REAL ESTATE FUNDS: TRANSACTIONAL ISSUES

Richard D. RudmanDLA Piper LLP (US), Boston, MA

This article considers three attributes of a typical real estate investment fund often implicated in purchase and sale, joint venture, and mortgage loan transactions: (1) limited life, (2) limited liquidity and (3) diverse ownership. These attributes and the issues they raise are by no means unique to real estate funds, but they are almost always a potential concern if a fund is involved.

The term “real estate investment fund” can, of course, mean many different things. This article is concerned with real estate funds that are discretionary closed end funds meaning that (i) the fund sponsor has discretion over investment decisions (often within certain limitations concerning property type, location, size of investment, and debt levels), and (ii) the fund has a maximum size and duration. This type of fund is sometimes called a “blind pool” because of the sponsor’s discretion in selecting the properties that comprise the fund’s investment portfolio.

Limited Life

One of the unique aspects of many real estate funds is that they have a relatively short duration compared to other institutional investors and therefore must pay particular attention to their ability to exit from an investment. Pension funds, insurance companies, real estate investment trusts and the like typically have indefinite lives. While the ability to dispose of an investment may be of considerable importance to these investors, they are often truly long-term investors and have much greater flexibility in timing their exit from an investment than a limited-term real estate fund.

Especially in light of the discretion that is usually afforded to the fund sponsor in selecting the properties to be acquired, most fund investors expect to provide capital to an investment manager on the condition that capital be invested within a relatively short investment time period (often two to three years) and that the investments be liquidated and the capital returned to the investor within a modest time horizon (often seven to eight years).1 The fund may be a “blind pool,” but the investors generally require limits on when they will jump in and when they will be back on dry land and do not want to be swimming in the pool beyond one cycle of the real estate markets.

Investment Choice. The attribute of limited life has far reaching implications in the selection of appropriate properties and investment strategies. Funds are not well suited to long-term development projects. For commercial properties, the timing of lease rollovers relative to the end of the fund’s life can be an important consideration—it may be unwise for the fund to be forced to liquidate an investment at a time when there is uncertainty about the property’s future cash flow. Another consideration may be the likely depth of the market on resale—are there

1 Fund documents often allow the sponsor to extend the investment period or the duration of the fund by one or two years with approval from a specified percentage of investors or from a committee of investors that is formed for the purpose of advising the sponsor.

likely to be sufficient prospective buyers in the market for the property to be sold efficiently when disposition is required, or are there unique aspects to the property that will unduly limit the range of possible buyers? This is why some funds are reluctant to invest in so-called “secondary” or “tertiary” markets, where investor interest is the most likely to wan during periods of adverse economic conditions.

Financing Terms. The attribute of limited life can be of particular importance in the selection of debt (fixed vs. floating rate, long term vs, short term) and the negotiation of loan terms. With an expected holding period of probably five to seven years, and the possibility of an earlier opportunistic sale, it may be valuable to have the flexibility usually afforded by floating rate debt that can be readily paid off . Fixed rate debt often entails lock-up periods when prepayment is prohibited and/or prepayment fees intended to compensate the lender for the loss of its investment opportunity if the loan is repaid prior to the scheduled maturity. If the fund uses fixed rate debt with a term that is costly to repay, it will be important to obtain assumption rights that allow the fund to sell the property with the loan in place without difficulty. The fund, as borrower, will want loan documents that allow the loan to be assumed by a new owner, that establish readily-met standards for the new owner/replacement borrower, that establish a timely process to complete the assumption, that provide for reasonable lender fees, and that allow any loan guarantors to be replaced and released from liability arising from and after the sale of the property.

Decision to Sell. The attribute of limited life is also of particular importance in the negotiation of joint ventures where a fund is involved. Sale of the joint venture’s property is, of course, the most fundamental decision that the joint venture partners will make. From the perspective of the fund, the most desirable position is for the fund to have unilateral control over the decision to sell the property. In a joint venture where the fund has a very large share of the ownership (or a large degree of leverage in the negotiation), it is not unusual for the fund to be afforded this right, perhaps subject to a “lock-out” or “no-sale” period of one to two years during which mutual consent for sale is required. The “lock-out” period provides comfort to the minority partner that at least a minimum amount of time will allowed for the joint venture to implement its business plan. Under current law, a lock-out period of at least one year also insures that gain from the sale will be entitled to treatment as capital gains for U.S. income tax purposes.

Other Exit Strategies. In joint ventures where there is more balanced ownership (or leverage), it will still be critical for the fund to have an exit strategy that works within the time frame required by its fund documents. An exit strategy based on a sale of the fund’s interest in the joint venture is unlikely to be satisfactory for either the fund or its partner. For the fund, the price for a sale of its joint venture interest will almost certainly be less than its proportionate share of the property’s value because the buyer will not be obtaining unfettered control over the property. The buyer may also be acquiring its interest in the property subject to existing liabilities unless, with the cooperation of the fund’s joint venture partner, the transaction can be structured as a sale to a new owner. For the fund’s partner, a joint venture provision granting the fund sufficient flexibility to get top dollar for the sale of its joint venture interest will give the fund’s partner little or no control over who will buy the interest and replace the fund.

Buy-Sell. Many joint ventures use a buy-sell mechanism for resolving deadlocks, in which one joint venture partner sets a value on the property and offers to sell its interest to the other partner

or buy the other partner’s interest based on a hypothetical sale of the property for the specified value; the other partner must elect either to buy or sell, thereby ending the joint venture. A buy-sell provision does create an exit path in the event of a deadlock over the fund’s desire to sell the property, but the path may be too long and circuitous to be a desirable way out. The fund may be required to buy-out its partner prior to marketing the property, elongating the time to achieve a sale and requiring the fund to increase its investment in the property before being liquidating the investment. If the fund’s partner is managing the property, there may also be a need for replacement management during the interim period between the buy-sell closing and the completion of the sale. The need to rely on an interim management team during the marketing period for the property will likely make the sale process more difficult and signal to potential buyers that the fund has a particular need to dispose of the property.

Forced Sale. In many joint ventures a “forced-sale” provision is used to provide an exit mechanism for one or both of the partners. A forced-sale typically allows a partner to trigger a process whereby the initiating partner sets a price for the sale of the property, the other partner has a right to buy the property for the specified price (or to buy the initiating partner’s interest for the amount which the initiating partner would receive from a sale of the property at the specified price), and if the other partner does not exercise this right then permits the initiating partner to sell the property at the specified price (or often 90% to 95% of the specified price). Depending on the business needs and relative negotiating strength of the partners, the forced-sale provision may be mutual or available only to the fund. It can also be time limited so that there is a lock-up period as described above or restricted even more narrowly to be effective only when the fund’s term is nearing its end. Exhibit B contains examples of forced-sale provisions.

Puts. In some situations the fund’s partner may be unwilling to agree to a forced-sale process in which the fund (as triggering partner) can set the price at which the fund will be bought out. This may be the case if the fund’s partner expects to hold the property beyond the term of the fund and sees the forced-sale as tantamount to a buy-out option (or put right) for the fund because the partner will inevitably purchase the fund’s interest. An alternative to the forced-sale in this circumstance is a true put option in which the fund’s partner is required to buy-out the fund based on appraised value. This allows the fund to sell its interest at a price that reflects the property’s value without discount, and provides assurance to the fund’s partner that a fair sale price will be established. The principal drawback to an appraised value put option is the drawbacks to appraisals in general: their validity depends on the availability of reliable information about a number of recent comparable transactions large enough to adjust for the peculiarities of the properties, parties, and circumstances involved in each sale. In a world of imperfect information the appraisal may reflect an educated guess by the appraiser about where the market was last month rather than an indication of where it will be next month.

Exhibit C is a sample put provision.

Limited Liquidity

The second attribute that distinguishes real estate funds from many other types of property owners are the limitations which may restrict the availability of additional capital after an initial investment is made.

Most real estate funds include investors who have committed to invest funds when called by the general partner or manager up to a maximum dollar amount and subject, with certain exceptions, to an outside date for capital calls to be made. The outside date defines a limited period for the fund manager to make investments, often 2 to 3 years with an ability for the fund manager to extend the investment period for one or two years with approval of a majority or supermajority of the investors. After the investment period, the ability to call capital is generally limited to investment commitments made prior to the expiration of the investment period and a small amount of additional capital which can be called for fund expenses.

