AN ORDINANCE relating to City property at Sand Point, authorizing an amendment to the Amended and Restated Lease between Sand Point Community Connections LLC and the City, removing one parcel from that lease; authorizing the Director of Housing to grant a new lease of the removed parcel; authorizing a substitute lease or leases of all or part of that parcel in case of early lease termination; authorizing the Director of Housing to sign for the City as ground lessor a condominium declaration and other documents permitting the lessee to create a leasehold condominium for that parcel; and authorizing related agreements and actions to support the development of housing and other facilities for the homeless on that parcel.

WHEREAS, Ordinance 122459, passed August 13, 2007, authorized the Housing Director to execute an Amended and Restated Lease ("Lease") between Sand Point Community Connections LLC ("SPCC") and The City of Seattle for several parcels of property at Sand Point acquired from the United States Navy for the purpose of providing housing and services to the homeless; and

WHEREAS, SPCC has proposed, in order to facilitate the development and financing of improvements for the homeless on Parcel B of City of Seattle Short Subdivision Number 9904055, recorded under Recording Number 19991214900007 ("Parcel B"), that the Lease be amended to remove Parcel B and that the City grant a separate lease of that parcel to SPCC or to another entity formed by Solid Ground Washington or SPCC; and

WHEREAS SPCC desires to form a condominium comprising the leasehold interest in the parcel, as part of a plan to develop improvements financed in part through low-income housing tax credits; NOW, THEREFORE,

BE IT ORDAINED BY THE CITY OF SEATTLE AS FOLLOWS:

Section 1. The Director of Housing or her designee ("Director") is authorized to execute, deliver, acknowledge, accept, record, perform, enforce and administer on behalf of the City a First Amendment to Amended and Restated Lease and Partial Termination of Lease, substantially in the form attached to this ordinance as Attachment 1. This document is intended to remove Parcel B of City of Seattle Short Subdivision Number 9904055, recorded under Recording Number 19991214900007 ("Parcel B") from the Amended and Restated Lease ("Lease") between the City and Sand Point Community Connections LLC ("SPCC"). The Mayor, Director, and their respective designees shall have the same authority with respect to the Lease, as so amended, as was granted to the Mayor, Director, and their respective designees with respect to the Lease by Ordinance 122459, in addition to any other authority granted by this ordinance or otherwise by ordinance.

Section 2. The Mayor or Director is authorized to execute, deliver, acknowledge, accept, record, amend, perform, enforce and administer on behalf of the City a new Ground Lease of Parcel B to SPCC or to another entity formed and managed by Solid Ground Washington or by SPCC, substantially in the form attached to this ordinance as Attachment 2, with such insertions and modifications as the Mayor or Director shall deem necessary to facilitate the development of Parcel B to serve homeless persons and families. If the intended lessee under the new Ground Lease decides not to form a leasehold condominium as contemplated in Attachment 2, the modifications to that form of Ground Lease may include, without limitation, removal of references to the condominium and related conforming changes. The Mayor or Director is further authorized to execute, deliver, acknowledge, accept, record, amend, perform, enforce and administer on behalf of the City substitute leases for any or all of Parcel B after any termination of a lease authorized in this section before expiration of its stated term, which substitute leases shall be substantially on the terms described for "New Leases" in Attachment 2 to this ordinance. In connection with any such substitute lease the Mayor or Director is authorized to convey by quitclaim deed to the new lessee, subject to reversion to the City upon expiration or termination of the substitute lease, any title or interest of the City in or to the improvements on any of the land subject to the substitute lease. The Mayor and Director, and their respective designees, shall have the same authority with respect to any lease authorized in this section as granted to the Mayor, Director, and their respective designees with respect to the Lease by Ordinance 122459, in addition to any other authority granted by this ordinance or otherwise by ordinance.

Section 3. The Mayor or Director is authorized to execute, deliver, acknowledge, and record, on behalf of the City, a condominium declaration prepared by the lessee under the Ground Lease authorized in Section 2 of this ordinance, to establish a leasehold condominium comprising the leasehold interest in Parcel B, provided that the condominium declaration contains the information regarding the City's lease of Parcel B required by RCW 64.34.216, including statements that unit owners do not have rights to redeem the reversion or renew the lease, and is otherwise consistent with the form of lease attached to this ordinance. The Mayor or Director is further authorized to execute and deliver on behalf of the City such other documents as may be reasonably required in connection with the formation of the leasehold condominium and any amendment to the condominium documents consistent with the intent of this ordinance.

Section 4. The Mayor or Director is authorized, for and on behalf of the City, to grant such consents and approvals under any lease authorized in this ordinance and under any condominium documents for Parcel B, and to enter into such assignments, estoppel certificates, Subordination agreements and other ancillary agreements, as may be required in order to enable the lessee and its assignees or sublessees to obtain public and private financing based upon leasehold interests and interests in the buildings and other improvements to be constructed for purposes of serving the homeless.

Section 5. This ordinance shall take effect and be in force thirty (30) days from and after its approval by the Mayor, but if not approved and returned by the Mayor within ten (10) days after presentation, it shall take effect as provided by Municipal Code Section 1.04.020.

Passed by the City Council the ____ day of ________________________, _____, and signed by me in open session in authentication of its passage this _____ day of ___________________, ____. _________________________________ President __________of the City Council

Approved by me this ____ day of _____________________, 2009. _________________________________ Gregory J. Nickels, Mayor

Filed by me this ____ day of __________________________, 2009.

____________________________________ City Clerk

Attachment 1 Form of First Amendment to Amended and Restated Lease and Partial Termination of Lease Attachment 2 Form of Ground Lease for Parcel B

ATTACHMENT 1:

After recording return to: City of Seattle Office of Housing PO Box 94725 Seattle, WA 98124-4725 Attention: Thomas Mack

Form of

FIRST AMENDMENT TO AMENDED AND RESTATED LEASE AND PARTIAL TERMINATION OF LEASE

Reference numbers of documents amended:

9805221596, 19990916001595, 20080423001677

Grantor: THE CITY OF SEATTLE

Grantee: Sand Point Community Connections LLC

Legal Description:

1. Abbreviated form: Ptn. E. 1/2 SW 1/4, Sec. 2, TWP 25N, RNG 4 E, W.M.; Blocks 3 and 4, Evergreen Add., Vol. 12, pg. 66, King County, WA

2. Additional legal description: N/A.

Assessor's Property Tax Parcel Account Nos.: 0225049065; 0225049064; 0225049066; 0225049063; 0225049070; 0225049069; 0225049068; 0225049067; 2409500021

This First Amendment to Amended and Restated Lease ("Amendment") is entered into as of the _____ day of ____________, 2010 by The City of Seattle, a municipal corporation of the State of Washington ("City" or "Lessor") and the Sand Point Community Connections LLC, a Washington limited liability company ("SPCC" or "Lessee") and amends that certain Amended and Restated Lease dated as of April 23, 2008 between City as lessor and Sand Point Community Connections LLC as lessee ("Lease"), recorded in King County, Washington under Recording No. 20080423001677, which amended and replaced the lease between the City and Sand Point Community Housing Association recorded under King County recording no. 9804240454, rerecorded under No. 9805221596, and amended by that certain First Amendment to Lease dated September 10, 1999 and recorded in King County, Washington under Recording No. 19990916001595. The City is acting through its Director of Housing (referred to herein, together with any official who may succeed to the authority or responsibility of such Director to act for the City under this Amendment or the Lease as hereby amended in the future, as the "Director").

In consideration of the termination of the Lease as to one parcel, as provided herein, and a new ground lease of that parcel to an affiliate of Lessee made on or about the date hereof, the parties amend the Lease as follows:

A. The Lease, including all right, title and interest of Lessee pursuant to the Lease, is hereby terminated with respect to the following part of the Premises only, situate in the City of Seattle, County of King, State of Washington:

Parcel B of Seattle Short Subdivision No. 9904055, recorded under King County recording no. 19991214900007, designated in Exhibit D to the Lease as "Parcel 5."

B. Article 1 of the Lease is amended so that the definitions of the following terms read in their entirety as follows (all other definitions remain unchanged):

1. DEFINITIONS

"Affiliate" means of a Person means any Person that controls, is controlled by or is under common control with that Person. A Person shall be presumed to have control when it possesses the power, directly or indirectly, to direct, or cause the direction of, the management or policies of another Person, whether through ownership or voting securities, by contract or otherwise.

"Application" means the application submitted by the City to HUD for the transfer of the Premises and Parcel 5 to the City, as finally approved by HUD.

"Buildings" means the buildings on the Premises identified in the Application as Buildings 224, 26S, 26N, 330, 331, and 332 (including all fixtures therein or attached thereto), but does not include "building 310". Building numbers used in this Amended Lease correspond to the numbers in the Application.

"Navy Deed" means the deed conveying the Premises and Parcel 5 from the United States Navy to the Lessor dated April 22, 1998 and recorded under King County recording no. 9804240453.

"Parcel" means one of the parcels of the Premises designated in Exhibit D, as the same may be modified by lot boundary adjustment or otherwise, but not including Parcel 5.

"Person" means an individual, corporation, partnership, limited liability company, governmental body or agency, or other legal entity.

"Phase II" means the development and construction of additional Improvements on the Premises and Parcel 5 to provide housing for the homeless, as contemplated by the Application and to be described more particularly in the approved general housing and services plan identified in Section 10.3.

"Premises" means the land depicted in Exhibit C and described in Exhibit D attached hereto and incorporated by this reference, but not including Parcel 5.

C. Section 3.1 of the Lease is amended to read in its entirety as follows:

3.1 Term of Amended Lease. Subject to the provisions of this Amended Lease and the terms of the Navy Deed, Lessor leases to Lessee and Lessee leases from Lessor the Premises, as defined above as a continuation of the Original Lease, which commenced on April 24, 1998. This Amended Lease shall be in effect from the execution date of this Amended Lease ("Effective Date") through December 31, 2049 ("Term"), unless sooner terminated as provided elsewhere in this Amended Lease. The Term of this Amended Lease may be extended by the Director with respect to one or more Parcels as needed for completion of the development of Phase II as described in Section 10.3 below.

D. Subsection 4.2(a) of the Lease is amended to read in its entirety as follows:

4.2 Property Management Costs and Grounds Maintenance Costs.

(a) Lessee shall pay to Lessor, as additional rent, an amount determined annually by Lessor to cover the share fairly allocable to the Premises of the costs of management of the Sand Point Property ("Management Costs") and the costs of the maintenance of the grounds of the Sand Point Property ("Grounds Maintenance Costs"). Management Costs shall include:

(i) costs of preparation and administration of the plans and guidelines identified in Article 32 of this Amended Lease;

(ii) related administrative costs (including the costs of maintaining an administrative office on the Sand Point Property).

For purposes of allocating Management Costs, Lessee agrees that any portion reasonably allocable to Parcel 5 as described in Exhibit D to this Lease may be allocated to Lessee, notwithstanding the termination of this Lease as to Parcel 5.

The Lessor shall reasonably allocate Sand Point Property Management Costs and Grounds Maintenance Costs among Lessee and the users of other Sand Point Property, using any reasonable methods of cost allocation; provided, however (1) the total additional rental cost charged to Lessee shall not exceed $100,000.00 per year; (2) the Premises' shares of Sand Point Property Management Costs and Grounds Maintenance Costs shall not exceed 25% of each in any year; and (3) in the event of any reduction in area of the Premises due to partial termination of this Amended Lease, the Lessee's share of Grounds Maintenance Costs shall be based on the reduced area and the 25% maximum for Grounds Maintenance Costs in clause (2) above shall be proportionately reduced. Lessor shall give a written statement to Lessee annually of Lessee's share of Management Costs and Grounds Maintenance Costs for the previous calendar year, and Lessee shall pay such Costs within thirty (30) days of receipt of such statement. Such payment shall be without prejudice to Lessee's right to make timely objection to the allocation or calculation of such Costs, or a portion thereof, by appeal as provided in Section 4.3 below.

In order to assist Lessee in budgeting expenditures, no later than November 30th of each year, the Lessor shall develop and provide to Lessee an estimate of Lessee's share of Sand Point Property Management Costs and Grounds Maintenance Costs for the next calendar year and a narrative describing the proposed method of allocation.

E. Section 8.2 of the Lease is amended to read in its entirety as follows:

8.2 Lessor's Right of Termination Notwithstanding Force Majeure. Notwithstanding any force majeure under Section 8.1 or any other provision of this Amended Lease, the parties recognize that the capital funding, operational funding and other aspects of the Phase II development are subject to uncertainties beyond the control of Lessee. The parties recognize, however, that extended delays in carrying out development of Phase II Stage 2 (hereinafter defined), whether or not due to fault of Lessee, could frustrate the purpose of this Amended Lease. Therefore, if for any reason, whether or not within the control of Lessee, the Lessee shall not have completed the construction of one or more New Buildings on each of Parcels 1 and 9 substantially in compliance with this Amended Lease within six (6) years following the Effective Date of this Amended Lease, then the Lessor, without any recourse by Lessee under the terms of this Amended Lease, shall have the absolute right, upon ninety (90) days' notice to Lessee, to terminate this Amended Lease as to each such Parcel on which no New Building shall then have been so completed, but the Amended Lease shall remain in effect as to any of such Parcels on which one or more New Buildings shall then have been so completed.

F. Section 10.3 of the Lease is amended to read in its entirety as follows:

10.3 Phase II: New Construction. The parties agree that "Phase II" shall include the demolition of building 310 and the new construction of additional residential structures on the Premises as New Buildings for the homeless. The parties also agree that Phase II includes the development housing and facilities for the homeless on Parcel 5, as contemplated in a separate Ground Lease of Parcel 5 to an Affiliate of Lessee dated on or about the date of the First Amendment to this Amended Lease ("Phase II Stage 1"). Lessee shall develop a general housing and services plan for the remaining Phase II development ("Phase II Stage 2"), which shall be prepared according to a format approved by the Director and in cooperation with the Lessor, the neighboring community, and the Committees. No later than June 30, 2011, the Lessee shall submit a general housing and services plan for Phase II Stage 2 acceptable to the Director and consistent with the Application (the "Stage 2 Plan"). The Stage 2 Plan may include several distinct sequential steps such as a Phase IIA and Phase IIB, for example. The Stage 2 Plan shall include, without limitation, a schedule for development, cost estimates, intended fund sources, and an open space element. Upon approval of the Stage 2 Plan by the Lessor (which may involve action by the City Council after acceptance by the Director), with such modifications or additions as the Lessor may reasonably require, the Lessee shall pursue diligent efforts to implement the Stage 2 Plan in accordance with the schedule contained therein. Such efforts shall include, without limitation, timely submission of complete applications for funding to all appropriate funding sources and submission of all applications required under all Codes. In the planning, design and construction of New Buildings and related Improvements the Lessee shall comply fully with all of the following plans approved or to be approved by the Lessor, as the same may be amended by Lessor: Physical Development Management Plan and Historic Property Reuse and Protection Plan.

G. A new Section 18.3 of the Lease is added to read in its entirety as follows:

18.3 Assignment or Mortgage

Lessee shall not assign or mortgage this Lease or any portion of its leasehold interest hereunder without the express written consent of Lessor. If Lessor shall consent to a transfer or mortgage of the leasehold estate hereunder as to one or more Parcels, but not the entire interest of Lessee under this Lease, then the transferee, or the person acquiring the mortgaged interest by foreclosure sale, trustee's sale under a deed of trust, or transfer in lieu thereof, shall become Lessee as to such Parcel or Parcels, and from and after the acquisition of such portion of the leasehold interest, the Rent and all obligations in this Lease for payment of Management Costs and Ground Maintenance Costs shall be allocated between Lessee and the person acquiring such portion of the leasehold estate in proportion to the square footage of land in the Premises held by each of them, unless expressly otherwise agreed in writing by Lessor, Lessee, and such acquiring person.

H. Section 34.1 of the Lease is amended to read in its entirety as follows:

34. EXISTING EASEMENTS; LESSEE TO COOPERATE IN AND CONSENT TO ACTIONS BY LESSOR

34.1 Easements. This Amended Lease, and all rights of Lessee with respect to the Premises, are subject to all outstanding easements and rights of way identified on Exhibit A of the Amended Lease for location of any type of facility over, across, in and upon the Premises, or any portion thereof; to easements for the benefit of Parcel 5 as indicated on Short Plat no. 9904055, recorded under King County recording no. 19991214900007; and to the right of the Lessor to grant such additional easements and rights of way over, under, across, in and upon the Premises as it shall determine to be in the public interest; provided, that any such additional easement or right of way shall be conditioned on the assumption by the grantee thereof of liability to the Lessee for such damages as the Lessee shall suffer for property destroyed or property rendered unusable as a result of the grantee's exercise of its rights thereunder. There is hereby reserved to the holders of such easements and rights of way as are presently outstanding or which may hereafter be granted, to any workers officially engaged in the construction, installation, maintenance, operation, repair, or replacement of facilities located thereon pursuant to the terms of such easements, and to any Federal, State or local official engaged in the official inspection thereof, such reasonable rights of ingress and egress over the Premises as shall be necessary for the performance of their duties with regard to such facilities.

AGREEMENT OF SUBLESSEES

Sand Point Housing Associates I Limited Partnership, a Washington limited partnership ("Partnership"), Youthcare, a Washington non-profit corporation, and Friends of Youth, a Washington non-profit corporation, as Sublessees of certain portions of the Premises and as owners or tenants of portions of the Improvements, agree to the terms of this Amendment and to the termination of the Lease as to Parcel 5 only, and that all references to the Lease or "Master Lease" in subleases from SPCHA to such Sublessees and in any deeds from to any of the Improvements from the Lessor or from SPCHA, shall mean the Amended and Restated Lease as amended by this Amendment. The Lessor and the Partnership further agree that the Amended and Restated Lease as amended by this Amendment shall constitute the "Ground Lease" under that certain Ground Lessor's Estoppel and Agreement signed by the Lessor, the Partnership and SPCHA dated September 10, 1999, and that nothing herein shall modify the covenants of the Lessor contained therein.

Signed:

LESSOR: THE CITY OF SEATTLE, a Washington municipal corporation By: _______________________ Print Name: Adrienne E. Quinn Title: Director, Office of Housing

LESSEE: SAND POINT COMMUNITY CONNECTIONS LLC, a Washington limited liability company By: Solid Ground Washington, a Washington nonprofit corporation Its Sole Member By: _______________________________ Print Name: Title:

SUBLESSEE: SAND POINT HOUSING ASSOCIATES I LIMITED PARTNERSHIP, a Washington limited partnership

By: Sand Point Community Connections LLC, its General Partner By: olid Ground Washington, a Washington nonprofit corporation, sole member and manager By: Print Name: Title:

SUBLESSEE: YOUTHCARE, a Washington nonprofit corporation By: Print Name: Title:

SUBLESSEE: FRIENDS OF YOUTH, a Washington nonprofit corporation By: Print Name: Title:

LESSOR ACKNOWLEDGMENT

STATE OF WASHINGTON ) )ss. COUNTY OF KING )

On this _____ day of _________________, _______, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Adrienne Quinn, to me known to be the Director of the Office of Housing of The City of Seattle, the municipal corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said municipal corporation, for the uses and purposes therein mentioned, and on oath stated that she was authorized to execute the said instrument.

WITNESS my hand and official seal hereto affixed the day and year in this certificate above written.

__________________________________ NOTARY PUBLIC in and for the State of Washington, residing at _________________ My commission expires: _____________________ Print Name: ______________________

LESSEE ACKNOWLEDGMENT

STATE OF WASHINGTON ) ) ss. COUNTY OF KING )

I certify that I know or have satisfactory evidence that ______________________ is the person who appeared before me, and said person acknowledged that ___ signed this instrument, on oath stated that ____ was authorized to execute the instrument and acknowledged it as the ___________________ of Solid Ground Washington, a Washington non-profit corporation, the sole member of Sand Point Community Connections LLC, a Washington limited liability company, to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Date: ________________

__________________________________ NOTARY PUBLIC in and for the State of Washington, residing at __________________ My commission expires: ___________________ Print Name: _________________________________

SUBLESSEE ACKNOWLEDGMENT

STATE OF WASHINGTON ) ) ss. COUNTY OF KING )

I certify that I know or have satisfactory evidence that ______________________ is the person who appeared before me, and said person acknowledged that ___ signed this instrument, on oath stated that ____ was authorized to execute the instrument and acknowledged it as the ___________________ of Solid Ground Washington, a Washington non-profit corporation, the sole member and manager of Sand Point Community Connections LLC, the general partner of SAND POINT HOUSING ASSOCIATES I LIMITED PARTNERSHIP, a Washington limited partnership, to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Date: ________________

__________________________________ NOTARY PUBLIC in and for the State of Washington, residing at ___________________ My commission expires: _______________________ Print Name: __________________________________

SUBLESSEE ACKNOWLEDGMENT

STATE OF WASHINGTON ) ) ss. COUNTY OF KING )

I certify that I know or have satisfactory evidence that ______________________ is the person who appeared before me, and said person acknowledged that ___ signed this instrument, on oath stated that ____ was authorized to execute the instrument and acknowledged it as the ___________________ of YOUTHCARE, a Washington non-profit corporation, to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Date: ________________

___________________________________ NOTARY PUBLIC in and for the State of Washington, residing at ___________________ My commission expires: _______________________ Print Name: __________________________________

SUBLESSEE ACKNOWLEDGMENT STATE OF WASHINGTON ) ) ss. COUNTY OF KING )

I certify that I know or have satisfactory evidence that ______________________ is the person who appeared before me, and said person acknowledged that ___ signed this instrument, on oath stated that ____ was authorized to execute the instrument and acknowledged it as the ___________________ of FRIENDS OF YOUTH, a Washington nonprofit corporation, to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Date: ________________

__________________________________ NOTARY PUBLIC in and for the State of Washington, residing at ___________________ My commission expires: _______________________ Print Name: __________________________________

t

ATTACHMENT 2:

After recording return to: City of Seattle Office of Housing PO Box 94725 Seattle, WA 98124-4725 Attention: Thomas Mack

Form of GROUND LEASE (Site B)

Grantor: THE CITY OF SEATTLE

Grantee: Sand Point Community Connections SPE, LLC

Legal Description:

1. Abbreviated form:

Parcel B, Seattle Short Sub. No. 9904055, Recording Number 19991214900007.

