DRAFT CONCEPTS FOR DISCUSSION REVISED OCTOBER 26, 2006 MASTER GROUND LEASE (Lease) WEST VILLAGE -- UNIVERSITY

OF CALIFORNIA, DAVIS Predevelopment Agreement: The parties have entered into a predevelopment agreement providing for reimbursement of certain costs related to certain activities regarding the Project; see the agreement attached as Exhibit G.

Project Description (ML1): The Project (Project) will consist of rental apartment housing for students, for-sale faculty/staff housing, retail/commercial and infrastructure elements (as set forth in Exhibit F), as follows:
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Rental Apartment Student Housing: 1,800 student beds in apartment-style housing (including housing above mixed use commercial space see below); upon request of Lessee/Developer, the number of beds may be increased or decreased by 10%; For-sale Faculty/staff Housing: A total of 312 units consisting of approximately the following unit distribution: o 139 detached single-family homes a percentage of which will have second unit cottages, the percentage shall be determined by the University at its discretion o no more than 40 market rate detached single-family homes; o 133 townhouse or similar housing units. Upon the request of Lessee/Developer and with the consent of University, in its sole discretion, the total number of units may be increased or decreased by 10%. Mixed Use: o 45,000 gross square feet of ground floor commercial space with housing above the commercial space; Infrastructure, Schools & Recreational Fields (Infrastructure Project): o All Phase 1 on-site infrastructure typically associated with a development with components similar to the Project, including roads, water, sewer, storm drainage, telecommunications, natural gas and electrical service; o A village square as the heart of the neighborhood; o Neighborhood parks in accordance with Phase 1 of the master-plan; o Greenbelts and bicycle paths in accordance with Phase 1 of the master-plan; o A transit green of bikeways and bus routes that link the neighborhood to the heart of campus in accordance with Phase 1 of the master-plan; o Habitat and drainage ponds in accordance with Phase 1 of the master-plan; o A reserved pad for a day care/pre-school facility; University has no obligation to build a day care/pre-school facility; o Finished pad for the recreation fields contemplated for Phase 1. o A pad for 60,000 assignable square feet of buildings for the Davis Center of the Los Rios Community College District, See ML14 for additional detail. o A pad for a potential future satellite high school. Lessee/Developers total obligation to pay District school impact fees for development of Phase 1 of the Project will be reduced by Lessee/Developers expenditures related to the construction of the pad (estimated to cost $ _1,100,000) for the potential future satellite high school facility.

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Phase II (ML2): In a manner consistent with applicable law and University procurement policies and practice and subject to there being no defaults in any agreement relating to Phase I, University shall provide Developer with the opportunity to negotiate a business structure for the development of components of Phase II of the West Village project. Site (ML3): Defined parcel of land on the Davis campus suitable for uses described in ML1 with good accessibility to the general public should broader marketing ever be required, as shown on Exhibit A.

Lessee/Developer (ML4): Lessee/Developer shall be West Village Community Partnership, LLC. Lessor (ML5): The Regents of the University of California (University).

