10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(MARK ONE)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission file number    1-13106

Essex Property Trust, Inc.

(Exact name of Registrant as Specified in its Charter)

Maryland	77-0369576
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

925 East Meadow Drive

Palo Alto, California    94303

(Address of Principal Executive Offices including Zip Code)

(650) 494-3700

(Registrant's Telephone Number, Including Area Code)

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

Title of each class	Name of each exchange on which registered
Common Stock, $.0001 par value Rights to purchase Series A Junior Participating	New York Stock Exchange New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x   No o

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.  o

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

Large accelerated filer x Accelerated filer o Non-accelerated filer o (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 Act).

Yes o Nox

As of June 30, 2008, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2,605,700,000.  The aggregate market value was computed with reference to the closing price on the New York Stock Exchange on such date. Shares of common stock held by executive officers, directors and holders of more than ten percent of the outstanding common stock have been excluded from this calculation because such persons may be deemed to be affiliates. This exclusion does not reflect a determination that such persons are affiliates for any other purposes.

As of February 25, 2009, 26,818,907 shares of Common Stock ($.0001 par value) were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

The following document is incorporated by reference in Part III of the Annual Report on Form 10-K: Proxy statement for the annual meeting of stockholders of Essex Property Trust, Inc. to be held May 5, 2009

ii

Essex Property Trust, Inc.

2008 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Part I.		Page
Item 1.	Business	1
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	24
Item 4.	Submission of Matters to a Vote of Security Holders	24
Part II.
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	29
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risks	43
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
Item 9A.	Controls and Procedures	44
Item 9B.	Other Information	44
Part III.
Item 10.	Directors, Executive Officers and Corporate Governance	44
Item 11.	Executive Compensation	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	44
Item 13.	Certain Relationships and Related Transactions, and Director Independence	44
Item 14.	Principal Accounting Fees and Services	44
Part IV.
Item 15.	Exhibits and Financial Statement Schedules	45
Signatures		S-1

iii

PART I

Forward Looking Statements

This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such forward-looking statements are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the section, “Forward Looking Statements.”  Our actual results could differ materially from those set forth in each forward-looking statement.  Certain factors that might cause such a difference are discussed in this report, including Item 1A, Risk Factors of this Form 10-K.

Item 1. Business

OVERVIEW

Essex Property Trust, Inc. (“Essex” or the “Company”) is a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT”).  The Company owns all of its interest in its real estate investments directly or indirectly through Essex Portfolio, L.P. (the “Operating Partnership”).  The Company is the sole general partner of the Operating Partnership and as of December 31, 2008 owns a 91.6% general partnership interest.   In this report, the terms “we,” “us” and “our” refer to Essex Property Trust, its Operating Partnership and the Operating Partnership’s subsidiaries.

The Company has elected to be treated as a REIT for federal income tax purposes, commencing with the year ended December 31, 1994 as the Company completed an initial public offering on June 13, 1994.  In order to maintain compliance with REIT tax rules, the Company utilizes taxable REIT subsidiaries for various revenue generating or investment activities. Each of the taxable REIT subsidiary entities are consolidated by the Company.

We are engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of real estate.  The majority of our real estate consists of apartment communities.  As of December 31, 2008, we owned or held an interest in 134 apartment communities, aggregating 26,992 units, located along the West Coast (collectively, the “Communities” and individually, a "Community").  Our other real estate included six office buildings (totaling approximately 478,300 square feet), and six active development projects with 1,256 units in various stages of active development (together with the Communities, the “Portfolio”).

The Company’s website address is http://www.essexpropertytrust.com.  The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its Annual Meeting of Stockholders are available, free of charge, on our website as soon as practicable after we file the reports with the Securities and Exchange Commission (“SEC”).

BUSINESS OBJECTIVES AND STRATEGIES

The following is a discussion of our business objectives and strategies in regards to real estate investment and management.  One or more of these criteria may be amended or rescinded from time to time without stockholder vote.

Business Objectives

The Company's primary business objectives are to increase stockholders’ value by investing in and operating communities located in supply constrained markets, and by improving operating results and the value of its Communities, while maintaining a strong balance sheet.  The Company intends to achieve these objectives by:

· Maintain high level of occupancy to maximize rental income;

· Improve financial performance of  the Company's Portfolio through acquisitions, dispositions, development and, when appropriate, redevelopment of  apartment communities in selected major metropolitan areas; and

· Maintain a strong balance sheet by identifying and utilizing capital resources that provide positive arbitrage (i.e. investment yield that exceeds capital cost).

The Company cannot assure stockholders that the Company will achieve its business objectives.

1

Business Strategies

Research Driven Approach – We believe that successful real estate investment decisions and portfolio growth begin with extensive regional economic research and local market knowledge.

Utilizing a proprietary research model that we have developed over the last two decades, we continually assess markets where we currently operate, as well as markets where we consider future investment opportunities by evaluating the following:

· Markets in major metropolitan areas that have regional population primarily in excess of one million;

· Constraints on new supply driven by: (i) low availability of developable land sites where competing housing could be built; (ii) political growth barriers, such as protected land, urban growth boundaries, and potential lengthy and expensive development permit processes; and (iii) natural limitations to development, such as mountains or waterways;

· Rental demand is enhanced by affordability of rents compared to expensive for-sale housing; and

· Housing demand that is based on proximity to jobs, high quality of life and related commuting factors, as well as potential job growth.

Recognizing that all real estate markets are cyclical, we regularly evaluate the results of our regional economic, as well as our local market research, and adjust the geographic focus of our portfolio accordingly. We seek to increase our portfolio allocation in markets projected to have the strongest local economies and to decrease such allocations in markets projected to have declining economic conditions. Likewise, the Company also seeks to increase its portfolio allocation in markets that have attractive property valuations and to decrease such allocations in markets that have inflated valuations and low relative yields.

Property Operations – We manage our Communities by focusing on strategies that will generate above-average rental growth, tenant retention/satisfaction and long-term asset appreciation. We intend to achieve this by utilizing the strategies set forth below:

· Property Management – The Chief Operating Officer, Senior Vice President of Operations, Divisional Managers, Regional Portfolio Managers and Area Managers are accountable for the performance and maintenance of the Communities. They supervise, provide training for the on-site managers, review actual performance against budget, monitor market trends and prepare operating and capital budgets.

· Capital Preservation – The Capital and Maintenance department is responsible for the planning, budgeting and completion of major deferred maintenance and capital improvement projects at our Communities.

· Business Planning and Control – Comprehensive business plans are implemented in conjunction with every investment decision.  These plans include benchmarks for future financial performance, based on collaborative discussions between on-site managers and senior management.

· Development and Redevelopment – We focus on acquiring and developing apartment communities in supply constrained markets, and redeveloping our existing communities to improve the financial and physical aspects of our communities.

CURRENT BUSINESS ACTIVITIES

Acquisitions

Acquisitions is an important component of our business plan, and during 2008, we completed the acquisition of two communities totaling $88.4 million.

· In July 2008, the Company acquired Chestnut Street Apartments, a 96-unit apartment community located in Santa Cruz, California, for $22.1 million. The community was built in 2002 and includes approximately 9,000 square feet of commercial and retail space.

· In August 2008, the Company acquired The Highlands at Wynhaven, a 333-unit apartment community located in Issaquah, Washington for $66.3 million.  The community was built in 2000.

Dispositions of Real Estate

As part of our strategic plan to own quality real estate in supply-constrained markets the Company continually evaluates all the Communities and sell those which no longer meet our strategic criteria. The Company may use the capital generated from the dispositions to invest in higher-return communities, repurchase the Company's common stock, or repay debts.  The Company believes that the sale of these Communities will not have a material impact on our future results of operations or cash flows nor will their sale materially affect our ongoing operations. Generally, any impact of earnings dilution resulting from these dispositions will be offset by the positive impact of our acquisitions, development and redevelopment activities.

2

In 2008, in accordance with our strategic plan, the Company sold three apartment communities for gross proceeds of $99.6 million, two recreational vehicle (“RV”) parks and one manufactured housing community for gross proceeds of $18.9 million.

· In the third quarter of 2008, the Company sold Cardiff by the Sea, a 300-unit apartment community located in Cardiff, California for $71.0 million resulting in a gain of $46,000, and St. Cloud, a 302-unit apartment community located in Houston, Texas for $8.8 million resulting in no gain on sale.

· In the third quarter of 2008, the Company sold the Circle RV park located in El Cajon, California for $5.4 million resulting in a gain of $0.9 million, and the Company sold the Vacationer RV park located in El Cajon, California for $4.6 million.  The gain on sale of $0.8 million resulting from the sale of Vacationer was deferred due to the fact the Company loaned $4.1 million to the buyer at a fixed rate of 6.5% due in August 2011.

· In the fourth quarter of 2008, the Company sold Coral Gardens, a 200-unit property located in El Cajon, California for $19.8 million resulting in a gain of $3.4 million, and the Company sold Green Valley, a manufactured housing community located in Vista, California, for $8.9 million resulting in a gain of $1.8 million.  In conjunction with the sale of Green Valley the Company loaned $1.0 million to the buyer at a fixed rate of 8.0% due in November 2010.  The Company also sold the 90 Archer land parcel for $3.7 million resulting in a gain of $147,000, and the Company sold three condominium units at Eastridge for a gain of $140,000.

Development Pipeline

The Company defines development activities as new communities that are in various stages of active development, or the community is in lease-up and phases of the project are not completed.  As of December 31, 2008, the Company had four development projects comprised of 988 units for an estimated cost of $410.0 million, of which $234.6 million remains to be expended.  These four projects exclude development projects owned by Essex Apartment Value Fund II, L.P. (“Fund II”) an investment fund formed by the Company which the Company does not consolidate.

In May 2008, the Company’s consolidated joint venture, Joule Broadway, obtained a construction loan in the amount of $60.0 million secured by the development project in Seattle, Washington.  The loan is variable based on LIBOR plus 155 basis points and matures in June 2011 with two one-year extension options.  Approximately $9.3 million of future development costs will be funded by the joint venture partners during 2009 and the remainder of the estimated development costs will be funded by the construction loan.  The estimated remaining costs to be incurred totaling $165.3 million for the other three active development projects including The Grand, Fourth Street, and Tasman Place will be financed by the Company’s lines of credit.  The following table sets forth information regarding the Company’s consolidated development pipeline:

				As of 12/31/08 ($ in millions)
				Incurred		Estimated		Estimated
Development Pipeline	Location	Units		Project Cost		Remaining Cost		Project Cost(1)
Development Projects
The Grand	Oakland, CA		238	$	88.7	$	7.5	$	96.2
Fourth Street	Berkeley, CA		171		25.3		45.3		70.6
Joule Broadway	Seattle, WA		295		35.0		69.3		104.3
Tasman Place	Sunnyvale, CA		284		26.4		112.5		138.9
			988		175.4		234.6		410.0
Predevelopment projects	various		820		73.0		169.4		242.4
Land held for future development	various		392		23.9		-		23.9
Consolidated Development Pipeline			2,200	$	272.3	$	404.0	$	676.3

(1) Includes incurred costs and estimated costs to complete these development projects.

3

The Company defines the predevelopment pipeline as proposed communities in negotiation or in the entitlement process with a high likelihood of becoming entitled development projects.  As of December 31, 2008, the Company had two development projects aggregating 820 units that were classified as predevelopment projects.  The estimated total cost of the predevelopment pipeline at December 31, 2008 was $242.4 million, of which $169.4 million remains to be expended.   The Company may also acquire land for future development purposes.   The Company owned four land parcels held for future development aggregating 392 units as of December 31, 2008.  The Company had incurred $23.9 million in costs related to these four land parcels as of December 31, 2008.

Redevelopment Pipeline

The Company defines redevelopment communities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement.  During redevelopment, apartment units may not be available for rent and, as a result, may have less than stabilized operations.  As of December 31, 2008, the Company had ownership interests in nine major redevelopment communities aggregating 2,631 apartment units with estimated redevelopment costs of $128.0 million, of which approximately $56.5 million remains to be expended.  These amounts exclude redevelopment projects owned by Fund II.   The following table illustrates these consolidated redevelopment projects:

				As of 12/31/08 ($ in thousands)
				Incurred		Estimated		Estimated
Redevelopment Pipeline	Location	Units		Project Cost		Remaining Cost		Project Cost(1)
Southern California
Avondale at Warner Center	Woodland Hills		446	$	11,540	$	2,530	$	14,070
Highridge	Rancho Palos Verdes		255		4,118		12,445		16,563
Pathways	Long Beach		296		8,255		2,505		10,760
Northern California
Boulevard (2)	Fremont		172		8,875		12		8,887
Bridgeport (2)	Newark		184		4,372		214		4,586
Marina Cove	Santa Clara		292		3,112		6,746		9,858
Montclaire - Phase I-III (2)	Sunnyvale		390		13,863		1,269		15,132
Seattle Metro
Woodland Commons	Bellevue		236		3,323		8,456		11,779
Foothill Commons	Bellevue		360		14,021		22,317		36,338
Total Redevelopment Pipeline			2,631	$	71,479	$	56,494	$	127,973

(1) Includes incurred costs and estimated costs to complete these redevelopment projects.

(2) The redevelopment at these apartment communities were substantially completed in the fourth quarter of 2008, and will be added back to Same-Property operations (as defined in Item 7) during the first quarter of 2010.

Co-Investments

In January 2008, the Company collected $7.5 million and recognized income of $6.3 million from the sale of its preferred interest in Waterstone at Fremont Apartments, located in Fremont, California.

Debt Transactions

During 2008, the Company obtained fixed rate mortgage loans totaling $378.1 million and paid-off mortgage loans or the buyers of Essex communities assumed mortgage loans totaling $169.4 million, including the following:

· In the first quarter 2008, the Company obtained a mortgage loan in the amount of $49.9 million secured by Mirabella, with a fixed interest rate of 5.2% due in January 2018.  The Company paid-off two mortgage loans totaling $7.3 million at 6.9% and $4.8 million at 7.5%, respectively secured by The Bluffs II.  The Company refinanced two mortgage loans aggregating $9.3 million with a combined weighted average interest rate of 7.0% secured by Brentwood, into a $20.6 million secured loan with a fixed interest rate of 5.5% due in March 2018.

· In the second quarter 2008, the Company obtained a mortgage loan secured by Park Hill at Issaquah, in the amount of $31.5 million, with a fixed interest rate of 5.6% due in April 2018.  In conjunction with this transaction the Company settled a $30 million forward-starting swap for a $1.7 million payment to the counterparty, and the amortization of the settlement of the swap increased the effective interest rate on the mortgage loan to 6.1%.   The Company obtained a mortgage loan in the amount of $17.2 million secured by Kings Road, with a fixed interest rate at 5.6% due in January 2018.  The Company obtained a $22.5 million loan secured by Hampton Place, with a fixed interest rate of 6.1% due in June 2018.  In conjunction with this transaction, the Company settled a $20.0 million forward-starting swap for a $0.1 million payment to the counterparty, and amortization of settlement of the swap increased the effective interest rate on the mortgage loan to 6.2%.

4

· In the third quarter of 2008, the Company paid-off an $89.0 million cross-collateralized mortgage loan at a fixed rate of 6.6%.  The Company obtained a mortgage loan in the amount of $53.0 million secured by Mill Creek, with a fixed rate of 5.8% due in August 2018.  In conjunction with the sale of Cardiff by the Sea, the buyer assumed the mortgage loan totaling $42.2 million at a fixed rate of 5.7%.  The Company obtained mortgage loans in the amount of $23.0 million with a fixed rate of 5.8% and $22.5 million with a fixed rate of 5.8%, secured by the Palisades and Bridgeport communities, respectively.  Both mortgage loans are due in September 2018.

· In the fourth quarter of 2008, the Company obtained a $49.7 million mortgage loan secured by Montclaire, with a rate of 6.2% due in November 2018.  In conjunction with this transaction the Company settled a $25 million forward-starting swap for a $1.2 million payment to the counterparty, and the amortization of the settlement of the swap increased the effective interest of this mortgage loan to 6.4%.  The Company obtained a $40.2 million mortgage loan secured by Pathways, with a fixed interest rate of 6.2% due in October 2018.  The Company obtained a $30.4 million mortgage loan secured by Canyon Oaks, with a fixed interest rate of 6.1% due in December 2018.  The Company obtained a $17.6 million mortgage loan secured by Barkley, with a fixed interest rate of 6.14% due in December 2018.  In conjunction with the sale of Coral Gardens, the buyer assumed the mortgage loan for the property totaling $10.7 million with a fixed rate of 5.5%, and in conjunction with the sale of Green Valley, the buyer assumed the mortgage loan for the property totaling $6.1 million with a fixed rate of 5.6%.

During the fourth quarter of 2008, the Company repurchased $53.3 million of 3.625% exchangeable bonds (the “Bonds”) due in 2025 at a discount to par value and recognized a gain of $3.5 million.  During the first quarter of 2009, the Company repurchased $71.3 million of these Bonds at a discount to par value for cash paid of $66.5 million.

During the fourth quarter of 2008, the Company entered into a new five-year secured line of credit facility with Freddie Mac to replace the existing secured line of credit facility.  The new secured facility expanded the existing secured facility from $100 million to $150 million, and the new facility is expandable to $250 million during the first two years.  The underlying interest rate on this line is between 99 and 150 basis points over the Freddie Mac Reference Rate and the interest rate is subject to change by the lender in November 2011.  The line is secured by eight communities and matures in December 2013.

In January 2009, the Company exercised its option to extend the maturity of the $200 million unsecured line of credit facility to March 2010.  The underlying interest rate on this line is based on a tiered structure tied to the Company’s corporate credit rating and is currently LIBOR + 80 basis points.

Equity and Minority Interest Transactions

During the first quarter of 2008, the Company, under its stock repurchase program, repurchased and retired 143,400 shares of its common stock for approximately $13.7 million, at an average stock price of $95.64 per share.

During the third and fourth quarter of 2008, the Company issued 1,209,050 shares of common stock at an average share price of $120.17 for $142.8 million, net of fees and commissions.  The Company used the net proceeds to pay down debt and to fund the development pipeline.

In November 2008, the holders of the outstanding 7.875% Series D Cumulative Redeemable Preferred Units of Essex Portfolio, L.P. exchanged their preferred units with a par value of $50 million for 363,000 shares of common stock of the Company and $10 million in cash plus accrued dividends.

During the first quarter of 2009, the Company repurchased $54.6 million of 4.875% Series G Cumulative Convertible Preferred Stock at a discount to par value for cash paid of $30.1 million.

5

ESSEX APARTMENT VALUE FUND II

Essex Apartment Value Fund II, L.P. (“Fund II”) is an investment fund formed by the Company to add value through rental growth and asset appreciation, utilizing the Company's development, redevelopment and asset management capabilities.

Fund II has eight institutional investors, and the Company, with combined partner equity commitments of $265.9 million which are fully contributed as of December 2008.  The Company contributed $75.0 million to Fund II, which represents a 28.2% interest as general partner and limited partner, and the Company uses the equity method of accounting for its investment in Fund II.  Fund II utilized leverage equal to approximately 55% upon the initial acquisition of the underlying real estate.  Fund II invested in apartment communities in the Company’s targeted West Coast markets and, as of December 31, 2008, owned eleven apartment communities, one development project completed in 2008 but not yet stabilized and two development projects.  Essex records revenue for its asset management, property management, development and redevelopment services when earned, and promote income when realized if Fund II exceeds certain financial return benchmarks.  

Fund II - Development Pipeline

The following table sets forth information regarding Fund II’s development pipeline:

				As of 12/31/08 ($ in millions)
				Incurred		Estimated		Estimated
Development Pipeline - Fund II	Location	Units		Project Cost		Remaining Cost(2)		Project Cost(1)
Development Projects
Studio 40-41	Studio City, CA		149	$	50.7	$	9.9	$	60.6
Cielo	Chatsworth, CA		119		25.4		14.1		39.5
Fund II - Development Pipeline			268	$	76.1	$	24.0	$	100.1

(1)   Includes incurred costs and estimated costs to complete these development projects.

(2)   All estimated remaining costs will be funded by construction loans.

OFFICES AND EMPLOYEES

The Company is headquartered in Palo Alto, California, and has regional offices in Woodland Hills, California; Irvine, California; San Diego, California and Bellevue, Washington. As of December 31, 2008, the Company had approximately 930 employees.

INSURANCE

The Company carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the Communities.  Insured risks for comprehensive liabilities covers claims in excess of $25,000 per incident, and property casualty insurance covers losses in excess of a $5.0 million deductible per incident. There are, however, certain types of extraordinary losses, such as, for example, losses from terrorism and earthquake, for which the Company does not have insurance. Substantially all of the Communities are located in areas that are subject to earthquakes.

The Company believes it has a proactive approach to its potential earthquake losses.  The Company utilizes third-party seismic consultants for its acquisitions and performs seismic upgrades to those acquisitions that are determined to have a higher level of potential loss from an earthquake.  The Company utilizes internal and third-party loss models to help to determine its exposure.  The majority of the Communities are lower density garden-style apartments which may be less susceptible to earthquake damage.  The Company will continue to monitor third-party earthquake insurance pricing and conditions and may consider obtaining third-party coverage if it deems it cost effective.

Although the Company may carry insurance for potential losses associated with its Communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, co-payments or losses in excess of applicable insurance coverage and those losses may be material.

6

COMPETITION

There are numerous housing alternatives that compete with our apartment communities in attracting residents. These include other apartment communities and single-family homes that are available for rent in the markets in which the apartment communities are located. The Communities also compete for residents with new and existing homes and condominiums that are for sale. If the demand for our Communities is reduced or if competitors develop and/or acquire competing apartment communities on a more cost-effective basis, rental rates and occupancy may drop which may have a material adverse affect on our financial condition and results of operations.

We face competition from other real estate investment trusts, businesses and other entities in the acquisition, development and operation of apartment communities. Some of the competitors are larger and have greater financial resources than we do. This competition may result in increased costs of apartment communities we acquire and/or develop.

WORKING CAPITAL

We believe that cash flows generated by our operations, existing cash balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of our reasonably anticipated cash needs during 2009.  The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect our plans for acquisitions, dispositions, development and redevelopment activities.

ENVIRONMENTAL CONSIDERATIONS

See the discussion under the caption, “The Company’s Portfolio may have unknown environmental liabilities” in Item 1A, Risk Factors, for information concerning the potential effect of environmental regulations on our operations.

OTHER MATTERS

Certain Policies of the Company

We intend to continue to operate in a manner that will not subject us to regulation under the Investment Company Act of 1940. The Company has in the past five years and may in the future (i) issue securities senior to its common stock, (ii) fund acquisition activities with borrowings under its line of credit and (iii) offer shares of common stock and/or units of limited partnership interest in the Operating Partnership or affiliated partnerships as partial consideration for property acquisitions. The Company from time to time acquires partnership interests in partnerships and joint ventures, either directly or indirectly through subsidiaries of the Company, when such entities’ underlying assets are real estate. In general, the Company does not (i) underwrite securities of other issuers or (ii) actively trade in loans or other investments.

We invest primarily in apartment communities that are located in predominantly coastal markets within Southern California, the San Francisco Bay Area, and the Seattle metropolitan area. The Company currently intends to continue to invest in apartment communities in such regions.  However, these practices may be reviewed and modified periodically by management.

Item 1A. Risk Factors

Our business, operating results, cash flows and financial conditions are subject to various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.

We depend on our key personnel.   Our success depends on our ability to attract and retain executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the loss of several of our key personnel could have an adverse effect on us.

Capital and credit market conditions may affect our access to sources of capital and/or the cost of capital, which could negatively affect our business, results of operations, cash flows and financial condition.  The Company’s current financing activities have been impacted by the instability and tightening in the credit markets which has led to an increase in spreads and pricing of secured and unsecured debt.  Our strong balance sheet, the established relationships with our unsecured line of credit bank group, the secured line of credit with Freddie Mac and access to Fannie Mae and Freddie Mac secured debt financing have provided some insulation to us from the turmoil being experienced by many other real estate companies.  The Company has benefited from borrowing from Fannie Mae and Freddie Mac, and there are no assurances that these entities will lend to the Company in the future.  The Company has experienced more restrictive loan to value and debt service coverage ratio limits and an expansion in credit spreads.   Continued turmoil in the capital markets could negatively impact the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates.

7

Debt financing has inherent risks.  At December 31, 2008, we had approximately $1.76 billion of indebtedness (including $251.1 million of variable rate mortgage indebtedness, of which $183.4 million is subject to interest rate protection agreements). We are subject to the risks normally associated with debt financing, including the following:

· cash flow may not be sufficient to meet required payments of principal and interest;

· inability to refinance maturing indebtedness on encumbered apartment communities;

· the terms of any refinancing may not be as favorable as the terms of existing indebtedness;

· inability to comply with debt covenants could cause an acceleration of the maturity date; and

· repaying debt before the scheduled maturity date could result in prepayment penalties.

The Company is uncertain about its ability to refinance balloon payments.  As of December 31, 2008, we had approximately $1.76 billion of mortgage loans, exchangeable bonds and line of credit borrowings, most of which are subject to balloon payments (see Notes 7 and 8 to the Company’s consolidated financial statements for more details).  We do not expect to have sufficient cash flows from operations to make all of these balloon payments. These mortgages, bonds and lines of credit borrowings have the following scheduled principal and balloon payments:

2009--$35.8 million;

2010--$152.4 million;

2011--$151.3 million;

2012--$31.8 million;

2013--$312.8 million;

Thereafter--$1.08 billion.

We may not be able to refinance such mortgage indebtedness, bonds, or lines of credit.  The Communities subject to these mortgages could be foreclosed upon or otherwise transferred to the lender.  This could cause us to lose income and asset value.  We may be required to refinance the debt at higher interest rates or on terms that may not be as favorable as the terms of existing indebtedness.

Debt financing of Communities may result in insufficient cash flow to service debt.  Where possible, we intend to continue to use leverage to increase the rate of return on our investments and to provide for additional investments that we could not otherwise make.  There is a risk that the cash flow from the Communities will be insufficient to meet both debt payment obligations and the distribution requirements of the real estate investment trust provisions of the Internal Revenue Code.  We may obtain additional debt financing in the future through mortgages on some or all of the Communities.  These mortgages may be recourse, non-recourse, or cross-collateralized.

As of December 31, 2008, the Company had 71 of its 122 consolidated Communities encumbered by debt.  Of the 71 Communities, 55 are secured by deeds of trust relating solely to those Communities.  With respect to the remaining 16 Communities, there are 4 cross-collateralized mortgages secured by 8 Communities, 3 Communities, 3 Communities, and 2 Communities, respectively.  The holders of this indebtedness will have rights with respect to these Communities and, to the extent indebtedness is cross-collateralized, lenders may seek to foreclose upon communities which are not the primary collateral for their loan.  This may accelerate other indebtedness secured by communities.  Foreclosure of Communities would reduce our income and net asset value.

Rising interest rates may affect our costs of capital and financing activities and results of operation.  Interest rates could increase rapidly, which could result in higher interest expense on our variable rate indebtedness.  Prolonged interest rate increases could negatively impact our ability to make acquisitions and develop apartment communities with positive economic returns on investment and our ability to refinance existing borrowings.

As of December 31, 2008, the Company had approximately $236.2 million of long-term variable rate indebtedness bearing interest at floating rates tied to the rate of short-term tax-exempt revenue bonds (which mature at various dates from 2020 through 2034), $14.9 million of short-term variable rate indebtedness related to predevelopment projects due in 2010, and $120.0 million of variable rate indebtedness under the secured line of credit due in December 2013 and bears interest at 99 to 150 basis points over the Freddie Mac Reference Rate and the interest rate is subject to change by the lender in December 2011.   Approximately $183.4 million of the long-term variable rate indebtedness is subject to interest rate cap protection agreements, which may reduce the risks associated with fluctuations in interest rates.  The remaining $52.8 million of long-term variable rate indebtedness and the $120.0 borrowings under the secured line of credit were not subject to any interest rate cap protection agreements as of December 31, 2008.  An increase in interest rates may have an adverse effect on our net income and results of operations.

8

Interest rate hedging arrangements may result in losses.   Periodically, we have entered into agreements to reduce the risks associated with increases in interest rates, and may continue to do so.  Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to us if interest rates decline.  If a hedging arrangement is not indexed to the same rate as the indebtedness that is hedged, we may be exposed to losses to the extent that the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other.  Finally, nonperformance by the other party to the hedging arrangement may subject us to increased credit risks.  In order to minimize counterparty credit risk, our policy is to enter into hedging arrangements only with A-rated financial institutions.

Bond compliance requirements may limit income from certain communities.   At December 31, 2008, we had approximately $236.2 million of variable rate tax-exempt financing relating to the following apartment communities: Inglenook Court, Wandering Creek, Boulevard, Huntington Breakers, Camarillo Oaks, Fountain Park, Anchor Village and Hidden Valley.  This tax-exempt financing subjects these Communities to certain deed restrictions and restrictive covenants.  We expect to engage in tax-exempt financings in the future.  The Internal Revenue Code and rules and regulations there under impose various restrictions, conditions and requirements excluding interest on qualified bond obligations from gross income for federal income tax purposes.  The Internal Revenue Code also requires that at least 20% of apartment units be made available to residents with gross incomes that do not exceed a specified percentage, generally 50%, of the median income for the applicable family size as determined by the Housing and Urban Development Department of the federal government.  In addition to federal requirements, certain state and local authorities may impose additional rental restrictions.  These restrictions may limit income from the tax-exempt financed communities if we are required to lower rental rates to attract residents who satisfy the median income test.  If the Company does not reserve the required number of apartment homes for residents satisfying these income requirements, the tax-exempt status of the bonds may be terminated, the obligations under the bond documents may be accelerated and we may be subject to additional contractual liability.

General real estate investment risks may adversely affect property income and values.   Real estate investments are subject to a variety of risks.  The yields available from equity investments in real estate depend on the amount of income generated and expenses incurred.  If the Communities do not generate sufficient income to meet operating expenses, including debt service and capital expenditures, cash flow and the ability to make distributions to stockholders will be adversely affected.  Income from the Communities may be further adversely affected by, among other things, the following factors:

· the general economic climate;

· local economic conditions in which the Communities are located, such as oversupply of housing or a reduction in demand for rental housing;

· the attractiveness of the Communities to tenants;

· competition from other available space; and

· the Company’s ability to provide for adequate maintenance and insurance.

As leases on the Communities expire, tenants may enter into new leases on terms that are less favorable to us. Income and real estate values also may be adversely affected by such factors as applicable laws (e.g., the Americans with Disabilities Act of 1990 and tax laws), interest rate levels and the availability and terms of financing.  Real estate investments are relatively illiquid and, therefore, our ability to vary our portfolio promptly in response to changes in economic or other conditions may be quite limited.

National and regional economic environments can negatively impact our operating results.  During the past twelve to eighteen months, a confluence of many factors has contributed to deteriorate economic conditions, diminish expectations for the national and global economy, and cause unprecedented turmoil and volatility in the capital markets.  The Company’s 2009 forecast assumes continued slowing of the national economy, with estimated GDP decline of 1.3% and non-farm employment decrease of 2 million jobs.  The national economy and the economies of the western states in markets where we operate can impact our operating results.  Some of these markets are concentrated in high-tech sectors, which have experienced economic downturns, and currently the high-tech sector is experiencing the impact of the deteriorating economic conditions as well as are most other sectors of the economy.  Our property type and diverse geographic locations provide some degree of risk mitigation.  However, we are not immune to prolonged economic downturns.  Although we believe we are well positioned to meet these challenges, it is possible a reduction in rental rates, occupancy levels, property valuations and increases in operating costs such as advertising, turnover and repair and maintenance expense could occur in the event of continued economic turmoil.

9

Inflation/Deflation may affect rental rates and operating expenses. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses.

Acquisitions of communities may fail to meet expectations.  We intend to continue to acquire apartment communities.  However, there are risks that acquisitions will fail to meet our expectations.  Our estimates of future income, expenses and the costs of improvements or redevelopment that are necessary to allow us to market an acquired apartment community as originally intended may prove to be inaccurate.  We expect to finance future acquisitions, in whole or in part, under various forms of secured or unsecured financing or through the issuance of partnership units by the Operating Partnership or related partnerships or additional equity by the Company.  The use of equity financing, rather than debt, for future developments or acquisitions could dilute the interest of the Company’s existing stockholders.  If we finance new acquisitions under existing lines of credit, there is a risk that, unless we obtain substitute financing, the Company may not be able to secure further lines of credit for new development or such lines of credit may be not available on advantageous terms.

Development and redevelopment activities may be delayed, not completed, and/or not achieve expected results.   We pursue development and redevelopment projects and these projects generally require various governmental and other approvals, which have no assurance of being received. Our development and redevelopment activities generally entail certain risks, including the following:

· funds may be expended and management's time devoted to projects that may not be completed;

· construction costs of a project may exceed original estimates possibly making the project economically unfeasible;

· projects may be delayed due to, without limitation, adverse weather conditions, entitlement and government regulations, labor shortages, or unforeseen complications;

· occupancy rates and rents at a completed project may be less than anticipated; and

· expenses at projects may be higher than anticipated.

These risks may reduce the funds available for distribution to the Company’s stockholders.  Further, the development and redevelopment of communities is also subject to the general risks associated with real estate investments. For further information regarding these risks, please see the risk factor “General real estate investment risks may adversely affect property income and values.”

The geographic concentration of the Company’s Communities and fluctuations in local markets may adversely impact our financial condition and operating results.  The Company generated significant amounts of rental revenues for the year ended December 31, 2008, from our Communities concentrated in Southern California (Los Angeles, Orange, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area), and the Seattle metropolitan area. As of December 31, 2008, 82% of the Company’s rental revenues were generated from Communities located in California.  This geographic concentration could present risks if local property market performance falls below expectations. The economic condition of these markets could affect occupancy, market rental rates, and expenses, as well as impact the income generated from the Communities and their underlying asset values.  The financial results of major local employers also may impact the cash flow and value of certain of the Communities.  This could have a negative impact on our financial condition and operating results, which could affect our ability to pay expected dividends to our stockholders.

Competition in the apartment community market may adversely affect operations and the rental demand for our Communities.  There are numerous housing alternatives that compete with our Communities in attracting residents.  These include other apartment communities and single-family homes that are available for rent in the markets in which the Communities are located. The Communities also compete for residents with new and existing homes and condominiums that are for sale.  If the demand for our Communities is reduced or if competitors develop and/or acquire competing apartment communities on a more cost-effective basis, rental rates may drop, which may have a material adverse affect on our financial condition and results of operations.  We also face competition from other real estate investment trusts, businesses and other entities in the acquisition, development and operation of apartment communities.  Some of the competitors are larger and have greater financial resources than we do. This competition may result in an increase in costs and prices of apartment communities that we acquire and/or develop.

10

Dividend requirements as a result of preferred stock may lead to a possible inability to sustain dividends.   We have Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”) with an aggregate liquidation preference of approximately $25 million outstanding and Series G Cumulative Convertible Preferred Stock (“Series G Preferred Stock”) with an aggregate liquidation preference of approximately $94.9 million outstanding as of February 2009.  In addition, we are required under limited conditions to issue Series B Cumulative Redeemable Preferred Units (“Series B Preferred Units”) with an aggregate liquidation preference of $80 million in exchange for outstanding preferred interests in the Operating Partnership. The terms of the Series B Preferred Units, Series F and G Preferred Stock provide for certain cumulative preferential cash distributions per each share of preferred units or stock.

These terms also provide that while such preferred stock is outstanding, we cannot authorize, declare, or pay any distributions on our common stock, unless all distributions accumulated on all shares of such preferred stock have been paid in full. Our failure to pay distributions on such preferred stock would impair our ability to pay dividends on our common stock. Our credit agreement limits our ability to pay dividends on our preferred stock if we fail to satisfy a fixed charge coverage ratio.

If the Company wishes to issue any common stock in the future (including upon the exercise of stock options), the funds required to continue to pay cash dividends at current levels will be increased.  The Company’s ability to pay dividends will depend largely upon the performance of our current Communities and other apartment communities that may be acquired or developed in the future.

If the Company cannot pay dividends on its common stock, the Company’s status as a real estate investment trust may be jeopardized. Our ability to pay dividends on our common stock is further limited by the Maryland General Corporation Law. Under the Maryland General Corporation Law, the Company may not make a distribution on stock if, after giving effect to such distribution, either:

· we would not be able to pay our indebtedness as it becomes due in the usual course of business; or

· our total assets would be less than our total liabilities, including the liquidation preference on our Series B Preferred Units, Series F and our Series G preferred stock.

The price per share of the Company’s stock may fluctuate significantly.  The market price per share of the Company’s common stock may fluctuate significantly in response to many factors, including:

· national and global economic conditions;

· actual or anticipated variations in our quarterly operating results or dividends;

· changes in our funds from operations or earnings estimates;

· issuances of common stock, preferred stock or convertible debt securities;

· publication of research reports about us or the real estate industry;

· the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate based companies);

· general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of our stock to demand a higher annual yield from dividends;

· availability to credit markets and cost of credit;

· a change in analyst ratings or our credit ratings;

· terrorist activity may adversely affect the markets in which our securities trade, possibly increasing market volatility and causing erosion of business and consumer confidence and spending.

Many of the factors listed above are beyond our control.  These factors may cause the market price of shares of our common stock to decline, regardless of our financial condition, results of operations, or business prospects.

Sale of shares pursuant to our effective registration statement or that are issued upon conversion of our convertible preferred stock may have an adverse effect on the market price of the shares.  The Company has the following effective registration statements, which allows for the sale into the public stock of common stock held by shareholders, as specified in the registration statements:

· A registration statement, declared effective in 2003, which covers the resale of certain shares, including (i) up to 2,270,490 shares of common stock that are issuable upon exchange of limited partnership interests in the Operating Partnership and (ii) up to 1,473,125 shares that are issuable upon exchange of limited partnership interests in certain other real estate partnerships;

· Registration statements, declared effective in 2006, that cover (i) the resale of up to 142,076 shares issuable in connection with our Waterford and Vista Belvedere acquisitions and (ii) the resale of shares issuable in connection with the exchange rights of our 3.625% Exchangeable Bonds, as to which there is a principal amount of $100.4 million outstanding as of February 2009.

11

During the third quarter of 2006, the Company issued, pursuant to a registration statement, 5,980,000 shares of 4.875% Series G Cumulative Preferred Stock for gross proceeds of $149.5 million; such shares are convertible, subject to certain conditions, into common stock, which could be sold into the public market.  During 2009, the Company has repurchased $54.6 million of the Series G Preferred Stock and $94.9 million in aggregate liquidation value is currently outstanding.

The sale of the shares of common stock pursuant to these various registration statements or that are issued upon conversion of our outstanding convertible preferred stock may have an adverse effect on the market price of our shares.

The exchange and repurchase rights of Exchangeable Bonds and Series G Preferred Stock may be detrimental to holders of common stock.  As of February 2009, the Operating Partnership has $100.4 million principal amount of 3.625% exchangeable bonds (the “Bonds”) outstanding which mature on November 1, 2025. The Bonds are exchangeable into the Company's common stock on or after November 1, 2020 or prior to November 1, 2020 under certain circumstances. The Bonds are redeemable at the Company's option for cash at any time on or after November 4, 2010 and are subject to repurchase for cash at the option of the holder on November 1st in the years 2010, 2015 and 2020, or upon the occurrence of certain events. The Bonds are senior unsecured and unsubordinated obligations of the Company.

In 2006, the Company sold 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock (the “Series G Preferred Stock”) for gross proceeds of $149.5 million, of which $94.9 million in aggregate liquidation value is outstanding as of February 2009.  Holders may convert Series G Preferred Stock into shares of the Company’s common stock subject to certain conditions.  The conversion rate was initially .1830 shares of common stock per $25 share liquidation preference, which is equivalent to an initial conversion price of $136.62 per share of common stock (the conversion rate will be subject to adjustment upon the occurrence of specified events).  On or after July 31, 2011, the Company may, under certain circumstances cause some or all of the Series G Preferred Stock to be converted into shares of common stock at the then prevailing conversion rate.  Further, if a fundamental change occurs, as defined in the articles supplementary for the Series G Preferred Stock, then the holders may require the Company to repurchase all or part of their Series G Preferred Stock subject to certain conditions.

The exchange of the Bonds and/or Series G Preferred Stock for common stock would dilute stockholder ownership in the Company, and such exchange could adversely affect the market price of our common stock and our ability to raise capital through the sale of additional equity securities.  If the Bonds and Series G Preferred Stock are not exchanged, the repurchase price of the Bonds and Series G Preferred Stock may discourage or impede transactions that might otherwise be in the interest of the holders of common stock. Further, these repurchase rights may be triggered in situations where the Company needs to conserve its cash reserves, in which event such repurchase might adversely affect the Company and its common stockholders.

The Company’s  future issuances of common stock, preferred stock or convertible debt securities could adversely affect the market price of our common stock.  In order to finance our acquisition and development activities, we have issued and sold common stock, preferred stock and convertible debt securities.  For example, during 2008 and 2007, the Company issued and sold 1,209,050 and 1,670,500 shares of common stock for $142.8 million and $213.7 million, net of fees and commissions, respectively.  The Company may in the future sell further shares of common stock, including pursuant to its controlled equity offering program with Cantor Fitzgerald & Co.

In November 2008, the holders of the outstanding 7.875% Series D Cumulative Redeemable Preferred Units of Essex Portfolio, L.P. exchanged their preferred units with a par value of $50.0 million for 363,000 shares of common stock of the Company and $10.0 million in cash plus accrued dividends.

In 2007, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number of equity and debt securities as defined in the prospectus.  Future sales of common stock, preferred stock or convertible debt securities may dilute stockholder ownership in the Company and could adversely affect the market price of the common stock.

The Company’s  Chairman is involved in other real estate activities and investments, which may lead to conflicts of interest.   Our Chairman, George M. Marcus is not an employee of the Company, and is involved in other real estate activities and investments, which may lead to conflicts of interest. Mr. Marcus owns interests in various other real estate-related businesses and investments.  He is the Chairman of The Marcus & Millichap Company (“TMMC”), which is a holding company for certain real estate brokerage and services companies. TMMC has an interest in Pacific Property Company, a company that invests in apartment communities.

12

Mr. Marcus has agreed not to divulge any information that may be received by him in his capacity as Chairman of the Company to any of his affiliated companies and that he will abstain his vote on any and all resolutions by the Company Board of Directors regarding any proposed acquisition and/or development of an apartment community where it appears that there may be a conflict of interest with any of his affiliated companies.  Notwithstanding this agreement, Mr. Marcus and his affiliated entities may potentially compete with us in acquiring and/or developing apartment communities, which competition may be detrimental to us.  In addition, due to such potential competition for real estate investments, Mr. Marcus and his affiliated entities may have a conflict of interest with us, which may be detrimental to the interests of the Company’s stockholders.

The influence of executive officers, directors and significant stockholders may be detrimental to holders of common stock.  As of December 31, 2008, George M. Marcus, the Chairman of our Board of Directors, wholly or partially owned 1,772,199 shares of common stock (including shares issuable upon exchange of limited partnership interests in the Operating Partnership and certain other partnerships and assuming exercise of all vested options). This represents approximately 6.7% of the outstanding shares of our common stock. Mr. Marcus currently does not have majority control over us.  However, he currently has, and likely will continue to have, significant influence with respect to the election of directors and approval or disapproval of significant corporate actions.  Consequently, his influence could result in decisions that do not reflect the interests of all our stockholders.

Under the partnership agreement of the Operating Partnership, the consent of the holders of limited partnership interests is generally required for any amendment of the agreement and for certain extraordinary actions.  Through their ownership of limited partnership interests and their positions with us, our directors and executive officers, including Mr. Marcus, have substantial influence on us.  Consequently, their influence could result in decisions that do not reflect the interests of all stockholders.

The voting rights of preferred stock may allow holders of preferred stock to impede actions that otherwise benefit holders of common stock.In general, the holders of our outstanding shares of preferred stock do not have any voting rights. However, if full distributions are not made on any outstanding preferred stock for six quarterly distributions periods, the holders of preferred stock who have not received distributions, voting together as a single class, will have the right to elect two additional directors to serve on our Board of Directors.

These voting rights continue until all distributions in arrears and distributions for the current quarterly period on the preferred stock have been paid in full. At that time, the holders of the preferred stock are divested of these voting rights, and the term and office of the directors so elected immediately terminates. While any shares of our preferred stock are outstanding, the Company may not, without the consent of the holders of two-thirds of the outstanding shares of each series of preferred stock, each voting separately as a single class:

· authorize or create any class or series of stock that ranks senior to such preferred stock with respect to the payment of dividends, rights upon liquidation, dissolution or winding-up of our business;

· amend, alter or repeal the provisions of the Company’s Charter or Bylaws, including by merger or consolidation, that would materially and adversely affect the rights of such series of preferred stock; or

· in the case of the preferred stock into which our preferred units are exchangeable, merge or consolidate with another entity or transfer substantially all of its assets to another entity, except if such preferred stock remains outstanding with the surviving entity and has the same terms and in certain other circumstances.

These voting rights of the preferred stock may allow holders of preferred stock to impede or veto actions that would otherwise benefit the holders of our common stock.

The redemption rights of the Series B preferred units, Series F preferred stock and Series G preferred stock may be detrimental to holders of the Company’s common stock.  Upon the occurrence of one of the following events, the terms of the Operating Partnership’s Series B Preferred Units require it to redeem all of such units and the terms of the Company’s Series F Preferred Stock and the Series G Preferred Stock provide the holders of the majority of the outstanding Series F Preferred Stock and Series G Preferred Stock the right to require the Company to redeem all of such stock:

· the Company completes a “going private” transaction and its common stock is no longer registered under the Securities Exchange Act of 1934, as amended;

· the Company completes a consolidation or merger or sale of substantially all of its assets and the surviving entity’s debt securities do not possess an investment grade rating;

· the Company fails to qualify as a REIT; or

· in the case of Series G preferred stock, the Company common stock is not traded on a major exchange.

13

The aggregate redemption price of the Series B Preferred Units would be $80 million, the aggregate redemption price of the Series F Preferred Stock would be $25 million and the aggregate redemption price of the Series G Preferred Stock would be $94.9 million, plus, in each case, any accumulated distributions.

These redemption rights may discourage or impede transactions that might otherwise be in the interest of holders of common stock.  Further, these redemption rights might trigger situations where the Company needs to conserve its cash reserves, in which event such redemption might adversely affect the Company and its common holders.

The Maryland business combination law may not allow certain transactions between the Company and its affiliates to proceed without compliance with such law.  Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder.  These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities.  An interested stockholder is defined as any person (and certain affiliates of such person) who beneficially owns ten percent or more of the voting power of the then-outstanding voting stock.  The law also requires a supermajority stockholder vote for such transactions. This means that the transaction must be approved by at least:

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

· Two-thirds of the votes entitled to be cast by holders of outstanding voting shares other than shares held by the interested stockholder with whom the business combination is to be effected.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder.  These voting provisions do not apply if the stockholders receive a minimum price, as defined under Maryland law.  As permitted by the statute, the Board of Directors of the Company irrevocably has elected to exempt any business combination by us, George M. Marcus, William A. Millichap, who are the chairman and a director of the Company, respectively, and TMMC or any entity owned or controlled by Messrs. Marcus and Millichap and TMMC. Consequently, the five-year prohibition and supermajority vote requirement described above will not apply to any business combination between us and Mr. Marcus, Mr. Millichap, or TMMC.  As a result, we may in the future enter into business combinations with Messrs. Marcus and Millichap and TMMC, without compliance with the supermajority vote requirements and other provisions of the Maryland General Corporation Law.

Anti-takeover provisions contained in the Operating Partnership agreement, charter, bylaws, and certain provisions of Maryland law could delay, defer or prevent a change in control.  While the Company is the sole general partner of the Operating Partnership, and generally has full and exclusive responsibility and discretion in the management and control of the Operating Partnership, certain provisions of the Operating Partnership agreement place limitations on the Company’s ability to act with respect to the Operating Partnership.  Such limitations could delay, defer or prevent a transaction or a change in control that might involve a premium price for our stock or otherwise be in the best interest of the stockholders or that could otherwise adversely affect the interest of the Company’s stockholders.  The partnership agreement provides that if the limited partners own at least 5% of the outstanding units of partnership interest in the Operating Partnership, the Company cannot, without first obtaining the consent of a majority-in-interest of the limited partners in the Operating Partnership, transfer all or any portion of our general partner interest in the Operating Partnership to another entity.  Such limitations on the Company’s ability to act may result in our being precluded from taking action that the Board of Directors believes is in the best interests of the Company’s stockholders.  As of December 31, 2008, the limited partners held or controlled approximately 8.4% of the outstanding units of partnership interest in the Operating Partnership, allowing such actions to be blocked by the limited partners.

The Company’s Charter authorizes the issuance of additional shares of common stock or preferred stock and the setting of the preferences, rights and other terms of such preferred stock without the approval of the holders of the common stock.  We may establish one or more series of preferred stock that could delay, defer or prevent a transaction or a change in control.  Such a transaction might involve a premium price for our stock or otherwise be in the best interests of the holders of common stock.  Also, such a class of preferred stock could have dividend, voting or other rights that could adversely affect the interest of holders of common stock.

The Company’s Charter contains other provisions that may delay, defer or prevent a transaction or a change in control that might be in the best interest of the Company’s stockholders.  The Charter contains ownership provisions limiting the transferability and ownership of shares of capital stock, which may have the effect of delaying, deferring or preventing a transaction or a change in control.  For example, subject to receiving an exemption from the Board of Directors, potential acquirers may not purchase more than 6% in value of the stock (other than qualified pension trusts which can acquire 9.9%). This may discourage tender offers that may be attractive to the holders of common stock and limit the opportunity for stockholders to receive a premium for their shares of common stock.

14

The Maryland General Corporations Law restricts the voting rights of shares deemed to be “control shares.”   Under the Maryland General Corporations Law, “control shares” are those which, when aggregated with any other shares held by the acquirer, entitle the acquirer to exercise voting power within specified ranges.  Although the Bylaws exempt the Company from the control share provisions of the Maryland General Corporations Law, the Board of Directors may amend or eliminate the provisions of the Bylaws at any time in the future. Moreover, any such amendment or elimination of such provision of the Bylaws may result in the application of the control share provisions of the Maryland General Corporations Law not only to control shares which may be acquired in the future, but also to control shares previously acquired.  If the provisions of the Bylaws are amended or eliminated, the control share provisions of the Maryland General Corporations Law could delay, defer or prevent a transaction or change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company’s stockholders.

Our Charter and bylaws also contain other provisions that may impede various actions by stockholders without approval of our board of directors, which in turn may delay, defer or prevent a transaction, including a change in control.  Those provisions include:

· the Company’s directors have terms of office of three years and the board of directors is divided into three classes with staggered terms; as a result, less than a majority of directors are up for re-election to the board in any one year;

· directors may be removed, without cause, only upon a two-thirds vote of stockholders, and with cause, only upon a majority vote of stockholders;

· our board can fix the number of directors and fill vacant directorships upon the vote of a majority of the directors;

· stockholders must give advance notice to nominate directors or propose business for consideration at a stockholders’ meeting; and

· for stockholders to call a special meeting, the meeting must be requested by not less than a majority of all the votes entitled to be cast at the meeting.

The Company’s joint ventures and joint ownership of Communities and partial interests in corporations and limited partnerships could limit the Company’s ability to control such Communities and partial interests.   Instead of purchasing apartment communities directly, we have invested and may continue to invest in joint ventures.  Joint venture partners often have shared control over the operation of the joint venture assets.  Therefore, it is possible that a joint venture partner in an investment might become bankrupt, or have economic or business interests or goals that are inconsistent with our business interests or goals, or be in a position to take action contrary to our instructions or requests, or our policies or objectives.  Consequently, a joint venture partners’ actions might subject property owned by the joint venture to additional risk.  Although we seek to maintain sufficient influence over any joint venture to achieve its objectives, we may be unable to take action without our joint venture partners’ approval, or joint venture partners could take actions binding on the joint venture without our consent.   Should a joint venture partner become bankrupt, we could become liable for such partner’s share of joint venture liabilities.

From time to time, we, through the Operating Partnership, invest in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of acquiring, developing or managing real property. In certain circumstances, the Operating Partnership’s interest in a particular entity may be less than a majority of the outstanding voting interests of that entity.  Therefore, the Operating Partnership’s ability to control the daily operations of such an entity may be limited. Furthermore, the Operating Partnership may not have the power to remove a majority of the board of directors (in the case of a corporation) or the general partner or partners (in the case of a limited partnership) of such an entity in the event that its operations conflict with the Operating Partnership’s objectives.  The Operating Partnership may not be able to dispose of its interests in such an entity. In the event that such an entity becomes insolvent, the Operating Partnership may lose up to its entire investment in and any advances to the entity.  We have, and in the future may, enter into transactions that could require us to pay the tax liabilities of partners, which contribute assets into joint ventures or the Operating Partnership, in the event that certain taxable events, which are within our control, occur.  Although we plan to hold the contributed assets or defer recognition of gain on their sale pursuant to the like-kind exchange rules under Section 1031 of the Internal Revenue Code, we can provide no assurance that we will be able to do so and if such tax liabilities were incurred they can expect to have a material impact on our financial position.

15

There are risks that Fund II may operate in ways that may adversely impact the Company’s interests.  The Company is the general partner of Fund II, and with Fund II there are the following risks:

· the Company’s partners in Fund II might remove the Company as the general partner of Fund II;

· the Company’s  partners in Fund II might have economic or business interests or goals that are inconsistent with our business interests or goals; or

· the Company’s  partners in Fund II might fail to approve decisions regarding Fund II that are in the Company’s best interest.

We will, however, seek to maintain sufficient influence over Fund II to permit it to achieve its business objectives.

Investments in mortgages and other real estate securities could affect our ability to make distributions to stockholders.  The Company may invest in securities related to real estate, which could adversely affect our ability to make distributions to stockholders.  The Company may purchase securities issued by entities which own real estate and invest in mortgages or unsecured debt obligations.  These mortgages may be first, second or third mortgages that may or may not be insured or otherwise guaranteed.  In general, investments in mortgages include the following risks:

· that the value of mortgaged property may be less than the amounts owed, causing realized or unrealized losses;

· the borrower may not pay indebtedness under the mortgage when due, requiring us to foreclose, and the amount recovered in connection with the foreclosure may be less than the amount owed;

· that interest rates payable on the mortgages may be lower than our cost of funds; and

· in the case of junior mortgages, that foreclosure of a senior mortgage could eliminate the junior mortgage.

If any of the above were to occur, cash flows from operations and our ability to make expected dividends to stockholders could be adversely affected.

The Company’s Portfolio may have unknown environmental liabilities.   Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on, in, to or migrating from such property.  Such laws often impose liability without regard as to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s or operator’s ability to sell or rent such property or to borrow using such property as collateral. Persons exposed to such substances, either through soil vapor or ingestion of the substances may claim personal injury damages. Persons who arrange for the disposal or treatment of hazardous or toxic substances or wastes also may be liable for the costs of removal or remediation of such substances at the disposal or treatment facility to which such substances or wastes were sent, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for release of asbestos-containing materials (“ACMs”) into the air, and third parties may seek recovery from owners or operators of apartment communities for personal injury associated with ACMs. In connection with the ownership (direct or indirect), operation, management and development of apartment communities, the Company could be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be potentially liable for removal or remediation costs, as well as certain other costs, including governmental fines and costs related to injuries of persons and property.

Investments in real property create a potential for environmental liabilities on the part of the owner of such real property.  We carry certain limited insurance coverage for this type of environmental risk.  We have conducted environmental studies which revealed the presence of groundwater contamination at certain Communities.  Such contamination at certain of these apartment communities was reported to have migrated on-site from adjacent industrial manufacturing operations.  The former industrial users of the Communities were identified as the source of contamination.  The environmental studies noted that certain Communities are located adjacent to any possible down gradient from sites with known groundwater contamination, the lateral limits of which may extend onto such apartment communities.  The environmental studies also noted that at certain of these apartment communities, contamination existed because of the presence of underground fuel storage tanks, which have been removed.  In general, in connection with the ownership, operation, financing, management and development of apartment communities we may be potentially liable for removal or clean-up costs, as well as certain other costs and environmental liabilities.  We may also be subject to governmental fines and costs related to injuries to persons and property.

16

Recently there has been an increasing number of lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in residential real estate. Some of these lawsuits have resulted in substantial monetary judgments or settlements.  The Company has been sued for mold related matters and has settled some, but not all, of such matters.   Insurance carriers have reacted to mold related liability awards by excluding mold related claims from standard policies and pricing mold endorsements at prohibitively high rates.  The Company has, however, purchased pollution liability insurance, which includes some coverage for mold.  The Company has adopted policies for promptly addressing and resolving reports of mold when it is detected, and to minimize any impact mold might have on residents of the property.  The Company believes its mold policies and proactive response to address any known existence, reduces its risk of loss from these cases.  There can be no assurances that the Company has identified and responded to all mold occurrences, but the company promptly addresses all known reports of mold.  Liabilities resulting from such mold related matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.  As of December 31, 2008, potential liabilities for mold and other environmental liabilities are not considered probable or the loss cannot be quantified or estimated.

California has enacted legislation commonly referred to as “Proposition 65” requiring that “clear and reasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity, including tobacco smoke.  Although we have sought to comply with Proposition 65 requirements, we cannot assure you that we will not be adversely affected by litigation relating to Proposition 65.

Methane gas is a naturally-occurring gas that is commonly found below the surface in several areas, particularly in the Southern California coastal areas.  Methane is a non-toxic gas, but can be ignitable in confined spaces.  Although naturally-occurring, methane gas is not regulated at the state or federal level, however some local governments, such as the County of Los Angeles, have imposed requirements that new buildings install detection systems in areas where methane gas is known to be located.    Methane gas is also associated with certain industrial activities, such as former municipal waste landfills.  Radon is also a naturally-occurring gas that is found below the surface.  The Company cannot assure you that it will not be adversely affected by costs related to its compliance with methane or radon gas related requirements or litigation costs related to methane or radon gas.

The Company has almost no indemnification agreements from third parties for potential environmental clean-up costs at its Communities.  The Company has no way of determining at this time the magnitude of any potential liability to which it may be subject arising out of unknown environmental conditions or violations with respect to communities formerly owned by the Company.  No assurance can be given that existing environmental studies with respect to any of the Communities reveal all environmental liabilities, that any prior owner or operator of an apartment community did not create any material environmental condition not known to the Company, or that a material environmental condition does not exist as to any one or more of the Communities.  The Company has limited insurance coverage for the types of environmental liabilities described above.

The Company may incur general uninsured losses.  The Company carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the Communities.  There are, however, certain types of extraordinary losses, such as, for example, losses for terrorism or earthquake, for which the Company does not have insurance coverage. Substantially all of the Communities are located in areas that are subject to earthquake activity.  In January 2007, the Company canceled its then existing earthquake policy and established a wholly owned insurance subsidiary, Pacific Western Insurance LLC (“PWI”).  Through PWI, the Company is self-insured as it relates to earthquake related losses.  Additionally, since January 2008, PWI has provided property and casualty insurance coverage for the first $5.0 million of the Company’s property level insurance claims per incident.

Although the Company may carry insurance for potential losses associated with its Communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, co-payments or losses in excess of applicable insurance coverage and those losses may be material.  In the event of a substantial loss, insurance coverage may not be able to cover the full current market value of replacement cost of the Company’s lost investment, or the insurance carrier may become insolvent and not be able to cover the full amount of the insured losses.  Inflation, changes in building codes and ordinances, environmental considerations and other factors might also affect the Company’s ability to replace or renovate an apartment community after it has been damaged or destroyed.

Changes in real estate tax and other laws may adversely affect the Company’s results of operations.  Generally we do not directly pass through costs resulting from changes in real estate tax laws to residential property tenants. We also do not generally pass through increases in income, service or other taxes, to tenants under leases. These costs may adversely affect funds from operations and the ability to make distributions to stockholders.  Similarly, compliance with changes in (i) laws increasing the potential liability for environmental conditions existing on apartment communities or the restrictions on discharges or other conditions or (ii) rent control or rent stabilization laws or other laws regulating housing may result in significant unanticipated decrease in revenue or increase in expenditures, which would adversely affect funds from operations and the ability to make distributions to stockholders.

17

Changes in the Company’s financing policy may lead to higher levels of indebtedness.  The Company has adopted a policy of maintaining a limit on debt financing consistent with the existing covenants required to maintain the Company’s unsecured line of credit bank facility.  The Company’s organizational documents do not limit the amount or percentage of indebtedness that may be incurred.  If the Company changed this policy, the Company could incur more debt, resulting in an increased risk of default on our obligations and the obligations of the Operating Partnership, and an increase in debt service requirements that could adversely affect our financial condition and results of operations.  Such increased debt could exceed the underlying value of the Communities.

The Company is subject to various tax risks.  The Company has elected to be taxed as a REIT under the Internal Revenue Code ("IRC").  The Company’s qualification as a REIT requires it to satisfy numerous requirements (some on an annual and quarterly basis) established under highly technical and complex IRC provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within the Company’s control.  Although the Company intends that its current organization and method of operation enable it to qualify as a REIT, the Company cannot assure you that it so qualifies or that it will be able to remain so qualified in the future.  Future legislation, new regulations, administrative interpretations or court decisions (any of which could have retroactive effect) could adversely impact the Company’s ability to qualify as a REIT or adversely affect its stockholders.  If it fails to qualify as a REIT in any taxable year, the Company would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on its taxable income at corporate rates, and would not be allowed to deduct dividends paid to its shareholders in computing its taxable income.  The Company may also be disqualified from treatment as a REIT for the four taxable years following the year in which it failed to qualify.  The additional tax liability would reduce its net earnings available for investment or distribution to stockholders, and it would no longer be required to make distributions to its stockholders.  Even if the Company continues to qualify as a REIT, it will continue to be subject to certain federal, state and local taxes on its income and property.

The Company has established several taxable REIT subsidiaries.  Despite the Company’s qualification as a REIT, its taxable REIT subsidiaries must pay U.S. federal income tax on their taxable income.  While the Company will attempt to ensure that its dealing with its taxable REIT subsidiaries does not adversely affect its REIT qualification, the Company cannot provide assurance that it will successfully achieve that result.  Furthermore, the Company may be subject to a 100% penalty tax, or its taxable REIT subsidiaries may be denied deductions, to the extent its dealings with its taxable REIT subsidiaries’ are not deemed to be arm’s length in nature.   No assurances can be given that the Company’s dealings with its taxable REIT subsidiaries will be considered arm’s length in nature. From time to time, the Company may transfer or otherwise dispose of some of its Communities. Under the IRC, any gain resulting from transfers of Communities that we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction subject to a 100% penalty tax.  Since we acquire apartment communities for investment purposes, we do not believe that our occasional transfers or disposals of property are prohibited transactions.  However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction.  The Internal Revenue Service may contend that certain transfers or disposals of apartment communities by us are prohibited transactions.  If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then the Company would be required to pay a 100% penalty tax on any gain allocable to the Company from the prohibited transaction and the Company’s ability to retain future gains on real property sales may be jeopardized.  Income from a prohibited transaction might adversely affect the Company’s ability to satisfy the income tests for qualification as a REIT for U.S. federal income tax purposes.  Therefore, no assurances can be given that the Company will be able to satisfy the income tests for qualification as a REIT.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our core apartment Portfolio as of December 31, 2008 (including partial ownership interests) was comprised of 134 apartment communities (comprising 26,992 apartment units), of which 12,980 units are located in Southern California, 8,032 units are located in the San Francisco Bay Area, and 5,980 units are located in the Seattle metropolitan area.  The Company’s apartment communities accounted for 94.8% of the Company’s revenue for the year ended December 31, 2008.

18

Occupancy Rates

The 134 apartment communities had an average Same-Properties occupancy (as defined in Item 7), based on “financial occupancy,” during the year ended December 31, 2008, of approximately 96.3%. With respect to stabilized apartment communities with sufficient operating history, occupancy figures are based on financial occupancy (the percentage resulting from dividing actual rental revenue by total possible rental revenue). Actual rental revenue represents contractual revenue pursuant to leases without considering delinquency and concessions. Total possible rental revenue represents the value of all apartment units, with occupied units valued at contractual rental rates pursuant to leases and vacant units valued at estimated market rents. We believe that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates as disclosed by other REITs may not be comparable to our calculation of financial occupancy.

As of December 31, 2008, the headquarters building was 100% occupied by the Company and the Southern California office building was 100% occupied, based on physical occupancy. With respect to office buildings, occupancy figures are based on “physical occupancy” which refers to the percentage resulting from dividing leased and occupied square footage by rentable square footage. With respect to apartment communities which have not yet stabilized or have insufficient operating history, occupancy figures are based on “physical occupancy” which refers to the percentage resulting from dividing leased and occupied units by rentable units.   For the year ended December 31, 2008, none of the Company’s Properties had book values equal to 10% or more of total assets of the Company or gross revenues equal to 10% or more of aggregate gross revenues of the Company.