2. Additional legal description is on Exhibit C to document.

Assessor's Property Tax Parcel Account No.: 02125049067

GROUND LEASE Between The City of Seattle, a municipal corporation of the State of Washington and Sand Point Community Connections SPE LLC, a Washington limited liability company

TABLE OF CONTENTS Page

RECITALS 1 1. DEFINITIONS AFFILIATE 2 ARTICLE 2 AUTHORIZED USERS 2 BANK MORTGAGE 2 BUILDING 2 CERTIFICATE OF OCCUPANCY 2 CODES 2 COMMITTEES 3 COMMON ELEMENTS 3 CONDOMINIUM 3 CONDOMINIUM ASSOCIATION 3 CONDOMINIUM DOCUMENTS 3 CONSTRUCTION PLANS 3 DPD 3 DECLARATION 3 DIRECTOR 3 EFFECTIVE DATE 3 FEE MORTGAGE 3 FORECLOSURE 3 HISTORIC PROPERTY REUSE AND PROTECTION PLAN 3 HOMELESS PERSON 4 HOUSING ADVISORY COMMITTEE 4 HUD 4 IMPROVEMENTS 4 INITIAL LEASEHOLD MORTGAGE SATISFACTION 5 INSTITUTIONAL INVESTOR 5 LEASEHOLD ESTATE 5 LEASEHOLD MORTGAGE 5 LEASEHOLD MORTGAGEE 5 LOAN 5 LOAN DOCUMENTS 5 NEW LEASE 5 MANAGEMENT AND OPERATING PLAN OR MOP 6 NAVY DEED 6 NEW BUILDING 6 PERSON 6 PERSONAL PROPERTY 6 PHYSICAL DEVELOPMENT MANAGEMENT PLAN 6 PREMISES 6 PURCHASE MONEY LEASEHOLD MORTGAGE 6 RESIDENTIAL BUILDINGS 6 RENT 6 SAND POINT PROPERTY 6 SECTION 7 SUBLEASE 7 SUBLESSEE 7 SURVEY MAP AND PLANS 7 TENANT 7 TERM 7 TERMINATION NOTICE 7 TERMINATION DEFAULT 7 UNIT TERMINATION DEFAULT 8 UNIT 8 UNIT OWNER 8

3. TERM 9 3.1 TERM OF LEASE 9 3.2 TERMINATION IF PREMISES NO LONGER USED FOR HOMELESS 9

4. RENT AND OTHER CHARGES 9 4.1 RENT 9

5. PREMISES; USE 9 5.1 USE OF PREMISES 9

6.1 OWNERSHIP OF IMPROVEMENTS 10

7. MANAGEMENT AND OPERATION 10 7.1 MANAGEMENT AND OPERATING PLAN 10 7.2 PROPERTY MANAGER 11 7.3 RULES AND REGULATIONS 11

8. DELAY IN PERFORMANCE 11 8.1 FORCE MAJEURE 11

9. TAXES AND UTILITY CHARGES 11 9.1 TAXES 11 9.2 UTILITY CHARGES 12 9.3 NO CHARGES FOR SERVICE TO OTHER PROPERTY 12 9.4 LESSEE'S RIGHT TO CONTEST 12

10. ALTERATIONS; CONDITION AND CARE OF PREMISES 12 10.1 GENERAL CONDITION 12 10.2 LESSEE ACCEPTS PREMISES AS IS; MAINTENANCE-REPAIRS 13 10.3 NEW CONSTRUCTION 14 10.4 ALTERATIONS 14 10.6 SIGNS 15 10.8 EQUIPMENT; PERSONAL PROPERTY 15 10.9 CONTRACTING FOR ALTERATIONS, MAINTENANCE, REPAIRS, AND CONSTRUCTION 15 10.10 HAZARDOUS WASTE OR MATERIALS 15 (a) Restriction on Use; Response Plan; Definition 15 (c) Compliance 16 (d) Rights of Lessor 16 (e) Lessee's Duty to Notify and Cooperate; Response to Release 16 (f) Removal Upon Surrender 17 (g) Indemnity 17 (h) No Waiver of Federal Obligations; Notices and Enforcement by Lessee 17 (i) Mutual Obligations to Cooperate Regarding Federal Environmental Obligations 18

11. MAINTENANCE 18 11.1 PROTECTION AND MAINTENANCE OBLIGATIONS OF LESSEE 18 11.2 GROUNDS MAINTENANCE OBLIGATION CITY OBLIGATION FOR STREETS 19

12. COMPLIANCE WITH LAWS AND FEDERAL REQUIREMENTS 19 12.1 GENERAL REQUIREMENT 19 12.2 LICENSES AND SIMILAR AUTHORIZATIONS 19 12.3 NONDISCRIMINATION AND AFFIRMATIVE ACTION 19 (a) Fair Housing and Other Nondiscrimination Laws 19 (b) Equal Employment Opportunity and Nondiscrimination 19 12.5 HISTORIC PRESERVATION. 20 12.6 U.S. GOVERNMENT AND FUNDING AGENCY RESTRICTIONS 20

13. LIENS 20

14. LIABILITY AND INSURANCE 20 14.1 INDEMNITY 20 14.2 INTENTIONALLY DELETED 21 14.3 WORKER'S COMPENSATION 21 14.4 INSURANCE 21 (a) New Construction 21 (b) General Insurance Requirements 24 (c) Sublessees, Contractors and Subcontractors 27 (d) Evidence of Insurance 28 (e) Approval of Risk Manager; Adjustments 29 (f) Definitions 29 14.5 CONTRACTORS' BONDS 29 14.6 ASSUMPTION OF RISK 29 14.7 ADJUSTMENTS OF CLAIMS; PROCEEDS OF HAZARD INSURANCE 29 14.8 COMPLIANCE BY LESSEE 30 14.9 CONTRACTOR'S INDEMNIFICATION 30 14.10 SURVIVAL 31

15. CASUALTY 31 15.1 NOTICE OF CASUALTY; RECONSTRUCTION 31 15.2 NOTICE PRIOR TO COMMENCEMENT OF WORK 31 15.3 TIME FOR COMMENCEMENT OF WORK 32 15.4 DISBURSEMENTS 32 15.5 TERMINATION FOR CERTAIN CASUALTIES 32 15.6 PROCEEDS NOT USED TO RESTORE 33

16. INSPECTION 33 16.1 PREMISES 33 16.2 RECORDS 33

17. DEFAULT 34 17.1 DEFAULT; CURE PERIODS, TERMINATION 34 17.3 REMEDIES CUMULATIVE 35

18. SUBLEASES AND ASSIGNMENTS 35 18.1 GENERAL RULES 35

18.2 ASSIGNMENT OR SUBLEASE TO AN AFFILIATE 36 18.3 SUBLEASE REVENUE 36 18.4 SUBLEASE FOR RESIDENTIAL BUILDINGS 36 18.5 ASSIGNMENT OF RIGHTS TO CONDOMINIUM ASSOCIATION 36

19. POSSESSION 37

20. SURRENDER 37 20.1 OBLIGATIONS OF LESSEE 37 20.2 TRANSFER OF CONTRACTS 37 20.3 RE-ENTRY BY LESSOR 38 20.4 PARTIAL TERMINATION 38 20.5 SURVIVAL OF LIABILITIES 38

21. GENERAL PARTNER, MANAGER AND MEMEBER OF LESSEE AND SUBLESSEE 38

22. QUIET ENJOYMENT 39 22.1 IN GENERAL 39 22.2 PROTECTION OF UNIT OWNERS 39 22.3 NONDISTURBANCE 40

23. LESSOR'S CONSENT OR APPROVAL 41 23.1 CONSENT EXPRESSLY FOR LEASE PURPOSES; DISCRETION OF LESSOR 41 23.2 CONSENTS UNDER LEASE NOT FOR REGULATORY PURPOSES 41

24. NO DISQUALIFICATION 42

25. BENEFIT 42 25.1 SUCCESSORS AND ASSIGNS 42 25.2 NO THIRD PARTY BENEFICIARY 42

26. NOTICE 42 26.1 ADDRESSES 42 26.2 EFFECTIVENESS OF NOTICE 43

27. TERMINOLOGY 43 27.1 HEADINGS 43 27.2 GENDER AND NUMBER 43

28. SEVERABILITY 44

29. APPLICABLE LAW 44

30. NEGOTIATED AGREEMENT; ENTIRE AGREEMENT 44 30.1 NEGOTIATED AGREEMENT; CONSTRUCTION 44 30.2 ENTIRE AGREEMENT 44

32. ADVISORY COMMITTEES; COMPLIANCE WITH PLANS AND GUIDELINES 44 32.1 MAGNUSON PARK COMMUNITY COMMUNICATIONS COMMITTEE; REPRESENTATION; PROVISION OF INFORMATION 44 32.2 COMPLIANCE WITH PLANS AND GUIDELINES 45 32.3 HOUSING ADVISORY COMMITTEE 45

33. RIGHTS RESERVED BY LESSOR 45 33.3 MANNER OF EXERCISE 46

34. EXISTING EASEMENTS; LESSEE TO COOPERATE IN AND CONSENT TO ACTIONS BY LESSOR 46 34.1 EASEMENTS 46 34.1 COOPERATION IN ACTIONS BY LESSOR 46

35. RECORDS AND ANNUAL REPORTING 46 35.1 RECORDS 47 35.2 ANNUAL REPORTING 47

36. MANAGEMENT AND OPERATING PLAN; 48 36.1 PLAN 48

37. CERTAIN RIGHTS OF INVESTORS 48

38. LEASEHOLD FINANCING 49 38.1 INTENTIONALLY OMITTED 49 38.2 LEASEHOLD MORTGAGES AUTHORIZED 50 38.3 NOTICE TO LESSOR 50 38.4 CONSENT OF LEASEHOLD MORTGAGEE REQUIRED 51 38.5 DEFAULT NOTICE 51 38.6 NOTICE TO LEASEHOLD MORTGAGEE; RIGHT TO CURE 51 38.7 FURTHER PROTECTIONS 53 38.8 NEW LEASE 56 38.9 NEW LEASE PRIORITIES 57 38.10 LEASEHOLD MORTGAGEE NEED NOT CURE SPECIFIED DEFAULTS 58

List of Exhibits: A. Map of Sand Point Property B. Map of the Premises C. Legal Description of Premises

GROUND LEASE Between The City of Seattle, a municipal corporation of the State of Washington and Sand Point Community Connections LLC, a Washington limited liability company

FOR THE DEVELOPMENT AND OPERATION OF HOMELESS PROGRAMS AT SAND POINT

This Ground Lease ("Lease") is entered into as of the _____ day of ____________, 2010 by The City of Seattle, a municipal corporation of the State of Washington ("City" or "Lessor") and Sand Point Community Connections SPE LLC, a Washington limited liability company ("Lessee") The City is acting through its Director of Housing (referred to herein, together with any official who may succeed to the authority or responsibility of such Director to act for the City under this Lease in the future, as the "Director").

RECITALS

On April 24, 1998, the City acquired title to portions of the Naval Station Puget Sound at Sand Point from the United States government under terms and conditions requiring, among other public and community uses, the development and management of housing for the homeless and related services.

The City entered into that certain Lease dated April 22, 1998 between City as lessor and Sand Point Community Housing Association ("SPCHA") as lessee (the "Original Lease"), with respect to all of the land conveyed by the United States under the Navy Deed, as defined below (collectively, the "Parcels"). SPCHA ultimately dissolved and transferred its interest in the Original Lease to Sand Point Community Connections LLC, a Washington limited liability company ("SPCC") that is an Affiliate of Lessee, and the Original Lease was amended and restated by that certain Amended and Restated Lease dated as of April 23, 2008 (as further amended by a First Amendment to Amended and Restated Lease dated on or about the date hereof, the "Amended Lease") between City as lessor and SPCC as lessee. That certain First Amendment to Amended and Restated Lease and Partial Termination of Lease, dated ____________________, between the City and SPCC, removed Parcel B of Seattle Short Subdivision No. 9904055, which comprises the Premises leased hereby, from the Amended Lease.

The City Council of Lessor, by Ordinance ____________, authorized the Director of the Office of Housing to lease Parcel B of Seattle Short Subdivision No. 9904055 to Lessee, and to execute, for the City as ground lessor, a condominium declaration by which Lessee would declare a leasehold condominium with respect to that parcel (the "Condominium"), and the parties desire to provide for certain terms that would apply upon creation of the Condominium, which is subject to such Director's approval.

THEREFORE, in consideration of the lease of the Premises by the City to Lessee, and for other valuable consideration received and covenants made, the parties agree as follows:

1. DEFINITIONS

The following capitalized terms used in this Lease shall have the following meanings unless the context otherwise requires:

"Affiliate" of a Person means any Person that controls, is controlled by or is under common control with that Person. A Person shall be presumed to have control when it possesses the power, directly or indirectly, to direct, or cause the direction of, the management or policies of another Person, whether through ownership or voting securities, by contract or otherwise.

"Article" means a portion of this Lease designated by a number and a heading in all capital letters, and includes all Sections thereunder.

"Authorized Users" has the meaning set forth in the Declaration.

"Bank Mortgage" shall bear the meaning set forth in the definition of Initial Leasehold Mortgage Satisfaction.

"Building" means a structure hereafter constructed on the Premises containing space for residential or nonresidential use.

"Certificate of Occupancy" means a temporary certificate of occupancy issued by DPD after the construction of Improvements, or, if no temporary certificate of occupancy is issued, then a permanent certificate of occupancy.

"Codes" include all land use, building, housing, fire, electrical, mechanical, plumbing and other codes applicable under City ordinances or State law, and all valid interpretations thereof issued by the agencies responsible for the administration thereof.

"Committees" means the advisory committees described in Article 32.

"Common Elements" has the meaning set forth in the Declaration.

"Condominium" means the condominium, if any, to be created by the Declaration and the Survey Map and Plans.

"Condominium Association" means the nonprofit corporation to be formed by Lessee pursuant to the Declaration to perform the functions of the "Association" as defined therein.

"Condominium Documents" means the Declaration, the Survey Map and Plans, any amendments to the foregoing and any additional documents governing the operation of the Condominium.

"Construction Plans" means plans and specifications for the construction of new Improvements, in sufficient detail for submission of a building permit application and in compliance with all applicable Codes.

"DPD" means the Seattle Department of Planning and Development, and any successor agency.

"Declaration" means the Condominium Declaration to be recorded with respect to the Premises, signed by the Lessee as Declarant and Lessor as ground lessor.

"Director" means the City of Seattle Director of the Office of Housing and any official who may succeed to the authority or responsibility of such Director to act for the Lessor under this Lease in the future. In addition, in any instance in which action by the "Director" is contemplated by the terms of this Lease, "Director" shall include any other City employee authorized by the Director or by the Mayor of The City of Seattle to take such action.

"Effective Date" means the date when this Lease shall become effective as provided in Section 3.1.

"Fee Mortgage" means a mortgage, deed of trust or other lien or encumbrance against Lessor's fee interest in the Premises or in the Lessor's interests under this Lease.

"Foreclosure" means a judicial foreclosure sale of, or a trustee's sale of, the Leasehold Estate or a part thereof pursuant to a Leasehold Mortgage or any deed or assignment in lieu of such foreclosure or trustee's sale.

"Historic Property Reuse and Protection Plan" or "HPRP Plan" means the Sand Point Historic Properties Reuse and Protection (HPRP) Plan on file with City of Seattle Department of Parks and Recreation for the Sand Point Property approved by the Lessor and the State Historic Preservation Officer as the same may be amended from time to time.

"Homeless Person" means

(1) An individual or family who lacks a fixed, regular, and adequate nighttime residence; or

(2) An individual or family who has a primary nighttime residence that is:

(i) A supervised publicly or privately operated shelter designed to provide temporary living accommodations (including welfare hotels, congregate shelters and transitional housing for the mentally ill);

(ii) An institution that provides a temporary residence for individuals intended to be institutionalized; or

(iii) A public or private place not designed for, or ordinarily used as, a regular sleeping accommodation for human beings; or

(3) An individual or family that is within another definition of "Homeless Person" hereafter approved in writing by the Lessor for purposes of this Lease; or

(4) An individual or family that was a Homeless Person immediately prior to the date of commencement of a period of occupancy of a dwelling unit on the Premises or on one of the other Parcels, and has resided in a dwelling unit on the Premises or on one of the other Parcels continuously since that date;

but does not include

(5) any individual imprisoned or otherwise detained under an Act of the Congress or a State law.

"Housing Advisory Committee" means the committee established by Lessee to advise Lessee on matters of interest to neighboring communities as described in the Physical Development Management Plan.

"HUD" means the United States Department of Housing and Urban Development and any successor department or agency.

"Improvements" means any structures or fixtures that shall be constructed or installed on the Premises during the Term of this Lease, including but not limited to infrastructure, utility, sidewalk and landscaping improvements; but shall not include any infrastructure or utility improvements (including but not limited to streets; light and power poles; signs; water, sewer, electric and gas lines) presently existing or hereafter installed and owned by the City or any other public utility.

"Initial Leasehold Mortgage Satisfaction" means the full payment of all indebtedness secured by the initial Leasehold Mortgage granted to Wells Fargo Bank ("Bank Mortgage"), without any Foreclosure or any other sale or transfer of any portion of the Leasehold Estate or Sublease, and without any new mortgage or deed of trust to refinance all or part of such indebtedness.

"Institutional Investor" means a savings bank, savings and loan association, commercial bank, trust company, credit union, insurance company, mortgage company, college, university, state or local governmental authority, real estate investment trust, pension fund, commercial mortgage-backed security trustee and other investors of substance that are actively engaged in commercial real estate financing, and subsidiaries of any of the foregoing that are regularly engaged in the business of making real estate mortgage loans or other investments in commercial real estate. For the avoidance of doubt, Wells Fargo Bank shall be considered an Institutional Investor for purposes of this definition.

"Leasehold Estate" means the estate of Lessee created by this Lease upon and subject to all the terms and conditions of this Lease.

"Leasehold Mortgage" means a mortgage, a deed of trust, and any other security instrument or instruments by which the Leasehold Estate or any part thereof or any Sublease is mortgaged, conveyed, assigned, or otherwise transferred to secure a debt or other obligation to (a) an Institutional Investor, or (b) any other lender approved by Lessor in writing; provided that after Initial Leasehold Mortgage Satisfaction, no further mortgage or deed of trust shall be a "Leasehold Mortgage" without the express written agreement of the Lessor.

"Leasehold Mortgagee" means a holder of a Leasehold Mortgage who has given notice to Lessor in accordance with all of the requirements of Section 38.3.1.

"Loan" means a loan made to Lessee or a Sublessee and secured by a Leasehold Mortgage.

"Loan Documents" means all of the documents evidencing, securing and guarantying a Loan, including, without limitation, all promissory notes, Leasehold Mortgages, assignments of leases, rents and contracts, payment and completion guaranties, environmental and other indemnities, and related bonds and surety agreements.

"New Lease" means a new lease of the Premises entered into pursuant to Section 38.8 below.

"Management and Operating Plan" or "MOP" means the plan for management and operation of the Premises dated _______________, _____ and submitted to the Director by Lessee, with such amendments as the Director may hereafter approve, provided that no modifications that could have the effect of expanding the obligations of Lessee or the events or circumstances that could result in a Termination Default shall become effective without the written consent of each Leasehold Mortgagee and any Investor.

"Navy Deed" means the deed conveying the Premises from the United States Navy to the Lessor dated April 22, 1998 and recorded under King County recording no. 9804240453.

"New Building" means any of the additional Buildings to be constructed or provided by Lessee as set forth in Section 10.3. New Buildings are included within the definition of Improvements.

