Real Estate Sale Leaseback Financing: Structuring Deal Terms

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TdToday’ s facul ty features:

Kathleen Barthmaier, Executive Director, W. P. Carey, New York Armand (Bud) Grunberger, Partner, Fisher Broyles, Washington, D.C. Anthony Palazzo, Attorney at Law, Private Holding Company, Durham, N.C.

The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. FRANK LYON CO. v. U.S., Cite as 41 AFTR 2d 78-1142 (98 S.Ct. 1291), (S Ct), 04/18/1978

FRANK LYON COMPANY, PETITIONER v. U.S., RESPONDENT. Case Information:

[pg. 78-1142]

Code Sec(s):

Court Name: U.S. Supreme Court,

Docket No.: No. 76-624,

Date Decided: 04/18/1978

Prior History: Court of Appeals, 38 AFTR 2d 76-5060 ( 536

F.2d 746), which reversed District Court, 36 AFTR 2d 75-5154, reversed.

Tax Year(s): Year 1969.

Disposition: Decision for taxpayer.

Cites: 41 AFTR 2d 78-1142, 435 US 561, 98 S Ct 1291, 55 L Ed 2d 550, 78-1 USTC P 9370.

HEADNOTE

1.INTEREST-Interest defined-indebtedness must be that of the taxpayer-miscellaneous decisions. Purchaser of bank building who leased it back to bank was entitled to deduction for mortgage interest. Purchaser wasn't mere conduit for mortgage payments made by seller-bank to lender. Parties made real sale.

Reference(s): 1978 P-H Fed. ¶11,335(70); 13,048(25).

2.DEPRECIATION-Who can deduct depreciation-sales contracts and security arrangements. Purchaser of bank building who leased it back to bank was entitled to depreciation deductions. Transaction wasn't mere sham to enable bank to own building without carrying it on its books: Parties intended real sale. Purchaser had its own capital invested in building and so was entitled to depreciation deduction.

Reference(s): 1978 P-H Fed. ¶15,024(5); 41,051(9).

OPINION

Certiorari To The United States Court Of Appeals For The Eighth Circuit.SyllabusA state bank, which was a member of the Federal Reserve System, upon realizing that it was not feasible, because of various state and federal regulations, for it to finance by conventional mortgage and other financing a building under construction for its headquarters and principal banking facility, entered into sale-and- leaseback agreements by which petitioner took title to the building and leased it back to the bank for long-term use, petitioner obtaining both a construction loan and permanent mortgage financing. The bank is obligated to pay rent equal to the principal and interest payments on petitioner's mortgage and has an option to repurchase the building at various times at prices equal to the then unpaid balance of petitioner's mortgage and initial $500,000 investment. On its federal income tax return for the year in which the building was completed and the bank took possession, petitioner accrued rent from the bank and claimed as deductions depreciation on the building, interest on its construction loan and mortgage, and other expenses related to the sale-and-leaseback transaction. The Commissioner of Internal Revenue disallowed the deductions on the ground that petitioner was not the owner of the building for tax purposes but that the sale-and-leaseback arrangement was a financing transaction in which petitioner loaned the bank $500,000 and acted as a conduit for the transmission of principal and interest to petitioner's mortgagee. This resulted in a deficiency in petitioner's income tax, which it paid. After its claim for a refund was denied, it brought suit in the District Court to recover the amount so paid. That court held that the claimed deductions were allowable, but the Court of Appeals reversed, agreeing with the Commissioner. Held: Petitioner is entitled to the claimed deductions. Pp. 11-22. ((a)) Although the rent agreed to be paid by the bank equalled the amounts due from the petitioner to its mortgagee, the sale-and-leaseback transaction is not a simple sham by which petitioner was but a conduit used to forward the mortgage payments made under the guise of rent paid by the bank to petitioner, on to the mortgagee, but the construction loan and mortgage note obligations on which petitioner paid interest are its obligations alone, and,

accordingly, it is entitled to claim deductions therefor under §163(a) of the Internal Revenue Code

of 1954. Helvering v. Lazarus & Co., 308 U.S. 252 [ 23 AFTR 778] distinguished. Pp. 11-19.

((b)) While it is clear that none of the parties to the sale-and-leaseback agreements is the owner of

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the building in any simple sense, it is equally clear that petitioner is the one whose capital was invested in the building and is therefore the party entitled to claim depreciation for the consumption of that capital under §167 of the Code. Pp. 19-20. ((c)) Where, as here, there is a genuine multiple-party transaction with economic substance that is compelled or encouraged by business or regulatory realities, is imbued with tax-independent considerations, and is not shaped solely by tax-avoidance features to which meaningless labels are attached, the Government should honor the allocations of rights and duties effectuated [pg. 78-1143] color> by the parties; so long as the lessee retains significant and genuine attributes of the traditional lesser status, the form of the transaction adopted by the parties governs for tax purposes. Pp. 20-22.

536 F.2d 746 [ 38 AFTR 2d 76-5060] reversed.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, STEWART, MARSHALL, POWELL, and REHNQUIST, J.J., joined. WHITE, J., filed a dissenting statement. STEVENS, J., filed a dissenting opinion.

Judge: Mr. Justice BLACKMUN delivered the opinion of the Court.

This case concerns the federal income tax consequences of a sale-and-leaseback in which petitioner Frank Lyon Company (Lyon) took title to a building under construction by Worthen Bank & Trust Company (Worthen) of Little Rock, Ark., and simultaneously leased the building back to Worthen for long- term use as its headquarters and principal banking facility.

The underlying pertinent facts are undisputed. They are established by stipulations, App. 9, 14, the trial testimony, and the documentary evidence, and are reflected in the District Court's findings:

Lyon is a closely held Arkansas corporation engaged in the distribution of home furnishings, primarily Whirlpool and RCA electrical products. Worthen in 1965 was an Arkansas-chartered bank and a member of the Federal Reserve System. Frank Lyon was Lyon's majority shareholder and board chairman; he also served on Worthen's board. Worthen at that time began to plan the construction of a multi-story bank

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and office building to replace its existing facility in Little Rock. About the same time Worthen's competitor, Union National Bank of Little Rock, also began to plan a new bank and office building. Adjacent sites on Capitol Avenue, separated only by Spring Street, were acquired by the two banks. It became a matter of competition for both banking business and tenants, and prestige as to which bank would start and complete its building first.

Worthen initially hoped to finance, to build, and itself to own the proposed facility at a total cost of $9 million for the site, building, and adjoining parking deck. This was to be accomplished by selling $4 million in debentures and using the proceeds in the acquisition of the capital stock of a wholly owned real estate subsidiary. This subsidiary would have formal title and would raise the remaining $5 million by a conventional mortgage loan on the new premises. Worthen's plan, however, had to be abandoned for two significant reasons:

(1.) As a bank chartered under Arkansas law, Worthen legally could not pay more interest on any debentures it might issue, than that then specified by Arkansas law. But the proposed obligations would not be marketable at that rate.

(2.) Applicable statutes or regulations of the Arkansas State Bank Department and the Federal Reserve System required Worthen, as a state bank subject to their supervision, to obtain prior permission for the investment in banking premises of any amount (including that placed in a real estate subsidiary) in excess of the bank's capital stock or of 40% of its capital stock and surplus. 1 See Ark. Stat. Ann. §67-547.1 (Supp. 1977); 12 U.S.C. §371d; 12 CFR §265.2(f)(7) (1977). Worthen, accordingly, was advised by staff employees of the Federal Reserve System that they would not recommend approval of the plan by the System's Board of Governors.

Worthen therefore was forced to seek an alternative solution that would provide it with the use of the building, satisfy the state and federal regulators, and attract the necessary capital. In September 1967 it proposed a sale-and-leaseback arrangement. The State Bank Department and the Federal Reserve System approved this approach, but the Department required that Worthen possess an option to purchase the leased property at the end of the 15th year of the lease at a set price, and the federal regulator required that the building be owned by an independent third party.

Detailed negotiations ensued with investors that had indicated interest, namely, Goldman, Sachs & Company, White, Weld & Co., Eastman Dillon, Union Securities & Company, and Stephens, Inc. Certain of these firms made specific proposals.

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Worthen then obtained a commitment from New York Life Insurance Company [pg. 78-1144] color> to provide $7,140,000 in permanent mortgage financing on the building, conditioned upon its approval of the title holder. At this point Lyon entered the negotiations and it, too, made a proposal.

Worthen submitted a counterproposal that incorporated the best features, from its point of view, of the several offers. Lyon accepted the counterproposal suggesting by way of further inducement, a $21,000 reduction in the annual rent for the first five years of the building lease. Worthen selected Lyon as the investor. After further negotiations, resulting in the elimination of that rent reduction (offset, however, by higher interest Lyon was to pay Worthen on a subsequent unrelated loan), Lyon in November 1967 was approved as an acceptable borrower by First National City Bank for the construction financing, and by New York Life, as the permanent lender. In April 1968 the approvals of the state and federal regulators were received.

In the meantime, on September 15, before Lyon was selected, Worthen itself began construction.

In May l968 Worthen, Lyon, City Bank, and New York Life executed complementary and interlocking agreements under which the building was sold by Worthen to Lyon as it was constructed, and Worthen leased the completed building back from Lyon:

(1.) Agreements between Worthen and Lyon. Worthen and Lyon executed a ground lease, a sales agreement, and a building lease. Under the ground lease dated May 1, 1968, App. 366, Worthen leased the site to Lyon for 76 years and seven months through November 30, 2044. The first 19 months comprised the estimated construction period. The ground rents payable by Lyon to Worthen

were $50 for the first 26 years and seven months and thereafter in quarterly payments: 12/1/94 through 11/30/99 (five years)--$100,000 annually 12/1/99 through 11/30/04 (five years)--$150,000 annually 12/1/04 through 11/30/09 (five years)--$200,000 annually 12/1/09 through 11/30/34 (25 years)--$250,000 annually 12/1/34 through 11/30/44 (ten years)--$10,000 annually

Under the sales agreement dated May 19, 1968, id., at 508, Worthen agreed to sell the building - 5 -

to Lyon, and Lyon agreed to buy it, piece by piece as it was constructed, for a total price not to exceed $7,640,000, in reimbursements to Worthen for its expenditures for the construction of the building. 2 Under the building lease dated May 1, 1968, id., at 376, Lyon leased the building back to Worthen for a primary term of 25 years from December 1, 1969, with options in Worthen to extend the lease for eight additional five-year terms, a total of 65 years. During the period between the expiration of the building lease (at the latest, November 30, 2034, if fully extended) and the end of the ground lease on November 30, 2044, full ownership, use, and control of the building were Lyon's, unless, of course, the building had been repurchased by Worthen. Id., at 369. Worthen was not obligated to pay rent under the building lease until completion of the building. For the first 11 years of the lease, that is until November 30, 1980, the stated quarterly rent was $145,581.03 ($582,324.12 for the year). For the next 14 years, the quarterly rent was $153,289.32 ($613,157.28 for the year), and for the option periods the rent was $300,000 a year, payable quarterly. Id., at 378-379. The total rent for the building over the 25-year primary term of the lease thus was $14,989,767.24. That rent equalled the principal and interest payments that would amortize the $7,140,000 New York Life mortgage loan over the same period. When the mortgage was paid off at the end of the primary term, the annual building rent, if Worthen extended the lease, came down to the stated $300,000. Lyon's net rentals from the building would be further reduced by the increase in ground rent Worthen would receive from Lyon during the extension. 3 [pg. 78-1145] color>The building lease was a "net lease," under which Worthen was responsible for all expenses usually associated with the maintenance of an office building, including repairs, taxes, utility charges, and insurance, and was to keep the premises in good condition, excluding, however, reasonable wear and tear.Finally, under the lease,

Worthen had the option to repurchase the building at the following times and prices: 11/30/80 (after 11 years)--$6,325,169.85 11/30/84 (after 15 years)--$5,432,607.32 11/30/89 (after 20 years)--$4,187,328.04 11/30/94 (after 25 years)--$2,145,935.00

These repurchase option prices were the sum of the unpaid balance of the New York Life mortgage, Lyon's $500,000 investment, and 6% interest compounded on that investment.

(2.) Construction financing agreement. By agreement dated May 14, 1968 id., at 462 City Bank agreed to lend Lyon $7,000,000 for the construction of the building. This loan was secured by a - 6 -

mortgage on the building and the parking deck, executed by Worthen as well as by Lyon, and an assignment by Lyon of its interests in the building lease and in the ground lease. (3.) Permanent financing agreement. By Note Purchase Agreement dated May 1, 1968, id., at 443, New York Life agreed to purchase Lyon's $7,140,000 6 3/4% 25-year secured note to be issued upon completion of the building. Under this agreement Lyon warranted that it would lease the building to Worthen for a noncancelable term of at least 25 years under a net lease at a rent at least equal to the mortgage payments on the note. Lyon agreed to make quarterly payments of principal and interest equal to the rentals payable by Worthen during the corresponding primary term of the lease. Id., at 523. The security for the note were a First Deed of Trust and Lyon's assignment of its interests in the building lease and in the ground lease. Id.,at 527,571. Worthen joined in the Deed of Trust as the owner of the fee and the parking deck. In December 1969 the building was completed and Worthen took possession. At that time Lyon received the permanent loan from New York Life, and it discharged the interim loan from City Bank. The actual cost of constructing the office building and parking complex (excluding the cost of the land) exceeded $10,000,000.

Lyon filed its federal income tax returns on the accrual and calendar year basis. On its 1969 return, Lyon accrued rent from Worthen for December. It asserted as deductions one month's interest to New York Life; one month's depreciation on the building; interest on the construction loan from City Bank; and sums for legal and other expenses incurred in connection with the transaction.

On audit of Lyon's 1969 return, the Commissioner of Internal Revenue determined that Lyon was "not the owner for tax purposes of any portion of the Worthen Building," and ruled that "the income and expenses related to this building are not allowable ... for Federal income tax purposes." App. 304-305, 299. He also added $2,298.15 to Lyon's 1969 income as "accrued interest income." This was the computed 1969 portion of a gain, considered the equivalent of interest income, the realization of which was based on the assumption that Worthen would exercise its option to buy the building after 11 years, on November 30, 1980, at the price stated in the lease, and on the additional determination that Lyon had "loaned" $500,000 to Worthen. In other words, the Commissioner determined that the sale-and-leaseback arrangement was a financing transaction in which Lyon loaned Worthen $500,000 and acted as a conduit for the transmission of principal and interest from Worthen to New York Life. [pg. 78-1146] color>

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All this resulted in a total increase of $497,219.18 over Lyon's reported income for 1969, and a deficiency in Lyon's federal income tax for that year in the amount of $236,596.36. The Commissioner assessed that amount, together with interest of $43,790.84, for a total of $280,387.20. 4

Lyon paid the assessment and filed a timely claim for its refund. The claim was denied, and this suit, to recover the amount so paid, was instituted in the United States District Court for the Eastern District of

Arkansas within the time allowed by 26 U.S.C. §6532(a)(1).

[1] After trial without a jury, the District Court, in a memorandum letter-opinion setting forth findings and

conclusions, ruled in Lyon's favor and held that its claimed deductions were allowable. [ 36 AFTR 2d

75-5154], 75-2 USTC ¶9545; 36 P-H Fed. Tax Rep. 2d ¶5039 (ED Ark. 1975); App. 296-311. It concluded that the legal intent of the parties had been to create a bona fide sale-and-leaseback in accordance with the form and language of the documents evidencing the transactions. It rejected the argument that Worthen was acquiring an equity in the building through its rental payments. It found that the rents were unchallenged and were reasonable throughout the period of the lease, and that the option prices, negotiated at arm's-length between the parties, represented fair estimates of market value on the applicable dates. It rejected any negative inference from the fact that the rentals, combined with the options, were sufficient to amortize the New York Life loan and to pay Lyon a 6% return on its equity investment. It found that Worthen would acquire an equity in the building only if it exercised one of its options to purchase, and that it was highly unlikely, as a practical matter, that any purchase option would ever be exercised. It rejected any inference to be drawn from the fact that the lease was a "net lease." It found that Lyon had mixed motivations for entering into the transaction, including the need to diversify as well as the desire to have the benefits of a "tax shelter." App. 296, 299.

The United States Court of Appeals for the Eighth Circuit reversed. 536 F.2d 746 [ 38 AFTR 2d 76- 5060] (1976). It held that the Commissioner correctly determined that Lyon was not the true owner of the building and therefore was not entitled to the claimed deductions. It likened ownership for tax purposes to a "bundle of sticks" and undertook its own evaluation of the facts. It concluded, in agreement with the Government's contention, that Lyon "totes an empty bundle" of ownership sticks. Id., at 751. It stressed the following: (a) The lease agreements circumscribed Lyon's right to profit from its investment in the building by giving Worthen the option to purchase for an amount equal to Lyon's $500,000 equity plus 6% compound interest and the assumption of the unpaid balance of the New York Life mortgage. 5 (b) The option prices did not take into account possible appreciation of the value of the building or inflation. 6 (c) Any award realized as a result of destruction or condemnation of the building in excess of the mortgage - 8 -

balance and the $500,000 would be paid to Worthen and not Lyon. 7 (d) The building rental payments during the primary term were exactly equal to the mortgage payments. 8 (e) Worthen retained control over the ultimate disposition of the building through its various options to repurchase and to renew the lease plus its ownership of the site. 9 (f)Worthen enjoyed all benefits [pg. 78-1147] color>and bore all burdens incident to the operation and ownership of the building so that, in the Court of Appeals' view, the only economic advantages accruing to Lyon, in the event it were considered to be the true owner of the property, were income tax savings of approximately $1.5 million during the first 11 years of the arrangement. 10 Id., at 752-753. 11 The court concluded, id., at 753, that the transaction was "closely akin"

to that in Helvering v. Lazarus & Co., 308 U.S. 252 [ 23 AFTR 778] (1938). "In sum, the benefits, risks, and burdens which [Lyon] has incurred with respect to the Worthen building are simply too insubstantial to establish a claim to the status of owner for tax purposes ... The vice of the present lease is that all of [its] features have been employed in the same transaction with the cumulative effect of depriving [Lyon] of any significant ownership interest." Id., at 754.

We granted certiorari, 429 U.S. 1089 (1977), because of an indicated conflict with American Realty Trust

v. United States, 498 F.2d 1194 [ 34 AFTR 2d 74-5308] (CA4 1974).

This Court, almost 50 years ago, observed that "taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed-the actual benefit for which the tax is paid."

Corliss v. Bowers, 281 U.S. 376, 378 [ 8 AFTR 10910] (1930). In a number of cases, the Court has refused to permit the transfer of formal legal title to shift the incidence of taxation attributable to ownership of property where the transferor continues to retain significant control over the property transferred. E.g.,

Commissioner v. Sunnen, 333 U.S. 591 [ 36 AFTR 611] (1948); Helvering v. Clifford, 309 U.S.

331 [ 23 AFTR 1077] (1940). In applying this doctrine of substance over form, the Court has looked to the objective economic realities of a transaction rather than to the particular form the parties employed. The Court has never regarded "the simple expedient of drawing up papers," Commissioner v. Tower,

327 U.S. 280, 291 [ 34 AFTR 799] (1946), as controlling for tax purposes when the objective economic realities are to the contrary. "In the field of taxation, administrators of the laws, and the courts, are concerned with substance and realities, and formal written documents are not rigidly binding."

Helvering v. Lazarus & Co., 308 U.S. 252, 255 [ 23 AFTR 778] (1939). See, also Commissioner v.

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P.G. Lake, Inc., 356 U.S. 260, 266-267 [ 1 AFTR 2d 1394] (1958); Commissioner v. Court Holding

Co., 324 U.S. 331, 334 [ 33 AFTR 593] (1945). Nor is the parties' desire to achieve a particular tax result necessarily relevant. Commissioner v. Duberstein, 363 U.S. 278, 286 [ 5 AFTR 2d 1626] (1960).

In the light of these general and established principles, the Government takes the position that the Worthen-Lyon transaction in its entirety should be regarded as a sham. The agreement as a whole, it is said, was only an elaborate financing scheme designed to provide economic benefits to Worthen and a guaranteed return to Lyon. The latter was but a conduit used to forward the mortgage payments, made under the guise of rent paid by Worthen to Lyon, on to New York Life as mortgagee. This, the Government claims, is the true substance of the transaction as viewed under the microscope of the tax laws. Although the arrangement was cast in sale-and-leaseback form, in substance it was only a financing transaction, and the terms of the repurchase options and lease renewals so indicate. It is said that Worthen could reacquire the building simply by satisfying the mortgage debt and paying Lyon its $500,000 advance plus interest, regardless of the fair market value of the building at the time; similarly, when the mortgage was paid off, Worthen could extend the lease at drastically reduced bargain rentals that likewise bore no relation to fair rental value but were simply calculated to pay Lyon its $500,000 plus interest over the extended term. Lyon's return on the arrangement in no event could exceed 6% compound interest (although the Government [pg. 78-1148] color> conceded it might well be less, Tr. of Oral Arg. 32). Furthermore, the favorable option and lease renewal terms made it highly unlikely that Worthen would abandon the building after it in effect had "paid off" the mortgage. The Government implies that the arrangement was one for convenience which, if accepted on its face, would enable Worthen to deduct its payments to Lyon as rent and would allow Lyon to claim a deduction for depreciation, based on the cost of construction ultimately borne by Worthen, which Lyon could offset against other income, and to deduct mortgage interest that roughly would offset the inclusion of Worthen's rental payments in Lyon's income. If, however, the Government argues, the arrangement was only a financing transaction under which Worthen was the owner of the building, Worthen's payments would be deductible only to the extent that they represented mortgage interest, and Worthen would be entitled to claim depreciation; Lyon would not be entitled to deductions for either mortgage interest or depreciation and it need not include Worthen's "rent" payments in its income because its function with respect to those payments was that of a conduit between Worthen and New York Life.

The Government places great reliance on Helvering v. Lazarus & Co., supra, and claims it to be precedent that controls this case. The taxpayer there was a department store. The legal title of its three - 10 -

buildings was in a bank as trustee for land-trust certificate holders. When the transfer to the trustee was made, the trustee at the same time leased the buildings back to the taxpayer for 99 years, with option to renew and purchase. The Commissioner, in stark contrast to his posture in the present case, took the position that the statutory right to depreciation followed legal title. The Board of Tax Appeals, however, concluded that the transaction between the taxpayer and the bank in reality was a mortgage loan and allowed the taxpayer depreciation on the buildings. This Court, as had the Court of Appeals, agreed with that conclusion and affirmed. It regarded the "rent" stipulated in the leaseback as a promise to pay interest on the loan, and a "depreciation fund" required by the lease as an amortization fund designed to pay off the loan in the stated period. Thus, said the Court, the Board justifiably concluded that the transaction, although in written form a transfer of ownership with a leaseback, was actually a loan secured by the property involved.

The Lazarus case, we feel, is to be distinguished from the present one and is not controlling here. Its transaction was one involving only two (and not multiple) parties, the taxpayer-department store and the trustee-bank. The Court looked closely at the substance of the agreement between those two parties and rightly concluded that depreciation was deductible by the taxpayer despite the nomenclature of the instrument of conveyance and the leaseback. See also Sun Oil Co. v. Commissioner, 562 F.2d 258 [

40 AFTR 2d 77-5737] (CA3 1977) (a two-party case with the added feature that the second party was a tax-exempt pension trust).

The present case, in contrast, involves three parties, Worthen, Lyon, and the finance agency. The usual simple two-party arrangement was legally unavailable to Worthen. Independent investors were interested in participating in the alternative available to Worthen and Lyon itself, also independent from Worthen, won the privilege. Despite Frank Lyon's presence on Worthen's board of directors, the transaction, as it ultimately developed, was not a familial one arranged by Worthen, but one compelled by the realities of the restrictions imposed upon the bank. Had Lyon not appeared, another interested investor would have been selected. The ultimate solution would have been essentially the same. Thus, the presence of the third party, in our view, significantly distinguishes this case from Lazarus and removes the latter as controlling authority.

III

It is true, of course, that the transaction took shape according to Worthen's needs. As the Government

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points out, Worthen throughout the negotiations regarded the respective proposals of the independent investors in terms of its own cost of funds. E.g., App. 355. It is also true that both Worthen and the prospective investors compared the various proposals in terms of the return anticipated on the investor's equity. But all this is natural for parties contemplating entering into a transaction of this kind. Worthen needed a building for its banking operations and other purposes and necessarily had to know what its cost would be. The investors were in business to employ their funds in the most remunerative way possible. And, as the Court has said in the past, a transaction must be given its effect in accord with what actually occurred and not in accord with what might have occurred. Commissioner [pg. 78-1149] color>v.

National Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 148-149 [ 33 AFTR 2d 74-1347] (1974);

Central Tablet Mfg. Co. v. United States, 417 U.S. 673, 690 [ 34 AFTR 2d 74-5200] (1974).

There is no simple device available to peel away the form of this transaction and to reveal its substance. The effects of the transaction on all the parties were obviously different from those that would have resulted had Worthen been able simply to make a mortgage agreement with New York Life and to receive a $500,000 loan from Lyon. Then Lazarus would apply. Here, however, and most significantly, it was Lyon alone, and not Worthen, who was liable on the notes, first to City Bank, and then to New York Life. Despite the facts that Worthen had agreed to pay rent and that this rent equalled the amounts due from Lyon to New York Life, should anything go awry in the later years of the lease, Lyon was primarily liable. 12 No matter how the transaction could have been devised otherwise, it remains a fact that as the agreements were placed in final form, the obligation on the notes fell squarely on Lyon. 13 Lyon, an ongoing enterprise, exposed its very business well-being to this real and substantial risk.

The effect of this liability on Lyon is not just the abstract possibility that something will go wrong and that Worthen will not be able to make its payments. Lyon has disclosed this liability on its balance sheet for all the world to see. Its financial position is affected substantially by the presence of this long-term debt, despite the offsetting presence of the building as an asset. To the extent that Lyon has used its capital in this transaction, it is less able to obtain financing for other business needs.

In concluding that there is this distinct element of economic reality in Lyon's assumption of liability, we are mindful that the characterization of a transaction for financial accounting purposes, on the one hand, and for tax purposes, on the other, need not necessarily be the same. Commissioner v. Lincoln Savings &

Loan Assn., 403 U.S. 345, 355 [ 27 AFTR 2d 71-1542] (1971); Old Colony R. Co. v. Commissioner,

284 U.S. 552, 562 [ 10 AFTR 786] (1932). Accounting methods or descriptions, without more, do not lend substance to that which has no substance. But in this case accepted accounting methods, as - 12 -

understood by the several parties to the respective agreements and as applied to the transaction by others, gave the transaction a meaningful character consonant with the form it was given. 14 Worthen was not allowed [pg. 78-1150] color> to enter into the type of transaction which the Government now urges to be the true substance of the arrangement. Lyon and Worthen cannot be said to have entered into the transaction intending that the interests involved were allocated in a way other than that associated with a sale-and-leaseback.

Other factors also reveal that the transaction cannot be viewed as nothing more than a mortgage agreement between Worthen and New York Life and a loan from Lyon to Worthen. There is no legal obligation between Lyon and Worthen representing the $500,000 "loan" extended under the Government's theory. And the assumed 6% return on this putative loan-required by the audit to be recognized in the taxable year in question-will be realized only when and if Worthen exercises its options.

The Court of Appeals acknowledged that the rents alone, due after the primary term of the lease and after the mortgage has been paid, do not provide the simple 6% return which, the Government urges, Lyon is guaranteed. 536 F.2d, at 752. Thus, if Worthen chooses not to exercise its options, Lyon is gambling that the rental value of the building during the last 10 years of the ground lease, during which the ground rent is minimal, will be sufficient to recoup its investment before it must negotiate again with Worthen regarding the ground lease. There are simply too many contingencies, including variations in the value of real estate, in the cost of money, and in the capital structure of Worthen, to permit the conclusion that the parties intended to enter into the transaction as structured in the audit and according to which the Government now urges they be taxed.

It is not inappropriate to note that the Government is likely to lose little revenue, if any, as a result of the shape given the transaction by the parties. No deduction was created that is not either matched by an item of income or that would not have been available to one of the parties if the transaction had been arranged differently. While it is true that Worthen paid Lyon less to induce it to enter into the transaction because Lyon anticipated the benefit of the depreciation deductions it would have as the owner of the building, those deductions would have been equally available to Worthen had it retained title to the building. The Government so concedes. Tr. of Oral Arg. 22-23. The fact that favorable tax consequences were taken into account by Lyon on entering into the transaction is no reason for disallowing those consequences. 15 We cannot ignore the reality that the tax laws affect the shape of nearly every business transaction. See Commissioner v. Brown, 380 U.S. 563, 579-580 [ 15 AFTR 2d 790] (1965) (Mr. Justice Harlan, concurring). Lyon is not a corporation with no purpose other than to hold title to the bank

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building. It was not created by Worthen or even financed to any degree by Worthen.

The conclusion that the transaction is not a simple sham to be ignored does not, of course, automatically compel the further conclusion that Lyon is entitled to the items claimed as deductions. Nevertheless, on the facts, this readily follows. As has been noted, the obligations on which Lyon paid interest were its

obligations alone and it is entitled to claim deductions therefore, under §163(a) of the 1954 Code, 26 U.S.C. §163.

[2] As is clear from the facts, none of the parties to this sale-and-leaseback was the owner of the building in any simple sense. But it is equally clear that the facts focus upon Lyon as the one whose capital was committed to the building and as the party, therefore, that was entitled to claim depreciation for the consumption of that capital. The Government has based its contention that Worthen should be treated as the owner on the assumption that throughout the term of the lease Worthen is acquiring an equity in the property. In order to establish the presence of that growing equity, however, the Government is forced to speculate that one of the options will be exercised and that, if it is not, this is only because the rentals for the extended term are a bargain. We cannot indulge [pg. 78-1151] color> in such speculation in view of the District Court's clear finding to the contrary. 16 We therefore conclude that it is Lyon's capital that is invested in the building according to the agreement of the parties, and it is Lyon that is entitled to

depreciation deductions, under §167 of the 1954 Code, 26 U.S.C. §167. Cf. United States v. Chicago

B. & Q. R. Co., 412 U.S. 401 [ 32 AFTR 2d 73-5042] (1973).

We recognize that the Government's position, and that taken by the Court of Appeals, is not without superficial appeal. One, indeed, may theorize that Frank Lyon's presence on the Worthen board of directors; Lyon's departure from its principal corporate activity into this unusual venture; the parallel between the payments under the building lease and the amounts due from Lyon on the New York Life mortgage; the provisions relating to condemnation or destruction of the property; the nature and presence of the several options available to Worthen; and the tax benefits, such as the use of double declining balance depreciation, that accrue to Lyon during the initial years of the arrangement, form the basis of an argument that Worthen should be regarded as the owner of the building and as the recipient of nothing more from Lyon than a $800,000 loan.

We, however, as did the District Court, find this theorizing incompatible with the substance and economic - 14 -

realities of the transaction; the competitive situation as it existed between Worthen and Union National Bank in 1965 and the years immediately following; Worthen's undercapitalization; Worthen's consequent inability, as a matter of legal restraint, to carry its building plans into effect by a conventional mortgage and other borrowing; the additional barriers imposed by the state and federal regulators; the suggestion, forthcoming from the state regulator, that Worthen possess an option to purchase; that the building be owned by an independent third party; the presence of several finance organizations seriously interested in participating in the transaction and in the resolution of Worthen's problem; the submission of formal proposals by several of those organizations; the bargaining process and period that ensued; the competitiveness of the bidding; the bona fide character of the negotiations; the three-party aspect of the transaction; Lyon's substantiality 17 and its independence from Worthen; the fact that diversification was Lyon's principal motivation; Lyon's being liable alone on the successive notes to City Bank and New York Life; the reasonableness, as the District Court found, of the rentals and of the option prices; the substantiality of the purchase prices; Lyon's not being engaged generally in the business of financing; the presence of all building depreciation risks on Lyon; the risk, borne by Lyon, that Worthen might default or fail, as other banks have failed; the facts that Worthen could "walk away" from the relationship at the end of the 25-year primary term, and probably would do so if the option price were more than the then current worth of the building to Worthen; the inescapable fact that if the building lease were not extended, Lyon would be the full owner of the building, free to do with it as it chose; Lyon's liability for the substantial ground rent if Worthen decides not to exercise any of its options to extend; the absence of any understanding between Lyon and Worthen that Worthen would exercise any of the purchase options; the nonfamily and nonprivate nature of the entire transaction; and the absence of any differential in tax rates and of special tax circumstances for one of the parties-all convince us that Lyon has far the better of the case. 18

In so concluding, we emphasize that we are not condoning manipulation by a taxpayer through arbitrary labels and dealings [pg. 78-1152] color>that have no economic significance. Such, however, has not happened in this case.

In short, we hold that where, as here, there is a genuine multiple-party transaction with economic substance which is compelled or encouraged by business or regulatory realities, is imbued with tax- independent considerations, and is not shaped solely by tax avoidance features that have meaningless labels attached, the Government should honor the allocation of rights and duties effectuated by the parties. Expressed another way, so long as the lessor retains significant and genuine attributes of the traditional lessor status, the form of the transaction adopted by the parties governs for tax purposes. What - 15 -

those attributes are in any particular case will necessarily depend upon its facts. It suffices to say that, as here, a sale-and-leaseback, in and of itself, does not necessarily operate to deny a taxpayer's claim for deductions. 19

The judgment of the Court of Appeals, accordingly, is reversed.

It is so ordered.

Mr. Justice WHITE dissents and would affirm the judgment substantially for the reasons stated in the

opinion in the Court of Appeals for the Eighth Circuit. 536 F.2d 746 [ 38 AFTR 2d 76-5060] (1976).

