was the Vice President, Corporate Controller for Inland Retail Real Estate Advisory Services, Inc.  From April 1999 to January 2004, Mr. Kleifges was Vice President/Corporate Controller of Prime Group Realty Trust, an office and industrial real estate investment trust based in Chicago, Illinois, with assets in excess o f $1 billion.  Prior to Prime Group, Mr.

125

Kleifges held senior financial and operational positions in various private and public real estate companies located in Chicago, Illinois and Denver, Colorado.  Mr. Kleifges also was a Senior Manager with KPMG in Chicago, Illinois completing a career in public accounting from June 1972 to December 1982.  Mr. Kleifges earned his B.A. in Accounting from St. Mary’s University in Winona, Minnesota and has been a Certified Public Accountant since 1974.  Mr. Kleifges is a member of the Illinois Society of Certified Public Accountants.

Board of Directors

Our current governing charter requires us to have at least three, but not more than eleven, directors.  Our Board of Directors (Board) currently consists of nine individuals. Although we are not listed on the New York Stock Exchange, after an evaluation, we believe that all of the directors would satisfy the definition of "independent" under the New York Stock Exchange's listing standards, except for Robert D. Parks, Brenda G. Gujral and Kenneth E. Masick.

The election of members of the Board is conducted on an annual basis. Each individual elected to the Board serves a one-year term and until his or her successor is elected and qualifies. Accordingly, the term of office of each of our current directors will expire at the annual meeting of shareholders.  At that meeting, each current director will be nominated to stand for reelection as a director to hold office until our annual meeting to be held in 2010 and until his/her successor is elected and qualifies.  We have no reason to believe that any of the nominees will be unable or unwilling to serve if elected. However, should any nominee be unable or unwilling to accept the office of director, and if the Board shall designate a substitute nominee, the persons named as proxies will vote for the election of the substitute nominee designated by the Board, and if none, for such other persons as they shall de termine.  Seven of our current directors have been directors since 2003, and two of our current directors have been directors since January 1, 2008.  Information regarding the business experience of each nominee is provided above based upon information furnished to us by the individuals named.

Committees of the Board of Directors

Our bylaws provide that our Board may establish such committees as the Board believes appropriate.  The Board will appoint the members of the committee in the Board's discretion.  In addition to the three committees described below, our Board may establish such other committees as it deems necessary and appropriate.  

Audit Committee.  Our board has established an Audit Committee comprised of Messrs. Beard, Masick and Gauvreau.  Mr. Gauvreau serves as the Chair of the Audit Committee and qualifies as our “financial expert” under the SEC rules.  Although we are not listed on the New York Stock Exchange, after an evaluation by the Audit Committee, we believe that each of the members of the Audit Committee, with the exception of Mr. Masick, would satisfy the definition of “independent” under the New York Stock Exchange’s listing standards.  Mr. Masick is an audit partner with Wolf and Co., the firm that audited the financial statements of the property management companies acquired by us in the internalization on November 15, 2007.  However, our Board believes that his experience is best suited to serve as a member of the Audit Committee.

The Audit Committee is responsible for the engagement of our independent registered public accounting firm, reviewing the plans and results of the audit engagement with our independent registered public accounting firm, approving services performed by, and the independence of, our independent registered public accounting firm, considering the range of audit and non-audit fees, and consulting with our independent registered public accounting firm regarding the adequacy of our internal accounting controls. The Audit Committee held nine meetings during 2009.

Executive Compensation Committee of the Board of Directors.   Our Board has established an Executive Compensation Committee that is comprised of Ms. Gujral, Ms. Murphy and Messrs. Imperiale and Catalano.  Mr. Catalano serves as chair of the Executive Compensation Committee.  The Executive Compensation Committee is responsible for oversight of the compensation of our executive officers.  The Executive Compensation Committee held ten meetings during 2009 ..  See “Compensation Discussion and Analysis.”

Nominating and Corporate Governance Committee.   Our Board has established a Nominating and Corporate Governance Committee that is comprised of Messrs. Parks, Imperiale and Gorski.  Mr. Gorski serves as chair of the Committee.  The Nominating and Corporate Governance Committee is responsible for nominations of individuals to serve as directors as

126

vacancies occur, review of board performance, establishing qualifications for serving as a board member and oversight of compliance with our Code of Business Conduct and Ethics.  The Nominating and Corporate Governance Committee held two meetings during 2009 ..  

During 2008, the Nominating and Corporate Governance Committee prepared and adopted the Company’s Guidelines on Corporate Governance as well as a Board Member Job Description outlining the core competencies, responsibilities and expectations of and for Board Members.  Both documents were subsequently approved by the Board.

In preparation for our Annual Meeting in 2009, the Committee reviewed the candidacies of Board Members and nominated all then sitting Board Members for re-election.

Independent Directors Committee.  In April 2009, our Board, at the recommendation of the Nominating and Corporate Governance Committee, established the Independent Directors Committee.  The Independent Directors Committee is responsible for reviewing, approving and monitoring all related party transactions, agreements and relationships.  All board members who are designated as “independent” by the Nominating and Corporate Governance Committee are members of the Independent Directors Committee.  Currently, Ms. Murphy and Messrs Gorski, Gauvreau, Catalano, Imperiale, Masick and Beard are members of the Committee.  The Committee held seven meetings in 2009.

In November 2009, the Independent Directors Committee considered and recommended to the Board the approval of a joint venture between the Company and principals of The Inland Real Estate Group, Inc.  The joint venture holds a portfolio of 55 investment properties, which portfolio secures a loan from JPMorgan Chase Bank, N.A.  The Independent Directors Committee retained the law firm of Winston & Strawn LLP to advise it as independent counsel in connection with this matter.

Special Committee.  In November 2008, the Board established a Special Committee consisting of independent directors to review and evaluate potential sales of various properties to related entities.  Messrs. Imperiale and Catalano served as members of the Special Committee.  The Special Committee retained the law firm of Winston & Strawn LLP to advise it as independent counsel.  The Special Committee held twenty-four meetings in 2009 to review and evaluate potential related party sales, and in December 2008, recommended to the Board the approval of the sale of two properties.  The Board accepted that recommendation and approved the sale.  In March 2009, the Special Committee recommended to the Board the approval of the sale of two additional properties.  The Board accepted that recommendation and approved the sale.  In addition the special Committee monitored the progress of the related party sales until closing.

Corporate Governance Documents.  On October 12, 2004, our Board of Directors unanimously adopted the following corporate governance documents:

·

Code of Business Conduct and Ethics,

·

Nonretaliation Policy, and

·

Complaint Procedures for Accounting and Auditing Matters.

Subsequently, on May 13, 2008, our Board of Directors unanimously adopted the following:

·

Guidelines on Corporate Governance

·

Board of Directors Member Job Description

The Code of Business Conduct and Ethics is applicable to all employees of the Company, including the Chief Executive Officer and Chief Financial Officer, and to the Company’s Board of Directors.  The Code of Business Conduct and Ethics is publicly available on the Company’s website at www.inland-western.com.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of our outstanding shares, to file statements of beneficial ownership and changes in beneficial ownership of our shares with the SEC and to furnish us with copies of all statements they file.  Based solely on a review of the forms we have received and

127

on written representations from certain reporting persons that no such forms were required for them, we believe that during 2009 all Section 16 filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with by such persons.

Item 11.  Executive Compensation  

Compensation Discussion and Analysis

Overview

The following discussion and analysis is set forth with respect to the compensation and benefits for the Company’s Chief Executive Officer, Chief Financial Officer and the other three officers included in the “Summary Compensation Table” included herein (together, the Company’s “Named Executive Officers”) for the Company’s fiscal year ended December 31, 2009 (“fiscal 2009”).

The compensation and benefits payable to the Named Executive Officers are established by the Board of Directors of the Company (the “Board”) with the assistance of the Executive Compensation Committee of the Board (the “Committee”).  The Committee is currently comprised of Frank A. Catalano, Jr. (Chairman), Brenda G. Gujral, Richard P. Imperiale, and Barbara A. Murphy.  Each of Messrs. Catalano and Imperiale and Ms. Murphy (but not Ms. Gujral) is (i) an “independent” director within the meaning of the New York Stock Exchange’s listing standards, (ii) a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and (iii) an “outside director” within the meaning of the regulations promulgated pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended.

·

The Committee operates under a written charter (the “Charter”) adopted by the Board.  A copy of the Charter is available at www.inlandwestern.com under “Corporate Governance.”  Pursuant to the Charter, the Committee is charged with reviewing and approving the Company’s compensation philosophy and is responsible for assuring that the officers and key management personnel of the Company and its subsidiaries are effectively compensated in terms that are motivating, internally equitable and externally competitive.  Pursuant to its Charter, the Committee’s function is to:

­

review (in consultation with management or the Board), recommend to the Board for approval and evaluate the compensation plans, policies and programs of the Company, especially those regarding executive compensation;

­

determine the compensation of the chief executive officer and all other executive officers of the Company; and

­

produce an annual report on executive compensation for inclusion in the Company’s proxy materials in accordance with applicable rules and regulations.

Objectives and Structure of Our Compensation Program

The primary objectives of our executive compensation programs are:  (i) to attract, retain and reward experienced, highly-motivated executives who are capable of leading us effectively and contributing to our long-term growth and profitability, (ii) to motivate and direct the performance of management with clearly-defined goals and measures of achievement, and (iii) to align the interests of management with the interests of our shareholders.

We attempt to achieve our objectives through offering the opportunity to earn a combination of cash and equity-based compensation to provide appropriate incentives for our executives.  Executive officers are eligible to receive a combination of (i) annual base salary, (ii) annual cash incentive compensation, and (iii) option grants under our Stock Incentive Plan.  Each of the Named Executive Officers participates in the same benefits programs available to all of our employees:  health and dental insurance; group term life insurance; short-term disability coverage; and tax-qualified 401(k) plan.  The Company does not provide additional perquisites to the Named Executive Officers.  For 2008, these elements were set forth in employment agreements between the Company and the Named Executive Officers and are

128

summarized below.  For fiscal 2009, the same elements were considered although there were no employment agreements in effect with the Named Executive Officers (except with Mr. Holland).  The Committee did not engage a compensation consultant for 2008 or 2009.

When we were initially formed in 2003, we did not have any employees. Instead, we had agreements with related parties who provided all of our services and employees in exchange for fees. At that time, those related parties compensated their employees, including each of the Named Executive Officers, from the time they started their employment with such related parties.  We were not a part of any compensation decisions or arrangements. On November 15, 2007, we acquired those related parties and hired substantially all of those employees who were employed by those related parties and provided services to us in a transaction referred to as the internalization. As part of the internalization, we entered into employment agreements with four of our executive officers, including Steven P. Grimes, our current Chief Executive Officer, President, Chief Financial Officer and Treasurer; Shane C. Garrison, our Chief Inve stment Officer; Niall J. Byrne, our Vice President and President of our property management companies and Michael J. O'Hanlon, our former Chief Executive Officer and President.  The term of our initial employment agreements with each of the individuals listed above began on November 15, 2007, the closing date of the internalization.  The employment agreements provided that each Named Executive Officer was to receive a salary but made no provision for a incentive compensation or equity compensation.  Accordingly, no incentive compensation or equity compensation was paid by the Company to our Named Executive Officers for 2007; however, the prior employer of each of the Named Executive Officers made incentive compensation payments to them for 2007 which were not reflected in the Company’s proxy statement and annual report on Form 10-K.  For 2007, we had an oral agreement with Dennis K. Holland, our general counsel and secretary, with respect to his employment.

In late 2007, our Board established the Committee. In February 2008, the Board adopted a charter for the Committee and it began meeting to examine and establish compensation programs for our chief executive officer and other executive officers.

In August 2008, the Company finalized new employment agreements for all of the Named Executive Officers for the year ended on December 31, 2008, retroactive to January 1, 2008 (except for Mr. Holland's employment agreement, which continued, until December 31, 2009).  The Committee determined not to enter into any new employment agreements with the Named Executive Officers in 2009.  

As a part of its efforts, the Committee set the objectives of our compensation program.  While the Committee informally compared compensation against peer group data to gain a sense of current market compensation, no benchmarking was used.  The peer group selected by the Committee consists of the following nine publicly-traded REITs with a substantial retail shopping center portfolio:

Developers Diversified Realty Corporation Regency Centers Corporation Cedar Shopping Centers, Inc. Equity One, Inc. Federal Realty Investment Trust Inland Real Estate Corporation Kimco Realty Corporation Ramco-Gershenson Properties Trust Weingarten Realty Investments

In fiscal 2009, the Committee considered a combination of base salary, incentive compensation, annual long-term equity awards in the form of stock options and other benefits noted above to meet its compensation objectives.  The proportions of these elements were determined by the Committee in its discretion, considering, among other things, the prevailing practices in the marketplace, including the peer group, and the historical compensation by the Company and the prior employers of the Company’s Named Executive Officers.  In establishing base salaries for 2009, the Committee considered present compensation, market competitiveness in relation to the Company’s performance and capital structure, the roles, responsibilities and performance of each of the Named Executive Officers, the contribution of each of the Named Executive Officers to the Company’s business, an analysis of job requireme nts, and the prior experience and accomplishments of each of the Named Executive Officers.  The decision as to whether to award incentive compensation, for 2009 was solely in the discretion of the Committee (except with respect to Mr. Holland, as described below).  The Committee believes that having incentive compensation within the control of the Committee allows the Company more directly to reward achievement and effort by the Named Executive Officers without using formulas which may or may not

129

appropriately reward individual Named Executive Officers.  Discretionary incentive compensation also assists in the Company’s efforts to retain outstanding executive officers.  Finally, the Committee views the granting of stock options as a means of aligning management and shareholder interests, providing incentives and rewarding management’s long-term perspective, and retaining the services of the Named Executive Officers.  

In determining whether to pay the annual incentive compensation for each Named Executive officer for fiscal 2009, the Committee generally considered a number of factors on a subjective basis, including, but not limited to, (i) the scope of the officer’s responsibilities within the Company; (ii) the experience of the officer within our industry and at the Company; (iii) performance of the Named Executive Officer and his or her contribution to the Company; (iv ) the Company’s financial budget and general wage level throughout the Company for fiscal 2009; ( v ) a review of historical compensation information for the individual officer; ( vi ) a subjective determination of the compensation needed to motivate and retain that individual; ( vii ) the recommendations of the Chief Executive Officer (and the recommendation of the Chairman of the Board with respect to the Chief Executive Officer); ( viii ) data regarding compensation paid to officers with comparable titles, positions or responsibilities at REITs that are approximately similar in size to the Company, and ( ix ) general industry and market conditions and their impact upon the ability of the Company to achieve objective performance goals and the time commitment required of the Named Executive Officers.  An officer’s target compensation is not mechanically set to be a particular percentage of the peer group average, although as noted the Committee does review the officer’s compensation relative to the peer group to help the Committee perform the subjective analysis described above.  Peer group data is not used as the determining factor in setting compensation for the following reasons:  (a) the average actual compensation for comparable officers at the peer companies may be the result of a year of over performance or under performance by the peer group (i.e., historically, the Company has not had access to the target compensation set for the peer group, but only to the actual compensation paid, so setting target compensation strictly by reference to actual compensation data for peers would b e inappropriate); and (b) the Committee believes that ultimately the decision as to appropriate target compensation for a particular office should be made based on the full review described above.  The Committee also reviews competitive market compensation data for the peer group.  

While the Committee and the Board recognized that each of the Named Executive Officers had given extraordinary time and effort to his job in extremely difficult economic circumstances, the Committee also believed it appropriate, based on the difficult economic climate and the belief that the Named Executive Officers should share the sacrifice being made by the shareholders of the Company in 2009, that no discretionary incentive compensation or stock options have been awarded for 2009.  Nevertheless, the Committee has determined to review at its next meeting scheduled for March 2010 whether any discretionary cash incentive compensation should be awarded to any of the Named Executive Officers for 2009 in view of their extraordinary efforts and sacrifice.   The following is a summary of the payments made to each of the Company’s Named Executive Officers in 2009.

Steven P. Grimes. In 2009, Mr. Grimes, who became our Chief Executive Officer and President on October 13, 2009 and continues as our Chief Financial Officer and Treasurer, received the same base salary of $375,000 per year that we paid him in 2008.  On January 12, 2010, the Board of Directors increased the annual base salary for Mr. Grimes to $450,000 (which is the amount of base salary paid to Mr. Grimes’ predecessor as Chief Executive Officer and President).  This salary increase was effective as of January 1, 2010 and recognized Mr. Grimes’ increased responsibilities since being appointed Chief Executive Officer and President of the Company, in addition to maintaining his current duties as Chief Financial Officer and Treasurer.

Dennis K. Holland. Under the terms of Mr. Holland’s employment agreement, we agreed to pay Mr. Holland, our General Counsel and Secretary, a base salary of $265,000 per year in 2009.  In addition to a base salary, under his contract, Mr. Holland was entitled to receive in 2009 annual incentive compensation of up to 20% of his base salary. One half of such incentive compensation, a discretionary cash bonus, is payable at the discretion of the Chief Executive Officer and President, with the approval of the Committee and the Board; the other half of such incentive compensation shall be determined based on our performance measured to either a high, target or threshold level of performance as measured by our FFO growth (as used herein, “FFO” means funds from operations, as defined by the National Association of Real Estate Investment Trusts, excluding the performance of our co mmon and preferred stock portfolio).  For example, if our FFO growth rate is equal to or greater than 130% of the median FFO growth rate for our peer group, Mr. Holland will be entitled to receive 10% of his base salary.  Alternatively, if we achieve a target level of FFO growth per fully-diluted share, Mr. Holland will be entitled to receive 7.5% of his base salary.  If we achieve a threshold level of

130

FFO growth per fully-diluted share, Mr. Holland will be entitled to receive 5% of his base salary.  In addition, if we achieve a threshold level of FFO growth per fully-diluted share when and as provided in the employment agreement, we are obligated to grant Mr. Holland an annual stock option award from which he will be entitled to purchase 3,500 shares of Company stock at market value on the date of grant, subject to certain restrictions.  Because the Company’s FFO growth rate was greater than 130% of our peer group, as required by his employment agreement, Mr. Holland was awarded incentive compensation equal to 10% of his base salary, or $26,500 for 2009; however, Mr. Holland did not receive any discretionary incentive compensation and, because the requisite FFO level was not met, no options were granted to Mr. Holland.

Shane C. Garrison.  In 2009, we continued to pay Mr. Garrison, our Chief Investment Officer, the same base salary of $250,000 per year that we paid him in 2008.

Niall J. Byrne. In 2009, we continued to pay Mr. Byrne, our President of Property Management, the same base salary of $250,000 per year that we paid him in 2008.

Michael J. O'Hanlon.  In 2009, we paid Mr. O'Hanlon, our former Chief Executive Officer and President, the same base salary that we paid him in 2008 ($450,000 per year) until his resignation as Chief Executive Officer and President of the Company on October 13, 2009.  Concurrently with Mr. O’Hanlon’s resignation, we entered into a Separation Agreement and General Release pursuant to which the Company will pay Mr. O’Hanlon 26 biweekly payments of approximately $17,300 each, and will continue to pay the cost of Mr. O’Hanlon’s existing group health plan benefits for a period of up to 12 months.  We did not pay Mr. O’Hanlon a bonus or any other compensation.

Section 162(m).  The SEC requires that this report comment upon the Company’s policy with respect to Section 162(m) of the Internal Revenue Code of 1986, as amended, which limits the deductibility on the Company’s tax return of compensation over $1 million to any of the Named Executive Officers of the Company, unless, in general, the compensation is paid pursuant to a plan which is performance-related, non-discretionary and has been approved by the Company’s shareholders.  The Company believes that, because it qualifies as a REIT under the Code and pays dividends sufficient to minimize federal income taxes, the payment of compensation that does not satisfy the requirements of Section 162(m) will generally not affect the Company’s net income.  To the extent that compensation does not qualify for a deduction under Section 162(m), a larger portion of shareholder distributio ns may be subject to federal income taxation as dividend income rather than return of capital.  The Company does not believe that Section 162(m) will materially affect the taxability of shareholder distributions, although no assurance can be given in this regard due to the variety of factors that affect the tax position of each shareholder.  For these reasons, the Compensation Committee’s compensation policy and practices are not directly guided by considerations relating to Section 162(m).

Executive Compensation Committee Report

The Executive Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Executive Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

Submitted by the Executive Compensation Committee

Frank A. Catalano, Jr. (Chairman)

Brenda G. Gujral

Richard P. Imperiale

Barbara A. Murphy

Compensation Committee Interlocks and Insider Participation

The members of the Executive Compensation Committee are set forth above.  There are no matters related to compensation committee interlocks or insider participation that the Company is required to report.

131

Summary Compensation Table

The following table sets forth information with respect to all compensation paid or earned for services rendered to us by the Named Executive Officers for the years ended December 31, 2009, 2008 and 2007.

(1)

For a description of material terms of employment agreements with each Named Executive Officer see “Compensation Discussion and Analysis.”

(2)

2007 amounts reflect salary paid by us for the period from November 15, 2007 through December 31, 2007.  Each individual became an employee of ours effective November 15, 2007, and was paid a pro-rata portion of their annual salary by us in accordance with the terms of their respective employment agreements.

(3)

Represents company match to 401(k) plan, except for the amount for Michael J. O’Hanlon, which represents the amounts incurred in conjunction with his Separation Agreement.

(4)

On October 13, 2009, the Company announced the resignation of its Chief Executive Officer and President, Michael J. O’Hanlon, and the appointment of Steven P. Grimes to serve as Chief Executive Officer, President, Chief Financial Officer and Treasurer of the Company.

Grants of Plan-Based Awards

There were no grants of stock, options or any other plan-based awards made to any Named Executive Officer during 2009.

Outstanding Equity Awards

There were no outstanding options, stock or other equity incentive plan awards held by any Named Executive Officer as of December 31, 2009.

Option Exercises and Stock Vested

There were no exercises of options, stock appreciation rights or similar instruments, and no vesting of stock, including restricted stock, restricted stock units or similar instruments, by any named executive officer during 2009.

Additional Compensation Tables

All other tables have been omitted because they were not applicable to us in 2009.

Potential Payments upon Termination or Change in Control

In order to attract, motivate and retain quality executives, as part of the employment agreement with Mr. Holland, we agreed to pay certain amounts and provide certain benefits following termination of employment (including following a

132

change of control) under certain circumstances, as described below.  The agreement terminated on December 31, 2009.  Each Named Executive Officer is currently working as an at-will employee.  The Committee has not determined whether the Company should enter into new employment agreements for 2010 or whether to continue the present at-will arrangement.  If the Committee does determine to enter into new employment agreements for 2010, the terms of such employment agreements may vary from the terms of prior employment agreements, including with respect to the matters discussed below, and may be retroactive.  

The employment agreement was terminable: (i) by the individual upon two weeks written notice to us; (ii) by the individual for good reason, as defined in each of the employment agreements, upon notice to us followed by a 10 day cure period; (iii) by us for any reason without prior written notice; (iv) by us for cause, as defined in the employment agreement and described below, effective without prior written notice to the individual unless we were terminating the individual's employment for reasons relating to a failure to perform the individual's duties or any material breach of the employment agreement or other agreements or certain of our written policies where we are required to give the individual notice of our intention and allow the individual 10 days to cure; (v) upon death, and (vi) upon a determination of total disability.

If the employment agreement was terminated for cause or voluntarily by the individual described above, we would have paid that individual any accrued base salary, accrued vacation payment, accrued reimbursable expenses and accrued benefits together with any benefits required to be paid or provided under applicable law, but any unvested stock option awards must immediately be forfeited.  If the employment agreement was terminated without cause or by the individual for good reason, we would have paid each individual any: (i) accrued base salary, (ii) accrued vacation payment, (iii) accrued reimbursable expenses; (iv) accrued benefits together with any benefits required to be paid or provided under applicable law; (v) accrued bonus; and (vi) an amount equal to 1.0 times the sum of his then current base salary plus an amount equal to the annual incentive bonus that was paid to him for the fiscal year immediatel y preceding the year of termination subject to certain restrictions. If the termination without cause or by the individual for good reason occurred within one year of a change of control, as defined in each employment agreement, then in addition to the amounts described in the preceding sentence in (i) through (v), we would have paid the individual an amount equal to 1.5 times the sum of his then current base salary plus an amount equal to the annual incentive bonus that was paid to him for the fiscal year immediately preceding the year of termination plus the aggregate value of each of the annual stock option awards that was granted to him for the fiscal year immediately preceding the year of termination subject to certain restrictions.  If termination was upon death or total disability, we would have paid amounts described in clauses (i) through (v) above.  Payments relating to termination are paid in a lump sum within 15 days of termination (30 days of death or total disability).

If the employment agreement was terminated without cause or upon death or total disability, any unvested annual stock options would have immediately vested. If the employment agreement was terminated for good reason, however, any unvested annual stock options must have been immediately forfeited; provided, however, that if the termination occurred within one year of a change of control, any unvested annual stock options would have immediately vested.

Under the employment agreement, termination for “cause” or upon death or total disability includes all of the following: (i) conduct amounting to fraud, embezzlement, disloyalty or illegal misconduct in connection with the individual's duties under the employment agreement and as our employee; (ii) conduct that we reasonably believe has brought us into substantial public disgrace or disrepute; (iii) failure of the individual to perform his duties under the employment agreement as reasonably directed by us after providing written notice of the failure to the individual and the individual has failed to cure within 10 days of receiving notice; (iv) gross negligence or willful misconduct by the individual with respect to us, our clients, our employees and our activities; or (v) material breach by the individual of the employment agreement or any other agreement to which the individual and we are a party or any material breach by the individual of any written policy we have adopted concerning conflicts of interest, standards of business conduct or fair employment practices and any other similar matter, provided that we have provided written notice of the breach to the individual and the individual has failed to cure the breach within 10 days of receiving notice.

Under the employment agreement, the individual was also reimbursed for all ordinary and necessary business expenses incurred by the individual in connection with the individual's duties as described in their employment agreement. Further,

133

the individual was eligible to participate in our retirement benefits, group health and other insurance coverage plans as they are in effect during the term of the employment agreement.

During the term of the employment agreement and for a period of one year following termination, the individual has agreed to certain non-compete and non-solicitation provisions.

If the executive’s agreement had been terminated for cause or voluntarily by the executive including under a change of control occurring on December 31, 2009, the executive would have received no payment; and if the executive’s agreement had been terminated without cause or by the executive for good reason, including within one year of a change of control, using the closing price of our common stock as of December 31, 2009, the executive would have received $397,500.  

Director Compensation

Base Compensation.  Effective January 1, 2008, each director (other than Mr. Parks and Ms. Gujral, who are not entitled to receive any compensation for their service on the Board of Directors or any of its committees) will receive an annual director fee of $40,000.  The chairman of the audit committee will receive an additional annual fee of $10,000, and the chairman of any other committee will receive an additional annual fee of $5,000.  In addition, each director will receive $1,000 for attending in person, $750 for attending via telephone, each meeting of the Board, and $500 for attending, whether in person or via telephone, each committee meeting.

Independent Director Stock Option Plan. We have an Independent Director Stock Option Plan under which non-employee directors, as defined under Rule 16b-3 of the Exchange Act, are eligible to participate.  Only those directors who are not employees of The Inland Group, Inc. or its affiliates are eligible to participate in this plan.

We have authorized and reserved a total of 375,000 shares of our common stock for issuance under our Independent Director Stock Option Plan.  The number and type of shares which could be issued under the plan may be adjusted if we are the surviving entity after a reorganization or merger or if our stock splits or is consolidated or we are recapitalized. If this occurs, the exercise price of the options will be correspondingly adjusted.

Beginning January 1, 2008 each non-employee director will be entitled to be granted an option under our Independent Director Stock Option Plan to acquire 5,000 shares as of the date they initially become a director.  At the time of this change, all non-employee directors other than Messrs. Imperiale and Masick had previously received their initial grants of options, and Messrs. Imperiale and Masick received their initial grants of options on January 1, 2008.  In addition, each non-employee director will be entitled to be granted an option to acquire an additional 5,000 shares on the date of each annual shareholders’ meeting, commencing with the annual meeting in 2008, so long as the director remains a member of the Board on such date.  All such options will be granted at the fair market value of a share on the last business day preceding the date of each annual shareholders’ meeting and will become fully exercisable on the second anniversary of the date of grant.  Grants made in 2009 are subject to shareholder approval of amendments to the Plan at the next annual meeting of the shareholders.

As of December 31, 2009, no options to acquire shares had been exercised or expired, and options to acquire 35,000 shares were outstanding.

Options granted under the Independent Director Stock Option Plan are exercisable until the first to occur of:

·

the tenth anniversary of the date of grant,

·

the removal for cause of the director as a director, or

·

three months following the date the director ceases to be a director for any other reason except death or disability.

The options may be exercised by payment of cash or through the delivery of our common stock.  They are generally exercisable in the case of death or disability for a period of one year after death or the disabling event, provided that the death or disabling event occurs while the person is a director.  However, if the option is exercised within the first six months after it becomes exercisable, any shares issued pursuant to such exercise may not be sold until the six month anniversary of the date of the grant of the option.  Notwithstanding any other provisions of the Independent Director Stock

134

Option Plan to the contrary, no option issued pursuant thereto may be exercised if such exercise would jeopardize our status as a REIT under the Code.

No option may be sold, pledged, assigned or transferred by a director in any manner otherwise than by will or by the laws of descent or distribution.

Upon our dissolution, liquidation, reorganization, merger or consolidation as a result of which we are not the surviving corporation, or upon sale of all or substantially all of our property, the Independent Director Stock Option Plan will terminate, and any outstanding unexercised options will terminate and be forfeited.  However, holders of options may exercise any options that are otherwise exercisable immediately prior to the dissolution, liquidation, consolidation or merger.  Additionally, our Board may provide for any or all of the following alternatives:

·

for the assumption by the successor corporation of the options previously granted or the substitution by the corporation for the options covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and exercise prices;

·

for the continuance of the Independent Director Stock Option Plan by such successor corporation in which event the Independent Director Stock Option Plan and the options will continue in the manner and under the terms so provided; or

·

for the payment in cash or common stock in lieu of and in complete satisfaction of the options.

The following table sets forth a summary of the compensation we paid to our directors during 2009:

135

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

Security Ownership Of Certain Beneficial Owners And Management

The following table sets forth information as of December 31, 2009, regarding the number and percentage of shares beneficially owned by: (i) each director and nominee; (ii) each named executive officer; (iii) all directors and executive officers as a group; and (iv) any person known to us to be the beneficial owner of more than 5% of our outstanding shares.  As of December 31, 2009, we had over 110,000 shareholders of record and 481,743,342 shares of common stock outstanding.

(1)	The address of each of the persons listed above is 2901 Butterfield Road, Oak Brook, IL  60523
(2)	Beneficial ownership includes outstanding shares and shares which are not outstanding that any person has the right to acquire within 60 days after the date of this table.  However, any such shares which are not outstanding are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person.  Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investing power with respect to all shares beneficially owned by them.
(3)	Includes 128,182.1132 shares held jointly by Mr. Goodwin and his spouse.  Also includes 10,312,500.0000, 8,437,500.0000, 215,530.7270 and 71,437.5596 shares of common stock owned by Inland Corporate Holdings Corporation, Inland Funding Corporation, IREIC, and Partnership Ownership Corporation, respectively.
(4)	Includes 41,894.7360 shares owned by trusts for the benefit of Mr. Parks.  Mr. Parks is a control person of these trusts and disclaims beneficial ownership of the shares owned by these trusts.
(5)	Includes 5,000 shares issuable upon exercise of options granted under our independent director stock option plan, to the extent that such options are currently exercisable or will become exercisable within 60 days after the date of this table.

136

Item 13.   Certain Relationships and Related Transactions  

All dollar amounts and shares in this Item 13 are stated in thousands.

Effects of Transactions with Related and Certain Other Parties

On November 15, 2007, we acquired our business manager/advisor and property managers in exchange for 37,500 newly issued shares of our stock.  Under the terms of the plan of merger, 55% of the 37,500 shares of our common stock were deposited into an escrow fund, subject to terms and conditions.  The business manager/advisor and property managers became subsidiaries of ours.  Prior to the merger, we paid an advisor asset management fee up to a maximum of 1% of the average invested assets, as defined, to our former business manager/advisor.  The fee was payable quarterly in an amount equal to 1/4 up to a maximum of 1% of our average invested assets as of the last day of the immediately preceding quarter.  Our business manager/advisor was entitled to maximum fees of $68,083 for the year ended December 31, 2007.    The business manager/advisor elected not to be paid the maximu m advisor asset management fee and as a result we only incurred fees to our business manager/advisor totaling $23,750 for the year ended December 31, 2007.

Prior to the merger, the property managers were entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services.  Subsequent to the merger, the property managers are entitled to receive property management fees totaling 4.5% of gross operating income, however, the property management fees are eliminated in the consolidation and replaced by the actual operating expenses of the property managers.  We incurred property management fees of $30,036 for the year ended December 31, 2007.  

Prior to the merger, the business manager/advisor and the property managers were also entitled to reimbursement for general and administrative costs, primarily salaries and related employee benefits.  For the years ended December 31, 2007, we incurred $6,296 of these reimbursements.  None of these reimbursements remained unpaid at December 31, 2008.  

An Inland affiliate, who is a registered investment advisor, provides investment advisory services to us related to our securities investment account for a fee (paid monthly) of up to one percent per annum based upon the aggregate fair value of our assets invested.  Subject to our approval and the investment guidelines we provide to them, the Inland affiliate has discretionary authority with respect to the investment and reinvestment and sale (including by tender) of all securities held in that account.  The Inland affiliate has also been granted power to vote all investments held in the account.  We incurred fees totaling $67, $1,390 and $2,107 for the years ended December 31, 2009, 2008 and 2007, respectively.  As of December 31, 2009 and 2008, fees of $20 and $160 remained unpaid, respectively.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.  Effective for the period from November 1, 2008 through September 30, 2009, the investment advisor has agreed to waive all fees due at our request.  Fees were incurred again beginning on October 1, 2009.

An Inland affiliate provides loan servicing for us for a monthly fee based upon the number of loans being serviced.  Such fees totaled $372, $405 and $562 for the years ended December 31, 2009, 2008 and 2007, respectively.  As of December 31, 2009 and 2008, none remained unpaid.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

An Inland affiliate facilitates the mortgage financing we obtain on some of our properties.  We pay the Inland affiliate 0.2% of the principal amount of each loan obtained on our behalf.  Such costs are capitalized as loan fees and amortized over the respective loan term as a component of interest expense.  For the years ended December 31, 2009, 2008 and 2007, we had incurred none, $1,330 and $873, respectively, of loan fees to this Inland affiliate.  As of December 31, 2009 and 2008, none remained unpaid.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

We have a property acquisition agreement and a transition property due diligence services agreement with an Inland affiliate.  In connection with our acquisition of new properties, the Inland affiliate will give us a first right as to all retail, mixed use and single-user properties and, if requested, provide various services including services to negotiate property acquisition transactions on our behalf and prepare suitability, due diligence, and preliminary and final pro forma analyses of properties proposed to be acquired.  We will pay all reasonable third-party out-of-pocket costs incurred by this entity in

137

providing such services; pay an overhead cost reimbursement of $12 per transaction, and, to the extent these services are requested, pay a cost of $7 for due diligence expenses and a cost of $25 for negotiation expenses per transaction.  We incurred none, $19 and $134 of such costs for the years ended December 30, 2009, 2008 and 2007, respectively.  None of these costs remained unpaid as of December 31, 2009 and 2008.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

On April 30, 2009, we sold two single-user office buildings to Inland American Real Estate Trust, Inc. (“IARETI”) with an aggregate sales price of $99,000, which resulted in net sales proceeds of $34,572 and a gain on sale of $7,010.  The properties were located in Salt Lake City, Utah and Greensboro, North Carolina with approximately 395,800 square feet and 389,400 square feet, respectively.  The sale resulted in the assumption of debt in the amount of $63,189 by IARETI.  The special committee, consisting of independent directors, reviewed and recommended approval of these transactions to our board of directors.

On June 24, 2009, we sold an approximately 185,200 square foot single-user office building located in Canton, Massachusetts, to IARETI with a sales price of $62,632, which resulted in net sales proceeds of $17,991 and a gain on sale of $2,337.  The sale resulted in the assumption of debt in the amount of $44,500 by IARETI.  The special committee, consisting of independent directors, reviewed and recommended approval of this transaction to our board of directors.

We have an institutional investor relationships services agreement with an Inland affiliate.  Under the terms of the agreement, the Inland affiliate will attempt to secure institutional investor commitments in exchange for advisory and client fees and reimbursement of project expenses.  We incurred $34, $10 and $257 during the years ended December 31, 2009, 2008 and 2007, respectively.  None of these costs remained unpaid as of December 31, 2009 and 2008.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

An Inland affiliate has a legal services agreement with us, where that Inland affiliate will provide us with certain legal services in connection with our real estate business.  We will pay the Inland affiliate for legal services rendered under the agreement on the basis of actual time billed by attorneys and paralegals at the Inland affiliate’s hourly billing rate then in effect.  The billing rate is subject to change on an annual basis, provided, however, that the billing rates charged by the Inland affiliate will not be greater than the billing rates charged to any other client and will not be greater than 90% of the billing rate of attorneys of similar experience and position employed by nationally recognized law firms located in Chicago, Illinois performing similar services.  For the years ended December 31, 2009, 2008 and 2007, we incurred $551, $500 and $897, respectively, of these cos ts.  Legal services costs totaling $123 and $189 remained unpaid as of December 31, 2009 and 2008, respectively.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

We have consulting agreements with Daniel L. Goodwin, Robert D. Parks, our chairman, and G. Joseph Cosenza, who each provide us with strategic assistance for the term of their respective agreement including making recommendations and providing guidance to us as to prospective investment, financing, acquisition, disposition, development, joint venture and other real estate opportunities contemplated from time to time by us and our board of directors.  The consultants also provide additional services as may be reasonably requested from time to time by our board of directors.  The term of each agreement runs until November 15, 2010 unless terminated earlier.  We may terminate these consulting agreements at any time.  The consultants do not receive any compensation for their services, but we are obligated to reimburse their ordinary and necessary out-of-pocket business expenses in fulfilling thei r duties under the consulting agreements.  There were no reimbursements required under the consulting agreements for the years ended December 31, 2009, 2008 and 2007.

We have service agreements with certain Inland affiliates, including office and facilities management services, insurance and risk management services, computer services, personnel services, property tax services and communications services.  Generally, these agreements provide that we obtain certain services from the Inland affiliates through the reimbursement of a portion of their general and administrative costs.  For the years ended December 31, 2009, 2008 and 2007, we incurred $3,027, $2,814 and $3,141, respectively, of these reimbursements.  Of these costs, $194 and $209 remained unpaid as December 31, 2009 and 2008, respectively.  The services are to be provided on a non-exclusive basis in that we shall be permitted to employ other parties to perform any one or more of the services and that the applicable counterparty

138

shall be permitted to perform any one or more of the services to other parties.  The agreements have various expiration dates, but are cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.

We sublease our office space from an Inland affiliate.  The lease calls for annual base rent of $496 and additional rent in any calendar year of our proportionate share of taxes and common area maintenance costs.  Additionally, the Inland affiliate paid certain tenant improvements under the lease in the amount of $395 and such improvements are being repaid by us over a period of five years.  The sublease calls for an initial term of five years which expires in November 2012, with one option to extend for an additional five years.  Of these costs, $175 and none remained unpaid as of December 31, 2009 and 2008, respectively.

On December 1, 2009, we raised additional capital of $50,000 from a related party, Inland Equity, in exchange for a 23% noncontrolling interest in IW JV.  Refer to Notes 1 and 11 of the consolidated financial statements for additional information.  The independent directors committee reviewed and recommended approval of this transaction to our board of directors.

Item 14.   Principal Accounting Fees and Services   

The following table sets forth fees for professional audit services rendered for the audits of our annual financial statements for 2009 by Deloitte & Touche LLP and for 2008 by KPMG LLP, and fees for other services rendered by them:

(1)	Audit fees include the financial statement audit and internal controls over financial reporting.  The 2009 audit fees exclude $220,000 of audit fees associated with KPMG LLP.
(2)	Audit related fees in 2009 include fees related to IW JV.  Audit related fees in 2008 include the review of documents and issuance of accountant’s consent related to documents filed with the SEC.
(3)	Tax fees consist of fees for review of federal and state income tax returns.  The 2009 tax fees exclude $136,857 of tax fees associated with KPMG LLP.

The Audit Committee reviews and approves in advance the terms of and compensation for both audit and non-audit services to be provided by Deloitte & Touche LLP and KPMG LLP.  This duty has been delegated to the Chairman of the Audit Committee with any such pre-approval reported to the Audit Committee at its next regularly scheduled meeting.  Approval of non-audit services will be disclosed in periodic reports required by Section 13(a) of the Securities Exchange Act of 1934.  Prohibited Non-Audit Services shall be as set forth in the rules promulgated by the SEC, including: (i) bookkeeping or other services related to the accounting records or financial statements of the audit client; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, providing fairness opinions or preparing contribution-in-kind reports; (iv) actuarial services; (v) internal aud it outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment advisor or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service that the Public Company Accounting Oversight Board prohibits through regulation.

The Audit Committee approved 100% of the fees described above.

139

PART IV

Item 15.  Exhibits and Financial Statement Schedules

(a)  List of documents filed:

(1)

The consolidated financial statements of the Company are set forth in the report in Item 8.  

(2)

Financial Statement Schedules:

Financial statement schedules for the year ended December 31, 2009 is submitted herewith.

	Page
Valuation and Qualifying Accounts (Schedule II)	104
Real Estate and Accumulated Depreciation (Schedule III)	105

Schedules not filed:

All schedules other than those indicated in the index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

Exhibit No.	Description
3.1	Fourth Articles of Amendment and Restatement of Inland Western Retail Real Estate Trust, Inc. dated October 14, 2008 (Included as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and filed on March 31, 2009 [File No. 000-51199] incorporated herein by reference).
3.2	Third Amended and Restated Bylaws of Inland Western Retail Real Estate Trust, Inc., effective March 31, 2009 (Included as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and filed on March 31, 2009 [File No. 000-51199] incorporated herein by reference).
4.1	Specimen Certificate for the Shares (Included as Exhibit 4.1 to the Company’s Registration Statement on Form S-11 filed on March 13, 2003 [File No. 333-103799] and incorporated herein by reference).
10.5	Second Amended and Restated Inland Western Retail Real Estate Trust, Inc. Independent Director Stock Option Plan (filed herewith).
10.517	Amended and Restated Distribution Reinvestment Program of Inland Western Retail Real Estate Trust, Inc. (Included as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on July 31, 2006 [File No. 000-51199] and incorporated herein by reference).
10.518	Amended and Restated Share Repurchase Program of Inland Western Retail Real Estate Trust, Inc. (Included as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on December 15, 2006 [File No. 000-51199] and incorporated herein by reference).
10.519	Operating Agreement of MS Inland Fund, LLC (Included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 2, 2007 [File No. 000-51199] and incorporated herein by reference).
10.520	Agreement and Plan of Merger by and among Inland Western Retail Real Estate Trust, Inc., IWEST Acquisition 1 Inc., IWEST Acquisition 2, Inc., IWEST Acquisition 3, Inc., IWEST Acquisition 4, Inc., Inland Western Real Estate Advisory Services Inc., Inland Southwest Management Crop., Inland Northwest Management Corp., Inland Western Management Corp., Inland Western Real Estate Investment Corporation and IWEST Merger Agent LLC (Included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 17, 2007 [File No. 000-51199] and incorporated herein by reference).

140

10.521	Credit Agreement dated as of October 15, 2007 among Inland Western Real Estate Trust, Inc. as Borrower and KeyBanc National Association as Administrative Agent, KeyBanc Capital Markets as Lead Arranger and Book Manager, and Norddeutsche Landesbank Girozentrale New York Branch or Cayman Island Branch as Document Agent, and RBS Citizens, National Association, d/b/a Charter One as Syndication Agent, and The Several Lenders from Time to Time Parties hereto, as Lenders. (Included as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on October 16, 2007 [File No. 000-51199] and incorporated herein by reference).
10.527	Communication Services Agreement, dated January 1, 2004, by and between Inland Communications, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (Included as Exhibit 10.527 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.528	Amendment to Communication Services Agreement, dated November 15, 2007, by and between Inland Communications, Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.528 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.529	Computer Services Agreement, dated January 1, 2004, by and between Inland Computer Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.529 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.530	Amendment to Computer Services Agreement, dated November 15, 007, by and between Inland Computer Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.530 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.531	Escrow Agreement, dated November 15, 2007, by and among Inland Western Retail Real Estate Trust, Inc., Inland Real Estate Investment Corporation, IWEST Merger Agent, LLC, and LaSalle Bank, NA.  (Included as Exhibit 10.531 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.532	Institutional Investor Relationships Services Agreement, dated November 15, 2007, by and between Inland Institutional Capital Partners Corporation and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.532 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.533	Insurance and Risk Management Services Agreement, dated January 1, 2004, by and between Inland Risk and Insurance Management Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.533 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.534	Amendment to Insurance and Risk Management Services Agreement, dated November 15, 2007, by and between Inland Risk and Insurance Management Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.534 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.535	Landlord's Agreement, dated November 15, 2007, by and between Inland 2905 & 2907 Butterfield Road LLC. and Inland Western Retail Real Estate Trust, Inc.  (Included as Exhibit 10.535 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).

141

10.536	Legal Services Agreement, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Western Retail Real Estate Trust, Inc.  (Included as Exhibit 10.536 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.537	License Agreement, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Northwest Management Corp.  (Included as Exhibit 10.537 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.538	License Agreement, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Southwest Management Corp.  (Included as Exhibit 10.538 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.539	License Agreement, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Western Management Corp.  (Included as Exhibit 10.539 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.540	License Agreement Modification, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Western Retail Real Estate Trust, Inc.  (Included as Exhibit 10.540 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.541	Loan Services Agreement, dated January 1, 2004, by and between Inland Mortgage Servicing Corporation and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.541 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.542	First Amendment to Loan Services Agreement, dated May 1 2005, by and between Inland Mortgage Servicing Corporation and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.542 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.543	Second Amendment to Loan Services Agreement, dated May 1, 2005, by and between Inland Mortgage Servicing Corporation and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.543 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.544	Third Amendment to Loan Services Agreement, dated November 15, 2007, by and between Inland Mortgage Servicing Corporation and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.544 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.545	Mortgage Brokerage Services Agreement, dated January 1, 2004, by and between Inland Mortgage Investment Corporation and Inland Western Retail Real Estate Advisory Services, Inc. (Included as Exhibit 10.545 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference). (Inland Mortgage Investment Corporation subsequently assigned all right, title, obligation and interest under the agreement with Inland Western Real Estate Advisory Services, Inc. to Inland Mortgage Brokerage Services).

142

10.546	First Amendment to Mortgage Brokerage Services Agreement, by and between Inland Mortgage Brokerage Services and Inland Western Retail Real Estate Advisory Services, Inc. dated November 1, 2006.  (Included as Exhibit 10.546 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.547	Second Amendment to Mortgage Brokerage Services Agreement, by and between Inland Mortgage Brokerage Services and Inland Western Retail Real Estate Advisory Services, Inc. dated November 15, 2007.  (Included as Exhibit 10.547 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.548	Office and Facilities Management Services Agreement, dated February 10, 2005, by and among Inland Facilities Management, Inc., Inland Office Services, Inc., Inland Real Estate Strategic Services., Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.548 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.549	Amendment to Office and Facilities Management Services Agreement, dated November 15, 2007, by and among Inland Facilities Management, Inc., Inland Office Services, Inc., Inland Real Estate Strategic Services., Inc. (n/k/a Inland Purchasing Services, Inc.) and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.549 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.550	Personnel Services Agreement, dated January 1, 2004, by and between Inland Payroll Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.550 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.551	Amendment to Personnel Services Agreement, dated November 15, 2007, by and between Inland Payroll Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.551 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.552	Transition Property Due Diligence Services Agreement, dated November 15, 2007, by and between Inland Real Estate Acquisitions, Inc. and Inland Western Retail Real Estate Trust, Inc.  (Included as Exhibit 10.552 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.553	Property Tax Services Agreement, dated January 1, 2004, by and between Investors Property Tax Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.553 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.554	Amendment to Property Tax Services Agreement, dated November 15, 2007, by and between Investors Property Tax Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc.  (Included as Exhibit 10.554 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.555	Registration Rights Agreement, dated November 15, 2007, by and among Inland Western Retail Real Estate Trust, Inc., Inland Real Estate Investment Corporation and IWEST Merger Agent LLC.  (Included as Exhibit 10.555 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).

143

10.556	Sublease Agreement, dated November 15, 2007, by and between Inland Real Estate Investment Corporation and Inland Western Retail Real Estate Trust, Inc.  (Included as Exhibit 10.556 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.557	The Inland Group, Inc. Letter Agreement dated August 14, 2007 between The Inland Group, Inc. and Inland Western Retail Real Estate Trust, Inc. (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 17, 2007 [File No. 000-51199] and incorporated herein by reference).
10.558	Consulting Agreement, dated August 14, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Daniel L. Goodwin.  (Included as Exhibit 10.558 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.559	Consulting Agreement, dated August 14, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Robert D. Parks.  (Included as Exhibit 10.559 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.560	Consulting Agreement, dated August 14, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and G. Joseph Cosenza.  (Included as Exhibit 10.560 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.561	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Richard P. Imperiale.  (Included as Exhibit 10.561 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.562	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Kenneth E. Masick.  (Included as Exhibit 10.562 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.563	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Joseph A. Fleming.  (Included as Exhibit 10.563 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.564	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Dione K. McConnell.  (Included as Exhibit 10.564 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.565	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and David P. Bennett.  (Included as Exhibit 10.565 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.566	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Kelly E. Tucek.  (Included as Exhibit 10.566 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.567	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and James Kleifges.  (Included as Exhibit 10.567 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).

144

10.568	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Ann M. Sharp.  (Included as Exhibit 10.568 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.569	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Dennis K. Holland.   (Included as Exhibit 10.569 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.570	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Niall J. Byrne.  (Included as Exhibit 10.570 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.571	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Shane Garrison.  (Included as Exhibit 10.571 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.572	Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Michael J. O’Hanlon.  (Included as Exhibit 10.572 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 31, 2008 [File No. 000-51199] incorporated herein by reference).
10.573	Indemnification Agreement, dated October 14, 2008, by and between Inland Western Retail Real Estate Trust, Inc. and Mildred Terzic (Included as Exhibit 10.573 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and filed on March 31, 2009 [File No. 000-51199] incorporated herein by reference).
10.574	First Amendment to Escrow Agreement dated November 14, 2008 by and among Inland Real Estate Investment Corporation, Inland Western Retail Real Estate Trust, Inc., IWEST Merger Agent, LLC and Bank of America, N.A. as Successor to LaSalle Bank, N.A. (Included as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on November 20, 2008 [File No. 000-51199] incorporated herein by reference).
10.575	2008 Long-Term Equity Compensation Plan Established May 13, 2008 of Inland Western Retail Real Estate Trust, Inc. (Included as Exhibit 10.575 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and filed on March 31, 2009 [File No. 000-51199] incorporated herein by reference).
10.577 – 10.582	Employment Agreements by and between Inland Western Retail Real Estate Trust, Inc. and each of Michael J. O’Hanlon, Steven P. Grimes, Dennis K. Holland, Shane C. Garrison, Niall J. Byrne and James W. Kleifges (Included as Exhibits 10.577, 10.578, 10.579, 10.580, 10.581 and 10.582 to the Company’s Current Report on Form 8-K filed on August 15, 2008 [File No. 000-51199] and incorporated herein by reference).
10.583	Second Amendment to Escrow Agreement dated November 14, 2008 by an among Inland Real Estate Investment Corporation, Inland Western Retail Real Estate Trust, Inc., IWEST Merger Agent, LLC and Bank of America, N.A. as Successor to LaSalle Bank, N.A.  (Included as Exhibit 10.583 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 and filed on May 13, 2009 [File No. 000-51199] incorporated herein by reference).

145

10.584	Amendment to Credit Agreement dated as of October 15, 2007 among Inland Western Real Estate Trust, Inc. as Borrower and KeyBanc National Association as Administrative Agent, KeyBanc Capital Markets as Lead Arranger and Book Manager, and Certain of the Lenders from time to time parties hereto, as Lenders.  (Included as Exhibit 10.584 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 and filed on May 13, 2009 [File No. 000-51199] incorporated herein by reference).
10.585	Third Amendment to Escrow Agreement dated November 12, 2009 by and among Inland Real Estate Investment Corporation, Inland Western Retail Real Estate Trust, Inc., IWEST Merger Agent, LLC and Bank of America, N.A. as Successor to LaSalle Bank, N.A. (filed herewith).
10.586	Separation Agreement and General Release dated October 13, 2009 between Inland Western Retail Real Estate Trust, Inc. and Michael J. O’Hanlon (filed herewith).
10.587	Loan Agreement dated as of December 1, 2009 by and among Colesville One, LLC, JPMorgan Chase Bank, N.A. and certain subsidiaries of Inland Western Retail Real Estate Trust, Inc. (filed herewith).
10.588	Senior Mezzanine Loan Agreement dated as of December 1, 2009 by and among IW Mezz 2009, LLC and JPMorgan Chase Bank, N.A. (filed herewith).
10.589	Junior Mezzanine Loan Agreement dated as of December 1, 2009 by and among IW Mezz 2 2009, LLC and JPMorgan Chase Bank, N.A. (filed herewith).
10.590	Operating Agreement of IW JV 2009, LLC dated as of December 1, 2009 by and between Inland Western Retail Real Estate Trust, Inc. and Inland Equity Investors, LLC (filed herewith).
10.591	Indemnification Agreement, dated March 10, 2009, by and between Inland Western Retail Real Estate Trust, Inc. and Gerald Wright (filed herewith).
10.592	Indemnification Agreement, dated March 10, 2009, by and between Inland Western Retail Real Estate Trust, Inc. and Larry R. Sajdak (filed herewith).
10.593	Indemnification Agreement, dated March 10, 2009, by and between Inland Western Retail Real Estate Trust, Inc. and Michael D. Keach (filed herewith).
10.594	Indemnification Agreement, dated March 10, 2009, by and between Inland Western Retail Real Estate Trust, Inc. and Thomas J. Martin (filed herewith).
10.6 A-J	Indemnification Agreements by and between Inland Western Retail Real Estate Trust , Inc. and its directors and named executive officers (Included as Exhibits 10.6 A-J to the Company’s Annual Report / Amended on Form 10-K/A for the year ended December 31, 2006 filed on April 27, 2007 [File No. 000-51199] and incorporated herein by reference).
14.1	Inland Western Retail Real Estate Trust, Inc. Code of Business Conduct and Ethics (Included as  Exhibit 14.1 to the Company’s Annual Report / Amended filed on Form 10-K/A for the year ended December 31, 2006 filed on April 27, 2007 [File No. 000-51199] and incorporated herein by reference).
21.1	List of Subsidiaries of Inland Western Retail Real Estate Trust, Inc. (filed herewith).
23.1	Consent of Deloitte & Touche LLP (filed herewith).
23.2	Consent of KPMG LLP (filed herewith).
31.1	Certification of Chief Executive Officer, President, Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).
31.2	Certification of Chief Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).
32.1	Certification of Chief Executive Officer, President, Chief Financial Officer and Treasurer and Chief Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 and 18 U.S.C Section 1350 (filed herewith).

146

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.

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

	/s/ Steven P. Grimes
By:	Steven P. Grimes
	Chief Executive Officer, President, Chief Financial Officer and Treasurer
Date:	February 26, 2010

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:

	/s/ Steven P. Grimes		/s/ Frank A. Catalano, Jr.		/s/ Richard P. Imperiale
By:	Steven P. Grimes	By:	Frank A. Catalano, Jr.	By:	Richard P. Imperiale
	Chief Executive Officer, President, Chief Financial Officer and Treasurer		Director		Director
Date:	February 26, 2010	Date:	February 26, 2010	Date:	February 26, 2010
	/s/ James W. Kleifges		/s/ Paul R. Gauvreau		/s/ Kenneth E. Masick
By:	James W. Kleifges	By:	Paul R. Gauvreau	By:	Kenneth Masick
	Chief Accounting Officer		Director		Director
Date:	February 26, 2010	Date:	February 26, 2010	Date:	February 26, 2010
	/s/ Robert D. Parks		/s/ Gerald M. Gorski		/s/ Barbara A. Murphy
By:	Robert D. Parks	By:	Gerald M. Gorski	By:	Barbara A. Murphy
	Chairman of the Board and Director		Director		Director
Date:	February 26, 2010	Date:	February 26, 2010	Date:	February 26, 2010
	/s/ Kenneth H. Beard		/s/ Brenda G. Gujral
By:	Kenneth H. Beard	By:	Brenda G. Gujral
	Director		Director
Date:	February 26, 2010	Date:	February 26, 2010

147

EX-31.1

SIGNATURES

EX-31.2

Exhibit 31.2

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James W. Kleifges, certify that:

1.

I have reviewed this annual report on Form 10-K of Inland Western Retail Real Estate Trust, 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation, and

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal 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(s) 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.

By:	James W. Kleifges
	Chief Accounting Officer
Date:	February 26, 2010

EX-32.1

Exhibit 32.1

Certification Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Inland Western Retail Real Estate Trust, Inc. (the "Company") for the year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Steven P. Grimes as Chief Executive Officer, President, Chief Financial Officer and Treasurer and James W. Kleifges as Chief Accounting Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Name:	Steven P. Grimes
	Chief Executive Officer, President, Chief Financial Officer and Treasurer
Date:	February 26, 2010
Name:	James W. Kleifges
	Chief Accounting Officer
Date:	February 26, 2010

EX-23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-151007 on Form S-3 of our reports dated February 26, 2010, relating to the financial statements and financial statement schedules of Inland Western Retail Real Estate Trust, Inc., and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the change in method of accounting for noncontrolling interests), and the effectiveness of Inland Western Retail Real Estate Trust, Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Inland Western Retail Real Estate Trust, Inc. for the year ended December 31, 2009.

/s/ Deloitte & Touche LLP

Chicago, Illinois

February 26, 2010

EX-23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Inland Western Retail Real Estate Trust, Inc.:

We consent to the incorporation by reference in the registration statement (No. 333-151007) on Form S-3 of Inland Western Retail Real Estate Trust, Inc. of our report dated March 31, 2009, except for notes 1 and 3, which are as of February 26, 2010, with respect to the consolidated balance sheet of Inland Western Retail Real Estate Trust, Inc. as of December 31, 2008, and the related consolidated statements of operations and other comprehensive loss, equity, and cash flows for each of the years in the two-year period ended December 31, 2008, and the 2008 and 2007 information in the related financial statement schedules, which report appears in the December 31, 2009 annual report on Form 10-K of Inland Western Retail Real Estate Trust, Inc.

Our report with respect to the consolidated financial statements makes reference to the Company retrospectively applying certain reclassifications associated with discontinued operations and upon the adoption of an accounting standard related to noncontrolling interests.  

