CONSTRUCTION LOAN AGREEMENT

Construction Loan Agreement

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This Construction Loan Agreement involves

Compass Bank | Goulston & Storrs, PC | HSBC Bank USA, National Association | HSBC Realty Credit Corporation | Raymond James Bank | Saul Centers, Inc | SAUL HOLDINGS LIMITED PARTNERSHIP | US BANK NATIONAL ASSOCIATION | WELLS FARGO BANK, NATIONAL ASSOCIATION

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Title: CONSTRUCTION LOAN AGREEMENT
Governing Law: Maryland Date: 5/20/2008
Industry: REOPER Law Firm: Goulston Storrs;Bingham McCutchen;Pillsbury Winthrop Sector: SERVIC

Construction Loan Agreement, dated as of May 14, 2008

Exhibit 10. (a)

CONSTRUCTION LOAN AGREEMENT

BY AND AMONG

SAUL HOLDINGS LIMITED PARTNERSHIP,

a Maryland limited partnership (“Borrower”)

U.S. BANK NATIONAL ASSOCIATION,

a national banking association, as agent (“Agent”)

and

U.S. BANK NATIONAL ASSOCIATION,

a national banking association, as lender,

and any other lenders who are now or

who may hereafter become

parties to this Agreement (collectively, the “Lenders”)

TABLE OF CONTENTS


I.	LOAN	10

	1.1 Principal	10
	1.2 Payment of Interest	11
	1.3 Prepayment	11
	1.4 Maturity Date; Extension	11
	1.5 Calculation of Interest	12
	1.6 Regulatory Costs	13
	1.7 Inability to Determine LIBOR	13
	1.8 Illegality	13
	1.9 Capital Adequacy	14
	1.10 Intentionally Omitted	14
	1.11 Default Rate	14
	1.12 Late Payment Charge	14
	1.13 Effective Rate	15
	1.14 Payments	15
	1.15 Fees	15
	1.16 No Waiver by Agent	15

II.	CONDITIONS OF BORROWING	15

	2.1 Pre-Closing Requirements	15
	2.2 Loan Documents	18
	2.3 Title Insurance	19
	2.4 Opinion of Borrower’s Attorneys	19

III.	ADVANCES OF LOAN PROCEEDS	19

	3.1 General	19
	3.2 Loan In Balance	20
	3.3 Inspections	20
	3.4 Responsibility of Agent and the Lenders	21
	3.5 Advance Procedures	21
	3.6 Tenant Improvements	25
	3.7 Advances During Property Operation	25

IV.	REPRESENTATIONS AND WARRANTIES OF BORROWER	26

	4.1 Legal Status of Borrower	26
	4.2 Title	26
	4.3 No Breach of Applicable Agreements or Laws	26


	4.4 No Litigation or Defaults	26
	4.5 Financial and Other Information	26
	4.6 No Defaults under Loan Documents or Other Agreements	27
	4.7 Boundary Lines; Conformance with Governmental Requirements and Restrictions	27
	4.8 Loan in Balance	27
	4.9 Architect’s Certificate	27
	4.10 Anti-Terrorism Regulations	27
	4.11 Plans and Specifications	28

V.	COVENANTS OF BORROWER	28

	5.1 Completing Construction	28
	5.2 Changing Costs, Scope or Timing of Work	29
	5.3 Balancing the Loan	29
	5.4 Paying Costs of Property and Loan	30
	5.5 Using Loan Proceeds	30
	5.6 Keeping of Records	30
	5.7 Providing Financial Information	30
	5.8 Providing Operating Budgets and Operating Statements	31
	5.9 Providing Leasing Information	31
	5.10 Providing Updated Surveys	32
	5.11 Providing Evidence of Completion	32
	5.12 Maintaining Insurance Coverage	32
	5.13 Complying with Other Documents	32
	5.14 Financial Covenants	33
	5.15 Interest Rate Protection Agreement	33
	5.16 ERISA	33
	5.17 Claim Against Architect	34
	5.18 Management Agreements	35
	5.19 Private Restrictions	35
	5.20 USA Patriot Act Notice; Compliance	36
	5.21 Guarantor Articles of Incorporation	36

VI.	DEFAULTS	36

	6.1 Events of Default	36
	6.2 Rights and Remedies	37
	6.3 Completion of Property by Agent	38


VII.	MISCELLANEOUS	39

	7.1 Binding Effect; Waivers; Cumulative Rights and Remedies	39
	7.2 Survival	39
	7.3 Governing Law; Waiver of Jury Trial	39
	7.4 Counterparts	39
	7.5 Notices	39
	7.6 Agent’s Sign	39
	7.7 No Third Party Reliance	39
	7.8 Time of the Essence	39
	7.9 Entire Agreement; No Oral Modifications	40
	7.10 Captions	40
	7.11 Joint and Several Liability	40
	7.12 Borrower’s Relationship with Agent and the Lenders	40
	7.13 Right of Set-Off	40