Apartment Communities

Our apartment communities are generally suburban garden apartments and town homes comprising multiple clusters of two and three story buildings situated on three to fifteen acres of land. The apartment communities have an average of approximately 200 units, with a mix of studio, one, two and some three-bedroom units. A wide variety of amenities are available at each apartment community, including covered parking, fireplaces, swimming pools, clubhouses with complete fitness facilities, volleyball and playground areas and tennis courts.

We select, train and supervise a full team of on-site service and maintenance personnel. We believe that the following primary factors enhance our ability to retain tenants:

· located near employment centers;

· attractive communities that are well maintained; and

· proactive customer service approach.

Office and Other Commercial Buildings

The Company’s corporate headquarters is located in an office building with approximately 17,400 square feet located at 925 East Meadow Drive, Palo Alto, California. The Company acquired the property in 1997.  In 2007, the Company acquired the adjacent property at 935 East Meadow Drive, and the building is under redevelopment through the first quarter of 2009.  This building is approximately 14,500 square feet and will be solely occupied by the Company.  The Company also owns an office building in Woodland Hills, California, comprised of approximately 38,900 square feet, of which the Company occupies approximately 11,500 square feet at December 31, 2008.  The Company acquired the Woodland Hills property in 2001.  The Company has a mortgage loan receivable on an office building with approximately 110,000 square feet located in Irvine, California, which is consolidated in accordance with GAAP.  The Company acquired Essex-Hollywood in 2006, a 35,000 square foot commercial building that is currently utilized as a production studio, and the Company has one predevelopment project, Cadence Campus acquired in 2007, which is an office building, comprised of 262,500 square feet.  Both Essex-Hollywood and the Cadence Campus properties were 100% leased to single tenants as of December 31, 2008.

19

The following tables describe the Company’s Portfolio as of December 31, 2008. The first table describes the Company’s apartment communities and the second table describes the Company’s other real estate assets.   (See Note 7 of the Company’s consolidated financial statements for more information about the Company’s secured mortgage debt and Schedule III for a list of secured mortgage loans related to the Company’s Portfolio.)

			Rentable
			Square	Year	Year
Apartment Communities (1)	Location	Units	Footage	Built	Acquired	Occupancy(2)
Southern California
Alpine Country	Alpine, CA	108	81,900	1986	2002	95%
Alpine Village	Alpine, CA	306	254,400	1971	2002	97%
Barkley, The(3)(4)	Anaheim, CA	161	139,800	1984	2000	97%
Bonita Cedars	Bonita, CA	120	120,800	1983	2002	97%
Camarillo Oaks	Camarillo, CA	564	459,000	1985	1996	95%
Camino Ruiz Square	Camarillo, CA	160	105,448	1990	2006	96%
Mountain View	Camarillo, CA	106	83,900	1980	2004	97%
Cambridge	Chula Vista, CA	40	22,100	1965	2002	98%
Woodlawn Colonial	Chula Vista, CA	159	104,500	1974	2002	96%
Mesa Village	Clairemont, CA	133	43,600	1963	2002	98%
Parcwood(5)	Corona, CA	312	270,000	1989	2004	95%
Tierra del Sol/Norte	El Cajon, CA	156	117,000	1969	2002	98%
Grand Regency	Escondido, CA	60	42,400	1967	2002	98%
Valley Park(6)	Fountain Valley, CA	160	169,700	1969	2001	96%
Capri at Sunny Hills(6)	Fullerton, CA	100	128,100	1961	2001	98%
Wilshire Promenade	Fullerton, CA	149	128,000	1992(7)	1997	96%
Montejo(6)	Garden Grove, CA	124	103,200	1974	2001	99%
CBC Apartments	Goleta, CA	148	91,538	1962	2006	98%
Chimney Sweep Apartments	Goleta, CA	91	88,370	1967	2006	85%
Hampton Court	Glendale, CA	83	71,500	1974(8)	1999	94%
Hampton Place	Glendale, CA	132	141,500	1970(9)	1999	95%
Devonshire	Hemet, CA	276	207,200	1988	2002	89%
Huntington Breakers	Huntington Beach, CA	342	241,700	1984	1997	97%
Hillsborough Park	La Habra, CA	235	215,500	1999	1999	98%
Trabuco Villas	Lake Forest, CA	132	131,000	1985	1997	97%
Marbrisa	Long Beach, CA	202	122,800	1987	2002	97%
Pathways	Long Beach, CA	296	197,700	1975(10)	1991	92%
Belmont Station	Los Angeles, CA	275	225,000	2008(11)	2008	70%
Bunker Hill	Los Angeles, CA	456	346,600	1968	1998	96%
Cochran Apartments	Los Angeles, CA	58	51,400	1989	1998	91%
Kings Road	Los Angeles, CA	196	132,100	1979(12)	1997	95%
Marbella, The	Los Angeles, CA	60	50,108	1991	2005	90%
Park Place	Los Angeles, CA	60	48,000	1988	1997	91%
Renaissance, The(5)	Los Angeles, CA	168	154,268	1990(13)	2006	94%
Windsor Court	Los Angeles, CA	58	46,600	1988	1997	91%
Marina City Club(14)	Marina Del Rey, CA	101	127,200	1971	2004	95%
Mirabella(15)	Marina Del Rey, CA	188	176,800	2000	2000	95%
Mira Monte	Mira Mesa, CA	355	262,600	1982(16)	2002	98%
Hillcrest Park	Newbury Park, CA	608	521,900	1973(17)	1998	95%
Fairways(18)	Newport Beach, CA	74	107,100	1972	1999	94%
Country Villas	Oceanside, CA	180	179,700	1976	2002	97%
Mission Hills	Oceanside, CA	282	244,000	1984	2005	97%
Mariners Place	Oxnard, CA	105	77,200	1987	2000	97%
Monterey Villas	Oxnard, CA	122	122,100	1974(19)	1997	95%
Tierra Vista	Oxnard, CA	404	387,100	2001	2001	95%
Monterra del Mar	Pasadena, CA	123	74,400	1972(20)	1997	96%
Monterra del Rey	Pasadena, CA	84	73,100	1972(21)	1999	95%
Monterra del Sol	Pasadena, CA	85	69,200	1972(22)	1999	96%
Villa Angelina(6)	Placentia, CA	256	217,600	1970	2001	97%
						(continued)

20

			Rentable
			Square	Year	Year
Apartment Communities (1)	Location	Units	Footage	Built	Acquired	Occupancy(2)
Southern California (continued)
Fountain Park	Playa Vista, CA	705	608,900	2002	2004	94%
Highridge(6)	Rancho Palos Verdes, CA	255	290,200	1972(23)	1997	93%
Bluffs II, The(24)	San Diego, CA	224	126,700	1974	1997	98%
Summit Park	San Diego, CA	300	229,400	1972	2002	97%
Vista Capri - North	San Diego, CA	106	51,800	1975	2002	97%
Brentwood(6)	Santa Ana, CA	140	154,800	1970	2001	96%
Treehouse(6)	Santa Ana, CA	164	135,700	1970	2001	95%
Hope Ranch Collection	Santa Barbara, CA	108	126,700	1965&73	2007	96%
Carlton Heights	Santee, CA	70	48,400	1979	2002	95%
Hidden Valley(25)	Simi Valley, CA	324	310,900	2004	2004	96%
Meadowood	Simi Valley, CA	320	264,500	1986	1996	96%
Shadow Point	Spring Valley, CA	172	131,200	1983	2002	97%
Coldwater Canyon	Studio City, CA	39	34,125	1979	2007	61%
Lofts at Pinehurst, The	Ventura, CA	118	71,100	1971(26)	1997	97%
Pinehurst(27)	Ventura, CA	28	21,200	1973	2004	99%
Woodside Village	Ventura, CA	145	136,500	1987	2004	97%
Walnut Heights	Walnut, CA	163	146,700	1964	2003	97%
Avondale at Warner Center	Woodland Hills, CA	446	331,000	1970(28)	1997	94%
		12,980	10,796,557			95%
Northern California
Belmont Terrace         …	Belmont, CA	71	72,951	1974	2006	98%
Carlmont Woods(5)	Belmont, CA	195	107,200	1971	2004	98%
Davey Glen(5)	Belmont, CA	69	65,974	1962	2006	96%
Pointe at Cupertino, The	Cupertino, CA	116	135,200	1963(29)	1998	98%
Harbor Cove(5)	Foster City, CA	400	306,600	1971	2004	98%
Stevenson Place	Fremont, CA	200	146,200	1971(30)	1983	97%
Boulevard	Fremont, CA	172	131,200	1978(31)	1996	91%
City View	Hayward, CA	560	462,400	1975(32)	1998	97%
Alderwood Park(5)	Newark, CA	96	74,624	1987	2006	97%
Bridgeport	Newark, CA	184	139,000	1987(33)	1987	97%
Regency Towers(5)	Oakland, CA	178	140,900	1975(34)	2005	95%
San Marcos	Richmond, CA	432	407,600	2003	2003	98%
Mt  Sutro	San Francisco, CA	99	64,000	1973	2001	98%
Carlyle, The	San Jose, CA	132	129,200	2000	2000	97%
Enclave, The(5)	San Jose, CA	637	525,463	1998	2005	97%
Esplanade	San Jose, CA	278	279,000	2002	2004	98%
Waterford, The	San Jose, CA	238	219,600	2000	2000	98%
Hillsdale Garden(35)	San Mateo, CA	697	611,505	1948	2006	98%
Bel Air	San Ramon, CA	462	391,000	1988/2000(36)	1997	97%
Canyon Oaks	San Ramon, CA	250	237,894	2005	2007	97%
Foothill Gardens	San Ramon, CA	132	155,100	1985	1997	97%
Mill Creek at Windermere	San Ramon, CA	400	381,060	2005	2007	96%
Twin Creeks	San Ramon, CA	44	51,700	1985	1997	97%
Le Parc Luxury Apartments	Santa Clara, CA	140	113,200	1975(37)	1994	97%
Marina Cove(38)	Santa Clara, CA	292	250,200	1974(39)	1994	97%
Chestnut Street	Santa Cruz, CA	96	87,640	2002	2008	97%
Harvest Park	Santa Rosa, CA	104	116,628	2004	2007	97%
Bristol Commons	Sunnyvale, CA	188	142,600	1989	1997	99%
Brookside Oaks(6)	Sunnyvale, CA	170	119,900	1973	2000	99%
Magnolia Lane(40)	Sunnyvale, CA	32	31,541	2001	2007	99%
Montclaire, The	Sunnyvale, CA	390	294,100	1973(41)	1988	94%
Summerhill Park	Sunnyvale, CA	100	78,500	1988	1988	99%
Thomas Jefferson(6)	Sunnyvale, CA	156	110,824	1969	2007	99%
Windsor Ridge	Sunnyvale, CA	216	161,800	1989	1989	98%
Vista Belvedere	Tiburon, CA	76	78,300	1963	2004	96%
Tuscana	Tracy, CA	30	29,088	2007	2007	97%
		8,032	6,849,692			97%
						(continued)

21

			Rentable
			Square	Year	Year
Apartment Communities (1)	Location	Units	Footage	Built	Acquired	Occupancy(2)
Seattle, Washington Metropolitan Area
Cedar Terrace	Bellevue, WA	180	174,200	1984	2005	96%
Emerald Ridge-North	Bellevue, WA	180	144,000	1987	1994	97%
Foothill Commons	Bellevue, WA	360	288,300	1978(42)	1990	99%
Palisades, The	Bellevue, WA	192	159,700	1977(43)	1990	98%
Sammamish View	Bellevue, WA	153	133,500	1986(44)	1994	98%
Woodland Commons	Bellevue, WA	236	172,300	1978(45)	1990	99%
Canyon Pointe	Bothell, WA	250	210,400	1990	2003	96%
Inglenook Court	Bothell, WA	224	183,600	1985	1994	95%
Salmon Run at Perry Creek	Bothell, WA	132	117,100	2000	2000	97%
Stonehedge Village	Bothell, WA	196	214,800	1986	1997	97%
Highlands at Wynhaven	Issaquah, WA	333	424,674	2000	2008	96%
Park Hill at Issaquah	Issaquah, WA	245	277,700	1999	1999	97%
Wandering Creek	Kent, WA	156	124,300	1986	1995	98%
Bridle Trails	Kirkland, WA	108	99,700	1986(46)	1997	98%
Evergreen Heights	Kirkland, WA	200	188,300	1990	1997	97%
Laurels at Mill Creek, The	Mill Creek, WA	164	134,300	1981	1996	96%
Morning Run(5)	Monroe, WA	222	221,786	1991	2005	96%
Anchor Village(6)	Mukilteo, WA	301	245,900	1981	1997	97%
Castle Creek	Newcastle, WA	216	191,900	1997	1997	96%
Brighton Ridge	Renton, WA	264	201,300	1986	1996	96%
Fairwood Pond	Renton, WA	194	189,200	1997	2004	97%
Forest View	Renton, WA	192	182,500	1998	2003	97%
Cairns, The	Seattle, WA	100	70,806	2006	2007	97%
Eastlake 2851(5)	Seattle, WA	127	234,086	2008(47)	2008	99%
Fountain Court	Seattle, WA	320	207,000	2000	2000	96%
Linden Square	Seattle, WA	183	142,200	1994	2000	97%
Maple Leaf	Seattle, WA	48	35,500	1986	1997	99%
Spring Lake	Seattle, WA	69	42,300	1986	1997	98%
Tower @ 801(5)	Seattle, WA	173	118,500	1970	2005	96%
Wharfside Pointe	Seattle, WA	142	119,200	1990	1994	97%
Echo Ridge(5)	Snoqualmie, WA	120	124,359	2000	2005	97%
		5,980	5,373,411			96%
Total/Weighted Average		26,992	23,019,660			96%

				Rentable
				Square		Year	Year
Other real estate assets(1)	Location	Tenants		Footage		Built	Acquired	Occupancy(2)
Office Buildings
535 - 575 River Oaks(48)	San Jose, CA		1		262,500	1990	2007		100	%
925 East Meadow Drive(49)	Palo Alto, CA		1		17,400	1988	1997		100	%
935 East Meadow Drive(50)	Palo Alto, CA		-		14,500	1962	2007		0	%
6230 Sunset Blvd(51)	Los Angeles, CA		1		35,000	1938	2006		100	%
17461 Derian Ave(52)	Irvine, CA		8		110,000	1983	2000		100	%
22110-22120 Clarendon Street(53)	Woodland Hills, CA		10		38,900	1982	2001		100	%
Total Office Buildings			21		478,300				100	%

Footnotes to the Company’s Portfolio Listing as of December 31, 2008

(1) Unless otherwise specified, the Company has a 100% ownership interest in each Community.

(2) For apartment communities, occupancy rates are based on financial occupancy for the year ended December 31, 2008; for the office buildings or properties which have not yet stabilized, or have insufficient operating history, occupancy rates are based on physical occupancy as of December 31, 2008. For an explanation of how financial occupancy and physical occupancy are calculated, see “Properties-Occupancy Rates” in this Item 2.

(3) The Company has a 30% special limited partnership interest in the entity that owns this apartment community. This investment was made under arrangements whereby Essex Management Corporation (“EMC”) became the general partner and the existing partners were granted the right to require the applicable partnership to redeem their interest for cash. Subject to certain conditions, the Company may, however, elect to deliver an equivalent number of shares of the Company’s common stock in satisfaction of the applicable partnership's cash redemption obligation.

22

(4) The community is subject to a ground lease, which, unless extended, will expire in 2082.

(5) This community is owned by Fund II. The Company has a 28.2% interest in Fund II which is accounted for using the equity method of accounting.

(6) The Company holds a 1% special limited partner interest in the partnerships which own these apartment communities. These investments were made under arrangements whereby EMC became the 1% sole general partner and the other limited partners were granted the right to require the applicable partnership to redeem their interest for cash. Subject to certain conditions, the Company may, however, elect to deliver an equivalent number of shares of the Company’s common stock in satisfaction of the applicable partnership’s cash redemption obligation.

(7) In 2002 the Company purchased an additional 21 units adjacent to this apartment community for $3 million. This property was built in 1992.

(8) The Company completed a $1.6 million redevelopment in 2000.

(9) The Company completed a $2.3 million redevelopment in 2000.

(10) The Company is in the process of performing a $10.8million redevelopment.

(11) The Company completed construction of this community in the fourth quarter of 2008.

(12) The Company completed a $6.2 million redevelopment in 2007.

(13) Fund II completed a $5.3 million redevelopment in 2008.

(14) This community is subject to a ground lease, which, unless extended, will expire in 2067.

(15) During the third quarter of 2007, the Company acquired full ownership by purchasing the general contractor's interest for $9 million.

(16) The Company completed a $6.1 million redevelopment in 2007.

(17) The Company completed an $11.0 million redevelopment in 2001 and an additional $3.6 million redevelopment in 2005.

(18) This community is subject to a ground lease, which, unless extended, will expire in 2027.

(19) The Company completed a $3.2 million redevelopment in 2002.

(20) The Company completed a $1.9 million redevelopment in 2000.

(21) The Company completed a $1.9 million redevelopment in 2001.

(22) The Company completed a $1.7 million redevelopment in 2001.

(23) The Company is in the process of performing a $16.6 million redevelopment.

(24) The Company had an 85% controlling limited partnership interest as of December 31, 2006, and during January 2007 the Company acquired the remaining 15% partnership interest.

(25) The Company and EMC have a 74.0% and a 1% member interest, respectively.

(26) The Company completed a $3.5 million redevelopment in 2002.

(27) The community is subject to a ground lease, which, unless extended, will expire in 2028.

(28) The Company is in the process of performing a $14.1 million redevelopment.

(29) The Company completed a $2.7 million redevelopment in 2001.

(30) The Company completed a $4.5 million redevelopment in 1998.

(31) The Company completed an $8.9 million redevelopment in 2008.

(32) The Company completed a $9.4 million redevelopment in 2008.

(33) The Company is in the process of performing a $4.6 million redevelopment

(34) Fund II completed a $4.5 million redevelopment in 2008.

(35) The community was subject to a ground lease, which, unless extended, would expire in 2047.  In the second quarter of 2007, the Company entered into a joint venture partnership with a third-party, and the Company contributed the improvements for an 81.5% interest and the joint venture partner contributed the title to the land for an 18.5% interest in the partnership.

(36) The Company completed construction of 114 units of the 462 total units in 2000.

(37) The Company completed a $3.4 million redevelopment in 2002.

(38) A portion of this community on which 84 units are presently located is subject to a ground lease, which, unless extended, will expire in 2028.

(39) The Company is in the process of performing a $9.9 million redevelopment.

(40) The community is subject to a ground lease, which, unless extended, will expire in 2070.

(41) The Company completed a $15.1 million redevelopment in 2008.

(42) The Company is in the process of performing a $36.3 million redevelopment, including the construction of 34 in-fill units.

(43) The Company completed a $7.0 million redevelopment in 2007.

23

(44) The Company completed a $3.9 million redevelopment in 2007.

(45) The Company is in the process of performing an $11.8 million redevelopment.

(46) The Company completed a $5.1 million redevelopment and completed construction of 16 units of the community’s 108 units in 2006.

(47) The Company completed construction of this community in the third quarter of 2008.

(48) The property is leased through January 2009 to a single tenant, and is included in the Company’s predevelopment pipeline.

(49) The Company occupies 100% of this property.

(50) The property is currently vacant and under a $2.0 million redevelopment. The Company expects to occupy 100% of this property upon completion of the redevelopment in approximately the first quarter of 2009.

(51) The property is leased through July 2012 to a single tenant and was reclassified out of the Company’s predevelopment pipeline in December 2008.

(52) The Company has a mortgage receivable, and consolidates this property in accordance with GAAP. The Company occupies 4.6% of this property.

(53) The Company occupies 30% of this property.

Item 3. Legal Proceedings

Recently there has been an increasing number of lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in residential real estate. Some of these lawsuits have resulted in substantial monetary judgments or settlements.  The Company has been sued for mold related matters and has settled some, but not all, of such matters.   Insurance carriers have reacted to mold related liability awards by excluding mold related claims from standard policies and pricing mold endorsements at prohibitively high rates.  The Company has, however, purchased pollution liability insurance, which includes some coverage for mold.  The Company has adopted policies for promptly addressing and resolving reports of mold when it is detected, and to minimize any impact mold might have on residents of the property.  The Company believes its mold policies and proactive response to address any known existence, reduces its risk of loss from these cases.  There can be no assurances that the Company has identified and responded to all mold occurrences, but the Company promptly addresses all known reports of mold.  Liabilities resulting from such mold related matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.  As of December 31, 2008, potential liabilities for mold and other environmental liabilities are not considered probable or the loss cannot be quantified or estimated.

The Company carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the Communities.  Insured risks for comprehensive liabilities covers claims in excess of $25,000 per incident, and property casualty insurance covers losses in excess of a $5.0 million deductible per incident. There are, however, certain types of extraordinary losses, such as, for example, losses from terrorism and earthquake, for which the Company does not have insurance. Substantially all of the Communities are located in areas that are subject to earthquakes.

The Company is subject to various other lawsuits in the normal course of its business operations.  Such lawsuits are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

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

During the fourth quarter of 2008, no matters were submitted to a vote of security holders.

24

Part II

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

The shares of the Company’s common stock are traded on the New York Stock Exchange (“NYSE”) under the symbol ESS.

Market Information

The Company’s common stock has been traded on the NYSE since June 13, 1994. The high, low and closing price per share of common stock reported on the NYSE for the quarters indicated are as follows:

Quarter Ended	High		Low		Close
December 31, 2008	$	117.77	$	60.77	$	76.75
September 30, 2008	$	129.57	$	100.63	$	118.33
June 30, 2008	$	124.33	$	105.12	$	106.50
March 31, 2008	$	117.51	$	84.59	$	113.98
December 31, 2007	$	127.35	$	94.08	$	97.49
September 28, 2007	$	123.50	$	102.00	$	117.57
June 30, 2007	$	133.40	$	114.19	$	116.30
March 30, 2007	$	148.54	$	124.78	$	124.78

The closing price as of February 25, 2009 was $56.09.

Holders

The approximate number of holders of record of the shares of the Company’s common stock was 278 as of February 25, 2009. This number does not include stockholders whose shares are held in trust by other entities.  The Company believes the actual number of stockholders is greater than the number of holders of record.

Return of Capital

Under provisions of the Internal Revenue Code of 1986, as amended, the portion of the cash dividend, if any, that exceeds earnings and profits is considered a return of capital. The return of capital is generated due to a variety of factors, including the deduction of non-cash expenses, primarily depreciation, in the determination of earnings and profits.

The status of the cash dividends distributed for the years ended December 31, 2008, 2007 and 2006 related to common stock, and Series F and Series G preferred stock for tax purposes are as follows:

	2008			2007			2006
Ordinary income		98.95	%		75.65	%		100.00	%
Capital gains		1.05	%		24.35	%		0.00	%
Return of capital		0.00	%		0.00	%		0.00	%
		100.00	%		100.00	%		100.00	%

25

Dividends and Distributions

Since its initial public offering on June 13, 1994, the Company has paid regular quarterly dividends to its stockholders. The Company has paid the following dividends per share of common stock:

Year Ended	Annual Dividend
1994	$	0.915
1995	$	1.685
1996	$	1.720
1997	$	1.770
1998	$	1.950
1999	$	2.150
2000	$	2.380
2001	$	2.800
2002	$	3.080
2003	$	3.120
2004	$	3.160
2005	$	3.240

Quarter Ended	2006		2007		2008
March 31,	$	0.840	$	0.930	$	1.020
June 30,		0.840		0.930		1.020
September 31,		0.840		0.930		1.020
December 31,		0.840		0.930		1.020
Annual Dividend	$	3.360	$	3.720	$	4.080

Future distributions by the Company will be at the discretion of the Board of Directors and will depend on the actual cash flows from operations of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, applicable legal restrictions and such other factors as the Board of Directors deem relevant. There are currently no contractual restrictions on the Company’s present or future ability to pay dividends.

On February 25, 2009, the Company announced the Board of Directors approved a $0.01 per share increase to the quarterly cash dividend, which represents a $0.04 increase on an annualized basis.  Accordingly, the first quarter dividend distribution, payable on April 15, 2009 to stockholders as of record as of March 31, 2009, will be $1.03 per share.  On an annualized basis, the dividend represents a distribution of $4.12 per common share.

Dividend Reinvestment and Share Purchase Plan

The Company has adopted a dividend reinvestment and share purchase plan designed to provide holders of common stock with a convenient and economical means to reinvest all or a portion of their cash dividends in shares of common stock and to acquire additional shares of Common Stock through voluntary purchases.  Computershare, LLC, which serves as the Company’s transfer agent, administers the dividend reinvestment and share purchase plan. For a copy of the plan, contact Computershare, LLC at (312) 360-5354.  The plan has been suspended as of December 31, 2008 and the plan is not available to stockholders until further notice.

Securities Authorized for Issuance under Equity Compensation Plans

See our disclosure in the 2008 Proxy Statement under the heading “Equity Compensation Plan Information”, which disclosure is incorporated herein by reference.

Issuance of Registered Equity Securities

Period	Total Number of Shares Sold		Average Price per Share		Proceeds (net of fees and commissions)
8/11/08 to 8/14/08		413,000	$	120.69	$	48,971,483
9/04/08 to 9/30/08		717,750		120.08		84,682,358
10/01/08 to 10/03/08		78,300		118.25		9,096,571
Total		1,209,050	$	120.17	$	142,750,412

During August through October 2008, the Company sold 1,209,050 shares of common stock for proceeds of $142.8 million, net of underwriter fees and expenses.  The Company used the net proceeds from the stock offerings to pay down debt and to fund the development pipeline.

26

Sales of Unregistered Securities

In addition to the sale of common stock discussed above, in November 2008, the holders of the outstanding 7.875%  D Cumulative Redeemable Preferred Units of Essex Portfolio, L.P. exchanged their preferred units with a par value of $50 million for 363,000 shares of common stock of the Company and $10 million in cash plus accrued dividends.  The shares were issued upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and upon Rule 506 of Regulation D under that Act.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Total Amount that May Yet be Purchased Under the Plans or Programs
1/3/08 to 1/8/08		143,400	$	95.64		143,400	$	153,657,062

In August 2007, the Company’s Board of Directors authorized a stock repurchase plan to allow the Company to acquire shares in an aggregate of up to $200 million.  The program supersedes the common stock repurchase plan that the Company announced on May 16, 2001.  During 2007 the Company repurchased and retired 323,259 shares of its common stock for approximately $32.6 million.  During January 2008, the Company repurchased and retired 143,400 shares of its common stock for approximately $13.7 million.  Since the Company announced the inception of the stock repurchase plan, the Company has repurchased and retired 466,659 shares for $46.3 million at an average stock price of $99.31 per share, including commissions as of December 31, 2008.

During the first quarter of 2009, under the authorization of the stock repurchase plan the Company repurchased $54.6 million in liquidation value of 4.875% Series G Cumulative Convertible Preferred Stock at a discount to par value for cash paid of $30.1 million.

27

Performance Graph

The line graph below compares the cumulative total stockholder return on the Company’s common stock for the last five years with the cumulative total return on the S&P 500 and the NAREIT All Equity REIT index over the same period.  This comparison assumes that the values of the investment of in the common stock and each index was $100 on December 31, 2003 and that all dividends were reinvested (1).

(1) Common stock performance data is provided by SNL Financial.

The graph and other information furnished under the above caption “Performance Graph” in this Part II Item 5 of this Form 10-K shall not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of the Exchange Act, as amended.

28

Item 6. Selected Financial Data

The following tables set forth summary financial and operating information for the Company from January 1, 2004 through December 31, 2008.

				Years Ended December 31,
	2008			2007(1)			2006(1)			2005(1)			2004(1)
	($ in thousands, except per share amounts)
OPERATING DATA:
REVENUES
Rental and other property	$	407,729		$	373,959		$	329,072		$	297,761		$	261,141
Management and other fees from affiliates		5,166			5,090			5,030			10,951			23,146
		412,895			379,049			334,102			308,712			284,287
EXPENSES
Property operating expenses, excluding depreciation and amortization		133,961			123,018			110,578			100,719			89,921
Depreciation and amortization		110,860			97,647			77,130			73,887			65,523
Amortization of deferred financing costs		2,883			3,055			2,745			1,947			1,560
General and administrative		26,984			26,273			22,234			19,148			18,042
Interest		78,203			78,938			72,272			70,149			60,063
Other expenses		1,350			800			1,770			5,827			-
		354,241			329,731			286,729			271,677			235,109
Earnings from operations		58,654			49,318			47,373			37,035			49,178
Gain on the sales of real estate		4,578			-			-			6,391			7,909
Gain on early retirement of debt		3,517			-			-			-			-
Interest and other income		11,343			10,310			6,176			8,524			3,077
Equity income (loss) in co-investments		7,820			3,120			(1,503	)		18,553			40,683
Minority interests		(22,395	)		(19,999	)		(18,783	)		(20,699	)		(28,106	)
Income from continuing operations before income tax provision		63,517			42,749			33,263			49,804			72,741
Income tax provision		-			(400	)		(525	)		(2,538	)		(257	)
Income from continuing operations		63,517			42,349			32,738			47,266			72,484
Income from discontinued operations (net of minority interests)		1,837			73,289			30,010			32,450			7,209
Net income		65,354			115,638			62,748			79,716			79,693
Dividends to preferred stockholders		(9,241	)		(9,174	)		(5,145	)		(1,953	)		(1,952	)
Net income available to common stockholders	$	56,113		$	106,464		$	57,603		$	77,763		$	77,741
Per share data:
Basic:
Net income from continuing operations available to common stockholders	$	2.15		$	1.35		$	1.20		$	1.97		$	3.08
Net income available to common stockholders	$	2.23		$	4.34		$	2.50		$	3.38		$	3.39
Weighted average common stock outstanding		25,205			24,548			23,082			23,039			22,921
Diluted:
Net income from continuing operations available to common stockholders	$	2.14		$	1.32		$	1.17		$	1.93		$	3.05
Net income available to common stockholders	$	2.21		$	4.24		$	2.45		$	3.32		$	3.36
Weighted average common stock outstanding		25,347			25,101			23,551			23,389			23,156
Cash dividend per common share	$	4.08		$	3.72		$	3.36		$	3.24		$	3.16

29

	As of December 31,
	2008		2007		2006		2005		2004
	($ in thousands)
BALANCE SHEET DATA:
Investment in rental properties (before accumulated depreciation)	$	3,279,788	$	3,117,759	$	2,669,187	$	2,431,629	$	2,371,194
Net investment in rental properties		2,639,762		2,575,772		2,204,172		2,042,589		2,041,542
Real estate under development		272,273		233,445		107,620		54,416		38,320
Total assets		3,164,823		2,980,323		2,485,840		2,239,290		2,217,217
Total secured indebtedness		1,588,931		1,362,873		1,186,554		1,129,918		1,161,184
Total unsecured indebtedness		171,716		294,818		225,000		225,000		155,800
Cumulative convertible preferred stock		145,912		145,912		145,912		-		-
Cumulative redeemable preferred stock		25,000		25,000		25,000		25,000		25,000
Stockholders' equity (less redeemable preferred stock)		819,918		765,318		587,209		555,967		566,277

	As of and for the years ended December 31,
	2008			2007(1)			2006(1)			2005(1)			2004(1)
OTHER DATA:
Net income	$	65,354		$	115,638		$	62,748		$	79,716		$	79,693
Interest expense		78,203			78,938			72,272			70,149			60,063
Tax expense		-			400			525			2,538			257
Depreciation and amortization		110,860			97,647			77,130			73,887			65,523
Amortization of deferred financing costs		2,883			3,055			2,745			1,947			1,560
EBITDA(2)		257,300			295,678			215,420			228,237			207,096
Same-property gross operating margin(3)(4)		68	%		67	%		67	%		66	%		65	%
Average same-property monthly rental rate per apartment unit(4)(5)	$	1,401		$	1,314		$	1,225		$	1,149		$	1,055
Average same-property monthly operating expenses per apartment unit(4)(6)	$	456		$	437		$	421		$	395		$	331
Total apartment units (at end of period)		26,992			27,489			27,553			26,587			25,518
Same-property occupancy rate(7)		96	%		96	%		96	%		97	%		96	%
Total Communities (at end of period)		134			134			130			126			131

(1) The results of operations for 2007, 2006, 2005 and 2004 have been reclassified to reflect discontinued operations for properties sold subsequent to December 31, 2007.

(2) EBITDA is defined as net income before interest expense, income taxes, depreciation and amortization.  EBITDA, as defined by the Company, is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP.  This measurement should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity.  The Company’s definition may not be comparable to that of other companies.

(3) Gross operating margin represents rental revenues and other property income less property operating expenses, exclusive of depreciation and amortization, divided by rental revenues and other property income.

(4) A stabilized apartment community, or “Same-Property” apartment units (as defined in Item 7), are those units in Communities that the Company has consolidated for the entire two years as of the end of the period set forth.  The number of apartment units in such properties may vary at each year-end.  Percentage changes in averages per unit do not correspond to total Same-Property revenues and expense percentage changes which are discussed in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(5) Average Same-Property monthly rental rate per apartment unit represents total scheduled rent for the same property apartment units for the period (actual rental rates on occupied apartment units plus market rental rates on vacant apartment units) divided by the number of such apartment units and further divided by the number of months in the period.

30

(6) Average Same-Property monthly expenses per apartment unit represents total monthly operating expenses, exclusive of depreciation and amortization, for the same property apartment units for the period divided by the total number of such apartment units and further divided by the number of months in the period.

(7) Occupancy rates are based on financial occupancy.  For an explanation of how financial occupancy is calculated, see Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

31

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

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto.  These consolidated financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results and all such adjustments are of a normal recurring nature.

OVERVIEW

The Company is a self-administered and self-managed REIT that acquires, develops, redevelops and manages apartment communities in selected residential areas located primarily in the West Coast of the United States.  The Company owns all of its interests in its real estate investments, directly or indirectly, through the Operating Partnership.  The Company is the sole general partner of the Operating Partnership and, as of December 31, 2008, had an approximately 91.6% general partner interest in the Operating Partnership.

Our investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth.  Our strong financial condition supports our investment strategy by enhancing our ability to quickly shift our acquisition, development, and disposition activities to markets that will optimize the performance of the portfolio.

As of December 31, 2008, we had ownership interests in 134 apartment communities, comprising 26,992 apartment units.  Our apartment communities are located in the following major West Coast regions:

Southern California (Los Angeles, Orange, Riverside, Santa Barbara, San Diego, and Ventura counties)

Northern California (the San Francisco Bay Area)

SeattleMetro (Seattle metropolitan area)

As of December 31, 2008, we also had ownership interests in six office buildings (with approximately 478,300 square feet).

As of December 31, 2008, our consolidated development pipeline was comprised of four development projects, two predevelopment projects and four land parcels held for future development aggregating 2,200 units, with total incurred costs of $272.3 million, and estimated remaining project costs of approximately $404.0 million for total estimated project costs of $676.3 million.

By region, the Company's operating results for 2008 and 2009 projected new housing supply, job losses, and market rent analysis are as follows:

Southern California Region:  As of December 31, 2008, this region represented 47% of the Company’s total apartment units.  During the year ended December 31, 2008, Same-Property (as defined below) revenues increased 1.6% as compared to 2007.  The Company expects in 2009 new residential supply of 7,400 single family homes and 13,400 apartment units which represents a total new supply of 0.4% of existing stock.  The Company expects this region to lose 67,900 jobs and experience a reduction in market rents of 2.5% in 2009.

Northern California Region:  As of December 31, 2008, this region represented 31% of the Company’s total apartment units.  Same-Property revenues increased 9.3% in 2008 as compared to 2007.  The Company expects in 2009 new residential supply of 3,300 single family homes and 6,700 apartment units which represents a total new supply of 0.5% of existing stock.  The Company expects this region to lose 21,000 jobs and experience a reduction in market rents of 0.7% in 2009.

Seattle Metro Region: As of December 31, 2008, this region represented 22% of the Company’s total apartment units.  Same-Property revenues increased 7.8% in 2008 as compared to 2007.  The Company expects in 2009 new residential supply of 4,400 single family homes and 5,100 apartment units which represents a total new supply of 1.1% of existing stock.  The Company expects this region to lose 15,000 jobs and experience a reduction in market rents of 2.0% in 2009.

32

The Company’s consolidated apartment communities are as follows:

	As of December 31, 2008					As of December 31, 2007
	Apartment Units		%			Apartment Units		%
Southern California		12,500		51	%		12,725		53	%
Northern California		6,457		27	%		6,361		26	%
Seattle Metro		5,338		22	%		5,005		21	%
Total		24,295		100	%		24,091		100	%

Co-investments including Fund II communities and communities in discontinued operations are not included in the table presented above for both years.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 2008 to the Year Ended December 31, 2007

Our average financial occupancies for the Company’s stabilized apartment communities or “2008/2007 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2008 and 2007) increased 50 basis points to 96.3% for 2008 from 95.8% for 2007.   Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total possible rental revenue.  Actual rental revenue represents contractual rental revenue pursuant to leases without considering delinquency and concessions. Total possible rental revenue represents the value of all apartment units, with occupied units valued at contractual rental rates pursuant to leases and vacant units valued at estimated market rents.  We believe that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate.  Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates as disclosed by other REITs may not be comparable to our calculation of financial occupancy.

The regional breakdown of the Company’s 2008/2007 Same-Property portfolio for financial occupancy for the years ended December 31, 2008 and 2007 is as follows:

	Years ended
	December 31,
	2008			2007
Southern California		95.5	%		95.5	%
Northern California		97.5	%		96.5	%
Seattle Metro		96.9	%		96.1	%

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2008/2007 Same-Properties.

			Years Ended
	Number of		December 31,				Dollar		Percentage
	Properties		2008		2007		Change		Change
Property Revenues($ in thousands)
2008/2007 Same-Properties:
Southern California		56	$	187,352	$	184,485	$	2,867		1.6	%
Northern California		18		79,389		72,611		6,778		9.3
Seattle Metro		23		62,338		57,848		4,490		7.8
Total 2008/2007 Same-Property revenues		97		329,079		314,944		14,135		4.5
2008/2007 Non-Same Property Revenues (1)				78,650		59,015		19,635		33.3
Total property revenues			$	407,729	$	373,959	$	33,770		9.0	%

(1)  Includes ten communities acquired after January 1, 2007, ten redevelopment communities, three office buildings and two development communities.

2008/2007 Same-Property Revenues increased by $14.1 million or 4.5% to $329.1 million for 2008 compared to $314.9 million for 2007.  The increase was primarily attributable to an increase in scheduled rents of $12.0 million or 3.8% as compared to 2007.  Average monthly rental rates for 2008/2007 Same-Property communities were $1,401 per unit for 2008 compared to $1,349 per unit for 2007.  The increase in occupancy of 50 basis points in 2008 compared to 2007 increased revenues by $0.9 million.   Bad debt expense and rent concessions modestly decreased by $0.1 million, ratio utility billing system (“RUBS”) income increased $0.8 million, and ancillary property income increased $0.4 million for 2008 compared to 2007.

33

2008/2007 Non-Same Property Revenues increased by $19.6 million or 33.3% to $78.7 million for 2008 compared to $59.0 million for 2007.  The increase was primarily due to ten communities acquired since January 1, 2007, and the lease-up of Belmont Station which began in the third quarter of 2008 and the community was 70% occupied as of December 2008.

Management and other fees from affiliates increased only slightly by $0.1 million to $5.2 million in 2008.  These fees consist of $5.2 million in fee income from Fund II in 2008, and $4.8 million in fee income from Fund II and $0.3 million in promote income from Fund I in 2007.

Total Expenses increased $24.5 million or 7.4% to $354.2 million for 2008 from $329.7 million for 2007.  Property operating expenses increased by $10.9 million or 8.9% for 2008, which is primarily due to the acquisition of ten communities and annual increases in property salaries.  The total operating expenses increase of 8.9% is comparable to total rental property revenues which increased 9.0% or $33.7 million.  The increase in total operating expenses includes an increase of real estate taxes of $1.8 million due primarily to the increase in the number of communities, increase in assessments for the Company’s California communities that are limited to 2% per year and large increases in assessments of the communities located in the Seattle metropolitan area.   Depreciation expense increased by $13.2 million or 13.5% for 2008 to $110.9 million in 2008 compared to $97.6 million in 2007 due primarily to the acquisition of ten communities.

Other expenses of $1.4 million for 2008 consists of $0.7 million for loan loss reserve on a note receivable related to an apartment community located in the Portland metropolitan area, and a $0.7 million severance charged related to a workforce reduction of corporate employees.  Other expenses totaling $0.8 million for 2007 relate to a loan loss reserve of $0.5 million on a note receivable related to a condominium projected located in Sherman Oaks, California, and a $0.3 million accrual for unpaid business taxes related to the sale of Essex on Lake Merritt in 2004.

Gain on sale of real estate was $4.6 million for 2008 compared to $0 for 2007 resulting from the recognition of a gain on sale of $1.8 million and $0.9 million related to the sale of Green Valley and Circle RV parks, respectively, $1.5 million gain that was previously deferred on the gain on sale of the 2005 sale of Eastridge Apartments, gain of $0.2 million on the sale of the 90 Archer land parcel, and a gain of $0.1 million on the sale of three condominiums.  The Eastridge $1.5 million gain recognized is equal to the estimated fair value of seven condominium units received in satisfaction of the note receivable issued in connection with the sale of Eastridge Apartments.

Gain on early retirement of debt was $3.5 million for 2008 compared to $0 for 2007 resulting from the repurchase of $53.3 million of 3.625% exchangeable bonds due in 2025 at a discount to par value.

Interest and other income increased by $1.0 million or 10.0% to $11.3 million for 2008 from $10.3 million for 2007 due primarily to an increase in investment income generated from an increase of short-term debt investments classified as marketable securities compared to 2007, and $21.4 million in cash held by a 1031 exchange facilitator related to the 2008 sale of Coral Gardens and the RV parks.

Equity income in co-investments increased by $4.7 million to $7.8 million for 2008 compared to $3.1 million for 2007, due primarily to $6.3 million of preferred income from the retirement of the Company’s investment in the Mountain Vista, LLC joint venture.  In 2007, the Company recorded $2.0 million from the partial sale of the Company’s interest in the Mountain Vista, LLC joint venture.

Income from discontinued operations for 2008 includes the operating results and gain on sale of $3.4 million from the sale of Coral Gardens and the operating results and gain on sale of Cardiff by the Sea and St. Cloud for a combined gain of $46,000.  For 2007, income from discontinued operations includes the operating results and a gain from the sale of four communities in the Portland metropolitan region, net of minority interest, of $47.6 million, sale of the City Heights joint venture property for a gain, net of minority interest, of $13.7 million, $10.3 million in fees from the joint venture partner, the net gain on sale of 21 condominiums at Peregrine Point for $1.0 million and operating results from the communities sold in 2008.

Comparison of Year Ended December 31, 2007 to the Year Ended December 31, 2006

Our average financial occupancies for the Company’s stabilized apartment communities or “2007/2006 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2007 and 2006) decreased 50 basis points to 96.0% for 2007 from 96.5% for 2006.

34

The regional breakdown of the Company’s stabilized 2007/2006 Same-Property portfolio for financial occupancy for the years ended December 31, 2007 and 2006 is as follows:

	Years ended
	December 31,
	2007			2006
Southern California		95.6	%		96.4	%
Northern California		96.8	%		96.7	%
Seattle Metro		96.3	%		96.8	%

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2007/2006 Same-Properties.

			Years Ended
	Number of		December 31,				Dollar		Percentage
	Properties		2007		2006		Change		Change
Property Revenues($ in thousands)
2007/2006 Same-Properties:
Southern California		55	$	182,062	$	174,252	$	7,810		4.5	%
Northern California		16		59,777		54,620		5,157		9.4
Seattle Metro		22		56,263		50,684		5,579		11.0
Total 2007/2006 Same-Property revenues		93		298,102		279,556		18,546		6.6
2007/2006 Non-Same Property Revenues (1)				75,857		49,516		26,341		53.2
Total property revenues			$	373,959	$	329,072	$	44,887		13.6	%

(1)   Includes eleven communities acquired subsequent to January 1, 2006, eleven redevelopment communities, three office buildings and one development community.

2007/2006 Same-Property Revenues increased by $18.5 million or 6.6% to $298.1 million for 2007 compared to $279.6 million for 2006.  The increase was primarily attributable to an increase in scheduled rents of $20.4 million or 7.3% as compared to 2006.  Average monthly rental rates for 2007/2006 Same-Property communities were $1,314 per unit for 2007 compared to $1,225 per unit for 2006.  The decrease in occupancy of 50 basis points in 2007 compared to 2006 decreased revenues by $2.3 million of which $0.8 million was caused by vacancy created by units that were under renovation.  Bad debt expense and rent concessions increased $0.8 million, ratio utility billing system (“RUBS”) income increased $0.8 million, and ancillary property income increased $0.4 million for 2007 compared to 2006.

2007/2006 Non-Same Property Revenues increased by $26.3 million or 53.2% to $75.9 million for 2007 compared to $49.5 million for 2006.  The increase was primarily due to eleven communities acquired since January 1, 2006.

Management and other fees from affiliates increased only slightly by $0.1 million to $5.1 million in 2007.  These fees consist of $4.8 million in fee income primarily from Fund II and $0.3 million in promote income from Fund I in 2007, compared to $3.8 million in fee income primarily from Fund II and $1.2 million in promote income from Fund I in 2006.

Total Expenses increased $43.0 million or 15.0% to $329.7 million for 2007 from $286.7 million for 2006.  Property operating expenses increased by $12.4 million or 11.2% for 2007, which is primarily due to the acquisition of eleven communities and annual increases in property salaries.  The increase includes an increase of real estate taxes of $3.5 million due primarily to the increase in the number of communities, increase in assessments for the Company’s California communities that are limited to 2% per year and large increases in assessments of the communities located in the Seattle metropolitan area.   Depreciation expense increased by $20.5 million or 26.6% for 2007, due to the acquisition of eleven communities after January 1, 2006 and recording depreciation expense for the Cadence Campus and Hollywood commercial buildings, which are predevelopment properties with short-term tenant leases.  Interest expense increased $6.7 million or 9.2% due primarily to due to an increase in funding of redevelopment and acquisitions on the Company’s lines of credit and an increase of outstanding mortgage notes payable.  General and administrative costs increased $4.0 million or 18.2% due to an increase in costs related to employees working on Fund II development and redevelopment projects that can not be capitalized by the Company of approximately $1.5 million, an increase in the number of employees, annual increases in compensation and increased bonuses.

Other expenses of $0.8 million for 2007 consists of a $0.5 million reserve for loan loss resulting from the write-down of an impaired mezzanine note receivable related to a condominium project located in Sherman Oaks, California, and a $0.3 million accrual for unpaid business taxes related to the sale of the Essex on Lake Merritt in 2004.  Other expenses of $1.8 million for the year ended 2006, relate to $1.0 million in pursuit costs related to the Company’s attempt to acquire the Town & Country REIT, and a $0.8 million impairment charge resulting from a write-down of a community in Houston, Texas.

35

Interest and other income increased by $4.1 million or 66.9% to $10.3 million for 2007 from $6.2 million for 2006 due primarily to an increase in lease income of $4.7 million resulting from the income generated from the Cadence Campus and Hollywood commercial buildings, and an increase of $1.5 million in interest income earned from the mezzanine/bridge loans, compared to the Company recorded a non-recurring gain of $1.7 million related to the sale of Town & Country REIT stock in 2006.

Equity income (loss) in co-investments increased by $4.6 million to $3.1 million for 2007 compared to a loss of $1.5 million for 2006, due primarily to the recording of a $2.0 million gain from the partial sale of the Company’s interest in the Mountain Vista, LLC joint venture in the first quarter of 2007 plus $0.3 million of equity income recorded from Fund I, and $0.4 million of equity income earned from its investment in Fund II during 2007.  Fund II operations for 2006 included $2.7 million in depreciation resulting in the Company recording a loss of $1.5 million in equity income (loss) in co-investments related to Fund II during 2006.

Income from discontinued operations for 2007 includes the gain from the sale of four communities in the Portland metropolitan region, net of minority interest, of $47.6 million, sale of the City Heights joint venture property for a gain, net of minority interest, of $13.7 million, $10.3 million in fees from the joint venture partner, and the net gain on sale of 21 condominiums at Peregrine Point for $1.0 million and the results of operations of these communities and the three communities sold in 2008.  For 2006, income from discontinued operations included a gain of $8.8 million from the sale of the Vista Pointe joint venture property and $8.2 million in fees, a gain of $3.1 million on the sales of Vista Capri East, Casa Tierra, and Diamond Valley properties, and a gain of $2.0 million from the sale of the first 45 condominiums at Peregrine Point, and the results of operations of these communities and communities sold in 2007 and 2008.

Liquidity and Capital Resources

In June 2008, Standard and Poor's (“S&P”) reaffirmed its corporate credit rating of BBB/Stable for Essex Property Trust, Inc. and Essex Portfolio, L.P.

At December 31, 2008, the Company had $41.9 million of unrestricted cash and cash equivalents, $23.9 million in marketable securities, and $21.4 million of cash held by a 1031 exchange facilitator.  The funds held by the 1031 exchange facilitator were received in the first quarter of 2009 as the funds are part of a reverse exchange involving a 2008 apartment community acquisition.  The Company believes that cash flows generated by its operations, existing cash balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of our reasonably anticipated cash needs during 2009.  The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect our plans for acquisitions, dispositions, development and redevelopment activities.

The Company has a $200.0 million unsecured line of credit and, as of December 31, 2008, there was $0 balance on the line.  In January 2009, this facility’s maturity was extended to March 2010.  The underlying interest rate on this line is based on a tiered rate structure tied to an S&P rating on the credit facility (currently BBB-) at LIBOR plus 0.8%.  We also have a $150.0 million credit facility from Freddie Mac which is expandable to $250.0 million at any time during the first two years which matures in December 2013.  This line is secured by eight apartment communities.  As of December 31, 2008, the Company had $120.0 million outstanding under this line of credit at an average interest rate of 3.0%.  The underlying interest rate on this line is between 99 and 150 basis points over the Freddie Mac Reference Rate and the interest rate is subject to change by the lender in November 2011.  In 2007, the Company entered into an unsecured revolving line of credit for $10.0 million with a commercial bank that matures in March 2009.  Borrowing under this revolving line of credit bears an interest rate at the bank’s Prime Rate less 2.0%.  As of December 31, 2008 there was a $0 balance on the revolving line of credit.  The line is used to fund short-term working capital needs.  The Company’s unsecured line of credit agreements contain debt covenants related to limitations on indebtedness and liabilities, maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization and maintenance of minimum tangible net worth.  The Company was in compliance with the line of credit covenants as of December 31, 2008 and 2007.

In November 2008, the holders of the outstanding 7.875% Series D Cumulative Redeemable Preferred Units exchanged their preferred units with a par value of $50 million for 363,000 shares of common stock and $10.0 million in cash plus accrued dividends.

36

The Company sold 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock (“Series G Preferred Stock”) for gross proceeds of $149.5 million during 2006.  Holders may convert Series G Preferred Stock into shares of the Company’s common stock subject to certain conditions.  The conversion rate was initially .1830 shares of common stock per the $25 share liquidation preference, which is equivalent to an initial conversion price of approximately $136.62 per share of common stock (the conversion rate will be subject to adjustment upon the occurrence of specified events).  The conversion rate was .1849 shares of common stock per $25 per share liquidation preference as of December 31, 2008.  On or after July 31, 2011, the Company may, under certain circumstances, cause some or all of the Series G Preferred Stock to be converted into shares of common stock at the then prevailing conversion rate.

During the first quarter of 2009, the Company repurchased $54.6 million in liquidation value of Series G Preferred Stock at a discount to par value for cash paid of $30.1 million.  The Company may continue to repurchase Series G Preferred Stock.

In August 2007, the Company’s Board of Directors authorized a stock repurchase plan to allow the Company to acquire shares in an aggregate of up to $200 million.  The program supersedes the common stock repurchase plan that Essex announced on May 16, 2001.  During the first quarter of January 2008, the Company under its stock repurchase program repurchased 143,400 shares of common stock for $13.7 million, net of fees and commissions, and in 2007, the Company repurchased and retired 323,259 shares of common stock for approximately $32.6 million, net of fees and commissions.  As of February 2009, the Company may repurchase an additional $124 million of stock under the stock repurchase program.

The Company, through its Operating Partnership, in 2005 issued $225 million of outstanding exchangeable bonds (the “Bonds”) with a coupon of 3.625% due 2025.  The Bonds are senior unsecured obligations of the Operating Partnership, and are fully and unconditionally guaranteed by the Company.  On or after November 1, 2020, the Bonds will be exchangeable at the option of the holder into cash and, in certain circumstances at Essex’s option, shares of the Company’s common stock at an initial exchange price of $103.25 per share subject to certain adjustments.  The Bonds will also be exchangeable prior to November 1, 2020, but only upon the occurrence of certain specified events.  On or after November 4, 2010, the Operating Partnership may redeem all or a portion of the Bonds at a redemption price equal to the principal amount plus accrued and unpaid interest (including additional interest, if any).  Bond holders may require the Operating Partnership to repurchase all or a portion of the Bonds at a purchase price equal to the principal amount plus accrued and unpaid interest (including additional interest, if any) on the Bonds on November 1, 2010, November 1, 2015 and November 1, 2020.  During the fourth quarter of 2008 the Company repurchased $53.3 million of these bonds at a discount to par value, and during 2009, the Company repurchased $71.3 million of these bonds at a discount to par value for cash paid of $66.5 million.  As of February 2009, there are $100.4 million of Bonds still outstanding.  The Company may continue to repurchase Bonds.

During the first quarter of 2007, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number or amount of certain equity and debt securities as defined in the prospectus.

As of December 31, 2008, the Company’s mortgage notes payable totaled $1.47 billion which consisted of $1.2 billion in fixed rate debt with interest rates varying from 4.86% to 8.18% and maturity dates ranging from 2009 to 2019 and $251.1 million of variable rate debt including $236.2 million of tax-exempt variable rate demand bonds with a weighted average interest rate of 3.6%. The tax-exempt variable rate demand bonds have maturity dates ranging from 2020 to 2039, and $183.4 million is subject to interest rate caps.

The Company pays quarterly dividends from cash available for distribution. Until it is distributed, cash available for distribution is invested by the Company primarily in bank money market accounts and short-term investment grade securities or is used by the Company to reduce balances outstanding under its lines of credit.

Derivative Activity

In April 2008, the Company settled a $30.0 million forward-starting swap for a $1.7 million payment to the counterparty, which increased the effective interest rate on the new Park Hill at Issaquah mortgage loan to 6.1%.  In June 2008, the Company settled a $20.0 million forward-starting swap for a $0.1 million payment to the counterparty, which increased the effective interest rate on the new Hampton Place mortgage loan to 6.2%.  In November 2008, the Company settled a $25.0 million forward starting-swap for a $1.2 million payment to the counterparty which increased the effective interest on the Montclaire mortgage loan to 6.4%.   In April 2007, the Company settled a $50.0 million forward-starting swap and received a $1.3 million payment from the counterparty, which decreased the effective interest rate on the Tierra Vista mortgage loan to 5.2%.

37

As of December 31, 2008 the Company had seven forward-starting interest rate swap contracts totaling a notional amount of $375 million with interest rates ranging from 5.1% to 5.9% and settlements dates ranging from November 2010 to October 2011.  These derivatives qualify for hedge accounting as they are expected to economically hedge the cash flows associated with future financings of debt between 2010 and 2011.  The fair value of the derivatives decreased $64.2 million during the year ended December 31, 2008 to an obligation of $73.1 million as of December 31, 2008, and the derivative liability was recorded in cash flow hedge liabilities in the Company’s consolidated financial statements.  The changes in the fair values of the derivatives are reflected in accumulated other comprehensive (loss) income in the Company’s consolidated financial statements.  No hedge ineffectiveness on cash flow hedges was recognized during the year ended December 31, 2008 and 2007.

Issuance of Common Stock

In 2008, Company issued 1,209,050 shares of common stock for $142.8 million, net of fees and commissions, and in 2007, the Company issued 1,670,500 shares of common stock for $213.7 million, net of fees and commissions.  Under its controlled equity offering program with Cantor Fitzgerald & Co., the Company may from time to time sell shares of common stock into the existing trading market at current market prices, and the Company anticipates using the net proceeds to pay down debt and fund the development pipeline.

Capital Expenditures

Non-revenue generating capital expenditures are improvements and upgrades that extend the useful life of the property. For the year ended December 31, 2008, non-revenue generating capital expenditures totaled approximately $1,050 per unit. The Company expects to incur approximately $1,100 to $1,400 per unit in non-revenue generating capital expenditures for the year ended December 31, 2009. These expenditures do not include the improvements required in connection with the origination of mortgage loans, expenditures for deferred maintenance on acquisition properties, expenditures for property renovations and improvements which are expected to generate additional revenue.  Revenue-generating expenditures totaled $6.5 million during 2008, and the Company expects to incur approximately $3 million to $5 million in revenue generating capital expenditures for the year ended December 31, 2009.  The Company expects that cash from operations and/or its lines of credit will fund such expenditures. However, there can be no assurance that the actual expenditures incurred during 2009 and/or the funding thereof will not be significantly different than the Company’s current expectations.

Development and Predevelopment Pipeline

The Company defines development activities as new communities that are in various stages of active development, or the community is in lease-up and phases of the project are not completed.  As of December 31, 2008, excluding development projects owned by Fund II, the Company had four development projects comprised of 988 units for an estimated cost of $410.0 million, of which $234.6 million remains to be expended.  See discussion in the section, “Development and redevelopment activities may delayed, not completed, and/or not achieve expected results” in Item 1A, Risk Factors, of this Form 10-K.

The Company defines the predevelopment pipeline as proposed communities in negotiation or in the entitlement process with a high likelihood of becoming entitled development projects.  As of December 31, 2008, the Company had two development projects aggregating 820 units that were classified as predevelopment projects.  The estimated total cost of the predevelopment pipeline at December 31, 2008 was $242.4 million, of which $169.4 million remains to be expended.   The Company may also acquire land for future development purposes.   The Company owned four land parcels held for future development aggregating 392 units as of December 31, 2008.  The Company had incurred $23.9 million in costs related to these four land parcels as of December 31, 2008.

The Company expects to fund the development pipeline by using a combination of some or all of the following sources: its working capital, amounts available on its lines of credit, construction loans, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of properties, if any.

Redevelopment Pipeline

The Company defines redevelopment activities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement.  The Company’s redevelopment strategy strives to improve the financial and physical aspects of the Company’s redevelopment apartment communities and to target a 7 to 9 percent return on the incremental renovation investment.  Many of the Company’s properties are older and in excellent neighborhoods, providing lower density with large floor plans that represent attractive redevelopment opportunities.  During redevelopment, apartment units may not be available for rent and, as a result, may have less than stabilized operations.  As of December 31, 2008, the Company had nine major redevelopment communities aggregating 2,631 apartment units with estimated redevelopment costs of $128.0 million, of which approximately $56.5 million remains to be expended.   The Company expects to fund the redevelopment pipeline by using primarily the Company’s lines of credit.

38

Alternative Capital Sources

Fund II has eight institutional investors, and the Company, with combined partner equity commitments of $265.9 million which are fully contributed as of December 31, 2008.   The Company has contributed $75.0 million to Fund II, which represents a 28.2% interest as general partner and limited partner and the Company uses the equity method of accounting for its investment in Fund II.  Fund II utilized debt as leverage equal to approximately 55% of the estimated value of the initial acquisition of the underlying real estate.  Fund II invested in apartment communities in the Company’s targeted West Coast markets and, as of December 31, 2008, owned eleven apartment communities, one development project completed but not yet stabilized and two development projects.  The Company records revenue for its asset management, property management, development and redevelopment services when earned, and promote income when realized if Fund II exceeds certain financial return benchmarks.

Contractual Obligations and Commercial Commitments

The following table summarizes the maturation or due dates of our contractual obligations and other commitments at December 31, 2008, and the effect such obligations could have on our liquidity and cash flow in future periods:

			2010 and		2012 and
($ in thousands)	2009		2011		2013		Thereafter		Total
Mortgage notes payable	$	35,842	$	303,693	$	224,572	$	904,824	$	1,468,931
Exchangeable bonds (1)		-		-		-		171,716		171,716
Lines of credit		-		-		120,000		-		120,000
Interest on indebtedness		90,000		117,943		73,718		173,017		454,678
Development commitments		114,300		176,300		92,200		21,200		404,000
Redevelopment commitments		33,600		22,900		-		-		56,500
	$	273,742	$	620,836	$	510,490	$	1,270,757	$	2,675,825

(1)  In 2009, the Company repurchased an additional $71.3 million of the exchangeable bonds.  The outstanding balance as of February 2009 is $100.4 million.

Variable Interest Entities

In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46 Revised (“FIN 46R”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”, the Company consolidates 19 DownREIT limited partnerships (comprising twelve communities), a development project, an office building that is subject to loans made by the Company, and prior to the sale of a community during 2007, the buildings and improvements that were owned by a third-party subject to ground lease on land that was owned by the Company.  The Company consolidates these entities because it is deemed the primary beneficiary under FIN 46R.  The total assets and liabilities related to these variable interest entities (VIEs), net of intercompany eliminations, were approximately $256.0 million and $169.1 million as of  December 31, 2008 and $222.7 million and $163.9 million  as of December 31, 2007, respectively.  Interest holders in VIEs consolidated by the Company are allocated net income equal to the cash payments made to those interest holders for services rendered or distributions from cash flow.  The remaining results of operations are generally allocated to the Company.  As of December 31, 2007, the Company had two VIE’s of which it was not deemed to be the primary beneficiary.  Total assets and liabilities of these entities were approximately $71.7 million and $58.3 million as of December 31, 2007.  As of December 31, 2008, the Company did not have any VIE’s of which it was not deemed to be the primary beneficiary.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements, in accordance with U.S. generally accepted accounting principles requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.  The Company defines critical accounting policies as those accounting policies that require the Company's management to exercise their most difficult, subjective and complex judgments.  The Company’s critical accounting policies relate principally to the following key areas: (i) consolidation under applicable accounting standards of various entities; (ii) assessing the carrying values of the Company's real estate and investments in and advances to joint ventures and affiliates; and (iii) internal cost capitalization.  The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management.

39

The Company assesses each entity in which it has an investment or contractual relationship to determine if it may be deemed to be a VIE.  If such an entity is a VIE, then the Company analyzes the expected losses and expected residual returns to determine who is the primary beneficiary.  If the Company is the primary beneficiary, then the entity is consolidated.  The analysis required to identify VIEs and primary beneficiaries is complex and judgmental, and the analysis must be applied to various types of entities and legal structures.

The Company assesses the carrying value of its real estate investments by monitoring investment market conditions and performance compared to budget for operating properties and joint ventures, and by monitoring estimated costs for properties under development.  Local market knowledge and data is used to assess carrying values of properties and the market value of acquisition opportunities.  Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment may not be fully recoverable, the carrying amount is evaluated.  If the sum of the property’s expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the property, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property.  Adverse changes in market conditions or poor operating results of real estate investments could result in impairment charges.  When the Company determines that a property is held for sale, it discontinues the periodic depreciation of that property.  The criteria for determining when a property is held for sale requires judgment and has potential financial statement impact as depreciation would cease and an impairment loss could occur upon determination of held for sale status.  Assets held for sale are reported at the lower of the carrying amount or estimated fair value less costs to sell.  With respect to investments in and advances to joint ventures and affiliates, the Company looks to the underlying properties to assess performance and the recoverability of carrying amounts for those investments in a manner similar to direct investments in real estate properties.  An impairment charge or investment valuation charge is recorded if the carrying value of the investment exceeds its fair value.

The Company capitalizes all direct and certain indirect costs, including interest and real estate taxes, incurred during development and redevelopment activities. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use.  The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period.  Included in capitalized costs are management’s accounting estimates of the direct and incremental personnel costs and indirect project costs associated with the Company's development and redevelopment activities.  Indirect project costs consist primarily of personnel costs associated with construction administration and development accounting, legal fees, and various office costs that clearly relate to projects under development.

The Company bases its accounting estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.

Forward Looking Statements

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 which are not historical facts may be considered forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the Company's expectations, hopes, intentions, beliefs and strategies regarding the future.  Forward looking statements include statements regarding the Company's expectations as to the timing of completion of current development and redevelopment projects and the stabilization dates of such projects, expectation as to the total projected costs and rental rates of development and redevelopment projects, beliefs as to the adequacy of future cash flows to meet operating requirements and to provide for dividend payments in accordance with REIT requirements, expectations as to the amount of capital expenditures, expectations as to the amount of non-revenue generating capital expenditures, future acquisitions, the Company's and Fund II’s development and redevelopment pipeline, the anticipated performance of existing properties, anticipated results from various geographic regions, statements regarding the Company's financing activities, and the use of proceeds from such activities.