/s/ KPMG LLP

Chicago, Illinois
February 26, 2010

EX-21.1

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

Subsidiary List

As of February 12, 2010

Entity	Formation
4 Overlook LLC	Delaware
Bellevue Development, LLC	Delaware
C&S Southlake Capital Partners I, L.P.	Delaware
Capital Centre LLC	Maryland
Capital Centre Holding LLC	Delaware
Capital Centre Funding LLC	Maryland
Centre at Laurel, LLC	Maryland
Colesville One, LLC	Maryland
Gateway Village LLC	Maryland
Gateway Village Holding LLC	Delaware
Green Valley Crossing, LLC	Nevada
Half Day LLC	Delaware
Inland Bel Air HC, L.L.C.	Delaware
Inland Bel Air SPE, L.L.C.	Delaware
Inland Capital HC, L.L.C.	Delaware
Inland Continental Rave Houston, L.L.C.	Delaware
Inland Continental Polaris, L.L.C.	Delaware
Inland Gateway HC, L.L.C.	Delaware
Inland Gateway SPE, L.L.C.	Delaware
Inland Holdco Management LLC	Delaware
Inland Mondo Powell, L.L.C.	Delaware
Inland Northwest Management Corp.	Delaware
Inland Pacific Property Services LLC	Delaware
Inland Park Place Limited Partnership	Illinois
Inland Plano Acquisitions, LLC	Delaware
Inland Plano Investments, LLC	Delaware
Inland Polaris Member, L.L.C.	Delaware
Inland Powell Member, L.L.C.	Delaware
Inland Rave Member, L.L.C.	Delaware
Inland Reisterstown HC, L.L.C.	Delaware
Inland Reisterstown SPE I, L.L.C.	Delaware
Inland Reisterstown SPE II, L.L.C.	Delaware
Inland Southeast Darien, L.L.C.	Delaware
Inland Southeast King’s Grant, L.L.C.	Delaware
Inland Southeast New Britain, L.L.C.	Delaware
Inland Southeast Newnan Crossing, L.L.C.	Delaware
Inland Southeast Stony Creek, L.L.C.	Delaware
Inland Southwest Management Corp.	Delaware
Inland Southwest Management LLC	Delaware
Inland Towson HC, L.L.C.	Delaware
Inland Towson SPE, L.L.C.	Delaware
Inland US Management LLC	Delaware
Inland Western 4 Overlook, L.L.C.	Delaware
Inland Western Acquisitions, Inc.	Illinois
Inland Western Acworth Stilesboro, L.L.C.	Delaware
Inland Western Allen McDermott GP, L.L.C.	Delaware
Inland Western Allen McDermott Limited Partnership	Illinois
Inland Western Allen McDermott LP, L.L.C.	Delaware
Inland Western Altamonte Springs State Road, L.L.C.	Delaware
Inland Western Arvada, L.L.C.	Delaware

Inland Western Atlanta Cascade Avenue, L.L.C.	Delaware
Inland Western Austin Mopac GP, L.L.C.	Delaware
Inland Western Austin Mopac Limited Partnership	Illinois
Inland Western Austin Mopac LP, L.L.C.	Delaware
Inland Western Austin Southpark Meadows GP, L.L.C.	Delaware
Inland Western Austin Southpark Meadows Limited Partnership	Illinois
Inland Western Austin Southpark Meadows LP, L.L.C.	Delaware
Inland Western Austin Southpark Meadows Pad G GP, L.L.C.	Delaware
Inland Western Austin Southpark Meadows Pad G Limited Partnership	Illinois
Inland Western Austin Southpark Meadows Pad G LP, L.L.C.	Delaware
Inland Western Austin Southpark Meadows II Limited Partnership	Illinois
Inland Western Austin Southpark Meadows II GP, L.L.C.	Delaware
Inland Western Austin Southpark Meadows II LP, L.L.C.	Delaware
Inland Western Avondale McDowell, L.L.C.	Delaware
Inland Western Bakersfield Calloway, L.L.C.	Delaware
Inland Western Bangor Broadway, L.L.C.	Delaware
Inland Western Bangor Parkade, L.L.C.	Delaware
Inland Western Baton Rouge, L.L.C.	Delaware
Inland Western Bay Shore Gardiner, L.L.C.	Delaware
Inland Western Beekman, L.L.C.	Delaware
Inland Western Beekman Member, L.L.C.	Delaware
Inland Western Beekman Member II, L.L.C.	Delaware
Inland Western Bethlehem Saucon Valley DST	Delaware
Inland Western Bettendorf Duck Creek, L.L.C.	Delaware
Inland Western Bettendorf Duck Creek I, L.L.C.	Delaware
Inland Western Birmingham Edgemont, L.L.C.	Delaware
Inland Western Bluffton Low Country, L.L.C.	Delaware
Inland Western Bluffton Low Country II, L.L.C.	Delaware
Inland Western Blytheville, L.L.C.	Delaware
Inland Western Bradenton Beachway, L.L.C.	Delaware
Inland Western Brooklyn Park 93rd Avenue, L.L.C.	Delaware
Inland Western Burleson South Towne GP, L.L.C.	Delaware
Inland Western Burleson South Towne Limited Partnership	Illinois
Inland Western Burleson South Towne LP, L.L.C.	Delaware
Inland Western Burleson Wilshire GP, L.L.C.	Delaware
Inland Western Burleson Wilshire Limited Partnership	Illinois
Inland Western Burleson Wilshire LP, L.L.C.	Delaware
Inland Western Butler Kinnelon, L.L.C.	Delaware
Inland Western Butler Kinnelon Member, L.L.C.	Delaware
Inland Western Butler Kinnelon Member II, L.L.C.	Delaware
Inland Western Cambridge Brick Church, L.L.C.	Delaware
Inland Western Canton O Green, L.L.C.	Delaware
Inland Western Canton Paradise, L.L.C.	Delaware
Inland Western Canton Paradise Outlot, L.L.C.	Delaware
Inland Western Cave Creek Tatum Boulevard, L.L.C.	Delaware
Inland Western Cedar Hill Pleasant Run GP, L.L.C.	Delaware
Inland Western Cedar Hill Pleasant Run Limited Partnership	Illinois
Inland Western Chantilly Crossing, L.L.C.	Delaware
Inland Western Chantilly Member, L.L.C.	Delaware
Inland Western Chantilly Member II, L.L.C.	Delaware
Inland Western Charleston North Rivers, L.L.C.	Delaware
Inland Western Chattanooga Brainerd Road, L.L.C.	Delaware
Inland Western Chicago Ashland, L.L.C.	Delaware
Inland Western Chicago Ashland I, L.L.C.	Delaware
Inland Western Chicago Brickyard, L.L.C.	Delaware

Inland Western Clear Lake Clear Shores GP, L.L.C.	Delaware
Inland Western Clear Lake Clear Shores Limited Partnership	Illinois
Inland Western Clear Lake Clear Shores LP, L.L.C.	Delaware
Inland Western Cocoa Beach Cornerstone, L.L.C.	Delaware
Inland Western Colesville New  Hampshire SPE, L.L.C.	Delaware
Inland Western College Station Gateway GP, L.L.C.	Delaware
Inland Western College Station Gateway Limited Partnership	Illinois
Inland Western College Station Gateway LP, L.L.C.	Delaware
Inland Western College Station Gateway II GP, L.L.C.	Delaware
Inland Western College Station Gateway II Limited Partnership	Illinois
Inland Western College Station Gateway II LP, L.L.C.	Delaware
Inland Western Columbia Broad River, L.L.C.	Delaware
Inland Western Columbus Clifty, L.L.C.	Delaware
Inland Western Columbus Polaris, L.L.C.	Delaware
Inland Western Columbus Sawmill, L.L.C.	Delaware
Inland Western Coppell Town GP, L.L.C.	Delaware
Inland Western Coppell Town Limited Partnership	Illinois
Inland Western Coppell Town LP, L.L.C.	Delaware
Inland Western Concord King’s Grant II, L.L.C.	Delaware
Inland Western Concord Northlite, L.L.C.	Delaware
Inland Western Coram Plaza, L.L.C.	Delaware
Inland Western Covington Newton Crossroads, L.L.C.	Delaware
Inland Western Cranberry Beneficiary, L.L.C.	Delaware
Inland Western Cranberry DST	Delaware
Inland Western Crossville Main, L.L.C.	Delaware
Inland Western Cumming Green’s Corner, L.L.C.	Delaware
Inland Western Cupertino Tantau, L.L.C.	Delaware
Inland Western Cuyahoga Falls, L.L.C.	Delaware
Inland Western Cypress Mill GP, L.L.C.	Delaware
Inland Western Cypress Mill Limited Partnership	Illinois
Inland Western Cypress Mill LP, L.L.C.	Delaware
Inland Western Dallas Lincoln Park GP, L.L.C.	Delaware
Inland Western Dallas Lincoln Park Limited Partnership	Illinois
Inland Western Dallas Lincoln Park LP, L.L.C.	Delaware
Inland Western Dallas Paradise, L.L.C.	Delaware
Inland Western Dallas Preston Trail GP, L.L.C.	Delaware
Inland Western Dallas Preston Trail Limited Partnership	Texas
Inland Western Dallas Preston Trail LP, L.L.C.	Delaware
Inland Western Dallas Preston Trail Pad GP, L.L.C.	Delaware
Inland Western Dallas Preston Trail Pad Limited Partnership	Texas
Inland Western Danforth, L.L.C.	Delaware
Inland Western Denton Crossing GP, L.L.C.	Delaware
Inland Western Denton Crossing Limited Partnership	Illinois
Inland Western Depere, L.L.C.	Delaware
Inland Western Douglasville Douglas, L.L.C.	Delaware
Inland Western Duluth John’s Creek, L.L.C.	Delaware
Inland Western Duluth John’s Creek SPE, L.L.C.	Delaware
Inland Western Duncansville Holliday Beneficiary, L.L.C.	Delaware
Inland Western Duncansville Holliday DST	Delaware
Inland Western Easton Forks Town DST	Delaware
Inland Western El Paso MDS Limited Partnership	Illinois
Inland Western El Paso MDS LP, L.L.C.	Delaware
Inland Western El Paso Rojas GP, L.L.C.	Delaware
Inland Western El Paso Rojas Limited Partnership	Illinois
Inland Western El Paso Rojas LP, L.L.C.	Delaware

Inland Western Euless GP, L.L.C.	Delaware
Inland Western Euless Limited Partnership	Illinois
Inland Western Euless LP, L.L.C.	Delaware
Inland Western Evans, L.L.C.	Delaware
Inland Western Fort Mill West Town, L.L.C.	Delaware
Inland Western Fort Myers Page Field, L.L.C.	Delaware
Inland Western Fort Worth Southwest Crossing GP, L.L.C.	Delaware
Inland Western Fort Worth Southwest Crossing Limited Partnership	Illinois
Inland Western Fort Worth Southwest Crossing LP, L.L.C.	Delaware
Inland Western Fountain Hills Four Peaks, L.L.C.	Delaware
Inland Western Fresno Blackstone Avenue, L.L.C.	Delaware
Inland Western Frisco Parkway GP, L.L.C.	Delaware
Inland Western Frisco Parkway LP, L.L.C.	Delaware
Inland Western Fullerton Metrocenter, L.L.C.	Delaware
Inland Western Gainesville Village, L.L.C.	Delaware
Inland Western Galveston Galvez GP, L.L.C.	Delaware
Inland Western Galveston Galvez Limited Partnership	Illinois
Inland Western Galveston Galvez LP, L.L.C.	Delaware
Inland Western Georgetown Magnolia, L.L.C.	Delaware
Inland Western Georgetown Rivery GP, L.L.C.	Delaware
Inland Western Georgetown Rivery Limited Partnership	Illinois
Inland Western Georgetown Rivery LP, L.L.C.	Delaware
Inland Western Gilroy I, L.L.C.	Delaware
Inland Western Gilroy II, L.L.C.	Delaware
Inland Western Glendale, L.L.C.	Delaware
Inland Western Glendale Outlot D, L.L.C.	Delaware
Inland Western Glendale Peoria II, L.L.C.	Delaware
Inland Western Gloucester Cross Keys, L.L.C.	Delaware
Inland Western Gloucester Cross Keys Member, L.L.C.	Delaware
Inland Western Gloucester Cross Keys Member II, L.L.C.	Delaware
Inland Western Grand Prairie Carrier GP, L.L.C.	Delaware
Inland Western Grand Prairie Carrier Limited Partnership	Illinois
Inland Western Grand Prairie Carrier LP, L.L.C.	Delaware
Inland Western Grand Prairie Southwest Crossing GP, L.L.C.	Delaware
Inland Western Grand Prairie Southwest Crossing Limited Partnership	Illinois
Inland Western Grand Prairie Southwest Crossing LP, L.L.C.	Delaware
Inland Western Grapevine GP, L.L.C.	Delaware
Inland Western Grapevine Limited Partnership	Illinois
Inland Western Grapevine LP, L.L.C.	Delaware
Inland Western Green Global Gateway, L.L.C.	Delaware
Inland Western Greensboro Airport Center, L.L.C.	Delaware
Inland Western Greensburg Commons, L.L.C.	Delaware
Inland Western Greenville Five Forks, L.L.C.	Delaware
Inland Western Greenville Five Forks Outlot, L.L.C.	Delaware
Inland Western Greer Wade Hampton, L.L.C.	Delaware
Inland Western Gurnee, L.L.C.	Delaware
Inland Western Half Day, L.L.C.	Delaware
Inland Western Hartford New Park, L.L.C.	Delaware
Inland Western Hartford New Park Member, L.L.C.	Delaware
Inland Western Hartford New Park Member II, L.L.C.	Delaware
Inland Western Heath Southgate, L.L.C.	Delaware
Inland Western Hellertown Main Street DST	Delaware
Inland Western Hickory-Catawba, L.L.C.	Delaware
Inland Western High Ridge, L.L.C.	Delaware
Inland Western Hinsdale Ogden, L.L.C.	Delaware

Inland Western Houma Academy, L.L.C.	Delaware
Inland Western Houma Magnolia, L.L.C.	Delaware
Inland Western Houston Bear Creek GP, L.L.C.	Delaware
Inland Western Houston Bear Creek Limited Partnership	Illinois
Inland Western Houston Bear Creek LP, L.L.C.	Delaware
Inland Western Houston Little York GP, L.L.C.	Delaware
Inland Western Houston Little York Limited Partnership	Illinois
Inland Western Houston New Forest GP, L.L.C.	Delaware
Inland Western Houston New Forest Limited Partnership	Illinois
Inland Western Houston New Forest LP, L.L.C.	Delaware
Inland Western Houston Royal Oaks Village II GP, L.L.C.	Delaware
Inland Western Houston Royal Oaks Village II Limited Partnership	Illinois
Inland Western Houston Royal Oaks Village II LP, L.L.C.	Delaware
Inland Western Humble Humblewood GP, L.L.C.	Delaware
Inland Western Humble Humblewood Limited Partnership	Illinois
Inland Western Humble Humblewood LP, L.L.C.	Delaware
Inland Western Iowa City Alexander, L.L.C.	Delaware
Inland Western Irmo Station, L.L.C.	Delaware
Inland Western Irving GP, L.L.C.	Delaware
Inland Western Irving Limited Partnership	Illinois
Inland Western Irving LP, L.L.C.	Delaware
Inland Western Jackson Columns, L.L.C.	Delaware
Inland Western Jacksonville Race Track Road, L.L.C.	Delaware
Inland Western Jacksonville Southpoint, L.L.C.	Delaware
Inland Western Jonesboro Parker, L.L.C.	Delaware
Inland Western JV Beaumont Crossings, L.L.C.	Delaware
Inland Western JV Hampton Retail Colorado, L.L.C.	Delaware
Inland Western JV Henderson Green Valley, L.L.C.	Delaware
Inland Western JV Henderson Lake Mead, L.L.C.	Delaware
Inland Western JV Nashville Bellevue, L.L.C.	Delaware
Inland Western JV South Billings Associates, L.L.C.	Delaware
Inland Western Kalamazoo WMU, L.L.C.	Delaware
Inland Western Kalispell Mountain View, L.L.C.	Delaware
Inland Western Kalispell Mountain View II, L.L.C.	Delaware
Inland Western Kansas City, L.L.C.	Delaware
Inland Western Kansas City Stateline, L.L.C.	Delaware
Inland Western Kansas City Wilshire, L.L.C.	Delaware
Inland Western Kill Devil Hills Croatan, L.L.C.	Delaware
Inland Western Kingsport East Stone, L.L.C.	Delaware
Inland Western Knoxville Corridor Park, L.L.C.	Delaware
Inland Western Knoxville Corridor Park II, L.L.C.	Delaware
Inland Western Knoxville Harvest, L.L.C.	Delaware
Inland Western Lake Mary, L.L.C.	Delaware
Inland Western Lake Worth Towne Crossing GP, L.L.C.	Delaware
Inland Western Lake Worth Towne Crossing Limited Partnership	Illinois
Inland Western Lake Worth Towne Crossing LP, L.L.C.	Delaware
Inland Western Lakewood, L.L.C.	Delaware
Inland Western Lansing Eastwood, L.L.C.	Delaware
Inland Western Lansing Eastwood SPE, L.L.C.	Delaware
Inland Western Larkspur, L.L.C.	Delaware
Inland Western Las Vegas, L.L.C.	Delaware
Inland Western Las Vegas Montecito, L.L.C.	Delaware
Inland Western Las Vegas Montecito Outlot, L.L.C.	Delaware
Inland Western Laurel Contee, L.L.C.	Delaware
Inland Western Laurel Contee Acquisitions, L.L.C.	Delaware

Inland Western Lawrence, L.L.C.	Delaware
Inland Western Lawrenceville Simonton, L.L.C.	Delaware
Inland Western Lawton Lee Blvd., L.L.C.	Delaware
Inland Western Lebanon 9th Street DST	Delaware
Inland Western Lewis Center Powell, L.L.C.	Delaware
Inland Western Lewisville Lakepointe GP, L.L.C.	Delaware
Inland Western Lewisville Lakepointe Limited Partnership	Illinois
Inland Western Lewisville Lakepointe LP, L.L.C.	Delaware
Inland Western Longmont Fox Creek, L.L.C.	Delaware
Inland Western Management Corp.	Delaware
Inland Western Mansfield GP, L.L.C.	Delaware
Inland Western Mansfield Limited Partnership	Illinois
Inland Western Mansfield LP, L.L.C.	Delaware
Inland Western Maple Grove Wedgwood, L.L.C.	Delaware
Inland Western Marysville, L.L.C.	Delaware
Inland Western Massillon Village, L.L.C.	Delaware
Inland Western McAllen GP, L.L.C.	Delaware
Inland Western McAllen Limited Partnership	Illinois
Inland Western McAllen LP, L.L.C.	Delaware
Inland Western McAllen MDS Limited Partnership	Illinois
Inland Western McAllen MDS LP, L.L.C.	Delaware
Inland Western McAllen Trenton GP, L.L.C.	Delaware
Inland Western McAllen Trenton Limited Partnership	Illinois
Inland Western McDonough Henry Town, L.L.C.	Delaware
Inland Western McKinney Lake Forest GP, L.L.C.	Delaware
Inland Western McKinney Lake Forest Limited Partnership	Illinois
Inland Western McKinney Lake Forest LP, L.L.C.	Delaware
Inland Western McKinney Stonebridge GP, L.L.C.	Delaware
Inland Western McKinney Stonebridge Limited Partnership	Illinois
Inland Western McKinney Stonebridge LP, L.L.C.	Delaware
Inland Western MDS Portfolio, L.L.C.	Delaware
Inland Western Memphis Winchester, L.L.C.	Delaware
Inland Western Mesa Fiesta, L.L.C.	Delaware
Inland Western Miami 19th Street, L.L.C.	Delaware
Inland Western Middletown Brown’s Lane, L.L.C.	Delaware
Inland Western Middletown Fairgrounds Plaza, L.L.C.	Delaware
Inland Western Midland Academy GP, L.L.C.	Delaware
Inland Western Midland Academy Limited Partnership	Illinois
Inland Western Midland Academy LP, L.L.C.	Delaware
Inland Western Milwaukee Midtown, L.L.C.	Delaware
Inland Western Milwaukee Midtown II, L.L.C.	Delaware
Inland Western Montevallo Main, L.L.C.	Delaware
Inland Western Moore 19th Street, L.L.C.	Delaware
Inland Western Morristown Crockett, L.L.C.	Delaware
Inland Western Mountain Brook, L.L.C.	Delaware
Inland Western Mt. Pleasant Park West, L.L.C.	Delaware
Inland Western Murrieta Avenida Acacias, L.L.C.	Delaware
Inland Western Naperville Route 59, L.L.C.	Delaware
Inland Western New Britain Main, L.L.C.	Delaware
Inland Western New Hartford Orchard, L.L.C.	Delaware
Inland Western Newport News Jefferson, L.L.C.	Delaware
Inland Western New Port Richey Mitchell, L.L.C.	Delaware
Inland Western New York Portfolio, L.L.C.	Delaware
Inland Western Newburgh Crossing, L.L.C.	Delaware
Inland Western Newnan Crossing II, L.L.C.	Delaware

Inland Western Norman, L.L.C.	Delaware
Inland Western North Attleboro Crossroads, L.L.C.	Delaware
Inland Western North Carolina Sales, Inc.	Illinois
Inland Western North Richland Hills Davis GP, L.L.C.	Delaware
Inland Western North Richland Hills Davis Limited Partnership	Illinois
Inland Western North Richland Hills Davis LP, L.L.C.	Delaware
Inland Western Northport Northwood, L.L.C.	Delaware
Inland Western Northwoods Natural Bridge, L.L.C.	Delaware
Inland Western Oklahoma City Quail, L.L.C.	Delaware
Inland Western Oklahoma City Western Avenue, L.L.C.	Delaware
Inland Western Ontario 4th Street, L.L.C.	Delaware
Inland Western Orange 440 Boston, L.L.C.	Delaware
Inland Western Orange 440 Boston Member, L.L.C.	Delaware
Inland Western Orange 440 Boston Member II, L.L.C.	Delaware
Inland Western Orange 53 Boston, L.L.C.	Delaware
Inland Western Oswego Douglass, L.L.C.	Delaware
Inland Western Oswego Gerry Centennial, L.L.C.	Delaware
Inland Western Ottawa Dayton, L.L.C.	Delaware
Inland Western Panama City, L.L.C.	Delaware
Inland Western Pawtucket Boulevard, L.L.C.	Delaware
Inland Western Pawtucket Cottage, L.L.C.	Delaware
Inland Western Phenix City, L.L.C.	Delaware
Inland Western Phillipsburg Greenwich, L.L.C.	Delaware
Inland Western Phillipsburg Greenwich Member, L.L.C.	Delaware
Inland Western Phillipsburg Greenwich Member II, L.L.C.	Delaware
Inland Western Phoenix, L.L.C.	Delaware
Inland Western Phoenix 19th Avenue, L.L.C.	Delaware
Inland Western Pittsburgh William Penn GP, L.L.C.	Delaware
Inland Western Pittsburgh William Penn, L.P.	Illinois
Inland Western Pittsburgh William Penn Member II DST	Delaware
Inland Western Pittsburgh William Penn Partner, L.P.	Delaware
Inland Western Placentia, L.L.C.	Delaware
Inland Western Plantation Express, L.L.C.	Delaware
Inland Western Plymouth 5, L.L.C.	Delaware
Inland Western Port Arthur Academy GP, L.L.C.	Delaware
Inland Western Port Arthur Academy Limited Partnership	Illinois
Inland Western Port Arthur Academy LP, L.L.C.	Delaware
Inland Western Pottstown GP, L.L.C.	Delaware
Inland Western Pottstown Limited Partnership	Illinois
Inland Western Pottstown LP DST	Delaware
Inland Western Poughkeepsie Mid-Hudson, L.L.C.	Delaware
Inland Western Poughkeepsie Mid-Hudson Member, L.L.C.	Delaware
Inland Western Poughkeepsie Mid-Hudson Member II, L.L.C.	Delaware
Inland Western Powder Springs Battle Ridge, L.L.C.	Delaware
Inland Western Punxsutawney Mahoning Street DST	Delaware
Inland Western Quakertown GP, L.L.C.	Delaware
Inland Western Quakertown Limited Partnership	Illinois
Inland Western Quakertown LP DST	Delaware
Inland Western Retail Real Estate Advisory Services, Inc.	Illinois
Inland Western Richmond Mayland, L.L.C.	Delaware
Inland Western Round Rock Forest Commons GP, L.L.C.	Delaware
Inland Western Round Rock Forest Commons Limited Partnership	Illinois
Inland Western Round Rock Forest Commons LP, L.L.C.	Delaware
Inland Western Royal Palm Beach Commons, L.L.C.	Delaware
Inland Western Saginaw GP, L.L.C.	Delaware

Inland Western Saginaw Limited Partnership	Illinois
Inland Western Saginaw LP, L.L.C.	Delaware
Inland Western Salt Lake City Gateway, L.L.C.	Delaware
Inland Western Salt Lake City Gateway II, L.L.C.	Delaware
Inland Western San Antonio GP, L.L.C.	Delaware
Inland Western San Antonio Limited Partnership	Illinois
Inland Western San Antonio LP, L.L.C.	Delaware
Inland Western San Antonio Academy GP, L.L.C.	Delaware
Inland Western San Antonio Academy Limited Partnership	Illinois
Inland Western San Antonio Academy LP, L.L.C.	Delaware
Inland Western San Antonio Fountainhead Drive GP, L.L.C.	Delaware
Inland Western San Antonio Fountainhead Drive Limited Partnership	Illinois
Inland Western San Antonio Fountainhead Drive LP, L.L.C.	Delaware
Inland Western San Antonio HQ GP, L.L.C.	Delaware
Inland Western San Antonio HQ Limited Partnership	Illinois
Inland Western San Antonio HQ LP, L.L.C.	Delaware
Inland Western San Antonio Huebner Oaks GP, L.L.C.	Delaware
Inland Western San Antonio Huebner Oaks Limited Partnership	Illinois
Inland Western San Antonio Huebner Oaks LP, L.L.C.	Delaware
Inland Western San Antonio Military Drive GP, L.L.C.	Delaware
Inland Western San Antonio Military Drive Limited Partnership	Illinois
Inland Western San Antonio Military Drive LP, L.L.C.	Delaware
Inland Western San Antonio Mission GP, L.L.C.	Delaware
Inland Western San Antonio Mission Limited Partnership	Illinois
Inland Western San Antonio Mission LP, L.L.C.	Delaware
Inland Western San Antonio Rogers GP, L.L.C.	Delaware
Inland Western San Antonio Rogers Limited Partnership	Illinois
Inland Western San Antonio Rogers LP, L.L.C.	Delaware
Inland Western Santa Clara 1350 Duane, L.L.C.	Delaware
Inland Western Santa Fe, L.L.C.	Delaware
Inland Western Saratoga Springs Wilton, L.L.C.	Delaware
Inland Western Saratoga Springs Wilton Member, L.L.C.	Delaware
Inland Western Saratoga Springs Wilton Member II, L.L.C.	Delaware
Inland Western Schaumburg American Lane, L.L.C.	Delaware
Inland Western Seattle Northgate North, L.L.C.	Delaware
Inland Western Seekonk Power Center, L.L.C.	Delaware
Inland Western Severn, L.L.C.	Delaware
Inland Western Severn NB, L.L.C.	Delaware
Inland Western Southlake GP, L.L.C.	Delaware
Inland Western Southlake Limited Partnership	Illinois
Inland Western Southlake LP, L.L.C.	Delaware
Inland Western Southlake Corners GP, L.L.C.	Delaware
Inland Western Southlake Corners Limited Partnership	Illinois
Inland Western Southlake Corners LP, L.L.C.	Delaware
Inland Western Southlake Suntree GP, L.L.C.	Delaware
Inland Western Southlake Suntree Limited Partnership	Illinois
Inland Western Southlake Suntree LP, L.L.C.	Delaware
Inland Western Spartanburg, L.L.C.	Delaware
Inland Western Spartanburg SPE, L.L.C.	Delaware
Inland Western SPE, L.L.C.	Delaware
Inland Western Spokane Northpointe, L.L.C.	Delaware
Inland Western Springfield Boston, L.L.C.	Delaware
Inland Western St. George, L.L.C.	Delaware
Inland Western State College Science Park DST	Delaware
Inland Western Stockton Airport Way, L.L.C.	Delaware

Inland Western Stockton Airport Way II, L.L.C.	Delaware
Inland Western Stony Creek II, L.L.C.	Delaware
Inland Western Sugar Land Colony GP, L.L.C.	Delaware
Inland Western Sugar Land Colony Limited Partnership	Illinois
Inland Western Sugar Land Colony LP, L.L.C.	Delaware
Inland Western Sugar Land Riverpark I GP, L.L.C.	Delaware
Inland Western Sugar Land Riverpark I Limited Partnership	Illinois
Inland Western Sugar Land Riverpark I LP, L.L.C.	Delaware
Inland Western Sugar Land Riverpark IIA GP, L.L.C.	Delaware
Inland Western Sugar Land Riverpark IIA Limited Partnership	Illinois
Inland Western Sugar Land Riverpark IIA LP, L.L.C.	Delaware
Inland Western Sugar Land Riverpark IIB GP, L.L.C.	Delaware
Inland Western Sugar Land Riverpark IIB Limited Partnership	Illinois
Inland Western Sugar Land Riverpark IIB LP, L.L.C.	Delaware
Inland Western Summerville Azalea Square, L.L.C.	Delaware
Inland Western Summerville Azalea Square III GP, L.L.C.	Delaware
Inland Western Summerville Azalea Square III Limited Partnership	Tennessee
Inland Western Summerville Azalea Square III LP, L.L.C.	Delaware
Inland Western Sylacauga Broadway, L.L.C.	Delaware
Inland Western Tallahassee Governor’s One, L.L.C.	Delaware
Inland Western Tampa Walters, L.L.C.	Delaware
Inland Western Taylorsville 2700 West, L.L.C.	Delaware
Inland Western Temecula Commons, L.L.C.	Delaware
Inland Western Temecula Vail, L.L.C.	Delaware
Inland Western Thousand Oaks, L.L.C.	Delaware
Inland Western Town And Country Manchester, L.L.C.	Delaware
Inland Western Traverse City Bison Hollow, L.L.C.	Delaware
Inland Western Tuscaloosa University, L.L.C.	Delaware
Inland Western University Heights University Square, L.L.C.	Delaware
Inland Western Viera Lake Andrew, L.L.C.	Delaware
Inland Western Waco Central GP, L.L.C.	Delaware
Inland Western Waco Central Limited Partnership	Illinois
Inland Western Waco Central LP, L.L.C.	Delaware
Inland Western Watauga GP, L.L.C.	Delaware
Inland Western Watauga Limited Partnership	Illinois
Inland Western Watauga LP, L.L.C.	Delaware
Inland Western/Weber JV Dallas Wheatland  GP, L.L.C.	Delaware
Inland Western/Weber JV Dallas Wheatland  LP, L.L.C.	Delaware
Inland Western Wesley Chapel Northwoods, L.L.C.	Delaware
Inland Western West Allis Greenfield, L.L.C.	Delaware
Inland Western West Mifflin Century III GP, L.L.C.	Delaware
Inland Western West Mifflin Century III, L.P.	Illinois
Inland Western West Mifflin Century III Member II DST	Delaware
Inland Western West Mifflin Century III Partner, L.P.	Delaware
Inland Western Westbury Merchants Plaza, L.L.C.	Delaware
Inland Western Westerville Cleveland, L.L.C.	Delaware
Inland Western Williston Maple Tree, L.L.C.	Delaware
Inland Western Wilmington College, L.L.C.	Delaware
Inland Western Winston-Salem 5th Street, L.L.C.	Delaware
Inland Western Winter Springs Red Bug, L.L.C.	Delaware
Inland Western Woodridge Seven Bridges, L.L.C.	Delaware
Inland Western Worcester Lincoln Plaza, L.L.C.	Delaware
IWR Protective Corporation	Delaware
IWR Gateway Central Plant, L.L.C.	Delaware
Lake Mead Crossing, LLC	Nevada

MS Inland Fund, LLC	Delaware
Reisterstown Plaza Associates, LLC	Maryland
Reisterstown Plaza Holdings, LLC	Maryland
RRP Hecht, LLC	Maryland
SLTS Grand Avenue II, L.P.	Texas
SLTS Grand Avenue II GP, L.L.C.	Delaware
The Shops At Legacy (Inland) GP, L.L.C.	Delaware
The Shops At Legacy (Inland) L.P.	Illinois
The Shops At Legacy (Inland) LP, L.L.C.	Delaware
Town Square Ventures, L.P.	Illinois
Town Square Ventures II GP, L.L.C.	Texas
Town Square Ventures II, L.P.	Texas
Town Square Ventures III, L.P.	Texas
Town Square Ventures III GP, L.L.C.	Delaware
Town Square Ventures III LP, L.L.C.	Delaware
Town Square Ventures IV GP, L.L.C.	Delaware
Town Square Ventures IV, L.P.	Texas
Town Square Ventures IV LP, L.L.C.	Delaware
Town Square Ventures V GP, L.L.C.	Delaware
Town Square Ventures V, L.P.	Texas
Town Square Ventures V LP, L.L.C.	Delaware
Towson Circle LLC	Maryland
Towson Circle Holding LLC	Delaware
University Square Parking LLC	Delaware
Western Town Square Ventures GP, L.L.C.	Delaware
Western Town Square Ventures LP, L.L.C.	Delaware
Western Town Square Ventures I GP, L.L.C.	Delaware

EX-10.5

Converted by EDGARwiz

EX-10.585

THIRD AMENDMENT TO ESCROW AGREEMENT

THIS THIRD AMENDMENT TO ESCROW AGREEMENT (this "Amendment") is made and entered into as of the 5th day of November, 2009, by and among INLAND REAL ESTATE INVESTMENT CORPORATION, a Delaware corporation ("IREIC"); INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation ("IWEST"); IWEST MERGER AGENT, LLC, in its capacity as agent (the "Agent"); and BANK OF AMERICA, N.A. AS SUCCESSOR TO LASALLE BANK, N.A., as escrow agent ("Escrow Agent").

RECITALS:

A.

IREIC, IWEST, the Agent and the Escrow Agent are parties to that certain Escrow Agreement, dated as of November 15, 2007 (the "Escrow Agreement"). Capitalized terms used but not defined in this Amendment, but defined in the Escrow Agreement, shall have the meanings given to them in the Escrow Agreement.

B.

The Escrow Agreement was entered into pursuant to that certain Agreement and Plan of Merger, dated as of August 14, 2007 (the "Merger Agreement"), by and among IWEST, certain acquisition subsidiaries of IWEST, IREIC, the Agent, Inland Western Retail Real Estate Advisory Services, Inc., Inland Southwest Management Corp., Inland Northwest Management Corp. and Inland Western Management Corp.

C.

IREIC, IWEST, Agent and Escrow Agent entered into the First Amendment to Escrow Agreement dated as of November 14, 2008 to eliminate the disbursement of Escrowed Shares on the Initial Disbursement Date.

D.

IREIC, IWEST, the Agent and the Escrow Agent entered into the Second Amendment to Escrow Agreement dated as of April 27, 2009 to amend the date for final disbursement of Escrowed Shares.

E.

IREIC, IWEST, the Agent and the Escrow Agent desire to enter into this Amendment to further amend the date for final disbursement of Escrowed Shares.

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.

Amendment to Escrow Agreement.

Section 4(b) of the Escrow Agreement shall be amended by deleting the first sentence of that Section in its entirety and substituting in lieu thereof the following:

On May 15, 2010 (the “Final Disbursement Date”), Escrow Agent shall disburse to IREIC and the Agent (or as directed by IREIC and the Agent in writing no less than two (2) Business Days prior to the Final Disbursement Date), an amount of Escrowed Shares (the “Final Disbursement Amount”) equal to 100% of (A) the Value of the Escrow as of the Final Disbursement Date less (B) an amount (the “Final Withheld Amount”) equal to the aggregate Damages, if any, then claimed by IWEST pursuant to a proper IWEST Disbursement Request or Final Adjudication received by Escrow Ag ent, IREIC and the Agent in accordance with Section 4(c) below prior to the Final Disbursement Date (each, an “IWEST Claim”), which claimed Damages have not been disbursed from the Escrow Fund or otherwise paid or satisfied prior to the Final Disbursement Date.

2.

General Provisions.

(a)

Except as amended by this Amendment, the terms and provisions of the Escrow Agreement shall remain in full force and effect.

CENTRAL\31269051.1

(b)

This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(c)

This Amendment may be executed and delivered by exchange of facsimile copies showing the signatures of IWEST, the Agent, IREIC and the Escrow Agent, and those signatures need not be affixed to the same copy. The facsimile copies showing the signatures of IWEST, the Agent, IREIC and Escrow Agent will constitute originally signed copies of the same agreement requiring no further execution.

(d)

This Amendment shall be governed by and construed in accordance with the internal laws of the State of Illinois applicable to contracts made and performed entirely within the State of Illinois, without giving effect to its conflicts of law provisions.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

CENTRAL\31269051.1

IWEST COUNTERPART SIGNATURE PAGE TO

SECOND AMENDMENT TO ESCROW AGREEMENT

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

IWEST:

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

By:

Name:

Its:

CENTRAL\31269051.1

AGENT COUNTERPART SIGNATURE PAGE TO

SECOND AMENDMENT TO ESCROW AGREEMENT

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

THE AGENT:

IWEST MERGER AGENT, LLC

By:

Name:

Its:

CENTRAL\31269051.1

IREIC COUNTERPART SIGNATURE PAGE TO SECOND AMENDMENT TO ESCROW AGREEMENT

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

IREIC:

INLAND REAL ESTATE INVESTMENT CORPORATION

By:

Name:

Its:

CENTRAL\31269051.1

ESCROW AGENT COUNTERPART SIGNATURE PAGE TO

SECOND AMENDMENT TO ESCROW AGREEMENT

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

ESCROW AGENT:

BANK OF AMERICA, N.A.

AS SUCCESSOR TO LASALLE BANK, N.A.

By:

Name:

Its:

CENTRAL\31269051.1

EX-10.586

SEPARATION AGREEMENT AND GENERAL RELEASE

            This Separation Agreement and General Release (“Agreement”) is entered into on October 13, 2009 by and between Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, on behalf of itself and its subsidiaries, partnerships, affiliates, business units and related entities (“the Company”) and Michael J. O’Hanlon (“Mr. O’Hanlon”).

            WHEREAS, the Company is a real estate investment trust which owns, operates and acquires primarily retail real estate throughout the United States;

            WHEREAS, Mr. O’Hanlon is an employee of the Company and holds the positions of Chief Executive Officer and President, among others;

            WHEREAS, Mr. O’Hanlon has acquired extensive knowledge of and experience in the Company’s business during his employment at the Company;

            WHEREAS, Mr. O’Hanlon and the Company desire to end Mr. O’Hanlon’s employment relationship effective October 9, 2009 (the “Effective Date”);

            WHEREAS, Mr. O’Hanlon desires to resign as an officer of the Company effective upon execution of this Agreement on October 13, 2009;

            NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement and for other good and valuable consideration, the adequacy and receipt of which the parties expressly acknowledge, Mr. O’Hanlon and the Company agree as follows:

1.

Employment Period and Responsibilities.  Mr. O’Hanlon’s resignation of his employment shall be effective as of October 9, 2009.  Mr. O’Hanlon’s resignation as Chief Executive Officer and President as well as any other offices held by Mr. O’Hanlon with the Company or its subsidiaries shall be effective October 13, 2009.

2.

Separation Pay.  Provided that Mr. O’Hanlon executes and does not revoke or breach any part of this Agreement, the Company will pay Mr. O’Hanlon the sum total of Four Hundred Fifty Thousand Dollars (“Separation Pay”) in accordance with the following schedule.   The Separation Pay shall be paid in bi-weekly installments, minus required withholding, in accordance with the Company’s normal payroll practices, with the first such installment payment to be made at least 30 days, but no more than 60 days, after the Effective Date. To the extent that Mr. O’Hanlon has not satisfied the conditions described in the first sentence of this Section before the scheduled payment date for the first installment payment or any succeeding installment payment, such payment(s) shall be forfeited.

3.

Employment Benefits.  The Company will pay on behalf of Mr. O’Hanlon the cost of Mr. O'Hanlon's existing group health plan benefits for a period of twelve months (12) months (the “COBRA Benefits”) following the Effective Date. If Mr. O’Hanlon obtains employment during this twelve month period and is eligible to be enrolled in one or more health care insurance plans sponsored by his new employer, the Company’s obligation to pay the cost of Mr. O’Hanlon’s COBRA Benefits shall cease immediately. Mr. O’Hanlon shall be liable to

CENTRAL\31273600.5

Michael J. O’Hanlon

Page 2

pay any and all taxes owed by him on account of the Company’s payment of the cost of his COBRA Benefits.

4.

Incentive Bonus.  Mr. O’Hanlon will not be eligible to receive, and will not be paid, a bonus for the 2009 performance year or thereafter. 

5.

Vacation Days.  Mr. O’Hanlon will be paid for any unused vacation days he has accrued prior to the Effective Date.

6.

401(k) Payments.  Mr. O’Hanlon will receive distributions of his vested benefits as of the Effective Date, if any, under the Company’s 401(k) plan in accordance with the terms of the applicable plan. 

7.

Covenants. 

            a.         Non-Disclosure of Confidential Information.  Mr. O’Hanlon hereby acknowledges and agrees that the duties and services to be performed by him under this Agreement are special and unique and that as a result of his employment by the Company Mr. O’Hanlon has developed over time and has acquired, developed and used information of a special and unique nature and value that is not generally known to the public or to the Company’s industry, including but not limited to mailing lists, stockholder lists, tenant lists and profiles, prospective customer, acquisition candidate or tenant lists, accounts receivable and payable ledgers, financial an other records of the Company, information regarding its stockholders, tenants or joint venture partners, and other similar matters (all such information being hereinafter referred to as “Confidential Information”).  Mr. O’Hanlon further acknowledges and agrees that the Confidential Information is of great value to the Company and that the restrictions and agreements contained in this Agreement are reasonably necessary to protect the Confidential Information and the goodwill of the Company.  Accordingly, Mr. O’Hanlon hereby agrees that:

(1)        Mr. O’Hanlon will not at any time after the date of this Agreement, directly or indirectly, except as otherwise authorized in writing by the Company for the benefit of the Company, divulge to any person, firm, corporation, limited liability company, partnership or organization, or any affiliated entity (hereinafter referred to as “Third Parties”), or use or cause or authorize any Third Parties to divulge or use, the Confidential Information, except as required by law; and

(2)        Mr. O’Hanlon shall immediately deliver or cause to be delivered to the Company any and all Confidential Information, including drawings, notebooks, keys, data and other documents and materials belonging to the Company which is in his possession or under his control relating to the Company, regardless of the medium upon which it is stored, and will deliver to the Company upon termination, any other property of the Company which is in his possession or under his control.  Mr. O’Hanlon further

2

CENTRAL\31273600.5

Michael J. O’Hanlon

Page 3

agrees that he will not retain any copies, duplicates, reproductions or excerpts of this property.

            b.         Non Solicitation, Non Employment of Company Employees

(1)        General.  Mr. O’Hanlon acknowledges that the covenants set forth in this Section 7(b) are reasonable in scope and essential to the preservation of the business and the goodwill of the Company, and are consideration for the amounts to be paid to him hereunder.  Mr. O’Hanlon also acknowledges that the enforcement of the covenants set forth in this Section 7(b) will not preclude him from being gainfully employed in such manner and to the extent as to provide a standard of living for himself, the members of his family and the others dependent upon him of at least the level provided by this Agreement. 

(2)        Covenants.  Mr. O’Hanlon hereby covenants and agrees:

(i) he shall not, for a period of three and one half (3 1/2) years following the expiration, termination or extension of this Agreement, directly or indirectly solicit, induce, influence or attempt to solicit, induce or influence any employee or agent of the Company to leave his employment or engagement with the Company, or offer employment or engagement to or employ or engage any such employee of the Company, or assist or attempt to assist any such employee of the Company in seeking other employment;

(ii) he shall not in any manner slander, libel or by other means take action which is or intended, or could reasonably be expected, to be detrimental to the Company or its employees or operations;

(iii) he shall not:

(a)        knowingly make or participate in any “solicitation” of “proxies” or “consents” (as such terms are used in the proxy rules of the United States Securities and Exchange Commission) or make proposals for approval of the Company’s stockholders;

(b) knowingly form, join or participate in a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to the Company’s securities;

(c) otherwise knowingly act to control or seek to control the management, board of directors or policies of the Company or

(d) make any agreement to do any of the foregoing.

3

CENTRAL\31273600.5

Michael J. O’Hanlon

Page 4

            c.         Non-Disparagement.  Mr. O’Hanlon agrees that he has not and will not directly or indirectly make any disparaging communication, or release any information or encourage others to make any communication or release any information, that is designed to embarrass or disparage the Company or the Company’s policies or practices to any person, including the Company’s investors, customers, vendors, competitors, employees, former employees, or potential employees, the press or other media in any country, or Mr. O’Hanlon’s prospective or actual employers; provided, that it will not be a violation of this paragraph for him to make truthful statements when required by legal process to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with the jurisdiction to order Mr. O’Hanlon or his agents to divulge, disclose or make accessible such information.  Any violation of this paragraph shall constitute a material breach of this Agreement.

            d.         Remedies.

(1)        Injunctive Relief.  Mr. O’Hanlon expressly acknowledges and agrees that the business of the Company is highly competitive and that a violation of any of the provisions of Sections 7(a) or 7(b) would cause immediate and irreparable harm, loss and damage to the Company not adequately compensable by a monetary award.  Mr. O’Hanlon further acknowledges and agrees that the time periods provided for herein are the minimum necessary to adequately protect the business of the Company, the enjoyment of the Confidential Information and the goodwill of the Company.  Without limiting any of the other remedies available to the Company at law or in equity, or the Company’s right or ability to collect money damages, Mr. O’Hanlon agrees that any actual or threatened violation of any of the provisions of Sectio ns 7(a) or 7(b) may be immediately restrained or enjoined by any court of competent jurisdiction, and that a temporary restraining order or emergency, preliminary or final injunction may be issued in any court of competent jurisdiction without bond.

(2)        Enforcement.  Mr. O’Hanlon expressly acknowledges and agrees that the provisions of Sections 7(a) or 7(b) shall be enforced to the fullest extent permissible under the laws and public policies in each jurisdiction in which enforcement might be sought.  Accordingly, if any particular portion of Sections 7(a) or 7(b) shall ever be adjudicated as invalid or unenforceable, or if the application thereof to any party or circumstance shall be adjudicated to be prohibited by or invalidated by such laws or public policies, such section or sections shall be (i) deemed amended to delete therefrom such portions so adjudicated; or (ii) modified as determined appropriate by a court of competent jurisdiction.

8.

Cooperation.  Mr. O’Hanlon agrees to cooperate with the Company in (1) all financing opportunities and arrangements with various third parties (including, but not limited to, banks, investment banks, life insurance companies and the United States Term Asset-Backed Securities Loan Facility (TALF) Program) in which he has been an active participant during 2009, (2) all opportunities or arrangements with various third parties related to joint venture or

4

CENTRAL\31273600.5

Michael J. O’Hanlon

Page 5

similar undertakings now being pursued for the Company by Citigroup Inc. or any of its affiliates; (3) any pending or subsequently filed litigation, proceeding, claim or other disputed item involving the Company that relates to the matters within his knowledge or responsibility during his employment including, but not limited, to Celeste Prestinario v. Inland Western Retail Real Estate Trust, Inc. and City of St. Clair Shores General Employees Retirement System, et al. v. Inland Western Retail Real Estate Trust, Inc., and (4) providing any and all information necessary for the Company to comply now or in the future with reporting requirements under state or federal securities laws.  Without limiting the foregoing, he agrees (i) to meet with the Company’s representatives, its counsel or other designees at mutually convenient times and places with respect to any items within the scope of this p aragraph; (ii) to provide truthful testimony before any court, agency or other legal authority; and (iii) to notify the Company when permitted to do so by law within three (3) business days if he is contacted by any adverse party or legal authority or by any representative of an adverse party or legal authority. Mr. O’Hanlon represents and warrants to the Company that, as of the date of this Agreement, he has no actual knowledge that the Company’s public filings with The Securities and Exchange Commission made any false or misleading statements. Should it become necessary to meet with the Company’s representatives, its counsel or other designees, Mr. O’Hanlon will receive reimbursement for actual lost wages and actual expenses that are reasonable and customary under the Company’s expense policies and its by-laws relating to indemnification.

9.

Disclosure of Agreement.  Mr. O’Hanlon understands and agrees that the Company will issue a press release and communications to employees regarding Mr. O’Hanlon’s departure from the Company. Mr. O’Hanlon further acknowledges and agrees that the Company is required to disclose Mr. O’Hanlon’s departure and the terms of this Agreement, including the filing of a copy of this Agreement, pursuant to requirements of the Securities and Exchange Commission and/or other laws, rules or regulations.  Nothing herein shall restrict in any way any disclosure by the Company or Mr. O’Hanlon as required by law, rule or regulation.

10.

General Release and Covenant Not to Sue.  In consideration of the payments and benefits provided and actions taken by the Company as set forth in this Agreement, Mr. O’Hanlon knowingly and voluntarily agrees not to sue, waives and releases forever whatever claims he may have against the Company as of the date of this Agreement, including its officers, directors, partners, shareholders, employees, associates, agents, advisors, attorneys, and representatives (collectively referred to as the “Released Parties”), including but not limited to: claims based upon or relating to his hire by the Company; any aspect of the work he performed; any aspect of his employment relationship with the Company, including his compensation; any oral or written agreements regarding his employment relationship with the Company; or the separation of his employment or the facts relating to o r surrounding any aspect of that separation, except for any claims that he may have under the Agreement.  This release and waiver includes, without limitation, any claims he may have, whether known or unknown, in connection with any rights under federal, state or local law, including, but not limited to, claims of breach of contract, wrongful termination, unjust dismissal, defamation, libel or slander, or under any federal, state or local law dealing with discrimination based on age, race, sex, national origin, handicap, religion, disability or sexual preference.  This release of claims includes, but is not limited to, all claims

5

CENTRAL\31273600.5

Michael J. O’Hanlon

Page 6

arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Civil Rights Act of 1991, the Family and Medical Leave Act, state fair employment, human rights and/or civil rights laws, and all other federal, state and local labor and anti-discrimination laws, the common law and any other purported restriction on an employer’s right to terminate the employment of employees.  Nothing in this paragraph is intended by either party to constitute a waiver of statutory rights which cannot be waived by express provision of law, including any vested rights under any retirement or benefit plan.

a.         Mr. O’Hanlon’s signature below constitutes his representation and warranty that he has not suffered an on the job or occupational injury or incurred any wage or overtime claims, including without limitation, any claims pursuant to the Fair Labor Standards Act, that could be asserted against any Released Party.  Moreover, Mr. O’Hanlon expressly waives his right to recovery of any type, including damages, reinstatement or attorneys’ fees, in any administrative or court action, whether federal, state, local or whether brought by him or on his behalf, related to any of the matters actually released herein.  He also waives and releases any right to become, and promises not to consent to become, a member of any class or collective action in a case in which claims are asserted against any Released Party.  If Mr. O’H anlon is made a member of a class or collective action in any proceeding without his prior knowledge or consent, he agrees to opt out of the class or collective action at the first opportunity.

b.         Mr. O’Hanlon acknowledges and agrees that the payments and benefits set forth in this Agreement shall be in lieu of any other severance benefits that may be payable to him upon his termination of employment with the Company.  In consideration for such payments and benefits, Mr. O’Hanlon hereby waives any severance benefits to which he otherwise might be entitled.

11.

Acknowledgment of Sufficient Time to Consider this Agreement and to Consult With a Lawyer.  Mr. O’Hanlon expressly acknowledges that he has been informed that he may consult with a lawyer of his choice, that he has consulted with his lawyer, and that he has had sufficient time to consult with his lawyer prior to executing this Agreement.  Mr. O’Hanlon acknowledges that he is not waiving rights or claims that may arise after the date this Agreement is executed.  Mr. O’Hanlon further acknowledges that he has been informed that he is entitled to a period of at least twenty-one (21) days within which to consider this Agreement, but that he may execute this Agreement at any time prior to the expiration of the 21-day period.

12.

Revocation Right.  Within seven (7) days following the date of Mr. O’Hanlon’s execution of this Agreement, Mr. O’Hanlon shall have the right to revoke this Agreement by serving within such 7-day period written notice of his revocation upon Dennis Holland, Inland Western Retail Real Estate Trust, Inc., 2901 Butterfield Road, Oak Brook, IL  60523 and the Company’s attorneys, Samuel B. Isaacson and Adrianne C. Mazura, DLA Piper LLP (US), 203 North LaSalle Street, Suite 1900, Chicago, IL  60601.  If Mr. O’Hanlon does not revoke this Agreement during this seven (7) day period, this Agreement shall become effective on the eighth

6

CENTRAL\31273600.5

Michael J. O’Hanlon

Page 7

day after the date of Mr. O’Hanlon’s execution of this Agreement and Mr. O’Hanlon shall have no further right to revoke this Agreement.

13.

Knowing and Voluntary Release.  Mr. O’Hanlon acknowledges that in releasing and waiving any claims and rights that he has or may have against the Released Parties, including those under the Age Discrimination in Employment Act, he does so knowingly and voluntarily, in exchange for consideration in addition to anything of value to which he already is entitled.

14.

Notices.  All notices and other communications required or permitted under this Agreement shall be deemed to have been duly given and made if in writing and if served personally on the party for whom intended or by being deposited, postage prepaid, certified or registered mail, return receipt requested, in the United States mail bearing the address shown below for each such party or such other address as that party may designate in writing hereafter.

a.

If to the Company:

b.

If to Mr. O’Hanlon:

Dennis K. Holland

Michael J. O’Hanlon

General Counsel

1555 Western Avenue

Inland Western Retail Real Estate

Lake Forest, Illinois  60045

Trust, Inc.

2901 Butterfield Road

Oak Brook, Illinois  60523

with a copy which shall not

with a copy which shall not

constitute notice to:

constitute notice to:

Samuel B. Isaacson

James R. Pranger

Adrianne C. Mazura

Neal, Gerber & Eisenberg LLP

DLA Piper LLP (US)

Two North Lasalle Street

203 N. LaSalle Street, Suite 1900

Suite 2200

Chicago, Illinois  60601-1293

Chicago, Illinois  60602

15.

Non-admission.  Nothing herein shall be deemed to constitute an admission of wrongdoing by Mr. O’Hanlon, the Company or any of the other Released Parties.  Neither this Agreement nor any of its terms shall be used as an admission or introduced as evidence as to any issue of law or fact in any proceeding, suit or action, other than an action to enforce this Agreement. 

16.

Waiver.  The Company’s future waiver of a breach by Mr. O’Hanlon of any provision of this Agreement or failure to enforce any such provision with respect to him shall not operate or be construed as a waiver of any subsequent breach by Mr. O’Hanlon of any such provision or of the Company’s right to enforce any such provision with respect to Mr. O’Hanlon.  No act or omission of the Company shall constitute a waiver of any of its rights

7

CENTRAL\31273600.5

Michael J. O’Hanlon

Page 8

hereunder except for a written waiver signed by the Company’s President and Chief Executive Officer. 

17.

Entire Agreement/Ratification.  The terms contained in this Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior negotiations, representations or agreements relating thereto whether written or oral, the Company acknowledges that the covenants contained in Paragraph 7 and its subparts are the only restrictive covenants to which Mr. O’Hanlon will be bound and that, in the event of conflict, this Agreement will govern. Not in limitation of the generality of the foregoing, this Agreement shall supersede any existing oral or written agreements between Mr. O’Hanlon and the Company. Mr. O’Hanlon acknowledges, understands, and agrees that except as set forth in paragraphs 2, 3, 5, and 6 above, he shall be entitled to receive no other compensation or benefits from the Company arising from or relating to his employment or the termination thereof. Mr. O’Hanlon represents that in executing this Agreement, he has not relied upon any representation or statement not set forth herein.  No amendment or modification of this Agreement shall be valid or binding upon the parties unless in writing and signed by both parties.

18.

Compliance with Section 409A.  The parties intend for this Agreement either to satisfy the requirements of Section 409A of the Internal Revenue Code (“Section 409A”) or to be exempt from the application of Section 409A, and this Agreement shall be construed and interpreted accordingly.  To the extent that any provision in this Agreement is ambiguous as to its compliance with Section 409A, the provisions shall be interpreted in a manner so that no payment made pursuant to this Agreement shall be subject to an “additional tax” within the meaning of Section 409A(a)(1)(B).  The preceding provisions, however, shall not be construed as a guarantee by the Company of any particular tax effect for any income to Mr. O’Hanlon provided pursuant to the Agreement.  In any event, except for the Company’s responsibility to withhold applicable income a nd employment taxes from compensation paid or provided to Mr. O’Hanlon, the Company shall not be responsible for the payment of any applicable taxes on compensation paid or provided to Mr. O’Hanlon pursuant to this Agreement.  “Termination of employment,” “resignation,” or words of similar import, as used in this Agreement mean, for purposes of any payments under this Agreement that are payments of deferred compensation subject to Section 409A, Mr. O’Hanlon's “separation from service” as defined in Section 409A.  For purposes of Section 409A, each payment made under this Agreement shall be treated as a separate payment.  In no event may Mr. O’Hanlon, directly or indirectly, designate the calendar year of payment.

19.

Governing Law. 

            a.         The parties agree that this Agreement shall be governed by, interpreted and construed in accordance with the internal laws of the State of Illinois without regard to its conflicts of law provisions, and the parties agree that any suit, action or proceeding with respect to this Agreement shall be brought in the state courts of Chicago, Illinois or in the United States District Court for the Northern District of Illinois.  The parties hereto hereby accept the exclusive

8

CENTRAL\31273600.5

Michael J. O’Hanlon

Page 9

jurisdiction of those courts for the purpose of any such suit, action or proceeding.  Venue for any such action, in addition to any other venue permitted by statute, will be in Chicago, Illinois. 

            b.         The parties hereby irrevocably waive any and all right to trial by jury in any legal proceeding arising out of or related to this Agreement.

MR. O’HANLON AND THE COMPANY EXPRESSLY STATE THAT THEY HAVE READ THIS EMPLOYMENT AGREEMENT AND GENERAL RELEASE, THAT THEY UNDERSTAND EACH OF ITS TERMS, AND THAT THEY HAVE ENTERED INTO IT VOLUNTARILY AND INTEND TO BE BOUND THEREBY.

INLAND WESTERN RETAIL REAL

MICHAEL J. O’HANLON

ESTATE TRUST, INC.

By:

_____________________________

By:  __________________________

Dated:

___________________________, 2009

Dated:  __________________, 2009

9

CENTRAL\31273600.5

EX-10.587

Exhibit 10.587

LOAN AGREEMENT

Dated as of December 1, 2009

By and Among

THE ENTITIES SET FORTH ON SCHEDULE I
ATTACHED HERETO,
collectively, as Borrower

and

COLESVILLE ONE, LLC,
as Maryland Owner

and

JPMORGAN CHASE BANK, N.A.,
as Lender

TABLE OF CONTENTS

Page

ARTICLE I

DEFINITIONS; PRINCIPLES OF CONSTRUCTION

Section 1.1

Definitions

1

Section 1.2

Principles of Construction

33

ARTICLE II

GENERAL TERMS

Section 2.1

Loan Commitment; Disbursement to Borrower

34

Section 2.2

Interest; Loan Payments; Late Payment Charge

34

Section 2.3

Prepayments

36

Section 2.4

Defeasance

37

Section 2.5

Release of Property

41

Section 2.6

Intentionally Omitted

46

Section 2.7

Lockbox Account/Cash Management

46

ARTICLE III

INTENTIONALLY OMITTED

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.1

Borrower Representations

48

Section 4.2

Survival of Representations

65

ARTICLE V

BORROWER COVENANTS

Section 5.1

Affirmative Covenants

65

Section 5.2

Negative Covenants

81

ARTICLE VI

INSURANCE; CASUALTY; CONDEMNATION

Section 6.1

Insurance

88

Section 6.2

Casualty

92

Section 6.3

Condemnation

93

Section 6.4

Restoration

93

-i-

ARTICLE VII

RESERVE FUNDS

Section 7.1

Required Repair Funds

98

Section 7.2

Tax and Insurance Reserve Fund

100

Section 7.3

Replacements and Replacement Reserve

101

Section 7.4

Rollover Reserve

106

Section 7.5

Ground Lease Reserve Fund

107

Section 7.6

Excess Cash Flow Reserve Fund

108

Section 7.7

Reserve Funds, Generally

108

ARTICLE VIII

DEFAULTS

Section 8.1

Event of Default

109

Section 8.2

Remedies

112

Section 8.3

Remedies Cumulative; Waivers

113

ARTICLE IX

SPECIAL PROVISIONS

Section 9.1

Securitization

114

Section 9.2

Securitization Indemnification

119

Section 9.3

Intentionally Omitted

122

Section 9.4

Exculpation

122

Section 9.5

Termination of Manager

125

Section 9.6

Servicer

125

Section 9.7

Splitting the Loan

126

ARTICLE X

MISCELLANEOUS

Section 10.1

Survival

126

Section 10.2

Lender’s Discretion

127

Section 10.3

Governing Law

127

Section 10.4

Modification; Waiver in Writing

128

Section 10.5

Delay Not a Waiver

129

Section 10.6

Notices

129

Section 10.7

Trial by Jury

130

Section 10.8

Headings

131

Section 10.9

Severability

131

Section 10.10

Preferences

131

Section 10.11

Waiver of Notice

131

Section 10.12

Remedies of Borrower and Maryland Owner

131

Section 10.13

Expenses; Indemnity

131

-ii-

Section 10.14

Schedules Incorporated

133

Section 10.15

Offsets, Counterclaims and Defenses

133

Section 10.16

No Joint Venture or Partnership; No Third Party Beneficiaries

133

Section 10.17

Publicity

134

Section 10.18

Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets

134

Section 10.19

Waiver of Counterclaim

134

Section 10.20

Conflict; Construction of Documents; Reliance

135

Section 10.21

Brokers and Financial Advisors

135

Section 10.22

Prior Agreements

135

Section 10.23

Transfer of Loan

135

Section 10.24

Joint and Several Liability

135

Section 10.25

Certain Additional Rights of Lender (VCOC)

136

Section 10.26

Lender’s Right to Unwind Cross-Collateralization/Cross-Default

137

Section 10.27

Additional California Waivers

137

SCHEDULES

Schedule I

–

Borrower List

Schedule II

–

Leasing Conditions

Schedule III

–

O&M Properties

Schedule IV

–

Required Repairs

Schedule V

–

Lease Carveouts

Schedule VI

–

Release Amounts

Schedule VII

–

Alteration Conditions

Schedule VIII

–

List of Ground Leases

Schedule IX

–

Ground Lease Exceptions

Schedule X

–

Organizational Chart

Schedule XI

–

REOAs

Schedule XII

–

Flood Zone Properties

Schedule XIII

–

Intentionally Omitted

Schedule XIV

–

Sole Tenant Individual Properties/Leases

Schedule XV-A

–

Inland Pacific Property Services Managed Properties

Schedule XV-B

–

Inland Southwest Management LLC Managed Properties

Schedule XV-C

–

Inland US Management LLC Managed Properties

Schedule XVI

–

Assignment Representations

Schedule XVII

–

Northpointe Target Expansion Parcel

-iii-

LOAN AGREEMENT

THIS LOAN AGREEMENT, dated as of this 1st day of December, 2009 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “Agreement”), by and among JPMORGAN CHASE BANK, N.A., a banking association chartered under the laws of the United States of America, having an address at 383 Madison Avenue, New York, New York 10179 (together with its successors and assigns, “Lender”), THE ENTITIES SET FORTH ON SCHEDULE I ATTACHED HERETO, each having an address at 2901 Butterfield Road, Oak Brook, Illinois  60523 (each, an “Individual Borrower” and, collectively, “Borrower”), and COLESVILLE ONE, LLC, a Maryland limited liability company, having an address at 2901 Butterfield Road, Oak Brook, Illinois  60523 (“Maryland Owner< /B>”).

W I T N E S S E T H:

WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender;

WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined); and

WHEREAS, it is a condition to the making of the Loan to Borrower that Maryland Owner enter into the Maryland Guaranty Agreement (as hereinafter defined) to guaranty the payment of the Loan by Maryland Individual Borrower (as hereinafter defined), and that Maryland Owner secure its obligations under the Maryland Guaranty Agreement by executing and delivering the Mortgage (as hereinafter defined) encumbering the Maryland Individual Property (as hereinafter defined).

NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows:

ARTICLE I

DEFINITIONS; PRINCIPLES OF CONSTRUCTION

Section 1.1

Definitions.

  For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent:

“Accrual Period” shall have the meaning set forth in Section 2.2.4 hereof.

“Additional Insolvency Opinion” shall mean any subsequent Insolvency Opinion.

“Adjusted Release Amount” shall mean, for each Individual Property, the sum of (a) the Release Amount for such Individual Property and (b)  fifteen percent (15%) of the Release Amount for such Individual Property.

“Affected Property” shall have the meaning set forth in Section 9.1.5 hereof.

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

“Affiliated Manager” shall mean any Manager in which Borrower, Maryland Owner, Principal or Indemnitor has, directly or indirectly, any legal, beneficial or economic interest.

“Agent” shall mean Wells Fargo Bank, National Association, a banking association chartered under the laws of the United States of America, or any successor Eligible Institution acting as Agent under the Cash Management Agreement.

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

“Allocated Loan Amount” shall have the meaning set forth in Section 9.1.5 hereof.