VIII.	AGENCY PROVISIONS	40

	8.1 Agency	40
	8.2 Resignation of Agent; Removal	41
	8.3 Administration	42
	8.4 Actions by Agent; Required Consents	42
	8.5 Payments	43
	8.6 Management of Acquired Collateral	45
	8.7 Defaulting Lender	46
	8.8 Representations, Warranties and Acknowledgments	47
	8.9 Assignments; Participation	48
	8.10 Other Business	50
	8.11 Consents	50
	8.12 Agent as Lender	50
	8.13 Notification of Defaults and Events of Default	50
	8.14 No Reliance by Borrower	50
	8.15 Reliance	50
	8.16 Pledge to Federal Reserve Bank	51
	8.17 Limitation of Liability	51


EXHIBIT A		ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT B		DESCRIPTION OF IMPROVEMENTS
EXHIBIT C		LEGAL DESCRIPTION OF THE LAND


EXHIBIT D		PERMITTED ENCUMBRANCES
EXHIBIT E		SWORN CONSTRUCTION COST STATEMENT
EXHIBIT F		TITLE INSURANCE REQUIREMENTS
EXHIBIT G		INSURANCE REQUIREMENTS
EXHIBIT H		NOTICES AND WIRE INSTRUCTIONS
EXHIBIT I		COMMITMENT PERCENTAGES
EXHIBIT J		FORM OF LIEN WAIVER
EXHIBIT K		DRAW REQUEST FORM
EXHIBIT L		[INTENTIONALLY DELETED]
EXHIBIT M		PLANS
EXHIBIT N		LEASING GUIDELINES
EXHIBIT O		BORROWER COMPLIANCE CERTIFICATE
EXHIBIT P		GUARANTOR COMPLIANCE CERTIFICATE
EXHIBIT Q		PRE-LEASING TEST

[SCHEDULES AND EXHIBITS INTENTIONALLY OMITTED]

CONSTRUCTION LOAN AGREEMENT

THIS CONSTRUCTION LOAN AGREEMENT (this “Agreement”) is made and entered into as of the 14th day of May, 2008, by and among (i) SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership (“Borrower”), (ii) U.S. BANK NATIONAL ASSOCIATION, a national banking association, as agent (“Agent”), and (iii) U.S. BANK NATIONAL ASSOCIATION, a national banking association, as lender, and any other lenders who are now or who may hereafter become parties to this Agreement (collectively, the “Lenders”).

WITNESSETH THAT, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:

DEFINITIONS

For the purposes of this Agreement, the following terms shall have the following respective meanings, unless the context hereof clearly requires otherwise:

Advance: Any portion of the Loan advanced to or for the benefit of Borrower in accordance with the terms hereof.

Advance Date: The date on which an Advance requested by Borrower hereunder is to be made.

Affiliate: Any parent of Borrower, subsidiary of Borrower or entity controlled by or under common control with Borrower.

Agent: U. S. Bank National Association, its successors and assigns as agent for the Lenders.

Agreement: This Construction Loan Agreement, including any amendments hereof and supplements hereto executed by Borrower and Agent.

Architect’s Certificate: That certain Certificate of Architect regarding the Property from the Project Architect.

Assignee Lender: As defined in Section 8.9(a).

Assignment and Assumption Agreement: An instrument in the form of Exhibit A, duly completed and executed and delivered.

Bank-Provided Interest Rate Hedge: An Interest Rate Hedge which is provided by any Lender and which meets the following requirements: such Interest Rate Hedge (i) is documented in a standard International Swap Dealer Association Agreement, (ii) provides for the method of calculating the reimbursable amount of the provider’s credit exposure in a reasonable and customary manner, and (iii) is entered into for hedging (rather than speculative) purposes. If Borrower elects to obtain a Bank-Provided Interest Rate Hedge, and provided that Agent confirms that such Interest Rate Hedge meets the foregoing requirements, the liabilities of the Borrower to the provider of any Bank-Provided Interest Rate Hedge shall be a part of Borrower’s obligations hereunder, guaranteed by the Guaranty and secured by the Deed of Trust and other Loan Documents.

Borrower: Saul Holdings Limited Partnership, a Maryland limited partnership, and its permitted successors and assigns.

Business Day: Any day, other than a Saturday, a Sunday, or a legal holiday on which Agent is not open for business.

Closing Date: The date of this Agreement.

Code: The Internal Revenue Code of 1986, as amended, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

Commitment Percentage: With respect to each Lender’s share of all right, title and interest in the Loan and the Loan Documents, as set forth on Exhibit I attached hereto, as amended and modified by unilateral action of Agent from time to time to reflect the sale or assignment of a portion of the Loan.

Committed Amount: One Hundred Fifty-Seven Million Five Hundred Thousand and 00/100ths Dollars ($157,500,000.00).

