CONCEPTS FOR DISCUSSION REVISED , OCTOBER 26, 2006 FACULTY/STAFF FOR-SALE HOUSING GROUND LEASE (Lease) WEST VILLAGE

-- UNIVERSITY OF CALIFORNIA, DAVIS

Project Description (FH1): UC Davis seeks a development partner to implement the portion of Phase I of the West Village master plan relating to for-sale housing for UC Davis faculty and staff. (Project). The faculty/staff housing element for Phase I will include capacity for a total of 312 units consisting of approximately the following unit distribution: 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 notwithstanding anything to contrary in this term sheet, no more than 40 market rate detached single-family home with no resale price restrictions, but otherwise subject to all terms and conditions of the Lot Lease; o 133 townhouse or similar housing units.
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Upon the request of Lessee/Developer and with the consent of University and in Universitys sole discretion, the total number of units may be increased or decreased by 10%. Structure (FH2): This Term Sheet is an attachment to the Master Lease Term Sheet between the University and West Village Community Partnership, LLC. As each Subphase of for-sale housing development occurs the site for each specific Subphase will drop out of the Master Lease and will become the subject of a new Subphase for-sale housing ground lease. Ultimately, the parties intend that all for-sale housing land initially included in the Master Lease will drop into a series of individual Subphase for-sale housing ground leases. Site (FH3): Defined parcel of land on the Davis campus suitable for faculty/staff housing with good accessibility to the general public should broader marketing ever be required as shown on Exhibit A.

Lessee/Developer (FH4): Lessee/Developer shall be affiliates of West Village Community Partnership, LLC. Lessor (FH5): The Regents of the University of California (University).

Term/Ground Rent (FH6): Construction of the for-sale units must be completed within 36 months from either (i) the effective date of the applicable Subphase Lease agreement or (ii) date of completion of the University Infrastructure Obligations (ML9), whichever is later, with the opportunity for two one-year extensions upon mutual agreement. There will be no Lease fee or Ground rent payable by Lessee/Developer during the term of the Lease agreement. Notwithstanding anything in this agreement, any partially or fully completed homes, that are not sold by the end of the Term, may be converted to lot leases, in the name of the Lessee/Developer, in terms as defined in FH22. For finished lots, the University can extend the Term or purchase lots pursuant to Exhibit H of the Master Lease.

Subphase (FH6.1): Lessee/Developer shall construct homes in scheduled phases (adjusted to reasonable construction and market constraints). Prior to commencing a

Preliminary Faculty/Staff Housing Ground Lease Business Terms Revised October 24, 2006

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.

Ground Lease (FH6.2): 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.

Priority List (FH7): The University encourages pre-sale of the units and will provide priority lists of interested, eligible purchasers to Lessee/Developer. Lessee/Developer will be required to offer the for-sale units for designated periods of time to successive groups of purchasers in order of priority as established by the University (see Exhibit B). If unsold units remain at the end of all the offering periods to priority groups of faculty and staff, the University will have the right, but not the obligation, to purchase the unsold units. Alternatively, the University may lease the homes (triple net lease) for annual periods of up to three years at a rent based on 10.25% of audited actual total costs of the home. If, at the end of all of the applicable periods, the University does not exercise its right to purchase or lease any unsold units, Lessee/Developer would then be allowed to sell the units to the general public, such sales otherwise subject to all other provisions of the Lease. University reserves the right to provide University buyers with financial assistance at its sole discretion.

Price Limit (FH8): The maximum sale price per unit and the minimum average size of the homes (not including garages) shall be set forth as follows: Townhomes 1,350 sqft $379,220 to $419,138, with an average price not to exceed $399,179, and at least 25% of the townhomes sold at $379,220. Detached homes 1,500 sqft $410,998 to $454,260, with an average price not to exceed $432,269, and at least 25% of the homes sold at $410,998. Cottages 500 sqft $86,142 to $107,677 (this additional price to be added to Detached or Main Street home prices if a cottage is included, it is estimated that 60% of the detached homes will be purchased with cottages) Market rate home FAR for the home (excluding cottage and garage) shall not exceed 50%, unless approved by the University. 50% of proceeds in excess of $917,822 (price adjusted as noted below) per home (excluding cottage and options) shall be paid to the University.