“Aggregate Threshold Amount” shall mean five percent (5%) of the outstanding principal balance of the Loan.

“ALTA” shall mean American Land Title Association, or any successor thereto.

“Alteration Conditions” shall have the meaning set forth on Schedule VII hereof.

“Annual Budget” shall mean the operating budget, including all planned Capital Expenditures, for each Individual Property prepared by Borrower and Maryland Owner in accordance with Section 5.1.11(d) for the applicable Fiscal Year or other period.

“Approved Annual Budget” shall have the meaning set forth in Section 5.1.11(d) hereof.

“Assignment of Leases” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), that certain first priority Assignment of Leases and Rents, dated as of the Closing Date, from the related Individual Borrower, as assignor, to Lender, as assignee, assigning to Lender all of such Individual Borrower’s interest in and to the Leases and Rents of the applicable Individual Property as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, and (b) with respect to the Maryland Individual Property, that certain first priority Indemnity Assignment of Leases and Rents, dated as of the Closing Date, from Maryland Owner, as assignor, to Lender, as assignee, assigning to Lender all of Maryland Owner’s interest in and to

-2-

the Leases and Rents of the Maryland Individual Property as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Assignment of Management Agreement” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), that certain Assignment of Management Agreement and Subordination of Management Fees dated as of the Closing Date among Lender, the related Individual Borrower and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, and (b) with respect to the Maryland Individual Property, that certain Assignment of Management Agreement and Subordination of Management Fees dated as of the Closing Date among Lender, Maryland Owner and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Award” shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect of all or any part of any Individual Property.

“Bankruptcy Action” shall mean with respect to any Person (a) such Person filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (c) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (d) such Person consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of any Individual Property; or (e) such Person making an assignment for the benefit of creditors, or admitting, i n writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due.

“Bankruptcy Code” shall mean Title 11 of the United States Code, 11 U.S.C. §101, et seq., as the same may be amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditors’ rights or any other Federal or state bankruptcy or insolvency law.

“Basic Carrying Costs” shall mean, with respect to each Individual Property, the sum of the following costs associated with such Individual Property for the relevant Fiscal Year or payment period:  (a) Taxes, (b) Other Charges, and (c) Insurance Premiums.

“Borrower” shall have the meaning set forth in the introductory paragraph hereto, together with its successors and permitted assigns.

“Borrower Remainder Account” shall have the meaning set forth in the Cash Management Agreement.

“Business Day” shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York or the place of business of the trustee under a Securitization (or, if the Securitization has not occurred, Lender), or any Servicer or the financial institution that maintains any collection account for or on behalf of any Servicer or any

-3-

Reserve Funds or the New York Stock Exchange or the Federal Reserve Bank of New York is not open for business.

“Capital Expenditures” shall mean, for any period, the amount expended for items capitalized under GAAP (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements).

“Cash Management Account” shall have the meaning set forth in Section 2.7.2(a) hereof.

“Cash Management Agreement” shall mean that certain Cash Management Agreement, dated as of the date hereof, by and among Borrower, Maryland Owner, Manager, Senior Mezzanine Borrower, Junior Mezzanine Borrower, Lender, Senior Mezzanine Lender, Junior Mezzanine Lender and Agent, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Cash Sweep Event” shall mean the occurrence of:

(a)

an Event of Default;

(b)

any Bankruptcy Action of any Individual Borrower or Maryland Owner;

(c)

a DSCR Trigger Event; or

(d)

any Bankruptcy Action of Indemnitor or Joint Venture Entity.

“Cash Sweep Event Cure” shall mean (a) if the Cash Sweep Event is caused solely by the occurrence of a DSCR Trigger Event, the achievement of a Debt Service Coverage Ratio of 1.12 to 1.00 or greater for six (6) consecutive months based upon the trailing six (6) month period immediately preceding the date of determination, or (b) if the Cash Sweep Event is caused by an Event of Default, the acceptance by Lender of a cure of such Event of Default (which cure Lender is not obligated to accept and may reject or accept in its sole and absolute discretion); provided, however, that, such Cash Sweep Event Cure set forth in this definition shall be subject to the following conditions, (i) no Event of Default shall have occurred and be continuing under this Agreement or any of the other Loan Documents, (ii) a Cash Sweep Event Cure may occur no mo re than a total of five (5) times in the aggregate during the term of the Loan, and (iii) Borrower and Maryland Owner shall have paid all of Lender’s reasonable expenses incurred in connection with such Cash Sweep Event Cure including, reasonable attorney’s fees.

“Cash Sweep Period” shall mean each period commencing on the occurrence of a Cash Sweep Event and continuing until the earlier of (a) the Payment Date next occurring following the related Cash Sweep Event Cure, or (b) until payment in full of all principal and interest on the Loan and all other amounts payable under the Loan Documents in accordance with the terms and provisions of the Loan Documents.

“Casualty” shall have the meaning set forth in Section 6.2 hereof.

-4-

“Casualty/Condemnation Defeasance” shall have the meaning set forth in Section 6.4(e) hereof.

“Casualty/Condemnation Prepayment” shall have the meaning set forth in Section 6.4(e) hereof.

“Casualty Consultant” shall have the meaning set forth in Section 6.4(b)(iii) hereof.

“Casualty Retainage” shall have the meaning set forth in Section 6.4(b)(iv) hereof.

“Closing Date” shall mean the date hereof.

“Code” shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

“Collective Group” shall have the meaning set forth in Section 10.24 hereof.

“Condemnation” shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Individual Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Individual Property or any part thereof.

“Condemnation Proceeds” shall have the meaning set forth in Section 6.4(b).

“Contribution Agreement” shall mean that certain Contribution Agreement, dated as of the date hereof, by and among each Individual Borrower and Maryland Owner, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a Person, whether through ownership of voting securities, by contract or otherwise.  “Controlled” and “Controlling” shall have correlative meanings.

“Debt” shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums (including the Defeasance Payment Amount and any Yield Maintenance Premium) due to Lender in respect of the Loan under the Note, this Agreement, the Mortgages or any other Loan Document.

“Debt Service” shall mean, with respect to any particular period of time, the scheduled principal and interest payments due under this Agreement and the Note (excluding the amount due under the Defeased Note(s)).

-5-

“Debt Service Coverage Ratio” shall mean a ratio as of the applicable date of determination in which:

(a)

the numerator is the Net Operating Income (excluding interest on credit accounts and using annualized amounts for any recurring expenses not paid monthly) for the applicable period as set forth in the statements required hereunder, without deduction for (i) actual management fees incurred in connection with the operation of the Properties, (ii) amounts paid to the Reserve Funds, less (A) management fees equal to four percent (4.0%) of Gross Income from Operations; (B) assumed Replacement Reserve Fund contributions equal to $0.15 per square foot of gross leasable area at the Properties; and (C) assumed reserves for tenant improvements and leasing commissions equal to $0.60 per square foot of gross leasable area at the Properties; and

(b)

the denominator is the aggregate amount, for the applicable period, of (i) the Debt Service, and (ii) the Mezzanine Debt Service.

“Default” shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default.

“Default Rate” shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the Maximum Legal Rate, and (b) five percent (5%) above the Interest Rate.

“Defeasance Date” shall mean either the Total Defeasance Date or the Partial Defeasance Date, as applicable.

“Defeasance Deposit” shall mean an amount equal to the remaining principal amount of the Note or the Defeased Note, as applicable, the Defeasance Payment Amount, any costs and expenses incurred or to be incurred in the purchase of U.S. Obligations necessary to meet the Scheduled Defeasance Payments and any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection with the transfer of the Note or the Defeased Note, as applicable, the creation of the Defeased Note and the Undefeased Note, if applicable, or otherwise required to accomplish the agreements of Sections 2.4 and 2.5 hereof (including, without limitation, any fees and expenses of accountants, attorneys and the Rating Agencies incurred in connection therewith).

“Defeasance Event” shall mean either the Total Defeasance Event or the Partial Defeasance Event, as applicable.

“Defeasance Payment Amount” shall mean the amount (if any) which, when added to the remaining principal amount of the Note, or the principal amount of a Defeased Note, as applicable, will be sufficient to purchase U.S. Obligations providing the required Scheduled Defeasance Payments.

“Defeased Note” shall have the meaning set forth in Section 2.4.1(a)(v) hereof.

“Disclosure Document” shall mean any written materials used or provided to any prospective investors and/or Rating Agencies in connection with any public offering or private

-6-

placement of Securities in a Securitization, including, without limitation, a prospectus, prospectus supplement, private placement memorandum, or similar offering memorandum or offering circular or collateral term sheet, in each case in preliminary or final form, and in each case, including any amendments or supplements thereto.

“DSCR Trigger Event” shall mean the Debt Service Coverage Ratio is less than 1.09 to 1.00, as determined by Lender, based upon the trailing three (3) month period immediately preceding the date of determination.

“Eligible Account” shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. § 9.10(b), having in either case a combined capital and surplus of at least $50,000,000.00 and subject to supervision or examination by federal or state authority, as applicable.  An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument.

“Eligible Institution” shall mean a depository institution or trust company insured by the Federal Deposit Insurance Corporation the short term unsecured debt obligations or commercial paper of which are rated at least A-1 by S&P in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least “AA-” by S&P); provided that KeyBank National Association will be deemed to be an Eligible Institution so long as its short-term unsecured debt obligations or commercial paper are rated at least “A-2” by S&P (or, if KeyBank National Association does not have any short-term unsecured debt rated by S&P, its long term unsecured debt obligations are rated at least “BBB+” by S&P ).

“Embargoed Person” shall mean any Person, entity or government subject to trade restrictions under U.S. law, including, but not limited to, The USA PATRIOT Act (including the anti-terrorism provisions thereof), the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701, et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1, et seq., and any Executive Orders or regulations promulgated thereunder including those related to Specially Designated Nationals and Specially Designated Global Terrorists, with the result that the investment in Borrower, Maryland Owner, Principal or Indemnitor, as applicable (whether directly or indirectly), is prohibited by law or the Loan made by Lender is in violation of law.

“Environmental Indemnity” shall mean that certain Environmental Indemnity Agreement, dated as of the date hereof, executed by Borrower and Maryland Owner in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Environmental Report” shall have the meaning set forth in the Environmental Indemnity.

-7-

“Equipment” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Individual Property.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.

“Event of Default” shall have the meaning set forth in Section 8.1(a) hereof.

“Excess Cash Flow” shall have the meaning set forth in the Cash Management Agreement.

“Excess Cash Flow Reserve Account” shall have the meaning set forth in Section 7.6 hereof.

“Excess Cash Flow Reserve Fund” shall have the meaning set forth in Section 7.6 hereof.

“Exchange Act” shall have the meaning set forth in Section 9.2 hereof.

“Fiscal Year” shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan.

“Fitch” shall mean Fitch, Inc.

“Fixtures” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Individual Property.

“Fullerton Individual Property” shall mean the Individual Property located Fullerton, California.

“Fresno Individual Property” shall mean the Individual Property located in Fresno, California.

“GAAP” shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

“Governmental Authority” shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence.

“Gross Income from Operations” shall mean, during any period, all sustainable income as reported on the financial statements delivered by Borrower and Maryland Owner in accordance with this Agreement, computed in accordance with GAAP, derived from the ownership and operation of the Properties from whatever source during such period, including, but not limited to, (i) Rents from Tenants that are in occupancy, open for business and paying unabated Rent (excluding termination fees), (ii) utility charges, (iii) escalations, (iv) intentionally omitted, (v) service fees or charges, (vi) license fees, (vii) parking fees, and (viii) other required pass-throughs but excluding (i) Rents from Tenants that are subject to any Bankruptcy Actions

-8-

(unless such Tenant has affirmed its Lease and is in occupancy, open for business and paying unabated, post-petition Rent), (ii) refunds and uncollectible accounts, (iii) sales of furniture, fixtures and equipment, (iv) Insurance Proceeds (other than business interruption or other loss of income insurance), (v) Awards, (vi) forfeited or unforfeited security deposits, (vii) utility and other similar deposits and (viii) any disbursements to any Individual Borrower or Maryland Owner from the Reserve Funds, if any.  Gross income shall not be diminished as a result of the Mortgages or the creation of any intervening estate or interest in the Properties or any part thereof.

“Ground Lease Property” shall mean each real property demised by a Ground Lease.

“Ground Lease Reserve Account” shall have the meaning set forth in Section 7.5.1 hereof.

“Ground Lease Reserve Fund” shall have the meaning set forth in Section 7.5.1 hereof.

“Ground Leases” shall mean, collectively, those certain leases described on Schedule VIII attached hereto, as modified by any agreements executed by a Ground Lessor in favor of Lender in connection with the Loan.

“Ground Lessor” shall mean the respective ground lessor under each of the Ground Leases.

“Ground Rent” shall mean all rents (including both base and additional rent) and other charges due under each Ground Lease.

“Improvements” shall have the meaning set forth in the granting clause of the related Mortgage with respect to each Individual Property.

“Indebtedness” of a Person, at a particular date, means the sum (without duplication) at such date of (a) indebtedness or liability for borrowed money; (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations); (d) obligations under letters of credit; (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss; and (g) obligations secured by any Liens, whether or not the obligations have been assumed (other than the Permitted Encumbrances).

“Indemnitor” shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation.

“Indemnification Agreement” shall mean that certain Guaranty Agreement dated as of the Closing Date by Indemnitor in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

-9-

“Indemnified Persons” shall have the meaning set forth in Section 9.2(b) hereof.

“Indemnifying Persons” shall have the meaning set forth in Section 9.2(b) hereof.

“Independent Director” shall mean a natural Person who (a) is not at the time of initial appointment, or at any time while serving in such capacity, and is not, and has never been, and will not while serving as Independent Director be:  (i) a stockholder, director (with the exception of serving as the Independent Director of an Individual Borrower or Maryland Owner), officer, employee, partner, member (other than a “special member” or “springing member”), manager, attorney or counsel of an Individual Borrower or Maryland Owner, equity owners of an Individual Borrower, Maryland Borrower or Indemnitor or any Affiliate of Indemnitor, an Individual Borrower or Maryland Owner; (ii) a customer, supplier or other person who derives any of its purchases or revenues from its activities with Indemnitor, an Individual Borrower, Maryland Owner, eq uity owners of Indemnitor, an Individual Borrower or Maryland Owner or any Affiliate of Indemnitor, an Individual Borrower or Maryland Owner; (iii) a Person Controlling or under common Control with any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person; or (iv) a member of the immediate family of any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person and (b) has (i) prior experience as an independent director or independent manager for a corporation, a trust or limited liability company whose charter documents required the unanimous consent of all independent directors or independent managers thereof before such corporation, trust or limited liability company could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (ii) at least three years of employment and/or ownership experience with one or more nationally-recognized companies that provides, inter alia, professional independent directors or independent managers in the ordinary course of their respective business to issuers of securitization or structured finance instruments, agreements or securities or lenders originating commercial real estate loans for inclusion in securitization or structured finance instruments, agreements or securities (a “Professional Independent Director”) and is at all times during his or her service as an Independent Director of an Individual Borrower or Maryland Owner an employee and/or owner of such a company or companies.  A natural Person who satisfies the foregoing definition except for being (or having been) the independent director or independent manager of a “special purpose entity” affiliated with an Individual Borrower or Maryland Owner (provided such affiliate does not or did not own a dire ct or indirect equity interest in an Individual Borrower or Maryland Owner) shall not be disqualified from serving as an Independent Director, provided that such natural Person satisfies all other criteria set forth above and that the fees such individual earns from serving as independent director or independent manager of affiliates of an Individual Borrower or Maryland Owner in any given year constitute in the aggregate less than five percent (5%) of such individual’s annual income for that year.  A natural Person who satisfies the foregoing definition other than subparagraph (a)(ii) shall not be disqualified from serving as an Independent Director of an Individual Borrower or Maryland Owner if such individual is a Professional Independent Director.

“Individual Borrower” shall have the meaning set forth in the introductory paragraph hereto, together with its successors and permitted assigns.

-10-

“Individual Property” shall mean each parcel of real property, the Improvements thereon and all personal property owned (or leased pursuant to a Ground Lease) by an Individual Borrower or Maryland Owner and encumbered by a Mortgage, together with all rights pertaining to such property and Improvements, as more particularly described in the granting clauses of the related Mortgage and referred to therein as the “Property”.

“Insolvency Opinion” shall mean that certain non-consolidation opinion letter dated the date hereof delivered by Katten Muchin Rosenman LLP in connection with the Loan.

“Insurance Premiums” shall have the meaning set forth in Section 6.1(b) hereof.

“Insurance Proceeds” shall have the meaning set forth in Section 6.4(b) hereof.

“Interest Rate” shall mean a rate of seven and one half of one percent (7.5%) per annum.

“Joint Venture Entity” shall mean IW JV 2009, LLC, a Delaware limited liability company.

“Junior Mezzanine Borrower” shall mean IW MEZZ 2 2009, LLC, a Delaware limited liability company, together with its successors and permitted assigns.

“Junior Mezzanine Collateral” shall have the meaning ascribed to the term “Collateral” in the Junior Mezzanine Loan Agreement.

“Junior Mezzanine Debt Service” shall mean, with respect to any particular period of time, interest payments due under the Junior Mezzanine Loan Agreement, the Junior Mezzanine Note and the other Junior Mezzanine Loan Documents.

“Junior Mezzanine Event of Default” shall have the meaning ascribed to the term “Event of Default” in the Junior Mezzanine Loan Agreement.

“Junior Mezzanine Lender” shall mean JPMorgan Chase Bank, N.A., a banking association chartered under the laws of the United States of America, together with its successors and assigns.

“Junior Mezzanine Loan” shall mean that certain loan made as of the date hereof by Junior Mezzanine Lender to Junior Mezzanine Borrower in the original principal amount of Forty Million and No/100 Dollars ($40,000,000.00), and collectively evidenced by the Junior Mezzanine Note.

“Junior Mezzanine Loan Agreement” shall mean that certain Junior Mezzanine Loan Agreement, dated as of the date hereof, between Junior Mezzanine Borrower and Junior Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified, from time to time.

“Junior Mezzanine Loan Documents” shall mean all documents evidencing the Junior Mezzanine Loan and all documents executed and/or delivered in connection therewith.

-11-

“Junior Mezzanine Note” shall mean, collectively, Junior Mezzanine Note A-1 and Junior Mezzanine Note A-2.

“Junior Mezzanine Note A-1” shall mean that certain Junior Mezzanine Promissory Note A-1, dated the date hereof, given by Junior Mezzanine Borrower to Junior Mezzanine Lender in the original principal amount of Twenty Million and No/100 Dollars ($20,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Junior Mezzanine Note A-2” shall mean that certain Junior Mezzanine Promissory Note A-2, dated the date hereof, given by Junior Mezzanine Borrower to Junior Mezzanine Lender in the original principal amount of Twenty Million and No/100 Dollars ($20,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Junior Mezzanine Release Amount” shall have the meaning ascribed to the term “Release Amount” in the Mezzanine Loan Agreement.

“JPM” shall mean JPMorgan Chase Bank, N.A. and its successors in interest.

“Lease” shall mean, with the exception of any Ground Lease, any lease (including, without limitation, any Sole Tenant Lease), sublease or subsublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Individual Property of an Individual Borrower or Maryland Owner, and (a) every modification, amendment or other agreement relating to such lease (including, without limitation, any Sole Tenant Lease), sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement and (b) every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party the reto.

“Leasing Conditions” shall have the meaning set forth on Schedule II hereof.

“Legal Requirements” shall mean, with respect to each Individual Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting such Individual Property or any part thereof (including the Improvements thereon), or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to any Individual Borrower or Maryland Owner, at any time in force affecting such Individual Property or any part thereof (including the Improvements thereon), including, without limitation, any which may (a) re quire repairs, modifications or alterations in or to such Individual Property or any part thereof, or (b) in any way limit the use and enjoyment thereof.

“Lender” shall have the meaning set forth in the introductory paragraph hereto.

-12-

“Liabilities” shall have the meaning set forth in Section 9.2(b) hereof.

“Licenses” shall have the meaning set forth in Section 4.1.22 hereof.

“Lien” shall mean, with respect to each Individual Property, any mortgage, deed of trust, deed to secure debt, indemnity deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting any Individual Borrower, Maryland Owner, or any Individual Property, any portion thereof or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances.

“Loan” shall mean the loan made by Lender to Borrower pursuant to this Agreement and evidenced by the Note.

“Loan Documents” shall mean, collectively, this Agreement, the Note, the Mortgages, the Assignments of Leases, the Environmental Indemnity, the O&M Agreement, the Contribution Agreement, the Assignment of Management Agreement, the Maryland Guaranty Agreement, the Indemnification Agreement, the Lockbox Agreement, the Cash Management Agreement, the Operating Expenses Lockbox Agreement and all other documents executed and/or delivered in connection with the Loan or any Securitization.

“Lockbox Account” shall have the meaning set forth in Section 2.7.1(a) hereof.

“Lockbox Agreement” shall mean that certain Clearing Account Agreement among Borrower, Lender, Manager and Lockbox Bank, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, relating to funds deposited in the Lockbox Account.

“Lockbox Bank” shall mean the clearing bank which establishes, maintains and holds the Lockbox Account.

“LTV” shall have the meaning set forth in Section 6.1(a)(viii) hereof.

“Management Agreement” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), the management agreement entered into by and between the related Individual Borrower and Manager, pursuant to which Manager is to provide management and other services with respect to such Individual Property; (b) with respect to the Maryland Individual Property, the management agreement entered into by and between Maryland Owner and Manager, pursuant to which Manager is to provide management and other services with respect to the Maryland Individual Property; or (c) if the context requires, the Replacement Management Agreement.

“Manager” shall mean (a) Inland Pacific Property Services LLC, a Delaware limited liability company, with respect to each Individual Property set forth on Schedule XV-A hereto, (b) Inland Southwest Management LLC, a Delaware limited liability company, with respect to each Individual Property set forth on Schedule XV-B hereto, (c) Inland US

-13-

Management LLC, a Delaware limited liability company, with respect to each Individual Property set forth on Schedule XV-C hereto, or (d) if the context requires, a Qualifying Manager who is operating and managing an Individual Property in accordance with the terms and provisions of this Agreement pursuant to a Replacement Management Agreement.

“Market Conditions” shall mean a substantive adverse change in the performance or cash flow of properties generally resulting from significant downturns in the economy, disruptions in rental or other income or reimbursements due to a bankruptcy action of any tenant, casualty or condemnation, natural disaster, domestic unrest, terrorist activity, or unforeseen factors beyond the reasonable control of Manager.

“Maryland Individual Borrower” shall mean Inland Western Colesville New Hampshire SPE, L.L.C., a Delaware limited liability company, together with its successors and permitted assigns.

“Maryland Individual Property” shall mean the Individual Property located in the City of Colesville, County of Montgomery, and State of Maryland and currently known as the “Eckerd- Colesville, Maryland”.

“Maryland Guaranty Agreement” shall mean that certain Maryland Guaranty Agreement, dated as of the Closing Date, delivered by Maryland Owner to Lender to secure the full and prompt payment and performance of the obligations and liabilities of Maryland Individual Borrower under the Note and the other Loan Documents, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Maryland Owner” shall have the meaning set forth in the introductory paragraph hereto, together with its successors and permitted assigns.

“Maryland Owner Indebtedness” shall have the meaning set forth in the Mortgage related to the Maryland Individual Property.

“Maturity Date” shall mean December 1, 2019, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise.

“Maximum Legal Rate” shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.

“Mezzanine Borrower” shall mean, individually and collectively, as the context may require, Senior Mezzanine Borrower and Junior Mezzanine Borrower.

“Mezzanine Collateral” shall mean each of (a) the Senior Mezzanine Collateral, and (b) the Junior Mezzanine Collateral.

-14-

“Mezzanine Debt Service” shall mean, with respect to any particular period of time, the sum of (a) the Senior Mezzanine Debt Service, and (b) the Junior Mezzanine Debt Service.

“Mezzanine Event of Default” shall mean (a) a Senior Mezzanine Event of Default, and/or (b) a Junior Mezzanine Event of Default.

“Mezzanine Lender” shall mean each of (a) Senior Mezzanine Lender, and (b) Junior Mezzanine Lender.

“Mezzanine Loan” shall mean, individually and collectively, as the context may require, the Senior Mezzanine Loan and the Junior Mezzanine Loan.

“Mezzanine Loan Agreement” shall mean each of (a) the Senior Mezzanine Loan Agreement, and (b) the Junior Mezzanine Loan Agreement.

“Mezzanine Loan Documents” shall mean each of (a) the Senior Mezzanine Loan Documents, and (b) the Junior Mezzanine Loan Documents.

“Mezzanine Release Amounts” shall mean, collectively, the Senior Mezzanine Release Amount and the Junior Mezzanine Release Amount

“Miami Individual Property” shall mean the Individual Property located in Miami, Florida.

“Monthly Debt Service Payment Amount” shall mean a constant monthly payment of Three Million Four Hundred Ninety-Six Thousand Seventy-Two and 54/100 Dollars ($3,496,072.54).

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Mortgage” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), that certain first priority Mortgage (or Deed of Trust or Deed to Secure Debt) and Security Agreement, dated as of the Closing Date, executed and delivered by the related Individual Borrower to (or for the benefit of) Lender, as security for the Loan and encumbering the related Individual Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, and (b) with respect to the Maryland Individual Property, that certain first priority Indemnity Deed of Trust, Assignment of Leases and Rents, Fixture Filing and Security Agreement, dated as of the Closing Date, executed and delivered by Maryland Owner to (or for the benefit of) Lender, as security for inter alia, the obligations and liabilities of Mar yland Owner under the Maryland Guaranty Agreement and encumbering the Maryland Individual Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Net Cash Flow” shall mean, with respect to the Properties for any period, the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period.

-15-

“Net Cash Flow Schedule” shall have the meaning set forth in Section 5.1.11(b) hereof.

“Net Operating Income” shall mean the amount obtained by subtracting from Gross Income from Operations (i) Operating Expenses, and (ii) a vacancy allowance equal to (a) zero, if actual vacancy at the Properties in the aggregate is greater than five percent (5%), or (b) five percent (5%) of Gross Income from Operations, if actual vacancy at the Properties in the aggregate is less than five percent (5%).

“Net Proceeds” shall have the meaning set forth in Section 6.4(b) hereof.

“Net Proceeds Deficiency” shall have the meaning set forth in Section 6.4(b)(vi) hereof.

“Net Proceeds Prepayment” shall have the meaning set forth in Section 6.4(e) hereof.

“New Mezzanine Borrower” shall have the meaning set forth in Section 9.1.3 hereof.

“New Mezzanine Loan” shall have the meaning set forth in Section 9.1.3 hereof.

“New Mezzanine Loan Documents” shall mean all documents evidencing the New Mezzanine Loan and all documents executed and/or delivered in connection therewith.

“New Note” shall have the meaning set forth in Section 9.1.5 hereof.

“New York Mortgage” shall have the meaning set forth in Section 2.4.4 hereof.

“Northpointe Individual Property” shall mean the Individual Property located in Spokane, Washington, which consists of the Northpointe Target Expansion Parcel and the Northpointe Remainder Property and following the release of the Northpointe Target Expansion Parcel pursuant to Section 2.5.3 hereof shall consist solely of the Northpointe Remainder Property.

“Northpointe Remainder Property” shall mean the portion of the Northpointe Individual Property remaining subject to the Lien of the related Mortgage following the release of the Northpointe Target Expansion Parcel pursuant to Section 2.5.3 hereof.

“Northpointe Target Expansion Parcel” shall mean that certain portion of the Northpointe Individual Property labeled as “TARGET EXPANSION AREA” on the site plan attached hereto as Schedule XVII.

“Note” shall mean that certain Amended, Restated and Consolidated Promissory Note of even date herewith in the principal amount of Five Hundred Million and No/100 Dollars ($500,000,000.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, including any Defeased Note and Undefeased Note that may exist from time to time.

-16-

“O&M Agreement” shall mean, with respect to each Individual Property set forth on Schedule III hereof, that certain Operations and Maintenance Agreement, dated as of the date hereof, among each related Individual Borrower and Lender given in connection with the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Officer’s Certificate” shall mean a certificate delivered to Lender by Borrower which is signed by an authorized officer of the general partner, managing member or signatory trustee of Borrower or Maryland Owner, as applicable.

“Operating Expenses” shall mean the total of all expenditures, computed in accordance with GAAP, of whatever kind relating to the operation, maintenance and management of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, Ground Rent, bad debt, utilities, ordinary repairs and maintenance, insurance, license fees, property taxes and assessments, advertising expenses, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation, Debt Service, Mezzanine Debt Service, Capital Expenditures and contributions to the Reserve Funds.

“Operating Expenses Lockbox Agreement” shall have the meaning set forth in the Cash Management Agreement.

“Other Charges” shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any Individual Property, now or hereafter levied or assessed or imposed against such Individual Property or any part thereof.

“Other Obligor(s)” shall have the meaning set forth in Section 10.27(a) hereof.

“Parcel Release Yield Maintenance Premium” shall mean an amount equal to the greater of (a) one percent (1%) of the outstanding balance of the Loan to be prepaid or satisfied and (b) the excess, if any, of (i) the sum of the present values of all then-scheduled payments of principal and interest under the Loan with respect to a principal amount equal to the Adjusted Release Amount for the Northpointe Target Expansion Parcel, assuming that all scheduled payments are made timely and that the remaining outstanding principal and interest on the Loan with respect to a principal amount equal to the Adjusted Release Amount for the Northpointe Target Expansion Parcel is paid on the Maturity Date (with each such payment and assumed payment discounted to its present value at the date of prepayment at the rate which, when compounded monthly, is equivalent to the Pre payment Rate when compounded semi-annually and deducting from the sum of such present values any short-term interest paid from the date of prepayment to the next succeeding Payment Date in the event that such payment is not made on a Payment Date), over (ii) the principal amount equal to the Adjusted Release Amount for the Northpointe Target Expansion Parcel.

“Partial Defeasance Date” shall have the meaning set forth in Section 2.4.1(a)(i) hereof.

-17-

“Partial Defeasance Event” shall have the meaning set forth in Section 2.4.1 hereof.

“Payment Date” shall mean the first (1st) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately preceding Business Day.

“Permitted Defeasance Date” shall mean the earlier of (i) the date that is two (2) years from the “startup day” within the meaning of Section 860G(a)(9) of the Code of the REMIC Trust and (ii) the fourth (4^th) anniversary of the first Payment Date.

“Permitted Encumbrances” shall mean, with respect to an Individual Property, collectively, (a) the Liens and security interests created by the Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policies relating to such Individual Property or any part thereof, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, (d) easements or other encumbrances granted pursuant to Section 5.2.10(e) hereof, and (e) such other title and survey exceptions as Lender has approved or may approve in writing in Lender’s reasonable discretion, which Permitted Encumbrances in the aggregate do not materially and adversely affect the value, operation or use of the applicable Individual Property as used on the Closing Date or Borrower’s ability to repay the Loan and/or Ma ryland Owner’s ability to repay the Maryland Owner Indebtedness.

“Permitted Investments” shall mean any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by Servicer, the trustee under any Securitization or any of their respective Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior to the first Payment Date following the date of acquiring such investment and meeting one of the appropriate standards set forth below:

(i)

obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of:  the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an “r” highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity;

-18-

(ii)

Federal Housing Administration debentures;

(iii)

obligations of the following United States government sponsored agencies:  Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Student Loan Marketing Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an “r” highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity;

(iv)

federal funds, unsecured certificates of deposit, time deposits, bankers’ acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an “r
48; highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity;

(v)

fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers’ acceptances issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B)& nbsp;if rated by S&P, must not have an “r” highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and

-19-

must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity;

(vi)

debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest long-term unsecured rating category; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an “r” highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed s pread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity;

(vii)

commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest short-term unsecured debt rating; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an “r” highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity;

(viii)

units of taxable money market funds, which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have the highest rating available from each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) for money market funds; and

(ix)

any other security, obligation or investment which has been approved as a Permitted Investment in writing by (a) Lender and (b) each Rating Agency, as evidenced by a written confirmation that the designation of such

-20-

security, obligation or investment as a Permitted Investment will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency;

provided, however, that no obligation or security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments or (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment.

“Permitted Mezzanine Prepayment Release Date” shall mean the Payment Date immediately following the third (3^rd) anniversary of the first Payment Date.

“Permitted Par Prepayment Date” shall mean the Payment Date three (3) months prior to the Maturity Date.

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

“Personal Property” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Individual Property.

“Physical Conditions Report” shall mean, with respect to each Individual Property, a report prepared by a company satisfactory to Lender regarding the physical condition of such Individual Property, satisfactory in form and substance to Lender in its sole discretion, which report shall, among other things, (a) confirm that such Individual Property and its use complies, in all material respects, with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building laws) and (b) include a copy of a final certificate of occupancy with respect to all Improvements on such Individual Property.

“Policies” shall have the meaning set forth in Section 6.1(b) hereof.

“Prepayment Rate” shall mean the bond equivalent yield (in the secondary market) on the United States Treasury Security that as of the Prepayment Rate Determination Date has a remaining term to maturity closest to, but not exceeding, the remaining term to the Maturity Date, as most recently published in “Statistical Release H.15 (519), Selected Interest Rates,” or any successor publication, published by the Board of Governors of the Federal Reserve System, or on the basis of such other publication or statistical guide as Lender may reasonably select.

“Prepayment Rate Determination Date” shall mean the date which is five (5) Business Days prior to the date that such prepayment shall be applied in accordance with the terms and provisions of Section 2.4.1 hereof.

“Principal” shall mean the Special Purpose Entity that is the general partner of an Individual Borrower or Maryland Owner, if such Individual Borrower or Maryland Owner is a

-21-

limited partnership, or managing member of an Individual Borrower or Maryland Owner, if such Individual Borrower or Maryland Owner is a multi-member limited liability company, or beneficiary of an Individual Borrower or Maryland Owner, if such Individual Borrower or Maryland Owner is a Delaware statutory trust.

“Properties” shall mean, collectively, each and every Individual Property which is subject to the terms of this Agreement.

“Provided Information” shall have the meaning set forth in Section 9.1.1 hereof.

“Qualifying Manager” shall mean a reputable and experienced management organization reasonably satisfactory to Lender, which organization or its principals possess at least ten (10) years experience in managing properties similar in scope, size, use and value of the applicable Individual Property, provided that, if a Securitization has occurred, Borrower shall have obtained prior written confirmation from the Rating Agencies that management of such Individual Property by such entity will not cause a downgrading, withdrawal or qualification of the then current rating of the Securities issued pursuant to the Securitization or, if a Securitization has not occurred, Borrower shall have obtained the prior written consent of Lender.  Lender acknowledges that on the Closing Date, Manager shall be deemed a Qualifying Manager.

“Rating Agencies” shall mean each of S&P and Realpoint, or such other nationally recognized statistical securities rating organizations as may be designated by Lender to assign a rating to all or any portion of the Securities.

“Rating Agency Requirements” shall mean such requirements as the Rating Agencies may impose as a condition to their assigning a rating to the Securities as may be acceptable to Lender.  Each of Borrower and Maryland Owner acknowledges that Lender has advised each of Borrower and Maryland Owner that one or more classes of the Securities are contemplated to receive the highest long-term investment grade rating category from each Rating Agency.

“Realpoint” shall mean Realpoint LLC, a Pennsylvania limited liability company.

“Related Entities” shall have the meaning set forth in Section 5.2.10(d) hereof.

“Release Amount” shall mean for an Individual Property the amount set forth on Schedule VI hereto, as the same may be reduced pursuant to Section 2.3.2 hereof.

“Release Debt Service Coverage Ratio” shall mean the product of 1.16 multiplied by a fraction of which (a) the numerator is the sum of the Release Amounts and the Mezzanine Release Amounts of all Properties subject to the Liens of the Mortgages (including the Individual Property to be released), and (b) the denominator is the sum of the then-current outstanding principal amounts of the Loan and the Mezzanine Loans.

-22-

“Release Premium” shall mean, with respect to the related Individual Property released in accordance with Section 2.5.2 hereof, the difference between the Adjusted Release Amount and the Release Amount for such Individual Property.

“Relevant Leasing Threshold” shall mean, with respect to each Individual Property, any Lease for an amount of leaseable square footage equal to or greater than ten thousand (10,000) square feet.

“Relevant Restoration Threshold” shall mean, with respect to the applicable Individual Property, two percent (2%) of the related Release Amount.

“REMIC Trust” shall mean a “real estate mortgage investment conduit” within the meaning of Section 860D of the Code that holds the Note.

“Rents” shall mean, with respect to each Individual Property, all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, termination fees, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower or Maryland Owner or any agents or employees of Borrower or Maryland Owner from any and all sources arising from or attributable to the Individual Property, and proceeds, if any, from business interruption or other loss of income insurance.

“REOA” shall mean each of those agreements more particularly set forth on Schedule XI attached hereto.

“Replacement Management Agreement” shall mean, collectively, (a) either (i) a management agreement with a Qualifying Manager substantially in the same form and substance as the Management Agreement, or (ii) a management agreement with a Qualifying Manager, which management agreement shall be reasonably acceptable to Lender in form and substance, provided, with respect to this subclause (ii), Lender, at its option, may require that Borrower shall have obtained prior written confirmation from the applicable Rating Agencies that such management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof, and (b) an assignment of management agreement and subordination of management fees substantially in the form of the Assignment of Management Agreement (or of such other form and substance reasonably acceptable to Lender), executed and delivered to Lender by the related Individual Borrower or Maryland Owner, as the case may be, and such Qualifying Manager at Borrower’s and Maryland Owner’s expense.

“Replacement Reserve Account” shall have the meaning set forth in Section 7.3.1 hereof.

“Replacement Reserve Cap” shall have the meaning set forth in Section 7.3.1 hereof.

“Replacement Reserve Fund” shall have the meaning set forth in Section 7.3.1 hereof.

-23-

“Replacement Reserve Monthly Deposit” shall have the meaning set forth in Section 7.3.1 hereof.

“Replacements” shall have the meaning set forth in Section 7.3.1(a) hereof.

“Required Repair Account” shall have the meaning set forth in Section 7.1.1 hereof.

“Required Repair Fund” shall have the meaning set forth in Section 7.1.1 hereof.

“Required Repairs” shall have the meaning set forth in Section 7.1.1 hereof.

“Reserve Funds” shall mean, collectively, the Tax and Insurance Reserve Fund, the Replacement Reserve Fund, the Required Repair Fund, the Rollover Reserve Fund, the Ground Lease Reserve Fund, the Excess Cash Flow Reserve Fund and any other escrow fund established by the Loan Documents.

“Restoration” shall mean the repair and restoration of an Individual Property after a Casualty or Condemnation as nearly as possible to the condition the Individual Property was in immediately prior to such Casualty or Condemnation, with such alterations as may be reasonably approved by Lender.

“Restricted Party” shall mean collectively, (a) Borrower, Maryland Owner, Principal, Mezzanine Borrower, Joint Venture Entity and any Affiliated Manager and (b) any shareholder, partner, member, non-member manager, any direct or indirect legal or beneficial owner of, Borrower, Maryland Owner, Principal, Mezzanine Borrower, any Affiliated Manager or any non-member manager.  “Restricted Party” shall not include Inland Equity Investors, LLC or its members or the holders, assignees or transferees of any direct or indirect ownership interests in Inland Equity Investors, LLC.

“Rollover Reserve Fund” shall have the meaning set forth in Section 7.4.1 hereof.

“Rollover Reserve Account” shall have the meaning set forth in Section 7.4.1 hereof.

“S&P” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.

“Scheduled Defeasance Payments” shall have the meaning set forth in Section 2.4.1(b) hereof.

“SEC” shall mean the United States Securities and Exchange Commission.

“Securities” shall have the meaning set forth in Section 9.1 hereof.

“Securities Act” shall have the meaning set forth in Section 9.2 hereof.

-24-

“Securitization” shall have the meaning set forth in Section 9.1 hereof.

“Security Agreement” shall have the meaning set forth in Section 2.4.1(a)(vi) hereof.

“Senior Mezzanine Borrower” shall mean IW MEZZ 2009, LLC, a Delaware limited liability company, together with its successors and permitted assigns.

“Senior Mezzanine Collateral” shall have the meaning ascribed to the term “Collateral” in the Senior Mezzanine Loan Agreement.

“Senior Mezzanine Debt Service” shall mean, with respect to any particular period of time, interest payments due under the Senior Mezzanine Loan Agreement, the Senior Mezzanine Note and the other Senior Mezzanine Loan Documents.

“Senior Mezzanine Event of Default” shall have the meaning ascribed to the term “Event of Default” in the Senior Mezzanine Loan Agreement.

“Senior Mezzanine Lender” shall mean JPMorgan Chase Bank, N.A., a banking association chartered under the laws of the United States of America, together with its successors and assigns.

“Senior Mezzanine Loan” shall mean that certain loan made as of the date hereof by Senior Mezzanine Lender to Senior Mezzanine Borrower in the original principal amount of Eighty-Five Million and No/100 Dollars ($85,000,000.00) and collectively evidenced by the Senior Mezzanine Note.

“Senior Mezzanine Loan Agreement” shall mean that certain Senior Mezzanine Loan Agreement, dated as of the date hereof, between Senior Mezzanine Borrower and Senior Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified, from time to time.

“Senior Mezzanine Loan Documents” shall mean all documents evidencing the Senior Mezzanine Loan and all documents executed and/or delivered in connection therewith.

“Senior Mezzanine Note” shall mean, collectively, Senior Mezzanine Note A-1, Senior Mezzanine Note A-2 and Senior Mezzanine Note A-3.

“Senior Mezzanine Note A-1” shall mean that certain Senior Mezzanine Promissory Note A-1, dated the date hereof, given by Senior Mezzanine Borrower to Senior Mezzanine Lender in the original principal amount of Forty Million and No/100 Dollars ($40,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Senior Mezzanine Note A-2” shall mean that certain Senior Mezzanine Promissory Note A-2, dated the date hereof, given by Senior Mezzanine Borrower to Senior Mezzanine Lender in the original principal amount of Thirty Million and No/100 Dollars

-25-

($30,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Senior Mezzanine Note A-3” shall mean that certain Senior Mezzanine Promissory Note A-3, dated the date hereof, given by Senior Mezzanine Borrower to Senior Mezzanine Lender in the original principal amount of Fifteen Million and No/100 Dollars ($15,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Senior Mezzanine Release Amount” shall have the meaning ascribed to the term “Release Amount” in the Senior Mezzanine Loan Agreement.

“Servicer” shall have the meaning set forth in Section 9.6 hereof.

“Servicing Agreement” shall have the meaning set forth in Section 9.6 hereof.

“Severed Loan Documents” shall have the meaning set forth in Section 8.2(c) hereof.

“Severing Documentation” shall have the meaning set forth in Section 9.7 hereof.

“Sole Tenant” shall mean each Tenant under a Sole Tenant Lease.

“Sole Tenant Individual Property” shall mean each Individual Property set forth on Schedule XIV hereto.

“Sole Tenant Lease” shall mean, with respect to each Sole Tenant Individual Property, the Lease specified on Schedule XIV as the related “Sole Tenant Lease”.

“Special Purpose Entity” shall mean a corporation, limited partnership, limited liability company, or Delaware statutory trust which at all times on and after the Closing Date:

(i)

is organized solely for the purpose of (A) with respect to each Individual Borrower (other than Maryland Individual Borrower), acquiring, developing, owning, holding, selling, leasing, transferring, exchanging, managing and operating the related Individual Property, entering into this Agreement with Lender, refinancing the related Individual Property in connection with a permitted repayment of the Loan, and transacting lawful business that is incident, necessary and appropriate to accomplish the foregoing; (B) with respect to any general partner of any Individual Borrower that is a limited partnership, acting as a general partner of such Individual Borrower and transacting lawful business that is incident, necessary and appropriate to accomplish the foregoing; (C) with respect to the beneficiary of any Individual Borrower that is a Delaware statutory trust, acting as the beneficiary of su ch Individual Borrower and transacting lawful business that is incident, necessary and appropriate to accomplish the foregoing; (D) with respect to Maryland Individual Borrower, entering into this Agreement with Lender and transacting lawful business that is incident, necessary and

-26-

appropriate to accomplish the foregoing; and (E) with respect to Maryland Owner, acquiring, developing, owning, holding, selling, leasing, transferring, exchanging, managing and operating the related Individual Property, acting as the sole member of Maryland Individual Borrower, entering into this Agreement with the Lender as guarantor, refinancing the related Individual Property in connection with a permitted repayment of the Loan, and transacting lawful business that is incident, necessary and appropriate to accomplish the foregoing;

(ii)

is not engaged and will not engage in any business unrelated to (A) with respect to each Individual Borrower (other than Maryland Individual Borrower), the acquisition, development, ownership, management or operation of the related Individual Property; (B) with respect to any general partner of an Individual Borrower that is a limited partnership, acting as general partner of such Individual Borrower; (C) with respect to the beneficiary of an Individual Borrower that is a Delaware statutory trust, acting as the beneficiary of such Individual Borrower; (D) with respect to Maryland Individual Borrower, entering into this Agreement; and (E) with respect to Maryland Owner, the acquisition, development, ownership, management or operation of the related Individual Property and acting as the sole member of Maryland Individual Borrower;

(iii)

does not and will not have any assets other than (A) with respect to each Individual Borrower (other than Maryland Individual Borrower), the related Individual Property and personal property (including, without limitation, cash) related thereto; (B) with respect to any general partner of an Individual Borrower that is a limited partnership, its general partnership interests in such Individual Borrower; (C) with respect to the beneficiary of an Individual Borrower that is a Delaware statutory trust, its interests in such Individual Borrower; (D) with respect to Maryland Individual Borrower, its rights under this Agreement; and (E) with respect to Maryland Owner, the related Individual Property, its limited liability company interests in Maryland Individual Owner and personal property (including, without limitation, cash) related thereto;

(iv)

has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, sale of all or substantially all of its assets, transfer of partnership, membership or beneficial or trustee interests (if such entity is a general partner in a limited partnership, a member in a limited liability company or a beneficiary of a Delaware trust), without the prior written consent of Lender and receipt of prior written confirmation from the applicable Rating Agencies that the same will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof, any amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation, operating agreement or trust formation and governance documents (as applicable) with respect to the matters set forth in this definition;

(v)

if such entity is a limited partnership, has as its only general partner, a Special Purpose Entity that is a corporation, limited partnership or

-27-

limited liability company that satisfies the requirements of subparagraph (viii) below;

(vi)

if such entity is a corporation, has at least two (2) Independent Directors, and has not caused or allowed and will not cause or allow the board of directors of such entity to take any action related to a bankruptcy or insolvency proceeding or a voluntary dissolution without the unanimous affirmative vote of one hundred percent (100%) of the members of its board of directors, including the Independent Directors;

(vii)

if such entity is a limited liability company and such limited liability company has more than one member, such limited liability company has as its manager a Special Purpose Entity that is a corporation and that owns at least one percent (1.0%) of the equity of the limited liability company;

(viii)

if such entity is a limited liability company and such limited liability company has only one member, such limited liability company (a) has been formed under Delaware law, (b) has either a corporation or one (1) other person or entity that shall become a member of the limited liability company upon the dissolution or disassociation of the member, (c) has a board of directors with not less than two (2) Independent Directors, and (d) has a limited liability company agreement that does not and will not cause or allow its board of directors to take any action related to a bankruptcy or insolvency proceeding without the unanimous affirmative vote of one hundred percent (100%) of the members of its board of directors, including the Independent Directors;

(ix)

if such entity is a statutory trust, such statutory trust (a) has been formed under Delaware law, (b) has a board of trustees with not less than two (2) Independent Directors, and (c) has trust documents that do not and will not cause or allow its board of trustees to take any action related to a bankruptcy or insolvency proceeding without the unanimous affirmative vote of one hundred percent (100%) of the members of its board of trustees, including the Independent Directors;

(x)

if such entity is (a) a limited liability company, has articles of organization, a certificate of formation and/or an operating agreement, as applicable, (b) a limited partnership, has a limited partnership agreement, (c) a corporation, has a certificate or articles of incorporation and bylaws, as applicable, or (d) a Delaware statutory trust, has a trust certificate and trust agreement that, in each case, provide that such entity will not:  (1) dissolve, merge, liquidate, consolidate; (2)  sell all or substantially all of its assets or the assets of the related Individual Borrower (as applicable); (3) except as permitted herein, engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition without the consent of the Lender and receipt of prior written confirmation from the applicable Rating Agenci es that the same will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; or

-28-

(4) without the affirmative vote of all its directors (including its Independent Directors) or if the entity is a limited partnership or limited liability company with more than one member, the affirmative vote of all of the directors (including the Independent Directors) of the general partner or managing member of such entity), or the vote of all of its administrative trustees (including its Independent Directors), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest;

(xi)

except for capital contributions or capital distributions permitted under the terms and conditions of its organizational documents and applicable law and properly reflected on its books and records, has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, beneficiaries, shareholders or Affiliates except in the ordinary course of its business and on terms which would be obtained in a comparable arm’s-length transaction with an unrelated third party;

(xii)

is solvent and pays its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same become due, and is maintaining adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; provided, however, that the foregoing shall not require any member, partner or beneficiary to make additional capital contributions;

(xiii)

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

(xiv)

will file its own tax returns separate from those of any other Person, except to the extent that the such Individual Borrower or Maryland Owner is treated as a “disregarded entity” for tax purposes and is not required to file tax returns under applicable law;

(xv)

has maintained and will maintain its own resolutions and agreements;

(xvi)

(a) except as contemplated herein with respect to the other Individual Borrowers or Maryland Owner, has not commingled and will not commingle its funds or assets with those of any other Person and (b) has not participated and will not participate in any cash management system with any other Person, except for having commingled funds prior to the date hereof with respect to a custodial account maintained by Manager on behalf of Affiliates of Borrower and Maryland Owner;

(xvii)

has held and will hold its assets in its own name;

-29-

(xviii)

has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower or Maryland Owner;

(xix)

has maintained and will maintain its books, records, bank accounts, balance sheets, operating statements and other entity documents separate from any other Person and has not permitted and will not permit its assets to be listed as assets on the financial statement of any other entity except as required or permitted by applicable accounting principles acceptable to Lender, consistently applied; provided, however, that appropriate notation shall be made on any such consolidated statements to indicate its separateness from such Affiliate and to indicate that its assets and credit are not available to satisfy the debts and other obligations of such Affiliate or any other Person and such assets shall be listed on its own separate balance sheet;

(xx)

has and will maintain a sufficient number of employees in light of its contemplated business operations, which may be none;

(xxi)

has observed and will observe all partnership, corporate, limited liability company or Delaware statutory trust formalities, as applicable;

(xxii)

has and will have no Indebtedness (including loans (whether or not such loans are evidenced by a written agreement) between Borrower and/or Maryland Owner and any Affiliates of Borrower and/or Maryland Owner or relating to the management of funds in the segregated custodial account maintained by Manager for the sole benefit of Borrower and Maryland Owner) other than (i) the Loan, (ii) liabilities incurred in the ordinary course of business relating to the ownership and operation of the related Individual Property and the routine administration of the related Individual Borrower and/or Maryland Owner, which liabilities are (A) not more than sixty (60) days past the date incurred (unless disputed in accordance with applicable law), (B) not evidenced by a note, (C) paid when due, (D) normal and reasonable under the circumstances, and (E) in an aggregate amount with respe ct to each Individual Property not exceeding three percent (3%) of the applicable Release Amount for such Individual Property at any time, and (iii) such other liabilities that are permitted pursuant to this Agreement;

(xxiii)

except for any general partner of an Individual Borrower in such capacity and except for Maryland Owner for the benefit of Maryland Individual Borrower, has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit or assets as being available to satisfy the obligations of any other Person except as contemplated herein with respect to other Individual Borrowers and/or Maryland Owner, as applicable;

(xxiv)

has not and will not acquire obligations or securities of its partners, members, beneficiaries or shareholders or any other Affiliate;

-30-

(xxv)

has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an Affiliate;

(xxvi)

has maintained or used, and will maintain or use, invoices and checks bearing its own name, provided, however, that Manager, on behalf of such Person, may maintain and use invoices and checks bearing Manager’s name so long as Manager holds itself out as agent of such Individual Borrower or Maryland Owner, as applicable;

(xxvii)

except for any general partner of an Individual Borrower in such capacity and except for Maryland Owner for the benefit of Maryland Individual Borrower, and except as contemplated by the Senior Mezzanine Loan Agreement with respect to any beneficiary of any Individual Borrower that is a Delaware statutory trust, has not pledged and will not pledge its assets to secure the obligations of any other Person except as contemplated herein with respect to other Individual Borrowers and/or Maryland Owner, as applicable;

(xxviii)

has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name franchised or licensed to it by an entity other than an Affiliate of any Individual Borrower or Maryland Owner and not as a division or department of any other Person, except for services rendered by Manager under the Management Agreement, so long as Manager holds itself out as an agent of any Individual Borrower and/or Maryland Owner;

(xxix)

has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;

(xxx)

has not made and will not make loans or advance to, or own or acquire any stock or securities of, any Person or hold evidence of indebtedness issued by any other person or entity (other than cash and investment-grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity);

(xxxi)

has not identified and will not identify its partners, members, beneficiaries or shareholders, or any Affiliate of any of them, as a division or department of it, and has not identified itself and shall not identify itself as a division or department of any other Person;

(xxxii)

does not and will not have any of its obligations guaranteed by any Affiliate except as otherwise required in the Loan Documents;

(xxxiii)

has not formed, acquired or held and will not form, acquire or hold any subsidiary or own any equity interest in any other entity, except that Maryland Owner may own its limited liability company interests in Maryland Individual Borrower, the beneficiary of any Individual Borrower that is a

-31-

Delaware statutory trust may own its beneficial interest in such Individual Borrower and the general partners of the Individual Borrowers that are limited partnerships may own their general partnership interests in such Individual Borrower; and

(xxxiv)

has complied and will comply with all of the terms and provisions contained in its organizational documents since its formation.  The statement of facts contained in its organizational documents are true and correct and will remain true and correct.

“State” shall mean, with respect to an Individual Property, the State or Commonwealth in which such Individual Property or any part thereof is located.

“Successor Borrower” shall have the meaning set forth in Section 2.4.3 hereof.

“Survey” shall mean a survey of the Individual Property in question prepared by a surveyor licensed in the State and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender.

“Tax and Insurance Reserve Account” shall have the meaning set forth in Section 7.2 hereof.

“Tax and Insurance Reserve Fund” shall have the meaning set forth in Section 7.2 hereof regardless of whether the funds held therein are held by Lender for the payment of Taxes or Insurance Premiums or both.

“Taxes” shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Individual Property or any part thereof.

“Tenant” shall mean any person or entity with a possessory right to all or any part of an Individual Property pursuant to a Lease or other written agreement.

“Tenant Direction Letter” shall have the meaning set forth in the Cash Management Agreement.

“Threshold Amount” shall mean, with respect to the applicable Individual Property, two percent (2%) of the related Release Amount.

“Title Insurance Policy” shall mean, with respect to each Individual Property, an ALTA mortgagee title insurance policy in the form (acceptable to Lender) (or, if an Individual Property is in a State which does not permit the issuance of such ALTA policy, such form as shall be permitted in such State and acceptable to Lender) issued with respect to such Individual Property and insuring the lien of the Mortgage encumbering such Individual Property.

“Total Defeasance Date” shall have the meaning set forth in Section 2.4.1(a)(i) hereof.

-32-

“Total Defeasance Event” shall have the meaning set forth in Section 2.4.1 hereof.

“Transfer” shall have the meaning set forth in Section 5.2.10(b) hereof.

“Transferee” shall have the meaning set forth in Section 5.2.10(d) hereof.

“Transferee’s Principals” shall mean all members, partners or shareholders which directly or indirectly own an interest in Transferee.

“TRIA” shall mean the Terrorism Risk Insurance Act of 2002, as amended, or similar Federal statute.

“UCC” or “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the applicable State in which an Individual Property is located.

“Undefeased Note” shall have the meaning set forth in Section 2.4.1(a)(v) hereof.

“University Individual Property” shall mean the Individual Property located in Tuscaloosa, Alabama.

“U.S. Obligations” shall mean non-redeemable securities evidencing an obligation to pay principal and/or interest in a full and timely manner that are (a) direct obligations of the United States of America for the payment of which its full faith and credit is pledged, or (b) to the extent acceptable to the Rating Agencies, other “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended.

“Yield Maintenance Premium” shall mean an amount equal to the greater of (a) three percent (3%) of the outstanding balance of the Loan to be prepaid or satisfied and (b) the excess, if any, of (i) the sum of the present values of all then-scheduled payments of principal and interest under the Loan, assuming that all scheduled payments are made timely and that the remaining outstanding principal and interest on the Loan is paid on the Maturity Date (with each such payment and assumed payment discounted to its present value at the date of prepayment at the rate which, when compounded monthly, is equivalent to the Prepayment Rate when compounded semi-annually and deducting from the sum of such present values any short-term interest paid from the date of prepayment to the next succeeding Payment Date in the event that such payment is not made on a Payment Dat e), over (ii) the principal amount being prepaid.

Section 1.2

Principles of Construction.

  All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified.  All uses of the word “including” shall mean “including, without limitation” unless the context shall indicate otherwise.  Unless otherwise specified, the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.  Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined.

-33-

ARTICLE II

GENERAL TERMS

Section 2.1

Loan Commitment; Disbursement to Borrower.

2.1.1

The Loan.  Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date.

2.1.2

Disbursement to Borrower.  Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid/defeased hereunder in respect of the Loan may not be reborrowed.  Each of Borrower and Maryland Owner acknowledges and agrees that the Loan has been fully funded as of the Closing Date.

2.1.3

The Note, Mortgage and Loan Documents.  The Loan shall be evidenced by the Note and secured by the Mortgages, the Assignments of Leases and the other Loan Documents.

2.1.4

Use of Proceeds.  Borrower shall use the proceeds of the Loan to (a) acquire the Properties and/or repay and discharge any existing loans relating to the Properties, (b) pay all past-due Basic Carrying Costs, if any, in respect of the Properties, (c) make deposits into the Reserve Funds on the Closing Date in the amounts provided herein, (d) pay costs and expenses incurred in connection with the closing of the Loan, as approved by Lender, (e) fund any working capital requirements of the Properties, and (f) distribute the balance, if any, to Borrower.

Section 2.2

Interest; Loan Payments; Late Payment Charge.

2.2.1

Interest Generally.  Interest on the outstanding principal balance of the Loan shall accrue from (and include) the Closing Date to but excluding the Maturity Date at the Interest Rate.

2.2.2

Interest Calculation.  Interest on the outstanding principal balance of the Loan shall be calculated by multiplying (a) the actual number of days elapsed in the Accrual Period, by (b) a daily rate based on the Interest Rate and a three hundred sixty (360) day year, by (c) the outstanding principal balance of the Loan.

2.2.3

Monthly Debt Service Payments.  Borrower shall pay to Lender on January 1, 2010 and each Payment Date thereafter up to but not including the Maturity Date, an amount equal to the Monthly Debt Service Payment Amount, which payments shall be applied first to accrued and unpaid interest and the balance to principal.

2.2.4

Payments Generally.  The first (1st) interest Accrual Period hereunder shall commence on and include the Closing Date and shall end on and include December 31, 2009.  Each interest accrual period thereafter shall commence on the first (1st) day of each calendar month during the term of the Loan and shall end on and include the final calendar date of such calendar month (the “Accrual Period”).  For purposes of making payments hereunder,

-34-

but not for purposes of calculating Accrual Periods, if the day on which such payment is due is not a Business Day, then amounts due on such date shall be due on the immediately preceding Business Day and with respect to payments of principal due on the Maturity Date, interest shall be payable at the Interest Rate or the Default Rate, as the case may be, through and including the day immediately preceding such Maturity Date.  All amounts due under this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever.

2.2.5

Payment on Maturity Date.  Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all accrued and unpaid interest and all other amounts due hereunder and under the Note, the Mortgages and the other Loan Documents.

2.2.6

Payments after Default.  Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by law, all accrued and unpaid interest and other amounts due in respect of the Loan, shall accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein.  Interest at the Default Rate shall be computed from the occurrence of the Event of Default until the earlier of (i) in the event of a non-monetary default, the cure of such Event of Default by Borrower, and (ii) in the event of a monetary default, the actual receipt and collection of the D ebt (or that portion thereof that is then due).  To the extent permitted by applicable law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Mortgages.  This paragraph shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default and Lender retains its rights under the Note and this Agreement to accelerate and to continue to demand payment of the Debt upon the occurrence and continuance of any Event of Default.

2.2.7

Late Payment Charge.  If any principal, interest or any other sums due under the Loan Documents are not paid by Borrower on or prior to the date on which it is due (except, in the case of Debt Service, provided no Event of Default shall then exist and there are sufficient funds in the Debt Service Subaccount (as defined in the Cash Management Agreement) to pay such Debt Service), Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the Maximum Legal Rate in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment.  Any such amount shall be secured by the Mortgages and the other Loan Documents to the extent permitted by applicable law.  The foregoing late payment charge shall not apply to the payment of all outstanding p rincipal, interest and other sums due on the Maturity Date.

2.2.8

Usury Savings.  This Agreement, the Note and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate.  If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Interest Rate or the Default Rate, as the case may be, shall be deemed to be

-35-

immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder.  All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.

2.2.9

Making of Payments.  Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 11:00 A.M., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender’s office or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day.

2.2.10

No Deductions, etc.  All payments made by Borrower and Maryland Owner hereunder or under the Note or the other Loan Documents shall be made irrespective of, and without any deduction for, any setoff, defense or counterclaims.

Section 2.3

Prepayments.

