SEC Filing :: Stratus Properties Inc.

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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From .......... to .......... Commission file number 0-19989 Stratus Properties Inc. (Exact name of Registrant as specified in Charter) Delaware 72-1211572 (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No.) 98 San Jacinto Blvd., Suite 220 Austin, Texas 78701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(512) 478-5788 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock Par Value $0.01 per Share Preferred Stock Purchase Rights (Title of Each Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by non- affiliates of the registrant was approximately $37,400,000 on March 14, 2002. On March 14, 2002, 7,115,995 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement to be submitted to the registrant's stockholders in connection with its 2002 Annual Meeting to be held on May 16, 2002, are incorporated by reference into Part III of this Report.

TABLE OF CONTENTS Page Part I 1 Item 1. Business 1 Overview 1 Company Strategies 1 Credit Facility 3 Transactions with Olympus Real Estate Corporation 3 Regulation and Environmental Matters 4 Employees 4 Risk Factors 4 Item 2. Properties 6 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 Executive Officers of the Registrant 7 Part II 7 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Financial Data 8 Items 7. and 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations and Disclosures about Market Risks 8 Item 8. Financial Statements and Supplementary Data 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 37 Part III 37 Item 10.Directors and Executive Officers of the Registrant 37 Item 11.Executive Compensation 37 Item 12.Security Ownership of Certain Beneficial Owners and Management 37 Item 13.Certain Relationships and Related Transactions 37 Part IV 38 Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K 38 Signatures S-1 Financial Statement Schedules F-1 Exhibits E-1

PART I ITEM 1. BUSINESS - ----------------- OVERVIEW We are engaged in the acquisition, development, management and sale of commercial and residential real estate properties. We conduct real estate operations on properties we own and, until February 27, 2002, through unconsolidated affiliates that we jointly owned with Olympus Real Estate Corporation (Olympus) (see "Transactions with Olympus Real Estate Corporation" below). All subsequent references to "Notes" refer to the Notes to Financial Statements located in Item 8 elsewhere in this Annual Report on Form 10-K. Our principal real estate holdings are currently in the Austin, Texas, area. Our most significant acreage includes 2,039 acres of undeveloped residential, multi-family and commercial property and 34 developed residential estate lots located in southwest Austin within the Barton Creek community and 436 acres of undeveloped residential, multi-family and commercial property and one substantially complete 75,000-square-foot office building located south of and adjacent to the Barton Creek community in an area known as the Lantana project. Our remaining Austin acreage consists of about 1,300 acres of undeveloped commercial and multi- family property within the Circle C community, also located in southwest Austin. We also own 13 acres of undeveloped commercial property in Houston, Texas, which we expect to sell in 2002 and 21 acres of undeveloped multi-family property located in San Antonio, Texas, which is actively being marketed. In February 2002, as a result of completing certain transactions with Olympus (see "Transactions with Olympus Real Estate Corporation" below and Note 11), we acquired an additional 22 developed residential lots, including 21 lots that average over 3 acres each in size, in the Barton Creek community. We also acquired a 140,000-square-foot office complex, that consists of two office buildings located in Austin, Texas that are currently leased at more than 95 percent of their capacity. COMPANY STRATEGIES Since our formation in 1992, our primary objectives have been to reduce our indebtedness and increase our financial flexibility. Accordingly, we had reduced our debt to $8.4 million at December 31, 2000 from $493.3 million in March 1992. As a result of the settlement of certain development related lawsuits (see Note 9) and to an increasing level of cooperation between the City of Austin (the City) and us, we substantially increased our development activities during 2001 (see below), which has resulted in our debt increasing to $25.6 million at December 31, 2001. Our debt increased to $46.9 million immediately following our transactions with Olympus in February 2002 (see "Transactions with Olympus Real Estate Corporation" below). We have been able to fund our development activities and our transactions with Olympus primarily through our expanded credit facility (see "Credit Facility" below and Note 5), which was established as a result of the positive financing relationship we have built with Comerica Bank-Texas over the past several years. This newly expanded credit facility, together with other sources of financing, has increased our financial flexibility, allowing us to fully concentrate our efforts on developing our properties and increasing shareholder value. Key factors in accomplishing these goals include: * Our overall strategy is to enhance the value of our Austin properties by securing and maintaining development entitlements and developing and building real estate projects for sale or investment, thereby increasing the potential return from our core assets. In recent years, we had significant joint venture development activity (see below). During 1999, we completed the development of the 75 residential lots at the Wimberly Lane subdivision at Barton Creek and by the end of 2000, 72 of the lots had been sold. We sold two additional Wimberly Lane lots during 2001. Also during 1999, we completed and leased the first 70,000-square foot-office building at the 140,000-square-foot Lantana Corporate Center. Construction and leasing of the second 70,000-square-foot office building was completed during the third quarter of 2000. We are continuing to develop several new subdivisions around the new Tom Fazio designed "Fazio Canyons" golf course, which included the construction of 54 multi-acre residential lots during the first half of 2000 at the Escala Drive subdivision at Barton Creek. We sold 32 of the Escala Drive lots during 2000. We sold one Escala Drive lot during 2001. In February 2002, in connection with certain transactions with Olympus (see "Transactions with Olympus Real Estate Corporation" below) we acquired the remaining residential lots in the Wimberly Lane and Escala Drive subdivisions, as well as the two office buildings at Lantana. * Significant progress has been made in our obtaining the permitting necessary for additional Austin-area property development.

1 We have reached agreement with the City concerning development of a 417-acre portion of the Lantana project. The agreement reflects a cooperative effort between the City and us to allow development based on grandfathered entitlements, while adhering to stringent water quality standards and other enhancements to protect the environment (Note 9). With this most recent agreement, we have now completed the core entitlement process for the entire Lantana project allowing for approximately 2.9 million square feet of office and retail development, approximately 400 multi-family units (previously sold to an unrelated third party, see below) and approximately 330 residential lots. In the fourth quarter of 2000, we received final subdivision plat approval from the City to develop approximately 170 acres of commercial and multi-family real estate within our Lantana project. The required infrastructure development at the site, known as "Rialto Drive," was completed during the fourth quarter of 2001. Construction of the first of two 75,000- square-foot office buildings at Rialto Drive (7500 Rialto) is substantially complete. Full development of the 170 acres is expected to consist of over 800,000 square feet of office and retail space and 400 multi-family units, which are now being constructed by an apartment developer pursuant to our sale of a 36.4-acre multi-family tract in December 2000 (see "Results of Operations" located in Items 7.and 7A. elsewhere in this Annual Report on Form 10-K). We continue to work on residential development plans for portions of our Circle C project. We have been meeting with City representatives and with neighborhood and environmental groups to discuss a plan to modify portions of the land plan and provide enhanced water quality protection for portions of the Circle C project. During the fourth quarter of 2001, we received U.S. Fish and Wildlife Service approval for our plan, and City Zoning and Planning Commission approval for a 554- acre planned unit development (PUD) containing 860 residential units. City Council action on the PUD is expected during 2002. We commenced construction of a new subdivision within the Barton Creek community during the fourth quarter of 2000. This subdivision, Mirador, is now complete and marketing efforts have commenced. Mirador adjoins the Escala Drive subdivision, which was previously owned by the Barton Creek Joint Venture (see "Transactions with Olympus Real Estate Corporation" below). The Mirador subdivision consists of 34 estate lots, averaging approximately 3.5 acres in size. During the fourth quarter of 2001, we completed the permitting for a 114-acre tract within the Barton Creek community. The plat provides for 54 lots ranging in size from one-third acre to multi-acre lots, some of which overlook the Lost Creek Country Club golf course. We are also continuing our efforts to secure final permitting for a 212-acre tract within the Barton Creek community, which will include 125 single-family lots and nine acres for condominium development. Some of these single-family lots will adjoin the Fazio Canyons golf course. A 19-acre portion of the tract consisting of 66 planned villa units and a fire station received final plat approval in early January 2002. Development of this area is expected to commence by April 2002. Development of the remaining Barton Creek property will be deferred until the Austin-area economy improves (see "Risk Factors" below and "Capital Resources and Liquidity" located in Items 7 and 7A. elsewhere in this Annual Report on Form 10-K). * We believe that we have the right to receive over $30 million of future reimbursements associated with previously incurred Barton Creek utility infrastructure development costs. At December 31, 2001, we had approximately $14 million of these expected future reimbursements recorded as a component of "Real estate and facilities" on our balance sheet. The remaining reimbursements are not recorded on our balance sheet because they relate to properties previously sold or represent a component of the $115 million impairment charge we recorded in 1994. Additionally, substantial additional costs eligible for reimbursement will be incurred in the future as our development activities at Barton Creek continue. We received a total of $7.1 million of Circle C Municipal Utility District (MUD) reimbursements during 2000 (in addition to the $10.3 million received during 1999) in full and final settlement of our remaining Circle C infrastructure claim against the City (Note 9). In connection with our February 2002 acquisition of certain Barton Creek properties we previously jointly owned with Olympus, we obtained the right to receive approximately $2 million of additional Barton Creek reimbursables. * We will continue to vigorously defend our rights to the development entitlements of all our properties, but aggressive attempts by certain parties to restrict growth in the area of our holdings have had and may continue to have a negative effect on near term development and sales activities. * We are expanding our real estate management activities and have been retained by third parties to provide management and development assistance on selective real estate projects, including the Lakeway project, near Austin (see below).

2 In January 2001, we entered into an expanded development management agreement with Commercial Lakeway Limited Partnership covering a 552-acre portion of the Lakeway development known as Schramm Ranch, and we contributed $2.0 million as an investment in this project. Under the agreement, we receive enhanced management and development fees and sales commissions, as well as a net profits interest in the project. Lakeway project distributions are made to us as sales installments close. We are currently receiving a 28 percent share of any Lakeway project distributions and that rate will continue until we receive proceeds totaling our initial investment in the project ($2.0 million) plus a stated annual rate of return, at which time, our share of the Lakeway project distributions will increase to 40 percent. During the second quarter of 2001, we negotiated an agreement to sell the entire Schramm Ranch property to a single purchaser for $11.0 million, conditioned on obtaining certain entitlements. During 2001, we secured all the entitlements necessary for the future development of the Schramm Ranch property and the purchaser has closed and funded $5.0 million representing two of the four planned sales installments for the project. In connection with the second sale installment, which occurred in December 2001, the Lakeway project distributed approximately $1.2 million to us. We expect the remaining two Schramm Ranch sales installments (totaling $6.0 million) will occur in March 2002 and June 2002 and we expect to receive approximately $2 million in future cash distributions from the Lakeway project. * We also continue to investigate and pursue opportunities for new projects that would require minimal capital from us yet offer the possibility of acceptable returns and limited risk. However, until the Austin real estate market improves, our available cash flow and cash flow requirements may preclude any near-term expansion. CREDIT FACILITY We have established a solid banking relationship with Comerica Bank-Texas that has substantially enhanced our financial flexibility. Since December 1999, we have had a minimum of $30 million of borrowing availability under a credit facility agreement with Comerica, subject to certain conditions. The credit facility has subsequently been amended twice, with each amendment reducing restrictions for borrowing under the facility. The most recent credit facility amendment was finalized in December 2001. Currently, the terms of the credit facility provide for a $25 million revolving credit facility and a $5 million loan designed to provide funding for certain development costs. These development costs already have been incurred and the related development loan proceeds are available for borrowing at our discretion. At December 31, 2001, we had borrowed $12.1 million under the revolving credit facility but had not borrowed any amounts under the development loan facility. The credit facility with Comerica will mature in April 2004. We had $13.5 million of additional long-term debt at December 31, 2001 representing borrowings associated with two $5 million unsecured term loans and $3.5 million of borrowings on a $9.2 million project loan facility for the 7500 Rialto Drive office building project (see "Company Strategies" above). In February 2002, we borrowed an additional $7.4 million under our revolving credit facility to fund certain transactions with Olympus Real Estate Corporation (Olympus). In connection with these transactions, we assumed $12.9 million of debt associated with the construction of two office buildings that we previously jointly owned with Olympus (see "Transactions with Olympus Real Estate Corporation" below). For a further discussion of the credit facility and our other long-term financing arrangements, see Note 5 and "Capital Resources and Liquidity" located in Items 7. and 7A. elsewhere in this Annual Report on Form 10-K. TRANSACTIONS WITH OLYMPUS REAL ESTATE CORPORATION On May 22, 1998, we formed a strategic alliance with Olympus to develop certain of our existing properties and to pursue new real estate acquisition and development opportunities. Under the terms of the agreement, Olympus purchased $10 million of our mandatorily redeemable preferred stock, provided us a $10 million convertible debt facility and agreed to make available up to $50 million of additional capital representing its share of direct investments in joint Stratus/Olympus projects. We subsequently entered into three joint ventures with Olympus, in which we owned approximately 49.9 percent of each joint venture and Olympus owned the remaining 50.1 percent. We also served as the developer and manager for each of the joint venture projects. Accordingly, in addition to partnership distributions, we received various development fees, sales commissions and other management fees for our services. The first two joint ventures were formed on September 30, 1998. The first provided for the development of a 75 residential lot project at the Barton Creek Wimberly Lane subdivision. We sold the land to the joint venture for approximately $3.2 million and paid approximately $0.5 million for our equity interest. The other transaction involved approximately 700 developed lots and 80 acres of platted but undeveloped real estate at the Walden on Lake Houston project, which Olympus purchased in April 1998 and we managed since Olympus' acquisition through February 2002 (see below). We acquired our interest in the related partnership utilizing $2.0 million of funds available under the Olympus convertible debt facility. During the third quarter of 1999, we formed a third joint venture associated with the construction of the first 70,000-square-foot office building at the Lantana Corporate Center (7000 West). In this transaction, we sold 5.5 acres of commercial real estate to the joint venture for $1.0

3 million. In December 1999, we sold 174 acres of our Barton Creek residential property to the joint venture initially formed to develop the lots at the Wimberly Lane subdivision (see above) for $11.0 million. The land was developed into 54 multi-acre single- family residential lots, which are the largest lots developed to date within the Barton Creek community. In the first quarter of 2000, we sold an additional 5.5 acres of commercial real estate to 7000 West for $1.1 million. Construction of the second 70,000 square foot office building was completed in the third quarter of 2000. For a detailed discussion of these transactions see "Joint Ventures with Olympus Real Estate Corporation" located in Items 7. and 7A. and Note 4 located elsewhere in this Annual Report on Form 10-K. We repaid all our borrowings on the convertible debt facility during the second quarter of 2001, and terminated the facility on August 15, 2001 (Note 2). In February 2002 we concluded our business relationship with Olympus, completing the following transactions: * We purchased our $10.0 million of mandatorily redeemable preferred stock held by Olympus for $7.6 million. * We acquired Olympus' ownership interest in the Barton Creek Joint Venture for $2.4 million. * We acquired Olympus' ownership interest in the 7000 West Joint Venture for $1.5 million. In connection with this acquisition, we have assumed the debt outstanding for 7000 West, which at December 31, 2001 totaled $12.9 million. Related amounts outstanding will be included in our consolidated balance sheet commencing in the first quarter of 2002. * We sold our ownership interest in the Walden Partnership to Olympus for $3.1 million. We funded the $7.4 million net cash cost for these transactions, which is net of the approximate $1.0 million of cash we received by acquiring the Barton Creek and 7000 West Joint Ventures, through borrowings available to us under our $25 million revolving credit facility agreement (see above, "Capital Resources and Liquidity" within Items 7. and 7A. and Note 5 located elsewhere in this Annual Report on Form 10-K.) At February 28, 2002, our long- term debt totaled $46.9 million, including the $12.9 million of debt we assumed in connection with the 7000 West acquisition. Our remaining availability under our credit facility totaled approximately $8.0 million at February 28, 2002. For a detailed discussion of our Olympus transactions see "Joint Ventures with Olympus Real Estate Corporation" and "Olympus Relationship" located within Items 7. and 7A. and Notes 2, 3, 4 and 10 located elsewhere in this Annual Report on Form 10-K. REGULATION AND ENVIRONMENTAL MATTERS Our real estate investments are subject to extensive local, city, county and state rules and regulations regarding permitting, zoning, subdivision, utilities and water quality as well as federal rules and regulations regarding air and water quality and protection of endangered species and their habitats. Such regulation has delayed and may continue to delay development of our properties and result in higher developmental and administrative costs. We are making, and will continue to make, expenditures for the protection of the environment with respect to our real estate development activities. Emphasis on environmental matters will result in additional costs in the future. Based on an analysis of our operations in relation to current and presently anticipated environmental requirements, we currently do not anticipate that these costs will have a material adverse effect on our future operations or financial condition. EMPLOYEES We currently have 26 employees, who manage our operations. We also contract personnel to perform certain management and administrative services, including administrative, accounting, financial, tax, and other services, under a management services agreement. We may terminate this contract at any time upon 90 days notice. These services are provided on a cost reimbursement basis and totaled $0.4 million in 2001, $1.0 million in 2000 and $0.9 million in 1999. RISK FACTORS This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are all statements other than statements of historical fact included in this report, including, without limitation, the statements under the headings "Business," "Properties," "Market for Registrant's Common Equity and Related Stockholder Matters," and "Management's Discussion and Analysis of Financial Condition and Results of Operations and Disclosures About Market Risks" regarding our financial position and liquidity, payment of dividends, strategic plans, future financing plans, development and capital expenditures, business strategies, and our other plans and objectives for future operations and activities.

4 Forward-looking statements are based on our assumptions and analysis made in light of our experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, including the risk factors discussed below and in our other filings with the Securities and Exchange Commission, general economic and business conditions, the business opportunities that may be presented to and pursued by us, changes in laws or regulations and other factors, many of which are beyond our control. Readers are cautioned that forward-looking statements are not guarantees of future performance, and the actual results or developments may differ materially from those projected, predicted or assumed in the forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, among others, the following: IF WE ARE UNABLE TO GENERATE SUFFICIENT CASH FROM OPERATIONS, WE MAY FIND IT NECESSARY TO CURTAIL OUR DEVELOPMENT OPERATIONS. We have made substantial reductions in debt since our formation in 1992. However, significant capital resources will be required to fund our development expenditures. Our performance continues to be dependent on future cash flows from real estate sales, and there can be no assurance that we will generate sufficient cash flow or otherwise obtain sufficient funds to meet the expected development plans for our properties. Our real estate operations are also dependent upon the availability and cost of mortgage financing for potential customers, to the extent they finance their purchases, and for buyers of the potential customers' existing residences. OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION ARE GREATLY AFFECTED BY THE PERFORMANCE OF THE REAL ESTATE INDUSTRY. Our real estate activities are subject to numerous factors beyond our control, including local real estate market conditions (both where our properties are located and in areas where our potential customers reside), substantial existing and potential competition, general national, regional and local economic conditions, fluctuations in interest rates and mortgage availability and changes in demographic conditions. Real estate markets have historically been subject to strong periodic cycles driven by numerous factors beyond the control of market participants. Real estate investments often cannot easily be converted into cash and market values may be adversely affected by these economic circumstances, market fundamentals, competition and demographic conditions. Because of the effect these factors have on real estate values, it is difficult to predict with certainty the level of future sales or sales prices that will be realized for individual assets. OUR OPERATIONS ARE SUBJECT TO AN INTENSIVE REGULATORY APPROVAL PROCESS. Before we can develop a property we must obtain a variety of approvals from local and state governments with respect to such matters as zoning, density, parking, subdivision, site planning and environmental issues. Certain of these approvals are discretionary by nature. Because certain government agencies and special interest groups have expressed concerns about our development plans in or near Austin, our ability to develop these properties and realize future income from our properties could be delayed, reduced, prevented or made more expensive. Certain special interest groups have long opposed certain of our plans in the Austin area and have taken various actions to partially or completely restrict development in certain areas, including areas where some of our most valuable properties are located. We are actively opposing these actions. We currently do not believe unfavorable rulings would have a significant long- term adverse effect on the overall value of our property holdings. However, because of the regulatory environment that exists in the Austin area and the intensive opposition of certain interest groups, there can be no assurance that such expectations will prove correct. OUR OPERATIONS ARE SUBJECT TO GOVERNMENTAL ENVIRONMENTAL REGULATION, WHICH CAN CHANGE AT ANY TIME AND GENERALLY WOULD RESULT IN AN INCREASE TO OUR COSTS. Real estate development is subject to state and federal regulations and to possible interruption or termination because of environmental considerations, including, without limitation, air and water quality and protection of endangered species and their habitats. Certain of the Barton Creek properties include nesting territories for the Golden Cheek Warbler, a federally listed endangered species. In February 1995, we received a permit from the U.S. Wildlife Service pursuant to the Endangered Species Act, which to date has allowed the development of the Barton Creek and Lantana properties free of restrictions under the Endangered Species Act related to the maintenance of habitat for the Golden Cheek Warbler. Additionally, in April 1997, the U.S. Department of Interior listed the Barton Springs Salamander as an endangered species after a federal court overturned a March 1997 decision by the Department of Interior not to list the Barton Springs Salamander based on a conservation agreement between the State of Texas and federal agencies. The listing of the Barton Springs Salamander has not affected, nor do we anticipate it will affect, our Barton Creek and Lantana properties for several reasons, including the results of technical studies and our U.S.

5 Fish and Wildlife Service 10(a) permit obtained in 1995. Our Circle C properties may, however, be affected, although the extent of any impact cannot be determined at this time. Special interest groups provided written notice of their intention to challenge our 10(a) permit and compliance with water quality regulations, but no challenge has yet occurred. We are making, and will continue to make, expenditures with respect to our real estate development for the protection of the environment. Emphasis on environmental matters will result in additional costs in the future. THE REAL ESTATE BUSINESS IS VERY COMPETITIVE AND MANY OF OUR COMPETITORS ARE LARGER AND FINANCIALLY STONGER THAN WE ARE. The real estate business is highly competitive. We compete with a large number of companies and individuals, and many of them have significantly greater financial and other resources than we have. Our competitors include local developers who are committed primarily to particular markets and also national developers who acquire properties throughout the United States. WE ARE VULNERABLE TO RISKS BECAUSE OUR OPERATIONS ARE CURRENTLY EXCLUSIVE TO THE TEXAS MARKET. Our real estate activities are located entirely in the Austin, Houston and San Antonio, Texas, areas. Because of our geographic concentration and limited number of projects, our operations are more vulnerable to local economic downturns and adverse project-specific risks than those of larger, more diversified companies. The performance of the Texas economy and more specifically the Austin economy, affects our sales and consequently the underlying values of our properties. While the Texas economy has remained healthy in recent years, its economy has historically been subject to cyclical downturns primarily as a result of adverse economic conditions within the oil and gas industry. The Austin economy is heavily influenced by conditions in the technology industry. As the technology market weakens, as is the current condition, we experience reduced sales, primarily affecting our "high-end" properties, which can significantly affect our financial condition and results of operations. Our operations are subject to natural risks. Our performance may be adversely affected by weather conditions that delay development or damage property. ITEM 2. PROPERTIES - ------------------ Our acreage to be developed as of December 31, 2001, excluding our holdings in joint ventures, is provided in the following table. The acreage to be developed is broken down into anticipated uses for single-family lots, multi-family units and commercial development based upon our understanding of the properties' existing entitlements. However, there is no assurance that the undeveloped acreage will be so developed because of the nature of the approval and development process and market demand for a particular use Potential Development Acreage --------------------------------------------- Developed Single Multi- Lots Family Family Commercial Total --------- ------ ------- ---------- ------- Austin Barton Creek 34 1,117 249 673 2,039 Lantana - 154 - 282 436 Circle C - - 212 1,065 1,277 Houston Copper Lakes - - - 13 13 San Antonio Camino Real - - 21 - 21 --------- ------ ------- ---------- ------- Total 34 1,272 482 2,032 3,786 ========= ====== ======= ========== ======= The table does not include the properties acquired in the transactions with Olympus (see "Transaction with Olympus Real Estate Corporation" above, "Capital Resources and Liquidity" located in Items 7. and 7A. and Note 11 located elsewhere in this Annual Report on Form 10-K). In connection with the transactions, we acquired 22 developed residential lots in the Barton Creek community and a 140,000-square-foot office complex in Lantana that consists of two buildings that are leased in excess of 95 percent.

6 ITEM 3. LEGAL PROCEEDINGS - -------------------------- Various regulatory matters and litigation involving the development of our Austin properties are summarized below. Joint Venture Suits: Stratus ABC West I, L.P. v. Oly ABC West I, L.P. Cause No. GN-104206 (126th Judicial Court of Travis County, Texas filed December 26, 2001); Stratus Ventures I Walden, L.P. v. Oly/Houston Walden, L.P. Cause No. GN-104207 (200th Judical District Court of Travis County, Texas, filed December 26, 2001); Stratus 7000 West, Ltd. v. Oly Lantana, L.P. Cause No. GN-104208 (201st Judicial District Court of Travis County, Texas, filed December 26, 2001); Oly ABC West I, L.P., Oly/Houston Walden, L.P., Oly Lantana, L.P. v. Stratus ABC West I, L.P., Stratus Ventures I Walden L.P., Stratus 7000 West, Ltd. (191st District Court of Dallas County, Texas, filed December 26, 2001). In November 2001, Olympus Real Estate Corporation notified Stratus that it was exercising the "buy/sell" provisions contained within the three separate joint venture partnership agreements. Olympus offered to either sell Stratus its interest in the each of the three joint ventures or otherwise purchase Stratus' interests in each of the joint ventures. In December 2001, Stratus notified Olympus of its election to purchase Olympus' interests in each of the three joint ventures. A dispute arose over the calculation of the purchase price for each joint venture interest and both Stratus and Olympus filed suits. Stratus and Olympus subsequently settled out of court and closed on multiple transactions in February 2002 that mutually concluded the business relationship between Stratus and Olympus (see "Transactions with Olympus Real Estate Corporation," included in Items 1., 7. and 7A. and Note 11 located elsewhere in this Annual Report on Form 10-K). These cases have been dismissed with prejudice. Although we are no longer involved in any material litigation, we may from time to time be involved in various legal proceedings of a character normally incident to the ordinary course of our business. We believe that potential liability from any of these pending or threatened proceedings will not have a material adverse effect on our financial condition or results of operations. We maintain liability insurance to cover some, but not all, potential liabilities normally incident to the ordinary course of our business as well as other insurance coverage customary in our business, with such coverage limits as management deems prudent. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ Certain information, as of March 14, 2002, regarding our executive officers is set forth in the following table and accompanying text. Name Age Position or Office ------------------------ ---- ----------------------- William H. Armstrong III 37 Chairman of the Board, President and Chief Executive Officer Kenneth N. Jones 42 General Counsel John E. Baker 56 Senior Vice President - Accounting Mr. Armstrong has been employed by us since our inception in 1992. He has served us as Chairman of the Board since August 1998, Chief Executive Officer since May 1998 and President since August 1996. Previously Mr. Armstrong served as Chief Operating Officer from August 1996 to May 1998 and as Chief Financial Officer from May 1996 to August 1996. He served as Executive Vice President from August 1995 to August 1996. Mr. Jones has served as our General Counsel since August 1998. Mr. Jones is a partner with the law firm of Armbrust & Brown, L.L.P. and he provides legal and business advisory services under a consulting arrangement with his firm. Mr. Baker has served as our Senior Vice President - Accounting since May 2001. Previously, he served as our Vice President - Accounting from August 1996 until May 2001.

7 PART II ITEM 5. MARKET FOR REGISTRANTS'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------ Our common stock trades on Nasdaq under the symbol STRS. The following table sets forth, for the periods indicated, the range of high and low sales prices, as reported by Nasdaq. We have restated the stock prices for all periods prior to May 2001 to reflect the effects of the stock split transaction (see Note 8).

7 2001 2000 ----------------- ---------------- High Low High Low ------- ------- ------- ------ First Quarter $ 14.75 $ 10.00 $ 9.00 $ 7.00 Second Quarter 14.00 9.50 10.26 8.00 Third Quarter 11.50 9.00 10.00 8.26 Fourth Quarter 9.88 8.05 10.06 8.00 As of March 14, 2002 there were 1,117 holders of record of our common stock. We have not in the past paid, and do not anticipate in the future paying, cash dividends on our common stock. The decision whether or not to pay dividends and in what amounts is solely within the discretion of our Board of Directors. However, our current ability to pay dividends is also restricted by terms of our credit agreement, as discussed in Note 5 ITEM 6. SELECTED FINANCIAL DATA - ------------------------------- The following table sets forth our selected historical financial data for each of the five years in the period ended December 31, 2001. The historical financial information is derived from our audited financial statements and is not necessarily indicative of our future results. You should read the information in the table below together with Items 7. and 7A. "Management's Discussion and Analysis of Financial Condition and Results of Operations and Disclosures About Market Risks" and Item 8. "Financial Statements and Supplemental Data." 2001 2000 1999 1998 1997 --------- --------- -------- -------- --------- (In Thousands, Except Per Share Amounts) Years Ended December 31: Revenues $ 14,829 $ 10,099 $ 15,252 $ 18,535 $ 31,495 Operating income (loss) 2,794 (3,649) 2,006 (1,829) 2,556 Interest income 1,157 1,203 1,344 1,257 1,351 Equity in unconsolidated affiliates'income(loss) 207 1,372 307 (26) - Net income (loss) 3,940 14,222 a 2,871 (2,638) 7,006 b Basic net income (loss) per share c 0.55 1.99 0.40 (0.37) 0.98 Diluted net income (loss) per share c 0.48 1.74 0.35 (0.37) 0.97 Basic average shares outstanding c 7,142 7,148 7,144 7,144 7,144 Diluted average shares outstanding c 8,204 d 8,351 d 8,114 d 7,144 7,259 At December 31: Real estate and facilities, net 110,042 93,005 91,664 96,556 105,274 Total assets 129,478 111,893 115,672 111,829 112,754 Long-term debt 25,576 8,440 16,562 29,178 37,118 Stockholders' equity 84,659 81,080 66,840 63,969 66,607 a. Includes $14.3 million ($1.71 per share) gain associated with final settlement of our Circle C Municipal Utility District claim against the City of Austin (see Note 96). b. Includes a $4.5 million ($0.62 per share) gain from sale of all remaining oil and gas property interests. c. Reflects the effects of the stock split transactions completed in May 2001 (see Note 8). d. Assumes the redemption of our 1.7 million shares of outstanding mandatorily redeemable preferred stock for 851,000 shares of our common stock. ITEMS 7. AND 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND DISCLOSURES ABOUT MARKET RISKS - ---------------------------------------------------------------------- OVERVIEW We are engaged in the acquisition, development, management and sale of commercial and residential real estate properties. We conduct real estate operations on properties we own and, until February 2002, through unconsolidated affiliates we jointly owned with Olympus Real Estate Corporation (Olympus) (see "Joint Ventures with Olympus Real Estate Corporation" below), pursuant to a strategic alliance formed in May 1998. Our principal real estate holdings are currently in the Austin, Texas, area. Our most significant holdings include 2,039 acres of undeveloped residential, multi-family and commercial property and 34 developed residential

8 estate lots located in southwest Austin within the Barton Creek community and 436 acres of undeveloped residential, multi-family and commercial property and one substantially complete 75,000-square-foot office building, located south of and adjacent to the Barton Creek community in an area known as the Lantana project. Our remaining Austin acreage consists of about 1,300 acres of undeveloped commercial and multi-family property within the Circle C community, also located in southwest Austin. We also own 13 acres of undeveloped commercial property in Houston, Texas, which we expect to sell in 2002, and 21 acres of undeveloped multi-family property located in San Antonio, Texas, which are being actively marketed. In February 2002, in connection with transactions that concluded our business relationship with Olympus (see "Capital Resources and Liquidity" below and Note 11) we acquired 22 additional residential lots within the Barton Creek community and a 140,000-square-foot office complex within the Lantana project consisting of two buildings that are more than 95 percent leased. Our sales activities, excluding large undeveloped tract sales (see "Results from Operations" below), declined significantly during 2001 reflecting the downturn in the information technology sector, which has negatively affected Austin's business climate. Because of this downturn, we are deferring some of our remaining near-term development plans until the real estate market improves. The weakness in the Austin real estate market during 2001 primarily affected the results of operations of our unconsolidated affiliates (see below). JOINT VENTURES WITH OLYMPUS REAL ESTATE CORPORATION (OLYMPUS) We entered into three joint ventures with Olympus subsequent to a strategic alliance entered into in May 1998 (see Note 2). All subsequent references to "Notes" refer to the Notes to Financial Statements located in Item 8, found elsewhere in this Annual Report on Form 10-K. Olympus generally owned an approximate 50.1 percent interest and we owned an approximate 49.9 percent interest in each joint venture. The first two joint ventures were formed on September 30, 1998 and the third was formed in the third quarter of 1999. Subsequently, two of the joint ventures were expanded to encompass new projects. See Note 4 for financial information, including condensed income statement and balance sheet data, about our unconsolidated affiliates. In February 2002, we purchased Olympus' ownership interests in the two Austin joint ventures and agreed to sell our interest in the Houston joint venture (see below). These transactions concluded our business relationship with Olympus (see "Capital Resources and Liquidity," Item 1. "Transactions with Olympus Real Estate Corporation," Item 3. "Legal Proceedings," and Note 11). Barton Creek Joint Venture - -------------------------- The first joint venture involved our sale of the Wimberly Lane tract within the Barton Creek community near Austin, Texas, to the Oly Stratus Barton Creek I Joint Venture (Barton Creek Joint Venture) on September 30, 1998. The Barton Creek Joint Venture agreed to pay $3.3 million for the 28-acre tract. We received $2.1 million, a note for $1.2 million and made an equity contribution of $0.5 million upon formation of the joint venture. In the transaction, we deferred $1.6 million of revenues and $0.6 million of related gain associated with our 49.99 percent ownership interest in the joint venture. As manager of the project, we secured a $3.9 million project loan facility for the joint venture. The initial proceeds from this facility were used to reimburse the $1.9 million of development costs that we incurred on the project prior to the formation of the joint venture. Subsequent borrowings on the facility were used to complete the development of 75 residential lots at the "Wimberly Lane" subdivision of Barton Creek. As developer, we completed 75 residential lots during the first quarter of 1999 and immediately began marketing the lots. As manager, we sold 42 of the Wimberly Lane lots during 1999 for $4.8 million, which enabled the joint venture to repay all the borrowings outstanding under the project loan facility and to partially fund the development of 54 additional lots in the "Escala Drive" subdivision of the Barton Creek Joint Venture (see below). We sold 30 additional Wimberly Lane residential lots during 2000 for $3.5 million. We sold two Wimberly Lane lots during 2001 for $0.2 million and we currently have one lot remaining for sale in the subdivision. In December 1999, we sold the Barton Creek Joint Venture 174 acres of land encompassing 54 platted lots, within the "Escala Drive" subdivision of the Barton Creek community. Upon closing of the sale, we received $6.0 million and a $5.0 million note. We deferred $5.5 million of the $11.0 million of sales proceeds and $3.0 million of the $6.0 million related gain attributable to our ownership interest. The 54 lots, completed during the first half of 2000, were developed pursuant to the more restrictive development requirements of the City of Austin (the City). Each lot averages over three acres in size, which together with the similar sized lots in the Mirador subdivision (see "Stratus Development Activities" below), are among the largest lots developed to date within the Barton Creek community. All of the lots have scenic hill country settings and some overlook the "Fazio Canyons" golf course. The development of these lots was funded through the initial equity contributions of the partners

9 and proceeds from sales of lots at the Wimberly Lane subdivision of the Barton Creek Joint Venture (see above). As manager, we sold 32 Escala Drive lots for $14.0 million during 2000. We sold one Escala Drive lot for $0.8 million in 2001. At December 31, 2001, there were 21 lots remaining to be sold at the Escala Drive subdivision. As manager of the Barton Creek Joint Venture, we receive sales commissions and management fees for our services. We earned fees totaling $0.1 million in 2001, $1.2 million in 2000 and $0.3 million in 1999 related to our Barton Creek Joint Venture activities. We also received a development fee of $0.2 million in 2000 and $0.1 million in 1999 upon completing the respective subdivisions. The Barton Creek Joint Venture distributed approximately $17.1 million to the partners through December 31, 2001. Our share of these distributions, approximately $8.6 million, was recorded as a reduction of the related Barton Creek Joint Venture notes receivable ($6.2 million) and the related accrued interest ($0.7 million), with the remaining $1.7 million of distribution proceeds representing a return of equity that reduced our investment in the Barton Creek Joint Venture. Our investment in the Barton Creek Joint Venture at December 31, 2001 was $3.6 million. Walden Partnership - ------------------ The second joint venture, also formed on September 30, 1998, involved us acquiring a 49.9 percent interest in the Oly Walden General Partnership (the Walden Partnership), which owns the Walden on Lake Houston project in Houston, Texas, which Olympus purchased in April 1998. We managed this project on Olympus' behalf under the terms of a management agreement since April 1998 and received management fees and commissions for our services. We paid $2.0 million for our share of the Walden Partnership, borrowing funds available to us under the $10 million convertible debt facility with Olympus (see Note 2). At December 31, 2001, the Walden Partnership's remaining assets included 404 developed lots and 80 acres undeveloped real estate. During the second quarter of 1998, we negotiated agreements with homebuilders providing for the sale of approximately 90 percent of the 930 developed lots at that time. These agreements require the purchasers to close on the lots pursuant to a specific schedule that extends through 2002. As of December 31, 2001, 522 lots have closed and funded under these agreements. During 2001, the Walden Partnership repaid the remaining $1.7 million outstanding on its original $8.2 million non-recourse project loan established on September 30, 1998. In connection with obtaining the Walden Partnership loan, we were required to make an initial restricted cash deposit of $2.5 million. At December 31, 2000, the amount remaining in the restricted account totaled $0.6 million, all of which was released to us during 2001 as the loan was repaid. 7000 West - --------- In August 1999, we sold Olympus a 50.1 percent interest in the first 70,000-square-foot office building (Phase I) of the planned 140,000-square-foot Lantana Corporate Center (7000 West). Upon closing, we received $1.0 million and recognized a $0.4 million gain. We deferred our retained interest of the sales proceeds ($0.5 million) and related gain ($0.4 million) associated with the sale of the 5.5 acres of commercial real estate associated with Phase I of the project. As developer, we completed construction on Phase I in November 1999, and as manager, we secured third party lease agreements that have fully occupied the building. During the first quarter of 2000, we completed a transaction admitting Olympus as our joint venture partner in the second 70,000-square-foot office building (Phase II) at 7000 West. In this transaction, we sold an additional 5.5 acres of commercial real estate to the joint venture. Revenues from this sale of $1.1 million and the related gain of $0.8 million were deferred until construction and leasing of the building was completed, which occurred during the third quarter of 2000. At that time, we recognized Olympus' 50.1 percent ownership interest in the revenues($0.5 million) and related gain ($0.4 million). In connection with the completion of construction of the two office buildings, we received development fees totaling $0.3 million in 2000 and $0.2 million in 1999. In our role as manager, we arranged for a $6.6 million project loan for 7000 West, which was utilized to construct Phase I. The construction of Phase II required additional financing, which was provided when we arranged for an additional $7.7 million of availability on the 7000 West development loan. The variable rate, non-recourse loan is secured by the 11 acres of land at 7000 West and both 70,000- square-foot office buildings and is guaranteed by us. The loan was scheduled to mature on August 24, 2001; however, as manager we negotiated an extension of the term loan to August 24, 2002, with an option to extend the maturity to August 24, 2003, subject to certain conditions. The borrowings outstanding on this development loan totaled $12.9 million at December 31, 2001 and $12.0 million at December 31, 2000. As a result of our February 2002 acquisition of this office complex from Olympus (see "Capital Resources and Liquidity," below and Note 11), we will include this debt on our balance sheet in the future. STRATUS' DEVELOPMENT ACTIVITIES We have reached agreement with the City concerning development of a 417-acre portion of the Lantana project. The agreement reflects a cooperative effort between the City and us to allow development based on grandfathered entitlements, while adhering to stringent water quality standards and other enhancements to protect the environment (Note 9). With this most recent agreement, we have now completed the core entitlement process for

10 the entire Lantana project allowing for approximately 2.9 million square feet of office and retail development, approximately 400 multi-family units (previously sold to an unrelated third party, see below), and approximately 330 residential lots. In the fourth quarter of 2000 we received final subdivision plat approval from the City to develop approximately 170 acres of commercial and multi-family real estate within our Lantana development. The required infrastructure development at the site, known as "Rialto Drive," was completed during the fourth quarter of 2001. Construction of the first of two 75,000-square foot-office buildings at Rialto Drive (7500 Rialto) is substantially complete. Funding for the construction of the office buildings at Rialto is available to us under a new project development loan (see "Capital Resources and Liquidity" below). Full development of the 170 acres is expected to consist of over 800,000 square feet of office and retail space and 400 multi- family units, which are now being constructed by an apartment developer pursuant to our sale of a 36.4-acre multi-family tract in December 2000 (see "Results of Operations" below). We continue to work on residential development plans for portions of our Circle C project. We have been meeting with City representatives and with neighborhood and environmental groups to discuss a plan to modify portions of the land plan and provide enhanced water quality protection for the Circle C project. During the fourth quarter of 2001, we received U.S. Fish and Wildlife Service approval for our plan, and City Zoning and Planning Commission approval for a 554-acre planned unit development (PUD) containing 860 residential units. City Council action on the PUD is expected during 2002. We commenced construction of a new subdivision within the Barton Creek community during the fourth quarter of 2000. This subdivision, Mirador, is now complete and marketing efforts have commenced. Mirador adjoins the Escala Drive subdivision, which was previously owned by the Barton Creek Joint Venture (see above). The Mirador subdivision consists of 34 estate lots, averaging approximately 3.5 acres in size. During the fourth quarter of 2001, we completed the permitting for a 114-acre tract within the Barton Creek community. The plat provides for 54 lots ranging in size from one- third acre to multi-acre lots, some of which overlook the Lost Creek Country Club golf course. We are also continuing our efforts to secure final permitting for a 212-acre tract within the Barton Creek community, which will include 125 single-family lots and nine acres for condominium development. Some of these single-family lots will adjoin the Fazio Canyons golf course. A 19-acre portion of the tract consisting of 66 planned villa units and a fire station received final plat approval in early January 2002. Development of this area is expected to commence by April 2002. Development of the remaining Barton Creek property will be deferred until the Austin-area economy improves (see "Capital Resources and Liquidity" below). RESULTS OF OPERATIONS We are continually evaluating the development potential of our properties and will continue to consider opportunities to enter into significant transactions involving our properties. As a result, and because of numerous other factors affecting our business activities as described herein, our past operating results are not necessarily indicative of our future results. Summary operating results follow: 2001 2000 1999 -------- -------- -------- (In Thousands) Revenues: Undeveloped properties Unrelated parties $ 9,623 $ 2,101 $ 3,279 Olympus - 533 6,020 Recognition of deferred revenues 3,792 4,026 904 -------- -------- -------- Total undeveloped properties 13,415 6,660 10,203 Developed properties - 709 3,692 Commissions, management fees and other 1,414 2,730 1,357 -------- -------- -------- Total revenues $ 14,829 $ 10,099 $ 15,252 ======== ======== ======== Operating income (loss) $ 2,794 a $ (3,649)b $ 2,006 a,b Net income 3,940 14,222 c 2,871

11 a. Includes reimbursement of infrastructure costs expensed in prior years of $1.3 million in 2001 and $2.6 million in 1999. There were no reimbursements of infrastructure costs in 2000 except for the Circle C reimbursement as discussed below. b. Includes $0.4 million of recognized gain associated with the 7000 West (Phase II) transaction in 2000, $3.5 million of recognized gains associated with transactions involving the 7000 West (Phase I) and Barton Creek Joint Ventures in 1999. c. Includes $14.3 million of recognized gains associated with the settlement of our Circle C infrastructure reimbursement claim against the City (see "Non-Operating Results," and Note 9). Our revenues during 2001 primarily reflect the sale of undeveloped entitled properties to unrelated third parties. During the third quarter of 2001, we sold a 41-acre undeveloped tract in Austin, Texas, for $3.3 million. During the first half of 2001 our undeveloped property revenues included the sale of 112 acres of undeveloped entitled residential property in Houston, Texas, for $2.7 million, the sale of 10 acres of undeveloped entitled multi-family property in Dallas, Texas, for $1.7 million and one 17-acre undeveloped tract sale in Austin, Texas totaling $2.0 million. In connection with our property sale during the third quarter of 2001, we financed $2.3 million of the sale by taking a long-term note from the purchaser. The amount outstanding on this note totaled $2.2 million at December 31, 2001. We also financed $2.1 million of the undeveloped residential property sale in Houston, of which $1.9 million was outstanding at December 31, 2001. We currently anticipate these notes will be fully collectible. The majority of the deferred revenue recognized during 2001 was associated with the sale of a 36.4-acre multi-family tract within the Rialto Drive project in December 2000. In this transaction we sold the property for $5.3 million but deferred recognition of $3.6 million of the related sale proceeds. We recognized this deferred revenue pro rata as the required infrastructure construction was completed. As discussed in "Development Activities" above, we recognized the entire $3.6 million of deferred revenues during 2001 as construction at the Rialto Drive project was completed. The remainder of our deferred revenue recognition was associated with the sale of two Escala Drive lots and one Wimberly Lane lot by the Barton Creek Joint Venture. Our undeveloped property revenues include both sales of undeveloped real estate to unrelated parties and to our previously unconsolidated affiliates (see "Joint Ventures with Olympus Real Estate Corporation" above). When we sold real estate to an entity owned jointly with Olympus, we deferred recognizing revenue from the sale related to our ownership interest until sales were made to unrelated parties. Our undeveloped properties revenues for 2000 primarily reflect the recognition of previously deferred revenues from the sale of undeveloped real estate to our unconsolidated affiliates. We recognized $4.0 million of previously deferred revenues as a result of sales of 30 Wimberly Lane lots and 32 Escala Drive lots at the Barton Creek Joint Venture. Our remaining undeveloped properties revenues include the sale of one acre of multi-family property in San Antonio, Texas, and the 36.4-acre multi-family Lantana tract in Austin, which was sold in December 2000 for $5.3 million. Our sales to Olympus included its 50.1 percent interest in the 5.5 acres of commercial real estate sold to 7000 West for construction of the second 70,000-square-foot building. We sold our 24 remaining developed lots during 2000. We have subsequently added 34 estate lots to our inventory with the completion of the Mirador subdivision within the Barton Creek community during 2001 (see "Stratus Development Activities" above). Our 1999 undeveloped property revenues to unrelated parties included (1) the sale of 44 acres of residential property in Houston, (2) the sale of 34 acres of multi-family real estate in San Antonio and (3) the sale of 8 acres of multi-family real estate in Dallas. Sales of real estate to joint ventures with Olympus included the sale of 174 acres of residential property to the Barton Creek Joint Venture and the sale of 5.5 acres of commercial real estate to 7000 West (see "Joint Ventures with Olympus Real Estate Corporation" above). Our recognition of deferred revenues resulted from the sale of 42 Wimberly Lane developed lots by the Barton Creek Joint Venture. Sales of 75 single-family homesites represent our 1999 developed property revenues. Commissions, management fees and other income reflect our efforts to expand our services to third parties over the past three years. The decrease in this type of revenue during 2001 primarily reflects the substantial decrease in sales by our unconsolidated joint ventures, particularly the Barton Creek Joint Venture. The substantial revenues during 2000 primarily reflect our increased sales commissions from the Barton Creek Joint Venture. We sold lots at both the Escala Drive and Wimberly Lane subdivisions during 2000 and we sold the initial Wimberly Lane lots during 1999. Our management fee revenue for the past three years also includes fees associated with our management of the 2,200-acre Lakeway project near Austin. Costs of sales were $9.1 million in 2001, $10.0 million in 2000 and $9.7 million in 1999. The decrease in 2001 from 2000 primarily reflects the reduced recognition of previously deferred costs related to the sales of land to the Barton Creek Joint Venture, which totaled $0.1 million in 2001, $1.9 million in 2000 and $0.6 million in 1999. Our remaining cost of sales during 2001 reflected the costs associated with the undeveloped properties sold

12 throughout the year. The increase between the amount of deferred costs recognized during 2000 and those recognized during 1999 was partially offset by a reduction in sales, particularly those related to the sales of developed lots. Our general and administrative expenses totaled $2.9 million in 2001, $3.7 million in 2000 and $3.5 million in 1999. The substantial decrease in our general and administrative costs during 2001 reflects our implementation of a new information system and other initiatives to reduce costs, especially during 2001 as sales activity declined. Legal expenses totaled $0.5 million in 2001, $0.5 million in 2000 and $0.8 million in 1999. Legal costs decreased in 2000 as a result of our resolving our Circle C disputes with the City (see "Non-Operating Results" and "Capital Resources and Liquidity" below). Non-Operating Results - --------------------- Interest expense, net of capitalized interest, totaled $0.5 million in 2001, $1.3 million in 2000 and $0.8 million in 1999 (see Note 5). Capitalized interest totaled $1.4 million in 2001, $1.3 million in 2000 and $1.2 million in 1999. In March 2000, the City approved a settlement agreement involving disputes between the City and other Austin-area real estate developers and landowners concerning the Circle C community. Under terms of this settlement, the lawsuits contesting the City's December 1997 annexation of all land within the four Circle C Municipal Utility Districts (MUD) and the dissolution of the four MUDs have been dismissed with prejudice. Accordingly, the City's cumulative partial payments of our Circle C MUD reimbursement claim, totaling $10.5 million, were no longer subject to a repayment contingency and we recorded approximately $7.4 million of these previously deferred proceeds in other income during the first quarter of 2000. This amount represents that portion of the reimbursed infrastructure expenditures in excess of our remaining basis in these assets, as well as related interest income on the reimbursements. The remaining $3.1 million was recorded as a reduction of our investment in Circle C. In December 2000, we received an additional $6.9 million, including $0.6 million of interest, from the City as full and final settlement of the City's obligations in this matter. We recorded the proceeds as a gain during the fourth quarter of 2000 (Note 9). We previously accrued liabilities totaling $5.1 million in connection with the previous operation of certain oil and gas properties that were sold during 1993. During 2000, management completed a review of these amounts and determined that conditions in effect at the time warranted reversal of $2.1 million of these accruals. Accordingly, other income of $2.1 million is reflected in the Statement of Income for the year ended December 31, 2000. The remaining liability represents our indemnification of the purchaser for any future abandonment costs in excess of net revenues received by the purchaser in connection with the sale of one oil and gas property in 1993. We accrued $3.0 million relating to this liability at the time of the purchase, which is included in "Other liabilities" in the accompanying balance sheet. We periodically assesses the reasonableness of amounts recorded for this liability through the use of information provided by the owner of the property, including its net production revenues. The carrying value of this liability may be adjusted or eliminated, as additional information becomes available. Future changes in the estimates of this liability will be reflected in our earnings. CAPITAL RESOURCES AND LIQUIDITY Comparison Of Year-To-Year Cash Flows - ------------------------------------- Net cash provided by operating activities totaled $3.2 million in 2001, $17.9 million in 2000 and $20.6 million in 1999. The decrease in 2001 compared with 2000 primarily reflects the receipt of certain Circle C reimbursement proceeds (see below) during 2000 and a reduction in distributions received from the Barton Creek Joint Venture, including the receipt of proceeds totaling $6.5 million on their outstanding notes payable to us in 2000. The decrease was offset in part by our increased revenues from sales of undeveloped properties during the third quarter of 2001 and the Lakeway distribution during the fourth quarter of 2001 (see below). The decrease in 2000 compared with 1999 reflects receipt of $7.1 million from the City in settlement of our Circle C infrastructure reimbursement claim in 2000 compared with the $10.3 million we received from the City as partial settlement of our claim during 1999 (see below and Item 3. "Legal Proceedings"). The decrease also reflects our reduced sales activity during 2000. The 2000 decrease was partially offset by receipt of aforementioned Barton Creek Joint Venture proceeds in fulfillment of the joint venture's remaining obligations to us under terms of its initial land purchases in 1999 and 1998 (see "Joint Ventures with Olympus Real Estate Corporation" above). During 2000, we also received income distributions from our unconsolidated affiliates totaling $1.4 million, which represents a partial return on our equity in the earnings of our previously unconsolidated affiliates. Net cash used in investing activities totaled $24.3 million in 2001, $5.4 million in 2000 and $8.9 million in 1999. Investing activities for all three years reflect real estate and facilities capital expenditure payments, net of any related capitalized MUD reimbursements. Real estate and facility capital expenditures were moderate during 1999 and 2000, reflecting the constraints on our development activities resulting from disputes with the City and

13 others, which have subsequently been settled (see below). The increase in our investing activities during 2001 reflects the increase in our net real estate and facilities expenditures (see "Stratus' Development Activities" above) and the $2.0 million investment in the Lakeway project, near Austin Texas (see "Lakeway Project" below). We received a $1.2 million distribution from the Lakeway Project during the fourth quarter of 2001, of which $0.6 million represented our equity earnings in the project and the remaining $0.6 million represented a partial return of our original investment. We also received $0.3 million in distributions from the 7000 West Joint Venture during 2001, which represented a return of our investment in the joint venture. Our investing activities during 1999 included a $0.4 million additional investment in the Walden Partnership. Additionally, our joint ventures' capital expenditures have not been reflected in the accompanying financial statements, because our joint ventures' results have been presented using the equity method of accounting (see Note 1). Financing activities provided cash totaling $16.7 million in 2001 and used cash totaling $8.4 million in 2000 and $12.9 million in 1999. Our financing activities during 2001 reflect borrowings of $11.7 million under our amended Comerica credit facility, $3.5 million of borrowings under our 7500 Rialto Drive project loan facility and a second $5.0 million unsecured term loan, offset in part by the $3.2 million repayment of Olympus' convertible debt (see "Credit Facilities and Other Financing Arrangements" below). We reduced our net outstanding borrowings by $8.5 million in 2000 and $12.9 million in 1999. Our net reductions in outstanding borrowings included proceeds of $0.4 million during 1999 from borrowings on our convertible debt facility with Olympus (see Note 2). On October 29, 1999, the City agreed to pay us $9.8 million, including interest of $1.0 million, as partial payment of our Circle C MUD reimbursement claim. We received a total of $10.3 million of partial payments from the City on our Circle C MUD reimbursement claim through December 31, 1999. We received a total of $7.1 million of additional settlement proceeds from the City in 2000, including its final settlement payment of $6.9 million (including interest of $0.6 million) in December 2000 (see Note 9). We used all $17.4 million of these proceeds to reduce our borrowings outstanding under the applicable credit facilities. Credit Facilities and Other Financing Arrangements - -------------------------------------------------- In December 1999, we established a new bank credit facility with Comerica Bank-Texas, which provided for a term loan and a revolving line of credit aggregating to $30 million. We borrowed $20 million under the facility to repay all borrowings outstanding under our previous credit facility. In December 2000, we used the proceeds from our Lantana multi-family tract sale (see "Results of Operations" above) to repay all remaining borrowings outstanding under the existing Comerica facility and then negotiated an amended credit facility with Comerica, with improved terms and a maturity of December 2002. In December 2001, we established a new bank credit facility with Comerica. Under terms of the current facility, we have established an expanded $25 million revolving line of credit available for general corporate purposes and an additional $5 million loan specifically designed to provide funding for certain development costs. These development costs already have been incurred and the development loan proceeds are available for borrowing at our discretion. The new facility will mature in April 2004. At December 31, 2001, we had borrowed $12.1 million under the revolving credit facility but had not yet borrowed any amount under the development loan facility. During February 2002, we borrowed $7.4 million under our revolving credit facility to complete transactions that concluded our business relationship with Olympus (see "Olympus Relationship" below and Note 11). Under the terms of the Comerica facility, we are required to carry an interest reserve account with the bank. The amount in this account must equal the potential debt service for both the project loan facility and the revolving line of credit for the ensuing twelve-month period, adjusted quarterly. At December 31, 2001, the amount required to be included in the interest reserve account totaled approximately $1.6 million. This amount can be funded directly or treated as a reduction of our availability under the revolving line of credit. The aggregate availability under the $25 million revolving line was reduced to $23.4 million to satisfy the interest reserve requirement at December 31, 2001. We are able to withdraw amounts funded into the interest reserve account as needed. Our remaining availability, net of the interest reserve requirement and borrowings outstanding, under our credit facility totaled approximately $8 million at February 28, 2002. In December 2000, we borrowed $5.0 million under a new five- year unsecured term loan from First American Asset Management. In the third quarter of 2001, we obtained an additional $5.0 million five-year unsecured term loan from First American Asset Management (Note 5). The proceeds of the loans were used to fund our operations and for other general corporate purposes. In the second quarter of 2001, we secured an $18.4 million project loan facility with Comerica for the construction of the two office buildings at the 7500 Rialto project (see "Stratus' Development Activities" above). This variable-rate project loan facility matures in June 2003, with an option to extend the maturity by one year. Currently our availability under the project loan is $9.2 million, which is intended for the construction of the first

14 75,000-square-foot officebuilding and a related parking garage. At December 31, 2001 we had borrowings totaling $3.5 million under this project loan facility. We have pursued various financing arrangements available through our relationship with Olympus. On September 30, 1998, the Walden Partnership, an unconsolidated subsidiary in which we previously owned 49.9 percent (see "Joint Ventures with Olympus Real Estate Corporation" above and Note 4), entered into an $8.2 million project loan agreement with a commercial bank to fund the remaining development of the Walden on Lake Houston project. In October 1998, the Walden Partnership borrowed $6.1 million on this loan and used the proceeds to repay its outstanding bank debt associated with land acquisition and development costs incurred on the project. The Walden Partnership repaid the remaining $1.7 million of borrowings outstanding under this project loan during 2001. Under terms of the project loan, we secured the loan with a restricted cash deposit. All the remaining restricted cash deposited with the bank, which totaled $0.6 million at December 31, 2000, was released to us during 2001 as the Walden Partnership loan was repaid. In April 1999, we and one of our wholly owned subsidiaries finalized a $6.6 million project development loan facility with Comerica for the development of the first 70,000-square-foot office building at the 140,000-square-foot Lantana Corporate Center (7000 West). In the first quarter of 2000, as manager of the 7000 West project, we obtained an additional $7.7 million of availability under the 7000 West development facility to provide the funding necessary to construct the second 70,000-square-foot office building at the site. The variable rate, nonrecourse loan is secured by the approximate 11 acres of real estate at 7000 West and the two completed office buildings and until recently was guaranteed by us (see "Olympus Relationship" below). The project loan was scheduled to mature on August 24, 2001. However, as manager of 7000 West, we successfully negotiated an extension of the term loan with Comerica to August 24, 2002, with an option to extend the maturity to August 24, 2003, subject to certain conditions. Borrowings outstanding under the 7000 West project loan totaled $12.9 million at December 31, 2001 and $12.0 million at December 31, 2000. Effective February 27, 2002, we are now required to consolidate this mortgage debt on our balance sheet as a result of our acquisition of Olympus' 50.1 percent interest in the 7000 West Joint Venture (see "Olympus Relationship" below and Note 11). We currently meet all the conditions necessary to exercise the option to extend the maturity of the term loan to August 24, 2003, and absent any negotiations to further extend the term loan, we plan to exercise our option in July 2002. Lakeway Project - --------------- Since mid-1998, we have provided development, management, operating and marketing services for the Lakeway project near Austin, Texas, which is owned by Commercial Lakeway Limited Partnership, an affiliate of Credit Suisse First Boston, for a fixed monthly fee. In January 2001, we entered into an expanded development management agreement with Commercial Lakeway Limited Partnership covering a 552-acre portion of the Lakeway development known as Schramm Ranch, and we contributed $2.0 million as an investment in this project. Under the agreement, we receive enhanced management and development fees and sales commissions, as well as a net profits interest in the project. Lakeway project distributions are made to us as sales installments close. We are currently receiving a 28 percent share in any Lakeway project distributions and that rate will continue until we receive proceeds totaling our initial investment in the project ($2.0 million) plus a stated annual rate of return, at which time, our share of the Lakeway project distributions will increase to 40 percent. During the second quarter of 2001, we negotiated an agreement to sell the entire Schramm Ranch property to a single purchaser for approximately $11.0 million, conditioned on obtaining certain entitlements. As manager of the project, we obtained subdivision, annexation, zoning and other entitlements for the first phase of the property. Obtaining these entitlements allowed for the closing of the sale for the first phase of the Schramm Ranch property for $1.5 million. The proceeds from this initial closing were used to obtain the entitlements necessary to develop the remaining 500-plus acres of the property. In the fourth quarter of 2001, we secured all the remaining necessary entitlements for the Schramm Ranch property and the purchaser closed and funded $3.5 million, representing the second of four sale installments. In connection with this second sale installment, the Lakeway Project distributed approximately $1.2 million to us. We recorded $0.6 million of the distribution as a partial return of our original investment in the project and $0.6 million as our equity earnings in the project's income for the year, which was reflected in "Equity in unconsolidated affiliates' income." We expect the remaining two Schramm Ranch sales installments (totaling $6.0 million) to occur in March 2002 and June 2002 and we expect to receive approximately $2 million in future cash distributions from the Lakeway project. Olympus Relationship - -------------------- In May 1998, we formed a strategic alliance with Olympus to develop certain of our existing properties and to pursue new real estate acquisition and development opportunities. Under the terms of the agreement, Olympus made a $10 million investment in our mandatorily redeemable preferred stock (see Note 3), provided us a $10 million convertible debt financing facility (see Note 2) and agreed to make available up to $50 million of additional capital representing its share of direct investments in joint Stratus/Olympus projects.

15 During the second quarter of 2001, we repaid Olympus the entire $3.2 million balance under the convertible debt financing facility used to finance our interest in the Walden Partnership in Houston, Texas, purchased in September 1998. Included in the $3.2 million payment to Olympus was $0.8 million of accrued interest that had been added to the principal under the terms of the facility, and which represented the stated 12 percent annual rate pursuant to the terms of the convertible debt financing agreement. We also paid an additional $0.3 million of interest during the third quarter of 2001 to satisfy the minimum annual rate of return provision within the convertible debt facility agreement, which provided that if the combination of interest at 12 percent and the value of the conversion right did not provide Olympus with at least a 15 percent annual return on the convertible debt, we would pay Olympus additional interest upon termination of the convertible debt facility in an amount necessary to yield a 15 percent return. The convertible debt facility was terminated on August 15, 2001. Through our subsidiaries, we previously were involved in three joint ventures with Olympus (see "Joint Ventures with Olympus Real Estate Corporation"), each was subject to the terms of their respective partnership agreements. The partnership agreements of each of the joint ventures contained similar provisions, including a "buy/sell option" that could be exercised by either Olympus or us. After Olympus commenced the process under the "buy/sell option" for each partnership in mid-November 2001 (see Item 3 "Legal Proceedings"), we initiated additional joint discussions with Olympus about mutually concluding our ongoing business relationship, including the purchase of our $10.0 million of mandatorily redeemable preferred stock held by Olympus. As a result of these efforts, on February 12, 2002, we agreed to a $7.4 million transaction with Olympus that included the following key provisions: * We purchased our $10.0 million of mandatorily redeemable preferred stock held by Olympus for $7.6 million. The amount of the discount will be recorded as $2.4 million of additional paid in capital in our consolidated balance sheet in the first quarter of 2002. * We acquired Olympus' 50.01 percent ownership interest in the Barton Creek Joint Venture for $2.4 million. * We acquired Olympus' 50.1 percent ownership interest in the 7000 West Joint Venture for $1.5 million. In connection with this acquisition we have assumed the 7000 West debt and accordingly it will be included in our consolidated balance sheet commencing in the first quarter of 2002. At December 31, 2001, borrowings outstanding under this project loan facility totaled $12.9 million. * We sold our 49.9 percent ownership interest in the Walden Partnership to Olympus for $3.1 million. We expect to record an approximate $0.3 million gain on the sale during the first quarter of 2002. * We received a total of $1.0 million in net cash from the two joint ventures we acquired. The transaction closed on February 27, 2002. See Note 11 for additional discussion of these transactions, including the pro forma effects they have on our 2001 results of operations and our December 31, 2001 balance sheet. Common Stock Matters - --------------------- In February 2001, our Board of Directors authorized an open market stock purchase program for up to 0.7 million shares of our common stock representing approximately 10 percent of our outstanding common stock, after considering the effects of the stock split transactions described in the following paragraph. The purchases may occur over time depending on many factors, including the market price of our common stock; our operating results, cash flows and financial position; and general economic and market conditions. We have yet to make any open market share purchases under this program as of March 19, 2002 and we are unlikely to make significant open market purchases in the near future. On May 10, 2001, our shareholders approved an amendment to our certificate of incorporation to permit a reverse 1-for-50 common stock split followed immediately by a forward 25-for-1 common stock split. The effective date of this transaction was May 25, 2001. This transaction resulted in our shareholders holding fewer than 50 shares of common stock having their shares converted into less than one share of our common stock in the reverse 1-for-50 split. Those shareholders received cash payments equal to the fair value of those fractional interests. Our shareholders holding more than 50 shares of our common stock had their number of shares of common stock reduced by one-half immediately after this transaction. Shareholders holding an odd number of shares were entitled to a cash payment equal to the fair value of the resulting fractional share. The fair value of the fractional shares was calculated by valuing each outstanding share of Stratus common stock held at the close of business on the effective date at the average daily closing price per share of Stratus' common stock for the ten trading days immediately preceding the effective date. Accordingly, we funded $0.5 million into a restricted cash

16 account to purchase approximately 42,000 shares of our common stock. As of December 31, 2001, fractional shares representing approximately 21,000 shares of our common stock had been purchased for $0.25 million. We expect this transaction to lower our future reporting and related costs. Outlook - -------- Our future operating cash flows and, ultimately, our ability to develop our properties and expand our business will be largely dependent on the level of our real estate sales. In turn, these sales will be significantly affected by future real estate market conditions in the area of our properties, regulatory issues, development costs, interest rate levels and our ability to continue to protect our land use and development entitlements. As discussed in "Risk Factors" located elsewhere in this Annual Report on Form 10-K, our financial condition and results of operations are highly dependent upon market conditions in Austin. Currently the Austin real estate market has experienced a slowdown, which has affected and will likely continue to affect our near-term results. We cannot at this time project how long or to what extent this current slowdown will last in Austin. Significant development expenditures must be incurred and permits secured for certain of our Austin area properties prior to their eventual sale. In June 2000, the Texas Supreme Court ruled that the legislation creating water quality protection zones was unconstitutional (see Item 3. "Legal Proceedings"). This decision primarily affects development of the southern portion of our Barton Creek property. We have initiated plans that will meet development requirements under existing laws and regulations. Certain of our properties benefit from grandfathered entitlements that are not subject to the development requirements currently in effect. We continue to have a positive and cooperative dialogue with the City concerning land use and development permit issues. We are continuing to pursue additional development and management fee opportunities, both individually and through our existing relationships with institutional capital sources. We also believe that we can obtain bank financing at a reasonable cost for developing our properties. However, obtaining land acquisition financing is generally expensive and uncertain. DISCLOSURES ABOUT MARKET RISKS We derive our revenues from the management, development and sale of our real estate holdings. Our net income can vary significantly with fluctuations in the market prices of real estate, which are influenced by numerous factors, including interest rate levels. Changes in interest rates also affect interest expense on our debt. At the present time, we do not hedge our exposure to changes in interest rates. Based on the bank debt outstanding at December 31, 2001, a change of 100 basis points in applicable annual interest rates would have an approximate $0.3 million impact on year 2002 net income. ENVIRONMENTAL Increasing emphasis on environmental matters is likely to result in additional costs. Our future operations may require substantial capital expenditures, which could adversely affect the development of our properties and results of operations. Additional costs will be charged against our operations in future periods when such costs can be reasonably estimated. We cannot at this time accurately predict the cost associated with future environment obligations. CAUTIONARY STATEMENT Management's Discussion and Analysis of Financial Condition and Results of Operations and Disclosures about Market Risks contains forward-looking statements regarding future reimbursement for infrastructure costs, future events related to financing and regulatory matters, the expected results of our business strategy, and other plans and objectives of management for future operations and activities. Important factors that could cause actual results to differ materially from our expectations include economic and business conditions, business opportunities that may be presented to and pursued by us, changes in laws or regulations and other factors, many of which are beyond our control, and other factors that are described in more detail under "Risk Factors", located in Item 1.

17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- REPORT OF MANAGEMENT Stratus Properties Inc. (Stratus) is responsible for the preparation of the financial statements and all other information contained in this Annual Report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States and include amounts that are based on management's informed judgments and estimates. Stratus maintains a system of internal accounting controls designed to provide reasonable assurance at reasonable costs that assets are safeguarded against loss or unauthorized use, that transactions are executed in accordance with management's authorization and that transactions are recorded and summarized properly. The system is tested and evaluated on a regular basis by Stratus. Our independent public accountants, Arthur Andersen LLP, conduct annual audits of our financial statements in accordance with auditing standards generally accepted in the United States, which include the review of internal controls for the purpose of establishing audit scope, and issue an opinion of the fairness of such statements in accordance with accounting principles generally accepted in the United States. The Board of Directors, through its Audit Committee composed solely of independent non-employee directors, is responsible for overseeing the integrity and reliability of Stratus' accounting and financial reporting practices and the effectiveness of its system of internal controls. Arthur Andersen LLP meets regularly with, and has access to, this committee, with and without management present, to discuss the results of their audit work. William H. Armstrong III Chairman of the Board, President and Chief Executive Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF STRATUS PROPERTIES INC.: We have audited the accompanying balance sheets of Stratus Properties Inc. (a Delaware Corporation) as of December 31, 2001 and 2000, and the related statements of income, cash flows and changes in stockholders' equity for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stratus Properties Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Austin, Texas February 4, 2002 (Except with respect to Note 11, as to which the date is February 27, 2002)

18 STRATUS PROPERTIES INC. BALANCE SHEETS December 31, --------------------- 2001 2000 --------- --------- (In Thousands) ASSETS Current assets: Cash and cash equivalents, including restricted cash of $0.2 million and $0.6 million, respectively (Notes 4 and 8) $ 3,705 $ 7,996 Accounts receivable 695 596 Current portion of notes receivable from property sales 45 - Prepaid expenses 73 218 --------- --------- Total current assets 4,518 8,810 Real estate and facilities, net (Note 6) 110,042 93,005 Investments in and advances to unconsolidated affiliates (Note 4) 8,005 7,596 Notes receivable from property sales, net of current portion (Note 1) 4,083 - Other assets, including related party receivables (Note 4) 2,830 2,482 --------- --------- Total assets $ 129,478 $ 111,893 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 2,482 $ 1,920 Accrued interest, property taxes and other 1,895 1,486 --------- --------- Total current liabilities 4,377 3,406 Long-term debt (Note 5) 25,576 8,440 Other liabilities (Note 9) 3,002 3,419 Deferred revenues, including related 1,864 5,548 parties (Note 4) Commitments and contingencies (Note 9) Mandatorily redeemable preferred stock (Note 3) 10,000 10,000 Stockholders' equity: Preferred stock, par value $0.01, - - 50,000,000 shares authorized and unissued Common stock, par value $0.01,150,000,000 shares authorized, 7,155,077 and 14,298,270 shares issued and outstanding, respectively 72 143 Capital in excess of par value of common stock 176,658 176,465 Accumulated deficit (91,588) (95,528) Common stock held in treasury, 42,229 shares at cost (483) - --------- --------- Total stockholders' equity 84,659 81,080 --------- --------- Total liabilities and stockholders' equity $ 129,478 $ 111,893 ========= ========= The accompanying notes are an integral part of these financial statements.

19 STRATUS PROPERTIES INC. STATEMENTS OF INCOME Years Ended December 31, ---------------------------- 2001 2000 1999 -------- -------- -------- (In Thousands, Except Per Share Amounts) Revenues (Note 1) $ 14,829 $ 10,099 $ 15,252 Costs and expenses: Cost of sales, net (Note 1) 9,110 10,013 9,739 General and administrative expenses 2,925 3,735 3,507 -------- -------- -------- Total costs and expenses 12,035 13,748 13,246 -------- -------- -------- Operating income (loss) 2,794 (3,649) 2,006 Gains on settlement of Circle C municipal utility district infrastructure reimbursement claim (Note 9) - 14,295 - Interest expense, net of capitalized interest (456) (1,280) (789) Interest income 1,157 1,203 1,344 Equity in unconsolidated affiliates' income (Note 4) 207 1,372 307 Other income, net (Note 9) 238 2,677 133 -------- -------- -------- Income before income taxes and equity in unconsolidated affiliates 3,940 14,618 3,001 Income tax provision - (396) (130) -------- -------- -------- Net income $ 3,940 $ 14,222 $ 2,871 ======== ======== ======== Net income per share of common stock: Basic $0.55 $1.99 $0.40 ===== ===== ===== Diluted $0.48 $1.74 $0.35 ===== ===== ===== Average shares outstanding: Basic 7,142 7,148 7,144 ===== ===== ===== Diluted 8,204 8,351 8,114 ===== ===== ===== The accompanying notes are an integral part of these financial statements.

20 STRATUS PROPERTIES INC. STATEMENTS OF CASH FLOW Years Ended December 31, --------------------------- 2001 2000 1999 -------- -------- -------- (In Thousands) Cash flow from operating activities: Net income $ 3,940 $ 14,222 $ 2,871 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 133 129 87 Cost of real estate sales 5,928 1,369 10,018 Equity in income of unconsolidated affiliates (207) (1,372) (307) Recognition of previously deferred gains (3,684) (2,079) (327) Gain from previously deferred Circle C municipal utility district reimbursements - (7,430) - Reduction of other liabilities (Note 9) - (2,140) - (Increase) decrease in working capital: Accounts receivable and prepaid expenses 1 1,966 600 Accounts payable, accrued liabilities and other 1,168 839 (7) Proceeds from Circle C municipal utility district reimbursements - 10,262 - Long-term receivables (4,036) 8,210 (3,631) Distribution of unconsolidated affiliates' income 969 1,384 - Other (967) 2,823 1,044 -------- -------- -------- Net cash provided by operating activities 3,245 17,921 20,610 -------- -------- -------- Cash flow from investing activities: Real estate and facilities (23,097) (5,447) (8,554) Return of investment in unconsolidated affiliates 829 - - Investment in Lakeway Project (2,000) - - Investment in Walden Partnership - - (376) -------- -------- -------- Net cash used in investing activities (24,268) (5,447) (8,930) -------- -------- -------- Cash flow from financing activities: Borrowings (repayments) on credit facilities, net 11,683 392 (27,118) Proceeds from term loans 5,000 5,000 20,000 Repayments of term loans - (13,852) (6,143) Proceeds from construction loan facility 3,496 - - Proceeds from the exercise of stock options 35 18 - Repayment of convertible debt facility (3,240) - - Proceeds from convertible debt facility - - 376 Purchases of Stratus' common stock, at cost (242) - - -------- -------- -------- Net cash provided by (used in) financing activities 16,732 (8,442) (12,885) -------- -------- -------- Net increase (decrease) increase in cash and cash equivalents (4,291) 4,032 (1,205) Cash and cash equivalents at beginning of year 7,996 3,964 5,169 -------- -------- -------- Cash and cash equivalents at end of year $ 3,705 $ 7,996 $ 3,964 ======== ======== ======== Interest paid $ 2,396 $ 1,631 $ 1,716 ======== ======== ======== Income taxes paid $ 171 $ 142 $ 14 ======== ======== ======== The accompanying notes, which include information in Notes 2, 4, 7 and, 9 and 10 regarding noncash transactions, are an integral part of these financial statements.

21 STRATUS PROPERTIES INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands) Capital in Common Excess Stock Preferred Common of Par Accumulated Held in Stock Stock Value Deficit Treasury Total ------- ------- -------- --------- -------- ------- Balance at January 1, 1999 $ - $ 143 $176,447 $(112,621)$ - $63,969 Net income - - - 2,871 - 2,871 ----- ------- -------- --------- -------- ------- Balance at December 31, 1999 - 143 176,447 (109,750) - 66,840 Stock options exercised - - 18 - - 18 Net income - - - 14,222 - 14,222 ----- ------- -------- --------- -------- ------- Balance at December 31, 2000 - 143 176,465 (95,528) - 81,080 Effective two for one reverse stock split (Note 8) - (71) 71 - - - Purchase of 42,299 shares of Stratus common stock - - - - (483) (483) Stock options exercised and other - - 122 - - 122 Net income - - - 3,940 - 3,940 ----- ------- -------- --------- -------- ------- Balance at December 31, 2001 $ - $ 72 $176,658 $ (91,588) $ (483)$84,659 ===== ======= ======== ========= ======== ======= The accompanying notes are an integral part of these financial statements.

22 STRATUS PROPERTIES INC. NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Operations and Basis of Accounting. The real estate development and marketing operations of Stratus Properties Inc. (Stratus), a Delaware Corporation, are conducted in Austin and other urban areas of Texas through its wholly owned subsidiaries and, until February 2002, through certain unconsolidated joint ventures (see "Investments in Unconsolidated Affiliates" below and Notes 4 and 10). The consolidated financial statements include accounts of those subsidiaries where Stratus has more than 50 percent of the voting rights and for which the right to participate in significant management decisions is not shared with other shareholders. Stratus consolidates its wholly owned subsidiaries, which include: Stratus Properties Operating Co., L.P.; Circle C Land Corp.; Austin 290 Properties, Inc.; Stratus Management L.L.C.; Stratus Realty Inc.; Longhorn Properties Inc.; Stratus Investments LLC and STRS L.L.C. All significant intercompany transactions have been eliminated in consolidation. Investment in Unconsolidated Affiliates. Stratus' investment in less than 50 percent owned joint ventures and partnerships are accounted for under the equity method in accordance with the provisions of the American Institute of Certified Public Accountants (AICPA) Statement of Position 78-9, "Accounting for Investments in Real Estate Ventures." Stratus owns approximately a 49.9 percent interest in each of its three unconsolidated affiliates (Note 4). Stratus' real estate sales to these entities are deferred to the extent of its ownership interest in the unconsolidated affiliate. The deferred revenues subsequently are recognized ratably as the unconsolidated affiliates sell the real estate to unrelated third parties. Although Stratus serves as manager for these unconsolidated affiliates, all significant decisions are either shared with its partner or made entirely by its partner. Stratus also has a net profits interest in the Lakeway project, as further described in Note 4, in which its share of the project's earnings or loss is calculated using the hypothetical liquidation at book value approach. This approach compares the value of the investment at the beginning of the year to that at the end of the year, assuming that the project's assets were liquidated or sold at book value. The difference represents Stratus' share of the project's earnings or loss. Reclassifications. Certain prior year amounts have been reclassified to conform to the year 2001 presentation. The earnings per share information and the weighted average shares outstanding have been retroactively adjusted to reflect the effect of the stock split, which occurred in May 2001 (see Note 8), for all periods presented. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The more significant estimates include valuation allowances for deferred tax assets, estimates of future cash flows from development and sale of real estate properties, capitalization of certain indirect costs, and useful lives for depreciation and amortization. Actual results could differ from those estimates. Cash and Cash Equivalents. Highly liquid investments purchased with a maturity of three months or less are considered cash equivalents. Financial Instruments. The carrying amounts of receivables, notes receivable, accounts payable and long-term borrowings reported in the balance sheet approximate fair value. Stratus periodically evaluates its ability to collect its receivables. Stratus provides an allowance for estimated uncollectible amounts if its evaluation provides sufficient evidence that amounts of its receivable may be uncollectible. Stratus believes all its outstanding receivables are collectible and no allowances for doubtful accounts are included in the accompanying balance sheets. Notes Receivable from Property Sales. In 2001, Stratus received two notes totaling $4.4 million, related to two undeveloped property sales whose gross sale price was $5.9 million. The purchasers made cash down payments in excess of 20 percent of the sales price at the closing of each transaction. Both notes have an annual interest rate of 8 percent and mature in 20 06. One note requires principal and interest payments of $0.2 million per year, payable monthly; the other note requires quarterly interest payments and a $1.5 million principal payment in 2004. Investment in Real Estate. Real estate assets are stated at the lower of cost or net realizable value and include acreage, development, construction and carrying costs, and other related costs through the development stage. Capitalized costs are assigned to individual components of a project, as practicable, whereas interest and other common costs are allocated based on the relative fair value of individual land

23 parcels. Certain carrying costs are capitalized on properties currently under active development. Stratus recorded capitalized interest of $1.4 million in 2001, $1.3 million in 2000 and $1.2 million in 1999. In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long- Lived Assets and Long-Lived Assets to be Disposed of" when events or circumstances indicate that an asset's carrying amount may not be recoverable, an impairment test is performed. If projected undiscounted cash flow from the asset is less than the related carrying amount then a reduction of the carrying amount of the long-lived asset to fair value is required. Measurement of the impairment loss is based on the fair value of the asset. Generally, Stratus determines fair value using valuation techniques such as discounted expected future cash flows. No impairment losses are reflected in the accompanying financial statements. Depreciation. Office buildings are depreciated on a straight- line basis over their estimated 30 year life. Revenue Recognition. Revenues from property sales are recognized in accordance with SFAS No. 66, "Accounting for Sales of Real Estate" when the risks and rewards of ownership are transferred to the buyer, the consideration received can be reasonably determined and when Stratus has completed its obligations to perform certain supplementary development activities, if any exist, at the time of the sale. Notes received in connection with the land sales have not been discounted, as the purchase price was not significantly different from similar cash transactions. Stratus recognizes sales commissions and management and development fees as lots or acreage is sold or when the services are performed. A summary of Stratus' revenues follows: Years Ended December 31, ---------------------------- 2001 2000 1999 -------- -------- -------- (In Thousands) Revenues: Undeveloped properties Unrelated parties $ 9,623 $ 2,101 $ 3,279 Olympus - 533 6,020 Recognition of deferred revenues 3,792 4,026 904 -------- -------- -------- Total undeveloped properties 13,415 6,660 10,203 Developed properties - 709 3,692 Commissions, management fees and other 1,414 2,730 1,357 -------- -------- -------- Total revenues $ 14,829 $ 10,099 $ 15,252 ======== ======== ======== Cost of Sales. Cost of sales includes the cost of real estate sold as well as costs directly attributable to the properties sold such as marketing and depreciation. A summary of Stratus' cost of sales follows: For Years Ended December 31, ----------------------------- 2001 2000 1999 -------- -------- -------- (In Thousands) Cost of property sales $ 6,261 $ 1,335 $ 4,902 Cost of lots sales - 614 3,166 Recognition of previously deferred cost of sales 108 1,946 575 Allocation of indirect costs 4,200 6,198 4,651 Municipal utility district reimbursements (1,312) - (2,589) Depreciation 133 129 87 Other (280) (209) (1,053) -------- -------- -------- Total cost of sales $ 9,110 $ 10,013 $ 9,739 ======== ======== ======== Advertising Costs. Advertising costs are expensed as incurred and are included as a component of Cost of Sales. Advertising costs totaled $0.3 million in 2001 and $0.1 million in 2000. The advertising costs for 1999 were not significant.

24 Income Taxes. Stratus follows the liability method of accounting for income taxes in accordance with SFAS No. 109. "Accounting for Income Taxes." Under this method, deferred assets and liabilities are recorded for future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. See Note 7. Earnings Per Share. The following table is a reconciliation of net income and weighted average common shares outstanding for purposes of calculating basic and diluted net income per share (in thousands, except per share amounts): Years Ended December 31, ------------------------------ 2001 2000 1999 -------- -------- -------- Basic net income per share of common stock: Net income $ 3,940 $ 14,222 $ 2,871 ======== ======== ======== Weighted average common shares outstanding 7,142 7,148 7,144 ======== ======== ======== Basic net income per share of common stock $0.55 $1.99 $0.40 ===== ===== ===== Diluted net income per share of common stock: Net income $ 3,940 $ 14,222 $ 2,871 Add: Interest expense from assumed conversion of convertible debt, net of income tax effect - 331 - -------- -------- -------- $ 3,940 $ 14,553 $ 2,871 ======== ======== ======== Weighted average common shares outstanding 7,142 7,148 7,144 Dilutive stock options 211 144 119 Assumed redemption of preferred stock 851 851 851 Assumed conversion of convertible debt - 208 - -------- -------- -------- Weighted average common shares outstanding for purposes of calculating diluted net income per share 8,204 8,351 8,114 ======== ======== ======== Diluted net income per share $0.48 $1.74 $0.35 ===== ===== ===== Stratus repaid all borrowings under its convertible debt facility during 2001 (Note 2). Interest expensed on the convertible debt outstanding totaled approximately $338,000 in 2000 and $270,000 in 1999. Although the debt was convertible into 370,000 shares in 1999, it was excluded from the diluted net income per share calculation because the effect of an assumed redemption of convertible debt was anti-dilutive. There have been no dividends accrued on Stratus' mandatorily redeemable preferred stock through December 31, 2001. Stock options outstanding to purchase approximately 106,000 shares of common stock at an average exercise price of $12.38 per share in 2001, 273,000 shares of common stock at an average exercise price of $10.96 per share in 2000, and approximately 148,000 shares of common stock at an average exercise price of $12.28 per share in 1999, were excluded from the diluted net income per share calculations because their average exercise prices were higher than the average market price for the years presented. Recent Accounting Pronouncements. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133, as subsequently amended, is effective for fiscal years beginning after June 15, 2000 and establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Stratus adopted SFAS 133 effective January 1, 2001, with its adoption having no impact on its financial position or results of operations. Stratus currently has no derivative instruments, as defined by SFAS 133.