Term (ML6): Ten (10) years from the date of completion of the University Infrastructure Obligations (ML9), subject to limited extension provisions on mutually acceptable terms (to be determined in the ground lease) but in no event longer than 14 years. Lease Structure (ML7): One or more master leases to provide site control to the Lessee/Developer for the Term. The University and the Lessee/Developer shall use their commercially reasonable efforts to segment the Infrastructure Project (as outlined in ML1 above) into separate phases, and a separate master lease shall be entered into for each such phase. The term Lease, as used in this term sheet, refers collectively to all such master leases. During Term, Lessee/Developer to develop Infrastructure Project as outlined in ML1 above and described in detail in Exhibit F as the Infrastructure Project. It is expected that the Site will be built out in multiple subphases of Rental Housing and For-sale housing. When Lessee/Developer is prepared to develop a rental student housing, for-sale faculty/staff housing or mixed use development sub-phase, Lessee/Developer and University shall subdivide the site for the subphase and simultaneously release such site from the Lease and execute a new lease, with University as lessor, for such sub-phase development (Subphase Lease) based on the terms contained in Exhibit B (Rental Apartments/mixed use) or Exhibit C (For-sale faculty/staff housing), as appropriate. The community college, day care/ pre-school pad, high school and recreational field property also will be released from the Lease upon commencement of development of such sites. Prior to commencing a For-sale faculty/staff housing subphase, Lessee/Developer shall arrange to have prepared an independent market study of UC Davis faculty and staff eligible for West Village for-sale housing documenting that demand exists for a phase the size and unit types planned for such subphase, at the home prices proposed for such subphase, and assuming the homes are sold subject to the Universitys price and resale restricted Lot Lease. The initial phase shall consist of no more than 50 homes. Subsequent phases shall consist of not more that 50 homes. Lessee/Developer shall not commence construction of the next phase until 70% of the previous phase homes (excluding market rate homes) have been sold to University faculty and staff (i.e., subject to an executed purchase and sale agreement), or as otherwise agreed by University. Lessee/Developer shall start no more than four (4), market rate homes, at any given time, that have not been reserved or contracted by third party buyers.

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Ground Lease (ML7.1): Universitys interest in the site and in the Lease shall be superior and prior in interest to any loans or encumbrances placed on the Project by Lessee/Developer. (ML8): Intentionally omitted. University Infrastructure Obligations (ML9): University at its sole cost and expense will pay for and cause to be constructed all Phase 1 off-site infrastructure typically associated with a development with components necessary for the Project, including roads, water, sewer, storm drainage, telecommunications, natural gas and electrical services, all as described on Exhibit D. The timing of delivery of completion of such improvements is also identified in Exhibit D. Subject to further discussion and mutual agreement of the parties, and subject to applicable laws, regulations and University policies, Lessee/Developer to construct all or a portion of the University Infrastructure Obligations; Lessee/Developers Ground Lease rental payment to be reduced appropriately.

Entitlement of Project and CEQA Compliance (ML10): The Project entitlements may be sufficiently established through the campus Long Range Development Plan (LRDP) in which case minimal review would be required pursuant to the California Environmental Quality Act (CEQA). (The University is exempt from local planning and zoning and serves as lead agency under CEQA.) Changes to the location, size or scope of the Project may require a full Environmental Impact Report (EIR). In the event that an EIR is required, Lessee/Developer shall negotiate with the campus to determine its appropriate share of such costs based on the factors that led to the need for the EIR. Lessee/Developer shall be responsible for complying with and implementing the Implementation Plan for West Village approved by The Regents (draft attached hereto as Exhibit I) and all the applicable Phase 1, on-site, mitigation measures adopted in the Project environmental documentation, including mitigation measures relating to the Project that were adopted with the November 2003 Regents approval of the LRDP.

Condition of Site (ML11): The site will be Leased as is and subject to all applicable local, state and federal government regulations. Lessee/Developer shall be responsible for regulatory approval and physical remediation of conditions identified in Phase 1, onsite, phase I and phase II environmental site assessments, if any. Lessee/Developer will be responsible for any environmental conditions caused by Lessee/Developer. Further, Lessee/Developer is responsible for confirming all geotechnical, storm water, infrastructure, and other conditions of the property pertinent to development of the Infrastructure Project and is responsible for all costs related thereto.

Development Responsibilities (ML12): Lessee/Developer shall construct the Infrastructure Project. Lessee/Developer shall be responsible for all design and soft costs, permitting costs (including University permitting, plan check and inspections fees, such fees to be charged as outlined in section ML15 and in Exhibit E), Infrastructure Project improvements, government fees, assessments and taxes, and all other costs of developing the Infrastructure Project by the completion dates specified in Exhibit F. Lessee/Developers obligation to plan, design, finance and construct each phase of the Infrastructure Project shall be supported by a completion guarantee provided by an entity meeting the requirements of ML19. The parties estimate that the aggregate cost to Lessee/Developer of all such development responsibilities is $34,000,000, although Lessee/Developers obligations are not capped at such cost. Lessee/Developer shall be responsible for and shall use commercially reasonable efforts in completing the Infrastructure Project by the completion dates specified in the Lease (with respect to Infrastructure Project) and other components of the Project in the applicable Subphase Leases (with respect to all other development activities), without cost overruns. Such 3

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construction contracts and the architects agreements shall be provided to the University for review and approval, and University shall be named a third party beneficiary of all such contracts.