40

Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, that the Company will fail to achieve its business objectives, that the actual completion of development and redevelopment projects will be subject to delays, that the stabilization dates of such projects will be delayed, that the total projected costs of current development and redevelopment projects will exceed expectations, that such development and redevelopment projects will not be completed, that development and redevelopment projects and acquisitions will fail to meet expectations, that estimates of future income from an acquired property may prove to be inaccurate, that future cash flows will be inadequate to meet operating requirements and/or will be insufficient to provide for dividend payments in accordance with REIT requirements, that the actual non-revenue generating capital expenditures will exceed the Company's current expectations, that there may be a downturn in the markets in which the Company's Communities are located, that the terms of any refinancing may not be as favorable as the terms of existing indebtedness, as well as those risks, special considerations, and other factors discussed under the caption “Potential Factors Affecting Future OperatingResults” below and those discussed in Item 1A, Risk Factors, of this Form 10-K, and those risk factors and special considerations set forth in the Company’s other filings with the Securities and Exchange Commission (the "SEC") which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  All forward-looking statements are made as of today, and the Company assumes no obligation to update this information.

Potential Factors Affecting Future Operating Results

Many factors affect the Company’s actual financial performance and may cause the Company’s future results to be different from past performance or trends.  These factors include those set forth under the caption “Risk Factors” in Item 1A of this Annual Report on Form 10-K and the following:

Funds from Operations ("FFO")

FFO is a financial measure that is commonly used in the REIT industry.  The Company presents funds from operations as a supplemental performance measure.  FFO is not used by the Company, nor should it be considered to be, as an alternative to net earnings computed under GAAP as an indicator of the Company’s operating performance or as an alternative to cash from operating activities computed under GAAP as an indicator of the Company's ability to fund its cash needs.

FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor does the Company intend it to present, a complete picture of its financial condition and operating performance. The Company believes that net earnings computed under GAAP remains the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings. Further, the Company believes that its consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of its financial condition and its operating performance.

In calculating FFO, the Company follows the definition for this measure published by the National Association of REITs (“NAREIT”), which is a REIT trade association.  The Company believes that, under the NAREIT FFO definition, the two most significant adjustments made to net income are (i) the exclusion of historical cost depreciation and (ii) the exclusion of gains and losses from the sale of previously depreciated properties.  Essex agrees that these two NAREIT adjustments are useful to investors for the following reasons:

 (a)  historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.

(b)  REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate.  The exclusion, in NAREIT’s definition of FFO, of gains from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods.

41

Management has consistently applied the NAREIT definition of FFO to all periods presented.  However, other REITs in calculating FFO may vary from the NAREIT definition for this measure, and thus their disclosure of FFO may not be comparable to Essex’s calculation.

The following table sets forth the Company’s calculation of FFO for 2008 and 2007.

	For the year
	ended			For the quarter ended
	12/31/08			12/31/08			9/30/08			6/30/08			3/31/08
Net income available to common stockholders	$	56,113,000		$	18,345,000		$	12,376,000		$	9,688,000		$	15,704,000
Adjustments:
Depreciation and amortization		113,294,000			28,296,000			28,581,000			28,683,000			27,734,000
Gains not included in FFO		(7,849,000	)		(5,356,000	)		(2,493,000	)		-			-
Minority interests and co-investments(1)		9,299,000			2,766,000			2,218,000			1,892,000			2,423,000
Funds from Operations	$	170,857,000		$	44,051,000		$	40,682,000		$	40,263,000		$	45,861,000
Weighted average number of shares outstanding diluted(2)		27,807,946			28,663,993			27,910,297			27,623,939			27,398,605
	For the year
	ended			For the quarter ended
	12/31/07			12/31/07			9/30/07			6/30/07			3/31/07
Net income available to common stockholders	$	106,464,000		$	51,287,000		$	9,997,000		$	9,877,000		$	35,303,000
Adjustments:
Depreciation and amortization		102,250,000			29,754,000			21,718,000			25,166,000			25,612,000
Gains not included in FFO		(66,470,000	)		(51,905,000	)		(64,000	)		(461,000	)		(14,040,000	)
Minority interests and co-investments(1)		11,665,000			5,563,000			1,781,000			1,915,000			2,406,000
Funds from Operations	$	153,909,000		$	34,699,000		$	33,432,000		$	36,497,000		$	49,281,000
Weighted average number of shares outstanding diluted(2)		27,596,668			27,838,516			28,043,125			27,592,976			26,735,117

(1)  Amount includes the following: (i) minority interest related to Operating Partnership units, and (ii) add back of depreciation expense from unconsolidated co-investments and less depreciation attributable to third-party ownership of consolidated co-investments.

(2)  Assumes conversion of all dilutive outstanding operating partnership interests in the Operating Partnership.

The following table sets forth the Company’s cash flows for 2008 and 2007 ($ in thousands).

	For the year
	ended			For the quarter ended
	12/31/08			12/31/2008			9/30/2008			6/30/2008			3/31/2008
Cash flow provided by (used in):
Operating activities	$	181,241		$	38,193		$	53,315		$	42,498		$	47,235
Investing activities		(285,023	)		(41,054	)		(148,104	)		(69,849	)		(26,016	)
Financing activities		135,735			11,366			107,198			37,989			(20,818	)
	For the year
	ended			For the quarter ended
	12/31/07			12/31/07			9/30/07			6/30/07			3/31/07
Cash flow provided by (used in):
Operating activities	$	190,877		$	32,729		$	58,496		$	39,721		$	59,931
Investing activities		(377,870	)		7,915			(169,574	)		(190,573	)		(25,638	)
Financing activities		187,287			(40,927	)		108,730			148,401			(28,917	)

42

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Hedging Activities

The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks.  To accomplish this objective, the Company uses interest rate forward-starting swaps as part of its cash flow hedging strategy.  As of December 31, 2008, we have entered into seven forward-starting swap contracts to mitigate the risk of changes in the interest-related cash outflows on forecasted issuance of long-term debt.  The forward-starting swaps are cash flow hedges of the variability of forecasted interest payments associated with expected financings between 2010 and 2011.  As of December 31, 2008, the Company also had $251.1 million of variable rate indebtedness, of which $183.4 million is subject to interest rate cap protection.   All of our derivative instruments are designated as cash flow hedges, and the Company does not have any fair value hedges as of December 31, 2008.  The following table summarizes the notional amount, carrying value, and estimated fair value of our derivative instruments used to hedge interest rates as of December 31, 2008.   The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rates or market risks.  The table also includes a sensitivity analysis to demonstrate the impact on our derivative instruments from an increase or decrease in 10-year Treasury bill interest rates by 50 basis points, as of December 31, 2008.

					Carrying and
	Notional		Maturity		Estimate Fair			+ 50			- 50
($ in thousands)	Amount		Date Range		Value			Basis Points			Basis Points
Cash flow hedges:
Interest rate forward-starting swaps	$	375,000		2010-2011	$	(73,245	)	$	(58,938	)	$	(96,451	)
Interest rate caps		183,359		2009-2013		116			287			52
Total cash flow hedges	$	558,359		2009-2013	$	(73,129	)	$	(58,651	)	$	(96,399	)

Interest Rate Sensitive Liabilities

The Company is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company’s real estate investment portfolio and operations. The Company’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.

The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows. Management believes that the carrying amounts of its LIBOR debt approximates fair value as of December 31, 2008 because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available to the Company for similar instruments. Management has estimated that the fair value of the Company’s $1.39 billion of fixed rate mortgage notes payable and exchangeable bonds at December 31, 2008 is approximately $1.39 billion based on the terms of existing mortgage notes payable compared to those available in the marketplace.

	For the Years Ended December 31,
	2009			2010(1)			2011(2)			2012			2013			Thereafter			Total		Fair value
($ in thousands)
Fixed rate debt	$	18,279		$	152,412		$	150,760		$	31,759		$	192,813		$	843,498		$	1,389,521	$	1,386,794
Average interest rate		6.9	%		8.1	%		6.4	%		5.4	%		5.8	%		5.3	%
Variable rate LIBOR debt	$	17,563		$	-		$	521		$	-		$	120,000		$	233,042	(3)	$	371,126	$	371,126
Average interest rate		5.6	%		-			4.0	%		-			3.0	%		3.9	%

(1) $150 million covered by three forward-starting swaps with fixed rates ranging from 5.099% to 5.824%, with a settlement date on or before January 1, 2011.

(2) $125 million covered by forward-starting swaps with fixed rates ranging from 5.655% to 5.8795%, with a settlement date on or before February 1, 2011.  $50 million covered by a forward-starting swap with a fixed rate of 5.535%, with a settlement date on or before July, 1 2011.  $50 million covered by a forward-starting swap with a fixed rate of 5.343%, with a settlement date on or before October 1, 2011.  The Company intends to encumber certain unencumbered assets during 2011 in conjunction with the settlement of these forward-starting swaps.

(3) $183.4 million subject to interest rate caps.

The table incorporates only those exposures that exist as of December 31, 2008; it does not consider those exposures or positions that could arise after that date.  As a result, our ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies would depend on the exposures that arise during the period.

43

Item 8. Financial Statements and Supplementary Data

The response to this item is submitted as a separate section of this Form 10-K. See Item 15.

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

Not applicable.

Item 9A. Controls and Procedures

As of December 31, 2008, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 of the Securities Exchange Act of 1934, as amended.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2008, our disclosure controls and procedures are effective in timely alerting management to material information relating to the Company that is required to be included in our periodic filings with the Securities and Exchange Commission.  There were no changes in the Company’s internal control over financial reporting, that occurred during the quarter ended December 31, 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2008, our internal control over financial reporting was effective based on these criteria. Our independent registered public accounting firm, KPMG LLP, has issued an audit report on the effectiveness of our internal control over financial reporting, which is included herein.

Item 9B. Other Information

None.

 PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Item 10 is incorporated by reference from the Company’s definitive proxy statement for its annual stockholders’ meeting to be held on May 5, 2009.

Item 11. Executive Compensation

The information required by Item 11 is incorporated by reference from the Company’s definitive proxy statement for its annual stockholders’ meeting to be held on May 5, 2009.

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

The information required by Item 12 is incorporated by reference from the Company’s definitive proxy statement for its annual stockholders’ meeting to be held on May 5, 2009.

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by Item 13 is incorporated by reference from the Company’s definitive proxy statement for its annual stockholders’ meeting to be held on May 5, 2009.

Item 14. Principal Accounting Fees and Services

The information required by Item 14 is incorporated by reference from the Company’s definitive proxy statement for its annual stockholders’ meeting to be held on May 5, 2009.

44

PART IV

Item 15. Exhibits and Financial Statement Schedules

(A) Financial Statements

(1)	Consolidated Financial Statements	Page
	Reports of Independent Registered Public Accounting Firm	F-1
	Consolidated Balance Sheets: As of December 31, 2008 and 2007	F-4
	Consolidated Statements of Operations: Years ended December 31, 2008, 2007 and 2006	F-5
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income: Years ended December 31, 2008, 2007 and 2006	F-6
	Consolidated Statements of Cash Flows: Years ended December 31, 2008, 2007 and 2006	F-7
	Notes to the Consolidated Financial Statements	F-9
(2)	Financial Statement Schedule - Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2008	F-32
(3)	See the Exhibit Index immediately following the signature page and certifications for a list of exhibits filed or incorporated by reference as part of this report.

(B)  Exhibits

The Company hereby files, as exhibits to this Form 10-K, those exhibits listed on the Exhibit Index referenced in Item 15(A)(3) above.

45

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Essex Property Trust, Inc.:

We have audited Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Essex Property Trust, Inc.’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 Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express an opinion on Essex Property Trust Inc.'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, and testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Essex Property Trust, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

F-1

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008, and our report dated February 26, 2009, expressed an unqualified opinion on those consolidated financial statements.

/S/ KPMG LLP

KPMG LLP

San Francisco, California

February 26, 2009

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Essex Property Trust, Inc.:

We have audited the accompanying consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These consolidated financial statements and the accompanying financial statement schedule III are the responsibility of Essex Property Trust Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements and the accompanying financial statement schedule III 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 Essex Property Trust, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2009 expressed an unqualified opinion on the effectiveness of Essex Property Trust, Inc.’s internal control over financial reporting.

/S/ KPMG LLP

KPMG LLP

San Francisco, California

February 26, 2009

F-3

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2008 and 2007

(Dollars in thousands, except share amounts)

	2008			2007
ASSETS
Real estate:
Rental properties:
Land and land improvements	$	683,876		$	670,494
Buildings and improvements		2,595,912			2,447,265
		3,279,788			3,117,759
Less accumulated depreciation		(640,026	)		(541,987	)
		2,639,762			2,575,772
Real estate under development		272,273			233,445
Co-investments		76,346			64,191
		2,988,381			2,873,408
Cash and cash equivalents-unrestricted		41,909			9,956
Cash and cash equivalents-restricted		12,810			12,527
Marketable securities		23,886			2,017
Funds held by 1031 exchange facilitator		21,424			-
Notes and other receivables		47,637			50,536
Prepaid expenses and other assets		17,430			20,286
Deferred charges, net		11,346			11,593
Total assets	$	3,164,823		$	2,980,323
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable	$	1,468,931		$	1,262,873
Exchangeable bonds		171,716			225,000
Lines of credit		120,000			169,818
Accounts payable and accrued liabilities		38,223			44,749
Construction payable		18,605			5,365
Dividends payable		32,124			28,521
Other liabilities		16,444			15,580
Cash flow hedge liabilities		73,129			10,227
Total liabilities		1,939,172			1,762,133
Commitments and contingencies
Minority interests		234,821			281,960
Cumulative convertible preferred stock; $.0001 par value: 4.875% Series G - 5,980,000 issued and outstanding		145,912			145,912
Stockholders' equity:
Common stock; $.0001 par value, 649,702,178 shares authorized; 26,395,807 and 24,876,737 shares issued and outstanding		2			2
Cumulative redeemable preferred stock; $.0001 par value: 7.8125% Series F - 1,000,000 shares authorized, issued and outstanding, liquidation value		25,000			25,000
Excess stock, $.0001 par value, 330,000,000 shares authorized and no shares issued and outstanding		-			-
Additional paid-in capital		1,026,037			857,109
Distributions in excess of accumulated earnings		(130,697	)		(82,805	)
Accumulated other comprehensive (loss) income		(75,424	)		(8,988	)
Total stockholders' equity		844,918			790,318
Total liabilities and stockholders' equity	$	3,164,823		$	2,980,323

See accompanying notes to consolidated financial statements.

F-4

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 2008, 2007 and 2006

(Dollars in thousands, except per share and share amounts)

	2008			2007			2006
Revenues:
Rental and other property	$	407,729		$	373,959		$	329,072
Management and other fees from affiliates		5,166			5,090			5,030
		412,895			379,049			334,102
Expenses:
Property operating, excluding real estate taxes		100,469			91,369			82,428
Real estate taxes		33,492			31,649			28,150
Depreciation and amortization		110,860			97,647			77,130
Interest		78,203			78,938			72,272
Amortization of deferred financing costs		2,883			3,055			2,745
General and administrative		26,984			26,273			22,234
Other expenses		1,350			800			1,770
		354,241			329,731			286,729
Earnings from operations		58,654			49,318			47,373
Gain on sale of real estate		4,578			-			-
Gain on early retirement of debt		3,517			-			-
Interest and other income		11,343			10,310			6,176
Equity income (loss) in co-investments		7,820			3,120			(1,503	)
Minority interests		(22,395	)		(19,999	)		(18,783	)
Income before discontinued operations and tax provision		63,517			42,749			33,263
Income tax provision		-			(400	)		(525	)
Income before discontinued operations		63,517			42,349			32,738
Income from discontinued operations (net of minority interests)		1,837			73,289			30,010
Net income		65,354			115,638			62,748
Dividends to preferred stockholders		(9,241	)		(9,174	)		(5,145	)
Net income available to common stockholders	$	56,113		$	106,464		$	57,603
Per share data:
Basic:
Income before discontinued operations available to common stockholders	$	2.15		$	1.35		$	1.20
Income from discontinued operations		0.08			2.99			1.30
Net income available to common stockholders	$	2.23		$	4.34		$	2.50
Weighted average number of shares outstanding during the year		25,205,367			24,548,003			23,081,682
Diluted:
Income before discontinued operations available to common stockholders	$	2.14		$	1.32		$	1.17
Income from discontinued operations		0.07			2.92			1.28
Net income available to common stockholders	$	2.21		$	4.24		$	2.45
Weighted average number of shares outstanding during the year		25,346,520			25,100,974			23,551,042

See accompanying notes to consolidated financial statements.

F-5

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

Years ended December 31, 2008, 2007 and 2006

(Dollars and shares in thousands)

													Distributions			Accumulated
	Series F									Additional			in excess of			other
	Preferred stock				Common stock					paid-in			accumulated			comprehensive
	Shares		Amount		Shares			Amount		capital			earnings			(loss) income			Total
Balances at December 31, 2005		1,000	$	25,000		22,858		$	2	$	632,646		$	(77,341	)	$	660		$	580,967
Comprehensive income:
Net income		-		-		-			-		-			62,748			-			62,748
Change in fair value of cash flow hedges		-		-		-			-		-			-			(2,933	)		(2,933	)
Comprehensive (loss) income																				59,815
Issuance of common stock under stock-based compensation plans		-		-		92			-		5,575			-			-			5,575
Issuance of common stock		-		-		427			-		48,273			-			-			48,273
Reallocation of minority interest		-		-		39			-		443			-			-			443
Dividends declared		-		-		-			-		-			(82,864	)		-			(82,864	)
Balances at December 31, 2006		1,000		25,000		23,416			2		686,937			(97,457	)		(2,273	)		612,209
Comprehensive income:
Net income		-		-		-			-		-			115,638			-			115,638
Settlement of forward-starting swap		-		-		-			-		-			-			1,311			1,311
Change in fair value of cash flow hedges and amortization of gain on settlement of swap		-		-		-			-		-			-			(8,026	)		(8,026	)
Comprehensive (loss) income																				108,923
Issuance of common stock under stock-based compensation plans		-		-		87			-		5,648			-			-			5,648
Issuance of common stock		-		-		1,671			-		213,672			-			-			213,672
Retirement of common stock		-		-		(323	)		-		(32,644	)		-			-			(32,644	)
Conversion/reallocation of minority interest		-		-		26			-		(16,504	)		-			-			(16,504	)
Dividends declared		-		-		-			-		-			(100,986	)		-			(100,986	)
Balances at December 31, 2007		1,000		25,000		24,877			2		857,109			(82,805	)		(8,988	)		790,318
Comprehensive income:
Net income		-		-		-			-		-			65,354			-			65,354
Change in fair value of cash flow hedges and amortization of settlement of swaps		-		-		-			-		-			-			(66,436	)		(66,436	)
Comprehensive (loss) income																				(1,082	)
Issuance of common stock under stock-based compensation plans		-		-		80			-		6,065			-			-			6,065
Issuance of common stock		-		-		1,209			-		142,751			-			-			142,751
Issuance of common stock in conjunction with retirement of Series D Preferred		-		-		363			-		36,625			-			-			36,625
Retirement of common stock		-		-		(143	)		-		(13,723	)		-			-			(13,723	)
Conversion/reallocation of minority interest		-		-		10			-		(2,790	)		-			-			(2,790	)
Dividends declared		-		-		-			-		-			(113,246	)		-			(113,246	)
Balances at December 31, 2008		1,000	$	25,000		26,396		$	2	$	1,026,037		$	(130,697	)	$	(75,424	)	$	844,918

See accompanying notes to consolidated financial statements.

F-6

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2008, 2007 and 2006

(Dollars in thousands)

	2008			2007			2006
Cash flows from operating activities:
Net income	$	65,354		$	115,638		$	62,748
Minority interests		22,538			26,508			22,738
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on the sales of real estate		(7,995	)		(66,559	)		(22,096	)
The Company's share of gain on the sales of co-investments assets		-			(2,046	)		-
Gain on early retirement of debt		(3,517	)		-			-
Impairment loss and reserve for loan loss		650			500			800
Equity (income) loss of co-investments		(7,644	)		(320	)		1,503
Depreciation and amortization		110,860			100,389			83,036
Amortization and write-off of deferred financing costs		3,001			3,071			2,743
Changes in operating assets and liabilities:
Stock-based compensation		3,940			-			-
Prepaid expenses and other assets		(1,791	)		2,458			493
Accounts payable and accrued liabilities		(5,019	)		9,984			6,162
Other liabilities		864			1,254			1,808
Net cash provided by operating activities		181,241			190,877			159,935
Cash flows from investing activities:
Additions to real estate:
Acquisitions of real estate		(87,533	)		(336,312	)		(199,107	)
Improvements to recent acquisitions		(7,048	)		(5,145	)		(5,238	)
Redevelopment		(48,941	)		(38,618	)		(25,609	)
Revenue generating capital expenditures		(6,537	)		(11,044	)		(4,788	)
Non-revenue generating capital expenditures		(25,205	)		(22,620	)		(19,120	)
Additions to real estate under development		(124,126	)		(142,967	)		(68,362	)
Dispositions of real estate		58,078			218,069			38,092
Changes in restricted cash and refundable deposits		(20,515	)		467			4,371
Purchases of marketable securities		(83,261	)		(7,776	)		-
Sales of marketable securities		60,915			5,759			-
Advances under notes and other receivables		(2,501	)		(36,145	)		(26,125	)
Collections of notes and other receivables		5,695			3,724			21,234
Contributions to co-investments		(14,346	)		(21,647	)		(38,395	)
Distributions from co-investments		10,302			16,385			10,171
Net cash used in investing activities		(285,023	)		(377,870	)		(312,876	)
Cash flows from financing activities:
Borrowings under mortgage and other notes payable and lines of credit		896,471			866,397			324,228
Repayment of mortgage and other notes payable and lines of credit		(682,069	)		(678,383	)		(266,965	)
Additions to deferred charges		(3,264	)		(1,800	)		(587	)
(Payments) proceeds from settlement of derivative instruments		(3,083	)		1,311			-
Retirement of exchangeable bonds		(49,258	)		-			-
Retirement of common stock		(13,723	)		(32,644	)		-
Retirement of preferred units, Series D		(10,065	)		-			-
Net proceeds from stock options exercised		4,884			4,321			4,287
Net proceeds from issuance of common stock		142,751			213,672			48,273
Net proceeds from issuance of preferred stock, Series G		-			-			145,912
Contributions from minority interest partners		-			4,000			-
Distributions to minority interest partners		(24,214	)		(82,715	)		(21,657	)
Redemption of minority interest limited partnership units		(13,205	)		(9,233	)		(4,779	)
Dividends paid		(109,490	)		(97,639	)		(80,446	)
Net cash provided by financing activities		135,735			187,287			148,266
Net increase (decrease) in cash and cash equivalents		31,953			294			(4,675	)
Cash and cash equivalents at beginning of year		9,956			9,662			14,337
Cash and cash equivalents at end of year	$	41,909		$	9,956		$	9,662

(Continued)

F-7

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2008, 2007 and 2006

(Dollars in thousands)

	2008		2007		2006
Supplemental disclosure of cash flow information:
Cash paid for interest, net of $10,908, $5,134 and $3,913 capitalized in 2008, 2007 and 2006, respectively	$	78,343	$	79,531	$	72,599
Supplemental disclosure of noncash investing and financing activities:
Mortgage notes assumed by buyer in connection with sales of real estate	$	59,068		-		-
Mortgage notes assumed in connection with purchases of real estate		-	$	43,839		-
Land contributed by a partner in a consolidated joint venture	$	10,500	$	22,200		-
Issuance of DownREIT units in connection with purchase of real estate		-	$	7,067		-
Issuance of Operating Partnership units in connection with the purchase of real estate		-		-	$	7,704
Redemption of Series D Units for common stock	$	36,625		-		-
Accrual of dividends	$	32,124	$	28,521	$	24,910
Change in value of cash flow hedge liabilities	$	64,201	$	8,026	$	2,933
Reclassification between stockholder's equity and minority interests resulting from conversions and equity transactions	$	2,790	$	16,504	$	443
Change in construction payable	$	13,240	$	8,703	$	4,804

See accompanying notes to consolidated financial statements.

F-8

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008, 2007 and 2006

(1) Organization

The accompanying consolidated financial statements present the accounts of Essex Property Trust, Inc. (the “Company”), which include the accounts of the Company and Essex Portfolio, L.P. (the Operating Partnership, which holds the operating assets of the Company).  The Company was incorporated in the state of Maryland in March 1994. On June 13, 1994, the Company commenced operations with the completion of an initial public offering (the “Offering”) in which it issued 6,275,000 shares of common stock at $19.50 per share.  The net proceeds of the Offering of $112.1 million were used to acquire a 77.2% general partnership interest in the Operating Partnership.

The Company has a 91.6% general partner interest and the limited partners own an 8.4% interest in the Operating Partnership as of December 31, 2008.  The limited partners may convert their 2,162,151 Operating Partnership units into an equivalent number of shares of common stock.  The Company has reserved shares of common stock for such conversions. These conversion rights may be exercised by the limited partners at any time through 2024.

As of December 31, 2008, the Company owned or had ownership interests in 134 apartment communities, (aggregating 26,992 units) (collectively, the “Communities”, and individually, a “Community”) and six office buildings and six active development projects (collectively, the “Portfolio”).  The Communities are located in Southern California (Los Angeles, Orange, Riverside, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan area.

(2) Summary of Critical and Significant Accounting Policies

(a) Principles of Consolidation

The accounts of the Company, its controlled subsidiaries and the variable interest entities (“VIEs”) in which it is the primary beneficiary are consolidated in the accompanying financial statements. All significant inter-company accounts and transactions have been eliminated.

In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46 Revised (“FIN 46R”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”, the Company consolidates 19 DownREIT limited partnerships (comprising twelve communities), a development project, an office building that is subject to loans made by the Company, and prior to the sale of the property during 2007, the buildings and improvements that were owned by a third-party subject to a ground lease on land that was owned by the Company.  The Company consolidates these entities because it is deemed the primary beneficiary under FIN 46R.  The consolidated total assets and liabilities related to these VIEs, net of intercompany eliminations, were approximately $256.0 million and $169.1 million, respectively, as of December 31, 2008 and $222.7 million and $163.9million, respectively, as of December 31, 2007.

The DownREIT entities that collectively own twelve apartment communities were investments made under arrangements whereby Essex Management Company (“EMC”) became the general partner, the Operating Partnership became a special limited partner, and the other limited partners were granted rights of redemption for their interests. Such limited partners can request to be redeemed and the Company can elect to redeem their rights for cash or by issuing shares of its common stock on a one share per unit basis. Conversion values will be based on the market value of the Company's common stock at the time of redemption multiplied by the number of units stipulated under the above arrangements. The other limited partners receive distributions based on the Company's current dividend rate times the number of units held. As of December 31, 2008, the maximum number of shares that could be issued to meet redemption of these DownREIT entities is 1,148,510.  As of December 31, 2008 and 2007, the carrying value of the other limited partners' interests is presented at their historical cost and is classified within minority interests in the accompanying consolidated balance sheets.

Minority interests include the 8.4% and 9.1% limited partner interests in the Operating Partnership not held by the Company at December 31, 2008 and 2007, respectively. The Company periodically adjusts the carrying value of minority interest in the Operating Partnership to reflect its share of the book value of the Operating Partnership. Such adjustments are recorded to stockholders’ equity as a reallocation of minority interest in the Operating Partnership in the accompanying consolidated statements of stockholders’ equity.  The minority interest balance also includes the Operating Partnership’s cumulative redeemable preferred units (see Note 11) and the Operating Partnership’s long term incentive plan units (see Note 13).

F-9

Interest holders in VIEs consolidated by the Company are allocated a priority of net income equal to the cash payments made to those interest holders for services rendered or distributions from cash flow.  The remaining results of operations are generally allocated to the Company.

As of December 31, 2007, the Company had two VIE’s of which it was not deemed to be the primary beneficiary.  Total assets and liabilities of these entities were approximately $71.7 million and $58.3 million as of December 31, 2007.  As of December 31, 2008, the Company did not have any VIE’s of which it was not deemed to be the primary beneficiary.

(b) Real Estate Rental Properties

Significant expenditures, which improve or extend the life of an asset and have a useful life of greater than one year, are capitalized.  Operating real estate assets are stated at cost and consist of land, buildings and improvements, furniture, fixtures and equipment, and other costs incurred during their development, redevelopment and acquisition.  Expenditures for maintenance and repairs are charged to expense as incurred.

The depreciable life of various categories of fixed assets is as follows:
Computer software and equipment	3 - 5 years
Interior unit improvements	5 years
Land improvements and certain exterior components of real property	10 years
Real estate structures	30 years

In accordance with SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects,” the Company capitalizes predevelopment costs incurred in the pursuit of new development opportunities, in the negotiation process, as well as the entitlement process with a high likelihood of the projects becoming development activities.  Predevelopment costs for which a future development is no longer considered probable are charged to expense.  All costs incurred with the predevelopment, development or redevelopment of real estate assets are capitalized if they are clearly associated with the predevelopment, development or redevelopment of rental property, or are associated with the construction or expansion of real property.  Such capitalized costs include land, land improvements, allocated costs of the Company’s project management staff, construction costs, as well as interest and related loan fees, property taxes and insurance.  Capitalization begins for predevelopment, development, and redevelopment projects when activity commences.  Capitalization ends when the apartment home is completed and the property is available for a new resident.

In accordance with FASB’s Statement of Financial Accounting Standard No. 141 (“SFAS No. 141”) “Business Combinations,” the Company allocates the purchase price of real estate to land and building, and identifiable intangible assets, such as the value of above, below and at-market in-place leases. The values of the above and below market leases are amortized and recorded as either a decrease (in the case of above market leases) or an increase (in the case of below market leases) to rental revenue over the remaining term of the associated leases acquired.  The value of acquired at-market leases are amortized to expense over the term the Company expects to retain the acquired tenant, which is generally 20 months.

In accordance with SFAS No. 141 and its applicability to acquired in-place leases, we perform the following evaluation for communities we acquire:

(1) estimate the value of the real estate “as if vacant” as of the acquisition date;  

(2) allocate that value among land and building;      

(3) compute the value of the difference between the “as if vacant” value and the purchase price, which will represent the total intangible assets;  

(4) allocate the value of the above and below market leases to the intangible assets and determine the associated life of the above market/ below market leases;

(5) allocate the remaining intangible value to the at-market in-place leases or customer relationships, if any, and the associated lives of these assets.

F-10

Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment or held for sale may not be fully recoverable, the carrying amount will be evaluated for impairment. If the sum of the property’s expected future cash flows (undiscounted and without interest charges) is less than the carrying amount (including intangible assets) of the property, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property.  Such fair value of a property is determined using conventional real estate valuation methods, such as discounted cash flow, the property’s unleveraged yield in comparison to the unleveraged yields and sales prices of similar communities that have been recently sold, and other third party information, if available.  Communities held for sale are carried at the lower of cost and fair value less estimated costs to sell.

During the second quarter of 2006, the Company recorded an impairment loss of $0.8 million resulting from write-down of a property’s value in Houston, Texas, to reduce the property’s carrying value to its estimated fair value.  The impairment charges are recorded in other expenses in the accompanying consolidated statements of operations.

In the normal course of business, the Company will receive offers for sale of its Communities, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction.  It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process.  The Company classifies real estate as "held for sale" when all criteria under Statement of Financial Accounting Standard No. 144 (“SFAS No. 144”), "Accounting for the Impairment or Disposal of Long-Lived Assets" have been met.  In accordance with SFAS No. 144, the Company presents income and gains/losses on communities sold as discontinued operations net of minority interests. Real estate investments accounted for under the equity method of accounting remain classified in continuing operations upon disposition.  (See Note 6 for a description of the Company’s discontinued operations for 2008, 2007, and 2006).

(c) Co-investments

The Company owns investments in joint ventures (“co-investments”) in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with FIN 46R or Emerging Issues Task Force Consensus No. 04-05 (“EITF 04-05”), “Determing Whether a General Partner or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.”  Therefore, the Company accounts for these investments using the equity method of accounting. Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company’s equity in earnings less distributions received and the Company’s share of losses.

A majority of these co-investments compensate the Company for its asset management services and some of these investments may provide promote distributions if certain financial return benchmarks are achieved.  Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible. Asset management fees and promote fees are reflected in interest and other and equity income in co-investments, respectively, in the accompanying consolidated statements of operations.

(d) Revenues and Gains on Sale of Real Estate

Revenues from tenants renting or leasing apartment units are recorded when due from tenants and are recognized monthly as they are earned, which is not materially different than on a straight-line basis.  Units are rented under short-term leases (generally, lease terms of 6 to 12 months) and may provide no rent for one or two months, depending on the market conditions and leasing practices of the Company’s competitors in each sub-market at the time the leases are executed.   Revenues from tenants leasing commercial space are recorded on a straight-line basis over the life of the respective lease.

The Company recognizes gains on sales of real estate when a contract is in place, a closing has taken place, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property and the Company does not have a substantial continuing involvement in the property.

(e) Cash Equivalents and Restricted Cash

Highly liquid investments with original maturities of three months or less when purchased are classified as cash equivalents. Restricted cash balances relate primarily to reserve requirements for capital replacement at certain Communities in connection with the Company’s mortgage debt.

F-11

(f)  Marketable Securities

Marketable securities consist primarily of U.S. treasury or agency securities and REIT unsecured exchangeable bonds.  The Company has classified U.S. treasury and agency securities as held-to-maturity securities, and the Company reports the securities at amortized cost.  The Company has classified the REIT exchangeable bonds as available for sale and the Company reports these securities at fair value, based on quoted market prices (Level 1 as defined by FAS 157 which is discussed in paragraph (i) and (o) below), and any unrealized gain or loss is recorded as other comprehensive income (loss).  Realized gains and losses and interest income are included in interest and other income on the consolidated statement of operations.  Amortization of unearned discounts on both held to maturity and available for sale securities is included in interest income.

(g) Notes Receivable

Notes receivable relate to real estate financing arrangements including mezzanine and bridge loans that exceed one year.  Amounts outstanding under the notes bear interest at a rate based on the borrower’s credit quality and are recorded at face value. Interest is recognized over the life of the note. The Company requires collateral for the notes.

Each note is analyzed to determine if it is impaired pursuant to FAS No. 114, “Accounting by Creditors for Impairment of a Loan”.  A note is impaired if it is probable that the Company will not collect all principal and interest contractually due.  The Company does not accrue interest when a note is considered impaired. All cash receipts on impaired notes are applied to reduce the principal amount of such notes until the principal has been recovered and, thereafter, are recognized as interest income.

(h) Interest and Other Income

Other income includes rental income from office buildings classified as real estate under development.  Other income also includes rental income for RV parks and a manufactured housing community, all of which were sold during 2008. Total interest and other income are comprised of the following for the years ended December 31:

($ in thousands)	2008		2007		2006
Interest income	$	4,817	$	3,947	$	2,719
Rental income		6,526		6,363		1,570
Gain on sale of marketable securities		-		-		1,687
Other		-		-		200
	$	11,343	$	10,310	$	6,176

(i) Interest Rate Protection, Swap, and Forward Contracts

The Company adopted FAS 157 as of January 1, 2008, as discussed below in paragraph (o).  The Company values forward-starting interest rate swaps at fair value, and based on the fair value hierarchy of valuation techniques, the Company has elected to use fair values determined by Level 2.  Level 2 valuation methodology is determined based on inputs other than quoted prices in active markets for identical assets or liabilities the Company has the ability to access as included in Level 1 valuation methodology that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.  As of December 31, 2008, forward-starting interest rates swaps are the only assets and liabilities that the Company measured at fair value based on the FAS 157 fair valuation methodology.

The Company has from time to time used interest rate protection, swap and forward contracts to manage its interest rate exposure on current or identified future debt transactions. The Company accounts for such derivative contracts using SFAS No. 133.  Under SFAS No. 133, derivative instruments are required to be included in the balance sheet at fair value. The changes in the fair value of the derivatives are accounted for depending on the use of the derivative and whether it has been designated and qualifies as a part of a hedging relationship.  The Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.   Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.  Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

F-12

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings.  For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings.  The Company assesses the initial and ongoing effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

For derivatives not designated as hedges, changes in fair value are recognized in earnings.  All existing instruments are considered cash flow hedges, and the Company does not have any fair value hedges as of December 31, 2008. The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks.  To accomplish this objective, the Company primarily uses interest rated forward-starting swaps as part of its cash flow hedging strategy.

Amounts reported in accumulated other comprehensive (loss) income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s hedged debt.  The Company is hedging its exposure to the variability in future cash flows for a portion of its forecasted transactions over a maximum period of 35 months as of December 31, 2008.

(j) Deferred Charges

Deferred charges are principally comprised of loan fees and related costs which are amortized over the terms of the related borrowing in a manner which approximates the effective interest method.

(k) Income Taxes

Generally in any year in which the Company qualifies as a real estate investment trust (“REIT”) under the Internal Revenue Code (the “IRC”), it is not subject to federal income tax on that portion of its income that it distributes to stockholders. No provision for federal income taxes, other than the taxable REIT subsidiaries discussed below has been made in the accompanying consolidated financial statements for each of the three years in the period ended December 31, 2008, as the Company has elected to be and believes it qualifies under the IRC as a REIT and has made distributions during the periods in amounts to preclude the Company from paying federal income tax.

In order to maintain compliance with REIT tax rules, the Company utilizes taxable REIT subsidiariesfor various revenue generating or investment activities. The taxable REIT subsidiaries are consolidated by the Company. The activities and tax related provisions, assets and liabilities are not material.

The status of cash dividends distributed for the years ended December 31, 2008, 2007, and 2006 related to common stock, Series F, and Series G preferred stock are classified for tax purposes as follows:

	2008			2007			2006
Ordinary income		98.95	%		75.65	%		100.00	%
Capital gains		1.05	%		24.35	%		0.00	%
Return of capital		0.00	%		0.00	%		0.00	%
		100.00	%		100.00	%		100.00	%

(l) Preferred Stock

The Company classifies its Series G Cumulative Convertible Preferred Stock (“ Series G Preferred Stock”)  based on Emerging Issues Task Force Topic D-98, (“EITF D-98”) “Classification and Measurement of Redeemable Securities.” The Series G Preferred Stock contains fundamental change provisions that allow the holder to redeem the preferred stock for cash if certain events occur.  The redemption under these provisions is not solely within the Company’s control, thus the Company has classified the Series G Preferred Stock as temporary equity in the accompanying consolidated balance sheets.

F-13

The Company classifies its Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”) based on EITF D-98.  The Series F Preferred Stock contains fundamental change provisions that allow the holder to redeem the preferred stock for cash if certain events occur.  The redemption under these provisions is within the Company’s control, and thus the Company has classified the Series F Preferred Stock as permanent equity in the accompanying consolidated balance sheets.

(m) Stock-based Compensation

The Company accounts for share based compensation using the fair value method of accounting.  The estimated fair value of stock options granted by the Company is being amortized over the vesting period of the stock options.  The estimated grant date fair values of the long term incentive plan units (discussed in Note 13) are being amortized over the expected service periods.

(n) Accounting Estimates and Reclassifications

The preparation of consolidated financial statements, in accordance with U.S. generally accepted accounting principles (“GAAP”), requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate communities, its investments in and advances to joint ventures and affiliates, its notes receivable and its qualification as a REIT.  The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.

Reclassifications for discontinued operations have been made to prior year statements of operations balances in order to conform to the current year presentation.  Such reclassifications have no impact on reported earnings, total assets or total liabilities.

(o) New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“FAS 157”).  FAS 157 provides guidance for using fair value to measure assets and liabilities.  FAS 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. This statement is effective in fiscal years beginning after November 15, 2007.  The adoption of this standard on January 1, 2008 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS No. 159”).  FAS 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value.  This Statement is effective for fiscal years beginning after November 15, 2007.  Through December 31, 2008, The Company has not elected to measure any eligible financial assets and liabilities at fair value.

In December 2007, the FASB issued revised FAS No. 141, “Business Combinations” (“FAS 141(R)”).  FAS141(R) 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; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  FAS 141(R) is 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.  Management is currently evaluating the impact FAS 141(R) will have on the Company’s accounting for future business combinations. 

In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”). FAS 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently; when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value; and entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  FAS 160 is effective for fiscal years beginning on or after December 15, 2008. Management is currently evaluating the impact FAS 160 will have on the Company’s consolidated financial statements.

F-14

In May 2008, the FASB issued FASB staff position APB 14-1, “Accounting for Convertible Debt Instruments That May be Settled in cash upon Conversion (Including Partial Cash Settlement)” (“APB 14-1”).  APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) upon conversion separately account for the liability (debt) and equity (conversion option) components of the instruments in a manner that reflects the issuer’s nonconvertible debt borrowing rate.  APB 14-1 requires the initial debt proceeds from the sale of a company’s convertible debt instrument to be allocated between the liability component and the equity component.  The resulting debt discount will be amortized over the period during which the debt is expected to be outstanding (i.e., through the first optional redemption dates) as additional non-cash interest expense.  APB 14-1 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Earlier adoption is prohibited and retroactive application is required for all periods presented.  The interest expense from the Company’s $225.0 million exchangeable bonds (the “Bonds”) with a coupon rate of 3.625% due November 2025, which were issued in the fourth quarter of 2005, will be impacted by APB 14-1.  During the fourth quarter of 2008, the Company repurchased $53.3 million of the Bonds, and during 2009 the Company repurchased an additional $71.3 million of the Bonds, thus the outstanding balance as of February 2009 is $100.4 million.  Based on the Company's understanding of the application of APB 14-1, this will result in an additional non-cash interest expense of additional interest of $3.9 million for 2007, and $4.1 million for 2008 and will restate the gain on redemption of the bonds from $3.5 million to $4.1 million in 2008.  The Company will adopt APB 14-1 as of January 1, 2009, and the Company will present prior period comparative results reflecting the impact of APB 14-1.

(3) Real Estate Investments

(a) Sales of Real Estate investments

In the fourth quarter of 2008, the Company sold Coral Gardens, a 200-unit property located in El Cajon, California for $19.8 million resulting in a gain of $3.4 million.   The Company also sold Green Valley, a manufactured housing community located in Vista, California for $8.9 million resulting in a gain of $1.8 million.

In the third quarter of 2008, the Company sold Cardiff by the Sea Apartments, located in Cardiff, California for $71.0 million resulting in a gain of $46,000 and St. Cloud Apartments, located in Houston, Texas for $8.8 million resulting in no gain on sale.  The Company also sold the Circle recreational vehicle (“RV”) park located in El Cajon, California for $5.4 million resulting in a gain of $0.9 million, and the Company sold the Vacationer RV park located in El Cajon, California for $4.6 million.  The gain on sale of $0.8 million resulting from the sale of Vacationer was deferred due to the fact the Company loaned $4.1 million to the buyer at a fixed rate of 6.5% due in August 2011.

In December 2007, the Company sold four communities (875-units) in the Portland metropolitan area for $97.5 million, resulting in a gain of $47.6 million net of minority interest.  The proceeds from the sale were used in a tax-free reverse exchange for the purchase of Mill Creek at Windermere in September 2007.

In February 2007, the Company sold the joint venture property City Heights Apartments, a 687-unit community located in Los Angeles, California for $120 million.  The Company’s share of the proceeds from the sale totaled $33.9 million, resulting in a $13.7 million gain on sale to the Company, and an additional $10.3 million for fees from the joint venture partner, both of which are included in income from discontinued operations.

(b) Co-investments

The Company has joint venture investments in a number of co-investments which are accounted for under the equity method.  The joint ventures own and operate apartment communities.

Essex Apartment Value Fund, L.P. (“Fund I”), was an investment fund organized by the Company in 2001 to add value through rental growth and asset appreciation, utilizing the Company’s acquisition, development, redevelopment and asset management capabilities.  Fund I was considered fully invested in 2003. The Company was a 1% general partner and was a 20.4% limited partner.  Fund I acquired or developed ownership interests in 19 apartment communities, representing 5,406 apartment units.   Fund I sold its apartment communities during 2004 and 2005.  During 2006, the Company recorded a $1.2 million in promote income related to the dispositions of assets in 2005, and during 2007 the Company recorded $0.3 million in gain on its investment and $0.3 million in promote income related to the final liquidation of Fund I assets.

F-15

Essex Apartment Value Fund II, L.P. (“Fund II”), has eight institutional investors, and the Company, with combined partner equity commitments of $265.9 million which are fully contributed as of December 31, 2008.  The Company contributed $75.0 million to Fund II, which represents a 28.2% interest as general partner and limited partner.  Fund II utilized debt as leverage equal to approximately 55% of the estimated value of the underlying real estate.  Fund II invested in apartment communities in the Company’s targeted West Coast markets with an emphasis on investment opportunities in the Seattle metropolitan area and the San Francisco Bay Area.  As of October 2006, Fund II was fully invested and closed for any future acquisitions or development.  As of December 31, 2008, Fund II owned eleven apartment communities, one development project completed but not yet stabilized and two development projects.  No communities have been sold by Fund II.  Consistent with Fund I, the Company records revenue for its asset management, property management, development and redevelopment services when earned, and promote income when realized if Fund II exceeds certain financial return benchmarks.

In August 2005, the Company purchased 500,000 Series A Preferred shares in Multifamily Technology Solutions, Inc. (“MTS”).  The Company owns less than 5% of the voting stock of MTS and therefore accounts for this investment on the cost method.

During 2006, the Company made a contribution to a development with a joint venture partner totaling $3.4 million, and made additional contributions to this joint venture of $1.3 million and $0.7 million during 2008 and 2007, respectively.  The development is located in Southern California and as of December 31, 2008 was still in the predevelopment stage.

During March 2007, the Mountain Vista Apartments, LLC, a joint venture that owns the Waterstone at Fremont apartments in Fremont, California, was recapitalized with the inclusion of a new joint venture partner, and as part of this transaction the Company received $7.7 million in net distributions from the joint venture.  The Company accounted for this transaction as a partial sale of the Company’s investment and recorded a gain of $2.0 million which is included in equity income in co-investments as a result of this transaction.  As of December 31, 2007, the Company’s carrying value of its remaining investment in the amended and restated Mountain Vista Apartments, LLC joint venture was $1.2 million.  During January 2008, the Company collected $7.5 million in connection with the return of its remaining interest in the joint venture and recognized income of $6.3 million from its preferred interest.

	2008		2007
Investments in joint ventures accounted for under the equity method of accounting:
($ in thousands)
Limited partnership interest of 27.2% and general partner interest of 1% in Essex Apartment Value Fund II, L.P (Fund II)	$	70,469	$	58,419
Preferred limited partnership interest in Mountain Vista Apartments LLC (A)		-		1,182
Development joint venture		5,377		4,090
		75,846		63,691
Investments accounted for under the cost method of accounting:
Series A Preferred Stock interest in Multifamily Technology Solutions, Inc		500		500
Total investments	$	76,346	$	64,191

(A) The investment is held in an entity that includes an affiliate of The Marcus & Millichap Company (“TMMC”), and is the general partner.  TMMC’s Chairman is also the Chairman of the Company.

F-16

The combined summarized financial information of co-investments, which are accounted for under the equity method, is as follows:

	December 31,
($ in thousands)	2008		2007
Balance sheets:
Rental properties and real estate under development	$	526,906	$	614,266
Other assets		40,877		16,184
Total assets	$	567,783	$	630,450
Mortgage notes payable	$	308,853	$	322,615
Other liabilities		8,481		24,014
Partners' equity		250,449		283,821
Total liabilities and partners' equity	$	567,783	$	630,450
Company's share of equity	$	75,846	$	63,691

	Years ended
	December 31,
	2008			2007			2006
Statements of operations:
Property revenues	$	46,879		$	46,559		$	43,031
Property operating expenses		(17,621	)		(18,551	)		(20,464	)
Net operating income		29,258			28,008			22,567
Interest expense		(12,210	)		(13,888	)		(17,000	)
Depreciation and amortization		(13,926	)		(14,116	)		(12,395	)
Net income (loss)	$	3,122		$	4		$	(6,828	)
Company's share of operating net income (loss)		1,502			1,074			(1,503	)
Company's preferred interest/gain - Mt  Vista		6,318			2,046			-
Company's share of net income (loss)	$	7,820		$	3,120		$	(1,503	)

(c) Real Estate Under Development

The Company defines real estate under development activities as new communities that are in various stages of active development, or the community is in lease-up and phases of the project are not completed.   As of December 31, 2008, excluding the two development projects owned by Fund II, the Company had four development projects comprised of 988 units for an estimated cost of $410.0 million, of which $234.6 million remains to be expended.

The Company defines the predevelopment pipeline as new communities in negotiation or in the entitlement process with a high likelihood of becoming development activities.  As of December 31, 2008, the Company had two development communities aggregating 820 units that were classified as predevelopment projects.  The estimated total cost of the predevelopment pipeline at December 31, 2008 is $242.4 million, of which $169.4 million remains to be expended.  The Company owns land parcels held for future development aggregating 392 units as of December 31, 2008.  The Company had incurred $23.9 million in costs related to these four land parcels as of December 31, 2008.

F-17

(4) Notes and Other Receivables

Notes receivables, secured by real estate, and other receivables consist of the following as of December 31, 2008 and 2007:

	2008		2007
($ in thousands)
Note receivable, secured, bearing interest at LIBOR + 4.65%, due July 2008	$	-	$	5,448
Note receivable, secured, bearing interest at LIBOR + 3.38%, due February 2009		12,748		10,999
Note receivable, secured, bearing interest at LIBOR + 2.95%, due April 2009		14,043		14,010
Note receivable, secured, bearing interest at LIBOR + 3.69%, due June 2009		7,325		7,346
Note receivable, secured, bearing interest at LIBOR + 4.75%, due March 2011		7,294		7,128
Note receivable, secured, bearing interest at 6.5%, due August 2011		4,070		-
Note receivable, secured, bearing interest at 8.0%, due November 2010		965		-
Other receivables		1,192		5,605
	$	47,637	$	50,536

The Company originated a loan to the owners of an apartment community under development in Vancouver, Washington, with a maturity date of February 2009.  The loan provided funding for the completion of the 146-unit apartment community.  In July 2008, the Company ceased recording interest income and issued a notice of monetary default to the borrower, and in November 2008 the borrower filed for bankruptcy.  During the fourth quarter 2008, the Company recorded a loan loss reserve in the amount of $0.7 million on this impaired note receivable, which is approximately equal to the estimated fair value less holding and selling costs of the apartment community as of December 31, 2008.

During the fourth quarter of 2007, the Company recorded a loan loss reserve in the amount of $0.5 million on another impaired note receivable, which was approximately equal to accrued and unpaid interest recorded from inception of the note through June 30, 2007.  During 2008, this note receivable was repaid.

(5) Related Party Transactions

Management and other fees from affiliates includes management, promote, development and redevelopment fees totaling $5.2 million, $5.1 million, and $5.0 million for the years ended December 31, 2008, 2007, and 2006, respectively.

The Company’s Chairman, George Marcus, is the Chairman of TMMC, which owns a real estate brokerage firm.  During the years ended December 31, 2008, 2007, and 2006, the Company paid brokerage commissions totaling $0.2 million, $1.3 million, and $0.8 million, respectively to TMMC on the purchase and sales of real estate.

Mr. Marcus was an investor in the two partnerships that owned the Thomas Jefferson Apartments that was acquired by the Company during September 2007 in a DownREIT transaction.  In conjunction with that transaction, Mr. Marcus received 7,006 DownREIT units in exchange for his partnership interests in those apartments.  The Company’s independent Board of Directors approved the acquisition of the apartment community.

Mr. Marcus is the Chairman of the Urban Housing Group (“UHG”), a subsidiary of TMMC.  During December 2007, UHG sold the rights to the Company to acquire the Fourth Street development land parcel in Berkeley, California for $2.8 million.  The amount paid to the Urban Housing Group included reimbursement for the costs incurred by UHG to entitle the property for development.  The Company’s independent Board of Directors approved the acquisition of the rights to the land parcel.

F-18

(6) Discontinued Operations

In the fourth quarter of 2008, the Company sold Coral Gardens, a 200-unit property located in El Cajon, California for $19.8 million resulting in a gain of $3.4 million.

In the third quarter of 2008, the Company sold Cardiff by the Sea Apartments, located in Cardiff, California for $71.0 million resulting in a gain of $46,000 and St. Cloud Apartments, located in Houston, Texas for $8.8 million resulting in no gain on sale.

In December 2007, the Company sold four communities (875-units) in the Portland metropolitan area for $97.5 million, resulting in a gain of $47.6 million, net of minority interest.

During the first three quarters of 2007, the Company sold the 21 remaining condominium units at the Peregrine Point community resulting in a gain of $1.0 million net of taxes and expenses, and during 2006, the Company sold 45 units at Peregrine Point resulting in a gain of $2.0 million net of taxes and expenses.

In February 2007, City Heights Apartments, a 687-unit community located in Los Angeles was sold to a third-party for $120.0 million.  The Company’s share of the proceeds from the sale totaled $33.9 million, resulting in a $13.7 million gain, net of minority interest, to the Company, and an additional $10.3 million for fees from the City Heights joint venture partner.

In December 2006, the Company sold Emerald Palms, a 152-unit apartment community located in San Diego for $20.5 million, resulting in a gain of $6.7 million.

In June 2006, the unconsolidated joint venture property, Vista Pointe, a 286-unit apartment community located in Anaheim, California, was sold for approximately $46.0 million. The Company’s share of the proceeds from the transaction totaled $19.3 million, resulting in an $8.8 million gain on the sale, and an additional $8.2 million for fees and a promote distribution.

In January 2006, the Company sold Vista Capri East and Casa Tierra apartment communities for approximately $7.0 million and in March 2006, the Company sold Diamond Valley, a Recreational Vehicle Park, for approximately $1.3 million.  The total combined gain was $3.1 million.

The Company has recorded the gains and operations for these various assets sold described above as part of discontinued operations in the accompanying consolidated statements of operations.  The components of discontinued operations are outlined below and include the results of operations for the respective periods that the Company owned such assets, as described above.

($ in thousands)	2008			2007			2006
Rental revenues	$	7,058		$	17,425		$	23,841
Interest and other income		-			290			41
Equity income in co-investments		-			-			238
Revenues		7,058			17,715			24,120
Property operating expenses		(3,851	)		(7,477	)		(10,037	)
Interest expense, secured mortgage debt		(2,210	)		(2,489	)		(2,940	)
Depreciation and amortization		(2,434	)		(4,603	)		(5,904	)
Minority interests		117			(260	)		(1,223	)
Expenses		(8,378	)		(14,829	)		(20,104	)
(Loss) income from real estate sold		(1,320	)		2,886			4,016
Gain on sale of real estate		3,417			52,874			20,503
Gain on sale of real estate - City Heights		-			78,306			-
Promote interest and fees		-			10,290			8,221
Minority interests		(260	)		(6,443	)		(2,730	)
Minority interests - City Heights		-			(64,624	)		-
		3,157			70,403			25,994
Income from discontinued operations	$	1,837		$	73,289		$	30,010

F-19

(7) Mortgage Notes Payable and Exchangeable Bonds

Mortgage notes payable and exchangeable bonds consist of the following as of December 31, 2008 and 2007:

($ in thousands except per share amounts)	2008		2007
Mortgage notes payable to a pension fund, secured by deeds of trust, bearing interest at rates ranging from 7.73% to 8.18%, principal and interest payments due monthly, and maturity dates ranging through October 2010. Under certain conditions a portion of these loans can be converted to an unsecured note payable.  Two loans are are cross-collateralized by a total of five communities, and a third loan bearing interest at 6.62% and cross-collateralized by eight communities, was repaid in 2008	$	132,595	$	224,876
Mortgage notes payable, secured by deeds of trust, bearing interest at ranges ranging from 4.86% to 7.90%, principal and interest payments due monthly, and maturity dates ranging from April 2009 through June 2020		1,085,210		804,859
Multifamily housing mortgage revenue bonds secured by deeds of trust on rental properties and guaranteed by collateral pledge agreements, payable monthly at a variable rate as defined in the Loan Agreement (approximately 4.0% at December 2008 and 4.5% at December 2007), plus credit enhancement and underwriting fees ranging from approximately 1.2% to 1.9%. The bonds are primarily convertible to a fixed rate at the Company's option. Among the terms imposed on the properties, which are security for the bonds, is a requirement that 20% of the units are subject to tenant income criteria. Principal balances are due in full at various maturity dates from December 2009 through December 2039.  Of these bonds $183.4 million are subject to various interest rate cap agreements which limit the maximum interest rate to such bonds		251,126		233,138
Exchangeable bonds, unsecured obligations of the Operating Partnership and guaranteed by the Company, bearing interest at 3.625% per year, payable November 1 and May 1 of each year, which mature on November 1, 2025.  The bonds are exchangeable at the option of the holder into cash and, in certain circumstances at the Company's option, shares of the Company's common stock at an initial exchange price of $103.25 per share subject to certain adjustments. These bonds will also be exchangeable prior to November 1, 2020 under certain circumstances.  The bonds are redeemable at the Company's option for cash at any time on or after November 4, 2010 and are subject to repurchase for cash at the option of the holder on November 1st in years 2010, 2015, and 2020 or upon the occurrence of certain events		171,716		225,000
	$	1,640,647	$	1,487,873

The aggregate scheduled principal payments of mortgage notes payable and exchangeable bonds are as follows:

($ in thousands)
2009	$	35,842
2010		152,412
2011		151,281
2012		31,759
2013		192,813
Thereafter		1,076,540
	$	1,640,647

For the Company’s mortgage notes payable as of December 31, 2008, monthly interest expense and principal amortization, excluding balloon payments, totaled approximately $7.6 million and $1.5 million, respectively.  Second deeds of trust accounted for $74.7 million of the $1.2 billion in mortgage notes payable as of December 31, 2008.  Repayment of debt before the scheduled maturity date could result in prepayment penalties.  The prepayment penalty on the majority of the Company’s mortgage notes payable are computed by the greater of (a) 1% of the amount of the principal being prepaid or (b) the present value of the mortgage note payable which is calculated by multiplying the principal being prepaid by the difference between the interest rate of the mortgage note and the stated yield rate on a specified U.S. treasury security as defined in the mortgage note agreement and as published by the Wall Street Journal.   (See Schedule III for a list of mortgage loans related to each Community in the Company’s Portfolio.)

F-20

During the fourth quarter of 2008, the Company repurchased $53.3 million of the $225 million of exchangeable bonds due in 2025 at a discount to par value and recognized a gain of $3.5 million.  During 2009, the Company repurchased $71.3 million of the exchangeable bonds at a discount to par value for cash paid of $66.5 million, and the balance outstanding on the exchangeable bonds was $100.4 million as of February 2009.

(8) Lines of Credit

The Company has three outstanding lines of credit in the aggregate committed amount of $360.0 million as of December 31, 2008.   The Company has a $200 million unsecured line of credit, and in January 2009 the maturity date was extended to March 2010.  The balance on this unsecured line of credit was $0 and $61.0 million, respectively as of December 31, 2008 and 2007.  The interest rate under this unsecured line of credit ranges from LIBOR plus 0.8% to LIBOR plus 1.0%.  The average interest rate for the balance outstanding as of December 31, 2007 was 6.2%.  During the fourth quarter 2008, the Company entered into a new five-year secured line of credit facility with Freddie Mac to replace the prior secured line of credit facility.  The new secured facility expanded the existing secured facility from $100 million to $150 million, and the new facility is expandable to $250 million during the first two years.   The underlying interest rate on this line is between 99 and 150 basis points over the Freddie Mac Reference Rate which is an increase from the prior secured line of credit facility interest rate of 55 to 59 basis points over the Freddie Mac Reference Rate, and the interest rate on the secured line of credit is subject to change by the lender in November 2011.  The secured line of credit is secured by eight communities and matures in December 2013.  As of December 31, 2008 and 2007, $120.0 million and $100.0 million were outstanding under this line of credit, respectively, with an average interest rate of 3.0% and 5.4% for balances outstanding as of December 31, 2008 and 2007, respectively.  During March 2007, the Company entered into an unsecured revolving line of credit for $10.0 million with a commercial bank with a maturity date of March 2009.  Borrowings under this revolving line of credit bear an interest rate at the bank’s Prime Rate less 2.0%.   The balance on this revolving line of credit was $0 and $8.8 million, respectively as of December 31, 2008 and 2007, which yielded an average interest rate of 5.6% as of December 31, 2007.

The line of credit agreements contain debt covenants related to limitations on indebtedness and liabilities, maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization and maintenance of minimum tangible net worth.   The Company was in compliance with the line of credit covenants as of December 31, 2008 and 2007.

(9) Derivative Instruments and Hedging Activities

In November 2008, in conjunction with obtaining a mortgage loan secured by Montclaire, the Company settled a $25.0 million forward starting swap for a $1.2 million payment to the counterparty, which increased the effective interest on the mortgage loan to 6.4%.

In June 2008, in conjunction with obtaining the mortgage loan secured by Hampton Place, the Company settled a $20.0 million forward-starting swap for a $0.1 million payment to the counterparty, which increased the effective interest rate on the mortgage loan to 6.2%.

In April 2008, in conjunction with obtaining the mortgage loan secured by Park Hill at Issaquah, the Company settled a $30 million forward-starting swap for a $1.7 million payment to the counterparty, which increased the effective interest rate on the mortgage loan to 6.1%.

During April 2007, the Company refinanced a mortgage loan for $35.7 million secured by the Tierra Vista property in the amount of $62.5 million, with a fixed interest rate of 5.5%, which matures in April 2017.  In conjunction with this transaction the Company settled a $50 million forward-starting swap and received $1.3 million from the counterparty.  The amortization of the settlement of the swap decreased the effective interest on this loan to 5.2%.

As of December 31, 2008 the Company had seven forward-starting interest rate swap contracts totaling a notional amount of $375 million with interest rates ranging from 5.1% to 5.9% and settlements dates ranging from November 2010 to October 2011.  These derivatives qualify for hedge accounting as they are expected to economically hedge the cash flows associated with future financings of debt between 2010 and 2011.  The fair value of the derivatives decreased $64.2 million during the year ended December 31, 2008 to an obligation of $73.1 million as of December 31, 2008, and the derivative liability was recorded in cash flow hedge liabilities in the Company’s consolidated financial statements.  The changes in the fair values of the derivatives are reflected in accumulated other comprehensive (loss) income in the accompanying consolidated financial statements.  No hedge ineffectiveness on cash flow hedges was recognized during the year ended December 31, 2008 and 2007.

F-21

(10) Lease Agreements

Cadence Campus, a predevelopment property, is an office building, and Essex-Hollywood, a rental property purchased for future development, is a commercial building currently utilized as a production studio, and both communities are 100% leased to single tenants as of December 31, 2008.  The lease at Cadence Campus expired in January 2009.  The Essex-Hollywood lease was extended to July 2012, and due to the length of this lease, during the fourth quarter of 2008, the Company has reclassified this property from the predevelopment pipeline to rental property on the Company’s consolidated balance sheet.  Interest expense is not being capitalized on these communities while they are leased, and depreciation expense is being recorded until the leases expire.

The Company is also a lessor for two office buildings located in Southern California. The tenants’ lease terms expire at various times through 2014 with average annual lease payments of approximately $1.3 million.  The future minimum non-cancelable base rent to be received under the Cadence Campus, Essex-Hollywood and the two office buildings in Southern California operating leases for each of the years ending after December 31 is summarized as follows:

	Future
	Minimum
($ in thousands)	Rent
2009	$	3,787
2010		3,109
2011		2,633
2012		1,320
2013		338
2014 and thereafter		1,938
	$	13,125

(11) Equity and Minority Interest Transactions

Preferred Securities Offerings

As of December 31, 2008, the Company, either directly or through the Operating Partnership, has the following cumulative preferred securities outstanding ($ in thousands):

			Liquidation
Description	Issue Date		Preference
7.875% Series B	February 1998	1,200,000 units	$	60,000
7.875% Series B	April 1998	400,000 units	$	20,000
7.8125% Series F	September 2003	1,000,000 shares	$	25,000
4.875% Series G	July 2006	5,980,000 shares	$	149,500

Dividends on the preferred securities are payable quarterly. The holders of the securities have limited voting rights if the required dividends are in arrears.  The preferred units are included in minority interests in the accompanying consolidated balance sheets.