Therefore, following the investment period a fund may have little ability to raise cash to fund revenue shortfalls or capital expenditures other than by mortgaging or disposing of properties. If cash needs are the result of a general reversal in market conditions, a property refinancing or sales may be ill-timed. Whatever market conditions may exist, a major capital transaction may be an expensive and time consuming exercise to raise cash. There may, of course, be operating cash flows from some properties that can be used to solve problems for other properties, but unexpected cash needs can be more problematic for real estate funds than owners with deeper or more flexible financial resources.

The financial limitations inherent in real estate fund structures can be compounded by the attribute of limited life. The fund, by the terms of its fund agreement, will move to liquidation mode toward the end of its life and the size of the fund’s portfolio will shrink. The fund may well be subject to financial covenants under loan documents requiring minimum amounts of liquidity and net worth to be maintained. Covenants of this sort are typically required by regulated banks where the fund is a guarantor under a mortgage loan (even if the guaranty is limited to “bad boy” recourse carve-out obligations), and may be required by other lenders or in other contexts.

Limited liquidity is a fact of life that real estate funds must deal with, and there is not much that can be done in the fund’s legal documents to help manage its potential consequences. Longer time periods for the fund to meet unplanned capital needs will, of course, be helpful to some extent as will be provisions that allow subordinate debt or facilitate the sale of ownership interests or properties.

Diverse Ownership.

General Structure. In the simplest case, real estate funds are usually organized as a limited partnerships or limited liability companies and consists of an affiliate of the fund sponsor, which is usually the general partner (if the fund entity is a partnership) or manager (if the fund entity is a limited liability company), and multiple investors who are limited partners (in the case of a partnership) or members (in the case of a limited liability company). While certain special decisions may require approval of some or all of the investors (for instance, extending the life of the fund or allowing exceptions to its acquisition parameters), the regular business of the fund is generally controlled exclusively by the fund sponsor. Even in the simplest case there may be a large number of investors, especially if the fund raises substantial amounts of capital from individual investors.2 In more complicated cases, the “fund” may actually consist of several

2 Ownership interests in real estate funds are considered securities, and there are certain exemptions available under the securities laws where the number of potential investors who are solicited is 100 or fewer. Notwithstanding

different partnerships or limited liability companies for different types of investors. There may be separate entities for large and small investors, with more favorable economic terms being provided to the larger investors. There may also be separate entities for tax-exempt investors and foreign investors, who may need particular ownership structures to obtain favorable tax treatment of fund distributions. For an example of a relatively simple fund structure with individual and tax-exempt investors, see the ownership structure chart attached as Exhibit A.

Transfers of Investor Interests. Regardless of the complexity of the fund’s structure, it is generally the case that the fund has many investors, the investors do not control the fund’s business, the ability to transfer ownership interests may be important to the investors or some of them, and the fund needs to be protected against a default caused by an investor’s unpermitted ownership transfer. Given the complex structure of some funds, it may also be important for the fund sponsor to have the ability to reorganize the fund to meet tax or other objectives of the sponsor or the investors. Transfer restrictions in joint venture agreements, loan documents, and the like are therefore of considerable importance to real estate funds.

For the fund, it is optimal, and often acceptable to the counterparty(ies) in the transaction, to limit transfer restrictions applicable to the fund to changes in control of the fund. The counterparty may also want the fund sponsor to maintain a minimum economic interest in addition to control so that the fund sponsor continues to be motivated by “skin in the game.” In certain circumstances where one or more investors are particularly important sources of capital, the counterparty may also want comfort that a particular investor or investors will retain some or all of its ownership interest, but such instances are rare. The counterparty will not typically have recourse to individual investors, and there may be defenses to the investor’s capital funding obligations that arise wholly beyond the counterparty’s control (indeed, the investor could have defenses to funding capital that arise from a completely different transaction). Instead of a transfer restriction to keep a particular investor from transferring its interest in the fund, the counterparty will probably be better protected by negotiating for a larger initial equity investment by the fund or credit support for the fund’s obligations (such as a letter of credit, cash collateral or a guaranty from the deep-pocket investor).3

Exhibit D contains examples of transfer restrictions that allow for transfers of investor ownership interests.

As noted above, because a buy/sell or forced sale procedure in a joint venture may be a critical forced sale, it is important that transfer restrictions in the venture’s loan documents allow one venture partner to buy-out the other. If a buy-out is not permitted, then the buyer in a buy/sell, or a party exercising a right to buy-out its venture partner in lieu of a forced sale, may find that it has to renegotiate or pay-off the venture’s financing in connection with the transfer of ownership.

advice from counsel that securities law compliance is simpler if a smaller number of investors are solicited, many funds which are open to individual investors well exceed 100 actual investors.3 These comments are applicable to financing for a particular property or properties. Many funds maintain lines of credit that are secured by the subscription agreements of creditworthy investors, and in order to obtain a subscription line the fund’s investors must agree that their capital commitments are enforceable by the lender providing the line of credit. Subscription-based credit facilities are often maintained by funds in order to fund working capital (for instance, deposits on potential acquisitions), complete transactions on an expedited basis, or aggregate capital requirements so that capital calls are not needed for each individual transaction.

Change in Control. For the fund’s investors, it may also be important for transfer restrictions to allow for changes in control of a borrower or joint venture partner that result from a change in control of the fund. Most fund documents contain provisions allowing fund investors (usually by a supermajority vote) to replace the fund’s general partner or manager in circumstances such as wrongful conduct, a breach of the fund agreement, or the failure of key persons to be sufficiently involved in the fund’s operations. If the fund’s investors desire to replace the general partner or manager, approvals from lenders, joint venture partners and other parties having the benefit of transfer restrictions may have the right to approve the change in control, and if the transfer provisions do not provide some ability to replace the fund’s management team then the fund’s investors may be forced to restructure or repay loans, buy-out or renegotiate with joint venture partners, or otherwise appease counterparties doing business with the fund or its subsidiaries at time when the fund, by definition, is dealing with other serious problems.

In many cases the fund’s lenders and joint venture partners will agree to limit the transfer restrictions to transfers by the fund, without restricting transfers of control within the fund. In other cases it may be possible to pre-designate a replacement for the fund’s management team, for instance if there is a dominant investor in which lenders and other business counterparties have confidence. Most frequently, the fund investors are a diverse lot. Neither they nor the fund’s business counterparties want to spend time planning for an unlikely “bad news” scenario, especially since the actual circumstances are impossible to anticipate. The usual solution is to provide, in the transfer restriction, that the counterparty having approval rights over a change in control will not unreasonably withhold its approval of a replacement control party, at least if the replacement is being made by the fund’s investors in accordance with the fund agreement. It may also be helpful to include objective standards so that a replacement manager having a minimum portfolio (by number of assets and value) of comparable properties (by property type and location) is deemed acceptable subject to integrity-type requirements regarding criminal violations, money-laundering and anti-terrorism laws and the like.

The same issues concerning a change in control of the fund arise also in the context of a sale of the sponsor’s fund business or a portfolio sale of the fund’s properties. Depending on the strength of the sponsor and the size of the fund, lenders and other business counterparties may be less sympathetic to a request for limiting their discretion (and increasing litigation risk) in the context of a voluntary “good news” transaction by the fund sponsor as opposed to a “bad news” scenario where passive investors are taking extraordinary action to protect their equity investments.

Investor Types: Specific Concerns. The diversity of investor ownership can also create other significant issues for funds, some of which are quite technical and lie beyond the scope of this paper:

Ownership Disclosure Requirements . The fund may be required in certain circumstances to disclose the identity of its direct and indirect owners. This can be a problem for a fund which does not wish to disclose its investors or which has investors who do not wish to be identified. Some investors may even want to avoid disclosure of their ultimate ownership to the fund sponsor. If the requirement for ownership disclosure arises in the context of a loan or joint venture, there may be an ability to negotiate limitations on the information which must be disclosed, for instance limiting disclosure to owners with

control rights or owners having significant ownership shares. Ownership disclosure requirements may also arise under statutes or regulations that do not allow for flexibility. In many jurisdictions, for instance, there are requirements that private parties engaging in real estate transactions with government authorities must disclose the identity of all of its direct and indirect owners. Ownership disclosures mandated by law often have exceptions for public companies, but exceptions (such as ownership percentage thresholds) are less frequently provided for private entities.

Tax-Exempt Investors . Many real estate fund investors are pension plans, endowments, or charitable organizations that are generally exempt from federal income tax but will be taxed on income from any “unrelated trade or business.” Dividends, interest, gain on sale of property (other than property held as a dealer) and rent from real property provided such rents are not based in whole or in part on the income or profit of any person are not considered unrelated trade or business income except in certain situations where the income is financed by debt.