"Person" means an individual, corporation, partnership, limited liability company, governmental body or agency, or other legal entity.

"Personal Property" means any personal property acquired for the operation or maintenance of the Premises with funding provided by or through the City.

"Physical Development Management Plan" means the plan by that name approved by the Seattle City Council in Resolution 29429, as now or hereafter amended.

"Premises" or "Property" means the land depicted in Exhibit B and described in Exhibit C attached hereto and incorporated by this reference, including any easements appurtenant thereto.

"Purchase Money Leasehold Mortgage" means a Leasehold Mortgage taken back, retained by, or granted to Lessee or a Sublessee upon a sale and assignment of the Leasehold Estate or a part thereof to secure payment of any portion of the purchase price or any other obligations of the purchaser and assignee in connection with such sale and assignment.

"Residential Buildings" is defined in Section 10.3.

"Rent" means the rent fixed in Section 4.1.

"Sand Point Property" means the land generally depicted on Exhibit A, including both land acquired from the United States by the Lessor and land acquired or to be acquired by other parties, and all buildings and improvements now or hereafter located thereon, subject to any deletions, additions or adjustments as may have been or may be required by the United States government in connection with the transfers of property.

"Section" means a part of this Lease designated by a number with a numeral after a decimal point, such as "11.3", including all subsections, paragraphs and clauses therein.

"Sublease" shall mean any deed, lease, rental agreement, operating agreement or other agreement or instrument hereafter entered into by Lessee under which any Person shall become or continue as a "Sublessee", as defined below.

"Sublessee" shall include any Person that is a Unit Owner in the Condominium, as defined in the Declaration, in its capacity as such Unit Owner, and any Person that is granted a sublease on any portion of the Premises, or that leases any part of any Improvement from Lessee, directly or indirectly, but shall not include any Tenant occupying a housing unit. "Sublessee" also shall include (a) any Person to whom Lessee transfers fee title to any Improvements within the boundaries of a Unit, or any part thereof; and (b) any Person entitled to possess, use, occupy or control the occupancy of any Building, or portion thereof, under an "operating agreement" or other agreement with Lessee or any Sublessee, except for (i) a Tenant; (ii) an individual client of a social service agency or initial user of a facility serving Homeless Persons; or (iii) a property manager paid by Lessee or a Sublessee to manage a portion of the Premises in accordance with the direction of Lessee or a Sublessee.

"Survey Map and Plans" means the Survey Map and Plans described in the Declaration.

"Tenant" means any individual residential tenant or subtenant occupying a housing unit, and any member of any such individual's household, and shall include any residential client of a facility for Homeless Persons, whether or not such individual has the status of a tenant under applicable law.

"Term" means the term of this Lease specified in Section 3.1, ending December 31, 2085, without giving effect to any earlier termination.

"Termination Notice" means a notice given by Lessor to each Leasehold Mortgagee of Lessor's intention to terminate this Lease as a result of Lessee's default.

"Termination Default" means an Event of Default under Article 17 based on one or more of the following:

(i) Breach of Lessee's obligation to complete the Residential Buildings in Section 10.3;

(ii) Breach of the obligation to use the Premises solely for the benefit of Homeless Persons under Section 3.2;

(iii) Breach of Section 18.1 or Article 21;

(iv) Breach of the obligation to restore or replace Improvements when funds are available for that purpose after a casualty loss, under Sections 15.1-15.3, or of the obligation to demonstrate the availability of funds for such purpose under Section 15.5(b); or

(v) Abandonment of the entire Premises or of the Residential Buildings.

"Unit Termination Default" means, with respect to a Unit, a Termination Default resulting from the breach of provisions of the Lease as they apply to the portion of the Premises contained within the boundaries of such Unit. If the Condominium is not created, then any Termination Default is a Unit Termination Default with respect to the entire Premises.

"Unit" means a unit in the Condominium. "Unit" followed by a numeral means the Unit designated by that numeral in the Declaration and Survey Map and Plans, except that if the Condominium is not created any reference to "Units 1 and 2" means the portion of the Premises where the Residential Buildings are to be located.

"Unit Owner" means (a) from and after the date of creation of the Condominium and for so long as the Condominium exists, the unit owner, as defined in the Washington Condominium Act, RCW Chapter 64.34, of a Unit in the Condominium; and (b) at all other times, the Lessee.

Certain additional terms are defined in the recitals to this Lease and in other Articles below.

2. CONDOMINIUM REGIME.

The parties acknowledge that Lessee may, subject to the approval of the Director in his or her discretion, create a leasehold condominium with respect to the Premises. Unless and until such a leasehold condominium shall be created, the provisions of this Lease regarding the Condominium shall not be effective. If the Condominium is created, then the ownership of the Leasehold Estate with respect to Units 1 and 2, where the Residential Buildings shall be located, may be separate from the ownership of the Leasehold Estate with respect to the remainder of the Premises. The Declaration and the terms of any conveyance of Units in the Condominium shall provide that each of the Unit Owners of Unit 1 and Unit 2 are and shall remain obligated under this Lease for all covenants with respect to the construction, maintenance and use of both Residential Buildings and the use of the portions of the Premises within the boundaries of both Units 1 and 2, unless otherwise expressly agreed in writing hereafter by the Director. The parties intend that any Unit Termination Default with respect to either Unit 1 or Unit 2 shall be a Unit Termination Default with respect to both Unit 1 and Unit 2, as if they constituted a single Unit.

3. TERM

3.1 Term of Lease. Subject to the provisions of this Lease and the terms of the Navy Deed, Lessor leases to Lessee and Lessee leases from Lessor the Premises. This Lease shall be in effect from the execution date of this Lease ("Effective Date") through December 31, 2085 ("Term"), unless sooner terminated as provided elsewhere in this Lease.

3.2 Termination if Premises No Longer Used for Homeless. Subject to Articles 22, 37 and 38 and to the cure rights provided in Section 17, Lessor shall have the right to terminate this Lease by written notice to Lessee if, at any time after completion of the Residential Buildings (see Section 10.3) the Premises cease to be used for the benefit of Homeless Persons. The Premises shall be deemed to be in use for the benefit of Homeless Persons for purposes of this Section if all of the housing units on the Premises are used solely as residential housing for Homeless Persons on terms consistent with the MOP, and any other improvements on the Premises are used only by or for residents of those units or of other Parcels and their invitees.

4. RENT

4.1 Rent. Lessee shall pay Lessor base rent for the Premises during the Term at the rate of ONE DOLLARS ($1.00) per year. Rent shall be due and payable by Lessee to Lessor on the execution date of this Lease for the first year of the Term and subsequently payable by Lessee on each anniversary of the execution date of this Lease. Lessee reserves the right to prepay the entire Term or portions thereof, but no acceptance of prepayment shall affect the right of the Lessor to terminate this Lease upon the circumstances set forth herein, and there shall be no right to any rebate of prepaid rent upon any such termination.

5. PREMISES; USE

5.1 Use of Premises.

(a) Lessee agrees that, except as otherwise expressly provided herein, the Premises shall be solely devoted to the development and operation of a residential living complex for Homeless Persons (including community space, computer lab, landscaping, gardens, playgrounds and other open and communal space available to such residents), and for related facilities and services for Homeless Persons and persons at risk of being homeless as may be approved by the Lessor and as may be consistent with applicable federal or state laws and regulations. On an interim basis, and with the express written consent of the Director, Lessee may conduct or permit other uses on portions of the Premises on which development of facilities for Homeless Persons is not yet ready to begin, provided that such uses are consistent with all applicable laws, regulations, ordinances, plans, guidelines and policies, that Lessee complies with any conditions stated by the Director in granting any such consent, and that such uses do not conflict with or delay the development and use of the Premises for the homeless. Any net revenue to Lessee from any such interim uses shall be used for costs of developing the Premises for use by the homeless or for services to the homeless.

(b) All nonresidential space in the Improvements on the Premises shall be used solely for services provided without charge to Homeless Persons unless otherwise expressly agreed in writing by the Lessor. Lessee shall maintain and produce for inspection and copying, upon demand by the Lessor or HUD, records demonstrating compliance with this Section. Except for space within New Buildings containing dwelling units, the Premises and Improvements shall be used to serve residents of all of the Parcels, including but not limited to the Premises, unless otherwise approved in writing by the Lessor.

6. OWNERSHIP OF IMPROVEMENTS

6.1 Ownership of Improvements. Subject to the terms of this Lease, Lessee, its Sublessees, or the Condominium Association (to the extent so provided in the Declaration) shall hold title to all of the Improvements until the expiration of this Lease, and such title shall vest in Lessee, its Sublessees, or the Condominium Association (to the extent so provided in the Declaration) to the full extent permitted by law and the terms of any liens thereon (including any liens in favor of Lessor). Lessee and its Sublessees shall have no right to remove, destroy, damage or alter (except as otherwise provided in Section 10.4) any Improvement or portion thereof, without the express written consent of the Director, and Lessee shall not cause or consent to any action to remove, destroy, damage or alter (except as otherwise provided in Section 10.4) any Improvement or portion thereof without the express written consent of the Director. At the expiration of the Term, or if this Lease is earlier terminated as provided under this Lease, the Improvements, together with all related Personal Property, shall become the property of Lessor without any payment by Lessor; provided, that the Lessor may require the Lessee to remove, within sixty (60) days after notice to Lessee, at Lessee's sole expense, any fixtures or structures on or under the Premises that were constructed, affixed or substantially modified without the approval of the Lessor or in violation of applicable laws, regulations or Codes, or that were permitted by Lessor on condition that they be removed upon expiration or termination of this Lease.

7. MANAGEMENT AND OPERATION

7.1 Management and Operating Plan. The operation and management of the Premises by Lessee shall be conducted consistent with the MOP, and consistent with the plans and guidelines referred to in Article 32, subject to the express provisions of this Lease and to requirements of applicable laws, regulations and ordinances.

7.2 Property Manager. Lessee may contract with one or more property managers to manage the operation of the Premises consistent with this Lease and the MOP, but no delegation of any duty or obligation to any property manager shall limit the responsibility or liability of Lessee hereunder.

7.3 Rules and Regulations. The Lessee agrees to observe, and to take all reasonable measures to cause Sublessees, Tenants and other Persons allowed on the Premises to observe, such reasonable rules and regulations governing the Premises as the Lessor as landlord may promulgate from time to time.

8. DELAY IN PERFORMANCE

8.1 Force Majeure. Lessee shall not be considered in breach of its obligations under this Lease, including but not limited to the commencement and completion of construction of the Improvements, or the development or operation thereof, in the event of delays in the performance of its obligations due to causes beyond Lessee's reasonable control, including but not restricted to, any delays or suspensions of construction, development or operations compelled by court order, acts of God, acts of the public enemy, reasonably unforeseeable acts of a unit of local, state or federal government, reasonably unforeseeable acts or omissions by other parties, fires, floods, strikes, embargoes, delays in essential utility services and unusually severe weather or delays of contractors or subcontractors due to such causes. The time for the performance of the obligation shall be extended for the period of the enforced delay if Lessee shall give notice of the delay within thirty (30) days after Lessee becomes aware of the cause of any such delay. Provided however, failure of the Lessee to obtain sufficient funding for the construction of the Residential Buildings described in Section 10.3, after exercising its best efforts, shall not be considered a cause beyond Lessee's reasonable control under this Section.

9. TAXES AND UTILITY CHARGES

9.1 Taxes. The Lessee shall pay, before delinquency, all taxes, levies, and assessments arising from its activities on or occupancy of the Premises, including, but not limited to taxes arising out of the activity or business conducted on the Premises such as the rental or sale of goods or services; taxes levied on its property, equipment, and improvements on the Premises; and taxes on the Lessee's interest under this Lease and any leasehold interest deemed to have been created thereby under Ch. 82.29A RCW. In the event the State of Washington makes any demand upon the City as Lessor for payment of leasehold excise taxes resulting from the Lessee's occupation of the Premises or withholds funds due to the Lessor to enforce collection of leasehold excise taxes, the Lessee shall, at its sole expense, contest such action and indemnify the Lessor for all sums expended by, or withheld by the State from, the Lessor in connection with such taxation.

9.2 Utility Charges. The Lessee, at the Lessee's sole expense, shall pay for, when due, all costs for providing all utilities and other services on or to the Premises, including but not limited to, elevator service, electricity, gas, water, telephone, sewer, garbage, heating and janitorial, and shall also pay all charges for utility installation and modifications thereto within or in the immediate area of any of the buildings on the Premises, including new connections to water or sewer mains required in connection with the construction, rehabilitation, modification or use thereof as contemplated hereby. The Lessor shall not be responsible for connections, meters and related installations that would be the responsibility of the owner or developer of a building on private property according to standard policies of Lessor for utilities. The Lessor shall not be liable for any injury, loss or damage caused by or resulting from any interruption or failure of utility services due to any causes whatsoever except the Lessor's gross negligence or breach of this Lease. The Lessee shall not be entitled to an offset, reduction, or return of Rent as a result of any interruption or failure of said services.

9.3 No Charges for Service to Other Property. Nothing contained herein shall require Lessee to pay any gas, electrical, water, sewer or any other charge for utility service furnished to property other than the Premises.

9.4 Lessee's Right to Contest. Lessee shall have the right to contest or review by legal proceedings or in such other manner as may be legal, any tax, assessment, utility charge or other governmental imposition mentioned above and to pay such items under protest; provided, that nothing in this Section shall be construed to restrain the exercise of any remedy by any City utility for nonpayment, and provided further that notwithstanding any protest or challenge Lessee shall timely pay such amounts as are necessary to avoid interruption in service, including any interruption that would occur from application of the normal policy or procedure of any City utility.

10. ALTERATIONS; CONDITION AND CARE OF PREMISES

10.1 General Condition. The Lessee shall at all times keep the Premises in a neat, clean, safe and sanitary condition, and shall use and maintain the Premises in accordance with the laws of the State of Washington and Charter, ordinances and Codes of The City of Seattle, and in accordance with all valid rules and regulations of the Health Officer, Fire Marshal, Director of DPD and other appropriate officers of The City of Seattle. The Lessee shall comply with the previous sentence at the sole cost and expense of the Lessee, except as otherwise expressly provided herein. The Lessee shall not cause or permit any waste, damage, or injury to the Premises; maintain anything on the Premises that may be dangerous to life or limb; permit any objectionable noise or odor to escape or to be emitted from said Premises; or permit anything to be done upon said Premises that in any way will tend to create a nuisance.

10.2 Lessee Accepts Premises AS IS; Maintenance-Repairs:

(a) Lessee has fully inspected the Premises. Lessee is fully familiar with the condition of the Premises. Lessee accepts the Premises AS IS, in their condition on the Effective Date, and ASSUMES THE RISK of any defects in the condition of the Premises and of all the matters set forth below. Lessor makes NO WARRANTIES OR REPRESENTATIONS OF ANY KIND. Lessee agrees that any express or implied representations or warranties made by or on behalf of the Lessor prior to the date hereof, unless expressly set forth in this Lease, are hereby revoked and canceled and shall have no force or effect. Lessee further agrees that no representations or warranties are implied by any provision of this Lease or any other words or conduct in connection with this transaction.

(b) Without limiting the generality of the foregoing paragraph, Lessee agrees that, except as may be specifically set forth in this Lease, neither Lessor nor any Person for whom Lessor may have any responsibility makes any representation, warranty or promise of any kind with regard to any of the following: (1) the physical condition of the Premises or improvements (land, buildings, fixtures, or infrastructure), whether or not readily determined by inspection; (2) the presence or absence of any underground tanks or any hazardous or defective substances or conditions on or about the Property, or on adjacent properties; (3) the history of the Property or activities that may have occurred or been conducted thereon or thereunder; (4) soils conditions or drainage; (5) square footage of land or buildings; (6) encroachments; or (7) location or condition of utility lines.

(c) Except as otherwise expressly provided in this Lease, Lessee hereby irrevocably releases and waives any and all claims that Lessee has or may have hereafter against Lessor with respect to the condition of the Property or arising pursuant to the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or the Washington State Model Toxics Control Act, as amended.

(d) Lessee agrees that the Lessor shall have no liability or obligation as a result of any defect or condition of the Premises, including without limitation latent defects. The Lessor shall have no obligation for any repairs, maintenance, or work of any kind except as expressly set forth in this Lease.

(e) Notwithstanding the foregoing, the Lessor and Lessee intend that Lessee shall have the right to enforce the provisions of the Navy Deed with respect to hazardous substances and the indemnity contained in Section 5 of the Navy Deed.

(f) Lessee and Lessor acknowledge that this Section has been specifically bargained for and that Lessor would not be willing to lease the Premises on the terms and conditions set forth herein without Lessee's agreement to the terms of this Section.

10.3 New Construction. The parties agree that the development of the Premises shall include the new construction of three structures as New Buildings to be used solely for the benefit of Homeless Persons, together with improvements of the Common Elements. No later than June 30, 2010, the Lessee or its Sublessees shall commence the construction of initial Improvements, which shall consist of two New Buildings, each including 26 dwelling units (collectively, the "Residential Buildings") and related site improvements, all substantially as shown on plans prepared by Tonkin/Hoyne dated Sept. 29, 2009 as provided to the Lessor (the "Project"). If the Condominium is created, each of the Residential Buildings shall be entirely contained within a Unit, and the Units that contain the Residential Buildings shall be denoted as Units 1 and 2. The Project also shall include a nonresidential structure, which, if the Condominium is created, shall be entirely within Unit 3. Lessee shall complete the Project, at Lessee's sole expense, and obtain Certificates of Occupancy for all dwelling units in the Residential Buildings, no later than December 31, 2111, subject to Force Majeure as provided in Section 8.1. In the planning, design and construction of any additional New Buildings and related Improvements the Lessee shall comply fully with all of the following plans approved or to be approved by the Lessor, as the same may be amended by Lessor: Physical Development Management Plan and Historic Property Reuse and Protection Plan.

10.4 Alterations.

(a) The Lessee shall not make, or cause to be made, any alteration, addition or improvement in the Premises, including without limitation installation, removal or modification of fencing or landscaping, without first obtaining the written consent of the Director for such work, except in each case alterations or improvements required to maintain the Property in safe condition and in compliance with applicable laws and ordinances. The Director's approval of alterations, additions or improvements expressly contemplated by this Lease shall not be unreasonably withheld, conditioned or delayed. Ordinary repairs and any non-structural alteration of any structure that, together with all other items of the same nature during the calendar year, cost less than $100,000.00, and emergency repairs immediately necessary for the usual and customary usage of the Premises, in each case if at the sole expense of Lessee, shall not require such prior written consent. All alterations, additions and improvements made shall be at the sole cost and expense of the Lessee, and unless otherwise agreed in writing by the Director, shall remain in and be surrendered with the Premises as a part thereof at the expiration or termination of this Lease, without disturbance, molestation or injury.

(b) The Lessor reserves an unqualified right to make repairs or alterations to the Premises or to the buildings thereon (i) where conditions deemed by the Director to constitute an emergency exist, or (ii) after prior written notice to Lessee requesting Lessee to make such repair or alteration in order to correct deficiencies in compliance with any applicable law, regulation or Code. Lessee shall reimburse Lessor on demand for the cost of any such repairs or alterations if made after the Lessee shall have failed or refused to do so. The Lessor also reserves the right to make general alterations to the Premises at no cost to Lessee, where such general alterations will not unreasonably interfere with the ordinary operation of the Premises by the Lessee or its permitted Sublessees, but not the right to construct any Buildings or to modify any buildings except as provided in Article 16 below.

10.5 [Intentionally omitted.]

10.6 Signs. Lessee shall not display, inscribe, paint or affix to any part of the Premises any sign except those indicating the name of Lessee or its Sublessee and the names and nature of the programs, services and facilities provided by Lessee and Sublessees on the Premises, without approval in writing by the Director prior to such placement.

10.7 [Intentionally omitted.]

10.8 Equipment; Personal Property. All equipment and all appliances such as dishwashers, stoves, refrigerators, washers, and dryers located on the Premises shall be maintained and repaired by the Lessee at no cost to the Lessor.

10.9 Contracting for Alterations, Maintenance, Repairs, and Construction. Lessee shall ensure that all contracts and subcontracts for any alterations, maintenance, repairs, and construction activities (including contracts for related professional services) shall be made, entered into, and performed in full compliance with all applicable laws, regulations, ordinances, fund source requirements, and the terms of this Lease (collectively, "requirements"), whether such contracts are let or made by the Lessee or by a Sublessee or other Person. Lessee shall ensure, under all such contracts and subcontracts, that work shall be performed by licensed and qualified contractors, and that wages and benefits shall be paid in compliance with all applicable requirements. Lessee shall defend, indemnify and hold harmless the Lessor and its officers and employees from any claim, demand, liability, or cost (including attorneys fees) resulting from any failure by Lessee to ensure compliance as set forth in this Section.