In January 2004, the Operating Partnership restructured its previously issued $50,000, 9.30%  Series D Cumulative Redeemable Preferred Units ("Series D Units"), and its previously issued $80,000, 7.875%  B Cumulative Redeemable Preferred Units ("Series B Units").  The existing distribution rate of 9.30% of the Series D Units continued until July 27, 2004 the end of the non-call period.  Effective July 28, 2004, the distribution rate on the Series D Units was reduced to 7.875%.  As of December 31, 2007, 2,000,000 units of 7.875% Series D Units were outstanding.  In November 2008, the holders of the Series D units, with a par value of $50 million, exchanged the units for 363,000 shares of common stock and $10 million in cash plus accrued dividends.  The date that the Series B Units can first be redeemed at the Company's option was extended from February 6, 2003 to December 31, 2009.

In September 2003, the Company issued 1,000,000 shares of its Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”) at a fixed price of $24.664 per share, a discount from the $25.00 per share liquidation value of the shares.  The shares pay quarterly distributions at an annualized rate of 7.8125% per year of the liquidation value and are redeemable by the Company on or after September 23, 2008.  The shares were issued pursuant to the Company’s existing shelf registration statement.  The Company used the net proceeds from this sale of Series F Preferred Stock to redeem all of the 9.125% Series C Cumulative Redeemable Preferred Units of Essex Portfolio, L.P., of which the Company is the general partner.   

F-22

During the third quarter of 2006, the Company sold 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock (“Series G Preferred Stock”) for gross proceeds of $149.5 million.  Holders may convert Series G Preferred Stock into shares of the Company’s common stock subject to certain conditions.  The conversion rate was initially .1830 shares of common stock per the $25 share liquidation preference, which is equivalent to an initial conversion price of approximately $136.62 per share of common stock (the conversion rate will be subject to adjustment upon the occurrence of specified events).  On or after July 31, 2011, the Company may, under certain circumstances, cause some or all of the Series G Preferred Stock to be converted into that number of shares of common stock at the then prevailing conversion rate.  During the first quarter of 2009, the Company repurchased $54.6 million of Series G Preferred Stock at a discount to par value for cash paid of $30.1 million.  As of February 2009, shares of Series G Preferred Stock with an aggregate liquidation value of $94.9 million are currently outstanding.

Common Stock Offerings

During 2008 and 2007, the Company issued and sold 1,209,050 and 1,670,500 shares of common stock for $142.8 million and $213.7 million, net of fees and commissions, respectively.  The Company used the net proceeds from such sales to pay down debt and to fund the development pipeline.

Common Stock Repurchases

In August 2007, the Company’s Board of Directors authorized a stock repurchase plan to allow the Company to acquire shares in an aggregate of up to $200 million.  The program supersedes the common stock repurchase plan that the Company announced on May 16, 2001.  During 2008 and 2007, the Company repurchased and retired 143,400 and 323,259 shares of its common stock for approximately $13.7 million, and $32.6 million, respectively.

DownREIT transactions

During September 2007, the Company acquired the Thomas Jefferson apartments in Sunnyvale, California, for $28.0 million by acquiring ownership interests in the two limited partnerships that collectively owned the property.  In connection with this acquisition, the limited partnerships were restructured to provide for limited partnership units, or DownREIT units, that are redeemable for cash, or at the Company's sole discretion, cash or shares of the common stock of the Company.  A total of 62,873 such units were issued, and the Company assumed $20.0 million in mortgage loans in the transaction.

F-23

(12) Net Income Per Common Share

Basic and diluted income from continuing operations per share are calculated as follows for the years ended December 31 ($ in thousands, except share and per share amounts):

	2008						2007						2006
			Weighted-		Per				Weighted-		Per				Weighted-		Per
			average		Common				average		Common				average		Common
			Common		Share				Common		Share				Common		Share
	Income		Shares		Amount		Income		Shares		Amount		Income		Shares		Amount
Basic:
Income from continuing operations available to common stockholders	$	54,276		25,205,367	$	2.15	$	33,175		24,548,003	$	1.35	$	27,593		23,081,682	$	1.20
Income from discontinued operations		1,837		25,205,367		0.08		73,289		24,548,003		2.99		30,010		23,081,682		1.30
		56,113				2.23		106,464				4.34		57,603				2.50
Effect of Dilutive Securities (1)		-		141,153				-		552,971				-		469,360
Diluted:
Income from continuing operations available to common stockholders		54,276		25,346,520		2.14		33,175		25,100,974		1.32		27,593		23,551,042		1.17
Income from discontinued operations		1,837		25,346,520		0.07		73,289		25,100,974		2.92		30,010		23,551,042		1.28
	$	56,113			$	2.21	$	106,464			$	4.24	$	57,603			$	2.45

(1) Weighted convertible limited partnership units of 2,210,808, 2,282,568, and 2,294,591for the years ended December 31, 2008, 2007, and 2006, respectively, and Series Z incentive units of 250,618, 213,126, and 184,142, for the years ended December 31 2008, 2007and 2006, respectively, were not included in the determination of diluted EPS because they were anti-dilutive.  The Company has the ability and intent to redeem Down REIT Limited Partnership units for cash and does not consider them to be common stock equivalents.

On or after November 1, 2020, the holders of the $100.4 million exchangeable bonds may exchange, at the then applicable exchange rate, the bonds for cash and, at Essex’s option, a portion of the bonds may be exchanged for Essex common stock; the current exchange rate is $103.25 per share of Essex common stock.  The exchangeable bonds will also be exchangeable prior to November 1, 2020, but only upon the occurrence of certain specified events.  During 2008, 2007, and 2006, the weighted average common stock price exceeded the $103.25 strike price and therefore common stock issuable upon exchange of the exchangeable bonds was included in the diluted share count.  The treasury method was used to determine the shares to be added to the denominator for the calculation of earnings per diluted share.

Stock options of 150,369, 25,326, and 1,014 for 2008, 2007, 2006, respectively, are not included in the diluted earnings per share calculation because the exercise price of the options was greater than the average market price of the common shares for the twelve months ended and, therefore, were anti-dilutive.

5,980,000 shares of cumulative convertible preferred stock Series G has been excluded from diluted earnings per share for 2008, 2007 and 2006 as the effect was anti-dilutive.

(13) Stock Based Compensation Plans

Stock Options and Restricted Stock

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 Revised (“SFAS No. 123(R)”), “Share-Based Payment”, a revision of SFAS No. 123 using the modified prospective approach.   SFAS No. 123(R) requires companies to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees.

The Essex Property Trust, Inc. 2004 Stock Incentive Plan provides incentives to attract and retain officers, directors and key employees.  The Stock Incentive Plan provides for the grants of options to purchase a specified number of shares of common stock or grants of restricted shares of common stock.  Under the Stock Incentive Plan, the total number of shares available for grant is approximately 1,200,000.  The 2004 Stock Incentive Plan is administered by the Compensation Committee of the Board of Directors.  The Compensation Committee is comprised of independent directors.   The Compensation Committee is authorized to establish the exercise price; however, the exercise price cannot be less than 100% of the fair market value of the common stock on the grant date.  The Company’s options have a life of ten years.  Option grants for officers and employees fully vest between one year and five years after the grant date.

Stock-based compensation expense for options and restricted stock under the fair value method totaled $1.2 million, $1.2 million and $1.1 million, for the years ended December 31, 2008, 2007 and 2006, respectively.  Stock-based compensation capitalized for options totaled $0.2 million for the years ended December 31, 2008, 2007 and 2006, respectively.  The intrinsic value of the options exercised totaled $4.2 million, $6.3 million, and $6.0 million, for the years ended December 31, 2008, 2007 and 2006, respectively.  The intrinsic value of the options outstanding and fully vested totaled $3.7 million, $9.9 million, and $14.3 million, for the years ended December 31, 2008, 2007 and 2006, respectively.  Total unrecognized compensation cost related to unvested share-based compensation granted under the stock option totaled $1.2 million as of December 31, 2008.  The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2 to 4 years for the stock option plans.

F-24

No stock options were granted for the year ended December 31, 2008.  The average fair value of stock options granted for the years ended December 31, 2007 and 2006 was $11.58 and $17.40 per share, respectively, and was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:

	2007			2006
Stock price	$	95.34-$126.73		$	101.01-$132.62
Risk-free interest rates		3.52%-4.58	%		4.45%-5.15	%
Expected lives	7-9 years			4-7 years
Volatility		18.52%-20.31	%		18.44%-18.54	%
Dividend yield		3.99%-5.26	%		3.12%-4.29	%

A summary of the status of the Company’s stock option plans as of December 31, 2008, 2007, and 2006 and changes during the years ended on those dates is presented below:

	2008					2007					2006
				Weighted-					Weighted-					Weighted-
				average					average					average
				exercise					exercise					exercise
	Shares			price		Shares			price		Shares			price
Outstanding at beginning of year		493,703		$	79.83		570,542		$	72.60		530,375		$	57.73
Granted		-			-		29,250			119.98		170,350			106.63
Exercised		(78,000	)		62.62		(86,056	)		50.23		(90,633	)		47.57
Forfeited and canceled		(22,260	)		97.38		(20,033	)		94.29		(39,550	)		80.85
Outstanding at end of year		393,443			80.63		493,703			79.83		570,542			72.60
Options exercisable at year end		285,128			74.28		288,889			64.69		272,074			52.42

The following table summarizes information about stock options outstanding as of December 31, 2008:

		Options outstanding					Options exercisable
		Number		Weighted-			Number
		outstanding		average	Weighted-		exercisable		Weighted-
		as of		remaining	average		as of		average
Range of		December 31,		contractual	exercise		December 31,		exercise
exercise prices		2008		life	price		2008		price
	$28.94 - 46.98		26,372	0.9 years	$	34.35		26,372	$	34.35
	46.99 - 71.30		105,111	3.7 years		53.82		103,515		53.55
	72.20 - 125.84		257,710	7.0 years		95.48		153,891		94.56
	126.73 - 132.62		4,250	8.1 years		130.19		1,350		131.09
			393,443	6.6 years		80.63		285,128		74.28

During 2008 and 2007, the Company issued 18,122 and 17,178 shares of restricted stock, respectively.  The unrecognized compensation cost of $2.7 million as of December 31, 2008 is expected to be recognized straight-line over a period of 7 years.

F-25

The following table summarizes information about restricted stock outstanding as of December 31, 2008:

	2008					2007
				Weighted-				Weighted-
				average				average
				grant				grant
	Shares			price		Shares		price
Unvested at beginning of year		17,178		$	123.23		-	$	-
Granted		18,122			116.01		17,178		123.23
Vested		(2,262	)		123.58		-		-
Forfeited and canceled		(2,734	)		118.58		-		-
Unvested at end of year		30,304			119.31		17,178		123.23

Long Term Incentive Plan – Z Units

The Company has adopted an incentive program involving the issuance of Series Z Incentive Units and Series Z-1 Incentive Units (collectively referred to as “Z Units”) of limited partnership interest in the Operating Partnership.  Vesting in the Z Units is based on performance criteria established in the plan.  The criteria can be revised at the beginning of the year by the Board's Compensation Committee if the Committee deems that the plan's criterion is unachievable for any given year.   The sale of Z Units is contractually prohibited and cannot be converted into Operating Partnership units until certain conditions are met or 15 years after the inception of the plan.  The estimated fair value of a Z Unit is determined on the grant date and considers the company's current stock price, the dividends that are not paid on unvested units and a marketability discount for the 8 to 15 years of illiquidity.  Compensation expense is calculated by taking annual vesting increases multiplied by the estimated fair value as of the grant date less its $1.00 purchase price.

Stock-based compensation expense for Z Units under the fair value method totaled approximately $1.5 million, $1.5 million and $1.3 million, for the years ended December 31, 2008, 2007 and 2006, respectively.  Stock-based compensation capitalized for Z Units totaled approximately $0.6 million, $0.4 million and $0.3 million, for the years ended December 31, 2008, 2007 and 2006, respectively.  The intrinsic value of the Z Units vested totaled $17.7 million as of December 31, 2008.  Total unrecognized compensation cost related to Z Units unvested under the Z Units plans totaled $6.6 million as of December 31, 2008.  The unamortized cost is expected to be recognized over the next 3 to 11 years subject to the achievement of the stated performance criteria.

The issuance of Z Units is administered by the Compensation Committee which has the authority to select participants and determine the awards to be made up to a maximum of 600,000 Z Units.  The conversion ratchet (accounted for as vesting) of the Z Units into common units, will increase by up to 10% (up to 20% in certain circumstances following their initial issuance) effective January 1of each year for each participating executive who remains employed by the Company if the Company has met a specified “funds from operations” per share target, or such other target as the Compensation Committee deems appropriate, for the prior year, up to a maximum conversion ratchet of 100%. The Operating Partnership has the option to redeem Z Units held by any executive whose employment has been terminated with either common units of the Operating Partnership or shares of the Company’s common stock based on the then-effective conversion ratchet.

During 2001, the Operating Partnership issued 200,000 Series Z Incentive Units of limited partner interest to eleven senior executives of the Company in exchange for a capital commitment of $1.00 per Series Z Incentive Unit, for an aggregate offering price of $200.   The 2001 Series Z Unit grant had a conversion ratchet of 55, 65, and 75 percent as of January 1, 2006, 2007, and 2008 respectively. 

During 2004, the Operating Partnership issued 95,953 Series Z-1 Incentive Units of limited partner interest to fourteen senior executives of the Company in exchange for cash or a capital commitment of $1.00 per Series Z-1 Incentive Unit, for an aggregate offering price of $96.  The 2004 Z Unit grant had a conversion ratchet of 20 percent upon issuance, and 40, 50, and 60 percent as of January 1, 2006, 2007, and 2008, respectively. In 2005 an additional 27,000 Z-1 Units were granted to two senior executives pursuant to the 2004 grant terms with a 20 percent conversion ratchet at issuance, and 30, 40, and 50 percent conversion ratchets as of January 1, 2006, 2007, and 2008, respectively.

During 2005, the Operating Partnership issued 89,999 Series Z-1 Incentive Units of limited partner interest to fourteen senior executives of the Company in exchange for cash or a capital commitment of $1.00 per Series Z-1 Incentive Unit, for an aggregate offering price of $90.  The 2005 Z-1 Unit grant had a conversion ratchet of 20, 30, and 40 percent as of January 1, 2006, 2007, and 2008, respectively.

F-26

The following table summarizes information about the Z Units outstanding as of December 31, 2008:

	Long Term Incentive Plan - Z Units
												Weighted-
										Weighted-		average
	Total		Aggregate		Total			Total		average		remaining
	Vested		intrinsic		Unvested			Outstanding		grant-date		contractual
	Units		value		Units			Units		fair value		life
Balance, December 2005		125,186				287,766			412,952
Vested		50,295				(50,295	)		-
Balance, December 2006		175,481	$	13,400		237,471			412,952	$	39.36	11.2 years
Vested		37,724				(37,724	)		-
Balance, December 2007		213,205		15,963		199,747			412,952		39.36	10.2 years
Vested		37,723				(37,723	)		-
Balance, December 2008		250,928	$	17,723		162,024			412,952	$	39.36	9.2 years

Long Term Incentive Plan – Outperformance Plan

Stock-based compensation expense for the Outperformance Plan, (the “OPP”) adopted in December 2007 under the fair value method totaled approximately $1.2 million and $0.1 million for years ended December 31, 2008 and 2007, respectively.  Total unrecognized compensation cost less an estimate for forfeitures related to the OPP totaled $4.1 million as of December 31, 2008.  The unamortized cost is expected to be recognized over the expected service period of five years for senior officers and three years for non-employee directors.

Under the 2007 OPP, award recipients will share in a “performance pool” if the Company’s total return to stockholders for the period from December 4, 2007 (measured based on the closing price of the Company’s common stock on December 4, 2007) through December 3, 2010 exceeds a cumulative total return to stockholders of 30%.  The size of the pool will be 10% of the outperformance amount in excess of the 30% benchmark, subject to an aggregate maximum award of $25 million.  The maximum award will be reduced by the amount of any forfeited awards.  In the event the potential performance pool reaches the maximum aggregate award between June 4, 2010 and December 3, 2010 and remains at that level or higher for 30 consecutive days, the performance period will end early and the performance pool will be formed on the last day of such 30-day period, but the participants will nonetheless be subject to the time-based vesting requirements described below.

Each participant’s award under the 2007 OPP has been designated as a specified percentage of the aggregate performance pool.  Assuming the 30% benchmark is achieved, the pool will be allocated among the participants in accordance with the percentage specified in each participant’s award agreement.  Individual awards were made in the form of newly created long term incentive plan (“LTIP”) Units, which are partnership units of the Operating Partnership, and the LTIP units are exchangeable on a one-for-one basis into common units of the Operating Partnership to the extent the LTIP Units become vested.  Such common units are exchangeable for shares of the Company’s common stock on a one-for-one basis.  Any shares of the Company’s common stock, which are ultimately issued in connection with the 2007 OPP, will be issued pursuant to the Company’s 2004 Stock Incentive Plan.  LTIP Units were granted prior to the determination of the performance pool; however, they will only vest upon satisfaction of performance and time vesting thresholds and will not be entitled to distributions until after the benchmark is achieved.  Distributions on LTIP Units will equal the distributions payable on each common unit of the Operating Partnership on a per unit basis.

In the case of awards granted to senior officers, if the benchmark is achieved, the LTIP Units will vest in three substantially equal installments, on December 4, 2010 and on each of the first two anniversaries thereafter, based on the officer’s continued employment through the applicable vesting date.  In the case of awards granted to non-employee directors, such awards will vest in full on December 4, 2010 if the benchmark is achieved and only to the extent the board members have continued to serve through such date.  In the event of a change of control of the Company prior to the establishment of the performance pool, the performance period will be shortened to end on a date immediately prior to such event and the cumulative stockholder return benchmark will be adjusted on a pro rata basis.  The performance pool will be formed as described above if the adjusted benchmark target is achieved, and the awards will become fully vested at such time.

F-27

(14) Segment Information

In accordance with FASB No. 131, “Disclosures about Segments of an Enterprise and Related Information” the Company defines its reportable operating segments as the three geographical regions in which its communities are located: Southern California, Northern California and Seattle Metro.  Excluded from segment revenues are communities classified in discontinued operations including management and other fees from affiliates, and interest and other income.  Non-segment revenues and net operating income included in the following schedule also consist of revenue generated from commercial properties which are primarily office buildings.  Other non-segment assets include investments, real estate under development, cash and cash equivalents, marketable securities, notes receivable, other assets and deferred charges.

The revenues and net operating income for each of the reportable operating segments are summarized as follows for the years ended December 31, 2008, 2007, and 2006:

	Years Ended December 31,
($ in thousands)	2008			2007			2006
Revenues:
Southern California	$	213,430		$	208,304		$	195,769
Northern California		119,884			99,378			75,288
Seattle Metro		71,680			63,877			55,513
Other real estate assets		2,735			2,400			2,502
Total property revenues	$	407,729		$	373,959		$	329,072
Net operating income:
Southern California	$	145,995		$	143,885		$	134,662
Northern California		78,882			65,142			49,907
Seattle Metro		47,694			42,130			35,138
Other real estate assets		1,197			(216	)		(1,213	)
Total net operating income		273,768			250,941			218,494
Depreciation and amortization:
Southern California		(51,338	)		(47,216	)		(42,442	)
Northern California		(34,871	)		(27,892	)		(17,568	)
Seattle Metro		(19,376	)		(15,491	)		(13,170	)
Other real estate assets		(5,275	)		(7,048	)		(3,950	)
		(110,860	)		(97,647	)		(77,130	)
Interest:
Southern California		(31,576	)		(29,570	)		(25,806	)
Northern California		(24,157	)		(18,741	)		(18,295	)
Seattle Metro		(9,159	)		(6,892	)		(6,904	)
Other real estate assets		(13,311	)		(23,735	)		(21,267	)
		(78,203	)		(78,938	)		(72,272	)
Amortization of deferred financing costs		(2,883	)		(3,055	)		(2,745	)
General and administrative		(26,984	)		(26,273	)		(22,234	)
Other expenses		(1,350	)		(800	)		(1,770	)
Management and other fees from affiliates		5,166			5,090			5,030
Gain on sale of real estate		4,578			-			-
Gain on early retirement of debt		3,517			-			-
Interest and other income		11,343			10,310			6,176
Equity income (loss) in co-investments		7,820			3,120			(1,503	)
Minority interests		(22,395	)		(19,999	)		(18,783	)
Income tax provision		-			(400	)		(525	)
Income from continuing operations	$	63,517		$	42,349		$	32,738

F-28

Total assets for each of the reportable operating segments are summarized as follow as of December 31, 2008 and 2007:

($ in thousands)	As of December 31,
Assets:	2008		2007
Southern California	$	1,291,850	$	1,354,818
Northern California		850,170		829,879
Seattle Metro		431,041		353,737
Other real estate assets		66,701		37,338
Net reportable operating segments - real estate assets		2,639,762		2,575,772
Real estate under development		272,273		233,445
Cash and cash equivalents		54,719		22,483
Marketable securities		23,886		2,017
Funds held by 1031 exchange facilitator		21,424		-
Notes and other receivables		47,637		50,536
Other non-segment assets		105,122		96,070
Total assets	$	3,164,823	$	2,980,323

(15) 401(k) Plan

The Company has a 401(k) benefit plan (the Plan) for all full-time employees who have completed six months of service. Employees may contribute up to 23% of their compensation, limited by the maximum allowed under Section 401(k) of the Internal Revenue Code. The Company matches the employee contributions for non-highly compensated personnel, up to 50% of their contribution up to a specified maximum. Company contributions to the Plan were approximately $261, $267, and $226 for the years ended December 31, 2008, 2007, and 2006, respectively.

(16) Fair Value of Financial Instruments

Management believes that the carrying amounts of its variable rate mortgage notes payable, amounts outstanding under lines of credit, notes receivable and other receivables from related parties, and notes and other receivables approximate fair value as of December 31, 2008 and 2007, because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available for similar instruments.  Management has estimated that the fair value of the Company’s $1.39 billion of fixed rate mortgage notes payable and exchangeable bonds at December 31, 2008 are approximately $1.39 billion based on the terms of existing mortgage notes payable compared to those available in the marketplace.  At December 31, 2007, the Company’s fixed rate mortgage notes payable and exchangeable bonds of $1.25 billion had an approximate market value of $1.30 billion.  Management believes that the carrying amounts of cash and cash equivalents, restricted cash, marketable securities classified as held to maturity, funds held by 1031 exchange facilitator, accounts payable and accrued liabilities, other liabilities and dividends payable approximate fair value as of December 31, 2008 and 2007 due to the short-term maturity of these instruments.   Marketable securities classified as available for sale and cash flow hedge liabilities are carried at estimated fair value.

(17) Commitments and Contingencies

At December 31, 2008, the Company had six non-cancelable ground leases for certain apartment communities and buildings that expire between 2027 and 2080.  Land lease payments are typically the greater of a stated minimum or a percentage of gross rents generated by these apartment communities.  Total minimum lease commitments, under land leases and operating leases, are approximately $1.6 million per year for the next five years.   The Company is also a lessee of an office building located in Palo Alto next to the Company’s headquarters.  The lease term expires on September 30, 2009, with average annual lease payments of approximately $0.2 million.

The Company has performance guarantees with commercial banks related to the Belmont Station development community that was in lease-up as of December 31, 2008 and the Joule Broadway development project.

To the extent that an environmental matter arises or is identified in the future that has other than a remote risk, as defined in SFAS 5, of having a material impact on the financial statements, the Company will disclose the estimated range of possible outcomes, and, if an outcome is probable, accrue appropriate liability for remediation and other potential liability. The Company will consider whether such occurrence results in an impairment of value on the affected property and, if so, accrue an appropriate reserve for impairment.

F-29

Except with respect to three Communities, the Company has no indemnification agreements from third parties for potential environmental clean-up costs at its Communities.  The Company has no way of determining at this time the magnitude of any potential liability to which it may be subject arising out of unknown environmental conditions or violations with respect to the Communities formerly owned by the Company.  No assurance can be given that existing environmental studies with respect to any of the Communities reveal all environmental liabilities, that any prior owner or operator of a Property did not create any material environmental condition not known to the Company, or that a material environmental condition does not otherwise exist as to any one or more of the Communities.  The Company has limited insurance coverage for the types of environmental liabilities described above.

The Company may enter into transactions that could require the Company to pay the tax liabilities of the partners in the Operating Partnership or in the DownREIT entities.  These transactions which are within the Company’s control. Although the Company plans to hold the contributed assets or defer recognition of gain on their sale pursuant to like-kind exchange rules under Section 1031 of the Internal Revenue Code the Company can provide no assurance that it will be able to do so and if such tax liabilities were incurred they may to have a material impact on the Company’s financial position.

Recently there has been an increasing number of lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in residential real estate. Some of these lawsuits have resulted in substantial monetary judgments or settlements.  The Company has been sued for mold related matters and has settled some, but not all, of such matters.   Insurance carriers have reacted to mold related liability awards by excluding mold related claims from standard policies and pricing mold endorsements at prohibitively high rates.  The Company has, however, purchased pollution liability insurance, which includes some coverage for mold.  The Company has adopted policies for promptly addressing and resolving reports of mold when it is detected, and to minimize any impact mold might have on residents of the property.  The Company believes its mold policies and proactive response to address any known existence, reduces its risk of loss from these cases.  There can be no assurances that the Company has identified and responded to all mold occurrences, but the company promptly addresses all known reports of mold.  Liabilities resulting from such mold related matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.  As of December 31, 2008, potential liabilities for mold and other environmental liabilities are not considered probable or the loss cannot be quantified or estimated.

The Company carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the Communities.  Insured risks for comprehensive liabilities covers claims in excess of $25,000 per incident, and property casualty insurance covers losses in excess of a $5.0 million deductible per incident. There are, however, certain types of extraordinary losses, such as, for example, losses from terrorism and earthquake, for which the Company does not have insurance. Substantially all of the Communities are located in areas that are subject to earthquakes.

The Company is subject to various other lawsuits in the normal course of its business operations.  Such lawsuits are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

F-30

(18) Quarterly Results of Operations (Unaudited)

The following is a summary of quarterly results of operations for 2008 and 2007 ($ in thousands, except per share and dividend amounts):

	Quarter ended		Quarter ended		Quarter ended		Quarter ended
	December 31(1)		September 30(1)		June 30(1)		March 31(1)
2008:
Total property revenues	$	104,831	$	102,907	$	100,908	$	99,083
Income before discontinued operations	$	17,401	$	15,270	$	12,491	$	18,355
Net income	$	20,655	$	14,686	$	11,999	$	18,014
Net income available to common stockholders	$	18,345	$	12,376	$	9,688	$	15,704
Per share data:
Net income:
Basic	$	0.70	$	0.50	$	0.39	$	0.63
Diluted	$	0.70	$	0.49	$	0.38	$	0.63
Market price:
High	$	117.77	$	129.57	$	124.33	$	117.51
Low	$	60.77	$	100.63	$	105.12	$	84.59
Close	$	76.75	$	118.33	$	106.50	$	113.98
Dividends declared	$	1.02	$	1.02	$	1.02	$	1.02
2007:
Total property revenues	$	98,212	$	95,012	$	92,155	$	88,580
Income before discontinued operations	$	5,479	$	12,043	$	11,152	$	13,675
Net income	$	53,597	$	12,308	$	12,187	$	37,546
Net income available to common stockholders	$	51,287	$	9,997	$	9,877	$	35,303
Per share data:
Net income:
Basic	$	2.04	$	0.40	$	0.40	$	1.51
Diluted	$	2.02	$	0.39	$	0.39	$	1.46
Market price:
High	$	127.35	$	123.50	$	133.40	$	148.54
Low	$	94.08	$	102.00	$	114.19	$	124.78
Close	$	97.49	$	117.57	$	116.30	$	129.48
Dividends declared	$	0.93	$	0.93	$	0.93	$	0.93

(1) Net earnings from discontinued operations have been reclassified for all periods presented.

F-31

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Financial Statement Schedule III

Real Estate and Accumulated Depreciation

December 31, 2008

(Dollars in thousands)

										Costs
						Initial cost				capitalized		Gross amount carried at close of period
								Buildings and		subsequent to		Land and		Buildings and				Accumulated		Date of	Date		Lives
Property	Units		Location	Encumbrance		Land		improvements		acquisition		improvements		improvements		Total(1)		depreciation		construction	acquired		(years)
Encumbered apartment communities
Fountain Court		320	Seattle, WA			$	6,702	$	27,306	$	2,301	$	6,985	$	29,324	$	36,309	$	8,905	2000		03/00		3-30
Hillcrest Park		608	Newbury Park, CA				15,318		40,601		13,010		15,755		53,174		68,929		18,724	1973		03/98		3-30
Hillsborough Park		235	La Habra, CA				6,291		15,455		1,030		6,272		16,504		22,776		5,387	1999		09/99		3-30
				$	75,584		28,311		83,362		16,341		29,012		99,002		128,014		33,016
Bel Air		462	San Ramon, CA				12,105		18,252		19,110		12,682		36,785		49,467		14,337	1988		01/97		3-30
Waterford, The		238	San Jose, CA				11,808		24,500		11,923		15,165		33,066		48,231		8,957	2000		06/00		3-30
					57,288		23,913		42,752		31,033		27,847		69,851		97,698		23,294
Bonita Cedars		120	Bonita, CA				2,496		9,913		1,223		2,503		11,129		13,632		2,437	1983		12/02		3-30
Bristol Commons		188	Sunnyvale, CA				5,278		11,853		2,762		5,293		14,600		19,893		6,541	1989		01/97		3-30
Castle Creek		216	Newcastle, WA				4,149		16,028		2,592		4,833		17,936		22,769		7,369	1997		12/97		3-30
Forest View		192	Renton, WA				3,731		14,530		842		3,731		15,372		19,103		2,836	1998		10/03		3-30
Mira Monte		355	Mira Mesa, CA				7,165		28,459		6,999		7,186		35,437		42,623		8,025	1982		12/02		3-30
Mission Hills		282	Oceanside, CA				10,099		38,778		2,871		10,167		41,581		51,748		5,202	1984		7/05		3-30
Walnut Heights		163	Walnut, CA				4,858		19,168		1,403		4,887		20,542		25,429		3,694	1964		10/03		3-30
Windsor Ridge		216	Sunnyvale, CA				4,017		10,315		4,446		4,021		14,757		18,778		9,013	1989		03/89		3-30
					120,000		41,793		149,044		23,138		42,621		171,354		213,975		45,117
Alpine Village		306	Alpine, CA		16,714		4,967		19,728		2,488		4,982		22,201		27,183		4,762	1971		12/02		3-30
Anchor Village		301	Mukilteo, WA		10,750		2,498		10,595		9,253		2,823		19,523		22,346		7,942	1981		01/97		3-30
Bridgeport		184	Newark, CA		22,934		1,608		7,582		6,623		1,525		14,288		15,813		7,989	1987		07/87		3-30
Barkley, The(2)		161	Anaheim, CA		17,623		-		8,520		4,428		2,369		10,579		12,948		3,679	1984		04/00		3-30
Belmont Station		275	Los Angeles, CA		49,840		8,100		71,650		79		8,100		71,729		79,829		557	2008		12/08		3-30
Brentwood		140	Santa Ana, CA		20,471		2,833		11,303		4,504		3,503		15,137		18,640		3,405	1970		11/01		3-30
Brighton Ridge		264	Renton, WA		15,771		2,623		10,800		4,071		2,656		14,838		17,494		6,751	1986		12/96		3-30
Brookside Oaks		170	Sunnyvale, CA		13,900		7,301		16,310		17,286		10,328		30,569		40,897		6,490	1973		06/00		3-30
Cairns, The		100	Seattle, WA		11,442		6,937		20,679		101		6,939		20,778		27,717		1,076	2006		06/07		3-30
Camarillo Oaks		564	Camarillo, CA		52,036		10,953		25,254		5,820		11,075		30,952		42,027		15,138	1985		07/96		3-30
Camino Ruiz Square		160	Camarillo, CA		21,110		6,871		26,119		345		6,932		26,404		33,335		1,763	1990		12/06		3-30
Canyon Oaks		250	San Ramon, CA		30,439		19,088		44,473		270		19,088		44,743		63,831		2,442	2005		05/07		3-30
Canyon Pointe		250	Bothell, WA		15,498		4,692		18,288		1,848		4,693		20,135		24,828		3,598	1990		10/03		3-30
Capri at Sunny Hills		100	Fullerton, CA		18,920		3,337		13,320		5,108		4,048		17,717		21,765		4,154	1961		09/01		3-30
Carlyle, The		132	San Jose, CA		15,190		3,954		15,277		9,461		5,801		22,891		28,692		6,116	2000		04/00		3-30
City View		560	Hayward, CA		50,755		9,883		37,670		16,593		10,350		53,796		64,146		19,071	1975		03/98		3-30
Coldwater Canyon		39	Studio City, CA		5,852		1,674		6,640		1,026		1,676		7,664		9,340		473	1979		05/07		3-30
																							(Continued)

F-32

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Real Estate and Accumulated Depreciation

December 31, 2008

(Dollars in thousands)

									Costs
					Initial cost				capitalized		Gross amount carried at close of period
							Buildings and		subsequent to		Land and		Buildings and				Accumulated		Date of		Date			Lives
Property	Units	Location	Encumbrance		Land		improvements		acquisition		improvements		improvements		Total(1)		depreciation		construction		acquired			(years)
Encumbered apartment communities (continued)
Devonshire	276	Hemet, CA		10,882		3,470		13,786		1,864		3,482		15,639		19,120		3,614	1988			12/02			3-30
Emerald Ridge - North	180	Bellevue, WA		10,549		3,449		7,801		3,418		3,449		11,219		14,668		5,612	1987			11/94			3-30
Esplanade	278	San Jose, CA		38,316		18,170		40,086		3,382		18,429		43,209		61,638		6,324	2002			11/04			3-30
Evergreen Heights	200	Kirkland, WA		10,736		3,566		13,395		2,306		3,649		15,618		19,267		6,520	1990			06/97			3-30
Fairwood Pond	194	Renton, WA		14,299		5,296		15,564		968		5,297		16,531		21,828		2,420	1997			10/04			3-30
Fountain Park	705	Playa Vista, CA		98,472		25,073		94,980		18,225		25,203		113,075		138,278		18,238	2002			02/04			3-30
Harvest Park	104	Santa Rosa, CA		11,444		6,700		15,479		408		6,690		15,897		22,587		972	2004			03/07			3-30
Hampton Place	132	Glendale, CA		22,424		4,288		11,081		2,485		4,307		13,547		17,854		4,407	1970			06/99			3-30
Hidden Valley	324	Simi Valley, CA		32,722		14,174		34,065		378		11,663		36,954		48,617		5,586	2004			12/04			3-30
Highridge	255	Rancho Palos Verdes, CA		44,807		5,419		18,347		11,761		6,073		29,454		35,527		10,845	1972			05/97			3-30
Huntington Breakers	342	Huntington Beach, CA		20,537		9,306		22,720		4,197		9,315		26,908		36,223		10,620	1984			10/97			3-30
Inglenook Court	224	Bothell, WA		8,300		3,467		7,881		6,771		3,474		14,645		18,119		6,647	1985			10/94			3-30
Kings Road	196	Los Angeles, CA		31,417		4,023		9,527		6,187		4,031		15,706		19,737		5,629	1979			06/97			3-30
Le Pac Luxury Apartments	140	Santa Clara, CA		13,478		3,090		7,421		8,526		3,092		15,944		19,037		5,402	1975			02/94			3-30
Marbrisa	202	Long Beach, CA		20,570		4,700		18,605		1,626		4,760		20,171		24,931		4,593	1987			09/02			3-30
Mirabella	188	Marina Del Rey, CA		49,379		6,180		26,673		10,596		6,270		37,179		43,449		8,903	2000			05/00			3-30
Mill Creek at Windermere	400	San Ramon, CA		52,842		29,551		70,430		850		29,551		69,284		98,834		2,991	2005			09/07			3-30
Montclaire, The	390	Sunnyvale, CA		49,685		4,842		19,776		21,355		4,997		40,976		45,973		19,938	1973			12/88			3-30
Mariners Place	105	Oxnard, CA		3,793		1,555		6,103		1,601		1,562		7,697		9,259		2,512	1987			05/00			3-30
Montejo	124	Garden Grove, CA		5,719		1,925		7,685		2,008		2,195		9,423		11,618		2,370	1974			11/01			3-30
Monterey Villas	122	Oxnard, CA		13,569		2,349		5,579		4,470		2,424		9,974		12,398		3,603	1974			07/97			3-30
Monterra del Rey	84	Pasadena, CA		9,949		2,312		4,923		4,401		2,825		8,811		11,636		2,858	1972			04/99			3-30
Mt. Sutro	99	San Francisco, CA		5,641		2,334		8,507		2,142		2,809		10,174		12,983		3,509	1973			06/01			3-30
Park Place/Windsor Court/Cochran	176	Los Angeles, CA		21,583		4,965		11,806		4,863		5,015		16,619		21,634		6,643	1988			08/97			3-30
Park Hill at Issaquah	245	Issaquah, CA		31,252		7,284		21,937		1,075		7,284		23,012		30,296		3,399	1999			02/99	(3)		3-30
Palisades, The	192	Bellevue, WA		22,457		1,560		6,242		9,598		1,565		15,835		17,400		7,697	1969/1977	(4)		05/90			3-30
Pathways	296	Long Beach, CA		40,163		4,083		16,757		17,638		6,239		32,239		38,478		15,003	1975			02/91			3-30
Pointe at Cupertino, The	116	Cupertino, CA		12,839		4,505		17,605		833		4,505		18,438		22,943		2,989	1963			08/98	(5)		3-30
Sammamish View	153	Bellevue, WA		10,605		3,324		7,501		6,078		3,331		13,572		16,903		5,683	1986			11/94			3-30
San Marcos	432	Richmond, CA		48,447		15,563		36,204		24,529		22,866		53,430		76,296		9,295	2003			11/03			3-30
Stonehedge Village	196	Bothell, WA		13,586		3,167		12,603		3,580		3,201		16,149		19,350		6,145	1986			10/97			3-30
Summit Park	300	San Diego, CA		20,725		5,959		23,670		2,317		5,977		25,969		31,946		5,856	1972			12/02			3-30
Thomas Jefferson	156	Sunnyvale, CA		19,320		8,190		19,306		493		8,191		19,798		27,989		845	1969			09/07			3-30
Tierra Vista	404	Oxnard, CA		61,224		13,652		53,336		878		13,661		54,205		67,866		8,582	2001			01/01	(5)		3-30
Treehouse	164	Santa Ana, CA		7,700		2,626		10,485		2,511		2,957		12,665		15,622		3,219	1970			11/01			3-30
Boulevard	172	Fremont, CA		9,800		3,520		8,182		10,861		3,580		18,984		22,563		6,227	1978			01/96			3-30
Valley Park	160	Fountain Valley, CA		9,755		3,361		13,420		3,147		3,761		16,167		19,928		4,136	1969			11/01			3-30
Villa Angelina	256	Placentia, CA		13,191		4,498		17,962		3,005		4,961		20,504		25,465		5,101	1970			11/01			3-30
Vista Belvedere	76	Tiburon, CA		11,114		5,573		11,901		2,784		5,573		14,685		20,258		2,217	1963			08/04			3-30
Wandering Creek	156	Kent, WA		5,300		1,285		4,980		3,989		1,296		8,958		10,254		4,196	1986			11/95			3-30
Wharfside Pointe	142	Seattle, WA		7,702		2,245		7,020		5,871		2,258		12,878		15,136		5,329	1990			06/94			3-30
				1,588,410		451,935		1,420,697		383,794		478,135		1,776,294		2,254,430		443,506						(Continued)

F-33

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Real Estate and Accumulated Depreciation

December 31, 2008

(Dollars in thousands)

								Costs
				Initial cost				capitalized		Gross amount carried at close of period
						Buildings and		subsequent to		Land and		Buildings and				Accumulated		Date of	Date			Lives
Property	Units	Location	Encumbrance	Land		improvements		acquisition		improvements		improvements		Total(1)		depreciation		construction	acquired			(years)
Unencumbered apartment communities
Alpine Country	108	Alpine, CA			1,741		6,914		736		1,746		7,645		9,391		1,640	1986		12/02			3-30
Avondale at Warner Center	446	Woodland Hills, CA			10,536		24,522		15,514		10,601		39,971		50,572		13,269	1970		01/97			3-30
Bluffs II, The	224	San Diego, CA			3,405		7,743		6,264		3,442		13,970		17,412		4,326	1974		06/97	(6)		3-30
Belmont Terrace	71	Belmont, CA			4,446		10,290		1,623		4,473		11,886		16,359		989	1974		10/06			3-30
Bridle Trails	108	Kirkland, WA			1,500		5,930		5,463		1,531		11,362		12,893		3,800	1986		10/97			3-30
Bunker Hill	456	Los Angeles, CA			11,498		27,871		3,852		11,639		31,582		43,221		12,683	1968		03/98			3-30
Cambridge	40	Chula Vista, CA			497		1,973		242		498		2,214		2,712		478	1965		12/02			3-30
Carlton Heights	70	Santee, CA			1,099		4,368		528		1,103		4,892		5,995		1,054	1979		12/02			3-30
CBC Apartments	148	Goleta, CA			6,283		24,000		1,068		6,288		25,063		31,351		2,488	1962		01/06			3-30
Cedar Terrace	180	Bellevue, WA			5,543		16,442		2,633		5,652		18,965		24,618		2,654	1984		01/05			3-30
Chimney Sweep Apartments	91	Goleta, CA			5,558		21,320		1,593		5,618		22,852		28,471		2,678	1967		01/06			3-30
Chestnut Street	96	Santa Cruz, CA			6,582		15,689		45		6,582		15,734		22,316		197	2002		07/08			3-30
Country Villas	180	Oceanside, CA			4,174		16,583		2,265		4,187		18,835		23,022		4,225	1976		12/02			3-30
Monterra del Sol	85	Pasadena, CA			2,202		4,794		4,459		2,824		8,631		11,455		2,640	1972		04/99			3-30
Fairways(7)	74	Newport Beach, CA			-		7,850		3,102		9		10,943		10,952		4,402	1972		06/99			3-30
Foothill Commons	360	Bellevue, WA			2,435		9,821		20,026		2,440		29,842		32,282		10,239	1978		03/90			3-30
Foothill Gardens/Twin Creeks	176	San Ramon, CA			5,875		13,992		3,739		5,964		17,642		23,606		7,803	1985		02/97			3-30
Grand Regency	60	Escondido, CA			881		3,498		251		883		3,747		4,630		815	1967		12/02			3-30
Hampton Court	83	Glendale, CA			2,407		5,672		1,693		2,426		7,346		9,772		2,331	1974		06/99			3-30
Hillsdale Garden Apartments	697	San Mateo, CA			22,000		94,681		1,976		22,244		98,548		120,792		7,399	1948		09/06	(8)		3-30
Highlands at Wynhaven	333	Issaquah, WA			16,271		48,932		226		16,271		49,158		65,429		618	2000		08/08			3-30
Hope Ranch Collection	108	Santa Barbara, CA			16,877		4,078		331		4,208		17,078		21,286		882	1965		03/07			3-30
Linden Square	183	Seattle, WA			4,374		11,588		1,094		4,202		12,854		17,056		3,982	1994		06/00			3-30
Lofts at Pinehurst, The	118	Ventura, CA			1,570		3,912		4,030		1,618		7,893		9,512		2,849	1971		06/97			3-30
Magnolia Lane(9)	32	Sunnyvale, CA			-		5,430		18		-		5,448		5,448		281	2001		06/07			3-30
Maple Leaf	48	Seattle, WA			805		3,283		892		828		4,152		4,980		1,578	1986		10/97			3-30
Marbella, The	60	Los Angeles, CA			2,826		11,269		2,518		2,871		13,742		16,613		1,570	1991		09/05			3-30
Marina City Club(10)	101	Marina Del Rey, CA			-		28,167		3,120		-		31,287		31,287		5,278	1971		01/04			3-30
Marina Cove(11)	292	Santa Clara, CA			5,320		16,431		6,750		5,324		23,177		28,501		11,372	1974		06/94			3-30
Meadowood	320	Simi Valley, CA			7,852		18,592		4,135		7,898		22,681		30,579		10,134	1986		11/96			3-30
Mesa Village	133	Clairemont, CA			1,888		7,498		559		1,894		8,052		9,945		1,681	1963		12/02			3-30
Monterra del Mar	123	Pasadena, CA			2,188		5,263		3,998		2,735		8,714		11,449		3,338	1972		09/97			3-30
Mountain View	106	Camarillo, CA			3,167		11,106		891		3,117		12,047		15,164		2,033	1980		01/04			3-30
Pinehurst(12)	28	Ventura, CA			355		1,356		294		6		2,000		2,005		350	1973		12/04			3-30
Salmon Run at Perry Creek	132	Bothell, WA			3,717		11,483		587		3,801		11,987		15,787		3,316	2000		10/00			3-30
Shadow Point	172	Spring Valley, CA			2,812		11,170		1,550		2,820		12,712		15,532		2,924	1983		12/02			3-30
Spring Lake	69	Seattle, WA			838		3,399		400		859		3,777		4,637		1,600	1986		10/97			3-30
Stevenson Place	200	Fremont, CA			996		5,582		8,898		1,001		14,475		15,476		9,365	1971		04/83			3-30
Summerhill Park	100	Sunnyvale, CA			2,654		4,918		1,211		2,656		6,127		8,783		4,229	1988		09/88			3-30
																						(Continued)

F-34

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Real Estate and Accumulated Depreciation

December 31, 2008

(Dollars in thousands)

									Costs
					Initial cost				capitalized		Gross amount carried at close of period
							Buildings and		subsequent to		Land and		Buildings and				Accumulated		Date of	Date		Lives
Property	Units		Location	Encumbrance	Land		improvements		acquisition		improvements		improvements		Total(1)		depreciation		construction	acquired		(years)
Unencumbered apartment communities (continued)
The Laurels at Mill Creek		164	Mill Creek, WA			1,559		6,430		5,051		1,595		11,445		13,040		3,908	1981		12/96		3-30
Tierra del Sol/Norte		156	El Cajon, CA			2,455		9,753		866		2,463		10,611		13,074		2,310	1969		12/02		3-30
Trabucco Villas		132	Lake Forest, CA			3,638		8,640		1,727		3,890		10,115		14,005		4,434	1985		10/97		3-30
Tuscana		30	Tracy, CA			2,828		6,599		151		2,870		6,708		9,578		364	2007		02/07		3-30
Vista Capri - North		106	San Diego, CA			1,663		6,609		549		1,668		7,153		8,821		1,450	1975		12/02		3-30
Wilshire Promenade		149	Fullerton, CA			3,118		7,385		5,429		3,797		12,135		15,932		5,100	1992		01/97		3-30
Woodlawn Colonial		159	Chula Vista, CA			2,344		9,311		1,037		2,351		10,341		12,692		2,346	1974		12/02		3-30
Woodland Commons		236	Bellevue, WA			2,040		8,727		6,279		2,044		15,002		17,046		7,928	1978		03/90		3-30
Woodside Village		145	Ventura, CA			5,331		21,036		1,810		5,341		22,837		28,177		3,046	1987		12/04		3-30
		24,295		1,588,410		650,083		2,042,597		525,270		666,412		2,551,676		3,218,088		627,885

										Costs
	Rentable					Initial cost				capitalized		Gross amount carried at close of period
	Square							Buildings and		subsequent to		Land and		Buildings and				Accumulated		Date of	Date		Lives
Property	Footage		Location	Encumbrance		Land		improvements		acquisition		improvements		improvements		Total(1)		depreciation		construction	acquired		(years)
Other real estate assets
Office Buildings
6230 Sunset Boulevard		35,000	Los Angeles, CA		-		10,200		13,800		-		10,200		13,800		24,000		2,300	1938		07/06		3-30
925 East Meadow		17,400	Palo Alto, CA		-		1,401		3,172		1,106		1,857		3,822		5,679		2,433	1988		11/97		3-30
935 East Meadow(13)		14,500	Palo Alto, CA		-		1,290		3,078		1,245		1,287		4,326		5,613		107	1962		12/07		3-30
17461 Derian		110,000	Irvine, CA		-		3,079		12,315		5,284		3,105		17,573		20,678		5,468	1983		07/00		3-30
22120 Clarendon		38,900	Woodland Hills, CA		-		903		3,600		1,228		1,015		4,716		5,731		1,833	1982		03/01		3-30
Total apartment communities and other real estate assets				$	1,588,410	$	666,956	$	2,078,562	$	534,131	$	683,876	$	2,595,912	$	3,279,788	$	640,026				(Continued)

F-35

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Real Estate and Accumulated Depreciation

December 31, 2008

(Dollars in thousands)

										Costs
						Initial cost				capitalized		Gross amount carried at close of period
								Buildings and		subsequent to		Land and		Buildings and				Accumulated		Date of		Date		Lives
Property	Units		Location	Encumbrance		Land		improvements		acquisition		improvements		improvements		Total(1)		depreciation		construction		acquired		(years)
Other real estate assets (continued)
Development Projects(14)
The Grand		238	Oakland, CA	$	-	$	4,838	$	-	$	83,801	$	88,639	$	-	$	88,639	$	-		12/06		08/05		-
Fourth Street		171	Berkeley, CA		-		8,772		-		16,541		25,313		-		25,313		-		04/08		12/07		-
Joule Broadway		295	Seattle, WA		521		14,500		-		20,473		34,973		-		34,973		-		05/08		05/08
Tasman Place		284	Sunnyvale, CA		-		22,000		-		4,430		26,430		-		26,430		-		09/09		04/08
Predevelopment Projects(15)		820	various		-		63,992		-		8,999		72,991		-		72,991		-		-		-		-
Land held for future development		392	various		-		11,459		-		12,468		23,927		-		23,927		-		-		-		-
Consolidated Development Pipeline		2,200		$	521	$	125,561	$	-	$	146,712	$	272,273	$	-	$	272,273	$	-

(1)   The aggregate cost for federal income tax purposes is approximately $2.59 billion (unaudited).

(2)   The land is leased pursuant to a ground lease expiring 2082.

(3)   The Company's initial ownership was 45%, and the remaining 55% interest was acquired in 2004.

(4)   Phase I was built in 1969 and Phase II was built in 1977.

(5)   The Company's initial ownership was 20%, and the remaining 80% interest was acquired in 2004.

(6)   The Company's initial ownership was 85%, and the remaining 15% interest was acquired in 2007.

(7)   The land is leased pursuant to a ground lease expiring 2027.

(8)   The land was subject to a ground lease that would have expired in 2047.  In the second quarter of 2007, the Company entered into a joint venture with a third-party, and the Company contributed the improvements for an 81.5% interest and the joint venture partner contributed title to the land for an 18.5% interest in the partnership.

(9)   The land is leased pursuant to a ground lease expiring 2070.

(10)  The land is leased pursuant to a ground lease expiring 2067.

(11)  A portion of land is leased pursuant to a ground lease expiring in 2028.

(12)  The land is leased pursuant to a ground lease expiring in 2028.

(13)  The office building is currently under renovation through approximately the first quarter of 2009.

(14)  All construction costs are reflected as real estate under development in the Company's consolidated balance sheets during active development, or the project is in lease-up.

(15)  The 535 - 575 River Oaks commercial building is accounted as part of predevelopment projects for the year ended December 31, 2008.

A summary of activity for rental properties and accumulated depreciation is as follows:
	2008			2007			2006
Rental properties:
Balance at beginning of year	$	3,117,759		$	2,669,187		$	2,431,629
Improvements		87,490			105,673			40,885
Acquisition of real estate		89,120			388,051			202,459
Development of real estate		103,792			9,554			-
Disposition of real estate		(118,373	)		(54,706	)		(5,786	)
Balance at the end of year	$	3,279,788		$	3,117,759		$	2,669,187

	2008			2007			2006
Accumulated depreciation:
Balance at beginning of year	$	541,987		$	465,015		$	389,040
Depreciation expense - Acquisitions		1,252			4,838			2,314
Depreciation expense - Development		557			5,540			-
Depreciation expense - Discontinued operations		2,434			4,603			5,904
Depreciation and amortization expense - Rental properties		105,596			80,491			72,278
Dispositions		(11,800	)		(18,500	)		(2,362	)
Real estate investment held for sale		-			-			(2,159	)
Balance at the end of year	$	640,026		$	541,987		$	465,015

F-36

SIGNATURES

Pursuant to the requirements of Section 13 of 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.

ESSEX PROPERTY TRUST, INC.

(Registrant)

Date: February 27, 2009

By:  /S/ MICHAEL T. DANCE

Michael T. Dance

Executive Vice President, Chief Financial Officer

(Authorized Officer, Principal Financial Officer)

By:  /S/ BRYAN G. HUNT

Bryan G. Hunt

Vice President, Chief Accounting Officer

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Keith R. Guericke and Michael T. Dance, and each of them, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

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 capacity and on the date indicated.

Signature	Title	Date
/S/ KEITH R. GUERICKE	Chief Executive Officer and President, Director, and	February 27, 2009
Keith R. Guericke	Vice Chairman of the Board (Principal Executive Officer)
/S/ MICHAEL J. SCHALL	Senior Executive Vice President, Director, and Chief	February 27, 2009
Michael J. Schall	Operating Officer
/S/ GEORGE M. MARCUS	Director and Chairman of the Board	February 27, 2009
George M. Marcus
/S/ WILLIAM A. MILLICHAP	Director	February 27, 2009
William A. Millichap
/S/ DAVID W. BRADY	Director	February 27, 2009
David W. Brady
/S/ ROBERT E. LARSON	Director	February 27, 2009
Robert E. Larson

S-1

Signature	Title	Date
/S/ GARY P. MARTIN	Director	February 27, 2009
Gary P. Martin
/S/ ISSIE N. RABINOVITCH	Director	February 27, 2009
Issie N. Rabinovitch
/S/ THOMAS E. RANDLETT	Director	February 27, 2009
Thomas E. Randlett
/S/ WILLARD H. SMITH, JR.	Director	February 27, 2009
Willard H. Smith, Jr.

S-2

 EXHIBIT INDEX

Exhibit No.	Document
3.1	Articles of Amendment and Restatement of Essex dated June 22, 1995, attached as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference.
3.2	Articles Supplementary of Essex Property Trust, Inc. for the 8.75% Convertible Preferred Stock, Series 1996A, attached as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed July 16, 1996, and incorporated herein by reference.
3.3	First Amendment to Articles of Amendment and Restatement of Essex Property Trust, Inc., attached as Exhibit 3.1 to the Company’s 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference.
3.4	Certificate of Correction to Exhibit 3.2 dated December 20, 1996; attached as Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
3.5	Articles Supplementary reclassifying 2,000,000 shares of Common Stock as 2,000,000 shares of 7.875% Series B Cumulative Redeemable Preferred Stock, filed with the State of Maryland on February 10, 1998, attached as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed March 3, 1998, and incorporated herein by reference.
3.6	Articles Supplementary reclassifying 500,000 shares of Common Stock as 500,000 shares of 9 1/8% Series C Cumulative Redeemable Preferred Stock, filed with the State of Maryland on November 25, 1998, attached as Exhibit 3.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
3.7	Certificate of Correction to Exhibit 3.2 dated February 12, 1999, attached as Exhibit 3.9 to the Company’s Current Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
3.8	Articles Supplementary reclassifying 6,617,822 shares of Common Stock as 6,617,822 shares of Series A Junior Participating Preferred Stock, filed with the State of Maryland on November 13, 1998, attached as Exhibit 4.0 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
3.9	Articles Supplementary reclassifying 2,000,000 shares of Common Stock as 2,000,000 shares of 9.30% Series D Cumulative Redeemable Preferred Stock, filed with the State of Maryland on July 30, 1999, attached as Exhibit 3.1 to the Company’s 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference.
3.10	Articles Supplementary reclassifying 2,200,000 shares of Common Stock as 2,200,000 shares of 9.25% Series E Cumulative Redeemable Preferred Stock, filed with the State of Maryland on September 9, 1999, attached as Exhibit 3.1 to the Company’s 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference.
3.11	Certificate of Correction to Articles Supplementary reclassifying 2,000,000 shares of Common Stock as 2,000,000 shares of 9.30% Series D Cumulative Redeemable Preferred Stock, attached as Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended March 31, 2000, and incorporated herein by reference.
3.12	Articles Supplementary relating to the 7.8125% Series F Cumulative Redeemable Preferred Stock, attached as Exhibit 3.1 to the Company's Current Report on Form 8-K, filed September 19, 2003, and incorporated herein by reference.
3.13	Articles Supplementary reclassifying 2,000,000 shares of 7.875% Series B Cumulative Redeemable Preferred Stock as 2,000,000 shares of Series B Cumulative Redeemable Preferred Stock, filed with the State of Maryland on January 14, 2004, attached as Exhibit 3.16 to the Company’s Form 10-K for the year ended December 31, 2003, and incorporated herein by reference.
3.14	Articles Supplementary reclassifying 2,000,000 shares of 9.30% Series D Cumulative Redeemable Preferred Stock as 2,000,000 shares of Series D Cumulative Redeemable Preferred Stock, filed with the State of Maryland on January 14, 2004, attached as Exhibit 3.17 to the Company’s Form 10-K for the year ended December 31, 2003, and incorporated herein by reference.

3.15	Articles Supplementary of Essex Property Trust, Inc. reclassifying 5,980,000 shares of Common Stock as 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock, attached as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed July 27, 2006, and incorporated herein by reference.
3.16	Second Amended and Restated Bylaws of Essex Property Trust, Inc., dated as of September 16, 2008, attached as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed September 22, 2008, and incorporated herein by reference.
4.1	Form of 4.875% Series G Cumulative Convertible Preferred Stock Certificate, attached as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed July 27, 2006, and incorporated herein by reference.
10.1	Essex Property Trust, Inc. 1994 Stock Incentive Plan, (amended and restated), attached as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference.*
10.2	First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. attached as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.
10.3	First Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. dated February 6, 1998, attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed March 3, 1998, and incorporated herein by reference.
10.4	Second Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. dated April 20, 1998, attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 23, 1998, and incorporated herein by reference.
10.5	Third Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. dated November 24, 1998, attached as Exhibit 10.5 to the Company’s Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
10.6	Fourth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated July 28, 1999, attached as Exhibit 10.1 to the Company’s 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference.
10.7	Fifth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated September 3, 1999, attached as Exhibit 10.1 to the Company’s 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference.
10.8	Form of Essex Property Trust, Inc. 1994 Non-Employee and Director Stock Incentive Plan, attached as Exhibit 10.3 to the Company’s Registration Statement on Form S-11 (Registration No. 33-76578), which became effective on June 6, 1994, and incorporated herein by reference.*
10.9	Form of Indemnification Agreement between Essex and its directors and officers, attached as Exhibit 10.7 to the Company’s Registration Statement on Form S-11 (Registration No. 33-76578), which became effective on June 6, 1994, and incorporated herein by reference.
10.10	Sixth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. dated as of June 28, 2001, attached as Exhibit 10.1 to the Company’s 10-Q for the quarter ended June 30, 2001 and incorporated herein by reference.*
10.11	Agreement between Essex Property Trust, Inc. and George M. Marcus dated March 27, 2003 attached as Exhibit 10.32 to the Company’s Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.
10.12	Seventh Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. dated as of June 26, 2003, attached as Exhibit 10.1 to the Company’s 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.*

10.13	Eighth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. dated as of September 23, 2003, attached as Exhibit 10.2 to the Company’s 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference.
10.14	Ninth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. dated as of January 8, 2004, attached as Exhibit 10.36 to the Company’s 10-K for the year ended December 31, 2003, and incorporated herein by reference.
10.15	Tenth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. dated as of January 8, 2004, attached as Exhibit 10.37 to the Company’s 10-K for the year ended December 31, 2003, and incorporated herein by reference.
10.16	Eleventh Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P. dated as of March 29, 2004, attached as Exhibit 10.1 to the Company’s 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference. *
10.17	Essex Property Trust, Inc. 2004 Stock Incentive Plan, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference. *
10.18	Indenture, dated October 28, 2005, by and among Essex Property Trust, Inc., as Guarantor, Essex Portfolio, L.P., as the Issuer, and Wells Fargo Bank, N.A., attached as Exhibit 10.1 to the Company’s current report on Form 8-K, filed November 2, 2005, and incorporated herein by reference.
10.19	Fourth Amended and Restated Revolving Credit Agreement, dated as of March 24, 2006, among Essex Portfolio L.P., Bank of America and other lenders as specified therein, attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed March 31, 2006, and incorporated herein by reference.
10.20	Twelfth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of July 26, 2006, attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August 1, 2006, and incorporated herein by reference.
10.21	Thirteenth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of October 26, 2006, attached as Exhibit 10.2 to the Company’s Current Report on Form 10-Q for the quarter ended  September 30, 2006, and incorporated herein by reference.
10.22	Supplemental Indenture, dated November 1, 2006, to the Indenture, dated October 28, 2005, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and Wells Fargo Bank, N.A., attached as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference.
10.23	First Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated as of September 28, 2007, among Essex Portfolio L.P., Bank of America and other lenders as specified therein, attached as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, and incorporated herein by reference.
10.24	Agreement to Restructure Partnership Between Western-Mountain View II Investors, a California Limited Partnership and Essex Portfolio, L.P., a California Limited Partnership and Essex Property Trust, Inc., a Maryland Corporation and Essex Management Corporation, a California Corporation and General Partners of the Partnership, attached as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, and incorporated herein by reference.  (The related agreement to restructure the Western-San Jose IV Investors Limited Partnership, a California Limited Partnership, has basically the same terms as the exhibit and is not being filed, but will be furnished to the SEC upon request.)
10.25	Fourteenth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of December 26, 2007, attached as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed December 28, 2007, and incorporated herein by reference.*

10.26	Form of Awards Agreement under the Essex Property Trust, Inc. 2007 Outperformance Plan, attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December 28, 2007, and incorporated herein by reference.*
10.27	Certificate of Amendment to the 2004 Non-Employee Director Option Program, dated as of February 26, 2008, attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed March 3, 2008, and incorporated herein by reference.*
10.28	Fifteenth Amendment to the First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of February 26, 2008, attached as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed March 3, 2008, and incorporated herein by reference.
10.29	2005 Deferred Compensation Plan (as amended and restated) of Essex Portfolio, L.P., dated as of December 2, 2008, attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December  8, 2008, and incorporated herein by reference.*
10.30	Executive Severance Plan of Essex Property Trust, Inc., amended and restated effective as of December 31, 2008, attached as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed December 8, 2008, and incorporated herein by reference.*
10.31	Credit Agreement by and between Essex CAL-WA, L.P., as Borrower and Northmarq Capital, Inc., as Lender, dated November 17, 2008.
12.1	Schedule of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
14.1	Code of Business Conduct and Ethics, attached as Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference.
21.1	List of Subsidiaries of Essex Property Trust, Inc.
23.1	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
24.1	Power of Attorney (see signature page)
31.1	Certification of Keith R. Guericke, Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Michael T. Dance, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Keith R. Guericke, Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Michael T. Dance, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	* Management contract or compensatory plan or arrangement.