Completion: All Improvements have achieved Substantial Completion (as defined in the Construction Contract), free of all mechanics’, labor, materialmen’s and other similar lien claims; said Substantial Completion has been approved by the Inspecting Architect; Borrower and Project Architect have delivered a certification to Agent on AIA Form G704 that the Property has been substantially completed in accordance with the approved Plans; Borrower has obtained and delivered to Agent copies of all licenses and permits needed to operate the Property; Agent has received photographs of the completed Improvements, copies of all warranties from suppliers covering materials, equipment and appliances included within the Property and evidence that all insurance required hereby is in full force and effect; and no Event of Default exists hereunder.

Completion Date: December 24, 2010, provided however that such Completion Date shall be subject to extension by reason of acts of God (including hurricanes, tornadoes, cyclones, other severe storms, high winds, lightning, floods or earthquakes); action or inaction of governmental authorities having jurisdiction over the Project; strikes; shortages or unavailability of labor or materials; lockouts or labor difficulty; explosion; sabotage; accident; riot or civil commotion; act of war, fire or other casualty; legal requirements; and causes beyond the reasonable control of Borrower; provided, Borrower provides written notice to Agent immediately upon becoming aware of the occurrence of any of the foregoing conditions and provided further that the aggregate period of such delay(s) shall not extend beyond April 26, 2011.

Construction Contract: As defined in Section 2.1(c) hereof.

Consultants: Third party experts retained by Agent to assist it in connection with closing, advancing, disbursing or administering the Loan.

Contingency Reserve: A reserve of Loan proceeds to pay costs of the Property which are in excess of the amounts thereof anticipated on the date hereof, whether as a result of price increases, changes in the Plans or otherwise, the initial amount of which shall be Seven Million Four Hundred and Five Thousand and Two Hundred Eighteen and 00/100ths Dollars ($7,405,218.00).

Contractor: Any person, party or entity (other than the Project Architect) which has a contract or subcontract under which payment may be required for any work done, material supplied or services furnished in connection with acquiring, constructing, financing, equipping and/or developing the Property.

Debt Service: An amount equal to (x) the amount of the Loan outstanding at the time of determination multiplied by (y) the greater of (i) a debt constant calculated using a rate of interest equal to 2.25% per annum in excess of the then prevailing T-Note Rate and assuming a thirty (30) year principal amortization schedule, or (ii) seven percent (7.0%) per annum.

Debt Service Test: The determination by Agent, in its sole discretion exercised in good faith, that the Property has generated Net Operating Income during the immediately preceding three (3) months which, when annualized, equals or exceeds the product of (a) with respect to a proposed reduction in the Interest Rate payable under the Loan Documents, as contemplated in the definition of “LIBOR Rate” below, 1.00 times Debt Service (the “Interest Rate Reduction Debt Service Test”), (b) with respect to the condition set forth in Section 1.4(b) hereof for the Second Extension Period, as determined as of the first day of such Extension Period, 1.00 times Debt Service (the “Extension Debt Service Test”), and (c) with respect to a proposed reduction in the liability of Borrower under the Loan Documents, as contemplated in Section 8.17 hereof, 1.00 times Debt Service (the “Recourse Reduction Debt Service Test”).

Deed of Trust: The Combination Credit Line Deed of Trust, Security Agreement and Fixture Financing Statement of even date herewith covering the Property, executed by Borrower in favor of Agent for the benefit of the Lenders to secure the Loan, including any amendments thereof and supplements thereto executed by Borrower and Agent.

Default Rate: As defined in Section 1.11 hereof.

Defaulting Lender: Any Lender who for any reason shall fail or refuse to abide by its obligations under the Loan Documents or this Agreement within the time periods specified for performance of such obligation or, if no time frame is specified, if such failure or refusal continues for a period of five (5) Business Days. Agent shall notify Lender of its determination that such Lender is a Defaulting Lender. Any such Defaulting Lender shall have a period of five (5) Business Days after Agent’s notice within which to cure such Defaulting Lender’s failure or refusal to comply with its obligations hereunder and the under the Loan Documents.

Developer: Saul Holdings Limited Partnership, a Maryland limited partnership.

Development Fee: A sum equal to $8,500,000.00, representing the fee payable by Borrower to Developer. The Development Fee shall not be a part of any Advance hereunder.

Draw Request: A written request by Borrower, in the form of Exhibit K hereto, or such other form as may be reasonably requested by Agent, for an advance of Loan proceeds under this Agreement.

Employee Benefit Plan: Any employee benefit or other plan establishing benefits or compensation for employees established or maintained, or to which contributions have been made, by Borrower.

Environmental Audit: A written environmental review, audit, assessment or report addressed to Agent, setting forth the results of an investigation of the Property, including an historical investigation of the uses and ownership of the Land, contacts with appropriate governmental agencies and any Tests which may be requested by Agent, prepared by a competent environmental engineer or consultant who is acceptable to Agent and is licensed, bonded and insured in accordance with all applicable statutes.