25 In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires that all business combinations subsequent to June 30, 2001 be accounted for under the purchase method of accounting. The pooling-of-interests method is no longer allowed. SFAS 142 requires that upon adoption, amortization of goodwill will cease and instead, the carrying value of goodwill will be evaluated for impairment on at least an annual basis. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of these standards did not have any affect on Stratus' financial position and results of operations. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 143, effective for fiscal years beginning after June 15, 2002, requires the fair value of liabilities for asset retirement obligations to be recorded in the period they are incurred. SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. SFAS 144 also broadens the presentation of discontinued operations to include more disposal transactions, and provides additional implementation guidance for SFAS 121. SFAS 144 is effective for fiscal years beginning after December 15, 2001. Stratus does not anticipate the adoption of these standards will have a material impact on its financial position or results of operations. 2. Olympus Relationship On May 22, 1998, Stratus and Olympus Real Estate Corporation (Olympus) formed a strategic alliance to develop certain of Stratus' existing properties and to pursue new real estate acquisition and development opportunities. Under the terms of the agreement, Olympus made a $10 million investment in Stratus' mandatorily redeemable preferred stock, provided a $10 million convertible debt financing facility to Stratus and agreed to make available up to $50 million of additional capital representing its share of direct investments in joint Stratus/Olympus projects. Olympus has the right to nominate one member or up to 20 percent of Stratus' Board of Directors, whichever is greater. Through December 31, 2001, Stratus had fixed the number of members of its Board of Directors at four, with one member being nominated by Olympus. The $10 million mandatorily redeemable preferred stock was issued at a stated value of $5.84 per share, the average closing price of Stratus' common stock during the 30 trading days ended March 2, 1998. Stratus used the proceeds from the sale of these securities to reduce its debt. In May 2001, in connection with the stock split transactions (Note 8), the coversion price of the mandatorily redeemable preferred stock was automatically adjusted to $11.75 per share. For further discussion about the mandatorily redeemable preferred stock, see Note 3 below. The $10 million convertible debt facility was available to Stratus in whole or in part until May 22, 2004 and was intended to fund Stratus' equity investment in new Stratus/Olympus joint venture opportunities involving properties not owned by Stratus in May 1998. On September 30, 1998, Stratus borrowed $2.0 million under this convertible debt facility to fund its investment in the Oly Walden General Partnership (Walden Partnership) (see Note 4). During the third quarter of 1999, Stratus borrowed an additional $0.4 million under the convertible debt facility to fund its share of an additional capital contribution to the Walden Partnership. During the second quarter of 2001, Stratus repaid Olympus the entire $3.2 million balance under the convertible debt financing facility. Included in the $3.2 million payment to Olympus was $0.8 million of accrued interest that had been added to the principal under the terms of the facility, and which represented the stated 12 percent annual rate pursuant to the terms of the convertible debt financing agreement. Stratus paid an additional $0.3 million of interest during the third quarter of 2001 to satisfy the minimum annual rate of return provision within the convertible debt facility agreement, which provided that if the combination of interest at 12 percent and the value of the conversion right did not provide Olympus with at least a 15 percent annual return on the convertible debt, Stratus would pay Olympus additional interest upon termination of the convertible debt facility in an amount necessary to yield a 15 percent return. The convertible debt facility was terminated on August 15, 2001. Olympus also agreed to make available up to $50 million through May 22, 2001, of which it invested approximately $13.4 million, for its share of capital for direct investments in Stratus/Olympus joint acquisition and development activities (Note 4). In return, Stratus provided Olympus with a right of first refusal to participate for no less than a 50 percent interest in all new acquisition and development projects on properties not currently owned by Stratus, as well as development opportunities on existing properties in which Stratus sought third-party equity participation. In February 2002, Olympus and Stratus concluded their business relationship (Note 11).

26 3. Mandatorily Redeemable Preferred Stock At December 31, 2001 and 2000, Stratus had outstanding 1,712,328 shares of mandatorily redeemable preferred stock, stated value of $5.48 per share. The conversion price of the mandatorily redeemable preferred stock was automatically adjusted to $11.75 per share in May 2001 as a result of the stock split transactions (Note 8). Each share of preferred stock would share dividends and distributions, if any, ratably with Stratus' common stock. The preferred stock became redeemable at the holder's option at any time after May 22, 2001, for cash in an amount per share equal to 95 percent of the average closing price per share of common stock for the 10 trading days preceding the redemption date (the "common stock equivalent value") or, at Stratus' option, after May 22, 2003 for the greater of the common stock equivalent value or their stated value per share, plus accrued and unpaid dividends, if any. The preferred stock was required to be redeemed no later than May 22, 2004. Stratus had the option to satisfy the redemption with shares of its common stock on a one-for-one share basis, subject to certain limitations. In February 2002, Stratus purchased all of its outstanding mandatorily redeemable preferred stock in connection with the transactions that concluded Stratus' business relationship with Olympus (Note 11). 4. Investment in Unconsolidated Affiliates Until February 2002, Stratus had investments in three joint ventures. Stratus owned an approximate 49.9 percent interest in each joint venture and Olympus owned the remaining 50.1 percent interest. Accordingly, Stratus has accounted for its investments in the joint ventures using the equity method of accounting (Note 1). Stratus served as developer and manager for each project undertaken by the joint ventures and received development fees, sales commissions, and other management fees for its services. In February 2002, Stratus and Olympus reached an agreement in which Stratus purchased Olympus' ownership interests in the jointly owned Austin, Texas, properties and Olympus purchased Stratus' ownership interest in the jointly owned Houston, Texas, property (see below and Note 11). On September 30, 1998, Stratus entered into two separate joint ventures with Olympus. The first provided for the development of 75 residential lots at the Wimberly Lane subdivision located within the Barton Creek community in Austin, Texas. In this transaction, Stratus sold land to the Oly Stratus Barton Creek I Joint Venture (Barton Creek Joint Venture), for approximately $3.3 million. Stratus deferred recognizing revenues to the extent of its equity interest in the sale, or $1.6 million, for financial accounting purposes, which was being recognized ratably as the developed lots were sold to unrelated third parties. Upon closing, Stratus received $2.1 million and a $1.2 million note and invested approximately $0.5 million in the now fully developed project. In December 1999, Stratus sold 174 acres of land encompassing 54 platted lots within the Barton Creek Escala Drive subdivision to the Barton Creek Joint Venture for $11.0 million. Upon the closing of the sale, Stratus received $6.0 million and a $5.0 million note. Stratus deferred recognizing revenues on $5.5 million of the $11.0 million of sales proceeds and $3.0 million of the $6.0 million related gain attributable to its ownership interest. Stratus recognized a portion of these deferred amounts as the lots in the fully developed Escala Drive project were sold to unrelated third parties. Stratus, as manager of the project, sold two Wimberly Lane lots and one Escala Drive lot during 2001, 30 Wimberly Lane lots and 32 Escala Drive lots in 2000 and 42 Wimberly Lane lots during 1999. Stratus recognized previously deferred gains totaling $0.1 million in 2001, $2.1 million in 2000 and $0.3 million in 1999 as a result of the Barton Creek Joint Venture's lot sales. Deferred gains remaining to be recognized from Barton Creek Joint Venture lot sales totaled $1.1 million at December 31, 2001 and are included in "Deferred revenues" on the accompanying balance sheet (see Note 11 for disclosure of the disposition of the deferred gain as part of the transaction that concluded Stratus' business relationship with Olympus in February 2002). In connection with its lot sales, the Barton Creek Joint Venture has distributed a total of $17.1 million to the partners. Stratus' portion of the distributions, approximately $8.6 million, have been recorded as a repayment of the Barton Creek notes receivable and related accrued interest ($6.9 million) and a reduction of its investment in the Barton Creek Joint Venture ($1.7 million). In February 2002, Stratus purchased Olympus' 50.01 percent interest in the Barton Creek Joint Venture and its future operations will be consolidated in Stratus' financial statements. The second transaction on September 30, 1998 involved approximately 700 developed lots and 80 acres of platted but undeveloped real estate at the Walden on Lake Houston project (Walden). Olympus originally purchased Walden in April 1998 when it contained 930 developed lots and 80 acres of undeveloped property. Stratus has served as manager of this project since Olympus' purchase. Stratus acquired its 49.9 percent interest in the Walden Partnership with $2.0 million of borrowings under its convertible debt facility with Olympus (see Note 2). On September 30, 1999, Stratus borrowed an additional $0.4 million under the convertible debt facility to fund its share of an additional

27 capital contribution to the Walden Partnership. The Walden Partnership had 404 developed lots and 80 acres of undeveloped property remaining at December 31, 2001. Through December 31, 2001, the Walden Partnership had not made any distributions to the partners. In February 2002, Stratus sold its 49.9 percent interest in the Walden Partnership to Olympus (Note 11). Stratus negotiated an $8.2 million project development loan for the Walden Partnership, which was nonrecourse to the partners and secured by the Walden Partnership's assets. At December 31, 2000, borrowings of $1.7 million were outstanding on the project loan. The loan also required that a wholly owned subsidiary of Stratus deposit a total of $2.5 million of restricted cash with the bank as additional collateral. The project loan agreement for the Walden Partnership permitted a $0.30 reduction of this restricted cash deposit for every $1.00 of principal repaid on the Walden Partnership loan. At December 31, 2000, Stratus had approximately $0.6 million of restricted cash associated with this agreement. The loan was repaid in full during 2001, and the remaining restricted cash deposited with the bank was released to Stratus. At December 31, 2001, Stratus has $0.4 million in interest receivable from the Walden Partnership related to compensation for the collateral deposit (discussed above). Stratus also has $1.3 million in accrued interest receivable on its $2.1 million Walden Partnership note receivable. The $2.1 million note receivable is included in "Investments and advances to unconsolidated affiliates" in the accompanying balance sheets. Stratus has recorded the $1.7 million of accrued interest due from related parties in "Other assets" in the accompanying balance sheet. In January 2002, Stratus received the $0.4 million of interest from the Walden Partnership, representing the remaining amount due for providing the collateral deposit. For a discussion of the settlement of these interest receivable amounts, see Note 11. On August 16, 1999, Stratus sold Olympus a 50.1 percent interest in the Stratus 7000 West Joint Venture (7000 West) which owned a 70,000-square-foot office building, which was the first phase of the 140,000-square-foot Lantana Corporate Center located in Austin, Texas. Stratus received $1.0 million upon closing and recognized a $0.4 million gain relating to Olympus' ownership interest in the building. Stratus deferred recogonizing revenues on its retained interest of the sales proceeds ($0.5 million) and related gain ($0.4 million) resulting from the sale of the 5.5 acres of commercial real estate associated with Phase I of the project. As developer, Stratus completed construction on the first building in November 1999 and as manager has secured lease agreements which have fully occupied the building. During the first quarter of 2000, Stratus completed a second sale of 5.5 acres of commercial real estate to 7000 West for $1.1 million, which was used as the site for the second 70,000-square-foot office building (Phase II). Upon completion and leasing of Phase II during the second quarter of 2000, Stratus recognized the revenues ($0.5 million) and related gain ($0.4 million) associated with Olympus' ownership interest in 7000 West. Deferred gains from the sales of land for both phases totaled $0.8 million and are included in "Deferred revenues" on the accompanying balance sheets for both 2001 and 2000. The 7000 West Joint Venture has distributed approximately $0.6 million to the partners, of which Stratus has recorded its $0.3 million portion as a reduction of its investment in 7000 West. Funds for the construction of the first building at 7000 West were provided by a $6.6 million project loan that Stratus negotiated in April 1999. During the first quarter of 2000, as manager of the 7000 West project, Stratus obtained an additional $7.7 million of availability under the 7000 West development facility to provide the funding necessary to construct Phase II. The variable rate, nonrecourse loan is secured by the approximate 11 acres of real estate and the two completed office buildings at 7000 West and was scheduled to mature in August 24, 2001; however, Stratus negotiated an extension of the term loan to August 24, 2002 with an option to extend the maturity to August 24, 2003, subject to certain conditions. Stratus currently meets these conditions and will exercise its option to extend the maturity of the debt until at least August 2003. Borrowings outstanding on the 7000 West development loan totaled $12.9 million at December 31, 2001 and $12.0 million at December 31, 2000. In February 2002, Stratus purchased Olympus' interest in the 7000 West Joint Venture and will consolidate this debt on its balance sheet prospectively (Note 11). The summarized unaudited financial information of Stratus' unconsolidated affiliates as of December 31, 2001 and 2000, and for each of the three years in the period endind December 31, 2001 follows (in thousands):

28 Barton Creek Joint Walden 7000 Venture Partnership West Total -------- ----------- ------- ------- (Unaudited) Earnings data (year ended December 31, 2001): Revenues $ 973 $ 2,472 $ 3,275 $ 6,720 Operating loss (252) (751) (152) (1,155) Net loss (244) (595) (75) (914) Stratus' equity in net loss (121) (254)a (37) (412 Earnings data (year ended December 31, 2000): Revenues 17,454 2,396 1,357 21,207 Operating income (loss) 4,461 (1,074) (909) 2,478 Net income (loss) 4,580 (1,007) (909) 2,664 Stratus' equity in net income (loss) 2,286 (460)a (454) 1,372 Earnings data (year ended December 31, 1999): Revenues 4,787 2,993 21 7,801 Operating income (loss) 1,039 (510) (83) 446 Net income (loss) 1,039 (485) (74) 480 Stratus' equity in net income (loss) 518 (174)a (37) 307 Balance sheet data (at December 31, 2001): Current assets 363 313 1,960 4,608 Other long-term receivables 1,972 - - - Real estate and facilities, net 4,957 6,166 14,783 25,906 Total assets 7,292 6,479 16,743 30,514 Current liabilities 5 2,984 856 3,845 Total liabilities 5 7,347 b 13,794 21,146 Net assets (liabilities) 7,287 (868) 2,949 9,368 Stratus' equity in net assets (liabilities) 3,643 (433) 1,471 4,681 Balance sheet data (at December 31, 2000): Current assets 1,243 501 1,490 5,218 Other long-term receivables 1,984 - - - Real estate and facilities, net 5,181 7,350 14,696 27,227 Total assets 8,408 7,851 16,186 32,445 Current liabilities 177 1,946 12,635 14,758 Total liabilities 177 8,124 b 12,635 20,936 Net assets (liabilities) 8,231 (273) 3,551 11,509 Stratus' equity in net assets (liabilities) 4,107 (136) 1,772 5,743 a. Includes recognition of deferred income of $43,000 in 2001, $42,000 in 2000 and $67,000 in 1999, representing the difference in Stratus' investment in the Walden Partnership and its underlying equity at the date of acquisition. Stratus will recognize the remaining difference as the related real estate is sold. At December 31, 2001, Stratus had $185,000 of remaining unrecognized Walden Partnership deferred income. b. Includes a $2.1 million note payable to Stratus. Lakeway Project - --------------- Since mid-1998, Stratus has provided development, management, operating and marketing services for the Lakeway development near Austin, Texas, which is owned by Commercial Lakeway Limited Partnership, an affiliate of Credit Suisse First Boston, for a fixed monthly fee. In January 2001, Stratus entered into an expanded development management agreement with Commercial Lakeway Limited Partnership covering a 552-acre portion of the Lakeway development known as Schramm Ranch, and

29 Stratus contributed $2.0 million as an investment in this project (Lakeway Project). Under the agreement, Stratus will receive enhanced management and development fees and sales commissions, as well as a net profits interest in the Lakeway project. Lakeway Project distributions are made to Stratus as sales installments close. Stratus is currently receiving a 28 percent share in any Lakeway Project distributions and that rate will continue until it receives proceeds totaling the initial investment in the project ($2.0 million) plus a stated annual rate of return, at which time, the share of the Lakeway Project distributions will increase to 40 percent. During the second quarter of 2001, Stratus negotiated an agreement to sell the entire Schramm Ranch property to a single purchaser for approximately $11.0 million, conditioned on obtaining certain entitlements. As manager of the project, Stratus obtained subdivision, annexation, zoning and other entitlements for the first phase of the Schramm Ranch property. Obtaining these entitlements allowed for the closing of the sale for the first phase of the Schramm Ranch property for $1.5 million. The proceeds from this initial closing were used to obtain the entitlements necessary for the purchaser to develop the remaining 500-plus acres of the property. In the fourth quarter of 2001, Stratus secured all the remaining necessary entitlements for the Schramm Ranch property and the purchaser closed and funded $3.5 million, representing the second of four sale installments. In connection with this second sale installment, the Lakeway Project distributed approximately $1.2 million to Stratus. Stratus recorded approximately $0.6 million of the proceeds as a partial return of its original investment in the project and $0.6 million as its equity earnings in the project's income for the year, which was reflected in "Equity in unconsolidated affiliates' income" in the accompanying statements of income The remaining two Schramm Ranch property sales installments (totaling $6.0 million) are scheduled to occur in March 2002 and June 2002. At December 31, 2001, Stratus had $0.6 million in accounts receivable related to expenditures made on behalf of the Lakeway Project that are to be reimbursed by the Commercial Lakeway Limited Partnership. 5. Long-Term Debt December 31, -------------------- 2001 2000 -------- ------- (In Thousands) Comerica facility, average rate 6.1% in 2001 and 9.5% in 2000 $ 12,080 $ 397 Unsecured term loans, average rate 9.25% in 2001 and 2000 10,000 5,000 Construction loan facility, average rate 4.6% in 2001 13,496 - Convertible debt facility with Olympus, average rate 12.0% in 2001 and 2000 (Note 2) - 3,043 -------- ------- $ 25,576 $ 8,440 ======== ======= In December 1999, Stratus negotiated a facility agreement with Comerica Bank-Texas (Comerica). The facility provided for a $20 million term loan and a $10 million revolving line of credit. Stratus borrowed $20 million under the term loan portion of the facility and used the proceeds to repay all outstanding borrowings under a previous credit facility. In December 2000, Stratus repaid all remaining borrowings outstanding under the existing Comerica facility and negotiated an expanded $30 million facility arrangement, with a December 16, 2002 maturity. Under terms of the amended agreement, Stratus' availability totaled $20 million under a revolving line of credit with a $10 million term loan commitment specifically designated for potential future redemption obligations related to Stratus' mandatorily redeemable preferred stock held by Olympus (Note 3). In December 2001, Stratus established a new credit facility with Comerica. Under terms of the new facility, Stratus has established an expanded $25 million revolving line of credit available for general corporate purposes and an additional $5 million loan specifically designed to provide the funds for certain development costs. This facility will mature in April 2004. At December 31, 2001, Stratus had borrowed $12.1 million under its existing revolving credit facility. See Note 11 for discussion of transactions that required Stratus to borrow additional amounts under its revolving credit facility. Interest on the Comerica facility is variable and accrues at either the lender's prime rate plus 1 percent or LIBOR plus 250 basis points at Stratus' option. The term loan and revolving line of credit contain certain customary restrictions and are secured by a lien on all of Stratus' real property assets, its interests in unconsolidated affiliates and the future receipt of municipal utility district reimbursements and other infrastructure receivables. The credit facility also contains covenants which prohibit the payment of dividends and impose certain other restrictions. As of December 31, 2001, Stratus was in compliance with such covenants. Stratus also is required to deposit funds into an interest reserve account with the bank. The

30 amount in this account must be sufficient to carry the potential debt service for both the term loan and the revolving line of credit for the ensuing twelve-month period, adjusted quarterly. The amount of the interest reserve totaled approximately $1.6 million at December 31, 2001. The amount can be funded directly by Stratus or by reducing Stratus' availability under the revolving line of credit. At December 31, 2001, Stratus had no amounts deposited in the interest reserve account, which reduced its availability under its revolving credit facility to $23.4 million, of which Stratus had borrowed $12.1 million at December 31, 2001 (see above). The full amount of the facility can be re- established if Stratus makes future deposits into the interest reserve account. Stratus is able to withdraw any of the proceeds it deposits into the interest reserve account at its discretion. Stratus has also entered into two separate five-year $5.0 million unsecured term loans with First American Asset Management. Interest accrues on the loans at an annual rate of 9.25 percent and is payable monthly. One loan will mature in December 2005, the other $5.0 million term loan will mature in July 2006. The proceeds from these term loans have been used to fund Stratus' ongoing operations and for its general corporate purposes. In the second quarter of 2001, Stratus secured an $18.4 million project loan with Comerica for the construction of two office buildings at the 7500 Rialto Drive project located within the Lantana project in Austin, Texas. This variable-rate project loan facility, secured by the land and buildings in the project, matures in June 2003, with an option to extend its maturity by one year. Currently, Stratus' availability under the project loan is $9.2 million and is intended for the construction of the first 75,000-square-foot building and related parking garage. At December 31, 2001, Stratus had borrowed $3.5 million under this project loan facility. As a result of the transactions with Olympus in February 2002, Stratus assumed $12.9 million of previously unconsolidated debt associated with the construction of the 140,000-square-foot office complex at 7000 West (see Notes 4 and 11). 6. Real Estate and Facilities, net December 31, ---------------------- 2001 2000 --------- -------- (In Thousands) Land held for development or sale: Austin, Texas area $ 100,735 $ 87,781 Other areas of Texas 1,590 4,875 --------- -------- Total land 102,325 92,656 Office building (7500 Rialto) 7,380 - Furniture, fixtures and equipment, net of accumulated depreciation of $322 in 2001 and $189 in 2000 337 349 --------- -------- $ 110,042 $ 93,005 ========= ======== At December 2001, Stratus' investment in real estate includes approximately 3,800 acres of land located in Austin, Houston and San Antonio, Texas. The principal holdings of Stratus are located in the Austin area and consist of 2,039 acres of undeveloped residential, multi-family and commercial property and 34 developed real estate lots within the Barton Creek community. Stratus' remaining Austin properties include 436 acres of undeveloped residential, multi-family and commercial property in an area known as the Lantana tract, south of and adjacent to the Barton Creek community and the approximate 1,300 acres of undeveloped commercial and multi-family property within the Circle C Ranch development. During 2001, Stratus commenced and substantially completed the 75,000-square-foot office building at 7500 Rialto Drive within Lantana. The office building costs reflected in the table above include both the construction and land costs associated with 7500 Rialto. Stratus also owns 13 acres of undeveloped commercial property in Houston, Texas, and 21 acres of undeveloped multi- family residential property located in San Antonio, Texas. The San Antonio property is being managed and actively marketed by an unaffiliated professional real estate developer. Under the terms of the related development agreements the operating expenses and development costs, net of revenues, are funded by Stratus. The developer is entitled to a management fee and a 25 percent interest in the net profits, after Stratus recovers its investment and a stated rate of return, resulting from the sale of the managed properties. As of December 31, 2001, no amounts have been paid in connection with this net profit arrangement.

31 Various regulatory matters and litigation involving Stratus' development of its Austin-area properties were resolved during 2000 (Note 9). 7. Income Taxes Income taxes are recorded pursuant to SFAS 109 "Accounting for Income Taxes." No benefit has been recognized for any period presented with respect to Stratus' net deferred assets, as a full valuation allowance has been provided because of Stratus' operating history. Therefore, the final determination of the gross deferred tax asset amounts had no impact to Stratus' financial statements. The components of deferred taxes follow: December 31, --------------------- 2001 2000 --------- -------- (In Thousands) Deferred tax assets: Net operating losses (expire 2001-2018) $ 11,599 $ 12,167 Real estate and facilities, net 9,360 10,518 Alternative minimum tax credits and 805 496 depletion allowance (no expiration) Other future deduction carryforwards (expire 2001-2003) 67 52 Valuation allowance (21,831) (23,233) --------- -------- $ - $ - ========= ======== Income taxes charged to income follow: Years Ended December 31, ----------------------------- 2001 2000 1999 ------- -------- ------- (In Thousands) Current income tax provision Federal $ - $ (351) $ (60) State - (45) (70) ------- -------- ------- (396) (130) ------- -------- ------- Income tax provision $ - $ (396) $ (130) ======= ======== ======= Reconciliations of the differences between the income tax provision computed at the federal statutory tax rate and the income tax provision recorded follow: Years Ended December 31, ------------------------------------------------- 2001 2000 1999 --------------- -------------- --------------- Amount Percent Amount Percent Amount Percent ------- ------- ------ ------- ------- ------- (Dollars In Thousands) Income tax provision computed at the federal statutory income tax rate $(1,379) (35)% $(5,116) (35)% $(1,050) (35)% (Increase) decrease attributable to: Change in valuation allowance 1,402 35 3,742 26 1,212 40 State taxes and other (23) - 978 6 (292) (9) ------- ------ ------- --- ------- --- Income tax provision $ - - % $ (396) (3)% $ (130) (4)% ======= ====== ======= === ======= === 8. Stock Options and Equity Transactions Stock Options. Stratus' Stock Option Plan, 1998 Stock Option Plan and Stock Option Plan for Non-Employee Directors (the Plans) provide for the issuance of stock options, adjusted for the effects of the effective reverse stock split transactions (see below), representing 975,000 shares of common stock and stock appreciation rights at no less than market value at time of grant. Generally, stock options are exercisable in 25 percent annual increments beginning one year from the date of grant and expire 10 years after the date of grant. At December 31, 2001, 174,950 options were available for new grants under the Plans. The 50,000 remaining stock appreciation rights were exercised during 2001. A summary of stock options outstanding follows:

32 2001 2000 1999 ----------------- ----------------- ----------------- Number Average Number Average Number Average of Option of Option of Option Options Price Options Price Options Price ------- ------- ------- ------- -------- ------- Beginning of year 836,625 $ 7.70 631,938 $ 7.00 533,813 $ 6.84 Granted 7,500 9.87 236,875 9.08 98,125 7.84 Exercised (56,250) 10.12 (30,000) 3.52 - - Expired/forfeited (325) 12.38 (2,188) 9.00 - - ------- ------- ------- ------- -------- ------- End of year 787,550 8.01 836,625 7.70 631,938 7.00 ======= ======= ======= ======= ======== ======= Summary information of fixed stock options outstanding at December 31, 2001 follows: Options Outstanding Options Exercisable ---------------------------- -------------------- Weighted Weighted Weighted Number Average Average Average Of Remaining Option Number Option Range of Exercise Prices Options Life Price of Options Price - ------------------------ ------- --------- ------ ---------- ------- $3.00 to $3.63 135,000 3.9 years $ 3.12 135,000 $ 3.12 $5.25 to $7.81 254,063 6.2 years 7.08 208,129 6.93 $8.06 to $9.87 256,875 8.5 years 9.09 67,972 9.07 $12.38 141,612 6.1 years 12.38 106,375 12.38 -------- ------- 787,550 517,476 ======== ======= Stratus has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock Based Compensation," and continues to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans. Accordingly, Stratus has recognized no compensation costs associated with its stock option grants. If Stratus had determined compensation costs for its stock option grants based on the fair value of the awards at their grant dates, its net income would have decreased by $909,000 ($0.11 per share) in 2001, $828,000 ($0.10 per share) in 2000 and $752,000 ($0.09 per share) in 1999. For the pro forma computations, the fair values of the option grants were estimated on the dates of grant using the Black-Scholes option pricing model. These values totaled $7.02 in 2001, $6.55 in 2000 and $5.50 in 1999. The weighted average assumptions used include a risk-free interest rate of 5.4 percent in 2001, 6.0 percent in 2000 and 5.4 percent in 1999, expected lives of 10 years and expected volatility of 55 percent in 2001, 55 percent in 2000 and 54 percent in 1999. These pro forma effects are not necessarily representative of future years. No other discounts or restrictions related to vesting or the likelihood of vesting of fixed stock options were applied. Share Purchase Program. In February 2001, Stratus' Board of Directors authorized an open market stock purchase program for up to 0.7 million stock-split adjusted shares of Stratus' common stock (see below). The purchases may occur over time depending on many factors, including the market price of Stratus stock; Stratus' operating results, cash flow and financial position; and general economic and market conditions. No purchases have been made under this program through February 4, 2002. Stock Split Transactions. On May 10, 2001, the shareholders of Stratus approved an amendment to Stratus' certificate of incorporation to permit a reverse 1-for-50 common stock split followed immediately by a forward 25-for-1 common stock split. This transaction resulted in Stratus' shareholders owning fewer than 50 shares of common stock having their shares converted into less than one share in the reverse 1-for-50 split, for which they received cash payments equal to the fair value of those fractional interests. Stratus shareholders owning more than 50 shares of Stratus' common stock had their number of shares of common stock reduced by one-half immediately after this transaction. Shareholders owning an odd number of shares were entitled to a cash payment equal to the fair value of the resulting fractional share. The fair value of the fractional shares was calculated by valuing each outstanding share of Stratus common stock held at the close of business on the effective date, May 25, 2001, at the average daily closing price per share of Stratus' common stock for the ten trading days immediately preceding the effective date. Stratus funded $0.5 million into a restricted cash account to purchase approximately 42,000 post-stock split shares of its common stock. As of December 31, 2001, fractional shares

33 representing approximately 21,000 shares of Stratus' common stock had been purchased for $0.25 million. The funding for the remaining 21,000 purchased shares is shown as $0.2 million of restricted cash on the accompanying December 31, 2001 balance sheet. The number of shares outstanding of Stratus' mandatorily redeemable preferred stock (see Note 3) is not affected by this transaction; however, the conversion price in effect immediately prior to the transaction was approximately doubled to reflect the effects of these transactions. 9. Commitments and Contingencies. Construction Contracts. Stratus had commitments under non- cancelable open contracts totaling $4.8 million at December 31, 2001. Environmental. Stratus has made, and will continue to make, expenditures at its operations for protection of the environment. Increasing emphasis on environmental matters can be expected to result in additional costs, which will be charged against Stratus' operations in future periods. Present and future environmental laws and regulations applicable to Stratus' operations may require substantial capital expenditures that could adversely affect the development of its real estate interests or may affect its operations in other ways that cannot be accurately predicted at this time. Stratus previously accrued liabilities totaling $5.1 million in the connection with operation of certain oil and gas properties that were sold during 1993. During 2000 management completed a review of these amounts and determined that current conditions warranted reversal of $2.1 million of these accruals. Accordingly, other income of $2.1 million is reflected in the Statement of Income for the year ending December 31, 2000. The remaining liability represents Stratus' indemnification of the purchaser for any future abandonment costs in excess of net revenues received by the purchaser in connection with the sale of one oil and gas property in 1993. Stratus accrued $3.0 million relating to this liability at the time of the purchase, which is included in "Other liabilities" in the accompanying balance sheets. Stratus periodically assesses the reasonableness of amounts recorded for this liability through the use of information provided by the operator of the property, including its net production revenues. The carrying value of this liability may be adjusted in future periods, as additional information becomes available. Litigation. Annexation/Circle C MUD Reimbursement Suit. On December 19, 1997, the City of Austin (the City) annexed all land formerly lying within the Circle C project. Stratus' property located within Circle C's municipal utility districts (MUDs) and annexed by the City is subject to the City's zoning and development regulations. Additionally, the City is required to assume all MUD debt and reimburse Stratus for a significant portion of the costs incurred for water, wastewater and drainage infrastructure. Because the City failed to pay these costs upon annexation, as required by statute, Stratus sued the City. In late October 1999, Circle C Land Corp., a wholly owned subsidiary of Stratus, and the City reached an agreement regarding a portion of Circle C's claims against the City. As a result of this agreement, Stratus received approximately $10.3 million, including $1.0 million in interest, of partial settlement claims through December 31, 1999 and received an additional $0.2 million payment in January 2000. In March 2000, the City settled its disputes with certain third party real estate developers and landowners at the Circle C community. Under terms of this settlement, the lawsuits contesting the City's December 1997 annexation of all land within the four Circle C MUDs and the dissolution of the four MUDs were dismissed with prejudice. As a result, a refund contingency included in the City's partial settlement of Stratus' reimbursement claim was eliminated. Stratus recorded a gain of approximately $7.4 million in the first quarter of 2000, representing that portion of the reimbursement infrastructure expenditures in excess of Stratus' remaining basis in these assets and related interest income. The remaining $3.1 million of the proceeds reduced Stratus' investment in Circle C. In December 2000, Stratus received $6.9 million, including $0.6 million of interest, from the City as full and final settlement of Stratus' Circle C MUD reimbursement claim. Stratus recorded a gain of $6.9 million during the fourth quarter associated with its receipt of these proceeds. Other. Stratus and the City were involved in various lawsuits from January 1998 through June 2000, regarding the constitutionality of certain legislation authorizing the creation of water quality protection zones (WQPZs). The enabling legislation provided that a duly formed WQPZ would be responsible for establishing and monitoring the water quality standards for the development within zones. The City argued that the enabling legislation authorizing the formation of the WQPZs was unconstitutional, while Stratus and other developers argued the WQPZ legislation was constitutional. In June 2000, the Texas

34 Supreme Court ruled the Texas WQPZ legislation was unconstitutional. This decision primarily affects Stratus' properties within the southern portion of its Barton Creek project. Significant portions of Stratus' properties contain grandfathered entitlements providing an exemption from certain current development regulations. Stratus has initiated development plans for these areas that will meet the grandfathered ordinance requirements or current ordinances, as applicable. 10. Quarterly Financial Information (Unaudited) Net Income Operating Net (Loss) per Share Income Income ----------------- Revenues (Loss) (Loss) Basic Diluted -------- --------- --------- ------- -------- (In Thousands, Except Per Share Amounts) 2001 1st Quarter $ 1,426 $ (140) $ 20 $ - $ - 2nd Quarter 8,214 1,278 1,090 0.15 0.13 3rd Quarter 4,458 2,946 3,056 0.43 0.37 4th Quarter 731 (1,290) (226) (0.03) (0.03) -------- --------- --------- $ 14,829 $ 2,794 $ 3,940 0.55 0.48 ======== ========= ========= 2000 1st Quarter $ 2,113 $ (745) $ 7,278 a $ 1.02 $ 0.88 2nd Quarter 2,942 (2) 575 0.08 0.07 3rd Quarter 2,019 (918) 164 0.02 0.02 4th Quarter 3,025 (1,984) 6,205 b 0.86 0.76 -------- --------- --------- $ 10,099 $ (3,649) $ 14,222 1.99 1.74 ======== ========= ========= a. Includes $7.4 million gain recognition associated with the partial settlement of the Circle C MUD reimbursement claim (Note 9). b. Includes $6.9 million gain associated with the full and final settlement of the Circle C MUD reimbursement claim (Note 9). 11. Subsequent Event Since 1998, Stratus, through its subsidiaries, has been involved in three joint ventures with Olympus (see Note 4). Each joint venture was governed by a partnership agreement containing similar provisions, including a "buy/sell option" which could be exercised by either Stratus or Olympus. In November 2001, Olympus triggered the buy/sell option by offering to either sell its approximate 50 percent equity interests in each of the three joint ventures or otherwise purchase Stratus' approximate 50 percent equity interests in the three joint ventures. In December 2001, Stratus notified Olympus that it intended to purchase Olympus' interests. Subsequently, Stratus and Olympus initiated discussions to conclude their ongoing business relationship. On February 12, 2002, Stratus and Olympus agreed to conclude their business relationship, which occurred on February 27, 2002 in the following transactions: * Stratus redeemed its $10.0 million of mandatorily redeemable preferred stock held by Olympus for $7.6 million. Stratus will record the $2.4 million discount as additional paid in capital. * Stratus sold its 49.9 percent ownership interest in the Walden Partnership to Olympus for $3.1 million. * Stratus acquired Olympus' 50.01 percent ownership interest in the Barton Creek Joint Venture for $2.4 million. At the time of its acquisition, the Barton Creek Joint Venture's cash totaled $0.3 million and the joint venture is scheduled to receive a $1.0 million MUD reimbursement in June 2002.

35 * Stratus acquired Olympus' 50.1 percent ownership interest in the 7000 West Joint Venture for $1.5 million. Stratus received $0.7 million of cash from 7000 West upon its acquisition and also assumed 7000 West's $12.9 million of previously unconsolidated debt. The net cash cost of the transactions for Stratus totaled approximately $7.4 million, after considering the approximate $1.0 million in cash it received from its acquisition of the Barton Creek and 7000 West Joint Ventures. Stratus completed these transactions using funds available to it under its $25 million revolving credit facility (see Note 5). In connection with the completion of these transactions, Stratus also announced the resignation of Mr. Robert L. Adair III from its Board of Directors. Mr. Adair was appointed to the Board in 1998 in connection with the original Olympus agreement that provided for representation on Stratus' Board (Note 2). The following unaudited pro forma consolidated balance sheet at December 31, 2001 and income statement for the year ending December 31, 2001 show the effect of the Olympus transactions as if the event had occurred on January 1, 2001 (in thousands). Unadjusted Pro Acquired Combined Pro Forma Stratus Joint Balance Forma Balance Historical Ventures Sheet Adjustments Sheet --------- -------- --------- ----------- --------- Assets Cash and cash equivalents $ 3,705 $ 1,108 $ 4,813 $ (1,000)a $ 3,813 Accounts receivable 740 307 1,047 - 1,047 Prepaid expenses 73 6 79 - 79 --------- -------- --------- ----------- --------- Total current assets 4,518 1,421 5,939 (1,000) 4,939 Real estate and facilities, net 110,042 19,741 129,783 (3,201)b 126,582 Investments in and advances to unconsolidated affiliates 8,005 - 8,005 (6,575)c 1,430 Long-term receivable 4,083 - 4,083 - 4,083 Other assets 2,830 2,969 5,799 (1,321)d 4,478 --------- -------- --------- ----------- --------- Total assets $ 129,478 $ 24,131 $ 153,609 $ (12,097) $ 141,512 ========= ======== ========= =========== ========= Liabilities and Stockholders' Equity Accounts payable and and accrued liabilities $ 2,482 $ 614 $ 3,096 $ - $ 3,096 Accrued interest, property taxes and other 1,895 232 2,127 - 2,127 --------- -------- --------- ----------- --------- Total current liabilities 4,377 846 5,223 - 5,223 Long-term debt 25,576 12,930 38,506 7,400 e 45,906 Other liabilities 4,866 - 4,866 (1,864)f 3,002 Mandatorily reedeemable preferred stock 10,000 - 10,000 (10,000)g - Total stockholders' equity 84,659 10,355 95,014 (7,633)h 87,381 --------- -------- --------- ----------- --------- Total liabilities and stockholders' equity $ 129,478 $ 24,131 $ 153,609 $ (12,097) $ 141,512 ========= ======== ========= =========== ========= a. Cash paid in transactions using cash received from joint ventures acquired and borrowings. b. Basis reduction of properties acquired in acquisitions and elimination of deferred costs. c. Elimination of investments in and advances to unconsolidated affiliates. d. Elimination of long-term interest receivable from the Walden Partnership. e. Net borrowings to fund transactions excluding the cash received from joint ventures acquired (see above). f. Elimination of the remaining deferred gains associated with the Barton Creek Joint Venture ($1.1 million) and 7000 West ($0.8 million). g. Redemption of Stratus' mandatorily redeemable preferred stock. h. Elimination of the partnership equity of joint ventures acquired offset in part by recording the $2.4 million discount associated with the redemption of the mandatorily redeemable preferred stock and the approximate $0.3 million gain from the sale of the Walden partnership.

36 Unadjusted Pro Acquired Combined Pro Forma Stratus Joint Income Forma Income Historical Ventures Statement Adjustments Statement --------- -------- --------- ----------- --------- Revenues $ 14,829 $ 4,249 $ 19,078 $ (549)a $ 18,529 Costs and expenses: Cost of sales 9,110 2,911 12,021 (329)b 11,692 General and administrative expenses 2,925 705 3,630 - 3,630 --------- -------- --------- ----------- --------- Total cost and expenses 12,035 3,616 15,651 (329) 15,322 --------- -------- --------- ----------- --------- Operating income (loss) 2,794 633 3,427 (220) 3,207 Interest expense, net (456) (1,057) (1,513) - (1,513) Interest income 1,157 2 1,159 (532)c 627 Equity in unconsolidated affiliates' income 207 - 207 254 d 461 Other income, net 238 82 320 - 320 --------- -------- --------- ----------- --------- Income before income taxes affiliates 3,940 (340) 3,600 (498) 3,102 Income tax provision - - - - - --------- -------- --------- ----------- --------- Net income (loss) $ 3,940 $ (340) $ 3,600 $ (498) $ 3,102 ========= ======== ========= =========== ========= a. Elimination of recognition of previously deferred revenues and sales commissions and management fee income received from the joint ventures. b. Elimination of previously deferred cost of sales and sales commission and management fee expense at the joint venture level. c. Elimination of accrued interest income associated with Walden Partnership note. d. Elimination of the Walden Partnership loss in 2001. ITEM 9. CHANGES IN AND DISAGREEEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES - --------------------------------------------------------------------- Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information set forth under the caption "Information About Nominees and Directors" of the Proxy Statement submitted to the stockholders of the registrant in connection with its 2002 annual meeting to be held on May 16, 2002, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information set forth under the captions "Director Compensation" and "Executive Officer Compensation" of the Proxy Statement submitted to the stockholders of the registrant in connection with its 2002 annual meeting to be held on May 16, 2002, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ---------------------------------------------------------- The information set forth under the captions "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock Ownership of Directors and Executive Officer" of the Proxy Statement submitted to the stockholders of the registrant in connection with its 2002 annual meeting to be held on May 16, 2002, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - --------------------------------------------------------- The information set forth under the caption "Certain Transactions" of the Proxy Statement submitted to the stockholders of the registrant in connection with its 2002 annual meeting to be held on May 16, 2002, is incorporated herein by reference.

37 Part IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------- (a)(1) Financial Statements. Reference is made to the Financial Statements beginning on page 15 hereof. (a)(2) Financial Statement Schedules. Reference is made to the Index to Financial Statements appearing on page F-1 hereof. (a)(3) Exhibits. Reference is made to the Exhibit Index beginning on page E-1 hereof. (b) Reports on Form 8-K. During the last quarter covered by this report and for the 2002 period ending March 21, 2002, the registrant filed two Current Reports on Form 8-K dated December 20, 2001 and March 1, 2002 reporting events under Item 5.

38 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 22, 2002. STRATUS PROPERTIES INC. By: /s/ William H. Armstrong III ------------------------------ William H. Armstrong III Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on March 22, 2002. /s/ William H. Armstrong III Chairman of the Board, President, - ------------------------------ and Chief Executive Officer William H. Armstrong III (Principal Executive and Financial Officer) * - ------------------------------ Vice President and Controller C. Donald Whitmire, Jr. (Principal Accounting Officer) * Director - ------------------------------ James C. Leslie * Director - ------------------------------ Michael D. Madden *By: /s/ William H. Armstrong III ---------------------------- William H. Armstrong III Attorney-in-Fact

S-1 STRATUS PROPERTIES INC. EXHIBIT INDEX Exhibit Number - ------ 3.1 Amended and Restated Certificate of Incorporation of Stratus. Incorporated by reference to Exhibit 3.1 to Stratus' 1998 Form 10-K. 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Stratus. 3.3 By-laws of Stratus, as amended as of February 11, 1999. Incorporated by Reference to Exhibit 3.2 to Stratus' 1998 Form 10-K. 4.1 Stratus' Certificate of Designations of Series A Participating Cumulative Preferred Stock. Incorporated by reference to Exhibit 4.1 to Stratus' 1992 Form 10-K. 4.2 Rights Agreement dated as of May 28, 1992 between Stratus and Mellon Securities Trust Company, as Rights Agent. Incorporated by reference to Exhibit 4.2 to Stratus' 1992 Form 10-K. 4.3 Amendment No. 1 to Rights Agreement dated as of April 21, 1997 between Stratus and the Rights Agent. Incorporated by reference to Exhibit 4 to Stratus' Current Report on Form 8-K dated April 21, 1997. 4.4 The loan agreement by and between Comerica Bank-Texas and Stratus Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land Corp. and Austin 290 Properties Inc. dated December 21, 1999. Incorporated by reference to Exhibit 4.4 to Stratus 1999 Form 10-K. 4.5 Certificate of Designations of the Series B Participating Preferred Stock of Stratus Properties Inc. Incorporated by reference to Exhibit 4.1 to Stratus' Current Report on Form 8-K dated June 3, 1998. 4.6 Investor Rights Agreement, dated as of May 22, 1998, by and between Stratus Properties Inc. and Oly/Stratus Equities, L.P. Incorporated by reference to Exhibit 4.2 to Stratus' Current Report on Form 8-K dated June 3, 1998. 10.1 Joint Venture Agreement between Freeport-McMoRan Resource Partners, Limited Partnership and the Partnership, dated June 11, 1992. Incorporated by reference to Exhibit 10.3 to Stratus' 1992 Form 10-K. 10.2 Development and Management Agreement dated and effective as of June 1, 1991 by and between Longhorn Development Company and Precept Properties, Inc. (the "Precept Properties Agreement"). Incorporated by reference to Exhibit 10.8 to Stratus' 1992 Form 10-K. 10.3 Assignment dated June 11, 1992 of the Precept Properties Agreement by and among FTX (successor by merger to FMI Credit Corporation, as successor by merger to Longhorn Development Company), the Partnership and Precept Properties, Inc. Incorporated by reference to Exhibit 10.9 to Stratus' 1992 Form 10-K. 10.4 Master Agreement, dated as of May 22, 1998, by and among Oly Fund II GP Investments, L.P., Oly Lender Stratus, L.P., Oly/Stratus Equities, L.P., Stratus Properties Inc. and Stratus Ventures I Borrower L.L.C. Incorporated by reference to Exhibit 99.1 to Stratus' Current Report on Form 8-K dated June 3, 1998. 10.5 Securities Purchase Agreement, dated as of May 22, 1998, by and between Oly/Stratus Equities, L.P. and Stratus Properties Inc. Incorporated by reference to Exhibit 99.2 to Stratus' Current Report on Form 8-K dated June 3, 1998. 10.6 Oly Stratus Barton Creek I Amended and Restated Joint Venture Agreement between Oly ABC West I, L.P. and Stratus ABC West I, L.P. dated December 28, 1999. Incorporated by reference to Exhibit 10.7 to the Stratus 1999 Form 10-K.

E-1 STRATUS PROPERTIES INC. EXHIBIT INDEX Exhibit Number - ------- 10.7 Amendment No. 1 to the Oly Stratus ABC West I Joint Venture Agreement dated November 9, 1998. Incorporated by reference to Exhibit 10.11 to the Stratus 1998 Third Quarter 10-Q. 10.8 Management Agreement between Oly Stratus ABC West I Joint Venture and Stratus Management L.L.C. dated September 30, 1998. Incorporated by reference to Exhibit 10.12 to the Stratus 1998 Third Quarter 10-Q. 10.9 General Partnership Agreement dated April 8, 1998 by and between Oly/Houston Walden, L.P. and Oly/FM Walden, L.P. Incorporated by reference to Exhibit 10.14 to the Stratus 1998 Third Quarter 10-Q. 10.10 Amendment No. 1 to the General Partnership Agreement dated September 30, 1998 by and among Oly/Houston Walden, L.P., Oly/FM Walden, L.P. and Stratus Ventures I Walden, L.P. Incorporated by reference to Exhibit 10.15 to the Stratus 1998 Third Quarter 10-Q. 10.11 Management Agreement dated April 9, 1998 by and between Oly/FM Walden, L.P. and Stratus Management, L.L.C. Incorporated by reference to Exhibit 10.18 to the Stratus 1998 Third Quarter 10-Q. 10.12 Amended and Restated Joint Venture Agreement dated August 16, 1999 by and between Oly Lantana, L.P., and Stratus 7000 West, Ltd. Incorporated by reference to Exhibit 10.18 to the Quarterly Report on Form 10-Q of Stratus for the Quarter ended September 30, 1999. 10.13 Construction Loan Agreement dated February 24, 2000 by and between Stratus 7000 West Joint Venture and Comerica Bank- Texas. 10.14 Modification Agreement dated August 16, 1999, by and between Comerica Bank-Texas, as Lender, Stratus 7000 West Joint Venture, as borrower and Stratus Properties Inc., as Guarantor. 10.15 Guaranty Agreement dated December 31, 1999 by and between Stratus Properties Inc. and Comerica Bank-Texas. Incorporated by reference to Stratus' Quarterly Report on Form 10-Q for the Quarter ended March 31, 2000. 10.16 Second Amendment to Construction Loan Agreement dated December 31, 1999 by and between Stratus 7000 West Joint Venture, as borrower, Stratus Properties Operating Co., L.P. and Stratus Properties Inc., as Guarantors, and Comerica Bank-Texas. 10.17 Construction Loan Agreement dated April 9, 1999 by and between Stratus 7000 West Joint Venture and Comerica Bank-Texas. 10.18 Guaranty Agreement dated February 24, 2000 by and between Stratus Properties Inc. and Comerica Bank-Texas. Incorporated by reference to Stratus' Quarterly Report on Form 10-Q for the Quarter ended March 31, 2000. 10.19 Second Modification Agreement dated February 24, 2000 by and between Comerica Bank-Texas, as Lender, and Stratus 7000 West Joint Venture, as borrower, and Stratus Properties Inc., as Guarantor. 10.20 Third Modification Agreement dated August 23, 2001 by and between Comerica Bank-Texas, as Lender, Stratus 7000 West Joint Venture, as Borrower and Stratus Properties Inc., as Guarantor. 10.21 Development Management Agreement by and between Commercial Lakeway Limited Partnership, as owner, and Stratus Properties Inc., as development manager, dated January 26, 2001. Incorporated by reference to Exhibit 10.18 to the Stratus 2001 First Quarter 10-Q. 10.22 Amended Loan Agreement dated December 27, 2000 by and between Stratus Properties Inc. and Comerica-Bank Texas. Incorporated by reference to Exhibit 10.19 to the Stratus 2000 Form 10-K.

E-2 STRATUS PROPERTIES INC. EXHIBIT INDEX Exhibit Number - --------- 10.23 Second Amendment to Loan Agreement dated December 18, 2001 by and among Stratus Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land Corp. and Austin 290 Properties Inc. collectively as borrower and Comerica Bank-Texas, as Lender. 10.24 Loan Agreement dated December 28, 2000 by and between Stratus Properties Inc. and Holliday Fenoliglio Fowler, L.P., subsequently assigned to an affiliate of First American Asset Management. Incorporated by reference to Exhibit 10.20 to the Stratus 2000 Form 10-K. 10.25 Loan Agreement dated June 14, 2001, by and between Stratus Properties Inc. and Holliday Feroliglio Fowler, L.P., subsequently assigned to an affiliate of First American Asset Management. 10.26 Stratus' Performance Incentive Awards Program, as amended effective February 11, 1999. Incorporated by reference to Exhibit 10.18 to Stratus' 1998 Form 10-K. 10.27 Stratus Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.9 to Stratus' 1997 Form 10-K. 10.28 Stratus 1996 Stock Option Plan for Non-Employee Directors, as amended. Incorporated by reference to Exhibit 10.10 to Stratus' 1997 Form 10-K. 10.29 Stratus Properties Inc. 1998 Stock Option Plan as amended effective February 11, 1999. Incorporated by reference to Exhibit 10.21 to Stratus' 1998 Form 10-K. 21.1 List of subsidiaries. 23.1 Consent of Arthur Andersen LLP. 23.2 Letter from Arthur Andersen LLP concerning audit quality controls. 24.1 Certified resolution of the Board of Directors of Stratus authorizing this report to be signed on behalf of any officer or director pursuant to a Power of Attorney. 24.2 Powers of attorney pursuant to which a report haws been signed on behalf of certain officers and directors of Stratus.

E-3 STRATUS PROPERTIES INC. INDEX TO FINANCIAL STATEMENTS The financial statements in the schedule listed below should be read in conjunction with the financial statements of Stratus contained elsewhere in this Annual Report on Form 10-K. Page ------ Report of Independent Public Accountants F-1 Schedule III-Real Estate and Accumulated Depreciation F-2 Schedules other than the one listed above have been omitted since they are either not required, not applicable or the required information is included in the financial statements or notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF STRATUS PROPERTIES INC.: We have audited, in accordance with auditing standards generally accepted in the United States, the financial statements included in this Form 10-K, and have issued our report thereon dated February 4, 2002 (except with respect to Note 11, as to which the date is February 27, 2002). Our audits were made for the purpose of forming an opinion on those financial statements taken as a whole. The accompanying schedule is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Austin, Texas February 4, 2002 (except with respect to Note 11, as to which the date is February 27, 2002)

F-1 Stratus Properties Inc. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2001 (In Thousands) SCHEDULE III Cost Gross Capitalized Amounts at Subsequent to December 31, Intial Cost Acquisitions 2001 ---------------- ------------ --------------- Building Building and and Improve- Improv- Land ments Land Land ements -------- ------- -------- ------- -------- Developed Lots a Barton Creek, Austin, TX $ 3,160 $ - $ 4,754 $ 7,914 $ - Undevloped Acerage b Camino Real, San Antonio, TX 310 - 60 370 - Copper Lakes, Houston, TX 591 - 630 1,221 - Barton Creek, Austin, TX 6,372 - 989 7,361 - Lantana, Austin, TX 1,261 - 11,832c 5,713 7,380 Longhorn Properties, Austin, TX 10,329 - 324 10,653 - Developed Acerage e Barton Creek, Austin, TX 18,047 - 36,981 55,028 - Longhorn Properties, Austin, TX 5,299 - 4,336 9,635 - Lantana, Austin, TX 3,067 - 1,363 4,430 - Operating Properties Corporate offices, Austin, TX - 659 - - 659 -------- ------- -------- --------- ------- $ 48,436 $ 659 $ 61,269 $ 102,325 $ 8,039 ======== ======= ======== ========= ======= (continued from above) Stratus Properties Inc. REAL ESTATE AND ACCUMLATED DEPRECIATION (Continued) December 31, 2001 Number of Lot and Acres ------------ Accumulated Year Total Lots Acres Depreciation Acquired --------- ----- ------ ------------- -------- Developed Acerage a Barton Creek, Austin, TX $ 7,914 34 $ - - Undevloped Acerage b Camino Real, San Antonio, TX 370 - 21 - 1990 Copper Lakes, Houston, TX 1,221 - 13 - 1991 Barton Creek, Austin, TX 7,361 - 416 - 1988 Lantana, Austin, TX 13,093 - 148 - 1994 Longhorn Properties, Austin, TX d 10,653 - 740 - 1992 Developed Acerage e Barton Creek, Austin, TX 55,028 - 1,623 - 1988 Longhorn Properties, Austin, TX d 9,635 - 537 - 1992 Lantana, Austin, TX 4,430 - 288 - 1994 Operating Properties Corporate Offices, Austin, TX 659 - - 322 - --------- ----- ------ ----- $ 110,364 34 3,786 $ 322 ========= ===== ====== ===== a. Includes 34 developed lots in Mirador subdivision in the Barton Creek community. b. Undeveloped real estate that can be sold "as is" or will be developed in the future as additional permitting is obtained. c. Includes the costs associated with the construction of the 75,000-square-foot office building located at 7500 Rialto Drive. Initial land costs associated with the building total $208,000. d. Includes the Circle C community real estate. e. Real estate that is currently being developed, has been developed, or has received the necessary permits to be developed.

F-2 Stratus Properties Inc. Notes to Schedule III (In Thousands) (1) Reconciliation of Real Estate Properties: The changes in real estate assets for the years ended December 31, 2001 and 2000 are as follows: 2001 2000 --------- -------- (In Thousands) Balance, beginning of year $ 93,194 $ 91,873 Acquisitions 121 82 Improvements and other 22,977 2,608 Cost of real estate sold (5,928) (1,369) --------- -------- Balance, end of year $ 110,364 $ 93,194 ========= ======== The aggregate net book value for federal income tax purposes as of December 31, 2001 was $133,618,000. (2) Reconciliation of Accumulated Depreciation: The changes in accumulated depreciation for the years ended December 31, 2001 and 2000 are as follows: 2001 2000 -------- -------- (In Thousands) Balance, beginning of year $ 189 $ 209 Retirement of assets - (149) Depreciation expense 133 129 -------- -------- Balance, end of year $ 322 $ 189 ======== ======== Depreciation of buildings and improvements reflected in the statements of operations is calculated over estimated lives of 30 years. (3) Concurrent with certain year-end 1994 debt negotiations, the Partnership analyzed the carrying amount of its real estate assets, using generally accepted accounting principles, and recorded a $115 million pre-tax, non-cash write-down. The actual amounts that will be realized depend on future market conditions and may be more or less than the amounts recorded in the Partnership's financial statements.

F-3



                                    Exhibit 3.2

                    CERTIFICATE OF AMENDMENT
                             to the
        AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
                               of
                    STRATUS PROPERTIES INC.



     Stratus Properties Inc., a corporation organized and

existing under and by virtue of the General Corporation Law of

the State of Delaware (the "Corporation"), does hereby certify

that:

     FIRST:  The Corporation's Board of Directors, at a meeting

of the Board on February 7, 2001, duly adopted the following

resolutions:



          RESOLVED, That Article FOURTH of the Amended and
     Restated Certificate of Incorporation of the
     Corporation is hereby amended and restated to read in
     its entirety as follows:

          FOURTH:  (a)  The total number of shares of
     capital stock which the Corporation shall have
     authority to issue is 200,000,000 shares, of which
     50,000,000 shares shall be Preferred Stock with a par
     value of $.01 per share and 150,000,000 shares shall be
     Common Stock with a par value of $.01 per share.

          (b)  The Preferred Stock may be issued from time
     to time in one or more series, each of such series to
     have such voting powers, full or limited, or no voting
     powers, and such designations, preferences and
     relative, participating, optional or other special
     rights, and qualifications, limitations or restrictions
     thereof, as shall be stated and expressed in the
     resolution or resolutions providing for the issue of
     such series adopted by the Board of Directors.  If so
     provided in such resolution or resolutions and as and
     to the extent permitted by law, the shares of any
     series of the Preferred stock may be made subject to
     redemption, or  convertible into or exchangeable for
     shares of any other class or series, by the Corporation
     at its option or at the option of the holders or upon
     the happening of a specified event.

     Subject to such special voting rights as holders of any
shares of the Preferred Stock may be entitled to exercise, each
holder of Common Stock of the Corporation shall be entitled to
one vote for each share of such Common Stock standing in the name
of such holder on the books of the Corporation.

     (c)  No holder of shares of any class shall be entitled, as
such, as matter of right, to subscribe for or purchase any part
of any new or additional issue of stock of any class or series
whatsoever, or of securities convertible into, or accompanied by
rights to subscribe to, stock of any class or series whatsoever,
whether now or hereafter authorized, or whether issued for cash
or otherwise.

     (d)  At 5:00 p.m. (Eastern Time) on the effective date of
the amendment amending and restating this Article FOURTH (the
"Effective Date"), each share of Common Stock held of record as
of 5:00 p.m. (Eastern Time) on the Effective Date or held in the
Corporation's treasury as of such time shall be automatically
reclassified and converted, without further action on the part of
the holder thereof, into one-fiftieth (1/50) of one share of
Common Stock (the "Reverse Stock Split").  No fractional share of
Common Stock shall be issued to any Fractional Holder (as defined
below) as a result of the Reverse Stock Split.  From and after
5:00 p.m. (Eastern Time) on the Effective Date, each Fractional
Holder shall have no further interest as a stockholder in respect
of any fractional share resulting from the Reverse Stock Split
and, in lieu of receiving such fractional share, shall be
entitled to receive, upon surrender of the certificate or
certificates representing such fractional share, the cash value
of such fractional share based on the average daily closing price
per share of the Common Stock on Nasdaq for the 10 trading days
immediately preceding the Effective Date, without interest;
provided, however, that if no shares of Common Stock have been
traded on any such trading day, the closing price per share of
the Common Stock for such trading day shall be the average of the
highest bid and lowest asked prices for the Common Stock for such
trading day as reported by Nasdaq.  As used herein, the term
"Fractional Holder" shall mean a holder of record of fewer than
50 shares of Common Stock as of 5:00 p.m. (Eastern Time) on the
Effective Date who would be entitled to less than one whole share
of Common Stock in respect of such shares as a result of the
Reverse Stock Split.

     At 5:01 p.m. (Eastern Time) on the Effective Date, each
share of Common Stock, and any fraction thereof (excluding any
interest in the Corporation held by a Fractional Holder converted
into cash) held by a holder of record of one or more shares of
Common Stock as of 5:01 p.m. (Eastern Time) on the Effective
Date, or held in the Corporation's treasury as of such time,
shall be automatically reclassified and converted, without
further action on the part of the holder thereof, into shares of
Common Stock on the basis of 25 shares of Common Stock for each
share of Common Stock then held (the "Forward Stock Split").
Each stockholder who holds an odd number of shares of Common
Stock in a record account immediately prior to the Effective
Date, in lieu of the fractional share in the account resulting
from the Forward Stock Split, shall be entitled to receive, upon
surrender of the certificate or certificates representing such
fractional share, the cash value of such fractional share based
on the average daily closing price per share of the Common Stock
on Nasdaq for the 10 trading days immediately preceding the
Effective Date, without interest; provided, however, that if no
shares of Common Stock have been traded on any such trading day,
the closing price per share of the Common Stock for such trading
day shall be the average of the highest bid and lowest asked
prices for the Common Stock for such trading day as reported by
Nasdaq.



SECOND:  The Corporation's Board of Directors declared the foregoing

amendment to be advisable and directed that the proposed amendment be

submitted to a vote of the Corporation's stockholders at the 2001

Annual Meeting of Stockholders of the Corporation.


THIRD:  At the Annual Meeting of Stockholders on May 10, 2001, the

Corporation's stockholders duly approved the foregoing amendment and

such amendment was duly adopted in accordance with the provisions of

Section 242 of the General Corporation Law of the State of Delaware.


     IN WITNESS WHEREOF, the undersigned, being the Chairman of

the Board, President and Chief Executive Officer of the

Corporation, for the purpose of amending the Corporation's

Amended and Restated Certificate of Incorporation, does hereby

make this Certificate of Amendment, hereby declaring and

certifying that this is the act and deed of the Corporation and

the facts herein stated are true, and accordingly the undersigned

has hereunto set his hand as of this 25th day of May, 2001.


                              STRATUS PROPERTIES INC.

                              By: /s/ William H. Armstrong III
                                 -----------------------------
                                      William H. Armstrong III
                                      Chairman of the Board,
                                          President and
                                      Chief Executive Officer

CORPORATE SEAL


Attest: /s/ Douglas N. Currault II
       ---------------------------
            Douglas N. Currault II
             Assistant Secretary



                                                 Exhibit 10.13

                  CONSTRUCTION LOAN AGREEMENT


     This  CONSTRUCTION LOAN AGREEMENT ("Agreement") is made  and
entered  into  as of the 9th day of April, 1999, by  and  between
STRATUS   7000   WEST  JOINT  VENTURE,  a  Texas  joint   venture
("Borrower"),   whose  address  is  98  San  Jacinto   Boulevard,
Suite  220, Austin, Texas 78701, and COMERICA BANK-TEXAS, a state
banking association ("Lender"), whose address is 1601 Elm Street,
2nd Floor, Dallas, Texas  75201, Attn:  Real Estate Department.


                           ARTICLE I

                      DEFINITION OF TERMS

     I.1   Definitions.  As used in this Agreement, the following
terms shall have the respective meanings indicated below:

     Advance:   A  disbursement  by Lender,  whether  by  journal
entry,  deposit  to Borrower's account, check to third  party  or
otherwise  of  any  of  the proceeds of the Loan,  any  insurance
proceeds or Borrower's Deposit.

     Affidavit  of  Commencement:  As  defined  in  Section  5.13
hereof.

     Affidavit of Completion:  As defined in Section 5.14 hereof.

     Agreement:  This Loan Agreement, as the same may  from  time
to time be amended or supplemented.

     Allocations:   The line items set forth in the  Budget   for
which Advances of Loan proceeds will be made.

     Assignment:  The Assignment of Accounts Receivable assigning
to  Lender  the  proceeds due Borrower from the  City  of  Austin
pursuant   to   the  Agreement  Regarding  the  Construction   of
Improvements to the City of Austin's Water System in the  Lantana
Area (the "Austin Water Agreement").

     Borrower's  Deposit:  Such cash amounts as Lender  may  deem
necessary for Borrower to deposit with it in accordance with  the
provisions of Section 3.4 of this Agreement.

     Budget:  The budget which is set forth on Exhibit B attached
hereto and incorporated herein by reference.

     Commencement Date:  February 11, 1999.

     Commitment  Fee:   The  sum  of $33,000.00  to  be  paid  by
Borrower to Lender pursuant to the applicable provisions of  this
Agreement.

     Completion Date:  November 30, 1999, for completion  of  the
shell portion of the office building.

     Construction  Contract:   Collectively,  all  contracts  and
agreements   entered   into  between  Borrower   and   Contractor
pertaining to the development, construction and completion of the
Phase I  Improvements.

     Contractor:    Zapalac/Reed  Construction   Company,   L.C.,
together  with  any  other person or entity  with  whom  Borrower
contracts for the development, construction and completion of the
Phase I Improvements or any portion thereof.

     Deed  of  Trust:  The Amended and Restated Deed of Trust  of
even  date herewith pursuant to which Borrower mortgages the Land
to secure the Loan.

      Design  Professional:  Susman Tisdale Gayle,  together  with
any  other person or entity with whom Borrower contracts for  the
providing  of  planning,  design, architectural,  engineering  or
other  similar services relating to the Phase I Improvements,  if
any.

     Design  Services Contract:  Collectively, all contracts  and
agreements   entered  into  between  Borrower  and  each   Design
Professional   pertaining   to  the   design,   development   and
construction of the Phase I Improvements, if any.

     Disposition:  Any sale, lease (except as expressly permitted
pursuant   to   the   Loan   Documents),  exchange,   assignment,
conveyance, transfer, trade, or other disposition of all  or  any
portion  of  the Mortgaged Property (or any interest therein)  or
all  or  any  part,  directly or indirectly,  of  the  beneficial
ownership  interest in Borrower (if Borrower  is  a  corporation,
partnership,  general  partnership,  limited  partnership,  joint
venture,  trust, or other type of business association  or  legal
entity);  provided, however, a sale of the publicly traded  stock
of  Stratus  Properties, Inc. shall not constitute a  Disposition
under the terms of this Agreement.

     Draw  Request:   a  request by Borrower  to  Lender  for  an
Advance  in such form and containing such information  as  Lender
may require.

     Environmental  Law:   Any  federal,  state,  or  local  law,
statute,  ordinance,  or  regulation,  whether  now  existing  or
hereafter in effect, pertaining to health, industrial hygiene, or
the  environmental conditions on, under, or about  the  Mortgaged
Property,   including  without  limitation,   the   Comprehensive
Environmental Response, Compensation, and Liability Act of  1980,
42  U.S.C.  & 9601 et seq. ("CERCLA"), the Resource Conservation
and  Recovery Act, 42 U.S.C. &6901, et seq. ("RCRA"), the  Clean
Water  Act, 33 U.S.C. &1251 et seq. ("CWA"), the Clean Air  Act,
42  U.S.C.  & 7401 et seq. ("CAA"), the Federal Water  Pollution
Control Act, 33 U.S.C. &1251 et seq. and any corresponding state
laws  or  ordinances,  the Texas Water  Code  & 26.001  et  seq.
("TWC"),  the  Texas  Solid Waste Disposal Act,  Texas  Health  &
Safety  Code &361.001 et seq. ("THSC"), and regulations,  rules,
guidelines,  or  standards promulgated  pursuant  to  such  laws,
statutes  and regulations, as such statutes, regulations,  rules,
guidelines, and standards are amended from time to time.

     Event of Default:  Any happening or occurrence described  in
Section 7.1 of this Agreement.

     Financing  Statement:  The financing statement or  financing
statements  (on  Standard Form UCC-1 or otherwise)  executed  and
delivered by Borrower in connection with the Loan Documents.

     Governmental   Authority:   Any  and  all  courts,   boards,
agencies,  commissions,  offices, or authorities  of  any  nature
whatsoever  for  any governmental unit (federal,  state,  county,
district, municipal, city or otherwise), whether now or hereafter
in existence.

     Governmental Requirements:  All statutes, laws,  ordinances,
rules, regulations, orders, writs, injunctions or decrees of  any
Governmental Authority applicable to Borrower, Guarantor  or  the
Mortgaged Property.

     Guarantor:     STRATUS   PROPERTIES,   INC.,   a    Delaware
corporation.

     Guaranty:   That  or those instruments of  guaranty  now  or
hereafter  in  effect from Guarantor to Lender  guaranteeing  the
repayment of all or any part of the Loan, the satisfaction of, or
continued  compliance with, the covenants contained in  the  Loan
Documents, or both.

     Hazardous  Substance:   Any substance,  product,  waste,  or
other  material  which  is  or  becomes  listed,  regulated,   or
addressed  as  being a toxic, hazardous, polluting, or  similarly
harmful  substance under any Environmental Law, including without
limitation:  (i) any substance included within the definition  of
"hazardous  waste"  pursuant to Section 1004 of  RCRA;  (ii)  any
substance included within the definition of "hazardous substance"
pursuant  to Section 101 of CERCLA; (iii) any substance  included
within  the  definition  of  "regulated  substance"  pursuant  to
Section 26.342(9) of TWC; (iv) any substance included within  the
definition     of    "hazardous    substance"     pursuant     to
Section  361.003(13) of THSC; (v) asbestos; (vi)  polychlorinated
biphenyls;  (vii) petroleum products; (viii) underground  storage
tanks,  whether  empty,  filled  or  partially  filled  with  any
substance; (ix) any radioactive materials, urea formaldehyde foam
insulation,  radon;  and  (x)  any other  chemical,  material  or
substance  the  exposure  to  which  is  prohibited,  limited  or
regulated  by any governmental authority on the basis  that  such
chemical, material or substance is toxic, hazardous or harmful to
human health or the environment.

     Indebtedness:  As defined in Section 9.8 hereof.

     Initial  Advance:   The  Advance to  be  made  at  the  time
Borrower satisfies the conditions set forth in Sections  3.1  and
3.2 of this Agreement.

     Inspecting Person:  Chris Rehkemper of AECC will  from  time
to  time inspect the Phase I Improvements and the development  of
Phase II Improvements for the benefit of Lender.

     Land:   The  real property or interest therein described  in
Exhibit  A  attached  hereto  and  incorporated  herein  by  this
reference upon which the Phase I and Phase II Improvements are to
be constructed.

     Loan:   The loan evidenced by the Note and governed by  this
Agreement.

     Loan  Amount:  SIX MILLION SIX HUNDRED THOUSAND  AND  NO/100
DOLLARS ($6,600,000.00).

     Loan   Documents:   The  Note,  the  Deed  of  Trust,   this
Agreement,  the Security Agreement, the Financing Statement,  the
Guaranty, the Assignment, and any and all other documents now  or
hereafter  executed  by  the Borrower, Guarantor,  or  any  other
person  or  party  in connection with the Loan, the  indebtedness
evidenced  by  the  Note,  or  the covenants  contained  in  this
Agreement.

     Material Adverse Effect:  Any material and adverse effect on
(i)  the business condition (financial or otherwise), operations,
prospects,  results of operations, capitalization,  liquidity  or
any  properties of the Borrower, taken as a whole, (ii) the value
of  the Mortgaged Property, (iii) the ability of Borrower or  any
Guarantor  (or if the Borrower or any Guarantor is a partnership,
joint  venture,  trust or other type of business association,  of
any  of the parties comprising Borrower or such Guarantor) to pay
and  perform  the  Indebtedness  or  any  other  Obligations,  or
(iv) the validity, enforceability or binding effect of any of the
Loan Documents.

     Mortgaged Property:  Collectively, the Land, the Phase I and
Phase  II Improvements, and all other collateral covered  by  the
Loan Documents.

     Note:  The promissory note dated as of even date herewith in
the  principal sum of the Loan Amount (together with all renewals
and  extensions  thereof)  executed  and  delivered  by  Borrower
payable to the order of Lender, evidencing the Loan.

     Obligations:   Any  and  all of the  covenants,  conditions,
warranties, representations, and other obligations (other than to
repay   the   Indebtedness)  made  or  undertaken  by   Borrower,
Guarantor, or any other person or party to the Loan Documents  to
Lender, the trustee of the Deed of Trust, or others as set  forth
in the Loan Documents, and in any deed, lease, sublease, or other
form  of  conveyance, or any other agreement  pursuant  to  which
Borrower is granted a possessory interest in the Land.

     Phase  I  Improvements:  That certain   66,606  square  foot
office  building, together with all amenities, to be  constructed
on  the Mortgaged Property, all as more particularly described in
the Plans and Specifications.

     Phase  II  Improvements:  The improvements to be constructed
by Borrower from Borrower's funds for the Phase II portion of the
Mortgaged Property.

     Plans and Specifications:  The plans and specifications  for
the  development  and  construction of  the  Mortgaged  Property,
prepared  by Borrower or the Design Professional and approved  by
Lender   as  required  herein,  by  all  applicable  Governmental
Authorities, by any party to a purchase or construction  contract
with  a  right  of  approval,  all amendments  and  modifications
thereof  approved in writing by the same, and all  other  design,
engineering  or architectural work, test reports,  surveys,  shop
drawings, and related items.

     Security  Agreement:  The Security Agreement shall mean  all
security  agreements, whether contained in the Deed of  Trust,  a
separate  security  agreement or otherwise  creating  a  security
interest  in  all  personal  property and  fixtures  of  Borrower
(including   replacements,   substitutions   and   after-acquired
property)  now or hereafter located in or upon the  Land  or  the
Phase I and Phase II Improvements, or used or intended to be used
in the operation thereof, to secure the Loan.

     Subordinate Mortgage:  Any mortgage, deed of trust,  pledge,
lien   (statutory,  constitutional,  or  contractual),   security
interest,  encumbrance or charge, or conditional  sale  or  other
title  retention agreement, covering all or any  portion  of  the
Mortgaged Property executed and delivered by Borrower,  the  lien
of  which is subordinate and inferior to the lien of the Deed  of
Trust.

     Special  Account:  An account established by  Borrower  with
Lender  (in which Borrower shall at all times maintain a  minimum
balance  of  $1,000.00) into which all Advances made directly  to
Borrower will be deposited.

     Tenant  Leases:  All written leases or rental agreements  by
which  Borrower,  as  landlord, grants to a  tenant  a  leasehold
interest  in a portion of the leasable space within the Mortgaged
Property.

     Title  Insurance:  One or more title insurance  commitments,
binders  or policies, as Lender may require, issued by the  Title
Company,  on  a  coinsurance or reinsurance  basis  (with  direct
access  endorsement or rights) if and as required by  Lender,  in
the  maximum amount of the Loan insuring or committing to  insure
that the Deed of Trust constitutes a valid lien covering the Land
and the Phase I and Phase II  Improvements, subject only to those
exceptions which Lender may approve.

     Title Company:  The Title Company (and its issuing agent, if
applicable)   issuing  the  Title  Insurance,  which   shall   be
acceptable to Lender in its sole and absolute discretion.


                           ARTICLE II

                            THE LOAN

     II.1 Agreement to Lend.  Lender hereby agrees to lend up  to
but  not  in excess of the Loan Amount to Borrower, and  Borrower
hereby  agrees  to  borrow such sum from  Lender,  all  upon  and
subject  to the terms and provisions of this Agreement, such  sum
to  be  evidenced  by the Note.  No principal  amount  repaid  by
Borrower may be reborrowed by Borrower.  Borrower's liability for
repayment of the interest on account of the Loan shall be limited
to   and  calculated  with  respect  to  Loan  proceeds  actually
disbursed to Borrower pursuant to the terms of this Agreement and
the  Note  and only from the date or dates of such disbursements.
After   notice   to  Borrower,  Lender  may,  in  Lender's   sole
discretion,  disburse  Loan proceeds  by  journal  entry  to  pay
interest  and financing costs and, following an uncured Event  of
Default, disburse Loan proceeds directly to third parties to  pay
costs  or  expenses required to be paid by Borrower  pursuant  to
this  Agreement.   Loan proceeds disbursed by Lender  by  journal
entry  to  pay  interest or financing costs,  and  Loan  proceeds
disbursed directly by Lender to pay costs or expenses required to
be  paid by Borrower pursuant to this Agreement, shall constitute
Advances  to Borrower.  Borrower hereby acknowledges  and  agrees
that  no  Advances  shall  be used by Borrower  to  pay  for  any
development or construction costs for the Phase II Improvements.

     II.2  Advances.   The purposes for which Loan  proceeds  are
allocated and the respective amounts of such Allocations are  set
forth in the Budget, which Advances shall be limited to the value
of the work in place as determined by the Inspecting Person.

     II.3  Allocations.  The Allocations shall be disbursed  only
for  the purposes set forth in the Budget.  Lender shall  not  be
obligated to make an Advance for an Allocation set forth  in  the
Budget  to  the  extent that the amount of the Advance  for  such
Allocation  would,  when  added to all prior  Advances  for  such
Allocation, exceed the total of such Allocation as set  forth  in
the Budget.
     II.4  Limitation  on  Advances.  To  the  extent  that  Loan
proceeds  disbursed  by Lender pursuant to  the  Allocations  are
insufficient  to  pay  all costs required  for  the  acquisition,
development,   construction  and  completion  of  the   Mortgaged
Property, Borrower shall pay such excess costs with funds derived
from  sources other than the Loan.  Under no circumstances  shall
Lender be required to disburse any proceeds of the Loan in excess
of the Loan Amount.

     II.5  Reallocations.   Lender reserves  the  right,  at  its
option,  to  disburse  Loan proceeds  allocated  to  any  of  the
Allocations  for  such  other  purposes  or  in  such   different
proportions as Lender may, in its sole discretion, deem necessary
or  advisable.   Borrower shall not be entitled to  require  that
Lender reallocate funds among the Allocations.

     II.6  Contingency Allocations.  Any amount allocated in  the
Budget for "contingencies" or other non-specific purposes may, in
the  Lender's  discretion, be disbursed by Lender to  pay  future
contingent  costs  and  expenses  of  maintaining,  leasing   and
promoting the Mortgaged Property and such other costs or expenses
as  Lender  shall  approve.   Under no  circumstances  shall  the
Borrower have the right to require Lender to disburse any amounts
so   allocated  and  Lender  may  impose  such  requirements  and
conditions as it deems prudent and necessary should it  elect  to
disburse all or any portion of the amounts so allocated.

     II.7  Withholding.  Lender may withhold from an Advance  or,
on  account of subsequently discovered evidence, withhold from  a
later  Advance under this Agreement or require Borrower to  repay
to  Lender the whole or any part of any earlier Advance  to  such
extent  as  may be necessary to protect the Lender from  loss  on
account  of  (i)  defective work not remedied or requirements  of
this  Agreement  not  performed, (ii) liens filed  or  reasonable
evidence  indicating  probable filing  of  liens  which  are  not
bonded,  (iii)  failure  of Borrower  to  make  payments  to  the
Contractor for material or labor, except as is permitted  by  the
Construction  Contract,  or  (iv) a  reasonable  doubt  that  the
construction of the Phase I Improvements can be completed for the
balance  of  the  Loan Amount then undisbursed.   When  all  such
grounds  are  removed, payment shall be made  of  any  amount  so
withheld because of them.

     II.8 Loan Limitation.  It is expressly agreed and understood
that, in accordance with the Budget, to the extent an Advance  is
for construction costs of the Phase I Improvements, such Advance,
except  for  the final payment under the Loan, shall  not  exceed
ninety  percent (90%) of the actual construction costs  to  which
such Advance relates; and

                          ARTICLE III

                            ADVANCES

     III.1     Conditions to Initial Advance.  The obligation  of
Lender  to make the Initial Advance hereunder is subject  to  the
prior  or  simultaneous  occurrence  of  each  of  the  following
conditions:

          (a)   Lender shall have received from Borrower  all  of
     the  Loan  Documents  duly  executed  by  Borrower  and,  if
     applicable, by Guarantor.

          (b)   Lender  shall have received certified  copies  of
     resolutions of Borrower, if Borrower is a corporation, or  a
     certified  copy of a consent of partners, if Borrower  is  a
     partnership, authorizing execution, delivery and performance
     of  all  of the Loan Documents and authorizing the borrowing
     hereunder,   along  with  such  certificates  of  existence,
     certificates  of  good  standing and other  certificates  or
     documents  as  Lender  may reasonably  require  to  evidence
     Borrower's authority.

          (c)   Lender  shall have received true  copies  of  all
     organization documents of Borrower, including all amendments
     or  supplements thereto, if Borrower is a legal entity other
     than  a  corporation, along with such certificates or  other
     documents  as  Lender  may reasonably  require  to  evidence
     Borrower's authority.

          (d)   Lender  shall  have received  evidence  that  the
     Mortgaged  Property  is  not located within  any  designated
     flood  plain or special flood hazard area; or evidence  that
     Borrower  has  applied  for  and  received  flood  insurance
     covering the Mortgaged Property in the amount of the Loan or
     the maximum coverage available to Lender.

          (e)   Lender shall have received evidence of compliance
     with all Governmental Requirements.

          (f)   Lender  shall  have received a full-size,  single
     sheet  copy of all recorded subdivision or plat maps of  the
     Land  approved  (to  the  extent  required  by  Governmental
     Requirements)   by   all   Governmental   Authorities,    if
     applicable,   and   legible  copies   of   all   instruments
     representing  exceptions  to  the  state  of  title  to  the
     Mortgaged Property.

          (g)   Lender  shall have received policies of  all-risk
     builder's  risk  insurance (non-reporting form)  during  the
     construction  of  the  Phase  I  Improvements  and  all-risk
     insurance  after  construction of the Phase I  Improvements,
     owner's   and  contractor's  liability  insurance,  workers'
     compensation insurance, and such other insurance  as  Lender
     may  reasonably require, with standard endorsements attached
     naming   Lender  as  the  insured  mortgagee  or  additional
     insured,  whichever is applicable, such policies  to  be  in
     form   and   content  and  issued  by  companies  reasonably
     satisfactory   to  Lender,  with  copies,  or   certificates
     thereof, being delivered to Lender.

          (h)  Lender shall have received the Title Insurance, at
     the sole expense of Borrower.

          (i)   Lender  shall  have received from  Borrower  such
     other  instruments, evidence and certificates as Lender  may
     reasonably require, including the items indicated below:

               (1)   Evidence  that  all the  streets  furnishing
          access to the Mortgaged Property have been dedicated to
          public  use  and installed and accepted  by  applicable
          Governmental Authorities.

               (2)   A current survey of the Land prepared  by  a
          registered  surveyor  or  engineer  and  certified   to
          Lender,  Borrower and the Title Company,  in  form  and
          substance reasonably acceptable to Lender, showing  all
          easements, building or setback lines, rights-of-way and
          dedications affecting said land and showing no state of
          facts objectionable to Lender.

               (3)   Evidence reasonably satisfactory  to  Lender
          showing the availability of all necessary utilities  at
          the  boundary lines of the Land, including sanitary and
          storm   sewer  facilities,  potable  water,  telephone,
          electricity, gas, and municipal services.

               (4)  Evidence that the current and proposed use of
          the  Mortgaged  Property and the  construction  of  the
          Phase  I  Improvements complies with  all  Governmental
          Requirements.

               (5)   An  opinion  of counsel for Borrower,  which
          counsel shall be satisfactory to Lender, to the  effect
          that (i) Borrower possesses full power and authority to
          own  the  Mortgaged Property, to construct the Phase  I
          Improvements  and  to  perform  Borrower's  obligations
          hereunder;  (ii)  the  Loan Documents  have  been  duly
          authorized,  executed and delivered  by  Borrower  and,
          where  required, by Guarantor, and constitute the valid
          and  binding obligations of Borrower and Guarantor, not
          subject  to  any defense based upon usury, capacity  of
          Borrower  or  otherwise; (iii) the Loan  Documents  are
          enforceable in accordance with their respective  terms,
          except  as limited by bankruptcy, insolvency and  other
          laws  affecting creditors' rights generally, and except
          that certain remedial provisions thereof may be limited
          by  the  laws  of  the  State of  Texas;  (iv)  to  the
          knowledge of such counsel, there are no actions,  suits
          or   proceedings  pending  or  threatened  against   or
          affecting   Borrower,  Guarantor   or   the   Mortgaged
          Property,  or  involving  the  priority,  validity   or
          enforceability  of  the  liens  or  security  interests
          arising out of the Loan Documents, at law or in equity,
          or  before  or  by  any Governmental Authority,  except
          actions,   suits  or  proceedings  fully   covered   by
          insurance or which, if adversely determined, would  not
          substantially  impair  the  ability  of   Borrower   or
          Guarantor to pay when due any amounts which may  become
          payable  in respect to the Loan as represented  by  the
          Note;  (v)  to  the knowledge of such counsel,  neither
          Borrower  nor Guarantor is in default with  respect  to
          any  order, writ, injunction, decree or demand  of  any
          court  or  any  Governmental Authority  of  which  such
          counsel  has knowledge; (vi) to the knowledge  of  such
          counsel,  the  consummation of the transactions  hereby
          contemplated and the performance of this Agreement  and
          the  execution  and delivery of the Guaranty  will  not
          violate  or  contravene any provision of any instrument
          creating  or  governing  the  business  operations   of
          Borrower or Guarantor and will not result in any breach
          of,  or constitute a default under, any mortgage,  deed
          of trust, lease, bank loan or credit agreement or other
          instrument  to  which Borrower or any  Guarantor  is  a
          party  or by which Borrower, Guarantor or the Mortgaged
          Property may be bound or affected; and (vii) such other
          matters as Lender may reasonably request.