EX-10.31

Exhibit 10.31
 

Loan Number: 080609

CREDIT AGREEMENT

BY AND BETWEEN

ESSEX CAL-WA, L.P., as Borrower

AND

NORTHMARQ CAPITAL, INC., as Lender

November 17,2008

1.	DEFINITIONS		1
	1.1.	Definitions	1
	1.2.	Construction	14
	1.3.	Accounting Principles	15
2.	REVOLVING CREDIT FACILITY		15
	2.1.	Revolving Credit Commitment	15
	2.2.	Term	16
	2.3.	Nature of Lender's Obligations with Respect to the Loan	18
	2.4.	Fees and Costs	18
	2.5.	Loan Requests	21
	2.6.	The Loan	24
	2.7.	The Note	24
	2.8.	Use of Proceeds	25
	2.9.	Additions to the Collateral Pool	25
	2.10.	Release of Collateral	27
	2.11.	Payment of the Loan Balance Without Termination	28
	2.12.	Valuations	28
	2.13.	Termination	29
	2.14.	Material Adverse Change to Borrower or a Collateral Pool Property.....	31
	2.15.	Release of Collateral Followed by a Permanent Loan	32
	2.16.	Loan Documents	33
3.	INTEREST RATES		33
	3.1.	Interest Rate	34
	3.2.	Interest Rate Determinations	34
	3.3.	Interest Periods	34
	3.4.	Reference Bills® Rate Unascertainable: Illegality; Increased Costs	37
4.	PAYMENTS		38
	4.1.	Payments	38
	4.2.	Payment Dates	38
	4.3.	Prepayments	38
	4.4.	Prepayment Fee	40
	4.5.	Additional Payment Obligations	41
	4.6.	Additional Compensation in Certain Circumstances	41

- i - -

	4.7.	Non-Recourse	42
5.	CONDITIONS OF LENDING		42
	5.1.	Initial Borrowing Tranche	43
	5.2.	Each Subsequent Borrowing Tranche	45
6.	REPRESENTATIONS AND WARRANTIES		45
	6.1.	Representations and Warranties	45
	6.2.	Updates	55
	6.3.	Survival of Representations and Warranties	55
7.	COVENANTS		56
	7.1.	Covenants	56
	7.2.	Reporting Requirements	62
	7.3.	Escrows	63
8.	DEFAULT		63
	8.1.	Events of Default	63
	8.2.	Consequences of Event of Default	65
	8.3.	Notice of Sale	66
9.	MISCELLANEOUS		66
	9.1.	Cooperation by Borrower; Borrower's Obligations	66
	9.2.	Successors and Assigns	66
	9.3.	Modifications, Amendments or Waivers	66
	9.4.	Forbearance	66
	9.5.	Remedies Cumulative	67
	9.6.	Reimbursement and Indemnification of Lender and Servicer by Borrower; Taxes	67
	9.7.	Holidays	68
	9.8.	Notices	68
	9.9.	Severability	69
	9.10.	Governing Law; Consent to Jurisdiction and Venue	69
	9.11.	Prior Understanding	70
	9.12.	Duration; Survival	70
	9.13.	Disclosure of Information	70
	9.14.	Exceptions	70
	9.15.	Relationship of Parties; No Third Parties Benefited	70

- ii - -

	9.16.	Authority to File Notices	71
	9.17.	WAIVER OF TRIAL BY JURY	71
	9.18.	Interpretation	71
	9.19.	Brokerage Fee	71
	9.20.	Advertising	72
	9.21.	Time of Essence	72
	9.22.	Counterparts	72
	9.23.	NOTICE OF FINAL AGREEMENT	72
SCHEDULE 1.1(A) LIST OF COLLATERAL POOL PROPERTIES AND ASSOCIATED INITIAL NET OPERATING INCOMES AND MARKET VALUES			1
SCHEDULE 1.1(B) LIST OF COLLATERAL POOL PROPERTY DOCUMENTS			1
SCHEDULE 1.1(C) FORM OF FIXED RATE NOTE			1
SCHEDULE 2.2 FORM OF SCHEDULED MATURITY DATE EXTENSION CONFIRMATION			1
SCHEDULE 2.4.6.2 FORM OF NET SPREAD CONFIRMATION			1
SCHEDULE 2.5 FORM OF LOAN REQUEST			1
SCHEDULE 2.5.2 FORM OF COMMITMENT LETTER			1
SCHEDULE 3.2 NET SPREAD TABLE			1
SCHEDULE 3.3.3 RENEWAL REQUEST			1
SCHEDULE 4.4 BASE RATE BORROWING TRANCHE PREPAYMENT FEE			1

- iii - -

CREDIT AGREEMENT

THIS CREDIT AGREEMENT ("Agreement") is dated as of November 17, 2008 and is made by and between ESSEX CAL-WA, L.P., a California limited partnership, having an address at 925 East Meadow Drive, Palo Alto, CA 94303 ("Borrower") and NORTHMARQ CAPITAL, INC., a Minnesota corporation, having an address at 3500 American Boulevard West, Suite 500, Bloomington, MN 55431-4435.

RECITALS

WHEREAS, Borrower desires to obtain a revolving credit facility from Lender in an amount up to, but not exceeding ONE HUNDRED FIFTY MILLION and NO/100 Dollars ($150,000,000.00, subject to increase to an amount not to exceed TWO HUNDRED FIFTY MILLION and NO/100 Dollars ($250,000,000.00) as provided herein;

WHEREAS, Borrower has offered to grant Lender a security interest in certain real property and other assets owned by Borrower as security for Borrower's repayment of such revolving loan; and

WHEREAS, Lender is willing to make the above described loan to Borrower secured by an interest in such real property and other assets owned by Borrower.

NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows:

1.             DEFINITIONS

1.1.          Definitions.

In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise:

"Addition Fee" shall have the meaning set forth in Section 2.9.3.

"Affiliate" or "Affiliates" shall mean (x) as to Borrower, any Essex Affiliate (as defined in the Security Instrument) and (y) as to any Person (other than Borrower), any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds five percent (5%) or more of any class of the voting or other equity interests of such Person, or (iii) five percent (5%) or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person. Control, as used in this definition, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, including the power to elect a majority of the directors or trustees of a corporation or trust, as the case may be.

"Agreement" shall mean this Credit Agreement, as the same may be supplemented or amended from time to time, including all schedules attached hereto.

"Authorized Officer" shall mean those individuals, designated by written Notice to Lender from Borrower, authorized to execute Notices, reports and other documents on behalf of Borrower required hereunder; provided, further, that the individuals so designated as the Authorized Officers of Borrower shall be the sole representatives of Borrower for the purpose of giving or receiving any Notices permitted or required by this Agreement. Borrower may amend such list of individuals from time to time by giving written Notice of such amendment to Lender.

"Base Rate" shall mean the Reference Bills® Rate plus the applicable Margin (or the LIBO Rate, but only as provided for in Sections 3.4.1and 3.4.2 of this Agreement, plus the applicable Margin). Interest accruing at the Base Rate shall be calculated monthly in the manner provided in this Agreement based on the aggregate principal balance of the Base Rate Borrowing Tranches outstanding during the applicable Month, and such interest shall be paid in arrears, as provided herein. The Reference Bills® Rate (or the LIBO Rate, but only as provided for in Sections 3.4.1and 3.4.2of this Agreement), with respect to each Base Rate Borrowing Tranche shall remain fixed throughout the applicable Interest Period and shall then be recalculated as of each renewal of such Base Rate Borrowing Tranche in accordance with Section 3.2.1. The Margin with respect to each Base Rate Borrowing Tranche shall be determined and redetermined from time to time in accordance with Section 3.2.1.

"Base Rate Borrowing Tranche" shall mean any Borrowing Tranche which accrues interest at the Base Rate.

"Benefit Arrangement" shall mean at any time an "employee benefit plan," within the meaning of Section 3(3) of ERISA, including without limitation a Pension Plan or a Multiemployer Plan and which is maintained, sponsored or otherwise contributed to by any member of the ERISA Group.

"Borrower" shall mean the entity(ies) defined as Borrower in the Recitals together with any Proposed Borrower that joins in this Agreement pursuant to the terms and conditions of Section 2.9.2.2.

"Borrower's knowledge" shall mean the knowledge of any officer or employee of Borrower and/or any Affiliate, including, but not limited to, any Affiliate which manages or operates any of the Collateral Pool Properties.

"Borrowing Date" shall mean, with respect to any Borrowing Tranche, the date of borrowing or renewal, as the case may be, which shall be a Business Day or, in the case of a renewal which would otherwise fall on a day other than a Business Day, the first Business Day thereafter.

"Borrowing Tranche" shall mean each advance at the Base Rate hereunder having a particular Interest Period outstanding at any one time, and all advances at the Prime Rate and each advance at a Fixed Rate pursuant to a Fixed Rate Note. Two (2) or more Borrowing Tranches accruing interest at a Base Rate may be combined to form a single Borrowing Tranche with the same Interest Period (a) without Prepayment Fee or other penalty or fee in the event such two (2) or more Borrowing Tranches mature and are renewed at the same time with the same Interest Period or (b) in the event two (2) or more Borrowing Tranches mature at different times, with the applicable Prepayment Fee if one (1) or more Borrowing Tranches are advanced or prepaid and at the request of the Borrower then combined with one (1) or more other Borrowing Tranches with the same Interest Period. For all purposes hereunder, all Prime Rate fundings required hereunder shall be aggregated and deemed a single Borrowing Tranche.

- 2 -

"Breakage Fee" shall have the meaning set forth in Section 2.5.2.2.

"Business Day" shall mean any day other than (i) a Saturday or Sunday or a legal holiday on which either Lender or Servicer is closed for business, and (ii) in connection with any Loan Request or Renewal Request for a Base Rate Borrowing Tranche which will accrue interest in part based on the LIBO Rate, any day in which business is not carried on in the London interbank market.

"Closing Date" shall mean the first date on which both of the following requirements are met: (i) this Agreement has been fully executed and (ii) all conditions to closing set forth in Section 5.1hereof shall have been satisfied. The closing shall take place on the Closing Date at such time and place as the parties agree. Lender shall notify Borrower promptly after the Closing Date in writing setting forth the Closing Date.

"Collateral" shall mean the Collateral Pool Properties, and all other property of Borrower on which first priority liens and security interests have been granted for the benefit of Lender to secure the Loan and all other obligations of Borrower under the Collateral Pool Property Documents.

"Collateral Agreements" shall mean (i) any agreements between Borrower and Lender for the purpose of establishing replacement reserves for the Collateral Pool Properties or a particular Collateral Pool Property, including (a) agreements establishing a fund to assure the completion of repairs or improvements specified in any such agreement, or (b) agreements assuring a reduction of the outstanding principal balance of the Loan if the occupancy income from a Collateral Pool Property does not increase to a level specified in such agreement, and (ii) any other agreement or agreements between Borrower and Lender which provide for the establishment of any other fund, reserve or account, all of the foregoing to be imposed only pursuant to an express written agreement between Borrower and Lender entered into (a) at the Closing Date, or (b) with respect to real estate properties added to the Collateral Pool pursuant to Section 2.9, at or prior to such addition.

"Collateral Pool", "Collateral Pool Property" and "Collateral Pool Properties" shall mean the multi-family real property or properties, as the case may be, as set forth in Schedule 1.1(A). together with any multi-family real properties which have been added to the Collateral Pool and less any real properties which have been released from the Collateral Pool hereunder. Schedule 1.1(A)shall be deemed amended each time a Collateral Pool Property is added to the Collateral Pool or released from the Collateral Pool.

"Collateral Pool Property Documents" shall mean the Lender's then current versions of the Security Instruments, assignments of leases and rents, guaranties, indemnities, Collateral Agreements, O&M Programs, and any other documents now or in the future executed (or, in the case of a UCC financing statement, authorized) by Borrower, any guarantor or any other person or entity in connection with the Loan or the Collateral, as such documents may be amended from time to time. The Collateral Pool Property Documents shall include, but not be limited to, those documents set forth in Schedule 1.1(B).

- 3 -

"Commitment" shall mean ONE HUNDRED AND FIFTY MILLION and NO/100 Dollars ($150,000,000.00) as of the Closing Date, subject to increase as provided in Section 2.1(b)hereof.

"Commitment Letter" shall mean a commitment letter issued by Lender in connection with locking a Fixed Rate for a Fixed Rate Borrowing Tranche pursuant to Section 2.5.2hereof, which commitment letter shall be substantially in the form of Schedule 2.5.2hereto.

"Deemed Minimum Loan Amount" shall mean an amount equal to twenty-five percent (25%) of the Commitment.

"Dollar", "U.S. Dollars" and the symbol $ shall mean lawful money of the United States of America.

"Early Termination Fee" shall have the meaning set forth in Section 2.13.4hereof.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

"ERISA Group" shall mean, at any time, Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code.

"Event of Default" shall mean any of the events described in Section 8.1or otherwise referred to herein as an "Event of Default".

"Expansion Option Date" shall have the meaning set forth in Section 2.1(b)hereof.

"Expiration Date" shall mean the earlier to occur of (i) the Maturity Date, or (ii) the date specified by Borrower as the Expiration Date under Section 2.13.2.

"Facility Debt Service" shall mean, for the purposes of this Agreement, the sum of (i) the interest due on the Note, including any default interest (with respect to the Revolving Credit Note, subject to a floor of two percent (2.0%), for the Reference Bills® Rate or any other index then being used by Lender to determine the interest rate of the Revolving Credit Note pursuant to this Agreement) and (ii) with respect to the Revolving Credit Note, an amount equal to one hundred basis points (0.01) of the then outstanding amount of such Revolving Credit Note, but exclusive of any voluntary or mandatory principal prepayments allowed or required hereunder. Facility Debt Service shall be annualized at the time of Lender's determination based on the interest rates then accruing under all outstanding Borrowing Tranches, notwithstanding the duration of any Interest Period or the maturity date of any Fixed Rate Note. Facility Debt Service shall be recalculated (a) as of each Loan Request, (b) as of each Renewal Request, or deemed renewal under Section 3.3.3, (c) on or about September 1st of each calendar year during the term of this Agreement, commencing on or about September 1, 2009, (d) as of each addition, substitution or deletion of a property to or from the Collateral Pool, (e) as of each repayment of any principal portion of the Loan, (f) as of the exercise of the First Extension Option or the Second Extension Option, as applicable, (g) as of the Expansion Option Date and (h) upon the occurrence of any Material Adverse Change.

- 4 -

"Facility Debt Service Coverage Ratio" shall mean, at the time of Lender's determination, the then prevailing computation of Net Operating Income of the Collateral Pool Properties divided by the then prevailing computation of Facility Debt Service.

"First Extension Option" shall have the meaning set forth in Section 2.2(b) hereof.

"Fixed Rate" shall mean, with respect to any Fixed Rate Borrowing Tranche, the sum of (i) the US Treasury Security index (as published in The Wall Street Journal or other available publications, as determined by Lender) plus (ii) the applicable Margin.

"Fixed Rate Borrowing Tranche" shall mean any Borrowing Tranche evidenced by a Fixed Rate Note. For all purposes hereunder, each Fixed Rate Note shall evidence a single Fixed Rate Borrowing Tranche and each Fixed Rate Borrowing Tranche shall accrue interest at the Fixed Rate set forth in the Fixed Rate Note evidencing such Borrowing Tranche. If Borrower exercises the First Extension Option or the Second Extension Option, as applicable, in accordance with Section 2.2hereof, (i) the Fixed Rate that will be applicable for any Fixed Rate Borrowing Tranche existing on the applicable Scheduled Maturity Date during such applicable extension period will be redetermined by Lender based on the then current market level determined in its sole discretion and communicated to Borrower (provided, that Lender will communicate an indicative (but not final) Fixed Rate for such extension period to Borrower at least forty-five (45) days prior to the applicable Scheduled Maturity Date) and (ii) the Margin that will be used to determine the Fixed Rate applicable for any Fixed Rate Borrowing Tranche advanced during such applicable extension period shall be determined by Lender based on the then current market level determined in its sole discretion and communicated to Borrower in accordance with Section 2.5.2. Notwithstanding the foregoing, if Borrower exercises the First Extension Option or the Second Extension Option, as applicable, in accordance with Section 2.2 hereof, Borrower may elect at any time during such extension period to convert any Fixed Rate Borrowing Tranche existing on the applicable Scheduled Maturity Date to a Base Rate Borrowing Tranche, and the Net Spread applicable for any such Base Rate Borrowing Tranche(s) during such extension period shall be determined by Lender in accordance with Section 2.4.6.2.

"Fixed Rate Note" shall mean collectively (or individually, as and when the context shall require) any Freddie Mac Multifamily Note evidencing indebtedness accruing interest at the fixed interest rate set forth in such Multifamily Note as calculated pursuant to such Multifamily Note, together with all amendments, extensions, renewals, replacements, refinancings, refundings or replacements of any such Multifamily Note, in whole or in part. The form of each Fixed Rate Note shall be substantially similar to the form attached hereto as Schedule 1.1(C).

- 5 -

"Freddie Mac" shall mean the Federal Home Loan Mortgage Corporation.

"GAAP" shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section 1.3, and applied on a consistent basis both as to classification of items and amounts.

"Indebtedness" shall mean at any time and from time to time the principal amount of the Revolving Credit Note and/or any Fixed Rate Note then outstanding, interest thereon, and any other amounts due under the Revolving Credit Note and/or any Fixed Rate Note, this Agreement, the Security Instrument(s) or any other Loan Document, including, without limitation, prepayment premiums, Prepayment Fees, Unused Facility Fees, Minimum Usage Fees, other fees due hereunder or thereunder, late charges, default interest, and advances to protect the security of the Security Instrument under Section 12 of the Security Instrument.

"Initial Market Value" shall mean the Market Value of any Collateral Pool Property as of the date the same is included in the Collateral Pool pursuant to the provisions hereof. The Initial Market Value of the Collateral Pool Properties is shown at Schedule 1.1(A).

"Interest Period" shall have the meaning assigned to such term in Section 3.3.

"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

"Law" shall mean any applicable law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any Official Body.

"Lender" shall mean at any time and from time to time, the entity that is the holder of the Revolving Credit Note and any Fixed Rate Note, provided that Lender may in its sole discretion designate Servicer to perform some or all of Lender's obligations under this Agreement, the Revolving Credit Note, any Fixed Rate Note and the other Loan Documents. NorthMarq, the initial Lender, intends to sell the Revolving Credit Note and any Fixed Rate Note to Freddie Mac and assign all of its interests in this Agreement and the other Loan Documents to Freddie Mac subsequent to the Closing Date, provided the Collateral Pool Properties serve as Collateral for the Loan as of the date of said assignment.

"LIBO Rate" shall mean, with respect to any Base Rate Borrowing Tranche, the rate of interest, rounded to the nearest basis point (i.e., one-hundredth of one percent (.0001)), displayed as of 11:00 a.m. London time on the second Business Day preceding the first day of the applicable Interest Period on the Bloomberg, L.P., page "BBAM", as the British Bankers Association ("BBA") LIBO Rate (such page, or such other page as may replace page BBAM on that service, or at the option of Lender (i) the applicable page on another credible and generally recognized service which electronically transmits or displays BBA LIBO Rates for the applicable Interest Period or (ii) any publication of LIBO Rates available from BBA for the applicable Interest Period, is referred to as the "Designated Bloomberg Page") for purposes of calculating effective rates of interest for loans or obligations for an amount comparable to such Borrowing Tranche and having a term equal to the Interest Period. If the Designated Bloomberg Page is not available, but such information is generally still published, the LIBO Rate for such Interest Period will be the BBA LIBO Rate most recently published for such Interest Period.

- 6 -

"Lien" shall mean any Security Instrument, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing).

"Loan" shall mean the sum of all Borrowing Tranches outstanding at any one time.

"Loan Document" or "Loan Documents" shall mean any or all of this Agreement, the Revolving Credit Note, the Fixed Rate Note(s), if any, the Collateral Pool Property Documents and any other instruments, certificates or documents delivered or contemplated to be delivered hereunder or thereunder or in connection herewith or therewith, as the same may be supplemented or amended from time to time in accordance herewith or therewith.

"Loan to Value Ratio" shall mean the product, expressed as a percentage, determined by dividing the Loan by the aggregate of the then current Market Values of the Collateral Pool Properties. The Loan to Value Ratio shall be recalculated based on Lender's then current underwriting policies consistently applied (a) as of each Loan Request, (b) as of each Renewal Request, or deemed renewal under Section 3.3.3, (c) on or about September 1st of each calendar year during the term of this Agreement, commencing on or about September 1, 2009, (d) as of each addition, substitution or deletion of a property to or from the Collateral Pool, (e) as of each repayment of any principal portion of the Loan, (f) as of the exercise of the First Extension Option or the Second Extension Option, as applicable, (g) as of the Expansion Option Date and (h) upon the occurrence of any Material Adverse Change.

"Loan Request" shall have the meaning given to such term in Section 2.5.

"Margin" shall mean (i) with respect to a Base Rate Borrowing Tranche, the sum of the Net Spread and the Servicing Spread and (ii) with respect to a Fixed Rate Borrowing Tranche, the sum of the Required Net Yield and the Servicing Spread.

"Market Value" shall mean as to each individual Collateral Pool Property, the Initial Market Value of such property, as such Market Value may be subsequently increased or decreased in accordance with the terms and conditions of this Agreement; provided, that, with respect to Collateral Pool Properties acquired by Borrower (or an Affiliate) within twelve months prior to such property being added to the Collateral Pool, the Initial Market Value shall not exceed the sum of (i) the purchase price paid by Borrower (or an Affiliate) for such Collateral Pool Property, (ii) the acquisition costs (not to exceed three percent (3%) of the purchase price paid by Borrower (or an Affiliate) paid by Borrower (or an Affiliate) in connection with the purchase of such Collateral Pool Property and (iii) any escrows held by or on behalf of Lender on account of capital expenditures (i.e. replacement reserves or repair escrows) for such Collateral Pool Property.

- 7 -

"Material Adverse Change" shall mean any set of circumstances or events which, in Lender's reasonable discretion would have or is then reasonably expected to have a material adverse effect on (i) the validity or enforceability of this Agreement or the other Loan Documents taken as a whole, (ii) the ability of Borrower to duly and punctually pay or perform its Obligations, (iii) the ability of Lender to enforce its legal remedies pursuant to this Agreement or the other Loan Documents taken as a whole, including, without limitation, by realizing upon any Collateral or any guaranty, (iv) the business prospects or financial condition of Borrower or any guarantor, (v) the financial performance or Market Value of any Collateral Pool Property, or (vi) the compliance of any Collateral Pool Property with any Law dealing with the use, ownership or operating of a Collateral Pool Property, the noncompliance with which could reasonably be expected to have a material adverse effect on the financial performance or Market Value of any Collateral Pool Property.

"Maturity Date" shall mean, the earlier of (i) the Scheduled Maturity Date and (ii) the date on which the unpaid principal balance of the Revolving Credit Note and/or any Fixed Rate Note becomes due and payable by acceleration or otherwise pursuant to this Agreement or any Loan Document or the exercise by Lender of any right or remedy under this Agreement or any Loan Document.

"Maximum Facility Available" shall mean, at the time of determination, the maximum amount which Borrower may borrow under this Agreement without violating the Sublimits set forth in Section 2.5.3.

"Maximum Loan to Value Ratio" shall mean sixty-five percent (65%).

"Minimum Usage Fee" shall have the meaning set forth in Section 2.4.4.

"Month" shall mean the appropriate calendar month.

"Monthly Payment Statement" shall have the meaning given to such term in Section 4.2.

"Mortgage Review Fee" shall mean a non-refundable fee in the amount of FIVE THOUSAND and NO/100 Dollars ($5,000.00) per real property.

"Multiemployer Plan" shall mean any employee benefit plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to which Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five (5) Pension Plan years, has made or. had an obligation to make such contributions.

"Net Operating Income" shall mean an annualized dollar amount, as determined by Lender in its sole but reasonable discretion in accordance with Lender's then applicable underwriting standards, which is equal to all income from the operations of the Collateral Pool Properties that is available for repayment of debt and return of equity after deducting for economic vacancy and all expenses (exclusive of debt service on account of the Loan). Net Operating Income shall be calculated by Lender for each individual Collateral Pool Property as of the Closing Date and thereafter on or about September 1st, commencing on or about September 1, 2009, of each calendar year during the term of this Agreement, in accordance with Lender's then current methodology, consistently applied, excluding from such calculation expenses from depreciation, amortization, interest expenses, non-recurring items and capital expenses, but including in such calculation an assumed capital expense reserve in an amount consistent with Lender's then current requirements for such capital reserves. In addition, upon the addition, substitution or release of any real property in the Collateral Pool pursuant to the provisions hereof, Lender shall redetermine Net Operating Income for the Collateral Pool in the following manner: (i) in the event of an addition of a real property to the Collateral Pool, Lender shall add the Net Operating Income of the real property added to the Collateral Pool to the most recent determination of Net Operating Income for the existing Collateral Pool; (ii) in the event of a release of a real property from the Collateral Pool, Lender shall subtract the Net Operating Income of the real property released from the Collateral Pool from the most recent determination of Net Operating Income for the Collateral Pool; of (iii) in the event of a substitution of a real property in the Collateral Pool, Lender shall (x) add the Net Operating Income of the real property added to in the Collateral Pool to the most recent determination of Net Operating Income for the existing Collateral Pool and (y) subtract the Net Operating Income of the real property released from the Collateral Pool from the most recent determination of Net Operating Income for the Collateral Pool.

- 8 -

"Net Spread" shall have the meaning set forth in Section 2.4.6.2with respect to any Base Rate Borrowing Tranche hereunder.

"NorthMarq" shall mean NorthMarq Capital, Inc., a Minnesota corporation.

"Note" shall mean the Revolving Credit Note and the Fixed Rate Note(s), if any, individually or collectively, as the context may require.

"Notice" shall have the meaning given to that term in Section 9.8.

"O&M Programs" shall mean a written program of operations and maintenance for a Collateral Pool Property approved in writing by Lender.

"Obligation" shall mean any obligation or liability of Borrower to Lender, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with this Agreement, the Revolving Credit Note, any Fixed Rate Note or any other Loan Document, excluding any Permanent Loan or any other liability of Borrower to Lender not created under this Agreement, the Revolving Credit Note, any Fixed Rate Note or the other Loan Documents.

"Official Body" shall mean any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

"Payment Date" shall have the meaning given to that term in Section 4.2.

"PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.

- 9 -

"Pension Plan" shall mean at any time an employee pension benefit plan which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five (5) years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group.

"Permanent Loan" shall have the meaning assigned to that term in Section 2.15.1.

"Permanent Loan Collateral" shall have the meaning assigned to that term in Section 2.15.1.

"Permitted Exceptions" shall mean:

(a)           Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable;

(b)           Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable;

(c)           Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of a real property, none of which (i) materially impairs the use of such property or the value thereof, (ii) is violated in any material respect by existing or proposed structures or land use, subject to "grandfathering" and other permitted non-conforming uses as permitted by Lender during underwriting, or (iii) impairs Borrower's ability to rebuild, repair or restore any improvements located on a Collateral Pool Property following a casualty unless the same has been disclosed to Lender in writing and is subject to law and ordinances coverage acceptable to Lender in its sole discretion;

(d)           Liens, security interests and mortgages in favor of Lender for the benefit of Lender;

(e)           Encumbrances listed as exceptions to Lender's title insurance policies for the Collateral Pool Properties;

(f)           Rights of tenants under residential leases and other retail and commercial leases permitted under the Loan Documents;

(g)           Liens on or leases of personal property; and

(h)           Liens or encumbrances otherwise agreed to by Lender in writing from time to time.

"Person" shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity.

- 10 -

"Potential Default" shall mean any event or condition which, with the passage of time, the giving of notice, or a determination by Lender, or any combination of the foregoing, would constitute an Event of Default.

"Prepayment Fee" shall have the meaning set forth in Section 4.4.

"Prime Rate" shall mean the rate of interest per annum established on the first day of each Month during the term hereof and published in The Wall Street Journal as the prime rate, or any comparable publication reasonably selected by Lender in the event The Wall Street Journal no longer publishes the prime rate.

"Prime Rate Borrowing Tranche" shall mean all Prime Rate fundings in the aggregate which accrue interest at the Prime Rate. Notwithstanding anything to the contrary contained herein, no Prime Rate Borrowing Tranches will be permitted hereunder except as may be required pursuant to Sections 3.3.2or 3.4.3.

"Prohibited Transaction" shall mean any prohibited transaction as defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which neither an individual nor a class exemption has been issued by the United States Department of Labor.

"Proposed Borrower" shall mean a Single Asset Entity that is an Affiliate of Borrower and is the owner of one or more properties which have been proposed to be included in the Collateral Pool, pursuant to the terms hereof.

"Rate Lock" shall have the meaning set forth in Section 2.5.2.1.

"Rate Lock Termination Event" shall have the meaning set forth in Section 2.5.2.2.

"Reference Bills " shall mean the unsecured general obligations of Freddie Mac designated by Freddie Mac as "Reference Bills® Securities" and issued by Freddie Mac at regularly scheduled auctions. In the event Freddie Mac shall at any time cease to designate any unsecured general obligations of Freddie Mac as "Reference Bills , Lender shall be permitted to exercise its rights under Section 3.4.

"Reference Bills® Rate" shall mean, with respect to each Base Rate Borrowing Tranche, the "Money Market Yield" (or any equivalent terms designated by Lender) applicable to the Reference Bills® (i) having an original maturity most comparable to the term of the Interest Period for the applicable Borrowing Tranche and (ii) issued at the most recently conducted regularly scheduled auction preceding the commencement of the Interest Period for such Borrowing Tranche, as the same is displayed (a) on the Reference Bill Index Page (i.e., the Freddie Mac debt securities web page accessed via the Freddie Mac website at www.freddiemac.com), or (b) at the option of Lender, in any publication of Reference Bills® auction results designated by Freddie Mac. Notwithstanding any of the foregoing to the contrary, in the event Freddie Mac has not conducted a Reference Bills® auction within the sixty (60) calendar day period prior to the first day of the Interest Period for any Base Rate Borrowing Tranche requested under Sections 2.5or 3^3 hereof, the Reference Bills® Rate shall be deemed to be unascertainable and Lender shall be permitted to exercise its rights under Section 3.4.

- 11 -

"Release Fee" shall have the meaning set forth in Section 2.10.

"Renewal Date" shall have the meaning given to such term in Section 3.3.3.

"Renewal Request" shall have the meaning given to such term in Section 3.3.3.

"Reportable Event" shall mean a reportable event described in Section 4043 of ERISA and regulations thereunder with respect to a Pension Plan or Multiemployer Plan.

"Required Net Yield" shall mean the required net yield used to calculate the Margin applicable to any Fixed Rate Borrowing Tranche advanced on or after the Closing Date, as determined by Lender in its sole discretion in accordance with Section 2.5.2.

"Revolving Credit Note" shall mean the Multifamily Note of Borrower, in the face amount of the Commitment, which evidences the Loan, together with all amendments, extensions, renewals, replacements, refinancings or refundings thereof in whole or in part.

"Revolving Credit Note Re-Pricing Termination Option" shall have the meaning given to such term in Section 2.13.2.

"Scheduled Maturity Date" shall mean December 1, 2013, unless otherwise extended pursuant to Section 2.2(b)and Section 2.2(c)hereof.

"Second Extension Option" shall have the meaning set forth in Section 2.2(c) hereof.

"Security Instrument" shall mean any mortgage, deed of trust, or deed to secure debt secured by any of the Collateral Pool Property(ies).

"Seismic Report Fee" shall mean a non-refundable fee equal to Lender's reasonable out-of-pocket costs and expenses incurred in obtaining a seismic report with respect to any real property for which Lender, in its discretion, deems such report necessary.

"Servicer" shall mean NorthMarq, or any subsequent independent contractor appointed by Lender, at Lender's sole cost and expense, to administer the Loan and the Loan Documents or otherwise perform certain functions in connection therewith under the terms of a Servicing Agreement. Pursuant to the terms of any Servicing Agreement, Lender may designate Servicer to perform some or all of Lender's obligations under this Agreement, the Revolving Credit Note, any Fixed Rate Note and the other Loan Documents.

"Servicing Agreement" shall mean any agreement between Lender and an independent contractor pursuant to which Lender appoints said independent contractor as Servicer under this Agreement, the Revolving Credit Note, any Fixed Rate Note and the other Loan Documents.

"Servicing Spread" shall mean four basis points (0.0004).

"Single Asset Entity" shall mean an entity which conforms to the requirements of Section 33 of the Security Instrument.  Notwithstanding the foregoing, a Single Asset Entity may own one or more of the Collateral Pool Properties so long as each Collateral Pool Property is subject to the Liens created pursuant to the Loan Documents.

- 12 -

"Solvent" shall mean, with respect to any Person on a particular date, that on such date (i) the fair value of the assets of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability of such Person after giving effect to any rights of contribution, subrogation or indemnification of such Person.

"Streamlined Refinancing Program" shall mean Lender's then current program for refinancing a performing loan in its loan portfolio.

"Sublimits" shall have the meaning assigned to that term in Section 2.5.3.

"Treasury Rate" shall mean the yield rate as of the date which is five (5) Business Days prior to the Expiration Date, on a U.S. Treasury Security with a term of five (5) years and a maturity date most nearly approximating the Maturity Date, as reported in The Wall Street Journal, expressed as a decimal calculated to five (5) digits. In the event no yield is published on the applicable date for such Treasury Security, Lender, in its reasonable discretion, shall select the non-callable U.S. Treasury Security maturing in the same year as the Maturity Date with the lowest yield published in The Wall Street Journal as of the applicable date. If the publication of such yield rate in The Wall Street Journal is discontinued for any reason, Lender shall, in its reasonable discretion, select a security with a comparable rate and term to a U.S. Treasury Security with a term of five (5) years and a maturity date most nearly approximating the Maturity Date.

"Underwriting Materials" shall mean all materials required by Lender pursuant to Lender's then current loan underwriting requirements including, without limitation, a current appraisal acceptable to Lender for the proposed real property(ies).

"Uniform Commercial Code" shall have the meaning assigned to that term in Section 6.1.13.

"Unused Facility Fee" shall have the meaning assigned to that term in Section 2.4.3.

"Valuation" shall have the meaning set forth in Section 2.12.

- 13 -

"Window Period" shall mean, with respect to any Fixed Rate Note, the three (3) consecutive calendar month period prior to the initial Scheduled Maturity Date.

1.2.          Construction.

Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents.

1.2.1.       Number; Inclusion.

References to the plural include the singular, the plural, the part and the whole; "or" has the inclusive meaning represented by the phrase "and/or", and "including" has the meaning represented by the phrase "including without limitation";

1.2.2.       Determination.

References to "determination" of or by Lender shall be deemed to include good-faith estimates by Lender (in the case of quantitative determinations) and good-faith beliefs by Lender (in the case of qualitative determinations) and such determinations shall be conclusive absent manifest error;

1.2.3.        Lender's Discretion and Consent; References to Lender's Requirements.

Whenever Lender is granted the right herein to act in its sole discretion or to grant or withhold consent, such right shall be exercised in good faith, and whenever a reference is made to "Lender's then current requirements", "Lender's then current programs" or the like, such reference shall be deemed to mean such requirements, programs and the like as are then standard in the secondary multifamily mortgage industry, as such standards are generally reflected in the then current version of the Freddie Mac Multifamily Seller/Servicer Guide;

1.2.4.        Documents Taken as a Whole.

The words "hereof," "herein," "hereunder," "hereto" and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole and not to any particular provision of this Agreement or such other Loan Document;

1.2.5.        Headings.

The section and other headings contained in this Agreement or such other Loan Document and the Table of Contents preceding this Agreement or such other Loan Document are for reference purposes only and shall not control or affect the construction of this Agreement or such other Loan Document or the interpretation thereof in any respect;

1.2.6.        Implied References to this Agreement.

Article, section, subsection, clause, and schedule references are to this Agreement unless otherwise specified, and schedules attached hereto are incorporated herein by this reference;

- 14 -

1.2.7.        Persons.

Reference to any Person includes such Person's successors and assigns (but only if such successors and assigns are permitted by this Agreement or such other Loan Document, as the case may be), and reference to a Person in a particular capacity excludes such Person in any other capacity;

1.2.8.        Modifications to Documents.

Reference to any agreement (including this Agreement and any other Loan Document together with any schedules and exhibits hereto or thereto), document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated;

1.2.9.        From, To and Through.

Relative to the determination of any period of time, "from" means "from and including", "to" means "to but excluding", and "through" means "through and including"; and

1.2.10.      Conflicts with Other Loan Documents.

In the event of any conflict between the terms and provisions of this Agreement and any other Loan Document, the terms and provisions of this Agreement shall prevail.

1.3.          Accounting Principles.

Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate) and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. In the event of any change after the date hereof in GAAP, and if such change would result in the inability to determine compliance with any financial covenants set form herein, then the parties hereto agree to endeavor, in good faith, to agree upon an amendment to this Agreement that would adjust such financial covenants in a manner that would not affect the substance thereof, but would allow compliance therewith to be determined in accordance with Borrower's financial statements at that time.

2.             REVOLVING CREDIT FACILITY

2.1.          Revolving Credit Commitment.

(a) Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, Lender agrees to advance funds to Borrower at any time or from time to time during the term hereof, provided that after giving effect to any particular advance the Loan amount outstanding at any one time shall not exceed the amount which would be permitted to be outstanding under the Sublimits. Within such limits of time and amount and subject to the other provisions of this Agreement, Borrower may borrow, repay and reborrow pursuant to this Section 2.1. All advances under this Agreement, the Revolving Credit

- 15 -

Note and any Fixed Rate Note constitute a single indebtedness, and all of the Collateral is security for the Revolving Credit Note, any and all Fixed Rate Notes then outstanding and for the performance of all of the Obligations.

(b)           Prior to the twenty-fourth month anniversary of the Closing Date, (the "Expansion Option Date") Borrower shall have the one-time right to increase the Commitment as described below, up to a maximum aggregate amount of TWO HUNDRED FIFTY MILLION and NO/100 Dollars ($250,000,000.00); provided, that (x) Borrower shall be in compliance with the Sublimits, (y) Borrower shall be in good standing under its jurisdiction of formation and, if required by law in the applicable jurisdiction where a Collateral Pool Property is located, shall be qualified to do business and in good standing in each jurisdiction where the Collateral Pool Properties are located and (z) there are no Potential Defaults or Event of Default(s) that have occurred and are continuing. Borrower shall exercise such right by (i) delivering to Lender on or prior to the Expansion Option Date written Notice of its intent to increase the Commitment, which Notice shall be accompanied by a deposit for all reasonable costs and expenses that Lender and Servicer may incur in connection with documenting such increase, including, but not limited to, reasonable attorneys' fees and (ii) by executing and where appropriate acknowledging (a) amendments to this Agreement, the Revolving Credit Note and any of the other Loan Documents, in form and substance reasonably acceptable to Lender, as Lender deems necessary to evidence the increase in the Commitment, and (b) any other amendments or agreements deemed necessary by Lender, including, but not limited to, amendments to the title insurance policy(ies) increasing the amount of coverage provided thereunder. All amendments referred to in clause (ii)(a) of the preceding sentence shall be prepared by Lender's counsel and delivered to Borrower within a reasonable time of Borrower's Notice to Lender under clause (i) of the preceding sentence. Upon Borrower's compliance with all of the provisions of this Section 2.1(b) and upon Borrower's payment or reimbursement of all reasonable costs and expenses that Lender and Servicer incurred in connection with documenting the increase of the Commitment contemplated hereunder (including, but not limited to, reasonable attorneys' fees) that exceed any deposit delivered by Borrower above, the Commitment shall be increased to an aggregate amount of TWO HUNDRED FIFTY MILLION and NO/100 Dollars ($250,000,000.00). Borrower shall have the right at any time to request an increase in the Commitment; if such request occurs on or after the Expansion Option Date or is for amounts in excess of an aggregate amount of TWO HUNDRED FIFTY MILLION and NO/100 Dollars ($250,000,000.00), any such request shall be subject to Lender's approval in its sole discretion and subject to re-pricing and such other conditions as Lender shall require in its sole discretion.

2.2.          Term.

(a)           The term of the Loan shall commence on the Closing Date and shall terminate on the Expiration Date unless otherwise terminated earlier pursuant to the provisions hereof. The entire Indebtedness shall be due and payable on the Scheduled Maturity Date without prepayment penalty or fee (other than accrued and unpaid Minimum Usage Fees or Unused Facility Fees due hereunder).

(b)           Provided the following conditions are met and subject to Lender's approval, in its sole and reasonable discretion, Borrower shall have the option to extend the Scheduled Maturity Date for an additional period of one (1) year (the "First Extension Option"):

- 16 -

(i)       Borrower shall provide written Notice to Lender at least sixty (60) days, but no more than ninety (90) days, prior to the initial Scheduled Maturity Date, which Notice shall be supplemented by such additional information as Lender may reasonably require to determine, in its sole and reasonable discretion, whether the conditions set forth in this Section 2.2(b)have been satisfied;

(ii)      Borrower shall pay all of Lender's and Servicer's costs and expenses (including, without limitation, reasonable attorneys' fees) incurred in connection therewith prior to the initial Scheduled Maturity Date;

(iii)     Borrower shall provide to Lender all documents in connection therewith as Lender shall require, in its sole and reasonable discretion (including, without limitation, any new or amended Notes);

(iv)     no Potential Default or Event of Default shall have occurred and be continuing under this Agreement or any of the Loan Documents; and

(v)      Borrower shall be in compliance with the Sublimits.

(c)           Provided the following conditions are met and subject to Lender's approval, in its sole and reasonable discretion, Borrower shall have the option to extend the Scheduled Maturity Date for an additional period of one (1) year (the "Second Extension Option"):

(i)       Borrower shall have exercised the First Extension Option pursuant to Section 2.2(b);

(ii)      Borrower shall provide written Notice to Lender at least sixty (60) days, but no more than ninety (90) days, prior to the Scheduled Maturity Date, which Notice shall be supplemented by such additional information as Lender may reasonably require to determine, in its sole and reasonable discretion, whether the conditions set forth in this Section 2.2(c)have been satisfied;

(iii)     Borrower shall pay all of Lender's and Servicer's reasonable costs and expenses (including, without limitation, reasonable attorneys' fees) incurred in connection therewith prior to the then Scheduled Maturity Date;

(iv)     Borrower shall provide to Lender all documents in connection therewith as Lender shall require, in its sole and reasonable discretion (including, without limitation, any new or amended Notes);

(v)      no Potential Default or Event of Default shall have occurred and be continuing under this Agreement or any of the Loan Documents; and

(vi)     Borrower shall be in compliance with the Sublimits.

(d)           Provided that if the First Extension Option is exercised pursuant to Section 2.2(b) hereof, the Scheduled Maturity Date shall be December 1, 2014, and (i) the Net Spread applicable for any Base Rate Borrowing Tranche shall be redetermined by Lender in its sole discretion in accordance with Section 2.4.6.2hereof and (ii) the Fixed Rate applicable for any Fixed Rate Borrowing Tranche shall be redetermined by Lender in its sole discretion in accordance with Section 2.4.6.1. Notwithstanding the foregoing, if Borrower exercises the First Extension Option, Borrower may elect at any time during such extension period to convert any Fixed Rate Borrowing Tranche existing on the initial Scheduled Maturity Date to a Base Rate Borrowing Tranche, and the Net Spread applicable for any such Base Rate Borrowing Tranche(s) during such extension period shall be determined by Lender in accordance with Section 2.4.6.2 below. Lender and Borrower shall evidence the new Scheduled Maturity Date and applicable Net Spread pursuant to this Section 2.2(d)by executing a Scheduled Maturity Date extension confirmation substantially in the form attached hereto as Schedule 2.2.

- 17 -

(e)           Provided that if the Second Extension Option is exercised pursuant to Section 2.2(c)hereof, the Scheduled Maturity Date shall be December 1, 2015, and (i) the Net Spread applicable for any Base Rate Borrowing Tranche shall be redetermined by Lender in its sole discretion in accordance with Section 2.4.6.2hereof and (ii) the Fixed Rate applicable for any Fixed Rate Borrowing Tranche shall be redetermined by Lender in its sole discretion in accordance with Section 2.4.6.1. Notwithstanding the foregoing, if Borrower exercises the Second Extension Option, Borrower may elect at any time during such extension period to convert any Fixed Rate Borrowing Tranche existing on the Scheduled Maturity Date, as extended pursuant to Section 2.2(d)hereof, to a Base Rate Borrowing Tranche, and the Net Spread applicable for any such Base Rate Borrowing Tranche(s) during such extension period shall be determined by Lender in accordance with Section 2.4.6.2below. Lender and Borrower shall evidence tihie new Scheduled Maturity Date and applicable Net Spread pursuant to this Section 2.2(e)by executing a Scheduled Maturity Date extension confirmation substantially in the form attached hereto as Schedule 2.2.

(f)            If Borrower does not exercise the First Extension Option, the entire Indebtedness shall be payable on the initial Scheduled Maturity Date without the payment of a prepayment penalty or fee (other than accrued and unpaid Minimum Usage Fees or Unused Facility Fees due hereunder).

(g)           If the Borrower does not exercise the Second Extension Option, the entire Indebtedness shall be payable on the Scheduled Maturity Date, as extended pursuant to Section 2.2(d)hereof, without the payment of a prepayment penalty or fee (other than accrued and unpaid Minimum Usage Fees or Unused Facility Fees due hereunder).

2.3.           Nature of Lender's Obligations with Respect to the Loan.

Subject to the provisions of this Agreement, the aggregate amount of the Loan outstanding hereunder at any time shall never exceed the amount which would be permitted to be outstanding under the Sublimits. Lender shall have no obligation to make any additional advance hereunder on or after the Business Day immediately preceding the Maturity Date. While a Potential Default, Event of Default or Material Adverse Change exists, Lender may refuse to make any additional advances to Borrower.

2.4.           Fees and Costs.

- 18 -

2.4.1.        Fees Paid Prior to the Closing Date.

Lender acknowledges that, in addition to Borrower's obligations under Section 5.1.6, Borrower has paid to Lender, as consideration for Lender's costs in underwriting the transaction contemplated hereby, (x) a non-refundable transaction fee in the amount of TWO HUNDRED FIFTY THOUSAND and NO/100 Dollars ($250,000.00) and (y) a Mortgage Review Fee and a Seismic Report Fee, if and as applicable, for each property described at Schedule 1.1(A)and proposed by Borrower to be included in the Collateral Pool on the Closing Date.

2.4.2.        Costs Due on the Closing Date.

2.4.2.1. Transaction Costs. Borrower shall pay on the Closing Date (simultaneously with the closing of the Loan), as further consideration for Lender's cost in underwriting the commitment, all reasonable out-of-pocket costs, expenses and disbursements (including fees and expenses of counsel for Lender and Servicer), incurred by Lender and Servicer in connection with the negotiation and execution of this Agreement and other instruments and documents to be delivered hereunder.

2.4.3.        Unused Facility Fee.

Accruing from the Closing Date until the Maturity Date, Borrower shall pay to Lender, as consideration for Lender's commitment hereunder, a nonrefundable unused facility fee (the "Unused Facility Fee") equal to fifteen basis points (0.0015) per annum (computed on the basis of a year of 360 days and actual days elapsed) on the average daily difference between the amount of (i) the Commitment (reduced by the outstanding principal amounts of all Fixed Rate Borrowing Tranches) and (ii) the greater of (a) the Deemed Minimum Loan Amount (reduced by the outstanding principal amounts of all Fixed Rate Borrowing Tranches) or (b) the outstanding principal amount of the Loan (reduced by the outstanding principal amounts of all Fixed Rate Borrowing Tranches). Except as otherwise provided in connection with Borrower's election to terminate this Agreement prior to the Maturity Date pursuant to Section 2.13.2, in which instance a liquidated Unused Facility Fee shall be payable in accordance with the provisions of Section 2.13.2, all Unused Facility Fees shall be payable monthly in arrears on each Payment Date and shall be set forth on the applicable Monthly Payment Statement. Unused Facility Fee payments which cover less than one (1) month shall be prorated based on the actual number of days elapsed. Any accrued but unpaid Unused Facility Fees shall also be due and payable on the Expiration Date.

2.4.4.        Minimum Usage Fee.

The average annual outstanding borrowings under the Note (as reduced by the outstanding principal amounts of all Fixed Rate Borrowing Tranches) must equal or exceed the Deemed Minimum Loan Amount (as reduced by the outstanding principal amounts of all Fixed Rate Borrowing Tranches) in order for the Borrower to avoid paying any Minimum Usage Fee under this Section 2.4.4. In the event the average annual outstanding borrowings under the Note (as reduced by the outstanding principal amounts of all Fixed Rate Borrowing Tranches) does not equal or exceed the Deemed Minimum Loan Amount (as reduced by the outstanding principal amounts of all Fixed Rate Borrowing Tranches), Borrower shall pay to Lender, as further consideration for Lender's commitment hereunder, a nonrefundable minimum usage fee (the "Minimum Usage Fee") equal to the positive difference, if any, between (i) the product of (a) the Deemed Minimum Loan Amount (reduced by the outstanding principal amounts of all Fixed Rate Borrowing Tranches) times (b) the lowest applicable Net Spread and (ii) the total amount of interest attributable to the Net Spread collected during the calendar year. The Minimum Usage Fee shall accrue from the Closing Date to the Expiration Date, shall be computed for each calendar year, or part thereof, during the term of this Agreement and shall be payable, if at all, in arrears on the Payment Date scheduled for January of each year of the term hereof, provided that any Minimum Usage Fee due in the year in which the Expiration Date falls shall be due and payable on the Expiration Date. Upon Borrower's election to terminate the Loan and the parties' obligations under the Loan Documents pursuant to the terms of Section 2.13.2, Borrower shall pay the liquidated Minimum Usage Fee computed in accordance with Section 2.13.4. Minimum Usage Fee payments which cover a period of less than one (1) calendar year shall be prorated based on the actual number of days elapsed.

- 19 -

2.4.5.        Intentionally omitted.

2.4.6.        Margin and Net Spread.

2.4.6.1.    Fixed Rate Borrowing Tranches. The Margin that will be used to determine the Fixed Rate applicable for any Fixed Rate Borrowing Tranche advanced on or after the Closing Date shall be determined by Lender based on the then current market level determined in its sole discretion and communicated to Borrower in accordance with Section 2.5.2. If Borrower exercises the First Extension Option or the Second Extension Option, as applicable, in accordance with Section 2.2hereof, (i) the Fixed Rate that will be applicable for any Fixed Rate Borrowing Tranche existing on the applicable Scheduled Maturity Date during such applicable extension period will be redetermined by Lender based on the then current market level determined in its sole discretion and communicated to Borrower (provided, that Lender will communicate an indicative (but not final) Fixed Rate for such extension period to Borrower at least forty-five (45) days prior to the applicable Scheduled Maturity Date) and (ii) the Margin that will be used to determine the Fixed Rate applicable for any Fixed Rate Borrowing Tranche advanced during such applicable extension period shall be determined by Lender based on the then current market level determined in its sole discretion and communicated to Borrower in accordance with Section 2.5.2. Notwithstanding the foregoing, if Borrower exercises the First Extension Option or the Second Extension Option, as applicable, in accordance with Section 2.2hereof, Borrower may elect at any time during such extension period to convert any Fixed Rate Borrowing Tranche existing on the applicable Scheduled Maturity Date to a Base Rate Borrowing Tranche, and the Net Spread applicable for any such Base Rate Borrowing Tranche(s) during such extension period shall be determined by Lender in accordance with Section 2.4.6.2below.

2.4.6.2.    Base Rate Borrowing Tranches. The net spread (the "Net Spread") applicable for any Base Rate Borrowing Tranche on or before the third anniversary of the Closing Date shall be as set forth in Schedule 3.2. On and after the third anniversary of the Closing Date, the Net Spread applicable for any Base Rate Borrowing Tranche shall be redetermined by Lender in its sole discretion and communicated to Borrower in writing at least thirty-five (35) days prior to the third anniversary of the Closing Date (provided, that Lender will communicate indicative (but not final) Net Spreads at least forty-five (45) days prior to the third anniversary of the Closing Date). Lender and Borrower shall evidence the new applicable Net Spread pursuant to this Section 2.4.6.2by executing a Net Spread confirmation substantially in the form attached hereto as Schedule 2.4.6.2(provided, that Borrower's failure to deliver thirty (30) days advance written Notice of its election to exercise the Revolving Credit Note Re-pricing Termination Option pursuant to Section 2.13.2shall be deemed to be Borrower's acceptance of the new applicable Net Spread pursuant to this Section 2.4.6.2). With respect to (i) the First Extension Option, the Net Spread applicable for any Base Rate Borrowing Tranche during such extension period shall be determined by Lender in its sole discretion and communicated to Borrower (provided, that Lender will communicate indicative (but not final) Net Spreads for such extension period to Borrower at least forty-five (45) days prior to the initial Scheduled Maturity Date) and (ii) the Second Extension Option, the Net Spread applicable for any Base Rate Borrowing Tranche during such extension period then current shall be determined by Lender in its sole discretion and communicated to Borrower (provided, that Lender will communicate indicative (but not final) Net Spreads for such extension period to Borrower at least forty-five (45) days prior to the Scheduled Maturity Date as extended pursuant to Section 2.2(d)). Lender and Borrower shall evidence the new applicable Net Spread pursuant to this Section 2.4.6.2, by executing a Scheduled Maturity Date extension confirmation substantially in the form attached hereto as Schedule 2.2.

- 20 -

2.5.           Loan Requests.

2.5.1.        Except as otherwise provided herein, Borrower may from time to time prior to the Maturity Date request Lender to make an advance, consistent with the Sublimits, by delivering Notice to Servicer (a "Loan Request") in the form attached hereto as Schedule 2.5. Borrower may at any one time submit one (1) or more Loan Requests; each Loan Request shall specify the items set forth on Schedule 2.5. including, but not limited to, (i) the proposed Borrowing Date (which Borrowing Date shall be in accordance with the requirements of Section 2.6); (ii) the amount of the proposed Borrowing Tranche, which shall not be less than TEN MILLION and NO/100 Dollars ($10,000,000.00). Notwithstanding anything to the contrary contained herein, no Prime Rate Borrowing Tranches will be permitted hereunder except as may be required pursuant to Sections 3.3.2 or 3.4.3.

(a)            In the case of a Loan Request for a Base Rate Borrowing Tranche, Borrower shall deliver a Loan Request, fully completed, authorized and executed by Servicer and an Authorized Officer, indicating (a) the Interest Period for purposes of determining the Reference Bills Rate (or such alternative index as may be selected by Lender in accordance with the provisions of Section 3.4)and (b) the Base Rate, including the Reference Bills® Rate (or such alternative index as may be selected by Lender in accordance with the provisions of Section 3.4)and Margin that comprise such Base Rate.

(b)            In the case of a Loan Request for a Fixed Rate Borrowing Tranche, Borrower shall deliver a Loan Request indicating the maturity date (which shall be the initial Scheduled Maturity Date or, if Borrower has elected the First Extension Option or the Second Extension Option, as applicable, in accordance with Section 2.2hereof, the applicable Scheduled Maturity Date during such applicable extension period) and term (which shall be the remaining term of the Loan to the initial Scheduled Maturity Date or, if Borrower has elected the First Extension Option or the Second Extension Option, as applicable, in accordance with Section 2.2 hereof, to the applicable Scheduled Maturity Date during such applicable extension period) of the requested Fixed Rate Borrowing Tranche. Borrower must deliver the Loan Request to Lender, subject to Lender's review and approval, at least three (3) full Business Days prior to the proposed Borrowing Date set forth in the Loan Request and must comply with Section 2.5.2 hereof (it being understood that Lender shall be under no obligation to fund such requested advances until all conditions set forth in this Agreement and the Loan Documents for such advances are satisfied).

- 21 -

(c)            Notwithstanding the foregoing, any Loan Request made contemporaneously with a request for the addition of a real property under Section 2.9shall be subject to the time requirements set forth in Section 2.9. Subject to the terms of Section 2.5.2, Borrower may revoke any pending but unfunded Loan Request provided that Borrower reimburses Lender and Servicer for any reasonable costs and expenses (including reasonable attorneys' fees) incurred in connection with such Loan Request.

2.5.2.        Fixed Rate Borrowing Tranche Rate-Lock.

2.5.2.1.     Lender shall determine in its sole discretion the actual Margin that will be used to determine the Fixed Rate that will be applied to the requested Fixed Rate Borrowing Tranche. Lender shall communicate its Margin determination to Servicer and Servicer will communicate the Margin to Borrower via telephone. If Borrower is satisfied with Lender's Margin determination, Borrower shall request that Lender deliver to Borrower a Commitment Letter setting forth the Margin and certain other applicable terms for such requested Fixed Rate Borrowing Tranche. Borrower shall execute the applicable Commitment Letter and send a fully completed copy thereof to Lender via facsimile before 4:00 p.m. Washington D.C. local time on the same date as Lender delivers the applicable Commitment Letter to Borrower (provided Lender has delivered the applicable Commitment Letter to Borrower by 3:00 p.m. Washington D.C. local time; if Lender delivers the applicable Commitment Letter after 3:00 p.m. Washington D.C. local time, then Borrower shall have until 4:00 p.m. Washington D.C. local time of the following Business Day to send a fully executed and completed copy thereof to Lender via facsimile). Borrower shall thereafter deliver a fully executed original of the applicable Commitment Letter to Lender within one (1) Business Day. If Borrower wishes to lock a Fixed Rate based on the indicated Margin referenced in the applicable Commitment Letter ("Rate Lock"), provided Borrower is in compliance with the Sublimits on the date of such Rate Lock, Borrower may, within five (5) Business Days of the date of the Commitment Letter, contact via telephone the Servicer between the hours of 10:00 a.m. and 2:00 p.m. Washington, D.C. local time. Lender shall confirm Rate Lock via telephone and shall deliver to Borrower an updated fully completed Exhibit A to the Commitment Letter evidencing the Fixed Rate applicable to the requested Fixed Rate Borrowing Tranche. Borrower shall deliver (i) completed and executed copies of the Loan Request, Fixed Rate Note and Exhibit A to the Commitment Letter, authorized and executed by Servicer (in the case of a Loan Request) and by an Authorized Officer, to Lender via facsimile before 4:00 p.m. Washington D.C. local time on the same date as Rate Lock (provided Rate Lock has occurred prior to 3:00 p.m. Washington D.C. local time; if Rate Lock occurs after 3:00 p.m. Washington D.C. local time, then Borrower shall have until 4:00 p.m. Washington D.C. local time of the following Business Day to send such executed copies to Lender via facsimile) and (ii) originals of the applicable Loan Request, Fixed Rate Note and Exhibit A to the Commitment Letter to Lender within two (2) Business Days of Rate Lock. In the event Borrower for any reason fails to Rate Lock within five (5) Business Days of the date of the applicable Commitment Letter, Lender shall have no further obligation to advance any funds at the Margin referenced in such Commitment Letter.

- 22 -

2.5.2.2.     Borrower acknowledges that Lender will incur certain costs in connection with a Rate Lock and, if after Rate Lock, Borrower (i) fails to deliver the relevant fully executed originals of the applicable Commitment Letter, Exhibit A to the Commitment Letter, Loan Request and Fixed Rate Note to Lender in accordance with Section 2.5.2.1or (ii) otherwise revokes the pending but unfunded Loan Request (each, a "Rate Lock Termination Event"), Lender will suffer damages for taking a position in the financial markets in reliance on its expectation that Borrower would deliver the relevant fully executed originals of the applicable Commitment Letter, Exhibit A to the Commitment Letter, Loan Request and Fixed Rate Note to Lender in accordance with Section 2.5.2.1and accept the advance of the requested Fixed Rate Borrowing Tranche. Borrower shall be obligated to promptly reimburse Lender for any breakage fee as calculated pursuant to Schedule 2.5.2 hereof (the "Breakage Fee") if a Rate Lock Termination Event occurs after Rate Lock. Borrower's obligation to pay any Breakage Fee hereunder shall be secured by the Collateral Pool and the Collateral Pool Property Documents. In addition to any Breakage Fees due hereunder, Borrower shall also reimburse Servicer for any reasonable costs and expenses (including reasonable attorneys' fees) incurred in connection with any Rate Lock hereunder.

2.5.2.3.     Upon receipt of fully executed originals of the Commitment Letter, Exhibit A to the Commitment Letter, the Loan Request and the Fixed Rate Note and provided Borrower does not revoke the pending but unfunded Loan Request after Rate Lock, Lender shall, as soon as reasonably practicable after all other conditions to advance are satisfied under this Agreement and the Loan Documents, deliver the requested funds to Borrower pursuant to the applicable Loan Request; provided, that interest under any Fixed Rate Note shall not begin to accrue until Lender delivers such requested funds to Borrower.

2.5.3.        Sublimits.

Notwithstanding anything to the contrary set forth herein, Borrower may borrow hereunder only to the extent that after giving effect to such borrowing (collectively, the "Sublimits"):

2.5.3.1.     the Loan to Value Ratio shall not exceed the Maximum Loan to Value Ratio;

2.5.3.2.     the Facility Debt Service Coverage Ratio shall not be less than 1.60: 1.00;

2.5.3.3.     the number of Borrowing Tranches outstanding shall not exceed ten (10); and

2.5.3.4.     the Loan shall not exceed the Commitment.

- 23 -

Notwithstanding the foregoing, in the event either of the Sublimits set forth in Section 2.5.3.1or Section 2.5.3.2above are not satisfied at any time prior to the Expiration Date, Borrower shall be entitled to renew or consolidate (but not increase the outstanding principal amount of) such existing outstanding Borrowing Tranches with an Interest Period of one month, provided that, (i) as of the date of such renewal or consolidation (a) no Event of Default, Potential Default or Material Adverse Change, other than Borrower's failure to comply with Sections 2.5.3.1or 2.5.3.2, shall then exist, (b) Borrower's failure to comply with Sections 2.5.3.1or 2.5.3.2shall have been for a period of less than ninety (90) days, and (c) Borrower is otherwise in full compliance with all other terms and conditions of the Loan Documents and (ii) throughout the period of Borrower's non-compliance with Sections 2.5.3.1or 2.5.3.2, Borrower shall comply with the provisions of Section 4.5. Borrower must assure compliance with Sections 2.5.3.1or 2.5.3.2pursuant to the provisions of Section 4.3. Notwithstanding the foregoing, if Borrower is unable to cause compliance with the Sublimits within fifteen (15) Business Days following Lender's determination of Borrower's non-compliance with the Sublimits, then, for so long as Borrower fails to comply with the Sublimits, (i) the Net Spread applicable to all Base Rate Borrowing Tranches then outstanding (and thereafter renewed) shall automatically increase to one-hundred basis points (0.01) over the highest Net Spread shown on Schedule 3.2(as such Net Spreads are adjusted by Lender pursuant to Sections 2.2(d). 2.2(e)and 2.4.6.2), further increased, if at all, in accordance with Schedule 3.2, as a result of the duration of such Base Rate Borrowing Tranche(s) and (ii) the interest rate applicable to all Fixed Rate Borrowing Tranches shall automatically increase by one-hundred basis points (0.01). In the event that the Facility Debt Service Coverage Ratio shall continue to be less than required pursuant to Section 2.5.3.2 or the Loan to Value Ratio shall exceed the ratio permitted in accordance with Section 2.5.3.1 for a period of ninety (90) consecutive days from the date of Borrower's receipt of Notice of such non-compliance, the same shall constitute an Event of Default.

2.6.           The Loan.

After receipt by Servicer of a Loan Request pursuant to Section 2.5.1, and subject to the Sublimits of Section 2.5.3and the provisions of Section 5.2, Lender, relying on the truth and accuracy of the matters set forth in the Loan Request (but without any obligation to inquire into the truth and accuracy of such matters), shall fund the amount requested in such Loan Request to Borrower in U.S. Dollars and immediately available funds on the Borrowing Date. Provided all conditions set forth in this Agreement and the other Loan Documents are satisfied, the Borrowing Date shall be the Business Day set forth in the Loan Request, provided that such date is at least three (3) but not more than five (5) Business Days after the date of the Loan Request. Lender shall fund the amounts requested in any Loan Request by 3:00 p.m. Eastern Time on the Borrowing Date. Notwithstanding the foregoing, any Loan Request (other than a Loan Request which is not related to or dependent on the addition of a real property under Section 2.9)made contemporaneously with a request for the addition of a real property under Section 2.9shall be subject to the time requirements set forth in Section 2.9.

2.7.           The Note.

The obligation of Borrower to repay the aggregate unpaid principal amount of the Loan, together with interest thereon, shall be evidenced by the Note payable to the order of Lender.

- 24 -

2.8.           Use of Proceeds.

The proceeds of the Loan may be used by Borrower solely for the purpose of carrying on a business or commercial enterprise (as set forth in the Borrower's organizational documents) and not for personal, family, household or agricultural purposes.

2.9.           Additions to the Collateral Pool.

2.9.1.        Procedure for Proposing a Real Property Addition to the Collateral Pool.

Borrower or Proposed Borrower, as the case may be, may propose to add one or more multi-family real properties to the Collateral Pool by delivering to Lender (i) a written proposal for addition of the proposed real property(ies), (ii) a Mortgage Review Fee for each proposed real property, (iii) a Seismic Report Fee, if and as applicable, for each proposed real property, and (iv) the Underwriting Materials with respect to the proposed real property(ies) and with respect to Proposed Borrower, if applicable, provided that, no more than one (1) such proposal shall be submitted to Lender in any one (1) Month. Upon Lender's receipt of all fees required hereunder and all Underwriting Materials, Lender shall notify Borrower or Proposed Borrower of the same. The determination of whether Borrower or Proposed Borrower has provided Lender with all Underwriting Materials shall be in Lender's discretion. For purposes of this Section 2.9, Borrower or Proposed Borrower may submit a multi-family real property for addition to the Collateral Pool, if Borrower or Proposed Borrower has a contract to purchase such real property, provided that Borrower or Proposed Borrower consummates the purchase of such real property on or before the date such real property is proposed to be added to the Collateral Pool. Both the Mortgage Review Fee and the Seismic Report Fee, if any, shall be deemed earned upon delivery thereof, whether or not Lender approves or disapproves such real property for addition hereunder. Borrower shall pay all costs and expenses that Lender and Servicer incur in connection with any such proposal to add a real property to the Collateral Pool, including, but not limited to, reasonable attorneys' fees and any reasonable costs and expenses incurred with respect to third party reports, whether or not Lender approves or disapproves such real property for addition hereunder. Borrower or its Affiliate shall be permitted to engage and pay directly the third-party consultants to be retained for the required property condition reports and environmental reports, provided that (A) Lender and Servicer approve in advance and in writing each such consultant and the scope of each such report, and (B) each such report states that it is made for the benefit, use and reliance of Lender and Servicer, as well as Borrower and/or its Affiliate.