These prices are in May 2006 dollars (assumes 75% of 3.4% CPI increase from August 2005), the prices will adjust with CPI or Marshall & Swift Construction Cost Index whichever is greater.

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Lessee/Developer, with the consent of University and in Universitys sole discretion, may increase the sales price of the homes up to an additional 20%. Lessee/Developer, with the consent of University and in Universitys sole discretion, may increase or decrease the size of the homes up to 20%. Buyer Upgrade Options (FH8.1): Developer may offer home buyers optional upgrades. Such upgrades and the costs associated with each such upgrade shall be identified in an exhibit to each subphase lease. All options and related pricing are subject to Universitys reasonable approval. Buyer upgrades options pricing shall be in addition to the pricing noted in FH8.

Entitlement of Project and CEQA Compliance (FH9): 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 as Exhibit E) 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 (FH10): 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, not at Project expense, 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 Project and is responsible for all costs related thereto.

Development Responsibilities (FH11): Lessee/Developer shall be responsible for all design and soft costs, the permitting costs, including University permitting, plan check and inspections fees described in FH14), Phase 1, on-site improvements, project improvements, government fees, assessments and taxes, and all other costs of developing the Project. Lessee/Developer shall be responsible for and shall use commercially reasonable efforts in completing the Project by the completion date specified in the Lease without cost overruns. The construction contract and the architects agreement shall be provided to the University for review and approval. Subject to obtaining all CEQA approvals and Notice to Proceed, failure to complete the project within (to-be-determined) months from the commencement date, upon notice and expiration of applicable cure periods, shall be an event of default. Construction (FH12): The 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 Project, all of which are identified on Exhibit H. In addition, the Project shall be constructed in compliance with the applicable CBC. Upon completion of the Project, the houses and lots will be sold subject to lot leases on the individual lots. 3

Preliminary Faculty/Staff Housing Ground Lease Business Terms Revised October 24, 2006

Home Quality Standards (FH12.1): Lessee/Developer shall construct all homes on the site at quality levels comparable or exceeding the quality levels at Aggie Village (when new) and based upon the standards identified in Exhibit C. Home Warranty (FH12.2): Lessee/Developer shall provide all homebuyers with a customer warranty package comparable to or better than offered at comparable new home projects in the City of Davis or nearby communities. Reserved (FH13): Campus Development Expenses (FH14): 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 Project approvals and to support the Project through construction (University Fees). Such payments shall be as detailed in Exhibit D. With the exception of the payments described in Exhibit D, the University shall use commercially reasonable 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 (FH15): For purposes of securing 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 Projects financing and the University will not be liable or contingently liable for repayment of Project financings. Project financing will not be crossdefaulted or cross-collateralized to other property loans. 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.

Transfer and Assignment (FH16): Lessee/Developer must construct the Project without transferring, assigning, or subleasing Lessee/Developers interest in the Project. Mortgagee Protections (FH17): University agrees to provide commercially reasonable mortgagee protection rights in the Lease which would allow the Lessee/Developers lender appropriate cure rights. Financial Covenants (FH18): The University will establish a maximum amount of debt that can be placed on the Project (not to exceed a 75% loan-to-construction cost ratio). Until all homes are constructed and sold, 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 $100 million minimum tangible net worth covenant. Guarantee to be cross-defaulted to the Lease. Reporting Requirements (FH19): Prior to commencement of construction for any Subphase and until all homes are constructed and sold, Lessee/Developer shall provide 4

Preliminary Faculty/Staff Housing Ground Lease Business Terms Revised October 24, 2006

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 statements, 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 FH18. 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 (FH20): There is no University requirement for payment of prevailing wages on any component of the Project. Reserved (FH21):

Lot Lease terms (FH22): Lessee/Developer, as well as any subsequent seller, will sell each for-sale unit, based on a lot lease between the University as landlord and the purchaser. The lot lease form will be provided by the University and shall include, but not be limited to, the following terms and conditions for each buyer at the time of purchase:

Term (FH23): 99 years, subject to issuance of new lease as outlined in Exhibit G. Lot Lease Rental (FH24): A monthly rent will be payable by the homeowner to the University, the rent shall be determined by the University and shall be sufficient to cover the fairly allocated cost of University services (fire, police, night security) and administration, operating and maintenance costs for the roads, site utilities, landscaped areas, neighborhood parks, greenbelts and bicycle paths including the transit green, habitat and drainage ponds and a finished building pad for an elementary school as well as reserves for major repairs or replacement for such areas. It is estimated that the total lot lease rental and homeowners association fees will be approximately $225 per month for UC affiliates. Non-UC affiliates shall pay an additional monthly lot lease rental (Nonaffiliate Additional Rental) of $300 initially, adjusted by CPI annually thereafter. If such Non-affiliate Additional Rental would cause the total of the (i) lot lease rental, (ii) homeowners association fees, and (iii) Non-affiliate Additional Rental, to exceed 2% of the residence assessed value, such Non-affiliate Additional Rental shall be reduced so that such total is 2% of the residence assessed value.

Resale Price Restrictions (FH25): A prohibition on reselling the unit for more than the purchase price plus an adjustment for inflation and for approved capital improvements, as determined by the University, market rate lots shall be excluded from this provision.

Resale Buyer Restrictions (FH26): A right of first offer that provides the University with a first right to purchase the unit upon resale, the University may assign their right to other faculty and staff

Preliminary Faculty/Staff Housing Ground Lease Business Terms Revised October 24, 2006

Architectural Controls (FH27): Limits on alterations that can be made to the size and/or exterior appearance of the unit and interior modifications to building systems, subject to campus approval, not to unreasonably withheld. For all alterations, Homeowner to comply with all applicable building codes as well as the CBC. Homeowners to obtain all appropriate permits and pay all applicable fees for any alterations.

Use & Occupancy (FH28): Land to be used for construction of faculty/staff housing for University faculty, staff and others approved by the University. Events of Default (FH29): Subject to University default or a Force Majeure, Default by Lessee/Developer shall be defined to include (i) failure to commence the Project by a date certain (to be mutually agreed to), (ii) failure to diligently pursue completion of the Project and (iii) failure to complete the Project by a date certain (to be mutually agreed to). Other defaults customary in agreements of this type shall be documented in the Lease.

Insurance Requirements (FH30): 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 Project. After casualty not required to be insured, if sufficient funds available from insurance, project reserves and Lessee/Developer contributions, Lessee/Developer to rebuild 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 (FH31): Each of Lessee/Developer and University will defend, indemnify, and hold harmless the other, its officers, employees, and agents, and in the case of 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. Property or Possessory Interest Taxes (FH31.1): 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. 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, provided, however, University shall not be obliged to pursue administrative or litigation proceedings or incur third party costs or expenses..

Equal Opportunity (FH32): 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. 6

Preliminary Faculty/Staff Housing Ground Lease Business Terms Revised October 24, 2006

Future Campus Development (FH32.1): So long as there is no default under the Master Leases or any Subphase lease, for a five year period after the later of the Effective Date of the Master Lease or date of completion of the University Infrastructure Obligations (ML9) and prior to Lessee/Developer selling 95% of the Faculty/Staff for-sale homes in the Project (+/- 312 units), where the University has determined a need for construction of additional Faculty/Staff for-sale homes, to the extent such need can be accommodated by Lessee/Developer, the University shall negotiate in good faith for a period of no more than 90 days, with the Lessee/Developer to accommodate, as reasonably determined by University, such needs at the Project prior to the University developing or constructing additional Faculty/Staff for-sale homes. Notwithstanding the above, University may pursue new condominium projects, donor driven projects, purchases of existing inventory, rehabilitation of existing units, whether owned by the University or not, faculty or staff rental projects or any project where University may be precluded from such negotiations in order to comply with laws.

Other Terms (FH33): 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 Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit

A: Site B: For-sale Buyer Tranche and Offering Timeframes C: Home Quality Standards D: University Fees Note: remove reference to school district and County fees. E: Implementation Plan F: Fees for Upgrades/options G: Term Extensions H: Policies and Regulations