2.3.1

Voluntary Prepayments.  (1)

-36-

EX-10.588

Exhibit 10.598

SENIOR MEZZANINE LOAN AGREEMENT

Dated as of December 1, 2009

By and Among

IW MEZZ 2009, LLC,
as Borrower

and

JPMORGAN CHASE BANK, N.A.,
as Lender

TABLE OF CONTENTS

Page

ARTICLE I

DEFINITIONS; PRINCIPLES OF CONSTRUCTION

Section 1.1

Definitions

2

Section 1.2

Principles of Construction

28

ARTICLE II

GENERAL TERMS

Section 2.1

Loan Commitment; Disbursement to Borrower

28

Section 2.2

Interest; Loan Payments; Late Payment Charge

29

Section 2.3

Prepayments

31

Section 2.4

Intentionally Omitted

33

Section 2.5

Release of Property

33

Section 2.6

Intentionally Omitted

35

Section 2.7

Lockbox Account/Cash Management

35

ARTICLE III

INTENTIONALLY OMITTED

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.1

Borrower Representations

37

Section 4.2

Survival of Representations

51

ARTICLE V

BORROWER COVENANTS

Section 5.1

Affirmative Covenants

51

Section 5.2

Negative Covenants

67

-i-

ARTICLE VI

INSURANCE; CASUALTY; CONDEMNATION

Section 6.1

Insurance

76

Section 6.2

Casualty

76

Section 6.3

Condemnation

76

Section 6.4

Restoration

77

ARTICLE VII

RESERVE FUNDS

Section 7.1

Required Repair Funds

77

Section 7.2

Tax and Insurance Reserve Fund

77

Section 7.3

Replacements and Replacement Reserve

78

Section 7.4

Rollover Reserve

84

Section 7.5

Ground Lease Reserve Fund

84

Section 7.6

Excess Cash Flow Reserve Fund

85

Section 7.7

Reserve Funds, Generally

86

ARTICLE VIII

DEFAULTS

Section 8.1

Event of Default

87

Section 8.2

Remedies

90

Section 8.3

Remedies Cumulative; Waivers

91

ARTICLE IX

SPECIAL PROVISIONS

Section 9.1

Securitization

92

Section 9.2

Securitization Indemnification

97

Section 9.3

Intentionally Omitted

100

Section 9.4

Exculpation

100

Section 9.5

Termination of Manager

103

Section 9.6

Servicer

104

Section 9.7

Splitting the Loan

104

ARTICLE X

MISCELLANEOUS

Section 10.1

Survival

105

-ii-

Section 10.2

Lender’s Discretion

105

Section 10.3

Governing Law

105

Section 10.4

Modification; Waiver in Writing

107

Section 10.5

Delay Not a Waiver

107

Section 10.6

Notices

107

Section 10.7

Trial by Jury

108

Section 10.8

Headings

109

Section 10.9

Severability

109

Section 10.10

Preferences

109

Section 10.11

Waiver of Notice

109

Section 10.12

Remedies of Borrower

109

Section 10.13

Expenses; Indemnity

109

Section 10.14

Schedules Incorporated

111

Section 10.15

Offsets, Counterclaims and Defenses

111

Section 10.16

No Joint Venture or Partnership; No Third Party Beneficiaries

111

Section 10.17

Publicity

111

Section 10.18

Waiver of Marshalling of Assets

112

Section 10.19

Waiver of Counterclaim

112

Section 10.20

Conflict; Construction of Documents; Reliance

112

Section 10.21

Brokers and Financial Advisors

112

Section 10.22

Prior Agreements

113

Section 10.23

Transfer of Loan

113

Section 10.24

Intentionally Omitted

113

Section 10.25

Certain Additional Rights of Lender (VCOC)

113

Section 10.26

Co-Lender Agent

114

Section 10.27

Note Register

114

SCHEDULES

Schedule I

–

Mortgage Borrower List

Schedule II

–

Leasing Conditions

Schedule III

–

O&M Properties

Schedule IV

–

Required Repairs

Schedule V

–

Lease Carveouts

Schedule VI

–

Release Amounts

Schedule VII

–

Alteration Conditions

Schedule VIII

–

List of Ground Leases

Schedule IX

–

Ground Lease Exceptions

Schedule X

–

Organizational Chart

Schedule XI

–

REOAs

Schedule XII

–

Flood Zone Properties

Schedule XIII

–

Intentionally Omitted

Schedule XIV

–

Sole Tenant Individual Properties/Leases

Schedule XV-A

–

Inland Pacific Property Services Managed Properties

Schedule XV-B

–

Inland Southwest Management LLC Managed Properties

Schedule XV-C

–

Inland US Management LLC Managed Properties

Schedule XVI

–

Assignment Representations

-iii-

SENIOR MEZZANINE LOAN AGREEMENT

THIS SENIOR MEZZANINE LOAN AGREEMENT, dated as of this 1st day of December, 2009 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “Agreement”), by and among JPMORGAN CHASE BANK, N.A., a banking association chartered under the laws of the United States of America, having an address at 383 Madison Avenue, New York, New York 10179 (together with its successors and assigns, “Lender”) and IW MEZZ 2009, LLC, a Delaware limited liability company having an address at 2901 Butterfield Road, Oak Brook, Illinois 60523 (“Borrower”).

W I T N E S S E T H:

WHEREAS, JPMorgan Chase Bank N.A., a banking association chartered under the laws of the Untied States of America, having an address at 383 Madison Avenue, New York, New York 10179 as mortgage lender (“Mortgage Lender”), has made a loan in the original principal amount of Five Hundred Million and No/100 Dollars ($500,000,000.00) (the “Mortgage Loan”) to the entities set forth on Schedule I hereto (“Mortgage Borrower”) pursuant to a Loan Agreement dated the date hereof (as amended, supplemented or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mo rtgage Loan is evidenced by an Amended, Restated and Consolidated Promissory Note of even date therewith (as amended, supplemented or otherwise modified from time to time, the “Mortgage Note”) made by Mortgage Borrower to Mortgage Lender and secured by, among other things, a certain Mortgage/Deed of Trust/Indemnity Deed of Trust/Deed to Secure Debt and Security Agreement of even date therewith (as amended, supplemented or otherwise modified from time to time, the “Mortgage”) by Mortgage Borrower in favor of Mortgage Lender pursuant to which Mortgage Borrower has granted the Mortgage Lender a first priority mortgage on, among other things, the real property and other collateral as more fully described in the Mortgage (collectively, the “Property”);

WHEREAS, (i) Borrower is the legal and beneficial owner of all of the equity and beneficial trust interests in Mortgage Borrower, Colesville One, LLC, a Maryland limited liability company (“Maryland Owner”), and Principal (as defined below) consisting of, in each case, a one hundred percent (100%) interest therein, and (ii) INLAND WESTERN BETHLEHEM SAUCON VALLEY BENEFICIARY, L.L.C., a Delaware limited liability company, INLAND WESTERN DUNCANSVILLE HOLLIDAY BENEFICIARY, L.L.C., a Delaware limited liability company, and INLAND WESTERN CRANBERRY BENEFICIARY, L.L.C., a Delaware limited liability company (collectively, “DST Pledgors”) is the legal and beneficial owner of  100% of the issued and outstanding beneficial trust interests in INLAND WESTERN BETHLEHEM SAUC ON VALLEY DST, a Delaware statutory trust, INLAND WESTERN DUNCANSVILLE HOLLIDAY DST, a Delaware statutory trust, and INLAND WESTERN CRANBERRY DST, a Delaware statutory trust, respectively.

WHEREAS, as a condition precedent to the obligation of Lender to make the Loan to Borrower, Borrower and DST Pledgors have entered into that certain Senior Mezzanine Pledge Agreement and Security Agreement, dated as of the date hereof, in favor of Lender (as

amended, supplemented or otherwise modified from time to time, the “Pledge Agreement”), pursuant to which Borrower and the DST Pledgors have granted to Lender a first priority security interest in the Collateral (as defined in the Pledge Agreement) as collateral security for the Debt (as defined below);

NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows:

ARTICLE I

DEFINITIONS; PRINCIPLES OF CONSTRUCTION

Section 1.1

Definitions.

  For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent:

“Accrual Period” shall have the meaning set forth in Section 2.2.4 hereof.

“Additional Insolvency Opinion” shall mean any subsequent Insolvency Opinion.

“Adjusted Release Amount” shall mean, for each Individual Property, the sum of (a) the Release Amount for such Individual Property and (b) fifteen percent (15%) of the Release Amount for such Individual Property.

“Affected Collateral” shall have the meaning set forth in Section 9.1.5 hereof.

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

“Affiliated Manager” shall mean any Manager in which Borrower, Mortgage Borrower, Maryland Owner, Principal or Indemnitor has, directly or indirectly, any legal, beneficial or economic interest.

“Agent” shall mean Wells Fargo Bank, National Association, a banking association chartered under the laws of the United States of America, or any successor Eligible Institution acting as Agent under the Cash Management Agreement.

“Aggregate Debt Service” shall mean, with respect to any particular period of time, the sum of scheduled principal and/or interest payments under the Mortgage Note, the Junior Mezzanine Note and the Note.

“Aggregate Threshold Amount” shall mean five percent (5%) of the outstanding principal balance of the Mortgage Loan.

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

-2-

“Allocated Loan Amount” shall have the meaning set forth in Section 9.1.5 hereof.

“ALTA” shall mean American Land Title Association, or any successor thereto.

“Alteration Conditions” shall have the meaning set forth on Schedule VII hereof.

“Annual Budget” shall mean the operating budget, including all planned Capital Expenditures, for each Individual Property prepared by Borrower in accordance with Section 5.1.11(d) for the applicable Fiscal Year or other period.

“Approved Annual Budget” shall have the meaning set forth in Section 5.1.11(d) hereof.

“Assignment of Leases” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), that certain first priority Assignment of Leases and Rents, dated as of the Closing Date, from the related Individual Mortgage Borrower, as assignor, to Mortgage Lender, as assignee, assigning to Mortgage Lender all of such Individual Mortgage Borrower’s interest in and to the Leases and Rents of the applicable Individual Property as security for the Mortgage Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, and (b) with respect to the Maryland Individual Property, that certain first priority Indemnity Assignment of Leases and Rents, dated as of the Closing Date, from Maryland Owner, as assignor, to Lender, as assignee, assign ing to Mortgage Lender all of Maryland Owner’s interest in and to the Leases and Rents of the Maryland Individual Property as security for the Mortgage Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Assignment of Management Agreement” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), that certain Senior Mezzanine Subordination of Management Agreement and Subordination of Management Fees dated as of the Closing Date among Lender, Borrower, the related Individual Mortgage Borrower and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, and (b) with respect to the Maryland Individual Property, that certain Senior Mezzanine Subordination of Management Agreement and Subordination of Management Fees dated as of the Closing Date among Lender, Borrower, Maryland Owner and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Award” shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect of all or any part of any Individual Property.

“Bankruptcy Action” shall mean with respect to any Person (a) such Person filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (c) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state

-3-

bankruptcy or insolvency law; (d) such Person consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of any Individual Property; or (e) such Person making an assignment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due.

“Bankruptcy Code” shall mean Title 11 of the United States Code, 11 U.S.C. §101, et seq., as the same may be amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditors’ rights or any other Federal or state bankruptcy or insolvency law.

“Borrower” shall have the meaning set forth in the introductory paragraph hereto, together with its successors and permitted assigns.

“Borrower Remainder Account” shall have the meaning set forth in the Cash Management Agreement.

“Business Day” shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York or the place of business of the trustee under a Securitization (or, if the Securitization has not occurred, Lender), or any Servicer or the financial institution that maintains any collection account for or on behalf of any Servicer or any Reserve Funds or the New York Stock Exchange or the Federal Reserve Bank of New York is not open for business.

“Capital Expenditures” shall mean, for any period, the amount expended for items capitalized under GAAP (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements).

“Cash Management Account” shall have the meaning set forth in Section 2.7.2(a) hereof.

“Cash Management Agreement” shall mean that certain Cash Management Agreement, dated as of the date hereof, by and among Borrower, Mortgage Borrower, Junior Mezzanine Borrower, Maryland Owner, Manager, Agent, Mortgage Lender, Junior Mezzanine Lender and Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Cash Sweep Event” shall mean the occurrence of:

(a)

an Event of Default;

(b)

any Bankruptcy Action of any Borrower, Mortgage Borrower or Maryland Owner;

(c)

a DSCR Trigger Event; or

(d)

any Bankruptcy Action of Indemnitor or Joint Venture Entity.

-4-

“Cash Sweep Event Cure” shall mean (a) if the Cash Sweep Event is caused solely by the occurrence of a DSCR Trigger Event, the achievement of a Debt Service Coverage Ratio of 1.12 to 1.00 or greater for six (6) consecutive months based upon the trailing six (6) month period immediately preceding the date of determination, or (b) if the Cash Sweep Event is caused by an Event of Default, the acceptance by Lender of a cure of such Event of Default (which cure Lender is not obligated to accept and may reject or accept in its sole and absolute discretion); provided, however, that, such Cash Sweep Event Cure set forth in this definition shall be subject to the following conditions, (i) no Event of Default shall have occurred and be continuing under this Agreement or any of the other Loan Docume nts, (ii) a Cash Sweep Event Cure may occur no more than a total of five (5) times in the aggregate during the term of the Loan, and (iii) Borrower shall have paid all of Lender’s reasonable expenses incurred in connection with such Cash Sweep Event Cure including, reasonable attorney’s fees.

“Cash Sweep Period” shall mean each period commencing on the occurrence of a Cash Sweep Event and continuing until the earlier of (a) the Payment Date next occurring following the related Cash Sweep Event Cure, or (b) until payment in full of all principal and interest on the Mortgage Loan and the Loan and all other amounts payable under the Loan Documents in accordance with the terms and provisions of the Loan Documents.

“Closing Date” shall mean the date hereof.

“Code” shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

“Co-Lender” shall have the meaning set forth in Section 10.26(a) hereof.

“Collateral” shall have the meaning set forth in the Pledge Agreement.

“Condemnation” shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Individual Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Individual Property or any part thereof.

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

“Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a Person, whether through ownership of voting securities, by contract or otherwise.  “Controlled” and “Controlling” shall have correlative meanings.

“Covered Disclosure Information” shall have the meaning set forth in Section 9.2(b) hereof.

-5-

“Debt” shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums (including the Yield Maintenance Payment or Prepayment Premium) due to Lender in respect of the Loan under the Note, this Agreement, the Pledge Agreement, the Environmental Indemnity or any other Loan Document.

“Debt Service” shall mean, with respect to any particular period of time, interest payments due under this Agreement and the Note.

“Debt Service Coverage Ratio” shall mean a ratio as of the applicable date of determination in which:

(a)

the numerator is the Net Operating Income (excluding interest on credit accounts and using annualized amounts for any recurring expenses not paid monthly) for the applicable period as set forth in the statements required hereunder, without deduction for (i) actual management fees incurred in connection with the operation of the Properties, (ii) amounts paid to the Reserve Funds, less (A) management fees equal to four percent (4.0%) of Gross Income from Operations, (B) assumed Replacement Reserve Fund contributions equal to $0.15 per square foot of gross leasable area at the Properties; and (C) assumed reserves for tenant improvements and leasing commissions equal to $0.60 per square foot of gross leasable area at the Properties; and

(b)

the denominator is the aggregate amount, for the applicable period, of the Aggregate Debt Service.

“Default” shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default.

“Default Rate” shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the Maximum Legal Rate, and (b) five percent (5%) above the Interest Rate.

“Disclosure Document” shall mean any written materials used or provided to any prospective investors and/or Rating Agencies in connection with any public offering or private placement of Securities in a Securitization, including, without limitation, a prospectus, prospectus supplement, private placement memorandum, or similar offering memorandum or offering circular or collateral term sheet, in each case in preliminary or final form, and in each case, including any amendments or supplements thereto.

“DSCR Trigger Event” shall mean the Debt Service Coverage Ratio is less than 1.09 to 1.00, as determined by Lender, based upon the trailing three (3) month period immediately preceding the date of determination.

“DST Pledgors” shall have the meaning set forth in the recitals to this Agreement.

“Eligible Account” shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a

-6-

federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. § 9.10(b), having in either case a combined capital and surplus of at least $50,000,000.00 and subject to supervision or examination by federal or state authority, as applicable.  An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument.

“Eligible Institution” shall mean a depository institution or trust company insured by the Federal Deposit Insurance Corporation the short term unsecured debt obligations or commercial paper of which are rated at least “A-1” by S&P, in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least “AA-” by S&P); provided that KeyBank National Association will be deemed to be an Eligible Institution so long as its short-term unsecured debt obligations or commercial paper are rated at least “A-2” by S&P (or, if KeyBank National Association does not have any short-term unsecured debt rated by S&P, its long t erm unsecured debt obligations are rated at least “BBB+” by S&P).

“Embargoed Person” shall mean any Person, entity or government subject to trade restrictions under U.S. law, including, but not limited to, The USA PATRIOT Act (including the anti-terrorism provisions thereof), the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701, et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1, et seq., and any Executive Orders or regulations promulgated thereunder including those related to Specially Designated Nationals and Specially Designated Global Terrorists, with the result that the investment in Borrower, Maryland Owner, Principal or Indemnitor, as applicable (whether directly or indirectly), is prohibited by law or the Loan made by Lender is in violation of law.

“Environmental Indemnity” shall mean that certain Environmental Indemnity Agreement, dated as of the date hereof, executed by Borrower in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Environmental Report” shall have the meaning set forth in the Environmental Indemnity.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.

“Event of Default” shall have the meaning set forth in Section 8.1(a) hereof.

“Excess Cash Flow” shall have the meaning set forth in the Cash Management Agreement.

“Excess Cash Flow Reserve Account” shall have the meaning set forth in Section 7.6 hereof.

-7-

“Excess Cash Flow Reserve Fund” shall have the meaning set forth in Section 7.6 hereof.

“Exchange Act” shall have the meaning set forth in Section 9.2 hereof.

“Fiscal Year” shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan.

“Fitch” shall mean Fitch, Inc.

“Fixtures” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Individual Property.

“Fresno Individual Property” shall mean the Individual Property located in Fresno, California.

“Fullerton Individual Property” shall mean the Individual Property located Fullerton, California.

“GAAP” shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

“Governmental Authority” shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence.

“Gross Income from Operations” shall mean, during any period, all sustainable income as reported on the financial statements delivered by Borrower in accordance with this Agreement, computed in accordance with GAAP, derived from the ownership and operation of the Properties from whatever source during such period, including, but not limited to, (i) Rents from Tenants that are in occupancy, open for business and paying unabated Rent (excluding termination fees), (ii) utility charges, (iii) escalations, (iv) intentionally omitted, (v) service fees or charges, (vi) license fees, (vii) parking fees, and (viii) other required pass-throughs but excluding (i) Rents from Tenants that are subject to any Bankruptcy Actions (unless such Tenant has affirmed its Lease and is in occupancy, open for business and paying unabated, post-petition Rent), (ii) refunds and uncollectible accounts, (iii) sales of furniture, fixtures and equipment, (iv) Insurance Proceeds (other than business interruption or other loss of income insurance), (v) Awards, (vi) forfeited or unforfeited security deposits, (vii) utility and other similar deposits and (viii) any disbursements to Borrower, any Individual Mortgage Borrower or Maryland Owner from the Reserve Funds or Mortgage Reserve Funds, if any.  Gross income shall not be diminished as a result of the Mortgages or the creation of any intervening estate or interest in the Properties or any part thereof.

“Ground Lease Property” shall mean each real property demised by a Ground Lease.

“Ground Lease Reserve Account” shall have the meaning set forth in Section 7.5.1 hereof.

-8-

“Ground Lease Reserve Fund” shall have the meaning set forth in Section 7.5.1 hereof.

“Ground Leases” shall mean, collectively, those certain leases described on Schedule VIII attached hereto, as modified by any agreements executed by a Ground Lessor in favor of Lender in connection with the Loan.

“Ground Lessor” shall mean the respective ground lessor under each of the Ground Leases.

“Ground Rent” shall mean all rents (including both base and additional rent) and other charges due under each Ground Lease.

“Improvements” shall have the meaning set forth in the granting clause of the related Mortgage with respect to each Individual Property.

“Indebtedness” of a Person, at a particular date, means the sum (without duplication) at such date of (a) indebtedness or liability for borrowed money; (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations); (d) obligations under letters of credit; (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss; and (g) obligations secured by any Liens, whether or not the obligations have been assume d (other than the Permitted Encumbrances).

“Indemnification Agreement” shall mean that certain Senior Mezzanine Guaranty Agreement dated as of the Closing Date by Indemnitor in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Indemnified Persons” shall have the meaning set forth in Section 9.2(b) hereof.

“Indemnifying Persons” shall have the meaning set forth in Section 9.2(b) hereof.

“Indemnitor” shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation.

“Independent Director” shall mean a natural Person who (a) is not at the time of initial appointment, or at any time while serving in such capacity, and is not, and has never been, and will not while serving as Independent Director be:  (i) a stockholder, director (with the exception of serving as the Independent Director of Borrower, an Individual Mortgage Borrower or Maryland Owner), officer, employee, partner, member (other than a “special member” or “springing member”), manager, attorney or counsel of Borrower, an Individual Mortgage Borrower or Maryland Owner, equity owners of Borrower, an Individual Mortgage Borrower, Maryland Borrower or Indemnitor or any Affiliate of Borrower, Indemnitor, an Individual Mortgage Borrower or Maryland Owner; (ii) a customer, supplier or other p erson who derives any of its purchases or revenues from its activities with Indemnitor, an Individual Mortgage

-9-

Borrower, Maryland Owner, equity owners of Borrower, Indemnitor, an Individual Mortgage Borrower or Maryland Owner or any Affiliate of Borrower, Indemnitor, an Individual Mortgage Borrower or Maryland Owner; (iii) a Person Controlling or under common Control with any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person; or (iv) a member of the immediate family of any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person and (b) has (i) prior experience as an independent director or independent manager for a corporation, a trust or limited liability company whose charter documents required the unanimous consent of all independent directors or independent managers thereof before such corporation, trust or limited liability company could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (ii) at least three years of employment and/or ownership experience with one or more nationally recognized companies that provides, inter alia, professional independent directors or independent managers in the ordinary course of their respective business to issuers of securitization or structured finance instruments, agreements or securities or lenders originating commercial real estate loans for inclusion in securitization or structured finance instruments, agreements or securities (a “Professional Independent Director”) and is at all times during his or her service as an Independent Director of Borrower, an Individual Mortgage Borrower or Maryland Owner an employee and/or owner of such a company or companies.  A natural Person who satisfies the foregoing definition except for being (or having been) the independent director or independen t manager of a “special purpose entity” affiliated with a Borrower, an Individual Mortgage Borrower or Maryland Owner (provided such affiliate does not or did not own a direct or indirect equity interest in Borrower, an Individual Mortgage Borrower or Maryland Owner) shall not be disqualified from serving as an Independent Director, provided that such natural Person satisfies all other criteria set forth above and that the fees such individual earns from serving as independent director or independent manager of affiliates of Borrower, an Individual Mortgage Borrower or Maryland Owner in any given year constitute in the aggregate less than five percent (5%) of such individual’s annual income for that year.  A natural person who satisfies the foregoing definition other than subparagraph (a)(ii) shall not be disqualified from serving as an Independent Director of Borrower, an Individual Mortgage Borrower or Maryland Owner if such individual is a Professional Independent Directo r.

“Individual Mortgage Borrower” shall have the meaning set forth in the Mortgage Loan Agreement.

“Individual Property” shall mean each parcel of real property, the Improvements thereon and all personal property owned (or leased pursuant to a Ground Lease) by an Individual Mortgage Borrower or Maryland Owner and encumbered by a Mortgage, together with all rights pertaining to such property and Improvements, as more particularly described in the granting clauses of the related Mortgage and referred to therein as the “Property”.

“Insolvency Opinion” shall mean that certain non-consolidation opinion letter dated the date hereof delivered by Katten Muchin Rosenman LLP in connection with the Loan.

“Insurance Premiums” shall have the meaning set forth in the Mortgage Loan Agreement.

-10-

“Insurance Proceeds” shall have the meaning set forth in the Mortgage Loan Agreement.

“Interest Rate” shall mean a rate of 12.2352941%per annum.

“Joint Venture Entity” shall mean IW JV 2009, LLC, a Delaware limited liability company.

“Junior Mezzanine Borrower” shall mean IW MEZZ 2 2009, LLC, a Delaware limited liability company, together with its successors and permitted assigns.

“Junior Mezzanine Collateral” shall have the meaning ascribed to the term “Collateral” in the Junior Mezzanine Loan Agreement.

“Junior Mezzanine Debt Service” shall mean, with respect to any particular period of time, interest payments due under the Junior Mezzanine Loan Agreement, the Junior Mezzanine Note and the other Junior Mezzanine Loan Documents.

“Junior Mezzanine Lender” shall mean JPMorgan Chase Bank, N.A., a banking association chartered under the laws of the United States of America, together with its successors and assigns.

“Junior Mezzanine Loan” shall mean that certain loan made as of the date hereof by Junior Mezzanine Lender to Junior Mezzanine Borrower in the original principal amount of Forty Million and No/100 Dollars ($40,000,000.00), and collectively evidenced by the Junior Mezzanine Note.

“Junior Mezzanine Loan Agreement” shall mean that certain Junior Mezzanine Loan Agreement, dated as of the date hereof, between Junior Mezzanine Borrower and Junior Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified, from time to time.

“Junior Mezzanine Loan Documents” shall mean all documents evidencing the Junior Mezzanine Loan and all documents executed and/or delivered in connection therewith.

“Junior Mezzanine Loan Event of Default” shall have the meaning ascribed to the term “Event of Default” in the Junior Mezzanine Loan Agreement.

“Junior Mezzanine Note” shall mean collectively or individually as context may require, Junior Mezzanine Note A-1 and Junior Mezzanine Note A-2.  

“Junior Mezzanine Note A-1” shall mean that certain Junior Mezzanine Promissory Note A-1 of even date herewith in the principal amount of Twenty Million and No/100 Dollars ($20,000,000.00), made by Junior Mezzanine Borrower in favor of Junior Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

-11-

“Junior Mezzanine Note A-2” shall mean that certain Junior Mezzanine Promissory Note A-2 of even date herewith in the principal amount of Twenty Million and No/100 Dollars ($20,000,000.00), made by Junior Mezzanine Borrower in favor of Junior Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Junior Mezzanine Release Amount” shall have the meaning ascribed to the term “Release Amount” in the Junior Mezzanine Loan Agreement.

“JPM” shall mean JPMorgan Chase Bank, N.A. and its successors in interest.

“Lease” shall mean, with the exception of any Ground Lease, any lease (including, without limitation, any Sole Tenant Lease), sublease or subsublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Individual Property of an Individual Mortgage Borrower or Maryland Owner, and (a) every modification, amendment or other agreement relating to such lease (including, without limitation, any Sole Tenant Lease), sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement and (b) every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto.

“Leasing Conditions” shall have the meaning set forth on Schedule II hereof.

“Legal Requirements” shall mean, with respect to each Individual Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, the Collateral, Mortgage Borrower, Maryland Owner or any such Individual Property or any part thereof (including the Improvements thereon), or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, any Individual Mortgage Borrower or Maryland Owner, at any time in force affecting Borrower, Mortgage Borrower, Maryland Owner or such Individual Property or any part thereof (including the Improvements thereon), including, without limitation, any which may (a) require repairs, modifications or alterations in or to such Individual Property or any part thereof, or (b) in any way limit the use and enjoyment thereof.

“Lender” shall have the meaning set forth in the introductory paragraph hereto and, as context shall provide, means any individual Co-lender or all Co-Lenders collectively.

“Liabilities” shall have the meaning set forth in Section 9.2(b) hereof.

“Lien” shall mean any mortgage, deed of trust, deed to secure debt, indemnity deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, any Individual Mortgage Borrower, Maryland Owner, any Individual Property or the Collateral, any portion thereof or any interest therein, including, without limitation, any conditional sale or other title retention

-12-

agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances.

“Liquidation Event” shall have the meaning set forth in Section 2.3.2(a) hereof.

“Loan” shall mean the loan made by Lender to Borrower pursuant to this Agreement and evidenced by the Note.

“Loan Documents” shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the Environmental Indemnity, the O&M Agreements, the Assignment of Management Agreement, the Indemnification Agreement, the Cash Management Agreement and all other documents executed and/or delivered in connection with the Loan or any Securitization.

“Lockbox Account” shall have the meaning set forth in Section 2.7.1(a) hereof.

“Lockbox Agreement” shall mean that certain Clearing Account Agreement among Mortgage Borrower, Mortgage Lender, Manager and Lockbox Bank as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, relating to funds deposited in the Lockbox Account.

“Lockbox Bank” shall mean the clearing bank which establishes, maintains and holds the Lockbox Account.

“Management Agreement” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), the management agreement entered into by and between the related Individual Mortgage Borrower and Manager, pursuant to which Manager is to provide management and other services with respect to such Individual Property; (b) with respect to the Maryland Individual Property, the management agreement entered into by and between Maryland Owner and Manager, pursuant to which Manager is to provide management and other services with respect to the Maryland Individual Property; or (c) if the context requires, the Replacement Management Agreement.

“Manager” shall mean (a) Inland Pacific Property Services LLC, a Delaware limited liability company, with respect to each Individual Property set forth on Schedule XV-A hereto, (b) Inland Southwest Management LLC, a Delaware limited liability company, with respect to each Individual Property set forth on Schedule XV-B hereto, (c) Inland US Management LLC, a Delaware limited liability company, with respect to each Individual Property set forth on Schedule XV-C hereto, or (d) if the context requires, a Qualifying Manager who is operating and managing an Individual Property in accordance with the terms and provisions of this Agreement pursuant to a Replacement Management Agreement.

“Market Conditions” shall mean a substantive adverse change in the performance or cash flow of properties generally resulting from significant downturns in the economy, disruptions in rental or other income or reimbursements due to a bankruptcy action of any tenant, casualty or condemnation, natural disaster, domestic unrest, terrorist activity, or unforeseen factors beyond the reasonable control of Manager.

-13-

“Maryland Individual Borrower” shall mean Inland Western Colesville New Hampshire SPE, L.L.C., a Delaware limited liability company, together with its successors and permitted assigns.

“Maryland Individual Property” shall mean the Individual Property located in the City of Colesville, County of Montgomery, and State of Maryland and currently known as the “Eckerd-Colesville, Maryland”.

“Maryland Owner” shall have the meaning set forth in the recitals hereto, together with its successors and permitted assigns.

“Maryland Owner Company Agreement” shall mean the Limited Liability Company Agreement of Maryland Owner, dated the date hereof, by Borrower, as sole member.

“Maryland Owner Indebtedness” shall have the meaning set forth in the Mortgage related to the Maryland Individual Property.

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

“Material Agreements” means each contract and agreement relating to the ownership, management, development, use, operation, leasing, maintenance, repair or improvement of the Properties, other than the Management Agreement and the Leases, under which there is an obligation of Borrower, Mortgage Borrower or Maryland Owner to pay more than $100,000 per annum.

“Maturity Date” shall mean December 1, 2019, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise.

“Maximum Legal Rate” shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.

“Mezzanine Lender Agent” shall have the meaning set forth in Section 10.26(a) hereof.

-14-

“Miami Individual Property” shall mean the Individual Property located in Miami, Florida.

“Monthly Debt Service Payment Amount” shall mean the monthly payment of interest on the Loan calculated pursuant to Section 2.2.2 hereof.

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Mortgage” shall have the meaning set forth in the recitals to this Agreement.

“Mortgage Adjusted Release Amount” shall mean the “Adjusted Release Amount” as defined in the Mortgage Loan Agreement.

“Mortgage Borrower” shall have the meaning set forth in the recitals to this Agreement, together with its successors and permitted assigns.

“Mortgage Borrower Company Agreement” shall mean, collectively, (i) the Limited Liability Company Agreement of the applicable Individual Mortgage Borrower and any applicable Principal dated the date hereof, by Borrower, as sole member, (ii) the Amended and Restated Limited Partnership Agreement of the applicable Individual Mortgage Borrowers, dated the date hereof, by Borrower, as limited partner and certain entities comprising Principal, as general partner, and (iii) the Amended and Restated Trust Agreement, dated the date hereof, of INLAND WESTERN BETHLEHEM SAUCON VALLEY DST, a Delaware statutory trust, INLAND WESTERN DUNCANSVILLE HOLLIDAY DST, a Delaware statutory trust, and INLAND WESTERN CRANBERRY DST, with INLAND WESTERN BETHLEHEM SAUCON VALLEY BENEFICIARY, L.L.C., INLAND WESTERN DUNCANSVILLE H OLLIDAY BENEFICIARY, L.L.C, and INLAND WESTERN CRANBERRY BENEFICIARY, L.L.C., as sole beneficiary, as applicable.

“Mortgage Lender” shall have the meaning set forth in the recitals to this Agreement, together with its successors and assigns.

“Mortgage Loan” shall have the meaning set forth in the recitals to this Agreement.

“Mortgage Loan Agreement” shall have the meaning set forth in the recitals to this Agreement.

“Mortgage Loan Default” shall mean a “Default” under and as defined in the Mortgage Loan Agreement.

“Mortgage Loan Documents” shall mean, collectively, the Mortgage Note, the Mortgage Loan Agreement, the Mortgage, the Cash Management Agreement, and any and all other documents defined as “Loan Documents” in the Mortgage Loan Agreement, as amended, restated, replaced, supplemented or otherwise modified from time to time.

“Mortgage Loan Event of Default” shall mean an “Event of Default” under and as defined in the Mortgage Loan Agreement.

-15-

“Mortgage Note” shall have the meaning set forth in the recitals to this Agreement.

“Mortgage Release Amount” shall have the meaning ascribed to the term “Release Amount” in the Mortgage Loan Agreement.

“Mortgage Reserve Funds” shall mean the “Reserve Funds” as defined in the Mortgage Loan Agreement.

“Net Cash Flow” shall mean, with respect to the Properties for any period, the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period.

“Net Cash Flow Schedule” shall have the meaning set forth in Section 5.1.11(b) hereof.

“Net Liquidation Proceeds After Debt Service” shall mean, with respect to any Liquidation Event, all amounts paid to or received by or on behalf of Mortgage Borrower or Maryland Owner in connection with such Liquidation Event, including, without limitation, proceeds of any sale, refinancing or other disposition or liquidation, less (i) Lender’s and/or Mortgage Lender’s reasonable costs incurred in connection with the recovery thereof, (ii) the costs incurred by Mortgage Borrower or Maryland Owner in connection with a restoration of all or any portion of the Properties made in accordance with the Mortgage Loan Documents, (iii) amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Mortgage Loan Documents to Mortgage Lender, (iv) in the case of a foreclosure sal e, disposition or Transfer of any Individual Property in connection with realization thereon following an Event of Default under the Mortgage Loan, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions), (v) in the case of a foreclosure sale, such costs and expenses incurred by Mortgage Lender under the Mortgage Loan Documents as Mortgage Lender shall be entitled to receive reimbursement for under the terms of the Mortgage Loan Documents and (vi) in the case of a refinancing of the Mortgage Loan, such costs and expenses (including attorneys’ fees) of such refinancing as shall be reasonably approved by Lender.

“Net Operating Income” shall mean the amount obtained by subtracting from Gross Income from Operations (i) Operating Expenses, and (ii) a vacancy allowance equal to (a) zero, if actual vacancy at the Properties in the aggregate is greater than five percent (5%) or (b) five percent (5%) of Gross Income from Operations if actual vacancy at the Properties in the aggregate is less than five percent (5%).

“New Mezzanine Borrower” shall mean the entity which owns interest in the New Mortgage Borrower similar to the interests in Mortgage Borrower, Maryland Owner and Principal owned by Borrower.

“New Mezzanine Loan” shall have the meaning set forth in Section 9.1.3 hereof.

“New Mortgage Borrower” shall mean the entities to which the Properties are Transferred in accordance with Section 5.2.10(d).

-16-

“New Note” shall have the meaning set forth in Section 9.1.5 hereof.

“New Securitization Mezzanine Borrower” shall have the meaning set forth in Section 9.1.3 hereof.

“Northpointe Individual Property” shall have the meaning assigned to such term as set forth in the Mortgage Loan Agreement.

 “Northpointe Remainder Property” shall have the meaning assigned to such term as set forth in the Mortgage Loan Agreement.

“Northpointe Target Expansion Parcel” shall have the meaning assigned to such term as set forth in the Mortgage Loan Agreement.

 “Note” shall mean, collectively or individually as the context may require, Senior Mezzanine Note A-1, Senior Mezzanine Note A-2, and Senior Mezzanine Note A-3.

“O&M Agreement” shall mean, with respect to each Individual Property set forth on Schedule III hereof, that certain Senior Mezzanine Operations and Maintenance Agreement, dated as of the date hereof, between Borrower, the related Individual Mortgage Borrower, Maryland Owner and Mortgage Lender given in connection with the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Officer’s Certificate” shall mean a certificate delivered to Lender by Borrower which is signed by an authorized officer of the general partner, managing member of Borrower.

“Operating Expenses” shall have the meaning as set forth in the Mortgage Loan Agreement.

“Organizational Documents” means as to any Person, the certificate of incorporation and by-laws with respect to a corporation; the certificate of organization and operating agreement with respect to a limited liability company; the certificate of limited partnership and partnership agreement with respect to a limited partnership, or any other organizational or governing documents of such Person.

“Other Charges” shall have the meaning as set forth in the Mortgage Loan Agreement.

“Payment Date” shall mean the first (1st) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately preceding Business Day.

“Permitted Encumbrances” shall mean, with respect to an Individual Property, collectively, (a) the Liens and security interests created by the Loan Documents and the Mortgage Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policies relating to such Individual Property or any part thereof, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, (d) easements or other encumbrances granted pursuant to Section 5.2.10(e) hereof, and (e) such other title and survey

-17-

exceptions as Lender has approved or may approve in writing in Lender’s reasonable discretion, which Permitted Encumbrances in the aggregate do not materially and adversely affect the value, operation or use of the applicable Individual Property as used on the Closing Date or Borrower’s ability to repay the Loan and/or Maryland Owner’s ability to repay the Maryland Owner Indebtedness.

“Permitted Investments” shall have the meaning set forth in the Mortgage Loan Agreement.

“Permitted Par Prepayment Date” shall mean the Payment Date three (3) months prior to the Maturity Date.

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

“Personal Property” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Individual Property.

“Physical Conditions Report” shall mean, with respect to each Individual Property, a report prepared by a company satisfactory to Lender regarding the physical condition of such Individual Property, satisfactory in form and substance to Lender in its sole discretion, which report shall, among other things, (a) confirm that such Individual Property and its use complies, in all material respects, with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building laws) and (b) include a copy of a final certificate of occupancy with respect to all Improvements on such Individual Property.

“Pledge Agreement” shall have the meaning set forth in the recitals to this Agreement.

“Pledgor” shall have the meaning as set forth in the Pledge Agreement.

“Policies” shall have the meaning specified in the Mortgage Loan Agreement.

“Policy” shall have the meaning specified in the Mortgage Loan Agreement.

“Prepayment Premium” shall mean the outstanding principal amount of the Loan being prepaid multiplied by (a) five percent (5.00%) if the relevant prepayment occurs on or prior to the forty-eighth (48^th) Payment Date, (b) four percent (4.00%) if such prepayment occurs after the forty-eighth (48^th) Payment Date, and through and including the sixtieth (60^th) Payment Date, (c) three percent (3.00%) if the relevant prepayment occurs after the sixtieth (60^th) Payment Date and through and including the seventy-second (72^nd) Payment Date, (d) two percent (2.00%) if such prepayment occurs after the seventy-second (72^nd) Payment Date and through and including the eighty-fourth (84^th) Payment Date, and (e)&n bsp;one percent (1.00%) if such prepayment occurs after the eighty-fourth (84^th) Payment Date and prior to the Permitted Par Prepayment Date.

-18-

“Prepayment Rate” shall mean the bond equivalent yield (in the secondary market) on the United States Treasury Security that as of the date any payment is received which is governed by Section 2.3.3 has a remaining term to maturity closest to, but not exceeding, the remaining term to the Maturity Date, as most recently published in “Statistical Release H.15 (519), Selected Interest Rates,” or any successor publication, published by the Board of Governors of the Federal Reserve System, or on the basis of such other publication or statistical guide as Lender may reasonably select.

“Prepayment Release Date” shall mean the Payment Date immediately following the third (3^rd) anniversary of the first Payment Date.

“Principal” shall have the meaning set forth in the Mortgage Loan Agreement.

“Properties” shall mean, collectively, each and every Individual Property which is subject to the terms of the Mortgage Loan Agreement.

“Provided Information” shall have the meaning set forth in Section 9.1.1 hereof.

“Qualifying Manager” shall mean a reputable and experienced management organization reasonably satisfactory to Lender, which organization or its principals possess at least ten (10) years’ experience in managing properties similar in scope, size, use and value of the applicable Individual Property, provided that, if a Securitization has occurred, Borrower shall have obtained prior written confirmation from the Rating Agencies that management of such Individual Property by such entity will not cause a downgrading, withdrawal or qualification of the then current rating of the Securities issued pursuant to the Securitization or, if a Securitization has not occurred, Borrower shall have obtained the prior written consent of Lender.  Lender acknowledges that on the Closing Date, Manager shall be deemed a Qualifying Manager.

“Rating Agencies” shall mean each of S&P and Realpoint, or such other nationally recognized statistical securities rating organizations as may be designated by Lender to assign a rating to all or any portion of the Securities.

“Realpoint” shall mean Realpoint LLC, a Pennsylvania limited liability company.

“Register” shall have the meaning set forth in Section 10.27 hereof.

“Related Entities” shall have the meaning set forth in Section 5.2.10(d) hereof.

“Release Amount” shall mean for an Individual Property the amount set forth on Schedule VI hereto, as the same may be reduced pursuant to Section 2.3.2 hereof.

“Release Debt Service Coverage Ratio” shall mean the product of 1.16 multiplied by a fraction of which (a) the numerator is the sum of the Release Amounts, the Mortgage Release Amounts and the Junior Mezzanine Release Amounts of all Properties subject to the Liens of the Mortgages (including the Individual Property to be released), and (b) the

-19-

denominator is the sum of the then-current outstanding principal amounts of the Loan, the Mortgage Loan and the Junior Mezzanine Loans.

“Relevant Leasing Threshold” shall mean, with respect to each Individual Property, any Lease for an amount of leaseable square footage equal to or greater than ten thousand (10,000) square feet.

“Relevant Restoration Threshold” shall mean, with respect to the applicable Individual Property, two percent (2%) of the related Release Amount.

“REMIC Trust” shall mean a “real estate mortgage investment conduit” within the meaning of Section 860D of the Code that holds a Note.

“Rents” shall mean, with respect to each Individual Property, all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, termination fees, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower, Mortgage Borrower or Maryland Owner or any agents or employees of Borrower, the related Individual Mortgage Borrower or Maryland Owner from any and all sources arising from or attributable to the Individual Property, and proceeds, if any, from business i nterruption or other loss of income insurance.

“REOA” shall mean each of those agreements more particularly set forth on Schedule XI attached hereto.

“Replacement Management Agreement” shall mean, collectively, (a) either (i) a management agreement with a Qualifying Manager substantially in the same form and substance as the Management Agreement, or (ii) a management agreement with a Qualifying Manager, which management agreement shall be reasonably acceptable to Lender in form and substance, provided, with respect to this subclause (ii), Lender, at its option, may require that Borrower shall cause Mortgage Borrower to obtain prior written confirmation from the applicable Rating Agencies that such management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof and (b) a subordination of management agreement and subordination of management fees substantially in the form of the Assignment of Management Agreement (or of such other form and substance reasonably acceptable to Lender), executed and delivered to Lender by Borrower, the related Individual Mortgage Borrower or Maryland Owner, as the case may be, and such Qualifying Manager at Borrower’s, Mortgage Borrower’s and Maryland Owner’s expense.

“Replacement Reserve Account” shall have the meaning set forth in Section 7.3.1 hereof.

“Replacement Reserve Cap” shall have the meaning set forth in Section 7.3.1 hereof.

-20-

“Replacement Reserve Fund” shall have the meaning set forth in Section 7.3.1 hereof.

“Replacement Reserve Monthly Deposit” shall have the meaning set forth in Section 7.3.1 hereof.

“Replacements” shall have the meaning set forth in Section 7.3.1(a) hereof.

“Required Repair Account” shall have the meaning set forth in Section 7.1.1 hereof.

“Required Repair Fund” shall have the meaning set forth in Section 7.1.1 hereof.

“Required Repairs” shall have the meaning set forth in Section 7.1.1 hereof.

“Reserve Funds” shall mean, collectively, the Tax and Insurance Reserve Fund, the Replacement Reserve Fund, the Required Repair Fund, the Rollover Reserve Fund, the Ground Lease Reserve Fund, the Excess Cash Flow Reserve Fund and any other escrow fund established by the Loan Documents.

“Restoration” shall mean the repair and restoration of an Individual Property after a Casualty or Condemnation as nearly as possible to the condition the Individual Property was in immediately prior to such Casualty or Condemnation, with such alterations as may be reasonably approved by Lender.

“Restricted Party” shall mean collectively, (a) Borrower, Mortgage Borrower, Maryland Owner, Principal, Junior Mezzanine Borrower, Joint Venture Entity, and any Affiliated Manager and (b) any shareholder, partner, member, non-member manager, any direct or indirect legal or beneficial owner of, Borrower, Mortgage Borrower, Maryland Owner, Principal, Junior Mezzanine Borrower, any Affiliated Manager or any non-member manager.  “Restricted Party” shall not include Inland Equity Investors, LLC or its members or the holders, assignees or transferees of any direct or indirect ownership interests in Inland Equity Investors, LLC.

“Rollover Reserve Account” shall have the meaning set forth in Section 7.4.1 hereof.

“Rollover Reserve Fund” shall have the meaning set forth in Section 7.4.1 hereof.

“S&P” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.

“SEC” shall mean the United States Securities and Exchange Commission.

“Securities” shall have the meaning set forth in Section 9.1 hereof.

-21-

“Securities Act” shall have the meaning set forth in Section 9.2 hereof.

“Securitization” shall have the meaning set forth in Section 9.1 hereof.

“Senior Mezzanine Loan Cash Management Account” shall have the meaning set forth in Section 2.7.2 hereof.

“Senior Mezzanine Note A-1” shall mean that certain Senior Mezzanine Promissory Note A-1 of even date herewith in the principal amount of Forty Million and No/100 Dollars ($40,000,000.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Senior Mezzanine Note A-2” shall mean that certain Senior Mezzanine Promissory Note A-2 of even date herewith in the principal amount of Thirty Million and No/100 Dollars ($30,000,000.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Senior Mezzanine Note A-3” shall mean that certain Senior Mezzanine Promissory Note A-3 of even date herewith in the principal amount of Fifteen Million and No/100 Dollars ($15,000,000.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Servicer” shall have the meaning set forth in Section 9.6 hereof.

“Servicing Agreement” shall have the meaning set forth in Section 9.6 hereof.

“Severed Loan Documents” shall have the meaning set forth in Section 8.2(c) hereof.

“Severing Documentation” shall have the meaning set forth in Section 9.7 hereof.

“Sole Tenant” shall mean each Tenant under a Sole Tenant Lease.

“Sole Tenant Individual Property” shall mean each Individual Property set forth on Schedule XIV hereto.

“Sole Tenant Lease” shall mean, with respect to each Sole Tenant Individual Property, the Lease specified on Schedule XIV as the related “Sole Tenant Lease”.

“Special Purpose Entity” shall mean a corporation, limited partnership, limited liability company, or Delaware statutory trust which at all times on and after the Closing Date:

(i)

is organized solely for the purpose of acquiring, owning, holding, transferring, exchanging, managing and operating the Collateral, entering into this Agreement with Lender, refinancing the Collateral in connection with a permitted repayment of the Loan, and transacting lawful business that is incident, necessary and appropriate to accomplish the foregoing;

-22-

(ii)

is not engaged and will not engage in any business unrelated to the acquisition, ownership, management or operation of the Collateral;

(iii)

does not and will not have any assets other than the Collateral;

(iv)

has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, sale of all or substantially all of its assets, transfer of partnership, membership or beneficial or trustee interests (if such entity is a general partner in a limited partnership, a member in a limited liability company or a beneficiary of a Delaware trust), without the prior written consent of Lender and receipt of prior written confirmation from the applicable Rating Agencies that the same will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof, any amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation, operating agreement or trust formation and governance documents (as applicable) with respect to the matters set forth in this definition;

(v)

if such entity is a limited partnership, has as its only general partner, a Special Purpose Entity that is a corporation, limited partnership or limited liability company that satisfies the requirements of subparagraph (viii) below;

(vi)

if such entity is a corporation, has at least two (2) Independent Directors, and has not caused or allowed and will not cause or allow the board of directors of such entity to take any action related to a bankruptcy or insolvency proceeding or a voluntary dissolution without the unanimous affirmative vote of one hundred percent (100%) of the members of its board of directors, including the Independent Directors;

(vii)

if such entity is a limited liability company and such limited liability company has more than one member, such limited liability company has as its manager a Special Purpose Entity that is a corporation and that owns at least one percent (1.0%) of the equity of the limited liability company;

(viii)

if such entity is a limited liability company and such limited liability company has only one member, such limited liability company (a) has been formed under Delaware law, (b) has either a corporation or one (1) other person or entity that shall become a member of the limited liability company upon the dissolution or disassociation of the member, (c) has a board of directors with not less than two (2) Independent Directors, and (d) has a limited liability company agreement that does not and will not cause or allow its board of directors to take any action related to a bankruptcy or insolvency proceeding without the unanimous affirmative vote of one hundred percent (100%) of the members of its board of directors, including the Independent Directors;

-23-

(ix)

if such entity is a statutory trust, such statutory trust (a) has been formed under Delaware law, (b) has a board of trustees with not less than two (2) Independent Directors, and (c) has trust documents that do not and will not cause or allow its board of trustees to take any action related to a bankruptcy or insolvency proceeding without the unanimous affirmative vote of one hundred percent (100%) of the members of its board of trustees, including the Independent Directors;

(x)

if such entity is (a) a limited liability company, has articles of organization, a certificate of formation and/or an operating agreement, as applicable, (b) a limited partnership, has a limited partnership agreement, (c) a corporation, has a certificate or articles of incorporation and bylaws, as applicable, or (d) a Delaware statutory trust, has a trust certificate and trust agreement that, in each case, provide that such entity will not:  (1) dissolve, merge, liquidate, consolidate; (2) sell all or substantially all of its assets or the assets of the Borrower, Mortgage Borrower or Maryland Owner (as applicable); (3) except as permitted herein, engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition without the consent of the Lender and receipt of prior written confirmation from the ap plicable Rating Agencies that the same will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; or (4) without the affirmative vote of all its directors (including its Independent Directors) or if the entity is a limited partnership or limited liability company with more than one member, the affirmative vote of all of the directors (including the Independent Directors) of the general partner or managing member of such entity), or the vote of all of its administrative trustees (including its Independent Directors), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest;

(xi)

except for capital contributions or capital distributions permitted under the terms and conditions of its organizational documents and applicable law and properly reflected on its books and records, has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, beneficiaries, shareholders or Affiliates except in the ordinary course of its business and on terms which would be obtained in a comparable arm’s-length transaction with an unrelated third party;

(xii)

is solvent and pays its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same become due, and is maintaining adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; provided, however, that the foregoing shall not require any member, partner or beneficiary to make additional capital contributions;

-24-

(xiii)

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

(xiv)

will file its own tax returns separate from those of any other Person, except to the extent that Borrower is treated as a “disregarded entity” for tax purposes and is not required to file tax returns under applicable law;

(xv)

has maintained and will maintain its own resolutions and agreements;

(xvi)

(a) except as permitted by the Loan Documents and Mortgage Loan Documents, has not commingled and will not commingle its funds or assets with those of any other Person and (b) has not participated and will not participate in any cash management system with any other Person;

(xvii)

has held and will hold its assets in its own name;

(xviii)

has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower, Mortgage Borrower or Maryland Owner;

(xix)

has maintained and will maintain its books, records, bank accounts, balance sheets, operating statements and other entity documents separate from any other Person and has not permitted and will not permit its assets to be listed as assets on the financial statement of any other entity except as required or permitted by applicable accounting principles acceptable to Lender, consistently applied; provided, however, that appropriate notation shall be made on any such consolidated statements to indicate its separateness from such Affiliate and to indicate that its assets and credit are not available to satisfy the debts and other obligations of such Affiliate or any other Person and such assets shall be listed on its own separate balance sheet;

(xx)

has and will maintain a sufficient number of employees in light of its contemplated business operations, which may be none;

(xxi)

has observed and will observe all partnership, corporate, limited liability company or Delaware statutory trust formalities, as applicable;

(xxii)

has and will have no Indebtedness (including loans (whether or not such loans are evidenced by a written agreement) between Borrower, Mortgage Borrower, Junior Mezzanine Borrower and/or Maryland Owner and any Affiliates of Borrower, Mortgage Borrower, Junior Mezzanine Borrower and/or Maryland Owner or relating to the management of funds in the segregated custodial account maintained by the Manager for the sole benefit of Borrower and Maryland Owner) other than (i) the Loan, (ii) liabilities incurred in the ordinary course of business relating to the ownership and operation of the Collateral and the routine administration of Borrower, Mortgage Borrower and/or Maryland Owner, which liabilities are (A) not more than sixty (60) days past the date incurred (unless

-25-

disputed in accordance with applicable law), (B) not evidenced by a note, (C) paid when due, and (D) normal and reasonable under the circumstances, and (iii) such other liabilities that are permitted pursuant to this Agreement;

(xxiii)

except for any general partner of Borrower in such capacity, has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit or assets as being available to satisfy the obligations of any other Person;

(xxiv)

has not and will not acquire obligations or securities of its partners, members, beneficiaries or shareholders or any other Affiliate;

(xxv)

has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an Affiliate;

(xxvi)

has not maintained or used, and will not maintain or use, invoices and checks bearing its own name;

(xxvii)

has not pledged and will not pledge its assets to secure the obligations of any other Person;

(xxviii)

has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower and not as a division or department of any other Person;

(xxix)

has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;

(xxx)

has not made and will not make loans or advance to, or own or acquire any stock or securities of, any Person or hold evidence of indebtedness issued by any other person or entity (other than cash and investment-grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity);

(xxxi)

has not identified and will not identify its partners, members, beneficiaries or shareholders, or any Affiliate of any of them, as a division or department of it, and has not identified itself and shall not identify itself as a division or department of any other Person;

(xxxii)

does not and will not have any of its obligations guaranteed by any Affiliate except as otherwise required in the Loan Documents;

(xxxiii)

has not formed, acquired or held and will not form, acquire or hold any subsidiary or own any equity interest in any other entity, except for the equity

-26-

interests it currently owns in Mortgage Borrower, Principal and Maryland Owner; and

(xxxiv)

has complied and will comply with all of the terms and provisions contained in its organizational documents since its formation.  The statement of facts contained in its organizational documents are true and correct and will remain true and correct.

“State” shall mean, with respect to an Individual Property, the State or Commonwealth in which such Individual Property or any part thereof is located.

“Survey” shall mean a survey of the Individual Property in question prepared by a surveyor licensed in the State and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender.

“Tax and Insurance Reserve Fund” shall have the meaning set forth in Section 7.2 hereof regardless of whether the funds held therein are held by Lender for the payment of Taxes or Insurance Premiums or both.

“Tax and Insurance Reserve Account” shall have the meaning set forth in Section 7.2 hereof.

“Taxes” shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Individual Property or any part thereof.

“Tenant” shall have the meaning set forth in the Mortgage Loan Agreement.

“Threshold Amount” shall mean, with respect to the applicable Individual Property, two percent (2%) of the related Mortgage Release Amount.

“Transfer” shall have the meaning set forth in Section 5.2.10(b) hereof.

“Transferee” shall have the meaning set forth in Section 5.2.10(d) hereof.

“Transferee’s Principals” shall mean all members, partners or shareholders which directly or indirectly own an interest in Transferee.

“UCC” or “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the applicable State in which an Individual Property is located.

“University Individual Property” shall mean the Individual Property located in Tuscaloosa, Alabama.

“U.S. Obligations” shall mean non-redeemable securities evidencing an obligation to pay principal and/or interest in a full and timely manner that are (a) direct obligations of the United States of America for the payment of which its full faith and credit is

-27-

pledged, or (b) to the extent acceptable to the Rating Agencies, other “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended.

“Yield Maintenance Premium” shall mean an amount equal to the greater of (a) three percent (3%) of the outstanding balance of the Loan to be prepaid or satisfied and (b) the excess, if any, of (i) the sum of the present values of all then-scheduled payments of principal and interest under the Loan, assuming that all scheduled payments are made timely and that the remaining outstanding principal and interest on the Loan is paid on the Maturity Date (with each such payment and assumed payment discounted to its present value at the date of prepayment at the rate which, when compounded monthly, is equivalent to the Prepayment Rate when compounded semi-annually and deducting from the sum of such present values any short-term interest paid from the date of prepayment to the next succeeding Payment Date in the event that such payment is not made on a Payment Date), over (ii) the principal amount being prepaid.

Section 1.2

Principles of Construction.

  All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified.  All uses of the word “including” shall mean “including, without limitation” unless the context shall indicate otherwise.  Unless otherwise specified, the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.  Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined.

ARTICLE II

GENERAL TERMS

Section 2.1

Loan Commitment; Disbursement to Borrower.

2.1.1

The Loan.  Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date.

2.1.2

Disbursement to Borrower.  Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed.  Borrower acknowledges and agrees that the Loan has been fully funded as of the Closing Date.

2.1.3

The Note, Pledge Agreement and Loan Documents.  The Loan shall be evidenced by the Note and secured by the Pledge Agreement and the other Loan Documents.

2.1.4

Use of Proceeds.  Borrower shall use the proceeds of the Loan solely to (a) make an equity contribution to Mortgage Borrower and Maryland Owner in order to cause the Mortgage Borrower and Maryland Owner to use such amounts for any use permitted pursuant to Section 2.1.4 of the Mortgage Loan Agreement, (b) pay costs and expenses incurred in connection with the closing of the Loan, as approved by Lender, and (c) distribute the balance, if any, to Junior Mezzanine Borrower.

-28-

Section 2.2

Interest; Loan Payments; Late Payment Charge.

2.2.1

Interest Generally.  Interest on the outstanding principal balance of the Loan shall accrue from (and include) the Closing Date to but excluding the Maturity Date at the Interest Rate.

2.2.2

Interest Calculation.  Interest on the outstanding principal balance of the Loan shall be calculated by multiplying (a) the actual number of days elapsed in the Accrual Period, by (b) a daily rate based on the Interest Rate and a three hundred sixty (360) day year, by (c) the outstanding principal balance of the Loan.

2.2.3

Monthly Debt Service Payments.  Borrower shall pay to Lender on January 1, 2010 and each Payment Date thereafter up to but not including the Maturity Date, an amount equal to the Monthly Debt Service Payment Amount, which payments shall be applied to accrued and unpaid interest.

2.2.4

Payments Generally.  The first (1^st) interest Accrual Period hereunder shall commence on and include the Closing Date and shall end on and include December 31, 2009.  Each interest accrual period thereafter shall commence on the first (1^st) day of each calendar month during the term of the Loan and shall end on and include the final calendar date of such calendar month (the “Accrual Period”).  For purposes of making payments hereunder, but not for purposes of calculating Accrual Periods, if the day on which such payment is due is not a Business Day, then amounts due on such date shall be due on the immediately preceding Business Day and with respect to payments of principal due on the Maturity Date, interest shall be payable at the Interest Rate or the Default Rate, as the case m ay be, through and including the day immediately preceding such Maturity Date.  All amounts due under this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever. All payments due on account of the Loan and for any obligations due under the Loan Documents shall be made on a pro rata, pari passu basis with respect to Senior Mezzanine Note A-1, Senior Mezzanine Note A-2 and Senior Mezzanine Note A-3.

2.2.5

Payment on Maturity Date.  Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all accrued and unpaid interest and all other amounts due hereunder and under the Note, the Pledge Agreement and the other Loan Documents.

2.2.6

Payments after Default.  Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by law, all accrued and unpaid interest and other amounts due in respect of the Loan, shall accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein.  Interest at the Default Rate shall be computed from the occurrence of the Event of Default until the earlier of (i) in the event of a non-monetary default, the cure of such Event of Default by Borrower, and (ii) in the event of a monetary default, the actual receipt and collection of the D ebt (or that portion thereof that is then due).  To the extent permitted by applicable law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Pledge Agreement  This paragraph shall not be construed as an agreement or privilege to extend the date

-29-

of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default and Lender retains its rights under the Note and this Agreement to accelerate and to continue to demand payment of the Debt upon the occurrence and continuance of any Event of Default.

2.2.7

Late Payment Charge.  If any principal, interest or any other sums due under the Loan Documents are not paid by Borrower on or prior to the date on which it is due (except, in the case of Debt Service, provided no Event of Default shall then exist and there are sufficient funds in the Senior Mezzanine Loan Cash Management Account to pay such Debt Service), Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the Maximum Legal Rate in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment.  Any such amount shall be secured by the Pledge Agreement and the other Loan Documents to the extent permitted by applicable law.  The foregoing late payment charge shall not apply to the payment of all outstanding principal, interest and other sums due on the Maturity Date.

2.2.8

Usury Savings.  This Agreement, the Note and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate.  If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rat e shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder.  All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.

2.2.9

Making of Payments.  Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 11:00 A.M., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender’s office or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day.

2.2.10

No Deductions, etc.  All payments made by Borrower hereunder or under the Note or the other Loan Documents shall be made irrespective of, and without any deduction for, any setoff, defense or counterclaims.

-30-

Section 2.3

Prepayments.