2.9.2.        Procedure for Adding a Real Property to the Collateral Pool.

- 25 -

2.9.2.1.     With respect to any fully stabilized multi-family real property that Borrower or Proposed Borrower, as the case may be, proposes for addition to the Collateral Pool, Lender shall, within fifty (50) days of the date on which Lender notifies Borrower or Proposed Borrower that it has received all Underwriting Materials and all applicable fees, use its best efforts to accept or reject in writing the proposed real property on the basis of whether such proposed real property meets Lender's then current requirements for addition to the Collateral Pool, and in the event that Lender accepts the proposed real property for addition to the Collateral Pool, Lender shall provide Borrower with a written approval letter and use its best efforts to add such real property to the Collateral Pool within twenty (20) days of the date of such acceptance, subject to Borrower's or Proposed Borrower's timely performance of all obligations listed under Section 2.9.2.2. Each property must pass Lender's own assessment of earthquake risk to be included in the Collateral Pool. Notwithstanding anything contained herein to the contrary, no real property shall be submitted for addition unless (x) the Collateral Pool Properties (after taking into consideration the Market Value of the real property submitted for addition), in the aggregate, have a Loan to Value Ratio as determined by Lender in its sole discretion no greater than the Maximum Loan to Value Ratio and (y) such property has a value as determined by Lender in its sole discretion that exceeds NINE MILLION NINE HUNDRED NINETY-NINE THOUSAND NINE HUNDRED NINETY-NINE AND NO/100 Dollars ($9,999,999.00). The failure of Lender to respond to Borrower's or Proposed Borrower's request within such fifty (50) day period shall be deemed a rejection by Lender of the proposal to add the real property to the Collateral Pool. If Lender provides the reason(s) for such rejection, Borrower or Proposed Borrower shall have fifty (50) days to cure or otherwise resolve to the satisfaction of Lender, the objections of Lender to such proposed real property (Lender, in its sole discretion, may require that Borrower provide within such fifty (50) day cure period necessary updates of any or all of the Underwriting Materials). If Borrower or Proposed Borrower does not satisfy Lender's objections, then such proposal shall be deemed terminated (unless Lender, in its sole discretion shall opt to extend such fifty (50) day cure period) provided that, any such termination shall not prevent Borrower or Proposed Borrower from subsequently resubmitting a real property (together with all applicable fees due hereunder and the Underwriting Materials) for addition to the Collateral Pool, further provided that Borrower may not resubmit the same real property for addition to the Collateral Pool more often than one (1) time in any twelve (12) month period. Notwithstanding anything contained in the foregoing to the contrary, under no circumstances shall the addition of any real property increase the amount of the Commitment.

2.9.2.2.     If and upon the date of acceptance by Lender of a multi-family real property submitted for addition to the Collateral Pool (such acceptance to be in writing, together with Lender's determination of the Initial Market Value of such real property and the Net Operating Income of such property), whether following the initial proposal of such real property or after satisfying any objections of Lender, such real property shall be added to the Collateral Pool, provided that, prior to such addition (or in the instance of the documents required under item (iii)(b) below, as soon as practicable after such addition), Borrower or Proposed Borrower shall (i) pay the Addition Fee pursuant to Section 2.9.3, (ii) pay all costs and expenses that Lender or Servicer incur in connection with the inclusion of such real property, including, but not limited to, attorneys' fees, and (iii) submit the following to Lender: (a) all Collateral Pool Property Documents reasonably requested by Lender, where appropriate, fully executed and where appropriate duly acknowledged and filed of record in the appropriate official public records, (b) copies of all filing receipts and acknowledgements issued by any governmental authority evidencing any recordation or filing necessary to perfect Lender's Lien on the subject real property or other evidence reasonably satisfactory to Lender of such recordation and filing of the applicable Security Instrument, (c) evidence reasonably satisfactory to Lender that, subject to the Permitted Exceptions, (1) in the case of personal property, the Lien constitutes a first priority security interest in favor of Lender and, (2) in the case of real property, the Security Instrument constitutes a valid and perfected first priority Lien in favor of Lender (such evidence to be in the form of a title insurance policy acceptable to Lender in both form and substance), and (d) opinions of counsel reasonably acceptable to Lender and (iv) in the case of a Proposed Borrower, such Proposed Borrower shall execute (a) separate allonges to the Revolving Credit Note and any Fixed Rate Note(s) then outstanding and (b) a joinder agreement, both of which shall be in form and substance reasonably satisfactory to Lender in its sole discretion. If Borrower or Proposed Borrower fails to perform any of the acts, where applicable, or to submit any of the documents and evidence listed under (i), (ii), (iii) and (iv) above together with any and all updates to the Underwriting Materials reasonably requested by Lender within fifty (50) days of the date of Lender's acceptance, Lender may at its option reject the proposed real property and terminate such proposal. In the event that Borrower or Proposed Borrower performs all of the acts and submits all of the documents and evidence listed in (i), (ii), (iii) and (iv) above within fifty (50) days of the date of Lender's acceptance, the proposed real property shall be added to the Collateral Pool.

- 26 -

2.9.3.        Addition Fee.

For each property added to the Collateral Pool, Borrower shall pay all of Lender's or Servicer's costs and expenses in connection with such addition (including, but not limited to, attorneys' fees) and a fee to Lender, in addition to any other fees payable to Lender upon such addition, in the amount of FIFTEEN THOUSAND and NO/100 Dollars ($15,000.00) (the "Addition Fee"). The Addition Fee shall be due and payable upon consummation of the addition of the proposed real property to the Collateral Pool.

2.10.         Release of Collateral.

Lender shall, upon thirty (30) days advance written Notice, release the Liens granted hereunder with respect to a Collateral Pool Property or Properties which constitute(s) less than all Collateral Pool Properties, provided that (i) prior to such release Borrower shall pay Lender a non-refundable fee of TEN THOUSAND and NO/100 Dollars ($10,000.00) (a "Release Fee'") and all costs and expenses that Lender or Servicer incur in connection with such release, including, but not limited to, attorneys' fees and all other amounts due to Lender hereunder in connection with such release, including, without limitation, Prepayment Fees and accrued and unpaid interest, if applicable, (ii) at the time of the request for such release, no Event of Default or Potential Default shall exist, (iii) after giving effect to such release, no Event of Default or Potential Default shall exist, and (iv) Borrower shall be in compliance with all provisions hereof, including without limitation, the Sublimits, provided, however, that if such release would otherwise cause Borrower to be in non-compliance with the Sublimits set forth in Section 2.5.3, Borrower shall have the opportunity to cure the same prior to or simultaneously with such release by either (a) pledging multi-family real property collateral, in form, substance, value and in a manner all acceptable to Lender, in its sole discretion, in accordance with Section 2.9or (b) prepaying so much of the Loan as is necessary to cause compliance with the Sublimits, each in accordance with the provisions of Section 4.3. Notwithstanding the foregoing, if Borrower is unable to cause compliance with the Sublimits within fifteen (15) Business Days following Lender's determination of Borrower's non-compliance with the Sublimits, then, for so long as Borrower fails to comply with the Sublimits, (i) the Net Spread applicable to all Base Rate Borrowing Tranches then outstanding (and thereafter renewed) shall automatically increase to one-hundred basis points (0.01) over the highest Net Spread shown on Schedule 3.2(as such Net Spreads are adjusted by Lender pursuant to Sections 2.2(d). 2.2(e) and 2.4.6.2), further increased, if at all, in accordance with Schedule 3.2, as a result of the duration of such Base Rate Borrowing Tranche(s) and (ii) the interest rate applicable to all Fixed Rate Borrowing Tranches shall automatically increase by one-hundred basis points (0.01). Notwithstanding such thirty (30) day time period to obtain a release, Lender shall upon five (5) Business Days Notice provide a "payoff letter", if applicable, stating the amount necessary to obtain a release so as to effectuate a sale or refinance of the subject Collateral Pool Property. Upon the release of a Lien on a Collateral Pool Property, if the Borrower that is the owner of such Collateral Pool Property owns no other Collateral Pool Properties, such Borrower shall be released from its obligations under the Loan Documents, except as otherwise expressly provided in the Loan Documents. Notwithstanding the foregoing, under no circumstances may Borrower receive a release of the Security Instrument with respect to the last property in the Collateral Pool prior to the Maturity Date, unless Borrower has elected to terminate this Agreement under Section 2.13hereunder. Borrower may revoke a pending request to release a Collateral Pool Property at any time; provided that Borrower pays all of Lender's reasonable costs and expenses with respect to such release request, including, without limitation, reasonable attorneys fees; provided, further, that Borrower shall not be entitled to reimbursement of the Release Fee paid to Lender in connection with such request to release a Collateral Pool Property.

- 27 -

2.11.         Payment of the Loan Balance Without Termination.

Prior to the Maturity Date, Borrower shall have the right to repay the entire Loan (i.e., the Revolving Credit Note and any Fixed Rate Note then outstanding), subject in each instance to the provisions of Sections 4.3and 4.4, all without any release of any Lien, and subsequently reborrow hereunder, provided that Borrower is at such time, and thereafter remains, in compliance with the provisions of this Agreement, including, without limitation, the obligation to be in compliance with the Sublimits and the obligations to pay all fees due and payable hereunder. Under no circumstances shall Borrower be entitled to any additional advances or re-advances under (a) any Fixed Rate Note at any time or (b) the Revolving Credit Note on or after the Maturity Date.

2.12.         Valuations.

2.12.1.      Timing and Procedure of Valuation.

In addition to any other provisions requiring valuations hereunder, Lender shall perform an annual valuation (the "Valuation") to determine, in its sole but reasonable discretion in accordance with its then current underwriting policies, practices and procedures consistently applied, (i) the then Market Value and (ii) the Net Operating Income of each of the Collateral Pool Properties, which Valuation shall be performed on or about September 1st of each calendar year during the term of this Agreement, commencing on or about September 1, 2009. In connection with such Valuation, Borrower shall deliver to Servicer by no later than June 1 of each calendar year, a current rent roll (which shall be no more than thirty (30) days old) and a twelve (12) month operating statement with respect to each Collateral Pool Property, each certified by an Authorized Officer. Any operating statement required hereunder shall relate to the operations of the applicable Collateral Pool Property during the preceding calendar year. Without limiting the foregoing, each such rent roll and operating statement shall be in such form and contain such detail as Lender may reasonably require and Lender may require that any such rent rolls and operating statements shall be verified by an independent party acceptable to Lender.

- 28 -

2.12.2.      Valuations that Disclose a Decrease in Market Value and/or Net Operating Income.

If any Valuation discloses that the Market Value and/or Net Operating Income of the Collateral Pool Properties has decreased below the then current values or calculations thereof, the Maximum Facility Available may be adjusted, if necessary, in accordance with the provisions of Section 2.5.3, and in the event such decrease in Market Value or Net Operating Income shall cause Borrower to be in non-compliance with the Sublimits set forth in Section 2.5.3, Borrower shall within the time periods set forth in (i) and (ii) below, cure the same by bringing the Loan into compliance with the Sublimits, by either (i) within ninety (90) days of Notice from Lender of such decrease, pledging multi-family real property collateral in form, substance, value and in a manner all acceptable to Lender, in its sole discretion, in accordance with Section 2.9or (ii) within fifteen (15) days of Notice from Lender of such decrease, prepaying so much of the Loan as is necessary to cause compliance with the Sublimits, each in accordance with the provisions of Section 4.3. Notwithstanding the foregoing, if Borrower is unable to cause compliance with the Sublimits within fifteen (15) Business Days following Lender's determination of Borrower's non-compliance with the Sublimits, then, for so long as Borrower fails to comply with the Sublimits, (i) the Net Spread applicable to all Base Rate Borrowing Tranches then outstanding (and thereafter renewed) shall automatically increase to one-hundred basis points (0.01) over the highest Net Spread shown on Schedule 3.2(as such Net Spreads are adjusted by Lender pursuant to Sections 2.2(d). 2.2(e)and 2.4.6.2), further increased, if at all, in accordance with Schedule 3.2, as a result of the duration of such Base Rate Borrowing Tranche(s) and (ii) the interest rate applicable to all Fixed Rate Borrowing Tranches shall automatically increase by one-hundred basis points (0.01).

2.12.3.      Valuations that Disclose an Increase in Market Value and/or Net Operating Income

If any Valuation discloses that the Market Value and/or Net Operating Income of the Collateral Pool Properties has increased above the then current values thereof, the Maximum Facility Available may be adjusted, if necessary, in accordance with the provisions of Section 2.5.3, and Borrower shall be entitled to borrow and reborrow hereunder, subject to the Sublimits, up to the amount of the Commitment in accordance with the terms of this Agreement.

2.13.         Termination.

2.13.1.      Rights to Terminate.

Borrower and Lender shall have the rights to terminate this Agreement or to accelerate the Loan, as applicable, as set forth in this Section 2.13.

- 29 -

2.13.2.      Borrower's Right to Terminate the Agreement. At any time during the term of the Loan, Borrower shall have the right to terminate this Agreement in full and the parties' obligations under the Loan Documents, provided that Borrower (i) delivers to Lender thirty (30) days advance written Notice of its revocable election to terminate this Agreement specifying the Expiration Date, (ii) repays all accrued interest on, and principal with respect to, the Loan in full and (iii) performs all Obligations under this Agreement, the Note and the other Loan Documents, including, but not limited to, Borrower's obligations to pay all fees as specified in Section 2.13.4. In addition to the foregoing, upon receipt of Lender's written Notice pursuant to Section 2.4.6.2hereof of Lender's redetermination of the Net Spread applicable to the Revolving Credit Note from and after the third anniversary of the Closing Date, Borrower shall have the one-time right (the "Revolving Credit Note Re-pricing Termination Option") to terminate this Agreement in full and the parties' obligations under the Loan Documents as of the third anniversary of the Closing Date; provided that, Borrower must satisfy the conditions set forth in the first sentence of this Section 2.13.2; provided, further, that if (x) Lender's redetermination of the Net Spread applicable on and after the third anniversary of the Closing Date in accordance with Section 2.4.6.2results in the Net Spread being greater than the Net Spread applicable on the Closing Date and (y) Borrower elects the Revolving Credit Note Re-Pricing Termination Option, Borrower shall not be required to pay the fees set forth in Section 2.13.4hereof (except for the Prepayment Fees specified therein). In the event Borrower has complied with the requirements set forth in this Section 2.13.2. Lender shall release the Liens granted hereunder on the Expiration Date in accordance with Section 2.10. Without limiting any other provision contained herein, in the event Borrower shall revoke any such request to terminate its obligations under this Agreement in full and the parties' obligations under the Loan Documents, Borrower shall pay all reasonable costs and expenses incurred by Lender and Servicer in connection with such revocation, including, without limitation, reasonable attorneys' fees.

2.13.3.      Lender's Right to Accelerate.

Upon an Event of Default that remains uncured by Borrower beyond the expiration of any applicable cure period under this Agreement, the Note, or any other of the Loan Documents, Lender shall have the right to (i) accelerate the Loan and to (ii) collect the Prepayment Fee and liquidated fees pursuant to Section 2.13.4.

2.13.4.      Fees Due Upon Early Termination and/or Acceleration.

In the event Borrower shall terminate Borrower's obligations under the Loan Documents pursuant to the provisions of Section 2.13.2, or Lender shall accelerate the Loan pursuant to the provisions of Section 2.13.3prior to the Scheduled Maturity Date, Borrower shall pay (i) a Prepayment Fee with respect to each outstanding Base Rate Borrowing Tranche calculated in accordance with Section 4.4, (ii) a Prepayment Fee for each Fixed Rate Note calculated in accordance with the terms of the applicable Fixed Rate Note, and (iii) an early termination fee ("Early Termination Fee") equal to the greater of (a) one percent (1.0%) of the unpaid principal balance of the Revolving Credit Note and any Fixed Rate Note or (b) the sum of (x) a liquidated Unused Facility Fee equal to fifteen basis points (15) per annum (computed on the basis of a year of 360 days and actual days elapsed) times the difference between the Commitment (as the same shall exist as of such date) and the Deemed Minimum Loan Amount, for each Month which will elapse from the Month in which such termination and/or acceleration occurs through and including the Scheduled Maturity Date (provided, that if such termination and/or acceleration of the Loan occurs prior to the third anniversary of the Closing Date, then such fee shall be calculated through and including the third anniversary of the Closing Date), such liquidated Unused Facility Fee to be discounted to net present value at a discount rate equal to the Treasury Rate, together with all accrued Unused Facility Fees payable as of the date of such termination, and (y) a liquidated Minimum Usage Fee, to be calculated as the product of an assumed Base Rate Borrowing Tranche in an amount equal to the Deemed Minimum Loan Amount times the sum of (a) the lowest Net Spread shown on Schedule 3.2(or any replacement schedule of Net Spreads in accordance with Sections 2.2(d), 2.2(e)or 2.4.6.2)plus (b) the Servicing Spread, for each Month which will elapse from the Month in which such termination and/or acceleration occurs through and including the Scheduled Maturity Date, (provided, that if such termination and/or acceleration of the Loan occurs prior to the third anniversary of the Closing Date, then such fee shall be calculated through and including the third anniversary of the Closing Date) such liquidated Minimum Usage Fee to be discounted to net present value at a discount rate equal to the Treasury Rate, together with all accrued Minimum Usage Fees, if any, payable as of the date of such termination and/or acceleration.

- 30 -

2.14.         Material Adverse Change to Borrower or a Collateral Pool Property.

If (i) Borrower or a Collateral Pool Property experiences a Material Adverse Change or (ii) a Material Adverse Change occurs with respect to this Agreement or any of the other Loan Documents taken as a whole, Borrower shall promptly notify Lender of the same in writing as soon as Borrower has notice thereof. If Lender shall receive Notice of a Material Adverse Change in accordance with the preceding sentence, or otherwise becomes aware of a Material Adverse Change, which Material Adverse Change affects a Collateral Pool Property, Lender may promptly conduct a Valuation of the affected Collateral Pool Property pursuant to Section 2.12. Until such time as such Valuation, if requested, shall be completed, the Collateral Pool Property which experienced the Material Adverse Change, or which is owned by a Borrower that experienced a Material Adverse Change, shall be deemed for the purposes of determining whether any new borrowing request satisfies all of the Sublimits set forth in Section 2.5.3to have the Market Value and Net Operating Income reasonably determined and quantified by Lender upon the information then available to Lender. Lender shall promptly provide Borrower with written Notice of the results of such Valuation. If the results of such Valuation disclose that the Market Value of the affected Collateral Pool Property has decreased, then the Market Value shall thereafter be deemed to be the amount shown in such Valuation. In the event that such Valuation hereunder shall cause Borrower to be in non-compliance with the Sublimits set forth in Section 2.5.3, Borrower shall, within the time periods set for the in (x) and (y) below, cure the same by bringing the Loan into compliance with the Sublimits by either (x) within ninety (90) days of the Notice of such valuation, pledging multi-family real property collateral in form, substance, value and in a manner all acceptable to Lender, in its sole discretion, in accordance with Section 2.9or (y) within fifteen (15) days of Notice from Lender of such decrease, prepaying so much of the Loan as is necessary to cause compliance with the Sublimits, each in accordance with the provisions of Section 4.3. Notwithstanding the foregoing, if Borrower is unable to cause compliance with the Sublimits within fifteen (15) Business Days following Lender's determination of Borrower's non-compliance with the Sublimits, then, for so long as Borrower fails to comply with the Sublimits, (i) the Net Spread applicable to all Base Rate Borrowing Tranches then outstanding (and thereafter renewed) shall automatically increase to one-hundred basis points (0.01) over the highest Net Spread shown on Schedule 3.2(as such Net Spreads are adjusted by Lender pursuant to Sections 2.2(d). 2.2(e)and 2.4.6.2), further increased, if at all, in accordance with Schedule 3.2, as a result of the duration of such Base Rate Borrowing Tranche(s) and (ii) the interest rate applicable to all Fixed Rate Borrowing Tranches shall automatically increase by one-hundred basis points (0.01). If Lender shall receive Notice of a Material Adverse Change from Borrower hereunder, or otherwise becomes aware of a Material Adverse Change which affects Borrower or the enforceability of this Agreement or the other Loan Documents taken as a whole, Borrower shall immediately provide any information or documents reasonably requested by Lender, including, but not limited to, (a) with respect to a Material Adverse Change which affects Borrower, financial statements and Borrower's business plan to cure such Material Adverse Change or (b) with respect to a Material Adverse Change which affects the enforceability of this Agreement or the other Loan Documents taken as a whole, replacement documents in form and substance acceptable to Lender in its discretion, together with a legal opinion regarding the enforceability of such replacement documents, acceptable to Lender in its discretion.

- 31 -

2.15.         Release of Collateral Followed by a Permanent Loan.

2.15.1.      Permanent Loan.

Borrower may request that Lender cause Servicer to make a permanent loan (the "Permanent Loan") to be secured by one or more Collateral Pool Properties designated by Borrower (the "Permanent Loan Collateral") to be simultaneously released from the Collateral Pool and encumbered in favor of Servicer as security for Borrower's obligations under the Permanent Loan, which request shall be made in accordance with the provisions of Section 2.15.2. The Permanent Loan shall be made in accordance with the terms and conditions of the Streamlined Refinancing Program. Notwithstanding the foregoing, under no circumstances may Borrower receive a release of the Security Instrument with respect to the last property in the Collateral Pool prior to the Maturity Date, unless Borrower has elected to terminate this Agreement under Section 2.13hereunder.

2.15.2.      Procedure for Making a Permanent Loan.

Borrower may request that Lender cause Servicer to make a Permanent Loan to Borrower, which request (i) shall be in writing, which writing shall specify (a) the Collateral Pool Property(ies) that will constitute the Permanent Loan Collateral, (b) the original principal amount of the requested Permanent Loan, which amount shall be greater than or equal to TEN MILLION and No/100 Dollars ($10,000,000.00), (c) the related reduction in the Maximum Facility Available, (d) whether Borrower has selected Lender's then current early rate lock delivery option, and (e) any payment or prepayment of a Borrowing Tranche, and (ii) shall be accompanied by (a) any fees then due and owing under Lender's Streamlined Refinancing Program for each Collateral Pool Property proposed by Borrower to be subject to the Permanent Loan, and (b) the Underwriting Materials. Following receipt of all of the items specified in (i) and (ii) of the previous sentence, Lender shall use its best efforts to consent to Borrower's request within sixty (60) days of such Notice, provided that (1) at the time of such request no Event of Default or Potential Default exists, (2) the Permanent Loan shall be made in accordance with the terms and conditions of the Streamlined Refinancing Program, (3) after giving effect to such release no Event of Default or Potential Default shall exist and Borrower will be in compliance with all provisions hereof, including the Sublimits set forth in Section 2.5.3, further provided that if any release occasioned by a Permanent Loan would otherwise cause Borrower to be in non-compliance with the Sublimits, Borrower shall have the opportunity to cure the same, prior to or simultaneously with the release and the consummation of the Permanent Loan (which shall occur pursuant to the Streamlined Refinancing Program), by either (A) pledging collateral in form, substance, value and in a manner all acceptable to Lender, in its sole discretion, or (B) prepaying so much of the Loan as is necessary to cause compliance with the Sublimits, each in accordance with the provisions of Section 4.3, (4) Borrower shall provide evidence to Lender of title insurance in form and substance acceptable to Lender and in the face amount of the Permanent Loan, (5) the proposed Borrower under the Permanent Loan shall execute and deliver such documents as Lender, in its discretion, may request in order to evidence the making of the Permanent Loan and in order to grant Lender a first priority Lien on the real and personal property constituting the Permanent Loan Collateral subject, in each case, to any Permitted Exceptions, and (6) Borrower shall pay Lender any fees then due and owing under Lender's Streamlined Refinancing Program. Thereafter, Lender shall use commercially reasonable efforts to consummate the Permanent Loan within ninety (90) days after its consent to Borrower's request thereof. Notwithstanding the foregoing, if Borrower is unable to cause compliance with the Sublimits within fifteen (15) Business Days following Lender's determination of Borrower's non-compliance with the Sublimits, then, for so long as Borrower fails to comply with the Sublimits, (i) the Net Spread applicable to all Base Rate Borrowing Tranches then outstanding (and thereafter renewed) shall automatically increase to one-hundred basis points (0.01) over the highest Net Spread shown on Schedule 3.2(as such Net Spreads are adjusted by Lender pursuant to Sections 2.2(d). 2.2(e) and 2.4.6.2), further increased, if at all, in accordance with Schedule 3.2, as a result of the duration of such Base Rate Borrowing Tranche(s) and (ii) the interest rate applicable to all Fixed Rate Borrowing Tranches shall automatically increase by one-hundred basis points (0.01). Notwithstanding the foregoing, in the event that Borrower selects Lender's then current early rate lock delivery option, Lender shall use its best efforts, subject to Borrower's timely compliance with Lender's requests, to lock the interest rate for the requested Permanent Loan within fifteen (15) Business Days of Borrower's Notice hereunder. Any Permanent Loan granted pursuant to the foregoing provisions shall not reduce the Commitment hereunder. Simultaneous with the closing of the Permanent Loan, Lender shall release the Lien granted hereunder on the Permanent Loan Collateral. Notwithstanding the foregoing, at any time prior to the release and consummation of the Permanent Loan, Borrower may by written Notice revoke its request for a release and a Permanent Loan pursuant to this Section 2.15; provided, however, that Borrower shall reimburse Lender and Servicer respectively, for Lender's and Servicer's reasonable costs and expenses, including breakage costs and reasonable attorneys' fees and any other fees due under this Agreement, that Lender or Servicer incur in connection with such proposed release and Permanent Loan financing prior to Borrower's revocation.

- 32 -

2.16.         Loan Documents.

From time to time, Lender in its sole discretion revises its form Loan Documents to add, delete or change requirements, conditions and other provisions of its form documents. The revised form of Loan Documents shall be used in conjunction with any Fixed Rate Notes executed after the date hereof, or any Properties added to the Collateral Pool after the date hereof.

3.INTEREST RATES

- 33 -

3.1.           Interest Rate.

The interest rate on each Borrowing Tranche evidenced by the Revolving Credit Note shall be the Base Rate or, if required pursuant to Sections 3.3.2or 3.4.3hereof, the Prime Rate. Interest rates under this Agreement and each Note shall be computed on the basis of a year of three hundred sixty (36Q) days and actual days elapsed.

3.2.           Interest Rate Determinations.

3.2.1.        Prime Rate and Base Rate Determination.

(a)            The initial Prime Rate applicable to any Prime Rate Borrowing Tranche required under Sections 3.3.2or 3.4.3shall equal the Prime Rate as of the Borrowing Date or Renewal Date, as applicable. The Prime Rate shall thereafter fluctuate in accordance with any changes to the Prime Rate as published from time to time during the term of the Prime Rate Borrowing Tranche.

(b)            The Base Rate applicable to any Base Rate Borrowing Tranche hereunder shall, subject to the provisions set forth below, equal the Base Rate calculated as of the date of the Loan Request and set forth in the Loan Request. In the event that the Base Rate, calculated as of the Borrowing Date, is more than twenty-five basis points (0.0025) higher or lower than the Base Rate set forth in the Loan Request, the Base Rate applicable to such Loan Request shall instead be the Base Rate calculated as of the Borrowing Date. Thereafter, (i) the portion of the Base Rate attributable to the Reference Bills® Rate (or such alternative index as may be selected by Lender in accordance with the provisions of Section 3.4)for any Base Rate Borrowing Tranche shall be redetermined as of each renewal of such Borrowing Tranche pursuant to Section 3.3.3and (ii) the Margin for all Base Rate Borrowing Tranches then outstanding shall be redetermined as of each determination and redetermination of the Net Spread. As determined and redetermined pursuant to this Agreement, the same Margin shall apply to all Base Rate Borrowing Tranches then outstanding. The portion of the Margin attributable to the Net Spread shall be determined based on the Facility Debt Service Coverage Ratio in accordance with the table set forth in Schedule 3.2. The Facility Debt Service Coverage Ratio and Net Operating Income shall each be redetermined in accordance with the definitions thereof, as applicable.

3.2.2.        Prime Rate, Base Rate and Margin Quotations.

Borrower may call Servicer on or before the date on which a Loan Request is to be delivered or prior to the end of an Interest Period, to receive both a calculation of the resulting Facility Debt Service Coverage Ratio for a proposed Prime Rate (if required pursuant to Sections 3.3.2or 3.4.3)or Base Rate Borrowing Tranche and an indication of the rates then in effect, including the Margin, but both parties acknowledge that such projection shall not be binding on Lender or Borrower, nor shall such projection affect the rate of interest which thereafter is actually in effect when the election is made.

3.3.           Interest Periods.

Upon each Loan Request for a new Base Rate Borrowing Tranche, and upon each Renewal Request applicable to a Base Rate Borrowing Tranche, Borrower shall notify Lender of the period (the "Interest Period") (which may only be one-month (having original durations to maturity of approximately thirty (30) days), three-month (having original durations to maturity of approximately ninety (90) days), six-month (having original durations to maturity of approximately one hundred eighty (180) days) or twelve-month (having original durations to maturity of approximately three hundred sixty (360) days)) for which the Reference Bills® Rate or LIBO Rate, as the case may be, shall be determined.

- 34 -

3.3.1.        Interest Period to End on a Business Day.

If the last day of any Interest Period is not a Business Day, the Interest Period shall be deemed to mature on the Business Day immediately following such date.

3.3.2.        No Interest Periods Beyond the Expiration Date.

Borrower shall not select or renew an Interest Period for any Base Rate Borrowing Tranche that would end after the Expiration Date. If at the time of any such selection or renewal the period of time remaining prior to the Expiration Date is less than thirty (30) days then such Borrowing Tranche shall bear interest at the Prime Rate. No Prime Rate Borrowing Tranche may remain outstanding in excess of thirty (30) days at any one time.

3.3.3.        Renewals.

In the case of a redetermination of an Interest Period at the end of an Interest Period, for purposes of calculating interest due under the applicable Base Rate Borrowing Tranche the first day of the new Interest Period shall be the first Business Day immediately following the last day of the preceding Interest Period (such date, the "Renewal Date"). For each Base Rate Borrowing Tranche, if no new Interest Period is specified within two (2) Business Days prior to the last day of such Interest Period, by delivery to Lender via facsimile of a fully completed, authorized and executed request therefor (a "Renewal Request") in the form attached hereto as Schedule 3.3.3, the Borrowing Tranche shall be renewed for an Interest Period of one month at the Base Rate then applicable to a Borrowing Tranche disbursed on the applicable Renewal Date having a one-month Interest Period. Notwithstanding anything contained herein to the contrary, (i) no Borrowing Tranche may be renewed with a principal amount of less than TEN MILLION and NO/100 Dollars ($10,000,000.00) and (ii) in the event the Facility Debt Service Coverage Ratio is less than required in accordance with Section 2.5.3.2or the Loan to Value Ratio exceeds the ratio required in accordance with Section 2.5.3.1, Borrower may renew or consolidate (but not increase the outstanding principal amount of) any Borrowing Tranche(s) with Interest Periods of one-month then outstanding, all in accordance with the provisions of this Section 3.3.3, provided that, as of the date of such renewal or consolidation (a) no Event of Default or Potential Default, other than Borrower's failure to comply with Section 2.5.3.1 or Section 2.5.3.2, shall then exist, (b) Borrower's failure to comply with Section 2.5.3.1 or Section 2.5.3.2shall have been for a period of less than ninety (90) days, and (c) Borrower is otherwise in full compliance with all other terms and conditions of the Loan Documents, including the provisions of Section 4.5. Borrower must assure compliance with Section 2.5.3.1 or Section 2.5.3.2pursuant to the provisions of Section 4.3. Notwithstanding the foregoing, if Borrower is unable to cause compliance with the Sublimits within fifteen (15) Business Days following Lender's determination of Borrower's non-compliance with the Sublimits, then, for so long as Borrower fails to comply with the Sublimits, (i) the Net Spread applicable to all Base Rate Borrowing Tranches then outstanding (and thereafter renewed) shall automatically increase to one-hundred basis points (0.01) over the highest Net Spread shown on Schedule 3.2(as such Net Spreads are adjusted by Lender pursuant to Sections 2.2(d), 2.2(e)and 2.4.6.2), further increased, if at all, in accordance with Schedule 3.2, as a result of the duration of such Base Rate Borrowing Tranche(s) and (ii) the interest rate applicable to all Fixed Rate Borrowing Tranches shall automatically increase by one-hundred basis points (0.01).

- 35 -

3.3.4.        Interest After Default.

So long as (i) any payment under this Agreement remains past due for thirty (30) days or more, or (ii) any other Event of Default has occurred and is continuing, interest on the Loan shall accrue on the unpaid principal balance from the earlier of the due date of the first unpaid installment or the occurrence of such other Event of Default at the default rate set forth in the Note. If the unpaid principal balance and all accrued interest on the Loan are not paid in full on the Expiration Date, the unpaid principal balance and all accrued interest on the Loan shall thereafter bear interest at the default rate set forth in the Note. Borrower acknowledges that (a) its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan, (b) during the time that any installment is delinquent for more than thirty (30) days, Lender will incur additional costs and expenses arising from its loss of the use of the money due and from the adverse impact on Lender's ability to meet its other obligations and to take advantage of other investment opportunities, and (c) it is extremely difficult and impractical to determine those additional costs and expenses. Borrower also acknowledges that, during the time that any installment is delinquent for more than thirty (30) days or any other Event of Default has occurred and is continuing, Lender's risk of nonpayment will be materially increased and Lender is entitled to be compensated for such increased risk. Borrower agrees that the increase in the rate of interest set forth in the Note represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Agreement, of the additional costs and expenses Lender will incur by reason of Borrower's delinquent payment and the additional compensation Lender is entitled to receive for the increased risks of nonpayment associated with a delinquent loan.

3.3.5.        Late Charge.

If any amount payable under this Agreement, the Note or any other Loan Document, other than (i) the outstanding amount of the Revolving Credit Note payable on the Maturity Date, (ii) the then outstanding amount of any Fixed Rate Note payable on the Maturity Date, or (iii) the then outstanding amount of the Loan payable upon acceleration of the Note, is not received by Lender as provided in the Note, Borrower shall pay to Lender, immediately and without demand by Lender, a late charge as specified in the Note. Borrower acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan, and that it is extremely difficult and impractical to determine those additional expenses. Borrower agrees that the late charge payable specified in the Note represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Agreement, of the additional expenses Lender will incur by reason of such late payment. The late charge is payable in addition to, and not in lieu of, any interest payable at the default rate specified in the Note.

- 36 -

3.4.           Reference Bills® Rate Unascertainable: Illegality; Increased Costs.

3.4.1.        Unascertainable.

In the event Freddie Mac shall at any time cease to designate any unsecured general obligations of Freddie Mac as "Reference Bills®", at its option, Lender may (i) select from time to time another unsecured general obligation of Freddie Mac having original maturities, most comparable to the term of the Interest Period for the applicable Borrowing Tranche, and issued by Freddie Mac at regularly scheduled auctions within the sixty (60) day period prior to the first day of such Interest Period, and the term "Reference Bills®" as used herein shall mean such other unsecured general obligations as selected by Lender; or (ii) for any one or more Interest Periods, use the applicable LIBO Rate for purposes of determining the Base Rate for such Interest Period(s). If Freddie Mac has not conducted an auction of its Reference Bills® or other unsecured general obligations within sixty (60) days prior to the first day of the Interest Period for the proposed Borrowing Tranche, the Base Rate shall be determined as the LIBO Rate plus the Margin for such Interest Period(s).

3.4.2.        Illegality; Increased Costs.

At any time at which (i) the Reference Bills® Rate shall not be available and the Base Rate shall be determined based on the LIBO Rate in accordance with the provisions of Section 3.4.1and (ii) Lender shall have also reasonably determined that (a) adequate and reasonable means do not exist for ascertaining the applicable LIBO Rate, (b) a contingency has occurred which materially and adversely affects the London interbank market, (c) the making, maintenance or funding of any Borrowing Tranche bearing interest in part at the LIBO Rate has been made unlawful by Lender's compliance in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law, but other than as a result of any misconduct by Lender), (d) the Base Rate (as determined with reference to the LIBO Rate) will not adequately and fairly reflect the cost to Lender of the establishment or maintaining of any such Borrowing Tranche, or (e) after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Borrowing Tranche are not available to Lender in the London interbank market, then Lender shall have the rights specified in Section 3.4.3.

3.4.3.        Lender's Rights.

In the case of the events specified in items (i) and (ii) of Section 3.4.2 above, Lender shall promptly notify Borrower thereof. Upon the date as shall be specified in such Notice, the obligation of Lender to make advances under any Borrowing Tranche(s) at the Base Rate shall be suspended until Lender shall have later notified Borrower of Lender's reasonable determination that the circumstances set forth in Section 3.4.2 no longer exist. If at any time Lender notifies Borrower that it has made a determination under Section 3.4.2, then with respect to any Loan Request previously submitted but not yet funded, and with respect to any Borrowing Tranche on which an Interest Period shall thereafter expire, each such new or renewal Borrowing Tranche(s) shall thereafter bear interest at the Prime Rate (unless, with respect to a pending Loan Request, Borrower immediately notifies Lender by written Notice of its election not to borrow such funds, or, in the case of a Renewal Borrowing Tranche, Borrower instead elects to repay such Borrowing Tranche upon the expiration of the applicable Interest Period in accordance with the terms of this Agreement), in each case subject to Section 3.3.2hereof.

- 37 -

4.              PAYMENTS

4.1.           Payments.

All payments and prepayments to be made in respect of principal, interest, Unused Facility Fees, Minimum Usage Fees or other fees or amounts due from Borrower hereunder shall be due and payable on the date when due without presentment, demand, protest, or notice of any kind, including, but not limited to, notice of Lender's intent to accelerate Borrower's Obligations under the Loan and notice of such acceleration, all of which (unless expressly provided in the Loan Documents) are hereby waived by Borrower, and without set-off, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to Lender in immediately available funds when due. Lender's Monthly Payment Statement shall, in the absence of manifest error, be conclusive as to the amount of principal of and interest on the Loan and other amounts owing under this Agreement, provided that Borrower may challenge the accuracy of any Monthly Payment Statement within one (1) year of the date of such Monthly Payment Statement.

4.2.           Payment Dates.

Subject to the provisions of Section 4.3, interest on the Loan shall be payable in arrears and shall be due, together with all other amounts set forth on the applicable Monthly Payment Statement, prior to 2:00 Eastern Time on the first (1st) day of any calendar month during the term hereof (the "Payment Date"), and shall be paid by wire transfer of immediately available funds to an account specified by Servicer. Lender shall deliver to Borrower an invoice (the "Monthly Payment Statement") detailing the interest (and principal, if applicable), Unused Facility Fees, Minimum Usage Fees and other fees due and payable. Except in the case of a prepayment under Section 4.3, Lender shall deliver the Monthly Payment Statement detailing charges due for the current calendar month via fax at least five (5) Business Days prior to the first day of the succeeding calendar month. In the instance of a renewal of an Interest Period pursuant to Section 3.3.3, interest on such renewed Borrowing Tranche shall be due and payable on the next Payment Date, subject to any adjustments in interest rates, as if the Interest Period had not expired and then been renewed. Interest on prepayments under Section 4.3shall be due on the date such prepayment is due. Interest on the principal amount of the Loan or other monetary Obligation shall be due and payable on demand after such principal amount or other monetary Obligation becomes due and payable (whether on the stated maturity date, upon acceleration or otherwise).

4.3.           Prepayments.

4.3.1.        Voluntary Prepayments.

Borrower shall have the right, at its option, from time to time to prepay the Loan in whole or part at any time, but no prepayment may be less than the outstanding principal balance and accrued interest of the applicable Borrowing Tranche(s) being prepaid. Whenever Borrower desires to prepay any part of the Loan, Borrower shall provide a prepayment Notice to Lender by 2:00 Eastern Time at least two (2) Business Days prior to the date of the proposed prepayment setting forth the following information:

- 38 -

(x)             the estimated date on which the proposed prepayment is to be made; and

(y)            a statement indicating the application of the prepayment to a particular Base Rate Borrowing Tranche(s) or Fixed Rate Borrowing Tranche(s).

All prepayment Notices shall be irrevocable. The principal amount of the Borrowing Tranche(s) for which a prepayment Notice is given, together with interest on such principal amount, shall be due and payable by 2:00 Eastern Time on the date specified in such prepayment Notice as the date on which the proposed prepayment is to be made. Lender shall, upon receipt of Borrower's Notice, prepare and deliver to Borrower the same day via facsimile or other electronic transmittal a statement of interest due with respect to such prepayment, provided that in the event Borrower's prepayment Notice is not received by Lender prior to 2:00 Eastern Time, Lender shall not be obligated to prepare and deliver such statement of interest until the Business Day following Lender's receipt of such Notice.

4.3.2.        Prepayment Fee Not Applicable (Mandatory Prepayment / Collateral Addition).

4.3.2.1.     If at the time of the release of a portion of the Collateral pursuant to Section 2.10, Borrower shall be in violation of any of the Sublimits set forth in Section 2.5.3, Borrower may cure such violation prior to or simultaneously with such release by either (i) pledging multi-family real property collateral in form, substance, value and in a manner all acceptable to Lender, in its sole discretion, in accordance with Section 2.9or (ii) prepaying that portion of the Loan outstanding as is necessary to cause compliance with such Sublimit without any Prepayment Fee or similar fee or penalty. Notwithstanding the foregoing, if Borrower is unable to cause compliance with the Sublimits within fifteen (15) Business Days following Lender's determination of Borrower's non-compliance with the Sublimits, then, for so long as Borrower fails to comply with the Sublimits, (i) the Net Spread applicable to all Base Rate Borrowing Tranches then outstanding (and thereafter renewed) shall automatically increase to one-hundred basis points (0.01) over the highest Net Spread shown on Schedule 3.2(as such Net Spreads are adjusted by Lender pursuant to Sections 2.2(d). 2.2(e)and 2.4.6.2), further increased, if at all, in accordance with Schedule 3.2, as a result of the duration of such Base Rate Borrowing Tranche(s) and (ii) the interest rate applicable to all Fixed Rate Borrowing Tranches shall automatically increase by one-hundred basis points (0.01). Lender shall deliver to Borrower as soon as practicable, but in any event not less than two (2) Business Days prior to such release, a statement of the principal and interest due with respect to any required prepayment.

4.3.2.2.     If at the time of a Valuation pursuant to Section 2.12or at any other time, Borrower shall be in violation of any of the Sublimits set forth in Section 2.5.3, Borrower shall cure such violation, within the time periods set forth in (a) and (b) below, by either (a) within ninety (90) days of Notice, pledging multi-family collateral in form, substance, value and in a manner all acceptable to Lender in its sole discretion, in accordance with Section 2.9or (b) within fifteen (15) days of Notice from Lender of such decrease, prepaying so much of the Loan as is necessary to cause compliance with the Sublimits (together with the payment of any applicable Prepayment Fee or similar fee or penalty). If at the time of a Material Adverse Change pursuant to Section 2.14, Borrower shall cure such violation within the time periods set forth in (i), (ii) and (iii) below, by either (i) within ninety (90) days of Notice, pledging multi-family collateral in form, substance, value and in a manner all acceptable to Lender in its sole discretion, in accordance with Section 2.9, (ii) within fifteen (15) days of Notice from Lender of such decrease, prepaying so much of the Loan as is necessary to cause compliance with the Sublimits, or (iii) provided that Borrower is not in violation of a Sublimit, within ninety (90) days of Notice, releasing one or more Collateral Pool Properties (together with the payment of any applicable Prepayment Fee or similar fee or penalty). Lender shall deliver to Borrower within two (2) Business Days following the notice of Valuation, Material Adverse Change or other event, as the case may be, a statement of the principal and interest due with respect to any required prepayment. Notwithstanding the foregoing, if Borrower is unable to cause compliance with the Sublimits within fifteen (15) Business Days following Lender's determination of Borrower's non-compliance with the Sublimits, then, for so long as Borrower fails to comply with the Sublimits, (i) the Net Spread applicable to all Base Rate Borrowing Tranches then outstanding (and thereafter renewed) shall automatically increase to one-hundred basis points (0.01) over the highest Net Spread shown on Schedule 3.2(as such Net Spreads are adjusted by Lender pursuant to Sections 2.2(d). 2.2(e) and 2.4.6.2), further increased, if at all, in accordance with Schedule 3.2, as a result of the duration of such Base Rate Borrowing Tranche(s) and (ii) the interest rate applicable to all Fixed Rate Borrowing Tranches shall automatically increase by one-hundred basis points (0.01).

- 39 -

4.3.2.3.     In the event of a casualty or condemnation affecting any of the Collateral Pool Properties, any award and/or proceeds payable with respect to such casualty or condemnation shall be treated in accordance with the provisions of the applicable Loan Documents, provided that Borrower may elect to terminate this Agreement in accordance with Section 2.13.

4.3.2.4.     Any mandatory prepayment of the Loan in accordance with the provisions of this Section 4.3.2 shall be applied, as directed by Borrower, to a particular Base Rate Borrowing Tranche or Base Rate Borrowing Tranches under the Revolving Credit Note until the Revolving Credit Note has been repaid in full and thereafter, to the outstanding principal balances of the Fixed Rate Note(s) pro rata or, in the absence of any specific direction from Borrower, as selected by Lender in its sole discretion.

4.4.           Prepayment Fee.

Unless Borrower for any reason (i) repays a Borrowing Tranche permitted hereunder accruing interest at the Prime Rate, (ii) has elected to prepay in advance all of the interest, applicable to the particular Borrowing Tranche being prepaid, which would have otherwise accrued over the applicable Interest Period, (iii) repays all or a part of a Base Rate Borrowing Tranche upon the expiration of such Base Rate Borrowing Tranche's Interest Period or (iv) repays a Fixed Rate Note within the applicable Window Period, any prepayment under Section 4.3shall be accompanied by a prepayment fee (the "Prepayment Fee"), unless otherwise provided herein. The Prepayment Fee for (x) any Base Rate Borrowing Tranche, shall be determined in accordance with Schedule 4.4and (y) any Fixed Rate Borrowing Tranche, shall be determined in accordance with the applicable Fixed Rate Note. The Prepayment Fee shall not constitute the payment of interest and therefore shall not be included in the calculation of Facility Debt Service Coverage Ratio or the determination of Borrower's compliance with the Sublimits set forth in Section 2.5.3. In addition, upon Lender's exercise of any right of acceleration under this Agreement, the Note, or any other Loan Document following an Event of Default, Borrower shall pay to Lender the Prepayment Fee on all Base Rate Borrowing Tranches and Fixed Rate Borrowing Tranches outstanding at the time of acceleration in addition to all interest accrued thereon, and all other sums and fees payable to Lender hereunder, in lieu of determining the same based on the principal amounts being prepaid under the Revolving Credit Note as specified in Schedule 4.4.

- 40 -

4.5.           Additional Payment Obligations.

Notwithstanding anything to the contrary set forth herein, if Lender shall determine that the Facility Debt Service Coverage Ratio is less than required pursuant to Section 2.5.3.2or that the Loan to Value Ratio exceeds the ratio permitted in accordance with Section 2.5.3.1, and such noncompliance shall continue uncured for fifteen (15) Business Days following Lender's determination of Borrower's non-compliance with the Sublimits, then, for so long as Borrower fails to comply with the Sublimits, (i) the Net Spread applicable to all Base Rate Borrowing Tranches then outstanding (and thereafter renewed) shall automatically increase to one-hundred basis points (0.01) over the highest Net Spread shown on Schedule 3.2(as such Net Spreads are adjusted by Lender pursuant to Sections 2.2(d). 2.2(e)and 2.4.6.2), further increased, if at all, in accordance with Schedule 3.2, as a result of the duration of such Base Rate Borrowing Tranche(s) and (ii) the interest rate applicable to all Fixed Rate Borrowing Tranches shall automatically increase by one-hundred basis points (0.01). In the event that the Facility Debt Service Coverage Ratio shall continue to be less than required pursuant to Section 2.5.3.2or the Loan to Value Ratio shall exceed the ratio permitted in accordance with Section 2.5.3.1for a period of ninety (90) consecutive days after receipt of Notice of the same, the same shall constitute an Event of Default.

4.6.           Additional Compensation in Certain Circumstances.

4.6.1.        Increased Costs Resulting from Taxes, Etc.

If any change in any Law, guideline or interpretation or application thereof by any Official Body charged with the interpretation or administration thereof or compliance with any written request or directive of any Official Body (other than as a result of any misconduct by Lender) which is applicable to Lender:

4.6.1.1.     subjects Lender to any tax or changes the basis of taxation with respect to this Agreement, the Note, the Loan or payments by Borrower of any principal, interest, fees, or other amounts due from Borrower hereunder or under the Revolving Credit Note or any Fixed Rate Note (except for taxes on the overall net or gross income of Lender or any franchise taxes);

4.6.1.2.     imposes upon Lender any condition or denies Lender any right, the result of which is to increase the cost to, reduce the income receivable by, or impose any expense (including breakage costs) upon Lender with respect to this Agreement, the Note or the making, maintenance or funding of any Borrowing Tranche by an amount which Lender in its discretion deems to be material;

- 41 -

then Lender shall from time to time notify Borrower of the amount determined in good faith (using any averaging and attribution methods employed in good faith) by Lender to be necessary to compensate Lender for such increase in cost. Such Notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by Borrower to Lender thirty (30) days after such Notice is given.

4.6.2.        Termination.

Upon the occurrence of any event described in Section 4.6.1, Borrower may elect to terminate this Agreement and the parties' obligations under the Loan Documents in accordance with the provisions of Section 2.13, and Borrower's obligations hereunder shall terminate upon Borrower's repayment in full of the Loan and the Borrower shall not be obligated to pay the fees set forth in Section 2.13.4

4.6.3.        Indemnity.

In addition to the compensation required by Section 4.6.1, Borrower shall jointly and severally indemnify Lender and Servicer against all liabilities, losses or expenses (excluding opportunity costs but including breakage costs) which Lender and/or Servicer sustains or incurs as a consequence of any:

4.6.3.1.     attempt by Borrower to revoke (expressly, by later inconsistent notices or otherwise) in whole or part any Loan Request under Section 2.5(except as provided in Section 3.4.3), any request to release a Collateral Pool Property under Section 2.10. or notice relating to prepayments under Section 4.3, or

4.6.3.2.     default by Borrower in the performance or observance of any covenant or condition contained in this Agreement or any other Loan Document, including any failure of Borrower to pay when due (by acceleration or otherwise) any principal, interest, Prepayment Fee, Unused Facility Fee, Minimum Usage Fee or any other amount due hereunder.

If Lender sustains or incurs any such loss or expense, it shall from time to time notify Borrower of the amount determined in good faith by Lender (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as Lender shall deem reasonable) to be necessary to indemnify Lender for such loss or expense. Such Notice shall set forth in reasonable detail the basis for such determination (which shall be conclusive absent manifest error). Such amount shall be due and payable by Borrower to Lender thirty (30) days after such Notice is given.

4.7.           Non-Recourse.

The Loan shall be non-recourse as and to the extent provided in the Loan Documents.

5.              CONDITIONS OF LENDING

- 42 -

The obligation of Lender to fund the Loan hereunder is subject to the performance by Borrower of its Obligations to be performed hereunder at or prior to (i) the funding of indebtedness to any Fixed Rate Borrowing Tranche(s) and (ii) the funding of any Base Rate or permitted Prime Rate Borrowing Tranche(s), and to the satisfaction of the following further conditions:

5.1.           Initial Borrowing Tranche.

On the Closing Date:

5.1.1.        Delivery of Loan Documents.

All Loan Documents not previously executed and delivered to Lender shall have been duly executed and delivered to Lender, together with all appropriate financing statements.

5.1.2.        Validity of Representations.

The representations and warranties of Borrower contained in Section 6and in each of the other Loan Documents shall be true and accurate in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein), and Borrower shall have performed and complied with all covenants and conditions hereof and thereof, no Event of Default or Potential Default shall have occurred and be continuing or shall exist.

5.1.3.        Officer's Certificate.

There shall be delivered to and for the benefit of Lender a certificate, in form and substance reasonably acceptable to Lender, dated the Closing Date and signed by an Authorized Officer, certifying as appropriate as to:

5.1.3.1.     all required actions taken by Borrower in connection with this Agreement and the other Loan Documents;

5.1.3.2.     the names of the officer or officers authorized to sign this Agreement and the other Loan Documents and the true signatures of such officer or officers and specifying the Authorized Officers permitted to act on behalf of Borrower for purposes of this Agreement and the true signatures of such Authorized Officers, on which Lender may conclusively rely;

5.1.3.3.     copies of the organizational documents of Borrower including its certificate of incorporation, by-laws, certificate of limited partnership, partnership agreement, certificate of formation, and limited liability company agreement, as applicable, as in effect on the Closing Date certified by the appropriate state official where such documents are filed in a state office together with certificates from the appropriate state officials as to the continued existence and good standing of Borrower in each state where organized or qualified to do business and bring-down certificates by facsimile dated within thirty (30) days of the Closing Date, all of which shall be attached to such officer's certificate; and

- 43 -

5.1.3.4.     the matters described in Section 5.1.8.

5.1.4.        Opinion of Counsel.

There shall be delivered to Lender, written opinions of counsel for Borrower dated the Closing Date and in form and substance satisfactory to Lender and its counsel as to matters customary to the transactions contemplated herein, or as Lender may reasonably request.

5.1.5.        Legal Details.

All legal details and proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be in form and substance reasonably satisfactory to Lender and counsel for Lender, and Lender shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance reasonably satisfactory to Lender and said counsel, as Lender or said counsel may reasonably request.

5.1.6.        Payment of Fees.

Borrower shall have paid or caused to be paid to Lender and Freddie Mac to the extent not previously paid all fees accrued through the Closing Date and all of Lender's and Freddie Mac's reasonable costs and expenses, including, but not limited to, attorneys' fees, title insurance premiums, surveys, appraisals, all costs incurred in obtaining environmental, engineering and credit reports, all third party due diligence costs and other costs and expenses incurred by either Lender or Freddie Mac in connection with the closing of this Loan.

5.1.7.        Consents.

All material consents required to effectuate the transactions contemplated hereby shall have been obtained.

5.1.8.        No Material Adverse Change.

Since the date of Borrower's formation, no Material Adverse Change shall have occurred; prior to the Closing Date, there shall have been no material change in the ownership or management of Borrower.

5.1.9.        No Violation of Laws.

The making of the Loan shall not contravene any Law applicable to Borrower, its Affiliates or Lender.

5.1.10.      No Actions or Proceedings.

- 44 -

No action, proceeding, investigation, regulation or legislation shall have been instituted, or, to Borrower's knowledge threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, this Agreement, the other Loan Documents or the consummation of the transactions contemplated hereby or thereby or which, in Lender's sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents.

5.1.11.      Collateral Initially Included in Collateral Pool.

With respect to the Collateral which is part of the Collateral Pool at Closing, Borrower shall have delivered all Underwriting Materials required hereunder for inclusion of such Collateral into the Collateral Pool, and Lender shall have approved the inclusion therein.

5.1.12.      Other Conditions.

Borrower shall have satisfied such other reasonable conditions as required by Lender or Lender's legal counsel.

5.2.          Each Subsequent Borrowing Tranche.

At the time of funding of any Base Rate Borrowing Tranche or Fixed Rate Borrowing Tranche (excluding renewals, conversions and continuances of any outstanding Base Rate Borrowing Tranche(s) or Fixed Rate Borrowing Tranche(s) which do not increase the outstanding principal amount of the Loan made hereunder) other than the funds advanced on the Closing Date, and after giving effect to the proposed extensions of credit: (i) the representations and warranties of Borrower contained in Section 6and in the other Loan Documents shall be true and correct in all material respects on and as of the date of the funding of any such Base Rate Borrowing Tranche or Fixed Rate Borrowing Tranche with the same effect as though such representations and warranties had been made on and as of the date of the funding of any such Base Rate Borrowing Tranche or Fixed Rate Borrowing Tranche (except representations and warranties that expressly relate solely to an earlier date or time, which representations and warranties shall be true and correct in all material respects on and as of the specific dates or times referred to therein and except such changes as would not constitute a Material Adverse Change) and Borrower shall have performed and complied with all covenants and conditions hereof; (ii) no Event of Default or, to Borrower's knowledge, Potential Default shall have occurred and be continuing or shall exist; (iii) the funding of any Borrowing Tranche shall not contravene any Law applicable to Borrower, its Affiliates or Lender; (iv) Borrower shall have delivered to Lender a duly executed and completed Loan Request or Renewal Request, as the case may be; and (v) Borrower shall have paid all reasonable fees and expenses incurred by Lender or Servicer in connection therewith.

6.REPRESENTATIONS AND WARRANTIES

6.1.          Representations and Warranties.

Borrower represents and warrants to Lender as follows:

- 45 -

6.1.1.        Organization and Qualification.

Borrower is a corporation, partnership, limited liability company, or real estate investment trust, duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization or formation, as the case may be, and Borrower has the lawful power to own or lease the Collateral Pool Properties and to engage in the business it presently conducts or proposes to conduct. Borrower is duly licensed or qualified and in good standing in all jurisdictions where the property owned or leased by it or where the nature of the business transacted by it or both makes such licensing or qualification necessary and where the failure to be so qualified would result in a Material Adverse Change.

6.1.2.        Single Asset Entity.

Borrower is a Single Asset Entity, with a purpose limited to owning, maintaining and operating only the Collateral Pool Properties.

6.1.3.        Power and Authority.

Borrower has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur the Loan contemplated by the Loan Documents and to perform its Obligations under the Loan Documents to which it is a party, and all such actions have been duly authorized by all necessary proceedings on its part.

6.1.4.        Validity and Binding Effect.

This Agreement has been duly and validly executed and delivered by Borrower and each other Loan Document which Borrower is required to execute and deliver on or after the date hereof will have been duly executed and delivered by Borrower on the required date of delivery of such Loan Document. This Agreement and each other Loan Document constitutes, or will constitute, legal, valid and binding obligations of Borrower on and after its date of delivery thereof, enforceable against Borrower in accordance with its terms, except to the extent that enforceability of any of such Loan Documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance. There is no offset, defense, counterclaim or right of rescission with respect to any of the Loan Documents.

6.1.5.        No Conflict.

Neither the execution and delivery of this Agreement or the other Loan Documents by Borrower nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by any of them will conflict with, constitute a default under or result in any breach or violation of (i) the terms and conditions, as applicable, of the certificate of incorporation, by-laws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents of Borrower or its Affiliates, (ii) any Law or any material agreement or instrument or order, writ, judgment, injunction or decree to which Borrower or any of its Affiliates is a party or is subject, or by which Borrower or any of its Affiliates is bound, or (iii) result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of Borrower (other than Liens granted under the Loan Documents), nor will they result in or require (except as specifically contemplated by this Agreement) the creation or imposition of any lien of any nature upon any of the collateral of Borrower other than the Liens of the Loan Documents.

- 46 -

6.1.6.        Litigation.

There are no actions, suits, proceedings or investigations pending, or to Borrower's knowledge threatened, against Borrower or its Affiliates at law or equity before any Official Body which individually or in the aggregate may result in any Material Adverse Change. Neither Borrower nor its Affiliates are in violation of any order, writ, injunction or decree of any Official Body which may result in any Material Adverse Change.

6.1.7.        Title to Collateral Pool Properties.

Borrower has good and marketable title to all Collateral Pool Properties and to all other assets which it purports to own or which are reflected as owned on its books and records, free and clear of all Liens and encumbrances except the Permitted Exceptions. The Permitted Exceptions do not and will not materially and adversely affect (i) the ability of Borrower to pay in full all sums due under the Revolving Credit Note, any Fixed Rate Note or any of its other Obligations in a timely manner, (ii) the use of any Collateral Pool Property for the use currently being made thereof, (iii) the operation of any Collateral Pool Property as currently being operated, or (iv) the value of any Collateral Pool Property.

6.1.8.        Use of Proceeds.

Borrower intends to use the proceeds of the Loan in accordance with Section 2.8.

6.1.9.        Full Disclosure.

Neither this Agreement nor any other Loan Document, nor any material certificate, statement, agreement or other documents furnished to Lender in connection herewith or therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. There is no fact known to Borrower which materially adversely affects the business, property, assets, financial condition, results of operations or prospects of Borrower, or any of its Affiliates which has not been set forth in this Agreement or in the certificates, statements, agreements, financial projections or other documents furnished in writing to Lender prior to or at the date hereof in connection with the transactions contemplated hereby.

6.1.10.      Taxes.

All federal, state, local and other tax returns required to have been filed with respect to Borrower and its Affiliates have been filed, and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received, except to the extent that such taxes, fees, assessments and other charges are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made. There are no agreements or waivers extending the statutory period of limitations applicable to any federal income tax return of Borrower, or its Affiliates for any period.

- 47 -

6.1.11.      Consents and Approvals.

Except for the filing of financing statements and the relevant Collateral Pool Property Documents in the appropriate state and county filing offices, there are no other filings, consents or approvals necessary for the execution of this Agreement by Borrower or its performance hereunder or under the Loan Documents, all of which shall have been obtained or made on or prior to the Closing Date.

6.1.12.      No Event of Default; Compliance with Instruments.

No event has occurred and is continuing and no condition exists or will exist after giving effect to the borrowings or other extensions of credit to be made on the Closing Date or thereafter under or pursuant to the Loan Documents, which constitutes an Event of Default or a Potential Default.

6.1.13.      Security Interests.

The Liens and security interests granted to and for the benefit of Lender pursuant to the Loan Documents constitute and will continue to constitute first priority security interests under the Uniform Commercial Code as in effect in each applicable jurisdiction (the "Uniform Commercial Code") or other Law, entitled to all the rights, benefits and priorities provided by the Uniform Commercial Code or such Law, subject to the Permitted Exceptions. Upon the filing of financing statements relating to said security interests in each office in which filing is required under the Uniform Commercial Code all such action as is necessary in Lender's sole opinion to establish such rights of Lender will have been taken, and there will be, upon execution and delivery of the Loan Documents, such filings and such taking of possession, no necessity for any further action in order to preserve, protect and continue such rights, except the filing of continuation statements with respect to such financing statements within six (6) months prior to the expiration of such filing of such financing statements. All filing fees and other expenses in connection with each such action have been or will be paid by Borrower. All continuations and any assignments of any such financing statements have been or will be timely filed or refiled, as appropriate, in the appropriate recording offices. Without limiting the foregoing representations and warranties, Borrower hereby authorizes Lender to file financing statements, continuation statements and financing statement amendments, in such form as Lender may require to perfect or continue the perfection of such security interests and in all events without Borrower's signature.

6.1.14.      Mortgage Liens.

The Liens granted to and for the benefit of Lender pursuant to the Collateral Pool Property Documents constitute a valid first priority Lien under applicable Law, subject to any Permitted Exceptions. All such action as will be necessary in Lender's sole opinion to establish such Lien of Lender and its priority as described in the preceding sentence will be taken at or prior to the time required for such purpose, and there will be as of the date of execution and delivery of the Collateral Pool Property Documents no necessity for any further action in order to protect, preserve and continue such Lien and such priority (except for the timely filing in the required offices of Uniform Commercial Code financing statement continuations). All filing fees and other expenses in connection with each such action have been or will be paid by Borrower.

- 48 -

6.1.15.      Insurance.

All insurance policies and other bonds to which Borrower and its Affiliates are a party are valid and in full force and effect. No notice has been given, no claim has been made, and no grounds exist, to cancel or avoid any of such policies or bonds or to reduce the coverage provided thereby. Such policies and bonds provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of Borrower and its Affiliates in accordance with prudent business practice in the industry of Borrower and its Affiliates. The representations made in this Section 6.1.15with respect to Affiliates of the Borrower are given only to the extent that the same could result in a Material Adverse Change.

6.1.16.      Material Contracts; Burdensome Restrictions.

All material contracts relating to Borrower and those contracts relating to Affiliates of the Borrower, of which a default thereunder could result in a Material Adverse Change, taken as a whole, are valid, binding and enforceable (subject to bankruptcy and creditor's rights laws) upon Borrower and such Affiliates, as applicable, and, to Borrower's knowledge, each of the other parties thereto in accordance with their respective terms (except as disclosed in writing by Borrower to Lender prior to the date hereof). There is no default under any such contracts by Borrower, or to Borrower's knowledge by any of the other parties thereto, except for defaults which would not result in a Material Adverse Change. Neither Borrower nor any of its Affiliates is bound by any contractual obligation, or subject to any restriction in any organizational document, or any requirement of Law, which is reasonably expected to result in a Material Adverse Change.

