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Equity Investment During Construction of Affordable Housing Projects

Introduction.

Until a few years ago, it was common for the investor in an affordable housing project, i.e. the purchaser of the tax credits, to make its first equity contribution at the time construction of the project was at or near completion. In recent years, it has become more common for an investor to invest a sizable percentage of its equity during the construction period ("construction-period equity").

The increase in construction-period equity is the result of several factors. Developers and investors have been faced with a much more competitive tax credit market, although the market now appears to have stabilized. This competition has not only driven up the prices that investors have been willing to pay for tax credits but also has prompted investors to offer other incentives to developers. These incentives have included increased construction-period funding. Developers are often in need of construction-period funding to supplement construction financing available from conventional construction lenders and/or government sources. The underwriting requirements of conventional construction lenders limit the amount of construction financing that a lender can make available to an affordable housing project, even where the lender's underwriting requirements permit the lender to "value" the tax credits. In the past, the gap between the cost of the project and the construction financing available from a conventional construction lender was often filled by soft financing from one or more government or quasi-government entities. However, these soft financing funds have become more limited.

The decision to invest equity funds during construction raises a number of issues that need to be resolved among the investor, the construction lender and the developer about the equity financing.

Perspectives and Goals.

A consideration of the different perspectives and goals of the investor, the construction lender and the developer is helpful in understanding the issues that may arise in connection with construction-period equity.

Investors. The investor starts from the perspective that any money that the investor puts in during construction is "early." As a result of making an "early" investment, the investor regards itself as taking on a much greater risk. In exchange for this greater risk, the investor believes that it should be entitled to certain compensating protections and/or controls.

The investor's perception that any construction-period equity is at great risk is based on the fact that the value of the project is generally dependent on the availability of the tax credits, which in turn is dependent on the project meeting the applicable construction deadlines and satisfying the various tax credit requirements. Since the construction lender will have a first lien on the project, the only chance for the investor to receive a return of its equity is if the project is successful in receiving an allocation of tax credits. Further, the investor may be concerned that it has a greater interest in the quality of the project construction than the construction lender since the investor generally intends to own its interest in the project for a minimum of 15 years to take full advantage of the tax credits. The investor also realizes that by making a significant construction-period equity investment the investor has given up a great deal of leverage with regard to its decision to make its subsequent post-construction equity investments.

Under these circumstances, the investor's goal is to limit its exposure as much as possible by obtaining some of the same types of protections as a "junior" lender. Thus, the investor generally wants to retain some form of control over the construction-period equity funds and wants some form of involvement in the construction process. In addition, the investor's goal is to maintain some leverage through placing conditions to the contribution of its post-construction equity.

Construction Lenders. The construction lender generally starts with the perspective that its powers and risks should not be affected by the fact that the construction loan involves an affordable housing project. Thus, the lender believes that it should be entitled to its customary control over the construction funding process. Further, the lender views the investor as part of the borrower. Thus, from the lender's perspective, the investor should not be given any special powers, and the investor's construction-period equity should not be given any special status and should be treated the same as any other borrower's equity. In addition, the lender should not have any separate obligations to the investor.

The foregoing perspective of the lender is often tempered by several facts. First, the lender generally recognizes that the issue of construction-period equity is negotiable and it may be in the lender's best interest to trade increased construction-period equity for some sharing of control. Second, the investor's subsequent contributions of post-construction equity are often the source of part or all of the funds that will pay off the construction loan. Thus, the lender has a certain incentive to insure that the investor is satisfied with the construction of the project.

Based on this perspective, the lender's goal is to have the investor's construction-period equity contributed as early as possible in the construction process and with as few restrictions as possible. The lender may also be concerned about insuring that the investor will honor its equity commitment in a timely fashion and has the available funds, particularly if the investor is a syndicated fund. Further, the lender's goal is to have the maximum control over the equity funds once contributed. In particular, the lender is concerned about funding and construction delays if the investor has increased involvement. Finally, the lender's goal is to limit any potential liability to an investor.

Developers. The primary goal of the developer is to get the construction funds that it needs to develop the project by closing the debt and equity financing as quickly as possible. Thus, the developer often acts as a mediator between the investor and the construction lender. The developer also wants to minimize the potential for friction and delays in getting construction funds from the lender and the investor during the construction process.

Percentage of Equity During Construction.