Construction (ML13): The Infrastructure Project must be constructed in accordance with all applicable codes and governmental regulations, and applicable University policies and adherence to all Development Standards established by the University for the Infrastructure Project, all of which are identified in Exhibit J . Upon issuance by University of a certificate of occupancy or certificate of substantial completion for a phase of the Infrastructure Project, such phase of the Infrastructure Project, including without limitation, the utilities, roads, landscaping, neighborhood parks, greenbelts and bicycle paths including the transit green, habitat and drainage ponds and a pad for a satellite high school, shall be transferred at no cost to the University. Developer Reimbursement (ML14): Upon completion of the finished grade pad for the three phases of the proposed Los Rios Community college facility, Lessee/Developer will be reimbursed $4.5 million paid by Los Rios Community College District. In the event, Los Rios Community College does not pay, University shall make full payment. Campus Development Expenses (ML15): Lessee/Developer shall pay the University for campus development expenses associated with plan checking, construction inspections, campus project management, campus support and reviews, campus designated Fire Marshal, special consultants and other expenses to be incurred by the University to obtain Infrastructure Project approvals and to support the Infrastructure Project through construction. Such payments shall be as detailed in Exhibit E. With the exception of the payments described in Exhibit E, the University shall use commercially reasonably efforts to exert its exemptions to all government related development fees and expenses, where applicable, and shall reasonably cooperate with Lessee/Developer to ensure such exemptions are applied to the Project, provided, however, University shall not be obliged to pursue administrative or litigation proceedings or incur third party costs or expenses. Financing (ML16): For purposes of securing Infrastructure Project financing, the Lessee/Developer may pledge the rights and privileges granted in the Lease. University, however, will not pledge its underlying fee simple interest in the land or its reversionary interest in the improvements as security for the Infrastructure Projects financing and the University will not be liable or contingently liable for repayment of Infrastructure Project financings. Infrastructure Project financing will not be cross-defaulted or crosscollateralized to property or loans other than related to the Project. University shall have the right to approve each Leasehold Mortgagee, however University shall not withhold its approval of any proposed Leasehold Mortgagee which: (a) (b) (c) has assets of five billion dollars or more; and has experience in lending on real estate projects of this type and size; and is either: (i) a national or state chartered bank or savings and loan association, (ii) an insurance company which is licensed and authorized to do business in the State of California, or (iii) a pension fund which is licensed and authorized to do business in the State of California.

In addition, any Infrastructure Project loan secured by the Infrastructure Project must be fully repaid prior to the offer of dedication to University by Lessee/Developer.

Transfer and Assignment (ML17): Lessee/Developer must construct the Infrastructure Project without transferring, assigning, or subleasing Lessee/Developers interest in the Infrastructure Project. 4

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Mortgagee Protections (ML18): University agrees to provide commercially reasonable mortgagee protection rights in the Lease which would allow the Lessee/Developers lender appropriate cure rights.