10.10 Hazardous Waste or Materials.

(a) Restriction on Use; Definition. Lessee shall not dispose of or otherwise allow the release of any hazardous substances in, on or under the Premises, or any adjacent property, or in any Improvements placed on the Premises. Lessee represents, warrants and agrees that Lessee's uses of the Premises (including uses by Tenants, invitees or licensees) shall not involve the use, production, disposal or bringing onto the premises of any flammable or hazardous substances, except for paint, cleaning and maintenance supplies normally used in the operation of similar buildings. Any flammable or hazardous substances shall be used, stored and disposed of in compliance with all applicable laws, regulations and prudent practices. As used herein, the term "hazardous substances" includes asbestos, polychlorinated biphenyls, petroleum products, lead, explosives, paint, resins, solvents and any substance, waste or material defined or designated as hazardous, toxic or dangerous (or any similar term) by any federal, state or local statute, regulation, rule or ordinance now or hereafter in effect, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. section 9601 et seq., and the Model Toxics Control Act, RCW 70.105D.

(b) [Intentionally omitted.]

(c) Compliance. Lessee shall promptly comply at Lessee's expense with all statutes, regulations and ordinances, and with all orders, decrees or judgments of governmental authorities or courts having jurisdiction, relating to the use, collection, treatment, disposal, storage, control, removal or cleanup of hazardous substances in, on or under any other part of the Premises or any adjacent property if resulting from a release caused by the act or omission of Lessee, any Sublessee, or any of their respective employees, agents, contractors, Tenants, licensees or invitees.

(d) Rights of Lessor. After notice to Lessee and a reasonable opportunity for Lessee to effect such compliance, Lessor may, but is not obligated to, enter upon the Premises and take such actions and incur such costs and expenses to comply with any applicable laws, regulations or guidelines regarding hazardous substances as the Lessor deems advisable to protect its interest in the Premises, provided, however, that Lessor shall not be obligated to give Lessee notice and an opportunity to effect such compliance if such delay may reasonably result in material harm to the City, the Tenants, providers, the public or the United States and, (i) Lessee has already had actual knowledge of the situation and a reasonable opportunity to effect such compliance, or (ii) an emergency exists. Whether or not Lessee has actual knowledge of the release of hazardous substances, Lessee shall reimburse Lessor on demand for the actual costs and expenses incurred by Lessor in connection with compliance activities with respect to hazardous substances for which Lessee has responsibility under subsection 10.10(b) or (c) of this Lease, and such obligation shall continue even after the termination of this Lease.

(e) Lessee's Duty to Notify and Cooperate; Response to Release. Lessee agrees to cooperate in any environmental assessments conducted by the Lessor's staff or independent third parties. Lessee agrees to provide the Lessor with notice of every governmental inspection of the Premises, notice of violation, and order to clean up contamination, within five (5) days after the receipt thereof by Lessee. Lessee agrees to permit the Lessor to participate in all settlement or abatement discussions. In addition, Lessee shall notify Lessor immediately of the presence or release of any hazardous substances as described in subsection (c) of this Section (other than hazardous substances permitted under subsection (a) that are stored, used, handled and disposed or in compliance herewith) and shall take timely and appropriate steps to protect Persons and property from, and remedy the effects of, any such hazardous substances, which steps shall include immediate action in the case of any material release of hazardous substances.

(f) Removal Upon Surrender. Upon surrender of the Premises to the Lessor, whether upon expiration or earlier termination of this Lease, Lessee shall remove and properly dispose of any hazardous substances that were introduced into, or released on, in or under, the Premises at any time during the Term hereof, whether by Lessee, any Sublessee, or any of their respective employees, agents, contractors, Tenants, licensees or invitees, or any other Person except for the Lessor or its employees, agents or contractors.

(g) Indemnity. Lessee agrees to defend, indemnify and hold harmless Lessor against any and all losses, liabilities, suits, obligations, fines, damages, judgments, penalties, claims, charges, clean-up costs, remedial actions, costs and expenses (including, without limitation, consultants' fees, attorneys' fees and disbursements) that may be imposed on, incurred or paid by, or asserted against Lessor or the Premises by reason of, or in connection with (i) any misrepresentation, breach of warranty or other default by Lessee under this Lease; (ii) the acts or omissions of Lessee, any Sublessee or any of their respective employees, agents, contractors, Tenants, licensees or invitees, resulting in the release of any hazardous substances; (iii) any actual or alleged injury, illness, death or damage to any Person resulting from the presence or release of any hazardous substance in, on, or under the Premises, whether or not present at the inception of this Lease; or (iv) any off-site disposal, handling, treatment, storage, or transportation of any hazardous substances, including petroleum products, removed from the Premises by Lessee or its Sublessees, or their respective Tenants, invitees, contractors or subcontractors. Notwithstanding the foregoing, Lessee shall have no obligation to defend, indemnify or hold harmless Lessor for any loss, liability, suit, obligation, fine, damage, judgment, penalty, claim, charge, clean-up cost, remedial action, cost or expense (including, without limitation, consultants' fees, attorneys' fees and disbursements) that may be imposed on, incurred or paid by, or asserted against Lessor by reason of, or in connection with (i) any misrepresentation, breach of warranty or other default by Lessor under this Lease; (ii) the acts or omissions of Lessor or any of its employees, agents, contractors, licensees or invitees after the date hereof that causes the presence or release of any hazardous substance in, on, or under the Premises. These indemnity provisions shall survive termination or expiration of this Lease.

(h) No Waiver of Federal Obligations; Notices and Enforcement by Lessee. Nothing in this Section shall be construed to relieve the United States government or any department thereof from any liability or responsibility with respect to hazardous substances. In the event that Lessee becomes aware of any hazardous substance condition, or any complaint, notice or claim related to any hazardous substance(s), with respect to which the United States or a department thereof may have any obligation pursuant to the terms of the Navy Deed or pursuant to applicable law, the Lessee shall give written notice of the pertinent facts, together with a copy of any written complaint, notice or claim, to the Director and to the United States Department of the Navy as soon as practicable and in any event not later than ninety (90) days after learning of any such condition or fifteen (15) days after receipt of any such complaint, notice or claim, whichever is earlier. Lessee shall provide the United States Navy, and any other agency responsible for investigation, remediation, or defense of the matter, all additional documents and cooperation requested or required by the terms of the Navy Deed or by law. To the full extent permitted by the terms of the Navy Deed and applicable law, the Lessee shall have the right, after consultation with Lessor, to make demand on the United States to fulfill its obligations with respect to any hazardous substances discovered in, on or under the Premises and to enforce such obligations in its own name, provided that (i) Lessee shall not waive or release any rights without the express written consent of the Director; (ii) Lessee shall send copies of all related correspondence to the Director immediately upon sending or receipt thereof by Lessee; (iii) Lessee shall not request or authorize any excavation, demolition or other response action without the written consent of the Director if such action could reasonably adversely affect any Improvements on the Premises or any utilities on, in, or under the Premises, or if such action could reasonably interfere materially with the use of any portion of the Premises for the purposes intended by this Lease.

(i) Mutual Obligations to Cooperate Regarding Federal Environmental Obligations. If any circumstances arise that would provide reasonable grounds for the enforcement of any obligations (including without limitation indemnities) of the United States regarding environmental matters in the Navy Deed, or any obligations of the United States with respect to the Premises under applicable laws regarding environmental matters (either generally or with respect to base closures), and if Lessee or Lessor gives notice to the other of such circumstances and requests cooperation in pursuing such enforcement, then the other party shall cooperate in securing the benefits of such obligations. Nothing in this subsection 10.10(i) shall require either party (A) to expend funds except as authorized by its governing body, in its discretion, nor (B) to bring or join in any legal or administrative action if such party determines in good faith that such action would not be in the best interests of such party.

11. MAINTENANCE

11.1 Protection and Maintenance Obligations of Lessee.

(a) Lessee shall at all times keep the Improvements in a neat, clean, safe and sanitary condition; shall not cause or permit waste, damage or injury; and shall use and maintain the Improvements in accordance with the laws of the State of Washington and Charter, ordinances and Codes of The City of Seattle, and in accordance with all valid rules and regulations of the Health Officer, Fire Marshal, Director of Planning and Development ("DPD") and other appropriate officers of The City of Seattle.

(b) Unless otherwise agreed in writing by Lessor, Lessee shall be responsible for the prompt removal of any rubbish deposited on the Premises by Lessee or its Sublessees or their respective Tenants, licensees or invitees, including without limitation any abandoned automobiles or appliances.

11.2 Grounds Maintenance Obligation; City Obligation for Streets. Lessee shall be responsible for all maintenance of the grounds on the Premises, including lawn mowing, trimming or removal of plants when required, control of noxious weeds, clearing of leaves and other natural debris, and street, parking area and general access maintenance. Lessee shall be responsible for clearing snow, ice, obstructions and hazards from sidewalks, driveways, parking areas, walkways, steps, ramps and other paved surfaces in the Premises, or for repair of holes, cracks, or other defects in such surfaces. With regard to the streets serving the Premises, the City shall have only such obligations as the City has generally for all streets, and shall have no special obligations under this Lease.

12. COMPLIANCE WITH LAWS AND FEDERAL REQUIREMENTS

12.1 General Requirement. The Lessee, at its sole cost and expense, shall perform and comply with all applicable laws of the United States and the State of Washington; the Charter, ordinances and Codes of The City of Seattle; the rules, regulations, orders, and directives of their administrative agencies and officers thereof; and all requirements associated with any fund source for the improvement of, or operations on, the Premises. Lessee shall take all reasonable measures to cause each Sublessee and Tenant, and each of their invitees and licensees, to comply with all requirements of all of the foregoing.

12.2 Licenses and Similar Authorizations. The Lessee, at no expense to the Lessor, shall secure and maintain in full force and effect during the term of this Lease, all required licenses, permits, and similar legal authorizations, and comply with all requirements thereof

12.3 Nondiscrimination and Affirmative Action.

(a) Fair Housing and Other Nondiscrimination Laws. Lessee agrees to and shall comply with, and shall require all Sublessees to comply with, all Federal, State and local laws and ordinances, including without limitation Fair Housing Laws, prohibiting discrimination with regard to race, color, national origin, age, "families with children status," ancestry, creed, religion, political ideology, sex, sexual orientation, gender identity, marital status, the presence of any sensory, mental or physical handicap or the use of a guide or service animal by a person with a disability.

(b) Equal Employment Opportunity and Nondiscrimination. The Lessee shall comply with, and shall require all Sublessees to comply with, all applicable equal employment opportunity and nondiscrimination laws of the United States, the State of Washington, and the City of Seattle, including but not limited to Chapters 14.04, 14.10, and 20.42 of the Seattle Municipal Code (SMC), as they may be amended; and rules, regulations, orders, and directives of the associated administrative agencies and their officers.

12.4 [Intentionally omitted.]

12.5 Historic Preservation. Lessee shall comply, and shall take all reasonable measures to cause each Sublessee and Tenant (and the invitees and licensees of any of the foregoing) to comply, with all applicable laws, regulations and ordinances concerning historic preservation, and with all provisions in the Navy Deed with respect to historic preservation. In addition, Lessee shall comply with all provisions of the Historic Property Reuse and Protection Plan to the extent it applies to the Premises. It shall be the sole responsibility of Lessee to make timely application for, and to obtain, any and all permits and approvals related to historic preservation in connection with any renovation, repairs, construction or excavation.

12.6 U.S. Government and Funding Agency Restrictions. Lessee agrees to comply, and to take all reasonable measures to cause each Sublessee and Tenant, and all invitees or licensees of any of the foregoing, to comply with (a) the terms and conditions of all covenants and restrictions imposed by the United States contained in the Navy Deed to the extent they apply to the Premises, and (b) all agreements now or hereafter entered into by the Lessee or any Sublessee for the funding of the Improvements; the construction, maintenance, repair, or rehabilitation thereof; or the operations thereof. Without limiting the foregoing, Lessee agrees that as between Lessee and Lessor, each and every covenant of "Grantee" in the Navy Deed, as such covenant relates to the Premises, for so long as this Lease remains in effect, shall be the obligation of Lessee, and that Lessee shall defend and indemnify Lessor from any liability, loss, damage or expense (including attorneys' and experts fees) arising from Lessee's breach of any such obligation. Lessee acknowledges that prior to the execution of this Lease the Lessee has reviewed the Navy Deed.

13. LIENS

13.1 If, because of any act or omission of Lessee or any Sublessee, any mechanic or other lien or order for payment of money shall be filed against the Premises or the Improvements, Lessee shall at its sole expense cause the same to be discharged or bonded within thirty (30) days after the date of such filing.

14. LIABILITY AND INSURANCE.

14.1 Indemnity: The Lessee hereby releases the Lessor from, and shall indemnify and hold the Lessor harmless from, any and all losses, claims, actions, damages and expenses arising or that may arise in the future out of or resulting from any occurrence in or on the Premises, except to the extent, if any, that such losses, claims, actions, damages and expenses are proximately caused by either (a) the negligent or otherwise wrongful act of the Lessor or its employees, agents or contractors in violation either of a duty of care owed to the third party making a claim or of a duty owed by the Lessor to Lessee; or (b) the failure of the Lessor to perform an express obligation of the Lessor under this Lease. Neither the approval by the Lessor of any action, omission or policy proposed by Lessee, nor the failure by the Lessor to enforce any obligation of Lessee or a Sublessee, shall give rise to an exception from the foregoing release and indemnity. In the event that any suit based upon such losses, claims, actions, damages, or expenses is brought against the Lessor, the Lessee, upon notice of the commencement thereof, shall defend the same by counsel reasonably satisfactory to the Lessor at Lessee's sole cost and expense (provided that the Lessor shall have the right to appear in and defend any such action by its own counsel); and if final judgment be adverse to the Lessor, or the Lessor and the Lessee jointly, or if the Lessor shall enter into a reasonable settlement of any such claim or action after notice to and consultation with Lessee, the Lessee shall promptly satisfy the same. Except as stated in clauses (a) and (b) of the first sentence of this Section, the obligation of Lessee to indemnify the Lessor described in this Section shall not be diminished by the fact, if it be a fact, that any such death, injury, damage, loss, cost or expense may have been contributed to, or may be alleged to have been contributed to, in part, by an act or omission of Lessor, its officers, employees or agents, provided that to the extent that RCW 4.24.115 (or successor provision) applies, (1) this indemnity shall not apply in case of any liability for damages arising out of bodily injury to persons or damage to property caused or resulting from the sole negligence of the Lessor, its agents or employees, and (2) in case of liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the concurrent negligence of (a) Lessor or its agents or employees, and (b) Lessee or its agents or employees, this indemnity shall apply only to the extent of Lessee's negligence.

14.2 Intentionally Deleted

14.3 Worker's Compensation. Solely with respect to claims for indemnification under this Lease, Lessee waives its immunity under Industrial Insurance laws. This section has been negotiated by the parties as indicated by their initials below, and Lessee acknowledges that the Lessor would not enter into this Lease absent this Section. Lessee shall ensure that the provisions of this Section are incorporated in any Sublease and are binding on the Sublessee for the benefit of the Lessor.

Lessor: ______ Lessee: ______

14.4 Insurance.

(a) New Construction. The Lessee shall, at all times during the term of this Lease when any renovation or construction activity is in process on the Premises, obtain and maintain continuously, at its own expense, insurance as specified in this subsection (a), and shall file with the Director and the Lessor's Risk Manager, evidence of a policy or policies of insurance as enumerated below, covering such activity and each Improvement affected by such activity:

(1) A policy of Commercial General Liability Insurance, written on an insurance industry standard occurrence form (CG 00 01) or equivalent, including all the usual coverages known as:

Premises/Operations Liability Products/Completed Operations Personal/Advertising Injury Contractual Liability Independent Contractors Liability Stop Gap or Employers Contingent Liability Explosion, Collapse, or Underground (XCU), (as applicable)* Liquor Liability/Host Liquor Liability (as applicable)* Fire Damage Legal Per Location Aggregate CG2504

*These coverages are required only when the work on the Premises may include exposures to which these specified coverages respond.

Such policy(ies) must provide the following minimum limits:

Bodily Injury and Property Damage $ 2,000,000 General Aggregate $ 2,000,000 Products & Completed Operations Aggregate $ 1,000,000 Personal & Advertising Injury $ 1,000,000 Each Occurrence $ 100,000 Fire Damage

Stop Gap or Employers Contingent Liability $ 1,000,000 Each Accident $ 1,000,000 Disease Policy Limit $ 1,000,000 Disease Each Employee

Lessee shall be responsible for any deductibles and any amounts of losses not covered due to coinsurance provisions. There shall be no deductible or self-insured retention except as expressly approved in writing by the Lessor's Risk Manager after consultation with Lessee. The cost of any claim payments falling within the deductible shall be the responsibility of the Lessee.

(2) A policy of Business Automobile Liability, including coverage for owned, non-owned, leased or hired vehicles written on an insurance industry standard form (CA 00 01) or equivalent.

Such policy(ies) must provide the following minimum limit:

Bodily Injury and Property Damage $ 1,000,000 per accident

(3) A policy of Pollution Liability providing coverage for claims (A) involving remediation, disposal or other handling of pollutants arising out of operations of Lessee or its Sublessees or their respective contractors and subcontractors, including coverages generally known as "contractor's operations for others", and "contractor's site (owned)"; (B) arising from the transportation of hazardous materials; or (C) involving remediation, abatement, repair, maintenance or other work with lead-based paint or materials and/or with asbestos or materials containing asbestos. Such Pollution Liability policy(ies) shall provide the following minimum limit:

Bodily Injury and Property Damage:

$1,000,000 per occurrence

If any such policy is written on a claims made form, the policy shall state that coverage is claims made, and state the retroactive date, which shall be prior to or coincident with the date of this Lease. Claims made form coverage shall be maintained by the Lessee for a minimum of three years following the termination of the contract for the renovation or construction work, and the Lessee shall annually provide the Lessor with proof of renewal, on or before each anniversary of the Effective Date of this Lease. If renewal of the claims made form of coverage becomes unavailable, or economically prohibitive, the Lessee shall purchase an extended reporting period ("tail") or provide another form of security acceptable to the Lessor to assure financial responsibility for liability that would be covered by such policy.

Such insurance, as provided under subsections (1), (2) and (3) above, shall be endorsed to include as additional insureds Lessee, its officers, directors, employees, agents, volunteers and the City of Seattle, its officers, elected and appointed officials, employees, agents and volunteers, and shall not be reduced or canceled without forty-five (45) days prior written notice to Lessee and to the Lessor's Risk Manager. In addition, the Lessee's insurance shall be primary as respects the Lessor, and any other insurance maintained by the Lessor shall be excess and not contributing insurance with the Lessee's insurance.

(4) A policy of Worker's Compensation. As respects Workers' Compensation insurance in the state of Washington, Lessee shall secure its liability for industrial injury to its employees in accordance with the provisions of Title 51 of the Revised Code of Washington. If Lessee is qualified as a self-insurer in accordance with Chapter 51.14 of the Revised Code of Washington, Lessee shall so certify by letter signed by a corporate officer indicating that it is a qualified self insured, and setting forth the limits of any policy of excess insurance covering its employees.

(5) A policy of Builder's Risk Insurance Physical Damage Insurance:

Unless otherwise directed in writing by Lessor, the Lessee shall purchase and maintain property insurance, with Lessor as an additional insured, to include the perils of "All Risk", including Earthquake and Flood coverage to the extent required by the City's Risk Manager, for the full replacement value of the Improvements. Lessee shall be responsible for any deductibles and any amounts of losses not covered due to coinsurance provisions.

Lessor reserves the right to purchase Builder's Risk insurance to include the perils of "All Risk" including (in Lessor's discretion) Earthquake & Flood coverages. If Lessor gives notice to Lessee that Lessor shall maintain Builder's Risk insurance, then Lessee shall be responsible for the Lessor's policy deductible (currently $10,000) and Lessee shall pay on demand to Lessor the amount of each premium billed to Lessor for such insurance. Lessee will be added as an additional insured to the policy.

Lessor and Lessee waive all subrogation rights against each other, any Sublessees, contractors, subcontractors, architects, architects' subconsultants, separate contractors, if any, and any of their subcontractors, for damages caused by fire or other perils to the extent that the loss that would be the basis for a subrogation claim is covered by property insurance obtained pursuant to this subsection or other property insurance, except that Lessor and Lessee do not waive such rights as they have to proceeds of such insurance held by any Person as fiduciary. This waiver shall not apply to the portion of any loss within the deductible of the applicable insurance policy. This waiver of subrogation shall be effective as to a Person even though that Person would otherwise have a duty of indemnification, contractual or otherwise, whether or not the Person paid the insurance premium directly or indirectly, and whether or not the Person had an insurable interest in the property damaged.

(6) Insurance to Protect Lessee's/Contractor's Equipment: Lessee shall purchase and maintain physical damage insurance upon Lessee's and contractors' equipment for the actual cash value of such equipment as of the time of any loss. This insurance shall insure against loss from the perils of Fire, and other risks of direct physical loss or damage, also known as "All Risk" perils protection.