The most basic issue that needs to be resolved is how much construction-period equity an investor will provide. This will depend on a balancing of the investor's concerns about the risks with the need of the project for construction funds. Generally, an investor is reluctant to invest more than 30% of its equity during construction, although we have seen investment go as high as 50% under certain special circumstances.

Uses and Timing for Construction Period Equity.

Construction-period equity investment is used for two basic purposes (1) payment of land and pre-development costs incurred to satisfy the 10% test and (2) payment of current construction costs. The uses for the equity investment affects the timing of the equity investment.

Generally, any land and pre-development costs will have been incurred prior to the investor's admission to the partnership. Thus, these amounts have usually been paid by the developer or remain amounts payable. Under these circumstances, the investor may be willing to advance a portion of its construction-period equity to repay the developer and/or pay the amounts payable. Such equity funds are usually contributed concurrently with the equity closing, which often coincides with the construction loan closing. The disbursement of these funds may be coordinated with the first draw request under the construction loan, which often goes to pay a portion of the same expenses. As a result, these funds may be disbursed through the escrow that has been created to handle the construction loan.

Construction-period equity which will be used to pay current construction costs can be handled in a number of different ways. The threshold question is whether the equity money will be used first or on a pro rata basis with the construction loan funds.

The simplest approach, and the approach preferred by the construction lender, is for the investor to deposit the full amount of the construction-period equity into an account with the lender and for the lender to use the funds in the account to pay 100% of the construction costs until exhausted.

At the other end of the spectrum, the approach that most protects the investor is to structure the construction-period equity so that the investor will fund a pro rata share of each draw request.

There are any number of variations of the foregoing two approaches. For example, the investor can deposit the full amount of the construction-period equity into an account with the lender but only fund a pro rata share of each draw request. Further, as discussed below, issues about the timing of the equity investment need to be considered in the context of the control over the equity investment.

Control over Equity Investment.

The investor will want to have the maximum control possible over the construction-period equity. Thus, the investor will want to establish certain conditions precedent to making its construction-period equity investment and will want to have the power to decide whether the conditions precedent have been satisfied. The conditions precedent may be the same as the conditions to disbursement under the construction loan. However, the investor may want to independently review the draw requests and inspect the construction progress.

The lender will prefer to structure the construction-period equity investment so that the investor has little or no control over when the investment is made. Thus, the lender will attempt to structure the construction-period equity investment so that the investor deposits its construction-period equity into an account with the lender and the lender, in its sole discretion, has the ability to approve draw requests and use funds from the account to pay the draw requests.

Assuming that the investor and the lender are able to agree on some level of investor review of the draw requests and the construction progress, there are a number of mechanical issues that need to be addressed. The biggest issue relates to how to resolve disagreements between the investor and the lender. The choice of approach is often influenced by a concern about the time involved in resolving the dispute and its impact on the construction schedule. In this context, there are several approaches that can work. First, control can be given to one of the parties. If control is given to one of the parties, this can raise ancillary issues. For example, if control over the decision is given to the lender, the investor may want to reserve its rights with respect to its subsequent equity payments. Alternatively, the decision can be mediated. For example, an independent architect or construction inspector can be retained.

Form of Agreement.

Attached as Example 1 is a form of disbursement agreement that we have used in several transactions when representing the investor. Attached as Example 2 [excluded] is an excerpt from a second disbursement agreement that shows an alternative approach. It has been our experience that lenders and their counsel will have a variety of concerns about this type of agreement. Therefore, it is important to discuss these issues as early as possible in the process to determine whether the issues are insurmountable. In fact, however, our experience has been that it has been possible to resolve the issues between the investor and the lender in most instances.


EXAMPLE 1

DISBURSEMENT AGREEMENT


THIS DISBURSEMENT AGREEMENT ("Agreement") is made as of the ____ day of ________, 1995 by and among _______________, a ___________ corporation ("Lender"), _________________________, a California corporation ("Investor"), and __________________, a [_______] limited partnership ("Partnership") with reference to the following facts:

Investor is a limited partner of the Partnership. The Partnership has [purchased/ground leased] certain property in the City of _______________, State of __________ for the construction of a ___ unit low-income housing project (the "Project")], as more particularly described in the First Amended and Restated Agreement of Limited Partnership of the Partnership (the "Partnership Agreement").

Subject to terms and conditions set forth in the Construction Loan Agreement dated _________, 1995, between Lender and the Partnership (the "Loan Agreement"), Lender has agreed to loan to the Partnership up to $_________ (the "Construction Loan") for certain "Project Costs", [as defined in the Loan Agreement,] in accordance with the "Budget," [as defined in the Loan Agreement.] [All capitalized terms not otherwise defined herein shall have the meaning set forth in the Loan Agreement.]