If the fund includes tax-exempt investors, then tax considerations need to be carefully reviewed for each potential property acquisition. Tax-exempt investors will be subject to unrelated business income tax (UBIT) on income from operating businesses such as hotels, conference centers, parking facilities and warehouses, as well as the sale of dealer property. Incidental rents from personal property which is leased with real property is not subject to UBIT, but income from special services to tenants can be subject to tax.

There are complex rules governing the use of debt by tax-exempt investors and the structuring of joint ventures. Conventional indebtedness of certain qualified organizations incurred for the acquisition or improvement of real estate will normally not give rise to UBIT, but there are many limitations to this exemption and, among other limitations, it does not apply where the price for the acquisition or improvement is not determined as of the date of the acquisition or completion of the improvements, where the acquired property is financed by or leased back to the seller, or where the property is acquired by a partnership having allocations that do not comply with the so-called “fractions rule.”

Many funds are structured to include a “UBIT blocker,” often a real estate investment trust that converts income subject to UBIT into dividends which are not subject to UBIT. The fund structure attached as Exhibit A incorporates a REIT that is used to avoid UBIT for tax-exempt investors. The use of a REIT to avoid UBIT effectively means that need to comply with the UBIT regulations is traded for compliance with the REIT tax regulations, which are somewhat more flexible with respect to the use of debt and joint venture structures but are still highly complex and technical.

Pension Plans . Real estate funds which include pension plan investors must also consider compliance with ERISA, the Employee Retirement Income Security Act. Generally, any plan providing retirement or other welfare benefits (such as insurance or severance benefits), other than a governmental plan,4 is subject to ERISA. Unless an ERISA

4 Some governmental plans require by contract that its investment in a real estate fund shall be treated as if ERISA applied.

exemption applies, the plan’s investment in the real estate fund and the assets held by the fund are considered “plan assets” subject to ERISA. Any person rendering investment advice to a plan or having control over the management or disposition of plan assets is required to act as fiduciary for the plan and is subject to a standard of care and prohibitions on transactions with “parties in interest” imposed by ERISA. Therefore, unless an exemption applies, the real estate fund’s manager will be considered a fiduciary for the pension plan and investments by the real estate fund will be subject to the ERISA prohibited transaction rules. The prohibited transaction rules prohibit property sales, leases, loans, furnishing of goods or services, and other transactions involving plan assets with a “party in interest,” which term includes the employer or union sponsoring the plan, fiduciaries of the plan, service providers to the plan, and affiliates of the foregoing. Compliance with the prohibited transaction rules is burdensome at best and, because of the difficulty in identifying parties in interest, often impossible.

While many real estate fund managers accept the responsibility of being fiduciaries to their pension plan investors, it is often critical for the real estate fund to qualify for an ERISA exemption that prevents the fund’s investments from being considered pension plan assets. The most frequently used exemptions are for Venture Capital Operating Companies (VCOC) and Real Estate Operating Companies (REOC). A REOC is an entity which is engaged in real estate management or development in the ordinary course of business, which owns assets that are at least 50% (by value) managed or developed real estate, and which substantially participates in the management of such assets on an ongoing basis. A VCOC is an entity that invests at least 50% (by value) of its assets in operating companies (including REOCS but excluding other VCOCs) as to which it has management rights and substantially participates in the management of at least one such company. In order to utilize this exemption, the real estate fund must qualify as a VCOC and each of its property owning subsidiaries must be a REOC.

There is also an exemption from the prohibited transaction rules for transactions involving plan assets that are negotiated by a “Qualified Professional Asset Manager,” who are registered investment advisors meeting certain threshold requirements for net worth and assets under management.

Foreign Investors . Real estate funds which contain foreign investors must also consider compliance with the Foreign Investment in Real Property Tax Act (FIRPTA), which may impose withholding requirements on foreign investors in U.S. real estate, as well as ownership structure requirements based on tax treaty provisions which apply to investors from different foreign jurisdictions.

ATTACHMENTS

Exhibit A: Sample Fund Structure (Organizational Chart)

Exhibit B: Forced Sale Examples

Example 1: Only Fund Can Initiate Forced SaleExample 2: JV Consists of Two Funds, Either Can Initiate Sale

Exhibit C: Sample Put Provision

Exhibit D: Sample Transfer RestrictionsExample 1: Transfer Provision in Joint Venture Between Two Real Estate FundsExample 2: Transfer Provision in Loan Agreement

EXHIBIT A

SAMPLE FUND STRUCTURE

EXHIBIT B

FORCED SALE EXAMPLES

EXAMPLE 1: ONLY FUND CAN INITIATE FORCED SALE

1.1 Right to Cause Sale of Entire Property.

(a) Fund may, at any time after the date which is two (2) years after the Effective Date cause the sale or other transfer by the Company of the entire Property.

(b) Prior to the exercise of its right as set forth in Section 1.1(a), Fund must give written notice (the “Sale Notice”) to Fund Partner (i) of Fund’s intention to request the sale of the Property at a specified price (the “Fund Stated Price”) and listing therein the Fund Stated Price and (ii) offering to sell its Entire Interest in the Company to Fund Partner for the amount that would be distributable to Fund under this Agreement if the Property were sold for the Fund Stated Price and on all other relevant terms and conditions of the Sale Notice.

(c) If Fund has forwarded a copy of the Sale Notice to Fund Partner, Fund Partner shall, within sixty (60) days after receiving a copy of the Sale Notice, elect one of the following options:

(i) notify Fund that Fund Partner has no objection to Fund marketing the Property, in which event and at which time Fund may cause the Company to market and sell the Property, provided that the price obtained for the Property is at least ninety-five (95%) percent of the Fund Stated Price and the sale of the Property is completed within one (1) year of Fund’s receipt of Fund Partner’s election or deemed election pursuant to item (ii) below not to purchase Fund’s Entire Interest. If such sale is not completed within such one (1) year period, the terms of this Sections 1.1 shall again be applicable.

(ii) notify Fund of Fund Partner’s election to purchase Fund’s Entire Interest upon the same terms and conditions contained in the Sale Notice; except that the price to be paid to Fund for its Entire Interest shall be equal to the amount that would be distributable to Fund under this Agreement if the Property were sold for the Fund Stated Price. Such notification shall be accompanied by a deposit in an amount equal to two percent (2%) of the amount payable to Fund pursuant to this Section   1.1(d)(ii) (such amount, together with any interest earned thereon, being hereinafter called the “Sale Deposit”). Notice of election to purchase shall be addressed to Fund and shall set forth the place of closing which shall be at the office of Fund Partner’s title insurer, during usual business hours within ninety (90) days after the date of the giving of the notice of election to Fund. The Sale Deposit shall be credited against the total purchase price for the Entire Interest being purchased pursuant to this Section 1.1(d); provided, however, that, if the closing shall fail to occur because of a default by Fund Partner, subject to the provisions of this Section 1.1(d)(ii) above concerning the refundability of the deposit, Fund shall have the right to retain the Sale Deposit as its sole remedy and as liquidated damages, it being agreed that in such instance Fund’s actual damages would be difficult, if not impossible, to ascertain. If Fund Partner shall not have given written notice to Fund of its election to purchase Fund’s Entire Interest within the sixty (60) day notice

period, Fund Partner shall be deemed to have exercised the option provided in Subsection (i) above.

(d) In connection with the sale of one Member’s Entire Interest to the other Member pursuant to this Section 1.1, the provisions of Section 1.2, inclusive, shall be applicable to such sale.

(e) Whether or not any transaction contemplated by the foregoing provisions of this Section 1.1 is consummated pursuant to the provisions of the Sale Notice, all the provisions of this Section 1.1 shall apply to any material modification to the Sale Notice, including a reduction in the Stated Amount of more than 5%.

1.2 Provisions Generally Applicable to Sale. The following provisions shall be applicable to a sale of Fund’s Entire Interest under Section 1.1:

(a) If Fund Partner elects to purchase Fund’s Entire Interest pursuant to Section   1.1 the purchase price payable by Fund Partner to Fund pursuant to Section   1.1 shall be determined as follows:

(i) there shall be determined the total amount which would have been available for distribution by the Company under Section XX after payment of debts, liabilities and expenses under Section YY to all of the Members if the Property were sold for the Fund Stated Price.

(ii) The amount which would have been distributable to Fund under Section XX if all of the Company’s Property had been sold for an amount equal to the Fund Stated Price after payment of all debts, liabilities and expenses of the Company referenced above equals the purchase price for Fund’s Entire Interest.

