R.I. Island House LLC (“R.I. Island House”) has entered into a contract with North Town Phase II Houses, Inc. (“North Town Phase II”), in its capacity as a general partner of North Town Phase II Associates L.P. (the “Partnership”), and the other legal and beneficial owners of the Partnership, to acquire the legal and beneficial ownership interests in the Partnership and North Town Phase II. North Town Phase II is the tenant under that certain ground lease, dated October 30, 1972, between the New York State Urban Development Corporation, the predecessor-in-interest of Roosevelt Island Operating Corporation (“RIOC”), as lessor, and North Town Phase II, as tenant, in respect of the property located at 551, 555 and 575 Main Street, Roosevelt Island, New York known as Island House (the “Island House Lease”). R.I. Westview LLC (“R.I. Island House LLC,” together with R.I. Island House, the “Purchasers”) has entered into a contract with North Town Phase III Houses, Inc. (“North Town Phase III”), the tenant under that certain ground lease, dated April 25, 1973, between the New York State Urban Development Corporation, the predecessor-in-interest of RIOC, as lessor, and North Town Phase III, as tenant, in respect of property located at 595 and 625 Main Street, Roosevelt Island, New York known as Westview (the “Westview Lease,” together with the Island House Lease, the “Ground Leases”) to acquire the interest of North Town Phase III in the Westview Lease.  Island House and Westview are rental apartment buildings developed under the New York State Mitchell-Lama middle-income housing program.  The residential subleases in these apartment buildings are currently subject to the rules and regulations of the Mitchell-Lama program, which is administered by the New York State Division of Housing and Community Renewal.  Upon acquisition of the Ground Leases (or the legal and beneficial interests in the Partnership and North Town Phase II, as the case may be), the Purchasers have indicated that they intend to withdraw Island House and Westview (collectively, the “Projects”) from the Mitchell-Lama program and either continue to operate the Projects (or either of them) as rentals or convert the Projects (or either of them) to condominium or cooperative ownership, in each case at the option of the Purchasers.  In connection with this privatization of the Projects, the Purchasers have requested that RIOC, as lessor under the Ground Leases, enter into discussions and negotiations with them regarding the terms and conditions upon which RIOC would be willing to extend the term of each of the Ground Leases to December 22, 2068, which is the day immediately preceding the date of the termination of the Master Lease pursuant to which the City of New York leased Roosevelt Island to the New York State Urban Development Corporation d/b/a Empire State Development Corporation (“ESDC”), the predecessor-in-interest to RIOC, as tenant under the Master Lease.  RIOC is willing to engage in discussions and negotiations regarding the proposed lease extension transactions subject to the terms and conditions of this memorandum of intent.

Expression of Intent
This memorandum is intended as a non-binding expression of intent to pursue discussions and negotiations regarding the proposed lease extension transactions on certain basic terms outlined below and other material terms to be identified in the course of our discussions and negotiations.  The basic terms outlined below are a preliminary formulation, intended as a framework for facilitating discussions and negotiations on these basic terms, as well as other material terms, and not a full or final statement of these or other material terms, all of which remain to be negotiated.  This memorandum is not intended to create binding obligations between RIOC and the Purchasers which can only be effected by the mutual execution and delivery of lease extension and modification agreements and other related documentation mutually satisfactory to the parties and, in the case of RIOC, receipt of approval from its Board of Directors and any other governmental authorities having jurisdiction.

Outline of Basic Terms
Subject to the qualifications set forth in this memorandum, the following is an outline of certain basic terms of the proposed lease extension transactions for discussion and negotiation:

Components of Rent.  During the extension term, the rent payable to RIOC under each of the Ground Leases is to be comprised of a variety of components, including, without limitation: (i) ground rent to be determined by the valuation process described in paragraph 2 below; (ii) a payment in lieu of real estate taxes; and (iii) if the Projects (or either of them) are converted to condominium or cooperative ownership, conditional payments (anticipated to be used to fund improvements on Roosevelt Island) equal to a percentage to be determined of the gross sales price of any unit sold after the effective date of the lease extension.  The percentage in respect of initial conversion/sponsor sales would be higher than the percentage in respect of re-sales. Payments in lieu of mortgage recording taxes and real property transfer taxes and/or other savings as a result of RIOC’s involvement are also payable to RIOC.  The Purchasers shall cooperate with RIOC so that RIOC is able to realize such payments, but the Purchasers shall not be required to pay any additional amount in respect of mortgage recording taxes and/or transfer taxes that they would not be required to pay if RIOC were not involved in the transaction.