Subject to the terms and conditions of the Partnership Agreement, Investor has agreed to make certain capital contributions to the Partnership (collectively, the "Capital Contributions"), including (i) an initial capital contribution in the amount of $_________ to be made at the closing of the Construction Loan (the "Initial Capital Contribution") pursuant to the terms and conditions of the Partnership Agreement, and (ii) a second capital contribution in the aggregate maximum amount of $_________ to be used for payment of a portion of the Project Costs consisting of [hard/soft] construction costs of the Project and disbursed in accordance with the terms and conditions of this Agreement (the "Construction Capital Contribution").

Investor has executed and delivered to the Partnership a "First Capital Note" evidencing Investor's obligation to make the Construction Capital Contribution when due [, and the Partnership has pledged the First Capital Note to Lender as additional security for the Construction Loan]. Investor has also executed and delivered to the Partnership a "Second Capital Note" in the amount of $_____________ and a "Third Capital Note" in the amount of $__________ evidencing Investor's obligation to make additional capital contributions to the Partnership upon the satisfaction of conditions in the Partnership Agreement[, and the Partnership has additionally pledged the Second Capital Note and Third Capital Note to Lender as additional security for the Construction Loan.]

[ Subject to the terms and conditions of that certain [Development Agreement, Deed of Trust/Mortgage] dated _________, 199_ between ______________________________ ("the Agency") as lender/mortgagee and Partnership as borrower/mortgagor, the Agency has agreed to loan to the Partnership the sum of $_________ ("Agency Loan") for Project Costs.]

Subject to the terms and conditions of this Agreement, the parties intend hereby to establish an agreement whereby portions of the Construction Capital Contribution are disbursed to Lender and Lender is authorized and instructed to disburse such portions of the Construction Capital Contribution for Project Costs as escrow agent in the order and for the purposes for which those funds are intended.

Therefore, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

Disbursement of Capital Contribution. Lender agrees that the proceeds of the Construction Loan and the Construction Capital Contribution shall be used only for payment of actual Project Costs after complete satisfaction (or written waiver by Investor) of the conditions imposed on the Partnership for the right to receive advances from the Construction Loan pursuant to the Loan Agreement and the other documents evidencing or securing the Construction Loan (collectively, the "Loan Documents"). The conditions imposed on the Partnership under the Loan Documents and the Partnership Agreement to receive disbursements (each, an "Advance") of the Construction Capital Contribution and of the Construction Loan are hereinafter collectively referred to as the "Draw Request Conditions." Lender will not amend, modify or waive any Draw Request Conditions under the Loan Agreement for any Advance, unless Lender has advised Investor in writing of the facts and circumstances of the proposed amendment, modification or waiver and Investor has consented in writing to such waiver. If Investor is not satisfied with the Draw Request Conditions under the Loan Agreement, Investor may impose additional conditions to disbursement of all or any of the Capital Contributions.

Promotion of the Common Goal. The Loan Documents and the Partnership Agreement grant to Lender and to Investor, respectively, various rights and remedies to be invoked or exercised at the discretion of the specified party. Without limitation upon such rights or remedies, and without obligating either party to advance or commit additional funds to the Project, the parties agree to exercise their discretion, whenever reasonably possible, in such a manner as to promote the common goal of completion of the Project and leasing of the Project in a manner complying with the Credit Conditions, as defined in the Partnership Agreement. Investor hereby acknowledges that Lender's making of the Construction Loan is dependent on Investor's acquisition of its Limited Partnership Interest in the Partnership and its investment of its Initial Capital Contribution and Construction Capital Contribution. Lender hereby acknowledges that Investor's investment in the Partnership is dependent on Lender making the Construction Loan.

Representations and Warranties.

By Lender. Lender hereby represents and warrants to Investor that, as of the date of this Agreement, (a) Lender is not aware of any condition, event, act or omission which constitutes, or but for the passage of time or the giving of notice or both would constitute, a breach, violation or default under the Loan Documents; (b) there is no condition precedent, or other obligation of the Partnership under the Loan Documents to the initial disbursement of the Construction Loan, other than as set forth in Exhibit of this Agreement or in the Loan Documents; and (c) Lender has approved the Budget, the Cost Breakdown and the form of Draw Request attached as Exhibits to the Loan Agreement.