(b) For purposes of any sale of an Entire Interest of a Member, the purchase price associated with any such sale shall be adjusted to reflect assets and liabilities of the Company not reflected in the Company’s financial statements available to all Members at the time of the Sale Notice. The purchase price, as so adjusted, shall be determined ten (10) business days prior to closing and shall be subject to such post-closing adjustments as the circumstances may require. The purchase price, as so adjusted, shall be paid, at the selling Member’s option, in cash, by certified check drawn to the order of the selling Member, or by wire transfer of immediately available funds to the seller’s account. All prorations of real estate taxes, rents and other items to be prorated shall be made as of the date of sale. All transfer taxes, title insurance policies, surveys and recording fees shall be paid for by the party usually charged with such payment under local custom.

(c) On payment of the purchase price for an Entire Interest, the purchasing Member shall, at its option, either (i) obtain a release of the selling Member from all liability, direct or contingent, by all holders of all Company debts, obligations or claims against the Company for which the selling Member is or may be personally liable, except for any debts, obligations or claims which are fully insured by public liability insurer(s) reasonably acceptable to the selling Member, or (ii) cause all such debts, obligations or claims to be paid in full at the closing, or (iii) deliver to the selling Member an agreement in form and substance reasonably satisfactory to the selling Member to defend, indemnify and save the selling Member harmless

from any actions, claims or loss arising from any debt, obligation or claim of the Company arising from and after the date of sale. On receipt of the purchase price for its Entire Interest, the selling Member shall deliver to the purchasing Member an agreement in form and substance reasonably satisfactory to the purchasing Member to defend, indemnify and save the purchasing Member harmless from any actions, claims or losses arising in connection with the Entire Interest (or any portion thereof) of the selling Member attributable to any period prior to the date of sale.

(d) Both Members (including the selling Member) shall be entitled to any distributions of Operating Cash Flow and Extraordinary Cash Flow from the Company following the giving of the notice of election and until the closing.

(e) If the Property is damaged by fire or other casualty, or if any entity possessing the right of eminent domain shall give notice of an intention to take or acquire a substantial part of the Property, and such damage occurs, or such notice is given, between the Sale Notice Date and the closing date of the purchase of an Entire Interest in the Company, the following shall apply:

(1) If the Property is damaged by an insured casualty not to exceed 1.5% of the Fund Stated Price, (or an uninsured casualty not resulting in damages in excess of $______) or if the taking or acquisition shall not result in a substantial (in excess of 1.5%) reduction in the income producing capacity of the Property or available parking spaces, then the purchasing Member shall be required to complete the transaction and accept an assignment of the insurance or condemnation proceeds.

(2) If the Property is damaged by an uninsured casualty resulting in damage in excess of $______ or if the taking or acquisition shall result in material damage or in a substantial (in excess of 1.5%) reduction in the income producing capacity of the Property or available parking spaces, or if the insured casualty is in excess of 1.5% of the Fund Stated Price, then the purchasing Member shall have the option (to be exercised within 30 days from the date of the occurrence of the casualty or receipt of the notice of condemnation) to either (x) accept the Property in an “as is” condition together with any insurance proceeds, settlements and awards (in which event all such insurance proceeds, settlements and awards received (and/or any rights thereto) shall be transferred to the purchasing Member or, at the purchasing Member’s option, the Company, at the closing), or (y) cancel the purchase and have its deposit returned.

If the purchase is canceled by the purchasing Member pursuant to the above provisions, the terms of this Agreement shall remain in effect and continue to be binding on the Members. For purposes of this Section   1.2(e) , material damage to the Property shall mean damage which would cost 5% or more of the value of the Property (prior to such damage) to repair.

In the event that the taking or acquisition shall result in a substantial reduction in the income producing capacity of the Property, notwithstanding the election of the purchasing Member pursuant to subparagraph (2) above, the selling Member shall also have the right to cancel the purchase within 15 days from the date of the receipt of the notice of condemnation. In the event that the purchase is canceled by either Member pursuant to the

above provisions, the terms of this Agreement shall remain in effect and continue to be binding on the parties.

(f) At the closing of the sale of the Entire Interest of a Member, the selling Member shall execute an assignment of its interest in the Company, free and clear of all liens, encumbrances and adverse claims, which assignment shall be in form and substance reasonably satisfactory to the purchasing Member, and such other instruments as the purchasing Member shall reasonably require to assign the Entire Interest of the selling Member to such person or entity as the purchasing Member may designate. For any sale or transfer under this Article 10, the purchasing Member may designate the assignee of the Entire Interest, which assignee need not be an Affiliate of the Purchasing Member, subject to compliance with any institutional policies of the other Member and compliance with applicable law. The deed, in recordable form, and bill of sale shall be prepared by the purchasing Member.

(g) It is the intent of the parties to this Agreement that the requirements or obligations, if any, of one Member to sell its Entire Interest to the other Member shall be enforceable by an action for specific performance of a contract relating to the purchase of real property or an interest therein. In the event that the selling Member shall have created or suffered any unauthorized liens, encumbrances or other adverse interests against either the Property or the selling Member’s interest in the Company, the purchasing Member shall be entitled either to an action for specific performance to compel the selling Member to have such defects removed, in which case the closing shall be adjourned for such purpose, or, at the purchasing Member’s option, to an appropriate offset against the purchase price, which offset shall include all reasonable costs associated with enforcement of this Section.

(h) If the Fund elects (or is deemed to have elected) to have the Property sold pursuant to Section 1.1(b)(ii), the Majority of the Members agree to retain a real estate broker or an investment banker as the exclusive agent to market the Property. In such event, the Company shall use all reasonable efforts to effect the sale of the Property in such liquidation by a contract to be executed within a one hundred eighty (180) day period from the date of such election or deemed election. Each of the Members agrees that its commitment to sell the Property will be binding on it for a one hundred eighty (180) day period from such date and will terminate if a sale of the Property is not completed prior to the expiration of such one hundred eighty (180) day period.

(i) At the election of the purchasing Member, the purchase and sale of an Entire Interest will be structured to avoid, if possible, a termination of the Company for Federal tax purposes and/or under the Act.

EXAMPLE 2: JV CONSISTS OF TWO FUNDS, EITHER CAN INITIATE SALE

Section 1.1 Right to Sell the Property.

(a) Initiation . From and after the Lockout Period, either Member (the “Electing Member”) shall be entitled to elect to cause the Company (or to cause its Subsidiaries) to sell all (but not less than all) of the Project in accordance with this Section 1.1 by providing written notice (the “Sale Notice”) to the other Member (the “Non-Electing Member”). Notwithstanding anything herein to the contrary, a Member shall have no right to deliver a Sale Notice following (i) the occurrence and during the continuation of an Event of Default by such Member, (ii) with respect to the Fund B Member, if a Key Man Event exists, (iii) issuance of a Buy/Sell Offering Notice by such Member until the earlier of (x) the Closing Date or (y) the Members are no longer subject to the process commenced by the issuance of such Buy/Sell Offering Notice, or (iv) if such Member had issued and withdrawn a prior Sale Notice, for six (6) months after Withdrawal by such Member of such Sale Notice.

(b) Response . Within thirty (30) days after receiving the Sale Notice, the Non-Electing Member shall notify the Electing Member in writing that either:

(i) The Non-Electing Member agrees to permit the sale of the Project by the Company (or its Subsidiaries) to a Third Party (in such event, the Non-Electing Member’s election to permit such sale shall be binding upon the Non-Electing Member for two hundred seventy (270) days after Electing Member’s receipt of Non-Electing Member’s election or deemed election, and during such 270-day period, the Company shall make every reasonable effort to effect such sale to a Third Party, and the Electing Member shall have the right, but not the obligation, to conduct and perform all marketing of the Property on behalf and at the expense of any Subsidiary during such 270-day period), and to consummate the sale of the Property within the above-described 270-day period, without obtaining any further consent or approval from Non-Electing Member, provided the Electing Member keeps the Non-Electing Member reasonably informed with respect to such sales process, promptly provides the Non-Electing Member with copies of all offers, and invites the Non-Electing Member to participate in all material meetings and calls relating to such process (whereupon, notwithstanding anything to the contrary stated or implied in this Agreement, (x) Electing Member shall have full power and authority to unilaterally consummate any such sale and to unilaterally execute, acknowledge and deliver, on behalf of and for the Company and any Subsidiary, any and all documents and/or instruments in connection with or in furtherance of the consummation of any such sale, and (y) the Members hereby expressly authorize Electing Member to unilaterally execute, acknowledge and deliver, on behalf of the Company and any Subsidiary and without the consent or approval of any other Member, any and all instruments and documents required to consummate any such sale in accordance with this Section 1.1; provided, however, that, unless otherwise approved by the Non-Electing Member such sale may only be consummated pursuant to a Qualifying Agreement.