Valuation Process.  The ground rent during the extension term of each of the Ground Leases is to be based on the greater of the ground rent to be negotiated with the Purchasers and the fair market value of the land covered by each of the Ground Leases, valued as if unimproved and unencumbered by the respective Ground Leases, as determined by the appraisal process described in this paragraph 2.  Jerome Haims Realty, Inc. (the “First Appraiser”) shall prepare an appraisal of each of the properties, separately identifying the value of the land as unimproved and unencumbered by the respective Ground Leases.  If the Purchasers dispute the value determined by the First Appraiser, then, within fifteen (15) days after RIOC gives the Purchasers notice of the value determined by the First Appraiser, the Purchasers shall select a disinterested MAI appraiser having at least ten (10) years experience in the appraisal of large multifamily residential properties in New York City (a “Qualified Appraiser”) and give RIOC notice of such selection.  RIOC, shall, within fifteen (15) days after receiving said notice, select a second Qualified Appraiser and give the Purchasers notice thereof.  Each Qualified Appraiser shall then render in writing to the Purchasers and RIOC concurrently its own independent appraisal of the value of the land as unimproved and unencumbered by the respective Ground Leases within thirty (30) days after the date of the selection of the second Qualified Appraiser (the “Appraisal Due Date”).  If the valuations of the two Qualified Appraisers do not vary by more than 10%, then a valuation that is halfway between the two valuations shall be the valuation used.  If the valuations of the two Qualified Appraisers vary by more than 10%, then, the two Qualified Appraisers, within fifteen (15) days after the Appraisal Due Date, shall select a third Qualified Appraiser.  If the two Qualified Appraisers fail to select such third Qualified Appraiser (who is amenable to serving as such) within said fifteen (15) day period, then either RIOC or the Purchasers may apply to the American Arbitration Association (or any organization successor thereto) to select such third Qualified Appraiser.  Upon such selection, the third Qualified Appraiser shall, within fifteen (15) days after such selection, determine, with respect to the valuation that is not within the 10% range, which of the valuations made by the two Qualified Appraisers is more accurate, and the valuation designated by the third Qualified Appraiser as the more accurate of the two valuations shall be the valuation used.

Upon finalization of the valuation process and the negotiation of the ground rent and additional components of rent, and before the Ground Lease extension transactions are consummated, the implementing documents shall be submitted to [blank] or another comparable firm reasonably acceptable to RIOC (the “Evaluator”) to evaluate the economic terms of transaction on behalf of RIOC and issue its opinion (the “Fairness Opinion”) as to whether the economic returns to be received by RIOC are fair market returns.  The transactions shall not be consummated unless the Fairness Opinion indicates that the economic returns to RIOC are fair market returns.  If the Evaluator shall determine that the economic returns of the transactions to RIOC are not fair market returns, the Fairness Opinion shall specify the reasons for such conclusion, and the transactions shall not be consummated unless the implementing documents are modified to conform to the Fairness Opinion.

Public Subsidies.  RIOC will endeavor to obtain (without representation or warranty that the same will be obtained nor as a condition to any obligation the Purchasers under this memorandum) an allocation of funds from public agencies to provide a pool of funds available for rental/maintenance assistance payments and/or condominium/coop downpayment assistance grants to assist existing tenants at the Projects whose income is below 150% of AMI.  The specifics as to the availability and amount of, and eligibility for, these subsidies remain to be determined based on the success of RIOC’s solicitation of governmental agency assistance and an analysis of the demographics of the existing tenancy of the Projects.  RIOC will periodically update the Purchasers on its progress in its efforts to obtain commitments of subsidy funds and in developing eligibility standards.  It is anticipated, in any event, that if the Projects are converted to condominium or cooperative ownership, tenants who purchase their apartments and have received subsidies will be required to repay the subsidies from excess sales proceeds, if any, over their net purchase price upon sale of their apartment.  These recouped funds will be used to replenish the subsidy fund.

Retail Space.  RIOC shall continue to control the retail space, provided, however, the Purchasers may submit a proposal to RIOC for master leasing or managing and upgrading of the retail space in the Projects and on Main Street at Roosevelt Island.  This retail space will be subject to rules and regulations (including, without limitation, RIOC’s right to approve the tenant mix) to be developed by RIOC to address, among other things, the need for commercial uses that provide certain basic tenant services and the maintenance of certain basic design standards.  RIOC shall reasonably consider the Purchasers’ proposal, as well as any other third party proposals that RIOC may solicit, for the master leasing or managing and upgrading of the retail space, and endeavor to select the Purchasers or another party to master lease or manage and upgrade the retail space at or prior to the consummation (if consummated) of the proposed lease extension transactions.