Judge: Mr. Justice STEVENS, dissenting.In my judgment the controlling issue in this case is the economic relationship between Worthen and petitioner, and matters such as the number of parties, their reasons for structuring the transaction in a particular way, and the tax benefits which may result, are largely irrelevant. The question whether a leasehold has been created should be answered by examining the character and value of the purported lessor's reversionary estate.For a 25-year period Worthen has the power to acquire full ownership of the bank building by simply repaying the amounts, plus interest, advanced by the New York Life Insurance Company and petitioner. During that period, the economic relationship among the parties parallels exactly the normal relationship between an owner and two lenders, one secured by a first mortgage and the other by a second mortgage. 1 If Worthen repays both loans, it will have unencumbered ownership of the property. What the character of this relationship suggests is confirmed by the economic value that the parties themselves have placed on the reversionary interest.All rental payments made during the original 25-year term are credited against the option repurchase price, which is exactly equal to the unamortized cost of the financing. The value of the repurchase option is thus limited to the cost of the financing, and Worthen's power to exercise the option is cost-free. Conversely, petitioner, the nominal owner of the reversionary estate, is not entitled to receive any value for the surrender of its supposed rights of ownersip. 2 Nor does it have any power to control Worthen's exercise of the option. 3 "It is fundamental that 'depreciation is not predicated upon ownership of property [pg. 78-1153] color>but rather upon an investment in property.' No such investment exists when payments of the purchase price in accordance with the design of the parties yield no equity to the purchaser." Estate of Franklin v. C. I. R., 544 F.2d 1045, 1049 [ 38 AFTR 2d 76-6164] (CA9 1976) (citations omitted and emphasis in original). Here, the petitioner has, in effect, been guaranteed that it will receive its original $500,000 plus accrued interest. But that is all. It incurs neither the risk of depreciation, 4 nor the benefit of possible appreciation. Under the terms of the sale-leaseback, it will stand in no better or worse position after the 11th year of the lease-when Worthen can first exercise its option to - 16 -

repurchase-whether the property has appreciated or depreciated. 5 And this remains true throughout the rest of the 25-year period.Petitioner has assumed only two significant risks. First, like any other lender, it assumed the risk of Worthen's insolvency. Second, it assumed the risk that Worthen might not exercise its option to purchase at or before the end of the original 25-year term. 6 If Worthen should exercise that right not to repay, perhaps it would then be appropriate to characterize petitioner as the owner and Worthen as the lessee. But speculation as to what might happen in 25 years cannot justify the present characterization of petitioner as the owner of the building. Until Worthen has made a commitment either to exercise or not to exercise its option, 7 I think the Government is correct in its view that petitioner is not the owner of the building for tax purposes. At present, since Worthen has the unrestricted right to control the residual value of the property for a price which does not exceed the cost of its unamortized financing, I would hold, as a matter of law, that it is the owner.I therefore respectfully dissent.

Worthen, as of June 30, 1967, had capital stock of $4 million and surplus of $5 million. During the period the building was under construction Worthen became a national bank subject to the supervision and control of the Comptroller of the Currency.

This arrangement appeared advisable and was made because purchases of materials by Worthen (which then had become a national bank) were not subject to Arkansas sales tax. See Ark. Stat. Ann. §84-1904(1) (Repl. 1960); First Agricultural Nat. Bank v. Tax Comm'n, 392 U.S. 339 (1968). Sales of the building elements to Lyon also were not subject to state sales tax, since they were sales of real estate. See Ark. Stat. Ann. §§84-1902(c) (Supp. 1977).

This, of course, is on the assumption that Worthen exercises its option to extend the building lease. If it does not, Lyon remains liable for the substantial rents prescribed by the ground lease. This possibility brings into sharp focus the fact that Lyon, in a very practical sense, is at least the ultimate owner of the building. If Worthen does not extend, the building lease expires and Lyon may do with the building as it chooses.

- 17 -

The Government would point out, however, that the net amounts payable by Worthen to Lyon during the building lease's extended terms, if all are claimed, would approximate the amount required to repay Lyon's $500,000 investment at 6% compound interest. Brief for United States 14.

These figures do not include uncontested adjustments not involved in this litigation.

Lyon here challenges this assertion on the grounds that it had the right and opportunities to sell the building at a greater profit at any time; the return to Lyon was not insubstantial and was attractive to a true investor in real estate; the 6% return was the minimum Lyon would realize if Worthen exercised one of its options, an event the District Court found highly unlikely; and Lyon would own the building and realize a greater return than 6% if Worthen did not exercise an option to purchase.

Lyon challenges this observation by pointing out that the District Court found the option prices to be the negotiated estimate of the parties of the fair market value of the building on the option dates and to be reasonable. App. 303,299.

Lyon asserts that this statement is true only with respect to the total destruction or taking of the building on or after December 1, 1980. Lyon asserts that it, not Worthen, would receive the excess above the mortgage balance in the event of total destruction or taking before December 1, 1980, or in the event of partial damage or taking at any time. App. 408-410, 411.

Lyon concedes the accuracy of this statement, but asserts that it does not justify the conclusion that Lyon served merely as a conduit by which mortgage payments would be transmitted to New York Life. It asserts that Lyon was the sole obligor on the New York Life note and would remain liable in the event of default by Worthen. It also asserts that the fact the rent was sufficient to amortize the loan during the

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primary term of the lease was a requirement imposed by New York Life, and is a usual requirement in most long-term loans secured by a long-term lease.

As to this statment, Lyon asserts that the Court of Appeals ignored Lyon's right to sell the building to another at any time; the District Court's finding that the options to purchase were not likely to be exercised; the uncertainty that Worthen would renew the lease for 40 years; Lyon's right to lease to anyone at any price during the last 10 years of the ground lease; and Lyon's continuing ownership of the building after the expiration of the ground lease.

In response to this, Lyon asserts that the District Court found that the benefits of occupancy Worthen will enjoy are common in most long-term real estate leases, and that the District Court found that Lyon had motives other than tax savings in entering into the transaction. It also asserts that the net cash after-tax benefit would be $312,220, not $1.5 million.

Other factors relied on by the Court of Appeals, 536 F.2d at 752, were the allocation of the investment credit to Worthen, and a claim that Lyon's ability to sell the building to a third party was "carefully circumscribed" by the lease agreements. The investment credit by statute is freely allocable between the

parties. §48(d) of the 1954 Code, 26 U.S.C. §48(d), and the Government has not pressed either of these factors before this Court.

New York Life required Lyon, not Worthen, to submit financial statements periodically. See Note Purchase Agreement App. 453-454, 458-459.

It may well be that the remedies available to New York Life against Lyon would be far greater than any remedy available to it against Worthen, which, as lessee, is liable to New York Life only through Lyon's - 19 -

assignment of its interest as lessor.

We are aware that accounting standards have changed significantly since 1968 and that the propriety of Worthen's and Lyon's methods of disclosing the transaction in question may be a matter for debate under these new standards. Compare Accounting Principles Board Opinion No. 5, Reporting of Leases in Financial Statements of Lessee (1964), and APB Opinion No. 7, Accounting for Leases in Financial Statements of Lessors (1966), with Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 13. Accounting for Leases (1976). See also Comptroller of the Currency, Banking Circular No. 95, November 11, 1977, instructing that national banks revise their financial statements in accord with FASB Standard No. 13. Standard No. 13, however, by its terms, states ¶78, that there are many instances where tax and financial accounting treatments diverge. Further, Standard No. 13 is nonapplicable with respect to a lease executed prior to January 1, 1977 (as was the Lyon- Worthen lease), until January 1, 1981. Obviously, Banking Circular No. 95 was not in effect in 1968 when the Lyon-Worthen lease was executed.

Then-existing pronouncements of the Internal Revenue Service gave Lyon very little against which to measure the transaction. The most complete statement on the general question of characterization of

leases as sales, Rev.Rul. 55-540, 1955-2 Cum. Bull. 39, by its terms dealt only with equipment leases. In that ruling it was stated that the Service will look at the intent of the parties at the time the agreement was executed to determine the proper characterization of the transaction. Generally, an intent to enter into a conditional sales agreement will be found to be present if (a) portions of the rental payments are made specifically applicable to an equity acquired by the lessee, (b) the lessee will acquire a title automatically after certain payments have been made, (c) the rental payments are a disproportionately large amount in relation to the sum necessary to complete the sale, (d) the rental payments are above fair rental value, (e) title can be acquired at a nominal option price, or (f) some portion of the rental payments are identifiable as interest. See also Rev. Rul. 60-122, 1960-1 Cum. Bull. 56; Rev. Rul. 72-543, 1972-2 Cum. Bull. 87.

The Service announced more specific guidelines, indicating under what circumstances it would answer requests for rulings on leverage leasing transactions, in Rev.Proc. 75-21, 1975-1 Cum. Bull. 715. In

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general, "[u]nless other facts and circumstances indicate a contrary intent," the Service will not rule that a lessor in a leveraged lease transaction is to be treated as the owner of the property in question unless (a) the lessor has incurred and maintains a minimal investment equal to 20% of the cost of the property, (b) the lessee has no right to purchase except at fair market value, (c) no part of the cost of the property is furnished by the lessee, (d) the lessee has not lent to the lessor or guaranteed any indebtedness of the lessor, and (e) the lessor must demonstrate that it expects to receive a profit on the transaction other than the benefits received solely from the tax treatment. These guidelines are not intended to be definitive, and it is not clear that they provide much guidance in assessing real estate transactions. See Rosenberg & Weinstein, Sale-Leasebacks: An Analysis of These Transactions After the Lyon Decision, 45 J. Tax 146, 147 n. 1 (1976).

Indeed, it is not inevitable that the transaction, as treated by Lyon and Worthen, will not result in more revenues to the Government rather than less. Lyon is gambling that in the first 11 years of the lease it will have income that will be sheltered by the depreciation deductions, and that it will be able to make sufficiently good use of the tax dollars preserved thereby to make up for the income it will recognize and pay taxes on during the last 14 years of the initial term of the lease and against which it will enjoy no sheltering deduction.

The general characterization of a transaction for tax purpose is a question of law subject to review. The particular facts from which the characterization is to be made are not so subject. See American Realty

Trust v. United States 498 F.2d 1194, 1198 [ 34 AFTR 2d 74-5308] (CA4 1974).

Lyon's consolidated balance sheet on December 31, 1968, showed assets of $12,225,612, and total stockholders' equity of $3,818,671. Of the assets, the sum of $2,674,290 represented its then investment in the Worthen Building. App. 587-588.

Thus, the facts of this case stand in contrast to many others in which the form of the transaction actually - 21 -

created tax advantages that, for one reason or another, could not have been enjoyed had the transaction

taken another form. See e.g. Sun Oil Co. v. Commissioner, 562 F.2d 258 [ 40 AFTR 2d 77-5737] (CA3 1977) (sale-and-leaseback of land between taxpayer and tax-exempt trust enabled the taxpayer to amortize, through its rental deductions, the cost of acquiring land not otherwise depreciable). Indeed, the arrangements in this case can hardly be labeled as tax avoidance techniques in light of the other arrangements being promoted at the time. See, e.g., Zeitlan, Tax Planning in Equipment-Leasing Shelters, 21 U. So. Cal. 1969 Tax Inst. 621; Marcus, Real Estate Purchase-Leasebacks as Secured Loans, 2 Real Estate L.J. 664 (1974).

See generally Commissioner v. Danielson, 378 F.2d 771 [ 19 AFTR 2d 1356] (CA3), cert. denied,

389 U.S. 858 (1967), and, on remand, 80 T.C. 782 (1968); Commissioner v. Levinson, 45 T.C. 380

(1966); World Publishing Co. v. Commissioner, 299 F.2d 614 [ 9 AFTR 2d 819] (CA8 1962);

Commissioner v. Northwest Acceptance Corp., 58 T.C. 836 (1972), aff'd, 800 F.2d 1222 [ 34 AFTR

2d 74-5600] (CA9 1974); Cubic Corp. v. United States, 541 F.2d 829 [ 38 AFTR 2d 76-5717] (CA9 1976).

"[W]here a fixed price, as in Frank Lyon Company, is designed merely to provide the lessor with a predetermined fixed return, the substantive bargain is more akin to the relationship between a debtor and creditor than between a lessor and lessee." Rosenberg and Weinstein, Sale-leasebacks: An Analysis of These Transactions After the Lyon decision, 45 Journal of Taxation 146, 149 (Sept. 1976).

It is worth noting that the proposals submitted by two other potential investors in the building, see ante, at 3, did contemplate that Worthen would pay a price above the financing costs for acquisition of the leasehold interest. For instance, Goldman, Sachs & Company proposed that, at the end of the lease's primary term, Worthen would have the option to repurchase the property for either its fair market value or 20% of its original cost, whichever was the greater. See Brief for the United States, at 8 n. 7. A repurchase option based on fair market value, since it acknowledges the lessor's equity interest in the

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property, is consistent with a lessor-lessee relationship. See Breece Veneer & Panel Co. v. Comm'r,

232 F.2d 319 [ 49 AFTR 895] (CA7 1956); LTV Corp., 63 T.C. 39, 50 (1974); see generally Comment, Sale and Leaseback Transactions, 52 N.Y.U.L. Rev. 672, 688-689, n. 117 (1977).

The situation in this case is thus analogous to that in Corliss v. Bowers, 281 U.S. 376 [ 8 AFTR 10910], where the Court held that the grantor of a trust who retains an unrestricted costfree power of revocation remains the owner of the trust assets for tax purposes. Worthen's power to exercise its repurchase option is similar; the only restraints upon it are those normally associated with the repayment of a loan, such as limitations on the timing of repayment and the amount due at the stated intervals.

Petitioner argues that it bears the risk of depreciation during the primary term of the lease, because the option price decreases over time. Brief for Petitioner, at 29-30. This is clearly incorrect. Petitioner will receive $500,000 plus interest, and no more or less, whether the option is exercised as soon as possible or only at the end of 25 years. Worthen, on the other hand, does bear the risk of depreciation, since its opportunity to make a profit from the exercise of its repurchase option hinges on the value of the building at the time.

After the 11th year of the lease, there are three ways that the lease might be terminated. The property might be condemned, the building might be destroyed by act of God, or Worthen might exercise its option to purchase. In any such event, if the property had increased in value, the entire benefit would be received by Worthen and petitioner would receive only its $500,000 plus interest. See Reply Brief for Petitioner, at 8-9, n. 2.

The possibility that Worthen might not exercise its option is a risk for petitioner because in that event petitioner's advance would be amortized during the ensuing renewal lease terms, totalling 40 years. Yet there is a possibility that Worthen would choose not to renew for the full 40 years or that the burdens of

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owning a building and paying a ground rental of $10,000 during the years 2034 through 2044 would exceed the benefits of ownership. Ante, at 18.

In this case, the lessee is not "economically compelled" to exercise its option. See American Realty

Trust v. United States, 498 F.2d 1194 [ 34 AFTR 2d 74-5308] (CA4 1974). Indeed, it may be more advantageous for Worthen to let its option lapse since the present value of the renewal leases is somewhat less than the price of the option to repurchase. See Brief for United States, at 40 n. 26. But whether or not Worthen is likely to exercise the option, as long as it retains its unrestricted cost-free power to do so, it must be considered the owner of the building. See Sun Oil Co. v. Comm'r, 562 F.2d

258, 267 [ 40 AFTR 2d 77-5737] (CA3 1977) (repurchase option enabling lessee's to acquire leased premises by repaying financing costs indicative of lessee's equity interest in those premises).

In effect, Worthen has an option to "put" the building to petitioner if it drops in value below $500,000 plus interest. Even if the "put" appears likely because of bargain lease rates after the primary terms, that would not justify the present characterization of petitioner as the owner of the building.

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Rev. Proc. 2001-28, 2001-1 CB 1156, 5/07/2001, IRC Sec(s). 167

Leveraged leases.

Headnote:

Leveraged leases.This procedure provides guidelines that the Service will use for advance ruling purposes in determining whether certain transactions purporting to be leases of property are, in fact, leases for federal income tax purposes. Rev. Procs. 75-21, 76-30, and 79-48 modified and superseded.

Full Text:

1. Purpose

This revenue procedure provides guidelines that the Internal Revenue Service will use for advance ruling purposes in determining whether certain transactions purporting to be leases of property are, in fact, leases for federal income tax purposes. This revenue procedure modifies and supersedes Rev. Proc. 75- 21, 1975-1 C.B. 715. Rev. Proc. 2001-29, 2001-19 I.R.B. 1160, sets forth the information and representations required to be furnished by taxpayers in requests for advance rulings on leveraged lease transactions within the meaning of this revenue procedure.

2. Background

Section 4.01 of Rev. Rul. 55-540, 1955-2 C.B. 39, sets forth certain conditions that, in the absence of compelling factors of contrary implication, would warrant treatment of a transaction for federal income tax purposes as a conditional sales contract rather than a lease of equipment. See Rev. Rul. 55-541,

1955-2 C.B. 19; Rev. Rul. 55-542, 1955-2 C.B. 59; and Rev. Rul. 57-371, 1957-2 C.B. 214, for examples of transactions determined to be sales rather than leases. See Rev. Rul. 60-122, 1960-1

C.B. 56, for two transactions, one considered a lease and the other considered a sale. See also Rev. Rul. 72-408, 1972-2 C.B. 86, concerning the federal income tax consequences of a transaction cast in the form of a lease subsequently determined to be a sale.

3. Scope

This revenue procedure applies in the case of transactions commonly called "leveraged leases." Such leases generally involve three parties: a lessor, a lessee and a lender to the lessor. In general, these leases are net leases, the lease term covers a substantial part of the useful life of the leased property, and the lessee's payments to the lessor are sufficient to discharge the lessor's payments to the lender.

The guidelines set forth in this revenue procedure clarify the circumstances in which an advance ruling recognizing the existence of a lease ordinarily will be issued solely to assist taxpayers in preparing ruling requests and the Service in issuing advance ruling letters as promptly as practicable. These guidelines do not define, as a matter of law, whether a transaction is or is not a lease for federal income tax purposes and are not intended to be used for audit purposes.

4. Guidelines

Unless other facts and circumstances indicate a contrary intent, for advance ruling purposes only, the Service will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction a valid lease if all the guidelines described below are met. If all of these guidelines are not met, the Service nevertheless will consider ruling in appropriate cases on the basis of all the facts and circumstances.

.01. Minimum unconditional "at risk" investment

.01. The lessor must have made a minimum unconditional "at risk" investment in the property (the "Minimum Investment") when the lease begins, must maintain such Minimum Investment throughout the entire lease term, and such Minimum Investment must remain at the end of the lease term. The Minimum Investment must be an equity investment (the "Equity Investment") that, for purposes of this revenue procedure, includes only consideration paid, and personal liability incurred, by the lessor to purchase the property. The net worth of the lessor must be sufficient to satisfy any such personal liability. In

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determining the lessor's Minimum Investment, the following rules will be applied:

(1) Initial Minimum Investment. When the property is first placed in service or use by the lessee, the Minimum Investment must be equal to at least 20 percent of the cost of the property. The Minimum Investment must be unconditional. That is, after the property is first placed in service or use by the lessee, the lessor must not be entitled to a return of any portion of the Minimum Investment through any arrangement, directly or indirectly, with the lessee, a shareholder of the lessee, or any party

related to the lessee (within the meaning of section 318 of the Internal Revenue Code) (the "Lessee Group"). The lease transaction may include an arrangement with someone other than the foregoing parties that provides for such a return to the lessor if the property fails to satisfy written specifications for the supply, construction, or manufacture of the property.

(2) Maintenance of Minimum Investment. The Minimum Investment must remain equal to at least 20 percent of the cost of the property at all times throughout the entire lease term. That is, the excess of the cumulative payments required to have been paid by the lessee to or for the lessor over the cumulative disbursements required to have been paid by or for the lessor in connection with the ownership of the property must never exceed the sum of (i) any excess of the lessor's initial Equity Investment over 20 percent of the cost of the property plus (ii) the cumulative pro rata portion of the projected profit from the transaction (exclusive of tax benefits).

(3) Residual Investment. The lessor must represent and demonstrate that an amount equal to at least 20 percent of the original cost of the property is a reasonable estimate of what the fair market value of the property will be at the end of the lease term. For this purpose, fair market value must be determined (i) without including in such value any increase or decrease for inflation or deflation during the lease term, and (ii) after subtracting from such value any cost to the lessor for removal and delivery of possession of the property to the lessor at the end of the lease term. In addition, the lessor must represent and demonstrate that a remaining useful life of the longer of one year or 20 percent of the originally estimated useful life of the property is a reasonable estimate of what the remaining useful life of the property will be at the end of the lease term.

.02. Lease Term and Renewal Options

.02. For purposes of this revenue procedure, the lease term includes all renewal or extension periods except renewals or extensions at the option of the lessee at fair rental value at the time of such renewal or extension. - 3 -

.03. Purchase and Sale Rights

.03. No member of the Lessee Group may have a contractual right to purchase the property from the lessor at a price less than its fair market value at the time the right is exercised. When the property is first placed in service or use by the lessee, the lessor may not have a contractual right (except as provided in section 4.01(1) above) to cause any party to purchase the property. The lessor must also represent that it does not have any present intention to acquire such a contractual right. The effect of any such right acquired at a subsequent time will be determined at that time based on all the facts and circumstances. A provision that permits the lessor to abandon the property to any party will be treated as a contractual right of the lessor to cause such party to purchase the property.

.04. Investment by Lessee

.04.

(1) Permitted Investments. Except as otherwise specifically provided in paragraphs (2) and (3) below, no part of the cost of the property or the cost of improvements, modifications, or additions to the property ("Improvements"), may be furnished by any member of the Lessee Group. Property that could itself be separately leased in a transaction eligible for an advance ruling under this revenue procedure does not constitute an Improvement. For example, assume X leases a chemical plant from Y. Assume further, that after the plant is placed in service, X wishes to erect and own additional tanks that will be used to store the output of the plant. Although the tanks will be used in conjunction with X's plant, they constitute separate items of property that could be used in conjunction with other facilities and therefore do not constitute limited use property under section 5.02 of this revenue procedure. If a third party owned the tanks, it could lease them to X in a transaction eligible for an advance ruling. Thus, the tanks do not constitute an Improvement. (2) Severable Improvements. A member of the Lessee Group may furnish amounts to pay for the cost of an Improvement that is owned by a member of the Lessee Group, and is readily removable without causing material damage to the leased property ("Severable Improvement"), provided that such Improvement is not subject to a contract or option for purchase or sale between the lessor and any member of the Lessee Group at a price other than fair market value at the time of such purchase or sale. At the commencement of the term of the lease, a Severable Improvement to the leased property must not be required in order to render the leased property complete for its intended use by the lessee. However, property will be considered to be complete even though the lessee may add as - 4 -

Severable Improvements ancillary items of equipment of a kind that customarily are selected and furnished by purchasers or lessees of property of the kind subject to the lease. Thus, for example, to the extent an item of equipment such as the boiler for a leased, steam powered vessel otherwise constituted a Severable Improvement, the vessel would not, for purposes of this section, be considered complete without the boiler. On the other hand, a leased airplane would be considered complete without items of equipment such as aviation electronics and a leased vessel would be considered complete without such ancillary items such as radar, lines, or readily removable fittings, and will be eligible for an advance ruling even though such items of equipment are to be added by the lessee. (3) Nonseverable Improvements. A member of the Lessee Group may furnish amounts to pay for the cost of Improvements that are not readily removable without causing material damage to the property ("Nonseverable Improvements") if they are described in subparagraph (a) below and the conditions of subparagraph (b) are met. (a) A Nonseverable Improvement is described in this subparagraph if either: (i) it is furnished in order to comply with health, safety, or environmental standards of any government or governmental authority having relevant jurisdiction (or any industry-wide standard recognized by such government or governmental authority);

(ii) it does not increase the productivity (or capacity) of the leased property to more than 125 percent of its productivity (or capacity) when first placed in service, or modify the leased property for a materially different use. For this purpose, separate units that are subject to one lease (e.g., ten boxcars subject to one lease) are each considered "the leased property;" or

(iii) the cost of the Nonseverable Improvement, when added to the cost of Nonseverable Improvements that previously have been made to the property (other than those described in subparagraph (i) above) does not exceed 10 percent of the cost of the property. For purposes of this subparagraph, the cost of a Nonseverable Improvement will be considered to be the actual cost multiplied by a fraction, the numerator of which is the Implicit Price Deflator for Fixed Nonresidential Investment (published by the Department of Commerce in the Survey of Current Business) for the year in which the property was placed in service, and the denominator of which is the Implicit Price Deflator for Fixed Nonresidential Investment for the year in which the Improvement is made. As indicated in section 4.04(5) of this revenue procedure, ordinary maintenance and repair does not constitute an Improvement.

(b) the following conditions must be satisfied: (i) At the commencement of the term of the lease, a Nonseverable Improvement must not be required in order to complete the property for its intended - 5 -

use by the lessee; (ii) The Nonseverable Improvement must not cause the leased property to become limited use property within the meaning of section 5.02 of this revenue procedure; and (iii) The furnishing of the cost of the Nonseverable Improvement must not constitute an equity investment by a member of the Lessee Group in the property. For this purpose, the lessee's right to use the Improvement during the lease term in which such improvement is made does not constitute an equity investment in the property. The furnishing of such cost will be considered an equity investment in the property if a member of the Lessee Group may receive compensation, directly or indirectly, for its interest in such Nonseverable Improvement. A member of the Lessee Group will be regarded as having made an equity investment in the property if, for example: - the lessor is obligated to purchase the Nonseverable Improvement or reimburse a member of the Lessee Group for the cost or the fair market value of the Nonseverable Improvement;

- any option price or renewal rental rate to a member of the Lessee Group is adjusted downward to reflect any portion of the cost or fair market value of the Nonseverable Improvement; or

- the lessor is obligated to share with a member of the Lessee Group a portion of the proceeds of any sale or lease of the property to a third party.

(4) Cost Overruns and Modifications. If the cost of property exceeds the estimate on which the lease was based, the lease may provide for adjustments of rent to compensate the lessor for such additional cost. (5) Maintenance and Repair. If the lease requires the lessee to maintain and keep the property in good repair during the term of the lease, ordinary maintenance and repairs performed by a member of the Lessee Group will not constitute an Improvement.

.05. No Lessee Loans or Guarantees

.05. No member of the Lessee Group may lend to the lessor any of the funds necessary to acquire the property, or guarantee any indebtedness created in connection with the acquisition of the property by the lessor. A guarantee by any member of the Lessee Group of the lessee's obligation to pay rent, properly maintain the property, or pay insurance premiums or other similar conventional obligations of a net lease - 6 -

does not constitute a guarantee of the indebtedness of the lessor.

.06. Profit Requirement

.06. The lessor must represent and demonstrate that it expects to receive a profit from the transaction, apart from the value of or benefits obtained from the tax deductions, allowances, credits, and other tax attributes arising from such transaction. This requirement is met if-

(1) Overall Profit. The aggregate amount required to be paid by the lessee to or for the lessor over the lease term plus the value of the residual investment referred to in section 4.01(3) of this revenue procedure exceed an amount equal to the sum of the aggregate disbursements required to be paid by or for the lessor in connection with the ownership of the property and the lessor's Equity Investment in the property, including any direct costs to finance the Equity Investment; and (2) Positive Cash Flow. The aggregate amount required to be paid to or for the lessor over the lease term exceeds by a reasonable amount the aggregate disbursements required to be paid by or for the lessor in connection with the ownership of the property.

5. Other Considerations

.01. Uneven Rent Test.

.01. Leveraged lease transactions that satisfy the guidelines set forth in section 4 of this revenue procedure and that contain uneven rent payments may be subject to section 467 and the regulations thereunder relating to the accounting treatment for certain leases with prepaid or deferred rent. In addition, section 1.467-3(c)(4) of the Income Tax Regulations provides an uneven rent test. A lease meeting this uneven rent test will not be treated as a disqualified leaseback or long-term agreement for purposes of section 467. How the lease is treated under section 467, including whether or not the uneven rent test of section 1.467-3(c)(4) is met, will not affect the ability of a taxpayer to obtain an advance ruling under this revenue procedure.

.02. Limited Use Property. - 7 -

.02.

(1) In General.Section 4.01(3) of this revenue procedure requires the lessor to represent and demonstrate certain facts relating to the estimated fair market value and estimated remaining useful life of the property at the end of the lease term. This requirement is intended, in part, to assure that the purported lessor has not transferred the use of the property to the purported lessee for substantially its entire useful life. In the case of such "limited use" property, at the end of the lease term there will probably be no potential lessees or buyers other than members of the Lessee Group. As a result, the lessor of limited use property will probably sell or rent the property to a member of the Lessee Group, thus enabling the Lessee Group to enjoy the benefits of the use or ownership of the

property for substantially its entire useful life. See Rev. Rul. 55-541, 1955-2 C.B. 19, for an example of a transaction in which property was determined to be leased for substantially its entire useful life and the conclusion that such a transaction transfers equitable ownership. Accordingly, the Service will not issue advance rulings concerning whether certain transactions purporting to be leases of property are, in fact, leases for federal income tax purposes when the property is limited use property. (2) Examples. The following examples illustrate the types of property the Service considers to be limited use property, and the types of property the Service does not consider to be limited use property. (a) X builds a masonry smokestack attached to a masonry warehouse building owned by Y, and leases the smokestack to Y for use as an addition to the heating system of the warehouse. The lease term is 15 years; the smokestack has a useful life of 25 years, and the warehouse has a remaining useful life of 25 years. It would not be commercially feasible to disassemble the smokestack at the end of the lease term and reconstruct it at a new location. The smokestack is considered to be limited use property.

(b) X builds a complete chemical production facility on land owned by Y and leases the facility to Y, a manufacturer of chemicals. The lease term is 24 years, and the facility has a useful life of 30 years. The land is leased to X pursuant to a ground lease for a term of 30 years. The technical "know-how" and trade secrets Y possesses are necessary elements in the commercial operation of the facility. At the time the lease is entered into, no person who is not a member of the lessee group possesses the technical "know-how" and trade secrets necessary for the commercial operation of the facility. The taxpayers submit to the Service the written opinion of a qualified expert stating it is probable that by the expiration of the lease term of the facility third parties who are potential purchasers or lessees of the facility will have independently developed such "know-how" and trade secrets. The facility is

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considered to be limited use property. In reaching this conclusion, the Service will not take into account such expert opinion because such opinions are too speculative for advance ruling purposes. (c) The facts are the same as in example (b) except X has an option, exercisable at the end of the lease term of the facility, to purchase from Y the "know-how" and trade secrets necessary for the commercial operation of the facility, and it would be commercially feasible at the end of such lease term for X to exercise the option and operate the facility itself. The facility is not considered to be limited use property. (d) The facts are the same as in example (b) except it would be commercially feasible for the lessor at the end of the lease term to make certain structural modifications of the facility that would make the facility capable of being used by persons not possessing any special technical "know-how" or trade secrets. Furthermore, if such modifications were made, it would be commercially feasible, at the end of the lease term, for a person who is not a member of the lessee group to purchase or lease the facility from X. The facility is not considered to be limited use property.

(e) X builds an electrical generating plant on land owned by Y and leases the plant to Y. The lease term is 40 years, and the plant has an estimated useful life of 50 years. The land is leased to X pursuant to a ground lease for a term of 50 years. The plant is adjacent to a fuel source that it is estimated will last for at least 50 years. Access to this fuel source is necessary for the commercial operation of the plant, and Y has recently obtained the contractual right to acquire all fuel produced from the source for 50 years. Y will use the plant to produce and generate electrical power for sale to a city located 500 miles away. The plant is synchronized into a power grid that makes the sale of electrical power to a number of potential markets commercially feasible. It would not be commercially feasible to disassemble the plant and reconstruct it at a new location. The electrical generating plant is considered to be limited use property because access to the fuel source held exclusively by Y is necessary for the commercial operation of the plant. (f) The facts are the same as in example (e) except X has an option, exercisable at the end of the lease term of the plant, to acquire from Y the contractual right to acquire all fuel produced from the fuel source for the 10-year period commencing at the end of such lease term. It would be commercially feasible at the end of such lease term for X to exercise this option. Furthermore, it would be commercially feasible, at the end of such lease term, for a person who is not a member of the lessee group to purchase the contractual right to the fuel from X for an amount equal to the option price and purchase or lease the plant from X. The plant is not considered to be limited use property.

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6. Effect On Other Documents

Rev. Proc. 75-21, 1975-1 C.B. 715, Rev. Proc. 76-30, 1976-2 C.B. 647, and Rev. Proc. 79-48, 1979-2 C.B. 529, are modified and, as modified, are superseded.

7. Effective Date

This revenue procedure is effective May 7, 2001.

8. Drafting Information

The principal author of this revenue procedure is Edward Schwartz of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Schwartz at (202) 622-4960 (not a toll-free call).

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Revenue Procedures

Rev. Proc. 2001-29, 2001-1 CB 1160, 5/07/2001, IRC Sec(s). 167

Leveraged leases.

Headnote:

This procedure sets forth the information and representations required to be furnished by taxpayers in requests for advance rulings on leveraged lease transactions within the meaning of Rev. Proc. 2001-28. Rev. Procs. 75-28 and 79-48 modified and superseded.

Full Text:

1. Purpose

This revenue procedure sets forth the information and representations required to be furnished by taxpayers in requests for advance rulings on leveraged lease transactions within the meaning of Rev. Proc. 2001-28, 2001-19 I.R.B. 1156 Rev. Proc. 2001-28 provides guidelines to be used for advance ruling purposes in determining whether such a transaction is, in fact, a valid lease for federal income tax purposes. The specific terms used in this revenue procedure are defined in Rev. Proc. 2001-28.