Environmental Laws: Any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and

Recovery Act (“RCRA”), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986 (“SARA”), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment.

Equipment: All fixtures, equipment and personal property owned by Borrower and located or to be located in or on, and used in connection with, the construction, management, maintenance or operation of the Land and the Improvements.

Equity Requirement: An aggregate amount of Fifty-Three Million Five Hundred Thousand and 00/100ths Dollars ($53,500,000.00), consisting of (i) Twenty Nine Million Seven Hundred Thirty Five Thousand Three Hundred Thirty One and 00/100ths Dollars ($29,735,331.00) which shall be contributed on or prior to the Closing Date, (ii) the Development Fee, and (iii) Fifteen Million Two Hundred Sixty Four Thousand Six Hundred Sixty Nine and 00/100th Dollars ($15,264,669.00) which shall be contributed on a pari passu (50/50) basis with the Loan proceeds until all such additional Fifteen Million Two Hundred Sixty Four Thousand Six Hundred Sixty Nine and 00/100th Dollars ($15,264,669.00) has been contributed. The Equity Requirement shall not be deemed satisfied unless and until confirmed by Agent in writing, in its sole discretion, upon Borrower’s written request.

ERISA: As defined in Section 5.16.

ERISA Affiliate: Any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as Borrower or any trade or business which is under common control (within the meaning of Section 414(c) of the Code) with Borrower or any organization which is required to be treated as a single employer with Borrower under Section 414(m) or 414(o) of the Code.

Event of Default: Any event set forth in Section 6.1.

Extension Debt Service Test: As defined in the definition of Debt Service Test.

Extension Fee: Fifteen hundredths of one percent (0.15%) of the then outstanding principal balance of the Loan.

Extension Periods: As defined in Section 1.4.

Extension Request: As defined in Section 1.4.

Federal Funds Rate: As of any date of determination, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, “H.15(519)”) for such date opposite the caption “Federal Funds (Effective)”. If for any relevant date such rate is not yet published in H.15(519), the rate for such date will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the “Composite 3:30 p.m. Quotation”) for such date under the caption “Federal Funds Effective Rate”. If on any relevant date the appropriate rate for such date is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such date will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that date by each of three leading brokers of Federal funds transactions in New York City selected by Agent.

Fee Letter: That certain Fee Letter between Borrower and Agent of even date herewith.

First Extension Period: As defined in Section 1.4.

GAAP: Generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of any date of determination. Except as may be expressly provided to the contrary herein, all accounting terms used herein shall be interpreted, and all accounting determinations hereunder shall be made, in accordance with GAAP. To the extent any change in GAAP affects any computation or determination required to be made pursuant to this Agreement, such computation or determination shall be made as if such change in GAAP had not occurred, unless Borrower and Agent agree in writing on an adjustment to said computation or determination to account for such change in GAAP.

General Contractor: Clark Residential, LLC.

Governmental Requirements: All laws, statutes, codes, ordinances, and governmental rules, regulations and requirements (including, without limitation, the Proffers) applicable to Borrower and the Property.

Guarantor: Saul Centers, Inc., a Maryland corporation.

Guaranty: That certain Guaranty of even date herewith given by Guarantor in favor of Agent and the Lenders.

Hazardous Substances: Any hazardous waste, as defined by 42 U.S.C. § 9601(5), any hazardous substances as defined by 42 U.S.C. § 9601(14), any pollutant or contaminant as defined by 42 U.S.C. §9601(33) or any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws.

Improvements: The buildings and improvements that are now or are hereafter placed or constructed upon the Land, as more particularly described on Exhibit B attached hereto (including all sitework, utilities, infrastructure, paving, striping, signage, curb and gutter, landscaping and installation of all “common area” improvements required under any covenants encumbering the Property, required by applicable law, or zoning approvals entered into by Borrower).

Initial Advance: The first advance of Loan proceeds.

Inspecting Architect: EMJ Construction Consultants and/or any other independent architect, engineer or consultant selected by Agent.

Interest Rate Hedge: An interest rate exchange, collar, cap, swap, adjustable strike cap, adjustable strike corridor or similar agreements entered into by Borrower to provide protection to, or minimize the impact upon, the Borrower of increasing floating rates of interest applicable to the Loan.

Interest Rate Reduction Debt Service Test: As defined in the definition of Debt Service Test.

Interest Reserve: A reserve of Loan proceeds to pay interest on the Loan through Completion of the Improvements, the initial amount of which shall be Twenty Million Nine Hundred Forty Eight Thousand Nine Hundred Eighty Nine and 00/100ths Dollars ($20,948,989.00).

Land: The land legally described on Exhibit C attached hereto and hereby made a part hereof, together with all additions thereto and substitutions therefor agreed to by Borrower and Agent.