Financial Covenants (ML19): During construction and until acceptance of the Infrastructure Project by University, the University will establish a maximum amount of debt that can be placed on the Infrastructure Project (not to exceed a 75% loan-toconstruction cost ratio). Because the Lessee/Developer is a single purpose LLC, Lessee/Developer shall be required to provide a guarantee or direct obligation of the parent entity which will be subject to a minimum tangible net worth covenant of $100 million. Guarantee to be cross-defaulted to the Lease. Reporting Requirements (ML20): Prior to commencement of construction Lessee/Developer shall provide the following statements to University for any lessee entity or guarantor entity: (i) the most recent quarterly unaudited operating statements, balance sheets, and cash flow statements prepared in accordance with GAAP and (ii) the most recent annual complete audited financial statements prepared in accordance with GAAP, including a statement of Net Cash Flow. The audit shall be performed by an independent nationally recognized certified public accounting firm. Thereafter, as long as any Project financing is in effect, Lessee/Developer and guarantor shall provide to the University a statement(s), certified as to accuracy by Lessee/Developer or guarantor, as applicable, and Lessee/Developers or guarantors, as applicable, nationally recognized certified public accountants, that Lessee/Developer is in compliance with the financial covenants in ML 19. Such statements will be delivered quarterly within 90 days of the end of the prior quarter. The University, at its cost, may audit Lessee/Developer and guarantor to verify the accuracy of such statements and compliance with the applicable financial covenants.

Prevailing Wage (ML21): There is no University requirement for payment of prevailing wages on any component of the Project. Reserved (ML22):

Use & Occupancy (ML23): Land to be used for construction of Infrastructure Project and to facilitate the development of rental apartments for students, for-sale faculty/staff housing for University faculty, staff and others approved by the University, and the mixed use development.

Events of Default (ML24): [subject to attorney and lender review] Subject to no default by University under the Lease or Force Majeure event, default by Lessee/Developer under the Lease shall include (i) failure to commence the Infrastructure Project by a date certain (to be mutually agreed to), (ii) failure to diligently pursue completion of the Infrastructure Project, (iii) failure to complete the Infrastructure Project by a date certain (to be mutually agreed to) or (iv) failure to complete infrastructure required for any Subphase project by the completion date of such Subphase project. In addition, subject to no default by University under the Lease and subject to Force Majeure (a) it shall be an Event of Default if the Lessee/developer (i) fails to have entered into Subphase Lease(s) for an aggregate of 100 For- Sale faculty/staff homes by the date that is five (5) years from the date of completion of the University Infrastructure Obligations (ML9), or (ii) fails to have entered into Subphase Lease(s) for an aggregate of 200 ForSale faculty/staff homes by the date that is seven and one-half (7-1/2) years from the date of completion of the University Infrastructure Obligations (ML9), and (b) it shall be an Event of Default under the Lease if the Lessee/Developer (i) fails to have entered into Subphase Lease(s) for an aggregate of 700 rental apartment beds by the date that is five 5

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(5) years from the date of completion of the University Infrastructure Obligations (ML9), or (ii) fails to have entered into Subphase Lease(s) for an aggregate of 1400 rental apartment beds by the date that is seven and one-half (7-1/2) years from the date of completion of the University Infrastructure Obligations (ML9); if Lessee/Developer fails to enter into Subphase Leases within the timeframes described above, the master Leases shall terminate. Other defaults customary in agreements of this type shall be documented in the Lease. An Event of Default under the Lease shall not be an Event of Default under any Subphase Lease, The Master Leases shall be cross defaulted to each Subphase lease such that an Event of Default in any Subphase lease shall be an Event of Default in the Master Leases. The Universitys remedy in the case of such a Subphase Event of Default shall depend on the ownership of the lessee under the Subphase as to which the Event of Default has occurred. If the ownership of the lessee under the Subphase as to which the Event of Default has occurred is substantially the same as the ownership of the Lessee/Developer under the Lease, from and after the occurrence of an Event of Default under the Lease or any Subphase Lease, then, for so long as the Event of Default shall remain uncured, the University shall be under no obligation to grant or enter into any additional Subphase Leases. The mortgagee protection provisions will provide the lender(s) reasonable assurances that it can protect its interests in such Master Leases. If the ownership of the lessee under the Subphase as to which the Event of Default has occurred is not substantially the same as the ownership of the Lessee/Developer under the Lease or the proposed new Subphase Lease, , University shall not withhold its granting of additional Subphase Leases, however, the University may terminate the Master Leases if University pays the amount due under (a) in the following paragraph.. Notwithstanding (a)(i) or (a)(ii) above, if market demand (based on market demand of Universitys faculty and staff) is not sufficient to build out and sell the Phase I For-Sale housing as described above, then University either (a) will reimburse Lessee/Developer based on Exhibit H, for the portion of the Infrastructure Project that has not been improved with For-Sale housing vertical construction or (b) will extend the term of the Lease, and/or the time frames provided for in (a)(i) or (a)(ii) above, until such time as market demand is sufficient to complete the For-Sale housing build out and sale.