Lessee shall be responsible for any deductibles and any amounts of losses not covered due to coinsurance provisions.

(b) General Insurance Requirements. Lessee shall, at all times during the Term of this Lease, obtain and maintain continuously, at its own expense, insurance as required by this subsection (b), and shall file with the Director and the Lessor's Risk Manager, evidence of a policy or policies of insurance as enumerated below:

(1) A policy of Commercial General Liability Insurance, written on an insurance industry standard occurrence form (CG 00 01) or equivalent, including all the usual coverages known as:

Premises/Operations Liability Products/Completed Operations Personal/Advertising Injury, to include Sexual Molestation* Discrimination* Sexual Harassment* Contractual Liability Independent Contractors Liability Stop Gap or Employers Contingent Liability Explosion, Collapse, or Underground (XCU) (as applicable)** Liquor Liability/Host Liquor Liability (as applicable)** Fire Damage Legal Per Location Aggregate CG2504

* Any reductions of limits for these coverages are subject to the Lessor's Risk Manager's and Lessee's agreement based on commercial availability and costs.

**These coverages are required only when the operations on the Premises may include exposures to which these specified coverages respond.

Such policy(ies) must provide the following minimum limits:

Bodily Injury and Property Damage -

$ 1,000,000 General Aggregate $ 1,000,000 Products & Completed Operations Aggregate $ 1,000,000 Personal & Advertising Injury $ 1,000,000 Each Occurrence $ 100,000 Fire Damage Stop Gap Employers Liability $ 1,000,000 Each Accident $ 1,000,000 Disease Policy Limit $ 1,000,000 Disease Each Employee

There shall be no deductible or self-insured retention except as expressly approved in writing by the Lessor's Risk Manager after consultation with Lessee. The cost of any claim payments falling within the deductible shall be the responsibility of the Lessee.

(2) A policy of Business Automobile Liability, including coverage for owned, non-owned, leased or hired vehicles written on an insurance industry standard form (CA 00 01) or equivalent. Such policy(ies) must provide the following minimum limit:

Bodily Injury and Property Damage $ 1,000,000 per accident

(3) A policy of Excess Insurance above the primary general and automobile liability policies that will provide a total limit of insurance of $5,000,000. The excess policy must be at a minimum as broad as the primary policies.

Such insurance, as provided under items (1), (2), and (3) above, shall be endorsed to include The City of Seattle, its officers, elected and appointed officials, employees, agents and volunteers as additional insureds, and shall not be reduced or canceled without forty-five (45) days prior written notice to the Lessor's Risk Manager. In addition, Lessee's insurance shall be primary as respects the Lessor, and any other insurance maintained by the Lessor shall be excess and not contributing insurance with the Lessee's insurance.

(4) A policy of Worker's Compensation. As respects Workers' Compensation insurance in the state of Washington, the Lessee shall secure its liability for industrial injury to its employees in accordance with the provisions of Title 51 of the Revised Code of Washington. If the Lessee is qualified as a self-insurer in accordance with Chapter 51.14 of the Revised Code of Washington, Lessee shall so certify by a letter signed by a corporate officer setting forth the limits of any policy of excess insurance covering its employees.

(5) A policy of Property Insurance the Lessee shall keep the Improvements and Personal Property on the Premises insured throughout the term of this Lease, for their full replacement value, with Lessor named as an additional insured, against the following hazards:

(A) Loss or damage by fire and such other risks as the Lessor shall require (including earthquake and flood damage to the extent required by the City's Risk Manager) in an amount sufficient to permit such insurance to be written at all times on a replacement cost basis;

(B) Loss or damage from leakage or sprinkler systems now or hereafter installed in any structure on the Premises;

(C) Loss or damage by explosion of steam boilers, pressure vessels, oil or gasoline storage tanks or similar apparatus now or hereafter installed in any structure on the Premises.

(D) Business Interruption with sufficient coverage to provide for the payment of rent and other fixed costs during any interruption of Lessee's business because of fire or other cause.

Lessor and Lessee waive all subrogation rights against each other, any Sublessees, contractors, subcontractors, architect, architect's subconsultants, separate contractors, if any, and any of their subcontractors, for damages caused by fire or other perils to the extent that the loss that would be the basis for a subrogation claim is covered by property insurance obtained pursuant to this subsection or other property insurance applicable to the Premises, except that Lessor and Lessee do not waive such rights as they have to proceeds of such insurance held by any Person as fiduciary. This waiver shall not apply to the portion of any loss within the deductible of the applicable insurance policy. This waiver of subrogation shall be effective to a Person even though that Person would otherwise have a duty of indemnification, contractual or otherwise, whether or not the Person paid the insurance premium directly or indirectly, and whether or not the Person had an insurable interest in the property damaged.

(c) Sublessees, Contractors and Subcontractors. Lessee shall include all Sublessees, contractors and subcontractors as insureds under its policies or shall furnish separate evidence of insurance as stated above for each Sublessee, contractor or subcontractor. All coverages for Sublessees, contractors and subcontractors shall be subject to all applicable requirements stated herein. Lessee may satisfy its obligations under this Section with respect to Pollution Liability (a)(3), Builder's Risk Insurance (a)(5), Lessee's/Contractor's Equipment (a)(6) and Property Insurance (b)(5) by causing insurance to be maintained by its Sublessees or (to the extent applicable) the contractors of Lessee or Sublessees, provided that such insurance satisfies all of the requirements of this Section and that evidence of insurance as set forth below is timely provided to Lessor and is satisfactory to the Lessor's Risk Manager.

(d) Evidence of Insurance. The following documents must be provided to Lessor as evidence of insurance coverage at the following times if such documents are then available to, or in the possession of, Lessee: (i) prior to the Effective Date of this Lease, as to coverage required under subsection (b); (ii) prior to commencement of work, as to coverage required under subsection (b) of this Section; (iii) with respect to any renewal or substitute policy, promptly upon issuance thereof, but in any event no later than ten (10) days before the expiration or termination of any previous policy:

(1) A copy of the policy's declarations pages, showing the Insuring Company, policy effective dates, limits of liability and the Schedule of Forms and Endorsements. (Lessor reserves the right to request certified copies of all insurance policies.)

(2) A copy of the endorsement naming The City of Seattle (and, with respect to liability policies, Lessor's officers, elected and appointed officials, agents, employees, and volunteers) as an Additional Insured, showing the policy number, and signed by an authorized representative of the insurance company on a form CG2026 (ISO), or such other form as the City's Risk Manager may require or deem acceptable.

(3) A copy of the "Endorsements Form List" to the policy or policies showing endorsements issued on the policy, and including full copies of any company-specific or manuscript endorsements.

(4) A copy of an endorsement stating that the coverages provided by the policy to Lessor or any other named insured shall not be terminated, reduced or otherwise materially changed without providing at least forty-five (45) days prior written notice to the Lessor.

(5) A copy of a "Separation of Insureds" or "Severability of Interests" clause, indicating essentially that, except with respect to the limits of insurance and any rights or duties specifically assigned to the first named insured, this insurance applies as if each named insured were the only named insured, and separately to each insured against whom claim is made or suit is brought (Commercial General Liability, Business Automobile Liability Insurance, and Excess Insurance).

If any of the above documents is not available when required as stated above, the Lessor's Risk Manager may accept, in his or her discretion, a binder showing the stated requirements. In such case Lessee shall cause all the above documents to be delivered to the City as soon as available, and in any event within such period as the Lessor's Risk Manager shall specify.

In addition, within five (5) days of any request by Lessor, the Lessee shall provide full copies of all insurance policies for the Premises, together with all amendments and endorsements and proof of premiums paid.

(e) Approval of Risk Manager; Adjustments. All policies shall be subject to approval by the Lessor's Risk Manager as to company (must be (i) issued by a company rated Aor better and with a size rating of VII or higher in the A.M. Best's Key Rating Guide and (ii) licensed to do business in the State of Washington or issued as a surplus line by a Washington Surplus lines broker), form and coverage, and shall be primary to all other insurance. If Lessor shall determine that the required coverages and/or limits are not reasonably adequate for any reason, including without limitation inflation or changes in the nature or scope of activities on the Premises, then Lessee shall procure such coverage and/or increase in policy limits as the Lessor shall require, within sixty (60) days of written notice from Lessor.

(f) Definitions. Capitalized terms used in this Section and not otherwise defined in this Lease shall have the meanings commonly ascribed to such terms in the insurance industry.

14.5 Contractors' Bonds. Unless otherwise expressly permitted in writing by the Lessor or not required by law, the Lessee shall require each contractor used by the Lessee or any Sublessee for any demolition, rehabilitation, repair or construction work in connection with any improvement, alteration, or addition to be made on the Premises, to secure and maintain, at no cost to the Lessor, a performance and payment bond with dual obligee rider payable to the Lessee and the Lessor in the full and just sum of the total amount of the contract, conditioned that all the provisions of the contract shall be faithfully performed by the contractor, or the surety if so required, and for the payment of all laborers, mechanics, subcontractors and material suppliers, and all Persons who shall supply such Person or Persons or subcontractors with provisions or supplies for the carrying on of such work. Each such bond shall be provided to Lessor within ten days of the award of the contract and in any event prior to commencement of any work. Each such bond shall be issued by a properly licensed surety company acceptable to the Lessor and shall be in form and content acceptable to Lessor.

14.6 Assumption of Risk. The placement and storage of personal property on said Premises shall be the responsibility, and at the sole risk, of the Lessee.

14.7 Adjustments of Claims; Proceeds of Hazard Insurance. The Lessee shall provide for the prompt and efficient handling of all claims for bodily injury, property damage or theft arising out of the activities of the Lessee under this Lease. Any amounts paid under any policy of hazard insurance shall be payable jointly to the Lessor and the Lessee, and such amounts shall be deposited in an account requiring the signature of both the Lessor and Lessee for disbursement. Unless otherwise approved in writing by the Director, all funds in such account, including interest earned thereon, shall be used solely for the restoration, repair or replacement of the damaged or destroyed Improvements. If a Leasehold Mortgage encumbers the damaged or destroyed Improvements, the requirements of this Section including any obligation to have insurance proceeds paid jointly to Lessor and Lessee or held in an account under the control of Lessor, are subject to the rights of the Leasehold Mortgagee.

14.8 Compliance by Lessee. Lessee shall not violate or permit to be violated any of the conditions or provisions of any insurance policies affecting the Premises or the Improvements.

14.9 Contractor's Indemnification. Lessee shall ensure that every contract executed by it pertaining to any construction, renovation or other work on the Premises shall contain the following indemnification provision:

The contractor agrees to protect, defend, indemnify, and hold harmless the City and City's officials, employees, and agents from and against all claims, demands, and causes of action (including all costs and fees for defense thereof), judgments and/or awards of damage arising from or in connection with the performance of this agreement by the contractor or from the activities of any subcontractor or other Person employed by or having a contract with the contractor:

(a) Arising out of bodily injury or death to persons or damage to property, except this obligation shall not apply when such injury or damage is solely and entirely the fault of the City, or when such injury or damage results from the concurrent negligence of the City and the contractor, in which case the contractor shall protect, defend, indemnify and hold the City harmless to the extent of the contractor's negligence.

(b) Arising out of other than bodily injury or death to persons or damage to property, except this obligation shall not apply when such injury or damage is solely and entirely the fault of the City.

(c) Arising from the use of any design, process, or equipment which constitutes, or is alleged to constitute, an infringement of any United States patent presently issued, or violates any other proprietary interest, including copyright, trademark, or trade secret.

Contractor shall also hold the City harmless from any expense incurred to enforce the City's rights under this Section.

In the event that any action is brought against the City by any employee of contractor, its subcontractors, sub-subcontractors, agents, or anyone directly or indirectly employed by any of them the indemnification obligation of the contractor set forth in this Section shall not be limited by a limit on the amount or type of damages, compensation, or benefits payable by or for contractor or any subcontractor under RCW Title 51, the Industrial Insurance Act, or any other employee benefit acts. In addition, as to actions arising out of the performance of this agreement, contractor waives its immunity under RCW Title 51.

This indemnification agreement has been negotiated by the parties and shall survive the termination of this agreement.

14.10 Survival. Any liability of the Lessee hereunder for acts or omissions occurring during the Term of this Lease, or arising under any indemnity provision of this Lease, shall survive termination and surrender (whether or not any claim giving rise to such liability shall have accrued).

15. CASUALTY

15.1 Notice of Casualty; Reconstruction. If any Improvements or alterations or additions thereto, standing or erected, are destroyed or damaged in whole or in part as a result of any casualty, Lessee shall give prompt written notice to Lessor. If sufficient insurance proceeds are available, together with any capital reserves for the Premises, not restricted under Leasehold Mortgages or agreements with third parties approved by Lessor, Lessee shall promptly repair, replace or rebuild the Improvements in substantial conformity with the character of the building and alterations or additions existing immediately prior to such occurrence. If available funds are insufficient for complete repair, restoration or replacement, but partial repair, restoration or replacement is feasible, then unless otherwise agreed by Lessor, the Lessee shall proceed with such partial repair, restoration or replacement. Lessee shall be obligated to provide for such purposes funds equal to any deductible or coinsurance amount for which Lessee is responsible under Article 14 or under any Leasehold Mortgage. Repairs, replacement or rebuilding shall be made by Lessee in accordance with the terms and conditions of this Lease and subject to the requirements of any Leasehold Mortgage.

15.2 Notice Prior to Commencement of Work. Lessee shall give Lessor at least thirty (30) days written notice prior to the commencement of such work described in Section 15.1.

15.3 Time for Commencement of Work. The work described in Section 15.1 shall be commenced by Lessee within one hundred twenty (120) days after the date of any loss, damage or destruction or as soon as funds are available and shall be completed within a reasonable time.

15.4 Disbursements. For the cost of the repairs, replacement or rebuilding, Lessor shall authorize disbursement of funds from the account, if any, established pursuant to Section 14.7, as Lessee shall make such repair, replacement or rebuilding, and during the progress of the work, upon Lessee's written requisitions accompanied by certificates of an architect or engineer reasonably satisfactory to Lessor certifying that the work is in accordance with Construction Plans approved by Lessor and the percentage completion thereof, upon delivery of such other evidence as Lessor may reasonably require that such work is in place and paid for, and subject to holdback of five percent (5%) of the amount of each requisition until completion of the work. If, during the course of the work, any lien or order for the payment of money shall be filed against the Premises or Improvements thereon, or against Lessor, or if Lessee shall be in default of the performance of any of the terms, covenants or conditions of this Lease, Lessor shall not be obligated to authorize any payment to Lessee of insurance proceeds until and unless the liens or orders have been fully bonded, satisfied or discharged of record and until the default has been cured by Lessee. If a Leasehold Mortgage encumbers the Improvements to be repaired, replaced or rebuilt, the authorizations and approvals under this Section 15.4 must also be made by the Leasehold Mortgagee.

15.5 Termination for Certain Casualties.

(a) In the event that the Improvements now or hereafter erected on the Premises shall be damaged or destroyed to the extent in excess of fifty (50%) percent of the then-insurable value of all Improvements on the Premises and the damage or destruction shall occur during the last five (5) years of the Term, then either party may at its option cancel and terminate this Lease by giving the other party ninety (90) days notice within sixty (60) days after the date of any loss, damage or destruction. If such options are exercised by either party, this Lease shall wholly cease and expire on the date specified in the notice in which event Lessee shall not be obligated to rebuild, provided, that any such insurance proceeds received or receivable under any and all policies of insurance shall be paid first to any Leasehold Mortgagee holding a Leasehold Mortgage the encumbered the damaged or destroyed Improvements to the extent of its unpaid loan balance and the excess, if any, shall belong to and be retained by Lessor, provided that any termination shall be subject to the provisions of Articles 37 or 38, or both, if applicable, and to the rights of certain Unit Owners as described in Article 22.

(b) If at any time during the Term at least one of the Residential Buildings shall be destroyed or damaged so as to be uninhabitable, or if 50% or more of the dwelling units in the Residential Buildings on the Premises shall be destroyed or rendered uninhabitable by fire or other casualty, the Lessee shall be obligated to demonstrate to the reasonable satisfaction of the Lessor within one year after the date of casualty that there are sufficient funds available from insurance proceeds, Lessee's reserves, and any other financing obtained by Lessee or a Sublessee, to substantially restore or replace the destroyed or damaged Residential Building(s) or units so that there shall be no fewer than 42 habitable dwelling units on the Premises. Failure to demonstrate the availability of such funds shall be a Termination Default and the Lessor shall then have the right, by ninety (90) days' notice to Lessee, to terminate this Lease, provided that any termination shall be subject to the provisions of Articles 37 or 38, or both, if applicable, and to the rights of certain Unit Owners as described in Article 22. If the Lessee does demonstrate within such one year period the availability of sufficient funds for the purpose stated in this subsection (b), then Sections 15.1 through 15.3 shall apply.

15.6 Proceeds not Used to Restore. Subject to the rights of any Leasehold Mortgagee, if all or a portion of the Improvements are destroyed, damaged or injured and insurance proceeds are not used to repair, restore or replace Improvements, then such portion of insurance proceeds as Lessee shall be entitled to receive, after repayment by the Lessee or Sublessee of all amounts owed to a Leasehold Mortgagee that held a Leasehold Mortgage that included the destroyed, damaged or injured Improvements, shall be deposited in a special reserve account requiring Lessor's approval for disbursements, and such funds shall be used solely for acquisition, construction, renovation, or capital improvements to housing for low-income persons as shall be proposed by Lessee and approved by the Lessor.

16. INSPECTION

16.1 Premises. Lessee shall permit Lessor, its agents and employees, to enter the Premises and Improvements at reasonable hours for the purpose of inspecting them or (at Lessor's sole option) making repairs that Lessee may neglect or refuse to make in accordance with the terms, covenants and conditions of this Lease, provided that except in case of emergency, Lessee shall not make any entry to make repairs unless the Lessee shall have failed to make them after 30 days notice from the City identifying the repairs required. Lessee's permission shall not constitute any indemnity nor create any liability concerning claims or causes of action by Sublessees or Tenants related to such entering or inspection, except that Lessee shall indemnify Lessor for any liability, loss, damage or expense to Lessor resulting from any failure by Lessee to include, in any Sublease or other agreement with a Sublessee, the rights of Lessor contemplated by this Section. Except as stated in the previous sentence, Lessor shall hold harmless, defend and indemnify Lessee from any liability for injury or death to persons or damage to property, in each case to the extent directly resulting from the wrongful or negligent actions (not omissions) of the Lessor, its agents and employees in the course of such entering or inspection.

16.2 Records. To the extent allowed by law, Lessee shall also permit Lessor, its agents and employees, to inspect and copy all records of the Premises and Improvements as may be compiled or maintained by Lessee for purposes of Lessee's operations under this Lease or by Sublessees for purposes of Sublessee's operations under their respective Subleases. Lessor shall have the right to inspect and copy such records maintained on or outside the Premises upon reasonable advance notice to Lessee.

17. DEFAULT

17.1 Default; Cure Periods, Termination. Upon the occurrence of any of the Events of Default described in this Section, Lessor, at Lessor's option, may terminate this Lease by giving Lessee at least ninety (90) days notice in writing of said termination, provided that any termination shall be subject to the provisions of Articles 37 or 38, or both, if applicable, and to the rights of certain Unit Owners as described in Article 22. Subject to the provisions of those Articles, as applicable, upon the expiration of the date and time fixed in the notice of termination, all right, title and interest of Lessee under this Lease, and unless otherwise directed by Lessor all rights of Sublessees, shall wholly cease and expire. Lessee shall then immediately surrender to Lessor the Premises and all Improvements and Personal Property, as more fully set forth in Article 20. Whether or not Lessor has the right to terminate this Lease upon an Event of Default, and whether or not Lessor gives notice of termination, Lessor may pursue and enforce all other legal rights and remedies set forth in this Lease or otherwise available at law or in equity. Each of the following is an Event of Default:

A. Failure to pay when due any amount of Rent owing on this Lease, that is not cured within thirty (30) days after written notice to Lessee;

B. Any failure to pay when due any other charge required by this Lease other than amounts referred to in subsection A. above, that is not cured within thirty (30) days after written notice to Lessee;

C. Any failure to submit the annual report required by Article 35 of this Lease that is not cured within thirty (30) days after written notice to Lessee;

D. Any breach of Article 18 or Article 21 of this Lease (relating to subleases and transfers of the Premises without consent and certain other matters) that is not cured within sixty (60) days after written notice to Lessee;

E. Any breach or nonperformance of any provision of any of this Lease not included within any of subsections A.D. above that is not cured within sixty (60) days after written notice to Lessee of such breach or nonperformance, or such longer cure period as may be permitted under the specific terms of this Lease, provided that if any such breach or nonperformance cannot reasonably be cured within sixty days but can be cured within a reasonable time, there shall be no Event of Default under this subsection E. for a period of up to one year so long as Lessee shall diligently pursue a cure;

F. The filing of a voluntary petition for bankruptcy or reorganization by Lessee or any managing member or general partner of Lessee; the filing against Lessee or any managing member or general partner of Lessee of any complaint for receivership or involuntary petition for bankruptcy or for reorganization (unless such complaint or petition be dismissed within forty-five (45) days of such filing); or if Lessee or managing member or general partner of Lessee shall become insolvent, or make a general assignment for the benefit of creditors, or consent to the appointment of a receiver of all or any of its assets, or voluntarily suspend its usual business, or if the Lessee or its managing member or general partner shall be dissolved or file a petition for dissolution or if at any time the Lessee is not an Affiliate of Solid Ground Washington, a Washington nonprofit corporation, without the express written consent in advance from the Director;

G. Any material misrepresentation by Lessee or its managing member in this Lease or in any information submitted by Lessee to Lessor r to any government agency in connection with this Lease or the Premises, or any material breach of any warranty made by this Lease that is not cured within sixty (60) days after written notice to Lessee;

H. Any abandonment of the entire Premises or of any Residential Buildings by Lessee; or

I. Any default under, breach of, failure to comply with, or failure to satisfy any condition of any capital funding related to the Premises by Lessee or Sublessee unless such default, breach or failure is waived in writing by all interested parties or is cured within an applicable cure period permitted by those declaring the default in question.