               (6)   A  cost  breakdown  satisfactory  to  Lender
          showing the total costs, including, but not limited to,
          such  related nonconstruction items as interest  during
          construction,  commitment, legal,  design  professional
          and  real estate agents' fees, plus the amount  of  the
          Land cost and direct construction costs required to  be
          paid   to   satisfactorily   complete   the   Phase   I
          Improvements,  free and clear of liens  or  claims  for
          liens  for  material  supplied and for  labor  services
          performed.

               (7)    Original   or  a  copy  of  each   proposed
          Construction Contract.

               (8)   Original  or a copy of each  fully  executed
          Design Services Contract.

               (9)    Waiver   of   lien  or  lien  subordination
          agreement(s)   for  the  prior  month's  draw   request
          executed by Contractor and by each contractor,  laborer
          and  suppliers  furnishing labor or  materials  to  the
          Mortgaged  Property,  in a form acceptable  to  Lender,
          together  with Borrower's affidavit to Lender that  all
          changes  and expenses incurred to date for  either  the
          Phase I Improvements or the Phase II Improvements  have
          been paid in full.

               (10)  A  copy of the Plans and Specifications  for
          the Phase I Improvements.

               (11) Building permit(s), grading permit(s) and all
          other permits required with respect to the construction
          of the Phase I or Phase II Improvements.

               (12)   Evidence   that   all   applicable   zoning
          ordinances and restrictive covenants affecting the Land
          permit  the  use  for which the Phase I  and  Phase  II
          Improvements  are intended and have  been  or  will  be
          complied with.

               (13)  Evidence  of  payment of required  sums  for
          insurance,   taxes,   expenses,   charges   and    fees
          customarily  required or recommended by Lender  or  any
          Governmental   Authority,   corporation,   or    person
          guaranteeing,  insuring  or purchasing,  committing  to
          guaranty, insure, purchase or refinance the Loan or any
          portion thereof.

               (14)  A  current financial statement  of  Borrower
          certified  by  a  duly  authorized  representative   of
          Borrower.

               (15)  A  current financial statement of  Guarantor
          certified by said Guarantor.

               (16) A Guaranty executed by the Guarantor.

               (17)  A schedule of construction progress for  the
          Phase  I Improvements with the anticipated commencement
          and  completion dates of each phase of construction and
          the  anticipated date and amounts of each  Advance  for
          the same.

               (18)  Copies  of  all agreements entered  into  by
          Borrower  or  its operating partner pertaining  to  the
          development, construction and completion of the Phase I
          Improvements or pertaining to materials to be  used  in
          connection  therewith,  together  with  a  schedule  of
          anticipated dates and amounts of each Advance  for  the
          same.

               (19)  Environmental  site assessment  report  with
          respect to the Mortgaged Property prepared by a firm of
          engineers  approved by Lender, which  report  shall  be
          satisfactory   in   form  and  substance   to   Lender,
          certifying that there is no evidence that any Hazardous
          Substance  have  been  generated,  treated,  stored  or
          disposed  of on any of the Mortgaged Property and  none
          exists on, under or at the Mortgaged Property.

               (20)  A  soils and geological report covering  the
          Land  issued by a laboratory approved by Lender,  which
          report  shall be satisfactory in form and substance  to
          Lender,  and  shall  include a summary  of  soils  test
          borings.

               (21)   Such   other   instruments,   evidence   or
          certificates as Lender may reasonably request.

          (j)   Lender  shall  have  ordered  and  received,   at
     Borrower's expense, an appraisal of the Mortgaged  Property,
     prepared  by an appraiser acceptable to Lender and presented
     and based upon such standards as may be required by Lender.

          (k)    Lender  shall  have  received  payment  of   the
     Commitment Fee.

     III.2      Conditions to Advances.  The obligation of Lender
to  make  each Advance hereunder, including the Initial  Advance,
shall  be  subject  to  the prior or simultaneous  occurrence  or
satisfaction of each of the following conditions:

          (a)  The Loan Documents shall be and remain outstanding
     and  enforceable in all material respects in accordance with
     their terms, all as required hereunder.

          (b)   Lender  shall have received a title report  dated
     within two (2) days of the requested Advance from the  Title
     Company  showing no state of facts objectionable to  Lender,
     including, but not limited to, a showing that title  to  the
     Land  is vested in Borrower and that no claim for mechanics'
     or  materialmen's liens has been filed against the Mortgaged
     Property.

          (c)   A  monthly  construction status  report  for  the
     Phase  I  Improvements shall be prepared  and  submitted  by
     Borrower to Lender on or before the tenth (10th) day of each
     month,  commencing on or before May 10, 1999 and  continuing
     for each month thereafter.

          (d)    The  representations  and  warranties  made   by
     Borrower,  as contained in this Agreement and in  all  other
     Loan  Documents shall be true and correct as of the date  of
     each  Advance;  and if requested by Lender,  Borrower  shall
     give to Lender a certificate to that effect.

          (e)   The  covenants  made by Borrower  to  Lender,  as
     contained  in this Agreement and in all other Loan Documents
     shall  have  been fully complied with, except to the  extent
     such compliance may be limited by the passage of time or the
     completion  of  construction of the Phase  I  and  Phase  II
     Improvements.

          (f)   Lender  shall have received (i) a fully  executed
     copy  of each Construction Contract or copy thereof  (to  be
     dated  after the date of recordation of the Deed of  Trust);
     (ii)  a  report of any changes, replacements, substitutions,
     additions  or other modification in the list of contractors,
     subcontractors  and materialmen involved or expected  to  be
     involved  in  the construction of the Phase I  Improvements;
     (iii)  appropriate payment and performance bonds (with  dual
     obligee  rider to the performance bond, in favor of  Lender)
     covering   any   such   contractors,   subcontractors    and
     materialmen  and  their  work, and (iv)  evidence  that  the
     recording    requirements    of    Texas    Property    Code
     &&53.201-53.211 have been satisfied.

          (g)   Except  in  connection with the Initial  Advance,
     Lender shall have received from Borrower a Draw Request  for
     such  Advance, completed, executed and sworn to by  Borrower
     and  Contractor, with the Inspecting Person's approval noted
     thereon,  stating that the requested amount does not  exceed
     ninety percent (90%) of the then unpaid cost of construction
     of  the  Phase  I  Improvements since the  last  certificate
     furnished hereunder; that said construction was performed in
     accordance with the Plans and Specifications in all material
     respects;  and that, in the opinion of Borrower,  Contractor
     and  the  Design Professional, construction of the  Phase  I
     Improvements  can be completed on or before  the  Completion
     Date for an additional cost not in excess of the amount then
     available under the Loan.  To the extent approved by  Lender
     and  included in the Budget, such expenses will be paid from
     the proceeds of the Loan.

          (h)   Except  in  connection with the Initial  Advance,
     Borrower   shall  have  furnished  to  Lender,   from   each
     contractor,   subcontractor   and   materialman,   including
     Contractor,   an  invoice,  lien  waiver  and   such   other
     instruments  and documents as Lender may from time  to  time
     specify,   in   form  and  content,  and   containing   such
     certifications, approvals and other data and information, as
     Lender may reasonably require.  The invoice, lien waiver and
     other  documents shall cover and be based upon work actually
     completed or materials actually furnished and paid  under  a
     prior application for payment. The lien waiver for the prior
     month's   draws   of  each  contractor,  subcontractor   and
     materialman  shall, if required by Lender,  be  received  by
     Lender   simultaneously  with  the  making  of  any  Advance
     hereunder  for the benefit of such contractor, subcontractor
     or materialman.

          (i)   There  shall exist no default or  breach  by  any
     obligated   party  (other  than  Lender)  under   the   Loan
     Documents.

          (j)   The  Phase  I Improvements shall  not  have  been
     materially  injured, damaged or destroyed by fire  or  other
     casualty,  nor shall any part of the Mortgaged  Property  be
     subject to condemnation proceedings or negotiations for sale
     in lieu thereof.

          (k)    All   work  typically  done  at  the  stage   of
     construction when the Advance is requested shall  have  been
     done,  and  all materials, supplies, chattels  and  fixtures
     typically   furnished  or  installed  at   such   stage   of
     construction shall have been furnished or installed.

          (l)   All  personal property not yet incorporated  into
     the Phase I Improvements but which is to be paid for out  of
     such Advance, must then be located upon the Land, secured in
     a  method  acceptable  to  Lender,  and  Lender  shall  have
     received  evidence thereof, or if stored off-site,  must  be
     stored  in  a  secured  area  and  must  be  available   for
     inspection by the Inspecting Person.

          (m)   Borrower shall have complied with all  reasonable
     requirements  of the Inspecting Person to insure  compliance
     with  the  Plans and Specifications and all requirements  of
     the Governmental Authorities.

          (n)  Except in connection with the Initial Advance,  if
     the Phase I Improvements are being built for any party under
     a  purchase  or  construction contract, then Lender  at  its
     election  may require the approval of such purchaser  before
     making any additional Advance.

          (o)  Borrower shall have fully completed (to the extent
     applicable), signed, notarized and delivered to  Lender  the
     Draw Request Form.

          (p)   If  any  portion of the Phase I Improvements  are
     being  built  for  a specific lessee, the approval  by  such
     lessee  of  the  construction thereof with  respect  to  the
     applicable  portion of the Phase I Improvements  subject  to
     such  lease shall be obtained and furnished to Lender,  upon
     request therefor by Lender.

          (q)   Borrower  shall have funded all  Borrower  equity
     requirements indicated on the Budget.

          (r)  Borrower shall have taken all action necessary  to
     ensure that the monies due Stratus Properties Operating Co.,
     an  entity  owned  by Stratus Properties,  Inc.,  under  the
     Austin Water Agreement for Facilities 1, 2 and 3 (as defined
     therein)  are paid, and shall not have failed  to  take  any
     required  action  to ensure said payments under  the  Austin
     Water Agreement.

     III.3      Advance Not A Waiver.  No Advance of the proceeds
of the Loan shall constitute a waiver of any of the conditions of
Lender's  obligation to make further Advances, nor, in the  event
Borrower is unable to satisfy any such condition, shall any  such
Advance  have  the  effect of precluding Lender  from  thereafter
declaring such inability to be an Event of Default.

     III.4      Borrower's Deposit.  If at any time Lender  shall
in  its sole discretion deem that the undisbursed proceeds of the
Loan   are   insufficient  to  meet  the  costs   of   completing
construction  of  the Phase I Improvements,  plus  the  costs  of
insurance, ad valorem taxes and other normal costs of the Phase I
Improvements,  Lender may refuse to make any additional  Advances
to  Borrower  hereunder until Borrower shall have deposited  with
Lender  sufficient  additional funds  ("Borrower's  Deposit")  to
cover the deficiency which Lender deems to exist. Such Borrower's
Deposit will be disbursed by Lender to Borrower pursuant  to  the
terms  and conditions hereof as if they constituted a portion  of
the Loan being made hereunder.  Borrower agrees upon fifteen (15)
days  written  demand  by  Lender to  deposit  with  Lender  such
Borrower's  Deposit.  Lender agrees that the  Borrower's  Deposit
shall be placed in an interest-bearing account.

     III.5      Advance  Not  An Approval.   The  making  of  any
Advance  or  part  thereof shall not be  deemed  an  approval  or
acceptance  by Lender of the work theretofore done. Lender  shall
have no obligation to make any Advance or part thereof after  the
happening  of any Event of Default, but shall have the right  and
option so to do; provided that if Lender elects to make any  such
Advance, no such Advance shall be deemed to be either a waiver of
the right to demand payment of the Loan, or any part thereof,  or
an obligation to make any other Advance.

     III.6      Time and Place of Advances.  All Advances are  to
be made at the office of Lender, or at such other place as Lender
may  designate;  and  Lender shall require five  (5)  days  prior
notice  in writing before the making of any such Advance.  Lender
shall  not  be obligated to undertake any Advance hereunder  more
than  once  in  any 30-day period.  Except as set forth  in  this
Agreement, all Advances are to be made by direct deposit into the
Special Account.  In the event Borrower shall part with or be  in
any manner whatever deprived of Borrower's interests in the Land,
Lender may, at Lender's option but without any obligation  to  do
so,  continue to make Advances under this Agreement, and  subject
to all its terms and conditions, to such person or persons as may
succeed  to  Borrower's  title  and  interest  and  all  sums  so
disbursed  shall  be  deemed Advances under  this  Agreement  and
secured  by  the  Deed of Trust and all other liens  or  security
interests securing the Loan.

     III.7      Retainage.  An amount equal to ten percent  (10%)
of  the cost of construction of the Phase I Improvements shall be
retained  by Lender and shall be paid over by Lender to Borrower,
provided that no lien claims are then filed against the Mortgaged
Property,  when  all  of  the  following  have  occurred  to  the
satisfaction of Lender:

          (a)   Lender  has  received  a  completion  certificate
     prepared  by the Inspecting Person and executed by  Borrower
     and  the  Design  Professional  stating  that  the  Phase  I
     Improvements  have  been completed in  accordance  with  the
     Plans  and Specifications, together with such other evidence
     that   no   mechanics  or  materialmen's  liens   or   other
     encumbrances  have been filed and remain in  effect  against
     the  Mortgaged  Property  which  have  not  been  bonded  to
     Lender's  satisfaction  and that all offsite  utilities  and
     streets, if any, have been completed to the satisfaction  of
     Lender and any applicable Governmental Authority;

          (b)   each applicable Governmental Authority shall have
     duly  inspected  and approved the Phase I  Improvements  and
     issued  the  appropriate permit, license or  certificate  to
     evidence such approval;

          (c)  thirty (30) days shall have elapsed from the later
     of  (i)  the date of completion of the Phase I Improvements,
     as   specified  in  Texas  Property  Code  &53.106,  if  the
     Affidavit  of  Completion provided for in this Agreement  is
     filed within ten (10) days after such date of completion, or
     (ii)  the date of filing of such Affidavit of Completion  if
     such  Affidavit of Completion is filed ten (10) days or more
     after the date of the completion of the Phase I Improvements
     as specified in Texas Property Code &53.106; and

          (d)   receipt  by  Lender of evidence  satisfactory  to
     Lender   that  payment  in  full  has  been  made  for   all
     obligations incurred in connection with the construction and
     completion  of  all off-site utilities and improvements  (if
     any) as required by Lender or any Governmental Authority.

     III.8      No  Third Party Beneficiaries.  The  benefits  of
this Agreement shall not inure to any third party, nor shall this
Agreement  be  construed to make or render Lender liable  to  any
materialmen, subcontractors, contractors, laborers or others  for
goods  and  materials  supplied or work and  labor  furnished  in
connection with the construction of either the Phase I  or  Phase
II  Improvements  or  for debts or claims accruing  to  any  such
persons or entities against Borrower. Lender shall not be  liable
for the manner in which any Advances under this Agreement may  be
applied  by  Borrower,  Contractor and any  of  Borrower's  other
contractors   or   subcontractors.    Notwithstanding    anything
contained  in  the Loan Documents, or any conduct  or  course  of
conduct  by the parties hereto, before or after signing the  Loan
Documents, this Agreement shall not be construed as creating  any
rights, claims or causes of action against Lender, or any of  its
officers,  directors,  agents  or  employees,  in  favor  of  any
contractor, subcontractor, supplier of labor or materials, or any
of  their  respective creditors, or any other  person  or  entity
other  than  Borrower.  Without limiting the  generality  of  the
foregoing,  Advances  made  to any contractor,  subcontractor  or
supplier  of  labor or materials, pursuant to  any  requests  for
Advances, whether or not such request is required to be  approved
by  Borrower, shall not be deemed a recognition by  Lender  of  a
third-party beneficiary status of any such person or entity.

                           ARTICLE IV

                 WARRANTIES AND REPRESENTATIONS

     Borrower  hereby unconditionally warrants and represents  to
Lender, as of the date hereof and at all times during the term of
the Agreement, as follows:

     IV.1 Plans and Specifications.  The Plans and Specifications
for the Phase I Improvements are satisfactory to Borrower, are in
compliance with all Governmental Requirements and, to the  extent
required   by   Governmental  Requirements   or   any   effective
restrictive  covenant, have been approved  by  each  Governmental
Authority  and/or  by the beneficiaries of any  such  restrictive
covenant affecting the Mortgaged Property.

     IV.2   Governmental  Requirements.   No  violation  of   any
Governmental  Requirements exists or will exist with  respect  to
the Mortgaged Property and neither the Borrower nor the Guarantor
is,   nor  will  either  be,  in  default  with  respect  to  any
Governmental Requirements.

     IV.3  Utility Services.  All utility services of  sufficient
size  and  capacity necessary for the construction  of  both  the
Phase  I and Phase II Improvements and the use thereof for  their
intended  purposes are available at the property line(s)  of  the
Land  for  connection  to the Phase I or Phase  II  Improvements,
including potable water, storm and sanitary sewer, gas,  electric
and telephone facilities.

     IV.4  Access.  All roads necessary for the full  utilization
of  the  Phase  I  and Phase II Improvements for  their  intended
purposes  have  been  completed and have been  dedicated  to  the
public   use   and  accepted  by  the  appropriate   Governmental
Authority.

     IV.5  Financial  Statements.  Each  financial  statement  of
Borrower   and   Guarantor  delivered  heretofore,   concurrently
herewith  or  hereafter to Lender was and  will  be  prepared  in
conformity with general accepted accounting principles, or  other
good accounting principles approved by Lender in writing, applied
on  a  basis  consistent  with that of  previous  statements  and
completely  and  accurately disclose the financial  condition  of
Borrower and Guarantor (including all contingent liabilities)  as
of the date thereof and for the period covered thereby, and there
has  been  no  material  adverse change in either  Borrower's  or
Guarantor's  financial condition subsequent to the  date  of  the
most   recent  financial  statement  of  Borrower  and  Guarantor
delivered to Lender.

     IV.6 Statements.  No certificate, statement, report or other
information   delivered  heretofore,  concurrently  herewith   or
hereafter  by  Borrower  or Guarantor  to  Lender  in  connection
herewith,  or  in  connection with any  transaction  contemplated
hereby,  contains  or  will contain any  untrue  statement  of  a
material  fact or fails to state any material fact  necessary  to
keep the statements contained therein from being misleading,  and
same were true, complete and accurate as of the date hereof.

     IV.7    Disclaimer   of   Permanent   Financing.    Borrower
acknowledges and agrees that Lender has not made any commitments,
either  express or implied, to extend the term of the  Loan  past
its  stated  maturity  date  or  to  provide  Borrower  with  any
permanent financing.

                           ARTICLE V

                     COVENANTS OF BORROWER

     Borrower  hereby unconditionally covenants and  agrees  with
Lender, until the Loan shall have been paid in full and the  lien
of the Deed of Trust shall have been released, as follows:

     V.1   Commencement and Completion.  Borrower will cause  the
construction  of  the Phase I Improvements  to  commence  by  the
Commencement  Date  and  to  be  prosecuted  with  diligence  and
continuity and will complete the same in all material respects in
accordance  with  the Plans and Specifications for  the  Phase  I
Improvements on or before the Completion Date, free and clear  of
liens  or  claims for liens for material supplied and  for  labor
services  performed  in connection with the construction  of  the
Phase I Improvements.

     V.2   No  Changes.  Borrower will not amend, alter or change
(pursuant to change order, amendment or otherwise) the Plans  and
Specifications for the Phase I Improvements unless the same shall
have  been  approved  in advance in writing  by  Lender,  by  all
applicable  Governmental Authorities, and by  each  surety  under
payment  or performance bonds covering the Construction  Contract
or any other contract for construction of all or a portion of the
Phase I Improvements; provided, however, Borrower shall have  the
right to approve change orders without Lender's consent which  do
not  individually  exceed $25,000.00, or in the aggregate  exceed
$100,000.00.

     V.3   Advances.  Borrower will receive the Advances and will
hold  same as a trust fund for the purpose of paying the cost  of
construction   of   the   Phase  I   Improvements   and   related
nonconstruction  costs  related  to  the  Mortgaged  Property  as
provided for herein. Borrower will apply the same promptly to the
payment of the costs and expenses for which each Advance is  made
and will not use any part thereof for any other purpose.

     V.4   Lender's Expenses.  Borrower will reimburse Lender for
all   out-of-pocket  expenses  of  Lender,  including  reasonable
attorneys'  fees,  incurred in connection with  the  preparation,
execution, delivery, administration and performance of  the  Loan
Documents.

     V.5   Surveys.   Borrower will furnish Lender at  Borrower's
expense   (i)  a  foundation survey and (ii) an as-built  survey,
each prepared by a registered engineer or surveyor acceptable  to
Lender,  showing that the locations of the Phase I and  Phase  II
Improvements,  and certifying that same are entirely  within  the
property  lines  of  Land,  do not encroach  upon  any  easement,
setback   or  building  line  or  restrictions,  are  placed   in
accordance  with  the Plans and Specifications, all  Governmental
Requirements  and  all restrictive covenants affecting  the  Land
and/or Phase I and Phase II Improvements, and showing no state of
facts  objectionable to Lender. All surveys shall be in form  and
substance  and  from a registered public surveyor  acceptable  to
Lender.

     V.6   Defects and Variances.  Borrower will, upon demand  of
Lender  and  at  Borrower's sole expense, correct any  structural
defect in the Phase I Improvements or any variance from the Plans
and  Specifications  for the Phase I Improvements  which  is  not
approved in writing by Lender.

     V.7   Estoppel  Certificates.   Borrower  will  deliver   to
Lender, promptly after request therefor, estoppel certificates or
written  statements, duly acknowledged, stating the  amount  that
has  then  been  advanced to Borrower under this  Agreement,  the
amount due on the Note, and whether any known offsets or defenses
exist against the Note or any of the other Loan Documents.

     V.8   Inspecting  Person.  Borrower will pay  the  fees  and
expenses  of, and cooperate, with the Inspecting Person and  will
cause  the  Design Professional, the Contractor, each  contractor
and  subcontractor and the employees of each of them to cooperate
with  the  Inspecting Person and, upon request, will furnish  the
Inspecting  Person  whatever the Inspecting Person  may  consider
necessary  or  useful in connection with the performance  of  the
Inspecting  Person's duties.  Without limiting the generality  of
the  foregoing, Borrower shall furnish or cause to  be  furnished
such  items  as  working  details, Plans and  Specifications  and
details   thereof,  samples  of  materials,  licenses,   permits,
certificates  of public authorities, zoning ordinances,  building
codes  and  copies  of  the  contracts between  such  person  and
Borrower  (if  applicable).  Borrower  will  permit  Lender,  the
Inspecting Person and their representative to enter the Mortgaged
Property  for  the  purposes  of  inspecting  same  and  Borrower
specifically  agrees  that  the  Inspecting  Person's  inspection
rights  shall  cover both the Phase I and Phase II  Improvements.
Borrower  acknowledges that the duties of the  Inspecting  Person
run solely to Lender and that the Inspecting Person shall have no
obligations   or   responsibilities   whatsoever   to   Borrower,
Contractor,  the Design Professional, or to any of Borrower's  or
Contractor's agents, employees, contractors or subcontractors.

     V.9  BROKERS.  BORROWER WILL INDEMNIFY LENDER FROM CLAIMS OF
BROKERS  ARISING  BY  REASON  OF  THE  EXECUTION  HEREOF  OR  THE
CONSUMMATION  OF  THE  TRANSACTIONS CONTEMPLATED  HEREBY  TO  THE
EXTENT  SUCH BROKER WAS CONTACTED OR HIRED BY BORROWER OR  EITHER
OF ITS JOINT VENTURERS.

     V.10  Personalty  and Fixtures.  Borrower  will  deliver  to
Lender,  on  demand,  any contracts, bills of  sale,  statements,
receipted  vouchers  or  agreements under which  Borrower  claims
title to any materials, fixtures or articles incorporated in  the
Phase  I Improvements or subject to the lien of the Deed of Trust
or to the security interest of the Security Agreement.

     V.11  Compliance  with Governmental Requirements.   Borrower
will comply promptly with all Governmental Requirements.

     V.12  Compliance with Restrictive Covenants.  Borrower  will
comply  with  all  restrictive covenants, if any,  affecting  the
Mortgaged  Property. Construction of the Phase  I  and  Phase  II
Improvements will be performed in a good and workmanlike  manner,
within  the  perimeter  boundaries of the  Land  and  within  all
applicable  building  and setback lines in  accordance  with  all
Governmental  Requirements  and  the  Plans  and  Specifications.
There are, and will be, no structural defects in the Phase  I  or
Phase II Improvements.

     V.13  Affidavit of Commencement.  Borrower has filed in  the
appropriate records of the county in which the Land is  situated,
an  Affidavit  of  Commencement  ("Affidavit  of  Commencement"),
substantially  in  the  form of Exhibit  C  attached  hereto  and
incorporated herein by this reference, duly executed by  Borrower
and  Contractor.  The date of commencement of work set  forth  in
such  Affidavit of Commencement shall not be the date of or prior
to the date on which the Deed of Trust was recorded.

     V.14  Affidavit  of Completion.  Borrower, within  ten  (10)
days  after  construction of the Phase I  Improvements  has  been
completed, shall file in the appropriate records in the county in
which the Land is situated an Affidavit of Completion ("Affidavit
of  Completion")  in  the form of Exhibit D attached  hereto  and
incorporated herein by this reference.

     V.15  Payment of Expenses.  Borrower shall pay or  reimburse
to  Lender all out-of-pocket costs and expenses relating  to  the
Mortgaged  Property and for which an Advance is  made,  including
(without  limitation), title insurance and  examination  charges,
survey costs, insurance premiums, filing and recording fees,  and
other  expenses payable to third parties incurred  by  Lender  in
connection with the consummation of the transactions contemplated
by this Agreement.

     V.16  Notices Received.  Borrower will promptly  deliver  to
Lender  a  true  and  correct copy of  all  notices  received  by
Borrower  from  any  person or entity with respect  to  Borrower,
Guarantor,  the Mortgaged Property, or any or all of them,  which
in  any  way  relates  to or affects the Loan  or  the  Mortgaged
Property.

     V.17 Advertising by Lender.  Borrower agrees that during the
term  of  the  Loan,  Borrower shall erect and  thereafter  shall
maintain on the Mortgaged Property one or more advertising  signs
furnished  by  Lender  indicating  that  the  financing  for  the
Mortgaged Property has been furnished by Lender.

     V.18  Leases.  Borrower will deliver to Lender, upon request
of  Lender,  executed  counterparts  of  all  leases  and  rental
agreements affecting the Mortgaged Property; and all said  leases
will,  if  requested  by  Lender,  contain  a  written  provision
acceptable  to  Lender whereby all rights of the  tenant  in  the
lease  and  the Mortgaged Property are subordinated to the  liens
and   security   interests  granted  in   the   Loan   Documents.
Furthermore, if requested by Lender, Borrower shall cause  to  be
executed  and  delivered to Lender a Non-Disturbance,  Attornment
and Subordination Agreement, in form and substance acceptable  to
Lender, relating to each such lease and fully executed by Lender,
Borrower and such lessee.

     V.19  Approval to Lease Required.  Borrower will obtain  the
prior  written consent of Lender as to any tenant lease ("Lease")
proposed to be entered into by Borrower for space in the Phase  I
Improvements and will not thereafter materially modify any  Lease
as  to  the  rental  rate, term or any credit  enhancement  issue
without  Lender's  prior consent.  Lender  agrees  that  it  will
respond  to any request for review of a Lease, or change thereto,
within  ten  (10)  days  of receipt of  a  written  request  from
Borrower.  Borrower agrees to submit to each tenant in connection
with   a   proposed   lease  the  Lender's   required   form   of
Subordination,  Non-Disturbance  and  Attornment  Agreement  (the
"SNDA"), substantially in the form attached hereto as Exhibit E.

     V.20 Statements and Reports.  Borrower agrees to deliver  to
Lender,  during the term of the Loan and until the Loan has  been
fully paid and satisfied, the following statements and reports:

          (a)   Annual, audited financial statements of Borrower,
     each  general  partner  of  Borrower  and  Guarantor  within
     ninety-five  (95) days after the end of each calendar  year,
     prepared and certified to by Guarantor and, in the  case  of
     Borrower, the chief financial officer of the general partner
     of Borrower;

          (b)     Monthly   marketing   reports   with   detailed
     information  as  to  leasing activities  shall  be  provided
     Lender  on  or  before  the  fifteenth  (15th)  day  of  the
     following month;

          (c)   Copies  of  all  state and  federal  tax  returns
     prepared  with respect to Borrower, each Guarantor  and  the
     general  partner of Borrower within ten (10)  days  of  such
     returns  being  filed with the Internal Revenue  Service  or
     applicable state authority;

          (d)   Copies of extension requests or similar documents
     with  respect  to  federal or state income tax  filings  for
     Borrower, each Guarantor and the general partner of Borrower
     within ten (10) days of such documents being filed with  the
     Internal Revenue Service or applicable state authority;

          (e)   Annual operating statements with respect  to  the
     Mortgaged  Property within ninety-five (95) days  after  the
     end  of each calendar year, prepared in such form and detail
     as  Lender  may  require  and  certified  to  by  the  chief
     financial officer of the general partner of Borrower;

          (f)   Monthly operating statements and a rent roll with
     respect to the Phase I Improvements, within thirty (30) days
     after  the  end  of  each  calendar month,  commencing  upon
     lease-up of said property, prepared in such form and  detail
     as  Lender  may  reasonably require and in  accordance  with
     generally accepted accounting principles and certified to by
     the  chief  financial  officer of  the  general  partner  of
     Borrower; and

          (g)   Such  other reports and statements as Lender  may
     reasonably require from time to time.

                           ARTICLE VI

                          ASSIGNMENTS

     VI.1  Assignment  of Construction Contract.   As  additional
security   for   the  payment  of  the  Loan,   Borrower   hereby
collaterally  transfers and assigns to Lender all  of  Borrower's
rights  and interest, but not its obligations, in, under  and  to
each   Construction  Contract  upon  the  following   terms   and
conditions:

          (a)  Borrower represents and warrants that the copy  of
     each  Construction Contract the Borrower  has  furnished  or
     will  furnish to Lender is or will be (as applicable) a true
     and complete copy thereof, including all amendments thereto,
     if  any, and that Borrower's interest therein is not subject
     to any claim, setoff or encumbrance.

          (b)   Neither this assignment nor any action by  Lender
     shall  constitute an assumption by Lender of any obligations
     under any Construction Contract, and Borrower shall continue
     to  be  liable  for all obligations of Borrower  thereunder,
     Borrower  hereby agreeing to perform all of its  obligations
     under  each  Construction  Contract.   BORROWER  AGREES   TO
     INDEMNIFY  AND  HOLD LENDER HARMLESS AGAINST  AND  FROM  ANY
     LOSS,  COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT LIMITED
     TO  ATTORNEYS' FEES) RESULTING FROM ANY FAILURE OF  BORROWER
     TO SO PERFORM.

          (c)   Following any required notice and opportunity  to
     cure,  Lender  shall have the right at any  time  thereafter
     (but shall have no obligation) to take in its name or in the
     name  of  Borrower such action as Lender  may  at  any  time
     determine  to be necessary or advisable to cure any  default
     under any Construction Contract or to protect the rights  of
     Borrower  or  Lender  thereunder.   LENDER  SHALL  INCUR  NO
     LIABILITY  IF  ANY ACTION SO TAKEN BY IT OR  IN  ITS  BEHALF
     SHALL PROVE TO BE INADEQUATE OR INVALID, AND BORROWER AGREES
     TO  INDEMNIFY AND HOLD LENDER HARMLESS AGAINST AND FROM  ANY
     LOSS,  COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT LIMITED
     TO  REASONABLE ATTORNEYS' FEES) INCURRED IN CONNECTION  WITH
     ANY SUCH ACTION.

          (d)    Borrower  hereby  irrevocably  constitutes   and
     appoints  Lender  as  Borrower's attorney-in-fact  effective
     upon the occurrence of an Event of Default, in Borrower's or
     Lender's name, to enforce all rights of Borrower under  each
     Construction Contract. Such appointment is coupled  with  an
     interest and is therefore irrevocable.

          (e)   Prior  to the occurrence of an Event of  Default,
     Borrower  shall  have the right to exercise  its  rights  as
     owner  under  each  Construction  Contract,  provided   that
     Borrower shall not cancel or amend any Construction Contract
     or  do  or suffer to be done any act which would impair  the
     security  constituted by this assignment without  the  prior
     written consent of Lender.

          (f)   This  assignment shall inure to  the  benefit  of
     Lender  and  its successors and assigns, any purchaser  upon
     foreclosure of the Deed of Trust, any receiver in possession
     of  the  Mortgaged  Property and any corporation  affiliated
     with  Lender  which assumes Lender's rights and  obligations
     under this Agreement.

     VI.2  Assignment of Plans and Specifications.  As additional
security for the Loan, Borrower hereby collaterally transfers and
assigns to Lender all of Borrower's right, title and interest  in
and  to  the  Plans and Specifications and hereby represents  and
warrants to and agrees with Lender as follows:

          (a)   Each schedule of the Plans and Specifications for
     the  Phase  I  Improvements delivered or to be delivered  to
     Lender  is  and shall be a complete and accurate description
     of such Plans and Specifications.

          (b)   The  Plans  and Specifications for  the  Phase  I
     Improvements are and shall be complete and adequate for  the
     construction of the Phase I Improvements and there have been
     no   modifications  thereof  except  as  described  in  such
     schedule.   The  Plans  and  Specifications  shall  not   be
     modified without the prior consent of Lender.

          (c)   Lender  may use the Plans and Specifications  for
     the  Phase  I Improvements for any purpose relating  to  the
     Phase   I   Improvements,  including  but  not  limited   to
     inspections  of  construction  and  the  completion  of  the
     Phase I Improvements.

          (d)   Lender's acceptance of this assignment shall  not
     constitute  approval  of  the Plans  and  Specifications  by
     Lender.  Lender has no liability or obligation in connection
     with the Plans and Specifications and no responsibility  for
     the adequacy thereof or for the construction of the Phase  I
     Improvements  contemplated by the Plans  and  Specifications
     for the Phase I Improvements.  Lender has no duty to inspect
     either  the Phase I or Phase II Improvements, and if  Lender
     should  inspect the Phase I or Phase II Improvements, Lender
     shall  have  no liability or obligation to Borrower  or  any
     other  party  arising  out  of  such  inspection.   No  such
     inspection  nor  any  failure by Lender to  make  objections
     after  any such inspection shall constitute a representation
     by  Lender  that the Phase I Improvements are in  accordance
     with  the  Plans and Specifications or any other requirement
     or  constitute  a  waiver of Lender's  right  thereafter  to
     insist  that  the  Phase I Improvements  be  constructed  in
     accordance  with the Plans and Specifications or  any  other
     requirement.

          (e)   This  assignment shall inure to  the  benefit  of
     Lender  and  its successors and assigns, any purchaser  upon
     foreclosure of the Deed of Trust, any receiver in possession
     of  the  Mortgaged  Property and any corporation  affiliated
     with  Lender  which assumes Lender's rights and  obligations
     under this Agreement.

     VI.3  Assignment of Design Services Contract.  As additional
security   for   the  payment  of  the  Loan,   Borrower   hereby
collaterally  transfers and assigns to Lender all  of  Borrower's
rights  and interest, but not its obligations, in, under  and  to
each  Design  Services  Contract upon  the  following  terms  and
conditions:

          (a)  Borrower represents and warrants that the copy  of
     each Design Services Contract the Borrower has furnished  or
     will  furnish to Lender is or will be (as applicable) a true
     and complete copy thereof, including all amendments thereto,
     if  any, and that Borrower's interest therein is not subject
     to any claim, setoff or encumbrance.

          (b)   Neither this assignment nor any action by  Lender
     shall  constitute an assumption by Lender of any obligations
     under  any  Design  Services Contract,  and  Borrower  shall
     continue  to  be  liable  for all  obligations  of  Borrower
     thereunder, Borrower hereby agreeing to perform all  of  its
     obligations  under each Design Services Contract.   BORROWER
     AGREES  TO  INDEMNIFY AND HOLD LENDER HARMLESS  AGAINST  AND
     FROM ANY LOSS, COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT
     LIMITED  TO  ATTORNEYS' FEES) RESULTING FROM ANY FAILURE  OF
     BORROWER TO SO PERFORM.

          (c)   Following any required notice and opportunity  to
     cure,  Lender  shall have the right at any  time  thereafter
     (but shall have no obligation) to take in its name or in the
     name  of  Borrower such action as Lender  may  at  any  time
     determine  to be necessary or advisable to cure any  default
     under  any Design Services Contract or to protect the rights
     of  Borrower  or Lender thereunder.  LENDER SHALL  INCUR  NO
     LIABILITY  IF  ANY ACTION SO TAKEN BY IT OR  IN  ITS  BEHALF
     SHALL PROVE TO BE INADEQUATE OR INVALID, AND BORROWER AGREES
     TO  INDEMNIFY AND HOLD LENDER HARMLESS AGAINST AND FROM  ANY
     LOSS,  COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT LIMITED
     TO  REASONABLE ATTORNEYS' FEES) INCURRED IN CONNECTION  WITH
     ANY SUCH ACTION.

          (d)    Borrower  hereby  irrevocably  constitutes   and
     appoints  Lender  as  Borrower's attorney-in-fact  effective
     upon the occurrence of an Event of Default, in Borrower's or
     Lender's name, to enforce all rights of Borrower under  each
     Design  Services Contract. Such appointment is coupled  with
     an interest and is therefore irrevocable.

          (e)   Prior  to the occurrence of an Event of  Default,
     Borrower  shall  have the right to exercise  its  rights  as
     owner  under  each Design Services Contract,  provided  that
     Borrower  shall  not  cancel or amend  any  Design  Services
     Contract  or  do  or suffer to be done any act  which  would
     impair  the security constituted by this assignment  without
     the prior written consent of Lender.

          (f)   This  assignment shall inure to  the  benefit  of
     Lender  and  its successors and assigns, any purchaser  upon
     foreclosure of the Deed of Trust, any receiver in possession
     of  the  Mortgaged  Property and any corporation  affiliated
     with  Lender  which assumes Lender's rights and  obligations
     under this Agreement.

     VI.4   Assignment  of  Proceeds.   Borrower  hereby  further
collaterally  transfers  and assigns to Lender  and  acknowledges
that  Lender  shall be entitled to receive (i) any and  all  sums
which  may  be  awarded  and  become  payable  to  Borrower   for
condemnation of all or any portion of the Mortgaged Property,  or
(ii)  the  proceeds of any and all insurance upon  the  Mortgaged
Property  (other  than the proceeds of general  public  liability
insurance).

          (a)   Borrower  shall, upon request  of  Lender,  make,
     execute,  acknowledge  and deliver any  and  all  additional
     assignments and documents as may be necessary from  time  to
     time to enable Lender to collect and receipt for any of such
     insurance or condemnation proceeds.

          (b)   Lender  shall  not be, under  any  circumstances,
     liable  or  responsible for failure to collect, or  exercise
     diligence in the collection of, any of such sums.

          (c)   Any  sums so received by Lender pursuant to  this
     Section  6.4  may, in Lender's sole discretion, be  provided
     back  to Borrower for restoration of the Mortgaged Property,
     in   the  amounts,  manner,  method  and  pursuant  to  such
     requirements in documents as Lender may require, or shall be
     applied to the liquidation of the Indebtedness in accordance
     with  the  provisions of Section 7.4 of the Deed  of  Trust;
     provided,  however, if Lender determines that the  Mortgaged
     Property can be restored prior to the maturity date  of  the
     Note, and no Event of Default exists, then Lender will apply
     the proceeds to the restoration of the Mortgaged Property.

     VI.5  Assignment  of Accounts Receivable.  Pursuant  to  the
terms  of  the  Austin  Water Agreement dated  October  2,  1995,
between  the City of Austin and FM Properties Operating  Company,
now  known as Stratus Properties Operating Co. ("Operating Co."),
an  entity  owned 99.9% by Guarantor,  Operating Co.  constructed
Facilities  1,  2  and 3 of that certain Water Project,  as  more
fully   described  in  the  Austin  Water  Agreement  and,   upon
completion and final acceptance of Facilities 1, 2 and 3  of  the
Water  Project  became entitled to three (3) annual  payments  of
$990,648.46  each  from the City of Austin.   Operating  Co.  has
received the first of said three (3) installment payments and  is
entitled   to  receive  a  $990,648.46  payment  on   or   before
December  31,  1999  and  a  $990,648.46  payment  on  or  before
December  31, 2000.  As additional security for the repayment  of
the  Loan,  Operating Co. hereby transfers and assigns to  Lender
all  of the accounts receivable under the Austin Water Agreement,
said assignment to be upon the terms and conditions set forth  in
the  Assignment of Accounts Receivable entered into by  Operating
Co.  of even date herewith.  In connection with the execution and
delivery of said Assignment, Operating Co. agrees to obtain  from
the  City  of  Austin a consent acknowledging the assignment  and
directing that the two (2) payments of $990,648.46 each  are  due
and  payable to Operating Co. on the dates set forth above,  that
there  are  no  contingencies or rights of  offset  thereto,  and
further  that  the City of Austin consents to the  assignment  of
said  payments  to  Lender as security for  the  Loan.   Borrower
specifically acknowledges and agrees, and has directed  Operating
Co.,  that said proceeds upon receipt by Operating Co.  shall  be
deposited  into an account with Lender to be applied against  the
indebtedness  evidenced  by  the  Note  upon  maturity,   or   at
Borrower's  option, shall be applied upon receipt as a  principal
pay  down under the Loan, and that neither Borrower nor Operating
Co. shall have no right to withdraw said proceeds.


                          ARTICLE VII

                       EVENTS OF DEFAULT

     VII.1      Events  of Default.  Each of the following  shall
constitute an "Event of Default" hereunder:

          (a)  If Borrower shall fail, refuse, or neglect to pay,
     in  full, any installment or portion of the Indebtedness  as
     and  when the same shall become due and payable, whether  at
     the  due date thereof stipulated in the Loan Documents, upon
     acceleration  or otherwise and such default  shall  continue
     for a period of ten (10) calendar days beyond any due date.

          (b)   If  Borrower shall fail, refuse  or  neglect,  or
     cause  others  to fail, refuse, or neglect to  comply  with,
     perform   and  discharge  fully  and  timely  any   of   the
     Obligations  as and when called for, and such failure  shall
     continue  for  a  period of ten (10) days after  receipt  of
     written  notice  from  Lender; provided,  however,  Borrower
     shall have the right to attempt to cure said default for  up
     to  an additional thirty (30) days if Borrower is diligently
     prosecuting a cure of said default.

          (c)  If any representation, warranty, or statement made
     by  Borrower, Guarantor, or others in, under, or pursuant to
     the  Loan  Documents  or any affidavit or  other  instrument
     executed or delivered with respect to the Loan Documents  or
     the  Indebtedness is determined by Lender  to  be  false  or
     misleading in any material respect as of the date hereof  or
     thereof  or  shall  become  so at  any  time  prior  to  the
     repayment in full of the Indebtedness.

          (d)   If  Borrower shall default or commit an event  of
     default under and pursuant to any other mortgage or security
     agreement  which covers or affects any part of the Mortgaged
     Property  which  is  not cured within any  notice  or  grace
     period.

          (e)   If  Borrower (i) shall execute an assignment  for
     the  benefit  of  creditors or an admission  in  writing  by
     Borrower  of  Borrower's inability  to  pay,  or  Borrower's
     failure to pay, debts generally as the debts become due;  or
     (ii) shall allow the levy against the Mortgaged Property  or
     any    part   thereof,   of   any   execution,   attachment,
     sequestration  or  other writ which is  not  vacated  within
     sixty  days  after  the  levy;  or  (iii)  shall  allow  the
     appointment of a receiver, trustee or custodian of  Borrower
     or  of  the  Mortgaged Property or any part  thereof,  which
     receiver,  trustee  or  custodian is not  discharged  within
     sixty  (60) days after the appointment; or (iv) files  as  a
     debtor a petition, case, proceeding or other action pursuant
     to,  or voluntarily seeks of the benefit or benefits of  any
     Debtor  Relief  Law (as defined in the Deed  of  Trust),  or
     takes any action in furtherance thereof; or (v) files either
     a  petition,  complaint,  answer or other  instrument  which
     seeks to effect a suspension of, or which has the effect  of
     suspending  any  of the rights or powers of  Lender  or  the
     trustee under the Deed of Trust granted in the Note,  herein
     or  in  any  Loan Document; or (vi) allows the filing  of  a
     petition, case, proceeding or other action against  Borrower
     as a debtor under any Debtor Relief Law or seeks appointment
     of  a receiver, trustee, custodian or liquidator of Borrower
     or of the Mortgaged Property, or any part thereof, or of any
     significant   portion  of  Borrower's  other  property   and
     (a)  Borrower  admits, acquiesces in  or  fails  to  contest
     diligently  the  material allegations thereof,  or  (b)  the
     petition,  case, proceeding or other action results  in  the
     entry  of  an order for relief or order granting the  relief
     sought   against  Borrower,  or  (c)  the  petition,   case,
     proceeding  or other action is not permanently dismissed  or
     discharged  on  or  before the earlier of trial  thereon  or
     sixty (60) days next following the date of filing.

          (f)  If Borrower, any Constituent Party (as defined  in
     the  Deed  of Trust), or any Guarantor, shall die, dissolve,
     terminate  or  liquidate, or merge with or  be  consolidated
     into any other entity, or become permanently disabled.

          (g)   If  Borrower creates, places, or  permits  to  be
     created  or  placed, or through any act or failure  to  act,
     acquiesces  in  the  placing of, or allows  to  remain,  any
     Subordinate Mortgage, regardless of whether such Subordinate
     Mortgage  is expressly subordinate to the liens or  security
     interests  of  the  Loan  Documents,  with  respect  to  the
     Mortgaged Property, other than the Permitted Exceptions.

          (h)  If Borrower makes a Disposition, without the prior
     written consent of Lender.

          (i)   If  any condemnation proceeding is instituted  or
     threatened   which   would,  in  Lender's   sole   judgment,
     materially  impair the use and enjoyment  of  the  Mortgaged
     Property for its intended purposes.

          (j)    If   the   Mortgaged  Property  is   demolished,
     destroyed,  or  substantially damaged so that,  in  Lender's
     judgment,  it  cannot be restored or rebuilt with  available
     funds  to the condition existing immediately prior  to  such
     demolition,  destruction,  or  damage  within  a  reasonable
     period of time.

          (k)   If  Lender reasonably determines that  any  event
     shall  have  occurred  that could  be  expected  to  have  a
     Material Adverse Effect.

          (l)   If  Borrower abandons all or any portion  of  the
     Mortgaged Property.

          (m)   The  occurrence  of  any  event  referred  to  in
     Sections  7.1(e)  and  (f)  hereof  with  respect   to   any
     Guarantor,  Constituent  Party or  other  person  or  entity
     obligated  in  any manner to pay or perform the Indebtedness
     or  Obligations, respectively, or any part  thereof  (as  if
     such  Guarantor, Constituent Party or other person or entity
     were the "Borrower" in such Sections).

          (n)   An Event of Default as defined in any of the Loan
     Documents.

          (o)   If  the  construction of the Phase I Improvements
     are,  at  any time, (i) discontinued due to acts or  matters
     within  Borrower's control for a period of ten (10) or  more
     consecutive  days,  (ii)  not  carried  on  with  reasonable
     dispatch,  or  (iii) not completed by the  Completion  Date;
     subject,  however,  to Force Majeure (hereinafter  defined).
     "Force  Majeure"  shall be deemed to mean that  Borrower  is
     delayed or hindered in or prevented from the performance  of
     any act required hereunder, not the failure of Borrower,  by
     reason  of  (i) inability to procure materials or reasonable
     substitutes  thereof,  (ii) failure of  power,  (iii)  civil
     commotion, riots, insurrection or war, (iv) unavoidable fire
     or  other casualty, or acts of God (v) strikes, lockouts  or
     other   labor   disputes  (not  by  Borrower's   employees),
     (vi) restrictive governmental law or regulation, (vii) delay
     by Lender of any act required of it hereunder, or (viii) any
     other   causes  of  a  like  nature  to  the  above   listed
     (i)  through  (vii).  Financial inability  on  the  part  of
     Borrower  shall not be construed a Force Majeure  hereunder.
     Borrower  agrees  to  use its best  efforts  to  resume  the
     construction  of  the  Phase  I  Improvements  as  soon   as
     practicable  after the cause of such delay has been  removed
     or cancelled.

          (p)  If Borrower is unable to satisfy any condition  of
     Borrower's right to receive Advances hereunder for a  period
     in excess of thirty (30) days after Lender's refusal to make
     any further Advances.

          (q)  If Borrower executes any conditional bill of sale,
     chattel  mortgage or other security instrument covering  any
     materials,  fixtures or articles intended to be incorporated
     in the Phase I or Phase II Improvements or the appurtenances
     thereto, or covering articles of personal property placed in
     the  Phase  I or Phase II Improvements, or files a financing
     statement publishing notice of such security instrument,  or
     if  any  of  such  materials, fixtures or articles  are  not
     purchased in such a manner that the ownership thereof  vests
     unconditionally  in  Borrower, free  from  encumbrances,  on
     delivery  at  the Phase I and Phase II Improvements,  or  if
     Borrower  does not produce to Lender upon reasonable  demand
     the contracts, bills of sale, statements, receipted vouchers
     or  agreements, or any of them, under which Borrower  claims
     title to such materials, fixtures and articles.

          (r)   If any levy, attachment or garnishment is issued,
     or  if any lien for the performance of work or the supply of
     materials  is  filed,  against any  part  of  the  Mortgaged
     Property  and remains unsatisfied or unbonded following  the
     earlier  of (i) fifteen (15) days after the date  of  filing
     thereof or (ii) the requesting by Borrower of an Advance.

     VII.2      Remedies.  Lender shall have the right, upon  the
happening  of an Event of Default, in addition to any  rights  or
remedies available to it under all other Loan Documents, to enter
into possession of the Mortgaged Property and perform any and all
work and labor necessary to complete the Phase I Improvements  in
accordance  with the Plans and Specifications.   All  amounts  so
expended  by  Lender shall be deemed to have  been  disbursed  to
Borrower as Loan proceeds and secured by the Deed of Trust.   For
this  purpose,  Borrower hereby constitutes and  appoints  (which
appointment  is  coupled  with  an  interest  and  is   therefore
irrevocable)    Lender   as   Borrower's    true    and    lawful
attorney-in-fact, with full power of substitution to complete the
Phase I Improvements in the name of Borrower, and hereby empowers
Lender,  acting as Borrower's attorney-in-fact, as  follows:   to
use  any  funds of Borrower, including any balance which  may  be
held  in  escrow, any Borrower's Deposit and any funds which  may
remain  unadvanced hereunder, for the purpose of  completing  the
Phase  I  Improvements in the manner called for by the Plans  and
Specifications;   to  make  such  additions   and   changes   and
corrections  in  the  Plans  and Specifications  which  shall  be
necessary  or  desirable to complete the Phase I Improvements  in
the  manner  contemplated  by the Plans  and  Specifications;  to
continue   all   or  any  existing  construction   contracts   or
subcontracts; to employ such contractors, subcontractors, agents,
design professionals and inspectors as shall be required for said
purposes;  to  pay, settle or compromise all existing  bills  and
claims  which are or may be liens against the Mortgaged Property,
or  may be necessary or desirable for the completion of the  work
or  the  clearing  of title; to execute all the applications  and
certificates in the name of Borrower which may be required by any
construction  contract; and to do any and every act with  respect
to  the  construction of the Phase I Improvements which  Borrower
could  do in Borrower's own behalf.  Lender, acting as Borrower's
attorney-in-fact, shall also have power to prosecute  and  defend
all  actions  or  proceedings in connection  with  the  Mortgaged
Property and to take such action and require such performance  as
is deemed necessary.


                          ARTICLE VIII

         LENDER'S DISCLAIMERS - BORROWER'S INDEMNITIES

     VIII.1    No Obligation by Lender to Construct.  Lender  has
no  liability or obligation whatsoever or howsoever in connection
with  the Mortgaged Property or the development, construction  or
completion  thereof  or  work  performed  thereon,  and  has   no
obligation except to disburse the Loan proceeds as herein agreed,
Lender  is  not  obligated to inspect the Phase  I  or  Phase  II
Improvements  nor  is Lender liable, and under  no  circumstances
whatsoever  shall Lender be or become liable, for the performance
or default of any contractor or subcontractor, or for any failure
to construct, complete, protect or insure the Mortgaged Property,
or  any  part thereof, or for the payment of any cost or  expense
incurred  in  connection  therewith, or for  the  performance  or
nonperformance  of  any obligation of Borrower  or  Guarantor  to
Lender   nor  to  any  other  person,  firm  or  entity   without
limitation.    Nothing,   including   without   limitation,   any
disbursement  of  Loan  proceeds or the  Borrower's  Deposit  nor
acceptance  of any document or instrument, shall be construed  as
such  a  representation  or  warranty,  express  or  implied,  on
Lender's part.

     VIII.2     No Obligation by Lender to Operate.  Any term  or
condition   of  any  of  the  Loan  Documents  to  the   contrary
notwithstanding, Lender shall not have, and by its execution  and
acceptance  of  this  Agreement hereby expressly  disclaims,  any
obligation  or  responsibility for  the  management,  conduct  or
operation  of the business and affairs of Borrower or  Guarantor.
Any  term or condition of the Loan Documents which permits Lender
to  disburse  funds, whether from the proceeds of the  Loan,  the
Borrower's  Deposit  or otherwise, or to  take  or  refrain  from
taking  any  action  with  respect to  Borrower,  Guarantor,  the
Mortgaged Property or any other collateral for repayment  of  the
Loan, shall be deemed to be solely to permit Lender to audit  and
review the management, operation and conduct of the business  and
affairs  of Borrower and Guarantor, and to maintain and  preserve
the  security given by Borrower to Lender for the Loan,  and  may
not  be  relied upon by any other person.  Further, Lender  shall
not have, has not assumed and by its execution and acceptance  of
this  Agreement  hereby  expressly  disclaims  any  liability  or
responsibility for the payment or performance of any indebtedness
or  obligation of Borrower or Guarantor and no term or  condition
of  the  Loan Documents, shall be construed otherwise.   Borrower
hereby  expressly acknowledges that no term or condition  of  the
Loan  Documents shall be construed so as to deem the relationship
between  Borrower, Guarantor and Lender to be other than that  of
borrower,  guarantor and lender, and Borrower shall at all  times
represent  that the relationship between Borrower, Guarantor  and
Lender   is  solely  that  of  borrower,  guarantor  and  lender.
BORROWER  HEREBY  INDEMNIFIES AND AGREES TO HOLD LENDER  HARMLESS
FROM  AND  AGAINST  ANY  COST, EXPENSE OR LIABILITY  INCURRED  OR
SUFFERED BY LENDER AS A RESULT OF ANY ASSERTION OR CLAIM  OF  ANY
OBLIGATION  OR  RESPONSIBILITY  OF  LENDER  FOR  THE  MANAGEMENT,
OPERATION AND CONDUCT OF THE BUSINESS AND AFFAIRS OF BORROWER  OR
GUARANTOR,  OR  AS  A RESULT OF ANY ASSERTION  OR  CLAIM  OF  ANY
LIABILITY  OR  RESPONSIBILITY  OF  LENDER  FOR  THE  PAYMENT   OR
PERFORMANCE  OF  ANY INDEBTEDNESS OR OBLIGATION  OF  BORROWER  OR
GUARANTOR.

     VIII.3       INDEMNITY   BY   BORROWER.    BORROWER   HEREBY
INDEMNIFIES   LENDER  AND  EACH  AFFILIATE  THEREOF   AND   THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS  FROM,  AND
HOLDS  EACH  OF  THEM  HARMLESS  AGAINST,  ANY  AND  ALL  LOSSES,
LIABILITIES, CLAIMS, DAMAGES, COSTS, AND EXPENSES TO WHICH ANY OF
THEM  MAY  BECOME  SUBJECT, INSOFAR AS SUCH LOSSES,  LIABILITIES,
CLAIMS, DAMAGES, COSTS, AND EXPENSES  ARISE FROM OR RELATE TO ANY
OF  THE  LOAN  DOCUMENTS OR ANY OF THE TRANSACTIONS  CONTEMPLATED
THEREBY   OR  FROM  ANY  INVESTIGATION,  LITIGATION,   OR   OTHER
PROCEEDING,   INCLUDING,  WITHOUT  LIMITATION,   ANY   THREATENED
INVESTIGATION, LITIGATION,  OR OTHER PROCEEDING RELATING  TO  ANY
OF  THE  FOREGOING.   Without intending  to  limit  the  remedies
available  to  Lender  with respect to  the  enforcement  of  its
indemnification rights as stated herein or as stated in any  Loan
Document,  in the event any claim or demand is made or any  other
fact  comes  to  the  attention of  Lender  in  connection  with,
relating  or  pertaining to, or arising out of  the  transactions
contemplated by this Agreement, which Lender reasonably  believes
might  involve  or  lead to some liability  of  Lender,  Borrower
shall,  immediately upon receipt of written notification  of  any
such  claim or demand, assume in full the personal responsibility
for  and  the  defense of any such claim or  demand  and  pay  in
connection  therewith any loss, damage, deficiency, liability  or
obligation, including, without limitation, legal fees  and  court
costs  incurred in connection therewith.  In the event  of  court
action  in  connection with any such claim  or  demand,  Borrower
shall  assume in full the responsibility for the defense  of  any
such action and shall immediately satisfy and discharge any final
decree  or  judgment rendered therein.  Lender may, in  its  sole
discretion, make any payments sustained or incurred by reason  of
any  of  the foregoing; and Borrower shall immediately  repay  to
Lender, in cash and not with proceeds of the Loan, the amount  of
such  payment,  with  interest thereon at the  Default  Rate  (as
defined in the Note) from the date of such payment.  Lender shall
have the right to join Borrower as a party defendant in any legal
action  brought against Lender, and Borrower hereby  consents  to
the  entry of an order making Borrower a party defendant  to  any
such action.

     VIII.4     No Agency.  Nothing herein shall be construed  as
making  or constituting Lender as the agent of Borrower in making
payments  pursuant to any construction contracts or  subcontracts
entered  into  by  Borrower  for  construction  of  the  Phase  I
Improvements  or  otherwise.  The purpose of all requirements  of
Lender  hereunder is solely to allow Lender to check and  require
documentation  (including,  but not  limited  to,  lien  waivers)
sufficient  to  protect Lender and the Loan contemplated  hereby.
Borrower  shall have no right to rely on any procedures  required
by  Lender, Borrower hereby acknowledging that Borrower has  sole
responsibility  for  constructing  the  Phase  I  or   Phase   II
Improvements and paying for work done in accordance therewith and
that  Borrower has solely, on Borrower's own behalf, selected  or
approved   each   contractor,   each   subcontractor   and   each
materialman, Lender having no responsibility for any such persons
or entities or for the quality of their materials or workmanship.


                           ARTICLE IX

                         MISCELLANEOUS

     IX.1  Successors  and  Assigns.   This  Agreement  shall  be
binding  upon,  and shall inure to the benefit of,  Borrower  and
Lender,   and  their  respective  heirs,  legal  representatives,
successors and assigns; provided, however, that Borrower may  not
assign any rights or obligations under this Agreement without the
prior written consent of Lender.

     IX.2   Headings.   The  Article,  Section,  and   Subsection
entitlements  hereof  are inserted for convenience  of  reference
only  and  shall in no way alter, modify, define or  be  used  in
construing the text of such Articles, Sections or Subsections.

     IX.3  Survival.   The provisions hereof  shall  survive  the
execution of all instruments herein mentioned, shall continue  in
full  force and effect until the Loan has been paid in  full  and
shall not be affected by any investigation made by any party.

     IX.4  APPLICABLE LAW.  THIS AGREEMENT SHALL BE  GOVERNED  BY
AND  CONSTRUED IN ACCORDANCE WITH  THE LAWS OF THE STATE OF TEXAS
AND  THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.  COURTS
WITHIN  THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER  ANY  AND
ALL  DISPUTES  BETWEEN BORROWER AND LENDER,  WHETHER  IN  LAW  OR
EQUITY,  INCLUDING,  BUT NOT LIMITED TO,  ANY  AND  ALL  DISPUTES
ARISING  OUT OF OR RELATING TO THIS AGREEMENT OR ANY  OTHER  LOAN
DOCUMENT;  AND  VENUE IN ANY SUCH DISPUTE WHETHER IN  FEDERAL  OR
STATE COURT SHALL BE LAID IN DALLAS COUNTY, TEXAS.

     IX.5  Notices.  All notices or other communications required
or  permitted to be given pursuant to this Agreement shall be  in
writing  and shall be considered as properly given if (i)  mailed
by first class United States mail, postage prepaid, registered or
certified with return receipt requested; (ii) by delivering  same
in  person to the intended addressee; or (iii) by delivery to  an
independent third party commercial delivery service for same  day
or next day delivery and providing for evidence of receipt at the
office  of  the  intended addressee.  Notice so mailed  shall  be
effective upon its deposit with the United States Postal  Service
or  any  successor  thereto; notice sent  a  commercial  delivery
service  shall  be  effective upon delivery  to  such  commercial
delivery  service;  notice given by personal  delivery  shall  be
effective only if and when received by the addressee; and  notice
given by other means shall be effective only if and when received
at  the  designated  address  of  the  intended  addressee.   For
purposes of notice, the addresses of the parties shall be as  set
forth on page 1 of this Agreement; provided, however, that either
party  shall  have  the right to change its  address  for  notice
hereunder  to  any  other location within the continental  United
States  by  the giving of thirty (30) days notice  to  the  other
party in the manner set forth herein.

     IX.6  Reliance by Lender.  Lender is relying and is entitled
to  rely  upon each and all of the provisions of this  Agreement;
and accordingly, if any provision or provisions of this Agreement
should  be  held  to be invalid or ineffective,  then  all  other
provisions  hereof  shall  continue  in  full  force  and  effect
notwithstanding.

     IX.7  Participations.  Lender shall have the  right  at  any
time  and  from time to time to grant participations in the  Loan
and  Loan  Documents.   Each participant  shall  be  entitled  to
receive   all  information  received  by  Lender  regarding   the
creditworthiness  of  Borrower, any of  its  principals  and  the
Guarantor, including (without limitation) information required to
be  disclosed  to a participant pursuant to Banking Circular  181
(Rev., August 2, 1984), issued by the Comptroller of the Currency
(whether the participant is subject to the circular or not).

     IX.8 Controlling Agreement.  It is expressly stipulated  and
agreed  to be the intent of Borrower and Lender at all  times  to
comply  with  applicable  Texas law or applicable  United  States
federal  law  (to the extent that it permits Lender  to  contract
for,  charge,  take,  reserve, or receive  a  greater  amount  of
interest  than  under  Texas law) and  that  this  section  shall
control every other covenant and agreement in this Agreement.  If
the applicable law is ever judicially interpreted so as to render
usurious any amount called for under the Note or under any of the
other   Loan  Documents,  or  contracted  for,  charged,   taken,
reserved,   or   received  with  respect  to   the   indebtedness
("Indebtedness") evidenced or secured by the Loan  Documents,  or
if  Lender's exercise of the option to accelerate the maturity of
the  Note,  or if any prepayment by Borrower results in  Borrower
having  paid  any  interest  in  excess  of  that  permitted   by
applicable law, then it is Borrower's and Lender's express intent
that all excess amounts theretofore collected by Lender shall  be
credited  on  the  principal balance of the Note  and  all  other
Indebtedness  (or,  if the Note and all other  Indebtedness  have
been or would thereby be paid in full, refunded to Borrower), and
the   provisions  of  the  Note  and  the  other  Loan  Documents
immediately  be  deemed  reformed  and  the  amounts   thereafter
collectible   hereunder  and  thereunder  reduced,  without   the
necessity of the execution of any new documents, so as to  comply
with the applicable law, but so as to permit the recovery of  the
fullest amount otherwise called for hereunder or thereunder.  All
sums   paid  or  agreed  to  be  paid  to  Lender  for  the  use,
forbearance,  or  detention  of the Indebtedness  shall,  to  the
extent  permitted  by  applicable law,  be  amortized,  prorated,
allocated,  and  spread throughout the full stated  term  of  the
Indebtedness until payment in full so that the rate or amount  of
interest  on  account  of the Indebtedness does  not  exceed  the
Maximum Lawful Rate (as defined in the Note) from time to time in
effect  and  applicable to the Indebtedness for so  long  as  the
Indebtedness is outstanding.  In no event shall the provisions of
Chapter  346  of the Texas Finance Code (which regulates  certain
revolving  credit loan accounts and revolving triparty  accounts)
apply to the loan evidenced and/or secured by the Loan Documents.
Notwithstanding anything to the contrary contained herein  or  in
any  of  the  other  Loan Documents, it is not the  intention  of
Lender  to accelerate the maturity of any interest that  has  not
accrued  at the time of such acceleration or to collect  unearned
interest at the time of such acceleration.

     IX.9  Controlling  Document.  In the  event  of  a  conflict
between the terms and conditions of this Agreement and the  terms
and  conditions  of  any  other  Loan  Document,  the  terms  and
conditions of this Agreement shall control.

     IX.10      Construction of Agreement.  All pronouns, whether
in  masculine, feminine or neuter form, shall be deemed to  refer
to the object of such pronoun whether same is masculine, feminine
or  neuter in gender, as the context may suggest or require.  All
terms  used herein, whether or not defined in Section 1.1 hereof,
and  whether used in singular or plural form, shall be deemed  to
refer  to  the object of such term, whether such is  singular  or
plural in nature, as the context may suggest or require.

     IX.11      Counterpart Execution.  To facilitate  execution,
this Agreement may be executed in one or more counterparts as may
be   convenient   or   required,  with  all   such   counterparts
collectively constituting a single instrument.

     IX.12      NOTICE OF INDEMNIFICATION.  BORROWER ACKNOWLEDGES
AND  AGREES  THAT THIS AGREEMENT CONTAINS CERTAIN INDEMNIFICATION
PROVISIONS  PURSUANT  TO SECTIONS 5.9,  6.1,  6.3,  8.2  AND  8.3
HEREOF.

     IX.13      ENTIRE  AGREEMENT.  THIS LOAN AGREEMENT  AND  THE
OTHER  LOAN  DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN  THE
PARTIES  AND  MAY  NOT  BE CONTRADICTED  BY  EVIDENCE  OF  PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS  OF  THE  PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  THIS
INSTRUMENT  MAY  BE  AMENDED ONLY BY  AN  INSTRUMENT  IN  WRITING
EXECUTED BY THE PARTIES HERETO.

     IX.14      Year  2000 Covenant.  Borrower shall perform  all
acts  reasonably  necessary to ensure that (i) Borrower  and  any
business  in  which  Borrower holds a substantial  interest,  and
(ii)  all  customers, suppliers and vendors that are material  to
Borrower's  business,  become Year 2000  Compliant  in  a  timely
manner.   Such acts shall include, without limitation, performing
a  comprehensive  review  and assessment  of  all  of  Borrower's
systems  and adopting a detailed plan, with itemized budget,  for
the remediation, monitoring and testing of such systems.  As used
in this paragraph, "Year 2000 Compliant" shall mean, in regard to
any  entity,  that  all software, hardware, firmware,  equipment,
fixtures,  goods  or  systems utilized  by  or  material  to  the
business  operations or financial condition of such entity,  will
properly  perform  date sensitive functions  before,  during  and
after  the year 2000.  Borrower shall, immediately upon  request,
provide  to  Lender  such certifications  or  other  evidence  of
Borrower's compliance with the terms of this paragraph as  Lender
may from time to time require.

     IN  WITNESS  WHEREOF, the parties hereto have executed  this
Agreement as of the day and year first above written.

                         LENDER:

                         COMERICA BANK-TEXAS,
                         a state banking association


                         By:
                         Name:
                         Title:


                         BORROWER:

                         STRATUS 7000 WEST JOINT VENTURE,
                         a Texas joint venture

                         By:  Stratus 7000 West, Ltd.,
                              a Texas limited partnership,
                              Its Operating Partner

                              By:  STRS L.L.C.,
                                   a  Delaware limited  liability
                                   company,
                                   Its General Partner

                                   By:  Stratus Properties, Inc.,
                                        a Delaware corporation,
                                        Its Sole Member



                                        By:  /s/ William H. Armstrong, III
                                             ----------------------------
                                        Name:  William H. Armstrong, III
                                        Title:     President  and
                                                Chief Executive Officer



                                             Exhibit 10.14

When recorded, return to:

Lynda Zimmerman, Esq.
Winstead Sechrest & Minick
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas  752701


                     MODIFICATION AGREEMENT


     This MODIFICATION AGREEMENT ("Agreement") is made as of  the
16th  day of August, 1999, by and between COMERICA BANK-TEXAS,  a
state  banking  association ("Lender"), STRATUS 7000  WEST  JOINT
VENTURE,   a  Texas  joint  venture  ("Borrower"),  and   STRATUS
PROPERTIES, INC., a Delaware corporation (the "Guarantor").

                     W I T N E S S E T H :

     WHEREAS, Lender made a loan ("Loan") to Borrower on April 9,
1999,  in the maximum principal amount of SIX MILLION SIX HUNDRED
THOUSAND AND NO/100 DOLLARS ($6,600,000.00); and

     WHEREAS,   Lender   and  Borrower  executed   that   certain
Construction  Loan Agreement ("Loan Agreement")  dated  April  9,
1999, pertaining to the Loan; and

     WHEREAS, the Borrower executed and delivered to Lender  that
certain Promissory Note (the "Note") dated April 9, 1999, payable
to  the order of Lender in the amount of and evidencing the Loan;
and

     WHEREAS,  the  Borrower executed and delivered that  certain
Amended and Restated Deed of Trust (the "Deed of Trust") dated of
even  date  with the Note to Gary W. Orr, as trustee ("Trustee"),
for  the  benefit  of  the Lender, recorded  under  Document  No.
1999009453  of  the  Official Records of  Travis  County,  Texas,
covering the real property described in Exhibit A attached hereto
and  incorporated  herein  for all purposes,  together  with  all
improvements,  appurtenances, other properties (whether  real  or
personal),  rights and interests described in and  encumbered  by
the Deed of Trust ("Property"), to secure the payment of the Note
and performance by Borrower of the other obligations set forth in
the Security Documents (as herein defined); and

     WHEREAS, the Borrower executed and delivered to Lender  that
certain  Assignment of Rents and Leases (the "Assignment")  dated
of  even  date  with  the Note, assigning to  Lender  all  rents,
leases, income, revenues, issues and profits which may arise from
the operation or ownership of the Property, to secure the payment
of  the Note and performance by Borrower of the other obligations
set forth in the Security Documents; and

     WHEREAS,  the Borrower caused to be issued by Chicago  Title
Insurance Company ("Title Company") that certain Mortgagee Policy
of Title Insurance ("Policy") No.44-0394-101-339, dated April 16,
1999,  in  the  amount  of  the Note, insuring  the  dignity  and
priority  of the lien created and evidenced by the Deed of  Trust
and the Assignment; and

     WHEREAS,  the Borrower caused Stratus Properties, Inc.,  the
Guarantor to execute and deliver to Lender that certain  Guaranty
("Guaranty")  dated  of  even  date with  the  Note  guaranteeing
certain  payment  obligations under the Note  and  certain  other
monetary  obligations  contained in the  Security  Documents  and
performance by Borrower of certain other obligations as set forth
in  the  Security  Documents subject to  and  on  the  terms  and
conditions set forth in the Guaranty; and

     WHEREAS,  the Lender, Borrower and Guarantor now propose  to
modify certain of the terms and provisions of the Loan Agreement,
the Assignment, the Note, the Deed of Trust and the other related
documents  executed by Borrower or third parties  pertaining  to,
evidencing  or  securing  the Loan (collectively,  the  "Security
Documents").

     NOW, THEREFORE, for and in consideration of the premises and
the  mutual  covenants and agreements contained herein,  and  for
other   good   and  valuable  consideration,  the   receipt   and
sufficiency  of  which are hereby acknowledged, Lender,  Borrower
and Guarantor hereby agree as follows:

     1.   Disposition.  Borrower and Lender hereby agree that the
definition  of  "Disposition" as contained in the Loan  Agreement
and  as  contained  in  the Deed of Trust shall  be  amended  and
modified  by  adding to said definition the following  underlined
additional language to be inserted in the Loan Agreement and  the
Deed of Trust:

          "Disposition:    Any  sale,   lease   (except   as
     permitted   under   this  Deed  of  Trust),   exchange,
     assignment,  conveyance,  transfer,  trade,  or   other
     disposition  of  all or any portion  of  the  Mortgaged
     Property  (or any interest therein) or all or any  part
     of  the  beneficial ownership interest in  Grantor  (if
     Grantor   is   a   corporation,  partnership,   general
     partnership, limited partnership, joint venture, trust,
     or other type of business association or legal entity);
     provided, however, a sale of the publicly traded  stock
     of  Stratus  Properties, Inc. shall  not  constitute  a
     Disposition under the terms of this Deed of Trust; and,
     further  provided,  notwithstanding  anything  to   the
     contrary  contained herein or in any of the other  Loan
     Documents,  Oly  Lantana, L.P.,  a  joint  venturer  of
     Grantor  ("Oly Lantana") may, after written  notice  to
     but  without the requirement of Beneficiary's  consent,
     transfer  all  or  any  portion of  its  joint  venture
     interest  in  Grantor or all or  any  portion  of   its
     interest  in any constituent entity of Oly  Lantana  to
     any  entity  or individual that is now  or  is  in  the
     future  an affiliate or partner in Hicks Muse Tate  and
     Furst, Inc., Olympus Real Estate Corporation or Olympus
     Real Estate Fund II, LP; PROVIDED, HOWEVER, in no event
     shall Stratus 7000 West, Ltd., the other joint venturer
     of   Grantor,   and   the   entities   which   comprise
     Stratus   7000  West,  Ltd.  (collectively,  "Stratus")
     (i)   be   entitled   to  transfer  any   interest   in
     Stratus  7000 West, Ltd. or in any Stratus  constituent
     entity without the prior written consent of Beneficiary
     and  FURTHER  PROVIDED  that  (ii)  Stratus  shall   be
     obligated  to,  at all times during the  term  of  this
     Loan, remain in charge of the day-to-day management  of
     the  Grantor;  EXCEPT, HOWEVER, Oly  Lantana  shall  be
     entitled  to  exercise its right to remove  Stratus  as
     Operating   Partner  of  Grantor  in  accordance   with
     Section  4.1 of the Amended  and Restated Joint Venture
     Agreement  between Oly Lantana and Stratus  7000  West,
     Ltd.  dated August __, 1999, PROVIDED: (i) Oly  Lantana
     has  first given written notice to Lender at least five
     (5)  business days in advance of such removal  and  the
     reason  for  said proposed removal, together  with  Oly
     Lantana's proposed additional collateral, cash  deposit
     or  guaranty  of the Loan (the "Proposed  Collateral"),
     which  Proposed  Collateral  must  be  satisfactory  to
     Lender  in  its sole discretion; and thereafter  either
     (ii)  within  ten  (10) business  days  of  receipt  of
     Lender's  approval  of  said Proposed  Collateral,  has
     furnished  to  Lender  such  Proposed  Collateral;   or
     (iii)  within  ten  (10) business days  of  receipt  of
     Lender's  disapproval  of the Proposed  Collateral  has
     paid off the Loan in full."

     2.   Limitation of Liability.  The Note shall be amended and
modified  by  adding the following additional  paragraph  to  the
Note:

          "5.8  Limitation of Liability of  Oly  Lower  Tier
     Borrower Partners.  Maker and Payee agree that (x)  all
     of  the  following entities are fully  liable  for  the
     indebtedness    evidenced    by    this    Note    (the
     "Indebtedness"),  all  sums  to  accrue  or  to  become
     payable  thereon,  all amounts covenanted  to  be  paid
     under   the  Loan  Documents  and  all  covenants   and
     agreements under the Loan Documents: (i) Maker and  its
     two  (2)  joint venturers, Stratus 7000 West, Ltd.  and
     Oly  Lantana,  L.P. (the "Joint Venturers"),  (ii)  the
     General  Partners of the Joint Venturers, and (iii)  to
     the  extent  any  lower tier entities of  Stratus  7000
     West, Ltd. otherwise have personal liability under  the
     terms of this Note, said lower tier entities of Stratus
     7000  West,  Ltd.;  (y) Stratus Properties,  Inc.  (the
     "Guarantor")  is liable for the Guaranteed  Obligations
     (as defined in the Guaranty) to the extent set forth in
     the   Guaranty  of  even  date  herewith  executed   by
     Guarantor in favor of Payee; and (z) Stratus Properties
     Operating Co., an entity owned 99.9% by Guarantor,  the
     Assignor  under  that  certain Assignment  of  Accounts
     Receivable  executed  of even date  herewith  given  by
     Assignor as additional collateral for the Indebtedness,
     has   absolutely   assigned  the  accounts   receivable
     described therein to Payee and said Assignment  is  not
     modified  by the terms of this Paragraph 5.9.  However,
     any  liability of any lower tier entity  which  has  an
     ownership  interest in Oly Lantana, L.P.,  one  of  the
     Joint   Venturers,  (the  "Oly  Lower   Tier   Borrower
     Parties")  under this Note, or any other Loan Documents
     shall  be enforced only against the collateral  now  or
     hereafter  given  to  secure the Indebtedness  and  not
     against  any other assets, properties or funds  of  any
     Oly  Lower  Tier Borrower Parties; EXCEPT, HOWEVER,  to
     the  extent  that the Indebtedness, together  with  all
     sums  due  and owing to Payee under the Loan Documents,
     is  not  fully satisfied in the manner required by  the
     Loan  Documents, following an uncured Event of Default,
     the Oly Lower Tier Borrower Parties shall be personally
     liable  for  all  amounts  of  money  paid,  loaned  or
     distributed to the Oly Lower Tier Borrowing Parties  or
     affiliates  thereof, unless such amounts of money  were
     paid,  loaned  or distributed with the express  written
     consent of Payee.

     Nothing  herein shall be deemed to be a waiver  of  any
     right  which  Payee  may  have under  Sections  506(a),
     506(b),  1111(b) or any other provision of  the  United
     States  Bankruptcy  Code,  as  such  sections  may   be
     amended,  or  corresponding or superseding sections  of
     the  Bankruptcy Amendments and Federal Judgeship Action
     of  1984,  to file a claim for the full amount  due  to
     Payee  under the Loan Documents or to require that  all
     collateral  shall continue to secure  the  amounts  due
     under the Loan Documents.

     It is specifically acknowledged and agreed that nothing
     contained in this Section 5.8 shall be deemed to modify
     or  limit  the liability of Oly Lantana,  L.P.,  or  of
     Stratus  7000 West, Ltd. or of the General  Partner  of
     either  of them or, to the extent any lower tier entity
     of Stratus 7000 West, Ltd. has personal liability under
     the  terms  of this Note, of each lower tier entity  of
     Stratus 7000 West, Ltd."

     2.    Title Insurance.  Contemporaneously with the execution
and  delivery hereof, the Borrower shall cause the Title  Company
to issue with respect to the Policy, the standard Texas Form T-38
Endorsement  pursuant  to Rule P-9b(3) of  the  Basic  Manual  of
Rules, Rates and Forms for the Writing of Title Insurance in  the
State of Texas ("Title Manual").

     3.     Acknowledgment  by  Borrower.   Except  as  otherwise
specified  herein, the terms and provisions hereof  shall  in  no
manner   impair,   limit,  restrict  or  otherwise   affect   the
obligations  of  Borrower  or  any  third  party  to  Lender,  as
evidenced   by   the   Security   Documents.    Borrower   hereby
acknowledges, agrees and represents that (i) Borrower is indebted
to  Lender pursuant to the terms of the Note as modified  hereby;
(ii)  the  liens, security interests and assignments created  and
evidenced by the Security Documents are, respectively, valid  and
subsisting  liens,  security interests  and  assignments  of  the
respective   dignity  and  priority  recited  in   the   Security
Documents;  (iii)  there  are no claims or  offsets  against,  or
defenses  or  counterclaims to, the terms or  provisions  of  the
Security   Documents,  and  the  other  obligations  created   or
evidenced by the Security Documents; (iv) Borrower has no claims,
offsets,  defenses or counterclaims arising from any of  Lender's
acts  or  omissions  with respect to the Property,  the  Security
Documents or Lender's performance under the Security Documents or
with  respect  to  the  Property;  (v)  the  representations  and
warranties  contained  in the Security  Documents  are  true  and
correct  representations and warranties  of  Borrower  and  third
parties, as of the date hereof; and (vi) Lender is not in default
and no event has occurred which, with the passage of time, giving
of  notice,  or  both, would constitute a default  by  Lender  of
Lender's  obligations  under  the terms  and  provisions  of  the
Security  Documents.  To the extent Borrower now has, or  in  the
future  possesses, any claims, offsets, defenses or counterclaims
against Lender or the repayment of all or a portion of the  Loan,
whether  known or unknown, fixed or contingent, same  are  hereby
forever irrevocably waived and released in their entirety.

     4.    No Waiver of Remedies.  Except as may be expressly set
forth   herein,   nothing  contained  in  this  Agreement   shall
prejudice,  act as, or be deemed to be a waiver of any  right  or
remedy  available  to  Lender  by reason  of  the  occurrence  or
existence  of  any  fact, circumstance or  event  constituting  a
default under the Note or the other Security Documents.

     5.    Joinder  of  Guarantor.  By  its  execution  hereof  ,
Guarantor  hereby (i) acknowledges and consents to the terms  and
provisions  hereof;  (ii)  specifically  acknowledges  that   the
Limitation of Liability of Oly Lower Tier Borrower Partners shall
in  no  manner  limit  or  modify the Guaranteed  Obligations  of
Guarantor  under the Guaranty or the obligations of Stratus  7000
West,  Ltd.  or of any lower tier entity which has  an  ownership
interest  in Stratus 7000 West, Ltd. (iii) ratifies and  confirms
the Guaranty, including all interest and costs of collection,  to
or  for  the benefit of Lender; (iv) agrees that the Guaranty  is
and  shall remain in full force and effect and that the terms and
provisions  of the Guaranty cover and pertain to the Loan,  Note,
Deed  of  Trust and other Security Documents as modified  hereby;
(v) acknowledges that there are no claims or offsets against,  or
defenses  or  counterclaims to, the terms and provisions  of  the
Guaranty  or the other obligations created and evidenced  by  the
Guaranty;  (vi) certifies that the representations and warranties
contained in the Guaranty remain true and correct representations
and   warranties  of  Guarantor  as  of  the  date  hereof;   and
(vii)  acknowledges that Lender has satisfied and  performed  its
covenants  and  obligations  under the  Guaranty  and  the  other
Security Documents, and that no action or failure to act by or on
behalf of, Lender has or will give rise to any cause of action or
other  claim against Lender for breach of the Guaranty  or  other
Security Documents or otherwise.

     6.     Costs  and  Expenses.   Contemporaneously  with   the
execution and delivery hereof, Borrower shall pay, or cause to be
paid,  all  costs  and  expenses  incident  to  the  preparation,
execution  and  recordation hereof and the  consummation  of  the
transaction  contemplated hereby, including, but not limited  to,
recording fees, title insurance policy or endorsement premiums or
other  charges  of  the Title Company, and  reasonable  fees  and
expenses of legal counsel to Lender.

     7.    Additional Documentation.  From time to time, Borrower
shall  execute  or procure and deliver to Lender such  other  and
further   documents  and  instruments  evidencing,  securing   or
pertaining  to  the Loan or the Security Documents  as  shall  be
reasonably  requested by Lender so as to evidence or  effect  the
terms  and  provisions hereof.  Upon Lender's  request,  Borrower
shall  cause  to  be delivered to Lender an opinion  of  counsel,
satisfactory  to  Lender  as  to form,  substance  and  rendering
attorney, opining to (i) the validity and enforceability of  this
Agreement  and  the terms and provisions hereof,  and  any  other
agreement   executed   in   connection   with   the   transaction
contemplated  hereby;  (ii) the authority of  Borrower,  and  any
constituents of Borrower, to execute, deliver and perform its  or
their  respective  obligations under the Security  Documents,  as
hereby  modified;  and  (iii) such other  matters  as  reasonably
requested by Lender.