2.3.1

Voluntary Prepayments.  (1)

-31-

EX-10.589

Exhibit 10.590

JUNIOR MEZZANINE LOAN AGREEMENT

Dated as of December 1, 2009

By and Among

IW MEZZ 2 2009, LLC,
as Borrower

and

JPMORGAN CHASE BANK, N.A.,
as Lender

TABLE OF CONTENTS

Page

ARTICLE I

DEFINITIONS; PRINCIPLES OF CONSTRUCTION

Section 1.1

Definitions

2

Section 1.2

Principles of Construction

28

ARTICLE II

GENERAL TERMS

Section 2.1

Loan Commitment; Disbursement to Borrower

29

Section 2.2

Interest; Loan Payments; Late Payment Charge

29

Section 2.3

Prepayments

31

Section 2.4

Intentionally Omitted

33

Section 2.5

Release of Property

33

Section 2.6

Intentionally Omitted

36

Section 2.7

Lockbox Account/Cash Management

36

ARTICLE III

INTENTIONALLY OMITTED

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.1

Borrower Representations

37

Section 4.2

Survival of Representations

52

ARTICLE V

BORROWER COVENANTS

Section 5.1

Affirmative Covenants

52

Section 5.2

Negative Covenants

69

-i-

ARTICLE VI

INSURANCE; CASUALTY; CONDEMNATION

Section 6.1

Insurance

78

Section 6.2

Casualty

79

Section 6.3

Condemnation

79

Section 6.4

Restoration

80

ARTICLE VII

RESERVE FUNDS

Section 7.1

Required Repair Funds

80

Section 7.2

Tax and Insurance Reserve Fund

80

Section 7.3

Replacements and Replacement Reserve

81

Section 7.4

Rollover Reserve

86

Section 7.5

Ground Lease Reserve Fund

87

Section 7.6

Excess Cash Flow Reserve Fund

88

Section 7.7

Reserve Funds, Generally

89

ARTICLE VIII

DEFAULTS

Section 8.1

Event of Default

90

Section 8.2

Remedies

93

Section 8.3

Remedies Cumulative; Waivers

94

ARTICLE IX

SPECIAL PROVISIONS

Section 9.1

Securitization

94

Section 9.2

Securitization Indemnification

100

Section 9.3

Intentionally Omitted

103

Section 9.4

Exculpation

103

Section 9.5

Termination of Manager

106

Section 9.6

Servicer

106

Section 9.7

Splitting the Loan

107

ARTICLE X

MISCELLANEOUS

Section 10.1

Survival

107

-ii-

Section 10.2

Lender’s Discretion

108

Section 10.3

Governing Law

108

Section 10.4

Modification; Waiver in Writing

109

Section 10.5

Delay Not a Waiver

109

Section 10.6

Notices

110

Section 10.7

Trial by Jury

111

Section 10.8

Headings

111

Section 10.9

Severability

111

Section 10.10

Preferences

112

Section 10.11

Waiver of Notice

112

Section 10.12

Remedies of Borrower

112

Section 10.13

Expenses; Indemnity

112

Section 10.14

Schedules Incorporated

113

Section 10.15

Offsets, Counterclaims and Defenses

114

Section 10.16

No Joint Venture or Partnership; No Third Party Beneficiaries

114

Section 10.17

Publicity

114

Section 10.18

Waiver of Marshalling of Assets

114

Section 10.19

Waiver of Counterclaim

115

Section 10.20

Conflict; Construction of Documents; Reliance

115

Section 10.21

Brokers and Financial Advisors

115

Section 10.22

Prior Agreements

115

Section 10.23

Transfer of Loan

116

Section 10.24

Intentionally Omitted

116

Section 10.25

Certain Additional Rights of Lender (VCOC)

116

Section 10.26

Co-Lender Agent

116

Section 10.27

Note Register

117

SCHEDULES

Schedule I

–

Mortgage Borrower List

Schedule II

–

Leasing Conditions

Schedule III

–

O&M Properties

Schedule IV

–

Required Repairs

Schedule V

–

Lease Carveouts

Schedule VI

–

Release Amounts

Schedule VII

–

Alteration Conditions

Schedule VIII

–

List of Ground Leases

Schedule IX

–

Ground Lease Exceptions

Schedule X

–

Organizational Chart

Schedule XI

–

REOAs

Schedule XII

–

Flood Zone Properties

Schedule XIII

–

Intentionally Omitted

Schedule XIV

–

Sole Tenant Individual Properties/Leases

Schedule XV-A

–

Inland Pacific Property Services Managed Properties

Schedule XV-B

–

Inland Southwest Management LLC Managed Properties

Schedule XV-C

–

Inland US Management LLC Managed Properties

Schedule XVI

–

Assignment Representations

-iii-

JUNIOR MEZZANINE LOAN AGREEMENT

THIS JUNIOR MEZZANINE LOAN AGREEMENT, dated as of this 1^st day of December, 2009 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “Agreement”), by and among JPMORGAN CHASE BANK, N.A., a banking association chartered under the laws of the United States of America, having an address at 383 Madison Avenue, New York, New York 10179 (together with its successors and assigns, “Lender”) and IW MEZZ 2 2009, LLC, a Delaware limited liability company having an address at 2901 Butterfield Road, Oak Brook, Illinois 60523 (“Borrower”).

W I T N E S S E T H:

WHEREAS, JPMorgan Chase Bank N.A., a banking association chartered under the laws of the Untied States of America, having an address at 383 Madison Avenue, New York, New York 10179 as mortgage lender (“Mortgage Lender”), has made a loan in the original principal amount of Five Hundred Million and No/100 Dollars ($500,000,000.00) (the “Mortgage Loan”) to the entities set forth on Schedule I hereto (“Mortgage Borrower”) pursuant to a Loan Agreement dated the date hereof (as amended, supplemented or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mo rtgage Loan is evidenced by an Amended, Restated and Consolidated Promissory Note of even date therewith (as amended, supplemented or otherwise modified from time to time, the “Mortgage Note”) made by Mortgage Borrower to Mortgage Lender and secured by, among other things, a certain Mortgage/Deed of Trust/Indemnity Deed of Trust/Deed to Secure Debt and Security Agreement of even date therewith (as amended, supplemented or otherwise modified from time to time, the “Mortgage”) by Mortgage Borrower in favor of Mortgage Lender pursuant to which Mortgage Borrower has granted the Mortgage Lender a first priority mortgage on, among other things, the real property and other collateral as more fully described in the Mortgage (collectively, the “Property”);

WHEREAS, JPMorgan Chase Bank, N.A., senior mezzanine lender (“Senior Mezzanine Lender”), has made a loan in the aggregate original principal amount of Eighty-Five Million and No/100 Dollars ($85,000,000.00) (the “Senior Mezzanine Loan”) to IW Mezz 2009, LLC, a Delaware limited liability company (“Senior Mezzanine Borrower”), pursuant to that certain Senior Mezzanine Loan Agreement between Senior Mezzanine Lender and Senior Mezzanine Borrower, dated as of the date hereof (the “Senior Mezzanine Loan Agreement”), which Senior Mezzanine Loan is evidenced by each certain Senior Mezzanine Promissory Notes A-1, A-2 and A-3, dated as of the date hereof, made by Senior Mezzanine Borrower in favor of Senior Mezzanine Lender (the “Senior Mezzanine Note”) , and secured by, among other things, all of Senior Mezzanine Borrower’s interest in Mortgage Borrower, Colesville One, LLC, a Maryland limited liability company (“Maryland Owner”) and Principal (as defined herein) (the “Senior Mezzanine Collateral”) pursuant to that certain Senior Mezzanine Pledge Agreement, dated as of the date hereof (the “Senior Mezzanine Pledge Agreement”);

WHEREAS, Borrower is the legal and beneficial owner of all of the limited liability company interests in Senior Mezzanine Borrower, consisting of a one hundred percent (100%) interest therein (the “Pledged Company Interests”);

WHEREAS, as a condition precedent to the obligation of Lender to make the Loan to Borrower, Borrower has entered into that certain Junior Mezzanine Pledge Agreement and Security Agreement, dated as of the date hereof, in favor of Lender (as amended, supplemented or otherwise modified from time to time, the “Pledge Agreement”), pursuant to which Borrower has granted to Lender a first priority security interest in the Collateral (as defined in the Pledge Agreement) as collateral security for the Debt (as defined below);

NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows:

ARTICLE I

DEFINITIONS; PRINCIPLES OF CONSTRUCTION

Section 1.1

Definitions.

  For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent:

“Accrual Period” shall have the meaning set forth in Section 2.2.4 hereof.

“Additional Insolvency Opinion” shall mean any subsequent Insolvency Opinion.

“Adjusted Release Amount” shall mean, for each Individual Property, the sum of (a) the Release Amount for such Individual Property and (b) fifteen percent (15%) of the Release Amount for such Individual Property.

“Affected Collateral” shall have the meaning set forth in Section 9.1.5 hereof.

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

“Affiliated Manager” shall mean any Manager in which Borrower, Mortgage Borrower, Maryland Owner, Principal, Senior Mezzanine Borrower or Indemnitor has, directly or indirectly, any legal, beneficial or economic interest.

“Agent” shall mean Wells Fargo Bank, National Association, a banking association chartered under the laws of the United States of America, or any successor Eligible Institution acting as Agent under the Cash Management Agreement.

“Aggregate Debt Service” shall mean, with respect to any particular period of time, the sum of scheduled principal and/or interest payments under the Mortgage Note, the Senior Mezzanine Note and the Note.

-2-

“Aggregate Threshold Amount” shall mean five percent (5%) of the outstanding principal balance of the Mortgage Loan.

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

“Allocated Loan Amount” shall have the meaning set forth in Section 9.1.5 hereof.

“ALTA” shall mean American Land Title Association, or any successor thereto.

“Alteration Conditions” shall have the meaning set forth on Schedule VII hereof.

“Annual Budget” shall mean the operating budget, including all planned Capital Expenditures, for each Individual Property prepared by Borrower in accordance with Section 5.1.11(d) for the applicable Fiscal Year or other period.

“Approved Annual Budget” shall have the meaning set forth in Section 5.1.11(d) hereof.

“Assignment of Leases” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), that certain first priority Assignment of Leases and Rents, dated as of the Closing Date, from the related Individual Mortgage Borrower, as assignor, to Mortgage Lender, as assignee, assigning to Mortgage Lender all of such Individual Mortgage Borrower’s interest in and to the Leases and Rents of the applicable Individual Property as security for the Mortgage Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, and (b) with respect to the Maryland Individual Property, that certain first priority Indemnity Assignment of Leases and Rents, dated as of the Closing Date, from Maryland Owner, as assignor, to Lender, as assignee, assign ing to Mortgage Lender all of Maryland Owner’s interest in and to the Leases and Rents of the Maryland Individual Property as security for the Mortgage Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Assignment of Management Agreement” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), that certain Junior Mezzanine Subordination of Management Agreement and Subordination of Management Fees dated as of the Closing Date among Lender, Borrower, the related Individual Mortgage Borrower and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, and (b) with respect to the Maryland Individual Property, that certain Junior Mezzanine Subordination of Management Agreement and Subordination of Management Fees dated as of the Closing Date among Lender, Borrower, Maryland Owner and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Award” shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect of all or any part of any Individual Property.

-3-

“Bankruptcy Action” shall mean with respect to any Person (a) such Person filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (c) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (d) such Person consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of any Individual Property; or (e) such Person making an as signment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due.

“Bankruptcy Code” shall mean Title 11 of the United States Code, 11 U.S.C. §101, et seq., as the same may be amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditors’ rights or any other Federal or state bankruptcy or insolvency law.

“Borrower” shall have the meaning set forth in the introductory paragraph hereto, together with its successors and permitted assigns.

“Borrower Remainder Account” shall have the meaning set forth in the Cash Management Agreement.

“Business Day” shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York or the place of business of the trustee under a Securitization (or, if the Securitization has not occurred, Lender), or any Servicer or the financial institution that maintains any collection account for or on behalf of any Servicer or any Reserve Funds or the New York Stock Exchange or the Federal Reserve Bank of New York is not open for business.

“Capital Expenditures” shall mean, for any period, the amount expended for items capitalized under GAAP (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements).

“Cash Management Account” shall have the meaning set forth in Section 2.7.2(a) hereof.

“Cash Management Agreement” shall mean that certain Cash Management Agreement, dated as of the date hereof, by and among Borrower, Mortgage Borrower, Senior Mezzanine Borrower, Maryland Owner, Manager, Agent, Mortgage Lender, Senior Mezzanine Lender and Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Cash Sweep Event” shall mean the occurrence of:

(a)

an Event of Default;

-4-

(b)

any Bankruptcy Action of any Borrower, Senior Mezzanine Borrower, Mortgage Borrower or Maryland Owner;

(c)

a DSCR Trigger Event; or

(d)

any Bankruptcy Action of Indemnitor or Joint Venture Entity.

“Cash Sweep Event Cure” shall mean (a) if the Cash Sweep Event is caused solely by the occurrence of a DSCR Trigger Event, the achievement of a Debt Service Coverage Ratio of 1.12 to 1.00 or greater for six (6) consecutive months based upon the trailing six (6) month period immediately preceding the date of determination, or (b) if the Cash Sweep Event is caused by an Event of Default, the acceptance by Lender of a cure of such Event of Default (which cure Lender is not obligated to accept and may reject or accept in its sole and absolute discretion); provided, however, that, such Cash Sweep Event Cure set forth in this definition shall be subject to the following conditions, (i) no Event of Default shall have occurred and be continuing under this Agreement or any of the other Loan Docume nts, (ii) a Cash Sweep Event Cure may occur no more than a total of five (5) times in the aggregate during the term of the Loan, and (iii) Borrower shall have paid all of Lender’s reasonable expenses incurred in connection with such Cash Sweep Event Cure including, reasonable attorney’s fees.

“Cash Sweep Period” shall mean each period commencing on the occurrence of a Cash Sweep Event and continuing until the earlier of (a) the Payment Date next occurring following the related Cash Sweep Event Cure, or (b) until payment in full of all principal and interest on the Mortgage Loan and the Loan and all other amounts payable under the Loan Documents in accordance with the terms and provisions of the Loan Documents.

“Closing Date” shall mean the date hereof.

“Code” shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

“Co-Lender” shall have the meaning set forth in Section 10.26(a) hereof.

“Collateral” shall have the meaning set forth in the Pledge Agreement.

“Condemnation” shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Individual Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Individual Property or any part thereof.

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

“Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a Person, whether through

-5-

ownership of voting securities, by contract or otherwise.  “Controlled” and “Controlling” shall have correlative meanings.

“Covered Disclosure Information” shall have the meaning set forth in Section 9.2(b) hereof.

“Debt” shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums (including the Yield Maintenance Payment or Prepayment Premium) due to Lender in respect of the Loan under the Note, this Agreement, the Pledge Agreement, the Environmental Indemnity or any other Loan Document.

“Debt Service” shall mean, with respect to any particular period of time, interest payments due under this Agreement and the Note.

“Debt Service Coverage Ratio” shall mean a ratio as of the applicable date of determination in which:

(a)

the numerator is the Net Operating Income (excluding interest on credit accounts and using annualized amounts for any recurring expenses not paid monthly) for the applicable period as set forth in the statements required hereunder, without deduction for (i) actual management fees incurred in connection with the operation of the Properties, (ii) amounts paid to the Reserve Funds, less (A) management fees equal to four percent (4.0%) of Gross Income from Operations, (B) assumed Replacement Reserve Fund contributions equal to $0.15 per square foot of gross leasable area at the Properties; and (C) assumed reserves for tenant improvements and leasing commissions equal to $0.60 per square foot of gross leasable area at the Properties; and

(b)

the denominator is the aggregate amount, for the applicable period, of the Aggregate Debt Service.

“Default” shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default.

“Default Rate” shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the Maximum Legal Rate, and (b) five percent (5%) above the Interest Rate.

“Disclosure Document” shall mean any written materials used or provided to any prospective investors and/or Rating Agencies in connection with any public offering or private placement of Securities in a Securitization, including, without limitation, a prospectus, prospectus supplement, private placement memorandum, or similar offering memorandum or offering circular or collateral term sheet, in each case in preliminary or final form, and in each case, including any amendments or supplements thereto.

“DSCR Trigger Event” shall mean the Debt Service Coverage Ratio is less than 1.09 to 1.00, as determined by Lender, based upon the trailing three (3) month period immediately preceding the date of determination.

-6-

“Eligible Account” shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. § 9.10(b), having in either case a combined capital and surplus of at least $50,000,000.00 and subject to supervision or examination by federal or state authority, as applicable.  An Eligible Accou nt will not be evidenced by a certificate of deposit, passbook or other instrument.

“Eligible Institution” shall mean a depository institution or trust company insured by the Federal Deposit Insurance Corporation the short term unsecured debt obligations or commercial paper of which are rated at least “A-1” by S&P, in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least “AA-” by S&P); provided that KeyBank National Association will be deemed to be an Eligible Institution so long as its short-term unsecured debt obligations or commercial paper are rated at least “A-2” by S&P (or, if KeyBank National Association does not have any short-term unsecured debt rated by S&P, its long t erm unsecured debt obligations are rated at least “BBB+” by S&P).

“Embargoed Person” shall mean any Person, entity or government subject to trade restrictions under U.S. law, including, but not limited to, The USA PATRIOT Act (including the anti-terrorism provisions thereof), the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701, et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1, et seq., and any Executive Orders or regulations promulgated thereunder including those related to Specially Designated Nationals and Specially Designated Global Terrorists, with the result that the investment in Borrower, Senior Mezzanine Borrower, Maryland Owner, Principal or Indemnitor, as applicable (whether directly or indirectly), is prohibited by law or the Loan made by Lender is in violation of law.

“Environmental Indemnity” shall mean that certain Environmental Indemnity Agreement, dated as of the date hereof, executed by Borrower in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Environmental Report” shall have the meaning set forth in the Environmental Indemnity.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.

“Event of Default” shall have the meaning set forth in Section 8.1(a) hereof.

“Excess Cash Flow” shall have the meaning set forth in the Cash Management Agreement.

-7-

“Excess Cash Flow Reserve Account” shall have the meaning set forth in Section 7.6 hereof.

“Excess Cash Flow Reserve Fund” shall have the meaning set forth in Section 7.6 hereof.

“Exchange Act” shall have the meaning set forth in Section 9.2 hereof.

“Fiscal Year” shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan.

“Fitch” shall mean Fitch, Inc.

“Fixtures” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Individual Property.

“Fresno Individual Property” shall mean the Individual Property located in Fresno, California.

“Fullerton Individual Property” shall mean the Individual Property located Fullerton, California.

“GAAP” shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

“Governmental Authority” shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence.

“Gross Income from Operations” shall mean, during any period, all sustainable income as reported on the financial statements delivered by Borrower in accordance with this Agreement, computed in accordance with GAAP, derived from the ownership and operation of the Properties from whatever source during such period, including, but not limited to, (i) Rents from Tenants that are in occupancy, open for business and paying unabated Rent (excluding termination fees), (ii) utility charges, (iii) escalations, (iv) intentionally omitted, (v) service fees or charges, (vi) license fees, (vii) parking fees, and (viii) other required pass-throughs but excluding (i) Rents from Tenants that are subject to any Bankruptcy Actions (unless such Tenant has affirmed its Lease and is in occupancy, open for business and paying unabated, post-petition Rent), (ii) refunds and uncollectible accounts, (iii) sales of furniture, fixtures and equipment, (iv) Insurance Proceeds (other than business interruption or other loss of income insurance), (v) Awards, (vi) forfeited or unforfeited security deposits, (vii) utility and other similar deposits and (viii) any disbursements to Borrower, Senior Mezzanine Borrower, any Individual Mortgage Borrower or Maryland Owner from the Reserve Funds or Mortgage Reserve Funds, or Senior Mezzanine Reserve Funds, if any.  Gross income shall not be diminished as a result of the Mortgages or the creation of any intervening estate or interest in the Properties or any part thereof.

-8-

“Ground Lease Property” shall mean each real property demised by a Ground Lease.

“Ground Lease Reserve Account” shall have the meaning set forth in Section 7.5.1 hereof.

“Ground Lease Reserve Fund” shall have the meaning set forth in Section 7.5.1 hereof.

“Ground Leases” shall mean, collectively, those certain leases described on Schedule VIII attached hereto, as modified by any agreements executed by a Ground Lessor in favor of Lender in connection with the Loan.

“Ground Lessor” shall mean the respective ground lessor under each of the Ground Leases.

“Ground Rent” shall mean all rents (including both base and additional rent) and other charges due under each Ground Lease.

“Improvements” shall have the meaning set forth in the granting clause of the related Mortgage with respect to each Individual Property.

“Indebtedness” of a Person, at a particular date, means the sum (without duplication) at such date of (a) indebtedness or liability for borrowed money; (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations); (d) obligations under letters of credit; (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss; and (g) obligations secured by any Liens, whether or not the obligations have been assume d (other than the Permitted Encumbrances).

“Indemnification Agreement” shall mean that certain Junior Mezzanine Guaranty Agreement dated as of the Closing Date by Indemnitor in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Indemnified Persons” shall have the meaning set forth in Section 9.2(b) hereof.

“Indemnifying Persons” shall have the meaning set forth in Section 9.2(b) hereof.

“Indemnitor” shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation.

“Independent Director” shall mean a natural Person who (a) is not at the time of initial appointment, or at any time while serving in such capacity, and is not, and has never been, and will not while serving as Independent Director be:  (i) a stockholder, director (with the exception of serving as the Independent Director of Borrower, Senior Mezzanine Borrower, an

-9-

Individual Mortgage Borrower or Maryland Owner), officer, employee, partner, member (other than a “special member” or “springing member”), manager, attorney or counsel of Borrower, Senior Mezzanine Borrower, an Individual Mortgage Borrower or Maryland Owner, equity owners of Borrower, Senior Mezzanine Borrower, an Individual Mortgage Borrower, Senior Mezzanine Borrower, Maryland Borrower or Indemnitor or any Affiliate of Borrower, Senior Mezzanine Borrower, Indemnitor, an Individual Mortgage Borrower or Maryland Owner; (ii) a customer, supplier or other person who derives any of its purchases or revenues from its activities with Indemnitor, Borrower, Senior Mezzanine Borrower, an Individual Mortgage Borrower, Maryland Owner, equity owners of Borrower, Senior Mezzanine Borrower, Indemnitor, an Individual Mortgage Borrower or Maryland Owner or any Affiliate of Borrower, Senior Mezzanine Borrow er, Indemnitor, an Individual Mortgage Borrower or Maryland Owner; (iii) a Person Controlling or under common Control with any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person; or (iv) a member of the immediate family of any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person and (b) has (i) prior experience as an independent director or independent manager for a corporation, a trust or limited liability company whose charter documents required the unanimous consent of all independent directors or independent managers thereof before such corporation, trust or limited liability company could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (ii) at least three years of employment and/or ownership experience with one or more nationally re cognized companies that provides, inter alia, professional independent directors or independent managers in the ordinary course of their respective business to issuers of securitization or structured finance instruments, agreements or securities or lenders originating commercial real estate loans for inclusion in securitization or structured finance instruments, agreements or securities (a “Professional Independent Director”) and is at all times during his or her service as an Independent Director of Borrower, Senior Mezzanine Borrower, an Individual Mortgage Borrower or Maryland Owner an employee and/or owner of such a company or companies.  A natural Person who satisfies the foregoing definition except for being (or having been) the independent director or independent manager of a “special purpose entity” affiliated with a Borrower, Senior Mezzanine Borrower, an Individual Mortgage Borrower or Maryland Owner (provided such affiliate does not or did not o wn a direct or indirect equity interest in Borrower, Senior Mezzanine Borrower, an Individual Mortgage Borrower or Maryland Owner) shall not be disqualified from serving as an Independent Director, provided that such natural Person satisfies all other criteria set forth above and that the fees such individual earns from serving as independent director or independent manager of affiliates of Borrower, Senior Mezzanine Borrower, an Individual Mortgage Borrower or Maryland Owner in any given year constitute in the aggregate less than five percent (5%) of such individual’s annual income for that year.  A natural person who satisfies the foregoing definition other than subparagraph (a)(ii) shall not be disqualified from serving as an Independent Director of Borrower, Senior Mezzanine Borrower, an Individual Mortgage Borrower or Maryland Owner if such individual is a Professional Independent Director.

“Individual Mortgage Borrower” shall have the meaning set forth in the Mortgage Loan Agreement.

-10-

“Individual Property” shall mean each parcel of real property, the Improvements thereon and all personal property owned (or leased pursuant to a Ground Lease) by an Individual Mortgage Borrower or Maryland Owner and encumbered by a Mortgage, together with all rights pertaining to such property and Improvements, as more particularly described in the granting clauses of the related Mortgage and referred to therein as the “Property”.

“Insolvency Opinion” shall mean that certain non-consolidation opinion letter dated the date hereof delivered by Katten Muchin Rosenman LLP in connection with the Loan.

“Insurance Premiums” shall have the meaning set forth in the Mortgage Loan Agreement.

“Insurance Proceeds” shall have the meaning set forth in the Mortgage Loan Agreement.

“Interest Rate” shall mean a rate of fourteen percent (14%) per annum.

“Joint Venture Entity” shall mean IW JV 2009, LLC, a Delaware limited liability company.

“Junior Mezzanine Loan Cash Management Account” shall have the meaning set forth in the Section 2.7.2 hereof.

“Junior Mezzanine Note A-1” shall mean that certain Junior Mezzanine Promissory Note A-1 of even date herewith in the principal amount of Twenty Million and No/100 Dollars ($20,000,000.00), made by Junior Mezzanine Borrower in favor of Junior Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Junior Mezzanine Note A-2” shall mean that certain Junior Mezzanine Promissory Note A-2 of even date herewith in the principal amount of Twenty Million and No/100 Dollars ($20,000,000.00), made by Junior Mezzanine Borrower in favor of Junior Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“JPM” shall mean JPMorgan Chase Bank, N.A. and its successors in interest.

“Lease” shall mean, with the exception of any Ground Lease, any lease (including, without limitation, any Sole Tenant Lease), sublease or subsublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Individual Property of an Individual Mortgage Borrower or Maryland Owner, and (a) every modification, amendment or other agreement relating to such lease (including, without limitation, any Sole Tenant Lease), sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement and (b) every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto.

-11-

“Leasing Conditions” shall have the meaning set forth on Schedule II hereof.

“Legal Requirements” shall mean, with respect to each Individual Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, the Collateral, Senior Mezzanine Borrower, Mortgage Borrower, Maryland Owner or any such Individual Property or any part thereof (including the Improvements thereon), or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, Senior Mezzanine Borrower, any Individual Mortgage Borr ower or Maryland Owner, at any time in force affecting Borrower, Senior Mezzanine Borrower, Mortgage Borrower, Maryland Owner or such Individual Property or any part thereof (including the Improvements thereon), including, without limitation, any which may (a) require repairs, modifications or alterations in or to such Individual Property or any part thereof, or (b) in any way limit the use and enjoyment thereof.

“Lender” shall have the meaning set forth in the introductory paragraph hereto and, as context shall provide, means any individual Co-lender or all Co-Lenders collectively..

“Liabilities” shall have the meaning set forth in Section 9.2(b) hereof.

“Lien” shall mean any mortgage, deed of trust, deed to secure debt, indemnity deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, any Individual Mortgage Borrower, Senior Mezzanine Borrower, Maryland Owner, any Individual Property or the Collateral, any portion thereof or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances.

“Liquidation Event” shall have the meaning set forth in Section 2.3.2(a) hereof.

“Loan” shall mean the loan made by Lender to Borrower pursuant to this Agreement and evidenced by the Note.

“Loan Documents” shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the Environmental Indemnity, the O&M Agreements, the Assignment of Management Agreement, the Indemnification Agreement, the Cash Management Agreement and all other documents executed and/or delivered in connection with the Loan or any Securitization.

“Lockbox Account” shall have the meaning set forth in Section 2.7.1(a) hereof.

“Lockbox Agreement” shall mean that certain Clearing Account Agreement among Mortgage Borrower, Mortgage Lender, Manager and Lockbox Bank as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, relating to funds deposited in the Lockbox Account.

-12-

“Lockbox Bank” shall mean the clearing bank which establishes, maintains and holds the Lockbox Account.

“Management Agreement” shall mean (a) with respect to each Individual Property (other than the Maryland Individual Property), the management agreement entered into by and between the related Individual Mortgage Borrower and Manager, pursuant to which Manager is to provide management and other services with respect to such Individual Property; (b) with respect to the Maryland Individual Property, the management agreement entered into by and between Maryland Owner and Manager, pursuant to which Manager is to provide management and other services with respect to the Maryland Individual Property; or (c) if the context requires, the Replacement Management Agreement.

“Manager” shall mean (a) Inland Pacific Property Services LLC, a Delaware limited liability company, with respect to each Individual Property set forth on Schedule XV-A hereto, (b) Inland Southwest Management LLC, a Delaware limited liability company, with respect to each Individual Property set forth on Schedule XV-B hereto, (c) Inland US Management LLC, a Delaware limited liability company, with respect to each Individual Property set forth on Schedule XV-C hereto, or (d) if the context requires, a Qualifying Manager who is operating and managing an Individual Property in accordance with the terms and provisions of this Agreement pursuant to a Replacement Management Agreement.

“Market Conditions” shall mean a substantive adverse change in the performance or cash flow of properties generally resulting from significant downturns in the economy, disruptions in rental or other income or reimbursements due to a bankruptcy action of any tenant, casualty or condemnation, natural disaster, domestic unrest, terrorist activity, or unforeseen factors beyond the reasonable control of Manager.

“Maryland Individual Borrower” shall mean Inland Western Colesville New Hampshire SPE, L.L.C., a Delaware limited liability company, together with its successors and permitted assigns.

“Maryland Individual Property” shall mean the Individual Property located in the City of Colesville, County of Montgomery, and State of Maryland and currently known as the “Eckerd-Colesville, Maryland”.

“Maryland Owner” shall have the meaning set forth in the recitals hereto, together with its successors and permitted assigns.

“Maryland Owner Company Agreement” shall mean the Limited Liability Company Agreement of Maryland Owner, dated the date hereof, by Borrower, as sole member.

“Maryland Owner Indebtedness” shall have the meaning set forth in the Mortgage related to the Maryland Individual Property.

“Material Action” means, with respect to any Person, to file any insolvency or reorganization case or proceeding, to institute proceedings to have such Person be adjudicated bankrupt or insolvent, to institute proceedings under any applicable insolvency law, to seek any relief under any law relating to relief from debts or the protection of debtors, to consent to the

-13-

filing or institution of bankruptcy or insolvency proceedings against such Person, to file a petition seeking, or consent to, reorganization or relief with respect to such Person under any applicable federal or state law relating to bankruptcy or insolvency, to seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian, or any similar official of or for such Person or a substantial part of its property, to make any assignment for the benefit of creditors of such Person, to admit in writing such Person's inability to pay its debts generally as they become due, or to take action in furtherance of any of the foregoing.

“Material Agreements” means each contract and agreement relating to the ownership, management, development, use, operation, leasing, maintenance, repair or improvement of the Properties, other than the Management Agreement and the Leases, under which there is an obligation of Borrower, Senior Mezzanine Borrower, Mortgage Borrower or Maryland Owner to pay more than $100,000 per annum.

“Maturity Date” shall mean December 1, 2019, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise.

“Maximum Legal Rate” shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.

“Mezzanine Lender Agent” shall have the meaning set forth in Section 10.26(a) hereof.

“Miami Individual Property” shall mean the Individual Property located in Miami, Florida.

“Monthly Debt Service Payment Amount” shall mean the monthly payment of interest on the Loan calculated pursuant to Section 2.2.2 hereof.

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Mortgage” shall have the meaning set forth in the recitals to this Agreement.

“Mortgage Adjusted Release Amount” shall mean the “Adjusted Release Amount” as defined in the Mortgage Loan Agreement.

“Mortgage Borrower” shall have the meaning set forth in the recitals to this Agreement, together with its successors and permitted assigns.

“Mortgage Borrower Company Agreement” shall mean, collectively, (i) the Limited Liability Company Agreement of any applicable Individual Mortgage Borrower and any applicable Principal dated the date hereof, by Senior Mezzanine Borrower, as sole member, (ii) the Amended and Restated Limited Partnership Agreements of the applicable Individual Mortgage Borrowers by Senior Mezzanine Borrower, as limited partner and certain entities

-14-

comprising Principal, as general partner, dated the date hereof, and (iii) the Amended and Restated Trust Agreements, dated the date hereof, of INLAND WESTERN BETHLEHEM SAUCON VALLEY DST, a Delaware statutory trust, INLAND WESTERN DUNCANSVILLE HOLLIDAY DST, a Delaware statutory trust, and INLAND WESTERN CRANBERRY DST, with INLAND WESTERN BETHLEHEM SAUCON VALLEY BENEFICIARY, L.L.C., INLAND WESTERN DUNCANSVILLE HOLLIDAY BENEFICIARY, L.L.C, and INLAND WESTERN CRANBERRY BENEFICIARY, L.L.C., as sole beneficiary, as applicable.

“Mortgage Lender” shall have the meaning set forth in the recitals to this Agreement, together with its successors and assigns.

“Mortgage Loan” shall have the meaning set forth in the recitals to this Agreement.

“Mortgage Loan Agreement” shall have the meaning set forth in the recitals to this Agreement.

“Mortgage Loan Default” shall mean a “Default” under and as defined in the Mortgage Loan Agreement.

“Mortgage Loan Documents” shall mean, collectively, the Mortgage Note, the Mortgage Loan Agreement, the Mortgage, the Cash Management Agreement, and any and all other documents defined as “Loan Documents” in the Mortgage Loan Agreement, as amended, restated, replaced, supplemented or otherwise modified from time to time.

“Mortgage Loan Event of Default” shall mean an “Event of Default” under and as defined in the Mortgage Loan Agreement.

“Mortgage Note” shall have the meaning set forth in the recitals to this Agreement.

“Mortgage Release Amount” shall have the meaning ascribed to the term “Release Amount” in the Mortgage Loan Agreement.

“Mortgage Reserve Funds” shall mean the “Reserve Funds” as defined in the Mortgage Loan Agreement.

“Net Cash Flow” shall mean, with respect to the Properties for any period, the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period.

“Net Cash Flow Schedule” shall have the meaning set forth in Section 5.1.11(b) hereof.

“Net Liquidation Proceeds After Debt Service” shall mean, with respect to any Liquidation Event, all amounts paid to or received by or on behalf of Mortgage Borrower or Maryland Owner in connection with such Liquidation Event, including, without limitation, proceeds of any sale, refinancing or other disposition or liquidation, less (i) Lender’s, Senior

-15-

Mezzanine Lender’s and/or Mortgage Lender’s reasonable costs incurred in connection with the recovery thereof, (ii) the costs incurred by Mortgage Borrower or Maryland Owner in connection with a restoration of all or any portion of the Properties made in accordance with the Mortgage Loan Documents, (iii) amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Mortgage Loan Documents to Mortgage Lender, (iv) in the case of a foreclosure sale, disposition or Transfer of any Individual Property in connection with realization thereon following an Event of Default under the Mortgage Loan, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions), (v) in the case of a foreclosure sale, such costs and expenses incurred by Mortgage Lender under the Mortgage Loan Documents as Mortgage L ender shall be entitled to receive reimbursement for under the terms of the Mortgage Loan Documents, (vi) in the case of a refinancing of the Mortgage Loan and/or the Senior Mezzanine Loan, such costs and expenses (including attorneys’ fees) of such refinancing as shall be reasonably approved by Lender and in the case of a foreclosure sale, disposition or Transfer of any Senior Mezzanine Collateral in connection with realization thereon following an Event of Default under the Senior Mezzanine Loan, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions) and (vii) in the case of a foreclosure sale, such costs and expenses incurred by Senior Mezzanine Lender under the Senior Mezzanine Loan Documents as Senior Mezzanine Lender shall be entitled to receive reimbursement for under the terms of the Senior Mezzanine Loan Documents.

“Net Operating Income” shall mean the amount obtained by subtracting from Gross Income from Operations (i) Operating Expenses, and (ii) a vacancy allowance equal to (a) zero, if actual vacancy at the Properties in the aggregate is greater than five percent (5%) or (b) five percent (5%) of Gross Income from Operations if actual vacancy at the Properties in the aggregate is less than five percent (5%).

“New Mezzanine Borrower” shall mean the entity which owns interests in the New Senior Mezzanine Borrower similar to the interests in Senior Mezzanine Borrower owned by Borrower.

“New Senior Mezzanine Borrower” shall mean the entity which owns interests in the New Mortgage Borrower similar to the interests in Mortgage Borrower, Maryland Owner and Principal owned by Borrower.

“New Mezzanine Loan” shall have the meaning set forth in Section 9.1.3 hereof.

“New Mortgage Borrower” shall mean the entities to which the Properties are Transferred in accordance with Section 5.2.10(d).

“New Note” shall have the meaning set forth in Section 9.1.5 hereof.

“New Securitization Mezzanine Borrower” shall have the meaning set forth in Section 9.1.3 hereof.

“Northpointe Individual Property” shall have the meaning assigned to such term as set forth in the Mortgage Loan Agreement.

-16-

“Northpointe Remainder Property” shall have the meaning assigned to such term as set forth in the Mortgage Loan Agreement.

“Northpointe Target Expansion Parcel” shall have the meaning assigned to such term as set forth in the Mortgage Loan Agreement.

“Note” shall mean, collectively or individually as the context may require, Junior Mezzanine Note A-1 and Junior Mezzanine Note A-2.

“O&M Agreement” shall mean, with respect to each Individual Property set forth on Schedule III hereof, that certain Junior Mezzanine Operations and Maintenance Agreement, dated as of the date hereof, between Borrower, the related Individual Mortgage Borrower, Maryland Owner and Mortgage Lender given in connection with the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

“Officer’s Certificate” shall mean a certificate delivered to Lender by Borrower which is signed by an authorized officer of the general partner, managing member of Borrower.

“Operating Expenses” shall have the meaning as set forth in the Mortgage Loan Agreement.

“Organizational Documents” means as to any Person, the certificate of incorporation and by-laws with respect to a corporation; the certificate of organization and operating agreement with respect to a limited liability company; the certificate of limited partnership and partnership agreement with respect to a limited partnership, or any other organizational or governing documents of such Person.

“Other Charges” shall have the meaning as set forth in the Mortgage Loan Agreement.

“Payment Date” shall mean the first (1st) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately preceding Business Day.

“Permitted Encumbrances” shall mean, with respect to an Individual Property, collectively, (a) the Liens and security interests created by the Loan Documents, the Mortgage Loan Documents and the Senior Mezzanine Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policies relating to such Individual Property or any part thereof, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, (d) easements or other encumbrances granted pursuant to Section 5.2.10(e) hereof, and (e) such other title and survey exceptions as Lender has approved or may approve in writing in Lender’s reasonable discretion, which Permitted Encumbrances in the aggregate do not materially and adversely affect the value, operation or u se of the Collateral, the Senior Mezzanine Collateral or the applicable Individual Property as used on the Closing Date or Borrower’s, Senior Mezzanine Borrower’s or Mortgage Borrower’s ability to repay the Loan, the Senior Mezzanine Loan and Mortgage Loan and/or Maryland Owner’s ability to repay the Maryland Owner Indebtedness (as defined in the Mortgage Loan Agreement), respectively.

-17-

“Permitted Investments” shall have the meaning set forth in the Mortgage Loan Agreement.

“Permitted Par Prepayment Date” shall mean the Payment Date three (3) months prior to the Maturity Date.

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

“Personal Property” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Individual Property.

“Physical Conditions Report” shall mean, with respect to each Individual Property, a report prepared by a company satisfactory to Lender regarding the physical condition of such Individual Property, satisfactory in form and substance to Lender in its sole discretion, which report shall, among other things, (a) confirm that such Individual Property and its use complies, in all material respects, with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building laws) and (b) include a copy of a final certificate of occupancy with respect to all Improvements on such Individual Property.

“Pledge Agreement” shall have the meaning set forth in the recitals to this Agreement.

“Pledged Company Interests” shall have the meaning set forth in the recitals to this Agreement.

“Pledgor” shall have the meaning as set forth in the Pledge Agreement.

“Policies” shall have the meaning specified in the Mortgage Loan Agreement.

“Policy” shall have the meaning specified in the Mortgage Loan Agreement.

“Prepayment Premium” shall mean the outstanding principal amount of the Loan being prepaid multiplied by (a) five percent (5.00%) if the relevant prepayment occurs on or prior to the forty-eighth (48^th) Payment Date, (b) four percent (4.00%) if such prepayment occurs after the forty-eighth (48^th) Payment Date, and through and including the sixtieth (60^th) Payment Date, (c) three percent (3.00%) if the relevant prepayment occurs after the sixtieth (60^th) Payment Date and through and including the seventy-second (72^nd) Payment Date, (d) two percent (2.00%) if such prepayment occurs after the seventy-second (72^nd) Payment Date and through and including the eighty-fourth (84^th) Payment Date, and (e) one percent (1.00%) if suc h prepayment occurs after the eighty-fourth (84^th) Payment Date and prior to the Permitted Par Prepayment Date.

“Prepayment Rate” shall mean the bond equivalent yield (in the secondary market) on the United States Treasury Security that as of the date any payment is received which is governed by Section 2.3.3 has a remaining term to maturity closest to, but not exceeding, the

-18-

remaining term to the Maturity Date, as most recently published in “Statistical Release H.15 (519), Selected Interest Rates,” or any successor publication, published by the Board of Governors of the Federal Reserve System, or on the basis of such other publication or statistical guide as Lender may reasonably select.

“Prepayment Release Date” shall mean the Payment Date immediately following the third (3^rd) anniversary of the first Payment Date.

“Principal” shall have the meaning set forth in the Mortgage Loan Agreement.

“Properties” shall mean, collectively, each and every Individual Property which is subject to the terms of the Mortgage Loan Agreement.

“Provided Information” shall have the meaning set forth in Section 9.1.1 hereof.

“Qualifying Manager” shall mean a reputable and experienced management organization reasonably satisfactory to Lender, which organization or its principals possess at least ten (10) years’ experience in managing properties similar in scope, size, use and value of the applicable Individual Property, provided that, if a Securitization has occurred, Borrower shall have obtained prior written confirmation from the Rating Agencies that management of such Individual Property by such entity will not cause a downgrading, withdrawal or qualification of the then current rating of the Securities issued pursuant to the Securitization or, if a Securitization has not occurred, Borrower shall have obtained the prior written consent of Lender.  Lender acknowledges that on the Closing Date, Manager shall be deemed a Qualifying Manager.

“Rating Agencies” shall mean each of S&P and Realpoint, or such other nationally recognized statistical securities rating organizations as may be designated by Lender to assign a rating to all or any portion of the Securities.

“Realpoint” shall mean Realpoint LLC, a Pennsylvania limited liability company.

“Register” shall have the meaning set forth in Section 10.27 hereof.

“Related Entities” shall have the meaning set forth in Section 5.2.10(d) hereof.

“Release Amount” shall mean for an Individual Property the amount set forth on Schedule VI hereto, as the same may be reduced pursuant to Section 2.3.2 hereof.

“Release Debt Service Coverage Ratio” shall mean the product of 1.16 multiplied by a fraction of which (a) the numerator is the sum of the Release Amounts, the Mortgage Release Amounts and the Senior Mezzanine Release Amounts of all Properties subject to the Liens of the Mortgages (including the Individual Property to be released), and (b) the denominator is the sum of the then-current outstanding principal amounts of the Loan, the Mortgage Loan and the Senior Mezzanine Loans.

-19-

“Relevant Leasing Threshold” shall mean, with respect to each Individual Property, any Lease for an amount of leaseable square footage equal to or greater than ten thousand (10,000) square feet.

“Relevant Restoration Threshold” shall mean, with respect to the applicable Individual Property, two percent (2%) of the related Release Amount.

“REMIC Trust” shall mean a “real estate mortgage investment conduit” within the meaning of Section 860D of the Code that holds the Note.

“Rents” shall mean, with respect to each Individual Property, all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, termination fees, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower, Senior Mezzanine Borrower, Mortgage Borrower or Maryland Owner or any agents or employees of Borrower, Senior Mezzanine Borrower, the related Individual Mortgage Borrower or Maryland Owner from any and all sources arising from or attributable to the Indi vidual Property, and proceeds, if any, from business interruption or other loss of income insurance.

“REOA” shall mean each of those agreements more particularly set forth on Schedule XI attached hereto.

“Replacement Management Agreement” shall mean, collectively, (a) either (i) a management agreement with a Qualifying Manager substantially in the same form and substance as the Management Agreement, or (ii) a management agreement with a Qualifying Manager, which management agreement shall be reasonably acceptable to Lender in form and substance, provided, with respect to this subclause (ii), Lender, at its option, may require that Borrower shall cause Mortgage Borrower to obtain prior written confirmation from the applicable Rating Agencies that such management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof and (b) a subordination of management agreement and subordination of management fees substantially in the form of the Assignment of Management Agreement (or of such other form and substance reasonably acceptable to Lender), executed and delivered to Lender by Borrower, the related Individual Mortgage Borrower or Maryland Owner, as the case may be, and such Qualifying Manager at Borrower’s, Mortgage Borrower’s and Maryland Owner’s expense.

“Replacement Reserve Account” shall have the meaning set forth in Section 7.3.1 hereof.

“Replacement Reserve Cap” shall have the meaning set forth in Section 7.3.1 hereof.

“Replacement Reserve Fund” shall have the meaning set forth in Section 7.3.1 hereof.

-20-

“Replacement Reserve Monthly Deposit” shall have the meaning set forth in Section 7.3.1 hereof.

“Replacements” shall have the meaning set forth in Section 7.3.1(a) hereof.

“Required Repair Account” shall have the meaning set forth in Section 7.1.1 hereof.

“Required Repair Fund” shall have the meaning set forth in Section 7.1.1 hereof.

“Required Repairs” shall have the meaning set forth in Section 7.1.1 hereof.

“Reserve Funds” shall mean, collectively, the Tax and Insurance Reserve Fund, the Replacement Reserve Fund, the Required Repair Fund, the Rollover Reserve Fund, the Ground Lease Reserve Fund, the Excess Cash Flow Reserve Fund and any other escrow fund established by the Loan Documents.

“Restoration” shall mean the repair and restoration of an Individual Property after a Casualty or Condemnation as nearly as possible to the condition the Individual Property was in immediately prior to such Casualty or Condemnation, with such alterations as may be reasonably approved by Lender.

“Restricted Party” shall mean collectively, (a) Borrower, Mortgage Borrower, Maryland Owner, Principal, Senior Mezzanine Borrower, Joint Venture Entity, and any Affiliated Manager and (b) any shareholder, partner, member, non-member manager, any direct or indirect legal or beneficial owner of, Borrower, Mortgage Borrower, Maryland Owner, Principal, Senior Mezzanine Borrower, any Affiliated Manager or any non-member manager.  “Restricted Party” shall not include Inland Equity Investors, LLC or its members or the holders, assignees or transferees of any direct or indirect ownership interests in Inland Equity Investors, LLC.

“Rollover Reserve Account” shall have the meaning set forth in Section 7.4.1 hereof.

“Rollover Reserve Fund” shall have the meaning set forth in Section 7.4.1 hereof.

“S&P” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.

“SEC” shall mean the United States Securities and Exchange Commission.

“Securities” shall have the meaning set forth in Section 9.1 hereof.

“Securities Act” shall have the meaning set forth in Section 9.2 hereof.

“Securitization” shall have the meaning set forth in Section 9.1 hereof.

-21-

“Senior Mezzanine Borrower” shall have the meaning set forth in the recitals to this Agreement, together with its successors and permitted assigns.

“Senior Mezzanine Borrower Company Agreement” shall mean that certain limited liability company agreement of Senior Mezzanine Borrower, dated the date hereof.

“Senior Mezzanine Collateral” shall have the meaning set forth in the recitals to this Agreement.

“Senior Mezzanine Loan Subaccount” shall have the meaning set forth in Section 2.6.3 of the Senior Mezzanine Loan Agreement.

“Senior Mezzanine Lender” shall have the meaning set forth in the recitals to this Agreement, together with its successors and assigns.

“Senior Mezzanine Loan” shall have the meaning set forth in the recitals to this Agreement.

“Senior Mezzanine Loan Agreement” shall have the meaning set forth in the recitals to this Agreement.

“Senior Mezzanine Loan Default” shall mean a “Default” under and as defined in the Senior Mezzanine Loan Agreement.

“Senior Mezzanine Loan Documents” shall mean, collectively, the Senior Mezzanine Note, the Senior Mezzanine Loan Agreement, the Senior Mezzanine Pledge, the Senior Mezzanine Cash Management Agreement, and any and all other documents defined as “Loan Documents” in the Senior Mezzanine Loan Agreement, as amended, restated, replaced, supplemented or otherwise modified from time to time.

“Senior Mezzanine Loan Event of Default” shall mean an “Event of Default” under and as defined in the Senior Mezzanine Loan Agreement.

“Senior Mezzanine Note” shall have the meaning set forth in the recitals to this Agreement.

“Senior Mezzanine Pledge Agreement” shall have the meaning set forth in the recitals to this Agreement.

“Senior Mezzanine Release Amount” shall have the meaning ascribed to the term “Release Amount” in the Senior Mezzanine Loan Agreement.

“Senior Mezzanine Reserve Funds” shall mean the Reserve Funds as defined in the Senior Mezzanine Loan Agreement.

“Servicer” shall have the meaning set forth in Section 9.6 hereof.

“Servicing Agreement” shall have the meaning set forth in Section 9.6 hereof.

-22-

“Severed Loan Documents” shall have the meaning set forth in Section 8.2(c) hereof.

“Severing Documentation” shall have the meaning set forth in Section 9.7 hereof.

“Sole Tenant” shall mean each Tenant under a Sole Tenant Lease.

“Sole Tenant Individual Property” shall mean each Individual Property set forth on Schedule XIV hereto.

“Sole Tenant Lease” shall mean, with respect to each Sole Tenant Individual Property, the Lease specified on Schedule XIV as the related “Sole Tenant Lease”.

“Special Purpose Entity” shall mean a corporation, limited partnership, limited liability company, or Delaware statutory trust which at all times on and after the Closing Date:

(i)

is organized solely for the purpose of acquiring, owning, holding, transferring, exchanging, managing and operating the Collateral, entering into this Agreement with Lender, refinancing the Collateral in connection with a permitted repayment of the Loan, and transacting lawful business that is incident, necessary and appropriate to accomplish the foregoing;

(ii)

is not engaged and will not engage in any business unrelated to the acquisition, ownership, management or operation of the Collateral;

(iii)

does not and will not have any assets other than the Collateral;

(iv)

has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, sale of all or substantially all of its assets, transfer of partnership, membership or beneficial or trustee interests (if such entity is a general partner in a limited partnership, a member in a limited liability company or a beneficiary of a Delaware trust), without the prior written consent of Lender and receipt of prior written confirmation from the applicable Rating Agencies that the same will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof, any amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation, operating agreement or trust formation and governance documents (as applicable) with respect to the matters set forth in this definition;

(v)

if such entity is a limited partnership, has as its only general partner, a Special Purpose Entity that is a corporation, limited partnership or limited liability company that satisfies the requirements of subparagraph (viii) below;

(vi)

if such entity is a corporation, has at least two (2) Independent Directors, and has not caused or allowed and will not cause or allow the board of

-23-

directors of such entity to take any action related to a bankruptcy or insolvency proceeding or a voluntary dissolution without the unanimous affirmative vote of one hundred percent (100%) of the members of its board of directors, including the Independent Directors;

(vii)

if such entity is a limited liability company and such limited liability company has more than one member, such limited liability company has as its manager a Special Purpose Entity that is a corporation and that owns at least one percent (1.0%) of the equity of the limited liability company;

(viii)

if such entity is a limited liability company and such limited liability company has only one member, such limited liability company (a) has been formed under Delaware law, (b) has either a corporation or one (1) other person or entity that shall become a member of the limited liability company upon the dissolution or disassociation of the member, (c) has a board of directors with not less than two (2) Independent Directors, and (d) has a limited liability company agreement that does not and will not cause or allow its board of directors to take any action related to a bankruptcy or insolvency proceeding without the unanimous affirmative vote of one hundred percent (100%) of the members of its board of directors, including the Independent Directors;

(ix)

if such entity is a statutory trust, such statutory trust (a) has been formed under Delaware law, (b) has a board of trustees with not less than two (2) Independent Directors, and (c) has trust documents that do not and will not cause or allow its board of trustees to take any action related to a bankruptcy or insolvency proceeding without the unanimous affirmative vote of one hundred percent (100%) of the members of its board of trustees, including the Independent Directors;

(x)

if such entity is (a) a limited liability company, has articles of organization, a certificate of formation and/or an operating agreement, as applicable, (b) a limited partnership, has a limited partnership agreement, (c) a corporation, has a certificate or articles of incorporation and bylaws, as applicable, or (d) a Delaware statutory trust, has a trust certificate and trust agreement that, in each case, provide that such entity will not:  (1) dissolve, merge, liquidate, consolidate; (2) sell all or substantially all of its assets or the assets of Borrower or Senior Mezzanine Borrower, Mortgage Borrower or Maryland Owner (as applicable); (3) except as permitted herein, engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition without the consent of the Lender and receipt of prior written conf irmation from the applicable Rating Agencies that the same will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; or (4) without the affirmative vote of all its directors (including its Independent Directors) or if the entity is a limited partnership or limited liability company with more than one member, the affirmative vote of all of the directors (including the Independent Directors) of the general partner or managing member of such entity), or the vote of all of its

-24-

administrative trustees (including its Independent Directors), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest;

(xi)

except for capital contributions or capital distributions permitted under the terms and conditions of its organizational documents and applicable law and properly reflected on its books and records, has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, beneficiaries, shareholders or Affiliates except in the ordinary course of its business and on terms which would be obtained in a comparable arm’s-length transaction with an unrelated third party;

(xii)

is solvent and pays its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same become due, and is maintaining adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; provided, however, that the foregoing shall not require any member, partner or beneficiary to make additional capital contributions;

(xiii)

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

(xiv)

will file its own tax returns separate from those of any other Person, except to the extent that Borrower is treated as a “disregarded entity” for tax purposes and is not required to file tax returns under applicable law;

(xv)

has maintained and will maintain its own resolutions and agreements;

(xvi)

(a) except as permitted by the Loan Documents, the Senior Mezzanine Loan Documents and Mortgage Loan Documents, has not commingled and will not commingle its funds or assets with those of any other Person and (b) has not participated and will not participate in any cash management system with any other Person;

(xvii)

has held and will hold its assets in its own name;

(xviii)

has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower, Mortgage Borrower, Senior Mezzanine Borrower or Maryland Owner;

(xix)

has maintained and will maintain its books, records, bank accounts, balance sheets, operating statements and other entity documents separate from any other Person and has not permitted and will not permit its assets to be listed as assets on the financial statement of any other entity except as required or permitted by applicable accounting principles acceptable to Lender, consistently

-25-

applied; provided, however, that appropriate notation shall be made on any such consolidated statements to indicate its separateness from such Affiliate and to indicate that its assets and credit are not available to satisfy the debts and other obligations of such Affiliate or any other Person and such assets shall be listed on its own separate balance sheet;

(xx)

has and will maintain a sufficient number of employees in light of its contemplated business operations, which may be none;

(xxi)

has observed and will observe all partnership, corporate, limited liability company or Delaware statutory trust formalities, as applicable;

(xxii)

has and will have no Indebtedness (including loans (whether or not such loans are evidenced by a written agreement) between Borrower, Mortgage Borrower, Senior Mezzanine Borrower and/or Maryland Owner and any Affiliates of Borrower, Mortgage Borrower, Senior Mezzanine Borrower and/or Maryland Owner or relating to the management of funds in the segregated custodial account maintained by the Manager for the sole benefit of Borrower and Maryland Owner) other than (i) the Loan, (ii) liabilities incurred in the ordinary course of business relating to the ownership and operation of the Collateral and the routine administration of Borrower, Senior Mezzanine Borrower, Mortgage Borrower and/or Maryland Owner, which liabilities are (A) not more than sixty (60) days past the date incurred (unless disputed in accordance with applicable law), (B) not evidenced by a note, (C) paid when due, and (D) normal and reasonable under the circumstances, and (iii) such other liabilities that are permitted pursuant to this Agreement;

(xxiii)

except for any general partner of Borrower in such capacity, has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit or assets as being available to satisfy the obligations of any other Person;

(xxiv)

has not and will not acquire obligations or securities of its partners, members, beneficiaries or shareholders or any other Affiliate;

(xxv)

has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an Affiliate;

(xxvi)

has not maintained or used, and will not maintain or use, invoices and checks bearing its own name;

(xxvii)

has not pledged and will not pledge its assets to secure the obligations of any other Person;

(xxviii)

has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name

-26-

franchised or licensed to it by an entity other than an Affiliate of Borrower and not as a division or department of any other Person;

(xxix)

has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;

(xxx)

has not made and will not make loans or advance to, or own or acquire any stock or securities of, any Person or hold evidence of indebtedness issued by any other person or entity (other than cash and investment-grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity);

(xxxi)

has not identified and will not identify its partners, members, beneficiaries or shareholders, or any Affiliate of any of them, as a division or department of it, and has not identified itself and shall not identify itself as a division or department of any other Person;

(xxxii)

does not and will not have any of its obligations guaranteed by any Affiliate except as otherwise required in the Loan Documents;

(xxxiii)

has not formed, acquired or held and will not form, acquire or hold any subsidiary or own any equity interest in any other entity, except for the equity interests it currently owns in Senior Mezzanine Borrower; and

(xxxiv)

has complied and will comply with all of the terms and provisions contained in its organizational documents since its formation.  The statement of facts contained in its organizational documents are true and correct and will remain true and correct.

“State” shall mean, with respect to an Individual Property, the State or Commonwealth in which such Individual Property or any part thereof is located.

“Survey” shall mean a survey of the Individual Property in question prepared by a surveyor licensed in the State and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender.

“Tax and Insurance Reserve Fund” shall have the meaning set forth in Section 7.2 hereof regardless of whether the funds held therein are held by Lender for the payment of Taxes or Insurance Premiums or both.

“Tax and Insurance Reserve Account” shall have the meaning set forth in Section 7.2 hereof.

“Taxes” shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Individual Property or any part thereof.

-27-

“Tenant” shall have the meaning set forth in the Mortgage Loan Agreement.

“Threshold Amount” shall mean, with respect to the applicable Individual Property, two percent (2%) of the related Mortgage Release Amount.

“Transfer” shall have the meaning set forth in Section 5.2.10(b) hereof.

“Transferee” shall have the meaning set forth in Section 5.2.10(d) hereof.

“Transferee’s Principals” shall mean all members, partners or shareholders which directly or indirectly own an interest in Transferee.

“UCC” or “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the applicable State in which an Individual Property is located.

“University Individual Property” shall mean the Individual Property located in Tuscaloosa, Alabama.

“U.S. Obligations” shall mean non-redeemable securities evidencing an obligation to pay principal and/or interest in a full and timely manner that are (a) direct obligations of the United States of America for the payment of which its full faith and credit is pledged, or (b) to the extent acceptable to the Rating Agencies, other “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended.

“Yield Maintenance Premium” shall mean an amount equal to the greater of (a) three percent (3%) of the outstanding balance of the Loan to be prepaid or satisfied and (b) the excess, if any, of (i) the sum of the present values of all then-scheduled payments of principal and interest under the Loan, assuming that all scheduled payments are made timely and that the remaining outstanding principal and interest on the Loan is paid on the Maturity Date (with each such payment and assumed payment discounted to its present value at the date of prepayment at the rate which, when compounded monthly, is equivalent to the Prepayment Rate when compounded semi-annually and deducting from the sum of such present values any short-term interest paid from the date of prepayment to the next succeeding Payment Date in the event that such payment is not made on a Payment Date), over (ii) the principal amount being prepaid.

Section 1.2

Principles of Construction.

  All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified.  All uses of the word “including” shall mean “including, without limitation” unless the context shall indicate otherwise.  Unless otherwise specified, the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.  Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined.  The words “Borrower shall cause Mortgage Borrower to” (or words of similar meaning) shall mean Borrower shall cause Senior Mezzanine Borrower to cause Mortgage Borrower and/or Maryland Owner to so act.

-28-

ARTICLE II

GENERAL TERMS

Section 2.1

Loan Commitment; Disbursement to Borrower.

2.1.1

The Loan.  Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date.

2.1.2

Disbursement to Borrower.  Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed.  Borrower acknowledges and agrees that the Loan has been fully funded as of the Closing Date.

2.1.3

The Note, Pledge Agreement and Loan Documents.  The Loan shall be evidenced by the Note and secured by the Pledge Agreement and the other Loan Documents.

2.1.4

Use of Proceeds.  Borrower shall use the proceeds of the Loan solely to (a) make an equity contribution to Senior Mezzanine Borrower in order to cause the Mortgage Borrower and Maryland Owner to use such amounts for any use permitted pursuant to Section 2.1.4 of the Mortgage Loan Agreement, (b) pay costs and expenses incurred in connection with the closing of the Loan, as approved by Lender, and (c) retain the balance, if any.

Section 2.2

Interest; Loan Payments; Late Payment Charge.

2.2.1

Interest Generally.  Interest on the outstanding principal balance of the Loan shall accrue from (and include) the Closing Date to but excluding the Maturity Date at the Interest Rate.

2.2.2

Interest Calculation.  Interest on the outstanding principal balance of the Loan shall be calculated by multiplying (a) the actual number of days elapsed in the Accrual Period, by (b) a daily rate based on the Interest Rate and a three hundred sixty (360) day year, by (c) the outstanding principal balance of the Loan.

2.2.3

Monthly Debt Service Payments.  Borrower shall pay to Lender on January 1, 2010 and each Payment Date thereafter up to but not including the Maturity Date, an amount equal to the Monthly Debt Service Payment Amount, which payments shall be applied to accrued and unpaid interest.

2.2.4

Payments Generally.  The first (1^st) interest Accrual Period hereunder shall commence on and include the Closing Date and shall end on and include December 31, 2009.  Each interest accrual period thereafter shall commence on the first (1^st) day of each calendar month during the term of the Loan and shall end on and include the final calendar date of such calendar month (the “Accrual Period”).  For purposes of making payments hereunder, but not for purposes of calculating Accrual Periods, if the day on which such payment is due is not a Business Day, then amounts due on such date shall be due on the immediately preceding

-29-

Business Day and with respect to payments of principal due on the Maturity Date, interest shall be payable at the Interest Rate or the Default Rate, as the case may be, through and including the day immediately preceding such Maturity Date.  All amounts due under this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever.  All payments due on account of the Loan and for any obligations due under the Loan Documents shall be made on a pro rata, pari passu basis with respect to Junior Mezzanine Note A-1 and Junior Mezzanine Note A-2

2.2.5

Payment on Maturity Date.  Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all accrued and unpaid interest and all other amounts due hereunder and under the Note, the Pledge Agreement and the other Loan Documents.

2.2.6

Payments after Default.  Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by law, all accrued and unpaid interest and other amounts due in respect of the Loan, shall accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein.  Interest at the Default Rate shall be computed from the occurrence of the Event of Default until the earlier of (i) in the event of a non-monetary default, the cure of such Event of Default by Borrower, and (ii) in the event of a monetary default, the actual receipt and collection of the D ebt (or that portion thereof that is then due).  To the extent permitted by applicable law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Pledge Agreement.  This paragraph shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default and Lender retains its rights under the Note and this Agreement to accelerate and to continue to demand payment of the Debt upon the occurrence and continuance of any Event of Default.