2. Background

.01. The checklist set forth in this revenue procedure is designed to ensure the inclusion and order of presentation of necessary information in the initial ruling request so that the Internal Revenue Service can more promptly and efficiently process the request. However, since the information necessary for the issuance of a ruling with regard to any particular transaction depends upon all the facts and circumstances of that case, information in addition to that outlined in the checklist may be required with respect to that transaction.

.02. In view of the complexity of a typical leveraged lease transaction and the voluminous nature of the related documentation, the Service cannot accept the responsibility for raising or considering issues arising out of such provisions that are not specifically brought to its attention.

3. General Requirements

.01. The lessor, the lessee, and any other party with an interest in the leasing transaction for which a specific ruling is requested must join in the ruling request.

.02. The ruling request must include a summary statement of the facts as described in section 8 of Rev. Proc. 2001-1, 2001-1 I.R.B. 1 (or its successor).

.03. In addition to the information and documents required by section 8 of Rev. Proc. 2001-1, the ruling request must include detailed information required by section 4 of this revenue procedure. If the information requested is not applicable to the parties or to the transaction, an express statement to that effect is required. The response to each item of information requested must include a reference to the page number of any relevant document containing the information that supports the response. Furthermore, portions of the relevant documents supporting a particular response should be underscored or otherwise highlighted and cross-referenced to the appropriate subsection of section 4 of this revenue procedure. All parties joining in the request for ruling are jointly responsible for responses to each item of information requested by section 4 of this revenue procedure, with the exception of section 4.02 for which only the lessor is responsible.

.04. The lessor must also submit copies of any offering circular, prospectus, economic analysis, or other document used to induce the lessor's investment in the leased property (the "Property"). These documents must include an analysis of the projected cash flow to the lessor from the lease transaction including the projected benefits from the tax attributes thereof.

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4. Specific Information Required

.01. In general

.01.

(1) Describe in detail the type and quantity of the Property. (2) Identify and describe all parties to the leveraged lease transaction, their respective interests in such transaction, and the relationships that exist between or among such parties. (3) Submit a diagram of the transaction showing (a) the parties to the transaction, (b) the succession of ownership to the Property, and (c) the source, amounts, and flow of the funds used to acquire the

Property (total acquisition cost within the meaning of section 1012 of the Internal Revenue Code). (4) Indicate whether the Property is to be temporarily or permanently affixed to or installed on or in land, buildings, or other property. If so, indicate who will own such land, buildings, or other property.

(5) Indicate whether the Property is new, reconstructed, used, or rebuilt. (See sections 1.48-2 and

1.48-3 of the Income Tax Regulations; Rev. Rul. 68-111, 1968-1 C-B. 29, and Rev. Rul. 70- 135, 1970-1 C.B. 10.)

(6) Indicate when, where, and how the Property will be, or has been, first placed in service or use.

.02. Minimum Unconditional At Risk Investment

.02. The lessor must:

(1) Indicate the total acquisition cost (within the meaning of section 1012) of the Property. (2) Indicate when and in what amounts the lessor did or will make its Equity Investment or incur personal Hability for such Equity Investment. (3) Indicate the conditions under which the lessor would be entitled to a return of any portion of its Equity Investment or would be released from any personal liability for such Equity Investment. (4) Submit a representation of the net worth of the lessor and financial data to support the representation, including, for example, audited balance sheets or unaudited balance sheets with a representation that the latter are prepared in accordance with generally accepted accounting principles.

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(5) Submit an analysis demonstrating that the lessor's Equity Investment will remain equal to at least 20 percent of the cost of the Property at all times throughout the lease term. This analysis must demonstrate that throughout the lease term the items designated as (a), (b), (c), and (d) below solve the formula "(a)-(b) never exceeds (c) + (d)." (a) The projected cumulative payments required to be paid by the lessee to or for the lessor.

(b) The projected cumulative disbursements required to be paid by or for the lessor in connection with the ownership of the Property, excluding the lessor's initial Equity Investment, but including any direct costs to finance tile Equity Investment. (c) The excess of the lessor's initial Equity Investment over 20 percent of the cost of the Property.

(d) A cumulative pro rata portion of the projected profits from the transaction (exclusive of tax benefits). Profit for this purpose is the excess of the sum of (i) the amounts required to be paid by the lessee to or for the lessor over the lease term plus (ii) the value of the residual investment referred to in section 4.01(3) of Rev. Proc. 2001-28, over the aggregate disbursements required to be paid by or for the lessor in connection with the ownership of the Property, including the lessor's initial Equity Investment and any direct costs to finance the Equity Investment

(6) Furnish an opinion, from a qualified expert who has professional knowledge of the type of property subject to the lease, regarding: (a) the fair market value of the Property at the end of the lease term, determined in accordance with section 4.01(3) of Rev. Proc. 2001-28, and the manner in which such fair market value was determined;

(b) the cost to the lessor, if any, of the removal and delivery of possession of the Property to the lessor at the end of the lease term; and

(c) the remaining useful life of the Property at the end of the lease term, and the manner in which such useful life was determined.

.03. Lease Term and Renewal Options

.03. Indicate the period for which the Property will be leased initially, if there are any provisions for the renewal or extension of such period, and, if so, on what terms.

.04. Purchase and Sale Rights

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.04.

(1) Indicate whether any member of the Lessee Group or any other party has a contractual obligation or right to purchase all or any part of the Property at any time, and, if so, when, under what conditions, and at what price. (2) Indicate whether the lessor or any other party has a contractual right to cause any party to purchase the Property, and if so, when and under what conditions. (3) Indicate whether the lessor, a shareholder of the lessor, or a party related to the lessor (within the

meaning of section 318), or any other party who has joined in the request for a ruling has any present intention to acquire a contractual right to cause any party to purchase or sell the Property, and, if so, when and under what conditions.

(4) Indicate whether the lessor may abandon the Property to any party at any time, and if so, when, to whom, and under what conditions.

.05. No Investment by Lessee

.05.

(1) Indicate whether any member of the Lessee Group may be required to furnish any part of the cost of the Property, and if so, when and under what conditions.

(2) Submit a representation that at the commencement of the term of the lease neither a Nonseverable Improvement, nor a Severable Improvement (other than a Severable Improvement of a kind customarily furnished by purchasers or lessees of property of the kind subject to the lease) is required in order to complete the property for its intended use by the lessee. (3) If Severable Improvements may be made to the Property, indicate who will own the Severable Improvements and identify the parties who will provide the funds necessary to purchase them. (4) Indicate whether any Severable Improvement is to be the subject of a contract or option for purchase or sale, and if so, describe the contract or option terms. (5) If Nonseverable Improvements may be made to the Property, identify the parties who will provide the funds necessary to purchase them.

(6) Indicate whether a member of the Lessee Group may receive compensation, directly or indirectly, for its interest in any Nonseverable Improvement

(7) Indicate whether the lease states that the addition of any Nonseverable Improvement will not

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cause the Property to become limited use property. (8) Indicate whether a member of the Lessee Group may provide the cost of a Nonseverable Improvement that is not described in one of the Subparagraphs of section 4.04(3)(a) of Rev. Proc. 2001-28. (9) Indicate whether the lease (or any document or other agreement) requires a member of the Lessee Group either to make a specific Nonseverable Improvement, or to make Nonseverable Improvements of a specific-value or minimum value. (10) Indicate whether the transaction contains any cost overrun provisions, who must pay the cost overrun, and whether the lease provides for an adjustment to rents to compensate the lessor for any additional cost incurred because of cost overruns.

(11) If a member of the Lessee Group may furnish amounts to pay for the cost of a Nonseverable Improvement, indicate which subparagraph of section 4.04(3)(a) of Rev. Proc. 2001-28 describes the Nonseverable Improvement.

.06. No Lessee Loans or Guarantees

.06.

(1) Indicate whether any member of the Lessee Group will guarantee an indebtedness incurred in connection with the acquisition of the Property by the lessor and, if so, under what terms and conditions.

(2) Indicate whether any member of the Lessee Group directly or indirectly made or will make any other guarantees as a part or result of the lease transaction. If so, describe such guarantees.

.07. Profit Requirement

.07.

(1) Submit an analysis demonstrating that the lessor will receive a profit from the transaction exclusive of benefits from the tax attributes thereof. This analysis should demonstrate that the items identified as (a), (b), and (c) below will solve the formula "(a) + (b) exceed (c)." (a) The projected aggregate payments required to be paid by the lessee to or for the lessor over the lease term.

(b) The value of the residual investment described in section 4.01(3) of Rev. Proc. 2001-28. - 6 -

(c) The projected sum of the aggregate disbursements required to be paid by or for the lessor in connection with the ownership of the Property, including the lessor's initial Equity Investment, and any direct costs to finance the Equity Investment.

(2) Submit an analysis demonstrating that the lessor will have a projected positive cash flow from the lease transaction. This analysis must contain the following information in order to demonstrate that the items identified as (a) and (b) will solve the formula "(a) exceeds (b) by a reasonable minimum amount" (a) The projected aggregate payments required to be paid by the lessee to or for the lessor over the lease term. (b) The projected aggregate disbursements required to be paid by or for the lessor in connection with the ownership of the Property, excluding the lessor's initial Equity Investment, but including any direct costs to finance the Equity Investment.

.08. Other Considerations: Limited Use Property

.08.

(1) Indicate whether the Property is expected to be useful or usable by the lessor at the end of the lease term and capable of continued leasing or transfer to any party. If such a representation is made, demonstrate its commercial feasibility.

(2) Indicate whether the Property would be useful or usable at the end of the lease term by a party other than a member of the Lessee Group, and if so, describe such use.

(3) Indicate whether the Property needs to be dismantled, disconnected, or removed from any site on which it was placed or installed in order for possession thereof to be returned to the lessor at the end of the lease term. If so: (a) Indicate whether and how such dismantling, disconnection, or removal will affect the value of the Property for the purpose for which it was originally intended to be used, and (b) Demonstrate the commercial feasibility of reassembling, reconnecting, or installing the Property at another location.

.09. Other

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.09.

(1) Set forth the details of the repayment of the portion of the total acquisition cost borrowed by the lessor (debt service), including an analysis of the anticipated repayment of principal and interest on such debt by the lessor. (2) List and explain all provisions of the lease transaction relating to indemnities, termination, obsolescence, casualty, stipulated casualty value, and insurance. (3) State that if the Service rules that the lessor is the owner of the Property for federal income tax purposes at the time that the Property is first placed in service or use, the lessee will not claim that it is such an owner at such time.

5. Other Instructions

Documents that have been submitted with the request for an advance ruling may, as indicated below, be amended by the parties, prior to the date on which the Property is first placed in service or use. A complete explanation of the changes must be submitted together with specific references to both the original and amended documents. If, as a result of the amended documents, the responses required by section 4 of this revenue procedure are modified, the revised responses must be brought to the attention of the Service in such a fashion as to be readily understandable. In situations where the transaction is materially revised by the amendments, the original request for advance ruling, together with all submissions including the amended documents, will be considered by the Service to be a new request for advance ruling received on the date that it receives the amended documents. The Service ordinarily will not rule on the consequences of a proposed amendment that purports to relate back to the time when the Property was first placed in service, or purports to affect the issue of the ownership of the Property at that time.

6. Effect on Other Documents

Rev. Proc. 75-28, 1975-1 C.B. 752, and Rev. Proc. 79-48, 1979-2 C.B. 529, are modified, and as modified, are superseded.

7. Paperwork Reduction Act

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The collections of information contained in this revenue procedure have been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act (44

U.S.C. section 3507) under control number 1545-1738.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collection of information is contained in section 4 of this revenue procedure. This information is required to establish the economic substance of the transaction and its bona fides as a true lease. The likely respondents are individual taxpayers and corporations.

The estimated total annual reporting burden is 800 hours.

The estimated annual burden per respondent will vary from 60 hours to 100 hours, depending on individual circumstances, with an estimated average of 80 hours. The estimated number of respondents is 10.

The estimated annual frequency of responses is on occasion.

Books and records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

8. Effective Date

This revenue procedure is effective May 7, 2001.

9. Drafting Information

The principal author of this revenue procedure is Edward Schwartz of the Office of Associate Chief Counsel (income Tax and Accounting). For further information regarding this revenue procedure, contact ML Schwartz at (202) 622-4960 (not a toll-free call).

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Internal Revenue Code

§ 467 Certain payments for the use of property or services.

(a) Accrual method on present value basis.

In the case of the lessor or lessee under any section 467 rental agreement, there shall be taken into account for purposes of this title for any taxable year the sum of-

(1) the amount of the rent which accrues during such taxable year as determined under subsection (b) , and

(2) interest for the year on the amounts which were taken into account under this subsection for prior taxable years and which are unpaid.

(b) Accrual of rental payments.

(1) Allocation follows agreement.

Except as provided in paragraph (2) , the determination of the amount of the rent under any section 467 rental agreement which accrues during any taxable year shall be made-

(A) by allocating rents in accordance with the agreement, and

(B) by taking into account any rent to be paid after the close of the period in an amount determined under regulations which shall be based on present value concepts.

(2) Constant rental accrual in case of certain tax avoidance transactions, etc.

In the case of any section 467 rental agreement to which this paragraph applies, the portion of the rent which accrues during any taxable year shall be that portion of the constant rental amount with respect to such agreement which is allocable to such taxable year.

(3) Agreements to which paragraph (2) applies.

Paragraph (2) applies to any rental payment agreement if-

(A) such agreement is a disqualified leaseback or long-term agreement, or

(B) such agreement does not provide for the allocation referred to in paragraph (1)(A) .

(4) Disqualified leaseback or long-term agreement.

For purposes of this subsection , the term "disqualified leaseback or long-term agreement" means any section 467 rental agreement if-

(A) such agreement is part of a leaseback transaction or such agreement is for a term in excess of 75 percent of the statutory recovery period for the property, and

(B) a principal purpose for providing increasing rents under the agreement is the avoidance of tax imposed by this subtitle.

(5) Exceptions to disqualification in certain cases.

The Secretary shall prescribe regulations setting forth circumstances under which agreements will not be treated as disqualified leaseback or long-term agreements, including circumstances relating to-

(A) changes in amounts paid determined by reference to price indices,

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(B) rents based on a fixed percentage of lessee receipts or similar amounts,

(D) changes in amounts paid to unrelated 3rd parties.

(1) In general.

If-

(A) the lessor under any section 467 rental agreement disposes of any property subject to such agreement during the term of such agreement, and

(B) such agreement is a leaseback or long-term agreement to which paragraph (2) of subsection (b) did not apply,

the recapture amount shall be treated as ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle.

(2) Recapture amount.

For purposes of paragraph (1) , the term "recapture amount" means the lesser of-

(A) the prior understated inclusions, or - 3 -

(B) the excess of the amount realized (or in the case of a disposition other than a sale, exchange, or involuntary conversion, the fair market value of the property) over the adjusted basis of such property.

The amount determined under subparagraph (B) shall be reduced by the amount of any gain treated as ordinary income on the disposition under any other provision of this subtitle.

(3) Prior understated inclusions.

For purposes of this subsection , the term "prior understated inclusion" means the excess (if any) of-

(A) the amount which would have been taken into account by the lessor under subsection (a) for periods before the disposition if subsection (b)(2) had applied to the agreement, over

(B) the amount taken into account under subsection (a) by the lessor for periods before the disposition.

(4) Leaseback or long-term agreement.

For purposes of this subsection , the term "leaseback or long-term agreement" means any agreement described in subsection (b)(4)(A) .

(5) Special rules.

Under regulations prescribed by the Secretary-

(A) exceptions similar to the exceptions applicable under section 1245 or 1250 (whichever is

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appropriate) shall apply for purposes of this subsection ,

(B) any transferee in a disposition excepted by reason of subparagraph (A) who has a transferred basis in the property shall be treated in the same manner as the transferor, and

(C) for purposes of sections 170(e) and 751(c) , amounts treated as ordinary income under this section shall be treated in the same manner as amounts treated as ordinary income under section 1245 or 1250 .

(d) Section 467 rental agreements.

(1) In general.

Except as otherwise provided in this subsection , the term " section 467 rental agreements" means any rental agreement for the use of tangible property under which-

(A) there is at least one amount allocable to the use of property during a calendar year which is to be paid after the close of the calendar year following the calendar year in which such use occurs, or

(B) there are increases in the amount to be paid as rent under the agreement.

(2) Section not to apply to agreements involving payments of $250,000 or less.

This section shall not apply to any amount to be paid for the use of property if the sum of the following amounts does not exceed $250,000-

(A) the aggregate amount of payments received as consideration for such use of property, and

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(B) the aggregate value of any other consideration to be received for such use of property.

For purposes of the preceding sentence, rules similar to the rules of clauses (ii) and (iii) of section 1274(c)(4)(C) shall apply.

(e) Definitions.

For purposes of this section -

(1) Constant rental amount.

The term "constant rental amount" means, with respect to any section 467 rental agreement, the amount which, if paid as of the close of each lease period under the agreement, would result in an aggregate present value equal to the present value of the aggregate payments required under the agreement.

(2) Leaseback transaction.

A transaction is a leaseback transaction if it involves a leaseback to any person who had an interest in such property at any time within 2 years before such leaseback (or to a related person).

(3) Statutory recovery period.

(A) In general.

In the case of: The statutory recovery period is:

3-year property 3 years

5-year property 5 years

7-year property 7 years

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10-year property 10 years

15-year and 20-year property 15 years

Residential rental property and nonresidential real property 19 years.

Any railroad grading or tunnel bore 50 years.

(B) Special rule for property not depreciable under section 168 . In the case of property to which section 168 does not apply, subparagraph (A) shall be applied as if section 168 applies to such property.

(4) Discount and interest rate.

For purposes of computing present value and interest under subsection (a)(2) , the rate used shall be equal to 110 percent of the applicable Federal rate determined under section 1274(d) (compounded semiannually) which is in effect at the time the agreement is entered into with respect to debt instruments having a maturity equal to the term of the agreement.

(5) Related person.

The term "related person" has the meaning given to such term by section 465(b)(3)(C) .

(6) Certain options of lessee to renew not taken into account.

Except as provided in regulations prescribed by the Secretary, there shall not be taken into account in computing the term of any agreement for purposes of this section any extension which is solely at the option of the lessee.

(f) Comparable rules where agreement for decreasing payments.

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Under regulations prescribed by the Secretary, rules comparable to the rules of this section shall also apply in the case of any agreement where the amount paid under the agreement for the use of property decreases during the term of the agreement.

(g) Comparable rules for services.

Under regulations prescribed by the Secretary, rules comparable to the rules of subsection (a)(2) shall also apply in the case of payments for services which meet requirements comparable to the requirements of subsection (d) . The preceding sentence shall not apply to any amount to which section 404 or 404A (or any other provision specified in regulations) applies.

(h) Regulations.

The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section , including regulations providing for the application of this section in the case of contingent payments.

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LETTER OF INTENT -WITH SCHEDULE A

Dated:

Mr. A San Francisco, CA 94111

Re: Capital Corporation Letter of Intent Bush Street, San Francisco

Dear Alan,

The following proposal represents the basic terms which Capital Corporation (as “Buyer”) would be willing to purchase from Pacific Resources Development, Inc. (as “Seller”) the 225 Bush Street property in San Francisco (the “Property”). This non-binding proposal represents the principal terms of the transaction but not all material terms are reflected.

1. Purchase Price. An all cash purchase price of One Hundred Million Dollars ($100,000,000) (the “Purchase Price”). The price is based on “As-is” condition of the Property subject to satisfaction of due diligence pursuant to paragraph 2 below. The Seller will make reasonable and mutually agreed upon reps and warranties not related to the physical condition of the Property or the status of the Leases.

2. Due Diligence Period. Buyer will have a period of 60 days to complete Buyer's Due Diligence. The Due Diligence period shall begin when Seller provides Buyer and its consultants with items as listed in Schedule A attached. Seller shall allow Buyer access to the Property to perform all tests and inspections necessary to complete Schedule A. Seller shall provide copies of all documents to Buyer as indicated herein in original or an easily readable and identifiable copy.

3. Deposit. On or before 5:00 pm PST, Friday, February 6, 1998, Buyer will deposit into escrow with Chicago Title Company of San Francisco the sum of Three Million Dollars ($3,000,000) (the “Deposit”) as a NON-REFUNDABLE DEPOSIT and payable to Seller as liquidated damages in the event Buyer fails to close the transaction as a result of its breach pursuant to the terms of a fully executed Purchase and Sale Agreement, more fully described in Paragraph 5 below. The Deposit, together with all interest accrued therein, shall be credited against the Purchase Price upon close of the transaction.

4. Close of Escrow. Close of Escrow for the sale of the Property shall occur on or before 5:00 PST, Tuesday, April 7, 1998.

5. Purchase and Sale Agreement. Upon mutual acceptance and execution of this Offer to Purchase, Buyer and Seller shall work diligently to negotiate and execute a mutually agreeable Purchase and Sale Agreement on or before 5:00 pm PST, Wednesday, February 4, 1998, which Purchase and Sale Agreement shall incorporate the terms hereof and such other terms and conditions as are customary for transactions of this nature. The Seller and Buyer agree that this negotiation shall be exclusively for the benefit of Buyer through February 4, 1998. 6. Closing Adjustments. Property taxes, rents and other items shall be equitably prorated as of closing. Seller shall pay all city and county transfer and recording taxes due in conjunction with the transaction. Buyer shall pay the following expenses: a) escrow fee, b) CLTA Owner’s Title Insurance policy, c) ALTA extended Owner’s Title Insurance policy, d) all sales taxes due against any portion of the Property subject to sales tax, and e) all of the customary charges due for document drafting, recording and miscellaneous charges. Buyer shall pay the tenant improvement and leasing commission costs associated with the pending lease to IKON for the 2nd floor premises.

7. Broker Representation / Commission. Buyer and Seller recognize Grubb & Ellis Company as a broker with respect to a sale of the Property which may be concluded between the parties. The commission due to Grubb & Ellis Company in connection with the transaction shall be paid by the Buyer upon close of escrow pursuant to a separate written agreement between Buyer and Broker.

8. Confidentiality. Buyer and Seller agree to keep the existence and terms of this proposal confidential except as shall be necessary to disclose to their respective equity partners, consultants, lenders, contractors, and counsel during negotiation of the Purchase and Sale Agreement and review of the Property. This agreement will terminate upon acquisition of the Property by Buyer or at the close of the Due Diligence Period, if Buyer elects to terminate the agreement.

9. Title. Title shall be conveyed free and clear of all defects, liens, encumbrances and easement’s, except as shall be approved by Buyer in writing, as evidenced by an ALTA owner’s title insurance policy, all as more fully set forth in the Purchase and Sale Agreement.

10. 1031 Exchange. Buyer recognizes that Seller may elect to conduct a 1031 exchange upon the sale of the Property, and Buyer agrees to comply with Seller’s such intended action provided such 1031 exchange does not affect in any manner Buyer’s acquisition of the Property or impose any cost or restriction on Buyer, or delay closing beyond February 27, 1998. The Seller shall have the option to receive up to twenty-five percent (25%) of the Purchase Price in the form of partnership units in the operating partnership of Ocwen Partnership, L.P. (the entity of Ocwen Asset Investment Corp.).

The foregoing sets forth the basic terms of agreement with respect to the purchase of the Property. Neither Buyer nor Seller shall be contractually bound until the Purchase and Sale Agreement has been fully executed.

If the foregoing basic terms are satisfactory, please have the Seller indicate its acceptance by signing below and return of this Letter of Intent no later than 6:00 pm PST, Wednesday, January 14, 1998.

Sincerely yours,

SCHEDULE OF DUE DILIGENCE MATERIALS

The Due Diligence Period shall commence when Seller delivers to the offices of Buyer (or makes available on-site in a designated inspection room within the Property) copies of the following documents relating to the Property, together with Seller’s written certification that the documents delivered are true and complete copies of all such documents

1. Most recent property tax assessments and tax bills. 2. A current title report, including complete and legible copies of all documents (whether or not recorded), which are referenced therein as title exceptions. 3. The most recent ALTA (and all other more recent) surveys of the Property. 4. All soils reports covering any of the Property. 5. All plans and specifications for Property improvements. 6. All existing leases (including concession and license agreements for use of space within the Property) and any amendments an letter agreements relating thereto, together with all correspondence to and from tenants, and a written summary of any leases currently in negotiation, specifying the tenant, premises to be leased, rents, and term and outlining all other material deal points. 7. All current insurance policies, together with a written summary of insurance coverages and premiums by policy type. 8. All certificates of occupancy. 9. All contractors, vendor, manufacturer and other warranties with respect to all real property improvements, fixtures, equipment and personal property to be conveyed. 10. All equipment leases and service and vendor contracts (including all amendments and side- letter agreements relating thereto). 11. All environmental (hazardous substances), engineering, physical inspection, marketing and feasibility studies, assessments and reports. 12. A current rent roll for the Property together with (monthly income and expense reports) for the period of Seller’s ownership of the Property (or for the previous 24 months if shorter). 13. A written summary of all pending or threatened litigation, insurance claims and notice of legal violations, together with the pertinent notices, demands, pleadings and other documents. 14. All reports, assessments or studies regarding actions required to bring the Property into compliance with the American with Disabilities Act or any similar state statute or local ordinance or code. 15. A schedule of special assessment districts and assessment amounts, if any. 16. A schedule of allowances or rebates due on tenant improvements, if any, and proof of insurance from individual tenants (including, as tenants, any space concessionaries or licensees). 17. A schedule of any brokerage commissions due in connection with any leases or other agreements pertaining to the Property.

If not already existing, Seller shall prepare the summaries and schedules specified in Items 7, 12, 13, 14, 16 and 17 above. If not already in its possession, Seller shall obtain copies of Items 1, 2 (title report) 6 (existing leases), 7 (policies), 9, 10, 11 and 12 (pleadings). Otherwise, Seller shall be obligated to furnish copies only of documents in its possession or control.

AGREEMENT OF SALE

BY AND BETWEEN

XYZ SELLER on Behalf of Wells Fargo Bank Minnesota, National Association, a national banking association, as Trustee for the Registered Holders of DLJ Commercial Mortgage Corporation, Commercial Mortgage Pass-Through Certificates, Series 1999-CG2,

as Seller,

AND

AMP HOSPITALITY ADVISORS, LLC,

as Buyer.

PHL:5047368.6/ALL154-224630 TABLE OF CONTENTS

Page

1. Sale and Purchase ...... 1

2. Purchase Price ...... 1

3. Closing ...... 2

4. Condition of Title; Inspection Period...... 2

5. Inspection Period...... 3

6. Leases; Existing Agreements...... 4

7. Apportionments...... 6

8. Closing Costs...... 8

9. Possession ...... 8

10. Seller's Representations and Warranties ...... 8

11. Buyer's Representations and Warranties ...... 9

12. Seller's Deliveries at Closing...... 9

13. Buyer's Deliveries at Closing ...... 10

14. Default...... 10

15. Notices...... 11

16. Fire or Other Casualty...... 12

17. Condemnation...... 12

18. Assignability ...... 13

19. Brokers ...... 13

20. CONDITION OF THE PROPERTY...... 13

21. Survival of Provisions...... 15

22. Miscellaneous...... 15

23. Deposit Instructions...... 16

PHL:5047368.6/ALL154-224630 - i - EXHIBITS

A - Legal Description

B - Certain Permitted Encumbrances

C - Seller's Title Affidavit

D - Assignment and Assumption Agreement

E - Leases

F - Existing Agreements

G - Form of Bill of Sale

H - Form of FIRPTA Certification

I - Schedule of Property Information

J - Form of Estoppel Certificate

PHL:5047368.6/ALL154-224630 - ii - AGREEMENT OF SALE

THIS AGREEMENT made as of the _____ day of January, 2005 by and between ------on behalf of------, a national banking association, as Trustee for the Registered Holders of DLJ Commercial Mortgage Corporation, Commercial Mortgage Pass-Through Certificates, Series 1999-CG2 ("Seller") and AMP HOSPITALITY ADVISORS, LLC, a limited liability company ("Buyer"). This Agreement is to be effective on the business day immediately following the date of execution of this Agreement by Seller as set forth opposite the signature of Seller on the execution page of this Agreement (the "Effective Date").

W I T N E S S E T H:

1. Sale and Purchase. Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase from Seller, upon the terms and conditions set forth in this Agreement, all of Seller's right, title and interest in and to the following:

(a) that certain lot or piece of ground situate in Kutztown, Maxatawny Township, Berks County, Pennsylvania, which is more particularly described on Exhibit A to this Agreement, together with the improvements situate on such parcel commonly known as "Weis Plaza" (the "Real Property"), together with all rights and appurtenances pertaining to the Real Property, including all right, title and interest of Seller (if any) in and to adjacent streets and rights-of-way;

(b) the fixtures, furnishings, equipment and other items of personal property, if any, owned by Seller and used in connection with the operation of the Real Property that are located on the Real Property and, to the extent transferable and in the possession of Seller, all licenses, permits and guaranties, if any, which relate to the Property (collectively, the "Personal Property");

The Real Property and Personal Property are sometimes collectively referred to in this Agreement as the "Property".

2. Purchase Price. The purchase price to be paid by Buyer to Seller for the Property is Four Million Two Hundred Thousand and 00/100 Dollars ($4,200,000.00) (the "Purchase Price"). The Purchase Price shall be paid as follows:

(a) The sum of One Hundred Thousand and 00/100 ($100,000.00) (the "Deposit") shall be deposited with Commonwealth Land Title Insurance Company, 655 Third Avenue, New York, NY 10017 [Contact: Douglas Forsyth, Vice President: 212-973-6210] (the "Title Company") by certified bank check, cashier's check or wire transfer of immediately available funds simultaneously with the execution of this Agreement by Buyer and Seller and delivery of a fully-executed counterpart to each. The sum paid by Buyer in connection with delivery of its sealed bid for the Property shall be credited against the amount of the Deposit so payable and shall be delivered to the Title Company to hold in escrow. The Deposit shall be held in escrow as provided in Paragraph 23 of this Agreement.

(b) At Closing, the Deposit shall be paid to Seller and credited against the Purchase Price.

(c) At Closing, Buyer shall pay the balance of the Purchase Price, adjusted as provided in this Agreement, to Seller, either directly or if the Closing occurs in escrow with the Title Company, through the Title Company, by wire transfer of immediately available funds, to an account specified by Seller at a bank designated by Seller.

PHL:5047368.6/ALL154-224630 Exhibit A 3. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall be the date (the "Closing Date") which is twenty-five (25) days after the expiration of the Inspection Period (as defined below), or on such earlier date as Buyer and Seller may mutually agree in writing, through an escrow established with the Title Company or at Seller's option, at the Philadelphia office of Seller's counsel, Wolf Block Schorr and Solis-Cohen LLP, 1650 Arch Street, 22nd Floor, Philadelphia, PA 19103.

4. Condition of Title; Inspection Period.

(a) Fee simple title to the Real Property shall be conveyed by Seller to Buyer at the completion of Closing by Seller's Deed (as such term is defined in Paragraph 9), subject to the Permitted Encumbrances (as such term is defined below). Seller's interest in the Personal Property shall be quitclaimed by Seller to Buyer at the completion of Closing by the Bill of Sale (as such term is defined in Paragraph 12(a)(ii)). Title to the Real Property shall be such as will be insured as good and marketable (at Buyer's sole cost and expense) by a title insurance company pursuant to standard stipulations and conditions of the most current form of ALTA Policy of Owner's Title Insurance, free and clear of all liens and encumbrances except for the Permitted Encumbrances. The term "Permitted Encumbrances" shall mean: (w) the matters set forth on Exhibit B to this Agreement; (x) the Leases (as defined in Paragraph 6(a)); (y) any matters reflected on the Title Commitment (as defined below) to which Buyer does not timely object; and (z) any additional matters created or suffered by Buyer.

(b) At Closing, Seller shall deliver an affidavit to the Title Company ("Seller's Title Affidavit") in the form of Exhibit C to this Agreement. Notwithstanding anything contained in this Paragraph 4, Seller shall, at or before Closing, satisfy all mortgages created by Seller affecting all or any portion of the Real Property (together, "Mortgage Liens"), and in no event shall the same be considered Permitted Encumbrances. Except as otherwise expressly provided in this Paragraph 4, Seller shall have no obligation to cause any exceptions or encumbrances which are not Permitted Encumbrances to be removed or insured over in connection with the sale of the Property.

(c) On or prior to the Effective Date, Buyer will order a title search with regard to the Real Property, and will cause a title insurance commitment (the "Title Commitment") to be issued with regard to the Real Property, at Buyer's expense. Buyer shall be deemed to have waived its right to object to any encumbrance or other title exception reflected on the Title Commitment unless Buyer shall have given Seller written notice of any such matter that is not a Permitted Encumbrance ("Title Notice") prior to the fifteenth (15th) day after the Effective Date, which notice shall be accompanied by a copy of the Title Commitment. Seller shall have no obligation to cure any alleged defect, objection or survey matter raised in any Title Notice, except for Mortgage Liens that are to be satisfied by Seller at or before Closing. Upon Buyer’s failure to timely object, any encumbrance or other title exception or matter reflected on the Title Commitment shall thereafter be deemed a Permitted Encumbrance. Seller shall have the right, at its sole option, upon written notice given to Buyer within ten (10) days of receipt of Buyer’s Title Notice, to (A) defer the Closing for a period designated by Seller but not exceeding thirty (30) days to give Seller an opportunity, at Seller’s sole option, of either (i) attempting to remove any encumbrance or other title exception or matter which is not a Permitted Encumbrance or (ii) providing the Title Company such assurances as the Title Company requires to insure Buyer against any loss arising from such encumbrance or other title exception or matter and omitting same for Buyer's mortgagee, or (B) elect to do neither (i) nor (ii), in which event Buyer shall have the election set forth in Paragraph 4(e). Failure by Seller to deliver such notice shall be deemed an election under part (B) above.