By Investor. Investor hereby represents and warrants to Lender that, as of the date of this Agreement, (a) Investor is not aware of any condition, event, act or omission which constitutes, or but for the passage of time or the giving of notice or both would constitute, a breach, violation or default of the General Partner under the Partnership Agreement; (b) there is no condition precedent, or other obligation of the General Partner under the Partnership Agreement to the Initial Capital Contribution or the initial disbursements of the Construction Capital Contribution other than as set forth in this Agreement or in the Partnership Agreement; and (c) Investor has approved the Budget, the Cost Breakdown and the form of Draw Request attached as Exhibits to the Loan Agreement.

Disbursement Procedures. After [(a)] the closing of the Construction Loan and disbursement of the Initial Capital Contribution, [and (b) closing the Agency Loan and disbursement of the entire Agency Loan], Lender shall disburse the Construction Loan and the Construction Capital Contribution in accordance with the terms and conditions of the Loan Documents and this Agreement as follows:

Draw Request. At least [fifteen (15) days] [conform to time frames in Loan Agreement] before the day on which the Partnership desires an Advance to be disbursed by Lender and Investor, but not more frequently than once each calendar month, the Partnership shall make a request (the "Draw Request") by submitting to Lender, with an accurate and complete copy to Investor, a request for Advance (the "Draw Request") in the form attached as Exhibit to the Loan Agreement. The Draw Request shall include all documentation required by the Loan Documents as a condition precedent to disbursement of an Advance, including, without limitation, invoices for work actually performed, materials delivered or expenses incurred, a line item accounting of funds disbursed to date, and detailed identification of the nature of each expense by references to such items in the Budget and the Cost Breakdown approved by Lender, Agency and Investor (the "Draw Request Documents").

Review and Inspection. The "Review Period" for each Draw Request shall be the time period commencing on the date that Lender notifies Investor that the Draw Request Documents are complete, and ending on the date Lender is otherwise obligated to fund the Draw Request pursuant to the terms of the Loan Agreement. Upon receipt of the complete Draw Request Documents and before the end of the Review Period, Lender shall perform a review of the Draw Request Documents and inspection of the Project to determine whether all Draw Request Conditions are satisfied. During the Review Period, Investor shall also be entitled to conduct its own review of the Draw Request Documents and its own inspection of the Project. Any inspection of the Project by Lender or Investor shall be subject to Section 5.2.

Approval Process.

Investor shall notify Lender in writing of Investor's determination that the Draw Request should be approved in full, disapproved in full or partially disapproved by no later than [five (5)] Business Days before the expiration of the Review Period. Notwithstanding the foregoing, in the event that Investor fails to provide such written notice prior to [four (4)] Business Days before the expiration of the Review Period, such Draw Request shall be deemed approved by Investor.

Lender shall notify Investor in writing of Lender's determination that the Draw Request should be approved in full, disapproved in full, or partially disapproved promptly after Lender has made such determination, but in no event no later than [five (5)] Business Days before the expiration of the Review Period.

If both Investor and Lender approve the Draw Request or partially approve the same portion of the Draw Request (in each case the "Approved Portion"), Investor shall fund the Investor Contribution (as defined in Section 4.4) in accordance with the terms of Section 4.4 below.

If Lender and Investor both disapprove the Draw Request or partially disapprove the same portion of the Draw Request (in each case the "Disapproved Portion"), Investor shall have no obligation to fund the Construction Capital Contribution for the Disapproved Portion until the reasons for the disapproval of the Disapproved Portion are resolved by the Partnership, Lender and Investor in accordance with the Loan Agreement and clause (e) below.

In the event that there is a Disapproved Portion or a Draw Request or portion of a Draw Request that has been approved by either Lender or Investor and disapproved or partially disapproved by the other (a "Contested Matter"), the Partnership, Investor and Lender agree to cooperate and to employ all reasonable means to resolve the reasons for the Disapproved Portion or the Contested Matter. In the event that the Partnership, Investor and Lender resolve the reasons for any Disapproved Portion or Contested Matter, and subsequently approve that portion of the Draw Request, that portion shall be deemed an Approved Portion.

[Alternative 1: Notwithstanding the foregoing, in the event that the Contested Matter involves a Draw Request or portion of a Draw Request that has been approved by Lender and disapproved by Investor and the Contested Matter cannot be resolved by the parties within four (4) Business Days and in any event not later than one (1) Business Day before the end of the Review Period, the final determination of Lender shall prevail and the Approved Portion shall be deemed to include the portion of the Draw Request approved by Lender, and Investor shall thereupon fund the Investor Contribution in accordance with Section 4.4.]