     8.    Effectiveness  of the Security Documents.   Except  as
expressly  modified by the terms and provisions hereof,  each  of
the  terms  and provisions of the Security Documents  are  hereby
ratified  and  shall remain in full force and  effect;  provided,
however,  that any reference in any of the Security Documents  to
the Loan, the amount constituting the Loan, any defined terms, or
to  any of the other Security Documents shall be deemed, from and
after  the  date  hereof,  to  refer  to  the  Loan,  the  amount
constituting  the Loan, defined terms and to such other  Security
Documents, as modified hereby.

     9.    Governing Law.  THE TERMS AND PROVISIONS HEREOF  SHALL
BE  GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF  THE
STATE OF TEXAS, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN.

     10.  Time.  Time is of the essence in the performance of the
covenants contained herein and in the Security Documents.

     11.   Binding  Agreement.  This Agreement shall  be  binding
upon  the successors and assigns of the parties hereto; provided,
however,  the  foregoing  shall not be  deemed  or  construed  to
(i)  permit, sanction, authorize or condone the assignment of all
or  any  part of the Property or any of Borrower's rights, titles
or  interests  in  and to the Property or any rights,  titles  or
interests  in and to Borrower, except as expressly authorized  in
the  Security  Documents or by the terms of  this  Agreement,  or
(ii)  confer any right, title, benefit, cause of action or remedy
upon  any  person or entity not a party hereto, which such  party
would not or did not otherwise possess.

     12.  Headings.  The section headings hereof are inserted for
convenience  of reference only and shall in no way alter,  amend,
define  or be used in the construction or interpretation  of  the
text of such section.

     13.  Construction.  Whenever the context hereof so requires,
reference  to the singular shall include the plural and likewise,
the  plural  shall  include the singular; words  denoting  gender
shall be construed to mean the masculine, feminine or neuter,  as
appropriate;  and  specific enumeration  shall  not  exclude  the
general,  but  shall be construed as cumulative  of  the  general
recitation.

     14.   Severability.   If  any clause or  provision  of  this
Agreement  is  or should ever be held to be illegal,  invalid  or
unenforceable under any present or future law applicable  to  the
terms hereof, then and in that event, it is the intention of  the
parties hereto that the remainder of this Agreement shall not  be
affected  thereby,  and  that in lieu  of  each  such  clause  or
provision   of  this  Agreement  that  is  illegal,  invalid   or
unenforceable,  such  clause  or provision  shall  be  judicially
construed  and  interpreted to be as  similar  in  substance  and
content  to  such  illegal, invalid or  unenforceable  clause  or
provision, as the context thereof would reasonably suggest, so as
to thereafter be legal, valid and enforceable.

     15.   Counterparts.  To facilitate execution, this Agreement
may  be executed in as many counterparts as may be convenient  or
required.   It  shall  not be necessary that  the  signature  and
acknowledgment  of,  or on behalf of, each  party,  or  that  the
signature and acknowledgment of all persons required to bind  any
party,  appear  on  each  counterpart.   All  counterparts  shall
collectively  constitute a single instrument.  It  shall  not  be
necessary in making proof of this Agreement to produce or account
for  more  than  a single counterpart containing  the  respective
signatures  and acknowledgment of, or on behalf of, each  of  the
parties  hereto.  Any signature and acknowledgment  page  to  any
counterpart  may  be  detached  from  such  counterpart   without
impairing  the legal effect of the signatures and acknowledgments
thereon  and thereafter attached to another counterpart identical
thereto  except  having attached to it additional  signature  and
acknowledgment pages.

     16.   Final Agreement.  THIS MODIFICATION AND THE OTHER LOAN
DOCUMENTS  EMBODY THE FINAL, ENTIRE AGREEMENT AMONG  THE  PARTIES
HERETO  AND  THERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER  WRITTEN
OR  ORAL,  RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF  AND
MAY   NOT  BE  CONTRADICTED  OR  VARIED  BY  EVIDENCE  OF  PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS  OF
THE  PARTIES  HERETO  OR THERETO.  THERE ARE NO  ORAL  AGREEMENTS
AMONG  THE  PARTIES  HERETO OR THERETO.  THE PROVISIONS  OF  THIS
MODIFICATION  AND  THE OTHER LOAN DOCUMENTS  MAY  BE  AMENDED  OR
WAIVED  ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE RESPECTIVE
PARTIES TO SUCH DOCUMENTS.

     17.   Notices.  All notices or other communications required
or  permitted to be given pursuant hereto shall be in writing and
shall  be  deemed  properly given if (i) mailed  by  first  class
United States mail, postage prepaid, registered or certified with
return  receipt requested, (ii) by delivering same in  person  to
the  intended  addressee, or (iii) by delivery to an  independent
third party commercial delivery service for same day or next  day
delivery  and providing for evidence of receipt at the office  of
the intended addressee.  Notice so mailed shall be effective upon
its  deposit  with  the  United  States  Postal  Service  or  any
successor  thereto;  notice sent by such  a  commercial  delivery
service  shall  be  effective upon delivery  to  such  commercial
delivery  service;  notice given by personal  delivery  shall  be
effective only if and when received by the addressee; and  notice
given by other means shall be effective only if and when received
at  the  designated  address of the intended  addressee.   Either
party  shall  have  the right to change its  address  for  notice
hereunder  to  any  other location within the continental  United
States  by  the giving of thirty (30) days notice  to  the  other
party  in  the  manner set forth herein.  For  purposes  of  such
notices, the addresses of the parties shall be as follows:

     Payee:              Comerica Bank-Texas
                    1601 Elm Street, 2nd Floor
                    Dallas, Texas  75201
                    Attn:  National Real Estate Services

     Maker:              Stratus 7000 West Joint Venture
                    98 San Jacinto Boulevard
                    Suite 220
                    Austin, Texas  78701
                    Attn:     William H. Armstrong, III

     and to:                  Oly Lantana, L.P.
                    200 Crescent Court
                    Suite 1650
                    Dallas, Texas  75201
                    Attn:     Legal Department

     Guarantor:          Stratus Properties, Inc.
                    98 San Jacinto Boulevard
                    Suite 220
                    Austin, Texas  78701
                    Attn:     William H. Armstrong, III

     With a copy to:     Armbrust Brown & Davis, L.L.P.
                    100 Congress Avenue
                    Suite 1300
                    Austin, Texas  78701
                    Attention:  Kenneth Jones, Esq.

     and to:                  Locke Liddell & Sapp LLP
                    700 Lavaca
                    Suite 800
                    Austin, Texas  78701
                    Attention:  Brad Hawley, Esq.

     EXECUTED as of the date first above written.

                              LENDER:

                              COMERICA BANK-TEXAS,
                              a state banking association


                              By:
                              Name:
                              Title:


BORROWER:

STRATUS 7000 WEST JOINT VENTURE,
a Texas joint venture

By:Stratus 7000 West, Ltd.,
   a Texas limited partnership,
   Its Operating Partner

   By:STRS L.L.C.,
      a Delaware limited liability company,
      Its General Partner

      By:Stratus Properties, Inc.,
          a Delaware corporation,
          Its Sole Member



          By:  /s/ William H. Armstrong, III
               ------------------------------------
          Name:   William H. Armstrong, III
          Title:  President and Chief Executive Officer


By:Oly Lantana, L.P.,
   a Texas limited partnership,
   Its Financial Partner

   By:Oly Lantana GP, L.L.C.,
       a Texas limited liability company,
       Its Sole General Partner



       By:
       Name:
       Title:



GUARANTOR:

STRATUS PROPERTIES, INC.,
a Delaware corporation


By:
Name:
Title:





STATE OF TEXAS      &
                    &
COUNTY OF _________ &

     This instrument was ACKNOWLEDGED before me, on the _____ day
of  _____________, 1999, by ________________________________, the
__________________  of  COMERICA  BANK-TEXAS,  a  state   banking
association, on behalf of said banking association.


[ S E A L ]
                              Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public



STATE OF TEXAS      &
                    &
COUNTY OF _________ &

     This instrument was ACKNOWLEDGED before me, on the _____ day
of  _____________, 1999, by ________________________________, the
________________________ of STRATUS PROPERTIES, INC., a  Delaware
corporation  and  the  Sole Member of  STRS  L.L.C.,  a  Delaware
limited liability company and the General Partner of STRATUS 7000
WEST, LTD., a Texas limited partnership and Operating Partner  of
STRATUS 7000 WEST JOINT VENTURE, a Texas joint venture, on behalf
of each of said entities.


[ S E A L ]
                              Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public



STATE OF TEXAS      &
                    &
COUNTY OF _________ &

     This instrument was ACKNOWLEDGED before me, on the _____ day
of  _____________, 1999, by ________________________________, the
________________________  of  OLY LANTANA  GP,  L.L.C.,  a  Texas
limited  liability company and the Sole General  Partner  of  OLY
LANTANA, L.P., a Texas limited partnership, on behalf of each  of
said entities.


[ S E A L ]
                              Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public



STATE OF TEXAS      &
                    &
COUNTY OF _________ &

     This instrument was ACKNOWLEDGED before me, on the _____ day
of  _____________, 1999, by ________________________________, the
__________________  of  STRATUS  PROPERTIES,  INC.,  a   Delaware
corporation, on behalf of said corporation.


[ S E A L ]
                              Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public




                                             Exhibit 10.15

                  CONSTRUCTION LOAN AGREEMENT


     This  CONSTRUCTION LOAN AGREEMENT ("Agreement") is made  and
entered into as of the 24th day of February, 2000, by and between
STRATUS   7000   WEST  JOINT  VENTURE,  a  Texas  joint   venture
("Borrower"),   whose  address  is  98  San  Jacinto   Boulevard,
Suite  220, Austin, Texas 78701, and COMERICA BANK-TEXAS, a state
banking association ("Lender"), whose address is 1601 Elm Street,
2nd  Floor,  Dallas,  Texas  75201, Attn:  National  Real  Estate
Services.


                           ARTICLE I

                      DEFINITION OF TERMS

     I.1   Definitions.  As used in this Agreement, the following
terms shall have the respective meanings indicated below:

     Advance:   A  disbursement  by Lender,  whether  by  journal
entry,  deposit  to Borrower's account, check to third  party  or
otherwise  of  any  of  the proceeds of the Loan,  any  insurance
proceeds or Borrower's Deposit.

     Affidavit  of  Commencement:  As  defined  in  Section  5.13
hereof.

     Affidavit of Completion:  As defined in Section 5.14 hereof.

     Agreement:  This Loan Agreement, as the same may  from  time
to time be amended or supplemented.

     Allocations:   The line items set forth in the  Budget   for
which Advances of Loan proceeds will be made.

     Borrower's  Deposit:  Such cash amounts as Lender  may  deem
necessary for Borrower to deposit with it in accordance with  the
provisions of Section 3.4 of this Agreement.

     Budget:  The budget which is set forth on Exhibit B attached
hereto and incorporated herein by reference.

     Commitment  Fee:   The  sum  of $38,500.00  to  be  paid  by
Borrower to Lender pursuant to the applicable provisions of  this
Agreement.

     Completion Date:  September 30, 2000, for completion of  the
shell portion of the office building.

     Construction  Contract:   Collectively,  all  contracts  and
agreements   entered   into  between  Borrower   and   Contractor
pertaining to the development, construction and completion of the
Phase II  Improvements, which Construction Contract shall provide
a  guaranteed  maximum  cost for construction  of  the  Phase  II
Improvements.

     Contractor:    Zapalac/Reed  Construction   Company,   L.C.,
together  with  any  other person or entity  with  whom  Borrower
contracts for the development, construction and completion of the
Phase II Improvements or any portion thereof.

     Deed of Trust:  The Amended and Restated Deed of Trust dated
April 9, 1999, and recorded  under Document No. 1999009453 of the
Official   Records  of  Travis  County,  as   modified   by   the
Modification  Agreement  dated August 16,  1999,  recorded  under
Document No. 1999093007 of the Official Records of Travis County,
Texas,  and as further amended by the Second Amended and Restated
Deed  of  Trust  dated of even date herewith, pursuant  to  which
Borrower has mortgaged the Land to secure both the Phase  I  Note
and this Note.

     Design Professional: Susman Tisdale Gayle, together with any
other  person  or  entity with whom Borrower  contracts  for  the
providing  of  planning,  design, architectural,  engineering  or
other similar services relating to the Phase II Improvements,  if
any.

     Design  Services Contract:  Collectively, all contracts  and
agreements   entered  into  between  Borrower  and  each   Design
Professional   pertaining   to  the   design,   development   and
construction of the Phase II Improvements, if any.

     Disposition:  Any sale, lease (except as expressly permitted
pursuant   to   the   Loan   Documents),  exchange,   assignment,
conveyance, transfer, trade, or other disposition of all  or  any
portion  of  the Mortgaged Property (or any interest therein)  or
all  or  any  part,  directly or indirectly,  of  the  beneficial
ownership  interest in Borrower (if Borrower  is  a  corporation,
partnership,  general  partnership,  limited  partnership,  joint
venture,  trust, or other type of business association  or  legal
entity);  provided, however, a sale of the publicly traded  stock
of  Stratus  Properties Inc. shall not constitute  a  Disposition
under  the  terms  of  this  Agreement;  and,  further  provided,
notwithstanding anything to the contrary contained herein  or  in
any  of  the  other Loan Documents, Oly Lantana,  L.P.,  a  joint
venturer of Borrower ("Oly Lantana") may, after written notice to
but without the requirement of Lender's consent, transfer all  or
any  portion of its joint venture interest in Borrower or all  or
any  portion  of  its interest in any constituent entity  of  Oly
Lantana  to  any entity or individual that is now or  is  in  the
future  an  affiliate or partner in Hicks Muse  Tate  and  Furst,
Inc., Olympus Real Estate Corporation or Olympus Real Estate Fund
II,  LP; PROVIDED, HOWEVER, in no event shall Stratus 7000  West,
Ltd.,  the  other  joint venturer of Borrower, and  the  entities
which  comprise Stratus 7000 West, Ltd. (collectively, "Stratus")
(i)  be  entitled to transfer any interest in Stratus 7000  West,
Ltd.  or  in  any  Stratus constituent entity without  the  prior
written  consent of Lender and FURTHER PROVIDED that (ii) Stratus
shall be obligated to, at all times during the term of this Loan,
remain  in  charge of the day-to-day management of the  Borrower;
EXCEPT,  HOWEVER, Oly Lantana shall be entitled to  exercise  its
right  to  remove  Stratus as Operating Partner  of  Borrower  in
accordance  with Section 4.1 of the Amended  and  Restated  Joint
Venture Agreement between Oly Lantana and Stratus 7000 West, Ltd.
dated  August 16, 1999, PROVIDED: (i) Oly Lantana has first given
written  notice  to  Lender at least five (5)  business  days  in
advance of such removal and the reason for said proposed removal,
together with Oly Lantana's proposed additional collateral,  cash
deposit  or  guaranty  of  the Loan (the "Proposed  Collateral"),
which  Proposed Collateral must be satisfactory to Lender in  its
sole  discretion;  and  thereafter either (ii)  within  ten  (10)
business  days  of receipt of Lender's approval of said  Proposed
Collateral, has furnished to Lender such Proposed Collateral;  or
(iii)  within  ten  (10)  business days of  receipt  of  Lender's
disapproval of the Proposed Collateral has paid off the  Loan  in
full.

     Draw  Request:   a  request by Borrower  to  Lender  for  an
Advance  in such form and containing such information  as  Lender
may require.

     Environmental  Law:  Any  federal,  state,  or  local   law,
statute,  ordinance, or regulation, whether now or  hereafter  in
effect,  pertaining  to  health,  industrial  hygiene,   or   the
environmental  conditions  on,  under,  or  about  the  Mortgaged
Property, including without limitation, the following, as now  or
hereafter   amended:    Comprehensive   Environmental   Response,
Compensation,  and  Liability Act of 1980 ("CERCLA"),  42  U.S.C.
& 9601 et seq.; Resource, Conservation and Recovery Act ("RCRA"),
42  U.S.C.  & 6901 et seq. as amended by the Superfund Amendments
and  Reauthorization Act of 1986 ("SARA"), Pub.  L.  99-499,  100
Stat.  1613; the Toxic Substances Control Act, 15 U.S.C.  &  2601
et  seq.; Emergency Planning and Community Right to Know  Act  of
1986,  42  U.S.C.  & 1101 et seq.; Clean Water  Act  ("CWA"),  33
U.S.C. & 1251 et seq.; Clean Air Act ("CAA"), 42 U.S.C. & 7401 et
seq.;  Federal Water Pollution Control Act ("FWPCA"),  33  U.S.C.
&  1251  et  seq.; and any corresponding state laws or ordinances
including  but  not  limited  to the  Texas  Water  Code  ("TWC")
& 26.001 et seq; Texas Health & Safety Code ("THSC") & 361.001 et
seq.;  Texas Solid Waste Disposal Act, Tex. Rev. Civ. Stat.  Ann.
art.  4477-7;  and regulations, rules, guidelines,  or  standards
promulgated  pursuant to such laws, statutes and regulations,  as
such statutes, regulations, rules, guidelines, and standards  are
amended from time to time.

     Event of Default:  Any happening or occurrence described  in
Section 7.1 of this Agreement.

     Financing  Statement:  The financing statement or  financing
statements  (on  Standard Form UCC-1 or otherwise)  executed  and
delivered by Borrower in connection with the Loan Documents.

     Governmental   Authority:   Any  and  all  courts,   boards,
agencies,  commissions,  offices, or authorities  of  any  nature
whatsoever  for  any governmental unit (federal,  state,  county,
district, municipal, city or otherwise), whether now or hereafter
in existence.

     Governmental Requirements:  All statutes, laws,  ordinances,
rules, regulations, orders, writs, injunctions or decrees of  any
Governmental Authority applicable to Borrower, Guarantor  or  the
Mortgaged Property.

     Guarantor:  STRATUS PROPERTIES INC., a Delaware corporation.

     Guaranty:   That  or those instruments of  guaranty  now  or
hereafter  in  effect from Guarantor to Lender  guaranteeing  the
repayment of all or any part of the Loan, the satisfaction of, or
continued  compliance with, the covenants contained in  the  Loan
Documents, or both.

     Hazardous  Substance:   Any substance,  product,  waste,  or
other  material  which  is  or  becomes  listed,  regulated,   or
addressed  as  being a toxic, hazardous, polluting, or  similarly
harmful  substance under any Environmental Law, including without
limitation:  (i) any substance included within the definition  of
"hazardous  waste"  pursuant to Section 1004 of  RCRA;  (ii)  any
substance included within the definition of "hazardous substance"
pursuant  to Section 101 of CERCLA; (iii) any substance  included
within  (a)  the definition of "regulated substance" pursuant  to
Section  26.342(11) of TWC; or (b) the definition  of  "hazardous
substance"   pursuant   to   Section   361.003(11)    of    THSC;
(iv)  asbestos;  (v)  polychlorinated biphenyls;  (vi)  petroleum
products; (vii) underground storage tanks, whether empty,  filled
or  partially  filled with any substance; (viii) any  radioactive
materials, urea formaldehyde foam insulation or radon;  (ix)  any
substance  included within the definition of "waste" pursuant  to
Section   30.003(b)   of   TWC   or   "pollutant"   pursuant   to
Section  26.001(13) of TWC; and (x) any other chemical,  material
or  substance,  the exposure to which is prohibited,  limited  or
regulated  by any Governmental Authority on the basis  that  such
chemical, material or substance is toxic, hazardous or harmful to
human health or the environment.

     Indebtedness:  As defined in Section 9.8 hereof.

     Initial  Advance:   The  Advance to  be  made  at  the  time
Borrower satisfies the conditions set forth in Sections  3.1  and
3.2 of this Agreement.

     Inspecting Person:  Chris Rehkemper of AECC will  from  time
to  time inspect the Phase II Improvements and the development of
Phase II Improvements for the benefit of Lender.

     Land:   The  real property or interest therein described  in
Exhibit  A  attached  hereto  and  incorporated  herein  by  this
reference upon which the Phase I and Phase II Improvements are to
be constructed.

     Loan:   The loan evidenced by the Note and governed by  this
Agreement.

     Loan  Amount:   SEVEN  MILLION SEVEN  HUNDRED  THOUSAND  AND
NO/100 DOLLARS ($7,700,000.00).

     Loan   Documents:   The  Note,  the  Deed  of  Trust,   this
Agreement,  the Security Agreement, the Financing Statement,  the
Guaranty,  and  any  and  all other documents  now  or  hereafter
executed by the Borrower, Guarantor, or any other person or party
in  connection with the Loan, the indebtedness evidenced  by  the
Note, or the covenants contained in this Agreement.

     Material Adverse Effect:  Any material and adverse effect on
(i)  the business condition (financial or otherwise), operations,
prospects,  results of operations, capitalization,  liquidity  or
any  properties of the Borrower, taken as a whole, (ii) the value
of  the Mortgaged Property, (iii) the ability of Borrower or  any
Guarantor  (or if the Borrower or any Guarantor is a partnership,
joint  venture,  trust or other type of business association,  of
any  of the parties comprising Borrower or such Guarantor) to pay
and  perform  the  Indebtedness  or  any  other  Obligations,  or
(iv) the validity, enforceability or binding effect of any of the
Loan Documents.

     Mortgaged Property:  Collectively, the Land, the Phase I and
Phase  II Improvements, and all other collateral covered  by  the
Loan Documents.

     Note:  The promissory note dated as of even date herewith in
the  principal sum of the Loan Amount (together with all renewals
and  extensions  thereof)  executed  and  delivered  by  Borrower
payable to the order of Lender, evidencing the Loan.

     Obligations:   Any  and  all of the  covenants,  conditions,
warranties, representations, and other obligations (other than to
repay   the   Indebtedness)  made  or  undertaken  by   Borrower,
Guarantor, or any other person or party to the Loan Documents  to
Lender, the trustee of the Deed of Trust, or others as set  forth
in the Loan Documents, and in any deed, lease, sublease, or other
form  of  conveyance, or any other agreement  pursuant  to  which
Borrower is granted a possessory interest in the Land.

     Phase  I  Improvements:  That certain   66,606  square  foot
office  building,  together with all amenities,  currently  under
construction  on the Mortgaged Property, the funds for  the  said
Phase  I Improvements having been advanced to Borrower by  Lender
under  a  prior construction loan agreement dated April  9,  1999
between  Lender  and Borrower as modified by that certain  Second
Amendment to Construction Loan Agreement dated December 31,  1999
(the "Prior Agreement").

     Phase  I  Loan  Documents:  The Phase I Note,  the  Deed  of
Trust,  the Prior Agreement, the security agreement of even  date
with  the  Phase I Note entered into by and between Borrower  and
Lender, the financing statements executed by Borrower, as debtor,
dated  as  of the date of the Phase I Note, that certain guaranty
executed as of December 31, 1999, and delivered by Guarantor, any
and all other documents previously executed or hereafter executed
by  the  Borrower,  Guarantor or any other  person  or  party  in
connection  with the Phase I Note or the covenants  contained  in
the Prior Agreement.

     Phase  I  Note:   That certain  $6,600,000  Promissory  Note
dated  April 9, 1999, executed by Borrower and payable to Lender,
and secured by the Mortgaged Property.

     Phase  II  Improvements:  That certain  66,475  square  foot
office  building, together with all amenities, to be  constructed
on  the Mortgaged Property, all as more particularly described in
the Plans and Specifications.

     Plans and Specifications:  The plans and specifications  for
the  development  and  construction of  the  Mortgaged  Property,
prepared  by Borrower or the Design Professional and approved  by
Lender   as  required  herein,  by  all  applicable  Governmental
Authorities, by any party to a purchase or construction  contract
with  a  right  of  approval,  all amendments  and  modifications
thereof  approved in writing by the same, and all  other  design,
engineering  or architectural work, test reports,  surveys,  shop
drawings, and related items.

     Security  Agreement:  The Security Agreement shall mean  all
security  agreements, whether contained in the Deed of  Trust,  a
separate  security  agreement or otherwise  creating  a  security
interest  in  all  personal  property and  fixtures  of  Borrower
(including   replacements,   substitutions   and   after-acquired
property)  now or hereafter located in or upon the  Land  or  the
Phase I and Phase II Improvements, or used or intended to be used
in the operation thereof, to secure the Loan.

     Subordinate Mortgage:  Any mortgage, deed of trust,  pledge,
lien   (statutory,  constitutional,  or  contractual),   security
interest,  encumbrance or charge, or conditional  sale  or  other
title  retention agreement, covering all or any  portion  of  the
Mortgaged Property executed and delivered by Borrower,  the  lien
of  which is subordinate and inferior to the lien of the Deed  of
Trust.

     Special  Account:  An account established by  Borrower  with
Lender  (in which Borrower shall at all times maintain a  minimum
balance  of  $1,000.00) into which all Advances made directly  to
Borrower will be deposited.

     Tenant  Leases:  All written leases or rental agreements  by
which  Borrower,  as  landlord, grants to a  tenant  a  leasehold
interest  in a portion of the leasable space within the Mortgaged
Property.

   Title  Insurance:  One or more title insurance  commitments,
binders  or policies, as Lender may require, issued by the  Title
Company,  on  a  coinsurance or reinsurance  basis  (with  direct
access  endorsement or rights) if and as required by  Lender,  in
the  maximum amount of the Loan insuring or committing to  insure
that the Deed of Trust constitutes a valid lien covering the Land
and the Phase I and Phase II  Improvements, subject only to those
exceptions which Lender may approve.

     Title Company:  The Title Company (and its issuing agent, if
applicable)   issuing  the  Title  Insurance,  which   shall   be
acceptable to Lender in its sole and absolute discretion.


                           ARTICLE II

                            THE LOAN

     II.1 Agreement to Lend.  Lender hereby agrees to lend up  to
but  not  in excess of the Loan Amount to Borrower, and  Borrower
hereby  agrees  to  borrow such sum from  Lender,  all  upon  and
subject  to the terms and provisions of this Agreement, such  sum
to  be  evidenced  by the Note.  No principal  amount  repaid  by
Borrower may be reborrowed by Borrower.  Borrower's liability for
repayment of the interest on account of the Loan shall be limited
to   and  calculated  with  respect  to  Loan  proceeds  actually
disbursed to Borrower pursuant to the terms of this Agreement and
the  Note  and only from the date or dates of such disbursements.
After   notice   to  Borrower,  Lender  may,  in  Lender's   sole
discretion,  disburse  Loan proceeds  by  journal  entry  to  pay
interest  and financing costs and, following an uncured Event  of
Default, disburse Loan proceeds directly to third parties to  pay
costs  or  expenses required to be paid by Borrower  pursuant  to
this  Agreement.   Loan proceeds disbursed by Lender  by  journal
entry  to  pay  interest or financing costs,  and  Loan  proceeds
disbursed directly by Lender to pay costs or expenses required to
be  paid by Borrower pursuant to this Agreement, shall constitute
Advances to Borrower.

     II.2   Prior  Loan.   As  reflected  by  the  Phase  I  Loan
Documents, Lender and Borrower previously entered into the  Prior
Agreement for construction of improvements on the Phase I portion
of  the Land, such construction having been commenced on or about
February  11,  1999, for the construction of a  two-story  office
building   similar  in  scope  and  design  to   the   Phase   II
Improvements.   Advances have been made  to  Borrower  by  Lender
under  the  terms  of  the Prior Agreement, and  construction  is
ongoing  under said Prior Agreement.  Borrower and Lender  hereby
agree  that  the Deed of Trust previously recorded in  connection
with  the  Phase I Note and Prior Agreement more fully  described
above  shall be further modified to reflect that the lien of  the
deed of trust shall also secure the indebtedness evidenced by the
Note  entered  into of even date herewith and the obligations  of
this  Construction Loan Agreement, all of which was  contemplated
as of the original date of the Deed of Trust.  Further,  Borrower
hereby acknowledges and agrees that no Advances shall be used  by
Borrower   under  this  Loan  to  pay  for  any  development   or
construction costs for the Phase I Improvements.

     II.3  Advances.   The purposes for which Loan  proceeds  are
allocated and the respective amounts of such Allocations are  set
forth in the Budget, which Advances shall be limited to the value
of the work in place as determined by the Inspecting Person.

     II.4  Allocations.  The Allocations shall be disbursed  only
for  the purposes set forth in the Budget.  Lender shall  not  be
obligated to make an Advance for an Allocation set forth  in  the
Budget  to  the  extent that the amount of the Advance  for  such
Allocation  would,  when  added to all prior  Advances  for  such
Allocation, exceed the total of such Allocation as set  forth  in
the Budget.

     II.5  Limitation  on  Advances.  To  the  extent  that  Loan
proceeds  disbursed  by Lender pursuant to  the  Allocations  are
insufficient  to  pay  all costs required  for  the  acquisition,
development,   construction  and  completion  of  the   Mortgaged
Property, Borrower shall pay such excess costs with funds derived
from  sources other than the Loan.  Under no circumstances  shall
Lender be required to disburse any proceeds of the Loan in excess
of the Loan Amount.

     II.6  Reallocations.   Lender reserves  the  right,  at  its
option,  to  disburse  Loan proceeds  allocated  to  any  of  the
Allocations  for  such  other  purposes  or  in  such   different
proportions as Lender may, in its sole discretion, deem necessary
or  advisable.   Borrower shall not be entitled to  require  that
Lender reallocate funds among the Allocations.

     II.7  Contingency Allocations.  Any amount allocated in  the
Budget for "contingencies" or other non-specific purposes may, in
the  Lender's  discretion, be disbursed by Lender to  pay  future
contingent  costs  and  expenses  of  maintaining,  leasing   and
promoting the Mortgaged Property and such other costs or expenses
as  Lender  shall  approve.   Under no  circumstances  shall  the
Borrower have the right to require Lender to disburse any amounts
so   allocated  and  Lender  may  impose  such  requirements  and
conditions as it deems prudent and necessary should it  elect  to
disburse all or any portion of the amounts so allocated.

     II.8  Withholding.  Lender may withhold from an Advance  or,
on  account of subsequently discovered evidence, withhold from  a
later  Advance under this Agreement or require Borrower to  repay
to  Lender the whole or any part of any earlier Advance  to  such
extent  as  may be necessary to protect the Lender from  loss  on
account  of  (i)  defective work not remedied or requirements  of
this  Agreement  not  performed, (ii) liens filed  or  reasonable
evidence  indicating  probable filing  of  liens  which  are  not
bonded,  (iii)  failure  of Borrower  to  make  payments  to  the
Contractor for material or labor, except as is permitted  by  the
Construction  Contract,  or  (iv) a  reasonable  doubt  that  the
construction of the Phase I Improvements can be completed for the
balance  of  the  Loan Amount then undisbursed.   When  all  such
grounds  are  removed, payment shall be made  of  any  amount  so
withheld because of them.

     II.9 Loan Limitation.  It is expressly agreed and understood
that, in accordance with the Budget, to the extent an Advance  is
for construction costs of the Phase I Improvements, such Advance,
except  for  the final payment under the Loan, shall  not  exceed
ninety  percent (90%) of the actual construction costs  to  which
such Advance relates.

                          ARTICLE III

                            ADVANCES

     III.1     Conditions to Initial Advance.  The obligation  of
Lender  to make the Initial Advance hereunder is subject  to  the
prior  or  simultaneous  occurrence  of  each  of  the  following
conditions:

          (a)   Lender shall have received from Borrower  all  of
     the  Loan  Documents  duly  executed  by  Borrower  and,  if
     applicable, by Guarantor.

          (b)   Lender  shall have received certified  copies  of
     resolutions of Borrower, if Borrower is a corporation, or  a
     certified  copy of a consent of partners, if Borrower  is  a
     partnership, authorizing execution, delivery and performance
     of  all  of the Loan Documents and authorizing the borrowing
     hereunder,   along  with  such  certificates  of  existence,
     certificates  of  good  standing and other  certificates  or
     documents  as  Lender  may reasonably  require  to  evidence
     Borrower's authority.

          (c)   Lender  shall have received true  copies  of  all
     organization documents of Borrower, including all amendments
     or  supplements thereto, if Borrower is a legal entity other
     than  a  corporation, along with such certificates or  other
     documents  as  Lender  may reasonably  require  to  evidence
     Borrower's authority.

          (d)   Lender  shall  have received  evidence  that  the
     Mortgaged  Property  is  not located within  any  designated
     flood  plain or special flood hazard area; or evidence  that
     Borrower  has  applied  for  and  received  flood  insurance
     covering the Mortgaged Property in the amount of the Loan or
     the maximum coverage available to Lender.

          (e)   Lender shall have received evidence of compliance
     with all Governmental Requirements.

          (f)   Lender  shall  have received a full-size,  single
     sheet  copy of all recorded subdivision or plat maps of  the
     Land  approved  (to  the  extent  required  by  Governmental
     Requirements)   by   all   Governmental   Authorities,    if
     applicable,   and   legible  copies   of   all   instruments
     representing  exceptions  to  the  state  of  title  to  the
     Mortgaged Property.

          (g)   Lender  shall have received policies of  all-risk
     builder's  risk  insurance (non-reporting form)  during  the
     construction  of  the  Phase  II Improvements  and  all-risk
     insurance  after construction of the Phase II  Improvements,
     owner's   and  contractor's  liability  insurance,  workers'
     compensation insurance, and such other insurance  as  Lender
     may  reasonably require, with standard endorsements attached
     naming   Lender  as  the  insured  mortgagee  or  additional
     insured,  whichever is applicable, such policies  to  be  in
     form   and   content  and  issued  by  companies  reasonably
     satisfactory   to  Lender,  with  copies,  or   certificates
     thereof, being delivered to Lender.

          (h)  Lender shall have received the Title Insurance, at
     the sole expense of Borrower.

          (i)   Lender  shall  have received from  Borrower  such
     other  instruments, evidence and certificates as Lender  may
     reasonably require, including the items indicated below:

               (1)   Evidence  that  all the  streets  furnishing
          access to the Mortgaged Property have been dedicated to
          public  use  and installed and accepted  by  applicable
          Governmental Authorities.

               (2)   A current survey of the Land prepared  by  a
          registered  surveyor  or  engineer  and  certified   to
          Lender,  Borrower and the Title Company,  in  form  and
          substance reasonably acceptable to Lender, showing  all
          easements, building or setback lines, rights-of-way and
          dedications affecting said land and showing no state of
          facts objectionable to Lender.

               (3)   Evidence reasonably satisfactory  to  Lender
          showing the availability of all necessary utilities  at
          the  boundary lines of the Land, including sanitary and
          storm   sewer  facilities,  potable  water,  telephone,
          electricity, gas, and municipal services.

               (4)  Evidence that the current and proposed use of
          the  Mortgaged  Property and the  construction  of  the
          Phase  II  Improvements complies with all  Governmental
          Requirements.

               (5)   An  opinion  of counsel for Borrower,  which
          counsel shall be satisfactory to Lender, to the  effect
          that (i) Borrower possesses full power and authority to
          own  the Mortgaged Property, to construct the Phase  II
          Improvements  and  to  perform  Borrower's  obligations
          hereunder;  (ii)  the  Loan Documents  have  been  duly
          authorized,  executed and delivered  by  Borrower  and,
          where  required, by Guarantor, and constitute the valid
          and  binding obligations of Borrower and Guarantor, not
          subject  to  any defense based upon usury, capacity  of
          Borrower  or  otherwise; (iii) the Loan  Documents  are
          enforceable in accordance with their respective  terms,
          except  as limited by bankruptcy, insolvency and  other
          laws  affecting creditors' rights generally, and except
          that certain remedial provisions thereof may be limited
          by  the  laws  of  the  State of  Texas;  (iv)  to  the
          knowledge of such counsel, there are no actions,  suits
          or   proceedings  pending  or  threatened  against   or
          affecting   Borrower,  Guarantor   or   the   Mortgaged
          Property,  or  involving  the  priority,  validity   or
          enforceability  of  the  liens  or  security  interests
          arising out of the Loan Documents, at law or in equity,
          or  before  or  by  any Governmental Authority,  except
          actions,   suits  or  proceedings  fully   covered   by
          insurance or which, if adversely determined, would  not
          substantially  impair  the  ability  of   Borrower   or
          Guarantor to pay when due any amounts which may  become
          payable  in respect to the Loan as represented  by  the
          Note;  (v)  to  the knowledge of such counsel,  neither
          Borrower  nor Guarantor is in default with  respect  to
          any  order, writ, injunction, decree or demand  of  any
          court  or  any  Governmental Authority  of  which  such
          counsel  has knowledge; (vi) to the knowledge  of  such
          counsel,  the  consummation of the transactions  hereby
          contemplated and the performance of this Agreement  and
          the  execution  and delivery of the Guaranty  will  not
          violate  or  contravene any provision of any instrument
          creating  or  governing  the  business  operations   of
          Borrower or Guarantor and will not result in any breach
          of,  or constitute a default under, any mortgage,  deed
          of trust, lease, bank loan or credit agreement or other
          instrument  to  which Borrower or any  Guarantor  is  a
          party  or by which Borrower, Guarantor or the Mortgaged
          Property may be bound or affected; and (vii) such other
          matters as Lender may reasonably request.

               (6)   A  cost  breakdown  satisfactory  to  Lender
          showing the total costs, including, but not limited to,
          such  related nonconstruction items as interest  during
          construction,  commitment, legal,  design  professional
          and  real estate agents' fees, plus the amount  of  the
          Land cost and direct construction costs required to  be
          paid   to   satisfactorily  complete   the   Phase   II
          Improvements,  free and clear of liens  or  claims  for
          liens  for  material  supplied and for  labor  services
          performed.

               (7)    Original   or  a  copy  of  each   proposed
          Construction Contract.

               (8)   Original  or a copy of each  fully  executed
          Design Services Contract.

               (9)    Waiver   of   lien  or  lien  subordination
          agreement(s)   for  the  prior  month's  draw   request
          executed by Contractor and by each contractor,  laborer
          and  suppliers  furnishing labor or  materials  to  the
          Mortgaged  Property,  in a form acceptable  to  Lender,
          together  with Borrower's affidavit to Lender that  all
          changes  and expenses incurred to date for  either  the
          Phase I Improvements or the Phase II Improvements  have
          been paid in full.

               (10)  A  copy of the Plans and Specifications  for
          the Phase II Improvements.

               (11) Building permit(s), grading permit(s) and all
          other permits required with respect to the construction
          of the Phase I or Phase II Improvements.

               (12)   Evidence   that   all   applicable   zoning
          ordinances and restrictive covenants affecting the Land
          permit  the  use  for which the Phase I  and  Phase  II
          Improvements  are intended and have  been  or  will  be
          complied with.

               (13)  Evidence  of  payment of required  sums  for
          insurance,   taxes,   expenses,   charges   and    fees
          customarily  required or recommended by Lender  or  any
          Governmental   Authority,   corporation,   or    person
          guaranteeing,  insuring  or purchasing,  committing  to
          guaranty, insure, purchase or refinance the Loan or any
          portion thereof.

               (14)  A  current financial statement  of  Borrower
          certified  by  a  duly  authorized  representative   of
          Borrower.

               (15)  A  current financial statement of  Guarantor
          certified by said Guarantor.

               (16) A Guaranty executed by the Guarantor.

               (17)  A schedule of construction progress for  the
          Phase II Improvements with the anticipated commencement
          and  completion dates of each phase of construction and
          the  anticipated date and amounts of each  Advance  for
          the same.

               (18)  Copies  of  all agreements entered  into  by
          Borrower  or  its operating partner pertaining  to  the
          development,   construction  and  completion   of   the
          Phase II Improvements or pertaining to materials to  be
          used  in connection therewith, together with a schedule
          of  anticipated dates and amounts of each  Advance  for
          the same.

               (19)  Environmental  site assessment  report  with
          respect to the Mortgaged Property prepared by a firm of
          engineers  approved by Lender, which  report  shall  be
          satisfactory   in   form  and  substance   to   Lender,
          certifying that there is no evidence that any Hazardous
          Substance  have  been  generated,  treated,  stored  or
          disposed  of on any of the Mortgaged Property and  none
          exists on, under or at the Mortgaged Property.

               (20)  A  soils and geological report covering  the
          Land  issued by a laboratory approved by Lender,  which
          report  shall be satisfactory in form and substance  to
          Lender,  and  shall  include a summary  of  soils  test
          borings.

               (21)   Such   other   instruments,   evidence   or
          certificates as Lender may reasonably request.

          (j)   Lender  shall  have  ordered  and  received,   at
     Borrower's expense, an appraisal of the Mortgaged  Property,
     prepared  by an appraiser acceptable to Lender and presented
     and based upon such standards as may be required by Lender.

          (k)    Lender  shall  have  received  payment  of   the
     Commitment Fee.

     III.2      Conditions to Advances.  The obligation of Lender
to  make  each Advance hereunder, including the Initial  Advance,
shall  be  subject  to  the prior or simultaneous  occurrence  or
satisfaction of each of the following conditions:

          (a)  The Loan Documents shall be and remain outstanding
     and  enforceable in all material respects in accordance with
     their terms, all as required hereunder.

          (b)   Lender  shall have received a title report  dated
     within two (2) days of the requested Advance from the  Title
     Company  showing no state of facts objectionable to  Lender,
     including, but not limited to, a showing that title  to  the
     Land  is vested in Borrower and that no claim for mechanics'
     or  materialmen's liens has been filed against the Mortgaged
     Property.

          (c)   A  monthly  construction status  report  for  the
     Phase  II  Improvements shall be prepared and  submitted  by
     Borrower to Lender on or before the tenth (10th) day of each
     month, commencing on or before March 10, 2000 and continuing
     for each month thereafter.

          (d)    The  representations  and  warranties  made   by
     Borrower,  as contained in this Agreement and in  all  other
     Loan  Documents shall be true and correct as of the date  of
     each  Advance;  and if requested by Lender,  Borrower  shall
     give to Lender a certificate to that effect.

          (e)   The  covenants  made by Borrower  to  Lender,  as
     contained  in this Agreement and in all other Loan Documents
     shall  have  been fully complied with, except to the  extent
     such compliance may be limited by the passage of time or the
     completion  of  construction of the Phase  I  and  Phase  II
     Improvements.

          (f)   Lender  shall have received (i) a fully  executed
     copy  of each Construction Contract or copy thereof  (to  be
     dated  after the date of recordation of the Deed of  Trust);
     and   (ii)   a   report   of   any  changes,   replacements,
     substitutions, additions or other modification in  the  list
     of  contractors, subcontractors and materialmen involved  or
     expected to be involved in the construction of the Phase  II
     Improvements.

          (g)   Except  in  connection with the Initial  Advance,
     Lender shall have received from Borrower a Draw Request  for
     such  Advance, completed, executed and sworn to by  Borrower
     and  Contractor, with the Inspecting Person's approval noted
     thereon,  stating that the requested amount does not  exceed
     ninety percent (90%) of the then unpaid cost of construction
     of  the  Phase  II  Improvements since the last  certificate
     furnished hereunder; that said construction was performed in
     accordance with the Plans and Specifications in all material
     respects;  and that, in the opinion of Borrower,  Contractor
     and  the  Design Professional, construction of the Phase  II
     Improvements  can be completed on or before  the  Completion
     Date for an additional cost not in excess of the amount then
     available under the Loan.  To the extent approved by  Lender
     and  included in the Budget, such expenses will be paid from
     the proceeds of the Loan.

          (h)   Except  in  connection with the Initial  Advance,
     Borrower   shall  have  furnished  to  Lender,   from   each
     contractor,   subcontractor   and   materialman,   including
     Contractor,   an  invoice,  lien  waiver  and   such   other
     instruments  and documents as Lender may from time  to  time
     specify,   in   form  and  content,  and   containing   such
     certifications, approvals and other data and information, as
     Lender may reasonably require.  The invoice, lien waiver and
     other  documents shall cover and be based upon work actually
     completed or materials actually furnished and paid  under  a
     prior application for payment. The lien waiver for the prior
     month's   draws   of  each  contractor,  subcontractor   and
     materialman  shall, if required by Lender,  be  received  by
     Lender   simultaneously  with  the  making  of  any  Advance
     hereunder  for the benefit of such contractor, subcontractor
     or materialman.

          (i)   There  shall exist no default or  breach  by  any
     obligated   party  (other  than  Lender)  under   the   Loan
     Documents.

          (j)   The  Phase  II Improvements shall not  have  been
     materially  injured, damaged or destroyed by fire  or  other
     casualty,  nor shall any part of the Mortgaged  Property  be
     subject to condemnation proceedings or negotiations for sale
     in lieu thereof.

          (k)    All   work  typically  done  at  the  stage   of
     construction when the Advance is requested shall  have  been
     done,  and  all materials, supplies, chattels  and  fixtures
     typically   furnished  or  installed  at   such   stage   of
     construction shall have been furnished or installed.

          (l)   All  personal property not yet incorporated  into
     the Phase II Improvements but which is to be paid for out of
     such Advance, must then be located upon the Land, secured in
     a  method  acceptable  to  Lender,  and  Lender  shall  have
     received  evidence thereof, or if stored off-site,  must  be
     stored  in  a  secured  area  and  must  be  available   for
     inspection by the Inspecting Person.

          (m)   Borrower shall have complied with all  reasonable
     requirements  of the Inspecting Person to insure  compliance
     with  the  Plans and Specifications and all requirements  of
     the Governmental Authorities.

          (n)  Except in connection with the Initial Advance,  if
     the  Phase  II  Improvements are being built for  any  party
     under  a  purchase or construction contract, then Lender  at
     its  election  may  require the approval of  such  purchaser
     before making any additional Advance.

          (o)  Borrower shall have fully completed (to the extent
     applicable), signed, notarized and delivered to  Lender  the
     Draw Request Form.

          (p)   If  any portion of the Phase II Improvements  are
     being  built  for  a specific lessee, the approval  by  such
     lessee  of  the  construction thereof with  respect  to  the
     applicable  portion of the Phase II Improvements subject  to
     such  lease shall be obtained and furnished to Lender,  upon
     request therefor by Lender.

          (q)   Borrower  shall have funded all  Borrower  equity
     requirements indicated on the Budget.

     III.3      Advance Not A Waiver.  No Advance of the proceeds
of the Loan shall constitute a waiver of any of the conditions of
Lender's  obligation to make further Advances, nor, in the  event
Borrower is unable to satisfy any such condition, shall any  such
Advance  have  the  effect of precluding Lender  from  thereafter
declaring such inability to be an Event of Default.

     III.4      Borrower's Deposit.  If at any time Lender  shall
in  its sole discretion deem that the undisbursed proceeds of the
Loan   are   insufficient  to  meet  the  costs   of   completing
construction  of  the Phase II Improvements, plus  the  costs  of
insurance,  ad  valorem  taxes and  other  normal  costs  of  the
Phase  II  Improvements, Lender may refuse to make any additional
Advances   to  Borrower  hereunder  until  Borrower  shall   have
deposited  with  Lender sufficient additional funds  ("Borrower's
Deposit")  to cover the deficiency which Lender deems  to  exist.
Such  Borrower's Deposit will be disbursed by Lender to  Borrower
pursuant  to  the  terms  and  conditions  hereof  as   if   they
constituted a portion of the Loan being made hereunder.  Borrower
agrees upon fifteen (15) days written demand by Lender to deposit
with  Lender  such Borrower's Deposit.  Lender  agrees  that  the
Borrower's   Deposit  shall  be  placed  in  an  interest-bearing
account.

     III.5      Advance  Not  An Approval.   The  making  of  any
Advance  or  part  thereof shall not be  deemed  an  approval  or
acceptance  by Lender of the work theretofore done. Lender  shall
have no obligation to make any Advance or part thereof after  the
happening  of any Event of Default, but shall have the right  and
option so to do; provided that if Lender elects to make any  such
Advance, no such Advance shall be deemed to be either a waiver of
the right to demand payment of the Loan, or any part thereof,  or
an obligation to make any other Advance.

     III.6      Time and Place of Advances.  All Advances are  to
be made at the office of Lender, or at such other place as Lender
may  designate;  and  Lender shall require five  (5)  days  prior
notice  in writing before the making of any such Advance.  Lender
shall  not  be obligated to undertake any Advance hereunder  more
than  once  in  any 30-day period.  Except as set forth  in  this
Agreement, all Advances are to be made by direct deposit into the
Special Account.  In the event Borrower shall part with or be  in
any manner whatever deprived of Borrower's interests in the Land,
Lender may, at Lender's option but without any obligation  to  do
so,  continue to make Advances under this Agreement, and  subject
to all its terms and conditions, to such person or persons as may
succeed  to  Borrower's  title  and  interest  and  all  sums  so
disbursed  shall  be  deemed Advances under  this  Agreement  and
secured  by  the  Deed of Trust and all other liens  or  security
interests securing the Loan.

     III.7      Retainage.  An amount equal to ten percent  (10%)
of the cost of construction of the Phase II Improvements shall be
retained  by Lender and shall be paid over by Lender to Borrower,
provided that no lien claims are then filed against the Mortgaged
Property,  when  all  of  the  following  have  occurred  to  the
satisfaction of Lender:

          (a)   Lender  has  received  a  completion  certificate
     prepared  by the Inspecting Person and executed by  Borrower
     and  the  Design  Professional stating  that  the  Phase  II
     Improvements  have  been completed in  accordance  with  the
     Plans  and Specifications, together with such other evidence
     that   no   mechanics  or  materialmen's  liens   or   other
     encumbrances  have been filed and remain in  effect  against
     the  Mortgaged  Property  which  have  not  been  bonded  to
     Lender's  satisfaction  and that all offsite  utilities  and
     streets, if any, have been completed to the satisfaction  of
     Lender and any applicable Governmental Authority;

          (b)   each applicable Governmental Authority shall have
     duly  inspected  and approved the Phase II Improvements  and
     issued  the  appropriate permit, license or  certificate  to
     evidence such approval;

          (c)  thirty (30) days shall have elapsed from the later
     of  (i) the date of completion of the Phase II Improvements,
     as   specified  in  Texas  Property  Code  &53.106,  if  the
     Affidavit  of  Completion provided for in this Agreement  is
     filed within ten (10) days after such date of completion, or
     (ii)  the date of filing of such Affidavit of Completion  if
     such  Affidavit of Completion is filed ten (10) days or more
     after   the  date  of  the  completion  of  the   Phase   II
     Improvements  as specified in Texas Property  Code  &53.106;
     and

          (d)   receipt  by  Lender of evidence  satisfactory  to
     Lender   that  payment  in  full  has  been  made  for   all
     obligations incurred in connection with the construction and
     completion  of  all off-site utilities and improvements  (if
     any) as required by Lender or any Governmental Authority.

     III.8      No  Third Party Beneficiaries.  The  benefits  of
this Agreement shall not inure to any third party, nor shall this
Agreement  be  construed to make or render Lender liable  to  any
materialmen, subcontractors, contractors, laborers or others  for
goods  and  materials  supplied or work and  labor  furnished  in
connection with the construction of either the Phase I  or  Phase
II  Improvements  or  for debts or claims accruing  to  any  such
persons or entities against Borrower. Lender shall not be  liable
for the manner in which any Advances under this Agreement may  be
applied  by  Borrower,  Contractor and any  of  Borrower's  other
contractors   or   subcontractors.    Notwithstanding    anything
contained  in  the Loan Documents, or any conduct  or  course  of
conduct  by the parties hereto, before or after signing the  Loan
Documents, this Agreement shall not be construed as creating  any
rights, claims or causes of action against Lender, or any of  its
officers,  directors,  agents  or  employees,  in  favor  of  any
contractor, subcontractor, supplier of labor or materials, or any
of  their  respective creditors, or any other  person  or  entity
other  than  Borrower.  Without limiting the  generality  of  the
foregoing,  Advances  made  to any contractor,  subcontractor  or
supplier  of  labor or materials, pursuant to  any  requests  for
Advances, whether or not such request is required to be  approved
by  Borrower, shall not be deemed a recognition by  Lender  of  a
third-party beneficiary status of any such person or entity.

                           ARTICLE IV

                 WARRANTIES AND REPRESENTATIONS

     Borrower  hereby unconditionally warrants and represents  to
Lender, as of the date hereof and at all times during the term of
the Agreement, as follows:

     IV.1 Plans and Specifications.  The Plans and Specifications
for  the Phase II Improvements are satisfactory to Borrower,  are
in  compliance  with all Governmental Requirements  and,  to  the
extent  required  by Governmental Requirements or  any  effective
restrictive  covenant, have been approved  by  each  Governmental
Authority  and/or  by the beneficiaries of any  such  restrictive
covenant affecting the Mortgaged Property.

     IV.2   Governmental  Requirements.   No  violation  of   any
Governmental  Requirements exists or will exist with  respect  to
the Mortgaged Property and neither the Borrower nor the Guarantor
is,   nor  will  either  be,  in  default  with  respect  to  any
Governmental Requirements.

     IV.3  Utility Services.  All utility services of  sufficient
size  and  capacity necessary for the construction  of  both  the
Phase  I and Phase II Improvements and the use thereof for  their
intended  purposes are available at the property line(s)  of  the
Land  for  connection  to the Phase I or Phase  II  Improvements,
including potable water, storm and sanitary sewer, gas,  electric
and telephone facilities.

     IV.4  Access.  All roads necessary for the full  utilization
of  the  Phase  I  and Phase II Improvements for  their  intended
purposes  have  been  completed and have been  dedicated  to  the
public   use   and  accepted  by  the  appropriate   Governmental
Authority.

     IV.5  Financial  Statements.  Each  financial  statement  of
Borrower   and   Guarantor  delivered  heretofore,   concurrently
herewith  or  hereafter to Lender was and  will  be  prepared  in
conformity  with  generally  accepted accounting  principles,  or
other  good accounting principles approved by Lender in  writing,
applied  on  a basis consistent with that of previous  statements
and completely and accurately disclose the financial condition of
Borrower and Guarantor (including all contingent liabilities)  as
of the date thereof and for the period covered thereby, and there
has  been  no  material  adverse change in either  Borrower's  or
Guarantor's  financial condition subsequent to the  date  of  the
most   recent  financial  statement  of  Borrower  and  Guarantor
delivered to Lender.

     IV.6 Statements.  No certificate, statement, report or other
information   delivered  heretofore,  concurrently  herewith   or
hereafter  by  Borrower  or Guarantor  to  Lender  in  connection
herewith,  or  in  connection with any  transaction  contemplated
hereby,  contains  or  will contain any  untrue  statement  of  a
material  fact or fails to state any material fact  necessary  to
keep the statements contained therein from being misleading,  and
same were true, complete and accurate as of the date hereof.

     IV.7    Disclaimer   of   Permanent   Financing.    Borrower
acknowledges and agrees that Lender has not made any commitments,
either  express or implied, to extend the term of the  Loan  past
its  stated  maturity  date  or  to  provide  Borrower  with  any
permanent financing.

                           ARTICLE V

                     COVENANTS OF BORROWER

     Borrower  hereby unconditionally covenants and  agrees  with
Lender, until the Loan shall have been paid in full and the  lien
of the Deed of Trust shall have been released, as follows:

     V.1   Commencement and Completion.  Borrower will cause  the
construction  of the Phase II Improvements to be prosecuted  with
diligence  and  continuity  and will complete  the  same  in  all
material respects in accordance with the Plans and Specifications
for  the Phase II Improvements on or before the Completion  Date,
free and clear of liens or claims for liens for material supplied
and   for  labor  services  performed  in  connection  with   the
construction of the Phase II Improvements.

     V.2   No  Changes.  Borrower will not amend, alter or change
(pursuant to change order, amendment or otherwise) the Plans  and
Specifications  for  the Phase II Improvements  unless  the  same
shall have been approved in advance in writing by Lender, by  all
applicable  Governmental Authorities, and by  each  surety  under
payment  or performance bonds covering the Construction Contract,
if  any,  or  any other contract for construction  of  all  or  a
portion of the Phase II Improvements; provided, however, Borrower
shall  have  the right to approve change orders without  Lender's
consent  which do not individually exceed $25,000.00, or  in  the
aggregate exceed $100,000.00.

     V.3   Advances.  Borrower will receive the Advances and will
hold  same as a trust fund for the purpose of paying the cost  of
construction   of   the   Phase  II  Improvements   and   related
nonconstruction  costs  related  to  the  Mortgaged  Property  as
provided for herein. Borrower will apply the same promptly to the
payment of the costs and expenses for which each Advance is  made
and will not use any part thereof for any other purpose.

     V.4   Lender's Expenses.  Borrower will reimburse Lender for
all   out-of-pocket  expenses  of  Lender,  including  reasonable
attorneys'  fees,  incurred in connection with  the  preparation,
execution, delivery, administration and performance of  the  Loan
Documents.

     V.5   Surveys.   Borrower will furnish Lender at  Borrower's
expense   (i)  a  foundation survey and (ii) an as-built  survey,
each prepared by a registered engineer or surveyor acceptable  to
Lender,  showing that the locations of the Phase I and  Phase  II
Improvements,  and certifying that same are entirely  within  the
property  lines  of  Land,  do not encroach  upon  any  easement,
setback   or  building  line  or  restrictions,  are  placed   in
accordance  with  the Plans and Specifications, all  Governmental
Requirements  and  all restrictive covenants affecting  the  Land
and/or Phase I and Phase II Improvements, and showing no state of
facts  objectionable to Lender. All surveys shall be in form  and
substance  and  from a registered public surveyor  acceptable  to
Lender.

     V.6   Defects and Variances.  Borrower will, upon demand  of
Lender  and  at  Borrower's sole expense, correct any  structural
defect  in  the  Phase II Improvements or any variance  from  the
Plans  and Specifications for the Phase II Improvements which  is
not approved in writing by Lender.

     V.7   Estoppel  Certificates.   Borrower  will  deliver   to
Lender, promptly after request therefor, estoppel certificates or
written  statements, duly acknowledged, stating the  amount  that
has  then  been  advanced to Borrower under this  Agreement,  the
amount due on the Note, and whether any known offsets or defenses
exist against the Note or any of the other Loan Documents.

     V.8   Inspecting  Person.  Borrower will pay  the  fees  and
expenses  of, and cooperate, with the Inspecting Person and  will
cause  the  Design Professional, the Contractor, each  contractor
and  subcontractor and the employees of each of them to cooperate
with  the  Inspecting Person and, upon request, will furnish  the
Inspecting  Person  whatever the Inspecting Person  may  consider
necessary  or  useful in connection with the performance  of  the
Inspecting  Person's duties.  Without limiting the generality  of
the  foregoing, Borrower shall furnish or cause to  be  furnished
such  items  as  working  details, Plans and  Specifications  and
details   thereof,  samples  of  materials,  licenses,   permits,
certificates  of public authorities, zoning ordinances,  building
codes  and  copies  of  the  contracts between  such  person  and
Borrower  (if  applicable).  Borrower  will  permit  Lender,  the
Inspecting Person and their representative to enter the Mortgaged
Property  for  the  purposes  of  inspecting  same  and  Borrower
specifically  agrees  that  the  Inspecting  Person's  inspection
rights  shall  cover both the Phase I and Phase II  Improvements.
Borrower  acknowledges that the duties of the  Inspecting  Person
run solely to Lender and that the Inspecting Person shall have no
obligations   or   responsibilities   whatsoever   to   Borrower,
Contractor,  the Design Professional, or to any of Borrower's  or
Contractor's agents, employees, contractors or subcontractors.

     V.9  BROKERS.  BORROWER WILL INDEMNIFY LENDER FROM CLAIMS OF
BROKERS  ARISING  BY  REASON  OF  THE  EXECUTION  HEREOF  OR  THE
CONSUMMATION  OF  THE  TRANSACTIONS CONTEMPLATED  HEREBY  TO  THE
EXTENT  SUCH BROKER WAS CONTACTED OR HIRED BY BORROWER OR  EITHER
OF ITS JOINT VENTURERS.

     V.10  Personalty  and Fixtures.  Borrower  will  deliver  to
Lender,  on  demand,  any contracts, bills of  sale,  statements,
receipted  vouchers  or  agreements under which  Borrower  claims
title to any materials, fixtures or articles incorporated in  the
Phase II Improvements or subject to the lien of the Deed of Trust
or to the security interest of the Security Agreement.

     V.11  Compliance  with Governmental Requirements.   Borrower
will comply promptly with all Governmental Requirements.

     V.12  Compliance with Restrictive Covenants.  Borrower  will
comply  with  all  restrictive covenants, if any,  affecting  the
Mortgaged  Property. Construction of the Phase  I  and  Phase  II
Improvements will be performed in a good and workmanlike  manner,
within  the  perimeter  boundaries of the  Land  and  within  all
applicable  building  and setback lines in  accordance  with  all
Governmental  Requirements  and  the  Plans  and  Specifications.
There are, and will be, no structural defects in the Phase  I  or
Phase II Improvements.

     V.13  Affidavit  of  Commencement.  In connection  with  the
Phase  I  Improvements, Borrower filed in the appropriate records
of  the  county  in which the Land is situated, an  Affidavit  of
Commencement  ("Affidavit  of Commencement"),  duly  executed  by
Borrower  and Contractor.  The date of commencement of  work  set
forth  in  such Affidavit of Commencement was subsequent  to  the
date   the  original  Deed  of  Trust  was  originally  recorded.
Borrower represents to Lender that said Affidavit of Commencement
encompassed  all  work  contemplated for both  the  Phase  I  and
Phase II Improvements.

     V.14  Affidavit  of Completion.  Borrower, within  ten  (10)
days  after  construction of the Phase II Improvements  has  been
completed, shall file in the appropriate records in the county in
which the Land is situated an Affidavit of Completion ("Affidavit
of  Completion")  in  the form of Exhibit C attached  hereto  and
incorporated herein by this reference.

     V.15  Payment of Expenses.  Borrower shall pay or  reimburse
to  Lender all out-of-pocket costs and expenses relating  to  the
Mortgaged  Property and for which an Advance is  made,  including
(without  limitation), title insurance and  examination  charges,
survey costs, insurance premiums, filing and recording fees,  and
other  expenses payable to third parties incurred  by  Lender  in
connection with the consummation of the transactions contemplated
by this Agreement.

     V.16  Notices Received.  Borrower will promptly  deliver  to
Lender  a  true  and  correct copy of  all  notices  received  by
Borrower  from  any  person or entity with respect  to  Borrower,
Guarantor,  the Mortgaged Property, or any or all of them,  which
in  any  way  relates  to or affects the Loan  or  the  Mortgaged
Property.

     V.17 Advertising by Lender.  Borrower agrees that during the
term  of  the  Loan,  Borrower shall erect and  thereafter  shall
maintain on the Mortgaged Property one or more advertising  signs
furnished  by  Lender  indicating  that  the  financing  for  the
Mortgaged Property has been furnished by Lender.

     V.18  Leases.  Borrower will deliver to Lender, upon request
of  Lender,  executed  counterparts  of  all  leases  and  rental
agreements affecting the Mortgaged Property; and all said  leases
will,  if  requested  by  Lender,  contain  a  written  provision
acceptable  to  Lender whereby all rights of the  tenant  in  the
lease  and  the Mortgaged Property are subordinated to the  liens
and   security   interests  granted  in   the   Loan   Documents.
Furthermore, if requested by Lender, Borrower shall cause  to  be
executed  and  delivered to Lender a Non-Disturbance,  Attornment
and Subordination Agreement, in form and substance acceptable  to
Lender, relating to each such lease and fully executed by Lender,
Borrower and such lessee.

     V.19  Approval to Lease Required.  Borrower will obtain  the
prior  written consent of Lender as to any tenant lease ("Lease")
proposed to be entered into by Borrower for space in the Phase II
Improvements and will not thereafter materially modify any  Lease
as  to  the  rental  rate, term or any credit  enhancement  issue
without  Lender's  prior consent.  Lender  agrees  that  it  will
respond  to any request for review of a Lease, or change thereto,
within  ten  (10)  days  of receipt of  a  written  request  from
Borrower.  Borrower agrees to submit to each tenant in connection
with   a   proposed   lease  the  Lender's   required   form   of
Subordination,  Non-Disturbance  and  Attornment  Agreement  (the
"SNDA"), substantially in the form attached hereto as Exhibit D.

     V.20 Statements and Reports.  Borrower agrees to deliver  to
Lender,  during the term of the Loan and until the Loan has  been
fully paid and satisfied, the following statements and reports:

          (a)   Annual, audited financial statements of Borrower,
     each  general  partner  of  Borrower  and  Guarantor  within
     ninety-five  (95) days after the end of each calendar  year,
     prepared and certified to by Guarantor and, in the  case  of
     Borrower, the chief financial officer of the general partner
     of  Borrower and further, in the case of Guarantor, cashflow
     and  contingent liability information shall also be provided
     Lender;

          (b)     Monthly   marketing   reports   with   detailed
     information  as  to  leasing activities  shall  be  provided
     Lender  on  or  before  the  fifteenth  (15th)  day  of  the
     following  month and monthly construction status reports  as
     to the progress of construction of the Phase II Improvements
     shall  be provided Lender on or before the fifteenth  (15th)
     day of the following month;

          (c)   Copies  of  all  state and  federal  tax  returns
     prepared  with respect to Borrower, each Guarantor  and  the
     general  partner of Borrower within ten (10)  days  of  such
     returns  being  filed with the Internal Revenue  Service  or
     applicable state authority;

          (d)   Copies of extension requests or similar documents
     with  respect  to  federal or state income tax  filings  for
     Borrower, each Guarantor and the general partner of Borrower
     within ten (10) days of such documents being filed with  the
     Internal Revenue Service or applicable state authority;

          (e)   Annual operating statements with respect  to  the
     Mortgaged  Property within ninety-five (95) days  after  the
     end  of each calendar year, prepared in such form and detail
     as  Lender  may  require  and  certified  to  by  the  chief
     financial officer of the general partner of Borrower;

          (f)   Monthly operating statements and a rent roll with
     respect  to  the Phase II Improvements, within  thirty  (30)
     days  after the end of each calendar month, commencing  upon
     lease-up of said property, prepared in such form and  detail
     as  Lender  may  reasonably require and in  accordance  with
     generally accepted accounting principles and certified to by
     the  chief  financial  officer of  the  general  partner  of
     Borrower; and

          (g)   Such  other reports and statements as Lender  may
     reasonably require from time to time.

                           ARTICLE VI

                          ASSIGNMENTS

     VI.1  Assignment  of Construction Contract.   As  additional
security   for   the  payment  of  the  Loan,   Borrower   hereby
collaterally  transfers and assigns to Lender all  of  Borrower's
rights  and interest, but not its obligations, in, under  and  to
each   Construction  Contract  upon  the  following   terms   and
conditions:

          (a)  Borrower represents and warrants that the copy  of
     each  Construction Contract the Borrower  has  furnished  or
     will  furnish to Lender is or will be (as applicable) a true
     and complete copy thereof, including all amendments thereto,
     if  any, and that Borrower's interest therein is not subject
     to any claim, setoff or encumbrance.

          (b)   Neither this assignment nor any action by  Lender
     shall  constitute an assumption by Lender of any obligations
     under any Construction Contract, and Borrower shall continue
     to  be  liable  for all obligations of Borrower  thereunder,
     Borrower  hereby agreeing to perform all of its  obligations
     under  each  Construction  Contract.   BORROWER  AGREES   TO
     INDEMNIFY  AND  HOLD LENDER HARMLESS AGAINST  AND  FROM  ANY
     LOSS,  COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT LIMITED
     TO  ATTORNEYS' FEES) RESULTING FROM ANY FAILURE OF  BORROWER
     TO SO PERFORM.

          (c)   Following any required notice and opportunity  to
     cure,  Lender  shall have the right at any  time  thereafter
     (but shall have no obligation) to take in its name or in the
     name  of  Borrower such action as Lender  may  at  any  time
     determine  to be necessary or advisable to cure any  default
     under any Construction Contract or to protect the rights  of
     Borrower  or  Lender  thereunder.   LENDER  SHALL  INCUR  NO
     LIABILITY  IF  ANY ACTION SO TAKEN BY IT OR  IN  ITS  BEHALF
     SHALL PROVE TO BE INADEQUATE OR INVALID, AND BORROWER AGREES
     TO  INDEMNIFY AND HOLD LENDER HARMLESS AGAINST AND FROM  ANY
     LOSS,  COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT LIMITED
     TO  REASONABLE ATTORNEYS' FEES) INCURRED IN CONNECTION  WITH
     ANY SUCH ACTION.

          (d)    Borrower  hereby  irrevocably  constitutes   and
     appoints  Lender  as  Borrower's attorney-in-fact  effective
     upon the occurrence of an Event of Default, in Borrower's or
     Lender's name, to enforce all rights of Borrower under  each
     Construction Contract. Such appointment is coupled  with  an
     interest and is therefore irrevocable.

          (e)   Prior  to the occurrence of an Event of  Default,
     Borrower  shall  have the right to exercise  its  rights  as
     owner  under  each  Construction  Contract,  provided   that
     Borrower shall not cancel or amend any Construction Contract
     or  do  or suffer to be done any act which would impair  the
     security  constituted by this assignment without  the  prior
     written consent of Lender.

          (f)   This  assignment shall inure to  the  benefit  of
     Lender  and  its successors and assigns, any purchaser  upon
     foreclosure of the Deed of Trust, any receiver in possession
     of  the  Mortgaged  Property and any corporation  affiliated
     with  Lender  which assumes Lender's rights and  obligations
     under this Agreement.

     VI.2  Assignment of Plans and Specifications.  As additional
security for the Loan, Borrower hereby collaterally transfers and
assigns to Lender all of Borrower's right, title and interest  in
and  to  the  Plans and Specifications and hereby represents  and
warrants to and agrees with Lender as follows:

          (a)   Each schedule of the Plans and Specifications for
     the  Phase  II Improvements delivered or to be delivered  to
     Lender  is  and shall be a complete and accurate description
     of such Plans and Specifications.

          (b)   The  Plans and Specifications for  the  Phase  II
     Improvements are and shall be complete and adequate for  the
     construction  of the Phase II Improvements  and  there  have
     been  no  modifications thereof except as described in  such
     schedule.   The  Plans  and  Specifications  shall  not   be
     modified without the prior consent of Lender.

          (c)   Lender  may use the Plans and Specifications  for
     the  Phase II Improvements for any purpose relating  to  the
     Phase   II  Improvements,  including  but  not  limited   to
     inspections  of  construction  and  the  completion  of  the
     Phase II Improvements.

          (d)   Lender's acceptance of this assignment shall  not
     constitute  approval  of  the Plans  and  Specifications  by
     Lender.  Lender has no liability or obligation in connection
     with the Plans and Specifications and no responsibility  for
     the adequacy thereof or for the construction of the Phase II
     Improvements  contemplated by the Plans  and  Specifications
     for  the  Phase  II Improvements.  Lender  has  no  duty  to
     inspect either the Phase I or Phase II Improvements, and  if
     Lender  should inspect the Phase I or Phase II Improvements,
     Lender shall have no liability or obligation to Borrower  or
     any  other  party arising out of such inspection.   No  such
     inspection  nor  any  failure by Lender to  make  objections
     after  any such inspection shall constitute a representation
     by  Lender  that the Phase II Improvements are in accordance
     with  the  Plans and Specifications or any other requirement
     or  constitute  a  waiver of Lender's  right  thereafter  to
     insist  that  the  Phase II Improvements be  constructed  in
     accordance  with the Plans and Specifications or  any  other
     requirement.

          (e)   This  assignment shall inure to  the  benefit  of
     Lender  and  its successors and assigns, any purchaser  upon
     foreclosure of the Deed of Trust, any receiver in possession
     of  the  Mortgaged  Property and any corporation  affiliated
     with  Lender  which assumes Lender's rights and  obligations
     under this Agreement.

     VI.3  Assignment of Design Services Contract.  As additional
security   for   the  payment  of  the  Loan,   Borrower   hereby
collaterally  transfers and assigns to Lender all  of  Borrower's
rights  and interest, but not its obligations, in, under  and  to
each  Design  Services  Contract upon  the  following  terms  and
conditions:

          (a)  Borrower represents and warrants that the copy  of
     each Design Services Contract the Borrower has furnished  or
     will  furnish to Lender is or will be (as applicable) a true
     and complete copy thereof, including all amendments thereto,
     if  any, and that Borrower's interest therein is not subject
     to any claim, setoff or encumbrance.

          (b)   Neither this assignment nor any action by  Lender
     shall  constitute an assumption by Lender of any obligations
     under  any  Design  Services Contract,  and  Borrower  shall
     continue  to  be  liable  for all  obligations  of  Borrower
     thereunder, Borrower hereby agreeing to perform all  of  its
     obligations  under each Design Services Contract.   BORROWER
     AGREES  TO  INDEMNIFY AND HOLD LENDER HARMLESS  AGAINST  AND
     FROM ANY LOSS, COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT
     LIMITED  TO  ATTORNEYS' FEES) RESULTING FROM ANY FAILURE  OF
     BORROWER TO SO PERFORM.

          (c)   Following any required notice and opportunity  to
     cure,  Lender  shall have the right at any  time  thereafter
     (but shall have no obligation) to take in its name or in the
     name  of  Borrower such action as Lender  may  at  any  time
     determine  to be necessary or advisable to cure any  default
     under  any Design Services Contract or to protect the rights
     of  Borrower  or Lender thereunder.  LENDER SHALL  INCUR  NO
     LIABILITY  IF  ANY ACTION SO TAKEN BY IT OR  IN  ITS  BEHALF
     SHALL PROVE TO BE INADEQUATE OR INVALID, AND BORROWER AGREES
     TO  INDEMNIFY AND HOLD LENDER HARMLESS AGAINST AND FROM  ANY
     LOSS,  COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT LIMITED
     TO  REASONABLE ATTORNEYS' FEES) INCURRED IN CONNECTION  WITH
     ANY SUCH ACTION.

          (d)    Borrower  hereby  irrevocably  constitutes   and
     appoints  Lender  as  Borrower's attorney-in-fact  effective
     upon the occurrence of an Event of Default, in Borrower's or
     Lender's name, to enforce all rights of Borrower under  each
     Design  Services Contract. Such appointment is coupled  with
     an interest and is therefore irrevocable.

          (e)   Prior  to the occurrence of an Event of  Default,
     Borrower  shall  have the right to exercise  its  rights  as
     owner  under  each Design Services Contract,  provided  that
     Borrower  shall  not  cancel or amend  any  Design  Services
     Contract  or  do  or suffer to be done any act  which  would
     impair  the security constituted by this assignment  without
     the prior written consent of Lender.

          (f)   This  assignment shall inure to  the  benefit  of
     Lender  and  its successors and assigns, any purchaser  upon
     foreclosure of the Deed of Trust, any receiver in possession
     of  the  Mortgaged  Property and any corporation  affiliated
     with  Lender  which assumes Lender's rights and  obligations
     under this Agreement.

     VI.4   Assignment  of  Proceeds.   Borrower  hereby  further
collaterally  transfers  and assigns to Lender  and  acknowledges
that  Lender  shall be entitled to receive (i) any and  all  sums
which  may  be  awarded  and  become  payable  to  Borrower   for
condemnation of all or any portion of the Mortgaged Property,  or
(ii)  the  proceeds of any and all insurance upon  the  Mortgaged
Property  (other  than the proceeds of general  public  liability
insurance).

          (a)   Borrower  shall, upon request  of  Lender,  make,
     execute,  acknowledge  and deliver any  and  all  additional
     assignments and documents as may be necessary from  time  to
     time to enable Lender to collect and receipt for any of such
     insurance or condemnation proceeds.

          (b)   Lender  shall  not be, under  any  circumstances,
     liable  or  responsible for failure to collect, or  exercise
     diligence in the collection of, any of such sums.

          (c)   Any  sums so received by Lender pursuant to  this
     Section  6.4  may, in Lender's sole discretion, be  provided
     back  to Borrower for restoration of the Mortgaged Property,
     in   the  amounts,  manner,  method  and  pursuant  to  such
     requirements in documents as Lender may require, or shall be
     applied to the liquidation of the Indebtedness in accordance
     with  the  provisions of Section 7.4 of the Deed  of  Trust;
     provided,  however, if Lender determines that the  Mortgaged
     Property can be restored prior to the maturity date  of  the
     Note, and no Event of Default exists, then Lender will apply
     the proceeds to the restoration of the Mortgaged Property.



                          ARTICLE VII

                       EVENTS OF DEFAULT

     VII.1      Events  of Default.  Each of the following  shall
constitute an "Event of Default" hereunder:

          (a)  If Borrower shall fail, refuse, or neglect to pay,
     in  full, any installment or portion of the Indebtedness  as
     and  when the same shall become due and payable, whether  at
     the  due date thereof stipulated in the Loan Documents, upon
     acceleration  or otherwise and such default  shall  continue
     for a period of ten (10) calendar days beyond any due date.

          (b)   If there is an "Event of Default", as defined  in
     the  Phase  I Note or in any of the Phase I Loan  Documents,
     which  is  not  cured within any applicable  grace  or  cure
     periods.

          (c)   If  Borrower shall fail, refuse  or  neglect,  or
     cause  others  to fail, refuse, or neglect to  comply  with,
     perform   and  discharge  fully  and  timely  any   of   the
     Obligations  as and when called for, and such failure  shall
     continue  for  a  period of ten (10) days after  receipt  of
     written  notice  from  Lender; provided,  however,  Borrower
     shall have the right to attempt to cure said default for  up
     to  an additional thirty (30) days if Borrower is diligently
     prosecuting a cure of said default.

          (d)  If any representation, warranty, or statement made
     by  Borrower, Guarantor, or others in, under, or pursuant to
     the  Loan  Documents  or any affidavit or  other  instrument
     executed or delivered with respect to the Loan Documents  or
     the  Indebtedness is determined by Lender  to  be  false  or
     misleading in any material respect as of the date hereof  or
     thereof  or  shall  become  so at  any  time  prior  to  the
     repayment in full of the Indebtedness.
          (e)   If  Borrower shall default or commit an event  of
     default under and pursuant to any other mortgage or security
     agreement  which covers or affects any part of the Mortgaged
     Property  which  is  not cured within any  notice  or  grace
     period.

          (f)   If  Borrower (i) shall execute an assignment  for
     the  benefit  of  creditors or an admission  in  writing  by
     Borrower  of  Borrower's inability  to  pay,  or  Borrower's
     failure to pay, debts generally as the debts become due;  or
     (ii) shall allow the levy against the Mortgaged Property  or
     any    part   thereof,   of   any   execution,   attachment,
     sequestration  or  other writ which is  not  vacated  within
     sixty  days  after  the  levy;  or  (iii)  shall  allow  the
     appointment of a receiver, trustee or custodian of  Borrower
     or  of  the  Mortgaged Property or any part  thereof,  which
     receiver,  trustee  or  custodian is not  discharged  within
     sixty  (60) days after the appointment; or (iv) files  as  a
     debtor a petition, case, proceeding or other action pursuant
     to,  or voluntarily seeks of the benefit or benefits of  any
     Debtor  Relief  Law (as defined in the Deed  of  Trust),  or
     takes any action in furtherance thereof; or (v) files either
     a  petition,  complaint,  answer or other  instrument  which
     seeks to effect a suspension of, or which has the effect  of
     suspending  any  of the rights or powers of  Lender  or  the
     trustee under the Deed of Trust granted in the Note,  herein
     or  in  any  Loan Document; or (vi) allows the filing  of  a
     petition, case, proceeding or other action against  Borrower
     as a debtor under any Debtor Relief Law or seeks appointment
     of  a receiver, trustee, custodian or liquidator of Borrower
     or of the Mortgaged Property, or any part thereof, or of any
     significant   portion  of  Borrower's  other  property   and
     (a)  Borrower  admits, acquiesces in  or  fails  to  contest
     diligently  the  material allegations thereof,  or  (b)  the
     petition,  case, proceeding or other action results  in  the
     entry  of  an order for relief or order granting the  relief
     sought   against  Borrower,  or  (c)  the  petition,   case,
     proceeding  or other action is not permanently dismissed  or
     discharged  on  or  before the earlier of trial  thereon  or
     sixty (60) days next following the date of filing.

          (g)  If Borrower, any Constituent Party (as defined  in
     the  Deed  of Trust), or any Guarantor, shall die, dissolve,
     terminate  or  liquidate, or merge with or  be  consolidated
     into any other entity, or become permanently disabled.

          (h)   If  Borrower creates, places, or  permits  to  be
     created  or  placed, or through any act or failure  to  act,
     acquiesces  in  the  placing of, or allows  to  remain,  any
     Subordinate Mortgage, regardless of whether such Subordinate
     Mortgage  is expressly subordinate to the liens or  security
     interests  of  the  Loan  Documents,  with  respect  to  the
     Mortgaged Property, other than the Permitted Exceptions.

          (i)  If Borrower makes a Disposition, without the prior
     written consent of Lender.

          (j)   If  any condemnation proceeding is instituted  or
     threatened   which   would,  in  Lender's   sole   judgment,
     materially  impair the use and enjoyment  of  the  Mortgaged
     Property for its intended purposes.

          (k)    If   the   Mortgaged  Property  is   demolished,
     destroyed,  or  substantially damaged so that,  in  Lender's
     judgment,  it  cannot be restored or rebuilt with  available
     funds  to the condition existing immediately prior  to  such
     demolition,  destruction,  or  damage  within  a  reasonable
     period of time.

          (l)   If  Lender reasonably determines that  any  event
     shall  have  occurred  that could  be  expected  to  have  a
     Material Adverse Effect.

          (m)   If  Borrower abandons all or any portion  of  the
     Mortgaged Property.

          (n)   The  occurrence  of  any  event  referred  to  in
     Sections  7.1(f)  and  (g)  hereof  with  respect   to   any
     Guarantor,  Constituent  Party or  other  person  or  entity
     obligated  in  any manner to pay or perform the Indebtedness
     or  Obligations, respectively, or any part  thereof  (as  if
     such  Guarantor, Constituent Party or other person or entity
     were the "Borrower" in such Sections).

          (o)   An Event of Default as defined in any of the Loan
     Documents.

          (p)   If  the construction of the Phase II Improvements
     are,  at  any time, (i) discontinued due to acts or  matters
     within  Borrower's control for a period of ten (10) or  more
     consecutive  days,  (ii)  not  carried  on  with  reasonable
     dispatch,  or  (iii) not completed by the  Completion  Date;
     subject,  however,  to Force Majeure (hereinafter  defined).
     "Force  Majeure"  shall be deemed to mean that  Borrower  is
     delayed or hindered in or prevented from the performance  of
     any act required hereunder, not the failure of Borrower,  by
     reason  of  (i) inability to procure materials or reasonable
     substitutes  thereof,  (ii) failure of  power,  (iii)  civil
     commotion, riots, insurrection or war, (iv) unavoidable fire
     or  other casualty, or acts of God (v) strikes, lockouts  or
     other   labor   disputes  (not  by  Borrower's   employees),
     (vi) restrictive governmental law or regulation, (vii) delay
     by Lender of any act required of it hereunder, or (viii) any
     other   causes  of  a  like  nature  to  the  above   listed
     (i)  through  (vii).  Financial inability  on  the  part  of
     Borrower  shall not be construed a Force Majeure  hereunder.
     Borrower  agrees  to  use its best  efforts  to  resume  the
     construction  of  the  Phase  II  Improvements  as  soon  as
     practicable  after the cause of such delay has been  removed
     or canceled.

          (q0  If Borrower is unable to satisfy any condition  of
     Borrower's right to receive Advances hereunder for a  period
     in excess of thirty (30) days after Lender's refusal to make
     any further Advances.

          (r0  If Borrower executes any conditional bill of sale,
     chattel  mortgage or other security instrument covering  any
     materials,  fixtures or articles intended to be incorporated
     in the Phase I or Phase II Improvements or the appurtenances
     thereto, or covering articles of personal property placed in
     the  Phase  I or Phase II Improvements, or files a financing
     statement publishing notice of such security instrument,  or
     if  any  of  such  materials, fixtures or articles  are  not
     purchased in such a manner that the ownership thereof  vests
     unconditionally  in  Borrower, free  from  encumbrances,  on
     delivery  at  the Phase I and Phase II Improvements,  or  if
     Borrower  does not produce to Lender upon reasonable  demand
     the contracts, bills of sale, statements, receipted vouchers
     or  agreements, or any of them, under which Borrower  claims
     title to such materials, fixtures and articles.

          (s0   If any levy, attachment or garnishment is issued,
     or  if any lien for the performance of work or the supply of
     materials  is  filed,  against any  part  of  the  Mortgaged
     Property  and remains unsatisfied or unbonded following  the
     earlier  of (i) fifteen (15) days after the date  of  filing
     thereof or (ii) the requesting by Borrower of an Advance.