(ii) The Non-Electing Member both objects to such Sale Notice and elects to cause the Members to determine the Fair Market Value (as hereinafter

defined) of the Property (such notice, an “Objection Notice”). As used herein, “Fair Market Value” shall equal the fair market value of the project determined by the appraisal process described below based upon the fair market value of land and buildings of comparable size, age, use, location and quality in the ________________ area, taking into consideration all future development rights, then current information concerning leasing and financing prospects, and economic terms then customarily prevailing for the sale of comparable properties in said marketplace. Within ten (10) days after the Non-Electing Member’s issuance of an Objection Notice, each Member shall engage and notify the other Member of its engagement of an MAI appraiser (each, a “Member Appraiser”) with at least ten (10) years appraisal experience with similar properties in the ________________area. Within five (5) days after the appointment of the Member Appraisers, the two Member Appraisers shall thereafter engage a third appraiser which meets the aforementioned qualification requirements (together with the Member Appraiser, the “Appraisers”). Within thirty (30) days after the appointment of the third Appraiser, the Appraisers shall each deliver to each of the Members such Appraiser’s determination of the Fair Market Value. The Fair Market Value for purposes of this Section 1.1 shall be the average of the two closest determinations by the Appraisers of Fair Market Value.

(iii) The failure of the Non-Electing Member to timely respond to the Sale Notice shall be deemed an election under Section 1.1(b)(i) to permit the Electing Member to proceed with a sale in accordance with the terms thereof.

(c) Objection Notice Process .

(i) Upon determination of the Fair Market Value in accordance with Section 1.1(b)(ii) and so long as the Sale Notice was not issued by the Electing Member in response to a Buy/Sell Offering Notice, the Electing Member shall have a period of fifteen (15) days in which to elect by written notice to the Non-Electing Member to withdraw the Electing Member’s Sale Notice under this Section 1.1. If the Electing Member makes such election, the Sale Notice shall be deemed null and void and either Member may thereafter be permitted to exercise its rights under this Section 1.1. Any failure of the Non-Electing Member to make such election under this Section 1.1 within the aforementioned fifteen (15) day period shall be an election not to withdraw its Sale Notice under this Section 1.1. The Electing Member shall not have the right withdraw the Electing Member’s Sale Notice pursuant to this Section 1.1(c)(i) if the Sale Notice was issued by the Electing Member in response to a Buy/Sell Offering Notice.

(ii) If the Electing Member has not made an election to withdraw its Sale Notice pursuant to Section 1.1(c)(i) (or is not permitted to do so), the Non-Electing Member shall have a period of fifteen (15) days in which to elect by written notice to the Electing Member to purchase the Electing Member’s Interest. If the Non-Electing Member makes such election, (i) the Non-Electing Member shall be deemed a Purchaser and the Electing Member shall be deemed a Seller pursuant to [Buy-Sell Provision], (ii) the Proposed Value for purposes of determining the Buy Price shall be the Fair Market Value, (iii) the date of such election shall be the Buy/Sell Election Date, and (iv) the sale of the Interest shall otherwise occur in accordance with the provisions of

[Buy/Sell Provision]. Any failure of the Non-Electing Member to make such election under this Section 1.1(c)(ii) within the aforementioned fifteen (15) day period shall be an election not to purchase the Electing Member’s Interest in accordance with this Section 1.1(c)(ii).

(iii) If the Electing Member has not made an election to withdraw its Sale Notice pursuant to Section 1.1(c)(i) (or is not permitted to do so) and the Non-Electing Member has not made an election to purchase the Electing Member’s Interest pursuant to Section 1.1(c)(ii), then the Non-Electing Member shall be deemed to have elected not to purchase the interest of the Electing Member, and during such 270-day period, the Company shall make every reasonable effort to effect such sale to a Third Party, and Electing Member shall have the right, but not the obligation, to conduct and perform all marketing of the Property on behalf and at the expense of any Subsidiary during such 270-day period), and to sell the Property for a price not less than 95% of the Fair Market Value within the above-described 270-day period, without obtaining any further consent or approval from Non-Electing Member, provided the Electing Member keeps the Non-Electing Member reasonably informed with respect to such sales process, promptly provides the Non-Electing Member with copies of all offers, and invites the Non-Electing Member to participate in all material meetings and calls relating to such process (whereupon, notwithstanding anything to the contrary stated or implied in this Agreement, (x) Electing Member shall have full power and authority to unilaterally consummate any such sale and to unilaterally execute, acknowledge and deliver, on behalf of and for the Company and any Subsidiary, any and all documents and/or instruments in connection with or in furtherance of the consummation of any such sale, and (y) the Members hereby expressly authorize Electing Member to unilaterally execute, acknowledge and deliver, on behalf of the Company and any Subsidiary and without the consent or approval of any other Member, any and all instruments and documents required to consummate any such sale in accordance with this Section 1.1; provided, however, that, such sale may only be consummated pursuant to a Qualifying Agreement for a price not less than 95% of the Fair Market Value. If the Electing Member shall have the right pursuant to this Section   1.1(c)(iii) to proceed with a sale and during such 270-day period, the Electing Member on behalf of the Company receives an offer to purchase the Project for less than ninety-five percent (95%) of the Fair Market Value (the “Alternative Offer”), which Alternative Offer is acceptable to the Electing Member, then the Electing Member shall give notice to the Non-Electing Member of such Alternative Offer, which notice shall include all of the relevant terms and conditions of such Alternative Offer. The Non-Electing Member shall have the right for a period of ten (10) days after its receipt of such notice from the Electing Member, to elect to purchase the Electing Member’s Interest in the Company in accordance with the terms set forth in Section   1.1(c)(ii) above, provided that for purposes of such sale, the Fair Market Value shall be equal to the amount set forth in the Alternative Offer. If the Non-Electing Member shall not elect or shall be deemed to not have elected, within such ten (10) day period, to purchase the Interest pursuant to the foregoing, Electing Member shall have the right to effectuate such sale for the purchase price set forth in the Alternative Offer pursuant to a Qualifying Agreement.

(iv) Notwithstanding any provision hereof to the contrary, from and after the date of issuance of a Sales Notice pursuant to this Section 1.1, neither Member shall be permitted to deliver a Buy/Sell Offering Notice unless and until either (i) the two hundred and seventy (270) day sale period has expired or, (ii) if earlier, the Electing Member shall have given written notice to the Company and the Non-Electing Member that the Electing Member has elected to withdraw the Project from the market and to discontinue its efforts to sell the same (a “Withdrawal Notice”), and then only until such time, if ever, as any Electing Member may again elect to exercise its right to cause the Company (or to cause its Subsidiaries) to sell the Project pursuant to this Section 1.1. Without limiting the generality of the foregoing, in order to effect any sale permitted hereunder, the Electing Member may unilaterally cause the Company or any Subsidiary to take any action reasonably necessary in connection with such sale, including, without limitation, engaging one or more real estate brokers or marketing agents at reasonable and customary commercial rates, obtaining title commitments, market studies, environmental and construction assessments and other material to facilitate the marketing and sale of the Project. At all times that the Property is on the market pursuant to an election of the Electing Member pursuant to this Section 1.1(a), the Electing Member, on behalf of the Company, shall take such action or cause the Company to take such action, as is commercially reasonable to market the Project including, without limitation, the listing of the Project with a licensed real estate broker.

(d) Sale of Interests . If the Electing Member has the right to cause the Company to sell the Project pursuant to this Section 1.1, the Electing Member shall have the right to restructure the transaction as a sale of the Interests of all the Members to the Third Party, and in such event, each Member shall be obligated to convey to the Third Party good and marketable title to its Interests free and clear of all liens and encumbrances. Each Member agrees to cooperate and to take all actions and execute all documents reasonably necessary or appropriate to reflect the sale of the Interests of each Member; provided that (a) the net proceeds from the sale of the Interests of each Member shall not be less to each Member than each Member would have received had the Project been sold in fee to the Third Party, (b) the terms of such sale are as consistent as reasonably possible with the requirements of a Qualifying Agreement taking into account commercially reasonable differences caused by the alternative structure, and (c) the terms of such sale are the same for all the Members, but for reasonable differences caused by the fact that the Interests of each Member may differ (e.g. the purchase price for each Member’s Interest shall reflect the amount such Member would receive under the terms of this Agreement had the Project been sold rather than the Interests of each Member).