[Alternative 2: Investor and Lender agree to cooperate and to employ all reasonable means to resolve such contested matters. If Investor and Lender are unable to resolve the contested matter within five (5) days after expiration of the Review Period, Investor shall be entitled to withhold further funding of the Construction Capital Contribution until such matter is resolved to Investor's reasonable satisfaction.]

[Alternative 3: Investor and Lender agree to cooperate and to employ all reasonable means to resolve such contested matters. If Investor and Lender are unable to resolve the contested matter within five (5) days after expiration of the Review Period, Investor shall fund the Investor Contribution to Lender; provided, however, if Lender disburses the Advance notwithstanding the contested matter and if such contested matter is not resolved by the due date of the Second Capital Note, Investor shall be entitled to reduce subsequent capital contributions by such contested amounts and offset such contested amounts from the First Capital Note and/or the Second Capital Note.]

Investor Contribution; Advances.

Subject to approval or deemed approval of the Approved Portion and Section 4.5, within no later than [one (1)] Business Days before the scheduled disbursement under the Loan Documents, Investor shall deliver to Lender by wire transfer an amount (a "Investor Contribution") equal to the product of (A) the amount of the Approved Portion and (B) the quotient determined by dividing the aggregate amount of the Construction Capital Contribution by the total amount of the Construction Loan and the Construction Capital Contribution. (Each Advance shall be funded pro rata in this way by the Construction Capital Contribution and the Construction Loan except as provided in clause (b).) Lender shall thereupon promptly disburse the total Advance to the Partnership in accordance with the Loan Documents.

Lender shall notify Investor if Lender is holding any Capital Contributions pending disbursement for more than forty-eight (48) hours, in which case Investor shall be entitled to require a return of those funds. Lender shall maintain any Capital Contribution it has received in a [non-segregated] interest-bearing account for Investor's benefit, until the Capital Contribution is disbursed to the Partnership. In no event shall Lender or Investor be obligated to fund any portion of a Draw Request that would cause the aggregate amount of the outstanding and disbursed Construction Loan or the Construction Capital Contribution to exceed the committed amounts of the Construction Loan or the Construction Capital Contribution.

[ Retention. Notwithstanding any other provisions of this Agreement, Lender and Investor shall each withhold and retain from its portion of each Advance an amount equal to ___________ percent (__%) ("Retention") of each requested Advance shall be withheld from each Advance. Upon satisfaction of all of the following conditions, the Partnership shall submit a Draw Request for the Retention. Upon the approval of both Lender and Investor, and subject to the procedures in Sections 4.2, 4.3 and 4.4 above, Lender and Investor shall fund an Advance of the Retention. The conditions to disbursement of the Retention are the following:

The statutory period of time during which the general contractor, and all subcontractors and materialmen are required to file any mechanics', materialmen's and design professionals' liens against the Project shall have conclusively elapsed without the filing of any such lien against the Project or any portion thereof;

The Project shall be completed as determined by Investor, and the Project architect shall have issued a Certificate of Substantial Completion (AIA Document G-704) for the Project;

The City/County of ____________ shall have issued a final certificate of occupancy or equivalent certificate for the Project;

The general contractor, and all subcontractors and materialmen shall have delivered to Lender with copies to Investor (i) unconditional releases of all liens for all Advances made as of the date of the Request for release of the Retention and (ii) conditional releases for the Retention, conditioned only upon their receipt of the payment of the Retention in amounts approved by Lender and Investor; and

All other Draw Request Conditions as to the Retention shall have been satisfied or waived in writing by Investor.]

Waivers. Lender hereby waives any right, title or interest it has, may have or assert against all or any portion of any Investor Contribution or any other portion of any of the Capital Contributions, whether by lien, right of set-off, contribution, or otherwise, and regardless of whether Lender has possession of any portion of any Investor Contribution or Capital Contribution. Lender shall have no express or implied security interest in any Investor Contribution, any Capital Contribution, or otherwise in Investor's interest in the Partnership or obligations to the Partnership, except for the pledge of the First Capital Note, Second Capital Note [and Third Capital Note] under no circumstances shall the foregoing be in any way construed as additional collateral or pledge to secure any obligations of the Partnership to Lender.