(d) Promptly after the Effective Date, Buyer shall obtain, at its sole cost and expense, from a licensed surveyor reasonably acceptable to Seller, a physical survey of the Real Property certified to Buyer, the Title Company and Seller (the "Survey Plan") and a metes and bounds description of the

PHL:5047368.6/ALL154-224630 Exhibit A Real Property prepared from the Survey Plan. The Survey Plan and the metes and bounds description prepared therefrom shall be submitted by Buyer to Seller at least twenty (20) days prior to the date fixed for closing. If the Survey Plan and the metes and bounds description prepared therefrom does not include any real property not described on Exhibit A hereto, the Deed shall describe the Real Property in accordance with the Survey Plan. The Purchase Price has been fixed without regard to the area of the Real Property and is not to be abated or changed should the Survey Plan prove an area different from the area of the Real Property described in Exhibit A. Nothing contained in this Agreement, including the legal description set forth on Exhibit A hereto, shall constitute any warranty, representation or agreement by Seller as to the location of separate lots in, or acreage of, the Real Property.

(e) If on the Closing Date title to the Real Property is not insurable by the Title Company as set forth in this Paragraph 4, Buyer may elect, as its sole right and remedy, either (i) to take such title to the Real Property as Seller can convey without abatement of the Purchase Price, or (ii) to terminate this Agreement by written notice to Seller with a copy to the Title Company, whereupon the Deposit shall be returned to Buyer. Upon the giving of such notice of termination this Agreement shall terminate and the Deposit shall be returned to Buyer, and thereafter neither party shall have any further rights, obligations or liabilities under this Agreement except to the extent any right, obligation or liability in this Agreement expressly survives termination of this Agreement.

(f) Notwithstanding anything contained in this Agreement to the contrary, with respect to all matters affecting title to the Real Property and any liens or other encumbrances affecting the Real Property, Buyer acknowledges and agrees it is relying upon its title insurance policy. If Buyer has a claim under its title insurance policy and the subject matter of that claim also constitutes a breach of any representation, warranty or covenant made by Seller in this Agreement, Buyer agrees that it will look solely to its title insurance policy for recovery of such claim, and Buyer shall not assert any claim against Seller for a breach of a representation, warranty or covenant with respect to such claim. This Paragraph 4(f) shall survive Closing and delivery of the Deed.

5. Inspection Period.

(a) Buyer shall have a period from the Effective Date through the date which is thirty (30) days thereafter (the "Inspection Period") to conduct due diligence investigations and analysis of the Real Property and all information pertaining to the Real Property. If Buyer determines that it does not desire to acquire the Property and notifies Seller by 5:00 p.m. Eastern Standard Time or Eastern Daylight Time (as then currently applicable) on the last day of the Due Diligence Period of its election to terminate this Agreement, the Deposit shall be returned to Buyer, this Agreement thereupon shall become void and there shall be no further obligation or liability on either of the parties hereto, except as otherwise specifically provided herein, and Buyer promptly shall return to Seller, without retaining any copies thereof, all copies of the Leases, the Surviving Agreements and Seller’s Materials (defined below) and shall deliver to Seller copies of all studies and reports relating to the Property obtained by Buyer. Buyer’s failure to deliver notice to Seller of its election to terminate this Agreement prior to 5:00 p.m. EST/EDT on the last day of the Inspection Period shall obligate Buyer to complete Closing under this Agreement. Buyer shall not communicate with any tenants under the Leases, except with Seller’s prior written consent and, at Seller’s election, with Seller or Seller's designated representative being present at the time of such communication. In the event of such consent, Buyer shall not disclose any of the terms and conditions of this transaction to such tenants. Buyer shall (i) give Seller at least two (2) business days prior written notice of the time and place of such entry and permit a representative of Seller to accompany Buyer; (ii) restore any damage to the Real Property or any adjacent property caused by such actions; (iii) indemnify, defend and save Seller and, as the case may be, its partners, members, trustees, beneficiaries, shareholders, directors, officers, employees and agents harmless of and from any and all liabilities which Seller and its partners, members, trustees, beneficiaries, shareholders, directors, officers, employees and

PHL:5047368.6/ALL154-224630 Exhibit A agents may suffer by reason of such entry and such activities; (iv) not enter into any tenant's leased premises or communicate with any tenant without Seller's prior written consent; and (v) prior to entry onto the Real Property, furnish Seller with a certificate of general liability and property damage insurance maintained by Buyer with single occurrence coverage of at least $2,000,000 and naming Seller and its management agent as additional insureds. All such inspection rights shall be subject to the right of tenants under the Existing Leases.

(b) Nothing contained in this Agreement shall be deemed or construed in any way as constituting the consent or request of Seller, express or implied by inference or otherwise, to any party for the performance of any labor or the furnishing of any materials to the Real Property or any part thereof, nor as giving Buyer any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any liens against the Real Property or any part thereof. Prior to permitting any party to enter the Property prior to Closing for the purpose of performing any services or supplying any materials for which such party could claim a mechanic's lien against the Real Property or any part thereof, Buyer shall cause to be filed in the applicable public filing office, a waiver of mechanic's liens in form satisfactory to Seller by each of the parties performing such work.

(c) Within five (5) business days after the Effective Date, Seller shall deliver to Buyer the items listed below (collectively, "Seller’s Materials"). Buyer shall keep Seller's Materials and all information obtained by Buyer as part of its due diligence review of the Property ("Buyer’s Materials") confidential and, except as may otherwise be required by law, shall not share any of the foregoing with anyone other than Buyer's directors, officers, employees, outside counsel, accounting firm and other professional consultants (all of whom are collectively referred to as the "Related Parties") who, in Buyer's judgment, need to know such information for evaluating a possible purchase of the Property. The Related Parties shall be informed by Buyer of the confidential nature of the Seller's Materials and the Buyer's Materials and shall be directed by Buyer to keep same in the strictest confidence. Buyer shall be responsible for any breach of the obligations set forth in this subparagraph by Buyer or the Related Parties. Seller's Materials (to the extent in Seller's possession) are:

(i) the latest as-built plans or surveys of the Property which are in Seller's possession;

(ii) copies of all Leases;

(iii) copies of all Existing Agreements (as defined below);

(iv) copies of the latest environmental reports with respect to the Property which are in Seller's possession;

(v) copies of the latest owner's title commitment or title policy with respect to the Property which are in Seller's possession; and

(vi) copies of all real estate and school district tax bills for year 2004.

6. Leases; Existing Agreements.

(a) At Closing, pursuant to an Assignment and Assumption Agreement in the form of Exhibit D to this Agreement, (the "Assignment and Assumption Agreement"), Seller shall assign to Buyer Seller's leases with the tenants listed on Exhibit D to this Agreement (together with any other leases or amendments entered into in accordance with this subparagraph (a), the "Leases"). Provided

PHL:5047368.6/ALL154-224630 Exhibit A Closing is completed, Buyer shall assume all obligations of Seller arising on or after the Closing Date in connection with the Leases including, without limitation, all obligations with respect to (i) unpaid tenant inducement obligations and (ii) leasing commissions payable in connection with any renewal, extension or modification of any Lease, effectuated on or after the Closing Date. Through the Closing Date (or earlier termination of this Agreement), Seller shall not enter into any new leases or amendments to Leases for all or any part of the Real Property without Buyer's approval.

(b) At Closing, pursuant to the Assignment and Assumption Agreement, Seller shall assign to Buyer, to the extent assignable, all of Seller's right, title and interest in, to and under the existing service and maintenance agreements listed on Exhibit F to this Agreement (together with any other agreements entered into in accordance with this subparagraph (b), collectively called the "Existing Agreements"). Provided Closing is completed, Buyer shall assume all obligations of Seller arising on or after the Closing Date in connection with the Existing Agreements. Through the Closing Date (or earlier termination of this Agreement or default by Buyer hereunder), Seller shall not enter into new service or maintenance agreements or modify any existing service or maintenance agreements in any material respect without Buyer's approval; provided, however, that Buyer's approval shall not be required for any such new agreement that shall be terminable, without penalty or premium, on not more than thirty (30) days' notice.

(c) Seller shall use reasonable efforts (but without obligation to incur any cost or expense) to obtain and deliver to Buyer prior to Closing, a written estoppel certificate in the form of Exhibit J attached hereto and made a part hereof signed by the following tenants occupying space at the Property: Weis Markets, Tandy Corporation (d/b/a Radio Shack) and Dolgen Corp. Inc. (d/b/a Dollar General). The signed certificates are referred to herein as the "Tenant Estoppels". Seller shall prepare and send out the Tenant Estoppels within five (5) business days from the Effective Date of this Agreement. Seller shall promptly deliver to Buyer photocopies of executed estoppel certificates as it receives the same, with originals to be delivered at or before Closing. Buyer agrees to notify Seller in writing within five (5) business days after Buyer's receipt of such photocopies of executed Tenant Estoppels of any objections thereto, on an as-received basis, it being agreed that the failure to so object in a timely manner shall be deemed a waiver by Buyer to object to such Tenant Estoppels received. Seller shall have no obligation to cause any tenant to update its Tenant Estoppel after it has been delivered. Buyer agrees not to object to (i) any non-material (as determined in Buyer's reasonable judgment) qualifications or modifications which a tenant may make to the form of Tenant Estoppel, (ii) any modification to a tenant estoppel to conform the Tenant Estoppel to the form of tenant estoppel certificate the tenant is required to give under its lease and (iii) a statement by tenant that it is made to the tenant's knowledge. Buyer's obligations under this Agreement to complete Closing and pay the Purchase Price shall not be relieved if Seller is unable to obtain any Tenant Estoppel required to be delivered after using its reasonable efforts to obtain it if Seller instead, at Seller's sole option, executes a certification for such tenant ("Seller Certificate") verifying the same information in the Tenant Estoppel form attached as Exhibit J. If Seller has delivered a Seller Certificate to Buyer for one or more tenants and within ninety (90) days following Closing, Seller or Buyer receives an Tenant Estoppel from any such tenant meeting the requirements of this Section, then the Seller Certificate for such tenant shall be deemed automatically null and void.

Notwithstanding the foregoing provisions of this Section 6(c), Seller agrees to use in lieu of the form of estoppel certificate attached as Exhibit J any form of estoppel certificate requested by Buyer's lender providing financing for Buyer's acquisition of the Property ("Lender Estoppel Form"), provided that (i) all other provisions of this Section 6(c) shall apply to such Lender Estoppel Form, (ii) Buyer shall deliver to Seller any such Lender Estoppel Form as promptly as possible following the Effective Date, and (iii) the Closing Date shall not be extended for any delay in obtaining Tenant Estoppels resulting from Buyer's delay in delivering to Seller any Lender Estoppel Form.

PHL:5047368.6/ALL154-224630 Exhibit A (d) Buyer shall be responsible for the payment of (A) all Tenant Inducement Costs (as hereinafter defined) and leasing commissions which become due and payable (whether before or after Closing) (1) as a result of any renewals or expansions of existing Leases, approved or deemed approved in accordance with this Section 6, between the Effective Date and the date of Closing, and (2) under any new Leases, approved or deemed approved in accordance with this Section 6, entered into between the Effective Date and the date of Closing, and (B) all Tenant Inducement Costs and leasing commissions which become due and payable from and after the date of Closing. If, as of the date of Closing, Seller shall have paid any Tenant Inducement Costs or leasing commissions for which Buyer is responsible pursuant to the foregoing provisions, Buyer shall reimburse Seller therefor at Closing. For purposes hereof, the term "Tenant Inducement Costs" shall mean any out of pocket payments required under a Lease to be paid by the landlord thereunder to or for the benefit of the tenant thereunder which is in the nature of a tenant inducement, including specifically, without limitation, tenant improvement costs, lease buyout costs, reasonable legal fees of the landlord, and moving, design, refurbishment and club membership allowances. The term "Tenant Inducement Costs" shall not include loss of income resulting from any free rental period, it being agreed that Seller shall bear the loss resulting from any free rental period until the date of Closing and that Buyer shall bear such loss from and after the date of Closing. Seller shall pay prior to Closing all Tenant Inducement Costs and leasing commissions for Leases in effect on the Effective Date, but not for any renewals or expansions of existing Leases which are exercised by tenants after the Effective Date.

(e) Upon the expiration of the Inspection Period without Buyer's having exercised its right to terminate this Agreement in accordance with the terms of this Agreement, a copy of any renewal or expansion of an existing Lease or of any new Lease for any portion of the Building which Seller wishes to execute between the Effective Date and the Closing Date will be submitted to Buyer prior to execution by Seller. Buyer agrees to notify Seller in writing within three (3) business days after its receipt thereof of either its approval or disapproval, including all Tenant Inducement Costs and leasing commissions to be incurred in connection therewith. In the event Buyer informs Seller that Buyer does not approve the renewal or expansion of the existing Lease or the new Lease, then such disapproval shall constitute Buyer's commitment to lease such space upon the same terms and conditions. In the event Buyer fails to notify Seller in writing of its approval or disapproval within the three (3) business day time period for such purpose set forth above, such failure shall be deemed the approval by Buyer for Seller to enter into such renewal or expansion of an existing Lease or to enter into a new lease. At Closing, Buyer shall reimburse Seller for any Tenant Inducement Costs, leasing commissions or other expenses, including Seller's reasonable legal fees, incurred by Seller pursuant to a renewal, an expansion or a new Lease approved (or deemed approved) by Buyer.

(f) If requested by Buyer's lender financing Buyer's acquisition of the Property, Seller shall certify as to the completeness and truth of the rent roll for the Property which is attached hereto and made a part hereof as Exhibit K.

7. Apportionments.

(a) Real estate taxes for the real estate tax year in which the Closing occurs and general or special district assessments (on the basis of the actual fiscal tax years for which such taxes are assessed), personal property taxes, lienable water and sewer rentals, and sums paid to or paid or payable by Seller under the Existing Agreements, shall be apportioned as of the Closing Date. If any tax bill for the tax year in which the Closing occurs has not been issued on or before the Closing Date, the apportionment of taxes shall be computed based upon the most recent tax bill available and after the Closing occurs and when the actual amount of taxes for the year or years in question shall be determinable, such taxes will be reprorated between the parties to reflect the actual amount of such taxes. If, on the Closing Date, bills for the real estate taxes and assessments or personal property taxes imposed

PHL:5047368.6/ALL154-224630 Exhibit A upon the Property for the tax year in which Closing occurs have been issued but shall not have been paid, such taxes shall be paid at Closing. Seller shall pay at or prior to Closing (or Buyer shall receive a credit for) any unpaid real estate and personal property taxes attributable to periods prior to the date of Closing (whether or not then due or payable or a lien as aforesaid). All apportionments of unpaid real estate taxes shall be made on the basis of the maximum discounted tax amount payable.

(b) Collected rent, including, without limitation, fixed rent, prepaid rent, additional rent and percentage rent, if applicable, and expenses shall be apportioned as of the Closing Date in accordance with this Paragraph 7. There shall be no apportionment or other adjustment made on account of “free rent”, if any. All rent under the Leases collected by Buyer after Closing shall be applied first to the rent for the month in which the Closing shall occur, then to unpaid rent accruing for up to thirty (30) days prior to the Closing Date, then to unpaid rent accruing on or after the Closing Date and then to any previous and unpaid arrearages for periods prior to the Closing. During the twelve (12) month period following Closing, Buyer shall use good faith commercially reasonable efforts to recover any rent (or other tenant charge) arrearages in respect of the period prior to the Closing Date, provided that Buyer shall not be required to commence any legal proceeding in connection therewith. Seller (upon notification to Buyer) shall be entitled to sue a tenant, before and/or after Closing, for any delinquent rent (or other tenant charges) due to Seller (and not previously paid to Seller) under a Lease, so long as such suit does not seek a termination of such Lease or eviction of such tenant.

(c) Where Seller shall have collected additional rent under Leases on account of tenant obligations for taxes, common area expenses, operating expenses or additional charges of any other nature ("Other Tenant Charges"), in excess of amounts owed by tenants for such items with respect to the period prior to Closing, then there shall be an adjustment and credit given to Buyer on the Closing Date for such excess amounts collected, if any. Buyer shall apply all such excess amounts to the Other Tenant Charges owed by tenants for such items for the period after the Closing Date and, if required by the Leases, shall rebate or credit the tenants with any remainder and Buyer shall indemnify, defend and hold Seller harmless with respect to any sums as to which Buyer receives a credit at Closing. Upon collection thereof from tenants, Buyer shall pay to Seller the aggregate amount payable by tenants after Closing on account of the Other Tenant Charges with respect to periods prior to Closing. Buyer shall use good faith commercially reasonable efforts to recover any Other Tenant Charges in respect of the period prior to the Closing Date, provided that Buyer shall not be required to commence any legal proceeding in connection therewith. Seller (upon notification to Buyer) shall be entitled to sue a tenant, before and/or after Closing, for any delinquent Other Tenant Charges due to Seller (and not previously paid to Seller) under a Lease, so long as such suit does not seek a termination of such Lease or eviction of such tenant.

(d) All apportionments provided for in this Paragraph 7 to be made as of the Closing Date shall be made, on a per diem basis, as of the Closing Date so that the Closing Date shall be a date of income and expense to Buyer. The Closing Statement and the apportionments reflected therein shall be based upon actual figures to the extent available. If any of the apportionments cannot be calculated accurately based on actual figures on the Closing Date, then (other than with respect to determination of real estate taxes that shall be computed as set forth in Paragraph 7(a) above) they shall be calculated based on Seller's and Buyer's good faith estimates thereof, subject to reconciliation as provided below.

(e) Buyer shall be entitled to a credit against the Purchase Price in an amount equal to all cash security deposits held by Seller with respect to the Leases.

(f) Seller shall obtain readings of the water and electric meters on the Real Property (exclusive of meters which measure utility consumption which is payable solely by any tenant(s) at the Real Property) to a date no sooner than two (2) business days prior to the Closing Date. Seller shall pay all charges based upon such meter readings. If after reasonable efforts Seller is unable to obtain readings

PHL:5047368.6/ALL154-224630 Exhibit A of any meters prior to Closing, Closing shall be completed without such readings and upon the obtaining thereof after Closing, Seller shall pay the charges incurred prior to Closing as reasonably determined by Seller and Buyer based upon such readings. Seller will be entitled to retain all deposits, if any, paid to utility providers, and Buyer will make its own arrangement for posting any required deposits with utility providers.

(g) For up to twelve (12) months after the Closing Date, if there is an error on the Closing Statement or, if after the actual figures are available as to any items that were estimated on the Closing Statement, it is determined that any actual apportionment varies from the amount thereof reflected on the Closing Statement, the apportionment shall be adjusted based on the actual figures as soon as feasible. Either party owing the other a sum of money based on such subsequent apportionment shall promptly pay said sum to the other party.

(h) The provisions of this Paragraph 7 shall survive Closing and delivery of the Deed.

8. Closing Costs.

(a) Buyer shall pay: (i) the costs of its counsel, engineers and other professionals and consultants, (ii) any recording and filing fees for the Deed, (iii) premiums for all title insurance, (iv) all mortgage recording fees on any mortgage obtained by Buyer in connection with this transaction, (v) one- half (1/2) of all realty transfer taxes, (vi) all costs of effectuating the transfer of any warranty or guaranty which constitutes part of the Personal Property and (vii) all other closing costs not payable by Seller pursuant to Paragraph 8(b).

(b) Seller shall pay: (i) the costs of its counsel and other professionals and consultants, and (ii) one-half (1/2) of all realty transfer taxes.

9. Possession. Possession of the Real Property shall be given to Buyer at Closing by delivery of Seller's special warranty deed in customary form, subject to the Permitted Encumbrances, duly executed and acknowledged by Seller and in proper form for recording (the "Deed"). If the description of the Real Property contained in a survey of the Real Property obtained by Buyer differs from that set forth on Exhibit A to this Agreement, at Buyer's option, Seller shall also quitclaim and release to Buyer the real property as described in the Survey.

10. Seller's Representations and Warranties. Seller makes the following representations and warranties to Buyer:

(a) Seller is a limited partnership, duly organized and validly existing under the laws of the District of Columbia and has all requisite partnership power and authority to carry on its business as now conducted.

(b) Seller has the partnership power and authority to enter into and perform this Agreement and the transactions contemplated hereby, and Seller has duly authorized the execution of this Agreement. This Agreement and Seller's performance hereunder will not violate the limited partnership agreement of Seller, any judgment, order, decree, writ or injunction issued against Seller or any provision of any laws applicable to Seller.

PHL:5047368.6/ALL154-224630 Exhibit A (d) Exhibit F to this Agreement lists all of the Existing Agreements as of the date of this Agreement.

(e) To the best of Seller's knowledge, the current zoning classification of the Real Property is "C-1" [Commercial].

11. Buyer's Representations and Warranties. Buyer makes the following representations and warranties to Seller:

(a) Buyer is a limited liability company, duly organized and validly existing under the laws of the State of New Jersey and has all requisite power and authority to carry on its business as now conducted.

(b) Buyer has the requisite power and authority to enter into and perform this Agreement and the transactions contemplated hereby and Buyer has duly authorized the execution of this Agreement. This Agreement and Buyer's performance hereunder will not violate the organizational documents of Buyer, any judgment, order, decree, writ or injunction issued against Buyer or any provision of any laws applicable to Buyer.

(c) Buyer is not acquiring the Property with the assets of an employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974.

(d) Buyer is not a person or an entity described by Section 1 of the Executive Order (No. 13,224) Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, 66 Fed. Reg. 49,079 (September 24, 2001), and does not engage in any dealings or transactions, and is not otherwise associated, with any such person or entities.

12. Seller's Deliveries at Closing.

(a) On or before the Closing Date Seller shall deliver to Buyer or to the Title Company in escrow, the following:

(i) The Deed, duly executed and acknowledged.

(ii) A bill of sale with respect to the Personal Property in substantially the form of Exhibit G to this Agreement (the "Bill of Sale"), duly executed.

(iii) The Assignment and Assumption Agreement, duly executed.

(iv) A certificate in the form of Exhibit H to this Agreement with respect to compliance with the Foreign Investment in Real Property Tax Act (Internal Revenue Code Sec. 1445, as amended, and the regulations issued thereunder), duly executed.

(v) To the extent in Seller's possession, all keys, codes and other security devices for the Real Property.

(vi) The originals (to the extent in Seller's possession) or copies of all Leases and Existing Agreements, to the extent in Seller's possession, as-built plans and specifications and architectural, mechanical, engineering, site and other plans for the improvements at the Real Property, permits, licenses and other agreements relating to the maintenance and operation of the Property.

PHL:5047368.6/ALL154-224630 Exhibit A (vii) A Closing Statement, duly executed.

(viii) Seller's Title Affidavit, duly executed and acknowledged.

(ix) Evidence of the termination of Seller's property management agreement (if any).

(x) Notices to tenants announcing that Buyer has purchased the Property and assumed the obligations of the landlord under the Leases ("Tenant Notices"), duly executed.

(xi) Any other documents which Seller is obligated to deliver to Buyer pursuant to this Agreement.

(b) Location at the Real Property on the Closing Date of any of the materials referred to in clauses (v) or (vi) of Paragraph 12(a) shall be deemed to constitute delivery to Buyer.

13. Buyer's Deliveries at Closing. On or before the Closing Date Buyer shall deliver to Seller or to the Title Company in escrow, the following:

(a) The Assignment and Assumption Agreement, duly executed.

(b) The balance of the Purchase Price payable at Closing.

(d) Tenant Notices, duly executed.

(e) Any other documents which Buyer is obligated to deliver to Seller pursuant to this Agreement.

14. Default.

(a) If Buyer defaults under this Agreement at or prior to the Closing Date by failing to complete Closing in accordance with the terms of this Agreement, then upon Seller's delivery of written notice of Buyer's default to Buyer and to the Title Company the entire Deposit shall be paid to Seller by the Title Company and shall be retained by Seller as liquidated damages and not as a penalty. The retention of the Deposit shall be Seller's sole remedy in the event of such default by Buyer, and Seller in such event hereby waives any right, unless Closing is completed, to recover the balance of the Purchase Price. Seller and Buyer agree that the actual damages to Seller in the event of such default by Buyer are impractical to ascertain as of the date of this Agreement and that the Deposit is a reasonable estimate thereof. Upon payment of the Deposit to Seller as liquidated damages, this Agreement shall (except as otherwise expressly provided in this Agreement) be and become null and void and all copies will be returned to Seller. Nothing contained in this Paragraph 14(a) shall be deemed to limit Seller's rights against Buyer by reason of the indemnity or confidentiality obligations of Buyer to Seller set forth in this Agreement which shall survive the termination of this Agreement.

(b) If Seller defaults under this Agreement at or prior to the Closing Date by failing to complete Closing in accordance with the terms of this Agreement, then Buyer, as its sole and exclusive remedy, may terminate this Agreement by delivery of notice of termination to Seller with a copy to the Title Company, whereupon the Deposit shall be returned to Buyer.

PHL:5047368.6/ALL154-224630 Exhibit A 15. Notices.

All notices given by either party to the other shall be in writing and shall be sent: (i) by United States Postal Service registered or certified mail, postage prepaid, return receipt requested, or (ii) by prepaid nationally recognized overnight courier service for next business day delivery, addressed to the other party at the following addresses listed below or (iii) via telecopier or facsimile transmission to the facsimile numbers listed below; provided, however, that if such communication is given via telecopier or facsimile transmission, an original counterpart of such communication shall concurrently be sent in the manner specified in subparagraph (ii) above. Addresses and facsimile numbers of the parties are as follows:

As to Seller:

Allied Capital Corporation on behalf of Wells Fargo Bank Minnesota, National Association, a national banking association, as Trustee for the Registered Holders of DLJ Commercial Mortgage Corporation, Commercial Mortgage Pass-Through Certificates, Series 1999-CG2 c/o Allied Capital Corporation 1919 Pennsylvania Avenue, N.W. Washington, DC 20006-3434 Attention: Brian M. Sosner, Vice President Fax: (202) 659-2053 with a copy at the same time to:

Wolf Block Schorr and Solis-Cohen LLP 1650 Arch Street, 22nd Floor Philadelphia, Pennsylvania 19103 Attention: Diana C. Liu, Esquire Fax: (215) 405-3870 and to:

AMP Hospitality Advisors, LLC 6050 Boulevard East, Suite 18B West New York, NJ 07093 Attention: Anthony M. Palazzo, Principal Fax: (201) 868-6290

As to Buyer:

Anthony M. Palazzo, Esquire 6050 Boulevard East, Unit 18B West New York, NJ 07093 Fax: (201) 868-6290

As to the Title Company:

Commonwealth Land Title Insurance Company 655 Third Avenue

PHL:5047368.6/ALL154-224630 Exhibit A New York, NY 10017 Attention: Douglas Forsyth, Title Officer Fax: (212) 856-9308 or to such other address as the respective parties may hereafter designate by notice in writing in the manner specified above. Any notice may be given on behalf of any party by its counsel. Notices given in the manner aforesaid shall be deemed sufficiently served or given for all purposes under this Agreement upon the earliest of (i) actual receipt (including receipt of a facsimile copy, but only if an original of such facsimile is properly sent by overnight courier as provided above) or refusal by the addressee, or (ii) two (2) days following the date such notices, demands or requests shall be deposited in any Post Office, or branch Post Office regularly maintained by the United States Government, or (iii) one (1) business day after delivered to the overnight courier service, as the case may be.

16. Fire or Other Casualty.

(a) Seller agrees to maintain in effect until the Closing Date the fire and extended coverage insurance policies now in effect on the Real Property (or substitute policies in equal or greater amounts).

(b) If any portion of the Real Property shall be damaged or destroyed by fire or other casualty between the date of this Agreement and the Closing Date, Seller shall promptly give written notice thereof to Buyer. The obligation of Buyer to complete Closing under this Agreement shall in no way be voided or impaired by reason thereof, and Buyer shall be required to accept the Property in its then damaged condition without abatement of the Purchase Price. In such case, the proceeds of all fire and extended coverage insurance policies attributable to the Property received by Seller prior to the Closing Date and not used by Seller for protection or emergency repairs (and Buyer authorizes Seller to use the proceeds for such purposes) shall be disbursed by Seller to Buyer at Closing; and all unpaid claims under such insurance policies attributable to the Property shall be assigned by Seller to Buyer on the date of Closing. There shall be no other reduction in the Purchase Price by reason of such unpaid claim.

17. Condemnation.

(a) If any part of the Real Property shall be taken prior to the Closing Date by exercise of the power of eminent domain that does not materially interfere with Buyer's intended redevelopment or use of the Real Property, this Agreement shall continue in full force and effect and there shall be no abatement of the Purchase Price. Seller shall be relieved, however, of its duty to convey title to the portion of the Real Property so taken, but Seller shall, on the Closing Date, assign to Buyer all rights and claims to any awards arising therefrom as well as any money theretofore received by Seller on account thereof, net of any expenses actually incurred by Seller, including reasonable attorney's fees of collecting the same. Seller shall furnish Buyer with a copy of the declaration of taking and all other related documentation promptly after Seller's receipt thereof.

(b) If any taking of a portion of the Real Property prior to the Closing Date would materially interfere with Buyer's intended redevelopment or use of the Real Property, Buyer may terminate this Agreement by giving written notice to Seller within ten (10) days after Seller's notice to Buyer of the occurrence of such a taking. Upon the giving of such termination notice, the Deposit shall be returned to Buyer and this Agreement shall become null and void, except for the indemnity and confidentiality obligations of Buyer to Seller set forth in this Agreement which will survive termination of this Agreement. If Buyer does not timely give notice of termination, Buyer shall be deemed to have waived its option contained herein to terminate this Agreement, Buyer's obligations under this Agreement

PHL:5047368.6/ALL154-224630 Exhibit A shall remain in effect notwithstanding such condemnation, Buyer shall remain obligated to consummate the purchase in accordance with the terms of this Agreement and the penultimate sentence of Paragraph 17(a) shall control.

18. Assignability. Buyer may not assign this Agreement and/or its rights under this Agreement without the prior written consent of Seller, which consent Seller may deny in its sole and absolute discretion. Notwithstanding anything to the contrary contained in this Section 18, Buyer may assign, at Closing (and at no time prior thereto), all of its rights and delegate all of its obligations hereunder to any Affiliate (as hereinafter defined) of Buyer which is under the control of Buyer. In connection with any assignment permitted or consented to hereunder, such assignee shall assume in writing all of the assignor's obligations under this Agreement in form and substance satisfactory to Seller, provided that Buyer originally named herein shall not be relieved from its obligations under this Agreement. Any other purported or attempted assignment or delegation without obtaining Seller's prior written consent or not otherwise permitted hereunder shall be void and of no effect. Any change in control of Buyer or of any of the direct or indirect ownership interests in Buyer, at any level or tier of ownership, whether in one transaction or a series of transactions, shall constitute an assignment for purposes of this Section 18. For purposes of this Section 18, the capitalized term (a) "Affiliate" means (i) any corporation in which Buyer or any partner, shareholder, director, officer, member, or manager of Buyer directly or indirectly owns or controls more than fifty-one percent (51%) of the beneficial interest, (ii) any partnership, joint venture or limited liability company in which Buyer or any partner, shareholder, director, officer, member, or manager of Buyer is a partner, joint venturer or member, and (iii) any trust in which Buyer or any partner, shareholder, director, officer, member or manager of Buyer is a trustee or beneficiary, and (b) "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the entity in question, whether through the ownership of voting stock, by contract or otherwise. No consent given by Seller to any transfer or assignment of Buyer's rights or obligations hereunder shall be construed as a consent to any other transfer or assignment of Buyer's rights or obligations hereunder. Buyer shall not resell the Property or any part thereof through a "double escrow" or other similar procedure without Seller's prior written consent, which consent may be granted or withheld in Seller's sole discretion. No transfer or assignment in violation of the provisions hereof shall be valid or enforceable. Subject to the foregoing limitations, this Agreement shall extend to, and shall bind, the respective heirs, executors, personal representatives, successors and assigns of Seller and Buyer.

19. Brokers. Each of Seller and Buyer represents and warrants to the other that it has dealt with no broker or other intermediary in connection with this transaction. If any broker or other intermediary claims to be entitled to a fee or commission by reason of having dealt with Seller or Buyer in connection with this transaction, or having introduced the Real Property to Buyer for sale, or having been the inducing cause to the sale, the party with whom such broker claims to have dealt shall indemnify, defend and save harmless the other party of and from any claim for commission or compensation by such broker or other intermediary. This Paragraph 19 shall survive the termination of this Agreement and/or the Closing and delivery of the Deed.