17.2 Remedies Cumulative. The remedies under this Article 17, subject to the provisions of Articles 37 or 38, or both, if applicable, and to the rights of certain Unit Owners as described in Article 22 are in addition to, and not in limitation of, any other remedies provided in this Lease.

18. SUBLEASES AND ASSIGNMENTS

18.1 General Rules. Lessee shall not assign all or any part of this Lease or sublease any portion of the Premises, nor renew any Sublease, nor consent to the assignment or further subletting thereunder, without the prior written consent of the Director; provided that (a) if the Condominium is created, the partial assignment of the Leasehold Estate hereunder to an Affiliate of Lessee, so that only Units 1 and 2 shall be held by a limited partnership intending to qualify for low-income housing tax credits, shall not require the consent of the Director or Lessor, and (b) any subleases with Tenants consistent with the MOP shall not require the consent of the Director or Lessor. The Director shall use his or her best efforts to complete the review and notify Lessee of approval or disapproval within thirty (30) days. The Lessor's consent shall not be unreasonably withheld if the Sublease of an Improvement or portion thereof is for a term not exceeding the Term hereof. In no event shall Lessee enter into a Sublease that permits any use not expressly permitted hereunder or a Sublease that reasonably could impair the ability of the Lessee to perform obligations to the Lessor under this Lease or any other agreement, or to perform obligations to any other government agency. The following requirements shall apply to all Subleases unless otherwise approved by the Director in writing:

(a) Use of the portion of the Premises subject to the Sublease and Improvements thereon shall be restricted to specified uses consistent with this Lease.

(b) Sublessee must provide reports and maintain records as may be necessary to demonstrate compliance with (a), above.

(c) All Subleases shall be subject to, and shall incorporate by reference, the terms and conditions of this Lease.

18.2 Assignment or Sublease to an Affiliate. Subject to Section 18.4 below, Lessee shall have the right to assign or sublease this Lease, without obtaining Lessor's consent, to Solid Ground Washington or an Affiliate thereof. If Lessee desires to assign or sublease this Lease to an Affiliate, Lessee shall give notice to Lessor by providing a copy of the assignment or sublease.

18.3 Sublease Revenue. Lessee shall use all revenue from rents or operating subsidies to pay Rent hereunder, necessary operating costs of the Premises, such as utilities, insurance, and maintenance and administrative expenses, and debt service on any debt incurred for the Premises if the debt is owed to a Leasehold Mortgagee or was incurred with the written consent of the Lessor, all in accordance with annual budgets set forth in annual updates to the MOP approved by the Director, and any remaining balance shall be used to fund capital reserves for the Premises.

18.4 Sublease for Residential Buildings. The Unit Owner of Unit 1 and Unit 2 shall be a limited partnership of which the general partner shall at all times be the Lessee or another Affiliate of Solid Ground Washington, subject to Section 21.2.

18.5 Assignment of Rights to Condominium Association. Lessee shall have the right, without the prior consent of Lessor, to assign to the Condominium Association rights and obligations under this Lease, and the Lessor shall accept performance by the Condominium Association of Lessee's obligations under this Lease, but Lessee shall remain obligated hereunder for performance of all such obligations unless otherwise agreed in writing by the Director. Notice to the Lessee shall constitute notice to the Association with respect to any matter related to rights or obligations assigned to the Association. Lessee shall have the right to convey title to any Improvements to the Association, subject to reversion on termination of this Lease.

19. POSSESSION

19.1 Upon the effective date of this Lease, the Lessee shall have possession of the Premises subject to the rights reserved by the Lessor herein, and the rights reserved by the United States in the Navy Deed.

20. SURRENDER

20.1 Obligations of Lessee. On the expiration date of the Term, or on the earlier termination as provided in this Lease, Lessee shall surrender the Premises in reasonably clean condition together with all Improvements and all alterations, changes and additions thereto which may have been made upon the Premises (except moveable furniture and equipment or moveable trade fixtures paid for solely by Lessee), in good repair, good order and safe condition and shall, if so requested by the Lessor, convey to the Lessor by special warranty deed all Improvements, subject only to such encumbrances and Subleases as shall have been specifically approved in writing by the Lessor. On such date the Lessee shall deliver to the Lessor (a) all keys to any structures, fixtures or Personal Property on the Premises; (b) all plans, blueprints, surveys, diagrams, leases, contracts and documents relating to the Premises or the Improvements; and (c) all security deposits, prepaid rent and any other deposits from Sublessees still in possession (but nothing herein shall be construed as the Lessor's consent to any such continued possession), and the balances in an reserve accounts maintained for the Premises or Improvements pursuant to any grant agreement, loan documents, or other financing or subsidy arrangements for the Premises or any Improvements; and (d) all Personal Property. Lessee, on or before said termination date, shall remove from the Premises all of Lessee's personal property other than Personal Property as defined in Article 1 hereof. All property not removed by Lessee shall be deemed to have been abandoned by Lessee and may be appropriated, sold, stored, destroyed or otherwise disposed of by Lessor without notice to Lessee and without obligation to account for it. Lessor may require Lessee to remove, within sixty (60) days after notice to Lessee, at Lessee's sole expense, any fixtures or structures in or on the Improvements or otherwise on or under the Premises that were constructed, affixed or substantially modified without the approval of the Lessor or in violation of applicable laws, regulations or Codes, or that were permitted by Lessor on condition that they be removed upon expiration or termination of this Lease. Lessee shall repair any damage to the Premises caused by removal of any fixtures or other property.

20.2 Transfer of Contracts. Upon any termination of this Lease prior to expiration of its term, Lessee shall assign and transfer to Lessor or Lessor's designee, immediately upon Lessor's demand, any and all contracts relating to the Premises that Lessor may specify, including without limitation any contracts for operating subsidies, rent supplements, or other support of the Premises or the operation thereof, unless the contracts relate to the operation of, or services performed for the benefit of, a portion of the Premises as to which such termination is not effective pursuant to Articles 37, 38, 22 or applicable law. Lessee shall take actions reasonably necessary or appropriate to complete the transfer of such contracts, promptly upon the demand of Lessor.

20.3 Re-entry by Lessor. If the Premises shall be vacated or abandoned by Lessee, or in the event of the termination of this Lease under any provision hereof, Lessor may re-enter the Premises in such manner as Lessor may deem necessary in its sole discretion, and Lessor may repossess the Premises by force, summary proceedings or by any other procedure provided by law or equity.

20.4 Partial Termination. If this Lease shall be terminated as to a portion of the Premises only, or if pursuant to the Condominium Act or otherwise any Sublessee shall be entitled to continued possession notwithstanding such termination, then the above provisions of this Article shall apply only to the portion of the Premises as to which this Lease is terminated and all Improvements thereon, together with all related Personal Property, but shall not apply to any part of the Premises where a Sublessee is entitled to such continued possession, or to Improvements on that part of the Premises or related Personal Property.

20.5 Survival of Liabilities. Any liability of Lessee or Lessor hereunder for negligent or intentional acts or omissions occurring during the Term of this Lease, or arising under the indemnity provisions of this Lease, shall survive termination and surrender (whether or not any claim giving rise to such liability shall have accrued).

21. GENERAL PARTNER, MANAGER AND MEMBER OF LESSEE AND SUBLESSEE

21.1 Lessee represents, warrants and covenants that the sole manager and sole member of Lessee is and shall continue to be Solid Ground Washington ("Sole Member") and that the Sole Member is a duly organized Washington nonprofit corporation with a charitable purpose that includes serving the homeless and is exempt from federal taxes under Section 501(c)(3) of the United States Internal Revenue Code, and that the Sole Member shall continue to be the sole manager and sole member of Lessee.

21.2 Lessee covenants that the Leasehold Estate, or if the Condominium is created, then the Leasehold Estate in the portion of the Premises contained within Units 1 and 2, and in either case ownership of the Residential Buildings at all times after their completion, shall be vested either in the Sole Member or in a limited partnership or limited liability company of which the Sole Member or an entity controlled by the Sole Member is the sole or managing general partner or is the sole or managing member. The foregoing notwithstanding:

21.2.1 If the Lessee or the Unit Owner of Units 1 and 2 is a Partnership (as defined in Section 37 below), the withdrawal (not including a voluntary withdrawal allowed by the partnership agreement of the Partnership (the "Partnership Agreement") or with the consent of the Investor (hereinafter defined of a general partner of the Partnership, or removal of a general partner pursuant to the terms of the Partnership Agreement, shall not constitute a default under this Lease, provided that: (A) within 60 days thereafter, a successor general partner is substituted that is either, at the option of the Investor, (i) a Seattle-based nonprofit or public entity approved in writing by the Lessor or (ii) any other non-profit entity approved in writing by the Lessor; and (B) if the successor general partner is not a Seattle-based nonprofit or public entity approved in writing by the Lessor then, within six (6) months of such entity becoming the successor general partner, the Investor shall have replaced such successor general partner with a general partner that is a Seattlebased nonprofit or public entity approved in writing by the Lessor. Lessor's approval shall not be unreasonably withheld for a non-profit corporation or public entity with substantial successful experience managing housing for Homeless Persons. Any transfer of a limited partner's interests in a Sublessee shall not require the consent of the City.

21.2.2 After a Foreclosure, the ownership of the Leasehold Estate in its entirety or of Units 1 and 2, or a Sublease therein, and ownership of the Residential Buildings and other Improvements, by a Person not conforming to the requirements of this Article 21, shall not constitute a default under this Lease so long as the Residential Buildings are operated for Homeless Persons, under one or more management agreements or other contracts reasonably acceptable to the Lessor, by one or more Seattle-based nonprofit or public entities with substantial successful experience in operating housing for Homeless Persons approved in writing by the Lessor, such approval not to be unreasonably withheld, conditioned or delayed.

22. QUIET ENJOYMENT

22.1 In General. Lessor covenants that, subject to the express provisions of this Lease, to the interests of Sublessees and Tenants, and to the terms of the conveyance of the Premises from the United States, if and so long as Lessee pays the Rent and other charges required by this Lease, and performs all of its obligations pursuant to the terms, covenants and conditions of this Lease, Lessee shall quietly enjoy the Premises. Notwithstanding the foregoing or any other provision of this Lease, Lessor's covenants and warranty as to title to the Premises are limited to the agreement of Lessor to warrant and defend such title, subject to the express provisions of this Lease, against all Persons lawfully claiming or to claim by, through or under Lessor, and Lessor expressly disclaims all other covenants and warranties.

22.2 Protection of Unit Owners. This Section 22.2 shall apply only if the Condominium is created. Lessor acknowledges that the Declaration does not provide for the collection of rents by the Association, and that therefore, pursuant to the Washington Condominium Act, RCW 64.34.220(3), the Lessor "may not terminate the interest of a unit owner who makes timely payment of the owner's share of the rent and otherwise complies with all covenants other than the payment of rent which, if violated, would entitle the lessor to terminate the lease." Lessor agrees that the foregoing limitation shall apply notwithstanding any future change in law, and that for purposes of this limitation with respect to any Unit, the Unit Owner is not required to comply with covenants to the extent they require performance with respect to parts of the Premises outside the boundaries of the Unit except to the extent that the Declaration makes the owner of the Unit responsible for such performance. Lessor further agrees that so long as the Lessor's right to terminate this lease is limited to cases of Termination Default, only those covenants, the breach of which would give rise to a Termination Default, shall constitute covenants described in RCW 64.34.220(3). Lessor agrees that with respect to any obligations regarding portions of the Premises and Improvements that are Common Elements pursuant to the terms of the Declaration, if a Unit Owner shall have satisfied the obligations to the Association that apply to a Unit with respect to assessments and any other payments, and any other obligations of that Unit under the Declaration with respect to the use, maintenance, or restoration of Common Elements (including any obligations resulting from any breach of the terms of the Declaration by the Unit Owner or its Authorized Users), or if any failure to satisfy those obligations shall be cured by a Leasehold Mortgagee or Investor, then with respect to that Unit the Unit Owner shall be considered to have complied with all covenants of this Lease regarding such portions of the Premises for purposes of RCW 64.34.220(3). This Section 22.2 shall not apply after Initial Leasehold Mortgagee Satisfaction if, at any time thereafter, there shall be no Unit Owners other than Lessee or there shall be no Investor with any interest in any Unit Owner. The foregoing provisions protecting the rights of Unit Owners shall also apply to each Sublessee and each Leasehold Mortgagee holding a Leasehold Mortgage on any Sublease estate.

22.3 Nondisturbance.

This Section 22.3 shall apply only if the Condominium is created.

(a) Lessor will execute and deliver to any Unit Owner of both Unit 1 and Unit 2, and any Leasehold Mortgagee with a Leasehold Mortgage on those Units or on a Sublease of those Units, and to any Investor, upon request, an appropriate nondisturbance agreement, in which Lessor shall confirm that the upon termination of the Lease, except as a result of an uncured Unit Termination Default with respect to Unit 1 or Unit 2, the rights of the Unit Owner in the Leasehold Estate and its possession of the portion of the Premises within the boundaries of the Units, and the Unit Owner's right, title and interest in the Impovements therein, shall remain unimpaired and undisturbed during the Term of the Lease, subject to the provisions of the Lease as they apply to that portion of the Premises, and that the rights of any Leasehold Mortgagee and any Investor, set forth in this Lease, and the provisions applicable after any Foreclosure, shall continue to apply with respect to such portion of the Premises. This subsection (a) shall not apply after Initial Leasehold Mortgagee Satisfaction if, at any time thereafter, there shall be no Unit Owner of either Unit 1 or Unit 2 other than Lessee or there shall be no Investor with any interest in any Unit Owner of either such Unit.

(b) Lessor will execute and deliver to any Unit Owner of any of Units 3, 4, and 5, any Sublessees of those Units and any Leasehold Mortgagee with a Leasehold Mortgage on any of those Units or Subleases thereof, upon request, an appropriate nondisturbance agreement, in which Lessor shall confirm that upon termination of the Lease, except as a result of an uncured Unit Termination Default with respect to that Unit, the rights of the Unit Owner in the Leasehold Estate and its possession of the portion of the Premises within the boundaries of that Unit, and the Unit Owner's right, title and interest in the Improvements therein, shall remain unimpaired and undisturbed during the Term of the Lease, subject to the provisions of the Lease as they apply to that portion of the Premises, and that the rights of any Leasehold Mortgagee and any Investor, set forth in this Lease, and the provisions applicable after any Foreclosure, shall continue to apply with respect to such portion of the Premises. This subsection (b) shall not apply after Initial Leasehold Mortgage Satisfaction.

23. LESSOR'S CONSENT OR APPROVAL

23.1 Consent Expressly for Lease Purposes; Discretion of Lessor. Whenever Lessor's consent or approval in writing to any act to be performed by Lessee is required under this Lease, (a) Lessee must obtain a consent or approval in writing expressly for purposes of this Lease, regardless of whether a consent or approval shall have been granted by the Lessor in its regulatory, public utility, or other capacity; and (b) unless otherwise expressly stated herein, such consent or approval may be withheld in the Lessor's sole discretion, exercised in good faith. In any case in which it is stated that the Lessor's consent or approval shall not be unreasonably withheld, the Lessee agrees that valid reasons for withholding consent or approval shall include the Lessor's desire to maintain or ensure compliance with any of the following: any law, regulation, ordinance, or grant agreement; any Comprehensive Plan policy; any provision of the Sand Point Physical Development Management Plan or of the Community Preferred Re-use Plan for Sand Point (except as the same shall have been modified or superseded by any of the foregoing); any of the plans or guidelines described in Section 32.2 below; any City of Seattle adopted neighborhood plan policy; any provision of the Lessor's Consolidated Plan; or any condition attached to any federal, state, or county funding, provided such withholding is reasonably related to such purpose.

23.2 Consents Under Lease Not for Regulatory Purposes. Any permission, consent, or approval of the Lessor contained herein or given pursuant to this Lease is or shall be granted solely in the Lessor's capacity as owner and lessor of the Premises, and not in its regulatory or public utility capacity, nor in its capacity as grantor of funds or lender. No such consent or approval shall be construed as any representation or assurance that the matter consented to or approved complies with applicable laws, regulations, ordinances or Codes, nor shall any such consent or approval be construed to authorize any failure to comply with any of the foregoing. It shall be the sole obligation of the Lessee to obtain, at its own expense, all regulatory approvals, consents, permits, and licenses necessary or convenient for the development of the Premises from all relevant authorities, including without limitation any permits from the Lessor's Department of Planning and Development. Nothing herein shall be construed as assurance that any such approvals will be granted or that the City, as Lessor, will grant consents, approvals or modifications hereunder for the purpose of compliance with the conditions of any permit, approval, license or funding agreement sought or obtained by Lessee.

24. NO DISQUALIFICATION

24.1 Lessor and Lessee represent and warrant that they are not disqualified under federal, state or other laws, or under the rules or regulations of any governmental department or authority, from acquiring, owning, leasing and holding any interest in real property or from obtaining any government contract.

25. BENEFIT

25.1 Successors and Assigns. The terms, covenants and conditions contained in this Lease and in the Exhibits annexed thereto shall bind Lessee and its successors, assigns, and Sublessees, and shall inure to the benefit of Lessor and its successors and assigns. The terms, covenants and conditions of this Lease shall inure to the benefit of Lessee's successors, assigns, including Unit Owners of any Unit or Sublessees, only if the assignment, Sublease, or other transfer (whether voluntary or involuntary) of Lessee's interests shall have received the express written consent of Lessor or was permitted without such consent by the terms hereof.

25.2 No Third Party Beneficiary. Except as expressly set forth in Section 25.1, no Person other than Lessor or Lessee (and Leasehold Mortgagees and the Investor) is intended to have any legal right or interest under this Lease.

26. NOTICE

26.1 Addresses. Any notice called for in this Lease shall be in writing and shall be hand-delivered to the respective parties at the addresses below, or deposited in the United States mail certified, return receipt requested, postage prepaid, addressed as follows:

If hand-delivered to Lessor: Director, Office of Housing 700 5th Avenue Seattle, WA 98104

If mailed to Lessor: Director, Office of Housing PO Box 94725 Seattle, WA 98124-4725

If to Lessee: Sand Point Community Connections LLC c/o Solid Ground Washington 1501 N 45th Street Seattle, Washington 98103 Attn: Executive Director

with a copy to the Investor (as defined in Section 37) :

NDC Corporate Equity Fund VIII, L.P. 708 Third Avenue, Suite 710 New York, NY 10017

If to Leasehold Mortgagee: Wells Fargo Bank, National Association MAC P6540-11J 999 3rd Avenue, 11th Floor Seattle, Washington 98104

The parties, by written notice, may designate any further or different addresses to which some or all notices, certificates or other communications shall be sent.

26.2 Effectiveness of Notice. Notices shall be deemed to have been received by the parties three (3) business days after mailing to the proper address in accordance with Section 26.1 above or upon actual delivery to such address during normal business hours, whichever first occurs.

27. TERMINOLOGY

27.1 Headings. The headings of the various Articles and Sections of this Lease have been inserted for convenient reference only and shall not in any manner be construed as modifying, amending or affecting in any way the express terms and provisions herein.

27.2 Gender and Number. Words of any gender utilized in this Lease shall be held to include any other gender and words in singular numbers shall be held to include the plural when the context so requires.

28. SEVERABILITY

28.1 If any provision of this Lease, or any Section, sentence or clause, or its application to particular circumstances, is held invalid, this Lease shall be construed as if the invalid part were never included or were expressly made inapplicable to such circumstances, as the case may be, and this Lease shall remain valid and in force to the fullest extent permitted by law.

29. APPLICABLE LAW

29.1 This Lease shall be governed by and construed in accordance with the laws of the State of Washington. Venue for any legal action under this Lease shall be King County Superior Court.