     VII.2      Remedies.  Lender shall have the right, upon  the
happening  of an Event of Default, in addition to any  rights  or
remedies available to it under all other Loan Documents, to enter
into possession of the Mortgaged Property and perform any and all
work and labor necessary to complete the Phase II Improvements in
accordance  with the Plans and Specifications.   All  amounts  so
expended  by  Lender shall be deemed to have  been  disbursed  to
Borrower as Loan proceeds and secured by the Deed of Trust.   For
this  purpose,  Borrower hereby constitutes and  appoints  (which
appointment  is  coupled  with  an  interest  and  is   therefore
irrevocable)    Lender   as   Borrower's    true    and    lawful
attorney-in-fact, with full power of substitution to complete the
Phase  II  Improvements  in  the name  of  Borrower,  and  hereby
empowers  Lender,  acting  as  Borrower's  attorney-in-fact,   as
follows:   to  use any funds of Borrower, including  any  balance
which may be held in escrow, any Borrower's Deposit and any funds
which  may  remain  unadvanced  hereunder,  for  the  purpose  of
completing the Phase II Improvements in the manner called for  by
the  Plans and Specifications; to make such additions and changes
and  corrections in the Plans and Specifications which  shall  be
necessary  or desirable to complete the Phase II Improvements  in
the  manner  contemplated  by the Plans  and  Specifications;  to
continue   all   or  any  existing  construction   contracts   or
subcontracts; to employ such contractors, subcontractors, agents,
design professionals and inspectors as shall be required for said
purposes;  to  pay, settle or compromise all existing  bills  and
claims  which are or may be liens against the Mortgaged Property,
or  may be necessary or desirable for the completion of the  work
or  the  clearing  of title; to execute all the applications  and
certificates in the name of Borrower which may be required by any
construction  contract; and to do any and every act with  respect
to  the  construction of the Phase II Improvements which Borrower
could  do in Borrower's own behalf.  Lender, acting as Borrower's
attorney-in-fact, shall also have power to prosecute  and  defend
all  actions  or  proceedings in connection  with  the  Mortgaged
Property and to take such action and require such performance  as
is deemed necessary.

                          ARTICLE VIII

         LENDER'S DISCLAIMERS - BORROWER'S INDEMNITIES

     VIII.1    No Obligation by Lender to Construct.  Lender  has
no  liability or obligation whatsoever or howsoever in connection
with  the Mortgaged Property or the development, construction  or
completion  thereof  or  work  performed  thereon,  and  has   no
obligation except to disburse the Loan proceeds as herein agreed,
Lender  is  not  obligated to inspect the Phase  I  or  Phase  II
Improvements  nor  is Lender liable, and under  no  circumstances
whatsoever  shall Lender be or become liable, for the performance
or default of any contractor or subcontractor, or for any failure
to construct, complete, protect or insure the Mortgaged Property,
or  any  part thereof, or for the payment of any cost or  expense
incurred  in  connection  therewith, or for  the  performance  or
nonperformance  of  any obligation of Borrower  or  Guarantor  to
Lender   nor  to  any  other  person,  firm  or  entity   without
limitation.    Nothing,   including   without   limitation,   any
disbursement  of  Loan  proceeds or the  Borrower's  Deposit  nor
acceptance  of any document or instrument, shall be construed  as
such  a  representation  or  warranty,  express  or  implied,  on
Lender's part.

     VIII.2     No Obligation by Lender to Operate.  Any term  or
condition   of  any  of  the  Loan  Documents  to  the   contrary
notwithstanding, Lender shall not have, and by its execution  and
acceptance  of  this  Agreement hereby expressly  disclaims,  any
obligation  or  responsibility for  the  management,  conduct  or
operation  of the business and affairs of Borrower or  Guarantor.
Any  term or condition of the Loan Documents which permits Lender
to  disburse  funds, whether from the proceeds of the  Loan,  the
Borrower's  Deposit  or otherwise, or to  take  or  refrain  from
taking  any  action  with  respect to  Borrower,  Guarantor,  the
Mortgaged Property or any other collateral for repayment  of  the
Loan, shall be deemed to be solely to permit Lender to audit  and
review the management, operation and conduct of the business  and
affairs  of Borrower and Guarantor, and to maintain and  preserve
the  security given by Borrower to Lender for the Loan,  and  may
not  be  relied upon by any other person.  Further, Lender  shall
not have, has not assumed and by its execution and acceptance  of
this  Agreement  hereby  expressly  disclaims  any  liability  or
responsibility for the payment or performance of any indebtedness
or  obligation of Borrower or Guarantor and no term or  condition
of  the  Loan Documents, shall be construed otherwise.   Borrower
hereby  expressly acknowledges that no term or condition  of  the
Loan  Documents shall be construed so as to deem the relationship
between  Borrower, Guarantor and Lender to be other than that  of
borrower,  guarantor and lender, and Borrower shall at all  times
represent  that the relationship between Borrower, Guarantor  and
Lender   is  solely  that  of  borrower,  guarantor  and  lender.
BORROWER  HEREBY  INDEMNIFIES AND AGREES TO HOLD LENDER  HARMLESS
FROM  AND  AGAINST  ANY  COST, EXPENSE OR LIABILITY  INCURRED  OR
SUFFERED BY LENDER AS A RESULT OF ANY ASSERTION OR CLAIM  OF  ANY
OBLIGATION  OR  RESPONSIBILITY  OF  LENDER  FOR  THE  MANAGEMENT,
OPERATION AND CONDUCT OF THE BUSINESS AND AFFAIRS OF BORROWER  OR
GUARANTOR,  OR  AS  A RESULT OF ANY ASSERTION  OR  CLAIM  OF  ANY
LIABILITY  OR  RESPONSIBILITY  OF  LENDER  FOR  THE  PAYMENT   OR
PERFORMANCE  OF  ANY INDEBTEDNESS OR OBLIGATION  OF  BORROWER  OR
GUARANTOR.

     VIII.3       INDEMNITY   BY   BORROWER.    BORROWER   HEREBY
INDEMNIFIES   LENDER  AND  EACH  AFFILIATE  THEREOF   AND   THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS  FROM,  AND
HOLDS  EACH  OF  THEM  HARMLESS  AGAINST,  ANY  AND  ALL  LOSSES,
LIABILITIES, CLAIMS, DAMAGES, COSTS, AND EXPENSES TO WHICH ANY OF
THEM  MAY  BECOME  SUBJECT, INSOFAR AS SUCH LOSSES,  LIABILITIES,
CLAIMS, DAMAGES, COSTS, AND EXPENSES  ARISE FROM OR RELATE TO ANY
OF  THE  LOAN  DOCUMENTS OR ANY OF THE TRANSACTIONS  CONTEMPLATED
THEREBY   OR  FROM  ANY  INVESTIGATION,  LITIGATION,   OR   OTHER
PROCEEDING,   INCLUDING,  WITHOUT  LIMITATION,   ANY   THREATENED
INVESTIGATION, LITIGATION,  OR OTHER PROCEEDING RELATING  TO  ANY
OF  THE  FOREGOING.   Without intending  to  limit  the  remedies
available  to  Lender  with respect to  the  enforcement  of  its
indemnification rights as stated herein or as stated in any  Loan
Document,  in the event any claim or demand is made or any  other
fact  comes  to  the  attention of  Lender  in  connection  with,
relating  or  pertaining to, or arising out of  the  transactions
contemplated by this Agreement, which Lender reasonably  believes
might  involve  or  lead to some liability  of  Lender,  Borrower
shall,  immediately upon receipt of written notification  of  any
such  claim or demand, assume in full the personal responsibility
for  and  the  defense of any such claim or  demand  and  pay  in
connection  therewith any loss, damage, deficiency, liability  or
obligation, including, without limitation, legal fees  and  court
costs  incurred in connection therewith.  In the event  of  court
action  in  connection with any such claim  or  demand,  Borrower
shall  assume in full the responsibility for the defense  of  any
such action and shall immediately satisfy and discharge any final
decree  or  judgment rendered therein.  Lender may, in  its  sole
discretion, make any payments sustained or incurred by reason  of
any  of  the foregoing; and Borrower shall immediately  repay  to
Lender, in cash and not with proceeds of the Loan, the amount  of
such  payment,  with  interest thereon at the  Default  Rate  (as
defined in the Note) from the date of such payment.  Lender shall
have the right to join Borrower as a party defendant in any legal
action  brought against Lender, and Borrower hereby  consents  to
the  entry of an order making Borrower a party defendant  to  any
such action.

     VIII.4     No Agency.  Nothing herein shall be construed  as
making  or constituting Lender as the agent of Borrower in making
payments  pursuant to any construction contracts or  subcontracts
entered  into  by  Borrower  for construction  of  the  Phase  II
Improvements  or  otherwise.  The purpose of all requirements  of
Lender  hereunder is solely to allow Lender to check and  require
documentation  (including,  but not  limited  to,  lien  waivers)
sufficient  to  protect Lender and the Loan contemplated  hereby.
Borrower  shall have no right to rely on any procedures  required
by  Lender, Borrower hereby acknowledging that Borrower has  sole
responsibility  for  constructing  the  Phase  I  or   Phase   II
Improvements and paying for work done in accordance therewith and
that  Borrower has solely, on Borrower's own behalf, selected  or
approved   each   contractor,   each   subcontractor   and   each
materialman, Lender having no responsibility for any such persons
or entities or for the quality of their materials or workmanship.


                           ARTICLE IX

                         MISCELLANEOUS

     IX.1  Successors  and  Assigns.   This  Agreement  shall  be
binding  upon,  and shall inure to the benefit of,  Borrower  and
Lender,   and  their  respective  heirs,  legal  representatives,
successors and assigns; provided, however, that Borrower may  not
assign any rights or obligations under this Agreement without the
prior written consent of Lender.

     IX.2   Headings.   The  Article,  Section,  and   Subsection
entitlements  hereof  are inserted for convenience  of  reference
only  and  shall in no way alter, modify, define or  be  used  in
construing the text of such Articles, Sections or Subsections.

     IX.3  Survival.   The provisions hereof  shall  survive  the
execution of all instruments herein mentioned, shall continue  in
full  force and effect until the Loan has been paid in  full  and
shall not be affected by any investigation made by any party.

     IX.4  APPLICABLE LAW.  THIS AGREEMENT SHALL BE  GOVERNED  BY
AND  CONSTRUED IN ACCORDANCE WITH  THE LAWS OF THE STATE OF TEXAS
AND  THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.  COURTS
WITHIN  THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER  ANY  AND
ALL  DISPUTES  BETWEEN BORROWER AND LENDER,  WHETHER  IN  LAW  OR
EQUITY,  INCLUDING,  BUT NOT LIMITED TO,  ANY  AND  ALL  DISPUTES
ARISING  OUT OF OR RELATING TO THIS AGREEMENT OR ANY  OTHER  LOAN
DOCUMENT;  AND  VENUE IN ANY SUCH DISPUTE WHETHER IN  FEDERAL  OR
STATE COURT SHALL BE LAID IN DALLAS COUNTY, TEXAS.

     IX.5  Notices.  All notices or other communications required
or  permitted to be given pursuant to this Agreement shall be  in
writing  and shall be considered as properly given if (i)  mailed
by first class United States mail, postage prepaid, registered or
certified with return receipt requested; (ii) by delivering  same
in  person to the intended addressee; or (iii) by delivery to  an
independent third party commercial delivery service for same  day
or next day delivery and providing for evidence of receipt at the
office  of  the  intended addressee.  Notice so mailed  shall  be
effective upon its deposit with the United States Postal  Service
or  any  successor  thereto; notice sent  a  commercial  delivery
service  shall  be  effective upon delivery  to  such  commercial
delivery  service;  notice given by personal  delivery  shall  be
effective only if and when received by the addressee; and  notice
given by other means shall be effective only if and when received
at  the  designated  address  of  the  intended  addressee.   For
purposes of notice, the addresses of the parties shall be as  set
forth on page 1 of this Agreement; provided, however, that either
party  shall  have  the right to change its  address  for  notice
hereunder  to  any  other location within the continental  United
States  by  the giving of thirty (30) days notice  to  the  other
party in the manner set forth herein.

     IX.6  Reliance by Lender.  Lender is relying and is entitled
to  rely  upon each and all of the provisions of this  Agreement;
and accordingly, if any provision or provisions of this Agreement
should  be  held  to be invalid or ineffective,  then  all  other
provisions  hereof  shall  continue  in  full  force  and  effect
notwithstanding.

     IX.7  Participations.  Lender shall have the  right  at  any
time  and  from time to time to grant participations in the  Loan
and  Loan  Documents.   Each participant  shall  be  entitled  to
receive   all  information  received  by  Lender  regarding   the
creditworthiness  of  Borrower, any of  its  principals  and  the
Guarantor, including (without limitation) information required to
be  disclosed  to a participant pursuant to Banking Circular  181
(Rev., August 2, 1984), issued by the Comptroller of the Currency
(whether the participant is subject to the circular or not).

     IX.8 Controlling Agreement.  It is expressly stipulated  and
agreed  to be the intent of Borrower and Lender at all  times  to
comply  with  applicable  Texas law or applicable  United  States
federal  law  (to the extent that it permits Lender  to  contract
for,  charge,  take,  reserve, or receive  a  greater  amount  of
interest  than  under  Texas law) and  that  this  section  shall
control every other covenant and agreement in this Agreement.  If
the applicable law is ever judicially interpreted so as to render
usurious any amount called for under the Note or under any of the
other   Loan  Documents,  or  contracted  for,  charged,   taken,
reserved,   or   received  with  respect  to   the   indebtedness
("Indebtedness") evidenced or secured by the Loan  Documents,  or
if  Lender's exercise of the option to accelerate the maturity of
the  Note,  or if any prepayment by Borrower results in  Borrower
having  paid  any  interest  in  excess  of  that  permitted   by
applicable law, then it is Borrower's and Lender's express intent
that all excess amounts theretofore collected by Lender shall  be
credited  on  the  principal balance of the Note  and  all  other
Indebtedness  (or,  if the Note and all other  Indebtedness  have
been or would thereby be paid in full, refunded to Borrower), and
the   provisions  of  the  Note  and  the  other  Loan  Documents
immediately  be  deemed  reformed  and  the  amounts   thereafter
collectible   hereunder  and  thereunder  reduced,  without   the
necessity of the execution of any new documents, so as to  comply
with the applicable law, but so as to permit the recovery of  the
fullest amount otherwise called for hereunder or thereunder.  All
sums   paid  or  agreed  to  be  paid  to  Lender  for  the  use,
forbearance,  or  detention  of the Indebtedness  shall,  to  the
extent  permitted  by  applicable law,  be  amortized,  prorated,
allocated,  and  spread throughout the full stated  term  of  the
Indebtedness until payment in full so that the rate or amount  of
interest  on  account  of the Indebtedness does  not  exceed  the
Maximum Lawful Rate (as defined in the Note) from time to time in
effect  and  applicable to the Indebtedness for so  long  as  the
Indebtedness is outstanding.  In no event shall the provisions of
Chapter  346  of the Texas Finance Code (which regulates  certain
revolving  credit loan accounts and revolving triparty  accounts)
apply to the loan evidenced and/or secured by the Loan Documents.
Notwithstanding anything to the contrary contained herein  or  in
any  of  the  other  Loan Documents, it is not the  intention  of
Lender  to accelerate the maturity of any interest that  has  not
accrued  at the time of such acceleration or to collect  unearned
interest at the time of such acceleration.

     IX.9  Controlling  Document.  In the  event  of  a  conflict
between the terms and conditions of this Agreement and the  terms
and  conditions  of  any  other  Loan  Document,  the  terms  and
conditions of this Agreement shall control.

     IX.10      Construction of Agreement.  All pronouns, whether
in  masculine, feminine or neuter form, shall be deemed to  refer
to the object of such pronoun whether same is masculine, feminine
or  neuter in gender, as the context may suggest or require.  All
terms  used herein, whether or not defined in Section 1.1 hereof,
and  whether used in singular or plural form, shall be deemed  to
refer  to  the object of such term, whether such is  singular  or
plural in nature, as the context may suggest or require.

     IX.11      Counterpart Execution.  To facilitate  execution,
this Agreement may be executed in one or more counterparts as may
be   convenient   or   required,  with  all   such   counterparts
collectively constituting a single instrument.

     IX.12      NOTICE OF INDEMNIFICATION.  BORROWER ACKNOWLEDGES
AND  AGREES  THAT THIS AGREEMENT CONTAINS CERTAIN INDEMNIFICATION
PROVISIONS  PURSUANT  TO SECTIONS 5.9,  6.1,  6.3,  8.2  AND  8.3
HEREOF.

     IX.13      ENTIRE  AGREEMENT.  THIS LOAN AGREEMENT  AND  THE
OTHER  LOAN  DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN  THE
PARTIES  AND  MAY  NOT  BE CONTRADICTED  BY  EVIDENCE  OF  PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS  OF  THE  PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  THIS
INSTRUMENT  MAY  BE  AMENDED ONLY BY  AN  INSTRUMENT  IN  WRITING
EXECUTED BY THE PARTIES HERETO.

     IX.14      Year  2000 Covenant.  Borrower shall perform  all
acts  reasonably  necessary to ensure that (i) Borrower  and  any
business  in  which  Borrower holds a substantial  interest,  and
(ii)  all  customers, suppliers and vendors that are material  to
Borrower's  business,  become Year 2000  Compliant  in  a  timely
manner.   Such acts shall include, without limitation, performing
a  comprehensive  review  and assessment  of  all  of  Borrower's
systems  and adopting a detailed plan, with itemized budget,  for
the remediation, monitoring and testing of such systems.  As used
in this paragraph, "Year 2000 Compliant" shall mean, in regard to
any  entity,  that  all software, hardware, firmware,  equipment,
fixtures,  goods  or  systems utilized  by  or  material  to  the
business  operations or financial condition of such entity,  will
properly  perform  date sensitive functions  before,  during  and
after  the year 2000.  Borrower shall, immediately upon  request,
provide  to  Lender  such certifications  or  other  evidence  of
Borrower's compliance with the terms of this paragraph as  Lender
may from time to time require.

   [The remainder of this page is intentionally left blank.]

     IN  WITNESS  WHEREOF, the parties hereto have executed  this
Agreement as of the day and year first above written.

                     LENDER:

                     COMERICA BANK-TEXAS,
                     a state banking association


                     By:
                     Name:
                     Title:


                     BORROWER:

                     STRATUS 7000 WEST JOINT VENTURE,
                     a Texas joint venture

                     By: Stratus 7000 West, Ltd.,
                         a Texas limited partnership,
                         Its Operating Partner

                         By:  STRS L.L.C.,
                              a    Delaware   limited   liability
                              company,
                              Its General Partner

                              By:  Stratus Properties Inc.,
                                   a Delaware corporation,
                                   Its Sole Member


                                   By:  /s/ William H. Armstrong, III
                                        ---------------------------------
                                   Name:  William  H. Armstrong, III
                                   Title: Chairman of the Board, President
                                           and Chief Executive Officer

                     By: Oly Lantana, L.P.,
                         a Texas limited partnership,
                         Its Financial Partner

                         By:  Oly Lantana GP, L.L.C.,
                              a Texas limited liability company,
                              Its Sole General Partner


                              By:
                              Name:
                              Title:



                                             Exhibit 10.16

        SECOND AMENDMENT TO CONSTRUCTION LOAN AGREEMENT


     THIS   SECOND  AMENDMENT  TO  CONSTRUCTION  LOAN   AGREEMENT
("Amendment")   is  executed  effective  as  of,   although   not
necessarily  on, the 31st day of December, 1999, by STRATUS  7000
WEST  JOINT  VENTURE,  a Texas joint venture ("Borrower"),  whose
address  is  98  San Jacinto Boulevard, Suite 220, Austin,  Texas
78791, STRATUS PROPERTIES OPERATING CO., L.P., a Delaware limited
partnership  (formerly  Stratus  Properties  Operating   Co.,   a
Delaware  general  partnership),  STRATUS  PROPERTIES,  INC.,   a
Delaware corporation ("Guarantor"), and COMERICA BANK - TEXAS,  a
state banking association ("Lender"), as follows:

                      W I T N E S S E T H:

     WHEREAS,  as  of  the 9th day of April, 1999,  Borrower  and
COMERICA  BANK-TEXAS,  a  state banking  association  ("Lender"),
whose address is 1601 Elm Street, 2nd Floor, Dallas, Texas 75201,
Attn:  National Real Estate Services, entered into  that  certain
Construction  Loan Agreement (the "Agreement"),  which  Agreement
set  forth  the terms and conditions of a construction loan  from
Lender  to  Borrower  in the amount of SIX  MILLION  SIX  HUNDRED
THOUSAND  AND  NO/100 DOLLARS ($6,600,000.00)  ("Loan")  for  the
construction of an office building to be constructed in the  City
of  Austin,  County of Travis, Texas, upon the  land  more  fully
described in Exhibit A attached hereto; and

     WHEREAS,  among  other  things, as security  for  the  Loan,
Stratus  Properties  Operating Co.,  L.P.  ("Operating  Company")
executed  and  delivered  to Lender that  certain  Assignment  of
Accounts  Receivable ("Assignment") dated of even date  with  the
Agreement  which  assigned  to Lender  the  Proceeds  (herein  so
called) due to Operating Company from the City of Austin pursuant
to  the  Agreement Regarding the Construction of Improvements  to
the  City  of Austin's Water System in the Lantana Area  ("Austin
Water  Agreement"), all as more fully described in the  Agreement
and in the Assignment; and

     WHEREAS,  Guarantor  executed  and  delivered  that  certain
limited  guaranty ("Guaranty") to Lender in connection  with  the
Loan,  all as more fully set forth in the Guaranty from Guarantor
dated of even date with the Agreement; and

     WHEREAS,  Borrower, Lender and Guarantor entered  into  that
certain Modification Agreement as of the 16th day of August, 1999
(the "Modification Agreement"); and

     WHEREAS, Borrower and Guarantor have now requested that  the
Proceeds  to be paid under the Austin Water Agreement be released
from the terms and conditions of the Loan, and the  Proceeds  due
under  the  Austin  Water Agreement be reassigned  to  Lender  in
connection with a Related Loan (herein so called) from Lender  in
the  original  principal  amounts of TWENTY  MILLION  AND  NO/100
DOLLARS  ($20,000,000.00)  and TEN  MILLION  AND  NO/100  DOLLARS
($10,000,000.00)  dated  December  16,  1999,   wherein   STRATUS
PROPERTIES  INC.,  a  Delaware  corporation,  STRATUS  PROPERTIES
OPERATING  CO.,  L.P., a Delaware limited partnership,  CIRCLE  C
LAND CORP., a Texas corporation, and AUSTIN 290 PROPERTIES, INC.,
a  Texas  corporation,  as  co-borrower,  pledged  multiple  real
properties and other assets of the co-borrowers to Lender; and

     WHEREAS,  Guarantor, in consideration for  Lender  releasing
the  Proceeds  under the Assignment, has agreed  to  execute  and
deliver to Lender, in substitution and replacement of the limited
Guaranty  previously delivered at the time of entering  into  the
Agreement, an unconditional and unlimited guaranty;

     NOW,  THEREFORE,  for  and in consideration  of  the  mutual
covenants  and  agreements set forth herein and  other  good  and
valuable consideration, the receipt and sufficiency of which  are
hereby  acknowledged and confessed, Borrower and Lender do hereby
amend the Agreement as follows:

     1.     Release  of  Proceeds.   In  consideration  for   the
unconditional  and  unlimited  guaranty  executed  and  delivered
simultaneously herewith by STRATUS PROPERTIES INC., Lender hereby
terminates the Assignment dated as of the 9th day of April, 1999,
from  Operating Company and releases its lien on the Proceeds  as
to  this Loan.  The parties hereto agree and acknowledge that two
(2)  installments,  each  in the amount of  NINE  HUNDRED  NINETY
THOUSAND  SIX  HUNDRED  FORTY-EIGHT DOLLARS  AND  46/100  DOLLARS
($990,648.46), are due from the City of Austin under  the  Austin
Water  Agreement, the first installment being due and payable  as
of  the  date hereof and the remaining installment in a like  sum
shall be due and payable on or before December 31, 2000, together
with  any  and all additional revenue, income, proceeds,  profits
and  other types of deposits or benefits paid or payable  by  the
City  of  Austin  under  the Austin Water  Agreement.   Operating
Company  agrees  and  acknowledges that it  shall  simultaneously
herewith  execute an assignment of accounts receivable acceptable
to Lender whereby all of its rights and remedies under the Austin
Water  Agreement shall be re-assigned to Lender under the Related
Loan,  and  that  the two (2) installments due under  the  Austin
Water  Agreement shall be applied upon receipt by Lender  to  the
Related Loan.

     2.    Substitution  of  Guaranty.   Simultaneously  herewith
Guarantor  shall  execute and deliver its guaranty  in  form  and
content  acceptable  to Lender whereby Guarantor  unconditionally
guarantees  the  payment and performance of  the  Loan,  and  the
limited  Guaranty  now  held  by  Lender  shall  be  returned  to
Guarantor.

     3.    Full  Force and Effect.  Except as otherwise  modified
herein  or  under  the terms of the Modification  Agreement,  the
Agreement shall remain in full force and effect.

     4.    Definitions.  All terms not otherwise  defined  herein
shall have those definitions as contained in the Agreement.
     EXECUTED  as  of, although not necessarily on, the  day  and
year first above written.

                         COMERICA BANK-TEXAS,
                         a state banking association


                         By:
                         Name:
                         Title:

                         STRATUS 7000 WEST JOINT VENTURE,
                         a Texas joint venture

                         By:Stratus 7000 West, Ltd.,
                            a Texas limited partnership,
                            Its Operating Partner

                            By:STRS L.L.C.,
                               a   Delaware   limited   liability
                               company,
                               Its General Partner

                               By:Stratus Properties Inc.,
                                   a Delaware corporation,
                                   Its Sole Member


                                   By: /s/ William H. Armstrong, III
                                      -------------------------------
                                   Name:  William H. Armstrong, III
                                   Title: Chairman of the Board,
                                           President and Chief
                                            Executive Officer

                         By:Oly Lantana, L.P.,
                            a Texas limited partnership,
                            Its Financial Partner

                            By:Oly Lantana GP, L.L.C.,
                               a    Texas    limited    liability
                               company,
                               Its Sole General Partner


                               By:
                               Name:
                               Title:

STRATUS PROPERTIES OPERATING CO., L.P.,
a Delaware limited partnership

By:STRS L.L.C.,
   a Delaware limited liability company,
   General Partner

   By:Stratus Properties Inc.,
      a Delaware corporation,
      Sole Member


      By:   /s/ William H. Armstrong, III
           -------------------------------
      Name:     William H. Armstrong, III
      Title: Chairman of the Board, President
              and Chief Executive Officer


STRATUS PROPERTIES INC.,
a Delaware corporation,



By:   /s/ William H. Armstrong, III
     -------------------------------
Name:     William H. Armstrong, III
Title: Chairman of the Board, President
         and Chief Executive Officer


STATE OF TEXAS          &
&
COUNTY OF __________    &

The foregoing instrument was ACKNOWLEDGED before me this _____ day
of February, 2000, by ____________________________________, the
____________________ of COMERICA BANK-TEXAS, a state banking
association, on behalf of said association.


[S E A L]
     Notary Public - State of Texas
My Commission Expires:

_____________________         Printed Name of Notary Public




STATE OF TEXAS      &
                    &
COUNTY OF __________     &

     The  foregoing  instrument was ACKNOWLEDGED before  me  this
_____  day  of  February,  2000, by William  H.  Armstrong,  III,
Chairman  of the Board, President and Chief Executive Officer  of
STRATUS  PROPERTIES  INC., a Delaware corporation  and  the  Sole
Member  of STRS L.L.C., a Delaware limited liability company  and
the  General Partner of STRATUS 7000 WEST, LTD., a Texas  limited
partnership and the Operating Partner of STRATUS 7000 WEST  JOINT
VENTURE, a Texas joint venture, on behalf of said joint venture.


[S E A L]
                              Notary Public - State of Texas
My Commission Expires:

_____________________         Printed Name of Notary Public




STATE OF TEXAS      &
                    &
COUNTY OF __________     &

     The  foregoing  instrument was ACKNOWLEDGED before  me  this
_____        day        of       February,        2000,        by
____________________________________, the ____________________ of
OLY LANTANA GP, L.L.C., a Texas limited liability company and the
Sole  General  Partner  of OLY LANTANA,  L.P.,  a  Texas  limited
partnership and the Financial Partner of STRATUS 7000 WEST  JOINT
VENTURE, a Texas joint venture, on behalf of joint venture.


[S E A L]
                              Notary Public - State of Texas
My Commission Expires:

_____________________         Printed Name of Notary Public





STATE OF TEXAS      &
                    &
COUNTY OF __________     &

     The  foregoing  instrument was ACKNOWLEDGED before  me  this
_____  day  of  February,  2000, by William  H.  Armstrong,  III,
Chairman  of the Board, President and Chief Executive Officer  of
STRATUS  PROPERTIES  INC., a Delaware corporation  and  the  Sole
Member of STRS L.L.C., a Delaware limited liability company,  the
General  Partner  of STRATUS PROPERTIES OPERATING  CO.,  L.P.,  a
Delaware   limited  partnership,  on  behalf  of   said   limited
partnership.


[S E A L]
                              Notary Public - State of Texas
My Commission Expires:

_____________________         Printed Name of Notary Public



STATE OF TEXAS      &
                    &
COUNTY OF __________     &

     The  foregoing  instrument was ACKNOWLEDGED before  me  this
_____  day  of  February,  2000, by William  H.  Armstrong,  III,
Chairman  of the Board, President and Chief Executive Officer  of
STRATUS  PROPERTIES INC., a Delaware corporation,  on  behalf  of
said corporation.


[S E A L]
                              Notary Public - State of Texas
My Commission Expires:

                              Printed Name of Notary Public



126240.1
145:3134-689




                                              Exhibit 10.17
When recorded, return to:

Lynda Zimmerman, Esq.
Winstead Sechrest & Minick
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas  75270


                 SECOND MODIFICATION AGREEMENT


     This SECOND MODIFICATION AGREEMENT ("Agreement") is made  to
be effective as of the 24th day of February, 2000, by and between
COMERICA  BANK-TEXAS,  a  state banking  association  ("Lender"),
STRATUS   7000   WEST  JOINT  VENTURE,  a  Texas  joint   venture
("Borrower"),   and   STRATUS  PROPERTIES,   INC.,   a   Delaware
corporation (the "Guarantor").

                     W I T N E S S E T H :

     WHEREAS, Lender made a loan ("Loan") to Borrower on April 9,
1999,  in the maximum principal amount of SIX MILLION SIX HUNDRED
THOUSAND AND NO/100 DOLLARS ($6,600,000.00); and

     WHEREAS,   Lender   and  Borrower  executed   that   certain
Construction  Loan Agreement ("Loan Agreement")  dated  April  9,
1999, pertaining to the Loan; and

     WHEREAS, the Borrower executed and delivered to Lender  that
certain Promissory Note (the "$6,600,000.00 Note") dated April 9,
1999,  payable  to  the  order of Lender in  the  amount  of  and
evidencing the Loan; and

     WHEREAS,  the  Borrower executed and delivered that  certain
Amended  and Restated Deed of Trust dated of even date  with  the
$6,600,000.00  Note to Gary W. Orr, as trustee  ("Trustee"),  for
the benefit of the Lender, recorded under Document No. 1999009453
of  the  Official Records of Travis County, Texas,  covering  the
real  property  described  in  Exhibit  A  attached  hereto   and
incorporated   herein  for  all  purposes,  together   with   all
improvements,  appurtenances, other properties (whether  real  or
personal),  rights and interests described in and  encumbered  by
the  Deed  of  Trust ("Property"), to secure the payment  of  the
$6,600,000.00  Note  and performance by  Borrower  of  the  other
obligations  set  forth  in  the Security  Documents  (as  herein
defined); and

     WHEREAS, the Borrower executed and delivered to Lender  that
certain  Assignment of Rents and Leases (the "Assignment")  dated
of even date with the $6,600,000.00 Note, assigning to Lender all
rents,  leases,  income, revenues, issues and profits  which  may
arise  from the operation or ownership of the Property, to secure
the payment of the $6,600,000.00 Note and performance by Borrower
of the other obligations set forth in the Security Documents; and

     WHEREAS,  the Borrower caused to be issued by Chicago  Title
Insurance Company ("Title Company") that certain Mortgagee Policy
of Title Insurance ("Policy") No.44-0394-101-339, dated April 16,
1999,  in  the  amount of the $6,600,000.00  Note,  insuring  the
dignity  and  priority of the lien created and evidenced  by  the
Amended and Restated Deed of Trust and the Assignment; and

     WHEREAS,  as  of  December  31, 1999,  the  Borrower  caused
Stratus Properties Inc., the Guarantor to execute and deliver  to
Lender  that  certain  Guaranty  ("Guaranty")  guaranteeing   the
payment  obligations  under  the  $6,600,000.00  Note  and  other
monetary  obligations  contained in the  Security  Documents  and
performance by Borrower of the other obligations as set forth  in
the Security Documents subject to and on the terms and conditions
set forth in the Guaranty, which Guaranty was in substitution  of
that  prior guaranty executed and delivered as of April 9,  1999;
and

     WHEREAS,  the  Borrower, Lender and Guarantor  entered  into
that  certain Modification Agreement dated as of the 16th day  of
August,  1999,  which Modification Agreement was  recorded  under
Document No. 1999093007 of the Official Records of Travis County,
Texas, and thereafter  entered into that certain Second Amendment
to  Construction Loan Agreement executed effective as of the 31st
day of December, 1999; and

     WHEREAS,  Borrower thereafter executed for  the  benefit  of
Lender  that  certain Second Amended and Restated Deed  of  Trust
(the "Deed of Trust") dated of even date herewith, wherein Lender
and  Borrower, among other things, agreed that the Property would
also  secure that certain Phase II construction loan in  addition
to  the  Phase  I  loan  covered  by  the  above-referenced  Loan
Agreement; and

     WHEREAS,  the Lender, Borrower and Guarantor now propose  to
modify certain of the terms and provisions of the Loan Agreement,
as  previously  amended, the Assignment, the $6,600,000.00  Note,
the  Deed  of Trust, the Guaranty and the other related documents
executed  by Borrower or third parties pertaining to,  evidencing
or securing the Loan (collectively, the "Security Documents").

     NOW, THEREFORE, for and in consideration of the premises and
the  mutual  covenants and agreements contained herein,  and  for
other   good   and  valuable  consideration,  the   receipt   and
sufficiency  of  which are hereby acknowledged, Lender,  Borrower
and Guarantor hereby agree as follows:

     1.     Increase   of   Indebtedness.   The   definition   of
"Indebtedness"  (the  "Further Indebtedness  Provision")  of  the
Amended and Restated Deed of Trust contemplates that other  debts
or  obligations  of Borrower to Lender, whensoever  or  howsoever
incurred and of whatever nature, would be secured by the Deed  of
Trust.   In  accordance with the terms of the Second Amended  and
Restated Deed of Trust of even date herewith, Borrower and Lender
hereby  agree  that the Property which secures the existing  Loan
shall  also secure the additional indebtedness in the  amount  of
SEVEN   MILLION   SEVEN  HUNDRED  THOUSAND  AND  NO/100   DOLLARS
($7,700,000.00) as evidenced by that certain Promissory Note (the
"$7,700,000.00  Note")  executed by Borrower  as  maker  for  the
benefit  of  Lender  as  payee of even date  herewith.   Borrower
hereby  promises to pay to the order of Lender the principal  sum
of  the $7,700,000.00 Note and the $6,600,000.000 Note (sometimes
hereinafter referred to collectively as the "Note"), or  so  much
thereof  as may be advanced, less any repayments of the principal
thereof  heretofore made, together with interest thereon  at  the
rate, on the dates, and in the manner specified therein.

     2.    Current  $6,600,000.00 Note  Balance.   Prior  to  the
execution  hereof, the aggregate amount advanced by Lender  under
the  $6,600,000.00  Note was FOUR MILLION SIX  HUNDRED  FORTY-ONE
THOUSAND AND NO/100 DOLLARS ($4,641,000.00).  There are committed
funds  remaining  in  the  amount of  ONE  MILLION  NINE  HUNDRED
FIFTY-NINE  THOUSAND  AND NO/100 DOLLARS  ($1,959,000.00)  to  be
disbursed in accordance with the Security Documents.

     3.    Extension  of  Maturity.  The  maturity  date  of  the
$6,600,000.00 Note is hereby extended until August 24, 2001, when
the  unpaid principal balance of the $6,600,000.00 Note, together
with  all accrued but unpaid interest thereon, shall be  due  and
payable, which maturity date coincides with the maturity date for
the  $7,700,000.00 Note of even date herewith.  In each  instance
in  the  $6,600,000.00  Note or in the Security  Documents  where
there  is  a  reference to the maturity date, said maturity  date
shall mean August 24, 2001 in lieu of the maturity date as shown.
The   Borrower  hereby  renews,  but  does  not  extinguish,  the
$6,600,000.00   Note  and  the  liens,  security  interests   and
assignments created and evidenced by the Deed of Trust and  other
Security  Documents,  and  in this regard  all  of  the  Security
Documents  are  hereby  renewed and  modified  by  extending  the
maturity date thereof as set forth above.  Borrower covenants  to
observe, comply with and perform each of the terms and provisions
of the Security Documents, as modified hereby.

     4.    Modification  of  Payment Terms in  the  $6,600,000.00
Note.   The  payment  schedule set forth in Section  3.1  of  the
$6,600,000.00  Note  shall be deleted in its  entirety,  and  the
following new payment schedule shall be inserted in lieu thereof:

     "3.1 Payment  Schedule.  This Note  shall  be  due  and
          payable as follows:

          (a)   Commencing  on May 5, 1999,  and  continuing
     thereafter  on  the fifth (5th) day of each  successive
     month  until the Maturity Date, Maker shall  pay  Payee
     all then accrued but unpaid interest hereon.

          (b)    Commencing  on  September  5,   2000,   and
     continuing  on  the  fifth  (5th)  day  of  each  month
     thereafter until the Maturity Date, a Monthly Principal
     Payment  (hereinafter defined), together with all  then
     accrued  but unpaid interest hereon, shall be  due  and
     payable; and

          (c)   The outstanding principal balance hereof and
     any  and all accrued but unpaid interest thereon  shall
     be due and payable in full on the Maturity Date or upon
     earlier  maturity  hereof, whether by  acceleration  or
     otherwise.

     For  purposes hereof, "Monthly Principal Payment" shall
     mean that amount equal to 1.19% of the then outstanding
     principal  balance as of September 1, 2000  owed  under
     this  Note divided by twelve (12) months.  Payee  shall
     furnish  said amount, which is based upon a twenty-five
     (25)  year, mortgage equivalent amortization  schedule,
     to   Maker   in  writing,  which  fixed  amount   shall
     thereafter constitute the Monthly Principal Payment."

     5.    Events  of Default.  Borrower hereby agrees  that  the
Loan  Agreement,  as previously amended, and the  other  Security
Documents  shall  be  amended whereby  the  following  "Event  of
Default" shall be included  as an additional Event of Default  in
said documents:

          "An   Event  of  Default  as  defined  under   the
     $7,700,000.00 Note dated February 24, 2000 executed  by
     Borrower  as maker to Lender as payee or under  any  of
     the  loan documents which secure the $7,700,000.00 Note
     shall be deemed to constitute an Event of Default under
     the $6,600,000.00 Note and the Security Documents which
     secure the $6,600,000.00 Note."

     6.    Title Insurance.  Contemporaneously with the execution
and  delivery hereof, the Borrower shall cause the Title  Company
to  issue  to  Lender a standard Texas form Mortgagee  Policy  of
Title  Insurance  in  the  amount of  the  indebtedness  for  the
$6,600,000.00  Note  and  the $7,700,000.00  Note,  insuring  the
dignity  and  priority  of the lien of  the  Deed  of  Trust  and
Assignment, as previously modified and as further modified by the
terms  and  provisions  hereof,  and  subject  only  to  (i)  the
exceptions  and  encumbrances specified  in  Schedule  B  of  the
Policy,  (ii) such other exceptions as may have been approved  in
writing   by  Lender  at  the  time  of  execution  hereof,   and
(iii) taxes on the Property for the current and subsequent years,
but not yet due and payable.

     7.     Acknowledgment  by  Borrower.   Except  as  otherwise
specified  herein, the terms and provisions hereof  shall  in  no
manner   impair,   limit,  restrict  or  otherwise   affect   the
obligations  of  Borrower  or  any  third  party  to  Lender,  as
evidenced   by   the   Security   Documents.    Borrower   hereby
acknowledges, agrees and represents that (i) Borrower is indebted
to  Lender  pursuant to the terms of the $6,600,000.00  Note,  as
modified  hereby and of the $7,700,000.00 Note; (ii)  the  liens,
security interests and assignments created and evidenced  by  the
Security Documents are, respectively, valid and subsisting liens,
security interests and assignments of the respective dignity  and
priority  recited in the Security Documents; (iii) there  are  no
claims  or offsets against, or defenses or counterclaims to,  the
terms  or  provisions of the Security Documents,  and  the  other
obligations  created  or  evidenced by  the  Security  Documents;
(iv)  Borrower  has no claims, offsets, defenses or counterclaims
arising  from any of Lender's acts or omissions with  respect  to
the  Property,  the  Security Documents or  Lender's  performance
under  the  Security Documents or with respect to  the  Property;
(v)  the representations and warranties contained in the Security
Documents are true and correct representations and warranties  in
all  material  respects  of Borrower  and  to  the  knowledge  of
Borrower,  of  any  third parties, as of  the  date  hereof;  and
(vi)  Lender  is not in default and no event has occurred  which,
with  the  passage  of  time, giving of notice,  or  both,  would
constitute a default by Lender of Lender's obligations under  the
terms  and  provisions of the Security Documents.  To the  extent
Borrower  now  has any claims, offsets, defenses or counterclaims
against Lender or the repayment of all or a portion of the  Loan,
whether  known or unknown, fixed or contingent, same  are  hereby
forever irrevocably waived and released in their entirety.

     8.    No Waiver of Remedies.  Except as may be expressly set
forth   herein,   nothing  contained  in  this  Agreement   shall
prejudice,  act as, or be deemed to be a waiver of any  right  or
remedy  available  to  Lender  by reason  of  the  occurrence  or
existence  of  any  fact, circumstance or  event  constituting  a
default under the Note or the other Security Documents.

     9.    Joinder  of  Guarantor.  By  its  execution  hereof  ,
Guarantor  hereby (i) acknowledges and consents to the terms  and
provisions  hereof;  (ii)  ratifies and  confirms  the  Guaranty,
including  all interest and costs of collection, to  or  for  the
benefit  of Lender; (iii) agrees that the Guaranty is  and  shall
remain in full force and effect and that the terms and provisions
of  the  Guaranty cover and pertain to the Loan,  Note,  Deed  of
Trust   and   other   Security  Documents  as  modified   hereby;
(iv) acknowledges that there are no claims or offsets against, or
defenses  or  counterclaims to, the terms and provisions  of  the
Guaranty  or the other obligations created and evidenced  by  the
Guaranty;  (v) certifies that the representations and  warranties
contained in the Guaranty remain true and correct representations
and   warranties  of  Guarantor  as  of  the  date  hereof;   and
(vi)  acknowledges  that Lender has satisfied and  performed  its
covenants  and  obligations  under the  Guaranty  and  the  other
Security Documents, and that no action or failure to act by or on
behalf of, Lender has or will give rise to any cause of action or
other  claim against Lender for breach of the Guaranty  or  other
Security Documents or otherwise.

     10.    Costs  and  Expenses.   Contemporaneously  with   the
execution and delivery hereof, Borrower shall pay, or cause to be
paid,  all  costs  and  expenses  incident  to  the  preparation,
execution  and  recordation hereof and the  consummation  of  the
transaction  contemplated hereby, including, but not limited  to,
recording fees, title insurance policy or endorsement premiums or
other  charges  of  the Title Company, and  reasonable  fees  and
expenses of legal counsel to Lender.

     11.   Additional Documentation.  From time to time, Borrower
shall  execute  or procure and deliver to Lender such  other  and
further   documents  and  instruments  evidencing,  securing   or
pertaining  to  the Loan or the Security Documents  as  shall  be
reasonably  requested by Lender so as to evidence or  effect  the
terms  and  provisions hereof.  Upon Lender's  request,  Borrower
shall  cause  to  be delivered to Lender an opinion  of  counsel,
satisfactory  to  Lender  as  to form,  substance  and  rendering
attorney, opining to (i) the validity and enforceability of  this
Agreement  and  the terms and provisions hereof,  and  any  other
agreement   executed   in   connection   with   the   transaction
contemplated  hereby;  (ii) the authority of  Borrower,  and  any
constituents of Borrower, to execute, deliver and perform its  or
their  respective  obligations under the Security  Documents,  as
hereby  modified;  and  (iii) such other  matters  as  reasonably
requested by Lender.

     12.   Effectiveness  of the Security Documents.   Except  as
expressly  modified by the terms and provisions hereof,  each  of
the  terms  and provisions of the Security Documents  are  hereby
ratified  and  shall remain in full force and  effect;  provided,
however,  that any reference in any of the Security Documents  to
the Loan, the amount constituting the Loan, any defined terms, or
to  any of the other Security Documents shall be deemed, from and
after  the  date  hereof,  to  refer  to  the  Loan,  the  amount
constituting  the Loan, defined terms and to such other  Security
Documents, as modified hereby.

     13.   Governing Law.  THE TERMS AND PROVISIONS HEREOF  SHALL
BE  GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF  THE
STATE OF TEXAS, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN.

     14.  Time.  Time is of the essence in the performance of the
covenants contained herein and in the Security Documents.

     15.   Binding  Agreement.  This Agreement shall  be  binding
upon  the successors and assigns of the parties hereto; provided,
however,  the  foregoing  shall not be  deemed  or  construed  to
(i)  permit, sanction, authorize or condone the assignment of all
or  any  part of the Property or any of Borrower's rights, titles
or  interests  in  and to the Property or any rights,  titles  or
interests  in and to Borrower, except as expressly authorized  in
the Security Documents, or (ii) confer any right, title, benefit,
cause  of action or remedy upon any person or entity not a  party
hereto, which such party would not or did not otherwise possess.

     16.  Headings.  The section headings hereof are inserted for
convenience  of reference only and shall in no way alter,  amend,
define  or be used in the construction or interpretation  of  the
text of such section.

     17.  Construction.  Whenever the context hereof so requires,
reference  to the singular shall include the plural and likewise,
the  plural  shall  include the singular; words  denoting  gender
shall be construed to mean the masculine, feminine or neuter,  as
appropriate;  and  specific enumeration  shall  not  exclude  the
general,  but  shall be construed as cumulative  of  the  general
recitation.

     18.   Severability.   If  any clause or  provision  of  this
Agreement  is  or should ever be held to be illegal,  invalid  or
unenforceable under any present or future law applicable  to  the
terms hereof, then and in that event, it is the intention of  the
parties hereto that the remainder of this Agreement shall not  be
affected  thereby,  and  that in lieu  of  each  such  clause  or
provision   of  this  Agreement  that  is  illegal,  invalid   or
unenforceable,  such  clause  or provision  shall  be  judicially
construed  and  interpreted to be as  similar  in  substance  and
content  to  such  illegal, invalid or  unenforceable  clause  or
provision, as the context thereof would reasonably suggest, so as
to thereafter be legal, valid and enforceable.

     19.   Counterparts.  To facilitate execution, this Agreement
may  be executed in as many counterparts as may be convenient  or
required.   It  shall  not be necessary that  the  signature  and
acknowledgment  of,  or on behalf of, each  party,  or  that  the
signature and acknowledgment of all persons required to bind  any
party,  appear  on  each  counterpart.   All  counterparts  shall
collectively  constitute a single instrument.  It  shall  not  be
necessary in making proof of this Agreement to produce or account
for  more  than  a single counterpart containing  the  respective
signatures  and acknowledgment of, or on behalf of, each  of  the
parties  hereto.  Any signature and acknowledgment  page  to  any
counterpart  may  be  detached  from  such  counterpart   without
impairing  the legal effect of the signatures and acknowledgments
thereon  and thereafter attached to another counterpart identical
thereto  except  having attached to it additional  signature  and
acknowledgment pages.

     20.   THIS MODIFICATION AND THE OTHER LOAN DOCUMENTS  EMBODY
THE  FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND THERETO
AND   SUPERSEDE  ANY  AND  ALL  PRIOR  COMMITMENTS,   AGREEMENTS,
REPRESENTATIONS,  AND UNDERSTANDINGS, WHETHER  WRITTEN  OR  ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT  BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,  OR
SUBSEQUENT  ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES  HERETO
OR  THERETO.   THERE  ARE NO ORAL AGREEMENTS  AMONG  THE  PARTIES
HERETO  OR THERETO.  THE PROVISIONS OF THIS MODIFICATION AND  THE
OTHER  LOAN  DOCUMENTS  MAY  BE AMENDED  OR  WAIVED  ONLY  BY  AN
INSTRUMENT  IN WRITING SIGNED BY THE RESPECTIVE PARTIES  TO  SUCH
DOCUMENTS.

                         LENDER:

                         COMERICA BANK-TEXAS,
                         a state banking association


                         By:
                         Name:
                         Title:


BORROWER:

STRATUS 7000 WEST JOINT VENTURE,
a Texas joint venture

By:  Stratus 7000 West, Ltd.,
     a Texas limited partnership,
     Its Operating Partner

     By:  STRS L.L.C.,
          a Delaware limited liability company,
          Its General Partner

          By:  Stratus Properties Inc.,
               a Delaware corporation,
               Its Sole Member



               By:    /s/ William H. Armstrong, III
                     -------------------------------
               Name:     William H. Armstrong, III
               Title:    Chairman of the Board,
                          President and Chief
                           Executive Officer

By:  Oly Lantana, L.P.,
     a Texas limited partnership,
     Its Financial Partner

     By:  Oly Lantana GP, L.L.C.,
          a Texas limited liability company,
          Its Sole General Partner



          By:
          Name:
          Title:



GUARANTOR:

STRATUS PROPERTIES INC.,
a Delaware corporation


By:    /s/ William H. Armstrong, III
      ------------------------------
Name:      William H. Armstrong, III
Title:  Chairman of the Board, President
         and Chief Executive Officer





STATE OF TEXAS
                    &
COUNTY OF _________ &

     This instrument was ACKNOWLEDGED before me, on the _____ day
of   March,   2000,   by  ________________________________,   the
__________________  of  COMERICA  BANK-TEXAS,  a  state   banking
association, on behalf of said banking association.


[ S E A L ]
                              Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public



THE STATE OF TEXAS  &
                    &
COUNTY OF __________     &

     This instrument was acknowledged before me on            day
of                          , 2000, by William H. Armstrong, III,
Chairman  of the Board, President and Chief Executive Officer  of
STRATUS PROPERTIES INC., a Delaware corporation, the Sole  Member
of STRS L.L.C., a Delaware limited liability company, the General
Partner  of STRATUS 7000 WEST, LTD., a Texas limited partnership,
the Operating Partner of STRATUS 7000 WEST JOINT VENTURE, a Texas
joint venture, on behalf of each said entity.

[SEAL]


                              Notary Public, State of Texas
My Commission Expires:

______________________
                              Printed Name of Notary Public:






STATE OF TEXAS      &
                    &
COUNTY OF _________ &

     This instrument was acknowledged before me on            day
of                                   ,          2000,          by
____________________________,  the __________________________  of
OLY  LANTANA  GP, L.L.C., a Texas limited liability company,  the
Sole  General  Partner  of OLY LANTANA,  L.P.,  a  Texas  limited
partnership,  the Financial Partner of STRATUS  7000  WEST  JOINT
VENTURE, a Texas joint venture, on behalf of each said entity.

[ S E A L ]
                              Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public



STATE OF TEXAS      &
                    &
COUNTY OF _________ &

     This instrument was acknowledged before me on            day
of                          , 2000, by William H. Armstrong, III,
Chairman  of the Board, President and Chief Executive Officer  of
STRATUS  PROPERTIES INC., a Delaware corporation,  on  behalf  of
said corporation.


[ S E A L ]
                              Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public


                                          Exhibit 10.18

When recorded, return to:

Lynda Zimmerman, Esq.
Winstead Sechrest & Minick
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas  75270


                  THIRD MODIFICATION AGREEMENT


     This  THIRD MODIFICATION AGREEMENT ("Agreement") is made  to
be  effective as of the 23rd day of August, 2001, by and  between
COMERICA  BANK-TEXAS,  a  state banking  association  ("Lender"),
STRATUS   7000   WEST  JOINT  VENTURE,  a  Texas  joint   venture
("Borrower"),   and   STRATUS  PROPERTIES,   INC.,   a   Delaware
corporation (the "Guarantor").

                     W I T N E S S E T H :

     WHEREAS,  Lender, Borrower and Guarantor, to the extent  set
forth below, have executed the following documents:

     Construction Loan Agreement dated April 9, 1999, executed by
     Borrower  and  Lender (as amended prior to the date  hereof,
     the "Phase I Agreement").

     Promissory  Note (as amended prior to the date  hereof,  the
     "6.6  Note")  dated  April 9, 1999,  executed  by  Borrower,
     payable  to the order of Lender, in the original stated  sum
     of $6,600,000.00.

     Guaranty  dated  as  of  December  31,  1999,  executed   by
     Guarantor with respect to the 6.6 Note (as amended prior  to
     the date hereof, the "6.6 Guaranty")

     Construction  Loan  Agreement  dated  February   24,   2000,
     executed  by Borrower and Lender (as amended prior the  date
     hereof, the "Phase II Agreement").

     Promissory  Note (as amended prior to the date  hereof,  the
     "7.7  Note") dated February 24, 2000, executed by  Borrower,
     payable  to the order of Lender, in the original stated  sum
     of $7,700,000.00

     Guaranty  dated  as  of  February  24,  2000,  executed   by
     Guarantor with respect to the 7.7 Note (as amended prior  to
     the date hereof, the "7.7 Guaranty")

     Second  Amended  and Restated Deed of Trust  (the  "Deed  of
     Trust")  dated as of February 24, 2000, executed by Borrower
     to Gary W. Orr, Trustee, for the benefit of Lender, recorded
     under Document No. 2000048399 of the Official Public Records
     of   Travis  County,  Texas,  covering  the  real   property
     described  in  Exhibit  A attached hereto  and  incorporated
     herein  for  all  purposes, together with all  improvements,
     appurtenances, other properties (whether real or  personal),
     rights and interests described in and encumbered by the Deed
     of Trust (collectively, the "Property").

     Assignment of Rents and Leases (the "Assignment")  dated  as
     of  April  9, 1999, executed by Borrower for the benefit  of
     Lender,  recorded  under  Document  No.  1999009454  of  the
     Official  Public  Records  of  Travis  County,  Texas,   and
     Assignment  of  Rents and Leases dated as  of  February  24,
     2000,  executed  by  Borrower for  the  benefit  of  Lender,
     recorded  under  Document  No. 2000048400  of  the  Official
     Public  Records  of Travis County, Texas (collectively,  the
     "Assignments").

     Modification Agreement dated as of August 16, 1999, executed
     by  Borrower, Lender and Guarantor, recorded under  Document
     No.  1999093007  of  the Official Public Records  of  Travis
     County, Texas.

     Second Modification Agreement dated as of February 24, 2000,
     executed  by Borrower, Lender and Guarantor, recorded  under
     Document  No. 2000048402 of the Official Public  Records  of
     Travis County, Texas.

Terms  used with initial capitalized letters and not specifically
defined  in  this Agreement shall have the meanings  ascribed  to
them  in the Phase I Agreement or the Phase II Agreement, as  the
context  requires.  All of the foregoing and all other  documents
executed  by  Borrower or Guarantor to and  for  the  benefit  of
Lender  in  connection with any of the foregoing are collectively
referred to herein as the "Loan Documents").

     WHEREAS,  the Borrower caused to be issued by Chicago  Title
Insurance Company ("Title Company") that certain Mortgagee Policy
of Title Insurance ("Policy") No.44-0394-101-563, dated March 31,
2000,  in the amount of $14,300,000.00, insuring the dignity  and
priority of the liens created and evidenced by the Deed of Trust.

     WHEREAS,  the Lender, Borrower and Guarantor now propose  to
renew  and extend the 6.6 Note and the 7.7 Note and make  certain
other modifications thereto.

     NOW, THEREFORE, for and in consideration of the premises and
the  mutual  covenants and agreements contained herein,  and  for
other   good   and  valuable  consideration,  the   receipt   and
sufficiency  of  which are hereby acknowledged, Lender,  Borrower
and Guarantor hereby agree as follows:

     1.    Payment of Extension Fees. Contemporaneously with  the
execution and delivery of this Agreement, Borrower shall remit to
Lender  cash  funds  in the amounts of (i) SIXTEEN  THOUSAND  TWO
HUNDRED SEVENTY-TWO AND NO/100 DOLLARS ($16,272.00), representing
the  extension fee for the renewal and extension of the 6.6 Note,
and  (ii)  SIXTEEN  THOUSAND TWO HUNDRED  THIRTY-ONE  AND  NO/100
DOLLARS  ($16,231.00),  representing the extension  fee  for  the
renewal and extension of the 7.7 Note

     2.    Current Balances.  As of August 1, 2001, the aggregate
amount of unpaid principal outstanding under the 6.6 Note was SIX
MILLION  FIVE HUNDRED EIGHT THOUSAND SIX HUNDRED FIFTY-SEVEN  AND
03/100  DOLLARS  ($6,508,657.03).  As  of  August  1,  2001,  the
aggregate  amount of unpaid principal outstanding under  the  7.7
Note  was  SIX  MILLION  FOUR HUNDRED  NINETY-TWO  THOUSAND  FOUR
HUNDRED EIGHT AND 98/100 DOLLARS ($6,492,408.98).

     3.   Extension of Maturity Dates.  The maturity date of both
the  6.6  Note and 7.7 Note are hereby extended until August  24,
2002, when the entire unpaid principal balance of each of the 6.6
Note  and 7.7 Note, together with all accrued but unpaid interest
thereon,  shall be due and payable (the "Maturity Date"),  unless
the Maturity Date is accelerated pursuant to Lender's right to do
so  under the Loan Documents.  In each instance in the 6.6  Note,
the  7.7 Note or in the Loan Documents where there is a reference
to  the  Maturity Date, said Maturity Date shall mean August  24,
2002  in  lieu of any other Maturity Date as shown.  The Borrower
hereby  renews, but does not extinguish, the 6.6  Note,  the  7.7
Note  and  the liens, security interests and assignments  created
and  evidenced by the Deed of Trust and other Loan Documents, and
in  this regard all of the Loan Documents are hereby renewed  and
modified  by  extending the Maturity Date thereof  as  set  forth
above.   Borrower covenants to observe, comply with  and  perform
each  of  the  terms  and provisions of the  Loan  Documents,  as
modified hereby.

     4.    Modification of Payment Terms in the  6.6  Note.   The
payment  schedule set forth in Section 3.1 of the 6.6 Note  shall
be  deleted  in  its  entirety, and  the  following  new  payment
schedule shall be inserted in lieu thereof:

     "3.1 Payment  Schedule.  This Note  shall  be  due  and
          payable as follows:

          (a)    Commencing  on  September  5,   2001,   and
     continuing  thereafter on the fifth (5th) day  of  each
     successive  month until the Maturity Date, Maker  shall
     pay Payee all then accrued but unpaid interest hereon.

          (b)    Commencing  on  September  5,   2001,   and
     continuing  on  the fifth (5th) day of each  successive
     month  thereafter until the Maturity Date, Maker  shall
     pay Payee an installment of principal in the amount  of
     Eight  Thousand  One  Hundred Twenty-Three  and  20/100
     Dollars ($8,123.00); and

          (c)   The  entire remaining outstanding  principal
     balance  hereof  and  any and all  accrued  but  unpaid
     interest  thereon shall be due and payable in  full  on
     the  Maturity  Date  or upon earlier  maturity  hereof,
     whether by acceleration or otherwise."

     5.    Modification of Payment Terms in the  7.7  Note.   The
payment  schedule set forth in Section 3.1 of the 7.7 Note  shall
be  deleted  in  its  entirety, and  the  following  new  payment
schedule shall be inserted in lieu thereof:

     "3.1 Payment  Schedule.  This Note  shall  be  due  and
          payable as follows:

          (a)    Commencing  on  September  5,   2001,   and
     continuing  thereafter on the fifth (5th) day  of  each
     successive  month until the Maturity Date, Maker  shall
     pay Payee all then accrued but unpaid interest hereon.

          (b)    Commencing  on  September  5,   2001,   and
     continuing  on  the fifth (5th) day of each  successive
     month  thereafter until the Maturity Date, Maker  shall
     pay Payee an installment of principal in the amount  of
     Seven   Thousand   Six   Hundred   Forty-Nine   Dollars
     ($7,649.00); and

          (c)   The  entire remaining outstanding  principal
     balance  hereof  and  any and all  accrued  but  unpaid
     interest  thereon shall be due and payable in  full  on
     the  Maturity  Date  or upon earlier  maturity  hereof,
     whether by acceleration or otherwise."

     6.    Debt  Coverage  Requirement.   Each  of  the  Phase  I
Agreement  and  the  Phase II Agreement are hereby  modified  and
amended by inserting therein the following new Section 5.21.

     "5.21     Debt Coverage Requirement.

          "(a)  In  the  event the Debt Coverage  Ratio  for  any
     applicable Calendar Period should be less than 1.20 to  1.0,
     and  unless  Borrower otherwise elects to pledge  Additional
     Collateral as provided in subsection (b) below then,  within
     fifteen  (15)  days  after written  notice  from  Lender  to
     Borrower,  Borrower shall prepay a portion of the Loan  (the
     "Curative  Amount") such that a minimum Debt Coverage  Ratio
     of  1.20  to  1.0 or more is created based on (1) annualized
     Net  Operating Income for the immediately preceding Calendar
     Period  and (2) a hypothetical Debt Service Requirement  for
     the  then current Calendar Period which would result from  a
     reamortization  of  such  reduced  balance   of   the   Loan
     sufficient  to  fully amortize such Loan on a  level-payment
     basis  in  25  years  from the first  day  of  such  current
     Calendar  Period based on the Amortization Rate (as  defined
     below).   Irrespective  of  any  hypothetical  Debt  Service
     Requirement  utilized to calculate the Curative Amount,  the
     actual amount of the required payments shall continue to  be
     as provided in the Note.  Failure of Borrower to timely fund
     any  required Curative Amount shall be deemed an  "Event  of
     Default" pursuant to this Agreement in addition to any other
     "Events of Default" specified herein.

          "(b)  As  an  alternative to payment  of  the  Curative
     Amount,  Borrower shall be entitled, in the event  the  Debt
     Coverage  Ratio for any Calendar Period should be determined
     to be less than 1.20 to 1.0, to pledge additional collateral
     to  secure  the  Loan.  The collateral to be so  pledged  to
     Lender must be in the form of cash, certificates of deposit,
     letters  of  credit,  stocks, bonds or other  highly  liquid
     investments acceptable in all respects to Lender in its sole
     and absolute discretion (for purposes of this Agreement, the
     term  "Additional Collateral" shall mean and refer  to  such
     additional  collateral as shall be approved  by  Lender  and
     pledged  pursuant  to this subsection (b).   The  amount  or
     value  of  the Additional Collateral required to be  pledged
     shall  be  a  function  of  the liquidation  value  of  such
     collateral,  as  determined  by  Lender  in  its  reasonable
     discretion,  and shall be such amount (i.e., the liquidation
     value)  as  would, if subtracted from the  total  amount  of
     indebtedness evidenced and represented by the Note  at  such
     time,  result  in  a  Debt  Coverage  Ratio  (calculated  as
     provided  above)  equal to 1.20 to 1.0.  In connection  with
     such  pledge  of Additional Collateral, and not  later  than
     fifteen  (15)  days  after written  notice  from  Lender  to
     Borrower of Borrower's obligation to either pay the Curative
     Amount  or to pledge the Additional Collateral, and provided
     that  Borrower  has  not instead paid  the  Curative  Amount
     required  at  that  time pursuant to subsection  (a)  above,
     Borrower shall execute and deliver to Lender all pledge  and
     security   agreements,   financing  statements   and   other
     instruments,  certificates and agreements  as  Lender  shall
     require,   and  shall  deliver  to  Lender  the   Additional
     Collateral     or     such    instruments,     certificates,
     acknowledgments,  stock  powers, authorizations,  powers  of
     attorney,  consents and any and all other documentation,  as
     executed  by all appropriate parties as may be necessary  to
     effectuate  the  collateral pledge and  assignment  of  such
     collateral  to Lender, as Lender and its counsel shall  deem
     necessary   or   appropriate.   If,  after  the   Borrower's
     provision of Additional Collateral, the Debt Coverage  Ratio
     should  improve  so as to be 1.20 to 1.0  or  more  for  any
     Calendar  Period (without taking into account the Additional
     Collateral), then Borrower shall be entitled to a release of
     the  Additional  Collateral.  Borrower shall  thereafter  be
     required  to  either  pay to Lender the Curative  Amount  or
     repledge  Additional Collateral to the extent  the  required
     Debt  Coverage  Ratio  should fail  to  be  met  during  any
     subsequent Calendar Period and shall likewise be entitled to
     a  re-release  of  any such subsequently pledged  Additional
     Collateral   consistent   with  the  immediately   preceding
     sentence.

          "(c)  The  Debt  Coverage Ratio  calculation  shall  be
     undertaken  for  the applicable Calendar  Period.   Borrower
     shall  provide  written  evidence and  documents  to  Lender
     indicating the calculations and backup information  for  the
     Debt  Coverage  Ratio for each applicable  Calendar  Period.
     Lender  shall be entitled to request and require such backup
     documentation, including financial information,  as  may  be
     required  by  Lender in order to satisfy itself  as  to  the
     correct  calculation  of  the Debt Coverage  Ratio  for  any
     Calendar Period

          "(d)  As  used  in this Agreement, the following  terms
     have the following meanings:

               (1)   Calendar  Period:  The  three  (3)  calendar
          month  period (or portion thereof for the first period)
          ending  on  each  March 31, June 30, September  30  and
          December 31.

               (2)   Debt  Coverage Ratio:  Net Operating  Income
          for   a   Calendar  Period  divided  by  Debt   Service
          Requirements for the same Calendar Period.

               (3)   Debt  Service Requirements:  The greater  of
          (A)   any   and  all  principal  or  interest  payments
          scheduled  with respect to the Loan to the extent  such
          are  to  be  due and owing during such Calendar  Period
          (and  irrespective of whether or not such payments were
          timely made) or (B) all principal and interest payments
          which  would be owing during such Calendar Period based
          upon  a  hypothetical level-payment, mortgage loan-type
          amortization schedule of 25 years calculated using  the
          Loan  Amount, and an interest rate on the  Loan  Amount
          during the Calendar Period equal to the greater of  (i)
          the then actual Applicable Base Rate (as defined in the
          Note), or (ii) eight percent (8%), or (iii) the sum  of
          (x) the yield of the United States Treasury obligations
          which  shall have the closest maturity date (month  and
          year) to the date that is ten (10) years from the  date
          of  such  calculation plus (y) two percent (2.0%)  (the
          greater  of  clauses  (i), (ii)  or  (iii)  immediately
          preceding  being sometimes referred to  herein  as  the
          "Amortization Rate").

               (4)   Gross Income:  For each applicable  Calendar
          Period actual rentals, revenues and other cash forms of
          consideration,  received by, or  paid  to  or  for  the
          account  of  or for the benefit of, Borrower  resulting
          from  or  attributable  to the operation,  leasing  and
          occupancy  of the Mortgaged Property, determined  on  a
          cash basis (except as specified herein), including  the
          following:  (i) rents by any lessees or tenants of  the
          Mortgaged Property; (ii) rents and receipts received by
          or for the benefit of Borrower with respect to the full
          or partial reimbursement of Operating Expenses from any
          lessee   or   tenant   of   the   Mortgaged   Property;
          (iii)  proceeds  received by  or  for  the  benefit  of
          Borrower in connection with any rental loss or business
          interruption  insurance with respect to  the  Mortgaged
          Property;  (iv) any other fees or rents  collected  by,
          for  or  on  behalf  of Borrower with  respect  to  the
          leasing   and  operation  of  the  Mortgaged  Property;
          (v)  any  refunds of deposits for obtaining,  using  or
          maintaining utility services for all or any portion  of
          the  Mortgaged Property; (vi) interest, if any,  earned
          by  Borrower on security and other type deposits of and
          advance rentals paid by, any lessees or tenants of  the
          Mortgaged  Property;  and  (vii)  the  amount  of   any
          security  and  other type deposits and advance  rentals
          relating  to  the  Mortgaged Property which  have  been
          forfeited.   Notwithstanding anything  included  within
          this  definition  of  Gross  Income,  there  shall   be
          excluded  from  Gross Income the  following:   (i)  any
          security  or  other  deposits of lessees  and  tenants,
          unless  and until the same actually are either  applied
          to  actual  rentals owed or other charges  or  fees  or
          forfeited;  (ii)  the  proceeds  of  any  financing  or
          refinancing  with respect to all or  any  part  of  the
          Mortgaged Property; (iii) the proceeds of any  sale  or
          other   capital  transaction  (excluding   leases   for
          occupancy purposes only) of all or any portion  of  the
          Mortgaged  Property; (iv) any insurance or condemnation
          proceeds  paid with respect to the Mortgaged  Property,
          except   for   rental  loss  or  business  interruption
          insurance;  and  (v)  any  insurance  and  condemnation
          proceeds applied in reduction of the principal  of  the
          Note  in accordance with the terms of the Deed of Trust
          or the other Loan Documents; provided, however, nothing
          set  forth  herein shall in any manner  imply  Lender's
          consent   to  a  sale,  refinancing  or  other  capital
          transaction.

               (5)   Net  Operating Income:  For each  applicable
          Calendar  Period, Gross Income less Operating Expenses,
          determined  on  a  cash basis of accounting  except  as
          otherwise provided in this Agreement.

               (6)    Operating  Expenses:   For  the  applicable
          Calendar  Period, those amounts actually  incurred  and
          paid   with   respect  to  the  ownership,   operation,
          management,  leasing  and occupancy  of  the  Mortgaged
          Property,  determined  on  a  cash  basis,  except   as
          otherwise  specified herein, including any and  all  of
          the  following (but without duplication of  any  item):
          (i)  ad  valorem taxes calculated on an  accrual  basis
          (and  not  on  the  cash basis) of accounting  for  the
          Calendar Period; such accrual accounting for ad valorem
          taxes  shall be based upon taxes actually assessed  for
          the  current  calendar year, or if such assessment  for
          the current calendar year has not been made, then until
          such assessment has been made (and with any retroactive
          adjustments for prior calendar months as may ultimately
          be needed when the actual assessments has been made) ad
          valorem   taxes  for  the  Calendar  Period  shall   be
          estimated  based  on the last such assessment  for  the
          Mortgaged Property; (ii) foreign, U.S., state and local
          sales, use or other taxes, except for taxes measured by
          net   income;  (iii)  special  assessments  or  similar
          charges  against the Mortgaged Property; (iv) costs  of
          utilities,  air  conditioning  and  heating   for   the
          Mortgaged Property to the extent not directly  paid  by
          lessees  or  tenants; (v) maintenance and repair  costs
          for  the  Mortgaged  Property;  (vi)  management  fees;
          (vii)  all  salaries,  wages  and  other  benefits   to
          "on-site"  employees  of  the  Borrower  or  Borrower's
          property  manager  (excluding all salaries,  wages  and
          other  benefits of officers and supervisory  personnel,
          and  other  general overhead expenses of  Borrower  and
          Borrower's  property  manager) employed  in  connection
          with  the  leasing, maintenance and management  of  the
          Mortgaged    Property;   (viii)   insurance    premiums
          calculated  on an accrual basis (and not  on  the  cash
          basis)  of  accounting  for the Calendar  Period;  such
          accrual  accounting  for insurance  premiums  shall  be
          based  upon  the insurance premiums for  the  Mortgaged
          Property   which  was  last  billed  to  the  Borrower,
          adjusted   to  an  annualized  premium  if   necessary;
          (ix)  costs, including leasing commissions, advertising
          and  promotion costs, to obtain new leases or to extend
          or  renew  existing  leases,  and  the  costs  of  work
          performed and materials provided to ready tenant  space
          in  the Mortgaged Property for new or renewal occupancy
          under leases; (x) outside accounting and audit fees and
          costs  and  administrative expenses in connection  with
          the  direct  operation and management of the  Mortgaged
          Property;  and  (xi)  any  payments,  and  any  related
          interest  thereon,  to  lessees  or  tenants   of   the
          Mortgaged Property with respect to security deposits or
          other deposits required to be paid to tenants but  only
          to  the  extent any such security deposits and  related
          interest thereon have been previously included in Gross
          Income.   Notwithstanding anything to the  contrary  as
          being included in the definition of Operating Expenses,
          there  shall  be excluded from Operating  Expenses  the
          following:   (i)  depreciation and any  other  non-cash
          deduction  allowed to Borrower for income tax purposes;
          and (ii) any and all principal, interest or other costs
          paid  under  or  with  respect to  the  Note  or  Loan.
          Notwithstanding any of the foregoing,   in  all  events
          Operating  Expenses shall not be less  than  $9.15  per
          square foot of the Improvements."

     7.    Extension  Options.   If, but  only  if,  all  of  the
following  conditions precedent shall have been first  satisfied,
then Borrower shall be entitled, for one time only, to extend the
Maturity Date of the 6.6 Note, or the 7.7 Note, or both,  as  the
case  may be, by an additional twelve (12) months, to August  24,
2003.   The  conditions precedent to extension of the  either  or
both of the 6.6 Note and 7.7 Note for such additional twelve (12)
month period are as follows:

          (a)   Borrower  shall notify Lender in  writing  on  or
     before July 15, 2003, of Borrower's election to exercise its
     rights under this Section 7 and specify the note or notes to
     which such election applies.

          (b)   Borrower shall pay to Lender in cash an extension
     fee  equal to twenty-five one-hundredths percent (0.25%)  of
     the outstanding principal balance, as of August 23, 2002, of
     the 6.6 Note, the 7.7 Note, or both, as the case may be.

          (c)    Lender  shall  have  received  tenant   estoppel
     certificates dated not earlier than July 15, 2002, from  all
     tenants  under  the  Leases in effect at  that  time,  which
     certificates shall reasonably be satisfactory to  Lender  in
     form and substance.

          (d)   No Default or Event of Default shall exist on any
     of the Loan Documents.

          (e)   No event, claim, liability or circumstance  shall
     exist which, in Lender's determination, could be expected to
     have or have had a Material Adverse Effect.

          (f)   Borrower and Guarantor shall execute and  deliver
     to   Lender   such  modification,  renewal   and   extension
     agreements  and  other instruments as Lender may  reasonably
     request to evidence the extension of the Maturity Date.

          (g)    Lender  is  in  receipt  of   written   evidence
     satisfactory  to  Lender indicating that the  Debt  Coverage
     Ratio is being satisfied.

          (h)    Lender   is  in  receipt  of  written   evidence
     reasonably  satisfactory  to  Lender  that  the  outstanding
     principal amount of the 6.6 Note, the 7.7 Note, or both,  as
     the  case may be, is not more than seventy percent (70%)  of
     the fair market value of the Property that will continue  to
     secure the 6.6 Note, the 7.7 Note, or both, as the case  may
     be,  as  established in the appraisals received and accepted
     by Lender as of the date of this Agreement, such evidence to
     include   new   appraisals  of  the  Property  obtained   at
     Borrower's sole expense if Lender requires the same.

     8.    Title Insurance.  Contemporaneously with the execution
and  delivery hereof, the Borrower shall cause the Title  Company
to  issue  such  endorsements to the Title Policy as  Lender  may
reasonably require.

     9.     Acknowledgment  by  Borrower.   Except  as  otherwise
specified  herein, the terms and provisions hereof  shall  in  no
manner   impair,   limit,  restrict  or  otherwise   affect   the
obligations  of  Borrower  or  any  third  party  to  Lender,  as
evidenced  by  the Loan Documents.  Borrower hereby acknowledges,
agrees  and  represents that (i) Borrower is indebted  to  Lender
pursuant  to  the  terms of the 6.6 Note and  the  7.7  Note,  as
modified   hereby;  (ii)  the  liens,  security   interests   and
assignments  created  and evidenced by the  Loan  Documents  are,
respectively, valid and subsisting liens, security interests  and
assignments of the respective dignity and priority recited in the
Loan Documents; (iii) there are no claims or offsets against,  or
defenses or counterclaims to, the terms or provisions of the Loan
Documents, and the other obligations created or evidenced by  the
Loan Documents; (iv) Borrower has no claims, offsets, defenses or
counterclaims arising from any of Lender's acts or omissions with
respect   to  the  Property,  the  Loan  Documents  or   Lender's
performance  under  the Loan Documents or  with  respect  to  the
Property; (v) the representations and warranties contained in the
Loan   Documents   are  true  and  correct  representations   and
warranties  in  all  material respects of  Borrower  and  to  the
knowledge  of  Borrower, of any third parties,  as  of  the  date
hereof;  and  (vi)  Lender is not in default  and  no  event  has
occurred  which, with the passage of time, giving of  notice,  or
both,   would   constitute  a  default  by  Lender  of   Lender's
obligations under the terms and provisions of the Loan Documents.
To  the extent Borrower now has any claims, offsets, defenses  or
counterclaims against Lender or the repayment of all or a portion
of  the Loan, whether known or unknown, fixed or contingent, same
are  hereby  forever  irrevocably waived and  released  in  their
entirety.

     10.   No Waiver of Remedies.  Except as may be expressly set
forth   herein,   nothing  contained  in  this  Agreement   shall
prejudice,  act as, or be deemed to be a waiver of any  right  or
remedy  available  to  Lender  by reason  of  the  occurrence  or
existence  of  any  fact, circumstance or  event  constituting  a
default under the Note or the other Loan Documents.

     11.   Joinder  of  Guarantor.  By  its  execution  hereof  ,
Guarantor  hereby (i) acknowledges and consents to the terms  and
provisions  hereof; (ii) ratifies and confirms each  of  the  6.6
Guaranty  and the 7.7 Guaranty, including all interest and  costs
of collection, to or for the benefit of Lender; (iii) agrees that
each of the 6.6 Guaranty and the 7.7 Guaranty is and shall remain
in  full  force  and effect and that the terms and provisions  of
each  of  the 6.6 Guaranty and the 7.7 Guaranty cover and pertain
to  the Loan Documents as modified hereby; (iv) acknowledges that
there   are  no  claims  or  offsets  against,  or  defenses   or
counterclaims to, the terms and provisions of either of  the  6.6
Guaranty or the 7.7 Guaranty or the other obligations created and
evidenced  by  each  of the 6.6 Guaranty and  the  7.7  Guaranty;
(v)  certifies that the representations and warranties  contained
in  each of the 6.6 Guaranty and the 7.7 Guaranty remain true and
correct  representations and warranties of Guarantor  as  of  the
date hereof; and (vi) acknowledges that Lender has satisfied  and
performed  its covenants and obligations under  each of  the  6.6
Guaranty  and the 7.7 Guaranty and the other Loan Documents,  and
that  no action or failure to act by or on behalf of, Lender  has
or  will  give rise to any cause of action or other claim against
Lender  for  breach  of either of the 6.6  Guaranty  or  the  7.7
Guaranty or other Loan Documents or otherwise.

     12.    Costs  and  Expenses.   Contemporaneously  with   the
execution and delivery hereof, Borrower shall pay, or cause to be
paid,  all  costs  and  expenses  incident  to  the  preparation,
execution  and  recordation hereof and the  consummation  of  the
transaction  contemplated hereby, including, but not limited  to,
recording fees, title insurance policy or endorsement premiums or
other  charges  of  the Title Company, and  reasonable  fees  and
expenses of legal counsel to Lender.

     13.   Additional Documentation.  From time to time, Borrower
shall  execute  or procure and deliver to Lender such  other  and
further   documents  and  instruments  evidencing,  securing   or
pertaining  to  the  Loan  or  the Loan  Documents  as  shall  be
reasonably  requested by Lender so as to evidence or  effect  the
terms  and  provisions hereof.  Upon Lender's  request,  Borrower
shall  cause  to  be delivered to Lender an opinion  of  counsel,
satisfactory  to  Lender  as  to form,  substance  and  rendering
attorney, opining to (i) the validity and enforceability of  this
Agreement  and  the terms and provisions hereof,  and  any  other
agreement   executed   in   connection   with   the   transaction
contemplated  hereby;  (ii) the authority of  Borrower,  and  any
constituents of Borrower, to execute, deliver and perform its  or
their  respective obligations under the Loan Documents, as hereby
modified; and (iii) such other matters as reasonably requested by
Lender.

     14.   Effectiveness  of  the  Loan  Documents.   Except   as
expressly  modified by the terms and provisions hereof,  each  of
the  terms  and  provisions  of the  Loan  Documents  are  hereby
ratified  and  shall remain in full force and  effect;  provided,
however, that any reference in any of the Loan Documents  to  the
Loan, the amount constituting the Loan, any defined terms, or  to
any  of the other Loan Documents shall be deemed, from and  after
the  date  hereof, to refer to the Loan, the amount  constituting
the  Loan,  defined  terms and to such other Loan  Documents,  as
modified hereby.

     15.   Governing Law.  THE TERMS AND PROVISIONS HEREOF  SHALL
BE  GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF  THE
STATE OF TEXAS, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN.

     16.  Time.  Time is of the essence in the performance of the
covenants contained herein and in the Loan Documents.

     17.   Binding  Agreement.  This Agreement shall  be  binding
upon  the successors and assigns of the parties hereto; provided,
however,  the  foregoing  shall not be  deemed  or  construed  to
(i)  permit, sanction, authorize or condone the assignment of all
or  any  part of the Property or any of Borrower's rights, titles
or  interests  in  and to the Property or any rights,  titles  or
interests  in and to Borrower, except as expressly authorized  in
the  Loan  Documents, or (ii) confer any right,  title,  benefit,
cause  of action or remedy upon any person or entity not a  party
hereto, which such party would not or did not otherwise possess.

     18.  Headings.  The section headings hereof are inserted for
convenience  of reference only and shall in no way alter,  amend,
define  or be used in the construction or interpretation  of  the
text of such section.

     19.  Construction.  Whenever the context hereof so requires,
reference  to the singular shall include the plural and likewise,
the  plural  shall  include the singular; words  denoting  gender
shall be construed to mean the masculine, feminine or neuter,  as
appropriate;  and  specific enumeration  shall  not  exclude  the
general,  but  shall be construed as cumulative  of  the  general
recitation.

     20.   Severability.   If  any clause or  provision  of  this
Agreement  is  or should ever be held to be illegal,  invalid  or
unenforceable under any present or future law applicable  to  the
terms hereof, then and in that event, it is the intention of  the
parties hereto that the remainder of this Agreement shall not  be
affected  thereby,  and  that in lieu  of  each  such  clause  or
provision   of  this  Agreement  that  is  illegal,  invalid   or
unenforceable,  such  clause  or provision  shall  be  judicially
construed  and  interpreted to be as  similar  in  substance  and
content  to  such  illegal, invalid or  unenforceable  clause  or
provision, as the context thereof would reasonably suggest, so as
to thereafter be legal, valid and enforceable.

     21.   Counterparts.  To facilitate execution, this Agreement
may  be executed in as many counterparts as may be convenient  or
required.   It  shall  not be necessary that  the  signature  and
acknowledgment  of,  or on behalf of, each  party,  or  that  the
signature and acknowledgment of all persons required to bind  any
party,  appear  on  each  counterpart.   All  counterparts  shall
collectively  constitute a single instrument.  It  shall  not  be
necessary in making proof of this Agreement to produce or account
for  more  than  a single counterpart containing  the  respective
signatures  and acknowledgment of, or on behalf of, each  of  the
parties  hereto.  Any signature and acknowledgment  page  to  any
counterpart  may  be  detached  from  such  counterpart   without
impairing  the legal effect of the signatures and acknowledgments
thereon  and thereafter attached to another counterpart identical
thereto  except  having attached to it additional  signature  and
acknowledgment pages.

     22.   THIS MODIFICATION AND THE OTHER LOAN DOCUMENTS  EMBODY
THE  FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND THERETO
AND   SUPERSEDE  ANY  AND  ALL  PRIOR  COMMITMENTS,   AGREEMENTS,
REPRESENTATIONS,  AND UNDERSTANDINGS, WHETHER  WRITTEN  OR  ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT  BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,  OR
SUBSEQUENT  ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES  HERETO
OR  THERETO.   THERE  ARE NO ORAL AGREEMENTS  AMONG  THE  PARTIES
HERETO  OR THERETO.  THE PROVISIONS OF THIS MODIFICATION AND  THE
OTHER  LOAN  DOCUMENTS  MAY  BE AMENDED  OR  WAIVED  ONLY  BY  AN
INSTRUMENT  IN WRITING SIGNED BY THE RESPECTIVE PARTIES  TO  SUCH
DOCUMENTS.