20. CONDITION OF THE PROPERTY.

(a) NO WARRANTIES. THE ENTIRE AGREEMENT BETWEEN SELLER AND BUYER WITH RESPECT TO THE PROPERTY AND THE SALE THEREOF IS EXPRESSLY SET FORTH IN THIS AGREEMENT. THE PARTIES ARE NOT BOUND BY ANY AGREEMENTS, UNDERSTANDINGS, PROVISIONS, CONDITIONS, REPRESENTATIONS OR WARRANTIES (WHETHER WRITTEN OR ORAL AND WHETHER MADE BY SELLER OR ANY AGENT, EMPLOYEE OR PRINCIPAL OF SELLER OR ANY OTHER PARTY) OTHER THAN AS ARE EXPRESSLY SET FORTH IN THIS AGREEMENT. WITHOUT IN ANY MANNER LIMITING THE

PHL:5047368.6/ALL154-224630 Exhibit A GENERALITY OF THE FOREGOING, BUYER ACKNOWLEDGES THAT IT AND ITS REPRESENTATIVES HAVE FULLY INSPECTED THE PROPERTY, THE LEASES AND THE EXISTING AGREEMENTS, OR HAVE BEEN PROVIDED WITH AN ADEQUATE OPPORTUNITY TO DO SO, ARE OR WILL BE FULLY FAMILIAR WITH THE FINANCIAL AND PHYSICAL (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL) CONDITION THEREOF, AND THAT THE PROPERTY, THE LEASES AND EXISTING AGREEMENTS ARE BEING PURCHASED BY BUYER IN AN "AS IS" AND "WHERE IS" CONDITION AND WITH ALL EXISTING DEFECTS (PATENT AND LATENT) AS A RESULT OF SUCH INSPECTIONS AND INVESTIGATIONS AND NOT IN RELIANCE ON ANY AGREEMENT, UNDERSTANDING, CONDITION, WARRANTY (INCLUDING, WITHOUT LIMITATION, WARRANTIES OF HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE) OR REPRESENTATION MADE BY SELLER OR ANY AGENT, EMPLOYEE OR PRINCIPAL OF SELLER OR ANY OTHER PARTY (EXCEPT AS OTHERWISE EXPRESSLY ELSEWHERE PROVIDED IN THIS AGREEMENT) AS TO THE FINANCIAL OR PHYSICAL (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL) CONDITION OF THE PROPERTY OR THE AREAS IN THE VICINITY OF THE REAL PROPERTY, OR AS TO ANY OTHER MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, AS TO ANY PERMITTED USE THEREOF, THE POSSIBLE REDEVELOPMENT OF THE REAL PROPERTY, THE ZONING CLASSIFICATION THEREOF OR COMPLIANCE THEREOF WITH FEDERAL, STATE OR LOCAL LAWS, AS TO INCOME OR EXPENSE IN CONNECTION THEREWITH, OR AS TO ANY OTHER MATTER IN CONNECTION THEREWITH. EXCEPT AS OTHERWISE EXPRESSLY ELSEWHERE PROVIDED IN THIS AGREEMENT OR ANY INSTRUMENT DELIVERED BY SELLER AT CLOSING, NONE OF SELLER, ANY AGENT OR EMPLOYEE OF SELLER, OR ANY OTHER PARTY ACTING ON BEHALF OF SELLER, HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY SUCH AGREEMENT, CONDITION, REPRESENTATION OR WARRANTY EITHER EXPRESSED OR IMPLIED.

(b) Between the Effective Date and the Closing Date, Seller shall perform all customary and ordinary repairs to the Property as Seller has customarily previously performed to maintain them in substantially the same condition as they are as of the date of this Agreement, as said condition shall be changed by wear and tear, or by fire or other casualty. Notwithstanding the foregoing, Seller shall have no obligation to make any structural or extraordinary repairs or capital improvements.

(c) RELEASE. WITHOUT LIMITING THE PROVISIONS OF PARAGRAPH 19(a) ABOVE AND NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, BUYER HEREBY RELEASES SELLER AND (AS THE CASE MAY BE) SELLER'S PARTNERS AND THEIR RESPECTIVE MEMBERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, MANAGERS AND AGENTS FROM ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTIONS, LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES WHETHER THE SUIT IS INSTITUTED OR NOT) WHETHER KNOWN OR UNKNOWN, LIQUIDATED OR CONTINGENT (HEREINAFTER COLLECTIVELY CALLED "CLAIMS") ARISING FROM OR RELATING TO (i) ANY DEFECTS (PATENT OR LATENT), ERRORS OR OMISSIONS IN THE DESIGN OR CONSTRUCTION OF THE PROPERTY WHETHER THE SAME ARE THE RESULT OF NEGLIGENCE OR OTHERWISE, OR (ii) ANY OTHER CONDITIONS, INCLUDING ENVIRONMENTAL AND OTHER PHYSICAL CONDITIONS, AFFECTING THE PROPERTY WHETHER THE SAME ARE THE RESULT OF NEGLIGENCE OR OTHERWISE. THE RELEASE SET FORTH IN THIS PARAGRAPH SPECIFICALLY INCLUDES, WITHOUT LIMITATION, ANY CLAIMS UNDER ANY ENVIRONMENTAL LAWS OF THE UNITED STATES, THE STATE IN WHICH THE REAL PROPERTY IS LOCATED OR ANY POLITICAL SUBDIVISION THEREOF, AND UNDER THE AMERICANS WITH DISABILITIES ACT OF 1990, AS ANY OF THOSE LAWS MAY BE AMENDED FROM TIME TO TIME, AND

PHL:5047368.6/ALL154-224630 Exhibit A ANY REGULATIONS, ORDERS, RULES, PROCEDURES OR GUIDELINES PROMULGATED IN CONNECTION WITH SUCH LAWS, REGARDLESS OF WHETHER THEY ARE IN EXISTENCE ON THE DATE OF THIS AGREEMENT. BUYER ACKNOWLEDGES THAT BUYER HAS BEEN REPRESENTED BY LEGAL COUNSEL OF BUYER'S SELECTION AND BUYER IS GRANTING THIS RELEASE OF ITS OWN VOLITION AND AFTER CONSULTATION WITH BUYER'S COUNSEL.

(d) BUYER ACKNOWLEDGES THAT, PRIOR TO BUYER'S EXECUTION OF THIS AGREEMENT, SELLER DELIVERED TO BUYER AND BUYER REVIEWED THE MATERIALS AND INFORMATION CONCERNING THE PROPERTY IDENTIFIED OR REFERRED TO ON EXHIBIT "I" TO THIS AGREEMENT (COLLECTIVELY, "PROPERTY INFORMATION PACKAGE"). BUYER ACKNOWLEDGES AND UNDERSTANDS THAT THE PROPERTY INFORMATION PACKAGE HAS BEEN PREPARED BY PARTIES OTHER THAN SELLER, AND THAT SELLER AND ITS AGENTS, SUBAGENTS AND REPRESENTATIVES MAKE NO REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, AS TO THE COMPLETENESS, CONTENT OR ACCURACY OF THE PROPERTY INFORMATION PACKAGE. BUYER SPECIFICALLY RELEASES SELLER AND ITS AGENTS, SUBAGENTS AND REPRESENTATIVES FROM ALL CLAIMS ASSERTED AGAINST OR INCURRED BY BUYER BY REASON OF THE INFORMATION CONTAINED IN, OR THAT SHOULD OR COULD HAVE BEEN CONTAINED IN, THE PROPERTY INFORMATION PACKAGE.

(e) The provisions of this Paragraph 20 shall survive Closing and delivery of the Deed.

21. Survival of Provisions.

(a) Acceptance by Buyer of the Deed at Closing shall constitute an acknowledgment by Buyer of full performance by Seller of all of Seller's obligations under this Agreement, except for the obligations of Seller which are expressly provided in this Agreement to survive Closing. The representations and warranties of Seller set forth in Paragraph 10 of this Agreement shall not survive Closing under this Agreement. Seller shall have no liability with respect to any of Seller's representations or warranties contained in this Agreement to the extent that, prior to Closing, Buyer obtains knowledge of any breach of a representation or warranty of Seller contained in this Agreement and Buyer nevertheless completes Closing.

(b) Any of Buyer's obligations under this Agreement that are expressly provided in this Agreement to survive Closing or that shall possibly imply performance or observance after the Closing Date shall survive Closing and delivery of the Deed, notwithstanding any presumption to the contrary.

22. Miscellaneous.

(a) The captions or headings of the Paragraphs and subparagraphs of this Agreement are for convenience only, and shall not control or affect the meaning or construction of any of the terms or provisions of this Agreement. Wherever in this Agreement the singular number is used, the same shall include the plural and vice versa and the masculine gender shall include the feminine gender and vice versa as the context shall require.

(b) No change, alteration, amendment, modification or waiver of any of the terms or provisions of this Agreement shall be valid, unless the same shall be in writing and signed by Buyer and Seller.

PHL:5047368.6/ALL154-224630 Exhibit A (c) This Agreement may be executed in multiple counterparts each of which shall be deemed an original but together shall constitute one agreement. Signatures of the parties hereto on copies of this Agreement transmitted by facsimile machine shall be deemed originals for all purposes hereunder, and shall be binding upon the parties hereto.

(d) This Agreement shall be governed and construed according to the laws of the State in which the Real Property is located.

(e) Either party may waive any of the terms and conditions of this Agreement made for its benefit provided such waiver is in writing and signed by the party waiving such term or condition.

(f) If any term, covenant, condition or provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable, at any time or to any extent, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, unless such invalidity or unenforceability materially frustrates the intent of the parties as set forth herein. Each term, covenant, condition and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law.

(g) This Agreement shall not be filed of record by or on behalf of Buyer in any office or place of public record. If Buyer fails to comply with the terms hereof by recording or attempting to record this Agreement or a notice thereof, such act shall not operate to bind or cloud the title to the Real Property. Seller shall, nevertheless, have the right forthwith to institute appropriate legal proceedings to have the same removed from record. If Buyer or any agent, broker or counsel acting for Buyer shall cause or permit this Agreement or a copy thereof to be filed in an office or place of public record, Seller, at its option, and in addition to Seller's other rights and remedies, may treat such act as a material default of this Agreement on the part of Buyer. However, the filing of this Agreement in any lawsuit or other proceedings in which such document is relevant or material shall not be deemed to be a violation of this Paragraph.

(h) Time, wherever stated in this Agreement, is declared to be of the essence of this Agreement. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period provided in this Agreement shall end on a Saturday, Sunday or legal holiday, then the final day shall extend to 5:00 p.m. of the next business day. For the purposes of this Paragraph, the term "holiday" shall mean a day other than a Saturday or Sunday on which banks in the state in which the Real Property is located are or may elect to be closed.

23. Deposit Instructions.

(a) The Title Company joins in this Agreement to evidence its agreement to hold the Deposit received by it in accordance with the terms and conditions of this Paragraph 23 and pursuant to written instructions of Seller and Buyer. The following provisions shall control with respect to the rights, duties and liabilities of the Title Company.

(b) The Title Company acts under this Agreement as a depository only and is not responsible or liable in any manner whatsoever for the (i) sufficiency, correctness, genuineness or validity of any written instrument, notice or evidence of a party's receipt of any instruction or notice which is received by the Title Company, or (ii) identity or authority of any person executing such instruction notice or evidence.

PHL:5047368.6/ALL154-224630 Exhibit A (c) The Title Company shall have no responsibility hereunder except for the performance by it in good faith of the acts to be performed by it hereunder, and the Title Company shall have no liability except for its own willful misconduct or gross negligence.

(i) If demand for the Deposit is made upon the Title Company by either Seller or Buyer, with a copy to the non-demanding party and the Title Company, the non-demanding party shall have five (5) days to object in writing to the demand for the Deposit.

(ii) The Title Company shall be reimbursed on an equal basis by Buyer and Seller for any reasonable expenses incurred by the Title Company arising from a dispute with respect to the amount held in escrow, including the cost of any reasonable legal expenses and court costs incurred by the Title Company, should the Title Company deem it necessary to retain an attorney with respect to the disposition of the amount held in escrow.

(iii) In the event of a dispute between Seller and Buyer with respect to the disposition of the amount held in escrow, the Title Company shall be entitled, at its own discretion but shall not be required, to deliver such amount to a court of competent jurisdiction. In the event of any disagreement between Seller and Buyer resulting in conflicting instructions to, or adverse claims or demands upon the Title Company with respect to the release of the Deposit, the Title Company may refuse to comply with any such instructions, claims or demands so long as such disagreement shall continue, and in so refusing the Title Company shall not release the Deposit , or make any other disposition of the Deposit. The Title Company shall not be or become liable in any way to Seller or Buyer for its failure or refusal to comply with any such conflicting instructions or adverse claims or demands, and it shall be entitled to continue to refrain from acting until such conflicting or adverse claims or demands shall have been (a) adjusted by agreement and it shall have been notified in writing by Seller and Buyer or (b) finally determined by a court of competent jurisdiction.

(iv) The Title Company shall invest the amount in escrow in accounts which are federally insured or which invest solely in government securities and shall be applied in accordance with the terms of this Agreement. Interest earned thereon shall be added to and constitute a part of the Deposit.

(v) Seller and Buyer hereby jointly and severally indemnify and agree to indemnify and save the Title Company harmless for any and all loss, damage, claims, liabilities, judgments, and other cost and expense of every kind and nature which may be incurred by the Title Company by reason of its acceptance of, and its performance under this Agreement (including, without limitation, reasonable attorney's fees) except any acts or omissions arising from the Title Company's willful default or negligence.

(d) In order to assure compliance with the requirements of Section 6045 of the Internal Revenue Code (the "Code"), and any related reporting requirements of the Code, the parties agree as follows:

(i) The Title Company is designated as the person to be responsible for all information reporting under Section 6045(e) of the Code.

(ii) Seller and Buyer shall:

(A) provide to the Title Company all information and certifications regarding such party, as reasonably requested by the Title Company or otherwise required to be provided by a party to the transaction described herein under Section 6045 of the Code; and

PHL:5047368.6/ALL154-224630 Exhibit A (B) provide to the Title Company such party's taxpayer identification number and a statement (on Internal Revenue Service Form W 9 or an acceptable substitute form, or on any other form the applicable current or future Code sections and regulations might require and/or any form requested by the Title Company), signed under penalties of perjury, stating that the taxpayer identification number supplied by such party to the Title Company is correct.

IN WITNESS WHEREOF, the parties hereto, intending legally to be bound, have executed this Agreement as of the date first above written.

PHL:5047368.6/ALL154-224630 Exhibit A SHOPPING CENTER PURCHASE AGREEMENT

THIS SHOPPING CENTER PURCHASE AGREEMENT (“Agreement”) is made as of the Effective Date (as defined in Section 1.6 below) by and between WEIS PLAZA ACQUISITION, L.P., a Pennsylvania limited partnership (“Seller”), and ______an Ohio limited liability company (“Purchaser”).

R E C I T A L S

A. Seller owns certain real property and the shopping center and other improvements thereon known as “Weis Plaza” or “Grant Plaza” located on State Route No. 222 (a.k.a. Allentown Pike), in the Township of Maxatawny Township, Berks County, Pennsylvania, as described on Exhibit A attached hereto, together with all appurtenant hereditaments, tenements, easements, rights, leases and rents (“Property”).

B. Seller has agreed to sell and Purchaser has agreed to purchase the Property in accordance with and subject to the terms and conditions of this Agreement.

NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is acknowledged, the parties agree as follows:

1. BASIC PROVISIONS

The following words and phrases are defined for subsequent use in this Agreement:

1.1 Closing. The consummation of the transaction contemplated by this Agreement and closing of title (“Closing”) shall occur, if at all, on a date no later than fifteen (15) days after the expiration of the Inspection Period (defined in Section 1.7 below) as designated by Purchaser on at least two (2) business days’ prior notice, provided that all Conditions (defined in Section 1.3 below) have been satisfied or waived in writing by Purchaser, and shall occur at or through the offices of the Title Company (defined in Section 1.17 below) acting as settlement agent.

1.2 Commitment. A commitment for an ALTA Form B (if available) owner’s policy of title insurance with respect to the Property in the amount of the Purchase Price committing the Title Company to insure Purchaser as the fee simple owner of the Property, subject only to the Permitted Exceptions (defined in Section 1.11 below).

1.3 Conditions. The conditions precedent to Purchaser’s obligation to purchase the Property, which conditions are as follows:

(i) Physical/Financial Review Condition. Purchaser’s satisfaction in its sole and absolute discretion, with all physical aspects of the Property, including, but not limited to, its environmental condition, structural condition, the condition of the roof and the HVAC system and the condition of all parking, drive, walkway and landscaped areas and off-site improvements, if any, appurtenant thereto and Purchaser’s satisfaction, in its sole and absolute discretion, with the revenue generated or to be generated from the Property and the expenses incurred and to be incurred in the operation and maintenance of the Property;

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(ii) Title Condition. Purchaser’s satisfaction with the state of title to the Property, in accordance with Section 3.7 below; and

(iii) Estoppel Condition/SNDA Condition. Subject to Section 5.3(iv), Seller providing to Purchaser estoppel letters (“Estoppels”) from the Major Tenants in a mutually agreed upon form, same to be acceptable to Purchaser in its sole and absolute discretion (the “Estoppel Condition”) and, to the extent the purchase of the Property is being financed by mortgage financing,individually, an “Estoppel” and collectively, the “Estoppels”) from the Major Tenants (as defined in Section 1.9) in the form of the same attached hereto as Exhibit B and incorporated herein by reference (the “Estoppel Condition”) and subordination, non-disturbance and attornment agreements (“SNDA”) acceptable to Purchaser’s mortgage lender in such lender’s sole and absolute discretion (the “SNDA Condition”) from the Major Tenants (as defined in Section 1.9) of the Propertyindividually, an “SNDA” and collectively, the “SNDAs”) from the Major Tenants (the “SNDA Condition”), same to be on the forms required by Purchaser’s intended mortgagee, such forms to be provided to Seller not less than thirty (30) days prior to the initial date of Closing (or the forms otherwise required under the applicable tenant Lease (defined below)). Qualifications such as, “to the best of tenant’s knowledge” or language similar thereto in the Estoppels and/or the SNDAs shall be acceptable. In no event shall thean SNDA increase any of the tenant’s obligations or decrease any of their rights under their respective leases without the consent of the respective tenants. The Estoppels and subordination, non-disturbance and attornment agreementsthe SNDAs shall be dated no earlier than thirty (30) days prior to Closing or the Effective Date or such later date as is otherwise reasonably designated by Purchaser’s intended mortgagee, to the extent there is to be a mortgagee. In connection with the Estoppel Condition, Purchaser shall have the right, in its sole discretion, to reject any Estoppel obtained by Seller which alleges any material default under the applicable Lease (defined below), and, in the exercise of its reasonable discretion, to reject any Estoppel obtained by Seller which alleges any other default by Seller under the applicable Lease, such rights to be exercised if at all within five days after receipt by Purchaser of any such Estoppel.

(iv) Contingencies. Purchaser shall retain the right to approve or disapprove any and all final leasesLeases for new or renewing Tenantstenants prior to the execution of said leasesLeases, such approval not to be unreasonably withheld, conditioned or delayed. Seller further agrees that it shall use commercially reasonable efforts to complete the current façade replacement project along with the installation of the new pylon and tenant signs, weather permitting, failing which the Seller shall at Closing assign the Contracts (as defined in Section 1.4) to Purchaser and provide Purchaser with a credit against the Purchase Price in an amount equal to 125% of the then outstanding unpaid balance that will be required to be paid under the Contracts to complete the work as provided for therein plus all retainage held by Seller as of the date of the Closing. Purchaser agrees to indemnify, defend and hold Seller harmless from and against all claims of the contractors under the Contracts arising from Purchaser’s failure to pay the balance owed under the Contracts for which Purchaser has received a credit against the Purchase Price. Seller agrees to indemnify, defend and hold Purchaser harmless from and against all claims of the contractors under the Contracts arising from Seller’s failure to pay sums due under the Contracts prior to the date of Closing.

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1.4 Contracts. (i) Agreement dated July 27, 2005 between Seller and National Maintenance & Build Out Company, LLC (for new façade work), and (ii) Agreement dated November 10, 2005 between Seller and Compass Sign Company for the new pylon and tenant signs.The contracts identified on Exhibit C attached hereto and incorporated herein by reference.

1.5 Deposit. One Hundred Thousand and 00/100 Dollars ($100,000.00) on the Effective Date and an additional One Hundred Thousand and 00/100 Dollars ($100,000.00) following the expiration of the Inspection Period as set forth in Section 2.

1.6 Effective Date. The date on which Purchaser receives from Seller one fully executed copy of this Agreement.

1.7 Inspection Period. The period commencing on the Effective Date, and concluding at 11:59 p.m. eastern time on the forty-fifth (45) day thereafter.

1.8 Lease or Leases. As the context dictates, individually or collectively, a lease, license, or other written permission to occupy the Property, true, accurate and complete copies of which shall be delivered to Purchaser, if not sooner, together with Seller’s Documents.

1.9 Major Tenant. (i) Weis Markets, Inc., (ii) Dolgencorp, Inc., (iii) Radio Shack and (iv) Curves.

1.10 Material Adverse Change. A material adverse change in the physical or financial condition of the Property negatively affecting the income generated or to be generated from the Property and/or the expenses to be incurred in operating the Property (e.g., one or more Major Tenants cease operating from the Property and/or terminate their Leases) and/or the public announcement by any Major Tenant that it shall be closing its store from the Property, that it intends to close its store from the Property and/or that it has or intends to file for bankruptcy protection from its creditors.

1.11 Permitted Exceptions. The encumbrances or exceptions to title shown in the Commitment (other than the “standard” exceptions and other than any exceptions evidencing or securing liquidated amounts such as, but not limited to, mortgage financing and/or construction or other liens) to which Purchaser does not object prior to the expiration of the Inspection Period or which are otherwise allowed pursuant to this Agreement or which with Purchaser’s consent are waived and accepted or insured over.

1.12 Personal Property. Those items owned by Seller, if any, listed on Exhibit CD attached hereto and incorporated herein by reference, located upon the Property and/or used in connection therewith and owned by Seller.

1.13 Purchase Price. Five Million Five Hundred Thousand and 00/100 ($5,500,000) Dollars.

1.14 Representations. The representation and warranties as set forth on Exhibit DG attached hereto and incorporated herein by reference. 3 40641/0075-1414047v4

1.15 Seller Debts. Seller Debts are the debts, liabilities, taxes, obligations and claims for which Seller alone under this Agreement is liable and shall include (a) all payments and benefits to past and/or present employees of Seller in connection with the business being conducted on or from the Property as may have accrued through Closing, (including, but not limited to, salaries, wages, commissions, bonuses, vacation pay, health and welfare contributions, pensions, profit sharing, severance or termination pay, or any other form of compensation or fringe benefit), (b) obligations of Seller under any Leases or occupancy agreements arising prior to Closing, unless specifically assumed by Purchaser, and (c) obligations of Seller under the Contracts arising prior to Closing. Seller shall be fully responsible for and shall indemnify, defend and hold Purchaser harmless with respect to all operations of Seller’s business from the Property prior to Closing including, but not limited to all suits, actions, damages and claims which may be asserted or threatened against Purchaser from and after Closing, but which shall have arisen out of any aspect of the business or its operations prior to Closing. Purchaser shall be fully responsible for and shall indemnify, defend and hold Seller harmless with respect to all operations of Purchaser’s business from the Property after Closing, including but not limited to all suits, actions, damages and claims which may be asserted or threatened against Seller from and after Closing which shall arise out of any aspect of the business of Purchaser or its operations after the Closing.

1.16 Seller’s Documents. All of the documents and other instruments listed on Exhibit EF attached hereto and incorporated herein by reference to the extent in Seller’s possession.

1.17 Title Company. LandAmerica Financial Group, Inc. of 1050 Wilshire, Suite 310, Troy, Michigan 48084-1526, Attention Maxine Lievois, provided that, for purposes of holding the Deposit, the Title Company shall hold the same though its affiliate Commonwealth Land Title Insurance Company of New York, 2 Grand Central Tower, 140 East 45th Street, New York, New York 10017, Attention Douglas Forsyth.

2. PURCHASE AND SALE; DEPOSIT

Subject to the terms and conditions herein, Seller agrees to sell and Purchaser agrees to purchase the Property for the Purchase Price. Within two (2) business days after the Effective Date, Purchaser shall deposit the initial Deposit in the amount of One Hundred Thousand and 00/100 ($100,000.00) Dollars in escrow with the Title Company. In the event Purchaser does not elect to terminate this Agreement prior to the end of the Inspection Period as provided for in Section 3.4, then within two (2) business days after the expiration of the Inspection Period, Purchaser shall deposit the balance of the Deposit in the sum of One Hundred Thousand and 00/100 ($100,000.00) Dollars in escrow with the Title Company which sum shall be added to and become part of the total Deposit of Two Hundred Thousand and 00/100 ($200,000.00) Dollars. In the event of Closing, the Deposit shall be delivered to Seller and shall be applied as a credit against the Purchase Price. The Deposit shall be held in an interest bearing account with a federally insured financial institution and all interest earned thereon shall be deemed to be a portion of the Deposit. If this Agreement is terminated, the Deposit shall be refunded to Purchaser or delivered to Seller as provided for below.

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3. INSPECTION OF PROPERTY; CONDITIONS.

3.1 Purchaser’s obligation to purchase the Property is expressly conditioned upon Purchaser’s satisfaction with or waiver in writing of each of the Conditions. Purchaser shall pay all costs associated with the Conditions, including the premiums for the owner’s policy of title insurance to be issued pursuant to the Commitment, and the costs, if any, incurred by Seller in satisfying the Estoppel Condition.

3.2 Purchaser hereby acknowledges receipt from Seller of complete copies of all of Seller’s Documents. In addition, following the Effective Date Seller shall make all of its documents, books, records and other information related to the Property (collectively, “Evaluation Material”), however stored or maintained, available to Purchaser for Purchaser’s review at Seller’s offices during Seller’s normal business hours. Purchaser agrees that all Evaluation Material shall be kept strictly confidential provided however, that the Evaluation Material may be disclosed to the directors, officers, employees and partners of Purchaser, and to Purchaser’s lender, attorneys and accounting firm who need to know such information for the purpose of evaluating the proposed purchase of the Property. The provisions of this Section shall survive the termination of this Agreement.

3.3 Subject to Purchaser’s compliance with the provisions of this Section 3.3, during the Inspection Period Purchaser may make such investigations as it shall deem relevant in order to satisfy the Conditions. Such investigations may be conducted by Purchaser or its designees, including lawyers, engineers, accountants, architects, agents or employees. For the duration of this Agreement, Purchaser and its designees (collectively “Purchaser’s Representatives”) have the right and license to enter upon the Property during normal business hours and upon reasonable notice to Seller or its designated agents, and to conduct such tests, studies, audits and investigations (collectively “Investigations”) thereon as Purchaser shall reasonably desire. Purchaser shall: (i) promptly commence, and shall diligently and in good faith pursue, its due diligence review hereunder; (ii) maintain or cause to be maintained, at Purchaser’s expense, a policy of comprehensive general public liability insurance, with a broad form contractual liability endorsement and with a combined single limit of not less than Two Million and 00/100 ($2,000,000.00) Dollars per occurrence for bodily injury and property damage providing any pollution coverage, insuring Purchaser and its managing agent, as additional insureds, against any injuries or damages to persons or property that may result from or are related to (x) Purchaser’s and/or Purchaser’s Representatives entry upon the Property, (y) any Investigations or other activities conducted thereon, and/or (iii) any and all other activities undertaken by Purchaser and/or Purchaser’s Representatives, all of which insurance shall be on an “occurrence form” and otherwise in such forms and with an insurance company acceptable to Seller, and deliver a copy of such insurance policy to Seller prior to the first entry on the Property; and (z) not permit the Investigations or any other activities undertaken by Purchaser or Purchaser’s Representatives to result in any liens, judgments or other encumbrances being filed or recorded against the Property, and Purchaser shall, at its sole cost and expense, immediately discharge of record any such liens or encumbrances that are so filed or recorded (including, without limitation, liens for services, labor or materials furnished). Purchaser shall indemnify, defend and hold harmless Seller against any loss, liability, or expense resulting from Purchaser’s entry upon the Property. Purchaser shall repair all damage caused by Purchaser’s entry upon the

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Property and return the Property to substantially the condition existing immediately prior to such entry.

Without limiting the foregoing, in no event shall Purchaser: (x) without the prior written consent of Seller which consent shall not be unreasonably withheld, make any intrusive physical testing at the Property; (y) prior to the expiration of the Inspection Period interview any tenant of the Property except in the presence of Seller or its representatives which interview(s) shall be arranged on at least forty-eight (48) hours prior notice to Richard M. Hecker (via e-mail to [email protected], fax to 201.894.8833 or telephone to 201.894.5000 shall be deemed acceptable for these purposes, anything herein contained to the contrary notwithstanding) to Seller, unless upon receipt of such notice from Purchaser, Seller waives the right to be present (and, to the extent Seller fails to notify Purchaser (via e-mail, fax or telephone being deemed acceptable for these purposes, anything herein contained to the contrary notwithstanding) that it shall be present, it shall be presumed Seller shall have waived its right to be present) and/or (z) contact any governmental authority or quasi-governmental authority or the like having jurisdiction over the Property other than to make customary due diligence inquiries. Following the expiration of the Inspection Period Purchaser may contact and/or interview any tenants of the Property without notice to Seller. In the event Seller denies its consent to any request to perform intrusive testing and it is determined that such denial was unreasonable, then Seller shall be responsible for reimbursing Purchaser for the reasonable costs and expenses incurred in connection with the preparation of Purchaser’s Phase I report. The obligations under this Section shall survive the termination of this Agreement.

3.4 Purchaser shall have the right at any time prior to the end of the Inspection Period to terminate this Agreement, for any reason or no reason at all, upon notice to Seller, in which event (i) this Agreement shall terminate and be of no further force or effect, (ii) the Deposit shall be returned to Purchaser, and (iii) neither party shall have any further liability or obligation hereunder except to the extent such obligations expressly survive such termination.

3.5 If Purchaser notifies Seller in writing prior to the end of the Inspection Period that Purchaser is satisfied with or waives satisfaction of the Physical/Financial Review Condition, the parties shall proceed to Closing, subject to satisfaction or waiver of the Title Condition, SNDA Condition and the Estoppel Condition. If such notice is not given, (i) this Agreement shall terminate and be of no further force or effect, (ii) the Deposit shall be returned to Purchaser, and (iii) neither party shall have any further liability or obligation hereunder except to the extent such obligations expressly survive such termination.

3.6 Seller shall use commercially reasonable efforts to satisfy the Estoppel Condition/SNDA Condition within thirty (30) days after Purchaser has provided Seller with the Estoppels and, to the extent mortgage financing is being used in connection with Purchaser’s acquisition of the Property, the SNDA form required by Purchaser’s mortgageeon or before the conclusion of the Inspection Period. Purchaser shall prepare the estoppel certificatesEstoppels and the SNDAs. Seller shall deliver them to the tenants and follow up with good faith efforts to obtain executed copies back from the tenants. Notwithstanding the foregoing, to the extent Seller shall be unable to satisfy the Estoppel Condition/SNDA Condition, Purchaser shall have the right but not the obligation to seek to satisfy the Estoppel Condition/SNDA Condition for and on behalf of Seller and Seller shall employ commercially reasonable efforts to assist and 6 40641/0075-1414047v4

cooperate with Purchaser in connection therewith at no cost to Seller. In the event that Purchaser so chooses but is unable to satisfy the Estoppel Condition/SNDA Condition within the time period afforded to Seller, then in the event that failure to satisfy same relates to a failure to obtain estoppel certificatesone or more Estoppels, Purchaser shall have the right to waive satisfaction of the same, and, at Closing, to require a Seller’s Estoppel in accordance with Section 5.3(iv) below. In the event Purchaser so chooses and is unable to satisfy the Estoppel Condition/SNDA Condition, Purchaser shall have the right to terminate this Agreement no later than such thirty- fifth (35th) dayon or prior to the conclusion of the Inspection Period, upon notice to Seller, it being understood that the failure of Purchaser to notify Seller of its satisfaction or waiver with the Estoppel Condition/SNDA Condition on or before such 35th dayprior to conclusion of the Inspection Period shall be deemed to mean that Purchaser has terminated this Agreement. If Purchaser terminates the Agreement or is deemed to have terminated this Agreement pursuant to this paragraph, then (i) the Deposit shall be returned to Purchaser, and (ii) neither party shall have any further liability or obligation hereunder, except to the extent such obligations expressly survive such termination.

3.7 Purchaser, at its sole cost and expense, shall have the right to obtain a survey of the Property. Purchaser shall have the right, on or before the date ten (10) days prior to the expiration of the Inspection Period, to notify Seller of any objections to the state of title to the Property and/or objections to items shown on the Survey. Seller shall have the right but not the obligation to use its good faith efforts to remedy any such objections and shall have five (5) days from its receipt of any such notice to notify Purchaser of its proposed cure for each objection. If there are any liens or encumbrances against the Property securing liquidated amounts, Seller shall pay and discharge the same at or before Closing or at its option have such amounts paid off out of the Purchase Price. If Seller fails timely to provide such notice, Purchaser shall have the right: (a) to accept such objections as Permitted Exceptions to title to the Property, or (b) to terminate this Agreement upon notice to Seller on or before the expiration of the Inspection Period, in which event (i) this Agreement shall terminate and be of no further force or effect, (ii) the Deposit shall be returned to Purchaser, and (iii) neither party shall have any further liability or obligation hereunder except to the extent such obligations expressly survive such termination. Seller shall comply with all customary requirements set forth in Schedule B, Section I of the Commitment to enable the Title Company to hand mark the Commitment or provide a Pro Forma title policy as an effective ALTA owner’s policy of title insurance in the amount of the Purchase Price, effective at and as of the time of Closing, naming Purchaser as the insured thereunder and being subject only to the Permitted Exceptions. The same shall include such endorsements as Purchaser shall require (Purchaser shall pay for such title insurance and endorsements).