6.1.17.      Investment Companies; Regulated Entities.

Borrower is not an "investment company" registered or required to be registered under the Investment Company Act of 1940 or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940 and shall not become such an "investment company" or under such "control." Borrower is not subject to any other federal or state statute or regulation limiting its ability to incur any debt.

6.1.18.      Pension Plans and Benefit Arrangements.

The representations and warranties set forth in this Section 6.1.18shall only apply to the extent Borrower is at any time, and from time to time, subject to the provisions of ERISA.

6.1.18.1.   Borrower and each other member of the ERISA Group are in compliance in all material respects with any applicable provisions of ERISA with respect to all Benefit Arrangements, Pension Plans and Multiemployer Plans.  There has been no Prohibited Transaction with respect to any Benefit Arrangement or any Pension Plan or, with respect to any Multiemployer Plan, which could result in any material liability of Borrower or any other member of the ERISA Group. Borrower and all members of the ERISA Group have made when due any and all payments required to be made under any agreement relating to a Multiemployer Plan or any Law pertaining thereto. With respect to each Pension Plan and Multiemployer Plan, Borrower and each member of the ERISA Group (i) have fulfilled in all material respects their obligations under the minimum funding standards of ERISA, (ii) have not incurred any liability to the PBGC, and (iii) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA.

- 49 -

6.1.18.2.   Each Multiemployer Plan is able to pay benefits thereunder when due.

6.1.18.3.   Neither Borrower nor any other member of the ERISA Group has instituted or intends to institute proceedings to terminate any Pension Plan.

6.1.18.4.   No event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with respect to any Pension Plan, and no amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Pension Plan.

6.1.18.5.   The aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Pension Plan, determined on a plan termination basis, as disclosed in, and as of the date of, the most recent actuarial report for such Pension Plan, does not exceed the aggregate fair market value of the assets of such Pension Plan.

6.1.18.6.   Neither Borrower nor any other member of the ERISA Group has incurred or reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan. Borrower nor any other member of the ERISA Group has been notified by any Multiemployer Plan that such Multiemployer Plan has been terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be reorganized or terminated, within the meaning of Title IV of ERISA.

6.1.18.7.   To the extent that any Benefit Arrangement is insured, Borrower and all members of the ERISA Group have paid when due all premiums required to be paid for all periods through and including the Closing Date. To the extent that any Benefit Arrangement is funded other than with insurance, Borrower and all other members of the ERISA Group have made when due all contributions required to be paid for all periods through the Closing Date.

6.1.18.8.   All Pension Plans, Benefit Arrangements and Multiemployer Plans have been administered in accordance with their terms and any Law.

6.1.19.      Other Indebtedness.

Other than the Loan, Borrower has not incurred any debt other than (i) unsecured trade debt incurred in the ordinary course of business and (ii) subordinate intercompany debt.

- 50 -

6.1.20. Solvency,

Borrower is Solvent. After giving effect to the transactions contemplated by the Loan Documents, including the Loan incurred thereunder and the Liens granted to and for the benefit of Lender, Borrower will be Solvent. Borrower has not entered into this Credit Agreement or any Loan Document with the actual intent to hinder, delay, or defraud any creditor, and Borrower has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Borrower does not intend to, and Borrower does not believe that it will, incur debts and liabilities beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower).

6.1.21. Agreements.

Borrower is not a party to any agreement or instrument or subject to any restriction which is likely to result in a Material Adverse Change. Borrower is not in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any indenture, agreement or instrument to which it is a party or by which Borrower or any Collateral Pool Property is bound which default is likely to result in a Material Adverse Change.

6.1.22. No Bankruptcy Filing.

Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency Laws or the liquidation of all or a major portion of its assets or property of Borrower and Borrower has no knowledge of any Person contemplating the filing of any such petition against Borrower.

6.1.23. Formation.

Borrower was formed in the State of California.

6.1.24. Compliance.

Borrower, each Collateral Pool Property and the use thereof and operations thereat by Borrower, comply in all material respects with all applicable Laws. Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Official Body, the violation of which is reasonably likely to result in a Material Adverse Change. All required permits, licenses, and certificates for the lawful use and operation of the Collateral Pool Properties, including, but not limited to, certificates of occupancy, apartment licenses, or the equivalent have been obtained and are in full force and effect.

6.1.25. Not a Foreign Person.

Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code.

- 51 - -

6.1.26. Labor Matters.

Borrower is not a party to any collective bargaining agreements.

6.1.27. Condemnation.

No taking, condemnation or eminent domain proceeding has been commenced or, to Borrower's knowledge, is contemplated with respect to all or any portion of any Collateral Pool Property or for the relocation of roadways providing access to any Collateral Pool Property.

6.1.28. Utilities and Public Access.

Each Collateral Pool Property has adequate rights of access to public ways and is served by adequate water, sewer, sanitary sewer and storm drain facilities as are adequate for full utilization of such Collateral Pool Property for its use as a multifamily residential property. All public utilities necessary to the continued use and enjoyment of each Collateral Pool Property as presently used and enjoyed are located in the public right-of-way abutting the premises or an easement for same, and all such utilities are connected so as to serve each Collateral Pool Property either (i) without passing over other property or, (ii) if such utilities pass over other property, pursuant to valid easements. All roads necessary for the full utilization of each Collateral Pool Property for its current purpose have been completed and dedicated to public use and accepted by all Official Bodies or are the subject of access easements for the benefit of such Collateral Pool Property.

6.1.29. No Joint Assessment; Separate Lots.

Borrower has not suffered, permitted or initiated the joint assessment of any Collateral Pool Property (i) with any other real property constituting a separate tax lot, and (ii) with any portion of such Collateral Pool Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such Collateral Pool Property as a single lien, which joint assessment would result in a Material Adverse Change. Borrower shall not suffer, permit or initiate the joint assessment of any Collateral Pool Property (i) with any other real property constituting a separate tax lot, and (ii) with any portion of such Collateral Pool Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such Collateral Pool Property as a single lien. Each Collateral Pool Property is comprised of one or more parcels, each of which constitutes a separate tax lot and none of which constitutes a portion of any other tax lot in any manner which would result in a Material Adverse Change.

6.1.30. Assessments.

Except as disclosed in the title insurance policies, there are no pending or, to the Borrower's knowledge proposed special or other assessments for public improvements or otherwise affecting any Collateral Pool Property, nor, to Borrower's knowledge are there any contemplated improvements to any Collateral Pool Property that may result in such special or other assessments.

6.1.31. No Liabilities.

Borrower has no liabilities or obligations including, without limitation, contingent obligations (including, without limitation, liabilities or obligations in tort, in contract, at law, in equity, pursuant to a statute or regulation, or otherwise) other than those liabilities and obligations expressly permitted by this Agreement, including those addressed in Section 7.2.2.

6.1.32. No Prior Assignment.

As of the Closing Date, (i) Lender shall be assignee of Borrower's interest under any leases with respect to the Collateral Pool Properties, and (ii) there are no prior assignments of any such leases or any portion of the rents due and payable thereunder or to become due and payable thereunder which are presently outstanding.

- 52 - -

6.1.33. Certificate of Occupancy.

Borrower has obtained in its own name (or is the express successor or assignee of) all permits necessary to use and operate the Collateral Pool Properties for the uses described in Section 2.8, and all such permits are in full force and effect. The use being made of each Collateral Pool Property is in conformity in all respects with the certificate of occupancy and/or permits for such Collateral Pool Property and any other restrictions, covenants or conditions affecting such Collateral Pool Property, including without limitation, the applicable zoning and land use ordinances except as otherwise disclosed in writing to Lender prior to the Closing Date. Each Collateral Pool Property contains all equipment necessary to use and operate such Collateral Pool Property in a manner similar to that as of Lender's final inspection thereof. Borrower will continue to operate each Collateral Pool Property in substantially the manner in which it is presently being operated.

6.1.34. Intellectual Property.

All trademarks, trade names and service marks that Borrower owns or has pending, or under which Borrower is licensed, are in good standing and uncontested, the failure of which would result in a Material Adverse Change. Borrower has not infringed, is not infringing, and has not received notice of infringement with respect to any asserted trademarks, trade names or service marks of others, which infringement would result in a Material Adverse Change. To Borrower's knowledge there is no infringement by others of any trademarks, trade names or service marks of Borrower.

6.1.35. Conduct of Business.

Borrower does not conduct its business "also known as", "doing business as" or under any other name.

6.1.36. Intentionally Omitted.

6.1.37. No Default.

The execution, delivery and performance of the obligations imposed on Borrower, if any, under this Agreement, the Revolving Credit Note and the other Loan Documents will not cause Borrower to be in default under the provisions of any agreement, judgment or order to which Borrower is a party or by which Borrower is bound. There is no litigation or other claim pending before any court or administrative or governmental body or overtly threatened by a written communication against Borrower, any Collateral Pool Property, or any other property of Borrower which would result in a Material Adverse Change or which is not covered by insurance.

- 53 - -

6.1.38. Condition of the Collateral Pool Properties.

To the extent that any Collateral Pool Property has been damaged by fire, water, wind, earthquake or other cause of casualty, such Collateral Pool Property has been fully restored.

6.1.39. Non-Residential Leases.

Each Collateral Pool Property is a multi-family housing project. Gross income derived from commercial space, if any, located in any Collateral Pool Property shall not exceed twenty-five percent (25%) of the total gross income of such Collateral Pool Property. Neither Borrower, nor any general partner, managing member or principal thereof, is an Affiliate or otherwise related to the lessee under any leases for laundry equipment, telecommunications, television or similar systems on or about any of the Collateral Pool Properties. For the purposes of this Section, leases of parking to tenants shall not be deemed to be derived from commercial space.

6.1.40. No Low Income Housing Tax Credit.

Except as disclosed to Lender in writing, Borrower has not claimed, nor does Borrower intend to claim, a low income housing tax credit for any of the Collateral Pool Properties under Section 42 of the Internal Revenue Code of 1986, or any successor Section thereto. Should Borrower later decide to pursue claiming such a tax credit, Borrower will not proceed without obtaining Lender's prior written consent to do so, to be granted in Lender's sole discretion.

6.1.41. No Restrictions.

Except as disclosed to Lender in writing, there are no rent level restrictions or tenant income restrictions on any Collateral Pool Property.

6.1.42. No Adverse Affect on the Loan.

Nothing involving the Collateral Pool Properties, Borrower or Borrower's credit standing may be reasonably expected to (i) cause any payments under this Agreement, the Revolving Credit Note or any other Loan Documents to become delinquent or (ii) materially adversely affect the Market Value of any Collateral Pool Property.

6.1.43. Term of Leases.

All Leases for residential dwelling units with respect to the Collateral Pool Properties shall be on forms approved by Lender, shall be for initial terms of at least six (6) months and not more than two (2) years, and shall not include options to purchase.

- 54 - -

6.1.44. Authorized Officer.

The Authorized Officers of Borrower are those individuals that are identified as "Authorized Representatives" on that certain Certificate of Authorized Representative (Freddie Mac Form 988MF 7/08) delivered by Borrower to Lender on November 4, 2008 (as such list of Authorized Officers may be amended from time to time by written Notice to Lender).

6.1.45. Fraudulent Conveyances.

Borrower has not entered into any agreements, transactions or series of transactions with the intent to hinder, delay, or defraud any creditor, and Borrower has not entered into any agreements, transactions or series of transactions other than for valid consideration of reasonably equivalent value in exchange for its obligations thereunder.

6.1.46. Affiliate Transactions.

Except as approved in writing by Lender, Borrower has not entered into and is not a party to any contract, lease or other agreement with any Person directly or indirectly controlling, controlled by, or under common control with Borrower for the provision of any service, materials or supplies to any Collateral Pool Property (including any contract, lease or agreement for the provision of property management services, cable television services or equipment, gas, electric or other utilities, security services or equipment, laundry services or equipment, or telephone services or equipment).

6.1.47. No Existing Material Adverse Circumstances.

As of the date hereof, there exists no set of circumstances which, had such circumstances arisen subsequent to the date hereof, would constitute a Material Adverse Change.

6.2. Updates.

Borrower shall provide with each Loan Request that will result in an increase in the Loan, written revisions to any representations or warranties in this Agreement which have become outdated or incorrect in any material respect. In addition, should any such updates, corrections or additions relate to a matter which would be a Material Adverse Change, Borrower shall promptly provide Lender in writing with such revisions as may be necessary or appropriate, to correct or update same. Notwithstanding the providing of revised information, a breach of warranty or representation resulting from the prior inaccuracy or incompleteness shall not be deemed to have been cured thereby or waived by Lender unless and until Lender, in its sole and absolute discretion, shall have accepted in writing such revisions or updates; further provided that no representation or warranty shall be deemed to have been updated by any such revision unless and until Lender funds the additional Loan Request.

6.3. Survival of Representations and Warranties.

Borrower agrees that (i) all of the representations and warranties of Borrower set forth in this Agreement and in the other Loan Documents delivered on the Closing Date are made as of the Closing Date (except as expressly otherwise provided) and (ii) all representations and warranties made by Borrower shall survive the delivery of the Note and continue (a) for so long as any amount remains owing to Lender under this Agreement, the Note or any of the other Loan Documents or (b) until the date on which Lender releases all assets in the Collateral Pool from any Lien securing the Loan Documents pursuant to the provisions of Section 2.10or Section 2.15, whichever is later. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf.

- 55 - -

7. COVENANTS

7.1. Covenants.

Borrower covenants and agrees that until the later of (i) payment in full of the Loan and interest thereon, and satisfaction of all of the other Obligations of Borrower under the Loan Documents and (ii) the Expiration Date, Borrower shall comply at all times with the following covenants:

7.1.1. Preservation of Existence.

Borrower shall, and shall cause each of its Affiliates to, maintain its legal existence as a corporation, general or limited partnership or limited liability company and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary unless the failure to maintain the same shall not result in a Material Adverse Change to Borrower or any Collateral Pool Property.

7.1.2. Maintenance of Collateral Pool Properties and Leases.

Borrower (i) shall not commit waste or permit impairment or deterioration of the Collateral Pool Properties, (ii) shall not abandon any Collateral Pool Property, (iii) shall restore or repair promptly, in a good and workmanlike manner, any damaged part of any Collateral Pool Property to the equivalent of its original condition, or such other condition as Lender may reasonably approve in writing, whether or not insurance proceeds or condemnation awards are available to cover any costs of such restoration or repair (provided that Lender shall make any insurance proceeds or condemnation awards received by Lender available to Borrower for restoration and repair), (iv) shall keep the Collateral Pool Properties in good repair (normal wear and tear excepted), including the replacement of any personalty and fixtures located on any Collateral Pool Property with items of equal or better function and quality, (v) shall provide for professional management of the Collateral Pool Properties by a residential rental property manager satisfactory to Lender under a contract approved by Lender in writing (provided that Lender's approval is not required for a manager or a management agreement where Borrower or an Affiliate of Borrower is the manager), (vi) shall not change the use of any Collateral Pool Property as a multi-family residential property, (vii) shall give Notice to Lender of and, unless otherwise directed in writing by Lender, shall appear in and defend any action or proceeding purporting to affect any Collateral Pool Property, Lender's security or Lender's rights under this Agreement, and (viii) shall make any reasonable repairs to a Collateral Pool Property which are requested by Lender. Borrower shall not (and shall not permit any tenant or other person to) remove, demolish or materially alter any Collateral Pool Property or any part thereof except in connection with the replacement of tangible personalty.

- 56 - -

7.1.3. Collateral Agreements.

Borrower shall deposit with Lender such amounts as may be required by any Collateral Agreement and shall perform all other obligations of Borrower under each Collateral Agreement.

7.1.4. Inspection Rights.

Lender, its agents, representatives, and designees may make or cause to be made entries upon and inspections of any Collateral Pool Property (including environmental inspections and tests) during normal business hours, or at any other reasonable time upon reasonable advance notice, except that no such notice shall be required in cases of emergency. In the case of environmental inspections, Lender, its agents, representatives, or designees shall, in providing notice pursuant to this section, identify any third party inspectors.

7.1.5. Single Asset Borrower.

Prior to the Expiration Date, Borrower (i) shall not own or acquire any real or personal property other than the Collateral Pool Properties and personal property related to the operation and maintenance of the Collateral Pool Properties, (ii) shall not operate any business other than the ownership, management and operation of the Collateral Pool Properties, and (iii) shall not maintain its assets in a way difficult to segregate and identify.

7.1.6. Use of Proceeds.

Borrower will use the proceeds of the Loan only for lawful purposes in accordance with Section 2.8hereof.

7.1.7. Further Assurances.

Borrower shall, from time to time, at its expense, faithfully preserve and protect Lender's Lien on and security interest in the Collateral as a continuing first priority perfected Lien, subject only to Permitted Exceptions, and shall do such other acts and things as Lender in its sole discretion may deem necessary or advisable from time to time in order to preserve, perfect and protect the Liens granted under the Loan Documents and to exercise and enforce its rights and remedies thereunder with respect to the Collateral, provided that (i) the terms and conditions of this Agreement and the other Loan Documents are not changed thereby, (ii) Lender will use its best efforts to minimize costs and expenses incurred in connection with a request under this subsection, (iii) Borrower's obligations hereunder or under any other Loan Documents are not increased or otherwise adversely affected thereby except for incidental costs and expenses such as recording fees and reasonable attorneys' fees and expenses, and (iv) Borrower's rights hereunder or under any other Loan Documents are not decreased or otherwise adversely affected thereby.

7.1.8. Collateral Pool Properties.

7.1.8.1.     Borrower shall be in compliance with the Sublimits set forth in Section 2.5.3at such times as expressly required in this Agreement; and

- 57 - -

7.1.8.2.     Borrower shall own at all times the entire fee simple interest in each Collateral Pool Property.

7.1.9. Subsequent Periodic Valuations.

Borrower shall cooperate with Lender and its agents and provide such information in its possession as such parties shall reasonably require to complete a new Valuation for each Collateral Pool Property.

7.1.10. Special ERISA Related Covenants.

The covenants set forth in this Section 7.1.10, shall only apply to the extent Borrower is at any time and from time to time subject to the provisions of ERISA.

7.1.10.1.  Borrower shall at all times be a "real estate operating company" within the meaning of such term contained in 29 CFR § 2510.3-101(d) or an entity whose underlying assets are not deemed to be assets of a Pension Plan as defined in Section 3(3) of ERISA.

7.1.10.2.  Borrower shall, and shall cause each other member of the ERISA Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws applicable to Pension Plans and Benefit Arrangements. Without limiting the generality of the foregoing, Borrower shall cause all of its Pension Plans and all Pension Plans maintained by any member of the ERISA Group to be funded in accordance with the minimum funding requirements of ERISA and shall make, and cause each member of the ERISA Group to make, in a timely manner, all contributions due to Pension Plans, Benefit Arrangements and Multiemployer Plans.

7.1.10.3.  Borrower and members of the ERISA Group shall not:

(i)             fail to satisfy the minimum funding requirements of ERISA and the Internal Revenue Code with respect to any Pension Plan;

(ii)            request a minimum funding waiver from the Internal Revenue Service with respect to any Pension Plan;

(iii)           engage in a Prohibited Transaction with any Pension Plan, Benefit Arrangement or Multiemployer Plan which, alone or in conjunction with any other circumstances or set of circumstances resulting in liability under ERISA, would constitute a Material Adverse Change;

(iv)           permit the aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Pension Plan, determined on a plan termination basis, as disclosed in the most recent actuarial report completed with respect to such Pension Plan, to exceed, as of any actuarial valuation date, the fair market value of the assets of such Pension Plan;

- 58 - -

(v)            fail to make when due any contribution to any Multiemployer Plan that Borrower or any member of the ERISA Group may be required to make under any agreement relating to such Multiemployer Plan, or any Law pertaining thereto;

(vi)           withdraw (completely or partially) from any Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA to withdraw) from any Multiple Employer Pension Plan (as such term is defined in ERISA), where any such withdrawal is likely to result in a material liability of Borrower or any member of the ERISA Group;

(vii)          terminate, or institute proceedings to terminate, any Pension Plan, where such termination is likely to result in a material liability to Borrower or any member of the ERISA Group;

(viii)         make any amendment to any Pension Plan with respect to which security is required under Section 307 of ERISA; or

(ix)           fail to give any and all Notices and make all disclosures and governmental filings required under ERISA or the Internal Revenue Code, where such failure is likely to result in a Material Adverse Change.

7.1.11. Indebtedness.

Borrower shall not, at any time create, incur, assume or suffer to exist any indebtedness, except:

7.1.11.1.Indebtednes s under the Loan Documents;

7.1.11.2.Trade debt incurred in the ordinary course of business and any subordinate intercompany debt.

7.1.12. Liens.

Borrower shall not, at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so, except the Permitted Exceptions. Upon Lender's reasonable request, which request shall not be made more frequently than annually unless Lender has a reasonable suspicion of a title defect, Borrower shall promptly perform or cause to be performed, at Borrower's sole cost and expense, a title search reasonably satisfactory to Lender, demonstrating compliance with the provisions of this Section 7.1.12.

7.1.13. Liquidations, Mergers, Consolidations, Acquisitions.

Borrower shall not dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person.

- 59 - -

7.1.14. Dispositions of Assets or Affiliates.

Borrower shall not sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, all or substantially all of its assets, provided that the foregoing shall not be construed to prevent Borrower from selling, conveying or leasing its assets as permitted pursuant to the terms of this Agreement or any of the other Loan Documents.

7.1.15. Affiliate Trans actions.

Borrower shall not acquire or purchase an asset in which any Affiliate has a direct or indirect ownership interest otherwise than upon terms which are no less favorable than those terms which would be obtained in an arms length transaction with a third party.

7.1.16. Continuation of or Change in Business.

Borrower shall not engage in any business activities except as permitted under its organizational documents and this Agreement.

7.1.17. Changes in Organizational Documents; Name.

Borrower and its general partners, managing members, or principals shall not amend in any respect their respective certificate of incorporation (including any provisions or resolutions relating to capital stock), by-laws, certificate of limited partnership, or limited partnership agreement (as applicable) or other formation agreement or other organizational documents without first sending Notice to Lender and obtaining the prior written consent of Lender, which shall be granted or denied in Lender's reasonable discretion within thirty (30) Business Days of Lender's receipt of the proposed amendment, a brief explanation of its purpose and effect, and such other documents as Lender may reasonably request. Borrower shall not amend, revise or otherwise change its name in any respect, without the prior written consent of Lender, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, this Section 7.1.17 shall not apply to (i) Essex Property Trust, Inc. for so long as it remains a publicly traded entity or to (ii) Essex Portfolio, L.P. unless such change or amendment would result in a Material Adverse Change.

7.1.18. Properties Under Development.

Except as disclosed to Lender in writing, no Collateral Pool Property shall be raw land or property under construction or development with respect to which property construction or reconstruction will be needed before the property can be leased to tenants paying rent.

7.1.19. Further Documentation.

In the event any further documentation or information is reasonably required by Lender to enable Lender to sell the Loan, Borrower shall provide, or cause to be provided to Lender, at Borrower's sole cost and expense, such documentation or information. Borrower shall execute and deliver to Lender such documentation, including, but not limited to, any amendments, corrections, deletions or additions to this Agreement, the Note, and the other Loan Documents as is reasonably required by Lender; provided that Borrower shall not be required to do anything that has the effect of (i) changing the material economic or other business terms of this Agreement, the Note, or any other Loan Documents, (ii) imposing on Borrower greater liability or obligation than that set forth in this Agreement, the Note or any other Loan Documents, or (iii) decreasing or otherwise adversely affecting the rights of Borrower under this Agreement or any other Loan Documents.

- 60 - -

7.1.20. Compliance with Lender Requirements.

Borrower shall comply with the requirements of Lender in order to enable Lender to sell the Loan, provided that Borrower shall not be required to do anything that has the effect of (i) changing the material economic or other business terms of this Agreement, the Note, or any other Loan Documents or (ii) imposing on Borrower greater liability or obligation than that set forth in this Agreement, the Note or any other Loan Documents.

7.1.21. Subordination of Leases.

Borrower covenants, if any lease of any Collateral Pool Property is not subordinate to the Security Instrument securing such Collateral Pool Property, Borrower shall (i) use a new standard lease form containing subordination language reasonably acceptable to Lender, for all new leases of such Collateral Pool Property; and (ii) execute the new form of lease on any renewal of any existing leases of such Collateral Pool Property.

7.1.22. Enforceability of Loan Documents.

In the event that any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof (except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforceability of creditors' rights generally or limiting the right to specific performance) or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested, resulting in the failure to provide the practical benefit of the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby, Borrower shall use best efforts to cure any such defect(s) in such Loan Document(s), provided that if Borrower is unable to cure any such defect(s) within a reasonable time period, not to exceed thirty (30) days, and further provided that such defect is likely to result in a Material Adverse Change, Lender may in its discretion, upon ten (10) days notice to Borrower, accelerate Borrower's obligations under the Note.

- 61 - -

7.1.23. ERISA Matters.

The provisions set forth in this Section 7.1.23, shall only apply to the extent Borrower is at any time and from time to time subject to the provisions of ERISA. In the event that any of the following occurs: (i) any Reportable Event, which Lender determines in good faith constitutes grounds for the termination of any Pension Plan by the PBGC or the appointment of a trustee to administer or liquidate any Pension Plan, shall have occurred and be continuing; (ii) proceedings shall have been instituted or other action taken to terminate any Pension Plan, or a termination notice shall have been filed with respect to any Pension Plan; (iii) a trustee shall be appointed to administer or liquidate any Pension Plan; (iv) the PBGC shall give notice of its intent to institute proceedings to terminate any Pension Plan or Pension Plans or to appoint a trustee to administer or liquidate any Pension Plan; and, in the case of the occurrence of (i), (ii), (iii) or (iv) above, Lender determines in good faith that the amount of Borrower's liability is likely to cause a Material Adverse Change; (v) Borrower or any member of the ERISA Group shall fail to make any contributions when due to a Pension Plan or a Multiemployer Plan; (vi) Borrower or any member of the ERISA Group shall make any amendment to a Pension Plan with respect to which security is required under Section 307 of ERISA; (vii) Borrower or any member of the ERISA Group shall withdraw completely or partially from a Multiemployer Plan; or (viii) any applicable Law, rule or regulation is adopted, changed or interpreted by any governmental authority or agency or court with respect to or otherwise affecting one or more Pension Plans, Multiemployer Plans or Benefit Arrangements; and, with respect to any of the events specified in (v), (vi), (vii) or (viii), Lender determines in good faith that any such occurrence would be reasonably likely to materially and adversely affect the total enterprise represented by Borrower and the other members of the ERISA Group, Borrower shall use best efforts to cure such occurrence(s), provided that if Borrower is unable to cure any such occurrence(s) within a reasonable time period, not to exceed thirty (30) days, Lender may in its discretion, upon ten (10) days Notice to Borrower, accelerate Borrower's obligations under the Revolving Credit Note.

7.2. Reporting Requirements.

Borrower covenants and agrees that until the later of (i) payment in full of the Loan and satisfaction of all of Borrower's other Obligations hereunder and under the other Loan Documents and (ii) the Expiration Date, Borrower will furnish or cause to be furnished to Lender:

7.2.1. Notice of Default.

If to Borrower's knowledge an Event of Default or Potential Default has occurred with respect to Borrower, a certificate signed by an Authorized Officer of Borrower setting forth the details of such Event of Default or Potential Default and the actions that Borrower proposes to take with respect thereto;

7.2.2. Notice of Litigation.

Promptly after the commencement thereof, Notice of all actions, suits, proceedings or investigations before or by any Official Body or any other Person which (a) relate to the Collateral, or (b) involve a claim or series of claims in excess of ONE HUNDRED THOUSAND and NO/100 Dollars ($100,000.00) and, as to claims described under sections (a) or (b) above, which (i) are not covered by Borrower's insurance policies and (ii) if adversely determined would constitute a Material Adverse Change; and

7.2.3. Notice of Material Adverse Change.

Borrower shall promptly notify Lender of any Material Adverse Change affecting Borrower, any Collateral Pool Property, this Agreement or the other Loan Documents taken as a whole.

- 62 - -

7.3.           Escrows.

Borrower shall be responsible for the payment of real estate taxes on the Collateral Pool Properties and fire, hazard and other insurance premiums (collectively, the "Impositions"). Collection of monthly escrow deposits for the payment of Impositions relating to real estate taxes will be deferred; provided, that collections of real estate taxes may subsequently be initiated as set forth in the Loan Documents. Collection of monthly escrow deposits for the payment of Impositions relating to fire, hazard and other insurance premiums will be deferred; provided, that collections of insurance premiums may subsequently be initiated as set forth in the Loan Documents. Collection of monthly escrow deposits for required replacements will be deferred under the Replacement Reserve Agreement; provided, that collections of monthly escrow deposits for required replacements may subsequently be initiated as set forth in the Loan Documents.

8. DEFAULT

8.1. Events of Default.

The occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law) shall be an "Event of Default":

8.1.1. Payments Under Loan Documents.

Borrower shall fail to pay any principal under any Base Rate Borrowing Tranche or Fixed Rate Borrowing Tranche (including scheduled installments, mandatory prepayments or the payment due at maturity), or shall fail to pay any interest on any Loan or any other amount owing hereunder or under any other Loan Documents after such principal, interest or other amount becomes due in accordance with the terms hereof or thereof;

8.1.2. Breach of Representation or Warranty.

Any representation or warranty made at any time by Borrower herein or in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished and the result of such false or misleading representation, warranty, certificate, other instrument or statement is a Material Adverse Change which is not cured within thirty (30) days after written Notice thereof from Lender to Borrower, or within such additional reasonable time as may be necessary, in Lender's judgment to cure such breach, in the event Borrower commences such cure within such thirty (30) day period and thereafter diligently pursues such cure, not to exceed sixty (60) additional days;

8.1.3. Breach of Covenant.

Borrower shall default in the observance or performance of any covenant, condition or provision hereof or under any other Loan Document, which default is not otherwise specified as an "Event of Default" under (i) the provisions of this Article 8or (ii) Section 22 of any Security Instrument with respect to the initial Collateral Pool Properties (or the same sections or any similar sections of any Security Instrument with respect to any future Collateral Pool Property(ies)) and is not cured within thirty (30) days after Notice thereof from Lender to Borrower of such default, provided that, no such Notice or grace period shall apply in the case of any default which could, in Lender's judgment, absent immediate exercise by Lender of a right or remedy under this Agreement or any of the other Loan Documents, result in additional harm to Lender, impairment of the Note, or any rights of Lender under this Agreement or any security given under any other Loan Document;

- 63 - -

8.1.4. Event of Default under the Loan Documents.

Borrower shall be in default under any provision of the Revolving Credit Note, or any other Loan Document, including, without limitation, any Security Instrument, beyond any applicable cure period;

8.1.5.        Final Judgments or Orders.

Any final judgments or orders for the payment of money in excess of ONE HUNDRED THOUSAND and NO/100 Dollars ($100,000.00) in the aggregate shall be entered against Borrower by a court having jurisdiction in the premises, which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the date of entry;

8.1.6. Notice of Lien or Assessment.

A notice of Lien or assessment in excess of ONE MILLION and NO/100 Dollars ($1,000,000.00) which is not a Permitted Exception is filed of record with respect to all or any part of any of Borrower's assets, or any taxes or debts owing at any time or times hereafter to the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including the PBGC, becomes payable and the same is not paid or otherwise discharged within thirty (30) days after the same becomes payable, unless the same is being contested in accordance with the Loan Documents;

8.1.7. Insolvency.

Borrower ceases to be Solvent or admits in writing its inability to pay its debts as they mature;

8.1.8. Cessation of Business.

Borrower ceases to conduct the business of Borrower, or Borrower is enjoined, restrained or in any way prevented by court order from conducting all or any material part of the business of Borrower, and such injunction, restraint or other preventive order is not dismissed within ten (10) Business Days after the entry thereof;

8.1.9. Lien Priority.

The Liens granted to and for the benefit of Lender do not constitute valid first priority Liens (subject to Permitted Exceptions) under applicable Laws and such default shall continue unremedied for a period of thirty (30) Business Days after Borrower's knowledge of the occurrence thereof or such additional reasonable time period necessary to cure such default, in the event Borrower commences such cure within such thirty (30) day period and thereafter diligently pursues such cure, not to exceed sixty (60) additional days (such cure period to be applicable only in the event such default can be remedied by corrective action of Borrower to the satisfaction of Lender as determined by Lender in its reasonable discretion); or

- 64 - -

8.1.10. Bankruptcy and Other Proceedings.

Borrower voluntarily files for bankruptcy protection under the United States Bankruptcy Code or voluntarily becomes subject to any reorganization, receivership, insolvency proceeding or other similar proceeding pursuant to any other federal or state Law affecting debtor and creditor rights, or an involuntary case is commenced against Borrower by any creditor (other than Lender) of Borrower pursuant to the United States Bankruptcy Code or other federal or state Law affecting debtor and creditor rights and is not dismissed or discharged within sixty (60) days after filing.

8.1.11. Material Adverse Change.

There shall occur a Material Adverse Change which is not corrected to the reasonable satisfaction of Lender within thirty (30) days after the occurrence of such Material Adverse Change, or such additional reasonable time period necessary to cure such Material Adverse Change, in the event Borrower commences such cure within such thirty (30) day period and thereafter diligently pursues such cure, not to exceed thirty (30) additional days (such cure period to be applicable only in the event such default can be remedied by corrective action of Borrower to the satisfaction of Lender as determined by Lender in its reasonable discretion). Notwithstanding the foregoing, if Borrower is otherwise in compliance with all other provisions of this Agreement dealing with facts or circumstances which would otherwise be a Material Adverse Change, Borrower shall be deemed to be diligently pursuing a cure pursuant to this Section 8.1.11and the time periods of this Section 8.1.11shall be extended to a date coterminous with the cure periods provided in any other section of this Agreement with regard to remedying such facts or circumstances

8.2. Consequences of Event of Default.

8.2.1. Remedies Cumulative.

Upon an Event of Default under Section 8.1, Lender shall be entitled to all of the rights and remedies granted to Lender under the Loan Documents and applicable Law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by Law.

8.2.2. Acceleration of Loan.

Upon an Event of Default, Lender shall be entitled, without limitation, to (a) accelerate the Loan, and to (b) collect as liquidated damages (i) a Prepayment Fee applicable to any outstanding Base Rate Borrowing Tranches and Fixed Rate Borrowing Tranches and (ii) the Early Termination Fee all in accordance with Section 2.13.4.

- 65 - -

8.3. Notice of Sale.

Any notice required to be given by Lender of a sale, lease, or other disposition of any Collateral that is personal property or any other intended action by Lender under the Uniform Commercial Code, if given at least ten (10) days prior to such proposed action, shall constitute commercially reasonable and fair notice thereof to Borrower.

9. MISCELLANEOUS

9.1. Cooperation by Borrower; Borrower's Obligations.

Borrower grants to Lender the right to distribute on a confidential basis financial and other information concerning Borrower, each indemnitor, other Person, the Collateral Pool Properties, and other pertinent information with respect to the Loan to any party purchasing securities issued by Lender.

9.2. Successors and Assigns.

This Agreement shall be binding upon and shall inure to the benefit of Lender, Borrower and their respective successors and assigns, except that Borrower may not assign or transfer any of its respective rights or Obligations hereunder or any interest herein, except as permitted under this Agreement or the other Loan Documents.

9.3. Modifications, Amendments or Waivers.

Lender and Borrower may from time to time enter into written agreements amending or changing any provision of this Agreement or any other Loan Document or the rights of Lender or Borrower hereunder or thereunder, or may grant written waivers or consents to a departure from the due performance of the Obligations of Borrower hereunder or thereunder. Any such written agreement, waiver or consent (i) shall be effective to bind Lender and Borrower and (ii) shall be accompanied at all times by a written joinder agreement executed by the guarantor under that certain Guaranty dated as of the date hereof in favor of Lender, consenting and/or agreeing to the same.

9.4. Forbearance.

Lender may (but shall not be obligated to) agree with Borrower, from time to time, and without giving notice to, or obtaining the consent of, or having any effect upon the obligations of, any guarantor or other third party obligor, to take any of the following actions: extend the time for payment of all or any part of the Loan; reduce the payments due under this Agreement, the Note, or any other Loan Document; release anyone liable for the payment of any amounts under this Agreement, the Note, or any other Loan Document; modify the terms and time of payment of the Loan; join in any extension or subordination agreement; release any Collateral Pool Property; take or release other or additional security; modify the rate of interest or period of amortization of the Note or change the amount of the monthly installments payable under the Note; and otherwise modify this Agreement, the Note, or any other Loan Document.

Any forbearance by Lender in exercising any right or remedy under the Note, this Agreement, or any other Loan Document or otherwise afforded by applicable Law, shall be in writing and shall not be deemed a waiver of or preclude the exercise of any right or remedy. The acceptance by Lender of payment of all or any part of the Loan after the due date of such payment, or in an amount which is less than the required payment, shall not be a waiver of Lender's right to require prompt payment when due of all other payments on account of the Loan or to exercise any remedies for any failure to make prompt payment. Enforcement by Lender of any security for the Loan shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right available to Lender to the extent permitted by Law. Lender's receipt of any awards or proceeds shall not operate to cure or waive any Event of Default.

- 66 - -

9.5. Remedies Cumulative.

Each right and remedy provided in this Agreement is distinct from all other rights or remedies under this Agreement or any other Loan Document or afforded by applicable Law, and each shall be cumulative and may be exercised concurrently, independently, or successively, in any order.

9.6. Reimbursement and Indemnification of Lender and Servicer by Borrower; Taxes.

Borrower agrees unconditionally upon demand to pay or reimburse to Lender and Servicer and to hold Lender and Servicer harmless against (i) liability for the payment of all reasonable third party out-of-pocket costs, expenses and disbursements customary within the commercial mortgage loan servicing industry (including fees and expenses of counsel for Lender and Servicer, incurred by Lender and Servicer (a) in connection with the administration and interpretation of this Agreement, and other instruments and documents to be delivered hereunder, provided such interpretation is in response to Borrower' request for same, (b) relating to any amendments, waivers or consents pursuant to the provisions hereof, (c) in connection with the enforcement of this Agreement or any other Loan Document, or collection of amounts due hereunder or thereunder or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and (d) in any workout or restructuring or in connection with the protection, preservation, exercise or enforcement of any of the terms hereof or of any rights hereunder or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Lender or Servicer, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by Lender or Servicer hereunder or thereunder, provided that no Borrower shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (A) if the same results from Lender's negligence or willful misconduct or breach of this Agreement, (B) if the same results from any action taken with respect to a Collateral Pool Property after Lender has acquired title to such Collateral Pool Property in a foreclosure proceeding or deed-in-lieu of foreclosure, (C) if Borrower was not given notice of the subject claim and the opportunity to participate in the defense thereof, at its expense (except that Borrower shall remain liable to the extent such failure to give notice does not result in a loss to Borrower), or (D) if the same results from a compromise or settlement agreement entered into without the consent of Borrower, which shall not be unreasonably withheld. Borrower agrees unconditionally to pay all stamp, document, transfer, mortgage registration, recording or filing taxes or fees and similar impositions now or hereafter determined by Lender to be payable in connection with this Agreement or any other Loan Document, and Borrower agrees unconditionally to hold Lender and Servicer harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions.

- 67 - -

9.7. Holidays.

Whenever the funding of a Borrowing Tranche hereunder shall be due on a day which is not a Business Day such payment shall be due on the next Business Day and such extension of time shall be included in computing interest and fees, except that the Loan shall be due on the Business Day preceding the Expiration Date if the Expiration Date is not a Business Day. Whenever any payment or action to be made or taken hereunder (other than payment of the Loan) shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day, and such extension of time shall not be included in computing interest or fees, if any, in connection with such payment or action.

9.8. Notices.

All notices, requests, demands, directions and other communications ("Notice") given to or made upon any party hereto under the provisions of this Agreement shall be in writing unless otherwise expressly provided hereunder and shall be delivered or sent by telex, facsimile, certified mail or hand delivery if to Lender, to Lender at the address and numbers set forth below, and if to Borrower or Proposed Borrower, to each of them at the addresses and numbers set forth below, or in accordance with any subsequent unrevoked written direction from any party to the others. All such Notices shall, except as otherwise expressly herein provided, be effective (a) in the case of facsimile, when received if received prior to 5:00 p.m. at the recipient's time on a Business Day, otherwise at 9:00 a.m. on the next Business Day, (b) in the case of hand-delivered Notice, when hand-delivered, (c) if given by certified mail, three (3) Business Days after such communication is deposited in the mail with first-class postage prepaid, return receipt requested, and (d) if given by any other means (including by air courier), when delivered. Notwithstanding anything to the contrary contained in this Agreement, all Notices to Lender required hereunder or under any Loan Document shall be delivered to Servicer, as agent on behalf of Lender, unless notified otherwise in writing by Lender.

Lender's Notice Address and Numbers:

NorthMarq Capital, Inc.

3500 American Boulevard West

Suite 500

Bloomington, MN 55431-4435

Attention: Servicing

Facsimile:  (952)356-0099

Borrower's Notice Addresses and Numbers:

Essex CAL-WA, L.P.

c/o Essex Property Trust, Inc.

925 East Meadow Drive

Palo Alto, CA 94303

Attention: MarkMikl

Facsimile: (650) 843-1514

- 68 - -

with a copy to:

Essex CAL-WA, L.P.

c/o Essex Property Trust, Inc.

925 East Meadow Drive

Palo Alto, CA 94303

Attention: Jordan E. Ritter

Facsimile: (650) 858-1372

and to:

Essex CAL-WA, L.P.

c/o Essex Property Trust, Inc.

925 East Meadow Drive

Palo Alto, CA 94303

Attention: Michael Dance

Facsimile: (650) 858-0139

9.9. Severability.

The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision, and all other provisions shall remain in full force and effect. This Agreement contains the entire agreement between the parties as to the rights granted and the obligations assumed in this Agreement. This Agreement may not be amended or modified except by a writing signed by the party against whom enforcement is sought.

9.10. Governing Law: Consent to Jurisdiction and Venue.

This Agreement, and any Loan Document which does not itself expressly identify the Law that is to apply to it, shall be governed by the Laws of the Commonwealth of Virginia. Borrower agrees that any controversy arising under or in relation to this Agreement or any other Loan Document which does not expressly identify the Law that is to apply to it, shall be litigated in the courts located in the Commonwealth of Virginia. The state and federal courts and authorities with jurisdiction in the Commonwealth of Virginia shall have non-exclusive jurisdiction over all controversies which shall arise under or in relation to this Agreement. Borrower irrevocably consents to service, jurisdiction, and venue of such courts for any such litigation and waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise. However, nothing in this Agreement is intended to limit any right that Lender may have to bring any suit, action or proceeding relating to matters arising under this Credit Agreement in any court of any other jurisdiction.

- 69 - -

9.11. Prior Understanding.

This Agreement and the other Loan Documents supersede all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein and therein, including any prior confidentiality agreements and commitments.

9.12. Duration; Survival.

All representations and warranties of Borrower contained herein or made in connection herewith shall survive the funding of the initial advance hereunder and shall not be waived by the execution and delivery of this Agreement, any investigation by Lender, the funding of any Borrowing Tranche, or payment in full of the Loan. All covenants and agreements of Borrower contained herein shall continue in full force and effect from and after the date hereof so long as Borrower may borrow hereunder and until the later of (i) the Expiration Date or (ii) the payment in full of the Obligations. All covenants and agreements of Borrower contained herein relating to the payment of principal, interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Note, shall survive payment in full of the Loan and the Expiration Date. Notwithstanding any of the foregoing to the contrary, in no event shall (a) the release of Lender's Lien on any Collateral Pool Property, (b) the maturity, expiration or early termination of the Revolving Credit Note, or any Fixed Rate Note or (c) the expiration or early termination of this Agreement, be deemed to terminate any covenants, agreements, representations or warranties contained in this Agreement, the Note or any of the other Loan Documents, to the extent that such covenant, agreement, representation or warranty, shall, by its terms survive the, release, maturity, expiration or early termination of this Agreement, the Note or any of the other Loan Documents.

9.13. Disclosure of Information.

Lender may furnish information regarding Borrower or the Collateral Pool Properties to third parties with an existing or prospective interest in the servicing, enforcement, evaluation, performance, purchase or securitization of the Loan, including, but not limited to, trustees, master servicers, special servicers, rating agencies, and organizations maintaining databases on the underwriting and performance of multifamily mortgage loans. Borrower irrevocably waives any and all rights it may have under applicable Law to prohibit such disclosure, including, but not limited to, any right of privacy.

9.14. Exceptions.

The representations, warranties and covenants contained herein shall be independent of each other, and no exception to any representation, warranty or covenant shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exceptions be deemed to permit any action or omission that would be in contravention of applicable Law.

9.15. Relationship of Parties; No Third Parties Benefited.

The relationship between Lender and Borrower shall be solely that of creditor and debtor, respectively, and nothing contained in this Agreement shall create any other relationship between Lender and Borrower. No creditor of any party to this Agreement and no other person shall be a third party beneficiary of this Agreement or any other Loan Document. Without limiting the generality of the preceding sentence, (i) an agreement, if any, including any Servicing Agreement, between Lender and Servicer for interim advancement of funds shall constitute a contractual obligation of such Servicer that is independent of the obligation of Borrower for the payment of the Loan, (ii) Borrower shall not be a third party beneficiary of any Servicing Agreement, and (iii) no payment by Servicer under any such agreement will reduce the outstanding principal amount of the Loan or any interest accrued thereon.

- 70 - -

9.16. Authority to File Notices.

Borrower irrevocably appoints Lender as its attorney-in-fact, with full power of substitution, to file for record, at Borrower's cost and expense and in Borrower's name, any notices that Lender considers reasonably necessary or desirable to protect the Collateral.

9 17. WAIVER OF TRIAL BY JURY.

BORROWER AND LENDER EACH (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS AGREEMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS BORROWER AND LENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.

/s/ Mark J. Mikl

Name: Mark J. Mikl

Title: Senior Vice President

9.18. Interpretation.

Whenever the context requires, all words used in the singular will be construed to have been used in the plural, and vice versa, and each gender will include any other gender. The captions of the articles, sections and schedules of this Agreement are for convenience only and do not define or limit any terms or provisions. In the event of a conflict between the terms of the other Loan Documents and the terms of this Agreement, the terms of this Agreement shall control.

9.19. Brokerage Fee.

Borrower represents to Lender that no broker or other Person is entitled to a brokerage fee or commission as a result of Borrower's actions or undertakings in connection with the financing contemplated hereunder and agrees to hold Lender harmless from all claims for brokerage commissions which may be made as a result of such actions or undertakings, if any. Lender represents to Borrower that no broker or Person is entitled to a brokerage fee or commission as a result of Lender's actions or undertakings in connection with the financing contemplated hereunder and agrees to hold Borrower harmless from all claims for brokerage commissions which may be made as a result of such actions or undertakings, if any.

- 71 - -

9.20. Advertising.

Lender may include the name of Borrower, the name and location of any Collateral Pool Property, the Commitment and the number of apartment units contained in any Collateral Pool Property on Lender's client list and in any typical advertisement.

9.21. Time of Essence.

Time is of the essence with respect to each obligation of Borrower and Lender hereunder.

9.22. Counterparts.

This Agreement may be executed by different parties hereto on any number of separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument.

9.23. NOTICE OF FINAL AGREEMENT.

THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES HERETO.

[Signatures Commence on the Following Page]

- 72 - -

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

BORROWER:
ESSEX CAL-WA, L.P., a California limited partnership
By:	Essex SPE, LLC, a Delaware limited liability company, its general partner
	By:	Essex Portfolio, L.P., a California limited partnership, its sole member
		By:	Essex Property Trust, Inc., a Maryland corporation, its general partner
			By:	/s/ Mark J Mikl
				Name: Mark J Mikl
				Title: Senior Vice President
LENDER:
NORTHMARQ CAPITAL, INC., a Minnesota corporation
By:
	Name: Paul W. Cairns
	Title: Senior Vice President

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

BORROWER:
ESSEX CAL-WA, L.P., a California limited partnership
By:	Essex SPE, LLC, a Delaware limited liability company, its general partner
	By:	Essex Portfolio, L.P., a California limited partnership, its sole member
		By:	Essex Property Trust, Inc., a Maryland corporation, its general partner
			By:
				Name:
				Title:
			LENDER:
			NORTHMARQ CAPITAL, INC.,a Minnesota corporatron
			By:	/s/ Paul W. Cairns
				Name: Paul W. Cairns
				Title: Senior Vice President

SCHEDULE 1.1(A)

LIST OF COLLATERAL POOL PROPERTIES

AND ASSOCIATED INITIAL NET OPERATING INCOMES AND MARKET VALUES

Collateral Pool Property		Initial Net Operating Income		Initial Market Value
1.	Mira Woods Villas, San Diego, California	$	3,392,031	$	56,534,000
2.	Forest View, Renton, Washington	$	1,602,263	$	26,704,371
3.	Castle Creek, New Castle, Washington	$	1,820,852	$	30,347,505
4.	Bonita Cedars, Bonita, California	$	1,198,654	$	19,977,585
5.	Windsor Ridge, Sunnyvale, California	$	3,004,456	$	50,247,000
6.	Mission Hills, Oceanside, California	$	2,667,975	$	44,466,000
7.	Walnut Heights, Walnut California	$	1,682,612	$	28,045,000
8.	Bristol Commons Apartments, Sunnyvale, California	$	2,470,950	$	41,182,514

Sch. 1.1(A) - 1

SCHEDULE 1.1(B)

LIST OF

COLLATERAL POOL PROPERTY DOCUMENTS

(a) Mortgage/Deed of Trust/Deed to Secure Debt

(b) UCC-1 Financing Statements

(c) FIRPTA Certificate

(d) Collateral Agreements (if any)

(e) Documents evidencing O & M Programs (if any)

(f) Title insurance policy acceptable to Lender, in an amount equal to not less than the Initial Market Value of such Collateral Pool Property, which title insurance shall include the following endorsements (where and if applicable): (i) a tie-in endorsement, (ii) a multiple foreclosure endorsement, (iii) a first loss endorsement, (iv) a last dollar endorsement, (v) a variable rate mortgage endorsement, and (vi) a revolving credit endorsement.

Sch. 1.1(B) - 1

SCHEDULE 1.1(C)

FORM OF FIXED RATE NOTE

[See attached]

Sch. 1.1(C) - 1

SCHEDULE 1.1(C)

FORM OF FIXED RATE NOTE

Freddie Mac Loan Number: 080609

MULTIFAMILY NOTE

(FOR USE ONLY WITH REVOLVING CREDIT FACILITY)

MULTISTATE - - FIXED RATE

(REVISION DATE 2-15-2008; specially modified on 11-09-2008)

US $______________________ Effective Date: ______________________

FOR VALUE RECEIVED, the undersigned (together with such party's or parties' successors and assigns, "Borrower") jointly and severally (if more than one) promises to pay to the order of _________ , a _________  , the principal sum of _________ Dollars (US $ _________ ), with interest on the unpaid principal balance, as hereinafter provided.

1. Defined Terms.

(a) As used in this Note:

"Base Recourse" means a portion of the Indebtedness equal to zero percent (0%) of the original principal balance of this Note.

"Credit Agreement" means that certain Credit Agreement dated as of November 17, 2008 by and between Borrower and NorthMarq Capital, Inc., together with all amendments or modifications thereto

"Default Rate" means an annual interest rate equal to four (4) percentage points above the Fixed Interest Rate. However, at no time will the Default Rate exceed the Maximum Interest Rate.

"Fixed Interest Rate" means the annual interest rate of _____________ percent (  %)•

"Installment Due Date" means, for any monthly installment of interest only or principal and interest, the date on which such monthly installment is due and payable pursuant to Section 3 of this Note. The "First Installment Due Date" under this Note is _____________ 1, _____________.[insert the first day of the second month following the origination date; however, if the loan is originated on the first day of a month, insert the first day of the first month following the origination date]

Page 1

"Lender" means the holder from time to time of this Note.

"Loan" means the loan evidenced by this Note.

"Maturity Date" has the meaning set forth in the Credit Agreement.

"Maximum Interest Rate" means the rate of interest that results in the maximum amount of interest allowed by applicable law.

"Prepayment Premium Period" means the period during which, if a prepayment of principal occurs, a prepayment premium will be payable by Borrower to Lender. The Prepayment Premium Period is the period from and including the date of this Note until but not including the first day of the Window Period.

"Related Party" shall mean: (i) any Borrower; (ii) any person or entity that holds, directly or indirectly, any ownership interest in or right to manage Borrower, including without limitation, any shareholder, member or partner of Borrower; (iii) any person or entity in which any ownership interest (direct or indirect) or right to manage is held by Borrower or any partner, shareholder or member of, or any other person or entity holding an interest in, Borrower; and (iv) any other creditor of Borrower that is related by blood, marriage or adoption to Borrower, or any partner, shareholder or member of, or any other person or entity holding an interest in, Borrower.

"Rent" shall have the meaning set forth in the Security Instrument.

"Security Instrument" means, individually and collectively, the multifamily mortgage(s), deed(s) to secure debt and deed(s) of trust effective as of the effective date of this Note, and subsequently executed pursuant to the Credit Agreement, from Borrower to or for the benefit of Lender and securing this Note.

"Transfer" shall have the meaning set forth in the Security instrument.

"Window Period" means the three (3) consecutive calendar month period prior to the Scheduled Maturity Date.

"Yield Maintenance Period" means the period from and including the date of this Note until but not including _____________ 1, _____________. [The date is determined by the number of months in the Yield Maintenance Period as provided for in the Freddie Mac Commitment/ERL Application, beginning with the first day of the first calendar month following the date of the Note. For example, if the date of the Note is June 15, 2004, a 120-month Yield Maintenance Period will end July 1, 2014.]

Page 2

(b) Other capitalized terms used but not defined in this Note shall have the meanings given to such terms in the Credit Agreement or, if not defined therein, in the Security Instrument.

2.             Address for Payment. All payments due under this Note shall be payable by wire transfer of immediately available funds to an account specified by Lender, whose address is NorthMarq Capital, Inc., 3500 American Boulevard West, Suite 500, Bloomington, MN 55431- 4435, or such other place or account as may be designated by Notice to Borrower from or on behalf of Lender.

3. Payments.

(a)            Interest will accrue on the outstanding principal balance of this Note at the Fixed Interest Rate, subject to the provisions of Section 8 of this Note.

(b)            Interest under this Note shall be computed, payable and allocated on the basis of an actual/360 interest calculation schedule. Each monthly payment of principal and interest will first be applied to pay in full interest due, and the balance of the monthly payment paid by Borrower will be credited to principal.

(c)            The Installment Due Date for the first monthly installment payment under Section 3(d) of interest only or principal and interest, as applicable, will be the First Installment Due Date set forth in Section 1(a) of this Note. Except as provided in Section 10, accrued interest will be payable in arrears.

(d)            Beginning on the First Installment Due Date, and continuing until and including the monthly installment due on the Maturity Date, accrued interest only shall be payable by Borrower in consecutive monthly installments due and payable on the first day of each calendar month. The amount of the monthly installment of interest only payable pursuant to this Section 3(d) on an Installment Due Date shall vary, and shall equal $ _____________ [insert the per diem amount, expressed to the fifth decimal place, derived by multiplying the original principal balance of the Loan by the Fixed Interest Rate and dividing the product by 360] multiplied by the number of days in the month prior to the Installment Due Date.

(e)            All remaining Indebtedness, including all principal and interest, shall be due and payable by Borrower on the Maturity Date. Notwithstanding anything to the contrary in this Note, the Credit Agreement or any other Loan Document, the Maturity Date of this Note may not be extended pursuant to Sections 2.2(b) or 2.2 (c) of the Credit Agreement. If Borrower exercises the First Extension Option or the Second Extension Option pursuant to Sections 2.2(b)

Page 3

(f)           All payments under this Note shall be made in immediately available U.S.

funds.

(g)           Any regularly scheduled monthly installment of interest only or principal and interest payable pursuant to this Section 3 that is received by Lender before the date it is due shall be deemed to have been received on the due date for the purpose of calculating interest due.

(h)           Any accrued interest remaining past due for 30 days or more, at Lender's discretion, may be added to and become part of the unpaid principal balance of this Note and any reference to "accrued interest" shall refer to accrued interest which has not become part of the unpaid principal balance. Any amount added to principal pursuant to the Loan Documents shall bear interest at the applicable rate or rates specified in this Note and shall be payable with such interest upon demand by Lender and absent such demand, as provided in this Note for the payment of principal and interest.

(i)           In accordance with Section 14, interest charged under this Note cannot exceed the Maximum Interest Rate. If the Fixed Interest Rate at any time exceeds the Maximum Interest Rate, resulting in the charging of interest hereunder to be limited to the Maximum interest Rate, then any subsequent reduction in the Fixed Interest Rate shall not reduce the rate at which interest under this Note accrues below the Maximum Interest Rate until the total amount of interest accrued hereunder equals the amount of interest which would have accrued had the Fixed Interest Rate at all times been in effect.

4.           Application of Payments. If at any time Lender receives, from Borrower or otherwise, any amount applicable to the Indebtedness which is less than all amounts due and payable at such time, Lender may apply the amount received to amounts then due and payable in any manner and in any order determined by Lender, in Lender's discretion. Borrower agrees that neither Lender's acceptance of a payment from Borrower in an amount that is less than all amounts then due and payable nor Lender's application of such payment shall constitute or be deemed to constitute either a waiver of the unpaid amounts or an accord and satisfaction.

5.           Security. The Indebtedness is secured by, among other things, the Security Instrument and the Credit Agreement, and reference is made to the Security Instrument and the Credit Agreement for other rights of Lender as to collateral for the Indebtedness.

6.           Acceleration. If an Event of Default has occurred and is continuing, the entire unpaid principal balance, any accrued interest, any prepayment premium payable under the Credit Agreement, if any, and all other amounts payable under this Note, the Credit Agreement and any other Loan Document, shall at once become due and payable, at the option of Lender, without any prior notice to Borrower (except if notice is required by applicable law, then after such notice). Lender may exercise this option to accelerate regardless of any prior forbearance.

For purposes of exercising such option, Lender shall calculate the prepayment premium, if any, as if prepayment occurred on the date of acceleration. If prepayment occurs thereafter, Lender shall recalculate the prepayment premium, if any, as of the actual prepayment date.

Page 4

7.             Late Charge.

(a)           If any monthly installment of interest or principal and interest or other amount payable under this Note, the Credit Agreement, the Security Instrument or any other Loan Document, other than the outstanding principal balance of the Loan payable on the Maturity Date or upon acceleration of the Note, is not received in full by Lender within ten (10) days after the installment or other amount is due, counting from and including the date such installment or other amount is due (unless applicable law requires a longer period of time before a late charge may be imposed, in which event such longer period shall be substituted), Borrower shall pay to Lender, immediately and without demand by Lender, a late charge equal to five percent (5%) of such installment or other amount due (unless applicable law requires a lesser amount be charged, in which event such lesser amount shall be substituted).

(b)           Borrower acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan and that it is extremely difficult and impractical to determine those additional expenses. Borrower agrees that the late charge payable pursuant to this Section represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional expenses Lender will incur by reason of such late payment. The late charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate pursuant to Section 8.

8.             Default Rate.

(a)           So long as (i) any monthly installment under this Note remains past due for thirty (30) days or more or (ii) any other Event of Default has occurred and is continuing, then notwithstanding anything in Section 3 of this Note to the contrary, interest under this Note shall accrue on the unpaid principal balance from the Installment Due Date of the first such unpaid monthly installment or the occurrence of such other Event of Default, as applicable, at the Default Rate.

(b)           From and after the Maturity Date, the unpaid principal balance shall continue to bear interest at the Default Rate until and including the date on which the entire principal balance is paid in full.

(c)           Borrower acknowledges that (i) its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan, (ii) during the time that any monthly installment under this Note is delinquent for thirty (30) days or more, Lender will incur additional costs and expenses arising from its loss of the use of the money due and from the adverse impact on Lender's ability to meet its other obligations and to take advantage of other investment opportunities; and (iii) it is extremely difficult and impractical to determine those additional costs and expenses. Borrower also acknowledges that, during the time that any monthly installment under this Note is delinquent for thirty (30) days or more or any other Event of Default has occurred and is continuing, Lender's risk of nonpayment of this Note will be materially increased and Lender is entitled to be compensated for such increased risk. Borrower agrees that the increase in the rate of interest payable under this Note to the Default Rate represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional costs and expenses Lender will incur by reason of the Borrower's delinquent payment and the additional compensation Lender is entitled to receive for the increased risks of nonpayment associated with a delinquent loan.

Page 5

9.             Limits on Personal Liability.

(a)           Except as otherwise provided in this Section 9, in the Revolving Credit Note or in any guaranty, Borrower shall have no personal liability under this Note, the Security Instrument, the Credit Agreement, or any other Loan Document for the repayment of the Indebtedness or for the performance of any other obligations of Borrower under the Loan Documents and Lender's only recourse for the satisfaction of the Indebtedness and the performance of such obligations shall be Lender's exercise of its rights and remedies with respect to the Collateral Pool Property and to any other collateral held by Lender as security for the Indebtedness. This limitation on Borrower's liability shall not limit or impair Lender's enforcement of its rights against any guarantor of the indebtedness or any guarantor of any other obligations of Borrower.

(b)           Borrower shall be personally liable to Lender for the amount of the Base Recourse, plus any other amounts for which Borrower has personal liability under this Section 9.

(c)           In addition to the Base Recourse, Borrower shall be personally liable to Lender for the repayment of a further portion of the Indebtedness equal to any loss or damage suffered by Lender as a result of the occurrence of any of the following events:

(i) Borrower fails to pay to Lender upon demand after, but only during the continuance of, an Event of Default all Rents to which Lender is entitled under Section 3(a) of the Security Instrument and the amount of all security deposits collected by Borrower from tenants then in residence. However, Borrower will not be personally liable for any failure described in this subsection (i) if Borrower is unable to pay to Lender all Rents and security deposits as required by the Security Instrument because of a valid order issued in a bankruptcy, receivership, or similar judicial proceeding.

(ii) Borrower fails to apply all insurance proceeds and condemnation proceeds as required by the Security Instrument. However, Borrower will not be personally liable for any failure described in this subsection (ii) if Borrower is unable to apply insurance or condemnation proceeds as required by the Security Instrument because of a valid order issued in a bankruptcy, receivership, or similar judicial proceeding.

Page 6

(iii) Borrower fails to comply with Section 14(g) or (h) of the Security Instrument relating to the delivery of books and records, statements, schedules and reports.

(iv) Borrower fails to pay when due in accordance with the terms of the Security Instrument the amount of any item below marked "Deferred"; provided however, that if no item is marked "Deferred", this Section 9(c)(iv) shall be of no force or effect.

[Deferred] Hazard Insurance premiums or other insurance premiums,

[Deferred] Taxes,

[Deferred] water and sewer charges (that could become a lien on the Mortgaged Property),

[Collect] ground rents, if applicable

[Deferred] assessments or other charges (that could become a lien on the Mortgaged Property)

(d)           In addition to the Base Recourse, Borrower shall be personally liable to Lender for:

(i) the performance of all of Borrower's obligations under Section 18 of the Security Instrument (relating to environmental matters);

(ii)  the costs of any audit under Section 14(g) of the Security Instrument; and

(iii) any costs and expenses incurred by Lender in connection with the collection of any amount for which Borrower is personally liable under this Section 9, including Attorneys' Fees and Costs and the costs of conducting any independent audit of Borrower's books and records to determine the amount for which Borrower has personal liability.

(e)           All payments made by Borrower with respect to the Indebtedness and all amounts received by Lender from the enforcement of its rights under the Security Instrument and the other Loan Documents shall be applied first to the portion of the Indebtedness for which Borrower has no personal liability.

(f)           Notwithstanding the Base Recourse, Borrower shall become personally liable to Lender for the repayment of all of the Indebtedness upon the occurrence of any of the following Events of Default:

Page 7

(i) Borrower's ownership of any property or operation of any business not permitted by Section 33 of the Security Instrument;

(ii) a Transfer (including, but not limited to, a lien or encumbrance) that is an Event of Default under Section 21 of the Security Instrument, other than a Transfer consisting solely of the involuntary removal or involuntary withdrawal of a general partner in a limited partnership or a manager in a limited liability company; or

(iii) fraud or written material misrepresentation by Borrower or any officer, director, partner, member or employee of Borrower in connection with the application for or creation of the Indebtedness or any request for any action or consent by Lender.