Inspection and Information Rights. To facilitate the orderly construction of the Project and the intended joint distribution of Construction Loan funds and the Construction Capital Contribution and in the interest of greater efficiency, the parties agree as follows:

Reports. As early as possible in each Review Period, Lender shall provide Investor with complete copies of any reports issued to Lender by its construction consultant, architect or inspector for the Project. Such reports shall be informational only, and Investor shall not be entitled to rely thereon for any purpose.

Investor's Consultant; Inspections. Investor shall have the right to engage a construction consultant to inspect periodically the ongoing construction of the Project. Except as provided in Section 5.3, the designated construction inspectors acting for the Lender and Investor, respectively, will inspect the construction of the Project independently of each other and solely in accordance with the practices of the Lender and of Investor. There is no intent or obligation, express or implied, that the findings of any inspector will concur with the findings of any other inspector. The frequency of such inspections shall be determined independently by Investor.

Periodic Meetings. Notwithstanding Section 5.2, above, the inspectors for Lender and Investor shall meet at the Project at mutually agreeable times at least once a ________ during the course of construction to inspect the construction of the Project, to inform the other of their findings and to exchange information. Any meetings and exchange of information between or among the inspectors under this Section 5 shall be informational only and solely for the benefit of Investor and Lender. Neither Investor nor Lender shall be entitled to rely on the findings or information provided by the inspector engaged by the other party, for any purpose. Any obligation to correct, complete, change, amend, or continue construction shall remain with the Partnership in accordance with the obligations of the Partnership under the Loan Documents and the Partnership Agreement.

Change Orders. Any soft cost change order of [$_____] or more for any one item in the Budget, or [$______] or more in the aggregate, and all hard cost change orders regardless of amount, shall require the prior written approval of Investor, which approval shall not be unreasonably withheld or delayed.

Notices of Default and Other Communications. Lender shall deliver to Investor a copy of any notice of default delivered to the Partnership as well as with copies of all other communications. Such items shall be delivered in the manner and to the address of Investor set forth in Section 9.3, below.

Lender Exculpation.

Lender's Obligations. The duties and obligations of Lender to Investor shall be determined solely by the express provisions of this Agreement, and Lender shall not be liable to Investor for the performance of such duties and obligations, except as are specifically set out in this Agreement. Lender shall not be bound in any way by the Partnership Agreement or any other agreement or contract among any of the parties to which Lender is not a party (regardless of whether Lender has knowledge thereof).

Failure of Others. Lender shall not be responsible in any manner whatsoever for the failure or inability of the Partnership or Investor to perform under this Agreement.

Reliance on Communication. Lender shall be fully protected in acting on and relying upon any written advice, certificate, notice, direction, instruction, request or other paper or document which Lender has reason in good faith to believe to be genuine and to have been signed or presented by the proper party or parties, and may assume, unless Lender has knowledge to the contrary, that any person purporting to give such advice, certificate, notice, direction, instruction or request, or other paper has been duly authorized to do so.

Miscellaneous Provisions.

Modification. No modification, change or amendment of this Agreement shall be valid or enforceable unless in writing and approved by the parties hereto.

Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of ____________. Venue for the adjudication of any legal dispute arising under this Agreement shall be _______ County, State of ____________.

Notices. All notices under this Agreement must be in writing. All notices or reports sent pursuant to this Agreement shall be mailed or sent by a reputable overnight delivery service to persons at the addresses asset forth below unless otherwise designated in writing by the respective party:

For Lender:

_______________________
_______________________
_______________________

For Investor:

_______________________
_______________________
_______________________
Attention: Kent L. Colwell

For the Partnership:

_______________________
_______________________
_______________________

Attorneys' Fees. In the event that any party hereto brings an action to interpret or enforce its rights under this Agreement, the prevailing party in such action shall be entitled to recover its costs and reasonable attorneys' fees as awarded by the court in such action.

Assignment. This Agreement may be assigned by Lender only in connection with the assignment by Lender of all of its rights under the Loan Documents after disbursement of the entire Construction Loan or by Investor in connection with the assignment by Investor of its rights under the Partnership Agreement.

Counterparts. This Agreement may be executed in counterparts and shall be deemed executed on this date on which it was signed by the final signatory.

________________________________,a ______________ corporation


By: ____________________________
Name: ______________________
Title: _____________________

_________________________________


By: ___________________________
Its: General Partner


By: _______________________
Name: _________________
Title: ________________

_________________________________
_________________, a ____________
corporation


By: ____________________________
Name:_______________________
Title:______________________

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