4. CURRENT OPERATIONS

4.1 From the Effective Date until the Closing or earlier termination of this Agreement, Seller shall not (i) enter into, modify, or terminate any lease, affecting the Property except in accordance with its terms, (ii) permit any Lease to terminate or be terminated, without Purchaser’s consent, which consent or (iii) collect any rent more than one (1) month in advance of when due. Prepaid rents for the current month in which Closing occurs shall be apportioned at the Closing. Security deposits shall be transferred to Purchaser by way of a credit against the Purchase Price. 7 40641/0075-1414047v4

4.2 From the Effective Date until the Closing or earlier termination of this Agreement, Seller shall conduct the business of the Property in the ordinary course, and will not: (i) transfer or convey the Property or any interest in Seller, or enter into any agreement to do so; (ii) voluntarily create or agree to any easements, liens, mortgages, encumbrances or other interests that would affect the Property or Seller’s ability to comply with this Agreement; (iii) enter into any contracts or commitments regarding the Property that would be binding on Purchaser; (iv) fail to maintain and repair the Property in at least the manner that Seller has done previously; (v) change Seller’s existing policies of public liability and hazard and extended coverage insurance insuring the Property; (vi) fail to comply or cause the responsible tenant(s) to comply promptly with any notices of violation of laws or municipal ordinances, regulations, orders or requirements of departments of building, fire, labor, health, or other state, city or municipal departments or other governmental authorities having jurisdiction against or affecting the Property or the use or operation thereof, without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed; and/or (vii) terminate any tax appeals, condemnation awards proceedings, insurance settlement negotiations or proceedings, zoning changes, public roadway and/or traffic realignment negotiations with public authorities or the like, and/or storm water management agreements, and the like benefiting the Property.

5. CLOSING.

5.1 Condition to Closing. The Closing shall occur on the date set for Closing in Section 1.1 above. Notwithstanding anything herein contained to the contrary, in the event that there has been any Material Adverse Change during the period between the date Purchaser notified Seller of its satisfaction with the Physical/Financial Review Condition and the date of Closing, Purchaser shall have the right, upon notice thereof to Seller on or prior to Closing, to terminate this Agreement and thereupon to receive an immediate refund of the Deposit and neither party shall thereafter have any further liability or obligation hereunder except for such liabilities and obligations that are expressly stated herein to survive termination of this Agreement.

5.2 Purchaser’s Deliveries. At the Closing, Purchaser shall cause to be delivered to Seller, via federal wire transfer of funds the Purchase Price, as adjusted by the adjustments set forth below. Purchaser shall assume by execution of the Assignment and Assumption of Leases and Contracts (in the form annexed hereto as Exhibit IJ) all of the landlord’s obligations under the Contracts and Leases, relating to periods subsequent to Closing including the obligation to refund security deposits of tenants of the Property but only as to those security deposits, together with interest thereon, for which Purchaser receives credit at the Closing against the Purchase Price, but excluding any landlord obligations set forth in any oral or side agreements between any tenant and Seller or any prior owner of the Property unless the same were disclosed in writing to Purchaser at the time of delivery of copies of the Leases to Purchaser. Furthermore, Seller shall indemnify, defend and hold Purchaser harmless of and from any loss, cost, liability or expense incurred by Purchaser on account of any such oral or side agreements. Purchaser shall not assume any obligations under the Leases for claims or suits of tenants asserted arising from the conductacts or omissions of Seller or from events occurring prior to the Closing and Seller shall indemnify, defend and hold Purchaser harmless from all loss, cost, liability and expense associated therewithwith the acts or omissions of Seller in connection with such 8 40641/0075-1414047v4

Leases arising prior to Closing (but not with respect to any other events occurring in connection with such Leases prior to Closing, i.e., those occurring during any other prior owner’s ownership of the Property). Purchaser shall have no liability with respect to any breach by Seller of Seller’s statutory obligations regarding security deposits of tenants of the Property and Seller shall indemnify, defend and hold Purchaser harmless from all loss, cost, liability and expense associated therewith.

5.3 Seller’s Deliveries. At the Closing (or as otherwise indicated below), Seller shall execute and/or deliver to Purchaser the following:

(i) A special warranty deed conveying fee simple title to the Property, subject only to the Permitted Exceptions in Section 1.11 above, to Purchaser, and one-half (1/2) of any required real estate transfer tax/documentary/deed tax affidavits and applications;

(ii) An Assignment and Assumption of Leases and Contracts in the form annexed hereto as Exhibit IJ. Purchaser shall similarly sign and deliver such Assignment and Assumption of Leases and Contracts.

(iii) A Bill of Sale in the form annexed hereto as Exhibit JK and assignment covering all of the Personal Property, warranties (specifically including the roof warranty, if any), all intangible rights associated with the Property and all claims, guaranties, warranties, indemnifications and all other rights, if any, which Seller may have against suppliers, laborers, materialmen, contractors or subcontractors arising out of the Property and such bill of sale shall warrant title to such Personal Property.

(iv) To the extent Purchaser has elected to waive satisfaction of the Estoppel Condition due to the failure of Seller to deliver the Estoppels called for hereunder in order to satisfy the Estoppel Condition, then, at Closing, Seller shall deliver a so-called “Seller Estoppel” as to each of the Major Tenants for which no such Estoppel has been obtained as of the Closing. Each such “Seller Estoppel” shall be executed by Seller and be in the same form as the Estoppel form to be delivered by Purchaser to Seller hereunder with the applicable lease information completed therein. Each such “Seller Estoppel” shall survive Closing until the earlier of (i) the date Purchaser receives an actual estoppel letter from the applicable tenant or (ii) six (6) months from Closing;

(v) An affidavit stating that the Rent Roll attached to this Agreement as an exhibit is, as of Closing, true, accurate and complete or noting any differences between such Rent Roll and the then current state of facts with respect to the matters set forth on the Rent Roll;

(vi) An affidavit stating that Seller is not a “Foreign Person” within the meaning of Internal Revenue Code Section 1445(f)(3) or Purchaser shall be entitled to withhold appropriate amounts as required by the Internal Revenue Code;

(vii) Exclusive possession of the Property to Purchaser, subject only to the Permitted Exceptions and the tenants under the Leases;

9 40641/0075-1414047v4

(viii) Evidence that all contracts relating to the operation and maintenance of the Property that could bind Purchaser subsequent to Closing, other than, including the Contracts, have been terminated as of the Closing;

(ix) On or before two (2) business days after Closing, Seller shall at Purchaser’s expense deliver to Purchaser’s offices at 11690 Grooms Road, Cincinnati, Ohio 45242, Attention Director of Lease Administration, all original Leases, lease files, correspondence files and other books and records, keys to all leased premises, security codes, if any, and maintenance agreements (e.g., HVAC maintenance agreement) relating solely to the Property in Seller’s and/or its property and/or asset manager’s possession;

(x) All existing plans and specifications in Seller’s possession relating to the improvements located upon the Property; all licenses and certificates of occupancy or such other comparable certificates or documents issued by the appropriate governmental authorities with respect to the Property or any part thereof in Seller’s possession; and

(xi) A notice to all tenants of the Property of the change of ownership of the Property and directing that rental and all other payments to be made by such tenants under their Leases shall be paid to Purchaser at an address to be designated by Purchaser in such notice.

(xii) A certification that all representations and warranties contained in Exhibit FG, to the extent same remain true, shall be repeated as of Closing, but shall not survive Closing.

5.4 Closing Statement. Seller and Purchaser shall execute and deliver to each other a Closing Statement showing the amounts by which the Purchase Price shall have been adjusted, such adjustments to be made as of the date of Closing, as follows:

(i) Taxes and assessments, special and otherwise, which are a lien against the Property and which are due and payable as of the date of Closing shall be paid (or caused to be paid) by Seller at or prior to Closing. All other liens which encumber the Property as of Closing shall be the sole responsibility of Seller; and paid out of the Purchase Price;

(ii) Current real estate taxes not reimbursable by tenants under the Leases shall be prorated between the parties based on local custom used for prorating real estate taxes in commercial transactions in the state in which the Property is located. Reimbursements received by Seller or Purchaser of amounts paid for current real estate taxes shall be prorated between the parties in the manner hereinabove provided for the proration of real estate taxes;

(iii) Seller and Purchaser shall each pay one-half (1/2) of all real estate transfer taxes and documentary stamps;

(iv) Seller shall deliver to Purchaser (or Purchaser shall receive a credit against the Purchase Price in the amount of) all unapplied security deposits provided for under the Leases (including all interest earned thereon if required by applicable laws);

(v) To the extent not paid directly by tenants, Seller shall pay all water, sewer, and utility charges, common area maintenance charges, and other operating expenditures through 10 40641/0075-1414047v4

Closing, and receive a credit for such charges applicable to periods after the Closing. If final readings have not been taken, estimated charges based on the most recent statements received shall be prorated between the parties, and post closing adjustments shall be made when the actual billings are received or an escrow shall be established to provide for payment of utility and other maintenance payables; this provision to survive Closing.

(vi) Seller shall not collect any rent more than one (1) month in advance of when due. Tenant rentals received by Seller prior to Closing for the month in which Closing occurs and any subsequent month (notwithstanding the first sentence of this subsection) shall be prorated between the parties with rentals paid for any period from and after the date of Closing allocated to Purchaser as a credit against the Purchaser Price. If and when Purchaser receives any past due rents or other charges owing with respect to periods before the Closing date, Purchaser shall be entitled to first apply such sums to current rent and other charges, and shall remit any excess sums allocable to periods prior to the date of Closing to Seller. Purchaser shall use good faith efforts to pursue collection of any delinquent amounts owing as of Closing to Seller from any of the tenants of the Property. Seller may independently pursue such claims but shall not disturb any tenant’s tenancy interest in the Property in the event Seller elects to pursue subsequent to Closing collection of any such delinquent amounts owed to Seller from one or more tenants.

(vii) If any tenants under the Leases are required to reimburse the landlord for a portion of operating and maintenance costs (including insurance and utilities), then, if not previously billed by Seller, Purchaser shall collect such reimbursements in the ordinary course of business as provided in the Leases, and all reimbursements shall be prorated between the parties based on the relative liability of each for the costs or expenses being reimbursed, Seller and Purchaser acknowledge and agree that Seller will not have sufficient time prior to Closing to reconcile additional rent charges with the tenant for calendar year 2005.2006. Therefore, as soon after the beginning of calendar year 2006 as is practicable, Seller shall cause such reconciliation and, with the cooperation of Purchaser, bill the tenants for any under payments or refund any overpayments of additional rent charges. Purchaser agrees to cooperate with Seller in connection with the preparation of such reconciliation, billing of tenants and collection thereof. This Section shall survive Closing.

6. “AS IS” PURCHASE

It is understood and agreed that all understandings and agreements heretofore had between Seller and Purchaser are merged in this Agreement, which alone fully and completely expresses their agreement, and neither party is relying upon any statement or representation not embodied in this Agreement, made by the other. Except as expressly provided herein, Purchaser represents that at or before Closing it: (i) has or shall have inspected the Property to its satisfaction; (ii) has or shall independently investigate, analyzed and appraised the value and profitability thereof; (iii) has or shall review all documents referred to herein or in Exhibits annexed hereto (other than those which will not be prepared or available to Purchaser until the Closing); (iv) is or will be thoroughly acquainted with all of the above; and (v) subject to the terms hereof, agrees to accept the Property “AS IS,” “WHERE IS” and “WITH ALL FAULTS” and in its present condition, subject however to the reasonable use, wear and tear and natural deterioration between the date hereof and the date of the Closing. Purchaser expressly 11 40641/0075-1414047v4 acknowledges that, neither Seller nor any agent or representative of Seller has made, and Seller is not liable for or bound by in any manner, any express or implied warranties, guarantees, promises, statements, inducements, representations or information contained in or pertaining to any document referred to herein or in any Exhibit annexed hereto or the Property or any other matter or thing with respect thereto, except as expressly provided herein.

Seller shall not be responsible for curing any governmental violations, notice of which hereafter is received, either prior to or subsequent to Closing, nor shall Purchaser be entitled to any abatement, reduction or other modification in the Purchase Price or in an of the other terms and provisions hereunder in the event of the occurrence and/or the receipt of notice of any such governmental violation, nor shall Seller prior to Closing, be responsible for performing any work or fulfilling any other obligation in connection with obtaining any governmental approval in connection with the sale of the Property or resulting from the physical and/or environmental condition of the Property. Purchaser, at its sole cost and expense, prior to Closing, shall be responsible for obtaining all governmental approvals (e.g., a Certificate of Occupancy), if required, in connection with the transfer of the Property as well as any other governmental approval in connection with the purchase of the Property or resulting from the use or physical and/or environmental condition of the Property. Purchaser agrees, if necessary, to promptly file for, and diligently prosecute, applications for any governmental approvals within ten (10) days following the Effective Date. In the event that any violations or defects at the Property are detected in connection with the inspections required for the issuance of the governmental approvals, Seller shall not be obligated to cure such defects.

7. NO ASSUMPTION OF LIABILITIES

The parties acknowledge that the purchase and sale of the Property involves only the purchase and sale of the Property and that Seller is not selling a business nor do the parties intend that Purchaser be deemed a successor of Seller with respect to any liabilities of Seller to any third parties other than the tenants under the Leases. Accordingly, Purchaser shall neither assume nor be liable for the Seller Debts or any of the debts, liabilities, taxes or obligations of, or claims against any other person or entity, of any kind or nature, whether existing now, upon Closing or at any time thereafter, which shall be solely those of Seller, and Seller hereby agrees to indemnify Purchaser against any liability with respect thereto.

8. DEFAULT

8.1 If Purchaser defaults in the performance of any of its obligations and/or covenants hereunder for in excess of ten (10) days after notice thereof from Seller (except that no notice and grace period shall apply with respect to payment of the Deposit installments or Closing), provided that Seller is not then in default hereunder, Seller’s sole and exclusive remedy shall be to terminate this Agreement, in which event (i) this Agreement shall terminate and be of no further force or effect, and (ii) the Deposit shall be delivered to Seller as liquidated damages and not as a penalty, the exact amount of damages to be suffered by Seller on account of any such default being difficult if not impossible to ascertain and Purchaser and Seller agreeing that such amount is a reasonable approximation of the damages to be suffered by Seller on account thereof. However, Seller may not enforce such remedy against Purchaser (a) if Seller is in

12 40641/0075-1414047v4

default under this Agreement, or (b) unless Purchaser fails to cure such default within ten (10) days after receipt of written notice from Seller specifying that Purchaser is in default.

8.2 If Seller defaults in the performance of any of its obligations and/or covenants hereunder for in excess of ten (10) days after notice thereof to Seller provided that Purchaser is not then in default hereunder, Purchaser’s remedy on account thereof shall be either (i) the termination of this Agreement upon written notice thereof to Seller, in which case the Deposit shall be promptly refunded to Purchaser and neither party shall thereafter have any further liability or obligation hereunder, or (ii) Purchaser may seek the specific performance of Seller’s obligations under this Agreement from a court of competent jurisdiction or (iii) to the extent specific performance shall not be an available remedy on account of the nature of the default, Purchaser shall be entitled to recover from Seller, in addition to the Deposit, its reasonable and actual out-of-pocket costs and expenses incurred in connection with the transaction contemplated by this Agreement, provided that, the same shall not exceed the aggregate sum of $75,000.00 in any event.

9. CASUALTY

If any improvements on the Property are damaged or destroyed by fire, storm or other casualty on or before Closing and as a result thereof, there has been a Material Adverse Change on or prior to Closing then, anything herein contained to the contrary, Purchaser may terminate this Agreement within fifteen (15) days after receiving notice of such casualty upon notice to Seller, in which event (i) this Agreement shall terminate and be of no further force or effect, (ii) the Deposit shall be returned to Purchaser, and (iii) neither party shall have any further liability or obligation hereunder except as otherwise expressly provided for herein.

If any improvements on the Property are damaged but such damage does not, pursuant to this paragraph, give Purchaser the right to terminate this Agreement, or if Purchaser has the right to terminate but elects not to do so, then, at Closing, Purchaser shall be entitled to receive an absolute assignment without representation, warranty or recourse from Seller of Seller’s interest in the proceeds of any insurance on the Property (including any rent loss insurance allocable to the period from and after Closing) and Seller shall pay to Purchaser the amount of any deductible, without any reduction in the Purchase Price.

10. CONDEMNATION

If notice of any action, suit or proceeding shall be given prior to Closing for the purpose of condemning any part of the Property, and as a result thereof any of the Major Tenants of the Property have the right to terminate their Leases, and/or any action, suit or proceeding shall be given prior to Closing for the purpose of condemning any portion of the parking areas of the Property such that the remaining area will not satisfy the minimum parking requirements under applicable zoning regulations, and/or in the event that any of the vehicular access points into the Property shall be permanently impeded in any material way either through the condemnation (or the tendering of a deed in lieu thereof) of any such access points or through the closure or

13 40641/0075-1414047v4

material reduction in the utility of any of the roadways adjoining the Property or in proximity to the Property (e.g., the reduction of the number of lanes within a roadway servicing the Property or the actual closure of any such roadway), then Purchaser may terminate this Agreement within fifteen (15) days after receiving notice of such casualty upon notice to Seller, in which event (i) this Agreement shall terminate and be of no further force or effect, (ii) the Deposit shall be returned to Purchaser, and (iii) neither party shall have any further liability or obligation hereunder except as otherwise expressly set forth herein; but if Purchaser does not elect to terminate this Agreement, then in the event of Closing, the proceeds of such condemnation shall be assigned and shall belong to Purchaser.

11. BROKER

Each party represents and warrants to the other that they have not dealt with a real estate broker or finder in connection with the purchase and sale of the Property, other than Anthony Cassano of NAI James E. Hanson (“Broker”). In the event of Closing, Seller shall pay Broker a commission pursuant to a separate written agreement between Seller and Broker. In Seller’s commission agreement with Broker, Seller shall cause Broker to agree not to disclose the Purchase Price paid hereunder to any third party including any multi list. Purchaser shall indemnify Seller against any liability for brokerage commissions, finders’ fees or the like (collectively, “Commissions”) arising from the purchase of the Property that may be claimed by any party alleging to have been retained or utilized by Purchaser, with the exception of Commissions payable to Broker. Seller shall indemnify Purchaser against any liability for Commissions arising in connection with the sale of the Property which may be claimed by any party alleging to have been retained or utilized by Seller, including Commissions owing by Seller to Broker.

12. ADDITIONAL PROVISIONS; NOTICES; 1031 EXCHANGE

The provisions set forth on the Exhibits F, G and H attached hereto and incorporated herein by reference shall be deemed included in this Agreement. The representations and warranties set forth on Exhibit FG shall be deemed to be made as of the Effective Date and again as of the date of Closing but shall not survive Closing. Seller shall be obligated up through Closing to advise Purchaser of any knowledge Seller has or comes into with respect to a Material Adverse Change to the Property prior to Closing, failing of which, the same shall be deemed a breach of a warranty and representation without the ability in Seller to cure the same and thereafter, Purchaser shall have the right, upon notice thereof to Seller on or prior to Closing, to terminate this Agreement and thereupon to receive an immediate refund of the Deposit and neither party shall thereafter have any further liability or obligation hereunder except for such liabilities and obligations that are expressly stated herein to survive termination of this Agreement. In the event that either party shall be using the transaction contemplated hereby as part of an exchange of like kind property pursuant to Section 1031 of the Internal Revenue Code, the other party shall cooperate in connection therewith by executing and delivering such documents and instruments as may be reasonably required in order to accomplish any such like kind exchange, provided that, the party so cooperating shall not be required to bear any costs or expenses or take on any liability in connection therewith and the party effecting such exchange shall pay the costs and expenses, including legal fees and costs, of the cooperating party incurred

14 40641/0075-1414047v4 in connection with such cooperation same not to exceed One Thousand and 00/100 ($1,000.00) Dollars in any event.

13. INTENTIONALLY DELETED.

14. ENVIRONMENTAL MATTERS

In the event that Purchaser closes title, Purchaser shall release Seller and its members, partners, agents, representatives and employees from any and all claims, losses, damages or liabilities of any nature arising from, or related to, “Hazardous Substances”, as that term is hereafter defined, which are on, at, under or emanating from the Property. Purchaser, by paying the consideration for a deed to the Property at Closing, shall be deemed to release Seller and its members, partners, employees, agents and predecessors-in-title (collectively, the “Released Parties”) from, and to waive as against the Released Parties, all claims of liability for or attributable to any environmental condition of the Property, including without limitation any claim or lawsuit under any local, state or federal law, rule, ordinance or regulation relating to environmental contamination or other environmental matters. Purchaser shall defend (but shall not indemnify or hold harmless) Seller to the extent Seller shall be named as a party defendant along with Purchaser in any action, suit or proceeding related to Hazardous Substances present on, at, under or emanating from the Property, with the express proviso that, Purchaser shall be entitled to recover from Seller any losses, costs or damages Purchaser may suffer on account of the acts or omissions of Seller. The provisions of this Section 14 shall survive Closing under this Agreement, and shall be incorporated in the deed to be delivered to Purchaser as a covenant running with the Land which shall be binding on all subsequent owners and operators of the Property. Nothing contained in this Section 14 shall, however, be construed to exculpate or release Seller or any of Seller’s predecessors-in-title from liability with respect to Seller’s own acts or omissions or the acts or omissions of its predecessors-in-title under any local, state or federal law, rule, ordinance, regulation or common law relating to environmental contamination or other environmental matters and the Deed shall so state. For purposes hereof, “Hazardous Substances” shall mean any material, whether solid, liquid or gaseous, that includes all hazardous substances, hazardous wastes, hazardous materials, toxic substances, pollutants, and contaminants (including without limitation, asbestos), as defined in any federal, state or local laws or regulations relating to pollution or protection of human health or which may cause liability under common law.

15. LIMITATION OF LIABILITY

Notwithstanding anything to the contrary provided in this Agreement, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement by Seller, that there shall be absolutely no personal liability on the part of Seller, its constituent members (to include but not be limited to officers, directors, partners and trustees), their respective successors, assigns or any mortgagee in possession (for the purposes of this Section, collectively referred to as “Seller”), with respect to any of the terms, covenants and conditions of this Agreement, and that Purchaser shall look solely to the equity of Seller in the Property for the satisfaction of each and every remedy of Purchaser in the event of any breach by Seller of any of the terms, covenants and conditions of this Agreement to be performed by Seller, such exculpation of liability to be absolute and without any exceptions whatsoever. A deficit 15 40641/0075-1414047v4 capital account of any partner in Seller shall not be deemed an asset or property of Seller. The foregoing limitation of liability shall be noted in any judgment secured against Seller and in the judgment index.

[Balance of Page intentionally left blank.]

16 40641/0075-1414047v4

IN WITNESS WHEREOF, the parties hereto have executed this Shopping Center Purchase Agreement.

PURCHASER PHILLIPS EDISON GROUP LLC, an Ohio limited liability company

By: Phillips Edison Limited Partnership, a Delaware limited partnership, Managing Member

By: Phillips Edison & Company, Inc., a Maryland corporation, General Partner

By: ______Name: Its:

SELLER WEIS PLAZA ACQUISITION, L.P., a Pennsylvania limited partnership

By: ______Name: Its:

Exhibit List:

A - Legal Description of Property B - Contracts B - Estoppel C Contracts D - Personal Property DE - Rent Roll EF - Seller’s Documents FG - Representations and Warranties GH - Notice Provisions HI - Miscellaneous Provisions IJ - Assignment and Assumption of Leases and Commission AgreementContracts JK - Bill of Sale

17 40641/0075-1414047v4

RECEIPT

The undersigned received one fully executed copy of this Shopping Center Purchase Agreement as of ___, 200__.

PHILLIPS EDISON GROUP LLC, an Ohio limited liability company

By: Phillips Edison Limited Partnership, a Delaware limited partnership, Managing Member

By: Phillips Edison & Company, Inc., a Maryland corporation, General Partner

By: ______Name: Its:

18 40641/0075-1414047v4

DEPOSIT ACKNOWLEDGMENT

The undersigned hereby acknowledges receipt of the Deposit and agrees to hold the same pursuant to terms of the Agreement. The liability of the undersigned is limited by the terms and conditions expressly set forth herein and by the laws of the state in which the Property is located and in no event shall the liability of the undersigned exceed the amount of the Deposit. The undersigned shall have no liability whatsoever on account of or occasioned by any failure or negligence on the part of any bank, savings and loan or other savings institution wherein the Deposit are deposited, provided, however, that such institution is, at the time of deposit of the Deposit, federally insured. In the event of litigation affecting the duties of the undersigned as escrow agent relating to this Agreement and the Deposit, Seller and Purchaser, jointly and severally, shall reimburse the undersigned for all expenses incurred by the undersigned, including reasonable attorneys’ fees, unless such litigation results from or is caused by the gross negligence or misfeasance of the undersigned. In the event of any dispute between Seller and Purchaser pertaining to the Deposit, the undersigned may commence an interpleader action and deposit the Deposit with a court of competent jurisdiction and in such event, the undersigned shall be relieved of all further obligation and liability.

TITLE COMPANY Commonwealth Land Title Insurance Company of New York

By: ______Name: ______Its: ______

Address: 2 Grand Central Tower 140 East 45th Street New York, New York 10017

Dated: ______, 200_

19 40641/0075-1414047v4

EXHIBIT A

Legal Description

See attached.

A-1 40641/0075-1414047v4

EXHIBIT B Contracts

1. Agreement dated July 27, 2005 between Seller and National Maintenance & Build Out Company, LLC.

2. Agreement dated November 10, 2005 between Seller and Compass Sign Company.

Estoppel Form U.S. BANK/______LOAN NO. ______075256.___

TENANT’S ESTOPPEL LETTER

______, ____

U.S. Bank National Association Commercial Real Estate Dept. 10th Floor, CN-OH-W10C 425 Walnut Street Cincinnati, OH 45202 Attn:

RE: ______(the "Premises"); Lease dated ______, ____ between ______("Landlord") and ______("Tenant") (the "Lease")

Ladies/Gentlemen:

The undersigned acknowledges that you are or may be making a mortgage loan relative to property (the “Property”) of which the Premises are a part and that, in consummating any such transaction, you would be relying on this letter.

B-1 40641/0075-1414047v4

The undersigned, as Tenant under the Lease, hereby confirms, represents and certifies to you the following:

1. Except in each case as noted on attached Schedule A, the Lease has not been amended; Tenant's interest in the Lease has not been assigned or encumbered; and the premises leased thereunder (the "Premises") have not been sublet.

2. Except in each case as noted on Schedule A: Tenant has accepted possession of the Premises and now occupies and is open for business at the Premises; Tenant does not have any options or rights to renew or cancel the Lease; Tenant does not have any options or rights to lease additional space or to purchase any part of the Property; and Landlord has not agreed not to lease any space in the Property to other tenants who might compete with Tenant.

3. The minimum rent now payable under the Lease is $______per month. Tenant is currently paying: a real estate tax contribution under the Lease at the rate of $______per month; a common area maintenance ("CAM") contribution under the Lease at the rate of $______per month; and an insurance contribution under the Lease at the rate of $______per month. The percentage rate payable under the Lease is equal to ______% of ______(as such term is defined in the Lease) in excess of $______per annum. The most recent payment of percentage rent in the amount of $______was made for the period ending ______. All minimum rent, real estate tax, CAM contributions, insurance contributions and any additional charges have been paid through the period ending ______, except in each case as noted on Schedule A. No rent or charge has been (or will be) paid more than thirty (30) days in advance of its due date.

4. Except in each case as noted on Schedule A: the Lease is in full force and effect and there is no default thereunder; no event has occurred which, with the giving of notice and/or the passage of time, would constitute a default under the Lease by either Landlord or Tenant; and Tenant is not entitled to any rent concession or "free" rent or to any credit, offset or deduction against any rent or other charges and has no defenses to the payment of any rent or other charges due under the Lease.

5. The amount of the security deposit under the Lease held by Landlord is $______.

6. Except in each case as noted on Schedule A: Tenant has accepted occupancy/possession of the Premises; all improvements, alterations or additions to the Premises and Property required to be made by Landlord have been completed to the satisfaction of Tenant; and all contributions required to be made by Landlord for improvements to the Premises and Property, including credits or offsets, if any, and including all contributions or payments to or for the benefit of Tenant, have been made.

B-2 40641/0075-1414047v4

7. There are no actions, whether voluntary or otherwise, pending against Tenant (or any guarantor of Tenant's obligations pursuant to the Lease) under the bankruptcy or insolvency laws of the United States or any state thereof, except as noted on Schedule A.

8. To the best of its knowledge, Tenant has not used, stored, disposed of or transported at, to or from the Premises any substance classified as hazardous or toxic under applicable federal, state or local laws or regulations, except in compliance with such laws or regulations or as noted on Schedule A.

9. If you become Landlord, in no event shall you be: liable for any act or omission of any prior landlord; liable for the return of any security deposit which has not been delivered to you; subject to any offsets or defenses which Tenant might have against any prior landlord; or bound by any payment of rent or additional rent which Tenant might have paid to any prior landlord for more than the current month. Tenant agrees that it will not, without your prior written consent: make a prepayment in excess of one month of rent thereunder; or make or enter into any amendment or termination of the Lease.

10. In the event that you acquire title to the Premises, Tenant will attorn to and recognize and be bound to you as its new Landlord, and subject to the other terms of this letter, the Lease shall continue in full force and effect as a direct Lease between Tenant and you.

11. The Lease is and at all times shall be subordinate in all respects to the lien of your mortgage or deed of trust, as the same may be modified, amended, extended and/or replaced. While you are not responsible for, or obliged to cure, any default by Landlord (including a default by a prior landlord even if you become lessor under the Lease), Tenant will give you written notice of, and a reasonable period of time thereafter within which to cure, any default by Landlord under the Lease.

12. This letter shall inure to your benefit and to the benefit of your designees, successors and assigns, and shall be binding upon the undersigned and its legal representatives, successors and assigns.

Very truly yours,

TENANT

______By:______

B-3 40641/0075-1414047v4

OAKLAND-#1016854-v3-Maxatawney_Purchase_Agreement.DOC

B-4 40641/0075-1414047v4

SCHEDULE A

1. Date of Lease:

2. Date(s) of Amendment(s) to Lease:

3. Address of Premises:

4. No. of Square Feet in Premises:

5. Term of Lease Commenced On:

6. Term of Lease Will Expire On:

7. Other: [ ] Check if None.

B-5 40641/0075-1414047v4

EXHIBIT C

Contracts

C-1 40641/0075-1414047v4

EXHIBIT D

Personal Property

None.

D-1 40641/0075-1414047v4

EXHIBIT DE

Rent Roll

See Attached.

DE-1 40641/0075-1414047v4

EXHIBIT EF

Seller’s Documents

1. Lease documents including, amendments, correspondence, agreements, letters of notice.

2. Seller’s title documents.

3. Seller’s Phase I report.

4. Current 20052006 real estate tax bill and 2003 & 2004 tax amounts.

5. Current operating budget prepared by Metro; 2004 budget prepared by CBRE; proposed 2006 budget prepared by Metro.

6. 2004 CAM reconciliation.

7. Current delinquency report.

8. Review of any new leases, or renewals in process.

9. Seller’s survey.

10. Seller’s rent roll.

11. Seller’s legal description.

EF-1 40641/0075-1414047v4

EXHIBIT FG

Representations and Warranties

Seller represents and warrants to the best of its knowledge as follows:

1. Contracts. Other than the Contracts listed on Exhibit BC, (i) there are no other agreements, contracts, and/or understandings relating to the operation and maintenance of the Property that will be binding on Purchaser and (ii) Seller has not contracted for any services or employment and has made no commitments or obligations therefor which will bind Purchaser as a successor in interest with respect to the Property.

2. Rent Roll. The rent roll attached hereto as Exhibit DE (“Rent Roll”) is a true and correct list of all of the Leases presently in force and affecting the Property and truly, accurately, fully and completely sets forth the information contained therein.

3. Concessions and Commissions. No tenants of the Property are entitled to any concessions, rebates, allowances, or free rent for any period after the Closing and none of the Leases or other instrument that will be assigned to Purchaser at Closing provide for commissions currently due and payable by the owner of the Property that have not yet been paid by Seller. The foregoing shall not apply to the Commission Agreements being assumed by Purchaser hereunder.

4. Leases. The Leases delivered to Purchaser by Seller with Seller’s Documents (or prior thereto) are all of the lease documents and/or occupancy agreements with respect to the Property and are true, accurate and complete copies of the Leases and there are no oral understandings or side agreements with any tenant of the Property that has not been reduced to a writing and which is not set forth among the Leases.

5. Violation Notices. Seller has not received any notice as to (i) any violation by Seller of any laws, zoning ordinances or building rules or regulations affecting the Property, or (ii) any existing or threatened condemnation or other legal action of any kind involving the Property.

6. Environmental Matters. The Property is not now used for the purpose of disposal of, refining, generating, manufacturing, producing, storing, handling, treating, transferring, releasing, processing or transporting any petroleum, petroleum derived products and/or hazardous waste or hazardous substances and/or toxic waste or toxic substance, as such terms are defined in the Resource Conservation and Recovery Act of 1976, 42 USC 6901 et seq., as amended, the Comprehensive Environmental Response Compensation and Liability Act of 1980, 42 USC 9601 et seq., or the Superfund Amendments and Reauthorization Act of 1986, Title III, 42 U.S.C. §§ 11001, et seq., as amended, or any other applicable federal, state or local environmental law, regulation, code or ordinance. Except as otherwise disclosed in the Phase I Environmental Site Assessment dated March 2, 20052006 prepared by ConTech Services, Inc. bearing Report #05.0149 and to the best of its knowledge, (i) there are no pollutants, contaminants or hazardous or toxic wastes, substances or materials present (except those which FG-1 40641/0075-1414047v4

occur solely due to their natural presence in the Property) in, on or under the Property and (ii) the Property does not contain any underground storage tanks in, on or under the surface of any portion thereof and, to the best of its knowledge, the Property is free from all asbestos, petroleum, petroleum derived products and other hazardous materials in excess of lawful limits.