Property and Asset Management (ML25): Property to be maintained in first class condition and otherwise in good, clean, attractive, sanitary and safe order, condition, habitability and repair. Property or Possessory Interest Taxes (ML26): Lessee/Developer has assumed that the Lessee/Developers interest in the Project will not be subject to property or possessory interest taxes by the County. However, the University has informed Lessee/Developer that it is possible the County will assess the Project for Property or Possessory Interest Taxes. Lessee/Developer shall diligently pursue any appropriate tax exemptions based on the use of the project. The University shall reasonably cooperate with Lessee/Developer to pursue appropriate tax exemptions, provided, however, University shall not be obliged to pursue administrative or litigation proceedings or incur third party 6

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costs or expenses. The Lease terms are based on the assumption that one hundred percent of the net benefits of any such exemption flows directly to the University.

Insurance Requirements (ML27): Lessee/Developer shall provide proof of insurance at levels and with deductibles reasonably acceptable to the University. Required coverage will include, but not be limited to, comprehensive form general liability, business auto liability, property, workers compensation, garage operator, business interruption and construction insurance. Other insurance as is customary in this type of project may be required. University and Lessee/Developer shall be named as additional insured on all insurance policies. After casualty required to be insured, Lessee/Developer shall be required to rebuild Infrastructure Project. After casualty not required to be insured, if sufficient funds available from insurance, project reserves and Lessee/Developer contributions, Lessee/Developer to rebuild Infrastructure Project; if insufficient funds available to fully restore the project, Lessee/Developer to restore the site to its original condition and Lease to terminate.

Indemnification & Hold Harmless (ML28): Each of Lessee/Developer and University will defend, indemnify, and hold harmless the other, its officers, employees, and agents, and in case of the University, the Regents, from and against any and all liability, claims, liens, judgments, expenses, and costs to the extent such amounts result from, or in any way arise out of, or in connection with Lessee/Developers or Universitys, as applicable, development, construction, ownership, management or operation of the Project improvements. Neither party will be obligated to indemnify the other for consequential damages.

Equal Opportunity (ML29): During the term, the Lessee/Developer shall not discriminate against any person employed or seeking employment in the Project or purchasing a unit in the Project because of race, color, marital status, religion, sex, sexual orientation, handicap or national origin.

Other Terms (ML30): The Lease shall contain such other conditions as are customary in transactions of this type. The parties do not intend this term sheet to be a contract or to be bound hereby. A contract will not exist unless and until the parties have executed a formal agreement approved by their respective counsel regarding the subject matter of this term sheet and containing all other essential terms of an agreed upon transaction. The parties acknowledge that they have not set forth herein nor agreed upon all essential terms of the subject matter of an agreed transaction, and that such essential terms will be the subject of further negotiations. The parties acknowledge that neither of them intends to enter or has entered into any agreement to negotiate a definitive future agreement pursuant to the terms of this document. Both parties agree that the terms mentioned herein impose no burden to negotiate further terms, until a definitive future agreement has been drafted, discussed and executed. Either party may, at any time prior to execution of a definitive agreement, propose different terms from those summarized here. Either party may also unilaterally terminate all negotiations. In either instance, such party shall have no liability of any kind to the other party.

Exhibit A: Project Site Exhibit B: Subphase Lease Terms Rental Apartments/Mixed Use Exhibit C: Subphase Lease Terms - For-Sale Faculty/Staff Housing 7

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Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit

D: University Infrastructure obligations scope and timing E: University Fees Note: remove reference to school district and County fees. F: Infrastructure Project G: Predevelopment Agreement H: Infrastructure Buyback Costs I: Implementation Plan J: Policies and Regulations