2.2.7

Late Payment Charge.  If any principal, interest or any other sums due under the Loan Documents are not paid by Borrower on or prior to the date on which it is due (except, in the case of Debt Service, provided no Event of Default shall then exist and there are sufficient funds in the Junior Mezzanine Loan Cash Management Account to pay such Debt Service), Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the Maximum Legal Rate in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment.  Any such amount shall be secured by the Pledge Agreement and the other Loan Documents to the extent permitted by applicable law.  The foregoing late payment charge shall not apply to the payment of all outstanding principal, interest and other sums due on the Maturity Date.

2.2.8

Usury Savings.  This Agreement, the Note and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate.  If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal

-30-

Rate, the Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder.  All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.

2.2.9

Making of Payments.  Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 11:00 A.M., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender’s office or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day.

2.2.10

No Deductions, etc.  All payments made by Borrower hereunder or under the Note or the other Loan Documents shall be made irrespective of, and without any deduction for, any setoff, defense or counterclaims.

Section 2.3

Prepayments.

2.3.1

Voluntary Prepayments.  (1)

-31-

EX-10.590

Exhibit 10.590

OPERATING AGREEMENT

OF

IW JV 2009, LLC
(a Delaware limited liability company)



Dated as of


December 1,  2009

TABLE OF CONTENTS

Page

ARTICLE 1

DEFINITIONS

1

1.1

Definitions

1

1.2

Construction

10

1.3

Headings

10

ARTICLE 2

FORMATION OF COMPANY

10

2.1

Effect of this Agreement and the Delaware Act

10

2.2

Name

10

2.3

Principal Place of Business

10

2.4

Registered Office and Registered Agent

10

2.5

Filing of Documents

10

2.6

Qualification in Foreign Jurisdictions

11

2.7

Ownership; Waiver of Right of Partition

11

2.8

Limitations

11

2.9

Term

11

2.10

[Reserved]

12

2.11

REIT Issues

12

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

12

3.1

Authority; Enforceability

12

3.2

Securities Compliance

12

3.3

Compliance With Anti-Terrorism Laws

13

3.4

Financial Capacity

13

3.5

Embargoed Person

13

3.6

Inland Member’s Membership Interest

13

3.7

Western

13

3.8

Inland Member

13

3.9

The Company

14

3.10

Mezz 2

14

3.11

Mezz 1

14

3.12

Project Entities

14

3.13

Property Management

14

3.14

Litigation

14

3.15

No Conflict; Consent

15

3.16

Encumbrances

15

3.17

Contemplated New Debt

15

3.18

Liabilities

16

3.19

Employees

16

ARTICLE 4

BUSINESS OF COMPANY; INVESTMENT ACTIVITIES

16

4.1

Business of the Company

16

4.2

Contribution of Existing Portfolio Interest

16

4.3

Ownership of Properties

16

4.4

Financing

17

4.5

Guarantees

17

i-

TABLE OF CONTENTS

(continued)

Page

4.6

Property Management Generally

17

4.7

Exclusivity

18

ARTICLE 5

MANAGEMENT OF THE COMPANY

18

5.1

Management

18

5.2

Major Decisions

19

5.3

Meetings

20

5.4

[Reserved]

20

5.5

Liability for Certain Acts

20

5.6

Representatives Have No Exclusive Duty to Company

21

5.7

Banking and Insurance Matters

21

5.8

Resignation; Removal

21

5.9

Compensation and Reimbursement

21

5.10

Officers

22

5.11

Indemnification of Officers

22

5.12

Company Entity Officers

22

ARTICLE 6

RIGHTS AND OBLIGATIONS OF MEMBERS

23

6.1

May Not Bind Company

23

6.2

Limitation on Liability

23

6.3

List of Members

23

6.4

Priority and Return of Capital

23

6.5

Members Have No Exclusive Duty to Company

23

6.6

Indemnification of Members

23

ARTICLE 7

CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS

24

7.1

Capital Contributions

24

7.2

Withdrawal of Members’ Contributions to Capital

25

7.3

Capital Accounts

25

ARTICLE 8

ALLOCATIONS OF PROFITS AND LOSSES

26

8.1

Definitions Related to Allocations of Net Profits and Net Losses

26

8.2

Allocations of Net Profits and Net Losses

28

8.3

Proration of Items

28

8.4

Limitation on Loss Allocations

29

8.5

Intentions and Construction of Allocations

29

8.6

Special Allocations

29

8.7

Built-In Gain or Loss/Section 704(c) Tax Allocations

31

8.8

Recapture

31

8.9

Retention of Section 751 Assets

31

8.10

Prohibition Against Retroactive Allocations

32

ARTICLE 9

DISTRIBUTIONS TO MEMBERS

32

9.1

Operating Distributable Cash

32

9.2

Distribution of Promote

33

-ii-

TABLE OF CONTENTS

(continued)

Page

9.3

Capital Event Distributable Cash

33

9.4

Tax Distributions

35

9.5

Annual Reconciliation

35

9.6

Limitation Upon Distributions

35

ARTICLE 10

CERTAIN FEES

35

10.1

Certain Fees to Western and Western Affiliates

35

ARTICLE 11

BOOKS AND RECORDS

36

11.1

Accounting Period

36

11.2

Records

36

11.3

Audits and Reports

3836

11.4

Methods of Accounting

38

11.5

Tax Matters Member

38

11.6

Matters Concerning Banking

38

11.7

Legal Counsel

38

11.8

Company Accountants

39

11.9

Certification

39

ARTICLE 12

TRANSFERABILITY AND WITHDRAWAL

40

12.1

Transfer Limitations

40

12.2

Right of First Offer; Tag Along Right

41

12.3

Western Call Right

43

12.4

Provisions Applicable to Right of First Offer and Call Agreement

43

12.5

Transfer Condition

45

12.6

Certain Permitted Transfers

45

12.7

Termination of Obligations

45

12.8

Restraining Order

46

12.9

No Termination

46

12.10

Withdrawal

46

12.11

Compliance with Loan Documents

46

ARTICLE 13

DISSOLUTION AND TERMINATION

46

13.1

Waiver of Rights

46

13.2

Voluntary Termination

46

13.3

Events of Involuntary Dissolution

47

13.4

Reformation of Company

47

13.5

Effect of Dissolution

47

13.6

Winding Up, Liquidation and Distribution of Assets

47

13.7

Certificate of Termination

48

13.8

Return of Contribution Nonrecourse to Other Members

48

ARTICLE 14

ADDITIONAL MEMBERS

48

14.1

Admission of a New Member

48

-iii-

TABLE OF CONTENTS

(continued)

Page

ARTICLE 15

MISCELLANEOUS PROVISIONS

49

15.1

Governing Laws

49

15.2

No Action for Partition

49

15.3

Execution of Additional Instruments

49

15.4

Waivers

49

15.5

Rights and Remedies Cumulative

49

15.6

Severability

49

15.7

Heirs, Successors and Assigns

49

15.8

Third Parties

49

15.9

Counterparts

49

15.10

Certification of Non-Foreign Status

49

15.11

Notices

50

15.12

Amendments and Waivers

50

15.13

Invalidity

50

15.14

Further Assurances

50

15.15

Time

50

15.16

General Statutory Override

50

15.17

Exculpation

51

15.18

Waiver of Jury Trial

51

-iv-

EXHIBITS
A	Evaluation Materials
B	Project Entities
C	Contemplated New Debt
D	Form Project Entity Operating Agreement (Single Member)
E	Fee Schedule
F	Addresses for Notice
G	Form Mezz Entity Operating Agreement
H	Existing Portfolio
I	[Reserved]
J	Example of Dilution Calculation
K	Example of Capital Event Distributable Cash Calculation
L	Example of Section 7.1(d) Calculation
M	LLC Certificate

i-

OPERATING AGREEMENT

OF

IW JV 2009, LLC
(a Delaware limited liability company)

*  *  *  *  *

Transfer Restrictions

The interests in IW JV 2009, LLC (the “Interests”) are subject to the restrictions on transfer and other terms and conditions set forth in this Agreement.

The Interests have been acquired for investment and have not been registered under (a) the securities laws of the State of Delaware (the “Delaware Securities Laws”), (b) any other state securities laws, or (c) the United States Securities Act of 1933, as amended (the “Securities Act”).

Neither the Interests nor any part thereof may be offered for sale, pledged, hypothecated, sold, assigned, or transferred except in compliance with the terms and conditions of this Agreement and

(1)

pursuant to an effective registration statement under the Delaware Act or in a transaction which either is exempt from registration under the Delaware Securities Laws or is otherwise in compliance with the Delaware Securities Laws,

(2)

pursuant to an effective registration statement under any other applicable state securities laws or in a transaction which either is exempt from registration under any such laws or is otherwise in compliance with such laws, and

(3)

pursuant to an effective registration statement under the Securities Act or in a transaction which either is exempt from registration under the Securities Act or is otherwise in compliance with the Securities Act.

*  *  *  *  *

OPERATING AGREEMENT

OF

IW JV 2009, LLC
(a Delaware limited liability company)

THIS OPERATING AGREEMENT (this “Agreement”) of IW JV 2009, LLC, a Delaware limited liability company (the “Company”), dated as of December 1, 2009, by and between INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation (“Western”), and INLAND EQUITY INVESTORS, LLC, a Delaware limited liability company (“Inland Member”).

Statement of Background

On or about November 18, 2009, Western formed the Company as a single member limited liability company by filing with the Delaware Secretary of State in accordance with the provisions of the Delaware Act the Company’s Certificate of Formation.  On or about November 30, 2009, Western contributed 100% of its direct and/or indirect interests in the Project Entities (defined herein) to the Company, the Company contributed such interests to Mezz 2 and Mezz 2 contributed such interests to Mezz 1, resulting in Mezz 1 being the direct and/or indirect owner of 100% of each of the Project Entities as reflected herein.  On or about the date hereof, the Company is issuing to Inland Member a Membership Interest (defined herein) in the Company upon making the Inland Member’s Initial Capital Contribution (defined herein).  In consideration of the mutual agreements and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties to this Agreement hereby agree as follows:

ARTICLE 1
DEFINITIONS

1.1

Definitions.  The following terms used in this Agreement shall have the following meanings (unless otherwise expressly provided herein);

“Accountants”  shall have the meaning set forth in Section 11.8.

“Additional Capital Contribution” has the meaning set forth in Section 7.1(c).

“Administrative Fee” shall mean a monthly fee equal to 0.25% (annualized) of the aggregate amount of Capital Contributions made to the Company by the Members as of the date of the calculation payable to Western (or at its option, Inland Management) as consideration payable to Western pursuant to Article 9 hereof in respect of any in-house legal costs for the preparation of the purchase and sale documents for acquisition and dispositions, in-house tax appeals, and the in-house cost of placing all mortgage debt on the Portfolio or any Individual Properties.

“Affiliate” means with respect to any Person, (a) in the case of an individual, any relative of such Person, (b) any officer, director, trustee, partner, manager, employee or holder of 10% or more of any class of the voting securities of or equity interest in such Person; (c) any

corporation, partnership, limited liability company, trust or other entity controlling, controlled by or under common control with such Person; or (d) any officer, director, trustee, partner, manager, employee or holder of 10% or more of the outstanding voting securities of any corporation, partnership, limited liability company, trust or other entity controlling, controlled by or under common control with such Person.

“Agreement” means this Agreement as originally executed and as amended from time to time in accordance with the provisions of Section 15.12.

“Annual Budget” has the meaning set forth in Section 11.3(a).

“Approved Annual Budget” means an Annual Budget approved by the Board of Directors.

“Automatic Extension” has the meaning set forth in Section 2.9.

“Bankruptcy” shall mean the events described in clauses (i), (ii), and (iii) of the definition of Default Event.

“Board of Directors” means a committee of three (3) members which shall manage the day to day affairs of the Company consisting of one (1) Director appointed by Inland Member and two (2) Directors appointed by Western.  

“Book Value” shall mean, with respect to any Company asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

(i)

The initial Book Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset as determined and agreed by the Members at the time of contribution (or, in the absence of such an agreement, as determined in the reasonable discretion of the Board of Directors);

(ii)

The Book Values of all Company assets may be adjusted to equal their respective fair market values as of the following:

(A)

The acquisition of additional interests in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution;

(B)

The grant of an interest in the Company (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Company by an existing Member acting in a Member capacity, or by a new Member acting in a Member capacity or in anticipation of becoming a Member;

(C)

The distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; and

(D)

The liquidation of the Company within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g).

2

(iii)

The Book Value of any Company assets distributed to any Member shall be the gross fair market value of such asset, as determined by the Board of Directors in its reasonable discretion, on the date of such distribution; and

(iv)

The Book Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation § 1.704-1(b)(2)(iv)(m); provided, however, that Book Values shall not be adjusted pursuant to this subsection (iv) to the extent that the Board of Directors makes an adjustment pursuant to subsection (ii) in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (iv).

“Business Day” shall mean any day other than a Saturday, Sunday or any other days on which national banks in Chicago, Illinois are not open for business.

“Call Price” has the meaning set forth in Section 12.3(d) hereof.

“Capital Account” has the meaning set forth in Section 7.3 hereof.

“Capital Call” has the meaning set forth in Section 7.1(c).

“Capital Contribution” means the contributions to the capital of the Company made by a Member pursuant to this Agreement.

“Capital Event” means any sale, financing or refinancing, condemnation, or realization of insurance claims paid in connection with any casualty loss in connection with any Existing Portfolio Project.

“Capital Event Distributable Cash” means the gross revenues derived by the Company from a Capital Event, less any third party debt(s) required to be paid in connection with the Capital Event and less all amounts required to pay any and all costs, charges and expenses associated with the transaction giving rise to the revenue and less amounts required to fund a reserve in an amount as established by the Board of Directors to cover anticipated expenses and liabilities related to the applicable Existing Portfolio Project that would not otherwise be provided for by the Company.

“Certificate of Formation” means the Certificate of Formation of the Company, as filed with the Secretary of State of Delaware and as the same may be amended from time to time.

“Closing” has the meaning set forth in Section 12.4(c) hereof.

“Closing Date” has the meaning set forth in Section 12.4(c) hereof.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Company” means IW JV 2009, LLC, a Delaware limited liability company.

3

“Company Counsel” has the meaning set forth in Section 11.7 hereof.

“Company Entity”means a Mezz Entity or a Project Entity.

“Company Minimum Gain” has the meaning set forth in Section 8.1 hereof.

“Contemplated New Debt” shall mean the debt described on Exhibit C attached hereto and hereby made a part hereof.

“Default Event” with respect to or by either Western or Inland Member (i)  the filing of an involuntary petition in bankruptcy against such Member which is not dismissed within 120 days of such filing, (ii) such Member makes an assignment for the benefit of its creditors or the filing by such Member of any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future Federal Bankruptcy Code or any present or future federal, estate or other statute or law relating to bankruptcy, insolvency or other relief for debtors, (iii) such Member seeking, or consenting to, or acquiescing in the appointment of any trustee, receiver, conservator or liquidator of it or of all or any substantial portion of its property or interest in the Company, (iv) a failure to timely perform its material obligations under th is Agreement, which default continues beyond any applicable grace, notice or cure period, (v) any assignment of its Interests (in whole or in part) not expressly permitted in this Agreement, (vi) entry of a final judgment or decree of a court or governmental agency having proper jurisdiction, declaring it guilty of a felony, (vii) the intentional misapplication by it or any Affiliate of funds of the Company or any Affiliate, (viii) fraud or the intentional misrepresentation by it or any Affiliate of a material fact to another Member of the Company or such Member’s Director and (ix) a dissolution of, or the resignation and withdrawal from the Company by, either Western or Inland Member. The matters set forth in clauses (iv), (v) or (vii) above shall not constitute a Default Event if such matter does not pertain to wrongdoing involving a criminal conviction and such matter is cured within thirty (30) days following receipt of notice of such failure from the other Member, unless such matter by its very nat ure is incapable of being cured within such thirty (30) day period and the defaulting Member has commenced and is diligently pursuing a cure, in which event such defaulting Member shall have a commercially reasonable period not to exceed ninety (90) days to effect such cure.

“Default Sale Period” has the meaning set forth in Section 12.4(d) hereof.

“Delaware Act” means the Delaware Limited Liability Company Act (as from time to time amended).

“Delaware Securities Laws” means the securities laws of the State of Delaware.

“Deposit” has the meaning set forth in Section 12.4(b) hereof.

“Director” means any officer, director or employee of such Member selected by such Member to represent such Member on the Board of Directors.

“Dissolution Event” means any event, voluntary or involuntary, causing the dissolution and liquidation of the Company as set forth in Article 13.

4

“Distributable Cash” means, collectively, the Capital Event Distributable Cash and the Operating Distributable Cash.

“Embargoed Person” shall mean any Person, entity or government subject to trade restrictions under U.S. law, including, but not limited to, The USA PATRIOT Act (including the anti terrorism provisions thereof), the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701, et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1, et seq., and any Executive Orders or regulations promulgated thereunder including those related to Specially Designated Nationals and Specially Designated Global Terrorists, with the result that the investment in Company (whether directly or indirectly) is prohibited by law.

“Entity” means any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative or association, foreign trust or foreign business organization, or any other business entity or organization.

“Entity Documents” means for each Project Entity or Mezz Entity, the formation and organizational documents for such Project Entity or Mezz Entity, which shall, in all material respects, conform to the form of limited liability company operating agreement for a Project Entity attached hereto as Exhibit D (taking into account differences in the form of the particular Entity) or the form of limited liability company operating agreement for a Mezz Entity attached hereto as Exhibit G.

“Evaluation Materials” means, with respect to the Existing Portfolio, the information set forth on Exhibit A that is in Western’s or its agents’ possession.

“Existing Portfolio” means the retail properties more particularly described on Exhibit H attached hereto owned by the Project Entities, and which Project Entities have been contributed to Mezz 1.

“Existing Portfolio Project” means each of the retail properties contained within the Existing Portfolio.

“Existing Portfolio SPE” means a single purpose limited liability company, limited partnership or business trust which owns an Existing Portfolio Project and is wholly owned, directly or indirectly, by Western prior to the consummation of the transactions contemplated herein.

“Existing Portfolio Value” means $848,000,000.00.  

“Extension Options” has the meaning set forth in Section 2.9.

“Fees” has the meaning set forth in Section 9.1 hereof.

“Fiscal Year” means the Company’s fiscal year, which shall be the calendar year.

“Funding Member” has the meaning set forth in Section 7.1(d) hereof.

“GAAP” shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

5

“Hypothetical Liquidation” means a hypothetical transaction in which: (i) all claims held by the Company are settled for amounts of cash equal to their respective Book Values; (ii) all assets of the Company are sold for cash equal to their respective Book Values; (iii) all liabilities of the Company are satisfied according to their terms (limited, with respect to each nonrecourse liability, to the Book Value of the assets securing such liability); and (iv) all remaining cash is distributed to the Members in accordance with Section 9.3.

“Individual Property” shall mean any Existing Portfolio Project in the Portfolio.

“Initial Capital Contribution” means, respectively, Western’s Initial Capital Contribution and Inland Member’s Initial Capital Contribution.

“Initial Percentage Interest” means twenty three percent (23%) for Inland Member and seventy seven percent (77%) for Western.

“Initial Term” has the meaning set forth in Section 2.9.

“Initiating Member” has the meaning set forth in Section 12.4(f) hereof.

“Inland Management” means, as applicable, Inland Southwest Management LLC, Inland US Management LLC, Inland Pacific Management LLC or any successor entity by merger or consolidation which is an Affiliate of Western.

“Inland Member” means INLAND EQUITY INVESTORS, LLC, a Delaware limited liability company, together with its successors and assigns.

“Inland Member’s Counsel” has the meaning set forth in Section 11.7 hereof.

“Inland Member’s Initial Capital Contribution” means $50,000,000.00, in cash or immediately available funds, which is the equity required for the Company to acquire its interest in the Existing Portfolio Projects as the same are set forth on Exhibit H, which sum shall be contributed by Inland Member to the Company.  

“Interests” means interests of each Member in the Company.

“Intra-Member Purchase Price” has the meaning set forth in Section 12.4(c) hereof.

“Liquidation Notice” has the meaning set forth in Section 13.6(c) hereof.

“Liquidation Notice Date” has the meaning set forth in Section 13.6(c) hereof.

“Liquidation Price” has the meaning set forth in Section 13.6(c) hereof.

“LLC Certificate” has the meaning set forth in Section 11.9 hereof.

“Major Decisions” has the meaning set forth in Section 5.2 hereof.

“Manager” means Western or a successor appointed in accordance with this Agreement.  

6

“Member Minimum Gain” has the meaning set forth in Section 8.1 hereof.

“Member Nonrecourse Debt” has the meaning set forth in Section 8.1 hereof.

“Member Nonrecourse Deductions” has the meaning set forth in Section 8.1 hereof.

“Member” means each of Inland Member and Western.

“Membership Interest” means a Member’s entire interest in the Company including such Member’s Percentage Interest and any other rights granted pursuant to the Delaware Act.

“Mezz 1” shall mean IW Mezz 2009, LLC, a Delaware limited liability company owned 100% by Mezz 2, and which will own 100%, directly or indirectly, of each Project Entity.

“Mezz 2” shall mean IW Mezz 2 2009, LLC, a Delaware limited liability company owned 100% by the Company, and which will own 100% of Mezz 1.

“Mezz Entity” shall mean, individually or collectively as the context requires, each of Mezz 1 and Mezz 2.

“Net Losses” and “Net Profits” have, respectively, the meanings set forth in Section 8.1 hereof.

“Net Operating Income” shall mean, in the aggregate, all property rental and other income from the Existing Portfolio Projects, determined in accordance with GAAP, minus all operating expenses, determined in accordance with GAAP, incurred in connection with the ownership and operation of the Existing Portfolio Projects, but excluding any general administrative expenses in connection with the operation of Company or any Company Entity, debt service, amortization related to above-market or below-market leases, and non-cash charges such as depreciation or amortization of financing costs, and amounts set aside as reserves for tenant improvements, leasing commissions and replacements.

“Non-Funding Member” has the meaning set forth in Section 7.1(d) hereof.

“Nonrecourse Deductions” has the meaning set forth in Section 8.1 hereof.

“Nonrecourse Liability” has the meaning set forth in Section 8.1 hereof.

“Offeror” has the meaning set forth in Section 12.2(a) hereof.

“Operating Distributable Cash” means the excess of (A) operating revenues (excluding Capital Event Distributable Cash, and Capital Contributions, and including proceeds of any business interruption or rental loss insurance, and amounts released from Reserves), derived by the Company from the operation of the Existing Portfolio Projects, less (B) all expenditures for costs and expenses relating to the ordinary and necessary operations of such Existing Portfolio Projects, including, but not limited to, (i) third party debt service, commissions, third-party property management fees, service charges, insurance charges, legal expenses, salaries, payments to employees and independent contractors, taxes, supplies, set asides for Reserves and other items which are normally considered operating expenses (but without deduction for capital

7

expenditures or any non-cash expenses such as depreciation or amortization), and (ii) reasonable Reserves set aside from such revenues determined in accordance with this Agreement, but excluding property management fees payable to Inland Management and the Administrative Fee.

“Partially Adjusted Capital Account” means, with respect to each Capital Account of a Member for any Fiscal Year or other allocation period, the balance of the Capital Account at the beginning of such Fiscal Year or period, adjusted for any Capital Contributions or distributions during such Fiscal Year or period, and the special allocations described in Section 8.6 (excluding Section 8.6(g)) with respect to such Fiscal Year or period, but before giving effect to any allocation of Net Profits or Net Losses for such Fiscal Year or period pursuant to Section 8.2.

“Percentage Interest” means, at any given time, the interest of each Member in the Company, which is equal to a Member’s Initial Percentage Interest, as the same may be adjusted pursuant to Section 7.1(d) below.

“Person” means any individual or Entity, and the heirs, executors, administrators, legal representatives, successors, and assigns of such “Person” where the context so permits.

“Portfolio” means, at any given time, all of the Existing Portfolio Projects owned, directly or indirectly, by the Company.

“Project Budget” shall have the meaning set forth in Section 11.3(a) hereof.

“Project Entity” means the Existing Portfolio SPEs and any other single purpose corporation, business trust, partnership or limited liability company in which the Company has a direct or indirect ownership interest formed for the purpose of directly owning an Existing Portfolio Project, as listed on Exhibit B.

“Project Equity” means, as applicable, (i) the aggregate amount of capital a Member is required to contribute to the Company pursuant to the terms hereof, and (ii) any additional capital contributed by any such Member pursuant to this Agreement.

“Promote” shall have the meaning set forth in Section 9.1 hereof.

“Property Management Agreements” shall mean the property management agreements in effect on the date hereof between Inland Management and a Project Entity.

“Property Manager” means, initially, Inland Management or any successor Entity with whom a Project Entity contracts to provide property management and leasing services pursuant existing management agreements.

“Proportionate Share” has the meaning set forth in Section 7.1(c) hereof.

“Reduction Percentage” has the meaning set forth in Section 7.1(b).

“Reconciliation Calculation” has the meaning set forth in Section 9.5(a) hereof.

“REIT” has the meaning set forth in Section 2.11 hereof.

8

“REIT Rules” has the meaning set forth in Section 2.11 hereof.

“Required Third Party Price” has the meaning set forth in Section 12.2(a) hereof.

“Reserves” means, with respect to any fiscal period, funds set aside or amounts allocated during such period to reserves which shall be maintained in amounts deemed sufficient by the Board of Directors for working capital and to pay taxes, insurance, debt service or other costs or expenses incident to the ownership or operation of the Company’s business.

“Respondent” is defined in Section 12.2(a) and 12.3(a) hereof.

“Section 7.1 Amount” has the meaning set forth in Section 7.1(c) hereof.

“Securities Act” means the Securities Act of 1933, as amended.

“Sell Trigger Notice” is defined in Section 12.2(a) hereof.

“Stated Selling Price” has the meaning set forth in Section 12.2(a) hereof.

“Tag Along Election” has the meaning set forth in Section 12.2(c) hereof.

“Tag Along Price” has the meaning set forth in Section 12.2(c) hereof.

“Target Capital Account” means with respect to any Member for any Fiscal Year or other allocation period, an amount (which may be a positive or negative balance) equal to: (i) the amount of distributions such Member would be entitled to receive in a Hypothetical Liquidation on the last day of such period, minus (ii) the sum of (A) such Member’s share of Company Minimum Gain and Member Minimum Gain and (B) the amount, if any, that such Member would be obligated to contribute to the capital of the Company pursuant to this Agreement upon such Hypothetical Liquidation.

“Target NOI” means, initially, $14,605,000, which amount shall be decreased for purposes of Section 9.2  from time to time as of  the date of any sale, disposition, condemnation or casualty of any Individual Property or Individual Properties by any resulting actual reduction in quarterly Net Operating Income for the applicable Individual Property or Individual Properties caused by such sale, disposition, condemnation or casualty.

“Tax Matters Member” means the “tax matters partner” of the Company for purposes of Code §§ 6221 through 6233, and the initial Tax Matters Member (“TMM”) shall be Western.

“Term” has the meaning set forth in Section 2.9.

“Third Party Sale Period” has the meaning set forth in Section 12.2(b) hereof.

“Total Liquidation Price” has the meaning set forth in Section 13.6(c) hereof.

“Treasury Regulations” or “Regulations” means the Federal Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time; all

9

references in this Agreement to a specific section of the Regulations shall be deemed also to refer to any corresponding provision of succeeding regulations.

“UCC” has the meaning set forth in Section 11.9 hereof.

“Undertakings” has the meaning set forth in Section 15.17 hereof.

“Western” has the meaning set forth in the recitals.

“Western’s Initial Capital Contribution” means one hundred percent (100%) of Western’s equity ownership interest in the Existing Portfolio SPEs, which ownership interests will be contributed by Western to Mezz Entities owned by the Company and have a deemed value of $173,000,000, plus cash in the amount of $19,264,000, for a total contribution of $192,264,000.

1.2

Construction.  Whenever the singular number is used in this Agreement and when required by the context, the same shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa.

1.3

Headings.  The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provision hereof.

ARTICLE 2
FORMATION OF COMPANY

2.1

Effect of this Agreement and the Delaware Act.  Except as otherwise specifically provided for in this Agreement, the rights and obligations of the Members and the administration, dissolution, liquidation, and termination of the Company shall be governed by the Delaware Act.

2.2

Name.  The name of the Company is IW JV 2009, LLC.

2.3

Principal Place of Business.  The mailing address and principal place of business of the Company shall be c/o Inland Western Retail Real Estate Trust, Inc., 2901 Butterfield Road, Oak Brook Illinois 60523. The Company may locate its places of business and registered office at any other place or places as the Manager may from time to time deem advisable.

2.4

Registered Office and Registered Agent.  The Company’s initial registered office shall be at the office of its registered agent at 1209 Orange Street, Wilmington, Delaware 19801, and the name of its registered agent at such address is The Corporation Trust Company. The registered office and registered agent may be changed from time to time by filing the address of the new registered office or the name of the new registered agent, as the case may be, with the Secretary of State of Delaware pursuant to the Delaware Act and the applicable rules promulgated thereunder.

2.5

Filing of Documents.  Immediately following the execution of this Agreement, the Board of Directors shall cause to be filed with the Delaware Secretary of State in accordance with the provisions of the Delaware Act an amendment to the Company’s Certificate of

10

Formation which amendment shall reflect the terms of Section 5.2 hereof. The Board of Directors will take all necessary action to cause the Company to execute, acknowledge, file, record or publish, as necessary, such amendments to this Agreement as may be required by the terms hereof or by law and such other certificates and documents as may be appropriate to comply with the requirements of law for the continuation, preservation and operation of the Company as a limited liability company under the Delaware Act.

2.6

Qualification in Foreign Jurisdictions.  Prior to the Company’s or any Company Entity conducting business in any state other than Delaware, the Manager will cause the Company or Company Entity to qualify as a foreign limited liability company in that jurisdiction to the extent such qualification is required by applicable law or otherwise deemed necessary or advisable by Manager. At the request of the Manager each Member will execute, acknowledge, swear to and deliver all certificates and other instruments that conform to this Agreement and that are necessary or appropriate to qualify, continue or withdraw the Company or any Entity as a foreign limited liability company in any such jurisdiction.

2.7

Ownership; Waiver of Right of Partition.  The interest of each Member in the Company shall be personal property for all purposes. All property and interests in property, real or personal, owned by the Company shall be deemed owned by the Company as an entity, and no Member, individually, shall have any ownership of such property or interest owned by the Company except as a Member in the Company. Each of the Members irrevocably waives, during the term of the Company and during any period of its liquidation following any dissolution, any right that it may have to maintain any action for partition with respect to any of the assets of the Company.

2.8

Limitations.  The relationship between and among the parties hereto shall be limited to the carrying on of the business of the Company in accordance with the terms of this Agreement.  No Member, acting alone, shall have any authority to act for, or to undertake or assume, any obligation, debt, duty or responsibility on behalf of any other Member or the Company except as expressly provided in this Agreement.  The Members intend that the Company shall not be a partnership (including a limited partnership) or joint venture, and that no Member shall be a partner or joint venturer of any other Member, for any purposes other than under the Code and the Treasury Regulations and other applicable federal and state tax laws, and this Agreement shall not be construed to suggest otherwise.

2.9

Term.  The term of the Company shall be for a period of ten (10) years from after the date of this Agreement (the “Initial Term”), unless earlier terminated in accordance with the provisions of this Agreement or the Delaware Act.  However, the Board of Directors shall have two (2) one-year options to extend the term of the Company (the “Extension Options”) on or before the date which is three (3) months prior to the expiration of the current term.  Notwithstanding anything herein to the contrary, if the Contemplated New Debt has not been repaid or defeased in full on or before the expiration of the term hereof, then the term automatically shall be deemed extended without any action by the Board of Directors, the Manager or the Members until such time as the Contemplated New Debt has been repaid or defeased in full (the “Automatic Exten sion”; the Initial Term, as extended by the Extension Options and/or the Automatic Extension is hereinafter referred to as the “Term”).  Notwithstanding anything in this Section 2.9 to the contrary, upon the repayment or defeasance

11

in full of the Contemplated New Debt, the Automatic Extension shall be deemed deleted from this Section 2.9.

2.10

[Reserved].    

2.11

REIT Issues.  Notwithstanding any other provision of this Agreement or any other document governing the management and operation of the Company, the Project Entities and the Portfolio (except as provided in the final sentence of this Section 2.11), Western shall have the right to cause the Board of Directors to cause the Company, any Project Entity and/or the Property Managers to take any reasonable action or refrain from taking any action to (i) preserve the continued qualification of Western as a real estate investment trust under Section 856 of the Code (a “REIT”), (ii) preserve the continued qualification of any Affiliates of Western as taxable REIT subsidiaries, and (iii) avoid the imposition of additional taxes on Western under Section 857 of the Code or Section 4981 of the Code and the Treasury Regulations promulgated thereunder (collectively the “REIT Rules”) , provided that Western acts in good faith to determine and implement a course of action to accomplish the foregoing objectives in a manner which minimizes the adverse effects on any other Member’s rights and obligations hereunder. The Members agree that in the event that Western proposes to take an action (or cause the Company or any Project Entity to take any action) to ensure the continued qualification of Western as a REIT or to avoid the imposition of additional taxes under the REIT Rules on Western, Western shall notify the Board of Directors regarding such action.  Notwithstanding the foregoing, nor any other provision of this Agreement to the contrary, Western shall not (nor, for the avoidance of doubt, shall the Manager or the TMM), without the unanimous approval of all members of the Board of Directors, take (or refrain from taking) any action (or cause the Company, any Project Entity, and/or any Property Manager to take (or refrain from taking) any action) that would (x) with respect to any Distributable Cash received by the Company, alter the timing or amount of any distribution of such Distributable Cash by the Company to any Member in a manner inconsistent with the provisions of this Agreement (other than this Section 2.11), (y) cause the Company or any subsidiary thereof to be treated as a C corporation or REIT for federal income tax purposes, or (z) transfer any asset owned directly or indirectly by the Company to a protective trust.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

Each Member, unless specifically set forth below, hereby represents and warrants to each other Member, severally and not jointly, with respect to itself as follows:

3.1

Authority; Enforceability.  The execution of this Agreement has been duly authorized by all necessary corporate, partnership, or other action as required under all applicable laws and agreements and organizational documents to which such Member is subject. This Agreement constitutes the legal, valid and binding obligation of such Member, subject to rights of creditors generally and principles of equity.

3.2

Securities Compliance.  Neither such Member nor any of its Affiliates, nor anyone authorized to act on its or their behalf, has offered, directly or indirectly, any interest in the Company or any security similar to such security the offering of which, for purposes of the

12

Securities Act, would be deemed to be part of the same offering, or solicited any offer to acquire any interest in the Company or any security similar to such security in violation of Section 5 of the Securities Act, and neither it nor any of its Affiliates, nor anyone authorized to act on its or their behalf, will take any action which would subject the issuance or sale of any interest in the Company to the registration requirements of Section 5 of the Securities Act.

3.3

Compliance With Anti-Terrorism Laws.  By its execution of this Agreement, each Member hereby represents and warrants to the other that such Member (which for this purpose includes its partners, members, principal stockholders owning more than ten percent (10%) of the outstanding common stock of such Member, and any other constituent entities) (i) has not been designated as a “specifically designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov/ofac/tl1sdn.pdf or at any replacement website or other replacement official publication of such list, and (ii) is currently in compliance with and will at all times during the term of this Agreement (including any extension thereof) remain in compliance with the regulations of the Office of Foreign Asset Contr ol of the Department of the Treasury and any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action relating thereto.

3.4

Financial Capacity.  That it currently has the financial capacity to fully fund its respective Initial Capital Contribution.

3.5

Embargoed Person.  That (a) none of the funds or other assets of any of either Member constitute property of, or are beneficially owned, directly or indirectly, by any Embargoed Person; (b) no Embargoed Person has any interest of any nature whatsoever in any Member with the result that the investment in such Member or the Company, (whether directly or indirectly) is prohibited by law; and (c) none of the funds of either Member have been derived from any unlawful activity with the result that the investment in any such Member or the Company, as applicable (whether directly or indirectly), is prohibited by law.

3.6

Inland Member’s Membership Interest.  Upon entering into this Agreement, Inland Member shall own its Membership Interest free and clear of all liens and encumbrances.  Western represents and warrants to Inland Member that it has not entered into any agreement with any party other than Inland Member to sell or otherwise encumber or dispose of such Membership Interest, and that no consent of any other party is necessary in order for Western to transfer such Membership Interest to Inland Member.

3.7

Western.  Western represents and warrants to Inland Member that Western has been duly formed and is validly existing and in good standing under the laws of the State of Maryland and is qualified to transact business in each jurisdiction where such qualification is legally required.  

3.8

Inland Member.  Inland Member represents and warrants to Western that Inland Member has been duly formed and is validly existing and in good standing under the laws of the State of Delaware and is qualified to transact business in each jurisdiction where such qualification is legally required.  

13

3.9

The Company.  Western represents and warrants to Inland Member that:  The Company has been duly formed and is validly existing and in good standing under the laws of the State of Delaware.  At all times prior to the effectiveness of this Agreement, Western has been the sole member of the Company.  The Company is qualified to transact business in each jurisdiction where such qualification is legally required.  As of the date hereof, there are no outstanding agreements to which the Company is a party, and there are no (1) options, warrants or rights to purchase any equity, securities or other interests in the Company, (2) options or other rights to sell any equity securities or other ownership interests in the Company, (3) obligations, whether absolute or contingent, to issue any equity securities or other ownership interests in the Company, (4) loans made by Western t o the Company, or (5) indebtedness or securities directly or indirectly convertible into any equity securities of the Company.  No person or entity has any voting or management rights as to the Company other than Inland Member and Western.  

3.10

Mezz 2.  Western represents and warrants to Inland Member that:  Mezz 2 has been duly formed and is validly existing and in good standing under the laws of the State of Delaware.  The Company is the sole member of Mezz 2.  Mezz 2 owns no assets other than its membership interest in Mezz 1.  Mezz 2 is qualified to transact business in each jurisdiction where such qualification is legally required.  Western has delivered to Inland Member a true and complete copy of the operating agreement of Mezz 2 and such agreement is in full force and effect.  

3.11

Mezz 1.  Western represents and warrants to Inland Member that:  Mezz 1 has been duly formed and is validly existing and in good standing under the laws of the State of Delaware.  Mezz 2 is the sole member of Mezz 1.  Mezz 1 owns no assets other than the Project Entities.  Mezz 1 is qualified to transact business in the each jurisdiction where such qualification is legally required.  Western has delivered to Inland Member a true and complete copy of the operating agreement of Mezz 1 and such agreement is in full force and effect.  

3.12

Project Entities.  Western represents and warrants to Inland Member that:  Each Project Entity has been duly formed and is validly existing and in good standing under the laws of the state of its formation.  Mezz 1 is the sole member, directly or indirectly, of each Project Entity.  Each Project Entity owns only the real estate listed on Exhibit B (by reference to Exhibit H), together with incidental tangible and intangible personal property.   Each Project Entity is qualified to transact business in each jurisdiction where such qualification is legally required.  Western has made available to Inland Member a true and complete copy of the operating agreement or similar organizational document for each Project Entity and each such agreement is in full force and effect.

3.13

Property Management.  Western represents and warrants to Inland Member that Western has made available to Inland Member copies of all Property Management Agreements in effect as of the date hereof, and that all such Property Management Agreements are in full force and effect, and have not been modified except as disclosed or provided herein.    

3.14

Litigation.  (a)  Western represents and warrants to Inland Member that there is no action, suit or proceeding pending against any of Western, Company, Mezz 1, Mezz 2 or any Project Entity which if determined adversely could materially and adversely affect the financial condition of any of the foregoing entities.    

14

(b)

Inland Member represents and warrants to Western that there is no action, suit or proceeding pending against Inland Member or any holder of a direct or indirect interest in Inland Member, which if determined adversely could materially and adversely affect the financial condition of Inland Member.

3.15

No Conflict; Consents.  (a) Western represents and warrants to Inland Member that:  It has received all required consents necessary to (i) effect the conveyances contemplated herein, and (ii) to enter into this Agreement and perform all of its obligations contemplated hereunder.  Each of Project Entities, Mezz 1 and Mezz 2, as applicable, has received all required consents to enter into the Contemplated New Debt and the Contemplated New Debt will not conflict with or result in the breach of any contract, agreement, law, rule, court order, judgment or regulation to which the Company, Mezz 2, Mezz 1 or any Project Entity is bound.

(b)

Inland Member represents and warrants to Western that it has received all required consents necessary to (i) acquire its interest in the Company as contemplated herein, and (ii) to enter into this Agreement and perform all of its obligations contemplated hereunder.  Inland Member further represents and warrants to Western that its acquiring its interest in the Company and performing its obligations hereunder will not conflict with or result in the breach of any contract, agreement, law, rule, court order, judgment or regulation to which it is bound

3.16

Encumbrances.  Western represents and warrants to Inland Member that:  On November 30, 2009, Western transferred, or caused to be transferred, through one or more conveyances, the entire ownership interest in each Project Entity to Mezz 1.   Western’s interest in the Company is held free and clear of all liens and encumbrances.  The Company’s interest in Mezz 2 is held free and clear of all liens and encumbrances.  Mezz 2’s interest in Mezz 1 is held free and clear of all liens and encumbrances except with respect to liens incurred in connection with the Contemplated New Debt.  Mezz 1’s interests in the Project Entities are held free and clear of all liens and encumbrances except with respect to liens incurred in connection with the Contemplated New Debt.  The Project Entities’ interests in the Existing Portfolio Projects are h eld free and clear of all liens and encumbrances except (i) with respect to liens incurred in connection with the Contemplated New Debt, (ii) such other matters, written notice of which has previously been given to Inland Member, and (iii) existing encumbrances securing debt which will be immediately paid off upon the receipt of the proceeds of the Contemplated New Debt.  

3.17

Contemplated New Debt.  Western represents and warrants to Inland Member that Western has delivered to Inland Member a true and complete copy of the executed Term Sheet and Commitment with respect to the Contemplated New Debt, and that such Term Sheet and Commitment remain in full force and effect, and have not been modified.  Western further represents and warrants to Inland Member that transfers of direct and indirect interests in Inland Member in accordance with the terms of this Agreement shall not violate any documents evidencing or securing the Contemplated New Debt.  Neither the Company nor any Company Entity is in default under the Contemplated New Debt.  The documents evidencing and/or securing the Contemplated New Debt provide that Inland Management may be replaced as property manager of an Existing Portfolio Project with the consent of Lender, which consent sha ll not be required if Inland Manager is in default under the applicable property management agreement and a satisfactory replacement manager executed a replacement management agreement.

15

3.18

Liabilities.  (a)  Western represents and warrants to Inland Member that Mezz 1, Mezz 2 and Company have no material liabilities except as described in this Agreement.

(b)

Inland Member represents and warrants to Western that it has no material liabilities except as described in this Agreement.

3.19

Employees.  (a)  Western represents and warrants to Inland Member that none of Company, Mezz 2, Mezz 1 or any Project Entities have any employees.

(b)

Inland Member represents and warrants to Western that it has no employees.

ARTICLE 4
BUSINESS OF COMPANY; INVESTMENT ACTIVITIES

4.1

Business of the Company.  The business of the Company shall be to (a) own 100% of Mezz 2, (b) cause Mezz 2 to acquire 100% of Mezz 1, (c) cause Mezz 1 to acquire the Project Entities, (c) to refinance the Existing Portfolio with the Contemplated New Debt, (d) to cause the Project Entities to own, operate, lease, improve, sell and otherwise deal with the Existing Portfolio Projects, and (e) to exercise all other powers necessary to or reasonably connected with the Company’s business which powers may be legally exercised by limited liability companies under the Delaware Act.

4.2

Contribution of Existing Portfolio Interest.

(a)

Prior to the execution of this Agreement, Western contributed all of its right, title and interest in the Project Entities to the Company as a portion of its Initial Capital Contribution.

(b)

Western covenants and agrees that the conveyances to the Company did not trigger any default, require any third party consent not heretofore obtained, trigger any due on sale provisions, or otherwise give rise to any transfer or assumption fees not contained in the documents provided with the Evaluation Materials.

(c)

Western hereby agrees to indemnify the Company and Inland Member, from and against any and all loss, cost, obligation, liability, damage, penalty, interest or other expense (including but not limited to reasonable attorneys’ fees) arising from the failure of Western to have fully and timely paid any and all transfer taxes, documentary stamp taxes, “grantor” tax, “grantee” tax, recordation tax or similar impositions required to be paid in connection with the conveyance of equity interests in any Project Entity to Mezz 1 as contemplated herein.

4.3

Ownership of Properties.

(a)

The ownership of all Existing Portfolio Projects is structured as an investment by the Company, with no partners, venturers or equity holders, other than Western and Inland Member, participating in the ownership of, as applicable, the Existing Portfolio Project.  The Company is the sole member of Mezz 2, which in turn is the sole member of Mezz 1 (each being a special purpose limited liability company), which in turn is the holder (directly or

16

indirectly) of one hundred percent (100%) of the outstanding interests in the fifty-five (55) Project Entities.  Each Project Entity currently existing for the sole purpose of holding title to, and operating, one of the Existing Portfolio Projects.  Each Mezz Entity has or will have an operating agreement substantially in the form attached hereto as Exhibit G, and each Project Entity concurrently herewith will adopt an amended and restated operating agreement or other organizational documents substantially in the form attached hereto as Exhibit D.

4.4

Financing.

(a)

Concurrently herewith, the Project Entities have obtained the portion of Contemplated New Debt consisting of mortgage loans, and the Mezz Entities have obtained the portion of the Contemplated New Debt consisting of mezzanine financing, from JPMorgan Chase Bank, N.A. to refinance the Existing Portfolio Projects and to otherwise capitalize the Company.

(b)

[Reserved].

(c)

Western shall pay all costs and expenses related to the Contemplated New Debt and incurred as of the date hereof, and such payment shall be deemed part of Western’s Initial Capital Contribution.  For the sake of clarity, any costs incurred by Western or Inland Member in connection with the negotiation of this Agreement shall be paid by Western or Inland Member, respectively, and shall not be deemed a Capital Contribution.

4.5

Guarantees.  In connection with the Contemplated New Debt or any other financing obtained by any Company Entity, Western has provided or shall provide any and all payment and/or performance guarantees, non-recourse carve-out guarantees, environmental indemnities (if required from parties other than the Company Entity) and the like required by the applicable financial institution extending the financing to such Company Entity.  In no event will Inland Member or the Company be required to undertake any recourse or indemnification obligations in connection with any financing obtained by any Company Entity.

4.6

Property Management Generally.  Initially, Inland Management shall provide property management services with respect to each Existing Portfolio Project pursuant to an existing Property Management Agreement.  In addition to any rights in favor of any existing mortgage lender to terminate Inland Management as Property Manager, Inland Member shall have a right to cause the Company to replace Inland Management as Property Manager upon a default (after notice and opportunity to cure) under the Property Management Agreement, provided, however, the lender under the existing mortgage indebtedness releases Western (and any entity owned or controlled by, or under common ownership or control with, Western) from any and all payment and/or performance guarantees, non-recourse carveout guarantees, environmental indemnities and similar obligations.  In the event of a termination, Western agr ees to cooperate with Inland Member and the Company to secure a replacement property manager and leasing agent affiliated with Inland Member and acceptable to the lender, and if unsuccessful after thirty (30) days, with an unaffiliated third party property manager and leasing agent satisfactory to the Board of Directors, and otherwise in compliance with the terms and provisions of any documents evidencing or securing the existing mortgage financing, including the Contemplated New Debt.

17

4.7

Exclusivity.

During the term of this Agreement, neither Western nor any Affiliate of Western will directly or indirectly solicit or otherwise attempt to persuade any tenant of any Project Entity to purchase or to relocate to another property or retail development not owned by a Project Entity.  Western shall not discriminate against any Project Entity in connection with any proposals made to prospective tenants in any market area in which a Project Entity owns a property.

ARTICLE 5
MANAGEMENT OF THE COMPANY

5.1

Management.  Western is hereby designated as the Manager and shall be responsible for administering the day to day business and affairs of the Company in accordance with this Agreement. With the exception of matters which constitute Major Decisions, the Manager shall have the authority to decide all Company matters. Any Major Decision shall require the unanimous approval of all of the members of the Board of Directors. Inland Member acknowledges that Western may delegate certain of its responsibilities hereunder to the Property Manager in accordance with the existing Property Management Agreements or any replacement agreement entered into in accordance herewith; provided, however, no such delegation by Western of its duties as Manager shall relieve Western of its obligations hereunder. Notwithstanding the foregoing, to the extent any provision of this Agreement specifically requires app roval by Inland Member, such provision shall control and the Manager shall not have authority to decide such matters without Inland Member’s approval.

Subject to Section 5.2 below, the Manager shall have the responsibility, subject to and in compliance with the applicable Approved Annual Budget, for:

(a)

Enforcing on behalf of the applicable Project Entity any and all leases of any portion of any Existing Portfolio Project, and ensuring the compliance of the Existing Portfolio Project with applicable law;

(b)

Causing the Company and the Company Entities, as applicable, to maintain, all required or appropriate insurance coverage consistent with the requirements;

(c)

Preparing and maintaining financial records with respect to the Company and each Company Entity, as required by this Agreement;

(d)

Causing the Company and each Company Entity to comply with all of the terms and provisions of any agreement binding on a Company Entity; and

(e)

Paying all obligations of the Company and each Company Entity when due.

The Manager shall in good faith use all reasonable efforts to conduct the aspects of the business and affairs of the Company delegated to it in accordance with good industry practice and this Agreement, and shall devote sufficient time to perform its duties hereunder in accordance with industry practice.    In the event that Manager resigns or is no longer able to perform as Manager, the Board of Directors shall appoint a successor Manager.

18

5.2

Major Decisions.  Major Decisions shall mean and include the following matters relating to the Company:

(a)

to engage in a merger, sale or recapitalization of the Company or any Mezz Entity or similar transaction;

(b)

to commingle the funds of the Company with the funds of any other Person;

(c)

to establish borrowing policies consistent with the Company’s objectives;

(d)

to admit any additional or substitute Member to the Company or a Company Entity;

(e)

to (i) seek, or consent to, the appointment of a receiver, trustee or custodian for all or any portion of the Company’s property or any property of any Mezz Entity or any Project Entity, (ii) commence on behalf of the Company, any Mezz Entity or any Project Entity any voluntary proceeding, or consent to the commencement of any involuntary proceeding, under present or future federal bankruptcy laws or under any other bankruptcy, insolvency or other laws respecting creditors’ rights, (iii) make an assignment for the benefit of creditors or (iv) admit in writing the Company’s, any Mezz Entity’s or any Project Entity’s inability to pay its debts generally as they become due;

(f)

to commence any litigation by the Company, any Mezz Entity or any Project Entity involving any material claim by or against the Company or involving in excess of $1,000,000, other than collection and eviction actions against tenants or unless approved in an Approved Annual Budget;

(g)

to settle any litigation by or against the Company, any Mezz Entity or any Project Entity where the amount in controversy is not covered by insurance and exceeds $100,000;

(h)

to release, compromise, assign or transfer any material claims of or any material rights or benefits of the Company, any Mezz Entity or any Project Entity;

(i)

to extend the term of the Company;

(j)

to make any distributions of Distributable Cash to the Members other than as contemplated in Article 9 below;

(k)

approval of any material actions of or elections by the TMM (other than making an election pursuant to Section 754 of the Code) set forth in 11.5 hereof, including, for the avoidance of doubt, entering into any settlement agreement or making any election with the Internal Revenue Service which purports to bind any Member;

(l)

to indemnify any member of the Board of Directors or officer of the Company pursuant to Section 5.11 hereof;

(m)

winding up the affairs of the Company pursuant to Section 13.6 hereof; and

19

(n)

to modify this Agreement, in whole or in any material part, including, without limitation, any modification of this Section 5.2.

5.3

Meetings.  All resolutions adopted and all business transacted by the Board of Directors with respect to Major Decisions shall require the affirmative vote of all of the members of the Board of Directors present at a meeting at which a quorum is present.  All of the members of the Board of Directors must be present to constitute a quorum for the transaction of all Company business requiring unanimous Board of Directors approval, which business is limited to Major Decisions. The Board of Directors shall meet as necessary to make Major Decisions. The Board of Directors may meet with respect to matters which are not Major Decisions, provided, however, with respect to such meetings a majority of the members of the Board of Directors must be present to constitute a quorum, and any resolutions adopted and all business transacted by the Board of Directors with respect to decisions that ar e not Major Decisions shall require the affirmative vote of a majority of the members of the Board of Directors. A special meeting of the Board of Directors may be called by any member of the Board of Directors on at least five (5) days’ notice, which may be given orally or by personal delivery, reputable overnight courier, telegram, facsimile transmission, electronic mail (with receipt confirmed) or private courier. The notice shall be deemed given the earlier of (i) one (1) Business Day after its deposit, (ii) when received, or (iii) when delivered in writing to the member of the Board of Directors at his or her last known principal place of business or residence. Any meeting of the Board of Directors may be held in Chicago, Illinois or such other place as determined by the Members. Any action required to be taken at a meeting of the Board of Directors, or any action that may be taken at a meeting of the Board of Directors, may be taken without a meeting if a consent in writing setting forth the actio n taken shall be signed by all of the members of the Board of Directors. Any such written consent in lieu of a meeting shall be filed with the minutes of the proceedings of the Board of Directors. Any action required to be taken at a meeting of the Board of Directors, or any action that may be taken at a meeting of the Board of Directors, may be taken at a meeting held by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at such meeting. In all other respects the provisions of this Section 5.3 with respect to meetings of the Board of Directors shall apply to such a meeting. The discussions at each meeting of the Board of Directors shall be recorded in the minutes of the Company and a copy of such minutes shall be distributed to the Members within ten (10) days after the date of each such meeting.

5.4

[Reserved].

5.5

Liability for Certain Acts.  Each member of the Board of Directors shall act in a manner such member believes in good faith to be in the best interest of the Company and/or its Members and shall discharge his or her duties under this Agreement with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like goals and investment objectives. No member of the Board of Directors will be liable to the Company or its Members for any action taken in managing the business or affairs of the Company if such member performs in compliance with the standard contained in this Section even if such action is in the best interest of one Member or its Affiliates with respect to such Member’s investment in the Company and not in the best interest of the other Member or

20

its Affiliates.  No member of the Board of Directors has guaranteed nor shall have any obligation with respect to the return of a Member’s Capital Contributions or profits from the operation of the Company. No member of the Board of Directors shall be liable to the Company or to any Member for any loss or damage sustained by the Company or any Member except loss or damage resulting from fraud, misappropriation of funds, gross negligence or any criminal activity committed by such member in its capacity as a member of the Board of Directors. The members of the Board of Directors shall be entitled to rely on information, opinions, reports or statements, including but not limited to financial statements or other financial data prepared or presented in accordance with the Delaware Act.

5.6

Representatives Have No Exclusive Duty to Company.  The members of the Board of Directors shall not be required to manage the Company as such members’ sole and exclusive function and the members of the Board of Directors may have other business interests and may engage in other activities in addition to those relating to the Company. Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of the members of the Board of Directors or to the income or proceeds derived therefrom. The members of the Board of Directors shall incur no liability to the Company or to any of the Members as a result of engaging in any other business or venture, whether or not competitive with that of the Company.

5.7

Banking and Insurance Matters.  The Manager may from time to time open bank accounts in the name of the Company, and designate the Persons who will serve as the signatories thereon.  The Manager shall obtain and maintain comprehensive liability, fire, terrorism and earthquake insurance (where applicable), extended coverage, and other appropriate insurance coverage, including any insurance coverage required by any lender to the Company or any Project Entity, with respect to each Existing Portfolio Project, all in form and substance acceptable to the Members.

5.8

Resignation; Removal.  Any member of the Board of Directors may resign at any time by giving written notice to the Members of the Company. The resignation of any member of the Board of Directors shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The Member whose Director has resigned shall appoint a replacement Director within five (5) days of such Director’s resignation. Any Member may remove one or more of its Directors on the Board of Directors at any time upon written notice to the other Member specifying the Director(s) to be removed and naming a replacement Director for each Director so removed. In the event of a vacancy on the Board of Directors arising on account of a resignation or removal of a Di rector, until such vacancy is filled in accordance with this Section 5.8, the Board of Directors shall have no power to take any action under this Agreement.

5.9

Compensation and Reimbursement.  No member of the Board of Directors shall receive any salary or other compensation from the Company for acting as such.  Western shall be entitled to receive (or direct that Inland Management receive) the monthly Administrative Fee. Company shall pay such Administrative Fee from Operating Distributable Cash or Capital Event Distributable Cash in accordance with Sections 9.1 and 9.3 hereof, and to the extent that Operating Distributable Cash or Capital Event Distributable Cash in a calendar month is

21

insufficient to pay such Administrative Fee in accordance with Sections 9.1 and 9.3 hereof, such fees shall accrue.   

5.10

Officers.  The Board of Directors may, but shall not be required to, designate one or more individuals to be officers of the Company, and any officer so designated shall have such title, authorities and duties as the Board of Directors may delegate to them. Any officer may be removed as such, either with or without cause, by the Board of Directors. The initial officers of the Company and their respective titles shall be:

President:	Steven P. Grimes
Vice President:	Shane C. Garrison
Secretary:	Dennis K. Holland

5.11

Indemnification of Officers.  The Company shall indemnify each person who is or was a director or officer of the Company (including the heirs, executors, administrators or estate of such person), is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or is or was serving as a member of the Board of Directors, to the fullest extent permitted by the Delaware Act, except to the extent of such person’s gross negligence or intentional misconduct or action outside the scope of such person’s authority hereunder.

(a)

Expenses incurred by a person who is an officer of the Company (including the heirs, executors, administrators or estate of such person), is or was serving at the request of the Company as an officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in defending a civil or criminal action, suit, or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding, as authorized by the Board of Directors in its discretion, upon receipt of an agreement or an undertaking by or on behalf of such person to repay such amount, unless it is ultimately determined that he or she is entitled to be indemnified by the Company as authorized in, or as permitted by, this Article 5. If such a person or entity requests reimbursement of expenses pursuant to the foregoing, then the Board of Directors shall co nsider such request, and if the Board of Directors concludes that it is reasonably probable that such person or entity would be entitled to indemnification or if the Board of Directors concludes the interests of the Company would be served thereby, then the Board of Directors shall direct the payment of the expenses subject to the receipt of an agreement or undertaking as required by the foregoing. The Board of Directors may pay such expenses of such person upon such other terms and conditions as the Board of Directors deems appropriate.

(b)

All rights to indemnification under this Article 5 shall continue as to a person who has ceased to be an officer, employee or agent, shall inure to the benefit of heirs, executors, administrators and the estate of such person, and shall be deemed to be a contract between the Company and each such person or entity. This Article 5 shall be binding upon any successor to the Company, whether by way of merger, consolidation or otherwise.

5.12

Company Entity Officers.  The Manager may designate (or cause to be designated) one or more officers for each Company Entity, so long as such officers are employees of Western or otherwise are approved by Inland Member.

22

ARTICLE 6
RIGHTS AND OBLIGATIONS OF MEMBERS

6.1

May Not Bind Company.  Except as provided in Article 5 above, no Member has the right, power, or authority to act for or on behalf of the Company, to do any act that would be binding on the Company, or to incur any expenditures on behalf of the Company.

6.2

Limitation on Liability.  Each Member’s liability shall be limited as set forth in this Agreement, the Delaware Act and other applicable law. No Member will have any personal liability for any debts or losses of the Company, except as provided by law or pursuant to a separate agreement signed by such Member. None of the Members nor any of their respective employees, agents or other representatives shall be responsible to the Company or to any other Member for any loss, liability, damage, claim, judgment, cost, obligation or expense sustained, incurred or resulting directly or indirectly from the acts or omissions of the Member or any other Member to the extent that the Member, any other Member or any of their respective employees, agents or other representatives reasonably and in good faith believed such act or omission to be within the express or implied scope of the authority and responsibility vested in the Member and the Members, respectively, pursuant to this Agreement.

6.3

List of Members.  Upon written request of any Member, the Company shall provide a list showing the names, addresses and Membership Interest of all Members, and the other information required by the Delaware Act and maintained pursuant to Section 11.2(a).

6.4

Priority and Return of Capital.  Except as expressly provided in this Agreement, no Member shall have priority over any other Member, either as to the return of Capital Contributions or as to Net Profits, Net Losses or distributions.

6.5

Members Have No Exclusive Duty to Company.  The Members may have other business interests and may engage in other activities in addition to those relating to the Company, regardless of whether the same compete with the activities of the Company. Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of any Member or to the income or proceeds derived therefrom. No Member shall incur liability to the Company or to any of the other Members as a result of engaging in any other business or venture.  Each Member may act in its own best interests as an investor, subject to any express obligations that it has to any other Member or the Company.

6.6

Indemnification of Members.  To the extent not due to the gross negligence or willful misconduct (including but not limited to fraud, misappropriation of funds, willful misrepresentation or any other intentional tort) of any Member or such Member’s employees, agents or representatives, the Company will indemnify the Members against judgments, fines, amounts paid in settlement and expenses (including attorneys’ fees) reasonably incurred by them in any civil, criminal or investigative proceeding in which they are involved or threatened to be involved by reason of being a Member in the Company, provided that the Member acted in good faith, within what it reasonably believed to be the scope of its authority and for a purpose which it reasonably believed to be in the best interest of the Company or the Members. The provisions of this Section 6.6, however, shall not relieve the Memb er of its obligation as a Member to share

23

in the losses, costs and expenses of the Company, and shall not apply to any guaranty or indemnity executed by such Member in connection with the Contemplated New Debt. The provisions of this Section 6.6 shall survive any termination or expiration of this Agreement.

ARTICLE 7
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS

7.1

Capital Contributions.

(a)

Prior to or contemporaneously with the execution of this Agreement, the Members have made Capital Contributions of cash and real, personal and intangible property in the amounts set forth herein.  The Members hereby acknowledge and agree that for all purposes of this Agreement, upon the contribution of one hundred percent (100%) of Western’s equity ownership interest in the Existing Portfolio SPEs to the Company and $19,264,000, Western shall be deemed to have made a Capital Contribution to the Company in an amount equal to $192,264,000.00.