(e) Electing Member as Special Manager . Solely for the purpose of effectuating a proposed sale of the Project in accordance with the provisions of this Section 1.1, if the Electing Member is the Fund A Member and the Electing Member is entitled to cause a sale of the Project pursuant to the foregoing provisions of this Section 1.1, the Fund A Member shall have the right, upon five (5) days’ written notice given to the Fund B Member, to unilaterally propose and approve itself or a Person of its choosing to be the exclusive interim manager of the Company (the “Special Manager”) and upon such unilateral proposal and approval by the Fund A Member, the Special Manager shall thereafter have the exclusive power and authority, at any time and from time to time, acting singly, without the further consent of any other Member, including the Fund B Member, to sell and transfer (or cause the Subsidiaries to

sell and transfer) the Project in accordance with this Section 1.1 (a “Disposition”). The Fund B Member shall fully cooperate with the Special Manager in the exercise of the rights conferred on the Special Manager hereunder and shall take all actions reasonably requested by the Special Manager to consummate the sale of the Project, including without limitation, confirming the power and authority granted to the Special Manager hereunder. The Fund B Member shall not take any action that would prevent, interfere with or constrain in any way the exercise of the rights of the Special Manager to dispose of the Project. In furtherance of the Special Manager’s rights under this Section 1.1(e), the Special Manager shall have full power and authority to take, for and on behalf of the Company or its Subsidiaries all actions necessary or incidental to the effectuation of a Disposition, including, without limitation, entering into any agreements, oral or in writing, executing and delivering deeds and all of the other rights and powers granted to the Fund B Member hereunder to accomplish the foregoing. The rights of the Special Manager with respect to the Disposition of the Project shall be exclusive and the Fund B Member shall not take any action inconsistent with the foregoing. The Fund B Member shall cause the Company to take any action reasonably necessary to accomplish the Disposition of the Project and any action necessary or appropriate to confirm the rights of the Special Manager hereunder. With respect only to the sale of the Project pursuant to this Section 1.1, the Special Manager shall be entitled to the same rights and have all of the powers as the Fund B Member hereunder. For the avoidance of doubt, to the extent not inconsistent with the rights granted to Special Manager pursuant to this Section 1.1(e) and subject to the Fund A Member’s rights pursuant to [Major Decision Approval provision], Fund B Member shall retain all other rights conferred upon Fund B Member hereunder, including those set forth in [Provision re Managing Member’s Control Rights]. The rights of the Special Manager shall be limited to those set forth in this Section 1.1(e), and in any event shall terminate upon the issuance of a Withdrawal Notice.

(f) Fund B Member as Electing Member Following Key Man Event . Notwithstanding anything contained in Section 1.1 to the contrary, if the Fund B Member is the Electing Member after the occurrence of a Key Man Event and no Event of Default exists with respect to the Fund A Member, then the Fund A Member shall be entitled to exercise all rights of the Electing Member to conduct and effectuate the sale of the Property, subject to the limitations contained in Section   1.1(a)(i) or Section 1.1(b)(i), as applicable, and shall be the Special Manager for purposes thereof.

EXHIBIT C

SAMPLE PUT PROVISION

1.2 Fund Trigger Right. At any time between the start of the forty-second (42nd) month after the Effective Date and the end of the seventy-second (72nd) month after the Effective Date (the “Fund Trigger Period”), Fund shall have the right to deliver a notice to the Company and Fund Partner (the “Fund Valuation Notice”) to cause the determination of the Appraised Valuation. As used herein, “Appraised Valuation” means the fair market value of all the assets of the Company. All appraisers referred to herein shall be a Qualified Appraiser. Each Member shall select one (1) appraiser. In the event that either party fails to select an appraiser within thirty (30) days after notice of the exercise of an option or election requiring a valuation, then such party’s appraiser shall be selected by the other party from a list of no fewer than five (5) appraisers compiled and maintained by the Fund Partner (the “List”). After the selection, the first two appraisers shall select a third appraiser who meets the qualifications described above, and if the two appraisers are unable to agree on a third within ten (10) days after the appointment of the last of them, then a third appraiser meeting such qualifications shall be selected by the Boston Office of the American Arbitration Association at the request of either of the first two appraisers. Within ten (10) days after the third appraiser is selected, each appraiser shall independently determine the gross fair market value of the assets of the Company. The Appraised Valuation will be deemed to be the average of the fair market values proposed by the appraisers, except that (i) if the lowest proposed fair market value is less than 90% of the second to lowest proposed fair market value, the lowest proposed fair market value will automatically be deemed to be 90% of the second to lowest proposed fair market value and (ii) if the highest proposed fair market value is greater than 110% of the second to highest proposed fair market value, the highest proposed fair market value will automatically be deemed to be 110% of the second to highest proposed fair market value. The determination of Appraised Valuation as set forth above shall be final and binding upon the parties.

(a) Within thirty (30) days following the determination of the Appraised Valuation by the process described above, Fund may deliver a notice to Fund Partner that Fund desires to market the entire Property for sale (the “Fund Trigger Notice”), at a price designated by Fund in the Fund Trigger Notice (but in any event no greater than the Appraised Valuation) (for such purposes, the “Fund Stated Price”).

(b) In such event, Fund Partner may, within sixty (60) days after receipt of the Fund Trigger Notice:

(i) notify Fund of Fund Partner’s election to purchase Fund’s entire interest in the Company (the “Entire Interest”) for a price equal to the amount that would be distributable to Fund under this Agreement if the Property were sold for the Fund Stated Price. Such notification shall be accompanied by a deposit in an amount equal to two percent (2%) of the amount payable to Fund pursuant to this Section   1.3(b) (i) (such amount, together with any interest earned thereon, being hereinafter called the “Fund Partner’s Sale Deposit”). Notice of election to purchase shall be addressed to Fund and shall set forth the place of closing which shall be at the office of Fund Partner’s

title insurer, during usual business hours within ninety (90) days after the date of the giving of the notice of election to Fund. The Fund Partner’s Sale Deposit shall be credited against the total purchase price for the Entire Interest being purchased pursuant to this Section 1.3(b); provided, however, that, if the closing shall fail to occur because of a default by Fund Partner, subject to the provisions of this Section 1.3(b)(i) concerning the refundability of the deposit, Fund shall have the right to retain the Fund Partner’s Sale Deposit as liquidated damages for the failure of Fund Partner to purchase Fund’s Entire Interest, it being agreed that in such instance Fund’s actual damages would be difficult, if not impossible, to ascertain and Fund shall have the right, acting alone, to cause the Company to market and sell the Property, subject to clauses   (x) , (y), and (z) of Section 1.3(b)(ii) below. If Fund Partner shall not have given written notice to Fund of its election to purchase Fund’s Entire Interest within the sixty (60) day notice period, Fund Partner shall be deemed to have exercised the option provided in Subsection (ii) below.

(ii) notify Fund that Fund Partner has no objection to the marketing of the Property, in which event and at which time Fund Partner shall cause the Company to market and sell the Property, provided that (x) the price obtained for the Property shall be at least ninety-five (95%) percent of the Fund Stated Price, (y) a purchase and sale agreement for the sale of the Property shall be executed and delivered within six (6) months of the date that the Property has been publically marketed, and (y) the sale of the Property shall be completed within one (1) year of Fund Partner’s receipt of the Fund Trigger Notice or deemed election pursuant to item (i) not to purchase Fund’s Entire Interest. If the foregoing conditions are not satisfied, then the terms of Sections 1.3 shall again be applicable, provided, that if Fund Partner defaults under its obligations to cause the Company to market the property under this Section   1.3(b)(ii) , and such default is not cured within the thirty (30) day period following a Notice of Default pursuant to Section   12.1 , then Fund shall have the right, acting alone, to cause the Company to market and sell the Property, subject to clauses   (x) , (y), and (z).

1.4 Provisions Generally Applicable to Sales

. The following provisions shall be applicable to a sale of Fund’s Entire Interest under Section 1.3:

(a) If Fund Partner elects to purchase Fund’s Entire Interest pursuant to Section   1. 3 the purchase price payable by Fund Partner to Fund pursuant to Section   1.3 shall be determined as follows:

(i) there shall be determined the total amount which would have been available for distribution by the Company under Section XX after payment of debts, liabilities and expenses under Section YY to all of the Members if the Property were sold for the Fund Stated Price.