                         LENDER:

                         COMERICA BANK-TEXAS,
                         a state banking association


                         By:
                         Name:
                         ________________________________________
                         Title:
                         ________________________________________

                         BORROWER:

                         STRATUS 7000 WEST JOINT VENTURE,
                         a Texas joint venture

                         By:  Stratus 7000 West, Ltd.,
                              a Texas limited partnership,
                              Its Operating Partner

                              By:  STRS L.L.C.,
                                   a  Delaware limited  liability
                                   company,
                                   Its General Partner

                                   By:  Stratus Properties Inc.,
                                        a Delaware corporation,
                                        Its Sole Member



                                        By:  /s/ William H. Armstrong,III
                                             ------------------------------
                                        Name: William   H. Armstrong, III
                                        Title: Chairman of the Board,
                                                President and Chief
                                                 Executive Officer

                         By:  Oly Lantana, L.P.,
                              a Texas limited partnership,
                              Its Financial Partner

                              By:  Oly Lantana GP, L.L.C.,
                                   a   Texas   limited  liability
                                   company,
                                   Its Sole General Partner



                                   By:
                                   Name:
                                   Title:



GUARANTOR:

STRATUS PROPERTIES INC.,
a Delaware corporation


By:     /s/ William H. Armstrong, III
       ---------------------------------
Name:       William H. Armstrong, III
Title:       Chairman of the Board,
             President and Chief
              Executive Officer





STATE OF TEXAS     &

COUNTY OF DALLAS   &

This instrument was ACKNOWLEDGED before me, on the _____ day of
September, 2001, by___________, a Senior Vice President of
COMERICA BANK-TEXAS, a   state  banking  association,  on  behalf
of  said   banking association.


[ S E A L ]
     Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public



THE STATE OF TEXAS &
&
COUNTY OF TRAVIS   &

This instrument was acknowledged before me on  day of September,
2001, by William  H. Armstrong, III, Chairman of the Board,
President  and Chief  Executive Officer of STRATUS PROPERTIES
INC.,  a  Delaware corporation,  the Sole Member of STRS L.L.C.,
a Delaware limited liability  company,  the General Partner of
STRATUS  7000  WEST, LTD.,  a  Texas  limited partnership, the
Operating  Partner  of STRATUS 7000 WEST JOINT VENTURE, a Texas
joint venture, on behalf of each said entity.

[SEAL]


     Notary Public, State of Texas
My Commission Expires:

______________________
     Printed Name of Notary Public:






STATE OF TEXAS      &
                    &
COUNTY OF DALLAS    &

     This  instrument was acknowledged before me  on      day  of
September,    2001,    by    ____________________________,    the
__________________________ of OLY LANTANA  GP,  L.L.C.,  a  Texas
limited  liability  company,  the Sole  General  Partner  of  OLY
LANTANA, L.P., a Texas limited partnership, the Financial Partner
of  STRATUS  7000 WEST JOINT VENTURE, a Texas joint  venture,  on
behalf of each said entity.

[ S E A L ]
                              Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public



STATE OF TEXAS      &
                    &
COUNTY OF TRAVIS    &

     This instrument was acknowledged before me on            day
of  August, 2001, by William H. Armstrong, III, Chairman  of  the
Board,   President  and  Chief  Executive  Officer   of   STRATUS
PROPERTIES  INC.,  a  Delaware corporation,  on  behalf  of  said
corporation.


[ S E A L ]
                              Notary Public, State of Texas
My Commission Expires:

_____________________              Printed Name of Notary Public


Exhibit List

                          EXHIBIT "A"

                      Property Description


Lot  6,  Block A, LANTANA LOT 6, BLOCK A, a subdivision in Travis
County, Texas, according to the map or plat thereof, recorded  in
Volume  100,  Page(s) 1-2 of the Plat Records of  Travis  County,
Texas, as corrected by instrument recorded in Volume 13064,  Page
278 of the Real Property Records of Travis County, Texas.


                                                 Exhibit 10.23


               SECOND AMENDMENT TO LOAN AGREEMENT


     This  SECOND  AMENDMENT TO LOAN AGREEMENT (this "Amendment")
is  made and entered into to be effective as of December 18, 2001
(the  "Amendment Date"), by and among STRATUS PROPERTIES INC.,  a
Delaware  corporation  ("Stratus"), STRATUS PROPERTIES  OPERATING
CO., L.P., a Delaware limited partnership, CIRCLE C LAND CORP., a
Texas  corporation,  and  AUSTIN 290 PROPERTIES,  INC.,  a  Texas
corporation (herein individually and collectively referred to  as
the   "Borrower"),  and  COMERICA  BANK-TEXAS,  a  state  banking
association (herein referred to as the "Bank").

                      W I T N E S S E T H:

     WHEREAS,   Borrower,   as  Maker,  executed   that   certain
Promissory  Note  dated  December  16,  1999,  in  the   original
principal amount of $20,000,000 U.S., in favor of and payable  to
the  order  of  Bank, as Payee, which Promissory  Note  has  been
amended (including, without limitation, a reduction in the stated
principal  amount  of such Promissory Note to $5,000,000.00  U.S.
and  the addition of a limited revolving feature) pursuant to  an
Amendment  to Promissory Note dated as of December 27, 2000  (the
"First   Amendment")  and a Second Amendment to  Promissory  Note
(the  "Second  Amendment")  of even  date  herewith  executed  by
Borrower  and  Bank  (together, as  amended,  the  "$5,000,000.00
Note"),  which  $5,000,000.00 Note evidences  a  loan  (hereafter
referred to as the "$5,000,000.00 Loan") made by Bank to Borrower
in  connection  with and pursuant to that certain Loan  Agreement
dated December 16, 1999, executed by and among Borrower and Bank,
as  amended by the Amendment to Loan Agreement dated December 27,
2000,  and  as further amended by this Second Amendment  to  Loan
Agreement (the "Loan Agreement"); and

     WHEREAS, Borrower, as Maker, executed that certain Revolving
Credit  Note  dated December 16, 1999, in the original  principal
amount  of  $10,000,000.00 U.S., in favor of and payable  to  the
order  of  Bank, as Payee, which Revolving Credit Note  has  been
amended  (including, without limitation, an increase  as  of  the
date  hereof  in  the stated principal amount of  such  Revolving
Credit  Note  to  $25,000,000.00 U.S.) pursuant to  that  certain
Amendment to Revolving Credit Note dated as of December 27, 2000,
and  the  Second Amendment to the Revolving Credit Note  of  even
date  herewith  executed  by  Borrower  and  Bank  (together,  as
amended,  the  "Revolving Credit Note"), which  Revolving  Credit
Note  evidences a loan (the "Revolving Credit Loan") made by Bank
to Borrower in connection with and pursuant to the Loan Agreement
(the  Revolving Credit Note and the $5,000,000.00 Note,  each  as
amended, are hereinafter collectively referred to as the "Notes",
and  the  Revolving  Credit Loan and the $5,000,000.00  Loan  are
hereinafter collectively referred to as the "Loans"); and

     WHEREAS,  the  current  unpaid  principal  balance  of   the
$5,000,000.00  Note  as  of  the  date  hereof  is  approximately
$5,000.00  (the  "Current Outstanding Principal  Balance  of  the
$5,000,000.00 Note"); and

     WHEREAS,  the  current  unpaid  principal  balance  of   the
Revolving  Credit  Note  as of the date hereof  is  approximately
$_____________; and

     WHEREAS,  the  $5,000,000.00 Note and the  Revolving  Credit
Note  are  cross-defaulted  and  cross-collateralized,  and   are
secured by, among other things and without limitation, the  deeds
of  trust, assignments and other items referenced in Section  5.1
of  each  of  the  Notes,  and  further  described  in  the  Loan
Agreement,  as said deeds of trust have been amended pursuant  to
that  prior Modification Agreement dated as of December 27, 2000,
and further modified by the Second Modification Agreement of even
date  herewith  executed by Borrower and Bank  (collectively,  as
amended,  the  "Lien Instruments" or the "Security Instruments");
and

     WHEREAS,  Borrower hereby acknowledges that (i) Borrower  is
obligated to Bank under the Notes, the Loan Agreement,  the  Lien
Instruments and the other Loan Documents (as such term is defined
in  the Loan Agreement), (ii) Borrower has no defense, offset  or
counterclaim  with  respect to the sums owed to  Bank  under  the
Notes,  the  Loan Agreement, the Lien Instruments and  the  other
Loan Documents, or with respect to any covenant in the Notes, the
Loan  Agreement, this Amendment, the Lien Instruments or  any  of
the  other Loan Documents, and (iii) Bank, as of the date hereof,
has  fully performed all obligations to Borrower which  Bank  may
have had or has on and as of the date hereof;  and

     WHEREAS,  Borrower  and  Bank  desire  to  enter  into  this
Amendment  in order to modify and amend certain of the terms  and
provisions of the Loan Agreement as set forth herein.

     NOW,  THEREFORE, in consideration of the foregoing  premises
and the mutual covenants and agreements contained herein, and for
other   good   and  valuable  consideration,  the   receipt   and
sufficiency of which are hereby acknowledged, Borrower  and  Bank
hereby agree as follows:

     1.   Recitals.  The recitals set forth above are true, accurate
and correct, and are incorporated herein by this reference.

2.   Capitalized Terms.  Any capitalized terms not defined herein
shall have the meaning ascribed to them in the Loan Agreement, as
previously modified.
3.   Modification of Loan Agreement.  Borrower and Bank hereby
agree to modify the Loan Agreement as follows:

      3.1  Modification of Defined Terms.  The following defined terms,
  as set forth in Addendum 1 of the Loan Agreement, as such terms
  are used in the Loan Agreement, are hereby amended as follows:

(a)  "Agreement":  The term "Agreement" is hereby revised to
 include this Amendment.

(b)  "Deeds of Trust":  The term "Deeds of Trust" is hereby
revised to include the Second Modification Agreement of even date
with this Amendment, executed by Borrower and Bank, whereby the
Deeds of Trust were amended as provided therein.  The Deeds of
Trust, as amended, shall continue in full force and effect to
secure repayment of the Notes and the obligations of Borrower
under the Loan Agreement and this Amendment and the other Loan
Documents, as modified.

(c)  "Loan Documents":  The term "Loan Documents" is hereby
revised to include the Loan Agreement (as modified by the first
and second Amendments), the Notes (as modified by the first and
second Amendments to Promissory Note and by the first and second
Amendments to Revolving Credit Note, as described in the recitals
to this Amendment), the Deeds of Trust (as modified by the first
and second Modification Agreements described in subparagraph (b)
above), and all other documents, instruments or agreements
included within the definition of "Loan Documents" as set forth
in the Loan Agreement, as such documents may have been or may
hereafter be amended from time to time.

(d)  "Loans":  The definition of the term "Loans" is hereby
amended and replaced to read as follows:

          "'Loans'   shall   mean,  collectively,   the
          Revolving  Credit Loan and the  $5,000,000.00
          Loan, and "Loan" shall mean any of them."

(e)  "Maximum Loan Amount":  The definition of the term "Maximum
Loan Amount" is hereby amended and replaced to read as follows:

          "'Maximum  Loan  Amount' shall  hereafter  be
          defined  as:  (a) as to the Revolving  Credit
          Note,  the lesser of: (i) thirty-five percent
          (35%) of the fair market value of the Primary
          Collateral as indicated by (1) newly prepared
          and  updated  Primary  Collateral  Appraisals
          acceptable to Bank effective as of  the  date
          prepared and delivered to Bank (or updates of
          the   values   presented   in   the   Primary
          Collateral Appraisals previously delivered to
          and accepted by Bank) or (2) recertifications
          of  the accuracy and values presented in  the
          Primary  Collateral Appraisals  delivered  to
          and  accepted  by Bank on or about  the  date
          hereof;  (b)  as  to the $5,000,000.00  Note,
          such maximum amount as Bank elects to advance
          in  its sole and absolute discretion; but  in
          no    event   shall   the   total   aggregate
          outstanding  balances under the Notes  exceed
          $30,000,000.00."

(f)  "Notes":  The definition of the term "Notes" is hereby
amended and replaced to read as follows:

          "'Notes'  shall  mean, collectively,  whether
          one  or  more, the Revolving Credit Note  and
          the $5,000,000.00 Note, and "Note" shall mean
          any  of  them,  executed  and  delivered   by
          Borrower  payable  to  the  order  of   Bank,
          evidencing  the  Loans, as the  same  may  be
          renewed,  extended,  modified,  increased  or
          restated from time to time."

          3.2  Substitution of Defined Terms.  The following defined terms,
     as set forth in Addendum 1 of the Loan Agreement, as such terms
     are used in the Loan Agreement (as modified hereby), are hereby
     amended, substituted and replaced as follows:

               (a)  "Maximum Legal Rate"  The term "Maximum Legal Rate" is
                    hereby changed to the term "Maximum Lawful Rate" and the
                    definition of such term is hereby deleted and replaced
                    to read as follows:

                    "'Maximum Lawful Rate' shall mean the maximum
                    lawful   rate  of  interest  which   may   be
                    contracted  for, charged, taken, received  or
                    reserved  by  Bank  in  accordance  with  the
                    applicable  laws of the State  of  Texas  (or
                    applicable United States federal law  to  the
                    extent that it permits Bank to contract  for,
                    charge,  take, receive or reserve  a  greater
                    amount  of  interest than under  Texas  law),
                    taking  into account all Charges (defined  as
                    all fees, charges and/or any other things  of
                    value,   if  any,  contracted  for,  charged,
                    received,  taken  or  reserved  by  Bank   in
                    connection with the transactions relating  to
                    the Notes and the other Loan Documents, which
                    are treated as interest under applicable law)
                    made   in  connection  with  the  transaction
                    evidenced  by  the Notes and the  other  Loan
                    Documents.   To  the  extent  that  Bank   is
                    relying  on Chapter 303 of the Texas  Finance
                    Code  to  determine the Maximum  Lawful  Rate
                    payable   on  the  Indebtedness,  Bank   will
                    utilize the weekly ceiling from time to  time
                    in  effect  as provided in such Chapter  303.
                    To  the  extent  United  States  federal  law
                    permits  Bank to contract for, charge,  take,
                    receive  or  reserve  a  greater  amount   of
                    interest than under Texas law, Bank will rely
                    on  United States federal law instead of such
                    Chapter  303  for the purpose of  determining
                    the  Maximum  Lawful Rate.  Additionally,  to
                    the  extent permitted by applicable law, Bank
                    may,  at  its option and from time  to  time,
                    utilize any other method of establishing  the
                    Maximum Lawful Rate under such Chapter 303 or
                    under  other applicable law by giving notice,
                    if  required,  to  Borrower  as  provided  by
                    applicable law."

               (b)  "'Person' or 'person' shall mean any individual,
                    corporation, partnership, joint venture, limited
                    liability company, association, trust, unincorporated
                    association, joint stock company, government,
                    municipality, political subdivision or
                    agency, or other entity."

(c)  "'Revolving Credit Loan Maturity Date' shall mean April 16,
2004, or such earlier date on which the entire unpaid principal
amount of the Revolving Credit Loan becomes due and payable
whether by the lapse of time, acceleration or otherwise;
provided, however, if any such date is not a Business Day, then
the Revolving Credit Loan Maturity Date shall be the next
succeeding Business Day."

(d)  "'Revolving Credit Loan Maximum Amount' shall mean Twenty-
Five Million Dollars ($25,000,000.00)."

(e)  "'Revolving Credit Note' shall mean the Revolving Credit
Note dated December 16, 1999, made by Borrower payable to the
order of the Bank, as amended by that certain Amendment to
Revolving Credit Note dated December 27, 2000, and as further
amended by the Second Amendment to Revolving Credit Note of even
date herewith by and between Borrower and Bank, as the same may
be renewed, extended, modified, increased or restated from time
to time."

(f)  The term "Revolving Specific Advance Loan" is hereby deleted
and replaced to read "$5,000,000.00 Loan" throughout the Loan
Agreement (as modified hereby), any reference to "Specific
Advance" throughout the Loan Agreement is hereby deleted in its
entirety, and the definition of "Revolving Specific Advance Loan"
is hereby deleted and replaced with the following "$5,000,000.00
Loan" definition:
                    "'$5,000,000.00  Loan' shall  mean  the  Loan
                    made,  or to be made, by Bank to or  for  the
                    credit  of  Borrower  in  multiple  Advances,
                    including the initial advance which  Borrower
                    and   Bank   acknowledge  has  already   been
                    advanced  by  Bank  to  Borrower,  of   which
                    approximately  $5,000.00  currently   remains
                    outstanding  as  of  the  date  hereof   (the
                    "Current Outstanding Principal Balance of the
                    $5,000,000.00 Loan"), which Advances together
                    shall   not  exceed  at  any  one  time   the
                    $5,000,000.00  Loan Maximum Amount,  pursuant
                    to  this  Agreement, the $5,000,000.00  Note,
                    and the Loan Terms, Conditions and Procedures
                    Addendum."

   (g)  The term "Revolving Specific Advance Loan Maturity Date" is
    hereby deleted and replaced to read "$5,000,000.00 Loan Maturity
    Date" throughout the Loan Agreement (as modified hereby), and the
    definition of "Revolving Specific Advance Loan Maturity Date" is
    hereby substituted and replaced with the following "$5,000,000.00
    Loan Maturity Date" definition:

                    "'$5,000,000.00  Loan  Maturity  Date'  shall
                    mean April 16, 2004, or such earlier date  on
                    which  the entire unpaid principal amount  of
                    the   $5,000,000.00  Loan  becomes  due   and
                    payable   whether  by  the  lapse  of   time,
                    acceleration or otherwise; provided, however,
                    if  any such date is not a Business Day, then
                    the $5,000,000.00 Loan Maturity Date shall be
                    the next succeeding Business Day."

   (h)  The term "Revolving Specific Advance Note" is hereby deleted
    and replaced to read "$5,000,000.00 Note" throughout the Loan
    Agreement (as modified hereby), and the definition of "Revolving
    Specific Advance Note" is hereby deleted and replaced with the
    following "$5,000,000.00 Note" definition:

                    "'$5,000,000.00 Note' shall mean that certain
                    Promissory Note dated December 16, 1999, made
                    by Borrower payable to the order of the Bank,
                    as  amended  by  that  certain  Amendment  to
                    Promissory Note dated December 27,  2000,  by
                    and between Borrower and Bank, and as further
                    amended by the Second Amendment to Promissory
                    Note dated as of the date hereof, as the same
                    may be renewed, extended, modified, increased
                    or restated from time to time."

          3.3  Modification of Capital Structure.  As permitted under the
     terms of the Amendment to Loan Agreement, Borrower shall have the
     continuing right to (i) repurchase up to $10,000,000 of  the
     outstanding common stock of Stratus, and (ii) redeem  up  to
     $10,000,000 of the mandatorily redeemable Series B Preferred
     Stock of Stratus initially issued to Oly/Stratus Equities, L.P.
     by the issuance of common stock; provided, however, that all
     other terms, conditions and restrictions set forth in the Loan
     Agreement  (including, without limitation, all other  terms,
     conditions and restrictions set forth in Sections 5.1, 5.7 and
     5.8 of the Loan Agreement) shall remain in full force and effect,
     except to the extent modified by this Amendment.

          3.4  Reaffirmation of Negative Covenants.  Borrower hereby
     acknowledges and agrees that the Negative Covenants set forth in
     Section 5 of the original Loan Agreement are in full force and
     effect, are reaffirmed hereby and are set forth below for ease of
     reference.

     "SECTION 5.    NEGATIVE COVENANTS

               Each  Borrower covenants and agrees that, so  long
          as  Bank  is  committed to make any Advance under  this
          Agreement  and  until  all instruments  and  agreements
          evidencing any Loan which is payable on demand or which
          conditions  Advances  upon the  Bank's  discretion  are
          fully  discharged and terminated and,  thereafter,   so
          long  as any Indebtedness remains outstanding, it  will
          not,  and  it will not allow any Loan Party within  its
          control  to, without the prior written consent  of  the
          Bank:

               5.1    Capital  Structure,  Business  Objects   or
          Purpose.  Purchase, acquire or redeem any of its equity
          ownership  interests, or enter into any  reorganization
          or  recapitalization or reclassify its equity ownership
          interests,  or make any material change in its  capital
          structure or general business objects or purpose.

               5.2   Mergers or Dispositions.  Change  its  name,
          enter into any merger or consolidation, whether or  not
          the   surviving  entity  thereunder,  or  sell,  lease,
          transfer,  relocate  or dispose of  all,  substantially
          all,  or any material part of its assets (whether in  a
          single  transaction  or in a series  of  transactions),
          except  as expressly permitted under this Agreement  or
          the other Loan Documents.

               5.3  Guaranties.  Guarantee, endorse, or otherwise
          become  secondarily liable for or upon the  obligations
          or  Debt  of  others (whether directly or  indirectly),
          except:

                    (a)   guaranties in favor of and satisfactory
               to Bank; and

                    (b)   endorsements for deposit or  collection
               in the ordinary course of business.

               5.4   Debt.   Become or remain obligated  for  any
          Debt, except:

                    (a)  Indebtedness and other Debt from time to
               time outstanding and owing to Bank;

                    (b)    unsecured  trade,  utility   or   non-
               extraordinary  accounts  payable  arising  in  the
               ordinary  course  of business and other  unsecured
               Debt  of  Borrowers  or  the  Loan  Parties  on  a
               Consolidated basis at any one time not  to  exceed
               $500,000.00;

                    (c)  contingent liabilities of Borrowers on a
               consolidated basis at any one time not  to  exceed
               $20,000,000.00;

                    (d)   Debt of a Related Party but only to the
               extent of the lesser of seventy-five percent (75%)
               of  the appraised value of the real estate project
               owned  by  such  Related Party or  eighty  percent
               (80%) of the total costs associated with the  real
               estate project owned by such Related Party;

                    (e)   Debt subordinated to the prior  payment
               in   full  of  the  Indebtedness  upon  terms  and
               conditions approved in writing by Bank;

                    (f)   Debt outstanding as of the date  hereof
               that   is   shown  on  the  Financial   Statements
               previously delivered to Bank; and

                    (g)   Debt  of  Loan Party to any other  Loan
               Party.

               5.5   Encumbrances.   Create,  incur,  assume   or
          suffer  to  exist any Lien upon, or create,  suffer  or
          permit  to  exist any Lien upon any of its property  or
          assets, whether now owned or hereafter acquired, except
          for Permitted Encumbrances.

               5.6   Acquisitions.  Except as expressly permitted
          under this Agreement, purchase or otherwise acquire  or
          become   obligated   for  the  purchase   of   all   or
          substantially  all of the assets or business  interests
          of any Person or any shares of stock or other ownership
          interests  of  any  Person  or  in  any  other   manner
          effectuate  or  attempt to effectuate an  expansion  of
          present business by acquisition.

               5.7   Dividends.  Declare or pay dividends on,  or
          make  any  other distribution (whether by reduction  of
          capital or otherwise) in respect of any shares  of  its
          capital  stock or other ownership interests,  including
          but  not limited to dividends payable by Stratus or any
          dividends  payable solely in stock except (a) dividends
          payable by a Subsidiary of a Borrower to a Borrower  or
          by  the Subsidiary of another Loan Party to such  other
          Loan  Party;  or  (b)  the  redemption,  repurchase  or
          acquisition of any shares of its capital stock  payable
          upon an employee's termination pursuant to its employee
          stock  option,  repurchase, or similar plan;  provided,
          however,  that after giving effect to such  redemption,
          repurchase or acquisition, such Borrower or such  other
          Loan  Party, as applicable, shall be in full compliance
          with the terms of this Agreement.

               5.8   Investments.  Except as otherwise  permitted
          in  Section 2.17 of Addendum 2, make or allow to remain
          outstanding  any  investment (whether  such  investment
          shall  be  of the character of investment in shares  of
          stock, evidences of indebtedness or other securities or
          otherwise) in, or any loans, advances or extensions  of
          credit to, any Person, other than:

                    (a)  Each Borrower's current ownership in its
               respective Subsidiaries and Related Parties; and

                    (b)  any investment in direct obligations  of
               the   United  States  of  America  or  any  agency
               thereof,  or in certificates of deposit issued  by
               Bank,  maintained consistent with a Borrower's  or
               such Subsidiary's business practices prior to  the
               date  hereof;  provided, that no  such  investment
               shall mature more than ninety (90) days after  the
               date when made or the issuance thereof.

               5.9  Transactions with Affiliates.  Enter into any
          transaction  with any of their stockholders,  officers,
          employees,  partners  or  any of  their  Affiliates  or
          Related  Parties, except subject to the  terms  hereof,
          transactions in the ordinary course of business and  on
          terms  not  less  favorable than  would  be  usual  and
          customary  in  similar  transactions  between   Persons
          dealing at arm's length, or transfer any assets to  any
          Related Party which is not a Borrower hereunder without
          Bank's prior consent.

               5.10  Defaults  on  Other  Obligations.   Fail  to
          perform,  observe  or comply duly  with  any  covenant,
          agreement or other obligation to be performed, observed
          or  complied  with by any Loan Party,  subject  to  any
          grace  or cure periods provided therein, which  failure
          could have a Material Adverse Effect.

               5.11  Prepayment  of Debt.  Prepay  (or  take  any
          actions  which impose an obligation to prepay), except,
          subject to the terms hereof or thereof, Indebtedness.

               5.12  Pension  Plans.  Except in  compliance  with
          this   Agreement,   enter  into,  maintain,   or   make
          contribution  to, directly or indirectly,  any  Pension
          Plan that is subject to ERISA.

               5.13  Subordinate Indebtedness.   Subordinate  any
          indebtedness  due to it from any Person to indebtedness
          of other creditors of such Person.

               5.14 No Further Negative Pledges.  Other than  the
          Holliday  Loan  (as more fully described below),  enter
          into  or  become subject to any agreement  (other  than
          this  Agreement or the Loan Documents) (a)  prohibiting
          the  guaranteeing by any Loan Party of any obligations,
          (b)  prohibiting the creation or assumption of any Lien
          upon  the  properties  or assets  of  any  Loan  Party,
          whether  now  owned  or  hereafter  acquired   or   (c)
          requiring  an obligation to become secured (or  further
          secured)  if another obligation is secured  or  further
          secured.

               5.15   No   License  Restrictions.    Permit   any
          restriction  in  any  license or other  agreement  that
          restricts  any  Borrower or any other Loan  Party  from
          granting  a Lien to Bank upon any of any Borrower's  or
          such  other  Loan Party's rights under such license  or
          agreement.

               5.16  Olympus Agreements.  Terminate or  agree  to
          any  material modification or amendment to any  of  the
          Olympus Agreements without Bank's prior consent."

          3.5  Modification and Restatement of Addendum 2 - Loan Terms,
     Conditions and Procedures Addendum.  Addendum 2 set forth in the
     Loan Agreement shall be deleted in its entirety, as previously
     modified by the Amendment to Loan Agreement, and the following
     Addendum 2 shall be inserted in lieu thereof:

                           "ADDENDUM 2

         LOAN TERMS, CONDITIONS AND PROCEDURES ADDENDUM

     SECTION 1.     THE LOAN

               1.1   Agreements to Lend.  Bank hereby  agrees  to
          lend  to  Borrower up to but not in excess of (i)  with
          respect  to  the Revolving Credit Loan,  the  Revolving
          Credit  Loan Maximum Amount, (ii) with respect  to  the
          $5,000,000.00  Loan,  the  $5,000,000.00  Loan  Maximum
          Amount, and Borrower hereby agrees to borrow such  sums
          from  Bank,  all  upon and subject  to  the  terms  and
          provisions of this Agreement, such sums to be evidenced
          by,  respectively, the Revolving Credit  Note  and  the
          $5,000,000.00   Note.   Subject  to   the   terms   and
          provisions of this Agreement, the Notes, and the  other
          Loan  Documents, principal repaid on (i) the  Revolving
          Credit  Loan, and (ii) the $5,000,000.00  Loan  may  be
          reborrowed   by  Borrower.  Borrower's  liability   for
          repayment of the interest on account of the Loans shall
          be  limited  to  and calculated with respect  to  Loans
          proceeds actually disbursed to Borrower pursuant to the
          terms of this Agreement and the Notes and only from the
          date  or  dates of such disbursements.   Bank  may,  in
          Bank's  discretion, disburse Loans proceeds by  journal
          entry  to pay interest and financing costs and disburse
          Loan proceeds directly to third parties to pay costs or
          expenses  required to be paid by Borrower  pursuant  to
          this  Agreement.  Loan proceeds disbursed  by  Bank  by
          journal  entry to pay interest or financing costs,  and
          Loan  proceeds disbursed directly by Bank to pay  costs
          or expenses required to be paid by Borrower pursuant to
          this  Agreement, shall constitute Advances to Borrower.
          As more fully set forth in Section 4.21 of the original
          Loan Agreement, an Interest Reserve Escrow Account  has
          been  established.  As of the date hereof, the  balance
          in  said account is $5,132.00.  $1,619,868.00 shall  be
          held  back  from  funds available under  the  Revolving
          Credit  Note  for  a total Interest Reserve  Amount  of
          $1,625,000.00; provided, however, that the amount  held
          back  from  funds available under the Revolving  Credit
          Note will adjust if there is a change in the balance of
          the  Interest Reserve Escrow Account in order  to  meet
          the total Interest Reserve Amount.

               1.2  Advances.

                    (a)   Any Advance requested by Borrower under
               the   $5,000,000.00  Loan  shall  be  subject   to
               Borrower's   satisfaction   of   the   terms   and
               conditions  set forth in this Addendum  2  and  in
               particular  shall comply with the use of  proceeds
               restrictions set forth in Section 2.4  below,  all
               of  which  are  deemed to apply  to  any  and  all
               Advances  under  the  $5,000,000.00  Loan   unless
               otherwise agreed to by Bank.  Bank may approve  or
               disapprove  any request for all or any portion  of
               any  Advance under the $5,000,000.00 Loan  in  its
               SOLE AND ABSOLUTE DISCRETION.  Bank shall have the
               right  to impose such terms and conditions  as  it
               elects   upon   either  the  Advance   under   the
               $5,000,000.00  Loan  or  the  proposed  collateral
               securing same.

                    (b)   The  proceeds  of the Revolving  Credit
               Loan shall be disbursed to Borrower in one or more
               Advances  provided  all applicable  conditions  to
               Advances  set  forth in this Agreement  have  been
               satisfied, including, if applicable, Section  2.17
               (Additional Land Acquisitions) set forth below.

               1.3     Limitation   on   Advances.    Under    no
          circumstances  shall Bank be required to  disburse  any
          proceeds of the Revolving Credit Note that would  cause
          the  outstanding  balance thereof at any  one  time  to
          exceed  the  Revolving Credit Loan Maximum  Amount  nor
          shall Bank be required to disburse any proceeds of  the
          $5,000,000.00  Loan  that would cause  the  outstanding
          balance   thereof  at  any  one  time  to  exceed   the
          $5,000,000.00  Loan  Maximum  Amount  or  disburse  any
          proceeds  of either of the Loans that would  cause  the
          aggregate outstanding balance of the Loans at  any  one
          time to exceed $30,000,000.00.

               1.4    Regulatory  Restrictions.   Notwithstanding
          anything  in this Agreement or the other Loan Documents
          to  the contrary, in no event shall Bank be required to
          disburse, nor shall Borrower be entitled to demand that
          Bank  disburse, all or any portion of any of the  Loans
          if  the amounts of the Loans would, in Bank's sole  and
          absolute  discretion, cause Bank to exceed the  lending
          limit  to a single borrower under any applicable  state
          or   federal  law,  regulation  or  ruling.   If   Bank
          determines, in its sole and absolute discretion, at any
          time  (including after any portion or all of the  Loans
          have been disbursed) that the transactions evidenced by
          this  Agreement  and the other Loan Documents  violates
          such  lending limit restriction, then Bank  shall  have
          the  right to immediately declare the Notes to  be  due
          and  payable  and  shall  thereafter  have  no  further
          obligations  to  disburse any further proceeds  of  the
          Loans.   In  such event, Borrower shall be required  to
          immediately pay all outstanding Indebtedness under  the
          Loans  and  shall have no further rights and privileges
          under this Agreement and the other Loan Documents.

               1.5   Repayment  of and Interest  on  Loans.   The
          Indebtedness  from time to time outstanding  under  and
          evidenced  by  the  Notes shall bear  interest  at  the
          respective rates per annum set forth in the Notes until
          the occurrence of an Event of Default and thereafter at
          the  Default  Rate  and shall otherwise  be  repaid  in
          accordance with the terms of the respective Notes.  All
          unpaid principal, accrued and unpaid interest and other
          amounts  owing under the Revolving Credit Note and  the
          $5,000,000.00  Note  shall be due and  payable  on  the
          Revolving   Credit   Loan   Maturity   Date   and   the
          $5,000,000.00 Loan Maturity Date, respectively.

     SECTION 2.     ADVANCES, PAYMENTS, RECOVERIES AND
     COLLECTIONS

               2.1   Advance  Procedure.  Except  as  hereinafter
          provided, Borrower may request an Advance by submitting
          to   Bank  a  Request  for  Advance  by  an  authorized
          representative of Borrower, subject to the following:

                    (a)   each  such  Request for  Advance  shall
               include,  without limitation, the proposed  amount
               of  such  Advance  and  the proposed  Disbursement
               Date, which date must be a Business Day;

                    (b)  a Request for Advance, once communicated
               to Bank, shall not be revocable by Borrower;

                    (c)    each   Request   for   Advance,   once
               communicated   to   Bank,   shall   constitute   a
               representation,  warranty  and  certification   by
               Borrower as of the date thereof that:

                         (i)  both before and after the making of
                    such  Advance, all of the Loan Documents  are
                    and  shall  be valid, binding and enforceable
                    against each Loan Party, as applicable;

                         (ii)  all terms and conditions precedent
                    to  the  making  of  such Advance  have  been
                    satisfied, and shall remain satisfied through
                    the date of such Advance;

                         (iii)      the  making of  such  Advance
                    will  not  cause (A) the aggregate  principal
                    amount  of  all Advances on the $5,000,000.00
                    Note  to exceed the original principal amount
                    of  the $5,000,000.00 Note, (B) the aggregate
                    principal amount outstanding on the Revolving
                    Credit  Note  to exceed the Revolving  Credit
                    Loan  Maximum  Amount or  (C)  the  aggregate
                    principal  amount  outstanding  on  both  the
                    $5,000,000.00 Note and Revolving Credit  Note
                    to exceed $30,000,000.00;

                         (iv)  no  Default  or Event  of  Default
                    shall  have occurred or be in existence,  and
                    none  will exist or arise upon the making  of
                    such Advance;

                         (v)   the representations and warranties
                    contained  in this Agreement, and  the  other
                    Loan  Documents are true and correct  in  all
                    material  respects  and  shall  be  true  and
                    correct  in all material respects as  of  the
                    making of such Advance; and

                         (vi)  the  Advance will not violate  the
                    terms   or   conditions  of   any   contract,
                    indenture,  agreement or other  borrowing  of
                    any Loan Party.

          Bank may elect (but without any obligation to do so) to
          make  an  Advance  upon  the  telephonic  or  facsimile
          request of Borrower, provided that Borrower have  first
          executed  and  delivered  to Bank  a  Telephone  Notice
          Authorization.   If  any  such  Advance  based  upon  a
          telephonic  or facsimile request is made  by  Borrower,
          Bank may require Borrower to confirm said telephonic or
          facsimile request in writing by delivering to Bank,  on
          or  before 11:00 a.m. (Dallas, Texas time) on the  next
          Business  Day following the Disbursement Date  of  such
          Advance,  a duly executed written Request for  Advance,
          and  all other provisions of this Section 2.1 shall  be
          applicable with respect to such Advance.  In  addition,
          Borrower  may authorize the Bank to automatically  make
          Advances  pursuant to such other written agreements  as
          may  be  entered into by Bank and Borrower.  Except  as
          set  forth  in this Agreement, all Advances are  to  be
          made by direct deposit into the Special Account.

               2.2   Voluntary Prepayment.  Borrower  may  prepay
          all  or  part  of  the outstanding  balance  under  the
          $5,000,000.00  Note  and/or the Revolving  Credit  Note
          (subject  to  the provisions of Section 3.6(g)  of  the
          Revolving Credit Note regarding a prepayment  prior  to
          the expiration of the applicable LIBOR Interest Period)
          at any time, without premium or penalty or prejudice to
          the  right  of Borrower to reborrow sums of  the  Loans
          under the terms of this Agreement, subject to the terms
          and conditions of the Loan Documents.

               2.3   Revolving  Credit Loan  Maximum  Amount  and
          $5,000,000.00  Loan  Maximum Amount  and  Reduction  of
          Indebtedness.   Notwithstanding anything  contained  in
          this Agreement to the contrary, the aggregate principal
          amount  of  the  Revolving  Credit  Loan  at  any  time
          outstanding shall not exceed the Revolving Credit  Loan
          Maximum  Amount, and the aggregate principal amount  of
          the  $5,000,000.00 Loan outstanding at any  time  shall
          not  exceed the $5,000,000.00 Loan Maximum Amount.   If
          said  limitation is exceeded at anytime, Borrower shall
          immediately,  without demand by Bank, pay  to  Bank  an
          amount  not less than such excess, or, if Bank, in  its
          sole discretion, shall so agree, Borrower shall provide
          Bank  cash  collateral in an amount not less than  such
          excess, and Borrower hereby pledges and grants to  Bank
          a security interest in such cash collateral so provided
          to Bank.

               2.4   Use  of  Proceeds  of  Loans.   The  use  of
          proceeds advanced under the $5,000,000.00 Loan shall be
          subject to Bank's sole and absolute discretion  as  set
          forth  above  in  Section  1.2.  The  proceeds  of  the
          Revolving  Credit  Loan shall be used  to  fund  equity
          contributions for development ventures of Borrower, for
          pre-development costs, such as earnest money  deposits,
          and  property improvements in connection with the  Land
          and  other working capital needs of Borrower, including
          corporate  and  project  general,  administrative   and
          operating  costs,  pursuit  costs,  entitlement  costs,
          taxes,   business   endeavors   associated   with   the
          development   of   commercial  and   residential   real
          properties.

               2.5   Non-Application  of  Chapter  346  of  Texas
          Finance  Code.  The provisions of Chapter  346  of  the
          Texas  Finance  Code are specifically declared  by  the
          parties  not  to  be  applicable to  any  of  the  Loan
          Documents or the transactions contemplated thereby.

               2.6   Place of Advances.  All Advances are  to  be
          made  at the office of Bank, or at such other place  as
          Bank may designate.

               2.7   Bank's  Books and Records.  The  amount  and
          date of each Advance hereunder, the amount from time to
          time outstanding under the Notes, the interest rate  in
          respect  of the Loans, and the amount and date  of  any
          repayment hereunder or under the Notes, shall be  noted
          on  Bank's books and records, which shall be conclusive
          evidence  thereof,  absent  manifest  error;  provided,
          however, any failure by Bank to make any such notation,
          or  any  error in any such notation, shall not  relieve
          Borrower of its obligations to pay to Bank all  amounts
          owing  to Bank under or pursuant to the Loan Documents,
          in  each  case, when due in accordance with  the  terms
          hereof or thereof.

               2.8   Payments on Non-Business Day.  In the  event
          that  any payment of any principal, interest,  fees  or
          any other amounts payable by Borrower under or pursuant
          to  any Loan Document shall become due on any day which
          is  not a Business Day, such due date shall be extended
          to the next succeeding Business Day, and, to the extent
          applicable,  interest shall continue to accrue  and  be
          payable  at  the  interest  rate  set  forth   in   the
          applicable Note for and during any such extension.

               2.9    Payment   Procedures.    Unless   otherwise
          expressly provided in a Loan Document, all sums payable
          by  Borrower  to  Bank under or pursuant  to  any  Loan
          Document,  whether principal, interest,  or  otherwise,
          shall be paid, when due, directly to Bank at the office
          of  Bank  identified  on  the signature  page  of  this
          Agreement, or at such other office of Bank as Bank  may
          designate in writing to Borrower from time to time,  in
          immediately available United States funds, and  without
          setoff,  deduction or counterclaim.  Bank may,  in  its
          discretion,  charge  any  and  all  deposit  or   other
          accounts  (including, without limitation,  any  account
          evidenced by a certificate of deposit or time  deposit)
          of  any  Borrower maintained with Bank for all  or  any
          part of any Indebtedness which is not paid when due and
          payable;  provided,  however, that  such  authorization
          shall not affect any Borrower's obligations to pay  all
          Indebtedness, when due, whether or not any such account
          balances  maintained  by such Borrower  with  Bank  are
          insufficient to pay any amounts then due.

               2.10   Maximum  Interest  Rate.  It  is  expressly
          stipulated and agreed to be the intent of Borrower  and
          Bank   at  all  times  to  comply  strictly  with   the
          applicable  Texas  law governing the  maximum  rate  or
          amount  of  interest  payable on the  Indebtedness  (or
          applicable United States federal law to the extent that
          it  permits Bank to contract for, charge, take, reserve
          or  receive  a  greater amount of interest  than  under
          Texas  law).  If the applicable law is ever  judicially
          interpreted  so  as to render usurious any  amount  (i)
          contracted  for, charged, taken, reserved  or  received
          pursuant  to the Note, any of the other Loan  Documents
          or  any  other communication or writing by  or  between
          Borrower  and  Bank related to any of the Indebtedness,
          (ii)  contracted for, charged or received by reason  of
          Bank's  exercise  of  the  option  to  accelerate   the
          maturity  of the Note and/or any other portion  of  the
          Indebtedness, or (iii) Borrower will have paid or  Bank
          will   have   received  by  reason  of  any   voluntary
          prepayment  by Borrower of the Note and/or any  of  the
          other  Indebtedness, then it is Borrower's  and  Bank's
          express  intent that all amounts charged in  excess  of
          the   Maximum   Lawful  Rate  shall  be   automatically
          canceled, ab initio, and all amounts in excess  of  the
          Maximum Lawful Rate theretofore collected by Bank shall
          be credited on the principal balance of the Note and/or
          any  of  the other Indebtedness evidenced by  the  Loan
          Documents  (or, if the Note and all other  Indebtedness
          evidenced  by  the Loan Documents have  been  or  would
          thereby be paid in full, refunded to Borrower), and the
          provisions  of  the Note and the other  Loan  Documents
          immediately   be  deemed  reformed  and   the   amounts
          thereafter   collectible   hereunder   and   thereunder
          reduced, without the necessity of the execution of  any
          new  document, so as to comply with the applicable law,
          but  so as to permit the recovery of the fullest amount
          otherwise   called   for  hereunder   and   thereunder;
          provided,  however, if the Note has been paid  in  full
          before  the  end of the stated term of the  Note,  then
          Borrower   and  Bank  agree  that  Bank   shall,   with
          reasonable  promptness  after  Bank  discovers  or   is
          advised  by Borrower that interest was received  in  an
          amount  in  excess of the Maximum Lawful  Rate,  either
          refund  such excess interest to Borrower and/or  credit
          such  excess  interest against any  other  Indebtedness
          then owing by Borrower to Bank.  Borrower hereby agrees
          that  as  a  condition precedent to any  claim  seeking
          usury  penalties  against Bank, Borrower  will  provide
          written  notice  to Bank, advising Bank  in  reasonable
          detail  of the nature and amount of the violation,  and
          Bank  shall have sixty (60) days after receipt of  such
          notice  in  which to correct such usury  violation,  if
          any,  by  either  refunding  such  excess  interest  to
          Borrower or crediting such excess interest against  the
          Note  and/or other Indebtedness then owing by  Borrower
          to  Bank.  All sums contracted for, charged or received
          by Bank for the use, forbearance or detention of any of
          the  Indebtedness, including any portion  of  the  debt
          evidenced by the Note shall, to the extent permitted by
          applicable  law,  be  amortized or  spread,  using  the
          actuarial  method, throughout the stated  term  of  the
          Note  and/or other Indebtedness (including any and  all
          renewal and extension periods) until payment in full so
          that  the rate or amount of interest on account of  the
          Note  and/or  other Indebtedness does  not  exceed  the
          Maximum  Lawful Rate from time to time  in  effect  and
          applicable  to  the Note and/or the other  Indebtedness
          for so long as any Indebtedness is outstanding.  In  no
          event  shall the provisions of Chapter 346 of the Texas
          Finance Code (which regulates certain revolving  credit
          loan accounts and revolving triparty accounts) apply to
          the   Note   and/or  any  of  the  other  Indebtedness.
          Notwithstanding  anything  to  the  contrary  contained
          herein or in any of the other Loan Documents, it is not
          the intention of Bank to accelerate the maturity of any
          interest  that  has not accrued at  the  time  of  such
          acceleration  or  to collect unearned interest  at  the
          time of such acceleration.

               2.11 Receipt of Payments by Bank.  Any payment  by
          Borrower  of any of the Indebtedness made by mail  will
          be  deemed  tendered and received  by  Bank  only  upon
          actual   receipt  thereof  by  Bank  at   the   address
          designated  for such payment, whether or not  Bank  has
          authorized payment by mail or in any other manner,  and
          such payment shall not be deemed to have been made in a
          timely  manner unless actually received by Bank  on  or
          before the date due for such payment, time being of the
          essence.  Borrower expressly assumes all risks of  loss
          or  liability resulting from non-delivery or  delay  of
          delivery of any item of payment transmitted by mail  or
          in any other manner.  Acceptance by Bank of any payment
          in  an  amount less than the amount then due  shall  be
          deemed  an acceptance on account only, and any  failure
          to  pay the entire amount then due shall constitute and
          continue  to  be  an Event of Default hereunder.   Bank
          shall  be  entitled to exercise any and all rights  and
          remedies conferred upon and otherwise available to Bank
          under any Loan  Document upon the occurrence and during
          the continuance of any such Event of Default.  Borrower
          further agrees that after the occurrence and during the
          continuance  of  any  Default  Bank  shall   have   the
          continuing exclusive right to apply and to reapply  any
          and all payments received by Bank at any time or times,
          whether  as  voluntary  payments,  proceeds  from   any
          Mortgaged Property, offsets, or otherwise, against  the
          Indebtedness  evidenced by the Loan Documents  in  such
          order  and  in  such manner as Bank may,  in  its  sole
          discretion, deem advisable, notwithstanding  any  entry
          by  Bank  upon any of its books and records.   Borrower
          hereby  expressly agrees that, to the extent that  Bank
          receives  any  payment or benefit of or otherwise  upon
          any  of  the Indebtedness, and such payment or benefit,
          or  any  part  thereof,  is  subsequently  invalidated,
          declared  to be fraudulent or preferential, set  aside,
          or required to be repaid to a trustee, receiver, or any
          other Person under any bankruptcy act, state or federal
          law, common law, equitable cause or otherwise, then  to
          the   extent   of   such  payment   or   benefit,   the
          Indebtedness, or part thereof, intended to be satisfied
          shall be revived and continued in full force and effect
          as  if  such  payment or benefit had not been  made  or
          received  by Bank, and, further, any such repayment  by
          Bank  shall  be added to and be deemed to be additional
          Indebtedness.

               2.12  Security.   Payment and performance  of  the
          Indebtedness evidenced by the Loan Documents  shall  be
          secured  by  Liens on the assets, other collateral  and
          properties of Borrower as Bank may require from time to
          time.

               2.13 Conditions Precedent to the Loans and Initial
          Advance.   The  obligation of the  Bank  to  make  each
          Advance  under  either Loan shall  be  subject  to  the
          satisfaction of all of conditions precedent  set  forth
          in  this  Section.   In the event  that  any  condition
          precedent is not so satisfied but Bank elects  to  make
          an  Advance  on either Loan notwithstanding  the  same,
          such  election  shall not constitute a waiver  of  such
          condition and the condition shall be satisfied prior to
          any subsequent Advance.

                    (a)   All of the Loan Documents shall  be  in
               full  force and effect and binding and enforceable
               obligations of Borrower and, to the extent that it
               is  a party thereto or otherwise bound thereby, of
               each  other  Person who may be a party thereto  or
               bound thereby.

                    (b)   All  actions, proceedings,  instruments
               and documents required to carry out the borrowings
               and transactions contemplated by this Agreement or
               any other Loan Document or incidental thereto, and
               all  other related legal matters, shall have  been
               satisfactory to and approved by legal counsel  for
               Bank,  and  said counsel shall have been furnished
               with   such   certified  copies  of  actions   and
               proceedings   and   such  other  instruments   and
               documents as they shall have requested.

                    (c)   Each Borrower shall have performed  and
               complied   with  all  agreements  and   conditions
               contained in the Loan Documents applicable  to  it
               and which are then in effect.

                    (d)  Borrower shall have delivered, or caused
               to  have been delivered, to Bank or done or caused
               to have been done, to Bank's satisfaction each and
               every of the following items:

                         (1)   This Agreement (together with  all
                    addenda,  schedules, exhibits,  certificates,
                    opinions,  financial  statements  and   other
                    documents  to  be delivered pursuant  hereto)
                    and  any  and  all  amendments  thereto,  the
                    Notes, the Deeds of Trust and all other  Loan
                    Documents  and Lien Instruments and  any  and
                    all   amendments   thereto   duly   executed,
                    acknowledged  (if required) and delivered  by
                    Borrower  and  any  Person  who  is  a  party
                    thereto.

                         (2)   (i) Copies of resolutions  of  the
                    board  of  directors, partners or members  or
                    managers,  as applicable, of each Loan  Party
                    evidencing  approval of the  modification  of
                    the  borrowing arrangement hereunder and  the
                    transactions  contemplated  by  the  modified
                    Loan    Documents,   and   authorizing    the
                    execution, delivery and performance  by  each
                    Loan Party of each modified Loan Document  to
                    which  it  is  a  party or  by  which  it  is
                    otherwise bound, which resolutions shall have
                    been  certified by a duly authorized officer,
                    partner    or   other   representative,    as
                    applicable, of each Loan Party as of the date
                    of  this Agreement and as of the date of  any
                    amendments as being complete, accurate and in
                    full   force   and  effect;  (ii)  incumbency
                    certifications of a duly authorized  officer,
                    partner    or   other   representative,    as
                    applicable, of each Loan Party, in each case,
                    identifying   those   individuals   who   are
                    authorized  to  execute  the  modified   Loan
                    Documents and any amendments thereto for  and
                    on  behalf  of  such Person(s), respectively,
                    and  to  otherwise act for and on  behalf  of
                    such  Person(s);  (iii) certified  copies  of
                    each   of   such   Person(s)'   articles   of
                    incorporation    and   bylaws,    partnership
                    agreement,     certificate     of     limited
                    partnership,    articles   of   organization,
                    regulations   or  operating   agreement,   as
                    applicable,  and all amendments thereto;  and
                    (iv) certificates of existence, good standing
                    and  authority to do business, as applicable,
                    certified   substantially   contemporaneously
                    with  the  date of this Agreement,  from  the
                    state  or other jurisdiction of each of  such
                    Person(s)' organization and from every  other
                    state or jurisdiction in which such Person is
                    required,   under  applicable  law,   to   be
                    qualified to do business.

                         (3)   Proof  that  appropriate  security
                    agreements, financing statements,  mortgages,
                    deeds   of   trust,   collateral   and   such
                    additional documents or certificates  as  may
                    be required by Bank and/or contemplated under
                    the  terms  of  any and every  modified  Loan
                    Document,   and  such  other   documents   or
                    agreements   of   security  and   appropriate
                    assurances   of   validity,  perfection   and
                    priority  of  Lien as Bank may request  shall
                    have  been  executed  and  delivered  by  the
                    appropriate Persons and recorded or filed  in
                    such jurisdictions and such other steps shall
                    have  been  taken  as necessary  to  perfect,
                    subject  only to Permitted Encumbrances,  the
                    Liens granted thereby.

                         (4)   An  opinion  of  Borrower's  legal
                    counsel, dated as of the date hereof,  as  to
                    enforceability  and  authority   issues   and
                    covering  such other matters as are  required
                    by  Bank  and which are otherwise  reasonably
                    satisfactory in form and substance to Bank.

                         (5)   Evidence of insurance coverage  as
                    required  by this Agreement and the Deeds  of
                    Trust.

                         (6)   The Title Company's commitment  to
                    issue such endorsements as may be required by
                    Bank in connection with all modifications  to
                    the Deeds of Trust.

                             (7)   Updated   Primary   Collateral
                    Appraisals.

                         (8)   Current  Financial  Statements  of
                    Borrower.

                    (e)   Bank shall have received payment of the
               modification and extension fee set forth below.

                    (f)   Bank  shall  have received  such  other
               instruments,    documents   and   evidence    (not
               inconsistent with the terms hereof)  as  Bank  may
               reasonably   request   in  connection   with   the
               modification of the Loans hereunder, and all  such
               instruments,  documents  and  evidence  shall   be
               satisfactory in form and substance to Bank.

               2.14 Conditions to Subsequent Advances.  Bank  has
          no  obligation to make any subsequent Advance under the
          $5,000,000.00  Loan unless it elects in  its  sole  and
          absolute discretion to do so.  In addition, Bank has no
          obligation  to  make  any  subsequent  advance  on  the
          Revolving  Credit Loan unless the following  conditions
          precedent  are satisfied on or before the  Disbursement
          Date for such Advance:

                    (a)    At  Bank's  request,  Borrower   shall
               furnish  to  Bank  an  endorsement  to  the  Title
               Policies (or if an endorsement is not available, a
               letter  from  the Title Company) showing  "nothing
               further"   of   record   affecting   the   Primary
               Collateral from the date of recording of the Deeds
               of Trust, except such matters as Bank specifically
               approves.

                    (b)   All  Loan Documents shall  be  in  full
               force  and  effect  and  binding  and  enforceable
               obligations of each Loan Party.

                    (c)    Each   of   the  representations   and
               warranties  of  each  Loan Party  under  any  Loan
               Document shall be true and correct in all material
               respects.

                    (d)   No  Default or Event of  Default  shall
               have occurred and be continuing; there shall exist
               no  Material  Adverse Effect; and no provision  of
               law,  any order of any Governmental Authority,  or
               any  regulation,  rule or interpretation  thereof,
               shall have had any material adverse effect on  the
               validity or enforceability of any Loan Document.

                    (e)  Upon making any Advance on the Revolving
               Credit Loan then requested, the amount outstanding
               on  the Revolving Credit Loan shall not exceed the
               Revolving Credit Loan Amount.

                    (f)    Upon   making  any  Advance   on   the
               $5,000,000.00  Loan  then  requested,  the  amount
               outstanding  on the $5,000,000.00 Loan  shall  not
               exceed the $5,000,000.00 Maximum Loan Amount.

               2.15  Advance  Not A Waiver.  No  Advance  of  the
          proceeds  of  either  of the Loans shall  constitute  a
          waiver of any of the conditions of Bank's obligation to
          make  further Advances, nor, in the event  Borrower  is
          unable  to satisfy any such condition, shall  any  such
          Advance  have  the  effect  of  precluding  Bank   from
          thereafter declaring such inability to be an  Event  of
          Default.

               2.16 Advance Not An Approval.  Bank shall have  no
          obligation  to make any Advance or part thereof  during
          the  existence of any Default or Event of Default,  but
          shall have the right and option so to do; provided that
          if  Bank  elects  to  make any such  Advance,  no  such
          Advance  shall be deemed to be either a waiver  of  the
          right  to  demand  payment of the Loans,  or  any  part
          thereof, or an obligation to make any other Advance.

               2.17 Additional Land Acquisitions.  Subject to the
          satisfaction of all conditions precedent to Advances on
          the  Revolving Credit Loan, Bank hereby agrees to  make
          one  or  more  Advances on the Revolving  Credit  Loan,
          which  Advances  shall reduce the amount  available  to
          Borrower under the Revolving Credit Loan, in an  amount
          not   to  exceed,  without  prior  Bank  approval,  (i)
          $3,000,000.00  at any one time, or (ii)  $10,000,000.00
          in the aggregate, for the purpose of the acquisition of
          fee  title to real property, provided that Borrower (i)
          provides Bank with information about such real property
          as  Bank  may  reasonably request,  (ii)  executes  and
          delivers  to  Bank a separate note for each acquisition
          and  a deed of trust, substantially in the form of  the
          Deeds  of Trust, granting to Bank a deed of trust first
          lien  on  such real property, which note and  the  real
          property  covered by the deed of trust will  be  cross-
          defaulted  and cross-collateralized with the Notes  and
          the  Primary  Collateral  and  Other  Collateral  (iii)
          causes  the Title Company to provide Bank with a  Title
          Policy  insuring such deed of trust as a first lien  on
          such  real property and containing only such exceptions
          to  title  acceptable to Bank, and  in  an  amount  and
          otherwise on terms and conditions satisfactory to Bank,
          and  (iv)  executes and delivers to Bank  its  proposed
          disposition  plan of such real property which  must  be
          reasonably  satisfactory to Bank.   Any  and  all  real
          estate  assets acquired in whole or part with  Advances
          made  under this Section are sometimes referred  to  as
          'Section  2.17  Assets.'  Notwithstanding  anything  in
          this  Agreement  to  the contrary,  such  Section  2.17
          Assets shall, for purposes of this Agreement, be deemed
          to   be   included  as  'Other  Collateral';  provided,
          however,   that  such  Section  2.17  Assets   may   be
          designated  as  part  of  the 'Primary  Collateral'  by
          obtaining  an  appraisal,  an environmental  audit  and
          other  documents  that  may  be  required  by  Bank  to
          classify   such   Section  2.17  Assets   as   'Primary
          Collateral.'  Advances under the Revolving Credit  Loan
          for  other than the acquisitions of Section 2.17 Assets
          are  not  subject to the terms and provisions  of  this
          Section 2.17.

               2.18   Mandatory   Prepayments.   Borrower   shall
          immediately  pay  to  Bank  for  application   to   the
          Revolving Credit Loan in accordance with the  terms  of
          this  Agreement  and  in accordance  with  the  Release
          Provisions  set  forth in Addendum 3, unless  otherwise
          agreed by Bank in writing, the following sums: (i) one-
          hundred percent (100%) of the net proceeds received  by
          or  on  behalf of any Borrower from the sale of all  or
          any  portion  of  the Mortgaged Property  or  upon  the
          taking  of all or any portion of the Mortgaged Property
          by  condemnation; provided that, if such sale is  to  a
          Related Party, the mandatory prepayment shall be in  an
          amount  equal to the greater of fifty percent (50%)  of
          the  gross  sales price or fifty percent (50%)  of  the
          corresponding Partial Release Price, as more fully  set
          forth  in  Addendum 3, of such portion of the Mortgaged
          Property,  (ii) one-hundred percent (100%) of  the  net
          proceeds   of   MUD  Reimbursables,  (iii)  one-hundred
          percent  (100%) of the net proceeds received  upon  the
          sale  of  any  Section 2.17 Asset, (iv) and one-hundred
          percent  (100%)  of the distributions received  by  any
          Borrower from any Partnership or any Future Partnership
          upon  the  sale  by  such Related  Party  of  any  real
          property interest ("Partnership Distributions").

               2.19  Application of Payments. So long as no Event
          of  Default exists, all payments received from Borrower
          (including, without limitation, the application of  net
          proceeds   received   from  MUD   Reimburseables,   the
          application  of net proceeds from the sale  of  Section
          2.17  Assets, the application of net proceeds from  the
          sale  of  Primary  Collateral or  Other  Collateral  or
          Partnership  Distributions,  the  application  of   net
          proceeds  from the conveyance of Primary Collateral  or
          Other  Collateral to a Related Party, and release price
          proceeds  from  any other source) shall be  applied  as
          follows:

                    (a)  First, such proceeds shall be applied to
               pay  interest current on the Revolving Credit Note
               and   to  withhold  an  amount  necessary  to  pay
               interest current at month end (and to establish or
               replenish the Interest Reserve Escrow Account);

                    (b)   Second, such proceeds shall be  applied
               to  pay any other sums (other than principal) then
               due and payable under the Revolving Credit Loan;

                    (c)  Third, such proceeds shall be applied to
               pay  the  outstanding principal balance  then  due
               under the Revolving Credit Note; and

                    (d)   Fourth,  any remaining  proceeds  after
               application   as   above  set   forth   shall   be
               distributed to Borrower at its discretion.

                    All  payments received from Borrower  on  the
               $5,000,000.00  Note  will be  applied  thereto  in
               accordance  with the terms and provisions  of  the
               $5,000,000.00 Note.

          3.6  Modification and Restatement of Addendum 3 - Release
     Provisions.  Addendum 3 attached to the Loan Agreement is hereby
     deleted in its entirety, and the following Addendum 3 is inserted
     in lieu thereof:

                           "ADDENDUM 3

                       RELEASE PROVISIONS

          (Terms  used  with  initial  capital  letters  in  this
          Addendum  3 that are not specifically defined  in  this
          Agreement shall have the meanings ascribed to  them  in
          the Deeds of Trust.)

               The  Partial Release Price for Primary  Collateral
               shall  be  as follows:  The payment to Bank  of  a
               Partial Release Price equal to one hundred percent
               (100%)  of  the Net Proceeds (i.e.,  all  proceeds
               less  only  reasonable  closing  costs,  surveying
               costs,  title insurance premiums, attorneys'  fees
               and  a  broker's  commission  not  to  exceed  six
               percent  (6.0%) with aggregate deductions  not  to
               exceed  eight  percent(8%) of  the  sales  price),
               which Net Proceeds shall in no event be less  than
               eighty-five  percent (85%) of the appraised  value
               (using   year   one  undiscounted   unit   prices)
               (hereinafter referred to as "Appraised Value")  of
               the   Primary  Collateral  being  released.    See
               Addendum  3-1(a)-(c)  attached  hereto   for   the
               schedule of Appraised Value, which Addendum 3-1(a)-
               (c)   shall   replace  and  supersede  the   prior
               Addendum 3-1(a)-(c) attached to the Loan Agreement
               dated December 16, 1999.

               The  Partial  Release Price for  Other  Collateral
               shall  be  as follows: The payment to  Bank  of  a
               Partial Release Price equal to one hundred percent
               (100%)  of  the Net Proceeds (i.e.,  all  proceeds
               less  only  reasonable  closing  costs,  surveying
               costs,  title insurance premiums, attorneys'  fees
               and  a  broker's  commission  not  to  exceed  six
               percent  (6%)  with  aggregate deductions  not  to
               exceed  eight  percent (8%) of the  sales  price),
               which Net Proceeds shall in no event be less  than
               eighty-five  percent (85%) of the  assigned  value
               (hereinafter  referred  to  as  "Assigned  Value")
               established by Bank and Borrower for each  of  the
               Lots [or Tracts] of Other Collateral (the "Minimum
               Release   Prices").   See  Addendum  3-2  attached
               hereto  for the schedule of Assigned Value,  which
               Addendum 3-2 shall replace and supersede the prior
               Addendum 3-2 attached to the Loan Agreement  dated
               December 16, 1999.

               The foregoing notwithstanding, the Partial Release
               Price  for  Primary Collateral or Other Collateral
               for  sale  to a Related Party shall be as follows:
               The  payment of a Partial Release Price  equal  to
               one  hundred  percent (100%) of all cash  proceeds
               received by Borrower, which cash proceeds shall in
               no  event  be less than the greater of  (i)  fifty
               percent  (50%) of the Appraised Value for  Primary
               Collateral or fifty percent (50%) of the  Assigned
               Value for Other Collateral, as applicable, of  the
               Primary  Collateral  or  Other  Collateral   being
               released; or (ii) fifty percent (50%) of the gross
               sales  price paid by the Related Party.  The gross
               sales  price  (i.e., cash proceeds and  all  other
               considerations) for the sale to the Related  Party
               will not be less than eighty-five percent (85%) of
               the applicable Appraised Value or Assigned Value.

          The foregoing notwithstanding, no release price will be
          required  for the release of either Primary  Collateral
          or Other Collateral from the lien of the Deeds of Trust
          in   the   event  such  Primary  Collateral  or   Other
          Collateral   is  the  subject  of  additional   project
          financing  by Bank pursuant to a separate loan  between
          any  Loan  Party and Bank, and only so long as  (i)  in
          connection  with such loan, Bank has a  first  priority
          lien  and  security interest in such Primary Collateral
          or  Other  Collateral securing repayment of such  loan,
          (ii)   such  Loan  Party  owns  100%  of  the   Primary
          Collateral or Other Collateral which is the subject  of
          such  separate  loan, and any and  all  equity  in  the
          project  is  funded  solely  by  Borrower  without  any
          third-parties  having any ownership or equity  interest
          therein, (iii) such loan is cross-defaulted and  cross-
          collateralized with the Loans to the extent required by
          Bank; and (iv) any ownership interest of Borrower in  a
          Related  Party into which Primary Collateral  or  Other
          Collateral  has  been transferred will be  assigned  to
          Bank  as  security for the Indebtedness,  and  Borrower
          agrees to execute and deliver to Bank an assignment  of
          partnership interest in such form and content  as  Bank
          may  require.   If the Land sought to  be  released  as
          provided above is Primary Collateral, then such Primary
          Collateral  shall  be removed from the  borrowing  base
          (i.e.,  such  Primary Collateral shall be removed  from
          the   loan-to-value  calculations   for   purposes   of
          determining the Maximum Loan Amount allowed hereunder).
          Except   as   modified  hereby,  all  of  the   release
          provisions   (including,   without   limitation,    the
          provisions requiring payment of a release price) as set
          forth in the Loan Agreement will continue to apply with
          respect to any release of  Primary Collateral or  Other
          Collateral.

          Notwithstanding  anything  contained  herein   to   the
          contrary, the location and configuration of the lot  or
          lots,  or  tract  or tracts, requested to  be  released
          (herein  called "Lot" or "Lots" or "Tract" or "Tracts")
          shall be reasonably satisfactory to Bank and no Partial
          Release  shall result in any remaining Lot  [or  Tract]
          being  without access to a public street.  Any and  all
          Partial  Releases  shall  be  in  accordance  with  the
          following procedures:

                    (a)  Borrower's request for a Partial Release
               shall be given to Bank and accompanied by (i)  the
               legal description of the Lot or Lots [or Tract] to
               be   released,  together  with  a  draft   closing
               statement  prepared  for the proposed  sale;  (ii)
               information  necessary to process the request  for
               Partial Release, including whether the property to
               be   released  is  Primary  Collateral  or   Other
               Collateral  and  whether it is  being  sold  to  a
               Related  Party; (iii) any appraisal reconciliation
               of  value information as may be required by  Bank,
               together with a reimbursement of the cost of same,
               which cost shall not exceed  $750.00; and (iv) the
               name and address of the title company, if any,  to
               whose attention the Partial Release Instrument (as
               hereinafter  defined) should be directed,  numbers
               that  should  be  referenced (order  number,  loan
               number,  etc.)  and  the date  when  such  Partial
               Release  is  to  be  made.   Borrower  shall  also
               specify  the  name and address of the  prospective
               purchaser  and  the intended use of  the  Lot  [or
               Tract] to be released and shall supply such  other
               documents and information concerning such  Partial
               Release as Bank may reasonably request.

                    (b)   Within  five (5) days after receipt  of
               such  request, and in accordance with and pursuant
               to the terms and conditions of this Addendum 3 and
               the other applicable provisions of this Agreement,
               Bank  shall  execute an instrument effecting  such
               Partial Release ("Partial Release Instrument") and
               deliver  same  to the title company so  specified;
               provided  that  all  costs and  expenses  of  Bank
               associated  with such Partial Release  (including,
               but  not limited to, reasonable legal fees)  shall
               be  paid by Borrower.  Borrower shall also  obtain
               all   title   insurance  endorsements   reasonably
               required  by Bank in connection with such  Partial
               Release.

                    (c)   The  execution  and  delivery  of  such
               Partial Release Instrument shall not affect any of
               Borrower's  obligations under the Loan  Documents,
               except  that  the  payment of the Partial  Release
               Price   must   be  actually  received   by   Bank.
               Regardless  of  the time such Partial  Release  is
               executed, delivered and recorded, the payment made
               by  Borrower  to Bank in respect to  such  Partial
               Release shall be credited against the Indebtedness
               in  accordance  with the terms of  this  Agreement
               only  upon receipt by Bank of the Partial  Release
               Price.   The Partial Release Instrument  shall  be
               delivered, in escrow, by Bank to the title company
               so designated, to be held, released, delivered and
               recorded   in   accordance  with   Bank's   escrow
               instructions,  which  shall  require  payment,  in
               cash,  of the Partial Release Price to Bank  prior
               to delivery and recordation of the Partial Release
               Instrument.

          3.7  Letters of Credit.  On Borrower's behalf, Bank has issued
     two  (2)  letters  of  credit in  the  aggregate  amount  of
     $2,587,576.00  and  has correspondingly reduced  the  amount
     available  under the Revolving Credit Note by  such  amount.
     Borrower's obligations under the issued letters of credit and any
     subsequent letters of credit (collectively, the "Letters  of
     Credit") are as follows:

        A.   Conditions to Letters of Credit.  Subject to the terms and
     conditions set forth below, Borrower may, prior to the maturity
     date of the Revolving Credit Note, request Bank to issue one or
     more Letters of Credit under and as part of the Revolving Credit
     Loan, provided that the following conditions are satisfied:

           (1)  such Letter of Credit and any amounts to be disbursed or
       advanced under such Letter of Credit shall be used only for the
       same purposes as allowed for Advances under the Revolving Credit
       Loan, as set forth in Section 2.4 of Addendum 2 of the Loan
       Agreement;

(2)  after taking into account any such Letter of Credit, the sum
of (i) the then existing LC Obligations (as defined below), plus
(ii) the then outstanding principal balance of the Revolving
Credit Loan, does not (and shall at no time) exceed the Revolving
Credit Loan Maximum Amount.  Accordingly, the amount of all LC
Obligations, if any, shall be applied against the amount of
Advances available to Borrower under the Revolving Credit Loan;

(3)  the expiration date of such Letter of Credit is not more
than six (6) months after the maturity date of the Revolving
Credit Note;

(4)  such Letter of Credit shall be classified as a "Standby"
Letter of Credit in accordance with applicable laws and
regulations applicable to Bank and in accordance with the Bank's
customary practices at such times for reporting to regulatory
authorities;

(5)  the issuance of such Letter of Credit will be in compliance
with all applicable governmental restrictions, policies, and
guidelines and will not subject Bank to any cost which is not
reimbursable by Borrower under the Loan Documents;

(6)  the form and terms of such Letter of Credit must be
acceptable to Bank in its sole discretion;

(7)  all other conditions in this Amendment to the issuance of
such Letter of Credit shall have been satisfied;

(8)  immediately before and after the issuance of such Letter of
Credit, no Event of Default shall have occurred and be
continuing, and no event shall have occurred which, with the
passage of time or notice, could constitute an Event of Default;
and

(9)  the representations and warranties of Borrower contained in
the Loan Agreement (as modified hereby) and the other Loan
Documents shall be true and correct on and as of the date of
issuance of such Letter of Credit.

          Bank  will honor any such request by Borrower  for  the
     issuance  of a Letter of Credit if the foregoing  conditions
     (1)  through  (9)  (collectively, the "LC Conditions")  have
     been  met  as  of  the date of issuance of  such  Letter  of
     Credit.   Bank may choose to honor any such request for  any
     other  Letter of Credit but has no obligation to do  so  and
     may refuse to issue any other requested Letter of Credit for
     any reason which Bank in its sole discretion deems relevant.

          For  purposes  hereof,  (i) the term  "LC  Obligations"
     means,  at  the time in question, the sum of all Matured  LC
     Obligations plus the maximum amounts which Bank  might  then
     or thereafter be called upon to advance under all Letters of
     Credit  then  outstanding, and (ii)  the  term  "Matured  LC
     Obligations"  means all amounts paid by Bank  on  drafts  or
     demands for payment drawn or made under as purported  to  be
     under  any Letter of Credit, and all other amounts  due  and
     owing  to  Bank  under any application by Borrower  for  any
     Letter  of Credit to be issued by Bank (a "LC Application"),
     to  the  extent the same have not been repaid to Bank  (with
     the proceeds of an Advance or otherwise).

              B.   Requesting Letters of Credit.  Borrower must make
    written application for any Letter of Credit at least five (5)
    business days before the date on which Borrower desires for Bank to
   issue such Letter of Credit.  By making any such written application,
   Borrower shall be deemed to have represented and warranted that
   the LC Conditions will be met as of the date of issuance of such
   Letter of Credit.  Two (2) business days after the LC Conditions
   have been met (or if Bank otherwise desires to issue such Letter
   of Credit), Bank will issue such Letter of Credit at Bank's
   office in Dallas, Texas.  If any provisions of any LC Application
   conflict with any provisions of this Amendment, the provisions of
   this Amendment shall govern and control.

C.   Reimbursement and Participations.
               (1)  Reimbursement by Borrower. Each Matured LC Obligation
          shall constitute an Advance under the Revolving Credit Loan. To
         the extent the same has not been repaid to Bank (with the proceeds
         of an Advance under the Revolving Credit Loan or otherwise),
          Borrower promises to pay to Bank, or to Bank's order, on demand,
          (i) the full amount of each Matured LC Obligation, whether such
          obligation accrues before or after the maturity date of the
          Revolving Credit Note, together with (ii) interest thereon at a
          rate per annum equal to the Applicable Rate for the Base Rate
          Balance (as such terms are defined in the Revolving Credit Note)
          until repaid in full; provided that after the maturity date of
          the Revolving Credit Note or following a default or an Event of
          Default under the Loan Agreement or the other Loan Documents,
          such interest shall accrue at the Default Rate (as such term is
          defined in the Revolving Credit Note).

(2)  Letter of Credit Advances.  If the beneficiary of any Letter
of Credit makes a draft or other demand for payment thereunder,
then Borrower may, during the interval between the making thereof
and the honoring thereof by Bank, request Bank to make an Advance
under the Revolving Credit Loan to Borrower in the amount of such
draft or demand, which Advance shall be made concurrently with
Bank's payment of such draft or demand and shall be immediately
used by Bank to repay the amount of the resulting Matured LC
Obligation.  Such a request by  Borrower shall be made in
compliance with all of the provisions hereof.

             D.   Letter of Credit Fees.  In consideration of Bank's issuance
          of any Letter of Credit,  Borrower agrees to pay to Bank a letter
          of credit issuance fee at a rate equal to two percent (2.0%) per
          annum.  Each such fee will be calculated based on the term and
          face amount of such Letter of Credit and the above applicable
          rate and will be payable upon issuance.  In no event shall the
          issuance fee be less than $500.00 for any Letter of Credit.

E.   No Duty to Inquire.
              (1)  Drafts and Demands.  Bank is authorized and instructed to
               accept and pay drafts and demands for payment under any Letter of
               Credit without requiring, and without responsibility for, any
               determination as to the existence of any event giving rise to
               said draft, either at the time of acceptance of payment or
               thereafter.  Bank is under no duty to determine the proper
               identity of anyone presenting such a draft or making such a
               demand (whether by tested telex or otherwise) as the officer,
               representative or agent of any beneficiary under any Letter of
               Credit, and payment by Bank to any such beneficiary when
               requested by any such purported officer, representative or agent
               is hereby authorized and approved.  Borrower agrees to hold Bank
               harmless and indemnified against any liability or claim in
               connection with or arising out of the subject matter of this
               section, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH
               LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE
               OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE
               CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF
               ANY KIND BY BANK, provided only that Bank shall not be entitled
               to indemnification for that portion, if any, of any liability or
               claim which is proximately caused by its own individual gross
               negligence or willful misconduct, as determined in a final
               judgment.

(2)  Extension of Letter of Credit Maturity.  If the maturity of
any Letter of Credit is extended by its terms or by Law or
governmental action, if any extension of the maturity or time for
presentation of drafts or any other modification of the terms of
any Letter of Credit is made at the request of Borrower, or if
the amount of any Letter of Credit is increased at the request of
Borrower, this Amendment shall be binding upon Borrower with
respect to such Letter of Credit as so extended, increased or
otherwise modified, with respect to drafts and property covered
thereby, and with respect to any action taken by Bank, or Bank's
correspondents in accordance with such extension, increase or
other modification.

(3)  Transferees of Letters of Credit.  If any Letter of Credit
provides that it is transferable, Bank shall have no duty to
determine the proper identity of anyone appearing as transferee
of such Letter of Credit, nor shall Bank be charged with
responsibility of any nature or character for the validity or
correctness of any transfer or successive transfers, and payment
by  Bank to any purported transferee or transferees as determined
by Bank is hereby authorized and approved, and Borrower further
agrees to hold Bank harmless and indemnified against any
liability or claim in connection with or arising out of the
foregoing, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH
LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE
OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE
CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF
ANY KIND BY BANK, provided only that Bank shall not be entitled
to indemnification for that portion, if any, of any liability or
claim which is proximately caused by its own individual gross
negligence or willful misconduct, as determined in a final
judgment.
              F.   LC Collateral.

                  (1)  Acceleration of LC Obligations.  On the maturity date
         of the Revolving Credit Note, or if the Loans or either of them becomes
         immediately due and payable pursuant to the Loan Documents, then,
         unless Bank otherwise specifically elects to the contrary, all LC
         Obligations shall become immediately due and payable without
         regard to whether or not actual drawings or payments on the
         Letters of Credit have occurred, and Borrower shall be obligated
         to pay to Bank immediately an amount equal to the aggregate LC
         Obligations which are then outstanding.  All amounts so paid
         shall first be applied to Matured LC Obligations and the
         remainder will be held by Bank as security for the remaining LC
         Obligations (all such amounts held as security for LC Obligations
         being herein collectively called "LC Collateral") until such LC
         Obligations become Matured LC Obligations, at which time such LC
         Collateral shall be applied to such Matured LC Obligations.

(2)  Investment of LC Collateral.  Pending application thereof,
all LC Collateral shall be invested by Bank in such investments
as Bank may elect.  All interest on such investments shall be
reinvested or applied to Matured LC Obligations.  When all
indebtedness evidenced by the Notes and all LC Obligations have
been satisfied in full, all Letters of Credit have expired or
been terminated, and all of  Borrower's reimbursement obligations
in connection therewith have been satisfied in full, Bank shall
release any remaining LC Collateral.  Borrower hereby assigns and
grants to Bank a continuing security interest in all LC
Collateral, all investments purchased with such LC Collateral,
and all proceeds thereof to secure its Matured LC Obligations and
its obligations under this Amendment, the Loan Agreement, the
Notes and the other Loan Documents.  Borrower further agrees that
Bank shall have all of the rights and remedies of a secured party
under the Uniform Commercial Code as adopted in the State of
Texas with respect to such security interest and that an Event of
Default under the Loan Agreement (as modified hereby) shall
constitute a default for purposes of such security interest.
(3)  Payment of LC Collateral.  When Borrower is required to
provide LC Collateral for any reason and fails to do so on the
day when required, Bank may without notice to Borrower provide
such LC Collateral (whether by transfers from other accounts
maintained with Bank or otherwise) using any available funds of
Borrower.

   4.   Payment of Fees.

               (a)  At such time as Borrower requests an Advance under the
$5,000,000.00 Note, Borrower shall remit to Bank cash funds equal
to  0.5% of the amount of the Advance requested and shall  pay  a
0.5%  fee in connection with each Advance thereafter funded under
the  $5,000,000.00  Note, which sum shall be in  payment  of  and
further consideration for the funding of each such Advance.

(b)  Contemporaneously with the execution and delivery of this
Amendment, Borrower shall remit to Bank (i) cash funds in the
amount of $68,750.00, which sum shall be in payment of and as
additional consideration for the modification of the Revolving
Credit Loan , and for the extension of the maturity date of the
Revolving Credit Loan as set forth herein.

(c)  Bank's obligation to make any further Advances under the
Revolving Credit Note are and shall be subject to and further
conditioned upon payment of the foregoing fees.

     5.   Holliday Loan.  In connection with the Amendment to Loan
Agreement  entered into December 27, 2000, Bank consented  to  an
unsecured  loan  from  Holliday Fenoglio Fowler,  L.P.,  a  Texas
limited  partnership  ("Holliday") to  Stratus  Properties,  Inc.
("Stratus")  in  a principal amount not to exceed  $10,000,000.00
(the   "Holliday  Loan")  upon  certain  terms  and   conditions.
Borrower hereby represents and warrants that the following terms,
covenants and restrictions have been satisfied and complied  with
at  all  times  to  date and shall continue to be  satisfied  and
complied with throughout the term of the Holliday Loan until  the
Loans  have  been  repaid in full and all  other  obligations  of
Borrower under the Loan Documents have been fully satisfied:  (i)
neither the stated principal amount of the Holliday Loan, nor the
outstanding principal balance of the Holliday Loan, shall at  any
time  exceed $10,000,000; (ii) the proceeds of the Holliday  Loan
shall  be  used only for general corporate purposes  of  Stratus,
including   the  use  of  such  proceeds  for  the   purpose   of
repurchasing the common stock of Stratus; (iii) the Holliday Loan
is  not  and  shall  at no time be secured by  any  of  the  real
property  or other collateral securing the Loans or otherwise  be
secured  by any Liens in contravention of any terms or provisions
in the Loan Agreement (including, without limitation, Section 5.5
thereof), as modified hereby, or any of the other Loan Documents;
(iv) Bank's rights to receive, use and apply any and all proceeds
and  other  amounts as set forth in Sections  2.18  and  2.19  of
Addendum  2  and  elsewhere in the Loan  Agreement  (as  modified
hereby) shall continue in full force and effect and shall not  be
affected  in  any manner by the Holliday Loan, and Holliday  (and
any  subsequent holder of the Holliday Loan) shall have no rights
to  the  receipt  of  any such proceeds, and Borrower  shall  not
utilize  any of such proceeds for repayment of or application  to
any  of  the  indebtedness evidenced by the  Holliday  Loan;  (v)
without  the prior written approval of Bank, no proceeds  of  the
Loans  shall be used by Borrower to repay any principal or  other
amounts  then  outstanding under the Holliday Loan,  except  that
proceeds of the Revolving Credit Loan may be used by Borrower for
the repayment of ordinary interest then due and payable under the
Holliday  Loan  so  long  as no Event of Default  exists  and  is
continuing under the Loan Agreement (as modified hereby)  or  the
other  Loan  Documents;  (vi)  without  Bank's  written  consent,
Stratus  and Borrower shall not prepay any principal  portion  of
the  indebtedness  under  the  Holliday  Loan  during  the  first
eighteen (18) months of the term of the Holliday Loan; and  (vii)
the  promissory note, loan agreement and other loan documents (if
any)  executed in connection with the Holliday Loan shall  be  on
terms  consistent  with  the foregoing  and  otherwise  on  terms
reasonably  acceptable  to Bank, and shall  not,  without  Bank's
written  consent, be amended or modified in any manner  that  (a)
conflicts  with  any  of  the  foregoing  terms,  covenants   and
restrictions, (b) increases the principal amount of the  Holliday
Loan to more than $10,000,000.00, or (c) would cause a default or
an event of default under the Loan Agreement (as modified hereby)
or any of the other Loan Documents.  Bank previously consented to
Holliday  assigning its interest in the Holliday Loan to American
Select  Portfolio Inc., a Minnesota corporation, on the condition
that  the  foregoing  terms are complied  with.   Borrower  shall
promptly  provide  Bank  with a copy of  any  notice  of  default
received by Stratus or Borrower from Holliday (or the then holder
of  the  Holliday Loan) or delivered by Stratus  or  Borrower  to
Holliday (or the then holder of the Holliday Loan), in connection
with  the Holliday Loan.  Any failure of Borrower or the Holliday
Loan  to  comply with any of the foregoing conditions,  covenants
and restrictions set forth in items (i) through (vii) above shall
be  an  Event  of Default under the Loan Agreement  (as  modified
hereby)  and the other Loan Documents.  Any default or  event  of
default  under  the  Holliday  Loan which  continues  beyond  any
applicable  grace or cure period thereunder shall also constitute
an  Event of Default under the Loan Agreement (as amended hereby)
and the other Loan Documents.

6.   Title Insurance.  Contemporaneously with the execution and
delivery hereof, the Borrower shall cause the Title Company to
issue with respect to the mortgagee title policy previously
issued to Bank in connection with the Loans (the "Title Policy"),
the standard Texas Form T-38 Endorsement pursuant to Rule P-9B(3)
of the Basic Manual of Rules, Rates and Forms for the Writing of
Title Insurance in the State of Texas (the "Title Manual"), and
the Standard Texas Form T-33 Endorsement pursuant to Rule P-9B(6)
of the Title Manual, all acceptable to Bank, confirming that the
Title Policy has not been reduced or terminated by virtue of the
terms and provisions of this Amendment and the other Loan
Modification Documents (as defined below).