(b)

The Members hereby acknowledge and agree that Inland Member has made a Capital Contribution to the Company in the amount of $50,000,000.00.

(c)

If the Manager or any Member determines at any time or from time to time that the operating cash flow of the Company together with Reserves is insufficient adequately to (w) protect, preserve and/or maintain any Existing Portfolio Project or the Company’s interest therein, (x) fund expenditures provided for in any current Annual Budget approved by the Board of Directors, (y) remain in compliance with the terms of any documents evidencing or securing existing debt of the Company or any Company Entity, any existing leases with respect to any Existing Portfolio Project, or any other material contracts binding upon the Company or any Company Entity, or (z) fulfill the working capital needs of the Company or any Company Entity, then, subject to the limitations set forth herein, any Member, subject to the Board of Directors approval, may request, in writing, that the Members make the necessary additional Capital Contributions (an “Additional Capital Contribution”) to the Company by giving written notice (a “Capital Call”) to the Members setting forth (i) the total amount of Additional Capital Contributions required, (ii) the reason the Additional Capital Contribution is required pursuant to this Section 7.1(c), (iii) each Member’s proportionate share of the total Additional Capital Contribution (determined in accordance with this Section 7.1(c)), and (iv) the date each Member’s Additional Capital Contribution is due and payable, which date shall be no sooner than thirty (30) days after the notice has been given.  Either Member may, but shall have no obligation to, make an Additional Capital Contribution.  As used herein, funds which are required by the Company pursuant to this Section 7.1(c) shall also be referred to as a “Section 7.1 Amount.” A Member’s proportionate share of any Additional Capital Contribu tion shall be equal to the product obtained by multiplying the Member’s Percentage Interest by the total Additional Capital Contribution so required (for each Member, such Member’s “Proportionate Share”). A Member’s Proportionate Share shall be payable to the Company in immediately available funds. Any Additional Capital Contribution made by the Members shall constitute Project Equity.

(d)

If a Member fails to timely fund its Proportionate Share (any such Member, a “Non-Funding Member”), then the other Member (the “Funding Member”), at its election,

24

may contribute to the Company the Non-Funding Member’s Proportionate Share (or, as applicable, the un-funded portion thereof) as an Additional Capital Contribution. If the Funding Member elects to contribute the Non-Funding Member’s Proportionate Share (or, as applicable, the un-funded portion thereof) as an Additional Capital Contribution on account of the Non-Funding Member’s failure to fully fund its Proportionate Share, the Non-Funding Member’s Percentage Interest shall be reduced (and the Funding Member’s Percentage Interest shall be increased) by an amount (the “Reduction Percentage”) equal to the product of (x) the Non-Funding Member’s then current Percentage Interest multiplied by (y) the quotient obtained by dividing (A) the product (expressed in dollars), of the portion of the Non-Funding Member’s Proportionate Share that the Non-Fundin g Member failed to contribute to the Company, multiplied by 1.0, by (B) the aggregate amount of Capital Contributions made to the Company by the Members as of the date of the calculation.  For illustration purposes only, an example of the foregoing calculations is set forth on Exhibit J attached hereto.

(e)

Notwithstanding anything in Section 7.1(d) above, in no event shall Inland Member’s Percentage Interest be reduced below ten percent (10%).

7.2

Withdrawal of Members’ Contributions to Capital.  Except as provided in this Agreement, no Member may withdraw capital from the Company without the consent of the other Members. No Member shall be entitled to interest on its contributions of capital to the Company. The Members agree that no Member shall be personally liable for the return of Capital Contributions of any other Member, if and to the extent that any return is required; and any such return shall be made solely from the assets of the Company, if any.  Notwithstanding the foregoing, following the closing of the Contemplated New Debt and the payment of all sums due in connection with such closing, the Company shall return to Western a portion of Western’s Initial Capital Contribution equal to Fifty Million and 00/100 Dollars ($50,000,000.00).

7.3

Capital Accounts.

(a)

A separate “Capital Account” shall be established and maintained for each Member in accordance with the rules set forth in Section 1.704-1(b) of the Regulations. Subject to the foregoing, generally the Capital Account of each Member shall be credited with the sum of (i) all cash and the fair market value of any property (net of liabilities assumed by the Company and liabilities to which such property is subject) contributed to the Company by such Member as provided in this Agreement, and (ii) all Net Profits, gains and other items of income of the Company allocated to such Member pursuant to Article 8 hereof, and shall be debited with the sum of (x) all Net Losses, items of deduction or loss of the Company allocated to such Member pursuant to Article 8 hereof, (y) such Member’s distributive share of expenditures of the Company described in Section 705(a)(2) (B) of the Code, and (z) all cash and the fair market value of any property (net of liabilities assumed by such Member and the liabilities to which such property is subject) distributed by the Company to such Member pursuant to Article 9 hereof. Any references in any Section or subsection of this Agreement to the Capital Account of a Member shall be deemed to refer to such Capital Account as the same may be credited or debited from time to time as set forth above and as otherwise required by Regulations under Section 704(b) of the Code.

(b)

The following additional rules shall apply in maintaining Capital Accounts:

25

(i)

Amounts described in Section 709 of the Code (other than amounts with respect to which an election is in effect under Section 709(b) of the Code) shall be treated as described in Section 705(a)(2)(B) of the Code.

(ii)

In the case of a contribution to the Company of a promissory note (other than a note that is readily tradable on an established securities market), the Capital Account of the Member contributing such note shall not be increased until (a) the Company makes a taxable disposition of such note, or (b) principal payments are made on such note.

(iii)

If property is contributed to the Company, Capital Accounts shall be adjusted in accordance with Treasury Regulation Sections 1.704-l(b)(2)(iv)(d) and 1.704-1(b)(2)(iv)(g).

(iv)

If, in any Fiscal Year of the Company, the Company has in effect an election under Section 754 of the Code, or the bases of Company assets are otherwise adjusted pursuant to Sections 734 or 743 of the Code,  Capital Accounts shall be adjusted in accordance with Treasury Regulation Section 1.704-l(b)(2)(iv)(m).

(c)

It is the intention of the Members to satisfy the capital account maintenance requirements of Treasury Regulation Section 1.704-l(b)(2)(iv), and the foregoing provisions defining Capital Accounts are intended to comply with such provisions. If the Board of Directors determines that adjustments to Capital Accounts are necessary to comply with such Regulations, then the adjustments shall be made provided it does not materially impact upon the manner in which property is distributed to the Members in liquidation of the Company.

(d)

Except as may otherwise be provided in this Agreement, whenever it is necessary to determine the Capital Account of a Member, the Capital Account of such Member shall be determined after giving effect to all allocations and distributions for transactions effected prior to the time as of which such determination is to be made. Any Member, including any substitute Member, who shall acquire an interest or whose interest shall be increased by means of a transfer to it of all or part of the interest of another Member, shall have a Capital Account which reflects such transfer.

ARTICLE 8
ALLOCATIONS OF PROFITS AND LOSSES

8.1

Definitions Related to Allocations of Net Profits and Net Losses.  For purposes of this Agreement, the following terms shall have the meanings set forth below:

“Net Profits” and “Net Losses” means, for each Fiscal Year or other period, an amount equal to the Company’s taxable income or loss, respectively, for such year or period, determined in accordance with Section 703(a) of the Code (and for this purpose, all items of income, gain, loss, or reduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments:

26

(i)

Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this Section 8.1 shall be added to such taxable income or loss;

(ii)

Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as 705(a)(2)(B) expenditures pursuant to Regulation Section 1.704-l(b)(2)(iv)(i), and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this Section 8.1 shall be subtracted from such taxable income or loss;

(iii)

In the event the Book Value of any Company asset is adjusted in compliance with Regulation Section 1.704-1(b), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Profits or Net Losses;

(iv)

Gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of the property disposed of notwithstanding that the adjusted tax basis of such property differs from its Book Value;

(v)

In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, whenever the Book Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of a Fiscal Year, depreciation, amortization or other cost recovery deductions allowable with respect to an asset shall be an amount which bears the same ratio to such beginning Book Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income taxes of an asset at the beginning of a year is zero, depreciation, amortization or other cost recovery deductions shall be determined by reference to the beginning Book Value of such asset using any reasonable method selected by the Man ager; and

(vi)

Notwithstanding any other provision of this Article 8, any items which are specially allocated pursuant to Section 8.6 shall not be taken into account in computing Net Profits or Net Losses.

“Nonrecourse Deductions” has the meaning set forth in Sections 1.704-2(b)(1) and 1.704-2(c) of the Regulations. Subject to the preceding sentence, the amount of Nonrecourse Deductions for a Fiscal Year equals the excess, if any, of the net increase, if any, in the amount of Company Minimum Gain during that Fiscal Year (determined under Section 1.704-2(d) of the Regulations) over the aggregate amount of any distributions during that Fiscal Year of proceeds of a Nonrecourse Liability that are allocable to an increase in Company Minimum Gain (determined under Section 1.704-2(h) of the Regulations).

“Nonrecourse Liability” has the meaning set forth in Section 1.704-2(b)(3) of the Regulations.

27

“Member Minimum Gain” means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability.

“Member Nonrecourse Debt” has the meaning set forth in Section 1.704-2(b)(4) of the Regulations.

“Member Nonrecourse Deductions” has the meaning set forth in Section 1.704-2(i) of the Regulations. Subject to the foregoing, the amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt for a Fiscal Year equals the excess, if any, of the net increase, if any, in the amount of Member Minimum Gain attributable to such Member Nonrecourse Debt during that Fiscal Year over the aggregate amount of any distribution during that Fiscal Year to the Member that bears the economic risk of loss for such Member Nonrecourse Debt to the extent such distributions are from the proceeds of such Member Nonrecourse Debt and are allocable to an increase in Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i) of the Regulations.

“Company Minimum Gain” has the meaning set forth in Section 1.704-2(d) of the Regulations. Subject to the foregoing, Company Minimum Gain shall equal the amount of gain, if any, which would be recognized by the Company with respect to each nonrecourse liability of the Company if the Company were to transfer the Company’s property which is subject to such nonrecourse liability in full satisfaction thereof.

8.2

Allocations of Net Profits and Net Losses.

(a)

Net Losses.  Subject to, and after giving effect to, the special allocations described in Section 8.6, Net Losses for any Fiscal Year or other allocation period shall be allocated to the Members so as to reduce, proportionally and to the extent possible, the difference between their respective Partially Adjusted Capital Accounts and Target Capital Accounts for such Fiscal Year or period.  No portion of the Net Losses for any Fiscal Year or other allocation period shall be allocated to a Member whose Target Capital Account is greater than or equal to his Partially Adjusted Capital Account for such Fiscal Year or period.

(b)

Net Profits.  Subject to, and after giving effect to, the special allocations described in Section 8.6, Net Profits for any Fiscal Year or other allocation period shall be allocated to the Members so as to reduce, proportionally and to the extent possible, the difference between their respective Target Capital Accounts and Partially Adjusted Capital Accounts for such Fiscal Year or period.  No portion of the Net Profits for any Fiscal Year or other allocation period shall be allocated to a Member whose Partially Adjusted Capital Account is greater than or equal to his Target Capital Account for such Fiscal Year or period.

8.3

Proration of Items.  Except to the extent otherwise required by applicable law, in applying Sections 8.2, 8.4 and 8.6 of this Agreement, to the extent possible, each item of income, gain, loss and deduction shall be allocated among the Members in the same proportions as each other such item.

28

8.4

Limitation on Loss Allocations.  Notwithstanding anything in this Agreement to the contrary:

(a)

No loss or item of deduction shall be allocated to a Member if such allocation would cause the Capital Account of such Member to have a deficit in excess of the sum of (i) the amount of additional capital such Member would be required to contribute to the Company if the Company were to dissolve on the last day of the accounting period to which such allocation relates plus, (ii) such Member’s distributive share of Company Minimum Gain as of the last day of such accounting period, determined pursuant to Regulation Section 1.704-2(g)(1), plus (iii) such Member’s share of Member Minimum Gain as of the last day of such year, determined pursuant to Regulation Section 1.704-2(i)(5). Any amounts not allocated to a Member pursuant to the limitations set forth in this paragraph shall be allocated to the other Members to the extent possible without violating the limitations set f orth in this paragraph.

(b)

For purposes of the preceding paragraph, the balance of a Member’s Capital Account shall be determined after reducing such Capital Account by (i) all anticipated allocations of loss or deduction pursuant to Sections 704(e)(2) and 706(d) of the Code, and Section 1.751-1(b)(2)(ii) of the Treasury Regulations, and (ii) anticipated distributions to such Member to the extent such anticipated distributions exceed anticipated increases to such Member’s Capital Account during or prior to the year of distribution (other than increases which may not be taken into account pursuant to Section 1.704-1(b)(2)(ii)(d)(6) of the Regulations).

8.5

Intentions and Construction of Allocations.  The allocation of Net Profits, Net Losses and other items of income, gain, loss and deduction pursuant to this Article 8 are intended to have substantial economic effect within the meaning of Regulation Section 1.704-1(b)(2) or be in accordance with the Members’ interests in the Company within the meaning of Regulation Section 1.704-1(b)(3), and shall be interpreted in accordance with such intent.  If the Board of Directors subsequently determines that the allocations pursuant to this Article 8 neither have substantial economic effect nor are in accordance with the Members’ interests in the Company, or that the amount of Net Losses or Net Profits makes it impossible to observe the limitations in the last sentences of Sections 8.2(a) or 8.2(b), the Company may (with the approval of the Board of Directors): (a) allocate the incom e, gain, loss, and deduction of the Company so that such allocations have substantial economic effect or are in accordance with the Members’ interests in the Company; or (b) make such other modifications to this Agreement in order to cause such allocations to have substantial economic effect or be in accordance with the Members’ interests in the Company, provided such modifications do not adversely affect the economic rights of any Member under this Agreement.

8.6

Special Allocations.  The following special allocations shall be made in the following order:

(a)

Minimum Gain Chargeback.  Except as otherwise provided in Section 1.704-2(f) of the Regulations, in the event there is a net decrease in Company Minimum Gain during a Company taxable year, each Member shall be allocated (before any other allocation is made pursuant to this Article 8) items of income and gain for such year (and, if necessary, for subsequent years) equal to that Member’s share of the net decrease in Company Minimum Gain.

29

(i)

The determination of a Member’s share of the net decrease in Company Minimum Gain shall be determined in accordance with Regulation Section 1.704-2(g).

(ii)

The items to be specially allocated to the Members in accordance with this Section 8.6(a) shall be determined in accordance with Regulation Section l.704-2(f)(6).

(iii)

This Section 8.6(a) is intended to comply with the Minimum Gain chargeback requirement set forth in Section 1.704-2(f) of the Regulations and shall be interpreted consistently therewith.

(b)

Member Minimum Gain Chargeback.  Except as otherwise provided in Regulation Section 1.704-2(i)(4), in the event there is a net decrease in Member Minimum Gain during a Company taxable year, each Member who has a share of that Member Minimum Gain as of the beginning of the year, to the extent required by Regulation Section 1.704-2(i)(4) shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) equal to that Member’s share of the net decrease in Member Minimum Gain.

Allocations pursuant to this subparagraph (b) shall be made in accordance with Regulation Section 1.704-2(i)(4). This subsection 8.6(b) is intended to comply with the requirement set forth in Regulation Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

(c)

Qualified Income Offset Allocation.  In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) which would cause the negative balance in such Member’s Capital Account to exceed the sum of (i) its obligation to restore a Capital Account deficit upon liquidation of the Company, plus (ii) his share of Company Minimum Gain determined pursuant to Regulation Section 1.704-2(g)(1), plus (iii) such Member’s share of Member Minimum Gain determined pursuant to Regulation Section 1.704-2(i)(5), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate such excess negative balance in such Member’s Capital Account as quickly as possible. This Sectio n 8.6(c) is intended to comply with the alternative test for economic effect set forth in Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

(d)

Gross Income Allocation.  In the event any Member has a deficit Capital Account at the end of any Fiscal Year which is in excess of the sum of (i) any amounts such Member is obligated to restore pursuant to this Agreement, plus (ii) such Member’s distributive share of Company Minimum Gain as of such date, plus (iii) such Member’s share of Member Minimum Gain determined pursuant to Regulation Section 1.704-2(i)(5), each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 8.6(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Section 8 have been made, except assuming that Section 8.5(c), and this Section 8.5(d) were no t contained in this Agreement.

30

(e)

Allocation of Depreciation and Nonrecourse Deductions.  Nonrecourse Deductions shall be allocated each Fiscal Year 77% to Western and 23% to Inland Member.

(f)

Allocation of Member Nonrecourse Deductions.  Member Nonrecourse Deductions shall be allocated as prescribed by the Regulations.

(g)

Other Special Allocations.

(i)

If the Company has Net Profits for any Fiscal Year or other allocation period (determined prior to giving effect to this Section 8.6(g)), each Member whose Partially Adjusted Capital Account is greater than his Target Capital Account for such Fiscal Year or period shall be specially allocated items of deduction or loss for such Fiscal Year or period equal to the difference between his Target Capital Account and his Partially Adjusted Capital Account.  In the event the Company has insufficient items of deduction or loss for such Fiscal Year or period to satisfy the previous sentence with respect to all such Members, the available items of deduction or loss shall be divided among such Members in proportion to such differences.  

(ii)

If the Company has Net Losses for any Fiscal Year or other allocation period (determined prior to giving effect to this Section 8.6(g)), each Member whose Target Capital Account is greater than his Partially Adjusted Capital Account for such Fiscal Year or period shall be specially allocated items of income or gain for such Fiscal Year or period equal to the difference between his Target Capital Account and his Partially Adjusted Capital Account.  In the event the Company has insufficient items of income or gain for such Fiscal Year or period to satisfy the previous sentence with respect to all such Members, the available items of income or gain shall be divided among such Members in proportion to such differences.

(iii)

The availability of items of income, gain, deduction or loss to be specially allocated pursuant to this Section 8.6(g) shall be determined after giving full effect to all other provisions of this Section 8.6.

8.7

Built-In Gain or Loss/Section 704(c) Tax Allocations.  In the event that the Capital Accounts of the Members are credited with or adjusted to reflect the fair market value of the Company’s property and assets, the Members’ distributive shares of depreciation, depletion, amortization, and gain or loss, as computed for tax purposes, with respect to such property, shall be determined pursuant to Section 704(c) of the Code and the Regulations thereunder, so as to take account of the variation between the adjusted tax basis and Book Value of such property, in accordance with the “traditional method” with curative allocations, as provided for under Treasury Regulations Section 1.704-3(c) [I-West to review]. Any deductions, income, gain or loss specially allocated pursuant to this Section 8.7 shall not be taken into account for purposes of determining Net Prof its or Net Losses or for purposes of adjusting a Members’ Capital Account.

8.8

Recapture.  Ordinary taxable income arising from the recapture of depreciation and/or investment tax credit shall be allocated to the Members in the same manner as such depreciation and/or investment tax credit was allocated to them.

8.9

Retention of Section 751 Assets.  Upon the occurrence of an event which would otherwise cause a reduction in a Member’s respective interest in the Company’s Section 751

31

assets (“substantially appreciated inventory” and “unrealized receivables” as defined in Section 751 of the Code), such as the admission of new Members or otherwise, no such reduction shall occur with respect to Members who were Members immediately preceding such event and who continue to be Members after the occurrence of such event but, rather, each such Member shall retain its respective interest in the Company’s Section 751 assets existing immediately prior to such event.

8.10

Prohibition Against Retroactive Allocations.  Notwithstanding anything in this Agreement to the contrary, no Member shall be allocated any loss, credit or income attributable to a period prior to its admission to the Company. In the event that a Member transfers all or a portion of its Membership Interest, or if there is a reduction in a Member’s Percentage Interest due to the admission of new Members or otherwise, each Member’s distributive share of Company items of income, loss, credit, etc., shall be determined by taking into account each Member’s varying interests in the Company during the Company’s taxable year. For this purpose, unless the Board of Directors elects to provide for an interim closing of the Company’s books, each Member’s distributive share shall be estimated by taking the pro rata portion of the distributive share such Member would have included in its taxable income had it maintained its Membership Interest throughout the Company year. Such proration shall be based upon the portion of the year during which such Member held the Membership Interest, except that extraordinary, non-recurring items shall be allocated to the Persons holding Membership Interests at the time such extraordinary items occur.

ARTICLE 9
DISTRIBUTIONS TO MEMBERS

9.1

Operating Distributable Cash.  

(a)

Operating Distributable Cash shall be distributed on a monthly basis, if available, as follows:

(i)

First, to Inland Member, until it has received a cash return of six percent (6%) per annum on its outstanding Capital Contributions from time to time;

(ii)

Then, to Inland Member, until it has received any uncollected amounts pursuant to clause (i) above with respect to prior months, with a cash return of 6% per annum, compounded monthly at 6% per annum;

(iii)

Then, to Inland Member, a “promote” equal to five percent (5%) per annum on its outstanding Capital Contributions from time to time (the “Promote”), provided, however, the Promote shall not be distributed to Inland Member, but shall be reserved monthly by the Manager, and paid quarterly subject to the conditions in Section 9.2 below;

(iv)

Then, to Inland Member, until it has received any uncollected (or unreserved) cumulative Promote pursuant to clause (iii) above with respect to prior months, with a cash return of 5% per annum, compounded quarterly at 5% per annum, provided, however, such accrued Promote shall not be distributed to Inland Member, but

32

shall be reserved monthly by the Manager, and paid quarterly subject to the conditions in Section 9.2 below;

(v)

Then, to Inland Management, until it has received all accrued and current fees described on Exhibit E (excluding the Administrative Fee) (the “Fees”);

(vi)

Then, to Western, until it has received a cash return of ten percent (10%) per annum, compounded monthly at 10% per annum, on its outstanding Capital Contributions from time to time;

(vii)

Then, to Western (or at Western’s direction, to Inland Management), until it has received all accrued and current Administrative Fees;

(viii)

Then, to the Members in proportion to their respective Percentage Interests.

(b)

Upon a good faith distribution of funds in the manner expressly provided in this Section 9.1, the Manager shall incur no liability on account of such distributions, even though such distributions may result in the Company retaining insufficient funds for the operation of its business, which insufficiency may result in a loss to the Company or necessitate the borrowing of funds by the Company.

9.2

Distribution of Promote.  The Promote shall be reserved by the Company on a monthly basis pursuant to Section 9.1 above, and shall be deposited in an segregated, interest-bearing account which need not be a trust account.  Within thirty (30) days after the end of each calendar quarter, Manager shall determine Net Operating Income for such preceding calendar quarter.  If Net Operating Income for such calendar quarter equals or exceeds the Target NOI, then the entire reserve, including all previously undistributed Promotes, shall be paid to Inland Member by the Company.  If the Net Operating Income for such calendar quarter does not equal or exceed the then current Target NOI, then the Promote shall remain in such reserve pending the calculation of Net Operating Income to be made with respect to the next quarter.  Upon a termination or dissolution of the Company pursua nt to Article 13 hereof, all reserved but previously unpaid Promotes shall be paid to Inland Member by the Company.

9.3

Capital Event Distributable Cash.  

(a)

Capital Event Distributable Cash arising with respect to an Existing Portfolio Project other than from a Dissolution Event shall be distributed as soon as practicable after the Company’s receipt of the same, but in any event within thirty (30) days after the occurrence of the Capital Event (but in no event sooner than the distribution of Operating Distributable Cash for the month in which the Capital Event occurred), as follows:

(i)

First, to the Members, to the extent of and in proportion to the outstanding principal balance of their Initial Capital Contributions until reduced to zero;

(ii)

Then, to the Members, to the extent of and in proportion to the outstanding principal balance of their Additional Capital Contributions until reduced to zero;

33

(iii)

Then, to Inland Member, until it has received a cash return of six percent (6%) per annum on its outstanding Capital Contributions from time to time;

(iv)

Then to Inland Member, until it has received any uncollected amounts pursuant to clause (iii) above with respect to prior months, with a cash return of 6% per annum, compounded monthly at 6% per annum;

(v)

Then, to Inland Member, until it has received the Promote, provided, however, the Promote shall not be distributed to Inland Member, but shall be reserved monthly by the Manager, and paid quarterly subject to the conditions in Section 9.2 above;

(vi)

Then, to Inland Member, until it has received any uncollected (or unreserved) cumulative Promote pursuant to clause (v) above with respect to prior months, with a cash return of 5% per annum, compounded quarterly at 5% per annum, provided, however, such accrued Promote shall not be distributed to Inland Member, but shall be reserved monthly by the Manager, and paid quarterly subject to the conditions in Section 9.2 above;

(vii)

Then, to Inland Management, until it has received any accrued and Fees;

(viii)

Then, to Western (or at Western’s direction, to Inland Management), until it has received any accrued and current Administrative Fees;

(ix)

Then, to Inland Member, until it has received a special distribution, which, together with all previous special distributions from Capital Event Distributable Cash, shall equal Five Million and 00/100 Dollars ($5,000,000.00);

(x)

Then, to Western, until it has received a cash return of ten percent (10%) per annum, compounded monthly at 10% per annum, on its outstanding Capital Contributions from time to time; and

(xi)

Then, to the Members in proportion to their respective Percentage Interests.

(b)

Upon and after the occurrence of a Dissolution Event, all Capital Event Distributable Cash shall be distributed in accordance with Section 9.3(a).  For the avoidance of doubt, any Operating Distributable Cash held by the Company at the time of a Capital Event shall be distributed by the Company pursuant to Section 9.1 prior to distributing Capital Event Distributable Cash resulting from such Capital Event pursuant to this Section 9.3.

(c)

Upon a good faith distribution of funds in the manner expressly provided in this Section 9.3, the Manager shall incur no liability on account of such distributions, even though such distributions may result in the Company retaining insufficient funds for the operation of its business, which insufficiency may result in a loss to the Company or necessitate the borrowing of funds by the Company.

34

(d)

[Omitted].

9.4

Tax Distributions.  Notwithstanding any provision of this Agreement to the contrary, the Company shall, unless otherwise unanimously agreed by the Board of Directors, distribute to each Member, during the one year period ending on March 15th of each Fiscal Year, an amount not less than the product of: (x) the net amount of taxable income or gain allocated by the Company to such Member (offset by any taxable losses or deductions) with respect to the prior Fiscal Year, multiplied by (y) the maximum marginal combined state (using the State of Illinois income tax rate) and federal income tax rates for individual taxpayers for such prior year.  The Manager shall cause the Company to make periodic distributions pursuant to this Section 9.4 at such times as shall facilitate the Members’ (and, as applicable, their indirect owners’) efforts to remit estimated income tax payments t o the Internal Revenue Service on a timely basis.  Any amounts distributed to a Member pursuant to this Section 9.4 shall be credited against amounts which the Member receiving such distribution would otherwise be entitled to receive pursuant to Article 9 of this Agreement.

9.5

Annual Reconciliation.

(a)

After the initial one hundred twenty (120) days immediately following the date of this Agreement, the Manager shall reconcile any items that are deemed to be adjustments to Initial Capital Contributions as a result of proratable items in connection with the conveyance of the Existing Portfolio Projects to the Company or the closing of the Contemplated New Debt.  No such prorations shall result in a distribution of Capital Contributions.

(b)

Not later than one hundred twenty (120) days after the expiration of each Fiscal Year (or upon the disposition of all Existing Portfolio Projects during a Fiscal Year), the Manager shall ascertain the amount of Distributable Cash for such preceding Fiscal Year that each Member should have received pursuant to Sections 9.1 and 9.3 (the “Reconciliation Calculation”). Based upon the Reconciliation Calculations, the Members shall reconcile between themselves any overpayments or underpayments of Distributable Cash received by the Members during the applicable Fiscal Year. Such reconciliation shall be made within thirty (30) days after the computation of the Reconciliation Calculation, and be taken into account in applying future distributions under Sections 9.1 and 9.3 hereof.

9.6

Limitation Upon Distributions.  No distribution shall be made to Members if prohibited by Section 18-607 of the Delaware Act.

ARTICLE 10
CERTAIN FEES

10.1

Certain Fees to Western and Western Affiliates.  With respect to all Existing Portfolio Projects, Inland Management shall be initially engaged to provide certain services pursuant to existing Property Management Agreements; and to the extent Western provides such services, Inland Management shall be entitled to receive certain Fees from the Company or the applicable Project Entity as set forth therein. The Company shall pay (or cause the applicable Project Entity to pay) the Fees to Inland Management from Operating Distributable Cash in accordance with Section 9.1 hereof, and from Capital Event Distributable Cash in accordance

35

with Section 9.3 hereof, and to the extent that Operating Distributable Cash in a calendar month and/or Capital Event Distributable Cash is insufficient to pay such property management fees in accordance with Section 9.1 and 9.3 hereof, such fees shall accrue.   By its execution of the attached Joinder Agreement, Inland Management acknowledges and agrees that its existing Property Management Agreements shall be deemed amended to reflect such accrual feature.

ARTICLE 11
BOOKS AND RECORDS

11.1

Accounting Period.  The Company’s accounting period shall be the calendar year.

11.2

Records.  Proper and complete records and books of account shall be maintained by the Company in conformity with generally accepted accounting principles consistently applied. All transactions and other matters relating to the Company’s business shall be entered fully and accurately in such records and books of account in such detail and completeness as is customary and usual for businesses of the type engaged in by the Company. The books and records shall at all times be maintained at the principal executive office of the Company and shall be open to the reasonable inspection and examination of the Members or their duly authorized representatives during reasonable business hours upon reasonable prior notice to Manager. The Company shall also keep at its principal place of business the following records:

(a)

A current list of the full name and last known address of each Member;

(b)

Copies of records to enable a Member to determine the relative voting rights, if any;

(c)

A copy of the Certificate of Formation of the Company and all amendments thereto;

(d)

Copies of the Company’s federal, state, and local income tax returns and reports, if any, for the three most recent years;

(e)

Copies of this Agreement, together with any amendments thereto;

(f)

Copies of any financial statements of the Company for the three most recent years; and

(g)

Copies of all minutes from meetings of the Board of Directors.

11.3

Audits and Reports.  Western shall deliver to Inland Member the following financial statements and reports at the times indicated below:  

(a)

On or before the execution of this Agreement and thereafter on each subsequent October 1st thereafter during the term of this Agreement, Western shall prepare and submit to the Board of Directors a budget for each Existing Portfolio Project (the “Project Budget”) and the Company for the next ensuing calendar year (each such budget an “Annual Budget”). Inland Member acknowledges that Western has submitted a Project Budget and an Annual Budget for 2010 and that the next due date for updated Project Budgets and Annual

36

Budget shall be October 1, 2010. The Project Budget and the Annual Budget shall include a summary in reasonable detail of all activities or operations contemplated with respect to the applicable Existing Portfolio Project and the Company for the period in question, including details of anticipated expenditures and revenues. If the Board of Directors does not approve an Annual Budget for any year prior to the commencement of such year, then, until the Board of Directors shall agree upon the Annual Budget for such year, the Annual Budget in effect for the immediately preceding year shall constitute the Annual Budget for such year, except that (i) any items or portions of the Annual Budget for such year upon which the Board of Directors agrees shall be substituted for the corresponding items in the most recent Annual Budget, and (ii) with respect to all items of cost and expense that a re not within the discretion of the Company (including, for example, debt service, real property taxes, utilities, costs of compliance with governmental requirements) the actual cost may be incurred.

(b)

Within forty-five (45) days after the disposition of an Existing Portfolio Project, Western shall deliver to the Members a complete set of documentation evidencing such disposition and such other information as the Members may reasonably request in connection therewith.

(c)

Within thirty (30) days after the expiration of each calendar quarter, Western shall deliver or cause to be delivered to Inland Member and/or its designees in a mutually acceptable format reports showing, among other things, the results of the operations of each property in the Existing Portfolio for the immediately preceding calendar quarter and year-to-date, together with an analysis of actual results for such property in the Existing Portfolio compared to the Annual Budget for such property in the Existing Portfolio on a quarterly and year-to-date basis. Such reports shall also contain a detailed quarterly and Fiscal-Year-to-date description of all receipts and other collectible charges for each tenant or debtor, plus a schedule of all outstanding receivables.

(d)

Within ninety (90) days after the expiration of each taxable year, Western will provide to Inland Member a draft of year end financial statements and a draft of all Federal, State and local tax returns for the immediately preceding calendar year for the Company and, to the extent required by any applicable law, code or regulation, each Project Entity.

(e)

Within one hundred twenty (120) days after the expiration of each calendar year Western shall deliver to Inland Member financial statements for the Company audited by an independent certified public accounting firm acceptable to the Board of Directors in accordance with GAAP consistently applied.

(f)

By April 1 following the end of each Fiscal Year, Western shall deliver to Inland Member a final K-1 partnership return for the preceding taxable year for the Company and, to the extent required by applicable law, each Company Entity.

(g)

The Company shall pay in accordance with the applicable Annual Budget for the Company the costs of any third parties providing the Company with auditing and tax preparation services.

37

11.4

Methods of Accounting.  All financial reports of the Company shall be prepared in accordance with GAAP consistently applied. All elections with respect to tax matters to be made by or for the Company shall be made by the TMM.

11.5

Tax Matters Member.  For purposes of Code §§ 6221 through 6233, the TMM shall have the following duties:

(a)

The TMM shall keep the Members informed of all administrative and judicial proceedings, as required by Code § 6223(g), and shall furnish to the Members a copy of each notice or other communication received by the TMM from the Internal Revenue Service (except such notices or communications as are sent directly to the Members by the Internal Revenue Service). The TMM is hereby authorized and required by the Members to file all tax returns of the Company and in all instances to elect to treat the Company as a partnership for tax purposes. The expenses so incurred by the TMM shall be Company expenses and shall be paid by the Company in accordance with the applicable Annual Budget for the Company.

(b)

Subject to Section 5.2, the TMM shall have the authority, on behalf of the Company, to do all or any of the following:

(i)

enter into a settlement agreement or make any election with the IRS which purports to bind any other Member;

(ii)

file a petition as contemplated in Code § 6226(a) or 6228;

(iii)

intervene in any action as contemplated in Code § 6226(b);

(iv)

file any request contemplated in Code § 6227(b);

(v)

enter into an agreement extending the period of limitations as contemplated in Code § 6229(b)(l)(B); and

(vi)

in the event of a transfer of all or any portion of the Interests of any Member, elect pursuant to Section 754 of the Code to adjust the basis of assets of the Company; provided, however, that the TMM shall make such an election upon the request of any Member.

Should the TMM wish to resign, the Board of Directors shall promptly appoint a replacement, upon which such resignation shall be effective.

11.6

Matters Concerning Banking.  Funds of the Company shall be deposited in an account or accounts of a type, in form and name of the Company and in a bank or banks selected by the Manager. All funds of the Company shall be used solely for the business of the Company.

11.7

Legal Counsel.  The initial legal counsel for the Company (“Company Counsel”) shall be Katten Muchin Rosenman LLP.  The Board of Directors shall have the unilateral right to cause the Manager to change the Company Counsel.  All costs and expenses of Company Counsel shall be project expenses and shall be included as a contribution of capital to the relevant Existing Portfolio Project; provided, however, the parties shall use commercially

38

reasonable, good faith efforts to develop and utilize standardized acquisition, disposition and organizational documents to minimize legal costs and expenses where possible. At the request of Inland Member, the Company shall cause Company Counsel to confer with outside counsel selected and paid by Inland Member (the “Inland Member’s Counsel”) concerning matters affecting the Company and will provide Inland Member’s Counsel with copies of such documents and agreements as Inland Member’s Counsel may reasonably request from time to time.

11.8

Company Accountants.  The initial accountants of the Company (“Accountants”) shall be Deloitte & Touche LLP and Deloitte Tax LLP.  The Board of Directors shall have the unilateral right to cause the Manager to remove the Accountants of the Company, no less than 120 days prior to the beginning of a new calendar year, in which event the Board of Directors will select replacement Accountants.  Inland Member shall have the right, at its cost and expense, to engage a separate independent public accounting firm selected by Inland Member to audit the books and records of the Company from time to time and Manager shall reasonably cooperate with such audit.

11.9

Certification.

(a)

The Company shall issue two (2) limited liability company certificates, each in the form of Exhibit M attached hereto (each an “LLC Certificate”), in the names of Western and Inland Member.  For purposes of this Agreement, the term “record holder” shall mean the Person whose name appears on the books and records of the Company as the Member owning the limited liability company interest at issue.

(b)

The Company shall maintain books for the purpose of registering the transfer of limited liability company interests in the Company.  A limited liability company interest in the Company which is transferred in accordance with the terms of this Agreement shall be transferable on the books of the Company by the record holder thereof in person or by such record holder’s duly authorized attorney, but, except as provided in subsection (c) below with respect to lost, stolen or destroyed certificates, no transfer of a limited liability company interest in the Company shall be entered until the previously issued LLC Certificate representing such interest shall have been endorsed and surrendered to the Company and canceled and a replacement LLC Certificate issued to the assignee of such interest in accordance with such procedures as the Company may establish.  Subject to Articles 12 and 14 hereof, in the event of a t ransfer of less than all of a Member’s limited liability company interest in the Company, the Company shall issue to the transferring Member a new LLC Certificate representing the limited liability company interest in the Company not being transferred.  Except as otherwise required by law, the Company shall be entitled to treat the record holder of an LLC Certificate on its books as the owner thereof for all purposes regardless of any notice or knowledge to the contrary.

(c)

Subject to Articles 12 and 14 hereof, the Company shall issue a new LLC Certificate in place of any LLC Certificate previously issued if the record holder of the LLC Certificate:

39

(1)

Makes proof by affidavit, in form and substance satisfactory to the Company, that a previously issued LLC Certificate has been lost, destroyed or stolen;

(2)

Requests the issuance of a new LLC Certificate before the Company has notice that the LLC Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim;

(3)

Indemnifies the Company and each other Member against any claim that may be made on account of the alleged loss, destruction or theft of the LLC Certificate; and

(4)

Satisfies any other reasonable requirements imposed by the Company.

If a Member fails to notify the Company within a reasonable time after it has notice of the loss, destruction or theft of an LLC Certificate, and a transfer of the limited liability company interests in the Company represented by the LLC Certificate is registered before receiving such notification, the Company shall have no liability with respect to any claim against the Company for such transfer or for a new LLC Certificate.

(d)

Each limited liability company interest in the Company shall constitute a “security” within the meaning of, and governed by, Article 8 of the Uniform Commercial Code (the “UCC”) as in effect from time to time in any relevant jurisdiction, including without limitation the UCC as in effect from time to time in the State of Delaware (including 57A-8-102(a)(15) and 57A-8-103(c) thereof) (Del. Code tit. 6, § 8-101 et seq.).  Notwithstanding any provision of this Agreement to the contrary, to the extent that any provision of this Agreement is inconsistent with any non-waivable provision of Article 8 of the UCC, such provision of Article 8 of the UCC shall control.

ARTICLE 12
TRANSFERABILITY AND WITHDRAWAL

12.1

Transfer Limitations.

(a)

Except as expressly provided in Sections 12.2 through 12.6 below, no Member shall sell, assign, transfer, mortgage, charge or otherwise encumber, or suffer any third party to sell, assign, transfer, mortgage, charge or otherwise encumber, or contract to do or permit any of the foregoing, whether voluntarily or by operation of law (herein sometimes collectively called a “Transfer”), any part or all of its interest in the Company, or substitute a transferee in its place as a substitute Member of the Company, without the unanimous written consent of all Members and any attempt to do so shall be void. In no event shall the Manager approve any Transfer to any person or entity that is not an “accredited investor” as defined in Regulation D promulgated pursuant to the Securities Act.

(b)

In order to effectuate the purpose of this Section 12.1, each Member that is an entity will seek to Transfer its interest in the Company only through a direct Transfer of such interest therein in the manner contemplated in this Article 12, and no Transfer or other disposition

40

of any stock or partnership or other beneficial interest in any such Entity will be effected, directly or indirectly, unless unanimously approved by the Members.

(c)

In the event of a Transfer of any interest in contravention of the provisions of this Section 12.1, the person or entity to whom such Transfer is made shall become neither a Member nor an assignee or holder hereunder, and shall not be entitled to participate in any decision or to receive any share of profits or cash in respect of the Company’s business or to share in distributions, if any, in which its assignor would otherwise have been entitled to share, and shall have no right to require any information or accounting of any transactions of the Company, and such assignee shall not be entitled to vote with respect to any Company matter. No transferee shall be a Member nor shall it have any of the rights thereof until admitted as a Member pursuant to this Section 12.1 and until such transferee shall have executed a counterpart of this Agreement and agreed in writing to assum e and be bound by all of the relevant obligations of the transferor.

(d)

Each Member shall perform reasonable due diligence to insure that at all times throughout the term of the Contemplated New Debt, no transferee shall be an Embargoed Person.

12.2

Right of First Offer; Tag Along Right.  

(a)

At any time after the ninety (90) day anniversary of the date of this Agreement, a Member (who did not commit a Default Event) may sell its Membership Interest, subject to the restrictions imposed by any existing financing documents, including the Contemplated New Debt and the terms hereof, provided, however, Western may not sell pursuant to this Section 12.2(a) a portion of its Membership Interest comprising more than twenty five percent (25%) of the outstanding Membership Interests in the Company without also complying with Section 12.2(c) below.  The Member wishing to sell its Membership Interest (the “Offeror”) must first deliver written notice (a “Sell Trigger Notice”) to the other Member (the “Respondent”) specifying in writing the price (the “Stated Selling Price”) at which the Offeror would be willi ng to sell its entire Membership Interest to the Respondent.  Any Sell Trigger Notice shall reference the invocation of this Section 12.2(a) and shall constitute an irrevocable offer from the Offeror to the Respondent to sell all, but not less than all, of the Offeror’s Membership Interest in the Company at the Stated Selling Price. Within fifteen (15) days following a triggering of the provisions of this Section 12.2(a), the Respondent shall notify the Offeror of its intention either (x) to buy all of the Offeror’s Membership Interest in the Company from the Offeror for the Stated Selling Price, or (y) to permit the Offeror to sell its Membership Interest to an independent third-party pursuant to an arm’s length transaction for an amount equal to or greater than 97% of the Stated Selling Price (the “Required Third Party Price”), without regard to the restrictions set forth in Section 12.1 above. In the event the Respondent fails to timely notify the Offeror of its electi on pursuant to this Section 12.2(a), the Respondent shall be deemed to have elected to proceed pursuant to clause (y) above.

(b)

In the event the Respondent elects or is deemed to have elected to proceed pursuant to clause (y) of Section 12(a) above, the Offeror shall have the right for a period of twelve (12) months after the date of the Sell Trigger Notice (the “Third Party Sale Period”) to sell its Membership Interest in the Company to a bona fide third party for the Required Third Party Price. In the event the Offeror fails to consummate the sale of its Membership Interest for

41

the Required Third Party Price prior to the expiration of the Third Party Sale Period, Offeror’s rights to sell its Membership Interest to a third party will be revoked until such time as the Offeror has repeated the process set forth in Section 12.2(a) and provided the Respondent with the right to make its election pursuant to Section 12.2(a) above.

(c)

In the event that Western desires to sell a portion of its Membership Interest comprising more than twenty five percent (25%) of the outstanding Membership Interests in the Company pursuant to this Section 12.2 and has complied with the provisions of Sections (a) and (b) above, and subject to the restrictions imposed by any existing financing documents (including the Contemplated New Debt), Western shall give Inland Member fifteen (15) days written prior notice of such proposed sale, and Inland Member shall have five (5) days after receipt of such notice to elect (a “Tag Along Election”) either to (x) sell all, but not less than all, of its Membership Interest to the proposed purchaser, on the same terms and conditions as the Western sells its Membership Interest and at a price equal to the greater of (I) a price based on Western’s price, prorated to reflec t the difference in percentage Membership Interests being sold or (II) the Call Price (the “Tag Along Price”), or (y) not to sell its Membership Interest.   If Inland Member makes a Tag Along Election, then Western shall cause, as a condition of its sale, the proposed purchaser to purchase the Inland Member’s Membership Interest from Inland Member at the Tag Along Price and upon the other terms and conditions upon which Western is selling its Membership Interest, except that each selling Member shall only be severally liable for any representations, warranties or indemnities in favor of the proposed purchaser regarding such Member, and Western only shall be liable for any representations, warranties or indemnities in favor of the proposed purchaser regarding the Company, any Company Entity or any Existing Portfolio Project, (ii) each Member shall receive a share of each form of consideration paid by the proposed purchaser calculated as set forth above.

(d)

If the Company desires to sell any Individual Property, any such sale must be in compliance with the terms of any existing financing documents, including the Contemplated New Debt encumbering such Individual Property.  In addition, in connection with any such proposed sale, the Company shall deliver to each Member written notice of its intention to sell, which notice shall specify the Individual Property to be sold and the proposed price and other terms of such sale (a “Property Sell Trigger Notice”).  The proposed price shall represent the Company’s good faith estimate of fair market value for such Individual Property.  Any such Property Sell Trigger Notice shall reference the invocation of this Section 12.2(d) and shall constitute an irrevocable offer from the Company to the Members to sell the applicable Individual Property to either Membe r at the price and upon the terms specified therein. Within fifteen (15) days following a triggering of the provisions of this Section 12.2(d), the Members shall notify the Company of their intention either (x) to buy the Individual Property at the price and upon the terms specified in the Property Sell Trigger Notice, or (y) to permit the Company to sell the Individual Property to a bona fide third-party purchaser pursuant to an arm’s length transaction at a price equal to or greater than 97% of the price identified in the Property Sell Trigger Notice and upon the terms specified in the Property Sell Trigger Notice.  In the event a Member fails to timely notify the Company of its election pursuant to this Section 12.2(d), such Member shall be deemed to have elected to proceed pursuant to clause (y) above.  If both Members timely elect to proceed pursuant to clause (x) above, then the Members and the Company shall negotiate with respect to the price only, and not the terms, until one Member is willing to pay a higher price than the other Member.  Thereafter, or if only one Member timely elects to proceed pursuant to clause

42

(x) above, the Company shall execute a purchase and sale agreement reflecting the price and the terms specified in the Property Sell Trigger Notice (or such higher negotiated price, if applicable), and shall proceed to closing in accordance with such contract.  If both Members elect, or are deemed to elect, to proceed pursuant to clause (y) above, then the Company may sell the applicable Individual Property to any bona fide third party purchaser for a price equal to or greater than 97% of the price identified in the Property Sell Trigger Notice and upon the terms specified in the Property Sell Trigger Notice, provided such sale closes within one hundred eighty (180) days of the date of the Property Sell Trigger Notice.

(e)

Any exercise of the provisions of clauses (a) or (b) of this Section 12.2 is also subject to the provisions of Section 12.4 below.

12.3

Western Call Right.  

(a)

At any time after the earlier to occur of (i) the occurrence of a Default Event by Inland Member, or (ii) the ninety (90) day anniversary of the date of this Agreement, Western may elect by providing Inland Member (also, in such instance, a “Respondent”) with written notice (the “Call Trigger Notice”) to purchase all of Inland Member’s Membership Interest in the Company.

(b)

In addition, if Western is to be acquired pursuant to a tender offer, Western shall, prior to such acquisition: (I)  be obligated to exercise its rights under Section 12.3(a) above and deliver a Call Trigger Notice, and (II) acquire Inland Member’s Membership Interest in accordance with Section 12.3(a) above, concurrently with implementation of such tender offer.

(c)

[Reserved].

(d)

The price payable in respect of Inland Member’s Membership Interest hereunder shall be an amount equal to (i) the greater of (X) the then outstanding amount of Inland Member’s Capital Contribution or (Y) the fair market value of Inland Member’s Membership Interest, plus (ii) an amount necessary to yield to Inland Member a cash return of six percent (6%) per annum, compounded monthly at six percent (6%) per annum, on its outstanding Capital Contributions from time to time, plus (iii) an amount necessary to yield to Inland Member an additional cash return of five percent (5%) per annum, compounded quarterly at five percent (5%) per annum, on its outstanding Capital Contributions from time to time, plus (iv) Five Million and 00/100 Dollars ($5,000,000.00) (the “Call Price”).

(e)

Exercise of the provisions of this Section 12.3 is also subject to the provisions of Section 12.4 below.

12.4

Provisions Applicable to Right of First Offer and Call Agreement.

(a)

[Reserved].

(b)

If any Member elects to purchase the other Member’s Membership Interest pursuant to clause (x) of Section 12.2(a) or Section 12.3 above, the purchasing Member shall deliver to a mutually acceptable escrow agent a non-refundable cash deposit within thirty (30) days of Respondent’s actual or deemed notice in the case of a transfer pursuant to clause (x) of

43

Section 12.2(a),  or within ten (10) days after delivery of the Call Trigger Notice in the case of a transfer pursuant to Section 12.3(a), in an amount equal to the lesser of (i) five percent (5%) of the Stated Selling Price or the price as determined by Section 12.3(d), as applicable, or (ii) $1,000,000 (the “Deposit”) to secure the purchasing Member’s obligations hereunder.

(c)

Closing of any sale pursuant to clause (x) of Section 12.2(a) or Section 12.3 above (“Closing”) shall occur on the thirtieth (30th) day following the date of the escrow agent’s receipt of the purchasing Member’s deposit as contemplated by Section 12.4(b) above (or, if such day is not a Business Day, the next succeeding Business Day) (the “Closing Date”), at the principal place of business of the Company, or at such other time and place as may be mutually agreed upon, and (unless otherwise agreed to by the parties) shall be on a cash basis. At such Closing: (i) the seller shall convey all of its Membership Interest in the Company, and warrant that (a) the Interest being sold by it is free and clear of all liens, encumbrances and rights of others, (b) it has full right and authority to sell such Interest and that the sale has been duly a uthorized, (c) the consummation of the transactions contemplated thereby will not violate the terms of any agreement to which the selling Member is a party, or any order, judgment, or decree applicable to the selling Member, and (d) no consent, approval, or authorization of any other person or entity is required on the part of the selling Member in connection with the consummation of the transactions contemplated thereby, (ii) the purchaser shall pay the seller, as applicable, either the Stated Selling Price or the price as determined by Section 12.3(d) of this Agreement, as applicable (the “Intra-Member Purchase Price”), less a credit for the Deposit (which shall be delivered by the escrow agent to the seller and the amount thereof credited against the Intra-Member Purchase Price), and as adjusted by customary closing prorations and customary closing costs, in cash or by certified or cashier’s check; and (iii) all parties shall execute and deliver such other documents as may be appropr iate to effect, evidence and perfect the transaction.

(d)

Should the purchaser pursuant to clause (x) of Section 12.2(a) or Section 12.3 above fail timely to close, the seller, as its exclusive remedies in the circumstances (i) shall be entitled to receive from the escrow agent, as liquidated damages for such failure, the Deposit deposited pursuant to Section 12.4(b) of this Agreement, (ii) shall have the right for a period of twelve (12) months after the scheduled Closing Date (the “Default Sale Period”) to sell its Membership Interest in the Company to a bona fide third party without a restriction on price, and (iii) in the case of a transaction pursuant to Section 12.3, Western’s rights pursuant to Section 12.3 shall be suspended for a period of twelve (12) months. In the event the seller thereafter fails to consummate the sale of its Membership Interests to a third party during the Default Sale Period, the sel ler’s rights to sell its Membership Interest to a third party will be suspended until such time as the seller has delivered a Sell Trigger Notice pursuant to Section 12.2(a).  If any Member which is the selling Member fails to perform its obligations contained in clause (x) of Section 12.2(a) or Section 12.3, (i) the buying Member may, in addition to its other remedies set forth in this Agreement, enforce its rights by an action for specific performance, and (ii) the selling Member shall be deemed to have committed a Default Event.

(e)

In connection with a Transfer pursuant to these Sections 12.2 through 12.4, the purchaser may designate another person or persons to acquire the seller’s Membership Interest in the Company, in which event such other person(s) shall acquire such Membership Interest, but no such designation or acquisition shall relieve the purchasers (as determined without regard to this Section 12.4(e)) from any obligation under these Sections 12.2 through 12.4.

44

(f)

Any Member shall have the right to exercise the Right of First Offer pursuant to Section 12.2 above (such Member being the “Initiating Member”); provided, however, that upon any Member’s exercise of such provision, no Member may again trigger the provisions of Section 12.2 until the termination of all procedures and timeframes pursuant to Section 12.2.

(g)

As a condition to a Member’s obligation to sell its Membership Interest in the Company pursuant to Section 12.2, the selling Member must be released at the closing from any indemnities, guaranties or other credit enhancements granted by such Member on behalf of the Company or any Project Entity to any third party.  

12.5

Transfer Condition.  In connection with any transfer of a Membership Interest or any portion thereof to a non-Member, the Member making such transfer and the assignee shall furnish the other Member with a copy of the transfer instrument, a ratification by the assignee of this Agreement, evidence of any required third party consents, and, if requested, a legal opinion that the transfer complies with applicable federal and state securities laws.  In addition, the Member making such transfer shall reimburse the Company for all costs and expenses incurred by the Company, including without limitation, reasonable attorneys fees, in connection with such Transfer.

12.6

Certain Permitted Transfers.  (a)  Provided such Transfer does not result in the application of any due on sale clause under any Company or Company Entity financing, or otherwise constitute a default thereunder (unless Western has obtained the prior written consent of the applicable lender), Western may Transfer its Membership Interest (in whole, but not in part) to an Affiliate or other related party of Western pursuant to a corporate merger or reorganization so long as such transferee expressly assumes the obligations of Western hereunder.  

(b)

Nothing herein shall be deemed to restrict the right of any holder of a direct or indirect interest in Inland Member or Inland Equity, LLC from conveying, assigning, pledging, encumbering or otherwise transferring any or all of its interest therein, and no consent of the Company or any Member shall be required, and no right of first offer or the like shall be required in connection with any such transfer.

12.7

Termination of Obligations.  As of the effective date of any Transfer not prohibited hereunder by a Member of its entire interest in the Company, such Member’s rights and obligations hereunder shall terminate except as to any indemnity obligations of such Member attributable to acts or events occurring prior to such date. Thereupon, except as limited by the preceding sentence, this Agreement shall terminate as to the transferring Members but shall remain in effect as to the other Members. In the event of a Transfer of its entire Membership Interest by a Member to another Member, the Member to whom such interest is transferred shall indemnify, defend and hold harmless the Member so transferring its Membership Interest from and against any and all claims, demands, losses, liabilities, expenses, actions, lawsuits, and other proceedings, judgments, awards, and costs and expenses (inclu ding but not limited to reasonable attorneys’ fees) incurred in or rising directly or indirectly, in whole or in part, out of operation of the business of the Company, excluding only those liabilities, if any, accruing after to the date of such Transfer.

45

12.8

Restraining Order.  In the event that any Member shall at any time Transfer or attempt to Transfer its Membership Interest in violation of the provisions of this Agreement and any rights hereby granted, then the other Member shall, in addition to all rights and remedies at law and in equity, be entitled to a decree or order restraining and enjoining such Transfer and the offending Member shall not plead in defense thereto that there would be an adequate remedy at law; it being hereby expressly acknowledged and agreed that damages at law will be an inadequate remedy for a breach or threatened breach of the violation of the provisions concerning Transfer set forth in this Agreement.

12.9

No Termination.  Notwithstanding any provision to the contrary in this Article 12, no Member shall Transfer all or any part of its Membership Interest to a Person or Entity other than another Member if such Transfer would result in a termination of the Company under the Code, or constitute a default under any documents evidencing or securing the then existing financing on the Portfolio.

12.10

Withdrawal.  No Member shall have the right to withdraw from the Company without the prior written consent of the remaining Members.

12.11

Compliance with Loan Documents.  No Member shall make, or cause or permit to be made, any Transfer that does not comply with any restrictions on transfers set forth in the documents evidencing or securing any loan to any Company Entity, including, without limitation, the absolute prohibition on transfers until after ninety (90) days after the closing of the Contemplated New Debt.

ARTICLE 13
DISSOLUTION AND TERMINATION

13.1

Waiver of Rights.  Each Member does hereby expressly waive any and all rights to dissolve, terminate or liquidate, or to petition a court for the partition, dissolution, termination or liquidation of the Company except as provided in this Article 13.

13.2

Voluntary Termination.  Prior to the expiration of the Term as specified in Section 2.9, the Company may terminate upon the occurrence of any of the following events:

(a)

the unanimous written consent of all of the Members;

(b)

the election by either Member to dissolve and liquidate the Company at any time after the Contemplated New Debt has been repaid or defeased in full, which election shall be made in writing delivered to both the other Member and the Company not less than ninety (90) or more than one hundred eighty (180) days before the proposed date of such dissolution;

(c)

the occurrence of a Default Event, provided the non-defaulting Member elects to terminate the Company within thirty (30) days after the occurrence of such Default Event; or

46

(d)

the sale of substantially all the assets of the Company and the distribution to the Members of all proceeds from such sale.

13.3

Events of Involuntary Dissolution.  The Company shall terminate and be dissolved upon the expiration of the term, as same may be extended, as provided in Section 2.9 hereof.

13.4

Reformation of Company.  Notwithstanding the provisions of Section 13.3, the Company shall not be dissolved upon the expiration of the term specified in Section 2.9 in the event that, within sixty (60) days after the date of any of such event, the remaining Members elect to continue the business of the Company in a reconstituted form.

13.5

Effect of Dissolution.  Upon dissolution, the Company shall cease to carry on its business, except as permitted by Section 18-803 of the Delaware Act.

13.6

Winding Up, Liquidation and Distribution of Assets.

(a)

Upon dissolution, Manager shall perform an accounting of the accounts of the Company and of the Company’s assets, liabilities and operations, from the date of the last previous accounting until the date of dissolution. The Manager shall immediately proceed to wind up the affairs of the Company.

(b)

If the Company is dissolved and its affairs are to be wound up, the Manager shall:

(i)

sell or otherwise liquidate all of the Company’s assets promptly as practicable;

(ii)

allocate any Net Profit or Net Loss or items of income, gain, loss or deduction resulting from such sales to the Members in accordance with Article 8 hereof;

(iii)

discharge all liabilities of the Company, including liabilities to Members who are creditors, to the extent otherwise permitted by law, other than liabilities to Members for distributions, and establish such Reserves as may be reasonably necessary to provide for contingent or liabilities of the Company; and

(iv)

distribute any remaining Distributable Cash in accordance with Section 9.3.

(c)

If the Company has been unable to completely liquidate its interest in all of the Company’s assets prior to the expiration of the Term, Company will have sixty (60) days after the expiration of the Term to deliver to Inland Member written notice (the “Liquidation Notice”) stipulating a price for each of the remaining Existing Portfolio Projects (each price a “Liquidation Price”, in the aggregate, the “Total Liquidation Price”).  Each Liquidation Price shall represent the Company’s good faith estimate of fair market value.  Inland Member shall have thirty (30) days from the date it receives the Liquidation Notice (the “Liquidation Notice Date”) to elect by written notice to Company and the Board of Directors either (x) to sell the remaining Existing

47

Portfolio Projects to Western for the Total Liquidation Price, or (y) to cause the Company to sell the remaining Existing Portfolio Projects to one or more third party purchasers on the open market for not less than 100% of the Liquidation Price for such Existing Portfolio Projects. If Inland Member fails to timely elect either (x) or (y), it shall be deemed to have elected (x).  If Inland Member elects (y), and the Company thereafter is unable to sell the remaining Existing Portfolio Projects to one or more third party purchasers on the open market for not less than 100% of the Liquidation Price for such Existing Portfolio Projects, the Company shall sell to Western the remaining assets of the Company for the aggregate Liquidation Price for such Existing Portfolio Projects. The Closing of such sale shall occur within ninety (90) days after the Company and Western shall execute such instrumen ts as are necessary or advisable to consummate such sale.  Western shall receive a credit at the Closing in an amount equal to, and in lieu of, any distribution that it would otherwise have received under Section 9.3 hereof, and such amounts shall be deemed a distribution under Section 9.3.

(d)

Notwithstanding anything to the contrary in this Agreement, upon a liquidation within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any Member has a deficit Capital Account (after giving effect to all contributions, distributions, allocations and other Capital Account adjustments for all taxable years, including the year during which such liquidation occurs), such Member shall have no obligation to make any Capital Contribution, and the negative balance of such Member’s Capital Account shall not be considered a debt owed by such Member to the Company or to any other Person for any purpose whatsoever.

(e)

Upon completion of the winding up, liquidation and distribution of the assets, the Company shall be deemed terminated.

(f)

All Members and the Manager shall comply with any applicable requirements of applicable law pertaining to the winding up of the affairs of the Company and the final distribution of its assets.

13.7

Certificate of Termination.  When all debts, liabilities and obligations have been paid and discharged or adequate provisions have been made therefor and all of the remaining property and assets have been distributed to the Members, a Certificate of Termination may be executed and filed with the Secretary of State of Delaware in accordance with the Delaware Act.

13.8

Return of Contribution Nonrecourse to Other Members.  Except as provided by law or as expressly provided in this Agreement, upon dissolution, each Member shall look solely to the assets of the Company for the return of its Capital Contribution. If the Company property remaining after the payment or discharge of the debts and liabilities of the Company is insufficient to return the cash contribution of one or more Members, such Member or Members shall have no recourse against any other Member.

ARTICLE 14
ADDITIONAL MEMBERS

14.1

Admission of a New Member.  Subject to the terms of any existing Company or Company Entity financing, from the date of the formation of the Company, any Person or Entity acceptable to the Members may become a Member of this Company either by the issuance by the

48

Company of Membership Interests for such consideration as the Board of Directors shall determine, or as a transferee of a Member’s Membership Interest or any portion thereof, subject to the terms and conditions of this Agreement.

ARTICLE 15
MISCELLANEOUS PROVISIONS

15.1

Governing Laws.  This Agreement, and the application of interpretation hereof shall be governed by its terms and by the laws of the State of Delaware, and specifically the Delaware Act.

15.2

No Action for Partition.  No Member has any right to maintain any action for partition with respect to the property of the Company.

15.3

Execution of Additional Instruments.  Each Member hereby agrees to execute such other and further statements of interest and holdings, designations, powers of attorney and other instruments necessary to comply with any laws, rules or regulations.

15.4

Waivers.  The failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation.

15.5

Rights and Remedies Cumulative.  The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive the right to use any or all other remedies. Such rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise.

15.6

Severability.  If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid, illegal or unenforceable to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law.

15.7

Heirs, Successors and Assigns.  Each and all of the covenants, terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the parties hereto and, to the extent permitted by this Agreement, their respective heirs, legal representatives, successors and assigns.