(ii) The amount which would have been distributable to Fund under Section XX if all of the Company’s Property had been sold for an amount equal to the Fund Stated Price after payment of all debts, liabilities and expenses of the Company referenced above equals the purchase price for Fund’s Entire Interest.

(b) For purposes of any sale of an Entire Interest of a Member, the purchase price associated with any such sale shall be adjusted to reflect assets and liabilities of the Company not reflected in the Company’s financial statements available to all Members at the time of the Sale Notice. The purchase price, as so adjusted, shall be determined ten (10) business days prior to closing and shall be subject to such post-closing adjustments as the circumstances may require. The purchase price, as so adjusted, shall be paid, at the selling Member’s option, in cash, by certified check drawn to the order of the selling Member, or by wire transfer of immediately available funds to the seller’s account. All prorations of real estate taxes, rents and other items to be prorated shall be made as of the date of sale. All transfer taxes, title insurance policies, surveys and recording fees shall be paid for by the party usually charged with such payment under local custom.

(c) On payment of the purchase price for an Entire Interest, the purchasing Member shall, at its option, either (i) obtain a release of the selling Member from all liability, direct or contingent, by all holders of all Company debts, obligations or claims against the Company for which the selling Member is or may be personally liable, except for any debts, obligations or claims which are fully insured by public liability insurer(s) reasonably acceptable to the selling Member, or (ii) cause all such debts, obligations or claims to be paid in full at the closing, or (iii) deliver to the selling Member an agreement in form and substance reasonably satisfactory to the selling Member to defend, indemnify and save the selling Member harmless from any actions, claims or loss arising from any debt, obligation or claim of the Company arising from and after the date of sale. On receipt of the purchase price for its Entire Interest, the selling Member shall deliver to the purchasing Member an agreement in form and substance reasonably satisfactory to the purchasing Member to defend, indemnify and save the purchasing Member harmless from any actions, claims or losses arising in connection with the Entire Interest (or any portion thereof) of the selling Member attributable to any period prior to the date of sale.

(d) Both Members (including the selling Member) shall be entitled to any distributions of Operating Cash Flow and Extraordinary Cash Flow from the Company following the giving of the notice of election and until the closing.

(e) If the Property is damaged by fire or other casualty, or if any entity possessing the right of eminent domain shall give notice of an intention to take or acquire a substantial part of the Property, and such damage occurs, or such notice is given, between the Sale Notice Date and the closing date of the purchase of an Entire Interest in the Company, the following shall apply:

(1) If the Property is damaged by an insured casualty not to exceed 1.5% of the Fund Stated Price, (or an uninsured casualty not resulting in damages in excess of $500,000) or if the taking or acquisition shall not result in a substantial (in excess of 1.5%) reduction in the income producing capacity of the Property or available parking spaces, then the purchasing Member shall be required to complete the transaction and accept an assignment of the insurance or condemnation proceeds.

(2) If the Property is damaged by an uninsured casualty resulting in damage in excess of $500,000 or if the taking or acquisition shall result in material damage or in a substantial (in excess of 1.5%) reduction in the income producing capacity of the Property or available parking spaces, or if the insured casualty is in excess of 1.5% of the Fund Stated

Price, then the purchasing Member shall have the option (to be exercised within 30 days from the date of the occurrence of the casualty or receipt of the notice of condemnation) to either (x) accept the Property in an “as is” condition together with any insurance proceeds, settlements and awards (in which event all such insurance proceeds, settlements and awards received (and/or any rights thereto) shall be transferred to the purchasing Member or, at the purchasing Member’s option, the Company, at the closing), or (y) cancel the purchase and have its deposit returned.

If the purchase is canceled by the purchasing Member pursuant to the above provisions, the terms of this Agreement shall remain in effect and continue to be binding on the Members. For purposes of this Section   1.4(e) , material damage to the Property shall mean damage which would cost 5% or more of the value of the Property (prior to such damage) to repair.

In the event that the taking or acquisition shall result in a substantial reduction in the income producing capacity of the Property, notwithstanding the election of the purchasing Member pursuant to subparagraph (2) above, the selling Member shall also have the right to cancel the purchase within 15 days from the date of the receipt of the notice of condemnation. In the event that the purchase is canceled by either Member pursuant to the above provisions, the terms of this Agreement shall remain in effect and continue to be binding on the parties.

(f) At the closing of the sale of the Entire Interest of a Member, the selling Member shall execute an assignment of its interest in the Company, free and clear of all liens, encumbrances and adverse claims, which assignment shall be in form and substance reasonably satisfactory to the purchasing Member, and such other instruments as the purchasing Member shall reasonably require to assign the Entire Interest of the selling Member to such person or entity as the purchasing Member may designate. For any sale or transfer under this Article 10, the purchasing Member may designate the assignee of the Entire Interest, which assignee need not be an Affiliate of the Purchasing Member, subject to compliance with any institutional policies of the other Member and compliance with applicable law. The deed, in recordable form, and bill of sale shall be prepared by the purchasing Member.

(g) It is the intent of the parties to this Agreement that the requirements or obligations, if any, of one Member to sell its Entire Interest to the other Member shall be enforceable by an action for specific performance of a contract relating to the purchase of real property or an interest therein. In the event that the selling Member shall have created or suffered any unauthorized liens, encumbrances or other adverse interests against either the Property or the selling Member’s interest in the Company, the purchasing Member shall be entitled either to an action for specific performance to compel the selling Member to have such defects removed, in which case the closing shall be adjourned for such purpose, or, at the purchasing Member’s option, to an appropriate offset against the purchase price, which offset shall include all reasonable costs associated with enforcement of this Section.

(h) If the Fund elects (or is deemed to have elected) to have the Property sold pursuant to Section 1.3(b)(ii), the Majority of the Members agree to retain a real estate broker or an investment banker as the exclusive agent to market the Property. In such event, the Company shall use all reasonable efforts to effect the sale of the Property in such liquidation by a contract

to be executed within a one hundred eighty (180) day period from the date of such election or deemed election. Each of the Members agrees that its commitment to sell the Property will be binding on it for a one hundred eighty (180) day period from such date and will terminate if a sale of the Property is not completed prior to the expiration of such one hundred eighty (180) day period. If the Property is not sold pursuant to the provisions of this Section   1.4(h) , then so long as the Fund Partner Trigger Period remains in effect, Fund Partner shall have all of the rights that it would have had if the election (or deemed election) pursuant to Section   1.3(b)(ii) had not been given.

(i) At the election of the purchasing Member, the purchase and sale of an Entire Interest will be structured to avoid, if possible, a termination of the Company for Federal tax purposes and/or under the Act.

EXHIBIT D

SAMPLE TRANSFER RESTRICTIONS

EXAMPLE 1: TRANSFER PROVISION IN JOINT VENTURE BETWEEN TWO REAL ESTATE FUNDS.

Fund A Member is wholly owned by an institutional investment fund that is providing the majority of capital. Fund B Member is wholly owned by a fund sponsored by a development firm with some investors who are institutional investors and other investors who are high net worth individuals.

Section 8.1 Transfers by the Members

.

(g) General Restrictions . No Member shall sell, pledge, hypothecate, assign, transfer, mortgage, charge or otherwise encumber, or suffer any Third Party to sell, assign, transfer, mortgage, charge or otherwise encumber, or contract to do or permit any of the foregoing, directly or indirectly, and whether voluntarily or by operation by law (collectively referred to as a “Transfer”) all or any of its Interest in the Company except as provided in this ARTICLE VIII. Any attempt to effect any of the foregoing prohibited actions shall be void ab initio and, in addition to other rights and remedies at law and in equity, the other Member(s) shall be entitled to injunctive relief enjoining the prohibited action. The Members expressly acknowledge that damages at law would be an inadequate remedy for a breach or threatened breach of the provisions concerning Transfers set forth in this ARTICLE VIII. The giving of any consent or approval by a Member pursuant to this ARTICLE VIII in any one or more instances shall not limit or waive the need for such consent or approval in any other or subsequent instances. For purposes of this Section 8.1, transfers of direct or indirect interests in the Fund B Member shall be deemed Transfers subject to the restrictions set forth herein.