Law: Any federal, state or local law, statute, rule, regulation, ordinance, order, decree, directive, requirement, code, notice of violation or rule of common law, now or hereafter in effect, and in each case as amended, and any judicial or administrative interpretation thereof by a governmental authority or otherwise, including any judicial or administrative order, determination, consent decree or judgment.

Leadership: Leadership Institute, a Virginia non-stock corporation

Leadership Agreements: Collectively, those certain documents by and between Borrower and Leadership relating to the Project, as may be amended, modified, supplemented or replaced from time to time, including, without limitation, (i) that certain Development Agreement dated as of June 7, 2006, as amended by that certain First Amendment to Development Agreement dated as of September 5, 2007; (ii) that certain Lease dated as of June 7, 2006; and (iii) that certain Temporary Construction Easement and Crane Swing License Agreement dated as of June 7, 2006.

Lease: Any lease, sublease or sub-sublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect), pursuant to which any Person is granted a possessory interest in, or right to use or occupy, all or any portion of any space in the Project, and every modification, amendment or other agreement relating to such lease, sublease, sub-sublease or other agreement entered into in connection with such lease, sublease, sub-sublease or other agreement and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto; provided, however, that such term shall not include any agreements, instruments or other documents that are necessary to satisfy the Proffers.

Leasing Guidelines: As set forth on Exhibit N attached hereto and hereby made a part hereof.

Lenders: Each Lender that is a party to this Agreement and which hereafter becomes party to this Agreement, collectively, and each of their respective permitted successors and assigns.

LIBOR: With respect to any requested LIBOR Rate Advance, the one month LIBOR Rate quoted by Agent from Reuters Screen LIBOR01 or any successor thereto, which shall be that one-month LIBOR Rate in effect two New York Banking Days prior to the beginning of each calendar month, adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation, such rate to be reset monthly on the first day of each calendar month.

LIBOR Rate: (a) For the period commencing on the date of this Agreement and continuing thereafter unless and until the effective date of any reduction in such rate in accordance with clause (b) below, LIBOR Rate shall mean a rate of interest equal to two and one-half percent (2.5%) per annum plus LIBOR; (b) if, upon Borrower’s written request, Agent determines, in its sole discretion acting in good faith, that Completion has occurred, LIBOR Rate shall mean a rate of interest equal to two and thirty-five hundredths percent (2.35%) per annum plus LIBOR, and (c) if, upon Borrower’s written request, Agent determines, in its sole discretion acting in good faith, that the Interest Rate Reduction Debt Service Test is satisfied, LIBOR Rate shall mean a rate of interest equal to two and twenty hundredths percent (2.20%) per annum plus LIBOR. In no event shall the LIBOR Rate ever exceed the maximum lawful rate.

LIBOR Rate Advance: Any portion of the Principal Balance which bears interest at a LIBOR Rate; provided, however, that any LIBOR Rate Advance must be in the aggregate principal amount of at least $500,000.00.

Loan: The loan of the proceeds of the Note by the Lenders to Borrower in advances to be made pursuant to the terms of this Agreement.

Loan Documents: The documents enumerated in Section 2.2 of this Agreement, which evidence and secure the Loan, including, but not limited to, the Note, the Deed of Trust, this Agreement, the Assignment of Leases and Rents and the Indemnification Agreement, and including any amendments thereof and supplements thereto executed by Borrower and Agent.

Majority Lenders: Lenders holding Notes representing, in the aggregate, not less than sixty six and sixty seven hundredths percent (66.67%) of the Committed Amount or, if no such principal amount is then outstanding, Lenders representing not less than sixty six and sixty seven hundredths percent (66.67%) of the Commitment Percentages.

Maturity Date: November 14, 2011, as such date may be extended in accordance with the provisions of Section 1.4 hereof.

Money Markets: One or more wholesale funding markets available to Agent, including negotiable certificates of deposit, commercial paper, eurodollar deposits, bank notes, federal funds and others.

Multiemployer Plan: Any plan defined as such in Section 3(37) of ERISA.

Net Operating Income: For any period of determination, net operating income generated by the Property for such period (i.e., gross operating income determined in accordance with GAAP, less (x) all operating expenses payable in the ordinary course of operating the Property, determined in accordance with GAAP (exclusive of debt service, capital expenditures, leasing costs, tenant improvement costs, depreciation and amortization) and (y) reserves calculated for the first year on the basis of (1) for apartments units, $250.00 per unit per year, or $61,000.00, (2) for office space, $0.25 per rentable square foot per year, or $42,600.00; and (3) for retail space, $0.25 per rentable square foot per year, or $10,575, for a total reserve deduction in the first year of operations of $114,175. After completing the first full year of operations, reserves shall be escalated at 4% per annum. Borrower shall provide Agent with all information and materials required by Agent necessary for the determination of Net Operating Income.

New York Banking Day: Any day (other than a Saturday or Sunday) on which commercial Lenders are open for business in New York, New York.