7. Employees. Seller has no employees at the Property and is not a party to any collective bargaining agreement, and neither Seller nor any of its affiliates (as described in Section 414(b), (c) and (m) of the Internal Revenue Code) has incurred any liability which could subject Purchaser or any asset to be acquired by Purchaser pursuant to this Agreement to any lien or material liability under Sections 302(f), 4062, 4063, 4064, 4201 or 4301(b) of the Employee Retirement Income Security Act of 1974, as amended, or Section 401(a) (29) or 412 of the Internal Revenue Code.

8. Authority. Seller is the sole owner of the Property and has the right to execute this Agreement and to sell the Property without obtaining the consent, approval, release, or signature of any other party. The signatories hereto on behalf of Seller have been duly authorized to execute and deliver this Agreement and to bind Seller hereto. Seller has full power to consummate the transaction described in this Agreement, the execution and delivery of this Agreement by Seller and the consummation by Seller of the transaction described herein has been duly and validly authorized by all necessary action and the observance of all required formalities on the part of Seller such that this Agreement constitutes a valid and legally binding obligation of Seller, enforceable against Seller in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation by Seller of the transaction contemplated hereby will (i) conflict with or result in a breach of or default under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which Seller is a party or by which it or the Property is bound, or (ii) violate any order, injunction, decree, statute, rule or regulation applicable to Seller or the Property

9. Occupancy. Seller has no knowledge as of the date hereof that any Major Tenant intends to cease operations from the Property or that it intends to file for bankruptcy protection from its creditors. To the extent the Property is located adjacent to another retail development, Seller has no knowledge that any so-called “shadow anchor” (i.e., major occupants of property adjoining the Property) of the Property intends to cease operations from its premises or that it intends to file for bankruptcy protection from its creditors. To the extent Seller obtains such knowledge during the term of this Agreement prior to Closing, Seller shall promptly inform Purchaser of the same, failing of which, the same shall be deemed a breach of the foregoing representations and warranties and a default under this Agreement.

10. The representations and warranties made by Seller in this Exhibit FG are true and correct as of the date of this Agreement and, to the extent the same remain true, shall be repeated as of Closing but shall not survive Closing. If, for any reason, Seller cannot repeat said representations and warranties as of Closing, or if Seller is in default hereunder by virtue of a breach of any one or more of the above representations or warranties, then, notwithstanding anything contained herein to the contrary, Purchaser’s sole remedy shall be to terminate this Agreement and to receive a return of the Deposit together with all interest accrued thereon. FG-2 40641/0075-1414047v4

Whenever in this Exhibit FG there is a representation concerning Seller’s knowledge, that knowledge shall be deemed to be the actual knowledge of Dick Hecker and Christian Lomax without obligation to conduct any inquiry or investigation.

11. Purchaser represents and warrants to the best of its knowledge as follows:

12. Purchaser is a Pennsylvania limited partnership duly organized or formed and in good standing under the laws of the State of its organization or formation and has the requisite power and authority to enter into and to perform the terms of this Agreement. Purchaser is not subject to any law, order, decree, restriction, or agreement which prohibits or would be violated by this Agreement or the consummation of the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite action of Purchaser . This Agreement constitutes, and each document and instrument contemplated hereby to be executed and delivered by Purchaser, when executed and delivered, shall constitute the legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its respective terms (subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditor’s rights generally).

13. Neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated hereby is prohibited by, or requires Purchaser to obtain any consent, authorization, approval or registration under any law, statute, rule, regulation, judgment, order, writ, injunction or decree which is binding upon Purchaser.

14. There are no judgments, orders, or decrees of any kind against Purchaser unpaid or unsatisfied of record, nor any actions, suits or other legal or administrative proceedings pending or, to the best of Purchaser’s actual knowledge, threatened against Purchaser, which would have any material adverse effect on the business or assets or the condition, financial or otherwise, of or the ability of Purchaser to consummate the transactions contemplated by this Agreement.

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EXHIBIT GH

Notice Provisions

Notices shall be deemed given hereunder upon personal delivery, upon depositing any such notice with postage prepaid in a United States mailbox if sent via certified mail, return receipt requested, upon depositing any such notice in the custody of a nationally recognized overnight delivery service or upon telecopy or electronic mail if a copy thereof is simultaneously sent via one of the other methods of delivery. Notices shall be deemed properly addressed if sent to the following addresses:

If to Seller: Weis Plaza Acquisition, L.P. c/o Palisades Regional Investment Fund, LLC 640 Palisades Avenue Engelwood Cliffs, New Jersey 07632 Attention: Richard M. Hecker Fax: (201) 894-8833 email: [email protected]

With a copy to (sent COLE, SCHOTZ, MEISEL, FORMAN & simultaneously via the LEONARD, P.A. same method of 25 Main Street delivery) and to Title Hackensack, New Jersey 07601 Company: Attention: Mitchell W. Abrahams Fax: 201-678-6292 email: [email protected]

If to Purchaser: Mr. Michael Phillips

Phillips Edison Group LLC

175 East 400 South, Ste 402

Salt Lake City, UT 84111

Fax: (801) 521-6952

email: [email protected]

With a copy to (sent Mr. David Porter simultaneously via the same method of Phillips Edison Group LLC delivery): 300 E. Lombard Street, Ste. 1100

GH-1 40641/0075-1414047v4

Baltimore, Maryland 21202

Fax: (410) 528-0672

email: [email protected]

With a copy to (sent Mr. John Bessey simultaneously via the same method of Phillips Edison Group LLC delivery): 11690 Grooms Road

Cincinnati, Ohio 45242

Fax: (513) 956-5656

email: [email protected]

With a copy to (sent J. Adam Rothstein, Esq. simultaneously via the same method of Honigman Miller Schwartz and Cohn LLP delivery): 38500 Woodward Avenue, Suite 100

Bloomfield Hills, Michigan 48304-5048

Fax: (248) 566-8479

email: [email protected]

Notices may be given by counsel on behalf of their respective clients.

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EXHIBIT HI

Miscellaneous Provisions

1. Amendment. This Agreement cannot be modified except by a written instrument signed by the parties.

2. Beneficiaries. This Agreement shall be binding upon and shall inure to the benefit of Seller and Purchaser and their respective heirs, personal representatives, successors, assigns and transferees. This Agreement confers no rights or remedies on any third party and except as hereinafter provided, Purchaser may not assign its right under this Agreement. The Purchaser shall however have the right, without Seller’s consent, to assign this Agreement to an entity that is controlled by or under common control with the Purchaser named herein. However, no such assignment shall relieve Purchaser of its obligations under this Agreement.

3. Consents and Approvals. If an action by any party requires the consent or approval of another party, that consent or approval shall be given, if at all, in writing, and any consent or approval given in one instance shall not be deemed a consent or approval in any other instance.

4. Construction. Any list of examples set forth in this Agreement shall be deemed to be illustrative, not exhaustive, unless explicitly specified otherwise. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. The use of the neuter singular pronoun to refer to any party shall be a proper reference even though that party may be an individual, a business entity, or a group of two or more individuals or business entities. All attachments referenced within the Agreement shall be deemed incorporated in the Agreement by such reference.

5. Counterparts. This Agreement may be signed in one or more counterparts, which together shall constitute one and the same instrument. Signatures shall be binding on the signer when delivered, regardless of whether delivery is in hard copy or by electronic means.

6. Entire Agreement. This Agreement and the exhibits attached hereto sets forth fully and completely the agreement between the parties in connection with this transaction, there are no written or oral agreements between the parties relating to this transaction that are not expressly set forth herein and this Agreement supersedes all prior oral or written agreements relating to this transaction.

7. Equal Participation. Seller and Purchaser have participated equally in the preparation of this Agreement, and, therefore, this Agreement shall not be construed in favor of or against any party to this Agreement.

8. Extension for Non-Business Days. To the extent a time period set forth in this Agreement expires on a Saturday, Sunday or State or Federal holiday, then such time period shall expire on the next day which is not a Saturday, Sunday or State or Federal holiday. HI-1 40641/0075-1414047v4

9. Governing Law. This Agreement shall be governed and construed in accordance with the substantive and procedural laws of the State in which the Property is located without regard to conflict of law principles.

10. Headings. The titles and headings in this Agreement are provided as a matter of convenience only and shall not be understood to define, limit, construe, or describe the scope or intent of any provision of this Agreement.

11. Legal Fees. In the event of any litigation relating to this Agreement, the prevailing party shall be entitled to recover from the losing party its actual costs and expenses of the litigation, including reasonable attorneys’ fees.

12. Severability. If any provisions of this Agreement shall be determined to be illegal or unenforceable, such determination shall not affect any other provisions of this Agreement, and all other provisions shall remain in full force and effect.

13. Waivers. A waiver by any party of a performance obligation or default under any provision of this Agreement shall not be deemed (i) a waiver of a further obligation or default under the same provision or (ii) a waiver of an obligation or default under any other provision.

14. Time of the Essence. Time is of the essence with respect to the respective obligations of each of the parties to this Agreement.

15. Confidentiality. Purchaser covenants and agrees that it shall not communicate the terms or any aspect of this transaction to any person or entity prior to the Closing except for Purchaser’s advisors, attorneys, accountants and lenders (the “Purchaser Parties”); provided, however, that the Purchaser Parties shall also agree to keep all such information confidential in accordance with the terms hereof. Without limiting the generality of the foregoing, Purchaser covenants and agrees that it shall hold, in the strictest confidence, the content of any and all information in respect of the Property which is supplied by Seller to Purchaser. Further, Purchaser agrees not to communicate or have any dealings with any of the tenants at the Property regarding this transaction except as otherwise provided in Section 3.3. The foregoing confidentiality obligations shall not apply to any information which is or becomes generally available to the public, other than the result of a disclosure by Purchaser or any of its representatives, or is required to be disclosed by law or by regulatory or judicial process.

HI-2 40641/0075-1414047v4

EXHIBIT IJ

ASSIGNMENT AND ASSUMPTION OF LEASES AND CONTRACTS

THIS AGREEMENT dated ______, 20052006 (the “Agreement”) is entered into by and between______, having offices at ______(“Assignor”); and ______, having offices at ______(“Assignee”).

W I T N E S S E T H

WHEREAS, Assignor is the Landlord under certain leases executed with respect to that certain real property commonly known as ______located at ______(the “Property”), which leases are described in Schedule A attached hereto (the “Leases”), and

WHEREAS, Assignor has also entered into certain contracts with respect to the Property, which are described in Schedule B attached hereto (the “Contracts”), and

WHEREAS, pursuant to that certain Shopping Center Agreement of Sale dated ______, 20052006 (the “Agreement”), Assignor is selling the Property to Assignee which conveyance includes all of Assignor’s right, title and interest in and to the Leases and the security deposits made thereunder (the “Security Deposits”); and

WHEREAS, Assignor desires to assign its interest as Owner in the Leases, Security Deposits and Contracts to Assignee, and Assignee desires to accept the assignment thereof.

NOW, THEREFORE, in consideration of the promises and conditions contained herein, the parties hereby agree as follows:

1. Assignor hereby assigns to Assignee as of the date hereof all of its right, title and interest in and to the Leases and Security Deposits, as more fully described on Schedule A.

2. Assignor hereby assigns to Assignee as of the date hereof all of its right, title and interest in and to the Contracts, as more fully described on Schedule B.

3. Assignor warrants and represents that as of the date hereof, Schedule A includes all of the Leases affecting the Property being acquired by Assignee from Assignor. As of the date hereof, there are no assignments of or agreements to assign the Leases by Assignor to any other party.

4. Assignor warrants and represents that as of the date hereof, Schedule B includes all of the Contracts affecting the Property being acquired by Assignee from Assignor. As of the date hereof, there are no assignments of or agreements to assign the Leases by Assignor to any other party.

5. Assignor hereby agrees to indemnify Assignee against and hold Assignee harmless from any and all cost, liability, loss, damage or expense, including without limitation,

IJ-1 40641/0075-1414047v4

reasonable attorney’s fees, originating prior to the date hereof and arising out of the Assignor’s obligations under the Leases and Contracts.

6. Assignee hereby assumes as of the date hereof all of the LandlordAssignor’s obligations under the Leases, Security Deposits and Contracts. Assignee acknowledges that Assignor has given Assignee credit against the purchase price in order for Assignee to assume any obligation to reimburse tenants for their Security Deposits to the extent Assignee has been given credit for such Security Deposits by Assignor as set forth in Schedule A and to pay the balance of the Contracts set forth in Schedule B.

7. Assignee agrees to indemnify Assignor against and hold Assignor harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorney’s fees, originating subsequent to the date hereof and arising out of the Assignor’s obligations under the Leases and Contracts.

IJ-2 40641/0075-1414047v4

IN WITNESS WHEREOF, the Assignor and Assignee have executed this Agreement the day and year first above written.

WITNESS: ______., Assignor

By: Name: Title:

WITNESS: ______., Assignee

By: Name: Title:

IJ-3 40641/0075-1414047v4

SCHEDULE A

Tenant Lease Date Expiration Date Security Deposit

IJ-4 40641/0075-1414047v4

SCHEDULE B

Contracts

(1) Agreement dated July 27, 2005 between Seller and National Maintenance & Build Out Company, LLC (for new façade work)None.

(2) Agreement dated November 10, 2005 between Seller and Compass Sign Company for the new pylon and tenant signs.

IJ-5 40641/0075-1414047v4

EXHIBIT K

BILL OF SALE

THIS BILL OF SALE (the “Bill of Sale”) is executed by ______(“Assignor”), to and for the benefit of ______(“Assignee”).

Introductory Provisions

The following provisions form a part of this Bill of Sale:

A. Assignor and Assignee are parties to that certain Shopping Center Purchase Agreement of Sale dated ______, 2005,2006, as amended (the “Agreement of Sale”), which provides, among other things, for the sale by Assignor to Assignee of that certain land (the “Land”) lying and being situate in the ______, ______County, ______, and described on Schedule A which is attached hereto and incorporated herein by reference for all purposes, together with the improvements located on the Land (the said Land and the improvements thereon being herein referred to as the “Property”).

B. It is the desire of the Assignor hereby to sell, assign, transfer and convey to Assignee all of Assignor’s right, title and interest in the below described items, except those not owned by Assignor.

COVENANTS

NOW, THEREFORE, in consideration of the execution of the above-referenced sale and the payment of Assignee to Assignor of Ten ($10.00) Dollars, the receipt of which is hereby acknowledged, subject to collection, and other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, Assignor does hereby remise, release and convey by this Bill of Sale unto Assignee all of Assignor’s right, title and interest, in and to all fixtures, building equipment and other articles of personal property owned by Assignor and attached to or used in connection with the Property (the “Personal Property”), in its “AS IS”, “WHERE IS” condition, with all faults.

Assignor undertakes to transfer to Assignee only such right, title and interest in and to the Personal Property as Assignor may have and, Assignor makes no warranty as to the title to such Personal Property except that Seller has done no act to encumber the Personal Property.

EXCEPT AS SET FORTH ABOVE, THERE IS NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED AND SPECIFICALLY THERE IS NO WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR PARTICULAR PURPOSE GIVEN.

K-1 40641/0075-1414047v4

EXECUTED this ______day of ______2005.2006.

Assignor

By: Name: Title:

OAKLAND.1016854.2 / OAKLAND.1016854.3

K-2 40641/0075-1414047v4

Lender Amendment to Ground Lease Provisions

[Do Appropriate Recitals indicating history of Ground Lease and recording info, defining Ground Lease, Landlord and Tenant]

The parties hereto, intending to be legally bound hereby, agree as follows:

1. The Lease is hereby amended by adding the following as Section [___] hereto:

[___]. Lender Protections.

A. Notices/Rights to Cure. (a) Tenant shall have the right from time to time to mortgage or otherwise encumber Tenant’s interest in this Lease. If Tenant shall so mortgage

(each a “Mortgage”) Tenant’s interest in this Lease to a lender (such lender, and any successor, assign, designee or nominee of such lender, hereinafter a “Mortgagee”), Tenant or such

Mortgagee shall give Landlord prompt notice of such Mortgage and furnish Landlord with a complete and correct copy of such Mortgage, certified as such by Tenant or such Mortgagee, together with the name and address of such Mortgagee. After receipt of the foregoing, Landlord shall give to such Mortgagee, at the address of such Mortgagee set forth in such notice, and otherwise in the manner provided by Section [___], a copy of each notice of default hereunder at the same time as, and whenever, any such notice of default shall thereafter be given by Landlord to Tenant, and no such notice of default by Landlord shall be deemed to have been duly given to

Tenant unless and until a copy thereof shall have been so given to Mortgagee. Notices to the

Mortgagee under this Section [___] shall be deemed given on the date received by the

Mortgagee. Mortgagee (i) shall thereupon have a period of thirty (30) days more than given to

Tenant in each instance in the case of a default in the payment of rent and sixty (60) days more than given to Tenant in each instance in the case of any other default, for remedying the default or causing the same to be remedied, provided, however, if any non-rent default is not capable of

Error! Unknown document property name. /GROUND LEASE PROTECTIVE AMENDMENT remedy by Mortgagee within such sixty (60) day period, Mortgagee shall have such sixty (60) day period to commence curing the default and such greater period of time as is necessary to complete same with due diligence, and (ii) shall, within such periods and otherwise as herein provided, have the right to remedy such default or cause the same to be remedied. Landlord shall accept performance by a Mortgagee of any covenant, condition or agreement on Tenant’s part to be performed hereunder with the same force and effect as though performed by Tenant.

Notwithstanding anything to the contrary herein contained, if the default is of such a nature that it cannot be cured by Mortgagee (for example, the bankruptcy of Tenant), such event shall not be a default under this Lease.

(b) Notwithstanding any of the provisions of this Lease to the contrary, no default by Tenant shall be deemed to exist as long as Mortgagee within the periods set forth in paragraph (a) above shall have delivered to Landlord its written agreement to take the action described in clause (i) or (ii) herein and thereafter, in good faith, shall have commenced promptly either (i) to cure the default and to prosecute the same to completion, or (ii) if possession of the [Premises] is required in order to cure the default, to institute foreclosure proceedings and obtain possession directly or through a receiver, and to prosecute such proceedings with diligence and continuity and, upon obtaining such possession, commence promptly to cure the default and to prosecute the same to completion with diligence and continuity, provided that during the period in which such action is being taken (and any foreclosure proceedings are pending), all of the other obligations of Tenant under this Lease, to the extent they are reasonably susceptible to being performed by the Mortgagee, are being performed. However, at any time after the delivery of the aforementioned agreement, the

Mortgagee may notify Landlord, in writing, that it has relinquished possession of the [Premises]

Error! Unknown document property name. -2- or that it will not institute foreclosure proceedings or, if such proceedings have been commenced,

that it has discontinued or will discontinue them, and in such event, the Mortgagee shall have no

further liability under such agreement from and after the date it delivers such notice to Landlord,

and, thereupon, Landlord shall have the unrestricted right to terminate this Lease and to take any

other action it deems appropriate by reason of any default, and upon any such termination the

provisions of Section [ ]B below shall apply. Notwithstanding anything herein contained to the contrary, provided such Mortgagee shall have otherwise complied with the provisions of this

Section [ ]A, such Mortgagee shall have no obligation to cure any defaults

which are not susceptible of being cured by such Mortgagee.

become liable under the provisions of this Lease or any lease executed pursuant to Section [

]B hereof unless and until such time as it becomes, and then only for

as long as it remains, the owner of the leasehold estate credited hereby or thereby. This Lease

shall not be amended or modified without the consent of any Mortgagee which has delivered the

notice provided for in Section [ ]A (a) hereof. In the event that a Mortgagee shall become

the owner of such leasehold estate, such Mortgagee shall not be bound by any modification or amendment of this Lease made subsequent to the date of the Mortgage and delivery to Landlord of the notice provided in Section [ ]A (a) hereof and prior to its acquisition of such interest

unless the Mortgagee shall have consented to such modification or amendment at the time it was

made or at the time of such acquisition.

B. Right to New Lease. (a) In the case of termination of this Lease for any

reason, or in the event this Lease is rejected or disaffirmed pursuant to any bankruptcy,

insolvency or other law affecting creditor’s rights, Landlord shall give prompt notice thereof to a

Error! Unknown document property name. -3- Mortgagee whose name and address Landlord has received pursuant to notice made in

compliance with the provisions of Section [ ]A (a), at the address of such Mortgagee set forth in

such notice, and otherwise in the manner provided by Section [ ] of this Lease. Landlord, on

written request of such Mortgagee made any time within thirty (30) days after the giving of such

notice by Landlord, shall promptly execute and deliver a new lease of the [Premises] to the

Mortgagee, for the remainder of the term upon all the covenants, conditions, limitations and agreements herein contained (including, without limitation, options to extend the term of this

Lease) except for such provisions which must be modified to reflect such termination, rejection

or disaffirmance and the passage of time provided that such Mortgagee (i) shall pay to Landlord,

simultaneously with the delivery of such new lease, all unpaid rent due under this Lease up to

and including the date of the commencement of the term of such new lease and all reasonable

expenses, including, without limitation, reasonable attorneys’ fees and disbursements and court

costs, incurred by Landlord in connection with the default by Tenant, the termination of this

Lease and the preparation of the new lease, and (ii) shall cure all defaults existing under this

Lease which are susceptible of being cured by such Mortgagee promptly and with due diligence

after the delivery of such new lease.

(b) Any such new lease and the leasehold estate thereby created shall,

subject to the same conditions contained in this Lease, continue to maintain the same priority as

this Lease with regard to any mortgage, including any fee mortgage, on the [Premises] or any part thereof or any leasehold interest therein or any other lien, charge or encumbrance thereon whether or not the same shall then be in existence. Any new lease made pursuant to this Section

[ ]B shall be accompanied by a conveyance of the Landlord’s interest, if any, to the

improvements on the land demised hereby (free of any mortgage or other lien, charge or

Error! Unknown document property name. -4- encumbrance created or suffered to be created by the Landlord but not any mortgage or other lien, charge or encumbrance created or suffered to be created by the Tenant) for a term of years equal in duration to the term of the new lease as the same may be extended pursuant to the provisions of said new lease, subject, however, to any lease of such improvements theretofore made by the Tenant, as landlord, which is then in effect. Concurrently with the execution and delivery of such new lease, Landlord shall assign to the tenant named therein all of its right, title and interest in and to moneys (including insurance and condemnation proceeds), if any, then held by or payable to Landlord or any other depository which Tenant would have been entitled to receive but for the termination of this Lease, and any sums then held by or payable to Landlord or such depository shall, subject to the provisions of Section [__]C hereof, be deemed to be held by or payable to it as Landlord or depository under the new lease.

[ ]B, all subleases which theretofore have been assigned to, or made by, Landlord shall be assigned and transferred, without recourse, by Landlord to the tenant named in such new lease.

Between the date of termination of this Lease and the date of execution of the new lease, if a

Mortgagee shall have requested such new lease as provided in Section [ ]B(a), Landlord shall not cancel any subleases or accept any cancellation, termination or surrender thereof (unless such termination shall be effected as a matter of law on the termination of this Lease) or enter into new subleases without the consent of the Mortgagee.

(d) If there is more than one Mortgage, Landlord shall only recognize the Mortgagee whose Mortgage is senior in lien and which has requested a new lease of the

Premises within the time period set forth in Section [ ].B(a) as the Mortgagee entitled to the rights afforded by this Section [ ].B, provided that either Tenant or such Mortgagee shall have

Error! Unknown document property name. -5- given Landlord notice of such Mortgage in compliance with the provisions of Section [ ].A(a).

For so long as the Mortgagee shall have the right to enter into a new ground lease with the

Landlord pursuant to this Section [ ]B, the Landlord shall not enter into a new lease of the

demised premises with any person or entity other than the Mortgagee, without the prior written

consent of the Mortgagee.

C. Miscellaneous. (a) The parties hereto agree that (i) Tenant is in

possession of the land demised by this Lease notwithstanding the fact that Tenant has subleased,

or may in the future sublease, certain of the improvements thereon to third parties; and (ii) the

requirements of Section 365(h) of the United States Bankruptcy Code, 11 U.S.C. §101, et seq.,

with respect to Tenant’s possession of the leasehold estate under this Lease are satisfied.

Accordingly, the right of Tenant to remain in possession of the leasehold estate under this Lease

shall continue notwithstanding any rejection of the Lease in any bankruptcy proceeding

involving Landlord, or any other actions by any party in such a proceeding. This provision,

while included in this Lease, has been separately negotiated and shall constitute a separate

contract between the parties as well as a part of this Lease. The provisions of this Section [___]

are for the benefit of Tenant and its assigns, including, without limitation, Mortgagee. The

parties hereto also agree that Mortgagee is a party in interest and shall have the right to appear as

a party in any proceeding brought under any bankruptcy law or under any other law which may affect this Lease.

(b) The provisions of this Section [ ] shall survive the termination,

rejection or disaffirmance of this Lease and shall continue in full force and effect thereafter to the

same extent as if this Section [__] were a separate and independent contract made by the

Landlord, the Tenant and the Mortgagee and, from the effective date of such termination,

Error! Unknown document property name. -6- rejection or disaffirmance of this Lease to the date of execution and delivery of such new lease, the Mortgagee may use and enjoy the leasehold estate created by this Lease without hindrance by the Landlord. The aforesaid agreement of the Landlord to enter into a new lease with the

Mortgagee shall be deemed a separate agreement between the Landlord and such Mortgagee, separate and apart from this Lease as well as a part of this Lease, and shall be unaffected by the rejection of this Lease in any bankruptcy proceeding by any party.

(c) Landlord shall have no right and expressly waives any right arising under applicable law, in and to the rentals payable to the Tenant under any lease of the improvements on the land demised hereunder, if any, which rentals may be assigned by the

Tenant to the Mortgagee.

(d) If a Mortgage is in effect, (i) this Lease shall not be modified or amended by the parties hereto, or terminated or surrendered by the Tenant, nor shall the

Landlord accept any such termination or surrender of this Lease by the Tenant, without the prior written consent of the Mortgagee and (ii) Landlord shall not have the right to terminate this

Lease in the event of a casualty or condemnation without the prior written consent of the

Mortgagee.

(e) The provisions of this Section [__] are for the benefit of the

Mortgagee and may be relied upon and shall be enforceable by the Mortgagee as if the

Mortgagee were a party to this Lease.

(f) This Lease may be assigned by the Tenant (and the Mortgagee if and when it becomes the Tenant hereunder) and any space in any of the improvements on the

Error! Unknown document property name. -7- premises demised hereunder may be sublet by the Tenant (and the Mortgagee if and when it

becomes the Tenant hereunder), each without the consent of the Landlord.

(g) This Lease shall have priority over all liens and encumbrances on

the fee estate of the landlord in the premises demised hereby or any improvements thereon,

including mortgages on the fee estate which were executed prior to the execution of this Lease.

(h) Landlord shall, within ten days of the request of any Mortgagee or prospective Mortgagee, provide an estoppel certificate as to any matters reasonably requested by

Mortgagee.

(i) The holder of the most senior Mortgage on the Tenant’s leasehold estate created hereby (the “First Mortgage”) shall have the right to participate in the adjustment of losses with any insurance company with respect to any damage or destruction of the

[Premises] or any improvements thereon and such First Mortgagee shall have the right to supervise and control the receipt and disbursements of all insurance proceeds and shall be entitled to all insurance proceeds which are not used to restore the [Premises] to be applied to the reduction of the debt secured by the Mortgage.

(j) In the event of any taking of all or any part of the [Premises], the

First Mortgagee shall have the right to participate in any condemnation proceedings settlement discussions, shall have the right to supervise and control the receipt and disbursement of all condemnation awards and shall be entitled to all condemnation awards which are not used to restore the [Premises] to be applied to the reduction of the debt secured by the Mortgage it holds, provided, however, that Landlord shall be entitled to the balance of the award after payment of the debt secured by the Mortgage in full until Landlord obtains the portion of the award to which

Error! Unknown document property name. -8- it is entitled under this Lease prior to the insertion of this Section [__]. In the event of a partial taking, this Lease shall continue and the rent provided in this Lease shall be reduced proportionately, from and after the date of such taking, based upon the percentage of land which is taken, provided, however, if the portion of the land taken is such that the Tenant cannot in its reasonable judgment economically continue its operations on the demised premises, the Tenant, with the prior written consent of Mortgagee, shall have the right to terminate this Lease. Upon a taking for a temporary period, this Lease shall continue and the entire award shall be payable to

Tenant, subject to the provisions of the Mortgage most senior in lien on the Tenant’s leasehold estate hereunder.

(k) The right to extend or renew this Lease and any right to purchase the property may be exercisable by the First Mortgagee and, before the expiration of any periods to exercise such a right, the Landlord must provide to First Mortgagee at least thirty (30) days prior written notice before the expiration of the right to so extend or renew in order to extinguish

Mortgagee’s right to so extend, renew or purchase most senior in lien on the Tenant’s leasehold estate hereunder.

(l) Under no circumstances shall the fee estate of the landlord and the leasehold estate created hereby merge, even though owned by the same party, without the written consent of the holder of a Mortgage.

(m) If any dispute under the lease is to be resolved by arbitration, each

Mortgagee shall have the right to participate in such proceeding and shall be given notice of same at least ten days prior to its commencement.

Error! Unknown document property name. -9- 2. To the extent any of the provisions of the Lease are inconsistent with the

provisions of this amendment, the provisions of this amendment shall control and shall be read in

a manner to give the ultimate protection of the provisions hereof to the holder of a Mortgage on

the leasehold estate of the Tenant under the Lease.

3. Tenant hereby exercises its option to extend the term of the Lease for all of

the extension terms provided for therein such that the term of the Lease shall end on midnight on

the 31st day of December, [__]. Landlord hereby acknowledges receipt of the exercise of the

renewal of all extensions to the original term of the Lease and agrees that the Tenant has the present right to renew the Lease on such basis and that the Lease has been renewed for all renewal terms thereof such that the term of the Lease now expires on the 31st day of December,

20[__]*.]

4. Notwithstanding any provisions of the Lease to the contrary, so long as a

Mortgage is in effect, the Tenant shall have no right to terminate the Lease with respect to any

event unless the written approval of the Mortgagee holding a Mortgage on the leasehold estate is

obtained, including, without limitation, the right to terminate in the event of any damage or

condemnation.

5. Notwithstanding provisions of Section [ ] of the lease, as long as the holder

of the Mortgage is escrowing for taxes, the Tenant shall have no obligation to pay real estate

taxes to the Landlord but Tenant shall have the obligation to make, or cause to be made, payment

* Note: Lease should have a remaining term (including exercised renewals) which is at least 10 years in excess of the amortization period of the loan and rent should be ascertainable from an objective standard for the balance of the term.

Error! Unknown document property name. -10- of taxes which it would otherwise have to pay to Landlord as a reimbursement directly to the municipality for all real estate taxes assessed against the [Premises].

IN WITNESS WHEREOF, the landlord and tenant have executed this amendment to Lease this ___ day of ______, 19__.

{Add appropriate signature lines)

Add appropriate Notary paragraphs and acknowledgments.

Error! Unknown document property name. -11-

Notes to Closing Attorneys

1. The lease or a memorandum thereof must be recorded.

2. An estoppel certificate is required in addition to the above.

3. Insert applicable leasehold mortgage provisions in loan documents.

Error! Unknown document property name. -12- CLOSING CHECKLIST-

ACQUISITION OF ______

Source Key: S = Seller, T = Title Co., M = Surveyor, E = Engineer, A = Architect, B = Broker, L = Lawyer

Source Initial In

I. Taxes and Insurance

1.____ Most recent property tax assessments and tax bills ______

2.____ A schedule of special assessment districts and assessment amounts, if any ______

3.____ All current insurance policies, together with a written summary of insurance coverages and premiums by policy type ______

II. Title

4.____ A current title report, including complete and legible copies of all documents (whether or not recorded) that are referenced therein as title exceptions ______

5.____ The most recent ALTA (and all other more recent) surveys of the property ______

III. Environmental

6.____ All soils reports covering any of the property ______

7.____ All environmental (hazardous substances), engineering, physical inspection, marketing and feasibility studies, assessments and reports ______

IV. Structural

8.____ All plans and specifications for property improvements ______

9.____ All certificates of occupancy ______

10.____ All reports, assessments or studies regarding actions required to bring the property into compliance with the Americans with Disabilities Act or any similar state statute or local ordinance ______code

11.____ All contractor, vendor, manufacturer, and other warranties with respect to all real property improvements, fixtures, equipment, and personal property to be conveyed ______

12.____ All environmental (hazardous substances), engineering, physical inspection, marketing and feasibility studies, assessments and \ reports ______

V. Leases

13.____ A current rent roll for the property together with monthly income and expense reports for the period of the seller’s ownership of the property (or for the previous 24 months if shorter) ______

14.____ All existing leases (including concession and license agreements for use of space within the property) and any amendments and letter agreements related thereto ______

15.____ A written summary of any leases currently in negotiation, specifying the tenant, premises to be leased, rents, term, and an outline of all other material deal points ______

16.____ A schedule of allowances or rebates due on tenant improvements, if any, and proof of insurance from individual tenants (including as tenants, any space concessionaires or licensees) ______

17.____ A schedule of any brokerage commissions due in connection with any leases or other agreements pertaining to the property ______

VI. Service Contracts

18.____ All equipment leases and service and vendor contracts (including all amendments and side-letter agreements relating thereto) ______

VII. Litigation

19.____ A written summary of all pending or threatened litigation, insurance claims and notice of legal violations, together with the pertinent notices, demands, pleadings and other documents. ______

2 Reverse Chronology Checklist/Flowchart P&S Items/Escrow Items/Mortgage Items

Item P&S Mortgage Escrow

3 10. File Record Notice of Essential Provisions. Both landlords and tenants prefer to keep the business terms of the lease to themselves and out of the public record. However, some provisions should be placed of record, giving notice to third parties to protect the interests of both parties to the lease. No landlord should be faced with construction liens as a result of work performed on behalf of a tenant. Most leases not only require the prior written approval of the landlord for any tenant alterations, but the tenant also typically is required to notify its contractors, suppliers and other material men that the landlord’s interest in the property cannot be subjected to liens. The lease must also give the landlord the right to record a Memorandum of Lease specifically expressing the prohibition of liens against the landlord’s interest. Only by recording such a document will there be absolute protection for the landlord over any subsequently recorded liens. Similarly, if a tenant negotiates an option to purchase, a non-competition restriction or a similar special right, it must be placed of record in order to provide real protection against the rights of third parties.