(g)           Notwithstanding the Base Recourse, Borrower shall become personally liable to Lender for the repayment of all of the Indebtedness upon the occurrence of any of the following events:

(i) any Borrower voluntarily files for bankruptcy protection under the United States Bankruptcy Code; or

(ii) any Borrower voluntarily becomes subject to any reorganization, receivership, insolvency proceeding, or other similar proceeding pursuant to any other federal or state law affecting debtor and creditor rights; or

(iii) an order of relief is entered against any Borrower pursuant to the United States Bankruptcy Code or other federal or state law affecting debtor and creditor rights in any involuntary bankruptcy proceeding initiated or joined in by a Related Party (provided, that if such Borrower or any Related Party has solicited creditors to initiate or participate in any proceeding referred to in this Section 9, regardless of whether any of the creditors solicited actually initiates or participates in the proceeding, then such proceeding shall be considered as having been initiated by a Related Party).

(h)           To the extent that Borrower has personal liability under this Section 9, Lender may exercise its rights against Borrower personally without regard to whether Lender has exercised any rights against the Collateral Pool Property or any other security, or pursued any other rights available to Lender under this Note, the Credit Agreement, the Security Instrument, any other Loan Document or applicable law. For purposes of this Section 9, the term "Collateral Pool Property" shall not include any funds that (1) have been applied by Borrower as required or permitted by the Security Instrument prior to the occurrence of an Event of Default or following the cure, if Lender consents to such cure, of an Event of Default or (2) Borrower was unable to apply as required or permitted by the Security Instrument because of a bankruptcy, receivership, or similar proceeding. To the fullest extent permitted by applicable law, in any action to enforce Borrower's personal liability under this Section 9, Borrower waives any right to set off the value of the Collateral Pool Property against such personal liability.

Page 8

10.           Voluntary and Involuntary Prepayments.

(a)           Any receipt by Lender of principal due under this Note prior to the Maturity Date, other than principal required to be paid in monthly installments pursuant to Section 3, constitutes a prepayment of principal under this Note. Without limiting the foregoing, any application by Lender, prior to the Maturity Date, of any proceeds of collateral or other security to the repayment of any portion of the unpaid principal balance of this Note constitutes a prepayment under this Note.

(b)           Borrower may voluntarily prepay all of the unpaid principal balance of this Note on an Installment Due Date so long as Borrower designates the date for such prepayment in a Notice from Borrower to Lender given at least 30 days prior to the date of such prepayment. If an Installment Due Date (as defined in Section 1(a)) falls on a day which is not a Business Day, then with respect to payments made under this Section 10 only, the term "Installment Due Date" shall mean the Business Day immediately preceding the scheduled Installment Due Date.

(c)           Notwithstanding subsection (b) above, Borrower may voluntarily prepay all of the unpaid principal balance of this Note on a Business Day other than an Installment Due Date if Borrower provides Lender with the Notice set forth in subsection (b) and meets the other requirements set forth in this subsection. Borrower acknowledges that Lender has agreed that Borrower may prepay principal on a Business Day other than an Installment Due Date only because Lender shall deem any prepayment received by Lender on any day other than an Installment Due Date to have been received on the Installment Due Date immediately following such prepayment and Borrower shall be responsible for all interest that would have been due if the prepayment had actually been made on the Installment Due Date immediately following such prepayment.

(d)           Unless otherwise expressly provided in the Loan Documents, Borrower may not voluntarily prepay less than all of the unpaid principal balance of this Note. In order to voluntarily prepay all or any part of the principal of this Note, Borrower must also pay to Lender, together with the amount of principal being prepaid, (i) all accrued and unpaid interest due under this Note, plus (ii) all other sums due to Lender at the time of such prepayment, plus (iii) any prepayment premium calculated pursuant Section 10(e)below.

(e)           Except as provided in Section 10(f), a prepayment premium shall be due and payable by Borrower in connection with any prepayment of principal under this Note during the Prepayment Premium Period. The prepayment premium shall be computed as follows:

(i) For any prepayment made during the Yield Maintenance Period, the prepayment premium shall be whichever is the greater of subsections (A) and (B) below:

Page 9

(A) 1.0% of the amount of principal being prepaid; or

(B) the product obtained by multiplying:

(1) the amount of principal being prepaid or accelerated, by

(2) the excess (if any) of the Monthly Note Rate over the Assumed Reinvestment Rate,

by

(3) the Present Value Factor.

For purposes of subsection (B), the following definitions shall apply:

Monthly Note Rate: one-twelfth (1/12) of the Fixed Interest Rate, expressed as a decimal calculated to five digits.

Prepayment Date: in the case of a voluntary prepayment, the date on which the prepayment is made; in the case of the application by Lender of collateral or security to a portion of the principal balance, the date of such application.

Assumed Reinvestment Rate: one-twelfth (1/12) of the yield rate, as of the close of the trading session which is 5 Business Days before the Prepayment Date, on the Treasury Security, as reported in TheWallStreet Journal,expressed as a decimal calculated to five digits. In the event that no yield is published on the applicable date for the Treasury Security, Lender, in its discretion, shall select the non-callable Treasury Security maturing in the same year as the Treasury Security with the lowest yield published in TheWallStreetJournalas of the applicable date. If the publication of such yield rates in TheWallStreetJournalis discontinued for any reason, Lender shall select a security with a comparable rate and term to the Treasury Security. The selection of an alternate security pursuant to this Section shall be made in Lender's discretion.

Present Value Factor: the factor that discounts to present value the costs resulting to Lender from the difference in interest rates during the months remaining in the Yield Maintenance Period, using the Assumed Reinvestment Rate as the discount rate, with monthly compounding, expressed numerically as follows:

Page 10

1-(1/1+ARR)

ARR

n = the number of months remaining in Yield Maintenance Period; provided, however, if a prepayment occurs on an Installment Due Date, then the number of months remaining in the Yield Maintenance Period shall be calculated beginning with the month in which such prepayment occurs and if such prepayment occurs on a Business Day other than an Installment Due Date, then the number of months remaining in the Yield Maintenance Period shall be calculated beginning with the month immediately following the date of such prepayment.

ARR = Assumed Reinvestment Rate

(ii) For any prepayment made after the expiration of the Yield Maintenance Period but during the remainder of the Prepayment Premium Period, the prepayment premium shall be 1.0% of the amount of principal being prepaid.

(f)           No prepayment premium shall be payable with respect to (i) any prepayment made during the Window Period, (ii) any prepayment occurring as a result of the application of any insurance proceeds or condemnation award under the Security Instrument or (iii) as otherwise set forth in the Credit Agreement.

(g)           Unless Lender agrees otherwise in writing, a permitted or required prepayment of less than the unpaid principal balance of this Note shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments.

(h)           Borrower recognizes that any prepayment of any of the unpaid principal balance of this Note, whether voluntary or involuntary or resulting from an Event of Default by Borrower, will result in Lender's incurring loss, including reinvestment loss, additional expense and frustration or impairment of Lender's ability to meet its commitments to third parties. Borrower agrees to pay to Lender upon demand damages for the detriment caused by any prepayment, and agrees that it is extremely difficult and impractical to ascertain the extent of such damages. Borrower therefore acknowledges and agrees that the formula for calculating prepayment premiums set forth in Section 10(e)above represents a reasonable estimate of the damages Lender will incur because of a prepayment. Borrower further acknowledges that the prepayment premium provisions of this Note are a material part of the consideration for the Loan, and that the terms of this Note are in other respects more favorable to Borrower as a result of the Borrower's voluntary agreement to the prepayment premium provisions.

Page 11

11.           Costs and Expenses. To the fullest extent allowed by applicable law, Borrower shall pay all expenses and costs, including Attorneys' Fees and Costs incurred by Lender as a result of any default under this Note or in connection with efforts to collect any amount due under this Note, or to enforce the provisions of any of the other Loan Documents, including those incurred in post-judgment collection efforts and in any bankruptcy proceeding (including any action for relief from the automatic stay of any bankruptcy proceeding) or judicial or non-judicial foreclosure proceeding.

12.           Forbearance. Any forbearance by Lender in exercising any right or remedy under this Note, the Credit Agreement, the Security Instrument, or any other Loan Document or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of that or any other right or remedy. The acceptance by Lender of any payment after the due date of such payment, or in an amount which is less than the required payment, shall not be a waiver of Lender's right to require prompt payment when due of all other payments or to exercise any right or remedy with respect to any failure to make prompt payment. Enforcement by Lender of any security for Borrower's obligations under this Note shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right or remedy available to Lender.

13.           Waivers. Borrower and all endorsers and guarantors of this Note and all other third party obligors waive presentment, demand, notice of dishonor, protest, notice of acceleration, notice of intent to demand or accelerate payment or maturity, presentment for payment, notice of nonpayment, grace, and diligence in collecting the Indebtedness.

14.           Loan Charges. Neither this Note, the Credit Agreement nor any of the other Loan Documents shall be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate greater than the Maximum Interest Rate. If any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower in connection with the Loan is interpreted so that any interest or other charge provided for in the Credit Agreement or any other Loan Document, whether considered separately or together with other charges provided for in the Credit Agreement or any other Loan Document, violates that law, and Borrower is entitled to the benefit of that law, that interest or charge is hereby reduced to the extent necessary to eliminate that violation. The amounts, if any, previously paid to Lender in excess of the permitted amounts shall be applied by Lender to reduce the unpaid principal balance of this Note. For the purpose of determining whether any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower has been violated, all Indebtedness that constitutes interest, as well as all other charges made in connection with the Indebtedness that constitute interest, shall be deemed to be allocated and spread ratably over each Base Rate Borrowing Tranche and Prime Rate Borrowing Tranche comprising the Revolving Credit Note, this Note and each other Fixed Rate Note, if any, over the stated term of such Notes. Unless otherwise required by applicable law, such allocation and spreading shall be effected in such a manner that the rate of interest so computed is uniform throughout the stated term of such Notes.

Page 12

15.           Commercial Purpose. Borrower represents that Borrower is incurring the Indebtedness solely for the purpose of carrying on a business or commercial enterprise, and not for personal, family, household, or agricultural purposes.

16.           Counting of Days. Except where otherwise specifically provided, any reference in this Note to a period of "days" means calendar days, not Business Days.

17.           Governing Law. This Note shall be governed by the laws of the Commonwealth of Virginia.

18.           Captions. The captions of the Sections of this Note are for convenience only and shall be disregarded in construing this Note.

19.           Notices; Written Modifications.

(a)           All Notices, demands and other communications required or permitted to be given pursuant to this Note shall be given in accordance with the Credit Agreement.

(b)           Any modification or amendment to this Note shall be ineffective unless in writing signed by the party sought to be charged with such modification or amendment; provided, however, that in the event of a Transfer under the terms of the Security Instrument that requires Lender's consent, any or some or all of the Modifications to Multifamily Note set forth in Exhibit A to this Note may be modified or rendered void by Lender at Lender's option, by Notice to Borrower and the transferee, as a condition of Lender's consent.

20.           Consent to Jurisdiction and Venue. Borrower agrees that any controversy arising under or in relation to this Note may be litigated in the courts of the Commonwealth of Virginia. The state and federal courts and authorities with jurisdiction in the Commonwealth of Virginia shall have jurisdiction over all controversies that shall arise under or in relation to this Note. Borrower irrevocably consents to service, jurisdiction, and venue of such courts for any such litigation and waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise. However, nothing in this Note is intended to limit any right that Lender may have to bring any suit, action or proceeding relating to matters arising under this Note in any court of any other jurisdiction.

21.           WAIVER OF TRIAL BY JURY.   BORROWER AND LENDER EACH (A) AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE RELATIONSHIP BETWEEN THE PARTIES AS LENDER AND BORROWER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.

22.           [Intentionally Omitted].

23.           Joinder. In accordance with the provisions set forth in the Credit Agreement, certain Affiliates of Borrower may become liable under this Note, the Credit Agreement and the other Loan Documents by executing (a) a separate Allonge to this Note, (b) a joinder agreement in form satisfactory to Lender, and (c) any other documents reasonably required by Lender to evidence and/or secure such Affiliate's obligations hereunder, the Credit Agreement or under the other Loan Documents, all as set forth in the Credit Agreement.

24.           Credit Agreement. In the event that the terms of this Note directly conflict with the terms of the Credit Agreement, the terms of the Credit Agreement shall control.

[Signatures Commence on the Following Page]

Page 13

IN WITNESS WHEREOF, and in consideration of the Lender's agreement to lend Borrower the principal amount set forth above, Borrower has signed and delivered this Note under seal or has caused this Note to be signed and delivered under seal by its duly authorized representative. Borrower intends that this Note shall be deemed to be signed and delivered as a sealed instrument.

BORROWER:
ESSEX CAL-WA, L.P., a California limited partnership
By:	Essex
	SPE, LLC, a Delaware limited liability company, its general partner
	By:
		Essex Portfolio, L.P., a California limited partnership, its sole member
		By:
			Essex Property Trust, Inc., a Maryland corporation, its general partner
			By:
				Name: Title:
84-1627047
Borrower's Social Security/Employer ID Number

Page 14

EXHIBIT A

APPROVED MODIFICATIONS TO NOTE

None.

Page Ex. A-1

SCHEDULE 2.2

FORM OF

SCHEDULED MATURITY DATE EXTENSION CONFIRMATION

[_______________], 20[______]

Essex CAL-WA, L.P.

c/o Essex Property Trust, Inc.

925 East Meadow Drive

Palo Alto, CA 94303

Attention: [________]

Ladies and Gentlemen:

Reference is made to that Credit Agreement dated as of November 17, 2008, as amended (the "Credit Agreement") initially by and between ESSEX CAL-WA, L.P., a California limited partnership, having an address at 925 East Meadow Drive, Palo Alto, CA 94303 ("Borrower") and NORTHMARQ CAPITAL, INC., a Minnesota corporation, having an address at 3500 American Boulevard West, Suite 500, Bloomington, MN 55431-4435 (together with its successors and assigns, "Lender"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein with the same meanings.

Pursuant to Section [2.2(d)] I [2.2(e)] of the Credit Agreement, the Scheduled Maturity Date of the Credit Agreement shall be extended to [December 1, 2014] / [December 1, 2015]. Pursuant to Section 2.4.6.2 of the Credit Agreement, the Net Spread applicable to any Base Rate Borrowing Tranche during the extension period related to the [First Extension Option] I [Second Extension Option] shall be as set for the on Exhibit Ahereto.

By acknowledging and agreeing to the terms of this letter, Borrower represents and warrants that all the terms and conditions set forth in Section [2.2(b)] I [2.2(c)] of the Credit Agreement have been satisfied.

Sincerely,

LENDER:

[________________________________],

a[_________]

By:

Name:

Title:

Sch. 2.4.6.2 - 1

[signatures continue on next page]

Sch. 2.4.6.2 - 2

ACKNOWLEDGED AND AGREED BORROWER:

ESSEX CAL-WA, L.P., a California limited partnership

By:
	Essex SPE, LLC, a Delaware limited liability company, its general partner
	By:
		Essex Portfolio, L.P., a California limited partnership, its sole member
		By:
			Essex Property Trust, Inc., a Maryland corporation, its general partner
			By:
				Name: Title:

Sch. 2.4.6.2 - 3

EXHIBIT A TO SCHEDULE 2.2

NET SPREAD TABLE APPLICABLE DURING AN EXTENSION PERIOD

Facility Debt Service Coverage Ratio	Net Spread*	Margin*
Greater than or equal to [ ___ ]: 1.00 but less than [ ___ ]: 1.00	[_______]	[_______]
Greater than or equal to [ ___ ]: 1.00 but less than [ ___ ]: 1.00	[_______]	[_______]
Greater than or equal to [ ___ ]: 1.00	[_______]	[_______]

* The Net Spread and Margin set forth above assumes that the Base Rate Borrowing Tranches will have a one-month Interest Period. The Net Spread and Margin shall be increased by [ _____ ] basis points ([ _____ ]) for any Base Rate Borrowing Tranche having a three-month Interest Period, increased by [ ______ ] basis points ([ ______ ]) for any Base Rate Borrowing Tranche having a six-month Interest Period, and increased by [ _______ ] basis points ([ ______ ]) for any Base Rate Borrowing Tranche having a twelve-month Interest Period.

Sch. 2.4.6.2 - 4

SCHEDULE 2.4.6.2

FORM OF

NET SPREAD CONFIRMATION

[__________], 20 [_____]

Essex CAL-WA, L.P.

c/o Essex Property Trust, Inc.

925 East Meadow Drive

Palo Alto, CA 94303

Attention: [___________]

Ladies and Gentlemen:

Reference is made to that Credit Agreement dated as of November 17, 2008, as amended (the "Credit Agreement") initially by and between ESSEX CAL-WA, L.P., a California limited partnership, having an address at 925 East Meadow Drive, Palo Alto, CA 94303 ("Borrower") and NORTHMARQ CAPITAL, INC., a Minnesota corporation, having an address at 3500 American Boulevard West, Suite 500, Bloomington, MN 55431-4435 (together with its successors and assigns, "Lender"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein with the same meanings.

Pursuant to Section 2.4.6.2 of the Credit Agreement, the Net Spread applicable to any Base Rate Borrowing Tranche on or after December 1, 2011 until initial Scheduled Maturity Date shall be as set for the on Exhibit A hereto.

Sincerely,

LENDER:

[_____________________],

a [________]

By:

Name:

Title:

Sch. 2.4.6.2 - 1

[signatures continued on next page]

Sch. 2.4.6.2 - 2

ACKNOWLEDGED AND AGREED BORROWER:
ESSEX CAL-WA, L.P., a California limited partnership
By:
	Essex SPE, LLC, a Delaware limited liability company, its general partner
	By:
		Essex Portfolio, L.P., a California limited partnership, its sole member
		By:
			Essex Property Trust, Inc., a Maryland corporation, its general partner
			By:
				Name: Title:

Sch. 2.4.6.2 - 3

EXHIBIT A TO SCHEDULE 2.4.6.2

NET SPREAD TABLE APPLICABLE ON AND AFTER [DECEMBER] 1,2011

Facility Debt Service Coverage Ratio	Net Spread*	Margin*
Greater than or equal to [ ___ ]: 1.00 but less than [ ___ ]:  1.00	[__________]	[__________]
Greater than or equal to [ ___ ]: 1.00 but less than [ ___ ]: 1.00	[__________]	[__________]
Greater than or equal to [ ___ ]: 1.00	[__________]	[__________]

* The Net Spread and Margin set forth above assumes that the Base Rate Borrowing Tranches will have a one-month Interest Period. The Net Spread and Margin shall be increased by [ _____ ] basis points ([  _____ ]) for any Base Rate Borrowing Tranche having a three-month Interest Period, increased by [ _____ ] basis points ([ _____ ]) for any Base Rate Borrowing Tranche having a six-month Interest Period, and increased by [ _____ ] basis points ([ _____ ]) for any Base Rate Borrowing Tranche having a twelve-month Interest Period.

Sch. 2.4.6.2 - 4

[BORROWER MAY, SUBJECT TO LENDER'S CONSENT, REVISE THIS FORM OF LOAN REQUEST TO PROVIDE FOR MULTIPLE BORROWING TRANCHES UNDER A SINGLE LOAN REQUEST FORM]

SCHEDULE 2.5

FORM OF

LOAN REQUEST

[____________], 20[____]

NorthMarq Capital, Inc.

3500 American Boulevard West

Suite 500

Bloomington, MN 55431-4435

Attention: Servicing

Ladies and Gentlemen:

Reference is made to that Credit Agreement dated as of November 17, 2008, as amended (the "Credit Agreement") initially by and between ESSEX CAL-WA, L.P., a California limited partnership, having an address at 925 East Meadow Drive, Palo Alto, CA 94303 ("Borrower") and NORTHMARQ CAPITAL, INC., a Minnesota corporation, having an address at 3500 American Boulevard West, Suite 500, Bloomington, MN 55431-4435 (together with its successors and assigns, "Lender"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein with the same meanings.

I, [ ____________ ], the [ ___________ ] of Borrower, a [ ___________ ], do hereby certify on behalf of Borrower as of the date hereof, as follows:

Borrower is entitled to and hereby requests Lender to make an advance under the Credit Agreement in the amount of $[__________] (which must be greater than or equal to [______________] and NO/100 Dollars ($[_______________]). Funds should be delivered to Borrower by wire to the following account:

Bank Name and Location: [______________________________________________]

ABA Number: [______________________________________________________ ]

Account Name: [_____________________________________________________]

Account Number: [___________________________________________________ ]

Further Credit Instructions: [____________________________________________]

Attention: [_________________________________________________________]

1.           The requested date  of the  advance  (the  "Borrowing Date")  is [________________].

2.           The Borrowing Tranche shall bear interest at (check one):

Sch. 2.5 - 1

_____ Base Rate

_____Fixed Rate

3.         The Interest Period (if the Base Rate is selected) applicable to the advance is (check one):

_____ one-month

_____ three-month*

_____ six-month**

_____ twelve-month***

*subject to a [ ______ ] basis point ([ _________ ]) increase in the Margin otherwise applicable to such Borrowing Tranche

**subject to a [ _________ ] basis point ([ ________]) increase in the Margin otherwise applicable to such Borrowing Tranche

***subject to a [ __________ ] basis point ([ _________ ]) increase in the Margin otherwise applicable to such Borrowing Tranche

4.            Borrower will (check one):

______ Pay all interest due and payable under the requested Borrowing Tranche in monthly installments pursuant to the terms of the Credit Agreement.

______ Prepay all interest for such Borrowing Tranche as of the Borrowing Date.

5.

(a)           If applicable, the Base Rate for the Base Rate Borrowing Tranche requested hereunder shall be [_______] ([_______]%) consisting of a Reference Bills® Rate/LIBO Rate of [_______] percent ([_______]%) and a Margin of [_______] ([_______]%).

(b)           If applicable, the Fixed Rate for the Fixed Rate Borrowing Tranche requested hereunder shall be [_______] ([_______]%) consisting of the year US Treasury Security (as determined by Lender) and a Margin of [_______] ([_______]%).

6.           Following the disbursement of the funds comprising the Borrowing Tranche requested herein, the total number of Borrowing Tranches outstanding will be [_______] ([_______]), which is not more than ten (10).

7.           If applicable (i.e. in the event of a Loan Request for a Base Rate Borrowing Tranche), the maturity date of the Interest Period of the Borrowing Tranche requested herein is (choose and complete one of the following):

[ _______], 20[_______] (which is the last day of the Interest Period, in the event that such date is a Business Day)

Sch. 2.5 - 2

[_______], 20[ __] (which is the Business Day following the last day of the Interest Period, in the event that such date is not a Business Day).

8.           This request for an advance is made pursuant to and in accordance with the provisions of the Credit Agreement. The proceeds of such advance are to be used for a permitted purpose under Section 2.8 of the Credit Agreement.

9.           The principal amount outstanding under the Credit Agreement on the date hereof, prior to any advance in response to this request, is $[_______].

10.           To the best of Borrower's knowledge and belief following diligent inquiry, the advance of the funds requested herein will not cause Borrower to be in non­compliance with the Sublimits set forth in Section 2.5.3 of the Credit Agreement.

11.           To the best of Borrower's knowledge and belief following diligent inquiry, the computations set forth in Paragraphs 19 through 22 as certified by Servicer are accurate.

12.           All of the covenants and all of the representations and warranties contained in the Credit Agreement and the other Loan Documents, and all of the other terms, covenants and conditions contained in the Loan Documents continue to be materially true and correct and continue to be complied with on the date hereof, and will continue to be materially true and correct in accordance with Section 5.2 of the Credit Agreement.

13.           No Potential Default or Event of Default has occurred or is continuing under the Loan Documents.

14.           There has been no Material Adverse Change to any Collateral Pool Property or Borrower since the date of the last Loan Request that will cause Borrower to be in violation of the Sublimits after the funding of the Borrowing Tranche requested herein or will render the Base Rate requested herein inaccurate.

15.           All of the other terms and conditions set forth in the Credit Agreement and the other Loan Documents pertaining to the Loan have been satisfied.

16.           All items that Borrower is required to furnish to Lender pursuant to the Credit Agreement accompany this request and are true and complete in all respects.

17.           The undersigned is an Authorized Officer of Borrower.

18.           Notice of this Loan Request shall be deemed received by Lender when (i) sent by facsimile to (703) 714-3002 and (ii) verbally confirmed by telephone call to either (when called in the following order of priority): (1) primary contact in Loan Accounting, currently Denise Sanchez, ((703) 714-3239), (2) secondary contact in Loan Accounting, currently Steve Dillon ((703) 714-2691), and (3) Loan Accounting Manager, currently Wendy McLain ((703) 714-2926) or such other names and numbers as Lender may specify upon prior written Notice to Borrower.

Sch. 2.5 - 3

[The Loan Request continues on the following page]

Sch. 2.5 - 4

IN WITNESS WHEREOF, the undersigned has executed this Certificate this [._____] day of  [______], [___].

BORROWER:
ESSEX CAL-WA, L.P., a California limited partnership
By:	Essex SPE, LLC, a Delaware limited liability company, its general partner
	By:	Essex Portfolio, L.P., a California limited partnership, its sole member
		By:	Essex Property Trust, Inc., a Maryland corporation, its general partner
			By:
				Name: Title:

[The Loan Request continues on the following page]

Sch. 2.5 - 5

19.     The current Loan to Value Ratio is [ ___________ ] ([ ______ ]%), which is less than or equal to the Maximum Loan to Value Ratio specified in Section 2.5.3.1 of sixty-five percent (65%), determined as follows:

A.	The current Loan balance	$[__________________]
B.	The current aggregate Market Value of the Collateral Pool	$[__________________]
C.	Item A divided by Item B and then multiplied by 100% equals the Loan to Value Ratio	[_________________]%

20.           Following the disbursement of the funds comprising the Borrowing Tranche requested herein, the Loan to Value Ratio will equal [________] ([_____]%), which is less than or equal to the Maximum Loan to Value Ratio set forth in Section 2.5.3.1 of sixty-five percent (65%), determined as follows:

A.	The Loan balance upon disbursement of the funds comprising the Borrowing Tranche(s) requested herein	$[__________________]
B.	The current aggregate Market Value of the Collateral Pool	$[__________________]
C.	Item A divided by Item B and then multiplied by 100% equals the Loan to Value Ratio	[___________________]%

21.     The current Facility Debt Service Coverage Ratio is [ _________ ]: 1.00, which is not less than 1.60: 1.00, determined as follows:

A.	Net Operating Income of the Collateral Pool Properties determined by Lender	$[__________________]
B.	Facility Debt Service (as defined in the Credit Agreement)	$[__________________]
C.	Item A divided by Item B equals the Facility Debt Service Coverage Ratio	[___________________]%

Sch. 2.5 - 6

22.     Following the disbursement of the funds comprising the Borrowing Tranche requested herein, the Facility Debt Service Coverage Ratio will be [ _____ ]: 1.00, which is

not less than 1.60: 1.00, determined as follows:

A.	Net Operating Income of the Collateral Pool Properties as determined by Lender	$[_________________ ]
B.	Facility Debt Service (as defined in the Credit Agreement)	$[_________________ ]
C.	Item A divided by Item B equals the Facility Debt Service Coverage Ratio	[_________________ ]%

Servicer hereby certifies (i) to the accuracy of each of the mathematical computations set forth in paragraphs 19 through 22 above (acknowledging that Servicer has relied, with Lender's consent and without independent verification thereof, on the Net Operating Income and Market Value(s) prepared by Lender), and (ii) to the best of its knowledge and belief, that all statements made by Borrower herein are true and accurate in all material respects.

SERVICER:
NORTHMARQ CAPITAL, INC., a Minnesota corporation
By:
	Name: Paul W. Cairns Title: Senior Vice President

Sch. 2.5 - 7

SCHEDULE 2.5.2

FORM OF COMMITMENT LETTER

LETTER OF RATE LOCK COMMITMENT FORM

FOR FIXED RATE BORROWING TRANCHES

PURSUANT TO REVOLVING CREDIT FACILITIES

(Revised 8-28-2008)

(LENDER LETTERHEAD)

DATE [ __________]

Essex CAL-WA, L.P.

c/o Essex Property Trust, Inc.

925 East Meadow Drive

Palo Alto, CA 94303

Attention: [ ___________]

Re: Credit Agreement dated as of November 17, 2008, as amended (the "Credit Agreement") by and between ESSEX CAL-WA, L.P., a California limited partnership, having an address at 925 East Meadow Drive, Palo Alto, CA 94303 ("Borrower") and NORTHMARQ CAPITAL, INC., a Minnesota corporation, having an address at 3500 American Boulevard West, Suite 500, Bloomington, MN 55431-4435 (together with its successorsandassigns,"Lender").

Lender Loan Number: [  ________________________________ ]

Dear [ _________________ ]:

This letter is a commitment ("Commitment") by Lender to advance funds at a Fixed Rate for the Fixed Rate Borrowing Tranche requested by Borrower pursuant to that certain Loan Request dated as of [ _____________ ] (the "Requested Borrowing Tranche"). Upon Borrower's timely acceptance of this Commitment in the manner provided in Part A below and subject to Borrower's satisfaction of the conditions precedent set forth in Part B below and in the Credit Agreement, this Commitment will obligate Lender to advance funds for the Requested Borrowing Tranche in accordance with the provisions and conditions set forth in this Commitment and in the Credit Agreement. Capitalized terms used but not defined in this Commitment will have the meanings assigned to them in the Credit Agreement.

A. Expiration; Acceptance of the Commitment.

1. Expiration.

Sch. 2.5.2 - - 1

This Commitment will expire at 4:00 p.m. time on [ _____________ ]FIVE BUSINESS DAYS AFTER THE DATE OF THIS LETTER("Expiration Date"), at which time, this Commitment will become null and void.

2.            Acceptance.

If Borrower desires to accept this Commitment:

(a) Borrower must execute one original of this Commitment and cause it to be received by Lender, via facsimile, before 4:00 p.m. Washington D.C. local time on the same date as Lender delivers this Commitment to Borrower; and

(b) Borrower shall thereafter deliver a fully executed original of this Commitment to Lender within one (1) Business Day of the date of this Commitment.

B. Interest Rate Lock and Selection of Other Loan Terms.

If Borrower accepts this Commitment in the manner provided in Part A above, then Borrower will have until the Expiration Date ("Rate Lock Period") to lock the Fixed Rate for the Requested Borrowing Tranche ("Interest Rate Lock"). Notwithstanding anything in this Commitment or the Credit Agreement to the contrary, the Rate Lock Period will terminate on the Expiration Date. If the Borrower fails to Interest Rate Lock prior to the Expiration Date, this Commitment will terminate and become null and void.

Lender's Required Net Yield ("RNY") for the Requested Borrowing Tranche will be [ _______ ] basis points above the yield for the [ __________ ] year US Treasury Security (as determined by Lender) ("Benchmark US Treasury Security"). The Servicing Spread for the Requested Borrowing Tranche will be four (4) basis points. The actual yield of the applicable Benchmark US Treasury Security as determined by Lender at the time of Interest Rate Lock will be used to determine the Fixed Rate. Borrower must communicate its Interest Rate Lock to Lender during the Rate Lock Period by telephoning one of the Servicer contacts identified in the Credit Agreement between the hours     of     10:00     a.m.     and     2:00     p.m.     Washington,     DC     time.

Notwithstanding anything to the contrary contained in this Commitment Letter, Borrower will not be permitted to Interest Rate Lock in accordance with this Commitment Letter and the Credit Agreement if it is not in compliance with the Sublimits on the Rate Lock Date (as defined below).

C. Fixed Rate Note.

When Borrower locks the Fixed Rate as provided in Part B above ("Rate Lock Date"), the Borrower will be obligated to accept funds advanced by Lender for the Requested Borrowing Tranche in accordance with the provisions and conditions set forth in this Commitment and the Credit Agreement by the Delivery Date specified in Exhibit A

Sch. 2.5.2 - - 2

(Interest Rate Lock and Borrowing Tranche Terms Confirmation Sheet) attached to this Commitment. On the Rate Lock Date, Lender will deliver to Borrower by facsimile (fax) or by overnight mail or courier a completed Exhibit A to evidence the terms of the Rate Lock. Borrower must execute and deliver the completed Exhibit A to Lender in accordance with Section 2.5.2.1 of the Credit Agreement. Borrow must also satisfy all the other conditions and delivery requirements set forth in, and in accordance with, Section 2.5.2 of the Credit Agreement. Failure by Borrower to satisfy the document delivery requirements in accordance with Section 2.5.2 of the Credit Agreement will constitute a Rate Lock Termination Event.

D. Rate Lock Termination Event. In accordance with Section 2.5.2.2 of the Credit Agreement, if a Rate Lock Termination Event occurs, Borrower shall promptly reimburse Lender for any Breakage Fee as calculated pursuant to Exhibit Bhereto.

E. Potential Defaults or Events of Default. Lender will not be obligated to advance funds hereunder if a Potential Default or Event of Default has occurred under the Credit Agreement or any Loan Document.

F. Exhibits.

The following Exhibits are attached to this Commitment and are a part of this Commitment:

x Exhibit A Interest Rate Lock and Borrowing Tranche Terms Confirmation Sheet

x            Exhibit B                Breakage Fee Calculation

SIGNATURE PAGE AND ACCEPTANCE CONTINUE ON NEXT PAGE

Sch. 2.5.2 - - 3

Please call the undersigned if you have any questions about this Commitment. We look forward to your acceptance of this Commitment and consummation of the Interest Rate Lock.

Sincerely,

[ ______________ ]

AGREED AND ACCEPTED BY BORROWER

Lender Loan Number [_________________]

Date: [__________________________]

BORROWER:

ESSEX CAL-WA, L.P., a California limited partnership

By:	Essex SPE, LLC, a Delaware limited liability company, its general partner
	By:	Essex Portfolio, L.P., a California limited partnership, its sole member
		By:	Essex Property Trust, Inc., a Maryland corporation, its general partner
			By:
				Name: Title:

Sch. 2.5.2 - - 4

EXHIBIT A

COMMITMENT

INTEREST RATE LOCK AND BORROWING TRANCHE TERMS

CONFIRMATION SHEET

Lender Loan Number: [ ______________________________ ]

Date of Interest Rate Lock: [ ________________________________ ]

Fixed Rate Borrowing Tranche amount	$
Annual debt service amount	$
Monthly payment: Interest only per diem pavment**[MUST BE EXPRESSED TO THE FIFTH DECIMAL]	$
Index	[____]-year US Treasury Security
Yield Rate on Index on date of Interest Rate Lock	%
Lender RNY	%
Servicing Spread	0.04%
Term	[______] months [MUST BE THE NUMBER OF MONTHS REMAINING UNTIL THE INITIAL MATURITY DATE (i.e., December 1, 2011)]
Delivery Date

** The per diem amount above is an approximation. The actual calculation of the monthly interest only payment will be made in accordance with Section 3 of the Note.

AGREED AND ACCEPTED BY BORROWER

Lender Loan Number [ _________________________ ]

Date: [ _________________________ ]

BORROWER:

ESSEX CAL-WA, L.P., a California limited partnership

By:	Essex SPE, LLC, a Delaware limited liability company, its general partner
	By:	Essex Portfolio, L.P., a California limited partnership, its sole member
		By:	Essex Property Trust, Inc., a Maryland corporation, its general partner
			By:
				Name: Title:

Sch. 2.5.2 - - 5

EXHIBIT B

COMMITMENT

BREAKAGE FEE CALCULATION

The Breakage Fee will be the greater of (A) or (B) below:

A. 2% of the Rate Locked Fixed Rate Borrowing Tranche Loan Amount; or

B. the product obtained by multiplying:

1. the Rate Locked Fixed Rate Borrowing Tranche Loan Amount, by

2. the value obtained by subtracting

(a) the Monthly Yield Rate at Breakage less 1.125 basis points, from

(b) the Monthly Yield Rate at Rate-Lock, by

3. the Present Value Factor

For purposes of this Exhibit Bthe following definitions will apply: "Breakage Date": the date that a Rate Lock Termination Event occurs.

"Rate Locked Fixed Rate Borrowing Tranche Loan Amount": the Loan amount of the Requested Borrowing Tranche as set forth in this Commitment Letter.

"Yield Rate at Breakage": the yield rate on the Index (set forth on Exhibit A) as of the close of the trading session on the Breakage Date, as reported in The Wall Street Journal, expressed as a decimal calculated to five digits. In the event that no yield is published on the applicable date for the Index, Lender, in its discretion, will select the non-callable Treasury Security maturing in the same year as the Index with the lowest yield published in The Wall Street Journal as of the applicable date. If the publication of such yield rates in The Wall Street Journal is discontinued for any reason, Lender will select a security with a comparable rate and term to the Index. The selection of an alternate security pursuant to this Exhibit Bwill be made in Lender's discretion.

"Monthly Yield Rate at Breakage": the Yield Rate at Breakage divided by 12.

"Yield Rate at Rate-Lock": the yield rate on the Index at rate lock (as set forth in this Commitment Letter).

"Monthly Yield Rate at Rate-Lock": the Yield Rate at Rate Lock divided by 12.

"Present Value Factor": the factor that discounts to present value the costs resulting to Lender from the difference in the Yield Rate at Rate-Lock and the Yield Rate at Breakage calculated using the following formula:

Sch. 2.5.2 - - 6

1 - (1 + r)n

(r)

r = Monthly Yield Rate at Breakage

n = the number of months remaining until the Scheduled Maturity Date

Sch. 2.5.2 - - 7

SCHEDULE 3.2

NET SPREAD TABLE

Facility Debt Service Coverage Ratio	Net Spread Fee*	Margin*
Greater than or equal to 1.60 : 1.00 but less than 1.90 : 1.00	0.0146	0.0150
Greater than or equal to 1.90 : 1.00 but less than 2.20 : 1.00	0.0126	0.0130
Greater than or equal to 2.20 : 1.00	0.0095	0.0099

* The Net Spread and Margin set forth above assumes that the Base Rate Borrowing Tranches will have a one-month Interest Period. The Net Spread and Margin shall be increased by five basis points (0.0005) for any Base Rate Borrowing Tranche having a three-month Interest Period, increased by fifteen basis points (0.0015) for any Base Rate Borrowing Tranche having a six-month Interest Period, and increased by thirty basis points (0.0030) for any Base Rate Borrowing Tranche having a twelve-month Interest Period.

Sch. 3.2 - 1

[BORROWER MAY, SUBJECT TO LENDER'S CONSENT, REVISE THIS FORM OF RENEWAL REQUEST TO PROVIDE FOR THE RENEWAL OF MULTIPLE BORROWING TRANCHES UNDER A SINGLE RENEWAL REQUEST FORM OR TO PROVIDE FOR THE SPLITTING OF A MATURING BORROWING TRANCHE INTO MULTIPLE BORROWING TRANCHES UNDER A SINGLE RENEWAL REQUEST FORM]

SCHEDULE 3.3.3

RENEWAL REQUEST

[ _____________ ], 20[ __ ]

NorthMarq Capital, Inc.

3500 American Boulevard West

Suite 500

Bloomington , MN 55431-4435

Attention: Servicing

Attention:

Ladies and Gentlemen:

Reference is made to that Credit Agreement dated as of November 17, 2008, as amended (the "Credit Agreement") initially by and between ESSEX CAL-WA, L.P., a California limited partnership, having an address at 925 East Meadow Drive, Palo Alto, CA 94303 ("Borrower") and NORTHMARQ CAPITAL, INC., a Minnesota corporation, having an address at 3500 American Boulevard West, Suite 50Q, Bloomington, MN 55431-4435 (together with its successors and assigns, "Lender"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein with the same meanings.

I,   [ ________________ ],   the  [ ________________ ]   of    Borrower,    a [ ________________ ], do hereby certify on behalf of Borrower as of the date hereof, as follows:

________ Borrower hereby requests Lender to renew the Borrowing Tranche in the amount of $[ __ ], whose then-current Interest Period will mature on [ ______ ], [ ______ ].

Or

______ Borrower, in accordance with the provisions of the Credit Agreement, will repay $[__________] of the outstanding principal amount of the Borrowing Tranche originally funded in the amount of/, whose Interest Period will mature on [______], [________],  prior to such maturity date, and hereby requests Lender to renew such Borrowing Tranche in the amount of the remaining principal balance of such Borrowing Tranche, the remaining principal balance being equal to $[________].

[or

Sch. 3.3.3 - - 1

_____ Borrower hereby requests Lender to combine two (2) or more Borrowing Tranches pursuant to the provisions of the Credit Agreement into a single Borrowing Tranche, specifically Borrower hereby requests that Lender combine the Borrowing Tranche in the amount of $[______________], whose Interest Period will mature on [____________], [_______] with the Borrowing Tranche in the amount of $________________, whose Interest Period will mature on [_____________],[_______] [add descriptions of additional Borrowing Tranches as necessary.]

1.           The Borrowing Tranche shall bear interest at (check one):

_______ Prime Rate*

_______ Base Rate

  *Prime Rate is available only as specified in the Credit Agreement

2.           The Interest Period (if the Base Rate is selected) applicable to the renewed Borrowing Tranche is (check one):

_______ one-month

_______ three-month*

_______ six-month**

_______ twelve-month***

 *subject to a [ _______ ] basis point ([ _________ ]) increase in the Margin otherwise applicable to such Borrowing Tranche

  **subject to a [ _____________ ] basis point- ([ ___________ ]) increase in the Margin otherwise applicable to such Borrowing Tranche

  ***subject to a [ _____________ ] basis point ([ _____________ ]) increase in the Margin

  otherwise applicable to such Borrowing Tranche

3.          Borrower will (check one):

______ Pay all interest due and payable under the requested Borrowing Tranche in monthly installments pursuant to the terms of the Credit Agreement.

______ Prepay all interest for such Borrowing Tranche as of the Borrowing Date.

4.            The principal amount outstanding under the Credit Agreement on the date hereof, prior to any advance in response to this request, is $[].

5.            If applicable, the Base Rate for the Borrowing Tranche renewed hereunder shall be [_____________] ([____]%) consisting of a Reference Bills® Rate/LIBO Rate of [ __________ ] percent ([_____]%) and a Margin of [_____] ([____]%).

Sch. 3.3.3 - - 2

6.           If applicable (i.e.,in the event of the renewal a Base Rate Borrowing Tranche), the maturity date of the Interest Period of the Borrowing Tranche requested herein is (choose and complete one of the following):

[_____________ ], 20[ ____________ ] (which is the last day of the Interest Period, in the event that such date is a Business Day)

[ _____________ ], 20[ _____________ ](which is the Business Day following the last day

of the Interest Period, in the event that such date is not a Business Day).

7.           To the best of Borrower's knowledge and belief following diligent inquiry, the computations set forth in Paragraphs 12 through 14 as certified by Servicer are accurate.

8.           [Check one of the following:]

  _______ No Potential Default or Event of Default has occurred or is continuing under the Loan Documents; or

  _______ No Potential Default or Event of Default, other than Borrower's non- compliance with Section 2.5.3.2of the Credit Agreement, has occurred or is continuing under the Loan Documents, Borrower is otherwise in full compliance with the terms of the Loan Agreement, and will not increase the outstanding principal balance of the Loan pursuant to this Renewal Request.

9.           All of the other terms and conditions set forth in the Credit Agreement and the other Loan Documents pertaining to the Loan have been satisfied.

10.           The undersigned is an Authorized Officer of Borrower.

11.           Notice of this Loan Request shall be deemed received by Lender when (i) sent by facsimile to (703) 714-3002 and (ii) verbally confirmed by telephone call to either (when called in the following order of priority): (1) primary contact in Loan Accounting, currently Denise Sanchez, ((703) 714-3239), (2) secondary contact in Loan Accounting, currently Steve Dillon ((703) 714-2691), and (3) Loan Accounting Manager, currently Wendy McLain ((703) 714-2926) or such other names and numbers as Lender may specify upon prior written Notice to Borrower.

[The Renewal Request continues on the following page]

Sch. 3.3.3 - - 3

IN WITNESS WHEREOF, the undersigned has executed this Certificate this [_____] day of [_____________], [_____].

BORROWER:
ESSEX CAL-WA, L.P., a California limited partnership
By:	Essex SPE, LLC, a Delaware limited liability company, its general partner
	By:	Essex Portfolio, L.P., a California limited partnership, its sole member
		By:	Essex Property Trust, Inc., a Maryland corporation, its general partner
			By:
				Name: Title:

[The Renewal Request continues on the following page]

Sch. 3.3.3 - - 4

12.           The current Loan to Value Ratio is [_________] ([_____]%), which is less than or equal to the Maximum Loan to Value Ratio set forth in Section 2.5.3.1 of the Credit Agreement of sixty-five percent (65%), determined as follows:

A.	The current Loan balance	$[___________]
B.	The current aggregate Market Value of the Collateral Pool	$[___________]
C.	Item A divided by Item B and then multiplied by 100% equals the Loan to Value Ratio	[___________]%

13.The current Facility Debt Service Coverage Ratio is ____________ : 1.00, which (check one):

_______ is less than 1.60 : 1.00, or

_______ is greater than or equal to 1.60 : 1.00,

determined as follows:

A.	Net Operating Income of the Collateral Pool Properties determined by Lender	$[____________]
B.	Facility Debt Service (as defined in the Credit Agreement)	$[____________]
C.	Item A divided by Item B equals the Facility Debt Service Coverage Ratio	[_____________]%

14.              Following the renewal of the Borrowing Tranche for the Interest Period requested herein, the Facility Debt Service Coverage Ratio will be_____: 1.00, which (check one):

_______ is less than 1.60 : 1.00, or

_______ is greater than or equal to 1.60 : 1.00, determined as follows:

A.	Net Operating Income of the Collateral Pool Properties as determined by Lender	$[____________]
B.	Facility Debt Service (as defined in the Credit Agreement)	$[____________]
C.	Item A divided by Item B equals the Facility Debt Service Coverage Ratio	[_____________]%

Sch. 3.3.3 - - 5

Servicer hereby certifies (i) to the accuracy of each of the mathematical computations set forth in paragraphs 12 through 14 above (acknowledging that Servicer has relied, with Lender's consent and without independent verification thereof, on the Net Operating Income and Market Value(s) prepared by Lender), and (ii) to the best of its knowledge and belief, that all statements made by Borrower herein are true and accurate in all material respects.

SERVICER:
NORTHMARQ CAPITAL, INC., a Minnesota corporation
By:.
	Name: Paul W. Cairns Title: Senior Vice President

Sch. 3.3.3 - - 6

SCHEDULE 4.4

BASE RATE BORROWING TRANCHE PREPAYMENT FEE

1.           Definitions- As used in this Schedule 4.4, the words and terms set forth below shall have the meanings set forth below. Capitalized terms used in this Schedule 4.4 and not otherwise defined shall have the meanings set forth in the Credit Agreement.

(a) Interest Period Balance: shall mean the number of days remaining in the Interest Period for the applicable Borrowing Tranche as of the Prepayment Date.

(b) Reference BillsSM Rate: shall mean that portion of the Base Rate for the applicable Borrowing Tranche attributable to the Reference BillsSM Rate for the applicable Borrowing Tranche, expressed as a decimal calculated to four (4) digits.

(c) Prepayment Date: shall mean (i) in the case of a prepayment under Section 4.3.1 of the Credit Agreement, the date on which the prepayment is made or (ii) in any other case in which a Prepayment Fee is payable pursuant to the terms of the Credit Agreement, the date on which Lender accelerates the unpaid principal balance of the Revolving Credit Note.

(d) Reinvestment Rate: shall mean, as of the date that is five (5) Business Days prior to the Prepayment Date, the Reference BillsSM Rate for the Reference BillsSM which matures as close as possible, but not prior to, the maturity date of the Interest Period for the applicable Borrowing Tranche, expressed as a decimal calculated to four (4) digits.

2.           Determination of the Prepayment Fee- The Prepayment Fee payable under Section 4.4 of the Credit Agreement applicable to any particular Borrowing Tranche shall be equal to the greater of the amounts obtained by the formulae set forth in subparagraphs (a) and (b) below.

(a) the amount obtained by:

(i)  dividing:

(A)  the Interest Period Balance

by

(B)  three hundred and sixty (360) days

(ii)  then multiplying the figure obtained in (i) above by one percent (1%); and

Sch. 4.4 - 1

(iii) then multiplying the figure obtained in (ii) above by the amount of principal being prepaid; or

(b) the amount obtained by

(i) multiplying

(A) the amount of principal being prepaid

by

(B) the excess (if a positive number) of the Reference BillsSM Rate over the Reinvestment Rate;

(ii) then dividing the figure obtained in (i) above by three hundred and sixty (360) days; and

(iii) then multiplying the figure obtained in (ii) above by the Interest Period Balance.

Notwithstanding the foregoing, if the Reinvestment Rate is greater than or equal to the Reference BillsSM Rate the fee calculated under this subparagraph (b) shall equal zero.

If at any time a prepayment occurs of a Borrowing Tranche bearing interest at the LIBO Rate, for purposes of computing the fee payable under this subparagraph (b), all references in this Schedule 4.4 to Reference BillsSM Rate shall be deemed to refer to LIBO Rate, as the context requires.

Borrower recognizes that prepayment of any amount due under the Revolving Credit Note, whether voluntary or involuntary resulting from a default by Borrower, will result in Lender's incurring loss, including reinvestment loss, additional expense and frustration or impairment of Lender's ability to meet its commitments to third parties. Borrower agrees to pay to Lender upon demand damages for the detriment caused by any prepayment, and agrees that it is extremely difficult and impractical to ascertain the- extent of such damages. Borrower therefore acknowledges and agrees that the formula for calculating prepayment premiums set forth above represents a reasonable estimate of the damages Lender will incur because of a prepayment. Borrower further acknowledges that the above prepayment premium provisions are a material part of the consideration for the Loan, and acknowledges that the terms of the Revolving Credit Note are in other respects more favorable to Borrower as a result of the Borrower's voluntary agreement to the prepayment premium provisions.

Set forth below, for informational purposes only, is an example of the computation of the Prepayment Fee, based on a hypothetical (i) principal amount being prepaid of Five Million and NO/100 Dollars ($5,000,000.00), (ii) Interest Period Balance of fifteen (15) days, (iii) Reference Bills Rate of 2.75% and (iv) Reinvestment Rate of 2.25%. Based on such hypothetical amounts:

Sch. 4.4 - 2

(a)  the computation set forth in Section 2(a) above is as follows:

(i) the Interest Period Balance (15 days) divided by three hundred sixty (360) days yields an amount equal to approximately .041666;

(ii) one percent (1%) of the figure obtained in (i) above (approximately .041666) is an amount equal to approximately ..0004166;

(iii) the product of the figure obtained in (ii) above (approximately .0004166) times the amount of principal being prepaid ($5,000,000.00) is an amount equal to approximately $2,083.33.

(b)  the computation set forth in Section 2(b) above is as follows:

(i) the product of the principal being prepaid ($5,000,000.00) times the excess of the Reference Bills Rate (2.75%) over the Reinvestment Rate (2.25%) (such excess .5%) is an amount equal to $25,000.00;

(ii) the figure obtained in (i) above ($25,000.00) divided by 360 days is an amount equal to approximately 69.4444;

(iii) the product of the figure obtained in (ii) above (approximately 69.4444) times the Interest Period Balance (15 days) is an amount equal to approximately $1,041.67.

As the figure obtained under the calculation set forth in (a) ($2,083.33) exceeds the figure obtained under the calculation set forth in (b) ($1,041.67), the Prepayment Fee under this example would be equal to the figure obtained in (a) or $2,083.33.

 Sch. 4.4 - 3

EX-12.1

Exhibit 12.1

ESSEX PROPERTY TRUST, INC.

Schedule of computation of Ratio and Earnings to Fixed Charges and Preferred Stock Dividends

(Dollars in thousands, except ratios)

	Years ended December 31
	2008				2007(1)			2006(1)			2005(1)				2004(1)
Earnings:
Income before discontinued operations	$	63,517			$	42,349		$	32,738		$	47,266			$	72,485
Gain on sales of real estate and retirement of debt		(8,095	)			-			-			(6,391	)			(7,909	)
Minority interests		22,395				19,999			18,783			20,699				28,106
Interest expense		78,203				78,938			72,272			70,149				60,063
Amortization of deferred financing costs		2,883				3,055			2,745			1,947				1,560
Total earnings	$	158,903			$	144,341		$	126,538		$	133,670			$	154,305
Fixed charges:
Interest expense	$	78,203			$	78,938		$	72,272		$	70,149			$	60,063
Amortization of deferred financing costs		2,883				3,055			2,745			1,947				1,560
Capitalized interest		10,908				5,134			3,913			1,100				1,997
Preferred stock dividends		9,241				9,174			5,145			1,953				1,952
Perpetual preferred unit distributions		9,909				10,238			10,238			10,238				14,175
Total fixed charges and preferred stock dividends	$	111,144			$	106,539		$	94,313		$	85,387			$	79,747
Ratio of earnings to fixed charges (excluding preferred stock dividends and preferred unit distributions)		1.73		X		1.66	X		1.60	X		1.83		X		2.43		X
Ratio of earnings to combined fixed charges and preferred stock dividends		1.43		X		1.35	X		1.34	X		1.57		X		1.93		X

(1) The results of operations for 2007, 2006, 2005 and 2004 have been reclassified to reflect discontinued operations for properties sold subsequent to December 31, 2007.

EX-21.1

Exhibit 21.1

List of Subsidiaries

1.	Essex Portfolio, L.P., a California limited partnership
2.	Essex Management Corporation, a California corporation
3.	Essex Palisades Facilitator, a California limited partnership
4.	Essex Sunpointe Limited, a California limited partnership
5.	Essex Mirabella Marina Apartments, L.P., a California limited partnership
6.	Essex San Ramon Partners L.P., a California limited partnership
7.	Essex Fidelity I Corporation, a California corporation
8.	Essex Camarillo Corporation, a California corporation
9.	Essex Camarillo L.P., a California limited partnership
10.	Essex Meadowood Corporation, a California corporation
11.	Essex Meadowood, L.P., a California limited partnership
12.	Essex Bunker Hill Corporation, a California corporation
13.	Essex Bunker Hill, L.P., a California limited partnership
14.	Essex Treetops Corporation, a California corporation
15.	Essex Treetops, L.P., a California limited partnership
16.	Essex Bluffs, L.P., a California limited partnership
17.	Essex Huntington Breakers, L.P., a California limited partnership
18.	Essex Stonehedge Village, L.P., a California limited partnership
19.	Essex Bridle Trails, L.P., a California limited partnership
20.	Essex Spring Lake, L.P., a California limited partnership
21.	Essex Maple Leaf, L.P., a California limited partnership
22.	Fountain Court Apartment Associates, L.P., a Washington limited partnership
23.	Essex Fountain Court, LLC, a Washington limited liability company
24.	Essex Inglenook Court, LLC, a Delaware limited liability company
25.	Essex Wandering Creek, LLC, a Delaware limited liability company
26.	Essex Columbus, LLC, a Delaware limited liability company
27.	Essex Lorraine, LLC, a Delaware limited liability company
28.	Essex Glenbrook, LLC, a Delaware limited liability company
29.	Essex Euclid, LLC, a Delaware limited liability company
30.	Essex Lorraine, Inc., a California corporation
31.	Essex Columbus, Inc., a California corporation
32.	Richmond Essex L.P., a California limited partnership
33.	Essex VFGP L.P., a California limited partnership
34.	Essex VFGP Corporation, a Delaware corporation
35.	Jackson School Village, L.P. a California limited partnership
36.	Mount Sutro Terrace Associates, L.P., a California limited partnership
37.	Essex Carlyle, L.P., a California limited partnership
38.	Essex Apartment Value Fund L.P., a Delaware limited partnership
39.	Essex Mirabella Marina, LLC, a Delaware limited liability company
40.	ESG Properties I LLC, a Delaware limited liability company
41.	Lineberry Sammamish, LLC, a Washington limited liability company
42.	Essex Carlyle, LLC, a Delaware limited liability company
43.	Essex Wimbledon Woods Apartments, LLC, a Delaware limited liability company
44.	Essex Cochran, L.P., a California limited partnership
45.	Essex Cochran, LLC, a Delaware limited liability company
46.	Essex Kings Road, L.P., a California limited partnership
47.	Essex Kings Road, LLC, a Delaware limited liability company
48.	Essex Le Parc, L.P., a California limited partnership
49.	Essex Le Parc, LLC, a Delaware limited liability company
50.	Essex Monterey Villas, L.P., a California limited partnership

51.	Essex Monterey Villas, LLC, a Delaware limited liability company
52.	Jaysac, Ltd., a Texas limited partnership
53.	JMS Acquisition, LLC, a Delaware limited liability company
54.	Jaysac GP Corporation, a Delaware corporation
55.	Western Blossom Hill Investors, a California limited partnership
56.	Western Los Gatos I Investors, a California limited partnership
57.	Western Highridge Investors, a California limited partnership
58.	Western San Jose III Investors, a California limited partnership
59.	Western Riviera Investors, a California limited partnership
60.	Western Palo Alto II Investors, a California limited partnership
61.	Irvington Square Investors, a California limited partnership
62.	Western Seven Trees Investors, a California limited partnership
63.	Western Las Hadas Investors, a California limited partnership
64.	San Pablo Medical Investors, LTD, a California limited partnership
65.	Gilroy Associates, a California limited partnership
66.	The Oakbrook Company, a Ohio limited partnership
67.	Pine Grove Apartment Fund, LTD, a California limited partnership
68.	Valley Park Apartments, LTD, a California limited partnership
69.	Fairhaven Apartment Fund, LTD, a California limited partnership
70.	K-H Properties, a California limited partnership
71.	Villa Angelina Apartment Fund, LTD, a California limited partnership
72.	Essex Camarillo Oaks 789, L.P., a California limited partnership
73.	Essex Emerald Ridge, L.P., a California limited partnership
74.	Essex Evergreen Heights, L.P., a California limited partnership
75.	Essex Sammamish View, L.P., a California limited partnership
76.	Essex Wharfside Pointe, L.P., a California limited partnership
77.	Essex CAL-WA, L.P., a California limited partnership
78.	Essex Marina City Club, L.P., a California limited partnership
79.	Essex Fountain Park Apartments, L.P., a California limited partnership
80.	Essex SPE, LLC, a Delaware limited liability company
81.	Essex MCC, LLC, a Delaware limited liability company
82.	Essex FPA, LLC, a Delaware limited liability company
83.	Essex Excess Assets TRS, Inc., a Delaware corporation
84.	Essex The Pointe, L.P., a California limited partnership
85.	Essex Tierra Vista, L.P., a California limited partnership
86.	Essex Green Valley, L.P., a California limited partnership
87.	Essex Apartment Value Fund II, L.P., a Delaware limited partnership
88.	Essex VFGP II, L.P., a Delaware limited partnership
89.	Essex Vista Belvedere, L.P., a California limited partnership
90.	Essex Carlmont Woods Apartments, L.P., a California limited partnership
91.	Essex Harbor Cove Apartments, L.P., a California limited partnership
92.	Essex Parcwood Apartments, L.P., a California limited partnership
93.	Essex Marbrisa Long Beach, L.P., a California limited partnership
94.	Essex Regency Tower Apartments, L.P., a California limited partnership
95.	Essex Marina City Club, LLC, a Delaware limited liability company
96.	Essex Northwest Gateway, LLC, a Delaware limited liability company
97.	Essex VFGP II, Inc., a Delaware corporation
98.	Essex Lake Merritt, Inc., a California corporation
99.	Essex Brighton Ridge, L.P., a California limited partnership
100.	Essex Canyon Pointe, L.P., a California limited partnership
101.	Essex Tower 801 Apartments, L.P., a California limited partnership
102.	Essex Echo Ridge Apartments, L.P., a California limited partnership
103.	Essex Morning Run Apartments, L.P., a California limited partnership
104.	Essex Enclave Apartments, L.P., a California limited partnership
105.	Essex Fairwood Pond, L.P., a California limited partnership
106.	Park Hill, LLC, a Washington limited liability company

107.	Essex Park Boulevard, LLC, a Delaware limited liability company
108.	MDR Tower, LLC, a Delaware limited liability company
109.	Essex NBN SPE, LLC, a Delaware limited liability company
110.	Essex Gateway Management, LLC, a California limited liability company
111.	Essex Eastridge, Inc., a California corporation
112.	Essex Tracy Development, Inc., a California corporation
113.	Essex Property Financial Corporation, a California corporation
114.	Northwest Gateway Apartments, L.P., a California limited partnership
115.	Essex Eastlake Union, L.P., a California limited partnership
116.	Essex Radford, L.P., a California limited partnership
117.	Essex Davey Glen  Apartments, L.P., a California limited partnership
118.	Essex Renaissance Apartments, L.P., a California limited partnership
119.	Essex Topanga Canyon, L.P., a California limited partnership
120.	Essex Alderwood Park Apartments, L.P., a California limited partnership
121.	Essex View Pointe, LLC, a Delaware corporation
122.	Essex Alamo, LLC, a Delaware corporation
123.	Essex Broadway, LLC, a Washington corporation
124.	View Pointe Homeowners Association, a Washington corporation
125.	Essex HGA, LLC, a Delaware corporation
126.	Essex Hillsdale Garden Apartments, L.P., a California limited partnership
127.	Essex Camino Ruiz Apartments, L.P., a California limited partnership
128.	Essex CRA, LLC, a Delaware corporation
129.	Essex HPA, LLC, a Delaware corporation
130.	Essex Harvest Park Apartments, L.P., a California limited partnership
131.	Newport Beach North, Inc., a Delaware corporation
132.	Essex Cardiff, LLC, a Delaware corporation
133.	Essex Cardiff Apartments, L.P., a California limited partnership
134.	Essex Canyon Oaks, LLC, a Delaware corporation
135.	Essex Canyon Oaks Apartments, L.P., a California limited partnership
136.	Essex Coldwater Canyon, LLC, a Delaware corporation
137.	Essex Coldwater Canyon Apartments, L.P., a California limited partnership
138.	Essex Esplanade, L.P., a California limited partnership
139.	Pacific Western Insurance, LLC, a Hawaii corporation
140.	Essex Moorpark, LLC, a Delaware corporation
141.	Essex Moorpark Apartments, L.P., a California limited partnership
142.	Western Mountain View II Investors, a California limited partnership
143.	Western San Jose IV Investors Limited Partnership, a California limited partnership
144.	Essex Berkeley, LLC, a Delaware corporation
145.	Essex Berkeley 4th Street, L.P., a California limited partnership
146.	Newport Beach North, LLC, a Delaware corporation
147.	Essex Washington Interest Partners, a California general partnership
148.	Essex Internet Realty Partners, G.P., a California general partnership

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Essex Property Trust, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-141726, 333-131276, 333-131178, 333-102552, 333-44467, 333-21989 and 333-108336), the registration statement on Form S-3D (No. 333-36029), and the registration statements on Form S-8 (Nos. 333-123001, 333-122999, and 333-55646) of Essex Property Trust, Inc. of our reports dated February 26, 2009, with respect to the consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows, for each of the years in the three-year period ended December 31, 2008, the related financial statement schedule III, and the effectiveness of internal control over financial reporting as of December 31, 2008, which reports appear in the December 31, 2008 annual report on Form 10-K of Essex Property Trust, Inc.

/S/ KPMG LLP

KPMG LLP

San Francisco, California

February 26, 2009

EX-31.1

EXHIBIT 31.1

ESSEX PROPERTY TRUST, INC.

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Keith R. Guericke, certify that:

1. I have reviewed this annual report on Form 10-K of Essex Property 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 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 controls over financial reporting, or caused such internal controls 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 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 data; 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.

Date:       February 26, 2009

/s/    Keith R. Guericke

Keith R. Guericke

Chief Executive Officer and President

Director and Vice Chairman of the Board

Essex Property Trust, Inc.

EX-31.2

EXHIBIT 31.2

ESSEX PROPERTY TRUST, INC.

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael T. Dance, certify that:

1. I have reviewed this annual report on Form 10-K of Essex Property 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 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 controls over financial reporting, or caused such internal controls 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 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 data; 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.

Date:       February 26, 2009

/s/    Michael T. Dance

Michael T. Dance

Chief Financial Officer, Executive Vice President,

Essex Property Trust, Inc.

EX-32.1

Exhibit 32.1

ESSEX PROPERTY TRUST, INC.

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350 as adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), I, Keith R. Guericke, hereby certify, to the best of my knowledge, that the Annual Report on Form 10-K for the year ended December 31, 2007 (the “Form 10-K”) of Essex Property Trust, Inc. fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Essex Property Trust, Inc. at the dates of and for the periods presented.

Date: February 26, 2009	/s/ Keith R. Guericke
	Keith R. Guericke
	Chief Executive Officer and President,
	Director and Vice Chairman of the Board,
	Essex Property Trust, Inc.

EX-32.2

Exhibit 32.2

ESSEX PROPERTY TRUST, INC.

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350 as adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), I, Michael T. Dance, hereby certify, to the best of my knowledge, that the Annual Report on Form 10-K for the year ended December 31, 2007 (the “Form 10-K”) of Essex Property Trust, Inc. fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Essex Property Trust, Inc. at the dates of and for the periods presented.

Date: February 26, 2009	/s/ Michael T. Dance
	Michael T. Dance
	Chief Financial Officer, Executive Vice President,
	Essex Property Trust, Inc.