Note: Individually or collectively, as the context may require, the Promissory Notes, of even date herewith, executed and delivered by Borrower to the Lenders in the aggregate maximum principal amount of One Hundred Fifty-Seven Million Five Hundred Thousand and 00/l00ths Dollars ($157,500,000.00), to evidence the Loan, as the same may be amended, modified or replaced from time to time.

Obligations: The obligations of Borrower to Agent and the Lenders described in the Loan Documents.

Operating Budget: A detailed listing of all anticipated annual income and expenses from and for managing, maintaining and operating the Property, prepared by Borrower or its agent and in form and substance acceptable to Agent.

Operating Statement: A current, detailed statement of income and expenses from and for managing, maintaining and operating the Property, in form and substance acceptable to Agent, certified as true, correct and complete by the chief financial officer of Borrower (or officer acting in a similar such capacity), and expressly showing all variations from the Operating Budget for the period covered thereby.

Pension Plan: Any employee pension benefit plan within the meaning of Section 3(2) of ERISA with respect to which Borrower or any ERISA Affiliate at any relevant time has liability or an obligation to contribute.

Permitted Encumbrances: The liens, charges and encumbrances on title to the Property listed on Exhibit D hereto, if any, or otherwise approved by the Agent in writing.

Permitted Transfer: The following transfers, pledges and other changes in the direct or indirect ownership interests in Borrower and/or Guarantor (which shall be permitted without payment of any fee to Agent or the Lenders):

(a) transfers of interests, admissions of additional members, limited partners or shareholders, and other structural changes, in Borrower, Guarantor, or any owner of a direct or indirect legal or beneficial interest in either of them, including, but not limited to, their respective partners, members or shareholders, provided that after giving effect thereto (i) B. Francis Saul II, B. Francis Saul III, members of their respective families, trusts for the benefit of any of the same and/or companies or other entities controlled directly or indirectly by any of the same, continue to (A) own and control, directly or indirectly, at least ten percent (10%), in the aggregate, of (x) the limited partnership units of Borrower, and (y) the common stock of Guarantor on a fully diluted basis, and (B) retain responsibility for the day-to-day management of the Property; and (ii) Guarantor continues to be the sole managing general partner of Borrower; and

(b) transfers of the publicly traded stock of Guarantor, provided that after giving effect thereto, B. Francis Saul II, B. Francis Saul III, members of their respective families, trusts for the benefit of any of the same and/or companies or other entities controlled directly or indirectly by any of the same, continue to (i) own and control, directly or indirectly, at least ten percent (10%), in the aggregate, of the common stock of Guarantor on a fully diluted basis, and (ii) retain responsibility for the day-to-day management of the Property.

For purposes of the foregoing, a pledge of any interest shall not constitute a transfer of such interest unless and until the interest so pledged has been transferred pursuant to a foreclosure of the lien of such pledge, provided that any such pledge shall not exceed one hundred percent (100%), in the aggregate, of the limited partnership interests in Borrower. As necessary, all representations and warranties of Borrower and Guarantor in the Loan Documents shall be deemed modified to conform to any such transfers, pledges or other changes.

Person: Any natural person, corporation, limited liability company, partnership (general or limited), limited liability partnership, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity.

Plan: As defined in Section 5.16.

Plans: The construction documents for the Improvements, including the plans, drawings and specifications, as approved (or deemed approved) by Agent from time to time.

Pollutant: Any hazardous or toxic substance, waste or material, or other pollutant or contaminant (including but not limited to radioactive materials, gasoline, asbestos, ureaformaldehyde and polychlorinated biphenyls), as those terms are defined or used in any Environmental Law.

Pre-Leasing Test: As defined on Exhibit Q hereto.

Prime Rate: The rate publicly announced by Agent from time to time as its prime rate, as and when such rate changes; provided, however, that Agent may lend to its customers at interest rates that are above or below the Prime Rate.

Prime Rate Advance: Any portion of the Principal Balance which bears interest at the Prime Rate.

Principal Balance: One Hundred Fifty-Seven Million Five Hundred Thousand and 00/100ths Dollars ($157,500,000.00) or so much thereof as may have been advanced to or for the benefit of Borrower and remains unpaid from time to time.

Prior Advance: As defined in Section 3.5(d)(2).

Proffers: The approved development conditions of Arlington County special exception site plan no. 397, and all agreements contemplated thereby, whether or not existing in separate written form as of the date of this Agreement.

Project: A mixed use development located on two parcels of land straddling the North and South sides of Clarendon Boulevard between North Garfield and North Highland Streets comprised of approximately 244 rental apartment units, approximately 170,400 square feet of office space, approximately 42,300 square feet of ground floor and retail space and an underground parking garage containing approximately 600 spaces.

Project Architect: Torti Gallas and Partners, or such other architectural firm that may be selected by Borrower, subject to the approval of Agent, such approval not to be unreasonably withheld, conditioned or delayed.