9. Clearly Allocate Risk for Injuries in Common Areas. In states like Florida, a landlord can be held liable for torts or crimes which occur in a common area depending on the level of control over the area exercised by the landlord. As a result, parties should be mindful when defining which areas are under their respective control. The parties can, of course, further allocate risk through the careful drafting and negotiation of indemnity and insurance provisions. Parties to a lease should be mindful of the liability that each could incur in the event a third party is injured on the property, and should allocate risk accordingly.

8. Shop Insurance Carrier. All leases should be reviewed carefully with the tenant’s insurance providers to make sure that the coverage requirements can be satisfied at a reasonable cost. The lease may require insurance “as may be reasonably required by landlord.” If so, the tenant should confirm prior to signing precisely what will be required. In other leases, the tenant’s coverage will be spelled out in detail, often stating the amount and requirements for comprehensive public liability insurance, business interruption, worker’s compensation, and other coverages. The landlord should be named as an additional insured and typically prior notice to the landlord is required before cancellation or amendment. Similarly, many tenants require the landlord to carry liability and casualty insurance. All of these details should be carefully reviewed with the applicable party’s carrier.

7. Lender Forever The landlord’s mortgage may require that the lender approve any new lease or amendment to an existing lease. In that case the lease will need to be submitted to the lender for its prior written approval before it is signed. The landlord should also consider future refinancing. Lenders expect subordination of the tenants’ interests to their mortgage. It is much easier to provide for automatic subordination in a lease than try to obtain subordination concessions from each tenant after a lease has been signed. The lease should include the tenant’s acknowledgment that it is automatically subordinate to any current or future mortgage on the landlord’s interest, and require the execution of an estoppel certificate upon request in order to satisfy a future lender’s requirements.

6. Acceleration of Rental-only There are few tools for enforcing a lease more powerful than acceleration of rent. Under Florida law, absent such an acceleration clause, if a tenant defaults, the landlord must either wait for each monthly installment of rent to accrue before attempting to collect it, or terminate the lease and thereby waive the right to collect future rental. An acceleration clause allows the landlord to claim all amounts due under the lease through the end of the lease term immediately upon a default, even though those amounts are for future installments. Upon accelerating the rent, a landlord may be required by the lease or by applicable law to its mitigate damages by attempting to relet the premises to a replacement tenant. The leverage created through accelerating rent can justify this additional obligation. Whether as a landlord or a tenant, it is important to note the existence or absence of an acceleration clause. It dramatically shifts the power between the parties in the event of a default.

5. Default and Notice Prior to a Default. Whether a landlord or a tenant, it is important to include express provisions in a lease regarding notification of a default and providing an opportunity to cure. Most leases require delivery of notice to a tenant prior to the landlord’s declaration of a default. It is less common to include provisions requiring a tenant to notify a landlord before declaring a default. As a result, despite having never previously complained in writing, tenants often will assert that a landlord is in default only after the landlord commences litigation. Essentially, the tenant will use an allegation of a landlord default as a defense to the landlord’s enforcement of the lease. The best tool to prevent such nuisance allegations by either party is to require that all allegations of default be in writing and require a notice and cure period.

4. In An Amendment-Never Refer to "As if included" Phrase For Essential Provisions. Often an Amendment to Lease has language "All provisions of Original Lease are included herein as set forth in full" . Otherwise you are allowing an opening. The lease should state that all waivers must be in writing signed by the party waiving the condition and that modifications must be in writing signed by both parties. Absent such a provision, the parties are inviting vexatious defenses in the event of litigation.

3. Include a Broad Definition of Rent. Commercial leases usually provide for the payment of rent, common area maintenance charges, taxes, insurance, late fees and various other expenses by a tenant. A well-drafted lease will contain a provision which provides that “all sums due hereunder shall be considered rent or additional rent.” The inclusion of a catchall provision eliminates ambiguity as to the demand period associated with different monetary obligations and allows any monetary default to be enforced using the state’s rental default statute. Defined terms matter in commercial leases, and should be structured such that ambiguity is removed when it comes to enforcement.

2. Business Operations are to Stay the Same. Landlords often want certainty as to the identities of their tenants and the nature of their business operations. Thus, there is often a prohibition against assignment or subletting of the lease without prior written consent of the landlord. The lease also often includes a provision prohibiting a change in the tenant’s specified business operations, prohibiting “going out of business” sales, and providing that abandonment by the tenant or cessation of operations (i.e., “going dark”) constitutes a default. This is particularly important if a major anchor tenant will enhance the landlord’s ability to attract and keep smaller tenants.

1. The Details Create the Big Picture. Probably the most critical issue in every commercial lease is paying close attention to detail. The specific terms regarding the lease term, base rent, additional rent, allocation of control, maintenance and repair, responsibility and cost for installation of tenant improvements, deadlines for renewal, and all other business details are essential. A letter of intent or term sheet must be followed carefully to incorporate all provisions in the lease. After the lease is signed, keep a summary of the lease and a tracking system of critical dates. This can make a significant difference in leveraging future negotiations if a deadline is missed. This is obviously not an exhaustive list of every consideration that can arise in a commercial lease transaction. It does, however, give a summary of some of the most important considerations that need to be made by both landlords and tenants, first in successfully negotiating a commercial lease, and subsequently in enforcing one’s rights under the lease in the event of a default. The information in this Top Ten should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors,and/or the ACC. This Top Ten is not intended as a definitive statement on the subject addressed. Rather, it is intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers. .

Real Estate Acquisitions

Policies and Procedures Manual

INTRODUCTION

COMPANY’s investment objective is to purchase income producing properties which offer potential for value enhancement through repositioning, redevelopment or re- marketing of the assets. Our target opportunities throughout the United States are individual assets ranging from $5 million to $25 million and portfolios of up to $200 million. Property types will include retail, office, multifamily, hotels and light industrial/flex properties.

Our focus is on foreclosure properties and other distressed assets with the potential for value enhancement in markets where new supply is limited, significant barriers to entry exist and assets are available below replacement cost.

The Real Estate Acquisition Group has put together this manual in order to provide a basic road map to follow during the acquisition process. Although this manual has been designed to cover the main points that must be addressed in this acquisition process, it by no means covers everything that may be encountered. Large commercial real estate where repositioning or redevelopment is contemplated usually has unique characteristics that must be closely analyzed on a case by case basis.

SECTION 1

PROPERTY VALUATION

The accurate determination of (i) current and (ii) potential future value is central to the success of the COMPANY. Conclusions of value will be based upon the review of a variety of documents and the completion of various analyses. Set forth below is a description of those documents and analyses.

2.1 Appraisal Review

Appraisals are sometimes available for review from the Seller. The quality of appraisals varies widely as do the reasons the Seller may have ordered them. Therefore, the final value used in the appraisal should not be taken at face value. Appraisals will generally provide valuable market information and should be utilized as additional data points to be considered in determining a final value.

Primary issues to focus on when reviewing an appraisal include: 1

1) the date of the appraisal, 2) who prepared the appraisal, 3) for whom was the appraisal done, 4) what was the purpose for the appraisal (e.g. court testimony, sale of the asset, former borrower negotiating a payoff, etc.).

Other information that may be valuable in the appraisal includes: 1) General market data, 2) Physical description of the site and improvements, 3) Property Operating Statements/Rent Roll data, 4) Rental/Sale Comparables.

All information in the appraisal will be reviewed and compared against the information gathered from other sources during the due diligence process. Information may not be in the appraisal in an orderly manner, therefore the report should be thoroughly studied so that all useful data can be extracted.

2.2 Broker Price Opinion(BPO)

The BPO is ordered to receive current market information and a third party opinion of value for a property. Knowledgeable brokers will be sought regarding each specific property type and area. The broker is contracted to prepare a BPO which includes gathering data on sale comparable, rent comparable and other market data. This information is compiled and presented along with an opinion of value from the broker. The broker is looking only at market data and not specific property data. Therefore, the broker’s opinion of value is a useful tool in determining the market value of the property, but may vary from the ultimate determination of value. The market data that is collected will be shared with and compared to data compiled by the company’s Market Analyst prior to recommending a final bid price.

2.3 Site Inspections

Inspections should be performed after the property files are reviewed and market and sale/rental comparable information is gathered from the BPO, the Appraisal and other sources. A site visit of the subject property and it’s comparables will be completed, preferably with the Broker who performed the BPO. Key areas to focus on when conducting the site inspection of the subject property include gathering information which will determine the adjustments necessary to conclude a market rent for the subject as well as those issues described in the Structural/Building Condition section contained herein. In conducting the Site Inspection, the rental and sales comparables will be visited to verify that they are actually comparable. Discussions with other brokers and leasing agents will be utilized to gather additional support for the data collected. During the Site Inspection any potential building condition and environmental problems that may affect the value of the property will be noted.

2.4 Lease Abstract

The primary driver of the value of a commercial property is its net operating income. The primary driver of the net operating income is the property’s rent roll.

All leases will need to be reviewed and a Lease Abstract may be which should include: (1) Tenant name (2) Rental Rates and Percentage Rent Provisions (if any) (3) Rent Increases (both timing and amount) (4) Beginning and Ending Dates (5) Lease Term (6) Expense Reimbursements terms (7) Option periods and rental rates during those periods (8) Subordination, Attainment and Non-Disturbance Clauses (9) Termination or expansion options (10) Purchase Options, if any (11) Estoppel Requirements (12) Any other requirements on the part of either the tenant or the landlord that might change the projected cash flow available from the lease. (13) Any financial data available and/or required from the tenant

In cases where a tenant is currently paying above market rents, the Director should consider when to adjust the rent payment down to market in the cash flow projections. For major tenants, the Director should engage DRE accountants to perform a credit review. If the tenant is of poor credit quality, struggling financially or may be leaving, the Director should adjust the rent to market immediately (as opposed to at the end of the base lease term) or modeling a vacancy with a lease-up period before a new tenant comes in.

2.4.(a) Lease Analysis A property rent roll and lease briefs for all tenants will be completed by reviewing leases on a tenant by tenant basis, taking into account lease expirations, market rents, expense reimbursement terms, renewal and expansion options as well as tenant improvement and leasing commission requirements. Existing property leases will be utilized (i) in determining the likelihood of continued payments under the existing leases and (ii) as an indicator of market rents. Items to look for in reviewing the leases include:

1. Rental Rates/Expense Reimbursements: The amount and periodic changes in rent and expense reimbursements described in the leases will be studied to develop COMPANY’s discounted cash-flow model. These terms will also be compared to current rates quoted in the market as an indicator of probable future collections.

2. Term of Lease: The length of the lease will also be a main determinant as to how long the stated rent is anticipated to continue. If the rent is above

or below market, appropriate adjustments will be made in the cash flow projections.

3. Cancellation Provisions: Leases will be reviewed to ensure that they do not provide the tenant with cancellation rights. These rights could arise either under a specific termination/cancellation clause that is located in the lease or through the exercise of a tenant remedy following the breach of a landlord obligation under the lease. Defaults by the landlord, foreclosure and changes of ownership are all circumstances that may permit a tenant to cancel its lease obligation and the lease should be reviewed to determine the status of these clauses.

4. Rent Modifications: Leases may be amended from time to time, and these amendments may be written or verbal. All written modifications should be carefully reviewed and the lease should be compared against the collection history to identify any discrepancies and their cause.

5. Subordination/Non Disturbance/Attornment Agreement: This may be a separate agreement or it may be included as language in the lease. Under this type of agreement the lender agrees that it will not evict the tenant due to foreclosure as long as the tenant continues to pay rent. The tenant in turn agrees to attorn to the lender as a new landlord in the event of a foreclosure. Leases requiring such an agreement should be clearly identified.

6. Tenant Estoppel Certificate: The file should be checked for the existence of a tenant estoppel certificate that could have been executed. Under these certificates tenants will generally acknowledge the existence of the lease, the term, the amount of rent and whether any defaults exist. These Esoppels should be compared to the Lease and the Collection history to identify discrepancies and potential defaults.

7. Date of Lease/Date of Mortgage: If the property being studied has been foreclosed upon and the mortgage predates the lease, the lease may be subordinate to the mortgagee and depending upon the state law and the specific language in the mortgage, the lease might be subject termination. have been terminated upon foreclosure.

8. Continuous Operations/“Go Dark” Clauses: Are major tenants required to operate during the term of the lease or are they permitted to “go dark” or close their store while continuing to pay rent? If an anchor tenant is permitted to “go dark” in a retail center, the historical success of the anchor tenant’s store must be determined and potential new competition should be identified.. If this has already occurred or is considered likely to occur, this must be considered in creating the tenant by tenant rent roll and 4

in performing the cash flow analysis. Alternative uses and buyouts should be examined as well.

9. Assignment and Sublet Clauses: This provision may allow the tenant to assign or sublet its space. It is important to note whether the tenant remains financially obligated and whether the tenant can assign or sublet to a less desirable tenant.

10. Credit of Tenant: Each tenant file must be examined in order to (i) compare each individual tenant’s current lease rate to the prevailing market rate and (ii) take into consideration the credit quality of the individual tenant. As a general rule, above market leases should be marked to market at the time of lease expiration. If the credit of the tenant is insufficient, leases may be marked to market prior to the original expiration. The following are key points to look for in determining if such an adjustment should be made.

(a) Signs of collection problems? Any signs of late payments or letters in the file to or from the tenant that indicate tenant problems should be given careful consideration.

(b) Tenant quality? The credit history and the financial strength of the tenant are key considerations in determining whether the tenant can continue to pay at an above market lease rate. A thorough credit check will be completed of all major tenants within a property and the leases will be checked for financial disclosure clauses. In the event information is not available to the public and a financial disclosure clause exists, the information will be promptly requested from the tenant through the seller.

(c) Local tenants (mom/pop operation)? The “mom/pop” type tenant is usually the most sensitive to fluctuations in the marketplace. Turnover for this type of tenant is usually high and in the case of a retail center (and to a lesser degree in an office building), “the mom/pop” tenant is very dependent on the “Anchor” tenant which draws customers to the center. If the file shows signs of weakness in the tenant or the anchor on which it is relying, above market “mom/pop” tenants may be immediately marked down to market.

(d) Word on the street: It is very important to talk with Real Estate Brokers, Leasing Agents, Property Managers and Tenants to understand what is going on at a particular property.. Usually if a tenant and the landlord are having problems then others in the business will know about it. Property Managers and Leasing

Agents may already be searching for new tenants if a space is getting ready to go dark.

11. Market Rents: It is critical to determine what the typical market rents, concessions, TI costs and leasing commissions are in the subject market. In different markets, the rents and costs can vary dramatically based on different key determinants and these determining factors must be identified during the market study portion of the underwriting.

12. Security Deposits: In many cases a condition of the tenant’s agreement to attorn to the new landlord will be the new landlord’s agreement to assume the prior owner’s obligations under the lease including repayment of a security deposit. This must be underwritten very closely in the event the property being analyzed is a foreclosure and the security deposits are not being fully transferred.

The items that are listed above should be reviewed and considered for all leases and are particularly important with single tenant buildings or deals where the property cash flow is heavily dependent on large anchor tenants. Major leases are frequently recorded, along with any modifications, attornments, subordination and non-disturbance agreements. Title is therefore a good source of information to determine what agreements exist.

2.5 Ground Leases:

In any situation where the property is subject to an unsubordinated ground lease, the lease will be carefully reviewed. Issues to be examined include: 1. the remaining lease term (the term of the ground lease should generally extend at least 20 years beyond our expected disposition period or the potential resolution value will be significantly affected), 2. rental rate adjustments (If the ground lease is subject to a rental increase of an indeterminate amount, this could have a significant impact on our realizable value), 3. operational covenants, 4. adequate notice and cure provision for a potential lender (or the property may be financing difficulty).

2.6 ARGUS:

The Argus system is the primary tool for developing property cash flow projections and valuation estimates for commercial and hospitality properties. The rent roll information derived from the aforementioned lease analysis is input into Argus along with market rent assumptions, operating expense estimates and financing terms. The Argus system is also effective in phasing in capital improvements, deferred maintenance and lease up costs for commercial and multi-family properties as well as modeling financing structures (such as construction loans).

The Argus system uses a discounted cash flow methodology (DCF) to value the property. This takes into consideration the following:

1. Adjustments in leases e.g.. rent payment increases/decreases and expense reimbursements (CAM) 2. Tenant roll over (lease expirations) 3. Annual increases in market rents and expenses 4. Absorption of new tenants 5. Tenant Improvement (TI) and Leasing Commission (LC) costs

2.7 Purchase Price Determination:

The Argus “Resolution Value” (sale price) of the property is based upon either (i) capitalizing the property’s net operating income in the year following the expected sale and (ii) utilizing a five year DCF valuation for the Property that commences with the year the property is expected to sell. The value for the property at that time (the expected resolution date thus the “Resolution Value”) will then be determined by comparing the values derived from these two methods with appraisals, BPOs and other file information. The final Resolution Value will then be selected and, along with the interim cash flows projected for EAIC’s period of ownership, utilized to determine the recommended purchase price for the property (the “COMPANY” Price). The COMPANY Price will be calculated utilizing an appropriate yield for the risks inherent in the asset and discounting the cash flows back to present value along with any other cash flows that are received or expended during the course of ownership (debt service, debt funding, legal expenses, capital improvements, tenant improvement work etc.).

SECTION 2

DUE DILIGENCE

Due Diligence is the process of gathering and reviewing data relating to the properties being considered for purchase. Set forth below are the primary due diligence focus areas.

3.1 Environmental

All environmental documentation (including Phase I and possibly a Phase II report) should be reviewed for information relating to past, current and potential environmental problems relating to the subject property. Any significant information (or lack thereof) will be discussed with the Director of Real Estate Acquisitions, and if warranted, the data will be sent to the COMPANY Law Department (along with a memo describing the specific concerns) for review and comments. Additionally, any concerns arising during the Site Inspection (i.e. outside storage tanks, puddles of liquid other than water, etc.) will be noted and reported back to the Director of Real Estate Acquisitions. With regard to some States, at the minimum the Seller should provide a letter of non-applicability to State environmental laws.

3.2 Structural Building Conditions

All structural and building condition related documentation and correspondence in the file will be reviewed for information relating to past, current and potential structural, mechanical and maintenance problems at the subject property. A site inspection form for the specific property type (multi-family, office/retail and hotel forms attached as Exhibits will be completed during or immediately after the inspection. .Significant repair and maintenance items that can be expected to require capital outlays in the near future as well as any capital expenditures required to complete the repositioning of the property will be noted and included in the cash flow projections.

Areas of concern that should be looked for are signs that buildings will need to be repainted, redecoration/renovation of the common areas, parking lots resurfaced or roofs replaced or repaired. In all instances, estimates of the cost to complete the improvements or repairs should be sought within the local market and any items over $10,000 should be forwarded to the Construction Management department to check for reasonability.

In completing the site inspection the following signs of potential building condition problems should be investigated and noted in the file:

1. Telltale signs of water intrusion around interior openings such as windows and doors. 2. Any evidence of water stains from roof leaks on the ceilings and walls. 3. Oil stains on the concrete or floor beneath any piece of equipment. 4. Any instances where the ground slopes toward a building on the exterior. 5. Unmarked barrels of unknown products which may be hazardous substances. 6. Any concrete cracks on foundations, walls, columns or beams. 7. Any evidence of quick, superficial repairs. 8. Any standing or ponding water or mildew. 9. Any evidence of deferred or neglected maintenance such as debris in gutters, dirty filters, peeling paint, rusting equipment and surfaces, potholes or significant cracking in asphalt, aligatoring of asphalt surfaces, dead or untrimmed landscaping, missing inspection certificates, citations from city/jurisdiction, quick fixes such as duct tape and plastic bonding. 10. Cluttered or dirty storage areas, maintenance facilities and work areas.

3.3 Title

The title report is documentary evidence of ownership that specifies in whom the legal estate is vested and the history of ownership and transfers. The original title report and all updates and title commitments should be carefully reviewed for the following:

• Judgment Liens: A Judgment lien is a lien on property that resulted from the decree of a court. Any judgment will be reviewed to be sure that there is nothing

that would have a material impact on the property and so that these liens are removed prior to closing.

• Mechanics Liens: A Mechanics Lien is a claim securing priority of payment for work performed and material furnished by a contractor or other person for the construction or repair of a property. All Mechanics Liens will be reviewed to be sure that there is nothing that would have a material impact on the property and these should also be noted for removal prior to closing.

• Taxes: It is important to check the title report to determine if there are delinquent taxes. The local tax assessment office will be contacted to determine the total amount of annual taxes and to confirm that they are current. If the taxes are not current, this and any estimated accrued interest will be added to the capital cost estimated to complete the repositioning.

• Easements: An easement is a right to the limited use or enjoyment of land held by another. An easement may be used to enable sewer or other utilities lines to be laid, or to allow for access to a property. Easements referenced on the Title Report sill be studied to be sure that there is nothing that would have a material impact on the property. Easements or reciprocal operating agreements that relate to parking or the use of common areas will be reviewed to determine the cost related to maintaining these agreements, potential revenues available as a result of the agreement and any other potential impact they might have on property value.

• Encroachments: A situation in real estate where a property owner violates the property rights of his neighbor by building something on the neighbor's land or by allowing something to hang over onto the neighbor's property. Encroachment can be a problem along property lines when a property owner is not aware of his property boundaries or intentionally chooses to violate his neighbor's boundaries. This is also known as structural encroachment. Easements and Encroachments can be mitigated by obtaining a Quick Claim Deed.

• Title Exceptions: Title exceptions will be examined to determine if there is a material impact on the property value or utility.

3.4 Legal

All legal documentation should be reviewed for information relating to foreclosure, bankruptcy, third party litigation or any other legal issues that may affect the property or the Seller.

SECTION 3

FINAL BID UNDERWRITING AND DOCUMENTATION

4.1 Assumptions/Issues List 9

During due diligence all assumptions made in completing the analysis will be recorded along with any problems and solutions to items on the “Assumptions/Issues List”. This list will be completed and presented to participants in the pre-credit committee (Roll-up) meeting.

4.2 Net Operating Income (NOI)

Property cash flows from historical operating statements, appraisal, BPO, IREM and other sources of income and expenses will be compared and used to form the basis of the Underwriter’s income and expense projections. These income and expense categories will be compared to the available information on a line item basis and resulting estimate of NOI will be the Underwriter Income Approach.

• Underwriter Income Approach: This is the COMPANY’s estimate of the stabilized income for the property. Gross Rental Income will be derived by performing a lease by lease examination of the property taking into account current leases in place, current market rents and current market occupancy as previously described in the Lease Analysis portion of Section 3 above. Credit will be given for all current leases that are believed to be paid in accordance with current terms while currently vacant space will be assumed to be leased at current market rents. Above market leases in place where the tenant appears unlikely to continue to perform will be adjusted down to market. Potential Gross income shall include this derived Gross Rental Income as well as any expense reimbursements due from the tenants and/or typically collected in the market. A market vacancy factor will be applied to the Potential Gross Income that has been derived. Expenses will be compared to other similar properties and industry standards (as found in publications such as the BOMA Experience Exchange Report or the ICSC’s Dollars & Cents of Shopping Centers) for all categories. This Underwriter’s NOI will then be capped at an appropriate market rate to compute the Underwriter Direct Cap Value.

4.3 Cash-flow Sheet

A Cash Flow Sheet showing the investment cash flows which the Underwriter projects based on the due diligence and information available will be prepared. Variables to be included on the Cash flow Sheet are as follows:

• Purchase Price: The COMPANY Price is that which will result in COMPANY receiving its required Return On Equity (ROE).

• Legal Fees: The Underwriter must understand the cost and timelines for legal work required to execute the anticipated property strategy.

• Capital Costs: The Capital Costs expected such as repositioning/construction costs, deferred maintenance, structural repairs and environmental remediation 10

should be entered in this category. It is important that they be entered at the appropriate time in which they are expected to occur.

• Sale Proceeds: The Sale Proceeds is the cash to COMPANY at time of resolution of the asset.

• Total Cash Flow: This is the total net funds generated by the ongoing operations of the property adjusted for any capital outlays/recoveries and is used in the calculation of the Internal Rate of Return (IRR) for the investment.

4.4 Investment Return Measures

• Pre-Tax Return on Equity (ROE) Goal: This can be adjusted upward or downward depending on whether circumstances warrant a higher return based on risks or uncertainties. This return requirement will be determined by credit committee on a deal-by-deal basis.

• Cost of Asset Management: The Cost of Asset Management is the cost incurred in executing the properties repositioning plan.

• Net Yield: The Net Yield is the effective yield on the asset adjusted for any leverage and the cost of asset management

4.5 Asset Information Sheet (“AIS”)

The AIS sheet is a summary of information about each asset. The AIS sheet states the recommended bid price and is the focal point of discussion in the Credit Committee presentation

• Property Comments: The Property comment section of the AIS sheet is used to describe features about the real estate. Comments about the type, size, shape, tenants and location should be made here.

• Sales Comparable Approach (SCA): The SCA summarizes the current status of the subject property as compared with three similar type properties that have recently sold. Information for these “sale comp” properties comes from the BPO, Appraisal, due diligence files, site inspections, correspondence, and discussions with knowledgeable people in the marketplace. It is important that the Underwriter visits these sale comparables and speaks to Brokers and Management and Leasing Agents to verify similarities and differences related to each property. Information for the three best sales should be entered in this section of the AIS sheet. The Underwriter should rate the “Condition”, the “Location” and the “Structure” of the subject property in this section. Each of these categories under the subject should be listed as excellent, good, average or poor. Each sale comparable should then be compared to the subject in each of these categories as superior, similar or inferior. The Underwriter then inputs the “Sales Price” 11

estimate for the subject based on a price per unit/square foot for the best sales comparables and all other available information.

• Income Approach The Income Approach section of the AIS sheet contains three direct capitalization values based on the net operating income of the property at different points in time. They are as follows: a) Underwriter Income Approach: This section of the AIS sheet is automatically imported from the “NOI SHEET” section of VIPER workbook. The purpose of this is to derive a direct cap value of the property based on the Underwriter’s projected “current stabilized” cash flow (this is discussed in detail in the “NOI SHEET” section above). b) Historical NOI: This section of the AIS sheet will be based upon the most recent operating statements available. If the statements only reflect a partial year, then the Underwriter should annualize this being careful not to double count for one time income or expenses (i.e. insurance revenues or taxes and capital improvements). The purpose of this is to derive a direct cap value of the property based on the recent cash flow. c) Resolution NOI: This is the net operating income in the year of the expected sale or payoff. The purpose of this is to derive a direct cap value of the property at time of resolution.

• Conclusions: In the conclusions section of the AIS sheet all “$/SQFT” amounts are automatically calculated.

a) Appraisal dated _____: The appraisal date and the Appraiser’s reconciled value of the property are to be entered in this section. The $/SQFT is automatically calculated. If an appraisal is not available, then “N/A” is entered.

b) BPO Value dated ______: The BPO (Broker’s Price Opinion) date and the Broker’s value of the property are to be entered in this section.

c) Sales Comp Approach: The sale value that was entered in the “SALES COMPARABLE APPROACH” section of the AIS sheet is automatically entered here.

d) Underwriter Direct Cap Value: The UNDERWRITER DIR. CAP. VALUE that is calculated in the “Underwriter Income Approach” section of the AIS sheet is automatically entered here.

e) Underwriter DCF Value: The UNDERWRITER DCF VALUE that was calculated from year one in the Argus section of VIPER is automatically entered here. This value is calculated based on cash flow (after tenant improvements and leasing commissions) for years one through five plus the

reversion value (NOI capped at the reversion rate) in year six. This is discounted back at a discount rate to come up with a DCF value in year one. The reversion rate and the discount rate are manually entered by the Underwriter on the Argus section in VIPER.

f) Underwriter Value: The UNDERWRITER VALUE is the reconciliation of calculated values including the Appraisal, BPO, Sales Comparable Approach, Underwriter Direct CAP Value and the Underwriter DCF Value. After reviewing these different forms of valuation, the Underwriter will manually enter an Underwriter Value which best suits the subject property based on all information that was learned during the due diligence process. A full explanation of the Underwriter Value decision will be noted in the “RECONCILIATION COMMENTS” section at the bottom of the AIS sheet. g) Resolution Direct Cap Value: This value is selected from the ARGUS section of VIPER . It is based on (i) the cap rate selected in the “Sales Comparable Approach” section of the AIS sheet and (ii) the Net Operating Income projected in the year that the asset is expected to be resolved. Under the current “Excel” VIPER model, the Underwriter must manually enter the cell location in the ARGUS section at this point on the AIS sheet. h) Resolution DCF Value: This is the DCF value that was calculated in the expected year of resolution in the ARGUS section of VIPER. Under the current “Excel” VIPER model, the Underwriter must manually enter the cell location in the ARGUS section at this point on the AIS sheet. i) Resolution Value: The RESOLUTION VALUE is the reconciliation of calculated values including the Resolution Direct Cap. Value and the Resolution DCF Value. After reviewing these different forms of valuation, the Underwriter will manually enter a Resolution Value which best suits the subject property based on all information that was learned during the due diligence process. The Resolution Value is manually input by the Underwriter and it represents the value that the Underwriter projects for the property at the time of resolution. The resolution value will form the basis for the Underwriter’s selection of a final asset cash flow on the Cash Flow Sheet (Exhibit I). j) Construction Cost (excluding land): The Construction Cost is the estimated cost to build an improvement including direct costs of labor and materials plus the contractor’s indirect costs but excluding the cost of land. It is important for the Underwriter to compare this cost with the Underwriter’s value of the property. When the Construction Cost is close to or below the Underwriter’s value, competition of new product in the area may occur. Once new competition is built in the area, the cash flow and the value of the subject property may go down. In this case the Underwriter must determine the land value of the subject property. This should be added to the Construction Cost 13

and clearly noted as such in the text portion of the AIS Sheet that is titled VALUE RECONCILIATION. Conversely if the Underwriter’s Value for the loan is significantly below Construction Cost, this is a positive indicator in terms of the building’s ability to compete with new product given a relatively low investment basis.

• Price: The Price section of the AIS sheet lists the Underwriter’s recommended purchase price, expected resolution scenario/timeline and certain returns and ratios associated with that particular pricing scenario. Under the current “Excel” VIPER model, the Underwriter must manually enter the Scenario (default, delayed default, restructure, discounted payoff or performing) and the total timeline used in the CASH FLOW section of VIPER.

a) COMPANY PRICE: The COMPANY PRICE is the recommended purchase price that is automatically entered in this section of the AIS sheet. It is manually entered by the Underwriter at the top of the CASH FLOW section of VIPER. b) IRR: The IRR (internal rate of return) is the rate of return to COMPANY based on the timing and cash flow of funds in the CASH FLOW section of VIPER. This number is automatically calculated. c) ROE: The ROE (Return on Equity) is the return on COMPANY’s equity taking into account Berkeley’s projected timeline, internal cost of funds and servicing costs. This number is automatically calculated. d) NET YIELD: The NET YIELD is the effective spread to COMPANY. This number is automatically calculated. e) PRICE/BALANCE: The PRICE/BALANCE is automatically calculated by taking the “COMPANY PRICE” divided by the current loan “Balance”. f) PRICE/UNDERWRITER VALUE: The PRICE/UNDERWRITER VALUE is automatically calculated by taking the “COMPANY PRICE” divided by the “UNDERWRITER VALUE”. g) PRICE/RESOLUTION VALUE: The PRICE/RESO. VALUE is automatically calculated by taking the “COMPANY PRICE” divided by the “RESOLUTION VALUE”. h) UNDERWRITER NOI/PRICE: The UNDERWRITER NOI/PRICE is automatically calculated by taking the “UNDERWRITER NOI” divided by the “COMPANY PRICE”. i) CURRENT INTEREST /PRICE: The CURRENT INTEREST/PRICE is automatically calculated by taking the “CURRENT INTEREST PAYMENT” divided by the “COMPANY PRICE” j) SUPPORTABLE DEBT: The SUPPORTABLE DEBT is calculated by using the “UNDERWRITER NOI” and current market finance terms and

conditions to determine the supportable debt available based on the property’s expected cash flow. Under the current Excel VIPER model, the Underwriter must manually input this data which is gathered through outside market sources. The Portfolio Acquisition Manager will provide this information for each loan portfolio.

• RECONCILIATION COMMENTS: The reconciliation comments section of the AIS sheet allows the Underwriter to explain the basis for the “Underwriter Value” that has been used in the analysis. Although the income approach will generally be the primary indicator of final value in some circumstances the sales comparable approach may be relied upon more heavily. This section should include text similar to the following

“The value of the collateral has been determined to range from $___ to $____. The Underwriter has relied most heavily on the Income approach. In some circumstances the Sale Comparable approach may be selected as the primary indication of value. In using this approach the ______(Direct Cap/DCF) value was used because ______.

In using the Income approach the main drivers are ______for rental income, selected because ______; for expenses, selected because ______; for cap/dis. rate selected because ______.

Under the Sales Comparable Approach the comparables relied upon most are _____ because ______.

The final reconciled Underwriter Value of $ _____ has been selected based on the Underwriter’s review of all relevant factors and is determined to be supportable based on _____ (location, condition and quality)”.