7.   Acknowledgment by Borrower.  Except as otherwise specified
herein, the terms and provisions hereof shall in no manner
impair, limit, restrict or otherwise affect the obligations of
Borrower or any third party to Bank, as evidenced by the Loan
Documents.  Borrower hereby acknowledges, agrees and represents
that (i) Borrower is indebted to Bank pursuant to the terms of
the Notes as modified; (ii) the liens, security interests and
assignments created and evidenced by the Security Instruments
are, respectively, valid and subsisting liens, security interests
and assignments of the respective dignity and priority recited in
the Security Instruments; (iii) there are no claims or offsets
against, or defenses or counterclaims to, the terms or provisions
of the Security Instruments or the other Loan Documents, and the
other obligations created or evidenced by the Security
Instruments or the other Loan Documents; (iv) Borrower has no
claims, offsets, defenses or counterclaims arising from any of
Bank's acts or omissions with respect to the Mortgaged Property,
the Security Instruments or the other Loan Documents or Bank's
performance under the Security Instruments or the other Loan
Documents or with respect to the Mortgaged Property; (v) the
representations and warranties of Borrower contained in the Loan
Agreement, the Security Instruments and the other Loan Documents
are and remain true and correct as of the date hereof; and (vi)
Bank is not in default and no event has occurred which, with the
passage of time, giving of notice, or both, would constitute a
default by Bank of Bank's obligations under the terms and
provisions of the Loan Documents.

8.   No Waiver of Remedies.  Except as may be expressly set forth
herein, nothing contained in this Amendment shall prejudice, act
as, or be deemed to be a waiver of any right or remedy available
to Bank by reason of the occurrence or existence of any fact,
circumstance or event constituting a default under the Notes or
the other Loan Documents.

9.   Effectiveness of the Security Instruments.  Except as
expressly modified by the terms and provisions of this Second
Amendment to Loan Agreement and by the prior Amendment to Loan
Agreement, the Amendment to Promissory Note, and the Second
Amendment to Promissory Note referenced above, and the Amendment
to Revolving Credit Note and the Second Amendment to Revolving
Credit Note referenced above, and the Modification Agreement and
the Second Modification Agreement referenced above (collectively,
the "Loan Modification Documents"), each of the terms and
provisions of the Loan Agreement, the Notes, the Security
Instruments and the other Loan Documents are hereby ratified and
shall remain in full force and effect; provided, however, that
any reference in any of the Security Instruments to the Loans,
the amounts constituting the Loans, any defined terms, or to any
of the other Security Instruments shall be deemed, from and after
the date hereof, to refer to the Loans, the amounts constituting
the Loans, defined terms and to the Notes, the Loan Agreement,
the Lien Instruments and such other Loan Documents, as modified
by the Loan Modification Documents.

10.  Costs and Expenses.  Contemporaneously with the execution
and delivery hereof, Borrower shall pay, or cause to be paid, all
costs and expenses incident to the preparation, execution and
recordation of the Loan Modification Documents and the
consummation of the transaction contemplated hereby, including,
but not limited to, recording fees, title insurance policy or
endorsement premiums or other charges of the Title Company, and
reasonable fees and expenses of legal counsel to Bank.

11.  Additional Documentation.  From time to time, Borrower shall
execute or procure and deliver to Bank such other and further
documents and instruments evidencing, securing or pertaining to
the Loans or the Loan Documents as shall be reasonably requested
by Bank so as to evidence or effect the terms and provisions
hereof.  Upon Bank's request, Borrower shall cause to be
delivered to Bank an opinion of counsel, satisfactory to Bank as
to form, substance and rendering attorney, opining to (i) the
validity and enforceability of this Amendment and the other Loan
Modification Documents and the terms and provisions hereof and
thereof, and any other agreement executed in connection with the
transaction contemplated hereby; (ii) the authority of Borrower,
and any constituents of Borrower, to execute, deliver and perform
its or their respective obligations under the Loan Documents, as
modified by the Loan Modification Documents; and (iii) such other
matters as reasonably requested by Bank.

12.  Severability.  If any clause or provision of this Amendment
is or should ever be held to be illegal, invalid or unenforceable
under any present or future law applicable to the terms hereof,
then and in that event, it is the intention of the parties hereto
that the remainder of this Amendment shall not be affected
thereby, and that in lieu of each such clause or provision of
this Amendment that is illegal, invalid or unenforceable, such
clause or provision shall be judicially construed and interpreted
to be as similar in substance and content to such illegal,
invalid or unenforceable clause or provision, as the context
thereof would reasonably suggest, so as to thereafter be legal,
valid and enforceable

13.  Borrower's Reaffirmation.  Borrower hereby reaffirms all of
its obligations under the Notes (as amended), the Loan Agreement
(as amended hereby), the Lien Instruments (as amended) and the
other Loan Documents, and acknowledges that it has no claims,
offsets or defenses with respect to the payment of sums due under
the Notes (as amended), the Loan Agreement (as amended hereby),
the Lien  Instruments (as amended) or the other Loan Documents.

14.  Continuing Effect; Ratification.  Except as expressly
amended and modified by this Amendment, the Loan Agreement shall
remain unchanged and in full force and effect. The Loan
Agreement, as modified by this Amendment, and all documents,
assignments, transfers, liens and security rights pertaining to
it, are hereby ratified, reaffirmed and confirmed in all respects
as valid, subsisting and continuing in full force and effect.
The Loan Agreement and this Amendment shall together comprise the
Loan Agreement with respect to the Loans.

15.  No Waiver.  The execution and delivery of this Amendment
shall in no way be deemed to be a waiver by Bank of any default
or potential default by Borrower under the Loan Agreement or the
other Loan Documents or of any rights, powers or remedies of Bank
under the Loan Agreement or the other Loan Documents, and shall
in no way limit, impair or prejudice Bank from exercising any
past, present or future right, power or remedy available to it
under the Loan Agreement and the other Loan Documents.

16.  No Novation.  It is the intent of the parties that this
Amendment shall not constitute a novation and shall in no way
limit, diminish, impair or adversely affect the lien priority of
the Lien Instruments.  All of the liens and security interests
securing the Loans, including, without limitation, the liens and
security interests created by the Lien Instruments, are hereby
ratified, reinstated, renewed, confirmed and extended to secure
the Loans and the Notes as modified.

17.  Binding Effect.  This Amendment shall be binding upon and
shall inure to the benefit of Borrower and Bank, and their
respective successors and assigns.

18.  Governing Law.  This Amendment shall be construed in
accordance with and governed by the laws of the State of Texas.

19.  Counterpart Execution.  This Amendment may be executed in
any number of counterparts, each of which shall be deemed an
original, but together shall constitute one and the same
instrument.

20.  Notice of Final Agreement.  This Amendment is the entire
agreement between the parties with respect to modifications of
documents provided for herein and supersedes all prior
conflicting or inconsistent agreements, consents and
understandings relating to such subject matter.
     THE  NOTES,  THE  LOAN AGREEMENT, THIS AMENDMENT,  THE  LIEN
     INSTRUMENTS AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
     AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
     EVIDENCE  OF  PRIOR,  CONTEMPORANEOUS,  OR  SUBSEQUENT  ORAL
     AGREEMENTS OF THE PARTIES.

     THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN PARTIES.



                    [SIGNATURE PAGES FOLLOW]

     IN  WITNESS  WHEREOF, Borrower and Bank have  executed  this
Amendment to be effective as of the Amendment Date.



                              BORROWER:

                              STRATUS PROPERTIES INC.,
                              a Delaware corporation



                               By:    /s/ William H. Armstrong, III
                                      -----------------------------
                              Name:      William H. Armstrong, III
                             Title:  Chairman of the Board, President
                                        and Chief Executive Officer





                              STRATUS PROPERTIES OPERATING CO.,
                              L.P.,
                              a Delaware limited partnership



                              By:     STRS L.L.C.,
                                   a Delaware limited liability company,
                                   General Partner


                                   By:     Stratus Properties Inc.,
                                      a Delaware corporation,
                                      Sole Member



                                      By: /s/ William H. Armstrong, III
                                          ---------------------------
                                      Name:William H. Armstrong, III
                                      Title:Chairman of the Board,
                                                   President
                                           and Chief Executive Officer





                              CIRCLE C LAND CORP.,
                              a Texas corporation



                                   By:  /s/William H. Armstrong, III
                                      --------------------------------
                                 Name:     William H. Armstrong, III
                                Title:            President





                              AUSTIN 290 PROPERTIES, INC.,
                              a Texas corporation



                                 By:  /s/William H. Armstrong, III
                                     --------------------------------
                               Name:     William H. Armstrong, III
                              Title:          President





                              BANK:

                              COMERICA BANK-TEXAS,
                              a state banking association



                              By:
                              Name:
                              Title:


                                           Exhibit 10.26

                  CONSTRUCTION LOAN AGREEMENT


     This  CONSTRUCTION LOAN AGREEMENT ("Agreement") is made  and
entered  into  as of the 11th day of June, 2001, by  and  between
7500   RIALTO   BOULEVARD,  L.P.,  a  Texas  limited  partnership
("Borrower"),   whose  address  is  98  San  Jacinto   Boulevard,
Suite  220, Austin, Texas 78701, and COMERICA BANK-TEXAS, a state
banking association ("Lender"), whose address is 1601 Elm Street,
2nd  Floor,  Dallas,  Texas  75201, Attn:  National  Real  Estate
Services.


                           ARTICLE I

                      DEFINITION OF TERMS

     I.1   Definitions.  As used in this Agreement, the following
terms shall have the respective meanings indicated below:

     Advance:   A  disbursement  by Lender,  whether  by  journal
entry,  deposit  to Borrower's account, check to third  party  or
otherwise  of  any  of  the proceeds of the Loan,  any  insurance
proceeds or Borrower's Deposit.

     Affidavit  of  Commencement:  As  defined  in  Section  5.13
hereof.

     Affidavit of Completion:  As defined in Section 5.14 hereof.

     Agreement:  This Loan Agreement, as the same may  from  time
to time be amended or supplemented.

     Allocations:   The line items set forth in the  Budget   for
which Advances of Loan proceeds will be made.

     Assignment  of Leases:  The Assignment of Leases  and  Rents
assigning  to  Lender Borrower's interest in all  leases  entered
into  for  the Mortgaged Property and all rents and other  rights
and  benefits  to which Borrower is entitled under the  terms  of
such leases.

     Borrower's  Deposit:  Such cash amounts as Lender  may  deem
necessary for Borrower to deposit with it in accordance with  the
provisions of Section 3.4 of this Agreement.

     Budget:  The budget which is set forth on Exhibit B attached
hereto and incorporated herein by reference.

     Commencement Date:  March 29, 2001.

     Commitment  Fee:   The  sum  of $45,875.00  to  be  paid  by
Borrower  to  Lender in connection with funding for the  Phase  I
Improvements,  and if the Phase II Conditions  are  satisfied  as
evidenced  by  the execution of a modification agreement  between
Lender  and  Borrower, an additional commitment fee of $45,875.00
shall be due from Borrower to Lender.

     Completion  Date:  January 15, 2002, for completion  of  the
shell portion of the Phase I Improvements.

     Construction  Contract:   Collectively,  all  contracts  and
agreements   entered   into  between  Borrower   and   Contractor
pertaining to the development, construction and completion of the
Phase I  Improvements.

     Contractor:    Zapalac/Reed  Construction   Company,   L.C.,
together  with  any  other person or entity  with  whom  Borrower
contracts for the development, construction and completion of the
Phase I Improvements or any portion thereof.

     Cross-Default    Agreement:     The    Cross-Default     and
Cross-Collateralization Agreement of even date herewith  executed
by  and  among Lender, Borrower and Guarantor, and other  parties
whereby the Mortgaged Property and the collateral of Guarantor as
more   fully   described  therein  which  secures  that   certain
$30,000,000.00  loan from Lender to Guarantor as evidenced  by  a
$20,000,000.00  Promissory  Note and a  $10,000,000.00  Revolving
Credit  Note,  respectively, each dated December  16,  1999,  and
thereafter modified by Modification Agreement dated December  27,
2000,  by  and  between  Lender,  Guarantor,  Stratus  Properties
Operating  Co.,  L.P.,  Circle  C  Land  Corp.,  and  Austin  290
Properties, Inc., are cross-collateralized and the $30,000,000.00
loan and this loan are cross-defaulted.

     Deed  of  Trust:  The Amended and Restated Deed of Trust  of
even  date herewith pursuant to which Borrower mortgages the Land
to secure the Loan.

     Design  Professional:  Susman Tisdale Gayle,  together  with
any  other person or entity with whom Borrower contracts for  the
providing  of  planning,  design, architectural,  engineering  or
other  similar services relating to the Phase I Improvements,  if
any.

     Design  Services Contract:  Collectively, all contracts  and
agreements   entered  into  between  Borrower  and  each   Design
Professional   pertaining   to  the   design,   development   and
construction of the Phase I Improvements, if any.

     Disposition:  Any sale, lease (except as expressly permitted
pursuant   to   the   Loan   Documents),  exchange,   assignment,
conveyance, transfer, trade, or other disposition of all  or  any
portion  of  the Mortgaged Property (or any interest therein)  or
all  or  any  part,  directly or indirectly,  of  the  beneficial
ownership  interest in Borrower (if Borrower  is  a  corporation,
partnership,  general  partnership,  limited  partnership,  joint
venture,  trust, or other type of business association  or  legal
entity);  provided, however, a sale of the publicly traded  stock
of  Stratus  Properties, Inc. shall not constitute a  Disposition
under the terms of this Agreement.

     Draw  Request:   a  request by Borrower  to  Lender  for  an
Advance  in such form and containing such information  as  Lender
may reasonably require.

     Environmental  Law:   Any  federal,  state,  or  local  law,
statute,  ordinance, or regulation, whether now or  hereafter  in
effect,  pertaining  to  health,  industrial  hygiene,   or   the
environmental  conditions  on,  under,  or  about  the  Land   or
Improvements, including the Comprehensive Environmental Response,
Compensation,  and  Liability Act of 1980 ("CERCLA"),  42  U.S.C.
& 9601 et seq.; Resource, Conservation and Recovery Act ("RCRA"),
42  U.S.C.  & 6901 et seq. as amended by the Superfund Amendments
and  Reauthorization Act of 1986 ("SARA"), Pub.  L.  99-499,  100
Stat.  1613; the Toxic Substances Control Act, 15 U.S.C.  &  2601
et  seq.; Emergency Planning and Community Right to Know  Act  of
1986,  42  U.S.C.  &  1101  et seq.;  Clean  Water  Act  ("CWA"),
33 U.S.C. & 1251 et seq.; Clean Air Act ("CAA"), 42 U.S.C. & 7401
et seq.; Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C.
&  1251  et  seq.; and any corresponding state laws or ordinances
including  the Texas Water Code ("TWC") & 26.001 et  seq.;  Texas
Health  &  Safety  Code ("THSC") & 361.001 et seq.;  Texas  Solid
Waste  Disposal Act, Tex. Rev. Civ. Stat. Ann. art.  4477-7;  and
regulations, rules, guidelines, or standards promulgated pursuant
to such laws, statutes and regulations.

     Event of Default:  Any happening or occurrence described  in
Section 8.1 of this Agreement.

     Financing  Statement:  The financing statement or  financing
statements  (on  Standard Form UCC-1 or otherwise)  executed  and
delivered by Borrower in connection with the Loan Documents.

     Governmental   Authority:   Any  and  all  courts,   boards,
agencies,  commissions,  offices, or authorities  of  any  nature
whatsoever  for  any governmental unit (federal,  state,  county,
district, municipal, city or otherwise), whether now or hereafter
in existence.

     Governmental Requirements:  All statutes, laws,  ordinances,
rules, regulations, orders, writs, injunctions or decrees of  any
Governmental Authority applicable to Borrower, Guarantor  or  the
Mortgaged Property.

     Guarantor:     STRATUS   PROPERTIES,   INC.,   a    Delaware
corporation.

     Guaranty:   That  or those instruments of  guaranty  now  or
hereafter  in  effect from Guarantor to Lender  guaranteeing  the
repayment of all or any part of the Loan, the satisfaction of, or
continued  compliance with, the covenants contained in  the  Loan
Documents, or both.

     Hazardous Substance: Any substance, product, waste, or other
material  which is or becomes listed, regulated, or addressed  as
being   a  toxic,  hazardous,  polluting,  or  similarly  harmful
substance   under   any  Environmental  Law,  including   without
limitation:  (i) any substance included within the definition  of
"hazardous  waste"  pursuant to Section 1004 of  RCRA;  (ii)  any
substance included within the definition of "hazardous substance"
pursuant  to Section 101 of CERCLA; (iii) any substance  included
within  (a)  the definition of "regulated substance" pursuant  to
Section  26.342(11) of TWC; or (b) the definition  of  "hazardous
substance"   pursuant   to   Section   361.003(11)    of    THSC;
(iv)  asbestos;  (v)  polychlorinated biphenyls;  (vi)  petroleum
products; (vii) underground storage tanks, whether empty,  filled
or  partially  filled with any substance; (viii) any  radioactive
materials, urea formaldehyde foam insulation or radon;  (ix)  any
substance  included within the definition of "waste" pursuant  to
Section   30.003(b)   of   TWC   or   "pollutant"   pursuant   to
Section  26.001(13) of TWC; and (x) any other chemical,  material
or  substance,  the exposure to which is prohibited,  limited  or
regulated  by any Governmental Authority on the basis  that  such
chemical, material or substance is toxic, hazardous or harmful to
human health or the environment.

     Improvements:   Collectively, the Phase I  Improvements  and
the Phase II Improvements.

     Indebtedness:  As defined in the Deed of Trust.

     Initial  Advance:   The  Advance to  be  made  at  the  time
Borrower satisfies the conditions set forth in Sections  3.1  and
3.2 of this Agreement.

     Inspecting Person:  A representative of AECC will from  time
to  time inspect the Phase I Improvements and the development  of
Phase II Improvements for the benefit of Lender.

     Land:   The  real property or interest therein described  in
Exhibit  A  attached  hereto  and  incorporated  herein  by  this
reference upon which the Phase I and Phase II Improvements are to
be constructed.

     Loan:   The loan evidenced by the Note and governed by  this
Agreement.

     Loan  Amount:   Up  to a maximum amount of EIGHTEEN  MILLION
THREE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($18,350,000.00).

     Loan   Documents:   The  Note,  the  Deed  of  Trust,   this
Agreement,  the Security Agreement, the Financing Statement,  the
Guaranty, the Assignment, and any and all other documents now  or
hereafter  executed  by  the Borrower, Guarantor,  or  any  other
person  or  party  in connection with the Loan, the  indebtedness
evidenced  by  the  Note,  or  the covenants  contained  in  this
Agreement.

     Loan Extension:  That certain twelve (12) month extension of
the  Maturity  Date  of  the  Loan  provided  the  conditions  of
Section 2.9 are satisfied.

     Material Adverse Effect:  Any material and adverse effect on
(i)  the business condition (financial or otherwise), operations,
prospects,  results of operations, capitalization,  liquidity  or
any  properties of the Borrower, taken as a whole, (ii) the value
of  the Mortgaged Property, (iii) the ability of Borrower or  any
Guarantor  (or if the Borrower or any Guarantor is a partnership,
joint  venture,  trust or other type of business association,  of
any  of the parties comprising Borrower or such Guarantor) to pay
and  perform  the  Indebtedness  or  any  other  Obligations,  or
(iv) the validity, enforceability or binding effect of any of the
Loan Documents.

     Mortgaged  Property:  Collectively, the Land,  the  Phase  I
Improvements  and  the Phase II Improvements if constructed,  and
all other collateral covered by the Loan Documents.

     Note:  The promissory note dated as of even date herewith in
the  principal sum of the Loan Amount (together with all renewals
and  extensions  thereof)  executed  and  delivered  by  Borrower
payable to the order of Lender, evidencing the Loan.

     Obligations:   Any  and  all of the  covenants,  conditions,
warranties, representations, and other obligations (other than to
repay   the   Indebtedness)  made  or  undertaken  by   Borrower,
Guarantor, or any other person or party to the Loan Documents  to
Lender, the trustee of the Deed of Trust, or others as set  forth
in the Loan Documents, and in any deed, lease, sublease, or other
form  of  conveyance, or any other agreement  pursuant  to  which
Borrower is granted a possessory interest in the Land.

     Phase  I  Improvements:  That certain   77,500  square  foot
office   building,  together  with  a  parking   deck   providing
approximately  one  hundred (100) covered spaces  and  all  other
amenities,  to be constructed on the Mortgaged Property,  all  as
more particularly described in the Plans and Specifications.

     Phase  II Improvements:  A second office building consisting
of 77,500 square feet of space to be constructed on the Mortgaged
Property, together with all amenities, which shall be constructed
in  accordance with the Plans and Specifications and which  shall
be  funded  out  of the loan proceeds of this Loan  PROVIDED  the
conditions  of  Lender are met in accordance with this  Agreement
(the "Phase II Conditions").

     Plans and Specifications:  The plans and specifications  for
the  development  and construction of the Phase  I  Improvements,
prepared  by Borrower or the Design Professional and approved  by
Lender   as  required  herein,  by  all  applicable  Governmental
Authorities, by any party to a purchase or construction  contract
with  a  right  of  approval,  all amendments  and  modifications
thereof  approved in writing by the same, and all  other  design,
engineering  or architectural work, test reports,  surveys,  shop
drawings, and related items.

     Security  Agreement:  The Security Agreement shall mean  all
security  agreements, whether contained in the Deed of  Trust,  a
separate  security  agreement or otherwise  creating  a  security
interest  in  all  personal  property and  fixtures  of  Borrower
(including   replacements,   substitutions   and   after-acquired
property)  now or hereafter located in or upon the  Land  or  the
Phase I and Phase II Improvements, or used or intended to be used
in the operation thereof, to secure the Loan.

     Soft  Costs:   All architectural, engineering, interior  and
landscape design, legal, consulting and other related fees, taxes
on   land  and  improvements,  bond  and  insurance  costs,   and
commitment fees, interest and other financing charges, all as set
forth in the Approved Budget.

     Subordinate Mortgage:  Any mortgage, deed of trust,  pledge,
lien   (statutory,  constitutional,  or  contractual),   security
interest,  encumbrance or charge, or conditional  sale  or  other
title  retention agreement, covering all or any  portion  of  the
Mortgaged Property executed and delivered by Borrower,  the  lien
of  which is subordinate and inferior to the lien of the Deed  of
Trust.

     Special  Account:  An account established by  Borrower  with
Lender  (in which Borrower shall at all times maintain a  minimum
balance  of  $1,000.00) into which all Advances made directly  to
Borrower will be deposited.

     Tenant  Leases:  All written leases or rental agreements  by
which  Borrower,  as  landlord, grants to a  tenant  a  leasehold
interest  in a portion of the leasable space within the Mortgaged
Property.

     Title  Insurance:  One or more title insurance  commitments,
binders  or policies, as Lender may require, issued by the  Title
Company,  on  a  coinsurance or reinsurance  basis  (with  direct
access  endorsement or rights) if and as required by  Lender,  in
the  maximum amount of the Loan insuring or committing to  insure
that the Deed of Trust constitutes a valid lien covering the Land
and the Phase I and Phase II  Improvements, subject only to those
exceptions which Lender may approve.

     Title Company:  The Title Company (and its issuing agent, if
applicable)   issuing  the  Title  Insurance,  which   shall   be
acceptable to Lender in its sole and absolute discretion.

                           ARTICLE II

                            THE LOAN

     II.1 Agreement to Lend.  Lender hereby agrees to lend up  to
but  not  in excess of the Loan Amount to Borrower, and  Borrower
hereby  agrees  to  borrow such sum from  Lender,  all  upon  and
subject  to the terms and provisions of this Agreement, such  sum
to  be  evidenced  by the Note.  No principal  amount  repaid  by
Borrower may be reborrowed by Borrower.  Borrower's liability for
repayment of the interest on account of the Loan shall be limited
to   and  calculated  with  respect  to  Loan  proceeds  actually
disbursed to Borrower pursuant to the terms of this Agreement and
the  Note  and only from the date or dates of such disbursements.
After   notice   to  Borrower,  Lender  may,  in  Lender's   sole
discretion,  disburse  Loan proceeds  by  journal  entry  to  pay
interest  and financing costs and, following an uncured Event  of
Default, disburse Loan proceeds directly to third parties to  pay
costs  or  expenses required to be paid by Borrower  pursuant  to
this  Agreement.   Loan proceeds disbursed by Lender  by  journal
entry  to  pay  interest or financing costs,  and  Loan  proceeds
disbursed directly by Lender to pay costs or expenses required to
be  paid by Borrower pursuant to this Agreement, shall constitute
Advances  to Borrower.  Borrower hereby acknowledges  and  agrees
that  the maximum amount to be funded by Lender for the  Phase  I
Improvements shall be $9,175,000.00 and that no Advances shall be
used by Borrower to pay for any development or construction costs
for  the  Phase  II Improvements unless and until  the  Phase  II
Conditions of Article VI hereafter have been fully satisfied  and
Lender  and  Borrower have entered into a modification  agreement
acceptable  to  the parties hereto whereby the  commencement  and
completion  dates for the Phase II Improvements  and  such  other
terms and conditions as Lender may require has been executed.

     II.2  Advances.   The purposes for which Loan  proceeds  are
allocated and the respective amounts of such Allocations are  set
forth in the Budget, which Advances shall be limited to the value
of the work in place as determined by the Inspecting Person.

     II.3  Allocations.  The Allocations shall be disbursed  only
for  the purposes set forth in the Budget.  Lender shall  not  be
obligated to make an Advance for an Allocation set forth  in  the
Budget  to  the  extent that the amount of the Advance  for  such
Allocation  would,  when  added to all prior  Advances  for  such
Allocation, exceed the total of such Allocation as set  forth  in
the Budget.

     II.4  Limitation  on  Advances.  To  the  extent  that  Loan
proceeds  disbursed  by Lender pursuant to  the  Allocations  are
insufficient  to  pay  all costs required  for  the  acquisition,
development,   construction  and  completion  of  the   Mortgaged
Property, Borrower shall pay such excess costs with funds derived
from  sources other than the Loan.  Under no circumstances  shall
Lender  be required to disburse any proceeds of the Loan for  the
construction  of  the Phase II Improvements until  the  Phase  II
Conditions have been satisfied or in excess of the Loan Amount.

     II.5  Reallocations.   Lender reserves  the  right,  at  its
option,  to  disburse  Loan proceeds  allocated  to  any  of  the
Allocations  for  such  other  purposes  or  in  such   different
proportions as Lender may, in its sole discretion, deem necessary
or  advisable.   Borrower shall not be entitled to  require  that
Lender reallocate funds among the Allocations.

     II.6  Contingency Allocations.  Any amount allocated in  the
Budget for "contingencies" or other non-specific purposes may, in
the  Lender's  discretion, be disbursed by Lender to  pay  future
contingent  costs  and  expenses  of  maintaining,  leasing   and
promoting the Mortgaged Property and such other costs or expenses
as  Lender  shall  approve.   Under no  circumstances  shall  the
Borrower have the right to require Lender to disburse any amounts
so   allocated  and  Lender  may  impose  such  requirements  and
conditions as it deems prudent and necessary should it  elect  to
disburse all or any portion of the amounts so allocated.

     II.7  Withholding.  Lender may withhold from an Advance  or,
on  account of subsequently discovered evidence, withhold from  a
later  Advance under this Agreement or require Borrower to  repay
to  Lender the whole or any part of any earlier Advance  to  such
extent  as  may be necessary to protect the Lender from  loss  on
account  of  (i)  defective work not remedied or requirements  of
this  Agreement  not  performed, (ii) liens filed  or  reasonable
evidence  indicating  probable filing  of  liens  which  are  not
bonded,  (iii)  failure  of Borrower  to  make  payments  to  the
Contractor for material or labor, except as is permitted  by  the
Construction  Contract,  or  (iv) a  reasonable  doubt  that  the
construction of the Phase I Improvements can be completed  for  a
maximum  amount of $9,175,000.00, or, if the Phase II  Conditions
have  been  met, that the Phase II Improvements can be  completed
for  the  balance of the Loan Amount then undisbursed.  When  all
such grounds are removed, payment shall be made of any amount  so
withheld because of them.

     II.8 Loan Limitation.  It is expressly agreed and understood
that, in accordance with the Budget, to the extent an Advance  is
for construction costs of the Phase I Improvements, such Advance,
except  for  the final payment under the Loan, shall  not  exceed
ninety  percent (90%) of the actual construction costs  to  which
such Advance relates; and

     II.9  Loan  Extension.   Provided the  following  conditions
precedent  shall  have  been satisfied, then  Borrower  shall  be
entitled  to  extend the maturity of the Note  by  an  additional
twelve (12) months.  The conditions precedent to extension of the
Note for the twelve (12) month period are as follows:

          (a)  Written notice of such extension shall be given by
     Borrower  at least thirty (30) days prior to the  expiration
     of  the  original Maturity Date (as defined in the Note)  of
     the  Note; and, with such notice, Borrower shall pay to  the
     Lender,  in  cash, the Extension Fee of $22,937.50  for  the
     extension;

          (b)   The  Lender shall have received a current  tenant
     estoppel  certificate (which certificate shall be reasonably
     satisfactory to the Lender in form and substance) from  each
     tenant  who  has entered into a Lease for a portion  of  the
     Mortgaged Property.

          (c)  No Event of Default, or any event, circumstance or
     action of which the Borrower is aware (by notice from Lender
     or  otherwise)  and with the passage of time or  failure  to
     cure  would  give rise to an Event of Default, has  occurred
     and is then existing;

          (d)   No event, claim, liability or circumstance  shall
     have occurred which, in the Lender's determination, could be
     expected to have or have had a Material Adverse Effect;

          (e)   Written  evidence being provided by Borrower  and
     reasonably  satisfactory to the Lender indicating  that  the
     Debt  Coverage  Ratio  (as defined in  Section  5.20  below)
     calculated for the three (3) month calendar period ending as
     of  the last day of the then term (absent extension pursuant
     to  this  Section 2.9) shall be not less than 1.20X  of  the
     then   outstanding  Indebtedness;  or  Borrower  shall  have
     prepaid  the  Curative Amount pursuant  to  Section  5.20(d)
     below  necessary  to achieve a 1.20 Debt Coverage  Ratio  or
     pledged    adequate    liquid   collateral    pursuant    to
     Section 5.20(e) below; and

          (f)   Net Operating Income (as defined in Section  5.20
     below) shall be a minimum of $1,100,000.00.

          (g)  Lender shall have received an updated appraisal of
     the  Mortgaged Property, at Borrower's expense, prepared  by
     an  appraiser  acceptable  to Lender  and  based  upon  such
     standards as Lender may require.

                          ARTICLE III

                            ADVANCES

     III.1     Conditions to Initial Advance.  The obligation  of
Lender  to make the Initial Advance hereunder is subject  to  the
prior  or  simultaneous  occurrence  of  each  of  the  following
conditions:

          (a)   Lender shall have received from Borrower  all  of
     the  Loan  Documents  duly  executed  by  Borrower  and,  if
     applicable, by Guarantor.

          (b)   Lender  shall have received certified  copies  of
     resolutions of Borrower, if Borrower is a corporation, or  a
     certified  copy of a consent of partners, if Borrower  is  a
     partnership, authorizing execution, delivery and performance
     of  all  of the Loan Documents and authorizing the borrowing
     hereunder,   along  with  such  certificates  of  existence,
     certificates  of  good  standing and other  certificates  or
     documents  as  Lender  may reasonably  require  to  evidence
     Borrower's authority.

          (c)   Lender  shall have received true  copies  of  all
     organization documents of Borrower, including all amendments
     or  supplements thereto, if Borrower is a legal entity other
     than  a  corporation, along with such certificates or  other
     documents  as  Lender  may reasonably  require  to  evidence
     Borrower's authority.

          (d)   Lender  shall  have received  evidence  that  the
     Mortgaged  Property  is  not located within  any  designated
     flood  plain or special flood hazard area; or evidence  that
     Borrower  has  applied  for  and  received  flood  insurance
     covering the Mortgaged Property in the amount of the Loan or
     the maximum coverage available to Lender.

          (e)   Lender shall have received evidence of compliance
     with all Governmental Requirements.

          (f)   Lender  shall  have received a full-size,  single
     sheet  copy of all recorded subdivision or plat maps of  the
     Land  approved  (to  the  extent  required  by  Governmental
     Requirements)   by   all   Governmental   Authorities,    if
     applicable,   and   legible  copies   of   all   instruments
     representing  exceptions  to  the  state  of  title  to  the
     Mortgaged Property.

          (g)   Lender  shall have received policies of  all-risk
     builder's  risk  insurance  (non-reporting  form)  for   the
     construction  of  the  Phase  I  Improvements,  owner's  and
     contractor's   liability  insurance,  workers'  compensation
     insurance, and such other insurance as Lender may reasonably
     require,  with standard endorsements attached naming  Lender
     as the insured mortgagee or additional insured, whichever is
     applicable,  such  policies to be in form  and  content  and
     issued by companies reasonably satisfactory to Lender,  with
     copies,  or certificates thereof, being delivered to Lender.
     In   the  event  the  Phase  II  Conditions  are  met,   the
     requirements of this paragraph shall then also be  in  place
     for the Phase II Improvements.

          (h)  Lender shall have received the Title Insurance, at
     the sole expense of Borrower.

          (i)   Lender  shall  have received from  Borrower  such
     other  instruments, evidence and certificates as Lender  may
     reasonably require, including the items indicated below:

               (1)   Evidence  that  all the  streets  furnishing
          access to the Mortgaged Property have been dedicated to
          public  use  and installed and accepted  by  applicable
          Governmental Authorities.

               (2)   A current survey of the Land prepared  by  a
          registered  surveyor  or  engineer  and  certified   to
          Lender,  Borrower and the Title Company,  in  form  and
          substance reasonably acceptable to Lender, showing  all
          easements, building or setback lines, rights-of-way and
          dedications affecting said land and showing no state of
          facts objectionable to Lender.

               (3)   Evidence reasonably satisfactory  to  Lender
          showing the availability of all necessary utilities  at
          the  boundary lines of the Land, including sanitary and
          storm   sewer  facilities,  potable  water,  telephone,
          electricity, gas, and municipal services.

               (4)  Evidence that the current and proposed use of
          the  Mortgaged  Property and the  construction  of  the
          Phase  I  Improvements complies with  all  Governmental
          Requirements.

               (5)   An  opinion  of counsel for Borrower,  which
          counsel shall be satisfactory to Lender, to the  effect
          that (i) Borrower possesses full power and authority to
          own  the  Mortgaged Property, to construct the Phase  I
          Improvements  and  to  perform  Borrower's  obligations
          hereunder;  (ii)  the  Loan Documents  have  been  duly
          authorized,  executed and delivered  by  Borrower  and,
          where  required, by Guarantor, and constitute the valid
          and  binding obligations of Borrower and Guarantor, not
          subject  to  any defense based upon usury, capacity  of
          Borrower  or  otherwise; (iii) the Loan  Documents  are
          enforceable in accordance with their respective  terms,
          except  as limited by bankruptcy, insolvency and  other
          laws  affecting creditors' rights generally, and except
          that certain remedial provisions thereof may be limited
          by  the  laws  of  the  State of  Texas;  (iv)  to  the
          knowledge of such counsel, there are no actions,  suits
          or   proceedings  pending  or  threatened  against   or
          affecting   Borrower,  Guarantor   or   the   Mortgaged
          Property,  or  involving  the  priority,  validity   or
          enforceability  of  the  liens  or  security  interests
          arising out of the Loan Documents, at law or in equity,
          or  before  or  by  any Governmental Authority,  except
          actions,   suits  or  proceedings  fully   covered   by
          insurance or which, if adversely determined, would  not
          substantially  impair  the  ability  of   Borrower   or
          Guarantor to pay when due any amounts which may  become
          payable  in respect to the Loan as represented  by  the
          Note;  (v)  to  the knowledge of such counsel,  neither
          Borrower  nor Guarantor is in default with  respect  to
          any  order, writ, injunction, decree or demand  of  any
          court  or  any  Governmental Authority  of  which  such
          counsel  has knowledge; (vi) to the knowledge  of  such
          counsel,  the  consummation of the transactions  hereby
          contemplated and the performance of this Agreement  and
          the  execution  and delivery of the Guaranty  will  not
          violate  or  contravene any provision of any instrument
          creating  or  governing  the  business  operations   of
          Borrower or Guarantor and will not result in any breach
          of,  or constitute a default under, any mortgage,  deed
          of trust, lease, bank loan or credit agreement or other
          instrument  to  which Borrower or any  Guarantor  is  a
          party  or by which Borrower, Guarantor or the Mortgaged
          Property may be bound or affected; and (vii) such other
          matters as Lender may reasonably request.

               (6)   A  cost  breakdown  satisfactory  to  Lender
          showing the total costs, including, but not limited to,
          such  related nonconstruction items as interest  during
          construction,  commitment, legal,  design  professional
          and  real estate agents' fees, plus the amount  of  the
          Land cost and direct construction costs required to  be
          paid   to   satisfactorily   complete   the   Phase   I
          Improvements,  free and clear of liens  or  claims  for
          liens  for  material  supplied and for  labor  services
          performed.

               (7)    Original   or  a  copy  of  each   proposed
          Construction Contract.

               (8)   Original  or a copy of each  fully  executed
          Design Services Contract.

               (9)    Waiver   of   lien  or  lien  subordination
          agreement(s)   for  the  prior  month's  draw   request
          executed by Contractor and by each contractor,  laborer
          and  suppliers  furnishing labor or  materials  to  the
          Mortgaged  Property,  in a form acceptable  to  Lender,
          together  with Borrower's affidavit to Lender that  all
          changes and expenses incurred to date for the Mortgaged
          Property have been paid in full.

               (10)  A  copy of the Plans and Specifications  for
          the Phase I Improvements.

               (11) Building permit(s), grading permit(s) and all
          other permits required with respect to the construction
          of the Phase I Improvements.

               (12)   Evidence   that   all   applicable   zoning
          ordinances and restrictive covenants affecting the Land
          permit  the  use  for which the Phase I  and  Phase  II
          Improvements  are intended and have  been  or  will  be
          complied with.

               (13)  Evidence  of  payment of required  sums  for
          insurance,   taxes,   expenses,   charges   and    fees
          customarily  required or recommended by Lender  or  any
          Governmental   Authority,   corporation,   or    person
          guaranteeing,  insuring  or purchasing,  committing  to
          guaranty, insure, purchase or refinance the Loan or any
          portion thereof.

               (14)  A  current financial statement of  Guarantor
          certified by said Guarantor.
               (15) A Guaranty executed by the Guarantor.

               (16)  A schedule of construction progress for  the
          Phase  I Improvements with the anticipated commencement
          and  completion dates of each phase of construction and
          the  anticipated date and amounts of each  Advance  for
          the same.

               (17)  Copies  of  all agreements entered  into  by
          Borrower  or  its operating partner pertaining  to  the
          development, construction and completion of the Phase I
          Improvements or pertaining to materials to be  used  in
          connection  therewith,  together  with  a  schedule  of
          anticipated dates and amounts of each Advance  for  the
          same.

               (18)  Environmental  site assessment  report  with
          respect to the Mortgaged Property prepared by a firm of
          engineers  approved by Lender, which  report  shall  be
          satisfactory   in   form  and  substance   to   Lender,
          certifying that there is no evidence that any Hazardous
          Substance  have  been  generated,  treated,  stored  or
          disposed  of on any of the Mortgaged Property and  none
          exists on, under or at the Mortgaged Property.

               (19)  A  soils and geological report covering  the
          Land  issued by a laboratory approved by Lender,  which
          report  shall be satisfactory in form and substance  to
          Lender,  and  shall  include a summary  of  soils  test
          borings.

               (20)   Such   other   instruments,   evidence   or
          certificates as Lender may reasonably request.

          (j)   Lender  shall  have  ordered  and  received,   at
     Borrower's expense, an appraisal of the Mortgaged  Property,
     prepared  by an appraiser acceptable to Lender and presented
     and based upon such standards as may be required by Lender.

          (k)   Lender  shall have received payment of $45,875.00
     of the Commitment Fee.

          (l)   Borrower shall have furnished evidence to  Lender
     that it has contributed cash equity and/or the Land (at  its
     fair  market value) of an amount not less than $3,431,177.00
     in the aggregate.

     III.2      Conditions to Advances.  The obligation of Lender
to  make  each Advance hereunder, including the Initial  Advance,
shall  be  subject  to  the prior or simultaneous  occurrence  or
satisfaction of each of the following conditions:

          (a)  The Loan Documents shall be and remain outstanding
     and  enforceable in all material respects in accordance with
     their terms, all as required hereunder.

          (b)   Lender  shall have received a title report  dated
     within two (2) days of the requested Advance from the  Title
     Company  showing no state of facts objectionable to  Lender,
     including, but not limited to, a showing that title  to  the
     Land  is vested in Borrower and that no claim for mechanics'
     or  materialmen's liens has been filed against the Mortgaged
     Property.

          (c)   A  monthly  construction status  report  for  the
     Phase  I  Improvements shall be prepared  and  submitted  by
     Borrower to Lender on or before the tenth (10th) day of each
     month,  commencing on or before May 10, 2001 and  continuing
     for each month thereafter.

          (d)    The  representations  and  warranties  made   by
     Borrower,  as contained in this Agreement and in  all  other
     Loan  Documents shall be true and correct as of the date  of
     each  Advance;  and if requested by Lender,  Borrower  shall
     give to Lender a certificate to that effect.

          (e)   The  covenants  made by Borrower  to  Lender,  as
     contained  in this Agreement and in all other Loan Documents
     shall  have  been fully complied with, except to the  extent
     such compliance may be limited by the passage of time or the
     completion of construction of the Phase I Improvements.
          (f)   Lender  shall have received (i) a fully  executed
     copy  of each Construction Contract or copy thereof  (to  be
     dated  after the date of recordation of the Deed of  Trust);
     and   (ii)   a   report   of   any  changes,   replacements,
     substitutions, additions or other modification in  the  list
     of  contractors, subcontractors and materialmen involved  or
     expected to be involved in the construction of the  Phase  I
     Improvements.

          (g)   Except  in  connection with the Initial  Advance,
     Lender shall have received from Borrower a Draw Request  for
     such  Advance, completed, executed and sworn to by  Borrower
     and  Contractor, with the Inspecting Person's approval noted
     thereon,  stating that the requested amount does not  exceed
     ninety percent (90%) of the then unpaid cost of construction
     of  the  Phase  I  Improvements since the  last  certificate
     furnished hereunder; that said construction was performed in
     accordance with the Plans and Specifications in all material
     respects;  and that, in the opinion of Borrower,  Contractor
     and  the  Design Professional, construction of the  Phase  I
     Improvements  can be completed on or before  the  Completion
     Date for an additional cost not in excess of the amount then
     available under the Loan.  To the extent approved by  Lender
     and  included in the Budget, such expenses will be paid from
     the proceeds of the Loan.

          (h)   Except  in  connection with the Initial  Advance,
     Borrower   shall  have  furnished  to  Lender,   from   each
     contractor,   subcontractor   and   materialman,   including
     Contractor,   an  invoice,  lien  waiver  and   such   other
     instruments  and documents as Lender may from time  to  time
     specify,   in   form  and  content,  and   containing   such
     certifications, approvals and other data and information, as
     Lender may reasonably require.  The invoice, lien waiver and
     other  documents shall cover and be based upon work actually
     completed or materials actually furnished and paid  under  a
     prior application for payment. The lien waiver for the prior
     month's   draws   of  each  contractor,  subcontractor   and
     materialman  shall, if required by Lender,  be  received  by
     Lender   simultaneously  with  the  making  of  any  Advance
     hereunder  for the benefit of such contractor, subcontractor
     or materialman.

          (i)   There  shall exist no default or  breach  by  any
     obligated   party  (other  than  Lender)  under   the   Loan
     Documents.

          (j)   The  Phase  I Improvements shall  not  have  been
     materially  injured, damaged or destroyed by fire  or  other
     casualty,  nor shall any part of the Mortgaged  Property  be
     subject to condemnation proceedings or negotiations for sale
     in lieu thereof.

          (k)    All   work  typically  done  at  the  stage   of
     construction when the Advance is requested shall  have  been
     done,  and  all materials, supplies, chattels  and  fixtures
     typically   furnished  or  installed  at   such   stage   of
     construction shall have been furnished or installed.

          (l)   All  personal property not yet incorporated  into
     the Phase I Improvements but which is to be paid for out  of
     such Advance, must then be located upon the Land, secured in
     a  method  acceptable  to  Lender,  and  Lender  shall  have
     received  evidence thereof, or if stored off-site,  must  be
     stored  in  a  secured  area  and  must  be  available   for
     inspection by the Inspecting Person.

          (m)   Borrower shall have complied with all  reasonable
     requirements  of the Inspecting Person to insure  compliance
     with  the  Plans and Specifications and all requirements  of
     the Governmental Authorities.

          (n)  Except in connection with the Initial Advance,  if
     the Phase I Improvements are being built for any party under
     a  purchase  or  construction contract, then Lender  at  its
     election  may require the approval of such purchaser  before
     making any additional Advance.

          (o)  Borrower shall have fully completed (to the extent
     applicable), signed, notarized and delivered to  Lender  the
     Draw Request Form.

          (p)   If  any  portion of the Phase I Improvements  are
     being  built  for  a specific lessee, the approval  by  such
     lessee  of  the  construction thereof with  respect  to  the
     applicable  portion of the Phase I Improvements  subject  to
     such  lease shall be obtained and furnished to Lender,  upon
     request therefor by Lender.

          (q)   Borrower  shall have funded all  Borrower  equity
     requirements indicated on the Budget.

     III.3      Advance Not A Waiver.  No Advance of the proceeds
of the Loan shall constitute a waiver of any of the conditions of
Lender's  obligation to make further Advances, nor, in the  event
Borrower is unable to satisfy any such condition, shall any  such
Advance  have  the  effect of precluding Lender  from  thereafter
declaring such inability to be an Event of Default.

     III.4      Borrower's Deposit.  If at any time Lender  shall
in  its sole discretion deem that the undisbursed proceeds of the
Loan   are   insufficient  to  meet  the  costs   of   completing
construction of the Phase I Improvements, plus any and  all  Soft
Costs for the Phase I Improvements, Lender may refuse to make any
additional  Advances to Borrower hereunder until  Borrower  shall
have   deposited   with   Lender  sufficient   additional   funds
("Borrower's Deposit") to cover the deficiency which Lender deems
to  exist. Such Borrower's Deposit will be disbursed by Lender to
Borrower pursuant to the terms and conditions hereof as  if  they
constituted a portion of the Loan being made hereunder.  Borrower
agrees upon fifteen (15) days written demand by Lender to deposit
with  Lender  such Borrower's Deposit.  Lender  agrees  that  the
Borrower's   Deposit  shall  be  placed  in  an  interest-bearing
account.

     III.5      Advance  Not  An Approval.   The  making  of  any
Advance  or  part  thereof shall not be  deemed  an  approval  or
acceptance  by Lender of the work theretofore done. Lender  shall
have no obligation to make any Advance or part thereof after  the
happening  of any Event of Default, but shall have the right  and
option so to do; provided that if Lender elects to make any  such
Advance, no such Advance shall be deemed to be either a waiver of
the right to demand payment of the Loan, or any part thereof,  or
an obligation to make any other Advance.

     III.6      Time and Place of Advances.  All Advances are  to
be made at the office of Lender, or at such other place as Lender
may  designate;  and  Lender shall require five  (5)  days  prior
notice  in writing before the making of any such Advance.  Lender
shall  not  be obligated to undertake any Advance hereunder  more
than  once  in  any 30-day period.  Except as set forth  in  this
Agreement, all Advances are to be made by direct deposit into the
Special Account.  In the event Borrower shall part with or be  in
any manner whatever deprived of Borrower's interests in the Land,
Lender may, at Lender's option but without any obligation  to  do
so,  continue to make Advances under this Agreement, and  subject
to all its terms and conditions, to such person or persons as may
succeed  to  Borrower's  title  and  interest  and  all  sums  so
disbursed  shall  be  deemed Advances under  this  Agreement  and
secured  by  the  Deed of Trust and all other liens  or  security
interests securing the Loan.

     III.7      Retainage.  An amount equal to ten percent  (10%)
of  the cost of construction of the Phase I Improvements shall be
retained  by Lender and shall be paid over by Lender to Borrower,
provided that no lien claims are then filed against the Mortgaged
Property,  when  all  of  the  following  have  occurred  to  the
satisfaction of Lender with respect to the Phase I Improvements:

          (a)   Lender  has  received  a  completion  certificate
     prepared  by the Inspecting Person and executed by  Borrower
     and  the  Design  Professional  stating  that  the  Phase  I
     Improvements  have  been completed in  accordance  with  the
     Plans  and Specifications, together with such other evidence
     that   no   mechanics  or  materialmen's  liens   or   other
     encumbrances  have been filed and remain in  effect  against
     the  Mortgaged  Property  which  have  not  been  bonded  to
     Lender's  satisfaction  and that all offsite  utilities  and
     streets, if any, have been completed to the satisfaction  of
     Lender and any applicable Governmental Authority;

          (b)   each applicable Governmental Authority shall have
     duly  inspected  and approved the Phase I  Improvements  and
     issued  the  appropriate permit, license or  certificate  to
     evidence such approval;

          (c)  thirty (30) days shall have elapsed from the later
     of  (i)  the date of completion of the Phase I Improvements,
     as   specified  in  Texas  Property  Code  &53.106,  if  the
     Affidavit  of  Completion provided for in this Agreement  is
     filed within ten (10) days after such date of completion, or
     (ii)  the date of filing of such Affidavit of Completion  if
     such  Affidavit of Completion is filed ten (10) days or more
     after the date of the completion of the Phase I Improvements
     as specified in Texas Property Code &53.106; and

          (d)   receipt  by  Lender of evidence  satisfactory  to
     Lender   that  payment  in  full  has  been  made  for   all
     obligations incurred in connection with the construction and
     completion  of  all off-site utilities and improvements  (if
     any) as required by Lender or any Governmental Authority.

     III.8      No  Third Party Beneficiaries.  The  benefits  of
this Agreement shall not inure to any third party, nor shall this
Agreement  be  construed to make or render Lender liable  to  any
materialmen, subcontractors, contractors, laborers or others  for
goods  and  materials  supplied or work and  labor  furnished  in
connection  with the construction of the Phase I Improvements  or
for  debts  or  claims accruing to any such persons  or  entities
against  Borrower. Lender shall not be liable for the  manner  in
which  any  Advances  under  this Agreement  may  be  applied  by
Borrower,  Contractor and any of Borrower's other contractors  or
subcontractors.  Notwithstanding anything contained in  the  Loan
Documents,  or  any conduct or course of conduct by  the  parties
hereto,  before  or  after  signing  the  Loan  Documents,   this
Agreement  shall not be construed as creating any rights,  claims
or  causes  of  action against Lender, or any  of  its  officers,
directors,  agents  or  employees, in favor  of  any  contractor,
subcontractor, supplier of labor or materials, or  any  of  their
respective  creditors, or any other person or entity  other  than
Borrower.   Without  limiting the generality  of  the  foregoing,
Advances  made  to any contractor, subcontractor or  supplier  of
labor  or  materials,  pursuant to  any  requests  for  Advances,
whether  or  not  such  request is required  to  be  approved  by
Borrower,  shall  not  be deemed a recognition  by  Lender  of  a
third-party beneficiary status of any such person or entity.

                           ARTICLE IV

                 WARRANTIES AND REPRESENTATIONS

     Borrower  hereby unconditionally warrants and represents  to
Lender, as of the date hereof and at all times during the term of
the Agreement, as follows:

     IV.1 Plans and Specifications.  The Plans and Specifications
for the Phase I Improvements are satisfactory to Borrower, are in
compliance  with  all Governmental Requirements in  all  material
respects and, to the extent required by Governmental Requirements
or any effective restrictive covenant, have been approved by each
Governmental Authority and/or by the beneficiaries  of  any  such
restrictive covenant affecting the Mortgaged Property.

     IV.2   Governmental  Requirements.   No  violation  of   any
Governmental  Requirements exists or will exist with  respect  to
the Mortgaged Property and neither the Borrower nor the Guarantor
is,   nor  will  either  be,  in  default  with  respect  to  any
Governmental Requirements.

     IV.3  Utility Services.  All utility services of  sufficient
size  and capacity necessary for the construction of the Phase  I
Improvements and the use thereof for their intended purposes  are
available  at the property line(s) of the Land for connection  to
the  Phase  I  Improvements, including potable water,  storm  and
sanitary sewer, gas, electric and telephone facilities.

     IV.4  Access.  All roads necessary for the full  utilization
of the Phase I Improvements for their intended purposes have been
completed and have been dedicated to the public use and  accepted
by the appropriate Governmental Authority.

     IV.5  Financial  Statements.  Each  financial  statement  of
Borrower   and   Guarantor  delivered  heretofore,   concurrently
herewith  or  hereafter to Lender was and  will  be  prepared  in
conformity with general accepted accounting principles, or  other
good accounting principles approved by Lender in writing, applied
on  a  basis  consistent  with that of  previous  statements  and
completely  and  accurately disclose the financial  condition  of
Borrower and Guarantor (including all contingent liabilities)  as
of the date thereof and for the period covered thereby, and there
has  been  no  material  adverse change in either  Borrower's  or
Guarantor's  financial condition subsequent to the  date  of  the
most   recent  financial  statement  of  Borrower  and  Guarantor
delivered to Lender.

     IV.6 Statements.  No certificate, statement, report or other
information   delivered  heretofore,  concurrently  herewith   or
hereafter  by  Borrower  or Guarantor  to  Lender  in  connection
herewith,  or  in  connection with any  transaction  contemplated
hereby,  contains  or  will contain any  untrue  statement  of  a
material  fact or fails to state any material fact  necessary  to
keep the statements contained therein from being misleading,  and
same were true, complete and accurate as of the date hereof.

     IV.7    Disclaimer   of   Permanent   Financing.    Borrower
acknowledges and agrees that Lender has not made any commitments,
either  express or implied, to extend the term of the  Loan  past
its  stated  maturity  date  or  to  provide  Borrower  with  any
permanent financing except as expressly set forth herein.

                           ARTICLE V

                     COVENANTS OF BORROWER

     Borrower  hereby unconditionally covenants and  agrees  with
Lender, until the Loan shall have been paid in full and the  lien
of the Deed of Trust shall have been released, as follows:

     V.1   Commencement and Completion.  Borrower will cause  the
construction  of  the Phase I Improvements  to  commence  by  the
Commencement  Date  and  to  be  prosecuted  with  diligence  and
continuity and will complete the same in all material respects in
accordance  with  the Plans and Specifications for  the  Phase  I
Improvements on or before the Completion Date, free and clear  of
liens  or  claims for liens for material supplied and  for  labor
services  performed  in connection with the construction  of  the
Phase I Improvements.  If the Phase II Conditions as set forth in
Article  VI  below are met, then Lender and Borrower shall  agree
upon  a commencement date and a completion date for the Phase  II
Improvements,   and   the  warranties  and  representations   and
covenants  of  Borrower  shall be  applicable  to  the  Phase  II
Improvements as are set forth above with respect to the  Phase  I
Improvements.

     V.2   No  Changes.  Borrower will not amend, alter or change
(pursuant to change order, amendment or otherwise) the Plans  and
Specifications for the Phase I Improvements unless the same shall
have  been  approved  in advance in writing  by  Lender,  by  all
applicable  Governmental Authorities, and by  each  surety  under
payment  or performance bonds covering the Construction  Contract
or any other contract for construction of all or a portion of the
Phase I Improvements; provided, however, Borrower shall have  the
right to approve change orders without Lender's consent which  do
not  individually  exceed $25,000.00, or in the aggregate  exceed
$100,000.00 for the Phase I Improvements..

     V.3   Advances.  Borrower will receive the Advances and will
hold  same as a trust fund for the purpose of paying the cost  of
construction   of   the   Phase  I   Improvements   and   related
nonconstruction  costs  related  to  the  Mortgaged  Property  as
provided for herein. Borrower will apply the same promptly to the
payment of the costs and expenses for which each Advance is  made
and will not use any part thereof for any other purpose.

     V.4   Lender's Expenses.  Borrower will reimburse Lender for
all   out-of-pocket  expenses  of  Lender,  including  reasonable
attorneys'  fees,  incurred in connection with  the  preparation,
execution, delivery, administration and performance of  the  Loan
Documents.

     V.5   Surveys.   Borrower will furnish Lender at  Borrower's
expense   (i)  a  foundation survey and (ii) an as-built  survey,
each prepared by a registered engineer or surveyor acceptable  to
Lender,  showing  the locations of the Phase I Improvements,  and
certifying  that same are entirely within the property  lines  of
Land, do not encroach upon any easement, setback or building line
or  restrictions,  are placed in accordance with  the  Plans  and
Specifications, all Governmental Requirements and all restrictive
covenants affecting the Land and/or the Phase I Improvements, and
showing  no  state of facts objectionable to Lender. All  surveys
shall  be  in  form  and substance and from a  registered  public
surveyor acceptable to Lender.
     V.6   Defects and Variances.  Borrower will, upon demand  of
Lender  and  at  Borrower's sole expense, correct any  structural
defect in the Phase I Improvements or any variance from the Plans
and  Specifications  for the Phase I Improvements  which  is  not
approved in writing by Lender.

     V.7   Estoppel  Certificates.   Borrower  will  deliver   to
Lender, promptly after request therefor, estoppel certificates or
written  statements, duly acknowledged, stating the  amount  that
has  then  been  advanced to Borrower under this  Agreement,  the
amount due on the Note, and whether any known offsets or defenses
exist against the Note or any of the other Loan Documents.

     V.8   Inspecting  Person.  Borrower will pay  the  fees  and
expenses  of, and cooperate, with the Inspecting Person and  will
cause  the  Design Professional, the Contractor, each  contractor
and  subcontractor and the employees of each of them to cooperate
with  the  Inspecting Person and, upon request, will furnish  the
Inspecting  Person  whatever the Inspecting Person  may  consider
necessary  or  useful in connection with the performance  of  the
Inspecting  Person's duties.  Without limiting the generality  of
the  foregoing, Borrower shall furnish or cause to  be  furnished
such  items  as  working  details, Plans and  Specifications  and
details   thereof,  samples  of  materials,  licenses,   permits,
certificates  of public authorities, zoning ordinances,  building
codes  and  copies  of  the  contracts between  such  person  and
Borrower  (if  applicable).  Borrower  will  permit  Lender,  the
Inspecting Person and their representative to enter the Mortgaged
Property   for   the  purposes  of  inspecting  same.    Borrower
acknowledges that the duties of the Inspecting Person run  solely
to   Lender  and  that  the  Inspecting  Person  shall  have   no
obligations   or   responsibilities   whatsoever   to   Borrower,
Contractor,  the Design Professional, or to any of Borrower's  or
Contractor's agents, employees, contractors or subcontractors.

     V.9  BROKERS.  BORROWER WILL INDEMNIFY LENDER FROM CLAIMS OF
BROKERS  ARISING  BY  REASON  OF  THE  EXECUTION  HEREOF  OR  THE
CONSUMMATION  OF  THE  TRANSACTIONS CONTEMPLATED  HEREBY  TO  THE
EXTENT  SUCH BROKER WAS CONTACTED OR HIRED BY BORROWER OR  EITHER
OF ITS JOINT VENTURERS.

     V.10  Personalty  and Fixtures.  Borrower  will  deliver  to
Lender,  on  demand,  any contracts, bills of  sale,  statements,
receipted  vouchers  or  agreements under which  Borrower  claims
title to any materials, fixtures or articles incorporated in  the
Phase  I Improvements or subject to the lien of the Deed of Trust
or to the security interest of the Security Agreement.

     V.11  Compliance  with Governmental Requirements.   Borrower
will comply promptly with all Governmental Requirements.

     V.12  Compliance with Restrictive Covenants.  Borrower  will
comply  with  all  restrictive covenants, if any,  affecting  the
Mortgaged Property. Construction of the Phase I Improvements will
be  performed  in  a  good  and workmanlike  manner,  within  the
perimeter  boundaries  of  the Land  and  within  all  applicable
building  and  setback lines in accordance with all  Governmental
Requirements  and the Plans and Specifications.  There  are,  and
will be, no structural defects in the Phase I Improvements.

     V.13  Affidavit of Commencement.  Borrower has filed in  the
appropriate records of the county in which the Land is  situated,
an  Affidavit  of  Commencement  ("Affidavit  of  Commencement"),
substantially  in  the  form of Exhibit  C  attached  hereto  and
incorporated herein by this reference, duly executed by  Borrower
and  Contractor.  The date of commencement of work set  forth  in
such  Affidavit of Commencement shall not be the date of or prior
to the date on which the original Deed of Trust was recorded.

     V.14  Affidavit  of Completion.  Borrower, within  ten  (10)
days  after  construction of the Phase I  Improvements  has  been
completed, shall file in the appropriate records in the county in
which the Land is situated an Affidavit of Completion ("Affidavit
of  Completion")  in  the form of Exhibit D attached  hereto  and
incorporated herein by this reference.

     V.15  Payment of Expenses.  Borrower shall pay or  reimburse
to  Lender all out-of-pocket costs and expenses relating  to  the
Mortgaged  Property and for which an Advance is  made,  including
(without  limitation), title insurance and  examination  charges,
survey costs, insurance premiums, filing and recording fees,  and
other  expenses payable to third parties incurred  by  Lender  in
connection with the consummation of the transactions contemplated
by this Agreement.

     V.16  Notices Received.  Borrower will promptly  deliver  to
Lender  a  true  and  correct copy of  all  notices  received  by
Borrower  from  any  person or entity with respect  to  Borrower,
Guarantor,  the Mortgaged Property, or any or all of them,  which
in  any  way  relates  to or affects the Loan  or  the  Mortgaged
Property.

     V.17 Advertising by Lender.  Borrower agrees that during the
term  of  the  Loan,  Borrower shall erect and  thereafter  shall
maintain on the Mortgaged Property one or more advertising  signs
furnished  by  Lender  indicating  that  the  financing  for  the
Mortgaged Property has been furnished by Lender.

     V.18  Approval to Lease Required.  Borrower will obtain  the
prior  written consent of Lender, which consent shall be  granted
or  denied  in  Lender's sole discretion, as to any tenant  lease
("Lease")  proposed to be entered into by Borrower for  space  in
the  Phase  I  Improvements  and will not  thereafter  materially
modify  any  Lease  as to the rental rate,  term  or  any  credit
enhancement issue without Lender's prior consent.  Lender  agrees
that  it  will respond to any request for review of a  Lease,  or
change  thereto,  within ten (10) days of receipt  of  a  written
request from Borrower.  Borrower agrees to submit to each  tenant
in connection with a proposed lease the Lender's required form of
Subordination,  Non-Disturbance  and  Attornment  Agreement  (the
"SNDA"), substantially in the form attached hereto as Exhibit E.

     V.19 Statements and Reports.  Borrower agrees to deliver  to
Lender,  during the term of the Loan and until the Loan has  been
fully paid and satisfied, the following statements and reports:

          (a)   Annual, audited financial statements of Borrower,
     each  general  partner  of  Borrower  and  Guarantor  within
     ninety-five  (95) days after the end of each calendar  year,
     commencing in the calendar year 2002, prepared and certified
     to  by  Guarantor  and, in the case of Borrower,  the  chief
     financial officer of the general partner of Borrower;

          (b)     Monthly   marketing   reports   with   detailed
     information  as  to  leasing activities  shall  be  provided
     Lender  on  or  before  the  fifteenth  (15th)  day  of  the
     following month;

          (c)   Copies  of  all  state and  federal  tax  returns
     prepared  with respect to Borrower, each Guarantor  and  the
     general  partner of Borrower within ten (10)  days  of  such
     returns  being  filed with the Internal Revenue  Service  or
     applicable state authority;

          (d)   Copies of extension requests or similar documents
     with  respect  to  federal or state income tax  filings  for
     Borrower, each Guarantor and the general partner of Borrower
     within ten (10) days of such documents being filed with  the
     Internal Revenue Service or applicable state authority;

          (e)   Annual operating statements with respect  to  the
     Mortgaged  Property within ninety-five (95) days  after  the
     end  of each calendar year, prepared in such form and detail
     as  Lender  may  require  and  certified  to  by  the  chief
     financial officer of the general partner of Borrower;

          (f)   Monthly operating statements and a rent roll with
     respect to the Phase I Improvements, within thirty (30) days
     after  the  end  of  each  calendar month,  commencing  upon
     lease-up of said property, prepared in such form and  detail
     as  Lender  may  reasonably require and in  accordance  with
     generally accepted accounting principles and certified to by
     the  chief  financial  officer of  the  general  partner  of
     Borrower; and

          (g)   Such  other reports and statements as Lender  may
     reasonably require from time to time.

     V.20  Debt  Coverage. If, at any time after the commencement
of  the Loan Extension, the Borrower should maintain with respect
to  the  Mortgaged  Property a Debt Coverage  Ratio  (hereinafter
defined)  of less than 1.20, then Borrower must partially  prepay
the  Note  to  the  extent  of the Curative  Amount  (hereinafter
defined).

          (a)   Calculation.  The Debt Coverage Ratio calculation
     shall be undertaken for each three (3) month calendar period
     (the  "Calendar  Period").  The term "Debt  Coverage  Ratio"
     means  Net  Operating  Income (hereinafter  defined)  for  a
     Calendar   Period  divided  by  Debt  Service   Requirements
     (hereinafter  defined) with respect to  such  same  Calendar
     Period.    Borrower  shall  provide  written  evidence   and
     documents  to Lender indicating the calculations and  backup
     information  for the Debt Coverage Ratio for  each  Calendar
     Period within fifteen (15) days after the expiration of each
     such  Calendar  Period.  The Lender  shall  be  entitled  to
     request and require such backup documentation, including but
     not  limited to certified financial information, as  may  be
     reasonably required by the Lender in order to satisfy itself
     as to the correct calculation of the Debt Coverage Ratio for
     any Calendar Period.

          (b)   Debt Service Requirements.  For Calendar  Periods
     occurring  from  and after Loan Extension,  the  term  "Debt
     Service  Requirements" shall mean all principal and interest
     payments  with  respect to the Loan  which  would  be  owing
     during  such  Calendar  Period, based  upon  a  hypothetical
     payment schedule calculated using the outstanding balance of
     the Note at Loan Extension, utilizing an interest rate based
     upon  a  level-payment  mortgage  amortization  schedule  of
     twenty-five  (25)  years  and is the  greater  of:  (i)  two
     hundred  (200) basis points over the ten (10) year  Treasury
     Index, or (ii) eight and 50/100 percent (8.50%).

          (c)   Net  Operating Income.  The term  "Net  Operating
     Income" shall mean, for each applicable Calendar Period, the
     Gross  Income less Operating Expenses, determined on a  cash
     basis of accounting except as otherwise provided herein.  As
     used  herein, the following terms shall have the  respective
     meanings set forth below.

               (1)   Gross  Income.  The term "Gross Income"  for
          each  Calendar Period shall mean rentals, revenues  and
          other cash forms of consideration, received by, or paid
          to  or  for  the  account of or  for  the  benefit  of,
          Borrower   resulting  from  or  attributable   to   the
          operation,  leasing  and  occupancy  of  the  Mortgaged
          Property,  determined  on  a  cash  basis  (except   as
          specified herein), including, but not limited  to,  the
          following:

                    (i)   rents by any lessees or tenants of  the
               Mortgaged Property actually in occupancy;

                    (ii)  rents and receipts received by  or  for
               the  benefit of Borrower with respect to the  full
               or  partial  reimbursement of  Operating  Expenses
               from   any  lessee  or  tenant  of  the  Mortgaged
               Property;

                    (iii)      installments of proceeds  received
               by  or  for  the benefit of Borrower in connection
               with  any  rental  loss  or business  interruption
               insurance  with respect to the Mortgaged  Property
               calculated on an accrual basis;

                    (iv)  any  other fees or rents collected  by,
               for  or on behalf of Borrower with respect to  the
               leasing and operation of the Mortgaged Property;

                    (v)   any  refunds of deposits for obtaining,
               using  or maintaining utility services for all  or
               any portion of the Mortgaged Property;

                    (vi) interest, if any, earned by Borrower  on
               security  and other type deposits of  and  advance
               rentals  paid  by, any lessees or tenants  of  the
               Mortgaged Property; and

                    (vii)      the  amount  of any  security  and
               other  type deposits and advance rentals  relating
               to   the   Mortgaged  Property  which  have   been
               forfeited.

               Notwithstanding anything included within the above
          definition  of  Gross Income, there shall  be  excluded
          from  Gross Income the following:  (i) any security  or
          other deposits of lessees and tenants, unless and until
          the  same actually are either applied to actual rentals
          owed  or  other charges or fees or forfeited; (ii)  the
          proceeds  of any financing or refinancing with  respect
          to all or any part of the Mortgaged Property; (iii) the
          proceeds  of  any  sale  or other  capital  transaction
          (excluding leases for occupancy purposes only)  of  all
          or  any  portion  of the Mortgaged Property;  (iv)  any
          insurance or condemnation proceeds paid with respect to
          the  Mortgaged  Property, except  for  rental  loss  or
          business  interruption insurance; and (v) any insurance
          and  condemnation proceeds applied in reduction of  the
          principal of the Note in accordance with the  terms  of
          the   Deed  of  Trust  or  the  other  Loan  Documents;
          provided,  however, nothing set forth herein  shall  in
          any  manner  imply  the Lender's  consent  to  a  sale,
          refinancing or other capital transaction.

               (2)   Operating  Expenses.   The  term  "Operating
          Expenses"  shall mean the greater of (a) the  pro-forma
          expenses  (as assumed in the Appraisal dated March  16,
          2001, prepared by Frederick & Hornsby) allocable to the
          applicable  period which shall be not less  than  $7.99
          per square foot for either the Phase I Improvements  or
          the  Phase II Improvements (inclusive of the management
          fee),  or (b) those amounts actually incurred and  paid
          with  respect to the ownership, operation,  management,
          leasing   and  occupancy  of  the  Mortgaged  Property,
          determined  on  a  cash  basis,  except  as   otherwise
          specified  herein, including, but not limited  to,  any
          and  all  of the following (but without duplication  of
          any item):

                    (i)   ad  valorem  taxes  calculated  on   an
               accrual  basis  (and  not on the  cash  basis)  of
               accounting  for the Calendar Period; such  accrual
               accounting  for  ad valorem taxes shall  be  based
               upon  taxes  actually  assessed  for  the  current
               calendar  year,  or  if such  assessment  for  the
               current  calendar  year has not  been  made,  then
               until such assessment has been made (and with  any
               retroactive adjustments for prior calendar  months
               as  may  ultimately  be  needed  when  the  actual
               assessments  has been made) ad valorem  taxes  for
               the  Calendar Period shall be estimated  based  on
               the   last   such  assessment  for  the  Mortgaged
               Property;

                    (ii)  foreign, U.S., state and  local  sales,
               use  or other taxes, except for taxes measured  by
               net income;

                    (iii)     installments of special assessments
               or  similar charges against the Mortgaged Property
               calculated on an accrual basis;

                    (iv) costs of utilities, air conditioning and
               heating  for the Mortgaged Property to the  extent
               not directly paid by lessees or tenants;

                    (v)   maintenance and repair  costs  for  the
               Mortgaged Property;

                    (vi)  management fees provided, however,  the
               amount  of  such  management  fees  which  may  be
               charged  hereunder shall not be less than the  sum
               of  four percent (4%) of the Gross Income for each
               applicable calendar month;

                    (vii)       all  salaries,  wages  and  other
               benefits  to  "on-site" employees of the  Borrower
               (excluding all salaries, wages and other  benefits
               of  officers and supervisory personnel, and  other
               general   overhead  expenses   of   Borrower   and
               Borrower's    property   manager)   employed    in
               connection  with  the  leasing,  maintenance   and
               management of the Mortgaged Property;

                    (viii)    insurance premiums calculated on an
               accrual  basis  (and  not on the  cash  basis)  of
               accounting  for the Calendar Period; such  accrual
               accounting for insurance premiums shall  be  based
               upon  the  insurance premiums  for  the  Mortgaged
               Property  which was last billed to  the  Borrower,
               adjusted to an annualized premium if necessary;

                    (ix)  to  the  extent  not  included  in  the
               Budget,   costs,  including  leasing  commissions,
               advertising  and promotion costs,  to  obtain  new
               leases or to extend or renew existing leases,  and
               the costs of work performed and materials provided
               to  ready  tenant space in the Mortgaged  Property
               for   new   or  renewal  occupancy  under  leases;
               provided,  however, such costs shall be  amortized
               throughout the period of the primary term  of  the
               applicable Lease;

                    (x)   outside accounting and audit  fees  and
               costs  and  administrative expenses in  connection
               with  the direct operation and management  of  the
               Mortgaged Property;  and

                    (xi)  any  payments, and any related interest
               thereon,  to  lessees or tenants of the  Mortgaged
               Property  with  respect to  security  deposits  or
               other deposits required to be paid to tenants  but
               only to the extent any such security deposits  and
               related  interest  thereon  have  been  previously
               included in Gross Income.

               Notwithstanding anything to the contrary as  being
          included in the definition of Operating Expenses, there
          shall   be   excluded  from  Operating   Expenses   the
          following:   (i)  depreciation and any  other  non-cash
          deduction  allowed to Borrower for income tax purposes,
          and  (ii)  costs incurred to obtain new  leases  or  to
          extend  or renew existing leases to the extent included
          in  the  Budget (i.e., leasing commissions, advertising
          and  promotion  costs,  costs  of  work  performed  and
          material  provided  to  ready  tenant  space   in   the
          Mortgaged Property).

          (d)   Curative Amount.  In the event the Debt  Coverage
     Ratio for any Calendar Period should be less than 1.20,  and
     unless   Borrower  otherwise  elects  to  pledge  Additional
     Collateral  as  provided  in Section  5.20(e)  below,  then,
     within  fifteen  (15)  days after written  notice  from  the
     Lender  to Borrower, Borrower shall prepay a portion of  the
     Note  (the  "Curative  Amount") such  that  a  minimum  Debt
     Coverage Ratio of 1.20 or more is created based on  (1)  the
     actual  Net  Operating Income for the immediately  preceding
     Calendar  Period and (2) a revised Debt Service  Requirement
     for  the then current Calendar Period, determined as of  the
     beginning  of  such Calendar Period, which  results  from  a
     reamortization  of  such  reduced  balance   of   the   Loan
     sufficient  to  fully amortize such Loan on a  level-payment
     mortgage  amortization basis in 25-years from  the  date  of
     Loan  Extension.   Failure of Borrower to  timely  fund  any
     required  Curative  Amount shall  be  deemed  an  "Event  of
     Default" pursuant to this Agreement in addition to any other
     "Events of Default" specified herein.

          (e)  Pledge of Liquid Collateral.  As an alternative to
     payment  of the Curative Amount, Borrower shall be entitled,
     in the event the Debt Coverage Ratio for any Calendar Period
     should  be  determined  to  be less  than  1.20,  to  pledge
     additional collateral to secure the Loan.  The collateral to
     be  so  pledged to the Lender must be in the form  of  cash,
     certificates of deposit, letters of credit, stocks, bonds or
     other  highly liquid investments acceptable in all  respects
     to  the  Lender  in  its sole and absolute  discretion  (for
     purposes of this Agreement, the term "Additional Collateral"
     shall  mean and refer to such additional collateral as shall
     be  approved  by  the Lender and pledged  pursuant  to  this
     Section  5.20[e]).   The amount or value of  the  Additional
     Collateral required to be pledged shall be a function of the
     liquidation value of such collateral, as determined  by  the
     Lender  in  its  reasonable discretion, and  shall  be  such
     amount  properly margined (i.e., the liquidation  value)  as
     would,  if  subtracted from the total amount of indebtedness
     evidenced  and represented by the Note at such time,  result
     in  a  Debt  Coverage Ratio (calculated as  provided  above)
     equal to 1.20.  In connection with such pledge of Additional
     Collateral,  and  not  later than fifteen  (15)  days  after
     written  notice  from the Lender to Borrower  of  Borrower's
     obligation  to either pay the Curative Amount or  to  pledge
     the  Additional Collateral, and provided that  Borrower  has
     not  instead paid the Curative Amount required at that  time
     pursuant  to  Section 5.20(d) above, Borrower shall  execute
     and   deliver   to  the  Lender  all  pledge  and   security
     agreements,  financing  statements  and  other  instruments,
     certificates  and agreements as the Lender shall  reasonably
     require,  and  shall  deliver to the Lender  the  Additional
     Collateral     or     such    instruments,     certificates,
     acknowledgments,  stock  powers, authorizations,  powers  of
     attorney,  consents and any and all other documentation,  as
     executed  by all appropriate parties as may be necessary  to
     effectuate  the  collateral pledge and  assignment  of  such
     collateral  to  the Lender, as the Lender  and  its  counsel
     shall  reasonably deem necessary or appropriate.  If,  after
     the  Borrower's provision of Additional Collateral, the Debt
     Coverage  Ratio should improve so as to be 1.20 or more  for
     any   Calendar  Period  (without  taking  into  account  the
     Additional Collateral), then Borrower shall be entitled to a
     release  of  the  Additional  Collateral.   Borrower   shall
     thereafter be required to either pay to Lender the  Curative
     Amount  or repledge Additional Collateral to the extent  the
     required  Debt Coverage Ratio should fail to be  met  during
     any  subsequent  Calendar  Period  and  shall  likewise   be
     entitled  to  a re-release of any such subsequently  pledged
     Additional   Collateral  consistent  with  the   immediately
     preceding sentence.

                           ARTICLE VI

                      PHASE II CONDITIONS

     VI.1 Agreement to Lend Additional Funds Under the Note.   As
set  forth in Section 2.1 above, Lender has agreed to lend up  to
but   not   in   excess  of  $9,175,000.00  in  connection   with
construction  of the Phase I Improvements.  Lender hereby  agrees
to   lend   up  to  the  additional  sum  of  $9,175,000.00   for
construction of the Phase II Improvements, such total loan amount
not  to exceed the sum of $18,350,000.00 as evidenced by the Note
provided that the following conditions are satisfied by Borrower:

          (a)    At  least  seventy-five  percent  (75%)  of  the
     rentable  space in the Phase I Improvements has been  leased
     on  terms  and conditions and with tenants approved  by  the
     Lender  and written leases for said space have been executed
     and delivered to the Lender, together with a tenant estoppel
     certificate    and   subordination,   non-disturbance    and
     attornment  agreement,  each of which  shall  be  reasonably
     satisfactory to the Lender in form and substance  from  each
     tenant who has entered into a lease for space in the Phase I
     Improvements;

          (b)  No Event of Default, or any event, circumstance or
     action of which the Borrower is aware (by notice from Lender
     or  otherwise), and with the passage of time or  failure  to
     cure  would  give rise to an Event of Default, has  occurred
     and  is  then existing either under the Loan or  under  that
     certain   $30,000,000.00  loan  from   Lender   to   Stratus
     Properties,  Inc. dated the 16th day of December,  1999,  as
     modified  on  December 27, 2000, and  which  is  secured  by
     multiple  properties located in Travis, Hays, Bexar,  Denton
     and   Harris   Counties,  Texas,  or  under   that   certain
     $6,600,000.00  loan from Lender to Stratus 7000  West  Joint
     Venture  dated  April  9, 1999, which  is  secured  by  that
     certain office building located in Travis County, Texas (the
     "$6,600,000.00 Stratus 7000 West Loan"), said  $6,600,000.00
     Stratus  7000  West  Loan having been modified  pursuant  to
     Modification Agreement dated August 16, 1999, or under  that
     certain $7,700,000.00 loan from Lender to Stratus 7000  West
     Joint  Venture dated February 24, 2000, which is secured  by
     that certain office building located in Travis County, Texas
     (the "$7,700,000.00 Stratus 7000 West Loan").

          (c)   No event, claim, liability or circumstance  shall
     have occurred which, in the Lender's determination, could be
     expected to have or have had a Material Adverse Effect;

          (d)   There shall have been no material adverse  change
     in the Austin, Texas office market;

          (e)  Lender shall have received an updated appraisal in
     form and substance acceptable to the Lender;

          (f)   The  first Advance under the Note for the funding
     of  the  Phase II Improvements shall commence no later  than
     twelve (12) months from the date hereof; and
          (g)     Borrower   shall   have   furnished    evidence
     satisfactory  to  Lender that it has contributed  additional
     equity  (over and above the equity contributed in connection
     with  the  Phase I Improvements) of either cash or the  Land
     (at  its  fair market value) in an amount of not  less  than
     $2,918,632.00.

Provided  the above conditions are satisfied within  twelve  (12)
months from the date hereof, then Borrower and Lender agree  that
a  modification  agreement acceptable to  the  parties  shall  be
entered into and which shall contain the following terms for  the
funds to be advanced for the Phase II Improvements as follows:

          (a)  The interest rate for the funds to be advanced for
     the  Phase II Improvements shall be the same as the interest
     rate set forth in the Note of even date herewith;

          (b)  A 0.50% commitment fee shall be due and payable in
     advance  for the $9,175,000.00 in loan funds to be  advanced
     for the Phase II Improvements;

          (c)   The  term  of the indebtedness for the  Phase  II
     funds  shall  be twenty-four (24) months from funding,  with
     one  twelve  (12)  month  extension option,  such  extension
     option  to be granted provided the terms and conditions  set
     forth  in  Section 2.9 above are also met for the  Phase  II
     Improvements;

          (d)   The Cross-Default Agreement of even date herewith
     executed by Guarantor shall be in full force and effect  and
     no Event of Default shall have occurred thereunder;

          (e)    All  of  the  conditions  and  requirements  for
     advances  as  set forth in Section 3.1 above shall  also  be
     required  for  any  advances  requested  for  the  Phase  II
     Improvements, and all of the covenants of Borrower set forth
     in Article V above and the representations and warranties of
     Borrower  set forth in Article IV above shall be  reaffirmed
     and applicable to the Phase II Improvements.

     VI.2  Borrower's Right to Purchase the Note.  Borrower shall
have the right, at Borrower's option by written notice to Lender,
to  purchase the Note, related loan documents and liens  securing
same (collectively, this "Construction Loan") from Lender for the
sum  of all funds advanced by Lender under the Note provided that
Borrower  has  released, or simultaneously  with  such  purchase,
causes  the release of any liens of Lender against the  Mortgaged
Property  securing the Senior Debt (defined below) in  accordance
with  the Release Provisions set forth in Addendum 3 of the  Loan
Agreement  dated  December 16, 1999 between  Lender  and  Stratus
Properties,  Inc.,  Stratus  Properties  Operating   Co.,   L.P.,
Circle  C Land Corp., and Austin 290 Properties, Inc. (as amended
from  time to time, the "Stratus Loan Agreement"), which  Stratus
Loan  Agreement  sets  forth  the  terms  and  conditions  of   a
$30,000,000.00  loan  from Lender to said entities  (the  "Senior
Debt") and which Senior Debt is currently secured by a prior lien
on  the Mortgaged Property pursuant to that certain prior deed of
trust  dated  December  16,  1999  and  recorded  under  Document
No.  1999158707 of the Official Public Records of Travis  County,
Texas,   as  modified  by  instrument  recorded  under   Document
No.  2000204551 of the Official Public Records of Travis  County,
Texas.    Borrower   may  assign  its  right  to   purchase   the
Construction  Loan  to  a third party.  Any  acquisition  of  the
Construction  Loan  by  Borrower,  or  its  assignee,   will   be
consummated  pursuant  to  an endorsement  to  the  Note  and  an
assignment of note and liens in form reasonably acceptable to the
Borrower  and the Lender.  Borrower and Lender will  endeavor  to
consummate the sale and purchase of the Construction Loan  within
fourteen  (14)  days  of Borrower's exercise  of  its  option  to
acquire the Construction Loan.

                          ARTICLE VII

                          ASSIGNMENTS

     VII.1       Assignment   of   Construction   Contract.    As
additional security for the payment of the Loan, Borrower  hereby
collaterally  transfers and assigns to Lender all  of  Borrower's
rights  and interest, but not its obligations, in, under  and  to
each   Construction  Contract  upon  the  following   terms   and
conditions:

          (a0  Borrower represents and warrants that the copy  of
     each  Construction Contract the Borrower  has  furnished  or
     will  furnish to Lender is or will be (as applicable) a true
     and complete copy thereof, including all amendments thereto,
     if  any, and that Borrower's interest therein is not subject
     to any claim, setoff or encumbrance.