Projected Sources: As defined in Section 5.3.

Property: The Land, the Improvements and the Equipment.

Protective Advances: Any amount advanced or expended by the Agent and/or the Lenders pursuant to the Loan Documents to preserve or protect the Lenders’ rights with respect to the Loan.

Recourse Reduction Debt Service Test: As defined in the definition of Debt Service Test.

Regulation D; Regulation U: Regulations D and U, respectively (or any substitute regulations), of the Board of Governors of the Federal Reserve System (or any successor thereto), together with all amendments from time to time thereto.

Regulatory Change: Any change, after the date of the initial funding of the Note, in United States federal, state or foreign laws, regulations or treaties, or the adoption or making after such date of any interpretations, directives or requests applying to Agent and/or the Lenders of or under any United States federal, state or foreign laws or regulations (whether or not having the force of law) by any court or

governmental or monetary authority charged with the interpretation or administration thereof, excluding, however, for purposes of LIBOR Rate Advances, any such change which results in an adjustment of the reserve requirement specified by Regulation D and the effect of which is reflected in a change in rate applicable to any such LIBOR Rate Advance.

Reserves: The Interest Reserve, Contingency Reserve and Tenant Improvement Reserve.

Revolving Credit Agreement: As defined in Section 5.14.

Second Extension Period: As defined in Section 1.4.

Set-Off: A security interest granted by Borrower to Agent and the Lenders, a lien on and an express contractual right to set off against all depository account balances, cash and any other property of the Borrower now or hereafter in the possession of Agent or the Lenders and the right to refuse to allow withdrawals from any account, subject to the terms of the Loan Documents and applicable law.

Sworn Construction Cost Statement: An itemized, certified statement of actual and estimated costs of the Property, in the form of Exhibit E attached hereto or to be attached hereto within ninety (90) days after the date hereof and hereby made a part hereof, signed and sworn to by Borrower (as indicated on Exhibit E hereto), as the same may be amended or supplemented with the approval of Agent from time to time, Section I of which is referred to as the “Summary Sworn Construction Cost Statement”.

Tenant Improvements: All finish improvements to the basic building shell of the Improvements for tenant space within the Improvements, as shown on the schedule thereof delivered by Borrower to Agent.

Tenant Improvement Reserve: A reserve of Loan proceeds to pay the costs of Tenant Improvements for retail and office space, the initial amounts of which shall be $2,750,085.00 and $10,310,760.00, respectively.

Tests: Such soil tests, chemical tests, materials tests and other tests and analyses as are appropriately required to confirm, with relative certainty, the absence of Pollutants from the Property.

Title Company: Commonwealth Land Title Insurance Company.

Title Policy: A loan policy of title insurance in favor of Agent for the benefit of the Lenders issued by the Title Company and complying with the requirements of Exhibit F attached hereto and hereby made a part hereof.

T-Note Rate: The annualized yield on ten (10) year United States Treasury notes having a maturity date closest to the Maturity Date, as determined by Agent in its sole discretion.

I. LOAN

1.1 Principal. Subject to the terms, provisions and conditions of this Agreement, each Lender severally, but not jointly, agrees to lend to Borrower pro rata in accordance with its Commitment Percentage, and Borrower agrees to borrow from the Lenders, the proceeds of the Loan, from time to time, in accordance with the terms hereof until the Maturity Date, for the purpose of constructing the Improvements and otherwise developing the Property. All advances of Loan proceeds shall be evidenced by the Note. Notwithstanding the expressed principal amount of the Note, Borrower shall not be obligated to repay more than the unpaid balance of advances made to or for the

benefit of Borrower by Agent and the Lenders pursuant hereto and to the other Loan Documents, together with interest thereon at the rates specified below, computed on each Advance from the date it is made by the Lenders. In no event shall the Lenders be obligated hereunder to lend to Borrower more than Borrower has qualified to receive under the terms of Article III hereof.

1.2 Payment of Interest. Interest shall accrue on the Principal Balance from and after the date hereof. All interest payable hereunder shall be computed on the basis of a 360 day year, but shall be charged for the actual number of days principal is unpaid. Interest accruing in accordance herewith shall be payable, as accrued, on the first Business Day of each calendar month, commencing with the first Business Day of the next calendar month following the calendar month in which the Initial Advance is made to Borrower, and continuing on the first Business Day of each and every calendar month thereafter until the Principal Balance and all accrued interest thereon are paid in full. Agent shall provide a monthly notice to Borrower setting forth the amount of interest due and the due date thereof, which notice shall be mailed on or prior to the tenth (10th) day preceding the first day of each month; provided, however, that Borrower shall be obligated to pay interest on the Loan when due regardless of the date Borrower receives such notice. All unpaid, accrued interest shall be paid in full at the time the Principal Balance is paid in full.