30. NEGOTIATED AGREEMENT; ENTIRE AGREEMENT

30.1 Negotiated Agreement; Construction. The parties to this Lease acknowledge that it is a negotiated agreement, that they have had the opportunity to have this Lease reviewed by their respective legal counsel, and that the terms and conditions of this Lease are not to be construed against any party on the basis of such party's draftsmanship thereof.

30.2 Entire Agreement. This Lease, and the terms and provisions herein, contain the entire agreement and understanding between the parties with respect to the leasing of the Premises and any other negotiations, agreements, or understandings with respect to the leasing of the Premises are hereby expressly merged and subsumed within the terms and provisions of this Lease. No negotiations, communications, agreements or understanding with respect to this Lease shall have any effect in the construction, application or enforcement of this Lease. Nothing herein shall supersede any written agreement with respect to the grant or loan of funds for the Premises.

31. [Intentionally omitted.]

32. ADVISORY COMMITTEES; COMPLIANCE WITH PLANS AND GUIDELINES

32.1 Magnuson Park Community Communications Committee; Representation; Provision of Information. Lessee acknowledges that the Lessor has established a committee, which includes representatives of Lessee, owners, tenants and users of other portions of the Sand Point Property, as well as representatives of the Lessor and neighborhood interests, to coordinate activities on the Sand Point Property and community involvement therein (the "Magnuson Park Community Communications Committee"). Lessee shall be entitled to representation on the Magnuson Park Community Communications Committee and shall participate and cooperate in good faith in the processes established by the Magnuson Park Community Communications Committee. Lessee shall keep the Magnuson Park Community Communications Committee informed of proposed activities on the Premises, including without limitation any changes in uses, any construction or rehabilitation activities, changes in Sublessees, changes in landscaping, and any changes in rules, policies or procedures that might reasonably affect or concern the tenants or users of other portions of the Sand Point Property or residents in the area.

32.2 Compliance with Plans and Guidelines. Subject to the express terms of this Lease and to applicable laws and regulations, the Lessee shall comply, and cause its Sublessees to comply, with the terms of the Physical Development Management Plan and the Historic Property Reuse and Protection Plan and any amendments to any of the foregoing that shall be approved by the Lessor as owner of the Premises.

32.3 Housing Advisory Committee. In addition to the committee described in Section 32.1, a Housing Advisory Committee has been established. That committee is composed of not less than seven (7) members and not more than fifteen (15) members, at least a majority of whom are residents of neighborhoods near Sand Point. The purpose of the Housing Advisory Committee is to advise the Lessee on matters of interest to neighboring communities including, but not limited to:

(a) Establishment, monitoring of screening criteria and procedures; (b) Review of management and operation plan; (c) General supervision and security issues; (d) General maintenance, fencing, and landscaping; (e) Design and siting of new construction of family housing; and (f) Transportation and noise.

33. RIGHTS RESERVED BY LESSOR

33.1 Access for Inspection. The Lessor reserves for itself, its officers, employees, agents and contractors, access to the Premises, including the Improvements, at all reasonable times to verify compliance with this Lease. Lessor's access rights shall at all times be subject to the rights of Lessee's residential tenants to quiet enjoyment. Upon request by Lessor for access to individual dwelling units for inspection, the Lessor shall give such notice as is required for such access by a landlord under the Washington Residential Landlord-Tenant Act and any other applicable law.

33.2 Access for Other Purposes The Lessor reserves the right to enter onto the Premises and, with reasonable advance notice to Lessee, to use any portion of the Premises for any purpose not inconsistent with or disruptive of Lessee's use and operation of the Premises for the purposes set forth in this Lease, subject to the rights of Tenants. Without limiting the foregoing, Lessor's fire, police, and other public safety officers shall have the right to enter the Premises at all times, subject to the privacy rights of Tenants under applicable law.

33.3 Manner of Exercise. The rights reserved under this Article shall be exercised in such manner as does not unreasonably interfere with Lessee's and authorized Sublessees' access to, operation of, and use of the Improvements.

34. EXISTING EASEMENTS; LESSEE TO COOPERATE IN AND CONSENT TO ACTIONS BY LESSOR

34.1 Easements. This Lease, and all rights of Lessee with respect to the Premises, are subject to all outstanding easements and rights of way identified on Exhibit A of this Lease for location of any type of facility over, across, in and upon the Premises, or any portion thereof, and to the right of the Lessor to grant such additional easements and rights of way over, under, across, in and upon the Premises as it shall determine to be in the public interest; provided, that any such additional easement or right of way shall be conditioned on the assumption by the grantee thereof of liability to the Lessee for such damages as the Lessee shall suffer for property destroyed or property rendered unusable as a result of the Lessor's exercise of its rights thereunder; provided further that such additional easements and rights of way do not disrupt Lessee's use and operation of the Premises as intended under the terms of this Lease. There is hereby reserved to the holders of such easements and rights of way as are presently outstanding or which may hereafter be granted, to any workers officially engaged in the construction, installation, maintenance, operation, repair, or replacement of facilities located thereon pursuant to the terms of such easements, and to any Federal, State or local official engaged in the official inspection thereof, such reasonable rights of ingress and egress over the Premises as shall be necessary for the performance of their duties with regard to such facilities.

34.2 Cooperation in Actions by Lessor. Lessee acknowledges that in order to carry out the intent of this Lease, it may be necessary or convenient for the Lessor as owner to effect or create various actions such as subdivisions, boundary line adjustments, easements, dedications or transfers of jurisdiction for utility and other purposes, or condominium declarations, concerning or affecting the Premises. Lessee irrevocably agrees, promptly on the request of the Lessor, to join in, consent to, and cooperate in, any and all such actions, and to execute and deliver such documents as the Lessor shall deem reasonably required for such purpose, provided that such actions are not fundamentally inconsistent with the use of the Premises for the purposes described in this Lease for the Term of this Lease; and provided further that such actions do not disrupt or interfere with Lessee's use and operation of the Premises or impair the collateral, security or rights of any Leasehold Mortgagee.

35. RECORDS AND ANNUAL REPORTING

35.1 Records. Lessee and its Sublessees shall prepare and maintain in good order, accurate and up-to-date records demonstrating compliance with the terms of this Lease and documenting the operation of the Premises, and shall make all such records available for inspection and copying promptly upon the Lessor's request.

35.2 Annual Reporting. Lessee covenants and agrees that, for the term of this Lease, it will furnish to Lessor annually on or before June 30 of each year, or another date agreed to in writing by Lessor and Lessee, commencing in the first calendar year beginning after the date hereof, a written report showing Lessee's compliance with all the terms and conditions of this Lease during the previous calendar year. This report shall include but not be limited to:

(1) description of compliance with Physical Development Plan and Historic Properties Reuse and Protection Plan pursuant to Section 32.2 of this Lease;

(2) a description of ongoing security activities for the Premises;

(3) status of any Subleases and copies of any modifications thereto;

(4) status of any development activities for the Premises;

(5) certification that no hazardous materials are being stored on site, except in accordance with applicable laws;

(6) insurance certificate showing the Lessor as loss payee and/or additional insured;

(7) explanation of any alterations occurring to the Premises during the prior year;

(8) full financial statements for Lessee, prepared in accordance with Generally Accepted Accounting Principles, which shall be audited or reviewed by an independent certified public accountant if so requested (an audit satisfying federal OMB Circular A-133 will suffice);

(9) explanations of any changes in tenant population and services provided to residents (changes to the MOP require Lessor's advance consent);

(10) a description of any neighborhood issues or complaints raised during the prior year to include a description of any resolutions or outcomes; and

(11) a description of any community or neighborhood meetings attended by any representative of the Lessee or Sublessee and issues discussed regarding the Premises;

(12) a description of any issues discussed by the Magnuson Park Community Communications Committee or the Housing Advisory Committee regarding the Premises during the prior year including a description of any resolutions or outcomes;

(13) such other information as may be required by any provision of this Lease; and

(14) provided that Lessor gives such advance notice as is necessary to collect or prepare the information, such other information as may be reasonably requested by Lessor.

In addition, the Lessor shall have the right to perform, or to commission a consultant to perform, audits or reviews of Lessee and of the operations of its Sublessees on the Premises at any time. Lessee and Sublessees shall cooperate fully with any such audit and allow the Lessor or its consultant to review and copy all relevant documents and records, including without limitation computerized records and data.

36. MANAGEMENT AND OPERATING PLAN

36.1 Plan. Lessee shall operate the Premises in accordance with, and shall take all reasonable measures to cause its Sublessees to comply with, the MOP. All changes or amendments to the MOP shall be subject to the restrictions contained in the definition thereof.

37. CERTAIN RIGHTS OF INVESTORS

Lessor acknowledges that Lessee or a Sublessee may be organized and become Unit Owner of one or more Units with the intent to receive low income housing tax credits under the Internal Revenue Code ("Credits") and that the Lessee or Sublessee may receive a contribution of capital from one or more investor members or investor limited partners (collectively, the "Investor") approved by the Director. Such a Lessee or Sublessee in which an Investor makes a capital contribution is referred to as a "Partnership." Lessor agrees that if a Partnership intends to receive Credits, then during the term of the 15-year low income housing tax credit compliance period, Lessor may terminate this Lease only for a Termination Default.

(i) If a Partnership is Lessee or a Unit Owner and intends to receive Credits, and a Termination Default occurs, Lessor agrees that it shall not terminate this Lease based on that Termination Default until after all of the following has occurred:

(A) Lessor shall have provided written notice to Lessee and Investor (at the address stated in Section 26.1) of such Termination Default, specifying actions which must be taken to cure such default.

(B) The Termination Default shall not have been cured within sixty (60) days after receipt of such notice to cure such default by both Lessee and Investor, which 60-day period shall be concurrent with, and not in addition to, any cure period under Article 17.

(C) After such sixty day period, Lessor shall have provided written notice to Investor of such continuing default.

(D) Ninety (90) days after receipt of notice of continuing default, Investor shall not have cured the default.

(E) If the Condominium has not been created or the Termination Default is a Unit Termination Default with respect to one or more Units of which the Partnership is Unit Owner, either

(1) the Investor shall not have both removed the general partner of the Partnership and obtained the Director's approval of the selection of the new general partner (the "New GP") within ninety (90) days after receipt of notice of continuing default, or

(2) the New GP shall have been the general partner for ninety (90) days and shall not have cured the default; after such 90-day period the Lessor shall have provided final written notice to Investor of such failure; and the Investor shall not have cured the Termination Default within sixty (60) days after such final notice.

(ii) Lessor agrees to accept performance by a Sublessee or the Investor as curing Lessee's defaults under this Lease. For purposes of this Section, commencement of cure by a Sublessee shall be treated as commencement of cure by Lessee. An Investor shall not have any obligation to cure any default.

38. LEASEHOLD FINANCING

38.1 [Intentionally Omitted].

38.2 Leasehold Mortgages Authorized.

38.2.1 Leasehold Mortgages.

On one or more occasions Lessee or a Sublessee may take back a Purchase Money Leasehold Mortgage upon a sale and assignment of the Leasehold Estate or a part thereof or may mortgage or otherwise encumber the Leasehold Estate or a part thereof pursuant to a Leasehold Mortgage to one or more Institutional Investors providing financing for the construction and development of the Improvements or to any other lender approved by Lessor in writing under one or more Leasehold Mortgages and assign this Lease or a part thereof as security for such Leasehold Mortgage or Mortgages; provided, that after Initial Leasehold Mortgage Satisfaction with respect to any portion of the Leasehold Estate, any encumbrance of that portion of the Leasehold Estate shall require the prior written consent of the Lessor. Lessor agrees that notwithstanding anything to the contrary contained in this Lease that so long as a Leasehold Mortgage encumbers the Leasehold Estate or any portion thereof including a Sublease and/or Unit, Lessor may terminate this Lease only for a Termination Default that is not cured within any applicable cure or grace period by Lessee or by a Leasehold Mortgagee within any additional period granted under this Article 38.

38.2.2 Fee Mortgages.

Lessee shall not place or create any mortgage, deed of trust, or other lien or encumbrance against Lessor's fee interest in the Premises or in or under Lessor's interest in this Lease.

38.3 Notice to Lessor.

38.3.1 Notice. Each time Lessee or a Sublessee shall take back a Purchase Money Leasehold Mortgage upon a sale and assignment of the Leasehold Estate or shall grant a deed of trust or mortgage on Lessee's Leasehold Estate or a portion thereof, the holder of such deed of trust or mortgage shall provide Lessor with written notice thereof, which notice, to be effective to cause such Person to be eligible to be a Leasehold Mortgagee under this Lease, must include (a) a true and complete copy of the deed of trust or mortgage, (b) the holder's name, and (c) the holder's address for notices. Following receipt of such notice by Lessor, if the deed of trust or mortgage is a Leasehold Mortgage as defined herein, the provisions of this Article shall apply with respect to such Leasehold Mortgage as to all notices, acts, rights and obligations relating to any matters occurring thereafter. In the event of any assignment of a Leasehold Mortgage or in the event of a change of address of a Leasehold Mortgagee or of an assignee of such Leasehold Mortgage, such assignment or change shall not be binding upon Lessor nor shall such assignee become a Leasehold Mortgagee under this Lease unless it gives Lessor written notice, which notice, to be effective to cause such assignee to be a Leasehold Mortgagee under this Lease, must (i) include a true and complete copy of such assignment, (ii) the assignee's name, and (iii) the assignee's address for notices. Following receipt of such notice by Lessor, the provisions of this Article shall apply with respect to such assignee as to all notices, acts, rights and obligations relating to any matters occurring thereafter.

38.3.2 Documents. After Lessor has received the notice provided for by Section 38.3.1 above with respect to any Leasehold Mortgage, Lessee shall with reasonable promptness provide Lessor with copies of all related Loan Documents. Lessee shall thereafter also provide Lessor with a copy of each amendment or other modification or supplement to Loan Documents promptly after the same are entered into. All documents shall be accompanied by a certification by Lessee that such documents are true and correct copies of the originals. Copies of all recorded documents shall show the recording data.

38.4 Consent of Leasehold Mortgagee Required. Except as otherwise stated in this Article 38, no cancellation, surrender, or modification of this Lease shall be effective as to any Leasehold Mortgagee unless consented to in writing by such Leasehold Mortgagee.

38.5 Default Notice. Lessor, upon providing Lessee any written notice of (i) a default under this Lease, or (ii) a Termination Default under this Lease, shall provide a copy of such notice to every Leasehold Mortgagee. No such notice by Lessor to Lessee shall be deemed to have been duly given unless and until a copy thereof has been provided to every Leasehold Mortgagee. After such notice has been given to a Leasehold Mortgagee, such Leasehold Mortgagee shall have the same period after the giving of such notice upon it for remedying any default or causing the same to be remedied as is given Lessee in this Lease after the giving of such notice to Lessee plus, in each instance, the additional periods of time specified in Sections 38.6 and 38.7, to remedy, commence remedying, or cause to be remedied the nonmonetary defaults specified in any such notice. Lessor shall accept such performance by or at the instigation of such Leasehold Mortgagee as if the same had been done by Lessee. Lessee authorizes each Leasehold Mortgagee to take any such action at such Leasehold Mortgagee's option and does hereby authorize entry upon the Premises by the Leasehold Mortgagee for such purpose. The foregoing authorization by Lessee is in addition to, and not in substitution of, any other rights of a Leasehold Mortgagee under its applicable Leasehold Mortgage and related documents, instruments and agreements with respect to the Lessee or any Sublessee.

38.6 Notice to Leasehold Mortgagee; Right to Cure.

38.6.1 Notice. Anything contained in this Lease to the contrary notwithstanding, if a Leasehold Mortgage is then in effect, Lessor shall have no right to terminate this Lease based on a Termination Default unless, following the expiration of the period of time given Lessee to cure such default, if any, pursuant to Article 17, Lessor shall give a Termination Notice to every Leasehold Mortgagee of Lessor's intent to so terminate at least sixty (60) days in advance of the proposed effective date of such termination. Except in the case of a Termination Default that results from the decision of a Leasehold Mortgagee not to permit the use of insurance proceeds for repair, restoration or replacement of Improvements after a casualty loss described in Section 15.5(b), the Lessor agrees that it shall not terminate this Lease until after all of the following have occurred:

(A) the Termination Notice shall specify the actions that must be taken to cure such default;

(B) The Termination Default shall not have been cured within sixty (60) days after the Termination Notice shall have been provided;

(C) After such sixty (60) day period, Lessor shall have provided written notice to each Leasehold Mortgagee of such continuing default;

(D) Ninety (90) days after notice of continuing default as described in subsection (C), the Termination Default shall not have been cured;

(E) If the Termination Default could not reasonably have cured within the sixty (60) day period described above, then both

(1) Lessee shall not have begun cure within the sixty (60) day period referred to in subsection (B) above; or having begun such cure Lessee shall not have proceeded diligently and continuously to complete such cure; or cure shall not have been completed within twelve (12) months after the notice described in subsection (A) above, or such longer period as may be allowed by the Director in his or her discretion; and

(2) a Leasehold Mortgagee shall not have begun cure before the end of the ninety (90)-day period referred to in subsection (D) above, or the Leasehold Mortgagee, having begun cure, shall not have proceeded diligently and continuously to complete such cure; or cure shall not have been completed within twelve (12) months after the notice described in subsection (C) above, or such longer period as may be applicable under Section 38.7 below or may be allowed by the Director in his or her discretion.

Lessor agrees to accept performance by a Sublessee or the Leasehold Mortgagee as curing Lessee's defaults under this Lease. For purposes of this Section, commencement of cure by a Sublessee shall be treated as commencement of cure by Lessee. The Leasehold Mortgagee shall not have any obligation to cure any default. Lessor further agrees that in the event a Leasehold Mortgagee finances the Residential Buildings, if the Condominium shall be created, notwithstanding the fact that its Leasehold Mortgage may encumber a larger portion of the Premises or additional Units, the cure provisions described herein need only be satisfied by the Leasehold Mortgagee with respect to the Residential Buildings and the Units containing the Residential Buildings in order that the Lease shall continue in effect with respect to the Units containing the Residential Buildings, and so that the Residential Buildings and other Improvements within those Units shall not revert to the Lessor.

38.6.2 Notice Address. Any notice to be given by Lessor to a Leasehold Mortgagee pursuant to any provision of this Section shall be deemed properly given if sent to the address provided by the Leasehold Mortgagee pursuant to Section 38.3.1 unless notice of a change of address or of Leasehold Mortgage ownership has been given to Lessor setting forth the new address, or the address of the party or parties to whom the Leasehold Mortgage was assigned.

38.7 Further Protections.

38.7.1 Extension. If Lessor shall elect to terminate this Lease by reason of a Termination Default of Lessee, and if the Lessor would have the right to terminate the Lease under Subsection 38.6 solely because a Leasehold Mortgagee, having begun cure, shall not have completed cure of the Termination Default within 12 months, then if such Leasehold Mortgagee(s) shall, during such twelve-month period and thereafter:

(a) Pay or cause to be paid the Rent and other monetary obligations of Lessee under this Lease as and when the same become due, and continue good faith efforts to perform all of Lessee's other obligations under this Lease, including during any period during which a Leasehold Mortgagee has possession of any portion of the Premises the obligation to operate, maintain and repair the Improvements thereon and that portion of the Premises in accordance with the standards set forth in this Lease, excepting (i) obligations of Lessee to satisfy or otherwise discharge any lien, charge, or encumbrance against Lessee's interest in this Lease that is junior in priority to the lien of the mortgage held by such Leasehold Mortgagee and (ii) past nonmonetary obligations then in default so long as they are not reasonably susceptible of being cured by such Leasehold Mortgagee, and

(b) If and to the extent not enjoined or stayed, take steps to acquire or sell Lessee's interest or part thereof in this Lease by Foreclosure of the Leasehold Mortgage or other appropriate means and prosecute the same to completion with reasonable diligence, then at the end of such twelve-month period this Lease shall not then terminate, and the time for completion by such Leasehold Mortgagee of proceedings pursuant to this Section 38.7.1 shall continue so long as such Leasehold Mortgagee is enjoined or stayed, and, following the expiration of any stay or injunction, or in the absence of a stay or injunction, for so long as such Leasehold Mortgagee proceeds to complete steps to acquire or sell Lessee's interest in this Lease or a portion thereof by Foreclosure of the Leasehold Mortgage or by other appropriate means with reasonable diligence and continuity. Nothing in this Article, however, shall be construed to extend this Lease beyond the original Term hereof, nor to require a Leasehold Mortgagee to continue such Foreclosure proceedings after the default has been cured. If each Termination Default under this Lease shall be cured and the Leasehold Mortgagee shall discontinue such Foreclosure proceedings, this Lease shall continue in full force and effect as if Lessee had not defaulted under this Lease. If the Condominium shall have been created and if a Termination Default is not fully cured but a Leasehold Mortgagee shall cure all Termination Defaults under this Lease with respect to the part of the Premises comprising either both Units 1 and 2, or one or more other Units that are subject to its Leasehold Mortgage, then the parties agree that pursuant to RCW 64.34.220(3) the termination of the Lease shall not terminate the interest of the Unit Owner of the Units with respect to which the Termination Defaults are cured or the lien of the Leasehold Mortgage thereon or on any Sublease thereof.