15.8

Third Parties.  None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party.

15.9

Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.

15.10

Certification of Non-Foreign Status.  In order to comply with § 1445 of the Code and the applicable Treasury Regulations thereunder, in the event of the disposition by the Company of a United States real property interest as defined in the Code and Treasury Regulations, each Member shall provide to the Company, an affidavit stating, under penalties of

49

perjury, (i) the Member’s address, (ii) United States Taxpayer identification number, and (iii) that the Member is not a foreign person as that term is defined in the Code and Treasury Regulations. Failure by any Member to provide such affidavit by the date of such disposition shall authorize the Manager to withhold 10% of each such Member’s distributive share of the amount realized by the Company on the disposition.

15.11

Notices.  Each Notice shall be in writing, and shall be deemed to have been properly given or served when transmitted by facsimile transmission or internet e-mail (with a conforming copy to be delivered by other means) or when delivered to any nationally recognized overnight courier or by personal delivery (which may include delivery by commercial courier service) if receipt is procured. The time period in which a response to any Notice must be made, or any action taken or payment made with respect thereto, shall start on the date which is one (1) day after the date of the confirmation of receipt of such facsimile transmission, the date of the delivery of such internet e-mail, the date of receipt indicated on the return receipt of the Notice or on the date of personal delivery evidenced by a receipt. Rejection of or other refusal to accept a Notice, or the inability to deliver because o f changed address or status of which no Notice was given, shall be deemed to be receipt of the Notice sent. By giving to the other Members at least 10 days’ prior Notice thereof, any Member shall have the right from time to time during the term of this Agreement to change its address for the purposes of this Agreement and to specify as its new address any other address within the United States of America. All dates and time referred to in this Agreement shall be determined based on local time in Chicago, Illinois. Initially, Notices shall be sent to the addresses specified in Exhibit F to this Agreement.

15.12

Amendments and Waivers.  Any amendment to or waiver of any provision of this Agreement shall be made in writing and signed by all of the Members.

15.13

Invalidity.  The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and the Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. If any particular provision herein is construed to be in conflict with the provisions of the Delaware Act. The Delaware Act shall control and such invalid or unenforceable provisions shall not affect or invalidate the other provisions hereof, and this Agreement shall be construed in all respects as if such conflicting provision were omitted.

15.14

Further Assurances.  The Members each agree to cooperate, and to execute and deliver in a timely fashion any and all additional documents necessary to effectuate the purposes of the Company and this Agreement.

15.15

Time.  TIME IS OF THE ESSENCE OF THIS AGREEMENT.

15.16

General Statutory Override.  To the extent permitted by law, the provisions of this Agreement shall govern over all provisions of the Delaware Act which would apply but for (and inconsistently with) this Agreement. For each question (a) with respect to which the Delaware Act provides a rule (a “default rule”) but permits a limited liability company’s operating agreement to provide a different rule and (b) which is addressed by this Agreement, the default rule shall not apply to the Company. Without limiting the generality of the foregoing, the

50

following provisions of the Delaware Act shall not apply to the Company: Section 18-304, Section 18-801 and Section 18-804.

15.17

Exculpation.  Notwithstanding anything to the contrary contained in this Agreement or in any exhibits attached hereto or in any documents executed in connection herewith, it is expressly understood and agreed by and between the parties hereto that: (a) the recourse of either Member or any of their respective successors or assigns against the other Members in connection with this Agreement or any action taken by the Company pursuant to this Agreement, including, without limitation, with respect to any alleged act or omission of such Member or any representative of such Member, any misrepresentation (whether allegedly intentional or unintentional) by or on behalf of such Member, or any breach by or on the part of such Member of any representation, warranty, covenant, undertaking, indemnity or agreement contained in this Agreement (collectively, the “Undertakings”), shall be limited to such Member’s interest in the Company, and (b) no personal liability or personal responsibility of any sort with respect to any of the Undertakings or any alleged breach thereof is assumed by, or will at any time be asserted or enforceable against, such Member or its respective Affiliates, or against any of their respective shareholders, directors, officers, employees, agents, advisors, constituent partners, members, beneficiaries, trustees or representatives. Nothing contained in this Section 15.17 shall limit or impair the operation and effect of the dilution provisions set forth in Section 7.1(d).

15.18

Waiver of Jury Trial.  In the event of any disputes hereunder, each Member hereby agrees not to elect a trial by jury of any issue triable of right by jury, and waives any right to trial by jury fully to the extent that any such right shall now or hereafter exist with regard to this Agreement, or any claim, counterclaim or other action arising in connection therewith.  This waiver of right to trial by jury is given knowingly and voluntarily by each Member, and is intended to encompass individually each instance and each issue as to which the right to a trial by jury would otherwise accrue.

 [END OF DOCUMENT.  SIGNATURES ON FOLLOWING PAGE.]

51

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

INLAND MEMBER:

INLAND EQUITY INVESTORS, LLC, a Delaware limited liability company

By:  Inland Equity, LLC, a Delaware limited liability company, its sole member

By:

______________________
Name:
Title:

WESTERN:

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation

By:

___________________________________
Name:
Title:

JOINDER AGREEMENT

The undersigned (individually or collectively, as the context requires, “Joinder Party”) hereby acknowledges and agrees that it has read and reviewed the foregoing Agreement to which this Joinder Agreement has been attached, including without limitation, Sections 9.1, 9.3 and 10.1.  Capitalized terms used but not defined herein shall have the meaning set forth in the Agreement.

For ten dollars ($10.00) and other good and valuable consideration, including the financial benefit the undersigned will receive by virtue of Western’s entering into the foregoing Agreement, the receipt of which is hereby acknowledged, Joinder Party hereby further acknowledges and agrees that any property management or similar agreement with any of the entities listed on Exhibit B to the Agreement to which Joinder Party is a party shall be deemed modified to reflect that any property management or similar fees, to the extent there is insufficient Operating Distributable Cash to pay such fees under Section 9.1 hereof, shall be deferred and accrue without interest.  The provisions of this Joinder Agreement are for the benefit of Inland Member.  This Joinder Agreement shall bind, and inure to the benefit of, each Joinder Party, together with its successors and/or assigns.

IN WITNESS WHEREOF, the undersigned has caused this Joinder Agreement to be duly executed and delivered as of the date first above written.

JOINDER PARTY:

INLAND SOUTHWEST MANAGEMENT LLC

By:  __________________________

Name:  _______________________

Title:  ________________________

INLAND US MANAGEMENT LLC

By:  __________________________

Name:  _______________________

Title:  ________________________

INLAND PACIFIC MANAGEMENT LLC

By:  __________________________

Name:  _______________________

Title:  ________________________

2

EXHIBIT A

EVALUATION MATERIALS

https://datasite.merrillcorp.com

Project High Noon 2009

A-1

EXHIBIT B

PROJECT ENTITIES

	Individual Borrower	State/Commonwealth of Formation	Organizational Identification Number	Property Owned Per Exhibit H
1.	Inland Western Birmingham Edgemont, L.L.C.	Delaware	3882010	1
2.	Inland Western Tuscaloosa University, L.L.C.	Delaware	3882014	3
3.	Inland Western Phenix City, L.L.C.	Delaware	3900020	2
4.	Inland Western Avondale McDowell L.L.C.	Delaware	3892335	4
5.	Inland Western Phoenix, L.L.C.	Delaware	3776679	5
6.	Inland Western Fullerton Metrocenter, L.L.C.	Delaware	3809723	8
7.	Inland Western Ontario 4th Street, L.L.C.	Delaware	3951208	6
8.	Inland Western Fresno Blackstone Avenue, L.L.C.	Delaware	3951209	7
9.	Inland Western Placentia, L.L.C.	Delaware	3882379	9

B-1

10.	Inland Western Longmont Fox Creek, L.L.C.	Delaware	3880445	10
11.	Inland Western Wesley Chapel Northwoods, L.L.C.	Delaware	3890156	14
12.	Inland Western Miami 19th Street, L.L.C.	Delaware	3841362	12
13.	Inland Western Panama City, L.L.C.	Delaware	3890163	11
14.	Inland Western Lake Mary, L.L.C.	Delaware	3838467	13
15.	Inland Western Cumming Green’s Corner, L.L.C.	Delaware	3898718	16
16.	Inland Western Acworth Stilesboro, L.L.C.	Delaware	3898721	18
17.	Inland Western Covington Newton Crossroads, L.L.C.	Delaware	3898715	17
18.	Inland Western Evans, L.L.C.	Delaware	3899068	15
19.	Inland Western Gurnee, L.L.C.	Delaware	3725826	20
20.	Inland Western Woodridge Seven Bridges, L.L.C.	Delaware	3937498	19
21.	Inland Southeast Stony Creek, L.L.C.	Delaware	3733893	21

B-2

22.	Inland Western Houma Magnolia, L.L.C.	Delaware	3841999	22
23.	Inland Western Colesville New Hampshire SPE, L.L.C.	Delaware	4017581	23
24.	Inland Western High Ridge, L.L.C.	Delaware	3934045	24
25.	Inland Western Hickory-Catawba, L.L.C.	Delaware	3749939	26
26.	Inland Western Kill Devil Hills Croatan, L.L.C.	Delaware	3809707	25
27.	Inland Western Las Vegas, L.L.C.	Delaware	3772105	27
28.	Inland Western Coram Plaza, L.L.C.	Delaware	3882017	28
29.	Inland Western Massillon Village, L.L.C.	Delaware	3951190	30
30.	Inland Western Heath Southgate, L.L.C.	Delaware	3935371	31
31.	Inland Western Cuyahoga Falls, L.L.C.	Delaware	3951196	29
32.	Inland Western Oklahoma City Quail, L.L.C.	Delaware	3730645	34

B-3

33.	Inland Western Norman, L.L.C.	Delaware	3730654	33
34.	Inland Western Danforth, L.L.C.	Delaware	3730641	32
35.	Inland Western Cranberry DST	Delaware	3815401	35
36.	Inland Western Bethlehem Saucon Valley DST	Delaware	3841705	37
37.	Inland Western Duncansville Holliday DST	Delaware	3877085	36
38.	Inland Western Pawtucket Cottage, L.L.C.	Delaware	3851405	40
39.	Inland Western Middletown Brown’s Lane, L.L.C.	Delaware	3951198	39
40.	Inland Western Pawtucket Boulevard, L.L.C.	Delaware	3951200	38
41.	Inland Western Summerville Azalea Square, L.L.C.	Delaware	3842002	41
42.	Inland Western Charleston North Rivers, L.L.C.	Delaware	3786953	45
43.	Inland Western Irmo Station, L.L.C.	Delaware	3899063	44

B-4

44.	Inland Western Mt. Pleasant Park West, L.L.C.	Delaware	3854747	46
45.	Inland Western Columbia Broad River, L.L.C.	Delaware	3809709	42
46.	Inland Western Greer Wade Hampton, L.L.C.	Delaware	3809713	43
47.	Inland Western Jackson Columns, L.L.C.	Delaware	3842003	47
48.	Inland Western Memphis Winchester, L.L.C.	Delaware	3865200	50
49.	Inland Western Knoxville Harvest, L.L.C.	Delaware	3838466	49
50.	Inland Western Crossville Main, L.L.C.	Delaware	3809715	48
51.	Inland Western Denton Crossing Limited Partnership	Illinois	S020878	51
52.	Inland Western Cedar Hill Pleasant Run Limited Partnership	Illinois	S021073	52
53.	Inland Western McAllen Trenton Limited Partnership	Illinois	S022060	53
54.	Inland Western St. George, L.L.C.	Delaware	3760776	54

B-5

55. Inland Western Spokane Northpointe, L.L.C. Delaware 3786952 55

Other Entities

56.	Colesville One, LLC	100% owner of Inland Western Colesville New Hampshire SPE, L.L.C.	Delaware
57.	Inland Western McAllen Trenton GP, L.L.C.	Owner of 100% of the general partnership interests in Inland Western McAllen Trenton Limited Partnership	Delaware
58.	Inland Western Cedar Hill Pleasant Run GP, L.L.C.	Owner of 100% of the general partnership interests in Inland Western Denton Crossing Limited Partnership	Delaware
59.	Inland Western Denton Crossing GP, L.L.C.	Owner of 100% of the general partnership interests in Inland Western Cedar Hill Pleasant Run Limited Partnership

B-6

EXHIBIT C

CONTEMPLATED NEW DEBT

Loan Amount:	Approximately $625 million (including a $500 million mortgage loan, a $85 million senior mezzanine loan, and a $40 million junior mezzanine loan)
Collateral:	First mortgage lien collateralized by 55 assets shown on Exhibit H on a cross defaulted/cross collateralized basis, as well as equity interests
Term:	10 years
Amortization:	30 years
Interest Rate:	Initial blended rate of 8.56%
Reserves:	Monthly tax escrow; Not less than $4.5 million withheld from loan proceeds to fund reserves for tenant improvements, leasing commissions and capital expenditures
Cash Management:	In-place at loan origination

C-1

EXHIBIT D

FORM PROJECT ENTITY OPERATING AGREEMENT
(SINGLE MEMBER)

D-1

EXHIBIT E

FEE SCHEDULE

Western and/or its Affiliate, Inland Management, will provide disposition and property management services to the Company and/or each Project Entity. Western, or as the case may be, Inland Management, will be entitled solely to the following fees for the performance of such services:

1.

With respect to all properties for which Inland Management serves as Property Manager, Inland Management will receive from the relevant Project Entity a property management fee equal to 4.5% of the actual monthly gross income generated by such Existing Portfolio Project provided the leases for the tenants of such Project Entity allow for full recovery of the 4.5% management fee as a pass-through expense. In the event any such leases do not allow for recovery of any or all of the property management fee, then the property management fee payable by the relevant Project Entity to Inland Management shall be 3.5% of the actual monthly gross income generated by the lease in question (i.e., the fee will be 4.5% for leases which allow for full recovery of the 4.5% management fee as a pass-through expense and 3.5% for all other leases).

Included within this property management fee shall be all legal expenses for leases with any national tenants, the cost of in-house insurance placement, in-house construction supervision of all tenant’s tenant improvement build out, all in-house design work for marketing brochures, all in-house accounting and reporting costs and expenses.

2.

Inland Management shall be paid leasing commissions pursuant to the following schedule:

Leasing commissions per the following schedule (when an outside broker is involved, the payout is 150%, and on a renewal, the payout is 50%)

(i)

<= 2,500 square feet = $4.00 per square foot

(ii)

2,501—5,000 SF = $3.50 per square foot

(iii)

5,001—10,000 SF = $3.00 per square foot

(iv)

10,001—20,000 SF = $2.50 per square foot

(v)

>= 20,001 SF = $2.00 per square foot

In no event shall Inland Management be paid a leasing fee for an Existing Portfolio Project that it no longer manages and leases.

3.

[omitted].

E-1

4.

In the event that Western’s brokerage division is engaged by the Board of Directors to sell the Portfolio or by any Project Entity to sell an Existing Portfolio Project to a third party on behalf of the Company, or as applicable, such Project Entity, the sales commission will be negotiated at that time based upon then-prevailing market rates.

5.

Western or, at Western’s sole option, Inland Management shall receive an administration fee of 0.25% of total venture capitalization to cover the costs of any in-house legal costs for the preparation of the purchase and sale documents for acquisition and dispositions, in-house tax appeals, and in-house the cost of placing all mortgage debt on the properties.

E-2

EXHIBIT F

ADDRESSES FOR NOTICE

If to Inland Member:

Inland Equity Investors, LLC
2901 Butterfield Road
Oak Brook, IL 60523
Attention: Robert H. Baum
Fax No.: (630) 218-8034
E-mail: baum@inlandgroup.com

With a copy to:

Inland Equity Investors, LLC
2901 Butterfield Road
Oak Brook, IL 60523
Attention: Elliott B. Kamenear
Fax No.: (630) 218-4900
E-mail: kamenear@inlandgroup.com

And to:

Neal, Gerber & Eisenberg, LLP
2 North LaSalle Street, Suite 1700
Chicago, IL  60602
Attention: Douglas J. Lubelchek
Fax No.: (312) 750-6506

dlubelchek@ngelaw.com

To Western and/or the Company:

Inland Western Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, IL 60523
Attention: Steven P. Grimes
Fax No.: (630) 368-2308
E-mail: grimes@inland-western.com

With a copy to:

Inland Western Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, IL 60523
Attention: Dennis Holland, General Counsel
Fax No.: (630) 218-4900
E-mail: holland@inland-western.com

And to:

Katten Muchin Rosenman LLP
401 South Tryon Street, Ste. 2600
Charlotte, NC 28202
Attention: Daniel S. Huffenus
Fax No.: (704) 344-3056
E-mail: dan.huffenus@kattenlaw.com

F-1

EXHIBIT G
Form Mezz Entity Operating Agreement

G-1

EXHIBIT H

EXISTING PORTFOLIO

1.

Edgemont Town Center — shopping center located in the City of Homewood, Jefferson County, Alabama  *Please note that the state listed on the entity list has this property located in Arizona rather than Alabama

2.

Phenix Crossing — shopping center located in the City of Phenix City, Russell County, Alabama

3.

University Town Center — shopping center located in the City of Tuscaloosa, Tuscaloosa County, Alabama

4.

Gateway Pavilions — shopping center located in the City of Avondale, Maricopa County, Arizona

5.

Paradise Valley Marketplace — shopping center in the City of Phoenix, Maricopa County, Arizona

6.

Edwards 21 Multiplex Theater — movie theater in the City of Fresno, Fresno County, California

7.

Edwards Megaplex Theater — movie theater in the City of Ontario, San Bernardino County, California

8.

Fullerton Metrocenter — shopping center in the City of Fullerton, Orange County, California

9.

Placentia Town Center — shopping center in the City of Placentia, Orange County, California

10.

Fox Creek Village — shopping center in the City of Longmont, Boulder County, Colorado

11.

23rd Street Plaza — shopping center in the City of Panama City, Bay County, Florida

12.

Bed Bath & Beyond Plaza — shopping center in the City of Miami, Miami-Dade County, Florida

13.

Lake Mary Pointe — shopping center in the City of Lake Mary, Seminole County, Florida

14.

Northwoods Shopping Center — shopping center in the City of Wesley Chapel, Pasco County, Florida

15.

Evans Towne Centre — shopping center in the City of Evans, Columbia County, Georgia

16.

Green’s Corner — shopping center in the City of Cumming, Forsyth County, Georgia

H-1

17.

Newton Crossroads — shopping center in the City of Covington, Newton County, Georgia

18.

Stilesboro Oaks — shopping center in the City of Acworth, Cobb County, Georgia

19.

Cinemark Theatre — movie theater in the City of Woodridge, DuPage County, Illinois

20.

Gurnee Town Centre — shopping center in the City of Gurnee, Lake County, Illinois

21.

Stony Creek — shopping center in the City of Noblesville, Hamilton County, Indiana

22.

Magnolia Square — shopping center in the City of Houma, Terrebonne Parish, Louisiana

23.

Eckerd - Colesville, MD — retail store in the City of Colesville, Montgomery County, Maryland

24.

High Ridge Crossing — shopping center in the City of High Ridge, Jefferson County, Missouri

25.

Eckerd - Kill Devils Hill, NC — retail store in the City of Kill Devils Hill, Dare County, North Carolina

26.

Hickory Ridge — shopping center in the City of Hickory, Catawba County, North Carolina

27.

Best on the Boulevard — shopping center in the City of Las Vegas, Clark County, Nevada

28.

Coram Plaza — shopping center in the City of Coram, Suffolk County, New York

29.

Cuyahoga Falls Market Center — shopping center in the City of Cuyahoga Falls, Summit County, Ohio

30.

Massillon Commons — shopping center in the City of Massillon, Stark County, Ohio

31.

Southgate Plaza — shopping center in the City of Heath, Licking County, Ohio

32.

CVS - Edmond, OK — retail store in the City of Edmond, Oklahoma County, Okalahoma

33.

CVS - Norman, OK — retail store in the City of Norman, Cleveland County, Okalahoma

34.

Quail Springs (Village at) — shopping center in the City of Oklahoma City, Oklahoma County, Okalahoma

35.

Cranberry Square — shopping center in the City of Cranberry, Butler County, Pennsylvania

H-2

36.

Holliday Town Center — shopping center in the City of Duncansville, Blair County, Pennsylvania

37.

Saucon Valley Square — shopping center in the City of Bethlehem, Northampton County, Pennsylvania

38.

Boulevard Plaza — shopping center in the City of Pawtucket, Providence County, Rhode Island

39.

Brown’s Lane — shopping center in the City of Middletown, Newport County, Rhode Island

40.

Cottage Plaza  — shopping center in the City of Pawtucket, Providence County, Rhode Island

41.

Azalea Square I — shopping center in the City of Summerville, Dorchester County, South Carolina

42.

Eckerd - Columbia, SC — retail store in the City of Columbia, Richland County, South Carolina

43.

Eckerd - Greer, SC — retail store in the City of Greer, Greenville County, South Carolina

44.

Irmo Station — shopping center in the City of Irmo, Lexington County, South Carolina

45.

North Rivers Towne Center — shopping center in the City of Charleston, Charleston County, South Carolina

46.

Shoppes at Park West (Publix - Mt. Pleasant) — shopping center in the City of Mt. Pleasant, Charleston County, South Carolina

47.

Columns Shopping Ctr — shopping center in the City of Jackson, Madison County, Tennessee

48.

Eckerd - Crossville, TN — retail store in the City of Crossville, Cumberland County, Tennessee

49.

Harvest Towne Center — shopping center in the City of Knoxville, Knox County, Tennessee

50.

Winchester Commons — shopping center in the City of Memphis, Shelby County, Tennessee

51.

Denton Crossing — shopping center in the City of Denton, Denton County, Texas

52.

Pleasant Run Towne Crossing — shopping center in the City of Cedar Hill, Dallas County, Texas

53.

Trenton Crossing — shopping center in the City of McAllen, Hidalgo County, Texas

H-3

54.

Promenade at Redcliff — shopping center in the City of St. George, Washington County, Utah

55.

Northpointe Plaza — shopping center in the City of Spokane, Spokane County, Washington

H-4

EXHIBIT I

[RESERVED]

I-1

EXHIBIT J

EXAMPLE OF SECTION 7.1(D) CALCULATION

By way of example only, assume that $100,000,000 has been contributed by the Members to the capital of the Company upon formation with Inland Member’s Initial Percentage Interest being 23% and Western’s Initial Percentage Interest being 77%. Assume that a Capital Call of $10,000,000 is made pursuant to Section 7.1(c) of the Agreement. Therefore, the Proportionate Shares for Inland Member and Western of such capital call are 23% ($2,300,000) and 77% ($7,700,000), respectively. Further assume that Western funds only $6,000,000 of its Proportionate Share and that Inland Member elects to fund the unfunded portion of Western’s Proportionate Share ($1,700,000) as an Additional Capital Contribution. Based upon the foregoing assumptions, Western’s failure to fully fund its Proportionate Share will have the following result:

(A)

Western’s Percentage Interest will be reduced by the Reduction Percentage from 77% to 75.81%, calculated using the following formula:

Reduction Percentage = A x ((B x 1.0)/C))

Where:

A = Western’s Initial Percentage Interest (0.77)
B = Western’s Unfunded Proportionate Share ($1,700,000)
C = Total Capital Contributed to the Company ($110,000,000)

[0.77 x ($1,700,000 x 1.0) / $110,000,000] = 0.0119

Western’s Percentage Interest will then be reduced by the Reduction Percentage:

0.77 - 0. 0119 = 0.7581 or 75.81%

(B)

Inland Member’s Percentage Interest will be increased by the Reduction Percentage from 23% to 24.19%.

J-2

EXHIBIT K

[RESERVED]

K-1

EXHIBIT L

[RESERVED]

Exhibit A-

EXHIBIT M

CERTIFICATE FOR LIMITED LIABILITY COMPANY INTERESTS IN IW JV 2009, LLC

THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE.  THE HOLDER OF THIS CERTIFICATE, BY ITS ACCEPTANCE HEREOF, REPRESENTS THAT IT IS ACQUIRING THIS SECURITY FOR INVESTMENT AND NOT WITH A VIEW TO ANY SALE OR DISTRIBUTION HEREOF.  ANY TRANSFER OF THIS CERTIFICATE OR ANY LIMITED LIABILITY COMPANY INTEREST REPRESENTED HEREBY IS SUBJECT TO THE TERMS AND CONDITIONS OF THE LIMITED LIABILITY COMPANY AGREEMENT (AS DEFINED BELOW).

Certificate Number ___

IW JV 2009, LLC, a Delaware limited liability company (the "Company"), hereby certifies that _______________ (together with any assignee of this Certificate, the "Holder") is the registered owner of the limited liability company interests in the Company described in the Limited Liability Company Agreement (as defined below) as owned by “_________________”.  The rights, powers, preferences, restrictions and limitations of the limited liability company interests in the Company are set forth in, and this Certificate and the limited liability company interests in the Company represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Limited Liability Company Agreement of the Company dated as of December 1, 2009, as the same may be further amended or restated from time to time (the "Limited Liability Company Agreement").  By acceptance of this Cer tificate, and as a condition to being entitled to any rights and/or benefits with respect to the limited liability company interests evidenced hereby, the Holder is deemed to have agreed to comply with and be bound by all the terms and conditions of the Limited Liability Company Agreement.  The Company will furnish a copy of the Limited Liability Company Agreement to the Holder without charge upon written request to the Company at its principal place of business.  Transfer of any or all of the limited liability company interests in the Company evidenced by this Certificate is subject to certain restrictions in the Limited Liability Company Agreement and can be effected only after compliance with all of those restrictions and the presentation to the Company of the Certificate, accompanied by an assignment in the form appearing on the reverse side of this Certificate, duly completed and executed by and on behalf of the transferor in such Transfer, and an application for transfer in the form appearing on the reverse side of this Certificate, duly completed and executed by and on behalf of the transferee in such Transfer.

Each limited liability company interest in the Company shall constitute a “security” within the meaning of (i) Section 8-102(a)(15) of the Uniform Commercial Code as in effect from time to time in the States of Delaware and New York and (ii) the Uniform Commercial Code of any other applicable jurisdiction that now or hereafter substantially includes the 1994 revisions to Article 8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and approved by the American Bar Association on February 14, 1995 (and each limited liability company interest in the Company shall be treated as such a “security” for all purposes, including, without limitation perfection of the security interest therein under Article 8 of each applicable Uniform Commercial Code).  

This Certificate and the limited liability company interests evidenced hereby shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws.

IN WITNESS WHEREOF, the Company has caused this Certificate to be executed as of the date set forth below.

IW JV 2009, LLC

Dated: December 1, 2009

By:

_______________________________________

Name:

_________________________

Title:

_________________________

Exhibit A-

(REVERSE SIDE OF CERTIFICATE)

ASSIGNMENT OF INTEREST

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _________________________________________ (print or typewrite name of transferee), __________________ (insert Social Security or other taxpayer identification number of transferee), the following specified percentage of limited liability company interests in the Company: ______________ (identify the percentage interest being transferred) effective as of the date specified in the Application for Transfer of Interests below, and irrevocably constitutes and appoints __________________________ and its authorized officers, as attorney-in-fact, to transfer the same on the books and records of the Company, with full power of substitution in the premises.

Dated:

__________________________

Signature:

 (Transferor)

Address:

APPLICATION FOR TRANSFER OF INTERESTS

The undersigned applicant (the "Applicant") hereby (a) applies for a transfer of the percentage of limited liability company interests in the Company described above (the "Transfer") and applies to be admitted to the Company as a substitute member of the Company, (b) agrees to comply with and be bound by all of the terms and provisions of the Limited Liability Company Agreement, (c) represents that the Transfer complies with the terms and conditions of the Limited Liability Company Agreement, (d) represents that the Transfer does not violate any applicable laws and regulations, and (e) agrees to execute and acknowledge such instruments (including, without limitation, a counterpart of the Limited Liability Company Agreement), in form and substance satisfactory to the Company, as the Company reasonably deems necessary or desirable to effect the Applicant's admission to the Company as a substitute member of the Company and to confirm th e agreement of the Applicant to be bound by all the terms and provisions of the Limited Liability Company Agreement with respect to the limited liability company interests in the Company described above.  Initially capitalized terms used herein and not otherwise defined herein are used as defined in the Limited Liability Company Agreement.

The Applicant directs that the foregoing Transfer and the Applicant's admission to the Company as a Substitute Member shall be effective as of ______________________________.

Name of Transferee (Print)

________________________________________

Dated:

__________________________

Signature:

(Transferee)

Address:

The Company has determined (a) that the Transfer described above is permitted by the Limited Liability Company  Agreement, (b) hereby agrees to effect such Transfer and the admission of the Applicant as a substitute member of the Company effective as of the date and time directed above, and (c) agrees to record, as promptly as possible, in the books and records of the Company the admission of the Applicant as a substitute member.

______________________ L.L.C.

By:

Name:

Title:

Exhibit A-

EX-10.591

112474-1

1

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT is made and entered into this 10^th day of

March, 2009 ("Agreement"), by and between INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a StateplaceMaryland corporation (the "Company"), and Gerald Wright ("Indemnitee").

WHEREAS, at the request of the Company, Indemnitee currently serves as an officer of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of his service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such officer, the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law; and

WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses;

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

PostalCodeSnplaceSnSection PostalCodeSnI.

Definitions. For purposes of this Agreement:

(a)

"Change in Control" means a change in control of the Company occurring after
the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 1, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.

(b)

"Corporate Status" means the status of a person who is or was a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise for which such person is or was serving at the request of the Company.

(c)

"Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(d)

"Effective Date" means the date set forth in the first paragraph of this Agreement.

(e)

"Expenses" shall include all reasonable and out-of-pocket attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.

(f)

"Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to or witness in the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. If a Change of Control has not occurred, Independent Counsel shall be selected by the Board of Directors, with the approval of Indemnitee, which approval will not be unreasonably withheld. If a Change of Control has occurred, Indepe ndent Counsel shall be selected by Indemnitee, with the approval of the Board of Directors, which approval will not be unreasonably withheld.

(g)

"Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative (including on appeal), except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee.

Section 2.

Services by Indemnitee. Indemnitee will serve as an officer of the Company. However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue Indemnitee's service to the Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any.

Section 3.

Indemnification - General. The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by Maryland law in effect on the date hereof and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the date hereof. The rights of Indemnitee provided in this Section 3 shall include, without limitation, the rights set

forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law ("MGCL").

Section 4.

Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed Proceeding, other than a Proceeding by or in the right of the Company. Pursuant to this Section 4, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with a Proceeding by reason of his Corporate Status unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty, (ii) Indemnitee actually received an improper personal benefit in money, proper ty or services, or (iii) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that his conduct was unlawful.

Section 5.

Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 5 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 5, Indemnitee shall be indemnified against all amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to such a Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (ii) Indemnitee actually received an improper personal benefit in money, property or services.

Section 6.

Court-Ordered Indemnification. Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification in the following circumstances:

(a)

if it determines Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the expenses of securing such reimbursement; or

(b)

if it determines that Indemnitee is fairly and reasonably entitled to

indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any Proceeding by or in the right of the Company or in which liability shall have been adjudged in the circumstances described in Section 2-418(c) of the MGCL shall be limited to Expenses actually and reasonably incurred by him or on his behalf in connection with a Proceeding.

Section 7.

Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, and without limiting any

such provision, to the extent that Indemnitee is, by reason of his Corporate Status, made a party to and is successful, on the merits or otherwise, in the defense of any Proceeding, he shall be indemnified for all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter, allocated on a reasonable and proportionate basis. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 8.

Advance of Expenses. The Company shall advance all reasonable Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection with any Proceeding (other than a Proceeding brought to enforce indemnification under this Agreement, applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors)

to which Indemnitee is, or is threatened to be, made a party or a witness, within ten days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to claims, issues or matters in the Pr oceeding as to which it shall ultimately be established that the standard of conduct has not been met and which have not been successfully resolved as described in Section 7. To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis. The undertaking required by this Section 8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee's financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section 9.

Procedure for Determination of Entitlement to Indemnification.

(a)

To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b)

Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 9(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall promptly be made in the specific case: (i) if a Change in

Control shall have occurred, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by the Board of Directors (or a duly authorized committee thereof) by a majority vote of a quorum consisting of Disinterested Directors (as herein defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination. Indemnitee shall cooperate with the pers on, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 9. Any Expenses actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

Section 10.

Presumptions and Effect of Certain Proceedings.

(a)

In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b)

The termination of any Proceeding by judgment, order, settlement, conviction, a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

Section 11.

Remedies of Indemnitee.

(a)

If (i) a determination is made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 9(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 7 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of PostalCodeMaryland, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advance of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 11(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce his rights under Section 7 of this Agreement.

(b)

In any judicial proceeding or arbitration commenced pursuant to this Section 11 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.

(c)

If a determination shall have been made pursuant to Section 9(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 11, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification.

(d)

In the event that Indemnitee, pursuant to this Section 11, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses actually and reasonably incurred by him in such judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.

Section 12.

Defense of the Underlying Proceeding.

(a)

Indemnitee shall notify the Company promptly upon being served with or receiving any summons, citation, subpoena, complaint, indictment, information, notice, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company's ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)

Subject to the provisions of the last sentence of this Section 12(b) and of Section 12(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 12(a) above. The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee. Thi s Section 12(b) shall not apply to a Proceeding brought by Indemnitee under Section 11 above or Section 18 below.

(c)

Notwithstanding the provisions of Section 12(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee's Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that he may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee's choice, subject to t he prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company. In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee's choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company (subject to Section 11(d)), to represent Indemnitee in connection with any such matter.

Section 13.

Non-Exclusivity; Survival of Rights; Subrogation; Insurance.

(a)

The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.

(b)

In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(c)

The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Section 14.

Insurance. The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors of the Company, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee for service as a director or officer of the Company and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee for service as a director or officer of the Company. Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and reasonable Expenses actually and reasonably incurred by Indemnitee in connection with a Proceeding over the c overage of any insurance referred to in the previous sentence.

Section 15.

Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or may be, by reason of his Corporate Status, a witness in any Proceeding, whether instituted by the Company or any other party, and to which Indemnitee is not a party but in which the Indemnitee receives a subpoena to testify, he shall be advanced all reasonable Expenses and indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

Section 16.

Duration of Agreement; Binding Effect.

(a)

This Agreement shall continue until and terminate ten years after the date that Indemnitee's Corporate Status shall have ceased; provided, that the rights of Indemnitee hereunder shall continue until the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advance of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 11 of this Agreement relating thereto.

(b)

The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the written request of the Company, and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(c)

The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

Section 17.

Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 18.

Exception to Right of Indemnification or Advance of Expenses. Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification or advance of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, unless (a) the Proceeding is brought to enforce indemnification under this Agreement, and then only to the extent in accordance with and as authorized by Sections 8 and 11 of this Agreement, or (b) the Company's Bylaws, as amended, the Charter, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

Section 19.

Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section 20.

Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 21.

Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 22.

Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a)

If to Indemnitee, to: The address set forth on the signature page hereto.

(b)

If to the Company to:

Inland Western Retail Real Estate Trust, Inc.

PostalCodeaddressStreet2901 Butterfield Road

PostalCodePostalCodeplaceCityOak Brook, PostalCodeStateIllinois  PostalCode60523

Attn:  Chief Operating Officer and Chief Financial Officer

With a copy to:

Inland Western Retail Real Estate Trust, Inc.

PostalCodeaddressStreet2901 Butterfield Road

PostalCodePostalCodeplaceCityOak Brook, PostalCodeStateIllinois  PostalCode60523

Attn:  General Counsel

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 23.

Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of PostalCodeplaceStateMaryland, without regard to its conflicts of laws rules.

Section 24.

Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.

[SIGNATURE PAGE FOLLOWS]

112474-1

1

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

ATTEST:

COMPANY

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

By:

(SEAL) Name:  Steven P. Grimes

Title:  

Chief Operating Officer and Chief Financial

Officer

WITNESS:

INDEMNITEE

Name:  

Gerald Wright

Address:  Inland Western Retail Real

Estate Trust, Inc.

PostalCodeaddressStreet2901 Butterfield Road

PostalCodeplaceplaceCityOak Brook, PostalCodeStateIL place60523

EXHIBIT A

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED The Board of Directors of Inland Western Retail Real Estate Trust, Inc.

Re: Undertaking to Repay Expenses Advanced

Ladies and Gentlemen:

This undertaking is being provided pursuant to that certain Indemnification Agreement dated the

day of

, 200  , by and between Inland Western Retail Real Estate Trust, Inc. (the "Company") and the undersigned Indemnitee (the "Indemnification Agreement"), pursuant to which I am entitled to advance of expenses in connection with [Description of Proceeding] (the "Proceeding").

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity. I hereby affirm that at all times, insofar as I was involved as an officer of the Company, in any of the facts or events giving rise to the Proceeding, I (1) acted in good faith and honestly, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance of Expenses by the Company for reasonable attorneys' fees and related expenses incurred by me in connection with the Proceeding (the "Advanced Expenses"), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established and which have not been successfully resolved as described in Section 7 of the Indemnification Agr eement. To the extent that Advanced Expenses do not relate to a specific claim, issue or matter in the Proceeding, I agree that such Expenses shall be allocated on a reasonable and proportionate basis.

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this

day of

, 200__ .

WITNESS:

112474-1

1

Endnotes

(SEAL)

EX-10.592

112473-1

1

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT is made and entered into this 10^th day of

March, 2009 ("Agreement"), by and between INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a placeStateMaryland corporation (the "Company"), and Larry R. Sajdak ("Indemnitee").

WHEREAS, at the request of the Company, Indemnitee currently serves as an officer of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of his service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such officer, the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law; and

WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses;

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

SnplacePostalCodeSection SnPostalCodeI.

Definitions. For purposes of this Agreement:

(a)

"Change in Control" means a change in control of the Company occurring after
the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 1, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.

(b)

"Corporate Status" means the status of a person who is or was a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise for which such person is or was serving at the request of the Company.

(c)

"Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(d)

"Effective Date" means the date set forth in the first paragraph of this Agreement.

(e)

"Expenses" shall include all reasonable and out-of-pocket attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.

(f)

"Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to or witness in the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. If a Change of Control has not occurred, Independent Counsel shall be selected by the Board of Directors, with the approval of Indemnitee, which approval will not be unreasonably withheld. If a Change of Control has occurred, Indepe ndent Counsel shall be selected by Indemnitee, with the approval of the Board of Directors, which approval will not be unreasonably withheld.

(g)

"Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative (including on appeal), except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee.

Section 2.

Services by Indemnitee. Indemnitee will serve as an officer of the Company. However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue Indemnitee's service to the Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any.

Section 3.

Indemnification - General. The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by Maryland law in effect on the date hereof and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the date hereof. The rights of Indemnitee provided in this Section 3 shall include, without limitation, the rights set

forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law ("MGCL").

Section 4.

Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed Proceeding, other than a Proceeding by or in the right of the Company. Pursuant to this Section 4, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with a Proceeding by reason of his Corporate Status unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty, (ii) Indemnitee actually received an improper personal benefit in money, proper ty or services, or (iii) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that his conduct was unlawful.

Section 5.

Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 5 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 5, Indemnitee shall be indemnified against all amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to such a Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (ii) Indemnitee actually received an improper personal benefit in money, property or services.

Section 6.

Court-Ordered Indemnification. Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification in the following circumstances:

(a)

if it determines Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the expenses of securing such reimbursement; or

(b)

if it determines that Indemnitee is fairly and reasonably entitled to

indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any Proceeding by or in the right of the Company or in which liability shall have been adjudged in the circumstances described in Section 2-418(c) of the MGCL shall be limited to Expenses actually and reasonably incurred by him or on his behalf in connection with a Proceeding.

Section 7.

Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, and without limiting any

such provision, to the extent that Indemnitee is, by reason of his Corporate Status, made a party to and is successful, on the merits or otherwise, in the defense of any Proceeding, he shall be indemnified for all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter, allocated on a reasonable and proportionate basis. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 8.

Advance of Expenses. The Company shall advance all reasonable Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection with any Proceeding (other than a Proceeding brought to enforce indemnification under this Agreement, applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors)

to which Indemnitee is, or is threatened to be, made a party or a witness, within ten days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to claims, issues or matters in the Pr oceeding as to which it shall ultimately be established that the standard of conduct has not been met and which have not been successfully resolved as described in Section 7. To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis. The undertaking required by this Section 8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee's financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section 9.

Procedure for Determination of Entitlement to Indemnification.

(a)

To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b)

Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 9(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall promptly be made in the specific case: (i) if a Change in

Control shall have occurred, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by the Board of Directors (or a duly authorized committee thereof) by a majority vote of a quorum consisting of Disinterested Directors (as herein defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination. Indemnitee shall cooperate with the pers on, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 9. Any Expenses actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

Section 10.

Presumptions and Effect of Certain Proceedings.

(a)

In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b)

The termination of any Proceeding by judgment, order, settlement, conviction, a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

Section 11.

Remedies of Indemnitee.

(a)

If (i) a determination is made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 9(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 7 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of PostalCodeMaryland, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advance of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 11(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce his rights under Section 7 of this Agreement.

(b)

In any judicial proceeding or arbitration commenced pursuant to this Section 11 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.

(c)

If a determination shall have been made pursuant to Section 9(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 11, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification.

(d)

In the event that Indemnitee, pursuant to this Section 11, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses actually and reasonably incurred by him in such judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.

Section 12.

Defense of the Underlying Proceeding.

(a)

Indemnitee shall notify the Company promptly upon being served with or receiving any summons, citation, subpoena, complaint, indictment, information, notice, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company's ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)

Subject to the provisions of the last sentence of this Section 12(b) and of Section 12(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 12(a) above. The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee. Thi s Section 12(b) shall not apply to a Proceeding brought by Indemnitee under Section 11 above or Section 18 below.

(c)

Notwithstanding the provisions of Section 12(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee's Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that he may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee's choice, subject to t he prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company. In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee's choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company (subject to Section 11(d)), to represent Indemnitee in connection with any such matter.

Section 13.

Non-Exclusivity; Survival of Rights; Subrogation; Insurance.

(a)

The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.

(b)

In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(c)

The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Section 14.

Insurance. The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors of the Company, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee for service as a director or officer of the Company and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee for service as a director or officer of the Company. Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and reasonable Expenses actually and reasonably incurred by Indemnitee in connection with a Proceeding over the c overage of any insurance referred to in the previous sentence.

Section 15.

Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or may be, by reason of his Corporate Status, a witness in any Proceeding, whether instituted by the Company or any other party, and to which Indemnitee is not a party but in which the Indemnitee receives a subpoena to testify, he shall be advanced all reasonable Expenses and indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

Section 16.

Duration of Agreement; Binding Effect.

(a)

This Agreement shall continue until and terminate ten years after the date that Indemnitee's Corporate Status shall have ceased; provided, that the rights of Indemnitee hereunder shall continue until the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advance of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 11 of this Agreement relating thereto.

(b)

The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the written request of the Company, and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(c)

The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

Section 17.

Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 18.

Exception to Right of Indemnification or Advance of Expenses. Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification or advance of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, unless (a) the Proceeding is brought to enforce indemnification under this Agreement, and then only to the extent in accordance with and as authorized by Sections 8 and 11 of this Agreement, or (b) the Company's Bylaws, as amended, the Charter, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

Section 19.

Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section 20.

Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 21.

Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 22.

Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a)

If to Indemnitee, to: The address set forth on the signature page hereto.

(b)

If to the Company to:

Inland Western Retail Real Estate Trust, Inc.

StreetaddressPostalCode2901 Butterfield Road

CityplacePostalCodeOak Brook, StatePostalCodeIllinois  PostalCode60523

Attn:  Chief Operating Officer and Chief Financial Officer

With a copy to:

Inland Western Retail Real Estate Trust, Inc.

StreetaddressPostalCode2901 Butterfield Road

CityplacePostalCodeOak Brook, StatePostalCodeIllinois  PostalCode60523

Attn:  General Counsel

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 23.

Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of StateplacePostalCodeMaryland, without regard to its conflicts of laws rules.

Section 24.

Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.

[SIGNATURE PAGE FOLLOWS]

112473-1

1

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

ATTEST:

COMPANY

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

By:

(SEAL) Name:  Steven P. Grimes

Title:  

Chief Operating Officer and Chief Financial

Officer

WITNESS:

INDEMNITEE

Name:  

Larry R. Sajdak

Address:  Inland Western Retail Real

Estate Trust, Inc.

StreetaddressPostalCode2901 Butterfield Road

CityplaceplacePostalCodeOak Brook, placeplaceIL place60523

EXHIBIT A

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED The Board of Directors of Inland Western Retail Real Estate Trust, Inc.

Re: Undertaking to Repay Expenses Advanced

Ladies and Gentlemen:

This undertaking is being provided pursuant to that certain Indemnification Agreement dated the

day of

, 200  , by and between Inland Western Retail Real Estate Trust, Inc. (the "Company") and the undersigned Indemnitee (the "Indemnification Agreement"), pursuant to which I am entitled to advance of expenses in connection with [Description of Proceeding] (the "Proceeding").

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity. I hereby affirm that at all times, insofar as I was involved as an officer of the Company, in any of the facts or events giving rise to the Proceeding, I (1) acted in good faith and honestly, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance of Expenses by the Company for reasonable attorneys' fees and related expenses incurred by me in connection with the Proceeding (the "Advanced Expenses"), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established and which have not been successfully resolved as described in Section 7 of the Indemnification Agr eement. To the extent that Advanced Expenses do not relate to a specific claim, issue or matter in the Proceeding, I agree that such Expenses shall be allocated on a reasonable and proportionate basis.

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this

day of

, 200__ .

WITNESS:

112473-1

1

Endnotes

(SEAL)

EX-10.593

112471-1

1

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT is made and entered into this 10^th day of

March, 2009 ("Agreement"), by and between INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a placeStateMaryland corporation (the "Company"), and Michael D. Keach ("Indemnitee").

WHEREAS, at the request of the Company, Indemnitee currently serves as an officer of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of his service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such officer, the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law; and

WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses;

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

placePostalCodeSnSection PostalCodeI.

Definitions. For purposes of this Agreement:

(a)

"Change in Control" means a change in control of the Company occurring after
the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 1, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.

(b)

"Corporate Status" means the status of a person who is or was a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise for which such person is or was serving at the request of the Company.

(c)

"Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(d)

"Effective Date" means the date set forth in the first paragraph of this Agreement.

(e)

"Expenses" shall include all reasonable and out-of-pocket attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.

(f)

"Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to or witness in the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. If a Change of Control has not occurred, Independent Counsel shall be selected by the Board of Directors, with the approval of Indemnitee, which approval will not be unreasonably withheld. If a Change of Control has occurred, Indepe ndent Counsel shall be selected by Indemnitee, with the approval of the Board of Directors, which approval will not be unreasonably withheld.

(g)

"Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative (including on appeal), except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee.

Section 2.

Services by Indemnitee. Indemnitee will serve as an officer of the Company. However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue Indemnitee's service to the Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any.

Section 3.

Indemnification - General. The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by Maryland law in effect on the date hereof and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the date hereof. The rights of Indemnitee provided in this Section 3 shall include, without limitation, the rights set

forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law ("MGCL").

Section 4.

Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed Proceeding, other than a Proceeding by or in the right of the Company. Pursuant to this Section 4, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with a Proceeding by reason of his Corporate Status unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty, (ii) Indemnitee actually received an improper personal benefit in money, proper ty or services, or (iii) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that his conduct was unlawful.

Section 5.

Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 5 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 5, Indemnitee shall be indemnified against all amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to such a Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (ii) Indemnitee actually received an improper personal benefit in money, property or services.

Section 6.

Court-Ordered Indemnification. Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification in the following circumstances:

(a)

if it determines Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the expenses of securing such reimbursement; or

(b)

if it determines that Indemnitee is fairly and reasonably entitled to

indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any Proceeding by or in the right of the Company or in which liability shall have been adjudged in the circumstances described in Section 2-418(c) of the MGCL shall be limited to Expenses actually and reasonably incurred by him or on his behalf in connection with a Proceeding.

Section 7.

Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, and without limiting any

such provision, to the extent that Indemnitee is, by reason of his Corporate Status, made a party to and is successful, on the merits or otherwise, in the defense of any Proceeding, he shall be indemnified for all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter, allocated on a reasonable and proportionate basis. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 8.

Advance of Expenses. The Company shall advance all reasonable Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection with any Proceeding (other than a Proceeding brought to enforce indemnification under this Agreement, applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors)

to which Indemnitee is, or is threatened to be, made a party or a witness, within ten days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to claims, issues or matters in the Pr oceeding as to which it shall ultimately be established that the standard of conduct has not been met and which have not been successfully resolved as described in Section 7. To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis. The undertaking required by this Section 8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee's financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section 9.

Procedure for Determination of Entitlement to Indemnification.

(a)

To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b)

Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 9(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall promptly be made in the specific case: (i) if a Change in

Control shall have occurred, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by the Board of Directors (or a duly authorized committee thereof) by a majority vote of a quorum consisting of Disinterested Directors (as herein defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination. Indemnitee shall cooperate with the pers on, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 9. Any Expenses actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

Section 10.

Presumptions and Effect of Certain Proceedings.

(a)

In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b)

The termination of any Proceeding by judgment, order, settlement, conviction, a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

Section 11.

Remedies of Indemnitee.

(a)

If (i) a determination is made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 9(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 7 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of PostalCodeMaryland, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advance of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 11(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce his rights under Section 7 of this Agreement.

(b)

In any judicial proceeding or arbitration commenced pursuant to this Section 11 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.

(c)

If a determination shall have been made pursuant to Section 9(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 11, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification.

(d)

In the event that Indemnitee, pursuant to this Section 11, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses actually and reasonably incurred by him in such judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.

Section 12.

Defense of the Underlying Proceeding.

(a)

Indemnitee shall notify the Company promptly upon being served with or receiving any summons, citation, subpoena, complaint, indictment, information, notice, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company's ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)

Subject to the provisions of the last sentence of this Section 12(b) and of Section 12(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 12(a) above. The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee. Thi s Section 12(b) shall not apply to a Proceeding brought by Indemnitee under Section 11 above or Section 18 below.

(c)

Notwithstanding the provisions of Section 12(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee's Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that he may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee's choice, subject to t he prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company. In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee's choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company (subject to Section 11(d)), to represent Indemnitee in connection with any such matter.

Section 13.

Non-Exclusivity; Survival of Rights; Subrogation; Insurance.

(a)

The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.

(b)

In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(c)

The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Section 14.

Insurance. The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors of the Company, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee for service as a director or officer of the Company and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee for service as a director or officer of the Company. Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and reasonable Expenses actually and reasonably incurred by Indemnitee in connection with a Proceeding over the c overage of any insurance referred to in the previous sentence.

Section 15.

Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or may be, by reason of his Corporate Status, a witness in any Proceeding, whether instituted by the Company or any other party, and to which Indemnitee is not a party but in which the Indemnitee receives a subpoena to testify, he shall be advanced all reasonable Expenses and indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

Section 16.

Duration of Agreement; Binding Effect.

(a)

This Agreement shall continue until and terminate ten years after the date that Indemnitee's Corporate Status shall have ceased; provided, that the rights of Indemnitee hereunder shall continue until the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advance of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 11 of this Agreement relating thereto.

(b)

The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the written request of the Company, and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(c)

The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

Section 17.

Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 18.

Exception to Right of Indemnification or Advance of Expenses. Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification or advance of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, unless (a) the Proceeding is brought to enforce indemnification under this Agreement, and then only to the extent in accordance with and as authorized by Sections 8 and 11 of this Agreement, or (b) the Company's Bylaws, as amended, the Charter, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

Section 19.

Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section 20.

Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 21.

Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 22.

Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a)

If to Indemnitee, to: The address set forth on the signature page hereto.

(b)

If to the Company to:

Inland Western Retail Real Estate Trust, Inc.

PostalCode2901 Butterfield Road

PostalCodePostalCodeOak Brook, PostalCodeIllinois  PostalCode60523

Attn:  Chief Operating Officer and Chief Financial Officer

With a copy to:

Inland Western Retail Real Estate Trust, Inc.

PostalCode2901 Butterfield Road

PostalCodePostalCodeOak Brook, PostalCodeIllinois  PostalCode60523

Attn:  General Counsel

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 23.

Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of PostalCodeMaryland, without regard to its conflicts of laws rules.

Section 24.

Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.

[SIGNATURE PAGE FOLLOWS]

112471-1

1

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

ATTEST:

COMPANY

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

By:

(SEAL) Name:  Steven P. Grimes

Title:  

Chief Operating Officer and Chief Financial

Officer

WITNESS:

INDEMNITEE

Name:  

Michael D. Keach

Address:  Inland Western Retail Real

Estate Trust, Inc.

PostalCode2901 Butterfield Road

PostalCodePostalCodeOak Brook, PostalCodeIL PostalCode60523

EXHIBIT A

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED The Board of Directors of Inland Western Retail Real Estate Trust, Inc.

Re: Undertaking to Repay Expenses Advanced

Ladies and Gentlemen:

This undertaking is being provided pursuant to that certain Indemnification Agreement dated the

day of

, 200  , by and between Inland Western Retail Real Estate Trust, Inc. (the "Company") and the undersigned Indemnitee (the "Indemnification Agreement"), pursuant to which I am entitled to advance of expenses in connection with [Description of Proceeding] (the "Proceeding").

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity. I hereby affirm that at all times, insofar as I was involved as an officer of the Company, in any of the facts or events giving rise to the Proceeding, I (1) acted in good faith and honestly, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance of Expenses by the Company for reasonable attorneys' fees and related expenses incurred by me in connection with the Proceeding (the "Advanced Expenses"), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established and which have not been successfully resolved as described in Section 7 of the Indemnification Agr eement. To the extent that Advanced Expenses do not relate to a specific claim, issue or matter in the Proceeding, I agree that such Expenses shall be allocated on a reasonable and proportionate basis.

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this

day of

, 200__ .

WITNESS:

112471-1

1

Endnotes

(SEAL)

EX-10.594

112472-1

1

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT is made and entered into this 10^th day of

March, 2009 ("Agreement"), by and between INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a placeStateMaryland corporation (the "Company"), and Thomas J. Martin ("Indemnitee").

WHEREAS, at the request of the Company, Indemnitee currently serves as an officer of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of his service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such officer, the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law; and

WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses;

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

SnplacePostalCodeSection SnPostalCodeI.

Definitions. For purposes of this Agreement:

(a)

"Change in Control" means a change in control of the Company occurring after
the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 1, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.

(b)

"Corporate Status" means the status of a person who is or was a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise for which such person is or was serving at the request of the Company.

(c)

"Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(d)

"Effective Date" means the date set forth in the first paragraph of this Agreement.

(e)

"Expenses" shall include all reasonable and out-of-pocket attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.

(f)

"Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to or witness in the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. If a Change of Control has not occurred, Independent Counsel shall be selected by the Board of Directors, with the approval of Indemnitee, which approval will not be unreasonably withheld. If a Change of Control has occurred, Indepe ndent Counsel shall be selected by Indemnitee, with the approval of the Board of Directors, which approval will not be unreasonably withheld.

(g)

"Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative (including on appeal), except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee.

Section 2.

Services by Indemnitee. Indemnitee will serve as an officer of the Company. However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue Indemnitee's service to the Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any.

Section 3.

Indemnification - General. The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by Maryland law in effect on the date hereof and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the date hereof. The rights of Indemnitee provided in this Section 3 shall include, without limitation, the rights set

forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law ("MGCL").

Section 4.

Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed Proceeding, other than a Proceeding by or in the right of the Company. Pursuant to this Section 4, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with a Proceeding by reason of his Corporate Status unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty, (ii) Indemnitee actually received an improper personal benefit in money, proper ty or services, or (iii) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that his conduct was unlawful.

Section 5.

Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 5 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 5, Indemnitee shall be indemnified against all amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to such a Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (ii) Indemnitee actually received an improper personal benefit in money, property or services.

Section 6.

Court-Ordered Indemnification. Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification in the following circumstances:

(a)

if it determines Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the expenses of securing such reimbursement; or

(b)

if it determines that Indemnitee is fairly and reasonably entitled to

indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any Proceeding by or in the right of the Company or in which liability shall have been adjudged in the circumstances described in Section 2-418(c) of the MGCL shall be limited to Expenses actually and reasonably incurred by him or on his behalf in connection with a Proceeding.

Section 7.

Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, and without limiting any

such provision, to the extent that Indemnitee is, by reason of his Corporate Status, made a party to and is successful, on the merits or otherwise, in the defense of any Proceeding, he shall be indemnified for all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter, allocated on a reasonable and proportionate basis. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 8.

Advance of Expenses. The Company shall advance all reasonable Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection with any Proceeding (other than a Proceeding brought to enforce indemnification under this Agreement, applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors)

to which Indemnitee is, or is threatened to be, made a party or a witness, within ten days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to claims, issues or matters in the Pr oceeding as to which it shall ultimately be established that the standard of conduct has not been met and which have not been successfully resolved as described in Section 7. To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis. The undertaking required by this Section 8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee's financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section 9.

Procedure for Determination of Entitlement to Indemnification.

(a)

To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b)

Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 9(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall promptly be made in the specific case: (i) if a Change in

Control shall have occurred, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by the Board of Directors (or a duly authorized committee thereof) by a majority vote of a quorum consisting of Disinterested Directors (as herein defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination. Indemnitee shall cooperate with the pers on, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 9. Any Expenses actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

Section 10.

Presumptions and Effect of Certain Proceedings.

(a)

In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b)

The termination of any Proceeding by judgment, order, settlement, conviction, a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

Section 11.

Remedies of Indemnitee.

(a)

If (i) a determination is made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 9(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 7 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of PostalCodeMaryland, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advance of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 11(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce his rights under Section 7 of this Agreement.

(b)

In any judicial proceeding or arbitration commenced pursuant to this Section 11 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.

(c)

If a determination shall have been made pursuant to Section 9(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 11, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification.

(d)

In the event that Indemnitee, pursuant to this Section 11, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses actually and reasonably incurred by him in such judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.

Section 12.

Defense of the Underlying Proceeding.

(a)

Indemnitee shall notify the Company promptly upon being served with or receiving any summons, citation, subpoena, complaint, indictment, information, notice, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company's ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)

Subject to the provisions of the last sentence of this Section 12(b) and of Section 12(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 12(a) above. The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee. Thi s Section 12(b) shall not apply to a Proceeding brought by Indemnitee under Section 11 above or Section 18 below.

(c)

Notwithstanding the provisions of Section 12(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee's Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that he may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee's choice, subject to t he prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company. In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee's choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company (subject to Section 11(d)), to represent Indemnitee in connection with any such matter.

Section 13.

Non-Exclusivity; Survival of Rights; Subrogation; Insurance.

(a)

The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.

(b)

In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(c)

The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Section 14.

Insurance. The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors of the Company, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee for service as a director or officer of the Company and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee for service as a director or officer of the Company. Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and reasonable Expenses actually and reasonably incurred by Indemnitee in connection with a Proceeding over the c overage of any insurance referred to in the previous sentence.

Section 15.

Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or may be, by reason of his Corporate Status, a witness in any Proceeding, whether instituted by the Company or any other party, and to which Indemnitee is not a party but in which the Indemnitee receives a subpoena to testify, he shall be advanced all reasonable Expenses and indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

Section 16.

Duration of Agreement; Binding Effect.

(a)

This Agreement shall continue until and terminate ten years after the date that Indemnitee's Corporate Status shall have ceased; provided, that the rights of Indemnitee hereunder shall continue until the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advance of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 11 of this Agreement relating thereto.

(b)

The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the written request of the Company, and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(c)

The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

Section 17.

Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 18.

Exception to Right of Indemnification or Advance of Expenses. Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification or advance of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, unless (a) the Proceeding is brought to enforce indemnification under this Agreement, and then only to the extent in accordance with and as authorized by Sections 8 and 11 of this Agreement, or (b) the Company's Bylaws, as amended, the Charter, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

Section 19.

Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section 20.

Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 21.

Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 22.

Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a)

If to Indemnitee, to: The address set forth on the signature page hereto.

(b)

If to the Company to:

Inland Western Retail Real Estate Trust, Inc.

PostalCode2901 Butterfield Road

PostalCodePostalCodeOak Brook, PostalCodeIllinois  PostalCode60523

Attn:  Chief Operating Officer and Chief Financial Officer

With a copy to:

Inland Western Retail Real Estate Trust, Inc.

PostalCode2901 Butterfield Road

PostalCodePostalCodeOak Brook, PostalCodeIllinois  PostalCode60523

Attn:  General Counsel

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 23.

Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of PostalCodeMaryland, without regard to its conflicts of laws rules.

Section 24.

Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.

[SIGNATURE PAGE FOLLOWS]

112472-1

1

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

ATTEST:

COMPANY

INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.

By:

(SEAL) Name:  Steven P. Grimes

Title:  

Chief Operating Officer and Chief Financial

Officer

WITNESS:

INDEMNITEE

Name:  

Thomas J. Martin

Address:  Inland Western Retail Real

Estate Trust, Inc.

PostalCode2901 Butterfield Road

PostalCodePostalCodeOak Brook, PostalCodeIL PostalCode60523

EXHIBIT A

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED The Board of Directors of Inland Western Retail Real Estate Trust, Inc.

Re: Undertaking to Repay Expenses Advanced

Ladies and Gentlemen:

This undertaking is being provided pursuant to that certain Indemnification Agreement dated the

day of

, 200  , by and between Inland Western Retail Real Estate Trust, Inc. (the "Company") and the undersigned Indemnitee (the "Indemnification Agreement"), pursuant to which I am entitled to advance of expenses in connection with [Description of Proceeding] (the "Proceeding").

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity. I hereby affirm that at all times, insofar as I was involved as an officer of the Company, in any of the facts or events giving rise to the Proceeding, I (1) acted in good faith and honestly, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance of Expenses by the Company for reasonable attorneys' fees and related expenses incurred by me in connection with the Proceeding (the "Advanced Expenses"), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established and which have not been successfully resolved as described in Section 7 of the Indemnification Agr eement. To the extent that Advanced Expenses do not relate to a specific claim, issue or matter in the Proceeding, I agree that such Expenses shall be allocated on a reasonable and proportionate basis.

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this

day of

, 200__ .

WITNESS:

112472-1

1

Endnotes

(SEAL)