In the event that the interest and/or charges in the nature of interest, if any, provided for by this Agreement or by any other Loan Document, shall contravene a legal or statutory limitation applicable to the Loan, if any, Borrower shall pay only such amounts as would legally be permitted; provided, however, that if the defense of usury and all similar defenses are unavailable to Borrower, Borrower shall pay all amounts provided for herein. If, for any reason, amounts in excess of the amounts permitted in the foregoing sentence shall have been paid, received, collected or applied hereunder, whether by reason of acceleration or otherwise, then, and in that event, any such excess amounts shall be applied to principal, unless principal has been fully paid, in which event such excess amount shall be refunded to Borrower.

1.3 Prepayment. The Principal Balance and accrued interest thereon may be prepaid in full or in part at any time, without premium or penalty, after a minimum of three (3) Business Days’ prior written notice from Borrower to Agent of the date of prepayment. In the event that Borrower shall fail to provide at least such three (3) Business Days’ notice when herein required, Agent will charge, and Borrower shall pay, additional interest on the amount prepaid, at the LIBOR Rate or at the Default Rate, whichever is then applicable, from the earlier of the date such notice is given or the date the prepayment is made through the date three (3) Business Days after the date of such notice or, if no notice is given, such prepayment. Each prepayment shall be in an amount not less than the lesser of $100,000.00 or the Principal Balance.

1.4 Maturity Date; Extension. If not sooner paid in accordance with the terms hereof, the Principal Balance, together with all unpaid interest accrued thereon, shall be due and payable, in full, on the Maturity Date; provided, however, the Maturity Date may be extended for two (2) additional periods of nine (9) months each (individually, the “First Extension Period” and the “Second Extension Period” and collectively, the “Extension Periods”) upon the written request (the “Extension Request”) of Borrower given not less than thirty (30) days nor more than ninety (90) days prior to the Maturity Date then existing, each such extension being subject to satisfaction of all of the following conditions:

(a) Payment on or before the first day of each Extension Period of the Extension Fee;

(b) With respect to the Second Extension Period, the Extension Debt Service Test shall be satisfied as of the first day of such Extension Period, as determined by Agent in its sole discretion exercised in good faith (assuming that all principal and interest payments due hereunder are paid in a timely manner after receipt by Agent of the Extension Request); provided, however, if the Extension Debt Service Test is not satisfied, Borrower may elect to satisfy this condition by paying a principal curtailment in an amount sufficient to reduce the Principal Balance as of the first day of the Second Extension Period such that the Extension Debt Service Test shall be satisfied as of such date, as determined by Agent in its sole discretion exercised in good faith (assuming that all principal and interest payment due hereunder are paid in a timely manner after receipt by Agent of the Extension Request);

(c) At the time of each Extension Request and on the first day of each Extension Period, there shall exist no uncured Event of Default (as hereinafter defined);

(d) Borrower shall deliver to Agent a title bringdown or, in the event Agent requires that any documentation be recorded in connection with such extension, an endorsement to the existing title insurance policy held by Agent on behalf of the Lenders in connection with the Loan, bringing current the effective date of such coverage setting forth no liens or encumbrances other than Permitted Encumbrances and stating that the coverage afforded by such title insurance policy, or the agreements thereunder, shall not be affected because of such extension;

(e) Completion of the Improvements has been achieved to the satisfaction of Agent and all certificates of occupancy and use permits shall have been issued in connection therewith;

(f) Borrower shall deliver to Agent all financial information relating to Borrower and the Guarantor required hereunder, and such information shall reflect that no Materially Adverse Effect (as defined in the Deed of Trust), financial or otherwise, as determined by Agent, in its sole discretion exercised in good faith, shall have occurred with respect to Borrower;

(g) Borrower shall deliver to Agent on or before the then existing Maturity Date such documentation as Agent may reasonably require in connection with such proposed extension, all of which shall be in form and substance acceptable to Agent;

(h) Borrower shall pay all costs and expenses reasonably incurred by or on behalf of Agent in connection with such extension, including appraisal fees, internal or external appraisal review fees, inspection fees, legal fees and such other professional services which Agent requires; Borrower shall also pay survey costs and costs of environmental studies and reports if such survey(s) and/or environmental studies or reports are deemed necessary by Agent pursuant to Agent’s internal policies or pursuant to applicable laws, rules or regulations; the payment by Borrower of these costs and expenses shall not be credited, in any way or to any extent, against any portion of the outstanding balance of the Loan; and

(i) At the time of each Extension Request and on the first day of each Extension Period, Agent shall have determined that the Loan is in balance pursuant to Section 3.2.

Notwithstanding Borrower’s right to extend the Maturity Date of the Loan as set forth above, Borrower hereby agrees that Agent and the Lenders shall have no commitment or obligation to extend the Maturity Date unless each of the foregoing conditions shall have been satisfied.

1.5 Calculation of Interest. From and after the date hereof, and until the date on which the Note is paid in full, Borrower shall pay interest only on the outstanding Principal Balance at the