38.7.2 [Intentionally omitted]

38.7.3 Continuation. If a Leasehold Mortgagee is complying with Section 38.7.1, upon the acquisition of the Leasehold Estate by such Leasehold Mortgagee or its Affiliate or any other purchaser at any Foreclosure and the discharge by the Foreclosure or the acquiring Person of any lien, charge or encumbrance against the Lessee's interest in this Lease that is junior in priority to the lien of the Leasehold Mortgage held by such Leasehold Mortgagee and that the Lessee is obligated to satisfy and discharge by reason of the terms of this Lease, this Lease shall continue in full force and effect as if Lessee had not defaulted under this Lease.

38.7.4 Not Assignment. The making of a Leasehold Mortgage as permitted by this Article shall not be deemed to constitute an assignment or transfer of this Lease or of the Leasehold Estate hereby created or any part thereof, nor shall any Leasehold Mortgagee, as such, be deemed to be an assignee or transferee of this Lease or of the Leasehold Estate hereby created or any part thereof so as to require such Leasehold Mortgagee, as such, to assume the performance of any of the terms, covenants, or conditions on the part of the Lessee to be performed hereunder. Any Person acquiring this Lease and the Leasehold Estate hereby created, or an interest therein, by any Foreclosure shall be deemed to be an assignee or transferee within the meaning of this Section, and shall be deemed to have assumed and agreed to perform all of the terms, covenants, and conditions on the part of the Lessee to be performed hereunder with respect to the portion of the Premises or Units acquired from and after such acquisition, but only for so long as such Person is the owner of the Leasehold Estate and only to the extent of the interest so acquired. Thus, any Leasehold Mortgagee that acquires the Lessee's or Sublessee's interest only in the Residential Buildings described in Section 10.3 and the Leasehold Estate in the portion of the Premises contained within Units 1 and 2 shall be compelled to perform only the terms, covenants and conditions applicable to such Residential Buildings and to the Units within which they are located. Similarly, any Leasehold Mortgagee that acquires the Lessee's or Sublessee's interest only in any Improvements not constituting the Residential Buildings described in Section 10.3 and the Leasehold Estate in a portion of the Premises not contained within Units 1 and 2 shall be compelled to perform only the terms, covenants and conditions applicable to such Improvements that do not constitute the Residential Buildings and to the Unit or Units in which those other Improvements are contained. If the Leasehold Mortgagee or its Affiliate shall become the holder of the Leasehold Estate or any part thereof and if the Buildings or other Improvements on the Premises, or portion thereof included in that portion of the Leasehold Estate, shall have been or become materially damaged, the Leasehold Mortgagee or its Affiliate shall be obligated to repair, replace, or reconstruct the Building or other Improvements as and to the extent required by the terms of this Lease.

38.7.5 Further Assignment. Any Leasehold Mortgagee (or its Affiliate) who acquires the Leasehold Estate or a part thereof by Foreclosure or is granted a New Lease as herein provided may, with prior written notice to but without further consent of Lessor, sell and assign the Leasehold Estate or such part thereof on such terms and to such Persons as are acceptable to such Leasehold Mortgagee or Affiliate, and upon closing such sale or assignment shall be relieved of all obligations under this Lease or the New Lease accruing thereafter, provided that any other Person that acquires the Leasehold Estate or part thereof at or by any Foreclosure or from any Leasehold Mortgagee or its Affiliates, and any assignee of this Lease or any New Lease, or a part thereof, from any Leasehold Mortgagee or any other Person, shall, as a condition to such assignment, deliver to Lessor its written agreement to be bound by all of the provisions of this Lease or the New Lease to the same extent as the original Lessee, to the extent they apply to the part of the Leasehold Estate so acquired, including any and all restrictions on the permitted uses of the Premises and upon further assignments, subleases or other transfers of its interests hereunder.

38.7.6 Permitted Transfers. Notwithstanding any other provision of this Lease, any sale of this Lease and of the Leasehold Estate hereby created or any part thereof in any Foreclosure shall be deemed to be a permitted sale, transfer, or assignment of this Lease and of the Leasehold Estate hereby created. After any such transfer the requirements of Article 21 shall apply but shall be deemed satisfied if, at all times commencing six months after the transfer, either (a) the Lessee thereunder or the Sublessee of each portion of the Premises is a Seattle-based non-profit corporation or public entity approved in writing by the Lessor, or is a Person controlled by a Seattle-based non-profit corporation or public entity approved in writing by the Lessor, such approval not to be unreasonably withheld for a non-profit corporation or public entity with substantial successful experience managing housing for Homeless Persons; or (b) the Premises or any portion thereof not satisfying clause (a) of this Section are operated, under one or more management agreements or other contracts reasonably acceptable to the Lessor, by one or more Seattle-based nonprofit or public entities approved in writing by the Lessor, such approval not to be unreasonably withheld or delayed for an entity with substantial successful experience in operating housing for Homeless Persons.

38.8 New Lease. Subject to the restrictions on rejection contained in Section 38.16, in the event of the termination of this Lease, other than as a result of a Termination Default that is not cured within the applicable cure or grace period provide herein, in connection with any bankruptcy, insolvency or similar proceeding involving either Lessor or Lessee, including any termination resulting from rejection under Section 365 of the Bankruptcy Code or a termination otherwise decreed by any judge in any state or federal bankruptcy or insolvency proceeding, Lessor shall provide each Leasehold Mortgagee with written notice that the Lease has been terminated, together with a statement of all sums that would at the time be due under the Lease but for such termination, and of all other defaults, if any, then known to Lessor. Lessor agrees to enter into a New Lease of the Premises with such Leasehold Mortgagee or its Affiliate for the remainder of the Term of this Lease, effective as of the date of termination, at the same Rent and upon the terms, covenants, and conditions (but excluding requirements that have already been fulfilled) of this Lease, provided:

38.8.1 Request. Such Leasehold Mortgagee shall make written request upon Lessor for such New Lease within sixty (60) days after the date such Leasehold Mortgagee receives Lessor's Notice of Termination of this Lease. If no such request is given to Lessor within that period, such Leasehold Mortgagee's and its Affiliates' rights to a New Lease shall automatically terminate.

38.8.2 Payment. Such Leasehold Mortgagee or its Affiliate shall pay or cause to, be paid to Lessor at the time of the execution and delivery of such New Lease, any and all sums that are at the time of execution and delivery thereof due pursuant to this Lease regardless of such termination and, in addition thereto, all reasonable expenses, including reasonable attorneys' fees, that Lessor shall have incurred by reason of such termination and the preparation, execution and delivery of the New Lease and that have not otherwise been received by Lessor from Lessee or other party in interest under Lessee. Upon the execution of such New Lease, Lessor shall allow to the tenant named therein as an offset against the sums otherwise due under this Section or under the New Lease, an amount equal to the rent paid by any other Person to Lessor for the use of the Premises during the period from the date of termination of this Lease to the date of the execution of such New Lease. In the event of a controversy as to the amount to be paid to Lessor pursuant to this Section, the payment obligation shall be satisfied if Lessor shall be paid the amount not in controversy and the Leasehold Mortgagee or its Affiliate shall agree to pay any additional sum ultimately determined to be due plus interest at the rate of twelve percent (12%) per annum. The parties shall cooperate to determine any disputed amount promptly in accordance with the terms of this Lease.

38.8.3 Other Defaults. Such Leasehold Mortgagee or its Affiliate shall agree to remedy any of Lessee's defaults of which said Leasehold Mortgagee was notified by Lessor in or with its Notice of Termination and that are reasonably susceptible of being so cured by Leasehold Mortgagee or its Affiliate. The requirements of Article 21 shall apply but shall be deemed satisfied if, at all times commencing six months after the commencement of the New Lease, either (a) the Lessee thereunder or the Sublessee of each portion of the Premises is a Seattle-based non-profit corporation or public entity approved in writing by the Lessor, or is a Person controlled by a Seattle-based non-profit corporation or public entity approved in writing by the Lessor, such approval not to be unreasonably withheld for a non-profit corporation or public entity with substantial successful experience managing housing for Homeless Persons; or (b) the Premises or any portion thereof not satisfying clause (a) of this Section are operated, under one or more management agreements or other contracts reasonably acceptable to the Lessor, by one or more Seattle-based nonprofit or public entities approved in writing by the Lessor, such approval not to be unreasonably withheld or delayed for an entity with substantial successful experience in operating housing for Homeless Persons.

38.8.4 Priority. Any New Lease made pursuant to this Section 38.8 and any extension of this Lease exercised by a Leasehold Mortgagee shall be prior to any mortgage or other lien, charge, or encumbrance on the fee of the Premises, and the tenant under such New Lease shall have the same right, title, and interest in and to any subleases, licenses, concessions or similar rights or interests therein, and to the Premises and the Buildings and other Improvements thereon as Lessee had under this Lease; provided, however, that (a) any New Lease shall be subject to all right, title and interest of any Unit Owner in the Condominium with respect to Condominium units protected from the Lease termination by the terms of RCW 64.34.220(3), and to encumbrances of record on such Condominium Units; and (b) Lessor shall not make any warranty of title, express or implied, with respect to any New Lease, and shall have no obligation to deliver possession of the Premises under the New Lease except for any liens, claims or encumbrances created by Lessor or arising through Lessor and not excepted in clause (a) of this subsection.

38.9 New Lease Priorities. If more than one Leasehold Mortgagee shall request a New Lease pursuant to Section 38.8.1, Lessor shall enter into such New Lease with the Leasehold Mortgagee whose mortgage is prior in lien, or with an Affiliate of such Leasehold Mortgagee, and if there are Leasehold Mortgagees making such request holding Leasehold Mortgages only on parts of the Leasehold Estate, then the Lessor shall grant the New Lease to the Leasehold Mortgagee that holds a the most senior lien on the Leasehold Estate in the part of the Premises where the Residential Buildings are located or are to be constructed in accordance with Section 10.3. Lessor, without liability to Lessee or any Leasehold Mortgagee with an adverse claim, may rely upon a title insurance policy or report issued by a responsible title insurance company doing business in the county in which the Premises are located, or on the terms of a recorded priority agreement, as the basis for determining the appropriate Leasehold Mortgagee that is entitled to such New Lease. The New Lease shall be subject to all covenants and regulatory agreements in favor of any governmental body or agency that formerly encumbered the Lease with priority over the Leasehold Mortgage held by the Leasehold Mortgagee requesting the New Lease, and the lessee under the New Lease shall, as a condition to effectiveness thereof, execute a recordable assumption agreement in form reasonably acceptable to the Lessor, by which the new lessee and the leasehold estate under the New Lease shall be bound by and subject to the terms of such covenants, to the same extent as if the Lease had passed to such new lessee by Foreclosure.

38.10 Leasehold Mortgagee Need Not Cure Specified Defaults. Nothing herein contained shall require any Leasehold Mortgagee or its Affiliate as a condition to its exercise of rights hereunder to cure any nonmonetary default of Lessee not reasonably susceptible of being cured by such Leasehold Mortgagee or its Affiliate in order to comply with the provisions of Section 38.6 or 38.7 or as a condition of entering into the New Lease provided for by Section 38.8. The financial condition of any Leasehold Mortgagee or successor to Lessee's interest under this Lease or a New Lease shall not be a consideration in the determination of the reasonable susceptibility of cure of any default hereunder. No default, the cure of which, and no obligation of Lessee, the performance of which, requires possession of the Premises or a portion thereof shall be deemed reasonably susceptible of cure or performance by any Leasehold Mortgagee or successor to Lessee's interest under this Lease or a New Lease until it has acquired the right to such possession of the Premises or portion thereof or can otherwise effect such cure through the appointment of a receiver (if such receiver can be so appointed), provided such holder is complying with the requirements described in Sections 38.6 and 38.7 above, nor shall any Leasehold Mortgagee be required to cure the bankruptcy, insolvency or any similar financial condition of Lessee. No Leasehold Mortgagee or any Person that acquires the Leasehold Estate or a portion thereof at Foreclosure shall be deemed in default of any construction obligation under this Lease so long as such Person is diligently pursuing the completion of construction (taking into account any delays caused by the Lease and Loan defaults and the Foreclosure) or is diligently pursuing the sale of the Lease to a Person who is capable of completing construction.

38.11 Limits on Indemnification by a Leasehold Mortgagee. Notwithstanding anything to the contrary contained in the Lease, upon acquisition of the Leasehold Estate or any portion therof by a Leasehold Mortgagee as a result of a Forcelosure or an assignment of the Leasehold Estate or portion thereof to such Leasehold Mortgagee in lieu of a Foreclosure, the obligations set forth in the Lease that pertain to indemnification of Lessor for certain claims or losses contained shall be limited to events, conditions claims or losses that (a) are caused by the Leasehold Mortgagee its officers, employees, agents and representatives; or (b) result from a breach of or failure to perform Lessee's obligations under this Lease occurring while such Leasehold Mortgagee holds the Leasehold Estate hereunder as Lessee (or the portion thereof pertaining to the part of the Premises where or with respect to which the breach or failure occurs); or (c) result from a condition of the Premises created while such Leasehold Mortgagee holds the Leasehold Estate hereunder as Lessee (or the portion thereof pertaining to the part of the Premises where the condition is created).

38.12 Casualty Loss. A standard mortgagee clause naming each Leasehold Mortgagee may be added to any and all insurance policies required to be carried by Lessee hereunder.

38.13 Arbitration or Litigation. Lessor shall give each Leasehold Mortgagee prompt notice of any arbitration or legal proceedings between Lessor and Lessee involving Lessee's obligations under this Lease. Each Leasehold Mortgagee shall have the right to intervene in any such proceedings and be made a party to such proceedings, and the parties do hereby consent to such intervention; provided that no Leasehold Mortgagee which intervenes shall be entitled to an award of any costs or attorneys' fees from Lessor.

38.14 No Merger. So long as any Leasehold Mortgage is in existence, unless all Leasehold Mortgagees shall otherwise expressly consent in writing, the fee title to the Premises and the Leasehold Estate of Lessee therein created by this Lease shall not merge but shall remain separate and distinct, notwithstanding the acquisition of said fee title by Lessee or by a third party, by purchase or otherwise.

38.15 Erroneous Payments. No payments made to Lessor by a Leasehold Mortgagee shall constitute an agreement that such payment was, in fact, due under the terms of this Lease, and a Leasehold Mortgagee having made any payment to Lessor pursuant to Lessor's wrongful, improper, or mistaken notice or demand shall be entitled to the return of any such payment or portion thereof provided such Mortgagee shall have made demand therefor not later than one (1) year after the date of such payment.

38.16 Bankruptcy. In the event of any proceeding by either Lessor or Lessee under the United States Bankruptcy Code (Title 11 U.S.C.) as now or hereafter in effect:

38.16.1 Rejection by Lessee. If the Lease or a part hereof is rejected in connection with a bankruptcy proceeding by Lessee or a Sublessee, or by a trustee in bankruptcy for Lessee or a Sublessee, such rejection shall be deemed an assignment by Lessee or the Sublessee to the Leasehold Mortgagee holding a Leasehold Mortgage on all or a part of the part of the Leasehold Estate as to which the Lease is rejected (or if there is more than one such Leasehold Mortgagee, to the one highest in priority, and if there are Leasehold Mortgagees of different parts of the Leasehold Estate as to which the Lease is rejected, then to the Leasehold Mortgagee with highest priority as to each such part, as their interests appear) of the Leasehold Estate and all of Lessee's or such Sublessee's interest under this Lease, or part thereof so rejected, in the nature of an assignment by Foreclosure, and this Lease shall not terminate and the Leasehold Mortgagee shall have all the rights of the Leasehold Mortgagee under this Article as if such bankruptcy proceeding had not occurred, unless such Leasehold Mortgagee shall reject such deemed assignment by notice in writing to Lessor within thirty (30) days following the later of (i) rejection (or deemed rejection) of the Lease by Lessee or Lessee's trustee in bankruptcy; or (ii) approval of such rejection by the bankruptcy court. If any court of competent jurisdiction shall determine that this Lease or any part hereof shall have been terminated notwithstanding the terms of the preceding sentence as a result of rejection by Lessee, Sublessee or the trustee in connection with any such proceeding, the rights of any Leasehold Mortgagee to a New Lease from Lessor pursuant to Section 38.8 hereof shall apply.

38.16.2 Rejection by Lessor. If the Lease is rejected by Lessor or by Lessor's trustee in bankruptcy:

(a) Lessee shall not have the right to treat this Lease as terminated except with the prior written consent of all Leasehold Mortgagees, and the right to treat this Lease as terminated in such event shall be deemed assigned to each and every Leasehold Mortgagee, whether or not specifically set forth in any such Leasehold Mortgage, so that the concurrence in writing of Lessee and each Leasehold Mortgagee shall be required as a condition to treating this Lease as terminated in connection with such proceeding.

(b) If this Lease is not treated as terminated in accordance with Section 38.16.2(a) above, then this Lease shall continue in effect upon all the terms and conditions set forth herein, including Rent, and all options to renew, but excluding requirements that are not then applicable or pertinent to the remainder of the term hereof. Thereafter, Lessee or its successors shall be entitled to any offsets against rent payable hereunder for any damages arising from such rejection and any such offset properly made shall not be deemed a default under this Lease. If Lessee shall fail to pay to Lessor any amount previously offset within ten (10) days after a final and nonappealable order or judgment that Lessee is required to pay such amount, then Lessor shall have all rights and remedies (subject to all other terms and conditions) provided in this Lease with respect to the nonpayment of Rent. The lien of any Leasehold Mortgage then in effect shall extend to the continuing possessory rights of Lessee following such rejection with the same priority with respect to each such Leasehold Mortgage as it would have enjoyed had such rejection not taken place.

(c) If, in any bankruptcy or similar proceeding in which Lessor is the debtor, the Premises are sold or proposed to be sold free and clear of the interests of Lessee under this Lease, each of Lessee and any Leasehold Mortgagees shall be entitled to notice thereof, to contest such sale or proposed sale, and shall be entitled to petition for and to receive adequate protection of their respective interests under this Lease.

38.17 Rights Against Lessee. The rights of a Leasehold Mortgagee hereunder shall not diminish any right or claim of Lessor against Lessee pursuant to this Lease.

38.18 Estoppel Statement. Lessor shall at any time upon not less than thirty (30) days prior written notice from a Leasehold Mortgagee execute, acknowledge and deliver to Leasehold Mortgagee a written statement (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent, security deposit, and other charges are paid in advance, if any, and (b) acknowledging that there are not, to Lessor's knowledge, any uncured defaults on the part of Lessee hereunder, or specifying such defaults, if any, which are claimed.

39. BINDING EFFECT; CHOICE OF LAW.

This Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the state where the Premises are located.

Signed:

LESSOR: THE CITY OF SEATTLE, a Washington municipal corporation By: _______________________________ Print Name: Adrienne E. Quinn Title: Director, Office of Housing

LESSEE: Sand Point Community Connections SPE LLC, a Washington limited liability company By: Solid Ground Washington, a Washington nonprofit corporation Its Sole Member By: Print Name: Cheryl Cobbs Title: Executive Director

List of Exhibits: A. Map of Sand Point Property B. Map of the Premises C. Legal Description of Premises

LESSOR ACKNOWLEDGMENT

STATE OF WASHINGTON ) )ss. COUNTY OF KING )

On this _____ day of _________________, _______, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Adrienne Quinn, to me known to be the Director of the Office of Housing of The City of Seattle, the municipal corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said municipal corporation, for the uses and purposes therein mentioned, and on oath stated that she was authorized to execute the said instrument.

WITNESS my hand and official seal hereto affixed the day and year in this certificate above written.

__________________________________ NOTARY PUBLIC in and for the State of Washington, residing at _______________ My commission expires: __________________ Print Name: _____________________________

LESSEE ACKNOWLEDGMENT

STATE OF WASHINGTON ) ) ss. COUNTY OF KING )

I certify that I know or have satisfactory evidence that Cheryl Cobbs is the person who appeared before me, and said person acknowledged that she signed this instrument, on oath stated that she was authorized to execute the instrument and acknowledged it as the Executive Director of Solid Ground Washington, a Washington non-profit corporation, the sole member of Sand Point Community Connections SPE LLC, a Washington limited liability company, to be the free and voluntary act of such corporation on behalf of such company for the uses and purposes mentioned in the instrument.

Date: ________________

__________________________________ NOTARY PUBLIC in and for the State of Washington, residing at ________________________ My commission expires: ____________________________ Print Name: _______________________________________

Exhibit A to Attachment 2, Map of Sand Point Property

Exhibit B to Attachment 2, Map of the Premises

Exhibit C to Attachment 2, Legal Description of Premises

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