(h) Transfers . The restrictions set forth in this ARTICLE VIII shall not be construed to limit or restrict in any way any of the following, each of which shall be deemed a permitted Transfer hereunder: (i) Transfers otherwise permitted pursuant to the express terms hereof; (ii) Transfers of interests by or in the Fund A Member, or the direct or indirect constituent partners or members of the Fund A Member, without the consent of any other Member, including, without limitation, the right of the Fund A Member to transfer all or any portion of its Interest directly or indirectly to the holders of direct or indirect ownership interests in the Fund A Member or a Related Party thereof, or to Fund A Sponsor (or any successor thereof by merger, conversion, reorganization or similar transaction or operation of law) or a Related Party thereof, provided, however, that (x) at least fifty percent (50%) of the direct or indirect ownership interests in the Fund A Member shall continue to be held directly or indirectly by Fund A, or a Related Party thereof, or by Fund A Sponsor (or any successor thereof by merger, conversion, reorganization or similar transaction or operation of law), and (y) Fund A Sponsor or a Qualified Investment Manager must at all times retain Control of the Fund A Member; or (iii) Transfers of direct or indirect interests in the Fund B Member or any Related Party thereof so long as such transfer does not cause a Key Man Event [defined below]. Any expenses of a permitted Transfer and any transfer or other taxes payable in connection therewith shall be borne

by the Member whose Interest in the Company, or portion thereof, is the subject of the Transfer, except in the case of a Transfer arising from the exercise of the Buy/Sell rights set forth in Section 8.3 hereof, in which case such expenses and taxes shall be borne by the Member purchasing the Interest of the other Member.

(i) Notwithstanding anything in this ARTICLE VIII or elsewhere in this Agreement to the contrary, no Member shall have the right to effect or permit any Transfer of all or any portion of its direct or indirect Interest in the Company if the Transfer would constitute a breach or default under any material agreement by which the Company is bound (including, without limitation, any document executed in connection with a Loan) or would, in the opinion of counsel to the Company, constitute a violation of any applicable state or federal securities or other law. No Transfer of all or any portion of a Member’s direct or indirect Interest in the Company may be made to any Person if: (i) such Transfer would cause the Company to no longer be excluded from the definition of “Investment Company” under the Investment Company Act of 1940; or (ii) such Transfer would cause the Company to be considered for purposes of Treasury Regulations Section 1.7704-1(h)(1)(ii) to have more than 100 members at any time during any taxable year. The Fund B Member may not Transfer (or permit a Transfer of) all or any portion of its direct or indirect Interest in the Company to any Person (other than the Fund A Member) if such Transfer would cause all or any portion of such Interest in the Company or any portion of the assets of the Company to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.3-101.

Definitions:

“Key Man Event” means, if at any time, either of the following is no longer true, as reasonably determined by the Fund A Member: (i) at least three Key Principals continue to serve as officers of the general partner of the Fund B Member with day-to-day control of such Fund B Member and (ii) Fund B or a Related Party of Fund B continues to own, directly or indirectly, in the aggregate, not less than fifty-one percent (51%) of the membership interests it currently owns in, and Controls, the Fund B Member. Notwithstanding the foregoing, upon the occurrence of an event described in clause (i) above (if and only if it was caused by the death or disability of one or more Key Principals), a Key Man Event shall not be deemed to have occurred if the Fund B Member proposes and the Fund A Member approves a replacement Key Principal within sixty (60) days of the occurrence of such Key Man Event and thereafter the Members shall amend the Agreement to reflect the Fund A Member’s approval of such Key Principal(s).

“Key Principals” means Jane Doe and Bob Smith and such other persons who are approved by the Fund A Member from time to time, such approval not to be unreasonably withheld.

EXAMPLE 2: TRANSFER PROVISION IN LOAN AGREEMENT

Borrower is an single purpose entity wholly owned by the same joint venture described in the transfer provision set forth above. Fund A Member is wholly owned by an institutional investment fund that is providing the majority of capital. Fund B Member is wholly owned by a fund sponsored by a development firm with some investors who are institutional investors and other investors who are high net worth individuals.

1.1 Restrictions on Transfers.

(a) Prohibited Transfers . Except for Permitted Transfers, the Borrower shall not:

(i) directly permit any sale, transfer, exchange, assignment or pledge of or grant of any security interest in any ownership interests in the Borrower; or

(ii) sell, convey, transfer or exchange any of its assets of any character whether or not related to the Property or the Project, or any portion thereof, whether now owned or hereafter acquired.

(b) Permitted Transfers . The term “Permitted Transfers” shall mean:

(i) the Loan Documents and other agreements in favor of Agent on behalf of the Lenders;

(ii) transactions, whether outright or as security, for which Administrative Agent’s prior written consent has been obtained, which consent may be withheld, granted or granted conditionally, subject to such protective and other conditions as the Administrative Agent may require in its sole and absolute discretion;

(iii) sales or dispositions in the ordinary course of business of worn, obsolete or damaged items of personal property or fixtures which are suitably replaced to the extent reasonably needed;

(iv) as long as there exists no Default (unless the transfer of ownership interests is effectuated promptly following a Default in order to cure such Default): any transfer of ownership interests in Borrower by a natural person (i) to members of that person’s immediate family (spouse, children, parents, and siblings) or (ii) to a trust or trusts for the benefit of that person’s immediate family, without in either case causing a change in Control;

(v) upon prior written notice to Administrative Agent, any sales or transfers of direct or indirect ownership interests in Borrower, so long as the Administrative Agent is given at least ten (10) calendar days prior written notice of the change and, after giving effect to all such transfers, a group consisting of any one or more of (i) Fund A; (ii) Fund B; (iii) Fund B Sponsor, or (iv) any Affiliates of Fund A, Fund B or Fund B Sponsor or the owners thereof (a) own not less than 51% of the interests in Borrower, provided any third party acquiring any direct or indirect ownership interest in connection with any such transfer shall (I) satisfy any customary Patriot Act and OFAC due diligence checks required by the Lenders, (II) not have been involved in any material litigation as an adverse party with any Lender, (III) provide financial statements of such third party entity reasonably satisfactory to Administrative Agent and, (b) possess day-

to-day operational control of the Borrower and if Fund A or its Affiliate becomes the operating member of Borrower’s sole member; and provided further, that notice of any direct or indirect transfer in Borrower shall not be required in the case of any non-controlling transfers of ownership interests in Borrower;

(vi) grant of easements and licenses in connection with the development and/or operation of the Property, subject to Administrative Agent’s reasonable prior approval; and

(vii) In the event of any proposed transfer of indirect ownership interests of Guarantor (or its Affiliates) in Borrower in accordance with the provisions of this Section 1.0(b) such that Guarantor (or its Affiliate Fund B Sponsor) would no longer possess day-to-day operational control of Borrower and the Property, such transfer will require the approval of the Administrative Agent, in its sole discretion, as to a replacement property manager and a replacement Guarantor; provided, however, that Fund A (provided there has been no material adverse change in the financial condition of Fund A since the date hereof) will be accepted as a replacement guarantor for the non recourse carve outs and the environmental indemnity, but as long as there continue to be construction obligations to complete any (1) Base Building Improvements, or (2) other Capital Improvements, Tenant Improvements or any Retail Improvement, in each case of this subsection (2) for which construction has commenced, Fund B will remain as a completion guarantor. Upon approval by the Administrative Agent, upon delivery of any such replacement guaranty, such replacement guaranty and such Person as applicable shall be and become the “Guaranty” and the “Guarantor” respectively, in lieu of such replaced Guarantor, for all purposes under this Agreement and the other Loan Documents.

(viii) In the event of any proposed transfer of indirect ownership interests of Guarantor (or its Affiliates) in Borrower in accordance with the provisions of this Section 2.20.3 such that Guarantor (or its Affiliate Fund B Sponsor) would no longer own any direct or indirect interest in Borrower or the Property, such transfer will require the approval of the Administrative Agent, in its sole discretion, as to a replacement property manager and a replacement Guarantor; provided, however, that Fund A (provided there has been no material adverse change in the financial condition of Fund A since the date hereof) will be accepted as a replacement guarantor for the nonrecourse carve outs, the environmental indemnity, but as long as there continue to be construction obligations to complete any (1) Base Building Improvements, or (2) other Capital Improvements, Tenant Improvements or any Retail Improvement, in each case of this subsection (2) for which construction has commenced, Fund B. will remain as a completion guarantor. Upon approval by the Administrative Agent, upon delivery of any of such replacement guaranty, and replacement property manager such replacement guaranty and such Person as applicable shall be and become the “Guaranty” and the “Guarantor” respectively, in lieu of such replaced Guarantor, for all purposes under this Agreement and the other Loan Documents.