          (b0   Neither this assignment nor any action by  Lender
     shall  constitute an assumption by Lender of any obligations
     under any Construction Contract, and Borrower shall continue
     to  be  liable  for all obligations of Borrower  thereunder,
     Borrower  hereby agreeing to perform all of its  obligations
     under  each  Construction  Contract.   BORROWER  AGREES   TO
     INDEMNIFY  AND  HOLD LENDER HARMLESS AGAINST  AND  FROM  ANY
     LOSS,  COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT LIMITED
     TO  ATTORNEYS' FEES) RESULTING FROM ANY FAILURE OF  BORROWER
     TO SO PERFORM.

          (c0   Following any required notice and opportunity  to
     cure,  Lender  shall have the right at any  time  thereafter
     (but shall have no obligation) to take in its name or in the
     name  of  Borrower such action as Lender  may  at  any  time
     determine  to be necessary or advisable to cure any  default
     under any Construction Contract or to protect the rights  of
     Borrower  or  Lender  thereunder.   LENDER  SHALL  INCUR  NO
     LIABILITY  IF  ANY ACTION SO TAKEN BY IT OR  IN  ITS  BEHALF
     SHALL PROVE TO BE INADEQUATE OR INVALID, AND BORROWER AGREES
     TO  INDEMNIFY AND HOLD LENDER HARMLESS AGAINST AND FROM  ANY
     LOSS,  COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT LIMITED
     TO  REASONABLE ATTORNEYS' FEES) INCURRED IN CONNECTION  WITH
     ANY SUCH ACTION.

          (d0    Borrower  hereby  irrevocably  constitutes   and
     appoints  Lender  as  Borrower's attorney-in-fact  effective
     upon the occurrence of an Event of Default, in Borrower's or
     Lender's name, to enforce all rights of Borrower under  each
     Construction Contract. Such appointment is coupled  with  an
     interest and is therefore irrevocable.

          (e0   Prior  to the occurrence of an Event of  Default,
     Borrower  shall  have the right to exercise  its  rights  as
     owner  under  each  Construction  Contract,  provided   that
     Borrower shall not cancel or amend any Construction Contract
     or  do  or suffer to be done any act which would impair  the
     security  constituted by this assignment without  the  prior
     written consent of Lender.

          (f0   This  assignment shall inure to  the  benefit  of
     Lender  and  its successors and assigns, any purchaser  upon
     foreclosure of the Deed of Trust, any receiver in possession
     of  the  Mortgaged  Property and any corporation  affiliated
     with  Lender  which assumes Lender's rights and  obligations
     under this Agreement.

     VII.2      Assignment  of  Plans  and  Specifications.    As
additional  security  for the Loan, Borrower hereby  collaterally
transfers  and assigns to Lender all of Borrower's  right,  title
and  interest in and to the Plans and Specifications  and  hereby
represents and warrants to and agrees with Lender as follows:

          (a0   Each schedule of the Plans and Specifications for
     the  Phase  I  Improvements delivered or to be delivered  to
     Lender  is  and shall be a complete and accurate description
     of such Plans and Specifications.

          (b0   The  Plans  and Specifications for  the  Phase  I
     Improvements are and shall be complete and adequate for  the
     construction of the Phase I Improvements and there have been
     no   modifications  thereof  except  as  described  in  such
     schedule.   The  Plans  and  Specifications  shall  not   be
     modified without the prior consent of Lender.

          (c0   Lender  may use the Plans and Specifications  for
     the  Phase  I Improvements for any purpose relating  to  the
     Phase   I   Improvements,  including  but  not  limited   to
     inspections  of  construction  and  the  completion  of  the
     Phase I Improvements.

          (d0   Lender's acceptance of this assignment shall  not
     constitute  approval  of  the Plans  and  Specifications  by
     Lender.  Lender has no liability or obligation in connection
     with the Plans and Specifications and no responsibility  for
     the adequacy thereof or for the construction of the Phase  I
     Improvements  contemplated by the Plans  and  Specifications
     for  the  Improvements.  Lender has no duty to  inspect  the
     Phase  I  Improvements,  and if Lender  should  inspect  the
     Phase  I  Improvements, Lender shall have  no  liability  or
     obligation  to  Borrower or any other party arising  out  of
     such  inspection.   No such inspection nor  any  failure  by
     Lender  to  make objections after any such inspection  shall
     constitute  a  representation by Lender  that  the  Phase  I
     Improvements   are  in  accordance  with   the   Plans   and
     Specifications  or  any other requirement  or  constitute  a
     waiver  of  Lender's  right thereafter to  insist  that  the
     Phase  I Improvements be constructed in accordance with  the
     Plans and Specifications or any other requirement.

          (e0   This  assignment shall inure to  the  benefit  of
     Lender  and  its successors and assigns, any purchaser  upon
     foreclosure of the Deed of Trust, any receiver in possession
     of  the  Mortgaged  Property and any corporation  affiliated
     with  Lender  which assumes Lender's rights and  obligations
     under this Agreement.

     VII.3      Assignment  of  Design  Services  Contract.    As
additional security for the payment of the Loan, Borrower  hereby
collaterally  transfers and assigns to Lender all  of  Borrower's
rights  and interest, but not its obligations, in, under  and  to
each  Design  Services  Contract upon  the  following  terms  and
conditions:

          (a0  Borrower represents and warrants that the copy  of
     each Design Services Contract the Borrower has furnished  or
     will  furnish to Lender is or will be (as applicable) a true
     and complete copy thereof, including all amendments thereto,
     if  any, and that Borrower's interest therein is not subject
     to any claim, setoff or encumbrance.

          (b0   Neither this assignment nor any action by  Lender
     shall  constitute an assumption by Lender of any obligations
     under  any  Design  Services Contract,  and  Borrower  shall
     continue  to  be  liable  for all  obligations  of  Borrower
     thereunder, Borrower hereby agreeing to perform all  of  its
     obligations  under each Design Services Contract.   BORROWER
     AGREES  TO  INDEMNIFY AND HOLD LENDER HARMLESS  AGAINST  AND
     FROM ANY LOSS, COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT
     LIMITED  TO  ATTORNEYS' FEES) RESULTING FROM ANY FAILURE  OF
     BORROWER TO SO PERFORM.

          (c0   Following any required notice and opportunity  to
     cure,  Lender  shall have the right at any  time  thereafter
     (but shall have no obligation) to take in its name or in the
     name  of  Borrower such action as Lender  may  at  any  time
     determine  to be necessary or advisable to cure any  default
     under  any Design Services Contract or to protect the rights
     of  Borrower  or Lender thereunder.  LENDER SHALL  INCUR  NO
     LIABILITY  IF  ANY ACTION SO TAKEN BY IT OR  IN  ITS  BEHALF
     SHALL PROVE TO BE INADEQUATE OR INVALID, AND BORROWER AGREES
     TO  INDEMNIFY AND HOLD LENDER HARMLESS AGAINST AND FROM  ANY
     LOSS,  COST, LIABILITY OR EXPENSE (INCLUDING BUT NOT LIMITED
     TO  REASONABLE ATTORNEYS' FEES) INCURRED IN CONNECTION  WITH
     ANY SUCH ACTION.

          (d0    Borrower  hereby  irrevocably  constitutes   and
     appoints  Lender  as  Borrower's attorney-in-fact  effective
     upon the occurrence of an Event of Default, in Borrower's or
     Lender's name, to enforce all rights of Borrower under  each
     Design  Services Contract. Such appointment is coupled  with
     an interest and is therefore irrevocable.

          (e0   Prior  to the occurrence of an Event of  Default,
     Borrower  shall  have the right to exercise  its  rights  as
     owner  under  each Design Services Contract,  provided  that
     Borrower  shall  not  cancel or amend  any  Design  Services
     Contract  or  do  or suffer to be done any act  which  would
     impair  the security constituted by this assignment  without
     the prior written consent of Lender.

          (f0   This  assignment shall inure to  the  benefit  of
     Lender  and  its successors and assigns, any purchaser  upon
     foreclosure of the Deed of Trust, any receiver in possession
     of  the  Mortgaged  Property and any corporation  affiliated
     with  Lender  which assumes Lender's rights and  obligations
     under this Agreement.

     VII.4      Assignment of Proceeds.  Borrower hereby  further
collaterally  transfers  and assigns to Lender  and  acknowledges
that  Lender  shall be entitled to receive (i) any and  all  sums
which  may  be  awarded  and  become  payable  to  Borrower   for
condemnation of all or any portion of the Mortgaged Property,  or
(ii)  the  proceeds of any and all insurance upon  the  Mortgaged
Property  (other  than the proceeds of general  public  liability
insurance).

          (a0   Borrower  shall, upon request  of  Lender,  make,
     execute,  acknowledge  and deliver any  and  all  additional
     assignments and documents as may be necessary from  time  to
     time to enable Lender to collect and receipt for any of such
     insurance or condemnation proceeds.

          (b0   Lender  shall  not be, under  any  circumstances,
     liable  or  responsible for failure to collect, or  exercise
     diligence in the collection of, any of such sums.

          (c0   Any  sums so received by Lender pursuant to  this
     Section  7.4  may, in Lender's sole discretion, be  provided
     back  to Borrower for restoration of the Mortgaged Property,
     in   the  amounts,  manner,  method  and  pursuant  to  such
     requirements in documents as Lender may require, or shall be
     applied to the liquidation of the Indebtedness in accordance
     with  the  provisions of Section 7.4 of the Deed  of  Trust;
     provided,  however, if Lender determines that the  Mortgaged
     Property can be restored prior to the maturity date  of  the
     Note, and no Event of Default exists, then Lender will apply
     the proceeds to the restoration of the Mortgaged Property.

                          ARTICLE VIII

                       EVENTS OF DEFAULT

     VIII.1     Events  of Default.  Each of the following  shall
constitute an "Event of Default" hereunder:

          (a0  If Borrower shall fail, refuse, or neglect to pay,
     in  full, any installment or portion of the Indebtedness  as
     and  when the same shall become due and payable, whether  at
     the  due date thereof stipulated in the Loan Documents, upon
     acceleration  or otherwise and such default  shall  continue
     for a period of ten (10) calendar days beyond any due date.

          (b0   If  Borrower shall fail, refuse  or  neglect,  or
     cause  others  to fail, refuse, or neglect to  comply  with,
     perform   and  discharge  fully  and  timely  any   of   the
     Obligations  as and when called for, and such failure  shall
     continue  for  a  period of ten (10) days after  receipt  of
     written  notice  from  Lender; provided,  however,  Borrower
     shall have the right to attempt to cure said default for  up
     to  an additional thirty (30) days if Borrower is diligently
     prosecuting a cure of said default.

          (c0  If any representation, warranty, or statement made
     by  Borrower, Guarantor, or others in, under, or pursuant to
     the  Loan  Documents  or any affidavit or  other  instrument
     executed or delivered with respect to the Loan Documents  or
     the  Indebtedness is determined by Lender  to  be  false  or
     misleading in any material respect as of the date hereof  or
     thereof  or  shall  become  so at  any  time  prior  to  the
     repayment in full of the Indebtedness.

          (d0   If  Borrower shall default or commit an event  of
     default under and pursuant to any other mortgage or security
     agreement  which covers or affects any part of the Mortgaged
     Property  which  is  not cured within any  notice  or  grace
     period.

          (e0  If an Event of Default occurs under either (i) the
     $6,600,000.00  Stratus 7000 West Loan  as  defined  in  that
     certain  Construction Loan Agreement dated  April  9,  1999,
     between Lender and Stratus 7000 West Joint Venture; or under
     (ii) the $7,700,000.00 Stratus 7000 West Loan as defined  in
     that certain Construction Loan Agreement dated February  24,
     2000, between Lender and Stratus 7000 West Joint Venture.

          (f0   If  Borrower (i) shall execute an assignment  for
     the  benefit  of  creditors or an admission  in  writing  by
     Borrower  of  Borrower's inability  to  pay,  or  Borrower's
     failure to pay, debts generally as the debts become due;  or
     (ii) shall allow the levy against the Mortgaged Property  or
     any    part   thereof,   of   any   execution,   attachment,
     sequestration  or  other writ which is  not  vacated  within
     sixty  days  after  the  levy;  or  (iii)  shall  allow  the
     appointment of a receiver, trustee or custodian of  Borrower
     or  of  the  Mortgaged Property or any part  thereof,  which
     receiver,  trustee  or  custodian is not  discharged  within
     sixty  (60) days after the appointment; or (iv) files  as  a
     debtor a petition, case, proceeding or other action pursuant
     to,  or voluntarily seeks of the benefit or benefits of  any
     Debtor  Relief  Law (as defined in the Deed  of  Trust),  or
     takes any action in furtherance thereof; or (v) files either
     a  petition,  complaint,  answer or other  instrument  which
     seeks to effect a suspension of, or which has the effect  of
     suspending  any  of the rights or powers of  Lender  or  the
     trustee under the Deed of Trust granted in the Note,  herein
     or  in  any  Loan Document; or (vi) allows the filing  of  a
     petition, case, proceeding or other action against  Borrower
     as a debtor under any Debtor Relief Law or seeks appointment
     of  a receiver, trustee, custodian or liquidator of Borrower
     or of the Mortgaged Property, or any part thereof, or of any
     significant   portion  of  Borrower's  other  property   and
     (a)  Borrower  admits, acquiesces in  or  fails  to  contest
     diligently  the  material allegations thereof,  or  (b)  the
     petition,  case, proceeding or other action results  in  the
     entry  of  an order for relief or order granting the  relief
     sought   against  Borrower,  or  (c)  the  petition,   case,
     proceeding  or other action is not permanently dismissed  or
     discharged  on  or  before the earlier of trial  thereon  or
     sixty (60) days next following the date of filing.

          (g0  If Borrower, any Constituent Party (as defined  in
     the  Deed  of Trust), or any Guarantor, shall die, dissolve,
     terminate  or  liquidate, or merge with or  be  consolidated
     into any other entity, or become permanently disabled.

          (h0   If  Borrower creates, places, or  permits  to  be
     created  or  placed, or through any act or failure  to  act,
     acquiesces  in  the  placing of, or allows  to  remain,  any
     Subordinate Mortgage, regardless of whether such Subordinate
     Mortgage  is expressly subordinate to the liens or  security
     interests  of  the  Loan  Documents,  with  respect  to  the
     Mortgaged Property, other than the Permitted Exceptions.

          (i0  If Borrower makes a Disposition, without the prior
     written consent of Lender.

          (j0   If  any condemnation proceeding is instituted  or
     threatened   which   would,  in  Lender's   sole   judgment,
     materially  impair the use and enjoyment  of  the  Mortgaged
     Property for its intended purposes.

          (k0    If   the   Mortgaged  Property  is   demolished,
     destroyed,  or  substantially damaged so that,  in  Lender's
     judgment,  it  cannot be restored or rebuilt with  available
     funds  to the condition existing immediately prior  to  such
     demolition,  destruction,  or  damage  within  a  reasonable
     period of time.

          (l0   If  Lender reasonably determines that  any  event
     shall  have  occurred  that could  be  expected  to  have  a
     Material Adverse Effect.

          (m0   If  Borrower abandons all or any portion  of  the
     Mortgaged Property.

          (n0   The  occurrence  of  any  event  referred  to  in
     Sections  8.1(e)  and  (f)  hereof  with  respect   to   any
     Guarantor,  Constituent  Party or  other  person  or  entity
     obligated  in  any manner to pay or perform the Indebtedness
     or  Obligations, respectively, or any part  thereof  (as  if
     such  Guarantor, Constituent Party or other person or entity
     were the "Borrower" in such Sections).

          (o0   An Event of Default as defined in any of the Loan
     Documents.

          (p0   If  the  construction of the Phase I Improvements
     are,  at  any time, (i) discontinued due to acts or  matters
     within  Borrower's control for a period of ten (10) or  more
     consecutive  days,  (ii)  not  carried  on  with  reasonable
     dispatch,  or  (iii) not completed by the  Completion  Date;
     subject,  however,  to Force Majeure (hereinafter  defined).
     "Force  Majeure"  shall be deemed to mean that  Borrower  is
     delayed or hindered in or prevented from the performance  of
     any act required hereunder, not the failure of Borrower,  by
     reason  of  (i) inability to procure materials or reasonable
     substitutes  thereof,  (ii) failure of  power,  (iii)  civil
     commotion, riots, insurrection or war, (iv) unavoidable fire
     or  other casualty, or acts of God (v) strikes, lockouts  or
     other   labor   disputes  (not  by  Borrower's   employees),
     (vi) restrictive governmental law or regulation, (vii) delay
     by Lender of any act required of it hereunder, or (viii) any
     other   causes  of  a  like  nature  to  the  above   listed
     (i)  through  (vii).  Financial inability  on  the  part  of
     Borrower  shall not be construed a Force Majeure  hereunder.
     Borrower  agrees  to  use its best  efforts  to  resume  the
     construction  of  the  Phase  I  Improvements  as  soon   as
     practicable  after the cause of such delay has been  removed
     or cancelled.

          (q0  If Borrower is unable to satisfy any condition  of
     Borrower's right to receive Advances hereunder for a  period
     in excess of thirty (30) days after Lender's refusal to make
     any further Advances.

          (r0  If Borrower executes any conditional bill of sale,
     chattel  mortgage or other security instrument covering  any
     materials,  fixtures or articles intended to be incorporated
     in the Phase I Improvements or the appurtenances thereto, or
     covering articles of personal property placed in the Phase I
     Improvements,  or  files  a financing  statement  publishing
     notice  of  such  security instrument, or  if  any  of  such
     materials, fixtures or articles are not purchased in such  a
     manner  that the ownership thereof vests unconditionally  in
     Borrower, free from encumbrances, on delivery at the Phase I
     Improvements, or if Borrower does not produce to Lender upon
     reasonable  demand the contracts, bills of sale, statements,
     receipted  vouchers  or agreements, or any  of  them,  under
     which Borrower claims title to such materials, fixtures  and
     articles.

          (s0   If any levy, attachment or garnishment is issued,
     or  if any lien for the performance of work or the supply of
     materials  is  filed,  against any  part  of  the  Mortgaged
     Property  and remains unsatisfied or unbonded following  the
     earlier  of (i) fifteen (15) days after the date  of  filing
     thereof or (ii) the requesting by Borrower of an Advance.

     VIII.2     Remedies.  Lender shall have the right, upon  the
happening  of an Event of Default, in addition to any  rights  or
remedies available to it under all other Loan Documents, to enter
into possession of the Mortgaged Property and perform any and all
work and labor necessary to complete the Phase I Improvements  in
accordance  with the Plans and Specifications.   All  amounts  so
expended  by  Lender shall be deemed to have  been  disbursed  to
Borrower as Loan proceeds and secured by the Deed of Trust.   For
this  purpose,  Borrower hereby constitutes and  appoints  (which
appointment  is  coupled  with  an  interest  and  is   therefore
irrevocable)    Lender   as   Borrower's    true    and    lawful
attorney-in-fact, with full power of substitution to complete the
Phase I Improvements in the name of Borrower, and hereby empowers
Lender,  acting as Borrower's attorney-in-fact, as  follows:   to
use  any  funds of Borrower, including any balance which  may  be
held  in  escrow, any Borrower's Deposit and any funds which  may
remain  unadvanced hereunder, for the purpose of  completing  the
Phase  I  Improvements in the manner called for by the Plans  and
Specifications;   to  make  such  additions   and   changes   and
corrections  in  the  Plans  and Specifications  which  shall  be
necessary  or  desirable to complete the Phase I Improvements  in
the  manner  contemplated  by the Plans  and  Specifications;  to
continue   all   or  any  existing  construction   contracts   or
subcontracts; to employ such contractors, subcontractors, agents,
design professionals and inspectors as shall be required for said
purposes;  to  pay, settle or compromise all existing  bills  and
claims  which are or may be liens against the Mortgaged Property,
or  may be necessary or desirable for the completion of the  work
or  the  clearing  of title; to execute all the applications  and
certificates in the name of Borrower which may be required by any
construction  contract; and to do any and every act with  respect
to  the  construction of the Phase I Improvements which  Borrower
could  do in Borrower's own behalf.  Lender, acting as Borrower's
attorney-in-fact, shall also have power to prosecute  and  defend
all  actions  or  proceedings in connection  with  the  Mortgaged
Property and to take such action and require such performance  as
is deemed necessary.


                           ARTICLE IX

         LENDER'S DISCLAIMERS - BORROWER'S INDEMNITIES

     IX.1  No Obligation by Lender to Construct.  Lender  has  no
liability  or  obligation whatsoever or howsoever  in  connection
with  the Mortgaged Property or the development, construction  or
completion  thereof  or  work  performed  thereon,  and  has   no
obligation except to disburse the Loan proceeds as herein agreed,
Lender  is not obligated to inspect the Phase I Improvements  nor
is  Lender  liable, and under no circumstances  whatsoever  shall
Lender be or become liable, for the performance or default of any
contractor  or  subcontractor, or for any failure  to  construct,
complete, protect or insure the Mortgaged Property, or  any  part
thereof,  or  for the payment of any cost or expense incurred  in
connection therewith, or for the performance or nonperformance of
any  obligation  of Borrower or Guarantor to Lender  nor  to  any
other  person,  firm  or  entity  without  limitation.   Nothing,
including  without limitation, any disbursement of Loan  proceeds
or  the  Borrower's  Deposit nor acceptance of  any  document  or
instrument,  shall  be  construed as  such  a  representation  or
warranty, express or implied, on Lender's part.

     IX.2  No  Obligation  by Lender to  Operate.   Any  term  or
condition   of  any  of  the  Loan  Documents  to  the   contrary
notwithstanding, Lender shall not have, and by its execution  and
acceptance  of  this  Agreement hereby expressly  disclaims,  any
obligation  or  responsibility for  the  management,  conduct  or
operation  of the business and affairs of Borrower or  Guarantor.
Any  term or condition of the Loan Documents which permits Lender
to  disburse  funds, whether from the proceeds of the  Loan,  the
Borrower's  Deposit  or otherwise, or to  take  or  refrain  from
taking  any  action  with  respect to  Borrower,  Guarantor,  the
Mortgaged Property or any other collateral for repayment  of  the
Loan, shall be deemed to be solely to permit Lender to audit  and
review the management, operation and conduct of the business  and
affairs  of Borrower and Guarantor, and to maintain and  preserve
the  security given by Borrower to Lender for the Loan,  and  may
not  be  relied upon by any other person.  Further, Lender  shall
not have, has not assumed and by its execution and acceptance  of
this  Agreement  hereby  expressly  disclaims  any  liability  or
responsibility for the payment or performance of any indebtedness
or  obligation of Borrower or Guarantor and no term or  condition
of  the  Loan Documents, shall be construed otherwise.   Borrower
hereby  expressly acknowledges that no term or condition  of  the
Loan  Documents shall be construed so as to deem the relationship
between  Borrower, Guarantor and Lender to be other than that  of
borrower,  guarantor and lender, and Borrower shall at all  times
represent  that the relationship between Borrower, Guarantor  and
Lender   is  solely  that  of  borrower,  guarantor  and  lender.
BORROWER  HEREBY  INDEMNIFIES AND AGREES TO HOLD LENDER  HARMLESS
FROM  AND  AGAINST  ANY  COST, EXPENSE OR LIABILITY  INCURRED  OR
SUFFERED BY LENDER AS A RESULT OF ANY ASSERTION OR CLAIM  OF  ANY
OBLIGATION  OR  RESPONSIBILITY  OF  LENDER  FOR  THE  MANAGEMENT,
OPERATION AND CONDUCT OF THE BUSINESS AND AFFAIRS OF BORROWER  OR
GUARANTOR,  OR  AS  A RESULT OF ANY ASSERTION  OR  CLAIM  OF  ANY
LIABILITY  OR  RESPONSIBILITY  OF  LENDER  FOR  THE  PAYMENT   OR
PERFORMANCE  OF  ANY INDEBTEDNESS OR OBLIGATION  OF  BORROWER  OR
GUARANTOR.

     IX.3  INDEMNITY  BY  BORROWER.  BORROWER HEREBY  INDEMNIFIES
LENDER  AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS,
DIRECTORS,  EMPLOYEES, AND AGENTS FROM, AND HOLDS  EACH  OF  THEM
HARMLESS  AGAINST,  ANY  AND  ALL  LOSSES,  LIABILITIES,  CLAIMS,
DAMAGES,  COSTS,  AND EXPENSES TO WHICH ANY OF  THEM  MAY  BECOME
SUBJECT,  INSOFAR  AS SUCH LOSSES, LIABILITIES, CLAIMS,  DAMAGES,
COSTS,  AND  EXPENSES  ARISE FROM OR RELATE TO ANY  OF  THE  LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY OR FROM
ANY  INVESTIGATION,  LITIGATION, OR OTHER PROCEEDING,  INCLUDING,
WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION,  OR
OTHER  PROCEEDING  RELATING  TO ANY OF  THE  FOREGOING.   Without
intending to limit the remedies available to Lender with  respect
to the enforcement of its indemnification rights as stated herein
or  as  stated  in any Loan Document, in the event any  claim  or
demand is made or any other fact comes to the attention of Lender
in  connection with, relating or pertaining to, or arising out of
the  transactions  contemplated by this Agreement,  which  Lender
reasonably  believes might involve or lead to some  liability  of
Lender,  Borrower  shall,  immediately upon  receipt  of  written
notification  of  any such claim or demand, assume  in  full  the
personal responsibility for and the defense of any such claim  or
demand   and  pay  in  connection  therewith  any  loss,  damage,
deficiency,   liability   or   obligation,   including,   without
limitation,  legal  fees and court costs incurred  in  connection
therewith.  In the event of court action in connection  with  any
such  claim  or  demand,  Borrower  shall  assume  in  full   the
responsibility  for  the defense of any  such  action  and  shall
immediately  satisfy and discharge any final decree  or  judgment
rendered  therein.  Lender may, in its sole discretion, make  any
payments sustained or incurred by reason of any of the foregoing;
and  Borrower shall immediately repay to Lender, in cash and  not
with  proceeds  of  the Loan, the amount of  such  payment,  with
interest  thereon at the Default Rate (as defined  in  the  Note)
from  the  date of such payment.  Lender shall have the right  to
join  Borrower  as a party defendant in any legal action  brought
against Lender, and Borrower hereby consents to the entry  of  an
order making Borrower a party defendant to any such action.

     IX.4 No Agency.  Nothing herein shall be construed as making
or  constituting  Lender  as  the agent  of  Borrower  in  making
payments  pursuant to any construction contracts or  subcontracts
entered  into  by  Borrower  for  construction  of  the  Phase  I
Improvements  or  otherwise.  The purpose of all requirements  of
Lender  hereunder is solely to allow Lender to check and  require
documentation  (including,  but not  limited  to,  lien  waivers)
sufficient  to  protect Lender and the Loan contemplated  hereby.
Borrower  shall have no right to rely on any procedures  required
by  Lender, Borrower hereby acknowledging that Borrower has  sole
responsibility  for  constructing the Phase  I  Improvements  and
paying  for  work done in accordance therewith and that  Borrower
has  solely, on Borrower's own behalf, selected or approved  each
contractor,  each  subcontractor  and  each  materialman,  Lender
having no responsibility for any such persons or entities or  for
the quality of their materials or workmanship.


                           ARTICLE X

                         MISCELLANEOUS

     X.1   Successors  and  Assigns.   This  Agreement  shall  be
binding  upon,  and shall inure to the benefit of,  Borrower  and
Lender,   and  their  respective  heirs,  legal  representatives,
successors and assigns; provided, however, that Borrower may  not
assign any rights or obligations under this Agreement without the
prior written consent of Lender.

     X.2    Headings.   The  Article,  Section,  and   Subsection
entitlements  hereof  are inserted for convenience  of  reference
only  and  shall in no way alter, modify, define or  be  used  in
construing the text of such Articles, Sections or Subsections.

     X.3   Survival.   The  provisions hereof shall  survive  the
execution of all instruments herein mentioned, shall continue  in
full  force and effect until the Loan has been paid in  full  and
shall not be affected by any investigation made by any party.

     X.4   APPLICABLE LAW.  THIS AGREEMENT SHALL BE  GOVERNED  BY
AND  CONSTRUED IN ACCORDANCE WITH  THE LAWS OF THE STATE OF TEXAS
AND  THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.  COURTS
WITHIN  THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER  ANY  AND
ALL  DISPUTES  BETWEEN BORROWER AND LENDER,  WHETHER  IN  LAW  OR
EQUITY,  INCLUDING,  BUT NOT LIMITED TO,  ANY  AND  ALL  DISPUTES
ARISING  OUT OF OR RELATING TO THIS AGREEMENT OR ANY  OTHER  LOAN
DOCUMENT;  AND  VENUE IN ANY SUCH DISPUTE WHETHER IN  FEDERAL  OR
STATE COURT SHALL BE LAID IN DALLAS COUNTY, TEXAS.

     X.5   Notices.  All notices or other communications required
or  permitted to be given pursuant to this Agreement shall be  in
writing  and shall be considered as properly given if (i)  mailed
by first class United States mail, postage prepaid, registered or
certified with return receipt requested; (ii) by delivering  same
in  person to the intended addressee; or (iii) by delivery to  an
independent third party commercial delivery service for same  day
or next day delivery and providing for evidence of receipt at the
office  of  the  intended addressee.  Notice so mailed  shall  be
effective upon its deposit with the United States Postal  Service
or  any  successor  thereto; notice sent  a  commercial  delivery
service  shall  be  effective upon delivery  to  such  commercial
delivery  service;  notice given by personal  delivery  shall  be
effective only if and when received by the addressee; and  notice
given by other means shall be effective only if and when received
at  the  designated  address  of  the  intended  addressee.   For
purposes of notice, the addresses of the parties shall be as  set
forth on page 1 of this Agreement; provided, however, that either
party  shall  have  the right to change its  address  for  notice
hereunder  to  any  other location within the continental  United
States  by  the giving of thirty (30) days notice  to  the  other
party in the manner set forth herein.

     X.6   Reliance by Lender.  Lender is relying and is entitled
to  rely  upon each and all of the provisions of this  Agreement;
and accordingly, if any provision or provisions of this Agreement
should  be  held  to be invalid or ineffective,  then  all  other
provisions  hereof  shall  continue  in  full  force  and  effect
notwithstanding.

     X.7   Participations.  Lender shall have the  right  at  any
time  and  from time to time to grant participations in the  Loan
and  Loan  Documents.   Each participant  shall  be  entitled  to
receive   all  information  received  by  Lender  regarding   the
creditworthiness  of  Borrower, any of  its  principals  and  the
Guarantor, including (without limitation) information required to
be  disclosed  to a participant pursuant to Banking Circular  181
(Rev., August 2, 1984), issued by the Comptroller of the Currency
(whether the participant is subject to the circular or not).

     X.8   Maximum  Interest.   It  is expressly  stipulated  and
agreed  to be the intent of Borrower and Lender at all  times  to
comply  strictly  with  the applicable Texas  law  governing  the
maximum  rate  or amount of interest payable on the  Indebtedness
(as  defined  in the Deed of Trust) (or applicable United  States
federal law to the extent that it permits Lender to contract for,
charge,  take,  reserve or receive a greater amount  of  interest
than  under Texas law).  If the applicable law is ever judicially
interpreted  so  as to render usurious any amount (i)  contracted
for,  charged, taken, reserved or received pursuant to the  Note,
any  of  the  other Loan Documents or any other communication  or
writing by or between Borrower and Lender related to any  of  the
Indebtedness, (ii) contracted for, charged or received by  reason
of  Lender's exercise of the option to accelerate the maturity of
the  Note  and/or  any  other portion  of  the  Indebtedness,  or
(iii)  Borrower  will have paid or Lender will have  received  by
reason of any voluntary prepayment by Borrower of the Note and/or
any of the other Indebtedness, then it is Borrower's and Lender's
express  intent that all amounts charged in excess of the Maximum
Lawful  Rate  (as  defined  in  the  Deed  of  Trust)  shall   be
automatically canceled, ab initio, and all amounts in  excess  of
the Maximum Lawful Rate theretofore collected by Lender shall  be
credited on the principal balance of the Note and/or any  of  the
other  Indebtedness  (or, if the Note and all other  Indebtedness
have  been  or  would  thereby  be  paid  in  full,  refunded  to
Borrower),  and  the provisions of the Note and  the  other  Loan
Documents   immediately  be  deemed  reformed  and  the   amounts
thereafter collectible hereunder and thereunder reduced,  without
the  necessity  of the execution of any new document,  so  as  to
comply  with the applicable law, but so as to permit the recovery
of   the  fullest  amount  otherwise  called  for  hereunder  and
thereunder; provided, however, if the Note has been paid in  full
before the end of the stated term of the Note, then Borrower  and
Lender agree that Lender shall, with reasonable promptness  after
Lender  discovers  or is advised by Borrower  that  interest  was
received  in  an  amount in excess of the  Maximum  Lawful  Rate,
either refund such excess interest to Borrower and/or credit such
excess  interest  against any other Indebtedness  then  owing  by
Borrower  to Lender.  Borrower hereby agrees that as a  condition
precedent  to  any claim seeking usury penalties against  Lender,
Borrower  will provide written notice to Lender, advising  Lender
in  reasonable detail of the nature and amount of the  violation,
and  Lender  shall  have sixty (60) days after  receipt  of  such
notice  in  which  to correct such usury violation,  if  any,  by
either  refunding such excess interest to Borrower  or  crediting
such  excess  interest against the Note and/or other Indebtedness
then  owing  by  Borrower to Lender.  All  sums  contracted  for,
charged  or  received  by  Lender for  the  use,  forbearance  or
detention  of any of the Indebtedness, including any  portion  of
the debt evidenced by the Note shall, to the extent permitted  by
applicable  law,  be  amortized or spread,  using  the  actuarial
method,  throughout  the stated term of  the  Note  and/or  other
Indebtedness  (including  any  and  all  renewal  and   extension
periods)  until  payment in full so that the rate  or  amount  of
interest  on  account of the Note and/or other Indebtedness  does
not  exceed the Maximum Lawful Rate from time to time  in  effect
and  applicable to the Note and/or the other Indebtedness for  so
long  as any Indebtedness is outstanding.  In no event shall  the
provisions  of  Chapter  346  of the Texas  Finance  Code  (which
regulates  certain revolving credit loan accounts  and  revolving
triparty  accounts) apply to the Note and/or  any  of  the  other
Indebtedness.  Notwithstanding anything to the contrary contained
herein  or  in  any of the other Loan Documents, it  is  not  the
intention  of  Lender to accelerate the maturity of any  interest
that  has  not  accrued at the time of such  acceleration  or  to
collect unearned interest at the time of such acceleration.

     X.9   Controlling  Document.  In the  event  of  a  conflict
between the terms and conditions of this Agreement and the  terms
and  conditions  of  any  other  Loan  Document,  the  terms  and
conditions of this Agreement shall control.

     X.10  Construction of Agreement.  All pronouns,  whether  in
masculine, feminine or neuter form, shall be deemed to  refer  to
the object of such pronoun whether same is masculine, feminine or
neuter  in  gender, as the context may suggest or  require.   All
terms  used herein, whether or not defined in Section 1.1 hereof,
and  whether used in singular or plural form, shall be deemed  to
refer  to  the object of such term, whether such is  singular  or
plural in nature, as the context may suggest or require.

     X.11  Counterpart Execution.  To facilitate execution,  this
Agreement may be executed in one or more counterparts as  may  be
convenient  or required, with all such counterparts  collectively
constituting a single instrument.

     X.12  NOTICE OF INDEMNIFICATION.  BORROWER ACKNOWLEDGES  AND
AGREES  THAT  THIS  AGREEMENT  CONTAINS  CERTAIN  INDEMNIFICATION
PROVISIONS  PURSUANT  TO SECTIONS 5.9,  7.1,  7.3,  9.2  AND  9.3
HEREOF.

     X.13  ENTIRE AGREEMENT.  THIS LOAN AGREEMENT AND  THE  OTHER
LOAN  DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND   MAY   NOT   BE   CONTRADICTED   BY   EVIDENCE   OF   PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS  OF  THE  PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  THIS
INSTRUMENT  MAY  BE  AMENDED ONLY BY  AN  INSTRUMENT  IN  WRITING
EXECUTED BY THE PARTIES HERETO.

     IN  WITNESS  WHEREOF, the parties hereto have executed  this
Agreement as of the day and year first above written.

                         LENDER:

                         COMERICA BANK-TEXAS,
                         a state banking association


                         By:   /s/ Shery R. Layne
                            -----------------------
                         Name:     Shery R. Layne
                         Title:    Senior Vice President


                         BORROWER:

                         7500 RIALTO BOULEVARD, L.P.,
                         a Texas limited partnership

                         By:  STRS L.L.C.,
                              a    Delaware limited liability company,
                              its General Partner

                              By:  Stratus Properties, Inc.,
                                   a Delaware corporation,
                                   its Sole Member



                                   By: /s/ William H. Armstrong, III
                                      ---------------------------
                                        William H. Armstrong, III
                                        Chairman  of  the  Board,
                                        President  and  Chief
                                        Executive Officer

                                            Exhibit 10.27


                            GUARANTY


     This  GUARANTY ("Guaranty") is executed as of June 11, 2001,
by    STRATUS    PROPERTIES,   INC.,   a   Delaware   corporation
("Guarantor"),  for the benefit of COMERICA BANK-TEXAS,  a  state
banking association ("Lender").

                     W I T N E S S E T H :

     WHEREAS,  Lender  has  entered  into  a  Construction   Loan
Agreement  ("Loan  Agreement") of even date herewith,  with  7500
Rialto Boulevard, L.P., a Texas limited partnership ("Borrower"),
pursuant  to which Borrower has executed that certain  Promissory
Note  dated  of even date herewith payable to the  order  of  the
Lender   in  the  original  principal  amount  of  $18,350,000.00
(together   with  all  renewals,  modifications,  increases   and
extensions  thereof, the "Note") under which Borrower has  become
indebted,  and  may  from time to time be  further  indebted,  to
Lender  with  respect to a loan ("Loan") made or to  be  made  by
Lender  to Borrower, up to the principal amount of the  Note,  to
finance  the  cost of development and construction of  an  office
building  consisting  of  approximately  77,500  square  feet  of
leasable   space   and   related   amenities   and   improvements
specifically including, but not limited to, a parking garage with
approximately  one  hundred (100) parking spaces  (the  "Phase  I
Improvements") upon certain real property (the "Land") located in
Travis  County,  Texas, which Loan is secured by  the  liens  and
security  interests  of  an Amended and Restated  Deed  of  Trust
(herein  so called) upon the Land (as more fully defined  in  the
Loan  Agreement).  Provided certain leasing criteria is  met  for
the Phase I Improvements, said Loan will also finance the cost of
development  and construction of a second office building  to  be
constructed  on the Land also consisting of approximately  77,500
square   feet  of  leasable  space  and  related  amenities   and
improvements  (the  "Phase  II  Improvements"),  said   Phase   I
Improvements and Phase II Improvements being more fully described
in  the Loan Agreement and collectively referred to herein as the
"Project".  Said Note is  further evidenced, secured or  governed
by  other  instruments and documents executed in connection  with
the   Loan   of  even  date  herewith  (collectively  the   "Loan
Documents"); and

     WHEREAS,  Lender  is  not  willing  to  make  the  Loan,  or
otherwise   extend   credit,   to   Borrower   unless   Guarantor
unconditionally  guarantees payment to Lender of  the  Guaranteed
Obligations (as herein defined) and unless Guarantor  is  willing
to guarantee the completion of the Project; and

     WHEREAS,  Guarantor  is the owner of a  direct  or  indirect
interest  in  Borrower, and Guarantor will directly benefit  from
Lender's making the Loan to Borrower.

     WHEREAS, any capitalized terms not otherwise defined  herein
shall  have  the  meaning  ascribed to  said  term  in  the  Loan
Agreement.

     NOW,  THEREFORE,  as an inducement to Lender to enter  into  the  Loan
Agreement  and  to make the Loan to Borrower as described therein,  and  to
extend  such  additional credit as Lender may from time to  time  agree  to
extend,  and  for  other good and valuable consideration, the  receipt  and
legal  sufficiency of which are hereby acknowledged, the parties do  hereby
agree as follows:

                           ARTICLE I

                  NATURE AND SCOPE OF GUARANTY

     I.1    Guaranty  of  Obligation.   Guarantor  hereby  irrevocably  and
unconditionally  guarantees to Lender and its successors  and  assigns  the
PAYMENT and PERFORMANCE of the "Guaranteed Obligations" (as herein defined)
as and when the same shall be due and payable, whether by lapse of time, by
acceleration  of  maturity or otherwise.  Guarantor hereby irrevocably  and
unconditionally covenants and agrees that it is liable for  the  Guaranteed
Obligations  as  a  primary obligor.  As used herein, the term  "Guaranteed
Obligations"  means  the  following  Payment  Obligations  and  Performance
Obligations, together with Guarantor's indemnification of and agreement  to
hold  Lender  harmless  from  any  and all losses,  costs,  liabilities  or
expenses  incurred  in  connection with the construction  of  the  Project,
including but not limited to any losses, costs, liabilities or expenses  of
delay:

     A.   Payment Obligations:

          (1)   all principal, interest, attorneys' fees, commitment  fees,
     liabilities for costs and expenses and other indebtedness, obligations
     and  liabilities of Borrower to Lender at any time created or  arising
     in  connection with the Loan, or any amendment thereto or substitution
     therefor,  including but not limited to all indebtedness,  obligations
     and  liabilities of Borrower to Lender arising under the Note or under
     the Loan Documents;

          (2)   all liabilities of Borrower for future advances, extensions
     of  credit, sales on account or other value at any time given or  made
     by  Lender to Borrower arising under the Loan Documents whether or not
     the advances, credit or value are given pursuant to commitment;

          (3)  any and all other indebtedness, liabilities, obligations and
     duties of every kind and character of Borrower to Lender arising under
     the  Loan  Documents,  whether now or hereafter existing  or  arising,
     regardless   of   whether   such  present  or   future   indebtedness,
     liabilities, obligations or duties be direct or indirect,  related  or
     unrelated,  liquidated or unliquidated, primary or  secondary,  joint,
     several, or joint and several, or fixed or contingent;

          (4)   any  and all post-petition interest and expenses (including
     attorney's   fees)  whether  or  not  allowed  under  any  bankruptcy,
     insolvency, or other similar law; and

          (5)   all costs, expenses and fees, including but not limited  to
     court  costs  and  attorneys' fees, arising  in  connection  with  the
     collection  of  any  or  all  amounts, indebtedness,  obligations  and
     liabilities  of Borrower to Lender described in items (1) through  (4)
     of this Section.

     B.    Performance Obligations.  If for any reason whatsoever, Borrower
(i)  fails  or  neglects to complete the Project within the time  specified
therefor  in the Loan Agreement, including, but not limited to  paying  for
all  permits,  certificates, tap fees, and other costs of  compliance  with
Governmental  Requirements  (as  defined in  the  Loan  Agreement)  and  in
compliance  with  all governmental or quasi-governmental agencies  and  the
costs  of  all  bonding,  insurance, and other  expenses  related  to  such
construction,  (ii)  fails to prosecute with diligence and  continuity  the
construction  of  the Project in accordance with the Loan Agreement,  which
Project  shall  specifically include, but not be  limited  to,  all  tenant
finish-out which is required to be completed by Borrower under the terms of
any Tenant Leases (as defined in the Loan Agreement) during the term of the
Loan and obtaining and paying for certificates of occupancy for the Project
issued  by the City of Austin, (iii) fails to pay all bills and obtain  all
lien  waivers and releases in connection with such construction as required
by the Loan Agreement, (iv) fails or neglects to take such action as may be
required  to enforce the rights of Stratus Properties Operating  Co.  under
the  Austin Water Agreement (as defined in the Loan Agreement) or fails  to
comply  with the requirements under the Loan Agreement as to the Borrower's
Deposit (as defined in the Loan Agreement), (v) commits or permits to exist
an event of default under any one or more of the Loan Documents, or (vi) is
unable  to satisfy any condition precedent to obtaining an advance  of  the
Loan  proceeds  under  the  Loan Agreement, then  Lender,  in  addition  to
Lender's  other rights, remedies and recourses whether existing  hereunder,
under  the  Loan Documents, or otherwise, may proceed under this paragraph.
In  any  such  event,  within five (5) days from the date  Lender  notifies
Guarantor of Borrower's failure to satisfy any condition enumerated in  the
first  sentence  of this paragraph, Guarantor agrees, at  Guarantor's  sole
cost  and  expense, to diligently pursue the completion of construction  of
the  Project  within  the  time and in the manner  specified  in  the  Loan
Agreement  and  shall  include, but not be limited to,  the  obligation  to
(i)  pay  for  all  permits, certificates, tap  fees  and  other  costs  of
compliance  with  Governmental  Requirements  (as  defined  in   the   Loan
Agreement)  and  in  compliance with all governmental or quasi-governmental
agencies  and  the  costs  of all bonding, insurance,  and  other  expenses
related   to  such  construction,  which  construction  shall  specifically
include, but not be limited to, all tenant finish-out which is required  to
be completed by Borrower under the terms of any Tenant Leases and to obtain
and pay for certificates of occupancy for the Project issued by the City of
Austin;  (ii)  pay all bills and obtain all lien waivers  and  releases  in
connection with such construction as is required by the Loan Agreement; and
(iii)  take  such  action  as  is necessary to enforce  Stratus  Properties
Operating Co.'s right under the Austin Water Agreement and to deposit  such
sums  with  Lender  as may be required for Borrower's  Deposit.   PROVIDED,
HOWEVER,  in  the  event the Phase II Conditions (as defined  in  the  Loan
Agreement)  are  not  met  and Lender elects  not  to  fund  the  Phase  II
Improvements,  then,  for  purposes  of  this  Guaranty,  the   Performance
Obligations of Guarantor shall mean the Phase I Improvements only, and  the
definition of "Project" shall mean the Phase I Improvements only.

     I.2   Nature of Guaranty.  This Guaranty is an irrevocable,  absolute,
continuing  guaranty  of payment and performance  and  not  a  guaranty  of
collection.   This  Guaranty  may not be revoked  by  Guarantor  and  shall
continue to be effective with respect to any Guaranteed Obligations arising
or  created  after  any  attempted revocation by Guarantor  and  after  (if
Guarantor  is  a  natural person) Guarantor's death (in  which  event  this
Guaranty  shall  be  binding upon Guarantor's estate and Guarantor's  legal
representatives and heirs).  The fact that at any time or from time to time
the  Guaranteed Obligations may be increased, reduced or paid in full shall
not release, discharge or reduce the obligation of Guarantor to Lender with
respect to indebtedness or obligations of Borrower thereafter incurred  (or
other  Guaranteed  Obligations  thereafter  arising)  under  the  Note   or
otherwise.   This  Guaranty may be enforced by Lender  and  any  subsequent
holder  of  the Guaranteed Obligations and shall not be discharged  by  the
assignment or negotiation of all or part of the Guaranteed Obligations.

     I.3  Lender's Additional Rights and Remedies.  If Guarantor shall fail
to  perform Guarantor's Obligations, Lender shall have the following rights
and  remedies  in  addition to any other rights and remedies  hereunder  or
under the Loan Documents:

          (i)  If such failure of Guarantor occurs after any trustee's sale
     or  foreclosure and/or sale of the property or collateral  covered  by
     the  Loan  Documents, Lender shall have an immediate right  to  obtain
     from  Guarantor  damages  in  an amount which  is  equal  to  the  sum
     necessary to complete construction of the Project as such sum  may  be
     established by construction contracts, appraisals, or other  competent
     evidence and including any additional costs incurred due to any  delay
     in construction caused by Borrower or Guarantor or any need to correct
     work  improperly or incompletely performed, without any  necessity  of
     completing or beginning actual construction of the Project,  less  the
     sum  equal  to  the  undisbursed balance of  the  Loan  less  interest
     accruing with respect to the Loan and any expenses incurred by  Lender
     in  connection with any trustee's sale or foreclosure and/or  sale  of
     all  or  any  of  the  property  or collateral  covered  by  the  Loan
     Documents, and Lender shall have an immediate right to obtain judgment
     against  Guarantor  in such amount and Lender may  also  exercise  all
     remedies available under the laws of the State of Texas for action  on
     a matured contractual indebtedness.

          (ii)  Regardless  of  whether such failure  of  Guarantor  occurs
     before  or after any trustee's sale or foreclosure and/or sale of  the
     property  or  collateral  covered by the Loan  Documents,  Lender,  at
     Lender's  sole  option,  shall  have the  right,  but  shall  have  no
     obligation,  to  complete construction of the Project  in  the  manner
     specified in the Loan Agreement by or through any agent, contractor or
     subcontractor  of  its  selection and to  recover  from  Guarantor  as
     damages  the  amount of any and all expenditures  made  by  Lender  in
     connection  with  such completion and including any  additional  costs
     incurred  due  to  any  delay in construction caused  by  Borrower  or
     Guarantor  or  any  need  to correct work improperly  or  incompletely
     performed.

     I.4   Guaranteed  Obligations Not Reduced by Offset.   The  Guaranteed
Obligations  and  the  liabilities and obligations of Guarantor  to  Lender
hereunder,  shall  not  be reduced, discharged or released  because  or  by
reason  of any existing or future offset, claim or defense of Borrower,  or
any  other  party,  against  Lender or against payment  of  the  Guaranteed
Obligations,  whether  such offset, claim or defense arises  in  connection
with   the  Guaranteed  Obligations  (or  the  transactions  creating   the
Guaranteed  Obligations) or otherwise.  Without limiting the  foregoing  or
the  Guarantor's  liability hereunder, to the extent that  Lender  advances
funds  or  extends  credit to Borrower, and does not  receive  payments  or
benefits  thereon in the amounts and at the times required or  provided  by
applicable agreements or laws, Guarantor is absolutely liable to make  such
payments  of  the Guaranteed Obligations to (and confer such  benefits  on)
Lender, on a timely basis.

     I.5   Payment  by  Guarantor.  If all or any part  of  the  Guaranteed
Obligations  shall not be punctually paid when due, whether at maturity  or
earlier  by  acceleration or otherwise, Guarantor shall,  immediately  upon
demand  by  Lender,  and without presentment, protest, notice  of  protest,
notice  of  non-payment,  notice of intention to accelerate  the  maturity,
notice of acceleration of the maturity, or any other notice whatsoever, pay
in  lawful  money of the United States of America, the amount  due  on  the
Guaranteed  Obligations to Lender at Lender's address as set forth  herein.
Such  demand(s) may be made at any time coincident with or after  the  time
for  payment of all or part of the Guaranteed Obligations, and may be  made
from time to time with respect to the same or different items of Guaranteed
Obligations.   Such  demand shall be deemed made,  given  and  received  in
accordance with the notice provisions hereof.

     I.6   No  Duty to Pursue Others.  It shall not be necessary for Lender
(and Guarantor hereby waives any rights which Guarantor may have to require
Lender),  in  order  to  enforce  such  payment  by  Guarantor,  first   to
(i)  institute  suit  or exhaust its remedies against  Borrower  or  others
liable  on  the  Guaranteed Obligations or any other person,  (ii)  enforce
Lender's rights against any collateral which shall ever have been given  to
secure  the  Guaranteed Obligations, (iii) enforce Lender's rights  against
any  other guarantors of the Guaranteed Obligations, (iv) join Borrower  or
any  others  liable on the Guaranteed Obligations in any action seeking  to
enforce this Guaranty, (v) exhaust any remedies available to Lender against
any  collateral  which shall ever have been given to secure the  Guaranteed
Obligations, or (vi) resort to any other means of obtaining payment of  the
Guaranteed  Obligations.  Lender shall not be required to mitigate  damages
or  take  any  other  action to reduce, collect or enforce  the  Guaranteed
Obligations.

     I.7   Waivers.   Guarantor  agrees  to  the  provisions  of  the  Loan
Documents,  and hereby waives notice of (i) any loans or advances  made  by
Lender  to  Borrower, (ii) acceptance of this Guaranty, (iii) any amendment
or extension of the Note or of any other Loan Documents, (iv) the execution
and  delivery by Borrower and Lender of any other loan or credit  agreement
or  of  Borrower's execution and delivery of any promissory notes or  other
documents  arising  under  the Loan Documents or  in  connection  with  the
Project,  (v) the occurrence of any breach by Borrower or Event of  Default
(as  defined  in the Loan Documents), (vi) Lender's transfer or disposition
of  the  Guaranteed  Obligations,  or  any  part  thereof,  (vii)  sale  or
foreclosure  (or  posting or advertising for sale or  foreclosure)  of  any
collateral  for  the  Guaranteed  Obligations,  (viii)  protest,  proof  of
non-payment  or default by Borrower, or (ix) any other action at  any  time
taken  or  omitted by Lender, and, generally, all demands  and  notices  of
every  kind  in  connection with this Guaranty,  the  Loan  Documents,  any
documents  or  agreements evidencing, securing or relating to  any  of  the
Guaranteed Obligations and the obligations hereby guaranteed.  The  parties
intend that Guarantor shall not be considered a "debtor" as defined in Tex.
Bus.  &  Com.  Code  Ann.  & 9.105, as amended (and any  successor  statute
thereto).

     I.8   Payment of Expenses.  In the event that Guarantor should  breach
or fail to timely perform any provisions of this Guaranty, Guarantor shall,
immediately  upon  demand  by Lender, pay Lender  all  costs  and  expenses
(including  court  costs and attorneys' fees) incurred  by  Lender  in  the
enforcement  hereof or the preservation of Lender's rights hereunder.   The
covenant  contained  in  this  Section shall survive  the  payment  of  the
Guaranteed Obligations.

     I.9   Effect  of  Bankruptcy.   In the event  that,  pursuant  to  any
insolvency, bankruptcy, reorganization, receivership or other debtor relief
law, or any judgment, order or decision thereunder, Lender must rescind  or
restore   any  payment,  or  any  part  thereof,  received  by  Lender   in
satisfaction of the Guaranteed Obligations, as set forth herein, any  prior
release or discharge from the terms of this Guaranty given to Guarantor  by
Lender  shall  be without effect, and this Guaranty shall  remain  in  full
force  and  effect.   It is the intention of Borrower  and  Guarantor  that
Guarantor's  obligations  hereunder  shall  not  be  discharged  except  by
Guarantor's performance of such obligations and then only to the extent  of
such performance.

     1.10   Waiver   of   Subrogation,  Reimbursement   and   Contribution.
Notwithstanding  anything  to  the contrary  contained  in  this  Guaranty,
Guarantor  hereby  unconditionally  and irrevocably  waives,  releases  and
abrogates  any  and  all  rights it may now or  hereafter  have  under  any
agreement,  at  law  or in equity (including, without limitation,  any  law
subrogating  the  Guarantor to the rights of Lender) to  assert  any  claim
against  or  seek  contribution,  indemnification  or  any  other  form  of
reimbursement from Borrower or any other party liable for payment of any or
all  of the Guaranteed Obligations for any payment made by Guarantor  under
or  in connection with this Guaranty or otherwise until the Loan is paid in
full.

     I.10 "Borrower".  The term "Borrower" as used herein shall include any
new   or  successor  corporation,  association,  partnership  (general   or
limited),  joint venture, trust or other individual or organization  formed
as  a result of any merger, reorganization, sale, transfer, devise, gift or
bequest of Borrower or any interest in Borrower.

                           ARTICLE II

             EVENTS AND CIRCUMSTANCES NOT REDUCING
             OR DISCHARGING GUARANTOR'S OBLIGATIONS

     Guarantor  hereby  consents and agrees to each of the  following,  and
agrees  that  Guarantor's  Obligations under this  Guaranty  shall  not  be
released, diminished, impaired, reduced or adversely affected by any of the
following, and waives any common law, equitable, statutory or other  rights
(including  without  limitation  rights to notice)  which  Guarantor  might
otherwise have as a result of or in connection with any of the following:

     II.1  Modifications.  Any renewal, extension, increase,  modification,
alteration   or  rearrangement  of  all  or  any  part  of  the  Guaranteed
Obligations, Note, Loan Documents, or other document, instrument,  contract
or  understanding  between  Borrower and  Lender,  or  any  other  parties,
pertaining to the Guaranteed Obligations or any failure of Lender to notify
Guarantor of any such action.

     II.2   Adjustment.    Any  adjustment,  indulgence,   forbearance   or
compromise that might be granted or given by Lender to Borrower.

     II.3  Condition of Borrower or Guarantor.  The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability,  dissolution
or  lack  of  power of Borrower, Guarantor or any other party at  any  time
liable for the payment of all or part of the Guaranteed Obligations; or any
dissolution of Borrower or Guarantor, or any sale, lease or transfer of any
or  all  of  the  assets of Borrower or Guarantor, or any  changes  in  the
shareholders,  partners  or  members  of  Borrower  or  Guarantor;  or  any
reorganization of Borrower or Guarantor.

     II.4 Invalidity of Guaranteed Obligations.  The invalidity, illegality
or  unenforceability of all or any part of the Guaranteed  Obligations,  or
any  document  or  agreement  executed in connection  with  the  Guaranteed
Obligations,  for any reason whatsoever, including without  limitation  the
fact that (i) the Guaranteed Obligations, or any part thereof, exceeds  the
amount   permitted  by  law,  (ii)  the  act  of  creating  the  Guaranteed
Obligations  or  any  part thereof is ultra vires, (iii)  the  officers  or
representatives executing the Note or the other Loan Documents or otherwise
creating  the  Guaranteed Obligations acted in excess of  their  authority,
(iv)  the  Guaranteed Obligations violates applicable usury laws,  (v)  the
Borrower  has valid defenses, claims or offsets (whether at law, in  equity
or  by  agreement)  which  render  the  Guaranteed  Obligations  wholly  or
partially  uncollectible from Borrower, (vi) the creation,  performance  or
repayment  of  the Guaranteed Obligations (or the execution,  delivery  and
performance  of  any  document  or  instrument  representing  part  of  the
Guaranteed  Obligations  or  executed in  connection  with  the  Guaranteed
Obligations,   or  given  to  secure  the  repayment  of   the   Guaranteed
Obligations) is illegal, uncollectible or unenforceable, or (vii) the  Note
or  any  of  the  other Loan Documents have been forged  or  otherwise  are
irregular or not genuine or authentic, it being agreed that Guarantor shall
remain liable hereon regardless of whether Borrower or any other person  be
found not liable on the Guaranteed  Obligations or any part thereof for any
reason.

     II.5  Release  of  Obligors.   Any full  or  partial  release  of  the
liability  of Borrower on the Guaranteed Obligations, or any part  thereof,
or  of  any  co-guarantors, or any other person or entity now or  hereafter
liable, whether directly or indirectly, jointly, severally, or jointly  and
severally,  to  pay,  perform,  guarantee or  assure  the  payment  of  the
Guaranteed   Obligations,  or  any  part  thereof,  it  being   recognized,
acknowledged and agreed by Guarantor that Guarantor may be required to  pay
the  Guaranteed  Obligations in full without assistance or support  of  any
other party, and Guarantor has not been induced to enter into this Guaranty
on  the  basis of a contemplation, belief, understanding or agreement  that
other  parties will be liable to pay or perform the Guaranteed Obligations,
or  that Lender will look to other parties to pay or perform the Guaranteed
Obligations.

     II.6 Other Collateral.  The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any  part
of the Guaranteed Obligations.

     II.7   Release  of  Collateral.   Any  release,  surrender,  exchange,
subordination, deterioration, waste, loss or impairment (including  without
limitation negligent, willful, unreasonable or unjustifiable impairment) of
any  collateral, property or security, at any time existing  in  connection
with, or assuring or securing payment of, all or any part of the Guaranteed
Obligations.

     II.8 Care and Diligence.  The failure of Lender or any other party  to
exercise  diligence  or  reasonable care in the  preservation,  protection,
enforcement, sale or other handling or treatment of all or any part of such
collateral, property or security, including but not limited to any neglect,
delay, omission, failure or refusal of Lender (i) to take or prosecute  any
action  for the collection of any of the Guaranteed Obligations or (ii)  to
foreclose,  or  initiate  any  action to  foreclose,  or,  once  commenced,
prosecute to completion any action to foreclose upon any security therefor,
or  (iii) to take or prosecute any action in connection with any instrument
or  agreement  evidencing or securing all or any  part  of  the  Guaranteed
Obligations.

     II.9  Unenforceability.   The  fact  that  any  collateral,  security,
security interest or lien contemplated or intended to be given, created  or
granted as security for the repayment of the Guaranteed Obligations, or any
part thereof, shall not be properly perfected or created, or shall prove to
be  unenforceable or subordinate to any other security interest or lien, it
being  recognized and agreed by Guarantor that Guarantor  is  not  entering
into this Guaranty in reliance on, or in contemplation of the benefits  of,
the  validity,  enforceability, collectibility  or  value  of  any  of  the
collateral for the Guaranteed Obligations.

     II.10      Offset.   The  Note,  the Guaranteed  Obligations  and  the
liabilities and obligations of Guarantor to Lender hereunder, shall not  be
reduced, discharged or released because of or by reason of any existing  or
future right of offset, claim or defense of Borrower against Lender, or any
other party, or against payment of the Guaranteed Obligations, whether such
right  of offset, claim or defense arises in connection with the Guaranteed
Obligations  (or  the transactions creating the Guaranteed Obligations)  or
otherwise.

     II.11      Merger.   The  reorganization, merger or  consolidation  of
Borrower into or with any other corporation or entity.

     II.12      Preference.  Any payment by Borrower to Lender is  held  to
constitute a preference under bankruptcy laws, or for any reason Lender  is
required  to refund such payment or pay such amount to Borrower or  someone
else.

     II.13      Other Actions Taken or Omitted.  Any other action taken  or
omitted  to  be  taken with respect to the Loan Documents,  the  Guaranteed
Obligations, or the security and collateral therefor, whether or  not  such
action  or  omission prejudices Guarantor or increases the likelihood  that
Guarantor  will be required to pay the Guaranteed Obligations  pursuant  to
the  terms  hereof,  it  is  the unambiguous and unequivocal  intention  of
Guarantor   that  Guarantor  shall  be  obligated  to  pay  the  Guaranteed
Obligations when due, notwithstanding any occurrence, circumstance,  event,
action, or omission whatsoever, whether contemplated or uncontemplated, and
whether or not otherwise or particularly described herein, which obligation
shall  be  deemed  satisfied  only upon the  full  and  final  payment  and
satisfaction of the Guaranteed Obligations.

                          ARTICLE III

                 REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to
Borrower, Guarantor represents and warrants to Lender as follows:

     III.1      Benefit.   Guarantor is an affiliate of  Borrower,  is  the
owner  of  a direct or indirect interest in Borrower, and has received,  or
will  receive, direct or indirect benefit from the making of this  Guaranty
with respect to the Guaranteed Obligations.

     III.2      Familiarity and Reliance.  Guarantor is familiar with,  and
has  independently  reviewed  books and records  regarding,  the  financial
condition  of the Borrower and is familiar with the value of  any  and  all
collateral intended to be created as security for the payment of  the  Note
or  Guaranteed  Obligations; however, Guarantor  is  not  relying  on  such
financial  condition or the collateral as an inducement to enter into  this
Guaranty.

     III.3      No Representation by Lender.  Neither Lender nor any  other
party  has  made any representation, warranty or statement to Guarantor  in
order to induce the Guarantor to execute this Guaranty.

     III.4     Guarantor's Financial Condition.  As of the date hereof, and
after  giving  effect  to  this  Guaranty  and  the  contingent  obligation
evidenced hereby, Guarantor is, and will be, solvent, and has and will have
assets which, fairly valued, exceed its obligations, liabilities (including
contingent  liabilities)  and debts, and has and  will  have  property  and
assets sufficient to satisfy and repay its obligations and liabilities.

     III.5      Legality.   The  execution,  delivery  and  performance  by
Guarantor  of  this  Guaranty  and  the consummation  of  the  transactions
contemplated  hereunder do not, and will not, contravene or  conflict  with
any law, statute or regulation whatsoever to which Guarantor is subject  or
constitute  a default (or an event which with notice or lapse  of  time  or
both  would  constitute a default) under, or result in the breach  of,  any
indenture,  mortgage,  deed  of  trust,  charge,  lien,  or  any  contract,
agreement or other instrument to which Guarantor is a party or which may be
applicable  to Guarantor.  This Guaranty is a legal and binding  obligation
of  Guarantor  and is enforceable in accordance with its terms,  except  as
limited  by  bankruptcy,  insolvency or other laws of  general  application
relating to the enforcement of creditors' rights.

     III.6      Financial  Information.  All of the  financial  information
provided  by  Guarantor  to  Lender is true and correct  in  all  respects.
Guarantor  shall furnish to Lender quarterly and annual certified financial
statements  of  Guarantor,  including cash flow  and  contingent  liability
information,  prepared  in  accordance with generally  accepted  accounting
principles  consistently  applied by, and (i) as to  the  annual  financial
statements,  said  annual  statements shall be certified  to  be  true  and
correct by an independent certified public accountant; and (ii) as  to  the
quarterly  financial  statements,  said  quarterly  statements   shall   be
certified  as true and correct by the Guarantor's chief financial  officer.
Each  such  annual financial statement shall be delivered to Lender  within
ninety-five (95) days after the end of such calendar year.

     III.7      Survival.   All  representations  and  warranties  made  by
Guarantor herein shall survive the execution hereof.

                        ARTICLE IV

             SUBORDINATION OF CERTAIN INDEBTEDNESS

     IV.1  Subordination of All Guarantor Claims.  As used herein, the term
"Guarantor  Claims"  shall mean all debts and liabilities  of  Borrower  to
Guarantor,  whether such debts and liabilities now exist or  are  hereafter
incurred  or  arise,  or  whether the obligations of  Borrower  thereon  be
direct,  contingent,  primary, secondary, several, joint  and  several,  or
otherwise,  and  irrespective  of whether  such  debts  or  liabilities  be
evidenced  by  note, contract, open account, or otherwise, and irrespective
of  the person or persons in whose favor such debts or liabilities may,  at
their  inception, have been, or may hereafter be created, or the manner  in
which  they  have  been  or may hereafter be acquired  by  Guarantor.   The
Guarantor Claims shall include without limitation all rights and claims  of
Guarantor  against  Borrower  (arising  as  a  result  of  subrogation   or
otherwise)  as a result of Guarantor's payment of all or a portion  of  the
Guaranteed  Obligations.  Upon the occurrence of an Event  of  Default  (as
defined  in the Loan Documents) or the occurrence of an event which  would,
with  the  giving of notice or the passage of time, or both, constitute  an
Event  of  Default,  Guarantor shall not receive or  collect,  directly  or
indirectly, from Borrower or any other party any amount upon the  Guarantor
Claims.

     IV.2  Claims in Bankruptcy.  In the event of receivership, bankruptcy,
reorganization,   arrangement,  debtor's  relief,   or   other   insolvency
proceedings involving Guarantor as debtor, Lender shall have the  right  to
prove  its  claim  in  any such proceeding so as to  establish  its  rights
hereunder  and receive directly from the receiver, trustee or  other  court
custodian  dividends  and payments which would otherwise  be  payable  upon
Guarantor Claims.  Guarantor hereby assigns such dividends and payments  to
Lender.   Should  Lender  receive,  for  application  upon  the  Guaranteed
Obligations,  any  such dividend or payment which is otherwise  payable  to
Guarantor, and which, as between Borrower and Guarantor, shall constitute a
credit  upon the Guarantor Claims, then upon payment to Lender in  full  of
the Guaranteed Obligations, Guarantor shall become subrogated to the rights
of  Lender  to  the  extent that such payments to Lender on  the  Guarantor
Claims   have   contributed  toward  the  liquidation  of  the   Guaranteed
Obligations, and such subrogation shall be with respect to that  proportion
of  the  Guaranteed Obligations which would have been unpaid if Lender  had
not received dividends or payments upon the Guarantor Claims.

     IV.3  Payments  Held  in  Trust.  In the event  that,  notwithstanding
anything  to  the contrary in this Guaranty, Guarantor should  receive  any
funds, payment, claim or distribution which is prohibited by this Guaranty,
Guarantor agrees to hold in trust for Lender an amount equal to the  amount
of  all  funds, payments, claims or distributions so received,  and  agrees
that  it  shall have absolutely no dominion over the amount of such  funds,
payments,  claims or distributions so received except to pay them  promptly
to Lender, and Guarantor covenants promptly to pay the same to Lender.

     IV.4  Liens  Subordinate.  Guarantor agrees that any  liens,  security
interests,  judgment liens, charges or other encumbrances  upon  Borrower's
assets  securing  payment  of  the Guarantor Claims  shall  be  and  remain
inferior and subordinate to any liens, security interests, judgment  liens,
charges  or  other encumbrances upon Borrower's assets securing payment  of
the  Guaranteed  Obligations, regardless of whether  such  encumbrances  in
favor  of  Guarantor or Lender presently exist or are hereafter created  or
attach.   Without the prior written consent of Lender, Guarantor shall  not
(i)  exercise or enforce any creditor's right it may have against Borrower,
or  (ii)  foreclose,  repossess,  sequester  or  otherwise  take  steps  or
institute  any  action  or  proceedings (judicial or  otherwise,  including
without  limitation  the commencement of, or joinder in,  any  liquidation,
bankruptcy,  rearrangement, debtor's relief or  insolvency  proceeding)  to
enforce any liens, mortgages, deeds of trust, security interest, collateral
rights,  judgments  or other encumbrances on assets  of  Borrower  held  by
Guarantor.

                           ARTICLE V

                         MISCELLANEOUS

     V.1   Waiver.  No failure to exercise, and no delay in exercising,  on
the  part of Lender, any right hereunder shall operate as a waiver thereof,
nor  shall  any single or partial exercise thereof preclude  any  other  or
further exercise thereof or the exercise of any other right.  The rights of
Lender hereunder shall be in addition to all other rights provided by  law.
No modification or waiver of any provision of this Guaranty, nor consent to
departure  therefrom,  shall be effective unless in  writing  and  no  such
consent  or  waiver  shall extend beyond the particular  case  and  purpose
involved.  No notice or demand given in any case shall constitute a  waiver
of  the  right to take other action in the same, similar or other instances
without such notice or demand.

     V.2   Notices.   All  notices  or  other  communications  required  or
permitted  to  be given pursuant hereto shall be in writing  and  shall  be
deemed  properly  given if (i) mailed by first class  United  States  mail,
postage  prepaid,  registered or certified with return  receipt  requested;
(ii)  by  delivering same in person to the intended addressee; or (iii)  by
delivery to an independent third party commercial delivery service for same
day  or  next  day delivery and providing for evidence of  receipt  at  the
office of the intended addressee.  Notice so mailed shall be effective upon
its deposit with the United States Postal Service or any successor thereto;
notice  sent  by  a  commercial delivery service shall  be  effective  upon
delivery  to  such  commercial delivery service; notice given  by  personal
delivery shall be effective only if and when received by the addressee; and
notice given by other means shall be effective only if and when received at
the  designated address of the intended addressee.  Either party shall have
the  right to change its address for notice hereunder to any other location
within  the  continental United States by the giving of  thirty  (30)  days
notice to the other party in the manner set forth herein.  For purposes  of
such notices, the addresses of the parties shall be as follows:

     Lender:             Comerica Bank-Texas
                    1601 Elm Street, 2nd Floor
                    Dallas, Texas  75201
                    Attn:  Real Estate Department

     Guarantor:          Stratus Properties, Inc.
                    98 San Jacinto Boulevard
                    Suite 220
                    Austin, Texas 78701
                    Attn.:    William H. Armstrong, III

     With a copy to:     Armbrust Brown & Davis, L.L.P.
                    100 Congress Avenue
                    Suite 1300
                    Austin, Texas  78701
                    Attention:  Kenneth Jones, Esq.

     V.3   GOVERNING  LAW.  THIS GUARANTY IS EXECUTED AND DELIVERED  AS  AN
INCIDENT  TO A LENDING TRANSACTION NEGOTIATED, CONSUMMATED, AND PERFORMABLE
IN  TRAVIS  COUNTY,  TEXAS,  AND  SHALL BE GOVERNED  BY  AND  CONSTRUED  IN
ACCORDANCE  WITH THE LAWS OF THE STATE OF TEXAS.  ANY ACTION OR  PROCEEDING
AGAINST  GUARANTOR UNDER OR IN CONNECTION WITH THIS GUARANTY MAY BE BROUGHT
IN  ANY  STATE OR FEDERAL COURT IN TRAVIS COUNTY, TEXAS.  GUARANTOR  HEREBY
IRREVOCABLY  (i) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF  SUCH  COURTS,
AND  (ii) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE
OF  ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH  COURT
IS AN INCONVENIENT FORUM.  GUARANTOR AGREES THAT SERVICE OF PROCESS UPON IT
MAY  BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,  AT
ITS  ADDRESS  SPECIFIED HEREIN.  NOTHING HEREIN SHALL AFFECT THE  RIGHT  OF
LENDER TO SERVE PROCESS IN ANY OTHER MATTER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT OF LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST GUARANTOR  OR
WITH   RESPECT  TO  ANY  OF  GUARANTOR'S  PROPERTY  IN  COURTS   IN   OTHER
JURISDICTIONS.  ANY ACTION OR PROCEEDING BY GUARANTOR AGAINST LENDER  SHALL
BE BROUGHT ONLY IN A COURT LOCATED IN TRAVIS COUNTY, TEXAS.

     V.4  Invalid Provisions.  If any provision of this Guaranty is held to
be  illegal,  invalid,  or  unenforceable  under  present  or  future  laws
effective during the term of this Guaranty, such provision shall  be  fully
severable  and  this Guaranty shall be construed and enforced  as  if  such
illegal, invalid or unenforceable provision had never comprised a  part  of
this  Guaranty, and the remaining provisions of this Guaranty shall  remain
in  full force and effect and shall not be affected by the illegal, invalid
or  unenforceable provision or by its severance from this Guaranty,  unless
such  continued  effectiveness  of this Guaranty,  as  modified,  would  be
contrary  to  the  basic understandings and intentions of  the  parties  as
expressed herein.

     V.5   Amendments.  This Guaranty may be amended only by an  instrument
in  writing  executed by the party or an authorized representative  of  the
party against whom such amendment is sought to be enforced.

     V.6   Parties Bound; Assignment.  This Guaranty shall be binding  upon
and  inure  to  the  benefit  of the parties hereto  and  their  respective
successors,  assigns  and  legal representatives; provided,  however,  that
Guarantor may not, without the prior written consent of Lender, assign  any
of its rights, powers, duties or obligations hereunder.

     V.7  Headings.  Section headings are for convenience of reference only
and shall in no way affect the interpretation of this Guaranty.

     V.8   Recitals.  The recital and introductory paragraphs hereof are  a
part  hereof, form a basis for this Guaranty and shall be considered  prima
facie evidence of the facts and documents referred to therein.

     V.9   Counterparts.   To facilitate execution, this  Guaranty  may  be
executed  in  as  many counterparts as may be convenient or  required.   It
shall  not  be  necessary that the signature or acknowledgment  of,  or  on
behalf  of,  each party, or that the signature of all persons  required  to
bind  any  party,  or  the acknowledgment of such  party,  appear  on  each
counterpart.   All  counterparts  shall collectively  constitute  a  single
instrument.  It shall not be necessary in making proof of this Guaranty  to
produce  or  account  for  more than a single  counterpart  containing  the
respective   signatures   of,  or  on  behalf  of,   and   the   respective
acknowledgments  of,  each  of  the  parties  hereto.   Any  signature   or
acknowledgment  page  to  any  counterpart  may  be  detached   from   such
counterpart  without  impairing  the legal  effect  of  the  signatures  or
acknowledgments  thereon  and thereafter attached  to  another  counterpart
identical  thereto  except having attached to it  additional  signature  or
acknowledgment pages.

     V.10  Rights  and  Remedies.   If Guarantor  becomes  liable  for  any
indebtedness  owing  by  Borrower to Lender, by endorsement  or  otherwise,
other  than under this Guaranty, such liability shall not be in any  manner
impaired  or  affected hereby and the rights of Lender hereunder  shall  be
cumulative  of any and all other rights that Lender may ever  have  against
Guarantor.   The  exercise by Lender of any right or  remedy  hereunder  or
under any other instrument, or at law or in equity, shall not preclude  the
concurrent or subsequent exercise of any other right or remedy.

     V.11 ENTIRETY.  THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT  OF
GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED
OBLIGATIONS  AND  SUPERSEDES  ANY  AND ALL PRIOR  COMMITMENTS,  AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,  RELATING  TO
THE  SUBJECT  MATTER HEREOF.  THIS GUARANTY IS INTENDED  BY  GUARANTOR  AND
LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND
NO   COURSE  OF  DEALING  BETWEEN  GUARANTOR  AND  LENDER,  NO  COURSE   OF
PERFORMANCE,  NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF
ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM
OF THIS GUARANTY AGREEMENT.  THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR
AND LENDER.

     V.12  Release  of  Guaranty.   Upon full  and  final  payment  of  the
indebtedness  evidenced by the Note, performance of all  Obligations  under
the  Loan  Agreement  and  satisfaction of all the  Guaranteed  Obligations
described  in  this  Guaranty, this Guaranty shall be released  and  of  no
further force and effect.

     EXECUTED as of the day and year first above written.

                              GUARANTOR:

                              STRATUS PROPERTIES, INC.,
                              a Delaware corporation



                              By:  /s/ William H. Armstrong,III
                                  ------------------------------
                              Name:  William H. Armstrong, III
                              Title:  President and Chief
                                       Executive Officer




STATE OF TEXAS      &
                    &
COUNTY OF ___________    &

     This  instrument was ACKNOWLEDGED before me this _____  day  of  June,
2001,  by  ___________________________________,  the  _________________  of
STRATUS  PROPERTIES,  INC.,  a  Delaware corporation,  on  behalf  of  said
corporation.


[S E A L]
                              Notary Public - State of Texas
My Commission Expires:

______________________             Printed Name of Notary Public

                                                    Exhibit 21.1

                        List of Subsidiaries of
                        STRATUS PROPERTIES INC.

                                                             Name Under Which
           Entity                          Organized          It Does Business
- -------------------------------------      ----------        ------------------
Stratus Properties Operating Co. L.P.      Delaware                Same

Circle C Land Corp.                        Texas                   Same

                                                Exhibit 23.1

              CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into Stratus Properties Inc.'s
previously filed Registration Statements on Forms S-8 (File Nos. 33-78798,
333-31059 and 333-52995).

                                             /s/ Arthur Andersen LLP

Austin, Texas
March 21, 2002

March 22, 2002



Stratus Properties Inc.
98 San Jacinto Blvd., Suite 220
Austin, Texas  78701




To the Stockholders and Board of Directors
    of Stratus Properties Inc.:

We represent that this audit was subject to our quality control
system for the U.S. accounting and auditing practice to provide
reasonable assurance that the engagement was conducted in
compliance with professional standards, that there was
appropriate continuity of Arthur Andersen personnel working on
the audit and availability of national office consultation.
Availability of personnel at foreign affiliates of Arthur
Andersen is not relevant to this audit.

Very truly yours,

/s/ Arthur Andersen LLP.

                                             Exhibit 24.1


                     Stratus Properties Inc.

                     Secretary's Certificate

     I,  Douglas  N. Currault II, Assistant Secretary of  Stratus
Properties Inc. (the "Corporation"), a corporation organized  and
existing  under  the  laws of the State of  Delaware,  do  hereby
certify  that  the following resolution was duly adopted  by  the
Board  of  Directors  of the Corporation at  a  meeting  held  on
February 10, 1993, and that such resolution has not been amended,
modified or rescinded and is in full force and effect:

          RESOLVED,  That any report, registration statement
     or  other  form  filed  on behalf of  this  corporation
     pursuant to the Securities Exchange Act of 1934, or any
     amendment to any such report, registration statement or
     other form, may be signed on behalf of any director  or
     officer  of  this corporation pursuant to  a  power  of
     attorney executed by such director or officer.

     IN  WITNESS  WHEREOF, I have hereunto  signed  my  name  and
affixed  the seal of the Corporation on this 20th day  of  March,
2002.





                  /s/ Douglas N. Currault II
                   --------------------------
                      Douglas N. Currault II
                       Assistant Secretary
Seal

                                             Exhibit 24.2

                        POWER OF ATTORNEY



           BE IT KNOWN:  That the undersigned, in his capacity or
capacities  as  an  officer  and/or a  member  of  the  Board  of
Directors of Stratus Properties Inc., a Delaware corporation (the
"Company"), does hereby make, constitute and appoint  KENNETH  N.
JONES,  his true and lawful attorney-in-fact with full  power  of
substitution, to execute, deliver and file, for and on behalf  of
him,  in his name and in his capacity or capacities as aforesaid,
an  Annual Report of the Company on Form 10-K for the year  ended
December  31, 2001, and any amendment or amendments  thereto  and
any  other  document in support thereof or supplemental  thereto,
and  the  undersigned hereby grants to said attorney, full  power
and  authority  to do and perform each and every  act  and  thing
whatsoever that said attorney may deem necessary or advisable  to
carry  out  fully the intent of the foregoing as the  undersigned
might or could do personally or in the capacity or capacities  as
aforesaid,  hereby ratifying and confirming all acts  and  things
which said attorney may do or cause to be done by virtue of  this
Power of Attorney.

          EXECUTED this 20th day of March, 2002.



                                  /s/ William H. Armstrong III
                                  ----------------------------
                                  William H. Armstrong III


                        POWER OF ATTORNEY


           BE IT KNOWN:  That the undersigned, in his capacity or
capacities  as  an  officer  and/or a  member  of  the  Board  of
Directors of Stratus Properties Inc., a Delaware corporation (the
"Company"), does hereby make, constitute and appoint  WILLIAM  H.
ARMSTRONG  III  and  KENNETH N. JONES, and each  of  them  acting
individually, his true and lawful attorney-in-fact with power  to
act  without  the others and with full power of substitution,  to
execute, deliver and file, for and on behalf of him, in his  name
and  in his capacity or capacities as aforesaid, an Annual Report
of the Company on Form 10-K for the year ended December 31, 2001,
and any amendment or amendments thereto and any other document in
support  thereof  or  supplemental thereto, and  the  undersigned
hereby grants to said attorneys, and each of them, full power and
authority  to  do  and  perform each  and  every  act  and  thing
whatsoever that said attorney or attorneys may deem necessary  or
advisable to carry out fully the intent of the foregoing  as  the
undersigned  might or could do personally or in the  capacity  or
capacities as aforesaid, hereby ratifying and confirming all acts
and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.

          EXECUTED this 20th day of March, 2002.



                                    /s/ James C. Leslie
                                 -----------------------
                                  James C. Leslie




                        POWER OF ATTORNEY


BE IT KNOWN:  That the undersigned, in his capacity or capacities
as  an  officer  and/or  a member of the Board  of  Directors  of
Stratus  Properties Inc., a Delaware corporation (the "Company"),
does hereby make, constitute and appoint WILLIAM H. ARMSTRONG III
and  KENNETH N. JONES, and each of them acting individually,  his
true  and  lawful attorney-in-fact with power to act without  the
others  and with full power of substitution, to execute,  deliver
and  file,  for  and on behalf of him, in his  name  and  in  his
capacity  or  capacities as aforesaid, an Annual  Report  of  the
Company  on Form 10-K for the year ended December 31,  2001,  and
any  amendment  or amendments thereto and any other  document  in
support  thereof  or  supplemental thereto, and  the  undersigned
hereby grants to said attorneys, and each of them, full power and
authority  to  do  and  perform each  and  every  act  and  thing
whatsoever that said attorney or attorneys may deem necessary  or
advisable to carry out fully the intent of the foregoing  as  the
undersigned  might or could do personally or in the  capacity  or
capacities as aforesaid, hereby ratifying and confirming all acts
and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.

          EXECUTED this 20th day of March, 2002.



                                      /s/ Michael D. Madden
                                   ------------------------
                                    Michael D. Madden





                        POWER OF ATTORNEY


           BE IT KNOWN:  That the undersigned, in his capacity or
capacities  as  an  officer  and/or a  member  of  the  Board  of
Directors of Stratus Properties Inc., a Delaware corporation (the
"Company"), does hereby make, constitute and appoint  WILLIAM  H.
ARMSTRONG  III  and  KENNETH N. JONES, and each  of  them  acting
individually, his true and lawful attorney-in-fact with power  to
act  without  the others and with full power of substitution,  to
execute, deliver and file, for and on behalf of him, in his  name
and  in his capacity or capacities as aforesaid, an Annual Report
of the Company on Form 10-K for the year ended December 31, 2001,
and any amendment or amendments thereto and any other document in
support  thereof  or  supplemental thereto, and  the  undersigned
hereby grants to said attorneys, and each of them, full power and
authority  to  do  and  perform each  and  every  act  and  thing
whatsoever that said attorney or attorneys may deem necessary  or
advisable to carry out fully the intent of the foregoing  as  the
undersigned  might or could do personally or in the  capacity  or
capacities as aforesaid, hereby ratifying and confirming all acts
and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.

          EXECUTED this 20th day of March, 2002.



                                /s/ C. Donald Whitmire, Jr.
                               -----------------------------
                               C. Donald Whitmire, Jr.